<PAGE>
Filed Pursuant to Rule 424(b)(3)
Registration File No.: 33-99502
Information contained herein is subject to completion. These securities
may not be sold nor may offers to buy be accepted prior to the time a final
prospectus is delivered. This prospectus supplement shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be any
sale of these securities in any State in which such offer, solicitation or
sale would be unlawful prior to registration or qualification under the
securities laws of any such State.
PRELIMINARY PROSPECTUS SUPPLEMENT, DATED OCTOBER 7, 1996
SUBJECT TO COMPLETION
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 7, 1996)
$688,676,550 (APPROXIMATE)
ASSET SECURITIZATION CORPORATION, DEPOSITOR
NOMURA ASSET CAPITAL CORPORATION, MORTGAGE LOAN SELLER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1996-D3
The Commercial Mortgage Pass-Through Certificates, Series 1996-D3 (the
"Certificates") will represent beneficial ownership interests in a trust fund
(the "Trust Fund") to be created by Asset Securitization Corporation (the
"Depositor"). The Trust Fund will consist primarily of a pool (the "Mortgage
Pool") of 113 fixed-rate mortgage loans, which include a participation
interest in a fixed rate mortgage loan, with original terms to maturity of
generally not more than thirty years (the "Mortgage Loans"), secured by first
liens on 143 commercial and multifamily residential properties (the
"Mortgaged Properties"). The Mortgaged Properties consist of multifamily
residential housing, full and limited service hotels, mobile home and
recreational vehicle parks, anchored and unanchored retail properties,
nursing homes, office buildings, industrial properties, a mixed-use facility
and a design center. The characteristics of the Mortgage Loans and the
Mortgaged Properties are more fully described herein under "Description of
the Mortgage Pool." The Mortgage Loans were either purchased or originated by
Nomura Asset Capital Corporation (the "Mortgage Loan Seller") and will be
sold to the Depositor on or prior to the date of initial issuance of the
Certificates.
(cover page continued)
-----------------
<TABLE>
<CAPTION>
INITIAL CLASS
CERTIFICATE PASS-THROUGH
BALANCE(1) RATE
-------------- --------------
<S> <C> <C>
Class A-1A .... $ 64,985,025.00 %
Class A-1B .... 154,000,000.00
Class A-1C .... 321,000,000.00
Class A-CS1(3) (4)
Class A-1D .... 19,564,674.00
Class A-2(3) . 39,129,349.00
Class A-3(3) . 35,216,414.00
Class A-4(3) . 39,129,349.00
Class A-5(3) . 15,651,739.00
</TABLE>
- ------------
(1) Approximate, subject to adjustment as described herein.
(2) In addition to distributions of principal and interest, holders of
certain Classes of the Offered Certificates will be entitled to receive
a portion of the Prepayment Premiums received from the borrowers. See
"Description of the Offered Certificates -- Distributions" herein.
(3) The Pass-Through Rates shown on the table above for the Class A-CS1,
Class A-2, Class A-3, Class A-4 and Class A-5 Certificates are the
rates for the Distribution Date occurring in November 1996. The
Pass-Through Rates for such Classes for each subsequent Distribution
Date will be calculated as provided herein. See "Summary of Prospectus
Supplement -- Pass-Through Rates on the Offered Certificates" herein.
(4) The Class A-CS1 Certificates will not have a Certificate Balance and
will not be entitled to receive distributions of principal. Interest
will accrue on such Class of Certificates, at the Pass-Through Rate
thereof on the Notional Balance thereof. The Notional Balance of the
Class A-CS1 Certificates is initially $[ ] and will be equal to the
Component Balance of the Class A-1A Component (which is equal to the
Certificate Balance of the Class A-1 Certificates).
-------------------
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
DEPOSITOR, THE MORTGAGE LOAN SELLER, THE ORIGINATORS, THE SERVICER, THE
SPECIAL SERVICER, THE TRUSTEE, THE FISCAL AGENT OR ANY OF THEIR RESPECTIVE
AFFILIATES. NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
The Offered Certificates will be purchased by Nomura Securities
International, Inc. (the "Underwriter") from the Depositor and will be
offered by the Underwriter from time to time to the public in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. Proceeds to the Depositor from the sale of the Offered Certificates
will be [ ]% of the initial aggregate principal balance thereof as of the
date on which the Certificates are issued plus accrued interest from such
date as described herein before deducting expenses payable by the Depositor.
There is currently no secondary market for the Offered Certificates. The
Underwriter currently expects to make a secondary market in the Offered
Certificates, but has no obligation to do so. There can be no assurance that
such a market will develop or, if it does develop, that it will continue. See
"Method of Distribution" herein.
The Offered Certificates are offered by the Underwriter subject to prior
sale, when, as and if issued, delivered to and accepted by the Underwriter.
It is expected that delivery of the Offered Certificates will be made through
the facilities of The Depository Trust Company ("DTC") in the United States
and Centrale de Livraison de Valeurs Mobiliers S.A. ("CEDEL") and The
Euroclear System ("Euroclear") in Europe, on or about October 22, 1996.
NOMURA SECURITIES INTERNATIONAL, INC.
<PAGE>
(continuation of cover page)
The Certificates will consist of nineteen classes (each, a "Class"),
designated as the Class A-1A Certificates, Class A-1B Certificates, Class
A-1C Certificates, Class A-CS1 Certificates, Class A-CS2 Certificates, Class
A-1D Certificates, Class A-2 Certificates, Class A-3 Certificates, Class A-4
Certificates, Class A-5 Certificates, Class B-1 Certificates, Class B-2
Certificates, Class B-3 Certificates, Class B-4 Certificates, Class B-4H
Certificates, Class V-1 Certificates, Class V-2 Certificates, Class LR
Certificates and Class R Certificates. Only the Class A-1A Certificates,
Class A-1B Certificates, Class A-1C Certificates, Class A-CS1 Certificates,
Class A-1D Certificates, Class A-2 Certificates, Class A-3 Certificates,
Class A-4 Certificates and Class A-5 Certificates (together, the "Offered
Certificates") are offered hereby; the Class A-CS2, Class B-1, Class B-2,
Class B-3, Class B-4, Class B-4H, Class V-1, Class V-2, Class LR and Class R
Certificates (collectively, the "Private Certificates") are not offered
hereby.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER THE
CAPTIONS "RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS" HEREIN COMMENCING ON
PAGE S-28 AND "SPECIAL CONSIDERATIONS" IN THE PROSPECTUS COMMENCING ON PAGE
13.
Distributions on the Offered Certificates will be made, to the extent of
Available Funds, on the 13th day of each month, or, if any such 13th day is
not a business day, on the next succeeding business day, beginning in
November 1996 (each, a "Distribution Date"); provided, however, the
Distribution Date will be no earlier than the second business day following
the 11th day of each month and, provided, further, that if the 11th day of
any month is not a business day, the Distribution Date will be the third
business day following the 11th day of such month. Distributions allocable to
interest on the Offered Certificates on each Distribution Date will be based
on the pass-through rate for the respective Class as described herein (the
"Pass-Through Rate") and the aggregate principal balance (the "Certificate
Balance") or notional balance (the "Notional Balance"), as applicable, of
such Class outstanding immediately prior to such Distribution Date.
Distributions in respect of principal of the Offered Certificates will be
made as described herein under "Description of the Offered Certificates
- -- Distributions -- Priorities."
THE YIELD TO MATURITY ON EACH CLASS OF THE OFFERED CERTIFICATES WILL BE
SENSITIVE TO, AND THE YIELD TO MATURITY OF THE CLASS A-CS1 CERTIFICATES WILL
BE EXTREMELY SENSITIVE TO, THE RATE AND TIMING OF PRINCIPAL PAYMENTS
(INCLUDING BOTH VOLUNTARY AND INVOLUNTARY PREPAYMENTS, DEFAULTS AND
LIQUIDATIONS) ON THE MORTGAGE LOANS AND PAYMENTS WITH RESPECT TO REPURCHASES
THEREOF THAT ARE APPLIED IN REDUCTION OF THE CERTIFICATE BALANCE OR NOTIONAL
BALANCE OF SUCH CLASS. A RAPID RATE OF SUCH PRINCIPAL PAYMENTS COULD RESULT
IN THE FAILURE OF INVESTORS IN THE CLASS A-CS1 CERTIFICATES TO RECOVER THEIR
INITIAL INVESTMENT. THE YIELD TO INVESTORS, IN PARTICULAR THE INVESTORS IN
SUBORDINATE CLASSES, WILL BE SENSITIVE TO THE TIMING AND MAGNITUDE OF LOSSES
ON THE MORTGAGE LOANS DUE TO LIQUIDATIONS. NO REPRESENTATION IS MADE AS TO
THE RATE OF PREPAYMENTS ON OR LIQUIDATIONS OF THE MORTGAGE LOANS OR AS TO THE
ANTICIPATED YIELD TO MATURITY OF ANY OFFERED CERTIFICATE. SEE "PREPAYMENT AND
YIELD CONSIDERATIONS" HEREIN.
AMRESCO Management, Inc. will act as servicer of the Mortgage Loans (the
"Servicer"). The obligations of the Servicer with respect to the Certificates
will be limited to its contractual servicing obligations and the obligation
under certain circumstances to make Advances in respect of the Mortgage
Loans. In certain limited circumstances CRIIMI MAE Services Limited
Partnership, in its capacity as the special servicer (the "Special
Servicer"), may be required to make Property Advances. If the Special
Servicer fails to make a required Advance, the Servicer, subject to a
recoverability determination, will be required to make the Advance. See "The
Pooling and Servicing Agreement -- Advances" herein. The Servicer will not act
as an insurer or credit enhancer of the Mortgage Pool. If the Servicer fails
to make a required Advance, LaSalle National Bank (the "Trustee"), subject to
a recoverability determination, will be required to make such Advance. If the
Trustee fails to make a required Advance, ABN AMRO Bank N.V., as the fiscal
agent of the Trustee (the "Fiscal Agent"), subject to a recoverability
determination, will be required to make the Advance.
It is a condition to the issuance of the Certificates that (i) the Class
A-1A, Class A-1B and Class A-1C Certificates be rated "AAA" by each of Fitch
Investors Service, L.P. ("Fitch") and Duff & Phelps Credit Rating Co. ("DCR")
and "Aaa" by Moody's Investors Service, Inc. ("Moody's" and together with
Fitch and DCR, the "Rating Agencies"), (ii) the Class A-CS1 Certificates be
rated "AAA" by each of Fitch and DCR and "Aaa" by Moody's, (iii) the Class
A-1D Certificates be rated "AAA" by Fitch and "Aa1" by Moody's, (iv) the
Class A-2 Certificates be rated "AA" by Fitch and "Aa2" by Moody's, (v) the
Class A-3 Certificates be rated "A" by Fitch and "A2" by Moody's, (vi) the
Class A-4 Certificates be rated "BBB" by Fitch and "Baa2" by Moody's and
(vii) the Class A-5 Certificates be rated "Baa3" by Moody's. For limitations
with respect to the ratings of the Offered Certificates, see "Rating" herein.
The Rated Final Distribution Date of each Class of Offered Certificates is
October 13, 2026.
Elections will be made to treat designated portions of the Trust Fund,
exclusive of the Reserve Accounts, Lock Box Accounts, Cash Collateral
Accounts, the Excess Interest and the Default Interest (each as defined
herein) (such portions of the Trust Fund, the "Trust REMIC") as two separate
"real estate mortgage investment conduits" (each a "REMIC" or, alternatively,
the "Upper-Tier REMIC" and the "Lower-Tier REMIC," respectively) for federal
income tax purposes. The Class A-1A, Class A-1B, Class A-1C, Class A-CS1,
Class A-CS2, Class A-1D, Class A-2, Class A-3, Class A-4, Class A-5, Class
B-1, Class B-2, Class B-3, Class B-4 and Class B-4H Certificates will
constitute "regular interests" in the Upper-Tier REMIC, and the Class R and
Class LR Certificates will constitute the sole Class of "residual interests"
in the Upper-Tier REMIC and Lower-Tier REMIC, respectively. The Offered
Certificates, together with the Class A-CS2, Class B-1, Class B-2, Class B-3,
Class B-4 and Class B-4H Certificates, are sometimes collectively referred to
herein as the "Regular Certificates." The Class V-1 Certificates will
represent the right to receive Default Interest and the Class V-2
Certificates will represent the right to receive Excess Interest, which
portions of the Trust Fund will be treated as a grantor trust for federal
income tax purposes. See "Certain Federal Income Tax Consequences" herein and
in the Prospectus.
THE OFFERED CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE
PART OF A SEPARATE SERIES OF CERTIFICATES ISSUED BY THE DEPOSITOR AND ARE
BEING OFFERED PURSUANT TO ITS PROSPECTUS DATED OCTOBER 7, 1996, OF WHICH THIS
PROSPECTUS SUPPLEMENT IS A PART AND WHICH ACCOMPANIES THIS PROSPECTUS
SUPPLEMENT. THE PROSPECTUS CONTAINS IMPORTANT INFORMATION REGARDING THIS
OFFERING WHICH IS NOT CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE URGED
TO READ THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN FULL. SALES OF THE
OFFERED CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED
BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
The distribution of this Prospectus Supplement dated October [ ], 1996 and
the Prospectus dated October 7, 1996, and the offer or sale of Certificates
may be restricted by law in certain jurisdictions. Persons into whose
possession this Prospectus Supplement and the Prospectus or any Certificates
come must inform themselves about, and observe, any such restrictions. In
particular, there are restrictions on the distribution of this Prospectus
Supplement and the Prospectus and the offer or sale of Certificates in the
United Kingdom (see "Method of Distribution" herein).
The Depositor does not intend to register the Certificates under the
Securities and Exchange Law of Japan (the "SEL"). Accordingly, the
Certificates may not be offered or sold directly or indirectly in Japan, and
this Prospectus Supplement and the Prospectus may not be distributed or
circulated in Japan, except in circumstances that do not constitute an offer
to the public within the meaning of the SEL.
<PAGE>
EXECUTIVE SUMMARY
Prospective investors are advised to carefully read, and should rely
solely on, the detailed information appearing elsewhere in this Prospectus
Supplement and the Prospectus relating to the Offered Certificates in making
their investment decision. The following Executive Summary does not include
all relevant information relating to the securities and collateral described
herein, particularly with respect to the risks and special considerations
involved with an investment in such securities and is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus Supplement and the Prospectus. Prior to making an investment
decision, a prospective investor should carefully review this Prospectus
Supplement and the Prospectus. Capitalized terms used and not otherwise
defined herein have the respective meanings assigned to them in this
Prospectus Supplement and the Prospectus. See "Index of Significant
Definitions" in this Prospectus Supplement and "Index of Principal
Definitions" in the Prospectus.
<TABLE>
<CAPTION>
Approximate Approximate
Percent of Credit CERTIFICATE SUMMARY
Total Support
- ------------- ------------ -------------------------------------------- --------------
<S> <C> <C> <C> <C> <C>
CLASS A-CS1
$64,985,025
(Notional)
8.3% 31% CLASS A-1A $64,985,025 (AAA/Aaa/AAA) (AAA/AAA/Aaa)
------------ -------------- -------------- --------------
19.7% 31% CLASS A-1B $154,000,000 (AAA/Aaa/AAA)
------------ -------------- --------------
41.0% 31% CLASS A-1C $321,000,000 (AAA/Aaa/AAA) CLASS A-CS2
------------ -------------- -------------- $623,691,525
2.5% 28.5% CLASS A-1D $19,564,674 (AAA/Aa1/n/a) (Notional) (AAA/AAA/Aaa)
------------ -------------- --------------
5.0% 23.5% CLASS A-2 $39,129,349 (AA/Aa2/n/a)
------------ -------------- --------------
4.5% 19% CLASS A-3 $35,216,414 (A/A2/n/a)
------------ -------------- --------------
5.0% 14% CLASS A-4 $39,129,349 (BBB/Baa2/n/a)
------------ -------------- --------------
2% 12% CLASS A-5 $15,651,739 (n/a/Baa3/n/a)
------------ -------------- --------------
5.5% 6.5% CLASS B-1 $43,042,284 (BB/n/a/n/a)
------------ -------------- -------------- --------------
3.5% 3% CLASS B-2 $27,390,544 (B/n/a/n/a)
------------ -------------- -------------- --------------
1.0% 2% CLASS B-3 $7,825,869 (B-/n/a/n/a)
------------ -------------- -------------- --------------
2.0% N/A CLASS B-4 $15,650,746 (n/a/n/a/n/a)
------------ -------------- -------------- --------------
[THE PAPER VERSION OF THIS RATING AGENCIES: (FITCH, MOODY'S, DCR)
PRELIMINARY PROSPECTUS CLASS B-4H IS NOT LISTED
SUPPLEMENT SPECIFIES THAT
THE CLASS A-CS2, CLASS B-1,
CLASS B-2, CLASS B-3 AND
CLASS B-4 ARE PRIVATE CERTIFICATES
AND THAT THE OTHER CERTIFICATES
SHOWN ON THE ABOVE CHART ARE
PUBLIC CERTIFICATES.
------------------------------------------------------------
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
INITIAL AGGREGATE CERTIFICATE
CERTIFICATE INTEREST RATE AS AVG. PRINCIPAL
PRINCIPAL OR % OF OF CUT-OFF DATE LIFE* WINDOW*
CLASS RATINGS NOTIONAL AMOUNT TOTAL DESCRIPTION (APPROXIMATE)
- ------- -------------- ----------------- ------- ----------------------- ---------------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Senior Certificates
- -----------------------------------------------------------------------------------------------------------------
A-1A AAA DCR and $ 64,985,025 8.3% Fixed Rate
Fitch; Aaa
Moody's
- ------- -------------- ----------------- ------- ----------------------- ---------------- ------- -----------
A-1B AAA DCR and $154,000,000 19.7% Fixed Rate
Fitch; Aaa
Moody's
- ------- -------------- ----------------- ------- ----------------------- ---------------- ------- -----------
A-1C AAA DCR and $321,000,000 41% Fixed Rate
Fitch; Aaa
Moody's
- ------- -------------- ----------------- ------- ----------------------- ---------------- ------- -----------
A-1D AAA Fitch; Aa1 $ 19,564,674 2.5% Fixed Rate
Moody's
- ------- -------------- ----------------- ------- ----------------------- ---------------- ------- -----------
A-2 AA Fitch; Aa2 $ 39,129,349 5% Weighted Average Coupon
Moody's
- ------- -------------- ----------------- ------- ----------------------- ---------------- ------- -----------
A-3 A Fitch; A2 $ 35,216,414 4.5% Weighted Average Coupon
Moody's
- ------- -------------- ----------------- ------- ----------------------- ---------------- ------- -----------
A-4 BBB Fitch; Baa2 $ 39,129,349 5% Weighted Average Coupon
Moody's
- ------- -------------- ----------------- ------- ----------------------- ---------------- ------- -----------
A-5 Baa3 Moody's $ 15,651,739 2% Weighted Average Coupon
- ------- -------------- ----------------- ------- ----------------------- ---------------- ------- -----------
A-CS1 AAA DCR, Fitch; $ 64,985,025 n/a Interest Only: Weighted
Aaa Moody's Average Coupon
- ------- -------------- ----------------- ------- ----------------------- ---------------- ------- -----------
A-CS2 AAA DCR, Fitch; $623,691,525 n/a Interest Only: Weighted
Aaa Moody's Average Coupon
- ------- -------------- ----------------- ------- ----------------------- ---------------- ------- -----------
Subordinate Certificates
-----------------------------------------------------------------------------------------------------------------
B-1 BB Fitch $ 43,042,284 5.5
- ------- -------------- ----------------- ------- ----------------------- ---------------- ------- -----------
B-2 B Fitch $ 27,390,544 3.5
- ------- -------------- ----------------- ------- ----------------------- ---------------- ------- -----------
B-3 B-Fitch $ 7,825,869 1.0
- ------- -------------- ----------------- ------- ----------------------- ---------------- ------- -----------
B-4 Unrated $ 15,650,746 2.0
- ------- -------------- ----------------- ------- ----------------------- ---------------- ------- -----------
</TABLE>
Class B-4H is not represented in this table.
* Based on % CPR. See "Prepayment and Yield Considerations" herein.
S-4
<PAGE>
OVERVIEW OF THE OFFERED CERTIFICATES:
DISTRIBUTION DATE ...... The 13th day of each month, or if such 13th
day is not a business day, the business day
immediately following such 13th day,
commencing in November 1996; provided, that
the Distribution Date will be no earlier
than the second business day following the
11th day of each month; provided, further
that if the 11th day of any month is not a
business day, the Distribution Date will be
the third business day following the 11th
day of such month.
SCHEDULED FINAL
DISTRIBUTION DATE ...... October 13, 2026.
RATED FINAL DISTRIBUTION
DATE ................... As to each Class of Offered Certificates,
October 13, 2026.
OPTIONAL TERMINATION ... The Trust Fund is subject to early
termination if less than 1% of the Initial
Pool Balance remains outstanding. See "The
Pooling and Servicing Agreement --Optional
Termination" herein.
FEDERAL TAX STATUS ..... Elections will be made to treat designated
portions of the Trust Fund as two separate
"real estate mortgage investment conduits"
(each a "REMIC"). The Offered Certificates
will be "regular interests" in one of the
REMICs and generally will be taxed in the
same manner as debt instruments. Those
portions of the Trust Fund consisting of
Excess Interest and Default Interest will be
treated as a grantor trust for federal
income tax purposes.
ERISA .................. The purchase and holding of the Class A-1A,
Class A-1B, Class A-1C and Class A-CS1
Certificates should qualify for relief from
certain of the prohibited transaction
provisions of ERISA and the Code pursuant to
an individual prohibited transaction
exemption issued to the Underwriter. The
other Classes of Offered Certificates should
not be acquired by or with the assets of
employee benefit plans subject to Title I of
ERISA or Section 4975 of the Code, unless
the purchaser is an insurance company using
the assets of its general account under
circumstances whereby the purchase and
subsequent holding of the Certificates would
not constitute or result in a prohibited
transaction under ERISA or the Code. See
"ERISA Considerations" and "Description of
the Offered Certificates --Transfer
Restrictions" herein and "ERISA
Considerations" in the Prospectus.
SMMEA .................. None of the Offered Certificates are
mortgage-related securities pursuant to the
Secondary Mortgage Market Enhancement Act of
1984. See "Legal Investment" herein.
CLOSING DATE ........... On or about October 22, 1996.
CUT-OFF DATE ........... October 22, 1996
STRUCTURAL SUMMARY:
INTEREST PAYMENTS ...... On each Distribution Date, each Class of
Offered Certificates will be entitled to
receive the Interest Distribution Amount for
such Class and such Distribution Date,
together with any unpaid Interest Shortfalls
previously allocated to such Class, in each
case to the extent of Available
S-5
<PAGE>
Funds remaining after making distributions
of principal and interest to each
outstanding Class of Certificates more
senior to such Class. See "Description of
the Offered Certificates--Distributions"
herein.
PRINCIPAL PAYMENTS ..... The Principal Distribution Amount for each
Distribution Date will be distributed,
first, to the Class A-1A Certificates, until
the Certificate Balance thereof has been
reduced to zero, and then subsequently to
each of the other Classes of Offered
Certificates (other than the Class A-CS1
Certificates) until their respective
Certificate Balances are reduced to zero and
in reimbursement of any Realized Losses
previously allocated to such Class, in each
case to the extent of Available Funds
remaining after making distributions to each
outstanding Class of Certificates more
senior to such Class. See "Description of
the Offered Certificates--Distributions"
herein.
CREDIT ENHANCEMENT ..... The Class A-1A, Class A-1B, Class A-1C,
Class A-CS1 and Class A-CS2 Certificates are
credit enhanced by the Classes of
subordinate Certificates, which consist of
the Class A-1D, Class A-2, Class A-3, Class
A-4, Class A-5 Certificates and the Private
Certificates (other than the Class A-CS2
Certificates). Each other Class of Regular
Certificates will likewise be protected by
the subordination offered by the other
Classes of Certificates that bear a later
sequential designation. See "Description of
the Offered Certificates --Subordination"
herein.
ADVANCES ............... Subject to the limitations described herein,
the Servicer is required to make advances
(each such amount, a "P&I Advance") in
respect of delinquent Monthly Payments (but
not Balloon Payments) on the Mortgage Loans.
If the Servicer fails to make an Advance
required to be made, the Trustee shall then
be required to make such Advance. If both
the Servicer and the Trustee fail to make
such Advance, the Fiscal Agent shall be
required to make such Advance. See "The
Pooling and Servicing Agreement --Advances"
herein.
COLLATERAL OVERVIEW:
THE MORTGAGE POOL ...... The tables below set forth certain summary
information regarding the Mortgage Loans.
See "Description of the Mortgage Pool"
herein for certain additional information
regarding the Mortgage Loans. See Annex A
hereto for certain characteristics of
Mortgage Loans on a loan-by-loan basis. The
term "Mortgage Loans" shall include the
Anchorage Participation (as defined herein),
and references herein to, and any
calculation based on, the principal balance
of the Anchorage Participation or the
Anchorage Loan shall include only the
percentage interest in the Anchorage Loan
represented by the Anchorage Participation,
unless otherwise expressly stated. See
"Description of the Mortgage Pool --The
Anchorage Participation." All percentages of
Initial Pool Balances used herein are based
upon the Cut-off Date Principal Balance of
the related Mortgage Loan or, with respect
to Mortgage Loans secured by more than one
Mortgaged Property, are based upon the
Allocated Loan Amount (as defined herein) of
the related Mortgaged Property. All weighted
average information regarding the Mortgage
Loans reflects weighting of the Mortgage
Loans by their Cut-off Date Principal
Balances or, with respect to Mortgage Loans
secured by two or more Mortgaged Properties,
Allocated Loan Amounts. The "Cut-off Date
Principal Balance" of each Mortgage Loan is
equal to the unpaid principal balance
thereof as of the
S-6
<PAGE>
Cut-off Date, after application of all
payments of principal due on or before such
date, whether or not received. All numerical
information provided herein with respect to
the Mortgage Loans is provided on an
approximate basis. Unless otherwise noted in
the related table, for purposes of the
tables set forth herein, the Anchorage
Participation is presented as one Mortgage
Loan. Certain statistical information set
forth herein may change prior to the date of
issuance of the Certificates due to changes
in the composition of the Mortgage Pool
prior to the Closing Date. See "Description
of the Mortgage Pool --Changes in Mortgage
Pool Characteristics" herein.
GENERAL CHARACTERISTICS
<TABLE>
<CAPTION>
<S> <C>
Initial Pool Balance (1) ................................................. $782,586,993
Number of Mortgage Loans ................................................. 113
Number of Mortgaged Properties ........................................... 143
Average Mortgage Loan Balance ............................................ $ 6,925,549
Weighted Average Mortgage Rate ........................................... 9.226%
Weighted Average Remaining Term to Maturity or Anticipated Repayment Date 144
Weighted Average DSCR (2) ................................................ 1.44
ARD Loans (3) ............................................................ 88.65%
Fully Amortizing Loans (other than ARD Loans) ............................ 2.56%
Balloon Loans ............................................................ 8.79%
</TABLE>
- ------------
(1) Subject to a permitted variance of plus or minus 5%.
(2) Debt Service Coverage Ratio ("DSCR") for any Mortgage Loan is equal to
the Net Cash Flow from the related Mortgaged Property divided by the
Annual Debt Service for such Mortgaged Property (as such terms are
defined under "Description of the Mortgage Pool --Additional Mortgage
Loan Information").
(3) "ARD Loans" are Mortgage Loans that substantially fully amortize by
their respective maturity dates but provide for an "Anticipated
Repayment Date" on which a substantial amount of principal will be due
if the borrower elects to prepay the Mortgage Loan in full on such
date. Such Mortgage Loans provide for an increased interest rate after
the Anticipated Repayment Date and require the application of excess
cash flow to amortize principal after the Anticipated Repayment Date.
See "Description of the Mortgage Pool --Certain Terms and Conditions of
the Mortgage Loans" herein.
CUT-OFF DATE PRINCIPAL BALANCES
NUMBER OF
% OF INITIAL MORTGAGE
CUT-OFF DATE PRINCIPAL BALANCE POOL BALANCE LOANS
- ---------------------------------- ---------------- -------------
$0-4,999,999 25.0% 77
5,000,000-9,999,999 14.4% 18
10,000,000-14,999,999 5.2% 3
15,000,000-19,999,999 17.7% 8
20,000,000-24,999,999 6.1% 2
25,000,000-29,999,999 6.8% 2
50,000,000-54,999,999 7.0% 1
65,000,000-69,999,999 8.7% 1
70,000,000-75,000,000 9.1% 1
S-7
<PAGE>
SIGNIFICANT GEOGRAPHICAL CONCENTRATION OF MORTGAGED PROPERTIES
NUMBER OF
% OF INITIAL MORTGAGED
STATE POOL BALANCE PROPERTIES
- ------------- -------------- ------------
CALIFORNIA .. 26.5% 21
TEXAS ........ 17.4% 22
NEVADA ....... 9.4% 7
ARIZONA ...... 5.9% 13
GEORGIA ...... 5.8% 5
FLORIDA ...... 4.6% 13
DEBT SERVICE COVERAGE RATIOS (1)
NUMBER OF
% OF INITIAL MORTGAGED
RANGE OF DEBT SERVICE COVERAGE RATIOS POOL BALANCE LOANS
- ---------------------------------------- ---------------- -------------
1.2-1.29 ................................ 16.9% 15
1.3-1.39 ................................ 32.4% 38
1.4-1.49 ................................ 27.2% 27
1.5-1.59 ................................ 13.8% 13
1.6-1.69 ................................ 2.8% 6
1.7-1.79 ................................ 1.8% 5
1.8-1.89 ................................ 2.5% 3
1.9-1.99 ................................ 0.8% 2
2.0-2.19 ................................ 1.4% 3
2.2-2.29 ................................ .05% 1
- ------------
(1) Debt Service Coverage Ratio ("DSCR") for any Mortgage Loan is equal to
the Net Cash Flow from the related Mortgaged Property divided by the
Annual Debt Service for such Mortgaged Property (as such terms are
defined under "Description of the Mortgage Pool --Additional Mortgage
Loan Information").
LOAN-TO-VALUE RATIOS (1)
NUMBER OF
% OF INITIAL MORTGAGED
RANGE OF LOAN TO VALUE RATIOS POOL BALANCE LOANS
- --------------------------------- ---------------- -------------
40-44.9 .......................... 2.2% 5
45-49.9 .......................... 1.3% 3
50-54.9 .......................... 4.7% 6
55-59.9 .......................... 7.5% 10
60-64.9 .......................... 20.3% 20
65-69.9 .......................... 45.5% 34
70-74.9 .......................... 17.4% 32
75-79.9 .......................... 1.0% 3
- ------------
(1) The "Loan-to-Value Ratio" for any Mortgage Loan is determined as set
forth in "Description of the Mortgage Pool --Additional Mortgage Loan
Information" herein.
S-8
<PAGE>
PROPERTY TYPES
NUMBER OF
% OF INITIAL MORTGAGED
PROPERTY TYPES POOL BALANCE PROPERTIES
- -------------------------- ---------------- --------------
Multifamily ............... 29.0% 30
Full Service Hotel ........ 15.3% 12
Limited Service Hotel .... 11.2% 29
Nursing Home .............. 2.7% 4
Mobile Home Park .......... 6.4% 27
Office Building (1) ....... 13.1% 8
Anchored Retail ........... 11.8% 20
Unanchored Retail ......... 7.0% 11
Industrial ................ 3.5% 2
- ------------
(1) The Mortgaged Property known as "Atlanta Decorative Art Center" is a
"design center" but is characterized as an office building for the
purposes of the statistical information provided in this Prospectus
Supplement.
ANTICIPATED REPAYMENT BY YEAR(1)
NUMBER OF
% OF INITIAL MORTGAGED
YEAR POOL BALANCE LOANS
- -------- ---------------- -------------
2003 .... 15.6% 10
2005 .... 2.8% 4
2006 .... 33.7% 51
2008 .... 0.3% 1
2009 .... 3.6% 1
2010 .... 0.7% 1
2011 .... 32.3% 33
2013 .... 7.0% 1
2015 .... 1.1% 3
2016 .... 2.6% 6
2021 .... 0.4% 2
- ------------
(1) For any Mortgage Loan, the year shown is the related Maturity Date or,
if the Mortgage Loan is an ARD Loan, the year in which the Anticipated
Repayment Date occurs.
DELINQUENCY STATUS AS OF OCTOBER 1, 1996
NUMBER OF
% OF INITIAL MORTGAGED
STATUS POOL BALANCE LOANS
- ----------------- -------------- -----------
No Delinquencies 100% 113
S-9
<PAGE>
MORTGAGE POOL BALANCE UPON EXPIRATION OF LOCK-OUT PERIODS
PERCENTAGE OF
MORTGAGE POOL
SUBJECT TO
YEAR LOCK-OUT(1)
- --------- -----------------
1996 ..... 100.0%
1997 ..... 100.0%
1998 ..... 100.0%
1999 ..... 100.0%
2000 ..... 100.0%
2001 ..... 100.0%
2002 ..... 98.8%
2003 ..... 84.4%
2004 ..... 84.4%
2005 ..... 79.2%
2006 ..... 48.0%
2007 ..... 48.0%
2008 ..... 47.7%
2009 ..... 44.1%
2010 ..... 42.5%
2011 ..... 11.1%
2012 ..... 11.1%
2013 ..... 4.1%
2014 ..... 4.1%
2015 ..... 1.7%
2016 ..... 0.4%
2017 ..... 0.4%
2018 ..... 0.4%
2019 ..... 0.4%
2020 ..... 0.2%
2021 ..... 0.0%
- ------------
(1) Based on the Initial Pool Balance as of December 31 for each of the
years indicated and assuming that no prepayments occur on a Mortgage
Loan prior to the expiration of the related Lock-out Period and that
after the expiration of such Lock-out Period the related Mortgage Loan
is prepaid in full.
