Registration No. 333________
As filed with the Securities and Exchange Commission on February 14, 2000
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FIRST UNION COMMERCIAL MORTGAGE SECURITIES, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-1643598
(State or other jurisdiction) (I.R.S. Employer
of incorporation) Identification No.)
One First Union Center
Charlotte, North Carolina 28288-0600
(704) 374-6161
(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive office)
-------------------------------------------------
James F. Powers
Senior Vice President and Assistant General Counsel
First Union Corporation
One First Union Center
Charlotte, North Carolina 28288-0630
(704) 374-6611
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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with copies to:
Michael Durrer
Brown & Wood
Princes Court
7 Princes Street
London EC2R 8AQ
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Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement,
determined in light of market and other conditions.
If the only securities being registered on this form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. / /
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. /X/
If this form is filed to register additional securities for an
offering pursuant to Rule 462 (b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462
(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
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CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum
Title of Shares to be Amount to be Aggregate Price per Aggregate Offering Amount of
Registered Registered (1) (2 Unit (3) Price Registration Fee
<S> <C> <C> <C> <C>
Commercial Mortgage $1,000,000 100% $1,000,000 $264
Pass-Through Certificates
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(1) $389,020,965 aggregate principal amount of Commercial Mortgage
Pass-Through Certificates registered by the Registrant under the
Registrant's Registration Statement on Form S-3 (Registration No.
333-62671) (the "Prior Registration Statement") referred to below and
not previously sold are consolidated in this Registration Statement
pursuant to Rule 429 of the Securities Act. All registration fees in
connection with such unsold amount of Commercial Mortgage
Pass-Through Certificates (amounting to $108,148) have been
previously paid by the Registrant under the Prior Registration
Statement.
(2) There is also being registered hereunder an indeterminate amount of
Commercial Mortgage Pass-Through Certificates that may be sold by the
Registrant or any affiliate of Registrant, including First Union
Securities, Inc., in furtherance of market-making activities in the
Commercial Mortgage Pass-Through Certificates and in connection with
which it is necessary under the federal securities laws to deliver a
market-making prospectus.
(3) Estimated solely for purposes of determining the registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
Pursuant to Rule 429 of the Securities Act of 1933, the Prospectus and
the Prospectus Supplement contained in this Registration Statement also relate
to the Registrant's Prior Registration Statement on Form S-3. This
Registration Statement, which is a new registration statement, also
constitutes a post-effective amendment to the Prior Registration Statement.
Such post-effective amendment shall hereafter become effective concurrently
with the effectiveness of this Registration Statement in accordance with
Section 8(c) of the Securities Act of 1933.
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. Neither this
prospectus supplement nor the accompanying prospectus is an offer to sell
these securities and it is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT MAY BE AMENDED OR
COMPLETED, DATED [ ] [ ], 20[ ]
PROSPECTUS SUPPLEMENT
(to accompanying prospectus dated [ ] [ ], 20[ ])
$[ ] (Approximate)
(Offered Certificates)
First Union National Bank Commercial Mortgage Trust
Commercial Mortgage Pass-Through Certificates
Series 20[ ]-[ ]
First Union Commercial Mortgage Securities, Inc.
(Depositor)
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You should carefully consider the risk factors The trust fund:
beginning on page S-[ ] of this prospectus As of [ ] [ ], 20[ ] , the mortgage loans included in the
supplement and on page [ ] of the accompanying trust fund will have an aggregate principal balance of
prospectus. approximately $[ ].
o The trust fund will consist of a pool of [ ] fixed
Neither the offered certificates nor the rate mortgage loans.
underlying mortgage loans are insured or o The mortgage loans are secured by first liens on
guaranteed by any government agency or commercial and multifamily properties.
instrumentality. o All of the mortgage loans were originated or acquired by
either First Union National Bank or [ ].
The offered certificates will represent
interests in the trust fund only. They The certificates:
will not represent obligations of any other o The trust fund will issue [ ] classes of
party. certificates.
o Only the [ ] classes of offered certificates described in the
The offered certificates will not be listed following table are being offered by this prospectus
on any national securities exchange or any supplement and the accompanying prospectus.
automated quotation system of any registered
securities association.
This prospectus supplement may be used to offer
and sell the offered certificates only if it is
accompanied by the prospectus dated [ ] [
] , 20[ ] .
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================== ======================== =================== ================= ================== =====================
Closing Date
Certificate Percentage of Pass-
Balance or Cut-Off Date Through Expected
Notional Pool Rate [ ]/[ ]
Class Amount (1) Balance Description CUSIP No. Rating (3)
- ------------------ ------------------------ ------------------- ----------------- ------------------ ---------------------
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$
$
(4) $
$ (5)
================== ======================== =================== ================= ================== =====================
</TABLE>
(Footnotes explaining the table are on page S-3)
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the offered certificates or has
determined that this prospectus supplement or the accompanying prospectus is
accurate or complete. 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.
First Union Securities, Inc. and [ ] are acting as co-lead managers for
the offering. First Union Securities, Inc. and [ ] are required to purchase
the offered certificates from us, subject to certain conditions. The
underwriters will offer the offered certificates to the public from time to
time in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. We expect to receive from this offering
approximately [ ]% of the initial certificate balance of the offered
certificates, plus accrued interest from [ ] [ ], 20[ ] , before deducting
expenses.
We expect that delivery of the offered certificates will be made in
book-entry form on or about [ ] [ ], [ ].
First Union Securities, Inc. [ ]
[ ] [ ], 20[ ]
<PAGE>
[MAP APPEARS HERE]
[Graphic Omitted]
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the offered certificates in two
separate documents that progressively provide more detail: (a) the
accompanying prospectus, which provides general information, some of which may
not apply to the offered certificates and (b) this prospectus supplement,
which describes the specific terms of the offered certificates.
You should read both this prospectus supplement and the prospectus before
investing in any of the offered certificates. You should rely only on the
information contained in this prospectus supplement and the accompanying
prospectus. We have not authorized anyone to provide you with information that
is different. The information in this document may only be accurate as of the
date of this document. If the descriptions of the offered certificates vary
between the accompanying prospectus and this prospectus supplement, you should
rely on the information in this prospectus supplement.
This prospectus supplement begins with several introductory sections
describing the offered certificates and the trust fund in abbreviated form:
o Summary of Prospectus Supplement, commencing on page S-[ ] of this
prospectus supplement, which gives a brief introduction of the key
features of the offered certificates and a description of the
mortgage loans included in the trust fund; and
o Risk Factors, commencing on page S-[ ] of this prospectus supplement,
which describes risks that apply to the offered certificates which
are in addition to those described in the prospectus.
This prospectus supplement and the accompanying prospectus include cross
references to sections in these materials where you can find further related
discussions. The Tables of Contents in this prospectus supplement and the
accompanying prospectus identify the pages where these sections are located.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement are defined under the caption "Index of Principal
Definitions" beginning on page S-[ ] in this prospectus supplement.
In this prospectus supplement, the terms "depositor," "we," "us" and
"our" refer to First Union Commercial Mortgage Securities, Inc.
We do not intend this prospectus supplement and the accompanying
prospectus to be an offer or solicitation:
o if used in a jurisdiction in which such offer or solicitation is not
authorized;
o if the person making such offer or solicitation is not qualified to do
so; or
o if such offer or solicitation is made to anyone to whom it is unlawful
to make such offer or solicitation.
This prospectus supplement and the accompanying prospectus may be used by
us, First Union Securities, Inc., our affiliate, and any other of our
affiliates when required under the federal securities laws in connection with
offers and sales of offered certificates in furtherance of market-making
activities in offered certificates. First Union Securities, Inc. or any such
other affiliate may act as principal or agent in these transactions. Sales
will be made at prices related to prevailing market prices at the time of sale
or otherwise.
(Footnotes to table on the front cover)
- --------------
(1) Subject to a permitted variance of plus or minus [ ]%.
(2) The assumed final distribution date has been determined on the basis
of the assumptions set forth in "DESCRIPTION OF THE
CERTIFICATES-Assumed Final Distribution Date; Rated Final
Distribution Date" in this prospectus supplement and a [ ]% constant
prepayment rate. The rated final distribution date is the
distribution date to occur in [ ] , 20[ ]. See "DESCRIPTION OF THE
CERTIFICATES-Assumed Final Distribution Date; Rated Final
Distribution Date" and "RATINGS" in this prospectus supplement.
(3) By each of [ ] and [ ].
(4) The Class [ ] certificates will not have a certificate balance and
their holders will not receive distributions of principal, but such
holders are entitled to receive payments of the aggregate interest
accrued on the notional amount of each component of the Class [ ]
certificates, as described in this prospectus supplement. See
"DESCRIPTION OF THE CERTIFICATES-Certificate Balances and Notional
Amount" and "-Pass-Through Rates" in this prospectus supplement. The
interest rate applicable to each component of the Class [ ]
certificates for each distribution date will equal the excess, if
any, of the weighted average net mortgage rate for such distribution
date over the pass-through rate then applicable to the corresponding
class of offered certificates entitled to receive distributions of
principal.
(5) The pass-through rate applicable to the Class [ ] certificates on
each distribution date will equal the lesser of the rate set forth in
the table on the front cover and the applicable weighted average net
mortgage rate for such distribution date.
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TABLE OF CONTENTS
Page
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SUMMARY OF PROSPECTUS SUPPLEMENT..................................................................................6
RISK FACTORS.....................................................................................................23
DESCRIPTION OF THE MORTGAGE POOL.................................................................................57
SERVICING OF THE MORTGAGE LOANS..................................................................................88
DESCRIPTION OF THE CERTIFICATES..................................................................................97
YIELD AND MATURITY CONSIDERATIONS...............................................................................120
USE OF PROCEEDS.................................................................................................127
MATERIAL FEDERAL INCOME TAX CONSEQUENCES........................................................................127
ERISA CONSIDERATIONS............................................................................................129
LEGAL INVESTMENT................................................................................................131
METHOD OF DISTRIBUTION..........................................................................................131
LEGAL MATTERS...................................................................................................132
RATINGS.........................................................................................................132
INDEX OF PRINCIPAL DEFINITIONS..................................................................................134
</TABLE>
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ANNEX A-1 -- CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS AND MORTGAGED PROPERTIES...............A-1
ANNEX A-2 -- DEBT SERVICE PAYMENT SCHEDULES FOR CERTAIN CREDIT LEASE LOANS........................A-2
ANNEX A-3 -- CERTAIN INFORMATION REGARDING MULTIFAMILY MORTGAGED PROPERTIES.......................A-3
ANNEX A-4 -- RESERVE ACCOUNTS.....................................................................A-4
ANNEX A-5 -- COMMERCIAL TENANT SCHEDULE...........................................................A-5
ANNEX B -- PRICE/YIELD TABLES...................................................................B-1
ANNEX C -- FORM OF DISTRIBUTION DATE STATEMENT..................................................C-1
ANNEX D -- FORM OF DELINQUENT LOAN STATUS REPORT................................................D-1
ANNEX E -- FORM OF HISTORICAL LOAN MODIFICATION REPORT..........................................E-1
ANNEX F -- FORM OF HISTORICAL LIQUIDATION REPORT................................................F-1
ANNEX G -- FORM OF REO STATUS REPORT............................................................G-1
ANNEX H -- SERVICER WATCH LIST..................................................................H-1
ANNEX I -- FORM OF OPERATING STATEMENT ANALYSIS REPORT..........................................I-1
ANNEX J -- FORM OF NOI ADJUSTMENT WORKSHEET FOR "YEAR"..........................................J-1
ANNEX K -- FORM OF COMPARATIVE FINANCIAL STATUS REPORT..........................................K-1
</TABLE>
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
o This summary highlights selected information from this prospectus
supplement and does not contain all of the information that you need to
consider in making your investment decision. To understand the terms of
the offered certificates, you must carefully read this entire prospectus
supplement and the accompanying prospectus.
o This summary provides an overview of certain calculations, cash flows and
other information to aid your understanding and is qualified by the full
description of these calculations, cash flows and other information in
this prospectus supplement and the accompanying prospectus.
o We provide information in this prospectus supplement on the certificates
that are not offered by this prospectus supplement only to enhance your
understanding of the offered certificates. We are not offering the
non-offered certificates pursuant to this prospectus supplement.
o Unless otherwise stated, all percentages of the mortgage loans included
in the trust fund, or of any specified group of mortgage loans included
in the trust fund, referred to in this prospectus supplement are
calculated using the aggregate principal balance of all the mortgage
loans included in the trust fund as of the cut-off date. Percentages of
mortgaged properties are references to the percentages of the aggregate
principal balance of all the mortgage loans included in the trust fund as
of the cut-off date represented by the aggregate principal balance of the
related mortgage loans as of the cut-off date.
o All numerical information concerning the mortgage loans included in the
trust fund is provided on an approximate basis.
Overview of the Certificates
The table below lists certain summary information concerning the First Union
National Bank Commercial Mortgage Trust, Commercial Mortgage Pass-Through
Certificates, Series 20[ ]-[ ], which we are offering pursuant to the
accompanying prospectus and this prospectus supplement. Each certificate
represents an interest in the mortgage loans included in the trust fund and
the other assets of the trust fund. The table also describes the certificates
that are not offered by this prospectus supplement (other than the Class R-[
], Class R-[ ] and Class R-[ ] certificates) which have not been registered
under the Securities Act of 1933, as amended, and which will be sold to
investors in private transactions.
<TABLE>
<CAPTION>
Closing Date Cash Flow or
Certificate Percentage Pass- Initial Weighted Principal Expected
Balance or of Cut-Off Through Pass- Average Window [ ]/
Notional Date Pool Credit Rate Through Life (Mon./ [ ]
Class Amount(1) Balance Support Description Rate (Years) (2) Yr.) (2) Rating(3)
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(1) Subject to a permitted variance of plus or minus [ ]%.
(2) Based on no prepayments and the other assumptions set forth under "YIELD
AND MATURITY CONSIDERATIONS--Weighted Average Life" in this prospectus
supplement.
(3) By each of [ ] and [ ]. "NR" indicates that such class is
not rated by the applicable rating agency.
(4) The Class [ ] certificates will not have a certificate balance and their
holders will not receive distributions of principal, but such holders are
entitled to receive payments of the aggregate interest accrued on the
notional amount of each of the components of the Class [ ] certificates
as described in this prospectus supplement. The pass-through rate
applicable to each component of the Class [ ] certificates for each
distribution date will equal the excess, if any, of the weighted average
net mortgage rate for such distribution date over the pass-through rate
then applicable to the corresponding class of offered certificates
entitled to receive distributions of principal.
(5) The pass-through rate applicable to the Class [ ], Class [ ] and Class [
] certificates on each distribution date will equal the lesser of the
rate set forth above and the applicable weighted average net mortgage
rate for such distribution date.
(6) The pass-through rate applicable to the Class [ ] and Class [ ]
certificates on each distribution date will equal the weighted average
net mortgage rate for such distribution date.
_______
|_______| offered certificates
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|///////| private certificates
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The Parties
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The Trust Fund........................... The trust fund will be created on or about the closing date pursuant
to a pooling and servicing agreement dated as of [ ] [ ], 20[ ]
by and among the depositor, the master servicer, the special servicer
and the trustee.
The Depositor............................ First Union Commercial Mortgage Securities, Inc. We are a
wholly-owned subsidiary of First Union National Bank, which is one of
the mortgage loan sellers and the master servicer, and an affiliate
of one of the underwriters. Our principal executive office is located
at One First Union Center, Charlotte, North Carolina 28288-0630 and
our telephone number is (704) 374-6161. Neither we nor any of our
affiliates have insured or guaranteed the offered certificates. For
more detailed information, see "THE DEPOSITOR" in the accompanying
prospectus.
On the closing date, we will sell the mortgage loans and related
assets to be included in the trust fund to the trustee to create the
trust fund.
The Issuer............................... The trust fund to be established under the pooling and servicing
agreement. For more detailed information, see "DESCRIPTION OF THE
CERTIFICATES" in the accompanying prospectus.
The Mortgage Loan Sellers................ First Union National Bank and [ ]. For more information, see
"DESCRIPTION OF THE MORTGAGE POOL--The Mortgage Loan Sellers" in this
prospectus supplement. The mortgage loan sellers will sell and assign
to us on the closing date the mortgage loans to be included in the
trust fund. See "DESCRIPTION OF THE MORTGAGE POOL--Representations and
Warranties; Repurchases and Substitutions" in this prospectus
supplement.
[ ] ([ ]) of the mortgage loans to be included in the trust fund,
representing [ ]% of the cut-off date pool balance of all of the
mortgage loans included in the trust fund, are being assigned to
us by First Union National Bank, and [ ] ([ ]) of the mortgage
loans to be included in the trust fund, representing [ ]% of the
cut-off date pool balance of all of the mortgage loans to be
included in the trust fund, are being assigned to us by [ ].
The Master Servicer...................... First Union National Bank. First Union National Bank is our affiliate
and is one of the mortgage loan sellers. The master servicer will be
primarily responsible for collecting payments and gathering
information with respect to the mortgage loans included in the trust
fund. See "SERVICING OF THE MORTGAGE LOANS--The Master Servicer" in
this prospectus supplement.
The Special Servicer..................... [ ]. The special servicer will be responsible for
performing certain servicing functions with respect to the mortgage
loans included in the trust fund that, in general, are in default or
as to which default is imminent. Some holders of certificates will
have the right to replace the special servicer and to select a
representative who may advise and direct the special servicer and
whose approval is required for certain actions by the special
servicer under certain circumstances. See "SERVICING OF THE
MORTGAGE LOANS--The Special Servicer" in this prospectus supplement.
The Trustee.............................. [ ]. The trustee will be responsible for distributing
payments to certificateholders and delivering to certificateholders
certain reports on the mortgage loans included in the trust fund and
the certificates. See "DESCRIPTION OF THE CERTIFICATES--The Trustee"
in this prospectus supplement.
The Underwriters......................... First Union Securities, Inc. and [ ]. [ ] is an affiliate of
[ ]. First Union Securities, Inc. is our affiliate and is an
affiliate of First Union National Bank and the master servicer.
First Union Securities, Inc. and [ ] are acting as co-lead
managers for the offering.
Important Dates and Periods
Closing Date............................. On or about [ ] [ ], 20[ ].
Cut-Off Date............................. [ ] [ ], 20[ ] . The cut-off date balance of each mortgage loan
included in the trust fund and each cut-off date certificate balance
in this prospectus supplement assumes the timely receipt of principal
scheduled to be paid in [ ] on each mortgage loan and no
defaults, delinquencies or prepayments on any mortgage loan as of the
cut-off date.
Distribution Date........................ The [ ]th day of each month or, if such day is not a business day,
the next succeeding business day; provided, however, that the
distribution date will be no earlier than the fourth business day
following the determination date in the month in which such
distribution date occurs. The first distribution date on which
investors in the offered certificates may receive distributions will
occur in [ ] 20[ ].
Determination Date....................... For each distribution date, the [ ]th day of each month, or if such
day is not a business day, the immediately succeeding business day.
Collection Period........................ For any distribution date, the period beginning on the day after a
determination date in the immediately preceding month (or the cut-off
date, in the case of the first collection period) through and
including the related determination date.
The Certificates
Offered Certificates..................... We are offering to you the following [ ] classes of certificates
of our Commercial Mortgage Pass-Through Certificates, Series 20[
]-[ ] pursuant to this prospectus supplement:
Class [ ]
Class [ ]
Class [ ]
Class [ ]
Priority of Distributions................ On each distribution date, you will be entitled to distributions of
all payments or other collections on the mortgage loans that the
master servicer collected or advanced during or with respect to the
related collection period after deducting certain fees and expenses.
The trustee will distribute such amounts to the extent that the money
is available, in the following order of priority, to pay:
------------------------------------------------------------------------
| Interest, pro rata, on the Class [ ], Class [ ] and Class [ ] |
| certificates. |
------------------------------------------------------------------------
------------------------------------------------------------------------
| Principal on the Class [ ] certificates, up to the principal |
| distribution amount, until their certificate balance is reduced to |
| zero. |
------------------------------------------------------------------------
------------------------------------------------------------------------
| Principal on the Class [ ] certificates, up to the principal |
| distribution amount, until their certificate balance is reduced to |
| zero. |
------------------------------------------------------------------------
------------------------------------------------------------------------
| Reimbursement to the Class [ ] and Class [ ] certificates, pro rata, |
| for any realized losses and trust fund expenses borne by such |
| classes. |
------------------------------------------------------------------------
------------------------------------------------------------------------
| Interest on the Class [ ] certificates. \
------------------------------------------------------------------------
------------------------------------------------------------------------
| Principal on the Class [ ] certificates, up to the principal |
| distribution amount, until their certificate balance is reduced to |
| zero. |
------------------------------------------------------------------------
------------------------------------------------------------------------
| Reimbursement to the Class [ ] certificates for any realized losses |
| and trust fund expenses borne by such class. |
------------------------------------------------------------------------
------------------------------------------------------------------------
| Distributions to the non-offered certificates. |
------------------------------------------------------------------------
If, on any distribution date, the certificate balances of the Class
[ ] through Class [ ] certificates have been reduced to zero, but the
Class [ ] and Class [ ] certificates remain outstanding,
distributions of principal will be made pro rata to the Class [ ] and
Class [ ] certificates. See "DESCRIPTION OF THE CERTIFICATES--Distributions" in
this prospectus supplement.
Interest................................. On each distribution date each class of offered certificates will be
entitled to receive:
o the distributions of accrued interest for such class of certificates
on such distribution date; and
o any unpaid accrued interest for such class of certificates from all
prior distribution dates.
On any distribution date, the amount of interest distributable to each
class of certificates generally will equal:
o one month's interest at the applicable pass-through rate accrued
during the calendar month prior to the related distribution date,
on the certificate balance or notional amount of such class of
certificates immediately prior to such distribution date;
o minus (other than in the case of the Class [ ] certificates) such
class' share of any shortfalls in interest collections due to
prepayments on mortgage loans included in the trust fund that
are not offset by certain payments made by the master servicer; and
o minus (other than in the case of the Class [ ] certificates) such
class' allocable share of certificate deferred interest. See
"DESCRIPTION OF THE CERTIFICATES-Certificate Balances and Notional
Amount" and "--Distributions" in this prospectus supplement.
The certificates will accrue interest on the basis of a 360-day year consisting
of twelve 30-day months.
Interest on the certificates will be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
As reflected in the chart under "Priority of Distributions" on page S-[ ] above,
on each distribution date, the trustee will distribute interest to the holders of
the offered certificates:
o first, pro rata, to the Class [ ] certificates, Class [ ] certificates and
Class [ ] certificates, and then to each other class of offered
certificates in alphabetical order; and
o only to the extent funds remain after the trustee makes all distributions
of interest and principal required to be made on such date on each class
of certificates with a higher priority of distribution.
You may, in certain circumstances, also receive distributions of prepayment
premiums and yield maintenance charges collected on the mortgage loans included
in the trust fund. Such distributions are in addition to the distributions of
principal and interest described above. See "DESCRIPTION OF THE
CERTIFICATES--Distributions" in this prospectus supplement.
Pass-Through Rates....................... The pass-through rate for each class of offered certificates on each
distribution date is set forth above under "Overview of the
Certificates."
The pass-through rate on the Class [ ] certificates is variable and is equal to
the weighted average net mortgage rate.
The weighted average net mortgage rate for each distribution date is the weighted
average of the net mortgage rates for the mortgage loans included in the trust
fund as of the beginning of the related collection period, weighted on the basis
of their respective stated principal balances on the first day of the related
collection period.
The net mortgage rate for each mortgage loan included in the trust fund will
generally equal:
o the mortgage interest rate in effect for such mortgage loan as of the
closing date; minus
o the applicable administrative cost rate, as described in this prospectus
supplement.
The stated principal balance of each mortgage loan included in the trust fund
will generally equal the balance of that mortgage loan as of the cut-off date,
reduced as of any date of determination (to not less than zero) by:
o any payments or other collections (or advances in lieu thereof) of
principal on such mortgage loan that are due or received, as the case may
be, during the related collection period and distributed on the
certificates on and prior to such date; and
o the principal portion of any realized loss incurred in respect of such
mortgage loan during the related collection period.
See "DESCRIPTION OF THE CERTIFICATES--Pass-Through Rates" in this prospectus
supplement.
Principal Distributions.................. On the closing date, each class of offered certificates will have the
certificate balance shown in the table at the beginning of this
summary. The certificate balance for each class of certificates
entitled to receive principal may be reduced by:
o distributions of principal; and
o allocations of realized losses and trust fund expenses.
The certificate balance of a class of offered certificates may be increased in
certain circumstances by the allocation of accrued but unpaid interest to the
certificate balance of such class. See "DESCRIPTION OF THE
CERTIFICATES--Certificate Balances and Notional Amount" in this prospectus
supplement.
The Class [ ] certificates have no principal balance and will not receive
distributions of principal.
As reflected in the chart under "Priority of Distributions" above:
o Principal is distributed to each class of offered certificates entitled to
receive distributions of principal in alphabetical and, if applicable,
numerical order.
o Principal is only distributed on a class of certificates to the extent
funds remain after the trustee makes all distributions of principal and
interest on each class of certificates with an earlier alphabetical and,
if applicable, numerical designation.
o Generally, no class of certificates is entitled to distributions of
principal until the certificate balance of each class of certificates with
an earlier alphabetical and, if applicable, numerical designation has been
reduced to zero.
The amount of principal to be distributed for each distribution date generally
will be an amount equal to:
o the scheduled principal payments (other than balloon payments) due on the
mortgage loans included in the trust fund during the related collection
period whether or not such scheduled payments are actually received;
o balloon payments actually received with respect to mortgage loans included
in the trust fund during the related collection period;
o prepayments received with respect to the mortgage loans included in the
trust fund during the related collection period; and
o all liquidation proceeds, insurance proceeds, condemnation awards and
repurchase and substitution amounts received during the related collection
period that are allocable to principal.
Subordination; Allocation of Losses
and Certain Expenses................... Credit support for any class of certificates (other than the Class [
], Class [ ], Class [ ] and Class [ ] certificates) is provided by
the subordination of payments and allocation of any losses to such
classes of certificates which have a later alphabetical class
designation. The certificate balance of a class of certificates
(other than the Class [ ], Class [ ], Class [ ] and Class [ ]
certificates) will be reduced on each distribution date by any losses
on the mortgage loans that have been realized and certain additional
trust fund expenses actually allocated to such class of certificates
on such distribution date. Losses on the mortgage loans that have
been realized and additional trust fund expenses will first be
allocated to the certificates (other than the Class [ ], Class [ ],
Class [ ] and Class [ ] certificates) that are non-offered
certificates and then to the certificates (other than the Class [ ],
Class [ ], Class [ ] and Class [ ] certificates) that are offered
certificates in reverse alphabetical order as indicated on the
following table.
Closing Percentage Order of
Date Cut-Off Date application
Class Certificate Pool of losses and
Designation Balance Balance expenses
----------- ----------- ------------- -------------
Any losses realized on the mortgage loans included in the trust fund or
additional trust fund expenses allocated in reduction of the certificate balance
of any class of certificates (other than the Class [ ], Class [ ], Class [ ] and
Class [ ] certificates) will result in a corresponding reduction in the notional
amount for the interest-only component of the Class [ ] certificates that is
related to such class of certificates.
See "DESCRIPTION OF THE CERTIFICATES--Subordination; Allocation of Losses and
Certain Expenses" in this prospectus supplement.
Prepayment Premiums; Yield
Maintenance Charges.................... On each distribution date, any prepayment premium or yield
maintenance charge collected during the related collection period on
a mortgage loan included in the trust fund will be distributed to the
holders of each class of offered certificates then entitled to
distributions as follows:
The holders of each class of offered certificates then entitled to distributions
of principal on such distribution date will be entitled to a portion of
prepayment premiums equal to the product of:
o the amount of such prepayment premiums, multiplied by
o a fraction, the numerator of which is equal to the amount of principal
distributable to such class of certificates on such distribution date, and
the denominator of which is the principal distribution amount for such
distribution date, multiplied by
o [ ]%.
The remaining portion of prepayment premiums will be distributed to the holders
of the Class [ ] certificates.
The holders of each class of offered certificates then entitled to distributions
of principal on such distribution date will be entitled to a portion of yield
maintenance charges equal to the product of:
o the amount of such yield maintenance charges, multiplied by
o a fraction (in no event greater than one), the numerator of which is equal to
the excess, if any, of the pass-through rate of such class of offered
certificates over the relevant discount rate, and the denominator of which is
equal to the excess, if any, of the mortgage interest rate of the prepaid
mortgage loan over the relevant discount rate, multiplied by
o a fraction, the numerator of which is equal to the amount of principal
distributable on such class of offered certificates on such distribution
date, and the denominator of which is the principal distribution amount for
such distribution date.
If there is more than one class of offered certificates entitled to distributions
of principal on any particular distribution date on which a yield maintenance
charge or principal prepayment is distributable, the aggregate amount of such
yield maintenance charge or principal prepayment will be allocated among all such
classes on a pro rata basis in accordance with the foregoing entitlements. The
portion, if any, of the yield maintenance charges or principal prepayments
remaining after any such payments to the holders of the offered certificates will
be distributed to the holders of the Class [ ] certificates.
The "discount rate" applicable to any class of offered certificates or
non-offered certificates will be equal to the discount rate stated in the related
mortgage loan documents used in calculating the yield maintenance charge with
respect to such principal prepayment. To the extent a discount rate is not stated
therein, the discount rate will equal the yield (when compounded monthly) on the
U.S. Treasury issue with a maturity date closest to the maturity date for the
prepaid mortgage loan or mortgage loan for which title to the related mortgaged
property was acquired by the trust fund.
o In the event that there are two or more such U.S. Treasury issues with the
same coupon, the issue with the lowest yield will be utilized; and
o In the event that there are two or more such U.S. Treasury issues with
maturity dates equally close to the maturity date for the prepaid mortgage
loan, the issue with the earliest maturity date will be utilized.
Examples of Allocation of Yield Maintenance Charges
Mortgage interest rate............................... = 8%
Pass-through rate for applicable class............... = 6%
Discount rate........................................ = 5%
Allocation Percentage Allocation Percentage for Class
for Applicable Class []
-------------------- ---
6% - 5% = 33 1/3% 100% - 33 1/3 = 66 2/3%
--------
8% - 5%
See "DESCRIPTION OF THE CERTIFICATES--Distributions--Allocation of Prepayment
Premiums and Yield Maintenance Charges" in this prospectus supplement.
Advancing................................ In the event the master servicer fails to receive one or more
scheduled payments of principal and interest (other than balloon
payments) on a mortgage loan by the related determination date and
the master servicer determines that such scheduled payment of
principal and interest will be ultimately recoverable from the
related mortgage loan, the master servicer, or if it fails to do so,
the trustee is required to make a principal and interest cash advance
of such scheduled payment of principal and interest. These cash
advances are only intended to maintain a regular flow of scheduled
principal and interest payments on the certificates and are not
intended to guarantee or insure against losses. In other words, the
advances are intended to provide liquidity (rather than credit
enhancement) to certificateholders. To the extent described in this
prospectus supplement, the trust fund will pay interest to the master
servicer or the trustee, as the case may be, on the amount of any
principal and interest cash advance calculated at the prime rate and
will reimburse the master servicer or the trustee for any principal
and interest cash advances that are later determined to be not
recoverable. See "DESCRIPTION OF THE CERTIFICATES--P&I Advances" in
this prospectus supplement.
Optional Termination
of the Trust Fund...................... The trust fund may be terminated when the aggregate principal balance
of the mortgage loans included in the trust fund is less than [ ]%
of the aggregate principal balance of the mortgage loans included in
the trust fund as of the cut-off date. See "DESCRIPTION OF THE
CERTIFICATES--Termination" in this prospectus supplement and in the
accompanying prospectus.
Registration and Denomination............ The offered certificates will be registered in the name of Cede &
Co., as nominee for The Depository Trust Company in the United
States, or in Europe through Clearstream, Luxembourg or The Euroclear
System. You will not receive a definitive certificate representing
your interest in the trust fund, except in the limited circumstances
described in the accompanying prospectus. See "DESCRIPTION OF THE
CERTIFICATES--Book-Entry Registration and Definitive Certificates" in
the accompanying prospectus.
Beneficial interests in the Class [ ], Class [ ] and Class [ ] certificates will
be offered in minimum denominations of $[ ] actual principal amount and in
integral multiples of $[ ] in excess of those amounts. The Class [ ] certificates
will be offered in minimum denominations of $[ ] notional amount and in integral
multiples of $[ ] in excess of those amounts.
Material Federal
Income Tax Consequences................ One or more separate real estate mortgage investment conduit
elections will be made with respect to the trust fund. However, a
"real estate mortgage investment conduit" election will not be made
with respect to any additional interest that has accrued on a
mortgage loan that provides for the accrual of such additional
interest if the unamortized principal amount of such mortgage loan is
not repaid on the anticipated repayment date set forth in the related
mortgage note. The certificates will evidence regular interests in a
real estate mortgage investment conduit and generally will be treated
as debt instruments of such real estate mortgage investment conduit.
Certificateholders' entitlement to a portion of the additional
interest described above will be treated as a grantor trust strip
certificate (as described in the accompanying prospectus) issued by
an entity treated as a grantor trust for United States federal income
tax purposes.
Based on expected issue prices, the Class [ ] certificates will, and certain of
the classes of certificates (other than the Class [ ], Class [ ], Class [ ] and
Class [ ] certificates), depending on their issue prices, may, be treated as
having been issued with original issue discount for federal income tax reporting
purposes.
For further information regarding the federal income tax consequences of
investing in the offered certificates, see "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES" in this prospectus supplement and in the accompanying prospectus.
ERISA Considerations..................... Subject to important considerations described under "ERISA
CONSIDERATIONS" in this prospectus supplement and the accompanying
prospectus, only the following certificates may be eligible for
purchase by persons investing assets of employee benefit plans,
individual retirement accounts, or other retirement plans and
accounts:
Class [ ]
Class [ ]
Class [ ]
The offered certificates that are subordinated to one or more other classes of
certificates in entitlement to certain distributions may not be sold to such
plans and accounts except as may be permitted under a prohibited transaction
exemption available to certain insurance companies using general account assets.
See "ERISA CONSIDERATIONS" in this prospectus supplement and in the accompanying
prospectus.
SMMEA Eligibility........................ We expect that the following certificates will constitute "mortgage
related securities" pursuant to the Secondary Mortgage Market
Enhancement Act of 1984:
Class [ ]
Class [ ]
Class [ ]
Class [ ]
See "LEGAL INVESTMENT" in this prospectus supplement and in the accompanying
prospectus.
Ratings.................................. The offered certificates will not be issued unless they have received
the following ratings from [ ] and [ ]:
Expected
Rating from
Class [ ]/[ ]
The offered certificates are required to receive the ratings from [ ] and [ ]
indicated on the cover page of this prospectus supplement. The ratings on the
offered certificates address the likelihood of timely receipt of interest and
ultimate receipt of principal by the rated final distribution date by the holders
of offered certificates. They do not address the likely actual rate of
prepayments. Such rate of prepayments, if different than originally anticipated,
could adversely affect the yield realized by holders of the offered certificates
or cause the Class [ ] certificateholders to fail to recover their initial
investments. See "Ratings" in this prospectus supplement and in the accompanying
prospectus for a discussion of the basis upon which ratings are given, the
limitations and restrictions on the ratings, and conclusions that should not be
drawn from a rating.
The Mortgage Loans
General.................................. It is expected that the mortgage loans to be included in the trust
fund will have the following approximate characteristics as of the
cut-off date. Where a mortgage loan is secured by multiple properties,
statistical information in this prospectus supplement relating to
geographical locations and mortgaged property types is based on the
loan amount allocated to each such property. Such allocation is based
on the relative appraised values of such properties. In addition, the
loan-to-value ratio or debt service coverage ratio of each mortgaged
property securing a mortgage loan secured by multiple mortgaged
properties is assumed to be the weighted average loan-to-value ratio
or debt service coverage ratio of such mortgage loan. The totals in
the following tables may not add up to 100% due to rounding.
Number of mortgage loans............................
Number of mortgaged properties......................
Aggregate balance of all mortgage loans in the
trust fund........................................
Minimum balance.....................................
Maximum balance.....................................
Average balance.....................................
Weighted average loan-to-value ratio(1).............
Weighted average debt service coverage ratio(1).....
Weighted average loan-to-value ratio at stated
maturity..........................................
Range of mortgage interest rates....................
Weighted average mortgage interest rate.............
Range of remaining term to maturity or
anticipated repayment date (months)...............
Weighted average remaining term to maturity or
anticipated repayment date (months)...............
Range of remaining amortization term
(months) (2)......................................
Weighted average remaining amortization term
(months)(2).......................................
Weighted average occupancy rate(3)..................
--------------
(1) The weighted average loan-to-value ratio and the weighted average
debt service coverage ratio information shown above does not reflect
the [ ] credit lease loans, or approximately [ ]% of the mortgage
pool, which typically at origination have loan-to-value ratios at
origination that range from 90-100% and debt service coverage
ratios at origination that generally range from 1.00x - 1.05x.
Credit lease loans are generally underwritten based upon the
creditworthiness of the tenant leasing the related mortgaged
property or the related guarantor.
(2) Excludes [ ] mortgage loan, or approximately [ ]% of the
mortgage pool, which is interest-only throughout the
loan term.
(3) The weighted average occupancy rate information shown above
excludes all hospitality properties, or approximately [ ]% of the
mortgage pool.
Security for the Mortgage
Loans o Generally, all of the mortgage loans included in the trust fund are
non-recourse obligations of the related borrowers.
o No mortgage loan included in the trust fund is insured or guaranteed by any
government agency or private insurer.
o All of the mortgage loans included in the trust fund are secured by first
lien fee mortgages or leasehold mortgages on commercial or multifamily
properties.
Property Types........................... The following table describes the mortgage loans expected to be
included in the trust fund based upon property type as of the cut-off
date:
Mortgaged Properties by Property Type
=====================================================================================
Percentage
Number Number Aggregate of
of of Cut-Off Cut-Off
Mortgage Mortgaged Date Date Pool
Property Type Loans Properties Balance Balance
------------- ----- ---------- ------- -------
$ %
___________ __________ _______________ ____________
Total...................... $ %
=========== ========== =============== =============
--------------
(1) Including [ ] mortgage loan, or approximately [ ]% of the mortgage pool,
secured by an assisted living facility, and [ ] mortgage loan, or approximately
[ ]% of the mortgage pool, secured by a skilled nursing facility.
(2) Includes [ ] hospitality properties, or approximately [ ]% of the mortgage pool,
and [ ] retail property, or approximately [ ]% of the mortgage pool.
[Pie Chart Omitted]
Geographic Concentrations................ The mortgaged properties are located throughout [ ] states and the
District of Columbia. The following table lists the number and
percentage of mortgaged properties in states which have
concentrations of mortgaged properties above [ ]%:
Mortgaged Properties by Geographic Concentration
Percentage
Aggregate of
Number of Cut-off Cut-Off Date
Mortgaged Date Pool
States Properties Balance Balance
------ ---------- --------- -------------
$ %
------------ ------------ -------------
Total.... $ %
============ ============ =============
Principal and Interest
Payment Terms o All of the mortgage loans included in the trust fund accrue interest at a
fixed rate, other than mortgage loans providing for an anticipated
repayment date, which provide for an adjustment of fixed interest after a
certain date.
o As of the cut-off date, payments on all of the mortgage loans included in the
trust fund are due on the first day of the month, subject to grace periods
which do not exceed 10 days.
o As of the cut-off date, [ ] of the mortgage loans included in the trust fund,
or approximately [ ]% of the mortgage pool, bear interest on a 30/360 basis,
which includes [ ] mortgage loan, or approximately [ ]% of the mortgage pool,
which is an interest-only loan for the entire term.
o As of the cut-off date, [ ] of the mortgage loans included in the trust fund,
or approximately [ ]% of the mortgage pool, bear interest on an actual/360
basis. [ ] of such mortgage loans, or approximately [ ]% of the mortgage
pool, have periods during which only interest is due and periods in which
principal and interest are due, but in either case interest is calculated on
an actual/360 basis.
The following tables set forth additional characteristics of the mortgage loans
that we anticipate to be included in the trust fund as of the cut-off date:
Range of Cut-Off Date Balances
Percentage
Aggregate of
Range of Number Cut-Off Cut-Off Date
Cut-Off of Date Pool
Date Balances($) Loans Balance Balance
---------------- ------- --------- -----------
$ %
------- ----------------- ----------
Total................... $ %
======= ================= ==========
Range of Mortgage Rates
Percentage
Aggregate of
Number Cut-Off Cut-Off Date
Range of of Date Pool
Mortgage Rates(%) Loans Balance Balance
--------------------- ----------- ----------------- -------------
$ %
----------- ----------------- -------------
Total................... $ %
========== ================= =============
Range of Cut-Off Date DSC Ratios
Percentage
Aggregate of
Range of Number Cut-Off Cut-Off Date
DSCRs (x) of Date Pool
(Excluding CTLs) Loans(1) Balance(1) Balance(1)
--------------------- ----------- ----------------- -------------
(2) $ %
----------- ----------------- -------------
Total................... $ %
=========== ================= =============
-----------
(1) Excludes [ ] credit lease loans, or approximately [ ]% of the mortgage pool,
secured by credit lease properties. The debt service coverage ratio for all
such mortgage loans is generally 1.00x-1.05x. Credit lease loans are
generally underwritten based upon the creditworthiness of the tenant leasing
the related mortgaged property or the related guarantor.
(2) Includes [ ] mortgage loans, or approximately [ ]% of the mortgage pool,
that are secured by Section 42 multifamily properties which entitle the
owners to low-income housing tax credits.
Range of Cut-Off Date LTV Ratios
Percentage
Aggregate of
Range of Number Cut-Off Cut-Off Date
Cut-Off LTVs (%) of Date Pool
(Excluding CTLs) Loans(1) Balance(1) Balance(1)
--------------------- ----------- ----------------- -------------
$ %
(2)
----------- ----------------- -------------
Total................... $ %
=========== ================= ==============
-----------
(1) Excludes [ ] credit lease loans, or approximately [ ]% of the mortgage pool,
secured by credit lease properties. The loan-to-value ratio for all such
mortgage loans at origination is generally 90-100%. Credit lease loans are
generally underwritten based upon the creditworthiness of the tenant leasing
the related mortgaged property or the related guarantor.
(2) The loan with the highest loan-to-value ratio as of the cut-off date is
secured by a Section 42 multifamily property which entitles owners to
low-income housing tax credits.
Range of Remaining Term to Maturity Date or Anticipated
Repayment Date
Percentage
Aggregate of
Range of Number Cut-Off Cut-Off Date
Remaining of Date Pool
Terms (Mos.) Loans Balance Balance
--------------------- ----------- ----------------- -------------
$ %
----------- ----------------- -------------
Total................... $ %
=========== ================= =============
Amortization Types
Percentage
Aggregate of
Number Cut-Off Cut-Off Date
Type of of Date Pool
Amortization Loans Balance Balance
--------------------- ----------- ----------------- -------------
$ %
----------- ----------------- -------------
Total................... $ %
=========== ================= =============
Balloon loans have amortization schedules significantly longer than their terms
to maturity and have substantial principal payments due on their maturity dates,
unless prepaid earlier.
Mortgage loans providing for anticipated repayment dates fully or substantially
amortize through their terms to maturity. However, if such a mortgage loan is not
prepaid by the date specified in its mortgage note, interest will accrue at a
higher rate and the borrower will be required to apply all cash flow generated by
the mortgaged property in excess of its regular debt service payments and certain
other permitted expenses and reserves to repay principal on the mortgage loan.
See "DESCRIPTION OF THE MORTGAGE POOL--Certain Terms and Conditions of the
Mortgage Loans," in this prospectus supplement.
Prepayment Restrictions.................. As of the cut-off date, all of the mortgage loans included in the
trust fund restrict or prohibit voluntary prepayments of principal in
some manner for some period of time.
Types of Prepayment Restrictions
Percentage
Aggregate of
Number Cut-Off Cut-Off Date
Type of of Date Pool
Prepayment Restriction Loans Balance Balance
------------------------- --------- ---------------- --------------
(1)
(1)
(1)
--------- ---------------- --------------
Total................... $ %
========= ================ ==============
--------------
(1) For the purposes hereof, "remaining term" refers to either remaining term to
maturity or anticipated repayment date, as applicable.
See "DESCRIPTION OF THE MORTGAGE POOL--Additional Mortgage Loan Information" in
this prospectus supplement.
The ability of the special servicer to waive or modify the terms of any mortgage
loan relating to the payment of a prepayment premium or yield maintenance charge
will be limited as described in this prospectus supplement. See "SERVICING OF THE
MORTGAGE LOANS--Modifications, Waivers and Amendments" in this prospectus
supplement. We make no representations as to the enforceability of the provisions
of any mortgage notes requiring the payment of a prepayment premium or yield
maintenance charge or the ability of the master servicer or special servicer to
collect any prepayment premium or yield maintenance charge.
Defeasance............................... [ ] ([ ]) of the mortgage loans included in the
trust fund as of the cut-off date, or approximately [ ]% of the
mortgage pool, permit the borrower, under certain conditions, to
substitute direct non-callable United States Treasury obligations as
collateral for the related mortgage loans (or a portion thereof)
following their respective lock-out periods. Upon such substitution,
the related mortgaged property (or, in the case of a mortgage loan
secured by multiple mortgaged properties, one or more of such
mortgaged properties) will no longer secure such mortgage loan. The
payments on the defeasance collateral are required to be at least
equal to an amount sufficient to make, when due, all payments on the
related mortgage loan or allocated to the related mortgaged property.
The master servicer may not permit borrowers to defease a mortgage
loan under certain circumstances.
See "RISK FACTORS--The Mortgage Loans-Risks Associated with Commercial Lending
May Be Different Than For Residential Lending" and "-Future Cash Flow and
Property Values Are Not Predictable" and "DESCRIPTION OF THE MORTGAGE POOL" in
this prospectus supplement.
Ten Largest Mortgage Loans............... The following table and summaries describe the ten largest mortgage
loans in the trust fund by principal balance as of the cut-off date:
Ten Largest Mortgage Loans by Cut-Off Date Balance
Percentage
of LTV
Number Cut-Off Cut-Off Cut-Off Ratio at Cut-Off
of Date Date Pool Property Date LTV Maturity Date DSC Mortgage
Loan Name Properties Balance Balance Type Ratio or ARD Ratio Rate
- --------- ---------- ------- --------- -------- -------- -------- --------- ---------
$ % % % %
---------- ------- --------- -------- -------- -------- --------- ---------
Total................ $ % % % %
========== ======= ========= ======== ======== ======== ========= =========
[Property 1]............................. [Description of Property 1].
[Property 2]............................. [Description of Property 2].
[Property 3 ]............................ [Description of Property 3].
[Property 4 ]............................ [Description of Property 4].
[Property 5]............................. [Description of Property 5].
[Property 6]............................. [Description of Property 6].
[Property 7]............................. [Description of Property 7].
[Property 8]............................. [Description of Property 8].
[Property 9]............................. [Description of Property 9].
[Property 10]............................ [Description of Property 10].
</TABLE>
<PAGE>
RISK FACTORS
o You should carefully consider, among other things, the following risk
factors (as well as the risk factors set forth under "RISK FACTORS"
in the accompanying prospectus) before making your investment
decision. Additional risks are described elsewhere in this prospectus
supplement under separate headings in connection with discussions
regarding particular aspects of the mortgage loans included in the
trust fund or the certificates.
o The risks and uncertainties described below are not the only ones
relating to your certificates. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also
impair your investment.
o If any of the following risks are realized, your investment could be
materially and adversely affected.
<TABLE>
<CAPTION>
The Offered Certificates
<S> <C>
Only Trust Fund Assets Are If the assets of the trust fund, primarily the mortgage loans, are
Available to Pay You insufficient to make payments on the offered certificates, no other
assets will be available for payment of the deficiency. See "Risk
Factors -The Assets of the Trust Fund May Not Be Sufficient to Pay
Your Certificates" in the accompanying prospectus.
Prepayments Will Affect Your Yield Prepayments. The yield to maturity on the offered certificates will
depend on the rate and timing of principal
payments (including both voluntary prepayments, in the case of mortgage
loans that permit voluntary prepayment, and involuntary prepayments,
such as prepayments resulting from casualty or condemnation, defaults,
liquidations or repurchases for breaches of representations or
warranties) on the mortgage loans included in the trust fund and how
such payments are allocated among the offered certificates entitled to
distributions of principal. The yield to maturity of the Class [ ]
certificates will be particularly sensitive to the rate and timing of
receipt of principal since its sole distribution is interest based upon
the aggregate principal balance of all the certificates.
In addition, upon the occurrence of certain limited events, a party may be
required to repurchase a mortgage loan from the trust fund and the money paid
would be passed through to the holders of the certificates with the same effect
as if such mortgage loan had been prepaid in full (except that no prepayment
premium would be payable with respect to any such repurchase). We cannot make
any representation as to the anticipated rate of prepayments (voluntary or
involuntary) on the mortgage loans or as to the anticipated yield to maturity of
any certificate. See "YIELD AND MATURITY CONSIDERATIONS" in this prospectus
supplement and "YIELD CONSIDERATIONS" and in the accompanying prospectus.
Yield. In general, if you purchase an offered certificate at a premium and
principal distributions on that offered certificate occur at a rate faster than
you anticipated at the time of purchase, and no prepayment premiums are
collected, your actual yield to maturity may be lower than you had predicted at
the time of purchase. In the case of the Class [ ] certificates, this could
result in the failure of investors in the Class [ ] certificates to recover
their initial investment. Conversely, if you purchase an offered certificate at
a discount and principal distributions on that offered certificate occur at a
rate slower than you anticipated at the time of purchase, your actual yield to
maturity may be lower than you had predicted at the time of purchase. In
addition, the yield on the Class [ ] certificates will be adversely affected if
mortgage loans with higher mortgage interest rates pay faster than mortgage
loans with lower mortgage interest rates.
Interest Rate Environment. Mortgagors generally are less likely to prepay if
prevailing interest rates are at or above the rates borne by their mortgage
loans. On the other hand, mortgagors are more likely to prepay if prevailing
interest rates fall significantly below the mortgage interest rates of their
mortgage loans. Mortgagors are less likely to prepay mortgage loans with a
lockout period or prepayment premium provision, to the extent enforceable, than
similar mortgage loans without such provisions, with shorter lockout periods or
with lower prepayment premiums.
Premiums. Provisions requiring prepayment premiums and yield maintenance charges
may not be enforceable in some states and under federal bankruptcy law, and may
constitute interest for usury purposes. Accordingly, we cannot provide assurance
that the obligation to pay such premium or charge will be enforceable or, if
enforceable, that the foreclosure proceeds will be sufficient to pay such
prepayment premium or yield maintenance charge. Additionally, although the
collateral substitution provisions related to defeasance are not intended to be,
and do not have the same effect on the certificateholders as, a prepayment, we
cannot provide assurance that a court would not interpret such provisions as
requiring a prepayment premium and possibly determine that such provisions are
unenforceable or usurious under applicable law. Prepayment premiums and yield
maintenance charges are generally not charged for prepayments resulting from
casualty or condemnation and would not be paid in connection with repurchases of
mortgage loans for breaches of representations or warranties.
Borrower Defaults May The aggregate amount of distributions on the offered certificates, the
Adversely Affect Your Yield yield to maturity of the offered certificates, the rate of principal
payments on the offered certificates and the weighted average life of the
offered certificates will be affected by the rate and timing of delinquencies
and defaults on the mortgage loans included in the trust fund. Delinquencies on
the mortgage loans included in the trust fund, if the delinquent amounts are not
advanced, may result in shortfalls in distributions of interest and/or principal
to the offered certificates for the current month. Any late payments received on
or in respect of the mortgage loans will be distributed to the certificates in
the priorities described more fully in this prospectus supplement, but no
interest will accrue on such shortfall during the period of time such payment is
delinquent.
If you calculate your anticipated yield based on an assumed rate of default and
an assumed amount of losses on the mortgage pool that are lower than the default
rate and the amount of losses actually experienced, and if such losses are
allocated to your class of certificates, your actual yield to maturity will be
lower than the yield so calculated and could, under certain scenarios, be
negative. Losses on the mortgage loans included in the trust fund will reduce
the notional amount of the Class [ ] certificates. This could result in the
failure of investors in the Class [ ] certificates to recover their initial
investment. The timing of any loss on a liquidated mortgage loan also will
affect the actual yield to maturity of the offered certificates to which all or
a portion of such loss is allocable, even if the rate of defaults and severity
of losses are consistent with your expectations. In general, the earlier you
bear a loss, the greater the effect on your yield to maturity. See "Yield and
Maturity Considerations" in this prospectus supplement and in the accompanying
prospectus.
Even if losses on the mortgage loans included in the trust fund are allocated to
a particular class of offered certificates, such losses may affect the weighted
average life and yield to maturity of other certificates. Losses on the mortgage
loans, to the extent not allocated to such class of offered certificates, may
result in a higher percentage ownership interest evidenced by such certificates
than would otherwise have resulted absent such loss. The consequent effect on
the weighted average life and yield to maturity of the offered certificates will
depend upon the characteristics of the remaining mortgage loans.
Delinquencies Will Entitle the To the extent described in this prospectus supplement, the master
Servicer to Receive Certain servicer, the special servicer or the trustee, as applicable, will be
Additional Compensation Which entitled to receive interest on unreimbursed advances and unreimbursed
Takes Precedence Over Your servicing expenses. The right of the master servicer, the special
Right to Receive Distributions servicer or the trustee to receive such payments of interest is senior
to the rights of certificateholders to receive distributions on the offered
certificates and, consequently, may result in losses being allocated to the
offered certificates that would not have resulted absent the accrual of such
interest. In addition, the special servicer will receive a fee with respect to
each specially serviced mortgage loan and any collections thereon, including
specially serviced mortgage loans which have been returned to performing status.
This will result in shortfalls which may be allocated to the offered
certificates.
Votes of Other Certificateholders Under certain circumstances, the consent or approval of the holders of
May Adversely Affect Your Interests a specified percentage of the aggregate certificate balance of all outstanding
certificates will be required to take, and will bind all certificateholders to,
certain actions relating to the trust fund. For example, such certificateholders
may direct the actions of the special servicer or the master servicer with
respect to certain mortgage loans and real estate owned properties and may amend
the pooling and servicing agreement in certain circumstances. See "Description
of the Certificates - Voting Rights" in this prospectus supplement.
The Mortgage Loans
Risks Associated With Commercial Commercial and multifamily lending is generally viewed as exposing a
Lending May Be Different Than For lender (and your investment in the trust fund) to a greater risk of
Residential Lending loss than lending which is secured by single-family residences, in part
because it typically involves making larger loans to single borrowers or groups
of related mortgagors. In addition, and unlike loans which are secured by
single-family residences, repayment of loans secured by commercial and
multifamily properties depends upon the ability of the related real estate
project:
o to generate income sufficient to pay operating expenses and leasing
commissions, to make necessary repairs, tenant improvements and capital
improvements and to pay debt service; and
o 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.
Future Cash Flow and Property Values A number of factors, many beyond the control of the property owner, may
Are Not Predictable 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:
o economic conditions generally and in the area of the project;
o the age, quality, functionality and design of the project;
o the degree to which the project competes with other projects in the area;
o changes or continued weakness in specific industry segments;
o increases in operating costs;
o the willingness and ability of the owner to provide capable property
management and maintenance;
o the degree to which the project's revenue is dependent upon a single tenant
or user, a small group of tenants, tenants concentrated in a particular
business or industry and the competition to any such tenants;
o an increase in the capital expenditures needed to maintain the properties or
make improvements;
o a decline in the financial condition of a major tenant;
o the location of a mortgaged property;
o whether a mortgaged property can be easily converted to alternative uses;
o an increase in vacancy rates;
o perceptions regarding the safety, convenience and attractiveness of such
properties;
o vulnerability to litigation by tenants and patrons; and
o environmental contamination caused by adjacent properties.
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. Even if
borrowers successfully renew leases or relet vacated space, the costs associated
with reletting, including tenant improvements, leasing commissions and free
rent, can exceed the amount of any reserves maintained for that purpose and
reduce cash from the mortgaged properties. Although some of the mortgage loans
included in the trust fund require the borrower to maintain escrows for leasing
expenses, there is no guarantee that these reserves will be sufficient. 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 to generate current
income.
Other factors are more general in nature, such as:
o national, regional or local economic conditions (including plant and
military installation closings, industry slowdowns and unemployment rates);
o local real estate conditions (such as an oversupply of retail space, office
space or multifamily housing);
o demographic factors;
o consumer confidence;
o consumer tastes and preferences; and
o changes in building codes and other applicable laws.
The volatility of net operating income will be influenced by many of the
foregoing factors, as well as by:
o the length of tenant leases;
o the creditworthiness of tenants;
o in the case of rental properties, the rate at which new rentals occur; and
o the property's "operating leverage" (i.e., the percentage of total property
expenses in relation to revenue, the ratio of fixed operating expenses to
those that vary with revenues and the level of capital expenditures required
to maintain the property and to retain or replace tenants).
A decline in the real estate market or in the financial condition of a major
tenant will tend to have a more immediate effect on the net operating income of
properties with short-term revenue sources, such as short-term or month-to-month
leases, and may lead to higher rates of delinquency or defaults.
Some Mortgaged Properties May Some of the mortgaged properties securing the mortgage loans included
Not Be Readily Convertible to in the trust fund may not be readily convertible to alternative uses if
Alternative Uses those properties were to become unprofitable for any reason. Converting commercial
properties to alternate uses generally requires substantial capital
expenditures. The liquidation value of any such mortgaged property consequently
may be substantially less than would be the case if the property were readily
adaptable to other uses.
Loans Not Insured or Guaranteed The mortgage loans included in the trust fund (other than certain
credit lease loans with respect to which a residual value insurance policy is in
effect) will not be an obligation of, or be insured or guaranteed by, any
governmental entity, by any private mortgage insurer, or by the depositor, the
mortgage loan sellers, the underwriters, the master servicer, the special
servicer, the trustee or any of their respective affiliates.
We have not evaluated the significance of the recourse provisions of mortgage
loans that may permit recourse against the related borrower or another person in
the event of a default. Accordingly, other than [ ] mortgage loans included in
the trust fund as of the cut-off date (control number [ ]), or [ ] % of the
mortgage pool, you should assume all of the mortgage loans included in the trust
fund are nonrecourse loans, and that recourse in the case of default will be
limited to the related mortgaged property.
However, in certain circumstances the mortgage loan sellers will be obligated to
repurchase or substitute a mortgage loan if:
o there is a defect with respect to certain of the documents relating to such
mortgage loan; or
o certain of their respective representations or warranties concerning such
mortgage loan are breached, and such defect or breach materially and
adversely affects your interests and is not cured as required.
We cannot provide assurance that the applicable mortgage loan seller will be in
a financial position to make such a repurchase or substitution.
Risks Relating to Certain Property Particular types of income properties are exposed to particular risks. For
Types instance:
Special Risks Associated with Multifamily projects are part of a market that, in general, is
Multifamily Projects 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 alternative projects with more desirable amenities or locations.
A large number of factors may adversely affect the value and successful
operation of a multifamily property, including:
o the physical attributes of the apartment building (for example, its age,
appearance and construction quality);
o the location of the property (for example, a change in the neighborhood over
time);
o the ability of management to provide adequate maintenance and insurance;
o the types of services and amenities that the property provides;
o the property's reputation;
o the level of mortgage interest rates (which, if relatively low, may
encourage tenants to purchase rather than lease housing);
o the presence of competing properties;
o adverse local or national economic conditions; and
o state and local regulations.
Multifamily properties secure [ ] of the mortgage loans included in the trust
fund as of the cut-off date, or approximately [ ]% of the mortgage pool.
In addition, [ ] of the mortgage loans included in the trust fund as of the
cut-off date, or approximately [ ]% of the mortgage pool, entitle their owners
to receive low income housing tax credits under Section 42 of the Internal
Revenue Code of 1986, as amended. The tax credit provisions impose limits on the
amount of gross rents that can be charged to tenants and require the property
owner to comply with tenant income restrictions during established compliance
periods. These limitations and restrictions may adversely affect the value and
operation of a multifamily project upon which low income tax credits have been
taken. In addition, the owner's failure to comply with these limits and
restrictions may result in the prospective loss or recapture of previously taken
tax credits which may have an adverse effect on the borrower.
Special Risks Associated with Shopping centers are affected by the health of the retail industry,
Shopping Centers and Other Retail which is currently undergoing a consolidation and is experiencing
Properties changes due to the growing market share of "off-price" retailing, including the
popularity of home shopping networks, shopping via Internet web sites and
telemarketing. A particular shopping center may be adversely affected by the
bankruptcy or decline in drawing power 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 (for example, to
discount retailers).
In the case of retail properties, the failure of an anchor tenant to renew its
lease, the termination of an anchor tenant's lease, the bankruptcy or economic
decline of an anchor tenant, or the cessation of the business of an anchor
tenant at its store, notwithstanding its continued payment of rent after "going
dark," may have a particularly negative effect on the economic performance of a
shopping center property given the importance of anchor tenants in attracting
traffic to other stores within the same shopping center. In addition, the
failure of one or more major tenants, such as an anchor tenant, to operate from
its premises may entitle other tenants to rent reductions or the right to
terminate their leases.
Retail properties, including shopping centers, secure [ ] of the mortgage loans
included in the trust fund as of the cut-off date, or approximately [ ]% of the
mortgage pool.
Special Risks Associated with Hospitality properties are affected by various factors, including:
Hospitality Properties
o location;
o quality;
o management ability;
o amenities;
o franchise affiliation (or lack thereof);
o continuing expenditures for modernizing, refurbishing and maintaining
existing facilities prior to the expiration of their anticipated useful
lives;
o a deterioration in the financial strength or managerial capabilities of the
owner and operator of a hotel;
o changes in travel patterns caused by changes in access, energy prices,
strikes, relocation of highways, the construction of additional highways or
other factors; o adverse economic conditions, either local, regional or
national, which may limit the amount that may be charged for a room and may
result in a reduction in occupancy levels; and
o construction of competing hotels or motels, which may also limit the amount
that may be charged for a room and may result in a reduction in occupancy
levels.
Because hotel rooms generally are rented for short periods of time, hospitality
properties tend to be affected more quickly by adverse economic conditions and
competition than other commercial properties. The successful operation of a
hospitality property with a franchise affiliation may depend in part upon the
strength of the franchisor, the public perception of the franchise service mark
and the continued existence of any franchise license agreement. The
transferability of a franchise license agreement may be restricted, and a lender
or other person that acquires title to a hospitality property as a result of
foreclosure may be unable to succeed to the borrower's rights under any
franchise license agreement.
Furthermore, the ability of a hotel to attract customers, and some of such
hotel's revenues, may depend in large part on its having a liquor license. Such
a license may not be transferable (for example, in connection with a
foreclosure).
Moreover, the hotel and lodging industry is generally seasonal in nature;
different seasons affect different hotels depending on type and location. This
seasonality can be expected to cause periodic fluctuations in a hospitality
property's room and restaurant revenues, occupancy levels, room rates and
operating expenses. Because hotel rooms generally are rented for short periods
of time, the financial performance of hotels tends to be affected by adverse
economic conditions and competition more quickly than other commercial
properties.
Hospitality properties secure [ ] of the mortgage loans included in the trust
fund as of the cut-off date, or approximately [ ]% of the mortgage pool, of
which [ ] mortgage loans, or approximately [ ]% of the mortgage pool, are credit
lease loans.
Special Risks Associated with Office properties may require their owners to expend significant amounts of
Office Properties cash to pay for general capital improvements, tenant improvements and costs of
re-leasing space. Office properties that are not equipped to accommodate the
needs of modern businesses may become functionally obsolete and thus
non-competitive.
In addition, a large number of factors may adversely affect the
value of office properties, including:
o the quality of an office building's tenants;
o the physical attributes of the building in relation to competing buildings
(e.g. age, condition, design, access to transportation and ability to offer
certain amenities, such as sophisticated building systems);
o the desirability of the area as a business location; and
o the strength and nature of the local economy (including labor costs and
quality, tax environment and quality of life for employees).
Moreover, the cost of refitting office space for a new tenant is often higher
than the cost of refitting other types of property.
Office properties secure [ ] of the mortgage loans included in the trust fund as
of the cut-off date, or approximately [ ]% of the mortgage pool.
Special Risks Associated with Residential healthcare facilities pose risks not
associated with other Residential Healthcare Facilities types of income-producing
real estate. Providers of long-term nursing care, assisted living and other medical
services are subject to federal and state laws that relate to the adequacy of medical
care, distribution of pharmaceuticals, rate setting, equipment, personnel, operating
policies and additions to and maintenance of facilities and services. Providers also
are affected by the reimbursement policies of private insurers to the extent that
providers are dependent on patients whose fees are reimbursed by such insurers. The
failure of a borrower to maintain or renew any required license or regulatory
approval could prevent it from continuing operations at a mortgaged property (in
which case no revenues would be received from such property or portion thereof
requiring licensing) or, if applicable, bar it from participation in government
reimbursement programs.
In the event of foreclosure, we cannot ensure that the trustee or any other purchaser
at a foreclosure sale would be entitled to the rights under such licenses and such
party may have to apply in its own right for such a license. We also cannot provide
assurance that a new license could be obtained or that the related mortgaged property
would be adaptable to other uses following a foreclosure.
To the extent any residential healthcare facility receives a significant portion
of its revenues from government reimbursement programs, primarily Medicaid and
Medicare, such revenue may be subject to statutory and regulatory changes,
retroactive rate adjustments, administrative rulings, policy interpretations,
delays by fiscal intermediaries and government funding restrictions.
Governmental payors have employed cost-containment measures that limit payments
to healthcare providers, and there are currently under consideration various
proposals in the United States Congress that could materially change or curtail
those payments. Accordingly, we can give no assurance that payments under
government reimbursement programs will, in the future, be sufficient to fully
reimburse the cost of caring for program beneficiaries. If not, net operating
income of the mortgaged properties that receive substantial revenues from those
sources, and consequently the ability of the related borrowers to meet their
mortgage loan obligations, could be adversely affected.
Under applicable federal and state laws and regulations, including those that
govern Medicare and Medicaid programs, only the provider who actually furnished
the related medical goods and services may sue for or enforce its right to
reimbursement. Accordingly, in the event of foreclosure, none of the trustee,
the master servicer or a subsequent lessee or operator of the property would
generally be entitled to obtain from federal or state governments any
outstanding reimbursement payments relating to services furnished at the
respective properties prior to such foreclosure.
Other factors that may adversely affect the value and successful operation of a
residential healthcare property include:
o increasing governmental regulation and supervision;
o a decline in the financial health, skill or reputation of the operator;
o increased operating expenses; and
o competing facilities owned by non-profit organizations or government
agencies supported by endowments, charitable contributions, tax revenues, or
other sources.
Residential healthcare facilities secure [ ] of the mortgage loans included in
the trust fund as of the cut-off date, or approximately [ ]% of the mortgage
pool.
See "RISK FACTORS--Special Risks of Mortgage Loans Secured by Healthcare-Related
Properties" in the accompanying prospectus.
Special Risks Associated with Self The self storage facilities market contains low barriers to entry. In
Storage Facilities addition, it is difficult to assess the environmental risks posed by
such facilities due to tenant privacy, anonymity and unsupervised access to such
facilities. Therefore, such facilities may pose additional environmental risks
to investors. The environmental site assessments discussed in this prospectus
supplement did not include an inspection of the contents of the self-storage
units included in the self storage properties. We therefore cannot provide
assurance that all of the units included in the self storage properties are free
from hazardous substances or other pollutants or contaminants or will remain so
in the future. See "--Environmental Laws May Adversely Affect the Value Of and
Cash Flow From a Mortgaged Property" below.
Due to the short-term nature of self storage leases, self storage properties
also may be subject to more volatility in terms of supply and demand than loans
secured by other types of properties. In addition, because of the construction
utilized in connection with certain self storage facilities, it might be
difficult or costly to convert such a facility to an alternative use. Thus, the
liquidation value of self storage properties may be substantially less than
would be the case if the same were readily adaptable to other uses.
Self storage properties secure [ ] of the mortgage loans included in the trust
fund as of the cut-off date, or approximately [ ]% of the mortgage pool.
Special Risks Associated with Credit [ ] ([ ]) of the mortgage loans included in the trust fund as of
Lease Loans the cut-off date, or approximately [ ]% of the mortgage pool, are
credit lease loans. The payment of interest and principal on credit lease loans
is dependent principally on the payment by each tenant or guarantor of the
credit lease, if any, of monthly rental payments and other payments due under
the terms of its credit lease.
In addition, because the ability of a borrower to make payments on the related
credit lease loan is dependent on revenue from a single tenant, in the event of
a default under a credit lease or the associated guarantee, as the case may be,
the related borrower may not have the ability to make required payments on such
credit lease loan until the premises are re-let. If a payment default on the
credit lease loan occurs, the special servicer may be entitled to foreclose upon
or otherwise realize upon the related mortgaged property to recover amounts due
under the credit lease loan, and will also be entitled to pursue any available
remedies against the defaulting tenant and any guarantor.
Any failure by the provider of any residual value policy to pay under the terms
of any such policy, or any downgrade, qualification or withdrawal of the credit
rating of such provider or of any tenant or guarantor, may have an adverse
effect on the ratings of your certificates. See "DESCRIPTION OF THE MORTGAGE
POOL--Credit Lease Loans" and "--Special Risks Associated With Balloon Loans and
Anticipated Repayment Date Loans" in this prospectus supplement.
Environmental Laws May Adversely If an adverse environmental condition exists with respect to a mortgaged property
Affect the Value Of and Cash securing a mortgage loan included in the trust fund, the trust Fund will be subject
Flow From a Mortgaged Property to certain risks including the following:
o reduction in the value of such mortgaged property or the inability to foreclose
against such mortgaged property;
o the potential that the related borrower may default on the related mortgage
loan due to such borrower's inability to pay high remediation costs or
difficulty in bringing its operations into compliance with environmental
laws;
o liability for clean-up costs or other remedial actions, which could exceed
the value of such mortgaged property or the unpaid balance of the related
mortgage loan; and
o the inability to sell the related mortgage loan in the secondary market or
to lease such mortgaged property to potential tenants.
Under certain federal and state laws, federal and state agencies may impose a
statutory lien over affected property to secure the reimbursement of remedial
costs incurred by these agencies to correct environmental conditions. This lien
may be prior to the lien of an existing mortgage. Any such lien arising with
respect to a mortgaged property securing a mortgage loan included in the trust
fund would adversely affect the value of such mortgaged property and could make
impracticable the foreclosure by the special servicer on such mortgaged property
in the event of a default by the related borrower.
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real property, as well as certain other
types of parties, may be liable for the costs of removal or remediation of
hazardous or toxic substances on, under, adjacent to or in such property. The
cost of any required remediation and the owner's liability therefor is generally
not limited under applicable laws. Such liability could exceed the value of the
property and/or the aggregate assets of the owner. Under some environmental
laws, a secured lender (such as the trust fund) may be found to be an "owner" or
"operator" of the related mortgaged property if it is determined that the lender
actually participated in the management of the borrower, regardless of whether
the borrower actually caused the environmental damage. In such cases, a secured
lender may be liable for the costs of any required removal or remediation of
hazardous substances. The trust fund's potential exposure to liability for
cleanup costs will increase if the trust fund, or an agent of the trust fund,
actually takes possession of a mortgaged property or control of its day-to-day
operations. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND
LEASES--Environmental Considerations" in the accompanying prospectus, and
"DESCRIPTION OF THE MORTGAGE POOL--Assessments of Property
Condition--Environmental Assessments" in this prospectus supplement.
A third-party environmental consultant conducted an environmental site
assessment (or updated a previously conducted environmental site assessment)
with respect to each mortgaged property securing a mortgage loan included in the
trust fund. Such assessments do not generally include environmental testing. In
each case where the environmental site assessment or update revealed a material
adverse environmental condition or circumstance at any mortgaged property, then
(depending on the nature of the condition or circumstance) one or more of the
following actions has been or is expected to be taken:
o an environmental insurance policy, having the characteristics described below,
was obtained from a third-party insurer; or
o either (i) an operations and maintenance program, including, in several
cases, with respect to asbestos-containing materials, lead-based paint
and/or radon, or periodic monitoring of nearby properties, has been or is
expected to be implemented in the manner and within the time frames
specified in the related loan documents, or (ii) remediation in accordance
with applicable law has been performed; or
o an escrow or reserve was established to cover the estimated cost of
remediation, with each remediation required to be completed within a
reasonable time frame in accordance with the related loan documents.
We cannot provide assurance, however, that the environmental assessments
identified all environmental conditions and risks, that the related borrowers
will implement all recommended operations and maintenance plans, that such plans
will adequately remediate the environmental condition, or that any environmental
indemnity, insurance or escrow will fully cover all potential environmental
issues. In addition, the environmental condition of the underlying real
properties could be adversely affected by tenants or by the condition of land or
operations in the vicinity of the properties, such as underground storage tanks.
With respect to [ ] ([ ]) mortgage loans included in the trust fund as of the
cut-off date, or approximately [ ]% of the mortgage pool, borrowers were
required to purchase a secured creditor impaired property environmental
insurance policy in lieu of or in addition to environmental escrows established,
provided:
o the policy premium for the term is fully paid and the deductible either
escrowed or is less than or equal to $[ ];
o at issuance, the issuer has a claims paying ability of not less than "AA" by
S&P or if not rated by S&P, such comparable rating by another nationally
recognized statistical rating agency, and
o the policy is in an amount not less than the full principal amount of the
loan.
We cannot provide assurance, however, that should such coverage be needed,
coverage would be available or uncontested, that the terms and conditions of
such coverage would be met, that coverage would be sufficient for the claims at
issue or that coverage would not be subject to certain deductibles.
The pooling and servicing agreement will require that the special servicer
obtain an environmental site assessment of a mortgaged property securing a
mortgage loan included in the trust fund prior to taking possession of the
property through foreclosure or otherwise or assuming control of its operation.
