<PAGE>
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 14, 1996
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.
Prospectus Supplement
(To Prospectus Dated February 14, 1996)
Mortgage Pass-Through Certificates, Series 1996-C1
Salomon Brothers Mortgage Securities VII, Inc.
Depositor
Midland Loan Services, L.P.
Master Servicer and Special Servicer
The Series 1996-C1 Mortgage Pass-Through Certificates (the "Certificates") will
consist of eleven classes (each, a "Class") of Certificates, including the four
Classes of Certificates offered hereby (collectively, the "Offered
Certificates"). The Certificates, in the aggregate, will represent the entire
beneficial ownership interest in a trust fund (the "Trust Fund"), to be
established by Salomon Brothers Mortgage Securities VII, Inc. (the "Depositor"),
that will consist primarily of a segregated pool (the "Mortgage Pool") of 43
conventional, fixed rate mortgage loans (the "Mortgage Loans"), each secured by
a first lien on a commercial or multifamily property (or, in the case of four
Mortgage Loans, cross-collateralized by four commercial properties) (each, a
"Mortgaged Property"). All of the Mortgage Loans provide for balloon payments on
their respective maturity dates. As of February 1, 1996 (the "Cut-off Date"),
the Mortgage Loans had an aggregate principal balance (the "Initial Pool
Balance") of approximately $212,045,634, after application of all payments of
principal due on or before such date, whether or not received. The Offered
Certificates bear the Class designations and have the characteristics set forth
in the table below.
(Continued on next page)
Prospective Investors should consider the information set forth under "RISK
FACTORS" beginning on page S-31 of this Prospectus Supplement and on page 14 of
the Prospectus.
PROCEEDS OF THE ASSETS IN THE TRUST FUND WILL BE THE SOLE SOURCE OF PAYMENTS ON
THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES WILL NOT REPRESENT AN
INTEREST IN OR OBLIGATION OF THE DEPOSITOR, THE UNDERWRITER, THE MORTGAGE LOAN
SELLER, THE MASTER SERVICER, THE SPECIAL SERVICER, THE FISCAL AGENT, THE TRUSTEE
OR ANY OF THEIR AFFILIATES. NEITHER THE OFFERED CERTIFICATES NOR THE MORTGAGE
LOANS WILL BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
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 ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
====================================================================================================================================
Approximate
Class Initial Certificate % of Initial Pass-Through Assumed Final Expected
Designation Balance(1) Pool Balance Rate Distribution Date(2) Rating(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A..................... $ 62.0% % AAA
Class B..................... $ 7.0% % AA
Class C..................... $ 7.0% % A
Class D..................... $ 4.5% % BBB
====================================================================================================================================
</TABLE>
(1) Subject to a permitted variance of plus or minus 5%.
(2) The "Assumed Final Distribution Date" with respect to any Class of Offered
Certificates is the Distribution Date on which the final distribution
would occur for such Class of Certificates based upon the assumption that
no Mortgage Loan is voluntarily prepaid prior to its stated maturity and
otherwise based on the Modeling Assumptions (as described herein). The
actual performance and experience of the Mortgage Loans will likely differ
from such assumptions. See "DESCRIPTION OF THE CERTIFICATES--Assumed Final
Distribution Date; Rated Final Distribution Date" and "YIELD AND MATURITY
CONSIDERATIONS" herein.
(3) It is a condition to their issuance that the respective Classes of Offered
Certificates be assigned ratings by Standard & Poor's Ratings Services
("Standard & Poor's") and Fitch Investors Service, L.P. ("Fitch"; and
together with Standard & Poor's, the "Rating Agencies") no less than those
set forth above. The "Rated Final Distribution Date" for each such Class
is . See "DESCRIPTION OF THE CERTIFICATES-Assumed Final Distribution
Date; Rated Final Distribution Date" and "RATINGS" herein.
- -------------------
The Offered Certificates will be purchased by Salomon Brothers Inc (the
"Underwriter") from the Depositor and will be offered by the Underwriter from
time to time in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. Proceeds to the Depositor from the sale of the
Offered Certificates, after deducting expenses payable by the Depositor
estimated to be approximately $ , will be approximately % of the
initial aggregate Certificate Balance of the Offered Certificates, plus accrued
interest from the Cut-off Date.
The Offered Certificates are offered subject to receipt and acceptance by the
Underwriter, to prior sale and to the Underwriter's right to reject any order in
whole or in part, and to withdraw, cancel or modify the offer without notice. It
is expected that delivery of the Offered Certificates will be made through the
facilities of The Depository Trust Company on or about February 28, 1996.
- ----------------------------------
Salomon Brothers Inc
- --------------------------------------------------------------------------------
The date of this Prospectus Supplement is February 14, 1996.
<PAGE>
<PAGE>
(cover continued)
The Depositor will acquire the Mortgage Loans from Salomon Brothers Realty
Corp. (the "Mortgage Loan Seller"). On or before the date on which the
Certificates are issued, the Depositor will cause the Mortgage Loans to be
assigned, without recourse, to LaSalle National Bank, as trustee of the Trust
Fund (the "Trustee"), in exchange for the issuance of the Certificates to or at
the direction of the Depositor.
In addition to the Offered Certificates, the Certificates will include the
following seven Classes thereof (collectively, the "Private Certificates"): (i)
the Class IO, Class E, Class F and Class G Certificates (collectively with the
Offered Certificates, the "REMIC Regular Certificates"); and (ii) the Class R-I,
Class R-II and Class R-III Certificates (collectively, the "REMIC Residual
Certificates"). As and to the extent described herein, the Class E, Class F and
Class G Certificates and the REMIC Residual Certificates (collectively, the
"Private Subordinate Certificates") will be subordinate to the Offered
Certificates and the Class IO Certificates; the Class D Certificates will be
subordinate to the Class A, Class IO, Class B and Class C Certificates; the
Class C Certificates will be subordinate to the Class A, Class IO and Class B
Certificates; and the Class B Certificates will be subordinate to the Class A
and Class IO Certificates. Distributions of interest on and principal of the
Certificates will be made, to the extent of available funds, on the 20th day of
each month or, if any such 20th day is not a business day, then on the next
succeeding business day, commencing in March 1996 (each, a "Distribution Date").
As described herein, distributions allocable to interest accrued on each Class
of Certificates will be made on each Distribution Date based on the fixed (or,
in the case of the Class IO, Class E, Class F and Class G Certificates,
variable) pass-through rate (the "Pass-Through Rate") applicable to such Class
and the stated principal amount (the "Certificate Balance") or, in the case of
the Class IO Certificates, the hypothetical or notional principal amount (the
"Class IO Notional Amount") of such Class outstanding immediately prior to such
Distribution Date. Distributions allocable to principal of each Class of REMIC
Regular Certificates (other than the Class IO Certificates) will be made in the
amounts and in accordance with the priorities described herein. The Class IO
Certificates will not have a Certificate Balance or entitle the holders thereof
to distributions of principal. The REMIC Residual Certificates will not have a
Certificate Balance or a specified Pass-Through Rate and, except as otherwise
provided herein when each other Class of Certificates is retired, will not be
entitled to any distributions. See "DESCRIPTION OF THE CERTIFICATES--Certificate
Balances and Notional Amounts", "--Pass-Through Rates" and "--Distributions"
herein.
The yield to maturity on each Class of Offered Certificates will depend
on, among other things, the rate and timing of principal payments (including by
reason of prepayments, defaults and liquidations) on the Mortgage Loans that are
applied in reduction of the Certificate Balance of such Class. As and to the
extent described herein, for so long as the Offered Certificates are
outstanding, prepayment premiums actually collected in respect of the Mortgage
Loans will generally be allocated between the holders of the Class IO
Certificates and the holders of the Class or Classes of Offered Certificates
then entitled to distributions of principal. Following the retirement of the
Offered Certificates, such prepayment premiums will be distributed to the
holders of the REMIC Residual Certificates. Any delay in collection of a balloon
payment due at the maturity of a Mortgage Loan will likely extend the weighted
average life of the Class or Classes of Offered Certificates entitled to
distributions in respect of principal during the period that such payment is
delinquent. See "DESCRIPTION OF THE CERTIFICATES--Distributions", "YIELD AND
MATURITY CONSIDERATIONS" and "SERVICING OF THE MORTGAGE LOANS--Modifications,
Waivers and Amendments" herein, and "YIELD CONSIDERATIONS" and "RISK
FACTORS--Average Life of Certificates; Prepayments; Yields" in the Prospectus.
As described herein, three separate "real estate mortgage investment
conduit" ("REMIC") elections will be made with respect to the Trust Fund for
federal income tax purposes (the REMICs formed thereby being herein referred to
as "REMIC I", "REMIC II" and "REMIC III"). The Offered Certificates will
constitute "regular interests" in the related REMIC. See "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES" herein and in the Prospectus.
There is currently no secondary market for the Offered Certificates. The
Underwriter intends to make a secondary market in the Offered Certificates, but
has no obligation to do so. See "RISK FACTORS--The Certificates--Limited
Liquidity" herein.
S-2
<PAGE>
<PAGE>
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE PART OF
A SEPARATE SERIES OF CERTIFICATES ISSUED BY THE DEPOSITOR AND ARE BEING OFFERED
PURSUANT TO ITS PROSPECTUS DATED FEBRUARY 14, 1996, OF WHICH THIS PROSPECTUS
SUPPLEMENT IS A PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE
PROSPECTUS CONTAINS IMPORTANT INFORMATION REGARDING THIS OFFERING THAT IS NOT
CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH 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.
S-3
<PAGE>
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used in this Summary may
be defined elsewhere in this Prospectus Supplement or in the Prospectus. An
"Index of Principal Definitions" is included at the end of both this Prospectus
Supplement and the Prospectus. Terms that are used but not defined in this
Prospectus Supplement have the meanings specified in the Prospectus.
Title of Certificates and
Designation of Classes............. Salomon Brothers Mortgage Securities VII,
Inc., Mortgage Pass-Through Certificates,
Series 1996-C1 (the "Certificates"), to
be issued in eleven classes (each, a
"Class") to be designated as: (i) the
Class A, Class B, Class C, Class D, Class
E, Class F and Class G Certificates
(collectively, the "Principal Balance
Certificates"); (ii) the Class IO
Certificates (together with the Principal
Balance Certificates, the "REMIC Regular
Certificates"); and (iii) the Class R-I,
Class R- II and Class R-III Certificates
(collectively, the "REMIC Residual
Certificates"). Only the Class A, Class
B, Class C and Class D Certificates
(collectively, the "Offered
Certificates") are offered hereby. The
remaining Classes of Certificates
(collectively, the "Private
Certificates") have not been registered
under the Securities Act of 1933, as
amended, and are not offered hereby.
Accordingly, information herein regarding
the terms of the Private Certificates is
provided solely because of its potential
relevance to a prospective purchaser of
an Offered Certificate.
Depositor............................ Salomon Brothers Mortgage Securities VII,
Inc., a Delaware corporation. The
Depositor is an indirect wholly-owned
subsidiary of Salomon Inc and an
affiliate of Salomon Brothers Inc (the
"Underwriter"). Neither the Depositor nor
any of its affiliates has insured or
guaranteed the Offered Certificates. See
"THE DEPOSITOR" in the Prospectus.
Trustee.............................. LaSalle National Bank, a nationally
chartered bank. See "DESCRIPTION OF THE
CERTIFICATES--The Trustee" herein.
Master Servicer and Special Servicer. Midland Loan Services, L.P. ("Midland"),
a Missouri limited partnership. In its
capacity as Special Servicer, Midland
will be responsible for performing
certain servicing functions with
S-4
<PAGE>
<PAGE>
respect to Mortgage Loans that, in
general, are in default or as to which
default is reasonably foreseeable
("Specially Serviced Mortgage Loans"),
and for the administration of any
Mortgaged Property that may be acquired
on behalf of the Trust Fund through
foreclosure, deed in lieu of foreclosure
or otherwise (upon acquisition, an "REO
Property"). In its capacity as Master
Servicer, Midland will otherwise be
responsible for the servicing and
administration of the Mortgage Pool.
Midland, in its capacity as Special
Servicer, and any successor thereto in
such capacity, may be replaced by the
Operating Adviser as described herein.
See "SERVICING OF THE MORTGAGE LOANS"
herein.
Operating Adviser.................... The majority holder (or holders) of the
Class of Principal Balance Certificates
with the latest alphabetical Class
designation will have the right, subject
to certain conditions described herein,
to elect an adviser (the "Operating
Adviser") from whom the Special Servicer
will seek advice and approval and take
direction under the various circumstances
described herein. See "SERVICING OF
MORTGAGE LOANS--The Operating Adviser"
herein.
Extension Adviser.................... The holder or holders of Principal
Balance Certificates with an aggregate
principal balance equal to more than 50%
of the aggregate Certificate Balance of
all of the Principal Balance Certificates
(exclusive of the Class of Principal
Balance Certificates whose holders are
entitled to elect an Operating Adviser
and any Class or Classes of Principal
Balance Certificates subordinate thereto)
will have the right, subject to certain
conditions described herein, to elect an
adviser (the "Extension Adviser") from
whom the Special Servicer will seek
approval prior to extending the maturity
of any Mortgage Loan beyond the third
anniversary of such loan's stated
maturity date. See "SERVICING OF MORTGAGE
LOANS--The Extension Adviser" herein.
Fiscal Agent......................... ABN AMRO Bank N.V., a Netherlands banking
corporation and an affiliate of the
Trustee. The Fiscal Agent will be
obligated to
S-5
<PAGE>
<PAGE>
make P&I Advances (as defined herein) and
certain other advances with respect to
the Mortgage Loans under certain
circumstances described herein. See
"DESCRIPTION OF THE CERTIFICATES--P&I
Advances" and "--The Fiscal Agent"
herein.
Mortgage Loan Seller................. Salomon Brothers Realty Corp., a New York
corporation. The Mortgage Loan Seller is
an affiliate of the Depositor and the
Underwriter. See "DESCRIPTION OF THE
MORTGAGE POOL--The Mortgage Loan Seller"
herein.
Cut-off Date......................... February 1, 1996.
Closing Date......................... On or about February 28, 1996.
Registration; Denominations.......... The Offered Certificates will be issued
only in book-entry form through the
facilities of The Depository Trust
Company ("DTC") in denominations of
$100,000 initial principal amount and
integral multiples of $1 in excess
thereof. No person acquiring an interest
in any Offered Certificate will be
entitled to receive a physical
certificate evidencing such interest,
except under the limited circumstances
described under "DESCRIPTION OF THE
CERTIFICATES--Book-Entry Registration and
Definitive Certificates" in the
Prospectus. See "DESCRIPTION OF THE
CERTIFICATES--Registration and
Denominations" herein.
The Mortgage Pool.................... The Mortgage Pool will consist of 43
conventional, fixed rate mortgage loans
(the "Mortgage Loans") with an aggregate
Cut-off Date Balance (the "Initial Pool
Balance") of $212,045,634, subject to a
permitted variance of plus or minus 5%.
The "Cut-off Date Balance" of each
Mortgage Loan is the unpaid principal
balance thereof as of the Cut-off Date,
after application of all payments due on
or before such date, whether or not
received. All numerical information
provided herein with respect to the
Mortgage Loans is provided on an
approximate basis. All percentages of the
Mortgage Loans, or of any specified group
of Mortgage Loans, referred to herein
without further description are
approximate percentages by aggregate
Cut-off Date Balance. All weighted
average information provided herein with
respect to
S-6
<PAGE>
<PAGE>
the Mortgage Loans reflects weighing of
the Mortgage Loans by their Cut-off Date
Balances.
The Mortgage Loans are non-recourse
obligations of the related borrowers. No
Mortgage Loan will be insured or
guaranteed by any governmental entity or
private insurer.
The Mortgage Loans are secured by first
mortgage liens on, in each case, the
related borrower's fee estate in an
income producing (including
owner-occupied) real property (each, a
"Mortgaged Property"). Twenty-one of the
Mortgage Loans, or 34.5%, are secured by
liens on multifamily apartment
properties; twelve of the Mortgage Loans,
or 31.3%, are secured by liens on retail
properties; one of the Mortgage Loans, or
13.3%, is secured by a lien on an
office/industrial property; five of the
Mortgage Loans, or 11.4%, are secured by
liens on hotel properties; two of the
Mortgage Loans, or 5.1%, are secured by
liens on retail/office properties; one of
the Mortgage Loans, or 2.6%, is secured
by a lien on an industrial property; and
one of the Mortgage Loans, or 1.8%, is
secured by a lien on an office property.
See Annex A for a more detailed
description of the Mortgaged Properties.
The Mortgage Loans are secured by liens
on Mortgaged Properties located
throughout 16 states. Approximately 72.8%
of the Mortgage Loans are secured by
liens on Mortgaged Properties located in
Georgia (eleven Mortgage Loans, or
22.5%), Texas (nine Mortgage Loans, or
13.7%), Washington (one Mortgage Loan, or
13.3%), New Jersey (four Mortgage Loans,
or 12.7%) and Florida (four Mortgage
Loans, or 10.6%). The other 27.2% of the
Mortgage Loans are secured by liens on
Mortgaged Properties located throughout
11 other states. See "DESCRIPTION OF THE
MORTGAGE POOL--General" and "--Additional
Mortgage Loan Information" herein.
Four Mortgage Loans, representing 9.8% of
the Initial Pool Balance, are
cross-defaulted and cross-collateralized
with each other. See "RISK FACTORS--The
Mortgage Loans--Limitations on
Enforceability of Cross-
S-7
<PAGE>
<PAGE>
Collateralization" and "DESCRIPTION OF
THE MORTGAGE POOL--The ClubHouse Loans
and Properties" herein. Except where
otherwise specifically indicated,
statistical information provided herein
with respect to such Mortgage Loans is so
provided without regard to the
cross-collateralization, and each such
Mortgage Loan will be deemed to be
secured by a mortgage lien on only one of
the related Mortgaged Properties.
All of the Mortgage Loans bear interest
at annualized rates ("Mortgage Rates")
that will remain fixed for their
respective remaining loan terms.
Scheduled payments of principal and/or
interest on all of the Mortgage Loans
("Monthly Payments") are due monthly on
the first day of each month (the "Due
Date"). See "DESCRIPTION OF THE MORTGAGE
POOL--Certain Terms and Characteristics
of the Mortgage Loans--Due Dates" and
"--Mortgage Rates; Calculations of
Interest" herein.
Each of the Mortgage Loans provides for
Monthly Payments based on an amortization
schedule significantly longer than its
term to maturity. As a result, all of the
Mortgage Loans will have substantial
principal amounts due and payable (each
such amount, together with the
corresponding interest payment, a
"Balloon Payment") on their respective
maturity dates, unless prepaid prior
thereto. The Mortgage Loans generally
involve a greater risk of default than
self-amortizing loans because the ability
of a borrower to make the Balloon Payment
typically will depend upon its ability to
fully refinance the loan or to sell the
related Mortgaged Property at a price
sufficient to permit the borrower to make
the Balloon Payment. Moreover, and
whether or not losses are ultimately
sustained, any delay in the collection of
a Balloon Payment that would otherwise be
distributable in respect of a Class of
Offered Certificates will likely extend
the weighted average life of such Class.
See "RISK FACTORS--The Mortgage
Loans--Balloon Payments" herein and "RISK
FACTORS--Balloon Payments" in the
Prospectus.
S-8
<PAGE>
<PAGE>
As of the Cut-off Date, all of the
Mortgage Loans either (i) currently
permit voluntary principal prepayments
provided that the prepayment is
accompanied by an additional amount (a
"Prepayment Premium") in excess of the
amount prepaid (23 Mortgage Loans, or
38.8%), or (ii) currently prohibit
voluntary prepayments of principal for a
period (a "Lockout Period") ending on a
specified date (the "Lockout Expiration
Date") and, with limited exception,
impose Prepayment Premiums in connection
with prepayments made thereafter (20
Mortgage Loans, or 61.2%). See
"DESCRIPTION OF THE MORTGAGE
POOL--Certain Terms and Characteristics
of the Mortgage Loans" and "--Additional
Mortgage Loan Information" herein.
For so long as the Offered Certificates
are outstanding, Prepayment Premiums, if
and to the extent collected, will
generally be allocated, as and to the
extent described herein, between the
holders of the Class IO Certificates, on
the one hand, and the holders of the
Class or Classes of Offered Certificates
then entitled to distributions of
principal, on the other. See "DESCRIPTION
OF THE CERTIFICATES--Distributions--
Prepayment Premiums" herein. The ability
of the Master Servicer and/or the Special
Servicer to waive or modify the terms of
any Mortgage Loan that require the
payment of a Prepayment Premium is
limited as described herein. See
"SERVICING OF THE MORTGAGE
LOANS--Modifications, Waivers and
Amendments" herein. Neither the Depositor
nor the Underwriter makes any
representation as to the enforceability
of the provision of any Mortgage Loan
requiring the payment of a Prepayment
Premium, or of the collectability of any
Prepayment Premium.
As of the Cut-off Date, the Mortgage
Loans had the following additional
characteristics:
(i) Cut-off Date Balances ranging from
$483,244 to $28,276,818, and an
average Cut-off Date Balance of
$4,931,294;
(ii) Mortgage Rates ranging from 7.95%
per annum to 11.16% per
S-9
<PAGE>
<PAGE>
annum, and a weighted average
Mortgage Rate of 9.26% per annum;
(iii) remaining terms to scheduled
maturity ranging from 29 months to
119 months, and a weighted average
remaining term to scheduled
maturity of 88 months;
(iv) remaining scheduled amortization
terms ranging from 224 months to
359 months, and a weighted average
remaining amortization term of 310
months (see "DESCRIPTION OF THE
MORTGAGE POOL--Certain Terms and
Characteristics of the Mortgage
Loans--Amortization" herein); and
(v) Debt Service Coverage Ratios
(calculated as described under
"DESCRIPTION OF THE MORTGAGE
POOL--Additional Mortgage Loan
Information" herein) ranging from
1.12x to 2.82x, and a weighted
average Debt Service Coverage
Ratio of 1.37x.
For information regarding the
loan-to-value ratios of the Mortgage
Loans, see "DESCRIPTION OF THE MORTGAGE
POOL--Additional Mortgage Loan
Information" herein.
On or prior to the Closing Date, at the
direction of the Depositor, the Mortgage
Loan Seller will assign the Mortgage
Loans, without recourse, to the Trustee
for the benefit of the holders of the
Certificates (the "Certificateholders").
In connection with such assignment, the
Mortgage Loan Seller will make certain
representations and warranties regarding
the characteristics of the Mortgage Loans
and, as more particularly described
herein, will agree to cure any material
breach thereof or, in the absence of such
a cure, to repurchase the affected
Mortgage Loan. See "DESCRIPTION OF THE
MORTGAGE POOL--Representations and
Warranties; Repurchases" herein.
S-10
<PAGE>
<PAGE>
Description of the Certificates...... The Certificates will be issued pursuant
to a Pooling and Servicing Agreement, to
be dated as of the Cut-off Date, among
the Depositor, the Master Servicer, the
Special Servicer, the Fiscal Agent and
the Trustee (the "Pooling and Servicing
Agreement"), and will represent in the
aggregate the entire beneficial ownership
interest in a trust fund (the "Trust
Fund") consisting of the Mortgage Pool
and certain related assets.
A. Certificate Balances and
Notional Amounts........ Upon initial issuance, and in each case
subject to a permitted variance of plus
or minus 5%,
(i) the Class A Certificates will have
a Certificate Balance of
$ , which will represent
approximately 62.0% of the Initial
Pool Balance;
(ii) the Class B Certificates will have
a Certificate Balance of
$ , which will represent
approximately 7.0% of the Initial
Pool Balance;
(iii) the Class C Certificates will have
a Certificate Balance of
$ , which will represent
approximately 7.0% of the Initial
Pool Balance; and
(iv) the Class D Certificates will have
a Certificate Balance of
$ , which will represent
approximately 4.5% of the Initial
Pool Balance.
Upon initial issuance, the aggregate
Certificate Balance of the Class E, Class
F and Class G Certificates will equal the
excess of the Initial Pool Balance over
the initial aggregate Certificate Balance
of the Offered Certificates.
The "Certificate Balance" of any Class of
Principal Balance Certificates
outstanding at any time represents the
maximum amount that the holders thereof
are entitled to receive as distributions
allocable to principal from the cash flow
on the Mortgage Loans and the other
assets in the Trust Fund. As more
particularly described herein, the
Certificate Balance of any Class of
Principal Balance Certificates will be
reduced on each Distribution Date by any
distributions of
S-11
<PAGE>
<PAGE>
principal actually made on such Class of
Certificates on such Distribution Date
and, further, by any Realized Losses and
Additional Trust Fund Expenses (each as
defined herein) deemed allocated to such
Class of Certificates on such
Distribution Date.
The Class IO Certificates will not have a
Certificate Balance and will not entitle
the holders thereof to distributions of
principal; instead, such Certificates
will represent the right to receive
distributions of interest accrued as
described herein on a hypothetical or
notional principal amount (the "Class IO
Notional Amount") equal to the aggregate
of the Certificate Balances of the
respective Classes of Offered
Certificates outstanding from time to
time. The Class IO Notional Amount will
be comprised of four separate components
(each, a "Component"), with each
Component being assigned a letter
designation from A to D. Each Component
will equal the Certificate Balance
outstanding from time to time of the
Class of Offered Certificates with the
same letter designation as such
Component. See "DESCRIPTION OF THE
CERTIFICATES--Certificate Balances and
Notional Amounts" and "--Distributions--
Prepayment Premiums" herein.
The REMIC Residual Certificates will not
have Certificate Balances and will not
accrue interest on a notional principal
amount or otherwise. Such Certificates
will represent the right to receive
certain limited amounts following the
retirement of the REMIC Regular
Certificates.
B. Pass-Through Rates.......... The Pass-Through Rates applicable to the
Class A, Class B, Class C and Class D
Certificates for each Distribution Date
will be fixed rates equal to %, %,
% and % per annum, respectively.
The Pass-Through Rate applicable to the
Class IO Certificates for the initial
Distribution Date will equal
approximately % per annum. With
respect to each Distribution Date
subsequent to the initial Distribution
Date, the Pass-Through Rate for the Class
IO Certificates will be a variable rate
equal to the weighted average of the
Component A Rate
S-12
<PAGE>
<PAGE>
(fixed at % per annum), the Component
B Rate (a variable rate initially equal
to % per annum), the Component C Rate (a
variable rate initially equal to %
per annum) and the Component D Rate (a
variable rate initially equal to %
per annum), weighted on the basis of the
proportion that the amount of the related
Component (that is, the Component with
the same letter designation) outstanding
immediately prior to such Distribution
Date bears to the entire Class IO
Notional Amount outstanding immediately
prior to such Distribution Date. Each of
the Component B Rate, the Component C
Rate and the Component D Rate is, as
stated above, a variable rate and, with
respect to each Distribution Date, will
equal the Weighted Average Net Mortgage
Rate (as defined below) for such
Distribution Date minus (i) the Class B
Pass-Through Rate, in the case of the
Component B Rate, (ii) the Class C Pass-
Through Rate, in the case of the
Component C Rate, and (iii) the Class D
Pass-Through Rate, in the case of the
Component D Rate.
The Pass-Through Rates applicable to the
Class E, Class F and Class G Certificates
for each Distribution Date will, in the
case of each such Class, equal the
Weighted Average Net Mortgage Rate for
such Distribution Date. The REMIC
Residual Certificates will not have
specified Pass-Through Rates.
The "Weighted Average Net Mortgage Rate"
for each Distribution Date is the
weighted average of the Net Mortgage
Rates for the Mortgage Loans as of the
commencement of the related Collection
Period, weighted on the basis of the
respective Stated Principal Balances of
the Mortgage Loans outstanding
immediately prior to such Distribution
Date. The "Net Mortgage Rate" for each
Mortgage Loan will generally equal the
Mortgage Rate in effect for such Mortgage
Loan from time to time, minus 7.25 basis
points; provided that the Net Mortgage
Rate for any Mortgage Loan will not
reflect any adjustments to its Mortgage
Rate in connection with a bankruptcy or
similar proceeding involving the
S-13
<PAGE>
<PAGE>
related borrower or a modification of the
Mortgage Rate agreed to by the Master
Servicer or the Special Servicer as
described herein under "SERVICING OF THE
MORTGAGE LOANS--Modifications, Waivers
and Amendments." The "Stated Principal
Balance" of each Mortgage Loan
outstanding at any time represents the
principal balance of such Mortgage Loan
ultimately due and payable to the
Certificateholders and will generally
equal the Cut-off Date Balance thereof,
reduced (to not less than zero) on each
Distribution Date by (i) any payments or
other collections (or advances in lieu
thereof) of principal of such Mortgage
Loan that are due or received, as the
case may be, during the related
Collection Period and distributed on the
Certificates on such Distribution Date
and (ii) the principal portion of any
Realized Loss incurred in respect of such
Mortgage Loan during the related
Collection Period.
The "Collection Period" for each
Distribution Date will be the period that
begins immediately following the
Determination Date in the month preceding
the month in which such Distribution Date
occurs (or, in the case of the initial
Distribution Date, immediately following
the Cut-off Date) and ends on and
includes the Determination Date in the
same month as such Distribution Date. The
"Determination Date" will be the 12th day
of each month (or, if such 12th day is
not a business day, the first preceding
business day). See "DESCRIPTION OF THE
CERTIFICATES--Pass-Through Rates" herein.
C. Distributions............... Distributions on the Certificates will be
made by the Trustee, to the extent of
available funds, on the 20th day of each
month or, if any such 20th day is not a
business day, then on the next succeeding
business day, commencing in March 1996
(each, a "Distribution Date"). The total
of all payments or other collections (or
advances in lieu thereof) on or in
respect of the Mortgage Loans that are
available for distribution to
Certificateholders on any Distribution
Date (other than Prepayment Premiums,
which, as described herein, are
separately distributable
S-14
<PAGE>
<PAGE>
to Certificateholders) is herein referred
to as the "Available Distribution Amount"
for such date. See "DESCRIPTION OF THE
CERTIFICATES-- Distributions--The
Available Distribution Amount" herein.
On each Distribution Date, the Trustee
will (except as otherwise described under
"DESCRIPTION OF THE CERTIFICATES--
Termination" herein) apply the Available
Distribution Amount for such date
generally for the purposes and in the
order of priority set forth below, in
each case to the extent of remaining
available funds:
(1) to distributions of interest to
the holders of the Class A
Certificates and the holders of
the Class IO Certificates, pro
rata based on their respective
entitlements to interest, in an
amount equal to the Interest
Distribution Amount (as defined
below) in respect of each such
Class of Certificates for such
Distribution Date and, to the
extent not previously paid, for
all prior Distribution Dates;
(2) to distributions of principal to
the holders of the Class A
Certificates, in an amount (not to
exceed the then outstanding
Certificate Balance of such Class
of Certificates) equal to the
Principal Distribution Amount (as
defined below) for such
Distribution Date;
(3) to distributions to the holders of
the Class A Certificates to
reimburse such holders for all
Realized Losses and Additional
Trust Fund Expenses, if any,
previously deemed allocated to
such Class of Certificates and for
which no reimbursement has
previously been received;
(4) to distributions of interest to
the holders of the Class B
Certificates 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;
S-15
<PAGE>
<PAGE>
(5) if the Class A Certificates have
been retired, to distributions of
principal to the holders of the
Class B Certificates in an amount
(not to exceed the then
outstanding Certificate Balance of
such Class of Certificates) equal
to the Principal Distribution
Amount for such Distribution Date
(net of any portion thereof
applied in retirement of the Class
A Certificates);
(6) to distributions to the holders of
the Class B Certificates to
reimburse such holders for all
Realized Losses and Additional
Trust Fund Expenses, if any,
previously deemed allocated to
such Class of Certificates and for
which no reimbursement has
previously been received;
(7) to distributions of interest to
the holders of the Class C
Certificates 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;
(8) if the Class A and Class B
Certificates have been retired, to
distributions of principal to the
holders of the Class C
Certificates in an amount (not to
exceed the then outstanding
Certificate Balance of such Class
of Certificates) equal to the
Principal Distribution Amount for
such Distribution Date (net of any
portion thereof applied in
retirement of the Class A and/or
Class B Certificates);
(9) to distributions to the holders of
the Class C Certificates to
reimburse such holders for all
Realized Losses and Additional
Trust Fund Expenses, if any,
previously deemed allocated to
such Class of Certificates and for
which no reimbursement has
previously been received;
(10) to distributions of interest to
the holders of the Class D
Certificates in an amount equal to
the Interest
S-16
<PAGE>
<PAGE>
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;
(11) if the Class A, Class B and Class
C Certificates have been retired,
to distributions of principal to
the holders of the Class D
Certificates in an amount (not to
exceed the then outstanding
Certificate Balance of such Class
of Certificates) equal to the
Principal Distribution Amount for
such Distribution Date (net of any
portion thereof applied in
retirement of the Class A, Class B
and/or Class C Certificates);
(12) to distributions to the holders of
the Class D Certificates to
reimburse such holders for all
Realized Losses and Additional
Trust Fund Expenses, if any,
previously deemed allocated to
such Class of Certificates and for
which no reimbursement has
previously been received; and
(13) to distributions to the holders of
the Class E, Class F, Class G and
REMIC Residual Certificates
(collectively, the "Private
Subordinate Certificates") as
described herein. See "DESCRIPTION
OF THE CERTIFICATES--
Distributions--Application of the
Available Distribution Amount"
herein.
If and to the extent that the Available
Distribution Amount for any Distribution
Date exceeds the aggregate of (i) all
interest payable in respect of the REMIC
Regular Certificates on such Distribution
Date, (ii) the Principal Distribution
Amount for such Distribution Date and
(iii) all unreimbursed Realized Losses
and Additional Trust Fund Expenses
previously deemed allocated in respect of
the Principal Balance Certificates, an
amount equal to 1/12 of the product of
(a) the aggregate of the Certificate
Balance of the Class A Certificates,
together with any excess of the aggregate
Stated Principal Balance of the Mortgage
Pool over the aggregate Certificate
Balance of the Principal Balance
S-17
<PAGE>
<PAGE>
Certificates, in any event outstanding
immediately prior to such Distribution
Date, multiplied by (b) the difference
between (i) the Weighted Average Net
Mortgage Rate for such Distribution Date
and (ii) the sum of the Class A
Pass-Through Rate and the Component A
Rate, will be paid as principal to the
holders of the respective Classes of
Principal Balance Certificates in reverse
alphabetical order of Class designation,
beginning with the Class G Certificates.
Any such payment will cause the aggregate
Stated Principal Balance of the Mortgage
Pool to exceed (or further exceed, as the
case may be) the aggregate Certificate
Balance of the Principal Balance
Certificates; and, as further described
herein, Realized Losses and Additional
Trust Fund Expenses will be allocated to
the respective Classes of Principal
Balance Certificates only when and to the
extent that the aggregate Stated
Principal Balance of the Mortgage Pool is
less than the aggregate Certificate
Balance of the Principal Balance
Certificates. See "Description of the
Certificates-- Subordination; Allocation
of Losses and Certain Expenses" herein.
The "Interest Distribution Amount" in
respect of any Class of REMIC Regular
Certificates for any Distribution Date
will equal one month's interest at the
applicable Pass-Through Rate accrued on
the Certificate Balance of such Class of
Certificates (or, in the case of the
Class IO Certificates, the Class IO
Notional Amount) outstanding immediately
prior to such Distribution Date, reduced
(to not less than zero) by such Class's
allocable share (in each case, calculated
as described herein) of any Net Aggregate
Prepayment Interest Shortfall (as
described below) for such Distribution
Date. Interest payable in respect of the
REMIC Regular Certificates will be
calculated on the basis of a 360-day year
consisting of twelve 30-day months. See
"SERVICING OF THE MORTGAGE
LOANS--Servicing and Other Compensation
and Payment of Expenses" and "DESCRIPTION
OF THE CERTIFICATES--Distributions--
Interest Distribution Amount" herein.
S-18
<PAGE>
<PAGE>
The "Principal Distribution Amount" for
any Distribution Date generally will
equal the aggregate of the following: (i)
the aggregate of the principal portions
of all Scheduled Payments (other than
Balloon Payments) and any Assumed
Scheduled Payments due or deemed due on
or in respect of the Mortgage Loans for
their respective Due Dates occurring
during the related Collection Period;
(ii) the aggregate of all voluntary
principal prepayments received on the
Mortgage Loans during the related
Collection Period; (iii) with respect to
any Mortgage Loan as to which the related
stated maturity date occurred during or
prior to the related Collection Period,
any payment of principal (including a
Balloon Payment) made by or on behalf of
the related borrower during the related
Collection Period, net of any portion of
such payment that represents a recovery
of principal amounts that have previously
been advanced and (iv) the aggregate of
all liquidation proceeds, insurance
proceeds, condemnation awards, proceeds
of Mortgage Loan repurchases and net
operating income from REO Properties that
were received on or in respect of the
Mortgage Loans during the related
Collection Period and that were
identified and applied by the Master
Servicer as recoveries of principal of
the related Mortgage Loans, in each case
net of any portion of such collections
that represents a recovery of principal
amounts that have previously been
advanced. See "DESCRIPTION OF THE
CERTIFICATES-- Distributions--Principal
Distribution Amount" and
"--Distributions--Treatment of REO
Properties" herein.
The "Scheduled Payment" due on any
Mortgage Loan on any related Due Date
generally is the amount of the Monthly
Payment that would be due thereon on such
date, without regard to any waiver,
modification or amendment of such
Mortgage Loan following the Cut-off Date
granted or agreed to by the Master
Servicer and/or the Special Servicer or
otherwise resulting in connection with a
bankruptcy or similar proceeding
involving the related borrower, and
assuming that each prior Scheduled
Payment
S-19
<PAGE>
<PAGE>
has been made in a timely manner, and
such Mortgage Loan is not otherwise in
default.
The "Assumed Scheduled Payment" is an
amount deemed due in respect of any
Mortgage Loan that is delinquent in
respect of its Balloon Payment beyond the
end of the Collection Period in which its
stated maturity date occurred. The
Assumed Scheduled Payment deemed due on
any such Mortgage Loan on its stated
maturity date and on each successive Due
Date that it remains or is deemed to
remain outstanding shall equal the
Scheduled Payment that would have been
due thereon on such date if the related
Balloon Payment had not come due but
rather such Mortgage Loan had continued
to amortize in accordance with such
loan's amortization schedule in effect as
of the Cut-off Date.
For so long as the Offered Certificates
are outstanding, any Prepayment Premium
actually collected on the Mortgage Loans
will be distributed on the first
Distribution Date following the
Collection Period of receipt to the
holders of the Class IO Certificates and
the holders of the Class of Offered
Certificates then currently entitled to
distributions of principal, as follows:
(1) the holders of the Class IO
Certificates will be entitled to receive
an amount equal to the product of (a)
such Prepayment Premium, multiplied by
(b) the quotient of (i) the Net Mortgage
Rate of the related prepaid Mortgage Loan
minus the Pass-Through Rate of such Class
of Offered Certificates, divided by (ii)
the Net Mortgage Rate of the related
prepaid Mortgage Loan minus the lesser of
the Pass-Through Rate and the applicable
Adjusted Treasury Yield in respect of
such Class of Offered Certificates; and
(2) the holders of such Class of Offered
Certificates will be entitled to receive
the remainder of such Prepayment Premium.
On any Distribution Date on which one
Class of Offered Certificates will be
retired, and the holders of a second
Class of Offered Certificates will
commence receiving distributions of
principal, any Prepayment Premium
received during the related
S-20
<PAGE>
<PAGE>
Collection Period will first be divided
into two separate amounts based on, and
attributable to, the respective portions
of the related principal prepayment
distributable in respect of each such
Class of Offered Certificates, and each
such separate amount will then be
allocated between the holders of the
Class IO Certificates and the holders of
the corresponding Class of Offered
Certificates as provided in the
immediately preceding sentence. Any
Prepayment Premiums actually collected on
the Mortgage Loans and distributable
following the retirement of the Offered
Certificates, will be distributed in
respect of the REMIC Residual
Certificates. The "Adjusted Treasury
Yield" applicable to any Class of Offered
Certificates for the foregoing purposes
will be an annual rate equal to the sum
of (a) the monthly equivalent yield for
the U.S. Treasury issue (primary issue)
with a maturity date closest to the
earlier of (i) the Assumed Final
Distribution Date for such Class of
Offered Certificates set forth on the
cover page hereof and (ii) the scheduled
maturity date for the Mortgage Loan being
prepaid, plus (b) %. Neither the
Depositor nor the Underwriter makes any
representation as to the collectability
or enforceability of any Prepayment
Premium. See "RISK FACTORS--The Mortgage
Loans--Limitations on Enforceability and
Collectability of Prepayments Premiums"
herein.
P&I Advances......................... Subject to a recoverability determination
as described herein, and further subject
to the reduced advancing obligations in
respect of certain Required Appraisal
Loans and Modified Mortgage Loans (each
as defined herein), the Master Servicer
will be required to make advances (each,
a "P&I Advance") with respect to each
Distribution Date in an amount that is
generally equal to the aggregate of all
Scheduled Payments (other than Balloon
Payments) and any Assumed Scheduled
Payments, net of related Master Servicing
Fees (as defined herein), due or deemed
due, as the case may be, on or in respect
of the Mortgage Loans during the related
Collection Period, in each case to the
extent that such amount was not paid by
or
S-21
<PAGE>
<PAGE>
on behalf of the related borrower or
otherwise collected as of the close of
business on the last day of the related
Collection Period. If the Master Servicer
fails to make a required P&I Advance, the
Trustee will be required to make such P&I
Advance, and if the Trustee fails to make
a required P&I Advance, the Fiscal Agent
will be required to make such P&I
Advance.
The Master Servicer, the Trustee and the
Fiscal Agent will be obligated to make
P&I Advances only to the extent that such
P&I Advances are, in the reasonable
business judgment of the Master Servicer,
the Trustee or the Fiscal Agent, as the
case may be, ultimately recoverable from
future payments and other collections,
including in the form of insurance
proceeds, condemnation awards and
liquidation proceeds, on or in respect of
the related Mortgage Loan or REO
Property.
As more fully described herein, the
Master Servicer, the Trustee and the
Fiscal Agent will be entitled to interest
on any P&I Advance made by it, and each
of the Master Servicer, the Trustee, the
Fiscal Agent and the Special Servicer
will be entitled to interest on certain
reimbursable servicing expenses incurred
by it. Such interest will accrue from the
date any such P&I Advance is made or such
servicing expense is incurred at a rate
per annum (the "Reimbursement Rate")
equal to the "prime rate" published in
the "Money Rates" Section of The Wall
Street Journal, as such "prime rate" may
change from time to time, and will be
paid, contemporaneously with the
reimbursement of such P&I Advance or
servicing expense, out of general
collections on the Mortgage Pool then on
deposit in the Certificate Account. See
"DESCRIPTION OF THE CERTIFICATES--P&I
Advances" herein and "DESCRIPTION OF THE
CERTIFICATES--Advances in Respect of
Delinquencies" and "DESCRIPTION OF THE
AGREEMENTS--Certificate Account" in the
Prospectus.
Compensating Interest Payments....... To the extent of its servicing
compensation for the related Collection
Period, including Prepayment Interest
Excesses received during such Collection
Period, the Master
S-22
<PAGE>
<PAGE>
Servicer is required to make a non-
reimbursable payment (a "Compensating
Interest Payment") with respect to each
Distribution Date to cover the aggregate
of any Prepayment Interest Shortfalls
incurred during such Collection Period. A
"Prepayment Interest Shortfall" is a
shortfall in the collection of a full
month's interest (net of related Master
Servicing Fees (as defined herein) and
without regard to any Prepayment Premium)
on any Mortgage Loan by reason of a full
or partial principal prepayment made by
the related borrower prior to the Due
Date for such loan in any Collection
Period. A "Prepayment Interest Excess" is
a payment of interest (net of related
Master Servicing Fees and exclusive of
any Prepayment Premium) made in
connection with any full or partial
prepayment of a Mortgage Loan made by the
related borrower subsequent to the Due
Date for such loan in any Collection
Period, which payment of interest is
intended to cover the period on and after
such Due Date to the date of prepayment.
The "Net Aggregate Prepayment Interest
Shortfall" for any Distribution Date will
be the amount, if any, by which (a) the
aggregate of any Prepayment Interest
Shortfalls incurred during the related
Collection Period exceeds (b) any
Compensating Interest Payment made by the
Master Servicer with respect to such
Distribution Date. See "SERVICING OF
THE MORTGAGE LOANS--Servicing and
Other Compensation and Payment of
Expenses" and "DESCRIPTION OF THE
CERTIFICATES -- Distributions -- Interest
Distribution Amount" herein.
Subordination; Allocation of Losses
and Certain Expenses.............. The rights of holders of the Class B, the
Class C, the Class D and the Private
Subordinate Certificates (collectively,
the "Subordinate Certificates") to
receive distributions of amounts
collected or advanced on the Mortgage
Loans will, in each case, be
subordinated, to the extent described
herein, to the rights of holders of the
Class A and the Class IO Certificates
(collectively, the "Senior Certificates")
and each other Class of Subordinate
Certificates, if any, with an earlier
alphabetical Class
S-23
<PAGE>
<PAGE>
designation. This subordination is
intended to enhance the likelihood of
full and timely receipt by the holders of
the Senior Certificates of the respective
Interest Distribution Amounts payable in
respect of such Classes of Certificates
on each Distribution Date, and the
ultimate receipt by the holders of the
Class A Certificates of principal equal
to the entire Certificate Balance of such
Class of Certificates. Similarly, but to
decreasing degrees, this subordination is
also intended to enhance the likelihood
of full and timely receipt by the holders
of the Class B, the Class C and the Class
D Certificates of the respective Interest
Distribution Amounts payable in respect
of such Classes of Certificates on each
Distribution Date, and the ultimate
receipt by the holders of such
Certificates of principal equal to the
entire respective Certificate Balances of
those Classes of Certificates. The
protection afforded to the holders of the
Offered Certificates by means of the
subordination referred to above will be
accomplished by the application of the
Available Distribution Amount on each
Distribution Date in the order described
above in this Summary under
"--Description of the
Certificates--Distributions". No other
form of credit support will be available
for the benefit of the holders of the
Offered Certificates.
If, following the distributions to be
made in respect of the Certificates on
any Distribution Date, the aggregate of
the Stated Principal Balances of the
Mortgage Loans that will be outstanding
immediately following such Distribution
Date is less than the then aggregate of
the Certificate Balances of the Principal
Balance Certificates, the respective
Certificate Balances of the various
Classes of Principal Balance Certificates
will be reduced, sequentially in reverse
alphabetical order of Class designation,
until such deficit (or, in the case of
each such Class, the related Certificate
Balance) is reduced to zero (whichever
occurs first). Any such deficit would
likely be the result of Realized Losses
incurred in respect of the Mortgage Loans
and/or Additional Trust Fund Expenses.
The foregoing reductions in the
Certificate
S-24
<PAGE>
<PAGE>
Balances of the Principal Balance
Certificates will be deemed to constitute
an allocation of any such Realized Losses
and Additional Trust Fund Expenses.
As more particularly described herein,
"Realized Losses" are losses arising from
the inability of the Master Servicer
and/or the Special Servicer to collect
all amounts due and owing under any
defaulted Mortgage Loan, including by
reason of the fraud or bankruptcy of the
related borrower or a casualty of any
nature at the related Mortgaged Property,
to the extent not covered by insurance.
As more particularly described herein,
"Additional Trust Fund Expenses" include
any expenses incurred by the Trust Fund
that would result in the
Certificateholders' receiving less than
the full amount of distributions to which
they are entitled on any Distribution
Date.
See "DESCRIPTION OF THE
CERTIFICATES--Subordination; Allocation
of Realized Losses and Certain Expenses"
herein.
Treatment of REO Properties.......... Notwithstanding that a Mortgaged Property
securing any Mortgage Loan may be
acquired on behalf of the
Certificateholders through foreclosure,
deed in lieu of foreclosure or otherwise,
such Mortgage Loan will, for purposes of,
among other things, determining
distributions on, and allocations of
Realized Losses and Additional Trust Fund
Expenses to, the Certificates, as well as
the fees of the Master Servicer, Special
Servicer and Trustee under the Pooling
and Servicing Agreement, generally be
treated as having remained outstanding
until such property is liquidated.
Operating revenues and other proceeds
derived from each REO Property (exclusive
of related operating costs, including
certain reimbursements payable to the
Master Servicer and/or Special Servicer
in connection with the operation and
disposition of such REO Property) will be
"applied" or treated by the Master
Servicer as principal, interest and other
amounts "due" on the related Mortgage
Loan, and the Master Servicer will be
required to make P&I Advances, as and to
the extent
S-25
<PAGE>
<PAGE>
described above, in respect of such
Mortgage Loan, in all cases as if such
Mortgage Loan had remained outstanding.
Optional Termination................. Each of the Depositor, the holders of the
REMIC Residual Certificates and the
Master Servicer will have an option to
purchase all of the Mortgage Loans and
any REO Properties, and thereby effect
termination of the Trust Fund and early
retirement of the then outstanding
Certificates, on any Distribution Date on
which the aggregate of the Certificate
Balances of all Classes of Principal
Balance Certificates then outstanding is
less than 5% of the aggregate of the
Certificate Balances of all Classes of
Principal Balance Certificates as of the
Closing Date. See "DESCRIPTION OF THE
CERTIFICATES--Termination" herein and in
the Prospectus.
Certain Investment Considerations.... The yield to maturity of an Offered
Certificate purchased at a discount or
premium will be affected by the rate of
prepayments and other unscheduled
collections of principal on or in respect
of the Mortgage Loans and the allocation
thereof to reduce the principal balance
of such Certificate. An investor should
consider, in the case of any such
Certificate purchased at a discount, the
risk that a slower than anticipated rate
of prepayments could result in a lower
than anticipated yield and, in the case
of any such Certificate purchased at a
premium, the risk that a faster than
anticipated rate of prepayments could
result in a lower than anticipated yield.
See "YIELD AND MATURITY CONSIDERATIONS"
herein and "YIELD CONSIDERATIONS" in the
Prospectus.
In addition, insofar as an investor's
initial investment in any Offered
Certificate is repaid in the form of
payments of principal thereon, there can
be no assurance that such amounts can be
reinvested in comparable alternative
investments with comparable yields.
Investors in the Offered Certificates
should consider that, as of the Cut-off
Date, a significant portion of the
Mortgage Loans may be prepaid at any
time, subject, in most of those cases, to
the payment of a Prepayment Premium. See
"DESCRIPTION OF THE
S-26
<PAGE>
<PAGE>
MORTGAGE POOL--Prepayment Provisions"
herein. Accordingly, the rate of
prepayments on the Mortgage Loans is
likely to be inversely related to the
level of prevailing market interest rates
(and, presumably, to the yields on
comparable alternative investments).
Certain Federal Income Tax
Consequences...................... Three separate "real estate mortgage
investment conduit" ("REMIC") elections
will be made with respect to the Trust
Fund for federal income tax purposes. The
assets of "REMIC I" will consist of the
Mortgage Loans, any REO Properties
acquired on behalf of the
Certificateholders and the Certificate
Account (see "DESCRIPTION OF THE
AGREEMENTS--Certificate Account" in the
Prospectus). For federal income tax
purposes, (i) the separate
non-certificated regular interests in
REMIC I will be the "regular interests"
in REMIC I and will constitute the assets
of REMIC II, (ii) the Class R-I
Certificates will be the sole class of
"residual interests" in REMIC I, (iii)
the separate non- certificated regular
interests in REMIC II will be the
"regular interests" in REMIC II and will
constitute the assets of REMIC III, (iv)
the Class R-II Certificates will be the
sole class of "residual interests" in
REMIC II, (v) the REMIC Regular
Certificates will be the "regular
interests" in, and generally will be
treated as debt obligations of, REMIC
III, and (vi) the Class R-III
Certificates will be the sole class of
"residual interests" in REMIC III.
The Class and Class Certificates will and
the Class and Class Certificates will not
be treated as having been issued with
original issue discount for federal
income tax reporting purposes. The
prepayment assumption that will be used
for purposes of computing the accrual of
original issue discount, market discount
and premium, if any, for federal income
tax purposes will be equal to a CPR (as
defined herein) of %. However, no
representation is made that the Mortgage
Loans will prepay at that rate or at any
other rate.
The Offered Certificates will be treated
as "qualifying real property loans"
within the meaning of Section 593(d) of
the Internal
S-27
<PAGE>
<PAGE>
Revenue Code of 1986 (the "Code") and
"real estate assets" within the meaning
of Section 856(c)(5)(A) of the Code. In
addition, interest (including original
issue discount) on the Offered
Certificates will be interest described
in Section 856(c)(3)(B) of the Code.
However, the Offered Certificates will
generally only be considered assets
described in Section 7701(a)(19)(C) of
the Code to the extent that the Mortgage
Loans are secured by residential
property, and accordingly, an investment
in the Offered Certificates may not be
suitable for some thrift institutions.
For further information regarding the
federal income tax consequences of
investing in the Offered Certificates,
see "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES" herein and in the
Prospectus.
ERISA Considerations................. A fiduciary of any employee benefit plan
or other retirement arrangement,
including individual retirement accounts
and annuities, Keogh plans and collective
investment funds, separate accounts and
general accounts in which such plans,
accounts or arrangements are invested,
that is subject to the Employee
Retirement Income Security Act of 1974,
as amended ("ERISA"), or Section 4975 of
the Code (each, a "Plan") should review
carefully with its legal advisors whether
the purchase or holding of Offered
Certificates could give rise to a
transaction that is prohibited or is not
otherwise permitted either under ERISA or
Section 4975 of the Code or whether there
exists any statutory or administrative
exemption applicable to an investment
therein.
The U.S. Department of Labor has issued
to the Underwriter an individual
exemption, Prohibited Transaction
Exemption No. 89-89, which generally
exempts from the application of certain
of the prohibited transaction provisions
of Section 406 of ERISA and the excise
taxes imposed on such prohibited
transactions by Sections 4975(a) and (b)
of the Code and Section 502(i) of ERISA,
transactions relating to the purchase,
sale and holding of mortgage pass-through
certificates underwritten by the
Underwriter and the servicing and
operation of related mortgage
S-28
<PAGE>
<PAGE>
pools, provided that certain conditions
are satisfied.
The Depositor expects that Prohibited
Transaction Exemption 89-89 will
generally apply to the Class A
Certificates, but will not apply to the
other Classes of Offered Certificates.
Accordingly, the Class B, Class C and
Class D Certificates should not be
acquired by, on behalf of or with assets
of a Plan unless the purchase and holding
of any such Certificate is exempt from
the prohibited transaction provisions of
Section 406 of ERISA and Section 4975 of
the Code under a Prohibited Transaction
Class Exemption. See "ERISA
CONSIDERATIONS" herein and in the
Prospectus.
Rating............................... It is a condition of their issuance that
the Offered Certificates receive ratings
from each of Fitch Investors Service,
L.P. ("Fitch") and Standard & Poor's
Ratings Services ("Standard & Poor's";
and together with Fitch, the "Rating
Agencies") no lower than the respective
ratings set forth on the cover page of
this Prospectus Supplement. Such ratings
of the Offered Certificates address the
likelihood of the timely payment of
interest and the ultimate payment of
principal on or before the Rated Final
Distribution Date in respect of such
Certificates. A security rating is not a
recommendation to buy, sell or hold
securities and may be subject to revision
or withdrawal at any time by the
assigning rating organization. A security
rating does not address the frequency of
prepayments of Mortgage Loans or the
corresponding effect on yield to
investors, nor does a security rating
address the likelihood of receipt of
Prepayment Premiums. See "RATINGS" herein
and "RISK FACTORS--Limited Nature of
Ratings" 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. As a
result, the appropriate characterization
of the Offered Certificates under various
legal investment restrictions, and thus
the ability of investors subject to these
restrictions to purchase the
S-29
<PAGE>
<PAGE>
Offered Certificates of any Class, may be
subject to significant interpretative
uncertainties. In addition, institutions
whose investment activities are subject
to review by federal or state regulatory
authorities may be or may become subject
to restrictions on the investment by such
institutions in certain forms of mortgage
backed securities. Investors should
consult their own legal advisors to
determine whether and to what extent the
Offered Certificates constitute legal
investments for them. See "LEGAL
INVESTMENT" herein and in the Prospectus.
S-30
<PAGE>
<PAGE>
RISK FACTORS
Prospective purchasers of the Offered Certificates should consider,
among other things, the following risk factors (as well as the risk factors set
forth under "RISK FACTORS" in the Prospectus) in connection with an investment
therein.
The Certificates
Limited Liquidity. There is currently no secondary market for the
Offered Certificates. While the Underwriter currently intends to make a
secondary market in the Offered Certificates, it is under no obligation to do
so. Accordingly, there can be no assurance that a secondary market for the
Offered Certificates will develop. Moreover, if a secondary market does develop,
there can be no assurance that it will provide holders of the Offered
Certificates with liquidity of investment or that it will continue for the life
of the Offered Certificates. Any such secondary market may provide less
liquidity to investors than any comparable market for securities that evidence
interests in single-family mortgage loans. The Offered Certificates will not be
listed on any securities exchange.
Certain Yield and Maturity Considerations. The yield on any Offered
Certificate that is purchased at a discount or premium will be affected by the
rate and timing of principal payments applied in reduction of the principal
amount of such Certificate, which in turn will be affected (i) by the rate and
timing of principal payments and collections on the Mortgage Loans, particularly
unscheduled principal payments or collections in the form of voluntary
prepayments of principal or unscheduled recoveries of principal due to defaults,
whether before or after the respective scheduled maturity dates of the related
Mortgage Loans, and (ii) by the order of priority in which such principal
payments and collections are distributed in reduction of the principal balances
of the Certificates of each Class.
The rate and timing of unscheduled payments and collections of
principal on the Mortgage Loans is impossible to accurately predict and will be
affected by a variety of factors, including, without limitation, the level of
prevailing interest rates, restrictions on voluntary prepayments contained in
the Mortgage Notes (e.g., Lockout Periods and Prepayment Premiums) the
availability of mortgage credit and other economic, demographic, geographic, tax
and legal factors. In general, however, if prevailing interest rates fall
significantly below the Mortgage Rates on the Mortgage Loans, the Mortgage Loans
are likely to prepay at a higher rate than if prevailing rates remain at or
above those Mortgage Rates. Conversely, if prevailing interest rates rise to a
level significantly above the Mortgage Rates, the rate of prepayment on the
Mortgage Loans would be expected to decrease. Substantially all of the Mortgage
Loans permit voluntary principal prepayments only after the expiration of a
Lockout Period and/or upon payment of a Prepayment Premium. The Depositor makes
no representations as to the effect of such Lockout Periods or Prepayment
Premiums on the rate of prepayment of the related Mortgage Loans.
Delays in liquidations of defaulted Mortgage Loans and modifications
extending the maturity of Mortgage Loans will tend to extend the average lives
of the Offered Certificates. Because all of the Mortgage Loans provide for
Balloon Payments and because the ability of a borrower to make a Balloon Payment
typically will depend upon its ability either to refinance the Mortgage Loan or
to sell the related Mortgaged Property at a price sufficient to permit the
borrower to make the Balloon Payment, there is a risk that a number of Mortgage
Loans may default at maturity, and that, following such a default, the Special
Servicer may extend the maturity of a number of such Mortgage Loans in
connection with working them out. 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 related Mortgaged Property is located. In
order to minimize losses on defaulted Mortgage Loans, the Special Servicer,
subject to the approval of the Operating Adviser and/or the Extension Adviser
under certain circumstances, is given considerable flexibility under the Pooling
and Servicing Agreement to modify Mortgage Loans as to which a payment or other
material default has occurred. See "SERVICING OF MORTGAGE LOANS--The Operating
Adviser," "--The Extension Adviser" and "--Modifications, Waivers and
Amendments" herein.
S-31
<PAGE>
<PAGE>
In general, payments and other collections of principal on or in
respect of the Mortgage Loans are to be distributed sequentially on the
respective Classes of Principal Balance Certificates. As described herein, the
Principal Distribution Amount for each Distribution Date will be distributable
on such Distribution Date entirely in reduction of the Certificate Balance of
the Class A Certificates until they are retired and, thereafter, entirely in
reduction of the Certificate Balance of the then outstanding Class of Principal
Balance Certificates with the earliest alphabetical Class designation. See
"DESCRIPTION OF THE CERTIFICATES--Distributions--Application of the Available
Distribution Amount" herein. There can be no assurance as to when the holders of
the Class B, Class C or Class D Certificates will begin receiving distributions
of principal in respect of their Certificates.
Limited Obligations. The Certificates will represent beneficial
ownership interests solely in the assets of the Trust Fund and will not
represent an interest in or obligation of the Underwriter, the Master Servicer,
the Special Servicer, the Fiscal Agent, the Trustee, the Mortgage Loan Seller,
the Depositor or any of their respective affiliates or any other person.
Distributions on any Class of Certificates will depend solely on the amount and
timing of payments and other collections in respect of the Mortgage Loans.
Accordingly, factors adversely affecting the full and timely payment of amounts
due under the Mortgage Loans will, to the extent not otherwise offset by P&I
Advances, have a similar effect on the Certificates. See "--The Mortgage Loans"
below. Although amounts, if any, otherwise distributable in respect of the
Private Subordinate Certificates on any Distribution Date will be available to
make distributions on the Offered Certificates, in the event that Realized
Losses and/or Additional Trust Fund Expenses occur, there can be no assurance
that these amounts, together with other payments and collections on or in
respect of the Mortgage Loans, will be sufficient to make full and timely
distributions on the Offered Certificates.
Subordination of Subordinate Certificates. As and to the extent
described herein, the rights of the holders of the respective Classes of
Subordinate Certificates (including the Class B, Class C and Class D
Certificates) to receive distributions of amounts collected or advanced on or in
respect of the Mortgage Loans will be subordinated to those of (and,
accordingly, such holders will bear losses and other shortfalls incurred in
respect of the Mortgage Loans prior to) the holders of the Senior Certificates
and the holders of each other Class of Subordinate Certificates, if any, with an
earlier alphabetical Class designation. See "DESCRIPTION OF THE
CERTIFICATES--Distributions-- Application of the Available Distribution Amount"
and "--Subordination; Allocation of Losses and Certain Expenses" herein.
Special Servicer Actions at Direction of the Operating Adviser. In
connection with the servicing of the Specially Serviced Mortgage Loans, the
Special Servicer may, at the direction of the Operating Adviser under the
circumstances described herein, take actions with respect to such Specially
Serviced Mortgage Loans that could adversely affect the holders of some or all
of the Classes of Offered Certificates. As described under "SERVICING OF
MORTGAGE LOANS--The Operating Adviser," the Operating Adviser will, in the
absence of significant losses, be controlled by the holders of the Class G
Certificates or another Class of Private Subordinate Certificates, which may
have interests in conflict with those of holders of the Offered Certificates. As
a result, it is possible that the Operating Adviser may direct the Special
Servicer to take actions which conflict with the interests of certain Classes of
Offered Certificates. In addition, the Operating Adviser will have the right,
subject to certain conditions described herein, to replace the Special Servicer.
The Mortgage Loans
Risks of Lending on Income-Producing Properties. The Mortgaged
Properties consist entirely of income-producing real estate. Lending on the
security of income-producing real estate is generally viewed as exposing a
lender to a greater risk of loss than lending on the security of single-family
residences. Lending on the security of income-producing property typically
involves larger loans than single-family lending. In addition, and unlike loans
made on the security of single-family residences, repayment of loans made on the
security of income-producing real property depends upon the ability of the
related real estate project (i) to generate rental income sufficient to pay
operating expenses, to
S-32
<PAGE>
<PAGE>
make necessary repairs, tenant improvements and capital improvements and to pay
debt service and (ii) in the case of loans that do not fully amortize over their
terms, to retain sufficient value to permit the borrower to pay off the loan at
maturity by sale or refinancing. A number of factors, many beyond the control of
the property owner, can affect the ability of an income-producing real estate
project to generate sufficient net operating income to pay debt service and/or
to maintain its value. Among these factors are economic conditions generally and
in the area of the project, the age, quality and design of the project and the
degree to which it competes with other comparable projects in the area, changes
or continued weaknesses in specific industry segments, increases in operating
costs, the willingness and ability of the owner to provide capable property
management and maintenance, and the degree to which the project's revenue is
dependent upon a single tenant or user, a small group of tenants, or tenants
concentrated in a particular business or industry. If leases are not renewed or
replaced, if tenants default, if rental rates fall and/or if operating expenses
increase, the borrower's ability to repay the loan may be impaired and the
resale value of the property, which is substantially dependent upon the
property's ability to generate income, may decline. In addition, there are other
factors, including changes in zoning or tax laws, the availability of credit for
refinancing, and changes in interest rate levels that may adversely affect the
value of a project (and thus the borrower's ability to sell or refinance)
without necessarily affecting the ability of the project to generate current
income.
In addition, particular types of income-producing properties are
exposed to particular risks. For instance, office properties generally require
their owners to expend significant amounts of cash to pay for general capital
improvements, tenant improvements and costs of re-leasing space. Also, office
properties that are not equipped to accommodate the needs of modern businesses
may become functionally obsolete and thus non-competitive. Multifamily projects
are part of a market that, in general, is characterized by low barriers to
entry. Thus, a particular apartment market with historically low vacancies could
experience substantial new construction, and a resultant oversupply of units, in
a relatively short period of time. Since multifamily apartment units are
typically leased on a short-term basis, the tenants who reside in a particular
project within such a market may easily move to newer projects with better
amenities. Various factors, including location, quality and franchise
affiliation, affect the economic viability of a hotel. Adverse economic
conditions, either local, regional or national, may limit the amount that can be
charged for a room and may result in a reduction in occupancy levels. The
construction of competing hotels can have similar effects. Because hotel rooms
generally are rented for short periods of time, hotels tend to respond more
quickly to adverse economic conditions and competition than do other commercial
properties. Shopping centers (and other retail properties) are, in general,
affected by the health of the retail industry, which is currently undergoing a
consolidation and is experiencing changes due to the growing market share of
"off-price" and direct mail retailing, and a particular shopping center may be
adversely affected by the bankruptcy, decline in drawing power, departure or
cessation of operations of an anchor tenant, a shift in consumer demand due to
demographic changes (for example, population decreases or changes in average age
or income) and/or changes in consumer preference. See "RISK FACTORS--Risks
Associated with Certain Mortgage Loans and Mortgaged Properties" in the
Prospectus.
Non-recourse Mortgage Loans. The Mortgage Loans are not insured or
guaranteed by any governmental entity or private mortgage insurer. The Depositor
has not undertaken any evaluation of the significance of the recourse provisions
of any of the Mortgage Loans that provide for recourse against the related
borrower or another person in the event of a default. Accordingly, investors
should consider all of the Mortgage Loans to be non-recourse loans as to which
recourse in the case of default will be limited to the related Mortgaged
Property.
Environmental Law Considerations. Contamination of real property may
give rise to a lien on that property to assure payment of the cost of clean-up
or, in certain circumstances, may result in liability to the lender for that
cost. Such contamination may also reduce the value of a property. See "RISK
FACTORS--Environmental Risks" and "CERTAIN LEGAL ASPECTS OF MORTGAGE
LOANS--Environmental Legislation" in the Prospectus. Although the reports of
environmental site assessments performed with respect to each of the Mortgaged
Properties in connection with the
S-33
<PAGE>
<PAGE>
origination of the related Mortgage Loans generally did not disclose the
presence of, or risk of, environmental contamination that is considered material
to the interests of the holders of the Offered Certificates, no assurance can be
given that the environmental assessments revealed all existing or potential
environmental risk. See "DESCRIPTION OF THE MORTGAGE POOL--Assessments of
Property Condition--Environmental Assessments" herein.
The Pooling and Servicing Agreement requires that the Special Servicer
obtain an environmental site assessment of a Mortgaged Property prior to
acquiring title thereto or assuming its operation. See "DESCRIPTION OF THE
AGREEMENTS--Realization Upon Defaulted Whole Loans" in the Prospectus. Such
requirement effectively precludes enforcement of the security for the related
Mortgage Note until a satisfactory environmental site assessment is obtained (or
until any required remedial action is thereafter taken), but will decrease the
likelihood that the Trust Fund will become liable for a material adverse
environmental condition at the Mortgaged Property. However, there can be no
assurance that the requirements of the Pooling and Servicing Agreement will
effectively insulate the Trust Fund from potential liability for a materially
adverse environmental condition at any Mortgaged Property.
Balloon Payments. None of the Mortgage Loans fully amortize over their
respective terms to maturity. Thus, each Mortgage Loan will have a substantial
payment (that is, a Balloon Payment) due at its stated maturity unless prepaid
prior thereto. Loans with Balloon Payments involve a greater risk to a lender
than self-amortizing loans because the ability of a borrower to make a Balloon
Payment typically will depend upon its ability either to fully refinance the
loan or to sell the related mortgaged property at a price sufficient to permit
the borrower to make the Balloon Payment. The ability of a borrower to effect a
refinancing or sale will be affected by a number of factors, including the value
of the related Mortgaged Property, the level of prevailing interest rates at the
time of sale or refinancing, the borrower's equity in the Mortgaged Property,
the financial condition and operating history of the borrower and the Mortgaged
Property, tax laws, prevailing economic conditions and the availability of
credit for loans secured by multifamily or commercial, as the case may be, real
properties generally. See "RISK FACTORS--Balloon Payments" and "--Obligor
Default" in the Prospectus.
The Special Servicer is permitted to extend and modify a defaulted
Mortgage Loan (or one as to which default is reasonably foreseeable) under
certain circumstances and subject to certain limitations. See "SERVICING OF THE
MORTGAGE LOANS--Modifications, Waivers and Amendments" herein. There can be no
assurance, however, that any such extension or modification will increase the
present value of recoveries in a given case. Any delay in collection of a
Balloon Payment that would otherwise be distributable in respect of a Class of
Offered Certificates, whether such delay is due to borrower default or to
modification of the related Mortgage Loan, will likely extend the weighted
average life of such Class of Offered Certificates. See "YIELD AND MATURITY
CONSIDERATIONS" herein and "YIELD CONSIDERATIONS" in the Prospectus.
Limited Information. The related borrowers, in many cases, are not
required, or cannot practicably be compelled, to provide the holder of the
related Mortgage with all of the information that a lender would typically
obtain from a borrower in connection with the origination or modification of the
loan. Therefore, information contained herein with respect to some of the
Mortgage Loans is not as complete as would be the case if those loans had been
newly originated.
Concentrations of Mortgage Loans and Borrowers. Several of the Mortgage
Loans have Cutoff Date Balances that are substantially higher than the
$4,931,294 average Cut-off Date Balance of the Mortgage Loans. The largest
Mortgage Loan represents approximately 13.3% of the Initial Pool Balance, the
three largest Mortgage Loans represent, in the aggregate, approximately 24.4% of
the Initial Pool Balance and the five largest Mortgage Loans represent, in the
aggregate, approximately 31.6% of the Initial Pool Balance. In addition, there
are at least six groups of two or more Mortgage Loans that involve borrowers
that are affiliated or under common control with one another. See "DESCRIPTION
OF THE MORTGAGE POOL--Certain Terms and Characteristics of the Mortgage
Loans--Related Borrowers" herein.
S-34
<PAGE>
<PAGE>
In general, concentrations in a mortgage pool of loans with larger than
average principal balances can result in losses that are more severe, relative
to the size of the pool, than would be the case if the aggregate principal
balance of the pool were more evenly distributed. Concentration of borrower
representation in a mortgage pool can pose similar risks because each Mortgage
Loan group can be viewed in some respects as a single loan. Thus, the commonly
owned borrowers whose Mortgage Loans are cross-defaulted and
cross-collateralized with one another (that is, the ClubHouse Crossed Loans,
representing approximately 9.8% of the Initial Pool Balance), under certain
circumstances, could determine that it was in their collective interest to file
bankruptcy petitions that would stay the enforcement of all those Mortgage Loans
and that might result in the interruption of related Monthly Payments for an
indefinite period. In addition, concentration of property management of the
Mortgaged Properties increases the risk that the poor performance of a single
property manager will have a widespread adverse effect on the Mortgage Pool.
Limitations on Enforceability of Cross-Collateralization. The Mortgage
Pool includes the "ClubHouse Crossed Loans", a group of four
cross-collateralized Mortgage Loans described under "DESCRIPTION OF THE MORTGAGE
POOL--General--The ClubHouse Loans and Properties" herein. Upon a default under
the ClubHouse Crossed Loans, all of the cash flow from all of the related
Mortgaged Properties will be available to pay amounts due under the ClubHouse
Crossed Loans. In effect, each property encumbered by a ClubHouse Crossed
Mortgage provides security for the performance by each other property encumbered
by a ClubHouse Crossed Mortgage. Because the ownership of the ClubHouse
Properties securing the ClubHouse Crossed Loans is not identical, creditors of
one ClubHouse Borrower could challenge this arrangement on the basis that (a)
reasonably equivalent value was not received by such ClubHouse Borrower for, in
effect, guaranteeing the performance of other ClubHouse Borrowers or becoming
obligated for more than its respective ClubHouse Crossed Loan amount, and (b) as
a result of its joint and several obligations under the ClubHouse Crossed Loans,
such ClubHouse Borrower was rendered (i) insolvent, (ii) insufficiently
capitalized or (iii) unable to pay its debts as they became due. However,
because each property encumbered by a ClubHouse Crossed Mortgage, in effect,
guarantees the performance of each other property encumbered by a ClubHouse
Crossed Mortgage, each related ClubHouse Borrower, while making one such
"guarantee", is receiving three other "guarantees" in return. There can be no
assurance that such exchange of "guarantees" will be found to constitute
reasonably equivalent value. In addition, the ClubHouse Crossed Loans are
secured by mortgage liens on Mortgaged Properties located in different states.
Because of various state laws governing foreclosure or the exercise of a power
of sale and because, in general, foreclosure actions are brought in state court,
and the courts of one state cannot exercise jurisdiction over property in
another state, it may be necessary upon a default under any such ClubHouse
Crossed Loan to foreclose on the related Mortgaged Properties in a particular
order rather than simultaneously in order to ensure that the lien of the related
ClubHouse Crossed Mortgages is not impaired or released.
Geographic Concentration. Eleven of the Mortgage Loans, or 22.5%, are
secured by liens on Mortgaged Properties located in Georgia; nine of the
Mortgage Loans, or 13.7%, are secured by liens on Mortgaged Properties located
in Texas; one of the Mortgage Loans, or 13.3%, is secured by a lien on Mortgaged
Property located in Washington; four of the Mortgage Loans, or 12.7%, are
secured by liens on Mortgaged Properties located in New Jersey; and four of the
Mortgage Loans or 10.6% are secured by liens on Mortgaged Properties located in
Florida. Concentrations of Mortgaged Properties (in each case less than 10% by
aggregate Cut-off Date Balance) exist in several other states. In general, the
concentration of Mortgaged Properties in a particular state or region increases
the exposure of the Mortgage Pool to any adverse economic or other developments
or acts of nature that may occur in that state or region.
Limitations on Enforceability and Collectability of Prepayment
Premiums. Substantially all of the Mortgage Loans require for a specified period
following the related date of origination or, if applicable, the end of the
related Lockout Period that any voluntary principal prepayment be
S-35
<PAGE>
<PAGE>
accompanied by a Prepayment Premium. See "DESCRIPTION OF THE MORTGAGE
POOL--Certain Terms and Characteristics of the Mortgage Loans--Prepayment
Provisions" herein.
For so long as the Offered Certificates are outstanding, Prepayment
Premiums actually collected on the Mortgage Loans will be allocated between the
holders of the Class IO Certificates and the holders of the Class or Classes of
Offered Certificates then entitled to distributions of principal. See
"DESCRIPTION OF THE CERTIFICATES--Distributions--Prepayment Premiums" herein.
Neither the Depositor nor the Underwriter, however, makes any 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.
The enforceability, under the laws of a number of states, of provisions
similar to the provisions of the Mortgage Loans providing for the payment of a
Prepayment Premium upon an involuntary prepayment is unclear. No assurance can
be given that, at any time that any Prepayment Premium is required to be made in
connection with an involuntary prepayment, the obligation to pay such Prepayment
Premium will be enforceable under applicable law or, if enforceable, the
foreclosure proceeds will be sufficient to make such payment. Liquidation
proceeds recovered in respect of any defaulted Mortgage Loan will, in general,
be applied to cover outstanding servicing expenses and unpaid principal and
interest prior to being applied to cover any Prepayment Premium due in
connection with the liquidation of such Mortgage Loan. See "CERTAIN LEGAL
ASPECTS OF MORTGAGE LOANS--Default Interest and Limitations on Prepayment" in
the Prospectus.
No Prepayment Premium will be payable in connection with any repurchase
of a Mortgage Loan by the Mortgage Loan Seller for a material breach of
representation or warranty with respect thereto or any failure to deliver
documentation relating thereto, nor will any Prepayment Premium be payable in
connection with the purchase of all the Mortgage Loans and any REO Properties by
the Master Servicer, the Depositor or the holders of the REMIC Residual
Certificates in connection with the termination of the Trust Fund. See
"DESCRIPTION OF THE MORTGAGE POOL--Assignment of the Mortgage Loans;
Repurchases" and "--Representations and Warranties; Repurchases" and
"DESCRIPTION OF THE CERTIFICATES--Termination" herein.
DESCRIPTION OF THE MORTGAGE POOL
General
The Mortgage Pool will consist of 43 conventional, fixed rate mortgage
loans (the "Mortgage Loans") with an average Cut-off Date Balance of $4,931,294
and, subject to a permitted variance of plus or minus 5%, an aggregate Cut-off
Date Balance (the "Initial Pool Balance") of $212,045,634. The "Cut-off Date
Balance" of each Mortgage Loan is the unpaid principal balance thereof as of the
Cut-off Date, after application of all payments due on or before such date,
whether or not received. All numerical information provided herein with respect
to the Mortgage Loans is provided on an approximate basis. All percentages of
the Mortgage Loans, or of any specified group of Mortgage Loans, referred to
herein without further description are approximate percentages by aggregate
Cut-off Date Balance. All weighted average information provided herein with
respect to the Mortgage Loans reflects weighing of the Mortgage Loans by their
Cut-off Date Balances.
Each Mortgage Loan is evidenced by one or more promissory notes (each,
a "Mortgage Note") and secured by one or more mortgages, deeds of trust or other
similar security instruments (each, a "Mortgage") each of which creates a first
mortgage lien on a fee estate in an income-producing (including an
owner-occupied) real property (each, a "Mortgaged Property"). In the case of
four of the five ClubHouse Loans (as defined below), the Mortgage on each of the
four related Mortgaged Properties secures repayment of each of the four related
Mortgage Notes.
Twenty-one of the Mortgage Loans, or 34.5%, are secured by liens on
multifamily apartment properties; 12 of the Mortgage Loans, or 31.3%, are
secured by liens on retail properties; one of the Mortgage Loans, or 13.3%, is
secured by a lien on an office/industrial property; five of the Mortgage
S-36
<PAGE>
<PAGE>
Loans, or 11.4%, are secured by liens on hotel properties; two of the Mortgage
Loans, or 5.1%, are secured by liens on retail/office properties; one of the
Mortgage Loans, or 2.6%, is secured by a lien on an industrial property; and one
of the Mortgage Loans, or 1.8%, is secured by a lien on an office property. The
Mortgaged Properties are located throughout 16 states, with the largest
concentrations in Georgia (11 Mortgage Loans, or 22.5%), Texas (nine Mortgage
Loans, or 13.7%), Washington (one Mortgage Loan, or 13.3%), New Jersey (four
Mortgage Loans, or 12.7%) and Florida (four Mortgage Loans, or 10.6%). See Annex
A for a more detailed description of the Mortgage Loans.
Set forth below is additional information with respect to the Redmond
East Loan (as defined below) and the ClubHouse Loans which, in the aggregate,
represent 24.8% of the Initial Pool Balance.