S-10
<PAGE>
PROSPECTUS SUPPLEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Executive Summary ................................................................. S-3
Summary of Prospectus Supplement .................................................. S-13
Risk Factors and Other Special Considerations ..................................... S-28
The Mortgage Loans .............................................................. S-28
The Certificates ................................................................ S-39
Description of the Mortgage Pool .................................................. S-43
General ......................................................................... S-43
Security for the Mortgage Loans ................................................. S-44
Significant Mortgage Loans ...................................................... S-44
The Mortgage Loan Program --Underwriting Standards; Representations ............. S-48
Certain Terms and Conditions of the Mortgage Loans .............................. S-50
Additional Mortgage Loan Information ............................................ S-54
Changes in Mortgage Pool Characteristics ........................................ S-64
Description of the Offered Certificates ........................................... S-64
General ......................................................................... S-64
Distributions ................................................................... S-65
Subordination ................................................................... S-75
Appraisal Reductions ............................................................ S-75
Delivery, Form and Denomination ................................................. S-76
Book-Entry Registration ......................................................... S-76
Transfer Restrictions ........................................................... S-79
Prepayment and Yield Considerations ............................................... S-80
Yield ........................................................................... S-80
Yield on the Class A-CS1 Certificates ........................................... S-81
Rated Final Distribution Date ................................................... S-82
Weighted Average Life of Offered Certificates ................................... S-82
The Pooling and Servicing Agreement ............................................... S-92
General ......................................................................... S-92
Assignment of the Mortgage Loans ................................................ S-92
Representations and Warranties; Repurchase ...................................... S-92
Servicing of the Mortgage Loans; Collection of Payments ......................... S-97
Advances ........................................................................ S-98
Accounts ........................................................................ S-100
Withdrawals from the Collection Account ......................................... S-101
Enforcement of "Due-on-Sale" and "Due-on-Encumbrance" Clauses ................... S-102
Inspections ..................................................................... S-102
Evidence as to Compliance ....................................................... S-102
Certain Matters Regarding the Depositor, the Servicer and the Special Servicer .. S-103
Events of Default ............................................................... S-104
Rights Upon Event of Default .................................................... S-104
Amendment ....................................................................... S-105
Voting Rights ................................................................... S-105
Realization Upon Mortgage Loans ................................................. S-106
Modifications ................................................................... S-111
Optional Termination ............................................................ S-112
The Trustee ..................................................................... S-112
Duties of the Trustee ........................................................... S-113
</TABLE>
S-11
<PAGE>
<TABLE>
<CAPTION> PAGE
------
<S> <C>
The Fiscal Agent ....................................................................... S-113
Duties of the Fiscal Agent ........................................................... S-113
The Servicer ......................................................................... S-114
Servicing Compensation and Payment of Expenses ....................................... S-114
The Special Servicer ................................................................. S-114
Special Servicing .................................................................... S-115
Servicer and Special Servicer Permitted to Buy Certificates .......................... S-116
Reports to Certificateholders ........................................................ S-116
Use of Proceeds ........................................................................ S-117
Certain Federal Income Tax Consequences ................................................ S-117
ERISA Considerations ................................................................... S-118
Legal Investment ....................................................................... S-120
Method of Distribution ................................................................. S-120
Legal Matters .......................................................................... S-121
Rating ................................................................................. S-121
Index of Significant Definitions ....................................................... S-122
Annex A --Loan Characteristics ......................................................... A
Annex B --Global Clearance, Settlement and Tax Documentation Procedures ............... B
Annex C --Schedule of Weighted Average Net Mortgage Pass-Through Rates ................ C
INDEX OF TABLES
Range of Debt Service Coverage Ratios .................................................. S-57
Range of Loan-to-Value Ratios .......................................................... S-57
Range of Loan-to-Value Ratios at Earlier of Anticipated Repayment Dates or Maturity ... S-57
Mortgaged Properties By State .......................................................... S-58
Range of Year Built .................................................................... S-58
Cut-off Date Loan Amount By Property Type .............................................. S-59
Types of Mortgaged Properties .......................................................... S-59
Range of Loan Amounts or Loan Balances ................................................. S-60
Range of Anticipated Remaining Term in Months .......................................... S-60
Range of Remaining Term in Months ...................................................... S-61
Anticipated Timing of Principal Payment Based on Cut-Off Loan Amount ................... S-61
Anticipated Repayment By year .......................................................... S-62
Range of Mortgage Rates ................................................................ S-62
Mortgaged Properties by Originator ..................................................... S-63
Range of Remaining Lock-out Period In Months ........................................... S-63
</TABLE>
S-12
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used in this Summary
are defined elsewhere in this Prospectus Supplement or in the Prospectus. An
Index of Significant Definitions included at the end of this Prospectus
Supplement sets forth the pages on which the definitions of certain principal
terms appear.
TITLE OF CERTIFICATES .. Asset Securitization Corporation, Commercial
Mortgage Pass-Through Certificates, 1996-D3
(the "Certificates").
CERTIFICATE BALANCE AND
NOTIONAL BALANCE ....... Each Class of Offered Certificates has the
approximate aggregate initial Certificate
Balance or Notional Balance, as the case may
be, set forth on the cover page of this
Prospectus Supplement, subject to a
permitted variance of plus or minus 5%. The
Offered Certificates, together with the
Private Certificates, will be issued
pursuant to a Pooling and Servicing
Agreement to be dated as of the Cut-off Date
(the "Pooling and Servicing Agreement")
among the Depositor, the Servicer, the
Special Servicer, the Trustee and the Fiscal
Agent.
DEPOSITOR .............. Asset Securitization Corporation, a Delaware
corporation and a wholly owned subsidiary of
Nomura Asset Capital Corporation (the
"Mortgage Loan Seller"), and an affiliate of
Nomura Securities International, Inc. (the
"Underwriter"). See "The Depositor" in the
Prospectus.
SERVICER ............... AMRESCO Management, Inc., a Texas
corporation (the "Servicer"). See "The
Pooling and Servicing Agreement --The
Servicer" herein and "Description of the
Agreements --Sub-Servicers" in the
Prospectus.
SPECIAL SERVICER ....... CRIIMI MAE Services Limited Partnership, a
Maryland limited partnership (in such
capacity, the "Special Servicer"). The
Special Servicer will be responsible for
servicing functions with respect to Mortgage
Loans that, in general, are in default or as
to which default is imminent, administering
any REO Property (as defined herein), and
performing property inspections for all of
the Mortgaged Properties. The holders of 51%
of the Percentage Interests of the most
subordinate Class of Certificates then
outstanding (provided, however, that for
purposes of determining the most subordinate
class, the Class A-1A, Class A-1B, Class
A-1C, Class A-CS1 and Class A-CS2
Certificates collectively and the Class B-4
and Class B-4H Certificates together, will,
in each case, be treated as one class) will
be entitled to remove the Special Servicer
as Special Servicer of the Mortgage Loans,
and appoint a successor Special Servicer
with respect to such Mortgage Loans,
provided that each Rating Agency confirms in
writing that such removal and appointment,
in and of itself, would not cause a
downgrade, qualification or withdrawal of
the then current ratings assigned to any
Class of Certificates. The Special Servicer
will be permitted to purchase any Class of
Certificates. It is anticipated that the
Special Servicer or an affiliate of the
Special Servicer will purchase all of the
Class B-1, Class B-2, Class B-3 and Class
B-4 Certificates on or about the Closing
Date. See "Risk Factors and Other Special
Considerations --The Certificates --Servicer
or Special Servicer May Purchase
Certificates" herein.
TRUSTEE ................ LaSalle National Bank, a nationally
chartered bank (the "Trustee"). See "The
Pooling and Servicing Agreement --The
Trustee" herein.
FISCAL AGENT ........... ABN AMRO Bank N.V., a Netherlands banking
corporation (the "Fiscal Agent") and the
corporate parent of the Trustee.
S-13
<PAGE>
THE MORTGAGE LOAN
SELLER ................. Nomura Asset Capital Corporation, a Delaware
corporation and the parent of the Depositor
and an affiliate of the Underwriter.
ORIGINATORS ............ Nomura Asset Capital Corporation, a Delaware
corporation (the "Mortgage Loan Seller") and
Bloomfield Acceptance Company, LLC, a
Michigan limited liability company;
Continental Wingate Associates, Inc., a
Massachusetts corporation; First Maryland
Mortgage Corporation, a Maryland
corporation; Hanover Capital Mortgage
Corporation, a Missouri corporation; NBD
Bank, N.A., a national banking association;
and Remsen Partners, Ltd., a Delaware
limited partnership (collectively, the
"Originators").
All of the Mortgage Loans were originated by
the Mortgage Loan Seller or one of the
Originators in accordance with the following
table during the period commencing February,
1996 and ending on the Cut-off Date:
ORIGINATORS OF THE MORTGAGE LOANS (1)
% OF INITIAL NUMBER OF MORTGAGE
ORIGINATOR POOL BALANCE LOANS
- ----------------------------------------- ---------------- ------------------
Nomura Asset Capital Corporation ........ 87.2% 76
Bloomfield Acceptance Company, LLC ...... 8.3% 23
Continental Wingate Associates, Inc. .... 1.3% 5
First Maryland Mortgage Corporation ..... 0.4% 1
Hanover Capital Mortgage Corporation .... 0.5% 1
NBD Bank, N.A. ........................... 1.3% 4
Remsen Partners, Ltd. .................... 1.0% 3
(1) All statistical information set forth in
this and the following tables in the
Summary regarding the "% of Initial Pool
Balance" is based on the Cut-off Date
Principal Balance of the related
Mortgage Loan or Loans.
CUT-OFF DATE ........... October 22, 1996.
CLOSING DATE ........... On or about October 22, 1996.
DISTRIBUTION DATE ...... The 13th day of each month, or if such 13th
day is not a business day, the business day
immediately following such 13th day,
commencing in November 1996; provided,
however, that the Distribution Date will be
no earlier than the second business day
following the 11th day of each month;
provided, further, that if the 11th day of
any month is not a business day, the
Distribution Date will be the third business
day following the 11th day of such month. A
business day is any day other than a
Saturday, a Sunday or any day on which
banking institutions in the States of
Georgia, Illinois or New York are authorized
or obligated by law, executive order or
governmental decree to close.
RECORD DATE ............ With respect to each Distribution Date, the
close of business on the 10th day of the
month in which such Distribution Date
occurs, or if such day is not a business
day, the preceding business day; the Record
Date on or prior to the Record Date for the
Distribution Date occurring in November 1996
is the Closing Date.
INTEREST ACCRUAL
PERIOD ................. With respect to any Distribution Date other
than the Distribution Date occurring in
November 1996, the period commencing on and
including the 11th day of the month
preceding the month in which such
Distribution Date occurs and ending on and
including the 10th day of the month in which
such
S-14
<PAGE>
Distribution Date occurs; the Interest
Accrual Period with respect to the
Distribution Date occurring in November 1996
is assumed to consist of nineteen days. Each
Interest Accrual Period other than the
Interest Accrual Period with respect to the
Distribution Date occurring in November 1996
is assumed to consist of 30 days.
SCHEDULED FINAL
DISTRIBUTION DATE ...... As to each Class of Offered Certificates,
October 13, 2026, the next Distribution Date
occurring after the latest maturity date of
any Mortgage Loan.
RATED FINAL DISTRIBUTION
DATE ................... As to each Class of Offered Certificates,
October 13, 2026, the Distribution Date
occurring after the latest Assumed Maturity
Date of any of the Mortgage Loans. The
"Assumed Maturity Date" of (a) any Mortgage
Loan that is not a Balloon Loan is the
maturity date of such Mortgage Loan and (b)
any Balloon Loan is the date on which such
Mortgage Loan would be deemed to mature in
accordance with its original amortization
schedule absent its Balloon Payment.
COLLECTION PERIOD ...... With respect to a Distribution Date, the
period beginning on the day after the Due
Date in the month preceding the month in
which such Distribution Date occurs and
ending at the close of business on the Due
Date in the month in which such Distribution
Date occurs.
DUE DATE ............... With respect to any Distribution Date and/or
any Mortgage Loan, as the case may be, the
11th (or in the case of certain of the
Mortgage Loans, if the 11th day is not a
business day, either the next business day
or the first preceding business day) of the
month in which such Distribution Date
occurs.
DENOMINATIONS .......... The Offered Certificates will be issuable in
registered form, in minimum denominations of
Certificate Balance of $100,000 and
multiples of $1 in excess thereof.
CLEARANCE AND
SETTLEMENT ............. Holders of Offered Certificates may elect to
hold their Certificates through any of The
Depository Trust Company ("DTC") (in the
United States) or Centrale de Livraison de
Valeurs Mobiliers S.A. ("CEDEL") or The
Euroclear System ("Euroclear") (in Europe).
Transfers within DTC, CEDEL or Euroclear, as
the case may be, will be in accordance with
the usual rules and operating procedures of
the relevant system. Crossmarket transfers
between persons holding directly or
indirectly through DTC, on the one hand, and
counterparties holding directly or
indirectly through CEDEL or Euroclear, on
the other, will be effected in DTC through
the relevant Depositaries of CEDEL or
Euroclear. The Depositor may elect to
terminate the book-entry system through DTC
with respect to all or any portion of any
Class of the Offered Certificates. See
"Description of the Offered Certificates
--Delivery, Form and Denomination,"
"--Book-Entry Registration" and
"--Definitive Certificates" herein and
"Description of the Certificates
--Book-Entry Registration and Definitive
Certificates" in the Prospectus.
THE MORTGAGE LOANS ..... The Mortgage Loan Seller will sell the
Mortgage Loans to the Depositor and, in
connection therewith, will make certain
representations and warranties, as more
fully described herein. The Depositor will
assign the Mortgage Loans, together with its
rights and remedies in respect of breaches
of the Mortgage Loan Seller's
representations and warranties to the
Trustee for the benefit of
Certificateholders. With respect to Mortgage
Loans acquired by the Mortgage Loan Seller
from a third party, the Mortgage Loan Seller
will also assign to the Depositor and the
Depositor will assign to the Trustee for the
benefit of the Certificateholders, any
S-15
<PAGE>
rights and remedies in respect of breaches
of representations or warranties made by
such third party. See "The Pooling and
Servicing Agreement --Representations and
Warranties; Repurchase."
Security for the Mortgage Loans
Each Mortgage Loan is secured by one or
more, first priority mortgages, deeds of
trust, or other similar security instruments
on the borrower|Als interest (as set forth
below) in certain land used for commercial
or multifamily residential purposes, all
buildings and improvements thereon and
certain personal property located thereon
(each a "Mortgaged Property").
% OF INITIAL
INTEREST OF BORROWER POOL BALANCE NUMBER OF MORTGAGED
ENCUMBERED (1) PROPERTIES
- -------------------- -------------- --------------------
Fee Simple Estate .. 91.3% 139
Leasehold (2) ....... 8.7% 4
(1) Based on the Allocated Loan Amount of
the related Mortgaged Property.
(2) Two additional Mortgaged Properties,
identified as Lee Park and Brookhaven on
Annex A and representing an additional
3.2% of the Initial Pool Balance, are
partially secured by ground leases
which, if terminated by the lessor,
would not materially impair the
operation of such properties.
Payment Terms
All of the Mortgage Loans provide for
scheduled payments of principal, if any, and
interest ("Monthly Payments") to be due on
the 11th day of each month. Each Mortgage
Loan accrues interest at the per annum rate
set forth for such Mortgage Loan on Annex A
(the "Mortgage Rate") that is fixed for the
entire term of such loan, except that
certain of the Mortgage Loans (as set forth
on the table below) accrue interest at a
higher rate during a specified period ending
at maturity. As used herein, the term
"Mortgage Rate" does not include the portion
of the interest rate attributable to the
rate increase; the excess of interest at
such higher rate over interest at the
Mortgage Rate is referred to herein as
"Excess Interest". As described below, all
of the Mortgage Loans that provide for
Excess Interest permit the related borrower
to prepay the related Mortgage Loan without
payment of a Prepayment Premium for a period
beginning on or, in the case of certain of
these Mortgage Loans, three months prior to,
the date Excess Interest begins accruing and
ending on the related maturity date. The
date that any such Mortgage Loan begins
accruing Excess Interest is sometimes
referred to herein as the "Anticipated
Repayment Date." The Anticipated Repayment
Date for any such Mortgage Loan (each, an
"ARD Loan") is set forth on Annex A. The ARD
Loans substantially fully amortize over
their stated terms, which are at least 60
months (except with respect to the Mortgage
Loan secured by the Mortgaged Property
identified as Mariner's Village on Annex A)
longer than the term to their related
Anticipated Repayment Dates. The Mortgage
Loan known as Mariner's Village
substantially fully amortizes over its
extended stated term which is 40 months
after its original maturity date. If the
related borrower elects to prepay an ARD
Loan in full on the related Anticipated
Repayment Date, a substantial amount of
principal will be due. With respect to any
ARD Loan, payment of Excess Interest will be
deferred until the principal of such
Mortgage Loan has been paid in full. All of
the ARD Loans provide that a lock-box
account be established generally one year
prior to such date. See "Description of
S-16
<PAGE>
the Mortgage Pool --Certain Terms and
Conditions of the Mortgage Loans --Excess
Interest" herein. No Mortgage Loan permits
negative amortization.
Certain of the Mortgage Loans (as set forth
on the table below) provide for monthly
payments of principal based on amortization
schedules at least 60 months longer than the
remaining stated terms of such Mortgage
Loans (such Mortgage Loans, the "Balloon
Loans"), such that substantial amounts of
principal are due and payable on the
respective maturity dates (each such amount,
after application of all constant Monthly
Payments due on or prior to the respective
maturity date, a "Balloon Payment"), unless
prepaid prior thereto.
AMORTIZATION CHARACTERISTICS OF THE MORTGAGE
LOANS
% OF INITIAL NUMBER OF
TYPE OF LOAN POOL BALANCE MORTGAGE LOANS
- -------------------------------------- -------------- --------------
ARD Loans ............................. 88.65% 80
Fully Amortizing Loans (other than ARD
Loans) (1) ........................... 2.56% 7
Balloon Mortgage Loans ................ 8.79% 26
(1) All of the Mortgage Loans that accrue
interest on the basis of twelve 30-day
months fully amortize over their stated
terms (or extended term in the case of
the Mortgage Loan known as Mariner's
Village) based on their stated Monthly
Payments. Those Mortgage Loans that
accrue interest on the basis of the
actual number of days elapsed and a 360
day year will substantially fully
amortize over their respective terms.
Lock-Out Characteristics of the Mortgage
Loans
All of the Mortgage Loans prohibit voluntary
prepayment during a period of months
following origination (each such period, a
"Lock-out Period" ).
OVERVIEW OF LOCK-OUT PERIODS
Minimum Lock-out Period at Origination ........ 80 months
Minimum Remaining Lock-out Period .............. 74 months
Maximum Remaining Lock-out Period .............. 291 months
Weighted Average Remaining Lock-out Period .... 141 months
From and after the date that is four months
prior to its Anticipated Repayment Date or
maturity date, as applicable, no Mortgage Loan
requires the payment of a premium or fee (a
"Prepayment Premium") upon the voluntary
prepayment of such Mortgage Loan. Prepayment
Premiums may be due in connection with certain
involuntary prepayments as described herein.
See "Risk Factors and Other Special
Considerations -- The Certificates -- Special
Prepayment and Yield Considerations" and
"Description of the Mortgage Pool --Certain
Terms and Conditions of the Mortgage Loans
-- Prepayment Provisions" and "Defeasance
Provisions" herein.
LOCK-OUT PERIOD CHARACTERISTICS OF THE MORTGAGE
LOANS
% OF INITIAL NUMBER OF
TYPE OF LOAN POOL BALANCE MORTGAGE LOANS
- ---------------------------------------------- -------------- --------------
Lock-out Period Ending on/close to Anticipated
Prepayment Date .............................. 88.7% 80
Lock-out Period Ending on/close to Maturity
Date ......................................... 11.3% 33
S-17
<PAGE>
All of the Mortgage Loans provide that after
a specified period (a "Defeasance Lock-out
Period"), the applicable borrower may obtain
the release of one or more of the related
Mortgaged Properties from the lien of the
related Mortgages (a "Defeasance Option")
upon the pledge to the Trustee of
noncallable U.S. government obligations
which provide payments on or prior to all
successive scheduled payment dates upon
which interest and principal payments are
due under the related Note and in amounts
due on such dates and upon satisfaction of
certain other conditions. The Mortgage Loans
which are secured by more than one Mortgaged
Property generally require that prior to a
release of less than all of the Mortgaged
Properties a specified percentage (generally
125%) of the Allocated Loan Amount be
defeased for each Mortgaged Property
released. The related borrower will be
required to (or in the case of certain of
the Mortgage Loans, the related borrowers
may) transfer the pledged U.S. government
obligations together with the related Note
or portion thereof to a successor limited
purpose borrower and such successor borrower
will assume the obligations under the
Mortgage Loan or portion thereof.
The characteristics of each of the Mortgage
Loans are more particularly described in
Annex A.
None of the Mortgage Loans are insured or
guaranteed by the United States, any
governmental agency or instrumentality or
any private mortgage insurer. See
"Description of the Mortgage Pool--General."
THE UNDERWRITER HAS MADE AVAILABLE AN
ELECTRONIC VERSION OF THIS PROSPECTUS AND
PROSPECTUS SUPPLEMENT ON THE WORLD WIDE WEB
AT "HTTP:// WWW.NOMURANY.COM". THE
ELECTRONIC VERSION OF THIS PROSPECTUS
SUPPLEMENT MAY ALSO CONTAIN PHOTOGRAPHS OF
CERTAIN OF THE MORTGAGED PROPERTIES. CERTAIN
STATISTICAL INFORMATION INCLUDED IN THIS
PROSPECTUS SUPPLEMENT CAN BE DOWNLOADED FROM
SUCH WEB SITE.
THE OFFERED
CERTIFICATES ........... The Class A-1A Certificates will have an
initial Certificate Balance of $64,985,025.
The Class A-1B Certificate, will have an
initial Certificate Balance of $154,000,000.
The Class A-1C Certificates will have an
initial Certificate Balance of $321,000,000.
The Class A-CS1 Certificates will have an
initial Notional Balance of $64,985,025. The
initial Notional Balance of the Class A-CS1
Certificates is comprised of one component:
the Class A-1A Component. The Class A-1A
Component will have an initial Component
Balance equal to the initial Certificate
Balance of the Class A-1 Certificates.
The Class A-1D Certificates will have an
initial Certificate Balance of $19,564,674.
The Class A-2 Certificates will have an
initial Certificate Balance of $39,129,349.
The Class A-3 Certificates will have an
initial Certificate Balance of $35,216,414.
The Class A-4 Certificates will have an
initial Certificate Balance of $39,129,349.
The Class A-5 Certificates will have an
initial Certificate Balance of $15,651,739.
THE PRIVATE
CERTIFICATES .......... The Class A-CS2 Certificates will have an
initial Notional Balance of $623,691,525.
The initial Notional Balance of the Class
A-CS2 Certificates is comprised of seven
components: the Class A-1B Component, Class
A-1C Component, Class A-1D Component, Class
A-2 Component, the Class A-3 Component, the
Class
S-18
<PAGE>
A-4 Component and the Class A-5 Component,
which will have initial Component Balances
equal to the Certificate Balance of the
Class A-1B, Class A-1C, Class A-1D, Class
A-2, Class A-3, Class A-4 and Class A-5
Certificates, respectively.
The Component Balance of a component of the
Class A-CS2 Certificates may be reduced, as
described herein in "Description of the
Offered Certificates --Delinquency Reduction
Amounts and Appraisal Reduction Amounts."
However, such Class will retain the right to
receive distributions of interest in respect
of such reductions at a lower priority.
The Class B-1 Certificates will have an
initial Certificate Balance of approximately
$43,042,284. The Class B-2 Certificates will
have an initial Certificate Balance of
approximately $27,390,544. The Class B-3
Certificates will have an initial
Certificate Balance of approximately
$7,825,869. The Class B-4 and Class B-4H
Certificates will, in the aggregate, have
initial Certificate Balances of
approximately $15,651,746.84.
The Class V-1, Class V-2, Class R and Class
LR Certificates will not have a Certificate
Balance or a Notional Balance.
The Class A-CS2, Class B-1, Class B-2, Class
B-3, Class B-4, Class B-4H, Class V-1, Class
V-2, Class LR and Class R Certificates are
not offered hereby.
PASS-THROUGH RATES ..... The per annum rate at which interest accrues
(the "Pass-Through Rate") on the Class A-1A,
Class A-1B, Class A-1C and Class A-1D
Certificates during any Interest Accrual
Period will be equal to [ ]%, [ ]%,
[ ]% and [ ]%, respectively.
The Pass-Through Rate on the Class A-CS1
Certificates is a per annum rate equal to
the Weighted Average Net Mortgage
Pass-Through Rate minus [ ]%.
The Pass-Through Rate on the Class A-CS2
Certificates is a per annum rate equal to
the weighted average of the Pass
Through-Rates on the Class A-1B Component,
Class A-1C Component, Class A-1D Component,
Class A-2 Component, Class A-3 Component,
Class A-4 Component and the Class A-5
Component weighted on the basis of the
respective Component Balances (without
giving effect to any Appraisal Reduction
Amounts or Delinquency Reduction Amounts).
The Pass-Through Rate on the Class A-1B
Component is a per annum rate equal to the
Weighted Average Net Mortgage Pass-Through
Rate minus [ ]%. The Pass-Through Rate on
the Class A-1C Component is a per annum rate
equal to the Weighted Average Net Mortgage
Pass-Through Rate minus [ ]%. The
Pass-Through Rate on the Class A-1D
Component is a per annum rate equal to the
Weighted Average Net Mortgage Pass-Through
Rate minus [ ]%. The Pass-Through Rate on
the Class A-2 Component is a per annum rate
equal to [ ]%. The Pass-Through Rate on
the Class A-3 Component is a per annum rate
equal to [ ]%. The Pass-Through Rate of
the Class A-4 Component is a per annum rate
equal to [ ]%. The Pass-Through Rate of
the Class A-5 Component is a per annum rate
equal to [ ]%.
The Pass-Through Rate on the Class A-2
Certificates is a per annum rate equal to
the Weighted Average Net Mortgage
Pass-Through Rate minus [ ]%.
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<PAGE>
The Pass-Through Rate on the Class A-5
Certificates is a per annum rate equal to
the Weighted Average Net Mortgage
Pass-Through Rate minus [ ]%.
The Pass-Through Rate on the Class A-4
Certificates is a per annum rate equal to
the Weighted Average Net Mortgage
Pass-Through Rate minus [ ]%.
The Pass-Through Rate on the Class A-5
Certificates is a per annum rate equal to
the Weighted Average Net Mortgage
Pass-Through Rate minus [ ]%.
The "Weighted Average Net Mortgage
Pass-Through Rate" with respect to any
Distribution Date is the amount (expressed
as a percentage) (i) the numerator of which
is the sum of the products of (a) the Net
Mortgage Pass-Through Rate and (b) the
Stated Principal Balance of each Mortgage
Loan and (ii) the denominator of which is
the sum of the Stated Principal Balance of
each Mortgage Loan occurring in the month in
which the related Distribution Date occurs.
The "Net Mortgage Pass-Through Rate" with
respect to any Mortgage Loan and any
Interest Accrual Period is a per annum rate
equal to the Mortgage Pass-Through Rate (as
such term is defined below) for such
Mortgage Loan minus the applicable Servicing
Fee Rate and Additional Servicing Fee Rate
(as such terms are defined herein).
The "Mortgage Pass-Through Rate" with
respect to the Mortgage Loans that provide
for calculations of interest based on twelve
months of 30 days each is equal to the
Mortgage Rate thereof.
The "Mortgage Pass-Through Rate" with
respect to the Mortgage Loans (other than
the Mortgage Loans known as the Sacramento
Office loan, the Pinnacle Retail Portfolio
loan and the Ambassador Apartments loan)
that provide for interest based on a 360-day
year and the actual number of days elapsed
for any Interest Accrual Period, is equal to
the Mortgage Rate thereof multiplied by a
fraction the numerator of which is the
actual number of days in such Interest
Accrual Period and the denominator of which
is 30.
The "Mortgage Pass-Through Rate" with
respect to the Mortgage Loans known as the
Sacramento Office loan and the Pinnacle
Retail Portfolio loan for any Interest
Accrual Period, is equal to (a) the Mortgage
Rate thereof multiplied by a fraction the
numerator of which is the actual number of
days in such Interest Accrual Period and the
denominator of which is 30 plus (b) 0.09625%
in the case of the Mortgage Loan known as
the Sacramento Office loan and 0.07% in the
case of the Mortgage Loan known as the
Pinnacle Retail Portfolio loan.
The "Mortgage Pass-Through Rate" with
respect to the Mortgage Loan known as the
Ambassador Apartments loan for any
Distribution Date (a) relating to any
Interest Accrual Period commencing in any
January, February, April, June, September
and November and in any December occurring
in a year immediately preceding any year
which is not a leap year, is the Mortgage
Rate thereof, and (b) relating to any
Interest Accrual Period commencing in any
March, May, July, August and October and in
any December occurring in a year immediately
preceding a year which is a leap year, is
equal to the Mortgage Rate thereof
multiplied by a fraction the numerator of
which is the actual number of days in such
Interest Accrual Period and the denominator
of which is 30.
The Mortgage Rate for purposes of
calculating the Weighted Average Net
Mortgage Pass-Through Rate will be the
Mortgage Rate of such Mortgage Loan without
taking into account any reduction in the
interest rate by a bankruptcy
S-20
<PAGE>
court pursuant to a plan of reorganization
or pursuant to any of its equitable powers
or any reduction in the interest rate
resulting from a work-out as described
herein under "The Pooling and Servicing
Agreement --Modifications".
DISTRIBUTIONS .......... On each Distribution Date, each Class (or
component of a Class) of Offered
Certificates will be entitled to receive
interest distributions in an amount equal to
the Interest Distribution Amount (and, in
the case of the Class A-CS2 Certificates,
the Reduction Interest Distribution Amount
(subject to the priorities described under
"Description of the Offered Certificates
--Distributions"), if applicable) for such
Class (or component) and Distribution Date,
together with any Interest Shortfalls (and
Reduction Interest Shortfalls, if
applicable) remaining from prior
Distribution Dates, in each case to the
extent of Available Funds, if any, remaining
after (i) payment of the Interest
Distribution Amounts, Interest Shortfalls,
Reduction Interest Distribution Amounts and
Reduction Interest Shortfalls for each other
outstanding Class of Certificates (or
component of a Class), if any, bearing an
earlier sequential designation than such
class, and (ii), if applicable, payment of
the Principal Distribution Amount for such
Distribution Date and an amount equal to the
aggregate unreimbursed Realized Losses
previously allocated to any such outstanding
Classes having an earlier sequential
designation. References herein to the
earlier (or later) sequential designation of
these Classes of Certificates (or, with
respect to Reduction Interest Distribution
Amounts and Reduction Interest Shortfalls,
components thereof) means such Classes (or
components) in alphabetical and numerical
order (or such Classes or components in
reverse alphabetical and numerical order)
(except in respect of the Class A-CS1 and
Class A-CS2 Certificates, which will have
the same priority and the Class A-1A, Class
A-1B and Class A-1C Certificates which will
have the same priority under the
circumstances described herein).
The Trust Fund will include two separate
real estate mortgage investment conduits
(each, a "REMIC"). Collections on the
Mortgage Loans will be used to make payments
of principal and interest on interests (the
"Lower-Tier Interests") in a REMIC (the
"Lower-Tier REMIC"). Those payments in turn
will be used to make distributions on the
Certificates, which represent interests in a
second REMIC (the "Upper-Tier REMIC"). The
respective components of the Notional
Balances of the Class A-CS1 and Class A-CS2
Certificates represent principal balances of
Classes of regular interests in the
Lower-Tier REMIC. For purposes of
simplicity, distributions will generally be
described herein as if made directly from
collections on the Mortgage Loans to the
Holders of the Certificates.
The "Interest Distribution Amount" with
respect to any Distribution Date and the
Class A-1A, Class A-1B, Class A-1C, Class
A-1D, Class A-2, Class A-3, Class A-4 and
Class A-5 Certificates is equal to interest
accrued during the related Interest Accrual
Period at the Pass-Through Rate on such
Class on the Certificate Balance of such
class.
The "Interest Distribution Amount" with
respect to any Distribution Date and the
Class A-CS1 and Class A-CS2 Certificates is
equal to interest accrued during the related
Interest Accrual Period at the Pass-Through
Rates on the related components on the
Component Balances thereof.
For purposes of calculating the Interest
Distribution Amount for any Class of Offered
Certificates and any Distribution Date, any
distributions in reduction of
S-21
<PAGE>
Certificate Balance or Component Balance and
reductions in Certificate Balance or
Component Balance as a result of allocations
of Realized Losses, Appraisal Reduction
Amounts or Delinquency Amounts (if
applicable) on the Distribution Date
occurring in the related Interest Accrual
Period shall be deemed to have been made on
the first day of such Interest Accrual
Period.
The Principal Distribution Amount for each
Distribution Date will be distributed,
first, to the Class A-1A Certificates, in
reduction of the Certificate Balance
thereof, until the Certificate Balance of
such Class is reduced to zero, second, to
the Class A-1B Certificates, in reduction of
the Certificate Balance thereof, until the
Certificate Balance thereof is reduced to
zero, third, to the Class A-1C Certificates,
in reduction of the Certificate Balance
thereof, until the Certificate Balance of
such Class is reduced to zero, fourth, to
the Class A-1D Certificates, in reduction of
the Certificate Balance thereof, until the
Certificate Balance of such Class is reduced
to zero, fifth, to the Class A-1D
Certificates for unreimbursed amounts of
Realized Losses previously allocated to such
class, sixth, to the Class A-2 Certificates,
until the Certificate Balance thereof is
reduced to zero, seventh, to the Class A-2
Certificates for unreimbursed amounts of
Realized Losses previously allocated to such
Class, eighth, to the Class A-3
Certificates, until the Certificate Balance
thereof is reduced to zero, ninth, to the
Class A-3 Certificates for unreimbursed
amounts of Realized Losses previously
allocated to such Class, tenth, to the Class
A-4 Certificates, until the Certificate
Balance thereof is reduced to zero,
eleventh, to the Class A-4 Certificates for
unreimbursed amounts of Realized Losses
previously allocated to such Class, twelfth,
to the Class A-5 Certificates, until the
Certificate Balance thereof is reduced to
zero, thirteenth, to the Class A-5
Certificates for unreimbursed amounts of
Realized Losses previously allocated to such
Class, and fourteenth, to the Private
Certificates in accordance with the Pooling
and Servicing Agreement, in each case to the
extent of Available Funds remaining after
required distributions of interest to such
Class. On each Distribution Date occurring
on and after the Cross-over Date, an amount
equal to the Principal Distribution Amount
will be distributed, first, to the Class
A-1A, Class A-1B and Class A-1C
Certificates, pro rata, based on their
respective Certificate Balances, in
reduction of their respective Certificate
Balances, until the Certificate Balance of
each such Class is reduced to zero; and,
second, to the Class A-1A, Class A-1B and
Class A-1C Certificates, pro rata, based on
their respective Certificate Balances, for
unreimbursed amounts of Realized Losses
previously allocated to such Classes. The
"Cross-over Date" is the Distribution Date
on which the Certificate Balance of each
Class of Certificates other than the Class
A-1A, Class A-1B and Class A-1C Certificates
have been reduced to zero. The Class A-CS1
and Class A-CS2 Certificates will not be
entitled to any distribution of principal.