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, we cannot
give 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. See "DESCRIPTION OF
THE POOLING AGREEMENTS--Realization Upon Defaulted Mortgage Loans," "RISK
FACTORS--Environmental Liability May Affect Lien on Mortgaged Property and
Expose Lender to Costs" and "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND
LEASES--Environmental Considerations" in the accompanying prospectus.
Special Risks Associated With [ ] ([ ]) of the mortgage loans included in the trust fund
Balloon Loans and Anticipated as of the cut-off date, or approximately [ ]% of the mortgage pool,
Repayment Date Loans including [ ] interest-only mortgage loans, or approximately [ ]% of the
mortgage pool, provide for scheduled payments of principal and interest based on
amortization schedules significantly longer than their respective remaining
terms to maturity and a balloon payment on their respective maturity dates. [ ]
([ ]) of the mortgage loans included in the trust fund as of the cut-off date,
or approximately [ ]% of the mortgage pool, are anticipated repayment date
loans, which provide that if the principal balance of the loan is not repaid on
a date specified in the related mortgage note, the loan will accrue interest at
an increased rate.
o A borrower's ability to make a balloon payment or repay its anticipated
repayment date loan on the anticipated repayment date typically will depend
upon its ability either to refinance fully the loan or to sell the related
mortgaged property at a price sufficient to permit the borrower to make such
payment.
o Whether or not losses are ultimately sustained, any delay in the collection
of a balloon payment on the maturity date or repayment on the anticipated
repayment date that would otherwise be distributable on your certificates
will likely extend the weighted average life of your certificates.
o 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 available mortgage 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 general and regional economic conditions and the
availability of credit for loans secured by multifamily or commercial
properties, as the case may be.
We cannot assure you that each borrower under a balloon loan or an anticipated
repayment date loan will have the ability to repay the principal balance of such
mortgage loan on the related maturity date or anticipated repayment date, as
applicable. For additional description of risks associated with balloon loans,
see "RISK FACTORS--Balloon Payments on Mortgage Loans Result in Heightened Risk
of Borrower Default" in the accompanying prospectus.
In order to maximize recoveries on defaulted mortgage loans, the pooling and
servicing agreement permits the special servicer to extend and modify mortgage
loans that are in material default or as to which a payment default (including
the failure to make a balloon payment) is imminent; subject, however, to the
limitations described under "SERVICING OF THE MORTGAGE LOANS--Modifications,
Waivers and Amendments" in this prospectus supplement. We cannot provide
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 on your 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 your
certificates. See "YIELD AND MATURITY CONSIDERATIONS" in this prospectus
supplement and "YIELD CONSIDERATIONS" in the accompanying prospectus.
Adverse Consequences Associated Certain borrowers under the mortgage loans included in the trust fund
With Borrower Concentration, are affiliated or under common control with one another. In such
Borrowers Under Common Control circumstances, any adverse circumstances relating to a borrower or an
and Related Borrowers affiliate thereof and affecting one of the related mortgage loans or
mortgaged properties could also affect other mortgage loans or mortgaged
properties of the related borrower. In particular, the bankruptcy or insolvency
of any such borrower or affiliate could have an adverse effect on the operation
of all of the mortgaged properties of that borrower and its affiliates and on
the ability of such related mortgaged properties to produce sufficient cash flow
to make required payments on the mortgage loans. For example, if a person that
owns or directly or indirectly controls several mortgaged properties experiences
financial difficulty at one mortgaged property, they could defer maintenance at
one or more other mortgaged properties in order to satisfy current expenses with
respect to the mortgaged property experiencing financial difficulty, or they
could attempt to avert foreclosure by filing a bankruptcy petition that might
have the effect of interrupting payments for an indefinite period on all the
related mortgage loans. In particular, such person experiencing financial
difficulty or becoming subject to a bankruptcy proceeding may have an adverse
effect on the funds available to make distributions on the certificates and may
lead to a downgrade, withdrawal or qualification (if applicable) of the ratings
of the certificates.
Mortgaged properties owned by related borrowers are likely to:
o have common management, increasing the risk that financial or other
difficulties experienced by the property manager could have a greater impact
on the pool of mortgage loans included in the trust fund; and
o have common general partners which would increase the risk that a financial
failure or bankruptcy filing would have a greater impact on the pool of
mortgage loans included in the trust fund.
</TABLE>
<TABLE>
<CAPTION>
Significant Affiliated Sponsor Concentrations
Sponsor Number Cut-Off Percentage Property Cut-Off LTV Cut-Off Mortgage
Name of Date of Type Date LTV Ratio at Date DSC Rate
Properties Balance Cut-Off Ratio Maturity Ratio
Date Pool or ARD
Balance
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ % % % %
--------- --------- ------------ -------- -------- ---------- --------- ------
Total................ $ % % % %
========= ========= ============ ======== ======== ========== ========= =====
</TABLE>
<TABLE>
<CAPTION>
The Geographic Concentration of Except as indicated in the following table, less than 5.0% of the
Mortgaged Properties Subjects mortgage loans, by initial pool balance are secured by mortgaged
the Trust Fund to a Greater properties in any one state.
Extent to State and Regional
Conditions
<S> <C> <C>
Percentage
of Cut-off Date
Number of Pool Balance
---------------
State Loans
----- -----
</TABLE>
<TABLE>
<S> <C>
The concentration of mortgaged properties in a specific state or region will
make the performance of the trust fund as a whole more sensitive to the
following in the state or region where the mortgagors and the mortgaged
properties are located:
o economic conditions;
o conditions in the real estate market;
o changes in governmental rules and fiscal policies;
o acts of God (which may result in uninsured losses); and
o other factors which are beyond the control of the mortgagors.
</TABLE>
Special Risks Associated With Several of the mortgage loans
High Balance Mortgage Loans included in the trust fund,
individually or together with
other such mortgage loans with
which they are
cross-collateralized, have
principal balances as of the
cut-off date that are
substantially higher than the
average principal balance as of
the cut-off date.
In general, concentrations in a
mortgage pool of loans with
larger-than-average balances can
result in losses that are more
severe, relative to the size of
the pool, than would be the case
if the aggregate balance of the
pool were more evenly
distributed.
o The largest mortgage loan
included in the trust fund
as of the cut-off date
represents approximately [
]% of the mortgage pool.
o The [ ] largest mortgage
loans included in the trust
fund as of the cut-off date
represent, in the aggregate,
approximately [ ]% of the
mortgage pool.
o The [ ] largest mortgage
loans included in the trust
fund as of the cut-off date
represent, in the aggregate,
approximately [ ]% of the
mortgage pool.
Concentration of Mortgaged Property Types A concentration of mortgaged
Subject the Trust Fund to Increased Risk property types can increase the
of Decline in a Particular Industry risk that a decline in a
particular industry or business
would have a disproportionately
large impact on a pool of
mortgage loans. For example, if
there is a decline in tourism,
the hotel industry might be
adversely affected, leading to
increased losses on loans secured
by hospitality properties as
compared to the mortgage loans
secured by other property types.
In that regard:
o mortgage loans included in
the trust fund and secured
by multifamily properties
represent as of the cut-off
date approximately [ ]% of
the mortgage pool;
o mortgage loans included in
the trust fund and secured
by retail properties
represent as of the cut-off
date approximately [ ]% of
the mortgage pool (based on
the primary property type
for combined office/retail
properties) (which includes
[ ] credit lease loans, or
approximately [ ]% of the
mortgage pool); and
o mortgage loans included in
the trust fund and secured
by hospitality properties
represent as of the cut-off
date approximately [ ]% of
the mortgage pool (which
includes [ ] credit lease
loans or approximately [ ]%
of the mortgage pool).
We Have Not Reunderwritten Any of the We have not reunderwritten the
Mortgage Loans mortgage loans included in the
trust fund. Instead, we have
relied on the representations and
warranties made by the mortgage
loan sellers, and the applicable
mortgage loan seller's obligation
to repurchase, cure or substitute
a mortgage loan in the event that
a representation or warranty was
not true when made. These
representations and warranties do
not cover all of the matters that
we would review in underwriting a
mortgage loan and you should not
view them as a substitute for
reunderwriting the mortgage
loans. If we had reunderwritten
the mortgage loans included in
the trust fund, it is possible
that the reunderwriting process
may have revealed problems with a
mortgage loan not covered by a
representation or warranty. In
addition, we cannot provide
assurance that the applicable
mortgage loan seller will be able
to repurchase or substitute a
mortgage loan if a representation
or warranty has been breached.
See "DESCRIPTION OF THE MORTGAGE
POOL--Representations and
Warranties; Repurchases and
Substitutions" in this prospectus
supplement.
Foreclosure on Mortgaged Properties May One or more of the REMICs
Result in Adverse Tax Consequences established under the pooling and
servicing agreement might become
subject to federal (and possibly
state or local) tax on certain of
its net income from the operation
and management of a mortgaged
property subsequent to the trust
fund's acquisition of a mortgaged
property pursuant to a
foreclosure or deed-in-lieu of
foreclosure, including in some
circumstances a 100% prohibited
transaction tax. Any such tax
would substantially reduce net
proceeds available for
distribution to you. See
"MATERIAL FEDERAL INCOME TAX
CONSEQUENCES--Taxation of Owners
of REMIC Regular Certificates,"
and "--Taxation of Owners of
REMIC Residual Certificates" in
the accompanying prospectus.
Insurance Coverage on Mortgaged Properties The master servicer and/or
May Not Cover Special Hazard Losses special servicer will generally
be required to cause the borrower
on each mortgage loan included in
the trust fund and serviced by it
to maintain such insurance
coverage on the related mortgaged
property as is required under the
related mortgage, including
hazard insurance; provided, that,
each of the master servicer and
the special servicer may satisfy
its obligation to cause hazard
insurance to be maintained with
respect to any mortgaged property
by acquiring a blanket or master
single interest insurance policy.
In general, the standard form of
fire and extended coverage policy
covers physical damage to or
destruction of the improvements
on the related mortgaged 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 covering
the mortgaged properties are
underwritten by different
insurers under different state
laws in accordance with different
applicable state forms, and
therefore do not contain
identical terms and conditions,
most such policies typically do
not cover any physical damage
resulting from:
o war;
o revolution;
o governmental actions;
o floods, and other
water-related causes;
o earth movement (including
earthquakes, landslides and
mud flows);
o wet or dry rot;
o vermin;
o domestic animals; and
o other kinds of risks not
specified in the preceding
paragraph.
Any losses incurred with respect
to mortgage loans included in the
trust fund due to uninsured risks
or insufficient hazard insurance
proceeds could adversely affect
distributions on your
certificates.
Some Mortgaged Properties May Be Encumbere In general, the borrowers are:
by Subordinated Debt Which May Delay
Foreclosure o required to satisfy any
existing indebtedness
encumbering the related
mortgaged property as of the
closing of the related
mortgage loan; and
o prohibited from encumbering
the related mortgaged
property with additional
secured debt without the
lender's prior approval.
With respect to [ ] mortgage
loans included in the trust fund
as of the cut-off date (control
numbers [ ] and [ ]), or
approximately [ ]% of the
mortgage pool, the mortgaged
properties remain encumbered by
existing subordinate debt,
subject to the terms of a
subordination and standstill
agreement entered into in favor
of the lender.
With respect to [ ] mortgage
loans included in the trust fund
as of the cut-off date (control
numbers [ ], [ ] and [ ]), or
approximately [ ]% of the
mortgage pool, the related
mortgage loan documents provide
that the borrower, under certain
specified circumstances, may
encumber the related mortgaged
property with a subordinate
mortgage in the future.
Secured subordinated debt
encumbering any mortgaged
property may increase the
difficulty of refinancing the
related mortgage loan at maturity
and the possibility that reduced
cash flow could result in
deferred maintenance. Also, in
the event that the holder of the
subordinated debt has filed for
bankruptcy or been placed in
involuntary receivership,
foreclosure by any senior
lienholder (including the trust
fund) on the mortgaged property
could be delayed. Many of the
mortgage loans included in the
trust fund, and the mortgage loan
documents and organizational
documents of the related
borrower, do not prohibit the
borrower from incurring
additional indebtedness if
incurred in the ordinary course
of business and not secured by a
lien on the related mortgaged
properties. A default by the
borrower on such additional
indebtedness could impair the
borrower's financial condition
and result in the bankruptcy or
receivership of the borrower
which would cause a delay in the
foreclosure by the trust fund on
the mortgaged property. It may
not be evident that a borrower
has incurred any such future
subordinate second lien debt
until the related mortgage loan
otherwise defaults. In cases in
which one or more subordinate
liens are imposed on a mortgaged
property or the borrower incurs
other indebtedness, the trust
fund is subject to additional
risks, including, without
limitation, the following:
o the risk that the necessary
maintenance of the mortgaged
property could be deferred to
allow the borrower to pay the
required debt service on the
subordinate financing and
that the value of the
mortgaged property may fall
as a result;
o the risk that the borrower
may have a greater incentive
to repay the subordinate or
unsecured indebtedness first;
o the risk that it may be more
difficult for the borrower to
refinance the mortgage loan
or to sell the mortgaged
property for purposes of
making any balloon payment
upon the maturity of the
mortgage loan;
o the existence of subordinated
debt encumbering any
mortgaged property may
increase the difficulty of
refinancing the related
mortgage loan at maturity and
the possibility that reduced
cash flow could result in
deferred maintenance; and
o the risk that, in the event
that the holder of the
subordinated debt has filed
for bankruptcy or been placed
in involuntary receivership,
foreclosing on the mortgaged
property could be delayed and
the trust may be subjected to
the costs and administrative
burdens of involvement in
foreclosure or bankruptcy
proceedings or related
litigation.
See "CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS AND LEASES
--Subordinate Financing" and
"--Due-on-Sale and
Due-on-Encumbrance" in the
accompanying prospectus and
"DESCRIPTION OF THE MORTGAGE
POOL--Certain Terms and
Conditions of the Mortgage
Loans--`Due-on-Sale' and
`Due-on-Encumbrance' Provisions"
in this prospectus supplement.
With respect to [ ] mortgage
loans included in the trust fund
as of the cut-off date (control
numbers [ ] and [ ]), or
approximately [ ]% of the
mortgage pool, the owners of the
related borrowers have pledged
their limited partnership
interests or other ownership
interests in the borrower as
security for mezzanine debt that
was in existence as of the date
of origination of the related
mortgage loan. The enforcement of
such mezzanine debt may be
subject, however, to certain
limitations and restrictions
imposed upon the borrower and the
holders of the mezzanine debt
pursuant to subordination or
standstill agreements.
Mezzanine debt is debt that is
incurred by the owner of equity
in one or more borrowers and is
secured by a pledge of the equity
ownership interests in such
borrowers. Because mezzanine debt
is secured by the obligor's
equity interest in the related
borrowers, such financing
effectively reduces the obligor's
economic stake in the related
mortgaged property. The existence
of mezzanine debt may reduce cash
flow on the borrower's mortgaged
property after the payment of
debt service and may increase the
likelihood that the owner of a
borrower will permit the value or
income producing potential of a
mortgaged property to fall and
may create a slightly greater
risk that a borrower will default
on the mortgage loan secured by a
mortgaged property whose value or
income is relatively weak.
Upon a default under mezzanine
debt, the holder of such
mezzanine debt would be entitled
to foreclose upon the equity in
the related mortgagor, which has
been pledged to secure payment of
such mezzanine debt. Although
such transfer of equity would not
trigger the due on sale clause
under the related mortgage loan,
it could cause the obligor under
such mezzanine debt to file for
bankruptcy, which could
negatively affect the operation
of the related mortgaged property
and such borrower's ability to
make payments on the related
mortgage loan in a timely manner.
See "CERTAIN LEGAL ASPECTS OF
MORTGAGE LOANS AND
LEASES--Due-on-Sale and
Due-on-Encumbrance" in the
accompanying prospectus and
"DESCRIPTION OF THE MORTGAGE
POOL--Certain Terms and
Conditions of the Mortgage
Loans-`Due-on-Sale' and
`Due-on-Encumbrance' Provisions"
in this prospectus supplement.
The Borrower's Form of Entity May The borrowers may be either
Cause Special Risks individuals or legal entities.
Mortgage loans made to legal
entities may entail risks of loss
greater than those of mortgage
loans made to individuals. For
example, a legal entity, as
opposed to an individual, may be
more inclined to seek legal
protection from its creditors
under the bankruptcy laws. Unlike
individuals involved in
bankruptcies, various types of
entities generally do not have
personal assets and
creditworthiness at stake. The
bankruptcy of a borrower, or a
general partner or managing
member of a borrower, may impair
the ability of the lender to
enforce its rights and remedies
under the related mortgage.
The borrowers are generally not
bankruptcy-remote entities, and
therefore may be more likely to
become insolvent or the subject
of a voluntary or involuntary
bankruptcy proceeding because
such borrowers may be:
o operating entities with
businesses distinct from the
operation of the property
with the associated
liabilities and risks of
operating an ongoing
business; and
o individuals that have
personal liabilities
unrelated to the property.
However, any borrower, even a
bankruptcy-remote entity, as
owner of real estate will be
subject to certain potential
liabilities and risks. We cannot
provide assurances that any
borrower will not file for
bankruptcy protection or that
creditors of a borrower or a
corporate or individual general
partner or managing member of a
borrower will not initiate a
bankruptcy or similar proceeding
against such borrower or
corporate or individual general
partner or managing member.
Furthermore, with respect to any
related borrowers, creditors of a
common parent in bankruptcy may
seek to consolidate the assets of
such borrowers with those of the
parent. Consolidation of the
assets of such borrowers would
likely have an adverse effect on
the funds available to make
distributions on your
certificates, and may lead to a
downgrade, withdrawal or
qualification of the ratings of
your certificates. See "CERTAIN
LEGAL ASPECTS OF MORTGAGE LOANS
AND LEASES--Bankruptcy Laws" in
the accompanying prospectus.
Inspections and Appraisal of Mortgaged In general, appraisals represent
Property May Have Overlooked Necessary only the analysis and opinion of
Repairs qualified experts and are not
guaranties of present or future
value, and may determine a value
of a property that is
significantly higher than the
amount that can be obtained from
the sale of a mortgaged property
under a distress or liquidation
sale. Information regarding the
values of the mortgaged
properties at the date of such
report is presented under
"DESCRIPTION OF THE MORTGAGE
POOL--Additional Mortgage Loan
Information" in this prospectus
supplement for illustrative
purposes only. Any engineering
reports obtained in connection
with this offering represent only
the analysis of the individual
engineers or site inspectors
preparing such reports at the
time of such report, and may not
reveal all necessary or desirable
repairs, maintenance or capital
improvement items.
The Mortgaged Properties May Not Be in The mortgaged properties securing
Compliance With Current Zoning Laws the mortgage loans included in
the trust fund are typically
subject to building and zoning
ordinances and codes affecting
the construction and use of real
property. Since the zoning laws
applicable to a mortgaged
property (including, without
limitation, density, use, parking
and set-back requirements) are
usually subject to change by the
applicable regulatory authority
at any time, the improvements
upon the mortgaged properties may
not comply fully with all
applicable current and future
zoning laws. Such changes may
limit the ability of the related
borrower to rehabilitate,
renovate and update the premises,
and to rebuild or utilize the
premises "as is" in the event of
a substantial casualty loss with
respect thereto. Such limitations
may adversely affect the cash
flow of the mortgaged property
following such loss.
In addition, certain of the
mortgaged properties securing
mortgage loans included in the
trust fund which are
non-conforming may not be
"permitted non-conforming" uses.
The failure of a mortgaged
property to comply with zoning
laws or to be a "permitted
non-conforming" use may adversely
affect the market value of the
mortgaged property or the
borrower's ability to continue to
use it in the manner it is
currently being used.
In addition, certain of the
mortgaged properties are subject
to certain use restrictions
imposed pursuant to reciprocal
easement agreements or operating
agreements. Such use restrictions
include, for example, limitations
on the character of the
improvements or the properties,
limitations affecting noise and
parking requirements, among other
things, and limitations on the
borrowers' right to operate
certain types of facilities
within a prescribed radius. These
limitations could adversely
affect the ability of the related
borrower to lease the mortgaged
property on favorable terms, thus
adversely affecting the
borrower's ability to fulfill its
obligations under the related
mortgage loan.
Compliance With Applicable Laws and A borrower may be required to
Regulations May Result in Losses incur costs to comply with
various existing and future
federal, state or local laws and
regulations applicable to the
related mortgaged property
securing a mortgage loan included
in the trust fund. Examples of
these laws and regulations
include zoning laws and the
Americans with Disabilities Act
of 1990, which requires all
public accommodations to meet
certain federal requirements
related to access and use by
disabled persons. See "CERTAIN
LEGAL ASPECTS OF MORTGAGE LOANS
AND LEASES--Americans with
Disabilities Act" in the
accompanying prospectus. The
expenditure of such costs or the
imposition of injunctive relief,
penalties or fines in connection
with the borrower's noncompliance
could negatively impact the
borrower's cash flow and,
consequently, its ability to pay
its mortgage loan.
Enforceability of Due-on-Sale Clauses and The mortgages securing the
Assignments of Leases and Rents mortgage loans included in the
is Limited trust fund generally contain
due-on-sale clauses, which permit
the acceleration of the maturity
of the related mortgage loan if
the borrower sells, transfers or
conveys the related mortgaged
property or its interest in the
mortgaged property without the
consent of the lender. There also
may be limitations on the
enforceability of such clauses.
The mortgages also generally
include a debt-acceleration
clause, which permits the
acceleration of the related
mortgage loan upon a monetary or
non-monetary default by the
borrower. The courts of all
states will generally enforce
clauses providing for
acceleration in the event of a
material payment default, but may
refuse the foreclosure of a
mortgaged property when
acceleration of the indebtedness
would be inequitable or unjust or
the circumstances would render
acceleration unconscionable.
However, certain of the mortgage
loans included in the trust fund
permit one or more transfers of
the related mortgaged property to
pre-approved borrowers or
pursuant to pre-approved
conditions without the lender
approval. See "CERTAIN LEGAL
ASPECTS OF MORTGAGE LOANS AND
LEASES--Due-on-Sale and
Due-on-Encumbrance" in the
accompanying prospectus.
The mortgage loans included in
the trust fund may also be
secured by an assignment of
leases and rents pursuant to
which the borrower typically
assigns its right, title and
interest as landlord under the
leases on the related mortgaged
property and the income derived
thererom 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 borrower defaults, the
license termiantes and the lender
is entitled to collect the rents.
Such assignments are typically
not perfected as security
interests prior to the lender's
taking possession of the related
ortgaged property and/or
appointment of a receiver. Some
state laws may require that the
lender take possession of the
mortgaged proeprty 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 borrower,
the lender's ability to collect
the rents may be adversely
affected. See "CERTAIN LEGAL
ASPECTS OF THE MORTGAGE LOANS AND
LEASES--Leases and Rents" in the
accompanying prospectus.
Limitations on the Benefits of [ ] ([ ]) groups of mortgage
Cross-Collateralized and loans included in the trust fund
Cross-Defaulted Properties as of the cut-off date (control
numbers [ ] and [ ]; control
numbers [ ] and [ ]; control
numbers [ ] and [ ]; and control
numbers [ ] and [ ]), or
approximately [ ]% of the
mortgage pool, are
cross-collateralized and
cross-defaulted with one or more
related cross-collateralized
loans. Such arrangements could be
challenged as fraudulent
conveyances by creditors of any
of the related borrowers or by
the representative of the
bankruptcy estate of any related
borrower if one or more of such
borrowers becomes a debtor in a
bankruptcy case. Generally, under
federal and most state fraudulent
conveyance statutes, a lien
granted by any such borrower
could be voided if a court
determines that:
o such borrower was insolvent
at the time of granting the
lien, was rendered insolvent
by the granting of the lien,
was left with inadequate
capital or was not able to
pay its debts as they
matured; and
o the borrower did not, when it
allowed its mortgaged
property to be encumbered by
the liens securing the
indebtedness represented by
the other
cross-collateralized loans,
receive "fair consideration"
or "reasonably equivalent
value" for pledging such
mortgaged property for the
equal benefit of the other
related borrowers.
We cannot give assurances that a
lien granted by a borrower on a
cross-collateralized loan to
secure the mortgage loan of
another borrower, or any payment
thereon, would not be avoided as
a fraudulent conveyance. See
"DESCRIPTION OF THE MORTGAGE
POOL--Certain Terms and
Conditions of the Mortgage
Loans--Cross-Default and
Cross-Collateralization of
Certain Mortgage Loans" and Annex
A to this prospectus supplement
for more information regarding
the cross-collateralized loans.
No mortgage loan included in the
trust fund is
cross-collateralized with a
mortgage loan not included in the
trust fund. See "DESCRIPTION OF
THE MORTGAGE POOL--Certain Terms
and Conditions of the Mortgage
Loans--Other Financing".
Single Tenants and Concentration Certain of the mortgaged
of Tenants Subject the Trust properties securing mortgage
Fund to Increased Risk loans included in the trust fund
are leased wholly or in large
part to a single tenant or are
wholly or in large part
owner-occupied. Any default by a
major tenant could adversely
affect the related borrower's
ability to make payments on the
related mortgage loan. We cannot
give assurances that any major
tenant will continue to perform
its obligations under its lease
(or, in the case of an
owner-occupied mortgaged
property, under the related
mortgage loan documents).
Mortgaged properties leased to a
single tenant, or a small number
of tenants, also are more likely
to experience interruptions of
cash flow if a tenant fails to
renew its lease because there may
be less or no rental income until
new tenants are found and it may
be necessary to expend
substantial amounts of capital to
make the space acceptable to new
tenants.
Retail and office properties also
may be adversely affected if
there is a concentration of
particular tenants among the
mortgaged properties or of
tenants in a particular business
or industry.
The Failure of a Tenant Will Have The bankruptcy or insolvency of a
a Negative Impact on Single major tenant, or a number of
Tenant Properties smaller tenants, in retail,
industrial and office properties
may adversely affect the income
produced by a mortgaged property.
Under the Bankruptcy Code, a
tenant has the option of assuming
or rejecting any unexpired lease.
If the tenant rejects the lease,
the landlord's claim for breach
of the lease would be a general
unsecured claim against the
tenant (absent collateral
securing the claim) and the
amounts the landlord could claim
would be limited.
Litigation May Have Adverse Affect From time to time, there may be
on Borrowers legal proceedings pending or
threatened against the borrowers
and their affiliates relating to
the business of, or arising out
of the ordinary course of
business of, the borrowers and
their affiliates. It is possible
that future litigation may have a
material adverse effect on any
borrower's ability to meet its
obligations under the related
mortgage loan and, thus, on
distributions on your
certificates.
Poor Property Management Will Lower The successful operation of a
the Performance of the Related real estate project depends upon
Mortgaged Property the property manager's
performance and viability. The
property manager is responsible
for:
o responding to changes in the
local market;
o planning and implementing the
rental structure;
o operating the property and
providing building services;
o managing operating expenses;
and
o assuring that maintenance and
capital improvements are
carried out in a timely
fashion.
Properties deriving revenues
primarily from short-term
sources, such as short term
leases, are generally more
management intensive than
properties leased to creditworthy
tenants under long-term leases.
We make no representation or
warranty as to the skills of any
present or future managers.
Additionally, we cannot provide
assurance that the property
managers will be in a financial
condition to fulfill their
management responsibilities
throughout the terms of their
respective management agreements.
Condemnations of Mortgaged From time to time, there may be
Properties May Result in condemnations pending or
Losses threatened against one or more of
the mortgaged properties securing
mortgage loans included in the
trust fund. The proceeds payable
in connection with a total
condemnation may not be
sufficient to restore the related
mortgaged property or to satisfy
the remaining indebtedness of the
related mortgage loan. The
occurrence of a partial
condemnation may have a material
adverse effect on the continued
use of, or income generation
from, the affected mortgaged
property. Therefore, we cannot
give assurances that the
occurrence of any condemnation
will not have a negative impact
upon distributions on your
certificates.
Timing of Principal Payments and Principal payments (including
Prepayments May Result in Different prepayments) on the mortgage
Asset Concentrations in the Trust Fund loans included in the trust fund
will occur at different rates. In
addition, mortgaged properties
can be released from the trust
fund as a result of prepayments,
repurchases or condemnations. As
a result, the aggregate balance
of the mortgage loans
concentrated in various property
types changes over time. You
therefore may be exposed to
varying concentration risks as
the mixture of property types and
relative principal balance of the
mortgage loans associated with
certain property types changes.
See the table entitled "Range of
Remaining Term to Maturity or
Anticipated Repayment Date for
all Mortgaged Loans as of the
Cut-off Date" under "DESCRIPTION
OF THE MORTGAGE POOL--Additional
Mortgage Loan Information" in
this prospectus supplement for a
description of the respective
maturity dates of the mortgage
loans included in the trust fund.
Because principal on your
certificates (other than the
Class [ ] certificates) is
payable in sequential order to
the extent described in this
prospectus supplement under
"DESCRIPTION OF THE
CERTIFICATES--Distributions",
classes that have a lower
priority of distributions are
more likely to be exposed to the
risk of changing concentrations
discussed under "--Special risks
associated with high balance
mortgage loans" above than
classes with a higher sequential
priority.
The Status of a Ground Lease May Be [ ] of the mortgaged properties
Uncertain in a Bankruptcy Proceeding securing mortgage loans included
in the trust fund as of the
cut-off date, or approximately [
]% of mortgage pool, are secured
in whole or in part by leasehold
interests. Pursuant to Section
365(h) of the Bankruptcy Code,
ground lessees have the right to
continue in a ground lease even
though the representative of
their bankrupt ground lessor
rejects the lease. The leasehold
mortgages provide that the
borrower may not elect to treat
the ground lease as terminated on
account of any such rejection by
the ground lessor without the
prior approval of the holder of
the mortgage note. In a
bankruptcy of a ground
lessee/borrower, the ground
lessee/borrower under the
protection of the Bankruptcy Code
has the right to assume
(continue) or reject (terminate)
any or all of its ground leases.
If the ground lessor and the
ground lessee/borrower are
concurrently involved in
bankruptcy proceedings, the
trustee may be unable to enforce
the bankrupt ground
lessee/borrower's right to
continue in a ground lease
rejected by a bankrupt ground
lessor. In such circumstances, a
ground lease could be terminated
notwithstanding lender protection
provisions contained therein or
in the related mortgage.
Mortgage Loan Sellers May Not Be Able to Each mortgage loan seller is the
Make a Required Repurchase or sole warranting party in respect
Substitution of a Defective Mortgage of the mortgage loans sold by
Loan such mortgage loan seller to us.
Neither we nor any of our
affiliates are obligated to
repurchase or substitute any
mortgage loan in connection with
either a breach of the mortgage
loan seller's representations and
warranties or any document
defects, if such mortgage loan
seller defaults on its obligation
to do so. We cannot give
assurances that either mortgage
loan seller will have the
financial ability to effect such
repurchases or substitutions.
In addition, one or more of the
mortgage loan sellers has
acquired a portion of the
mortgage loans included in the
trust fund in one or more
secondary market purchases. Such
purchases may be challenged as
fraudulent conveyances. Such a
challenge, if successful, may
have a negative impact on the
distributions on your
certificates. See "DESCRIPTION OF
THE MORTGAGE POOL-- Assignment of
the Mortgage Loans; Repurchases
and Substitutions" and
"--Representations and
Warranties; Repurchases and
Substitutions" in this prospectus
supplement and "DESCRIPTION OF
THE POOLING
AGREEMENTS--Representations and
Warranties; Repurchases" in the
accompanying prospectus.
One Action Jurisdiction May Limit the Several states (including
Ability of the Special Servicer to California) have laws that
Foreclose on the Mortgaged Property prohibit more than one judicial
action to enforce a mortgage
obligation, and some courts have
construed the term judicial
action broadly. Accordingly, the
special servicer is required to
obtain advice of counsel prior to
enforcing any of the trust fund's
rights under any of the mortgage
loans that include mortgaged
properties where this rule could
be applicable. In the case of
either a cross-collateralized and
cross-defaulted mortgage loan or
a multi-property mortgage loan
which is secured by mortgaged
properties located in multiple
states, the special servicer may
be required to foreclose first on
properties located in states
where such "one action" rules
apply (and where non-judicial
foreclosure is permitted) before
foreclosing on properties located
in the states where judicial
foreclosure is the only permitted
method of foreclosure. As a
result, the special servicer may
incur delay and expense in
foreclosing on mortgaged
properties affected by one action
rules. See "CERTAIN LEGAL ASPECTS
OF MORTGAGE LOANS AND
LEASES--Foreclosure" in the
accompanying prospectus.
Property Managers May Experience Conflicts The managers of the mortgaged
Interest in Managing Multiple properties securing mortgage
Properties loans of included in the trust
fund and the borrowers may
experience conflicts of interest
in the management and/or
ownership of such properties
because:
o a substantial number of the
mortgaged properties are
managed by property managers
affiliated with the
respective borrowers;
o these property managers also
may manage and/or franchise
additional properties,
including properties that may
compete with the mortgaged
properties securing the
mortgage loans included in
the trust fund; and
o affiliates of the managers
and/or the borrowers, or the
managers and/or the borrowers
themselves, also may own
other properties, including
competing properties.
<PAGE>
DESCRIPTION OF THE MORTGAGE POOL
General
The Mortgage Pool will consist of [ ] fixed rate Mortgage Loans, with an
aggregate balance as of the Cut-Off Date (the "Cut-Off Date Pool Balance") of
approximately $[ ] secured by [ ] Mortgaged Properties located in [ ] states
and the District of Columbia. The "Cut-Off Date Balance" of each Mortgage Loan
will equal the unpaid principal balance thereof as of the Cut-Off Date, after
reduction for all payment of principal due on or before such date, whether or
not received. The Cut-Off Date Balances of the Mortgage Loans range from $[ ]
to $[ ] and the Mortgage Loans have an average Cut-Off Date Balance of $[ ] .
All percentages of the Mortgage loans, or of any specified group of Mortgage
Loans, referred to in this Prospectus Supplement without further description
are approximate percentages calculated using the Cut-Off Date Pool Balance.
References to percentages of Mortgaged Properties referred to in this
Prospectus Supplement without further description are references to the
percentages of the Cut-Off Date Pool Balance represented by the aggregate
Cut-Off Date Balance of the related Mortgage Loans. Where a Mortgage Loan is
secured by multiple properties, statistical information in this Prospectus
Supplement relating to geographical locations and property types of the
Mortgaged Properties is based on the loan amount allocated to such property.
Such allocation is based on the relative appraised values of such properties.
In addition, wherever information is presented in this Prospectus Supplement
with respect to LTV Ratios or DSC Ratios, the LTV Ratio or DSC Ratio of each
Mortgaged Property securing a Mortgage Loan secured by multiple Mortgaged
Properties is assumed to be the weighted average LTV Ratio or DSC Ratio of
such Mortgage Loan.
All of the Mortgage Loans are evidenced by a promissory note (each a
"Mortgage Note"). All of the Mortgage Loans are secured by a mortgage, deed of
trust or other similar security instrument (each, a "Mortgage") that creates a
first mortgage lien on a borrower's fee simple estate (or, with respect to [ ]
Mortgaged Properties, or approximately [ ]% of the Cut-Off Date Pool Balance,
on the borrower's leasehold estate) in an income-producing real property
(each, a "Mortgaged Property").
Set forth below are the number of Mortgage Loans, and the approximate
percentage of the Cut-Off Date Pool Balance represented by such Mortgage
Loans, that are secured by Mortgaged Properties operated for each indicated
purpose:
Mortgaged Properties by Property Type
<TABLE>
<CAPTION>
Percentage
Aggregate of
Number of Number of Cut-Off Date Cut-Off Date
Property Type Loans Properties Balance Pool Balance
------------- --------- ---------- ------------ ------------
<S> <C>
Multifamily................................
Retail (Anchored)..........................
Hospitality................................
Office.....................................
Healthcare(1)..............................
Retail (Unanchored)........................
Credit Lease Loans(2)......................
Industrial/Warehouse.......................
Mixed Use..................................
Mobile Home Community......................
Self Storage...............................
Total....................................
</TABLE>
- ------------------------------------------------------------------------------
(1) Including [ ] Mortgage Loan, or approximately [ ]% of the Cut-Off
Date Pool Balance, secured by an assisted living facility; and [1]
Mortgage Loan, or approximately [ ]% of the Cut-Off Date Pool
Balance, secured by a skilled nursing facility.
(2) Including [ ] Mortgage Loans, or approximately [ ]% of the Cut-Off
Date Pool Balance, secured by hospitality properties and [ ] Mortgage
Loan, or approximately [ ]% of the Cut-Off Date Pool Balance, secured
by a retail property.
Mortgage Loan History
All of the Mortgage Loans will be acquired on the Closing Date by the
Depositor from the Mortgage Loan Sellers, which either originated each such
Mortgage Loan or acquired it in connection with their commercial and
multifamily mortgage loan conduit programs. None of the Mortgage Loans was 30
days or more delinquent as of the Cut-Off Date, and no Mortgage Loan has been
30 days or more delinquent during the 12 months preceding the Cut-Off Date (or
since the date of origination if such Mortgage Loan has been originated within
the past 12 months).
Certain Terms and Conditions of the Mortgage Loans
Mortgage Rates; Calculations of Interest. All of the Mortgage Loans bear
interest at rates (each a "Mortgage Rate") that will remain fixed for their
remaining terms, provided, however, that after the applicable Anticipated
Repayment Date, the interest rate on the related ARD Loans will increase as
described in this Prospectus Supplement. See "Amortization" below. [ ] of the
Mortgage Loans, or approximately [ ]% of the Cut-Off Date Pool Balance, accrue
interest on the basis (a "30/360 basis") of a 360-day year consisting of
twelve 30-day months and [ ] of the Mortgage Loans, or approximately [ ]% of
the Cut-Off Date Pool Balance, accrue interest on the basis (an "Actual/360
basis") of the actual number of days elapsed over a 360 day year. [ ] of the [
] Mortgage Loans that accrue interest on an Actual/360 basis, or approximately
[ ]% of the Cut-Off Date Pool Balance, have periods during which only interest
is due.
Mortgage Loan Payments. Scheduled payments of principal and interest
other than Balloon Payments (the "Periodic Payments") on [ ] of the Mortgage
Loans, or approximately [ ]% of the Cut-Off Date Pool Balance, are due monthly
and [ ] of the Mortgage Loans, or approximately [ ]% of the Cut-Off Date Pool
Balance, are due semi-annually (the "Semi-Annual Loans"). With respect to each
Semi-Annual Loan the Depositor has arranged for the Master Servicer to advance
at the Depositor's sole cost, on a monthly basis, the interest payments that
would have otherwise been payable if the Periodic Payments had been paid
monthly by the related borrower.
Due Dates. All of the Mortgage Loans are due on the date (each such date,
a "Due Date") occurring on the first day of the month, subject to grace
periods which do not exceed 10 days.
Amortization. [ ]of the Mortgage Loans (the "Balloon Loans"), or
approximately [ ]% of the Cut-Off Date Pool Balance, provide for Periodic
Payments based on amortization schedules significantly longer than their
respective terms to maturity. [ ] of the Mortgage Loans, or approximately [ ]%
of the Cut-Off Date Pool Balance, (the "Fully Amortizing Loans") fully or
substantially amortize through their respective remaining terms to maturity. [
] Mortgage Loan, or approximately [ ]% of the Cut-Off Date Pool Balance,
provides for interest only Periodic Payments for the entire term and does not
amortize. [ ] ([ ]) of the Mortgage Loans (the "ARD Loans"), or approximately
[ ]% of the Cut-Off Date Pool Balance, provides that if the unamortized
principal amount thereof is not repaid on a date set forth in the related
Mortgage Note (the "Anticipated Repayment Date"), the Mortgage Loan will
accrue additional interest (the "Additional Interest") at the rate set forth
therein and the borrower will be required to apply excess monthly cash flow
(the "Excess Cash Flow") generated by the Mortgaged Property (as determined in
the related loan documents) to the repayment of principal outstanding on the
Mortgage Loan. Additional Interest will not be included in the calculation of
the Mortgage Rate for a Mortgage Loan, and will only be paid after the
outstanding principal balance of the Mortgage Loan together with all interest
thereon at the Mortgage Rate has been paid. With respect to such Mortgage
Loans, no Prepayment Premiums or Yield Maintenance Charges will be due in
connection with any principal prepayment after the Anticipated Repayment Date.
[ ] of the Balloon Loans, or approximately [ ]% of the Cut-Off Date Pool
Balance provide for changes in the amount of their respective Periodic
Payments at specified times in the future which coincide with rent increases
on the underlying property leases.
[ ] Mortgage Loans, or approximately [ ]% of the Cut-Off Date Pool
Balance, all of which are Credit Lease Loans, have a Balloon Payment which is
insured (an "Insured Balloon Payment") through a Residual Value Insurance
Policy (defined below). With respect to all such Mortgage Loans, the related
Tenant is obligated to make a rent payment corresponding to such Balloon
Payment (a "Tenant Balloon Payment"). If a default occurs under such Balloon
Loans with respect to an Insured Balloon Payment and no recovery is available
from the related borrower, the Tenant or any Guarantor, the Special Servicer
will be entitled to recover in full the amount of the Balloon Payment due
under such Mortgage Loan through the Residual Value Insurance Policy after the
maturity date for such Mortgage Loan. In the event a Residual Value Insurer
defaults on an Insured Balloon Payment, the Special Servicer will still be
able to assert whatever other remedies it has with respect to the related
Mortgaged Property and the Residual Value Insurer.
Residual Value Insurance Policy. With respect to each Mortgage Loan which
has an Insured Balloon Payment, the Trustee will be named as the loss-payee
under a related non-cancelable Residual Value Insurance Policy obtained to
cover the Balloon Payment relating to such Mortgaged Property (each such
policy, a "Residual Value Insurance Policy"). The Residual Value Insurance
Policy will be or has been issued by R.V.I. America Insurance Company (the
"Residual Value Insurer") which, as of [ ] [ ] , 20[ ] , had a rating of "A"
by [ ] and a claims paying rating of "AA-" by [ ]. Each Residual Value
Insurance Policy is subject to certain limited exclusions. The Residual Value
Insurer under each Residual Value Insurance Policy is not required to pay
amounts due under the Mortgage Loan other than the related Balloon Payment
and, subject to certain limitations set forth in the Residual Value Insurance
Policy, accrued interest, and therefore is not required to pay any Prepayment
Premium or interest due thereunder or any amounts the related borrower may be
obligated to pay thereunder as reimbursement for outstanding P&I Advances.
Prepayment Provisions. As of the Cut-Off Date, all of the Mortgage Loans
restrict or prohibit voluntary principal prepayment. In general, the Mortgage
Loans either (i) prohibit voluntary payments for most of the term of the
related Mortgage Loan, but permit defeasance after a date specified in the
related Mortgage Note for most of the remaining term ([ ] Mortgage Loans, or
approximately [ ]% of the Cut-Off Date Pool Balance) (ii) prohibit voluntary
prepayments of principal for a period ending on a date specified in the
related Mortgage Note, and thereafter either impose a Yield Maintenance Charge
or Prepayment Premium (but not both) for most of the remaining term ([ ]
Mortgage Loans, or approximately [ ]% of the Cut-Off Date Pool Balance) or
(iii) prohibit prepayment until the date specified in the related Mortgage
Note and then allow prepayment without a Yield Maintenance Charge or a
Prepayment Premium for the remaining term ([ ] Mortgage Loan, or approximately
[ ]% of the Cut-Off Date Pool Balance); provided that, for purposes of each of
the foregoing, "remaining term" refers to either the remaining term to
maturity or the Anticipated Repayment Date, as applicable, of the related
Mortgage Loan. With respect to [ ] Mortgage Loans, or approximately [ ]% of
the Cut-Off Date Pool Balance, which impose Yield Maintenance Charges, such
Mortgage Loans provide for the calculation of the Yield Maintenance Charge
using a discount rate equal to the Discount Rate. See"--Additional Mortgage
Loan Information" in this Prospectus Supplement. Prepayment Premiums and Yield
Maintenance Charges, if and to the extent collected, will be distributed to
the holders of the Offered Certificates as described in this Prospectus
Supplement under "DESCRIPTION OF THE CERTIFICATES--Distributions--Allocation
of Prepayment Premiums and Yield Maintenance Charges." The Depositor makes no
representation as to the enforceability of the provisions of any Mortgage Note
requiring the payment of a Prepayment Premium or Yield Maintenance Charge, or
of the collectability of any Prepayment Premium or Yield Maintenance Charge.
Certain state laws limit the amounts that a lender may collect from a
borrower as an additional charge in connection with the prepayment of a
mortgage loan. None of the Mortgage Loans require the payment of Prepayment
Premiums or Yield Maintenance Charges in connection with a prepayment of the
related Mortgage Loan as a result of a total casualty or condemnation.
Furthermore, the enforceability, under the laws of a number of states, of
provisions providing for payments comparable to the Prepayment Premiums and/or
Yield Maintenance Charges upon an involuntary prepayment is unclear. No
assurance can be given that, at the time a Prepayment Premium or a Yield
Maintenance Charge is required to be made on a Mortgage Loan in connection
with an involuntary prepayment, the obligation to pay such Prepayment Premium
or Yield Maintenance Charge will be enforceable under applicable state law.
[ ] of the Mortgage Loans, or approximately [ ]% of the Cut-Off Date Pool
Balance, provide that, in general, under certain conditions, the related
borrower will have the right, after two years following the Closing Date, to
substitute a pledge of "Defeasance Collateral" in exchange for a release of
the related Mortgaged Property from the lien of the related Mortgage without
the prepayment of the Mortgage Loan or the payment of the applicable Yield
Maintenance Charge or Prepayment Premium. Mortgage Loans secured by more than
one Mortgaged Property which provide for partial defeasance generally require
that (i) prior to the release of a related Mortgaged Property, a specified
percentage (generally 125%) of the allocated loan amount for such Mortgaged
Property be defeased and (ii) that certain DSCR and LTV tests (if applicable)
be satisfied with respect to the remaining Mortgaged Properties after the
defeasance. In general, "Defeasance Collateral" is required to consist of
direct, non-callable United States Treasury obligations that provide for
payments prior, but as close as possible, to all successive Due Dates and the
scheduled maturity date (or the Anticipated Repayment Date in the case of the
ARD Loans), with each such payment being equal to or greater than (with any
excess to be returned to the borrower), the Periodic Payment due on such date
or (i) in the case of a Balloon Loan on the scheduled maturity date, the
Balloon Payment, or (ii) in the case of an ARD Loan, the principal balance on
its Anticipated Repayment Date. The Pooling and Servicing Agreement requires
the Master Servicer or the Special Servicer to require each borrower that
proposes to prepay its Mortgage Loan to pledge Defeasance Collateral in lieu
of making a prepayment, to the extent provided for in the related Mortgage
Note, but in each case subject to certain conditions, including that the
defeasance would not have an adverse effect on the REMIC status of any of the
REMICs (accordingly, no defeasance would be required or permitted prior to the
second anniversary of the Closing Date). The cash amount a borrower must
expend to purchase, or deliver to the Master Servicer in order for the Master
Servicer to purchase, such United States Treasury obligations may be in excess
of the principal balance of the related Mortgage Loan. There can be no
assurances that a court would not interpret such portion of the cash amount
that exceeds the principal balance as a form of prepayment consideration and
would not take it into account for usury purposes. In some states some forms
of prepayment consideration are unenforceable.
Neither the Master Servicer nor the Special Servicer is 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 or Yield Maintenance Charge except under the circumstances described
in "SERVICING OF THE MORTGAGE LOANS--Modifications, Waivers and Amendments" in
this Prospectus Supplement.
Other Financing. With limited exceptions, all of the Mortgage Loans
prohibit the related borrower from encumbering the Mortgaged Property with
additional secured debt without the lender's prior consent. With respect to [
] Mortgage Loans (control numbers [ ] and [ ]), or approximately [ ]% of the
Cut-Off Date Pool Balance, the Mortgaged Properties remain encumbered by
existing subordinate debt, subject to the terms of a subordination and
standstill agreement entered in favor of the lender. With respect to [ ]
Mortgage Loans (control numbers [ ], [ ] and [ ]), or approximately [ ]% of
the Cut-Off Date Pool Balance, the related Mortgage Loan documents provide
that the borrower may, under certain specified circumstances, encumber the
related Mortgaged Property with a subordinate mortgage in the future. See
"--`Due-On-Sale' and `Due-On-Encumbrance' Provisions" below.
With respect to [ ] Mortgage Loans (control numbers[ ] and [ ]), or
approximately [ ]% of the Cut-Off Date Pool Balance, the owners of the related
borrowers have pledged their limited partnership interest or other ownership
interests in the borrower as security for mezzanine debt that was in existence
as of the date of origination of the related Mortgage Loan. See "RISK
FACTORS--Some Mortgaged Properties May Be Encumbered by Subordinated Debt
Which May Delay Foreclosure" in this Prospectus Supplement.
Nonrecourse Obligations. Other than [ ] mortgage loan (control number [
]) or approximately [ ]% of the Cut-Off Date Pool Balance, the Mortgage Loans
are generally nonrecourse 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 where recourse to a borrower or guarantor is purportedly permitted, 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 nonrecourse.
"Due-On-Sale" and "Due-On-Encumbrance" Provisions. Substantially all 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 prohibit the borrower from doing
so without the consent of the holder of the Mortgage. However, certain of the
Mortgage Loans permit one or more transfers of the related Mortgaged Property
to pre-approved borrowers or pursuant to pre-approved conditions without
Lender approval. As provided in, and subject to, the Pooling and Servicing
Agreement, the Special Servicer, with respect to Specially Serviced Mortgage
Loans, and the Master Servicer, with respect to all other Mortgage Loans and
with the consent of the Special Servicer, on behalf of the Trust Fund, will
determine, in a manner consistent with the servicing standard described in
this Prospectus Supplement under "SERVICING OF THE MORTGAGE LOANS--General,"
whether to exercise any right the holder of any Mortgage 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. Cross-Default and Cross-Collateralization of Certain
Mortgage Loans. [ ] ([ ]) groups of Mortgage Loans, or approximately [ ]% of
the Cut-Off Date Pool Balance (control numbers [ ] and [ ]; control numbers [
] and [ ]; control numbers [ ] and [ ]; and control numbers [ ] and [ ]), are
cross-collateralized and cross-defaulted with one or more Mortgage Loans in
the Mortgage Pool as indicated in Annex A. No Mortgage Loans are
cross-collateralized or cross-defaulted with any loans that are not included
in the Mortgage Pool. The Master Servicer or the Special Servicer, as the case
may be, will determine whether to enforce the cross-default and
cross-collateralization rights upon a mortgage loan default with respect to
any of these Mortgage Loans. The Certificateholders will not have any right to
participate in or control any such determination. No other Mortgage Loans are
subject to cross-collateralization or cross-default provisions.
Assessments of Property Condition
Property Inspections. All of the Mortgaged Properties were inspected by
or on behalf of the applicable Mortgage Loan Seller in connection with the
origination or acquisition of the related Mortgage Loans to assess their
general condition. No inspection revealed any patent structural deficiency or
any deferred maintenance considered material and adverse to the interests of
the holders of the Offered Certificates and for which adequate reserves have
not been established.
Appraisals. All of the Mortgaged Properties were appraised by a
state-certified appraiser or an appraiser belonging to the Appraisal Institute
in accordance with the Federal Institutions Reform, Recovery and Enforcement
Act of 1989. The primary purpose of each appraisal was to provide an opinion
of the market value of the related Mortgaged Property. There can be no
assurance that another appraiser would have arrived at the same opinion of
market value.
Environmental Assessments. A "Phase I" environmental site assessment was
performed by independent environmental consultants with respect to all the
Mortgaged Properties in connection with the origination of the related
Mortgage Loans. "Phase I" environmental site assessments generally do not
include environmental testing. In certain cases, environmental testing,
including in some cases a "Phase II" environmental site assessment as
recommended by such "Phase I" assessment, was performed. Generally, in each
case where environmental assessments recommended corrective action, the
originator determined that the necessary corrective action had been undertaken
in a satisfactory manner, was being undertaken in a satisfactory manner or
that such corrective action would be adequately addressed post-closing. In
some instances, the originator required that reserves be established to cover
the estimated cost of such remediation or an environmental insurance policy
was obtained from a third party.
Engineering Assessments. In connection with the origination of [ ] of the
Mortgage Loans, or approximately [ ] % of the Cut-Off Date Pool Balance, a
licensed engineer or architect inspected the related Mortgaged Property to
assess the condition of the structure, exterior walls, roofing, interior
structure and mechanical and electrical systems. No engineering inspections
were made with respect to the remaining [ ] Mortgage Loans, or approximately [
]% of the Cut-Off Date Pool Balance, which were determined by the applicable
Mortgage Loan Seller to be "new construction" or a "substantially
rehabilitated property" pursuant to its underwriting guidelines. The resulting
reports indicated deferred maintenance items and/or recommended capital
improvements on certain of the Mortgaged Properties. Generally, with respect
to a majority of Mortgaged Properties, the related borrowers were required to
deposit with the lender an amount equal to at least [ ]% of the licensed
engineer's estimated cost of the recommended repairs, corrections or
replacements to assure their completion.
Earthquake Analyses. An architectural and engineering consultant
performed an analysis on the [ ] Mortgaged Properties, or approximately [ ]%
of the Cut-Off Date Pool Balance, located in a seismic zone 3 or 4 as
determined by the United States Geological Survey in order to evaluate the
structural and seismic condition of the property and to assess, based
primarily on statistical information, the maximum probable loss for the
property in an earthquake scenario. The resulting reports concluded that in
the event of an earthquake, three of the Mortgaged Properties, securing
Mortgage Loans which represent approximately [ ]% of the Cut-Off Date Pool
Balance, are likely to suffer a probable maximum loss in excess of 20% of the
amount of the estimated replacement cost of the improvements located on the
related Mortgaged Property. None of the [ ] Mortgaged Properties described
above are covered by earthquake insurance.
Credit Lease Loans
[ ] of the Mortgage Loans, or approximately [ ]% of the Cut-Off Date Pool
Balance (the "Credit Lease Loans"), are secured by Mortgages on Mortgaged
Properties that are, in each case, subject to a lease (a "Credit Lease") to a
tenant (each a "Tenant" and, collectively, the "Tenants") which possesses (or
the parent of which or other affiliate of which guarantees the Credit Lease
obligation possesses) the rating indicated in the Credit Lease Table below.
Scheduled monthly rent payments (the "Monthly Rental Payments") under the
Credit Leases are generally determined in underwriting to be sufficient to pay
in full and on a timely basis all interest and principal scheduled to be paid
with respect to the related Credit Lease Loans.
The Credit Leases generally provide that the Tenant is responsible for
all costs and expenses incurred in connection with the maintenance and
operation of the related Mortgaged Property. In the event of a casualty or
condemnation of a material portion of the related Mortgaged Property, except
with respect to [ ] Credit Lease Loan, or approximately [ ]% of the Cut-Off
Date Pool Balance, the Credit Lease provides that the Tenant is obligated to
continue making payments, and/or the Tenant must make an offer to purchase the
applicable Mortgaged Property for an amount not less than the unpaid principal
balance plus accrued interest on the related Credit Lease Loan.
The payment of interest and principal on Credit Lease Loans is dependent
principally on the payment by each Tenant or guarantor of the Tenant's Credit
Lease (the "Guarantor"), if any, of Monthly Rental Payments and other payments
due under the terms of its Credit Lease. Each Credit Lease has a primary lease
term (the "Primary Term") that expires on or after the scheduled final
maturity date of the related Credit Lease Loan. The Credit Lease Loans are
scheduled to be fully repaid from (i) Monthly Rental Payments made over the
Primary Term of the related Credit Lease or (ii) with respect to Credit Lease
Loans which are Balloon Loans, Monthly Rental Payments and the related Tenant
Balloon Payments (which Balloon Payments (except for [ ] Credit Lease Loan, or
approximately [ ]% of the Cut-Off Date Pool Balance), are guaranteed by a
Residual Value Insurance Policy). Certain of the Credit Leases give the Tenant
the right to extend the term of the Credit Lease by one or more renewal
periods after the end of the Primary Term.
The amount of the Monthly Rental Payments payable by each Tenant is equal
to or greater than the scheduled payment of all principal, interest and other
amounts due each month on the related Credit Lease Loan.
All of the Credit Lease Loans are Balloon Loans which require the related
Tenant to make a rent payment corresponding to the Tenant Balloon Payment. [ ]
of the Credit Lease Loans or approximately [ ]% of the Cut-Off Date Pool
Balance, which are Balloon Loans are insured to the extent of the related
Balloon Payment through a Residual Value Insurance Policy. Pursuant to the
terms of such policies, if a default occurs under such Credit Lease Loans and
no recovery is available from the related Mortgagor, the Tenant or any
Guarantor, the Special Servicer will be entitled to recover in full the amount
of the Balloon Payment due under such Credit Lease Loan after the maturity
date for such Credit Lease Loan.
Set forth in the table below (the "Credit Lease Loan Table") for each
Credit Lease Loan, is the name of the Tenant, the Cut-Off Date Balance of the
related Credit Lease Loan, the Guarantor, if any, the rating of the Tenant or
Guarantor and the Credit Lease type.
<PAGE>
Credit Lease Loan Table
<TABLE>
<CAPTION>
[ ]
Control Cut-Off Rating Lease Type
Number Property Type Guarantor/Tenant Property Type Date Balance (1) Code (2)
------- ------------- ---------------- ------------- ------------ ------ -----------
<S> <C> <C>
$
Total $
=
</TABLE>
- ----------------
(7) Unless otherwise indicated, such ratings were the highest assigned to the
applicable Tenant or Guarantor, as applicable, by [ ].
(8) "NNN" means triple net lease; "B" means bond type lease.
Generally, each Credit Lease provides that the related Tenant is
responsible for all real property taxes and assessments levied or assessed
against the related Mortgaged Property, all charges for utility services,
insurance and other operating expenses incurred in connection with the
operation of the related Mortgaged Property.
Generally, each Credit Lease Loan provides that if the Tenant defaults
beyond applicable notice and grace periods in the performance of any covenant
or agreement in such Credit Lease (a "Credit Lease Default"), then the holder
of the related Mortgage may require the related Mortgagor either (i) to
terminate such Credit Lease or (ii) refrain from the exercise of any of its
rights thereunder. A Credit Lease Default will constitute a default under the
related Credit Lease Loan, although in certain cases the Mortgagor may possess
certain cure rights.
In addition, most of the Credit Leases permit the Tenant, at its own
expense, and generally with the consent of the Mortgagor, to make alterations
or improvements on the related Mortgaged Property as the Tenant may deem
necessary or desirable. Such actions, if undertaken by the Tenant, will not
affect the Tenant's obligations under the Credit Lease.
Lease termination rights and rent abatement rights, if any, provide that
Tenants in the Credit Leases may be divided into three categories: (i)
termination and abatement rights directly arising from certain casualty
occurrences or condemnations ("Casualty or Condemnation Rights"), (ii)
termination and abatement rights arising from a Mortgagor's default relating
to its obligations under a Credit Lease to perform required maintenance,
repairs or replacements with respect to the related Mortgaged Property
("Maintenance Rights") and (iii) termination and abatement rights arising from
a Mortgagor's default in the performance of various other obligations under
the Credit Lease, including remediating environmental conditions not caused by
the Tenant, enforcement of restrictive covenants affecting other property
owned by the Mortgagor in the area of the related Mortgaged Property and
complying with laws affecting such Mortgaged Property or common areas related
to such Mortgaged Property ("Additional Rights"). Certain Credit Leases
("Bond-Type Leases") provide neither Casualty or Condemnation Rights,
Maintenance Rights nor Additional Rights and the Tenants thereunder are
required, at their expense, to maintain their related Mortgaged Property in
good order and repair. Other Credit Leases provide Casualty or Condemnation
Rights and may provide Additional Rights ("Triple Net Leases"). The Tenants
under Triple Net Leases are required, at their expense, to maintain their
Mortgaged Properties, including the roof and structure, in good order and
repair. If the Mortgagor defaults in the performance of certain obligations
under a Triple Net Lease and the Tenant exercises its Additional Rights or
Maintenance Rights, there could be a disruption in the stream of Monthly
Rental Payments available to pay principal and interest to the Credit Lease
Loans. Generally, Additional Rights and Maintenance Rights are mitigated by
repair and maintenance reserves, debt service coverage ratios in excess of
1.0x and, prior to the disbursement of such Mortgage Loan, receiving Tenant
estoppel certificates (i.e., Tenant certificates confirming the non-existence
of landlord default).
Credit Leases with respect to [ ] of the Mortgage Loans, or approximately
[ ]% of the Cut-Off Date Pool Balance, are Bond-Type Leases, and the Credit
Lease with respect to [ ] Mortgage Loan, or approximately [ ]% of the Cut-Off
Date Pool Balance, is a Triple Net Lease.
At the end of the term of the Credit Leases, Tenants are generally
obligated to surrender the related Mortgaged Properties in good order and in
its original condition received by the Tenant, except for ordinary wear and
tear and repairs required to be performed by the Mortgagor.
Pursuant to the terms of each assignment of a Credit Lease (the "Credit
Lease Assignment"), the related Mortgagor has assigned to the Mortgagee of the
related Credit Lease Loan, as security for such Mortgagor's obligations
thereunder, such Mortgagor's rights under the Credit Leases and its rights to
all income and profits to be derived from the operation and leasing of the
related Mortgaged Property including, but not limited to, an assignment of any
guarantee of the Tenant's obligations under the Credit Lease and an assignment
of the right to receive all Monthly Rental Payments due under the Credit
Leases. Pursuant to the terms of the Credit Lease Assignments, each Tenant is
obligated under its Credit Lease to make all Monthly Rental Payments directly
to the owner of the related Credit Lease Loan. Repayment of the Credit Lease
Loans and other obligations of the Mortgagors are expected to be funded from
such Monthly Rental Payments and Tenant Balloon Payments. Notwithstanding the
foregoing, the Mortgagors remain liable for all obligations under the Credit
Lease Loans (subject to the non-recourse provisions thereof).
The Mortgage Loans which are Credit Lease Loans are indicated on Annex
A-1 to this Prospectus Supplement.
Section 42 Low Income Housing Tax Credits
[ ] of the Mortgaged Properties, representing approximately [ ]% of the
Cut-Off Date Pool Balance, entitle their owners to receive low-income housing
tax credits ("Tax Credits") pursuant to Section 42 of the Internal Revenue
Code of 1986 as amended (the "Code"). Section 42 of the Code provides a Tax
Credit for owners of residential rental property meeting the definition of
low-income housing who have received a tax credit allocation from the state or
local allocating agency.
At the time the project is "placed in service," the property owner must
make an irrevocable election of one of two set-aside rules, either (i) at
least 20% of the units must be rented to tenants with incomes of 50% or less
of the median income, or (ii) at least 40% of the units must be rented to
tenants with incomes of 60% or less of the median income. The aggregate amount
of Tax Credits the owner is entitled to is based upon the percentage of total
units made available to qualified tenants. Median income is determined by the
U.S. Department of Housing and Urban Development ("HUD") for each metropolitan
area or county in the United States and is adjusted annually.
The Tax Credit provisions require that gross rent for each low-income
unit not exceed 30% of the annual HUD median income, adjusted for household
size based on the number of bedrooms in the particular unit. The gross rent
charged for a unit must take into account an allowance for utilities. If
utilities are paid by the tenant, then the maximum allowable Tax Credit rent
is reduced according to utility allowances, as provided in regulations of the
Internal Revenue Service.
Under the Tax Credit provisions, a property owner must comply with the
tenant income restrictions and rental restrictions over a minimum of a 15-year
compliance period. In addition, agreements governing the property may require
an "extended use period" which has the effect of extending the income and
rental restrictions for an additional period.
In the event a Tax Credit project does not maintain compliance with the
Tax Credit restrictions on tenant income or rental rates or otherwise satisfy
the Tax Credit provisions of the Code, the owners of the related Mortgaged
Property may suffer a reduction in the amount of available Tax Credits and/or
face the recapture of all or part of the Tax Credits related to the period of
the noncompliance and face the partial recapture of previously taken Tax
Credits. The loss of Tax Credits, and the possibility of recapture of Tax
Credits already taken, may provide significant incentive for project owners to
keep the related Mortgaged Property project in compliance and to fund property
operating deficits.
Additional Mortgage Loan Information
The Mortgage Pool. For a detailed presentation of certain of the
characteristics of the Mortgage Loans and the Mortgaged Properties, on an
individual basis, see Annexes A-1, A-2, A-3, A-4 and A-5 to this Prospectus
Supplement. Certain additional information regarding the Mortgage Loans is
contained in this Prospectus Supplement under "--Assignment of the Mortgage
Loans; Repurchases and Substitutions" and "--Representations and Warranties;
Repurchases and Substitutions," and in the Prospectus under "DESCRIPTION OF
THE TRUST FUNDS" and "CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS AND LEASES."
In the schedule and tables set forth in Annexes A-1, A-2, A-3, A-4 and
A-5 to this Prospectus Supplement, cross collateralized Mortgage Loans are not
grouped together; instead, references are made under the heading "Cross
Collateralized Group" with respect to the other Mortgage Loans with which they
are cross collateralized.
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 the tables and Annexes A-1, A-2, A-3, A-4 and A-5:
(i) References to "DSC Ratio" and "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 average cost of non-capital expenses of operation, tenant
improvements, leasing commissions and replacement reserves during the
term of the Mortgage Loan) 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. The DSC Ratio for
any Mortgage Loan is the ratio of "Net Cash Flow" produced by the related
Mortgaged Property to the annualized amount of debt service that will be
payable under that Mortgage Loan commencing after the origination date.
The Net Cash Flow for a Mortgaged Property is the "net cash flow" of such
Mortgaged Property as set forth in, or determined by the Mortgage Loan
Sellers on the basis of, Mortgaged Property operating statements,
generally unaudited, and certified rent rolls (as applicable) supplied by
the related borrower in the case of multifamily, mixed use, retail,
mobile home community, industrial, self-storage and office properties
(each a "Rental Property"). In general, the Mortgage Loan Sellers relied
on either full-year operating statements, rolling 12-month operating
statements and/or applicable year-to-date financial statements, if
available, and on rent rolls for all Rental Properties that were current
as of a date not earlier than six months prior to the respective date of
origination in determining Net Cash Flow for the Mortgaged Properties.
References to "Cut-Off Date DSC Ratio" and "Cut-Off Date DSCR" are
references to the DSC Ratio as of the Cut-Off Date.
In general, "net cash flow" is the revenue derived from the use and
operation of a Mortgaged Property less operating expenses (such as
utilities, administrative expenses, repairs and maintenance, tenant
improvement costs, leasing commissions, management fees and advertising),
fixed expenses (such as insurance, real estate taxes and, if applicable,
ground lease payments) and replacement reserves and an allowance for
vacancies and credit losses. Net cash flow does not reflect interest
expenses and non-cash items such as depreciation and amortization, and
generally does not reflect capital expenditures, but does reflect
reserves for replacements and an allowance for vacancies and credit
losses.
In determining the "revenue" component of Net Cash Flow for each
Rental Property, the Mortgage Loan Sellers generally relied on the most
recent rent roll supplied and, where the actual vacancy shown thereon and
the market vacancy was less than 5.0%, assumed a 5.0% vacancy in
determining revenue from rents, except that in the case of certain
non-Multifamily Properties, space occupied by such anchor or single
tenants or other large creditworthy tenants may have been disregarded in
performing the vacancy adjustment due to the length of the related leases
or creditworthiness of such tenants, in accordance with the respective
Mortgage Loan Seller's underwriting standards. Where the actual or market
vacancy was not less than 5.0%, the Mortgage Loan Sellers determined
revenue from rents by generally relying on the most recent rent roll
supplied and the greater of (a) actual historical vacancy at the related
Mortgaged Property, (b) historical vacancy at comparable properties in
the same market as the related Mortgaged Property, and (c) 5.0%. In
determining rental revenue for multifamily, self storage and mobile home
park properties, the Mortgage Loan Sellers generally either reviewed
rental revenue shown on the certified rolling 12-month operating
statements or annualized the rental revenue and reimbursement of expenses
shown on rent rolls or operating statements with respect to the prior one
to twelve month periods. For the other Rental Properties, the Mortgage
Loan Sellers generally annualized rental revenue shown on the most recent
certified rent roll (as applicable), after applying the vacancy factor,
without further regard to the terms (including expiration dates) of the
leases shown thereon. In the case of hospitality properties, other than
hospitality properties securing Credit Lease Loans, gross receipts were
generally determined based upon the average occupancy not to exceed 75.0%
and daily rates achieved during the prior two to three year annual
reporting period. In the case of residential health care facilities,
receipts were based on historical occupancy levels, historical operating
revenues and the then current occupancy rates. Occupancy rates for the
private health care facilities were generally within the then current
market ranges, and vacancy levels were generally a minimum of 5.0%. In
general, any non-recurring items and non-property related revenue were
eliminated from the calculation except in the case of residential health
care facilities.
In determining the "expense" component of Net Cash Flow for each
Mortgaged Property, the Mortgage Loan Sellers generally relied on rolling
12-month operating statements and/or full-year or year-to-date financial
statements supplied by the related borrower, except that (a) if tax or
insurance expense information more current than that reflected in the
financial statements was available, the newer information was used, (b)
property management fees were generally assumed to be 3.0% to 7.0% of
effective gross revenue (except with respect to full service hospitality
properties, where a minimum of 3.5% of gross receipts was assumed, and
with respect to limited service hospitality properties, where a minimum
of 4.0% of gross receipts was assumed and, with respect to single tenant
properties, where fees as low as 3.0% of effective gross receipts were
assumed), (c) assumptions were made with respect to reserves for leasing
commissions, tenant improvement expenses and capital expenditures and (d)
expenses were assumed to include annual replacement reserves. See
"--Underwriting Standards--Escrow Requirements--Replacement Reserves" in
this Prospectus Supplement. In addition, in some instances, the Mortgage
Loan Sellers recharacterized as capital expenditures those items reported
by borrowers as operating expenses (thus increasing "net cash flow")
where the Mortgage Loan Sellers determined appropriate.
The borrowers' financial information used to determine Net Cash Flow
was in most cases borrower certified, but unaudited, and neither the
Mortgage Loan Sellers nor the Depositor verified their accuracy.
(ii) References to "Cut-Off Date LTV" and "Cut-Off Date LTV Ratio"
are references to the ratio, expressed as a percentage, of the Cut-Off
Date Balance of a Mortgage Loan to the appraised value of the related
Mortgaged Property as shown on the most recent third-party appraisal
thereof available to the Mortgage Loan Sellers.
(iii)References to "Maturity Date LTV Ratio" and "LTV at ARD or
Maturity" are references to the ratio, expressed as a percentage, of the
expected balance of a Balloon Loan on its scheduled maturity date (or ARD
Loan on its Anticipated Repayment Date) (prior to the payment of any
Balloon Payment or principal prepayments) to the appraised value of the
related Mortgaged Property as shown on the most recent third-party
appraisal thereof available to the Mortgage Loan Sellers prior to the
Cut-Off Date.
(iv) References to "Loan per Sq Ft, Unit, Bed, Pad or Room" are, for
each Mortgage Loan secured by a lien on a multifamily property (including
a mobile home community), hospitality property or healthcare facility,
respectively, references to the Cut-Off Date Balance of such Mortgage
Loan divided by the number of dwelling units, pads, guest rooms or beds,
respectively that the related Mortgaged Property comprises, and, for each
Mortgage Loan secured by a lien on a retail, industrial/warehouse, self
storage or office property, references to the Cut-Off Date Balance of
such Mortgage Loan divided by the net rentable square foot area of the
related Mortgaged Property.
(v) References to "Year Built" are references to the year that a
Mortgaged Property was originally constructed or substantially renovated.
With respect to any Mortgaged Property which was constructed in phases,
the "Year Built" refers to the year that the first phase was originally
constructed.
(vi) References to "weighted averages" are references to averages
weighted on the basis of the Cut-Off Date Balances of the related
Mortgage Loans.
(vii)References to "Underwritten Replacement Reserves" represent
estimated annual capital costs, as used by the Mortgage Loan Sellers in
determining Net Cash Flow.
(viii) References to "Administrative Cost Rate" for each Mortgage
Loan represent the sum of (a) the Master Servicing Fee Rate for such
Mortgage Loan, (b) [ ]%, which percentage represents the trustee fee rate
with respect to each Mortgage Loan and (c) with respect to the
Semi-Annual Loans (control numbers [ ] and [ ]) [ ]%, which percentage
represents costs of the Depositor to provide for the advance of monthly
interest on such Semi-Annual Loans (the "Swap Fee").
(ix) References to "Remaining Term to Maturity" represent, with
respect to each Mortgage Loan, the number of months remaining from the
Cut-Off Date to the stated maturity date of such Mortgage Loan (or the
remaining number of months to the Anticipated Repayment Date with respect
to each ARD Loan).
(x) References to "Remaining Amortization Term" represent, with
respect to each Mortgage Loan, the number of months remaining from the
Cut-Off Date to the month in which such Mortgage Loan would fully
amortize in accordance with such loan's amortization schedule without
regard to any Balloon Payment or any interest-only period, if any, due on
such Mortgage Loan.
(xi) References to "L ( )" or "Lockout" or "Lockout Period"
represent, with respect to each Mortgage Loan, the period during which
prepayments of principal are prohibited and no substitution of Defeasance
Collateral is permitted. The number indicated in the parentheses
indicates the duration in years of such period. References to "X ( )"
represent the percentage of Prepayment Premium percentages and the
duration such Prepayment Premium is assessed. References to "O ( )"
represent the period for which no (A) Prepayment Premium or Yield
Maintenance Charge is assessed or (B) defeasance can be required.