The Redmond East Loan and Property
The Loan. The Mortgage Loan herein designated as the "Redmond East
Loan" has a Cut-off Date Balance of approximately $28,276,818, (13.3% of the
Initial Pool Balance) and is secured by a deed of trust on ten high-tech
office/industrial buildings located on seven parcels (either contiguous or
separated by roadways) in Redmond, Washington.
The Borrower. The borrower, Redmond East, L.L.C., (the "Redmond
Borrower"), is a single purpose, limited liability company formed under the laws
of Washington solely for the purpose of (i) acquiring, owning, operating,
leasing, selling, conveying and managing the related Mortgaged Property, (ii)
borrowing money and granting mortgages and otherwise conveying interest in and
encumbering the related Mortgaged Property, (iii) entering into and performing
contracts in connection with the management and operation of the related
Mortgaged Property and the Redmond Borrower's business, and (iv) doing all
things necessary, advisable, incidental or desirable in connection with the
foregoing or otherwise contemplated in the Redmond Borrower's operating
agreement. The managing member of the Redmond Borrower is Red Ace, Inc., a
corporation formed under the laws of Washington solely for the purpose of
acquiring, owning and holding the manager's interest in the Redmond Borrower,
and transacting any and all lawful business for which corporations may be
organized under the laws of Washington that is incidental and necessary or
appropriate to the foregoing. The holder of 100% of the shares of stock in Red
Ace, Inc. is Michael R. Mastro.
Security. The Redmond East Loan is a non-recourse loan, secured only by
the related Mortgaged Property and the other collateral therefor (including an
assignment of leases and rents and the funds in certain reserve accounts), and
neither the Redmond Borrower nor any of its affiliates is liable for the payment
thereof. There are exceptions to the non-recourse provision for (i) willful or
intentional misrepresentations, (ii) rents received after an event of default,
(iii) the Redmond Borrower's misapplication or misappropriation of security
deposits or rents collected in advance, (iv) the Redmond Borrower's
misapplication or misappropriation of insurance proceeds or condemnation awards,
(v) the Redmond Borrower's failure to pay real estate taxes and casualty
insurance premiums; (vi) the Redmond Borrower's failure to replace personal
property taken from the Mortgaged Property, (vii) any act of arson or waste by
the Redmond Borrower, or any member, principal, affiliate, guarantor or
indemnitor thereof, (viii) any prohibited fees or commissions paid by the
Redmond Borrower to any principal, member, affiliate, guarantor or indemnitor
thereof; and (ix) the Redmond Borrower's breach of certain ERISA provisions and
environmental covenants and indemnities. Red Ace, Inc. and Michael R. Mastro
have guaranteed the obligations or liabilities of the Redmond Borrower arising
from the foregoing exceptions to the non-recourse provision.
Payment Terms. The Redmond East Loan was originated on December 19,
1995 by the Mortgage Loan Seller and bears interest at a fixed rate per annum
equal to 8.375%. Interest on the Redmond East Loan is calculated on the basis of
a 360-day year consisting of twelve 30-day months. The maturity date of the
Redmond East Loan is January 1, 2006. The Redmond East Loan requires constant
monthly payments of principal and interest of $220,692.37 and, assuming no
prepayment of such loan, a Balloon Payment of $24,022,107 at maturity.
S-37
<PAGE>
<PAGE>
Prepayment. The Redmond East Loan is currently subject to a Lockout
Period that expires on January 1, 2000. Following the end of such Lockout
Period, the Redmond East Loan may generally be prepaid in whole or in part upon
the payment of the greater of (i) 1.0% of the outstanding balance thereof and
(ii) a yield maintenance payment. However, the Redmond East Loan permits the
voluntary prepayment thereof in whole at par, without penalty, during the 60-day
period immediately preceding the maturity date of such loan.
Partial Releases of the Mortgaged Property. The Redmond East Loan
documents provide that at any time after January 1, 2000, the Redmond Borrower
may obtain a release of up to two of the seven parcels which comprise the
Mortgaged Property from the lien of the Redmond East Loan security instruments
upon: (i) payment of an amount set forth in the loan documents relating to the
respective parcel to be applied in reduction of the principal balance of the
loan; and (ii) satisfaction of other legal and business requirements, including,
without limitation, debt service coverage and loan-to-value tests.
Transfers of Properties and Interests in Borrowers. The lender's prior
written consent is required for any sale, conveyance, mortgaging, assignment or
other transfer of (i) the related Mortgaged Property, (ii) any leases or rents
thereof, (iii) more than 10% of the stock of Red Ace, Inc., (iv) the interests
of any member of the Redmond Borrower, or any member profits, or (v) the
management of the Mortgaged Property to an entity not controlled by Michael R.
Mastro; provided, however, that lender's consent is not required in connection
with (a) a transfer by devise, descent or by operation of law upon the death of
a member of the Redmond Borrower, a stockholder of Red Ace, Inc. or Michael R.
Mastro; or (b) a one-time permitted transfer of title to the related Mortgaged
Property within 90 days of the closing date of the loan to a single purpose
entity which meets certain entity requirements which were applicable to the
Redmond Borrower, provided that certain legal and business requirements are
satisfied.
Other Indebtedness. The Redmond Borrower is prohibited from incurring
any debt, other than the Redmond East Loan, except in the ordinary course of its
business of owning and operating the related Mortgaged Property. Red Ace, Inc.
is prohibited from incurring any debt whatsoever.
Property Management. The related Mortgaged Property is managed by JMI
Asset Management Group, a Washington general partnership and an affiliate of the
Redmond Borrower (the "Redmond Manager"), pursuant to a separate Agreement to
Manage Real Estate dated as of December 1, 1995 (the "Redmond Management
Agreement"). The Redmond Manager is responsible for the day-to-day operation,
repair and maintenance of the related Mortgaged Property, and is exclusive agent
for the leasing of the related Mortgaged Property. The initial term of the
Redmond Management Agreement is one year and thereafter the Redmond Management
Agreement will automatically renew for successive one-year terms.
Fees. The Redmond Manager will have the right to retain certain fees
and charges as are fair, reasonable and customary at the time such services are
performed, such fees and charges to include: (i) a minimum monthly fee of 4% of
monthly gross receipts of the Mortgaged Property, (ii) a $7,500.00 fee for the
set up of accounting, policies, procedures, hiring and training, (iii) a
construction management fee of 6% of the gross amount of all renovation, capital
improvements or tenant improvements, (iv) a fee in connection with the
disposition of all or part of the Mortgaged Property equal to twenty cents
($0.20) per gross rentable square foot, and (v) other miscellaneous fees and
charges.
Reserves. Under the terms of the Redmond East Loan, the Redmond
Borrower deposited on December 19, 1995 in reserve accounts: (i) $69,225.00 for
the repair of certain items of deferred maintenance, and (ii) $200,000.00 for
leasing reserves. The Redmond East Loan also provides for the creation of a
reserve for capital replacements, including replacements and repairs of
mechanical systems, roof and facades and other interior and exterior items, as
well as tenant improvements, leasing commissions and rent concessions (the
"Redmond Repair/Replacement/Leasing Reserve").
S-38
<PAGE>
<PAGE>
The Redmond Borrower will be required to make annual deposits to the Redmond
Repair/Replacement/Leasing Reserve in the amount of $509,520.00.
The Property. The Mortgaged Property securing the Redmond East Loan
includes ten office/industrial buildings located on seven parcels (either
contiguous or separated by roadways) in Redmond, Washington which have an
aggregate gross leasable area ("GLA") of approximately 395,034 square feet,
including approximately 326,100 square feet of GLA comprised of office,
laboratory and assembly space and approximately 68,934 square feet of GLA
comprised of storage space. Such Mortgaged Property also contains 1100 outdoor
parking spaces. The occupancy rate as of December 1995 for such Mortgaged
Property was, based on GLA, approximately 96%.
The ClubHouse Loans and Properties
The Loans. The Mortgage Loans herein designated as the "ClubHouse
Loans" have an aggregate Cut-off Date Balance of approximately $24,244,468
(11.4% of the Initial Pool Balance) and consist of five individual loans to five
affiliated borrowers (each separate loan is an "Individual ClubHouse Loan").
Each Individual ClubHouse Loan is evidenced by a separate Mortgage Note and
secured by a Mortgage on a separate hotel property (all five hotel properties
are, collectively, the "ClubHouse Properties"). The Individual ClubHouse Loans
secured by Mortgages encumbering the ClubHouse Properties located in Omaha,
Nebraska, Overland Park, Kansas, Knoxville, Tennessee and Atlanta, Georgia are
cross-collateralized and cross-defaulted (such Individual ClubHouse Loans,
collectively, the "ClubHouse Crossed Loans"). The Individual ClubHouse Loan
secured by a Mortgage encumbering the ClubHouse Property located in Wichita,
Kansas (the "Wichita ClubHouse Loan") is not cross-defaulted or
cross-collateralized with any of the ClubHouse Crossed Loans.
The Borrowers. The five borrowers and the respective amounts of their
Individual ClubHouse Loans are (i) Omaha C.I. Associates, L.P., a Kansas limited
partnership ($6,002,015 Cut-off Date Balance), (ii) Overland Park C.I.
Associates, L.P., a Kansas limited partnership ($5,177,235 Cut-off Date
Balance), (iii) Knoxville C.I. Associates, L.P., a Tennessee limited partnership
($4,849,310 Cut-off Date Balance), (iv) Atlanta C.I. Associates II, L.P., a
Kansas limited partnership ($4,839,373 Cut-off Date Balance) and (v) Wichita
C.I. Associates III, L.P., a Kansas limited partnership ($3,376,535 Cutoff Date
Balance) (such entities set forth in clauses (i) through (iv) are collectively
the "ClubHouse Crossed Borrowers"; and such entities set forth in clauses (i)
through (v) are collectively the "ClubHouse Borrowers"). Each of the ClubHouse
Borrowers is a special purpose entity organized to engage solely in the business
of owning, operating and financing its respective ClubHouse Property. C.I.
General, L.L.C., a Kansas limited liability company, is a special purpose entity
and the sole general partner of each of the ClubHouse Crossed Borrowers. C.I.
Wichita General, L.L.C., a Kansas limited liability company, is a special
purpose entity and the sole general partner of Wichita C.I.
Associates III, L.P.
Security. The ClubHouse Loans are non-recourse loans secured, in the
case of the ClubHouse Crossed Loans, by Mortgages encumbering the ClubHouse
Properties located in Omaha, Nebraska, Overland Park, Kansas, Knoxville,
Tennessee and Atlanta, Georgia, and, in the case of the Wichita ClubHouse Loan,
solely by a Mortgage encumbering the ClubHouse Property located in Wichita,
Kansas, and in each case by such other collateral therefor (including
assignments of leases and rents; assignments of documents and property rights; a
security interest in, subject to certain exceptions, all of the accounts,
chattel paper, documents, general intangibles, instruments, equipment, inventory
and contracts; and the funds in certain accounts), and neither the ClubHouse
Borrowers nor any of their affiliates is liable for the payment thereof. There
are exceptions to the non-recourse provisions for any fraud, misappropriation of
funds or intentional misrepresentation by or on behalf of the ClubHouse
Borrowers or any affiliate thereof under the documents related to the ClubHouse
Loans and for covenants, indemnities, warranties and obligations contained in
such documents with respect to environmental matters. The Mortgage on the
ClubHouse Property in Wichita, Kansas secures only the Mortgage Note evidencing
the Wichita ClubHouse Loan. The Mortgage on each remaining ClubHouse Property
secures all of the Mortgage Notes evidencing the ClubHouse Crossed Loans.
S-39
<PAGE>
<PAGE>
Payment Terms. The Wichita ClubHouse Loan was originated by the
Mortgage Loan Seller on September 14, 1995 and bears interest at a fixed rate
per annum of 7.95%. The maturity date of the Wichita ClubHouse Loan is October
1, 2005. The Wichita ClubHouse Loan requires monthly payments equal to
$28,333.25 and, assuming no prepayment of such loan, a Balloon Payment of
$2,353,106 at maturity.
The ClubHouse Crossed Loans were originated by the Mortgage Loan Seller
on September 14, 1995 and each bears interest at a fixed rate per annum of
8.70%. The maturity date for each of the ClubHouse Crossed Loans is October 1,
2005, at which time Balloon Payments in the following respective amounts will be
due assuming no prepayments of such loans: (i) $4,274,908 (Omaha, Nebraska),
(ii) $3,687,462 (Overland Park, Kansas), (iii) $3,453,899 (Knoxville, Tennessee)
and (iv) $3,446,821 (Atlanta, Georgia).
Interest on the ClubHouse Loans will be calculated based on a 360-day
year consisting of twelve 30-day months.
Prepayment. The ClubHouse Loans permit the voluntary prepayment thereof
in whole at par, without penalty, during the 90-day period immediately preceding
the maturity date of such loans. At all other times, the ClubHouse Loans may
generally be prepaid in whole or in part upon the payment of a yield maintenance
payment.
Releases for Payment. Provided that certain debt service coverage and
loan to value ratios are met, the ClubHouse Crossed Borrowers may obtain
releases of individual ClubHouse Properties securing the ClubHouse Crossed Loans
upon payment of accrued interest, the prepayment consideration and a release
price equal to 125% of the outstanding principal balance of the related Mortgage
Note (or 100% thereof if a casualty or condemnation has occurred and the lender
has not made the net proceeds available for restoration). The additional 25%
would be applied pro rata to the remaining ClubHouse Crossed Loans.
Transfer of Properties and Interests in Borrower. The ClubHouse Loans
generally prohibit the ClubHouse Borrowers from permitting any interest in any
ClubHouse Property to be sold, conveyed, assigned, mortgaged, encumbered,
hypothecated or otherwise transferred or disposed of and further prohibit any
issuance, grant, sale, conveyance and/or other transfer of any general
partnership interest in the ClubHouse Borrower.
Reserves. Under the terms of the ClubHouse Loans the ClubHouse
Borrowers have established a reserve for specified repairs pursuant to which the
following amounts were deposited as additional security: (i) $1,463 (Omaha,
Nebraska), (ii) $4,161 (Overland Park, Kansas), (iii) $4,763 (Knoxville,
Tennessee), (iv) $1,500 (Atlanta, Georgia) and (v) $13,485 (Wichita, Kansas). In
addition, each ClubHouse Borrower is required to establish and maintain a
reserve account for the replacement of fixtures, furniture and equipment in an
amount equal to 4% of gross revenues generated during the preceding month.
The Properties. The ClubHouse Properties include five ClubHouse Inns.
The size of the hotels range from 120 rooms to 147 rooms with a total of 684
rooms. The average occupancy rate of the four hotels securing the ClubHouse
Crossed Loans for the twelve-month period ended July 31, 1995, was approximately
76%, and the average daily room rate of such four hotels for such twelve-month
period was approximately $62.97. The average occupancy rate of the hotel
securing the Wichita ClubHouse Loan for the twelve-month period ended July 31,
1995, was approximately 80%, and the average daily room rate for such hotel for
such twelve-month period was approximately $64.24.
ClubHouse Inn - Omaha. The ClubHouse Inn - Omaha, located on
approximately 3.3 acres in Omaha, Nebraska, is a two-story, 137-room, mid-rate,
limited service hotel which was developed by ClubHouse and opened in 1991. The
site contains approximately 142,659 square feet. The 137 guest room count
contains 76 singles, 44 doubles and 17 suites (including three rooms with
jacuzzis and four rooms equipped for the handicapped). For the twelve-month
period ended July 31, 1995, this
S-40
<PAGE>
<PAGE>
ClubHouse Property had a 78% occupancy rate, with a $63.57 average daily rate
and $49.84 in daily revenue per available room.
ClubHouse Inn - Overland Park. The ClubHouse Inn - Overland Park,
located on approximately 3.8 acres in Overland Park, Kansas, is a three-story,
143-room, mid-rate, limited service hotel which was developed by ClubHouse and
opened in 1988. The site contains approximately 166,399 square feet. The 143
guest room count contains 76 kings, 45 doubles and 22 suites. For the
twelve-month period ended July 31, 1995, this ClubHouse Property had a 76%
occupancy rate, with a $64.55 average daily rate and $48.83 in daily revenue per
available room.
ClubHouse Inn - Knoxville. The ClubHouse Inn - Knoxville, located on
approximately 3.9 acres in Knoxville, Tennessee, is a two-story, 137-room,
mid-rate, limited service hotel which was built by ClubHouse and opened in 1989.
The site contains approximately 168,145 square feet. The 137 guest room count
contains 76 kings, 44 doubles and 17 suites. For the twelve-month period ended
July 31, 1995, this ClubHouse Property had a 73% occupancy rate, with a $63.24
average daily rate and $46.15 in daily revenue per available room.
ClubHouse Inn - Atlanta. The ClubHouse Inn - Atlanta, located on
approximately 3.1 acres in Atlanta, Georgia, is a three-story, 147-room,
mid-rate, limited service hotel which was developed by ClubHouse and opened in
1987. The site contains approximately 135,036 square feet. The 147 guest room
count contains 72 kings, 50 doubles and 25 suites (including four rooms equipped
for the handicapped). For the twelve-month period ended July 31, 1995, this
ClubHouse Property had a 76% occupancy rate, with a $59.36 average daily rate
and $45.00 in daily revenue per available room.
ClubHouse Inn - Wichita. The ClubHouse Inn - Wichita, located on
approximately 2.8 acres in Wichita, Kansas, is a two-story, 120-room, mid-rate,
limited service hotel which was built by ClubHouse and opened in 1985. The site
contains approximately 120,182 square feet. The 120 guest room count contains 63
kings, 38 doubles and 19 suites. For the twelve-month period ended July 31,
1995, this ClubHouse Property had an 80% occupancy rate, with a $64.24 average
daily rate and $51.19 in daily revenue per available room.
Franchise Agreements. Each of the ClubHouse Properties is subject to a
License Agreement between the related ClubHouse Borrower, as franchisee, and
ClubHouse Inns of America, Inc., as franchisor (in such capacity, the "ClubHouse
Franchisor"). Each of the franchise agreements imposes certain obligations on
the ClubHouse Borrower, as franchisee, including the obligation to pay to the
ClubHouse Franchisor a royalty of 4% of gross revenues attributable to rental of
guest rooms at the related hotel ("Gross Room Revenues"), a marketing assessment
of 1.5% of Gross Room Revenues, a reservation assessment of approximately $2.80
per call received by the ClubHouse Franchisor on behalf of the related hotel and
the amount of any sales or other taxes otherwise imposed upon the ClubHouse
Franchisor with respect to the related hotel.
Property Management. Under the terms of five Hotel Management
Agreements between the related ClubHouse Borrower and ClubHouse Inns of America,
Inc., as property manager (in such capacity the "ClubHouse Manager"), the
ClubHouse Borrower has granted to the ClubHouse Manager the sole and exclusive
right, and the ClubHouse Manager has assumed the obligation, to supervise and
direct the management and operation of the ClubHouse Properties for the account
of the ClubHouse Borrowers. The ClubHouse Manager is entitled to a basic
management fee equal to 2% of the monthly gross revenues of the property for so
long as a separate franchise agreement with ClubHouse Inns of America, Inc. is
in effect. If no such franchise agreement is in effect, the basic management fee
is equal to 6% of the monthly gross revenues. The ClubHouse Manager is also
entitled to a percentage management fee equal to 10% of net operating cash flow.
S-41
<PAGE>
<PAGE>
Mortgage Loan History
Nineteen of the Mortgage Loans, or 48.1% of the Initial Pool Balance
(the "Salomon Conduit Loans"), were originated during 1994 and 1995 for sale to
Salomon Brothers Realty Corp. (the "Mortgage Loan Seller") by three of the
participants in the Mortgage Loan Seller's commercial and multifamily mortgage
loan conduit program. Fourteen of the Salomon Conduit Loans, or 36.2% of the
Initial Pool Balance (the "RFG Loans"), were originated by or on behalf of RFG
Financial, Inc. Four of the Salomon Conduit Loans, or 9.5% of the Initial Pool
Balance (the "Union Capital Loans"), were originated by Union Capital
Investments, Inc. One of the Salomon Conduit Loans, or 2.4% of the Initial Pool
Balance (the "Cap Source Loan") was originated by The Cap Source Company, L.L.C.
Midland has serviced each Salomon Conduit Loan since the date of its acquisition
by the Mortgage Loan Seller.
Seven of the Mortgage Loans, or 26.9% of the Initial Pool Balance (the
"Salomon Originated Loans"), including the ClubHouse Loans and the Redmond East
Loan, were directly originated by the Mortgage Loan Seller in 1995. Midland has
serviced each Salomon Originated Loan since the date of its origination.
Seventeen of the Mortgage Loans, or 25.0% of the Initial Pool Balance
(the "Greenwich Loans"), were purchased by the Mortgage Loan Seller in a
negotiated secondary market transaction from Greenwich Capital Financial
Products, Inc. ("Greenwich") in April, 1995. Such loans were purchased by
Greenwich in connection with its multifamily mortgage loan conduit program.
Midland has serviced each Greenwich Loan since the date of its acquisition by
the Mortgage Loan Seller.
No Mortgage Loan will be more than 30 days delinquent as of the Cut-off
Date, and no Mortgage Loan will have been more than 30 days delinquent on more
than one occasion in the twelve-month period immediately preceding the Cut-off
Date.
Certain Terms and Characteristics of the Mortgage Loans
Mortgage Rates; Calculations of Interest. All of the Mortgage Loans
bear interest at annual rates of interest (the "Mortgage Rates") that will
remain fixed for their respective remaining terms.
All of the Mortgage Loans accrue interest on the basis (a "30/360
basis") of a 360-day year consisting of twelve 30-day months. The "30/360"
method produces equal monthly interest charges on a fixed rate, interest-only
loan and is the method used to calculate interest on the Certificates.
Due Dates. All of the Mortgage Loans have Due Dates (that is, the dates
upon which the related Monthly Payments are due) that occur on the first day of
each month.
Amortization. The Mortgage Loans provide for Monthly Payments based on
amortization schedules significantly longer than their terms to maturity,
thereby leaving Balloon Payments due and payable on their respective maturity
dates, unless prepaid prior thereto. See "RISK FACTORS--Balloon Payments"
herein.
Prepayment Provisions. As of the Cut-off Date, all of the Mortgage
Loans either (i) currently permit voluntary principal prepayments provided that
the prepayment is accompanied by an additional amount (a "Prepayment Premium")
in excess of the amount prepaid (23 Mortgage Loans, or 38.8%), or (ii) currently
prohibit voluntary prepayments for a period (a "Lockout Period") ending on a
date specified in the related Mortgage Note (the "Lockout Expiration Date") and,
with limited exception, impose Prepayment Premiums in connection with
prepayments made thereafter (20 Mortgage Loans, or 61.2%). In general, each
Mortgage Loan permits the prepayment thereof without an accompanying Prepayment
Premium during a specified period (an "Open Period"), not exceeding six months,
prior to maturity. Prepayment Premiums required under the Mortgage Loans are
generally calculated (i) solely pursuant to a yield maintenance formula (24
Mortgage Loans, or 67.1%), (ii) solely as a percentage of the amount prepaid,
which percentage declines over time (one Mortgage Loan, or 5.5%), or (iii)
pursuant to a yield maintenance formula until a date specified in the related
Mortgage Note and thereafter as a declining percentage of the amount prepaid (18
Mortgage Loans, or 27.4%).
S-42
<PAGE>
<PAGE>
Prepayment Premiums due in respect of Mortgage Loans that are calculated using
the yield maintenance formula generally will, in each case, equal the present
value of a series of payments, each equal to the applicable Payment Differential
(hereinafter defined), assumed to be made on each Due Date over the remaining
term to original maturity of the Mortgage Loan being prepaid, with each such
assumed payment discounted at the Reinvestment Yield (hereinafter defined) for
the number of months between the date of prepayment and the Due Date on which
such assumed payment is deemed to be made. The term "Reinvestment Yield" as used
herein will be equal to the yield on a specified U.S. Treasury issue (generally
the U.S. Treasury issue (primary issue) with a maturity date closest to, but not
earlier than, the scheduled maturity date of the Mortgage Loan that was prepaid)
and converted to a monthly compounded nominal yield. The term "Payment
Differential" as used herein generally is, with respect to any Due Date, equal
to (x) the Mortgage Rate minus the Reinvestment Yield, divided by (y) 12, and
multiplied by (z) the amount of the prepayment, as reduced each month to account
for assumed scheduled amortization. In some cases, the related Mortgage Note
will provide that a Prepayment Premium calculated based on a yield maintenance
formula may be no less than 1.0% of the amount prepaid. See "DESCRIPTION OF THE
MORTGAGE POOL--Additional Mortgage Loan Information" herein. For so long as the
Offered Certificates are outstanding, Prepayment Premiums, if and to the extent
collected, will generally be allocated between the holders of the Class IO
Certificates and the holders of the Class or Classes of Offered Certificates
then entitled to distributions of principal. Following the retirement of the
Offered Certificates, such Prepayment Premiums will be distributed to the
holders of the REMIC Residual Certificates as described herein under
"DESCRIPTION OF THE CERTIFICATES--Distributions--Prepayment Premiums." Neither
the Depositor nor the Underwriter makes any representation as to the
collectability or enforceability of any Prepayment Premium. See "RISK
FACTORS--The Mortgage Loans--Limitations on Enforceability and Collectability of
Prepayment Premiums" herein and "CERTAIN LEGAL ASPECTS OF MORTGAGE
LOANS--Default Interest and Limitations on Prepayments" in the Prospectus.
Neither the Master Servicer nor the Special Servicer will be permitted
to waive or modify the terms of any Mortgage Loan prohibiting voluntary
prepayments during a Lockout Period or requiring the payment of a Prepayment
Premium except as described herein under "SERVICING OF THE MORTGAGE LOANS--
Modifications, Waivers and Amendments."
Non-recourse Obligations. Most, if not all, of the Mortgage Loans are
non-recourse obligations of the related borrowers and, upon any such borrower's
default in the payment of any amount due under the related Mortgage Loan, the
holder thereof may look only to the related Mortgaged Property for satisfaction
of the borrower's obligations. In addition, in those cases, if any, where
recourse to a borrower or guarantor is permitted by the loan documents, the
Depositor has not undertaken an evaluation of the financial condition of any
such person, and prospective investors should thus consider all of the Mortgage
Loans to be non-recourse.
"Due-on-Sale" and "Due-on-Encumbrance" Provisions. Most of the
Mortgages contain "due-on-sale" and "due-on-encumbrance" clauses that, in
general, permit the holder of the Mortgage to accelerate the maturity of the
related Mortgage Loan if the borrower sells or otherwise transfers or encumbers
the related Mortgaged Property or that prohibit the borrower from doing so
without the consent of the holder of the Mortgage. The Master Servicer or the
Special Servicer, as applicable, will determine, in a manner consistent with the
servicing standard described herein under "SERVICING OF THE MORTGAGE
LOANS--General," whether to exercise any right it may have under any such clause
to accelerate payment of the related Mortgage Loan upon, or to withhold its
consent to, any transfer or further encumbrance of the related Mortgaged
Property; provided that the Special Servicer may not waive any such right it may
have under a "due-on-sale" or "due-on-encumbrance" clause in respect of a
Specially Serviced Mortgage Loan if the Operating Adviser timely objects to such
waiver under the circumstances described herein. See "SERVICING OF THE MORTGAGE
LOANS-The Operating Adviser" herein.
S-43
<PAGE>
<PAGE>
Related Borrowers. There are at least six groups of two or more
Mortgage Loans as to which the related borrowers have been identified as
affiliated with one another through partial or complete common ownership. No
such identified group represents more than 11.4% of the Initial Pool Balance.
The largest such group, by Cut-off Date Balance, consists of the ClubHouse
Loans.
Assessments of Property Condition
Property Inspections. Each Mortgaged Property was inspected by the
related originator or a third party in connection with the origination of the
related Mortgage Loan. In the case of substantially all of the Mortgaged
Properties, the property condition reports indicated that the properties were in
average or better condition as of the respective dates of inspection.
Environmental Assessments. An environmental site assessment was
performed with respect to each Mortgaged Property in connection with the
origination of the related Mortgage Loan. In all cases, the environmental site
assessment was a "Phase I" environmental assessment, generally performed in
accordance with industry practice and American Society For Testing and Materials
Standards E 1527 or their equivalent.
In general, the environmental site assessment reports did not disclose
the existence of any material and adverse environmental condition at any
Mortgaged Property, and indicated that the potential risk of environmental
contamination from observed or assumed conditions (for example, the observed or
assumed presence of asbestos-containing materials or abandoned storage tanks) is
not material to the interests of the holders of the Offered Certificates.
However, as discussed below, the environmental site assessment reports that
pertain to two Mortgaged Properties, representing security for 5.9% of the
Initial Pool Balance, each of which is located in a non-residential area, did
disclose the presence of soil and groundwater contamination on the related
Mortgaged Property.
In the case of the Mortgage Loan identified on Annex A as Loan I.D. No.
25 (which loan represents 2.6% of the Initial Pool Balance), the related site
assessment report indicates that a former owner of the related Mortgaged
Property is the "responsible party" under the New Jersey Environmental Cleanup
Responsibility Act with respect to the soil and groundwater contamination
described in such report, which conditions presently are being monitored by such
former owner under the supervision of the New Jersey Department of Environmental
Protection and Energy.
The environmental site assessment report prepared in connection with
the origination of the Mortgage Loan identified on Annex A as Loan I.D. No. 23
(which loan represents 3.3% of the Initial Pool Balance) also reports the
presence of certain contaminated soil and groundwater at the related Mortgaged
Property. A representative of the Texas Natural Resources Conservation
Commission (the "TNRCC") has informally indicated to a representative of the
Depositor that these conditions are considered by the TNRCC to be of "low
priority", as they pose no "immediate health hazard." The Depositor has also
been informed by the borrower's environmental consultant that, although this
case has not yet been closed by the TNRCC, the source of contamination has been
eliminated and the conditions are being remediated on an ongoing basis as
recommended in the site assessment report. See "RISK FACTORS--Environmental
Risks" and CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS--Environmental Legislation"
in the Prospectus.
There can be no assurance that the environmental site assessment
reports prepared in connection with the origination of the Mortgage Loans,
individually or collectively, revealed all environmental risk to the Trust Fund.
Additional Mortgage Loan Information
For a detailed presentation of certain of the characteristics of the
Mortgage Loans and the Mortgaged Properties, on an individual basis, see Annex A
hereto. Certain additional information regarding the Mortgage Loans is contained
herein under "--Assignment of the Mortgage Loans; Repurchases" and
"--Representations and Warranties; Repurchases," and in the Prospectus under
"Description of the Trust Funds" and "Certain Legal Aspects of Mortgage Loans."
S-44
<PAGE>
<PAGE>
Each of the following tables sets forth certain characteristics of the
Mortgage Pool presented, where applicable, as of the Cut-off Date. For purposes
of such tables and for Annex A:
(1) References to "Remaining Amort. Term" are references to
the remaining amortization terms of the Mortgage Loans.
(2) References to "DSCR" are references to "Debt Service
Coverage Ratios." Debt service coverage ratios are used by income
property lenders to measure the ratio of (a) cash currently generated
by a property that is available for debt service (that is, cash that
remains after payment of non-capital expenses of operation) to (b)
required debt service payments. However, debt service coverage ratios
only measure the current, or recent, ability of a property to service
mortgage debt. If a property does not possess a stable operating
expectancy (for instance, if it is subject to material leases that are
scheduled to expire during the loan term and that provide for
above-market rents and/or that may be difficult to replace), a debt
service coverage ratio may not be a reliable indicator of a property's
ability to service the mortgage debt over the entire remaining loan
term. In addition, a debt service coverage ratio may not adequately
reflect the significant amounts of cash that a property owner may be
required to expend to pay for capital improvements, and for tenant
improvements and leasing commissions when expiring leases are replaced.
The "Debt Service Coverage Ratio" for any Mortgage Loan is the ratio of
"Assumed Net Cash Flow" estimated to be produced by the related
Mortgaged Property to the annual amount of debt service payable under
that Mortgage Loan. "Assumed Net Cash Flow" for a Mortgaged Property
has been determined by making certain adjustments to information
contained in financial and operating statements supplied by the related
borrowers based on certain assumptions as hereinafter described. Such
statements were in most cases unaudited, and neither the Depositor nor
the Underwriter verified their completeness or accuracy.
The "revenue" component of "Assumed Net Cash Flow" was
determined by making the following assumptions as to the revenue of the
property based upon its property type and, accordingly, the following
adjustments were made to the borrower-reported revenue, including the
adjustment of non-rental income from the amount reported to eliminate
non-recurring items and non-property related revenue, for the following
property types:
Multifamily Loans. For each Mortgage Loan that is secured by a
Mortgage encumbering a multifamily property (a "Multifamily Loan"), the
revenue component of "Assumed Net Cash Flow" is comprised of (i)
effective annual gross rental income calculated by using either (a) to
the extent available to the Depositor, the actual base rent reported by
the related borrower for a consecutive twelve-month period ending with
the latest month subsequent to July, 1995 as to which such reports are
available (such reports, "Trailing Twelve Month Reports") or (b) if the
base rent data described in the immediately preceding clause (a) is not
available to the Depositor, the lesser of (1) the potential annual
gross rental income derived from the most recent borrower-supplied rent
roll of the related Mortgaged Property, adjusted for a vacancy
allowance reflecting a five percent (5%) annual vacancy rate at such
Mortgaged Property (if such is greater than the actual annual vacancy
rate at such Mortgaged Property reflected in such rent roll), and (2)
the annualized gross rental income derived from the most recent
borrower-supplied year-to-date operating statement of the related
Mortgaged Property, and (ii) any additional income generated by the
related Mortgaged Property (x) in the case of clause (i)(b)(1), as
reported by the related borrower for the calendar year 1994 without any
adjustment for inflation, and (y) in the case of clause (i)(a) or
clause (i)(b)(2), as derived from such Trailing Twelve Month Reports or
year-to-date operating statement, as the case may be, for such
Mortgaged Property.
Hotel Loans. For each Mortgage Loan that is secured by a
Mortgage encumbering a hotel property (a "Hotel Loan"), the revenue
component of "Assumed Net Cash Flow" is comprised of (i) actual room
revenue reported in Trailing Twelve Month Reports, and (ii)
S-45
<PAGE>
<PAGE>
additional actual income generated by the related Mortgaged Property as
reflected in Trailing Twelve Month Reports.
Retail, Office and Industrial Loans. For each Mortgage Loan
that is secured by a Mortgage encumbering a retail, office and/or
industrial property (a "ROI Loan"), the revenue component of "Assumed
Net Cash Flow" is (a) comprised of (i) annualized in-place base rents
reported in the most recent borrower-supplied rent roll of the related
Mortgaged Property, (ii) in most cases, expense reimbursements required
to be made by tenants pursuant to the terms of their respective leases
or, in some cases, annualized expense reimbursements based upon figures
reported in such rent roll or in previous historical statements, and
(iii) percentage rent, if any, expected to be generated by Credit
Tenants (as defined below) at the related Mortgaged Property who have a
three-year history of paying percentage rent, in an amount generally
equal to the lowest rent paid during such three-year period, and (b)
appropriately adjusted (if necessary) for a vacancy allowance that
reflects the greatest of (i) the vacancy and credit loss allowance
based on the assumptions made in connection with the underwriting of
the such Mortgage Loan at the time of its origination, (ii) the actual
annual vacancy rate at such Mortgaged Property reflected in such rent
roll and (iii) a 5% annual vacancy and credit loss allowance. For the
purposes hereof, with respect to any Mortgaged Property, a "Credit
Tenant" shall mean a tenant at such Mortgaged Property having long term
debt obligations which are rated not less than investment grade.
The "expense" component of "Assumed Net Cash Flow" is, in
general, based upon the annual operating expenses as shown in the
borrower-supplied operating statements or, in some cases, the expenses
used in the original underwriting of the Mortgage Loan. In determining
"Assumed Net Cash Flow", the following assumptions were made as to the
expenses of a Mortgaged Property based upon its property type and,
accordingly, the following adjustments were made to the reported
expenses, including adjustments to reflect (A) the most recent tax or
insurance expense information provided, in most cases, by Midland or,
in some cases, by the originator of the related Mortgage Loan or
reflected in Trailing Twelve Month Reports and (B) that expenses
reported on an accrual basis were adjusted to reflect actual cash
expenses and items reported by borrowers as operating expenses were
re-characterized as capital expenditures (thus increasing "Assumed Net
Cash Flow") where deemed appropriate. The expense component of Assumed
Net Cash Flow was determined in the following manner for the following
property types:
Multifamily Loans. For each Multifamily Loan, the expense
component of "Assumed Net Cash Flow" is determined based upon (i) the
actual 1995 real property tax and insurance premium expense figures
provided, in most cases, by Midland or, in some cases, by the
originator of the related Mortgage Loan or reflected in Trailing Twelve
Month Reports, (ii) an assumed annual management fee equal to 4% of
effective annual gross rental income generated by the related Mortgaged
Property if such Mortgaged Property has 100 or more units or 5% of
effective annual gross rental income generated by the related Mortgaged
Property if such Mortgaged Property has less than 100 units, (iii)
annualized monthly deposits into a replacement reserve account in an
amount generally based on the amount disclosed in the related
engineering report as the estimated cost of recommended replacements,
and (iv) all other expenses, determined as described below. The items
constituting "all other expenses" referred to in the immediately
preceding clause (iv) are the additional expenses reported in Trailing
Twelve Month Reports or, if such reports were not available to the
Depositor, the historical expenses reported in the operating statement
of the related Mortgaged Property for the calendar year 1994, adjusted
upward at an annual rate of 4% to the end of the period covered by the
source reports from which gross income was determined (for example, if
the source report for base rents is dated June 30, 1995, expenses from
1994 were adjusted upward by 2%). If such 1994 expense figures were not
available, annualized 1995 year-to-date expense figures were utilized.
Downward adjustments were made to the items
S-46
<PAGE>
<PAGE>
of "all other expenses" determined as set forth above to reflect the
deletion therefrom of operating statement line items such as capital
expenditures, interest, amortization, depreciation and the like.
Hotel Loans. For each Hotel Loan, the expense component of
"Assumed Net Cash Flow" is determined based upon (i) the actual real
property tax and insurance premium expense as reflected in Trailing
Twelve Month Reports, (ii) an assumed annual management fee equal to 4%
of the gross annual income generated by the related Mortgaged Property
as such gross annual income is reflected in Trailing Twelve Month
Reports, (iii) an assumed annual franchise fee equal to 4% of room
revenue generated by the related Mortgaged Property as such room
revenue is reflected in Trailing Twelve Month Reports, (iv) annualized
monthly deposits into a replacement reserve account in an amount equal
to 4% of room revenue generated by the related Mortgaged Property as
such room revenue is reflected in Trailing Twelve Month Reports, and
(v) all other expenses reflected in Trailing Twelve Month Reports.
Retail, Office and Industrial Loans. For each ROI Loan, the
expense component of "Assumed Net Cash Flow" is determined based upon
(i) the actual 1995 real property tax and insurance premium expense
figures provided, in most cases, by Midland or, in some cases, by the
originator of the related Mortgage Loan or reflected in Trailing Twelve
Month Reports, (ii) an assumed annual management fee equal to, in most
cases, 4% or, in some cases, 5% of the total annual revenue generated
by the related Mortgaged Property, (iii) all other expenses, determined
as described below. The items constituting "all other expenses"
referred to in the immediately preceding clause (iii) are the
additional expenses used in the original underwriting of the Mortgage
Loan or the additional historical expenses reported in the operating
statement of the related Mortgaged Property for the calendar year 1994,
adjusted upward at an annual rate of 4% to the end of the period
covered by the source reports from which base rent was determined (for
example, if the source report for base rents is dated June 30, 1995,
expenses from 1994 were adjusted upward by 2%). If such original
underwriting expenses were not used and such 1994 expense figures were
not available, annualized 1995 year-to-date expense figures were
utilized. Downward adjustments were made to the items of "all other
expenses" determined as set forth above to reflect the deletion
therefrom of operating statement line items such as capital
expenditures, interest, amortization, depreciation and the like.
The following additional items were also reflected in the
expense components of the respective "Assumed Net Cash Flows" in
respect of the ROI Loans: (a) replacement reserve requirements ranging
from 15 to 25 cents per rentable square foot ("prsf"); (b) estimated
tenant improvement costs ("Normalized Tenant Improvement Costs"),
assuming that tenants (other than Credit Tenants with remaining lease
terms in excess of ten years) renew their expiring leases at a rate of
60%, estimated at a range of rates for renewal tenants of $0 to $3.00
prsf and at the following ranges of rates for new tenants: $2.50 to
$8.00 prsf for retail properties; $1.25 to $1.50 prsf for outlet center
properties; and $4.00 to $10.00 prsf for office properties; and (c)
estimated leasing commissions ("Normalized Leasing Commissions"),
assuming that tenants (other than Credit Tenants with remaining lease
terms in excess of ten years) renew their expiring leases at a rate of
60%, at rates, expressed as a percentage of a stabilized base rental
rate, ranging from 3% to 5% for new tenants and from 0% to 2.5% for
renewal tenants. Normalized Tenant Improvement Costs and Normalized
Leasing Commissions are each adjusted downward to reflect occupancy
adjustments with respect to the related Mortgaged Property and also are
reduced by the portion described below of the remaining lease rollover
reserve established at the closing of the related ROI Loan. The balance
of the rollover reserve with respect to each ROI Loan was provided by
Midland. Each such balance has been divided by the number of years
remaining on the term of the related ROI Loan, and the aggregate of
S-47
<PAGE>
<PAGE>
the related Normalized Tenant Improvement Costs and the related
Normalized Leasing Commissions has been reduced by the amount of the
annual reserve so determined.
Assumed Net Cash Flows and the revenues and expenditures used
to determine Assumed Net Cash Flows for each Mortgaged Property are
largely derived from information furnished by the respective borrowers.
Net income for a Mortgaged Property as determined under generally
accepted accounting principles ("GAAP") would not be the same as the
stated Assumed Net Cash Flows for such Mortgage Property as set forth
in the tables herein. In addition, Assumed Net Cash Flows are not a
substitute for or comparable to net operating income as determined in
accordance with GAAP as a measure of the results of a property's
operations or a substitute for cash flows from operating activities
determined in accordance with GAAP as a measure of liquidity.
The Debt Service Coverage Ratios presented herein are
presented for illustrative purposes only and, as discussed above, are
limited in their usefulness in assessing the current, or predicting the
future, ability of a Mortgaged Property to generate sufficient cash
flow to repay the related Mortgage Loan. Accordingly, no assurance can
be given, and no representation is made, that the Debt Service Coverage
Ratios accurately reflect that ability.
(3) "Adjusted 1994 NOI" for a Mortgaged Property has been
determined by adjusting the 1994 net operating income as reported by
the related borrower (i) upward to net out (a) amortization, (b)
depreciation, (c) interest expense and (d) non-recurring capital items
and (ii) downward to reflect (a) replacement reserves used in computing
Assumed Net Cash Flow and (b) interest income.
(4) References in the tables to "Loan to Origination Date
Values" are references to the ratio, expressed as a percentage, of the
Cut-off Date Balance of a Mortgage Loan to the corresponding value of
the related Mortgaged Property as reflected in the appraisal prepared
in connection with the origination of such Mortgage Loan. The Mortgaged
Properties were not, in most cases, recently appraised by professional
third-party appraisers. The fair market values of most of the Mortgaged
Properties shown on the appraisals thereof prepared in connection with
the origination of the related Mortgage Loans, are unlikely to be
reliable indicators of their current market values.
Accordingly, investors should not place undue reliance on the
Loan to Origination Date Values for the Mortgage Loans. No
representation is made that any origination date appraised value would
approximate either the value that would be determined in a current
appraisal of the related Mortgaged Property or the amount that would be
realized upon a sale.
(5) References to "Years Built" are references to the year in
which a Mortgaged Property was originally constructed.
(6) References to "weighted averages" and "wtd. avg." are
references to averages weighted on the basis of the Cut-off Date
Balances of the related Mortgage Loans.
(7) In the context of prepayment restrictions, references to
(a) "Yield Maint." are references to Prepayment Premiums calculated on
the basis of a yield maintenance formula, (b) "greater of 1% and Yield
Maint." and "greater of 1%/Yield Maint." are references to Prepayment
Premiums calculated on the basis of a yield maintenance formula,
subject to a minimum amount of no less than 1.0% of the amount prepaid,
and (c) "Declining %" or "Declining Pct." are references to Prepayment
Premiums calculated as a percentage of the amount prepaid, which
percentage declines over time.
The sum in any column of any of the following tables may not equal the
indicated total due to rounding.
S-48
<PAGE>
<PAGE>
PROPERTY TYPES
<TABLE>
<CAPTION>
Weighted Averages
--------------------------------------------------------
Aggregate % by Agg. Highest Stated Remaining Loan to
Property Number of Cut-off Date Cut-off Date Cut-off Date Mortgage Remaining Amort. Orig. Date
Types Loans Balance Balance Balance Rate Term (Mo.) Term (Mo.) DSCR Value
------- ------- --------- --------- --------- ------ ---------- ---------- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Multifamily 21 $ 73,154,562 34.50% $11,745,454 9.478% 83 338 1.31x 70.38%
Retail 12 66,397,916 31.31 11,623,738 9.494 74 315 1.29 68.03
Office/Industrial 1 28,276,818 13.34 28,276,818 8.375 119 323 1.26 65.00
Hotel 5 24,244,468 11.43 6,002,015 8.596 116 236 1.88 62.15
Retail/Office 2 10,825,137 5.11 5,539,426 8.808 99 298 1.38 66.38
Industrial 1 5,425,637 2.56 5,425,637 10.875 49 229 1.34 51.67
Office 1 3,721,096 1.75 3,721,096 10.625 44 224 1.52 50.97
- -----------------------------------------------------------------------------------------------------------------------------------
TOTALS 43 $212,045,634 100.00% 9.256 88 310 1.37x 66.96%
</TABLE>
STATES
<TABLE>
<CAPTION>
Weighted Averages
--------------------------------------------------------
Aggregate % by Agg. Cum. % of Stated Remaining Loan to
Number Cut-off Date Cut-off Date Initial Pool Mortgage Remaining Amort. Orig. Date
States of Loans Balance Balance Balance Rate Term (Mo.) Term (Mo.) DSCR Value
------ -------- --------- --------- ------------ ------ ---------- ---------- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Georgia 11 $47,729,859 22.51% 22.51% 9.379% 92 325 1.37x 67.63%
Texas 9 28,950,583 13.65 36.16 10.127 71 320 1.32 68.80
Washington 1 28,276,818 13.34 49.50 8.375 119 323 1.26 65.00
New Jersey 4 26,930,810 12.70 62.20 9.281 66 282 1.29 62.88
Florida 4 22,417,866 10.57 72.77 9.268 83 338 1.28 69.25
Nevada 1 11,745,454 5.54 78.31 9.550 67 343 1.23 73.16
Kansas 2 8,553,770 4.03 82.34 8.404 116 236 2.16 56.94
Nebraska 1 6,002,015 2.83 85.17 8.700 116 236 1.72 69.79
Connecticut 1 5,539,426 2.61 87.79 8.625 82 298 1.38 72.41
New York 3 5,527,686 2.61 90.39 10.725 58 254 1.50 55.32
Tennessee 1 4,849,310 2.29 92.68 8.700 116 236 1.72 66.43
Arizona 1 4,597,097 2.17 94.85 9.000 78 354 1.30 74.75
Oklahoma 1 3,646,390 1.72 96.57 8.375 119 299 1.28 72.21
South Carolina 1 3,400,148 1.60 98.17 8.800 115 355 1.34 74.73
Maryland 1 2,536,028 1.20 99.37 10.125 42 281 1.43 56.36
Louisiana 1 1,342,375 0.63 100.00 10.700 70 346 1.35 72.56
- ------------------------------------------------------------------------------------------------------------------------------
TOTALS 43 $212,045,634 100.00% 9.256% 88 310 1.37x 66.96%
</TABLE>
YEAR BUILT
<TABLE>
<CAPTION>
Weighted Averages
-------------------------------------------------------
Aggregate % by Agg. Cum. % of Stated Remaining Loan to
Number Cut-off Date Cut-off Date Initial Pool Mortgage Remaining Amort. Orig. Date
Range of Years Built of Loans Balance Balance Balance Rate Term (Mo.) Term (Mo.) DSCR Value
-------------------- -------- --------- --------- --------- ------ ---------- ---------- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Prior to 1951 5 $20,280,411 9.56% 9.56% 9.865% 74 264 1.41x 58.93%
1951 - 1960 4 21,509,491 10.14 19.71 9.452 78 314 1.33 68.35
1961 - 1970 8 20,015,874 9.44 29.15 9.515 88 327 1.40 68.98
1971 - 1980 10 41,422,198 19.53 48.68 9.527 81 340 1.26 70.30
1981 - 1990 15 102,815,645 48.49 97.17 8.969 94 308 1.39 66.36
After 1990 1 6,002,015 2.83 100.00 8.700 116 236 1.72 69.79
- -----------------------------------------------------------------------------------------------------------------------------------
TOTALS 43 $212,045,634 100.00% 9.256% 88 310 1.37x 66.96%
</TABLE>
S-49
<PAGE>
<PAGE>
DEBT SERVICE COVERAGE RATIOS
<TABLE>
<CAPTION>
Weighted Averages
----------------------------------------------------------
Range of
Debt Service Aggregate % by Agg. Cum. % of Stated Remaining Loan to
Coverage Number of Cut-off Date Cut-off Date Initial Pool Mortgage Remaining Amort. Orig. Date
Ratios Loans Balance Balance Balance Rate Term (Mo.) Term (Mo.) DSCR Value
------ --------- ------------ ------------ ------------ -------- ---------- ---------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.10x - 1.19x 4 $10,661,311 5.03% 5.03% 9.605% 72 335 1.13x 71.38%
1.20x - 1.29x 10 95,398,118 44.99 50.02 9.225 85 326 1.25 68.24
1.30x - 1.39x 14 56,138,509 26.47 76.49 9.249 94 315 1.34 67.03
1.40x - 1.49x 4 14,917,639 7.04 83.53 9.640 67 316 1.46 68.69
1.50x - 1.59x 5 9,774,681 4.61 88.14 10.096 60 284 1.55 59.22
1.60x - 1.69x 0 0 0.00 88.14 0.000 0 0 0.00 0.00
1.70x - 1.79x 5 21,778,841 10.27 98.41 8.803 114 238 1.73 64.71
1.80x - 1 3,376,535 1.59 100.00 7.950 116 236 2.82 45.02
- ------------------------------------------------------------------------------------------------------------------------------
TOTALS 43 $212,045,634 100.00% 9.256% 88 310 1.37x 66.96%
</TABLE>
LOAN TO ORIGINATION DATE VALUES
<TABLE>
<CAPTION>
Weighted Averages
--------------------------------------------------------
Range of Loan to Aggregate % by Agg. Cum. % of Stated Remaining Loan to
Origination Date Number of Cut-off Date Cut-off Date Initial Pool Mortgage Remaining Amort. Orig. Date
Values Loans Balance Balance Balance Rate Term (Mo.) Term (Mo.) DSCR Value
------ --------- ------------ ------------ ------------ -------- ---------- ---------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
45.00% - 49.99% 1 $3,376,535 1.59% 1.59% 7.950% 116 236 2.82x 45.02%
50.00% - 54.99% 3 10,277,869 4.85 6.44 10.672 49 240 1.43 51.66
55.00% - 59.99% 4 10,866,884 5.12 11.56 9.457 85 264 1.63 58.00
60.00% - 64.99% 6 25,118,602 11.85 23.41 9.781 91 309 1.39 63.45
65.00% - 69.99% 12 88,689,768 41.83 65.24 9.103 92 311 1.32 66.79
70.00% - 74.99% 17 73,715,976 34.76 100.00 9.095 87 331 1.31 72.83
- -----------------------------------------------------------------------------------------------------------------------------------
TOTALS 43 $212,045,634 100.00% 9.256% 88 310 1.37x 66.96%
</TABLE>
MORTGAGE RATES
<TABLE>
<CAPTION>
Weighted Averages
--------------------------------------------------------
Aggregate % by Agg. Cum. % of Stated Remaining Loan to
Range of Number of Cut-off Date Cut-off Date Initial Pool Mortgage Remaining Amort. Orig. Date
Mortgage Rates Loans Balance Balance Balance Rate Term (Mo.) Term (Mo.) DSCR Value
-------------- --------- ------------ ------------ ------------ -------- ---------- ---------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7.50% - 7.99% 1 $ 3,376,535 1.59% 1.59% 7.950% 116 236 2.82x 45.02%
8.00% - 8.49% 3 38,868,662 18.33 19.92 8.330 119 327 1.27 67.30
8.50% - 8.99% 12 65,800,868 31.03 50.95 8.753 90 284 1.45 68.53
9.00% - 9.49% 5 26,129,747 12.32 63.28 9.135 97 332 1.27 68.33
9.50% - 9.99% 9 32,682,335 15.41 78.69 9.715 74 340 1.32 68.97
10.00% -10.49% 5 12,343,297 5.82 84.51 10.170 67 316 1.39 65.51
10.50% -10.99% 6 24,995,439 11.79 96.30 10.721 63 290 1.30 62.79
11.00% -11.49% 2 7,848,751 3.70 100.00 11.019 50 340 1.32 64.25
- -----------------------------------------------------------------------------------------------------------------------------------
TOTALS 43 $212,045,634 100.00% 9.256% 88 310 1.37x 66.96%
</TABLE>
S-50
<PAGE>
<PAGE>
STATED REMAINING TERMS TO SCHEDULED MATURITY
<TABLE>
<CAPTION>
Weighted Averages
--------------------------------------------------------
Range of
Stated Aggregate % by Agg. Cum. % of Stated Remaining Loan to
Remaining Number of Cut-off Date Cut-off Date Initial Pool Mortgage Remaining Amort. Orig. Date
Terms(mo.) Loans Balance Balance Balance Rate Term (mo.) Term (mo.) DSCR Value
---------- --------- ------------ ------------ ------------ -------- ---------- ---------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
25 -36 1 $11,623,738 5.48% 5.48% 8.875% 29 293 1.22x 66.52%
37 -48 3 13,194,967 6.22 11.70 10.726 45 300 1.37 59.30
49 -60 1 5,425,637 2.56 14.26 10.875 49 229 1.34 51.67
61 -72 15 57,226,016 26.99 41.25 10.008 69 335 1.28 70.28
73 -84 6 27,630,081 13.03 54.28 8.851 80 306 1.38 70.57
85 -96 0 0 0.00 54.28 0.000 0 0 0.00 0.00
97 -108 3 6,815,044 3.21 57.49 10.028 106 346 1.31 64.38
109 -120 14 90,130,151 42.51 100.00 8.582 117 302 1.45 66.05
- -----------------------------------------------------------------------------------------------------------------------------------
TOTALS 43 $212,045,634 100.00% 9.256% 88 310 1.37x 66.96%
</TABLE>
SEASONING
<TABLE>
<CAPTION>
Weighted Averages
--------------------------------------------------------
Aggregate % by Agg. Cum. % of Stated Remaining Loan to
Range of Number of Cut-off Date Cut-off Date Initial Pool Mortgage Remaining Amort. Orig. Date
Seasoning(mo.) Loans Balance Balance Balance Rate Term (mo.) Term (mo.) DSCR Value
-------------- --------- ------------ ------------ ------------ -------- ---------- ---------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 - 6 19 $115,179,657 54.32% 54.32% 8.623% 109 303 1.43x 67.28%
7 -12 6 28,672,444 13.52 67.84 9.866 53 290 1.29 63.53
13 -18 17 65,657,505 30.96 98.80 10.068 67 333 1.30 68.32
19 -24 1 2,536,028 1.20 100.00 10.125 42 281 1.43 56.36
- ----------------------------------------------------------------------------------------------------------------------------------
TOTALS 43 $212,045,634 100.00% 9.256% 88 310 1.37x 66.96%
</TABLE>
CUT-OFF DATE BALANCES
<TABLE>
<CAPTION>
Weighted Averages
-----------------------------------------------------
Aggregate % by Agg. Cum. % of Stated Remaining Loan to
Range of Number of Cut-off Date Cut-off Date Initial Pool Mortgage Remaining Amort. Orig. Date
Date Balances Loans Balance Balance Balance Rate Term (mo.) Term (mo.) DSCR Value
------------- --------- ------------ ------------ ------------ -------- ---------- ---------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$400,000 - $499,999 1 $483,244 0.23% 0.23% 9.900% 66 342 1.52x 74.35%
$500,000 - $749,999 1 594,762 0.28 0.51 9.900 66 342 1.14 74.35
$750,000 - $999,999 2 1,806,590 0.85 1.36 10.932 88 316 1.46 64.28
$1,000,000 - $2,499,999 7 10,729,352 5.06 6.42 10.146 73 327 1.40 67.11
$2,500,000 - $4,999,999 15 60,842,760 28.69 35.11 9.004 98 294 1.49 65.36
$5,000,000 - $7,499,999 13 77,926,869 36.75 71.86 9.555 85 310 1.36 67.84
$7,500,000 - $9,999,999 1 8,016,048 3.78 75.64 9.850 70 346 1.25 68.51
$10,000,000 - $12,499,999 2 23,369,192 11.02 86.66 9.214 48 318 1.23 69.85
$12,500,000 - $19,999,999 0 0 0.00 86.66 0.000 0 0 0.00 0.00
$20,000,000 - $29,999,999 1 28,276,818 13.34 100.00 8.375 119 323 1.26 65.00
- ------------------------------------------------------------------------------------------------------------------------------------
TOTALS 43 $212,045,634 100.00% 9.256% 88 310 1.37x 66.96%
</TABLE>
- -----------------
Average Cut-off Date Balance: $4,931,294.
S-51
<PAGE>
<PAGE>
PREPAYMENT RESTRICTIONS
<TABLE>
<CAPTION>
Weighted Averages
-------------------------------------------------
Aggregate % by Agg. Highest Stated Remaining Loan to
Prepayment Number Cut-off Date Cut-off Date Cut-off Date Mortgage Remaining Amort. Orig. Date
Restrictions of Loans Balance Balance Balance Rate Term (mo.) Term (mo.) DSCR Value
------------- --------- ------------ ------------ ------------ -------- ---------- ---------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lockout then Yield Maint. 13 $64,372,778 30.36% $6,956,251 9.838% 78 308 1.33x 66.21%
Lockout then greater of
1% and Yield Maint. 6 53,699,257 25.32 28,276,818 8.411 112 319 1.28 67.97
Yield Maint. then Declining % 12 32,653,851 15.40 11,745,454 9.877 72 336 1.35 69.74
Greater of 1% and Yield Maint.
then Declining % 6 25,451,542 12.00 8,016,048 9.577 84 343 1.26 67.95
Yield Maint. Only 5 24,244,468 11.43 6,002,015 8.596 116 236 1.88 62.15
Lockout then Declining % 1 11,623,738 5.48 11,623,738 8.875 29 293 1.22 66.52
- ------------------------------------------------------------------------------------------------------------------------------------
TOTALS 43 $212,045,634 100.00% 9.256% 88 310 1.37x 66.96%
</TABLE>
In those cases involving Mortgage Loans with remaining Lockout Periods, the
weighted average term to the expiration of such Lockout Periods is 3.3 years.
S-52
<PAGE>
<PAGE>
PREPAYMENT RESTRICTIONS BY MORTGAGE RATE
<TABLE>
<CAPTION>
Weighted Averages
--------------------
Aggregate % by Agg. Stated
Range of Number Cut-off Date Cut-off Date Mortgage Remain.
Mortgage Rates of Loans Balance Balance Rate Term(mo.)
-------------- -------- --------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
7.50% - 7.99% 1 $3,376,535 1.59% 7.950% 116
8.00% - 8.49% 3 38,868,662 18.33 8.330 119
8.50% - 8.99% 12 65,800,868 31.03 8.753 90
9.00% - 9.49% 5 26,129,747 12.32 9.135 97
9.50% - 9.99% 9 32,682,335 15.41 9.715 74
10.00% - 10.49% 5 12,343,297 5.82 10.170 67
10.50% - 10.99% 6 24,995,439 11.79 10.721 63
11.00% - 11.49% 2 7,848,751 3.70 11.019 50
- -------------------------------------------------------------------------
TOTALS 43 $212,045,634 100.00% 9.256% 88
<CAPTION>
As a % (by Cut-off Date Balance)
of Mortgage Rate Range
-----------------------------------------------------------------------------------
% Greater
% Yield % Lockout of
% Lockout Maint. then 1%/Yield
then % Lockout then Greater Maint. then
Range of Declining then Yield Declining % Yield of 1%/Yield Declining
Mortgage Rates Pct. Maint. Pct. Maint. Only Maint. Pct.
-------------- --------- ----------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
7.50% - 7.99% 0.00% 0.00% 0.00% 1.59% 0.00% 0.00%
8.00% - 8.49% 0.00 0.00 0.00 0.00 18.33 0.00
8.50% - 8.99% 5.48 8.71 0.00 9.84 6.99 0.00
9.00% - 9.49% 0.00 6.44 0.00 0.00 0.00 5.88
9.50% - 9.99% 0.00 0.00 10.42 0.00 0.00 5.00
10.00% - 10.49% 0.00 1.20 3.92 0.00 0.00 0.70
10.50% - 10.99% 0.00 10.73 0.63 0.00 0.00 0.42
11.00% - 11.49% 0.00 3.27 0.43 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------
TOTALS 5.48% 30.36% 15.40% 11.43% 25.32% 12.00%
</TABLE>
S-53
<PAGE>
<PAGE>
PREPAYMENT LOCKOUT/PREMIUM ANALYSIS(A)
<TABLE>
<CAPTION>
Percentage of Mortgage Pool By Prepayment
Restriction Assuming No Prepayments
-------------------------------------------------------------------------------------------
Current 12 Mo. 24 Mo. 36 Mo. 48 Mo. 60 Mo. 72 Mo.
Prepayment Restrictions Feb., 1996 Feb., 1997 Feb.,1998 Feb., 1999 Feb., 2000 Feb., 2001 Feb., 2002
----------------------- ---------- ---------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Locked-out 61.16% 61.18% 47.18% 40.41% 6.75% 1.98% 0.00%
Yield Maint.(B) 38.84 38.82 47.35 51.81 69.56 72.12 88.57
Declining %:
5.0% 0.00 0.00 0.00 0.00 0.00 0.00 4.03
4.0% to 4.99% 0.00 0.00 0.00 0.00 0.00 0.00 0.00
3.0% to 3.99% 0.00 0.00 0.00 7.78 0.00 0.00 5.42
2.0% to 2.99% 0.00 0.00 5.46 0.00 23.68 1.41 0.00
1.0% to 1.99% 0.00 0.00 0.00 0.00 0.00 24.48 0.00
No Prepayment Premium 0.00 0.00 0.00 0.00 0.00 0.00 1.98
- -------------------------------------------------------------------------------------------------------------------------
TOTALS 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
- ------
</TABLE>
- --------------------
(A) This table sets forth an analysis of the percentage of the declining
balance of the Mortgage Pool that, on February 1 of each of the years
indicated, will be within a period in which Principal Prepayments are
prohibited (that is, in a Lockout Period) or in which Principal
Prepayments must be accompanied by the indicated Prepayment Premium.
The table was prepared generally on the basis of the Modeling
Assumptions set forth under "YIELD AND MATURITY
CONSIDERATIONS--Weighted Average Life" herein, except that it was
assumed in preparing the foregoing table that no Mortgage Loan will be
prepaid, voluntarily or involuntarily.
(B) Includes greater of 1% and Yield Maint.
S-54
<PAGE>
<PAGE>
The Mortgage Loan Seller
Salomon Brothers Realty Corp. (the "Mortgage Loan Seller") is a New
York corporation, and is an affiliate of the Depositor and the Underwriter. The
principal executive offices of the Mortgage Loan Seller are located at Seven
World Trade Center, New York, New York 10048 and its telephone number is (212)
783-5638.
Assignment of the Mortgage Loans; Repurchases
The Depositor will acquire the Mortgage Loans from the Mortgage Loan
Seller pursuant to an agreement (the "Mortgage Loan Purchase Agreement") among
the Depositor, the Mortgage Loan Seller and the Underwriter. On or before the
Closing Date, at the direction of the Depositor, the Mortgage Loan Seller will
transfer the Mortgage Loans, without recourse, to the Trustee for the benefit of
the Certificateholders. In connection with such transfer, the Mortgage Loan
Seller, at the direction of the Depositor, will, on the Closing Date, deliver to
the Trustee or to a document custodian appointed by the Trustee (a "Custodian"),
among other things, the following documents with respect to each Mortgage Loan
(collectively, as to each Mortgage Loan, the "Mortgage File"): (i) the original
Mortgage Note, endorsed, without recourse, to the order of Trustee; (ii) the
original or a copy of the Mortgage, together with an original or copy of any
intervening assignments of the Mortgage, in each case with evidence of recording
indicated thereon; (iii) the original or a copy of any related assignment of
rents (if such item is a document separate from the Mortgage), together with an
original or copy of any intervening assignments of such assignment of rents, in
each case with evidence of recording indicated thereon; (iv) an original
assignment of the Mortgage in favor of the Trustee and in recordable form; (v)
an original assignment of any related assignment of rents (if such item is a
document separate from the Mortgage) in favor of the Trustee and in recordable
form; (vi) originals or copies of all written modification agreements, if any,
in those instances in which the terms or provisions of the Mortgage or Mortgage
Note have been modified; (vii) the original or a copy of the policy or
certificate of lender's title insurance issued on the date of the origination of
such Mortgage Loan, or, if such policy has not been issued, an irrevocable,
binding commitment to issue such title insurance policy; and (viii) any file
copies of any UCC financing statements in the possession of the Mortgage Loan
Seller.
The Trustee or a Custodian on its behalf will be required to review
each Mortgage File within a specified period following its receipt thereof. If
any of the above-described documents is found during the course of such review
to be missing from any Mortgage File or defective, and in either case such
omission or defect materially and adversely affects the interests of the
Certificateholders, the Mortgage Loan Seller, if it cannot deliver the document
or cure the defect within a period of 90 days following its receipt of notice
thereof, will be obligated pursuant to the Mortgage Loan Purchase Agreement (the
relevant rights under which will be assigned by the Depositor to the Trustee) to
repurchase the affected Mortgage Loan within such 90-day period at a price (the
"Purchase Price") generally equal to the sum of (i) the unpaid principal balance
of such Mortgage Loan, (ii) unpaid accrued interest on such Mortgage Loan
(calculated at the Mortgage Rate) to but not including the Due Date in the
Collection Period in which the purchase is to occur, and (iii) certain servicing
expenses that are reimbursable to the Master Servicer and the Special Servicer,
plus accrued and unpaid interest thereon (calculated at the Reimbursement Rate).
The foregoing repurchase obligation will constitute the sole remedy available to
the Certificateholders and the Trustee for any uncured failure to deliver, or
any uncured defect in, a constituent Mortgage Loan document. The Mortgage Loan
Seller will be solely responsible for such repurchase obligation, and such
obligation will not be the responsibility of the Depositor or any of its other
affiliates.
The Pooling and Servicing Agreement will require the Trustee promptly
(and in any event within 75 days of the Closing Date) to cause each of the
assignments described in clauses (iv) and (v) of the second preceding paragraph
to be submitted for recording in the real property records of the jurisdiction
in which the related Mortgaged Property is located. See "DESCRIPTION OF THE
AGREEMENTS--Assignment of Mortgage Assets; Repurchases" in the Prospectus.
S-55
<PAGE>
<PAGE>
Representations and Warranties; Repurchases
In the Mortgage Loan Purchase Agreement, the Mortgage Loan Seller will
represent and warrant with respect to each Mortgage Loan, as of the Closing
Date, or as of such other date specifically provided in the representation and
warranty, among other things, generally, that: (i) the information set forth
with respect to each Mortgage Loan in the loan schedule attached to the Mortgage
Loan Purchase Agreement is complete, true and correct in all material respects
as of the date of the Mortgage Loan Purchase Agreement and as of the Cut-off
Date; (ii) the Mortgage Loan Seller had good title to, and was the sole owner
of, each Mortgage Loan and has conveyed to the Depositor all of the Mortgage
Loan Seller's legal and beneficial interest in and to the Mortgage Loans, free
and clear of any pledge, lien or security interests; (iii) as of the Cut-off
Date, no scheduled payment of principal and/or interest under any Mortgage Loan
was 30 days or more past due, and no Mortgage Loan has been 30 days or more
delinquent on more than one occasion in the twelve-month period immediately
preceding the Cut-off Date; (iv) each Mortgage constitutes a valid and
enforceable first lien upon the related Mortgage Property, free and clear of all
liens and encumbrances with the exception of certain permitted liens and
encumbrances; (v) no Mortgage has been satisfied, cancelled, rescinded or
subordinated in whole or in part, and no Mortgaged Property has been released in
whole or in material part from the lien of the related Mortgage; (vi) none of
the terms of any Mortgage has been waived, altered or modified in any respect,
except by written instruments, all of which are included in the related Mortgage
File; (vii) there is no proceeding pending for the total or partial condemnation
of any Mortgaged Property; (viii) the lien of each Mortgage is insured by an
American Land Title Association lender's title insurance policy (or equivalent
policy form) insuring the Mortgage Loan Seller as to the first priority lien of
the Mortgage in the original principal amount of the related Mortgage Loan after
all advances of principal, and such policy is in full force and effect and is
assignable to or endorsable in favor of the Trustee for the benefit of the
Certificateholders; (ix) the proceeds of each Mortgage Loan have been fully
disbursed and there is no requirement for future advances thereunder; (x) in the
case of any Mortgage which is a deed of trust, a trustee, duly qualified under
applicable law to serve as such, has been properly designated and currently so
serves; (xi) to the Mortgage Loan Seller's knowledge, except as set forth in a
property condition report previously delivered by the Mortgage Loan Seller to
the Depositor, each Mortgaged Property is free and clear of any damage that
would materially and adversely affect its value as security for the related
Mortgage Loan; (xii) an environmental assessment with respect to each Mortgaged
Property was conducted in connection with the origination of the related
Mortgage Loan, and either (a) the report prepared in connection with such
assessment does not reveal any known circumstances or conditions with respect to
the related Mortgaged Property that rendered such property, at the date of such
report, in material violation of any applicable environmental laws or (b) if
such report does reveal any such circumstances or conditions and the same have
not been subsequently remediated in all material respects, then either (1) the
expenditure of funds necessary to effect such remediation is not material in
relation to the outstanding principal balance of such Mortgage Loan, or (2) a
sufficient escrow of funds exists for purposes of effecting such remediation, or
(3) the related borrower or other responsible party is currently taking such
actions, if any, with respect to such circumstances or conditions as have been
required by the applicable governmental regulatory authority; (xii) the Mortgage
Note, Mortgage and other agreements executed in connection with each Mortgage
Loan are the legal, valid and binding obligation of the maker thereof; (xiii)
each Mortgaged Property consists of a fee simple estate in real property, and no
Mortgage Loan is secured in any material part by the interest of the related
borrower as a lessee under a ground lease of real property; and (xiv) the
Mortgage Loan Seller has not advanced funds, or induced, solicited or knowingly
received any advance of funds by a party other than the owner of the Mortgaged
Property for the payment of any amount required by the related Mortgage Loan,
except with respect to the Mortgage Loan designated on Annex A as Loan ID No.
25, with respect to which the Mortgage Loan Seller may have received Mortgage
Loan payments from the co-maker of the related Mortgage Note, which does not own
the related Mortgaged Property.
S-56
<PAGE>
<PAGE>
In the case of a breach of any of the foregoing representations and
warranties that materially and adversely affects the interests of the
Certificateholders, the Mortgage Loan Seller, if it cannot cure such breach
within a period of 90 days following its receipt of notice thereof, will be
obligated pursuant to the Mortgage Loan Purchase Agreement (the relevant rights
under which will be assigned by the Depositor to the Trustee) to repurchase the
affected Mortgage Loan within such 90-day period at the applicable Purchase
Price.
The foregoing repurchase obligation will constitute the sole remedy
available to the Certificateholders and the Trustee for any uncured breach of
the Mortgage Loan Seller's representations and warranties regarding the Mortgage
Loans. The Mortgage Loan Seller will be the sole Warranting Party (as defined in
the Prospectus) in respect of the Mortgage Loans, and neither the Depositor nor
any of its other affiliates will be obligated to repurchase any affected
Mortgage Loan in connection with a breach of the Mortgage Loan Seller's
representations and warranties if the Mortgage Loan Seller defaults on its
obligation to do so. See "DESCRIPTION OF THE AGREEMENTS--Representations and
Warranties; Repurchases" in the Prospectus.
Changes In Mortgage Pool Characteristics
The description in this Prospectus Supplement of the Mortgage Pool and
the Mortgaged Properties is based upon the Mortgage Pool as it is expected to be
constituted at the time the Offered Certificates are issued. Prior to the
issuance of the Offered Certificates, a Mortgage Loan may be removed from the
Mortgage Pool if the Depositor deems such removal necessary or appropriate or if
it is prepaid. A limited number of other mortgage loans may be included in the
Mortgage Pool prior to the issuance of the Offered Certificates, unless
including such mortgage loans would materially alter the characteristics of the
Mortgage Pool as described herein. It is believed that the information set forth
herein will be representative of the characteristics of the Mortgage Pool as it
will be constituted at the time the Offered Certificates are issued, although
the range of Mortgage Rates, maturities and certain other characteristics of the
Mortgage Loans in the Mortgage Pool may vary.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Certificates on or shortly after the Closing Date and
will be filed, together with the Pooling and Servicing Agreement, with the
Securities and Exchange Commission within fifteen days after the initial
issuance of the Offered Certificates. If Mortgage Loans are removed from or
added to the Mortgage Pool as described in the preceding paragraph, such removal
or addition will be noted in the Form 8-K.
SERVICING OF THE MORTGAGE LOANS
General
The Master Servicer and the Special Servicer, either directly or
through sub-servicers, will be required to service and administer the Mortgage
Loans on behalf of the Trust Fund and for the benefit of the Certificateholders
in accordance with, and subject to, applicable law, the terms of the Pooling and
Servicing Agreement and the terms of the respective Mortgage Loans. In addition,
each of the Master Servicer and the Special Servicer will be required to conduct
such servicing, to the extent consistent with the foregoing, in the same manner
as would prudent institutional commercial mortgage loan servicers servicing
mortgage loans comparable to the Mortgage Loans, but with no less care, skill,
prudence and diligence than that with which it services mortgage loans owned by
it, and in any case with a view to the timely collection of all scheduled
payments of principal and interest under the Mortgage Loans or, if a Mortgage
Loan comes into and continues in default and no satisfactory arrangements can be
made for the collection of the delinquent payment, the maximization of the
recovery on such Mortgage Loan to Certificateholders on a present value basis,
and without regard to: (i) any relationship that it or any of its affiliates may
have with the related borrower; (ii) its ownership (or that of an affiliate) of
any Certificate; (iii) any obligation to make P&I Advances or advances to cover
certain servicing expenses; and (iv) its right or the right of any affiliate to
receive compensation for services or reimbursement of costs under the Pooling
and Servicing Agreement or with respect to any particular transaction.
S-57
<PAGE>
<PAGE>
The Master Servicer initially will be responsible for the servicing and
administration of the entire Mortgage Pool. However, the Special Servicer will
be responsible for servicing and administering any Mortgage Loan as to which (a)
any Monthly Payment becomes delinquent 60 or more days (or 120 or more days if,
in the case of a Balloon Payment, the Master Servicer determines that the
related borrower has obtained within 60 days after maturity a commitment to
refinance and such refinancing is to occur within 120 days after maturity); (b)
the Master Servicer determines that a default in making a Monthly Payment is
likely to occur within 30 days and is likely to remain unremedied for at least
60 days (unless, in the case of a Balloon Payment, the Master Servicer
determines that the related borrower has obtained or will be able to obtain
within 60 days after maturity a commitment to refinance and such refinancing is
expected to occur within 120 days after maturity); (c) a default (other than as
described in clause (a) above) occurs that materially impairs the value of the
Mortgaged Property as security for the Mortgage Loan or otherwise materially
adversely affects the interests of Certificateholders and that continues
unremedied for the applicable grace period under the terms of the Mortgage Loan
(or, if no grace period is specified, for 30 days); (d) a decree or order under
any bankruptcy, insolvency or similar law is entered against the related
borrower; (e) the related borrower consents to the appointment of a conservator
or receiver or liquidator in any insolvency or similar proceedings of or
relating to such related borrower or of or relating to all or substantially all
of its property; (f) the related borrower 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; or
(g) the Master Servicer receives notice of the commencement of foreclosure or
similar proceedings with respect to the related Mortgaged Property (each of the
events described in the foregoing clauses (a) through (g), a "Servicing Transfer
Event").
Upon the occurrence of a Servicing Transfer Event with respect to any
Mortgage Loan, and prior to the acceleration of amounts due under the related
Mortgage Note or commencement of any foreclosure of similar proceedings, the
Master Servicer is required to transfer its servicing responsibilities with
respect thereto to the Special Servicer. Notwithstanding such transfer, the
Master Servicer will continue to receive payments on such Mortgage Loan
(including amounts collected by the Special Servicer), to make certain
calculations with respect to such Mortgage Loan, and to make remittances
(including, if necessary, P&I Advances) and prepare certain reports to the
Trustee and/or the Certificateholders with respect to such Mortgage Loan. If
title to the related Mortgaged Property is acquired by the Trust Fund (upon
acquisition, an "REO Property"), whether through foreclosure, deed-in-lieu of
foreclosure or otherwise, the Special Servicer will continue to be responsible
for the operation and management thereof. Mortgage Loans serviced by the Special
Servicer are referred to herein as "Specially Serviced Mortgage Loans" and,
together with any REO Properties, constitute "Specially Serviced Trust Fund
Assets." The Master Servicer (if other than the Special Servicer) will have no
responsibility for the Special Servicer's performance of its duties under the
Pooling and Servicing Agreement.
A Mortgage Loan will cease to be a Specially Serviced Mortgage Loan
(and will become a "Corrected Mortgage Loan" as to which the Master Servicer
will re-assume servicing responsibilities):
(w) with respect to the circumstances described in clause (a)
of the second preceding paragraph, when the related borrower has made
three consecutive full and timely Monthly Payments under the terms of
such Mortgage Loan (as such terms may be changed or modified in
connection with a bankruptcy or similar proceeding involving the
related borrower or by reason of a modification, waiver or amendment
granted or agreed to by the Special Servicer);
(x) with respect to the circumstances described in clauses
(b), (d), (e) and (f) of the second preceding paragraph, when such
circumstances cease to exist in the good faith, reasonable judgment of
the Special Servicer;
(y) with respect to the circumstances described in clause (c)
of the second preceding paragraph, when such default is cured; and
S-58
<PAGE>
<PAGE>
(z) with respect to the circumstances described in clause (g)
of the second preceding paragraph, when such proceedings are
terminated;
so long as at that time no circumstance identified in such clauses (a) through
(g) exists that would cause the Mortgage Loan to continue to be characterized as
a Specially Serviced Mortgage Loan.
Set forth below, following the subsection captioned "--The Master
Servicer and the Special Servicer," is a description of certain pertinent
provisions of the Pooling and Servicing Agreement relating to the servicing of
the Mortgage Loans. Reference is also made to the Prospectus, in particular to
the section captioned "DESCRIPTION OF THE AGREEMENTS," for important information
in addition to that set forth herein regarding the terms and conditions of the
Pooling and Servicing Agreement as they relate to the rights and obligations of
the Master Servicer and Special Servicer thereunder. In general, the Special
Servicer possesses rights and obligations comparable to those of the Master
Servicer described in the Prospectus under "DESCRIPTION OF THE
AGREEMENTS--Sub-Servicers," "--Evidence as to Compliance" and "--Certain Matters
Regarding a Master Servicer and the Depositor." In addition, the Special
Servicer will be responsible for performing the servicing and other
administrative duties attributable to the Master Servicer under "DESCRIPTION OF
THE AGREEMENTS" in the Prospectus (and, in particular, under the subsection
thereof captioned "--Realization Upon Defaulted Whole Loans"), insofar as such
duties relate to Specially Serviced Mortgage Loans and REO Properties. However,
information herein supersedes any contrary information set forth in the
Prospectus.