The "Principal Distribution Amount" for any
Distribution Date is equal to the sum, for
all Mortgage Loans, of (i) the principal
component of all Monthly Payments (other
than Balloon Payments) due on the related
Due Date (if received or advanced, including
any Subordinate Class Advance Amounts (as
defined herein)), (ii) the principal
component of all Minimum Defaulted Monthly
Payments or Assumed Scheduled Payments, as
applicable, deemed to be due on the related
Due Date (if received or advanced including
any Subordinated Class Advance Amounts),
(iii) to the extent not included in the
preceding clause, the principal component of
all Balloon Payments on any Mortgage Loan
received during the related Collection
Period, (iv) the principal portion of all
unscheduled collections in respect of a
Mortgage Loan that was liquidated in the
related Collection Period, (v) the Stated
Principal Balance of
S-22
<PAGE>
each Mortgage Loan purchased from the Trust
Fund in connection with breaches of
representations or warranties or the
exercise of the rights described under
"--Optional Termination" below, (vi) to the
extent not included in any preceding clause,
all Principal Prepayments received in the
related Collection Period and (vii) to the
extent not included in any preceding clause,
any other full or partial recoveries of
principal, including Net REO Proceeds, net
liquidation proceeds, net condemnation
proceeds and net insurance proceeds. Amounts
received on any Mortgage Loan that represent
recoveries of any Subordinate Class Advance
Amount will not be included in the
calculation of "Principal Distribution
Amount."
Except as described in the next sentence,
the holders of the Class V-1, Class V-2,
Class R and Class LR Certificates will not
be entitled to distributions of interest or
principal. The Class V-1 Certificates will
be entitled to distributions of Default
Interest and the Class V-2 Certificates will
be entitled to distributions of Excess
Interest, in each case, to the extent set
forth in the Pooling and Servicing
Agreement. The holders of the Class R
Certificates will be entitled to receive any
Available Funds remaining in the Upper-Tier
Distribution Account on any Distribution
Date after the distribution to the holders
of the Regular Certificates of all amounts
which they are entitled to receive on such
Distribution Date. The Class LR
Certificateholders will be entitled to
receive any funds remaining in the
Distribution Account on any Distribution
Date after all distributions to which the
regular interests in the Lower-Tier REMIC
are entitled on such Distribution Date have
been made and the proceeds of the remaining
assets in the Trust Fund, if any, after the
Certificate Balances of the Regular
Certificates have been reduced to zero and
the holders of the Regular Certificates have
received all other distributions to which
they are entitled. It is not anticipated
that there will be any assets remaining in
the Trust Fund on such date.
In the event that the related borrower
voluntarily prepays the Mortgage Loan known
as Malibu Canyon on any date other than a
Due Date during the 60-day period prior to
the related Anticipated Repayment Date, the
Trustee will make a special distribution of
the proceeds from such prepayment to the
Certificateholders on the second business
day following the day on which such proceeds
are received. See "Description of the
Offered Certificates --Distributions."
ADVANCES ............... The Servicer is required to make advances
("P&I Advances") in respect of delinquent
Monthly Payments on the Mortgage Loans,
subject to the limitations described herein.
P&I Advances will generally equal the
delinquent portion of the Monthly Payment as
specified in the related Note. If a borrower
defaults on its obligation to pay amounts
due on the maturity date of the related
Mortgage Loan, the Servicer will be required
to advance only an amount equal to the
principal portion of constant Monthly
Payment or portion thereof not received that
was due prior to the maturity date (with
interest at the Net Mortgage Pass-Through
Rate). The Servicer will not be required or
permitted to advance Default Interest or
Excess Interest. The amount required to be
advanced in respect of delinquent Monthly
Payments on a Mortgage Loan that has been
subject to an Appraisal Reduction Event will
equal the product of (a) the amount required
to be advanced by the Servicer without
giving effect to the related Appraisal
Reduction Amount and (b) a fraction, the
numerator of which is (i) the Stated
Principal Balance of such Mortgage Loan
minus (ii) any Appraisal Reduction Amount
thereof and the denominator of which is the
Stated Principal Balance thereof. The
Servicer will not make any P&I Advance in
respect of Reduction Interest Distribution
Amounts and Reduction Interest
S-23
<PAGE>
Shortfalls. See "Description of the Pooling
and Servicing Agreement --Advances" herein
and "Description of the Certificates
--Advances in Respect of Delinquencies" in
the Prospectus. If the Servicer fails to
make a required P&I Advance, the Trustee
will be required to make the P&I Advance,
and if the Trustee fails to make a required
P&I Advance, the Fiscal Agent will be
required to make such P&I Advance. See "The
Pooling and Servicing Agreement --Advances"
herein. Notwithstanding the foregoing, the
Servicer may make only one advance to the
most subordinate Class of Certificates in
respect of any Mortgage Loan that is
delinquent in the payment of a Monthly
Payment unless such delinquency has been
cured by the Due Date preceding the related
Distribution Date. In such a circumstance,
the Servicer may reduce the aggregate amount
of P&I Advances to be deposited by the
Servicer in respect of the amounts the
Servicer is not required to advance. See
"The Pooling and Servicing Agreement
--Advances." For purposes of determining the
most subordinate Class, (i) the Class A-1A,
Class A-1B, Class A-1C, Class A-CS1 and
Class A-CS2 Certificates collectively, and
(ii) the Class B-4 and Class B-4H
Certificates together will, in each case, be
treated as one Class. The Special Servicer
will not be obligated to make any P&I
Advance except to the extent the Special
Servicer is also the holder of the most
subordinate Class and is deemed to make
Subordinate Class Advance Amount.
SUBORDINATION .......... Except as described below, as a means of
providing a certain amount of protection to
the holders of the Class A-1A, Class A-1B,
Class A-1C, Class A-CS1, and Class A-CS2
Certificates against losses associated with
delinquent and defaulted Mortgage Loans, the
rights of the holders of the Class A-1D,
Class A-2, Class A-3, Class A-4 and Class
A-5 Certificates and the Private
Certificates (other than the Class A-CS2
Certificates) to receive distributions of
interest and principal with respect to the
Mortgage Loans, as applicable, will be
subordinated to such rights of the holders
of the Class A-1A, Class A-1B, Class A-1C,
Class A-CS1 and Class A-CS2 Certificates
(other than with respect to Reduction
Interest Distribution Amounts and Reduction
Interest Shortfalls). The Class A-1D
Certificates will be likewise protected by
the subordination of the Class A-2, Class
A-3, Class A-4 and Class A-5 Certificates
and the Private Certificates (other than the
Class A-CS2 Certificates). The Class A-2
Certificates will be likewise protected by
the subordination of the Class A-3, Class
A-4 and Class A-5 Certificates and the
Private Certificates (other than the Class
A-CS2 Certificates). The Class A-3
Certificates will be likewise protected by
the subordination of the Class A-4 and Class
A-5 and the Private Certificates (other than
the Class A-CS2 Certificates). The Class A-4
Certificate will likewise be protected by
the subordination of the Class A-5
Certificates and the Private Certificates
(other than the Class A-CS2 Certificates).
The Class A-5 Certificates will likewise be
protected by the subordination of the
Private Certificates (other than the Class
A-CS2 Certificates). This subordination will
be effected in two ways: (i) by the
preferential right of holders of a Class of
Certificates to receive on any Distribution
Date the amounts of interest and principal
distributable in respect of such
Certificates, on such date prior to any
distribution being made on such Distribution
Date in respect of any Classes (or
components) of Certificates subordinate
thereto and (ii) by the allocation of
Realized Losses (as defined herein), first,
to the Private Certificates (other than the
Class A-CS2 Certificates), second, to the
Class A-5 Certificates, third, to the Class
A-4 Certificates, fourth, to the Class A-3
Certificates, fifth, to the Class A-2
Certificates, sixth, to the Class A-1D
Certificates and finally, to the Class A-1A,
Class A-1B and Class A-1C Certificates pro
rata, based on their respective outstanding
Certificate
S-24
<PAGE>
Balances. No other form of credit
enhancement will be available for the
benefit of the holders of the Offered
Certificates. See "Description of the
Offered Certificates" herein.
Shortfalls in Available Funds resulting from
Servicing Compensation other than the
Servicing Fee, interest on Advances (to the
extent not covered by Default Interest),
Prepayment Interest Shortfalls resulting
from involuntary prepayments in excess of
the Servicing Fee payable to the Servicer in
the related Interest Accrual Period,
extraordinary expenses of the Trust Fund
(other than indemnification expenses), a
reduction on the interest rate of a Mortgage
Loan by a bankruptcy court pursuant to a
plan of reorganization or pursuant to any of
its equitable powers, a reduction in
interest rate or a forgiveness of principal
of a Mortgage Loan as described under "The
Pooling and Servicing Agreement
--Modifications" or otherwise will be
allocated in the same manner as Realized
Losses. Shortfalls in Available Funds
resulting from indemnification expenses of
the Trust Fund required to be paid pursuant
to the Pooling and Servicing Agreement will
be allocated to each Class of Certificates,
pro rata, based upon Certificate Balance and
will be allocated, first, in respect of
interest and, second, in respect of
principal. See "Description of the Offered
Certificates --Distributions --Priorities"
herein.
OPTIONAL TERMINATION ... The Depositor, and if the Depositor does not
exercise the option, the Servicer and, if
neither the Servicer nor the Depositor
exercises the option, the holders of the
Class LR Certificates representing greater
than a 50% Percentage Interest of the Class
LR Certificates, will have the option to
purchase at the purchase price specified
herein, all of the Mortgage Loans, and all
property acquired through exercise of
remedies in respect of any Mortgage Loan,
remaining in the Trust Fund, and thereby
effect termination of the Trust Fund and
early retirement of the then outstanding
Certificates, on any Distribution Date on
which the aggregate Stated Principal Balance
of the Mortgage Loans remaining in the Trust
Fund is less than 1% of the Initial Pool
Balance. See "The Pooling and Servicing
Agreement --Optional Termination" herein and
"Description of the Certificates
--Termination" in the Prospectus.
CERTAIN FEDERAL INCOME
TAX CONSEQUENCES .......... Elections will be made to treat the Trust
REMICs, and the Trust REMICs will qualify,
as two separate real estate mortgage
investment conduits (each, a "REMIC" or, in
the alternative, the "Upper-Tier REMIC" and
the "Lower-Tier REMIC," respectively) for
federal income tax purposes. The Class A-1A,
Class A-1B, Class A-1C, Class A-CS1, Class
A-CS2, Class A-1D, Class A-2, Class A-3,
Class A-4, Class A-5, Class B-1, Class B-2,
Class B-3, Class B-4 and Class B-4H
Certificates (collectively, the "Regular
Certificates") will constitute "regular
interests" in the Upper-Tier REMIC, and the
Class R and Class LR Certificates will be
designated as the sole Classes of "residual
interests" in the Upper-Tier REMIC and
Lower-Tier REMIC, respectively. The Class
V-1 Certificates will represent the right to
receive Default Interest and the Class V-2
Certificates will represent the right to
receive Excess Interest, which portions of
the Trust Fund will be treated as a grantor
trust for federal income tax purposes.
The Offered Certificates will be treated as
newly originated debt instruments for
federal income tax purposes. Beneficial
owners of the Offered Certificates will be
required to report income thereon in
accordance with the accrual method of
accounting. It is anticipated that the Class
A-CS1 Certificates will be treated as issued
with original issue discount in an amount
equal to all distributions of
S-25
<PAGE>
interest expected to be received thereon
over their respective issue prices.
Furthermore, it is anticipated that the
Class A-1A, Class A-1B, Class A-1C, Class
A-1D, Class A-2, Class A-3, Class A-4 and
Class A-5 Certificates will be issued at a
premium for federal income tax purposes. See
"Certain Federal Income Tax Consequences"
herein and "Certain Federal Income Tax
Consequences --Federal Income Tax
Consequences for REMIC Certificates" in the
Prospectus. Although not free from doubt, it
is anticipated that any Prepayment Premiums
allocable to the Offered Certificates will
be ordinary income to a Certificateholder as
such amounts accrue. See "Description of the
Offered Certificates --Distributions"
herein.
ERISA CONSIDERATIONS ... The United States Department of Labor has
issued to the Underwriter an individual
prohibited transaction exemption, Prohibited
Transaction Exemption 93-32 (the
"Exemption"), which generally exempts from
the application of certain of the prohibited
transaction provisions of Section 406 of the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and the excise
taxes imposed by Sections 4975(a) and (b) of
the Code and the civil penalties imposed by
502(i) of ERISA, transactions relating to
the purchase, sale and holding of
pass-through certificates such as the Class
A-1A, Class A-1B, Class A-1C and Class A-CS1
Certificates by employee benefit plans and
certain other retirement arrangements,
including individual retirement accounts and
Keogh plans, which are subject to Title I of
ERISA and Section 4975 of the Internal
Revenue Code of 1986, as amended (the
"Code"), (all of which are hereinafter
referred to as "Plans"), collective
investment funds in which such Plans are
invested, and insurance companies using
assets of separate accounts or general
accounts which include assets of Plans (or
which are deemed pursuant to ERISA to
include assets of Plans) and the servicing
and operation of mortgage pools such as the
Mortgage Pool, provided that certain
conditions are satisfied. See "ERISA
Considerations" herein and in the
Prospectus.
The Underwriter believes that the conditions
to the applicability of the Exemption will
generally be met with respect to the Class
A-1A, Class A-1B, Class A-1C and Class A-CS1
Certificates, other than possibly those
conditions which are dependent on facts
unknown to the Underwriter or which it
cannot control, such as those relating to
the circumstances of the Plan purchaser or
the Plan fiduciary making the decision to
purchase any such Class of Certificates.
However, before purchasing an Offered
Certificate, a fiduciary of a plan should
make its own determination as to the
availability of the exemptive relief
provided by the Exemption or the
availability of any other exemption and
whether the conditions of any such exemption
will be applicable to the Offered
Certificates.
THE CLASS A-1D, CLASS A-2, CLASS A-3, CLASS
A-4 AND CLASS A-5 CERTIFICATES ARE
SUBORDINATE TO ONE OR MORE OTHER CLASSES OF
CERTIFICATES AND, ACCORDINGLY, SUCH
CERTIFICATES SHOULD NOT BE PURCHASED BY OR
TRANSFERRED TO A PLAN OR PERSON ACTING ON
BEHALF OF ANY PLAN OR USING THE ASSETS OF
ANY SUCH PLAN, UNLESS SUCH PERSON USING PLAN
ASSETS IS AN INSURANCE COMPANY AND THE
PURCHASE AND HOLDING OF ANY SUCH CERTIFICATE
WOULD BE EXEMPT FROM THE PROHIBITED
TRANSACTION PROVISIONS OF ERISA AND THE CODE
UNDER PROHIBITED TRANSACTION EXEMPTION
95-60. SEE "DESCRIPTION OF THE OFFERED
CERTIFICATES --TRANSFER RESTRICTIONS"
HEREIN.
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<PAGE>
RATINGS ............... It is a condition to the issuance of the
Offered Certificates that (i) the Class
A-1A, Class A-1B and Class A-1C Certificates
be rated "AAA" by each of Duff & Phelps
Credit Rating Co. ("DCR") and Fitch
Investors Service, L.P. ("Fitch") and "Aaa"
by Moody's Investors Service, Inc.
("Moody's"), and together with DCR and
Fitch, the "Rating Agencies" and, each, a
"Rating Agency"), (ii) the Class A-CS1
Certificates be rated "AAA" by each of DCR
and Fitch and "Aaa" by Moody's, (iii) the
Class A-1D Certificates be rated "AAA" by
Fitch and "Aa1" by Moody's, (iv) the Class
A-2 Certificates be rated "AA" by Fitch and
"Aa2" by Moody's, (v) the Class A-3
Certificates be rated "A" by Fitch and "A2"
by Moody's, (vi) the Class A-4 Certificates
be rated "BBB" by Fitch and "Baa2" by
Moody's and (vii) the Class A-5 Certificates
be rated "Baa3" by Moody's. A security
rating is not a recommendation to buy, sell
or hold securities and may be subject to
revision or withdrawal at any time by the
assigning rating organization. A security
rating does not address the frequency of
prepayments (both voluntary and involuntary)
or the possibility that Certificateholders
might suffer a lower than anticipated yield,
nor does a security rating address the
likelihood of receipt of Prepayment
Premiums, Net Default Interest or Excess
Interest. 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 A-CS1 Certificates might not fully
recover their initial investment in the
event of delinquencies or rapid prepayments
of the Mortgage Loans (including both
voluntary and involuntary prepayments). As
described herein, the amounts payable with
respect to the Class A-CS1 Certificates
consist only of interest. If the entire pool
were to prepay in the initial month, with
the result that the Class A-CS1
Certificateholders receive only a single
month's interest and thus suffer a nearly
complete loss of their investment, all
amounts "due" to such holders will
nevertheless have been paid, and such result
is consistent with the rating received on
each of the Class A-CS1 Certificates.
Accordingly, the ratings of the Class A-CS1
Certificates should be evaluated
independently from similar ratings on other
types of securities. The ratings do not
address the fact that the Pass-Through Rates
of the Offered Certificates to the extent
that they are based on the Weighted Average
Net Mortgage Pass-Through Rate will be
affected by changes therein. See "Risk
Factors and Other Special Considerations"
and "Rating" herein and "Yield
Considerations" in the Prospectus.
LEGAL INVESTMENT ....... The appropriate characterization of the
Offered Certificates under various legal
investment restrictions, and thus the
ability of investors subject to these
restrictions to purchase the Offered
Certificates, may be subject to significant
interpretative uncertainties. The Offered
Certificates will not be "mortgage related
securities" within the meaning of the
Secondary Mortgage Market Enhancement Act of
1984. Accordingly, investors should consult
their own legal advisors to determine
whether and to what extent the Offered
Certificates constitute legal investments
for them. See "Legal Investment" herein and
in the Prospectus.
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<PAGE>
RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS
Prospective holders of Offered Certificates should consider, among other
things, the following factors in connection with the purchase of the Offered
Certificates.
THE MORTGAGE LOANS
Borrower Default; Nonrecourse Mortgage Loans. The Mortgage Loans are not
insured or guaranteed by any governmental entity, by any private mortgage
insurer, or by the Depositor, the Mortgage Loan Seller, the Servicer, the
Special Servicer, any Originator, the Trustee, the Fiscal Agent or any of
their respective affiliates. As more fully described under "Description of
the Mortgage Pool --The Mortgage Loan Program --Underwriting Standards;
Representations" and "The Pooling and Servicing Agreement --Representations
and Warranties; Repurchase," the Mortgage Loan Seller and the Originators
will each be obligated to repurchase a Mortgage Loan if certain of their
respective representations or warranties concerning such Mortgage Loan are
breached. However, there can be no assurance that any such entity will be in
a financial position to effect such repurchase.
Each Mortgage Loan is a nonrecourse loan as to which, in the event of a
default under such Mortgage Loan, recourse generally may be had only against
the specific properties and other assets that have been pledged to secure the
Mortgage Loan. Consequently, payment on each Mortgage Loan prior to maturity
is dependent primarily on the sufficiency of the net operating income of the
related Mortgaged Property, and at maturity (whether at scheduled maturity
or, in the event of a default under the related Mortgage Loan, upon the
acceleration of such maturity) upon the then market value of the related
Mortgaged Property or the ability of the related borrower to refinance the
Mortgaged Property.
Commercial and Multifamily Lending Generally. The Mortgage Loans are
secured by multifamily residential properties, full and limited service
hotels, office buildings, anchored and unanchored retail properties, mobile
home and recreational vehicle parks, nursing homes, a design center and
industrial properties. For the purposes of the tables in this Prospectus
Supplement, the Mortgaged Property identified as Atlanta Decorative Arts
Center on Annex A hereto, which is a design center, is treated as an office
building. Commercial and multifamily lending is generally viewed as exposing
a lender to a greater risk of loss than residential one-to-four-family
lending. Commercial and multifamily lending typically involves larger loans
to a single obligor than residential one-to-four-family lending.
Commercial and multifamily property values and net operating income are
subject to volatility. The repayment of loans secured by income producing
properties is typically dependent upon the successful operation of the
related real estate project. The net operating income and value of the
Mortgaged Properties may be adversely affected by a number of factors,
including but not limited to the national, regional and local economic
conditions (which may be adversely impacted by plant closings, industry
slowdowns and other factors); local real estate conditions (such as an
oversupply of housing, retail space, office space or hotel rooms); changes or
continued weakness in specific industry segments; changes in applicable
healthcare regulations, including reimbursement requirements; perceptions by
prospective tenants and, in the case of retail properties, retailers and
shoppers, of the safety, convenience, services and attractiveness of the
property; the willingness and ability of the property's owner to provide
capable management and adequate maintenance; demographic factors; retroactive
changes to building or similar codes; increases in operating expenses (such
as energy costs); and laws regulating the maximum rental permitted to be
charged to a tenant. Historical operating results of the Mortgaged Properties
may not be comparable to future operating results. In addition, other factors
may adversely affect the Mortgaged Properties' value without affecting their
current net operating income, including changes in governmental regulations,
zoning or tax laws; potential environmental or other legal liabilities; the
availability of refinancing; and changes in interest rate levels.
The successful operation of a real estate project, particularly a project
involving a hotel or nursing home, is dependent on the performance and
viability of the property manager of such project. The property manager is
responsible for responding to changes in the local market, planning and
implementing the rental structure, including establishing levels of rent
payments, and advising the borrowers so that maintenance and capital
improvements are carried out in a timely fashion. There is no assurance
regarding the performance of any operators and/or managers or persons who may
become operators and/or managers upon the expiration or termination of leases
or management agreements or following any default or foreclosure under a
Mortgage Loan. Moreover, certain of the properties secured by the Mortgage
Loans are managed by the same manager, as described below under
"--Concentration of Mortgage Loans, Borrowers and Managers."
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<PAGE>
The age, construction quality and design of a particular property may
affect the occupancy level as well as the rents that may be charged for
individual leases. The effects of poor construction quality will increase
over time in the form of increased maintenance and capital improvements. Even
good construction will deteriorate over time if the property managers do not
schedule and perform adequate maintenance in a timely fashion. If, during the
terms of the Mortgage Loans, properties of a similar type are built in the
areas where the Mortgaged Properties of such type are located or other
similar properties in such areas are substantially updated and refurbished,
the value and net operating income of such Mortgaged Properties could be
reduced. There is no assurance that the value of any Mortgaged Property
during the term of the related Mortgage Loan will equal or exceed its
appraised value at the date of origination of such Mortgage Loan.
Additionally, some of the Mortgaged Properties may not readily be
converted to alternative uses if such Mortgaged Properties were to become
unprofitable due to competition, age of the improvements, decreased demand or
other factors. The conversion of nursing homes or hotels to alternative uses
would generally require substantial capital expenditures. Thus, if the
operation of any such Mortgaged Properties becomes unprofitable such that the
borrower becomes unable to meet its obligations on the related loan, the
liquidation value of any such property may be substantially less, relative to
the amount owing on the related loan, than would be the case if such property
were readily adaptable to other uses.
Other multifamily residences, hotels, retail properties, office buildings,
mobile home parks, nursing homes and industrial properties located in the
areas of the Mortgaged Properties compete with the Mortgaged Properties of
such types to attract residents, retailers, customers, patients and tenants.
In addition, retailers at the Mortgaged Properties that have retail space
face competition from discount shopping centers and clubs, factory outlet
centers, direct mail and telemarketing. Increased competition could adversely
affect income from and market value of the Mortgaged Properties.
Management. The successful operation of a real estate project is also
dependent on the performance and viability of the property manager of such
project. The property manager is responsible for responding to changes in the
local market, planning and implementing the rental structure, including
establishing levels of rent payments, operating the retail properties and
advising the borrowers so that maintenance and capital improvements can be
carried out in a timely fashion. There is no assurance regarding the
performance of any operators and/or managers or persons who may become
operators and/or managers upon the expiration or termination of leases or
management agreements or following any default or foreclosure under a
Mortgage Loan. In addition, all of 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
thereof.
A dispute between the partners or members of a borrower could disrupt the
management of the underlying property which may cause an adverse effect on
cash flow.
Retail, Office and Mixed Use Properties. Certain of the Mortgage Loans are
secured by retail properties (both for which there is an anchor tenant and
for which there is not, as set forth on Annex A hereto), office buildings and
mixed-use facilities. See "Description of the Mortgage Pool --Additional
Mortgage Loan Information --Types of Mortgaged Property" herein. These types
of properties generally derive all or a substantial percentage of their
income from lease payments from commercial tenants.
Income from and the market value of such Mortgaged Properties would be
adversely affected if space in the Mortgaged Properties could not be leased,
if tenants were unable to meet their lease obligations, if a significant
tenant were to become a debtor in a bankruptcy case under the United States
Bankruptcy Code or if for any other reason rental payments could not be
collected. If tenant sales in the Mortgaged Properties that contain retail
space were to decline, percentage rents may decline and tenants may be unable
to pay their rent or other occupancy costs. Upon the occurrence of an event
of default by a tenant, delays and costs in enforcing the lessor's rights
could be experienced. Repayment of the Mortgage Loans will be affected by the
expiration of space leases and the ability of the respective borrowers to
renew the leases or relet the space on comparable terms. Even if vacated
space is successfully relet, the costs associated with reletting, including
tenant improvements, leasing commissions and free rent, could be substantial
and could reduce cash flow from the Mortgaged Properties.
Anchor tenants in shopping centers traditionally have been a major factor
in the public's perception of a shopping center. The anchors at a shopping
center play an important part in generating customer traffic and making a
center a desirable location for other tenants of the center. The failure of
an anchor tenant to renew its lease, the termination of an
S-29
<PAGE>
anchor tenant's lease, the bankruptcy or economic decline of an anchor
tenant, or the cessation of the business of an anchor (notwithstanding its
continued payment of rent) can have a material negative effect on the
economic performance of a shopping center property. In addition, the failure
of any anchor tenant to operate from its premises may give certain tenants
the right to terminate or reduce rents under their leases.
Office and industrial properties may also be adversely affected if there
is an economic decline in the business operated by their tenants. The risk of
such an adverse effect 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.
Hotels. Certain of the Mortgage Loans (each, a "Hotel Loan") are secured
by full service hotels, limited service hotels, hotels associated with
national franchise chains, hotels associated with regional franchise chains
and hotels that are not affiliated with any franchise chain but may have
their own brand identity (each, a "Hotel Property"). See "Description of the
Mortgage Pool --Additional Mortgage Loan Information --Types of Mortgaged
Property" herein for certain statistical information on the Hotel Properties
and Hotel Loans.
Various factors, including location, quality and franchise affiliation
affect the economic performance of a hotel. Adverse economic conditions,
either local, regional or national, may limit the amount that can be charged
for a room and may result in a reduction in occupancy levels. The
construction of competing hotels can have similar effects. To meet
competition in the industry and to maintain economic values, continuing
expenditures must be made for modernizing, refurbishing, and maintaining
existing facilities prior to the expiration of their anticipated useful
lives. Because hotel rooms generally are rented for short periods of time,
hotels tend to respond more quickly to adverse economic conditions and
competition than do other commercial properties. Furthermore, the financial
strength and capabilities of the owner and operator of a hotel may have an
impact on such hotel's quality of service and economic performance.
Additionally, the hotel and lodging industry is generally seasonal in nature
and this seasonality can be expected to cause periodic fluctuations in room
and other revenues, occupancy levels, room rates and operating expenses. The
demand for particular accommodations may also be affected by changes in
travel patterns caused by changes in energy prices, strikes, relocation of
highways, the construction of additional highways and other factors.
Certain of the Hotel Properties are franchisees of national or regional
hotel chains. The viability of any such Hotel Property depends in part on the
continued existence and financial strength of the franchisor, the public
perception of the franchise service mark and the duration of the franchise
licensing agreements. The transferability of franchise license agreements may
be restricted and, in the event of a foreclosure on any such Hotel Property,
such property would not have the right to use the franchise license without
the franchisor's consent. Conversely, a lender may be unable to remove a
franchisor that it desires to replace following a foreclosure. Further, in
the event of a foreclosure on a Hotel Property, it is unlikely that the
Trustee (or Servicer or Special Servicer) or purchaser of such Hotel Property
may be entitled to the rights under any liquor license for such Hotel
Property and such party would be required to apply in its own right for such
license or licenses. There can be no assurance that a new license could be
obtained or that it could be obtained promptly.
Mobile Home Properties. Certain of the Mortgaged Properties are operated
as mobile home parks, recreational vehicle parks or combinations thereof. See
"Description of the Mortgage Pool --Additional Mortgage Loan Information
- --Types of Mortgaged Property" for certain statistical information on such
loans. Loans secured by liens on properties of these types pose risks not
associated with loans secured by liens on other types of income-producing
real estate. The successful operation of a mobile home park will generally
depend upon the number of competing mobile home parks and other residential
developments in the local market (such as apartment buildings, other
manufactured housing communities and site-built single family homes), as well
as upon other factors such as its age, appearance, reputation, the ability of
management to provide adequate maintenance and insurance, and the types of
services it provides. The Mobile Home Properties are "special purpose"
properties that could not be readily converted to general residential, retail
or office use. Thus, if the operation of any of the Mobile Home Properties
becomes unprofitable due to competition, age of the improvements or other
factors such that the borrower becomes unable to meet its obligations on the
related Mortgage Loan, the liquidation value of that Mobile Home Property may
be substantially less, relative to the amount owing on the Mortgage Loan,
than would be the case if the Mobile Home Property were readily adaptable to
other uses.
Certain states regulate the relationship of a mobile home park owner and
its tenants. Commonly, these laws require a written lease, good cause for
eviction, disclosure of fees, and notification to residents of changed land
use, while prohibiting unreasonable rules, retaliatory evictions, and
restrictions on a resident's choice of unit vendors. Mobile home park owners
have been the subject of suits under state "Unfair and Deceptive Practices
Acts" and other general consumer
S-30
<PAGE>
protection statutes for coercive, abusive or unconscionable leasing and sales
practices. A few states offer more significant protection. For example, there
are provisions that limit the basis on which a landlord may terminate a
mobile home owner's tenancy or increase its rent or prohibit a landlord from
terminating a tenancy solely by reason of the sale of the owner's mobile
home.
Certain states also regulate changes in mobile home park use and require
that the landlord give written notice to its tenants a substantial period of
time prior to the projected change.
In addition to state regulation of the landlord-tenant relationship,
numerous counties and municipalities impose rent control on mobile home
parks. These ordinances may limit rent increases to fixed percentages, to
percentages of increases in the consumer price index, to increases set or
approved by a governmental agency, or to increases determined through
mediation or binding arbitration. In many cases, the rent control laws do not
permit vacancy decontrol, or permit vacancy decontrol only in the relatively
rare event that the mobile home is removed from the homesite. Local authority
to impose rent control on mobile home parks is pre-empted by state law in
certain states, and rent control is not imposed at the state level in those
states. In some states, however, local rent control ordinances are not
pre-empted for tenants having short-term or month-to-month leases, and
properties there may be subject to various forms of rent control with respect
to those tenants. Any limitations on a borrower's ability to raise property
rents may impair such borrower's ability to repay its Mortgage Loan from its
net operating income or the proceeds of a sale or refinancing of the related
Mortgaged Property.
Senior Housing Properties. Certain of the Mortgaged Properties are
operated as nursing homes. See "Description of the Mortgage Pool --Additional
Mortgage Loan Information --Types of Mortgaged Property" herein for certain
statistical information on such loans. Loans secured by liens on nursing
homes pose risks not associated with loans secured by liens on other types of
income-producing real estate.
Providers of long-term nursing care 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 facilities and services and, to the
extent dependent on patients whose fees are reimbursed by private insurers,
to the reimbursement policies of such insurers. 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 for continued licensing under state law and continued
participation in the Medicaid and Medicare reimbursement programs. The
failure of any of such borrowers 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. Furthermore, in the
event of foreclosure, there can be no assurance that the Trustee (or Servicer
or Special Servicer) or purchaser in 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. There can be no assurance that a new license could
be obtained.
Under applicable federal and state laws and regulations, Medicare and
Medicaid, only the provider who actually furnished the related medical goods
and services generally may sue for or enforce its rights to reimbursement.
Accordingly, in the event of foreclosure, none of the Trustee, the Servicer,
the Special 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.
The operators of such nursing homes 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
Mortgaged Property that is a nursing home will generally depend upon the
number of competing facilities in the local market, as well as upon other
factors such as its age, appearance, reputation and management, the types of
services it provides and, where applicable, the quality of care and the cost
of that care.
Nursing facilities may 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 are currently under
consideration various proposals for national health care reform that could
further
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<PAGE>
limit those payments. Accordingly, there can be 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 revenues from those
sources, and consequently the ability of the related borrowers to meet their
Mortgage Loan obligations, could be adversely affected.
Concentration of Mortgage Loans; Borrowers and Managers. Several of the
Mortgage Loans have Cut-off Date Principal Balances that are substantially
higher than the average Cut-off Date Principal Balance. The largest single
Mortgage Loan is secured by one property, the Hyatt Regency Riverwalk in San
Antonio, Texas, and has a Cut-off Date Principal Balance that represents
approximately 9% of the Initial Pool Balance. The ten largest Mortgage Loans
have Cut-off Date Principal Balances that represent, in the aggregate,
approximately 45% of the Initial Pool Balance.
The following table sets forth certain information with respect to those
Mortgage Loans made to affiliated borrowers and that represent more than 1%
of the Initial Pool Balance. Except as set forth below, none of the groups of
Mortgage Loans made to affiliated borrowers represent, in the aggregate by
group, more than 0.97% of the Initial Pool Balance.