References to "YMx% ( )" represent the period for which the Prepayment
Premium for such Mortgage Loan is equal to the greater of the Yield
Maintenance Charge for such Mortgage Loan and x% of such Mortgage Loan's
outstanding principal balance. References to "YM ( )" represent the
period for which the Yield Maintenance Charge is assessed. The periods,
if any, between consecutive Due Dates occurring prior to the maturity
date or Anticipated Repayment Date, as applicable, of a Mortgage Loan
during which the related borrower will have the right to prepay such
Mortgage Loan without being required to pay a Prepayment Premium or a
Yield Maintenance Charge (each such period, an "Open Period") with
respect to all of the Mortgage Loans have been calculated as those Open
Periods occurring immediately prior to the maturity date or Anticipated
Repayment Date, as applicable, of such Mortgage Loan as set forth in the
related Mortgage Loan documents.
(xii)References to "D" or "Defeasance" represent, with respect to
each Mortgage Loan, the right of the related holder of the Mortgage to
require the related borrower, in lieu of a prepayment premium, to pledge
to such holder Defeasance Collateral.
(xiii) References to "Occupancy Percentage" are, with respect to any
Mortgaged Property, references as of the most recently available rent
rolls to (a) in the case of multifamily properties, mobile home
communities and assisted living/congregate care facilities, the
percentage of units rented, (b) in the case of office and retail
properties, the percentage of the net rentable square footage rented, and
(c) in the case of self-storage facilities, either the percentage of the
net rentable square footage rented or the percentage of units rented
(depending on borrower reporting).
(xiv)References to "Original Term to Maturity" are references to the
term from origination to maturity for each Mortgage Loan (or the term
from origination to the Anticipated Repayment Date with respect to each
ARD Loan).
(xv) References to "NAP" indicate that with respect to a particular
category of data, that such data is not applicable.
(xvi)References to "NAV" indicate that, with respect to a particular
category of data, such data is not available.
(xvii) References to "Capital Imp. Reserve" are references to funded
reserves escrowed for repairs, replacements and corrections of issues
outlined in the engineering reports.
(xviii) References to "Replacement Reserve" are references to funded
reserves escrowed for ongoing items such as repairs and replacements,
including, in the case of hospitality properties, reserves for furniture,
fixtures and equipment. In certain cases, however, the subject reserve
will be subject to a maximum amount, and once such maximum amount is
reached, such reserve will not thereafter be funded, except, in some such
cases, to the extent it is drawn upon.
(xix)References to "TI/LC Reserve" are references to funded reserves
escrowed for tenant improvement allowances and leasing commissions. In
certain cases, however, the subject reserve will be subject to a maximum
amount, and once such maximum amount is reached, such reserve will not
thereafter be funded, except, in some such cases, to the extent it is
drawn upon.
The sum in any column of any of the following tables may not equal the
indicated total due to rounding.
The Cut-Off Date DSC Ratio and the Cut-Off Date LTV Ratio calculations
for the Mortgage Loans are exclusive of Credit Lease Loans because the Credit
Lease Loans were originated primarily on the basis of the creditworthiness of
the related Tenants or Guarantors.
<PAGE>
<TABLE>
<CAPTION>
MORTGAGED PROPERTIES BY PROPERTY TYPE FOR ALL MORTGAGE LOANS
Wtd.Avg. Wtd.
% by Wtd.Avg. Wtd.Avg. Stated Avg.
Number Aggregate Cut-Off Average Highest Cut-Off LTV Remaining Cut-Off
Number of Cut-Off Date Cut-Off Cut-Off Date Ratio at Term to Date
of Properties Date Pool Date Date LTV Maturity Maturity DSC
Property Type Loans (5) Balance Balance Balance Balance Ratio (1) (2) Mos (2) Ratio (1)
- ------------- ------ ---------- --------- ------- ---------- ------- --------- -------- --------- ---------
<S> <C>
Multifamily.........
Retail - Anchored...
Hospitality.........
Office..............
Healthcare..........
Retail - Unanchored.
Credit Lease Loans(4)
Industrial..........
Mixed Use...........
Mobil Home
Community..........
Self Storage........
Total/Weighted
Average............
</TABLE>
Minimum Maximum
Cut-Off Cut-Off
Date Date Wtd.Avg. Wtd. Avg.
DSC DSC Occupancy Mortgage
Ration (1) Ratio (1) Rate (3) Rate
---------- --------- --------- ---------
Multifamily.........
Retail - Anchored...
Hospitality.........
Office..............
Healthcare..........
Retail - Unanchored.
Credit Lease Loans(4)
Industrial..........
Mixed Use...........
Mobil Home
Community..........
Self Storage........
Total/Weighted
Average............
(9) The Cut-Off Date DSC Ratio and Cut-Off Date LTV Ratio information shown
above do not reflect the [ ] Credit Lease Loans, or approximately [ ]% of
the Cut-Off Date Pool Balance, which typically at origination have debt
service coverage ratios below 1.05x and loan-to-value ratios in excess of
90%.
(10) Calculated with respect to the Anticipated Repayment Date for ARD Loans.
(11) Occupancy Rates were calculated without reference to hospitality
properties.
(12) Including [ ] Mortgage Loans, or approximately [ ]% of the Cut-Off Date
Pool Balance, secured by hospitality properties and [ ] Mortgage Loan, or
approximately [ ]% of the Cut-Off Date Pool Balance, secured by a retail
property.
(13) Because this table is presented at the Mortgaged Property level, weighted
averages are based on allocated loan amounts (allocated by either the
amount allocated in the related Mortgage or the appraised value of the
Mortgaged Property) for the Mortgage Loans secured by more than one
Mortgaged Property and may therefore deviate slightly from weighted
averages presented at the Mortgage Pool level in other tables in this
Prospectus Supplement.
<PAGE>
RANGE OF CUT-OFF DATE BALANCES FOR ALL MORTGAGE LOANS
<TABLE>
<CAPTION>
% by Wtd.Avg.
Cut-Off Average Highest Cut-Off Wtd.Avg.
Aggregate Date Cut-Off Cut-Off Date LTV Ratio
Range of Cut-Off Number of Cut-Off Date Pool Date Date LTV at Maturity
Date Balances ($) Loans Balance Balance Balance Balance Ratio (1) (2)
- ----------------- --------- ------------ ------- ------- ------- --------- -----------
<S> <C> <C>
[ ] -2,000,000............
2,000,001 - 4,000,000................
4,000,001 - 6,000,000................
6,000,001 - 8,000,000................
8,000,001 -10,000,000................
10,000,001 -15,000,000...............
15,000,001 -20,000,000...............
20,000,001 -25,000,000...............
25,000,001 -30,000,000...............
45,000,001 -50,000,000...............
Total/Weighted Average...............
</TABLE>
Wtd.Avg.
Stated
Remaining Wtd. Avg.
Term to Cut-Off Wtd. Avg.
Maturity Date DSC Mortgage
Mos (2) Ratio (1) Rate
--------- --------- ---------
[ ] -2,000,000............
2,000,001 - 4,000,000................
4,000,001 - 6,000,000................
6,000,001 - 8,000,000................
8,000,001 -10,000,000................
10,000,001 -15,000,000...............
15,000,001 -20,000,000...............
20,000,001 -25,000,000...............
25,000,001 -30,000,000...............
45,000,001 -50,000,000...............
Total/Weighted Average...............
The average Cut-Off Date Balance for all Mortgage Loans is $[ ].
________________
(1) The Cut-Off Date DSC Ratio and Cut-Off Date LTV Ratio information shown
above do not reflect the [ ] Credit Lease Loans, or approximately [ ]%
of the Cut-Off Date Pool Balance, which typically at origination have
debt service coverage ratios below 1.05x and loan-to-value ratios in
excess of 90%.
(2) Calculated with respect to the Anticipated Repayment Date for the ARD
Loans.
<PAGE>
MORTGAGED PROPERTIES BY STATE FOR
ALL MORTGAGE LOANS
<TABLE>
<CAPTION>
% by Wtd.Avg.
Cut-Off Average Highest Cut-Off Wtd.Avg.
Number of Aggregate Date Cut-Off Cut-Off Date LTV Ratio
Mortgaged Cut-Off Date Pool Date Date LTV at Maturity
State Properties(3) Balance Balance Balance Balance Ratio (1) (2)
- ----- ------------- ----------- ------- ------- ------- --------- -----------
<S> <C>
</TABLE>
Wtd.Avg.
Stated
Remaining Wtd. Avg.
Term to Cut-Off Wtd. Avg.
Maturity Date DSC Mortgage
Mos (2) Ratio (1) Rate
-------- ---------- ---------
Total/Weighted Average...............
- ------------------------
(1) The Cut-Off Date DSC Ratio and Cut-Off Date LTV Ratio information shown
above do not reflect the [ ] Credit Lease Loans, or approximately [ ]%
of the Cut-Off Date Pool Balance, which typically at origination have
debt service coverage ratios below 1.05x and loan-to-value ratios in
excess of 90%.
(2) Calculated with respect to the Anticipated Repayment Date for ARD Loans.
(3) Because this table is presented at the Mortgaged Property Level,
weighted averages are based on allocated loan amounts (allocated by
either the amount allocated in the related Mortgage or the appraised
value of the Mortgaged Property) for the Mortgage Loans secured by more
than one Mortgaged Property and may therefore deviate slightly from
weighted averages presented at the mortgage pool level in other tables
in this Prospectus Supplement.
<PAGE>
RANGE OF DSC RATIOS
FOR ALL MORTGAGE LOANS OTHER THAN CREDIT LEASE LOANS
AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Wtd.Avg. Wtd.Avg.
Range of % by Cut-Off Wtd.Avg. Stated Wtd. Avg.
Cut-Off Date Aggregate Cut-Off Average Highest Date LTV Ratio Remaining Cut-Off Wtd. Avg.
DSC Number of Cut-Off Date Date Pool Cut-Off Cut-Off LTV at Maturity Term to Date DSC Mortgage
Ratios(x) Loans Balance Balance Date Balance Balance Ratio (1) (2) Maturity (2) Ratio (1) Rate
- ------------ --------- ------------ --------- ------------ -------- --------- ----------- ------------ ---------- --------
<S> <C>
</TABLE>
Total/Weighted Average...............
The weighted average Cut-Off Date DSC Ratio for all Mortgage Loans other than
Credit Lease Loans is 1.35x.
- ----------------------
(1) The Cut-Off Date DSC Ratio and Cut-Off Date LTV Ratio information shown
above do not reflect the [ ] Credit Lease Loans, or approximately [ ]% of
the Cut-Off Date Pool Balance, which typically at origination have debt
service coverage ratios below 1.05x and loan-to-value ratios in excess of
90%.
(2) Calculated with respect to the Anticipated Repayment Date for the ARD
Loans.
(3) Includes [ ] Mortgage Loans that are secured by Section 42 multifamily
properties which entitle the owners to low-income housing tax credits.
<PAGE>
RANGE OF LTV RATIOS
FOR ALL MORTGAGE LOANS OTHER THAN CREDIT LEASE LOANS
AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Wtd.Avg.
Wtd.Avg. Stated
Range of % by Average Highest Cut-Off Wtd.Avg. Remaining Wtd. Avg.
Cut-Off Date Aggregate Cut-Off Cut-Off Cut-Off Date LTV Ratio Term to Cut-Off Wtd. Avg.
LTV Number of Cut-Off Date Date Pool Date Date LTV at Maturity Maturity Date DSC Mortgage
Ratios (%) Loans Balance Balance Balance Balance Ratio (1) (2) Mos (2) Ratio (1) Rate
------------ --------- ------------ -------- -------- -------- --------- ------------ ---------- ---------- ----------
<S> <C>
</TABLE>
Total/Weighted Average...............
The weighted average Cut-Off Date LTV Ratio for all the Mortgage Loans other
than Credit Lease Loans is [ ]%.
- -----------------------
(1) The Cut-Off Date DSC Ratio and Cut-Off Date LTV Ratio information shown
above do not reflect the [ ] Credit Lease Loans, or approximately [ ]% of
the Cut-Off Date Pool Balance, which typically at origination have debt
service coverage ratios below 1.05x and loan-to-value ratios in excess of
90%.
(2) Calculated with respect to the Anticipated Repayment Date for the ARD
Loans.
(3) The Mortgage Loan with the highest Cut-Off Date LTV Ratio is secured by a
Section 42 multifamily property which entitles the owner to low-income
housing tax credits.
<PAGE>
RANGE OF LTV RATIOS
FOR ALL MORTGAGE LOANS AS OF THE MATURITY DATE
<TABLE>
<CAPTION>
Wtd.Avg.
Range of % by Wtd.Avg. Stated
Maturity Cut-Off Average Highest Cut-Off Wtd.Avg. Remaining Wtd. Avg.
Date Aggregate Date Cut-Off Cut-Off Date LTV Ratio Term to Cut-Off Wtd. Avg.
LTV Number of Cut-Off Date Pool Date Date LTV at Maturity Maturity Date DSC Mortgage
Ratios (%) Loans Balance Balance Balance Balance Ratio (1) (2) Mos (2) Ratio (1) Rate
- --------- --------- ------------ --------- --------- ------- --------- ----------- ------------ ---------- --------
<S> <C>
</TABLE>
Total/Weighted Average...............
The weighted average LTV Ratio at maturity for all Mortgage Loans is [ ]%.
- -----------------------
(1) The Cut-Off Date DSC Ratio and Cut-Off Date LTV Ratio information shown
above do not reflect the [ ] Credit Lease Loans that are Balloon Loans,
comprising approximately [ ]% of the Cut-Off Date Pool Balance, which
typically at origination have debt service coverage ratios below 1.05x
and loan-to-value ratios in excess of 90%.
(2) Calculated with respect to the Anticipated Repayment Date for the ARD
Loans.
<PAGE>
RANGE OF MORTGAGE RATES
FOR ALL MORTGAGE LOANS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Wtd.Avg.
% by Wtd.Avg. Stated
Cut-Off Average Highest Cut-Off Wtd.Avg. Remaining Wtd. Avg.
Range of Aggregate Date Cut-Off Cut-Off Date LTV Ratio Term to Cut-Off Wtd. Avg.
Mortgage Number of Cut-Off Date Pool Date Date LTV at Maturity Maturity Date DSC Mortgage
Rates (%) Loans Balance Balance Balance Balance Ratio (1) (2) Mos (2) Ratio (1) Rate
- --------- --------- ------------ --------- --------- ------- --------- ----------- ------------ ---------- --------
<S> <C>
</TABLE>
Total/Weighted Average...............
The weighted average Mortgage Rate for all Mortgage Loans is [ ]%.
- -------------------
(1) The Cut-Off Date DSC Ratio and Cut-Off Date LTV Ratio information shown
above do not reflect the [ ] Credit Lease Loans, or approximately [ ]% of
the Cut-Off Date Pool Balance, which typically origination have at debt
service coverage ratios below 1.05x and loan-to-value ratios in excess of
90%.
(2) Calculated with respect to the Anticipated Repayment Date for the ARD
Loans.
<PAGE>
RANGE OF ORIGINAL TERMS TO MATURITY OR ANTICIPATED REPAYMENT DATE
FOR ALL MORTGAGE LOANS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Range of Wtd.Avg.
Remaining Terms % by Wtd.Avg. Stated
to Maturity Cut-Off Average Highest Cut-Off Wtd.Avg. Remaining Wtd. Avg.
or Anticipated Aggregate Date Cut-Off Cut-Off Date LTV Ratio Term to Cut-Off Wtd. Avg.
Repayment Date Number of Cut-Off Date Pool Date Date LTV at Maturity Maturity Date DSC Mortgage
(months) Loans Balance Balance Balance Balance Ratio (1) (2) Mos (2) Ratio (1) Rate
- ---------------- --------- ------------ --------- --------- ------- --------- ----------- ------------ ---------- --------
<S> <C>
</TABLE>
Total/Weighted Average...............
The weighted average original term to maturity for all Mortgage Loans is [ ]
months.
- ---------------------
(1) The Cut-Off Date DSC Ratio and Cut-Off Date LTV Ratio information shown
above do not reflect the [ ] Credit Lease Loans, or approximately [ ]% of
the Cut-Off Date Pool Balance, which typically at origination have debt
service coverage ratios below 1.05x and loan-to-value ratios in excess of
90%.
(2) Calculated with respect to the Anticipated Repayment Date for the ARD
Loans.
<PAGE>
RANGE OF REMAINING TERM TO MATURITY OR ANTICIPATED REPAYMENT DATE
FOR ALL MORTGAGE LOANS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Range of Wtd.Avg.
Remaining Terms % by Wtd.Avg. Stated
to Maturity Cut-Off Average Highest Cut-Off Wtd.Avg. Remaining Wtd. Avg.
or Anticipated Aggregate Date Cut-Off Cut-Off Date LTV Ratio Term to Cut-Off Wtd. Avg.
Repayment Date Number of Cut-Off Date Pool Date Date LTV at Maturity Maturity Date DSC Mortgage
(months) Loans Balance Balance Balance Balance Ratio (1) (2) Mos (2) Ratio (1) Rate
- ---------------- --------- ------------ --------- --------- ------- --------- ----------- ------------ ---------- --------
<S> <C>
</TABLE>
Total/Weighted Average...............
The weighted average remaining term to maturity for all Mortgage Loans is [ ]
months.
- -----------------
(1) The Cut-Off Date DSC Ratio and Cut-Off Date LTV Ratio information shown
above do not reflect the [ ] Credit Lease Loans, or approximately [ ]% of
the Cut-Off Date Pool Balance, which typically at origination have debt
service coverage ratios below 1.05x and loan-to-value ratios in excess of
90%.
(2) Calculated with respect to the Anticipated Repayment Date for the ARD
Loans.
<PAGE>
RANGE OF REMAINING AMORTIZATION TERMS
FOR ALL MORTGAGE LOANS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Wtd.Avg.
% by Wtd.Avg. Stated
Cut-Off Average Highest Cut-Off Wtd.Avg. Remaining Wtd. Avg.
Remaining Aggregate Date Cut-Off Cut-Off Date LTV Ratio Term to Cut-Off Wtd. Avg.
Amortization Number of Cut-Off Date Pool Date Date LTV at Maturity Maturity Date DSC Mortgage
Term (months) Loans Balance Balance Balance Balance Ratio (1) (2) Mos (2) Ratio (1) Rate
- ------------- --------- ------------ --------- --------- ------- --------- ----------- ------------ ---------- --------
<S> <C>
</TABLE>
Total/Weighted Average...............
The weighted average remaining amortization term for all Mortgage Loans is [ ]
months.
- ----------------------------
(1) The Cut-Off Date DSC Ratio and Cut-Off Date LTV Ratio information shown
above do not reflect the [ ] Credit Lease Loans, or approximately [ ]% of
the Cut-Off Date Pool Balance, which typically at origination have debt
service coverage ratios below 1.05x and loan-to-value ratios in excess of
90%.
(2) Calculated with respect to the Anticipated Repayment Date for the ARD
Loans.
<PAGE>
AMORTIZATION TYPES FOR ALL MORTGAGE LOANS
<TABLE>
<CAPTION>
Wtd.Avg.
% by Wtd.Avg. Stated
Cut-Off Average Highest Cut-Off Wtd.Avg. Remaining Wtd. Avg.
Aggregate Date Cut-Off Cut-Off Date LTV Ratio Term to Cut-Off Wtd. Avg.
Amortization Number of Cut-Off Date Pool Date Date LTV at Maturity Maturity Date DSC Mortgage
Types Loans Balance Balance Balance Balance Ratio (1) (2) Mos (2) Ratio (1) Rate
- ----------- --------- ------------ --------- --------- ------- --------- ----------- ------------ ---------- --------
<S> <C>
</TABLE>
Total/Weighted Average...............
- --------------------
(1) The Cut-Off Date DSC Ratio and Cut-Off Date LTV Ratio information shown
above do not reflect the [ ] Credit Lease Loans, or approximately [ ]% of
the Cut-Off Date Pool Balance, which typically at origination have debt
service coverage ratios below 1.05x and loan-to-value ratios in excess of
90%.
(2) Calculated with respect to the Anticipation Repayment Date for ARD Loans.
(3) Contains certain Credit Lease Loans that are subject to changes in the
amount of the monthly payment at specified times in the future. Refer to
Annex A-2 contained in this Prospectus Supplement and to the sheet named
"CTL Step Schedules" in the file "FUNB[ ]" on the diskette in the back
cover of the Prospectus Supplement.
(4) These Mortgage Loans require payments of interest only for a period of [
] to [ ] months from origination prior to the commencement of payments of
principal and interest.
<PAGE>
RANGE OF OCCUPANCY RATES FOR ALL MORTGAGE LOANS
OTHER THAN LOANS SECURED BY HOSPITALITY PROPERTIES
<TABLE>
<CAPTION>
Wtd.Avg.
% by Wtd.Avg. Stated
Cut-Off Average Highest Cut-Off Wtd.Avg. Remaining Wtd. Avg.
Range of Aggregate Date Cut-Off Cut-Off Date LTV Ratio Term to Cut-Off Wtd. Avg.
Occupancy Number of Cut-Off Date Pool Date Date LTV at Maturity Maturity Date DSC Mortgage
Rates (%)(1) Loans Balance Balance Balance Balance Ratio (1) (2) Mos (2) Ratio (1) Rate
- ------------- --------- ------------ --------- --------- ------- --------- ----------- ------------ ---------- --------
<S> <C>
</TABLE>
Total/Weighted Average...............
- --------------------
(1) Excludes [ ] hospitality properties, or approximately [ ]% of the Cut-Off
Date Pool Balance.
(2) Occupancy Rates have been calculated in this table based upon rent rolls
made available to the Mortgage Loan Sellers by the related borrowers as
of the rent roll date set forth on Annex A-1 to this Prospectus
Supplement.
(3) The Cut-Off Date DSC Ratio and Cut-Off Date LTV Ratio information shown
above do not reflect the [ ] Credit Lease Loan, or approximately [ ]% of
the Cut-Off Date Pool Balance, which typically at origination have debt
service coverage ratios below 1.05x and loan to value ratios in excess of
90%.
(4) Calculated with respect to the Anticipated Repayment Date for the ARD
Loans.
<PAGE>
PERCENTAGE OF MORTGAGE POOL BY
PREPAYMENT RESTRICTION (ASSUMING NO PREPAYMENT)
<TABLE>
<CAPTION>
Prepayment Restriction [ ] [ ] [ ] [ ] [ ] [ ] [ ]
- ---------------------- ----------- ----------- --------- ---------- ----------- --------- --------
<S> <C>
Lock-out/Defeasance...........................
Yield Maintenance/Prepayment Premium..........
Sub Total.....................................
Prepayment Premium
Total......................................
</TABLE>
<PAGE>
Ten Largest Mortgage Loans
The following table and summaries describe the ten largest Mortgage Loans
in the Mortgage Pool by Cut-Off Date Balance:
Ten Largest Mortgage Loans by Cut-Off Date Balance
<TABLE>
<CAPTION>
Percentage
of LTV
Cut-Off Cut-Off Cut-Off Ratio Cut-Off
No. of Date Date Pool Property Date LTV at Date DSC Mortgage
Property Name Properties Balance Balance Type Ratio Maturity Ratio Rate
- ------------- ---------- ------- --------- -------- -------- -------- --------- --------
<S> <C>
</TABLE>
[insert description of largest mortgage loans]
The Mortgage Loan Sellers
The Depositor will acquire the Mortgage Loans from the Mortgage Loan
Sellers on or prior to the Closing Date pursuant to separate mortgage loan
purchase agreements (each a "Mortgage Loan Purchase Agreement," and together,
the "Mortgage Loan Purchase Agreements"). The Mortgage Loan Sellers acquired
or originated the Mortgage Loans as described above under "--Mortgage Loan
History."
Underwriting Standards
General. Each Mortgage Loan Seller's commercial real estate finance or
commercial mortgage banking group has the authority, with the approval from
the appropriate credit committee to originate fixed-rate, first lien mortgage
loans for securitization. Each Mortgage Loan Seller's commercial real estate
finance or commercial mortgage banking operation is a vertically integrated
entity, staffed by real estate professionals. Each Mortgage Loan Seller's loan
underwriting group is an integral component of the commercial real estate
finance or commercial mortgage banking group which also includes distinct
groups responsible for loan origination and closing mortgage loans.
Upon receipt of a loan package, the respective Mortgage Loan Seller's
loan underwriters commence an extensive review of the borrower's financial
condition and creditworthiness and the real estate which will secure the loan.
Loan Analysis. Generally, each Mortgage Loan Seller performs both a
credit analysis and collateral analysis with respect to a loan applicant. The
credit analysis of the borrower includes a review of historical financial
statements, including operating statements and rent rolls (generally
unaudited), historical tax returns, third party credit reports, judgment,
lien, bankruptcy and pending litigation searches and, if applicable, the loan
payment history of the borrower. Each Mortgage Loan Seller also performs a
qualitative analysis which incorporates independent credit checks, periodical
searches, industry research and published debt and equity information with
respect to certain principals of the borrower as well as the borrower itself.
Borrowers are generally required to be single-purpose entities although they
are generally not required to be bankruptcy-remote entities. The collateral
analysis includes an analysis of the historical property operating statements,
rent rolls and a projection of future performance and a review of tenant
leases. A member of the loan underwriting team also conducts a site inspection
or causes such inspection to be performed to confirm the occupancy rate of the
mortgaged property, analyzes the market and assesses the utility of the
mortgaged property within the market. Each Mortgage Loan Seller requires third
party appraisals, as well as environmental and building condition reports.
Each report is reviewed for acceptability by a Mortgage Loan Seller staff
member for compliance with program standards and such staff member approves or
rejects such report. The results of these reviews are incorporated into the
underwriting report.
Loan Approval. Prior to commitment, all mortgage loans must be approved
by the applicable Mortgage Loan Seller's credit committee in accordance with
its credit policies. The credit committee may approve a mortgage loan as
recommended, modify the loan terms or decline a loan transaction. All mortgage
loans purchased by either Mortgage Loan Seller from non-affiliated originators
must be reviewed by the underwriting staff and credit committee to determine
if they comply with such Mortgage Loan Seller's underwriting standards.
Debt Service Coverage Ratio and LTV Ratio. Each Mortgage Loan Seller's
underwriting standards generally mandate minimum debt service coverage ratios
and maximum loan-to-value ratios for each of the indicated property types as
follows:
<TABLE>
<CAPTION>
Minimum Maximum
Property Type DSC Ratio Guidelines LTV Ratio Guidelines
------------- -------------------- --------------------
<S> <C> <C>
Multifamily.....................................
Anchored Retail.................................
Unanchored Retail...............................
Office..........................................
Industrial......................................
Hospitality.....................................
Credit Lease....................................
Self-Storage....................................
Healthcare......................................
Mixed Use.......................................
Mobile Home Park................................
Section 42 Properties...........................
</TABLE>
See Annex A for actual DSC Ratios and LTV Ratios with respect to the
Mortgage Loans.
The debt service coverage ratio guidelines listed above are calculated
based on net cash flow at the time of origination. In addition, each Mortgage
Loan Seller's underwriting guidelines generally permit a maximum amortization
period of 30 years. However, notwithstanding the foregoing guidelines, in
certain circumstances the actual debt service coverage ratios, loan-to-value
ratios and amortization periods for the mortgage loans originated by such
Mortgage Loan Seller may vary from these guidelines. See Annex A-1 to this
Prospectus Supplement.
Escrow Requirements. Except with respect to Credit Lease Loans, each
Mortgage Loan Seller requires substantially all borrowers to fund various
escrows for taxes and insurance, capital expenses and replacement reserves.
Generally, the required escrows for mortgage loans originated by each Mortgage
Loan Seller are as follows:
o Taxes--Typically an initial deposit and monthly escrow deposits equal
to 1/12th of the annual property taxes (based on the most recent
property assessment and the current mileage rate) are required to
provide the Mortgage Loan Seller with sufficient funds to satisfy all
taxes and assessments at least one month prior to their respective
due dates.
o Insurance--If the property is insured under an individual policy
(i.e., the property is not covered by a blanket policy), typically an
initial deposit and monthly escrow deposits equal to 1/12th of the
annual property insurance premium are required to provide the
Mortgage Loan Seller with sufficient funds to pay all insurance
premiums at least one month prior to their respective due dates. If
the property is covered by a blanket policy of insurance, the
Mortgage Loan Seller reserves the right in the mortgage to require a
separate insurance policy and insurance escrows.
o Replacement Reserves--Replacement reserves are calculated in
accordance with the expected useful life of the components of the
property during the term of the mortgage loan.
Notwithstanding the actual level of escrowed reserves, the following
minimum reserve level ranges (the level of which varies according to the
Mortgage Loan Seller) were generally assumed by each Mortgage Loan Seller in
determining net cash flow:
Multifamily...............................
Retail....................................
Office....................................
Industrial................................
Hospitality...............................
Self-Storage..............................
Healthcare................................
Mixed Use.................................
Mobile Home Community.....................
o Completion Repair/Environmental Remediation--Typically, a completion
repair or remediation reserve is required. An initial deposit, upon
funding of the applicable Mortgage Loan, in an amount equal to at
least 125% of the estimated costs of repairs or replacements to be
completed within the first year of the mortgage loan pursuant to the
building condition report is required.
o Re-tenanting/Debt Service Coverage--In some cases, major tenants have
lease expirations within the Mortgage Loan term. To mitigate this
risk, special reserves are required to be funded either at closing of
the Mortgage Loan and/or during the Mortgage Loan term to cover
certain anticipated leasing commissions or tenant improvement costs
which might be associated with re-leasing the space occupied by such
tenants.
Assignment of the Mortgage Loans; Repurchases and Substitutions
On the Closing Date, the Depositor will transfer the Mortgage Loans,
without recourse, to the Trustee for the benefit of the Certificateholders. In
connection with such transfer, the Depositor will require each Mortgage Loan
Seller to 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 sold by the applicable Mortgage Loan Seller
(collectively, as to each Mortgage Loan, the "Mortgage File"): (i) the
original Mortgage Note, endorsed on its face or by allonge attached thereto,
without recourse, to the order of the Trustee (or, if the original Mortgage
Note has been lost, an affidavit to such effect from the applicable Mortgage
Loan Seller or another prior holder, together with a copy of the Mortgage
Note); (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 leases and of any intervening assignments thereof (if
such item is a document separate from the Mortgage), 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 leases (if such item is a document separate from the
Mortgage) in favor of the Trustee and in recordable form; (vi) the original
assignment of all unrecorded documents relating to the Mortgage Loan; (vii)
originals or copies of all modification, consolidation, assumption and
substitution agreements in those instances in which the terms or provisions of
the Mortgage or Mortgage Note have been modified or the Mortgage Loan has been
assumed or consolidated; (viii) 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; (ix) any filed copies
(bearing evidence of filing) or other evidence of filing satisfactory to the
Trustee of any UCC financing statements, related amendments and continuation
statements in the possession of the applicable Mortgage Loan Seller and (x) an
original assignment in favor of the Trustee of any financing statement
executed and filed in favor of the applicable Mortgage Loan Seller in the
relevant jurisdiction; and (xi) the original or copy of any ground lease, any
Credit Lease, Residual Value Insurance Policy or guaranty relating to a
Mortgage Loan.
As described in the Pooling and Servicing Agreement, the Trustee or a
Custodian on its behalf is 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
applicable Mortgage Loan Seller, if it cannot deliver the document or cure the
defect (other than omissions solely due to a document not having been returned
by the related recording office) within a period of 90 days following such
Mortgage Loan Seller's receipt of notice thereof, will be obligated pursuant
to the applicable Mortgage Loan Purchase Agreement (the relevant rights under
which will be assigned by the Depositor to the Trustee) to (1) 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) the unpaid accrued interest on such Mortgage Loan
(calculated at the applicable Mortgage Rate) to but not including the Due Date
in the Collection Period in which the purchase is to occur and (iii) certain
Additional Trust Fund Expenses in respect of such Mortgage Loan, including but
not limited to, servicing expenses that are reimbursable to the Master
Servicer, the Special Servicer or the Trustee plus any interest thereon and on
any related P&I Advances or (2) substitute a Qualified Substitute Mortgage
Loan for such Mortgage Loan and pay the Trustee a shortfall amount equal to
the difference between the Purchase Price of the deleted Mortgage Loan
calculated as of the date of substitution and the Stated Principal Balance of
such Qualified Substitute Mortgage Loan as of the date of substitution (the
"Substitution Shortfall Amount"); provided that the applicable Mortgage Loan
Seller will generally have an additional 90-day period to deliver the document
or cure the defect, as the case may be, if it is diligently proceeding to
effect such delivery or cure and has delivered to the Trustee an officer's
certificate that describes the reasons that such delivery or cure was not
effected within the first 90-day cure period and the actions it proposes to
take to effect such delivery or cure, and which states that it anticipates
such delivery or cure will be effected within the additional 90-day period.
The foregoing repurchase or substitution obligation constitutes 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. Each Mortgage Loan Seller is solely responsible for such Mortgage
Loan Seller's repurchase or substitution obligation, and such obligations will
not be the responsibility of the Depositor.
The Pooling and Servicing Agreement requires the Trustee promptly to
cause each of the assignments described in clauses (iv), (v) and (x) 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 POOLING AGREEMENTS--Assignment of Mortgage
Loans; Repurchases" in the Prospectus.
A "Qualified Substitute Mortgage Loan" is a mortgage loan which must, on
the date of substitution: (i) have an outstanding Stated Principal Balance,
after application of all scheduled payments of principal and interest due
during or prior to the month of substitution, not in excess of the Stated
Principal Balance of the deleted Mortgage Loan as of the Due Date in the
calendar month during which the substitution occurs; (ii) have a Mortgage Rate
not less than the Mortgage Rate of the deleted Mortgage Loan; (iii) have the
same Due Date as the deleted Mortgage Loan; (iv) accrue interest on the same
basis as the deleted Mortgage Loan (for example, on the basis of a 360-day
year consisting of twelve 30-day months); (v) have a remaining term to stated
maturity not greater than, and not more than two years less than, the
remaining term to stated maturity of the deleted Mortgage Loan; (vi) have an
original loan-to-value ratio not higher than that of the deleted Mortgage Loan
and a current loan-to-value ratio not higher than the then-current
loan-to-value ratio of the deleted Mortgage Loan; (vii) comply as of the date
of substitution with all of the representations and warranties set forth in
the applicable Mortgage Loan Purchase Agreement; (viii) have an environmental
report with respect to the related Mortgaged Property which will be delivered
as a part of the related Mortgage File; (ix) have an original debt service
coverage ratio not less than the original debt service coverage ratio of the
deleted Mortgage Loan; (x) be determined by an Opinion of Counsel to be a
"qualified replacement mortgage" within the meaning of Section 860G(a)(4) of
the Code; (xi) not have a maturity date after the date three years prior to
the Rated Final Distribution Date; (xii) not be substituted for a deleted
Mortgage Loan unless the Trustee has received prior confirmation in writing by
each Rating Agency that such substitution will not result in the withdrawal,
downgrade, or qualification of the rating assigned by the Rating Agency to any
Class of Certificates then rated by the Rating Agency (the cost, if any, of
obtaining such confirmation to be paid by the applicable Mortgage Loan
Seller); (xiii) have a date of origination that is not more than 12 months
prior to the date of substitution; (xiv) have been approved by the Controlling
Class Representative; provided, that the Controlling Class Representative
shall cease to have the right to approve the substitution of a Qualified
Substitute Mortgage Loan for a deleted Mortgage Loan after the aggregate of
the Stated Principal Balances of all Qualified Substitute Mortgage Loans which
were previously substituted for deleted Mortgage Loans exceeds 10% of the
aggregate Stated Principal Balance of all the Mortgage Loans as of the Cut-Off
Date; provided, further, that such approval of the Controlling Class
Representative may not be unreasonably withheld, as determined by the Special
Servicer; and (xv) not be substituted for a deleted Mortgage Loan if it would
result in the termination of the REMIC status of any of the REMICs or the
imposition of tax on any of the REMICs other than a tax on income expressly
permitted or contemplated to be received by the terms of the Pooling and
Servicing Agreement. In the event that one or more mortgage loans are
substituted for one or more deleted Mortgage Loans, then the amounts described
in clause (i) shall be determined on the basis of aggregate principal balances
and the rates described in clause (ii) above and the remaining term to stated
maturity referred to in clause (v) above shall be determined on a weighted
average basis. When a Qualified Substitute Mortgage Loan is substituted for a
deleted Mortgage Loan, the applicable Mortgage Loan Seller shall certify that
such Mortgage Loan meets all of the requirements of the above definition and
shall send such certification to the Trustee.
Representations and Warranties; Repurchases and Substitutions
In each Mortgage Loan Purchase Agreement, the applicable Mortgage Loan
Seller has represented and warranted with respect to each Mortgage Loan
(subject to certain exceptions specified in the applicable Mortgage Loan
Purchase Agreement), 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 in the schedule of Mortgage Loans
attached to the applicable Mortgage Loan Purchase Agreement (which
contains certain of the information set forth in Annex A) is true and
correct in all material respects as of the Cut-Off Date;
(ii) as of the date of its origination, such Mortgage Loan complied
in all material respects with, or was exempt from, all requirements of
federal, state or local law relating to the origination of such Mortgage
Loan and such Mortgage Loan has been serviced in accordance with the
servicing performed on comparable mortgage loans originated by the
applicable Mortgage Loan Seller;
(iii)immediately prior to the sale, transfer and assignment to the
Depositor, the applicable Mortgage Loan Seller had good title to, and was
the sole owner of, each Mortgage Loan, and is transferring the Mortgage
Loan free and clear of any and all liens, pledges, charges or security
interests of any nature encumbering such Mortgage Loan;
(iv) the proceeds of such Mortgage Loan have been fully disbursed
and there is no requirement for future advances thereunder;
(v) each of the related Mortgage Note, related Mortgage, related
assignment of leases, if any, and other agreements executed in connection
with such Mortgage Loan are the legal, valid and binding obligations of
the related mortgagor (subject to any nonrecourse provisions therein and
any state anti-deficiency legislation), enforceable in accordance with
their terms, except with respect to provisions relating to default
interest, yield maintenance charges or prepayment premiums and except as
such enforcement may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting the enforcement of creditors' rights
generally, and by general principles of equity (regardless of whether
such enforcement is considered in a proceeding in equity or at law);
(vi) as of the date of its origination, there was no valid offset,
defense, counterclaim, abatement or right to rescission with respect to
any of the related Mortgage Note, Mortgage(s) or other agreements
executed in connection therewith, and, as of the Closing Date, to the
actual knowledge of the applicable Mortgage Loan Seller there was no
valid offset, defense, counterclaim or right to rescission with respect
to such Mortgage Note, Mortgage(s) or other agreements;
(vii)the assignment of the related Mortgage and assignment of leases
in favor of the Trustee constitutes the legal, valid and binding
assignment of such Mortgage and leases to the Trustee (subject to
customary limitations);
(viii) the related Mortgage is a valid and enforceable first lien on
the related Mortgaged Property except for (a) liens for current real
property taxes, ground rents, water charges, sewer rents and assessments
not yet due and payable, (b) covenants, conditions and restrictions,
rights of way, easements and other matters of public record, none of
which, individually or in the aggregate, materially interferes with the
current use of the Mortgaged Property or the security intended to be
provided by such Mortgage or with the borrower's ability to pay its
obligations when they become due or materially and adversely affects the
value of the Mortgaged Property and (c) the exceptions (general and
specific) set forth in the related title insurance policy or appearing of
record, none of which, individually or in the aggregate, materially
interferes with the current use of the Mortgaged Property or the security
intended to be provided by such Mortgage or with the borrower's ability
to pay its obligations when they become due or materially and adversely
affects the value of the Mortgaged Property;
(ix) all taxes and governmental assessments that prior to the
Closing Date became due and owing in respect of the related Mortgaged
Property have been paid, or an escrow of funds in an amount sufficient to
cover such payments has been established;
(x) to the applicable Mortgage Loan Seller's actual knowledge as of
the Closing Date, each related Mortgaged Property was free and clear of
any material damage that would affect materially and adversely the value
of such Mortgaged Property as security for the Mortgage Loan, except to
the extent, based upon engineering reports, reserves or escrows have been
established with respect thereto, and to the applicable Mortgage Loan
Seller's knowledge as of the Closing Date there was no proceeding pending
for the total or partial condemnation of such Mortgaged Property that
would affect materially and adversely the value of such Mortgaged
Property as security for the Mortgage Loan;
(xi) as of the date of its origination, all insurance coverage
required under each related Mortgage (including comprehensive general
liability and business interruption coverage for a period of twelve
months), which insurance covered such risks as were customarily
acceptable to prudent commercial and multifamily mortgage lending
institutions lending on the security of property comparable to the
related Mortgaged Property in the jurisdiction in which such Mortgaged
Property is located, and with respect to a fire and extended perils
insurance policy, was in an amount (subject to a customary deductible) at
least equal to the replacement cost of improvements located on such
Mortgaged Property, or an amount at least equal to the initial principal
balance of the Mortgage Loan in each case, without deduction for
depreciation, and was in full force and effect with respect to each
related Mortgaged Property;
(xii)as of the Cut-Off Date, the Mortgage Loan was not, and in the
prior 12 months (or since the date of origination if such Mortgage Loan
has been originated within the past 12 months), has not been, 30 days or
more past due in respect of any Scheduled Payment; and
(xiii) one or more environmental site assessments were performed by
an environmental consulting firm independent of the applicable Mortgage
Loan Seller and such Mortgage Loan Seller's affiliates with respect to
each related Mortgaged Property during the 18-month period preceding the
origination of the related Mortgage Loan, and the applicable Mortgage
Loan Seller, having made no independent inquiry other than to review the
report(s) prepared in connection with the assessment(s) referenced
herein, has no knowledge and has received no notice of any material and
adverse environmental condition or circumstance affecting such Mortgaged
Property that was not disclosed in such report(s) and either (a) no such
report reveals any known circumstances or conditions with respect to the
related Mortgaged Property that rendered such Mortgaged Property, as of
the date of such report, in material violation of applicable
environmental laws or (b) if such report reveals such circumstances or
conditions with respect to the related Mortgaged Property, then either:
(i) an environmental insurance policy was obtained from a third-party
insurer; or (ii) either (a) an operations and maintenance program,
including, in several cases, with respect to asbestos-containing
materials, lead-based paint and/or radon, or periodic monitoring of
nearby properties, has been or is expected to be implemented in the
manner and within the time frames specified in the related loan
documents, or (b) remediation in accordance with applicable law has been
performed; or (iii) an escrow or reserve was established to cover the
estimated cost of remediation, with each remediation required to be
completed within a reasonable time frame in accordance with the related
loan documents.
In the case of a breach of any of the representations and warranties in
the applicable Mortgage Loan Purchase Agreement that materially and adversely
affects the interests of the Certificateholders, the applicable Mortgage Loan
Seller, if it cannot cure such breach within a period of 90 days following its
receipt of notice thereof, is obligated pursuant to the applicable Mortgage
Loan Purchase Agreement (the relevant rights under which have been assigned by
the Depositor to the Trustee) to either substitute a Qualified Substitute
Mortgage Loan and pay any Substitution Shortfall Amount or to repurchase the
affected Mortgage Loan within such 90-day period at the applicable Purchase
Price; provided, that the applicable Mortgage Loan Seller generally has an
additional 90-day period to cure such breach if it is diligently proceeding
with such cure, and has delivered to the Trustee an officer's certificate that
describes the reasons that a cure was not effected within the first 90-day
cure period and the actions it proposes to take to effect such cure and which
states that it anticipates such cure will be effected within the additional
90-day period.
The foregoing substitution or repurchase obligation constitutes the sole
remedy available to the Certificateholders and the Trustee for any uncured
breach of any Mortgage Loan Seller's representations and warranties regarding
its Mortgage Loans. Each Mortgage Loan Seller is the sole warranting party in
respect of the Mortgage Loans sold by such Mortgage Loan Seller to the
Depositor, and none of the Depositor, the other Mortgage Loan Seller nor any
of such party's affiliates will be obligated to substitute or repurchase any
such affected Mortgage Loan in connection with a breach of such Mortgage Loan
Seller's representations and warranties if such Mortgage Loan Seller defaults
on its obligation to do so.
Changes in Mortgage Pool Characteristics
The descriptions in this Prospectus Supplement of the Mortgage Loans and
the Mortgaged Properties are based upon the Mortgage Pool as it is expected to
be constituted as of the close of business on the Closing Date, assuming that
(i) all scheduled principal and interest payments due on or before the Cut-Off
Date will be made, and (ii) there will be no principal prepayments on or
before the Cut-Off Date. Prior to the issuance of the Certificates, Mortgage
Loans may be removed from the Mortgage Pool as a result of prepayments,
delinquencies, incomplete documentation or otherwise, if the Depositor or the
applicable Mortgage Loan Seller deems such removal necessary, appropriate or
desirable. A limited number of other mortgage loans may be included in the
Mortgage Pool prior to the issuance of the Certificates, unless including such
mortgage loans would materially alter the characteristics of the Mortgage Pool
as described in this Prospectus Supplement. The Depositor believes that the
information set forth in this Prospectus Supplement will be representative of
the characteristics of the Mortgage Pool as it will be constituted at the time
the Certificates are issued, although the range of Mortgage Rates and
maturities as well as other characteristics of the Mortgage Loans described in
this Prospectus Supplement 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.
SERVICING OF THE MORTGAGE LOANS
General
The Master Servicer and the Special Servicer, either directly or through
sub-servicers, are required to service and administer the Mortgage Loans for
the benefit of the Certificateholders, in accordance with applicable law, the
terms of the Pooling and Servicing Agreement and the terms of the respective
Mortgage Loans and, to the extent consistent with the foregoing, (a) in the
same manner in which, and with the same care, skill, prudence and diligence
with which, the Master Servicer or the Special Servicer, as the case may be,
generally services and administers similar mortgage loans with similar
borrowers (i) for other third-parties, giving due consideration to customary
and usual standards of practice of prudent institutional commercial mortgage
lenders servicing their own loans, or (ii) held in its own portfolio,
whichever standard is higher, (b) with a view to the maximization of the
recovery on such Mortgage Loans on a net present value basis, and (c) without
regard to (i) any relationship that the Master Servicer or the Special
Servicer, as the case may be, or any affiliate thereof, may have with the
related borrower, any Mortgage Loan Seller or any other party to the Pooling
and Servicing Agreement; (ii) the ownership of any Certificate by the Master
Servicer or the Special Servicer, as the case may be, or by any affiliate
thereof; (iii) the right of the Master Servicer or the Special Servicer, as
the case may be, to receive compensation or other fees for its services
rendered pursuant to the Pooling and Servicing Agreement; (iv) the obligation
of the Master Servicer to make Advances (as defined in this Prospectus
Supplement); (v) the ownership, servicing or management for others of any
other mortgage loans or real property; and (vi) any obligation of the Master
Servicer, or any affiliate thereof, to repurchase or substitute a Mortgage
Loan as a Mortgage Loan Seller.
Set forth below, following the subsections 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 POOLING AGREEMENTS," for important
information in addition to that set forth in this Prospectus Supplement
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. The Special Servicer generally has all of the rights to
indemnity and reimbursement, and limitations on liability, that the Master
Servicer is described as having in the Prospectus and certain additional
rights to indemnity as provided in the Pooling and Servicing Agreement
relating to actions taken at the direction of the Controlling Class
Representative, and the Special Servicer rather than the Master Servicer will
perform the servicing duties described in the Prospectus with respect to
Specially Serviced Mortgage Loans and REO Properties (each as described in
this Prospectus Supplement). In addition to the circumstances for resignation
of the Master Servicer set forth in the Prospectus, the Master Servicer and
the Special Servicer each has the right to resign at any other time provided
that (i) a willing successor thereto has been found, (ii) each of the Rating
Agencies confirms in writing that the successor's appointment will not result
in a withdrawal, qualification or downgrade of any rating or ratings assigned
to any class of Certificates, (iii) the resigning party pays all costs and
expenses in connection with such transfer, and (iv) the successor accepts
appointment prior to the effectiveness of such resignation. See "DESCRIPTION
OF THE POOLING AGREEMENTS--Certain Matters Regarding the Master Servicer and
the Depositor" in the Prospectus.
The Master Servicer
First Union National Bank, in its capacity as Master Servicer under the
Pooling and Servicing Agreement (in such capacity, the "Master Servicer") will
be responsible for servicing the Mortgage Loans (other than Specially Serviced
Mortgage Loans and REO Properties). Although the Master Servicer will be
authorized to employ agents, including sub-servicers, to directly service the
Mortgage Loans for which it will be responsible, the Master Servicer will
remain liable for its servicing obligations under the Pooling and Servicing
Agreement. The Master Servicer is a wholly-owned subsidiary of First Union
Corporation, and as such is our affiliate and is one of the Mortgage Loan
Sellers. The Master Servicer's principal servicing offices are located at [ ].
As of [ ] [ ] , 20[ ], the Master Servicer and its affiliates were
responsible for servicing approximately [ ] commercial and multifamily loans,
totaling approximately $[ ] in aggregate outstanding principal amounts,
including loans securitized in mortgage-backed securitization transactions.
The information set forth in this Prospectus Supplement concerning the
Master Servicer has been provided by the Master Servicer, and neither the
Depositor nor either Underwriter makes any representation or warranty as to
the accuracy or completeness of such information. The Master Servicer (apart
from its obligations as a Mortgage Loan Seller and except for the information
in the first two paragraphs under this heading) will make no representations
as to the validity or sufficiency of the Pooling and Servicing Agreement, the
Certificates, the Mortgage Loans, this Prospectus Supplement or related
documents.
The Special Servicer
[ ], a [ ] limited liability company, will be the Special Servicer and in
such capacity will be responsible for servicing the Specially Serviced
Mortgage Loans. As of [ ] [ ] , 20[ ], [ ] served as the named special
servicer on [ ] securitized transactions encompassing [ ] loans, with an
aggregate principal balance of approximately $[ ]. Additionally, [ ] manages a
master servicing portfolio of commercial and multifamily loans with an
aggregate principal balance, as of [ ] [ ] , 20[ ] , of approximately $[ ],
the collateral for which is located in [ ] states, [ ], [ ], [ ], and[ ]. [
]'s servicing operations are located at[ ].
The information set forth in this Prospectus Supplement concerning the
Special Servicer has been provided by the Special Servicer and neither the
Depositor nor either Underwriter makes any representation or warranty as to
the accuracy or completeness of such information. The Special Servicer (except
for the information in the immediately preceding paragraph) will make no
representations as to the validity or sufficiency of the Pooling and Servicing
Agreement, the Certificates, the Mortgage Loans, this Prospectus Supplement or
related documents.
The Pooling and Servicing Agreement permits the holder (or holders) of
the majority of the Voting Rights allocated to the Controlling Class to
replace the Special Servicer and to select a representative (the "Controlling
Class Representative") who may advise and direct the Special Servicer and
whose approval is required for certain actions by the Special Servicer under
certain circumstances. The Controlling Class Representative is selected by
holders of Certificates representing more than 50% of the Certificate Balance
of the Controlling Class. See "--The Controlling Class Representative" in this
Prospectus Supplement. Such holder (or holders) will be required to pay all
out-of-pocket costs related to the transfer of servicing if the Special
Servicer is replaced other than due to an Event of Default, including without
limitation, any costs relating to Rating Agency confirmation and legal fees
associated with the transfer. The "Controlling Class" is the Class of
Sequential Pay Certificates that has the latest alphabetical Class designation
and that has a Certificate Balance that is greater than 25% of its original
Certificate Balance; provided that if no Class of Sequential Pay Certificates
has a Certificate Balance that is greater than 25% of its original Certificate
Balance, the then outstanding class of Sequential Pay Certificates with the
latest alphabetical class designation will be the "Controlling Class." The
Class [ ] and Class [ ] Certificates will be treated as one class for
determining the Controlling Class. Any such replacement of a Special Servicer
will be subject to, among other things, (i) the delivery of notice of the
proposed replacement to the Rating Agencies and receipt of written
confirmation from the Rating Agencies that the replacement will not result in
a qualification, downgrade or withdrawal of any of the then current ratings
assigned to the Certificates, and (ii) the written agreement of the successor
Special Servicer to be bound by the terms and conditions of the Pooling and
Servicing Agreement. Subject to the foregoing, any Certificateholder or
affiliate thereof may be appointed as Special Servicer. See "DESCRIPTION OF
THE CERTIFICATES--Voting Rights" in this Prospectus Supplement.
The Special Servicer is responsible for servicing and administering any
Mortgage Loan as to which (a) any Periodic Payment shall be delinquent 60 or
more days (or, in the case of a Balloon Payment, if the related borrower
continues to make the Periodic Payment and the Master Servicer receives
written evidence that the related borrower has obtained a binding commitment
from an institutional lender to refinance, such longer period of delinquency
(not to exceed 120 days) within which such refinancing is expected to occur);
(b) the Master Servicer shall have determined in its good faith reasonable
judgment based on communications with the related mortgagor that a default in
making a Periodic Payment is likely to occur within 30 days and is likely to
remain unremedied for at least 60 days (or, in the case of a Balloon Payment,
if the Master Servicer reasonably expects the related borrower to continue to
make the Periodic Payment and the Master Servicer receives written evidence,
among other things, that the related borrower has obtained a binding
commitment from an institutional lender to refinance, such longer period of
delinquency (not to exceed 120 days) within which such refinancing is expected
to occur); (c) there shall have occurred a default (other than as described in
clause (a) above) 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 60 days); (d) a decree or order under any bankruptcy,
insolvency or similar law shall have been entered against the related borrower
and such decree or order shall have remained in force, undischarged,
undismissed or unstayed for a period of 60 days; (e) the related borrower
shall consent 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 shall admit in writing its inability to pay its debts generally as
they become due, file a petition to take advantage of any applicable
insolvency or reorganization statute, make an assignment for the benefit of
its creditors, or voluntarily suspend payment of its obligations; or (g) the
Master Servicer shall have received notice of the commencement of foreclosure
or similar proceedings with respect to the related Mortgaged Property (each
event described in clauses (a) through (g) above, a "Servicing Transfer
Event").
If a Servicing Transfer Event occurs with respect to any Mortgage Loan,
the Master Servicer is in general required to transfer its servicing
responsibilities with respect to such Mortgage Loan 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 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 in this Prospectus Supplement as "Specially
Serviced Mortgage Loans" and, together with any REO Properties, constitute
"Specially Serviced Trust Fund Assets." The Master Servicer has 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):
(a) with respect to the circumstances described in clause (a) of the
definition of Servicing Transfer Event, when the related borrower has
made three consecutive full and timely (or, in the case of any
Semi-Annual Loan, two consecutive) Periodic 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);
(b) with respect to any of the circumstances described in clauses
(b), (d), (e) and (f) of the definition of Servicing Transfer Event, when
such circumstances cease to exist in the good faith, reasonable judgment
of the Special Servicer, but, with respect to any bankruptcy or
insolvency proceedings described in clauses (d), (e) and (f), no later
than the entry of an order or decree dismissing such proceeding;
(c) with respect to the circumstances described in clause (c) of the
definition of Servicing Transfer Event, when such default is cured; and
(d) with respect to the circumstances described in clause (g) of the
definition of Servicing Transfer Event, when such proceedings are
terminated;
so long as at that time no other Servicing Transfer Event then exists and
provided no additional default is foreseeable in the reasonable judgment of
the Special Servicer.
Servicing and Other Compensation and Payment of Expenses
The principal compensation to be paid to the Master Servicer in respect
of its servicing activities is the Master Servicing Fee. The "Master Servicing
Fee" is payable monthly (or, with respect to Semi-Annual Loans, semi-annually)
on a loan-by-loan basis from amounts received in respect of interest on each
Mortgage Loan (including each Specially Serviced Mortgage Loan and from REO
Revenue with respect to each REO Mortgage Loan), is calculated on the basis of
a 360-day year consisting of twelve 30-day months, accrues at the related
Master Servicing Fee Rate and is computed on the basis of the same principal
amount respecting which any related interest payment due on the Mortgage Loan
is computed. The "Master Servicing Fee Rate" is a per annum rate ranging from
[ ]% to [ ]%. As of the Cut-Off Date the weighted average Master Servicing Fee
Rate will be [ ]% per annum.
If a borrower voluntarily prepays a Mortgage Loan on a date that is prior
to its Due Date in any Collection Period, the amount of interest (net of
related Master Servicing Fees and, if applicable, Additional Interest) that
accrues on the Mortgage Loan during such Collection Period will be less (such
shortfall, a "Prepayment Interest Shortfall") than the amount of interest (net
of related Master Servicing Fees and, if applicable, related Swap Fee and
Additional Interest and without regard to any Prepayment Premium or Yield
Maintenance Charge actually collected) that would have accrued on the Mortgage
Loan through its Due Date (or, with respect to any Semi-Annual Loan, the first
day of the month). If such a principal prepayment occurs during any Collection
Period after the Due Date (or, with respect to any Semi-Annual Loan, the first
day of the month) for such Mortgage Loan in such Collection Period, the amount
of interest (net of related Master Servicing Fees) that accrues and is
collected on the Mortgage Loans during such Collection Period will exceed
(such excess, a "Prepayment Interest Excess") the amount of interest (net of
related Master Servicing Fees, and without regard to any Prepayment Premium or
Yield Maintenance Charge actually collected) that would have been collected on
the Mortgage Loan during such Collection Period if the borrower had not
prepaid. 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 is required to deposit into the
Distribution Account (such deposit, a "Compensating Interest Payment"),
without any right of reimbursement therefor, with respect to each Mortgage
Loan (other than a Specially Serviced Mortgage Loan) that was subject to a
voluntary Principal Prepayment during the most recently ended Collection
Period creating a Prepayment Interest Shortfall, an amount equal to the lesser
of (i) the sum of (A) the Master Servicing Fee (up to a Master Servicing Fee
Rate of [ ]% per annum) received by the Master Servicer during such Collection
Period on such Mortgage Loan and (B) investment income earned by the Master
Servicer on the related Principal Prepayment during the most recently ended
Collection Period, and (ii) the amount of the related Prepayment Interest
Shortfall. Compensating Interest Payments will not cover shortfalls in
Mortgage Loan interest accruals that result from any liquidation of a
defaulted Mortgage Loan, or of any REO Property acquired in respect thereof,
that occurs during a Collection Period prior to the related Due Date therein
or involuntary prepayments.
The principal compensation to be paid to the Special Servicer in respect
of its special servicing activities is the Special Servicing Fee (together
with the Master Servicing Fee, the "Servicing Fees") and, under the
circumstances described in this Prospectus Supplement, Principal Recovery Fees
and Workout Fees. The "Special Servicing Fee" is calculated on the basis of a
360-day year consisting of twelve 30-day months, accrues at a rate (the
"Special Servicing Fee Rate") equal to [ ]% per annum and is computed on the
basis of the same principal amount respecting which any related interest
payment due on such Specially Serviced Mortgage Loan or REO Mortgage Loan, as
the case may be. However, earned Special Servicing Fees are payable out of
general collections on the Mortgage Loans then on deposit in the Certificate
Account. The Special Servicing Fee with respect to any Specially Serviced
Mortgage Loan (or REO Mortgage Loan) will cease to accrue if such loan (or the
related REO Property) is liquidated or if such loan becomes a Corrected
Mortgage Loan. The Special Servicer is entitled to a "Principal Recovery Fee"
with respect to each Specially Serviced Trust Fund Asset, which Principal
Recovery Fee generally will be in an amount equal to [ ]% of all whole or
partial cash payments of Liquidation Proceeds (as defined in the Prospectus)
received in respect thereof; provided, however, in no event shall the
Principal Recovery Fee be payable to the extent a Workout Fee is payable
concerning the related cash payments. However, no Principal Recovery Fee will
be payable in connection with, or out of, insurance proceeds, condemnation
proceeds or Liquidation Proceeds (as defined in the Prospectus) resulting
from, the purchase of any Specially Serviced Trust Fund Asset (i) by either
Mortgage Loan Seller (as described in this Prospectus Supplement under
"DESCRIPTION OF THE MORTGAGE POOL--Assignment of the Mortgage Loans;
Repurchases and Substitutions" and "--Representations and Warranties;
Repurchases and Substitutions"), (ii) by the Master Servicer, the Special
Servicer, the Depositor or the Majority Subordinate Certificateholder as
described in this Prospectus Supplement under "DESCRIPTION OF THE
CERTIFICATES--Termination" or (iii) in certain other limited circumstances.
The Special Servicer also is entitled to a "Workout Fee" with respect to each
Corrected Mortgage Loan, which is generally equal to [ ]% of all payments of
interest and principal received on such Mortgage Loan for so long as it
remains a Corrected Mortgage Loan.
As additional servicing compensation, the Master Servicer or the Special
Servicer is entitled to retain all assumption and modification fees,
assumption application fees, late payment charges and penalty interest (to the
extent not used to offset interest on Advances) and Prepayment Interest
Excesses collected from borrowers on Mortgage Loans. In addition, each of the
Master Servicer and the Special Servicer is authorized to invest or direct the
investment of funds held in those accounts maintained by it that relate to the
Mortgage Loans or REO Properties, as the case may be, in certain short-term
United States government securities and other permitted investment grade
obligations, and the Master Servicer and the Special Servicer each will be
entitled to retain any interest or other income earned on such funds held in
those accounts maintained by it, but shall be required to cover any losses on
investments of funds held in those accounts maintained by it, from its own
funds without any right to reimbursement.
Each of the Master Servicer and Special Servicer is, in general, 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 sub-servicers retained by it, and is not entitled to reimbursement
therefor except as expressly provided in the Pooling and Servicing Agreement.
However, each of the Master Servicer and Special Servicer is 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 Mortgage Loan with respect to which such expenses were
incurred. See "DESCRIPTION OF THE CERTIFICATES--Distributions" in this
Prospectus Supplement and "DESCRIPTION OF THE POOLING AGREEMENTS--Certificate
Account" and "--Servicing Compensation and Payment of Expenses" in the
Prospectus.
As and to the extent described in this Prospectus Supplement under
"DESCRIPTION OF THE CERTIFICATES--P&I Advances," each of the Master Servicer
and the Trustee is entitled to receive interest, at the Reimbursement Rate, on
any reimbursable servicing expenses incurred by it. Such interest will
compound annually and will be paid, contemporaneously with the reimbursement
of the related servicing expense, first out of late payment charges and
penalty interest on such Mortgage Loan received during the related calendar
year in which such reimbursement is made and then in certain circumstances
from general collections on the Mortgage Loans then on deposit in the
Certificate Account.
Modifications, Waivers and Amendments
The Pooling and Servicing Agreement permits the Special Servicer 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 and (b) except as described in the following
paragraph, such modification, waiver or amendment, will not (i) affect the
amount or timing of any related payments of principal, interest or other
amount (including Prepayment Premiums and Yield Maintenance Charges) payable
under the Mortgage Loan, (ii) affect the obligation of the related borrower to
pay a Prepayment Premium or Yield Maintenance Charge or permit a principal
prepayment during the applicable Lockout Period, (iii) 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 in an amount not less
than the fair market value of the property released, (iv) if such Mortgage
Loan (A) with respect to [ ], is equal to or in excess of [ ]% of the then
aggregate current principal balances of all Mortgage Loans or $[ ], and (B)
with respect to [ ], is equal to or in excess of [ ]% of the then aggregate
current principal balances of all Mortgage Loans, permit the transfer of
equity interests in the related borrower or an equity owner of the borrower
that would result, in the aggregate during the term of the related Mortgage
Loan, in a transfer greater than [ ]% of the total interest in the borrower
and/or any equity owner of the borrower or a transfer of voting control in the
borrower or an equity owner of the borrower without the prior written
confirmation from each Rating Agency (as applicable) that such change will not
result in the qualification, downgrade or withdrawal of the ratings then
assigned to the Certificates or (v) in the good faith, reasonable judgment of
the Special Servicer, materially impair the security for the Mortgage Loan or
reduce the likelihood of timely payment of amounts due thereon.
Notwithstanding clause (b) of the preceding paragraph, the Special
Servicer may (i) reduce the amounts owing under any Specially Serviced
Mortgage Loan by forgiving principal, accrued interest and/or any Prepayment
Premium or Yield Maintenance Charge, (ii) reduce the amount of the Periodic
Payment on any Specially Serviced Mortgage Loan, including by way of a
reduction in the related Mortgage Rate, (iii) forbear in the enforcement of
any right granted under any Mortgage Note or Mortgage relating to a Specially
Serviced Mortgage Loan, (iv) extend the maturity date of any Mortgage Loan,
and/or (v) accept a principal prepayment during any Lockout Period; provided
that (x) the related borrower is in default with respect to the Specially
Serviced Mortgage Loan or, in the reasonable, good faith judgment of the
Special Servicer, such default is reasonably foreseeable, (y) in the
reasonable, good faith judgment of the Special Servicer, such modification,
would increase the recovery to Certificateholders on a net present value basis
and (z) such modification, waiver or amendment does not result in a tax being
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. In no event, however, is the Special Servicer
permitted to (i) extend the maturity date of a Mortgage Loan beyond a date
that is two years prior to the Rated Final Distribution Date or, without the
prior written confirmation from [ ] that such extension will not result in the
downgrade or withdrawal of the ratings then assigned to the Certificates, for
more than three one-year extensions, (ii) extend the maturity date of any
Mortgage Loan which has a Mortgage Rate below the then prevailing interest
rate for comparable loans, as determined by the Special Servicer, unless such
Mortgage Loan is a Balloon Loan and the related borrower has failed to make
the Balloon Payment at its scheduled maturity and such Balloon Loan is not a
Specially Serviced Mortgage Loan (other than by reason of failure to make the
Balloon Payment) and has not been delinquent in the preceding 12 months (other
than with respect to the Balloon Payment), in which case the Special Servicer
may make up to three one-year extensions at the existing Mortgage Rate for
such Mortgage Loan (such limitation of extensions made at a below market rate
shall not limit the ability of the Special Servicer to extend the maturity
date of any Mortgage Loan at an interest rate at or in excess of the
prevailing rate for comparable loans at the time of such modification), (iii)
if the Mortgage Loan is secured by a ground lease (and not also by the
corresponding fee simple interest), extend the maturity date of such Mortgage
Loan beyond a date which is 10 years (or, in the case of any Mortgage Loan
that is a Balloon Loan or ARD Loan, 20 years) prior to the expiration of the
term of such ground lease, (iv) reduce the Mortgage Rate to a rate below the
then prevailing interest rate for comparable loans, as determined by the
Special Servicer or (v) defer interest due on any Mortgage Loan in excess of [
]% of the Stated Principal Balance of such Mortgage Loan or defer the
collection of interest on any Mortgage Loan without accruing interest on such
deferred interest at a rate at least equal to the Mortgage Rate of such
Mortgage Loan.
The Special Servicer is required to notify the Trustee, the Master
Servicer and the Rating Agencies of any modification, waiver or amendment of
any term of any Mortgage Loan, and to deliver to the Trustee or the related
Custodian, for deposit in the related Mortgage File, an original counterpart
of the agreement related to such modification, waiver or amendment, promptly
(and in any event within 10 business days) following the execution thereof.
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 Special Servicer.
See "DESCRIPTION OF THE CERTIFICATES--Reports to Certificateholders; Available
Information" in this Prospectus Supplement.
For any Mortgage Loan other than a Specially Serviced Mortgaged Loan and
subject to the rights of the Special Servicer, the Master Servicer is
responsible for any request by a borrower for the consent to modify, waive or
amend certain terms as specified in the Pooling and Servicing Agreement,
including, without limitation, (i) approving certain leasing activity, (ii)
approving certain substitute property managers and (iii) approving certain
consents with respect to right-of-ways and easements and consents to
subordination of the related Mortgage Loan to such easements or right-of-ways.
The Controlling Class Representative
Subject to the succeeding paragraph, the Controlling Class Representative
is entitled to advise the Special Servicer with respect to the following
actions of the Special Servicer, and the Special Servicer is not permitted to
take any of the following actions as to which the Controlling Class
Representative has objected in writing within ten business days of being
notified thereof (provided that if such written objection has not been
received by the Special Servicer within such ten business day period, then the
Controlling Class Representative's approval will be deemed to have been
given):
(i) any foreclosure upon or comparable conversion (which may include
acquisitions of an REO Property) of the ownership of properties securing
such of the Specially Serviced Mortgage Loans as come into and continue
in default;
(ii) any modification or waiver of a monetary term of a Mortgage
Loan other than a modification consisting of the extension of the
maturity date of a Mortgage Loan for one year or less;
(iii) any proposed sale of a defaulted Mortgage Loan or REO Property
(other than in connection with the termination of the Trust Fund as
described under "DESCRIPTION OF THE CERTIFICATES --Termination" in this
Prospectus Supplement);
(iv) any determination to bring an REO Property into compliance with
applicable environmental laws or to otherwise address hazardous materials
located at an REO Property;
(v) any acceptance of substitute or additional collateral for a
Mortgage Loan unless permitted by the underlying loan documents;
(vi) any waiver of a "due-on-sale" or "due-on-encumbrance" clause;
and
(vii) any acceptance of an assumption agreement releasing a borrower
from liability under a Mortgage Loan.
In addition, the Controlling Class Representative may direct the Special
Servicer to take, or to refrain from taking, such other actions as the
Controlling Class Representative may deem advisable or as to which provision
is otherwise made in the Pooling and Servicing Agreement; provided that no
such direction and no objection contemplated by the prior paragraph may
require or cause the Special Servicer to violate any REMIC Provisions,
provision of the Pooling and Servicing Agreement or applicable law, including
the Special Servicer's obligation to act in accordance with the servicing
standards described under "--General" above, or expose the Master Servicer,
the Special Servicer, the Trust Fund or the Trustee to liability, or
materially expand the scope of the Special Servicer's responsibilities under
the Pooling and Servicing Agreement or cause the Special Servicer to act or
fail to act in a manner which, in the reasonable judgment of the Special
Servicer, is not in the best interests of the Certificateholders.
Limitation on Liability of Controlling Class Representative. The
Controlling Class Representative will have no liability to 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, however, that the Controlling Class
Representative 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 negligent disregard of
obligations or duties. By its acceptance of a Certificate, each
Certificateholder confirms its understanding that the Controlling Class
Representative may take actions that favor the interests of one or more
Classes of the Certificates over other Classes of the Certificates, and that
the Controlling Class Representative may have special relationships and
interests that conflict with those of holders of some Classes of the
Certificates; and, absent willful misfeasance, bad faith or negligence on the
part of the Controlling Class Representative, each Certificateholder agrees to
take no action against the Controlling Class Representative or any of its
officers, directors, employees, principals or agents as a result of such a
special relationship or conflict.
REO Properties; Sale of Mortgage Loans
If title to any Mortgaged Property is acquired by the Trustee on behalf
of the Certificateholders pursuant to foreclosure proceedings instituted by
the Special Servicer or otherwise, the Special Servicer, on behalf of such
holders, is required to sell the Mortgaged Property by the end of the third
calendar year following the year of acquisition, unless (i) the Internal
Revenue Service grants an extension of time to sell such property (an "REO
Extension") or (ii) it obtains an opinion of counsel generally to the effect
that the holding of the property for more than three years after the end of
the calendar year in which it was acquired will not result in the imposition
of a tax on the Trust Fund or cause any REMIC created pursuant to the Pooling
and Servicing Agreement to fail to qualify as a REMIC under the Code. Subject
to the foregoing, the Special Servicer is generally required to solicit bids
for any Mortgaged Property so acquired in such a manner as will be reasonably
likely to realize a fair price for such property. The Special Servicer may
retain an independent contractor to operate and manage any REO Property;
however, the retention of an independent contractor will not relieve the
Special Servicer of its obligations with respect to such REO Property.
In general, the Special Servicer or an independent contractor employed by
the Special Servicer at the expense of the Trust Fund is obligated to operate
and manage any Mortgaged Property acquired as REO Property in a manner that
(i) maintains its status as "foreclosure property" under the REMIC Provisions
and (ii) would, to the extent commercially feasible and consistent with the
forgoing clause (i), maximize the Trust Fund's net after-tax proceeds from
such property. After the Special Servicer reviews the operation of such
property and consults with the Trustee to determine the Trust Fund's federal
income tax reporting position with respect to 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
hospitality or residential health care facility) that it would not be
commercially feasible to manage and operate such property in a manner that
would avoid the imposition of a tax on "net income from foreclosure property,"
within the meaning of Section 857(b)(4)(B) of the Code, or a tax on
"prohibited transactions" under Section 860F of the Code (either such tax
referred to in this Prospectus Supplement 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 "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES" in this Prospectus Supplement and "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES--REMICs" in the Prospectus.
Each of the Majority Subordinate Certificateholder (as defined in this
Prospectus Supplement), the Special Servicer and the Master Servicer, in that
order, has been granted a right of first refusal to purchase any defaulted
Mortgage Loan at a cash price equal to the outstanding principal balance of
such Mortgage Loan as of the date of purchase, all accrued but unpaid
interest, and related fees and expenses. If such interested parties refuse to
exercise such right, the Special Servicer may offer to sell any defaulted
Mortgage Loan if the Special Servicer determines, consistent with the
Servicing Standard, that such sale would be in the best economic interest of
the Trust Fund. In connection with such a sale, the Special Servicer is not
obligated to accept the highest bid if the Special Servicer determines, in
accordance with the Servicing Standard, that rejection of the highest bid
would be in the best interest of the Certificateholders.
Inspections; Collection of Operating Information
The Special Servicer is required, at the Trust Fund's expense, to perform
or cause to be performed a physical inspection of a Mortgaged Property as soon
as practicable after the related Mortgage Loan becomes a Specially Serviced
Mortgage Loan and annually thereafter so long as it remains a Specially
Serviced Mortgage Loan. In addition, with respect to each Mortgage Loan (other
than a Specially Serviced Mortgage Loan) with a principal balance at the time
of such inspection of more than or equal to $[ ] or [ ]% of the then current
principal balance of all Mortgage Loans, the Master Servicer is required to
inspect or cause to be inspected the related Mortgaged Property every calendar
year and with respect to each Mortgage Loan (other than a Specially Serviced
Mortgage Loan) with a principal balance at the time of such inspection of less
than $[ ] and [ ]% of the then current principal balance of all Mortgage Loans
once every other year. The Special Servicer and the Master Servicer each will
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 Special Servicer or the Master Servicer is also required consistent
with the Servicing Standard to collect from the related borrower and review
the quarterly and annual operating statements of each Mortgaged Property and
to cause annual operating statements to be prepared for each REO Property.