The Master Servicer and the Special Servicer
Midland Loan Services, L.P. ("Midland") will initially act both as
master servicer (in such capacity, the "Master Servicer") and special servicer
(in such capacity, the "Special Servicer") for the Trust Fund. Midland was
organized under the laws of the State of Missouri in 1992 as a limited
partnership. Midland is a real estate financial services company which provides
loan servicing and asset management for large pools of commercial and
multifamily real estate assets and which originates commercial real estate
loans. Midland's address is 2001 Shawnee Mission Parkway, Shawnee Mission,
Kansas 66205. A business development and marketing office is maintained by
Midland in Washington, D.C.
As of December 31, 1995, Midland and its affiliates were responsible
for the servicing of approximately 11,490 commercial and multifamily loans with
an aggregate principal balance of approximately $9.0 billion, the collateral for
which is located in all 50 states. Approximately 9,960 of such loans with an
aggregate principal balance of approximately $5.9 billion pertain to commercial
and multifamily mortgage-backed securities issued in 20 securitization
transactions. Property type concentrations within the portfolio include
multifamily, office, retail, hotel/motel and other types of income producing
properties. Midland and its affiliates also provide commercial loan servicing
for newly-originated loans and loans acquired in the secondary market on behalf
of issuers of commercial and multifamily mortgage-backed securities, financial
institutions and private investors.
Midland has been approved as a master and special servicer for
investment grade commercial and multifamily mortgage-backed securities by Fitch
and Standard & Poor's. Midland is ranked "Above Average" as a commercial
mortgage servicer and asset manager by Standard & Poor's, and "Acceptable" as a
master servicer and "Above Average" as a special servicer by Fitch. Standard &
Poor's rates commercial mortgage servicers and special servicers in one of five
rating categories: Strong, Above Average, Average, Below Average and Weak. Fitch
rates special servicers in one of five categories: Superior, Above Average,
Average, Below Average and Unacceptable. Fitch rates master servicers as
Acceptable or Unacceptable.
The Trustee will be required to terminate the services of Midland or
any successor thereto as Special Servicer under the Pooling and Servicing
Agreement if (i) it receives from the Operating Adviser written notice that the
Operating Adviser wishes to appoint a successor Special Servicer and (ii) such
successor will, among other things, be reasonably acceptable to the Trustee and
the
S-59
<PAGE>
<PAGE>
Depositor; provided that (as confirmed in writing by the Rating Agencies) the
succession of such proposed successor will not adversely affect the then current
ratings on the Certificates.
The information set forth herein concerning Midland has been provided
by it, and neither the Depositor nor the Underwriter makes any representation or
warranty as to the accuracy or completeness of such information.
Servicing and Other Compensation and Payment of Expenses
The principal compensation to be paid to the Master Servicer in respect
of its servicing activities will be the Master Servicing Fee, out of which the
Master Servicer shall pay to the Trustee the Trustee's fee. The "Master
Servicing Fee" will be payable monthly on a loan-by-loan basis from amounts
received in respect of interest on each Mortgage Loan (including Specially
Serviced Mortgage Loans and Mortgage Loans as to which the related Mortgaged
Property has become an REO Property), will accrue at a rate (the "Master
Servicing Fee Rate") equal to 0.0725% per annum and will be computed on the
basis of the same principal amount and for the same period respecting which any
related interest payment on the Mortgage Loan is computed. As additional
servicing compensation, the Master Servicer will be entitled to retain all
modification fees, late charges and NSF check charges collected from borrowers
on Mortgage Loans other than Specially Serviced Mortgage Loans and all
Prepayment Interest Excesses collected on any Mortgage Loans. In addition, the
Master Servicer will be entitled to receive any fee paid by the related borrower
in connection with the assumption of any Mortgage Loan, other than a Specially
Serviced Mortgage Loan, up to the lesser of (a) 1.0% of the outstanding
principal balance of such Mortgage Loan and (b) $75,000. Any additional
assumption fees collected in respect of any Mortgage Loan will be paid to the
holders of REMIC Residual Certificates. In addition, the Master Servicer is
authorized to invest or direct the investment of funds held in those accounts
maintained by it or the Trustee constituting part of the Certificate Account in
certain short-term United States government securities and other investment
grade obligations. The Master Servicer will be entitled to retain any interest
or other income earned on such funds, but shall be required to cover any losses
from its own funds without any right to reimbursement. In addition, to the
extent not required by law or the terms of the related Mortgage Loan documents
to be paid to the related borrower, interest earned on escrow funds held by the
Master Servicer may also be retained thereby.
If a borrower voluntarily prepays a Mortgage Loan in whole or in part
during any Collection Period on a date that is prior to its Due Date in such
Collection Period, then the amount of interest (net of related Master Servicing
Fees and without regard to any Prepayment Premium) that will generally be
collected on the amount of and in connection with such principal prepayment will
be less (such shortfall, a "Prepayment Interest Shortfall") than a full month's
interest (net of related Master Servicing Fees and without regard to any
Prepayment Premium) thereon. If such a principal prepayment occurs during any
Collection Period after the Due Date for such Mortgage Loan in such Collection
Period, then the amount of interest (net of related Master Servicing Fees and
exclusive of any Prepayment Premium) that will be payable on the amount of and
in connection with such principal prepayment will exceed (such excess, to the
extent collected, a "Prepayment Interest Excess") a full month's interest (net
of related Master Servicing Fees and exclusive of any Prepayment Premium)
thereon. Any Prepayment Interest Excesses collected will be paid to the Master
Servicer as additional servicing compensation. However, with respect to each
Distribution Date, the Master Servicer will be required to deposit into the
Certificate Account (such deposit, a "Compensating Interest Payment"), without
any right of reimbursement therefor, an amount equal to the lesser of (i) its
servicing compensation for the related Collection Period, including any
Prepayment Interest Excesses received during such Collection Period, and (ii)
the aggregate of any Prepayment Interest Shortfalls experienced during the
related Collection Period. Compensating Interest Payments will not cover
interest shortfalls that result from the liquidation of any defaulted Mortgage
Loan or REO Property during any Collection Period prior to the related Due Date
therein, and Prepayment Interest Excesses will not include any excess interest
that results from the liquidation of any defaulted Mortgage Loan or REO Property
during any Collection Period after the related Due Date herein.
S-60
<PAGE>
<PAGE>
The principal compensation to be paid to the Special Servicer in
respect of its special servicing activities will be the Special Servicing Fee
(together with the Master Servicing Fee, the "Servicing Fees") and, under the
circumstances described herein, Modification Fees and Resolution Fees. As is the
case with the Master Servicing Fee, but only as to Specially Serviced Mortgage
Loans and Mortgage Loans as to which the related Mortgaged Property has become
an REO Property, the "Special Servicing Fee" will accrue at a rate (the "Special
Servicing Fee Rate") equal to 0.350% per annum and will be computed on the basis
of the same principal amount and for the same period respecting which any
related interest payment on the related Specially Serviced Mortgage Loan is
computed. In contrast to Master Servicing Fees, however, Special Servicing Fees
will be payable monthly from general collections on all the Mortgage Loans. The
Special Servicing Fee with respect to any Specially Serviced Mortgage Loan will
cease to accrue if such loan becomes a Corrected Mortgage Loan. The Special
Servicer will be entitled to a "Modification Fee" with respect to each Corrected
Mortgage Loan (other than a Corrected Mortgage Loan that previously has become a
Corrected Mortgage Loan two or more times) if, during the time the Mortgage Loan
was most recently a Specially Serviced Mortgage Loan: (i) the stated maturity
thereof was extended, (ii) the amount of the Monthly Payment payable with
respect thereto was reduced for a period in excess of 12 consecutive months
following the date it became a Corrected Mortgage Loan, or (iii) any amount of
scheduled principal or interest thereunder was forgiven following the Special
Servicer's good faith negotiations with the related borrower, in any event in
connection with and in furtherance of its becoming a Corrected Mortgage Loan.
The Modification Fee will equal 0.50% (or, if there was solely an extension of
the stated maturity of such Mortgage Loan, 0.25%) of the principal balance of
the Mortgage Loan at the time it became a Corrected Mortgage Loan, less the
amount of any modification fees collected by the Special Servicer from the
related borrower. The Special Servicer will be entitled to a "Resolution Fee" if
it liquidates any Specially Serviced Trust Fund Asset (other than by way of the
sale thereof to the Master Servicer, the Mortgage Loan Seller or the Depositor
or the purchase thereof by the Special Servicer). The Resolution Fee will equal
1.0% of the related net liquidation proceeds if such liquidation occurs within
twelve (12) months of the date on which the related Mortgage Loan became a
Specially Serviced Mortgage Loan, and shall equal 0.75% of the related net
liquidation proceeds if such liquidation occurs thereafter. Any such
Modification Fee or Resolution Fee to which the Special Servicer shall become
entitled will be payable to the Special Servicer from general collections on
deposit in the Certificate Account. As additional servicing compensation, the
Special Servicer will be entitled to retain all modification fees, late payment
charges and NSF check charges received on or with respect to the Specially
Serviced Mortgage Loans. In addition, the Special Servicer will be entitled to
receive any fee paid by the related borrower in connection with the assumption
of any Specially Serviced Mortgage Loan, up to the lesser of (a) 1.0% of the
outstanding principal balance of such Specially Serviced Mortgage Loan and (b)
$75,000. Any additional assumption fees collected in respect of any Specially
Serviced Mortgage Loan will be paid to the holders of the REMIC Residual
Certificates. In addition, the Special Servicer is authorized to invest or
direct the investment of funds held in those accounts maintained by it
constituting part of the Certificate Account, in certain short-term United
States government securities and other investment grade obligations. The Special
Servicer will be entitled to retain any interest or other income earned on such
funds, but shall be required to cover any losses from its own funds without any
right to reimbursement.
The Master Servicer and the Special Servicer will, in general, each be
required to pay all ordinary expenses incurred by it in connection with its
servicing activities under the Pooling and Servicing Agreement, including the
fees of any subservicers retained by it, and will not be entitled to
reimbursement therefor except as expressly provided in the Pooling and Servicing
Agreement. However, each of the Master Servicer and the Special Servicer will be
permitted to pay certain of such expenses (including certain expenses incurred
as a result of a Mortgage Loan default) directly out of the Certificate Account
and at times without regard to the relationship between the expense and the
funds from which it is being paid. See "DESCRIPTION OF THE CERTIFICATES--
Distributions" herein and "DESCRIPTION OF THE AGREEMENTS--Certificate Account"
and "--Retained Interest;
S-61
<PAGE>
<PAGE>
Servicing Compensation and Payment of Expenses" in the Prospectus. In addition,
as and to the extent described herein under "DESCRIPTION OF THE
CERTIFICATES--P&I Advances," the Master Servicer will be entitled to receive
interest, at the Reimbursement Rate, on any P&I Advances made by it, and each of
the Master Servicer and the Special Servicer will be entitled to receive
interest, at the Reimbursement Rate, on any reimbursable servicing expenses
incurred by it. Such interest will be paid, contemporaneously with the
reimbursement of the related P&I Advance or servicing expense, from general
collections on the Mortgage Loans then on deposit in the Certificate Account.
The Operating Adviser
Election of the Operating Adviser. The holder or holders of
Certificates representing a majority of the Voting Rights allocated to the
Controlling Class will be entitled to elect an adviser (the "Operating Adviser")
from whom the Special Servicer will seek advice and approval and take direction
as described below. Upon (i) the receipt by the Trustee of written requests for
an election of an Operating Adviser from the holders of Certificates
representing more than 50% of the Voting Rights allocated to the then
Controlling Class, (ii) the resignation or removal of the person acting as
Operating Adviser or (iii) a determination by the Trustee that the Controlling
Class has changed, an election of a successor Operating Adviser will be held
commencing as soon as practicable thereafter. The Operating Adviser may be
removed at any time by the written vote of holders of Certificates representing
more than 50% of the Voting Rights allocated to the then Controlling Class.
Prior to the election of the initial Operating Adviser, and in the event that an
Operating Adviser shall have resigned or been removed and a successor Operating
Adviser shall not have been elected, there shall be no Operating Adviser; and,
notwithstanding anything to the contrary described herein, the Special Servicer
shall not have any right or obligation to consult with or to seek and/or obtain
approval or direction from an Operating Adviser, and the provisions of the
Pooling and Servicing Agreement relating thereto shall be of no effect, in any
event during any such period that there is no Operating Adviser.
The "Controlling Class" will be, as of any date of determination, the
Class of Principal Balance Certificates with the latest alphabetical Class
designation that has a then Certificate Balance (net of any Uncovered Portion
thereof) at least equal to 25% of the initial Certificate Balance of such Class
of Principal Balance Certificates as of the Closing Date; provided that if no
Class of Principal Balance Certificates has a Certificate Balance (net of any
Uncovered Portion thereof) as of such date of determination that is at least
equal to 25% of the initial Certificate Balance thereof as of the Closing Date,
the then "Controlling Class" will be the Class of Principal Balance Certificates
with the latest alphabetical Class designation.
If, at any time, the aggregate Assigned Asset Value of the Mortgage
Pool is less than the aggregate Certificate Balance of the Principal Balance
Certificates, such deficit will be allocated among the respective Classes of
Principal Balance Certificates, in reverse alphabetical order of Class
designation, in each case, to the extent of the Certificate Balance of such
Class of Certificates. Such allocation will not reduce the Certificate Balance
of any Class of Principal Balance Certificates and is intended solely to
identify the portion (the "Uncovered Portion") of the Certificate Balance of
each such Class for which there is at such time no corresponding aggregate
Assigned Asset Value of the Mortgage Pool.
The "Assigned Asset Value" of any Mortgage Loan (including any Mortgage
Loan as to which the related Mortgaged Property is an REO Property) will be, as
of any date of determination, the then Stated Principal Balance of such Mortgage
Loan reduced by any related Appraisal Reduction Amount.
Duties of the Operating Adviser. The Operating Adviser will be entitled
to advise the Special Servicer with respect to the following actions of the
Special Servicer, and the Special Servicer will not be permitted to take any of
the following actions as to which the Operating Adviser has objected in writing
within ten days of its receiving from the Special Servicer written notice
thereof and sufficient information to make an informed decision (provided that
if such written objection has not been received by the Special Servicer within
such ten-day period, then the Operating Adviser's approval will be deemed to
have been given):
S-62
<PAGE>
<PAGE>
(i) the initiation or consummation of foreclosure upon or comparable
conversion (which may include acquisition of an REO Property) of the ownership
of any Mortgaged Property securing any Specially Serviced Mortgage Loan that
comes into and continues in default, provided that if immediate initiation of
foreclosure proceedings is necessary to preserve or protect the Mortgaged
Property or income therefrom, the Special Servicer may initiate such proceedings
and notify the Operating Adviser thereof within 72 hours thereafter; provided
further that, with respect to any Specially Serviced Mortgage Loan which has
been the subject of an OA Extension (as defined below), the Operating Adviser
will no longer be entitled to approve the actions set forth in this clause (i)
with respect to such Specially Serviced Mortgage Loan after the termination of
the related OA Extension Period;
(ii) any modification, amendment or waiver of, or with respect to, any
Specially Serviced Mortgage Loan other than a modification consisting of the
extension of the original maturity date of a Specially Serviced Mortgage Loan
for twelve months or less; provided that, with respect to any Specially Serviced
Mortgage Loan which has been the subject of an OA Extension, the Operating
Adviser will no longer be entitled to approve the actions set forth in this
clause (ii) with respect to such Specially Serviced Mortgage Loan after the
termination of the related OA Extension Period;
(iii) any acceptance of a discounted payoff of a Specially Serviced
Mortgage Loan; and
(iv) any proposed sale of a Specially Serviced Mortgage Loan or REO
Property (other than in connection with the termination of the Trust Fund as
described under "DESCRIPTION OF THE CERTIFICATES-Termination" herein); provided
that, with respect to any Specially Serviced Mortgage Loan which has been the
subject of an OA Extension, the Operating Adviser will no longer be entitled to
approve the actions set forth in this clause (iv) with respect to such Specially
Serviced Mortgage Loan after the termination of the related OA Extension Period.
Notwithstanding the foregoing, if the Operating Adviser rejects the
recommendations of the Special Servicer with respect to clause (iii) above, an
independent third party arbitrator will be selected by the Trustee in accordance
with the terms of the Pooling and Servicing Agreement (at the expense of the
Trust Fund) within seven days of receipt by the Trustee of a written request
from the Special Servicer. The Trustee shall deliver the present value analysis
and other information provided by the Special Servicer to such arbitrator within
five days of the selection of such arbitrator by the Trustee. The arbitrator
will determine whether the proposed action of the Special Servicer is in the
best economic interests of the Trust Fund based upon the maximization of net
present value. The independent arbitrator will (i) select a course of action
based solely upon the recommendations provided by the Operating Adviser and the
Special Servicer (rather than on an alternative recommendation provided by
itself), and (ii) provide a decision within five business days of receipt of the
analyses. Pending a decision of the independent arbitrator, the Special Servicer
may not take the action in question.
As used herein, "OA Extension" means an extension of the maturity date
of a Mortgage Loan, where, but for the direction of the Operating Adviser, the
Special Servicer would not have agreed to such extension. With respect to any OA
Extension, the "OA Extension Period" is the three-year period of time from and
after the date of such OA Extension.
In addition, the Operating Adviser may direct the Special Servicer to
take, or to refrain from taking, certain other actions provided that no such
direction shall (a) require or cause the Special Servicer to violate the terms
of any Mortgage Loan, applicable law or any provision of the Pooling and
Servicing Agreement, including the Special Servicer's obligation to act in
accordance with the servicing standard set forth under "-General" above and to
maintain the REMIC status of each pool of assets designated as a REMIC pursuant
to the Pooling and Servicing Agreement, or (b) result in the imposition of a
"prohibited transaction" or "prohibited contribution" tax on any portion of the
Trust Fund under the Sections 860A through 860G (the "REMIC Provisions") of the
Code, or (c) expose the Master Servicer, the Special Servicer, the Depositor,
the Fiscal Agent or the Trustee, or their officers, directors, employees, agents
or partners, or the Trust Fund to any claim, suit or liability, or (d)
S-63
<PAGE>
<PAGE>
materially expand the scope of the Special Servicer's responsibilities under the
Pooling and Servicing Agreement.
Limitation on Liability of Operating Adviser. The Operating Adviser
will be acting solely as a representative of the interests of the Class of
Certificateholders that has elected the Operating Adviser, and will have no
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
Pooling and Servicing Agreement, or for errors in judgment; provided that the
Operating Adviser will not be protected against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or negligence
in the performance of duties or by reason of reckless disregard of obligations
or duties. By its acceptance of a Certificate, each Certificateholder confirms
its understanding that the Operating Adviser may take actions that favor the
interests of one or more Classes of the Certificates over other Classes of the
Certificates, and that the Operating Adviser may have special relationships and
interests that conflict with those of holders of some Classes of the
Certificates and, absent willful misfeasance, bad faith, negligence or reckless
disregard of obligations on the part of the Operating Adviser, agrees to take no
action against the Operating Adviser or any of its officers, directors,
employees, principals or agents as a result of such a special relationship or
conflict.
Limitation on Liability of the Master Servicer and the Special
Servicer. The Master Servicer and the Special Servicer will be entitled to the
same limitations on liability when acting in accordance with a direction or
approval or refraining from acting in accordance with a direction or objection
of the Operating Adviser as it would if such direction, approval or objection,
as the case may be, were an express term of the Pooling and Servicing Agreement.
See "DESCRIPTION OF THE AGREEMENTS-Certain Matters Regarding a Master Servicer
and the Depositor" in the Prospectus.
The Extension Adviser
Election of the Extension Adviser. The holder or holders of Principal
Balance Certificates with an aggregate principal balance equal to more than 50%
of the aggregate Certificate Balance of all the Principal Balance Certificates
(exclusive of the Controlling Class and any Class or Classes of Principal
Balance Certificates subordinate to the Controlling Class) will be entitled to
elect an adviser (the "Extension Adviser") from whom the Special Servicer will
seek approval as described below. Upon (i) the receipt by the Trustee of written
requests for an election of an Extension Adviser from the holders of
Certificates representing more than 50% of the aggregate Certificate Balance of
the Principal Balance Certificates (exclusive of the Controlling Class and any
Class or Classes of Principal Balance Certificates subordinate to the
Controlling Class), or (ii) the resignation or removal of the person acting as
Extension Adviser, an election of a successor Extension Adviser will be held
commencing as soon as practicable thereafter. The Extension Adviser may be
removed at any time by the written vote of holders of Certificates representing
more than 50% of the aggregate Certificate Balance of the Principal Balance
Certificates (exclusive of the Controlling Class and any Class or Classes of
Principal Balance Certificates subordinate to the Controlling Class). Prior to
the election of the initial Extension Adviser, and in the event that an
Extension Adviser shall have resigned or been removed and a successor Extension
Adviser shall not have been elected, the Operating Adviser will serve as
Extension Adviser and, if there is no Operating Adviser to serve in such
capacity, there shall be no Extension Adviser, and, notwithstanding anything to
the contrary described herein, the Special Servicer shall not have any right or
obligation to consult with or to seek and/or obtain approval from an Extension
Adviser, and the provisions of the Pooling and Servicing Agreement relating
thereto shall be of no effect, in any event during any such period that there is
no Extension Adviser.
Duties of the Extension Adviser. The Special Servicer will not be
permitted to grant any extension of the maturity of a Specially Serviced
Mortgage Loan beyond the third anniversary of such loan's stated maturity date
if the Extension Adviser has objected to such action in writing within ten days
of its receiving from the Special Servicer written notice thereof and sufficient
information to make an informed decision (provided that if such written
objection has not been received by the Special Servicer within such ten-day
period, then the Extension Adviser's approval will be deemed to have
S-64
<PAGE>
<PAGE>
been given). In addition, the Extension Adviser will confirm to its reasonable
satisfaction that all conditions precedent to granting any such extension have
been satisfied. "See "--Modifications, Waivers and Amendments" below.
Limitation on Liability of Extension Adviser. The Extension Adviser
will be acting solely as representative of the interests of the
Certificateholders that elected the Extension Adviser, and will have no
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
Pooling and Servicing Agreement, or for errors in judgment; provided that the
Extension Adviser will not be protected against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or negligence
in the performance of duties or by reason of reckless disregard of obligations
or duties. By its acceptance of a Certificate, each Certificateholder confirms
its understanding that the Extension Adviser may take actions that favor the
interests of one or more Classes of the Certificates over other Classes of the
Certificates, and that the Extension Adviser may have special relationships and
interests that conflict with those of holders of some Classes of the
Certificates and, absent willful misfeasance, bad faith, negligence or reckless
disregard of obligations on the part of the Extension Adviser, agrees to take no
action against the Extension Adviser or any of its officers, directors,
employees, principals or agents as a result of such a special relationship or
conflict.
Limitation on Liability of the Master Servicer and the Special
Servicer. The Master Servicer and the Special Servicer will be entitled to the
same limitations on liability when acting in accordance with a direction or
approval or refraining from acting in accordance with a direction or objection
of the Extension Adviser as it would if such direction, approval or objection,
as the case may be, were an express term of the Pooling and Servicing Agreement.
See "DESCRIPTION OF THE AGREEMENTS-Certain Matters Regarding a Master Servicer
and the Depositor" in the Prospectus.
Modifications, Waivers and Amendments
The Pooling and Servicing Agreement will permit the Master Servicer or
the Special Servicer, as applicable, subject to any right of the Operating
Adviser or the Extension Adviser to object to actions of the Special Servicer in
this regard, to modify, waive or amend any term of any Mortgage Loan if (a) it
determines, in accordance with the servicing standard described under
"--General" above, that it is appropriate to do so, (b) such modification,
waiver or amendment will not result in a significant modification under the
REMIC Provisions of the Code and (c) such modification, waiver or amendment will
not (i) affect the amount or timing of any scheduled payments of principal,
interest or other amount (excluding late payment charges and any amounts payable
to it as additional servicing compensation) payable under the Mortgage Loan,
(ii) except as expressly provided by the related Mortgage or in connection with
a material adverse environmental condition at the related Mortgaged Property,
result in a release of the lien of the related Mortgage on any material portion
of such Mortgaged Property without a corresponding principal prepayment or (iii)
in its judgment, materially impair the security for the Mortgage Loan or reduce
the likelihood of timely payment of amounts due thereon; provided, however, that
with respect to any Specially Serviced Mortgage Loan, the Special Servicer, may
in accordance with the servicing standard described under "--General" above, but
subject to the next sentence and any right of the Operating Adviser or the
Extension Adviser to object thereto, modify any term of such Mortgage Loan if
(x) the related borrower is in default with respect to the Mortgage Loan or, in
the judgment of the Special Servicer, such default is reasonably foreseeable,
(y) in the sole, good faith judgment of the Special Servicer, such modification
would increase the recovery to Certificateholders on a present value basis, and
(z) such modification, waiver or amendment does not result in a tax imposed on
the Trust Fund or cause any REMIC created pursuant to the Pooling and Servicing
Agreement to fail to qualify as a REMIC at any time the Certificates are
outstanding. Notwithstanding the foregoing, neither the Master Servicer nor the
Special Servicer may extend the maturity of any Mortgage Loan beyond the date
two years prior to the Rated Final Distribution Date.
S-65
<PAGE>
<PAGE>
Copies of each agreement whereby any such modification, waiver or
amendment of any term of any Mortgage Loan is effected are required to be
available for review during normal business hours at the offices of the Trustee
or the Custodian. See "DESCRIPTION OF THE CERTIFICATES--Reports to
Certificateholders; Available Information" herein.
Maintenance of Hazard and Other Insurance
The Pooling and Servicing Agreement will require the Master Servicer to
use reasonable efforts to cause the mortgagor on each Mortgage Loan to maintain
a hazard insurance policy providing for such coverage as is required under the
related Mortgage or, if any Mortgage permits the holder thereof to dictate to
the mortgagor the insurance coverage to be maintained on the related Mortgaged
Property, then such coverage as is consistent with the servicing standard
described under "--General" above. If and to the extent that a Mortgage so
permits, the Master Servicer is to cause the mortgagor to obtain the required
insurance coverage from Qualified Insurers (as defined below). The Pooling and
Servicing Agreement also requires that the Special Servicer cause to be
maintained for each REO Property no less insurance coverage (from a Qualified
Insurer) than was previously required of the related mortgagor (to the extent
such insurance coverage is available at commercially reasonable rates). See
"DESCRIPTION OF THE AGREEMENTS--Hazard Insurance Policies" in the Prospectus.
A "Qualified Insurer" is, generally, an insurance company qualified to
write the related insurance policy in the relevant jurisdiction and that has a
claims paying ability rated at least "A:IX" by A.M. Best's Key Rating Guide and
at least "A" by each Rating Agency (or, in the case of either Rating Agency,
such other rating as has been confirmed in writing by such Rating Agency will
not result in a downgrade, qualification or withdrawal of the then current
rating assigned to any Class of the Certificates by such Rating Agency).
Sale of Defaulted Mortgage Loans and REO Properties
The Special Servicer may, with the approval or deemed approval of the
Operating Adviser when such is required, and is required, at the direction of
the Operating Adviser under the circumstances described herein, to sell, in
accordance with the terms of the Pooling and Servicing Agreement, any defaulted
Mortgage Loan, without recourse, or any REO Property to any person (including
the Master Servicer, the Special Servicer or any Certificateholder, but
excluding the Trustee and its affiliates) for cash, and in any event is to so
offer to sell any REO Property no later than the time determined by the Special
Servicer to be sufficient to result in the sale of such REO Property on or
before the date specified under "--REO Properties" below. Subject to the
approval or deemed approval of the Operating Adviser when such is required, the
Special Servicer will accept the highest bid received from any person in an
amount at least equal to the unpaid principal balance of the defaulted Mortgage
Loan or, in the case of an REO Property, the related Mortgage Loan, as the case
may be, together with all unpaid interest (calculated at the related Mortgage
Rate) accrued thereon through the date of sale and all related reimbursable
servicing expenses. In the absence of any such bid, the Special Servicer will,
subject to the approval or deemed approval of the Operating Advisor when such is
required, accept the highest bid received from any person, so long as such bid
is a fair price and, subject to the objection of the Operating Adviser under the
circumstances described herein, accepting a lower bid would not in the judgment
of the Special Servicer be in the best interests of the Certificateholders. See
"-The Operating Adviser-Duties of the Operating Adviser" above.
The Trustee is under no obligation to solicit any such bid. The
Depositor, its affiliates or any other person (other than the Trustee and its
affiliates) may make any such bid for a defaulted Mortgage Loan or REO Property.
REO Properties
If title to any Mortgaged Property is acquired by the Special Servicer
on behalf of the Certificateholders, the Special Servicer, on behalf of such
holders, will be required, after consultation with the Operating Adviser when
such is required, to sell the property within two years of acquisition, unless
(i) the Internal Revenue Service grants an extension of time to sell such
property (an "REO
S-66
<PAGE>
<PAGE>
Extension") or (ii) it obtains an opinion of counsel generally to the effect
that the holding of the property for more than two years after its acquisition
will not result in the imposition of a tax on the Trust Fund or cause any REMIC
created pursuant to the Pooling and Servicing Agreement to fail to qualify as a
REMIC under the Code.
In general, the Special Servicer will be obligated to operate and
manage any Mortgaged Property acquired as REO Property in a manner that would,
to the extent commercially feasible, maximize the Trust Fund's net after-tax
proceeds from such property. After the Special Servicer reviews the operation of
such property and consults with the Trustee to determine the Trustee's federal
income tax reporting position with respect to the income it is anticipated that
the Trust Fund would derive from such property, the Special Servicer could
determine (particularly in the case of an REO Property that is a hotel) that it
would not be commercially feasible to manage and operate such property in a
manner that would avoid the imposition of a tax on "net income from foreclosure
property," within the meaning of Section 857(b)(4)(B) of the Code or a tax on
"prohibited transactions" under Section 860F of the Code (either such tax
referred to herein as an "REO Tax"). To the extent that income the Trust Fund
receives from an REO Property is subject to a tax on (i) "net income from
foreclosure property," such income would be subject to federal tax at the
highest marginal corporate tax rate (currently 35%), or (ii) "prohibited
transactions," such income would be subject to federal tax at a 100% rate. The
determination as to whether income from an REO Property would be subject to an
REO Tax will depend on the specific facts and circumstances relating to the
management and operation of each REO Property. Generally, income from an REO
Property that is directly operated by the Special Servicer would be apportioned
and classified as "service" or "non-service" income. The "service" portion of
such income could be subject to federal tax either at the highest marginal
corporate tax rate or at the 100% rate on "prohibited transactions," and the
"non-service" portion of such income could be subject to federal tax at the
highest marginal corporate tax rate or, although it appears unlikely, at the
100% rate applicable to "prohibited transactions." Any such REO Tax imposed on
the Trust Fund's income from an REO Property would be an expense of the Trust
Fund and would reduce the amount available for distribution to
Certificateholders. Certificateholders are advised to consult their tax advisors
regarding the possible imposition of REO Taxes in connection with the operation
of commercial REO Properties by REMICs. See "FEDERAL INCOME TAX CONSEQUENCES"
herein and in the Prospectus.
The Special Servicer may retain an independent contractor to operate
and manage any REO Property; however, the retention of an independent contractor
will not relieve the Special Servicer of its obligations with respect to such
REO Property.
Inspections; Collection Of Operating Information
The Special Servicer will be required to perform a physical inspection
of a Mortgaged Property as soon as practicable after the related Mortgage Loan
becomes a Specially Serviced Mortgage Loan. In addition, the Master Servicer
will be required to inspect each Mortgaged Property (other than a Mortgaged
Property securing a Specially Serviced Mortgage Loan) at least once per calendar
year if, in a given calendar year, the Special Servicer has not already done so,
unless each of the Rating Agencies has confirmed in writing that a less frequent
period between inspections shall not result, in and of itself, in a downgrading,
withdrawal or qualification of the rating then assigned by such Rating Agency to
any Class of the Certificates. The Master Servicer and Special Servicer will
each be required to prepare a written report of each such inspection performed
by it that describes the condition of the Mortgaged Property and that specifies
the existence with respect thereto of any sale, transfer or abandonment or any
material change in its condition or value.
The Master Servicer or the Special Servicer, as applicable, is also
required to use reasonable efforts to collect from the related borrower and
review the annual operating statements of each Mortgaged Property and to cause
annual operating statements to be prepared for each REO Property. However, there
can be no assurance that any operating statements required to be delivered will
in fact
S-67
<PAGE>
<PAGE>
be delivered, nor is the Master Servicer or the Special Servicer likely to have
any practical means of compelling such delivery.
Copies of the inspection reports and operating statements referred to
above are required to be available for review by Certificateholders during
normal business hours at the offices of the Trustee unless the terms of the
related Mortgage Loan documents or applicable law prohibits the disclosure of
such information. In addition, access to such information may be subject to
reasonable rules and regulations adopted by the Trustee, the Master Servicer or
the Special Servicer (which may include the requirement that an agreement
governing the disclosure of such information be executed to the extent the
Trustee, the Master Servicer or the Special Servicer deems such action to be
necessary or appropriate). See "DESCRIPTION OF THE CERTIFICATES--Reports to
Certificateholders; Available Information" herein.
DESCRIPTION OF THE CERTIFICATES
General
The Depositor's Mortgage Pass-Through Certificates, Series 1996-C1 (the
"Certificates") will be issued pursuant to a Pooling and Servicing Agreement, to
be dated as of the Cut-off Date, among the Depositor, the Master Servicer, the
Special Servicer, the Fiscal Agent and the Trustee (the "Pooling and Servicing
Agreement"). The Certificates will represent in the aggregate the entire
beneficial ownership interest in a trust fund (the "Trust Fund") consisting
primarily of: (i) the Mortgage Loans and all payments and other collections in
respect of the Mortgage Loans received or applicable to periods after the
Cut-off Date (exclusive of payments of principal and interest due on or before
the Cut-off Date); (ii) any REO Property acquired on behalf of the Trust Fund;
(iii) such funds or assets as from time to time are deposited in the Certificate
Account (see "DESCRIPTION OF THE AGREEMENTS--Certificate Account" in the
Prospectus); and (iv) certain rights of the Depositor under the Mortgage Loan
Purchase Agreement relating to Mortgage Loan document delivery requirements and
the representations and warranties of the Mortgage Loan Seller regarding the
Mortgage Loans.
The Certificates will consist of eleven classes (each, a "Class") to be
designated as: (i) the Class A Certificates, the Class IO Certificates, the
Class B Certificates, the Class C Certificates, the Class D Certificates, the
Class E Certificates, the Class F Certificates and the Class G Certificates
(collectively, the "REMIC Regular Certificates"); and (ii) the Class R-I
Certificates, the Class R-II Certificates and the Class R-III Certificates
(collectively, the "REMIC Residual Certificates").
Only the Class A, Class B, Class C and Class D Certificates
(collectively, the "Offered Certificates") are offered hereby. The Class IO,
Class E, Class F, Class G, Class R-I, Class R-II and Class R-III Certificates
(collectively, the "Private Certificates") have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and are not offered
hereby. Accordingly, information herein regarding the terms of the Private
Certificates is provided solely because of its potential relevance to a
prospective purchaser of an Offered Certificate.
Registration and Denominations
The Offered Certificates will be issued in book-entry format through
the facilities of The Depository Trust Company ("DTC"). Each Class of Offered
Certificates will be issued in denominations of not less than $100,000 initial
principal amount and in integral multiples of $1 in excess thereof.
Each Class of Offered Certificates will initially be represented by one
or more global Certificates registered in the name of the nominee of DTC. The
Depositor has been informed by DTC that DTC's nominee will be Cede & Co. No
beneficial owner of an Offered Certificate (each, a "Certificate Owner") will be
entitled to receive a fully registered, certificated form of such Certificate (a
"Definitive Certificate"), except under the limited circumstances described in
the Prospectus under "DESCRIPTION OF THE CERTIFICATES--Book-Entry Registration
and Definitive Certificates." Unless and until Definitive Certificates are
issued in respect of a Class of Offered Certificates, beneficial ownership
interests in such Class will be recorded and transferred on the book-entry
records of DTC
S-68
<PAGE>
<PAGE>
and its participating organizations (the "Participants"), and all references to
actions by holders of a Class of Offered Certificates will refer to actions
taken by DTC upon instructions received from the related Certificate Owners
through the Participants in accordance with DTC procedures, and all references
herein to payments, notices, reports and statements to the holders of a Class of
Offered Certificates will refer to payments, notices, reports and statements to
DTC or Cede & Co., as the registered holder thereof, for distribution to the
related Certificate Owners through the Participants in accordance with DTC
procedures. The form of such payments and transfers may result in certain delays
in receipt of payments by an investor and may restrict an investor's ability to
pledge its securities. None of the Depositor, the Master Servicer, the Special
Servicer, the Fiscal Agent or the Trustee or any of their respective affiliates
will have any liability for any actions taken by DTC or its nominee, including,
without limitation, with respect to payments made on account of beneficial
ownership interests in Offered Certificates held by Cede & Co., as nominee for
DTC, or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests. See "DESCRIPTION OF THE CERTIFICATES--Book-Entry
Registration and Definitive Certificates" and "RISK FACTORS--Book-Entry
Registration" in the Prospectus.
Transfers between Participants will occur in accordance with the rules,
regulations and procedures creating and affecting DTC and its operations ("DTC
Rules") and will be settled in same-day funds.
Certificate Balances and Notional Amounts
Upon initial issuance, the Class A, Class B, Class C and Class D
Certificates will have the respective Certificate Balances set forth in the
following table, in each case subject to a variance of plus or minus 5%.
<TABLE>
<CAPTION>
Initial Approximate
Certificate Percentage of
Class Of Certificates Balance Initial Pool Balance
--------------------- ------- --------------------
<S> <C> <C>
Class A Certificates............................................. $ 62.0%
Class B Certificates............................................. 7.0%
Class C Certificates............................................. 7.0%
Class D Certificates............................................. 4.5%
------------------ ----------
Total $ 80.5%
================== ==========
</TABLE>
Upon initial issuance, the Class E, Class F and Class G Certificates
(collectively with the Offered Certificates, the "Principal Balance
Certificates") will have, subject to a variance of plus or minus 5%, an
aggregate Certificate Balance of $ , which represents the remaining portion
of the Initial Pool Balance.
The "Certificate Balance" of any Class of Principal Balance
Certificates outstanding at any time represents the maximum amount that the
holders thereof are entitled to receive as distributions allocable to principal
from the cash flow on the Mortgage Loans and the other assets in the Trust Fund.
The Certificate Balance of each Class of Principal Balance Certificates will be
reduced on each Distribution Date by any distributions of principal actually
made on such Class of Certificates on such Distribution Date and, further, by
any Realized Losses and Additional Trust Fund Expenses deemed allocated to such
Class of Certificates on such Distribution Date.
The Class IO Certificates will not have a Certificate Balance and will
not entitle the holders thereof to distributions of principal; instead, such
Certificates will represent the right to receive distributions of interest
accrued as described herein on a hypothetical or notional principal amount (the
"Class IO Notional Amount") equal to the aggregate of the following four
components (each, a "Component"): (a) the Certificate Balance of the Class A
Certificates outstanding from time to time ("Component A" of the Class IO
Notional Amount); (b) the Certificate Balance of the Class B Certificates
outstanding from time to time ("Component B" of the Class IO Notional Amount);
(c) the Certificate Balance of the Class C Certificates outstanding from time to
time ("Component C" of the
S-69
<PAGE>
<PAGE>
Class IO Notional Amount); and (d) the Certificate Balance of the Class D
Certificates outstanding from time to time ("Component D" of the Class IO
Notional Amount).
The REMIC Residual Certificates will not have Certificate Balances or
accrue interest on a notional principal amount or otherwise. Such Certificates
will represent the right to receive certain limited amounts following the
retirement of all the other Classes of Certificates.
Pass-Through Rates
The fixed Pass-Through Rates applicable to the respective Classes of
Offered Certificates are set forth on the cover page.
The Pass-Through Rate applicable to the Class IO Certificates for the
initial Distribution Date will equal approximately % per annum. With respect
to each Distribution Date subsequent to the initial Distribution Date, the
Pass-Through Rate for the Class IO Certificates will be a variable rate equal to
the weighted average of the Component A Rate (fixed at % per annum), the
Component B Rate (a variable rate initially equal to % per annum), the
Component C Rate (a variable rate initially equal to % per annum) and the
Component D Rate (a variable rate initially equal to % per annum), each
weighted on the basis of the proportion that the amount of the related Component
(that is, the Component with the same letter designation) outstanding
immediately prior to such Distribution Date bears to the entire Class IO
Notional Amount outstanding immediately prior to such Distribution Date. Each of
the Component B Rate, the Component C Rate and the Component D Rate is, as
stated above, a variable rate and, with respect to each Distribution Date, will
equal the Weighted Average Net Mortgage Rate for such Distribution Date minus
(i) the Class B Pass-Through Rate, in the case of the Component B Rate, (ii) the
Class C Pass-Through Rate, in the case of the Component C Rate, and (iii) the
Class D Pass-Through Rate, in the case of the Component D Rate.
The Pass-Through Rate applicable to each of the remaining Classes of
REMIC Regular Certificates for each Distribution Date will equal the Weighted
Average Net Mortgage Rate for such Distribution Date. The REMIC Residual
Certificates will not have a specified Pass-Through Rate.
The "Weighted Average Net Mortgage Rate" for each Distribution Date is
the weighted average of the Net Mortgage Rates for the Mortgage Loans as of the
commencement of the related Collection Period, weighted on the basis of the
respective Stated Principal Balances of such Mortgage Loans outstanding
immediately prior to such Distribution Date. The "Net Mortgage Rate" for each
Mortgage Loan will generally equal the Mortgage Rate in effect for such Mortgage
Loan from time to time, minus 7.25 basis points (i.e., the Master Servicing Fee
Rate); provided that the Net Mortgage Rate for any Mortgage Loan will not
reflect any adjustment to its Mortgage Rate following the Cut-off Date in
connection with a bankruptcy or similar proceeding involving the related
borrower or a modification of such Mortgage Rate agreed to by the Special
Servicer as described herein under "SERVICING OF THE MORTGAGE LOANS--
Modifications, Waivers and Amendments". See "DESCRIPTION OF THE MORTGAGE
POOL--Certain Terms and Characteristics of the Mortgage Loans--Mortgage Rates;
Calculations of Interest" herein. The "Stated Principal Balance" of each
Mortgage Loan outstanding at any time will generally be an amount equal to the
Cut-off Date Balance thereof, reduced (to not less than zero) on each
Distribution Date by (i) any payments or other collections (or advances in lieu
thereof) of principal of such Mortgage Loan that are due or received, as the
case may be, during the related Collection Period and are distributed on the
Certificates on such Distribution Date and (ii) the principal portion of any
Realized Loss incurred in respect of such Mortgage Loan during the related
Collection Period.
The "Collection Period" for each Distribution Date will be the period
that begins immediately following the Determination Date in the month preceding
the month in which such Distribution Date occurs (or, in the case of the initial
Distribution Date, immediately following the Cut-off Date) and ends on and
includes the Determination Date in the same month as such Distribution Date. The
"Determination Date" will be the 12th day of each month (or, if such 12th day is
not a business day, the first preceding business day).
S-70
<PAGE>
<PAGE>
Distributions
General. Distributions on the Certificates will be made by the Trustee,
to the extent of available funds, on the 20th day of each month or, if any such
20th day is not a business day, then on the next succeeding business day,
commencing in March 1996 (each, a "Distribution Date"). Except as described
below, all distributions to holders of the Offered Certificates will be made by
or on behalf of the Trustee to the persons in whose names such Offered
Certificates are registered at the close of business on the last business day of
the month preceding the month in which the related Distribution Date occurs (the
"Record Date"). Such distributions will be made either (i) by check mailed to
the address of each such Certificateholder as it appears in the Certificate
register or (ii) upon written request to the Trustee at least five business days
prior to the relevant Record Date by any holder of Offered Certificates having
an aggregate initial principal balance that is at least $5,000,000, by wire
transfer in immediately available funds to the account specified in the request.
The final distribution on any Certificate (determined without regard to any
possible future reimbursement of any Realized Loss or Additional Trust Fund
Expense previously deemed allocated to such Certificate) will be made in the
same manner, but only upon presentation and surrender of such Certificate at the
location that will be specified in a notice of the pendency of such final
distribution. Any distribution that is to be made with respect to a Certificate
in reimbursement of a Realized Loss or Additional Trust Fund Expense previously
deemed allocated thereto, which reimbursement is to occur after the Certificate
is surrendered as contemplated by the preceding sentence, will be made by check
mailed to the holder that surrendered such Certificate. All distributions made
with respect to a Class of Certificates will be allocated pro rata among the
outstanding Certificates of such Class based on their respective percentage
interests in such Class.
The Available Distribution Amount. The aggregate amount available for
distributions of principal and interest to the Certificateholders on each
Distribution Date (the "Available Distribution Amount") will, in general, equal
the sum of the following amounts:
(a) the total amount of all cash received on or in respect of
the Mortgage Loans and any REO Properties that is on deposit in the
Certificate Account as of the close of business on the related
Determination Date, exclusive of any portion thereof that represents
one or more of the following:
(i) any Monthly Payments collected but due on a Due
Date subsequent to the end of the related Collection Period,
(ii) any Prepayment Premiums, and
(iii) all amounts in the Certificate Account that are
payable or reimbursable to any person other than the
Certificateholders;
(b) all P&I Advances made by or on behalf of the Master
Servicer, the Trustee and/or the Fiscal Agent with respect to such
Distribution Date; and
(c) any Compensating Interest Payment made by the Master
Servicer to cover the aggregate of any Prepayment Interest Shortfalls
experienced during the related Collection Period. See "--P&I Advances"
and "SERVICING OF THE MORTGAGE LOANS--Servicing and Other Compensation
and Payment of Expenses" herein and "DESCRIPTION OF THE
AGREEMENTS--Certificate Account" in the Prospectus.
Any Prepayment Premiums actually collected on the Mortgage Loans will
be distributed to Certificateholders separately from the Available Distribution
Amount. See "--Distributions--Prepayment Premiums" herein.
Application of the Available Distribution Amount. On each Distribution
Date, the Trustee will (except as otherwise described under "--Termination"
below) apply amounts on deposit in the Certificate Account, to the extent of the
Available Distribution Amount, for the purposes and in the order of priority set
forth below, in each case to the extent of remaining available funds:
S-71
<PAGE>
<PAGE>
(1) to distributions of interest to the holders of the Class A
Certificates (if such Class remains outstanding) and the holders of the
Class IO Certificates, pro rata in accordance with the respective
amounts of interest distributable on such Classes of Certificates on
such Distribution Date as described in this clause (1), in an amount
equal to the Interest Distribution Amount (as defined below) in respect
of each such Class of Certificates for such Distribution Date and, to
the extent not previously paid, for all prior Distribution Dates;
(2) to distributions of principal to the holders of the Class
A Certificates, in an amount (not to exceed the then outstanding
Certificate Balance of such Class of Certificates) equal to the
Principal Distribution Amount (as defined below) for such Distribution
Date;
(3) to distributions to the holders of the Class A
Certificates to reimburse such holders for all Realized Losses and
Additional Trust Fund Expenses, if any, previously deemed allocated to
such Class of Certificates and for which no reimbursement has
previously been received;
(4) to distributions of interest to the holders of the Class B
Certificates 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;
(5) if the Class A Certificates have been retired, to
distributions of principal to the holders of the Class B Certificates
in an amount (not to exceed the then outstanding Certificate Balance of
such Class of Certificates) equal to the Principal Distribution Amount
for such Distribution Date, less any portion thereof distributed in
retirement of the Class A Certificates on such Distribution Date;
(6) to distributions to the holders of the Class B
Certificates to reimburse such holders for all Realized Losses and
Additional Trust Fund Expenses, if any, previously deemed allocated to
such Class of Certificates and for which no reimbursement has
previously been received;
(7) to distributions of interest to the holders of the Class C
Certificates 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;
(8) if the Class A and Class B Certificates have been retired,
to distributions of principal to the holders of the Class C
Certificates in an amount (not to exceed the then outstanding
Certificate Balance of such Class of Certificates) equal to the
Principal Distribution Amount for such Distribution Date, less any
portion thereof distributed in retirement of the Class A and/or Class B
Certificates on such Distribution Date;
(9) to distributions to the holders of the Class C
Certificates to reimburse such holders for all Realized Losses and
Additional Trust Fund Expenses, if any, previously deemed allocated to
such Class of Certificates and for which no reimbursement has
previously been received;
(10) to distributions of interest to the holders of the Class
D Certificates 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;
(11) if the Class A, Class B and Class C Certificates have
been retired, to distributions of principal to the holders of the Class
D Certificates in an amount (not to exceed the then outstanding
Certificate Balance of such Class of Certificates) equal to the
Principal Distribution Amount for such Distribution Date, less any
portion thereof distributed in retirement of the Class A, Class B
and/or Class C Certificates on such Distribution Date;
(12) to distributions to the holders of the Class D
Certificates to reimburse such holders for all Realized Losses and
Additional Trust Fund Expenses, if any, previously deemed
S-72
<PAGE>
<PAGE>
allocated to such Class of Certificates and for which no reimbursement
has previously been received;
(13) to distributions of interest to the holders of the Class
E Certificates 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;
(14) if the Offered Certificates have been retired, to
distributions of principal to the holders of the Class E Certificates
in an amount (not to exceed the then outstanding Certificate Balance of
such Class of Certificates) equal to the Principal Distribution Amount
for such Distribution Date, less any portion thereof distributed in
retirement of the Offered Certificates on such Distribution Date;
(15) to distributions to the holders of the Class E
Certificates to reimburse such holders for all Realized Losses and
Additional Trust Fund Expenses, if any, previously deemed allocated to
such Class of Certificates and for which no reimbursement has
previously been received;
(16) to distributions of interest to the holders of the Class
F Certificates 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;
(17) if the Offered and Class E Certificates have been
retired, to distributions of principal to the holders of the Class F
Certificates in an amount (not to exceed the then outstanding
Certificate Balance of such Class of Certificates) equal to the
Principal Distribution Amount for such Distribution Date, less any
portion thereof distributed in retirement of the Offered and/or Class E
Certificates on such Distribution Date;
(18) to distributions to the holders of the Class F
Certificates to reimburse such holders for all Realized Losses and
Additional Trust Fund Expenses, if any, previously deemed allocated to
such Class of Certificates and for which no reimbursement has
previously been received;
(19) to distributions of interest to the holders of the Class
G Certificates 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;
(20) if the other Classes of Principal Balance Certificates
have been retired, to distributions of principal to the holders of the
Class G Certificates in an amount (not to exceed the then outstanding
Certificate Balance of such Class of Certificates) equal to the
Principal Distribution Amount for such Distribution Date, less any
portion thereof distributed in retirement of any other Class or Classes
of Principal Balance Certificates on such Distribution Date;
(21) to distributions to the holders of the Class G
Certificates to reimburse such holders for all Realized Losses and
Additional Trust Fund Expenses, if any, previously deemed allocated to
such Class of Certificates and for which no reimbursement has
previously been received;
(22) to distributions of principal to the holders of the
respective Classes of Principal Balance Certificates, in reverse
alphabetical order of Class designation, commencing with the Class G
Certificates, until each such Class has been retired; and
(23) to distributions to the holders of the REMIC Residual
Certificates in an amount equal to the balance, if any, of the
Available Distribution Amount remaining after the distributions to be
made on such Distribution Date as described in clauses (1) through (22)
above.
Distributions in respect of the Principal Distribution Amount, together
with the distribution contemplated by clause (22) above, will constitute the
only distributions of principal on the respective
S-73
<PAGE>
<PAGE>
Classes of Certificates. Any amounts available for distribution as contemplated
by clause (22) above will initially result from the Weighted Average Net
Mortgage Rate for each Distribution Date being greater than the sum of the
Pass-Through Rate for the Class A Certificates and the Component A Rate for the
Class IO Certificates (each of which is fixed), causing interest accrued on the
Certificate Balance of the Class A Certificates and Component A of the Class IO
Notional Amount to be less than interest (net of related Master Servicing Fees)
accrued on the corresponding portion of the aggregate Stated Principal Balance
of the Mortgage Pool. Distributions pursuant to Clause (22) above would cause
the aggregate Stated Principal Balance of the Mortgage Pool to exceed the
aggregate Certificate Balance of the Principal Balance Certificates. Subject to
the priority of distributions described above, any interest accrued on such
excess aggregate Stated Principal Balance at the Weighted Average Net Mortgage
Rate in effect from time to time would also be available for distribution
pursuant to clause (22) above. Reimbursements of previously allocated Realized
Losses and Additional Trust Fund Expenses will not constitute distributions of
principal for any purpose and will not result in an additional reduction in the
Certificate Balance of the Class of Certificates in respect of which any such
reimbursement is made.
Interest Distribution Amount. The "Interest Distribution Amount" in
respect of each Class of REMIC Regular Certificates for each Distribution Date
will equal one month's interest at the Pass-Through Rate applicable to such
Class of Certificates for such Distribution Date accrued on the related
Certificate Balance (or, in the case the Class IO Certificates, the Class IO
Notional Amount) outstanding immediately prior to such Distribution Date,
reduced (to not less than zero) by such Class's allocable share (calculated as
described below) of the aggregate of any Prepayment Interest Shortfalls
resulting from voluntary principal prepayments made on the Mortgage Loans during
the related Collection Period that are not covered by the Master Servicer's
Compensating Interest Payment for such Distribution Date (the aggregate of such
Prepayment Interest Shortfalls that are not so covered, as to such Distribution
Date, the "Net Aggregate Prepayment Interest Shortfall"). Such interest on the
REMIC Regular Certificates will accrue on the basis of a 360-day year consisting
of twelve 30-day months.
The portion of the Net Aggregate Prepayment Interest Shortfall for any
Distribution Date that is allocable to each Class of REMIC Regular Certificates
will equal the product of (a) such Net Aggregate Prepayment Interest Shortfall,
multiplied by (b) a fraction, the numerator of which is equal to the Interest
Distribution Amount in respect of such Class of Certificates for such
Distribution Date (without regard to any reduction therein as a result of such
Net Aggregate Prepayment Shortfall), and the denominator of which is equal to
the aggregate Interest Distribution Amount for all the Classes of REMIC Regular
Certificates for such Distribution Date (without regard to any reduction therein
as a result of such Net Aggregate Prepayment Shortfall).
Principal Distribution Amount. The "Principal Distribution Amount" for
each Distribution Date will generally equal the aggregate of the following:
(a) the aggregate of the principal portions of all Scheduled
Payments (other than Balloon Payments) due and Assumed Scheduled
Payments deemed due on or in respect of the Mortgage Loans for their
respective Due Dates occurring during the related Collection Period;
(b) the aggregate of all voluntary principal prepayments
received on the Mortgage Loans during the related Collection Period;
(c) with respect to any Mortgage Loan as to which the related
stated maturity date occurred during or prior to the related Collection
Period, any payment of principal (including a Balloon Payment) made by
or on behalf of the related borrower during the related Collection
Period, net of any portion of such payment that represents a recovery
of principal amounts that have previously been advanced; and
S-74
<PAGE>
<PAGE>
(d) the aggregate of all liquidation proceeds, insurance
proceeds, condemnation awards, proceeds of Mortgage Loan repurchases
and net operating income from REO Properties that were received on or
in respect of the Mortgage Loans during the related Collection Period
and that were identified and applied by the Master Servicer as
recoveries of principal of the related Mortgage Loans, in each case net
of any portion of such collections that represents a recovery of
principal amounts that have previously been advanced.
The "Scheduled Payment" due on any Mortgage Loan on any related Due
Date generally is the amount of the Monthly Payment that would have been due
thereon on such date, without regard to any waiver, modification or amendment of
such Mortgage Loan following the Cut-off Date granted or agreed to by the Master
Servicer and/or the Special Servicer or otherwise resulting in connection with a
bankruptcy or similar proceeding involving the related borrower, and assuming
that each prior Scheduled Payment has been made in a timely manner, and such
Mortgage Loan is not otherwise in default.
The "Assumed Scheduled Payment" is the amount deemed due in respect of
any Mortgage Loan that is delinquent in respect of its Balloon Payment beyond
the end of the Collection Period in which its stated maturity date occurred. The
Assumed Scheduled Payment deemed due on any such Mortgage Loan on its stated
maturity date and on each successive Due Date that it remains or is deemed to
remain outstanding shall equal the Scheduled Payment that would have been due
thereon on such date if the related Balloon Payment had not come due but rather
such Mortgage Loan had continued to amortize in accordance with such loan's
amortization schedule in effect as of the Cut-off Date.
Treatment of REO Properties. Notwithstanding that any Mortgaged
Property may be acquired as part of the Trust Fund through foreclosure, deed in
lieu of foreclosure or otherwise, the related Mortgage Loan will be treated, for
purposes of, among other things, determining distributions on the Certificates,
allocations of Realized Losses and Additional Trust Fund Expenses to the
Certificates, and the amount of Master Servicing Fees and Special Servicing Fees
payable under the Pooling and Servicing Agreement, as having remained
outstanding until such property is liquidated. In connection therewith,
operating revenues and other proceeds derived from such REO Property (exclusive
of related operating costs) will be "applied" or treated by the Master Servicer
as principal, interest and other amounts "due" on the related Mortgage Loan, and
the Master Servicer will be required to make P&I Advances in respect of such
Mortgage Loan, in all cases as if such Mortgage Loan had remained outstanding.
Prepayment Premiums. For so long as the Offered Certificates are
outstanding, any Prepayment Premium actually collected on the Mortgage Loans
will be distributed on the first Distribution Date following the Collection
Period of receipt to the holders of the Class IO Certificates and the holders of
the Class of Offered Certificates then currently entitled to distributions of
principal as follows: (1) the holders of the Class IO Certificates will be
entitled to receive an amount equal to the product of (a) such Prepayment
Premium, multiplied by (b) the quotient of (i) the Net Mortgage Rate of the
related prepaid Mortgage Loan minus the Pass-Through Rate of such Class of
Offered Certificates, divided by (ii) the Net Mortgage Rate of the related
prepaid Mortgage Loan minus the lesser of the Pass-Through Rate and the
applicable Adjusted Treasury Yield in respect of such Class of Offered
Certificates; and (2) the holders of such Class of Offered Certificates will be
entitled to receive the remainder of such Prepayment Premium. On any
Distribution Date on which one Class of Offered Certificates will be retired,
and the holders of a second Class of Offered Certificates will commence
receiving distributions of principal, any Prepayment Premium received during the
related Collection Period will first be divided into two separate amounts based
on, and attributable to, the respective portions of the related principal
prepayment distributable in respect of each such Class of Offered Certificates,
and each such separate amount will then be allocated between the holders of the
Class IO Certificates and the holders of the corresponding Class of Offered
Certificates as provided in the immediately preceding sentence.
S-75
<PAGE>
<PAGE>
Any Prepayment Premiums actually collected on the Mortgage Loans and
distributable following the retirement of the Offered Certificates, will be
distributed in respect of the REMIC Residual Certificates.
The "Adjusted Treasury Yield" applicable to any Class of Offered
Certificates for the foregoing purposes will be an annual rate equal to the sum
of (a) the monthly equivalent yield for the U.S. Treasury issue (primary issue)
with a maturity date closest to the earlier of (i) the scheduled maturity date
of the Mortgage Loan that was prepaid and (ii) the Assumed Final Distribution
Date for such Class of Offered Certificates, plus (b) %.
Subordination; Allocation of Losses and Certain Expenses
The rights of holders of the Class B, the Class C, the Class D, the
Class E, the Class F, the Class G and the REMIC Residual Certificates
(collectively, the "Subordinate Certificates") to receive distributions of
amounts collected or advanced on the Mortgage Loans will, in each case, be
subordinated, to the extent described herein, to the rights of holders of the
Class A and Class IO Certificates (collectively, the "Senior Certificates") and
each other Class of Subordinate Certificates, if any, with an earlier
alphabetical Class designation. This subordination is intended to enhance the
likelihood of full and timely receipt by the holders of the Senior Certificates
of the respective Interest Distribution Amounts payable in respect of such
Classes of Certificates on each Distribution Date, and the ultimate receipt by
the holders of the Class A Certificates of principal in an amount equal to the
entire Certificate Balance of such Class of Certificates. Similarly, but to
decreasing degrees, this subordination is also intended to enhance the
likelihood of full and timely receipt by the holders of the Class B
Certificates, the holders of the Class C Certificates and the holders of the
Class D Certificates of the respective Interest Distribution Amounts payable in
respect of such Classes of Certificates on each Distribution Date, and the
ultimate receipt by the holders of such Classes of Certificates of principal
equal to the entire respective Certificate Balances of those Classes of
Certificates. The protection afforded to the holders of the Class D Certificates
by means of the subordination of the Class E, the Class F, the Class G and the
REMIC Residual Certificates (collectively, the "Private Subordinate
Certificates"), to the holders of the Class C Certificates by means of the
subordination of the Class D and the Private Subordinate Certificates, to the
holders of the Class B Certificates by means of the subordination of the Class
C, the Class D and the Private Subordinate Certificates, and to the holders of
the Senior Certificates by means of the subordination of the Subordinate
Certificates, will be accomplished by the application of the Available
Distribution Amount on each Distribution Date in accordance with the order of
priority described under "--Distributions--Application of the Available
Distribution Amount" above. No other form of credit support will be available
for the benefit of the holders of the Offered Certificates.
Allocation to the Class A Certificates, for so long as they are
outstanding, of the entire Principal Distribution Amount for each Distribution
Date will generally have the effect of reducing the Certificate Balance of such
Class at a faster rate than the aggregate Stated Principal Balance of the
Mortgage Pool is reduced. Thus, as amounts constituting part of any Principal
Distribution Amount are distributed as principal to the holders of the Class A
Certificates, the percentage interest in the Trust Fund evidenced by such Class
of Certificates will be decreased (with a corresponding increase in the
percentage interest in the Trust Fund evidenced by the Subordinate
Certificates), thereby increasing, relative to their respective Certificate
Balances, the subordination afforded the Class A Certificates by the Subordinate
Certificates. Following retirement of the Class A Certificates, the herein
described successive allocation to the Class B Certificates, the Class C
Certificates and the Class D Certificates, in that order, in each case for so
long as they are outstanding, of the entire Principal Distribution Amount for
each Distribution Date will provide a similar increase in the relative amount of
subordination afforded to each such Class of Certificates by the other Classes
of Subordinate Certificates with later alphabetical Class designations.
If, following the distributions to be made in respect of the
Certificates on any Distribution Date, the aggregate of the Stated Principal
Balances of the Mortgage Loans that will be outstanding
S-76
<PAGE>
<PAGE>
immediately following such Distribution Date is less than the then aggregate of
the Certificate Balances of the Principal Balance Certificates, the respective
Certificate Balances of the various Classes of Principal Balance Certificates
will be reduced, sequentially in reverse alphabetical order of Class
Designation, until such deficit (or, in the case of each such Class, the related
Certificate Balance) is reduced to zero (whichever occurs first). Any such
deficit may be the result of Realized Losses incurred in respect of the Mortgage
Loans and/or Additional Trust Fund Expenses. The foregoing reductions in the
Certificate Balances of the Principal Balance Certificates will be deemed to
constitute an allocation of any such Realized Losses and Additional Trust Fund
Expenses.
"Realized Losses" are losses arising from the inability of the Master
Servicer and/or the Special Servicer to collect all amounts due and owing under
any defaulted Mortgage Loan, including by reason of the fraud or bankruptcy of
the borrower or a casualty of any nature at the related Mortgaged Property, to
the extent not covered by insurance. The Realized Loss in respect of a
liquidated Mortgage Loan (including a Mortgage Loan as to which the related
Mortgaged Property has become an REO Property and such REO Property has been
sold or otherwise disposed of) is an amount generally equal to the excess, if
any, of (a) the outstanding principal balance of such Mortgage Loan as of the
date of liquidation, together with (i) all accrued and unpaid interest thereon
at the related Mortgage Rate in effect from time to time to but not including
the Due Date in the Collection Period in which the liquidation occurred and (ii)
certain related unreimbursed servicing expenses, over (b) the aggregate amount
of liquidation proceeds, if any, recovered in connection with such liquidation.
If any portion of the debt due under a Mortgage Loan is forgiven, whether in
connection with a modification, waiver or amendment granted or agreed to by the
Special Servicer or in connection with a bankruptcy or similar proceeding
involving the related borrower, the amount so forgiven also will constitute a
Realized Loss.
"Additional Trust Fund Expenses" include, among other things, (i) any
Special Servicing Fees, Modification Fees and/or Resolution Fees paid to the
Special Servicer, (ii) any interest paid to the Master Servicer, the Trustee,
the Fiscal Agent and/or the Special Servicer in respect of unreimbursed P&I
Advances made thereby and servicing expenses incurred thereby, (iii) the cost of
certain appraisals obtained in respect of Required Appraisal Loans as described
under "--Appraisal Reductions" below, and (iv) any of certain unanticipated,
non-Mortgage Loan specific expenses of the Trust Fund, including certain
reimbursements to the Trustee of the type described under "DESCRIPTION OF THE
AGREEMENTS--Certain Matters Regarding the Trustee" in the Prospectus, certain
reimbursements to the Master Servicer, the Special Servicer and the Depositor of
the type described under "DESCRIPTION OF THE AGREEMENTS--Certain Matters
Regarding a Master Servicer and the Depositor" in the Prospectus, and certain
federal, state and local taxes, and certain tax related expenses, payable from
the assets of the Trust Fund and described under "SERVICING OF THE MORTGAGE
LOANS--REO Properties" herein and "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES--REMICS--Prohibited Transactions Tax and Other Taxes" in the
Prospectus. Additional Trust Fund Expenses will reduce amounts payable to
Certificateholders and, subject to the distribution priorities described above,
may result in a loss on one or more Classes of Offered Certificates.
P&I Advances
On or about each Distribution Date, the Master Servicer will be
obligated, subject to the recoverability determination described in the next
paragraph, to make advances (each, a "P&I Advance") out of its own funds or,
subject to the replacement thereof as provided in the Pooling and Servicing
Agreement, from funds held in the Certificate Account that are not required to
be distributed to Certificateholders on such Distribution Date, in an amount
that is generally equal to the aggregate of all Scheduled Payments (other than
Balloon Payments) and any Assumed Scheduled Payments, net of related Master
Servicing Fees, due or deemed due, as the case may be, in respect of the
Mortgage Loans during the related Collection Period, in each case to the extent
such amount was not paid by or on behalf of the related borrower or otherwise
collected as of the close of business on the related Determination Date.
Notwithstanding the foregoing, if the Monthly Payment on any Mortgage
S-77
<PAGE>
<PAGE>
Loan has been reduced in connection with a bankruptcy or similar proceeding or a
modification, waiver or amendment granted or agreed to by the Special Servicer,
the Master Servicer will be required in the event of subsequent delinquencies to
advance in respect of such Mortgage Loan only the amount of the reduced Monthly
Payment (net of related Master Servicing Fees). In addition, if it is determined
that an Appraisal Reduction Amount exists with respect to any Required Appraisal
Mortgage Loan (as defined below), then, with respect to the Distribution Date
immediately following the date of such determination and with respect to each
subsequent Distribution Date for so long as such Appraisal Reduction Amount
exists, the Master Servicer will be required in the event of subsequent
delinquencies to advance in respect of such Mortgage Loan only an amount equal
to the product of (i) the amount of the P&I Advance that would otherwise be
required without regard to this sentence, multiplied by (ii) a fraction, the
numerator of which is equal to the Stated Principal Balance of such Mortgage
Loan, net of such Appraisal Reduction Amount, and the denominator of which is
equal to the Stated Principal Balance of such Mortgage Loan. See "--Appraisal
Reductions" below. If the Master Servicer fails to make a required P&I Advance,
the Trustee will be required to make such P&I Advance, and if the Trustee fails
to make a required P&I Advance, the Fiscal Agent will be required to make such
P&I Advance. See "--The Trustee" and "--The Fiscal Agent" herein.
The Master Servicer, the Trustee and the Fiscal Agent will be entitled
to recover any P&I Advance made out of its own funds from any amounts collected
in respect of the Mortgage Loan as to which such P&I Advance was made, whether
such amounts are collected in the form of late payments, insurance proceeds,
condemnation awards, liquidation proceeds or otherwise ("Related Proceeds").
None of the Master Servicer, the Trustee or the Fiscal Agent will be obligated
to make any P&I Advance that it determines in its reasonable, good faith
judgment, would, if made, not be recoverable out of Related Proceeds (a
"Nonrecoverable P&I Advance"), and the Master Servicer, the Trustee and the
Fiscal Agent will each be entitled to recover any P&I Advance made by it that it
later determines to be a Nonrecoverable P&I Advance out of general funds on
deposit in the Certificate Account. See "DESCRIPTION OF THE
CERTIFICATES--Advances in Respect of Delinquencies" and "DESCRIPTION OF THE
AGREEMENTS--Certificate Account" in the Prospectus.
In connection with the recovery by the Master Servicer, the Trustee or
the Fiscal Agent of any P&I Advance made by it or the recovery by the Master
Servicer, the Trustee, the Fiscal Agent or the Special Servicer of any
reimbursable servicing expense incurred by it (each such P&I Advance or
servicing expense, an "Advance"), the Master Servicer, the Trustee, the Fiscal
Agent or the Special Servicer, as applicable, will be entitled to be paid, out
of any amounts then on deposit in the Certificate Account, interest at a per
annum rate (the "Reimbursement Rate") equal to the "prime rate" published in the
"Money Rates" section of The Wall Street Journal, as such "prime rate" may
change from time to time, accrued on the amount of such Advance from the date
made to but not including the date of reimbursement. To the extent not offset or
covered by amounts otherwise payable on the Private Subordinate Certificates,
interest accrued on outstanding Advances will result in a reduction in amounts
payable on the Class IO and the Offered Certificates, subject to the
distribution priorities described herein.
Appraisal Reductions
Upon the earliest of (i) the 120th day (or, in the case of a Modified
Mortgage Loan (as defined below), the 30th day) following the occurrence of any
uncured delinquency in Monthly Payments with respect to any Mortgage Loan, (ii)
the date on which a receiver is appointed and continues in such capacity in
respect of the Mortgaged Property securing any Mortgage Loan and (iii) the date
on which the Mortgaged Property securing any Mortgage Loan becomes an REO
Property (each such Mortgage Loan, a "Required Appraisal Loan"), the Master
Servicer or the Special Servicer, as applicable, will be required to request
and, within 60 days of such Mortgage Loan becoming a Required Appraisal Loan,
obtain an appraisal of the related Mortgaged Property from an independent
MAI-designated appraiser, unless such an appraisal had previously been obtained
within the prior twelve months. The cost of such appraisal will be advanced by
the Master Servicer or the Special Servicer, as the case may be, subject to its
right to be reimbursed therefor out of Related Proceeds or, if not reimbursable
S-78
<PAGE>
<PAGE>
therefrom, out of general funds on deposit in the Certificate Account. As a
result of any such appraisal, it may be determined that an "Appraisal Reduction
Amount" exists with respect to the related Required Appraisal Loan. The
Appraisal Reduction Amount for any Required Appraisal Loan will equal the
excess, if any, of (a) the sum of, as of the Determination Date immediately
succeeding the date on which the appraisal is obtained, (i) the Stated Principal
Balance of such Required Appraisal Loan, (ii) to the extent not previously
advanced by or on behalf of the Master Servicer, the Trustee or the Fiscal
Agent, all unpaid interest on the Required Appraisal Loan through the most
recent Due Date prior to such Determination Date at a per annum rate equal to
the related Net Mortgage Rate, (iii) all accrued but unpaid Master Servicing
Fees and Special Servicing Fees in respect of such Required Appraisal Loan, (iv)
all related unreimbursed Advances made by or on behalf of the Master Servicer,
the Special Servicer, the Trustee or the Fiscal Agent with respect to such
Required Appraisal Loan plus interest accrued thereon at the Reimbursement Rate
and (v) all currently due and unpaid real estate taxes and assessments,
insurance premiums, and, if applicable, ground rents in respect of the related
Mortgaged Property, over (b) 90% of the appraised value (net of any prior liens)
of the related Mortgaged Property or REO Property as determined by such
appraisal.
With respect to each Required Appraisal Loan as to which there is an
Appraisal Reduction Amount, which has become current and has remained current
for twelve consecutive Monthly Payments and with respect to which no other
Servicing Transfer Event has occurred and is continuing, the Master Servicer
will be required, within 30 days of the date of such twelfth Monthly Payment, to
order an appraisal (which may be an update of a prior appraisal) (the cost of
which will be an expense of the Trust Fund) or perform an internal valuation, as
applicable. Based upon such appraisal, the Master Servicer is to thereupon
redetermine and report to the Trustee the Appraisal Reduction Amount, if any,
with respect to such Mortgage Loan.
A "Modified Mortgage Loan" is any Mortgage Loan as to which a material
payment term has been modified following the Cut-off Date in connection with a
default or reasonably foreseeable default thereunder, or a bankruptcy,
insolvency or similar proceeding involving the related borrower, for example, a
reduction in the Mortgage Rate, a forgiveness of principal or the extension of
the maturity date.
Reports to Certificateholders; Available Information
Trustee Reports. Based on information provided in monthly reports
prepared by the Master Servicer and the Special Servicer and delivered to the
Trustee, the Trustee will prepare and forward on each Distribution Date to each
Certificateholder, the Depositor, the Master Servicer, the Special Servicer, the
Operating Adviser, the Extension Adviser and each Rating Agency:
1. A statement (a "Distribution Date Statement") setting
forth, among other things: (i) the amount of distributions, if any,
made on such Distribution Date to the holders of each Class of Offered
Certificates and applied to reduce the respective Certificate Balances
thereof; (ii) the amount of distributions, if any, made on such
Distribution Date to the holders of each Class of Offered Certificates
allocable to (A) the Interest Distribution Amount and/or (B) Prepayment
Premiums; (iii) the number of outstanding Mortgage Loans, the aggregate
Stated Principal Balance of the Mortgage Loans immediately following
such Distribution Date and the aggregate unpaid principal balance of
the Mortgage Loans at the close of business on the related
Determination Date; (iv) the number and aggregate unpaid principal
balance of Mortgage Loans (A) delinquent one month, (B) delinquent two
months, (C) delinquent three or more months, (D) that are Specially
Serviced Mortgage Loans that are not delinquent, or (E) as to which
foreclosure proceedings have been commenced; (v) with respect to any
Mortgage Loan as to which the related Mortgaged Property became an REO
Property during the preceding calendar month, the Stated Principal
Balance and unpaid principal balance of such Mortgage Loan as of the
date such Mortgaged Property became an REO Property; (vi) as to any
Mortgage Loan repurchased or otherwise liquidated or disposed of during
the related Collection Period, the loan number thereof and the amount
of proceeds of any repurchase of a Mortgage
S-79
<PAGE>
<PAGE>
Loan, liquidation proceeds and/or other amounts, if any, received
thereon during the related Collection Period and the portion thereof
included in the Available Distribution Amount for such Distribution
Date; (vii) with respect to any REO Property included in the Trust Fund
as of the close of business on the related Determination Date, the loan
number of the related Mortgage Loan, the book value of such REO
Property and the amount of any other income collected with respect to
any REO Property (net of related expenses) and other amounts, if any,
received on such REO Property during the related Collection Period and
the portion thereof included in the Available Distribution Amount for
such Distribution Date; (viii) with respect to any REO Property sold or
otherwise disposed of during the related Collection Period, (A) the
loan number of the related Mortgage Loan and the amount of sale
proceeds and other amounts, if any, received in respect of such REO
Property during the related Collection Period and the portion thereof
included in the Available Distribution Amount for such Distribution
Date and (B) the date of the related determination by the Special
Servicer that it had recovered all payments that it expects to be
finally recoverable with respect to such REO Property; (ix) the
Certificate Balance of each Class of Offered Certificates before and
after giving effect to the distributions made on such Distribution
Date, separately identifying any reduction in the Certificate Balance
of each such Class due to Realized Losses and Additional Trust Fund
Expenses; (x) the aggregate amount of voluntary principal prepayments
made by borrowers during the related Collection Period; (xi) the
aggregate amount of servicing compensation retained by or paid to the
Master Servicer and the Special Servicer during the related Collection
Period; (xii) the amount of Realized Losses and Additional Trust Fund
Expenses, if any, incurred with respect to the Mortgage Loans during
the related Collection Period; (xiii) the aggregate amount of Advances
outstanding which have been made by the Master Servicer, the Trustee
and the Fiscal Agent; (xiv) the amount of any Appraisal Reduction
Amounts effected during the related Collection Period on a loan-by-loan
basis and the total Appraisal Reduction Amounts as of such Distribution
Date on a loan-by-loan basis. In the case of information furnished
pursuant to subclauses (i), (ii) and (ix) above, the amounts shall be
expressed as a dollar amount in the aggregate for all Certificates of
each applicable Class and per single Certificate of a $1,000
denomination.
2. Commencing with the Distribution Date in June 1996, a
report containing information regarding the Mortgage Loans as of the
end of the related Collection Period, which report shall contain
substantially the following categories of information regarding the
Mortgage Loans set forth in this Prospectus Supplement in the tables
under the caption "DESCRIPTION OF THE MORTGAGE POOL--Additional
Mortgage Loan Information" (calculated, where applicable, on the basis
of the most recent relevant information provided by the Mortgagors to
the Master Servicer or the Special Servicer and by the Master Servicer
or the Special Servicer, as the case may be, to the Trustee) and such
information shall be presented in a tabular format substantially
similar to the format utilized in this Prospectus Supplement under such
caption and a loan-by-loan listing (in descending balance order)
showing loan name, property type, location, unpaid principal balance,
Mortgage Rate, paid through date, maturity date, net interest portion
of the Monthly Payment, principal portion of the Monthly Payment. Such
loan-by-loan listing will be made available electronically; provided,
however, the Trustee will provide Certificateholders with a written
copy of such report upon written request.
Certain information made available in the Distribution Date Statements
referred to in item (1) above may be obtained by calling LaSalle National Bank's
ASAP System at (312) 904-2200 and requesting statement number 176 or such other
mechanism as the Trustee may have in place from time to time.
The Master Servicer is required to deliver to the Trustee prior to each
Distribution Date, commencing with the Distribution Date in June 1996, and the
Trustee is to deliver to each Certificateholder, the Depositor, the Operating
Adviser, the Extension Adviser and each Rating Agency
S-80
<PAGE>
<PAGE>
on each Distribution Date, commencing with the Distribution Date in June 1996,
the following five reports:
(a) A "Comparative Financial Status Report" substantially
containing the content in Appendix 1 attached hereto, setting forth,
among other things, the occupancy, revenue, net operating income and
debt service coverage ratio for each Mortgage Loan for each of three
periods (to the extent such information is available): (i) the most
current available year-to-date, (ii) the previous two full calendar
years, and (iii) the "base year" (representing the original
underwriting information used as of the Cut-off Date).
(b) A "Delinquent Loan Status Report" substantially containing
the content in Appendix 2 attached hereto, setting forth, among other
things, those Mortgage Loans which, as of the close of business on the
Determination Date immediately preceding the preparation of such
report, were delinquent 30-59 days, delinquent 60-89 days, delinquent
90 days or more, current but specially serviced, or in foreclosure but
not REO Property.
(c) An "Historical Loan Modification Report" substantially
containing the content in Appendix 3 attached hereto, setting forth,
among other things, those Mortgage Loans which, as of the close of
business on the Determination Date immediately preceding the
preparation of such report, have been modified pursuant to the Pooling
and Servicing Agreement (i) during the related Collection Period and
(ii) since the Cut-off Date, showing the original and the revised terms
thereof.
(d) An "Historical Loss Estimate Report" substantially
containing the content in Appendix 4 attached hereto, setting forth,
among other things, as of the close of business on the Determination
Date immediately preceding the preparation of such report, (i) the
aggregate amount of liquidation proceeds and liquidation expenses, both
for the current period and historically, and (ii) the amount of
Realized Losses occurring during the related Collection Period, set
forth on a loan-by-loan basis.