MORTGAGE LOANS MADE TO AFFILIATED BORROWERS (1)
% OF INITIAL
PROPERTY NAME AFFILIATED BORROWER POOL BALANCE
- ---------------------- -------------------------------- ----------------
Van Ness .............. Charles Company Portfolio I 0.8%
Martin Luther King ... Charles Company Portfolio I 0.1%
Adams ................. Charles Company Portfolio II 0.1%
Western ............... Charles Company Portfolio II 0.5%
Hoover ................ Charles Company Portfolio II 0.2%
TOTAL: 1.8%
- ------------
(1) See "--Limitations on the Enforceability of Cross-Collateralization"
below and "Description of the Mortgage Pool --Cross-Collateralization
and Cross-Default of Certain Mortgage Loans" herein.
Eleven Mortgage Loans are secured by more than one Mortgaged Property, the
four largest of which are set forth in the following table.
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<PAGE>
MORTGAGE LOANS MADE TO ONE BORROWER AND SECURED BY MORE THAN ONE MORTGAGED
PROPERTY
% OF INITIAL
PROPERTY NAME BORROWER POOL BALANCE
- ------------------------------ ----------------------------- ----------------
Antigua Bay ................... Pacific Properties 1.6%
Club Pacific at Lakes ......... Pacific Properties 0.9%
Club Pacific at Shores ........ Pacific Properties 1.0%
Club Pacific at Flamingo ..... Pacific Properties 1.5%
Martinique Bay ................ Pacific Properties 1.5%
Montego Bay ................... Pacific Properties 2.2%
----
TOTAL: 8.7%
Carter Creek .................. Pinnacle Retail Portfolio 0.7%
Lakegrove ..................... Pinnacle Retail Portfolio 0.4%
University Hills .............. Pinnacle Retail Portfolio 0.3%
Triple Creek .................. Pinnacle Retail Portfolio 0.3%
Plaza ......................... Pinnacle Retail Portfolio 0.2%
Edgewood ...................... Pinnacle Retail Portfolio 0.1%
Limestone Square .............. Pinnacle Retail Portfolio 0.1%
Brookhaven .................... Pinnacle Retail Portfolio 0.1%
----
TOTAL: 2.1%
Westway Village ............... Ambassador Apartments 0.6%
Coral Cove .................... Ambassador Apartments 0.5%
Summit Creek .................. Ambassador Apartments 0.5%
Tatum Gardens ................. Ambassador Apartments 0.4%
----
TOTAL: 2.1%
Comfort Inn --Mystic .......... Slavik Suites 0.9%
Residence Inn --Norman ........ Slavik Suites 0.5%
Comfort Inn --Southington .... Slavik Suites 0.3%
Holiday Inn --Cromwell ........ Slavik Suites 0.3%
Ramada Inn --Pensacola ........ Slavik Suites 0.2%
Ramada Plaza-Fon du Lac ...... Slavik Suites 0.0%
----
TOTAL: 2.2%
In general, concentrations in a mortgage pool in which one or more loans
that have outstanding principal balances that are substantially larger than
the other mortgage loans in such pool 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 such pool were more evenly distributed among the
mortgage loans in such pool. Concentrations of Mortgage Loans with the same
borrower or related borrowers can also pose increased risks. For example, if
a person that owns or controls several Mortgaged Properties experiences
financial difficulty at one Mortgaged Property, or at another
income-producing property that it owns or controls, it could defer
maintenance at one Mortgaged Property in order to satisfy current expenses
with respect to another Mortgaged Property or other income-producing property
that it owns or controls, or it could attempt to avert foreclosure by filing
a bankruptcy petition that might have the effect of interrupting Monthly
Payments (subject to the Servicer's obligation to make Advances) for an
indefinite period on all of the related Mortgage Loans.
Limitations on Enforceability of Cross-Collateralization. Eleven of the
Mortgage Loans representing approximately 20.3% of the Initial Pool Balance
are secured by more than one Mortgaged Property. These arrangements seek to
reduce the risk that the inability of a Mortgaged Property securing each such
Mortgage Loan to generate net operating income sufficient to pay debt service
will result in defaults and ultimate losses. See " --Concentration of
Mortgage Loans, Borrowers and Managers" above.
Cross-collateralization arrangements involving more than one borrower,
however, could be challenged as fraudulent conveyances by creditors of a
borrower or by the representative of the bankruptcy estate of a borrower, if
a borrower were
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<PAGE>
to become a debtor in a bankruptcy case. Generally, under federal and most
state fraudulent conveyance statutes, the incurring of an obligation or the
transfer of property by a person will be subject to avoidance under certain
circumstances if the person did not receive fair consideration or reasonably
equivalent value in exchange for such obligation or transfer and (i) was
insolvent or was rendered insolvent by such obligation or transfer, (ii) was
engaged in business or a transaction, or was about to engage in business or a
transaction, for which any property remaining with the person was an
unreasonably small capital or (iii) intended to, or believed that it would,
incur debts that would be beyond the person's ability to pay as such debts
matured. Accordingly, a lien granted by a borrower to secure repayment of
another borrower's Mortgage Loan could be avoided if a court were to
determine that (i) such borrower was insolvent at the time of granting the
lien, was rendered insolvent by the granting of the lien, or was left with
inadequate capital, or was not able to pay its debts as they matured and (ii)
the borrower did not, when it allowed its Mortgaged Property to be encumbered
by a lien securing the entire indebtedness represented by the other Mortgage
Loan, receive fair consideration or reasonably equivalent value for pledging
such Mortgaged Property for the equal benefit of the other borrower.
Other Financing. The Mortgage Loans generally prohibit incurring any debt
that is secured by the related Mortgaged Property. The Mortgage Loans do,
however, generally permit the related borrower to incur indebtedness in
limited circumstances for the purchase of certain items used in the ordinary
course of business, such as equipment. The existence of such other
indebtedness could adversely affect the financial viability of the related
borrowers or the security interest of the lender in the equipment or other
assets acquired through such financings. See "Certain Legal Aspects of the
Mortgage Loans --Subordinate Financing" in the Prospectus. In addition, an
affiliate of the Mortgage Loan Seller (the "Preferred Interest Holder") has
acquired a preferred equity interest in certain of the borrowers as set forth
on the following table:
PREFERRED EQUITY INVESTMENTS IN BORROWERS
APPROXIMATE
AMOUNT OF
PREFERRED EQUITY
MORTGAGE LOAN INVESTMENT(1)
- ----------------------------- ----------------
Lee Park ..................... $ 5,355,000(2)
Atlanta Decorative Art Center $ 1,591,745
Anchorage Shopping Center ... $ 1,500,000
Pinnacle Retail Portfolio ... $ 1,490,000
RCA-Addison .................. $ 450,000
First Tennessee Bank Building $ 412,429
Gramercy Apts. ............... $ 400,000
Holiday Inn -Monroe .......... $ 372,105
Ridgewood Village Apartments $ 353,000
Foothill Courtyard Apartments $ 181,000
----------------
- ------------
(1) As of the Cut-off Date.
(2) The borrower under the Mortgage Loan known as the Lee Park loan
informed the Preferred Interest Holder that it intends to redeem the
preferred equity investment in such borrower on or about the Closing
Date. There can be no assurance that the borrower will effect such
redemption.
The Preferred Interest Holder is not entitled or obligated to make any
further capital contributions to any such borrower. The Mortgage Loan Seller
has, however, agreed to make up to a $500,000 capital contribution to an
affiliate of the borrower under the Mortgage Loan known as the Pacific
Properties loan, provided that certain cash flow requirements are satisfied.
In general, with respect to each such borrower, the Preferred Interest Holder
is entitled to receive certain preferred distributions prior to distributions
being made to the other partners or members. No monthly distribution to the
Preferred Interest Holder is permitted to be made until all required monthly
debt service payments, reserve payments and other payments under the related
Mortgage Loan ("Monthly Mortgage Loan Payments") have been made when due and
all monthly operating expenses with respect to the related Mortgaged Property
("Monthly Operating Expenses") have been paid. After payment of such amounts,
the Preferred Interest Holder is entitled to receive a distribution of a
preferred yield and a monthly return of capital equal to the greater of a
scheduled minimum payment and specified percentage (if certain breaches have
occurred, 100%) of cash flow from the Mortgaged Property or Properties, after
payment of Monthly Mortgage Loan Payments, Monthly Operating Expenses and the
monthly preferred yield to the Preferred Interest Holder.
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<PAGE>
Under the related partnership agreement, operating agreement or similar
arrangement, the Preferred Interest Holder has certain specified rights,
including the right to terminate and replace the manager of the related
Mortgaged Property or Properties upon the occurrence of certain specified
breaches or if the Debt Service Coverage Ratio as of certain dates falls
below certain levels generally equal to the Debt Service Coverage Ratio at
the time of the origination of the related Mortgage Loan. However, the right
of the Preferred Interest Holder to terminate any manager is expressly
subordinate to the right of the Servicer to terminate and replace such
manager. If the Preferred Interest Holder is entitled to terminate a manager
at a time when the Servicer does not have such a right, then prior to
termination, the Preferred Interest Holder must receive confirmation from
each of the Rating Agencies that such termination would not cause any Rating
Agency to withdraw, qualify or downgrade any of its then-current ratings on
the Certificates. Other than the increase in the percentage of the cash flow
used to calculate the monthly return of capital and the right to terminate
the manager as described above, the Preferred Interest Holder has no further
remedies under the relevant partnership, operating or similar agreement in
the event of nonpayment of its monthly preferred yield and return of capital.
In general, the Preferred Interest Holder has the right to approve the
annual budget for the Mortgaged Properties, which right is subject to any
right that the Servicer may have to approve such budgets. The Preferred
Interest Holder also has the right to approve certain actions of the related
borrowers, including certain transactions with affiliates, prepayment or
refinancing of the related Mortgage Loan, transfer of the related Mortgaged
Property, entry into or modification of substantial leases or improvement of
the related Mortgaged Properties to a materially higher standard than
comparable properties in the vicinity of such Mortgaged Properties (unless
approved by the Servicer as described below), and the dissolution,
liquidation or the taking of certain bankruptcy actions with respect to the
borrower. With respect to the entry into or modification of substantial
leases or the making of any capital improvements in addition to those
reserved for under the related Mortgage Loan, the Servicer alone may approve
such leases and improvements without the consent of the Preferred Interest
Holder. In such event, the expenditure of amounts to make such additional
capital improvements, rather than to make the monthly distribution to the
Preferred Interest Holder, will not cause a breach which gives rise to a
right to terminate the related manager.
Tax Considerations Related to Foreclosure. If the Trust Fund were to
acquire a Mortgaged Property subsequent to a default on the related Mortgage
Loan pursuant to a foreclosure or deed in lieu of foreclosure, the Special
Servicer would be required to retain an independent contractor to operate and
manage the Mortgaged Property. Any net income from such operation and
management, other than qualifying "rents from real property," or any rental
income based on the net profits of a tenant or sub-tenant or allocable to a
service that is non-customary in the area and for the type of building
involved, will subject the Trust REMIC to federal (and possibly state or
local) tax on such income at the highest marginal corporate tax rate
(currently 35%), thereby reducing net proceeds available for distribution to
Certificateholders. See "Certain Federal Income Tax Consequences --Federal
Income Tax Consequences for REMIC Certificates" " --Taxes That May Be Imposed
on the REMIC Pool --Net Income From Foreclosure Property" in the Prospectus.
Risk of Different Timing of Mortgage Loan Amortization. As set forth on
the table below, the different types of Mortgaged Properties securing the
Mortgaged Loans have varying weighted average terms to maturity. If and as
principal payments or prepayments are made on a Mortgage Loan, the remaining
Mortgage Pool will be subject to more concentrated risk with respect to the
diversity of properties, types of properties, geographic concentration (see
"--Geographic Concentration" below) and with respect to the number of
borrowers. Because principal on the Offered Certificates is payable in
sequential order, and no Class receives principal until the Certificate
Balance of the preceding Class or Classes has been reduced to zero, Classes
that have a later sequential designation are more likely to be exposed to the
risk of concentration discussed in the preceding sentence than Classes with
higher sequential priority.
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<PAGE>
WEIGHTED AVERAGE TERMS TO MATURITY FOR VARIOUS PROPERTY TYPES
WEIGHTED AVERAGE
REMAINING TERM TO
MATURITY OR
ANTICIPATED
% OF INITIAL REPAYMENT DATE
PROPERTY TYPE POOL BALANCE (IF APPLICABLE )
- ------------------------ -------------- -----------------
Multifamily ............. 28.9% 128
Hotel (Full Service) ... 15.4 178
Hotel (Limited Service) 11.2 169
Office .................. 13.1 130
Retail (Anchored) ....... 11.8 133
Retail (Unanchored) .... 7.0 138
Mobile Home/RV Park .... 6.4 155
Industrial Park ......... 3.5 118
Nursing Home ............ 2.7 150
-----------------
TOTAL: 100% 144
Geographic Concentration. The Mortgaged Properties are located in 29
states. The table below sets forth the states in which a significant
percentage of the Mortgaged Properties are located. See the table entitled
"Geographic Distribution of the Mortgaged Properties" for a description of
geographic location of the Mortgaged Properties. Except as set forth below,
no state contains more than 4% (by Cut-off Date Principal Balance or
Allocated Loan Amount) of the Mortgaged Properties.
SIGNIFICANT GEOGRAPHIC CONCENTRATION OF MORTGAGED PROPERTIES
NUMBER OF
% OF INITIAL MORTGAGED
STATE POOL BALANCE PROPERTIES
- ------------ -------------- ------------
California . 26.5% 21
Texas ....... 17.4 22
Nevada ...... 9.4 7
Arizona ..... 5.9 13
Georgia ..... 5.8 5
Florida ..... 4.6 13
Repayments by borrowers and the market value of the Mortgaged Properties
could be adversely affected by economic conditions generally or in regions
where the borrowers and the Mortgaged Properties are located, conditions in
the real estate markets where the Mortgaged Properties are located, changes
in governmental rules and fiscal policies, acts of nature (which may result
in uninsured losses), and other factors which are beyond the control of the
borrowers.
The economy of any state or region in which a Mortgaged Property is
located may be adversely affected to a greater degree than that of other
areas of the country by certain developments affecting industries
concentrated in such state or region. Moreover, in recent periods, several
regions of the United States have experienced significant downturns in the
market value of real estate. To the extent that general economic or other
relevant conditions in states or regions in which concentrations of Mortgaged
Properties securing significant portions of the aggregate principal balance
of the Mortgage Loans are located decline and result in a decrease in
commercial property, housing or consumer demand in the region, the income
from and market value of the Mortgaged Properties may be adversely affected.
Environmental Law Considerations. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner
or operator of real property may be liable for the costs of removal or
remediation of hazardous or toxic substances on, under, adjacent to, or in
such property. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The cost of any required remediation and the owner's
liability therefor as to any property is generally not limited under such
enactments and could exceed the value of the property and/or the aggregate
assets of the owner. In addition, the presence of hazardous or toxic
substances, or the failure to properly remediate such property, may adversely
affect the owner's or operator's ability to refinance using such property as
collateral. Persons who arrange for the disposal or treatment of
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<PAGE>
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at the disposal or treatment facility. Certain
laws impose liability for release of asbestos containing materials ("ACMs")
into the air or require the removal or containment of ACMs and third parties
may seek recovery from owners or operators of real properties for personal
injury associated with ACMs or other exposure to chemicals or other hazardous
substances.
Under some environmental laws, such as the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA"), as well as certain state laws, a secured lender (such as the
Trust Fund) may be liable, as an "owner" or "operator," for the costs of
responding to a release or threat of a release of hazardous substances on or
from a borrower's property, if (i) agents or employees of a lender are deemed
to have participated in the management of the borrower or (ii) the Trust Fund
actually takes possession of a borrower's property or control of its
day-to-day operations, as for example, through the appointment of a receiver,
in either case, regardless of whether a previous owner caused the
environmental damage. The Trust Fund's potential exposure to liability for
cleanup costs pursuant to CERCLA may increase if the Trust Fund actually
takes possession of a borrower's property, or control of its day-to-day
operations, as for example through the appointment of a receiver.
All of the Mortgaged Properties have been subject to environmental site
assessments within the eighteen months preceding the Cut-off Date. No
assessment revealed any environmental condition or circumstance that the
Depositor believes will have a material adverse impact on the borrower's
ability to pay its debt. The environmental site assessment of the Mortgaged
Property identified as the Western (in the Charles Company II Portfolio)
revealed the presence of contaminants from a gas station previously located
on the site. The Exxon Corporation has indemnified the related borrower and
the Depositor with respect to any losses resulting from this contamination.
In the cases where the environmental assessments revealed the existence of
non-friable ACMs, the borrowers agreed to establish and maintain operations
and maintenance programs and/or environmental reserves. With respect to
several of the Mortgaged Properties, the environmental assessments revealed
the existence of friable ACMs. In these cases, in accordance with the
recommendations of the environmental consultant, the borrowers established an
environmental reserve for such removal or implemented an operations and
maintenance or abatement program. In the case of the Mortgage Loan secured by
the First Tennessee Bank Building, asbestos-containing materials were found
in the fireproofing spray, floor tile and pipe insulation in the drop
ceilings. To address such condition, air quality monitoring systems have been
in place for several years, an operations and maintenance program was
implemented at loan closing and a loan reserve was established which is
required to be funded in the amount of $21,573 each month until the Servicer
deems such reserve unnecessary. At the Mortgaged Property known as Lake
Arrowhead Village, a subsurface investigation found low levels of PCE. The
spill was traced to a dry cleaner and the environmental consultant determined
that water contamination was unlikely. However, the related borrower has
established a $180,000 reserve to cover certain remediation recommended by
the environmental consultant to clean up the spill, remediate any water
contamination, if discovered, and prevent further spills. Certain of the
other Mortgaged Properties have off-site LUST sites located nearby which the
environmental consultant has advised are not likely to contaminate the
related Mortgaged Properties but will require future monitoring. The
environmental assessments revealed other adverse environmental conditions
such as the existence of storage tanks needing replacement or removal, PCBs
in equipment on-site, lead-based paint and elevated radon levels, in
connection with which environmental reserves have been established and/or
removal or monitoring programs have been implemented. There can be no
assurance that all environmental conditions and risks have been identified in
such environment assessments or studies, as applicable.
Federal law requires owners of residential housing constructed prior to
1978 to disclose to potential residents or purchasers any condition on the
property that causes exposure to lead-based paint. In addition, every
contract for the purchase and sale of any interest in residential housing
constructed prior to 1978 must contain a "Lead Warning Statement" that
informs the purchaser of the potential hazards to pregnant women and young
children associated with exposure to lead-based paint. The ingestion of
lead-based paint chips and/or the inhalation of dust particles from
lead-based paint by children can cause permanent injury, even at low levels
of exposure. Property owners can be held liable for injuries to their tenants
resulting from exposure to lead-based paint under various state and local
laws and regulations that impose affirmative obligations on property owners
of residential housing containing lead-based paint. The environmental
assessments revealed the existence of lead-based paint at certain of the
multifamily residential properties. In these cases the borrowers either
implemented operations and maintenance programs or are in the process of
removing the lead-based paint. The Depositor believes that the presence of
lead-based paint at these Mortgaged Properties will not have a material
adverse effect on the ability of the related borrowers to repay their loans.
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<PAGE>
The Pooling and Servicing Agreement requires that the Special Servicer
obtain an environmental site assessment of a Mortgaged Property prior to
acquiring title thereto on behalf of the Trust Fund or assuming its
operation. Such requirement may effectively preclude enforcement of the
security for the related 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 under any environmental law. However, there can be no assurance that
the requirements of the Pooling and Servicing Agreement will effectively
insulate the Trust Fund from potential liability under environmental laws.
See "The Pooling and Servicing Agreement --Servicing of the Mortgage Loans;
Collection of Payments" herein and "Certain Legal Aspects of Mortgage Loans
- --Environmental Legislation" in the Prospectus.
Balloon Payments. Twenty-six of the Mortgage Loans are Balloon Loans which
will have substantial payments of principal ("Balloon Payments") due at their
stated maturities unless previously prepaid. Eighty of the Mortgage Loans
have Anticipated Repayment Dates, and which have substantial scheduled
principal balances as of such date. Loans that require Balloon Payments
involve a greater risk to the lender than fully-amortizing loans 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 related Mortgaged
Property at a price sufficient to permit the borrower to make the Balloon
Payment. Similarly, the ability of a borrower to repay a loan on the
Anticipated Repayment Date will depend on its ability to either refinance the
loan or to sell the related Mortgaged Property. The ability of a borrower to
accomplish either of these goals will be affected by a number of factors at
the time of attempted sale or refinancing, including the level of available
mortgage rates, the fair market value of the property, the borrower's equity
in the related property, the financial condition of the borrower and
operating history of the property, tax laws, prevailing economic conditions
and the availability of credit for multifamily or commercial properties (as
the case may be) generally. See "Risk Factors and Other Special
Considerations --Balloon Payments" in the Prospectus.
AMORTIZATION CHARACTERISTICS OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
% OF INITIAL NUMBER OF
TYPE OF LOAN POOL BALANCE MORTGAGE LOANS
- ------------------------------------------------------ -------------- --------------
<S> <C> <C>
ARD Loans ............................................. 88.65% 80
Fully Amortizing Loans (other than the ARD Loans) (1) 2.56% 7
Balloon Mortgage Loans ................................ 8.79% 26
</TABLE>
(1) These Mortgage Loans fully amortize over their stated terms based on
their Monthly Payments or, if a Mortgage Loan accrues interest on the basis
of the actual number of days elapsed and a 360 day year, substantially fully
amortize over their respective terms.
One Action Considerations. 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. Accordingly, the Pooling and Servicing Agreement will require the
Servicer to obtain advice of counsel prior to enforcing any of the Trust
Fund's rights under any of the Mortgage Loans that include properties where
the rule could be applicable. In addition, the 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 states where judicial foreclosure is the only permitted
method of foreclosure. See "Certain Legal Aspects of Mortgage Loans
- --Foreclosure" in the Prospectus.
Limitations of Appraisals. In general, appraisals represent the analysis
and opinion of qualified experts and are not guarantees of present or future
value. Moreover, appraisals seek to establish the amount a typically
motivated buyer would pay a typically motivated seller. Such amount could be
significantly higher than the amount obtained from the sale of a Mortgaged
Property under a distress or liquidation sale. Information regarding the
values of the Mortgaged Properties as of the Cut-off Date is presented under
"Description of the Mortgage Pool" herein for illustrative purposes only.
Ground Leases. Four of the Mortgaged Properties, representing security for
approximately 8.7% of the Initial Pool Balance, are leasehold interests. Two
of the Mortgaged Properties, representing security for approximately 3.2% of
the Initial Pool Balance, are leasehold interests in a portion of the related
properties and fee simple interests in the remainder of the related
properties. Those two ground leases cover portions of the related properties
that are not material to the successful ongoing operations of such
properties.
Each of such Mortgage Loans were underwritten taking into account payment
of the ground lease rent. On the bankruptcy of a lessor or a lessee under a
ground lease, the debtor entity has the right to assume (continue) or reject
S-38
<PAGE>
(terminate) the ground lease. Pursuant to Section 365(h) of the Bankruptcy
Code, as it is presently in effect, a ground lessee whose ground lease is
rejected by a debtor ground lessor has the right to remain in possession of
its leased premises under the rent reserved in the lease for the term
(including renewals) of the ground lease. In the event a ground
lessee/borrower in bankruptcy rejects any or all of its ground leases, the
leasehold mortgagee would have the right to succeed to the ground
lessee/borrower's position under the lease only if the ground lessor had
specifically granted the mortgagee such right. In the event of concurrent
bankruptcy proceedings involving the ground lessor and the ground
lessee/borrower, the Trustee may be unable to enforce the bankrupt ground
lessee/borrower's obligation to refuse to treat a ground lease rejected by a
bankrupt ground lessor as terminated. In such circumstances, a ground lease
could be terminated notwithstanding lender protection provisions contained
therein or in the mortgage.
Zoning Compliance; Inspections. Due to changes in applicable building and
zoning ordinances and codes ("Zoning Laws") affecting certain of the
Mortgaged Properties which have come into effect after the construction of
improvements on such Mortgaged Properties and to other reasons, certain
improvements may not comply fully with current Zoning Laws, including
density, use, parking and set back requirements, but qualify as permitted
non-conforming uses. Such changes may limit the ability of the borrower to
rebuild the premises "as is" in the event of a substantial casualty loss with
respect thereto and may adversely affect the ability of the borrower to meet
its Mortgage Loan obligations from cash flow.
Inspections of the Mortgaged Properties were conducted by licensed
engineers 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.
There can be no assurance that all property conditions have been identified
in such inspections.
Costs of Compliance with Americans with Disabilities Act. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. To the extent the Mortgaged Properties do
not comply with the ADA, the borrowers are likely to incur costs of complying
with the ADA. In addition, noncompliance could result in the imposition of
fines by the federal government or an award of damages to private litigants.
Litigation. There may be legal proceedings pending and, from time to time,
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. There can be no assurance that such
litigation will not have a material adverse effect on the distributions to
Certificateholders.
THE CERTIFICATES
Special Prepayment and Yield Considerations. The yield to maturity on the
Offered Certificates will depend on, among other things, the rate and timing
of principal payments (including both voluntary prepayments, in the case of
the Mortgage Loans that permit voluntary prepayment, and involuntary
prepayments, such as prepayments resulting from casualty or condemnation,
defaults and liquidations) on the Mortgage Loans and the allocation thereof
to reduce the Certificate Balances of the Certificates. In addition, in the
event of any repurchase of a Mortgage Loan by the Mortgage Loan Seller or the
Depositor from the Trust Fund under the circumstances described under "The
Pooling and Servicing Agreement --Representations and Warranties
- -- Repurchase" herein, the repurchase price 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). However, in the event of any repurchase
of a Mortgage Loan by an Originator from the Trust Fund under the
circumstances described under "Description of the Mortgage Pool -- The
Mortgage Loan Program -- Underwriting Standards; Representations" herein, the
calculation of the repurchase price, would in the case of certain of the
Originators, be based on a yield maintenance formula. No representation is
made 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 "Prepayment and Yield Considerations" herein.
All of the Mortgage Loans provide for a Lock-out Period during which
voluntary prepayment is prohibited. The table below sets forth certain
information regarding the Lock-out Periods. For further statistical
information on a loan-by-loan basis, see Annex A hereto.
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<PAGE>
OVERVIEW OF LOCK-OUT PERIODS
Minimum Lock-out Period at origination ......... 80 months
Minimum Remaining Lock-out Period .............. 74 months
Maximum Remaining Lock-out Period .............. 291 months
Weighted Remaining Average Lock-out Period .... 141 months
The following table sets forth the number of and percentages of the
Initial Pool Balance represented by Mortgage Loans that (i) do not require
the payment of a Prepayment Premium upon the voluntary prepayment of such
Mortgage Loans on or after the expiration of the related Lock-out Period;
which periods expire (i) on or four months prior to their respective
Anticipated Repayment Dates or (ii) no earlier than the last four months of
their loan term. See "Description of the Mortgage Pool --Certain Terms and
Conditions of the Mortgage Loans --Prepayment Provisions" and "--Defeasance
Provisions" herein.
LOCK-OUT PERIOD CHARACTERISTICS OF THE MORTGAGE LOANS
NUMBER OF
% OF INITIAL MORTGAGE
TYPE OF LOAN POOL BALANCE LOANS
- ------------------------------------- -------------- -----------
Lock-out Period Ending on/or close to
Anticipated Repayment Date .......... 88.7% 80
Lock-out Period Ending on/or close to
Maturity Date ....................... 11.3% 33
100% 113
-------------- -----------
The rate at which voluntary prepayments occur on the Mortgage Pool will be
affected by a variety of factors, including, without limitation, the terms of
the Mortgage Loans, the level of prevailing interest rates, the availability
of mortgage credit and economic, demographic, tax, legal and other factors.
In general, however, if prevailing interest rates fall significantly below
the Mortgage Rates on the Mortgage Loans, such Mortgage Loans are likely to
be the subject of higher principal prepayments than if prevailing rates
remain at or above the rates borne by such Mortgage Loans. The rate of
principal payments on the Offered Certificates will correspond to the rate of
principal payments on the Mortgage Loans and is likely to be affected by the
Lock-out Periods and Prepayment Premium provisions applicable to the Mortgage
Loans and by the extent to which a Servicer is able to enforce such
provisions. Mortgage Loans with a Lock-out Period or Prepayment Premium
provision, to the extent enforceable, generally would be expected to
experience a lower rate of principal prepayments than otherwise identical
mortgage loans without such provisions, with shorter Lock-out Periods or with
lower Prepayment Premiums.
All of the Mortgage Loans provide that after the applicable Defeasance
Lock-out Period, the borrower may obtain the release of the related Mortgaged
Property from the lien of the related Mortgage upon the pledge to the Trustee
of noncallable U.S. Treasury or other noncallable U.S. government obligations
which provide payments on or prior to all successive payment dates through
maturity (or, in the case of the Mortgage Loans that have Anticipated
Repayment Dates, through the Anticipated Repayment Date) and the amount of
principal that would be due on the maturity date (or, in the case of the
Mortgage Loans that have Anticipated Repayment Dates, on the Anticipated
Repayment Date as if such date was the maturity date), and upon which
interest and principal payments are due on and prior to the maturity date (or
the related Anticipated Repayment Date, as applicable) under the related Note
in the amounts due on such dates, and upon the satisfaction of certain other
conditions. See "Description of the Mortgage Pool --Property Releases".
Provisions requiring Prepayment Premiums may not be enforceable in some
states and under federal bankruptcy law, and may constitute interest for
usury purposes. Accordingly, no assurance can be given that the obligation to
pay a Prepayment Premium will be enforceable under applicable state or
federal law or, if enforceable, that the foreclosure proceeds will be
sufficient to pay such Prepayment Premium. 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, prepayment,
there can be no assurance that a court would not interpret such provisions as
requiring a yield maintenance premium and thus not enforceable under
applicable law or as being usurious.
In general, if an Offered Certificate is purchased at a premium and
principal distributions thereon occur at a rate faster than anticipated at
the time of purchase, to the extent that the required Prepayment Premiums are
not received, the investor's actual yield to maturity will be lower than that
assumed at the time of purchase. Conversely, if an Offered
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<PAGE>
Certificate is purchased at a discount and principal distributions thereon
occur at a rate slower than that assumed at the time of purchase, the
investor's actual yield to maturity will be lower than assumed at the time of
purchase.
See "Prepayment and Yield Considerations" and "Certain Federal Income Tax
Consequences" herein and "Yield Considerations" and "Certain Federal Income
Tax Consequences" in the Prospectus.
Effect of Mortgagor Defaults. The aggregate amount of distributions on the
Offered Certificates, the 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 the
timing of delinquencies and defaults on the Mortgage Loans. If a purchaser of
an Offered Certificate of any Class calculates its anticipated yield based on
an assumed rate of default and amount of losses on the Mortgage Loans that is
lower than the default rate and amount of losses actually experienced and
such additional losses are allocable to such Class of Certificates, such
purchaser's actual yield to maturity will be lower than that so calculated
and could, under certain extreme scenarios, be negative. The timing of any
loss on a liquidated Mortgage Loan will also affect the actual yield to
maturity of the Offered Certificates to which a portion of such loss is
allocable, even if the rate of defaults and severity of losses are consistent
with an investor's expectations. In general, the earlier a loss borne by an
investor occurs, the greater is the effect on such investor's yield to
maturity.
As and to the extent described herein, the Servicer, the Special Servicer,
the Trustee or the Fiscal Agent, as applicable, will be entitled to receive
interest on unreimbursed Advances and unreimbursed servicing expenses that
(a) are recovered out of amounts received on the Mortgage Loan as to which
such Advances were made or such servicing expenses were incurred, which
amounts are in the form of reimbursement from the related borrower,
liquidation proceeds, insurance proceeds, condemnation proceeds or amounts
paid in connection with the purchase of such Mortgage Loan out of the Trust
Fund or (b) are determined to be nonrecoverable Advances. Such interest will
accrue from (and including) the date on which the related Advance is made or
the related expense incurred to (but excluding) the first Servicer Remittance
Date after (a) in the case of clause (a) above, such amounts are recovered
and (b) in the case of clause (b) above, a determination of
non-recoverability is made to the extent that there are funds available in
the Collection Account for reimbursement of such Advance. The Servicer's, the
Special Servicer's, the Trustee's or the Fiscal Agent's right, as applicable,
to receive such payments of interest is prior 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 otherwise have resulted absent the accrual of
such interest. In addition, certain circumstances, including delinquencies in
the payment of principal and interest, result in a Mortgage Loan being
specially serviced. The Special Servicer is entitled to additional
compensation for special servicing activities which may result in losses
being allocated to the Offered Certificates that would not otherwise have
resulted absent such compensation. If the Special Servicer is the owner of
the most subordinate Class of Certificates then outstanding determined in
accordance with the following sentence, the Special Servicer will be entitled
to one-half of such special servicing compensation. See "The Pooling and
Servicing Agreement --Special Servicing" herein.
Even if losses on the Mortgage Loans are not borne by an investor in a
particular Class of Offered Certificates, such losses may affect the weighted
average life and yield to maturity of such investor's 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.
Regardless of whether losses ultimately result, delinquencies and defaults
on the Mortgage Loans may significantly delay the receipt of payments by the
holder of an Offered Certificate, to the extent that Advances or the
subordination of another Class of Certificates does not fully offset the
effects of any such delinquency or default. The Available Funds generally
consist of, as more fully described herein, principal and interest on the
Mortgage Loans actually collected or advanced. The Servicer's, the Trustee's
or the Fiscal Agent's obligation, as applicable, to make Advances in respect
of a Mortgage Loan that is delinquent as to its Balloon Payment is limited to
the extent described under "The Pooling and Servicing Agreement --Advances"
herein.
As described under "Description of the Offered Certificates
- --Distributions" herein, if the portion of Available Funds distributable in
respect of interest on the Offered Certificates on any Distribution Date is
less than the Interest Distribution Amount then payable for such class, the
shortfall will be distributable to holders of such Class of Certificates on
subsequent Distribution Dates, to the extent of Available Funds.