Generally, the Mortgage Loans require the related borrower to deliver an
annual property operating statement. However, there can be no assurance that
any operating statements required to be delivered will in fact be delivered,
nor is the Master Servicer or Special Servicer likely to have any practical
means of compelling such delivery in the case of an otherwise performing
Mortgage Loan.
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 Special Servicer or the Master
Servicer, as applicable. See "DESCRIPTION OF THE CERTIFICATES--Reports to
Certificateholders; Available Information" in this Prospectus Supplement.
<PAGE>
DESCRIPTION OF THE CERTIFICATES
General
The First Union National Bank Commercial Mortgage Trust, Commercial
Mortgage Pass-Through Certificates, Series 20[ ] -[ ] (the "Certificates")
will be issued pursuant to a Pooling and Servicing Agreement, dated as of [ ]
[ ] , 20[ ] , among the Depositor, the Master Servicer, the Special Servicer,
and the Trustee (the "Pooling and Servicing Agreement"). The Certificates
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, and principal prepayments received, on or before
the Cut-Off Date and in the case of Semi-Annual Loans, interest accrued 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, the Distribution Account, the REO Accounts and the
Interest Reserve Account (see "DESCRIPTION OF THE POOLING
AGREEMENTS--Certificate Account" in the Prospectus); and (iv) certain rights
of the Depositor under the Mortgage Loan Purchase Agreements relating to
Mortgage Loan document delivery requirements and the representations and
warranties of the Mortgage Loan Sellers regarding the Mortgage Loans.
The Certificates consist of the following classes (each, a "Class")
designated as: (i) the Class [ ] and Class [ ] Certificates (together, the
"Class [ ] Certificates"); (ii) the Class [ ], Class [ ], Class [ ], Class [
], Class [ ], Class [ ], Class [ ], Class [ ], Class [ ], Class [ ], Class [ ]
Certificates and Class [ ] Certificates (collectively, the "Subordinate
Certificates" and, together with the Class [ ] Certificates, the "Sequential
Pay Certificates"); (iii) the Class [ ] Certificates (collectively with the
Sequential Pay Certificates, the "REMIC Regular Certificates"); and (iv) the
Class [ ], Class [ ] and Class [ ] Certificates (collectively, the "REMIC
Residual Certificates").
Only the Class [ ], Class [ ], Class [ ] and Class [ ] Certificates
(collectively, the "Offered Certificates") are offered hereby. The Class [ ],
Class [ ], Class [ ], Class [ ], Class [ ], Class [ ], Class [ ], Class [ ],
Class [ ], Class [ ] and Class [ ] Certificates (collectively, the
"Non-Offered Certificates") and the REMIC Residual Certificates have not been
registered under the Securities Act and are not offered hereby. Accordingly,
information in this Prospectus Supplement regarding the terms of the
Non-Offered 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 made available in book-entry format
through the facilities of The Depository Trust Company ("DTC"). The Class [ ],
Class [ ] and Class [ ] Certificates will be offered in denominations of not
less than $[ ] actual principal amount and in integral multiples of $[ ] in
excess thereof. The Class [ ] Certificates will be offered in minimum
denominations of $[ ] notional amount and in integral multiples of $[ ] in
excess of those amounts.
Holders of Offered Certificates may hold their Certificates through DTC (in
the United States) or Clearstream Banking, societe anonyme ("Clearstream")")
or Euroclear (in Europe) if they are Participants of such respective system,
or indirectly through organizations that are Participants in such systems. and
Euroclear will hold omnibus positions on behalf of the Clearstream
Participants and the Euroclear Participants, respectively, through customers'
securities accounts in Clearstream and Euroclear's names on the books of their
respective depositaries (collectively, the "Depositaries") which in turn will
hold such positions in customers' securities accounts in the Depositaries'
names on the books of DTC. DTC is a limited-purpose trust company organized
under the New York Banking Law, a "banking organization" within the meaning of
the New York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant to Section 17A of the Securities
Exchange Act of 1934, as amended. DTC was created to hold securities for its
Participants and to facilitate the clearance and settlement of securities
transactions between Participants through electronic computerized
book-entries, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to the DTC system
also is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between Clearstream Participants and Euroclear Participants
will occur in accordance with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly through Clearstream Participants or
Euroclear Participants, on the other, will be effected in DTC in accordance
with DTC rules on behalf of the relevant European international clearing
system by its Depositary; however, such cross-market transactions will require
delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures
for same-day funds settlement applicable to DTC. Clearstream Participants and
Euroclear Participants may not deliver instructions directly to the
Depositaries.
Because of time-zone differences, credits of securities in Clearstream or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in
such securities settled during such processing will be reported to the
relevant Clearstream Participant or Euroclear Participant on such business
day. Cash received in Clearstream or Euroclear as a result of sales of
securities by or through a Clearstream Participant or a Euroclear Participant
to a DTC Participant will be received with value on the DTC settlement date
but will be available in the relevant Clearstream or Euroclear cash account
only as of the business day following settlement in DTC.
The holders of Offered Certificates that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of,
or other interests in, Offered Certificates may do so only through
Participants and Indirect Participants. In addition, holders of Offered
Certificates will receive all distributions of principal and interest from the
Trustee through the Participants who in turn will receive them from DTC.
Similarly, reports distributed to Certificateholders pursuant to the Pooling
and Servicing Agreement and requests for the consent of Certificateholders
will be delivered to beneficial owners only through DTC, Euroclear,
Clearstream and their respective Participants. Under a book-entry format,
holders of Offered Certificates may experience some delay in their receipt of
payments, reports and notices, since such payments, reports and notices will
be forwarded by the Trustee to Cedel & Co., as nominee for DTC. DTC will
forward such payments, reports and notices to its Participants, which
thereafter will forward them to Indirect Participants, Clearstream, Euroclear
or holders of Offered Certificates, as applicable.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
of Offered Certificates among Participants on whose behalf it acts with
respect to the Offered Certificates and to receive and transmit distributions
of principal of, and interest on, the Offered Certificates. Participants and
Indirect Participants with which the holders of Offered Certificates have
accounts with respect to the Offered Certificates similarly are required to
make book-entry transfers and receive and transmit such payments on behalf of
their respective holders of Offered Certificates. Accordingly, although the
holders of Offered Certificates will not possess the Offered Certificates, the
Rules provide a mechanism by which Participants will receive payments on
Offered Certificates and will be able to transfer their interest.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a holder of
Offered Certificates to pledge such Certificates to persons or entities that
do not participate in the DTC system, or to otherwise act with respect to such
Certificates, may be limited due to the lack of a physical certificate for
such Certificates.
DTC has advised the Depositor that it will take any action permitted to
be taken by a holder of an Offered Certificate under the Pooling and Servicing
Agreement only at the direction of one or more Participants to whose accounts
with DTC the Offered Certificates are credited. DTC may take conflicting
actions with respect to other undivided interests to the extent that such
actions are taken on behalf of Participants whose holdings include such
undivided interests.
Except as required by law, none of the Depositor, the Underwriters, the
Master Servicer, nor the Trustee will have any liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Offered Certificates held by Cede & Co., as nominee for DTC,
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
Clearstream is incorporated under the laws of Luxembourg as a
professional depository. Clearstream holds securities for its participating
organizations ( "Clearstream Participants") and facilitates the clearance and
settlement of securities transactions between Clearstream Participants through
electronic book-entry changes in accounts of Clearstream Participants, thereby
eliminating the need for physical movement of certificates. Transactions may
be settled in Clearstream in any of 28 currencies, including United States
dollars. Clearstream provides to its Clearstream Participants, among other
things, services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing.
Clearstream interfaces with domestic markets in several countries. As a
professional depository, [Cedel] is subject to regulation by the Luxembourg
Monetary Institute. Clearstream Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include the Underwriters. Indirect access to [Cedel] is
also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Clearstream
Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear system ( "Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 27 currencies,
including United States dollars. The Euroclear system includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several countries generally similar to the arrangements
for cross-market transfers with DTC described above. Euroclear is operated by
Morgan Guaranty Trust Company of New York, Brussels, Belgium office (the
"Euroclear Operator"), under the contract with Euroclear Clearance System,
S.C., a Belgian cooperative corporation (the "Cooperative"). All operations
are conducted by the Euroclear Operator, and all Euroclear securities
clearance accounts and Euroclear cash accounts are accounts with the Euroclear
Operator, not the Cooperative. The Cooperative establishes policy for the
Euroclear system on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries and may include the Underwriters.
Indirect access to the Euroclear system is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as by the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within the Euroclear
system, withdrawal of securities and cash from the Euroclear system, and
receipts of payments with respect to securities in the Euroclear system. All
securities in the Euroclear system are held on a fungible basis without
attribution of specific certificates to specific securities clearance
accounts. The Euroclear Operator acts under the Terms and Conditions only on
behalf of Euroclear Participants and has no record of or relationship with
persons holding through Euroclear Participants.
The information in this Prospectus Supplement concerning DTC, Clearstream
or Euroclear and their book-entry systems has been obtained from sources
believed to be reliable, but the Depositor takes no responsibility for the
accuracy or completeness thereof.
Certificate Balances and Notional Amount
Subject to a permitted variance of plus or minus [ ]%, the respective
Classes of Sequential Pay Certificates will have the Certificate Balances
representing the approximate percentage of the Cut-Off Date Pool Balance as
set forth in the following table:
Closing Date Percentage of
Certificate Cut-off Date
Class of Certificate Balance Pool Balance
-------------------- ------------ -------------
The "Certificate Balance" of any Class of Sequential Pay 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 Sequential Pay 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 actually allocated to
such Class of Certificates on such Distribution Date.
The Class [ ] Certificates do not have a Certificate Balance, but
represent the right to receive distributions of interest in an amount equal to
the aggregate interest accrued on the notional amount of each of the [ ]
Components, as described in this Prospectus Supplement. The Class [ ]
Certificates have [ ] separate components (each an "[ ] Component"), each
corresponding to a different Class of Sequential Pay Certificates. Each such [
] Component has the same letter and/or numerical designation as its related
Class of Sequential Pay Certificates. The notional amount of each [ ]
Component will equal the Certificate Balance of the corresponding Class of
Sequential Pay Certificates outstanding from time to time. On the Closing
Date, the aggregate of the notional amounts of all the [ ] Components will
equal approximately $[ ], which amount will equal the Cut-Off Date Pool
Balance. References in this Prospectus Supplement to the "notional amount" of
the Class [ ] Certificates shall mean the aggregate of the notional amounts of
the [ ] Components.
The Certificate Balance of any Class of Sequential Pay Certificates may
be increased by the amount, if any, of Certificate Deferred Interest added to
such Class's Certificate Balance. With respect to any Mortgage Loan as to
which the Mortgage Rate has been reduced through a modification on any
Distribution Date, "Mortgage Deferred Interest" is the amount by which (a)
interest accrued at such reduced rate is less than (b) the amount of interest
that would have accrued on such Mortgage Loan at the Mortgage Rate before such
reduction, to the extent such amount has been added to the outstanding
principal balance of such Mortgage Loan. On each Distribution Date the amount
of interest distributable to a Class of Sequential Pay Certificates will be
reduced by the amount of Mortgage Deferred Interest allocable to such Class
(any such amount, "Certificate Deferred Interest"), such allocation being in
reverse alphabetical order. The Certificate Balance of each Class of
Sequential Pay Certificates to which Certificate Deferred Interest has been so
allocated on a Distribution Date will be increased by the amount of
Certificate Deferred Interest.
The REMIC Residual Certificates do not have Certificate Balances or
notional amounts, but represent the right to receive on each Distribution Date
any portion of the Available Distribution Amount (as defined below) for such
date that remains after the required distributions have been made on all the
REMIC Regular Certificates.
Pass-Through Rates
The Pass-Through Rate applicable to the Class [ ] and Class [ ]
Certificates for each Distribution Date will equal the respective fixed rate
per annum set forth on the front cover of this Prospectus Supplement. The
Pass-Through Rate applicable to the Class [ ] Certificates for each
Distribution Date will equal the lesser of the rate set forth on the cover of
this Prospectus Supplement and the Weighted Average Net Mortgage Rate as of
the commencement of the related Interest Accrual Period. Interest will accrue
for each Class of Certificates (other than the REMIC Residual Certificates)
during the calendar month prior to the related Distribution Date (each such
period, an "Interest Accrual Period") and will be calculated assuming that
each month has 30 days and a 360-day year. Each [ ] Component accrues interest
on its related notional amount. The interest rate applicable to each [ ]
Component for any Distribution Date will equal the excess, if any, of the
Weighted Average Net Mortgage Rate for any Distribution Date over the
Pass-Through Rate applicable to the corresponding Class of Sequential Pay
Certificates. Because the Pass-Through Rates applicable to the Class [ ] and
Class [ ] Certificates is equal to the Weighted Average Net Mortgage Rate, the
Pass-Through Rate applicable to the corresponding [ ] Components will be zero.
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
their respective Stated Principal Balances on the first day of such Collection
Period; provided that, if the Mortgage Rate for any Mortgage Loan has been
modified in connection with a bankruptcy or similar proceeding involving the
related borrower or a modification, waiver or amendment granted or agreed to
by the Special Servicer, the Weighted Average Net Mortgage Rate for such
Mortgage Loan will be calculated without regard to such event. The "Net
Mortgage Rate" for each Mortgage Loan will generally equal (x) the Mortgage
Rate in effect for such Mortgage Loan as of the Cut-Off Date, minus (y) the
applicable Administrative Cost Rate for such Mortgage Loan. Notwithstanding
the foregoing, if any Mortgage Loan does not accrue interest on the basis of a
360-day year consisting of twelve 30-day months (which is the basis on which
interest accrues in respect of the REMIC Regular Certificates), then, solely
for purposes of calculating the Weighted Average Net Mortgage Rate for each
Distribution Date, the Mortgage Rate of such Mortgage Loan in effect during
any calendar month will be deemed to be the annualized rate at which interest
would have to accrue in respect of such loan on a 30/360 basis in order to
derive the aggregate amount of interest (other than default interest) actually
accrued in respect of such loan during such calendar month; provided, however,
that, with respect to each Interest Reserve Loan (as defined in this
Prospectus Supplement), the Mortgage Rate in effect during (a) December of
each year that does not immediately precede a leap year, (b) January of each
year and (c) February of each year, will be the per annum rate stated in the
related Mortgage Note. The "Stated Principal Balance" of each Mortgage Loan
outstanding at any time will generally be an amount equal to the principal
balance thereof as of the Cut-Off Date, (a) reduced on each Distribution Date
(to not less than zero) 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 and (b) increased on each Distribution Date by any
Mortgage Deferred Interest added to the principal balance of such Mortgage
Loan on such Distribution Date. The Stated Principal Balance of a Mortgage
Loan may also be reduced in connection with any forced reduction of the actual
unpaid principal balance thereof imposed by a court presiding over a
bankruptcy proceeding in which the related borrower is a debtor.
Notwithstanding the foregoing, if any Mortgage Loan is paid in full,
liquidated or otherwise removed from the Trust Fund, commencing as of the
first Distribution Date following the Collection Period during which such
event occurred, the Stated Principal Balance of such Mortgage Loan will be
zero.
The "Collection Period" for each Distribution Date is the period that
begins immediately following the Determination Date in the month preceding the
month in which such Distribution Date occurs and ends on and includes the
Determination Date in the same month as such Distribution Date. The
"Determination Date" will be the [ ]th day of each month (or, if not a
business day, the immediately succeeding business day).
Distributions
General. Distributions on the Certificates are made by the Trustee, to
the extent of the Available Distribution Amount, on the [ ]th day of each
month or, if any such [ ]th day is not a business day, then on the next
succeeding business day with the same force and effect (each, a "Distribution
Date"); provided, however, that the Distribution Date will be no earlier than
the fourth business day following the related Determination Date. Except as
described below, all such distributions will be made to the persons in whose
names the Certificates are registered (the "Certificateholders") at the close
of business on the last business day of the month preceding the month in which
the related Distribution Date occurs and shall be made by wire transfer of
immediately available funds, if such Certificateholder shall have provided
wiring instructions no less than five business days prior to such record date,
or otherwise by check mailed to the address of such Certificateholder as it
appears in the Certificate register. The final distribution on any Certificate
(determined without regard to any possible future reimbursement of any
Realized Loss or Additional Trust Fund Expense previously allocated to such
Certificate) will be made 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. 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
first Distribution Date on which investors in the Offered Certificates may
receive distributions will be the Distribution Date occurring in [ ] [ ], 20[
] .
The Available Distribution Amount. The aggregate amount available for
distributions of interest and principal to 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 by the Master Servicer as of the
close of business on the related Determination Date and not previously
distributed with respect to the Certificates or applied for any other
permitted purpose, exclusive of any portion thereof that represents one
or more of the following:
(i) any Periodic Payments collected but due on a Due Date after
the related Collection Period;
(ii) any Prepayment Premiums and Yield Maintenance Charges;
(iii) all amounts in the Certificate Account that are payable
or reimbursable to any person other than the Certificateholders,
including any Servicing Fees and Trustee Fees;
(iv) any amounts deposited in the Certificate Account in error;
(v) any Additional Interest on the ARD Loans; and
(vi) if such Distribution Date occurs during February of any
year or during January of any year that is not a leap year, the
Interest Reserve Amounts with respect to the Interest Reserve Loans
to be deposited in the Interest Reserve Account and held for future
distribution;
(b) all P&I Advances made by the Master Servicer or the Trustee with
respect to such Distribution Date;
(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; and
(d) if such Distribution Date occurs during March of any year, the
aggregate of the Interest Reserve Amounts then on deposit in the Interest
Reserve Account in respect of each Interest Reserve Loan.
See "SERVICING OF THE MORTGAGE LOANS--Servicing and Other Compensation
and Payment of Expenses" in this Prospectus Supplement, "--P&I Advances" below
and "DESCRIPTION OF THE POOLING AGREEMENTS--Certificate Account" in the
Prospectus.
Any Prepayment Premiums or Yield Maintenance Charges actually collected
will be distributed separately from the Available Distribution Amount. See
"--Distributions--Allocation of Prepayment Premiums and Yield Maintenance
Charges."
Interest Reserve Account. The Master Servicer has established and will
maintain an "Interest Reserve Account" in the name of the Trustee for the
benefit of the holders of the Certificates. With respect to each Distribution
Date occurring in February and each Distribution Date occurring in any January
which occurs in a year that is not a leap year, there will be deposited to the
Interest Reserve Account in respect of each Mortgage Loan bearing interest
computed on an actual/360 basis (the "Interest Reserve Loans") an amount equal
to one day's interest at the related Net Mortgage Rate on its Stated Principal
Balance, as of the Due Date in the month in which such Distribution Date
occurs, to the extent a Periodic Payment or P&I Advance is timely made in
respect thereof for such Due Date (all amounts so deposited in any consecutive
January (if applicable) and February in respect of each Interest Reserve Loan,
the "Interest Reserve Amount"). With respect to each Distribution Date
occurring in March, there will be withdrawn from the Interest Reserve Account
in respect of each Interest Reserve Loan the amount by which thirty days'
interest at the Net Mortgage Rate exceeds the amount of interest that actually
accrues on such Mortgage Loan, and such withdrawn amount is to be included as
part of the Available Distribution Amount for such Distribution Date.
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, in the following order of priority:
(1) to distributions of interest to the holders of the Class [ ],
Class [ ] and Class [ ] Certificates (in each case, so long as any such
Class remains outstanding), pro rata, in accordance with the respective
amounts of Distributable Certificate Interest (as defined in this
Prospectus Supplement) in respect of such Classes of Certificates on such
Distribution Date, in an amount equal to all Distributable Certificate
Interest 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 [ ]
Certificates in an amount (not to exceed the then outstanding Certificate
Balance of the Class [ ] Certificates) equal to the Principal
Distribution Amount (as defined in this Prospectus Supplement) for such
Distribution Date;
(3) after the Class [ ] Certificates have been retired, to
distributions of principal to the holders of the Class [ ] Certificates
in an amount (not to exceed the then outstanding Certificate Balance of
the Class [ ] Certificates) equal to the Principal Distribution Amount
for such Distribution Date, less any portion thereof distributed in
respect of the Class [ ] Certificates;
(4) to distributions to the holders of the Class [ ] and Class [ ]
Certificates, pro rata, in accordance with the respective amounts of
Realized Losses and Additional Trust Fund Expenses, if any, previously
allocated to such Classes of Certificates and for which no reimbursement
has previously been received, to reimburse such holders for all such
Realized Losses and Additional Trust Fund Expenses, if any;
(5) to distributions of interest to the holders of the Class [ ]
Certificates in an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and,
to the extent not previously paid, for all prior Distribution Dates;
(6) after the Class [ ] Certificates have been retired, to
distributions of principal to the holders of the Class [ ] Certificates
in an amount (not to exceed the then outstanding Certificate Balance of
the Class [ ] Certificates) equal to the Principal Distribution Amount
for such Distribution Date, less any portion thereof distributed in
respect of the Class [ ] Certificates on such Distribution Date;
(7) to distributions to the holders of the Class [ ] Certificates to
reimburse such holders for all Realized Losses and Additional Trust Fund
Expenses, if any, previously allocated to such Class of Certificates and
for which no reimbursement has previously been received;
(8) to distributions of interest to the holders of the Class [ ]
Certificates in an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and,
to the extent not previously paid, for all prior Distribution Dates;
(9) after the Class [ ] and Class [ ] Certificates have been
retired, to distributions of principal to the holders of the Class [ ]
Certificates in an amount (not to exceed the then outstanding Certificate
Balance of the Class [ ] Certificates) equal to the Principal
Distribution Amount for such Distribution Date, less any portion thereof
distributed in respect of the Class [ ] and/or Class [ ] Certificates on
such Distribution Date;
(10) to distributions to the holders of the Class [ ] Certificates
to reimburse such holders for all Realized Losses and Additional Trust
Fund Expenses, if any, previously allocated to such Class of Certificates
and for which no reimbursement has previously been received;
(11) to distributions of interest to the holders of the Class [ ]
Certificates in an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and,
to the extent not previously paid, for all prior Distribution Dates;
(12) after the Class [ ], Class [ ] and Class [ ] Certificates have
been retired, to distributions of principal to the holders of the Class [
] Certificates in an amount (not to exceed the then outstanding
Certificate Balance of the Class [ ] Certificates) equal to the Principal
Distribution Amount for such Distribution Date, less any portion thereof
distributed in respect of the Class [ ], Class [ ] and/or Class [ ]
Certificates on such Distribution Date;
(13) to distributions to the holders of the Class [ ] Certificates
to reimburse such holders for all Realized Losses and Additional Trust
Fund Expenses, if any, previously allocated to such Class of Certificates
and for which no reimbursement has previously been received;
(14) to distributions of interest to the holders of the Class [ ]
Certificates in an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and,
to the extent not previously paid, for all prior Distribution Dates;
(15) after the Class [ ], Class [ ], Class [ ] and Class [ ]
Certificates have been retired, to distributions of principal to the
holders of the Class [ ] Certificates in an amount (not to exceed the
then outstanding Certificate Balance of the Class [ ] Certificates) equal
to the Principal Distribution Amount for such Distribution Date, less any
portion thereof distributed in respect of the Class [ ], Class [ ], Class
[ ] and/or Class [ ] Certificates;
(16) to distributions to the holders of the Class [ ] Certificates
to reimburse such holders for all Realized Losses and Additional Trust
Fund Expenses, if any, previously allocated to such Class of Certificates
and for which no reimbursement has previously been received;
(17) to distributions of interest to the holders of the Class [ ]
Certificates in an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and,
to the extent not previously paid, for all prior Distribution Dates;
(18) after the Class [ ], Class [ ], Class [ ], Class [ ] and Class
[ ] Certificates have been retired, to distributions of principal to the
holders of the Class [ ] Certificates in an amount (not to exceed the
then outstanding Certificate Balance of the Class [ ] Certificates) equal
to the Principal Distribution Amount for such Distribution Date, less any
portion thereof distributed in respect of the Class [ ], Class [ ], Class
[ ], Class [ ] and/or Class [ ] Certificates;
(19) to distributions to the holders of the Class [ ] Certificates
to reimburse such holders for all Realized Losses and Additional Trust
Fund Expenses, if any, previously allocated to such Class of Certificates
and for which no reimbursement has previously been received;
(20) to distributions of interest to the holders of the Class [ ]
Certificates in an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and,
to the extent not previously paid, for all prior Distribution Dates;
(21) after the Class [ ], Class [ ], Class [ ], Class [ ], Class [ ]
and Class [ ] Certificates have been retired, to distributions of
principal to the holders of the Class [ ] Certificates in an amount (not
to exceed the then outstanding Certificate Balance of the Class [ ]
Certificates) equal to the Principal Distribution Amount for such
Distribution Date, less any portion thereof distributed in respect of the
Class [ ], Class [ ], Class [ ], Class [ ], Class [ ] and/or Class [ ]
Certificates;
(22) to distributions to the holders of the Class [ ] Certificates
to reimburse such holders for all Realized Losses and Additional Trust
Fund Expenses, if any, previously allocated to such Class of Certificates
and for which no reimbursement has previously been received;
(23) to distributions of interest to the holders of the Class [ ]
Certificates in an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and,
to the extent not previously paid, for all prior Distribution Dates;
(24) after the Class [ ], Class [ ], Class [ ], Class [ ], Class [
], Class [ ] and Class [ ] Certificates have been retired, to
distributions of principal to the holders of the Class [ ] Certificates
in an amount (not to exceed the then outstanding Certificate Balance of
the Class [ ] Certificates) equal to the Principal Distribution Amount
for such Distribution Date, less any portion thereof distributed in
respect of the Class [ ], Class [ ], Class [ ], Class [ ], Class [ ],
Class [ ] and/or Class [ ] Certificates;
(25) to distributions to the holders of the Class [ ] Certificates
to reimburse such holders for all Realized Losses and Additional Trust
Fund Expenses, if any, previously allocated to such Class of Certificates
and for which no reimbursement has previously been received;
(26) to distributions of interest to the holders of the Class [ ]
Certificates in an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and,
to the extent not previously paid, for all prior Distribution Dates;
(27) after the Class [ ], Class [ ], Class [ ], Class [ ], Class [
], Class [ ], Class [ ] and Class [ ] Certificates have been retired, to
distributions of principal to the holders of the Class [ ] Certificates
in an amount (not to exceed the then outstanding Certificate Balance of
the Class [ ] Certificates) equal to the Principal Distribution Amount
for such Distribution Date, less any portion thereof distributed in
respect of the Class [ ], Class [ ], Class [ ], Class [ ], Class [ ],
Class [ ], Class [ ] and/or Class [ ] Certificates;
(28) to distributions to the holders of the Class [ ] Certificates
to reimburse such holders for all Realized Losses and Additional Trust
Fund Expenses, if any, previously allocated to such Class of Certificates
and for which no reimbursement has previously been received;
(29) to distributions of interest to the holders of the Class [ ]
Certificates in an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and,
to the extent not previously paid, for all prior Distribution Dates;
(30) after the Class [ ], Class [ ], Class [ ], Class [ ], Class [
], Class [ ], Class [ ], Class [ ] and Class [ ] Certificates have been
retired, to distributions of principal to the holders of the Class [ ]
Certificates in an amount (not to exceed the then outstanding Certificate
Balance of the Class [ ] Certificates) equal to the Principal
Distribution Amount for such Distribution Date, less any portion thereof
distributed in respect of the Class [ ], Class [ ], Class [ ], Class [ ],
Class [ ], Class [ ], Class [ ], Class [ ] and/or Class [ ] Certificates;
(31) to distributions to the holders of the Class [ ] Certificates
to reimburse such holders for all Realized Losses and Additional Trust
Fund Expenses, if any, previously allocated to such Class of Certificates
and for which no reimbursement has previously been received;
(32) to distributions of interest to the holders of the Class [ ]
Certificates in an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and,
to the extent not previously paid, for all prior Distribution Dates;
(33) after the Class [ ] , Class [ ], Class [ ], Class [ ], Class [
], Class [ ], Class [ ], Class [ ], Class [ ] and Class [ ] Certificates
have been retired, to distributions of principal to the holders of the
Class [ ] Certificates in an amount (not to exceed the then outstanding
Certificate Balance of the Class [ ] Certificates) equal to the Principal
Distribution Amount for such Distribution Date, less any portion thereof
distributed in respect of the Class [ ], Class [ ], Class [ ], Class [ ],
Class [ ], Class [ ], Class [ ], Class [ ], Class [ ] and/or Class [ ]
Certificates;
(34) to distributions to the holders of the Class [ ] Certificates
to reimburse such holders for all Realized Losses and Additional Trust
Fund Expenses, if any, previously allocated to such Class of Certificates
and for which no reimbursement has previously been received;
(35) to distributions of interest to the holders of the Class [ ]
Certificates in an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and,
to the extent not previously paid, for all prior Distribution Dates;
(36) after the Class [ ] , Class [ ], Class [ ], Class [ ], Class [
], Class [ ], Class [ ], Class [ ], Class [ ], Class [ ] and Class [ ]
Certificates have been retired, to distributions of principal to the
holders of the Class [ ] Certificates in an amount (not to exceed the
then outstanding Certificate Balance of the Class [ ] Certificates) equal
to the Principal Distribution Amount for such Distribution Date, less any
portion thereof distributed in respect of the Class [ ], Class [ ], Class
[ ], Class [ ], Class [ ], Class [ ], Class [ ], Class [ ], Class [ ],
Class [ ] and/or Class [ ] Certificates;
(37) to distributions to the holders of the Class [ ] Certificates
to reimburse such holders for all Realized Losses and Additional Trust
Fund Expenses, if any, previously allocated to such Class of Certificates
and for which no reimbursement has previously been received;
(38) to distributions of interest to the holders of the Class [ ]
Certificates in an amount equal to all Distributable Certificate Interest
in respect of such Class of Certificates for such Distribution Date and,
to the extent not previously paid, for all prior Distribution Dates;
(39) after the Class [ ], Class [ ], Class [ ], Class [ ], Class [
], Class [ ], Class [ ], Class [ ], Class [ ], Class [ ], Class [ ] and
Class [ ] Certificates have been retired, to distributions of principal
to the holders of the Class [ ] Certificates in an amount (not to exceed
the then outstanding Certificate Balance of the Class [ ] Certificates)
equal to the Principal Distribution Amount for such Distribution Date,
less any portion thereof distributed in respect of the Class [ ], Class [
], Class [ ], Class [ ], Class [ ], Class [ ], Class [ ], Class [ ],
Class [ ], Class [ ], Class [ ] and/or Class [ ] Certificates;
(40) to distributions to the holders of the Class [ ] Certificates
to reimburse such holders for all Realized Losses and Additional Trust
Fund Expenses, if any, previously allocated to such Class of Certificates
and for which no reimbursement has previously been received; and
(41) 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 (40) above;
provided that, on each Distribution Date, if any, after the aggregate of the
Certificate Balances of the Subordinate Certificates has been reduced to zero
(prior to retirement of the Class [ ] Certificates) as a result of the
allocations of Realized Losses and Additional Trust Fund Expenses, and in any
event on the final Distribution Date in connection with a termination of the
Trust Fund (see "DESCRIPTION OF THE CERTIFICATES--Termination" in this
Prospectus Supplement), the payments of principal to be made as contemplated
by clauses (2) and (3) above with respect to the Class [ ] Certificates will
be so made to the holders of the respective Classes of such Certificates up to
an amount equal to, and pro rata as between such Classes in accordance with,
the respective then outstanding Certificate Balances of such Classes of
Certificates and without regard to the Principal Distribution Amount for such
date.
Distributable Certificate Interest. The "Distributable Certificate
Interest" in respect of each Class of REMIC Regular Certificates for each
Distribution Date equals the Accrued Certificate Interest in respect of such
Class of Certificates for such Distribution Date, reduced (other than in the
case of the Class [ ] Certificates) (to not less than zero) by (i) 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") and (ii) any Certificate Deferred
Interest allocated to such Class of REMIC Regular Certificates.
The "Accrued Certificate Interest" in respect of each Class of Sequential
Pay 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 for the related Interest Accrual Period on the
related Certificate Balance outstanding immediately prior to such Distribution
Date. The "Accrued Certificate Interest" in respect of the Class [ ]
Certificates for any Distribution Date will equal the aggregate of one month's
interest at the applicable Pass-Through Rate on the notional amount of each [
] Component outstanding immediately prior to such Distribution Date. Accrued
Certificate Interest will be calculated on a 30/360 basis.
The portion of the Net Aggregate Prepayment Interest Shortfall for any
Distribution Date that is allocable to each Class of REMIC Regular
Certificates (other than the Class [ ] 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 Accrued Certificate Interest
in respect of such Class of Certificates for such Distribution Date, and the
denominator of which is equal to the aggregate Accrued Certificate Interest in
respect of all Classes of REMIC Regular Certificates (other than the Class [ ]
Certificates) for such Distribution Date.
Principal Distribution Amount. The "Principal Distribution Amount" for
each Distribution Date will generally equal the aggregate of the following
(without duplication) to the extent paid by the related borrower during the
related Collection Period or advanced by the Master Servicer or the Trustee,
as applicable:
(a) the aggregate of the principal portions of all Scheduled
Payments (other than Balloon Payments) and of 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, to the extent not previously paid by the related borrower or
advanced by the Master Servicer or Trustee, as applicable, prior to such
Collection Period;
(b) the aggregate of all 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 made by or on behalf of the related borrower
during the related Collection Period (including any Balloon Payment), net
of any portion of such payment that represents a recovery of the
principal portion of any Scheduled Payment (other than a Balloon Payment)
due, or the principal portion of any Assumed Scheduled Payment deemed
due, in respect of such Mortgage Loan on a Due Date during or prior to
the related Collection Period and not previously recovered;
(d) the aggregate of the principal portion of all Liquidation
Proceeds, Insurance Proceeds (each as defined in the Prospectus),
condemnation awards and proceeds of Mortgage Loan repurchases and
Substitution Shortfall Amounts and, to the extent not otherwise included
in clause (a), (b) or (c) above, payments and other amounts that were
received on or in respect of Mortgage Loans during the related Collection
Period and that were identified and applied by the Master Servicer as
recoveries of principal, in each case net of any portion of such amounts
that represents a recovery of the principal portion of any Scheduled
Payment (other than a Balloon Payment) due, or of the principal portion
of any Assumed Scheduled Payment deemed due, in respect of the related
Mortgage Loan on a Due Date during or prior to the related Collection
Period and not previously recovered; and
(e) if such Distribution Date is subsequent to the initial
Distribution Date, the excess, if any, of the Principal Distribution
Amount for the immediately preceding Distribution Date, over the
aggregate distributions of principal made on the Certificates on such
immediately preceding Distribution Date.
The "Scheduled Payment" due on any Mortgage Loan on any related Due Date
is the amount of the Periodic Payment (including Balloon Payments) that is or
would have been, as the case may be, due thereon on such date, without regard
to any waiver, modification or amendment of such Mortgage Loan granted or
agreed to by the Special Servicer or otherwise resulting from a bankruptcy or
similar proceeding involving the related borrower, without regard to the
accrual of Additional Interest on or the application of any Excess Cash Flow
to pay principal on an ARD Loan, without regard to any acceleration of
principal by reason of default, and with the assumption that each prior
Scheduled Payment has been made in a timely manner. The "Assumed Scheduled
Payment" is an amount deemed due (i) on any Balloon Loan that is delinquent in
respect of its Balloon Payment beyond the first Determination Date that
follows its stated maturity date and (ii) on an REO Mortgage Loan. The Assumed
Scheduled Payment deemed due on any such Balloon Loan on its stated maturity
date and on each successive related Due Date that it remains or is deemed to
remain outstanding will 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, if any, and to accrue interest at the Mortgage
Rate in effect as of the Closing Date. The Assumed Scheduled Payment deemed
due on any REO Mortgage Loan on each Due Date that the related REO Property
remains part of the Trust Fund will equal the Scheduled Payment that would
have been due in respect of such Mortgage Loan on such Due Date had it
remained outstanding (or, if such Mortgage Loan was a Balloon Mortgage Loan
and such Due Date coincides with or follows what had been its stated maturity
date, the Assumed Scheduled Payment that would have been deemed due in respect
of such Mortgage Loan on such Due Date had it remained outstanding).
Distributions of the Principal Distribution Amount will constitute the
only distributions of principal on the Certificates. 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.
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 determining (i) distributions on the Certificates, (ii)
allocations of Realized Losses and Additional Trust Fund Expenses to the
Certificates, and (iii) the amount of Trustee Fees and Servicing Fees payable
under the Pooling and Servicing Agreement, as having remained outstanding
until such REO Property is liquidated. In connection therewith, operating
revenues and other proceeds derived from such REO Property (net of related
operating costs) will be "applied" by the Master Servicer as principal,
interest and other amounts that would have been "due" on such 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. References to "Mortgage Loan" or "Mortgage Loans" in the
definitions of "Principal Distribution Amount" and "Weighted Average Net
Mortgage Rate" are intended to include any Mortgage Loan as to which the
related Mortgaged Property has become an REO Property (an "REO Mortgage
Loan").
Allocation of Prepayment Premiums and Yield Maintenance Charges. In the
event a borrower is required to pay any Yield Maintenance Charge or any
Prepayment Premium, the amount of such payments actually collected will be
distributed in respect of the Offered Certificates and the Class [ ], Class [
], Class [ ] and Class [ ] Certificates as set forth below. "Yield Maintenance
Charges" are fees paid or payable, as the context requires, as a result of a
prepayment of principal on a Mortgage Loan, which fees have been calculated
(based on Scheduled Payments on such Mortgage Loan) to compensate the holder
of the Mortgage for reinvestment losses based on the value of a discount rate
at or near the time of prepayment. Any other fees paid or payable, as the
context requires, as a result of a prepayment of principal on a Mortgage Loan,
which are calculated based upon a specified percentage (which may decline over
time) of the amount prepaid are considered "Prepayment Premiums."
Prepayment Premiums collected on a Mortgage Loan during the related
Collection Period will be distributed as follows: on each Distribution Date
and with respect to the collection of any Prepayment Premiums, the holders of
each Class of Offered Certificates and the Class [ ], Class [ ], Class [ ] and
Class [ ] Certificates then entitled to distributions of principal on such
Distribution Date will be entitled to an amount of Prepayment Premiums equal
to the product of (a) the amount of such Prepayment Premiums, multiplied by
(b) a fraction, the numerator of which is equal to the amount of principal
distributable to such Class of Offered Certificates or applicable Non-Offered
Certificates on such Distribution Date, and the denominator of which is the
Principal Distribution Amount for such Distribution Date, multiplied by (c) [
]%. The remaining portion of Prepayment Premiums will be distributed to the
Class [ ] Certificates.
Yield Maintenance Charges collected on a Mortgage Loan during the related
Collection Period will be distributed as follows: on each Distribution Date
and with respect to the collection of any Yield Maintenance Charges, the
holders of each Class of Offered Certificates or applicable Non-Offered
Certificates then entitled to distributions of principal on such Distribution
Date will be entitled to an amount of Yield Maintenance Charges equal to the
product of (a) the amount of such Yield Maintenance Charges, multiplied by (b)
a fraction (which in no event may be greater than one), the numerator of which
is equal to the excess, if any, of the Pass-Through Rate of such Class of
Offered Certificates or applicable Class of Non-Offered Certificates over the
relevant Discount Rate (as defined below), and the denominator of which is
equal to the excess, if any, of the Mortgage Rate of the prepaid Mortgage Loan
over the relevant Discount Rate, multiplied by (c) a fraction, the numerator
of which is equal to the amount of principal distributable on such Class of
Offered Certificates or applicable Class of Non-Offered Certificates on such
Distribution Date, and the denominator of which is the Principal Distribution
Amount for such Distribution Date. If there is more than one Class of Offered
Certificates and applicable Class of Non-Offered Certificates entitled to
distributions of principal on any particular Distribution Date on which a
Yield Maintenance Charge is distributable, the aggregate amount of such Yield
Maintenance Charge will be allocated among all such Classes up to, and on a
pro rata basis in accordance with, their respective entitlements thereto in
accordance with, the foregoing sentence. The portion, if any, of the Yield
Maintenance Charges remaining after any such payments to the holders of the
Offered Certificates and applicable Non-Offered Certificates will be
distributed to the holders of the Class [ ] Certificates.
The "Discount Rate" applicable to any Class of Offered Certificates or
Non-Offered Certificates will be equal to the discount rate stated in the
related mortgage loan documents used in calculating the Yield Maintenance
Charge with respect to such principal prepayment. To the extent a discount
rate is not stated therein, the "Discount Rate" will equal the yield (when
compounded monthly) on the U.S. Treasury issue with a maturity date closest to
the maturity date for the prepaid Mortgage Loan or REO Mortgage Loan. In the
event that there are two or more such U.S. Treasury issues (a) with the same
coupon, the issue with the lowest yield will be utilized, and (b) with
maturity dates equally close to the maturity date for the prepaid Mortgage
Loan or REO Mortgage Loan, the issue with the earliest maturity date will be
utilized.
For an example of the foregoing allocation of Prepayment Premiums and
Yield Maintenance Charges, see "SUMMARY OF PROSPECTUS SUPPLEMENT" in this
Prospectus Supplement. The Depositor makes no representation as to the
enforceability of the provision of any Mortgage Note requiring the payment of
a Prepayment Premium or Yield Maintenance Charge, or of the collectability of
any Prepayment Premium or Yield Maintenance Charge. See "DESCRIPTION OF THE
MORTGAGE POOL--Certain Terms and Conditions of the Mortgage Loans--Prepayment
Provisions" in this Prospectus Supplement.
Distributions of Additional Interest. On each Distribution Date, [ ]% of
any Additional Interest collected on an ARD Loan during the related Collection
Period will be distributed among all the holders of the Class [ ], Class [ ]
and Class [ ] Certificates, on a pro rata basis in accordance with the
respective initial Certificate Balances of such Classes of Certificates, and
the remainder of such Additional Interest will be distributed to the holders
of the Class [ ] Certificates. There can be no assurance that any Additional
Interest will be collected on the ARD Loans.
Subordination; Allocation of Losses and Certain Expenses
The rights of holders of the Subordinate Certificates to receive
distributions of amounts collected or advanced on the Mortgage Loans will be
subordinated, to the extent described in this Prospectus Supplement, to the
rights of holders of the Senior Certificates and each other such Class of
Subordinate Certificates, if any, with an earlier alphabetical Class
designation. This subordination is intended to enhance the likelihood of
timely receipt by the holders of the Senior Certificates of the full amount of
Distributable Certificate Interest payable in respect of such Classes of
Certificates on each Distribution Date, and the ultimate receipt by the
holders of each Class of the Class [ ] Certificates of principal in an amount
equal to the entire related Certificate Balance. Similarly, but to decreasing
degrees, this subordination is also intended to enhance the likelihood of
timely receipt by the holders of the Class [ ] Certificates of the full amount
of Distributable Certificate Interest payable in respect of such Classes of
Certificates on each Distribution Date, and the ultimate receipt by the
holders of such Certificates of, in the case of each such Class thereof,
principal equal to the entire related Certificate Balance. The protection
afforded to the holders of the Class [ ] Certificates by means of the
subordination of the Non-Offered Certificates, and to the holders of the
Senior Certificates by means of the subordination of the Subordinate
Certificates, will be accomplished by (i) 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 and (ii) by the allocation of Realized Losses and
Additional Trust Fund Expenses as described below. Until the first
Distribution Date after the aggregate of the Certificate Balances of the
Subordinate Certificates has been reduced to zero, the Class [ ] Certificates
will receive principal payments only after the Certificate Balance of the
Class [ ] Certificates has been reduced to zero. However, after the
Distribution Date on which the Certificate Balances of the Subordinate
Certificates have been reduced to zero, the Class [ ] and Class [ ]
Certificates will bear shortfalls in collections and losses incurred in
respect of the Mortgage Loans pro rata in respect of distributions of
principal and then the Class [ ], Class [ ] and Class [ ] Certificates will
bear such shortfalls pro rata in respect of distributions of interest. No
other form of credit support will be available for the benefit of the holders
of the Offered Certificates.
Allocation to the Class [ ] and Class [ ] Certificates (unless the
aggregate Certificate Principal Balance of each Class of Subordinate
Certificates has been reduced to zero, first to the Class [ ] Certificates
until the Certificate Balance thereof has been reduced to zero, then to the
Class [ ] Certificates until the Certificate Balance thereof has been reduced
to zero), for so long as they are outstanding, of the entire Principal
Distribution Amount for each Distribution Date will have the effect of
reducing the aggregate Certificate Balance of the Class [ ] and Class [ ]
Certificates at a proportionately faster rate than the rate at which the
aggregate Stated Principal Balance of the Mortgage Pool will reduce. Thus, as
principal is distributed to the holders of such Class [ ] and Class [ ]
Certificates, the percentage interest in the Trust Fund evidenced by such
Class [ ] and Class [ ] 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 such Class [ ] and Class [ ]
Certificates by the Subordinate Certificates.
On each Distribution Date, following all distributions on the
Certificates to be made on such date, the aggregate of all Realized Losses and
Additional Trust Fund Expenses that have been incurred since the Cut-Off Date
through the end of the related Collection Period and that have not previously
been allocated as described below will be allocated among the respective
Classes of Sequential Pay Certificates (in each case in reduction of their
respective Certificate Balances) as follows, but in the aggregate only to the
extent that the aggregate Certificate Balance of all Classes of Sequential Pay
Certificates remaining outstanding after giving effect to the distributions on
such Distribution Date exceeds the aggregate Stated Principal Balance of the
Mortgage Pool that will be outstanding immediately following such Distribution
Date: first, to the Class [ ] Certificates, until the remaining Certificate
Balance of such Class of Certificates is reduced to zero; second, to the Class
[ ] Certificates, until the remaining Certificate Balance of such Class of
Certificates is reduced to zero; third, to the Class [ ] Certificates, until
the remaining Certificate Balance of such Class of Certificates is reduced to
zero; fourth, to the Class [ ] Certificates, until the remaining Certificate
Balance of such Class of Certificates is reduced to zero; fifth, to the Class
[ ] Certificates, until the remaining Certificate Balance of such Class of
Certificates is reduced to zero; sixth, to the Class [ ] Certificates, until
the remaining Certificate Balance of such Class of Certificates is reduced to
zero; seventh, to the Class [ ] Certificates, until the remaining Certificate
Balance of such Class of Certificates is reduced to zero; eighth, to the Class
[ ] Certificates, until the remaining Certificate Balance of such Class of
Certificates is reduced to zero; ninth, to the Class [ ] Certificates, until
the remaining Certificate Balance of such Class of Certificates is reduced to
zero; tenth, to the Class [ ] Certificates, until the remaining Certificate
Balance of such Class of Certificates is reduced to zero; eleventh, to the
Class [ ] Certificates, until the remaining Certificate Balance of such Class
of Certificates is reduced to zero; twelfth, to the Class [ ] Certificates,
until the remaining Certificate Balance of such Class of Certificates is
reduced to zero; and, last, to the Class [ ] Certificates and the Class [ ]
Certificates, pro rata, in proportion to their respective outstanding
Certificate Balances, until the remaining Certificate Balances of such Classes
of Certificates are reduced to zero.
Any Realized Losses or Additional Trust Fund Expenses allocated in
reduction of the Certificate Balance of any Class of Sequential Pay
Certificates will result in a corresponding reduction in the notional amount
for the [ ] Component of the Class [ ] Certificates that is related to such
Class of Sequential Pay Certificates.
"Realized Losses" are losses arising from the inability 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 (or related REO
Property) is an amount generally equal to the excess, if any, of (a) the
outstanding principal balance of such Mortgage Loan as of the date of
liquidation, together with (i) all accrued and unpaid interest thereon to but
not including the Due Date in the Collection Period in which the liquidation
occurred (exclusive of any related default interest in excess of the Mortgage
Rate, Additional Interest, Prepayment Premiums or Yield Maintenance Charges)
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 (other
than Additional Interest and default interest in excess of the Mortgage Rate)
is forgiven, whether in connection with a modification, waiver or amendment
granted or agreed to by the Special Servicer or in connection with the
bankruptcy or similar proceeding involving the related borrower, the amount so
forgiven also will be treated as a Realized Loss.
"Additional Trust Fund Expenses" include, among other things, (i) any
Special Servicing Fees, Principal Recovery Fees, or Workout Fees paid to the
Special Servicer, (ii) any interest paid to the Master Servicer, and/or the
Trustee in respect of unreimbursed Advances (to the extent not otherwise
offset by penalty interest and late payment charges) and amounts payable to
the Special Servicer in connection with certain inspections of Mortgaged
Properties required pursuant to the Pooling and Servicing Agreement, and (iii)
any of certain unanticipated, expenses of the Trust Fund, including certain
indemnities and reimbursements to the Trustee of the type described under
"DESCRIPTION OF THE POOLING AGREEMENTS--Certain Matters Regarding the Trustee"
in the Prospectus, certain indemnities and reimbursements to the Master
Servicer, the Special Servicer and the Depositor of the type described under
"DESCRIPTION OF THE POOLING AGREEMENTS--Certain Matters Regarding the Master
Servicer and the Depositor" in the Prospectus (the Special Servicer having the
same rights to indemnity and reimbursement as described thereunder with
respect to the Master Servicer), certain Rating Agency fees to the extent such
fees are not paid by any other party and certain federal, state and local
taxes, and certain tax related expenses, payable from the assets of the Trust
Fund and described under "MATERIAL FEDERAL INCOME TAX CONSEQUENCES--Prohibited
Transactions Tax and Other Taxes" in the Prospectus and "SERVICING OF THE
MORTGAGE LOANS--REO Properties; Sale of Mortgage Loans" in this Prospectus
Supplement. 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 is 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 (or paid to any other Person pursuant to the
Pooling and Servicing Agreement) on such Distribution Date, in an amount that
is generally equal to the aggregate of all Periodic Payments (other than
Balloon Payments) and any Assumed Scheduled Payments, net of related Servicing
Fees and, if applicable, Swap Fees, due or deemed due, as the case may be, in
respect of the Mortgage Loans and any REO 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 (or previously advanced by the
Master Servicer) as of the close of business on the related Determination
Date. With respect to each Semi-Annual Loan, the Master Servicer will make a
P&I Advance each month (other than any month in which its Due Date occurs) in
an amount equal to one-sixth of the interest portion of the following Periodic
Payment due on such Mortgage Loan, net of related Servicing Fees and, if
applicable, Swap Fees, due or deemed due, and shall be entitled to
reimbursement for such advances from the related Periodic Payment when
collected or, if non-recoverable from such Periodic Payment, then from general
collections, in accordance with the next paragraph. No interest shall accrue
on P&I Advances made in respect of any Semi-Annual Loan until after any Due
Date on which no related Periodic Payment is collected in respect of such
Semi-Annual Loan. The Master Servicer's obligations to make P&I Advances in
respect of any Mortgage Loan, subject to the recoverability determination,
will continue until liquidation of such Mortgage Loan or disposition of any
REO Property acquired in respect thereof. However, if the Periodic Payment on
any Mortgage 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 to advance only the
amount of the reduced Periodic Payment (net of related Servicing Fees and
Trustee Fees) in respect of subsequent delinquencies. In addition, if it is
determined that an Appraisal Reduction Amount (as defined below) exists with
respect to any Required Appraisal 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 sum of (i) the product of (a) the amount of the
interest portion of the P&I Advance that would otherwise be required without
regard to this sentence, multiplied by (b) 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 and (ii) the amount of the
principal portion of the P&I Advance that would otherwise be required without
regard to this sentence. Pursuant to the terms of the Pooling and Servicing
Agreement, if the Master Servicer fails to make a P&I Advance required to be
made, the Trustee shall then be required to make such P&I Advance, in such
case, subject to the recoverability standard described below. Neither the
Master Servicer nor Trustee will be required to make a P&I Advance for Balloon
Payments, default interest, Yield Maintenance Charges, Prepayment Premiums or
Additional Interest.
The Master Servicer (or the Trustee) is entitled to recover any P&I
Advance made out of its own funds from any amounts collected in respect of the
Mortgage Loan (net of related Servicing Fees with respect to collections of
interest and net of related Principal Recovery Fees and Workout Fees with
respect to collections of principal) as to which such P&I Advance was made
whether such amounts are collected in the form of late payments, insurance and
condemnation proceeds or Liquidation Proceeds, or any other recovery of the
related Mortgage Loan or REO Property or, with respect to any Semi-Annual
Loan, the related Periodic Payment ("Related Proceeds"). Neither the Master
Servicer nor the Trustee is obligated to make any P&I Advance that it
determines in accordance with the servicing standards described in this
Prospectus Supplement, would, if made, not be recoverable from Related
Proceeds (a "Nonrecoverable P&I Advance"), and the Master Servicer (or the
Trustee) is entitled to recover, from general funds on deposit in the
Certificate Account, any P&I Advance made that it later determines to be a
Nonrecoverable P&I Advance. See "DESCRIPTION OF THE CERTIFICATES--Advances in
Respect of Delinquencies" and "DESCRIPTION OF THE POOLING
AGREEMENTS--Certificate Account" in the Prospectus.
In connection with the recovery by the Master Servicer or the Trustee of
any P&I Advance made by it or the recovery by the Master Servicer or the
Trustee of any reimbursable servicing expense incurred by it (each such P&I
Advance or expense, an "Advance"), the Master Servicer or the Trustee, as
applicable, is entitled to be paid (subject to the second preceding paragraph
with respect to Semi-Annual Loans), out of penalty interest and late payment
charges that have been collected on the related Mortgage Loan during the
calendar year in which such reimbursement is made and, in certain
circumstances, out of any other amounts then on deposit in the Certificate
Account, interest compounded annually 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 Non-Offered Certificates, interest accrued on
outstanding Advances will result in a reduction in amounts payable on the
Offered Certificates, subject to the distribution priorities described in this
Prospectus Supplement.
Appraisal Reductions
Upon the earliest of the date (each such date, a "Required Appraisal
Date") that (1) any Mortgage Loan is 60 days delinquent in respect of any
Periodic Payments, (2) any REO Property is acquired on behalf of the Trust
Fund in respect of any Mortgage Loan, (3) any Mortgage Loan has been modified
by the Special Servicer to reduce the amount of any Periodic Payment, other
than a Balloon Payment, (4) a receiver is appointed and continues in such
capacity in respect of the Mortgaged Property securing any Mortgage Loan, (5)
a borrower with respect to any Mortgage Loan becomes subject to any bankruptcy
proceeding or (6) a Balloon Payment with respect to any Mortgage Loan has not
been paid on its scheduled maturity date (each such Mortgage Loan, including
an REO Mortgage Loan, a "Required Appraisal Loan"), the Special Servicer is
required to obtain (within 60 days of the applicable Required Appraisal Date)
an appraisal of the related Mortgaged Property prepared in accordance with 12
CFR Section 225.62 and conducted in accordance with the standards of the
Appraisal Institute by a Qualified Appraiser (or with respect to any Mortgage
Loan with an outstanding principal balance less than $1 million, an internal
valuation performed by the Special Servicer), unless such an appraisal had
previously been obtained within the prior twelve months. A "Qualified
Appraiser" is an independent appraiser, selected by the Special Servicer or
the Master Servicer, that is a member in good standing of the Appraisal
Institute, and that, if the state in which the subject Mortgaged Property is
located certifies or licenses appraisers, is certified or licensed in such
state, and in each such case, who has a minimum of five years experience in
the subject property type and market. The cost of such appraisal will be
advanced by the Master Servicer, subject to the Master Servicer's right to be
reimbursed therefor out of Related Proceeds or, if not reimbursable 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, such determination
to be made by the Master Servicer upon the later of 30 days after the Required
Appraisal Date if no new appraisal is required or upon receipt of a new
appraisal (or internal valuation, if applicable) and each Determination Date
thereafter so long as the related Mortgage Loan remains a Required Appraisal
Loan. The Appraisal Reduction Amount for any Required Appraisal Loan will
equal the excess, if any, of (a) the sum (without duplication), as of the
Determination Date immediately succeeding the date on which the appraisal or
internal valuation, if applicable, is obtained and each Determination Date
thereafter so long as the related Mortgage Loan remains a Required Appraisal
Loan, of (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 or the Trustee, 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 Servicing Fees and any Additional Trust Fund Expenses in respect of
such Required Appraisal Loan, (iv) all related unreimbursed Advances (plus
accrued interest thereon) made by or on behalf of the Master Servicer, the
Special Servicer or the Trustee with respect to such Required Appraisal Loan
and (v) all currently due and unpaid real estate taxes and reserves owed for
improvements and assessments, insurance premiums, and, if applicable, ground
rents in respect of the related Mortgaged Property, over (b) an amount equal
to the sum of (i) all escrows and reserves held with respect to such Required
Appraisal Loan, plus (ii) 90% of the appraised value (net of any prior liens
and estimated liquidation expenses) of the related Mortgaged Property as
determined by such appraisal. If the Special Servicer has not obtained a new
appraisal (or performed an internal valuation, if applicable) within the time
limit described above, the Appraisal Reduction Amount for the related Mortgage
Loan will equal 25% of the principal balance of such Mortgage Loan, to be
adjusted upon receipt of the new appraisal (or internal valuation, if
applicable).
Reports to Certificateholders; Available Information
Trustee Reports. Based solely on information provided in monthly reports
prepared by the Master Servicer and the Special Servicer and delivered to the
Trustee, the Trustee is required to provide or make available either
electronically (on the Trustee's internet website initially located at "www.[
]") or by first class mail on each Distribution Date to each
Certificateholder:
1. A statement (a "Distribution Date Statement"), substantially in
the form of Annex C to this Prospectus Supplement, setting forth, among
other things, for each Distribution Date:
(i) the amount of the distribution to the holders of each Class
of REMIC Regular Certificates in reduction of the Certificate
Balance thereof;
(ii) the amount of the distribution to the holders of each
Class of REMIC Regular Certificates allocable to Distributable
Certificate Interest;
(iii) the amount of the distribution to the holders of each
Class of REMIC Regular Certificates allocable to Prepayment Premiums
and Yield Maintenance Charges;
(iv) the amount of the distribution to the holders of each
Class of REMIC Regular Certificates in reimbursement of previously
allocated Realized Losses and Additional Trust Fund Expenses;
(v) the Available Distribution Amount for such Distribution
Date;
(vi) A) the aggregate amount of P&I Advances made in respect of
such Distribution Date and (B) the aggregate amount of servicing
advances as of the close of business on the related Determination
Date; (C) the aggregate unpaid principal balance of the Mortgage
Pool outstanding as of the close of business on the related
Determination Date;
(vii) the aggregate unpaid principal balance of the Mortgage
Pool outstanding as of the close of business on the related
Determination Date;
(viii) the aggregate Stated Principal Balance of the Mortgage
Pool outstanding immediately before and immediately after such
Distribution Date;
(ix) the number, aggregate unpaid principal balance, weighted
average remaining term to maturity or Anticipated Repayment Date and
weighted average Mortgage Rate of the Mortgage Loans as of the close
of business on the related Determination Date;
(x) the number and aggregate Stated Principal Balance
(immediately after such Distribution Date) (and with respect to each
delinquent Mortgage Loan, a brief description of the reason for
delinquency, if known by the Master Servicer or Special Servicer, as
applicable) of Mortgage Loans (A) delinquent 30-59 days, (B)
delinquent 60-89 days, (C) delinquent 90 days or more, and (D) as to
which foreclosure proceedings have been commenced;
(xi) as to each Mortgage Loan referred to in the preceding
clause (x) above; (A) the loan number thereof, (B) the Stated
Principal Balance thereof immediately following such Distribution
Date and (C) a brief description of any loan modification;
(xii) with respect to any Mortgage Loan as to which a
liquidation event occurred during the related Collection Period
(other than a payment in full), (A) the loan number thereof, (B) the
aggregate of all liquidation proceeds and other amounts received in
connection with such liquidation event (separately identifying the
portion thereof allocable to distributions on the Certificates), and
(C) the amount of any Realized Loss in connection with such
liquidation event;
(xiii) with respect to any REO Property included in the Trust
Fund as to which the Special Servicer has determined, in accordance
with accepted servicing standards, that all payments or recoveries
with respect to such property have been ultimately recovered (a
"Final Recovery Determination") was made during the related
Collection Period, (A) the loan number of the related Mortgage Loan,
(B) the aggregate of all liquidation proceeds and other amounts
received in connection with such Final Recovery Determination
(separately identifying the portion thereof allocable to
distributions on the Certificates), and (C) the amount of any
Realized Loss in respect of the related REO Property in connection
with such Final Recovery Determination;
(xiv) the Accrued Certificate Interest in respect of each Class
of REMIC Regular Certificates for such Distribution Date;
(xv) any unpaid Distributable Certificate Interest in respect
of each Class of REMIC Regular Certificates after giving effect to
the distributions made on such Distribution Date;
(xvi) the Pass-Through Rate for each Class of REMIC Regular
Certificates for such Distribution Date;
(xvii) the Principal Distribution Amount for such Distribution
Date (and, in the case of any principal prepayment or other
unscheduled collection of principal received during the related
Collection Period, the loan number for the related Mortgage Loan and
the amount of such prepayment or other collection of principal);
(xviii) the aggregate of all Realized Losses incurred during
the related Collection Period and all Additional Trust Fund Expenses
incurred during the related Collection Period;
(xix) the aggregate of all Realized Losses and Additional Trust
Fund Expenses that were allocated on such Distribution Date;
(xx) the Certificate Balance of each Class of REMIC Regular
Certificates (other than the Class [ ] Certificates) and the
notional amount of each [ ] Component immediately before and
immediately after such Distribution Date, separately identifying any
reduction therein due to the allocation of Realized Losses and
Additional Trust Fund Expenses on such Distribution Date;
(xxi) the certificate factor for each Class of REMIC Regular
Certificates immediately following such Distribution Date;
(xxii) the aggregate amount of interest on P&I Advances paid to
the Master Servicer or the Trustee during the related Collection
Period;
(xxiii) the aggregate amount of interest on servicing advances
paid to the Master Servicer, the Special Servicer and the Trustee
during the related Collection Period;
(xxiv) the aggregate amount of servicing fees and Trustee fees
paid to the Master Servicer, the Special Servicer and the Trustee,
as applicable, during the related Collection Period;
(xxv) the loan number for each Required Appraisal Loan and any
related Appraisal Reduction Amount as of the related Determination
Date;
(xxvi) the original and then current credit support levels for
each Class of REMIC Regular Certificates;
(xxvii) the original and then current ratings for each Class of
REMIC Regular Certificates; and
(xxviii) the aggregate amount of Prepayment Premiums and Yield
Maintenance Charges collected during the related Collection Period.
2. A "CMSA Loan File" and a "CMSA Property File" (in electronic form
and substance as provided by the Master Servicer and/or the Special
Servicer) setting forth certain information with respect to the Mortgage
Loans and the Mortgaged Properties, respectively.
3. A "CMSA Collateral File" and a "CMSA Bond File" setting forth
certain information with respect to the Mortgaged Properties and the
Certificates, respectively.
The Master Servicer and/or the Special Servicer is required to deliver
(in electronic format acceptable to the Trustee) to the Trustee prior to each
Distribution Date, and the Trustee is required to provide or make available
either electronically or by first class mail to each Certificateholder, the
Depositor, the Underwriters and each Rating Agency on each Distribution Date,
the following eight reports providing the required information (unless
otherwise specified below) as of the Determination Date immediately preceding
the preparation of each such report:
(a) A "Delinquent Loan Status Report" containing substantially the
content set forth in Annex D attached to this Prospectus Supplement,
prepared by the Master Servicer (combining reports prepared by the Master
Servicer and the Special Servicer) setting forth, among other things,
those Mortgage Loans that 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 and status of resolution.
(b) An "Historical Loan Modification Report" containing
substantially the content set forth in Annex E attached to this
Prospectus Supplement, prepared by the Special Servicer setting forth,
among other things, those Mortgage Loans that 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.
(c) An "Historical Liquidation Report" containing substantially the
content set forth in Annex F attached to this Prospectus Supplement,
prepared by the Special Servicer setting forth, among other things, (i)
the aggregate amount of Liquidation Proceeds and expenses relating to
each Final Recovery Determination, both during the related Collection
Period and historically, and (ii) the amount of Realized Losses occurring
during the related Collection Period, set forth on a loan-by-loan basis.
(d) An "REO Status Report" containing substantially the content set
forth in Annex G attached to this Prospectus Supplement, prepared by the
Special Servicer setting forth, among other things, with respect to each
REO Property then currently included in the Trust Fund, (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 Special
Servicer as of such Determination Date (including any prepared internally
by the Special Servicer).
(e) A "Watch List Report" containing substantially the content set
forth in Annex H attached to this Prospectus Supplement, prepared by the
Master Servicer identifying each Mortgage Loan that is not a Specially
Serviced Mortgage Loan (i) with a debt service coverage ratio of less
than 1.05x (other than in the case of Credit Lease Loans), (ii) that has
a stated maturity date occurring in the next sixty days, (iii) that is
delinquent in respect of its real estate taxes, (iv) for which any
outstanding Advances exist, (v) that has been a Specially Serviced
Mortgage Loan in the past 90 days, (vi) for which the debt service
coverage ratio has decreased by more than 10% in the prior 12 months,
(vii) for which any lease relating to more than 25% of the related
Mortgaged Property has expired, been terminated, is in default or will
expire within the next three months, (viii) that is late in making its
Periodic Payment three or more times in the preceding 12 months, (ix)
with material deferred maintenance at the related Mortgaged Property or
(x)that is 30 or more days delinquent.
(f) An "Operating Statement Analysis" containing substantially the
content set forth in Annex I attached to this Prospectus Supplement,
together with copies of the operating statements and rent rolls (but only
to the extent the related borrower is required by the Mortgage to
deliver, or otherwise agrees to provide, such information). The Master
Servicer or the Special Servicer is required consistent with the
servicing standards described in this Prospectus Supplement to endeavor
to obtain such operating statements and rent rolls.
(g) With respect to any Mortgaged Property or REO Property, an "NOI
Adjustment Worksheet" containing substantially the content set forth in
Annex J attached to this Prospectus Supplement, for such property (with
the related annual operating statements attached thereto as an exhibit),
presenting the computations made in accordance with the methodology
described in the Pooling and Servicing Agreement to "normalize" the full
year net operating income and debt service coverage numbers used by the
Master Servicer or the Special Servicer in the other reports referenced
above.
(h) A "Comparative Financial Status Report" containing substantially
the content set forth in Annex K attached to this Prospectus Supplement,
setting forth, among other things, the occupancy, revenue, net operating
income and DSCR for each Mortgage Loan or the related Mortgaged Property,
as applicable, as of the end of the calendar month immediately preceding
the preparation of such report for each of the following three periods
(to the extent such information is in the Master Servicer's or Special
Servicer's possession, as applicable): (i) the most current available
year-to-date, (ii) each of the previous two full fiscal years stated
separately; and (iii) the "base year" (representing the original analysis
of information used as of the Cut-Off Date).
The reports identified in clauses (a), (b), (c) and (d) above are
referred to in this Prospectus Supplement as the "Unrestricted Servicer
Reports", and the reports identified in clauses (e), (f), (g) and (h) above
are referred to in this Prospectus Supplement as the "Restricted Servicer
Reports".
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) certain items provided to
Certificateholders 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 required to include the
amount of original issue discount accrued on each Class of Certificates and
information regarding the expenses of the Trust Fund. Such requirements shall
be deemed to be satisfied to the extent such information is provided pursuant
to applicable requirements of the Code in force from time to time.
The information that pertains to Specially Serviced Trust Fund Assets
reflected in reports will be based solely upon the reports delivered by the
Special Servicer or the Master Servicer to the Trustee prior to related
Distribution Date. Absent manifest error, none of the Master Servicer, the
Special Servicer or the Trustee will 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.
Book-Entry Certificates. Until such time as Definitive Offered
Certificates are issued in respect of the Book-Entry Certificates, the
foregoing information will be available to the holders of the Book-Entry
Certificates only to the extent it is forwarded by or otherwise available
through DTC and its Participants. Any beneficial owner of a Book-Entry
Certificate who does not receive information through DTC or its Participants
may request that the Trustee reports be mailed directly to it by written
request to the Trustee (accompanied by evidence of such beneficial ownership)
at the Corporate Trust Office of the Trustee. The manner in which notices and
other communications are conveyed by DTC to its Participants, and by its
Participants to the holders of the Book-Entry Certificates, will be governed
by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time. The Master Servicer, the
Special Servicer, the Trustee and the Depositor are required to recognize as
Certificateholders only those persons in whose names the Certificates are
registered on the books and records of the Certificate Registrar.
Information Available Electronically. The Trustee will make available
each month, to any interested party, the Distribution Date Statement via the
Trustee's internet website and its fax-on-demand service. In addition, the
Trustee will make available each month the Unrestricted Servicer Reports on
the Trustee's internet website. The Trustee's internet website will initially
be located at "www.[ ]". The Trustee's fax-on-demand service may be accessed
by calling[ ]. For assistance with the above mentioned services, investors may
call [ ]. In addition, the Trustee will also make Mortgage Loan information as
presented in the CMSA loan setup file, CMSA Collateral File, CMSA Bond File
and CMSA Loan File format available each month to any Certificateholder, any
Certificate Owner, the Rating Agencies, or any other interested party via the
Trustee's internet website. In addition, pursuant to the Pooling and Servicing
Agreement, the Trustee will make available, as a convenience for interested
parties (and not in furtherance of the distribution of the Prospectus or this
Prospectus Supplement under the securities laws), the Pooling and Servicing
Agreement, the Prospectus and this Prospectus Supplement via the Trustee's
internet website. The Trustee will make no representations or warranties as to
the accuracy or completeness of such documents and will assume no
responsibility therefor. In addition, the Trustee may disclaim responsibility
for any information distributed by the Trustee for which it is not the
original source.
The Trustee will make available each month, the Restricted Servicer
Reports and the CMSA Property File, to any holder or Certificate Owner of an
Offered Certificate or any person identified to the Trustee as a prospective
transferee of an Offered Certificate or any interest therein, any designee of
the Depositor, the Rating Agencies, the Underwriters and to any of the parties
to the Pooling and Servicing Agreement (collectively, "Privileged Persons")
via the Trustee's internet website with the use of a password provided by the
Trustee to such person upon receipt by the Trustee from such person of a
certification in the form attached to the Pooling and Servicing Agreement (and
located on the Trustee's internet website); provided, however, that the Rating
Agencies, the Underwriters and the parties to the Pooling and Servicing
Agreement will not be required to provide such certification.
The Master Servicer may make available each month via the Master
Servicer's internet website, initially located at "www.firstunion.com", to any
interested party, the Delinquent Loan Status Report, the Historical Loan
Modification Report, the Historical Liquidation Report, the REO Status Report,
the Watch List Report, the Comparative Financial Status Report, the CMSA loan
setup file, the CMSA Loan File, the CMSA Property File, and, as a convenience
for interested parties (and not in furtherance of the distribution thereof
under the securities laws) the Prospectus and this Prospectus Supplement. For
assistance with the Master Servicer's internet website, investors may call [
].
In connection with providing access to the Trustee's internet website or
the Master Servicer's internet website, the Trustee or the Master Servicer, as
applicable, may require registration and the acceptance of a disclaimer.
Neither the Trustee nor the Master Servicer shall be liable for the
dissemination of information in accordance with the Pooling and Servicing
Agreement.
Other Information. The Pooling and Servicing Agreement requires that the
Master Servicer or the Special Servicer make available at its offices
primarily responsible for administration of the Trust Fund, during normal
business hours, or send the requesting party at the expense of such requesting
party, for review by any holder or Certificate Owner owning an Offered
Certificate or an interest therein or any person identified by the Trustee to
the Master Servicer or Special Servicer, as the case may be, as a prospective
transferee of an Offered Certificate or an interest therein, 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 by the Master
Servicer since the Closing Date as described under "DESCRIPTION OF THE POOLING
AGREEMENTS--Evidence as to Compliance" in the Prospectus, (d) all accountants'
reports delivered with respect to the Master Servicer since the Closing Date
as described under "DESCRIPTION OF THE POOLING AGREEMENTS--Evidence as to
Compliance" in the Prospectus, (e) the most recent property inspection report
prepared by or on behalf of the Master Servicer in respect of each Mortgaged
Property, (f) the most recent Mortgaged Property annual operating statements
and rent roll, if any, collected by or on behalf of the Master Servicer, (g)
any and all modifications, waivers and amendments of the terms of a Mortgage
Loan entered into by the Special Servicer, (h) the Mortgage File relating to
each Mortgage Loan, and (i) any and all officers' certificates and other
evidence prepared by the Master Servicer or the Special Servicer to support
its determination that any Advance was or, if made, would not be recoverable
from Related Proceeds. Copies of any and all of the foregoing items will be
available from the Master Servicer or Special Servicer, as the case may be,
upon request; however, the Master Servicer or Special Servicer, as the case
may be, will be permitted to require (other than from the Rating Agencies) a
certification from the person seeking such information (covering among other
matters, confidentiality) and payment of a sum sufficient to cover the
reasonable costs and expenses of providing such information to
Certificateholders, Certificate Owners and their prospective transferees,
including, without limitation, copy charges and reasonable fees for employee
time and for space.
Assumed Final Distribution Date; Rated Final Distribution Date
The "Assumed Final Distribution Date" with respect to any Class of REMIC
Regular Certificates is the Distribution Date on which the Certificate Balance
of such Class of Certificates (or, in the case of the Class [ ] Certificates,
the aggregate of the notional amounts of the respective [ ] Components) would
be reduced to zero based on the assumption that no Mortgage Loan is
voluntarily prepaid prior to its stated maturity date (except for the ARD
Loans which are assumed to be paid in full on their respective Anticipated
Repayment Dates) and otherwise based on the "Table Assumptions" set forth
under "YIELD AND MATURITY CONSIDERATIONS--Weighted Average Life" in this
Prospectus Supplement, which Distribution Date shall in each case be as
follows:
Assumed Final
Class Designation Distribution Date
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 [ ]% CPR (as defined in this Prospectus
Supplement) (except that it is assumed that the ARD Loans pay their respective
principal balances on their related Anticipated Repayment Dates) and no losses
on the Mortgage Loans. Because the rate of principal payments (including
prepayments) on the Mortgage Loans can be expected to exceed the scheduled
rate of principal payments, and could exceed such scheduled rate by a
substantial amount, and because losses may occur in respect of the Mortgage
Loans, 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 principal 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 principal payment experience. Finally, the Assumed Final Distribution
Dates were calculated assuming there would not be an early termination of the
Trust Fund. See "YIELD AND MATURITY CONSIDERATIONS" in this Prospectus
Supplement and "DESCRIPTION OF THE MORTGAGE POOL" in this Prospectus
Supplement and in the accompanying Prospectus.