(e) An "REO Status Report" substantially containing the
content in Appendix 5 attached hereto, setting forth, among other
things, with respect to each REO Property that was included in the
Trust Fund as of the close of business on the Determination Date
immediately preceding the preparation of such report, (i) the
acquisition date of such REO Property, (ii) the amount of income
collected with respect to such REO Property (net of related expenses)
and other amounts, if any, received on such REO Property during the
related Collection Period and (iii) the value of the REO Property based
on the most recent appraisal or other valuation thereof available to
the Master Servicer as of such date of determination (including any
prepared internally by the Special Servicer).
The information that pertains to Specially Serviced Mortgage Loans and
REO Properties reflected in such reports shall be based solely upon the reports
delivered by the Special Servicer to the Master Servicer prior to the related
Distribution Date. Absent manifest error, none of the Master Servicer, the
Special Servicer or the Trustee shall be responsible for the accuracy or
completeness of any information supplied to it by a Mortgagor or third party
that is included in any reports, statements, materials or information prepared
or provided by the Master Servicer, the Special Servicer or the Trustee, as
applicable.
The Master Servicer is also required to deliver to the Trustee the
following materials:
(a) Annually, on or before June 30 of each year, commencing
with June 30,1996, with respect to each Mortgaged Property and REO
Property, an "Operating Statement Analysis" substantially containing
the content in Appendix 6 attached hereto as of the end of the
preceding calendar year, together with copies of the operating
statements and rent rolls (but only to the extent the related Mortgagor
is required by the Mortgage to deliver, or otherwise agrees to provide
such information) for such Mortgaged Property or REO Property as of the
end of the preceding calendar year. The Master Servicer (or the Special
Servicer in the case
S-81
<PAGE>
<PAGE>
of Specially Serviced Mortgage Loans and REO Properties) is required to
use its best reasonable efforts to obtain said annual operating
statements and rent rolls.
(b) Commencing in June 1996, within 30 days of receipt by the
Master Servicer (or the Special Servicer with respect to any Specially
Serviced Mortgage Loan or REO Property) of annual operating statements,
if any, with respect to any Mortgaged Property or REO Property, an "NOI
Adjustment Worksheet" for such Mortgaged Property (with the annual
operating statements attached thereto as an exhibit), presenting the
computations made generally in accordance with the methodology
described herein under "DESCRIPTION OF THE MORTGAGE POOL--Additional
Mortgage Loan Information" to "normalize" the full year net operating
income and debt service coverage numbers used by the Master Servicer in
the other reports referenced above.
The Trustee is to deliver a copy of each Operating Statement Analysis
report and NOI Adjustment Worksheet that it receives from the Master Servicer to
the Depositor, the Operating Adviser, the Extension Adviser and each Rating
Agency promptly after its receipt thereof. Upon request, the Trustee will make
such reports available to the Certificateholders and the Special Servicer. Any
Certificateholder may obtain a copy of any NOI Adjustment Worksheet for a
Mortgaged Property or REO Property in the possession of the Trustee upon
request.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee is required to send to each person who at any time
during the calendar year was a Certificateholder of record, a report summarizing
on an annual basis (if appropriate) the items provided to Certificate holders
in the monthly Distribution Date Statements and such other information as may be
required to enable such Certificateholders to prepare their federal income tax
returns. Such information is to include the amount of original issue discount
accrued on each Class of Offered Certificates held by persons other than holders
exempted from the reporting requirements and information regarding the expenses
of the Trust Fund.
Except as described below, until such time as Definitive Certificates
are issued in respect of a Class of Offered Certificates, the foregoing
information will be available to the related Certificate Owners only to the
extent it is forwarded by or otherwise available through DTC and its
Participants. The manner in which notices and other communications are conveyed
by DTC to 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. Any Certificate Owner that
does not receive information through DTC or its Participants may request that
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. The Master Servicer will collect and
maintain certain information regarding the Mortgage Loans in a computerized
database (the "Loan Portfolio Analysis System" or "LPAS"). The Master Servicer
currently intends to provide access to LPAS via on-line telephonic communication
to Certificateholders. Information contained in LPAS regarding the composition
of the Mortgage Pool and certain other information about the Mortgage Pool
deemed appropriate by the Master Servicer will be updated periodically. The
Master Servicer, the Trustee and the Depositor are required to recognize as
Certificateholders only those persons in whose name the Certificate is
registered on the books and records of the Trustee, as registrar in respect of
the Certificates (in such capacity, the "Certificate Registrar").
Other Information. The Pooling and Servicing Agreement requires that
the Trustee make available at its offices primarily responsible for
administration of the Trust Fund, during normal business hours, for review by
the Depositor, any Certificate Owner owning an interest in an Offered
Certificate (which ownership interest can be verified) or any person identified
to the Trustee as a prospective transferee of such an interest, originals or
copies of, among other things, the following items: (a) the Pooling and
Servicing Agreement and any amendments thereto, (b) all Distribution Date
Statements delivered to holders of the relevant Class of Offered Certificates
since the Closing Date, (c) all officer's certificates delivered to the Trustee
since the Closing Date as described under
S-82
<PAGE>
<PAGE>
"DESCRIPTION OF THE AGREEMENTS-- Evidence as to Compliance" in the Prospectus,
(d) all accountants' reports delivered to the Trustee since the Closing Date as
described under "DESCRIPTION OF THE AGREEMENTS--Evidence as to Compliance" in
the Prospectus, (e) the most recent property inspection report prepared by or on
behalf of the Master Servicer or the Special Servicer in respect of each
Mortgaged Property and delivered to the Trustee, (f) the most recent annual
operating statement and rent roll, if any, collected by or on behalf of the
Master Servicer or the Special Servicer and delivered to the Trustee with
respect to each Mortgaged Property (unless the terms of the related Mortgage
Loan Documents or applicable law prohibits the disclosure of such information),
(g) any and all modifications, waivers and amendments of the terms of a Mortgage
Loan entered into by the Special Servicer and delivered to the Trustee, and (h)
any and all officers' certificates and other evidence delivered to the Trustee
to support the Master Servicer's or the Special Servicer's determination that
any Advance was not, or if made would not be, recoverable from Related Proceeds.
Copies of any and all of the foregoing items will be available from the Trustee
upon request; however, the Trustee will be permitted to require payment of a sum
sufficient to cover the reasonable costs and expenses of providing such copies.
Upon written request of (i) the Depositor or (ii) any Certificateholder
of record made for purposes of communicating with other Certificateholders with
respect to their rights under the Pooling and Servicing Agreement, the
Certificate Registrar will furnish such requesting party with a list of the
Certificateholders then of record.
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 respective Classes of Principal
Balance Certificates in proportion to the Certificate Balances of those Classes,
1% of the Voting Rights will be allocated to the holders of the Class IO
Certificates (but only for so long as such Certificates remain outstanding) and
all remaining Voting Rights will be allocated to the holders of the respective
Classes of REMIC Residual Certificates. Voting Rights allocated to a Class of
Certificates will be allocated among the related Certificateholders in
proportion to the percentage interests in such Class evidenced by their
respective Certificates. See "DESCRIPTION OF THE AGREEMENTS--Events of Default",
"--Rights Upon Event of Default", "--Amendment" and "--List of
Certificateholders" in the Prospectus.
Assumed Final Distribution Date; Rated Final Distribution Date
The "Assumed Final Distribution Date" with respect to any Class of
Offered Certificates is the Distribution Date on which the Certificate Balance
of such Class of Certificates would be reduced to zero based on the assumption
that no Mortgage Loan is voluntarily prepaid prior to its stated maturity date
and otherwise based on the "Modeling Assumptions" set forth under "YIELD AND
MATURITY CONSIDERATIONS--Weighted Average Life" herein, which Distribution Date
shall in each case be as follows:
<TABLE>
<CAPTION>
Class Designation Assumed Final Distribution Date
----------------- -------------------------------
<S> <C>
Class A
Class B
Class C
Class D
</TABLE>
The Assumed Final Distribution Dates set forth above were calculated
without regard to any delays in the collection of Balloon Payments and without
regard to a reasonable liquidation time with respect to any Mortgage Loans that
may be delinquent. Accordingly, in the event of defaults on the Mortgage Loans,
the actual final Distribution Date for one or more Classes of the Offered
Certificates may be later, and could be substantially later, than the related
Assumed Final Distribution Date(s).
In addition, the Assumed Final Distribution Dates set forth above were
calculated on the basis of a 0% CPR. Since the rate of payment (including
prepayments) of the Mortgage Loans can be
S-83
<PAGE>
<PAGE>
expected to exceed the scheduled rate of payments, and could exceed such
scheduled rate by a substantial amount, the actual final Distribution Date for
one or more Classes of the Offered Certificates may be earlier, and could be
substantially earlier, than the related Assumed Final Distribution Date(s). The
rate of payments (including prepayments) on the Mortgage Loans will depend on
the characteristics of the Mortgage Loans, as well as on the prevailing level of
interest rates and other economic factors, and no assurance can be given as to
actual payment experience. See "YIELD AND MATURITY CONSIDERATIONS" and
"DESCRIPTION OF THE MORTGAGE POOL" herein and YIELD CONSIDERATIONS" in the
Prospectus.
The "Rated Final Distribution Date" with respect to each Class of
Offered Certificates is (the first Distribution Date that follows by at least 24
months the end of the amortization term for the Mortgage Loan that, as of the
Cut-off Date, has the longest remaining amortization term). The rating assigned
by a Rating Agency to any Class of Certificates entitled to receive
distributions in respect of principal reflects an assessment of the likelihood
that Certificateholders of such Class will receive, on or before the Rated Final
Distribution Date, all principal distributions to which they are entitled. See
"RATINGS" herein.
Termination
The obligations created by the Pooling and Servicing Agreement will
terminate following the earlier of (i) the final payment (or advance in respect
thereof) or other liquidation of the last Mortgage Loan or REO Property subject
thereto, and (ii) the purchase of all of the Mortgage Loans and any REO
Properties remaining in the Trust Fund by the Depositor, the holders of the
REMIC Residual Certificates or the Master Servicer. Written notice of
termination of the Pooling and Servicing Agreement will be given to each
Certificateholder, and the final distribution will be made only upon surrender
and cancellation of the Certificates at the office of the Trustee or other
registrar for the Certificates or at such other location as may be specified in
such notice of termination.
Any such purchase by the Master Servicer, the holders of the REMIC
Residual Certificates or the Depositor of all the Mortgage Loans and any REO
Properties remaining in the Trust Fund is required to be made at a price equal
to (i) the aggregate Purchase Price of all the Mortgage Loans (other than
Mortgage Loans as to which the related Mortgaged Properties have become REO
Properties) then included in the Trust Fund, plus (ii) the fair market value of
all REO Properties then included in the Trust Fund, as determined by an
appraiser agreed upon by the Master Servicer and the Trustee, minus (iii) if the
Purchaser is the Master Servicer, the aggregate of all amounts payable or
reimbursable to the Master Servicer under the Pooling and Servicing Agreement.
Such purchase will effect early retirement of the then outstanding Offered
Certificates, but the right of the Master Servicer, the holders of the REMIC
Residual Certificates or the Depositor to effect such termination is subject to
the requirement that the then aggregate Certificate Balance of the Principal
Balance Certificates be less than 5% of the aggregate of the Certificate Balance
of the Principal Balance Certificates as of the Closing Date.
Distributions on the final Distribution Date will be made generally as
described above under "--Distributions--Application of the Available
Distribution Amount" and "--Distributions--Prepayment Premiums," except that
distributions of principal on the respective Classes of Principal Balance
Certificates will be made, in the case of each such Class of Certificates, to
the extent of available funds and subject to the distribution priorities
described herein, in an amount equal to the then entire
outstanding Certificate Balance thereof.
The Trustee
LaSalle National Bank, a nationally chartered bank, will act as Trustee
on behalf of the Certificateholders. The Trustee is at all times to be, and will
be required to resign if it fails to be, (i) a corporation, national bank or
national banking association, organized and doing business under the laws of the
United States of America or any state thereof, authorized under such laws to
exercise corporate trust powers, having a combined capital and surplus of not
less than $50,000,000 and
S-84
<PAGE>
<PAGE>
subject to supervision or examination by federal or state authority and (ii) an
institution whose long-term senior unsecured debt is rated either (A) if a
fiscal agent acceptable to the Rating Agencies is then currently in place, not
less than (1) "BBB" by Standard & Poor's and (2) "A-" by Fitch or another
nationally recognized statistical rating organization (other than Standard &
Poor's) or (B) if a fiscal agent acceptable to the Rating Agencies is not then
in place, "AA" by each Rating Agency (or such other lower rating by either
Rating Agency as would not, as evidenced in writing by such Rating Agency,
adversely affect any of the ratings then assigned thereby to the Certificates).
As compensation for its services, the Trustee will be entitled to receive from
the Master Servicer out of its Master Servicing Fee a monthly fee calculated on
a loan-by-loan basis generally in the same manner as the Master Servicing Fee
but at a rate of 0.015% per annum. In addition, the Trustee will be obligated to
make any Advance required to be but not made by the Master Servicer under the
Pooling and Servicing Agreement, provided that the Trustee will not be obligated
to make any Advance that it deems to be nonrecoverable from Related Proceeds.
The Trustee will be entitled to reimbursement (with interest thereon at the
Reimbursement Rate) for each Advance made by it in the same manner and to the
same extent, but prior to, the Master Servicer. The Corporate Trust Office of
the Trustee is located at 135 South LaSalle Street, Suite 200, Chicago, Illinois
60603-4017 Attention: Asset-Backed Securities Trust Services Group, Salomon
Brothers Mortgage Securities VII, Inc., Mortgage Pass-Through Certificates,
Series 1996-C1. See "DESCRIPTION OF THE AGREEMENTS--The Trustee," "--Duties of
the Trustee," "--Certain Matters Regarding the Trustee" and "--Resignation and
Removal of the Trustee" in the Prospectus.
The Fiscal Agent
ABN AMRO Bank N.V., a Netherlands banking corporation and the corporate
parent of the Trustee, will act as Fiscal Agent for the Trust Fund and will be
obligated to make any Advance required to be but not made by the Trustee under
the Pooling and Servicing Agreement, provided that the Fiscal Agent will not be
obligated to make any Advance that it deems to be nonrecoverable from Related
Proceeds. The Fiscal Agent will be entitled to reimbursement (with interest
thereon at the Reimbursement Rate) for each Advance made by it in the same
manner and to the same extent, but prior to, the Master Servicer and the
Trustee. The Fiscal Agent will be entitled to various rights, protections and
indemnities similar to those afforded the Trustee. See "-The Trustee" above.
The Trustee will be responsible for payment of the compensation of the
Fiscal Agent. As of December 31, 1994, the Fiscal Agent reported assets of
approximately $291,000,000,000.
YIELD AND MATURITY CONSIDERATIONS
Yield Considerations
General. The yield on any Offered Certificate will depend on (a) the
price at which such Certificate is purchased by an investor and (b) the rate,
timing and amount of distributions on such Certificate. The rate, timing and
amount of distributions on any Offered Certificate will in turn depend on, among
other things, (i) the Pass-Through Rate for such Certificate, (ii) the rate and
timing of principal payments (including principal prepayments) and other
principal collections on the Mortgage Loans and the extent to which such amounts
are to be applied in reduction of the Certificate Balance of the related Class,
(iii) the rate, timing and severity of Realized Losses and Additional Trust Fund
Expenses and the extent to which such losses and expenses are allocable in
reduction of the Certificate Balance of the related Class, and (iv) the timing
and severity of any Net Aggregate Prepayment Interest Shortfalls and the extent
to which such shortfalls are allocable in reduction of the Interest Distribution
Amount payable on the related Class.
Rate and Timing of Principal Payments. The yield to holders of any
Offered Certificates purchased at a discount or premium will be affected by the
rate and timing of principal payments made in reduction of the Certificate
Balance(s) of such Certificates. As described herein, the Principal Distribution
Amount for each Distribution Date will be distributable entirely in respect of
the Class A Certificates until the Certificate Balance thereof is reduced to
zero, and will thereafter be distributable
S-85
<PAGE>
<PAGE>
entirely in respect of the Class B Certificates, the Class C Certificates and
the Class D Certificates, in that order, in each case until the Certificate
Balance of such Class of Certificates is reduced to zero. Consequently, the rate
and timing of principal payments that are distributed or otherwise result in
reduction of the Certificate Balance of each Class of Offered Certificates will
be directly related to the rate and timing of principal payments on or in
respect of the Mortgage Loans, which will in turn be affected by the
amortization schedules thereof, the dates on which Balloon Payments are due and
the rate and timing of principal prepayments and other unscheduled collections
thereon (including for this purpose, collections made in connection with
liquidations of Mortgage Loans due to defaults, casualties or condemnations
affecting the Mortgaged Properties, or purchases of Mortgage Loans out of the
Trust Fund). Prepayments and, assuming the respective stated maturity dates
therefor have not occurred, liquidations of the Mortgage Loans, will result in
distributions on the Offered Certificates of amounts that would otherwise be
distributed over the remaining terms of the Mortgage Loans and will tend to
shorten the weighted average lives of those Certificates. Defaults on the
Mortgage Loans, particularly at or near their stated maturity dates, may result
in significant delays in payments of principal on the Mortgage Loans (and,
accordingly, on the Offered Certificates) while work-outs are negotiated or
foreclosures are completed, and such delays will tend to lengthen the weighted
average lives of those Certificates. See "SERVICING OF THE MORTGAGE
LOANS--Modifications, Waivers and Amendments" herein and "DESCRIPTION OF THE
AGREEMENTS--Realization Upon Defaulted Whole Loans" and "CERTAIN LEGAL ASPECTS
OF MORTGAGE LOANS--Foreclosure" in the Prospectus.
The extent to which the yield to maturity of any Class of Offered
Certificates may vary from the anticipated yield will depend upon the degree to
which such Certificates are purchased at a discount or premium and when, and to
what degree, payments of principal on the Mortgage Loans are in turn distributed
in reduction of the Certificate Balance of such Certificates. An investor should
consider, in the case of any Offered Certificate purchased at a discount, the
risk that a slower than anticipated rate of principal payments on the Mortgage
Loans could result in an actual yield to such investor that is lower than the
anticipated yield and, in the case of any Offered Certificate purchased at a
premium, the risk that a faster than anticipated rate of principal payments
could result in an actual yield to such investor that is lower than the
anticipated yield. In general, the earlier a payment of principal on the
Mortgage Loans is distributed in reduction of the principal balance of any
Offered Certificate purchased at a discount or premium, the greater will be the
effect on an investor's yield to maturity. As a result, the effect on an
investor's yield of principal payments on the Mortgage Loans occurring at a rate
higher (or lower) than the rate anticipated by the investor during any
particular period would not be fully offset by a subsequent like reduction (or
increase) in the rate of such principal payments. Because the rate of principal
payments on the Mortgage Loans will depend on future events and a variety of
factors (as described more fully below), no assurance can be given as to such
rate or the rate of principal prepayments in particular. The Depositor is not
aware of any relevant publicly available or authoritative statistics with
respect to the historical prepayment experience of a large group of mortgage
loans comparable to the Mortgage Loans.
Losses and Shortfalls. The yield to holders of the Offered Certificates
will also depend on the extent to which such holders are required to bear the
effects of any losses or shortfalls on the Mortgage Loans. Losses and other
shortfalls on the Mortgage Loans will, with the exception of any Net Aggregate
Prepayment Interest Shortfalls, generally be borne: first, by the holders of the
Private Subordinate Certificates, to the extent of amounts otherwise
distributable in respect of their Certificates; second, by the holders of the
Class D Certificates, to the extent of amounts otherwise distributable in
respect of their Certificates; third, by the holders of the Class C
Certificates, to the extent of amounts otherwise distributable in respect of
their Certificates; fourth, by the holders of the Class B Certificates, to the
extent of amounts otherwise distributable in respect of their Certificates; and
last, by the holders of the Senior Certificates. Realized Losses and Additional
Trust Fund Expenses will be allocated, as and to the extent described herein, to
the respective Classes of Principal Balance Certificates, in reverse
alphabetical order of their Class designations, in each such
S-86
<PAGE>
<PAGE>
case in reduction of the related Certificate Balance. As more fully described
herein under "DESCRIPTION OF THE CERTIFICATES--Distributions-- Interest
Distribution Amount," Net Aggregate Prepayment Interest Shortfalls will
generally be borne by the respective Classes of REMIC Regular Certificates on a
pro rata basis in accordance with the respective Interest Distribution Amounts
for such Classes (calculated without reduction for such Net Aggregate Prepayment
Interest Shortfalls).
Certain Relevant Factors. The rate and timing of principal payments and
defaults and the severity of losses on the Mortgage Loans may be affected by a
number of factors, including, without limitation, prevailing interest rates, the
terms of the Mortgage Loans (for example, provisions requiring the payment of
Prepayment Premiums and amortization terms that require Balloon Payments), the
demographics and relative economic vitality of the areas in which the Mortgaged
Properties are located and the general supply and demand for rental units or
comparable commercial space, as applicable, in such areas, the quality of
management of the Mortgaged Properties, the servicing of the Mortgage Loans,
possible changes in tax laws and other opportunities for investment. See "RISK
FACTORS--The Mortgage Loans" and "DESCRIPTION OF THE MORTGAGE POOL" herein and
"YIELD CONSIDERATIONS--Principal Prepayments" in the Prospectus.
The rate of prepayment on the Mortgage Pool is likely to be affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below a mortgage
interest rate, the related borrower has an incentive to refinance its mortgage
loan. As of the Cut-off Date, a substantial portion of the Mortgage Loans
(approximately 38.8% of the Initial Pool Balance) may be prepaid at any time
subject to the payment of a Prepayment Premium. A requirement that a prepayment
be accompanied by a Prepayment Premium may not provide a sufficient economic
disincentive to deter a borrower from refinancing at a more favorable interest
rate.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell or
refinance Mortgaged Properties in order to realize their equity therein, to meet
cash flow needs or to make other investments. In addition, some borrowers may be
motivated by federal and state tax laws (which are subject to change) to sell
Mortgaged Properties prior to the exhaustion of tax depreciation benefits.
The Depositor makes no representation as to the particular factors that
will affect the rate and timing of prepayments and defaults on the Mortgage
Loans, as to the relative importance of such factors, as to the percentage of
the principal balance of the Mortgage Loans that will be prepaid or as to which
a default will have occurred as of any date or as to the overall rate of
prepayment or default on the Mortgage Loans.
Delay in Payment of Distributions. Because monthly distributions will
not be made to Certificateholders until a date that is scheduled to be at least
19 days following the Due Dates for the Mortgage Loans during the related
Collection Period, the effective yield to the holders of the Offered
Certificates will be lower than the yield that would otherwise be produced by
the applicable Pass-Through Rates and purchase prices (assuming such prices did
not account for such delay).
Unpaid Interest Distribution Amounts. As described under "DESCRIPTION
OF THE CERTIFICATES--Distributions--Application of the Available Distribution
Amount" herein, if the portion of the Available Distribution Amount
distributable in respect of interest on any Class of Offered Certificates on any
Distribution Date is less than the Interest Distribution Amount then payable for
such Class, the shortfall will be distributable to holders of such Class of
Certificates on subsequent Distribution Dates, to the extent of available funds.
Any such shortfall will not bear interest, however, and will therefore
negatively affect the yield to maturity of such Class of Certificates for so
long as it is outstanding.
S-87
<PAGE>
<PAGE>
Weighted Average Life
The weighted average life of any Offered Certificate refers to the
average amount of time that will elapse from the date of its issuance until each
dollar allocable to principal of such Certificate is distributed to the
investor. The weighted average life of any Offered Certificate will be
influenced by, among other things, the rate at which principal on the Mortgage
Loans is paid or otherwise collected or advanced and applied to pay principal of
such Offered Certificate.
Prepayments on mortgage loans may be measured by a prepayment standard
or model. The prepayment model used in this Prospectus Supplement is the
"Constant Prepayment Rate" or "CPR" model. The CPR model represents an assumed
constant rate of prepayment each month, expressed as an annually compounded
rate. The CPR model does not purport to be a prediction of the anticipated rate
of prepayment of any pool of mortgage loans, including the Mortgage Loans.
The following tables indicate the percentage of the initial Certificate
Balance of each Class of Offered Certificates that would be outstanding after
each of the dates shown, and the corresponding weighted average life of each
such Class of Offered Certificates, if the Mortgage Loans were to prepay at the
indicated levels of CPR on the basis of the following assumptions (the "Modeling
Assumptions"): (i) the Initial Pool Balance is $212,045,634 and the
characteristics of the Mortgage Loans are as set forth herein, (ii) the
respective Pass-Through Rates and initial Certificate Balances of the Class A,
Class B, Class C and Class D Certificates are as set forth on the cover page of
this Prospectus Supplement, (iii) there are no delinquencies, Realized Losses or
Additional Trust Fund Expenses in respect of the Mortgage Loans, (iv) scheduled
interest and/or principal payments on the Mortgage Loans are timely received,
and prepayments are made on the Mortgage Loans on their respective Due Dates
(assumed in all cases to be the first day of each month) at the indicated levels
of CPR set forth in the tables, except that no prepayments are made on any
Mortgage Loan for so long as it is in a Lockout Period or while prepayments on
such Mortgage Loan are required to be accompanied by a Prepayment Premium
calculated on the basis of a yield maintenance formula, but such Mortgage Loans
will begin to prepay at the indicated levels of CPR commencing (1) in the month
of expiration of its Lockout Period, with respect to each of those Mortgage
Loans that are subject to a Lockout Period, but as to which Prepayment Premiums
are thereafter calculated on the basis of a percentage of the amount prepaid and
(2) in the first month following the date set forth in the related Mortgage
Note, as to which prepayments made after such date be accompanied by Prepayment
Premiums calculated on the basis of a declining percentage of the amount
prepaid, with respect to each of those Mortgage Loans that provide for
calculation of the amount of Prepayment Premium on the basis of a yield
maintenance formula, (v) all Mortgage Loans accrue and pay interest on a 30/360
basis, (vi) all prepayments are included in the Principal Distribution Amount
regardless of the date received, (vii) none of the Master Servicer, the holders
of the REMIC Residual Certificates or the Depositor exercises its or their right
of optional termination of the Trust Fund described herein, (viii) no Mortgage
Loan is required to be purchased from the Trust Fund, (ix) there are no
Prepayment Interest Shortfalls, (x) no Mortgage Rate is modified following the
Cut-off Date, (xi) distributions on the Certificates are made on the twentieth
day (each assumed to be a business day) of each month, commencing March 1996,
and (xii) the Certificates will be issued on February , 1996.
To the extent that the Mortgage Loans or the Certificates have
characteristics that differ from those assumed in preparing the tables, the
respective Classes of Offered Certificates may mature earlier or later than
indicated by the tables. In particular, it is highly unlikely that the Mortgage
Loans will prepay in a manner consistent with the Modeling Assumptions.
Furthermore, it is unlikely that the Mortgage Loans will experience no defaults
or losses. In addition, variations in the actual prepayment experience and the
balance of the Mortgage Loans that prepay may increase or decrease the
percentages of initial Certificate Balances (and shorten or extend the weighted
average lives) shown in the following tables. Investors are urged to conduct
their own analyses of the rates at which the Mortgage Loans may be expected to
prepay.
S-88
<PAGE>
<PAGE>
Percentages of the Initial Certificate Balance of the
Class A Certificates at the Respective Percentages of CPR
<TABLE>
<CAPTION>
Date 0% 5% 10% 20% 25%
---- -- -- --- --- ---
<S> <C> <C> <C> <C> <C>
Closing Date
February 1997........
February 1998........
February 1999........
February 2000........
February 2001........
February 2002........
February 2003 and
thereafter.........
Weighted
Average
Life (in
years).............
</TABLE>
Percentages of the Initial Certificate Balance of the
Class B Certificates at the Respective Percentages of CPR
<TABLE>
<CAPTION>
Date 0% 5% 10% 20% 25%
---- -- -- --- --- ---
<S> <C> <C> <C> <C> <C>
Closing Date
February 1997........
February 1998........
February 1999........
February 2000........
February 2001........
February 2002........
February 2003 and
thereafter.........
Weighted
Average
Life (in
years).............
</TABLE>
S-89
<PAGE>
<PAGE>
Percentages of the Initial Certificate Balance of the
Class C Certificates at the Respective Percentages of CPR
<TABLE>
<CAPTION>
Date 0% 5% 10% 20% 25%
---- -- -- --- --- ---
<S> <C> <C> <C> <C> <C>
Closing Date
February 1997........
February 1998........
February 1999........
February 2000........
February 2001........
February 2002........
February 2003 . .
February 2004
February 2005 and
thereafter.........
Weighted
Average
Life (in
years).............
</TABLE>
Percentages of the Initial Certificate Balance of the
Class D Certificates at the Respective Percentages of CPR
<TABLE>
<CAPTION>
Date 0% 5% 10% 20% 25%
---- -- -- --- --- ---
<S> <C> <C> <C> <C> <C>
Closing Date
February 1997........
February 1998........
February 1999........
February 2000........
February 2001........
February 2002........
February 2003
February 2004
February 2005
February 2006 and
thereafter.........
Weighted
Average
Life (in
years).............
</TABLE>
S-90
<PAGE>
<PAGE>
USE OF PROCEEDS
Substantially all of the proceeds from the sale of the Offered
Certificates will be used by the Depositor to purchase the Mortgage Loans and to
pay certain expenses in connection with the issuance of the Certificates.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, Thacher Proffitt & Wood,
special tax counsel to the Depositor, will deliver its opinion generally to the
effect that, assuming compliance with all provisions of the Pooling and
Servicing Agreement, for federal income tax purposes, portions of the Trust Fund
designated in the Pooling and Servicing Agreement as "REMIC I", "REMIC II" and
"REMIC III" respectively, will each qualify as a REMIC under the Internal
Revenue Code of 1986 (the "Code"). For federal income tax purposes, (a) the
separate non-certificated regular interests in REMIC I will be the "regular
interests" in REMIC I, (b) the Class R-I Certificates will be the sole class of
"residual interests" in REMIC I, (c) the separate non-certificated regular
interests in REMIC II will be the "regular interests" in REMIC II, (d) the Class
R-II Certificates will be the sole class of "residual interests" in REMIC II,
(e) the REMIC Regular Certificates will be the "regular interests" in REMIC III
and generally will be treated as debt instruments of REMIC III, and (f) the
Class R-III Certificates will be the sole class of "residual interests" in REMIC
III. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES--REMICs" in the Prospectus.
The Class and Class Certificates will, and the Class and Class
Certificates will not, be treated as having been issued with original issue
discount for federal income tax reporting purposes. The prepayment assumption
that will be used in determining the rate of accrual of original issue discount,
market discount and premium, if any, for federal income tax purposes will be
based on the assumption that subsequent to the date of any determination the
Mortgage Loans will prepay at a rate equal to a CPR of %. No representation
is made that the Mortgage Loans will prepay at that rate or at any other rate.
See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES--REMICs--Taxation of Owners of
REMIC Regular Certificates--Original Issue Discount" in the Prospectus.
The Internal Revenue Service (the "IRS") has issued regulations (the
"OID Regulations") under Sections 1271 to 1275 of the Code generally addressing
the treatment of debt instruments issued with original issue discount. The OID
Regulations in some circumstances permit the holder of a debt instrument to
recognize original issue discount under a method that differs from that used by
the issuer. Accordingly, it is possible that the holder of an Offered
Certificate may be able to select a method for recognizing original issue
discount that differs from that used by the Trustee in preparing reports to the
Certificateholders and the IRS. Prospective purchasers of Offered Certificates
are advised to consult their tax advisors concerning the tax treatment of such
Certificates.
The Offered Certificates will be treated as "qualifying real property
loans" within the meaning of Section 593(d) of the Code and "real estate assets"
within the meaning of Section 856(c)(5)(A) of the Code. In addition, interest
(including original issue discount) on the Offered Certificates will be interest
described in Section 856(c)(3)(B) of the Code. However, the Offered Certificates
will generally be considered assets described in Section 7701(a)(19)(C) of the
Code only to the extent that the Mortgage Loans are secured by residential
property and, accordingly, investment in the Offered Certificates may not be
suitable for certain thrift institutions.
For further information regarding the federal income tax consequences
of investing in the Offered Certificates, see "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES--REMICs" in the Prospectus.
S-91
<PAGE>
<PAGE>
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities, Keogh plans
and collective investment funds, separate accounts and general accounts in which
such plans, accounts or arrangements are invested, that is subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
Section 4975 of the Code (each, a "Plan") should carefully review with its legal
advisors whether the purchase or holding of Offered Certificates could give rise
to a transaction that is prohibited or is not otherwise permitted either under
ERISA or Section 4975 of the Code or whether there exists any statutory or
administrative exemption applicable thereto.
The U.S. Department of Labor has issued to the Underwriter an
individual prohibited transaction exemption, Prohibited Transaction Exemption
No. 89-89, (the "Exemption"), which generally exempts from the application of
the prohibited transaction provisions of Section 406 of ERISA, and the excise
taxes imposed on such prohibited transactions pursuant to Sections 4975(a) and
(b) of the Code and Section 502(i) of ERISA, certain transactions, among others,
relating to the servicing and operation of mortgage pools, such as the Mortgage
Pool, and the purchase, sale and holding of mortgage pass-through certificates,
such as the Class A Certificates, underwritten by an "underwriter," provided
that certain conditions set forth in the Exemption are satisfied. For purposes
of this discussion, the term "underwriter" shall include (a) Salomon Brothers
Inc, (b) any person directly or indirectly, through one or more intermediaries,
controlling, controlled by or under common control with Salomon Brothers Inc,
and (c) any member of the underwriting syndicate or selling group of which a
person described in (a) or (b) is a manager or co-manager with respect to the
Class A Certificates.
The Exemption sets forth six general conditions that must be satisfied
for a transaction involving the purchase, sale and holding of Class A
Certificates to be eligible for exemptive relief thereunder. First, the
acquisition of such Certificates by a Plan must be on terms that are at least as
favorable to the Plan as they would be in an arm's-length transaction with an
unrelated party. Second, the rights and interests evidenced by the Class A
Certificates must not be subordinated to the rights and interests evidenced by
the other certificates of the same trust. Third, the Class A Certificates at the
time of acquisition by the Plan must be rated in one of the three highest
generic rating categories by Standard & Poor's, Duff & Phelps Credit Rating Co.
("Duff & Phelps"), Moody's Investors Service, Inc., ("Moody's") or Fitch.
Fourth, the Trustee cannot be an affiliate of any other member of the
"Restricted Group", which consists of the Underwriter, the Depositor, the Master
Servicer, the Special Servicer, the Trustee, any sub-servicer, and any mortgagor
with respect to Mortgage Loans constituting more than 5% of the aggregate
unamortized principal balance of the Mortgage Loans as of the date of initial
issuance of the Class A Certificates. Fifth, the sum of all payments made to and
retained by the Underwriter must represent not more than reasonable compensation
for underwriting the Class A Certificates; the sum of all payments made to and
retained by the Depositor pursuant to the assignment of the Mortgage Loans to
the Trust Fund must represent not more than the fair market value of such
obligations; and the sum of all payments made to and retained by the Master
Servicer, the Special Servicer or any sub-servicer must represent not more than
reasonable compensation for such person's services under the Pooling and
Servicing Agreement and reimbursement of such person's reasonable expenses in
connection therewith. Sixth, the investing Plan must be an accredited investor
as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act.
Because the Class A Certificates are not subordinate to any other Class
of Certificates, the second general condition set forth above is satisfied with
respect to such Certificates. It is a condition of the issuance of the Class A
Certificates that they be rated not lower than "AAA" by each of Fitch and
Standard & Poor's; thus, the third general condition set forth above is
satisfied with respect to the Class A Certificates as of the Closing Date. In
addition, the fourth general condition set forth above is also satisfied as of
the Closing Date. A fiduciary of a Plan contemplating purchasing a Class A
Certificate in the secondary market also must make its own determination that,
at the time of such
S-92
<PAGE>
<PAGE>
purchase, the Class A Certificates continue to satisfy the third and fourth
general conditions set forth above. A fiduciary of a Plan contemplating the
purchase of a Class A Certificate also must make its own determination that the
first, fifth and sixth general conditions set forth above will be satisfied with
respect to such Senior Certificate as of the date of such purchase.
The Exemption also requires that the Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type that
have been included in other investment pools; (ii) certificates in such other
investment pools must have been rated in one of the three highest categories of
Standard & Poor's, Duff & Phelps, Moody's or Fitch for at least one year prior
to the Plan's acquisition of Class A Certificates; and (iii) certificates in
such other investment pools must have been purchased by investors other than
Plans for at least one year prior to any Plan's acquisition of Class A
Certificates.
If the general conditions of the Exemption are satisfied, the Exemption
may provide an exemption from the restrictions imposed by Sections 406(a) and
407(a) of ERISA (as well as the excise taxes imposed by Sections 4975(a) and (b)
of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code) in
connection with (i) the direct or indirect sale, exchange or transfer of Class A
Certificates in the initial issuance of Certificates between the Depositor or
the Underwriter and a Plan when the Depositor, the Underwriter, the Trustee, the
Master Servicer, the Special Servicer, any sub-servicer or any mortgagor is a
"Party in Interest," as defined in the Prospectus, with respect to the investing
Plan, (ii) the direct or indirect acquisition or disposition in the secondary
market of Class A Certificates by a Plan and (iii) the holding of Class A
Certificates by a Plan. However, no exemption is provided from the restrictions
of Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or
holding of a Class A Certificate on behalf of an "Excluded Plan" by any person
who has discretionary authority or renders investment advice with respect to the
assets of such Excluded Plan. For purposes hereof, an Excluded Plan is a Plan
sponsored by any member of the Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA and the taxes imposed by Section 4975(c)(1)(E) of
the Code in connection with (1) the direct or indirect sale, exchange or
transfer of Class A Certificates in the initial issuance of Certificates between
the Depositor or the Underwriter and a Plan when the person who has
discretionary authority or renders investment advice with respect to the
investment of such Plan's assets in such Certificates is (a) a mortgagor with
respect to 5% or less of the fair market value of the Mortgage Loans or (b) an
affiliate of such a person, (2) the direct or indirect acquisition or
disposition in the secondary market of Class A Certificates by such Plan and (3)
the holding of Class A Certificates by such Plan.
Further, if certain specific conditions of the Exemption are satisfied,
the Exemption may provide an exemption from the restrictions imposed by Sections
406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c) of the Code for transactions in
connection with the servicing, management and operation of the Mortgage Pool.
The Depositor expects that the specific conditions of the Exemption required for
this purpose will be satisfied with respect to the Class A Certificates.
The Exemption also may provide an exemption from the restrictions
imposed by Sections 406(a) and 407(a) of ERISA, and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through
(D) of the Code if such restrictions are deemed to otherwise apply merely
because a person is deemed to be a Party in Interest with respect to an
investing Plan by virtue of providing services to the Plan (or by virtue of
having certain specified relationships to such a person) solely as a result of
the Plan's ownership of Class A Certificates. A purchaser of a Class A
Certificate should be aware, however, that even if the conditions specified in
one or more parts of the Exemption is satisfied, the scope of relief provided by
the Exemption may not cover all acts that may be considered prohibited
transactions.
Before purchasing a Class A Certificate, a fiduciary of a Plan should
itself confirm that the specific and general conditions of the Exemption and the
other requirements set forth in the Exemption
S-93
<PAGE>
<PAGE>
would be satisfied. In addition to making its own determination as to the
availability of the exemptive relief provided in the Exemption, the Plan
fiduciary should consider the availability of any other prohibited transaction
exemptions. See "ERISA Considerations" in the Prospectus.
The characteristics of the Class B, Class C and Class D Certificates do
not meet the requirements of the Exemption. Accordingly, Certificates of those
Classes may not be acquired by, on behalf of or with assets of a Plan, unless
such transaction is covered by a Prohibited Transaction Class Exemption ("PTCE")
issued by the U.S. Department of Labor, such as: PTCE 95-60, regarding
investments by insurance company general accounts; PTCE 90-1, regarding
investments by insurance company pooled separate accounts; PTCE 91-38, regarding
investments by bank collective investment funds; and PTCE 84-14, regarding
transactions effected by "qualified professional asset managers". There can be
no assurance that any of these exemptions will apply with respect to any
particular Plan's investment in Offered Certificates or, even if an exemption
were deemed to apply, that any exemption would apply to all prohibited
transactions that may occur in connection with such investment. Before
purchasing Class B, Class C or Class D Certificates based on the availability of
any such exemption, a Plan fiduciary should itself confirm that all applicable
conditions and other requirements set forth in such exemption have been
satisfied. Any such Plan or person to whom a transfer of any such Certificate or
interest therein is made shall be deemed to have represented to the Depositor,
the Master Servicer, the Special Servicer, the Trustee and any sub-servicer that
the purchase and holding of such Certificate is so exempt on the basis of the
availability of a PTCE.
LEGAL INVESTMENT
As of the Closing Date, the Offered Certificates will not constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). As a result, the appropriate characterization
of the Offered Certificates under various legal investment restrictions, and
thus the ability of investors subject to these restrictions to purchase the
Offered Certificates of any Class, may be subject to significant interpretative
uncertainties. In addition, institutions whose investment activities are subject
to review by federal or state regulatory authorities may be or may become
subject to restrictions on the investment by such institutions in certain forms
of mortgage related securities. Investors should consult their own legal
advisors to determine whether and to what extent the Offered Certificates
constitute legal investments for them. See "LEGAL INVESTMENT" in the Prospectus.
The Depositor makes no representation as to the ability of particular
investors to purchase the Offered Certificates under applicable legal investment
or other restrictions. All institutions whose investment activities are subject
to legal investment laws and regulations, regulatory capital requirements or
review by regulatory authorities should consult with their own legal advisors in
determining whether and to what extent the Offered Certificates constitute legal
investments for them or are subject to investment, capital or other
restrictions. See "LEGAL INVESTMENT" in the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in an underwriting
agreement (the "Underwriting Agreement") between the Depositor and the
Underwriter, the Depositor has agreed to sell to Salomon Brothers Inc (the
"Underwriter"), and the Underwriter has agreed to purchase, the entire
Certificate Balance of each Class of Offered Certificates.
In the Underwriting Agreement, the Underwriter has agreed to purchase
all of the Offered Certificates if any are purchased. Proceeds to the Depositor
from the sale of the Offered Certificates, before deducting expenses payable by
the Depositor, will be approximately $ , plus accrued interest.
S-94
<PAGE>
<PAGE>
Distribution of the Offered Certificates will be made by the
Underwriter from time to time in negotiated transactions or otherwise at varying
prices to be determined at the time of sale. The Underwriter 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 Underwriter. In connection with the purchase
and sale of the Offered Certificates, the Underwriter may be deemed to have
received compensation from the Depositor in the form of underwriting discounts.
The Underwriter and any dealers that participate with the Underwriter in the
distribution of the Offered Certificates may be deemed to be underwriters and
any profit on the resale of the Offered Certificates positioned by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933, as amended (the "Securities Act").
Purchasers of the Offered Certificates, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Securities Act in connection with
reoffers and sales by them of Offered Certificates. Certificateholders should
consult with their legal advisors in this regard prior to any such reoffer or
sale.
The Depositor also has been advised by the Underwriter that the
Underwriter, through one or more of its affiliates, currently intends to make a
market in the Offered Certificates; however, the Underwriter has no obligation
to do so, any market making may be discontinued at any time and there can be no
assurance that an active public market for the Offered Certificates will
develop. See "RISK FACTORS--Limited Liquidity" herein and in the Prospectus.
The Depositor has agreed to indemnify the Underwriter and each person,
if any, who controls the Underwriter within the meaning of Section 15 of the
Securities Act against, or make contributions to the Underwriter and each such
controlling person which respect to, certain liabilities, including liabilities
under the Securities Act. The Mortgage Loan Seller has agreed to indemnify the
Depositor and the Underwriter with respect to certain liabilities, including
liabilities under the Securities Act, relating to the Mortgage Loans.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor and for the
Underwriter by Thacher Proffitt & Wood, New York, New York.
RATINGS
It is a condition of their issuance that the Class A Certificates be
rated not lower than "AAA" by each of Fitch and Standard & Poor's (together, the
"Rating Agencies"), that the Class B Certificates be rated not lower than "AA"
by each of the Rating Agencies, that the Class C Certificates be rated not lower
than "A" by each of the Rating Agencies and that the Class D Certificates be
rated not lower than "BBB" by each of the Rating Agencies.
The ratings on the Offered Certificates address the likelihood of the
receipt by holders thereof of all distributions of interest to which they are
entitled on a timely basis and of all distributions of principal to which they
are entitled by the Rated Final Distribution Date. See "DESCRIPTION OF THE
CERTIFICATES--Assumed Final Distribution Date; Rated Final Distribution Date"
herein. The ratings take into consideration the credit quality of the Mortgage
Pool, structural and legal aspects associated with the Offered Certificates, and
the extent to which the payment stream from the Mortgage Pool is adequate to
make payments required under the Offered Certificates. The ratings on the
Offered Certificates do not, however, represent any assessment of (i) the
likelihood or frequency of prepayments on the Mortgage Loans, (ii) the degree to
which the frequency of prepayments might differ from that originally
anticipated, or (iii) whether or to what extent Prepayment Premiums may be
received.
There can be no assurance that any rating agency not requested to rate
the Offered Certificates will not nonetheless issue a rating to any or all
Classes thereof and, if so, what such rating or ratings would be. A rating
assigned to any Class of Offered Certificates by a rating agency that has
S-95
<PAGE>
<PAGE>
not been requested by the Depositor to do so may be lower than the rating
assigned thereto by either or both of the Rating Agencies.
The ratings on the Offered Certificates should be evaluated
independently from similar ratings on other types of securities. A security
rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the assigning rating agency.
See "RISK FACTORS--Limited Nature of Ratings" in the Prospectus.
S-96
<PAGE>
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
Page
----
<S> <C>
30/360 basis ....................................................................................................42
Additional Trust Fund Expenses...............................................................................12, 77
Advance .........................................................................................................78
Appraisal Reduction Amount.......................................................................................79
Assumed Final Distribution Date...................................................................................1
Assumed Net Cash Flow............................................................................................46
Assumed Scheduled Payment....................................................................................20, 75
Available Distribution Amount................................................................................15, 71
Balloon Payment ..................................................................................................8
Cap Source Loans ................................................................................................42
Certificate Balance...........................................................................................2, 11
Certificate Owner ...............................................................................................68
Certificate Registrar............................................................................................82
Certificateholders...........................................................................................10, 71
Certificates .... .........................................................................................1, 4, 68
Class .....................................................................................................1, 4, 68
Class IO Notional Amount..................................................................................2, 12, 69
Closing Date .....................................................................................................6
ClubHouse Borrowers..............................................................................................39
ClubHouse Crossed Borrowers......................................................................................39
ClubHouse Crossed Mortgages......................................................................................39
ClubHouse Franchisor.............................................................................................41
ClubHouse Manager ...............................................................................................41
ClubHouse Properties.............................................................................................39
Code ............................................................................................................91
Collection Period ...........................................................................................14, 70
Comparative Financial Status Report..............................................................................81
Compensating Interest Payment................................................................................23, 60
Component ...................................................................................................12, 69
Component A .....................................................................................................69
Component B .....................................................................................................69
Component C .....................................................................................................69
Component D .....................................................................................................70
Corrected Mortgage Loan..........................................................................................58
CPR .............................................................................................................88
Custodian .......................................................................................................55
Cut-off Date ..................................................................................................1, 6
Definitive Offered Certificate...................................................................................68
Delinquent Loan Status Report....................................................................................81
Depositor .....................................................................................................1, 4
Determination Date...........................................................................................14, 70
Distribution Date ........................................................................................2, 14, 71
Distribution Date Statement......................................................................................79
DSCR ............................................................................................................45
DTC ..........................................................................................................6, 68
DTC Rules .......................................................................................................69
Duff & Phelps ...................................................................................................92
</TABLE>
S-97
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ERISA .......................................................................................................28, 92
Excluded Plan ...................................................................................................93
Exemption .......................................................................................................92
Extension Adviser ............................................................................................5, 64
Fitch ........................................................................................................1, 29
Form 8-K ........................................................................................................57
GLA .............................................................................................................39
Greenwich .......................................................................................................42
Greenwich Loans .................................................................................................42
Gross Room Revenues..............................................................................................41
Historical Loan Modification Report..............................................................................81
Historical Loss Estimate Report..................................................................................81
Hotel Loan ......................................................................................................45
Individual ClubHouse Loan........................................................................................39
Initial Pool Balance.......................................................................................1, 6, 36
Interest Distribution Amount.................................................................................18, 74
IRS .............................................................................................................91
Loan Portfolio Analysis System...................................................................................82
Lock-out Period .................................................................................................42
Lockout Expiration Date...........................................................................................9
Lockout Period ...................................................................................................9
LPAS ............................................................................................................82
Master Servicer ..............................................................................................4, 59
Master Servicing Fee.............................................................................................60
Master Servicing Fee Rate........................................................................................60
Midland ......................................................................................................4, 59
Modified Mortgage Loan...........................................................................................79
Monthly Payments .................................................................................................8
Moody's .........................................................................................................92
Mortgage ........................................................................................................36
Mortgage File ...................................................................................................55
Mortgage Loan Purchase Agreement.................................................................................55
Mortgage Loan Seller...................................................................................2, 6, 42, 55
Mortgage Loans ............................................................................................1, 6, 36
Mortgage Note ...................................................................................................36
Mortgage Pool ....................................................................................................1
Mortgage Rates ...................................................................................................8
Mortgaged Property.........................................................................................1, 7, 36
Multifamily Loan ................................................................................................45
Net Aggregate Prepayment Interest Shortfall..................................................................23, 74
Net Mortgage Rate ...........................................................................................13, 70
Nonrecoverable P&I Advance.......................................................................................78
Normalized Leasing Commissions...................................................................................47
Normalized Tenant Improvement Costs..............................................................................47
Offered Certificates.......................................................................................1, 4, 68
OID Regulations .................................................................................................91
Operating Adviser ............................................................................................5, 62
Operating Statement Analysis.....................................................................................81
P&I Advance .................................................................................................21, 77
Participants ....................................................................................................69
</TABLE>
S-98
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Pass-Through Rate ................................................................................................2
Payment Differential.............................................................................................43
Plan ........................................................................................................28, 92
Pooling and Servicing Agreement..............................................................................11, 68
Prepayment Interest Excess...................................................................................23, 60
Prepayment Interest Shortfall................................................................................23, 60
Prepayment Premium............................................................................................9, 42
Principal Balance Certificates...................................................................................69
Principal Distribution Amount................................................................................19, 74
Private Certificates..............................................................................................2
Private Subordinate Certificates...................................................................2, 4, 17, 68, 76
PTCE ............................................................................................................94
Purchase Price ..................................................................................................55
Rating Agencies ..........................................................................................1, 29, 95
Realized Losses .............................................................................................12, 77
Redmond Borrower ................................................................................................37
Redmond Management Agreement.....................................................................................38
Redmond Manager .................................................................................................38
Redmond Replacement/Leasing Reserve..............................................................................38
Reimbursement Rate...........................................................................................22, 78
Related Proceeds ................................................................................................78
REMIC ........................................................................................................2, 27
REMIC Provisions ................................................................................................65
REMIC Regular Certificates.................................................................................2, 4, 68
REMIC Residual Certificates...................................................................................4, 68
REO Extension ...................................................................................................66
REO Property .................................................................................................5, 58
REO Status Report ...............................................................................................81
REO Tax .........................................................................................................67
Required Appraisal Loan..........................................................................................78
Resolution Fee ..................................................................................................61
RFG Loans .......................................................................................................42
ROI Loan ........................................................................................................46
S&P ..............................................................................................................1
Salomon Conduit Loans............................................................................................42
Salomon-Originated Loans.........................................................................................42
Scheduled Payment ...........................................................................................19, 75
Securities Act ..................................................................................................68
Senior Certificates..........................................................................................23, 76
Servicing Fees ..................................................................................................61
Servicing Transfer Event.........................................................................................58
SMMEA ...........................................................................................................94
Special Servicer ................................................................................................59
Special Servicing Fee............................................................................................61
Special Servicing Fee Rate.......................................................................................61
Specially Serviced Mortgage Loans.............................................................................5, 58
Specially Serviced Trust Fund Assets.............................................................................58
Standard & Poor's ...............................................................................................29
Stated Principal Balance.....................................................................................14, 70
Subordinate Certificates.....................................................................................23, 76
</TABLE>
S-99
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Table Assumptions ...............................................................................................88
TNRCC ...........................................................................................................44
Trailing Twelve Month Reports....................................................................................45
Trust Fund ...............................................................................................1, 11, 68
Trustee .......................................................................................................2, 4
Uncovered Portion ...............................................................................................62
Underwriter ...............................................................................................1, 4, 94
Underwriting Agreement...........................................................................................94
Union Capital Loans..............................................................................................42
Voting Rights ...................................................................................................83
Weighted Average Net Mortgage Rate...........................................................................13, 70
Wichita Loan ....................................................................................................39
S-100
<PAGE>
<PAGE>
ANNEX A
</TABLE>
<TABLE>
<CAPTION>
Original
Loan ID Property Name Address City State Balance(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
48 Redmond East 6742 185th. Ave. NE. Redmond WA $28,300,000
11 Emerald Bay 4701 E. Sahara Avenue Las Vegas NV $11,850,000
26 Raritan Mall Rt. 202 South at Orlando Dr. Raritan NJ $11,700,000
42 Kings Bridge 1450 Raintree Way Roswell GA $8,070,500
43 Brookgreen/Lantana 510-530 Fairwood Ave Clearwater FL $7,423,700
22 Vista Hills 1800 Lee Trevino Dr. El Paso TX $7,000,000
53 Lansbury Village Apts. 3386 Lansbury Village Drive Atlanta GA $6,950,000
23 Plymouth Park 750 Plymouth Park Blvd. Irving TX $6,972,000
24 Peach Festival GA Hwy. 49 & I-75 Byron GA $6,700,000
33 Omaha 11515 Miracle Hills Drive Omaha NE $6,040,000
52 Crossroads at Middlebury 850,860,900 & 930 Straits Tkpe. Middlebury CT $5,550,000
25 Goethals Park 2525 Brunswick Ave. Linden NJ $5,500,000
37 Galleria 2-40 Bridge Ave. Red Bank NJ $5,300,000
38 Las Palmas 803 Castroville Rd. San Antonio TX $5,300,000
5 Heritage Village 105 Sunnyside Road Temple Terrace FL $5,300,000
34 Overland Park 10610 Marty Overland Park KS $5,210,000
49 Luria Plaza 11200 - 11350 Pines Blvd. Pembrooke Pines FL $5,100,000
29 Northmoor Apartments 690 Lindbergh Dr. Atlanta GA $4,960,000
30 Colonial Oaks 1029 Franklin Road Marietta GA $4,875,000
35 Knoxville 208 Market Place Lane Knoxville TN $4,880,000
36 Atlanta 5945 Oakbrook Parkway Atlanta GA $4,870,000
51 Grove Park 1405-1635 US Hwy. 98 South Lakeland FL $4,700,000
27 Manzanita Plaza 3000 West Valencia Tucson AZ $4,612,500
54 Strathmore S/C 125 Rt. 34 Aberdeen NJ $4,600,000
12 West Harbor 6300 Mosley Dickson Macon GA $4,460,000
28 Benchmark Crossing Hwy. 290 & Hollister Houston TX $3,800,000
21 42 West 48th Street 42 West 48th St. New York NY $3,800,000
50 Edmond Plaza 1700 S. Broadway Edmond OK $3,650,000
31 Continental 50 Glenwood Road Greenville SC $3,410,000
47 Wichita 515 South Webb Road Wichita KS $3,400,000
32 Cross Creek 2415 Dawson Road Albany GA $2,600,000
20 Dobbin Square 6480 Dobbin Way Columbia MD $2,575,000
1 Ranch Park 5502 49th Street Lubbock TX $1,875,000
9 Northlake I 3535 Lawrenceville Hwy Tucker GA $1,860,000
6 Pelican Point 6009 Bellaire Houston TX $1,825,000
13 Ashley Woods 3900 N. Side Drive Macon GA $1,500,000
8 Beaumonde 18044 Old Covington Hwy Hammond LA $1,350,000
4 English Oaks 1320 Gessner Houston TX $1,275,000
10 Northlake II 3665 Lawrenceville Hwy Tucker GA $1,140,000
7 West 109th Street 225-235-245-247 W. 109 New York NY $920,000
14 West 14th Street 322 W. 14th Street New York NY $900,000
2 Timber Ridge 2602 82nd Street Lubbock TX $600,000
3 Windy Ridge 5430 50thStreet Lubbock TX $487,500
$213,191,203
43 LOANS/TOTAL/WTD. AVG.
<CAPTION>
Remaining
Term to
Maturity
% of Initial as of the Original Remaining
Cut-off Date Pool Mortgage Annual Debt Maturity Cut-off Amortization Amortization
Loan ID Property Name Balance Balance Rate Service(2) Date Date(mo.) Term(mo.) Term(mo.)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
48 Redmond East $28,276,818.05 13.34% 8.375% $2,648,308 1/1/06 119 324 323
11 Emerald Bay $11,745,453.79 5.54% 9.550% $1,200,886 9/1/01 67 360 343
26 Raritan Mall $11,623,738.39 5.48% 8.875% $1,166,237 7/1/98 29 300 293
42 Kings Bridge $8,016,048.25 3.78% 9.850% $839,178 12/1/01 70 360 346
43 Brookgreen/Lantana $7,372,416.02 3.48% 9.350% $739,765 12/1/01 70 360 346
22 Vista Hills $6,956,250.78 3.28% 10.750% $787,864 12/1/01 70 348 334
53 Lansbury Village Apts. $6,945,453.74 3.28% 8.125% $619,243 1/1/06 119 360 359
23 Plymouth Park $6,937,843.51 3.27% 11.000% $796,752 1/1/00 47 360 347
24 Peach Festival $6,654,398.71 3.14% 10.625% $755,298 2/1/02 72 324 312
33 Omaha $6,002,015.08 2.83% 8.700% $638,203 10/1/05 116 240 236
52 Crossroads at Middlebury $5,539,426.23 2.61% 8.625% $541,903 12/1/02 82 300 298
25 Goethals Park $5,425,636.93 2.56% 10.875% $675,639 3/1/00 49 240 229
37 Galleria $5,285,711.13 2.49% 9.000% $533,729 11/1/05 117 300 297
38 Las Palmas $5,280,477.95 2.49% 8.875% $528,295 10/1/02 80 300 296
5 Heritage Village $5,255,595.97 2.48% 10.100% $562,841 9/1/01 67 360 342
34 Overland Park $5,177,234.86 2.44% 8.700% $550,503 10/1/05 116 240 236
49 Luria Plaza $5,094,407.59 2.40% 9.000% $492,429 12/1/05 118 360 358
29 Northmoor Apartments $4,937,059.29 2.33% 8.870% $494,202 9/1/02 79 300 295
30 Colonial Oaks $4,860,915.58 2.29% 8.800% $462,310 9/1/05 115 360 355
35 Knoxville $4,849,310.18 2.29% 8.700% $515,634 10/1/05 116 240 236
36 Atlanta $4,839,373.06 2.28% 8.700% $514,578 10/1/05 116 240 236
51 Grove Park $4,695,446.00 2.21% 8.500% $454,148 1/1/03 83 300 299
27 Manzanita Plaza $4,597,096.89 2.17% 9.000% $445,359 8/1/02 78 360 354
54 Strathmore S/C $4,595,723.06 2.17% 8.750% $453,823 1/1/06 119 300 299
12 West Harbor $4,426,948.93 2.09% 9.750% $459,819 11/1/04 105 360 345
28 Benchmark Crossing $3,780,115.19 1.78% 9.250% $390,510 8/1/05 114 300 294
21 42 West 48th Street $3,721,095.78 1.75% 10.625% $459,096 10/1/99 44 240 224
50 Edmond Plaza $3,646,389.99 1.72% 8.375% $349,007 1/1/06 119 300 299
31 Continental $3,400,148.15 1.60% 8.800% $323,380 9/1/05 115 360 355
47 Wichita $3,376,535.10 1.59% 7.950% $339,999 10/1/05 116 240 236
32 Cross Creek $2,580,575.06 1.22% 9.620% $275,200 5/1/02 75 300 291
20 Dobbin Square $2,536,027.82 1.20% 10.125% $283,516 8/1/99 42 300 281
1 Ranch Park $1,858,629.98 0.88% 9.900% $195,793 8/1/01 66 360 342
9 Northlake I $1,845,537.65 0.87% 9.850% $193,404 10/1/01 68 360 344
6 Pelican Point $1,798,450.94 0.85% 10.010% $199,160 8/1/01 66 300 282
13 Ashley Woods $1,492,412.83 0.70% 10.450% $163,981 2/1/05 108 360 348
8 Beaumonde $1,342,374.81 0.63% 10.700% $150,615 12/1/01 70 360 346
4 English Oaks $1,260,809.55 0.59% 10.450% $143,914 11/1/01 69 300 285
10 Northlake II $1,131,135.91 0.53% 9.850% $118,538 10/1/01 68 360 344
7 West 109th Street $910,907.81 0.43% 11.160% $109,484 11/1/01 69 300 285
14 West 14th Street $895,682.07 0.42% 10.700% $100,410 2/1/05 108 360 348
2 Timber Ridge $594,761.51 0.28% 9.900% $62,654 8/1/01 66 360 342
3 Windy Ridge $483,243.82 0.23% 9.900% $50,906 8/1/01 66 360 342
$212,045,633.94 100.00% 9.256% $21,786,515 88 318 310
43 LOANS/TOTAL/WTD. AVG.
</TABLE>
- --------------------------------------------
(1) As of origination date.
(2) 12 times the amount of the Monthly Payment in effect as of the Cut-off Date.
A-1
<PAGE>
<PAGE>
ANNEX A
<TABLE>
<CAPTION>
Loan ID Property Name Prepayment Penalty Restrictions Prepayment Penalty Description
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
48 Redmond East Lockout then Greater of 1%/Yield Maint. 4 yr lockout then Greater of 1%/Yield Maint.
11 Emerald Bay Yield Maint. then Declining Pct. 5 yr Yield Maint., 2% yr 6, 1% 1st 6 mos yr 7
26 Raritan Mall Lockout then Declining Pct. Locked 2 years, 4-3-2-1% each quarter of last year.
42 Kings Bridge Greater of 1%/Yield Maint. then Declining Pct. 4 yr Greater of 1%/Yield Maint., 3% yr 5, 2% yr 6,
1% 1st 6 mos yr 7
43 Brookgreen/Lantana Greater of 1%/Yield Maint. then Declining Pct. 4 yr Greater of 1%/Yield Maint., 3% yr 5, 2% yr 6,
1% 1st 6 mos yr 7
22 Vista Hills Lockout then Yield Maint. 4 yr lockout then Yield Maint.
53 Lansbury Village Apts. Lockout then Greater of 1%/Yield Maint. 4 yr lockout then Greater of 1%/Yield Maint..
23 Plymouth Park Lockout then Yield Maint. 3 yr lockout then Yield Maint.
24 Peach Festival Lockout then Yield Maint. 4 yr lockout then Yield Maint.
33 Omaha Yield Maint. Yield Maint.
52 Crossroads at Middlebury Lockout then Greater of 1%/Yield Maint. 4 yr lockout then Greater of 1%/Yield Maint.
25 Goethals Park Lockout then Yield Maint. 3 yr lockout then Yield Maint.
37 Galleria Lockout then Yield Maint. 5 yr lockout then Yield Maint.
38 Las Palmas Lockout then Yield Maint. 4 yr lockout then Yield Maint.
5 Heritage Village Yield Maint. then Declining Pct. 5 yr Yield Maint., 2% yr 6, 1% 1st 6 mos yr 7
34 Overland Park Yield Maint. Yield Maint.
49 Luria Plaza Greater of 1%/Yield Maint. then Declining Pct. 6 yr Greater of 1%/Yield Maint., 5% yr 7, 4% yr 8,
3% yr 9, 2% thereafter.
29 Northmoor Apartments Lockout then Yield Maint. 2 yr lockout then Yield Maint.
30 Colonial Oaks Lockout then Yield Maint. 4 yr lockout then Yield Maint.
35 Knoxville Yield Maint. Yield Maint.
36 Atlanta Yield Maint. Yield Maint.
51 Grove Park Lockout then Greater of 1%/Yield Maint. 4 yr lockout then Greater of 1%/Yield Maint.
27 Manzanita Plaza Lockout then Yield Maint. 4 yr lockout then Yield Maint.
54 Strathmore S/C Lockout then Greater of 1%/Yield Maint. 4 yr lockout then Greater of 1%/Yield Maint.
12 West Harbor Yield Maint. then Declining Pct. 7 yr Yield Maint., 3% yr 8, 2% yr 9, 1% 1st 6 mos
yr 10
28 Benchmark Crossing Lockout then Yield Maint. 5 yr lockout then Yield Maint.
21 42 West 48th Street Lockout then Yield Maint. 3 yr lockout then Yield Maint.
50 Edmond Plaza Lockout then Greater of 1%/Yield Maint. 6 yr lockout then Greater of 1%/Yield Maint.
31 Continental Lockout then Yield Maint. 4 yr lockout then Yield Maint.
47 Wichita Yield Maint. Yield Maint.
32 Cross Creek Greater of 1%/Yield Maint. then Declining Pct. 5 yr Greater of 1%/Yield Maint., 2% yr 6, 1% 1st
6 mos yr 7
20 Dobbin Square Lockout then Yield Maint. 3 yr lockout then Yield Maint.
1 Ranch Park Yield Maint. then Declining Pct. 5 yr Yield Maint., 2% yr 6, 1% 1st 6 mos yr 7
9 Northlake I Yield Maint. then Declining Pct. 5 yr Yield Maint., 2% yr 6, 1% 1st 6 mos yr 7
6 Pelican Point Yield Maint. then Declining Pct. 5 yr Yield Maint., 2% yr 6, 1% 1st 6 mos yr 7
13 Ashley Woods Greater of 1%/Yield Maint. then Declining Pct. 7 yr Greater of 1%/Yield Maint., 3% yr 8, 2% yr 9,
1% 1st 6 mos yr 10
8 Beaumonde Yield Maint. then Declining Pct. 5 yr Yield Maint., 2% yr 6, 1% 1st 6 mos yr 7
4 English Oaks Yield Maint. then Declining Pct. 5 yr Yield Maint., 2% yr 6, 1% 1st 6 mos yr 7
10 Northlake II Yield Maint. then Declining Pct. 5 yr Yield Maint., 2% yr 6, 1% 1st 6 mos yr 7
7 West 109th Street Yield Maint. then Declining Pct. 5 yr Yield Maint., 2% yr 6, 1% 1st 6 mos yr 7
14 West 14th Street Greater of 1%/Yield Maint. then Declining Pct. 7 yr Greater of 1%/Yield Maint., 3% Yr8, 2% Yr9,
1% 1st 6 mos Yr 10
2 Timber Ridge Yield Maint. then Declining Pct. 5 yr Yield Maint., 2% yr 6, 1% 1st 6 mos yr 7
3 Windy Ridge Yield Maint. then Declining Pct. 5 yr Yield Maint., 2% yr 6, 1% 1st 6 mos yr 7
43 LOANS/TOTAL/WTD. AVG.
<CAPTION>
Occupancy Occupancy Appraisal Appraisal
Loan ID Property Name Property Type Units/SF(3) Rate As-of Date Value Date
- --------------------------------------------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
48 Redmond East Office/ Ind. 395,034 96.0% Dec-95 $43,500,000 1/13/95
11 Emerald Bay Multifamily 337 91.5% Sep-95 $16,055,000 8/1/94
26 Raritan Mall Retail 117,000 86.6% Aug-95 $17,475,000 3/1/95
42 Kings Bridge Multifamily 312 93.9% Sep-95 $11,700,000 7/18/94
43 Brookgreen/Lantana Multifamily 372 80.6% Sep-95 $10,050,000 7/14/94
22 Vista Hills Retail 211,116 98.5% Aug-95 $10,100,000 11/2/94
53 Lansbury Village Apts. Multifamily 164 93.6% Oct-95 $9,375,000 7/12/95
23 Plymouth Park Retail 682,980 87.0% Aug-95 $10,700,000 11/21/94
24 Peach Festival Retail 108,399 94.0% Aug-95 $9,600,000 12/26/94
33 Omaha Hotel 137 78.4% Jul-95 $8,600,000 6/1/95
52 Crossroads at Middlebury Retail/Office 71,905 100.0% Dec-95 $7,650,000 8/19/95
25 Goethals Park Industrial 523,374 97.0% Aug-95 $10,500,000 1/12/95
37 Galleria Retail/Office 104,584 90.1% Sep-95 $8,800,000 7/20/95
38 Las Palmas Retail 225,952 92.0% Sep-95 $7,200,000 6/15/95
5 Heritage Village Multifamily 252 97.5% Jun-95 $7,500,000 6/10/93
34 Overland Park Hotel 143 75.6% Jul-95 $8,000,000 6/1/95
49 Luria Plaza Retail 81,355 98.0% Dec-95 $7,800,000 9/1/95
29 Northmoor Apartments Multifamily 176 93.1% Aug-95 $6,900,000 5/10/95
30 Colonial Oaks Multifamily 200 91.0% Jul-95 $6,700,000 5/10/95
35 Knoxville Hotel 137 73.0% Jul-95 $7,300,000 6/1/95
36 Atlanta Hotel 147 75.8% Jul-95 $8,400,000 6/1/95
51 Grove Park Retail 149,294 89.0% Dec-95 $7,100,000 10/17/95
27 Manzanita Plaza Retail 109,327 99.6% Sep-95 $6,150,000 6/14/95
54 Strathmore S/C Retail 63,148 100.0% Jan-96 $6,550,000 5/12/95
12 West Harbor Multifamily 191 95.9% Jun-95 $6,850,000 6/23/94
28 Benchmark Crossing Retail 58,384 100.0% Aug-95 $5,700,000 6/15/95
21 42 West 48th Street Office 56,872 97.2% Jul-95 $7,300,000 9/8/94
50 Edmond Plaza Retail 102,658 92.0% Dec-95 $5,050,000 9/1/95
31 Continental Multifamily 159 91.7% Aug-95 $4,550,000 5/12/95
47 Wichita Hotel 120 79.7% Jul-95 $7,500,000 6/1/95
32 Cross Creek Multifamily 200 91.5% Jul-95 $4,320,000 2/22/95
20 Dobbin Square Retail 25,114 94.4% Aug-95 $4,500,000 6/1/94
1 Ranch Park Multifamily 142 93.9% Jul-95 $2,500,000 6/17/94
9 Northlake I Multifamily 96 96.0% Jun-95 $2,700,000 8/10/94
6 Pelican Point Multifamily 156 93.8% May-95 $2,830,000 5/17/94
13 Ashley Woods Multifamily 96 96.0% Jun-95 $2,450,000 12/29/94
8 Beaumonde Multifamily 64 90.4% Dec-95 $1,850,000 9/1/94
4 English Oaks Multifamily 181 90.2% Jun-95 $1,725,000 9/15/94
10 Northlake II Multifamily 78 96.0% Jun-95 $2,100,000 8/10/94
7 West 109th Street Multifamily 81 94.8% Dec-95 $1,525,000 9/6/94
14 West 14th Street Multifamily 19 100.0% Aug-95 $1,300,000 11/1/94
2 Timber Ridge Multifamily 52 94.7% Jul-95 $800,000 6/21/94
3 Windy Ridge Multifamily 42 87.6% Jul-95 $650,000 6/21/94
$319,905,000
43 LOANS/TOTAL/WTD. AVG.
</TABLE>
- ---------------------
(3) Dwelling units/guest rooms ("Units") for Multifamily Loans and Hotel Loans
and rentable square footage ("SF") for ROI Loans.
A-2
<PAGE>
<PAGE>
ANNEX A
<TABLE>
<CAPTION>
Loan to Origination Assumed Net Adjusted 1994
Loan ID Property Name Date Value(4) Cash Flows(4) (NOI)(4) DSCR(4) Year Built FIRREA(5)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
48 Redmond East 65.00% $3,343,646 $3,853,166 1.26x 1988 No
11 Emerald Bay 73.16% $1,476,448 $1,526,998 1.23x 1989 Yes
26 Raritan Mall 66.52% $1,428,559 $1,488,322 1.22x 1987 No
42 Kings Bridge 68.51% $1,051,766 $1,124,774 1.25x 1973 Yes
43 Brookgreen/Lantana 73.36% $826,840 $904,328 1.12x 1974 Yes
22 Vista Hills 68.87% $964,784 $1,126,322 1.22x 1979 No
53 Lansbury Village Apts. 74.08% $796,131 $833,031 1.29x 1973 No
23 Plymouth Park 64.84% $1,005,251 $1,270,093 1.26x 1952 No
24 Peach Festival 69.32% $944,517 $986,856 1.25x 1988 No
33 Omaha 69.79% $1,097,678 $1,205,635 1.72x 1991 No
52 Crossroads at Middlebury 72.41% $750,404 $822,050 1.38x 1988 Yes
25 Goethals Park 51.67% $904,015 $1,132,141 1.34x 1910 Yes
37 Galleria 60.06% $731,934 $803,126 1.37x 1905 No
38 Las Palmas 73.34% $780,953 $899,558 1.48x 1955 Yes
5 Heritage Village 70.07% $815,244 $863,124 1.45x 1967 No
34 Overland Park 64.72% $950,754 $1,055,820 1.73x 1988 No
49 Luria Plaza 65.31% $646,012 $693,355 1.31x 1986 Yes
29 Northmoor Apartments 71.55% $651,940 $687,140 1.32x 1948 No
30 Colonial Oaks 72.55% $619,737 $659,737 1.34x 1973 Yes
35 Knoxville 66.43% $886,348 $981,953 1.72x 1989 No
36 Atlanta 57.61% $895,170 $996,585 1.74x 1987 No
51 Grove Park 66.13% $596,503 $674,169 1.31x 1960 Yes
27 Manzanita Plaza 74.75% $579,033 $644,224 1.30x 1982 No
54 Strathmore S/C 70.16% $584,889 $652,541 1.29x 1960 No
12 West Harbor 64.63% $617,479 $659,499 1.34x 1986 Yes
28 Benchmark Crossing 66.32% $521,196 $552,190 1.33x 1986 Yes
21 42 West 48th Street 50.97% $698,178 $767,227 1.52x 1929 No
50 Edmond Plaza 72.21% $446,357 $528,108 1.28x 1966 Yes
31 Continental 74.73% $434,456 $466,256 1.34x 1967 Yes
47 Wichita 45.02% $960,464 $1,052,818 2.82x 1985 No
32 Cross Creek 59.74% $433,738 $479,738 1.58x 1970 Yes
20 Dobbin Square 56.36% $405,929 $432,553 1.43x 1979 No
1 Ranch Park 74.35% $305,488 $337,154 1.56x 1976 No
9 Northlake I 68.35% $280,396 $296,332 1.45x 1970 Yes
6 Pelican Point 63.55% $231,771 $265,311 1.16x 1974 No
13 Ashley Woods 60.91% $222,160 $243,760 1.35x 1984 Yes
8 Beaumonde 72.56% $202,855 $206,083 1.35x 1986 Yes
4 English Oaks 73.09% $200,559 $242,319 1.39x 1969 Yes
10 Northlake II 53.86% $184,953 $198,135 1.56x 1970 Yes
7 West 109th Street 59.73% $195,499 $217,774 1.79x 1910 Yes
14 West 14th Street 68.90% $113,438 $117,808 1.13x 1969 No
2 Timber Ridge 74.35% $71,473 $85,581 1.14x 1979 No
3 Windy Ridge 74.35% $77,486 $88,532 1.52x 1973 Yes
43 LOANS/TOTAL/WTD. AVG. 66.96% $29,932,432 $33,122,225 1.37x
</TABLE>
- ----------------------
(4) Calculated as described under "DESCRIPTION OF THE MORTGAGE POOL-Additional
Mortgage Loan Information" herein.
(5) Conformity of appraisal conducted in connection with origination of the
Mortgage Loan to the requirements of Title XI of the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 ("FIRREA") and regulations
promulgated thereunder.
A-3
<PAGE>
<PAGE>
APPENDIX 1
FORM OF COMPARATIVE
FINANCIAL STATUS REPORT
- --------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VII, Inc.
Mortgage Pass-Through Certificates, Series 1996-C1
COMPARATIVE FINANCIAL STATUS REPORT
as of _____________________________
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
Original Underwriting Information Prior Full Year Operating Information
Base Year as of ________ Normalized
- ------------------------------------------------------------------------------------------------------------------------------------
Financial
Curr. Last Infor- Last Financial
Sched. Paid Annual Property mation Occu- Property Infor- Occu-
Loan Princ. Thru Debt Inspec- as of pancy Total $ Inspec- mation as pancy Total $ DSCR
Num. City State Bal. Date Service tion Date Date Rate Revenue NOI DSCR(1) tion Date of Date Rate Revenue NOI (1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
List all loans currently in the Trust Fund (with or without information in descending loan balance order.
- ------------------------------------------------------------------------------------------------------------------------------------
Total: $ WA $ $ WA WA $ $ WA
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
"Actual" (2)
Current Annual Operating Information YTD Financial Information Net Change
as of ___________ Normalized Month Reported Current & Base
- -------------------------------------------------------------------------------------------------------------
Financial
Last Infor- Financial
Property mation Occu- Infor- Occu- Occu-
Loan Inspec- as of pancy Total $ DSCR mation as pancy Total $ DSCR pancy Total DSCR
Num. tion Date Date Rate Revenue NOI (1) of Date Rate Revenue NOI (1) Rate Revenue (1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Total: WA $ $ WA WA $ $ WA WA $ WA
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Received Required
----------------------------------------
Financial Information Loans Balance Loans Balance
----------------------------------------
$ % $ % $ % $ %
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current Full Year:
- --------------------------------------------------------------------------------
Current Full Year received with DSC <1:
- --------------------------------------------------------------------------------
Prior Full Year:
- --------------------------------------------------------------------------------
Prior Full Year received with DSC<1:
- --------------------------------------------------------------------------------
</TABLE>
- ---------------------
(1) DSCR calculated using NOI/Annual Debt Service
(2) Net change should compare the latest year to the underwriting year.
AP-1
<PAGE>
<PAGE>
APPENDIX 2
FORM OF DELINQUENT LOAN STATUS REPORT
- --------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VII, Inc.
Mortgage Pass-Through Certificates, Series 1996-C1
DELINQUENT LOAN STATUS REPORT
as of _____________________________
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)=a+b+c+d
- ------------------------------------------------------------------------------------------------------------------------------------
Total
Loan Outstand. Total Other
Number, Sq. Ft. or Paid Sched. P&I Outstand. Advances Current Current LTM LTM
City & Prop. Units/Occ. Thru Principal Advances Expenses (Taxes & Total Monthly Mortgage Maturity NOI NOI,
State Type %, Date Date Balance To Date To Date Escrow) Exposure P&I Rate Date Date DSCR
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
90+ DAYS DELINQUENT
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
60-89 DAYS DELINQUENT
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
30-59 DAYS DELINQUENT
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Specially Serviced Mortgage Loans that are
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
(f) (g)=(.92*f)-e
- --------------------------------------------------------------------------------
Loan Most Appraisal, Transfer
Number, Accurate BPO or Date/ Loss Using Date NOI
City & Valuation Property Internal Closing 92% Appr. Filed/FCL
State Date Value Value** Date or BPO(f) Sale Date Status*
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
FCL - Foreclosure
- -----------------------------------------------------------------------------------------------------------------------------------
LTM - Latest 12 Months
- -----------------------------------------------------------------------------------------------------------------------------------
* Status should contain a code indicating the current direction of each loan such as (FCL - In Foreclosure, MOD - Modification,
DPO - Discount Payoff, NS - Note Sale, BK - Bankruptcy, PP - Payment Plan, Curr- Current, TBD - To Be Determined, etc.).