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Servicer or Special Servicer May Purchase Certificates. It is anticipated
that the Special Servicer or an affiliate of the Special Servicer will
purchase all of the Class B-1, Class B-2, Class B-3 and Class B-4
Certificates on or about the Closing Date. Any purchase of Certificates by
the Servicer or Special Servicer, as the case may be, could cause a conflict
between such entity's duties pursuant to the Pooling and Servicing Agreement
and its interest as a holder of a Certificate, especially to the extent that
certain actions or events have a disproportionate effect on one or more
Classes of Certificates. The Pooling and Servicing Agreement provides that
the Mortgage Loans shall be administered in accordance with the servicing
standard set forth therein without regard to ownership of any Certificate by
the Servicer, Special Servicer, or any affiliate thereof. See also "The
Pooling and Servicing Agreement --Amendment."
Book-Entry Registration. Each Class of Offered Certificates will be
initially represented by one or more certificates registered in the name of
Cede & Co., as the nominee for DTC, and will not be registered in the names
of the related holders of Certificates or their nominees. As a result,
holders of Offered Certificates will not be recognized as
"Certificateholders" for certain purposes. Hence, those beneficial owners
will be able to exercise the rights of holders of Certificates only
indirectly through DTC, Centrale de Livraison de Valeurs Mobiliers S.A.
("CEDEL"), or The Euroclear System ("Euroclear") and their participating
organizations. See "Description of the Offered Certificates --Delivery, Form
and Denomination" and " --Book-Entry Registration" herein and "Description of
the Certificates --Book-Entry Registration and Definitive Certificates" in
the Prospectus. A beneficial owner holding a certificate through the
book-entry system will be entitled to receive the reports set forth in the
Pooling and Servicing Agreement to the extent that its name and address has
been provided to the Certificate Registrar (as defined herein). Additionally,
certain information made available on the monthly reports to
Certificateholders can be retrieved via facsimile through LaSalle National
Bank's ASAP System by calling (312) 904-2200, and requesting statement number
210.
Limited Liquidity and Market Value. There is currently no secondary market
for the Offered Certificates. While the Underwriter has advised that it
currently intends to make a secondary market in the Offered Certificates, it
is under no obligation to do so. Accordingly, there can be no assurance that
a secondary market for the Offered Certificates will develop. Moreover, if a
secondary market does develop, there can be no assurance that it will provide
holders of Offered Certificates with liquidity of investment or that it will
continue for the life of the Offered Certificates. The Offered Certificates
will not be listed on any securities exchange. Lack of liquidity could result
in a precipitous drop in the market value of the Offered Certificates. In
addition, market value of the Offered Certificates at any time may be
affected by many factors, including then prevailing interest rates, and no
representation is made by any person or entity as to the market value of any
Offered Certificate at any time.
Pass-Through Rate Considerations. The Pass-Through Rates on the Class
A-CS1, Class A-2, Class A-3, Class A-4 and Class A-5 Certificates are based
on the Weighted Average Net Mortgage Pass-Through Rates of the Mortgage
Loans. Because certain Mortgage Loans will amortize their principal more
quickly than others, such rate will fluctuate over the life of the Class
A-CS1, Class A-2, Class A-3, Class A-4 and Class A-5 Certificates. The
weighted average of the Net Mortgage Pass-Through Rates for each Distribution
Date, assuming that each Mortgage Loan with an Anticipated Repayment Date
prepays on such date and that each other Mortgage Loan does not prepay, is
set forth in Annex C hereto. See "Prepayment and Yield Considerations
- --Yield" herein.
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DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of 113 fixed rate mortgage loans, which
include a participation interest in a fixed rate mortgage loan (the "Mortgage
Loans") secured by 143 multifamily and commercial properties with an
aggregate Cut-off Date Principal Balance of approximately $782,586,993 (the
"Initial Pool Balance"), subject to a variance of plus or minus 5%. All
numerical information provided herein with respect to the Mortgage Loans is
provided on an approximate basis. All percentages of the Mortgage Pool, or of
any specified sub-group thereof, referred to herein without further
description are approximate percentages by aggregate Cut-off Date Principal
Balance. Descriptions of the terms and provisions of the Mortgage Loans are
generalized descriptions of the terms and provisions of the Mortgage Loans in
the aggregate. Many of the individual Mortgage Loans have specific terms and
provisions that deviate from the general description. The term "Mortgage
Loans" shall include the Anchorage Participation (as defined herein), and
references herein to, and any calculation based on, the principal balance of
the Anchorage Participation or the Anchorage Loan shall include only the
percentage interest in the Anchorage Loan represented by the Anchorage
Participation, unless otherwise expressly stated. See "Description of the
Mortgage Pool --The Anchorage Participation."
Each Mortgage Loan is evidenced by one or more promissory notes (each, a
"Note") and secured by one or more mortgages, deeds of trust or other similar
security instruments (a "Mortgage"). Each of the Mortgages creates first
liens (except as described below) on the interests of the related borrower in
the related Mortgaged Property, as set forth on the following table:
SECURITY FOR THE MORTGAGE LOANS
% OF INITIAL NUMBER OF
POOL BALANCE MORTGAGE
INTEREST OF BORROWER ENCUMBERED (1) PROPERTIES
- ------------------------------- -------------- ------------
Fee Simple Estate .............. 91.3% 139
Leasehold (2) .................. 8.7% 4
-------------- ------------
100% 143
- ------------
(1) Based on the Allocated Loan Amount of the related Mortgaged Property.
(2) Two additional Mortgaged Properties, identified as Lee Park and
Brookhaven on Annex A, and representing an additional 3.2% of the
Initial Pool Balance, are partially secured by ground leases which, if
terminated by the lessor, would not materially impair the operation of
such properties.
Each Mortgaged Property consists of land improved by (i) an apartment
building or complex consisting of five or more rental units (a "Multifamily
Property," and any Mortgage Loan secured thereby, a "Multifamily Loan" ),
(ii) a full or limited service hotel property (a "Hotel Property," and any
Mortgage Loan secured thereby, a "Hotel Loan" ), (iii) a mobile home
community or recreational vehicle park or a combination thereof (a "Mobile
Home Property," and any Mortgage Loan secured thereby, a "Mobile Home Loan"),
(iv) a retail property (a "Retail Property," and any Mortgage Loan secured
thereby, a "Retail Loan"), (v) an office building which, for the purposes of
this Prospectus Supplement, includes the design center property (an "Office
Property," and any Mortgage Loan secured thereby, an "Office Loan"), (vi) a
nursing home (each, a "Senior Housing/Healthcare Property," and any Mortgage
Loan secured thereby, a "Senior Housing/Healthcare Loan"), (viii) an
industrial property (an "Industrial Property," and any Mortgage Loan secured
thereby, an "Industrial Loan"), or (ix) a mixed use facility (a "Mixed Use
Property" and any Mortgage Loan secured thereby, a "Mixed Use Loan" ).
Certain statistical information relating to the various types of Mortgaged
Properties is set forth under "--Additional Mortgage Information --Types of
Mortgaged Property" herein.
Eleven of the Mortgage Loans are secured by two or more Mortgaged
Properties, either pursuant to cross-collateralization with other Mortgage
Loans in the Mortgage Pool or pursuant to a single Note by a single borrower
secured by multiple Mortgaged Properties, or both. See "Risk Factors and
Other Special Considerations -- Concentration of Mortgage Loans; Borrower and
Managers" herein.
None of the Mortgage Loans are insured or guaranteed by the United States,
any governmental agency or instrumentality, any private mortgage insurer or
by the Depositor, the Mortgage Loan Seller, any Originator, the Servicer,
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the Special Servicer, the Trustee or the Fiscal Agent or any of their
respective affiliates. All of the Mortgage Loans are non-recourse loans so
that, in the event of a borrower default on any Mortgage Loan, recourse may
generally be had only against the specific Mortgaged Property or Mortgaged
Properties securing such Mortgage Loan and such limited other assets as have
been pledged to secure such Mortgage Loan, and not against the borrower's
other assets. However, generally, the Mortgage Loans may become recourse upon
the occurrence of certain events of default under the Mortgage Loans,
including, in most cases, the transfer or voluntary encumbrance of the
Mortgaged Property without the consent of the mortgagee.
The Mortgage Loans were generally underwritten in accordance with the
underwriting criteria described under "The Mortgage Loan Program
- --Underwriting Standards; Representations." The Depositor will purchase the
Mortgage Loans to be included in the Mortgage Pool on or before the Closing
Date from the Mortgage Loan Seller pursuant to a Mortgage Loan Purchase and
Sale Agreement (the "Mortgage Loan Purchase and Sale Agreement" ) to be dated
as of the Cut-off Date between the Mortgage Loan Seller and the Depositor.
The Mortgage Loan Seller will be obligated under the Mortgage Loan Purchase
and Sale Agreement to repurchase a Mortgage Loan in the event of a breach of
a representation or warranty of the Mortgage Loan Seller with respect to such
Mortgage Loan as described under "The Pooling and Servicing Agreement
- --Representations and Warranties --Repurchase" herein. The Depositor will
assign the Mortgage Loans in the Mortgage Pool, together with the Depositor's
rights and remedies against the Mortgage Loan Seller in respect of breaches
of representations or warranties regarding the Mortgage Loans, to LaSalle
National Bank, as Trustee, for the benefit of the Certificateholders,
pursuant to the Pooling and Servicing Agreement. AMRESCO Management, Inc., in
its capacity as Servicer, will service the Mortgage Loans pursuant to the
Pooling and Servicing Agreement. The Depositor will make no representations
or warranties with respect to the Mortgage Loans and will have no obligation
to repurchase or substitute for Mortgage Loans with deficient documentation
or which are otherwise defective. The Mortgage Loan Seller, as seller of the
Mortgage Loans to the Depositor, is selling such Mortgage Loans without
recourse, and, accordingly, in such capacity, will have no obligations with
respect to the Certificates other than pursuant to the limited
representations, warranties and covenants made by it to the Depositor and
assigned by the Depositor to the Trustee for the benefit of the
Certificateholders. See "Description of the Agreements --Representations and
Warranties; Repurchases" in the Prospectus.
The Mortgage Loan Seller or an affiliate has acquired a preferred equity
interest in ten borrowers or groups of borrowers, which are the borrowers
with respect to Mortgage Loans representing approximately 25.5% of the
Initial Pool Balance. See "Risk Factors and Other Special Considerations
- --Other Financing" herein.
SECURITY FOR THE MORTGAGE LOANS
Each Mortgage Loan is generally non-recourse and is secured by one or more
Mortgages encumbering the related borrower's interest in the related
Mortgaged Property or Properties. Each Mortgage Loan is also secured by an
assignment of the related borrower's interest in the leases, rents, issues
and profits of the related Mortgaged Properties. In certain instances,
additional collateral exists in the nature of partial indemnities or
guaranties, or the establishment and pledge of one or more reserve or escrow
accounts for necessary repairs, replacements and environmental remediation,
real estate taxes and insurance premiums, deferred maintenance and/or
scheduled capital improvements, re-leasing reserves and seasonal working
capital reserves (such accounts, "Reserve Accounts"). All of the Mortgage
Loans provide for the indemnification of the mortgagee by the borrower for
the presence of any hazardous substances affecting the Mortgaged Property.
Each Mortgage constitutes a first lien on a Mortgaged Property, subject
generally only to (i) liens for real estate and other taxes and special
assessments, (ii) covenants, conditions, restrictions, rights of way,
easements and other encumbrances whether or not of public record as of the
date of recording of the related Mortgage, such exceptions having been
acceptable to the Mortgage Loan Seller in connection with the purchase or
origination of the related Mortgage Loan, and (iii) such other exceptions and
encumbrances on Mortgaged Properties as are reflected in the related title
insurance policies.
SIGNIFICANT MORTGAGE LOANS
The Hyatt Regency Riverwalk Loan and Property
The Loan. The largest Mortgage Loan (the "Hyatt Regency Riverwalk Loan")
is secured by the Hyatt Regency Riverwalk, which represents approximately 9%
of the Initial Pool Balance. The Hyatt Regency Riverwalk Loan was originated
by the Mortgage Loan Seller on August 30, 1996, has a principal balance as of
the Cut-off Date of $70,939,362 and is secured by a fee Mortgage encumbering
a full-service hotel located in San Antonio, Texas (the "Hyatt Regency
Riverwalk Property").
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The Hyatt Regency Riverwalk Loan was made to San Antonio 2000, Ltd. (the
"Hyatt Regency Riverwalk Borrower"), a special purpose Texas limited
partnership. The general partner of the Hyatt Regency Riverwalk Borrower is
San Antonio Hotel Developers, Ltd. ("San Antonio Hotel Developers"), a Texas
limited partnership.
Payment, prepayment and defeasance terms and reserves for the Hyatt
Regency Riverwalk Loan are as set forth on Annex A or described below under
"--Certain Terms and Conditions of the Mortgage Loans --Excess Interest,"
"--Property Releases" and "--Escrows."
Lock Box. The Hyatt Regency Riverwalk Borrower has escrowed with the Trustee
one Monthly Payment and one month's tax and insurance, ongoing replacement,
capital repair and seasonality reserve payments. So long as no default occurs
under the Hyatt Regency Riverwalk Loan (without consideration of any grace
periods), the DSCR for the property for any trailing twelve month period
remains above 1.15 and none of the foregoing escrows are drawn (each, a
"Hyatt Trigger Event"), the Hyatt Manager (as defined below) will be entitled
to allocate amounts received in a related Lock Box in the following order and
priority: first, to pay operating expenses (including insurance premiums),
second, to remit payments to a tax reserve held with the trustee, third, to
fund an ongoing replacement reserve held with the Trustee, fourth, to pay
itself its base management fee, and, lastly, to pay the remainder to the
Hyatt Regency Riverwalk Borrower. The Borrower is obligated to pay its
Monthly Payment directly to the Trustee and fund certain additional reserve
accounts. After a Hyatt Trigger Event or the related Anticipated Repayment
Date, the receipts in the Lock Box for the Hyatt Regency Riverwalk Property
will be generally collected and allocated as provided in "The Pooling and
Servicing Agreement --Accounts" herein. Prior to such Anticipated Repayment
Date, if the related default is cured (other than with respect to a payment
default) and/or the reserves are replenished, the Hyatt Manager will
reestablish the cash management system described above.
The Property. The Hyatt Regency Riverwalk Property, located on two parcels
of land measuring a total of approximately 2.74 acres in the Central Business
District of San Antonio, Texas, is a 631-room, full-service convention
oriented lodging facility, containing 32,300 square feet of meeting space
which can be divided into 21 meeting rooms, an exercise room, a roof top pool
and jacuzzi, a 225-seat restaurant, a 126-seat restaurant, a 75-seat lobby
bar, a jazz club, 532 parking spaces and other amenities. The Hyatt Regency
Riverwalk Property is located on the section of the Riverwalk in San Antonio
which is lined with restaurants, entertainment venues and retail shops and is
located one block from The Alamo, a local tourist attraction and one block
from the San Antonio Convention Center. The Hyatt Regency Riverwalk Borrower
makes lease payments to the City of San Antonio for the use and maintenance
of the Riverwalk. The Hyatt Regency Riverwalk Property also has an easement
for access to the Riverwalk. San Antonio Developers has been a general
partner of the Hyatt Regency Riverwalk Borrower since the formation of the
partnership in 1978. The Hyatt Regency Riverwalk Property has been operated
by the Hyatt Regency Riverwalk Manager (as defined below under "--Property
Management") since the opening of the Hyatt Regency Riverwalk Property in
1981. The appraisal performed for the Hyatt Regency Riverwalk Property
determined a value, as of August 23, 1996, of $110,000,000. The following
table sets forth the average occupancy rate and the ADR for the Hyatt Regency
Riverwalk Property since 1985:
AVERAGE OCCUPANCY RATE AND DAILY ROOM RATE OF
HYATT REGENCY RIVERWALK PROPERTY
<TABLE>
<CAPTION>
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 YTD*
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Occupancy
Rate 76.7% 78.2% 73.5% 81.6% 77.8% 78.3% 80.5% 80.3% 78.6% 77.4% 80.2% 83.3%
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 YTD*
-------- -------- -------- -------- -------- -------- --------- ------- ------ ------- -------- ------
Average Daily $82.79 $82.00 $86.56 $87.28 $86.40 $93.46 $99.25 $107.79 $117.33 $121.72 $124.44 $138.95
Room Rate
</TABLE>
- ------------
* As of June 30, 1996
Underwritten Occupancy Rate = 77.4%
Underwritten Daily Room Rate = $128.76
See "Risk Factors and Other Special Considerations -- Commercial Lending
Generally" and "-- Hotels" for a discussion of certain matters associated with
Hotel Properties.
Property Management. The Hyatt Regency Riverwalk Property is managed by
Hyatt Corporation, a Delaware general partnership (the "Hyatt Regency
Riverwalk Manager"), pursuant to a management agreement (the "Hyatt
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Regency Riverwalk Management Agreement"). See "Certain Terms and Conditions
of the Mortgage Loans --Mortgage Provisions Relating to Servicers Right to
Termination of Management Agreement".
The Pacific Pool Loan and Properties
The Loan. The second largest Mortgage Loan is the Mortgage Loan secured by
the Mortgaged Properties known as Pacific Properties (the "Pacific Pool
Loan"). The Pacific Pool Loan was originated by the Mortgage Loan Seller on
August 29, 1996, has a principal balance as of the Cut-off Date of
$68,500,000, which represents approximately 9% of the Initial Pool Balance,
and is secured by fee Mortgages (the "Pacific Pool Mortgages") encumbering
six multifamily residential properties (each, a "Pacific Pool Property" and
collectively, the "Pacific Pool Properties") located in the Las Vegas, Nevada
metropolitan area. The Pacific Pool Mortgages are cross-collateralized and
cross-defaulted.
The Pacific Pool Loan was made to Pacific Antigua Bay Limited Partnership,
Pacific Martinique Bay Limited Partnership, Pacific Montego Bay Limited
Partnership, Pacific CP Desert Shores Limited Partnership, Pacific CP Lakes
Limited Partnership and Pacific CP Flamingo Limited Partnership (each, a
"Pacific Borrower" and collectively, the "Pacific Borrowers"), each a Nevada
single purpose limited partnership. The limited partner of each Pacific
Borrower is Molasky Holdings LLC, a Nevada limited liability company
("Molasky Holdings"). Molasky Holdings is the owner of all of the stock of
the general partner of each Pacific Borrower, Molasky Apartments GP, Inc. a
Nevada corporation ("Molasky Apartments"). Pacific Preferred LLC, an
affiliate of Lazard Freres Real Estate Fund II L.P. ("Lazard"), holds 1% of
the membership interest in Molasky Holdings and will continue to occupy this
position until a certain mezzanine financing made on August 29, 1996 from
Lazard to Molasky Holdings in the amount of $22,550,000 (the "Lazard
Mezzanine Financing") is repaid in full and the $137,000 capital contribution
of Pacific Preferred LLC has been returned in accordance with the Molasky
Holdings' membership agreement. The obligations of Molasky Holdings under the
Lazard Mezzanine Financing are secured by a pledge of 99% of the membership
interests in Molasky Holdings by certain members in favor of Lazard.
Payment, prepayment, defeasance terms and reserves for the Pacific Pool
Loan are as set forth on Annex A or described above under "-- Certain Terms
and Conditions of the Mortgage Loans -- Excess Interest," "-- Property
Releases" and "-- Escrows."
Each Pacific Pool Borrower is prohibited from transferring or encumbering
the Pacific Pool Properties without the prior written consent of the
Servicer, except for (a) a sale by the original Borrower of all of the
Pacific Pool Properties to one purchaser pursuant to which such purchaser
shall assume, in writing, all of the obligations of each Pacific Pool
Borrower under the Pacific Pool Loan, provided that the Servicer shall have
received evidence in writing from the applicable Rating Agencies to the
effect that such a sale and assumption of the Loan by such purchaser will not
result in a qualification, withdrawal or downgrading of the ratings in effect
immediately prior to such sale for the Certificates or (b) the transfer of
direct or indirect interests in the limited partner of each Pacific Pool
Borrower to a Lazard Person (as defined below) or a Molasky Person (as
defined below), provided that after giving effect to such transfer, Steven
Molasky and Alan Molasky and/or a Lazard Person continue to control each
individual Pacific Pool Borrower. "Molasky Person" shall mean Steven Molasky,
Alan Molasky, any family member of either, or any person controlled by Steven
Molasky and/or Alan Molasky. "Lazard Person" shall mean Lazard or any
affiliate thereof.
The Properties. The Pacific Pool Properties consist of six apartment
complexes with 1,728 units. Each complex consists of two and three-bedroom
units with two pool areas (except for Club Pacific at the Shores which has
one pool area). Each complex provides one covered parking space for each unit
and additional uncovered parking spaces. The appraisal performed for the
properties determined a market value, as of July 1996, of $104,250,000. The
Pacific Pool Properties are managed by Molasky Pacific Management, Inc., a
Nevada corporation (the "Pacific Pool Manager"), pursuant to six management
agreements, between the Pacific Pool Manager and each Pacific Pool Borrower.
See "Certain Terms and Conditions of the Mortgage Loans --Mortgage Provisions
Relating to Servicer's Right to Termination of Management Agreement".
Club Pacific at the Lakes. This apartment complex is a two-story 180-unit
rental apartment complex with an average unit size of 1089 square feet. It
was constructed in 1990, is located on 9.67 acres and has 195,948 square feet
net rentable space. As of August 1996, the property was about 90.7% occupied,
the gross income was $9,551 per unit and the appraised value was $11,000,000.
Club Pacific at the Shores. This apartment complex is a two story 212-unit
rental apartment complex with an average unit size of 1081 square feet. It
was constructed in 1990, is located on 11.93 acres and has 229,077 square
feet net rentable space. As of August 1996, the property was about 84.7%
occupied, the gross income was $9,450 per unit and the appraised value was
$12,900,000.
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Club Pacific at Flamingo. This apartment complex is a two story 268-unit
rental apartment complex with an average unit size of 1091 square feet. It
was constructed in 1990, is located on 13.97 acres and has 292,400 square
feet net rentable space. As of August 1996, the property was about 95.9%
occupied, the gross income was $9,635 per unit and the appraised value was
$17,150,000.
Antigua Bay. This apartment complex is a two story 392-unit rental
apartment complex with an average unit size of 1084 square feet. It was
constructed in two phases, with the first phase of 228 units completed in
1989 and the second phase of 164 units completed in 1992. It is located on
18.78 acres and has 424,980 square feet net rentable space. As of August
1996, the property was about 87.9% occupied, the gross income was $8,636 per
unit and the appraised value was $21,100,000.
Martinique Bay. This apartment complex is a two story 256-unit rental
apartment complex with an average unit size of 1098 square feet. It includes
62 self-storage units that rent for $20 to $30 per unit per month. The
complex was constructed in 1989, is located on 13.007 acres and has 278,840
square feet net rentable space. As of August 1996, the property was about
99.2% occupied, the gross income was $9,370 per unit and the appraised value
was $16,600,000.
Montego Bay. This apartment complex is a two story 420-unit rental
apartment complex with an average unit size of 1022 square feet. It includes
82 self-storage units that rent for $20 to $30 per unit per month. The first
phase was constructed in 1990 and the second phase was constructed in 1992.
It is located on 18.08 acres and has 429,216 square feet net rentable space.
As of August 1996, the property was about 97.2% occupied, the gross income
was $8,636 per unit and the appraised value was $25,500,000.
See "Risk Factors and Other Special Considerations --Commercial Lending
Generally" and "--Multifamily Residential Properties" for a discussion of
certain matters associated with multifamily residential properties.
The Mortgage Loan Seller has agreed to make an unsecured loan in the
amount of $500,000 to Molasky Holdings and has also committed to make an
additional unsecured loan in the amount of $1,000,000 to Molasky Holdings at
some time before August 1999 provided that certain cash flow conditions are
satisified.
The Mariner's Village Loan and Property
The Loan. The third largest Mortgage Loan (the "Mariner's Village Loan")
is secured by the Mariner's Village Apartments and represents approximately
7.0% of the Initial Pool Balance. The Mariner's Village Loan was originated
by the Mortgage Loan Seller on July 16, 1996, has a principal balance as of
the Cut-off Date of $54,709,251 and is secured by a Mortgage encumbering a
ground leasehold interest in an apartment complex located in Marina del Rey,
California (the "Mariner's Village Property").
The Mariner's Village Loan was made to Marina Admiralty Company (the
"Mariner's Village Borrower"), which is a special purpose California limited
partnership. The general partners of the Mariner's Village Borrower are
Douglas R. Ring, Inc., a California corporation, and the Ellis Ring Trust.
The payment and prepayment terms and reserve requirements of the Mariner's
Village Loan are as set forth in Annex A hereto. The Mariner's Village Loan
has an amortization schedule of 240 months and a term of 200 months with the
result that a balloon payment is due on its maturity date of April 11, 2013
(the "Mariner's Village Maturity Date"). If the Mariner's Village Borrower
fails to pay the balance of the principal and accrued interest on the
Mariner's Village Maturity Date, the Servicer is authorized under the Pooling
and Servicing Agreement to enter into a modification of the Mariner's Village
Loan to provide for terms similar to those provided for in other ARD Loans
described herein, including the additional amortization of principal through
the application of cash flow. See "Description of the Mortgage Pool --Certain
Terms and Conditions of the Mortgage Loans --Excess Interest" herein.
The Property. The Mariner's Village Property, located in Marina del Rey,
California, is a 981-unit apartment complex constructed in 1973. The complex
consists of twenty-eight buildings, containing 1-, 2-and 3-bedroom
apartments, overlooking the main channel of Marina del Rey. The complex also
contains four heated swimming pools, two outdoor spas, a fitness center,
saunas, four tennis courts, a large clubhouse and 1,666 parking spaces. The
Mariner's Village Property had an occupancy rate as of June 10, 1996 of
approximately 95.3% and an appraised value as of August 30, 1996 of
$80,000,000.
The borrower's interest in the Mariner's Village Property was created
under a ground lease with the County of Los Angeles, as ground lessor, which
expires on April 1, 2023. The ground lease provides for the payment of annual
base rent
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plus various percentages of rent with respect to rental of apartments, boat
slips, office space, miscellaneous sales and other items. The base and
percentage ground rent will be paid by the Servicer from the lock box account
described above.
The ground lease and related documents contain customary provisions for
the protection of lender's rights such as the right to notice and cure
defaults. However, under the ground lease, the ground lessor has retained
certain controls with respect to the Mariner's Village Property, including
the approval of subleases of apartments in excess of one year, the right to
approve any modification of the Mariner's Village Loan to the extent the
modification could be viewed as a "replacement" or "renewal" thereof and
approval of any future loans secured by the Mariner's Village Property. In
addition, the ground lease provides that the proceeds of all property
insurance policies will be used to restore and rebuild the property and will
be held by the ground lessor for distribution to the ground lessee in
reimbursement of restoration and rebuilding costs. The lender may only apply
such proceeds to pay the Mariner's Village Loan to the extent proceeds remain
after application to restoration and repair the Mariner's Village Property.
See "Risk Factors and Other Special Considerations --Commercial Lending
Generally" and "--Ground Leases" for a discussion of certain matters
associated with ground leases multifamily properties.
The Anchorage Participation
The Trust Fund includes a participation interest (the "Anchorage
Participation") in a mortgage loan secured by a mixed use
(retail/hotel/parking) property located in San Francisco, California (the
"Anchorage Loan"). As of the Cut-off Date, the principal balance of the
Anchorage Loan is $28,250,000 and the Anchorage Loan provides for future
advances of up to $1,500,000 in the event that certain financial targets are
met. Pursuant to a participation agreement (the "Participation Agreement")
Nomura Asset Capital Corporation (the "Other Participant") has agreed to make
the future advances required under the Anchorage Loan and upon making the
future advances, will be entitled to a participation interest that is pari
passu in debt service payments received on the Anchorage Loan and generally
equal (with certain adjustments with respect to non-principal payments) to
the product of (a) a fraction, the numerator of which is the original amount
of the Other Participant's advances and the denominator of which is the sum
of $28,250,000 and (b) the original amount of the Other Participant's
advances (the "Other Anchorage Participation"). The Other Anchorage
Participation will not be part of the Trust Fund.
The Trustee, at the direction of the Servicer and as successor lead lender
under the Participation Agreement, has the sole right, subject to applicable
REMIC, legal requirements and the provisions of the Pooling and Servicing
Agreement, to (a) modify or waive any of the terms of the loan documents with
respect to the Anchorage Loan (the "Anchorage Loan Documents"), (b) consent
to any action or failure to act by the Borrower or any party to the Anchorage
Loan Documents, (c) exercise or refrain from exercising any powers or rights
which lender may have under the Anchorage Loan Documents, including, without
limitation, the right at any time to accelerate, or refrain from
accelerating, the Anchorage Loan, to foreclose and sell and otherwise deal
with the related Mortgaged Property, or refrain from foreclosing, selling or
otherwise dealing with the Mortgaged Property, and to enforce or refrain from
enforcing the Anchorage Loan Documents. Although the Trustee is required to
provide the Other Participant with written notice of any such matters, the
prior consent of the Other Participant is not required in order to take any
of such actions.
THE MORTGAGE LOAN PROGRAM -- UNDERWRITING STANDARDS; REPRESENTATIONS
Each Mortgage Loan was originated by the Mortgage Loan Seller or an
unaffiliated Originator, as set forth below under "--Additional Mortgage Loan
Information --Mortgaged Properties by Originator", and is generally
consistent with the underwriting standards applied by the Mortgage Loan
Seller in connection with the purchase or origination of each of the Mortgage
Loans.
The Mortgage Loan Seller purchased the Mortgage Loans that it did not
originate pursuant to the purchase and sale agreements with each respective
Originator during a period commencing on August 1, 1995 and ending on the
Cut-off Date.
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The Mortgage Loan Seller's underwriting guidelines generally consist of
the following standards:
UNDERWRITING STANDARDS(1) BY PROPERTY TYPE:
MULTIFAMILY PROPERTIES
Minimum Occupancy Rate .................. 85%
Maximum Loan to Value Ratio ............. 80%
Minimum DSCR ............................ 1.20
HOTEL
Maximum Annual Occupancy ................ 80%
Minimum Annual Occupancy Rate ........... 55%
Maximum Loan to Value Ratio ............. 70%
Minimum DSCR ............................ 1.40
NURSING HOME
Min. Amount of Time in Operation ........ 12 mo.
Minimum Occupancy Rate .................. 85%
Maximum Loan to Value Ratio ............. 75%
Minimum DSCR ............................ 1.30
MOBILE HOME PARK
Minimum Occupancy Rate .................. 85%
Maximum % of Homes for Sale ............. 15%
Maximum % of Homes Rented by Residents .. 5%
Maximum Loan to Value Ratio ............. 80%
Minimum DSCR ............................ 1.20
OFFICE
Minimum Occupancy Rate .................. 80%
Maximum Loan to Value Ratio ............. 70%
Minimum DSCR ............................ 1.25
RETAIL
Minimum Occupancy Rate .................. 85%
Maximum Loan to Value Ratio ............. 75%
Minimum DSCR ............................ 1.25
INDUSTRIAL
Minimum Occupancy Rate .................. 85%
Maximum Loan to Value Ratio ............. 70%
Minimum DSCR ............................ 1.25
- ------------
(1) The underwriting guidelines described herein were generally followed
but were not satisfied in every case.
In underwriting each Mortgage Loan in connection with the origination or
acquisition thereof, income information provided by the related borrower was
examined by the Mortgage Loan Seller. In addition, the operating history of
the property, industry data regarding the local real estate market and the
appraiser's analysis were reviewed and, if conditions warranted, net
operating income with respect to the related Mortgaged Property was adjusted
for purposes of determining whether the Mortgaged Property satisfied the debt
service coverage ratio required by the Mortgage Loan Seller's underwriting
guidelines. In accordance with the underwriting guidelines, net operating
income of any Mortgaged Property may have been adjusted by, among other
things, the adjustments listed in the definition of "Net Cash Flow" described
under "-- Additional Loan Information." In connection with the underwriting,
net operating income was based upon information provided by the borrower and
neither the Depositor nor the Mortgage Loan Seller makes any representation
as to the accuracy of such information; provided, however, that, with respect
to certain of the Mortgage Loans, the Mortgage Loan Seller engaged
independent accountants to review or perform certain procedures to verify
such information.
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<PAGE>
Each Originator was required to cause each Mortgaged Property to be
inspected to determine whether it was in acceptable physical condition. The
inspection included a review of ongoing maintenance programs, common area
upkeep, mechanical systems and grounds maintenance. In addition, an
engineering study and an environmental review were prepared by appropriate
consultants. With respect to environmental matters, a Phase I environmental
assessment (and, where appropriate, a Phase II environmental assessment) was
conducted for each Mortgaged Property. A credit investigation was completed
for all prospective borrowers, in connection with which a credit report not
more than 30 days old as of the date of the loan application and current
financial statements were obtained. The borrowers with respect to 28 of the
Mortgaged Properties representing, in the aggregate, 49% of the Initial Pool
Balance, provided audited financial statements, agreed upon procedures or
statements certified by an independent accountant.
CERTAIN TERMS AND CONDITIONS OF THE MORTGAGE LOANS
Annex A. For a detailed presentation of the characteristics of the
Mortgage Loans, on a loan-by-loan basis, see Annex A hereto.
Due Dates. All of the Mortgage Loans provide for scheduled payments of
principal and/or interest ("Monthly Payments") to be due on the eleventh day
of each month or, in the case of certain of the Mortgage Loans, if the
eleventh day is not a business day, the next business day or the first
preceding business day.
Mortgage Rates; Calculations of Interest. Each of the Mortgage Loans
accrue interest on the basis of a 360-day year consisting of twelve 30-day
months or on the basis of the actual number of days elapsed and a 360 day
year. Each of the Mortgage Loans accrues interest at the per annum rate set
forth for such Mortgage Loan on Annex A (the "Mortgage Rate") that is fixed
for the entire remaining term of such Mortgage Loan; provided, however, as
described below under "--Excess Interest", certain of the Mortgage Loans
accrue interest at a higher rate (the difference between such higher rate and
the Mortgage Rate, the "Excess Rate") after their respective Anticipated
Repayment Dates. As used herein, the term "Mortgage Rate" does not include
the Excess Rate.