The "Rated Final Distribution Date" with respect to each Class of Offered
Certificates is the Distribution Date in [ ] [ ], 20[ ], the first
Distribution Date that follows the second anniversary of 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 Offered 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" in this
Prospectus Supplement.
Voting Rights
At all times during the term of the Pooling and Servicing Agreement, [ ]%
of the voting rights for the Certificates (the "Voting Rights") will be
allocated among the respective Classes of Certificates as follows: (i) [ ]% in
the case of the Class [ ] Certificates and (ii) in the case of any other Class
of Certificates, a percentage equal to the product of [ ]% and a fraction, the
numerator of which is equal to the aggregate Certificate Balance of such Class
of Certificates and the denominator of which is equal to the aggregate
Certificate Balances of all Classes of Certificates, determined as of the
Distribution Date immediately preceding such time. The Class [ ], Class [ ]
and Class [ ] Certificates will not be entitled to any Voting Rights of those
Classes. 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. The Class [ ] and
Class [ ] Certificates will be treated as one Class for determining the
Controlling Class. In addition, if either the Master Servicer or the Special
Servicer is the holder of any Sequential Pay Certificate, neither of the
Master Servicer or Special Servicer, in its capacity as a Certificateholder,
will have Voting Rights with respect to matters concerning compensation
affecting the Master Servicer or the Special Servicer. See "DESCRIPTION OF THE
CERTIFICATES--Voting Rights" in the Prospectus.
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 all of the REO Properties, if any, remaining in the Trust Fund by the
Master Servicer, the Special Servicer, the Depositor or any single
Certificateholder that is entitled to greater than 50% of the Voting Rights
allocated to the Class of Sequential Pay Certificates with the latest
alphabetical class designation then outstanding (or if no Certificateholder is
entitled to greater than 50% of the Voting Rights of such Class, the
Certificateholder with the largest percentage of Voting Rights allocated to
such Class) (the "Majority Subordinate Certificateholder") and distribution or
provision for distribution thereof to the Certificateholders. 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 Special Servicer, the
Depositor or the Majority Subordinate Certificateholder of all the Mortgage
Loans and all of the REO Properties, if any, 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 REO Mortgage Loans) 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 independent appraiser selected
by the Master Servicer and approved by the Trustee (which may be less than the
Purchase Price for the corresponding REO Loan), minus (iii) if the purchaser
is the Master Servicer, the aggregate of amounts payable or reimbursable to
the Master Servicer under the Pooling and Servicing Agreement. Such purchase
will effect early retirement of the then outstanding Offered Certificates, but
the right of the Master Servicer, the Special Servicer, the Majority
Subordinate Certificateholder or the Depositor to effect such purchase is
subject to the requirement that the aggregate principal balance of the
Mortgage Loans is less than 1% of the Cut-Off Date Pool Balance.
The purchase price paid in connection with the purchase of all Mortgage
Loans and REO Properties remaining in the Trust Fund, exclusive of any portion
thereof payable or reimbursable to any person other than the
Certificateholders, will constitute part of the Available Distribution Amount
for the final Distribution Date. The Available Distribution Amount for the
final Distribution Date will be distributed by the Trustee generally as
described in this Prospectus Supplement under "--Distributions--Application of
the Available Distribution Amount", except that the distributions of principal
on any Class of Sequential Pay Certificates described thereunder will be made,
subject to available funds and the distribution priorities described
thereunder, in an amount equal to the entire Certificate Balance of such Class
remaining outstanding.
The Trustee
[ ] ("[ ] ") is acting as Trustee pursuant to the Pooling and Servicing
Agreement. [ ], a direct, wholly owned subsidiary of [ ], is a national
banking association originally chartered in [ ] and is engaged in a wide range
of activities typical of a national bank. [ ]'s principal office is located
at[ ], [ ], [ ]. Certificate transfer services are conducted at [ ]'s offices
in[ ]. [ ] otherwise conducts its trustee and securities administration
services at its offices in [ ], [ ]. Its address there is [ ].
Certificateholders and other interested parties should direct their inquires
to[ ]'s CMBS Customer Service office. The telephone number is [ ]. See
"DESCRIPTION OF THE POOLING AGREEMENTS--The Trustee," "--Duties of the
Trustee," "--Certain Matters Regarding the Trustee" and "--Resignation and
Removal of the Trustee" in the Prospectus. As compensation for its services,
the Trustee will be entitled to receive monthly, from general funds on deposit
in the Certificate Account, the Trustee Fee. The "Trustee Fee" for each
Mortgage Loan and REO Loan for any Distribution Date equals one month's
interest for the most recently ended calendar month (calculated on the basis
of a 360-day year consisting of twelve 30-day months), accrued at the trustee
fee rate on the Stated Principal Balance of such Mortgage Loan or REO Loan, as
the case may be, outstanding immediately following the prior Distribution Date
(or, in the case of the initial Distribution Date, as of the Closing Date).
The trustee fee rate is a per annum rate set forth in the Pooling and
Servicing Agreement. In addition, the Trustee will be entitled to recover from
the Trust Fund all reasonable unanticipated expenses and disbursements
incurred or made by the Trustee in accordance with any of the provisions of
the Pooling and Servicing Agreement, but not including expenses incurred in
the ordinary course of performing its duties as Trustee under the Pooling and
Servicing Agreement, and not including any such expense, disbursement or
advance as may arise from its willful misconduct, negligence or bad faith.
The Trustee also has certain duties with respect to REMIC administration
(in such capacity the "REMIC Administrator"). See "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES--Taxation of Owners of REMIC Residual Certificates--Reporting and
Other Administrative Matters" in the Prospectus.
<PAGE>
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 (deemed, in
the case of a Class [ ] Certificate, to equal the weighted average of the
Pass-Through Rates for the respective [ ] Components from time to time), (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 or
notional amount of the related Class or [ ] Component, as the case may be,
(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 or notional amount of the related
Class or [ ]Component, as the case may be, and (iv) the timing and severity of
any Net Aggregate Prepayment Interest Shortfalls and the extent to which such
shortfalls allocable in reduction of the Distributable Certificate Interest
payable on the related Class.
Rate and Timing of Principal Payment. The yield to holders of the Class [
] Certificates will be extremely sensitive to, and the yield to holders of any
other 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 of any Class of Sequential Pay Certificates and,
correspondingly, the notional amount of any [ ] Component. As described in
this Prospectus Supplement, the Principal Distribution Amount for each
Distribution Date will generally be distributable first in respect of the
Class [ ] Certificates until the Certificate Balance thereof is reduced to
zero, and thereafter will generally be distributable entirely in respect of
the Class [ ] Certificates, the Class [ ] Certificates and then the
Non-Offered Certificates, in that order, in each case until the Certificate
Balance of such Class of Certificates is reduced to zero. Any reduction of the
Certificate Balance of any Class of Sequential Pay Certificates will result in
a corresponding reduction in the notional amount of the related [ ] Component.
Consequently, the rate and timing of principal payments that are distributed
or otherwise result in reduction of the Certificate Balance of any Class of
Offered Certificates or the notional amount of an [ ] Component, as the case
may be, 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,
any extension of maturity dates by the Master Servicer or the Special
Servicer, 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). In addition, although the borrowers under ARD
Loans may have certain incentives to repay ARD Loans on their Anticipated
Repayment Dates, there can be no assurance that the related borrowers will be
able to repay the ARD Loans on their Anticipated Repayment Date. The failure
of a borrower to repay the ARD Loans on their Anticipated Repayment Dates will
not be an event of default under the terms of the ARD Loans, and pursuant to
the terms of the Pooling and Servicing Agreement, neither the Master Servicer
nor the Special Servicer will be permitted to take any enforcement action with
respect to a borrower's failure to pay Additional Interest or principal in
excess of the principal component of the constant Periodic Payment, other than
requests for collection, until the scheduled maturity of the ARD Loans;
provided, that the Master Servicer or the Special Servicer, as the case may
be, may take action to enforce the Trust Fund's right to apply Excess Cash
Flow to principal in accordance with the terms of the ARD Loans documents.
Prepayments and, assuming the respective stated maturity dates therefor
have not occurred, liquidations and purchases of the Mortgage Loans, will
result in distributions on the Certificates of amounts that would otherwise be
distributed over the remaining terms of the Mortgage Loans. Defaults on the
Mortgage Loans, particularly at or near their stated maturity dates, may
result in significant delays in payments of principal on the Mortgage Loans
(and, accordingly, on the Offered Certificates that are Sequential Pay
Certificates) while work-outs are negotiated or foreclosures are completed.
See "SERVICING OF THE MORTGAGE LOANS--Modifications, Waivers and Amendments"
in this Prospectus Supplement and "DESCRIPTION OF THE POOLING
AGREEMENTS--Realization Upon Defaulted Mortgage 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 in turn are
distributed or otherwise result in reduction of the Certificate Balance or
notional amount of a Component, as the case may be, 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 a Class [ ] Certificate
or any other 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 or
otherwise results in reduction of the principal balance (or notional amount of
an [ ] Component, as applicable) of an 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. Investors in the Class [ ] Certificates should fully
consider the risk that a rapid rate of principal prepayments on the Mortgage
Loans could result in the failure of such investors to recoup their initial
investments. 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 by the holders of the
respective Classes of Sequential Pay Certificates, to the extent of amounts
otherwise distributable in respect of such Certificates, in reverse
alphabetical order of their Class designations. Realized Losses and Additional
Trust Fund Expenses will be allocated, as and to the extent described in this
Prospectus Supplement, to the respective Classes of Sequential Pay
Certificates (in reduction of the Certificate Balance of each such Class), in
reverse alphabetical order of their Class designations. In the event of a
reduction of the Certificate Balances of all such Classes of Certificates,
such losses and shortfalls will then be borne, pro rata, by the Class [ ] and
Class [ ] Certificates (and the Class [ ] Certificates with respect to
shortfalls of interest). Any Realized Loss or Additional Trust Fund Expenses
allocated in reduction of the Certificate Balance of any Class of Sequential
Pay Certificates will result in a corresponding reduction in the notional
amount of the related [ ] Component. As more fully described in this
Prospectus Supplement under "DESCRIPTION OF THE
CERTIFICATES--Distributions--Distributable Certificate Interest," Net
Aggregate Prepayment Interest Shortfalls will generally be borne by the
respective Classes of REMIC Regular Certificates (other than the Class [ ]
Certificates) on a pro rata basis.
Pass-Through Rates. The Pass-Through Rates applicable to each [ ]
Component will be variable and will be equal to the excess, if any, of the
Weighted Average Net Mortgage Rate for such Distribution Date over the
Pass-Through Rate applicable to the corresponding Class of Sequential Pay
Certificates. Accordingly, the Pass-Through Rate on the [ ] Components and,
correspondingly, the yield on the Class [ ] Certificates, will be sensitive to
changes in the relative composition of the Mortgage Pool as a result of
scheduled amortization, voluntary prepayments and liquidations and to changes
in the relative sizes of the Certificate Balances of the respective Classes of
Sequential Pay Certificates. The yield on the Class [ ] and Class [ ]
Certificates could also be adversely affected if Mortgage Loans with higher
interest rates pay faster than the Mortgage Loans with lower interest rates,
since those classes bear interest at a rate limited by the Weighted Average
Net Mortgage Rate of the Mortgage Loans.
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, due-on-sale clauses, Lockout
Periods, provisions requiring the payment of Prepayment Premiums and Yield
Maintenance Charges 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, hotel/motel guest rooms, health care facility beds, mobile home park
pads 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"
in this Prospectus Supplement and "Yield Considerations--Prepayment
Considerations" in the Prospectus.
The rate of prepayment on the Mortgage Pool is likely to be affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below a mortgage
interest rate, the related borrower may have an incentive to refinance its
mortgage loan. As of the Cut-Off Date, all of the Mortgage Loans may be
prepaid at any time after the expiration of any applicable Lockout Period
and/or any period when the holder of a Mortgage may require a borrower to
pledge Defeasance Collateral in lieu of prepaying the related Mortgage Loan (a
"Required Defeasance Period"), subject, in most cases, to the payment of a
Prepayment Premium or a Yield Maintenance Charge. A requirement that a
prepayment be accompanied by a Prepayment Premium or Yield Maintenance Charge
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
whether 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 up to [ ]
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 Distributable Certificate Interest. As described under
"DESCRIPTION OF THE CERTIFICATES --Distributions--Application of the Available
Distribution Amount" in this Prospectus Supplement, 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
Distributable Certificate Interest 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.
Yield Sensitivity of the Class [ ] Certificates. The yield to maturity on
the Class [ ] Certificates will be extremely sensitive to the rate and timing
of principal payments (including by reason of prepayments, defaults and
liquidations) and interest rate reductions on the Mortgage Loans. Accordingly,
investors in the Class [ ] Certificates should fully consider the associated
risks, including the risk that a rapid rate of prepayment of the Mortgage
Loans could result in the failure of such investors to fully recoup their
initial investments. The allocation of a portion of collected Prepayment
Premiums and Yield Maintenance Charges to the Class [ ] Certificates is
intended to reduce those risks; however, such allocation may be insufficient
to offset fully the adverse effects on the yields on such Class of
Certificates that the related prepayments may otherwise have.
Any optional termination of the Trust Fund would result in prepayment in
full of the Certificates and would have an adverse effect on the yield of the
Class [ ] Certificates because a termination would have an effect similar to a
prepayment in full of the Mortgage Loans (without, however, the payment of any
Prepayment Premiums or Yield Maintenance Charges) and, as a result, investors
in the Class [ ] Certificates and any other Certificates purchased at a
premium might not fully recoup their initial investment. See " DESCRIPTION OF
THE CERTIFICATES--Termination" in this Prospectus Supplement.
Price/Yield Tables
The tables beginning on page B-1 of this Prospectus Supplement (the
"Yield Tables") show the pre-tax corporate bond equivalent ("CBE") yield to
maturity, modified duration (except in the case of the Class [ ]
Certificates), weighted average life, first Distribution Date on which
principal is to be paid ("First Principal Payment Date") and final
Distribution Date on which principal is to be paid ("Last Principal Payment
Date") with respect to each Class of Offered Certificates, prepared using the
Table Assumptions (as described below) and, where applicable, the specified
assumed purchase prices (which prices do not include accrued interest).
Assumed purchase prices are expressed in 32nds (i.e., 100/04 means 100 4/32%)
as a percentage of the initial Certificate Balance (or, in the case of the
Class [ ] Certificates, of the aggregate of the initial notional amounts of
the respective [ ] Components) of each Class of Offered Certificates. For
purposes of the Yield Tables relating to the Class [ ] Certificates, the
information therein relating to weighted average life, First Principal Payment
Date and Last Principal Payment Date is being calculated in respect of the
aggregate notional amount of the respective [ ] Components of the Class [ ]
Certificates.
The yields set forth in the Yield Tables were calculated by determining
the monthly discount rates which, when applied to the assumed stream of cash
flows to be paid on each Class of Offered Certificates, would cause the
discounted present value of such assumed stream of cash flows to equal the
assumed purchase prices, plus accrued interest from and including [ ] [ ] ,
20[ ] to but excluding [ ] [ ] , 20[ ] , and by converting such monthly rates
to semi-annual corporate bond equivalent rates. Such calculation does not take
into account variations that may occur in the interest rates at which
investors may be able to reinvest funds received by them as distributions on
the Offered Certificates and consequently does not purport to reflect the
return on any investment in such Classes of Offered Certificates when such
reinvestment rates are considered. For purposes of the Yield Tables (except in
the case of the Class [ ] Certificates), "modified duration" has been
calculated using the modified Macaulay Duration as specified in the "PSA
Standard Formulas." The Macaulay Duration is calculated as the present value
weighted average time to receive future payments of principal and interest,
and the PSA Standard Formula modified duration is calculated by dividing the
Macaulay Duration by the appropriate semi-annual compounding factor. The
duration of a security may be calculated according to various methodologies;
accordingly, no representation is made by the Depositor or any other person
that the "modified duration" approach used in this Prospectus Supplement is
appropriate. Duration, like yield, will be affected by the prepayment rate of
the Mortgage Loans and extensions in respect of Balloon Payments that actually
occur during the life of the Class [ ] and Class [ ] Certificates and by the
actual performance of the Mortgage Loans, all of which may differ, and may
differ significantly, from the assumptions used in preparing the Yield Tables.
Prepayments on mortgage loans may be measured by a prepayment standard or
model. The model used in this Prospectus Supplement is the "Constant
Prepayment Rate" or "CPR" model. The CPR model represents an assumed constant
annual rate of prepayment each month, expressed as a per annum percentage of
the then scheduled principal balance of the pool of mortgage loans. As used in
the Yield Tables, the column headed "0% CPR" assumes that none of the Mortgage
Loans is prepaid in whole or in part before maturity or the Anticipated
Repayment Date, as the case may be. The columns headed "[ ]% CPR", "[ ]% CPR",
"[ ]% CPR" and "[ ]% CPR," respectively, assume that prepayments are made each
month at those levels of CPR on the Mortgage Loans that are eligible for
prepayment under the Table Assumptions set forth in the next paragraph (each
such scenario, a "Scenario"). There is no assurance, however, that prepayments
on the Mortgage Loans will conform to any level of CPR, and no representation
is made that the Mortgage Loans will prepay at the levels of CPR shown or at
any other prepayment rate.
The Yield Tables were derived from calculations based on the following
assumptions (the "Table Assumptions"): (i) no Mortgage Loan prepays during any
applicable Lockout Period or any period during which Defeasance Collateral is
permitted or required to be pledged (otherwise, in the case of each of the
Yield Tables, each Mortgage Loan is assumed to prepay at the indicated level
of CPR, with each prepayment being applied on the first day of the applicable
month in which it is assumed to be received), (ii) the Pass-Through Rates and
initial Certificate Balances of the respective Classes of Sequential Pay
Certificates are as described in this Prospectus Supplement, (iii) there are
no delinquencies or defaults with respect to, and no modifications, waivers or
amendments of the terms of, the Mortgage Loans, (iv) there are no Realized
Losses, Additional Trust Fund Expenses or Appraisal Reduction Amounts with
respect to the Mortgage Loans or the Trust Fund, (v) scheduled interest and
principal payments on the Mortgage Loans are timely received, (vi) ARD Loans
pay in full on their Anticipated Repayment Dates, (vii) all Mortgage Loans
have Due Dates on the first day of each month and accrue interest on the
respective basis described in this Prospectus Supplement (i.e., a 30/360 basis
or an actual/360 basis), (viii) all prepayments are accompanied by a full
month's interest and there are no Prepayment Interest Shortfalls, (ix) there
are no breaches of the applicable Mortgage Loan Seller's representations and
warranties regarding its Mortgage Loans, (x) no Prepayment Premiums or Yield
Maintenance Charges are collected, (xi) no party entitled thereto exercises
its right of optional termination of the Trust Fund described in this
Prospectus Supplement, (xii) distributions on the Certificates are made on the
[ ]th day (each assumed to be a business day) of each month, commencing in [ ]
[ ] 20[ ] , and (xiii) the Closing Date for the sale of the Offered
Certificates is [ ] [ ], 20[ ].
The periods, if any, between consecutive Due Dates occurring prior to the
maturity date or Anticipated Repayment Date, as applicable, of a Mortgage Loan
during which the related borrower will have the right to prepay such Mortgage
Loan without being required to pay a Prepayment Premium or a Yield Maintenance
Charge (each such period, an "Open Period") with respect to all the Mortgage
Loans, have been calculated as those Open Periods occurring immediately prior
to the maturity date or Anticipated Repayment Date as applicable.
The characteristics of the Mortgage Loans differ in certain respects from
those assumed in preparing the Yield Tables, and the Yield Tables are
presented for illustrative purposes only. In particular, none of the Mortgage
Loans permit voluntary partial prepayments. Thus neither the Mortgage Pool nor
any Mortgage Loan will prepay at any constant rate, and it is unlikely that
the Mortgage Loans will prepay in a manner consistent with the designated
Scenario for the Yield Tables. In addition, there can be no assurance that the
Mortgage Loans will prepay at any particular rate, that the Mortgage Loans
will not prepay (involuntarily or otherwise) despite prepayment restrictions,
that the actual pre-tax yields on, or any other payment characteristics of,
any Class of Offered Certificates will correspond to any of the information
shown in the Yield Tables, or that the aggregate purchase prices of the
Offered Certificates will be as assumed. Accordingly, investors must make
their own decisions as to the appropriate assumptions (including prepayment
assumptions) to be used in deciding whether to purchase the Offered
Certificates.
Weighted Average Life
The weighted average life of any Class [ ], Class [ ] or Class [ ]
Certificate refers to the average amount of time that will elapse from the
assumed Closing Date until each dollar allocable to principal of such
Certificate is distributed to the investor. The weighted average life of any
such 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, which may
be in the form of scheduled amortization, voluntary prepayments, insurance and
condemnation proceeds and liquidation proceeds. As described in this
Prospectus Supplement, the Principal Distribution Amount for each Distribution
Date will generally be distributable first in respect of the Class [ ]
Certificates until the Certificate Balance thereof is reduced to zero, and
will thereafter generally be distributable entirely in respect of the Class [
] Certificates and the Class [ ] Certificates, in that order, in each case
until the Certificate Balance of such Class of Certificates is reduced to
zero.
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. The tables have been prepared on the basis
of the Table Assumptions. To the extent that the Mortgage Loans or the
Certificates have characteristics that differ from those assumed in preparing
the tables, the Class [ ], Class [ ] and/or Class [ ] Certificates may mature
earlier or later than indicated by the tables. In particular, voluntary
prepayments on the Mortgage Loans in fact are not permitted. Accordingly, the
Mortgage Loans will not prepay at any constant rate nor will the Mortgage
Loans prepay at the same rate, and it is highly unlikely that the Mortgage
Loans will prepay in a manner consistent with the assumptions described above.
In addition, variations in the actual prepayment experience and in the balance
of the Mortgage Loans that actually 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.
The tables set forth below were prepared on the basis of the Table
Assumptions and indicate the resulting weighted average lives of each Class of
Offered Certificates (other than the Class [ ] Certificates) and set forth the
percentages of the initial Certificate Balance of such Class of Offered
Certificates that would be outstanding after each of the dates shown in each
case assuming the indicated level of CPR. For purposes of the following
tables, the weighted average life of an Offered Certificate (other than the
Class [ ] Certificates) is determined by (i) multiplying the amount of each
principal distribution thereon by the number of years from the assumed Closing
Date of such Certificate to the related Distribution Date, (ii) summing the
results and (iii) dividing the sum by the aggregate amount of the reductions
in the principal balance of such Certificate.
<TABLE>
<CAPTION>
Percentages of the Closing Date Certificate Balance of the Class [ ] Certificates
0% CPR During Lockout and Defeasance
Otherwise at Indicated CPR
---------------------------------------------------------------------
Distribution Date 0% CPR [ ]% CPR [ ]% CPR [ ]% CPR [ ]% CPR
- ----------------- ------ -------- -------- -------- --------
<S> <C>
</TABLE>
<TABLE>
<CAPTION>
Percentages of the Closing Date Certificate Balance of the Class [ ] Certificates
0% CPR During Lockout and Defeasance
Otherwise at Indicated CPR
Distribution Date 0% CPR [ ]% CPR [ ]% CPR [ ]% CPR [ ]% CPR
- ----------------- ------ -------- -------- -------- --------
<S> <C>
</TABLE>
<TABLE>
<CAPTION>
Percentages of the Closing Date Certificate Balance of the Class [ ] Certificates
0% CPR During Lockout and Defeasance
Otherwise at Indicated CPR
Distribution Date 0% CPR [ ]% CPR [ ]% CPR [ ]% CPR [ ]% CPR
- ----------------- ------ -------- -------- -------- --------
<S> <C>
</TABLE>
Yield Sensitivity of the Class [ ] Certificates
The yield to maturity on the Class [ ] Certificates will be extremely
sensitive to the rate and timing of principal payments (including
prepayments), principal losses and interest rate reductions due to
modifications on the Mortgage Loans and to other factors set forth above.
Investors should fully consider the associated risks, including the risk that
a rapid rate of principal payments or principal losses on the Mortgage Pool
could result in the failure by investors in the Class [ ] Certificates to
fully recoup their initial investments.
Any optional termination by the Special Servicer, the Master Servicer,
the Depositor or the Majority Subordinate Certificateholder would result in
prepayment in full of the Certificates and would have an adverse effect on the
yield of the Class [ ] Certificates because a termination would have an effect
similar to a principal prepayment in full of the Mortgage Loans (without,
however, the payment of any Prepayment Premiums or Yield Maintenance Charges)
and, as a result, investors in the Class [ ] Certificates and any other
Certificates purchased at premium might not fully recoup their initial
investment. See "DESCRIPTION OF THE CERTIFICATES--Termination" in this
Prospectus Supplement.
The table below indicates the sensitivity of the pre-tax corporate bond
equivalent yields to maturity of the Class [ ] Certificates at various prices
and constant prepayment rates. The allocations and calculations do not take
account of any Prepayment Premiums or Yield Maintenance Charges. The yields
set forth in the table were calculated by determining the monthly discount
rates that, when applied to the assumed stream of cash flows to be paid on the
Class [ ] Certificates, would cause the discounted present value of such
assumed stream of cash flows to equal the assumed purchase prices plus accrued
interest of such Class of Certificates and converting such monthly rates to
corporate bond equivalent rates. Such calculations do not take into account
variations that may occur in the interest rates at which investors may be able
to reinvest funds received by them as distributions on the Class [ ]
Certificates and consequently do not purport to reflect the return on any
investment in such Class of Certificates when such reinvestment rates are
considered.
The table below has been prepared based on the assumption that
distributions are made in accordance with "DESCRIPTION OF THE
CERTIFICATES--Distributions" in this Prospectus Supplement and on the Table
Assumptions and with the assumed respective purchase prices (as a percentage
of the aggregate of the notional amounts of the components of the Class [ ]
Certificates) of the Class [ ] Certificates set forth in the table, plus
accrued interest thereon from [ ], 20[ ] to the Closing Date and on the
additional assumption that the Pass-Through Rates for all of the Sequential
Pay Certificates are as stated on page S-[ ] of this Prospectus Supplement.
<TABLE>
<CAPTION>
Sensitivity to Principal of the Pre-Tax Yields to Maturity
of the Class [ ] Certificates
Assumed Purchased Price 0% CPR [ ]% CPR [ ]% CPR [ ]% CPR [ ]% CPR
- ----------------------- ------ -------- -------- -------- --------
<S> <C>
</TABLE>
There can be no assurance that the Mortgage Loans will prepay at any of
the rates shown in the table or at any other particular rate, that the cash
flows on the Class [ ] Certificates will correspond to the cash flows assumed
for purposes of the above table or that the aggregate purchase price of the
Class [ ] Certificates will be as assumed. In addition, it is unlikely that
the Mortgage Loans will prepay at any of the specified percentages of CPR
until maturity or that all the Mortgage Loans will so prepay at the same rate.
Timing of changes in the rate of prepayments may significantly affect the
actual yield to maturity to investors, even if the average rate of principal
prepayments is consistent with the expectations of investors. Investors must
make their own decisions as to the appropriate prepayment assumption to be
used in deciding whether to purchase the Class [ ] Certificates.
<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.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Offered
Certificates is based on the advice of [ ], counsel to the Depositor. This
summary is based on laws, regulations, including the REMIC regulations
promulgated by the Treasury Department (the "REMIC Regulations"), rulings and
decisions now in effect or (with respect to the regulations) proposed, all of
which are subject to change either prospectively or retroactively. This
summary does not address the federal income tax consequences of an investment
in Offered Certificates applicable to all categories of investors, some of
which (for example, banks and insurance companies) may be subject to special
rules. Prospective investors should consult their tax advisors regarding the
federal, state, local and other tax consequences to them of the purchase,
ownership and disposition of Offered Certificates.
For federal income tax purposes, one or more separate REMIC elections
will be made with respect to segregated asset pools that make up the trust,
other than any Additional Interest on the ARD Loans. Upon the issuance of the
Offered Certificates, [ ] 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 each REMIC will qualify as a REMIC
under the Code. For federal income tax purposes, the REMIC Regular
Certificates (or, in the case of the Class [ ] Certificates, the respective
Components thereof) will represent ownership of the "regular interests" in one
of such REMICs and generally will be treated as debt instruments of such
REMIC. See "MATERIAL FEDERAL INCOME TAX CONSEQUENCES--REMICs" in the
Prospectus.
Certificateholders' entitlement to a portion of the Additional Interest
will be treated as a Grantor Trust Strip Certificate (as defined in the
accompanying Prospectus) issued by an entity treated as a grantor trust for
United States federal income tax purposes. Certificateholders will be required
to allocate their basis between the portion of the Offered Certificates
treated as a REMIC regular interest (or in the case of the Class [ ]
Certificate, the [ ] Components treated as REMIC regular interests) and their
right to Additional Interest based on the relative fair market value of such
REMIC regular interest and their right to Additional Interest as of the date
of issuance. The accrual of income with respect to Additional Interest is not
entirely clear and Certificateholders should consult their own tax advisor
regarding the accrual of income with respect to the Additional Interest. See
"MATERIAL FEDERAL INCOME TAX CONSEQUENCES--Taxation of Owners of Grantor Trust
Fractional Interest Certificates--Taxation of Owners of Grantor Trust Strip
Certificates" in the accompanying Prospectus.
Based on expected issue prices, the Class [ ] Certificates will, and
certain of the Sequential Pay Certificates, depending on their issue price,
may, be treated as having been issued with original issue discount for federal
income tax reporting purposes. In addition, although there is no clear
authority, the trust intends to treat the respective [ ] Components as
instruments issued with OID. The prepayment assumption that will be used in
determining the rate of accrual of original issue discount 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
0%, except that it is assumed that the ARD Loans pay their respective
outstanding principal balances on their related Anticipated Repayment Dates.
No representation is made that the Mortgage Loans will prepay at that rate or
at any other rate. See "MATERIAL FEDERAL INCOME TAX CONSEQUENCES--REMICs--
Taxation of Owners of REMIC Regular Certificates-Original Issue Discount" in
the Prospectus.
If the method for computing original issue discount described in the
Prospectus results in a negative amount for any period with respect to a
Certificateholder (in particular, the holder of a Class [ ] Certificate), the
amount of original issue discount allocable to such period would be zero and
such Certificateholder will be permitted to offset such negative amount only
against future original issue discount (if any) attributable to such
Certificates. Although the matter is not free from doubt, a holder of a Class
[ ] Certificate may be permitted to deduct a loss to the extent that his or
her respective remaining basis in such Certificate exceeds the maximum amount
of future payments to which such Certificateholder is entitled, assuming no
further prepayments of the Mortgage Loans. Any such loss might be treated as a
capital loss.
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. Purchasers
of the Offered Certificates should be aware that the OID Regulations and
Section 1272(a)(6) of the Code do not adequately address certain issues
relevant to, or are not applicable to, securities such as the Offered
Certificates. 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 OID Regulations provide in general that original issue discount with
respect to debt instruments issued in connection with the same or related
transactions are treated as a single debt instrument for purposes of computing
the accrual of original issue discount with respect to such debt instruments.
This aggregation rule ordinarily is only to be applied when single debt
instruments are issued by a single issuer to a single holder. Although it is
not entirely clear that this aggregation rule applies to REMIC Regular
Certificates and other debt instruments subject to Section 1272(a)(6) of the
Code, information reports or returns sent to holders of the Class [ ]
Certificates and the IRS with respect to the Class [ ] Certificates will be
based on such aggregate method. However, a literal reading of the regulations
addressing integration would not allow the integration of the portion of the
Trust Fund treated as a Grantor Trust Strip Certificate and the portion
treated as a REMIC regular interest held by a Certificateholder. Prospective
purchasers of the Class [ ] Certificates are advised to consult their own tax
advisers about the use of this methodology and potential consequences of being
required to report original issue discount on the Class [ ] Certificates.
Certain classes of the Offered Certificates bear interest at the lesser of a
fixed rate and a Weighted Average Net Mortgage Rate. Although it is not
entirely clear that such interest constitutes "qualified stated interest" for
purposes of the OID Regulations, the Trust Fund will report it as such.
The Offered Certificates may be treated for federal income tax purposes
as having been issued at a premium. Whether any holder of such a class of
Certificates will be treated as holding a certificate with amortizable bond
premium will depend on such Certificateholder's purchase price and the
distributions remaining to be made on such Certificate at the time of its
acquisition by such Certificateholder. Holders of each such class of
Certificates should consult their own tax advisors regarding the possibility
of making an election to amortize such premium. See "MATERIAL FEDERAL INCOME
TAX CONSEQUENCES--Taxation of Owners of REMIC Regular Certificates--Premium"
in the accompanying Prospectus.
The Offered Certificates will be treated as "real estate assets" within
the meaning of Section 856(c)(5)(B) of the Code generally in the same
proportion that the assets of the Trust Fund would be so treated. 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, investment in the Offered
Certificates may not be suitable for certain thrift institutions.
Prepayment Premiums and Yield Maintenance Charges actually collected will
be distributed to the holders of the Offered Certificates as described in this
Prospectus Supplement. It is not entirely clear under the Code when the amount
of a Prepayment Premium or Yield Maintenance Charge should be taxed to the
holder of an Offered Certificate, but it is not expected, for federal income
tax reporting purposes, that Prepayment Premiums and Yield Maintenance Charges
will be treated as giving rise to any income to the holders of the Offered
Certificates prior to the Master Servicer's actual receipt of a Prepayment
Premium or Yield Maintenance Charge. It is not entirely clear whether
Prepayment Premiums or Yield Maintenance Charges give rise to ordinary income
or capital gains and Certificateholders should consult their own tax advisors
concerning this character issue and the treatment of Prepayment and Yield
Maintenance Charges in general.
The Treasury Department has issued new regulations (the "New
Regulations") which make certain modifications to the withholding, backup
withholding, and information reporting rules described in the prospectus. The
New Regulations attempt to unify certification requirements and to modify
reliance standards. The New Regulations will be generally effective for
payments made after December 31, 2000 , subject to certain transition rules.
Prospective investors are urged to consult their tax advisors regarding the
New Regulations.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES--REMICs" in the Prospectus.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities, Keogh
plans and collective investment funds, 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 individual exemptions to each of
the Underwriters (Prohibited Transaction Exemption 96-22 (April 3, 1996) to
First Union Corporation, and its subsidiaries and its affiliates, which
include First Union Securities, Inc.; and Prohibited Transaction Exemption
90-29 ([ ] , 20[ ]) to [ ] ("[ ] ") (each, an "Exemption" and collectively,
the "Exemptions"), each of which generally exempts from the application of the
prohibited transaction provisions of Sections 406(a) and (b) and 407(a) of
ERISA, and the excise taxes imposed on such prohibited transactions pursuant
to Sections 4975(a) and (b) of the Code, 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 discussion, the term
"Underwriter" shall include (a) First Union Securities, Inc., (b) [ ] , (c)
any person directly or indirectly, through one or more intermediaries,
controlling, controlled by or under common control with First Union
Securities, Inc. or [ ] and (d) any member of the underwriting syndicate or
selling group of which First Union Securities or [ ] or a person described in
(c) is a manager or co-manager with respect to the Offered Certificates.
The obligations covered by the Exemptions include mortgage loans such as
the Mortgage Loans. The Exemptions would apply to the acquisition, holding and
resale of the Certificates by a Plan only if specific conditions (certain of
which are described below) are met. It is not clear whether the Exemptions
apply to participant directed plans as described in Section 404(c) of ERISA or
plans that are subject to Section 4975 of the Code but that are not subject to
Title 1 of ERISA, such as certain Keogh plans and certain individual
retirement accounts. In addition, when it issued the Exemptions, the
Department of Labor did not consider mortgages containing defeasance
provisions as described in this Prospectus Supplement. Accordingly, it is not
clear what the impact on the Exemptions would be if such defeasance provisions
were exercised.
The Exemptions set forth six general conditions that, among others, must
be satisfied for a transaction involving the purchase, sale and holding of
Class [ ], Class [ ] and Class [ ] Certificates by a Plan to be eligible for
exemptive relief thereunder. First, the acquisition of the 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 such Certificates must not be subordinated to the
rights and interests evidenced by the other certificates of the same trust.
Third, such 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
Rating Services, a division of The McGraw-Hill Companies, Inc. ("S&P"),
("Standard & Poor's Rating Services"), Duff & Phelps Credit Rating Co.
("DCR"). "), Moody's Investors Service, Inc. ("Moody's") and Fitch IBCA, Inc.
("Fitch")") (each, an "NRSRO"). Fourth, the Trustee cannot be an affiliate of
any other member of the "Restricted Group," which consists of each of the
Underwriters, the Depositor, the Master Servicer, the Special Servicer, the
Trustee, any sub-servicer, and any borrower with respect to Mortgage Loans
constituting more than 5.0% of the aggregate unamortized principal balance of
the Mortgage Loans as of the date of initial issuance of such Certificates.
Fifth, the sum of all payments made to and retained by any Underwriter in
connection with the distribution or placement of Certificates must represent
not more than reasonable compensation for underwriting such 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, a 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.
A fiduciary of a Plan contemplating purchasing any such Certificate must
make its own determination that, at the time of such purchase, such
Certificate satisfies the general conditions set forth above.
The Exemptions also require 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 S&P, DCR, Moody's or Fitch for at least one year prior to the
Plan's acquisition of such 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 such Certificates.
If the general conditions of the Exemptions are satisfied, they 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
such Certificates in the initial issuance of Certificates between the
Depositor or an Underwriter and a Plan when the Depositor, an Underwriter, the
Trustee, the Master Servicer, the Special Servicer, a sub-servicer or a
borrower 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 Senior Certificates by a Plan and (iii) the holding
of Senior 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 such 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 Exemptions are also satisfied, each
such Exemption may provide relief 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 to an obligor acting as a fiduciary with respect to the investment
of a Plan's assets in the Certificates (or such obligor's affiliate) only if,
among other requirements (i) such obligor (or its affiliate) is an obligor
with respect to 5% or less of the fair market value of the assets contained in
the Trust and is otherwise not a member of the Restricted Group, (ii) a Plan's
investment in Certificates does not exceed 25% of all of the Certificates
outstanding at the time of the acquisition, (iii) immediately after the
acquisition, no more than 25% of the assets of the Plan are invested in
certificates representing an interest in trusts (including the Trust Fund)
containing assets sold or serviced by the Depositor or the Master Servicer and
(iv) in the case of the acquisition of the Certificates in connection with
their initial issuance, at least 50% of the aggregate interest in the Trust
Fund is acquired by persons independent of the Restricted Group.
The Exemptions also apply to transactions in connection with the
servicing, management and operation of the Trust Fund, provided that, in
addition to the general requirements described above, (a) such transactions
are carried out in accordance with the terms of a binding pooling and
servicing agreement and (b) the pooling and servicing agreement is provided
to, or described in all material respects in the prospectus or private
placement memorandum provided to, investing Plans before their purchase of
Certificates issued by the Trust Fund. The Pooling and Servicing Agreement is
a pooling and servicing agreement as defined in the Exemptions. The Pooling
and Servicing Agreement provides that all transactions relating to the
servicing, management and operations of the Trust Fund must be carried out in
accordance with the Pooling and Servicing Agreement.
Before purchasing any Senior Certificate, a fiduciary of a Plan should
itself confirm that the specific and general conditions of the Exemptions and
the other requirements set forth in the Exemptions would be satisfied.
The characteristics of the Class [ ] Certificates do not meet the
requirements of the Exemptions. Accordingly, Certificates of those Classes may
not be acquired by a Plan, other than an insurance company general account,
which may be able to rely on Section III of PTE 95-60 (discussed below).
Section III of Department of Labor Prohibited Transaction Class Exemption
95-60 ("PTE 95-60") provides relief from the application of the prohibited
transaction provisions of Sections 406(a), 406(b) and 407(a) of ERISA and
Section 4975 of the Code for transactions in connection with the servicing,
management and operation of a trust (such as the Trust Fund) in which an
insurance company general account has an interest as a result of its
acquisition of certificates issued by the trust, provided that certain
conditions are satisfied. If these conditions are met, insurance company
general accounts would be allowed to purchase classes of Certificates (such as
the Class [ ] Certificates) which do not meet the requirements of the
Exemption solely because they (i) are subordinated to other classes of
Certificates in the Trust Fund and/or (ii) have not received a rating at the
time of the acquisition in one of the three highest rating categories from
S&P, DCR, Moody's or Fitch. All other conditions of the Exemption would have
to be satisfied in order for PTE 95-60 to be available. Before purchasing
Class [ ] Certificates, an insurance company general account seeking to rely
on Section III of PTE 95-60 should itself confirm that it is eligible for, and
has satisfied all applicable conditions and other requirements of relief under
such section.
Any Plan fiduciary considering the purchase of Certificates should
consult with its counsel with respect to the applicability of the Exemptions
and other issues and determine on its own whether all conditions have been
satisfied and whether the Certificates are an appropriate investment for a
Plan under ERISA and the Code (or, in the case of governmental plans, under
applicable Federal, state or local law). Each purchaser of Class [ ] or Class
[ ] Certificates with the assets of one or more Plans shall be deemed to
represent that each such Plan qualifies as an "accredited investor" as defined
in Rule 501(a)(1) of Regulation D under the Securities Act. No Plan may
purchase or hold Class [ ] or Class [ ] Certificates unless such Certificates
are rated in one of the top three rating categories by at least one NRSRO at
the time of such purchase, unless such Plan is an insurance company general
account that represents and warrants that it is eligible for, and meets all of
the requirements of, Part III of Prohibited Transaction Class Exemption 95-60.
Each Purchaser of Class [ ] Certificates shall be deemed to represent that it
is eligible for, and meets all of the requirements of, Part III of Prohibited
Transaction Class Exemption 95-60.
LEGAL INVESTMENT
Any Offered Certificates rated in the category of "AAA" or "AA" (or the
equivalent) by at least one Rating Agency will constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984, as amended ("SMMEA"). All other Offered Certificates (the "Non-SMMEA
Certificates") will not constitute "mortgage related securities" for purposes
of SMMEA. As a result, the appropriate characterization of the Non-SMMEA
Certificates under various legal investment restrictions, and thus the ability
of investors subject to these restrictions to purchase the Non-SMMEA
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 the underwriting
agreement (the "Underwriting Agreement") among the Depositor and First Union
Securities, Inc. and [ ] ("[ ]", and together with First Union Securities,
Inc., the "Underwriters"), the Depositor has agreed to sell to each of First
Union Securities, Inc. and [ ], and each of First Union Securities and [ ],
has agreed to purchase, severally but not jointly, the respective Certificate
Balances, or notional amounts, as applicable, of each Class of the Offered
Certificates as set forth below subject in each case to a variance of [ ]%;
Class First Union Securities, Inc. [ ]
- ----- -------------------------------- ------------
First Union Securities, Inc. and [ ] are acting as co-lead managers of
the offering.
Proceeds to the Depositor from the sale of the Offered Certificates,
before deducting expenses payable by the Depositor, will be approximately $[
], which includes accrued interest.
Distribution of the Offered Certificates will be made by each Underwriter
from time to time in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. Sales of the Offered Certificates may also
occur on the Closing Date and other dates after the Closing Date, as agreed
upon in negotiated transactions with various purchasers. Each 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 such Underwriter. In connection
with the purchase and sale of the Offered Certificates, First Union Securities
and [ ] may be deemed to have received compensation from the Depositor in the
form of underwriting discounts. Each Underwriter and any dealers that
participate with any 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.
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 Underwriters that each of
them, through one or more of its affiliates, currently intends to make a
market in the Offered Certificates; however, neither Underwriter has any
obligation to do so, any market making may be discontinued at any time and
there can be no assurance that an active secondary market for the Offered
Certificates will develop. See "RISK FACTORS--Limited Liquidity for Offered
Certificates" in this Prospectus Supplement and in the Prospectus.
This Prospectus Supplement and the Prospectus may be used by the
Depositor, First Union Securities, Inc., an affiliate of the Depositor, and
any other affiliate of the Depositor when required under the federal
securities laws in connection with offers and sales of Offered Certificates in
furtherance of market-making activities in Offered Certificates. First Union
Securities, Inc. or any such other affiliate may act as principal or agent in
such transactions. Such sales will be made at prices related to prevailing
market prices at the time of sale or otherwise.
The Depositor has agreed to indemnify each Underwriter and each person,
if any, who controls any Underwriter within the meaning of Section 15 of the
Securities Act against, or make contributions to each Underwriter and each
such controlling person with respect to, certain liabilities, including
liabilities under the Securities Act.
First Union Securities, Inc., one of the Underwriters, is an affiliate of
the Depositor, First Union National Bank and the Master Servicer. [ ] , one of
the Underwriters, is an affiliate of [ ], one of the Mortgage Loan Sellers.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor by [ ], [ ],
[ ] and certain legal matters will be passed upon for the Underwriters by[ ],
[ ], [ ].
RATINGS
The Offered Certificates are required as a condition of their issuance to
have received the following ratings from [ ] and [ ] (the "Rating Agencies"):
Ratings from
Class [ ]/[ ]
---------- ----------------
The ratings on the Offered Certificates address the likelihood of timely
receipt by holders thereof of all distributions of interest to which they are
entitled and, except in the case of the Class [ ] Certificates, distributions
of principal by the Rated Final Distribution Date set forth on the cover page
of this Prospectus Supplement. 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. A security rating does not represent any assessment of the yield
to maturity that investors may experience or the possibility that the holders
of the Class [ ] Certificates might not fully recover their investment in the
event of rapid prepayments of the Mortgage Loans (including both voluntary and
involuntary prepayments). In addition, a rating does not address (i) the
likelihood or frequency of voluntary or mandatory prepayments of Mortgage
Loans, (ii) the degree to which such prepayments might differ from those
originally anticipated, (iii) payment of Additional Interest or net default
interest, (iv) whether and to what extent payments of Prepayment Premiums or
Yield Maintenance Charges will be received or the corresponding effect on
yield to investors or (v) whether and to what extent Net Aggregate Prepayment
Interest Shortfalls will be realized. As described in this Prospectus
Supplement, the amounts payable with respect to the Class [ ] Certificates
consist only of interest. If the entire Mortgage Pool were to prepay in the
initial month, with the result that the holders of the Class [ ] Certificates
receive only a single month's interest and thus suffer a nearly complete loss
of their investment, all amounts "due" to such Certificateholders will
nevertheless have been paid, and such result is consistent with the ratings
received on the Class [ ] Certificates. The Class [ ] Certificates' notional
amount upon which interest is calculated is reduced by the allocation of
Realized Losses, Additional Trust Fund Expenses and prepayments, whether
voluntary or involuntary. The rating does not address the timing or magnitude
of reductions of the notional amounts of the [ ] Components, but only the
obligation to pay interest timely on the notional amount as reduced from time
to time. Accordingly, the ratings of the Class [ ] Certificates should be
evaluated independently from similar ratings on other types of securities.
[ ] assigns the additional symbol of "r" to highlight classes of
securities that [ ] believes may experience high volatility or high
variability in expected returns due to non-credit risks; however, the absence
of an "r" symbol should not be taken as an indication that a class will
exhibit no volatility or variability in total return.
A downgrade, qualification (if applicable) or withdrawal of a rating with
respect to the Enhancement Insurer, a Residual Value Insurer, a Tenant or a
Guarantor may adversely affect the ratings of the Offered Certificates.
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 not
been requested by the Depositor to do so may be lower than the rating assigned
thereto by any 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--Ratings Do Not Guarantee Payment and Do Not Address Prepayment Risks"
in the Prospectus.
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
Page
----
<S> <C>
[ ] Component..................................................................................................100
30/360 basis....................................................................................................58
AA..............................................................................................................39
AAA............................................................................................................131
Accrued Certificate Interest...................................................................................106
Actual/360 basis................................................................................................58
Additional Interest.............................................................................................58
Additional Rights...............................................................................................63
Administrative Cost Rate........................................................................................67
Advance........................................................................................................111
Anticipated Repayment Date......................................................................................58
Appraisal Reduction Amount.....................................................................................112
ARD Loans.......................................................................................................58
Assumed Final Distribution Date................................................................................117
Assumed Scheduled Payment......................................................................................107
Available Distribution Amount..................................................................................102
B...............................................................................................................63
Balloon Loans...................................................................................................58
banking organization............................................................................................97
base year......................................................................................................116
Bond-Type Leases................................................................................................63
Capital Imp. Reserve............................................................................................67
Casualty or Condemnation Rights.................................................................................63
CBE............................................................................................................123
Certificate Balance............................................................................................100
Certificate Deferred Interest..................................................................................100
Certificateholders.............................................................................................101
Certificates....................................................................................................97
Class...........................................................................................................97
Class [ ] Certificates..........................................................................................97
clearing agency.................................................................................................97
clearing corporation............................................................................................97
Clearstream.....................................................................................................97
Clearstream Participants........................................................................................99
CMSA Bond File.................................................................................................114
CMSA Collateral File...........................................................................................114
CMSA Loan File.................................................................................................114
CMSA Property File.............................................................................................114
Code............................................................................................................64
Collection Period..............................................................................................101
Comparative Financial Status Report............................................................................115
Compensating Interest Payment...................................................................................91
Constant Prepayment Rate.......................................................................................123
Controlling Class Representative................................................................................89
Cooperative.....................................................................................................99
CPR............................................................................................................123
Credit Lease....................................................................................................62
Credit Lease Assignment.........................................................................................64
Credit Lease Default............................................................................................63
Credit Lease Loan Table.........................................................................................62
Credit Lease Loans..............................................................................................62
Custodian.......................................................................................................84
Cut-Off Date DSC Ratio..........................................................................................65
Cut-Off Date DSCR...............................................................................................65
Cut-Off Date LTV................................................................................................66
Cut-Off Date LTV Ratio..........................................................................................66
D...............................................................................................................67
DCR............................................................................................................129
Defeasance......................................................................................................67
Delinquent Loan Status Report..................................................................................115
Depositaries....................................................................................................97
Determination Date.............................................................................................101
Discount Rate..................................................................................................108
Distribution Date..............................................................................................101
Distribution Date Statement....................................................................................113
DSC Ratio.......................................................................................................65
DSCR............................................................................................................65
DTC.............................................................................................................97
Due Date........................................................................................................58
Due-On-Sale and Due-On-Encumbrance..............................................................................60
ERISA..........................................................................................................129
Euroclear Operator..............................................................................................99
Euroclear Participants..........................................................................................99
Excess Cash Flow................................................................................................58
Excluded Plan..................................................................................................130
Exemption......................................................................................................129
Exemptions.....................................................................................................129
Final Recovery Determination...................................................................................113
First Principal Payment Date...................................................................................123
Fitch..........................................................................................................129
foreclosure property............................................................................................95
Form 8-K........................................................................................................88
Fully Amortizing Loans..........................................................................................58
Guarantor.......................................................................................................62
Historical Liquidation Report..................................................................................115
Historical Loan Modification Report............................................................................115
HUD.............................................................................................................64
Indirect Participants...........................................................................................98
Insured Balloon Payment.........................................................................................58
Interest Accrual Period........................................................................................101
Interest Reserve Amount........................................................................................102
Interest Reserve Loans.........................................................................................102
IRS............................................................................................................128
L ( )...........................................................................................................67
Last Principal Payment Date....................................................................................123
Loan per Sq Ft, Unit, Bed, Pad or Room..........................................................................66
Lockout.........................................................................................................67
LTV at ARD or Maturity..........................................................................................66
Maintenance Rights..............................................................................................63
Majority Subordinate Certificateholder.........................................................................119
Master Servicer.................................................................................................89
Master Servicing Fee............................................................................................91
Master Servicing Fee Rate.......................................................................................91
Maturity Date LTV Ratio.........................................................................................66
modified duration..............................................................................................123
Monthly Rental Payments.........................................................................................62
Mortgage........................................................................................................57
Mortgage Deferred Interest.....................................................................................100
Mortgage File...................................................................................................84
Mortgage Loan..................................................................................................108
Mortgage Loan Purchase Agreements...............................................................................82
Mortgage Loans.................................................................................................108
Mortgage Note...................................................................................................57
Mortgage Rate...................................................................................................58
Mortgaged Property..............................................................................................57
NAP.............................................................................................................67
NAV.............................................................................................................67
Net Aggregate Prepayment Interest Shortfall....................................................................106
net cash flow...................................................................................................66
New Regulations................................................................................................128
NNN.............................................................................................................63
NOI Adjustment Worksheet.......................................................................................115
Non-Offered Certificates........................................................................................97
Nonrecoverable P&I Advance.....................................................................................111
non-service.....................................................................................................95
Non-SMMEA Certificates.........................................................................................131
NRSRO..........................................................................................................129
O ( )...........................................................................................................67
Occupancy Percentage............................................................................................67
Offered Certificates............................................................................................97
OID Regulations................................................................................................128
Open Period................................................................................................67, 124
Operating Statement Analysis...................................................................................115
Original Term to Maturity.......................................................................................67
P&I Advance....................................................................................................111
Party in Interest..............................................................................................130
Periodic Payments...............................................................................................58
Plan...........................................................................................................129
Pooling and Servicing Agreement.................................................................................97
Prepayment Interest Excess......................................................................................91
Prepayment Interest Shortfall...................................................................................91
Prepayment Premiums............................................................................................108
Primary Term....................................................................................................62
Principal Recovery Fee..........................................................................................92
Privileged Persons.............................................................................................116
prohibited transactions.........................................................................................95
PSA Standard Formulas..........................................................................................123
PTE 95-60......................................................................................................130
Purchase Price..................................................................................................85
Qualified Appraiser............................................................................................112
Qualified Substitute Mortgage Loan..............................................................................85
Rating Agencies................................................................................................132
real estate assets.............................................................................................128
Reimbursement Rate.............................................................................................112
Related Proceeds...............................................................................................111
REMIC Administrator............................................................................................119
REMIC Regular Certificates......................................................................................97
REMIC Regulations..............................................................................................127
REMIC Residual Certificates.....................................................................................97
Rental Property.................................................................................................65
REO Extension...................................................................................................95
REO Mortgage Loan..............................................................................................108
REO Property....................................................................................................90
REO Status Report..............................................................................................115
REO Tax.........................................................................................................95
Replacement Reserve.............................................................................................68
Required Appraisal Date........................................................................................112
Required Appraisal Loan........................................................................................112
Required Defeasance Period.....................................................................................122
Residual Value Insurance Policy.................................................................................59
Residual Value Insurer..........................................................................................59
Restricted Group...............................................................................................129
Restricted Servicer Reports....................................................................................116
Rules...........................................................................................................98
S&P............................................................................................................129
Scenario.......................................................................................................123
Scheduled Payment..............................................................................................107
Semi-Annual Loans...............................................................................................58
Sequential Pay Certificates.....................................................................................97
service.........................................................................................................95
Servicing Fees..................................................................................................91
Servicing Transfer Event........................................................................................90
SMMEA..........................................................................................................131
Special Servicing Fee Rate......................................................................................92
Specially Serviced Mortgage Loans...............................................................................90
Specially Serviced Trust Fund Assets............................................................................90
Stated Principal Balance.......................................................................................101
Substitution Shortfall Amount...................................................................................85
Swap Fee........................................................................................................67
Table Assumptions..............................................................................................123
Tax Credits.....................................................................................................64
Tenant Balloon Payment..........................................................................................59
Tenants.........................................................................................................62
Terms and Conditions............................................................................................99
TI/LC Reserve...................................................................................................68
Triple Net Leases...............................................................................................63
Trust Fund......................................................................................................97
Underwriter....................................................................................................129
Underwriters...................................................................................................131
Underwriting Agreement.........................................................................................131
Underwritten Replacement Reserves...............................................................................66
Voting Rights..................................................................................................118
Watch List Report..............................................................................................115
Workout Fee.....................................................................................................92
X ( )...........................................................................................................67
Year Built......................................................................................................66
Yield Maintenance Charges......................................................................................108
Yield Tables...................................................................................................123
YMx% ( )........................................................................................................67
</TABLE>
PROSPECTUS
Commercial Mortgage Pass-Through Certificates
(Issuable in Series)
First Union Commercial Mortgage Securities, Inc.
Depositor
First Union Commercial Mortgage Securities, Inc. will periodically
offer certificates in one or more series. Each series of certificates will
represent the entire beneficial ownership interest in a trust fund.
Distributions on the certificates of any series will be made only from the
assets of the related trust fund.
Neither the certificates nor any assets in the related trust fund
will be obligations of, or be guaranteed by, the depositor, any servicer or
any of their respective affiliates. 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 person, unless otherwise provided in the
prospectus supplement.
The primary assets of the trust fund may include:
o multifamily and commercial mortgage loans, including
participations therein;
o mortgage-backed securities evidencing interests in or
secured by multifamily and commercial mortgage loans,
including participations therein, and other mortgage-backed
securities;
o direct obligations of the United States or other
government agencies; or
o a combination of the assets described above.
Investing in the offered certificates involves risks. You should review
the information appearing under the caption "Risk Factors" on page 13 and in
the prospectus supplement before purchasing any offered certificate.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the offered certificates
or determined that this prospectus is truthful or complete. Any representation
to the contrary is a criminal offense.
[ ], 2000
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
We provide information to you about the offered certificates in two
separate documents that provide progressively more detail:
o this prospectus, which provides general information, some of
which may not apply to your series of certificates; and
o the accompanying prospectus supplement, which describes the
specific terms of your series of certificates.
If the description of your certificates in the accompanying
prospectus supplement differs from the related description in this prospectus,
you should rely on the information in that prospectus supplement.
This prospectus may not be used to consummate sales of the offered
certificates of any series unless accompanied by the prospectus supplement for
that series. This prospectus and the prospectus supplements also may be used
by us, First Union Securities, Inc., our affiliate, and any other of our
affiliates when required under the federal securities laws in connection with
offers and sales of offered certificates in furtherance of market-making
activities in the offered certificates. First Union Securities, Inc. or any
such other affiliate may act as principal or agent in such transactions. Such
sales will be made at prices related to prevailing market prices at the time
of sale or otherwise.
Some capitalized terms used in this prospectus are defined under the
caption "Index of Principal Definitions" beginning on page 138 in this
prospectus.
In this prospectus, the terms "depositor", "we", "us" and "our" refer
to First Union Commercial Mortgage Securities, Inc.
------------------------
Until 90 days after the date of each prospectus supplement, all
dealers effecting transactions in the offered certificates covered by that
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.
You should rely only on any information or representations contained
or incorporated by reference in this prospectus and the related prospectus
supplement. This prospectus and any prospectus supplement do not constitute an
offer to sell or a solicitation of an offer to buy any securities in any state
or other jurisdiction in which such offer would be unlawful.
<PAGE>
TABLE OF CONTENTS
ADDITIONAL INFORMATION......................................................4
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE...........................4
SUMMARY OF PROSPECTUS.......................................................5
RISK FACTORS...............................................................13
DESCRIPTION OF THE TRUST FUNDS.............................................36
YIELD CONSIDERATIONS.......................................................43
THE DEPOSITOR..............................................................50
USE OF PROCEEDS............................................................50
DESCRIPTION OF THE CERTIFICATES............................................50
DESCRIPTION OF THE POOLING AGREEMENTS......................................61
DESCRIPTION OF CREDIT SUPPORT..............................................78
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS AND LEASES.........................80
MATERIAL FEDERAL INCOME TAX CONSEQUENCES...................................98
STATE AND OTHER TAX CONSEQUENCES..........................................128
ERISA CONSIDERATIONS......................................................128
LEGAL INVESTMENT..........................................................134
METHOD OF DISTRIBUTION....................................................136
LEGAL MATTERS.............................................................137
FINANCIAL INFORMATION.....................................................138
RATINGS...................................................................138
INDEX OF PRINCIPAL DEFINITIONS............................................139
<PAGE>
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement (of which this prospectus forms a part) under the
Securities Act of 1933, as amended, with respect to the offered certificates.
This prospectus and the prospectus supplement do not contain all of the
information set forth in the registration statement. For further information,
you should refer to the registration statement and the exhibits attached
thereto. You may inspect and copy, at prescribed rates, the registration
statement and exhibits at the public reference facilities maintained by the
Securities and Exchange Commission at its Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at its Regional Offices located as
follows: Chicago Regional Office, Citicorp Center, 500 West Madison Street,
14th Floor, Chicago, Illinois 60661; and New York Regional Office, Seven World
Trade Center, Suite 1300, New York, New York 10048. The Securities and
Exchange Commission's phone number is 800-SEC-0330. The Securities and
Exchange Commission also maintains a Web site at http://www.sec.gov containing
reports, proxy and information statements, and other information regarding
registrants, including First Union Commercial Mortgage Securities, Inc., that
file electronically with the Securities and Exchange Commission.
We will file or cause to be filed with the Securities and Exchange
Commission such periodic reports with respect to each trust fund as are
required under the Securities Exchange Act of 1934, as amended, and the rules
and regulations of the Securities and Exchange Commission thereunder. Because
of the limited number of certificateholders expected for each series, we
anticipate that a significant portion of such reporting requirements will be
permanently suspended following the first fiscal year for the related trust
fund.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
We are incorporating in this prospectus by reference all documents
and reports filed by us with respect to a trust fund pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended.
You may obtain, without charge, a copy of any or all documents or reports
incorporated in this prospectus by reference, to the extent such documents or
reports relate to an offered certificate. Exhibits to those documents will be
provided to you only if such exhibits were specifically incorporated by
reference in those documents. Requests to the depositor should be directed in
writing to First Union Commercial Mortgage Securities, Inc., One First Union
Center, Charlotte, North Carolina 28288-0630, Attention: Secretary, or by
telephone at 704-374-6611.
<PAGE>
SUMMARY OF PROSPECTUS
The following summary is a brief description of the main terms of the
offered certificates. For this reason, the summary does not contain all the
information that may be important to you. You will find a detailed description
of the terms of the offered certificates following this summary and in the
accompanying prospectus supplement.
The Trust Assets............... Each series of certificates will represent
the entire beneficial ownership interest
in a trust fund consisting primarily of
any of the following:
o mortgage assets;
o certificate accounts;
o forms of credit support;
o cash flow agreements; and
o amounts on deposit in a pre-funding
account.
The Mortgage Assets........... The mortgage assets with respect to each
series of certificates may consist of any
of the following:
o multifamily and commercial mortgage
loans, including participations
therein;
o commercial mortgage-backed
securities, including participations
therein;
o direct obligations of the United
States or other government agencies;
and
o a combination of the assets described
above.
The mortgage loans will not be guaranteed
or insured by us or any of our affiliates
or, unless otherwise provided in the
prospectus supplement, by any
governmental agency or instrumentality or
other person. The mortgage loans will be
primarily secured by first or junior
liens on, or security interests in fee
simple, leasehold or a similar interest
in, any of the following types of
properties:
o residential properties consisting
of five or more rental or
cooperatively owned dwelling
units;
o shopping centers;
o retail buildings or centers;
o hotels and motels;
o office buildings;
o nursing homes;
o hospitals or other health-care
related facilities;
o industrial properties;
o warehouse, mini-warehouse or self-
storage facilities;
o mobile home parks;
o mixed use properties; and
o other types of commercial
properties.
Some or all of the mortgage loans may
also be secured by an assignment of one
or more leases of all or a portion of the
related mortgaged properties. A
significant or the sole source of
payments on certain mortgage loans will
be the rental payments due under the
related leases.
A mortgage loan may have an interest rate
that has any of the following features:
o is fixed over its term;
o adjusts from time to time;
o is partially fixed and partially
floating;
o is floating based on one or more
formulae or indices;
o may be converted from a floating to
a fixed interest rate;
o may be converted from a fixed to a
floating interest rate; or
o interest is not paid currently but
is accrued and added to the
principal balance.
A mortgage loan may provide for any of
the following:
o scheduled payments to maturity;
o payments that adjust from time to
time;
o negative amortization or accelerated
amortization;
o full amortization or require a
balloon payment due on its stated
maturity date;
o prohibitions on prepayment;
o releases or substitutions of
collateral, including defeasance
thereof with direct obligations of
the United States; and
o payment of a premium or a yield
maintenance penalty in connection
with a principal prepayment.
Unless otherwise described in the
prospectus supplement for a series of
certificates:
o the mortgaged properties may be
located in any one of the 50
states, the District of Columbia
or the Commonwealth of Puerto
Rico;
o all mortgage loans will have original
terms to maturity of not more than
40 years;
o all mortgage loans will have
individual principal balances at
origination of not less than
$100,000;
o all mortgage loans will have been
originated by persons other than the
depositor; and
o all mortgage assets will have been
purchased, either directly or
indirectly, by the depositor on or
before the date of initial issuance
of the related series of
certificates.
Any commercial mortgage-backed securities
included in a trust fund will evidence
ownership interests in or be secured by
mortgage loans similar to those described
above and other mortgage-backed
securities. Some commercial
mortgage-backed securities included in a
trust fund may be guaranteed or insured
by an affiliate of the depositor, Freddie
Mac, Fannie Mae, Ginnie Mae, Farmer Mac
or any other person specified in the
prospectus supplement.
Certificate Accounts........... Each trust fund will include one or more
accounts established and maintained on
behalf of the certificateholders. All
payments and collections received or
advanced with respect to the mortgage
assets and other assets in the trust fund
will be deposited into those accounts. A
certificate account may be maintained as
an interest bearing or a non-interest
bearing account, and funds may be held as
cash or reinvested.
Credit Support................. The following types of credit support may
be used to enhance the likelihood of
distributions on certain classes of
certificates:
o subordination of junior certificates;
o over collateralization;
o letters of credit;
o insurance policies;
o guarantees;
o reserve funds; and/or
o other types of credit support
described in the prospectus
supplement and a combination of any
of the above.
Cash Flow Agreements.......... Cash flow agreements are used to reduce
the effects of interest rate or currency
exchange rate fluctuations on the
underlying mortgage assets and increase
the likelihood of timely distributions on
the certificates. The trust fund may
include any of the following types of
cash flow agreements:
o guaranteed investment contracts;
o interest rate swap or exchange
contracts;
o interest rate cap or floor
agreements;
o currency exchange agreements;
o yield supplement agreements; or
o other types of similar agreements
described in the prospectus
supplement.
Pre-Funding Account;
Capitalized Interest
Account....................... A trust fund may use monies deposited
into a pre-funding account to acquire
additional mortgage assets following a
closing date for the related series of
certificates. The amount on deposit in a
pre-funding account will not exceed 25%
of the pool balance of the trust fund as
of the cut-off date on which the
ownership of the mortgage loans and
rights to payment thereon are deemed
transferred to the trust fund, as
specified in the related prospectus
supplement. The depositor will select any
additional mortgage assets using criteria
that is substantially similar to the
criteria used to select the mortgage
assets included in the trust fund on the
closing date.
If provided in the prospectus supplement,
a trust fund also may include amounts on
deposit in a separate capitalized
interest account. The depositor may use
amounts on deposit in a capitalized
interest account to supplement investment
earnings, if any, of amounts on deposit
in the pre-funding account, supplement
interest collections of the trust fund,
or such other purpose as specified in the
prospectus supplement.
Amounts on deposit in any pre-funding
account or any capitalized interest
account will be held in cash or invested
in short-term investment grade
obligations. Amounts remaining on deposit
in any pre-funding account and any
capitalized interest account after the
end of the related pre-funding period
will be distributed to certificateholders
as described in the prospectus
supplement.
Description of Certificates... Each series of certificates will include
one or more classes. Each series of
certificates will represent in the
aggregate the entire beneficial ownership
interest in the related trust fund. The
offered certificates are the classes of
certificates being offered to you
pursuant to the prospectus supplement.
The non-offered certificates are the
classes of certificates not being offered
to you pursuant to the prospectus
supplement. Information on the
non-offered certificates is being
provided solely to assist you in your
understanding of the offered
certificates.
Distributions on
Certificates.................. The certificates may provide for
different methods of distributions to
specific classes. Any class of
certificates may:
o provide for the accrual of interest
thereon based on fixed, variable or
floating rates;
o be senior or subordinate to one or
more other classes of certificates
with respect to interest or
principal distribution and the
allocation of losses on the assets
of the trust fund;
o be entitled to principal
distributions, with
disproportionately low, nominal or
no interest distributions;
o be entitled to interest
distributions, with
disproportionately low, nominal or
no principal distributions;
o provide for distributions of
principal or accrued interest only
after the occurrence of certain
events, such as the retirement of
one or more other classes of
certificates;
o provide for distributions of
principal to be made at a rate that
is faster or slower than the rate at
which payments are received on the
mortgage assets in the related trust
fund;
o provide for distributions of
principal sequentially, based on
specified payment schedules or other
methodologies; and
o provide for distributions based on a
combination of any of the above
features.
Interest on each class of offered
certificates of each series will accrue
at the applicable pass-through rate on
the outstanding certificate balance or
notional amount. Distributions of
interest with respect to one or more
classes of certificates may be reduced to
the extent of certain delinquencies,
losses and other contingencies described
in this prospectus and the prospectus
supplement. 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
specified in the prospectus supplement,
distributions of principal will be made
on each distribution date to the class or
classes of certificates entitled thereto
until the certificate balance of such
certificates is reduced to zero.
Distributions of principal to any class
of certificates will be made on a pro
rata basis among all of the certificates
of such class.
Advances...................... A servicer may be obligated as part of
its servicing responsibilities to make
certain advances with respect to
delinquent scheduled payments and
property related expenses which it deems
recoverable. The trust fund may be
charged interest for any advance. We will
not have any responsibility to make such
advances. One of our affiliates may have
the responsibility to make such advances,
but only if that affiliate is acting as a
servicer or master servicer for related
series of certificates.
Termination................... A series of certificates may be subject
to optional early termination through the
repurchase of the mortgage assets in the
related trust fund.
Registration of Certificates.. One or more classes of the offered
certificates may be initially represented
by one or more certificates registered in
the name of Cede & Co. as the nominee of
The Depository Trust Company. If your
offered certificates are so registered,
you will not be entitled to receive a
definitive certificate representing your
interest except in the event that
physical certificates are issued under
the limited circumstances described in
this prospectus and the prospectus
supplement.
Tax Status of the
Certificates.................. The certificates of each series will
constitute either:
o "regular interests" or "residual
interests" in a trust fund treated
as a "real estate mortgage
investment conduit" under the
Internal Revenue Code of 1986, as
amended;
o interests in a trust fund treated as
a grantor trust under applicable
provisions of the Internal Revenue
Code of 1986, as amended; or
o "regular interests" or "residual
interests" in a trust fund treated
as a "financial assets
securitization investment trust"
under the Internal Revenue Code of
1986, as amended.
ERISA Considerations.......... If you are a fiduciary of an employee
benefit plan or other retirement plan or
arrangement that is subject to the
Employee Retirement Income Security Act
of 1974, as amended, or Section 4975 of
the Internal Revenue Code of 1986, as
amended, or any person who proposes to
use "plan assets" of any of these plans
to acquire any offered certificates, you
should carefully review with your legal
counsel whether the purchase or holding
of any offered certificates could give
rise to transactions not permitted under
these laws. The prospectus supplement
will specify if investment in some
certificates may require a representation
that the investor is not a plan or
similar arrangement or investing on
behalf of a plan or similar arrangement.
Legal Investment.............. The prospectus supplement will specify
whether the offered certificates will
constitute "mortgage related securities"
for purposes of the Secondary Mortgage
Market Enhancement Act of 1984. If your
investment authority is subject to legal
restrictions you should consult your
legal counsel to determine whether and to
what extent the offered certificates
constitute legal investments for you.
Rating........................ At the date of issuance, as to each series,
each class of offered certificates will
not be rated lower than investment grade
by one or more nationally recognized
statistical rating agencies. A security
rating is not a recommendation to buy,
sell or hold securities and may be
subject to qualification, revision or
withdrawal at any time by the assigning
rating organization.
<PAGE>
RISK FACTORS
You should consider the following risk factors, in addition to the
risk factors in the prospectus supplement, in deciding whether to purchase any
of the offered certificates. The risks and uncertainties described below,
together with those described in the prospectus supplement under "Risk
Factors", summarize the material risks relating to your certificates.
Your Ability to Resell
Certificates May Be
Limited Because of Their
Characteristics You may not be able to resell your
certificates and the value of your
certificates may be less than you
anticipated for a variety of reasons
including:
o a secondary market for your
certificates may not develop;
o interest rates fluctuations;
o the absence of redemption rights;
and
o the limited sources of
information about the
certificates other than that
provided in this prospectus,
the prospectus supplement
and the monthly report to
certificateholders.
The Assets of the Trust Fund
May Not Be Sufficient to Pay
Your Certificates Unless otherwise specified in the
prospectus supplement, neither the
offered certificates of any series nor
the mortgage assets in the related
trust fund will be guaranteed or
insured by us or any of our
affiliates, by any governmental agency
or instrumentality or by any other
person. No offered certificate of any
series will represent a claim against
or security interest in the trust fund
for any other series. Accordingly, if
the related trust fund has
insufficient assets to make payments
on the certificates, there will be no
other assets available for payment of
the deficiency.
Additionally, the trustee, master
servicer, special servicer or other
specified person may under certain
circumstances withdraw some amounts on
deposit in certain funds or accounts
constituting part of a trust fund,
including the certificate account and
any accounts maintained as credit
support, as described in the
prospectus supplement. The trustee,
master servicer, special servicer or
other specified person may have the
authority to make these withdrawals
for purposes other than the payment of
principal of or interest on the
related series of certificates.