It is possible to combine the status codes if the loan is going in more than one direction i.e. FCL/Mod, BK/Mod, BL/FCL/DPO).
- ------------------------------------------------------------------------------------------------------------------------------------
** App - Appraisal, BPO - Broker Opinion, Int. - Internal Value
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AP-2
<PAGE>
<PAGE>
APPENDIX 3
FORM OF HISTORICAL LOAN MODIFICATION REPORT
- --------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VII, Inc.
Mortgage Pass-Through Certificates, Series 1996-C1
HISTORICAL LOAN MODIFICATION REPORT
as of ______________________
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Total
Num.
Balance Balance at the Months
When Sent Effective Date Num. for
Loan City/ Mod./ Effective to Special of Months/ Old New Change of
Number State Extension Date Servicer Rehabilitation Old Rate New Rate Old P&I New P&I Maturity Maturity Mod.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
THIS REPORT IS
HISTORICAL
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total For All
Loans:
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------
(2) Est.
Future
Interest Loan
(1) Realized to Trust $
Loan Loan to (Rate
Number Trust $ Reduction) COMMENTS
- ---------------------------------------------------
<S> <C> <C>
THIS REPORT IS HISTORICAL
- ---------------------------------------------------
- ---------------------------------------------------
- ---------------------------------------------------
- ---------------------------------------------------
Total For All Loans:
- ---------------------------------------------------
- ---------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total For Loans in Current Month:
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
# of $ Balance
Loans
- ------------------------------------------------------------------------------------------------------------------------------------
Modifications:
- ------------------------------------------------------------------------------------------------------------------------------------
Maturity Date Extensions:
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total:
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AP-3
<PAGE>
<PAGE>
APPENDIX 4
FORM OF HISTORICAL LOSS ESTIMATE REPORT
- --------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VII, Inc.
Mortgage Pass-Through Certificates, Series 1996-C1
HISTORICAL LOSS ESTIMATE REPORT (REO-SOLD or DISCOUNTED PAYOFF)
as of _____________________________
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(c)=b/a (a) (b) (d) (e) (f) (g) (h) (i)=d-(f+g+h) (k)=i-e
- ------------------------------------------------------------------------------------------------------------------------------------
Latest Net Amt. Actual
Master % Rec. Appraisal Effect. Received Losses
Servicer from or Brokers Date of Sales from Scheduled Total P&I Total Servicing Net Passed
Loan ID City/State Sale Opinion Sale Price Sale Balance Advanced Expenses Fees Proceeds Thru
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
THIS REPORT IS HISTORICAL
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total all Loans:
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Current Month
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------
(m) (n)=k+m (o)=n/e
- -----------------------------------------------------------
Minor
Master Date Loss Minor Adj. Total Loss Loss % of
Servicer Passed Adj. to Passed with Scheduled
Loan ID Thru Trust Thru Adjustment Balance
- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Total all Loans:
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Current Month
- ------------------------------------------------------------------
</TABLE>
AP-4
<PAGE>
<PAGE>
APPENDIX 5
FORM OF REO STATUS REPORT
- --------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VII, Inc.
Mortgage Pass-Through Certificates, Series 1996-C1
REO STATUS REPORT
as of _____________________________
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)=a+b+c+d
- ------------------------------------------------------------------------------------------------------------------------------------
Other
Loan Sq. Ft. or Paid Sched. Total P&I Advances Total Current Current NOI (YTD) Most
Num./City Prop. Units/Occ. Thru Principal Advances (Taxes & Expenses Total Monthly Interest Maturity as of Recent
& State Type %/Date Date Balance To Date Escrow) To Date Exposure P&I Rate Date Date NOI/DSCR
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Owned
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Use the following codes: Ap. - Appraisal; BPO - Brokers Opinion; Int. - Internal Value.
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
(f) (g)=(.92*f)-e
- --------------------------------------------------------------------------------
($1)
Most Appraisal, Transfer Loss
Loan Accurate BPO or Date/ Using REO
Num./City Appr. Property Internal Closing 92% Appr. Acquisition Pending
& State Date Value Value Date or BPO(f) Date Offers Comments
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Use the following codes: Ap. - Appraisal; BPO - Brokers Opinion; Int. - Internal Value.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AP-5
<PAGE>
<PAGE>
APPENDIX 6
Operating Statement Analysis
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
ASSET NAME: PROP TYPE: ACTUAL NORMALIZED
PROPERTY: SF/UNITS: NOI:
ASSET NO: CITY: DSCR:
STATE: SOURCE:
- -----------------------------------------------------------------------------------------------------------------------------
12/31/95 12 MONTHS
ACTUAL NORMALIZED
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUE
BASE RENT BASE RENT
BASE RENT -
OTHER INCOME OTHER INCOME - FORFEITED SECURITY DEP
OTHER INCOME - INTEREST
OTHER INCOME - DEVELOPERS FEE
OTHER INCOME - MISC
OTHER INCOME - LATE PYMT/OTHER RENTS ----------------------------
OPERATING EXPENSE
GENERAL AND ADMINISTRATIVE GENERAL AND ADMINISTRATIVE - POSTAGE & DELIVERY
GENERAL AND ADMINISTRATIVE - AUTO
GENERAL AND ADMINISTRATIVE - OFFICE
INSURANCE INSURANCE -
OTHER ADVERTISING -
LEGAL -
MISCELLANEOUS - EQUIPMENT RENTAL
MISCELLANEOUS -
OTHER TAXES -
OTHER TAXES - FICA
PAYROLL - EMPLOYEE HLTH INS
PAYROLL -
SERVICES - BANK CHARGES
SUPPLIES -
TELEPHONE -
PROPERTY MANAGEMENT MANAGEMENT FEES -
PROPERTY TAXES PROPERTY TAXES -
REPAIRS AND MAINTENANCE COMMON AREA MAINTENANCE - EXTERMINATING
COMMON AREA MAINTENANCE -
GROUNDS -
REPAIRS AND MAINTENANCE - CARPET
REPAlRS AND MAINTENANCE -
TENANT PREP -
UTILITIES ELECTRICITY
TRASH -
UTILITIES - OIL
WATERS/SEWER -
----------------------------
NET OPERATING INCOME
DEBT SERVICE
DEBT SERVICE DEBT SERVICE -
----------------------------
CASH FLOW AFTER DEBT SERVICE
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
AP-6-1
<PAGE>
<PAGE>
APPENDIX 6
Income Statement
<TABLE>
<CAPTION> COLLATERAL:
BORROWER:
PROPERTY TYPE:
1993- 1994
1993 1994 01/01/1995 1994 PER 1994 VARIANCE
DESCRIPTION BASE LINE TOTAL TOTAL TO 11/30/1995 SF/UNIT VARIANCE (BASE LINE)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
REVENUE
BASE RENT
OTHER INCOME
EXPENSE REIMBURSEMENT ------------------------------------------------------------------------------------------
TOTAL REVENUE
OPERATING EXPENSE
PROPERTY MANAGEMENT
GENERAL AND ADMINISTRATIVE
UTILITIES
REPAIRS AND MAINTENANCE
PROPERTY TAXES
INSURANCE
OTHER
GROUND LEASE ------------------------------------------------------------------------------------------
TOTAL OPERATION EXPENSE
NOI
CAPITAL EXPENSES/RESERVES
CASH FLOW BEFORE DEBT SERVICE
DEBT SERVICE
JUNIOR DEBT SERVICE ------------------------------------------------------------------------------------------
TOTAL DEBT SERVICE
CASH FLOW AFTER DEBT SERVICE
DSCR: (NOI/DEBT SERVICE)
DSCR: (AFTER RESERVES/CAP EXP.)
</TABLE>
AP-6-2
<PAGE>
<PAGE>
MORTGAGE PASS-THROUGH CERTIFICATES (ISSUABLE IN SERIES)
Principal and interest with respect to Certificates will be distributable
monthly, quarterly, semi-annually or at such other intervals and on the dates
specified in the related Prospectus Supplement. Distributions on the
Certificates of any series will be made only from the assets of the related
Trust Fund (as defined herein).
SALOMON BROTHERS MORTGAGE SECURITIES VII, INC.
DEPOSITOR
The Certificates offered hereby and by Supplements to this Prospectus (the
"Offered Certificates") will be offered from time to time in series. Each series
of Certificates will represent in the aggregate the entire beneficial ownership
interest in a trust fund (with respect to any series, the "Trust Fund")
consisting of a segregated pool of one or more of various types of multifamily
or commercial mortgage loans (the "Mortgage Loans"), mortgage-backed securities
("MBS") evidencing interests in, or secured by pledges of, one or more of
various types of multifamily or commercial mortgage loans, securities evidencing
interests in, or secured by pledges of, MBS (the "Tiered MBS") or a combination
of Mortgage Loans, MBS and Tiered MBS (with respect to any series, collectively,
"Mortgage Assets").
Each series of Certificates will consist of one or more classes of Certificates
that may (i) provide for the accrual of interest thereon based on fixed,
variable or adjustable rates; (ii) be senior or subordinate to one or more other
classes of Certificates in respect of certain distributions on the Certificates;
(iii) be entitled to principal distributions, with disproportionately low,
nominal or no interest distributions; (iv) be entitled to interest
distributions, with disproportionately low, nominal or no principal
distributions; (v) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such series; (vi)
provide for distributions of principal sequentially, or based on specified
payment schedules or other methodologies, to the extent of available funds;
and/or (vii) provide for cash distributions based on available funds, in each
case as described in the related Prospectus Supplement. Any such classes may
include classes of Offered Certificates. If so specified in the related
Prospectus Supplement, the Trust Fund for a series of Certificates may include
letters of credit, insurance policies, guarantees, reserve funds or other types
of credit support, or any combination thereof (with respect to any series,
collectively, "Credit Support"), and currency or interest rate exchange
agreements and other financial assets, or any combination thereof (with respect
to any series, collectively, "Cash Flow Agreements"). See "Description of the
Trust Funds", "Description of the Certificates" and "Description of Credit
Support".
The Certificates of each series will not represent an obligation of or interest
in the Depositor, any Master Servicer, any Special Servicer or any of their
respective affiliates, except to the limited extent described herein and in the
related Prospectus Supplement. Neither the Certificates nor any assets in the
related Trust Fund will be guaranteed or insured by any governmental agency or
instrumentality or by any other person, unless otherwise provided in the related
Prospectus Supplement. The assets in each Trust Fund will be held in trust for
the benefit of the holders of the related series of Certificates pursuant to a
Pooling and Servicing Agreement or a Trust Agreement, as more fully described
herein. If so provided in the related Prospectus Supplement, one or more
elections may be made to treat the related Trust Fund or a designated portion
thereof as a "real estate mortgage investment conduit" for federal income tax
purposes. See also "Certain Federal Income Tax Consequences" herein.
The yield on each class of Certificates of a series will be affected by, among
other things, the rate of payment of principal (including prepayments) on the
Mortgage Assets in the related Trust Fund and the timing of receipt of such
payments as described under the caption "Yield Considerations" herein and in the
related Prospectus Supplement. A Trust Fund may be subject to early termination
under the circumstances described herein and in the related Prospectus
Supplement.
-----------------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER THE INFORMATION SET FORTH UNDER "RISK
FACTORS" ON PAGE 14 OF THIS PROSPECTUS AND SUCH INFORMATION AS MAY BE SET FORTH
UNDER THE CAPTION "RISK FACTORS" IN THE RELATED PROSPECTUS SUPPLEMENT BEFORE
PURCHASING ANY OFFERED CERTIFICATE.
-----------------------------
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, as more fully described under "Methods
of Distribution" and in the related Prospectus Supplement. With respect to each
series, all of the Certificates of each class offered hereby will be rated in
one of the four highest ratings categories by one or more nationally recognized
statistical rating organizations. There will have been no public market for any
series of Certificates prior to the offering thereof. No assurance can be given
that such a market will develop as a result of such an offering. All securities
will be distributed by, or sold by underwriters managed by:
- ---------------------
SALOMON BROTHERS INC
- --------------------------------------
Retain this Prospectus for future reference. This Prospectus may not be used to
consummate sales of a series of Offered Certificates unless accompanied by a
Prospectus Supplement.
The date of this Prospectus is February 14, 1996.
<PAGE>
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND ANY PROSPECTUS
SUPPLEMENT WITH RESPECT HERETO AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON. THIS PROSPECTUS AND ANY PROSPECTUS
SUPPLEMENT WITH RESPECT HERETO DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE OFFERED
CERTIFICATES OR AN OFFER OF THE OFFERED CERTIFICATES TO ANY PERSON IN ANY STATE
OR OTHER JURISDICTION IN WHICH SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF
THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE; HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE
THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS WILL BE
AMENDED OR SUPPLEMENTED ACCORDINGLY.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Caption Page
<S> <C>
PROSPECTUS SUPPLEMENT.......................................................................................... 5
AVAILABLE INFORMATION.......................................................................................... 5
REPORTS TO CERTIFICATEHOLDERS.................................................................................. 5
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.............................................................. 5
SUMMARY OF PROSPECTUS.......................................................................................... 7
RISK FACTORS................................................................................................... 14
Limited Liquidity..................................................................................... 14
Limited Assets........................................................................................ 14
Average Life of Certificates; Prepayments; Yields..................................................... 14
Limited Nature of Ratings............................................................................. 15
Risks Associated with Certain Mortgage Loans and Mortgaged Properties................................. 15
Delinquent and Non-Performing Mortgage Loans.......................................................... 16
Junior Mortgage Loans................................................................................. 17
Balloon Payments...................................................................................... 17
Obligor Default....................................................................................... 17
Mortgagor Type........................................................................................ 17
Credit Support Limitations............................................................................ 17
Due-on-Sale Clauses and Assignments of Leases and Rents............................................... 18
Environmental Risks................................................................................... 18
ERISA Considerations.................................................................................. 19
Certain Federal Tax Considerations Regarding REMIC Residual Certificates.............................. 19
Control............................................................................................... 19
Book-Entry Registration............................................................................... 19
DESCRIPTION OF THE TRUST FUNDS................................................................................. 20
Mortgage Assets....................................................................................... 20
Mortgage Loans........................................................................................ 20
MBS and Tiered MBS.................................................................................... 23
Certificate Accounts.................................................................................. 24
Credit Support........................................................................................ 24
Cash Flow Agreements.................................................................................. 24
USE OF PROCEEDS................................................................................................ 24
YIELD CONSIDERATIONS........................................................................................... 24
General............................................................................................... 24
Pass-Through Rate..................................................................................... 25
Timing of Payment of Interest and Principal........................................................... 25
</TABLE>
2
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Principal Prepayments................................................................................. 25
Prepayments--Maturity and Weighted Average Life....................................................... 26
Other Factors Affecting Weighted Average Life......................................................... 27
Negative Amortization................................................................................. 28
THE DEPOSITOR.................................................................................................. 28
DESCRIPTION OF THE CERTIFICATES................................................................................ 28
General............................................................................................... 28
Distributions......................................................................................... 28
Available Distribution Amount......................................................................... 29
Distributions of Interest on the Certificates......................................................... 30
Distributions of Principal of the Certificates........................................................ 30
Distributions on the Certificates of Prepayment Premiums or in Respect of Equity
Participations........................................................................................ 31
Distributions in Respect of Spread Certificates....................................................... 31
Allocation of Losses and Shortfalls................................................................... 31
Advances in Respect of Delinquencies.................................................................. 31
Reports to Certificateholders......................................................................... 32
Termination........................................................................................... 34
Book-Entry Registration and Definitive Certificates................................................... 34
DESCRIPTION OF THE AGREEMENTS.................................................................................. 35
Assignment of Mortgage Assets; Repurchases............................................................ 35
Representations and Warranties; Repurchases........................................................... 36
Certificate Account................................................................................... 38
Collection and Other Servicing Procedures............................................................. 40
Sub-Servicers......................................................................................... 41
Special Servicers..................................................................................... 41
Realization Upon Defaulted Whole Loans................................................................ 42
Hazard Insurance Policies............................................................................. 44
Due-on-Sale and Due-on-Encumbrance Provisions......................................................... 45
Retained Interest; Servicing Compensation and Payment of Expenses..................................... 45
Evidence as to Compliance............................................................................. 46
Certain Matters Regarding a Master Servicer and the Depositor......................................... 47
Events of Default..................................................................................... 47
Rights Upon Event of Default.......................................................................... 48
Amendment............................................................................................. 49
List of Certificateholders............................................................................ 49
The Trustee........................................................................................... 49
Duties of the Trustee................................................................................. 49
Certain Matters Regarding the Trustee................................................................. 49
Resignation and Removal of the Trustee................................................................ 50
DESCRIPTION OF CREDIT SUPPORT.................................................................................. 50
General............................................................................................... 50
Subordinate Certificates.............................................................................. 50
Cross-Support Provisions.............................................................................. 51
Insurance or Guarantees with Respect to Mortgage Loans................................................ 51
Letter of Credit...................................................................................... 51
Insurance Policies and Surety Bonds................................................................... 51
Reserve Funds......................................................................................... 51
Credit Support with respect to MBS and Tiered MBS..................................................... 52
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS........................................................................ 52
General............................................................................................... 52
Types of Mortgage Instruments......................................................................... 53
Leases and Rents...................................................................................... 53
Personalty............................................................................................ 53
Foreclosure........................................................................................... 54
</TABLE>
3
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Bankruptcy Laws....................................................................................... 57
Environmental Considerations.......................................................................... 58
Due-on-Sale and Due-on-Encumbrance.................................................................... 59
Subordinate Financing................................................................................. 59
Default Interest and Limitations on Prepayments....................................................... 60
Applicability of Usury Laws........................................................................... 60
Soldiers' and Sailors' Civil Relief Act of 1940....................................................... 60
Forfeitures in Drug and RICO Proceedings.............................................................. 61
CERTAIN FEDERAL INCOME TAX CONSEQUENCES........................................................................ 61
General............................................................................................... 61
REMICS................................................................................................ 62
Grantor Trust Funds................................................................................... 76
STATE AND OTHER TAX CONSIDERATIONS............................................................................. 84
ERISA CONSIDERATIONS........................................................................................... 84
LEGAL INVESTMENT............................................................................................... 87
METHOD OF DISTRIBUTION......................................................................................... 88
LEGAL MATTERS.................................................................................................. 89
FINANCIAL INFORMATION.......................................................................................... 89
RATING......................................................................................................... 89
INDEX OF PRINCIPAL DEFINITIONS................................................................................. 90
</TABLE>
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES COVERED BY SUCH PROSPECTUS
SUPPLEMENT, WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE
REQUIRED TO DELIVER SUCH PROSPECTUS SUPPLEMENT AND THIS PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS AND PROSPECTUS
SUPPLEMENT WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
4
<PAGE>
<PAGE>
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement
relating to the Offered Certificates of each series will, among other things,
set forth with respect to such Certificates, as appropriate: (i) a description
of the class or classes of Certificates, the payment provisions with respect to
each such class and the Pass-Through Rate or method of determining the
Pass-Through Rate with respect to each such class; (ii) the aggregate principal
amount and distribution dates relating to such series and, if applicable, the
initial and final scheduled distribution dates for each class; (iii) information
as to the assets comprising the Trust Fund, including the general
characteristics of the assets included therein, including the Mortgage Assets
and any Credit Support and Cash Flow Agreements (with respect to the
Certificates of any series, the "Trust Assets"); (iv) the circumstances, if any,
under which the Trust Fund may be subject to early termination; (v) additional
information with respect to the method of distribution of the Offered
Certificates; (vi) whether one or more REMIC elections will be made and
designation of the regular interests and residual interests; (vii) the aggregate
original percentage ownership interest in the Trust Fund to be evidenced by each
class of Certificates; (viii) information as to any Master Servicer, any Special
Servicer (or provision for the appointment thereof) and the Trustee, as
applicable; (ix) information as to the nature and extent of subordination with
respect to any class of Certificates that is subordinate in right of payment to
any other class; and (x) whether such Certificates will be initially issued in
definitive or book-entry form.
AVAILABLE INFORMATION
The Depositor is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports and other information filed
by the Depositor can be inspected and copied at the public reference facilities
maintained by the Commission at its Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549, and its Regional Offices located as follows:
Chicago Regional Office, 500 West Madison, 14th Floor, Chicago, Illinois 60661;
New York Regional Office, Seven World Trade Center, New York, New York 10048.
Copies of such material can also be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Depositor does not intend to send any financial reports to
Certificateholders.
This Prospectus does not contain all of the information set forth in
the Registration Statement (of which this Prospectus forms a part) and exhibits
thereto which the Depositor has filed with the Commission under the Securities
Act of 1933 and to which reference is hereby made.
REPORTS TO CERTIFICATEHOLDERS
The Master Servicer or the Trustee will be required to mail to holders
of Offered Certificates of each series periodic unaudited reports concerning the
related Trust Fund. Unless and until definitive Certificates are issued, or
unless otherwise provided in the related Prospectus Supplement, such reports
will be sent on behalf of the related Trust Fund to a nominee of The Depository
Trust Company ("DTC") and registered holder of the Offered Certificates,
pursuant to the applicable Agreement. Such reports may be available to holders
of interests in the Certificates (the "Certificateholders") upon request to
their respective DTC participants. See "Description of the Certificates--Reports
to Certificateholders" and "Description of the Agreements--Evidence as to
Compliance". The Depositor will file or cause to be filed with the Commission
such periodic reports with respect to each Trust Fund as are required under the
Exchange Act, and the rules and regulations of the Commission thereunder.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports
filed or caused to be filed by the Depositor with respect to a Trust Fund
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of the offering of Offered Certificates evidencing interests
therein. The Depositor will provide or cause to be provided without charge to
each person to whom this Prospectus is delivered in connection with the offering
of one or more classes of Offered Certificates, a copy of any or all documents
or
5
<PAGE>
<PAGE>
reports incorporated herein by reference, in each case to the extent such
documents or reports relate to one or more of such classes of such Offered
Certificates, other than the exhibits to such documents (unless such exhibits
are specifically incorporated by reference in such documents). Requests to the
Depositor should be directed in writing to its principal executive office at
Seven World Trade Center, New York, New York 10048, Attention: Secretary, or by
telephone at (212) 783-5635. The Depositor has determined that its financial
statements are not material to the offering of any Offered Certificates.
6
<PAGE>
<PAGE>
SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in
its entirety by reference to the more detailed information appearing elsewhere
in this Prospectus and by reference to the information with respect to each
series of Certificates contained in the Prospectus Supplement to be prepared and
delivered in connection with the offering of such series. An Index of Principal
Definitions is included at the end of this Prospectus.
<TABLE>
<S> <C>
Title of Certificates.......................Mortgage Pass-Through Certificates, issuable in series (the
"Certificates").
Depositor...................................Salomon Brothers Mortgage Securities VII, Inc., an indirect
wholly-owned subsidiary of Salomon Inc and an affiliate of Salomon
Brothers Inc. See "The Depositor".
Master Servicer.............................The master servicer (the "Master Servicer"), if any, for each
series of Certificates, which may be an affiliate of the
Depositor, will be named in the related Prospectus Supplement. See
"Description of the Agreements--Collection and Other Servicing
Procedures".
Special Servicer............................The special servicer (the "Special Servicer"), if any, for each
series of Certificates, which may be an affiliate of the
Depositor, will be named, or the circumstances in accordance with
which a Special Servicer will be appointed will be described, in
the related Prospectus Supplement. See "Description of the
Agreements--Special Servicers".
Trustee.....................................The trustee (the "Trustee") for each series of Certificates will
be named in the related Prospectus Supplement. See "Description of
the Agreements--The Trustee".
The Trust Fund..............................Each series of Certificates will represent in the aggregate the
entire beneficial ownership interest in a Trust Fund consisting
primarily of:
A. Mortgage Assets....................The Mortgage Assets with respect to each series of Certificates
will consist of a pool of multifamily and/or commercial mortgage
loans (collectively, the "Mortgage Loans"), mortgage participation
certificates, mortgage pass-through certificates or other
mortgage-backed securities ("MBS") evidencing interests in or
secured by pledges of multifamily and/or commercial mortgage
loans, participation certificates, pass-through certificates or
other securities evidencing an interest in, or secured by MBS
(collectively, the "Tiered MBS") or a combination of Mortgage
Loans, MBS and Tiered MBS. The Mortgage Loans will not be
guaranteed or insured by the Depositor or any of its affiliates
or, unless otherwise provided in the Prospectus Supplement, by any
governmental agency or instrumentality or other person. The
Mortgage Loans will have the additional characteristics described
under "Description of the Trust Funds--Mortgage Loans" and in the
related Prospectus Supplement. All Mortgage Loans will have been
originated by persons other than the Depositor, including
affiliates of the Depositor, and all Mortgage Assets will have
been purchased, either directly
</TABLE>
7
<PAGE>
<PAGE>
<TABLE>
<S> <C>
or indirectly, by the Depositor on or before the date of initial
issuance of the related series of Certificates.
Each Mortgage Loan may provide for no accrual of interest or for
accrual of interest thereon at an interest rate (a "Mortgage
Rate") that is fixed over its term or that adjusts from time to
time, or that may be converted from an adjustable to a fixed
Mortgage Rate, or from a fixed to an adjustable Mortgage Rate,
from time to time at the mortgagor's election, in each case as
described in the related Prospectus Supplement. Each Mortgage Loan
may provide for scheduled payments to maturity, payments that
adjust from time to time to accommodate changes in the Mortgage
Rate or to reflect the occurrence of certain events, and may
provide for negative amortization or accelerated amortization, in
each case as described in the related Prospectus Supplement. Each
Mortgage Loan may be fully amortizing or require a balloon payment
due on its stated maturity date, in each case as described in the
related Prospectus Supplement. Each Mortgage Loan may contain
prohibitions on prepayment or require payment of a premium or a
yield maintenance penalty in connection with a prepayment, in each
case as described in the related Prospectus Supplement. The
Mortgage Loans may provide for payments of principal, interest or
both, on due dates that occur monthly, quarterly, semi-annually or
at such other interval as is specified in the related Prospectus
Supplement. See "Description of the Trust Funds--Mortgage Loans".
B. Certificate Account................Each Trust Fund will include one or more accounts (collectively,
the "Certificate Account") established and maintained on behalf of
the Certificateholders into which the person or persons designated
in the related Prospectus Supplement will, to the extent described
herein and in such Prospectus Supplement, deposit all payments and
collections received or advanced with respect to the Mortgage
Assets and other assets in the Trust Fund. A Certificate Account
may be maintained as an interest bearing or a non-interest bearing
account, and funds held therein may be held as cash or invested in
certain short-term, investment grade obligations, in each case as
described in the related Prospectus Supplement. See "Description
of the Agreements--Payments on Mortgage Assets; Deposits to
Certificate Account".
C. Credit Support.....................If so provided in the related Prospectus Supplement, partial or
full protection against certain defaults and losses on the
Mortgage Assets in the related Trust Fund may be provided to one
or more classes of Certificates of the related series in the form
of subordination of one or more other classes of Certificates of
such series, which other classes may include one or more classes
of Offered Certificates, or by one or more other types of credit
support, such as a letter of credit, insurance policy, guarantee,
reserve fund or another type of
</TABLE>
8
<PAGE>
<PAGE>
<TABLE>
<S> <C>
credit support, or a combination thereof (any such coverage with
respect to the Certificates of any series, "Credit Support"). The
amount and types of coverage, the identification of the entity
providing the coverage (if applicable) and related information
with respect to each type of Credit Support, if any, will be
described in the Prospectus Supplement for a series of
Certificates. The Prospectus Supplement for any series of
Certificates evidencing an interest in a Trust Fund that includes
MBS or Tiered MBS will describe any similar forms of credit
support that are provided by or with respect to, or are included
as part of the trust fund evidenced by or providing security for,
such MBS or Tiered MBS. See "RISK FACTORS--Credit Support
Limitations" and "Description of Credit Support".
D. Cash Flow Agreements...............If so provided in the related Prospectus Supplement, the Trust
Fund may include guaranteed investment contracts pursuant to which
moneys held in the funds and accounts established for the related
series will be invested at a specified rate. The Trust Fund may
also include certain other agreements, such as interest rate
exchange agreements, interest rate cap or floor agreements,
currency exchange agreements or similar agreements provided to
reduce the effects of interest rate or currency exchange rate
fluctuations on the Mortgage Assets on one or more classes of
Certificates. The principal terms of any such guaranteed
investment contract or other agreement (any such agreement, a
"Cash Flow Agreement"), including, without limitation, provisions
relating to the timing, manner and amount of payments thereunder
and provisions relating to the termination thereof, will be
described in the Prospectus Supplement for the related series. In
addition, the related Prospectus Supplement will provide certain
information with respect to the obligor under any such Cash Flow
Agreement. The Prospectus Supplement for any series of
Certificates evidencing an interest in a Trust Fund that includes
MBS or Tiered MBS will describe any cash flow agreements that are
included as part of the trust fund evidenced by or providing
security for such MBS or Tiered MBS. See "Description of the Trust
Funds--Cash Flow Agreements".
Description of Certificates.................Each series of Certificates evidencing an interest in a Trust Fund
that includes Mortgage Loans as part of its assets will be issued
pursuant to a Pooling and Servicing Agreement, and each series of
Certificates evidencing an interest in a Trust Fund consisting
exclusively of MBS or Tiered MBS will be issued pursuant to a
Trust Agreement. Pooling and Servicing Agreements and Trust
Agreements are sometimes referred to herein as Agreements. Each
series of Certificates will include one or more classes. Each
series of Certificates (including any class or classes of
Certificates of such series not offered hereby) will represent in
the aggregate the entire beneficial ownership interest in the
Trust Fund. Each class of Certificates (other than certain
Stripped Interest
</TABLE>
9
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Certificates and Spread Certificates, each as defined below) will
have a stated principal amount (a "Certificate Balance") and
(other than certain Stripped Principal Certificates, as defined
below, and certain Spread Certificates), will accrue interest
thereon based on a fixed, variable or adjustable interest rate (a
"Pass-Through Rate"). The related Prospectus Supplement will
specify the Certificate Balance and the Pass-Through Rate for each
class of Certificates, as applicable, or, in the case of a
variable or adjustable Pass-Through Rate, the method for
determining the Pass-Through Rate.
Each series of Certificates will consist of one or more classes of
Certificates that may (i) be senior (collectively, "Senior
Certificates") or subordinate (collectively, "Subordinate
Certificates") to one or more other classes of Certificates in
respect of certain distributions on the Certificates; (ii) be
entitled to principal distributions, with disproportionately low,
nominal or no interest distributions (collectively, "Stripped
Principal Certificates"); (iii) be entitled to interest
distributions, with disproportionately low, nominal or no
principal distributions (collectively, "Stripped Interest
Certificates"); (iv) provide for distributions of accrued interest
thereon commencing only following the occurrence of certain
events, such as the retirement of one or more other classes of
Certificates of such series (collectively, "Accrual
Certificates"); (v) provide for distributions of principal
sequentially, based on specified payment schedules or other
methodologies, to the extent of available funds; and/or (vi)
provide for cash distributions based on available funds
(collectively, "Spread Certificates"), in each case as described
in the related Prospectus Supplement. Any such classes may include
classes of Offered Certificates.
The Certificates will not be guaranteed or insured by the
Depositor or any of its affiliates, by any governmental agency or
instrumentality or by any other person, unless otherwise provided
in the related Prospectus Supplement. See "RISK FACTORS--Limited
Assets" and "Description of the Certificates".
Distributions of Interest on
Certificates..........................Interest on each class of Offered Certificates (other than
Stripped Principal Certificates and certain classes of Stripped
Interest Certificates and Spread Certificates) of each series will
accrue at the applicable Pass-Through Rate on the outstanding
Certificate Balance thereof and will be distributed to
Certificateholders as provided in the related Prospectus
Supplement (each of the specified dates on which distributions are
to be made, a "Distribution Date"). Distributions with respect to
interest on Stripped Interest Certificates may be made on each
Distribution Date on the basis of a notional amount as described
in the related Prospectus Supplement. Distributions of interest
with respect
</TABLE>
10
<PAGE>
<PAGE>
<TABLE>
<S> <C>
to one or more classes of Certificates may be reduced to the
extent of certain delinquencies, losses and other contingencies
described herein and in the related Prospectus Supplement. See
"RISK FACTORS--Average Life of Certificates; Prepayments; Yields",
"Yield Considerations", and "Description of the
Certificates--Distributions of Interest on the Certificates".
Distributions of Principal of
Certificates..........................The Certificates of each series (other than certain classes of
Stripped Interest Certificates and Spread Certificates) initially
will have an aggregate Certificate Balance no greater than the
outstanding principal balance of the Mortgage Assets as of, unless
the related Prospectus Supplement provides otherwise, the close of
business on the first day of the month of formation of the related
Trust Fund (the "Cut-off Date"), after application of scheduled
payments due on or before such date, whether or not received. The
Certificate Balance of a Certificate outstanding from time to time
represents the maximum amount that the holder thereof is then
entitled to receive in respect of principal from future cash flow
on the assets in the related Trust Fund. Unless otherwise provided
in the related Prospectus Supplement, distributions of principal
will be made on each Distribution Date to the class or classes of
Certificates entitled thereto until the Certificate Balances of
such Certificates have been reduced to zero. Distributions of
principal of any class of Certificates will be made on a pro rata
basis among all of the Certificates of such class. See
"Description of the Certificates--Distributions of Principal of
the Certificates".
Advances....................................In connection with a series of Certificates evidencing an interest
in a Trust Fund consisting of Mortgage Assets other than MBS or
Tiered MBS, unless otherwise provided in the related Prospectus
Supplement, the Master Servicer will be obligated as part of its
servicing responsibilities to make certain advances with respect
to delinquent scheduled payments on the Mortgage Loans in such
Trust Fund. Advances made by a Master Servicer are reimbursable
generally from subsequent recoveries in respect of such Mortgage
Loans and otherwise to the extent described herein and in the
related Prospectus Supplement. If and to the extent provided in
the Prospectus Supplement for any series, the Master Servicer will
be entitled to receive interest on its outstanding advances,
payable from amounts in the related Trust Fund. The Prospectus
Supplement for any series of Certificates evidencing an interest
in a Trust Fund that includes MBS or Tiered MBS will describe any
corresponding advancing obligation of any person in connection
with such MBS or Tiered MBS. See "Description of the
Certificates--Advances in Respect of Delinquencies".
Termination.................................If so specified in the related Prospectus Supplement, a series of
Certificates may be subject to optional early termination
</TABLE>
11
<PAGE>
<PAGE>
<TABLE>
<S> <C>
through the repurchase of the Mortgage Assets in the related Trust
Fund by the party specified therein, under the circumstances and
in the manner set forth therein. If so provided in the related
Prospectus Supplement, upon the reduction of the Certificate
Balance of a specified class or classes of Certificates by a
specified percentage or amount, the party specified therein will
solicit bids for the purchase of all of the Mortgage Assets in the
Trust Fund, or of a sufficient portion of such Mortgage Assets to
retire such class or classes, under the circumstances and in the
manner set forth therein. See "Description of the
Certificates--Termination".
Registration of Certificates................If so provided in the related Prospectus Supplement, one or more
classes of the Offered Certificates will initially be represented
by one or more Certificates registered in the name of the nominee
of DTC. No person acquiring an interest in Offered Certificates so
registered will be entitled to receive a definitive certificate
representing such person's interest except in the event that
definitive certificates are issued under the limited circumstances
described herein. See "RISK FACTORS--Book-Entry Registration" and
"Description of the Certificates--Book-Entry Registration and
Definitive Certificates".
Tax Status of the Certificates..............The Certificates of each series will constitute either (i)
"regular interests" ("REMIC Regular Certificates") and "residual
interests" ("REMIC Residual Certificates") in a Trust Fund treated
as a REMIC under Sections 860A through 860G of the Internal
Revenue Code of 1986 (the "Code"), or (ii) interests ("Grantor
Trust Certificates") in a Trust Fund treated as a grantor trust
under applicable provisions of the Code. For the treatment of
REMIC Regular Certificates, REMIC Residual Certificates and
Grantor Trust Certificates under the Code, see "Certain Federal
Income Tax Consequences" herein and in the related Prospectus
Supplement.
ERISA Considerations........................A fiduciary of an employee benefit plan and certain other
retirement plans and arrangements, including individual retirement
accounts, annuities, Keogh plans, and collective investment funds
and separate accounts in which such plans, accounts, annuities or
arrangements are invested, that is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or
Section 4975 of the Code should carefully review with its legal
advisors whether the purchase or holding of Offered Certificates
could give rise to a transaction that is prohibited or is not
otherwise permissible either under ERISA or Section 4975 of the
Code. See "ERISA Considerations" herein and in the related
Prospectus Supplement.
Legal Investment............................Unless otherwise provided in the related Prospectus Supplement,
the Offered Certificates will not constitute "mortgage related
securities" for purposes of the Secondary
</TABLE>
12
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Mortgage Market Enhancement Act of 1984. Accordingly, investors
whose investment authority is subject to legal restrictions should
consult their own legal advisors to determine whether and to what
extent the Offered Certificates constitute legal investments for
them. See "Legal Investment" herein and in the related Prospectus
Supplement.
Rating......................................At the date of issuance, as to each series, each class of Offered
Certificates will be rated not lower than investment grade by one
or more nationally recognized statistical rating agencies (each, a
"Rating Agency"). See "Rating" herein and in the related
Prospectus Supplement.
</TABLE>
13
<PAGE>
<PAGE>
RISK FACTORS
Investors should consider, in connection with the purchase of Offered
Certificates, among other things, the following factors and certain other
factors as may be set forth in "Risk Factors" in the related Prospectus
Supplement. In general, to the extent that the factors discussed below pertain
to or are influenced by the characteristics or behavior of Mortgage Loans
included in a particular Trust Fund, they would be similarly influenced by the
characteristics or behavior of the mortgage loans underlying any MBS or Tiered
MBS included in such Trust Fund.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates
of any series will develop or, if it does develop, that it will provide holders
with liquidity of investment or will continue while Certificates of such series
remain outstanding. Any such secondary market may provide less liquidity to
investors than any comparable market for securities evidencing interests in
single-family mortgage loans. The market value of Certificates will fluctuate
with changes in prevailing rates of interest. Consequently, sale of Certificates
by a holder in any secondary market that may develop may be at a discount from
100% of their original principal balance or from their purchase price.
Furthermore, secondary market purchasers may look only hereto, to the related
Prospectus Supplement and to the reports to Certificateholders delivered
pursuant to the Agreement as described herein under the heading "Description of
the Certificates--Reports to Certificateholders", "--Book-Entry Registration and
Definitive Certificates" and "Description of the Agreements--Evidence as to
Compliance" for information concerning the Certificates. Except to the extent
described herein and in the related Prospectus Supplement, Certificateholders
will have no redemption rights and the Certificates are subject to early
retirement only under certain specified circumstances described herein and in
the related Prospectus Supplement. See "Description of the
Certificates--Termination". Salomon Brothers Inc, through one or more of its
affiliates, currently expects to make a secondary market in the Offered
Certificates, but has no obligation to do so.
LIMITED ASSETS
Unless otherwise specified in the related Prospectus Supplement, a
series of Certificates will not have any claim against or security interest in
the Trust Funds for any other series. If the related Trust Fund is insufficient
to make payments on such Certificates, no other assets will be available for
payment of the deficiency. Additionally, certain amounts remaining in certain
funds or accounts, including the Certificate Account and any accounts maintained
as Credit Support, may be withdrawn under certain conditions, as described in
the related Prospectus Supplement. In the event of such withdrawal, such amounts
will not be available for future payment of principal of or interest on the
Certificates. If so provided in the Prospectus Supplement for a series of
Certificates consisting of one or more classes of Subordinate Certificates, on
any Distribution Date in respect of which losses or shortfalls in collections on
the Mortgage Assets have been incurred, the amount of such losses or shortfalls
will be borne first by one or more classes of the Subordinate Certificates, and,
thereafter, by the remaining classes of Certificates in the priority and manner
and subject to the limitations specified in such Prospectus Supplement.
AVERAGE LIFE OF CERTIFICATES; PREPAYMENTS; YIELDS
Prepayments on the Mortgage Loans in any Trust Fund generally will
result in a faster rate of principal payments on one or more classes of the
related Certificates than if payments on such Mortgage Loans were made as
scheduled. Thus, the prepayment experience on the Mortgage Loans may affect the
average life of each class of related Certificates. The rate of principal
payments on pools of mortgage loans varies between pools and from time to time
is influenced by a variety of economic, demographic, geographic, social, tax,
legal and other factors. There can be no assurance as to the rate of prepayment
on the Mortgage Loans in any Trust Fund or that the rate of payments will
conform to any model described herein or in any Prospectus Supplement. If
prevailing interest rates fall significantly below the applicable rates borne by
the Mortgage Loans included in a Trust Fund, principal prepayments are likely to
be higher than if prevailing rates remain at or above the rates borne by those
Mortgage Loans. As a result, the actual maturity of any class of Certificates
could occur significantly earlier than expected. A series of Certificates may
include one or more classes of Certificates with priorities of payment and, as a
result, yields on other classes of Certificates, including classes of Offered
Certificates, of such series may be more sensitive to prepayments on Mortgage
Loans. A series of Certificates may include one or more classes offered at a
significant premium or discount. Yields on such classes of Certificates will be
sensitive, and in some cases
14
<PAGE>
<PAGE>
extremely sensitive, to prepayments on Mortgage Loans and, where the amount of
interest payable with respect to a class is disproportionately high, as compared
to the amount of principal, as with certain classes of Stripped Interest
Certificates, a holder might, in some prepayment scenarios, fail to recoup its
original investment. A series of Certificates may include one or more classes of
Certificates, including classes of Offered Certificates, that provide for
distribution of principal thereof from amounts attributable to interest accrued
but not currently distributable on one or more classes of Accrual Certificates
and, as a result, yields on such Certificates will be sensitive to (a) the
provisions of such Accrual Certificates relating to the timing of distributions
of interest thereon and (b) if such Accrual Certificates accrue interest at a
variable or adjustable Pass-Through Rate, changes in such rate. See "Yield
Considerations" herein and, if applicable, in the related Prospectus Supplement.
LIMITED NATURE OF RATINGS
Any rating assigned by a Rating Agency to a class of Certificates will
reflect such Rating Agency's assessment solely of the likelihood that holders of
Certificates of such class will receive payments to which such
Certificateholders are entitled under the related Agreement. Such rating will
not constitute an assessment of the likelihood that principal prepayments on the
related Mortgage Loans will be made, the degree to which the rate of such
prepayments might differ from that originally anticipated or the likelihood of
early optional termination of the series of Certificates. Such rating will not
address the possibility that prepayment at higher or lower rates than
anticipated by an investor may cause such investor to experience a lower than
anticipated yield or that an investor purchasing a Certificate at a significant
premium or a Stripped Interest Certificate might fail to recoup its initial
investment under certain prepayment scenarios. Each Prospectus Supplement will
identify any payment to which holders of Offered Certificates of the related
series are entitled that is not covered by the applicable rating.
The amount, type and nature of credit support, if any, established with
respect to a series of Certificates will be determined on the basis of criteria
established by each Rating Agency rating classes of the Certificates of such
series. Such criteria are sometimes based upon an actuarial analysis of the
behavior of mortgage loans in a larger group. Such analysis is often the basis
upon which each Rating Agency determines the amount of credit support required
with respect to each such class. There can be no assurance that the historical
data supporting any such actuarial analysis will accurately reflect future
experience nor any assurance that the data derived from a large pool of mortgage
loans accurately predicts the delinquency, foreclosure or loss experience of any
particular pool of Mortgage Loans. No assurance can be given that values of any
Mortgaged Properties have remained or will remain at their levels on the
respective dates of origination of the related Mortgage Loans. Moreover, there
is no assurance that appreciation of real estate values generally will limit
loss experiences on Commercial Properties or Multifamily Properties. If the
commercial or multifamily residential real estate markets should experience an
overall decline in property values such that the outstanding principal balances
of the Mortgage Loans in a particular Trust Fund and any secondary financing on
the related Mortgaged Properties become equal to or greater than the value of
the Mortgaged Properties, the rates of delinquencies, foreclosures and losses
could be higher than those now generally experienced by institutional lenders.
In addition, adverse economic conditions (which may or may not affect real
property values) may affect the timely payment by mortgagors of scheduled
payments of principal and interest on the Mortgage Loans and, accordingly, the
rates of delinquencies, foreclosures and losses with respect to any Trust Fund.
To the extent that such losses are not covered by Credit Support, such losses
will be borne, at least in part, by the holders of one or more classes of the
Certificates of the related series. See "Description of Credit Support" and
"Rating".
RISKS ASSOCIATED WITH CERTAIN MORTGAGE LOANS AND MORTGAGED PROPERTIES
Mortgage loans made with respect to multifamily or commercial property
may entail risks of delinquency and foreclosure, and risks of loss in the event
thereof, that are greater than similar risks associated with single-family
property. See "Description of the Trust Funds--Mortgage Loans". The ability of a
mortgagor to repay a loan secured by an income-producing property typically is
dependent primarily upon the successful operation of such property rather than
any independent income or assets of the mortgagor; thus, the value of an
income-producing property is directly related to the net operating income
derived from such property. In contrast, the ability of a mortgagor to repay a
single-family loan typically is dependent primarily upon the mortgagor's
household income, rather than the capacity of the property to produce income;
thus, other than in geographical areas where employment is dependent upon a
particular employer or an industry, the mortgagor's income tends not to reflect
directly the value of such property. A
15
<PAGE>
<PAGE>
decline in the net operating income of an income-producing property will likely
affect both the performance of the related loan as well as the liquidation value
of such property, whereas a decline in the income of a mortgagor on a
single-family property will likely affect the performance of the related loan
but may not affect the liquidation value of such property.
The performance of a mortgage loan secured by an income-producing
property leased by the mortgagor to tenants as well as the liquidation value of
such property may be dependent upon the business operated by such tenants in
connection with such property, the creditworthiness of such tenants or both; the
risks associated with such loans may be offset by the number of tenants or, if
applicable, a diversity of types of business operated by such tenants. A number
of the Mortgage Loans may be secured by liens on owner-occupied Mortgaged
Properties or on Mortgaged Properties leased to a single tenant. Accordingly, a
decline in the financial condition of the borrower or single tenant, as
applicable, may have a disproportionately greater effect on the net operating
income from such Mortgaged Properties than would be the case with respect to
Mortgaged Properties with multiple tenants. Furthermore, the value of any
Mortgaged Property may be adversely affected by risks generally incident to
interests in real property, including changes in general or local economic
conditions and/or specific industry segments; declines in real estate values;
declines in rental or occupancy rates; increases in interest rates, real estate
tax rates and other operating expenses; changes in governmental rules,
regulations and fiscal policies, including environmental legislation; acts of
God; and other factors beyond the control of the Master Servicer.
In addition, additional risk may be presented by the type and use of a
particular Mortgaged Property. For instance, Mortgaged Properties that operate
as hospitals and nursing homes may present special risks to lenders due to the
significant governmental regulation of the ownership, operation, maintenance and
financing of health care institutions. Hotel and motel properties are often
operated pursuant to franchise, management or operating agreements which may be
terminable by the franchisor or operator. Moreover, the transferability of a
hotel's operating, liquor and other licenses upon a transfer of the hotel,
whether through purchase or foreclosure, is subject to local law requirements.
It is anticipated that a substantial portion of the Mortgage Loans
included in any Trust Fund will be nonrecourse loans or loans for which recourse
may be restricted or unenforceable, as to which, in the event of mortgagor
default, recourse may be had only against the specific multifamily or commercial
property and such other assets, if any, as have been pledged to secure the
Mortgage Loan. With respect to those Mortgage Loans that provide for recourse
against the mortgagor and its assets generally, there can be no assurance that
such recourse will ensure a recovery in respect of a defaulted Mortgage Loan
greater than the liquidation value of the related Mortgaged Property.
Further, the concentration of default, foreclosure and loss risks in
individual mortgagors or Mortgage Loans in a particular Trust Fund or the
related Mortgaged Properties will generally be greater than for pools of
single-family loans both because the Mortgage Loans in a Trust Fund will
generally consist of a smaller number of loans than would a single-family pool
of comparable aggregate unpaid principal balance and because of the higher
principal balance of individual Mortgage Loans. The Trust Fund may consist of a
single Mortgage Loan.
If applicable, certain legal aspects of the Mortgage Loans for a series
of Certificates may be described in the related Prospectus Supplement. See also
"Certain Legal Aspects of Mortgage Loans" herein.
DELINQUENT AND NON-PERFORMING MORTGAGE LOANS
If so provided in the related Prospectus Supplement, the Trust Fund for
a particular series of Certificates may include Mortgage Loans that are past due
or are non-performing. If so specified in the related Prospectus Supplement, the
servicing of such Mortgage Loans will be performed by a Special Servicer. Credit
Support provided with respect to a particular series of Certificates may not
cover all losses related to such delinquent or non-performing Mortgage Loans,
and investors should consider the risk that the inclusion of such Mortgage Loans
in the Trust Fund may adversely affect the rate of defaults and prepayments on
Mortgage Assets and the yield on the Certificates of such series. See
"Description of the Trust Funds--Mortgage Loans--General".
16
<PAGE>
<PAGE>
JUNIOR MORTGAGE LOANS
Certain of the Mortgage Loans may be junior mortgage loans. The primary
risk to holders of Mortgage Loans secured by junior liens is the possibility
that adequate funds will not be received in connection with a foreclosure of a
related senior lien to satisfy the junior Mortgage Loan after satisfaction of
all related senior liens. See "Certain Legal Aspects of Mortgage
Loans--Foreclosure".
BALLOON PAYMENTS
Certain of the Mortgage Loans as of the Cut-off Date may not be fully
amortizing over their terms to maturity and, thus, will require substantial
principal payments (i.e., balloon payments) at their stated maturity. Mortgage
Loans with balloon payments involve a greater degree of risk because the ability
of a mortgagor to make a balloon payment typically will depend upon its ability
either to timely refinance the loan or to timely sell the related Mortgaged
Property. The ability of a mortgagor to accomplish either of these goals will be
affected by a number of factors, including the level of available mortgage rates
at the time of sale or refinancing, the mortgagor's equity in the related
Mortgaged Property, the financial condition and operating history of the
mortgagor and the related Mortgaged Property, tax laws, rent control laws (with
respect to certain Multifamily Properties and mobile home parks), reimbursement
rates (with respect to certain hospitals, nursing homes and convalescent homes),
renewability of operating licenses, prevailing general economic conditions and
the availability of credit for commercial or multifamily, as the case may be,
real properties generally.
OBLIGOR DEFAULT
If so specified in the related Prospectus Supplement, in order to
maximize recoveries on defaulted Mortgage Loans, a Master Servicer will be
permitted (within prescribed parameters) to extend and modify Mortgage Loans
that are in default or as to which a payment default is imminent, including in
particular with respect to balloon payments. In addition, a Master Servicer or a
Special Servicer may receive workout fees, management fees, liquidation fees or
other similar fees based on receipts from or proceeds of such Mortgage Loans.
While a Master Servicer generally will be required to determine that any such
extension or modification is reasonably likely to produce a greater recovery on
a present value basis than liquidation, there can be no assurance that such
flexibility with respect to extensions or modifications or payment of a workout
fee will increase the present value of receipts from or proceeds of Mortgage
Loans that are in default or as to which a payment default is imminent. The
recent foreclosure and delinquency experience with respect to loans serviced by
a Master Servicer or, if applicable, any Special Servicer or significant
Sub-Servicer will be provided in the related Prospectus Supplement.
MORTGAGOR TYPE
Mortgage Loans made to partnerships, corporations or other entities may
entail risks of loss from delinquency and foreclosure that are greater than
those of Mortgage Loans made to individuals. The Mortgagor's sophistication and
form of organization may increase the likelihood of protracted litigation or
bankruptcy in default situations.
CREDIT SUPPORT LIMITATIONS
The Prospectus Supplement for a series of Certificates will describe
any Credit Support in the related Trust Fund, which may include letters of
credit, insurance policies, surety bonds, guarantees, reserve funds or other
types of credit support, or combinations thereof. Use of Credit Support will be
subject to the conditions and limitations described herein and in the related
Prospectus Supplement. Moreover, such Credit Support may not cover all potential
losses or risks; for example, Credit Support may or may not cover fraud or
negligence by a mortgage loan originator or other parties.
A series of Certificates may include one or more classes of Subordinate
Certificates (which may include Offered Certificates), if so provided in the
related Prospectus Supplement. Although subordination is intended to reduce the
risk to holders of Senior Certificates of delinquent distributions or ultimate
losses, the amount of subordination will be limited and may decline under
certain circumstances. In addition, if principal payments on one or more classes
of Certificates of a series are made in a specified order of priority, any
limits with respect to the aggregate amount of claims under any related Credit
Support may be exhausted before the principal of the lower priority classes of
Certificates of such series has been repaid. As a result, the impact of
significant losses and shortfalls on the Mortgage Assets may fall primarily upon
those classes of Certificates having a lower priority of payment. Moreover, if a
form of Credit Support
17
<PAGE>
<PAGE>
covers more than one series of Certificates, holders of Certificates of one
series will be subject to the risk that such Credit Support will be exhausted by
the claims of the holders of Certificates of one or more other series.
The amount of any applicable Credit Support supporting one or more
classes of Offered Certificates, including the subordination of one or more
classes of Certificates, will be determined on the basis of criteria established
by each Rating Agency rating such classes of Certificates based on an assumed
level of defaults, delinquencies, other losses or other factors. There can,
however, be no assurance that the loss experience on the related Mortgage Assets
will not exceed such assumed levels. See "--Limited Nature of Ratings",
"Description of the Certificates" and "Description of Credit Support".
DUE-ON-SALE CLAUSES AND ASSIGNMENTS OF LEASES AND RENTS
Mortgages may contain a due-on-sale clause, which permits the lender to
accelerate the maturity of the Mortgage Loan if the mortgagor sells, transfers
or conveys the related Mortgaged Property or its interest in the Mortgaged
Property. Mortgages may also include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary or non-monetary default of the
mortgagor. Such clauses are generally enforceable subject to certain exceptions.
The courts of all states will enforce clauses providing for acceleration in the
event of a material payment default. The equity courts of any state, however,
may refuse the foreclosure of a mortgage or deed of trust when an acceleration
of the indebtedness would be inequitable or unjust or the circumstances would
render the acceleration unconscionable.
If so specified in the related Prospectus Supplement, the Mortgage
Loans will be secured by an assignment of leases and rents pursuant to which the
mortgagor typically assigns its right, title and interest as landlord under the
leases on the related Mortgaged Property and the income derived therefrom to the
lender as further security for the related Mortgage Loan, while retaining a
license to collect rents for so long as there is no default. In the event the
mortgagor defaults, the license terminates and the lender is entitled to collect
rents. Such assignments are typically not perfected as security interests prior
to actual possession of the cash flows. Some state laws may require that the
lender take possession of the Mortgaged Property and obtain a judicial
appointment of a receiver before becoming entitled to collect the rents. In
addition, if bankruptcy or similar proceedings are commenced by or in respect of
the mortgagor, the lender's ability to collect the rents may be adversely
affected. See "Certain Legal Aspects of Mortgage Loans--Leases and Rents".
ENVIRONMENTAL RISKS
Real property pledged as security for a mortgage loan may be subject to
certain environmental risks. Under the laws of certain states, contamination of
a property may give rise to a lien on the property to assure the costs of
cleanup. In several states, such a lien has priority over the lien of an
existing mortgage against such property. In addition, under the laws of some
states and under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA"), a lender may be liable, as an "owner" or
"operator", for costs of addressing releases or threatened releases of hazardous
substances that require remedy at a property, if agents or employees of the
lender have become sufficiently involved in the operations of the mortgagor,
regardless of whether or not the environmental damage or threat was caused by a
prior owner. A lender also risks such liability on foreclosure of the mortgage.
Unless otherwise specified in the related Prospectus Supplement, each Agreement
will provide that the Master Servicer, acting on behalf of the Trust Fund, may
not acquire title to a Mortgaged Property securing a Mortgage Loan or take over
its operation unless the Master Servicer has previously determined, based upon a
report prepared by a person who regularly conducts environmental audits, that:
(i) the Mortgaged Property is in compliance with applicable environmental laws,
and there are no circumstances present at the Mortgaged Property relating to the
use, management or disposal of any hazardous substances, hazardous materials,
wastes, or petroleum based materials for which investigation, testing,
monitoring, containment, clean-up or remediation could be required under any
federal, state or local law or regulation; or (ii) if the Mortgaged Property is
not so in compliance or such circumstances are so present, then it would be in
the best economic interest of the Trust Fund to acquire title to the Mortgaged
Property and further to take such actions as would be necessary and appropriate
to effect such compliance and/or respond to such circumstances. See "Certain
Legal Aspects of Mortgage Loans--Environmental Legislation".
18
<PAGE>
<PAGE>
ERISA CONSIDERATIONS
Generally, ERISA applies to investments made by employee benefit plans
and transactions involving the assets of such plans. Due to the complexity of
regulations which govern such plans, prospective investors that are subject to
ERISA are urged to consult their own counsel regarding consequences under ERISA
of acquisition, ownership and disposition of the Offered Certificates of any
series. See "ERISA Considerations".
CERTAIN FEDERAL TAX CONSIDERATIONS REGARDING REMIC RESIDUAL CERTIFICATES
Holders of REMIC Residual Certificates will be required to report on
their federal income tax returns as ordinary income their pro rata share of the
taxable income of the REMIC, regardless of the amount or timing of their receipt
of cash payments, as described in "Certain Federal Income Tax
Consequences--REMICs". Accordingly, under certain circumstances, holders of
Offered Certificates that constitute REMIC Residual Certificates may have
taxable income and tax liabilities arising from such investment during a taxable
year in excess of the cash received during such period. The requirement that
holders of REMIC Residual Certificates report their pro rata share of the
taxable income and net loss of the REMIC will continue until the Certificate
Balances of all classes of Certificates of the related series have been reduced
to zero, even though holders of REMIC Residual Certificates have received full
payment of their stated interest and principal. A portion (or, in certain
circumstances, all) of such Certificateholder's share of the REMIC taxable
income may be treated as "excess inclusion" income to such holder which (i)
generally, will not be subject to offset by losses from other activities, (ii)
for a tax-exempt holder, will be treated as unrelated business taxable income
and (iii) for a foreign holder, will not qualify for exemption from withholding
tax. Individual holders of REMIC Residual Certificates may be limited in their
ability to deduct servicing fees and other expenses of the REMIC. In addition,
REMIC Residual Certificates are subject to certain restrictions on transfer.
Because of the special tax treatment of REMIC Residual Certificates, the taxable
income arising in a given year on a REMIC Residual Certificate 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 REMIC Residual Certificate may be
significantly less than that of a corporate bond or stripped instrument having
similar cash flow characteristics.
CONTROL
Under certain circumstances, the consent or approval of the holders of
a specified percentage of the aggregate Certificate Balance of all outstanding
Certificates of a series or a similar means of allocating decision-making under
the related Agreement ("Voting Rights") will be required to direct, and will be
sufficient to bind all Certificateholders of such series to, certain actions,
including amending the related Agreement in certain circumstances. See
"Description of the Agreements--Events of Default", "--Rights Upon Event of
Default", "--Amendment" and "--List of Certificateholders".
BOOK-ENTRY REGISTRATION
If so provided in the Prospectus Supplement, one or more classes of the
Certificates will be initially represented by one or more certificates
registered in the name of the nominee for DTC, and will not be registered in the
names of the Certificateholders or their nominees. Because of this, unless and
until Definitive Certificates are issued, beneficial owners of the Certificates
of such class or classes will not be recognized by the Trustee as
"Certificateholders" (as that term is to be used in the related Agreement).
Hence, until such time, the beneficial owners will be able to exercise the
rights of Certificateholders only indirectly through DTC and its participating
organizations. See "Description of the Certificates--Book-Entry Registration and
Definitive Certificates".
19
<PAGE>
<PAGE>
DESCRIPTION OF THE TRUST FUNDS
MORTGAGE ASSETS
The primary assets of each Trust Fund (the "Mortgage Assets") will
include (i) one or more various types of multifamily and/or commercial mortgage
loans (the "Mortgage Loans"), (ii) mortgage participation certificates,
pass-through certificates or other mortgage-backed securities ("MBS") evidencing
interests in, or secured by pledges of one or more of various types of
multifamily and/or commercial mortgage loans, (iii) participation certificates,
pass-through certificates or other securities evidencing interests in, or
secured by pledges of one or more MBS ("Tiered MBS") or (iv) a combination of
Mortgage Loans, MBS or Tiered MBS. As used herein, "Mortgage Loans" refers to
both whole Mortgage Loans and Mortgage Loans underlying MBS or Tiered MBS.
Mortgage Loans that secure, or interests in which are evidenced by, MBS are
herein sometimes referred to as Underlying Mortgage Loans. Mortgage Loans that
are not Underlying Mortgage Loans are sometimes referred to as Whole Loans. The
Mortgage Assets will not be guaranteed or insured by Salomon Brothers Mortgage
Securities VII, Inc (the "Depositor") or any of its affiliates or, unless
otherwise provided in the Prospectus Supplement, by any governmental agency or
instrumentality or by any other person. Each Mortgage Asset will be selected by
the Depositor for inclusion in a Trust Fund from among those (i) originated by
the Depositor or (ii) purchased, either directly or indirectly, from a prior
holder thereof (a "Mortgage Asset Seller"), which prior holder may or may not be
the originator of such Mortgage Loan or the issuer of such MBS or Tiered MBS and
may be an affiliate of the Depositor.
MORTGAGE LOANS
General
The Mortgage Loans will be evidenced by promissory notes (the "Mortgage
Notes") secured by mortgages, deeds of trust or similar security instruments
(the "Mortgages") creating a lien on the properties (the "Mortgaged Properties")
consisting of (i) residential properties consisting of three or more rental or
cooperatively-owned dwelling units in high-rise, mid-rise or garden apartment
buildings or other residential structures ("Multifamily Properties" and the
related loans, "Multifamily Loans") or (ii) office buildings, retail stores,
hotels or motels, nursing homes, hospitals or other health care-related
facilities, mobile home parks, warehouse facilities, mini-warehouse facilities
or self-storage facilities, industrial plants, mixed use or other types of
commercial properties or unimproved land ("Commercial Properties" and the
related loans, "Commercial Loans") located, unless otherwise specified in the
related Prospectus Supplement, in any one of the fifty states or the District of
Columbia. Unless otherwise specified in the related Prospectus Supplement, each
of the Mortgage Loans will be secured by a first mortgage or deed of trust or
other similar security instrument creating a first lien on a Mortgaged Property.
Multifamily Property may include mixed commercial and residential structures and
may include apartment buildings owned by private cooperative housing
corporations ("Cooperatives"). The Mortgaged Properties may include leasehold
interests in properties, the title to which is held by third party lessors;
however, unless otherwise specified in the related Prospectus Supplement, the
term of any such leasehold will exceed the term of the mortgage note by at least
two years. Each Mortgage Loan will have been originated by a person (the
"Originator") other than the Depositor. Mortgage Loans will generally also be
secured by an assignment of leases and rents and/or operating or other cash flow
guarantees relating to the Mortgage Loan.
If so specified in the related Prospectus Supplement, Mortgage Assets
for a series of Certificates may include Mortgage Loans made on the security of
real estate projects under construction. In that case, the related Prospectus
Supplement will describe the procedures and timing for making disbursements from
construction reserve funds as portions of the related real estate project are
completed. In addition, the Mortgage Assets for a particular series of
Certificates may include Mortgage Loans that are delinquent or non-performing as
of the date such Certificates are issued. In that case, the related Prospectus
Supplement will set forth, as to each such Mortgage Loan, available information
as to the period of such delinquency or non-performance, any forbearance
arrangement then in effect, the condition of the related Mortgaged Property and
the ability of the Mortgaged Property to generate income to service the mortgage
debt.
Default and Loss Considerations with Respect to the Mortgage Loans
Mortgage loans secured by commercial and multifamily properties are
markedly different from owner-occupied single-family home mortgage loans. The
repayment of loans secured by commercial or multifamily properties is typically
dependent upon the successful operation of such property rather than upon the
liquidation value of the real estate. Unless otherwise specified in the
Prospectus Supplement, the
20
<PAGE>
<PAGE>
Mortgage Loans will be non-recourse loans, which means that, absent special
facts, the mortgagee may look only to the Net Operating Income from the property
for repayment of the mortgage debt, and not to any other of the mortgagor's
assets, in the event of the mortgagor's default. Lenders typically look to the
Debt Service Coverage Ratio of a loan secured by income-producing property as an
important measure of the risk of default on such a loan. The "Debt Service
Coverage Ratio" of a Mortgage Loan at any given time is the ratio of the Net
Operating Income for a twelve-month period to the annualized scheduled payments
on the Mortgage Loan. "Net Operating Income" means, for any given period, unless
otherwise specified in the related Prospectus Supplement, the total operating
revenues derived from a Mortgaged Property during such period, minus the total
operating expenses incurred in respect of such Mortgaged Property during such
period other than (i) non-cash items such as depreciation and amortization, (ii)
capital expenditures and (iii) debt service on loans secured by the Mortgaged
Property. The Net Operating Income of a Mortgaged Property will fluctuate over
time and may be sufficient or insufficient to cover debt service on the related
Mortgage Loan at any given time.
As the primary component of Net Operating Income, rental income (and
maintenance payments from tenant-stockholders of a Cooperative) is subject to
the vagaries of the applicable real estate market and/or business climate.
Properties typically leased, occupied or used on a short-term basis, such as
health care-related facilities, hotels and motels, and mini-warehouse and
self-storage facilities, tend to be affected more rapidly by changes in market
or business conditions than do properties leased, occupied or used for longer
periods, such as (typically) warehouses, retail stores, office buildings and
industrial plants. Commercial Loans may be secured by owner-occupied Mortgaged
Properties or Mortgaged Properties leased to a single tenant. Accordingly, a
decline in the financial condition of the mortgagor or single tenant, as
applicable, may have a disproportionately greater effect on the Net Operating
Income from such Mortgaged Properties than would be the case with respect to
Mortgaged Properties with multiple tenants.
Changes in the expense components of Net Operating Income due to the
general economic climate or economic conditions in a locality or industry
segment, such as increases in interest rates, real estate and personal property
tax rates and other operating expenses including energy costs; changes in
governmental rules, regulations and fiscal policies, including environmental
legislation; and acts of God may also affect the risk of default on the related
Mortgage Loan. As may be further described in the related Prospectus Supplement,
in some cases leases of Mortgaged Properties may provide that the lessee, rather
than the mortgagor, is responsible for payment of certain of these expenses
("Net Leases"); however, because leases are subject to default risks as well
when a tenant's income is insufficient to cover its rent and operating expenses,
the existence of such "net of expense" provisions will only temper, not
eliminate, the impact of expense increases on the performance of the related
Mortgage Loan.
While the duration of leases and the existence of any "net of expense"
provisions are often viewed as the primary considerations in evaluating the
credit risk of mortgage loans secured by certain income-producing properties,
such risk may be affected equally or to a greater extent by changes in
government regulation of the operator of the property. Examples of the latter
include mortgage loans secured by health care-related facilities and hospitals,
the income from which and the operating expenses of which are subject to state
and/or federal regulations, such as Medicare and Medicaid, and multifamily
properties and mobile home parks, which may be subject to state or local rent
control regulation and, in certain cases, restrictions on changes in use of the
property. Low- and moderate-income housing may be particularly subject to legal
limitations and regulations but, because of such regulations, may also be less
sensitive to fluctuations in market rents generally.
The liquidation value of any Mortgaged Property may be adversely
affected by risks generally incident to interests in real property, including
declines in rental or occupancy rates. Lenders generally use the Loan-to-Value
Ratio of a mortgage loan as a measure of risk of loss if a property must be
liquidated upon a default by the mortgagor. The "Loan-to-Value Ratio" of a
Mortgage Loan at any given time is the ratio (expressed as a percentage) of the
then outstanding principal balance of the Mortgage Loan to the Value of the
related Mortgaged Property. The "Value" of a Mortgaged Property, other than with
respect to Refinance Loans, is generally the lesser of (a) the appraised value
determined in an appraisal obtained by the originator at origination of such
loan and (b) the sales price for such property. Refinance Loans are loans made
to refinance existing loans. The Value of the Mortgaged Property securing a
Refinance Loan is the appraised value thereof determined in an appraisal
obtained at the time of origination of the Refinance Loan. The Value of a
Mortgaged Property as of the date of initial issuance of the related series
21
<PAGE>
<PAGE>
of Certificates may be less than the value at origination and will fluctuate
from time to time based upon changes in economic conditions and the real estate
market.
Appraised values of income-producing properties may be based on the
market comparison method (recent resale value of comparable properties at the
date of the appraisal), the cost replacement method (the cost of replacing the
property at such date), the income capitalization method (a projection of value
based upon the property's projected net cash flow), or upon a selection from or
interpolation of the values derived from such methods. Each of these appraisal
methods presents analytical challenges. It is often difficult to find truly
comparable properties that have recently been sold; the replacement cost of a
property may have little to do with its current market value; and income
capitalization is inherently based on inexact projections of income and expense
and the selection of an appropriate capitalization rate. Where more than one of
these appraisal methods are used and create significantly different results, or
where a high Loan-to-Value Ratio accompanies a high Debt Service Coverage Ratio
(or vice versa), the analysis of default and loss risks is even more difficult.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish the Mortgage Loans from
single-family mortgage loans and provide insight to the risks associated with
income-producing real estate, there is no assurance that such factors will in
fact have been considered by the Originators of the Mortgage Loans, or that, for
a particular Mortgage Loan, they are complete or relevant. See "Risk
Factors--Risks Associated with Certain Mortgage Loans and Mortgaged Properties",
"--Balloon Payments", "--Mortgagor Default" and "--Mortgagor Type".
Mortgage Loan Information in Prospectus Supplements
Each Prospectus Supplement will contain information, as of the date of
such Prospectus Supplement and to the extent then applicable and specifically
known to the Depositor, with respect to the Mortgage Loans constituting related
Trust Assets, including (i) the aggregate outstanding principal balance and the
largest, smallest and average outstanding principal balance of the Mortgage
Loans as of the applicable Cut-off Date, (ii) the type of property securing the
Mortgage Loans (e.g., Multifamily Property or Commercial Property and the type
of property in each such category), (iii) the original and remaining terms to
maturity of the Mortgage Loans, and the seasoning of the Mortgage Loans, (iv)
the earliest and latest origination date and maturity date and weighted average
original and remaining terms to maturity of the Mortgage Loans, (v) the
Loan-to-Value Ratios at origination of the Mortgage Loans, (vi) the Mortgage
Rates or range of Mortgage Rates and the weighted average Mortgage Rate borne by
the Mortgage Loans, (vii) the geographical distribution of the Mortgaged
Properties on a state-by-state basis, (viii) information with respect to the
prepayment provisions, if any, of the Mortgage Loans, (ix) the weighted average
Retained Interest, if any, (x) with respect to Mortgage Loans with adjustable
Mortgage Rates ("ARM Loans"), the adjustment dates, the highest, lowest and
weighted average margin, and the maximum Mortgage Rate variation at the time of
any adjustment and over the life of the ARM Loan, (xi) the Debt Service Coverage
Ratio either at origination or as of a more recent date (or both) and (xii)
information regarding the payment characteristics of the Mortgage Loans,
including without limitation balloon payment and other amortization provisions.
The related Prospectus Supplement will also contain certain information
available to the Depositor with respect to the provisions of leases and the
nature of tenants of the Mortgaged Properties and other information referred to
in a general manner under "Description of the Trust Funds--Mortgage
Loans--Default and Loss Considerations with Respect to the Mortgage Loans"
above. If specific information respecting the Mortgage Loans is not known to the
Depositor at the time Certificates are initially offered, more general
information of the nature described above will be provided in the Prospectus
Supplement, and specific information will be set forth in a report that will be
available to purchasers of the related Certificates at or before the initial
issuance thereof and will be filed as part of a Current Report on Form 8-K with
the Securities and Exchange Commission within fifteen days after such initial
issuance.
Payment Provisions of the Mortgage Loans
Unless otherwise specified in the related Prospectus Supplement, all of
the Mortgage Loans will (i) have individual principal balances at origination of
not less than $25,000, (ii) have original terms to maturity of not more than 40
years and (iii) provide for payments of principal, interest or both, on due
dates that occur monthly, quarterly or semi-annually. Each Mortgage Loan may
provide for no accrual of interest or for accrual of interest thereon at an
interest rate (a "Mortgage Rate") that is fixed over its term or that adjusts
from time to time, or that may be converted from an adjustable to a fixed
Mortgage Rate, or from
22
<PAGE>
<PAGE>
a fixed to an adjustable Mortgage Rate, from time to time at the mortgagor's
election, in each case as described in the related Prospectus Supplement. Each
Mortgage Loan may provide for scheduled payments to maturity or payments that
adjust from time to time to accommodate changes in the Mortgage Rate or to
reflect the occurrence of certain events, and may provide for negative
amortization or accelerated amortization, in each case as described in the
related Prospectus Supplement. Each Mortgage Loan may be fully amortizing or
require a balloon payment due on its stated maturity date, in each case as
described in the related Prospectus Supplement. Each Mortgage Loan may contain
prohibitions on prepayment (a "Lock-out Period" and the date of expiration
thereof, a "Lock-out Date") or require payment of a premium or a yield
maintenance penalty (a "Prepayment Premium") in connection with a prepayment, in
each case as described in the related Prospectus Supplement. In the event that
holders of any class or classes of Offered Certificates will be entitled to all
or a portion of any Prepayment Premiums collected in respect of Mortgage Loans,
the related Prospectus Supplement will specify the method or methods by which
any such amounts will be allocated. A Mortgage Loan may also contain provisions
entitling the mortgagee to a share of profits realized from the operation or
disposition of the Mortgaged Property ("Equity Participation"), as described in
the related Prospectus Supplement. In the event that holders of any class or
classes of Offered Certificates will be entitled to all or a portion of an
Equity Participation, the related Prospectus Supplement will specify the terms
and provisions of the Equity Participation and the method or methods by which
distributions in respect thereof will be allocated among such Certificates.
MBS AND TIERED MBS
MBS and Tiered MBS may include (i) private (that is, not guaranteed or
insured by the United States or any agency or instrumentality thereof)
participation certificates, pass-through certificates or other securities or
(ii) certificates insured or guaranteed by FHLMC, FNMA or GNMA, provided that
each MBS and Tiered MBS will evidence an interest directly or indirectly in, or
will be secured by a pledge of, mortgage loans that conform to the descriptions
of the Mortgage Loans contained herein.
Any MBS or Tiered MBS will have been issued pursuant to a participation
and servicing agreement, a pooling and servicing agreement, an indenture or
similar agreement (an "MBS Agreement"). A seller (the "MBS Issuer") and/or
servicer (the "MBS Servicer") of the underlying Mortgage Loans in the case of
MBS, or of the underlying MBS, in the case of Tiered MBS will have entered into
the MBS Agreement with a trustee or a custodian under the MBS Agreement (the
"MBS Trustee"), if any, or with the original purchaser of the interest in the
underlying Mortgage Loans evidenced by MBS in the case of MBS, or of the
interest in the underlying MBS evidenced by the Tiered MBS in the case of Tiered
MBS.
Distributions of principal and interest will be made on MBS and Tiered
MBS on the dates specified in the related Prospectus Supplement. MBS and Tiered
MBS may be issued in one or more classes with characteristics similar to the
classes of Certificates described in this Prospectus. Principal and interest
distributions will be made on MBS and Tiered MBS by the MBS Trustee or the MBS
Servicer. The MBS Issuer or the MBS Servicer or another person specified in the
related Prospectus Supplement may have the right or obligation to repurchase or
substitute assets underlying the MBS or Tiered MBS after a certain date or under
other circumstances specified in the related Prospectus Supplement.
Enhancement in the form of reserve funds, subordination or other credit
support similar to that described for the Certificates under "Description of
Credit Support" may be provided with respect to MBS and Tiered MBS. The type,
characteristics and amount of such credit support, if any, will be a function of
certain characteristics of the Mortgage Loans evidenced by or securing such MBS
in the case of MBS, and a function of such characteristics and the
characteristics of the related MBS evidenced by or securing such Tiered MBS, in
the case of Tiered MBS and other factors and generally will have been
established for MBS or Tiered MBS on the basis of requirements of either any
Rating Agency that may have assigned a rating to such MBS or Tiered MBS or the
initial purchasers of such MBS or Tiered MBS.
The Prospectus Supplement for a series of Certificates evidencing
interests in Mortgage Assets that include MBS or Tiered MBS will specify, to the
extent available, (i) the aggregate approximate initial and outstanding
principal amount and type of the MBS or Tiered MBS to be included in the Trust
Fund, (ii) the original and remaining term to stated maturity of the MBS or
Tiered MBS, if applicable, (iii) the pass-through or bond rate of the MBS or
Tiered MBS or formula for determining such rates, (iv) the applicable payment
provisions for the MBS or Tiered MBS, (v) the MBS Issuer, MBS Servicer and MBS
Trustee, as applicable, (vi) certain characteristics of the credit support, if
any, such as subordination,
23
<PAGE>
<PAGE>
reserve funds, insurance policies, letters of credit or guarantees relating to
the related Underlying Mortgage Loans or directly to such MBS or Tiered MBS,
(vii) the terms on which the related Underlying Mortgage Loans for such MBS, or
the MBS or Tiered MBS may, or are required to, be purchased prior to their
maturity, (viii) the terms on which Mortgage Loans may be substituted for those
originally underlying the MBS or Tiered MBS, (ix) the servicing fees payable
under the MBS Agreement, (x) to the extent available to the Depositor, the type
of information in respect of the Underlying Mortgage Loans described under
"Description of the Trust Funds--Mortgage Loans--Mortgage Loan Information in
Prospectus Supplements" and (xi) the characteristics of any cash flow agreements
that are included as part of the trust fund evidenced or secured by the MBS or
Tiered MBS.
CERTIFICATE ACCOUNTS
Each Trust Fund will include one or more accounts (collectively, the
"Certificate Account") established and maintained on behalf of the
Certificateholders into which the person or persons designated in the related
Prospectus Supplement will, to the extent described herein and in such
Prospectus Supplement deposit all payments and collections received or advanced
with respect to the Mortgage Assets and other assets in the Trust Fund. A
Certificate Account may be maintained as an interest bearing or a non-interest
bearing account, and funds held therein may be held as cash or invested in
certain short-term, investment grade obligations, in each case as described in
the related Prospectus Supplement.
CREDIT SUPPORT
If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Mortgage Assets in the
related Trust Fund may be provided to one or more classes of Certificates in the
related series in the form of subordination of one or more other classes of
Certificates in such series or by one or more other types of credit support,
such as a letter of credit, insurance policy, guarantee, reserve fund or another
type of credit support, or a combination thereof (any such coverage with respect
to the Certificates of any series, "Credit Support"). The amount and types of
coverage, the identification of the entity providing the coverage (if
applicable) and related information with respect to each type of Credit Support,
if any, will be described in the Prospectus Supplement for a series of
Certificates. See "Risk Factors--Credit Support Limitations" and "Description of
Credit Support".
CASH FLOW AGREEMENTS
If so provided in the related Prospectus Supplement, the Trust Fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related series will be invested at a
specified rate. The Trust Fund may also include certain other agreements, such
as interest rate exchange agreements, interest rate cap or floor agreements,
currency exchange agreements or similar agreements provided to reduce the
effects of interest rate or currency exchange rate fluctuations on the Mortgage
Assets on one or more classes of Certificates. The principal terms of any such
guaranteed investment contract or other agreement (any such agreement, a "Cash
Flow Agreement"), including, without limitation, provisions relating to the
timing, manner and amount of payments thereunder and provisions relating to the
termination thereof, will be described in the Prospectus Supplement for the
related series. In addition, the related Prospectus Supplement will provide
certain information with respect to the obligor under any such Cash Flow
Agreement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will
be applied by the Depositor to the purchase of Trust Assets or will be used by
the Depositor for general corporate purposes. The Depositor expects to sell the
Certificates from time to time, but the timing and amount of offerings of
Certificates will depend on a number of factors, including the volume of
Mortgage Assets acquired by the Depositor, prevailing interest rates,
availability of funds and general market conditions.