Excess Interest. Eighty of the Mortgage Loans, representing approximately
88.7% of the Initial Pool Balance, bear interest at their respective Mortgage
Rates until a specified date (an "Anticipated Repayment Date"). Commencing
on the respective Anticipated Repayment Date each such Mortgage Loan
generally will bear interest at a fixed rate per annum equal to the greater
of (a) the Mortgage Rate plus a specified percentage (of no more than 2%) and
(b) the Treasury Rate (as defined below) plus a specified percentage (of no
more than 2%) (the "Revised Rate" ). "Treasury Rate" means, as of the related
Anticipated Repayment Date, the yield on noncallable U.S. Treasury
obligations with terms most nearly approximating the related stated Maturity
Date. Until the principal balance of each such Mortgage Loan has been reduced
to zero, such Mortgage Loan will only be required to pay interest at the
Mortgage Rate and the interest accrued at the excess of the related Revised
Rate over the related Mortgage Rate will be deferred (such accrued and
deferred interest and interest thereon, if any, is "Excess Interest"). Except
where limited by applicable law, Excess Interest so accrued will earn
interest at the Revised Rate. Prior to the Anticipated Repayment Date,
borrowers under such ARD Loans will be required to enter into a lock-box
agreement whereby all revenue will be deposited directly into a lock-box
account controlled by the Servicer. From and after the Anticipated Repayment
Date, in addition to paying interest (at the Mortgage Rate) and principal
(based on the amortization schedule) (together, the "Monthly Debt Service
Payment"), the related borrower generally will be required to apply all
monthly cash flow from the related Mortgaged Property or Properties to pay
the following amounts in the following order of priority: (i) required
payments to the tax and insurance escrow fund and any ground lease escrow
fund, (ii) payment of Monthly Debt Service, (iii) payments to any other
required escrow funds, (iv) payment of operating expenses pursuant to the
terms of an annual budget approved by the Servicer, (v) payment of approved
extraordinary operating expenses or capital expenses not set forth in the
approved annual budget or allotted for in any escrow fund, (vi) principal on
the Mortgage Loan until such principal is paid in full and (vii) to Excess
Interest. As described below, ARD Loans generally provide that the related
borrower is prohibited from prepaying the Mortgage Loan until the three month
period prior to the Anticipated Prepayment Date but, upon the commencement of
such period, may prepay the loan, in whole or in part, without payment of a
Prepayment Premium. The Anticipated Repayment Date, if any, for each ARD Loan
is listed in Annex A.
Amortization of Principal. As set forth in the following table, certain
Mortgage Loans (the "Balloon Loans") provide for monthly payments of
principal based on amortization schedules at least 60 months longer than
their original terms thereby leaving substantial principal amounts due and
payable (each such payment, a "Balloon Payment") on their respective maturity
dates, unless previously prepaid. In addition, certain Mortgage Loans have
remaining amortization terms that are the same as their respective remaining
terms to maturity.
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<PAGE>
AMORTIZATION CHARACTERISTICS OF THE MORTGAGE LOANS
<TABLE>
% OF INITIAL NUMBER OF
TYPE OF LOAN POOL BALANCE MORTGAGE LOANS
- ------------------------------------------------- -------------- --------------
<S> <C> <C>
ARD Loans (1) .................................... 88.7% 80
Fully Amortizing Loans (other than ARD Loans) (2) 2.6% 7
Balloon Mortgage Loans ........................... 8.8% 26
</TABLE>
- ------------
(1) As described above under "--Excess Interest".
(2) These Mortgage Loans fully amortize over their stated terms based on
their stated Monthly Payments or, with respect to Mortgage Loans that
accrue interest on the basis of the actual number of days and a 360-day
year, substantially fully amortize over such terms.
Prepayment Provisions. All of the Mortgage Loans have Lock-out Periods
from the date of origination ranging from approximately 80 months to 296
months. The weighted average Lock-out Period from the date of origination for
the Mortgage Loans is approximately 143 months and the weighted average
remaining Lock-out Period from the Cut-off Date is approximately 141 months.
None of the Mortgage Loans require the payment of a premium or fee (a
"Prepayment Premium") upon the voluntary prepayment of such Mortgage Loans on
or after the expiration of the related Lock-out Period. The Lock-out Periods
for the ARD Loans all expire on or three months prior to their respective
Anticipated Repayment Dates and the Lock-out Periods for the Balloon and
fully amortizing Mortgage Loans (other than ARD Loans) all expire no earlier
than the last four months of their loan term. Certain of the prepayment terms
of each of the Mortgage Loans are more particularly described in Annex A.
The Mortgage Loans provide that in the event of a condemnation or
casualty, the mortgagee may apply the condemnation award or insurance
proceeds to the repayment of debt, which, in the case of some of the Mortgage
Loans, will require payment of any applicable Prepayment Premium. However, in
the case of most of the Mortgage Loans, if the award or loss is less than a
specified percentage of the original principal balance of the Mortgage Loan
and if in the reasonable judgment of the mortgagee (i) the Mortgaged Property
can be restored within six months prior to the maturity of the related Note
to a property no less valuable or useful than it was prior to the
condemnation or casualty, (ii) after a restoration the Mortgaged Property
would adequately secure the outstanding balance of the Note and (iii) no
event of default has occurred or is continuing, the proceeds or award may be
applied by the borrower to the costs of repairing or replacing the Mortgaged
Property.
Neither the Depositor nor the Mortgage Loan Seller makes any
representation as to the enforceability of the provision of any Mortgage Loan
requiring the payment of a Prepayment Premium, or of the collectability of
any Prepayment Premium. See "Special Considerations --The Certificates
- --Special Prepayment and Yield Considerations" herein and "Certain Legal
Aspects of Mortgage Loans --Default Interest, Prepayment Charges and
Prepayments" in the Prospectus.
Property Releases. All of the Mortgage Loans permit the applicable
borrower at any time after a specified period (the "Defeasance Lock-out
Period" ), which is generally the greater of approximately three years from
the date of origination and two years from the Closing Date, provided no
event of default exists, to obtain a release of a Mortgaged Property from the
related Mortgage (a "Defeasance Option"), provided that, among other
conditions, the borrower (a) pays on any Due Date (the "Release Date") (i)
all interest accrued and unpaid on the principal balance of the Note to and
including the Release Date, (ii) all other sums, excluding scheduled interest
or principal payments, due under the Mortgage Loan and all other loan
documents executed in connection therewith, (iii) an amount (the "Collateral
Substitution Deposit") equal to the sum of (x) the remaining principal amount
of the Mortgage Loan or, if applicable, 125% (generally) of the Allocated
Loan Amount of the related Mortgaged Property or Properties sought to be
released, (y) the amount, if any, which, when added to such amount, will be
sufficient to purchase direct non-callable obligations of the United States
of America providing payments (1) on or prior to, but as close as possible
to, all successive scheduled payment dates from the Release Date to the
related maturity date, assuming, in the case of an ARD Loan, that such loan
prepays on the related Anticipated Repayment Date and (2) in amounts equal to
the scheduled payments due on such dates under the Mortgage Loan, and (z) any
costs and expenses incurred in connection with the purchase of such U.S.
government obligations and (b) delivers a security agreement granting the
Trust Fund a first priority lien on the Collateral Substitution Deposit and
the U.S. government obligations purchased with the Collateral Substitution
Deposit and an opinion of counsel that the same has been effected. The
Mortgage Loans that are secured by more than one Mortgaged
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Property 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 the Debt
Service Coverage Ratio with respect to the remaining Mortgaged Properties
after the defeasance be no less than the greater of (x) the DSCR at
origination and (y) the DSCR immediately prior to such defeasance. The
Servicer will be responsible for purchasing the U.S. government obligations
on behalf of the borrower at the borrower's expense. Any amount in excess of
the amount necessary to purchase such U.S. government obligations will be
returned to the borrower. Simultaneously with such actions, the related
Mortgaged Property will be released from the lien of the Mortgage Loan and
the pledged U.S. government obligations (together with any Mortgaged Property
not released, in the case of a partial defeasance) will be the collateral
securing the Mortgage Loan.
In general, successor borrower established or designated by the Mortgage
Loan Seller will assume all of the defeased obligations of a borrower
exercising a Defeasance Option under a Mortgage Loan and the borrower will be
relieved of all of the defeased obligations thereunder. If a Mortgage Loan is
partially defeased, the related Note will be split and only the defeased
portion of the borrower's obligations will be transferred to the successor
borrower.
The Depositor makes no representation as to the enforceability of the
defeasance provisions of any Mortgage Loan. See "Risk Factors and Other
Special Considerations --The Certificates --Special Prepayment and Yield
Considerations."
Escrows. All of the Mortgage Loans, other than the Hyatt Regency Riverwalk
Mortgage Loan, provide for monthly escrows to cover property taxes and
insurance premiums on the Mortgaged Properties (except in cases where a full
year, six months for one Mortgage Loan, of insurance premiums are escrowed).
All of the Mortgage Loans secured by leasehold interests also provide for
escrows to make ground lease payments. Ninety-two of the Mortgage Loans,
which represent approximately 94.05% of the Initial Pool Balance (which
includes all Mortgage Loans other than Mobile Home Loans) also require
monthly escrows to cover ongoing replacements and capital repairs. Twenty-one
of the 35 Hotel Loans provide for monthly escrows to fund seasonality
reserves to cover periodic decreases in revenues. Nineteen of the thirty-one
Retail, Office and Industrial Loans provide for monthly escrows to cover the
costs of reletting retail space. Reserves for the Hyatt Regency Riverwalk
Loan are described herein under "Description of the Mortgage Pool
- --Significant Mortgage Loans --The Hyatt Regency Riverwalk Loan and Property
- --Lock Box".
"Due-on-Sale" and "Due-on-Encumbrance" Provisions. The Mortgages generally
contain "due-on-sale" and "due-on-encumbrance" clauses that in each case
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 without the consent of the mortgagee. The Servicer
will determine, in a manner consistent with the servicing standard described
herein under "Servicing of the Mortgage Loans --General," whether to exercise
any right the mortgagee 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. The
Mortgages generally provide that the mortgagee may condition an assumption of
the loan on the receipt of an assumption fee, which is in some cases equal to
one percent of the then unpaid principal balance of the applicable Note, in
addition to the payment of all costs and expenses incurred in connection with
such assumption. Certain of the Mortgages provide that such consent may not
be unreasonably withheld provided that (i) no event of default has occurred,
(ii) the proposed transferee is creditworthy and has sufficient experience in
the ownership and management of properties similar to the Mortgaged Property,
(iii) the Rating Agencies have confirmed in writing that such transfer will
not result in a qualification, reduction or withdrawal of any rating of the
Certificates, (iv) the transferee has executed and delivered an assumption
agreement evidencing its agreement to abide by the terms of the Mortgage Loan
together with legal opinions and title insurance endorsements and (v) the
assumption fee has been received (which assumption fee will be paid to the
Servicer and will not be paid to the Certificateholders). See "Certain Legal
Aspects of Mortgage Loans --Due-on-Sale and Due-on-Encumbrance" in the
Prospectus. The Depositor makes no representation as to the enforceability of
any due-on-sale or due-on-encumbrance provision in any Mortgage Loan.
Mortgage Provisions Relating to Servicer's Right to Termination of
Management Agreements. Certain of the Mortgage Loans permit the Servicer or
Special Servicer, as applicable, to terminate the related management
agreements upon the occurrence of certain events. Generally, each Mortgage
Loan where an affiliate of the borrower manages the related Mortgaged
Property or Properties provides that if the Debt Service Coverage Ratio for
such Mortgaged Loan falls below a certain level, the Servicer or the Special
Servicer, as applicable, will have the right to terminate the related
management agreement and replace the manager with a manager acceptable to the
Servicer or Special Servicer, as applicable. All of the Mortgage Loans
generally allow the Servicer or Special Servicer, as applicable, to terminate
the
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related management agreements upon the occurrence of certain events of
default under the related loan agreements or mortgage documents. In addition,
the Servicer or Special Servicer, as applicable, is generally permitted to
terminate a management agreement if the manager breaches certain provisions
of the management agreement which would permit the termination of such
agreement thereunder.
Cross-Collateralization and Cross-Default of Certain Mortgage
Loans. Eleven of the Mortgage Loans are secured by more than one Mortgaged
Property. However, because certain states require the payment of a
documentary stamp tax based upon the principal amount of debt secured by a
mortgage, certain Mortgaged Properties will secure only a specified amount
greater than the initial principal balance of the related Note, which is less
than the aggregate principal balance of the related Note and all other Notes
with which it is cross-collateralized. See "Risk Factors and other Special
Considerations --Limitations on Enforceability of Cross-Collateralization"
and "Loan Characteristics" on Annex A.
Hazard, Liability and Other Insurance. The Mortgage Loans generally
require that each Mortgaged Property be insured by a hazard insurance policy
in an amount equal to the greatest of (i) the full replacement cost of the
improvements and equipment without deduction for physical depreciation, (ii)
the outstanding principal balance of the Mortgage Loan (or, with respect to
certain Mortgage Loans, the full insurable value of the Mortgaged Property)
and (iii) such amount that the insurer would not deem the borrower a
co-insurer, or in an amount satisfying other similar standards and by a flood
insurance policy if any part of the Mortgaged Property is located in an area
identified by the Federal Emergency Management Agency as an area having
special flood hazards and for which flood insurance has been made available
under the National Flood Insurance Program in an amount at least equal to the
outstanding principal amount of the Mortgage Loan (or with respect to
Mortgage Loans, the full insurable value of the Mortgaged Property) or the
maximum limit of coverage available, whichever is less, or in an amount
satisfying other similar standards. With respect to Mortgaged Properties
located in earthquake risk areas, certain of the related Mortgaged Properties
are insured by earthquake insurance in amounts less than the outstanding
principal balance of such Mortgage Loans. With respect to Mortgaged
Properties located in areas having special hurricane hazards, certain of the
related Mortgaged Properties are insured by hurricane insurance in amounts
less than the outstanding principal balance of such Mortgage Loans. The
hazard insurance policy is required to cover loss or damage by fire and
lightning or other risks and hazards covered by a standard extended coverage
insurance policy including, but not limited to, riot and civil commotion,
vandalism, malicious mischief, burglary and theft. Mobile Home Properties
located in earthquake risk areas or areas having special hurricane hazards
are not insured against earthquake or hurricane damage.
The Mortgage Loans also generally require that the borrower obtain and
maintain during the entire term of the Mortgage Loan (i) comprehensive public
liability insurance, including broad form property damage, blanket
contractual and personal injuries coverages and containing minimum limits per
occurrence as specified in the related Mortgage, (ii) rent loss and/or
business interruption insurance in an amount equal to the greater of (x)
estimated annual (or a specified longer period) gross revenues from the
operations of the Mortgaged Property and (y) projected annual (or a specified
longer period) operating expense (including debt service) for the maintenance
and operation of the Mortgaged Property, or in an amount satisfying other
similar standards, (iii) except with respect to certain of the Mobile Home
Loans, insurance against loss or damage from leakage of sprinkler systems and
explosion of steam boilers, air conditioning equipment, high pressure piping,
machinery and equipment, and pressure vessels, (iv) if the Mortgaged Property
is a commercial property, worker's compensation insurance, (v) during any
period of repair or restoration, builders "all risk" insurance, and (vi) such
other insurance as may from time to time be reasonably required by the
mortgagee in order to protect its interests. In the case of certain of the
Mortgage Loans, hurricane and earthquake insurance was obtained in an amount
less than the principal balance of such Mortgage Loans.
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<PAGE>
ADDITIONAL MORTGAGE LOAN INFORMATION
As of the Cut-off Date, the Mortgage Loans had the characteristics set
forth in the following table:
MORTGAGE LOAN CHARACTERISTICS
<TABLE>
<CAPTION>
<S> <C>
Range of Mortgage Rates .......................................................... 7.882% - 10.780%
Weighted Average Mortgage Rate ................................................... 9.226%
Range of Allocated Principal Balances by Property ................................ $182,191 - $70,939,362
Average Allocated Principal Balance by Property .................................. $5,472,636
Range of Original Terms to Scheduled Maturity .................................... 84 - 361
Range of Remaining Terms to Scheduled Maturity ................................... 78 - 360
Weighted Average Remaining Terms to Scheduled Maturity ........................... 292
Range of Remaining Terms to Stated Maturity or Anticipated Repayment Date ....... 78 - 295
Weighted Average Remaining Terms to Stated Maturity or Anticipated Repayment Date 144
Range of Cut-off Date Loan-to-Value ("LTV") Ratios ............................... 40.7%-78.6%
Weighted Average of Cut-off Date LTV Ratio ....................................... 65.3%
Range of Cut-off Date Debt Service Coverage Ratios ............................... 1.26-2.25
Weighted Average Cut-off Date Debt Service Coverage Ratios ....................... 1.44
</TABLE>
The following tables and Annex A set forth certain information with
respect to the Mortgage Loans and Mortgaged Properties. Unless otherwise
noted in the related table, for purposes of the following tables and Annex A,
the Anchorage Participation is presented as one Mortgage Loan. The statistics
in the following tables and Annex A were primarily derived from information
provided to the Depositor by the respective Originators or the Mortgage Loan
Seller, which information may have been obtained from the borrowers without
independent verification except as noted. For purposes of the tables and
Annex A:
(1) "Net Cash Flow" as used herein with respect to a given Mortgage Loan
or Mortgaged Property means cash flow available for debt service, as
determined by the Mortgage Loan Seller based upon borrower supplied
information for a recent period that is generally the twelve months prior to
the origination of such Mortgage Loan, adjusted for stabilization and, in the
case of certain Mortgage Loans, may have been updated to reflect a more
recent operating period. Net Cash Flow does not reflect debt service,
non-cash items such as depreciation or amortization, and does not reflect
actual capital expenditures but does reflect approximate on-going reserve
requirements and may have been adjusted by, among other things, (i) assuming
the occupancy rate for the Mortgaged Property was less than the actual
occupancy rate, (ii) subtracting from net operating income replacement or
capital expenditure reserves, (iii) assuming that a 4% to 5% management fee
and a 4% to 8% franchise fee (for Hotel Properties only) was payable with
respect to the Mortgaged Property, (iv) in certain cases, assuming that
operating and/or capital expenses with respect to the Mortgaged Property were
greater than actual expenses, (v) in the case of the Retail Properties,
excluding certain percentage rent, (vi) in the case of the Retail Properties
and Office Properties, subtracting from net operating income an assumed
allowance for tenant improvements, leasing commissions and free rent, (vii)
in the case of the Multifamily Properties and Mobile Home Properties, rental
revenue shown on a recent rent roll was annualized before applying a vacancy
factor without further regard to the terms (including expiration dates) of
the leases shown thereon, (viii) excluding certain non-recurring income
and/or expenses, (ix) in the case of certain Office Properties, Industrial
Properties and Retail Properties, determining current revenues from leases in
place, (x) in the case of certain of the Hotel Properties, assuming the
occupancy rate was less than the actual occupancy rate to account for a high
occupancy rate or to reflect new construction in the market and (xi) to take
into account new tax assessments and utility savings from the installation of
new energy efficient equipment.
"Net Cash Flow" reflects the calculations and adjustments used by the
Mortgage Loan Seller for its underwriting process and may or may not reflect
the amounts calculated and adjusted by the Rating Agencies for their own
analysis. In addition, "Net Cash Flow" and the Debt Service Coverage Ratios
derived therefrom are not a substitute for cash flow as determined in
accordance with generally accepted accounting principles as a measure of the
results of the property's operations or a substitute for cash flows from
operating activities determined in accordance with generally accepted
accounting principles as a measure of liquidity.
Reletting costs and capital expenditures are crucial to the operation of
commercial and multifamily properties. Each investor should make its own
assessment of the level of reletting costs and capital expenditures of the
Mortgaged Properties, and the consequent effect of such costs and
expenditures on the actual net operating income, Net Cash Flow and debt
service coverage ratios of the Mortgage Loans.
S-54
<PAGE>
No representation is made as to the future net cash flow of the
properties, nor is "Net Cash Flow" set forth herein intended to represent
such future net cash flow.
(2) "1993 NOI," "1994 NOI", "1995 NOI" and "1996 NOI" (which is for the
period ending as of the date specified in Annex A) is the net operating
income for a Mortgaged Property as established by information provided by the
borrowers, except that in certain cases such net operating income has been
adjusted by removing certain non-recurring expenses and revenue or by certain
other normalizations. 1993 NOI, 1994 NOI, 1995 NOI and 1996 NOI do not
necessarily reflect accrual of certain costs such as taxes and capital
expenditures and do not reflect non-cash items such as depreciation or
amortization. In some cases, capital expenditures may have been treated by a
borrower as an expense or expenses treated as capital expenditures. The
Depositor has not made any attempt to verify the accuracy of any information
provided by each borrower or to reflect changes in net operating income that
may have occurred since the date of the information provided by each borrower
for the related Mortgaged Property. 1993 NOI, 1994 NOI, 1995 NOI and 1996 NOI
were not necessarily determined in accordance with generally accepted
accounting principles. Moreover, 1993 NOI, 1994 NOI, 1995 NOI and 1996 NOI
are not a substitute for net income determined in accordance with generally
accepted accounting principles as a measure of the results of a property's
operations or a substitute for cash flows from operating activities
determined in accordance with generally accepted accounting principles as a
measure of liquidity and in certain cases may reflect partial-year
annualizations.
For purposes of determining 1996 NOI as set forth on Annex A:
"Year End" means NOI calculated for the twelve-month period ended December
31, 1995;
"A /[number of months]" means an annualized NOI which reflects the number
of months in the period that was annualized, generally beginning on January
1, 1996; and
"T/12-[month]" means NOI calculated for the trailing twelve months ending
on the last day of the month indicated.
(2) "Allocated Loan Amount" means, for each Mortgaged Property, the
portion of the principal amount of the related Mortgage Loan allocated to
such Mortgaged Property for certain purposes (including, without limitation,
determining the release prices of properties, if the Mortgage Loan permits
such releases) under such Mortgage Loan. The Allocated Loan Amount for each
Mortgaged Property securing a Mortgage Loan was determined generally based on
the ratio of the Net Cash Flow or net operating income (calculated as
provided in the related Mortgaged Loan) or appraised value, or some
combination thereof, of such Mortgaged Property to the aggregate Net Cash
Flow or appraised value, or some combination thereof, of all the Mortgaged
Properties securing such Mortgage Loan. The Allocated Loan Amount for each
Mortgaged Property may be adjusted upon the payment of principal of the
related Mortgage Loan, whether upon amortization, prepayment, or otherwise.
"Cut-off Date Allocated Loan Amount" means for each Mortgaged Property the
Allocated Loan Amount of such property as of the Cut-off Date.
(3) "Original Principal Loan Balance" means the principal balance of the
Mortgage Loan as of the date of origination.
(4) "Cut-off Date Principal Balance" means the principal balance of the
Mortgage Loan as of the Cut-off Date.
(5) "Cut-off Date Principal Balance/Unit" means the principal balance per
unit of measure as of the Cut-off Date.
(6) "Annual Debt Service" means for any Mortgage Loan the current annual
debt service payable during the twelve month period commencing on November
11, 1996 on the related Mortgage Loan.
(7) "DSCR" or "Debt Service Coverage Ratio" means, with respect to any
Mortgage Loan, (a) the Net Cash Flow for the related Mortgaged Property,
divided by (b) the Annual Debt Service for such Mortgaged Property. The
calculation of "DSCR" may differ from the calculation of the debt service
coverage ratios referred to under " --The Mortgage Loan Program
- --Underwriting Standards; Representations."
(8) "Stated Maturity Date" means the maturity date of the Mortgage Loan as
stated in the related Note or Loan Agreement.
(9) "Anticipated Repayment Date" means for ARD Mortgage Loans, the date on
which interest begins accruing at the Revised Rate and excess cash flow is
retained pursuant to the related Lock-box Agreements to application to
payment of principal and Excess Interest.
(10) "Anticipated Remaining Term" means the term of the Mortgage Loan from
the Cut-off Date to the earlier of the Anticipated Repayment Date, if
applicable, and the stated maturity date.
S-55
<PAGE>
(11) "Remaining Lock-out" means the period of the term of the related
Mortgage Loan from the Cut-off Date during which the Mortgage Loan may not be
prepaid.
(12) "Value" means for each of the Mortgaged Properties, the appraised
value of such property as determined by an appraisal thereof and in
accordance with MAI standards made not more than one year prior to the
origination date of the related Mortgage Loan.
(13) "Loan-to-Value Ratio" or "LTV" means, with respect to any Mortgage
Loan, the principal balance of such Mortgage Loan as of the Cut-off Date
divided by the Appraised Value of the Mortgaged Property or Properties
securing such Mortgage Loan.
(14) "Balloon Payment/Anticipated Repayment Date LTV" for any Mortgage
Loan is calculated in the same manner as Cut-off Date LTV, except that the
Mortgage Loan Cut-off Date principal balance used to calculate the Cut-off
Date LTV has been adjusted to give effect to the amortization of the
applicable Mortgage Loan as of its maturity date or, in the case of a
Mortgage Loan that has an Anticipated Repayment Date, as of its Anticipated
Repayment Date. Such calculation thus assumes that the appraised value of the
Mortgaged Property or Properties securing a Mortgage Loan on the maturity
date or Anticipated Repayment Date, as applicable, is the same as the
Appraised Value as of the Cut-off Date. There can be no assurance that the
value of any particular Mortgaged Property will not have declined from the
Appraised Value.
(15) "Amortization" means, the number of months beginning at amortization,
based on the constant Monthly Payment as stated in the related Note or Loan
Agreement, that would be necessary to reduce the principal balance of the
related Note to zero if interest on such Note was calculated based on twelve
30-day months and a 360-day year.
(16) "Year Built/Renovated" means the year in which the respective
Mortgaged Property was built and/or renovated.
(17) "Unit" and "Unit of Measure" mean the number of units in the
respective Mortgaged Property.
(18) "Occupancy" means the percentage of gross leaseable area, rooms,
units, beds or sites of the property that are leased. Occupancy rates are
calculated within a recent period and in certain cases reflect the average
occupancy rate over a period of time.
(19) "Anchor" means, with respect to the Retail Properties, the largest
and second largest anchors, if any.
(20) "Major Tenants" mean the largest tenants for office, industrial and
unanchored retail properties.
(21) "Franchise" means the regional or national franchise affiliation of a
Hotel Property.
(22) "Audit/Agreed Upon Proceedures/Review" indicates Mortgaged Properties
for which independent accounting reports were prepared.
(23) "Identified Deferred Maintenance" is the estimated amount of deferred
maintenance in the respective Mortgaged Property's structural engineering
report.
(24) "Reserve for Deferred Maintenance" is the actual dollars escrowed at
the loan origination for deferred maintenance repairs.
(25) "Actual On-going Capital Reserves" means the annual reserves, as
indicated, per unit of measure or as a percentage of gross revenue and
escrowed on a monthly basis.
Due to rounding, percentages may not add to 100% and amounts may not add
to indicated total.
S-56
<PAGE>
RANGE OF DEBT SERVICE COVERAGE RATIOS
<TABLE>
<CAPTION>
PERCENT BY
CUT-OFF DATE AGGREGATE
DEBT SERVICE NUMBER OF CUT-OFF DATE WEIGHTED WEIGHTD WEIGHTED
COVERAGE NUMBER OF LOANS/LOAN CUT-OFF DATE PRINCIPAL AVERAGE AVERAGE AVERAGE
RATIO PROPERTIES POOLS PRINCIPAL BALANCE BALANCE MORTGAGE RATE DSCR LTV
- -------------- ------------ ------------ ----------------- ------------ --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1.2-1.299 ..... 22 15 $132,405,795 16.9% 9.03% 1.29 69.6%
1.3-1.399 ..... 45 38 253,315,853 32.4 9.25 1.35 66.3
1.4-1.499 ..... 39 27 212,695,335 27.2 9.18 1.44 64.9
1.5-1.599 ..... 14 13 107,671,730 13.8 9.46 1.56 64.9
1.6-1.699 ..... 6 6 22,247,095 2.8 10.08 1.65 66.9
1.7-1.799 ..... 5 5 13,712,427 1.8 10.01 1.75 56.9
1.8-1.899 ..... 6 3 19,633,914 2.5 8.07 1.85 56.5
1.9-1.999 ..... 2 2 6,217,830 0.8 8.83 1.94 50.1
2-2.099 ....... 3 3 10,893,135 1.4 9.39 2.02 41.7
2.2-2.299 ..... 1 1 3,793,878 0.5 8.42 2.25 42.6
------------ ------------ ----------------- ------------ --------------- --------- ----------
Total ....... 143 113 $782,586,993 100% 9.23% 1.44 65.3%
============ ============ ================= ============ =============== ========= ==========
</TABLE>
RANGE OF LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE WEIGHTED
NUMBER OF CUT-OFF DATE CUT-OFF DATE AVERAGE WEIGHTED WEIGHTED
LOAN TO NUMBER OF LOANS/LOAN PRINCIPAL PRINCIPAL MORTGAGE AVERAGE AVERAGE
VALUE RATIO PROPERTIES POOLS BALANCE BALANCE RATE DSCR LTV
- ------------- ------------ ------------ -------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
40%-44.9% .... 5 5 $ 16,848,674 2.2% 9.24% 1.99 42.2%
45%-49.9% .... 3 3 10,447,004 1.3 9.50 1.76 47.4
50%-54.9% .... 12 6 37,089,029 4.7 10.16 1.47 51.8
55%-59.9% .... 13 10 58,364,277 7.5 9.18 1.53 56.6
60%-64.9% .... 23 20 158,803,664 20.3 9.29 1.50 63.5
65%-69.9% .... 50 34 356,510,179 45.5 9.09 1.39 67.3
70%-74.9% .... 34 32 136,450,790 17.4 9.26 1.38 72.8
75%-79.9% .... 3 3 8,073,375 1.0 9.21 1.36 77.3
------------ ------------ -------------- -------------- ---------- ---------- ----------
Total ...... 143 113 $782,586,993 100% 9.23% 1.44 65.3%
============ ============ ============== ============== ========== ========== ==========
</TABLE>
RANGE OF LOAN-TO-VALUE RATIOS AT EARLIER OF ANTICIPATED REPAYMENT DATES OR
MATURITY
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE WEIGHTED
NUMBER OF CUT-OFF DATE CUT-OFF DATE AVERAGE WEIGHTED WEIGHTED
LOAN TO NUMBER OF LOANS/LOAN PRINCIPAL PRINCIPAL MORTGAGE AVERAGE AVERAGE
VALUE RATIO PROPERTIES POOLS BALANCE BALANCE RATE DSCR LTV
- ------------- ------------ ------------ -------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
0%-9.9% ..... 7 7 $ 20,021,442 2.6% 9.01% 1.90 51.2%
10%-19.9% .... 1 1 4,393,851 0.6 9.54 2.03 40.7
20%-29.9% .... 14 13 92,274,456 11.8 9.11 1.38 65.1
30%-39.9% .... 14 9 40,176,557 5.1 10.21 1.51 54.7
40%-49.9% .... 27 23 181,284,615 23.2 9.68 1.49 62.9
50%-59.9% .... 41 28 217,014,876 27.7 9.03 1.41 66.2
60%-69.9% .... 39 32 227,421,194 29.0 8.94 1.39 70.0
------------ ------------ -------------- -------------- ---------- ---------- ----------
Total ...... 143 113 $782,586,993 100% 9.23% 1.44 65.3%
============ ============ ============== ============== ========== ========== ==========
</TABLE>
S-57
<PAGE>
MORTGAGED PROPERTIES BY STATE
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE PERCENT BY
CUT-OFF DATE CUT-OFF DATE AGGREGATE SUM
NUMBER OF PRINCIPAL PRINCIPAL SUM OF OF APPRAISED
STATE PROPERTIES BALANCE BALANCE APPRAISED VALUE VALUE
- -------------- ------------ -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
CALIFORNIA .... 21 $207,540,805 26.5% $ 310,070,000 25.5%
TEXAS ......... 22 136,376,781 17.4 207,650,000 17.1
NEVADA ........ 7 73,668,350 9.4 111,300,000 9.2
ARIZONA ....... 13 46,088,611 5.9 72,420,000 6.0
GEORGIA ....... 5 45,759,935 5.8 77,050,000 6.3
FLORIDA ....... 13 35,908,239 4.6 56,580,000 4.7
PENNSYLVANIA . 2 29,956,569 3.8 44,800,000 3.7
MICHIGAN ...... 5 24,802,722 3.2 41,550,000 3.4
NEW YORK ...... 2 22,541,009 2.9 32,200,000 2.7
MARYLAND ...... 8 21,244,713 2.7 35,200,000 2.9
NEW JERSEY .... 5 16,961,682 2.2 24,040,000 2.0
MISSOURI ...... 3 16,249,069 2.1 23,320,000 1.9
NORTH CAROLINA 4 14,890,174 1.9 22,540,000 1.9
TENNESSEE ..... 3 12,901,397 1.6 24,560,000 2.0
CONNECTICUT .. 3 11,293,755 1.4 21,400,000 1.8
LOUISIANA ..... 2 8,666,978 1.1 19,200,000 1.6
OKLAHOMA ...... 3 8,380,073 1.1 12,500,000 1.0
OHIO .......... 3 7,850,548 1.0 11,185,000 0.9
WASHINGTON .... 2 6,984,712 0.9 10,105,000 0.8
VIRGINIA ...... 3 5,668,890 0.7 10,100,000 0.8
INDIANA ....... 2 5,526,535 0.7 10,120,000 0.8
KENTUCKY ...... 2 5,476,080 0.7 8,370,000 0.7
COLORADO ...... 3 4,655,510 0.6 7,915,000 0.7
ILLINOIS ...... 2 3,984,413 0.5 5,300,000 0.4
KANSAS ........ 1 2,742,933 0.4 3,675,000 0.3
UTAH .......... 1 2,287,558 0.3 3,300,000 0.3
RHODE ISLAND . 1 2,071,701 0.3 2,900,000 0.2
OREGON ........ 1 1,925,058 0.2 3,200,000 0.3
WISCONSIN ..... 1 182,191 0.0 1,950,000 0.2
------------ -------------- -------------- --------------- ---------------
Total ....... 143 $782,586,993 100.0% $1,214,500,000 100.0%
============ ============== ============== =============== ===============
</TABLE>
RANGE OF YEAR BUILT
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE PERCENT BY
CUT-OFF DATE CUT-OFF SUM OF AGGREGATE SUM
RANGE OF NUMBER OF PRINCIPAL PRINCIPAL APPRAISED OF APPRAISED
YEAR BUILT PROPERTIES BALANCE BALANCE VALUE VALUE
- ------------ ------------ -------------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C>
1919-1928 .. 3 $ 27,588,601 3.5% $ 44,250,000 3.6%
1939-1948 .. 1 4,274,524 0.5 6,080,000 0.5
1949-1958 .. 3 5,685,268 0.7 9,850,000 0.8
1959-1968 .. 21 81,267,702 10.4 133,315,000 11.0
1969-1978 .. 42 214,043,243 27.4 323,770,000 26.7
1979-1988 .. 53 333,393,701 42.6 518,815,000 42.7
1989-1996 .. 20 116,333,955 14.9 178,420,000 14.7
------------ -------------- ------------ -------------- ---------------
Total ..... 143 $782,586,993 100% $1,214,500,000 100%
============ ============== ============ ============== ===============
</TABLE>
S-58
<PAGE>
Cut-Off Date Loan Amount By Property Type
[The paper version of this Preliminary Prospectus Supplement contains a
pic chart showing the following information:]
<TABLE>
<CAPTION>
<S> <C>
Multifamily: 30%
Hotel-Full Service: 15%
Hotel-Limited Service: 11%
Retail-Anchored: 12%
Retail-Unanchored: 7%
Office: 13%
Mobile Home Park: 6%
Nursing Home: 3%
Industrial: 3%
TYPES OF MORTGAGED PROPERTIES
</TABLE>
<TABLE>
<CAPTION>
PERCENT BY WEIGHTED
AGGREGATE WEIGHTED AVERAGE
CUT-OFF DATE CUT-OFF DATE AVERAGE WEIGHTED WEIGHTED BALLOON/ WTD. AVG.