The prospectus supplement for a series
of certificates may provide for one
or more classes of certificates that
are subordinate to one or more other
classes of certificates in entitlement
to certain distributions on the
certificates. On any distribution date
in which the related trust fund has
incurred losses or shortfalls in
collections on the mortgage assets,
the subordinate certificates initially
will bear the amount of such losses or
shortfalls and, thereafter, the
remaining classes of certificates will
bear the remaining amount of such
losses or shortfalls. The priority,
manner and limitations on the
allocation of losses and shortfalls
will be specified in the prospectus
supplement.
Prepayments and Repurchases of
the Mortgage Assets Will Affect
the Timing of Your Cash Flow
and May Affect Your Yield Prepayments (including those caused by
defaults on the mortgage loans and
repurchases for breach of
representation or warranty) on the
mortgage loans in a trust fund
generally will result in a faster rate
of principal payments on one or more
classes of the related certificates
than if payments on such mortgage
assets were made as scheduled. Thus,
the prepayment experience on the
mortgage assets may affect the average
life of each class of related
certificates. The rate of principal
payments on 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.
We cannot provide any assurance as to
the rate of prepayments on the
mortgage loans in any trust fund or
that such rate will conform to any
model described in this prospectus or
in any prospectus supplement. As a
result, depending on the anticipated
rate of prepayment for the mortgage
loans in any trust fund, the
retirement of any class of
certificates could occur significantly
earlier or later than you expected.
The rate of voluntary prepayments will
also be affected by:
o the voluntary prepayment terms of
the mortgage loan, including
prepayment lock-out periods and
prepayment premiums;
o then-current interest rates being
charged on similar mortgage loans;
and
o the availability of mortgage
credit.
A series of certificates may include
one or more classes of certificates
with entitlements to payments prior to
other classes of certificates. As a
result, yields on classes of
certificates with a lower priority of
payment, including classes of offered
certificates, of such series may be
more sensitive to prepayments on
mortgage assets. A series of
certificates may include one or more
classes offered at a significant
premium or discount. Yields on such
classes of certificates will be
sensitive, and in some cases extremely
sensitive, to prepayments on mortgage
assets and, where the amount of
interest payable with respect to a
class is disproportionately high, as
compared to the amount of principal, a
holder might, in some prepayment
scenarios, fail to recoup its original
investment.
If a mortgage loan is in default it
may not be possible to collect a
prepayment premium. No person will be
required to pay any premium if a
mortgage loan is repurchased for a
breach of representation or warranty.
The yield on your certificates may be
less than anticipated because:
o the prepayment premium or yield
maintenance required under the
certain prepayment scenarios may
not be enforceable in some states
or under federal bankruptcy laws;
and
o some courts may consider the
prepayment premium to be usurious.
Optional Early Termination of
the Trust Fund May Result in
an Adverse Impact on Your Yield
or May Result in a Loss A series of certificates may be
subject to optional early termination
by means of the repurchase of the
mortgage assets in the related trust
fund. We cannot assure you that
the proceeds from a sale of the
mortgage assets will be sufficient to
distribute the outstanding certificate
balance plus accrued interest and any
undistributed shortfalls in interest
accrued on the certificates that are
subject to the termination.
Accordingly, the holders of such
certificates may suffer an adverse
impact on the overall yield on their
certificates, may experience repayment
of their investment at an
unpredictable and inopportune time or
may even incur a loss on their
investment.
Ratings Do Not Guarantee
Payment and Do Not Address
Prepayment Risks Any rating assigned by a rating agency
to a class of offered certificates
will reflect only its assessment of
the likelihood that holders of
certificates of such class will
receive payments to which such
certificateholders are entitled under
the related pooling agreement. Ratings
do not address:
o the likelihood that principal
prepayments (including those
caused by defaults) on the related
mortgage loans will be made;
o the degree to which the rate of
prepayments on the related
mortgage loans might differ from
that originally anticipated;
o the likelihood of early optional
termination of the related trust
fund;
o the possibility that prepayments
on the related mortgage loans at a
higher or lower rate than
anticipated by an investor may
cause such investor to experience
a lower than anticipated yield; or
o the possibility that an investor
that purchases an offered
certificate at a significant
premium might fail to recoup its
initial investment under certain
prepayment scenarios.
The amount, type and nature of credit
support, if any, provided with respect
to a series of certificates will be
determined on the basis of criteria
established by each rating agency
rating classes of certificates of such
series. Those criteria are sometimes
based upon an actuarial analysis of
the behavior of mortgage loans in a
larger group. However, we cannot
provide assurance that the historical
data supporting any such actuarial
analysis will accurately reflect
future experience, or that the data
derived from a large pool of mortgage
loans will accurately predict the
delinquency, foreclosure or loss
experience of any particular pool of
mortgage loans. In other cases, a
rating agency may base their criteria
upon determinations of the values of
the mortgaged properties that provide
security for the mortgage loans.
However, we cannot provide assurance
that those values will not decline in
the future.
Unused Amounts in
Pre-Funding Accounts May
be Returned to You
as a Prepayment The prospectus supplement will
disclose when we are using a
pre-funding account to purchase
additional mortgage assets in
connection with the issuance of
certificates. Amounts on deposit in a
pre-funding account that are not used
to acquire additional mortgage assets
by the end of the pre-funding period
for a series of certificates may be
distributed to holders of those
certificates as a prepayment of
principal, which may materially and
adversely affect the yield on those
certificates.
Additional Mortgage Assets Acquired
in Connection with the Use of
a Pre-Funding Account May Change
the Aggregate Characteristics
of a Trust Fund Any additional mortgage assets
acquired by a trust fund with funds in
a pre-funding account may possess
substantially different
characteristics than the mortgage
assets in the trust fund on the
closing date for a series of
certificates. Therefore, the aggregate
characteristics of a trust fund
following the pre-funding period may
be substantially different than the
characteristics of a trust fund on the
closing date for that series of
certificates.
Net Operating Income Produced by a
Mortgaged Property May Be Inadequate
to Repay the Mortgage Loans The value of a mortgage loan secured
by a multifamily or commercial
property is directly related to the
net operating income derived from that
property because the ability of a
borrower to repay a loan secured by an
income-producing property typically
depends primarily upon the successful
operation of that property rather than
upon the existence of independent
income or assets of the borrower. The
reduction in the net operating income
of the property may impair the
borrower's ability to repay the loan.
Many of the mortgage loans included in
a trust fund 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 may have a
disproportionately greater affect on
the net operating income from such
mortgaged properties than would be the
case with respect to mortgaged
properties with multiple tenants.
Future Value of a Mortgaged
Property and Net Operating Income
and Cash Flow is Not Predictable Commercial and multifamily property
values and cash flows and net its
operating income from such mortgaged
properties are volatile and may be
insufficient to cover debt service on
the related mortgage loan at any given
time. Property value, cash flow and
net operating income depend upon a
number of factors, including:
o changes in general or local
economic conditions and/or
specific industry segments;
o declines in real estate values;
o an oversupply of commercial or
multifamily properties in the
relevant market;
o declines in rental or occupancy
rates;
o increases in interest rates, real
estate tax rates and other
operating expenses;
o changes in governmental rules,
regulations and fiscal policies,
including environmental
legislation;
o perceptions by prospective tenants
and, if applicable, their
customers, of the safety,
convenience, services and
attractiveness of the property;
o the age, construction quality and
design of a particular property;
o whether the mortgaged properties
are readily convertible to
alternative uses;
o acts of God; and
other factors beyond our control or
the control of a servicer.
Nonrecourse Loans Limit the Remedies
Available Following a Mortgagor
Default The mortgage loans will not be an
obligation of, or be insured or
guaranteed by, any governmental
entity, by any private mortgage
insurer, or by the depositor, the
originators, the master servicer, the
servicer, the trustee or any of their
respective affiliates.
Each mortgage loan included in a trust
fund generally will be a nonrecourse
loan. If there is a default (other
than a default resulting from
voluntary bankruptcy, fraud or wilful
misconduct) there will generally only
be recourse against the specific
mortgaged properties and other assets
that have been pledged to secure such
mortgage loan. Even if a mortgage loan
provides for recourse to a mortgagor
or its affiliates, it is unlikely the
trust fund ultimately could recover
any amounts not covered by the
mortgaged property.
Special Risks of Mortgage Loans
Secured by Multifamily Properties Mortgage loans secured by multifamily
properties may constitute a material
concentration of the mortgage loans in
a trust fund. Adverse economic
conditions, either local, regional or
national, may limit the amount of rent
that a borrower may charge for rental
units, and may result in a reduction
in timely rent payments or a reduction
in occupancy levels. Occupancy and
rent levels may also be affected by:
o construction of additional housing
units;
o local military base closings;
o developments at local colleges and
universities;
o national, regional and local
politics, including, in the case
of multifamily rental properties,
current or future rent
stabilization and rent control
laws and agreements;
o the level of mortgage interest
rates, which may encourage tenants
in multifamily rental properties
to purchase housing;
o tax credit and city, state and
federal housing subsidy or similar
programs which may impose rent
limitations and may adversely
affect the ability of the
applicable borrowers to increase
rents to maintain the mortgaged
properties in proper condition
during periods of rapid inflation
or declining market value of the
mortgaged properties;
o tax credit and city, state and
federal housing subsidy or similar
programs which may impose income
restrictions on tenants and which
may reduce the number of eligible
tenants in such mortgaged
properties and result in a
reduction in occupancy rates
applicable thereto; and
o the possibility that some eligible
tenants may not find any
differences in rents between
subsidized or supported properties
and other multifamily rental
properties in the same area to be
a sufficient economic incentive to
reside at a subsidized or
supported property, which may have
fewer amenities or otherwise be
less attractive as a residence.
All of these conditions and events may
increase the possibility that a
borrower may be unable to meet its
obligations under its mortgage loan.
The multifamily projects market is
characterized generally 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. Because
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 alternative
projects with more desirable amenities
or locations.
Special Risks of
Mortgage Loans Secured
by Retail Properties Mortgage loans secured by retail
properties may constitute a material
Secured by Retail Properties
concentration of the mortgage loans in
a trust fund. Significant factors
determining the value of retail
properties are:
o the quality of the tenants; and
o the fundamental aspects of real
estate such as location and
market demographics.
The correlation between the success of
tenant businesses and property value
is more direct with respect to retail
properties than other types of
commercial property because a
significant component of the total
rent paid by retail tenants is often
tied to a percentage of gross sales.
Significant tenants at a retail
property play an important part in
generating customer traffic and making
a retail property a desirable location
for other tenants at that property.
Accordingly, retail properties may be
adversely affected if a significant
tenant ceases operations at those
locations, which may occur on account
of a voluntary decision not to renew a
lease, bankruptcy or insolvency of the
tenant, the tenant's general cessation
of business activities or for other
reasons. In addition, some tenants at
retail properties may be entitled to
terminate their leases or pay reduced
rent if an anchor tenant ceases
operations at the property. In those
cases, we cannot provide assurance
that any anchor tenants will continue
to occupy space in the related
shopping centers.
Shopping centers, in general, are
affected by the health of the retail
industry. In addition, a shopping
center may be adversely affected by
the bankruptcy or decline in drawing
power of an anchor tenant, the risk
that an anchor tenant may vacate
notwithstanding that tenant's
continuing obligation to pay rent, 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 (for example,
to discount retailers).
Unlike other income producing
properties, retail properties also
face competition from sources outside
a given real estate market, such as:
o catalogue retailers;
o home shopping networks;
o the internet;
o telemarketing; and
o outlet centers.
Continued growth of these alternative
retail outlets (which are often
characterized by lower operating
costs) could adversely affect the
rents collectible at the retail
properties which secure mortgage loans
in a trust fund.
Special Risks of
Mortgage Loans
Secured by Hospitality
Properties Mortgage loans secured by hospitality
properties (e.g., a hotel or motel)
may constitute a material
concentration of the mortgage loans in
a trust fund. Various factors affect
the economic viability of a
hospitality property, including:
o location, quality and franchise
affiliation (or lack thereof);
o adverse economic conditions,
either local, regional or
national, which may limit the
amount that a consumer is willing
to pay for a room and may result
in a reduction in occupancy
levels;
o the construction of competing
hospitality properties, which may
result in a reduction in occupancy
levels;
o the increased sensitivity of
hospitality properties (relative
to other commercial properties) to
adverse economic conditions and
competition, as hotel rooms
generally are rented for short
periods of time;
o the financial strength and
capabilities of the owner and
operator of a hospitality
property, which may have a
substantial impact on the
property's quality of service and
economic performance; and
o the generally seasonal nature of
the hospitality industry, which
can be expected to cause periodic
fluctuations in room and other
revenues, occupancy levels, room
rates and operating expenses.
In addition, the successful operation
of a hospitality property with a
franchise affiliation may depend in
part upon the strength of the
franchisor, the public perception of
the franchise service mark and the
continued existence of any franchise
license agreement. The transferability
of a franchise license agreement may
be restricted, and a lender or other
person that acquires title to a
hospitality property as a result of
foreclosure may be unable to succeed
to the borrower's rights under the
franchise license agreement. Moreover,
the transferability of a hospitality
property's operating, liquor and other
licenses upon a transfer of the
hospitality property, whether through
purchase or foreclosure, is subject to
local law requirements and may not be
transferable.
Special Risks of Mortgage Loans
Secured by Office Buildings Mortgage loans secured by office
buildings may constitute a material
concentration of the mortgage loans in
a trust fund. Significant factors
determining the value of office
buildings include:
o the quality of the tenants in the
building;
o the physical attributes of the
building in relation to competing
buildings; and
o the strength and stability of the
market area as a desirable
business location.
An economic decline in the business
operated by the tenants may adversely
affect an office building. That risk
is increased if revenue is dependent
on a single tenant or if there is a
significant concentration of tenants
in a particular business or industry.
Office buildings are also subject to
competition with other office
properties in the same market.
Competition is affected by a
property's:
o age;
o condition;
o design (e.g., floor sizes and
layout);
o access to transportation; and
o ability or inability to offer
certain amenities to its tenants,
including sophisticated building
systems (such as fiber optic
cables, satellite communications
or other base building
technological features).
The success of an office building also
depends on the local economy. A
company's decision to locate office
headquarters in a given area, for
example, may be affected by such
factors as labor cost and quality, tax
environment and quality of life issues
such as schools and cultural
amenities. A central business district
may have an economy which is markedly
different from that of a suburb. The
local economy and the financial
condition of the owner will impact on
an office building's ability to
attract stable tenants on a consistent
basis. In addition, the cost of
refitting office space for a new
tenant is often more costly than for
other property types.
Special Risks of Mortgage Loans
Secured by Warehouse and Self
Storage Facilities Mortgage loans secured by warehouse
and storage facilities may constitute
a material concentration of the
mortgage loans in a trust fund. The
storage facilities market contains low
barriers to entry. Increased
competition among self storage
facilities may reduce income available
to repay mortgage loans secured by a
self storage facility. Furthermore,
the inability of a borrower to police
what is stored in a self storage
facility due to privacy considerations
may increase environmental risks.
Special Risks of Mortgage Loans
Secured by Healthcare-Related
Properties The mortgaged properties may include
health care-related facilities,
including senior housing, assisted
living facilities, skilled nursing
facilities and acute care facilities.
o Senior housing generally consists
of facilities with respect to
which the residents are
ambulatory, handle their own
affairs and typically are couples
whose children have left the home
and at which the accommodations
are usually apartment style.
o Assisted living facilities are
typically single or double room
occupancy, dormitory-style housing
facilities which provide food
service, cleaning and some
personal care and with respect to
which the tenants are able to
medicate themselves but may
require assistance with certain
daily routines.
o Skilled nursing facilities provide
services to post trauma and frail
residents with limited mobility
who require extensive medical
treatment.
o Acute care facilities generally
consist of hospital and other
facilities providing short-term,
acute medical care services.
Certain types of health care-related
properties, particularly acute care
facilities, skilled nursing facilities
and some assisted living facilities,
typically receive a substantial
portion of their revenues from
government reimbursement programs,
primarily Medicaid and Medicare.
Medicaid and Medicare are subject to
statutory and regulatory changes,
retroactive rate adjustments,
administrative rulings, policy
interpretations, delays by fiscal
intermediaries and government funding
restrictions. Moreover, governmental
payors have employed cost-containment
measures that limit payments to health
care providers, and there exist
various proposals for national health
care reform that could further limit
those payments. Accordingly, we cannot
provide assurance that payments under
government reimbursement programs
will, in the future, be sufficient to
fully reimburse the cost of caring for
program beneficiaries. If those
payments are insufficient, net
operating income of health
care-related facilities that receive
revenues from those sources may
decline, which consequently could have
an adverse affect on the ability of
the related borrowers to meet their
obligations under any mortgage loans
secured by health care-related
facilities.
Moreover, health care-related
facilities are generally subject to
federal and state laws that relate to
the adequacy of medical care,
distribution of pharmaceuticals, rate
setting, equipment, personnel,
operating policies and additions to
facilities and services. In addition,
facilities where such care or other
medical services are provided are
subject to periodic inspection by
governmental authorities to determine
compliance with various standards
necessary to continued licensing under
state law and continued participation
in the Medicaid and Medicare
reimbursement programs. Furthermore,
under applicable federal and state
laws and regulations, Medicare and
Medicaid reimbursements are generally
not permitted to be made to any person
other than the provider who actually
furnished the related medical goods
and services. Accordingly, in the
event of foreclosure, the trustee, the
master servicer, the special servicer
or a subsequent lessee or operator of
any health care-related facility
securing a defaulted mortgage loan
generally would not be entitled to
obtain from federal or state
governments any outstanding
reimbursement payments relating to
services furnished at such property
prior to foreclosure. Any of the
aforementioned events may adversely
affect the ability of the related
borrowers to meet their mortgage loan
obligations.
Providers of assisted living services
are also subject to state licensing
requirements in certain states. The
failure of an operator to maintain or
renew any required license or
regulatory approval could prevent it
from continuing operations at a health
care-related facility or, if
applicable, bar it from participation
in government reimbursement programs.
In the event of foreclosure, we cannot
provide assurance that the trustee or
any other purchaser at a foreclosure
sale would be entitled to the rights
under the licenses, and the trustee or
other purchaser may have to apply in
its own right for the applicable
license. We cannot provide assurance
that the trustee or other purchaser
could obtain the applicable license or
that the related mortgaged property
would be adaptable to other uses.
Government regulation applying
specifically to acute care facilities,
skilled nursing facilities and certain
types of assisted living facilities
includes health planning legislation,
enacted by most states, intended, at
least in part, to regulate the supply
of nursing beds. The most common
method of control is the requirement
that a state authority first make a
determination of need, evidenced by
its issuance of a certificate of need,
before a long-term care provider can
establish a new facility, add beds to
an existing facility or, in some
states, take certain other actions
(for example, acquire major medical
equipment, make major capital
expenditures, add services, refinance
long-term debt, or transfer ownership
of a facility). States also regulate
nursing bed supply in other ways. For
example, some states have imposed
moratoria on the licensing of new
beds, or on the certification of new
Medicaid beds, or have discouraged the
construction of new nursing facilities
by limiting Medicaid reimbursements
allocable to the cost of new
construction and equipment. In
general, a certificate of need is site
specific and operator specific; it
cannot be transferred from one site to
another, or to another operator,
without the approval of the
appropriate state agency. Accordingly,
in the case of foreclosure upon a
mortgage loan secured by a lien on a
health care-related mortgaged
property, the purchaser at foreclosure
might be required to obtain a new
certificate of need or an appropriate
exemption. In addition, compliance by
a purchaser with applicable
regulations may in any case require
the engagement of a new operator and
the issuance of a new operating
license. Upon a foreclosure, a state
regulatory agency may be willing to
expedite any necessary review and
approval process to avoid interruption
of care to a facility's residents, but
we cannot provide assurance that any
state regulatory agency will do so or
that the state regulatory agency will
issue any necessary licenses or
approvals.
Federal and state government "fraud
and abuse" laws also apply to health
care-related facilities. "Fraud and
abuse" laws generally prohibit payment
or fee-splitting arrangements between
health care providers that are
designed to induce or encourage the
referral of patients to, or the
recommendation of, a particular
provider for medical products or
services. Violation of these
restrictions can result in license
revocation, civil and criminal
penalties, and exclusion from
participation in Medicare or Medicaid
programs. The state law restrictions
in this area vary considerably from
state to state. Moreover, the federal
anti-kickback law includes broad
language that potentially could be
applied to a wide range of referral
arrangements, and regulations designed
to create "safe harbors" under the law
provide only limited guidance.
Accordingly, we cannot provide
assurance that such laws will be
interpreted in a manner consistent
with the practices of the owners or
operators of the health care-related
mortgaged properties that are subject
to those laws.
The operators of health care-related
facilities are likely to compete on a
local and regional basis with others
that operate similar facilities, some
of which competitors may be better
capitalized, may offer services not
offered by such operators, or may be
owned by non-profit organizations or
government agencies supported by
endowments, charitable contributions,
tax revenues and other sources not
available to such operators. The
successful operation of a health
care-related facility will generally
depend upon:
o the number of competing facilities
in the local market;
o the facility's age and appearance;
o the reputation and management of
the facility;
o the types of services the facility
provides; and
o where applicable, the quality of
care and the cost of that care.
The inability of a health care-related
mortgaged property to flourish in a
competitive market may increase the
likelihood of foreclosure on the
related mortgage loan, possibly
affecting the yield on one or more
classes of the related series of
offered certificates.
Special Risks of Mortgage Loans
Secured by Industrial
Mixed-Use Facilities Mortgage loans secured by industrial
and mixed-use facilities may and
constitute a material concentration of
the mortgage loans in a trust fund.
Significant factors determining the
value of industrial properties
include:
o the quality of tenants;
o building design and adaptability;
and
o the location of the property.
Concerns about the quality of tenants,
particularly major tenants, are
similar in both office properties and
industrial properties, although
industrial properties are more
frequently dependent on a single
tenant. In addition, properties used
for many industrial purposes are more
prone to environmental concerns than
other property types.
Aspects of building site design and
adaptability affect the value of an
industrial property. Site
characteristics which are valuable to
an industrial property include clear
heights, column spacing, zoning
restrictions, number of bays and bay
depths, divisibility, truck turning
radius and overall functionality and
accessibility. Location is also
important because an industrial
property requires the availability of
labor sources, proximity to supply
sources and customers and
accessibility to rail lines, major
roadways and other distribution
channels.
Industrial properties may be adversely
affected by reduced demand for
industrial space occasioned by a
decline in a particular industry
segment (e.g. a decline in defense
spending), and a particular industrial
property that suited the needs of its
original tenant may be difficult to
relet to another tenant or may become
functionally obsolete relative to
newer properties.
Poor Property Management Will
Adversely Affect the Performance
of the Related Mortgaged Property Each mortgaged property securing a
mortgage loan which has been sold into
a trust fund is managed by a property
manager (which generally is an
affiliate of the borrower) or by the
borrower itself. The successful
operation of a real estate project is
largely dependent on the performance
and viability of the management of
such project. The property manager is
responsible for:
o operating the property;
o providing building services;
o responding to changes in the local
market; and
o planning and implementing the
rental structure, including
establishing levels of rent
payments and advising the
borrowers so that maintenance and
capital improvements can be
carried out in a timely fashion.
We cannot provide assurance regarding
the performance of any operators,
leasing agents and/or property
managers or persons who may become
operators and/or property managers
upon the expiration or termination of
management agreements or following any
default or foreclosure under a
mortgage loan. In addition, generally
the property managers are operating
companies and unlike limited purpose
entities, may not be restricted from
incurring debt and other liabilities
in the ordinary course of business or
otherwise. There can be no assurance
that the property managers will at all
times be in a financial condition to
continue to fulfill their management
responsibilities under the related
management agreements throughout the
terms of those agreements.
Balloon Payments on Mortgage
Loans Result Heightened Risk
of Borrower Default Some of the mortgage loans included in
a trust fund may not be fully in
amortizing (or may not amortize at
all) over their terms to maturity and,
thus, will require substantial
principal payments (that is, balloon
payments) at their stated maturity.
Mortgage loans of this type involve a
greater degree of risk than
self-amortizing loans because the
ability of a borrower to make a
balloon payment typically will depend
upon either:
o its ability to fully refinance the
loan; or
o its ability 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
accomplish either of these goals will
be affected by a number of factors,
including:
o the value of the related mortgaged
property;
o the level of available mortgage
interest rates at the time of sale
or refinancing;
o the borrower's equity in the
related mortgaged property;
o the financial condition and
operating history of the borrower
and the related mortgaged
property;
o tax laws;
o rent control laws (with respect to
certain residential properties);
o Medicaid and Medicare
reimbursement rates (with respect
to hospitals and nursing homes);
o prevailing general economic
conditions; and
o the availability of credit for
loans secured by commercial or
multifamily, as the case may be,
real properties generally.
The Servicer Will Have
Discretion to Handle or Avoid
Obligor Defaults Manner Which
May be Adverse to Your
Interests If and to the extent specified in the
prospectus supplement defaulted in a
mortgage loans exist or are imminent,
in order to maximize recoveries on
defaulted mortgage loans, the related
pooling agreement will permit (within
prescribed limits) the master servicer
or a special servicer to extend and
modify mortgage loans that are in
default or as to which a payment
default is imminent. While the related
pooling agreement generally will
require a master servicer to determine
that any such extension or
modification is reasonably likely to
produce a greater recovery on a
present value basis than liquidation,
we cannot provide assurance that any
such extension or modification will in
fact increase the present value of
receipts from or proceeds of the
affected mortgage loans.
In addition, a master servicer or a
special servicer may receive a workout
fee based on receipts from or proceeds
of such mortgage loans.
Proceeds Received Upon Foreclosure of
Mortgage Loans Secured Primarily by
Junior Mortgage May Result in Losses To the extent specified in the
prospectus supplement, some of the
mortgage loans included in a trust
fund may be secured primarily by
junior mortgages. When liquidated,
mortgage loans secured by junior
Losses mortgages are entitled to
satisfaction from proceeds that remain
from the sale of the related mortgaged
property after the mortgage loans
senior to such mortgage loans have
been satisfied. If there are
insufficient funds to satisfy both the
junior mortgage loans and senior
mortgage loans, the junior mortgage
loans would suffer a loss and,
accordingly, one or more classes of
certificates would bear such loss.
Therefore, any risks of deficiencies
associated with first mortgage loans
will be greater with respect to junior
mortgage loans.
Credit Support May Not Cover Losses or
Risks Which Could Adversely Affect
Payment on Your Certificates The prospectus supplement for the
offered certificates of each series
will describe any credit support
provided with respect to those
certificates. Use of credit support
will be subject to the conditions and
limitations described in this
prospectus and in the related
prospectus supplement. Moreover,
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 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 fully repaid.
As a result, the impact of losses and
shortfalls experienced with respect to
the mortgage assets may fall primarily
upon those classes of certificates
having a lower priority of payment.
Moreover, if a form of credit support
covers more than one series of
certificates, 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.
Regardless of the form of credit
enhancement provided, the amount of
coverage will be limited in amount and
in most cases will be subject to
periodic reduction in accordance with
a schedule or formula. The master
servicer will generally be permitted
to reduce, terminate or substitute all
or a portion of the credit enhancement
for any series of certificates if the
applicable rating agency indicates
that the then-current rating of those
certificates will not be adversely
affected. The rating of any series of
certificates by any applicable rating
agency may be lowered following the
initial issuance of those certificates
as a result of the downgrading of the
obligations of any applicable credit
support provider, or as a result of
losses on the related mortgage assets
substantially in excess of the levels
contemplated by that rating agency at
the time of its initial rating
analysis. None of the depositor, the
master servicer or any of our or the
master servicer's affiliates will have
any obligation to replace or
supplement any credit enhancement, or
to take any other action to maintain
any rating of any series of
certificates.
Mortgagors of Commercial Mortgage
Loans are Sophisticated and May
Take Actions Adverse to Your Interests 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.
Some Actions Allowed by the Mortgage
May Be Limited by Law Mortgages securing mortgage loans
included in a trust fund may containa
due-on-sale clause, which permits the
lender to accelerate the maturity of
the mortgage loan if the borrower
sells, transfers or conveys the
related mortgaged property or its
interest in the mortgaged property.
Mortgages security mortgage loans
included in a trust fund may also
include a debt-acceleration clause,
which permits the lender to accelerate
the debt upon a monetary or
non-monetary default of the borrower.
Such clauses are not always
enforceable. 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.
Assignment of Leases and Rents to
Provide Further Security for Mortgage
Loans Poses Special Risks The mortgage loans included in any
trust fund typically will be secured
by an assignment of leases and rents
pursuant to which the borrower assigns
to the lender its right, title and
interest as landlord under the leases
of the related mortgaged property, and
the income derived therefrom, as
further security for the related
mortgage loan, while retaining a
license to collect rents for so long
as there is no default. If the
borrower defaults, the license
terminates and the lender is entitled
to collect rents. 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,
bankruptcy or the commencement of
similar proceedings by or in respect
of the borrower may adversely affect
the lender's ability to collect the
rents.
Inclusion in a Trust Fund of
Delinquent Mortgage Loans May
Adversely Affect the Rate of
Defaults and Prepayments on the
Mortgage Loans If so provided in the prospectus
supplement, the trust fund for a
series of certificates may include
mortgage loans that are delinquent as
of the date they are deposited in the
trust fund. A mortgage loan will be
considered "delinquent" if it is 30
days or more past its most recently
contractual scheduled payment date in
payment of all amounts due according
to its terms. In any event, at the
time of its creation, the trust fund
will not include delinquent loans
which by principal amount are more
than 20% of the aggregate principal
amount of all mortgage loans in the
trust fund. If so specified in the
prospectus supplement, the servicing
of such mortgage loans will be
performed by a special servicer.
Credit support provided with respect
to a series of certificates may not
cover all losses related to delinquent
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 the
mortgage loans in the trust fund and
the yield on the offered certificates
of such series.
Environmental Liability May Affect
the Lien on a Mortgaged Property
and Expose the Lender to Costs Under certain laws, contamination of
real property may give rise to a lien
on the property to assure the costs of
cleanup. In severalstates, that lien
has priority over an existing mortgage
lien on a property. In addition, under
the laws of some states and under the
federal Comprehensive Environmental
Response, Compensation and Liability
Act of 1980, a lender may be liable,
as an "owner" or "operator," for costs
of addressing releases or threatened
releases of hazardous substances at a
property, if agents or employees of
the lender have become sufficiently
involved in the operations of the
borrower, regardless of whether or not
the environmental damage or threat was
caused by the borrower. A lender also
risks such liability on foreclosure of
the mortgage. In addition, liabilities
imposed upon a borrower by CERCLA or
other environmental laws may adversely
affect a borrower's ability to repay a
loan. If a trust fund includes
mortgage loans and the prospectus
supplement does not otherwise specify,
the related pooling agreement will
contain provisions generally to the
effect that the master servicer,
acting on behalf of the trust fund,
may not acquire title to a mortgaged
property or assume control of its
operation unless the master servicer,
based upon a report prepared by a
person who regularly conducts
environmental site assessments, has
made the determination that it is
appropriate to do so. These provisions
are designed to reduce substantially
the risk of liability for costs
associated with remediation of
hazardous substances, but we cannot
provide assurance in a given case that
those risks can be eliminated
entirely. In addition, it is likely
that any recourse against the person
preparing the environmental report,
and such person's ability to satisfy a
judgment, will be limited.
One Action Jurisdiction May Limit the
Ability of the Special Servicer to
Foreclose on a Mortgaged Property Several states (including California)
have laws that prohibit more than one
"judicial action" to enforce a
mortgage obligation, and some courts
have construed the term "judicial
action" broadly. The special servicer
may need to obtain advice of counsel
prior to enforcing any of the trust
fund's rights under any of the
mortgage loans that include mortgaged
properties where the rule could be
applicable.
In the case of a mortgage loan secured
by mortgaged properties located in
multiple states, the special servicer
may be required to foreclose first on
properties located in states where
"one action" rules apply (and where
non-judicial foreclosure is permitted)
before foreclosing on properties
located in states where judicial
foreclosure is the only permitted
method of foreclosure.
Rights Against Tenants May be Limited
if Leases Are Not Subordinate to the
Mortgage or Do Not Contain Attornment
Provisions Some of the tenant leases contain
provisions that require the tenant to
attorn to (that is, recognize as
landlord under the lease) a successor
owner of the property following
foreclosure. Some of the leases may be
either subordinate to the liens
created by the mortgage loans or else
contain a provision that requires the
tenant to subordinate the lease if the
mortgagee agrees to enter into a
non-disturbance agreement.
In some states, if tenant leases are
subordinate to the liens created by
the mortgage loans and such leases do
not contain attornment provisions,
such leases may terminate upon the
transfer of the property to a
foreclosing lender or purchaser at
foreclosure. Accordingly, in the case
of the foreclosure of a mortgaged
property located in such a state and
leased to one or more desirable
tenants under leases that do not
contain attornment provisions, such
mortgaged property could experience a
further decline in value if such
tenants' leases were terminated (e.g.,
if such tenants were paying
above-market rents).
If a lease is senior to a mortgage,
the lender will not (unless it has
otherwise agreed with the tenant)
possess the right to dispossess the
tenant upon foreclosure of the
property, and if the lease contains
provisions inconsistent with the
mortgage (e.g., provisions relating to
application of insurance proceeds or
condemnation awards), the provisions
of the lease will take precedence over
the provisions of the mortgage.
If Mortgaged Properties Are Not in
Compliance With Current Zoning Laws,
You May Not Be Able to Restore
Compliance Following a Casualty Loss Due to changes in applicable building
and zoning ordinances and codes which
have come into effect after the
construction of improvements on
certain of the mortgaged properties,
some improvements may not comply fully
with current zoning laws (including
density, use, parking and set-back
requirements) but may qualify as
permitted non-confirming uses. Such
changes may limit the ability of the
related mortgagor to rebuild the
premises "as is" in the event of a
substantial casualty loss. Such
limitations may adversely affect the
ability of the mortgagor to meet its
mortgage loan obligations from cash
flow. Insurance proceeds may not be
sufficient to pay off such mortgage
loan in full. In addition, if the
mortgaged property were to be repaired
or restored in conformity with then
current law, its value could be less
than the remaining balance on the
mortgage loan and it may produce less
revenue than before such repair or
restoration.
Inspections of the Mortgaged
Properties Were Limited The mortgaged properties were
inspected by licensed engineers at the
time the mortgage loans were
originated to assess the structure,
exterior walls, roofing interior
construction, mechanical and
electrical systems and general
condition of the site, buildings and
other improvements located on the
mortgaged properties. We cannot
provide assurance that all conditions
requiring repair or replacement have
been identified in such inspections.
Litigation Concerns There may be legal proceedings pending
and, from time to time, threatened
against the mortgagors or their
affiliates relating to the business,
or arising out of the ordinary course
of business, the mortgagors and their
affiliates. We cannot provide
assurance that such litigation will
not have a material adverse effect on
the distributions to you on your
certificates.
<PAGE>
DESCRIPTION OF THE TRUST FUNDS
General
The primary assets of each trust fund will consist of mortgage assets
which include (i) one or more multifamily and/or commercial mortgage loans and
participations therein, (ii) CMBS, or (iii) a combination of mortgage loans,
participations therein and/or CMBS. Each trust fund will be established by the
depositor. Each mortgage asset will be selected by the depositor for inclusion
in a trust fund from among those purchased, either directly or indirectly,
from a prior holder thereof, which may or may not be the originator of such
mortgage loan or the issuer of such CMBS and may be an affiliate of the
depositor. The mortgage assets 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 by any
other person. The discussion below under the heading "- Mortgage
Loans-Leases," unless otherwise noted, applies equally to mortgage loans
underlying any CMBS included in a particular trust fund.
Mortgage Loans-Leases
General. The mortgage loans will be evidenced by mortgage notes
secured by mortgages or deeds or trust or similar security instruments that
create first or junior liens on, or installment contracts for the sale of,
mortgaged properties consisting of (i) multifamily properties, which are
residential properties consisting of five or more rental or cooperatively
owned dwelling units in high-rise, mid-rise or garden apartment buildings or
other residential structures, or (ii) commercial properties, which include
office buildings, retail stores, hotels or motels, nursing homes, hospitals or
other health care-related facilities, mobile home parks, warehouse facilities,
mini-warehouse facilities, self-storage facilities, industrial plants, mixed
use or other types of income-producing properties or unimproved land. The
multifamily properties may include mixed commercial and residential structures
and may include apartment buildings owned by private cooperative housing
corporations. If so specified in the prospectus supplement, each mortgage will
create a first priority mortgage lien on a mortgaged property. A mortgage may
create a lien on a borrower's leasehold estate in a property; however, the
term of any such leasehold will exceed the term of the mortgage note by at
least ten years. Each mortgage loan will have been originated by a person
other than the depositor.
If so specified in the 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 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, mortgage assets may include mortgage loans that are
delinquent as of the date of issuance of a series of certificates. In that
case, the prospectus supplement will set forth, as to each such mortgage loan,
available information as to the period of such delinquency, 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.
Leases. To the extent specified in the prospectus supplement, the
commercial properties may be leased to lessees that occupy all or a portion of
such properties. Pursuant to a lease assignment, the borrower may assign its
right, title and interest as lessor under each lease and the income derived
therefrom to the mortgagee, while retaining a license to collect the rents for
so long as there is no default. If the borrower defaults, the license
terminates and the mortgagee or its agent is entitled to collect the rents
from the lessee for application to the monetary obligations of the borrower.
State law may limit or restrict the enforcement of the lease assignments by a
mortgagee until it takes possession of the mortgaged property and/or a
receiver is appointed. See "Certain Legal Aspects of the Mortgage Loans and
Leases-Leases and Rents." Alternatively, to the extent specified in the
prospectus supplement, the borrower and the mortgagee may agree that payments
under leases are to be made directly to a servicer.
To the extent described in the prospectus supplement, the leases,
which may include "bond-type" or "credit-type" leases, may require the lessees
to pay rent that is sufficient in the aggregate to cover all scheduled
payments of principal and interest on the mortgage loans and, in certain
cases, their pro rata share of the operating expenses, insurance premiums and
real estate taxes associated with the mortgaged properties. A "bond-type"
lease is a lease between a lessor and a lessee for a specified period of time
with specified rent payments that are at least sufficient to repay the related
note(s). A bond-type lease requires the lessee to perform and pay for all
obligations related to the leased premises and provides that, no matter what
occurs with regard to the leased premises, the lessee is obligated to continue
to pay its rent. A "credit-type" lease is a lease between a lessor and a
lessee for a specified period of time with specified rent payments at least
sufficient to repay the related note(s). A credit-type lease requires the
lessee to perform and pay for most of the obligations related to the leased
premises, excluding only a few landlord duties which remain the responsibility
of the borrower/lessor. Leases (other than bond-type leases) may require the
borrower to bear costs associated with structural repairs and/or the
maintenance of the exterior or other portions of the mortgaged property or
provide for certain limits on the aggregate amount of operating expenses,
insurance premiums, taxes and other expenses that the lessees are required to
pay.
If so specified in the prospectus supplement, under certain
circumstances the lessees may be permitted to set off their rental obligations
against the obligations of the borrowers under the leases. In those cases
where payments under the leases (net of any operating expenses payable by the
borrowers) are insufficient to pay all of the scheduled principal and interest
on the mortgage loans, the borrowers must rely on other income or sources
generated by the mortgaged property to make payments on the mortgage loan. To
the extent specified in the prospectus supplement, some commercial properties
may be leased entirely to one lessee. This is generally the case in bond-type
leases and credit-type leases. In such cases, absent the availability of other
funds, the borrower must rely entirely on rent paid by such lessee in order
for the borrower to pay all of the scheduled principal and interest on the
related commercial loan. To the extent specified in the prospectus supplement,
some leases (not including bond-type leases) may expire prior to the stated
maturity of the mortgage loan. In such cases, upon expiration of the leases
the borrowers will have to look to alternative sources of income, including
rent payment by any new lessees or proceeds from the sale or refinancing of
the mortgaged property, to cover the payments of principal and interest due on
the mortgage loans unless the lease is renewed. As specified in the prospectus
supplement, some leases may provide that upon the occurrence of a casualty
affecting a mortgaged property, the lessee will have the right to terminate
its lease, unless the borrower, as lessor, is able to cause the mortgaged
property to be restored within a specified period of time. Some leases may
provide that it is the lessor's responsibility to restore the mortgaged
property to its original condition after a casualty. Some leases may provide
that it is the lessee's responsibility to restore the mortgaged property to
its original condition after a casualty. Some leases may provide a right of
termination to the lessee if a taking of a material or specified percentage of
the leased space in the mortgage property occurs, or if the ingress or egress
to the leased space has been materially impaired.
Default and Loss Considerations with Respect to the Mortgage Loans.
Mortgage loans secured by liens on income-producing properties are
substantially different from loans which are secured by owner-occupied
single-family homes. The repayment of a loan secured by a lien on an income
producing property is typically dependent upon the successful operation of
such property (that is, its ability to generate income). Moreover, some or all
of the mortgage loans included in a trust fund may be non-recourse loans,
which means that, absent special facts, recourse in the case of default will
be limited to the mortgaged property and such other assets, if any, that the
borrower pledged to secure repayment of the mortgage loan.
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. As more fully set forth in the prospectus supplement,
the Debt Service Coverage Ratio of a mortgage loan at any given time is the
ratio of (i) the Net Operating Income of the mortgaged property for a
twelve-month period to (ii) the annualized scheduled payments on the mortgage
loan and on any other loan that is secured by a lien on the mortgaged property
prior to the lien of the mortgage. As more fully set forth in the prospectus
supplement, Net Operating Income means, for any given period, the total
operating revenues derived from a mortgaged property, minus the total
operating expenses incurred in respect of the mortgaged property other than
(i) non-cash items such as depreciation and amortization, (ii) capital
expenditures and (iii) debt service on loans (including the mortgage loan)
secured by liens on the mortgaged property. The Net Operating Income of a
mortgaged property will fluctuate over time and may not be sufficient to cover
debt service on the mortgage loan at any given time. An insufficiency of Net
Operating Income can be compounded or solely caused by an adjustable rate
mortgage loan. As the primary source of the operating revenues of a non-owner
occupied income-producing property, the condition of the applicable real
estate market and/or area economy may effect rental income (and maintenance
payments from tenant-stockholders of a private cooperative housing
corporation). In addition, properties typically leased, occupied or used on a
short-term basis, such as certain 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
typically leased, occupied or used for longer periods, such as 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
the case of mortgaged properties with multiple tenants.
The Debt Service Coverage Ratio should not be relied upon as the sole
measure of the risk of default of any loan, however, since other factors may
outweigh a high Debt Service Coverage Ratio. With respect to a balloon
mortgage loan, for example, the risk of default as a result of the
unavailability of a source of funds to finance the related balloon payment at
maturity on terms comparable to or better than those of the balloon mortgage
loans could be significant even though the related Debt Service Coverage Ratio
is high.
Increases in operating expenses due to the general economic climate
or economic conditions in a locality or industry segment, such as increases in
interest rates, real estate tax rates, energy costs, labor costs and other
operating expenses, and/or changes in governmental rules, regulations and
fiscal policies may also affect the risk of default on a mortgage loan. As may
be further described in the prospectus supplement, in some cases leases of
mortgaged properties may provide that the lessee, rather than the
borrower/landlord, is responsible for payment of operating expenses. However,
the existence of such "net of expense" provisions will result in stable Net
Operating Income to the borrower/landlord only to the extent that the lessee
is able to absorb operating expense increases while continuing to make rent
payments. See "-Leases" above.
While the duration of leases and the existence of any "net of
expense" provisions are often viewed as the primary considerations in
evaluating the credit risk of mortgage loans secured by certain
income-producing properties, such risk may be affected equally or to a greater
extent by changes in government regulation of the operator of the property.
Examples of the latter include mortgage loans secured by health care-related
facilities, the income from which and the operating expenses of which are
subject to state and/or federal regulations, such as Medicare and Medicaid,
and multifamily properties and mobile home parks, which may be subject to
state or local rent control regulation and, in certain cases, restrictions on
changes in use of the property. Low- and moderate-income housing in particular
may be subject to legal limitations and regulations but, because of such
regulations, may also be less sensitive to fluctuations in market rents
generally.
Lenders also look to the Loan-to-Value Ratio of a mortgage loan as a
measure of risk of loss if a property must be liquidated following a default.
The lower the Loan-to-Value Ratio, the greater the percentage of the
borrower's equity in a mortgaged property, and thus the greater the cushion
provided to the lender against loss on liquidation following a default.
Loan-to-Value Ratios will not necessarily constitute an accurate
measure of the risk of liquidation loss in a pool of mortgage loans. For
example, the value of a mortgaged property as of the date of initial issuance
of the related series of certificates may be less than the fair market value
of the mortgaged property determined in an appraisal determined at loan
origination, and will likely continue to fluctuate from time to time based
upon changes in economic conditions and the real estate market. Moreover, even
when current, an appraisal is not necessarily a reliable estimate of value.
Appraised values of income-producing properties are generally 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 can present analytical difficulties. 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 provide
significantly different results, an accurate determination of value and,
correspondingly, a reliable analysis of default and loss risks, is even more
difficult.
While the depositor believes that the foregoing considerations are
important factors that generally distinguish loans secured by liens on
income-producing real estate from single-family mortgage loans, there is no
assurance that all of such factors will in fact have been prudently considered
by the originators of the mortgage loans, or that, for a particular mortgage
loan, they are complete or relevant. See "Risk Factors - Net Operating Income
Produced by a Mortgaged Property May Be Inadequate to Repay the Mortgage
Loans" and "-Balloon Payments on Mortgage Loans Result in Heightened Risk of
Borrower Default."
Payment Provisions of the Mortgage Loans. Unless otherwise specified
in the prospectus supplement, all of the mortgage loans will have original
terms to maturity of not more than 40 years and will provide for scheduled
payments of principal, interest or both, to be made on specified dates that
occur monthly or quarterly or at such other interval as is specified in the
prospectus supplement. A mortgage loan (i) may provide for no accrual of
interest or for accrual of interest thereon at an interest rate that is fixed
over its term or that adjusts from time to time, or that may be converted at
the borrower's election from an adjustable to a fixed interest rate, or from a
fixed to an adjustable interest rate, (ii) may provide for the formula, index
or other method by which the interest rate will be calculated, (iii) may
provide for level payments to maturity or for payments that adjust from time
to time to accommodate changes in the interest rate or to reflect the
occurrence of certain events, and may permit negative amortization or
accelerated amortization, (iv) may be fully amortizing over its term to
maturity, or may provide for little or no amortization over its term and thus
require a balloon payment on its stated maturity date, and (v) may contain a
prohibition on prepayment for a specified lockout period or require payment of
a prepayment premium or a yield maintenance penalty in connection with a
prepayment, in each case as described in the prospectus supplement. A mortgage
loan may also contain an equity participation provision that entitles the
lender to a share of profits realized from the operation or disposition of the
mortgaged property, as described in the prospectus supplement. If holders of
any series or class of offered certificates will be entitled to all or a
portion of a prepayment premium or an equity participation, the prospectus
supplement will describe the prepayment premium and/or equity participation
and the method or methods by which any such amounts will be allocated to
holders.
Mortgage Loan Information in Prospectus Supplements. Each prospectus
supplement will contain certain information pertaining to the mortgage loans
in the related trust fund which will generally include the following: (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 or types of property that provide security for
repayment of the mortgage loans, (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 original Loan-to-Value Ratios of the mortgage loans, (vi) the mortgage
interest rates or range of mortgage interest rates and the weighted average
mortgage interest rate carried by the mortgage loans, (vii) the geographic
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) with respect to adjustable rate mortgage loans, the index or
indices upon which such adjustments are based, the adjustment dates, the range
of gross margins and the weighted average gross margin, and any limits on
mortgage interest rate adjustments at the time of any adjustment and over the
life of the adjustable rate mortgage loans, (x) Debt Service Coverage Ratios
either at origination or as of a more recent date (or both) and (xi)
information regarding the payment characteristics of the mortgage loans,
including without limitation balloon payment and other amortization
provisions. In appropriate cases, the prospectus supplement will also contain
certain information available to the depositor that pertains to the provisions
of leases and the nature of tenants of the mortgaged properties. If specific
information regarding the mortgage loans is not known to the depositor at the
time the certificates are initially offered, the depositor will provide more
general information of the nature described above in the prospectus
supplement, and the depositor will set forth specific information of the
nature described above in a report which will be available to purchasers of
the related certificates at or before the initial issuance thereof and will be
filed as part of a Current Report on Form 8-K with the Securities and Exchange
Commission within 15 days following such issuance.
CMBS
CMBS may include (i) private (that is, not guaranteed or insured by
the United States or any agency or instrumentality thereof) mortgage
participations, mortgage pass-through certificates or other mortgage-backed
securities such as mortgage-backed securities that are similar to a series of
certificates or (ii) certificates insured or guaranteed by Freddie Mac, Fannie
Mae, Ginnie Mae or Farmer Mac, provided that each CMBS will evidence an
interest in, or will be secured by a pledge of, mortgage loans that conform to
the descriptions of the mortgage loans contained in this prospectus.
The CMBS may have been issued in one or more classes with
characteristics similar to the classes of certificates described in this
prospectus. Distributions in respect of the CMBS will be made by the CMBS
servicer or the CMBS trustee on the dates specified in the prospectus
supplement. The CMBS issuer or the CMBS servicer or another person specified
in the prospectus supplement may have the right or obligation to repurchase or
substitute assets underlying the CMBS after a certain date or under other
circumstances specified in the prospectus supplement.
Reserve funds, subordination or other credit support similar to that
described for the certificates under "Description of Credit Support" may have
been provided with respect to the CMBS. The type, characteristics and amount
of such credit support, if any, will be a function of the characteristics of
the underlying mortgage loans and other factors and generally will have been
established on the basis of the requirements of any rating agency that may
have assigned a rating to the CMBS, or by the initial purchasers of the CMBS.
The prospectus supplement for certificates that evidence interests in
CMBS will specify, to the extent available and deemed material, (i) the
aggregate approximate initial and outstanding principal amount and type of the
CMBS to be included in the trust fund, (ii) the original and remaining term to
stated maturity of the CMBS, if applicable, (iii) the pass-through or bond
rate of the CMBS or the formula for determining such rates, (iv) the payment
characteristics of the CMBS, (v) the CMBS issuer, CMBS servicer and CMBS
trustee, (vi) a description of the credit support, if any, (vii) the
circumstances under which the related underlying mortgage loans, or the CMBS
themselves, may be purchased prior to their maturity, (viii) the terms on
which mortgage loans may be substituted for those originally underlying the
CMBS, (ix) the servicing fees payable under the CMBS agreement, (x) the type
of information in respect of the underlying mortgage loans described under
"-Mortgage Loans-Leases-Mortgage Loan Information in Prospectus Supplements"
and (xi) the characteristics of any cash flow agreements that relate to the
CMBS.
To the extent required under the securities laws, CMBS included among
the assets of a trust fund will (i) either have been registered under the
Securities Act of 1933, as amended, or be eligible for resale under Rule
144(k) under the Securities Act of 1933, as amended, and (ii) have been
acquired in a bona fide secondary market transaction and not from the issuer
or an affiliate.
Certificate Accounts
Each trust fund will include one or more certificate accounts
established and maintained on behalf of the certificateholders into which the
person or persons designated in the prospectus supplement will, to the extent
described in this prospectus and in the 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 prospectus supplement.
Credit Support
If so provided in the prospectus supplement, partial or full
protection against certain defaults and losses on the mortgage assets in the
trust fund may be provided to one or more classes of certificates in the form
of subordination of one or more other classes of certificates or by one or
more other types of credit support, such as over collateralization, a letter
of credit, insurance policy, guarantee or reserve fund, or by a combination
thereof. The amount and types of credit support, the identity of the entity
providing it (if applicable) and related information with respect to each type
of credit support, if any, will be set forth in the prospectus supplement for
the certificates of each series. The prospectus supplement for any series of
certificates evidencing an interest in a trust fund that includes CMBS will
describe in the same fashion 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 CMBS to the extent information is
available and deemed material. The type, characteristic and amount of credit
support will be determined based on the characteristics of the mortgage assets
and other factors and will be established, in part, on the basis of
requirements of each rating agency rating a series of certificates. If so
specified in the prospectus supplement, any credit support may apply only in
the event of certain types of losses or delinquencies and the protection
against losses or delinquencies provided by such credit support will be
limited. See "Risk Factors - Credit support may not cover losses or risks
which could adversely affect payment on your certificates" and "Description of
Credit Support."
Cash Flow Agreements
If so provided in the 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 interest rate exchange
agreements, interest rate cap or floor agreements, currency exchange
agreements or similar agreements designed 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 guaranteed investment
contract or other agreement, and the identity of the obligor under any
guaranteed investment contract or other agreement, will be described in the
prospectus supplement.
Pre-Funding
If so provided in the prospectus supplement, a trust fund may include
amounts on deposit in a separate pre-funding account that may be used by the
trust fund to acquire additional mortgage assets. Amounts in a pre-funding
account will not exceed 25% of the pool balance of the trust fund as of the
Cut-Off Date. Additional mortgage assets will be selected using criteria that
is substantially similar to the criteria used to select the mortgage assets
included in the trust fund on the closing date. The trust fund may acquire
such additional mortgage assets for a period of time of not more than 120 days
after the closing date for the related series of certificates. Amounts on
deposit in the pre-funding account after the end of the pre-funding period
will be distributed to certificateholders or such other person as set forth in
the prospectus supplement.
In addition, a trust fund may include a separate capitalized interest
account. Amounts on deposit in the capitalized interest account may be used to
supplement investment earnings, if any, of amounts on deposit in the
pre-funding account, supplement interest collections of the trust fund, or
such other purpose as specified in the prospectus supplement. Amounts on
deposit in the capitalized interest account and pre-funding account generally
will be held in cash or invested in short-term investment grade obligations.
Any amounts on deposit in the capitalized interest account will be released
after the end of the pre-funding period as specified in the prospectus
supplement. See "Risk Factors-Unused amounts in pre-funding accounts may be
returned to you as a prepayment."
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 and the amount
and timing of distributions on the certificate. See "Risk Factors-Prepayments
and Repurchases of the Mortgage Assets Will Affect the Timing of Your Cash
Flow and May Affect Your Yield." The following discussion contemplates a trust
fund that consists solely of mortgage loans. While you generally can expect
the characteristics and behavior of mortgage loans underlying CMBS 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 CMBS. If a trust fund includes CMBS, the prospectus supplement will
discuss the effect that the CMBS payment characteristics may have on the yield
to maturity and weighted average lives of the offered certificates.
Pass-Through Rate
The certificates of any class within a series may have a fixed,
variable or adjustable pass-through rate, which may or may not be based upon
the interest rates borne by the mortgage loans in the related trust fund. The
prospectus supplement will specify the pass-through rate for each class of
certificates or, in the case of a class of offered certificates with 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 loan
on the pass-through rate of one or more classes of offered certificates; and
whether the distributions of interest on the offered certificates of any class
will be dependent, in whole or in part, on the performance of any obligor
under a cash flow agreement.
Payment Delays
A period of time will elapse between the date upon which payments on
the mortgage loans in the related trust fund are due and the distribution date
on which such payments are passed through to certificateholders. That delay
will effectively reduce the yield that would otherwise be produced if payments
on such mortgage loans were distributed to certificateholders on or near the
date they were due.
Shortfalls in Collections of Interest Resulting from Prepayments
When a borrower makes a principal prepayment on a mortgage loan in
full or in part, the borrower is generally charged interest only for the
period from the date on which the preceding scheduled payment was due up to
the date of such prepayment, instead of for the full accrual period, that is,
the period from the due date of the preceding scheduled payment up to the due
date for the next scheduled payment. However, interest accrued on any series
of certificates and distributable thereon on any distribution date will
generally correspond to interest accrued on the principal balance of mortgage
loans for their respective full accrual periods. Consequently, if a prepayment
on any mortgage loan is distributable to certificateholders on a particular
distribution date, but such prepayment is not accompanied by interest thereon
for the full accrual period, the interest charged to the borrower (net of
servicing and administrative fees) may be less than the corresponding amount
of interest accrued and otherwise payable on the certificates of the related
series. If and to the extent that any prepayment interest shortfall is
allocated to a class of offered certificates, the yield on the offered
certificates will be adversely affected. The prospectus supplement will
describe the manner in which any prepayment interest shortfalls will be
allocated among the classes of certificates. If so specified in the prospectus
supplement, the master servicer will be required to apply some or all of its
servicing compensation for the corresponding period to offset the amount of
any prepayment interest shortfalls. The prospectus supplement will also
describe any other amounts available to offset prepayment interest shortfalls.
See "Description of the Pooling Agreements-Servicing Compensation and Payment
of Expenses."
Prepayment Considerations
A certificate's yield to maturity will be affected by the rate of
principal payments on the mortgage loans in the related trust fund and the
allocation of those principal payments to reduce the principal balance (or
notional amount, if applicable) of the certificate. The rate of principal
payments on the mortgage loans will in turn be affected by the amortization
schedules of the mortgage loans (which, in the case of adjustable rate
mortgage loans, will change periodically to accommodate adjustments to their
mortgage interest rates), the dates on which any balloon payments are due, and
the rate of principal prepayments thereon (including for this purpose,
prepayments resulting from liquidations of mortgage loans due to defaults,
casualties or condemnations affecting the mortgaged properties, or purchases
of mortgage loans out of the trust fund). Because the rate of principal
prepayments on the mortgage loans in any trust fund will depend on future
events and a variety of factors (as discussed more fully below), it is
impossible to predict with assurance a certificate's yield to maturity.
The extent to which the yield to maturity of a class of offered
certificates of any series may vary from the anticipated yield will depend
upon the degree to which they are purchased at a discount or premium and when,
and to what degree, payments of principal on the mortgage loans in the related
trust fund are in turn distributed on such certificates (or, in the case of a
class of Stripped Interest Certificates, result in the reduction of the
notional amount of the Stripped Interest Certificate). Further, 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 in the trust fund 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
prepayment of principal on the mortgage loans is distributed on an offered
certificate purchased at a discount or premium (or, if applicable, is
allocated in reduction of the notional amount thereof), the greater will be
the effect on the investor's yield to maturity. As a result, the effect on an
investor's yield of principal payments (to the extent distributable in
reduction of the principal balance or notional amount of the investor's
offered certificates) occurring at a rate higher (or lower) than the rate
anticipated by the investor during any particular period would not be fully
offset by a subsequent like reduction (or increase) in the rate of principal
payments.
A class of certificates, including a class of offered certificates,
may provide that on any distribution date the holders of certificates are
entitled to a pro rata share of the prepayments (including prepayments
occasioned by defaults) on the mortgage loans in the related trust fund that
are distributable on that date, to a disproportionately large share (which, in
some cases, may be all) of such prepayments, or to a disproportionately small
share (which, in some cases, may be none) of the prepayments. As and to the
extent described in the prospectus supplement, the entitlements of the various
classes of certificateholders of any series to receive payments (and, in
particular, prepayments) of principal of the mortgage loans in the related
trust fund may vary based on the occurrence of certain events (e.g., the
retirement of one or more classes of a series of certificates) or subject to
certain contingencies (e.g., prepayment and default rates with respect to the
mortgage loans).
In general, the notional amount of a class of Stripped Interest
Certificates will either (i) be based on the principal balances of some or all
of the mortgage assets in the related trust fund or (ii) equal the certificate
balances of one or more of the other classes of certificates of the same
series. Accordingly, the yield on such Stripped Interest Certificates will be
directly related to the amortization of the mortgage assets or classes of
certificates, as the case may be. Thus, if a class of certificates of any
series consists of Stripped Interest Certificates or Stripped Principal
Certificates, a lower than anticipated rate of principal prepayments on the
mortgage loans in the related trust fund will negatively affect the yield to
investors in Stripped Principal Certificates, and a higher than anticipated
rate of principal prepayments on the mortgage loans will negatively affect the
yield to investors in Stripped Interest Certificates.
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 multifamily or commercial mortgage loans. However, the
extent of prepayments of principal of the mortgage loans in any trust fund may
be affected by a number of factors, including, without limitation, the
availability of mortgage credit, the relative economic vitality of the area in
which the mortgaged properties are located, the quality of management of the
mortgaged properties, the servicing of the mortgage loans, possible changes in
tax laws and other opportunities for investment. In addition, the rate of
principal payments on the mortgage loans in any trust fund may be affected by
the existence of lockout periods and requirements that principal prepayments
be accompanied by prepayment premiums, and by the extent to which such
provisions may be practicably enforced.
The rate of prepayment on a pool of mortgage loans is also affected
by prevailing market interest rates for mortgage loans of a comparable type,
term and risk level. When the prevailing market interest rate is below a
mortgage coupon, a borrower may have an increased incentive to refinance its
mortgage loan. In addition, as prevailing market interest rates decline, even
borrowers with adjustable rate mortgage loans that have experienced a
corresponding interest rate decline may have an increased incentive to
refinance for purposes of either (i) converting to a fixed rate loan and
thereby "locking in" such rate or (ii) taking advantage of the initial "teaser
rate" (a mortgage interest rate below what it would otherwise be if the
applicable index and gross margin were applied) on another adjustable rate
mortgage loan.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
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 will make no representation as to the particular factors that will
affect the prepayment of the mortgage loans in any trust fund, as to the
relative importance of such factors, as to the percentage of the principal
balance of the mortgage loans that will be paid as of any date or as to the
overall rate of prepayment on the mortgage loans.
Weighted Average Life and Maturity
The rate at which principal payments are received on the mortgage
loans in a trust fund will affect the ultimate maturity and the weighted
average life of one or more classes of a series of certificates. Weighted
average life refers to the average amount of time that will elapse from the
date of issuance of an instrument until each dollar of the principal amount of
such instrument is repaid to the investor.
The weighted average life and maturity of a class of certificates of
a series will be influenced by the rate at which principal on the mortgage
loans, whether in the form of scheduled amortization or prepayments (for this
purpose, the term "prepayment" includes voluntary prepayments, liquidations
due to default and purchases of mortgage loans out of the trust fund), is paid
to that class of certificateholders. Prepayment rates on loans are commonly
measured relative to a prepayment standard or model, such as the CPR
prepayment model or the SPA prepayment model. CPR represents an assumed
constant rate of prepayment each month (expressed as an annual percentage)
relative to the then outstanding principal balance of a pool of loans for the
life of those loans. SPA represents an assumed variable rate of prepayment
each month (expressed as an annual percentage) relative to the then
outstanding principal balance of a pool of loans, with different prepayment
assumptions often expressed as percentages of SPA. For example, a prepayment
assumption of 100% of SPA assumes prepayment rates of 0.2% per annum of the
then outstanding principal balance of loans in the first month of the life of
the loans and an additional 0.2% per annum in each following month until the
30th month. Beginning in the 30th month, and in each following month 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 particular pool of
loans. Moreover, the CPR and SPA models were developed based upon historical
prepayment experience for single-family loans. Thus, it is unlikely that the
prepayment experience of the mortgage loans included in any trust fund will
conform to any particular level of CPR or SPA.
The prospectus supplement for each series of certificates will
contain tables, if applicable, setting forth the projected weighted average
life of each class of offered certificates and the percentage of the initial
certificate balance of each class that would be outstanding on specified
distribution dates based on the assumptions stated in the prospectus
supplement, including assumptions that borrowers make prepayments on the
mortgage loans at rates corresponding to various percentages of CPR or SPA, or
at such other rates specified in the prospectus supplement. The tables and
assumptions will illustrate the sensitivity of the weighted average lives of
the certificates to various assumed prepayment rates and will not be intended
to predict, or to provide information that will enable investors to predict,
the actual weighted average lives of the certificates.
Controlled Amortization Classes and Companion Classes
A series of certificates may include one or more controlled
amortization classes that are designed to provide increased protection against
prepayment risk by transferring that risk to one or more companion classes.
Unless otherwise specified in the prospectus supplement, each controlled
amortization class will either be a planned amortization class or a targeted
amortization class. In general, distributions of principal on a planned
amortization class of certificates are made in accordance with a specified
amortization schedule so long as prepayments on the underlying mortgage loans
occur within a specified range of constant prepayment rates and, as described
below, so long as one or more companion classes remain to absorb excess cash
flows and make up for shortfalls. For example, if the rate of prepayments is
significantly higher than expected, the excess prepayments will be applied to
retire the companion classes prior to reducing the principal balance of a
planned amortization class. If the rate of prepayments is significantly lower
than expected, a disproportionately large portion of prepayments may be
applied to a planned amoritzation class. Once the companion classes for a
planned amortization class are retired, the planned amortization class of
certificates will have no further prepayment protection. A targeted
amortization class of certificates is similar to a planned amortization class
of certificates, but a targeted amortization class structure generally does
not draw on companion classes to make up cash flow shortfalls, and will
generally not provide protection to the targeted amortization class against
the risk that prepayments occur more slowly than expected.
In general, the reduction of prepayment risk afforded to a controlled
amortization class comes at the expense of one or more companion classes of
the same series (any of which may also be a class of offered certificates)
which absorb a disproportionate share of the overall prepayment risk of a
given structure. As more particularly described in the prospectus supplement,
the holders of a companion class will receive a disproportionately large share
of prepayments when the rate of prepayment exceeds the rate assumed in
structuring the controlled amortization class, and (in the case of a companion
class that supports a planned amortization class of certificates) a
disproportionately small share of prepayments (or no prepayments) when the
rate of prepayment falls below that assumed rate. Thus, as and to the extent
described in the prospectus supplement, a companion class will absorb a
disproportionate share of the risk that a relatively fast rate of prepayments
will result in the early retirement of the investment, that is, "call risk,"
and, if applicable, the risk that a relatively slow rate of prepayments will
extend the average life of the investment, that is, "extension risk", that
would otherwise be allocated to the related controlled amortization class.
Accordingly, companion classes can exhibit significant average life
variability.
Other Factors Affecting Yield, Weighted Average Life and Maturity
Balloon Payments; Extensions of Maturity. Some or all of the mortgage
loans included in a trust fund may require that balloon payments be made at
maturity. Because the ability of a borrower to make a balloon payment
typically will depend upon its ability either to refinance the loan or to sell
the mortgaged property, there is a risk that mortgage loans that require
balloon payments may default at maturity, or that the maturity of such a
mortgage loan may be extended in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things,
bankruptcy of the borrower or adverse conditions in the market where the
property is located. In order to minimize losses on defaulted mortgage loans,
the master servicer or a special servicer, to the extent and under the
circumstances set forth in this prospectus and in the prospectus supplement,
may be authorized 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 may delay distributions of
principal on a class of offered certificates and thereby extend the weighted
average life of the certificates and, if the certificates were purchased at a
discount, reduce the yield thereon.
Negative Amortization. Mortgage loans that permit negative
amortization can affect the weighted average life of a class of certificates.
In general, mortgage loans that permit negative amortization by their terms
limit the amount by which scheduled payments may adjust in response to changes
in mortgage interest rates and/or provide that scheduled payment amounts will
adjust less frequently than the mortgage interest rates. Accordingly, during a
period of rising interest rates, the scheduled payment on a mortgage loan that
permits negative amortization may be less than the amount necessary to
amortize the loan fully over its remaining amortization schedule and pay
interest at the then applicable mortgage interest rate. In that case, the
mortgage loan balance would amortize more slowly than necessary to repay it
over its schedule and, if the amount of scheduled payment were less than the
amount necessary to pay current interest at the applicable mortgage interest
rate, the loan balance would negatively amortize to the extent of the amount
of the interest shortfall. Conversely, during a period of declining interest
rates, the scheduled payment on a mortgage loan that permits negative
amortization may exceed the amount necessary to amortize the loan fully over
its remaining amortization schedule and pay interest at the then applicable
mortgage interest rate. In that case, the excess would be applied to
principal, thereby resulting in amortization at a rate faster than necessary
to repay the mortgage loan balance over its schedule.
A slower or negative rate of mortgage loan amortization would
correspondingly be reflected in a slower or negative rate of amortization for
one or more classes of certificates of the related series. Accordingly, the
weighted average lives of mortgage loans that permit negative amortization
(and that of the classes of certificates to which any such negative
amortization would be allocated or which would bear the effects of a slower
rate of amortization on the mortgage loans) may increase as a result of such
feature. A faster rate of mortgage moan amortization will shorten the weighted
average life of the mortgage loans and, correspondingly, the weighted average
lives of those classes of certificates then entitled to a portion of the
principal payments on those mortgage loans. The prospectus supplement will
describe, if applicable, the manner in which negative amortization in respect
of the mortgage loans in any trust fund is allocated among the respective
classes of certificates of the related series.
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 lives of those mortgage
loans and, accordingly, the weighted average lives of and yields on the
certificates of the related series. 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 lives of and yields on the
certificates of the related series.
Losses and Shortfalls on the Mortgage Assets. The yield to holders of
the offered certificates of any series will directly depend on the extent to
which such holders are required to bear the effects of any losses or
shortfalls in collections arising out of defaults on the mortgage assets in
the related trust fund and the timing of such losses and shortfalls. In
general, the earlier that any such loss or shortfall occurs, the greater will
be the negative effect on yield for any class of certificates that is required
to bear the effects of the loss or shortfall.
The amount of any losses or shortfalls in collections on the mortgage
assets in any trust fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of credit support) will be allocated
among the classes of certificates of the related series in the priority and
manner, and subject to the limitations, specified in the prospectus
supplement. As described in the prospectus supplement, such allocations may
result in reductions in the entitlements to interest and/or certificate
balances of one or more classes of certificates, or may be effected simply by
a prioritization of payments among the classes of certificates. The yield to
maturity on a class of subordinate certificates may be extremely sensitive to
losses and shortfalls in collections on the mortgage assets in the related
trust fund.
Additional Certificate Amortization. In addition to entitling
certificateholders to a specified portion (which may range from none to all)
of the principal payments received on the mortgage assets in the related trust
fund, one or more classes of certificates of any series, including one or more
classes of offered certificates of a series, may provide for distributions of
principal from (i) amounts attributable to interest accrued but not currently
distributable on one or more classes of Accrual Certificates, (ii) excess
funds or (iii) any other amounts described in the prospectus supplement. As
specifically set forth in the prospectus supplement, "excess funds" generally
will represent that portion of the amounts distributable in respect of the
certificates of any series on any distribution date that represent (i)
interest received or advanced on the mortgage assets in the related trust fund
that is in excess of the interest currently distributable on that series of
certificates, as well as any interest accrued but not currently distributable
on any Accrual Certificates of that series or (ii) prepayment premiums,
payments from equity participations entitling the lender to a share of profits
realized from the operation or disposition of the mortgaged property, or any
other amounts received on the mortgage assets in the trust fund that do not
constitute interest thereon or principal thereof.
The amortization of any class of certificates out of the sources
described in the preceding paragraph would shorten the weighted average life
of certificates and, if those certificates were purchased at a premium, reduce
the yield on those certificates. The prospectus supplement will discuss the
relevant factors that you should consider in determining whether distributions
of principal of any class of certificates out of such sources would have any
material effect on the rate at which your certificates are amortized.
THE DEPOSITOR
First Union Commercial Mortgage Securities, Inc., the depositor, is a
North Carolina corporation organized on August 17, 1988 as a wholly-owned
subsidiary of First Union National Bank, a national banking association with
its main office located in Charlotte, North Carolina. First Union National
Bank is a subsidiary of First Union Corporation, a North Carolina corporation
registered as a bank holding company under the Bank Holding Company Act of
1956, as amended. First Union Corporation has filed with the appropriate
Federal Reserve Bank a declaration to become a financial holding company
pursuant to the Gramm-Leach-Bliley Act. The depositor's principal business is
to acquire, hold and/or sell or otherwise dispose of cash flow assets, usually
in connection with the securitization of that asset. The depositor maintains
its principal office at 301 South College St., Charlotte, N.C. 28288-0600. Its
telephone number is 704-374-6161. There can be no assurance that the depositor
will have any significant assets.
USE OF PROCEEDS
The net proceeds to be received from the sale of 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.
DESCRIPTION OF THE CERTIFICATES
General
In the aggregate, the certificates of each series of certificates
will represent the entire beneficial ownership interest in the trust fund
created pursuant to the related pooling agreement. Each series of certificates
may consist of one or more classes of certificates (including classes of
offered certificates), and such class or classes may (i) provide for the
accrual of interest thereon at a fixed, variable or adjustable rate; (ii) be
senior or subordinate to one or more other classes of certificates in
entitlement to certain distributions on the certificates; (iii) be entitled,
as Stripped Principal Certificates, to distributions of principal with
disproportionately small, nominal or no distributions of interest; (iv) be
entitled, as Stripped Interest Certificates, to distributions of interest with
disproportionately small, nominal or no distributions of principal; (v)
provide for distributions of principal and/or interest thereon that commence
only after 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 to be made, from time to time or for designated
periods, at a rate that is faster (and, in some cases, substantially faster)
or slower (and, in some cases, substantially slower) than the rate at which
payments or other collections of principal are received on the mortgage assets
in the related trust fund; (vii) provide for distributions of principal to be
made, subject to available funds, based on a specified principal payment
schedule or other methodology; and/or (viii) provide for distributions based
on a combination of two or more components thereof with one or more of the
characteristics described in this paragraph, including a Stripped Principal
Certificate component and a Stripped Interest Certificate component, to the
extent of available funds, in each case as described in the prospectus
supplement. Any such classes may include classes of offered certificates. With
respect to certificates with two or more components, references in this
prospectus to certificate balance, notional amount and pass-through rate refer
to the principal balance, if any, notional amount, if any, and the
pass-through rate, if any, for that component.
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 or REMIC residual certificates, notional
amounts or percentage interests specified in the prospectus supplement. As
provided in the prospectus supplement, one or more classes of offered
certificates of any series may be issued in fully registered, definitive form
or may be offered in book-entry format through the facilities of DTC. The
offered certificates of each series (if issued as definitive certificates) may
be transferred or exchanged, subject to any restrictions on transfer described
in the prospectus supplement, at the location specified in the prospectus
supplement, without the payment of any service charge, other than any tax or
other governmental charge payable in connection therewith. Interests in a
class of book-entry certificates will be transferred on the book-entry records
of DTC and its participating organizations. See "Risk Factors-Your Ability to
Resell Certificates May Be Limited Because of Their Characteristics," and
"-The Assets of the Trust Fund May Not Be Sufficient to Pay Your
Certificates".