YIELD CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on the price paid by
the Certificateholder, the Pass-Through Rate of the Certificate, the receipt and
timing of receipt of distributions on the Certificate and the weighted average
life of the Mortgage Assets in the related Trust Fund. See "Risk
Factors--Average Life of Certificates; Prepayments; Yields". The following
discussion contemplates a Trust Fund that consists
24
<PAGE>
<PAGE>
solely of Mortgage Loans. While the characteristics and behavior of mortgage
loans underlying MBS and Tiered MBS can generally be expected to have the same
effect on the yield to maturity and/or weighted average life of a Class of
Certificates as will the characteristics and behavior of comparable Mortgage
Loans, the effect may differ due to the payment characteristics of the MBS and
Tiered MBS. If a Trust Fund includes MBS or Tiered MBS, the related Prospectus
Supplement will discuss the effect that the MBS or Tiered MBS payment
characteristics may have on the yield and weighted average lives of the
Certificates offered thereby.
PASS-THROUGH RATE
Certificates of any class within a series may have fixed, variable or
adjustable Pass-Through Rates, which may or may not be based upon the interest
rates borne by the Mortgage Loans in the related Trust Fund. The Prospectus
Supplement with respect to any series of Certificates will specify the
Pass-Through Rate for each class of such Certificates or, in the case of a
variable or adjustable Pass-Through Rate, the method of determining the
Pass-Through Rate; the effect, if any, of the prepayment of any Mortgage Loans
on the Pass-Through Rate of one or more classes of Certificates; and whether the
distributions of interest on the Certificates of any class will be dependent, in
whole or in part, on the performance of any obligor under a Cash Flow Agreement.
TIMING OF PAYMENT OF INTEREST AND PRINCIPAL
Each payment of interest on the Certificates (or addition to the
Certificate Balance of a class of Accrual Certificates) on a Distribution Date
will include interest accrued during the Interest Accrual Period for such
Distribution Date. If the Interest Accrual Period ends on a date other than a
Distribution Date for the related series, the yield realized by the holders of
such Certificates may be lower than the yield that would result if the Interest
Accrual Period ended on such Distribution Date. In addition, if so specified in
the related Prospectus Supplement, interest accrued for an Interest Accrual
Period for one or more classes of Certificates may be calculated on the
assumption that distributions of principal (and additions to the Certificate
Balance of Accrual Certificates) and allocations of losses on the Mortgage
Assets may be made on the first day of the Interest Accrual Period for a
Distribution Date and not on such Distribution Date. Such method would produce a
lower effective yield than if interest were calculated on the basis of the
actual principal amount outstanding during an Interest Accrual Period. The
Interest Accrual Period for any class of Offered Certificates will be described
in the related Prospectus Supplement.
PRINCIPAL PREPAYMENTS
The yield to maturity on the Certificates will be affected by the rate
of principal payments on the Mortgage Loans (including principal prepayments on
Mortgage Loans resulting from both voluntary prepayments by the mortgagors and
involuntary liquidations). The rate at which principal prepayments occur on the
Mortgage Loans will be affected by a variety of factors, including, without
limitation, the terms of the Mortgage Loans, the level of prevailing interest
rates, the availability of mortgage credit and economic, demographic,
geographic, tax, legal and other factors. In general, however, if prevailing
interest rates fall significantly below the Mortgage Rates on the Mortgage Loans
in a particular Trust Fund, such Mortgage Loans are likely to be the subject of
higher principal prepayments than if prevailing rates remain at or above the
rates borne by such Mortgage Loans. In this regard, it should be noted that
certain Mortgage Assets may consist of Mortgage Loans with different Mortgage
Rates and the stated pass-through or pay-through interest rate of certain MBS or
Tiered MBS may be a number of percentage points higher or lower than certain of
the Underlying Mortgage Loans or underlying MBS in the case of Tiered MBS. The
rate of principal payments on some or all of the classes of Certificates of a
series will correspond to the rate of principal payments on the Mortgage Loans
in the related Trust Fund and is likely to be affected by the existence of
Lock-out Periods and Prepayment Premium provisions of the Mortgage Loans, and by
the extent to which the servicer of any such Mortgage Loan is able to enforce
such provisions. Mortgage Loans with a Lock-out Period or a Prepayment Premium
provision, to the extent enforceable, generally would be expected to experience
a lower rate of principal prepayments than otherwise identical Mortgage Loans
without such provisions, with shorter Lock-out Periods or with lower Prepayment
Premiums.
If the purchaser of a Certificate offered at a discount calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the Mortgage Loans,
the actual yield to maturity will be lower than that so calculated. Conversely,
if the purchaser of a Certificate offered at a premium calculates its
anticipated yield to maturity based on an
25
<PAGE>
<PAGE>
assumed rate of distributions of principal that is slower than that actually
experienced on the Mortgage Assets, the actual yield to maturity will be lower
than that so calculated. In either case, if so provided in the Prospectus
Supplement for a series of Certificates, the effect on yield on one or more
classes of the Certificates of such series of prepayments of the Mortgage Loans
in the related Trust Fund may be mitigated or exacerbated by any provisions for
sequential or selective distribution of principal to such classes.
The timing of changes in the rate of principal payments on the Mortgage
Loans may significantly affect an investor's actual yield to maturity, even if
the average rate of distributions of principal is consistent with an investor's
expectation. In general, the earlier a principal payment is received on the
Mortgage Loans and distributed on a Certificate, the greater the effect on such
investor's yield to maturity. The effect on an investor's yield of principal
payments occurring at a rate higher (or lower) than the rate anticipated by the
investor during a given period may not be offset by a subsequent like decrease
(or increase) in the rate of principal payments.
PREPAYMENTS--MATURITY AND WEIGHTED AVERAGE LIFE
The rates at which principal payments are received on the Mortgage
Loans and the rate at which payments are made from any Credit Support or Cash
Flow Agreement for the related series of Certificates may affect the ultimate
maturity and the weighted average life of each class of such series. Prepayments
on the Mortgage Loans comprising or underlying the Mortgage Assets in a
particular Trust Fund will generally accelerate the rate at which principal is
paid on some or all of the classes of the Certificates of the related series.
If so provided in the Prospectus Supplement for a series of
Certificates, one or more classes of Certificates may have a final scheduled
Distribution Date, which is the date on or prior to which the Certificate
Balance thereof is scheduled to be reduced to zero, calculated on the basis of
the assumptions applicable to such series set forth therein.
Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of a
class of Certificates of a series will be influenced by the rate at which
principal on the Mortgage Loans is paid to such class, which may be in the form
of scheduled amortization or prepayments (for this purpose, the term
"prepayment" includes prepayments, in whole or in part, and liquidations due to
default). Prepayments on loans are also commonly measured relative to a
prepayment standard or model, such as the Constant Prepayment Rate ("CPR")
prepayment model or the Standard Prepayment Assumption ("SPA") prepayment model,
each as described below. CPR represents a constant assumed rate of prepayment
each month relative to the then outstanding principal balance of a pool of loans
for the life of such loans. SPA represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of loans. A
prepayment assumption of 100% of SPA assumes prepayment rates of 0.2% per annum
of the then outstanding principal balance of such loans in the first month of
the life of the loans and an additional 0.2% per annum in each month thereafter
until the thirtieth month. Beginning in the thirtieth month and in each month
thereafter during the life of the loans, 100% of SPA assumes a constant
prepayment rate of 6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption
purports to be a historical description of prepayment experience or a prediction
of the anticipated rate of prepayment of any pool of loans, including the
Mortgage Loans underlying or comprising the Mortgage Assets. Moreover, CPR and
SPA were developed based upon historical prepayment experience for single-family
loans. Thus, it is likely that prepayment of any Mortgage Loans comprising or
underlying the Mortgage Assets for any series will not conform to any particular
level of CPR or SPA.
The Depositor is not aware of any meaningful publicly available
prepayment statistics for multifamily or commercial mortgage loans.
The Prospectus Supplement with respect to each series of Certificates
will contain tables, if applicable, setting forth the projected weighted average
life of each class of Offered Certificates of such series and the percentage of
the initial Certificate Balance of each such class that would be outstanding on
specified Distribution Dates based on the assumptions stated in such Prospectus
Supplement, including assumptions that prepayments on the Mortgage Loans
comprising or underlying the related Mortgage Assets are made at rates
corresponding to various percentages of CPR, SPA or at such other rates
26
<PAGE>
<PAGE>
specified in such Prospectus Supplement. Such tables and assumptions are
intended to illustrate the sensitivity of weighted average life of the
Certificates to various prepayment rates and will not be intended to predict or
to provide information that will enable investors to predict the actual weighted
average life of the Certificates. It is unlikely that prepayment of any Mortgage
Loans comprising or underlying the Mortgage Assets for any series will conform
to any particular level of CPR, SPA or any other rate specified in the related
Prospectus Supplement.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
Type of Mortgage Loan
Certain Mortgage Loans may have balloon payments due at maturity, and
because the ability of a mortgagor to make a balloon payment typically will
depend upon its ability either to refinance the loan or to sell the related
Mortgaged Property, there is a risk that a Mortgage Loan having a balloon
payment provision may default at maturity, or that the servicer may extend the
maturity of such a Mortgage Loan in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things, bankruptcy
of the mortgagor or adverse conditions in the market where the property is
located. In order to minimize losses on defaulted Mortgage Loans, the servicer
may, to the extent and under the circumstances set forth in the related
Prospectus Supplement, be permitted to modify Mortgage Loans that are in default
or as to which a payment default is imminent. Any defaulted balloon payment or
modification that extends the maturity of a Mortgage Loan will tend to extend
the weighted average life of the Certificates, thereby lengthening the period of
time elapsed from the date of issuance of a Certificate until it is retired.
Foreclosures and Payment Plans
The number of foreclosures and the principal amount of the Mortgage
Loans that are foreclosed in relation to the number and principal amount of
Mortgage Loans that are repaid in accordance with their terms will affect the
weighted average life of those Mortgage Loans and that of the related series of
Certificates. Servicing decisions made with respect to the Mortgage Loans,
including the use of payment plans prior to a demand for acceleration and the
restructuring of Mortgage Loans in bankruptcy proceedings, may also have an
effect upon the payment patterns of particular Mortgage Loans and thus the
weighted average life of the Certificates.
Due-on-Sale and Due-on-Encumbrance Clauses
Acceleration of mortgage payments as a result of certain transfers of
or the creation of encumbrances upon underlying Mortgaged Property is another
factor affecting prepayment rates that may not be reflected in the prepayment
standards or models used in the relevant Prospectus Supplement. A number of the
Mortgage Loans may include "due-on-sale" clauses or "due-on-encumbrance" clauses
that allow the holder of the Mortgage Loans to demand payment in full of the
remaining principal balance of the Mortgage Loans upon sale or certain other
transfers of or the creation of encumbrances upon the related Mortgaged
Property. With respect to any Whole Loans, unless otherwise provided in the
related Prospectus Supplement, the Master Servicer, on behalf of the Trust Fund,
will be required to exercise (or waive its right to exercise) any such right
that the Trustee may have as mortgagee to accelerate payment of the Whole Loan
in a manner consistent with the servicing standard specified in the related
Prospectus Supplement or, if no such standard is specified, consistent with the
Master Servicer's normal servicing practices. See "Certain Legal Aspects of
Mortgage Loans--Due-on-Sale and Due-on-Encumbrance" and "Description of the
Agreements--Due-on-Sale and Due-on-Encumbrance Provisions".
Single Mortgage Loan or Single Mortgagor
The Mortgage Assets in a particular Trust Fund may consist of a single
Mortgage Loan or obligations of a single mortgagor or related mortgagors as
specified in the related Prospectus Supplement. Assumptions used with respect to
the prepayment standards or models based upon analysis of the behavior of
mortgage loans in a larger group will not necessarily be relevant in determining
prepayment experience on a single Mortgage Loan or with respect to a single
mortgagor.
27
<PAGE>
<PAGE>
NEGATIVE AMORTIZATION
The weighted average life of a class of Certificates can be affected by
Mortgage Loans that permit negative amortization to occur. To the extent that
deferred interest is added to the principal balance of any of such Mortgage
Loans, future interest accruals are computed on that higher principal balance
and less of the scheduled payment is available to amortize the unpaid principal
over the remaining amortization term of the Mortgage Loan. Accordingly, the
weighted average lives of such Mortgage Loans (and that of the classes of
Certificates to which any such negative amortization is allocated) will
increase. During a period of declining interest rates, the portion of each
scheduled payment in excess of the scheduled interest and principal due will be
applied to reduce the outstanding principal balance of the related Mortgage
Loan, thereby resulting in accelerated amortization of such Mortgage Loan. Any
such acceleration in amortization of its principal balance will shorten the
weighted average life of such Mortgage Loan and, correspondingly, the weighted
average lives of Certificates entitled to principal payments.
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware on January 27,
1987 as an indirect wholly-owned subsidiary of Salomon Inc. The Depositor was
organized for the purpose of serving as a private secondary mortgage market
conduit. The Depositor maintains its principal office at Seven World Trade
Center, New York, New York 10048. Its telephone number is (212) 783-5635.
The Depositor does not have, nor is it expected in the future to have,
any significant assets.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates of each series (including any class of Certificates
not offered hereby) will represent the entire beneficial ownership interest in
the Trust Fund created pursuant to the related Agreement. Each series of
Certificates will consist of one or more classes of Certificates that may (i)
provide for the accrual of interest thereon based on fixed, variable or
adjustable rates; (ii) be senior (collectively, "Senior Certificates") or
subordinate (collectively, "Subordinate Certificates") to one or more other
classes of Certificates in respect of certain distributions on the Certificates;
(iii) be entitled to principal distributions, with disproportionately low,
nominal or no interest distributions (collectively, "Stripped Principal
Certificates"); (iv) be entitled to interest distributions, with
disproportionately low, nominal or no principal distributions (collectively,
"Stripped Interest Certificates"); (v) provide for distributions of accrued
interest thereon commencing only following the occurrence of certain events,
such as the retirement of one or more other classes of Certificates of such
series (collectively, "Accrual Certificates"); (vi) provide for distributions of
principal sequentially, or based on specified payment schedules or other
methodologies, to the extent of available funds; and/or (vii) provide for cash
distributions based on available funds (collectively, "Spread Certificates"), in
each case as described in the related Prospectus Supplement. Any such classes
may include classes of Offered Certificates.
Unless otherwise provided in the related Prospectus Supplement, each
class of Offered Certificates of a series will be issued in minimum
denominations corresponding to the Certificate Balances or, in case of Stripped
Interest Certificates, notional amounts specified in such Prospectus Supplement.
The transfer of any Offered Certificates may be registered and such Certificates
may be exchanged without the payment of any service charge payable in connection
with such registration of transfer or exchange, but the Depositor or the Trustee
or any agent thereof may require payment of a sum sufficient to cover any tax or
other governmental charge. One or more classes of Certificates of a series may
be issued in definitive form ("Definitive Certificates") or in book-entry form
("Book-Entry Certificates"), as provided in the related Prospectus Supplement.
See "Risk Factors--Book-Entry Registration" and "Description of the
Certificates--Book-Entry Registration and Definitive Certificates". Definitive
Certificates will be exchangeable for other Certificates of the same class and
series of a like aggregate Certificate Balance or notional amount but of
different authorized denominations. See "Risk Factors--Limited Liquidity" and
"--Limited Assets".
DISTRIBUTIONS
Distributions on the Certificates of each series will be made by or on
behalf of the Trustee or the Master Servicer on each Distribution Date as
specified in the related Prospectus Supplement from the Available Distribution
Amount for such series and such Distribution Date, except as otherwise provided
in
28
<PAGE>
<PAGE>
the related Prospectus Supplement. Except as otherwise specified in the related
Prospectus Supplement, distributions (other than the final distribution) will be
made to the persons in whose names the Certificates are registered at the close
of business on the last business day of the month preceding the month in which
the Distribution Date occurs (the "Record Date"), and the amount of each
distribution will be determined as of the close of business on the date
specified in the related Prospectus Supplement (the "Determination Date"). All
distributions with respect to each class of Certificates on each Distribution
Date will be allocated pro rata among the outstanding Certificates in such
class. Payments will be made either by wire transfer in immediately available
funds to the account of a Certificateholder at a bank or other entity having
appropriate facilities therefor, if such Certificateholder has so notified the
Trustee or other person required to make such payments no later than the date
specified in the related Prospectus Supplement (and, if so provided in the
related Prospectus Supplement, holds Certificates in the requisite amount or
denomination specified therein), or by check mailed to the address of the person
entitled thereto as it appears on the Certificate Register; provided, however,
that the final distribution in retirement of any class of Certificates (whether
Definitive Certificates or Book-Entry Certificates) will be made only upon
presentation and surrender of the Certificates at the location specified in the
notice to Certificateholders of such final distribution.
AVAILABLE DISTRIBUTION AMOUNT
All distributions on the Certificates of each series on each
Distribution Date will be made from the Available Distribution Amount described
below, in accordance with the terms described in the related Prospectus
Supplement. Unless provided otherwise in the related Prospectus Supplement, the
"Available Distribution Amount" for each Distribution Date will equal the sum of
the following amounts:
(i) the total amount of all cash on deposit in the related Certificate
Account as of the corresponding Determination Date, exclusive of:
(a) all scheduled payments of principal and interest collected but
due on a date subsequent to the related Due Period (unless the related
Prospectus Supplement provides otherwise, a "Due Period" with respect
to any Distribution Date will commence on the second day of the month
in which the immediately preceding Distribution Date occurs, or the day
after the Cut-off Date in the case of the first Due Period, and will
end on the first day of the month of the related Distribution Date),
(b) all prepayments, together with related payments of the
interest thereon and related Prepayment Premiums, Liquidation Proceeds,
Insurance Proceeds and other unscheduled recoveries received subsequent
to the related Prepayment Period, as defined in the related Prospectus
Supplement, and
(c) all amounts in the Certificate Account that are due or
reimbursable to the Depositor, the Trustee, a Mortgage Asset Seller, a
Sub-Servicer or the Master Servicer or that are payable in respect of
certain expenses of the related Trust Fund;
(ii) if the related Prospectus Supplement so provides, interest or
investment income on amounts on deposit in the Certificate Account,
including any net amounts paid under any Cash Flow Agreements;
(iii) all advances made by a Master Servicer with respect to such
Distribution Date;
(iv) if and to the extent the related Prospectus Supplement so
provides, amounts paid by a Master Servicer with respect to interest
shortfalls resulting from prepayments during the related Prepayment Period;
and
(v) to the extent not on deposit in the related Certificate Account as
of the corresponding Determination Date, any amounts collected under, from
or in respect of any Credit Support with respect to such Distribution Date.
As described below, the entire Available Distribution Amount will be
distributed to the holders of the related Certificates (including any
Certificates not offered hereby) on each Distribution Date, and accordingly will
be released from the Trust Fund and will not be available for any future
distributions.
29
<PAGE>
<PAGE>
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each class of Certificates (other than certain classes of Stripped
Principal Certificates and Spread Certificates that have no Pass-Through Rate)
may have a different Pass-Through Rate, which may be a fixed, variable or
adjustable Pass-Through Rate. The related Prospectus Supplement will specify the
Pass-Through Rate for each class or, in the case of a variable or adjustable
Pass-Through Rate, the method for determining the Pass-Through Rate. Unless
otherwise specified in the related Prospectus Supplement, interest on the
Certificates will be calculated on the basis of a 360-day year consisting of
twelve 30-day months.
Distributions of interest in respect of the Certificates of any class
will be made on each Distribution Date (other than any class of Accrual
Certificates, which will be entitled to distributions of accrued interest
commencing only on the Distribution Date, or under the circumstances, specified
in the related Prospectus Supplement, and any class of Stripped Principal
Certificates and Spread Certificates that are not entitled to any distributions
of interest) based on the Accrued Certificate Interest for such class and such
Distribution Date, subject to the sufficiency of the portion of the Available
Distribution Amount allocable to such class on such Distribution Date. Prior to
the time interest is distributable on any class of Accrual Certificates, the
amount of Accrued Certificate Interest otherwise distributable on such class
will be added to the Certificate Balance thereof on each Distribution Date. With
respect to each class of Certificates and each Distribution Date (other than
certain classes of Stripped Interest Certificates and Spread Certificates),
"Accrued Certificate Interest" will be equal to interest accrued for a specified
period on the outstanding Certificate Balance thereof immediately prior to the
Distribution Date, at the applicable Pass-Through Rate, reduced as described
below. Unless otherwise provided in the Prospectus Supplement, Accrued
Certificate Interest on Stripped Interest Certificates will be equal to interest
accrued for a specified period on the outstanding notional amount thereof
immediately prior to each Distribution Date, at the applicable Pass-Through
Rate, reduced as described below. The method of determining the notional amount
for any class of Stripped Interest Certificates will be described in the related
Prospectus Supplement. Reference to the notional amount is solely for
convenience in making certain calculations and does not represent the right to
receive any distributions of principal. Unless otherwise provided in the related
Prospectus Supplement, the Accrued Certificate Interest on a series of
Certificates will be reduced in the event of prepayment interest shortfalls,
which are shortfalls in collections of interest for a full accrual period
resulting from prepayments prior to the due date in such accrual period on the
Mortgage Loans comprising or underlying the Mortgage Assets in the Trust Fund
for such series. The particular manner in which such shortfalls are to be
allocated among some or all of the classes of Certificates of that series will
be specified in the related Prospectus Supplement. The related Prospectus
Supplement will also describe the extent to which the amount of Accrued
Certificate Interest that is otherwise distributable on (or, in the case of
Accrual Certificates, that may otherwise be added to the Certificate Balance of)
a class of Offered Certificates may be reduced as a result of any other
contingencies, including delinquencies, losses and deferred interest on or in
respect of the Mortgage Assets in the related Trust Fund. Unless otherwise
provided in the related Prospectus Supplement, any reduction in the amount of
Accrued Certificate Interest otherwise distributable on a class of Certificates
by reason of the allocation to such class of a portion of any deferred interest
on or in respect of the Mortgage Assets in the related Trust Fund will result in
a corresponding increase in the Certificate Balance of such class. See "Risk
Factors--Average Life of Certificates; Prepayments; Yields" and "Yield
Considerations".
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
The Certificates of each series, other than certain classes of Stripped
Interest Certificates and Spread Certificates, will have a "Certificate Balance"
which, at any time, will equal the then maximum amount that the holder will be
entitled to receive in respect of principal out of the future cash flow on the
Mortgage Assets and other assets included in the related Trust Fund. The
outstanding Certificate Balance of a Certificate will be reduced to the extent
of distributions of principal thereon from time to time and, if and to the
extent so provided in the related Prospectus Supplement, by the amount of losses
incurred in respect of the related Mortgage Assets, may be increased in respect
of deferred interest on the related Mortgage Loans to the extent provided in the
related Prospectus Supplement and, in the case of Accrual Certificates prior to
the Distribution Date on which distributions of interest are required to
commence, will be increased by the amount of any Accrued Certificate Interest
accrued thereon. The initial aggregate Certificate Balance of all classes of
Certificates of a series will not be greater than the outstanding
30
<PAGE>
<PAGE>
aggregate principal balance of the related Mortgage Assets as of the applicable
Cut-off Date. The initial aggregate Certificate Balance of a series and each
class thereof will be specified in the related Prospectus Supplement. Unless
otherwise provided in the related Prospectus Supplement, distributions of
principal will be made on each Distribution Date to the class or classes of
Certificates entitled thereto in accordance with the provisions described in
such Prospectus Supplement until the Certificate Balance of such class has been
reduced to zero.
DISTRIBUTIONS ON THE CERTIFICATES OF PREPAYMENT PREMIUMS
OR IN RESPECT OF EQUITY PARTICIPATIONS
If so provided in the related Prospectus Supplement, Prepayment
Premiums or payments in respect of Equity Participations that are collected on
the Mortgage Assets in the related Trust Fund will be distributed on each
Distribution Date to the class or classes of Certificates entitled thereto in
accordance with the provisions described in such Prospectus Supplement.
DISTRIBUTIONS IN RESPECT OF SPREAD CERTIFICATES
If so provided in the related Prospectus Supplement, a portion of the
Available Distribution Amount for the applicable series of Certificates may be
distributed on such date to one or more classes of Spread Certificates of such
series, in accordance with the provisions described in such Prospectus
Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
If so provided in the Prospectus Supplement for a series of
Certificates consisting of one or more classes of Subordinate Certificates, the
amount of any losses or shortfalls in collections on the Mortgage Assets will be
borne first by a class of Subordinate Certificates in the priority and manner,
and subject to the limitations, specified in such Prospectus Supplement. See
"Description of Credit Support" for a description of the types of protection
that may be included in a Trust Fund against losses and shortfalls on Mortgage
Assets comprising such Trust Fund.
ADVANCES IN RESPECT OF DELINQUENCIES
With respect to any series of Certificates evidencing an interest in a
Trust Fund consisting of Mortgage Assets other than MBS or Tiered MBS, unless
otherwise provided in the related Prospectus Supplement, the Master Servicer
will be required as part of its servicing responsibilities to advance, on or
before each Distribution Date, from its own funds and/or funds held in the
Certificate Account that are not included in the Available Distribution Amount
for such Distribution Date, in an amount equal to the aggregate of payments of
principal (other than any balloon payments) and interest (net of related
servicing fees and Retained Interest) that were due on the Whole Loans in such
Trust Fund during the related Due Period and were delinquent on the related
Determination Date, subject to the Master Servicer"s good faith determination
that such advances will be reimbursable from Related Proceeds (as defined
below). In the case of a series of Certificates that includes one or more
classes of Subordinate Certificates and if so provided in the related Prospectus
Supplement, the Master Servicer's advance obligation may be limited only to the
portion of such delinquencies necessary to make the required distributions on
one or more classes of Senior Certificates and/or may be subject to the Master
Servicer's good faith determination that such advances will be reimbursable not
only from Related Proceeds but also from collections on other Mortgage Assets
otherwise distributable on one or more classes of such Subordinate Certificates.
See "Description of Credit Support".
Advances are intended to maintain a regular flow of scheduled interest
and principal payments to holders of the class or classes of Certificates
entitled thereto, rather than to guarantee or insure against losses. Unless
otherwise provided in the related Prospectus Supplement, advances of the Master
Servicer's funds will be reimbursable only out of related recoveries on the
Mortgage Loans (including amounts received under any form of Credit Support)
respecting which such advances were made (as to any Mortgage Loan, "Related
Proceeds") and, if so provided in the Prospectus Supplement, out of any amounts
otherwise distributable on one or more classes of Subordinate Certificates of
such series; provided, however, that any such advance will be reimbursable from
any amounts in the Certificate Account prior to any distributions being made on
the Certificates to the extent that the Master Servicer shall determine in good
faith that such advance (a "Nonrecoverable Advance") will not ultimately be
recoverable from Related Proceeds or, if applicable, from collections on other
Mortgage Assets otherwise distributable on such Subordinate Certificates. If
advances have been made by the Master Servicer from excess funds in the
Certificate Account, the Master Servicer will be required to replace such funds
in the Certificate Account
31
<PAGE>
<PAGE>
on any future Distribution Date to the extent that funds in the Certificate
Account on such Distribution Date are less than payments required to be made to
Certificateholders on such date. If so specified in the related Prospectus
Supplement, the obligation of the Master Servicer to make advances may be
secured by a cash advance reserve fund or a surety bond. If applicable,
information regarding the characteristics of, and the identity of any obligor
on, any such surety bond, will be set forth in the related Prospectus
Supplement.
If and to the extent so provided in the related Prospectus Supplement,
the Master Servicer will be entitled to receive interest at the rate specified
therein on its outstanding advances and will be entitled to pay itself such
interest periodically from general collections on the Mortgage Loans prior to
any payment to Certificateholders or as otherwise provided in the related
Agreement and described in such Prospectus Supplement.
The Prospectus Supplement for any series of Certificates evidencing an
interest in a Trust Fund that includes MBS or Tiered MBS will describe any
corresponding advancing obligation of any person in connection with such MBS.
REPORTS TO CERTIFICATEHOLDERS
With each distribution to holders of any class of Certificates of a
series, a Master Servicer or the Trustee, as provided in the related Prospectus
Supplement, will forward or cause to be forwarded to each such holder, to the
Depositor and to such other parties as may be specified in the related
Agreement, a statement that, unless otherwise specified in the related
Prospectus Supplement, will set forth, in each case to the extent applicable and
available:
(i) the amount of such distribution to holders of Certificates of such
class applied to reduce the Certificate Balance thereof;
(ii) the amount of such distribution to holders of Certificates of
such class allocable to Accrued Certificate Interest;
(iii) the amount, if any, of such distribution allocable to (a)
Prepayment Premiums and (b) payments on account of Equity Participations;
(iv) the amount of related servicing compensation received by a Master
Servicer (and, if payable directly out of the related Trust Fund, by any
Special Servicer and any Sub-Servicer) and such other customary information
as any such Master Servicer or the Trustee deems necessary or desirable, or
that a Certificateholder reasonably requests, to enable Certificateholders
to prepare their tax returns;
(v) the aggregate amount of advances included in such distribution, and
the aggregate amount of unreimbursed advances at the close of business on
such Distribution Date;
(vi) the aggregate principal balance of the Mortgage Assets at the
close of business on such Distribution Date;
(vii) the number and aggregate principal balance of Mortgage Loans in
respect of which (a) one scheduled payment is delinquent, (b) two scheduled
payments are delinquent, (c) three or more scheduled payments are
delinquent and (d) foreclosure proceedings have been commenced;
(viii) with respect to each Mortgage Loan that is delinquent two or
more months, (a) the loan number thereof, (b) the unpaid balance thereof,
(c) whether the delinquency is in respect of any balloon payment, (d) the
aggregate amount of unreimbursed servicing expenses and unreimbursed
advances in respect thereof, (e) if applicable, the aggregate amount of any
interest accrued and payable on related servicing expenses and related
advances, (f) whether a notice of acceleration has been sent to the
mortgagor and, if so, the date of such notice, (g) whether foreclosure
proceedings have been commenced and, if so, the date so commenced and (h)
if such Mortgage Loan is more than three months delinquent and foreclosure
has not been commenced, the reason therefor;
(ix) with respect to any Mortgage Loan liquidated during the related
Due Period or Prepayment Period, as applicable (other than by payment in
full), (a) the loan number thereof, (b) the manner in which it was
liquidated, (c) the aggregate amount of Liquidation Proceeds received, (d)
the portion of such Liquidation Proceeds payable or reimbursable to the
Master Servicer in respect of such Mortgage Loan and (e) the amount of any
loss to Certificateholders;
32
<PAGE>
<PAGE>
(x) with respect to each REO Property included in the Trust Fund as of
the end of the related Due Period or Prepayment Period, as applicable, (a)
the loan number of the related Mortgage Loan, (b) the date of acquisition,
(c) the book value, (d) the principal balance of the related Mortgage Loan
immediately following such Distribution Date (calculated as if such
Mortgage Loan were still outstanding taking into account certain limited
modifications to the terms thereof specified in the Agreement), (e) the
aggregate amount of unreimbursed servicing expenses and unreimbursed
advances in respect thereof and (f) if applicable, the aggregate amount of
interest accrued and payable on related servicing expenses and related
advances;
(xi) with respect to any such REO Property sold during the related Due
Period or Prepayment Period, as applicable, (a) the loan number of the
related Mortgage Loan, (b) the aggregate amount of sale proceeds, (c) the
portion of such sales proceeds payable or reimbursable to the Master
Servicer or a Special Servicer in respect of such REO Property or the
related Mortgage Loan and (d) the amount of any loss to Certificateholders
in respect of the related Mortgage Loan;
(xii) the aggregate Certificate Balance or notional amount, as the case
may be, of each class of Certificates (including any class of Certificates
not offered hereby) at the close of business on such Distribution Date,
separately identifying any reduction in such Certificate Balance due to the
allocation of any loss and increase in the Certificate Balance of a class
of Accrual Certificates in the event that Accrued Certificate Interest has
been added to such balance;
(xiii) the aggregate amount of principal prepayments made during the
related Prepayment Period;
(xiv) the amount deposited in the reserve fund, if any, on such
Distribution Date;
(xv) the amount remaining in the reserve fund, if any, as of the close
of business on such Distribution Date;
(xvi) the aggregate unpaid Accrued Certificate Interest, if any, on
each class of Certificates at the close of business on such Distribution
Date;
(xvii) in the case of Certificates with a variable Pass-Through Rate,
the Pass-Through Rate applicable to such Distribution Date, as calculated
in accordance with the method specified in the related Prospectus
Supplement;
(xviii) in the case of Certificates with an adjustable Pass-Through
Rate, for statements to be distributed in any month in which an adjustment
date occurs, the adjustable Pass-Through Rate applicable to the next
succeeding Distribution Date as calculated in accordance with the method
specified in the related Prospectus Supplement;
(xix) as to any series which includes Credit Support, the amount of
coverage of each instrument of Credit Support included therein as of the
close of business on such Distribution Date; and
(xx) the aggregate amount of payments by the mortgagors of (a) default
interest, (b) late charges and (c) assumption and modification fees
collected during the related Due Period or Prepayment Period, as
applicable.
In the case of information furnished pursuant to subclauses (i)-(iv)
above, the amounts shall be expressed as a dollar amount per minimum
denomination of Certificates or for such other specified portion thereof. The
Prospectus Supplement for each series of Offered Certificates will describe any
additional information to be included in reports to the holders of such
Certificates.
Within a reasonable period of time after the end of each calendar year,
the Master Servicer, if any, or the Trustee, as provided in the related
Prospectus Supplement, shall furnish to each person who at any time during the
calendar year was a holder of a Certificate a statement containing the
information set forth in subclauses (i)-(iv) above, aggregated for such calendar
year or the applicable portion thereof during which such person was a
Certificateholder. Such obligation of the Master Servicer or the Trustee shall
be deemed to have been satisfied to the extent that substantially comparable
information shall be provided by the Master Servicer or the Trustee pursuant to
any requirements of the Code as are from time to time in force. See "Description
of the Certificates--Book-Entry Registration and Definitive Certificates".
If the Trust Fund for a series of Certificates includes MBS or Tiered
MBS, the related Prospectus Supplement will describe the contents of the
statements that will be forwarded to Certificateholders of that series in
connection with distributions made to them.
33
<PAGE>
<PAGE>
TERMINATION
The obligations created by the Agreement for each series of
Certificates will terminate upon the payment to Certificateholders of that
series of all amounts held in the Certificate Account or by the Master Servicer,
if any, or the Trustee and required to be paid to them pursuant to such
Agreement following the earlier of (i) the final payment or other liquidation of
the last Mortgage Asset subject thereto or the disposition of all property
acquired upon foreclosure of any Mortgage Loan subject thereto and (ii) the
purchase of all of the assets of the Trust Fund by the party entitled to effect
such termination, under the circumstances and in the manner set forth in the
related Prospectus Supplement. In no event, however, will the trust created by
the Agreement continue beyond the date specified in such Agreement. Written
notice of termination of the Agreement will be given to each Certificateholder,
and the final distribution will be made only upon presentation and surrender of
the Certificates at the location to be specified in the notice of termination.
If so specified in the related Prospectus Supplement, a series of
Certificates may be subject to optional early termination through the repurchase
of the assets in the related Trust Fund by the party specified therein, under
the circumstances and in the manner set forth therein. If so provided in the
related Prospectus Supplement, upon the reduction of the Certificate Balance of
a specified class or classes of Certificates by a specified percentage or
amount, the party specified therein will solicit bids for the purchase of all
assets of the Trust Fund, or of a sufficient portion of such assets to retire
such class or classes under the circumstances and in the manner set forth
therein.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the related Prospectus Supplement, one or more
classes of the Offered Certificates of any series will be issued as Book-Entry
Certificates, and each such class will be represented by one or more single
Certificates registered in the name of the depository, The Depository Trust
Company ("DTC").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the UCC and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its participating organizations ("Participants") and
facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entry changes in their accounts, thereby
eliminating the need for physical movement of certificates. Participants include
Salomon Brothers Inc, securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system also is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Unless otherwise provided in the related Prospectus Supplement,
investors that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in,
Book-Entry Certificates may do so only through Participants and Indirect
Participants. In addition, such investors ("Certificate Owners") will receive
all distributions on the Book-Entry Certificates through DTC and its
Participants. Under a book-entry format, Certificate Owners will receive
payments after the related Distribution Date because, while payments are
required to be forwarded to DTC's nominee, on each such date, DTC will forward
such payments to its Participants which thereafter will be required to forward
them to Indirect Participants or Certificate Owners. Unless otherwise provided
in the related Prospectus Supplement, the only "Certificateholder"(as such term
is used in the Agreement) will be the nominee of DTC, and the Certificate Owners
will not be recognized by the Trustee as Certificateholders under the Agreement.
Certificate Owners will be permitted to exercise the rights of
Certificateholders under the related Agreement only indirectly through the
Participants who in turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Book-Entry Certificates
and is required to receive and transmit distributions of principal of and
interest on the Book-Entry Certificates. Participants and Indirect Participants
with which Certificate Owners have accounts with respect to the Book-Entry
Certificates similarly are required to make book-entry transfers and receive and
transmit such payments on behalf of their respective Certificate Owners.
34
<PAGE>
<PAGE>
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Certificate
Owner to pledge its interest in the Book-Entry Certificates to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of its interest in the Book-Entry Certificates, may be limited due to
the lack of a physical certificate evidencing such interest.
DTC has advised the Depositor that it will take any action permitted to
be taken by a Certificateholder under an Agreement only at the direction of one
or more Participants to whose account with DTC interests in the Book-Entry
Certificates are credited.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued as Definitive
Certificates to Certificate Owners 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 properly discharge its responsibilities as depository
with respect to the Certificates and the Depositor is unable to locate a
qualified successor or (ii) the Depositor, at its option, elects to terminate
the book-entry system through DTC.
Upon the occurrence of either of the events described in the
immediately preceding paragraph, DTC is required to notify all Participants of
the availability through DTC of Definitive Certificates for the Certificate
Owners. Upon surrender by DTC of the certificate or certificates representing
the Book-Entry Certificates, together with instructions for re-registration, the
Trustee will issue (or cause to be issued) to the Certificate Owners identified
in such instructions the Definitive Certificates to which they are entitled, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement.
DESCRIPTION OF THE AGREEMENTS
The Certificates of each series evidencing interests in a Trust Fund
consisting of Mortgage Loans will be issued pursuant to a Pooling and Servicing
Agreement among the Depositor, a Master Servicer, any Special Servicer appointed
as of the date of the Pooling and Servicing Agreement and the Trustee. The
Certificates of each series evidencing interests in a Trust Fund consisting
exclusively of MBS and/or Tiered MBS will be issued pursuant to a Trust
Agreement between the Depositor and a Trustee. Any Master Servicer, any such
Special Servicer and the Trustee with respect to any series of Certificates will
be named in the related Prospectus Supplement. The provisions of each Agreement
will vary depending upon the nature of the Certificates to be issued thereunder
and the nature of the related Trust Fund. A form of a Pooling and Servicing
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The following summaries describe certain provisions
that may appear in each Agreement. The Prospectus Supplement for a series of
Certificates will describe any provision of the Agreement relating to such
series that materially differs from the description thereof contained in this
Prospectus. The summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions of the
Agreement for each Trust Fund and the description of such provisions in the
related Prospectus Supplement. As used herein with respect to any series, the
term "Certificate" refers to all of the Certificates of that series, whether or
not offered hereby and by the related Prospectus Supplement, unless the context
otherwise requires. The Depositor will provide a copy of the Agreement (without
exhibits) relating to any series of Certificates without charge upon written
request of a holder of a Certificate of such series addressed to Salomon
Brothers Mortgage Securities VII, Inc., Seven World Trade Center, New York, New
York 10048. Attention: Secretary.
ASSIGNMENT OF MORTGAGE ASSETS; REPURCHASES
At the time of issuance of any series of Certificates, the Depositor
will assign (or cause to be assigned) to the designated Trustee the Mortgage
Assets to be included in the related Trust Fund, together with all principal and
interest to be received on or with respect to such Mortgage Assets after the
Cut-off Date, other than principal and interest due on or before the Cut-off
Date and other than any Retained Interest. The Trustee will, concurrently with
such assignment, deliver the Certificates to the Depositor in exchange for the
Mortgage Assets and the other assets comprising the Trust Fund for such series.
Each Mortgage Asset will be identified in a schedule appearing as an exhibit to
the related Agreement. Unless otherwise provided in the related Prospectus
Supplement, such schedule will include detailed information (i) in respect of
each Mortgage Loan included in the related Trust Fund, including without
limitation, the address of the related Mortgaged Property and type of such
property, the Mortgage Rate and, if applicable,
35
<PAGE>
<PAGE>
the applicable index, margin, adjustment date and any rate cap information, the
original and remaining term to maturity, the original and outstanding principal
balance and balloon payment, if any, the Value, Loan-to-Value Ratio and Debt
Service Coverage Ratio as of the date indicated and payment and prepayment
provisions, if applicable, and (ii) in respect of each MBS and Tiered MBS
included in the related Trust Fund, including without limitation, the MBS
Issuer, MBS Servicer and MBS Trustee, the pass-through or bond rate or formula
for determining such rate, the issue date and original and remaining term to
maturity, if applicable, the original and outstanding principal amount and
payment provisions, if applicable.
With respect to each Whole Loan, the Depositor will deliver or cause to
be delivered to the Trustee (or to the custodian hereinafter referred to)
certain loan documents, which unless otherwise specified in the related
Prospectus Supplement will include the original Mortgage Note endorsed, without
recourse, to the order of the Trustee, the original Mortgage (or a certified
copy thereof) with evidence of recording indicated thereon and an assignment of
the Mortgage to the Trustee in recordable form. Unless otherwise provided in the
related Prospectus Supplement, the related Agreement will require that the
Depositor or other party thereto promptly cause each such assignment of Mortgage
to be recorded in the appropriate public office for real property records,
except in the State of California or in other states where, in the opinion of
counsel acceptable to the Trustee, such recording is not required to protect the
Trustee's interest in the related Whole Loan against the claim of any subsequent
transferee or any successor to or creditor of the Depositor, the Master
Servicer, the relevant Mortgage Asset Seller or any other prior holder of the
Whole Loan.
The Trustee (or the custodian) will review such Whole Loan documents
within a specified period of days after receipt thereof, and the Trustee (or the
custodian) will hold such documents in trust for the benefit of the
Certificateholders. Unless otherwise specified in the related Prospectus
Supplement, if any such document is found to be missing or defective in any
material respect, the Trustee (or such custodian) shall immediately notify the
Master Servicer and the Depositor, and the Master Servicer shall immediately
notify the relevant Mortgage Asset Seller. If the Mortgage Asset Seller cannot
cure the omission or defect within a specified number of days after receipt of
such notice, then unless otherwise specified in the related Prospectus
Supplement, the Mortgage Asset Seller will be obligated, within a specified
number of days of receipt of such notice, to repurchase the related Whole Loan
from the Trustee at the Purchase Price or substitute for such Mortgage Loan.
There can be no assurance that a Mortgage Asset Seller will fulfill this
repurchase or substitution obligation, and neither the Master Servicer nor the
Depositor will be obligated to repurchase or substitute for such Mortgage Loan
if the Mortgage Asset Seller defaults on its obligation. Unless otherwise
specified in the related Prospectus Supplement, this repurchase or substitution
obligation constitutes the sole remedy available to the Certificateholders or
the Trustee for omission of, or a material defect in, a constituent document.
With respect to each MBS and Tiered MBS, the Depositor will deliver or
cause to be delivered to the Trustee (or the custodian) the original certificate
or other definitive evidence of the MBS or Tiered MBS, together with bond power
or other instruments, certifications or documents required to transfer fully the
MBS or Tiered MBS to the Trustee for the benefit of the Certificateholders in
accordance with the related MBS Agreement. Unless otherwise provided in the
related Prospectus Supplement, the related Agreement will require that either
the Depositor or the Trustee promptly cause the MBS or Tiered MBS to be
re-registered, with the applicable persons, in the name of the Trustee.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
Unless otherwise provided in the related Prospectus Supplement the
Depositor will, with respect to each Whole Loan constituting a Mortgage Asset in
the related Trust Fund, make or assign certain representations and warranties,
as of a specified date (the person making such representations and warranties,
the "Warranting Party") covering, by way of example, the following types of
matters: (i) the accuracy of the information set forth for such Whole Loan on
the schedule of Mortgage Assets appearing as an exhibit to the related
Agreement; (ii) the existence of title insurance insuring the lien priority of
the Whole Loan; (iii) the authority of the Warranting Party to sell the Whole
Loan; (iv) the payment status of the Whole Loan and the status of payments of
taxes, assessments and other charges affecting the related Mortgaged Property;
(v) the existence of customary provisions in the related Mortgage Note and
Mortgage to permit realization against the Mortgaged Property of the benefit of
the security of the Mortgage; and (vi) the existence of hazard and extended
perils insurance coverage on the Mortgaged Property.
36
<PAGE>
<PAGE>
Any Warranting Party, if other than the Depositor, shall be a Mortgage
Asset Seller or an affiliate thereof or such other person acceptable to the
Depositor and shall be identified in the related Prospectus Supplement.
Representations and warranties made in respect of a Whole Loan may have
been made as of a date prior to the applicable Cut-off Date. A substantial
period of time may have elapsed between such date and the date of initial
issuance of the related series of Certificates evidencing an interest in such
Whole Loan. Unless otherwise specified in the related Prospectus Supplement, in
the event of a breach of any such representation or warranty, the Warranting
Party will be obligated to cure such breach or repurchase or replace the
affected Whole Loan as described below. Since the representations and warranties
may not address events that may occur following the date as of which they were
made, the Warranting Party will have a cure, repurchase or substitution
obligation in connection with a breach of such a representation and warranty
only if the relevant event that causes such breach occurs prior to such date.
Such party would have no such obligations if the relevant event that causes such
breach occurs after such date. However, the Depositor will not include any Whole
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 made in respect of such Whole Loan will not be
accurate and complete in all material respects as of the date of initial
issuance of the related series of Certificates.
Unless otherwise provided in the related Prospectus Supplement, each
Agreement will provide that the Master Servicer and/or Trustee will be required
to notify promptly the relevant Warranting Party of any breach of any
representation or warranty made by it in respect of a Whole Loan that materially
and adversely affects the value of such Mortgage Loan or the interests therein
of the Certificateholders. If such Warranting Party cannot cure such breach
within a specified period following the date on which such party was notified of
such breach, then such Warranting Party will be obligated to repurchase such
Mortgage Loan from the Trustee within a specified period from the date on which
the Warranting Party was notified of such breach, at the Purchase Price
therefor. As to any Whole Loan, unless otherwise specified in the related
Prospectus Supplement, the "Purchase Price" is equal to the sum of the unpaid
principal balance thereof, plus unpaid accrued interest thereon at the Mortgage
Rate from the date as to which interest was last paid to the due date in the
Prepayment Period in which the relevant purchase is to occur, plus certain
servicing expenses that are reimbursable to the Master Servicer. If so provided
in the Prospectus Supplement for a series, a Warranting Party, rather than
repurchase a Mortgage Loan as to which a breach has occurred, will have the
option, within a specified period after initial issuance of such series of
Certificates, to cause the removal of such Mortgage Loan from the Trust Fund and
substitute in its place one or more other Whole Loans, in accordance with the
standards described in the related Prospectus Supplement. Unless otherwise
specified in the related Prospectus Supplement, this repurchase or substitution
obligation will constitute the sole remedy available to holders of Certificates
or the Trustee for a breach of representation by a Warranting Party.
Neither the Depositor (except to the extent that it is the Warranting
Party) nor the Master Servicer will be obligated to purchase or substitute for a
Whole Loan if a Warranting Party defaults on its obligation to do so, and no
assurance can be given that Warranting Parties will carry out such obligations
with respect to Whole Loans.
With respect to a Trust Fund that includes MBS or Tiered MBS, the
related Prospectus Supplement will describe any representations or warranties
made or assigned by the Depositor with respect to such MBS or Tiered MBS, the
person making them and the remedies for breach thereof.
A Master Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the related Agreement. Unless otherwise provided in the
related Prospectus Supplement, a breach of any such representation of the Master
Servicer which materially and adversely affects the interests of the
Certificateholders and which continues unremedied for thirty days after the
giving of written notice of such breach to the Master Servicer by the Trustee or
the Depositor, or to the Master Servicer, the Depositor and the Trustee by the
holders of Certificates evidencing not less than 25% of the Voting Rights, will
constitute an Event of Default. See "--Events of Default" and "--Rights Upon
Event of Default".
37
<PAGE>
<PAGE>
CERTIFICATE ACCOUNT
General
The Master Servicer, if any, and/or the Trustee will, as to each Trust
Fund, establish and maintain or cause to be established and maintained one or
more separate accounts for the collection of payments on the related Mortgage
Assets (collectively, the "Certificate Account"), which must be either (i) an
account or accounts the deposits in which are insured by the Bank Insurance Fund
or the Savings Association Insurance Fund of the Federal Deposit Insurance
Corporation ("FDIC") (to the limits established by the FDIC) and the uninsured
deposits in which are otherwise secured such that the Certificateholders have a
claim with respect to the funds in the Certificate Account or a perfected first
priority security interest against any collateral securing such funds that is
superior to the claims of any other depositors or general creditors of the
institution with which the Certificate Account is maintained or (ii) otherwise
maintained with a bank or trust company, and in a manner, satisfactory to the
Rating Agency or Agencies rating any class of Certificates of such series. The
collateral eligible to secure amounts in the Certificate Account is limited to
United States government securities and other investment grade obligations
specified in the Agreement ("Permitted Investments"). A Certificate Account may
be maintained as an interest bearing or a non-interest bearing account and the
funds held therein may be invested pending each succeeding Distribution Date in
certain short-term Permitted Investments. Unless otherwise provided in the
related Prospectus Supplement, any interest or other income earned on funds in
the Certificate Account will be paid to a Master Servicer or its designee as
additional servicing compensation. The Certificate Account may be maintained
with an institution that is an affiliate of the Master Servicer, if applicable,
provided that such institution meets the standards imposed by the Rating Agency
or Agencies. If permitted by the Rating Agency or Agencies and so specified in
the related Prospectus Supplement, a Certificate Account may contain funds
relating to more than one series of mortgage pass-through certificates and may
contain other funds respecting payments on mortgage loans belonging to the
Master Servicer or serviced or master serviced by it on behalf of others.
Deposits
A Master Servicer or the Trustee will deposit or cause to be deposited
in the Certificate Account for each Trust Fund on a daily basis, unless
otherwise provided in the related Agreement and described in the related
Prospectus Supplement, the following payments and collections received, or
advances made, by the Master Servicer or the Trustee or on its behalf subsequent
to the Cut-off Date (other than payments due on or before the Cut-off Date, and
exclusive of any amounts representing a Retained Interest):
(i) all payments on account of principal, including principal
prepayments, on the Mortgage Assets;
(ii) all payments on account of interest on the Mortgage Assets,
including any default interest collected, in each case net of any
portion thereof retained by a Master Servicer or a Sub-Servicer as its
servicing compensation and net of any Retained Interest;
(iii) all proceeds of the hazard insurance policies to be
maintained in respect of each Mortgaged Property securing a Mortgage
Loan in the Trust Fund (to the extent such proceeds are not applied to
the restoration of the property or released to the mortgagor in
accordance with the normal servicing procedures of a Master Servicer
or the related Sub-Servicer, subject to the terms and conditions of
the related Mortgage and Mortgage Note) (collectively, "Insurance
Proceeds") and all other amounts received and retained in connection
with the liquidation of defaulted Mortgage Loans in the Trust Fund, by
foreclosure or otherwise ("Liquidation Proceeds"), together with the
net proceeds on a monthly basis with respect to any Mortgaged
Properties acquired for the benefit of Certificateholders by
foreclosure or by deed in lieu of foreclosure or otherwise;
(iv) any amounts paid under any instrument or drawn from any fund
that constitutes Credit Support for the related series of Certificates
as described under "Description of Credit Support";
(v) any advances made as described under "Description of the
Certificates--Advances in Respect of Delinquencies";
(vi) any amounts paid under any Cash Flow Agreement, as described
under "Description of the Trust Funds--Cash Flow Agreements";
38
<PAGE>
<PAGE>
(vii) all proceeds of any Mortgage Loan or property acquired in
respect thereof purchased by the Depositor, any Mortgage Asset Seller
or any other specified person as described under "--Assignment of
Mortgage Assets; Repurchases" and "--Representations and Warranties;
Repurchases", all proceeds of any defaulted Mortgage Loan purchased as
described under "--Realization Upon Defaulted Whole Loans", and all
proceeds of any Mortgage Asset purchased as described under
"Description of the Certificates--Termination" (also, "Liquidation
Proceeds");
(viii) any amounts paid by a Master Servicer to cover certain
interest shortfalls arising out of the prepayment of Mortgage Loans in
the Trust Fund as described under "Description of the
Agreements--Retained Interest; Servicing Compensation and Payment of
Expenses";
(ix) to the extent that any such item does not constitute
additional servicing compensation to a Master Servicer, any payments
on account of modification or assumption fees, late payment charges,
Prepayment Premiums or Equity Participations on the Mortgage Assets;
(x) all payments required to be deposited in the Certificate
Account with respect to any deductible clause in any blanket insurance
policy described under "--Hazard Insurance Policies";
(xi) any amount required to be deposited by a Master Servicer or
the Trustee in connection with losses realized on investments for the
benefit of the Master Servicer or the Trustee, as the case may be, of
funds held in the Certificate Account; and
(xii) any other amounts required to be deposited in the
Certificate Account as provided in the related Agreement and described
in the related Prospectus Supplement.
Withdrawals
A Master Servicer or the Trustee may, from time to time, unless
otherwise provided in the related Agreement and described in the related
Prospectus Supplement, make withdrawals from the Certificate Account for each
Trust Fund for any of the following purposes:
(i) to make distributions to the Certificateholders on each
Distribution Date;
(ii) to reimburse a Master Servicer for unreimbursed amounts
advanced as described under "Description of the Certificates--Advances
in Respect of Delinquencies", such reimbursement to be made out of
amounts received which were identified and applied by the Master
Servicer as late collections of interest (net of related servicing
fees and Retained Interest) on and principal of the particular
Mortgage Loans with respect to which the advances were made or out of
amounts drawn under any form of Credit Support with respect to such
Mortgage Loans;
(iii) to reimburse a Master Servicer for unpaid servicing fees
earned and certain unreimbursed servicing expenses incurred with
respect to Mortgage Loans in the Trust Fund and properties acquired in
respect thereof, such reimbursement to be made out of amounts that
represent Liquidation Proceeds and Insurance Proceeds collected on the
particular Mortgage Loans and properties, and net income collected on
the particular properties, with respect to which such fees were earned
or such expenses were incurred or out of amounts drawn under any form
of Credit Support with respect to such Mortgage Loans and properties;
(iv) to reimburse a Master Servicer for any advances described in
clause (ii) above and any servicing expenses described in clause (iii)
above which, in the Master Servicer's good faith judgment, will not be
recoverable from the amounts described in clauses (ii) and (iii),
respectively, such reimbursement to be made from amounts collected on
other Mortgage Assets or, if and to the extent so provided by the
related Agreement and described in the related Prospectus Supplement,
just from that portion of amounts collected on other Mortgage Assets
that is otherwise distributable on one or more classes of Subordinate
Certificates of the related series;
(v) if and to the extent described in the related Prospectus
Supplement, to pay a Master Servicer interest accrued on the advances
described in clause (ii) above and the servicing expenses described in
clause (iii) above while such remain outstanding and unreimbursed;
(vi) to pay for costs and expenses incurred by the Trust Fund for
environmental site assessments with respect to, and for containment,
clean-up or remediation of hazardous wastes and materials on,
Mortgaged Properties securing defaulted Mortgage Loans in the Trust
Fund as described under "--Realization Upon Defaulted Whole Loans";
39
<PAGE>
<PAGE>
(vii) to reimburse a Master Servicer, the Depositor, or any of
their respective directors, officers, employees and agents, as the
case may be, for certain expenses, costs and liabilities incurred
thereby, as and to the extent described under "--Certain Matters
Regarding a Master Servicer and the Depositor";
(viii) if and to the extent described in the related Prospectus
Supplement, to pay (or to transfer to a separate account for purposes
of escrowing for the payment of) the Trustee's fees;
(ix) to reimburse the Trustee or any of its directors, officers,
employees and agents, as the case may be, for certain expenses, costs
and liabilities incurred thereby, as and to the extent described under
"--Certain Matters Regarding the Trustee";
(x) to pay a Master Servicer, as additional servicing
compensation, interest and investment income earned in respect of
amounts held in the Certificate Account;
(xi) to pay the person entitled thereto any amounts deposited in
the Certificate Account that were identified and applied by the Master
Servicer as recoveries of Retained Interest;
(xii) to pay for costs reasonably incurred in connection with the
proper operation, management and maintenance of any Mortgaged Property
acquired for the benefit of Certificateholders by foreclosure or by
deed in lieu of foreclosure or otherwise, such payments to be made out
of income received on such property;
(xiii) if one or more elections have been made to treat the Trust
Fund or designated portions thereof as a REMIC, to pay any federal,
state or local taxes imposed on the Trust Fund or its assets or
transactions, as and to the extent described under "Certain Federal
Income Tax Consequences--REMICS--Prohibited Transactions Tax and Other
Taxes";
(xiv) to pay for the cost of an independent appraiser or other
expert in real estate matters retained to determine a fair sale price
for a defaulted Mortgage Loan in the Trust Fund or a property acquired
in respect thereof in connection with the liquidation of such Mortgage
Loan or property;
(xv) to pay for the cost of various opinions of counsel obtained
pursuant to the related Agreement for the benefit of
Certificateholders;
(xvi) to pay for the costs of recording the related Agreement if
such recordation materially and beneficially affects the interests of
Certificateholders;
(xvii) to pay the person entitled thereto any amounts deposited
in the Certificate Account in error, including amounts received on any
Mortgage Asset after its removal from the Trust Fund whether by reason
of purchase or substitution as contemplated by "--Assignment of
Mortgage Assets; Repurchase" and "--Representations and Warranties;
Repurchases" or otherwise;
(xviii) to make any other withdrawals permitted by the related
Agreement and described in the related Prospectus Supplement; and
(xix) to clear and terminate the Certificate Account at the
termination of the Trust Fund.
COLLECTION AND OTHER SERVICING PROCEDURES
Unless otherwise provided in the related Prospectus Supplement, the
Master Servicer, directly or through Sub-Servicers, is required to make
reasonable efforts to collect all scheduled payments under the Whole Loans and
will follow or cause to be followed such collection procedures as it would
follow with respect to mortgage loans that are comparable to the Whole Loans and
held for its own account, provided such procedures are consistent with (i) the
terms of the related Agreement and any related hazard insurance policy or
instrument of Credit Support included in the related Trust Fund described herein
or under "Description of Credit Support", (ii) applicable law and (iii) the
general servicing standard specified in the related Prospectus Supplement or, if
no such standard is so specified, its normal servicing practices (in either
case, the "Servicing Standard"). In connection therewith, the Master Servicer
will be permitted in its discretion to waive any late payment charge or penalty
interest in respect of a late Whole Loan payment.
Each Master Servicer will also be required to perform other customary
functions of a servicer of comparable loans, including maintaining hazard
insurance policies as described herein and in any related Prospectus Supplement,
and filing and settling claims thereunder; maintaining escrow or impoundment
40
<PAGE>
<PAGE>
accounts of mortgagors for payment of taxes, insurance and other items required
to be paid by any mortgagor pursuant to the Whole Loan; processing assumptions
or substitutions in those cases where the Master Servicer has determined not to
enforce any applicable due-on-sale clause; attempting to cure delinquencies;
supervising foreclosures; inspecting and managing Mortgaged Properties acquired
on behalf of the Trust Fund through foreclosure, deed-in-lieu of foreclosure or
otherwise (each, an "REO Property"); and maintaining accounting records relating
to the Whole Loans. Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will be responsible for filing and settling
claims in respect of particular Whole Loans under any applicable instrument of
Credit Support. See "Description of Credit Support".
Unless otherwise provided in the related Prospectus Supplement, the
Master Servicer may agree to modify, waive or amend any term of any Whole Loan
in a manner consistent with the Servicing Standard so long as the modification,
waiver or amendment will not (i) affect the amount or timing of any scheduled
payments of principal or interest on the Whole Loan or (ii) in its judgment,
materially impair the security for the Whole Loan or reduce the likelihood of
timely payment of amounts due thereon. The Master Servicer also may agree to any
modification, waiver or amendment that would so affect or impair the payments
on, or the security for, a Whole Loan if, unless otherwise provided in the
related Prospectus Supplement, (i) in its judgment, a material default on the
Whole Loan has occurred or a payment default is imminent and (ii) in its
judgment, such modification, waiver or amendment is reasonably likely to produce
a greater recovery with respect to the Whole Loan on a present value basis than
would liquidation. The Master Servicer is required to notify the Trustee in the
event of any modification, waiver or amendment of any Whole Loan.
SUB-SERVICERS
A Master Servicer may delegate its servicing obligations in respect of
the Whole Loans to third-party servicers (each, a "Sub-Servicer"), but such
Master Servicer will remain obligated under the related Agreement. Each
sub-servicing agreement between a Master Servicer and a Sub-Servicer (a
"Sub-Servicing Agreement") must be consistent with the terms of the related
Agreement and must provide that, if for any reason the Master Servicer for the
related series of Certificates is no longer acting in such capacity, the Trustee
or any successor Master Servicer may assume the Master Servicer's rights and
obligations under such Sub-Servicing Agreement.
Unless otherwise provided in the related Prospectus Supplement, the
Master Servicer will be solely liable for all fees owed by it to any
Sub-Servicer, irrespective of whether the Master Servicer's compensation
pursuant to the related Agreement is sufficient to pay such fees. However, a
Sub-Servicer may be entitled to a Retained Interest in certain Whole Loans. Each
Sub-Servicer will be reimbursed by the Master Servicer for certain expenditures
which it makes, generally to the same extent the Master Servicer would be
reimbursed under an Agreement. See "--Retained Interest, Servicing Compensation
and Payment of Expenses".
SPECIAL SERVICERS
To the extent so specified in the related Prospectus Supplement, one or
more Special Servicers may be a party to the related Agreement or may be
appointed by the Master Servicer or another specified party. A Special Servicer
for any series of Certificates may be an affiliate of the Depositor or the
Master Servicer and may hold, or be affiliated with the holder of, Subordinate
Certificates of such series. A Special Servicer may be entitled to any of the
rights, and subject to any of the obligations, described herein in respect of a
Master Servicer. In general, a Special Servicer's duties will relate to
defaulted Mortgage Loans, including instituting foreclosures and negotiating
work-outs. The related Prospectus Supplement will describe the rights,
obligations and compensation of any Special Servicer for a particular series of
Certificates. The Master Servicer will be liable for the performance of a
Special Servicer only if, and to the extent, set forth in the related Prospectus
Supplement. In certain cases the Master Servicer may be appointed the Special
Servicer.
In general, the Special Servicer will be obligated to operate and
manage any Mortgaged Property acquired as REO Property in a manner that would,
to the extent commercially feasible, maximize the Trust Fund's net after-tax
proceeds from such property. After the Special Servicer reviews the operation of
such property and consults with the Trustee to determine the Trustee's federal
income tax reporting position with respect to the income it is anticipated that
the Trust Fund would derive from such property, the Special
41
<PAGE>
<PAGE>
Servicer could determine (particularly in the case of REO Properties that are
hotels) that it would not be commercially feasible to manage and operate such
property in a manner that would avoid the imposition of a tax on "net income
from foreclosure property" within the meaning of Section 857(b)(4)(B) of the
Code or a tax on "prohibited transactions" under Section 860F of the Code
(either such tax referred to herein as an "REO Tax"). To the extent that income
the Trust Fund receives from an REO Property is subject to a tax on (i) "net
income from foreclosure property", such income would be subject to federal tax
at the highest marginal corporate tax rate (currently 35%) or (ii) "prohibited
transactions", such income would be subject to federal tax at a 100% rate. The
determination as to whether income from an REO Property would be subject to an
REO Tax will depend on the specific facts and circumstances relating to the
management and operation of each REO Property. Generally, income from an REO
Property that is directly operated by the Special Servicer would be apportioned
and classified as "service" or "non-service" income. The "service" portion of
such income could be subject to federal tax either at the highest marginal
corporate tax rate or at the 100% rate on "prohibited transactions", and the
"non-service" portion of such income could be subject to federal tax at the
highest marginal corporate tax rate or, although it appears unlikely, at the
100% rate applicable to "prohibited transactions". Any REO Tax imposed on the
Trust Fund's income from an REO Property would reduce the amount available for
distribution to Certificateholders. Certificateholders are advised to consult
their tax advisors regarding the possible imposition of REO Taxes in connection
with the operation of commercial REO Properties by REMICs. See "Certain Federal
Income Tax Consequences" herein.
REALIZATION UPON DEFAULTED WHOLE LOANS
A mortgagor's failure to make required payments may reflect inadequate
operating income or the diversion of that income from the service of payments
due under the Mortgage Loan, and may call into question such mortgagor's ability
to make timely payment of taxes and to pay for necessary maintenance of the
related Mortgaged Property. Unless otherwise provided in the related Prospectus
Supplement, the Master Servicer is required to monitor any Whole Loan which is
in default, contact the mortgagor concerning the default, evaluate whether the
causes of the default can be cured over a reasonable period without significant
impairment of the value of the Mortgaged Property, initiate corrective action in
cooperation with the mortgagor if cure is likely, inspect the Mortgaged Property
and take such other actions as are consistent with the Servicing Standard. A
significant period of time may elapse before the Master Servicer is able to
assess the success of such corrective action or the need for additional
initiatives.
The time within which the Master Servicer makes the initial
determination of appropriate action, evaluates the success of corrective action,
develops additional initiatives, institutes foreclosure proceedings and actually
forecloses (or takes a deed to a Mortgaged Property in lieu of foreclosure) on
behalf of the Certificateholders, may vary considerably depending on the
particular Whole Loan, the Mortgaged Property, the mortgagor, the presence of an
acceptable party to assume the Mortgage Loan and the laws of the jurisdiction in
which the Mortgaged Property is located. Under federal bankruptcy law, the
Master Servicer in certain cases may not be permitted to accelerate a Whole Loan
or to foreclose on a Mortgaged Property for a considerable period of time. See
"Certain Legal Aspects of Mortgage Loans".
Any Agreement relating to a Trust Fund that includes Whole Loans may
grant to the Master Servicer and/or the holder or holders of certain classes of
Certificates a right of first refusal to purchase from the Trust Fund at a
predetermined purchase price any such Whole Loan as to which a specified number
of scheduled payments thereunder are delinquent. Any such right granted to the
holder of an Offered Certificate will be described in the related Prospectus
Supplement. The related Prospectus Supplement will also describe any such right
granted to any person if the predetermined purchase price is less than the
Purchase Price described under "--Representations and Warranties; Repurchases".
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer may offer to sell any defaulted Whole Loan described in the
preceding paragraph and not otherwise purchased by any person having a right of
first refusal with respect thereto, if and when the Master Servicer determines,
consistent with the Servicing Standard, that such a sale would produce a greater
recovery on a present value basis than would liquidation through foreclosure or
similar proceeding. The related Agreement will provide that any such offering be
made in a commercially reasonable manner for a specified period and that the
Master Servicer accept the highest cash bid received from any person (including
itself, an affiliate of the Master Servicer or any Certificateholder) that
constitutes a fair price for such defaulted Whole Loan. In the absence of any
bid determined in accordance with the related Agreement to be fair, the Master
42
<PAGE>
<PAGE>
Servicer shall proceed with respect to such defaulted Mortgage Loan as described
below. Any bid in an amount at least equal to the Purchase Price described under
"--Representations and Warranties; Repurchases" will in all cases be deemed
fair.
The Master Servicer, on behalf of the Trustee, may at any time
institute foreclosure proceedings, exercise any power of sale contained in any
mortgage, obtain a deed in lieu of foreclosure, or otherwise acquire title to a
Mortgaged Property securing a Whole Loan by operation of law or otherwise, if
such action is consistent with the Servicing Standard and a default on the
related Mortgage Loan has occurred or, in the Master Servicer's judgment, is
imminent. Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer may not, however, acquire title to any Mortgaged Property or
take any other action that would cause the Trustee, for the benefit of
Certificateholders, or any other specified person to be considered to hold title
to, to be a "mortgagee-in-possession" of, or to be an "owner" or an "operator"
of such Mortgaged Property within the meaning of certain federal environmental
laws, unless the Master Servicer has previously determined, based on a report
prepared by a person who regularly conducts environmental audits (which report
will be an expense of the Trust Fund), that either:
(i) the Mortgaged Property is in compliance with applicable
environmental laws, and there are no circumstances present at the
Mortgaged Property relating to the use, management or disposal of any
hazardous substances, hazardous materials, wastes, or petroleum-based
materials for which investigation, testing, monitoring, containment,
clean-up or remediation could be required under any federal, state or
local law or regulation; or
(ii) if the Mortgaged Property is not so in compliance or such
circumstances are so present, then it would be in the best economic
interest of the Trust Fund to acquire title to the Mortgaged Property
and further to take such actions as would be necessary and appropriate
to effect such compliance and/or respond to such circumstances (the
cost of which actions will be an expense of the Trust Fund).
Unless otherwise provided in the related Prospectus Supplement, if
title to any Mortgaged Property is acquired by a Trust Fund as to which a REMIC
election has been made, the Master Servicer, on behalf of the Trust Fund, will
be required to sell the Mortgaged Property within two years of acquisition,
unless (i) the Internal Revenue Service grants an extension of time to sell such
property or (ii) the Trustee receives an opinion of independent counsel to the
effect that the holding of the property by the Trust Fund subsequent to two
years after its acquisition will not result in the imposition of a tax on the
Trust Fund or cause the Trust Fund to fail to qualify as a REMIC under the Code
at any time that any Certificate is outstanding. Subject to the foregoing, the
Master Servicer will be required to (i) solicit bids for any Mortgaged Property
so acquired in such a manner as will be reasonably likely to realize a fair
price for such property and (ii) accept the first (and, if multiple bids are
contemporaneously received, the highest) cash bid received from any person that
constitutes a fair price.
If the Trust Fund acquires title to any Mortgaged Property, the Master
Servicer, on behalf of the Trust Fund, may retain an independent contractor to
manage and operate such property. The retention of an independent contractor,
however, will not relieve the Master Servicer of any of its obligations with
respect to the management and operation of such Mortgaged Property. Unless
otherwise specified in the related Prospectus Supplement, any such property
acquired by the Trust Fund will be managed in a manner consistent with the
management and operation of similar property by a prudent lending institution.
The limitations imposed by the related Agreement and the REMIC
provisions of the Code (if a REMIC election has been made with respect to the
related Trust Fund) on the operations and ownership of any Mortgaged Property
acquired on behalf of the Trust Fund may result in the recovery of an amount
less than the amount that would otherwise be recovered. See "Certain Legal
Aspects of Mortgage Loans--Foreclosure".
If recovery on a defaulted Whole Loan under any related instrument of
Credit Support is not available, the Master Servicer nevertheless will be
obligated to follow or cause to be followed such normal practices and procedures
as it deems necessary or advisable to realize upon the defaulted Whole Loan. If
the proceeds of any liquidation of the property securing the defaulted Whole
Loan are less than the outstanding principal balance of the defaulted Whole Loan
plus interest accrued thereon at the Mortgage Rate plus the aggregate amount of
expenses incurred by the Master Servicer in connection with such proceedings and
which are reimbursable under the Agreement, the Trust Fund will realize a loss
in the
43
<PAGE>
<PAGE>
amount of such difference. The Master Servicer will be entitled to withdraw or
cause to be withdrawn from the Certificate Account out of the Liquidation
Proceeds recovered on any defaulted Whole Loan, prior to the distribution of
such Liquidation Proceeds to Certificateholders, amounts representing its normal
servicing compensation on the Whole Loan, unreimbursed servicing expenses
incurred with respect to the Whole Loan and any unreimbursed advances of
delinquent payments made with respect to the Whole Loan.
Unless otherwise provided in the related Agreement and described in the
related Prospectus Supplement, if any property securing a defaulted Whole Loan
is damaged and proceeds, if any, from the related hazard insurance policy are
insufficient to restore the damaged property to a condition sufficient to permit
recovery under the related instrument of Credit Support, if any, the Master
Servicer is not required to expend its own funds to restore the damaged property
unless it determines (i) that such restoration will increase the proceeds to
Certificateholders on liquidation of the Whole Loan after reimbursement of the
Master Servicer for its expenses and (ii) that such expenses will be recoverable
by it from related Insurance Proceeds or Liquidation Proceeds.
As servicer of the Whole Loans, a Master Servicer, on behalf of itself,
the Trustee and the Certificateholders, will present claims to the obligor under
each instrument of Credit Support, and will take such reasonable steps as are
necessary to receive payment or to permit recovery thereunder with respect to
defaulted Whole Loans.
If a Master Servicer or its designee recovers payments under any
instrument of Credit Support with respect to any defaulted Whole Loan, the
Master Servicer will be entitled to withdraw or cause to be withdrawn from the
Certificate Account out of such proceeds, prior to distribution thereof to
Certificateholders, amounts representing its normal servicing compensation on
such Whole Loan, unreimbursed servicing expenses incurred with respect to the
Whole Loan and any unreimbursed advances of delinquent payments made with
respect to the Whole Loan. See "--Hazard Insurance Policies" and "Description of
Credit Support".
HAZARD INSURANCE POLICIES
Unless otherwise specified in the related Prospectus Supplement, each
Agreement for a Trust Fund that includes Whole Loans will require the Master
Servicer to cause the mortgagor on each Whole Loan to maintain a hazard
insurance policy providing for such coverage as is required under the related
Mortgage or, if any Mortgage permits the holder thereof to dictate to the
mortgagor the insurance coverage to be maintained on the related Mortgaged
Property, then such coverage as is consistent with the Servicing Standard.
Unless otherwise specified in the related Agreement and described in the related
Prospectus Supplement, such coverage will be in general in an amount equal to
the lesser of the principal balance owing on such Whole Loan and the amount
necessary to fully compensate for any damage or loss to the improvements on the
Mortgaged Property on a replacement cost basis, but in either case not less than
the amount necessary to avoid the application of any co-insurance clause
contained in the hazard insurance policy. The ability of the Master Servicer to
assure that hazard insurance proceeds are appropriately applied may be dependent
upon its being named as an additional insured under any hazard insurance policy
and under any other insurance policy referred to below, or upon the extent to
which information in this regard is furnished by mortgagors. All amounts
collected by the Master Servicer under any such policy (except for amounts to be
applied to the restoration or repair of the Mortgaged Property or released to
the mortgagor in accordance with the Master Servicer's normal servicing
procedures, subject to the terms and conditions of the related Mortgage and
Mortgage Note) will be deposited in the Certificate Account. The Agreement will
provide that the Master Servicer may satisfy its obligation to cause each
mortgagor to maintain such a hazard insurance policy by the Master Servicer's
maintaining a blanket policy or a master single interest policy insuring against
hazard losses on the Whole Loans. Unless otherwise provided in the related
Prospectus Supplement, if such policy contains a deductible clause, the Master
Servicer will be required to deposit in the Certificate Account all sums that
would have been deposited therein but for such clause. Unless otherwise
specified in the related Prospectus Supplement, the Master Servicer will also be
required to maintain a fidelity bond and errors and omissions policy with
respect to its officers and employees that provides coverage against losses that
may be sustained as a result of an officer's or employee's misappropriation of
funds, errors and omissions or negligence, subject to certain limitations as to
amount of coverage, deductible amounts, conditions, exclusions and exceptions.
44
<PAGE>
<PAGE>
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements of the property by
fire, lightning, explosion, smoke, windstorm and hail, and riot, strike and
civil commotion, subject to the conditions and exclusions specified in each
policy. Although the policies relating to the Whole Loans will be underwritten
by different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by respective state laws, and
most such policies typically do not cover any physical damage resulting from
war, revolution, governmental actions, floods and other water-related causes,
earth movement (including earthquakes, landslides and mudflows), wet or dry rot,
vermin, domestic animals and certain other kinds of uninsured risks.
The hazard insurance policies covering the Mortgaged Properties
securing the Whole Loans will typically contain a co-insurance clause that in
effect requires the insured at all times to carry insurance of a specified
percentage (generally 80% to 90%) of the full replacement value of the
improvements on the property in order to recover the full amount of any partial
loss. If the insured's coverage falls below this specified percentage, such
clause generally provides that the insurer's liability in the event of partial
loss does not exceed the lesser of (i) the replacement cost of the improvements
less physical depreciation and (ii) such proportion of the loss as the amount of
insurance carried bears to the specified percentage of the full replacement cost
of such improvements.
Unless otherwise provided in the related Agreement and described in the
related Prospectus Supplement, a Trust Fund that includes Whole Loans will
require the Master Servicer to cause the mortgagor on each Whole Loan to
maintain all such other insurance coverage with respect to the related Mortgaged
Property as is consistent with the terms of the related Mortgage and the
Servicing Standard, which insurance may typically include flood insurance (if
the related Mortgaged Property was located at the time of origination in a
federally designated flood area) and business interruption or loss of rents
insurance.
Under the terms of the Whole Loans, mortgagors will generally be
required to present claims to insurers under hazard insurance policies
maintained on the related Mortgaged Properties. The Master Servicer, on behalf
of the Trustee and Certificateholders, is obligated to present or cause to be
presented claims under any blanket insurance policy insuring against hazard
losses on Mortgaged Properties securing the Whole Loans. However, the ability of
the Master Servicer to present or cause to be presented such claims is dependent
upon the extent to which information in this regard is furnished to the Master
Servicer by mortgagors.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Whole Loans may contain clauses requiring the consent of
the mortgagee to any sale or other transfer of the related Mortgaged Property,
or due-on-sale clauses entitling the mortgagee to accelerate payment of the
Whole Loan upon any sale or other transfer of the related Mortgaged Property.
Certain of the Whole Loans may contain clauses requiring the consent of the
mortgagee to the creation of any other lien or encumbrance on the Mortgaged
Property or due-on-encumbrance clauses entitling the mortgagee to accelerate
payment of the Whole Loan upon the creation of any other lien or encumbrance
upon the Mortgaged Property. Unless otherwise provided in the related Prospectus
Supplement, the Master Servicer, on behalf of the Trust Fund, will determine
whether to exercise any right the Trustee may have as mortgagee to accelerate
payment of any such Whole Loan or to withhold its consent to any transfer or
further encumbrance in a manner consistent with the Servicing Standard. Unless
otherwise specified in the related Prospectus Supplement, any fee collected by
or on behalf of the Master Servicer for entering into an assumption agreement
will be retained by or on behalf of the Master Servicer as additional servicing
compensation. See "Certain Legal Aspects of Mortgage Loans--Due-on-Sale and
Due-on-Encumbrance".
RETAINED INTEREST; SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Prospectus Supplement for a series of Certificates will specify
whether there will be any Retained Interest in the Mortgage Assets, and, if so,
the owner thereof. If so, the Retained Interest will be established on a
loan-by-loan basis and will be specified on an exhibit to the related Agreement.
A "Retained Interest" in a Mortgage Asset represents a specified portion of the
interest payable thereon. The Retained Interest will be deducted from mortgagor
payments as received and will not be part of the related Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, a
Master Servicer's primary servicing compensation with respect to a series of
Certificates will come from the periodic payment to it of
45
<PAGE>
<PAGE>
a portion of the interest payment on each Whole Loan. Since any Retained
Interest and a Master Servicer's primary compensation are percentages of the
principal balance of each Mortgage Asset, such amounts will decrease in
accordance with the amortization of the Mortgage Loans underlying or comprising
such Mortgage Asset. The Prospectus Supplement with respect to a series of
Certificates evidencing interests in a Trust Fund that includes Whole Loans may
provide that, as additional compensation, the Master Servicer or the
Sub-Servicers may retain all or a portion of assumption fees, modification fees,
late payment charges or Prepayment Premiums collected from mortgagors and any
interest or other income which may be earned on funds held in the Certificate
Account or any Sub-Servicing Account. Any Sub-Servicer will receive a portion of
the Master Servicer's compensation as its sub-servicing compensation.