NUMBER OF PRINCIPAL PRINCIPAL MORTGAGE AVERAGE AVERAGE REPAYMENT TERM TO ANT.
PROPERTY TYPE PROPERTIES BALANCE BALANCE RATE DSCR LTV LTV REPAY/MATURITY
- ------------------ ------------ -------------- -------------- ---------- ---------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Multifamily ....... 30 $226,287,048 28.9% 8.56% 1.44 66.6% 49.6% 128
Hotel-Full Service 12 120,797,917 15.4 9.56 1.57 61.3 40.9 178
Office ............ 8 102,434,354 13.1 9.35 1.38 65.2 55.9 130
Anchored Retail .. 20 91,952,098 11.8 9.28 1.36 67.9 59.0 133
Hotel-Limited
Service .......... 29 87,396,574 11.2 10.08 1.50 61.3 37.3 169
Unanchored Retail 11 55,002,487 7.0 9.03 1.34 66.0 55.3 138
Mobile Home Park . 27 50,283,691 6.4 9.20 1.41 68.3 49.6 155
Industrial ........ 2 27,301,279 3.5 9.40 1.34 65.0 55.6 118
Nursing ........... 4 21,131,543 2.7 10.37 1.59 70.2 53.0 150
------------ -------------- -------------- ---------- ---------- ---------- ----------- --------------
Total ........... 143 $782,586,993 100% 9.23% 1.44 65.3% 49.5% 144
============ ============== ============== ========== ========== ========== =========== ==============
</TABLE>
S-59
<PAGE>
RANGE OF LOAN AMOUNTS OR LOAN BALANCES
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE WEIGHTED
RANGE OF NUMBER OF CUT-OFF DATE CUT-OFF DATE AVERAGE WEIGHTED WEIGHTED
CUT-OFF DATE LOANS/LOAN PRINCIPAL PRINCIPAL MORTGAGE AVERAGE AVERAGE
LOAN AMOUNTS POOLS BALANCE BALANCE RATE DSCR LTV
- ---------------------- ------------ -------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 0-4,999,999.... 77 $195,693,730 25.0% 9.56% 1.50 64.1%
5,000,000-9,999,999 .. 18 112,996,903 14.4 9.33 1.40 66.4
10,000,000-14,999,999.. 3 40,388,620 5.2 9.05 1.49 69.8
15,000,000-19,999,999.. 8 138,744,298 17.7 9.33 1.41 64.5
20,000,000-24,999,999.. 2 47,406,112 6.1 9.56 1.34 61.2
25,000,000-29,999,999.. 2 53,250,000 6.8 8.75 1.40 67.0
50,000,000-54,999,999.. 1 54,709,251 7.0 8.71 1.30 68.4
65,000,000-69,999,999.. 1 68,458,716 8.7 8.53 1.45 65.7
70,000,000-74,999,999.. 1 70,939,362 9.1 9.26 1.58 64.5
------------ -------------- -------------- ---------- ---------- ----------
Total ............... 113 $782,586,993 100% 9.23% 1.44 65.3%
============ ============== ============== ========== ========== ==========
</TABLE>
RANGE OF ANTICIPATED REMAINING TERM IN MONTHS
<TABLE>
<CAPTION>
PERCENT BY
RANGE OF AGGREGATE WEIGHTED
ANTICIPATED NUMBER OF CUT-OFF DATE CUT-OFF WTD. AVG. TERM AVERAGE WEIGHTED WEIGHTED
REMAINING LOANS/LOAN PRINCIPAL PRINCIPAL TO ANT. MORTGAGE AVERAGE AVERAGE
TERM POOLS BALANCE BALANCE REPAY/MATURITY RATE DSCR LTV
- ------------- ------------ -------------- ------------ -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
72-83 ........ 9 $ 53,639,585 6.9% 80 8.69% 1.52 63.7%
84-95 ........ 1 68,458,716 8.7 84 8.53 1.45 65.7
108-119 ...... 50 229,221,972 29.3 117 9.27 1.40 67.1
120-131 ...... 5 55,894,999 7.1 120 9.25 1.30 68.9
132-143 ...... 1 2,071,925 0.3 141 10.20 1.42 69.1
144-155 ...... 1 28,250,000 3.6 150 8.65 1.37 64.8
168-179 ...... 32 216,563,548 27.7 177 9.72 1.51 62.9
180-191 ...... 2 41,850,000 5.3 180 9.31 1.42 65.9
192-203 ...... 1 54,709,251 7.0 198 8.71 1.30 68.4
228-239 ...... 9 28,668,271 3.7 235 9.14 1.71 58.3
288-300 ...... 2 3,258,726 0.4 294 9.06 1.81 54.8
------------ -------------- ------------ -------------- ---------- ---------- ----------
Total ...... 113 $782,586,993 100.0% 144 9.23% 1.44 65.3%
============ ============== ============ ============== ========== ========== ==========
</TABLE>
S-60
<PAGE>
RANGE OF REMAINING TERM IN MONTHS
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE WEIGHTED
RANGE OF NUMBER OF CUT-OFF DATE CUT-OFF AVERAGE AVERAGE WEIGHTED WEIGHTED
REMAINING LOANS/LOAN PRINCIPAL PRINCIPAL REMAINING MORTGAGE AVERAGE AVERAGE
TERM POOLS BALANCE BALANCE TERM RATE DSCR LTV
- ----------- ------------ -------------- ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
72-83 ...... 4 $ 9,535,169 1.2% 78 8.60% 1.39 61.8%
108-119 .... 15 27,886,782 3.6 117 9.20 1.47 71.4
168-179 .... 5 26,866,622 3.4 176 9.94 1.46 67.9
192-203 .... 1 54,709,251 7.0 198 8.71 1.30 68.4
228-239 .... 28 84,016,009 10.8 237 9.68 1.63 58.8
252-263 .... 1 549,669 0.1 258 9.82 1.89 64.7
264-275 .... 1 23,040,712 2.9 267 9.75 1.34 56.2
288-299 .... 29 213,954,131 27.3 297 9.59 1.46 64.0
300-311 .... 4 47,369,999 6.0 300 9.59 1.35 64.6
324-335 .... 1 28,250,000 3.6 330 8.65 1.37 64.8
348-359 .... 24 266,408,648 34.0 358 8.80 1.42 67.9
------------ -------------- ------------ ----------- ---------- ---------- ----------
Total .... 113 $782,586,993 100.0% 292 9.23% 1.44 65.3%
============ ============== ============ =========== ========== ========== ==========
</TABLE>
ANTICIPATED TIMING OF PRINCIPAL PAYMENT BASED ON CUT-OFF LOAN AMOUNT
[The paper version of this Preliminary
Prospectus Supplement contains a bar
graph showing the following information:]
Year: Amount:
---- ------
1996
1997
1998
1999
2000
2001
2002
2003 122,098,301
2004
2005 21,555,505
2006 263,561,488
2007
2008 2,071,925
2009 28,250,000
2010 5,853,895
2011 252,559,653
2012
2013 54,709,251
2014
2015 8,652,124
2016 20,016,147
2017
2018
2019
2020 3,258,726
2021 --
S-61
<TABLE>
<CAPTION>
ANTICIPATED REPAYMENT BY YEAR
PERCENT BY
AGGREGATE WEIGHTED
NUMBER OF CUT-OFF DATE CUT-OFF DATE AVERAGE WEIGHTED WEIGHTED
NUMBER OF LOANS/LOAN PRINCIPAL PRINCIPAL MORTGAGE AVERAGE AVERAGE
YEAR PROPERTIES POOLS BALANCE BALANCE RATE DSCR LTV
- --------- ------------ ------------ -------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
2003 ..... 19 10 122,098,301 15.6% 8.60% 1.48 64.8%
2005 ..... 4 4 21,555,505 2.8 8.57 1.39 67.6
2006 ..... 63 51 263,561,466 33.7 9.32 1.38 67.4
2008 ..... 1 1 2,071,925 0.3 10.20 1.42 69.1
2009 ..... 1 1 28,250,000 3.6 8.65 1.37 64.8
2010 ..... 1 1 5,853,895 0.7 9.89 1.76 45.4
2011 ..... 42 33 252,551,653 32.3 9.65 1.49 63.8
2013 ..... 1 1 54,709,251 7.0 8.71 1.30 68.4
2015 ..... 3 3 8,652,124 1.1 9.57 1.54 66.5
2016 ..... 6 6 20,016,147 2.6 8.96 1.78 54.8
2021 ..... 2 2 3,258,726 0.4 9.06 1.81 54.8
------------ ------------ -------------- -------------- ---------- ---------- ----------
Total . 143 113 $782,586,993 100% 9.23% 1.44 65.3%
============ ============ ============== ============== ========== ========== ==========
</TABLE>
RANGE OF MORTGAGE RATES
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE WEIGHTED
RANGE OF NUMBER OF CUT-OFF DATE CUT-OFF DATE AVERAGE WEIGHTED WEIGHTED
MORTGAGE NUMBER OF LOANS/LOAN PRINCIPAL PRINCIPAL MORTGAGE AVERAGE AVERAGE
RATES PROPERTIES POOLS BALANCE BALANCE RATE DSCR LTV
- --------------- ------------ ------------ -------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
7.50%-7.999% .. 4 1 $ 16,043,236 2.1% 7.88% 1.86 56.1%
8.00%-8.4999% . 5 5 24,997,160 3.2 8.25 1.57 62.1
8.50%-8.999% .. 30 23 267,208,072 34.1 8.70 1.40 67.9
9.00%-9.499% .. 42 35 250,442,316 32.0 9.27 1.45 66.1
9.50%-9.999% .. 34 26 127,459,135 16.3 9.75 1.42 61.6
10.00%-10.499% 20 15 62,762,613 8.0 10.25 1.46 61.2
10.50%-10.999% 8 8 33,674,460 4.3 10.58 1.53 66.2
------------ ------------ -------------- -------------- ---------- ---------- ----------
Total ........ 143 113 $782,586,993 100% 9.23% 1.44 65.3%
============ ============ ============== ============== ========== ========== ==========
</TABLE>
S-62
<PAGE>
<TABLE>
<CAPTION>
MORTGAGED PROPERTIES BY ORIGINATOR
PERCENT BY WEIGHTED
NUMBER OF CUT-OFF DATE AGGREGATE CUT-OFF AVERAGE WEIGHTED WEIGHTED
NUMBER OF LOANS/LOAN PRINCIPAL DATE PRINCIPAL MORTGAGE AVERAGE AVERAGE
ORIGINATOR PROPERTIES POOLS BALANCE BALANCE RATE DSCR LTV
- ----------------------- ------------ ------------ -------------- ----------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Nomura Asset Capital
Corporation ........... 102 76 $682,614,890 87.2% 9.20% 1.44 65.4%
Bloomfield Acceptance
Company, LLC .......... 27 23 64,919,683 8.3 9.45 1.41 66.0
Continental Wingate
Association, Inc. ..... 5 5 10,199,970 1.3 10.27 1.50 65.8
NBD .................... 4 4 9,822,428 1.3 8.41 1.90 54.9
Remsen Partners Ltd. .. 3 3 7,620,043 1.0 8.69 1.36 59.3
Hanover ................ 1 1 4,274,524 0.5 8.99 1.39 70.3
First Maryland Mortgage
Corporation ........... 1 1 3,135,456 0.4 10.00 1.47 70.8
------------ ------------ -------------- ----------------- ---------- ---------- ----------
Total ................ 143 113 $782,586,993 100% 9.23% 1.44 65.3%
============ ============ ============== ================= ========== ========== ==========
</TABLE>
RANGE OF REMAINING LOCK-OUT PERIOD IN MONTHS
<TABLE>
<CAPTION>
PERCENT BY
AGGREGATE WEIGHTED WEIGHTED
LOCK-OUT NUMBER OF CUT-OFF DATE CUT-OFF DATE AVERAGE WEIGHTED WEIGHTED AVERAGE
PERIOD NUMBER OF LOANS/LOAN PRINCIPAL PRINCIPAL MORTGAGE AVERAGE AVERAGE REMAINING
IN MONTHS PROPERTIES POOLS BALANCE BALANCE RATE DSCR LTV LOCKOUT
- ----------- ------------ ------------ -------------- -------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
72-83 ...... 19 10 $122,098,301 15.6% 8.60% 1.48 64.8% 79
108-119 .... 67 55 285,116,971 36.4 9.27 1.38 67.4 114
132-143 .... 1 1 2,071,925 0.3 10.20 1.42 69.1 137
144-155 .... 1 1 28,250,000 3.6 8.65 1.37 64.8 149
168-179 .... 43 34 258,413,548 33.0 9.65 1.50 63.4 175
192-203 .... 1 1 54,709,251 7.0 8.71 1.30 68.4 197
216-227 .... 1 1 3,135,456 0.4 10.00 1.47 70.8 227
228-239 .... 8 8 25,532,815 3.3 9.04 1.73 56.8 231
288-299 .... 2 2 3,258,726 0.4 9.06 1.81 54.8 290
------------ ------------ -------------- -------------- ---------- ---------- ---------- -----------
Total .... 143 113 $782,586,993 100% 9.23% 1.44 65.3% 141
============ ============ ============== ============== ========== ========== ========== ===========
</TABLE>
S-63
<PAGE>
CHANGES IN MORTGAGE POOL CHARACTERISTICS
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at the close of business on the Cut-off Date, as adjusted for the
scheduled principal payments due on the Mortgage Loans on or before the
Cut-off Date. Prior to the issuance of the Offered Certificates, a Mortgage
Loan may be removed from the Mortgage Pool if the Depositor deems such
removal necessary or appropriate or if it is prepaid. This may cause the
range of Mortgage Rates and maturities as well as the other characteristics
of the Mortgage Loans to vary from those described herein.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Certificates and will be filed by the Depositor,
together with the Pooling and Servicing Agreement with the Securities and
Exchange Commission within fifteen days after the initial issuance of the
Offered Certificates. In the event Mortgage Loans are removed from the
Mortgage Pool as set forth in the preceding paragraph, such removal will be
noted in the Form 8-K.
DESCRIPTION OF THE OFFERED CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement and will consist of nineteen Classes to be designated as the Class
A-1A Certificates, the Class A-1B Certificates, the Class A-1C Certificates,
the Class A-1D Certificates, the Class A-CS1 Certificates, the Class A-CS2
Certificates, the Class A-2 Certificates, the Class A-3 Certificates, the
Class A-4 Certificates, the Class A-5 Certificates, the Class B-1
Certificates, the Class B-2 Certificates, the Class B-3 Certificates, the
Class B-4 Certificates, the Class B-4H Certificates, the Class V-1
Certificates, the Class V-2 Certificates, the Class R Certificates and the
Class LR Certificates. The Class A-CS2, Class B-1, Class B-2, Class B-3,
Class B-4, Class B-4H, Class V-1, Class V-2, Class R and Class LR
Certificates (collectively, the "Private Certificates") are not offered
hereby. The Class A-CS1 and Class A-CS2 Certificates are sometimes referred
to herein as the "Coupon Strip Certificates."
The Certificates represent in the aggregate the entire beneficial
ownership interest in a Trust Fund consisting of: (i) the Mortgage Loans and
all payments under and proceeds of the Mortgage Loans due after the Cut-off
Date; (ii) any Mortgaged Property acquired by the Special Servicer on behalf
of the Trust Fund through foreclosure or deed in lieu of foreclosure (upon
acquisition, an "REO Property" such funds or assets as from time to time are
deposited in the Collection Account, the Distribution Account, Upper-Tier
Distribution Account, Interest Reserve Account, the Excess Interest
Distribution Account, the Default Interest Distribution Account and any
account established in connection with REO Properties (an "REO Account"; (iv)
the rights of the mortgagee under all insurance policies with respect to the
Mortgage Loans; (v) the Depositor's rights and remedies under the Mortgage
Loan Purchase and Sale Agreement and Original Purchase Agreements; and (vi)
all of the mortgagee's right, title and interest in the Reserve Accounts, the
Cash Collateral Accounts and Lock Box Accounts.
The Class A-1A, Class A-1B, Class A-1C, Class A-1D, Class A-2, Class A-3,
Class A-4 and Class A-5 Certificates will have initial Certificate Balances
of $64,985,025, $154,000,000, $321,000,000, $19,564,674, $39,129,349,
$35,216,414, $39,129,349 and $15,651,739, respectively. The Class B-1
Certificates will have an initial Certificate Balance of $43,042,284. The
Class B-2 Certificates will have an initial Certificate Balance of
$27,390,544. The Class B-3 Certificates will have an initial Certificate
Balance of $7,825,869. The Class B-4 and Class B-4H Certificates will have
initial Certificate Balances, in the aggregate, of $15,651,746.84. The Class
A-CS1 Certificates will have an initial Notional Balance equal to the initial
Component Balance of the Class A-1A Component. The Class A-CS2 Certificates
are comprised of seven components: the Class A-1B Component, the Class A-1C
Component, the Class A-1D Component, the Class A-2 Component, the Class A-3
Component, the Class A-4 Component and the Class A-5 Component, which will
have initial Component Balances equal to $154,000,000 (which is equal to the
initial Certificate Balance of the Class A-1B Certificates), $321,000,000
(which is equal to the initial Certificate Balance of the Class A-1C
Certificates), $19,564,674 (which is equal to the initial Certificate Balance
of the Class A-1D Certificates), $39,129,349 (which is equal to the initial
Certificate Balance of the Class A-2 Certificates), $35,216,414 (which is
equal to the initial Certificate Balance of the Class A-3 Certificates),
$39,129,349 (which is equal to the initial Certificate Balance of the Class
A-4 Certificates) and $15,651,739 (which is equal to the initial Certificate
Balance of the Class A-5 Certificates), respectively. The Class A-CS2
Certificates will have an initial Notional Balance equal to $623,691,525, the
sum of the initial Component Balances of the Class A-1B, Class A-1C, Class
A-1D, Class A-2, Class A-3, Class A-4 and Class A-5 Components. Each of the
Class A-1A Component, Class A-1B
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Component, Class A-1C Component, Class A-1D Component, Class A-2 Component,
Class A-3 Component, Class A-4 Component and Class A-5 Component is sometimes
referred to herein as a "component".
The initial Certificate Balance of each of the Class R, Class LR, Class
V-1 and Class V-2 Certificates will be zero. Additionally, the Class R, Class
LR, Class V-1 and Class V-2 Certificates will not have a Notional Balance.
The Certificate Balance of any Class of Certificates outstanding at any
time represents the maximum amount which the holders thereof are entitled to
receive as distributions allocable to principal from the cash flow on the
Mortgage Loans and the other assets in the Trust Fund; provided, however,
that in the event that amounts previously allocated to a Class of
Certificates in reduction of the Certificate Balance thereof are recovered
subsequent to the reduction of the Certificate Balance of such Class to zero,
such Class may receive distributions in respect of such recoveries in
accordance with the priorities set forth under " --Distributions
- --Priorities" herein.
The respective Certificate Balance of each Class of Certificates (other
than the Coupon Strip Certificates, the Class V-1, Class V-2, Class R and
Class LR Certificates) will in each case be reduced by amounts actually
distributed thereon that are allocable to principal and by any Realized
Losses (as defined herein) allocated to such Class of Certificates. The
Component Balances of the Class A-1A, Class A-1B, Class A-1C, Class A-1D,
Class A-2, Class A-3, Class A-4 and Class A-5 Components (and therefore the
Notional Balance of the Class A-CS1 and Class A-CS2 Certificates) will be
reduced in accordance with distributions of principal in reduction of, and
allocations of Realized Losses on, the Certificate Balances of the Class
A-1A, Class A-1B, Class A-1C, Class A-1D, Class A-2, Class A-3, Class A-4 and
Class A-5 Certificates, as applicable. The Notional Balance of the Class
A-CS1 Certificates will at all times equal the Component Balance of the Class
A-1A Component. The Notional Balance of the Class A-CS2 Certificates will at
all times equal the sum of the Component Balances of the Class A-1B
Component, the Class A-1C Component, the Class A-1D Component, the Class A-2
Component, the Class A-3 Component, the Class A-4 Component and the Class A-5
Component. The Component Balances of the Class A-1A Component, Class A-1B
Component and Class A-1C Component will at all times equal the Certificate
Balances of the Class A-1A, Class A-1B and Class A-1C Certificates,
respectively. Except as described below under " --Delinquency Reduction
Amounts and Appraisal Reduction Amounts," the Component Balances of the Class
A-1D Component, the Class A-2 Component, the Class A-3 Component, the Class
A-4 Component the Class A-5 Component will at all times equal the
Certificates Balances of the Class A-1D, Class A-2, Class A-3, Class A-4 and
Class A-5 Certificates, respectively.
DISTRIBUTIONS
Method, Timing and Amount. Distributions on the Certificates will be made
on the 13th day of each month or, if such 13th day is not a business day,
then on the next succeeding business day, commencing in November 1996 (each,
a "Distribution Date"); provided, however, that in any month, the
Distribution Date will be no earlier than the second business day following
the 11th day of each month; provided, further, that if the 11th day of a
month is not a business day, then the Distribution Date shall be the third
business day following such 11th day. All distributions (other than the final
distribution on any Certificate) will be made by the Trustee to the persons
in whose names the Certificates are registered at the close of business on
the 10th day of the month in which the related Distribution Date occurs, or
if such day is not a business day, the preceding business day (the "Record
Date"); the Record Date on or prior to the Record Date for the Distribution
Date occurring in November 1996 is the Closing Date. Such distributions will
be made (a) by wire transfer in immediately available funds to the account
specified by the Certificateholder at a bank or other entity having
appropriate facilities therefor, if such Certificateholder provides the
Trustee with wiring instructions no less than five business days prior to the
related Record Date and is the registered owner of Certificates the aggregate
Certificate Balance of which is at least $5,000,000, or otherwise (b) by
check mailed to such Certificateholder. The final distribution on any Offered
Certificates will be made in like manner, but only upon presentment or
surrender (for notation that the Certificate Balance thereof has been reduced
to zero) of such Certificate at the location specified in the notice to the
holder thereof of such final distribution. All distributions made with
respect to a Class of Certificates on each Distribution Date will be
allocated pro rata among the outstanding Certificates of such Class based on
their respective Percentage Interests. The "Percentage Interest" evidenced by
any Offered Certificate is equal to the initial denomination thereof as of
the Closing Date divided by the initial Certificate Balance or Notional
Balance, as applicable, of the related class.
The aggregate distribution to be made on the Certificates on any
Distribution Date will equal the Available Funds. The "Available Funds" for a
Distribution Date will be the sum of all previously undistributed Monthly
Payments or other receipts on account of principal and interest on or in
respect of the Mortgage Loans (including Unscheduled Payments and Net REO
Proceeds, if any) received by the Servicer in the related Collection Period,
plus (i) all P&I Advances (except
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<PAGE>
Subordinate Class Advance Amount) made by the Servicer, the Trustee or the
Fiscal Agent, as applicable, in respect of such Distribution Date, (ii) for
the Distribution Date occurring in each March, the "Withheld Amounts" as
described under " --The Pooling and Servicing Agreement --Accounts --Interest
Reserve Account" and required to be deposited in the Distribution Account
pursuant to the Pooling and Servicing Agreement and (iii) all other amounts
required to be deposited in the Collection Account by the Servicer pursuant
to the Pooling and Servicing Agreement allocable to the Mortgage Loans, but
excluding the following:
(a) amounts permitted to be used to reimburse the Servicer, the Special
Servicer, the Trustee or the Fiscal Agent, as applicable, for previously
unreimbursed Advances and interest thereon as described herein under "The
Pooling and Servicing Agreement --Advances";
(b) the aggregate amount of the Servicing Fee (as defined herein and
which includes the fees for both the Trustee and the Servicer) payable to
the Servicer and the amounts payable to the Special Servicer described
herein under "The Pooling and Servicing Agreement --Special Servicing"
(together with the Servicing Fees, "Servicing Compensation"), in each case
in respect of such Distribution Date, and all amounts in the nature of
late fees, loan modification fees, extension fees, loan service
transaction fees, demand fees, beneficiary statement charges, assumption
fees, and similar fees, and reinvestment earnings on payments received
with respect to the Mortgage Loans which the Servicer or Special Servicer
is entitled to receive as additional servicing compensation;
(c) all amounts representing scheduled Monthly Payments due after the
related Due Date;
(d) to the extent permitted by the Pooling and Servicing Agreement, that
portion of liquidation proceeds, insurance proceeds and condemnation
proceeds with respect to a Mortgage Loan which represents any unpaid
Servicing Compensation together with interest thereon as described herein,
to which the Servicer, the Special Servicer or the Trustee is entitled;
(e) all amounts representing certain expenses reimbursable or payable to
the Servicer, Special Servicer, the Trustee or Fiscal Agent and other
amounts permitted to be retained by the Servicer or withdrawn pursuant to
the Pooling and Servicing Agreement in respect of various items, including
interest thereon as provided in the Pooling and Servicing Agreement;
(f) Prepayment Premiums;
(g) Default Interest;
(h) Excess Interest;
(i) with respect to the Mortgage Loan known as Prime Residential and any
Distribution Date relating to each Interest Accrual Period occurring in
each January or any December occurring in a year immediately preceding a
year which is not a leap year, an amount equal to one day of interest on
the Stated Principal Balance of each such Mortgage Loan as of the Due Date
occurring in the month preceding the month in which such Distribution Date
occurs at the related Mortgage Rate to the extent such amounts are to be
deposited in the Interest Reserve Account and held for future
distribution;
(j) all amounts received with respect to each Mortgage Loan previously
purchased or repurchased pursuant to the Pooling and Servicing Agreement
during the related Collection Period and subsequent to the date as of
which the amount required to effect such purchase or repurchase was
determined; and
(k) the amount reasonably determined by the Trustee to be necessary to
pay any applicable federal, state or local taxes imposed on the Upper-Tier
REMIC or the Lower-Tier REMIC under the circumstances and to the extent
described in the Pooling and Servicing Agreement.
The "Monthly Payment" with respect to any Mortgage Loan (other than any
REO Mortgage Loan) and any Due Date is the scheduled Monthly Payment of
principal (if any) and interest at the Net Mortgage Rate, excluding any
Balloon Payment (but not excluding any constant Monthly Payment), which is
payable by the related borrower on the related Due Date. The Monthly Payment
with respect to an REO Mortgage Loan for any Distribution Date is the monthly
payment that would otherwise have been payable on the related Due Date had
the related Note not been discharged, determined as set forth in the Pooling
and Servicing Agreement.
"Unscheduled Payments" are all net liquidation proceeds, net insurance
proceeds and net condemnation proceeds payable under the Mortgage Loans, the
repurchase price of any Mortgage Loan repurchased by the Mortgage Loan Seller
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<PAGE>
or the other Originators due to a breach of a representation or warranty made
by them or the purchase price paid by the parties described under "The
Pooling and Servicing Agreement --Optional Termination", and any other
payments under or with respect to the Mortgage Loans not scheduled to be
made, including Principal Prepayments, but excluding Prepayment Premiums.
"Prepayment Premiums" are payments received on a Mortgage Loan as the
result of a Principal Prepayment thereon, not otherwise due thereon in
respect of principal or interest, other than any amount paid in connection
with the release of the related Mortgaged Property through defeasance, which
are intended to compensate the lender for prepayment (and which often have
the effect of discouraging prepayment).
"Net REO Proceeds" with respect to any REO Property and any related REO
Mortgage Loan (as defined herein) are all revenues received by the Special
Servicer with respect to such REO Property or REO Mortgage Loan net of any
insurance premiums, taxes, assessments and other costs and expenses permitted
to be paid therefrom pursuant to the Pooling and Servicing Agreement.
"Principal Prepayments" are payments of principal made by a borrower on a
Mortgage Loan which are received in advance of the scheduled Due Date for
such payments and which are not accompanied by an amount of interest
representing the full amount of scheduled interest due on any date or dates
in any month or months subsequent to the month of prepayment, other than any
amount paid in connection with the release of the related Mortgaged Property
through defeasance.
The "Collection Period" with respect to a Distribution Date is the period
beginning on the day after the Due Date in the month preceding the month in
which such Distribution Date occurs and ending on the Due Date in the month
in which such Distribution Date occurs.
"Net Default Interest" with respect to any Mortgage Loan is any Default
Interest accrued on such Mortgage Loan less amounts required to pay the
Servicer, the Trustee or Fiscal Agent, as applicable, interest on Advances at
the Advance Rate.
"Default Interest" with respect to any Mortgage Loan is interest accrued
on such Mortgage Loan at the excess of (i) the Default Rate over (ii) the
Mortgage Rate (plus the Excess Rate if required by the applicable Mortgage
Loan).
The "Default Rate" with respect to any Mortgage Loan is the per annum rate
at which interest accrues on such Mortgage Loan following any event of
default on such Mortgage Loan including a default in the payment of a Monthly
Payment or a Balloon Payment.
"Excess Interest" with respect to each of the Mortgage Loans that has a
Revised Rate, interest accrued on such Mortgage Loan allocable to the Excess
Rate.
"Excess Rate" with respect to each of the Mortgage Loans that has a
Revised Rate, the difference between (a) the applicable Revised Rate and (b)
the applicable Mortgage Rate.
Priorities. As used below in describing the priorities of distribution of
Available Funds for each Distribution Date, the terms set forth below will
have the following meanings.
The "Interest Accrual Amount" with respect to any Distribution Date and
any Class of Certificates (other than the Class A-CS2, Class V-1, Class V-2,
Class R and Class LR Certificates), is equal to interest for the related
Interest Accrual Period at the Pass-Through Rate for such Class on the
related Certificate Balance or Notional Balance, as applicable (provided,
that for interest accrual purposes any distributions in reduction of
Certificate Balance or reductions in Certificate Balance as a result of
allocations of Realized Losses on the Distribution Date occurring in an
Interest Accrual Period will be deemed to have been made on the first day of
such Interest Accrual Period). The "Interest Accrual Amount" with respect to
any Distribution Date and the Class A-CS2 Certificates is equal to the sum of
the Interest Accrual Amount of its components. The "Interest Accrual Amount"
with respect to any Distribution Date and each of the Class A-1A, Class A-1B
and Class A-1C Components is equal to interest for the related Interest
Accrual Period at the Pass-Through Rate for such component for such Interest
Accrual Period on the Component Balance of such component (provided, that any
reductions in Component Balances of the Class A-1A, Class A-1B and Class A-1C
Components as a result of distributions in reduction of the Certificate
Balance of the Class A-1A Certificate, Class A-1B Certificates or Class A-1C
Certificates, respectively, or allocations of Realized Losses to the
Certificate Balance of the Class A-1A Certificates, Class A-1B Certificates
or Class A-1C Certificates, respectively, in each case, on the Distribution
Date occurring in an
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<PAGE>
Interest Accrual Period, will be deemed to have occurred on the first day of
such Interest Accrual Period). The "Interest Accrual Amount" with respect to
any Distribution Date and each of the Class A-1D, Class A-2, Class A-3, Class
A-4 and Class A-5 Components is equal to interest for the related Interest
Accrual Period at the Pass-Through Rate for such component for such Interest
Accrual Period on the Component Balance of such component (provided, that (i)
any reductions in Component Balance as a result of (A) distributions of
principal to the related Class of Certificates, (B) allocations of Realized
Losses to the Certificate Balance of the related Class of Certificates or (C)
allocations of Appraisal Reduction Amounts or Delinquency Reduction Amounts
to such Component Balance and (ii) any increases in Component Balance as a
result of reversals of reductions resulting from Appraisal Reduction Events
and Delinquencies, in each case, on the Distribution Date occurring in such
Interest Accrual Period, will be deemed to have occurred on the first day of
such Interest Accrual Period).
The "Interest Distribution Amount" with respect to any Distribution Date
and the Class A-1A, Class A-1B, Class A-1C, Class A-CS1, Class A-1D, Class
A-2, Class A-3, Class A-4 and Class A-5 Certificates will equal the Interest
Accrual Amount thereof. The "Interest Distribution Amount" with respect to
any Distribution Date and the Class A-CS2 Certificates is the sum of the
Interest Accrual Amounts of the related components of such class.
The "Reduction Interest Distribution Amount" with respect to any
Distribution Date for any component (other than the Class A-1A Component,
Class A-1B Component and Class A-1C Component) is the amount of interest
accrued for the Interest Accrual Period at the Pass-Through Rate on such
component for such Interest Accrual Period on the aggregate amount of
Appraisal Reduction Amounts and Delinquency Reduction Amounts allocated to
such component as of such Distribution Date set forth herein.
The "Reduction Interest Shortfalls" with respect to any Distribution Date,
for any component (other than the Class A-1A Component, Class A-1B Component
and Class A-1C Component) is any shortfall in the amount of Reduction
Interest Distribution Amount required to be distributed to the Class A-CS2
Certificates on such Distribution Date.