Distributions
Distributions on the certificates of each series will be made by or
on behalf of the trustee or master servicer on each distribution date as
specified in the prospectus supplement from the Available Distribution Amount
for such series and such distribution date.
Except as otherwise specified in the prospectus supplement,
distributions on the certificates of each series (other than the final
distribution in retirement of any certificate) will be made to the persons in
whose names those certificates are registered on the record date, which is the
close of business on the last business day of the month preceding the month in
which the applicable distribution date occurs, and the amount of each
distribution will be determined as of the close of business on the
determination date that is specified in the prospectus supplement. All
distributions with respect to each class of certificates on each distribution
date will be allocated pro rata among the outstanding certificates in that
class. The trustee will make payments 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
provided the trustee or other person required to make such payments with
wiring instructions (which may be provided in the form of a standing order
applicable to all subsequent distributions) no later than the date specified
in the prospectus supplement (and, if so provided in the prospectus
supplement, such certificateholder holds certificates in the requisite amount
or denomination specified in the prospectus supplement), or by check mailed to
the address of the certificateholder as it appears on the certificate
register; provided, however, that the trustee will make the final distribution
in retirement of any class of certificates (whether definitive certificates or
book-entry certificates) only upon presentation and surrender of the
certificates at the location specified in the notice to certificateholders of
such final distribution.
Distributions of Interest on the Certificates
Each class of certificates of each series (other than certain classes
of Stripped Principal Certificates and certain REMIC residual certificates
that have no pass-through rate) may have a different pass-through rate which
may be fixed, variable or adjustable. The prospectus supplement will specify
the pass-through rate or, in the case of a variable or adjustable pass-through
rate, the method for determining the pass-through rate, for each class. Unless
otherwise specified in the prospectus supplement, interest on the certificates
of each series 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
(other than any class of Accrual Certificates that will be entitled to
distributions of accrued interest commencing only on the distribution date, or
under the circumstances, specified in the prospectus supplement, and other
than any class of Stripped Principal Certificates or REMIC residual
certificates that is not entitled to any distributions of interest) will be
made on each distribution date 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 that class will be added to the certificate balance of that
class on each distribution date. With respect to each class of certificates
(other than some classes of Stripped Interest Certificates and REMIC residual
certificates), Accrued Certificate Interest for each distribution date will be
equal to interest at the applicable pass-through rate accrued for a specified
period (generally the period between distribution dates) on the outstanding
certificate balance thereof immediately prior to such distribution date.
Unless otherwise provided in the prospectus supplement, Accrued Certificate
Interest for each distribution date on Stripped Interest Certificates will be
similarly calculated except that it will accrue on a notional amount that is
either (i) based on the principal balances of some or all of the mortgage
assets in the related trust fund or (ii) equal to the certificate balances of
one or more other classes of certificates of the same series. Reference to a
notional amount with respect to a class of Stripped Interest Certificates is
solely for convenience in making certain calculations and does not represent
the right to receive any distributions of principal.
If so specified in the prospectus supplement, 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) one or more classes of the certificates of a series will be reduced to the
extent that any prepayment interest shortfalls, as described under "Yield
Considerations-Shortfalls in Collections of Interest Resulting from
Prepayments" exceed the amount of any sums (including, if and to the extent
specified in the prospectus supplement, the master servicer's servicing
compensation) that are applied to offset such shortfalls. The particular
manner in which prepayment interest shortfalls will be allocated among some or
all of the classes of certificates of that series will be specified in the
prospectus supplement. The 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 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 that class. See "Risk Factors-Prepayment and
Repurchases of the Mortgage Assets Will Affect the Timing of Your Cash Flow
and May Affect Your Yield" and "Yield Considerations."
Distributions of Principal of the Certificates
Each class of certificates of each series (other than certain classes
of Stripped Interest Certificates or REMIC residual certificates) will have a
certificate balance which, at any time, will equal the then maximum amount
that the holders of certificates of that class 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 class of certificates will be reduced by distributions of
principal made on those certificates from time to time and, if so provided in
the prospectus supplement, further by any losses incurred in respect of the
related mortgage assets allocated to those certificates from time to time. In
turn, the outstanding certificate balance of a class of certificates may be
increased as a result of any deferred interest on or in respect of the related
mortgage assets that is allocated to those certificates from time to time, and
will be increased, in the case of a class of Accrual Certificates prior to the
distribution date on which distributions of interest on those Accrual
Certificates are required to commence, by the amount of any Accrued
Certificate Interest in respect thereof (reduced as described above). Unless
otherwise provided in the prospectus supplement, the initial aggregate
certificate balance of all classes of a series of certificates will not be
greater than the aggregate outstanding principal balance of the related
mortgage assets as of the applicable Cut-Off Date, after application of
scheduled payments due on or before such date, whether or not received.
As and to the extent described in the prospectus supplement,
distributions of principal with respect to a series of certificates will be
made on each distribution date to the holders of the class or classes of
certificates of such series entitled to distributions until the certificate
balances of those certificates have been reduced to zero. Distributions of
principal with respect to one or more classes of certificates may be made at a
rate that is faster (and, in some cases, substantially faster) than the rate
at which payments or other collections of principal are received on the
mortgage assets in the related trust fund, may not commence until the
occurrence of certain events, such as the retirement of one or more other
classes of certificates of the same series, or may be made at a rate that is
slower (and, in some cases, substantially slower) than the rate at which
payments or other collections of principal are received on such mortgage
assets. In addition, distributions of principal with respect to one or more
classes of controlled amortization certificates may be made, subject to
available funds, based on a specified principal payment schedule and, with
respect to one or more classes of companion classes of certificates, may be
contingent on the specified principal payment schedule for a controlled
amortization class of certificates of the same series and the rate at which
payments and other collections of principal on the mortgage assets in the
related trust fund are received. Unless otherwise specified in the prospectus
supplement, distributions of principal of any class of certificates will be
made on a pro rata basis among all of the certificates belonging to that
class.
Components
To the extent specified in the prospectus supplement, distribution on
a class of certificates may be based on a combination of two or more different
components as described under "-General" above. To that extent, the
descriptions set forth under "-Distributions of Interest on the Certificates"
and "-Distributions of Principal of the Certificates" above also relate to
components of such a class of certificates. In such case, reference in those
sections to certificate balance and pass-through rate refer to the principal
balance, if any, of any of the components and the pass-through rate, if any,
on any component, respectively.
Distributions on the Certificates in Respect of Prepayment Premiums
or in Respect of Equity Participations
If so provided in the prospectus supplement, prepayment premiums or
payments in respect of equity participations entitling the lender to a share
of profits realized from the operation or disposition of the mortgaged
property received on or in connection with the mortgage assets in any trust
fund will be distributed on each distribution date to the holders of the class
of certificates of the related series entitled thereto in accordance with the
provisions described in such prospectus supplement.
Allocation of Losses and Shortfalls
If so provided in the prospectus supplement for a series of
certificates consisting of one or more classes of subordinate certificates, on
any distribution date in respect of which losses or shortfalls in collections
on the mortgage assets have been incurred, the amount of such losses or
shortfalls will be borne first by a class of subordinate certificates in the
priority and manner and subject to the limitations specified in the prospectus
supplement. See "Description of Credit Support" for a description of the types
of protection that may be included in shortfalls on mortgage assets comprising
the trust fund.
Advances in Respect of Delinquencies
With respect to any series of certificates evidencing an interest in
a trust fund, unless otherwise provided in the prospectus supplement, a
servicer or another entity described therein will be required as part of its
servicing responsibilities to advance on or before each distribution date its
own funds or funds held in the related 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) that were due
on the mortgage loans in the trust fund and were delinquent on the related
determination date, subject to the servicer's (or another entity's) good faith
determination that such advances will be reimbursable from the loan proceeds.
In the case of a series of certificates that includes one or more classes of
subordinate certificates and if so provided in the prospectus supplement, each
servicer's (or another entity's) advance obligation may be limited only to the
portion of such delinquencies necessary to make the required distributions on
one or more classes of senior certificates and/or may be subject to the
servicer's (or another entity's) good faith determination that such advances
will be reimbursable not only from the loan proceeds but also from collections
on other trust assets otherwise distributable on one or more classes of
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 prospectus supplement, advances of a
servicer's (or another entity's) funds will be reimbursable only out of
recoveries on the mortgage loans (including amounts received under any form of
credit support) respecting which advances were made 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 advance will be reimbursable from any amounts in the related
certificate account prior to any distributions being made on the certificates
to the extent that a servicer (or such other entity) shall determine in good
faith that such advance is not ultimately recoverable from related proceeds on
the mortgage loans or, if applicable, from collections on other trust assets
otherwise distributable on the subordinate certificates.
If advances have been made from excess funds in a certificate
account, the master servicer or other person that advanced such funds will be
required to replace such funds in the certificate account on any future
distribution date to the extent that funds then in the certificate account are
insufficient to permit full distributions to certificateholders on that date.
If so specified in the prospectus supplement, the obligation of a master
servicer or other specified person to make advances may be secured by a cash
advance reserve fund or a surety bond. If applicable, we will provide in the
prospectus supplement information regarding the characteristics of, and the
identity of any obligor on, any such surety bond.
If and to the extent so provided in the prospectus supplement, any
entity making advances will be entitled to receive interest on those advances
for the period that such advances are outstanding at the rate specified
therein and will be entitled to pay itself that interest periodically from
general collections on the mortgage assets prior to any payment to
certificateholders as described in the prospectus supplement.
The prospectus supplement for any series of certificates evidencing
an interest in a trust fund that includes CMBS will describe any comparable
advancing obligation of a party to the related pooling agreement or of a party
to the related CMBS agreement.
Reports to Certificateholders
On each distribution date a master servicer or trustee will forward
to the holder of certificates of each class of a series a distribution date
statement accompanying the distribution of principal and/or interest to those
holders. As further provided in the prospectus supplement, the distribution
date statement for each class will set forth 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 to holders of
certificates of such class allocable to (A) prepayment
premiums and (B) payments on account of a lender's equity
participation in the related mortgaged property;
(iv) the amount of servicing compensation received by each
servicer and such other customary information as the 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 related mortgage
loans on, or as of a specified date shortly prior to, such
distribution date;
(vii) the number and aggregate principal balance of any 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 in
respect of three or more scheduled payments, (A) the loan
number, (B) the unpaid balance, (C) whether the delinquency
is in respect of any balloon payment, (D) the aggregate
amount of unreimbursed servicing expenses and unreimbursed
advances in respect of the mortgage loan, (E) if applicable,
the aggregate amount of any interest accrued and payable to
the related master servicer, a special servicer and/or any
other entity on related servicing expenses and related
advances, (F) whether a notice of acceleration has been sent
to the borrower and, if so, the date of such notice and (G)
a brief description of the status of any foreclosure
proceedings or negotiations with the borrower;
(ix) with respect to any mortgage loan liquidated during the
related prepayment period (as to the current distribution
date, generally the period extending from the prior
distribution date to and including the current distribution
date) in connection with a default on that mortgage loan or
because the mortgage loan was purchased out of the trust
fund, (A) the loan number, (B) the manner in which the
mortgage loan was liquidated, (C) the aggregate amount of
liquidation proceeds received, (D) the portion of
liquidation proceeds payable or reimbursable to the related
master servicer or a special servicer in respect of the
mortgage loan and (E) the amount of any loss to
certificateholders;
(x) with respect to each REO Property included in the related
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
principal balance of the related mortgage loan (calculated
as if such mortgage loan were still outstanding taking into
account certain limited modifications to the terms thereof
specified in the related pooling agreement), (D) the
aggregate amount of unreimbursed servicing expenses and
unreimbursed advances in respect of the related mortgage
loan, and (E) if applicable, the aggregate amount of
interest accrued and payable to the related master servicer,
a special servicer and/or any other entity on related
servicing expenses and related advances;
(xi) with respect to any REO Property sold during the related
collection period, (A) the loan number of the related
mortgage loan, (B) the aggregate amount of sales proceeds,
(C) the portion of such sales proceeds payable or
reimbursable to the related 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 certificate balance or notional amount 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
the certificate balance due to the allocation of any losses
in respect of the related mortgage loans and any 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 on the
mortgage loans during the related prepayment period;
(xiv) the amount deposited in or withdrawn from any reserve fund
on such distribution date, and the amount remaining on
deposit in the reserve fund as of the close of business on
such distribution date;
(xv) the amount of any Accrued Certificate Interest due but not
paid on such class of offered certificates at the close of
business on such distribution date;
(xvi) if such class of offered certificates has a variable
pass-through rate or an adjustable pass-through rate, the
pass-through rate applicable thereto for such distribution
date and, if determinable, for the next succeeding
distribution date; and
(xvii) if the related trust fund includes one or more types of
credit support, such as a letter of credit, an insurance
policy and/or a surety bond, the amount of coverage under
each such instrument as of the close of business on such
distribution date.
In the case of information furnished pursuant to subclauses (i)-(iv)
above, the amounts will be expressed as a dollar amount per minimum
denomination of the relevant class of offered certificates or per a specified
portion of such minimum denomination. 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 related master servicer or trustee, as the case may be, will be
required to furnish to each person who at any time during the calendar year
was a holder of an offered 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 will be deemed to have been satisfied to
the extent that substantially comparable information is provided pursuant to
any requirements of the Internal Revenue Code as are from time to time in
force. See, however, "Description of the Certificates-Book-Entry Registration
and Definitive Certificates."
If the trust fund for a series of certificates includes CMBS, the
ability of the related master servicer or trustee, as the case may be, to
include in any distribution date statement information regarding the mortgage
loans underlying such CMBS will depend on the reports received with respect to
such CMBS. In such cases, the prospectus supplement will describe the
loan-specific information to be included in the distribution date statements
that will be forwarded to the holders of the offered certificates of that
series in connection with distributions made to them.
Voting Rights
The voting rights evidenced by each series of certificates will be
allocated among the respective classes of such series in the manner described
in the prospectus supplement.
Certificateholders will generally have a right to vote only with
respect to required consents to certain amendments to the related pooling
agreement and as otherwise specified in the prospectus supplement. See
"Description of the Pooling Agreements-Amendment." The holders of specified
amounts of certificates of a particular series will have the collective right
to remove the related trustee and also to cause the removal of the related
master servicer in the case of an event of default under the related pooling
agreement on the part of the master servicer. See "Description of the Pooling
Agreements-Events of Default," "-Rights upon Event of Default" and
"-Resignation and Removal of the Trustee."
Termination
The obligations created by the pooling agreement for each series of
certificates will terminate upon the payment (or provision for payment) to
certificateholders of that series of all amounts held in the related
certificate account, or otherwise by the related master servicer or trustee or
by a special servicer, and required to be paid to such certificateholders
pursuant to such pooling agreement following the earlier of (i) the final
payment or other liquidation of the last mortgage asset subject to the pooling
agreement or the disposition of all property acquired upon foreclosure of any
mortgage loan subject to the pooling agreement and (ii) the purchase of all of
the assets of the related trust fund by the party entitled to effect such
termination, under the circumstances and in the manner that will be described
in the prospectus supplement. Written notice of termination of a pooling
agreement will be given to each certificateholder of the related series, and
the final distribution will be made only upon presentation and surrender of
the certificates of such series at the location to be specified in the notice
of termination.
If so specified in the prospectus supplement, a series of
certificates will be subject to optional early termination through the
repurchase of the assets in the related trust fund by a party that will be
specified in the prospectus supplement, under the circumstances and in the
manner set forth in the prospectus supplement. If so provided in the
prospectus supplement, upon the reduction of the certificate balance of a
specified class or classes of certificates by a specified percentage or
amount, a party identified in the prospectus supplement will be authorized or
required to solicit bids for the purchase of all the assets of the related
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 in the prospectus
supplement. In any event, unless otherwise disclosed in the prospectus
supplement, any such repurchase or purchase shall be at a price or prices that
are generally based upon the unpaid principal balance of, plus accrued
interest on, all mortgage loans (other than mortgage loans secured by REO
Properties) then included in a trust fund and the fair market value of all REO
Properties then included in the trust fund, which may or may not result in
full payment of the aggregate certificate balance plus accrued interest and
any undistributed shortfall in interest for the then outstanding certificates.
Any sale of trust fund assets will be without recourse to the trust and/or
certificateholders, provided, however, that there can be no assurance that in
all events a court would accept such a contractual stipulation.
Book-Entry Registration and Definitive Certificates
If so provided in the prospectus supplement, one or more classes of
the offered certificates of any series will be offered in book-entry format
through the facilities of DTC, and each such class will be represented by one
or more global certificates registered in the name of DTC or its nominee.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking corporation" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934. DTC holds securities that its participating
organizations deposit with DTC. DTC also facilitates the settlement among
participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book entry changes in
their accounts, thereby eliminating the need for physical movement of
securities certificates. Direct participants that maintain accounts with DTC
include securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. DTC is owned by a
number of its direct participants and by the New York Stock Exchange, Inc.,
the American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system also is available to indirect
participants in the DTC system such as securities brokers and dealers, banks
and trust companies that clear through or maintain a custodial relationship
with a direct participant in the DTC system, either directly or indirectly.
The rules applicable to DTC and its participants are on file with the
Securities Exchange Commission.
Purchases of book-entry certificates under the DTC system must be
made by or through direct participants in the DTC system, which will receive a
credit for the book-entry certificates on DTC's records. A certificate owner's
ownership interest as an actual purchaser of a book-entry certificate will in
turn be recorded on the records of direct participants and indirect
participants. Certificate owners will not receive written confirmation from
DTC of their purchases, but certificate owners are expected to receive written
confirmations providing details of such transactions, as well as periodic
statements of their holdings, from the direct participant or indirect
participant through which each certificate owner entered into the transaction.
Transfers of ownership interest in the book-entry certificates will be
accomplished by entries made on the books of participants acting on behalf of
certificate owners. Certificate owners will not receive certificates
representing their ownership interests in the book-entry certificates, except
in the event that use of the book-entry system for the book-entry certificates
of any series is discontinued as described below.
DTC will not know the identity of actual certificate owners of the
book-entry certificates; DTC's records reflect only the identity of the direct
participants in the DTC system to whose accounts such certificates are
credited. The participants will remain responsible for keeping account of
their holdings on behalf of their customers. Notices and other communications
conveyed by DTC to direct participants in the DTC system, by direct
participants to indirect participants, and by direct participants and indirect
participants to 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.
Distributions on the book-entry certificates will be made to DTC.
DTC's practice is to credit direct participants' accounts on the related
distribution date in accordance with their respective holdings shown on DTC's
records unless DTC has reason to believe that it will not receive payment on
such date. Disbursement of such distributions by participants to certificate
owners will be governed by standing instructions and customary practices, as
is the case with securities held for the accounts of customers in bearer form
or registered in "street name," and will be the responsibility of each such
participant (and not of DTC, the depositor or any trustee or master servicer),
subject to any statutory or regulatory requirements as may be in effect from
time to time. Under a book-entry system, certificate owners may receive
payments after the related distribution date.
As may be provided in the prospectus supplement, the only
"certificateholder" (as such term is used in the related pooling agreement) of
a book-entry certificate will be the nominee of DTC, and the certificate
owners will not be recognized as certificateholders under the pooling
agreement. Certificate owners will be permitted to exercise the rights of
certificateholders under the related pooling agreement only indirectly through
the participants who in turn will exercise their rights through DTC. The
depositor is informed that DTC will take action permitted to be taken by a
certificateholder under a pooling agreement only at the direction of one or
more participants to whose account with DTC interests in the book-entry
certificates are credited.
Because DTC can act only on behalf of direct participants in the DTC
system, who in turn act on behalf of indirect participants and certain
certificate owners, the ability of a certificate owner to pledge its interest
in 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
book-entry certificates, may be limited due to the lack of a physical
certificate evidencing such interest.
As may be specified in the 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 such 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 with respect to such certificates. Upon the
occurrence of either of the events described in the preceding sentence, DTC
will be required to notify all participants of the availability through DTC of
definitive certificates. Upon surrender by DTC of the certificate or
certificates representing a class of book-entry certificates, together with
instructions for registration, the trustee or other designated party will be
required to issue to the certificate owners identified in such instructions
the definitive certificates to which they are entitled, and thereafter the
holders of such definitive certificates will be recognized as
certificateholders under the related pooling agreement.
DESCRIPTION OF THE POOLING AGREEMENTS
General
The certificates of each series will be issued pursuant to a pooling
and servicing agreement or other agreement specified in the prospectus
supplement. In general, the parties to a pooling agreement will include the
depositor, the trustee, the master servicer and, in some cases, a special
servicer appointed as of the date of the pooling agreement. However, a pooling
agreement that relates to a trust fund that consists solely of CMBS may not
include a master servicer or other servicer as a party. All parties to each
pooling agreement under which certificates of a series are issued will be
identified in the prospectus supplement.
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.
However, the provisions of each pooling agreement will vary depending upon the
nature of the certificates to be issued thereunder and the nature of the
related trust fund. The following summaries describe certain provisions that
may appear in a pooling agreement under which certificates that evidence
interests in mortgage loans will be issued. The prospectus supplement for a
series of certificates will describe any provision of the related pooling
agreement that materially differs from the description thereof contained in
this prospectus and, if the related trust fund includes CMBS, will summarize
all of the material provisions of the related pooling agreement. The summaries
in this prospectus 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
pooling agreement for each series of certificates and the description of such
provisions in the prospectus supplement. As used in this prospectus 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
prospectus supplement, unless the context otherwise requires. The depositor
will provide a copy of the pooling agreement (without exhibits) that relates
to any series of certificates without charge upon written request of a holder
of a certificate of such series addressed to First Union Commercial Mortgage
Securities, Inc., One First Union Center, Charlotte, N.C. 28288-0166,
Attention: Securitization Services.
Assignment of Mortgage Assets; Repurchases
As set forth in the prospectus supplement, generally 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 loans to be included in
the related trust fund, together with, unless otherwise specified in the
prospectus supplement, all principal and interest to be received on or with
respect to such mortgage loans after the Cut-Off Date, other than principal
and interest due on or before the Cut-Off Date. The trustee will, concurrently
with such assignment, deliver the certificates to or at the direction of the
depositor in exchange for the mortgage loans and the other assets to be
included in the trust fund for such series. Each mortgage loan will be
identified in a schedule appearing as an exhibit to the related pooling
agreement. Such schedule generally will include detailed information that
pertains to each mortgage loan included in the related trust fund, which
information will typically include the address of the related mortgaged
property and type of such property; the mortgage interest rate and, if
applicable, the applicable index, gross margin, adjustment date and any rate
cap information; the original and remaining term to maturity; the original
amortization term; the original and outstanding principal balance; and the
Loan-to-Value Ratio and Debt Service Coverage Ratio as of the date indicated.
With respect to each mortgage loan to be included in a trust fund,
the depositor will deliver (or cause to be delivered) to the related trustee
(or to a custodian appointed by the trustee) certain loan documents which 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. The related pooling 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.
The related trustee (or the custodian appointed by the trustee) will
be required to review the mortgage 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 of the related
series. Unless otherwise specified in the prospectus supplement, if any
document is found to be missing or defective, in either case such that
interests of the certificateholders are materially and adversely affected, the
trustee (or such custodian) will be required to notify the master servicer and
the depositor, and the master servicer will be required to notify the relevant
seller of the mortgage asset. In that case, and if the mortgage asset seller
cannot deliver the document or cure the defect within a specified number of
days after receipt of such notice, then unless otherwise specified in the
prospectus supplement, the mortgage asset seller will be obligated to replace
the related mortgage loan or repurchase it from the trustee at a price that
will be specified in the prospectus supplement.
If so provided in the prospectus supplement, the depositor will, as
to some or all of the mortgage loans, assign or cause to be assigned to the
trustee the related lease assignments. In certain cases, the trustee, or
master servicer, as applicable, may collect all moneys under the related
leases and distribute amounts, if any, required under the leases for the
payment of maintenance, insurance and taxes, to the extent specified in the
related leases. The trustee, or if so specified in the prospectus supplement,
the master servicer, as agent for the trustee, may hold the leases in trust
for the benefit of the certificateholders.
With respect to each CMBS in certificate form, the depositor will
deliver or cause to be delivered to the trustee (or the custodian) the
original certificate or other definitive evidence of such CMBS together with
bond power or other instruments, certifications or documents required to
transfer fully such CMBS to the trustee for the benefit of the
certificateholders. With respect to each CMBS in uncertificated or book-entry
form or held through a "clearing corporation" within the meaning of the New
York Uniform Commercial Code, the depositor and the trustee will cause such
CMBS to be registered directly or on the books of such clearing corporation or
of a financial intermediary in the name of the trustee for the benefit of the
certificateholders. Unless otherwise provided in the prospectus supplement,
the related pooling agreement will require that either the depositor or the
trustee promptly cause any CMBS in certificated form not registered in the
name of the trustee to be reregistered, with the applicable persons, in the
name of the trustee.
Representations and Warranties; Repurchases
The depositor will, with respect to each mortgage loan in the related
trust fund, make or assign certain representations and warranties made by the
warranting party, covering, by way of example: (i) the accuracy of the
information set forth for such mortgage loan on the schedule of mortgage loans
appearing as an exhibit to the related pooling agreement; (ii) the
enforceability of the related mortgage note and mortgage and the existence of
title insurance insuring the lien priority of the related mortgage; (iii) the
warranting party's title to the mortgage loan and the authority of the
warranting party to sell the mortgage loan; and (iv) the payment status of the
mortgage loan. Each warranting party will be identified in the prospectus
supplement.
Each pooling agreement will provide that the master servicer and/or
trustee will be required to notify promptly any warranting party of any breach
of any representation or warranty made by it in respect of a mortgage loan
that materially and adversely affects the interests of the related
certificateholders. If such warranting party cannot cure such breach within a
specified period following the date on which it was notified of such breach,
then, unless otherwise provided in the prospectus supplement, it will be
obligated to repurchase such mortgage loan from the trustee within a specified
period at a price that will be specified in the prospectus supplement. If so
provided in the prospectus supplement for a series of certificates, a
warranting party, in lieu of repurchasing a mortgage loan as to which a breach
has occurred, will have the option, exercisable upon certain conditions and/or
within a specified period after initial issuance of such series of
certificates, to replace such mortgage loan with one or more other mortgage
loans, in accordance with standards that will be described in the prospectus
supplement. This repurchase or substitution obligation may constitute the sole
remedy available to holders of certificates of any series for a breach of
representation and warranty by a warranting party. Moreover, neither the
depositor (unless it is the warranting party) nor the master servicer will be
obligated to purchase or replace a mortgage loan if a warranting party
defaults on its obligation to do so.
The dates as of which representations and warranties have been made
by a warranting party will be specified in the prospectus supplement. In some
cases, such representations and warranties will have been made as of a date
prior to the date upon which the related series of certificates is issued, and
thus may not address events that may occur following the date as of which they
were made. However, the depositor will not include any mortgage loan in the
trust fund for any series of certificates if anything has come to the
depositor's attention that would cause it to believe that the representations
and warranties made in respect of such mortgage loan will not be accurate in
all material respects as of such date of issuance.
Certificate Account
General. The master servicer and/or the trustee will, as to each
trust fund, establish and maintain or cause to be established and maintained
certificate accounts for the collection of payments on the related mortgage
loans, which will be established so as to comply with the standards of each
rating agency that has rated any one or more classes of certificates of the
related series. As described in the prospectus supplement, a certificate
account may be maintained either as an interest-bearing or a
non-interest-bearing account, and the funds held therein may be held as cash
or invested in permitted investments, such as United States government
securities and other investment grade obligations specified in the related
pooling agreement. Any interest or other income earned on funds in the
certificate account will be paid to the related master servicer or trustee as
additional compensation. If permitted by such rating agency or agencies and so
specified in the prospectus supplement, a certificate account may contain
funds relating to more than one series of mortgage pass-through certificates
and may contain other funds representing payments on mortgage loans owned by
the related master servicer or serviced by it on behalf of others.
Deposits. Unless otherwise provided in the related pooling agreement
and described in the prospectus supplement, the related master servicer,
trustee or special servicer will be required to deposit or cause to be
deposited in the certificate account for each trust fund within a certain
period following receipt (in the case of collections and payments), the
following payments and collections received, or advances made, by the master
servicer, the trustee or any special servicer subsequent to the Cut-Off Date
(other than payments due on or before the Cut-Off Date):
(i) all payments on account of principal, including principal
prepayments, on the mortgage loans;
(ii) all payments on account of interest on the mortgage loans,
including any default interest collected, in each case net of any
portion thereof retained by the master servicer, any special servicer
or sub-servicer as its servicing compensation or as compensation to
the trustee;
(iii) all insurance proceeds received under any hazard, title
or other insurance policy that provides coverage with respect to a
mortgaged property or the related mortgage loan (other than proceeds
applied to the restoration of the property or released to the related
borrower in accordance with the customary servicing practices of the
master servicer (or, if applicable, a special servicer) and/or the
terms and conditions of the related mortgage and all other
liquidation proceeds received and retained in connection with the
liquidation of defaulted mortgage loans or property acquired in
respect thereof, by foreclosure or otherwise, together with the Net
Operating Income (less reasonable reserves for future expenses)
derived from the operation of any mortgaged properties acquired by
the trust fund through foreclosure or otherwise;
(iv) any amounts paid under any instrument or drawn from any
fund that constitutes credit support for the related series of
certificates as described under "Description of Credit Support;"
(v) any advances made as described under "Description of the
Certificates-Advances in Respect of Delinquencies;"
(vi) any amounts paid under any cash flow agreement, as
described under "Description of the Trust Funds-Cash Flow
Agreements;"
(vii) all liquidation proceeds resulting from the purchase of
any mortgage loan, or property acquired in respect thereof, 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 liquidation
proceeds resulting from the purchase of any defaulted mortgage loan
as described under "-Realization Upon Defaulted Mortgage Loans," and
all liquidation proceeds resulting from any mortgage asset purchased
as described under "Description of the Certificates-Termination";
(viii) any amounts paid by the master servicer to cover
prepayment interest shortfalls arising out of the prepayment of
mortgage loans as described under "-Servicing Compensation and
Payment of Expenses;"
(ix) to the extent that any such item does not constitute
additional servicing compensation to the master servicer or a special
servicer, any payments on account of modification or assumption fees,
late payment charges, prepayment premiums or lenders' equity
participations on the mortgage loans;
(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 the 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 pooling agreement and
described in the prospectus supplement.
Withdrawals. Unless otherwise provided in the related pooling
agreement and described in the prospectus supplement, the master servicer,
trustee or special servicer may 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 the master servicer or any other specified
person for unreimbursed amounts advanced by it 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) 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 the master servicer or a special servicer
for unpaid servicing fees earned by it and certain unreimbursed
servicing expenses incurred by it 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 the master servicer or any other specified
person for any advances described in clause (ii) above made by it,
any servicing expenses referred to in clause (iii) above incurred by
it and any servicing fees earned by it, which, in the good faith
judgment of the master servicer or such other person, 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 loans in the related trust fund or, if and to the
extent so provided by the related pooling agreement and described in
the prospectus supplement, only from that portion of amounts
collected on such other mortgage loans 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 prospectus
supplement, to pay the master servicer, a special servicer or another
specified entity (including a provider of credit support) interest
accrued on the advances described in clause (ii) above made by it and
the servicing expenses described in clause (iii) above incurred by it
while such remain outstanding and unreimbursed;
(vi) to pay for costs and expenses incurred by the trust fund
for environmental site assessments performed with respect to
mortgaged properties that constitute security for defaulted mortgage
loans, and for any containment, clean-up or remediation of hazardous
wastes and materials present on such mortgaged properties, as
described under "-Realization Upon Defaulted Mortgage Loans;"
(vii) to reimburse the 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 the Master Servicer and the Depositor;"
(viii) if and to the extent described in the prospectus
supplement, to pay the fees of the trustee;
(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 the master servicer or the trustee, as additional
compensation, interest and investment income earned in respect of
amounts held in the certificate account;
(xi) to pay (generally from related income) for costs incurred
in connection with the operation, management and maintenance of any
mortgaged property acquired by the trust fund by foreclosure or
otherwise;
(xii) if one or more elections have been made to treat the
trust fund or designated portions thereof as a REMIC, to pay any
federal, state or local taxes imposed on the trust fund or its assets
or transactions, as and to the extent described under "Material
Federal Income Tax Consequences-Taxation of Owners of REMIC Residual
Certificates-Prohibited Transactions Tax and Other Taxes;"
(xiii) to pay for the cost of an independent appraiser or other
expert in real estate matters retained to determine a fair sale price
for a defaulted mortgage loan or a property acquired in respect
thereof in connection with the liquidation of such mortgage loan or
property;
(xiv) to pay for the cost of various opinions of counsel
obtained pursuant to the related pooling agreement for the benefit of
certificateholders;
(xv) to make any other withdrawals permitted by the related
pooling agreement and described in the prospectus supplement; and
(xvi) to clear and terminate the certificate account upon the
termination of the trust fund.
Collection and Other Servicing Procedures
Master Servicer. The master servicer for any mortgage pool, directly
or through sub-servicers, will be required to make reasonable efforts to
collect all scheduled mortgage loan payments and will be required to follow
such collection procedures as it would follow with respect to mortgage loans
that are comparable to such mortgage loans and held for its own account,
provided such procedures are consistent with (i) the terms of the related
pooling agreement and any related instrument of credit support included in the
related trust fund, (ii) applicable law and (iii) the servicing standard
specified in the pooling agreement.
The master servicer will also be required to perform other customary
functions of a servicer of comparable loans, including maintaining escrow or
impound accounts for payment of taxes, insurance premiums and similar items,
or otherwise monitoring the timely payment of those items; attempting to
collect delinquent payments; supervising foreclosures; conducting property
inspections on a periodic or other basis; managing REO Properties; and
maintaining servicing records relating to the mortgage loans. Generally, the
master servicer will be responsible for filing and settling claims in respect
of particular mortgage loans under any applicable instrument of credit
support. See "Description of Credit Support."
A master servicer may agree to modify, waive or amend any term of any
mortgage loan serviced by it in a manner consistent with the servicing
standard specified in the pooling agreement; provided that the modification,
waiver or amendment will not (i) affect the amount or timing of any scheduled
payments of principal or interest on the mortgage loan or (ii) in the judgment
of the master servicer, materially impair the security for the mortgage loan
or reduce the likelihood of timely payment of amounts due thereon. A master
servicer also may agree to any other modification, waiver or amendment if, in
its judgment (x) a material default on the mortgage loan has occurred or a
payment default is imminent and (y) such modification, waiver or amendment is
reasonably likely to produce a greater recovery with respect to the mortgage
loan on a present value basis than would liquidation.
Sub-Servicers. A master servicer may delegate its servicing
obligations in respect of the mortgage loans serviced by it to one or more
third-party sub-servicers, but the master servicer will remain liable for such
obligations under the related pooling agreement unless otherwise provided in
the prospectus supplement. Unless otherwise provided in the prospectus
supplement, each sub-servicing agreement between a master servicer and a
sub-servicer must provide that, if for any reason the master servicer 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.
Generally, 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 pooling agreement is sufficient to pay
such fees. 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 a pooling agreement. See "-Certificate
Account" and "-Servicing Compensation and Payment of Expenses."
Special Servicers. If and to the extent specified in the prospectus
supplement, a special servicer may be a party to the related pooling agreement
or may be appointed by the master servicer or another specified party to
perform certain specified duties (for example, the servicing of defaulted
mortgage loans) in respect of the servicing of the related mortgage loans. The
master servicer will be liable for the performance of a special servicer only
if, and to the extent, set forth in the prospectus supplement.
Realization upon Defaulted Mortgage Loans
A borrower's failure to make required mortgage loan payments may mean
that operating income is insufficient to service the mortgage debt, or may
reflect the diversion of that income from the servicing of the mortgage debt.
In addition, a borrower that is unable to make mortgage loan payments may also
be unable to make timely payment of taxes and to otherwise maintain and insure
the related mortgaged property. In general, the related master servicer will
be required to monitor any mortgage loan that is in default, evaluate whether
the causes of the default can be corrected over a reasonable period without
significant impairment of the value of the related mortgaged property,
initiate corrective action in cooperation with the borrower if cure is likely,
inspect the related mortgaged property and take such other actions as are
consistent with the servicing standard specified in the pooling agreement. A
significant period of time may elapse before the master servicer is able to
assess the success of any such corrective action or the need for additional
initiatives.
The time within which the master servicer can make the initial
determination of appropriate action, evaluate the success of corrective
action, develop additional initiatives, institute foreclosure proceedings and
actually foreclose (or accept a deed to a mortgaged property in lieu of
foreclosure) on behalf of the certificateholders may vary considerably
depending on the particular mortgage loan, the mortgaged property, the
borrower, the presence of an acceptable party to assume the mortgage loan and
the laws of the jurisdiction in which the mortgaged property is located. If a
borrower files a bankruptcy petition, the master servicer may not be permitted
to accelerate the maturity of the related mortgage loan or to foreclose on the
mortgaged property for a considerable period of time. See "Certain Legal
Aspects of Mortgage Loans and Leases."
A pooling agreement may grant to the master servicer, a special
servicer, a provider of credit support and/or the holder or holders of certain
classes of certificates of the related series a right of first refusal to
purchase from the trust fund, at a predetermined purchase price (which, if
insufficient to fully fund the entitlements of certificateholders to principal
and interest thereon, will be specified in the prospectus supplement), any
mortgage loan as to which a specified number of scheduled payments are
delinquent. In addition, unless otherwise specified in the prospectus
supplement, the master servicer may offer to sell any defaulted mortgage loan
if and when the master servicer determines, consistent with the servicing
standard specified in the pooling agreement, that such a sale would produce a
greater recovery on a present value basis than would liquidation of the
related mortgaged property. Generally, the related pooling agreement will
require 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 mortgage
loan. In the absence of any bid determined in accordance with the related
pooling agreement to be fair, the master servicer will generally be required
to proceed with respect to such defaulted mortgage loan as described below.
If a default on a mortgage loan has occurred or, in the master
servicer's judgment, is imminent, the master servicer, on behalf of the
trustee, may at any time institute foreclosure proceedings, exercise any power
of sale contained in the related mortgage, obtain a deed in lieu of
foreclosure, or otherwise acquire title to the related mortgaged property, by
operation of law or otherwise, if such action is consistent with the servicing
standard specified in the pooling agreement. Unless otherwise specified in the
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 of the related series, 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:
(i) either the mortgaged property is in compliance with
applicable environmental laws and regulations or, if not, that taking
such actions as are necessary to bring the mortgaged property into
compliance therewith is reasonably likely to produce a greater
recovery on a present value basis than not taking such actions; and
(ii) either there are no circumstances or conditions present at
the mortgaged property relating to the use, management or disposal of
hazardous materials for which investigation, testing, monitoring,
containment, cleanup or remediation could be required under any
applicable environmental laws and regulations or, if such
circumstances or conditions are present for which any such action
could reasonably be expected to be required, taking such actions with
respect to the mortgaged property is reasonably likely to produce a
greater recovery on a present value basis than not taking such
actions. See "Certain Legal Aspects of Mortgage Loans and
Leases-Environmental Considerations."
If title to any mortgaged property is acquired by a trust fund as to
which a REMIC election has been made, the master servicer, on behalf of the
trust fund, will be required to sell the mortgaged property by the end of the
third calendar year following the year of acquisition or 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 for more than three years after
the end of the calendar year in which it was acquired 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 Internal Revenue Code at any time that any
certificate is outstanding. Subject to the foregoing, the master servicer will
generally be required to solicit bids for any mortgaged property so acquired
in such a manner as will be reasonably likely to realize a fair price for such
property. 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 its
obligation to manage such mortgaged property in a manner consistent with the
servicing standard specified in the pooling agreement.
If liquidation proceeds collected with respect to a defaulted
mortgage loan are less than the outstanding principal balance of the defaulted
mortgage loan plus interest accrued thereon plus the aggregate amount of
reimbursable expenses incurred by the master servicer with respect to such
mortgage loan, the trust fund will realize a loss in the amount of such
difference. The master servicer will be entitled to reimburse itself from the
liquidation proceeds recovered on any defaulted mortgage loan (prior to the
distribution of such liquidation proceeds to certificateholders), amounts that
represent unpaid servicing compensation in respect of the mortgage loan,
unreimbursed servicing expenses incurred with respect to the mortgage loan and
any unreimbursed advances of delinquent payments made with respect to the
mortgage loan.
If any mortgaged property suffers damage that the proceeds, if any,
of the related hazard insurance policy are insufficient to fully restore, the
master servicer will not be required to expend its own funds to restore the
damaged property unless (and to the extent not otherwise provided in the
prospectus supplement) it determines (i) that such restoration will increase
the proceeds to certificateholders on liquidation of the mortgage 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.
Hazard Insurance Policies
Each pooling agreement may require the related master servicer to
cause each mortgage loan borrower to maintain a hazard insurance policy that
provides for such coverage as is required under the related mortgage or, if
the mortgage permits the holder thereof to dictate to the borrower the
insurance coverage to be maintained on the related mortgaged property, such
coverage as is consistent with the requirements of the servicing standard
specified in the pooling agreement. Such coverage generally will be in an
amount equal to the lesser of the principal balance owing on such mortgage
loan and the replacement cost of the mortgaged property, 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 concerning covered losses is
furnished by borrowers. 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 borrower in accordance with the
master servicer's normal servicing procedures and/or to the terms and
conditions of the related mortgage and mortgage note) will be deposited in the
related certificate account. The pooling agreement may provide that the master
servicer may satisfy its obligation to cause each borrower to maintain such a
hazard insurance policy by maintaining a blanket policy insuring against
hazard losses on all of the mortgage loans in the related trust fund. If such
blanket policy contains a deductible clause, the master servicer will be
required, in the event of a casualty covered by such blanket policy, to
deposit in the related certificate account all sums that would have been
deposited therein but for such deductible clause.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements of the property
by fire, lightning, explosion, smoke, windstorm and hail, riot, strike and
civil commotion, subject to the conditions and exclusions specified in each
policy. Although the policies covering the mortgaged properties 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, 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 risks.
The hazard insurance policies covering the mortgaged properties will
typically contain co-insurance clauses that in effect require an 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 clauses generally provide 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.
Due-on-Sale and Due-on-Encumbrance Provisions
Certain of the mortgage loans may contain a due-on-sale clause that
entitles the lender to accelerate payment of the mortgage loan upon any sale
or other transfer of the related mortgaged property made without the lender's
consent. Certain of the mortgage loans may also contain a due-on-encumbrance
clause that entitles the lender to accelerate the maturity of the mortgage
loan upon the creation of any other lien or encumbrance upon the mortgaged
property. The master servicer will determine whether to exercise any right the
trustee may have under any such provision in a manner consistent with the
servicing standard specified in the pooling agreement. Unless otherwise
specified in the prospectus supplement, the master servicer will be entitled
to retain as additional servicing compensation any fee collected in connection
with the permitted transfer of a mortgaged property. See "Certain Legal
Aspects of Mortgage Loans and Leases-Due-on-Sale and Due-on Encumbrance."
Servicing Compensation and Payment of Expenses
Generally, a master servicer's primary servicing compensation with
respect to a series of certificates will come from the periodic payment to it
of a portion of the interest payments on each mortgage loan in the related
trust fund. Since that compensation is generally based on a percentage of the
principal balance of each such mortgage loan outstanding from time to time, it
will decrease in accordance with the amortization of the mortgage loans. The
prospectus supplement with respect to a series of certificates may provide
that, as additional compensation, the master servicer may retain all or a
portion of late payment charges, prepayment premiums, modification fees and
other fees collected from borrowers and any interest or other income that may
be earned on funds held in the certificate 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 be required, to the extent provided in the prospectus supplement, to pay
from amounts that represent its servicing compensation certain expenses
incurred in connection with the administration of the related trust fund,
including, without limitation, payment of the fees and disbursements of
independent accountants and payment of expenses incurred in connection with
distributions and reports to certificateholders. Certain other expenses,
including certain expenses related to mortgage loan defaults and liquidations
and, to the extent so provided in the prospectus supplement, interest on such
expenses at the rate specified therein, and the fees of the trustee and any
special servicer, may be required to be borne by the trust fund.
If and to the extent provided in the prospectus supplement, the
master servicer may be required to apply a portion of the servicing
compensation otherwise payable to it in respect of any period to prepayment
interest shortfalls.
See "Yield Considerations-Shortfalls in Collections of Interest
Resulting from Prepayments."
Evidence as to Compliance
Each pooling agreement may require that, on or before a specified
date in each year, the master servicer cause a firm of independent public
accountants to furnish a statement to the trustee to the effect that, based on
an examination by such firm conducted substantially in compliance with either
the Uniform Single Audit Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for Freddie Mac, the servicing by or on behalf of the
master servicer of mortgage loans under pooling and servicing agreements
substantially similar to each other (which may include the related pooling
agreement) was conducted through the preceding calendar year or other
specified twelve-month period in compliance with the terms of such agreements
except for any significant exceptions or errors in records that, in the
opinion of such firm, either the Audit Program for Mortgages serviced for
Freddie Mac or paragraph 4 of the Uniform Single Audit Program for Mortgage
Bankers, as the case may be, requires it to report. Each pooling agreement
will also provide for delivery to the trustee, on or before a specified date
in each year, of a statement signed by one or more officers of the master
servicer to the effect that the master servicer has fulfilled its material
obligations under the pooling agreement throughout the preceding calendar year
or other specified twelve-month period.
Copies of the annual accountants' statement and the statement of
officers of a master servicer will be made available to certificateholders
without charge upon written request to the master servicer.
Certain Matters Regarding the Master Servicer and the Depositor
The master servicer under a pooling agreement may be an affiliate of
the depositor and may have other normal business relationships with the
depositor or the depositor's affiliates. The related pooling agreement may
permit the master servicer to resign from its obligations thereunder only upon
a determination that such obligations 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 at the date of the pooling agreement. No
such resignation will become effective until the trustee or a successor
servicer has assumed the master servicer's obligations and duties under the
pooling agreement. Unless otherwise specified in the prospectus supplement,
the master servicer will also be required to maintain a fidelity bond and
errors and omissions policy 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.
Each pooling agreement may further provide that none of the master
servicer, the depositor and any director, officer, employee or agent of either
of them will be under any liability to the related trust fund or
certificateholders for any action taken, or not taken, in good faith pursuant
to the pooling agreement or for errors in judgment; provided, however, that
none of the master servicer, the depositor and any such person will be
protected against any breach of a representation, warranty or covenant made in
such pooling agreement, or against any expense or liability that such person
is specifically required to bear pursuant to the terms of such pooling
agreement, or against any liability that 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 such
obligations and duties. Unless otherwise specified in the prospectus
supplement, each pooling agreement will further provide that the master
servicer, the depositor and any director, officer, employee or agent of either
of them will be entitled to indemnification by the related trust fund against
any loss, liability or expense incurred in connection with the pooling
agreement or the related series of certificates; provided, however, that such
indemnification will not extend to any loss, liability or expense (i) that
such person is specifically required to bear pursuant to the terms of such
agreement, or is incidental to the performance of obligations and duties
thereunder and is not reimbursable pursuant to the pooling agreement; (ii)
incurred in connection with any breach of a representation, warranty or
covenant made in the pooling agreement; (iii) incurred by reason of
misfeasance, bad faith or gross negligence in the performance of obligations
or duties under the pooling agreement, 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 pooling agreement
will provide that neither the master servicer nor the depositor will be under
any obligation to appear in, prosecute or defend any legal action that is not
incidental to its respective responsibilities under the pooling agreement and
that in its opinion may involve it in any expense or liability. However, each
of the master servicer and the depositor will be permitted, in the exercise of
its discretion, to undertake any such action that it may deem necessary or
desirable with respect to the enforcement and/or protection of the rights and
duties of the parties to the pooling agreement 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 charge the related
certificate account therefor.
Subject, in certain circumstances, to the satisfaction of certain
conditions that may be required in the related pooling agreement, 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 pooling
agreement.
Events of Default
The events of default for a series of certificates under the related
pooling agreement generally 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 in a timely
manner, any amount required to be so distributed or remitted, provided that
one such failure is permitted in every consecutive twelve-month period so long
as the failure is corrected by 10:00 a.m. on the related distribution date,
(ii) any failure by the master servicer or the special servicer duly to
observe or perform in any material respect any of its other covenants or
obligations under the pooling agreement which continues unremedied for 30 days
after written notice of such failure has been given to the master servicer or
the special servicer, as applicable, by any party to the pooling agreement, or
to the master servicer or the special servicer, as applicable, by
certificateholders entitled to not less than 25% (or such other percentage
specified in the prospectus supplement) of the voting rights for such series;
and (iii) certain events of insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings in respect of or relating to the
master servicer or the special servicer and certain actions by or on behalf of
the master servicer or the special servicer indicating its insolvency or
inability to pay its obligations. Material variations to the foregoing events
of default (other than to add thereto or shorten cure periods or eliminate
notice requirements) will be specified in the prospectus supplement.
Rights upon Event of Default
So long as an event of default under a pooling agreement remains
unremedied, the depositor or the trustee will be authorized, and at the
direction of certificateholders entitled to not less than 25% (or such other
percentage specified in the prospectus supplement) of the voting rights for
such series, the trustee will be required, to terminate all of the rights and
obligations of the master servicer as master servicer under the pooling
agreement, whereupon the trustee will succeed to all of the responsibilities,
duties and liabilities of the master servicer under the pooling agreement
(except that if the master servicer is required to make advances in respect of
mortgage loan delinquencies, but the trustee is prohibited by law from
obligating itself to do so, or if the prospectus supplement so specifies, the
trustee will not be obligated to make such advances) and will be entitled to
similar compensation arrangements. If the trustee is unwilling or unable so to
act, it may (or, at the written request of certificateholders entitled to at
least 51% (or such other percentage specified in the prospectus supplement) of
the voting rights for such series, it will be required to) appoint, or
petition a court of competent jurisdiction to appoint, a loan servicing
institution that (unless otherwise provided in the prospectus supplement) is
acceptable to each rating agency that assigned ratings to the offered
certificates of such series to act as successor to the master servicer under
the pooling agreement. Pending such appointment, the trustee will be obligated
to act in such capacity.
No certificateholder will have the right under any pooling agreement
to institute any proceeding with respect thereto unless such holder previously
has given to the trustee written notice of default and unless
certificateholders entitled to at least 25% (or such other percentage
specified in the prospectus supplement) of the voting rights for the related
series shall have made written request upon the trustee to institute such
proceeding in its own name as trustee thereunder and shall have offered to the
trustee reasonable indemnity, and the trustee for 60 days (or such other
period specified in the prospectus supplement) shall have neglected or refused
to institute any such proceeding. The trustee, however, will be under no
obligation to exercise any of the trusts or powers vested in it by any pooling
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 of
the related series, unless such certificateholders have offered to the trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby.
Amendment
Each pooling agreement may be amended by the parties thereto, without
the consent of any of the holders of the related certificates, (i) to cure any
ambiguity, (ii) to correct, modify or supplement any provision in the pooling
agreement that may be inconsistent with any other provision therein, (iii) to
add any other provisions with respect to matters or questions arising under
the pooling agreement that are not inconsistent with the provisions thereof,
(iv) to comply with any requirements imposed by the Internal Revenue Code or
(v) for any other purpose; provided that such amendment (other than an
amendment for the purpose specified in clause (iv) above) may not (as
evidenced by an opinion of counsel to such effect satisfactory to the trustee)
adversely affect in any material respect the interests of any such holder.
Each pooling agreement may also be amended for any purpose by the parties,
with the consent of certificateholders entitled to at least 51% (or such other
percentage specified in the prospectus supplement) of the voting rights for
the related series allocated to the affected classes; provided, however, that
no such amendment may (x) reduce in any manner the amount of, or delay the
timing of, payments received or advanced on mortgage loans that are required
to be distributed in respect of any certificate without the consent of the
holder of such certificate, (y) adversely affect in any material respect the
interests of the holders of any class of certificates, in a manner other than
as described in clause (x), without the consent of the holders of all
certificates of such class or (z) modify the provisions of the pooling
agreement described in this paragraph without the consent of the holders of
all certificates of the related series. However, unless otherwise specified in
the related pooling agreement, the trustee will be prohibited from consenting
to any amendment of a pooling agreement pursuant to which a REMIC election is
to be or has been made unless the trustee 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 made for
purposes of communicating with other holders of certificates of the same
series with respect to their rights under the related pooling agreement, the
trustee or other specified person will afford such certificateholder access,
during normal business hours, to the most recent list of certificateholders of
that series then maintained by such person.
The Trustee
The trustee under each pooling agreement will be named in the related
prospectus supplement. The commercial bank, national banking association,
banking corporation or trust company that serves 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 for a series of certificates will make no representation
as to the validity or sufficiency of the related pooling agreement, the
certificates or any mortgage loan or related document and will not be
accountable for the use or application by or on behalf of any master servicer
of any funds paid to the master servicer or any special servicer in respect of
the certificates or the mortgage loans, or any funds 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 under a
related pooling agreement has occurred and is continuing, the trustee will be
required to perform only those duties specifically required under the related
pooling agreement. However, upon receipt of any of the various certificates,
reports or other instruments required to be furnished to it pursuant to the
pooling agreement, the trustee will be required to examine such documents and
to determine whether they conform to the requirements of the pooling
agreement.
Certain Matters Regarding the Trustee
The trustee for a series of certificates may be entitled to
indemnification, from amounts held in the related certificate account, for any
loss, liability or expense incurred by the trustee in connection with the
trustee's acceptance or administration of its trusts under the related pooling
agreement; provided, however, that such indemnification will not extend to any
loss, liability or expense that constitutes a specific liability imposed on
the trustee pursuant to the pooling agreement, or to any loss, liability or
expense incurred by reason of willful misfeasance, bad faith or negligence on
the part of the trustee in the performance of its obligations and duties
thereunder, or by reason of its reckless disregard of such obligations or
duties, or as may arise from a breach of any representation, warranty or
covenant of the trustee made in the pooling agreement. As and to the extent
described in the prospectus supplement, the fees and normal disbursements of
any trustee may be the expense of the related master servicer or other
specified person or may be required to be borne by the related trust fund.
Resignation and Removal of the Trustee
The trustee for a series of certificates will be permitted at any
time to resign from its obligations and duties under the related pooling
agreement by giving written notice thereof to the depositor. Upon receiving
such notice of resignation, the master servicer (or such other person as may
be specified in the prospectus supplement) will be required to use reasonable
efforts to promptly appoint a successor trustee. If no successor trustee shall
have accepted an appointment within a specified period after the giving of
such notice of resignation, the resigning trustee may petition any court of
competent jurisdiction to appoint a successor trustee.
Unless otherwise provided in the prospectus supplement, if at any
time the trustee ceases to be eligible to continue as such under the related
pooling agreement, or if at any time the trustee becomes incapable of acting,
or if certain events of (or proceedings in respect of) bankruptcy or
insolvency occur with respect to the trustee, the depositor will be authorized
to remove the trustee and appoint a successor trustee. In addition, unless
otherwise provided in the prospectus supplement, holders of the certificates
of any series entitled to at least 51% (or such other percentage specified in
the prospectus supplement) of the voting rights for such series may at any
time (with or without cause) remove the trustee and appoint a successor
trustee.
Any resignation or removal of the trustee and appointment of a
successor trustee will not become effective until acceptance of appointment by
the successor trustee.
<PAGE>
DESCRIPTION OF CREDIT SUPPORT
General
Credit support may be provided with respect to one or more classes of
the certificates of any series, or with respect to the related mortgage
assets. Credit support may be in the form of over collateralization, a letter
of credit, the subordination of one or more classes of certificates, the use
of a pool insurance policy or guarantee insurance, the establishment of one or
more reserve funds or another method of credit support described in the
prospectus supplement, or any combination of the foregoing. If so provided in
the prospectus supplement, any form of credit support may provide credit
enhancement for more than one series of certificates to the extent described
in the prospectus supplement.
The credit support generally will not provide protection against all
risks of loss and will not guarantee payment to certificateholders of all
amounts to which they are entitled under the related pooling agreement. If
losses or shortfalls occur that exceed the amount covered by the credit
support or that are not covered by the 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 with respect to the related mortgage assets, the
prospectus supplement will include a description of (i) the nature and amount
of coverage under such credit support, (ii) any conditions to payment
thereunder not otherwise described in this prospectus, (iii) 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
(iv) the material provisions relating to such credit support. Additionally,
the prospectus supplement will set forth certain information with respect to
the obligor under any instrument of credit support, generally including (w) a
brief description of its principal business activities, (x) its principal
place of business, place of incorporation and the jurisdiction under which it
is chartered or licensed to do business, (y) if applicable, the identity of
the regulatory agencies that exercise primary jurisdiction over the conduct of
its business and (z) its total assets, and its stockholders equity or
policyholders' surplus, if applicable, as of a date that will be specified in
the prospectus supplement. See "Risk Factors-Credit Support May Not Cover
Losses or Risks Which Could Adversely Affect Payment on Your Certificates."
Subordinate Certificates
If so specified in the prospectus supplement, one or more classes of
certificates of a series may be subordinate certificates which are
subordinated in right of payment to one or more other classes of senior
certificates. If so provided in the 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 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 in any trust fund 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 certain default risks by insurance policies or guarantees. To the
extent material, a copy of each such instrument will accompany the Current
Report on Form 8-K to be filed with the Securities Exchange Commission 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. Under a letter of credit, the bank or financial institution
providing the letter of credit 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 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 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 prospectus supplement. The
obligations of the bank or financial institution providing the letter of
credit for each series of certificates will expire at the earlier of the date
specified in the prospectus supplement or the termination of the trust fund. A
copy of any such letter of credit will accompany the Current Report on Form
8-K to be filed with the Securities Exchange Commission within 15 days of
issuance of the certificates of the related series.
Certificate Insurance 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 prospectus supplement. A copy
of any such instrument will accompany the Current Report on Form 8-K to be
filed with the Securities Exchange 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 (to the extent of available funds)
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 specified in such prospectus supplement. If so specified in the
prospectus supplement, the reserve fund for a series may also be funded over
time by a specified amount of the collections received on the related mortgage
assets.
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 prospectus supplement. If so
specified in the prospectus supplement, reserve funds may be established to
provide protection only against certain types of losses and shortfalls.
Following each distribution date, amounts in a reserve fund in excess of any
amount required to be maintained in the reserve fund may be released from the
reserve fund under the conditions and to the extent specified in the
prospectus supplement.
If so specified in the prospectus supplement, amounts deposited in
any reserve fund will be invested in permitted investments, such as United
States government securities and other investment grade obligations specified
in the related pooling agreement. Unless otherwise specified in the 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 for its services. The reserve fund, if
any, for a series will not be a part of the trust fund unless otherwise
specified in the prospectus supplement.
Credit Support with Respect to CMBS
If so provided in the prospectus supplement for a series of
certificates, any CMBS included in the related trust fund and/or the related
underlying mortgage loans may be covered by one or more of the types of credit
support described in this prospectus. The prospectus supplement for any series
of certificates evidencing an interest in a trust fund that includes CMBS will
describe to the extent information is available and deemed material, 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 CMBS. The type, characteristic and amount of credit support will be
determined based on the characteristics of the mortgage assets and other
factors and will be established, in part, on the basis of requirements of each
rating agency rating the certificates of such series. If so specified in the
prospectus supplement, any such credit support may apply only in the event of
certain types of losses or delinquencies and the protection against losses or
delinquencies provided by such credit support will be limited.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS AND LEASES
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 CMBS) 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-Leases." For purposes of the
following discussion, "mortgage loan" includes a mortgage loan underlying a
CMBS.
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
collectively referred to as "mortgages" in this prospectus and, unless
otherwise specified, in any prospectus supplement. 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. Additionally, in some states, mechanic's and materialman's liens have
priority over mortgage liens.
The mortgagee's authority under a mortgage, the beneficiary'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 (including, without limitation, the Soldiers' and Sailors' Civil Relief
Act of 1940) and, in some deed of trust transactions, the trustee's authority
is further limited by the directions of the beneficiary.
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 a
mortgage, the mortgagor grants a lien on the subject property in favor of the
mortgagee. 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 to the trustee, in trust,
irrevocably until the debt is paid, and generally with a power of sale. A deed
to secure debt typically has two parties. 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 to a mortgage instrument
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 generally executes a separate
undertaking to make payments on the mortgage note. The mortgagee's authority
under a mortgage, the trustee's authority under a deed of trust and the
grantee's authority under a deed to secure debt are governed by the express
provisions of the 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, 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. Lenders that actually
take possession of the property, however, may incur potentially substantial
risks attendant to being a mortgagee in possession. Such risks include
liability for environmental clean-up costs and other risks inherent in
property ownership. See "-Environmental Considerations."
In most states, hotel and motel room rates are considered accounts
receivable under the Uniform Commercial Code; 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 rates and must
file continuation statements, generally every five years, to maintain
perfection of such security interest. Even if the lender's security interest
in room rates is perfected under the Uniform Commercial Code, it will
generally be required to commence a foreclosure action or otherwise take
possession of the property in order to collect the room rates following a
default. 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 Uniform Commercial Code. Accordingly, if
a borrower pledges personal property as security for a mortgage loan, the
lender generally must file Uniform Commercial Code financing statements in
order to perfect its security interest therein, and must file continuation
statements, generally every five years, to maintain that perfection.
Cooperative Loans
If specified in the prospectus supplement, the mortgage loans may
consist of loans secured by "blanket mortgages" on the property owned by
cooperative housing corporations. If specified in the prospectus supplement,
the mortgage loans may consist of cooperative loans secured by security
interests in shares issued by private cooperative housing corporations and in
the related proprietary leases or occupancy agreements granting exclusive
rights to occupy specific dwelling units in the cooperatives' buildings. The
security agreement will create a lien upon, or grant a title interest in, the
property which it covers, the priority of which will depend on the terms of
the particular security agreement as well as the order of recordation of the
agreement in the appropriate recording office. Such a lien or title interest
is not prior to the lien for real estate taxes and assessments and other
charges imposed under governmental police powers.
A cooperative generally owns in fee or has a leasehold interest in
land and owns in fee or leases the building or buildings thereon and all
separate dwelling units in the buildings. The cooperative is owned by
tenant-stockholders who, through ownership of stock or shares in the
corporation, receive proprietary leases or occupancy agreements which confer
exclusive rights to occupy specific units. Generally, a tenant-stockholder of
a cooperative must make a monthly payment to the cooperative representing such
tenant-stockholder's pro rata share of the cooperative's payments for its
blanket mortgage, real property taxes, maintenance expenses and other capital
or ordinary expenses. The cooperative is directly responsible for property
management and, in most cases, payment of real estate taxes, other
governmental impositions and hazard and liability insurance. If there is a
blanket mortgage or mortgages on the cooperative apartment building or
underlying land, as is generally the case, or an underlying lease of the land,
as is the case in some instances, the cooperative, as property mortgagor, or
lessee, as the case may be, is also responsible for meeting these mortgage or
rental obligations. A blanket mortgage is ordinarily incurred by the
cooperative in connection with either the construction or purchase of the
cooperative's apartment building or obtaining of capital by the cooperative.
The interest of the occupant under proprietary leases or occupancy agreements
as to which that cooperative is the landlord are generally subordinate to the
interest of the holder of a blanket mortgage and to the interest of the holder
of a land lease. If the cooperative is unable to meet the payment obligations
(i) arising under a blanket mortgage, the mortgagee holding a blanket mortgage
could foreclose on that mortgage and terminate all subordinate proprietary
leases and occupancy agreements, or (ii) arising under its land lease, the
holder of the landlord's interest under the land lease could terminate it and
all subordinate proprietary leases and occupancy agreements. Also, a blanket
mortgage on a cooperative may provide financing in the form of a mortgage that
does not fully amortize, with a significant portion of principal being due in
one final payment at maturity. The inability of the cooperative to refinance a
mortgage and its consequent inability to make such final payment could lead to
foreclosure by the mortgagee and termination of all proprietary leases and
occupancy agreements. Similarly, a land lease has an expiration date and the
inability of the cooperative to extend its term, or, in the alternative, to
purchase the land, could lead to termination of the cooperatives' interest in
the property and termination of all proprietary leases and occupancy
agreements. Upon foreclosure of a blanket mortgage on a cooperative, the
lender would normally be required to take the mortgaged property subject to
state and local regulations that afford tenants who are not shareholders
various rent control and other protections. A foreclosure by the holder of a
blanket mortgage or the termination of the underlying lease could eliminate or
significantly diminish the value of any collateral held by a party who
financed the purchase of cooperative shares by an individual tenant
stockholder.
An ownership interest in a cooperative and accompanying occupancy
rights are financed through a cooperative share loan evidenced by a promissory
note and secured by an assignment of and a security interest in the occupancy
agreement or proprietary lease and a security interest in the related
cooperative shares. The lender generally takes possession of the share
certificate and a counterpart of the proprietary lease or occupancy agreement
and financing statements covering the proprietary lease or occupancy agreement
and the cooperative shares are filed in the appropriate state and local
offices to perfect the lender's interest in its collateral. Subject to the
limitations discussed below, upon default of the tenant-stockholder, the
lender may sue for judgment on the promissory note, dispose of the collateral
at a public or private sale or otherwise proceed against the collateral or
tenant-stockholder as an individual as provided in the security agreement
covering the assignment of the proprietary lease or occupancy agreement and
the pledge of cooperative shares. See "-Foreclosure-Cooperative Loans" below.
Junior Mortgages; Rights of Senior Lenders
Some of the mortgage loans included in a trust fund may be secured by
mortgage instruments that are subordinate to mortgage instruments held by
other lenders. The rights of the trust fund (and therefore the
certificateholders), as holder of a junior mortgage instrument, are
subordinate to those of the senior lender, including the prior rights of the
senior lender to receive rents, hazard insurance and condemnation proceeds and
to cause the mortgaged property to be sold upon borrower's default and thereby
extinguish the trust fund's junior lien unless the master servicer or special
servicer asserts its subordinate interest in a property in a foreclosure
litigation or satisfies the defaulted senior loan. As discussed more fully
below, in many states a junior lender may satisfy a defaulted senior loan in
full, adding the amounts expended to the balance due on the junior loan.
Absent a provision in the senior mortgage instrument, no notice of default is
required to be given to the junior lender.
The form of the mortgage instrument used by many institutional
lenders confers on the lender the right both to receive all proceeds collected
under any hazard insurance policy and all awards made in connection with any
condemnation proceedings, and (subject to any limits imposed by applicable
state law) to apply such proceeds and awards to any indebtedness secured by
the mortgage instrument in such order as the lender may determine. Thus, if
improvements on a property are damaged or destroyed by fire or other casualty,
or if the property is taken by condemnation, the holder of the senior mortgage
instrument will have the prior right to collect any insurance proceeds payable
under a hazard insurance policy and any award of damages in connection with
the condemnation and to apply the same to the senior indebtedness.
Accordingly, only the proceeds in excess of the amount of senior indebtedness
will be available to be applied to the indebtedness secured by a junior
mortgage instrument.
The form of mortgage instrument used by many institutional lenders
typically contains a "future advance" clause, which provides, in general, that
additional amounts advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage instrument. While
such a clause is valid under the laws of most states, the priority of any
advance made under the clause depends, in some states, on whether the advance
was an "obligatory" or an "optional" advance. If the lender is obligated to
advance the additional amounts, the advance may be entitled to receive the
same priority as the amounts advanced at origination, notwithstanding that
intervening junior liens may have been recorded between the date of recording
of the senior mortgage instrument and the date of the future advance, and
notwithstanding that the senior lender had actual knowledge of such
intervening junior liens at the time of the advance. Where the senior lender
is not obligated to advance the additional amounts and has actual knowledge of
the intervening junior liens, the advance may be subordinate to such
intervening junior liens. Priority of advances under a "future advance" clause
rests, in many other states, on state law giving priority to all advances made
under the loan agreement up to a "credit limit" amount stated in the recorded
mortgage.
Another provision typically found in the form of mortgage instrument
used by many institutional lenders permits the lender to itself perform
certain obligations of the borrower (for example, the obligations to pay when
due all taxes and assessments on the property and, when due, all encumbrances,
charges and liens on the property that are senior to the lien of the mortgage
instrument, to maintain hazard insurance on the property, and to maintain and
repair the property) upon a failure of the borrower to do so, with all sums so
expended by the lender becoming part of the indebtedness secured by the
mortgage instrument.
The form of mortgage instrument used by many institutional lenders
typically requires the borrower to obtain the consent of the lender in respect
of actions affecting the mortgaged property, including the execution of new
leases and the termination or modification of existing leases, the performance
of alterations to buildings forming a part of the mortgaged property and the
execution of management and leasing agreements for the mortgaged property.
Tenants will often refuse to execute leases unless the lender executes a
written agreement with the tenant not to disturb the tenant's possession of
its premises in the event of a foreclosure. A senior lender may refuse to
consent to matters approved by a junior lender, with the result that the value
of the security for the junior mortgage instrument is diminished.
Foreclosure
General. Foreclosure is a legal procedure that allows the lender to
seek to recover its mortgage debt by enforcing its rights and available legal
remedies under the mortgage in respect of the mortgaged property. 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 usually
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 years to complete. Moreover, the filing by or against the
borrower-mortgagor of a bankruptcy petition would impose an automatic stay on
such proceedings and could further delay a foreclosure sale.
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 proper defendants. As stated
above, if the lender's right to foreclose is contested by any defendant, the
legal proceedings may be time-consuming. In addition, judicial foreclosure is
a proceeding in equity and, therefore, equitable defenses may be raised
against the foreclosure. 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.
Non-Judicial Foreclosure/Power of Sale. 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 or mortgage 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 which has recorded
a request for a copy of a notice of default and notice of sale. In addition,
in some states the trustee must provide notice to any other party having an
interest of record in the real property, including junior lienholders. A
notice of sale must be posted in a public place and, in most states, published
for a specified period of time in one or more newspapers. The borrower or a
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. In addition to such cure rights, in most
jurisdictions, the borrower-mortgagor or a subordinate lienholder can seek to
enjoin the non-judicial foreclosure by commencing a court proceeding.
Generally, state law governs the procedure for public sale, the parties
entitled to notice, the method of giving notice and the applicable time
periods.
Both judicial and non-judicial foreclosures may result in the
termination of leases at the mortgaged property, which in turn could result in
the reduction in the income for such property. Some of the factors that will
determine whether or not a lease will be terminated by a foreclosure are: the
provisions of applicable state law, the priority of the mortgage vis-a-vis the
lease in question, the terms of the lease and the terms of any subordination,
non-disturbance and attornment agreement between the tenant under the lease
and the mortgagee.
Equitable 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 placing a subordinate
mortgage or other encumbrance upon 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.
Public Sale. A third party may be unwilling to purchase a mortgaged
property at a public sale for a number of reasons, including 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. Potential buyers may also be reluctant to purchase
property at a foreclosure sale as a result of the 1980 decision of the United
States Court of Appeals for the Fifth Circuit in Durrett v. Washington
National Insurance Company. The court in Durrett held that even a
non-collusive, regularly conducted foreclosure sale was a fraudulent transfer
under Section 67d of the former Bankruptcy Act (Section 548 of the current
Bankruptcy Code, Bankruptcy Reform Act of 1978, as amended, 11 U.S.C.
ss.ss.101-1330) and, therefore, could be rescinded in favor of the bankrupt's
estate, if (i) the foreclosure sale was held while the debtor was insolvent
and not more than one year prior to the filing of the bankruptcy petition and
(ii) the price paid for the foreclosed property did not represent "fair
consideration" ("reasonably equivalent value" under the Bankruptcy Code).
Although the reasoning and result of Durrett were rejected by the United
States Supreme Court in May 1994, the case could nonetheless be persuasive to
a court applying a state fraudulent conveyance law with provisions similar to
those construed in Durrett. For these reasons, 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. 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 involved in a foreclosure process can often be
quite expensive; such costs may include, depending on the jurisdiction
involved, legal fees, court administration fees, referee fees and transfer
taxes or fees. 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, including penalty fees
and court costs, 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 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 a non-judicial foreclosure. 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 judicially
determined fair market value of the property at the time of the sale.
Leasehold Risks. 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 or the
bankruptcy of the lessee or the lessor, the leasehold mortgagee would lose its
security. This risk may be substantially lessened if the ground lease contains
provisions protective of the leasehold mortgagee, such as a provision that
requires the ground lessor to give the leasehold mortgagee notices of lessee
defaults and an opportunity to cure them, a provision that permits the
leasehold estate to be assigned to and by the leasehold mortgagee or the
purchaser at a foreclosure sale, a provision that gives the leasehold
mortgagee the right to enter into a new ground lease with the ground lessor on
the same terms and conditions as the old ground lease or a provision that
prohibits the ground lessee/borrower from treating the ground lease as
terminated in the event of the ground lessor's bankruptcy and rejection of the
ground lease by the trustee for the debtor/ground lessor. Certain mortgage
loans, however, may be secured by liens on ground leases that do not contain
these provisions.
Regulated Healthcare Facilities. A mortgage loan may be secured by a
mortgage on a nursing home or other regulated healthcare facility. In most
jurisdictions, a license (which is nontransferable and may not be assigned or
pledged) granted by the appropriate state regulatory authority is required to
operate a regulated healthcare facility. Accordingly, the ability of a person
acquiring this type of property upon a foreclosure sale to take possession of
and operate the same as a regulated healthcare facility may be prohibited by
applicable law. Notwithstanding the foregoing, however, in certain
jurisdictions the person acquiring this type of property at a foreclosure sale
may have the right to terminate the use of the same as a regulated health care
facility and convert it to another lawful purpose.
Cross-Collateralization. Certain of the mortgage loans may be secured
by more than one mortgage covering mortgaged 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 mortgaged
properties in a particular order rather than simultaneously in order to ensure
that the lien of the mortgages is not impaired or released.