In addition to amounts payable to any Sub-Servicer, a Master Servicer
may, to the extent provided in the related Prospectus Supplement, pay from its
servicing compensation certain expenses incurred in connection with its
servicing of the Mortgage Loans, including, without limitation, payment of the
fees and disbursements of the Trustee and independent accountants, payment of
expenses incurred in connection with distributions and reports to
Certificateholders, and payment of any other expenses described in the related
Prospectus Supplement. Certain other expenses, including certain expenses
relating to defaults and liquidations on the Mortgage Loans and, to the extent
so provided in the related Prospectus Supplement, interest thereon at the rate
specified therein, and the fees of any Special Servicer, may be borne by the
Trust Fund.
If and to the extent provided in the related Prospectus Supplement, the
Master Servicer may be required to apply a portion of the servicing compensation
otherwise payable to it in respect of any Due Period or Prepayment Period, as
applicable, to certain interest shortfalls resulting from the voluntary
prepayment of any Whole Loans in the related Trust Fund during such period prior
to their respective due dates therein.
EVIDENCE AS TO COMPLIANCE
Unless otherwise specified in the related Prospectus Supplement, each
Agreement will provide that on or before a specified date in each year,
beginning on the first such date that is at least a specified number of months
after the Cut-off Date, there will be furnished to the related Trustee a report
of a firm of independent certified public accountants stating that (i) it has
obtained a letter of representation regarding certain matters from the
management of the Master Servicer which includes an assertion that the Master
Servicer has complied with certain minimum mortgage loan servicing standards (to
the extent applicable to commercial and multifamily mortgage loans), identified
in the Uniform Single Attestation Program for Mortgage Bankers established by
the Mortgage Bankers Association of America, with respect to the servicing of
commercial and multifamily mortgage loans by the Master Servicer during the most
recently completed fiscal year and (ii) on the basis of an examination conducted
by such firm in accordance with standards established by the American Institute
of Certified Public Accountants, such representation is fairly stated in all
material respects, subject to such exceptions and other qualifications as may be
appropriate. In rendering its report such firm may rely, as to matters relating
to the direct servicing of commercial and multifamily mortgage loans by
Sub-Servicers, upon comparable reports of firms of independent public
accountants rendered on the basis of examinations conducted in accordance the
same standards (rendered within one year of such report) with respect to those
Sub-Servicers. The Prospectus Supplement may provide that additional or
alternative reports of independent certified public accountants relating to the
servicing of mortgage loans may be required to be delivered to the Trustee.
Each such Agreement will also provide for delivery to the Trustee, on
or before a specified date in each year, of an annual statement signed by two
officers of the Master Servicer to the effect that the Master Servicer has
fulfilled its obligations under the Agreement throughout the preceding calendar
year or other specified twelve month period.
Unless otherwise provided in the related Prospectus Supplement, copies
of the annual accountants' statement and the statement of officers of a Master
Servicer will be obtainable by Certificateholders without charge upon written
request to the Master Servicer at the address set forth in the related
Prospectus Supplement.
46
<PAGE>
<PAGE>
CERTAIN MATTERS REGARDING A MASTER SERVICER AND THE DEPOSITOR
The Master Servicer, if any, under each Agreement will be named in the
related Prospectus Supplement. The entity serving as Master Servicer may be an
affiliate of the Depositor and may have other normal business relationships with
the Depositor or the Depositor's affiliates.
Unless otherwise specified in the related Prospectus Supplement, the
related Agreement will provide that the Master Servicer may resign from its
obligations and duties thereunder only upon a determination that its duties
under the Agreement are no longer permissible under applicable law or are in
material conflict by reason of applicable law with any other activities carried
on by it, the other activities of the Master Servicer so causing such a conflict
being of a type and nature carried on by the Master Servicer at the date of the
Agreement. Unless applicable law requires the Master Servicer's immediate
resignation, no such resignation will become effective until the Trustee or a
successor servicer has assumed the Master Servicer's obligations and duties
under the Agreement.
Unless otherwise specified in the related Prospectus Supplement, each
Agreement will further provide that neither any Master Servicer, the Depositor
nor any director, officer, employee, or agent of a Master Servicer or the
Depositor will be under any liability to the related Trust Fund or
Certificateholders for any action taken, or for refraining from the taking of
any action, in good faith pursuant to the Agreement; provided, however, that
neither a Master Servicer, the Depositor nor any such person will be protected
against any breach of a representation or warranty made in such Agreement, or
against any liability specifically imposed thereby, or against any liability
which would otherwise be imposed by reason of willful misfeasance, bad faith or
gross negligence in the performance of obligations or duties thereunder or by
reason of reckless disregard of obligations and duties thereunder. Unless
otherwise specified in the related Prospectus Supplement, each Agreement will
further provide that any Master Servicer, the Depositor and any director,
officer, employee or agent of a Master Servicer or the Depositor will be
entitled to indemnification by the related Trust Fund and will be held harmless
against any loss, liability or expense incurred in connection with any legal
action relating to the Agreement or the Certificates; provided, however, that
such indemnification will not extend to any loss, liability or expense (i)
specifically imposed by such Agreement or otherwise incidental to the
performance of obligations and duties thereunder, including, in the case of a
Master Servicer, the prosecution of an enforcement action in respect of any
specific Whole Loan or Whole Loans (except as any such loss, liability or
expense shall be otherwise reimbursable pursuant to such Agreement); (ii)
incurred in connection with any breach of a representation or warranty made in
such Agreement; (iii) incurred by reason of misfeasance, bad faith or gross
negligence in the performance of obligations or duties thereunder, or by reason
of reckless disregard of such obligations or duties; or (iv) incurred in
connection with any violation of any state or federal securities law. In
addition, each Agreement will provide that neither any Master Servicer nor the
Depositor will be under any obligation to appear in, prosecute or defend any
legal action which is not incidental to its respective responsibilities under
the Agreement and which in its opinion may involve it in any expense or
liability. Any such Master Servicer or the Depositor may, however, in its
discretion undertake any such action which it may deem necessary or desirable
with respect to the Agreement and the rights and duties of the parties thereto
and the interests of the Certificateholders thereunder. In such event, the legal
expenses and costs of such action and any liability resulting therefrom will be
expenses, costs and liabilities of the Certificateholders, and the Master
Servicer or the Depositor, as the case may be, will be entitled to be reimbursed
therefor and to charge the Certificate Account.
Any person into which the Master Servicer or the Depositor may be
merged or consolidated, or any person resulting from any merger or consolidation
to which the Master Servicer or the Depositor is a party, or any person
succeeding to the business of the Master Servicer or the Depositor, will be the
successor of the Master Servicer or the Depositor, as the case may be, under the
related Agreement.
EVENTS OF DEFAULT
Unless otherwise provided in the related Prospectus Supplement for a
Trust Fund that includes Whole Loans, Events of Default under the related
Agreement will include (i) any failure by the Master Servicer to distribute or
cause to be distributed to Certificateholders, or to remit to the Trustee for
distribution to Certificateholders, any required payment that continues
unremedied for five days after written notice of such failure has been given to
the Master Servicer by the Trustee or the Depositor, or to the Master Servicer,
the Depositor and the Trustee by the holders of Certificates evidencing not less
than 25%
47
<PAGE>
<PAGE>
of the Voting Rights; (ii) any failure by the Master Servicer duly to observe or
perform in any material respect any of its other covenants or obligations under
the Agreement which continues unremedied for thirty days after written notice of
such failure has been given to the Master Servicer by the Trustee or the
Depositor, or to the Master Servicer, the Depositor and the Trustee by the
holders of Certificates evidencing not less than 25% of the Voting Rights; (iii)
any breach of a representation or warranty made by the Master Servicer under the
Agreement which materially and adversely affects the interests of
Certificateholders and which continues unremedied for thirty days after written
notice of such breach has been given to the Master Servicer by the Trustee or
the Depositor, or to the Master Servicer, the Depositor and the Trustee by the
holders of Certificates evidencing not less than 25% of the Voting Rights; and
(iv) certain events of insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings and certain actions by or on behalf of
the Master Servicer indicating its insolvency or inability to pay its
obligations. Material variations to the foregoing Events of Default (other than
to shorten cure periods or eliminate notice requirements) will be specified in
the related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, the Trustee shall, not later than the later of 60 days
after the occurrence of any event which constitutes or, with notice or lapse of
time or both, would constitute an Event of Default and five days after certain
officers of the Trustee become aware of the occurrence of such an event,
transmit by mail to the Depositor and all Certificateholders of the applicable
series notice of such occurrence, unless such default shall have been cured or
waived.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under an Agreement remains unremedied,
the Depositor or the Trustee may, and at the direction of holders of
Certificates evidencing not less than 51% of the Voting Rights, the Trustee
shall, terminate all of the rights and obligations of the Master Servicer under
the Agreement and in and to the Mortgage Loans (other than as a
Certificateholder or as the owner of any Retained Interest), whereupon the
Trustee will succeed to all of the responsibilities, duties and liabilities of
the Master Servicer under the Agreement (except that if the Trustee is
prohibited by law from obligating itself to make advances regarding delinquent
mortgage loans, or if the related Prospectus Supplement so specifies, then the
Trustee will not be obligated to make such advances) and will be entitled to
similar compensation arrangements. Unless otherwise specified in the related
Prospectus Supplement, in the event that the Trustee is unwilling or unable so
to act, it may or, at the written request of the holders of Certificates
entitled to at least 51% of the Voting Rights, it shall appoint, or petition a
court of competent jurisdiction for the appointment of, a loan servicing
institution acceptable to the Rating Agency with a net worth at the time of such
appointment of at least $10,000,000 to act as successor to the Master Servicer
under the Agreement. Pending such appointment, the Trustee is obligated to act
in such capacity. The Trustee and any such successor may agree upon the
servicing compensation to be paid, which in no event may be greater than the
compensation payable to the Master Servicer under the Agreement.
Unless otherwise described in the related Prospectus Supplement, the
holders of Certificates representing at least 66 2/3% of the Voting Rights
allocated to the respective classes of Certificates affected by any Event of
Default will be entitled to waive such Event of Default; provided, however, that
an Event of Default described in clause (i) under "--Events of Default" may be
waived only by all of the Certificateholders. Upon any such waiver of an Event
of Default, such Event of Default shall cease to exist and shall be deemed to
have been remedied for every purpose under the Agreement.
No Certificateholder will have the right under any Agreement to
institute any proceeding with respect thereto unless such holder previously has
given to the Trustee written notice of default and unless the holders of
Certificates evidencing not less than 25% of the Voting Rights have made written
request upon the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity, and the Trustee
for sixty days has neglected or refused to institute any such proceeding. The
Trustee, however, is under no obligation to exercise any of the trusts or powers
vested in it by any Agreement or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation thereunder or in
relation thereto at the request, order or direction of any of the holders of
Certificates covered by such Agreement, unless such Certificateholders have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
48
<PAGE>
<PAGE>
AMENDMENT
Unless otherwise provided in the related Prospectus Supplement, such
Agreement may be amended by the Depositor, the Master Servicer, if any, and the
Trustee, without the consent of any of the holders of Certificates covered by
the Agreement, (i) to cure any ambiguity, (ii) to correct, modify or supplement
any provision therein which may be inconsistent with any other provision
therein, (iii) to make any other provisions with respect to matters or questions
arising under the Agreement which are not inconsistent with the provisions
thereof, or (iv) to comply with any requirements imposed by the Code; provided
that such amendment (other than an amendment for the purpose specified in clause
(iv) above) will not (as evidenced by an opinion of counsel to such effect)
adversely affect in any material respect the interests of any holder of
Certificates covered by the Agreement. Unless otherwise specified in the related
Prospectus Supplement, each Agreement may also be amended by the Depositor, the
Master Servicer, if any, and the Trustee, with the consent of the holders of
Certificates evidencing not less than 51% of the Voting Rights, for any purpose;
provided, however, that unless otherwise specified in the related Prospectus
Supplement, no such amendment may (i) reduce in any manner the amount of or
delay the timing of, payments received or advanced on Mortgage Loans which are
required to be distributed on any Certificate without the consent of the holder
of such Certificate, (ii) adversely affect in any material respect the interests
of the holders of any class of Certificates in a manner other than as described
in (i), without the consent of the holders of all Certificates of such class or
(iii) modify the provisions of such Agreement described in this paragraph
without the consent of the holders of all Certificates covered by such Agreement
then outstanding. However, with respect to any series of Certificates as to
which a REMIC election is to be made, the Trustee will not consent to any
amendment of the Agreement unless it shall first have received an opinion of
counsel to the effect that such amendment will not result in the imposition of a
tax on the related Trust Fund or cause the related Trust Fund to fail to qualify
as a REMIC at any time that the related Certificates are outstanding.
LIST OF CERTIFICATEHOLDERS
Upon written request of any Certificateholder of record of a series of
Certificates, for purposes of communicating with other Certificateholders with
respect to their rights under the Agreement for such series, the Trustee will
afford such Certificateholder access during business hours to the most recent
list of Certificateholders of that series held by the Trustee.
THE TRUSTEE
The Trustee under each Agreement will be named in the related
Prospectus Supplement. The commercial bank, national banking association,
banking corporation or trust company serving as Trustee may have typical banking
relationships with the Depositor and its affiliates and with any Master Servicer
and its affiliates.
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or
sufficiency of any Agreement, the Certificates or any Mortgage Loan or related
document and is not accountable for the use or application by or on behalf of
any Master Servicer of any funds paid to the Master Servicer or its designee or
any Special Servicer in respect of the Certificates or the Mortgage Loans, or
deposited into or withdrawn from the Certificate Account or any other account by
or on behalf of the Master Servicer or any Special Servicer. If no Event of
Default has occurred and is continuing, the Trustee is required to perform only
those duties specifically required under the related Agreement. However, upon
receipt of the various certificates, reports or other instruments required to be
furnished to it, the Trustee is required to examine such documents and to
determine whether they conform to the requirements of the Agreement.
CERTAIN MATTERS REGARDING THE TRUSTEE
Unless otherwise specified in the related Prospectus Supplement, the
Trustee and any director, officer, employee or agent of the Trustee shall be
entitled to indemnification out of the Certificate Account for any loss,
liability or expense incurred in connection with the Trustee's acceptance or
administration of its trusts under the related Agreement; provided, however,
that such indemnification will not extend to any loss, liability or expense that
constitutes a specific liability of the Trustee pursuant to the related
Agreement, or to any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence on the part of the Trustee in the
performance of its obligations and duties thereunder, or by reason of its
reckless
49
<PAGE>
<PAGE>
disregard of such obligations or duties, or as may arise from a breach of any
representation, warranty or covenant of the Trustee made therein.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The Trustee may at any time resign from its obligations and duties
under an Agreement by giving written notice thereof to the Depositor and the
Master Servicer. Upon receiving such notice of resignation, the Depositor (or
such other person as may be named in the Prospectus Supplement) will be required
promptly to appoint a successor trustee. If no successor trustee shall have been
so appointed and have accepted appointment within 30 days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible to continue as
such under the related Agreement, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver
of the Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, then the Depositor
may remove the Trustee and appoint a successor trustee. Holders of the
Certificates of any series entitled to at least 51% of the Voting Rights for
such series may at any time remove the Trustee without cause and appoint a
successor trustee.
Any resignation or removal of the Trustee and appointment of a
successor trustee shall not become effective until acceptance of appointment by
the successor trustee.
DESCRIPTION OF CREDIT SUPPORT
GENERAL
For any series of Certificates, Credit Support may be provided with
respect to one or more classes thereof or the related Mortgage Assets. Credit
Support may be in the form of the subordination of one or more classes of
Certificates, letters of credit, insurance policies, surety bonds, guarantees,
the establishment of one or more reserve funds or another method of Credit
Support described in the related Prospectus Supplement, or any combination of
the foregoing. If so provided in the related Prospectus Supplement, any form of
Credit Support may be structured so as to be drawn upon by more than one series
to the extent described therein.
Unless otherwise provided in the related Prospectus Supplement for a
series of Certificates, the Credit Support will not provide protection against
all risks of loss and will not guarantee repayment of the entire Certificate
Balance of the Certificates and interest thereon. If losses or shortfalls occur
that exceed the amount covered by Credit Support or that are not covered by
Credit Support, Certificateholders will bear their allocable share of
deficiencies. Moreover, if a form of Credit Support covers more than one series
of Certificates, holders of Certificates of one series will be subject to the
risk that such Credit Support will be exhausted by the claims of the holders of
Certificates of one or more other series before the former receive their
intended share of such coverage.
If Credit Support is provided with respect to one or more classes of
Certificates of a series, or the related Mortgage Assets, the related Prospectus
Supplement will include a description of (a) the nature and amount of coverage
under such Credit Support, (b) any conditions to payment thereunder not
otherwise described herein, (c) the conditions (if any) under which the amount
of coverage under such Credit Support may be reduced and under which such Credit
Support may be terminated or replaced and (d) the material provisions relating
to such Credit Support. Additionally, the related Prospectus Supplement will set
forth certain information with respect to the obligor under any instrument of
Credit Support, including (i) a brief description of its principal business
activities, (ii) its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do business, (iii) if
applicable, the identity of regulatory agencies that exercise primary
jurisdiction over the conduct of its business and (iv) its total assets, and its
stockholders" equity or policyholders" surplus, if applicable, as of the date
specified in the Prospectus Supplement. See "Risk Factors--Credit Support
Limitations".
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more
classes of Certificates of a series may be Subordinate Certificates. To the
extent specified in the related Prospectus Supplement, the rights of the holders
of Subordinate Certificates to receive distributions of principal and interest
from the Certificate
50
<PAGE>
<PAGE>
Account on any Distribution Date will be subordinated to such rights of the
holders of Senior Certificates. If so provided in the related Prospectus
Supplement, the subordination of a class may apply only in the event of (or may
be limited to) certain types of losses or shortfalls. The related Prospectus
Supplement will set forth information concerning the amount of subordination
provided by a class or classes of Subordinate Certificates in a series, the
circumstances under which such subordination will be available and the manner in
which the amount of subordination will be made available.
CROSS-SUPPORT PROVISIONS
If the Mortgage Assets for a series are divided into separate groups,
each supporting a separate class or classes of Certificates of a series, credit
support may be provided by cross-support provisions requiring that distributions
be made on Senior Certificates evidencing interests in one group of Mortgage
Assets prior to distributions on Subordinate Certificates evidencing interests
in a different group of Mortgage Assets within the Trust Fund. The Prospectus
Supplement for a series that includes a cross-support provision will describe
the manner and conditions for applying such provisions.
INSURANCE OR GUARANTEES WITH RESPECT TO MORTGAGE LOANS
If so provided in the Prospectus Supplement for a series of
Certificates, Mortgage Loans included in the related Trust Fund will be covered
for various default risks by insurance policies or guarantees. A copy of any
such material instrument for a series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed within 15 days of issuance
of the Certificates of the related series.
LETTER OF CREDIT
If so provided in the Prospectus Supplement for a series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by one or more letters of credit, issued
by a bank or financial institution specified in such Prospectus Supplement (the
"L/C Bank"). Under a letter of credit, the L/C Bank will be obligated to honor
draws thereunder in an aggregate fixed dollar amount, net of unreimbursed
payments thereunder, generally equal to a percentage specified in the related
Prospectus Supplement of the aggregate principal balance of the Mortgage Assets
on the related Cut-off Date or of the initial aggregate Certificate Balance of
one or more classes of Certificates. If so specified in the related Prospectus
Supplement, the letter of credit may permit draws only in the event of certain
types of losses and shortfalls. The amount available under the letter of credit
will, in all cases, be reduced to the extent of the unreimbursed payments
thereunder and may otherwise be reduced as described in the related Prospectus
Supplement. The obligations of the L/C Bank under the letter of credit for each
series of Certificates will expire at the earlier of the date specified in the
related Prospectus Supplement or the termination of the Trust Fund. A copy of
any such letter of credit for a series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed within 15 days of issuance
of the Certificates of the related series.
INSURANCE POLICIES AND SURETY BONDS
If so provided in the Prospectus Supplement for a series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by insurance policies and/or surety
bonds provided by one or more insurance companies or sureties. Such instruments
may cover, with respect to one or more classes of Certificates of the related
series, timely distributions of interest and/or full distributions of principal
on the basis of a schedule of principal distributions set forth in or determined
in the manner specified in the related Prospectus Supplement. A copy of any such
instrument for a series will be filed with the Commission as an exhibit to a
Current Report on Form 8-K to be filed with the Commission within 15 days of
issuance of the Certificates of the related series.
RESERVE FUNDS
If so provided in the Prospectus Supplement for a series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by one or more reserve funds in which
cash, a letter of credit, Permitted Investments, a demand note or a combination
thereof will be deposited, in the amounts so specified in such Prospectus
Supplement. The reserve funds for a series may also be funded over time by
depositing therein a specified amount of the distributions received on the
related Mortgage Assets as specified in the related Prospectus Supplement.
51
<PAGE>
<PAGE>
Amounts on deposit in any reserve fund for a series, together with the
reinvestment income thereon, if any, will be applied for the purposes, in the
manner, and to the extent specified in the related Prospectus Supplement. A
reserve fund may be provided to increase the likelihood of timely distributions
of principal of and interest on the Certificates. If so specified in the related
Prospectus Supplement, reserve funds may be established to provide limited
protection against only certain types of losses and shortfalls. Following each
Distribution Date amounts in a reserve fund in excess of any amount required to
be maintained therein may be released from the reserve fund under the conditions
and to the extent specified in the related Prospectus Supplement and will not be
available for further application to the Certificates.
Moneys deposited in any Reserve Funds will be invested in Permitted
Investments, except as otherwise specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, any
reinvestment income or other gain from such investments will be credited to the
related Reserve Fund for such series, and any loss resulting from such
investments will be charged to such Reserve Fund. However, such income may be
payable to any related Master Servicer or another service provider as additional
compensation. The Reserve Fund, if any, for a series will not be a part of the
Trust Fund unless otherwise specified in the related Prospectus Supplement.
Additional information concerning any Reserve Fund will be set forth in
the related Prospectus Supplement, including the initial balance of such Reserve
Fund, the balance required to be maintained in the Reserve Fund, the manner in
which such required balance will decrease over time, the manner of funding such
Reserve Fund, the purposes for which funds in the Reserve Fund may be applied to
make distributions to Certificateholders and use of investment earnings from the
Reserve Fund, if any.
CREDIT SUPPORT WITH RESPECT TO MBS AND TIERED MBS
If so provided in the Prospectus Supplement for a series of
Certificates, the MBS and/or Tiered MBS included in the related Trust Fund
and/or the mortgage loans directly or indirectly underlying such MBS and/or
Tiered MBS may be covered by one or more of the types of Credit Support
described herein. The related Prospectus Supplement will specify as to each such
form of Credit Support the information indicated above with respect thereto, to
the extent such information is material and available.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential properties.
Because such legal aspects are governed by applicable state law (which laws may
differ substantially), the summaries do not purport to be complete, to reflect
the laws of any particular state, or to encompass the laws of all states in
which the security for the Mortgage Loans (or mortgage loans underlying any MBS)
is situated. Accordingly, the summaries are qualified in their entirety by
reference to the applicable laws of those states. See "Description of the Trust
Funds--Mortgage Loans". For purposes of the following discussion, "Mortgage
Loan" includes a mortgage loan underlying an MBS.
GENERAL
Each Mortgage Loan will be evidenced by a note or bond and secured by
an instrument granting a security interest in real property, which may be a
mortgage, deed of trust or a deed to secure debt, depending upon the prevailing
practice and law in the state in which the related Mortgaged Property is
located. Mortgages, deeds of trust and deeds to secure debt are herein
collectively referred to as "mortgages". A mortgage creates a lien upon, or
grants a title interest in, the real property covered thereby, and represents
the security for the repayment of the indebtedness customarily evidenced by a
promissory note. The priority of the lien created or interest granted will
depend on the terms of the mortgage and, in some cases, on the terms of separate
subordination agreements or intercreditor agreements with others that hold
interests in the real property, the knowledge of the parties to the mortgage
and, generally, the order of recordation of the mortgage in the appropriate
public recording office. However, the lien of a recorded mortgage will generally
be subordinate to later-arising liens for real estate taxes and assessments and
other charges imposed under governmental police powers.
52
<PAGE>
<PAGE>
TYPES OF MORTGAGE INSTRUMENTS
There are two parties to a mortgage: a mortgagor (the borrower and
usually the owner of the subject property) and a mortgagee (the lender). In
contrast, a deed of trust is a three-party instrument, among a trustor (the
equivalent of a borrower), a trustee to whom the real property is conveyed, and
a beneficiary (the lender) for whose benefit the conveyance is made. Under a
deed of trust, the trustor grants the property, irrevocably until the debt is
paid, in trust and generally with a power of sale, to the trustee to secure
repayment of the indebtedness evidenced by the related note. A deed to secure
debt typically has two parties, pursuant to which the borrower, or grantor,
conveys title to the real property to the grantee, or lender, generally with a
power of sale, until such time as the debt is repaid. In a case where the
borrower is a land trust, there would be an additional party because legal title
to the property is held by a land trustee under a land trust agreement for the
benefit of the borrower. At origination of a mortgage loan involving a land
trust, the borrower may execute a separate undertaking to make payments on the
mortgage note. In no event is the land trustee personally liable for the
mortgage note obligation. The mortgagee's authority under a mortgage, the
trustee's authority under a deed of trust and the grantee's authority under a
deed to secure debt are governed by the express provisions of the related
instrument, the law of the state in which the real property is located, certain
federal laws and, in some deed of trust transactions, the directions of the
beneficiary.
LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases and/or may be accompanied by a separate
assignment of rents and leases, pursuant to which the borrower assigns to the
lender the borrower's right, title and interest as landlord under each lease and
the income derived therefrom, while (unless rents are to be paid directly to the
lender) retaining a revocable license to collect the rents for so long as there
is no default. If the borrower defaults, the license terminates and the lender
is entitled to collect the rents. Local law may require that the lender take
possession of the property and/or obtain a court-appointed receiver before
becoming entitled to collect the rents.
In most states, hotel and motel room rates are considered accounts
receivable under the Uniform Commercial Code ("UCC"); in cases where hotels or
motels constitute loan security, the rates are generally pledged by the borrower
as additional security for the loan. In general, the lender must file financing
statements in order to perfect its security interest in the room rates and must
file continuation statements, generally every five years, to maintain perfection
of such security interest. In certain cases, Mortgage Loans secured by hotels or
motels may be included in a Trust Fund even if the security interest in the room
rates was not perfected or the requisite UCC filings were allowed to lapse. Even
if the lender's security interest in room rates is perfected under applicable
non-bankruptcy law, it will generally be required to commence a foreclosure
action or otherwise take possession of the property in order to enforce its
rights to collect the room rates following a default. In the bankruptcy setting,
however, the lender will be stayed from enforcing its rights to collect room
rates, but those room rates (in light of certain revisions to the Bankruptcy
Code which are effective for all bankruptcy cases commenced on or after October
22, 1994) constitute "cash collateral" and therefore cannot be used by the
bankruptcy debtor without a hearing or lender's consent and unless the lender's
interest in the room rates is given adequate protection (e.g., cash payment for
otherwise encumbered funds or a replacement lien on unencumbered property, in
either case equal in value to the amount of room rates that the debtor proposes
to use, or other similar relief). See "--Bankruptcy Laws".
PERSONALTY
In the case of certain types of mortgaged properties, such as hotels,
motels and nursing homes, personal property (to the extent owned by the borrower
and not previously pledged) may constitute a significant portion of the
property's value as security. The creation and enforcement of liens on personal
property are governed by the UCC. Accordingly, if a borrower pledges personal
property as security for a mortgage loan, the lender generally must file UCC
financing statements in order to perfect its security interest therein, and must
file continuation statements, generally every five years, to maintain that
perfection. In certain cases, Mortgage Loans secured in part by personal
property may be included in a Trust Fund even if the security interest in such
personal property was not perfected or the requisite UCC filings were allowed to
lapse.
53
<PAGE>
<PAGE>
FORECLOSURE
General
Foreclosure is a legal procedure that allows the lender to recover its
mortgage debt by enforcing its rights and available legal remedies under the
mortgage. If the borrower defaults in payment or performance of its obligations
under the note or mortgage, the lender has the right to institute foreclosure
proceedings to sell the real property at public auction to satisfy the
indebtedness.
Foreclosure procedures vary from state to state. Two primary methods of
foreclosing a mortgage are judicial foreclosure, involving court proceedings,
and non-judicial foreclosure pursuant to a power of sale granted in the mortgage
instrument. Other foreclosure procedures are available in some states, but they
are either infrequently used or available only in limited circumstances.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses are raised or counterclaims are interposed, and
sometimes requires several years to complete.
Judicial Foreclosure
A judicial foreclosure proceeding is conducted in a court having
jurisdiction over the mortgaged property. Generally, the action is initiated by
the service of legal pleadings upon all parties having a subordinate interest of
record in the real property and all parties in possession of the property, under
leases or otherwise, whose interests are subordinate to the mortgage. Delays in
completion of the foreclosure may occasionally result from difficulties in
locating defendants. When the lender's right to foreclose is contested, the
legal proceedings can be time-consuming. Upon successful completion of a
judicial foreclosure proceeding, the court generally issues a judgment of
foreclosure and appoints a referee or other officer to conduct a public sale of
the mortgaged property, the proceeds of which are used to satisfy the judgment.
Such sales are made in accordance with procedures that vary from state to state.
Equitable and Other Limitations on Enforceability of Certain Provisions
United States courts have traditionally imposed general equitable
principles to limit the remedies available to lenders in foreclosure actions.
These principles are generally designed to relieve borrowers from the effects of
mortgage defaults perceived as harsh or unfair. Relying on such principles, a
court may alter the specific terms of a loan to the extent it considers
necessary to prevent or remedy an injustice, undue oppression or overreaching,
or may require the lender to undertake affirmative actions to determine the
cause 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 and have required that lenders reinstate loans or
recast payment schedules in order to accommodate borrowers who are suffering
from a temporary financial disability. In other cases, courts have limited the
right of the lender to foreclose in the case of a non-monetary default, such as
a failure to adequately maintain the mortgaged property or an impermissible
further encumbrance of the mortgaged property. Finally, some courts have
addressed the issue of whether federal or state constitutional provisions
reflecting due process concerns for adequate notice require that a borrower
receive notice in addition to statutorily-prescribed minimum notice. For the
most part, these cases have upheld the reasonableness of the notice provisions
or have found that a public sale under a mortgage providing for a power of sale
does not involve sufficient state action to trigger constitutional protections.
In addition, some states may provide statutory protections such as the
right of the borrower to cure outstanding defaults and reinstate a mortgage loan
after commencement of foreclosure proceedings but prior to a foreclosure sale.
Non-Judicial Foreclosure/Power of Sale
In states permitting non-judicial foreclosure proceedings, foreclosure
of a deed of trust is generally accomplished by a non-judicial trustee's sale
pursuant to a power of sale typically granted in the deed of trust. A power of
sale may also be contained in any other type of mortgage instrument if
applicable law so permits. A power of sale under a deed of trust allows a
non-judicial public sale to be conducted generally following a request from the
beneficiary/lender to the trustee to sell the property upon default by the
borrower and after notice of sale is given in accordance with the terms of the
mortgage and applicable state law. In some states, prior to such sale, the
trustee under the deed of trust must record a notice of default and notice of
sale and send a copy to the borrower and to any other party who has recorded a
request for
54
<PAGE>
<PAGE>
a copy of a notice of default and notice of sale. In addition, in some states
the trustee must provide notice to any other party having an interest of record
in the real property, including junior lienholders. A notice of sale must be
posted in a public place and, in most states, published for a specified period
of time in one or more newspapers. The borrower or junior lienholder may then
have the right, during a reinstatement period required in some states, to cure
the default by paying the entire actual amount in arrears (without regard to the
acceleration of the indebtedness), plus the lender's expenses incurred in
enforcing the obligation. In other states, the borrower or the junior lienholder
is not provided a period to reinstate the loan, but has only the right to pay
off the entire debt to prevent the foreclosure sale. Generally, state law
governs the procedure for public sale, the parties entitled to notice, the
method of giving notice and the applicable time periods.
Public Sale
A third party may be unwilling to purchase a mortgaged property at a
public sale because of the difficulty in determining the exact status of title
to the property (due to, among other things, redemption rights that may exist)
and because of the possibility that physical deterioration of the property may
have occurred during the foreclosure proceedings. Therefore, it is common for
the lender to purchase the mortgaged property for an amount equal to the secured
indebtedness and accrued and unpaid interest plus the expenses of foreclosure,
in which event the borrower's debt will be extinguished, or for a lesser amount
in order to preserve its right to seek a deficiency judgment if such is
available under state law and under the terms of the Mortgage Loan documents.
(The Mortgage Loans, however, are generally expected to be non-recourse. See
"Risk Factors--Investment in Commercial and Multifamily Mortgage Loans".)
Thereafter, subject to the borrower's right in some states to remain in
possession during a redemption period, the lender will become the owner of the
property and have both the benefits and burdens of ownership, including the
obligation to pay debt service on any senior mortgages, to pay taxes, to obtain
casualty insurance and to make such repairs as are necessary to render the
property suitable for sale. The costs of operating and maintaining a commercial
or multifamily residential property may be significant and may be greater than
the income derived from that property. The lender also will commonly obtain the
services of a real estate broker and pay the broker's commission in connection
with the sale or lease 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, because of the expenses associated with
acquiring, owning and selling a mortgaged property, a lender could realize an
overall loss on a mortgage loan even if the 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 loan plus accrued
interest.
The holder of a junior mortgage that forecloses on a mortgaged property
does so subject to senior mortgages and any other prior liens, and may be
obliged to keep senior mortgage loans current in order to avoid foreclosure of
its interest in the property. In addition, if the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause contained in a
senior mortgage, the junior mortgagee could be required to pay the full amount
of the senior mortgage indebtedness or face foreclosure.
Rights of Redemption
The purposes of a foreclosure action are to enable the lender to
realize upon its security and to bar the borrower, and all persons who have
interests in the property that are subordinate to that of the foreclosing
lender, from exercise of their "equity of redemption". The doctrine of equity of
redemption provides that, until the property encumbered by a mortgage has been
sold in accordance with a properly conducted foreclosure and foreclosure sale,
those having interests that are subordinate to that of the foreclosing lender
have an equity of redemption and may redeem the property by paying the entire
debt with interest. Those having an equity of redemption must generally be made
parties and joined in the foreclosure proceeding in order for their equity of
redemption to be terminated.
The equity of redemption is a common-law (non-statutory) right which
should be distinguished from post-sale statutory rights of redemption. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage, the
borrower and foreclosed junior lienors are given a statutory period in which to
redeem the property. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
permitted 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 because the exercise of a right of redemption would
defeat the title of any purchaser through a
55
<PAGE>
<PAGE>
foreclosure. Consequently, the practical effect of the redemption right is to
force the lender to maintain the property and pay the expenses of ownership
until the redemption period has expired. In some states, a post-sale statutory
right of redemption may exist following a judicial foreclosure, but not
following a trustee's sale under a deed of trust.
Anti-Deficiency Legislation
Some or all of the Mortgage Loans may be nonrecourse loans, as to which
recourse in the case of default will be limited to the Mortgaged Property and
such other assets, if any, that were pledged to secure the Mortgage Loan.
However, even if a mortgage loan by its terms provides for recourse to the
borrower's other assets, a lender's ability to realize upon those assets may be
limited by state law. For example, in some states a lender cannot 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 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 may
require the lender to exhaust the security afforded under a mortgage before
bringing a personal action against the borrower. In certain other 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 those states,
the lender, following judgment on such personal action, may be deemed to have
elected a remedy and thus may be precluded from foreclosing upon the security.
Consequently, lenders in those states where such an election of remedy provision
exists will usually proceed first against the security. Finally, other statutory
provisions, designed to protect borrowers from exposure to large deficiency
judgments that might result from bidding at below-market values at the
foreclosure sale, limit any deficiency judgment to the excess of the outstanding
debt over the fair market value of the property at the time of the sale.
Leasehold Considerations
Mortgage Loans may be secured by a mortgage on the borrower's leasehold
interest in a ground lease. Leasehold mortgage loans are subject to certain
risks not associated with mortgage loans secured by a lien on the fee estate of
the borrower. The most significant of these risks is that if the borrower's
leasehold were to be terminated upon a lease default, the leasehold mortgagee
would lose its security. This risk may be lessened if the ground lease requires
the lessor to give the leasehold mortgagee notices of lessee defaults and an
opportunity to cure them, permits the leasehold estate to be assigned to and by
the leasehold mortgagee or the purchaser at a foreclosure sale, and contains
certain other protective provisions typically included in a "mortgageable"
ground lease. Certain Mortgage Loans, however, may be secured by ground leases
which do not contain these provisions.
Cross-Collateralization
Certain of the Mortgage Loans may be secured by more than one mortgage
covering properties located in more than one state. Because of various state
laws governing foreclosure or the exercise of a power of sale and because, in
general, foreclosure actions are brought in state court and the courts of one
state cannot exercise jurisdiction over property in another state, it may be
necessary upon a default under a cross-collateralized Mortgage Loan to foreclose
on the related mortgages in a particular order rather than simultaneously and/or
utilize judicial foreclosure even in states that permit non-judicial
foreclosures in order to ensure that the lien of the mortgages is not impaired
or released. In addition, because of the various state laws governing the
ability to obtain a deficiency judgment, it may be necessary in certain states
to foreclose through an action in state court rather than by exercise of a power
of sale, possibly causing a delay in the ultimate recovery by the
Certificateholders and increasing the expense of foreclosing on the security.
Certain other state laws may limit the amount of the recovery on a particular
property located within that state which is being foreclosed after the
foreclosure of one or more properties to the difference between the amount of
the outstanding indebtedness and the value of the property or properties
previously foreclosed, as opposed to the actual amounts recovered in such
foreclosure or foreclosures. Furthermore, due to the effect of "one-action" or
"security first" rules in some states, the remedies that a lender may exercise
upon an event of default as against a property or other collateral or against a
borrower may result in the impairment or loss of the lender's lien on other
properties located in that state or other states or lender's security interest
in other collateral.
56
<PAGE>
<PAGE>
BANKRUPTCY LAWS
Operation of the Bankruptcy Code and related state laws may interfere
with or affect the ability of a lender to realize upon collateral and/or to
enforce a deficiency judgment. For example, under the Bankruptcy Code, virtually
all actions (including foreclosure actions and deficiency judgment proceedings)
to collect a debt 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 case. The delay and the consequences thereof caused by
such automatic stay can be significant. Also, under the Bankruptcy Code, the
filing of a petition in bankruptcy by or on behalf of a junior lienor may stay
the senior lender from taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards protective of the lender are met, the amount and terms of a mortgage
loan secured by a lien on property of the debtor may be modified under certain
circumstances. For example, the outstanding amount of the loan may be reduced to
the then-current value of the property (with a corresponding partial reduction
of the amount of lender's security interest) pursuant to a confirmed plan or
lien avoidance proceeding, thus leaving the lender a general unsecured creditor
for the difference between such value and the outstanding balance of the loan.
Other modifications may include the reduction in the amount of each scheduled
payment, by means of a reduction in the rate of interest and/or an alteration of
the repayment schedule (with or without affecting the unpaid principal balance
of the loan), and/or by an extension (or shortening) of the term to maturity.
Some bankruptcy courts have approved plans, based on the particular facts of the
reorganization case, that effected the cure of a mortgage loan default by paying
arrearages over a number of years. Also, a bankruptcy court may permit a debtor,
through its rehabilitative plan, to reinstate a loan mortgage payment schedule
even if the lender has obtained a final judgment of foreclosure prior to the
filing of the debtor's petition.
Federal bankruptcy law may also have the effect of interfering with or
affecting the ability of a secured lender to enforce the borrower's assignment
of rents and leases related to the mortgaged property. Under the Bankruptcy
Code, a lender may be stayed from enforcing the assignment, and the legal
proceedings necessary to resolve the issue could be time-consuming, with
resulting delays in the lender's receipt of the rents. Recent amendments to the
Bankruptcy Code, however, may minimize the impairment of the lender's ability to
enforce the borrower's assignment of rents and leases. In addition to the
inclusion of hotel revenues within the definition of "cash collateral" as noted
previously in the section entitled "--Leases and Rents", the amendments provide
that, in general, a pre-petition security interest in rents or hotel revenues
extends to rents and hotel revenues received post-petition. The amendments are,
in part, a response to certain cases that held that a security interest in rents
is unperfected under the laws of certain states until the lender has taken some
further action, such as commencing foreclosure or obtaining a receiver prior to
activation of the assignment of rents.
If a borrower's ability to make payment on a mortgage loan is dependent
on its receipt of rent payments under a lease of the related property, that
ability may be impaired by the commencement of a bankruptcy case 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, the Bankruptcy Code generally provides that a
trustee or debtor-in-possession may, subject to approval of the court, (i)
assume the lease and retain it or assign it to a third party or (ii) 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, and any assurances provided to
the lessor may, in fact, be inadequate. 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. The Bankruptcy Code also limits a lessor's damages
for lease rejection to the rent reserved by the lease (without regard to
acceleration) for the greater of one year, or 15%, not to exceed three years, of
the remaining term of the lease.
57
<PAGE>
<PAGE>
ENVIRONMENTAL CONSIDERATIONS
General
A lender may be subject to environmental risks when taking a security
interest in real property. Of particular concern may be properties that are or
have been used for industrial, manufacturing, military or disposal activity.
Such environmental risks include the possible diminution of the value of a
contaminated property or, as discussed below, potential liability for clean-up
costs or other remedial actions that could exceed the value of the property or
the amount of the lender's loan. In certain circumstances, a lender may decide
to abandon a contaminated mortgaged property as collateral for its loan rather
than foreclose and risk liability for clean-up costs.
Superlien Laws
Under the laws of many states, contamination on a property may give
rise to a lien on the property for clean-up costs. In several states, such a
lien has priority over all existing liens, including those of existing
mortgages. In these states, the lien of a mortgage may lose its priority to such
a "superlien".
CERCLA
The federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), imposes strict liability on
present and past "owners" and "operators" of contaminated real property for the
costs of clean-up. A secured lender may be liable as an "owner" or "operator" of
a contaminated mortgaged property if agents or employees of the lender have
participated in the management of such mortgaged property or the operations of
the borrower. Such liability may exist even if the lender did not cause or
contribute to the contamination and regardless of whether the lender has
actually taken possession of a mortgaged property through foreclosure, deed in
lieu of foreclosure or otherwise. Moreover, such liability is not limited to the
original or unamortized principal balance of a loan or to the value of the
property securing a loan. Excluded from CERCLA's definition of "owner" or
"operator", however, is a person "who without participating in the management of
the facility, holds indicia of ownership primarily to protect his security
interest".
In general, what constitutes participation in the management of a
mortgaged property or the business of a borrower to render the secured creditor
exemption unavailable to a lender is based upon judicial interpretation of the
statutory language, and court decisions have been inconsistent in this matter.
The Court of Appeals for the Eleventh Circuit has suggested that the mere
capacity of the lender to influence a borrower's disposal of hazardous
substances was sufficient participation in the management of the borrower's
business to deny the secured creditor exemption to the lender. However, the
Court of Appeals for the Ninth Circuit disagreed with the Eleventh Circuit and
held that there must be some degree of "actual management" of a facility on the
part of a lender in order to bar its reliance on the secured creditor exemption.
In addition, certain cases decided in the First Circuit and the Fourth Circuit
have held that lenders were entitled to the secured creditor exemption,
notwithstanding a lender's taking title to a mortgaged property through
foreclosure or deed in lieu of foreclosure.
CERCLA's "innocent landowner" defense may be available to a lender that
has taken title to a mortgaged property and has performed an appropriate
environmental site assessment that does not disclose existing contamination and
that meets other requirements of the defense. However, it is unclear whether the
environmental site assessment must be conducted upon loan origination, prior to
foreclosure, or both, and uncertainty exists as to what kind of environmental
site assessment must be performed in order to qualify for the defense.
Certain Other Federal and State Laws
Many states have statutes similar to CERCLA, and not all those statutes
provide for a secured creditor exemption. In addition, under federal law, there
is potential liability relating to hazardous wastes and underground storage
tanks under the federal Resource Conservation and Recovery Act.
In a few states, transfers of some types of properties are conditioned
upon cleanup of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed in lieu of foreclosure
or otherwise, may be required to clean up the contamination before selling or
otherwise transferring the property.
58
<PAGE>
<PAGE>
Beyond statute-based environmental liability, there exist common law
causes of action (for example, actions based on nuisance or on toxic tort
resulting in death, personal injury or damage to property) related to hazardous
environmental conditions on a property. While it may be more difficult to hold a
lender liable in such cases, unanticipated or uninsured liabilities of the
borrower may jeopardize the borrower's ability to meet its loan obligations.
Additional Considerations
The cost of remediating hazardous substance contamination at a property
can be substantial. If a lender becomes liable, it can, subject to any
limitations in the Mortgage Loan documents regarding deficiency judgments or
non-recourse, bring an action for contribution against the owner or operator who
created the environmental hazard, but that individual or entity may be without
substantial assets. Accordingly, it is possible that such costs could become a
liability of the Trust Fund and occasion a loss to the Certificateholders.
To reduce the likelihood of such a loss, unless otherwise specified in
the related Prospectus Supplement, the related Agreement will provide that the
Master Servicer, acting on behalf of the Trustee, may not acquire title to a
Mortgaged Property or take over its operation unless the Master Servicer, based
solely (as to environmental matters) on a report prepared by a person who
regularly conducts environmental audits, has made the determination that it is
appropriate to do so, as described under "The Pooling and Servicing
Agreements--Realization Upon Defaulted Mortgage Loans".
If a lender forecloses on a mortgage secured by a property, the
operations on which are subject to environmental laws and regulations, the
lender will be required to operate the property in accordance with those laws
and regulations. Such compliance may entail substantial expense, especially in
the case of industrial or manufacturing properties.
In addition, a lender may be obligated to disclose environmental
conditions on a property to government entities and/or to prospective buyers
(including prospective buyers at a foreclosure sale or following foreclosure).
Such disclosure may decrease the amount that prospective buyers are willing to
pay for the affected property, sometimes substantially, and thereby decrease the
ability of the lender to recoup its investment in a loan upon foreclosure.
Environmental Site Assessments
In most cases, an environmental site assessment of each Mortgaged
Property will have been performed in connection with the origination of the
related Mortgage Loan or at some time prior to the issuance of the related
Certificates. Environmental site assessments, however, vary considerably in
their content, quality and cost. Even when adhering to good professional
practices, environmental consultants will sometimes not detect significant
environmental problems because to do an exhaustive environmental assessment
would be far too costly and time-consuming to be practical.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE
Certain of the Mortgage Loans may contain "due-on-sale" and
"due-on-encumbrance" clauses that purport to permit the lender to accelerate the
maturity of the loan if the borrower transfers or encumbers the related
Mortgaged Property. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce such clauses
in many states. However, the Garn-St Germain Depository Institutions Act of 1982
(the "Garn Act") generally preempts state laws that prohibit the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms, subject to certain limitations as set forth in the Garn Act
and the regulations promulgated thereunder. Accordingly, a Master Servicer may
nevertheless have the right to accelerate the maturity of a Mortgage Loan that
contains a "due-on-sale" provision upon transfer of an interest in the property,
without regard to the Master Servicer's ability to demonstrate that a sale
threatens its legitimate security interest.
SUBORDINATE FINANCING
The terms of certain of the Mortgage Loans may not restrict the ability
of the borrower to use the Mortgaged Property as security for one or more
additional loans, or such restrictions may be unenforceable. Where a borrower
encumbers a 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. Moreover, if the subordinate financing
permits recourse to the borrower (as is frequently the case) and the
59
<PAGE>
<PAGE>
senior loan does not, a borrower may have more incentive to repay sums due on
the subordinate loan. Second, acts of the senior lender that prejudice the
junior lender or impair the junior lender's security may create a superior
equity in favor of the junior lender. For example, if the 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 any existing junior lender is harmed 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 or
delay the taking of action by the senior lender. Moreover, the bankruptcy of a
junior lender may operate to stay foreclosure or similar proceedings by the
senior lender.
DEFAULT INTEREST AND LIMITATIONS ON PREPAYMENTS
Notes and mortgages may contain provisions that obligate the borrower
to pay a late charge or additional interest if payments are not timely made, and
in some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower for
delinquent payments. Certain states also limit the amounts that a lender may
collect from a borrower as an additional charge if the loan is prepaid. In
addition, the enforceability of provisions that provide for prepayment fees or
penalties upon an involuntary prepayment is unclear under the laws of many
states.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980 ("Title V") provides that state usury limitations shall not
apply to certain types of residential (including multifamily) first mortgage
loans originated by certain lenders after March 31, 1980. Title V authorized any
state to reimpose interest rate limits by adopting, before April 1, 1983, a law
or constitutional provision that expressly rejects application of the federal
law. In addition, even where Title V is not so rejected, any state is authorized
by the law to adopt a provision limiting discount points or other charges on
mortgage loans covered by Title V. Certain states have taken action to reimpose
interest rate limits and/or to limit discount points or other charges.
No Mortgage Loan originated in any state in which application of Title
V has been expressly rejected or a provision limiting discount points or other
charges has been adopted, will (if originated after that rejection or adoption)
be eligible for inclusion in a Trust Fund unless (i) such Mortgage Loan provides
for such interest rate, discount points and charges as are permitted in such
state or (ii) such Mortgage Loan provides that the terms thereof are to be
construed in accordance with the laws of another state under which such interest
rate, discount points and charges would not be usurious and the borrower's
counsel has rendered an opinion that such choice of law provision would be given
effect.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended (the "Relief Act"), a borrower who enters military service after the
origination of such borrower's mortgage loan (including a borrower who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an annual
rate of 6% during the period of such borrower's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies to
individuals 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
individuals who enter military service (including reservists who are called to
active duty) after origination of the related mortgage loan, no information can
be provided as to the number of loans with individuals as borrowers that may be
affected by the Relief Act. Application of the Relief Act would adversely
affect, for an indeterminate period of time, the ability of a Master Servicer or
Special Servicer to collect full amounts of interest on certain of the Mortgage
Loans. Any shortfalls in interest collections resulting from the application of
the Relief Act would result in a reduction of the amounts distributable to the
holders of the related series of Certificates, and would not be covered by
advances or, unless otherwise specified in the related Prospectus Supplement,
any form of Credit Support provided in connection with such Certificates. In
addition, the Relief Act imposes limitations that would impair the ability of a
Master Servicer or Special Servicer to foreclose on an affected Mortgage Loan
during the borrower's
60
<PAGE>
<PAGE>
period of active duty status, and, under certain circumstances, during an
additional three month period thereafter.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984 (the "Crime
Control Act"), the government may seize the property even before conviction. The
government must publish notice of the forfeiture proceeding and may give notice
to all parties "known to have an alleged interest in the property", including
the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of the anticipated material
federal income tax consequences of the purchase, ownership and disposition of
Offered Certificates. This discussion is directed solely to Certificateholders
that hold the Certificates as capital assets within the meaning of Section 1221
of the Internal Revenue Code of 1986 (the "Code") and it does not purport to
discuss all federal income tax consequences that may be applicable to particular
categories of investors, some of which (such as banks, insurance companies and
foreign investors) may be subject to special rules. Further, the authorities on
which this discussion, and the opinion referred to below, are based are subject
to change or differing interpretations, which could apply retroactively.
Taxpayers and preparers of tax returns (including those filed by any REMIC or
other issuer) should be aware that under applicable Treasury regulations a
provider of advice on specific issues of law is not considered an income tax
return preparer unless the advice (i) is given with respect to events that have
occurred at the time the advice is rendered and is not given with respect to the
consequences of contemplated actions, and (ii) is directly relevant to the
determination of an entry on a tax return. Accordingly, taxpayers should consult
their tax advisors and tax return preparers regarding the preparation of any
item on a tax return, even where the anticipated tax treatment has been
discussed herein. In addition to the federal income tax consequences described
herein, potential investors should consider the state and local tax
consequences, if any, of the purchase, ownership and disposition of Offered
Certificates. See "State and Other Tax Consequences". Certificateholders are
advised to consult their tax advisors concerning the federal, state, local or
other tax consequences to them of the purchase, ownership and disposition of
Offered Certificates.
The following discussion addresses securities of two general types: (i)
certificates ("REMIC Certificates") representing interests in a Trust Fund, or a
portion thereof, that the Master Servicer or the Trustee will elect to have
treated as a real estate mortgage investment conduit ("REMIC") under Sections
860A through 860G (the "REMIC Provisions") of the Code, and (ii) Grantor Trust
Certificates representing interests in a Trust Fund ("Grantor Trust Fund") as to
which no such election will be made. The Prospectus Supplement for each series
of Certificates will indicate whether a REMIC election (or elections) will be
made for the related Trust Fund and, if such an election is to be made, will
identify all "regular interests" and "residual interests" in the REMIC. For
purposes of this tax discussion, references to a "Certificateholder" or a
"holder" are to the beneficial owner of a Certificate.
The following discussion is limited in applicability to Offered
Certificates. Moreover, this discussion applies only to the extent that Mortgage
Assets held by a Trust Fund consist solely of Mortgage Loans. To the extent that
other Mortgage Assets, including REMIC certificates and mortgage pass-through
certificates, are to be held by a Trust Fund, the tax consequences associated
with the inclusion of such assets will be disclosed in the related Prospectus
Supplement. In addition, if Cash Flow Agreements, other than guaranteed
investment contracts, are included in a Trust Fund, the tax consequences
associated with such Cash Flow Agreements also will be disclosed in the related
Prospectus Supplement. See "Description of the Trust Funds--Cash Flow
Agreements".
61
<PAGE>
<PAGE>
Furthermore, the following discussion is based in part upon the rules
governing original issue discount that are set forth in Sections 1271-1273 and
1275 of the Code and in the Treasury regulations issued thereunder (the "OID
Regulations"), and in part upon the REMIC Provisions and the Treasury
regulations issued thereunder (the "REMIC Regulations"). The OID Regulations do
not adequately address certain issues relevant to, and in some instances provide
that they are not applicable to, securities such as the Certificates.
REMICS
Classification of REMICS
Upon the issuance of each series of REMIC Certificates, counsel to the
Depositor will deliver its opinion generally to the effect that, assuming
compliance with all provisions of the related Agreement, the related Trust Fund
(or each applicable portion thereof) will qualify as a REMIC and the REMIC
Certificates offered with respect thereto will be considered to evidence
ownership of REMIC Regular Certificates or REMIC Residual Certificates in that
REMIC within the meaning of the REMIC Provisions.
If an entity electing to be treated as a REMIC fails to comply with one
or more of the ongoing requirements of the Code for such status during any
taxable year, the Code provides that the entity will not be treated as a REMIC
for such year and thereafter. In that event, such entity may be taxable as a
corporation under Treasury regulations, and the related REMIC Certificates may
not be accorded the status or given the tax treatment described below. Although
the Code authorizes the Treasury Department to issue regulations providing
relief in the event of an inadvertent termination of REMIC status, no such
regulations have been issued. Any such relief, moreover, may be accompanied by
sanctions, such as the imposition of a corporate tax on all or a portion of the
Trust Fund's income for the period in which the requirements for such status are
not satisfied. The related Agreement with respect to each REMIC will include
provisions designed to maintain the Trust Fund's status as a REMIC under the
REMIC Provisions. It is not anticipated that the status of any Trust Fund as a
REMIC will be inadvertently terminated.
Characterization of Investments in REMIC Certificates
In general, unless otherwise provided in the related Prospectus
Supplement, the REMIC Certificates will be "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 assets described in Section
7701(a)(19)(C) of the Code in the same proportion that the assets of the REMIC
underlying such Certificates would be so treated. However, to the extent that
the REMIC assets constitute mortgages on property not used for residential or
certain other prescribed purposes, the REMIC Certificates will not be treated as
assets qualifying under Section 7701(a)(19)(C). Moreover, if 95% or more of the
assets of the REMIC qualify for any of the foregoing treatments at all times
during a calendar year, the REMIC Certificates will qualify for the
corresponding status in their entirety for that calendar year. Interest
(including original issue discount) on the REMIC Regular Certificates and income
allocated to the REMIC Residual Certificates will be interest described in
Section 856(c)(3)(B) of the Code to the extent that such Certificates are
treated as "real estate assets" within the meaning of Section 856(c)(5)(A) of
the Code. In addition, the REMIC Regular Certificates will be "qualified
mortgages" within the meaning of Section 860G(a)(3) of the Code. The
determination as to the percentage of the REMIC's assets that constitute assets
described in the foregoing sections of the Code will be made with respect to
each calendar quarter based on the average adjusted basis of each category of
the assets held by the REMIC during such calendar quarter. The Master Servicer
or the Trustee will report those determinations to Certificateholders in the
manner and at the times required by applicable Treasury regulations.
The assets of the REMIC will include, in addition to Mortgage Loans,
payments on Mortgage Loans held pending distribution on the REMIC Certificates
and property acquired by foreclosure held pending sale, and may include amounts
in reserve accounts. It is unclear whether property acquired by foreclosure held
pending sale, and amounts in reserve accounts would be considered to be part of
the Mortgage Loans, or whether such assets (to the extent not invested in assets
described in the foregoing sections) otherwise would receive the same treatment
as the Mortgage Loans for purposes of all of the foregoing sections. In
addition, in some instances Mortgage Loans may not be treated entirely as assets
described in the foregoing sections. If so, the related Prospectus Supplement
will describe the Mortgage Loans that may not be so treated. The REMIC
Regulations do provide, however, that payments on Mortgage Loans held
62
<PAGE>
<PAGE>
pending distribution are considered part of the Mortgage Loans for purposes of
Sections 593(d) and 856(c)(5)(A) of the Code.
Tiered REMIC Structures
For certain series of REMIC Certificates, two or more separate
elections may be made to treat designated portions of the related Trust Fund as
REMICs ("Tiered REMICs") for federal income tax purposes. Upon the issuance of
any such series of REMIC Certificates, counsel to the Depositor will deliver its
opinion generally to the effect that, assuming compliance with all provisions of
the related Agreement, the Tiered REMICs will each qualify as a REMIC and the
REMIC Certificates issued by the Tiered REMICs, will be considered to evidence
ownership of REMIC Regular Certificates or REMIC Residual Certificates in the
related REMIC within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will
be "qualifying real property loans" under 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" under Section 7701(a)(19)(C) of
the Code, and whether the income on such Certificates is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
Taxation of Owners of REMIC Regular Certificates
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of REMIC Regular Certificates that otherwise report income
under a cash method of accounting will be required to report income with respect
to REMIC Regular Certificates under an accrual method.
Original Issue Discount. Certain REMIC Regular Certificates may be
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code. Any holders of REMIC Regular Certificates issued with original issue
discount generally will be required to include original issue discount in income
as it accrues, in accordance with the method described below, in advance of the
receipt of the cash attributable to such income. In addition, Section 1272(a)(6)
of the Code provides special rules applicable to REMIC Regular Certificates and
certain other debt instruments issued with original issue discount.
Regulations have not been issued under that section.
The Code requires that a reasonable prepayment assumption be used with
respect to Mortgage Loans held by a REMIC in computing the accrual of original
issue discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of such discount to
reflect differences between the actual prepayment rate and the prepayment
assumption. The prepayment assumption is to be determined in a manner prescribed
in Treasury regulations; as noted above, those regulations have not been issued.
The Conference Committee Report accompanying the Tax Reform Act of 1986 (the
"Committee Report") indicates that the regulations will provide that the
prepayment assumption used with respect to a REMIC Regular Certificate must be
the same as that used in pricing the initial offering of such REMIC Regular
Certificate. The prepayment assumption (the "Prepayment Assumption") used in
reporting original issue discount for each series of REMIC Regular Certificates
will be consistent with this standard and will be disclosed in the related
Prospectus Supplement. However, neither the Depositor nor any other person will
make any representation that the Mortgage Loans will in fact prepay at a rate
conforming to the Prepayment Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular Certificate
will be the excess of its stated redemption price at maturity over its issue
price. The issue price of a particular class of REMIC Regular Certificates will
be the first cash price at which a substantial amount of REMIC Regular
Certificates of that class is sold (excluding sales to bond houses, brokers and
underwriters). If less than a substantial amount of a particular class of REMIC
Regular Certificates is sold for cash on or prior to the date of their initial
issuance (the "Closing Date"), the issue price for such class will be the fair
market value of such class on the Closing Date. Under the OID Regulations, the
stated redemption price of a REMIC Regular Certificate is equal to the total of
all payments to be made on such Certificate other than "qualified stated
interest". "Qualified stated interest" is interest that is unconditionally
payable at least annually at a single fixed rate, or at a "qualified floating
rate", an "objective rate", a combination of a single fixed rate and one or more
"qualified floating rates" or one "qualified inverse floating rate", or a
combination of "qualified floating rates"
63
<PAGE>
<PAGE>
that does not operate in a manner that accelerates or defers interest payments
on such REMIC Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and the
timing of the inclusion thereof will vary according to the characteristics of
such REMIC Regular Certificates. If the original issue discount rules apply to
such Certificates, the related Prospectus Supplement will describe the manner in
which such rules will be applied with respect to those Certificates in preparing
information returns to the Certificateholders and the Internal Revenue Service
(the "IRS").
Certain classes of the REMIC Regular Certificates may provide for the
first interest payment with respect to such Certificates to be made more than
one month after the date of issuance, a period which is longer than the
subsequent monthly intervals between interest payments. Assuming the "accrual
period" (as defined below) for original issue discount is each monthly period
that ends on a Distribution Date, in some cases, as a consequence of this "long
first accrual period", some or all interest payments may be required to be
included in the stated redemption price of the REMIC Regular Certificate and
accounted for as original issue discount. Because interest on REMIC Regular
Certificates must in any event be accounted for under an accrual method,
applying this analysis would result in only a slight difference in the timing of
the inclusion in income of the yield on the REMIC Regular Certificates.
In addition, if the accrued interest to be paid on the first
Distribution Date is computed with respect to a period that begins prior to the
Closing Date, a portion of the purchase price paid for a REMIC Regular
Certificate will reflect such accrued interest. In such cases, information
returns provided to the Certificateholders and the IRS will be based on the
position that the portion of the purchase price paid for the interest accrued
with respect to periods prior to the Closing Date is treated as part of the
overall cost of such REMIC Regular Certificate (and not as a separate asset the
cost of which is recovered entirely out of interest received on the next
Distribution Date) and that portion of the interest paid on the first
Distribution Date in excess of interest accrued for a number of days
corresponding to the number of days from the Closing Date to the first
Distribution Date should be included in the stated redemption price of such
REMIC Regular Certificate. However, the OID Regulations state that all or some
portion of such accrued interest may be treated as a separate asset the cost of
which is recovered entirely out of interest paid on the first Distribution Date.
It is unclear how an election to do so would be made under the OID Regulations
and whether such an election could be made unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue discount,
original issue discount on a REMIC Regular Certificate will be considered to be
de minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average maturity. For this
purpose, the weighted average maturity of the REMIC Regular Certificate is
computed as the sum of the amounts determined, as to each payment included in
the stated redemption price of such REMIC Regular Certificate, by multiplying
(i) the number of complete years (rounding down for partial years) from the
issue date until such payment is expected to be made (presumably taking into
account the Prepayment Assumption) by (ii) a fraction, the numerator of which is
the amount of the payment, and the denominator of which is the stated redemption
price at maturity of such REMIC Regular Certificate. Under the OID Regulations,
original issue discount of only a de minimis amount (other than de minimis
original issue discount attributable to a so-called "teaser" interest rate or an
initial interest holiday) will be included in income as each payment of stated
principal is made, based on the product of the total amount of such de minimis
original issue discount and a fraction, the numerator of which is the amount of
such principal payment and the denominator of which is the outstanding stated
principal amount of the REMIC Regular Certificate. The OID Regulations also
would permit a Certificateholder to elect to accrue de minimis original issue
discount into income currently based on a constant yield method. See "--Taxation
of Owners of REMIC Regular Certificates--Market Discount" for a description of
such election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess
of a de minimis amount, the holder of such Certificate must include in ordinary
gross income the sum of the "daily portions" of original issue discount for each
day during its taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as follows.
64
<PAGE>
<PAGE>
As to each "accrual period", that is, unless otherwise stated in the
related Prospectus Supplement, each period that ends on a date that corresponds
to a Distribution Date and begins on the first day following the immediately
preceding accrual period (or in the case of the first such period, begins on the
Closing Date), a calculation will be made of the portion of the original issue
discount that accrued during such accrual period. The portion of original issue
discount that accrues in any accrual period will equal the excess, if any, of
(i) the sum of (a) the present value, as of the end of the accrual period, of
all of the distributions remaining to be made on the REMIC Regular Certificate,
if any, in future periods and (b) the distributions made on such REMIC Regular
Certificate during the accrual period of amounts included in the stated
redemption price, over (ii) the adjusted issue price of such REMIC Regular
Certificate at the beginning of the accrual period. The present value of the
remaining distributions referred to in the preceding sentence will be calculated
(i) assuming that distributions on the REMIC Regular Certificate will be
received in future periods based on the Mortgage Loans being prepaid at a rate
equal to the Prepayment Assumption, (ii) using a discount rate equal to the
original yield to maturity of the Certificate and (iii) taking into account
events (including actual prepayments) that have occurred before the close of the
accrual period. For these purposes, the original yield to maturity of the
Certificate will be calculated based on its issue price and assuming that
distributions on the Certificate will be made in all accrual periods based on
the Mortgage Loans being prepaid at a rate equal to the Prepayment Assumption.
The adjusted issue price of a REMIC Regular Certificate at the beginning of any
accrual period will equal the issue price of such Certificate, increased by the
aggregate amount of original issue discount that accrued with respect to such
Certificate in prior accrual periods, and reduced by the amount of any
distributions made on such REMIC Regular Certificate in prior accrual periods of
amounts included in the stated redemption price. The original issue discount
accruing during any accrual period, computed as described above, will be
allocated ratably to each day during the accrual period to determine the daily
portion of original issue discount for such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases
such Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of any
original issue discount with respect to such Certificate. However, each such
daily portion will be reduced, if such cost is in excess of its "adjusted issue
price", in proportion to the ratio such excess bears to the aggregate original
issue discount remaining to be accrued on such REMIC Regular Certificate. The
adjusted issue price of a REMIC Regular Certificate on any given day equals the
sum of (i) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of such Certificate at the beginning of the accrual
period which includes such day and (ii) the daily portions of original issue
discount for all days during such accrual period prior to such day.
Market Discount. A Certificateholder that purchases a REMIC Regular
Certificate at a market discount, that is, in the case of a REMIC Regular
Certificate issued without original issue discount, at a purchase price less
than its remaining stated principal amount, or in the case of a REMIC Regular
Certificate issued with original issue discount, at a purchase price less than
its adjusted issue price will recognize gain upon receipt of each distribution
representing stated redemption price. In particular, under Section 1276 of the
Code such a Certificateholder generally will be required to allocate the portion
of each such distribution representing stated redemption price first to accrued
market discount not previously included in income, and to recognize ordinary
income to that extent. A Certificateholder may elect to include market discount
in income currently as it accrues rather than including it on a deferred basis
in accordance with the foregoing. If made, such election will apply to all
market discount bonds acquired by such Certificateholder on or after the first
day of the first taxable year to which such election applies. In addition, the
OID Regulations permit a Certificateholder to elect to accrue all interest,
discount (including de minimis market or original issue discount) and premium in
income as interest, based on a constant yield method. If such an election were
made with respect to a REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to include currently
market discount in income with respect to all other debt instruments having
market discount that such Certificateholder acquires during the taxable year of
the election or thereafter, and possibly previously acquired instruments.
Similarly, a Certificateholder that made this election for a Certificate that is
acquired at a premium would be deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that such Certificateholder owns or acquires. See "--Taxation of Owners of REMIC
Regular Certificates--Premium" below. Each of these elections to accrue
interest, discount and premium with
65
<PAGE>
<PAGE>
respect to a Certificate on a constant yield method or as interest would be
irrevocable except with the approval of the IRS.
However, market discount with respect to a REMIC Regular Certificate
will be considered to be de minimis for purposes of Section 1276 of the Code if
such market discount is less than 0.25% of the remaining stated redemption price
of such REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the Prepayment Assumption. If
market discount is treated as de minimis under this rule, it appears that the
actual discount would be treated in a manner similar to original issue discount
of a de minimis amount. See "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above. Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that in each accrual period market discount on REMIC Regular Certificates should
accrue, at the Certificateholder's option: (i) on the basis of a constant yield
method, (ii) in the case of a REMIC Regular Certificate issued without original
issue discount, in an amount that bears the same ratio to the total remaining
market discount as the stated interest paid in the accrual period bears to the
total amount of stated interest remaining to be paid on the REMIC Regular
Certificate as of the beginning of the accrual period, or (iii) in the case of a
REMIC Regular Certificate issued with original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the original
issue discount accrued in the accrual period bears to the total original issue
discount remaining on the REMIC Regular Certificate at the beginning of the
accrual period. Moreover, the Prepayment Assumption used in calculating the
accrual of original issue discount is also used in calculating the accrual of
market discount. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a REMIC Regular Certificate purchased at a discount
in the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or
other periodic distributions throughout their term, the effect of these rules
may be to require market discount to be includible in income at a rate that is
not significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of such Certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
Premium. A REMIC Regular Certificate purchased at a cost (excluding any
portion of such cost attributable to accrued qualified stated interest) greater
than its remaining stated redemption price will be considered to be purchased at
a premium. The holder of such a REMIC Regular Certificate may elect under
Section 171 of the Code to amortize such premium under the constant yield method
over the life of the Certificate. If made, such an election will apply to all
debt instruments having amortizable bond premium that the holder owns or
subsequently acquires. Amortizable premium will be treated as an offset to
interest income on the related debt instrument, rather than as a separate
interest deduction. The OID Regulations also permit Certificateholders to elect
to include all interest, discount and premium in income based on a constant
yield method, further treating the Certificateholder as having made the election
to amortize premium generally. See "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" above.
66
<PAGE>
<PAGE>
The Committee Report states that the same rules that apply to accrual of market
discount (which rules will require use of a Prepayment Assumption in accruing
market discount with respect to REMIC Regular Certificates without regard to
whether such Certificates have original issue discount) will also apply in
amortizing bond premium under Section 171 of the Code.
Realized Losses. Under Section 166 of the Code, both corporate holders
of the REMIC Regular Certificates and noncorporate holders of the REMIC Regular
Certificates that acquire such Certificates in connection with a trade or
business should be allowed to deduct, as ordinary losses, any losses sustained
during a taxable year in which their Certificates become wholly or partially
worthless as the result of one or more realized losses on the Mortgage Loans.
However, it appears that a noncorporate holder that does not acquire a REMIC
Regular Certificate in connection with a trade or business will not be entitled
to deduct a loss under Section 166 of the Code until such holder's Certificate
becomes wholly worthless (i.e., until its outstanding principal balance has been
reduced to zero) and that the loss will be characterized as a short-term capital
loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate, without
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the Mortgage Loans or the Underlying Certificates until it can
be established that any such reduction ultimately will not be recoverable. As a
result, the amount of taxable income reported in any period by the holder of a
REMIC Regular Certificate could exceed the amount of economic income actually
realized by the holder in such period. Although the holder of a REMIC Regular
Certificate eventually will recognize a loss or reduction in income attributable
to previously accrued and included income that as the result of a realized loss
ultimately will not be realized, the law is unclear with respect to the timing
and character of such loss or reduction in income.
Taxation of Owners of REMIC Residual Certificates.
General. As residual interests, the REMIC Residual Certificates will be
subject to tax rules that differ significantly from those that would apply if
the REMIC Residual Certificates were treated for federal income tax purposes as
direct ownership interests in the Mortgage Loans or as debt instruments issued
by the REMIC.
A holder of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the REMIC for each day during a
calendar quarter that such holder owned such REMIC Residual Certificate. For
this purpose, the taxable income or net loss of the REMIC will be allocated to
each day in the calendar quarter ratably using a "30 days per month/90 days per
quarter/360 days per year" convention unless otherwise disclosed in the related
Prospectus Supplement. The daily amounts so allocated will then be allocated
among the REMIC Residual Certificateholders in proportion to their respective
ownership interests on such day. Any amount included in the gross income or
allowed as a loss of any REMIC Residual Certificateholder by virtue of this
paragraph will be treated as ordinary income or loss. The taxable income of the
REMIC will be determined under the rules described below in "--Taxable Income of
the REMIC" and will be taxable to the REMIC Residual Certificateholders without
regard to the timing or amount of cash distributions by the REMIC until the
REMIC's termination. Ordinary income derived from REMIC Residual Certificates
will be "portfolio income" for purposes of the taxation of taxpayers subject to
limitations under Section 469 of the Code on the deductibility of "passive
losses".
A holder of a REMIC Residual Certificate that purchased such
Certificate from a prior holder of such Certificate also will be required to
report on its federal income tax return amounts representing its daily share of
the taxable income (or net loss) of the REMIC for each day that it holds such
REMIC Residual Certificate. Those daily amounts generally will equal the amounts
of taxable income or net loss determined as described above. The Committee
Report indicates that certain modifications of the general rules may be made, by
regulations, legislation or otherwise to reduce (or increase) the income of a
REMIC Residual Certificateholder that purchased such REMIC Residual Certificate
from a prior holder of such Certificate at a price greater than (or less than)
the adjusted basis (as defined below) such REMIC Residual Certificate would have
had in the hands of an original holder of such Certificate. The REMIC
Regulations, however, do not provide for any such modifications.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such REMIC Residual Certificate will be taken
into account in determining the income of such
67
<PAGE>
<PAGE>
holder for federal income tax purposes. Although it appears likely that any such
payment would be includible in income immediately upon its receipt, the IRS
might assert that such payment should be included in income over time according
to an amortization schedule or according to some other method. Because of the
uncertainty concerning the treatment of such payments, holders of REMIC Residual
Certificates should consult their tax advisors concerning the treatment of such
payments for income tax purposes.
The amount of income REMIC Residual Certificateholders will be required
to report (or the tax liability associated with such income) may exceed the
amount of cash distributions received from the REMIC for the corresponding
period. Consequently, REMIC Residual Certificateholders should have other
sources of funds sufficient to pay any federal income taxes due as a result of
their ownership of REMIC Residual Certificates or unrelated deductions against
which income may be offset, subject to the rules relating to "excess
inclusions", residual interests without "significant value" and "noneconomic"
residual interests discussed below. The fact that the tax liability associated
with the income allocated to REMIC Residual Certificateholders may exceed the
cash distributions received by such REMIC Residual Certificateholders for the
corresponding period may significantly adversely affect such REMIC Residual
Certificateholders' after-tax rate of return.
Taxable Income of the REMIC. The taxable income of the REMIC will equal
the income from the Mortgage Loans and other assets of the REMIC plus any
cancellation of indebtedness income due to the allocation of realized losses to
REMIC Regular Certificates, less the deductions allowed to the REMIC for
interest (including original issue discount and reduced by any premium on
issuance) on the REMIC Regular Certificates (and any other class of REMIC
Certificates constituting "regular interests" in the REMIC not offered hereby),
amortization of any premium on the Mortgage Loans, bad debt losses with respect
to the Mortgage Loans and, except as described below, for servicing,
administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates (or, if a class of REMIC Certificates is not sold
initially, their fair market values). Such aggregate basis will be allocated
among the Mortgage Loans and the other assets of the REMIC in proportion to
their respective fair market values. The issue price of any REMIC Certificates
offered hereby will be determined in the manner described above under
"--Taxation of Owners of REMIC Regular Certificates--Original Issue Discount".
The issue price of a REMIC Certificate received in exchange for an interest in
the Mortgage Loans or other property will equal the fair market value of such
interests in the Mortgage Loans or other property. Accordingly, if one or more
classes of REMIC Certificates are retained initially rather than sold, the
Master Servicer or the Trustee may be required to estimate the fair market value
of such interests in order to determine the basis of the REMIC in the Mortgage
Loans and other property held by the REMIC.
Subject to possible application of the de minimis rules, the method of
accrual by the REMIC of original issue discount income and market discount
income with respect to Mortgage Loans that it holds will be equivalent to the
method for accruing original issue discount income for holders of REMIC Regular
Certificates (that is, under the constant yield method taking into account the
Prepayment Assumption). However, a REMIC that acquires loans at a market
discount must include such market discount in income currently, as it accrues,
on a constant yield basis. See "--Taxation of Owners of REMIC Regular
Certificates" above, which describes a method for accruing such discount income
that is analogous to that required to be used by a REMIC as to Mortgage Loans
with market discount that it holds.
A Mortgage Loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis therein, determined as described
in the preceding paragraph, is less than (or greater than) its stated redemption
price. Any such discount will be includible in the income of the REMIC as it
accrues, in advance of receipt of the cash attributable to such income, under a
method similar to the method described above for accruing original issue
discount on the REMIC Regular Certificates. It is anticipated that each REMIC
will elect under Section 171 of the Code to amortize any premium on the Mortgage
Loans. Premium on any Mortgage Loan to which such election applies may be
amortized under a constant yield method, presumably taking into account a
Prepayment Assumption. Further, such an election would not apply to any Mortgage
Loan originated on or before September 27, 1985. Instead, premium on such a
Mortgage Loan should be allocated among the principal payments thereon and be
deductible by the REMIC as those payments become due or upon the prepayment of
such Mortgage Loan.
68
<PAGE>
<PAGE>
A REMIC will be allowed deductions for interest (including original
issue discount) on the REMIC Regular Certificates (including any other class of
REMIC Certificates constituting "regular interests" in the REMIC not offered
hereby) equal to the deductions that would be allowed if the REMIC Regular
Certificates (including any other class of REMIC Certificates constituting
"regular interests" in the REMIC not offered hereby) were indebtedness of the
REMIC. Original issue discount will be considered to accrue for this purpose as
described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount", except that the de minimis rule and the
adjustments for subsequent holders of REMIC Regular Certificates (including any
other class of REMIC Certificates constituting "regular interests" in the REMIC
not offered hereby) described therein will not apply.
If a class of REMIC Regular Certificates is issued at a price in excess
of the stated redemption price of such class (such excess "Issue Premium"), the
net amount of interest deductions that are allowed the REMIC in each taxable
year with respect to the REMIC Regular Certificates of such class will be
reduced by an amount equal to the portion of the Issue Premium that is
considered to be amortized or repaid in that year. Although the matter is not
entirely certain, it is likely that Issue Premium would be amortized under a
constant yield method in a manner analogous to the method of accruing original
issue discount described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount".
As a general rule, the taxable income of a REMIC will be determined in
the same manner as if the REMIC were an individual having the calendar year as
its taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "--Prohibited Transactions Tax and Other Taxes" below.
Further, the limitation on miscellaneous itemized deductions imposed on
individuals by Section 67 of the Code (which allows such deductions only to the
extent they exceed in the aggregate two percent of the taxpayer's adjusted gross
income) will not be applied at the REMIC level so that the REMIC will be allowed
deductions for servicing, administrative and other non-interest expenses in
determining its taxable income. All such expenses will be allocated as a
separate item to the holders of REMIC Certificates, subject to the limitation of
Section 67 of the Code. See "--Possible Pass-Through of Miscellaneous Itemized
Deductions" below. If the deductions allowed to the REMIC exceed its gross
income for a calendar quarter, such excess will be the net loss for the REMIC
for that calendar quarter.