Cooperative Loans. The cooperative shares owned by the
tenant-stockholder and pledged to the lender are, in almost all cases, subject
to restrictions on transfer as set forth in the cooperative's certificate of
incorporation and by-laws, as well as the proprietary lease or occupancy
agreement, and may be cancelled by the cooperative for failure by the
tenant-stockholder to pay rent or other obligations or charges owed by such
tenant-stockholder, including mechanics' liens against the cooperative
apartment building incurred by such tenant-stockholder. The proprietary lease
or occupancy agreement generally permit the cooperative to terminate such
lease or agreement in the event an obligor fails to make payments or defaults
in the performance of covenants required thereunder. Typically, the lender and
the cooperative enter into a recognition agreement which establishes the
rights and obligations of both parties in the event of a default by the
tenant-stockholder. A default under the proprietary lease or occupancy
agreement will usually constitute a default under the security agreement
between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that
the tenant-stockholder has defaulted under the proprietary lease or the
occupancy agreement is terminated, the cooperative will recognize the lender's
lien against proceeds from the sale of the cooperative apartment, subject,
however, to the cooperative's right to sums due under such proprietary lease
or occupancy agreement. The total amount owed to the cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the cooperative loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a
foreclosure on a cooperative loan, the lender must obtain the approval or
consent of the cooperative as required by the proprietary lease before
transferring the cooperative shares or assigning the proprietary lease.
Generally, the lender is not limited in any rights it may have to dispossess
the tenant-stockholders.
In some states, foreclosure on the cooperative shares is accomplished
by a sale in accordance with the provisions of Article 9 of the Uniform
Commercial Code and the security agreement relating to those shares. Article 9
of the Uniform Commercial Code requires that a sale be conducted in a
"commercially reasonable" manner. Whether a foreclosure sale has been
conducted in a "commercially reasonable" manner will depend on the facts in
each case. In determining commercial reasonableness, a court will look to the
notice given the debtor and the method, manner, time, place and terms of the
foreclosure. Generally, a sale conducted according to the usual practice of
banks selling similar collateral will be considered reasonably conducted.
Article 9 of the Uniform Commercial Code provides that the proceeds
of the sale will be applied first to pay the costs and expenses of the sale
and then to satisfy the indebtedness secured by the lender's security
interest. The recognition agreement, however, generally provides that the
lender's right to reimbursement is subject to the right of the cooperatives to
receive sums due under the proprietary lease or occupancy agreement. If there
are proceeds remaining, the lender must account to the tenant-stockholder for
the surplus. Conversely, if a portion of the indebtedness remains unpaid, the
tenant-stockholder is generally responsible for the deficiency.
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 the 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 would stay the senior lender from proceeding with any
foreclosure action.
Under the Bankruptcy Code, provided certain substantive and
procedural safeguards protective of the lender's second claim 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, if the loan
is undersecured, the outstanding amount of the loan which would remain secured
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, 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 under federal
bankruptcy law, a bankruptcy court may permit a debtor through its
rehabilitative plan to de-accelerate a secured loan and to reinstate the loan
even though the lender accelerated the mortgage loan and final judgment of
foreclosure had been entered in state court (provided no sale of the property
had yet occurred) prior to the filing of the debtor's petition. This may be
done even if the full amount due under the original loan is never repaid.
Federal bankruptcy law provides generally that rights and obligations
under an unexpired lease of the debtor/lessee may not be terminated or
modified at any time after the commencement of a case under the Bankruptcy
Code solely on the basis of a provision in the lease to such effect or because
of certain other similar events. This prohibition could limit the ability of
the trustee for a series of certificates to exercise certain contractual
remedies with respect to the leases. In addition, Section 362 of the
Bankruptcy Code operates as an automatic stay of, among other things, any act
to obtain possession of property from a debtor's estate. This may delay a
trustee's exercise of such remedies for a related series of certificates in
the event that a related lessee or a related mortgagor becomes the subject of
a proceeding under the Bankruptcy Code. For example, a mortgagee would be
stayed from enforcing a lease assignment by a mortgagor related to a mortgaged
property if the related mortgagor was in a bankruptcy proceeding. The legal
proceedings necessary to resolve the issues could be time-consuming and might
result in significant delays in the receipt of the assigned rents. Similarly,
the filing of a petition in a bankruptcy by or on behalf of a lessee of a
mortgaged property would result in a stay against the commencement or
continuation of any state court proceeding for past due rent, for accelerated
rent, for damages or for a summary eviction order with respect to a default
under the lease that occurred prior to the filing of the lessee's petition.
Rents and other proceeds of a mortgage loan may also escape an assignment
thereof if the assignment is not fully perfected under state law prior to
commencement of the bankruptcy proceeding. See "-Leases and Rents."
In addition, the Bankruptcy Code generally provides that a trustee or
debtor-in-possession may, subject to approval of the court, (a) assume the
lease and retain it or assign it to a third party or (b) reject the lease. If
the lease is assumed, the trustee in bankruptcy on behalf of the lessee, or
the lessee as debtor-in-possession, or the assignee, if applicable, must cure
any defaults under the lease, compensate the lessor for its losses and provide
the lessor with "adequate assurance" of future performance. Such remedies may
be insufficient, however, as the lessor may be forced to continue under the
lease with a lessee that is poor credit risk or an unfamiliar tenant if the
lease was assigned, and any assurances provided to the lessor may, in fact, be
inadequate. If the lease is rejected, such rejection generally constitutes a
breach of the executory contract or unexpired lease immediately before the
date of filing the petition. As a consequence, the other party or parties to
such lease, such as the mortgagor, as lessor under a lease, would have only an
unsecured claim against the debtor for damages resulting from such breach
which could adversely affect the security for the related mortgage loan. In
addition, pursuant to Section 502(b)(6) of the Bankruptcy Code, a lessor's
damages for lease rejection in respect of future rent installments are limited
to the rent reserved by the lease, without acceleration, for the greater of
one year or 15% of the remaining term of the lease, but not more than three
years.
If a trustee in bankruptcy on behalf of a lessor, or a lessor as
debtor-in-possession, rejects an unexpired lease of real property, the lessee
may treat such lease as terminated by such rejection or, in the alternative,
the lessee may remain in possession of the leasehold for the balance of such
term, and for any renewal or extension of such term that is enforceable by the
lessee under applicable nonbankruptcy law. The Bankruptcy Code provides that
if a lessee elects to remain in possession after such a rejection of a lease,
the lessee may offset any damages occurring after such date caused by the
nonperformance of any obligation of the lessor under the lease after such date
against rents reserved under the lease. To the extent provided in the related
prospectus supplement, the lessee will agree under certain leases to pay all
amounts owing thereunder to the master servicer without offset. To the extent
that such a contractual obligation remains enforceable against the lessee, the
lessee would not be able to avail itself of the rights of offset generally
afforded to lessees of real property under the Bankruptcy Code.
In a bankruptcy or similar proceeding of a mortgagor, action may be
taken seeking the recovery, as a preferential transfer or on other grounds, of
any payments made by the mortgagor, or made directly by the related lessee,
under the related mortgage loan to the trust fund. Payments on long-term debt
may be protected from recovery as preferences if they are payments in the
ordinary course of business made on debts incurred in the ordinary course of
business. Whether any particular payment would be protected depends upon the
facts specific to a particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect
its costs and expenses in preserving or selling the mortgaged property ahead
of payment to the lender. In certain circumstances, a debtor in bankruptcy may
have the power to grant liens senior to the lien of a mortgage, and analogous
state statutes and general principles of equity may also provide a mortgagor
with means to halt a foreclosure proceeding or sale and to force a
restructuring of a mortgage loan on terms a lender would not otherwise accept.
Moreover, the laws of certain states also give priority to certain tax liens
over the lien of a mortgage or deed of trust. Under the Bankruptcy Code, if
the court finds that actions of the mortgagee have been unreasonable, the lien
of the related mortgage may be subordinated to the claims of unsecured
creditors.
To the extent described in the related prospectus supplement, certain
of the mortgagors may be partnerships. The laws governing limited partnerships
in certain states provide that the commencement of a case under the Bankruptcy
Code with respect to a general partner will cause a person to cease to be a
general partner of the limited partnership, unless otherwise provided in
writing in the limited partnership agreement. This provision may be construed
as an "ipso facto" clause and, in the event of the general partner's
bankruptcy, may not be enforceable. To the extent described in the related
prospectus supplement, certain limited partnership agreements of the
mortgagors may provide that the commencement of a case under the Bankruptcy
Code with respect to the related general partner constitutes an event of
withdrawal (assuming the enforceability of the clause is not challenged in
bankruptcy proceedings or, if challenged, is upheld) that might trigger the
dissolution of the limited partnership, the winding up of its affairs and the
distribution of its assets, unless (i) at the time there was at least one
other general partner and the written provisions of the limited partnership
agreement permit the business of the limited partnership to be carried on by
the remaining general partner and that general partner does so or (ii) the
written provisions of the limited partnership agreement permit the limited
partner to agree within a specified time frame (often 60 days) after such
withdrawal to continue the business of the limited partnership and to the
appointment of one or more general partners and the limited partners do so. In
addition, the laws governing general partnerships in certain states provide
that the commencement of a case under the Bankruptcy Code or state bankruptcy
laws with respect to a general partner of such partnerships triggers the
dissolution of such partnership, the winding up of its affairs and the
distribution of its assets. Such state laws, however, may not be enforceable
or effective in a bankruptcy case. The dissolution of a mortgagor, the winding
up of its affairs and the distribution of its assets could result in an
acceleration of its payment obligation under a related mortgage loan, which
may reduce the yield on the related series of certificates in the same manner
as a principal prepayment.
In addition, the bankruptcy of the general partner of a mortgagor
that is a partnership may provide the opportunity for a trustee in bankruptcy
for such general partner, such general partner as a debtor-in-possession, or a
creditor of such general partner to obtain an order from a court consolidating
the assets and liabilities of the general partner with those of the mortgagor
pursuant to the doctrines of substantive consolidation or piercing the
corporate veil. In such a case, the mortgaged property could become property
of the estate of such bankrupt general partner. Not only would the mortgaged
property be available to satisfy the claims of creditors of such general
partner, but an automatic stay would apply to any attempt by the trustee to
exercise remedies with respect to such mortgaged property. However, such an
occurrence should not affect the trustee's status as a secured creditor with
respect to the mortgagor or its security in the mortgaged property.
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, disposal
or certain commercial activities. 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 certain laws, 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. Excluded from CERCLA's definition of
"owner" or "operator," however, is a lender that, "without participating in
the management" of the facility prior to foreclosure, holds indicia of
ownership primarily to protect his security interest in the facility. This
secured creditor exemption is intended to provide a lender protection from
liability under CERCLA as an owner or operator of contaminated property.
However, a secured lender may be liable as an "owner" or "operator" of a
contaminated mortgaged property if agents or employees of the lender are
deemed to have actually 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.
In addition, lenders may face potential liability for remediation of
releases of petroleum or hazardous substances from underground storage tanks
under the Federal Resource Conservation and Recovery Act ("RCRA"), if they are
deemed to be the "owners" or "operators" of facilities in which they have a
security interest or upon which they have foreclosed.
The Federal Asset Conservation, Lender Liability and Deposit
Insurance Protection Act of 1996 (the "Lender Liability Act") seeks to clarify
the actions a lender may take without incurring liability as an "owner" or
"operator" of contaminated property or underground petroleum storage tanks.
The Lender Liability Act amends CERCLA and RCRA to provide guidance on actions
that do or do not constitute "participation in management."
Importantly, the Lender Liability Act does not, among other things:
(1) completely eliminate potential liability to lenders under CERCLA or RCRA,
(2) reduce credit risks associated with lending to borrowers having
significant environmental liabilities or potential liabilities, (3) eliminate
environmental risks associated with taking possession of contaminated property
or underground storage tanks or assuming control of the operations thereof, or
(4) affect liabilities or potential liabilities under state environmental
laws.
Certain Other State Laws. Many states have statutes similar to CERCLA
and RCRA, and not all of those statutes provide for a secured creditor
exemption.
In a few states, transfers of some types of properties are
conditioned upon cleanup of contamination. 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 enter into an agreement with the
state providing for the cleanup of the contamination before selling or
otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law
causes of action (for example, actions based on nuisance or on toxic tort
resulting in death, personal injury, or damage to property) related to
hazardous environmental conditions on a property. While it may be more
difficult to hold a lender liable in such cases, unanticipated or 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 bring an action for contribution against other potentially
liable parties, but such parties 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 prospectus supplement, the pooling agreement will provide that the
master servicer, acting on behalf of the trustee, may not take possession of a
mortgaged property or take over its operation unless the master servicer,
based solely on a report (as to environmental matters) prepared by a person
who regularly conducts environmental site assessments, has made the
determination that it is appropriate to do so, as described under "Description
of the Pooling Agreements-Realization upon Defaulted Mortgage Loans."
If a lender forecloses on a mortgage secured by a property, the
operations of which are subject to environmental laws and regulations, the
lender may 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 result in the imposition of certain investigation or
remediation requirements and/or 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.
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. By virtue, however, of the Garn-St. Germain Depository
Institutions Act of 1982 (the "Garn Act"), effective October 15, 1982 (which
purports to preempt state laws that prohibit the enforcement of due-on-sale
clauses by providing, among other matters, that "due-on-sale" clauses in
certain loans made after the effective date of the Garn Act are enforceable,
within certain limitations as set forth in the Garn Act and the regulations
promulgated thereunder), 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, regardless of the
master servicer's ability to demonstrate that a sale threatens its legitimate
security interest.
Subordinate Financing
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. 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 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.
Certain Laws and Regulations; Types of Mortgaged Properties
The mortgaged properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a mortgaged property which could, together with the
possibility of limited alternative uses for a particular mortgaged property
(e.g., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related mortgage loan. Mortgages on
properties which are owned by the mortgagor under a condominium form of
ownership are subject to the declaration, by-laws and other rules and
regulations of the condominium association. Mortgaged properties which are
hotels or motels may present additional risk in that hotels and motels are
typically operated pursuant to franchise, management and operating agreements
which may be limited by the operator. In addition, the transferability of the
hotel's liquor and other licenses to an entity acquiring the hotel either
through purchases or foreclosure is subject to the vagaries of local law
requirements. In addition, mortgaged properties which are multifamily
residential properties may be subject to rent control laws, which could impact
the future cash flows of such properties.
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 any servicer to collect full amounts of interest on certain of the mortgage
loans. Any shortfalls in interest collections resulting from the application
of the Relief Act would result in a reduction of the amounts distributable to
the holders of the related series of certificates, and would not be covered by
advances or, unless otherwise specified in the prospectus supplement, any form
of credit support provided in connection with such certificates. In addition,
the Relief Act imposes limitations that would impair the ability of the
servicer to foreclose on an affected mortgage loan during the borrower's
period of active duty status and, under certain circumstances, during an
additional three-month period thereafter.
Americans with Disabilities Act
Under Title III of the Americans with Disabilities Act of 1990 and
rules promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers that are
structural in nature from existing places of public accommodation to the
extent "readily achievable." In addition, under the ADA, alterations to a
place of public accommodation or a commercial facility are to be made so that,
to the maximum extent feasible, such altered portions are readily accessible
to and usable by disabled individuals. The "readily achievable" standard takes
into account, among other factors, the financial resources of the affected
site, owner, landlord or other applicable person. The requirements of the ADA
may also be imposed on a foreclosing lender who succeeds to the interest of
the borrower as owner or landlord. Since the "readily achievable" standard may
vary depending on the financial condition of the owner or landlord, a
foreclosing lender who is financially more capable than the borrower of
complying with the requirements of the ADA may be subject to more stringent
requirements than those to which the borrower is subject.
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
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.
MATERIAL 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 (e.g., 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 is given with respect to the
consequences of contemplated actions and is directly relevant to the
determination of an entry on a tax return. Accordingly, taxpayers should
consult their own 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 own 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) REMIC Certificates representing interests in a trust, 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 grantor trust fund as to which no
such election will be made. If no REMIC election is made, the trust fund may
elect to be treated as a financial assets securitization investment trust
("FASIT"). The prospectus supplement relating to such an election will
describe the requirements for the classification of the trust as a FASIT and
the consequences to a holder of owning certificates in a FASIT. The prospectus
supplement for each series of certificates also will indicate whether a REMIC
election (or elections) will be made for the related trust or applicable
portion thereof and, if such an election is to be made, will identify all
"regular interests" and "residual interests" in each 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, 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, the tax consequences
associated with any cash flow agreements also will be disclosed in the related
prospectus supplement. See "Description of the Trust Funds--Cash Flow
Agreements."
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. It is the opinion of Brown & Wood LLP,
counsel to the depositor, that upon the issuance of each series of REMIC
Certificates, assuming compliance with all provisions of the related pooling
agreement and based upon the law on the date hereof, for federal income tax
purposes the related trust will qualify as a REMIC and the REMIC Certificates
offered will be considered to evidence ownership of "regular interests"
("REMIC Regular Certificates") or "residual interests" ("REMIC Residual
Certificates") under 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. 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 during which the requirements for such status are not satisfied. The
pooling agreement with respect to each REMIC will include provisions designed
to maintain the trust status as a REMIC under the REMIC provisions. It is not
anticipated that the status of any trust as a REMIC will be terminated.
Characterization of Investments in REMIC Certificates. In general,
with respect to each series of certificates for which a REMIC election is
made, certificates held by a real estate investment trust will constitute
"real estate assets" within the meaning of section 856(c)(4)(A) of the Code;
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)(v) of the Code. 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 on the REMIC Regular
Certificates and income allocated to the class of 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)(B) 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 servicer or the trustee will report those determinations
to certificateholders in the manner and at the times required by the
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 otherwise
would receive the same treatment as the mortgage loans for purposes of all of
the foregoing sections. The related prospectus supplement will describe
whether any mortgage loans included in the trust fund will not be treated as
assets described in the foregoing sections. Nonetheless, the REMIC regulations
do provide that payments on mortgage loans held pending distribution are
considered part of the mortgage.
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 separate or 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 pooling agreement, the
tiered REMICs will each qualify as a REMIC and the REMIC Certificates issued
by the tiered REMICs, respectively, 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.
For purposes of determining whether the REMIC Certificates are "real
estate assets" within the meaning of section 856(c)(5)(B) of the Code, "loans
secured by an interest in real property" under section 7701(a)(19)(C) of the
Code, and whether the income generated by these 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 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 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. 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 issue price will be the fair market value on the
issuance 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" includes interest payable unconditionally at least annually at a
single fixed rate, at a "qualified floating rate," or at an "objective rate,
or a combination of a single fixed rate and one or more "qualified floating
rates," or one "qualified inverse floating rates," or a combination of
"qualified floating rates" that does not operate in a manner that accelerates
or defers interest payments on such REMIC Regular Certificates.
It is not entirely clear under the Code that interest paid to the
REMIC Regular Certificates that are subject to early termination through
prepayments and that have limited enforcement rights should be considered
"qualified stated interest". However, unless disclosed otherwise in the
prospectus supplement, the trust fund intends to treat stated interest as
"qualified stated interest" for determining if, and to what extent, the REMIC
Regular Certificates have been issued with original issue discount.
Nevertheless, holders of the REMIC Regular Certificates should consult their
own tax advisors with respect to whether interest in the REMIC Regular
Certificates qualifies as "qualified stated interest" under the Code.
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 these rules will be applied in preparing information returns
to the certificateholders and the Internal Revenue Service (the "IRS").
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 issuance of the certificates, a portion of the purchase price paid for a
REMIC Regular Certificate will reflect accrued interest. 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 life. For this
purpose, the weighted average life 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
the number of complete years, rounding down for partial years, from the issue
date until any payment is expected to be made (presumably taking into account
the prepayment assumption) by a fraction, the numerator of which is the amount
of the payment, and the denominator of which is the stated redemption price at
maturity. Under the OID Regulations, original issue discount of only a de
minimis amount 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.
As to each "accrual period," that is, 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, 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 present value, as of the end of the accrual period, of
all of the distributions remaining plus the distributions made during the
accrual period of amounts included in the stated redemption price less 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 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 and
using a discount rate equal to the original yield to maturity of the
certificate. 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 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 the adjusted issue
price at the beginning of the accrual period and the daily portions of
original issue discount for all days during the related accrual period.
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 the
election is made, it will apply to all market discount bonds acquired by such
certificateholder on or after the first day of the taxable year to which the
election applies. In addition, the OID regulations permit a certificateholder
to elect to accrue all interest, 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 currently include 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." Each of these elections to accrue interest, discount
and premium with respect to a certificate on a constant yield method or as
interest would be irrevocable.
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 full 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." 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, the rules described in the
committee report accompanying the Tax Reform Act of 1986 apply. That committee
report indicates that REMIC Regular Certificates should accrue market discount
either:
o on the basis of a constant yield method;
o 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 during the accrual period bears to the total amount of
stated interest remaining to be paid as of the beginning of the
accrual period; or
o 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.
Furthermore, 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
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 against qualified stated interest 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." The
committee report accompanying the Tax Reform Act of 1986 states that the same
rules that apply to accrual of market discount will also apply in amortizing
bond premium under section 171 of the Code.
Realized Losses. Under section 166 of the Code, both noncorporate
holders of the REMIC Regular Certificates that acquire such certificates in
connection with a trade or business and corporate holders of the REMIC Regular
Certificates 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
residential 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 and that the loss will be
characterized as a short-term capital loss. Losses sustained on the mortgage
loans may be "events which have occurred before the close of the accrued
period" that can be taken into account under Code section 1272(a)(6) for
purposes of determining the amount of OID that accrues on a certificate.
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,
but 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 included in a
trust fund or as debt instruments issued by the REMIC.
An original 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 the related
prospectus supplement states otherwise. 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. 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 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, 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.
It is uncertain how payments received by a holder of a REMIC Residual
interest in connection with the acquisition of such REMIC Residual interest
should be treated and 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 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 distribution 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 on the REMIC Regular Certificates, 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. If a class of REMIC Certificates is not sold
initially, the REMIC will have an initial aggregate basis in its assets equal
to the fair market values of such certificates as of the closing date. 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 by this prospectus and the
related prospectus supplement 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. However, a REMIC that acquires loans at a market
discount must include such market discount in income currently, as it accrues,
on a constant interest basis. 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) if the REMIC's basis in that mortgage loan 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, 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.
However, this 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.
A REMIC will be allowed deductions for interest on the REMIC Regular
Certificates equal to the deductions that would be allowed if the REMIC
Regular Certificates 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 Certificate---Original Issue Discount,"
except that the de minimis rule and the adjustments for subsequent holders of
REMIC Regular Certificates 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, 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 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. The limitation on miscellaneous itemized deductions imposed on
individuals by section 67 of the Code 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." 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. 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
nontaxable 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 trust fund. 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 are less than the
amount of 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." 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."
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:
o the sum of the daily portions of REMIC taxable income allocable to
such REMIC Residual Certificate; over
o the sum of the "daily accruals" 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 date the certificates were issued.
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:
o will not be permitted to be offset by deductions, losses or loss
carryovers from other activities;
o will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and; and
o will not be eligible for any rate reduction or exemption under any
tax treaty with respect to the 30% United States withholding tax
imposed on distributions to foreign investors. See, however,
"--Foreign Investors in REMIC Certificates" below.
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, 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. The Treasury could issue
regulations which 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
assumptions and on any required or permitted cleanup calls, or required
liquidation provisions, the present value of the expected future distributions
discounted at the "applicable Federal rate" on the REMIC Residual Certificate
equals at least the present value of the expected tax on the anticipated
excess inclusions and 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 pooling
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 "--Taxation of Owners of REMIC
Residual Certificates--Foreign Investors in REMIC Certificates" below for
additional restrictions applicable to transfers of certain REMIC Residual
Certificates to foreign persons.
Mark-to-Market Rules. Section 475 provides a 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 regulations provide that for purposes of this
mark-to-market requirement, a REMIC Residual Certificate issued after January
4, 1995 is not treated as a security and thus cannot 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.
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 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 certain "pass-through entity," an amount equal to these fees
and expenses will be added to the certificateholder's gross income and the
certificateholder will treat such fees and expenses as a miscellaneous
itemized deduction subject to the limitation of section 67 of the Code 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:
o 3% of the excess of the individual's adjusted gross income over
such amount; or
o 80% of the amount of itemized deductions otherwise allowable for
the taxable year.
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 carefully consult with their own
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 "--Basis Rules, Net Losses and Distributions".
Except as provided in the following two paragraphs, any such gain or loss will
be capital gain or loss, provided such REMIC Certificate is held as a capital
asset within the meaning of section 1221 of the Code.
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:
o 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" determined as of the date of purchase of
such REMIC Regular Certificate, over
o 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 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 and
substantially all of the taxpayer's return is attributable to the time value
of money. 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 a REMIC Residual
Certificate, or acquires any other residual interest in a REMIC or any similar
interest in a "taxable mortgage pool" 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". In general, subject to certain specified exceptions, a
prohibited transaction means:
o the disposition of a mortgage loan;
o the receipt of income from a source other than a mortgage loan or
certain other permitted investments;
o the receipt of compensation for services; or
o 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 the 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. The
pooling 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 tax on prohibited
transactions, contributions, "net income from foreclosure property" or state
or local tax imposed on the REMIC will be borne by the related servicer or
trustee in any case out of its own funds, if such tax arose out of a breach of
such person's obligations under the related pooling and servicing agreement
and in respect of compliance with applicable laws and regulations. Any such
tax not borne by a servicer 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," a tax would be imposed in an amount equal to the
product of:
o the present value discounted using the "applicable Federal rate"
of the total anticipated excess inclusions with respect to such
REMIC Residual Certificate for periods after the transfer; and
o 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,
required or permitted cleanup calls, or required liquidation provisions. 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 residual interests are not held by disqualified organizations and
information necessary for the application of the tax are 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
pooling agreement, and will be discussed more fully in any prospectus
supplement relating to the offering of any REMIC Residual Certificate.
In addition, if a "pass-through entity" includes in income excess
inclusions with respect to a REMIC Residual Certificate, and 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 the amount of excess
inclusions allocable to the interest in the pass-through entity held by such
disqualified organization and 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 such holder's social
security number and a statement under penalty of perjury that such social
security number is that of the recordholder or a statement under penalty of
perjury that such record holder is not a disqualified organization.
For these purposes, a "disqualified organization" generally means:
o 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 exclude as
instrumentalities entities not treated as instrumentalities under
section 168(h)(2)(D) of the Code or the Freddie Mac), or any
organization (other than a cooperative described in section 521 of
the Code);
o any organization that is exempt from federal income tax, unless it
is subject to the tax imposed by section 511 of the Code; or
o 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 Certificateholder's adjusted basis in such REMIC Residual
Certificate, such REMIC Residual Certificateholder should be treated as
realizing a loss equal to the amount of such difference. Such loss may be
treated as a capital loss and may be subject to the "wash sale" rules of
section 1091 of the Code.
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, either the
trustee or the servicer 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 servicer, as the case
may be, will, subject to certain notice requirements and various restrictions
and limitations, generally 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 will generally 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 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 the 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."
The responsibility for complying with the foregoing reporting rules
will be borne by either the trustee or the servicer, unless otherwise stated
in the related prospectus supplement.
Backup Withholding with Respect to REMIC Certificates. Payments of
interest and principal, and proceeds from the sale of REMIC Certificates, may
be subject to the "backup withholding tax" 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
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.
On October 6, 1997, the Treasury Department issued new regulations
which make certain modifications to the withholding, backup withholding and
information reporting rules described above. The new regulations attempt to
unify certification requirements and modify reliance standards. The IRS
recently issued notice 99-25 which generally makes the new regulations
effective for payments made after December 31, 2000, subject to certain
transition rules. Prospective investors are urged to consult their own tax
advisors regarding the new regulations.
Foreign Investors in REMIC Certificates. A REMIC Regular
Certificateholder that is not a "United States Person" 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 stated 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 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:
o a citizen or resident of the United States;
o a corporation or partnership (or other entity treated as a
corporation or a partnership for United States Federal income tax
purposes created or organized in, or under the laws of, the United
States, any State thereof or the District of Columbia (unless, in
the case of a partnership, Treasury regulations are enacted that
provide otherwise);
o an estate whose income is includible in gross income for United
States federal income tax purposes regardless of its source; and
o a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust, and one
or more United States persons have the authority to control all
substantial decisions of the trust.
It is possible that the IRS may assert that the foregoing tax exemption should
not apply with respect to interest distributed on a REMIC Regular Certificate
that is held by:
o a REMIC Residual Certificateholder that owns directly or
indirectly a 10% or greater interest in the REMIC Residual
Certificates; or
o to the extent of the amount of interest paid by the related
mortgagor on a particular mortgage loan, a REMIC Regular
Certificateholder that owns a 10% or greater ownership interest in
such mortgage or a controlled foreign corporation of which such
mortgagor is a "United States shareholder" within the meaning of
section 951(b) of the Code.
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 nonresident 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. Transfers of REMIC Residual Certificates to investors that are
not United States persons will be prohibited under the related pooling
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 the pooling agreement, the
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
represents 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 less
normal administration fees and any spread and interest paid to the holders of
grantor trust fractional interest certificates issued with respect to a
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 Except as discussed in
the related prospectus supplement, in the case of grantor trust fractional
interest certificates, counsel to the depositor will deliver an opinion that,
in general, grantor trust fractional interest certificates will represent
interests in:
o assets described in section 7701(a)(19)(C) of the Code;
o "obligation[s] which . . . [are] principally secured by an
interest in real property" within the meaning of section
860G(a)(3)(A) of the Code; and
o "real estate assets" within the meaning of section 856(c)(5)(B) 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 assets described in section 7701(a)(19)(C) of the
Code, "real estate assets" within the meaning of section 856(c)(5)(B) 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)(B) of the
Code, it is unclear whether the grantor trust strip certificates, and the
income they produce, will be so characterized. Although the policies
underlying such sections may suggest that such characterization is
appropriate, counsel to the depositor will not deliver any opinion on the
characterization of these certificates. Prospective purchasers of grantor
trust strip certificates should consult their tax advisors regarding whether
the grantor trust strip certificates, and the income they produce, 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 reasonable servicing fees and other expenses) and will be entitled
to deduct their shares of any such reasonable servicing fees and other
expenses. In some situations, the taxpayer's deduction may be subject to
itemized deduction limitations and be limited if the taxpayer is subject to
the corporate alternative minimum tax. For a more detailed discussion of these
limitations, see "-Taxation of Owners of REMIC Residual Certificates-Possible
Pass-Through of Miscellaneous Itemized Deductions".
Although it is not entirely clear, it appears that in transactions in
which multiple classes of grantor trust 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 further guidance, it is intended to base
information returns or reports 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 a class of grantor
trust strip certificates is issued as part of the same series of Certificates
or the depositor or any of its affiliates retains 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. For purposes of determining what constitutes
reasonable servicing fees for various types of mortgages the IRS has
established certain "safe harbors." The servicing fees paid with respect to
the mortgage loans for certain series of grantor trust certificates may be
higher than the "safe harbors" and, accordingly, may not constitute reasonable
servicing compensation. The related prospectus supplement will include
information regarding servicing fees paid to a servicer or their respective
affiliates necessary to determine whether the preceding "safe harbor" rules
apply.
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 de minimis market discount
discussion below. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates-Market Discount." Under the stripped bond rules, the
holder of a grantor trust fractional interest certificate 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 for 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," and the certificate's share of reasonable servicing 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") and the yield of such
grantor trust fractional interest certificate to such holder. Such yield would
be computed at the rate 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 spread or any other ownership interest in the mortgage loans
retained by the depositor, a servicer, or their respective affiliates, but
will include such certificateholder's share of any reasonable servicing fees
and other expenses.
With respect to certain categories of debt instruments, section
1272(a)(6) of the Code requires the use of a reasonable prepayment assumption
and conforms to the prepayment assumption used in pricing the instrument.
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 own 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, 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 income or loss,
which under amendments to the Code adopted in 1997 would be capital except to
the extent of any accrued market discount 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 such certificate
that is allocable to such certificateholder's interest in the mortgage loan.
If a prepayment assumption is used, although there is no guidance, logically
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
"--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 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 stripped bond 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 1.1286-1(b), 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, there is less than a de minimis amount of original issue discount or
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. Original issue discount or market discount on a grantor trust
fractional interest certificate are de minimis if less than 0.25% of the
stated redemption price multiplied by the weighted average maturity of the
mortgage loans. 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 discount and market discount described in "--If Stripped Bond
Rules Do Not Apply" and "--Market Discount."
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 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. Under the OID regulations, the stated redemption price is
equal to the total of all payments to be made on such mortgage loan other than
"qualified stated interest." "Qualified stated interest" generally includes
interest that is unconditionally payable at least annually at a single fixed
rate, at a "qualified floating rate" or at an "objective rate." 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 provide for an initial
below-market rate of interest or the acceleration or the deferral of interest
payments.
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 in preparing
information returns to the certificateholders and the IRS.
Notwithstanding the general definition of original issue discount,
original issue discount will be considered to be de minimis if such original
issue discount is less than 0.25% of the stated redemption price multiplied by
the weighted average maturity of the mortgage loan. For this purpose, the
weighted average maturity of the mortgage loan will be computed by multiplying
the number of full years from the issue date until such payment is expected to
be made by a fraction, the numerator of which is the amount of the payment and
the denominator of which is the stated redemption price of the mortgage loan.
Under the OID regulations, original issue discount of only a de minimis amount
will generally be included in income as each payment of stated principal price
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 each
such payment and the denominator of which is the outstanding stated principal
amount of the mortgage loan. The OID Regulations also permit a
certificateholder to elect to accrue de minimis original issue discount into
income currently based on a constant yield method. See "--Market Discount"
below.
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 the adjusted issue price of such mortgage loan at the beginning of the
accrual period that includes such day plus 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.
The trustee or 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 the
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." If market discount is in excess of a de
minimis amount, the holder generally will be required to include in income in
each month the amount of such discount that has accrued 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 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 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 during or after the first taxable year to
which such election applies. In addition, the OID regulations would permit a
certificateholder to elect to accrue all interest, discount and premium in
income as interest, based on a constant yield method. If such an election were
made with respect to a mortgage loan with market discount, the
certificateholder would be deemed to have made an election to currently
include 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 and thereafter and, possibly, previously acquired
instruments. Similarly, a certificateholder that made this election for a
certificate 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." Each of these elections to
accrue interest, discount and premium with respect to a certificate on a
constant yield method or as interest is irrevocable.
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 where principal 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. For a more detailed discussion
of the treatment of market discount, see "Taxation of Owners of REMIC Regular
Certificates-Market Discount".
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 generally will be considered to
be de minimis if it is less than 0.25% of the stated redemption price of the
mortgage loans multiplied by the number of full 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 used, if any. The
effect of using a prepayment assumption could be to accelerate the reporting
of such discount income. If market discount is treated as de minimis under the
foregoing rule, it appears that actual discount would be treated in a manner
similar to original issue discount of a de minimis amount. See "--If Stripped
Bond Rules Do Not Apply." Further, under the rules described in "--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. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction.
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 "--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 used, if any, 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 "--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 trust strip certificates should consult their own tax advisors
concerning the method to be used in reporting income or loss with respect to
such certificates.
The OID regulations in so far as they describe the application of the
constant yield method, do not apply to instruments to which section 1272(a)(6)
applies, which may include grantor trust strip certificates as well as grantor
trust fractional interest certificates, 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 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 "--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 guidance, it is intended to base information returns or reports
to the IRS and certificateholders on the stripped bond 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 stripped bond prepayment assumption. Prospective purchasers
of the grantor trust strip certificates should consult their own tax advisors
regarding the use of the stripped bond 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 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 stripped bond prepayment
assumption. However, if a grantor trust strip certificate is treated as an
interest in discrete mortgage loans, or if the stripped bond 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. In addition, any loss may be treated
as a capital loss.
Possible Application of 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 payments
are not subject to the same rules as debt instruments providing for non
contingent payments. Final regulations have been promulgated with respect to
contingent payment debt instruments. However, these regulations do not
specifically address the grantor trust strip certificates or other securities
subject to the stripped bond rules of section 1286 of the Code.
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. The adjusted basis of a grantor trust certificate generally
will equal its cost, increased by any income reported by the seller and
reduced (but not below zero) by any previously reported losses, any amortized
premium and by any distributions with respect to such grantor.
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 and the taxpayer's return is substantially attributable to the time value
of money. 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" 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 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. As may be provided in the related prospectus
supplement, the trustee or 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
interest rate. In addition, within a reasonable time after the end of each
calendar year, the trustee or servicer will furnish to each certificateholder
during such year such 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 servicer's information reports. 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 "--Taxation of
Owners of REMIC Residual Certificates--Backup Withholding with Respect to
REMIC Certificates" will also apply to grantor trust certificates.
Foreign Investor. In general, the discussion with respect to REMIC
Regular Certificates in "--Taxation of Owners of REMIC Residual
Certificates--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 United States withholding tax, subject to the conditions
described in such discussion, only to the extent the related mortgage loans
were originated after July 18, 1984. However, to the extent the grantor trust
certificate represents an interest in real property (e.g., because of
foreclosures), it would be treated as representing a United States real
property interest for United States federal income tax purposes. This could
result in withholding consequences to non-U.S. certificateholders and
potential U.S. taxation.
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 CONSEQUENCES
In addition to the federal income tax consequences described in
"Material 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 tax law, and the discussion above
does not purport to describe any aspect of the tax laws of any state or other
jurisdiction. Therefore, prospective investors should consult their own tax
advisors with respect to the various tax consequences of investments in the
offered certificates.
ERISA CONSIDERATIONS
General
The Employee Retirement Income Security Act of 1974, as amended
("ERISA") and the Internal Revenue Code impose certain requirements on
employee benefit plans, and on certain other retirement plans and
arrangements, including individual retirement accounts and annuities, medical
savings accounts, Keogh plans, collective investment funds and separate and
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 (all of which are referred to in this prospectus as
"Plans"), and on persons who are fiduciaries with respect to 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 Internal Revenue Code,
church plans (as defined in Section 3(33) of ERISA) are not subject to ERISA
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 (which may
contain restrictions substantially similar to those in ERISA and the Internal
Revenue 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") 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 Internal Revenue Code.
Plan Asset Regulations. A Plan's investment in offered certificates
may cause the trust assets to be deemed "plan assets" of a Plan. Section
2510.3-101 of the regulations of the United States Department of Labor (the
"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" (defined to include Plans and certain
employee benefit plans not subject to ERISA, including foreign and
governmental plans) is not "significant." For this purpose, in general, 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 (excluding for
this calculation any person, other than a benefit plan investor, who has
discretionary authority or control, or provides investment advice (direct or
indirect) for a fee with respect to the assets of the trust fund).
Any person who has discretionary authority or control respecting the
management or disposition of plan assets of a Plan, and any person who
provides investment advice with respect to such assets for a fee, will
generally be 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, a special servicer or any
sub-servicer, may be deemed to be a Plan "fiduciary" with respect to the
investing Plan, and thus subject to the fiduciary responsibility provisions
and prohibited transaction provisions of ERISA and the Internal Revenue Code.
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 Internal
Revenue Code.
Prohibited Transaction Exemptions
First Union Corporation ("First Union") has received from the DOL an
individual prohibited transaction exemption (the "Exemption"), which generally
exempts from the application of the prohibited transaction provisions of
sections 406(a) and (b) and 407(a) of ERISA, and the excise taxes imposed on
such prohibited transactions pursuant to Section 4975(a) and (b) of the
Internal Revenue Code, 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, provided
that certain conditions set forth in the Exemption application are satisfied.
For purposes of this Section, "ERISA Considerations," the term "underwriter"
includes (i) First Union, (ii) any person directly or indirectly, through one
or more intermediaries, controlling, controlled by or under common control
with First Union, and (iii) any member of the underwriting syndicate or
selling group of which First Union or a person described in (ii) is a manager
or co-manager with respect to a class of certificates. See "Method of
Distribution."
The Exemption sets forth six general conditions which, among others,
must be satisfied for a transaction involving the purchase, sale and holding
of offered certificates by a Plan to be eligible for exemptive relief under
the Exemption:
First, the acquisition of offered 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 offered certificates must evidence rights and interests
which are not subordinated to the rights and interests evidenced by other
certificates of the same trust.
Third, the offered 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 Rating Services, a division of The McGraw-Hill Companies,
Inc. ("Standard & Poor's"), Moody's Investors Service, Inc. ("Moody's"), Duff
& Phelps Credit Rating Co. ("Duff & Phelps") or Fitch IBCA, Inc. ("Fitch").
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, the special servicer, any sub-servicer, the
provider of any credit support and any obligor with respect to mortgage assets
(including mortgage loans underlying a CMBS not issued by Fannie Mae, Freddie
Mac or Ginnie Mae) constituting more than 5% of the aggregate unamortized
principal balance of the mortgage assets 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) in connection with the distribution or placement of
certificates must represent not more than reasonable compensation for
underwriting or placing 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 pooling 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 Exchange Commission under
the Securities Act of 1933, as amended.
In the event the obligations used to fund the trust fund have not all
been transferred to the trust fund on the closing date, additional obligations
meeting certain requirements as specified in the Exemption may be transferred
to the trust fund in exchange for the amounts credited to the Pre-Funding
Account during a period required by the Exemption, commencing on the closing
date and ending no later than the earliest to occur of: (i) the date the
amount on deposit in the Pre-Funding Account (as defined in the Exemption) is
less than the minimum dollar amount specified in the pooling agreement; (ii)
the date on which an event of default occurs under the pooling agreement; or
(iii) the date which is the later of three months or 90 days after the closing
date. In addition, the amount in the Pre-Funding Account may not exceed 25% of
the aggregate principal amount of the offered certificates. Certain other
conditions of the Exemption relating to pre-funding accounts must also be met,
in order for the exemption to apply. The prospectus supplement will discuss
whether pre-funding accounts will be used.
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, Moody's, Duff & Phelps or Fitch for at least
one year prior to the Plan's acquisition of 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 certificates.
The Exemption generally applies to mortgage loans such as the
mortgage loans to be included in any trust fund, but it is not clear whether
the Exemption would apply to a trust fund that included mortgage loans secured
by liens on real estate projects under construction or cash flow agreements.
In addition, it is not clear whether the Exemption applies to participant
directed plans as described in Section 404(c) of ERISA or plans that are
subject to Section 4975 of the Code but that are not subject to Title I of
ERISA, such as certain Keogh plans and certain individual retirement accounts.
Also, when it issued the Exemptions, the DOL did not consider mortgages
containing defeasance provisions that may be contained in some of the mortgage
loans. Accordingly, it is not clear what the impact on the Exemption would be
if such defeasance provisions were exercised. If mortgage loans are secured by
leasehold interests, each lease term must be at least 10 years longer that the
term of the relevant mortgage loan. Also, as noted, classes of Subordinated
Certificates are not covered by the Exemption.
If the general conditions set forth in 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 Internal Revenue Code by reason of Sections
4975(c)(1) (A) through (D) of the Internal Revenue Code) in connection with
(i) the direct or indirect sale, exchange or transfer of offered certificates
acquired by a Plan upon issuance from the depositor or underwriter when the
depositor, underwriter, master servicer, special servicer, sub-servicer,
trustee, provider of credit support, or obligor with respect to mortgage
assets is a "Party in Interest" under ERISA with respect to the investing
Plan, (ii) the direct or indirect acquisition or disposition in the secondary
market of offered certificates by a Plan and (iii) the holding of offered
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 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 this purpose, an Excluded
Plan is a Plan sponsored by any member of the Restricted Group.
If certain specific conditions set forth in the Exemption are also
satisfied, the Exemption may provide relief from the restrictions imposed by
Sections 406(b)(1) and (b)(2) of ERISA and the taxes imposed by Sections
4975(a) and (b) of the Internal Revenue Code by reason of Section
4975(c)(1)(E) of the Internal Revenue Code to an obligor acting as a fiduciary
with respect to the investment of a Plan's assets in the certificates (or such
obligor's affiliate) only if, among other requirements (i) such obligor (or
its affiliate) is an obligor with respect to 5% percent or less of the fair
market value of the assets contained in the trust fund and is otherwise not a
member of the Restricted Group, (ii) a Plan's investment in certificates does
not exceed 25% of all of the certificates outstanding at the time of the
acquisition, (iii) immediately after the acquisition, no more than 25% of the
assets of the Plan are invested in certificates representing an interest in
trusts (including the trust fund) containing assets sold or serviced by the
depositor or a servicer and (iv) in the case of the acquisition of the
certificates in connection with their initial issuance, at least 50% of the
certificates are acquired by persons independent of the Restricted Group and
at least 50% of the aggregate interest in the trust fund is acquired by
persons independent of the Restricted Group.
The Exemption also applies to transactions in connection with the
servicing, management and operation of the trust fund, provided that, in
addition to the general requirements described above, (a) such transactions
are carried out in accordance with the terms of a binding pooling agreement
and (b) the pooling agreement is provided to, or described in all material
respects in the prospectus or private placement memorandum provided to,
investing Plans before their purchase of certificates issued by the trust
fund. The pooling agreements will each be a "Pooling and Servicing Agreement"
as defined in the Exemption. Each pooling agreement will provide that all
transactions relating to the servicing, management and operations of the trust
fund must be carried out in accordance with the pooling agreement.
The DOL has issued a Prohibited Transaction Class Exemption 95-60
(the "Class Exemption"), which provides relief from the application of the
prohibited transaction provisions of Sections 406(a), 406(b) and 407(a) of
ERISA and Section 4975 of the Internal Revenue Code for transactions in
connection with the servicing, management and operation of a trust in which an
insurance company general account has an interest as a result of its
acquisition of certificates issued by such trust, provided that certain
conditions are satisfied. Insurance company general accounts meeting the
specified conditions may generally purchase, in reliance on the Class
Exemption, classes of certificates that do not meet the requirements of the
Exemption solely because they (i) are subordinated to other classes of
certificates and/or (ii) have not received a rating at the time of the
acquisition in one of the three highest rating categories from Standard &
Poor's, Moody's, Duff & Phelps or Fitch. In addition to the foregoing Class
Exemption, relief may be available to certain insurance company general
accounts, which support policies issued by any insurer on or before December
31, 1998 to or for the benefit of employee benefit plans, under regulations
expected to be promulgated by the DOL pursuant to Section 1460 of the Small
Business Job Protection Act of 1996.
Any Plan fiduciary considering the purchase of certificates should
consult with its counsel with respect to the applicability of the Exemption
and other issues and determine on its own whether all conditions have been
satisfied and whether the certificates are an appropriate investment for a
Plan under ERISA and the Internal Revenue Code (or, in the case of
governmental plans, under applicable Federal, state or local law). The
prospectus supplement will specify the representations required by purchasers
of certificates, but generally, each purchaser using the assets of one or more
Plans to purchase a certificate that is subordinate to other certificates of
the trust fund shall be deemed to represent that each such Plan qualifies as
an "accredited investor" as defined in Rule 501(a)(1) of Regulation D under
the Securities Act of 1933, and no Plan will be permitted to purchase or hold
such certificates unless such certificates are rated in one of the top three
rating categories by at least one rating agency at the time of such purchase,
unless such Plan is an insurance company general account that represents and
warrants that it is eligible for, and meets all of the requirements of, Part
III of Prohibited Transaction Class Exemption 95-60. Each purchaser of
Subordinated Certificates shall be deemed to represent that it is eligible
for, and meets all of the requirements of, Part III of Prohibited Transaction
Class Exemption 95-60. 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.
<PAGE>
LEGAL INVESTMENT
The offered certificates of any series will constitute "mortgage
related securities" for purposes of the Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA") only if so specified in the prospectus supplement.
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 directly secured by a first lien on a single parcel of real estate upon
which is located a dwelling or mixed residential and commercial structure,
such as certain multifamily loans, and 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
(including the District of Columbia and Puerto Rico), the authorized
investments of which are subject to state regulation.
Alaska, Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia,
Illinois, Kansas, Maryland, Michigan, Missouri, Nebraska, New Hampshire, New
York, North Carolina, Ohio, South Dakota, Utah, Virginia and West Virginia
enacted legislation, on or before the October 3, 1991 cutoff for such
enactments, limiting to varying extents the ability of certain entities (in
particular, insurance companies) to invest in "mortgage related securities"
secured by liens on residential, or mixed residential and commercial
properties, in most cases by requiring the affected investors to rely solely
upon existing state law, and not SMMEA. Pursuant to Section 347 of the Reglue
Community Development and Regulatory Improvement Act of 1994, which amended
the definition of "mortgage related security" (effective December 31, 1996) to
include, in relevant part, offered certificates satisfying the rating and
qualified originator requirements for "mortgage related securities," but
evidencing interests in a trust fund consisting, in whole or in part, of first
liens on one or more parcels of real estate upon which are located one or more
commercial structures, states were authorized to enact legislation, on or
before September 23, 2001, specifically referring to Section 347 and
prohibiting or restricting the purchase, holding or investment by
state-regulated entities in such types of offered certificates. Section 347
also provides that the enactment by a state of any such legislative
restrictions shall not affect the validity of any contractual commitment to
purchase, hold or invest in securities qualifying as "mortgage related
securities" solely by reason of Section 347 that was made, and shall not
require the sale or disposition of any securities acquired, prior to the
enactment of such state legislation. Accordingly, the investors affected by
any such state legislation, when and if enacted, will be authorized to invest
in offered certificates qualifying as "mortgage related securities" only to
the extent provided in such legislation.
SMMEA also amended the legal investment authority of federally
chartered depository institutions as follows: federal savings and loan
associations and federal savings banks may invest in, sell or otherwise deal
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. In
this connection, the Office of the Comptroller of the Currency (the "OCC")
amended 12 C.F.R. Part 1 to authorize national banks to purchase and sell for
their own account, without limitation as to a percentage of the bank's capital
and surplus (but subject to compliance with certain general standards
concerning "safety and soundness" and retention of credit information in 12
C.F.R. Section 1.5), certain "Type IV securities," defined in 12 C.F.R.
Section 1.2(1) to include certain "commercial mortgage-related securities" and
"residential mortgage-related securities." As so defined, "commercial
mortgage-related security" and "residential mortgage-related security" mean,
in relevant part, "mortgage related security" within the meaning of SMMEA,
provided that, in the case of a "commercial mortgage-related security," it
"represents ownership of a promissory note or certificate of interest or
participation that is directly secured by a first lien on one or more parcels
of real estate upon which one or more commercial structures are located and
that is fully secured by interests in a pool of loans to numerous obligors."
In the absence of any rule or administrative interpretation by the OCC
defining the term "numerous obligors," no representation is made as to whether
any class of offered certificates will qualify as "commercial mortgage-related
securities," and thus as "Type IV securities," for investment by national
banks. The National Credit Union Administration ("NCUA") has adopted rules,
codified at 12 C.F.R. Part 703, which permit federal credit unions to invest
in "mortgage related securities" under certain limited circumstances, other
than stripped mortgage related securities, residual interest in mortgage
related securities, and commercial mortgage related securities, unless the
credit union has obtained written approval from the NCUA to participate in the
"investment pilot program" described in 12 C.F.R. Section 703.140. The Office
of Thrift Supervision (the "OTS") has issued Thrift Bulletin 13a (December 1,
1998), "Management of Interest Rate Risk, Investment Securities, and
Derivatives Activities," which thrift institutions subject to the jurisdiction
of the OTS should consider before investing in any of the offered
certificates.
All depository institutions considering an investment in the offered
certificates should review the "Supervisory Policy Statement on Investment
Securities and End-User Derivatives" (the "1998 Policy Statement") of the
Federal Financial Institutions Examination Council, which has been adopted by
the Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the OCC and the OTS effective May 26, 1998, and by
thence effective October 1, 1998. The 1998 Policy Statement sets forth general
guidelines which depository institutions must follow in managing risks
(including market, credit, liquidity, operational (transaction), and legal
risks) applicable to all securities (including mortgage pass-through
securities and mortgage-derivative products) used for investment purposes.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any offered
certificates, as certain series or classes may be deemed unsuitable
investments, or may otherwise be restricted under such rules, policies or
guidelines (in certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not
limited to, "prudent investor" provisions, percentage-of-assets limits and
provisions which may restrict or prohibit investment in securities which are
not "interest bearing" or "income paying" and, with regard to any offered
certificates issued in book-entry form.
Except as to the status of certain classes of offered certificates as
"mortgage related securities," no representations are made as to the proper
characterization of the offered certificates for legal investment purposes,
financial institutional regulatory purposes, or other purposes, or as to the
ability of particular investors to purchase offered certificates under
applicable legal investment restrictions. The uncertainties described above
(and any unfavorable future determinations concerning legal investment or
financial institution regulatory characteristics of the offered certificates)
may adversely affect the liquidity of the offered certificates.
Accordingly, all investors whose investment activities are subject to
legal investment laws and regulation, regulatory capital requirements or
review by regulatory authorities should consult with their legal advisors in
determining whether and to what extent the offered certificates of any class
constitute legal investments or are subject to investment, capital or other
restrictions and, if applicable, whether SMMEA has been overridden in any
jurisdiction relevant to such investor.
METHOD OF DISTRIBUTION
The offered certificates offered by the prospectus and the related
prospectus supplements will be offered in series. The distribution of the
offered 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. The prospectus supplement for the offered certificates
of each series will, as to each class of such certificates, set forth the
method of the offering, either the initial public offering price or the method
by which the price at which the certificates of such class will be sold to the
public can be determined, any class or classes of offered certificates, or
portions thereof, that will be sold to affiliates of the depositor, the amount
of any underwriting discounts, concessions and commissions to underwriters,
any discounts or commissions to be allowed to dealers and the proceeds of the
offering to the depositor. If so specified in the prospectus supplement, the
offered certificates of a series will be distributed in a firm commitment
underwriting, subject to the terms and conditions of the underwriting
agreement, by First Union Securities, Inc., acting as underwriter with other
underwriters, if any, named in the prospectus supplement. Alternatively, the
prospectus supplement may specify that offered certificates will be
distributed by First Union Securities, Inc. acting as agent. If First Union
Securities, Inc. acts as agent in the sale of offered certificates, First
Union Securities, Inc. 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 date of issuance. The exact percentage for each
series of certificates will be disclosed in the prospectus supplement. To the
extent that First Union Securities, Inc. elects to purchase offered
certificates as principal, First Union Securities, Inc. 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 or any
affiliate of the depositor and purchasers of offered certificates of such
series.
This prospectus and prospectus supplements also may be used by the
depositor, First Union Securities, Inc., an affiliate of the depositor, and
any other affiliate of the depositor when required under the federal
securities laws in connection with offers and sales of offered certificates in
furtherance of market-making activities in offered certificates. First Union
Securities, Inc. or any such other affiliate may act as principal or agent in
such transactions. Such sales will be made at prices related to prevailing
market prices at the time of sale or otherwise.
If so specified in a prospectus supplement, all or a portion of one
or more classes of the offered certificates identified in the prospectus
supplement may be retained or sold by the depositor either directly or
indirectly through an underwriter, including First Union Securities, Inc. to
one or more affiliates of the depositor. This prospectus and prospectus
supplements may be used by any such affiliate to resell offered certificates
publicly or privately to affiliated or unaffiliated parties either directly or
indirectly through an underwriter, including First Union Securities, Inc.
The depositor will agree to indemnify First Union Securities, Inc.
and any underwriters and their respective controlling persons against certain
civil liabilities, including liabilities under the Securities Act of 1933, as
amended, or will contribute to payments that any such person may be required
to make in respect thereof.
In the ordinary course of business, First Union Securities, Inc. 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 which may include affiliates of the
depositor. 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, as amended,
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 class of certificates not offered by this prospectus may be initially
retained by the depositor, and may be sold by the depositor at any time to one
or more institutional investors.
Underwriters or agents and their associates may be customers of
(including borrowers from), engage in transactions with, and/or perform
services for the depositor, its affiliates, and the trustee in the ordinary
course of business.
LEGAL MATTERS
Unless otherwise specified in the prospectus supplement, certain
legal matters in connection with the certificates of each series, including
certain federal income tax consequences, will be passed upon for the depositor
by Brown & Wood LLP, 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 prospectus supplement.
RATINGS
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 at least one rating
agency.
Ratings on commercial mortgage pass-through certificates address the
likelihood of receipt by the holders thereof of all collections on the
underlying mortgage assets to which such holders are entitled. These ratings
address the structural, legal and issuer-related aspects associated with such
certificates, the nature of the underlying mortgage assets and the credit
quality of the guarantor, if any. Ratings on commercial mortgage pass-through
certificates do not represent any assessment of the likelihood of principal
prepayments by borrowers 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.
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 not
been requested by the depositor to do so may be lower than the rating assigned
to a class of offered certificates by one or more of the rating agencies that
has been requested by the depositor to rate the offered certificates.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to qualification, revision or withdrawal at any
time by the assigning rating organization. Each security rating should be
evaluated independently of another security rating.
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
"Accrual Certificates" means certificates which 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.
"Accrued Certificate Interest" means, with respect to each class of
certificates and each distribution date, other than certain classes of
Stripped Interest Certificates and REMIC Residual certificates, the amount
equal to the interest accrued for a specified period (generally the period
between distribution dates) on the outstanding certificate balance of those
certificates immediately prior to such distribution date, at the applicable
pass-through rate, as described under "Distributions of Interest on the
Certificates" in this prospectus.
"Available Distribution Amount" means, for any series of certificates
and any distribution date, the total of all payments or other collections (or
advances in lieu thereof) on, under or in respect of the mortgage assets and
any other assets included in the related trust fund that are available for
distribution to the certificateholders of that series on that date. The
particular components of the Available Distribution Amount for any series on
each distribution date will be more specifically described in the prospectus
supplement.
"Constant Prepayment Rate" or "CPR" means a rate that represents an
assumed constant rate of prepayment each month (which is expressed on a per
annum basis) relative to the outstanding principal balance of a pool of
mortgage loans for the life of such mortgage loans.
"Cut-Off Date" means the date on which the ownership of the mortgage
loans of a related series of certificates and rights to payment thereon are
deemed transferred to the trust fund, as specified in the related prospectus
supplement.
"Debt Service Coverage Ratio" means, with respect to a mortgage loan
at any given time and as more fully set forth in the prospectus supplement,
the ratio of (i) the Net Operating Income of the mortgaged property for a
twelve-month period to (ii) the annualized scheduled payments on the mortgage
loan and on any other loan that is secured by a lien on the mortgaged property
prior to the lien of the mortgage.
"DTC" means The Depository Trust Company.
"Fannie Mae" or "FNMA" means the Federal National Mortgage
Association.
"Farmer Mac" or "FAMC" means the Federal Agricultural Mortgage
Corporation.
"Freddie Mac" or "FHLMC" means the Federal Home Loan Mortgage
Corporation.
"Ginnie Mae" or "GNMA" means the Government National Mortgage
Association.
"Loan-to-Value Ratio" means, as more fully set forth in the
prospectus supplement, the ratio (expressed as a percentage) of (i) the then
outstanding principal balance of the mortgage loan and the outstanding
principal balance of any loan secured by a lien on the mortgaged property
prior to the lien of the mortgage, to (ii) the value of the mortgaged
property, which is generally its fair market value determined in an appraisal
obtained by the originator at the origination of such loan.
"Net Operating Income" means, as more fully set forth in the
prospectus supplement and for any given period, the total operating revenues
derived from a mortgaged property, minus the total operating expenses incurred
in respect of the mortgaged property other than (i) non-cash items such as
depreciation and amortization, (ii) capital expenditures and (iii) debt
service on loans (including the mortgage loan) secured by liens on the
mortgaged property.
"REMIC" means a "real estate mortgage investment conduit" under the
Internal Revenue Code of 1986.
"REMIC Certificate" means a certificate issued by a trust fund
relating to a series of certificate where an election is made to treat the
trust fund as a REMIC.
"REO Property" means any mortgaged property acquired on behalf of the
trust fund in respect of a defaulted mortgage loan through foreclosure, deed
in lieu of foreclosure or otherwise.
"Standard Prepayment Assumption" or "SPA" means a rate that
represents an assumed variable rate of prepayment each month (which is
expressed on a per annum basis) relative to the then outstanding principal
balance of a pool of loans, with different prepayment assumptions often
expressed as percentages of SPA.
"Stripped Interest Certificates" means certificates which are
entitled to interest distributions with disproportionately small, nominal or
no principal distributions.
"Stripped Principal Certificates" means certificates which are
entitled to principal distributions with disproportionately small, nominal or
no interest distributions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following sets forth the estimated expenses and costs expected to
be incurred in connection with the issuance and distribution of the
Certificates being registered hereby.
Registration Fee.................................... $ 264
Rating Agency Fees.................................. $3,000,000
Printing and Engraving Expenses..................... $ 300,000
Accounting Fees and Expenses........................ $ 250,000
Legal Fees and Expenses............................. $1,500,000
Blue Sky and Legal Investment Fees and Expenses..... $ 20,000
Trustee Fees and Expenses........................... $ 200,000
Miscellaneous....................................... $ 500,000
Total............................................... $5,770,264
Item 15..Indemnification of Directors and Officers
The Pooling and Servicing Agreements will provide that no director,
officer, employee or agent of the Registrant is liable to the Trust Fund or
the Certificateholders, except for any liability which would otherwise be
imposed by reason of misfeasance, bad faith or negligence in the performance
of duties under such Pooling and Servicing Agreements, or by reason of
reckless disregard of such duties. The Pooling and Servicing Agreements will
further provide that, with the exceptions stated above, a director, officer,
employee or agent of the Registrant is entitled to be indemnified and held
harmless by the Trust Fund against any loss, liability or expense incurred in
connection with legal action relating to such Pooling and Servicing Agreements
and related Certificates, other than any loss, liability or expense: (i)
specifically required to be borne thereby pursuant to the terms of such
Pooling and Servicing Agreements, or otherwise incidental to the performance
of obligations and duties thereunder; and (ii) incurred in connection with any
violation of any state or federal securities law.
Sections 55-8-50 through 55-8-58 of the revised North Carolina
Business Corporation Act (the "NCBCA") contain specific provisions relating to
indemnification of directors and officers of North Carolina corporations. In
general, the statute provides that (i) a corporation must indemnify a director
or officer who is wholly successful in his defense of a proceeding to which he
is a party because of his status as such, unless limited by the articles of
incorporation, and (ii) a corporation may indemnify a director or officer if
he is not wholly successful in such defense, if it is determined as provided
in the statute that the director or officer meets a certain standard of
conduct, provided when a director or officer is liable to the corporation, the
corporation may not indemnify him. The statute also permits a director or
officer of a corporation who is a party to a proceeding to apply to the courts
for indemnification, unless the articles of incorporation provide otherwise,
and the court may order indemnification under certain circumstances set forth
in the statute. The statute further provides that a corporation may in its
articles of incorporation, by contract or by resolution provide
indemnification in addition to that provided by the statute, subject to
certain conditions set forth in the statute.
The Articles of Incorporation of the Registrant provide that the
personal liability of each director of the corporation is eliminated to the
fullest extent permitted by the provisions of the NCBCA, as presently in
effect or as amended. No amendment, modification or repeal of this provision
of the Articles of Incorporation shall adversely affect any right or
protection of a director that exists at the time of such amendment,
modification or repeal.
First Union Corporation maintains directors and officers liability
insurance for the benefit of its subsidiaries. In general, the policy insures
(i) the Registrant's directors and, in certain cases, its officers against
loss by reason of any of their wrongful acts, and/or (ii) the Registrant
against loss arising from claims against the directors and officers by reason
of their wrongful acts, all subject to the terms and condition contained in
the policy.
In connection with an agreement between the Registrant and Wayne K.
Brown, an independent director of the Registrant, the Registrant has agreed to
indemnify and hold harmless Mr. Brown from any and all loss, claim, damage or
cause of action, including reasonable attorneys' fees related thereto
(collectively, "Claims"), incurred by Mr. Brown in the performance of his
duties as a director; provided, however, that Mr. Brown shall not be so
indemnified for such Claims if they arise from his own negligence or wilful
misconduct.
Under agreements which may be entered into by the Registrant, certain
controlling persons, directors and officers of the Registrant may be entitled
to indemnification by underwriters and agents who participate in the
distribution of Certificates covered by the Registration Statement against
certain liabilities, including liabilities under the Securities Act.
Item 16. Exhibits
Exhibits
1(a) Form of Underwriting Agreement.*
4(a) Form of Pooling and Servicing Agreement.*
5(a) Opinion of Brown & Wood LLP with respect to legality.
5(b) Opinion of Senior Vice President and Assistant General
Counsel of First Union Corporation.
8(a) Opinion of Brown & Wood LLP.
23(a) Consent of Brown & Wood LLP (included as part of Exhibit 5(a) and
Exhibit 8(a)).
23(b) Consent of Senior Vice President and Assistant General Counsel of
First Union Corporation (included as
part of Exhibit 5(b)).
24(a) Power of Attorney (included as part of signature page).+
-----------------------------
+ Filed herewith
* Incorporated by reference to the Registrant's Registration Statement on
Form S-3 (33-97994)
Item 17. Undertakings.
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of the prospectus filed with the Commission
pursuant to the Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in this
registration statement;
provided however, that paragraph (A) (1) (i) and (A) (1) (ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
B. The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
C. The undersigned registrant hereby undertakes to provide to
the underwriter at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
D. Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defence of any action, suit or
proceeding) is asserted by such director, office or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
E. The Registrant reasonably believes that the security rating
requirement for the eligibility of this Form S-3 will be met at the time of
sale for each series of Certificates.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly
caused this Registration Statement on Form S-3 to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Charlotte, State of
North Carolina, on February 9, 2000.
First Union Commercial Mortgage
Securities, Inc.
By: /s/ Brian E. Simpson
--------------------
President
Each of the undersigned directors and officers of First Union
Commercial Mortgage Securities, Inc. hereby severally constitutes and appoints
Vincent Altamura, Timothy F. Danello, James F. Powers and Benjamin F.
Williams, Jr., and each of them as agents and attorneys-in-fact of the
undersigned, in any and all capacities, with full power of substitution, to
sign any and all pre- or post-effective amendments to this Registration
Statement, any subsequent Registration Statement for the same offering which
may be filed pursuant to Rule 462(b) under Securities Act of 1933 and any and
all pre- or post-effective amendments thereto, and to file the same with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said agents and
attorneys-in-fact, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that each said agent and
attorney-in-fact, or any of them, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Capacity Date
/s/ Brian E. Simpson President and Director February 9, 2000
- --------------------------------
Brian E. Simpson
/s/ James H. Hatch Senior Vice President and February 9, 2000
- --------------------------------
James H. Hatch Treasurer (Chief Financial Officer
and Chief Accounting Officer)
/s/ Wayne K. Brown Director February 9, 2000
- --------------------------------
Wayne K. Brown
/s/ Benjamin F. Williams, Jr. Director February 9, 2000
- --------------------------------
Benjamin F. Williams, Jr.
</TABLE>
Exhibit 5(a)
BROWN & WOOD LLP
ONE TRADE WORLD CENTER
NEW YORK, N.Y. 10048-0557
TELEPHONE: 212-839-5300
FACSIMILE: 212-839-5599
February 11, 2000
First Union Commercial Mortgage Securities, Inc.
One First Union Center
301 South College Street
Charlotte, North Carolina 28288-0600
Re: First Union Commercial Mortgage Securities, Inc.,
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to First Union Commercial Mortgage Securities, Inc.,
a North Carolina corporation (the "Registrant"), in connection with the
registration under the Securities Act of 1933, as amended (the "Act") of
Commercial Mortgage Pass-Through Certificates (the "Certificates"), and the
related preparation and filing of a Registration Statement on Form S-3 (the
"Registration Statement"). Each series of such Certificates will be issued
pursuant to a separate pooling and servicing agreement (the "Pooling and
Servicing Agreement"), among the Registrant, a trustee, a master servicer or
servicer and/or a special servicer, each to be identified in the prospectus
supplement for such series of Certificates.
We have made such investigation of law as we deem appropriate and have
examined the proceedings heretofore taken and are familiar with the procedures
proposed to be taken by the Registrant in connection with the authorization,
issuance and sale of such Certificates.
Based on the foregoing, we are of the opinion that:
(i) When each Pooling and Servicing Agreement in respect of which we have
participated as your counsel has been duly authorized by all necessary
corporate action and has been duly executed and delivered, it will constitute
a valid and binding obligation of the Registrant enforceable in accordance
with its terms, subject to applicable bankruptcy, reorganization, insolvency
and similar laws affecting creditors' rights generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law); and
(ii) When the issuance, execution and delivery of the Certificates in respect
of which we have participated as your counsel have been duly authorized by all
necessary corporate action, and when such Certificates have been duly
executed, authenticated and delivered and sold as described in the
Registration Statement, such Certificates will be legally and validly issued
and the holders of such Certificates will be entitled to the benefits provided
by the Pooling and Servicing Agreement pursuant to which such Certificates
were issued.
In rendering the foregoing opinions, we have assumed the accuracy and
truthfulness of all public records of the Registrant and of all
certifications, documents and other proceedings examined by us that have been
executed or certified by officials of the Registrant acting within the scope
of their official capacities and have not verified the accuracy or
truthfulness thereof. We have also assumed the genuineness of the signatures
appearing upon such public records, certifications, documents and proceedings.
In addition, we have assumed that each such Pooling and Servicing Agreement
and the related Certificates will be executed and delivered in substantially
the form filed as exhibits to the Registration Statement, and that such
Certificates will be sold as described in the Registration Statement. We
express no opinion as to the laws of any jurisdiction other than the laws of
the State of New York and the federal laws of the United States of America.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus and the Prospectus Supplement forming a part
of the Registration Statement, without implying or admitting that we are
"experts" within the meaning of the Act or the rules and regulations of the
Securities and Exchange Commission issued thereunder, with respect to any part
of the Registration Statement, including this exhibit.
Very truly yours,
BROWN & WOOD LLP
Exhibit 5(b)
FIRST UNION CORPORATION
February 11, 2000
First Union Commercial Mortgage Securities, Inc.
One First Union Center
301 South College Street
Charlotte, North Carolina 28288
Brown & Wood, LLP
New York, New York 10048
Re: First Union Commercial Mortgage Securities, Inc.
Commercial Mortgage Pass-Through Certificates
Registration Statement on Form S-3
Ladies and Gentlemen:
I am Senior Vice President and Assistant General Counsel of First
Union Corporation, the parent of First Union National Bank which is the owner
of all issued and outstanding voting stock of First Union Commercial Mortgage
Securities, Inc., a North Carolina corporation (the "Registrant"). As such, I
am familiar with the Registrant, the registration under the Securities Act of
1933, as amended (the "Act"), of the Registrant's Commercial Mortgage
Pass-Through Certificates (the "Certificates"), and the related preparation
and filing of a Registration Statement on Form S-3 (the "Registration
Statement"). The Certificates are issuable in series under separate pooling
and servicing agreements (each such agreement, a "Pooling and Servicing
Agreement") among the Registrant and a trustee, a master servicer and/or a
special servicer to be identified in the prospectus supplement for such series
of Certificates. Each Pooling and Servicing Agreement will be substantially in
the form filed as an Exhibit to the Registration Statement.
In connection with rendering this opinion letter, I have examined
such documents as I have deemed necessary. As to matters of fact, I have
examined and relied upon representations or certifications of officers of the
Registrant or public officials. I have assumed the authenticity of all
documents submitted to us as originals, the genuineness of all signatures, the
legal capacity of natural persons and the conformity to originals of all
documents submitted to me as copies.
In rendering this opinion letter, I express no opinion as to the laws
of any jurisdiction other than the laws of the State of North Carolina and the
federal laws of the United States, nor do I express any opinion, either
implicitly or otherwise, on any issue not expressly addressed below.
Based upon and subject to the foregoing, I am of the opinion that the
Registrant has the corporate power and authority to enter into and perform all
obligations of the Registrant under the pooling and servicing agreement.
I hereby consent to the filing of this opinion letter as an
attachment to the opinion of Brown & Wood LLP, which will be filed as an
Exhibit to the Registration Statement, without admitting that I am an "expert"
within the meaning of the Act and the rules and regulations thereunder with
respect to any part of the Registration Statement, including this opinion.
Very truly yours,
/s/ TIMOTHY F. DANELLO
Timothy F. Danello
Exhibit 8(a)
BROWN & WOOD LLP
ONE TRADE WORLD CENTER
NEW YORK, N.Y. 10048-0557
TELEPHONE: 212-839-5300
FACSIMILE: 212-839-5599
February 11, 2000
First Union Commercial Mortgage Securities, Inc.
One First Union Center
301 South College Street
Charlotte, North Carolina 28288-0600
Re: First Union Commercial Mortgage Securities, Inc.,
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to First Union Commercial Mortgage Securities, Inc.,
a North Carolina corporation (the "Registrant"), in connection with the
registration under the Securities Act of 1933, as amended (the "Act") of
Commercial Mortgage Pass-Through Certificates that evidence interests in
certain pools of mortgage loans (the "Certificates"), and the related
preparation and filing of a Registration Statement on Form S-3 (the
"Registration Statement"). Each series of Certificates will be issued pursuant
to a Pooling and Servicing Agreement among the Registrant, a trustee, a master
servicer or servicer and/or a special servicer, each to be specified in the
Prospectus Supplement for such series of Certificates. We have advised the
Registrant with respect to certain federal income tax consequences of the
proposed issuance of the Certificates. This advice is summarized under the
headings "Summary of Prospectus -- Tax Status of the Certificates" and
"Material Federal Income Tax Consequences" in the Prospectus and "Summary of
Prospectus Supplement -- Material Federal Income Tax Consequences" and
"Material Federal Income Tax Consequences" in the Prospectus Supplement
relating to the Certificates in respect of which we participated as your
counsel for the registration of such Certificates under the Act. The
information set forth in the Prospectus and the Prospectus Supplement under
the captions "Summary of Prospectus -- Tax Status of the Certificates" and
"Material Federal Income Tax Consequences" and "Summary of Prospectus
Supplement -- Material Federal Income Tax Consequences" and "Material Federal
Income Tax Consequences", to the extent that it constitutes matters of law or
legal conclusions, is correct in all material respects.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to a reference to this firm (as counsel to the
Registrant) under the heading "Material Federal Income Tax Consequences" in
the Prospectus forming a part of the Registration Statement, without implying
or admitting that we are "experts" within the meaning of the Act or the rules
and regulations of the Securities and Exchange Commission issued thereunder,
with respect to any part of this Registration Statement, including this
exhibit.
Very truly yours,
BROWN & WOOD LLP