Basis Rules, Net Losses and Distributions. The adjusted basis of a
REMIC Residual Certificate will be equal to the amount paid for such REMIC
Residual Certificate, increased by amounts included in the income of the REMIC
Residual Certificateholder and decreased (but not below zero) by distributions
made, and by net losses allocated, to such REMIC Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account
any net loss for any calendar quarter to the extent such net loss exceeds such
REMIC Residual Certificateholder's adjusted basis in its REMIC Residual
Certificate as of the close of such calendar quarter (determined without regard
to such net loss). Any loss that is not currently deductible by reason of this
limitation may be carried forward indefinitely to future calendar quarters and,
subject to the same limitation, may be used only to offset income from the REMIC
Residual Certificate. The ability of REMIC Residual Certificateholders to deduct
net losses may be subject to additional limitations under the Code, as to which
REMIC Residual Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
non-taxable return of capital to the extent it does not exceed the holder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
on a REMIC Residual Certificate exceeds such adjusted basis, it will be treated
as gain from the sale of such REMIC Residual Certificate. Holders of certain
REMIC Residual Certificates may be entitled to distributions early in the term
of the related REMIC under circumstances in which their bases in such REMIC
Residual Certificates will not be sufficiently large that such distributions
will be treated as nontaxable returns of capital. Their bases in such REMIC
Residual Certificates will initially equal the amount paid for such REMIC
Residual Certificates and will be increased by their allocable shares of taxable
income of the REMIC. However, such bases increases may not occur until the end
of the calendar quarter, or perhaps the end of the calendar year, with respect
to which such REMIC taxable income is allocated to the REMIC Residual
Certificateholders. To the extent such REMIC Residual Certificateholders'
initial bases are less than the distributions to such REMIC Residual
Certificateholders, and increases in such initial bases either occur after such
distributions or (together with their initial bases) are less than the amount of
69
<PAGE>
<PAGE>
such distributions, gain will be recognized to such REMIC Residual
Certificateholders on such distributions and will be treated as gain from the
sale of their REMIC Residual Certificates.
The effect of these rules is that a REMIC Residual Certificateholder
may not amortize its basis in a REMIC Residual Certificate, but may only recover
its basis through distributions, through the deduction of any net losses of the
REMIC or upon the sale of its REMIC Residual Certificate. See "--Sales of REMIC
Certificates" below. For a discussion of possible modifications of these rules
that may require adjustments to income of a holder of a REMIC Residual
Certificate other than an original holder in order to reflect any difference
between the cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder and the adjusted basis such REMIC Residual Certificate would
have in the hands of an original holder see "--Taxation of Owners of REMIC
Residual Certificates--General" above.
Excess Inclusions. Any "excess inclusions" with respect to a REMIC
Residual Certificate will, with an exception discussed below for certain REMIC
Residual Certificates held by thrift institutions, be subject to federal income
tax in all events.
In general, the "excess inclusions" with respect to a REMIC Residual
Certificate for any calendar quarter will be the excess, if any, of (i) the
daily portions of REMIC taxable income allocable to such REMIC Residual
Certificate over (ii) the sum of the "daily accruals" (as defined below) for
each day during such quarter that such REMIC Residual Certificate was held by
such REMIC Residual Certificateholder. The daily accruals of a REMIC Residual
Certificateholder will be determined by allocating to each day during a calendar
quarter its ratable portion of the product of the "adjusted issue price" of the
REMIC Residual Certificate at the beginning of the calendar quarter and 120% of
the "long-term Federal rate" in effect on the Closing Date. For this purpose,
the adjusted issue price of a REMIC Residual Certificate as of the beginning of
any calendar quarter will be equal to the issue price of the REMIC Residual
Certificate, increased by the sum of the daily accruals for all prior quarters
and decreased (but not below zero) by any distributions made with respect to
such REMIC Residual Certificate before the beginning of such quarter. The issue
price of a REMIC Residual Certificate is the initial offering price to the
public (excluding bond houses and brokers) at which a substantial amount of the
REMIC Residual Certificates were sold. The "long-term Federal rate" is an
average of current yields on Treasury securities with a remaining term of
greater than nine years, computed and published monthly by the IRS.
For REMIC Residual Certificateholders, an excess inclusion (i) will not
be permitted to be offset by deductions, losses or loss carryovers from other
activities, (ii) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (iii) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the 30%
United States withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however, "--Foreign
Investors in REMIC Certificates" below.
As an exception to the general rules described above, thrift
institutions are allowed to offset their excess inclusions with unrelated
deductions, losses or loss carryovers, but only if the REMIC Residual
Certificates are considered to have "significant value". The REMIC Regulations
provide that in order to be treated as having significant value, the REMIC
Residual Certificates must have an aggregate issue price at least equal to two
percent of the aggregate issue prices of all of the related REMIC's Regular and
Residual Certificates. In addition, based on the Prepayment Assumption, the
anticipated weighted average life of the REMIC Residual Certificates must equal
or exceed 20 percent of the anticipated weighted average life of the REMIC,
based on the Prepayment Assumption and on any required or permitted clean up
calls or required liquidation provided for in the REMIC's organizational
documents. Although it has not done so, the Treasury also has authority to issue
regulations that would treat the entire amount of income accruing on a REMIC
Residual Certificate as an excess inclusion if the REMIC Residual Certificates
are considered not to have "significant value". The related Prospectus
Supplement will disclose whether offered REMIC Residual Certificates may be
considered to have "significant value" under the REMIC Regulations; provided,
however, that any disclosure that a REMIC Residual Certificate will have
"significant value" will be based upon certain assumptions, and the Depositor
will make no representation that a REMIC Residual Certificate will have
"significant value" for purposes of the above-described rules. The
above-described exception for thrift institutions applies only to those residual
interests held directly by, and deductions, losses and loss carryovers incurred
by, such institutions (and not by other members of an affiliated group of
corporations filing a consolidated income tax return with such thrift
institution) or by certain wholly-owned
70
<PAGE>
<PAGE>
direct subsidiaries of such institutions formed or operated exclusively in
connection with the organization and operation of one or more REMICs.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Section 857(b)(2) of the
Code, excluding any net capital gain), will be allocated among the shareholders
of such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and certain cooperatives; the
REMIC Regulations currently do not address this subject.
Noneconomic REMIC Residual Certificates. Under the REMIC Regulations,
transfers of "noneconomic" REMIC Residual Certificates will be disregarded for
all federal income tax purposes if "a significant purpose of the transfer was to
enable the transferor to impede the assessment or collection of tax". If such
transfer is disregarded, the purported transferor will continue to remain liable
for any taxes due with respect to the income on such "noneconomic" REMIC
Residual Certificate. The REMIC Regulations provide that a REMIC Residual
Certificate is noneconomic unless, based on the Prepayment Assumption and on any
required or permitted clean up calls, or required liquidation provided for in
the REMIC's organizational documents, (1) the present value of the expected
future distributions (discounted using the "applicable Federal rate" for
obligations whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the REMIC Residual
Certificate, which rate is computed and published monthly by the IRS) on the
REMIC Residual Certificate equals at least the present value of the expected tax
on the anticipated excess inclusions, and (2) the transferor reasonably expects
that the transferee will receive distributions with respect to the REMIC
Residual Certificate at or after the time the taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes.
Accordingly, all transfers of REMIC Residual Certificates that may constitute
noneconomic residual interests will be subject to certain restrictions under the
terms of the related Agreement that are intended to reduce the possibility of
any such transfer being disregarded. Such restrictions will require each party
to a transfer to provide an affidavit that no purpose of such transfer is to
impede the assessment or collection of tax, including certain representations as
to the financial condition of the prospective transferee, as to which the
transferor is also required to make a reasonable investigation to determine such
transferee's historic payment of its debts and ability to continue to pay its
debts as they come due in the future. Prior to purchasing a REMIC Residual
Certificate, prospective purchasers should consider the possibility that a
purported transfer of such REMIC Residual Certificate by such a purchaser to
another purchaser at some future date may be disregarded in accordance with the
above-described rules which would result in the retention of tax liability by
such purchaser.
The related Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will not be considered "noneconomic" will be based upon
certain assumptions, and the Depositor will make no representation that a REMIC
Residual Certificate will not be considered "noneconomic" for purposes of the
above-described rules. See "--Foreign Investors in REMIC Certificates--REMIC
Residual Certificates" below for additional restrictions applicable to transfers
of certain REMIC Residual Certificates to foreign persons.
Mark-to-Market Rules. On December 28, 1993, the IRS released temporary
regulations (the "Mark- to-Market Regulations") relating to the requirement that
a securities dealer mark to market securities held for sale to customers. This
mark-to-market requirement applies to all securities owned by a dealer, except
to the extent that the dealer has specifically identified a security as held for
investment. The Mark-to-Market Regulations provide that for purposes of this
mark-to-market requirement, a "negative value" REMIC Residual Certificate is not
treated as a security and thus generally may not be marked to market. This
exclusion from the mark-to-market requirement is expanded to include all REMIC
Residual Certificates under proposed Treasury regulations published January 4,
1995 which provide that any REMIC Residual Certificate issued after January 4,
1995 will not be treated as a security and therefore generally may not be marked
to market. Prospective purchasers of a REMIC Residual Certificate should consult
their tax advisors regarding the possible application of the mark-to-market
requirement to REMIC Residual Certificates.
71
<PAGE>
<PAGE>
Possible Pass-Through of Miscellaneous Itemized Deductions. Fees and
expenses of a REMIC generally will be allocated to the holders of the related
REMIC Residual Certificates. The applicable Treasury regulations indicate,
however, that in the case of a REMIC that is similar to a single class grantor
trust, all or a portion of such fees and expenses should be allocated to the
holders of the related REMIC Regular Certificates. Unless otherwise stated in
the related Prospectus Supplement, such fees and expenses will be allocated to
holders of the related REMIC Residual Certificates in their entirety and not to
the holders of the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular
Certificates the holders of which receive an allocation of fees and expenses in
accordance with the preceding discussion, if any holder thereof is an
individual, estate or trust, or a "pass-through entity" beneficially owned by
one or more individuals, estates or trusts, (i) an amount equal to such
individual's, estate's or trust's share of such fees and expenses will be added
to the gross income of such holder and (ii) such individual's, estate's or
trust's share of such fees and expenses will be treated as a miscellaneous
itemized deduction allowable subject to the limitation of Section 67 of the
Code, which permits such deductions only to the extent they exceed in the
aggregate two percent of a taxpayer's adjusted gross income. In addition,
Section 68 of the Code provides that the amount of itemized deductions otherwise
allowable for an individual whose adjusted gross income exceeds a specified
amount will be reduced by the lesser of (i) 3% of the excess of the individual's
adjusted gross income over such amount or (ii) 80% of the amount of itemized
deductions otherwise allowable for the taxable year. The amount of additional
taxable income reportable by REMIC Certificateholders that are subject to the
limitations of either Section 67 or Section 68 of the Code may be substantial.
Furthermore, in determining the alternative minimum taxable income of such a
holder of a REMIC Certificate that is an individual, estate or trust, or a
"pass-through entity" beneficially owned by one or more individuals, estates or
trusts, no deduction will be allowed for such holder's allocable portion of
servicing fees and other miscellaneous itemized deductions of the REMIC, even
though an amount equal to the amount of such fees and other deductions will be
included in such holder's gross income. Accordingly, such REMIC Certificates may
not be appropriate investments for individuals, estates, or trusts, or
pass-through entities beneficially owned by one or more individuals, estates or
trusts. Such prospective investors should consult with their tax advisors prior
to making an investment in such Certificates.
Sales of REMIC Certificates
If a REMIC Certificate is sold, the selling Certificateholder will
recognize gain or loss equal to the difference between the amount realized on
the sale and its adjusted basis in the REMIC Certificate. The adjusted basis of
a REMIC Regular Certificate generally will equal the cost of such REMIC Regular
Certificate to such Certificateholder, increased by income reported by such
Certificateholder with respect to such REMIC Regular Certificate (including
original issue discount and market discount income) and reduced (but not below
zero) by distributions on such REMIC Regular Certificate received by such
Certificateholder and by any amortized premium. The adjusted basis of a REMIC
Residual Certificate will be determined as described under "--Taxation of Owners
of REMIC Residual Certificates--Basis Rules, Net Losses and Distributions".
Except as provided in the following four paragraphs, any such gain or loss will
be capital gain or loss, provided such REMIC Certificate is held as a capital
asset (generally, property held for investment) within the meaning of Section
1221 of the Code. The Code as of the date of this Prospectus provides for a top
marginal tax rate of 39.6% for individuals and a maximum marginal rate for
long-term capital gains of individuals of 28%. No such rate differential exists
for corporations. In addition, the distinction between a capital gain or loss
and ordinary income or loss remains relevant for other purposes.
Gain from the sale of a REMIC Regular Certificate that might otherwise
be capital gain will be treated as ordinary income to the extent such gain does
not exceed the excess, if any, of (i) the amount that would have been includible
in the seller's income with respect to such REMIC Regular Certificate assuming
that income had accrued thereon at a rate equal to 110% of the "applicable
Federal rate" (generally, a rate based on an average of current yields on
Treasury securities having a maturity comparable to that of the Certificate
based on the application of the Prepayment Assumption to such Certificate),
determined as of the date of purchase of such REMIC Regular Certificate, over
(ii) the amount of ordinary income actually includible in the seller's income
prior to such sale. In addition, gain recognized on the sale of a REMIC Regular
Certificate by a seller who purchased such REMIC Regular Certificate at a market
discount will be taxable as ordinary income in an amount not exceeding the
portion of such
72
<PAGE>
<PAGE>
discount that accrued during the period such REMIC Certificate was held by such
holder, reduced by any market discount included in income under the rules
described above under "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" and "--Premium".
REMIC Certificates will be "evidences of indebtedness" within the
meaning of Section 582(c)(1) of the Code, so that gain or loss recognized from
the sale of a REMIC Certificate by a bank or thrift institution to which such
section applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" at the time the taxpayer
enters into the conversion transaction, subject to appropriate reduction for
prior inclusion of interest and other ordinary income items from the
transaction.
Finally, a taxpayer may elect to have net capital gain taxed at
ordinary income rates rather than capital gains rates in order to include such
net capital gain in total net investment income for the taxable year, for
purposes of the rule that limits the deduction of interest on indebtedness
incurred to purchase or carry property held for investment to a taxpayer's net
investment income.
Except as may be provided in Treasury regulations yet to be issued, if
the seller of a REMIC Residual Certificate reacquires such REMIC Residual
Certificate, or acquires any other residual interest in a REMIC or any similar
interest in a "taxable mortgage pool" (as defined in Section 7701(i) of the
Code) during the period beginning six months before, and ending six months
after, the date of such sale, such sale will be subject to the "wash sale" rules
of Section 1091 of the Code. In that event, any loss realized by the REMIC
Residual Certificateholder on the sale will not be deductible, but instead will
be added to such REMIC Residual Certificateholder's adjusted basis in the
newly-acquired asset.
Prohibited Transactions Tax and Other Taxes
The Code imposes a tax on REMICs equal to 100% of the net income
derived from "prohibited transactions" (a "Prohibited Transactions Tax"). In
general, subject to certain specified exceptions a prohibited transaction means
the disposition of a Mortgage Loan, the receipt of income from a source other
than a Mortgage Loan or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Loans for temporary investment pending
distribution on the REMIC Certificates. It is not anticipated that any REMIC
will engage in any prohibited transactions in which it would recognize a
material amount of net income.
In addition, certain contributions to a REMIC made after the day on
which the REMIC issues all of its interests could result in the imposition of a
tax on the REMIC equal to 100% of the value of the contributed property (a
"Contributions Tax"). Each related Agreement will include provisions designed to
prevent the acceptance of any contributions that would be subject to such tax.
REMICs also are subject to federal income tax at the highest corporate
rate on "net income from foreclosure property", determined by reference to the
rules applicable to real estate investment trusts. "Net income from foreclosure
property" generally means gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment trust.
Unless otherwise disclosed in the related Prospectus Supplement, it is not
anticipated that any REMIC will recognize "net income from foreclosure property"
subject to federal income tax.
Unless otherwise disclosed in the related Prospectus Supplement, it is
not anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
Unless otherwise stated in the related Prospectus Supplement, and to
the extent permitted by then applicable laws, any Prohibited Transactions Tax,
Contributions Tax, tax on "net income from foreclosure property" or state or
local income or franchise tax that may be imposed on the REMIC will be borne by
the related Master Servicer, Special Servicer, Manager or Trustee in any case
out of its own funds, provided
73
<PAGE>
<PAGE>
that such person has sufficient assets to do so, and provided further that such
tax arises out of a breach of such person's obligations under the related
Agreement and in respect of compliance with applicable laws and regulations. Any
such tax not borne by a Master Servicer, Special Servicer, Manager or Trustee
will be charged against the related Trust Fund resulting in a reduction in
amounts payable to holders of the related REMIC Certificates.
Tax and Restrictions on Transfers of REMIC Residual Certificates to
Certain Organizations
If a REMIC Residual Certificate is transferred to a "disqualified
organization" (as defined below), a tax would be imposed in an amount
(determined under the REMIC Regulations) equal to the product of (i) the present
value (discounted using the "applicable Federal rate" for obligations whose term
ends on the close of the last quarter in which excess inclusions are expected to
accrue with respect to the REMIC Residual Certificate) of the total anticipated
excess inclusions with respect to such REMIC Residual Certificate for periods
after the transfer and (ii) the highest marginal federal income tax rate
applicable to corporations. The anticipated excess inclusions must be determined
as of the date that the REMIC Residual Certificate is transferred and must be
based on events that have occurred up to the time of such transfer, the
Prepayment Assumption and any required or permitted clean up calls or required
liquidation provided for in the REMIC's organizational documents. Such a tax
generally would be imposed on the transferor of the REMIC Residual Certificate,
except that where such transfer is through an agent for a disqualified
organization, the tax would instead be imposed on such agent. However, a
transferor of a REMIC Residual Certificate would in no event be liable for such
tax with respect to a transfer if the transferee furnishes to the transferor an
affidavit that the transferee is not a disqualified organization and, as of the
time of the transfer, the transferor does not have actual knowledge that such
affidavit is false. Moreover, an entity will not qualify as a REMIC unless there
are reasonable arrangements designed to ensure that (i) residual interests in
such entity are not held by disqualified organizations and (ii) information
necessary for the application of the tax described herein will be made
available. Restrictions on the transfer of REMIC Residual Certificates and
certain other provisions that are intended to meet this requirement will be
included in each Agreement, and will be discussed in any Prospectus Supplement
relating to the offering of any REMIC Residual Certificate.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (i) the amount
of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by such disqualified organization and
(ii) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
each record holder of an interest in such pass-through entity furnishes to such
pass-through entity (i) such holder's social security number and a statement
under penalties of perjury that such social security number is that of the
record holder or (ii) a statement under penalties of perjury that such record
holder is not a disqualified organization.
For these purposes, a "disqualified organization" means (i) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(but would not include instrumentalities described in Section 168(h)(2)(D) of
the Code or the Federal Home Loan Mortgage Corporation), (ii) any organization
(other than a cooperative described in Section 521 of the Code) that is exempt
from federal income tax, unless it is subject to the tax imposed by Section 511
of the Code or (iii) any organization described in Section 1381(a)(2)(C) of the
Code. For these purposes, a "pass-through entity" means any regulated investment
company, real estate investment trust, trust, partnership or certain other
entities described in Section 860E(e)(6) of the Code. In addition, a person
holding an interest in a pass-through entity as a nominee for another person
will, with respect to such interest, be treated as a pass-through entity.
Termination
A REMIC will terminate immediately after the Distribution Date
following receipt by the REMIC of the final payment in respect of the Mortgage
Loans or upon a sale of the REMIC's assets following the adoption by the REMIC
of a plan of complete liquidation. The last distribution on a REMIC Regular
Certificate will be treated as a payment in retirement of a debt instrument. In
the case of a REMIC Residual Certificate, if the last distribution on such REMIC
Residual Certificate is less than the REMIC Residual
74
<PAGE>
<PAGE>
Certificateholder's adjusted basis in such Certificate, such REMIC Residual
Certificateholder should (but may not) be treated as realizing a loss equal to
the amount of such difference, and such loss may be treated as a capital loss.
Reporting and Other Administrative Matters
Solely for purposes of the administrative provisions of the Code, the
REMIC will be treated as a partnership and REMIC Residual Certificateholders
will be treated as partners. Unless otherwise stated in the related Prospectus
Supplement, the Trustee or the Master Servicer, which generally will hold at
least a nominal amount of REMIC Residual Certificates, will file REMIC federal
income tax returns on behalf of the related REMIC, and will be designated as and
will act as the "tax matters person" with respect to the REMIC in all respects.
As the tax matters person, the Trustee or the Master Servicer, as the
case may be, subject to certain notice requirements and various restrictions and
limitations, generally will have the authority to act on behalf of the REMIC and
the REMIC Residual Certificateholders in connection with the administrative and
judicial review of items of income, deduction, gain or loss of the REMIC, as
well as the REMIC's classification. REMIC Residual Certificateholders generally
will be required to report such REMIC items consistently with their treatment on
the related REMIC's tax return and may in some circumstances be bound by a
settlement agreement between the Trustee or the Master Servicer, as the case may
be, as tax matters person, and the IRS concerning any such REMIC item.
Adjustments made to the REMIC tax return may require a REMIC Residual
Certificateholder to make corresponding adjustments on its return, and an audit
of the REMIC's tax return, or the adjustments resulting from such an audit,
could result in an audit of a REMIC Residual Certificateholder's return. No
REMIC will be registered as a tax shelter pursuant to Section 6111 of the Code
because it is not anticipated that any REMIC will have a net loss for any of the
first five taxable years of its existence. Any person that holds a REMIC
Residual Certificate as a nominee for another person may be required to furnish
to the related REMIC, in a manner to be provided in Treasury regulations, the
name and address of such person and other information.
Reporting of interest income, including any original issue discount,
with respect to REMIC Regular Certificates is required annually, and may be
required more frequently under Treasury regulations. These information reports
generally are required to be sent to individual holders of REMIC Regular
Interests and the IRS; holders of REMIC Regular Certificates that are
corporations, trusts, securities dealers and certain other non-individuals will
be provided interest and original issue discount income information and the
information set forth in the following paragraph upon request in accordance with
the requirements of the applicable regulations. The information must be provided
by the later of 30 days after the end of the quarter for which the information
was requested, or two weeks after the receipt of the request. The REMIC must
also comply with rules requiring a REMIC Regular Certificate issued with
original issue discount to disclose on its face the amount of original issue
discount and the issue date, and requiring such information to be reported to
the IRS. Reporting with respect to REMIC Residual Certificates, including
income, excess inclusions, investment expenses and relevant information
regarding qualification of the REMIC's assets will be made as required under the
Treasury regulations, generally on a quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular Certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the holder's
purchase price that the REMIC may not have, such regulations only require that
information pertaining to the appropriate proportionate method of accruing
market discount be provided. See "--Taxation of Owners of REMIC Regular
Certificates--Market Discount".
Unless otherwise specified in the related Prospectus Supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
either the Trustee or the Master Servicer.
Backup Withholding with Respect to REMIC Certificates
Payments of interest and principal, as well as payments of proceeds
from the sale of REMIC Certificates, may be subject to the "backup withholding
tax" under Section 3406 of the Code at a rate of 31% if recipients of such
payments fail to furnish to the payor certain information, including their
taxpayer identification numbers, or otherwise fail to establish an exemption
from such tax. Any amounts deducted and withheld from a distribution to a
recipient would be allowed as a credit against such recipient's federal
75
<PAGE>
<PAGE>
income tax. Furthermore, certain penalties may be imposed by the IRS on a
recipient of payments that is required to supply information but that does not
do so in the proper manner.
Foreign Investors in REMIC Certificates
A REMIC Regular Certificateholder that is not a "United States Person"
(as defined below) and is not subject to federal income tax as a result of any
direct or indirect connection to the United States in addition to its ownership
of a REMIC Regular Certificate will not, unless otherwise disclosed in the
related Prospectus Supplement, be subject to United States federal income or
withholding tax in respect of a distribution on a REMIC Regular Certificate,
provided that the holder complies to the extent necessary with certain
identification requirements (including delivery of a statement, signed by the
Certificateholder under penalties of perjury, certifying that such
Certificateholder is not a United States Person and providing the name and
address of such Certificateholder). For these purposes, "United States Person"
means a citizen or resident of the United States, a corporation, partnership or
other entity created or organized in, or under the laws of, the United States or
any political subdivision thereof, or an estate or trust whose income from
sources without the United States is includible in gross income for United
States federal income tax purposes regardless of its connection with the conduct
of a trade or business within the United States. It is possible that the IRS may
assert that the foregoing tax exemption should not apply with respect to a REMIC
Regular Certificate held by a REMIC Residual Certificateholder that owns
directly or indirectly a 10% or greater interest in the REMIC Residual
Certificates. If the holder does not qualify for exemption, distributions of
interest, including distributions in respect of accrued original issue discount,
to such holder may be subject to a tax rate of 30%, subject to reduction under
any applicable tax treaty.
In addition, the foregoing rules will not apply to exempt a United
States shareholder of a controlled foreign corporation from taxation on such
United States shareholder's allocable portion of the interest income received by
such controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be
included in the estate of a non-resident alien individual and would not be
subject to United States estate taxes. However, Certificateholders who are
non-resident alien individuals should consult their tax advisors concerning this
question.
Unless otherwise stated in the related Prospectus Supplement, transfers
of REMIC Residual Certificates to investors that are not United States Persons
will be prohibited under the related Agreement.
GRANTOR TRUST FUNDS
Classification of Grantor Trust Funds
With respect to each series of Grantor Trust Certificates, counsel to
the Depositor will deliver its opinion to the effect that, assuming compliance
with all provisions of the related Agreement, the related Grantor Trust Fund
will be classified as a grantor trust under subpart E, part I of subchapter J of
the Code and not as a partnership or an association taxable as a corporation.
Accordingly, each holder of a Grantor Trust Certificate generally will be
treated as the owner of an interest in the Mortgage Loans included in the
Grantor Trust Fund.
For purposes of the following discussion, a Grantor Trust Certificate
representing an undivided equitable ownership interest in the principal of the
Mortgage Loans constituting the related Grantor Trust Fund, together with
interest thereon at a pass-through rate, will be referred to as a "Grantor Trust
Fractional Interest Certificate". A Grantor Trust Certificate representing
ownership of all or a portion of the difference between interest paid on the
Mortgage Loans constituting the related Grantor Trust Fund (net of normal
administration fees) and interest paid to the holders of Grantor Trust
Fractional Interest Certificates issued with respect to such Grantor Trust Fund
will be referred to as a "Grantor Trust Strip Certificate". A Grantor Trust
Strip Certificate may also evidence a nominal ownership interest in the
principal of the Mortgage Loans constituting the related Grantor Trust Fund.
Characterization of Investments in Grantor Trust Certificates
Grantor Trust Fractional Interest Certificates. In the case of Grantor
Trust Fractional Interest Certificates, unless otherwise disclosed in the
related Prospectus Supplement, counsel to the Depositor will deliver an opinion
that, in general, Grantor Trust Fractional Interest Certificates will represent
interests in (i) "qualifying real property loans" within the meaning of Section
593(d) of the Code; (ii) "loans . . . secured by an interest in real property"
within the meaning of Section 7701(a)(19)(C)(v) of the Code; (iii)
76
<PAGE>
<PAGE>
"obligation[s] (including any participation or Certificate of beneficial
ownership therein) which . . .[are] principally secured by an interest in real
property" within the meaning of Section 860G(a)(3) of the Code; and (iv) "real
estate assets" within the meaning of Section 856(c)(5)(A) of the Code. In
addition, counsel to the Depositor will deliver an opinion that interest on
Grantor Trust Fractional Interest Certificates will to the same extent be
considered "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.
Grantor Trust Strip Certificates. Even if Grantor Trust Strip
Certificates evidence an interest in a Grantor Trust Fund consisting of Mortgage
Loans that are "loans . . . secured by an interest in real property" within the
meaning of Section 7701(a)(19)(C)(v) of the Code, "qualifying real property
loans" within the meaning of Section 593(d) of the Code, and "real estate
assets" within the meaning of Section 856(c)(5)(A) of the Code, and the interest
on which is "interest on obligations secured by mortgages on real property"
within the meaning of Section 856(c)(3)(A) of the Code, it is unclear whether
the Grantor Trust Strip Certificates, and the income therefrom, will be so
characterized. However, the policies underlying such sections (namely, to
encourage or require investments in mortgage loans by thrift institutions and
real estate investment trusts) may suggest that such characterization is
appropriate. Counsel to the Depositor will not deliver any opinion on these
questions. Prospective purchasers to which such characterization of an
investment in Grantor Trust Strip Certificates is material should consult their
tax advisors regarding whether the Grantor Trust Strip Certificates, and the
income therefrom, will be so characterized.
The Grantor Trust Strip Certificates will be "obligation[s] (including
any participation or Certificate of beneficial ownership therein) which . .
.[are] principally secured by an interest in real property" within the meaning
of Section 860G(a)(3)(A) of the Code.
Taxation of Owners of Grantor Trust Fractional Interest Certificates
General. Holders of a particular series of Grantor Trust Fractional
Interest Certificates generally will be required to report on their federal
income tax returns their shares of the entire income from the Mortgage Loans
(including amounts used to pay reasonable servicing fees and other expenses) and
will be entitled to deduct their shares of any such reasonable servicing fees
and other expenses. Because of stripped interests, market or original issue
discount, or premium, the amount includible in income on account of a Grantor
Trust Fractional Interest Certificate may differ significantly from the amount
distributable thereon representing interest on the Mortgage Loans. Under Section
67 of the Code, an individual, estate or trust holding a Grantor Trust
Fractional Interest Certificate directly or through certain pass-through
entities will be allowed a deduction for such reasonable servicing fees and
expenses only to the extent that the aggregate of such holder's miscellaneous
itemized deductions exceeds two percent of such holder's adjusted gross income.
In addition, Section 68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a specified amount will be reduced by the lesser of (i) 3% of the excess
of the individual's adjusted gross income over such amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable income reportable by holders of Grantor Trust
Fractional Interest Certificates who are subject to the limitations of either
Section 67 or Section 68 of the Code may be substantial. Further,
Certificateholders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holder's alternative minimum taxable income. Although it is not entirely clear,
it appears that in transactions in which multiple classes of Grantor Trust
Certificates (including Grantor Trust Strip Certificates) are issued, such fees
and expenses should be allocated among the classes of Grantor Trust Certificates
using a method that recognizes that each such class benefits from the related
services. In the absence of statutory or administrative clarification as to the
method to be used, it currently is intended to base information returns or
reports to the IRS and Certificateholders on a method that allocates such
expenses among classes of Grantor Trust Certificates with respect to each period
based on the distributions made to each such class during that period.
The federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any series will depend on whether they are subject to the
"stripped bond" rules of Section 1286 of the Code. Grantor Trust Fractional
Interest Certificates may be subject to those rules if (i) a class of Grantor
Trust Strip Certificates is issued as part of the same series of Certificates or
(ii) the Depositor or any of its affiliates retains (for its own account or for
purposes of resale) a right to receive a specified portion of the interest
payable on a Mortgage Asset. Further, the IRS has ruled that an unreasonably
high servicing fee retained by a seller or servicer will be treated as a
retained ownership interest in mortgages that constitutes a stripped coupon.
77
<PAGE>
<PAGE>
The related Prospectus Supplement will include information regarding servicing
fees paid to a Master Servicer, a Special Servicer, any Sub-Servicer or their
respective affiliates.
If Stripped Bond Rules Apply. If the stripped bond rules apply, each
Grantor Trust Fractional Interest Certificate will be treated as having been
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code, subject, however, to the discussion below regarding the treatment of
certain stripped bonds as market discount bonds and the discussion regarding de
minimis market discount. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--Market Discount" below. Under the stripped bond rules,
the holder of a Grantor Trust Fractional Interest Certificate (whether a cash or
accrual method taxpayer) will be required to report interest income from its
Grantor Trust Fractional Interest Certificate for each month in an amount equal
to the income that accrues on such Certificate in that month calculated under a
constant yield method, in accordance with the rules of the Code relating to
original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of such Certificate's stated redemption price
over its issue price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by such
purchaser of the Grantor Trust Fractional Interest Certificate. The stated
redemption price of a Grantor Trust Fractional Interest Certificate will be the
sum of all payments to be made on such Certificate, other than "qualified stated
interest", if any, as well as such Certificate's share of reasonable servicing
fees and other expenses. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--If Stripped Bond Rules Do Not Apply" for a definition of
"qualified stated interest". In general, the amount of such income that accrues
in any month would equal the product of such holder's adjusted basis in such
Grantor Trust Fractional Interest Certificate at the beginning of such month
(see "--Sales of Grantor Trust Certificates" below) and the yield of such
Grantor Trust Fractional Interest Certificate to such holder. Such yield would
be computed as the rate (compounded based on the regular interval between
payment dates) that, if used to discount the holder's share of future payments
on the Mortgage Loans, would cause the present value of those future payments to
equal the price at which the holder purchased such Certificate. In computing
yield under the stripped bond rules, a Certificateholder's share of future
payments on the Mortgage Loans will not include any payments made in respect of
any ownership interest in the Mortgage Loans retained by the Depositor, a Master
Servicer, a Special Servicer, any Sub-Servicer or their respective affiliates,
but will include such Certificateholder's share of any reasonable servicing fees
and other expenses.
Section 1272(a)(6) of the Code requires (i) the use of a reasonable
prepayment assumption in accruing original issue discount and (ii) adjustments
in the accrual of original issue discount when prepayments do not conform to the
prepayment assumption, with respect to certain categories of debt instruments,
and regulations could be adopted applying those provisions to the Grantor Trust
Fractional Interest Certificates. It is unclear whether those provisions would
be applicable to the Grantor Trust Fractional Interest Certificates or whether
use of a reasonable prepayment assumption may be required or permitted without
reliance on these rules. It is also uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Fractional
Interest Certificate or, with respect to any holder, at the time of purchase of
the Grantor Trust Fractional Interest Certificate by that holder.
Certificateholders are advised to consult their tax advisors concerning
reporting original issue discount in general and, in particular, whether a
prepayment assumption should be used in reporting original issue discount with
respect to Grantor Trust Fractional Interest Certificates.
In the case of a Grantor Trust Fractional Interest Certificate acquired
at a price equal to the principal amount of the Mortgage Loans allocable to such
Certificate, the use of a prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of interest income.
In the case, however, of a Grantor Trust Fractional Interest Certificate
acquired at a discount or premium (that is, at a price less than or greater than
such principal amount, respectively), the use of a reasonable prepayment
assumption would increase or decrease such yield, and thus accelerate or
decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when a Mortgage Loan
prepays in full, the holder of a Grantor Trust Fractional Interest Certificate
acquired at a discount or a premium generally will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal amount
of the Mortgage Loan that is allocable to such Certificate and the portion of
the adjusted basis of
78
<PAGE>
<PAGE>
such Certificate that is allocable to such Certificateholder's interest in the
Mortgage Loan. If a prepayment assumption is used, it appears that no separate
item of income or loss should be recognized upon a prepayment. Instead, a
prepayment should be treated as a partial payment of the stated redemption price
of the Grantor Trust Fractional Interest Certificate and accounted for under a
method similar to that described for taking account of original issue discount
on REMIC Regular Certificates. See "--REMICs--Taxation of Owners of REMIC
Regular Certificates--Original Issue Discount". It is unclear whether any other
adjustments would be required to reflect differences between an assumed
prepayment rate and the actual rate of prepayments.
In the absence of statutory or administrative clarification, it is
currently intended to base information reports or returns to the IRS and
Certificateholders in transactions subject to the stripped bond rules on a
prepayment assumption (the "Prepayment Assumption") that will be disclosed in
the related Prospectus Supplement and on a constant yield computed using a
representative initial offering price for each class of Certificates. However,
neither the Depositor nor any other person will make any representation that the
Mortgage Loans will in fact prepay at a rate conforming to such Prepayment
Assumption or any other rate and Certificateholders should bear in mind that the
use of a representative initial offering price will mean that such information
returns or reports, even if otherwise accepted as accurate by the IRS, will in
any event be accurate only as to the initial Certificateholders of each series
who bought at that price.
Under Treasury regulation Section 1.1286-1T, certain stripped bonds are
to be treated as market discount bonds and, accordingly, any purchaser of such a
bond is to account for any discount on the bond as market discount rather than
original issue discount. This treatment only applies, however, if immediately
after the most recent disposition of the bond by a person stripping one or more
coupons from the bond and disposing of the bond or coupon (i) there is no
original issue discount (or only a de minimis amount of original issue discount)
or (ii) the annual stated rate of interest payable on the original bond is no
more than one percentage point lower than the gross interest rate payable on the
original mortgage loan (before subtracting any servicing fee or any stripped
coupon). If interest payable on a Grantor Trust Fractional Interest Certificate
is more than one percentage point lower than the gross interest rate payable on
the Mortgage Loans, the related Prospectus Supplement will disclose that fact.
If the original issue discount or market discount on a Grantor Trust Fractional
Interest Certificate determined under the stripped bond rules is less than 0.25%
of the stated redemption price multiplied by the weighted average maturity of
the Mortgage Loans, then such original issue discount or market discount will be
considered to be de minimis. Original issue discount or market discount of only
a de minimis amount will be included in income in the same manner as de minimis
original issue and market discount described in "--Taxation of Owners of Grantor
Trust Fractional Interest Certificates--If Stripped Bond Rules Do Not Apply" and
"--Market Discount" below.
If Stripped Bond Rules Do Not Apply. Subject to the discussion below on
original issue discount, if the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, the Certificateholder will be required to
report its share of the interest income on the Mortgage Loans in accordance with
such Certificateholder's normal method of accounting. The original issue
discount rules will apply, even if the stripped bond rules do not apply, to a
Grantor Trust Fractional Interest Certificate to the extent it evidences an
interest in Mortgage Loans issued with original issue discount.
The original issue discount, if any, on the Mortgage Loans will equal
the difference between the stated redemption price of such Mortgage Loans and
their issue price. For a definition of "stated redemption price," see
"--Taxation of Owners of REMIC Regular Certificates--Original Issue Discount"
above. In general, the issue price of a Mortgage Loan will be the amount
received by the borrower from the lender under the terms of the Mortgage Loan,
less any "points" paid by the borrower, and the stated redemption price of a
Mortgage Loan will equal its principal amount, unless the Mortgage Loan provides
for an initial "teaser," or below-market interest rate. The determination as to
whether original issue discount will be considered to be de minimis will be
calculated using the same test as in the REMIC discussion. See "--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount" above.
In the case of Mortgage Loans bearing adjustable or variable interest
rates, the related Prospectus Supplement will describe the manner in which such
rules will be applied with respect to those Mortgage Loans by the Trustee or
Master Servicer, as applicable, in preparing information returns to the
Certificateholders and the IRS.
79
<PAGE>
<PAGE>
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a Mortgage Loan will be required to be
accrued and reported in income each month, based on a constant yield. The OID
Regulations suggest that no prepayment assumption is appropriate in computing
the yield on prepayable obligations issued with original issue discount. In the
absence of statutory or administrative clarification, it currently is not
intended to base information reports or returns to the IRS and
Certificateholders on the use of a prepayment assumption in transactions not
subject to the stripped bond rules. However, Section 1272(a)(6) of the Code may
require that a prepayment assumption be made in computing yield with respect to
all mortgage-backed securities. Certificateholders are advised to consult their
own tax advisors concerning whether a prepayment assumption should be used in
reporting original issue discount with respect to Grantor Trust Fractional
Interest Certificates. Certificateholders should refer to the related Prospectus
Supplement with respect to each series to determine whether and in what manner
the original issue discount rules will apply to Mortgage Loans in such series.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases such Grantor Trust Fractional Interest Certificate at a cost less than
such Certificate's allocable portion of the aggregate remaining stated
redemption price of the Mortgage Loans held in the related Trust Fund will also
be required to include in gross income such Certificate's daily portions of any
original issue discount with respect to such Mortgage Loans. However, each such
daily portion will be reduced, if the cost of such Grantor Trust Fractional
Interest Certificate to such purchaser is in excess of such Certificate's
allocable portion of the aggregate "adjusted issue prices" of the Mortgage Loans
held in the related Trust Fund, approximately in proportion to the ratio such
excess bears to such Certificate's allocable portion of the aggregate original
issue discount remaining to be accrued on such Mortgage Loans. The adjusted
issue price of a Mortgage Loan on any given day equals the sum of (i) the
adjusted issue price (or, in the case of the first accrual period, the issue
price) of such Mortgage Loan at the beginning of the accrual period that
includes such day and (ii) the daily portions of original issue discount for all
days during such accrual period prior to such day. The adjusted issue price of a
Mortgage Loan at the beginning of any accrual period will equal the issue price
of such Mortgage Loan, increased by the aggregate amount of original issue
discount with respect to such Mortgage Loan that accrued in prior accrual
periods, and reduced by the amount of any payments made on such Mortgage Loan in
prior accrual periods of amounts included in its stated redemption price.
Unless otherwise provided in the related Prospectus Supplement, the
Trustee or Master Servicer, as applicable, will provide to any holder of a
Grantor Trust Fractional Interest Certificate such information as such holder
may reasonably request from time to time with respect to original issue discount
accruing on Grantor Trust Fractional Interest Certificates. See "--Grantor Trust
Reporting" below.
Market Discount. If the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, a Certificateholder may be subject to the
market discount rules of Sections 1276 through 1278 of the Code to the extent an
interest in a Mortgage Loan is considered to have been purchased at a "market
discount", that is, in the case of a Mortgage Loan issued without original issue
discount, at a purchase price less than its remaining stated redemption price
(as defined above), or in the case of a Mortgage Loan issued with original issue
discount, at a purchase price less than its adjusted issue price (as defined
above). If market discount is in excess of a de minimis amount (as described
below), the holder generally will be required to include in income in each month
the amount of such discount that has accrued (under the rules described in the
next paragraph) through such month that has not previously been included in
income, but limited, in the case of the portion of such discount that is
allocable to any Mortgage Loan, to the payment of stated redemption price on
such Mortgage Loan that is received by (or, in the case of accrual basis
Certificateholders, due to) the Trust Fund in that month. A Certificateholder
may elect to include market discount in income currently as it accrues (under a
constant yield method based on the yield of the Certificate to such holder)
rather than including it on a deferred basis in accordance with the foregoing
under rules similar to those described in "--Taxation of Owners of REMIC Regular
Interests--Market Discount" above.
Section 1276(b)(3) of the Code authorized the Treasury Department to
issue regulations providing for the method for accruing market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. Under those rules, in each
accrual period market discount on the Mortgage Loans should accrue, at the
holder's option: (i) on the basis of a constant yield method, (ii)
80
<PAGE>
<PAGE>
in the case of a Mortgage Loan issued without original issue discount, in an
amount that bears the same ratio to the total remaining market discount as the
stated interest paid in the accrual period bears to the total stated interest
remaining to be paid on the Mortgage Loan as of the beginning of the accrual
period, or (iii) in the case of a Mortgage Loan issued with original issue
discount, in an amount that bears the same ratio to the total remaining market
discount as the original issue discount accrued in the accrual period bears to
the total original issue discount remaining at the beginning of the accrual
period. The prepayment assumption, if any, used in calculating the accrual of
original issue discount is to be used in calculating the accrual of market
discount. The effect of using a prepayment assumption could be to accelerate the
reporting of such discount income. Because the regulations referred to in this
paragraph have not been issued, it is not possible to predict what effect such
regulations might have on the tax treatment of a Mortgage Loan purchased at a
discount in the secondary market.
Because the Mortgage Loans will provide for periodic payments of stated
redemption price, such discount may be required to be included in income at a
rate that is not significantly slower than the rate at which such discount would
be included in income if it were original issue discount.
Market discount with respect to Mortgage Loans may be considered to be
de minimis and, if so, will be includible in income under de minimis rules
similar to those described in "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above within the exception that it is
less like that a prepayment assumption will be used for purposes of such rules
with respect to the Mortgage Loans.
Further, under the rules described in "--REMICs--Taxation of Owners of
REMIC Regular Certificates--Market Discount", any discount that is not original
issue discount and exceeds a de minimis amount may require the deferral of
interest expense deductions attributable to accrued market discount not yet
includible in income, unless an election has been made to report market discount
currently as it accrues. This rule applies without regard to the origination
dates of the Mortgage Loans.
Premium. If a Certificateholder is treated as acquiring the underlying
Mortgage Loans at a premium, that is, at a price in excess of their remaining
stated redemption price, such Certificateholder may elect under Section 171 of
the Code to amortize using a constant yield method the portion of such premium
allocable to Mortgage Loans originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to Mortgage Loans originated before September 28, 1985 or to Mortgage
Loans for which an amortization election is not made, should be allocated among
the payments of stated redemption price on the Mortgage Loan and be allowed as a
deduction as such payments are made (or, for a Certificateholder using the
accrual method of accounting, when such payments of stated redemption price are
due).
It is unclear whether a prepayment assumption should be used in
computing amortization of premium allowable under Section 171 of the Code. If
premium is not subject to amortization using a prepayment assumption and a
Mortgage Loan prepays in full, the holder of a Grantor Trust Fractional Interest
Certificate acquired at a premium should recognize a loss equal to the
difference between the portion of the prepaid principal amount of the Mortgage
Loan that is allocable to the Certificate and the portion of the adjusted basis
of the Certificate that is allocable to the Mortgage Loan. If a prepayment
assumption is used to amortize such premium, it appears that such a loss would
be unavailable. Instead, if a prepayment assumption is used, a prepayment should
be treated as a partial payment of the stated redemption price of the Grantor
Trust Fractional Interest Certificate and accounted for under a method similar
to that described for taking account of original issue discount on REMIC Regular
Certificates. See "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount". It is unclear whether any other
adjustments would be required to reflect differences between the prepayment
assumption and the actual rate of prepayments.
Taxation of Owners of Grantor Trust Strip Certificates. The "stripped
coupon" rules of Section 1286 of the Code will apply to the Grantor Trust Strip
Certificates. Except as described above in "--Taxation of Owners of Grantor
Trust Fractional Interest Certificates--If Stripped Bond Rules Apply", no
regulations or published rulings under Section 1286 of the Code have been issued
and some uncertainty exists as to how it will be applied to securities such as
the Grantor Trust Strip Certificates. Accordingly, holders of Grantor
81
<PAGE>
<PAGE>
Trust Strip Certificates should consult their tax advisors concerning the method
to be used in reporting income or loss with respect to such Certificates.
The OID Regulations do not apply to "stripped coupons", although they
provide general guidance as to how the original issue discount sections of the
Code will be applied. In addition, the discussion below is subject to the
discussion under "--Possible Application of Proposed Contingent Payment Rules"
below and assumes that the holder of a Grantor Trust Strip Certificate will not
own any Grantor Trust Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original issue
discount will be required to be accrued in each month on the Grantor Trust Strip
Certificates based on a constant yield method. In effect, each holder of Grantor
Trust Strip Certificates would include as interest income in each month an
amount equal to the product of such holder's adjusted basis in such Grantor
Trust Strip Certificate at the beginning of such month and the yield of such
Grantor Trust Strip Certificate to such holder. Such yield would be calculated
based on the price paid for that Grantor Trust Strip Certificate by its holder
and the payments remaining to be made thereon at the time of the purchase, plus
an allocable portion of the servicing fees and expenses to be paid with respect
to the Mortgage Loans. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--If Stripped Bond Rules Apply" above.
As noted above, Section 1272(a)(6) of the Code requires that a
prepayment assumption be used in computing the accrual of original issue
discount with respect to certain categories of debt instruments, and that
adjustments be made in the amount and rate of accrual of such discount when
prepayments do not conform to such prepayment assumption. Regulations could be
adopted applying those provisions to the Grantor Trust Strip Certificates. It is
unclear whether those provisions would be applicable to the Grantor Trust Strip
Certificates or whether use of a prepayment assumption may be required or
permitted in the absence of such regulations. It is also uncertain, if a
prepayment assumption is used, whether the assumed prepayment rate would be
determined based on conditions at the time of the first sale of the Grantor
Trust Strip Certificate or, with respect to any subsequent holder, at the time
of purchase of the Grantor Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip Certificates will be
significantly slower if a prepayment assumption is permitted to be made than if
yield is computed assuming no prepayments. In the absence of statutory or
administrative clarification, it currently is intended to base information
returns or reports to the IRS and Certificateholders on the Prepayment
Assumption disclosed in the related Prospectus Supplement and on a constant
yield computed using a representative initial offering price for each class of
Certificates. However, neither the Depositor nor any other person will make any
representation that the Mortgage Loans will in fact prepay at a rate conforming
to the Prepayment Assumption or at any other rate and Certificateholders should
bear in mind that the use of a representative initial offering price will mean
that such information returns or reports, even if otherwise accepted as accurate
by the IRS, will in any event be accurate only as to the initial
Certificateholders of each series who bought at that price. Prospective
purchasers of the Grantor Trust Strip Certificates should consult their tax
advisors regarding the use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment of a
Mortgage Loan will give rise to a loss to the holder of a Grantor Trust Strip
Certificate. If a Grantor Trust Strip Certificate is treated as a single
instrument (rather than an interest in discrete mortgage loans) and the effect
of prepayments is taken into account in computing yield with respect to such
Grantor Trust Strip Certificate, it appears that no loss may be available as a
result of any particular prepayment unless prepayments occur at a rate faster
than the Prepayment Assumption. However, if a Grantor Trust Strip Certificate is
treated as an interest in discrete Mortgage Loans, or if the Prepayment
Assumption is not used, then when a Mortgage Loan is prepaid, the holder of a
Grantor Trust Strip Certificate should be able to recognize a loss equal to the
portion of the adjusted issue price of the Grantor Trust Strip Certificate that
is allocable to such Mortgage Loan.
Possible Application of Proposed Contingent Payment Rules. The coupon
stripping rules' general treatment of stripped coupons is to regard them as
newly issued debt instruments in the hands of each purchaser. To the extent that
payments on the Grantor Trust Strip Certificates would cease if the Mortgage
Loans were prepaid in full, the Grantor Trust Strip Certificates could be
considered to be debt instruments providing for contingent payments. Under the
OID Regulations, debt instruments providing for contingent
82
<PAGE>
<PAGE>
payments are not subject to the same rules as debt instruments providing for
noncontingent payments, but no final regulations have been promulgated with
respect to contingent payment debt instruments. Proposed regulations were
promulgated on December 16, 1994 regarding contingent payment debt instruments.
As in the case of the OID Regulations, such proposed regulations do not
specifically address securities, such as the Grantor Trust Strip Certificates,
that are subject to the stripped bond rules of Section 1286 of the Code.
If the contingent payment rules under the proposed regulations were to
apply, the holder of a Grantor Trust Strip Certificate would be required to
apply a "noncontingent bond method." Under that method, the issuer of a Grantor
Trust Strip Certificate would determine a projected payment schedule with
respect to such Grantor Trust Strip Certificate. Holders of Grantor Trust Strip
Certificates would be bound by the issuer's projected payment schedule, which
would consist of all noncontingent payments and a projected amount for each
contingent payment based on the projected yield (as described below) of the
Grantor Trust Strip Certificate. The projected amount of each payment would be
determined so that the projected payment schedule reflected the projected yield
reasonably expected to be received by the holder of a Grantor Trust Strip
Certificate. The projected yield referred to above would be a reasonable rate,
not less than the "applicable Federal rate" that, as of the issue date,
reflected general market conditions, the credit quality of the issuer, and the
terms and conditions of the Mortgage Loans. The holder of a Grantor Trust Strip
Certificate would be required to include as interest income in each month the
adjusted issue price of the Grantor Trust Strip Certificate at the beginning of
the period multiplied by the projected yield, and would add to, or subtract
from, such income any variation between the payment actually received in such
month and the payment originally projected to be made in such month.
In the absence of final Treasury regulations relating to debt
instruments providing for contingent payments, a projected payment schedule
under the "noncontingent bond method" is not intended to be provided to holders.
Certificateholders should consult their tax advisors concerning the
possible application of the contingent payment rules to the Grantor Trust Strip
Certificates.
Sales of Grantor Trust Certificates
Any gain or loss, equal to the difference between the amount realized
on the sale or exchange of a Grantor Trust Certificate and its adjusted basis,
recognized on such sale or exchange of a Grantor Trust Certificate by an
investor who holds such Grantor Trust Certificate as a capital asset, will be
capital gain or loss, except to the extent of accrued and unrecognized market
discount, which will be treated as ordinary income, and (in the case of banks
and other financial institutions) except as provided under Section 582(c) of the
Code. The adjusted basis of a Grantor Trust Certificate generally will equal its
cost, increased by any income reported by the seller (including original issue
discount and market discount income) and reduced (but not below zero) by any
previously reported losses, any amortized premium and by any distributions with
respect to such Grantor Trust Certificate. The Code as of the date of this
Prospectus provides a top marginal tax rate of 39.6% for individuals and a
maximum marginal rate for long-term capital gains of individuals of 28%. No such
rate differential exists for corporations. In addition, the distinction between
a capital gain or loss and ordinary income or loss remains relevant for other
purposes.
Gain or loss from the sale of a Grantor Trust Certificate may be
partially or wholly ordinary and not capital in certain circumstances. Gain
attributable to accrued and unrecognized market discount will be treated as
ordinary income, as will gain or loss recognized by banks and other financial
institutions subject to Section 582(c) of the Code. Furthermore, a portion of
any gain that might otherwise be capital gain may be treated as ordinary income
to the extent that the Grantor Trust Certificate is held as part of a
"conversion transaction" within the meaning of Section 1258 of the Code. A
conversion transaction generally is one in which the taxpayer has taken two or
more positions in the same or similar property that reduce or eliminate market
risk, if substantially all of the taxpayer's return is attributable to the time
value of the taxpayer's net investment in such transaction. The amount of gain
realized in a conversion transaction that is recharacterized as ordinary income
generally will not exceed the amount of interest that would have accrued on the
taxpayer's net investment at 120% of the appropriate "applicable Federal rate"
(which rate is computed and published monthly by the IRS) at the time the
taxpayer enters into the conversion transaction, subject to appropriate
reduction for prior inclusion of interest and other ordinary income items from
the transaction.
83
<PAGE>
<PAGE>
Finally, a taxpayer may elect to have net capital gain taxed at
ordinary income rates rather than capital gains rates in order to include such
net capital gain in total net investment income for that taxable year, for
purposes of the rule that limits the deduction of interest on indebtedness
incurred to purchase or carry property held for investment to a taxpayer's net
investment income.
Grantor Trust Reporting
Unless otherwise provided in the related Prospectus Supplement, the
Trustee or Master Servicer, as applicable, will furnish to each holder of a
Grantor Trust Certificate with each distribution a statement setting forth the
amount of such distribution allocable to principal on the underlying Mortgage
Loans and to interest thereon at the related Pass-Through Rate. In addition, the
Trustee or Master Servicer, as applicable, will furnish, within a reasonable
time after the end of each calendar year, to each holder of a Grantor Trust
Certificate who was such a holder at any time during such year, information
regarding the amount of servicing compensation received by the Master Servicer,
the Special Servicer or any Sub- Servicer, and such other customary factual
information as the Depositor or the reporting party deems necessary or desirable
to enable holders of Grantor Trust Certificates to prepare their tax returns and
will furnish comparable information to the IRS as and when required by law to do
so. Because the rules for accruing discount and amortizing premium with respect
to the Grantor Trust Certificates are uncertain in various respects, there is no
assurance the IRS will agree with the Trustee's or Master Servicer's, as the
case may be, information reports of such items of income and expense. Moreover,
such information reports, even if otherwise accepted as accurate by the IRS,
will in any event be accurate only as to the initial Certificateholders that
bought their Certificates at the representative initial offering price used in
preparing such reports.
Backup Withholding
In general, the rules described in "--REMICs--Backup Withholding with
Respect to REMIC Certificates" will also apply to Grantor Trust Certificates.
Foreign Investors
In general, the discussion with respect to REMIC Regular Certificates
in "--REMICs--Foreign Investors in REMIC Certificates" applies to Grantor Trust
Certificates except that Grantor Trust Certificates will, unless otherwise
disclosed in the related Prospectus Supplement, be eligible for exemption from
U.S. withholding tax, subject to the conditions described in such discussion,
only to the extent the related Mortgage Loans were originated after July 18,
1984.
To the extent that interest on a Grantor Trust Certificate would be
exempt under Sections 871(h)(1) and 881(c) of the Code from United States
withholding tax, and the Grantor Trust Certificate is not held in connection
with a Certificateholder's trade or business in the United States, such Grantor
Trust Certificate will not be subject to United States estate taxes in the
estate of a non-resident alien individual.
STATE AND OTHER TAX CONSIDERATIONS
In addition to the federal income tax consequences described in
"Certain Federal Income Tax Consequences", potential investors should consider
the state and local tax consequences of the acquisition, ownership, and
disposition of the Offered Certificates. State tax law may differ substantially
from the corresponding federal law, and the discussion above does not purport to
describe any aspect of the income tax laws of any state or other jurisdiction.
Therefore, potential investors should consult their own tax advisors with
respect to the various tax consequences of investments in the Offered
Certificates.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain requirements on employee benefit plans
and on certain other retirement plans and arrangements, including individual
retirement accounts and annuities, Keogh plans and collective investment funds
and separate accounts (and, as applicable, insurance company general accounts)
in which such plans, accounts or arrangements are invested that are subject to
the fiduciary responsibility provisions of ERISA and Section 4975 of the Code
("Plans") and on persons who are fiduciaries with respect to such Plans in
connection with the investment of Plan assets. Certain employee benefit plans,
such as governmental plans (as defined in ERISA Section 3(32)), and, if no
election has been made under Section 410(d) of the Code, church plans (as
defined in Section 3(33) of ERISA) are not subject to ERISA
84
<PAGE>
<PAGE>
requirements. Accordingly, assets of such plans may be invested in Offered
Certificates without regard to the ERISA considerations described below, subject
to the provisions of other applicable federal and state law. Any such plan which
is qualified and exempt from taxation under Sections 401(a) and 501(a) of the
Code, however, is subject to the prohibited transaction rules set forth in
Section 503 of the Code.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. In addition, ERISA and the Code prohibit a broad range of
transactions involving assets of a Plan and persons ("parties in interest" under
Section 3(14) of ERISA or "disqualified persons" under Section 4975(e)(2) of the
Code, collectively, "Parties in Interest") who have certain specified
relationships to the Plan unless a statutory or administrative exemption is
available. Certain Parties in Interest that participate in a prohibited
transaction may be subject to an excise tax imposed pursuant to Section 4975 of
the Code, unless a statutory or administrative exemption is available. These
prohibited transactions generally are set forth in Section 406 of ERISA and
Section 4975 of the Code.
A Plan's investment in Certificates may cause the Trust Assets to be
deemed Plan assets. Section 2510.3-101 of the regulations of the United States
Department of Labor ("DOL") provides that when a Plan acquires an equity
interest in an entity, the Plan's assets include both such equity interest and
an undivided interest in each of the underlying assets of the entity, unless
certain exceptions not applicable to this discussion apply, or unless the equity
participation in the entity by "benefit plan investors" (i.e., Plans and certain
employee benefit plans not subject to ERISA) is not "significant", both as
defined therein. For this purpose, in general, equity participation by benefit
plan investors will be "significant" on any date if 25% or more of the value of
any class of equity interests in the entity is held by benefit plan investors.
Equity participation in a Trust Fund will be significant on any date if
immediately after the most recent acquisition of any Certificate, 25% or more of
any class of Certificates is held by benefit plan investors.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides investment
advice with respect to such assets for a fee, is a fiduciary of the investing
Plan. If the Trust Assets constitute Plan assets, then any party exercising
management or discretionary control regarding those assets, such as a Master
Servicer or any Sub-Servicer, may be deemed to be a Plan "fiduciary" and thus
subject to the fiduciary responsibility provisions and prohibited transaction
provisions of ERISA and the Code with respect to the Trust Assets. In addition,
if the Trust Assets constitute Plan assets, the purchase of Certificates by a
Plan, as well as the operation of the Trust Fund, may constitute or involve a
prohibited transaction under ERISA and the Code.
The DOL issued an individual exemption, Prohibited Transaction
Exemption 89-89 (the "Exemption"), on October 17, 1989 to Salomon Brothers Inc,
which generally exempts from the application of the prohibited transaction
provisions of Section 406 of ERISA, and the excise taxes imposed on such
prohibited transactions pursuant to Section 4975(a) and (b) of the Code and
Section 502(i) of ERISA, certain transactions, among others, relating to the
servicing and operation of mortgage pools and the purchase, sale and holding of
mortgage pass-through certificates underwritten by an Underwriter (as
hereinafter defined), provided that certain conditions set forth in the
Exemption are satisfied. For purposes of this section "ERISA Considerations",
the term "Underwriter" shall include (a) Salomon Brothers Inc, (b) any person
directly or indirectly, through one or more intermediaries, controlling,
controlled by or under common control with Salomon Brothers Inc, and (c) any
member of the underwriting syndicate or selling group of which Salomon Brothers
Inc or a person described in (b) is a manager or co-manager with respect to a
class of Certificates.
The Exemption sets forth six general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of Certificates to be
eligible for exemptive relief thereunder. First, the acquisition of Certificates
by a Plan must be on terms that are at least as favorable to the Plan as they
would be in an arm's-length transaction with an unrelated party. Second, the
Exemption only applies to Certificates evidencing rights and interests not
subordinated to the rights and interests evidenced by the other Certificates of
the same series. Third, the Certificates at the time of acquisition by the Plan
must be rated in one of the three highest generic rating categories by Standard
& Poor's Corporation, Moody's Investors Service, Inc., Duff & Phelps Credit
Rating Co. or Fitch Investors Service, L.P. Fourth, the Trustee cannot be an
affiliate of any other member of the "Restricted Group", which consists of any
Underwriter, the Depositor, the Trustee, the Master Servicer, any Sub-Servicer,
the provider of any Credit Support and
85
<PAGE>
<PAGE>
any mortgagor with respect to Mortgage Loans constituting more than 5% of the
aggregate unamortized principal balance of the Mortgage Loans in the related
Trust Fund as of the date of initial issuance of the Certificates. Fifth, the
sum of all payments made to and retained by the Underwriter(s) must represent
not more than reasonable compensation for underwriting the Certificates; the sum
of all payments made to and retained by the Depositor pursuant to the assignment
of the Mortgage Assets to the related Trust Fund must represent not more than
the fair market value of such obligations; and the sum of all payments made to
and retained by the Master Servicer and any Sub-Servicer must represent not more
than reasonable compensation for such person's services under the related
Agreement and reimbursement of such person's reasonable expenses in connection
therewith. Sixth, the investing Plan must be an accredited investor as defined
in Rule 501(a)(1) of Regulation D of the Commission under the Securities Act of
1933, as amended.
A fiduciary of a Plan contemplating purchasing an Offered Certificate
must make its own determination that the general conditions set forth above will
be satisfied with respect to such Certificate.
If the general conditions of the Exemption are satisfied, the Exemption
may provide an exemption from the restrictions imposed by Sections 406(a) and
407(a) of ERISA (as well as the excise taxes imposed by Sections 4975(a) and (b)
of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code) in
connection with the direct or indirect sale, exchange, transfer, holding or the
direct or indirect acquisition or disposition in the secondary market of
Certificates by Plans. However, no exemption is provided from the restrictions
of Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or
holding of a Certificate on behalf of an "Excluded Plan" by any person who has
discretionary authority or renders investment advice with respect to the assets
of such Excluded Plan. For purposes hereof, an Excluded Plan is a Plan sponsored
by any member of the Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA and the taxes imposed by Section 4975(c)(1)(E) of
the Code in connection with (1) the direct or indirect sale, exchange or
transfer of Offered Certificates in the initial issuance of Offered Certificates
between the Depositor or an Underwriter and a Plan when the person who has
discretionary authority or renders investment advice with respect to the
investment of Plan assets in such Certificates is (a) a mortgagor with respect
to 5% or less of the fair market value of the Mortgage Loans in the related
Trust Fund or (b) an affiliate of such a person, (2) the direct or indirect
acquisition or disposition in the secondary market of Offered Certificates by a
Plan and (3) the holding of Offered Certificates by a Plan.
Further, if certain specific conditions of the Exemption are satisfied,
the Exemption may provide an exemption from the restrictions imposed by Sections
406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c) of the Code for transactions in
connection with the servicing, management and operation of the Trust Assets. The
Depositor expects that the specific conditions of the Exemption required for
this purpose will be satisfied with respect to certain classes of Offered
Certificates so that the Exemption would provide an exemption from the
restrictions imposed by Sections 406(a) and (b) of ERISA (as well as the excise
taxes imposed by Sections 4975(a) and (b) of the Code by reason of Section
4975(c) of the Code) for transactions in connection with the servicing,
management and operation of the Trust Assets, provided that the general
conditions of the Exemption are satisfied.
The Exemption also may provide an exemption from the restrictions
imposed by Sections 406(a) and 407(a) of ERISA, and the taxes imposed by Section
4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of
the Code if such restrictions are deemed to otherwise apply merely because a
person is deemed to be a "party in interest" (within the meaning of Section
3(14) of ERISA) or a "disqualified person" (within the meaning of Section
4975(e)(2) of the Code) with respect to an investing Plan by virtue of providing
services to the Plan (or by virtue of having certain specified relationships to
such a person) solely as a result of the Plan's ownership of Offered
Certificates.
Before purchasing Offered Certificates, a fiduciary of a Plan should
itself confirm (a) that such Offered Certificates constitute "certificates" for
purposes of the Exemption and (b) that the specific and general conditions set
forth in the Exemption and the other requirements set forth in the Exemption
would be satisfied. In addition to making its own determination as to the
availability of the exemptive relief
86
<PAGE>
<PAGE>
provided in the Exemption, the Plan fiduciary should consider its general
fiduciary obligations under ERISA in determining whether to purchase any Offered
Certificates on behalf of a Plan.
Any plan fiduciary that proposes to cause a Plan to purchase Offered
Certificates should consult with its counsel with respect to the potential
applicability of ERISA and the Code to such investment and the availability of
the Exemption or any other prohibited transaction exemption in connection
therewith. Such fiduciary should consider the availability of: Prohibited
Transaction Class Exemption ("PTCE") 95-60, regarding investments by insurance
company general accounts; PTCE 90-1, regarding investments by insurance company
pooled separate accounts; PTCE 91-38, regarding investments by bank collective
investment funds; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers". There can be no assurance that any of these
exemptions will apply with respect to any particular Plan's investment in
Offered Certificates or, even if an exemption were deemed to apply, that any
exemption would apply to all prohibited transactions that may occur in
connection with such investment. The Prospectus Supplement with respect to a
series of Certificates may contain additional information regarding the
application of the Exemption or any other exemption, with respect to the
Certificates offered thereby. In addition, any Plan fiduciary that proposes to
cause a Plan to purchase Stripped Interest Certificates should consider the
federal income tax consequences of such investment.
Any Plan fiduciary considering whether to purchase an Offered
Certificate on behalf of a Plan should consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment.
LEGAL INVESTMENT
Unless otherwise specified in the related Prospectus Supplement, the
Offered Certificates will not constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA").
Accordingly, investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to determine whether and to
what extent the Offered Certificates constitute legal investments for them.
Generally, only classes of Offered Certificates that (i) are rated in
one of the two highest rating categories by one or more Rating Agencies and (ii)
are part of a series evidencing interests in a Trust Fund consisting of loans
secured by, among other things, a single parcel of real estate upon which is
located a dwelling or mixed residential and commercial structure, such as
certain Multifamily Loans, originated by types of Originators specified in SMMEA
will be "mortgage related securities" for purposes of SMMEA. "Mortgage related
securities" are legal investments 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
persons, trusts, corporations, partnerships, associations, business trusts and
business entities (including depository institutions, insurance companies and
pension funds created pursuant to or existing under the laws of the United
States or of any state, the authorized investments of which are subject to state
regulation). Under SMMEA, if a state enacted legislation prior to October 3,
1991 specifically limiting the legal investment authority of any such entities
with respect to "mortgage related securities", the Certificates would constitute
legal investments for entities subject to such legislation only to the extent
provided in such legislation. SMMEA provides, however, that in no event will the
enactment of any such legislation affect the validity of any contractual
commitment to purchase, hold or invest in "mortgage related securities", or
require the sale or other disposition of such securities, so long as such
contractual commitment was made or such securities acquired prior to the
enactment of such legislation.
SMMEA also amended the legal investment authority of federally
chartered depository institutions as follows: federal savings and loan
associations and federal savings banks may invest in, sell or otherwise deal
with "mortgage related securities" without limitation as to the percentage of
their assets represented thereby, federal credit unions may invest in such
securities, and national banks may purchase such securities for their own
account without regard to the limitations generally applicable to investment
securities set forth in 12 U.S.C. 24 (Seventh), subject in each case to such
regulations as the applicable federal regulatory authority may prescribe.
All depository institutions considering an investment in the
Certificates should review the Federal Financial Institutions Examination
Council's Supervisory Policy Statement on the Selection of Securities Dealers
and Unsuitable Investment Practices (to the extent adopted by their respective
regulators), setting
87
<PAGE>
<PAGE>
forth, in relevant part, certain investment practices deemed to be unsuitable
for an institution's investment portfolio, as well as guidelines for investing
in certain types of mortgage related securities.
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 and provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying".
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Offered Certificates or to
purchase Offered Certificates representing more than a specified percentage of
the investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the Offered Certificates constitute legal
investments for such investors.
METHOD OF DISTRIBUTION
The Offered Certificates offered hereby and by the Supplements to this
Prospectus will be offered in series. The distribution of the Certificates may
be effected from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment therefor. If so
specified in the related Prospectus Supplement, the Offered Certificates will be
distributed in a firm commitment underwriting, subject to the terms and
conditions of the underwriting agreement, by Salomon Brothers Inc ("Salomon")
acting as underwriter with other underwriters, if any, named therein. In such
event, the Prospectus Supplement may also specify that the underwriters will not
be obligated to pay for any Offered Certificates agreed to be purchased by
purchasers pursuant to purchase agreements acceptable to the Depositor. In
connection with the sale of Offered Certificates, underwriters may receive
compensation from the Depositor or from purchasers of Offered Certificates in
the form of discounts, concessions or commissions. The Prospectus Supplement
will describe any such compensation paid by the Depositor.
Alternatively, the Prospectus Supplement may specify that Offered
Certificates will be distributed by Salomon acting as agent or in some cases as
principal with respect to Offered Certificates that it has previously purchased
or agreed to purchase. If Salomon acts as agent in the sale of Offered
Certificates, Salomon will receive a selling commission with respect to such
Offered Certificates, depending on market conditions, expressed as a percentage
of the aggregate Certificate Balance or notional amount of such Offered
Certificates as of the Cut-off Date. The exact percentage for each series of
Certificates will be disclosed in the related Prospectus Supplement. To the
extent that Salomon elects to purchase Offered Certificates as principal,
Salomon may realize losses or profits based upon the difference between its
purchase price and the sales price. The Prospectus Supplement with respect to
any series offered other than through underwriters will contain information
regarding the nature of such offering and any agreements to be entered into
between the Depositor and purchasers of Offered Certificates of such series.
The Depositor will indemnify Salomon and any underwriters against
certain civil liabilities, including liabilities under the Securities Act of
1933, or will contribute to payments Salomon and any underwriters may be
required to make in respect thereof.
In the ordinary course of business, Salomon and the Depositor may
engage in various securities and financing transactions, including repurchase
agreements to provide interim financing of the Depositor's mortgage loans
pending the sale of such mortgage loans or interests therein, including the
Certificates.
The Depositor anticipates that the Offered Certificates will be sold
primarily to institutional investors. Purchasers of Offered Certificates,
including dealers, may, depending on the facts and circumstances of such
purchases, be deemed to be "underwriters" within the meaning of the Securities
Act of 1933 in connection with reoffers and sales by them of Offered
Certificates. Certificateholders should consult with their legal advisors in
this regard prior to any such reoffer or sale.
As to each series of Certificates, only those classes rated in an
investment grade rating category by any Rating Agency will be offered hereby.
Any unrated class may be initially retained by the Depositor, and may be sold by
the Depositor at any time to one or more institutional investors.
88
<PAGE>
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Certificates, including
certain federal income tax consequences, will be passed upon for the Depositor
and Salomon Brothers Inc by Thacher Proffitt & Wood, New York, New York.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each series of
Certificates and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement.
RATING
It is a condition to the issuance of any class of Offered Certificates
that they shall have been rated not lower than investment grade, that is, in one
of the four highest rating categories, by a Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of the guarantor, if any. Ratings on mortgage
pass-through certificates do not represent any assessment of the likelihood of
principal prepayments by mortgagors or of the degree by which such prepayments
might differ from those originally anticipated. As a result, certificateholders
might suffer a lower than anticipated yield, and, in addition, holders of
stripped interest certificates in extreme cases might fail to recoup their
initial investments.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating.
89
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
INDEX OF PRINCIPAL DEFINITIONS
<S> <C>
Accrual Certificates.........................................................................................10, 28
Accrued Certificate Interest.....................................................................................30
ARM Loans........................................................................................................22
Available Distribution Amount....................................................................................29
Book-Entry Certificates..........................................................................................28
Cash Flow Agreement........................................................................................1, 9, 24
CERCLA ....................................................................................................18, 58
Certificate Account.......................................................................................8, 24, 38
Certificate Balance..........................................................................................10, 30
Certificate Owners...............................................................................................34
Certificateholders................................................................................................5
Certificates......................................................................................................7
Closing Date.....................................................................................................63
Code ....................................................................................................12, 61
Commercial Loans.................................................................................................20
Commission........................................................................................................5
Committee Report.................................................................................................63
Contributions Tax................................................................................................73
Cooperatives.....................................................................................................20
CPR ........................................................................................................26
Credit Support..........................................................................................1, 8, 9, 24
Crime Control Act................................................................................................61
Cut-off Date.....................................................................................................11
Debt Service Coverage Ratio......................................................................................21
Definitive Certificates..........................................................................................28
Depositor.....................................................................................................7, 20
Determination Date...............................................................................................29
Distribution Date................................................................................................10
DOL ........................................................................................................85
DTC .....................................................................................................5, 34
Due Period.......................................................................................................29
Equity Participation.............................................................................................23
ERISA ....................................................................................................12, 84
Exchange Act......................................................................................................5
Exemption........................................................................................................85
FDIC ........................................................................................................38
Garn Act ........................................................................................................59
Grantor Trust Certificates.......................................................................................12
Grantor Trust Fractional Interest Certificate....................................................................76
Grantor Trust Fund...............................................................................................61
Grantor Trust Strip Certificate..................................................................................76
Indirect Participants............................................................................................34
Insurance Proceeds...............................................................................................38
IRS ........................................................................................................64
Issue Premium....................................................................................................69
L/C Bank ........................................................................................................51
Liquidation Proceeds.........................................................................................38, 39
Loan-to-Value Ratio..............................................................................................21
Lock-out Date....................................................................................................23
Lock-out Period..................................................................................................23
Mark-to-Market Regulations.......................................................................................71
</TABLE>
90
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Master Servicer...................................................................................................7
MBS ..................................................................................................1, 7, 20
MBS Agreement....................................................................................................23
MBS Issuer.......................................................................................................23
MBS Servicer.....................................................................................................23
MBS Trustee......................................................................................................23
Mortgage Asset Seller............................................................................................20
Mortgage Assets............................................................................................1, 7, 20
Mortgage Loans.............................................................................................1, 7, 20
Mortgage Notes...................................................................................................20
Mortgage Rate.................................................................................................8, 22
Mortgaged Properties.............................................................................................20
Mortgages....................................................................................................20, 52
Multifamily Loans................................................................................................20
Net Leases.......................................................................................................21
Net Operating Income.............................................................................................21
Nonrecoverable Advance...........................................................................................31
Offered Certificates..............................................................................................1
OID Regulations..................................................................................................62
Originator.......................................................................................................20
Participants.....................................................................................................34
Parties in Interest..............................................................................................85
Pass-Through Rate................................................................................................10
Permitted Investments............................................................................................38
Plans ........................................................................................................84
Prepayment Assumption........................................................................................63, 79
Prepayment Premium...............................................................................................23
Prohibited Transactions Tax......................................................................................73
PTCE ........................................................................................................87
Purchase Price...................................................................................................37
Rating Agency....................................................................................................13
Record Date......................................................................................................29
Related Proceeds.................................................................................................31
Relief Act.......................................................................................................60
REMIC ........................................................................................................61
REMIC Certificates...............................................................................................61
REMIC Provisions.................................................................................................61
REMIC Regular Certificates.......................................................................................12
REMIC Regulations................................................................................................62
REMIC Residual Certificates......................................................................................12
REO Property.....................................................................................................41
REO Tax ........................................................................................................42
Residual Owner...................................................................................................67
Retained Interest................................................................................................45
RICO ........................................................................................................61
Salomon ........................................................................................................88
Senior Certificates..........................................................................................10, 28
Servicing Standard...............................................................................................40
SMMEA ........................................................................................................87
SPA ........................................................................................................26
Special Servicer..................................................................................................7
Spread Certificates..........................................................................................10, 28
Stripped Interest Certificates...............................................................................10, 28
Stripped Principal Certificates..............................................................................10, 28
</TABLE>
91
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Sub-Servicer.....................................................................................................41
Sub-Servicing Agreement..........................................................................................41
Subordinate Certificates.....................................................................................10, 28
Superlien........................................................................................................58
Tiered MBS.................................................................................................1, 7, 20
Tiered REMICs....................................................................................................63
Title V ........................................................................................................60
Trust Assets......................................................................................................5
Trust Fund.....................................................................................................1, 7
Trustee .........................................................................................................7
UCC ........................................................................................................53
United States Person.............................................................................................76
Value ........................................................................................................21
Voting Rights....................................................................................................19
Warranting Party.................................................................................................36
</TABLE>
92
<PAGE>
<PAGE>
No dealer, salesman or other person has been authorized to give any information
or to make any representations other than those contained in this prospectus
supplement or the prospectus in connection with the offer made by this
prospectus supplement and the prospectus and, if given or made, such information
or representations must not be relied upon as having been authorized by the
Underwriter. Neither the delivery of this prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change since the date hereof. This prospectus supplement and the prospectus do
not constitute an offer or solicitation by anyone in any jurisdiction in which
such offer or solicitation is not authorized or in which the person making such
offer or solicitation is not qualified to do so or to anyone to whom it is
unlawful to make such solicitation.
Table of Contents
Page
Prospectus Supplement
Summary of Prospectus Supplement..................S-4
Risk Factors.....................................S-31
Description of the Mortgage Pool.................S-36
Servicing of the Mortgage Loans..................S-57
Description of the Certificates .................S-68
Yield and Maturity Considerations ...............S-85
Use of Proceeds..................................S-91
Certain Federal Income Tax Consequences .........S-91
ERISA Considerations.............................S-92
Legal Investment.................................S-94
Method of Distribution...........................S-94
Legal Matters....................................S-95
Ratings..........................................S-95
Index of Principal Definitions...................S-97
Annex A.......................................... A-1
Appendices.......................................AP-1
Prospectus
Prospectus Supplement.............................. 5
Available Information.............................. 5
Reports to Certificateholders ..................... 5
Incorporation of Certain Information by Reference . 5
Summary of Prospectus.............................. 7
Risk Factors.......................................14
Description of the Trust Funds.....................20
Use of Proceeds....................................24
Yield Considerations...............................24
The Depositor......................................28
Description of the Certificates ...................28
Description of the Agreements......................35
Description of Credit Support......................50
Certain Legal Aspects of Mortgage Loans ...........52
Certain Federal Income Tax Consequences ...........61
State and Other Tax Considerations ................84
ERISA Considerations...............................84
Legal Investment...................................87
Method of Distribution.............................88
Legal Matters......................................89
Financial Information..............................89
Rating.............................................89
Index of Principal Definitions.....................90
Until May , 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 the prospectus in which it
relates. This delivery requirement 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 subscription.
$212,045,634 (Approximate)
Mortgage Pass-Through
Certificates, Series 1996-C1
Salomon Brothers Mortgage
Securities VII, Inc.
Depositor
Midland Loan Services, L.P.
Master Servicer and Special Servicer
- --------------------
Salomon Brothers Inc
- --------------------
Prospectus Supplement
Dated February, 1996