"Appraisal Reduction Amount" is the amount described under " --Appraisal
Reductions."
"Delinquency Reduction Amount" is in connection with a Delinquency an
amount equal to the scheduled payment due on the related Due Date (adjusted
to the applicable Net Mortgage Pass-Through Rate with respect to the interest
portion) and not received from a borrower under any Mortgage Loan.
"Delinquency" means any failure of the borrower to make a scheduled
payment on a Due Date.
The "Interest Accrual Period" with respect to any Distribution Date
commences on the eleventh day of the month preceding the month in which such
Distribution Date occurs and ends on the tenth day of the month in which such
Distribution Date occurs provided that the first Interest Accrual Period is
assumed to consist of nineteen days. Except for the first Interest Accrual
Period, each Interest Accrual Period is assumed to consist of 30 days.
An "Interest Shortfall" with respect to any Distribution Date for any
Class of Offered Certificates is any shortfall in the amount of interest
required to be distributed on such Class on such Distribution Date.
The "Prepayment Interest Shortfall" with respect to any Distribution Date
is equal to the amount of any shortfall in collections of interest (adjusted
to the applicable Net Mortgage Pass-Through Rate) resulting from a Principal
Prepayment on such Mortgage Loan during the related Collection Period and
prior to the related Due Date. Such shortfall may result because interest on
a Principal Prepayment in full is paid by the related borrower only to the
date of prepayment.
The "Pass-Through Rate" for any Class of Offered Certificates or component
is the per annum rate at which interest accrues on the Certificates of such
Class or component during any Interest Accrual Period. The Pass-Through Rate
on the Class A-1A, Class A-1B, Class A-1C Certificates is a per annum rate
equal to [ ]%, [ ]% and [ ]%, respectively. The Pass-Through Rate on the
Class A-1A Component is a per annum rate equal to Weighted Average Net
Mortgage Pass-Through Rate minus [ ]%. The Pass-Through Rate on the Class
A-CS1 Certificates is a per annum rate equal to the Pass-Through Rate on the
Class A-1A Component. The Pass-Through Rate on the Class A-1B Component is a
per annum rate equal to the Weighted Average Net Mortgage Pass-Through Rate
minus [ ]%. The Pass-Through Rate on the Class A-1C Component is a per annum
rate equal to the Weighted Average Net Mortgage Pass-Through Rate minus
[ ]%. The Pass-Through Rate on the Class A-1D Component is a per annum rate
equal to the Weighted Average Net Mortgage Pass-Through Rate minus [ ]%. The
Pass-Through Rate on the Class A-2 Component is a per annum rate equal to
[ ]%. The Pass-Through Rate on the Class A-4 Component is a per annum rate
equal to [ ]%. The Pass-Through Rate on the Class A-4 Component is a per
annum rate equal to [ ]%. The Pass-Through Rate on the
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<PAGE>
Class A-5 Component is a per annum rate equal to [ ]%. The Pass-Through Rate
on the Class A-CS2 Certificates is a per annum rate equal to the weighted
average of the Pass-Through Rates on the Class A-1B Component, Class A-1C
Component, Class A-1D Component, Class A-2 Component, Class A-3 Component,
Class A-4 Component and Class A-5 Component, weighted on the basis of the
Component Balances of such components (without giving effect to any Appraisal
Reduction Amounts or Delinquency Reduction Amounts). The Pass-Through Rate on
the Class A-1D Certificates is a per annum rate equal to [ ]%. The
Pass-Through Rate on the Class A-2 Certificates is a per annum rate equal to
the Weighted Average Net Mortgage Pass-Through Rate minus [ ]%. The
Pass-Through Rate on the Class A-3 Certificates is a per annum rate equal to
the Weighted Average Net Mortgage Pass-Through Rate minus [ ]%. The
Pass-Through Rate on the Class A-4 Certificates is a per annum rate equal to
the Weighted Average Net Mortgage Pass-Through Rate minus [ ]%. The
Pass-Through Rate on the Class A-5 Certificates is a per annum rate equal to
the Weighted Average Net Mortgage Pass-Through Rate minus [ ]%.
With respect to any Distribution Date, the "Weighted Average Net Mortgage
Pass-Through Rate" is the amount (expressed as a percentage) the numerator of
which is the sum of the products of (i) the Net Mortgage Pass-Through Rate
and (ii) the Stated Principal Balance of each Mortgage Loan and the
denominator of which is the sum of the Stated Principal Balances of each
Mortgage Loan, as of the Due Date occurring in the month preceding the month
in which such Distribution Date occurs.
The "Net Mortgage Pass-Through Rate" with respect to any Mortgage Loan and
any Distribution Date is the Mortgage Pass-Through Rate for such Mortgage
Loan for the related Interest Accrual Period minus the aggregate of the
applicable Servicing Fee Rate and Additional Servicing Fee Rate (as such
terms are defined herein).
The "Mortgage Pass-Through Rate" with respect to the Mortgage Loans that
provide for calculations of interest based on twelve months of 30 days each,
is equal to the Mortgage Rate thereof. The "Mortgage Pass-Through Rate" with
respect to the Mortgage Loans (other than the Mortgage Loans known as the
Sacramento Office loan, the Pinnacle Retail Portfolio loan and the Ambassador
Apartments loan) that provide for interest based on a 360-day year and the
actual number of days elapsed for any Interest Accrual Period, is equal to
the Mortgage Rate thereof multiplied by a fraction the numerator of which is
the actual number of days in such Interest Accrual Period and the denominator
of which is 30.
The "Mortgage Pass-Through Rate" with respect to the Mortgage Loans known
as the Sacramento Office loan and the Pinnacle Retail Portfolio loan, for any
Interest Accrual Period, is equal to (a) the Mortgage Rate thereof multiplied
by a fraction the numerator of which is the actual number of days in such
Interest Accrual Period and the denominator of which is 30 plus (b) 0.09625%
in the case of the Mortgage Loan known as the Sacramento Office loan , and
0.07% in the case of the Mortgage Loan known as the Pinnacle Retail Portfolio
loan.
The "Mortgage Pass-Through Rate" with respect to the Mortgage Loan known
as the Abassaador Apartments loan for any Distribution Date (a) relating to
any Interest Accrual Period commencing in any January, February, April, June,
September and November and in any December occurring in a year immediately
preceding any year which is not a leap year, is the Mortgage Rate thereof,
and (b) relating to any Interest Accrual Period commencing in any March, May,
July, August and October and in any December occurring in a year immediately
preceding a year which is a leap year, is equal to the Mortgage Rate thereof
multiplied by a fraction the numerator of which is the actual number of days
in such Interest Accrual Period and the denominator of which is 30.
The "Mortgage Rate" with respect to each Mortgage Loan is the annual rate,
not including any Excess Rate, at which interest accrues on such Mortgage
Loan (in the absence of a default), as set forth in the related Note and on
Annex A. The Mortgage Rate for purposes of calculating the Weighted Average
Net Mortgage Pass-Through Rate will be the Mortgage Rate of such Mortgage
Loan without taking into account any reduction in the interest rate by a
bankruptcy court pursuant to a plan of reorganization or pursuant to any of
its equitable powers or a reduction on interest or principal due to a
modification as described under "The Pooling and Servicing Agreement
- --Modifications".
The "Principal Distribution Amount" for any Distribution Date will be
equal to the sum of:
(i) the principal component of all scheduled Monthly Payments (other than
Balloon Payments) which become due (if received or advanced, including any
Subordinate Class Advance Amounts) on the Mortgage Loans on the related Due
Date;
(ii) the principal component of all Assumed Scheduled Payments or Minimum
Defaulted Monthly Payments, as applicable, deemed to become due (if received
or advanced, including any Subordinate Class Advance Amounts) on the related
Due Date with respect to any Mortgage Loan that is delinquent in respect of
its Balloon Payment;
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(iii) the Stated Principal Balance of each Mortgage Loan that was, during
the related Collection Period, repurchased from the Trust Fund in connection
with the breach of a representation or warranty or purchased from the Trust
Fund as described herein under "The Pooling and Servicing Agreement
- --Optional Termination";
(iv) the portion of Unscheduled Payments allocable to principal of any
Mortgage Loan which was liquidated during the related Collection Period;
(v) the principal component of all Balloon Payments received during the
related Collection Period;
(vi) to the extent not included in the preceding clause (iii) or (iv), all
other Principal Prepayments received in the related Collection Period; and
(vii) to the extent not included in the preceding clauses, any other full
or partial recoveries in respect of principal, including net insurance
proceeds, net liquidation proceeds, net condemnation proceeds and Net REO
Proceeds; provided, that, amounts received on any Mortgage Loan that
represent recoveries of Subordinate Class Advance Amounts will not be
included in the calculation of Principal Distribution Amount.
The "Assumed Scheduled Payment" with respect to any Mortgage Loan that is
delinquent in respect of its Balloon Payment (including any REO Mortgage Loan
as to which the Balloon Payment would have been past due), is an amount equal
to the sum of (a) the principal portion of the Monthly Payment that would
have been due on such Mortgage Loan on the related Due Date based on the
constant payment required by the related Note or the original amortization
schedule thereof (as calculated with interest at the related Mortgage Rate),
if applicable, assuming such Balloon Payment has not become due, after giving
effect to any modification, and (b) interest at the applicable Net Mortgage
Pass-Through Rate.
An "REO Mortgage Loan" is any Mortgage Loan as to which the related
Mortgaged Property has become an REO Property.
On each Distribution Date, the Available Funds for such Distribution Date
will be distributed in the following amounts and order of priority:
(i) First, pro rata, in respect of interest, to the Class A-1A, Class
A-1B, Class A-1C, Class A-CS1 and Class A-CS2 Certificates, up to an amount
equal to the aggregate Interest Distribution Amounts of such Classes;
(ii) Second, pro rata, to the Class A-1A, Class A-1B, Class A-1C, Class
A-CS1 and Class A-CS2 Certificates, in respect of interest, up to an amount
equal to the aggregate unpaid Interest Shortfalls previously allocated to
such Classes;
(iii) Third, to the Class A-1A Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount until the Certificate Balance thereof is reduced to zero;
(iv) Fourth, to the Class A-1B Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
all prior clauses, until the Certificate Balance thereof is reduced to zero;
(v) Fifth, to the Class A-1C Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
all prior clauses, until the Certificate Balance thereof is reduced to zero;
(vi) Sixth, pro rata, to the Class A-1A, Class A-1B and Class A-1C
Certificates, for the unreimbursed amounts of Realized Losses, if any, up to
an amount equal to the Principal Distribution Amount less amounts of
Principal Distribution Amount distributed pursuant to all prior clauses, an
amount equal to the aggregate of such unreimbursed Realized Losses previously
allocated to such Classes;
(vii) Seventh, to the Class A-1D Certificates, in respect of interest, up
to an amount equal to the aggregate Interest Distribution Amount of such
Class;
(viii) Eighth, pro rata, (A) to the Class A-1D Certificates, in respect
of interest, up to an amount equal to the aggregate unpaid Interest
Shortfalls previously allocated to such class, (B) to the Class A-CS2
Certificates in respect of the Reduction Interest Distribution Amount of the
Class A-1D Component, up to an amount equal to the aggregate Reduction
Interest Distribution Amount of the Class A-1D Component and (C) to the Class
A-CS2 Certificates, up to an amount equal to the aggregate unpaid Reduction
Interest Shortfalls previously allocated to the Class A-1D Component;
(ix) Ninth, to the Class A-1D Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
all prior clauses, until the Certificate Balance of such Class is reduced to
zero;
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(x) Tenth, to the Class A-1D Certificates, for the unreimbursed amounts
of Realized Losses, if any, up to an amount equal to the Principal
Distribution Amount less amounts of Principal Distribution Amount distributed
pursuant to all prior clauses, an amount equal to the aggregate of such
unreimbursed Realized Losses previously allocated to such class;
(xi) Eleventh, to the Class A-2 Certificates in respect of interest, up
to an amount equal to the aggregate Interest Distribution Amount of such
class;
(xii) Twelfth, pro rata, (A) to the Class A-2 Certificates in respect of
interest, up to an amount equal to the aggregate unpaid Interest Shortfalls
previously allocated to such class, (B) to the Class A-CS2 Certificates in
respect of the Reduction Interest Distribution Amount of the Class A-2
Component, up to an amount equal to the aggregate Reduction Interest
Distribution Amount of the Class A-2 Component and (C) to the Class A-CS2
Certificates up to an amount equal to the aggregate unpaid Reduction Interest
Shortfalls previously allocated to the Class A-2 Component;
(xiii) Thirteenth, to the Class A-2 Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
all prior clauses, until the Certificate Balance of such Class is reduced to
zero;
(xiv) Fourteenth, to the Class A-2 Certificates, for the unreimbursed
amounts of Realized Losses, if any, up to an amount equal to the Principal
Distribution Amount less amounts of Principal Distribution Amount distributed
pursuant to all prior clauses, an amount equal to the aggregate of such
unreimbursed Realized Losses previously allocated to such class;
(xv) Fifteenth, from Available Funds to the Class A-3 Certificates in
respect of interest, up to an amount equal to the aggregate Interest
Distribution Amount of such Class;
(xvi) Sixteenth, pro rata, from Available Funds in respect of interest
(A) to the Class A-3 Certificates, Interest Shortfalls previously allocated
to such class, (B) to the Class A-CS2 Certificates, up to an amount equal to
the aggregate Reduction Interest Distribution Amount of the Class A-3
Component and (C) to the Class A-CS2 Certificates, up to an amount equal to
the aggregate unpaid Reduction Interest Shortfalls previously allocated to
the Class A-3 Component;
(xvii) Seventeenth, from Available Funds to the Class A-3 Certificates in
reduction of the Certificate Balance thereof, an amount equal to the
Principal Distribution Amount, less the amount of the Principal Distribution
Amount distributed pursuant to all prior clauses, until the Certificate
Balance of such Class is reduced to zero;
(xviii) Eighteenth, from Available Funds to the Class A-3 Certificates,
for the unreimbursed amounts of Realized Losses, if any, up to an amount
equal to the Principal Distribution Amount less amounts of Principal
Distribution Amount distributed pursuant to all prior clauses, an amount
equal to the aggregate of such unreimbursed Realized Losses previously
allocated to such Class;
(xix) Nineteenth, to the Class A-4 Certificates in respect of interest,
up to an amount equal to the aggregate Interest Distribution Amount of such
Class;
(xx) Twentieth, pro rata, (A) to the Class A-4 Certificates in respect of
interest, up to an amount equal to the aggregate unpaid Interest Shortfalls
previously allocated to such class, (B) to the Class A-CS2 Certificates in
respect of the Reduction Interest Distribution Amount of the Class A-4
Component, up to an amount equal to the aggregate Reduction Interest
Distribution Amount of the Class A-4 Component and (C) to the Class A-CS2
Certificates up to an amount equal to the aggregate unpaid Reduction Interest
Shortfalls previously allocated to the Class A-4 Component;
(xxi) Twenty-first, to the Class A-4 Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount less amounts of Principal Distribution Amount distributed pursuant to
all prior clauses, until the Certificate Balance of such Class is reduced to
zero;
(xxii) Twenty-second, to the Class A-4 Certificates, for the unreimbursed
amounts of Realized Losses, if any, up to an amount equal to the Principal
Distribution Amount less amounts of Principal Distribution Amount distributed
pursuant to all prior clauses, an amount equal to the aggregate of such
unreimbursed Realized Losses previously allocated to such Class;
(xxiii) Twenty-third, from Available Funds to the Class A-5 Certificates
in respect of interest, up to an amount equal to the aggregate Interest
Distribution Amount of such Class;
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(xxiv) Twenty-fourth, pro rata, from Available Funds in respect of
interest (A) to the Class A-5 Certificates, Interest Shortfalls previously
allocated to such class, (B) to the Class A-CS2 Certificates, up to an amount
equal to the aggregate Reduction Interest Distribution Amount of the Class
A-5 Component and (C) to the Class A-CS2 Certificates, up to an amount equal
to the aggregate unpaid Reduction Interest Shortfalls previously allocated to
such component;
(xxv) Twenty-fifth, from Available Funds to the Class A-5 Certificates in
reduction of the Certificate Balance thereof, an amount equal to the
Principal Distribution Amount, less the amount of the Principal Distribution
Amount distributed pursuant to all prior clauses, until the Certificate
Balance of such Class is reduced to zero;
(xxvi) Twenty-sixth, from Available Funds to the Class A-5 Certificates,
for the unreimbursed amounts of Realized Losses, if any, up to an amount
equal to the Principal Distribution Amount less amounts of Principal
Distribution Amount distributed pursuant to all prior clauses, an amount
equal to the aggregate of such unreimbursed Realized Losses previously
allocated to such class;
(xxvii) Twenty-seventh, from Available Funds to the Private Certificates,
in accordance with the priorities set forth in the Pooling and Servicing
Agreement; and
(xxviii) Twenty-eighth, from Available Funds to the Class LR
Certificates.
Notwithstanding the foregoing, on each Distribution Date occurring on or
after the Cross-over Date, the Principal Distribution Amount will be
distributed, first, to the Class A-1A, Class A-1B and Class A-1C
Certificates, pro rata, based on their respective Certificate Balances, in
reduction of their respective Certificate Balances, until the Certificate
Balance of each such Class is reduced to zero; and, second, to the Class
A-1A, Class A-1B and Class A-1C Certificates, pro rata, based on their
respective Certificate Balances, for unreimbursed amounts of Realized Losses
previously allocated to such Classes. The "Cross-over Date" is the
Distribution Date on which the Certificate Balance of each Class of
Certificates other than the Class A-1A, Class A-1B and Class A-1C
Certificates have been reduced to zero. The Class A-CS1 and Class A-CS2
Certificates will not be entitled to any distribution of principal.
All references to "pro rata" in the preceding clauses mean pro rata based
upon the amount distributable pursuant to such clause.
In the event that the related borrower voluntarily prepays the Mortgage
Loan secured by the Mortgaged Property known as Malibu Canyon during the
60-day period prior to the related Anticipated Repayment Date, the Trustee
will make a special distribution of the proceeds from such prepayment to the
Certificateholders on the second business day following the day on which such
proceeds are received.
Prepayment Premiums. On each Distribution Date, Prepayment Premiums with
respect to any Unscheduled Payments (including voluntary and involuntary
prepayments) received in the related Collection Period shall be distributed
to the holders of the Offered Certificates outstanding on such Distribution
Date, in the following amounts and order of priority, with respect to the
Certificates of each Class in each case to the extent remaining amounts of
Prepayment Premiums are available therefor:
(i) First, to the Class A-CS1 Certificates, an amount equal to (A) the
present value (discounted at the Discount Rate (as defined below) for the
Class A-CS1 Certificates plus the Spread Rate (as defined below) for the
Class A-CS1 Certificates) of the aggregate interest that would have been paid
in respect of the Class A-CS1 Certificates from the Distribution Date
occurring in the following month until the Notional Balance of the Class
A-CS1 Certificates would have been reduced to zero had the related prepayment
not occurred, minus the present value (discounted at the Discount Rate for
the Class A-CS1 Certificates plus the Spread Rate for the Class A-CS1
Certificates) of the aggregate interest that will be paid in respect of Class
A-CS1 Certificates from the Distribution Date occurring in the following
month until the Notional Balance of the Class A-CS1 Certificates is reduced
to zero following such prepayment (assuming no further prepayments are made
except that all Mortgage Loans prepay on Anticipated Repayment Dates where
applicable);
(ii) Second, to the Class A-CS2 Certificates, an amount equal to (A) the
present value (discounted at the Discount Rate for the Class A-CS2
Certificates plus the Spread Rate for the Class A-CS2 Certificates) of the
aggregate interest that would have been paid in respect of the Class A-CS2
Certificates from the Distribution Date occurring in the following month
until the Notional Balance of the Class A-CS2 Certificates would have been
reduced to zero had the related prepayment not occurred, minus the present
value (discounted at the Discount Rate for the Class A-CS2 Certificates plus
the Spread Rate for the Class A-CS2 Certificates) of the aggregate interest
that will be paid in respect of Class A-CS2
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<PAGE>
Certificates from the Distribution Date occurring in the following month
until the Notional Balance of the Class A-CS2 Certificates is reduced to zero
following such prepayment (assuming no further prepayments are made except
that all Mortgage Loans prepay on Anticipated Repayment Dates where
applicable);
(iii) Third, to the Class A-1A Certificates, an amount equal to (A) the
present value (discounted at the Discount Rate for the Class A-1A
Certificates plus the Spread Rate for the Class A-1A Certificates) of the
aggregate principal and interest that would have been paid in respect of the
Class A-1A Certificates from the Distribution Date occurring in the following
month until the Certificate Balance of the Class A-1A Certificates would have
been reduced to zero had the related prepayment not occurred, minus the sum
of (B) the amount of such prepayment distributed in respect of the Class A-1A
Certificates and (C) the present value (discounted at the Discount Rate for
the Class A-1A Certificates plus the Spread Rate for the Class A-1A
Certificates) of the aggregate principal and interest that will be paid in
respect of the Class A-1A Certificates from the Distribution Date occurring
in the following month until the Certificate Balance of the Class A-1A
Certificates is reduced to zero following such prepayment (assuming no
further prepayments are made except that all Mortgage Loans prepay on
Anticipated Repayment Dates where applicable);
(iv) Fourth, to the Class A-1B Certificates, an amount equal to (A) the
present value (discounted at the Discount Rate for the Class A-1B
Certificates plus the Spread Rate for the Class A-1B Certificates) of the
aggregate principal and interest that would have been paid in respect of the
Class A-1B Certificates from the Distribution Date occurring in the following
month until the Certificate Balance of the Class A-1B Certificates would have
been reduced to zero had the related prepayment not occurred, minus the sum
of (B) the amount of such prepayment distributed in respect of the Class A-1B
Certificates and (C) the present value (discounted at the Discount Rate for
the Class A-1B Certificates plus the Spread Rate for the Class A-1B
Certificates) of the aggregate principal and interest that will be paid in
respect of the Class A-1B Certificates from the Distribution Date occurring
in the following month until the Certificate Balance of the Class A-1B
Certificates is reduced to zero following such prepayment (assuming no
further prepayments are made except that all Mortgage Loans prepay on
Anticipated Repayment Dates where applicable); and
(v) Fifth, to the Class A-1C Certificates, an amount equal to (A) the
present value (discounted at the Discount Rate for the Class A-1C
Certificates plus the Spread Rate for the Class A-1C Certificates) of the
aggregate principal and interest that would have been paid in respect of the
Class A-1C Certificates from the Distribution Date occurring in the following
month until the Certificate Balance of the Class A-1C Certificates would have
been reduced to zero had the related prepayment not occurred, minus the sum
of (B) the amount of such prepayment distributed in respect of the Class A-1C
Certificates and (C) the present value (discounted at the Discount Rate for
the Class A-1C Certificates plus the Spread Rate for the Class A-1C
Certificates) of the aggregate principal and interest that will be paid in
respect of the Class A-1C Certificates from the Distribution Date occurring
in the following month until the Certificate Balance of the Class A-1C
Certificates is reduced to zero following such prepayment (assuming no
further prepayments are made except that all Mortgage Loans prepay on
Anticipated Repayment Dates where applicable).
Any Prepayment Premiums remaining following the distributions described in
the preceding clauses (i) through (iii) shall be distributed to holders of
the Private Certificates.
The "Discount Rate" with respect to any Class of Certificates is the rate
determined by the Trustee, in its good faith, to be the rate (interpolated
and rounded to the nearest one-thousandth of a percent, if necessary) in the
secondary market on United States Treasury securities with a maturity closest
to the then computed weighted average life (or, in the case of the Class
A-CS1 and Class A-CS2 Certificates, the weighted average life of the interest
payments) of such Class (rounded to the nearest month) (without taking into
account the related prepayment).
The "Spread Rate" for the Class A-CS1 Certificates is [ ]% per annum, the
Class A-CS2 Certificates is [ ]% per annum, the Class A-1A Certificates is
[ ]% per annum, the Class A-1B Certificates is [ ]% per annum and the Class
A-1C Certificates is [ ]% per annum
On each Distribution Date, Net Default Interest and Excess Interest
received in the related Collection Period with respect to a default on a
Mortgage Loan will be distributed solely to the Class V-1 and Class V-2
Certificates, respectively, to the extent set forth in the Pooling and
Servicing Agreement. The Class V-1 and Class V-2 Certificates are not
entitled to any other distributions of interest, principal or Prepayment
Premiums.
Realized Losses. The Certificate Balance of the Certificates will be
reduced without distribution on any Distribution Date as a write-off to the
extent of any Realized Loss with respect to such Distribution Date. As
referred to herein, the "Realized Loss" with respect to any Distribution Date
shall mean the amount, if any, by which the aggregate Certificate.
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<PAGE>
Balance of the Certificates after giving effect to distributions made on such
Distribution Date exceeds the aggregate Stated Principal Balance of the
Mortgage Loans as of the Due Date occurring in the month in which such
Distribution Date occurs. Except as described in the next sentence, any such
write-offs will be applied to the Classes of Certificates in the following
order, until each is reduced to zero: first, to the Private Certificates in
accordance with the priorities set forth in the Pooling and Servicing
Agreement, second, to the Class A-5 Certificates, third, to the Class A-4
Certificates, fourth, to the Class A-3 Certificates, fifth, to the Class A-2
Certificates, sixth, to the Class A-1D Certificates, and seventh, pro rata,
to the Class A-1A, Class A-1B and Class A-1C Certificates based on their
respective outstanding Certificate Balances. Any amounts recovered in respect
of any amounts previously written off as Realized Losses will be distributed
to the Classes of Certificates in reverse order of allocation of Realized
Losses thereto. Shortfalls in Available Funds resulting from additional
Servicing Compensation (including interest on Advances not covered by Default
Interest), Prepayment Interest Shortfalls in excess of Servicing Compensation
resulting from involuntary prepayments, extraordinary expenses of the Trust
Fund or otherwise, will be allocated in the same manner as Realized Losses.
The Notional Balance of the Class A-CS1 Certificates will be reduced to
reflect reductions in the Component Balance of the Class A-1A Component
resulting from allocations of Realized Losses; the Notional Balance of the
Class A-CS2 Certificates will be reduced to reflect reductions in the
Component Balances of the Class A-1B Component, Class A-1C Component, Class
A-1D Component, Class A-2 Component, Class A-3 Component, Class A-4 Component
and Class A-5 Component resulting from allocations of Realized Losses.
The "Stated Principal Balance" of any Mortgage Loan at any date of
determination will equal (a) the principal balance as of the Cut-off Date of
such Mortgage Loan, minus (b) the sum of (i) the principal portion of each
Monthly Payment due on such Mortgage Loan after the Cut-off Date up to such
date of determination, if received from the borrower or advanced by the
Servicer, Trustee or Fiscal Agent (including any Subordinate Class Advance
Amount), (ii) all voluntary and involuntary principal prepayments and other
unscheduled collections of principal received with respect to such Mortgage
Loan, to the extent distributed to holders of the Certificates before such
date of determination and (iii) any principal forgiven by the Special
Servicer or Interest Shortfalls resulting from reductions or deferrals of
interest, each as described herein under "The Pooling and Servicing Agreement
- --Modifications." The Stated Principal Balance of a Mortgage Loan with
respect to which title to the related Mortgaged Property has been acquired is
equal to the principal balance thereof outstanding on the date on which such
title is acquired less any Net REO Proceeds allocated to principal on such
Mortgage Loan. The Stated Principal Balance of a Specially Serviced Mortgage
Loan with respect to which the Servicer or Special Servicer has determined
that it has received all payments and recoveries which the Servicer or the
Special Servicer, as applicable, expects to be finally recoverable on such
Mortgage Loan is zero.
Delinquency Reduction Amounts and Appraisal Reduction Amounts. On or after
any Distribution Date on which the Class A-5 Certificates are the most
subordinate Class of Certificates outstanding, the Component Balance of
components (other than the Class A-1A Component, Class A-1B Component and
Class A-1C Component) will be reduced on any Distribution Date to the extent
of any Delinquency Reduction Amounts or Appraisal Reduction Amounts with
respect to such Distribution Date; provided that (i) if a Delinquency and an
Appraisal Reduction Event occur on the same Distribution Date with respect to
the same Mortgage Loan, the reduction will equal the greater of the related
Delinquency Reduction Amount and the Appraisal Reduction Amount, (ii) for any
Distribution Date, the aggregate of the Delinquency Reduction Amounts may not
exceed the Component Balance of the most junior component then outstanding
and (iii) except as described in clause (i), on any Distribution Date,
Appraisal Reduction Amounts will be allocated to the applicable Component
Balances prior to Delinquency Reduction Amounts. Any such reductions will be
applied to the components in the following order, until the Component Balance
of each is reduced to zero: first, to the Class A-5 Component, second, to the
Class A-4 Component, third, to the Class A-3 Component, fourth, to the Class
A-2 Component and fifth, to the Class A-1D Component. The Notional Balance of
the Class A-CS2 Certificates will be reduced to reflect reductions in the
Component Balance of the Class A-1D Component, Class A-2 Component, Class A-3
Component, Class A-4 Component and Class A-5 Component resulting from
Delinquency Reduction Amounts and Appraisal Reduction Amounts; however, such
Class will retain the right to receive distributions of interest in respects
of such reductions at a lower priority. Any reduction of the Component
Balance of a component as a result of any Delinquency or Appraisal Reduction
Event will be reversed to the extent there is a recovery of any or all of the
Delinquency Amounts or a Realized Loss (which results in the reduction of the
Certificate Balance of the related Class and therefore the reduction of the
Component Balance of such component). Additionally, a reversal or additional
reduction will occur to the extent that the Servicer's Appraisal Reduction
Estimate is less than or greater than the Appraisal Reduction as adjusted to
take into account a subsequent independent MAI Appraisal. For purposes of
calculating Interest Accrual Amounts, any such reversal or additional
reductions made on the Distribution Date occurring in an Interest Accrual
Period will be deemed to have been made on the first day of such Interest
Accrual Period.
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Prepayment Interest Shortfalls. The Servicer will deposit from its own
funds any Prepayment Interest Shortfalls into the Collection Account on the
Servicer Remittance Date to the extent such Prepayment Interest Shortfalls do
not exceed the Servicing Compensation due the Servicer for the related Due
Period. Any Prepayment Interest Shortfalls in excess of the Servicing
Compensation due to the Servicer for such period will be allocated as
Realized Losses as provided above under "----Realized Losses." Any interest
that accrues on a prepayment on a Mortgage Loan after the Due Date and before
the following Servicer Remittance Date will be paid to the Servicer.
SUBORDINATION
As a means of providing a certain amount of protection to the holders of
the Class A-1A, Class A-1B, Class A-1C, Class A-CS1 and Class A-CS2
Certificates (except as set forth below) against losses associated with
delinquent and defaulted Mortgage Loans, the rights of the holders of the
Class A-1D, Class A-2, Class A-3, Class A-4 and Class A-5 Certificates and
the Private Certificates (other than the Class A-CS2 Certificates) to receive
distributions of interest and principal with respect to the Mortgage Loans,
as applicable, will be subordinated to such rights of the holders of the
Class A-1A, Class A-1B, Class A-1C, Class A-CS1 and Class A-CS2 Certificates.
The Class A-1D Certificates will be likewise protected by the subordination
of the Class A-2, Class A-3, Class A-4 and Class A-5 Certificates and the
Private Certificates (other than the Class A-CS2 Certificates). The Class A-2
Certificates will be likewise protected by the subordination of the Class
A-3, Class A-4 and Class A-5 Certificates and the Private Certificates (other
than the Class A-CS2 Certificates). The Class A-3 Certificates will likewise
be protected by the subordination of the Class A-4 and Class A-5 Certificates
and the Private Certificates (other than the Class A-CS2 Certificates). The
Class A-4 Certificates will likewise be protected by the subordination of the
Class A-5 Certificates and the Private Certificates (other than the Class
A-CS2 Certificates). The Class A-5 Certificates will likewise be protected by
the subordination of the Private Certificates (other than the Class A-CS2
Certificates). This subordination will be effected in two ways: (i) by the
preferential right of the holders of a Class of Certificates to receive on
any Distribution Date the amounts of interest and principal, distributable in
respect of such Certificates on such date prior to any distribution being
made on such Distribution Date in respect of any Classes of Certificates
subordinate thereto, and (ii) by the allocation of Realized Losses (as
defined herein), first, to the Private Certificates, second, to the Class A-5
Certificates, third, to the Class A-4 Certificates, fourth, to the Class A-3
Certificates, fifth, to the Class A-2 Certificates, sixth, to the Class A-1D
Certificates, and finally, pro rata, to the Class A-1A, Class A-1B and Class
A-1C Certificates. No other form of credit enhancement will be available for
the benefit of the holders of the Offered Certificates. However, with respect
to the Class A-CS2 Certificates, the protection against reductions due to
Appraisal Reduction and Delinquencies will only be afforded to the extent
described under "Delinquency Reduction Amounts and Appraisal Reduction
Amounts."
APPRAISAL REDUCTIONS
On the earliest of (i) the third anniversary of the date on which an
extension of the maturity date of a Mortgage Loan becomes effective as a
result of a modification of such Mortgage Loan by the Special Servicer, which
extension does not change the amount of Monthly Payments on the Mortgage
Loan, (ii) 90 days after an uncured delinquency occurs in respect of a
Mortgage Loan, (iii) immediately after the date on which a reduction in the
amount of Monthly Payments on a Mortgage Loan, or a change in any other
material economic term of the Mortgage Loan, becomes effective as a result of
a modification of such Mortgage Loan by the Special Servicer, (iv)
immediately after a receiver has been appointed, (v) immediately after a
borrower declares bankruptcy and (vi) immediately after a Mortgage Loan
becomes an REO Mortgage Loan ((i), (ii), (iii), (iv), (v) and (vi),
collectively, an "Appraisal Reduction Event"), an Appraisal Reduction Amount
(each, an "Appraisal Reduction Amount" ) will be calculated. The Appraisal
Reduction Amount for any Distribution Date and for any Mortgage Loan as to
which any Appraisal Reduction Event has occurred will be an amount equal to
the excess of (a) the outstanding Stated Principal Balance of such Mortgage
Loan over (b) the excess of (i) 90% of the sum of the appraised values of the
related Mortgaged Properties as determined by independent MAI appraisals (the
costs of which shall be paid by the Servicer as an Advance) over (ii) the sum
of (A) to the extent not previously advanced by the Servicer, the Trustee or
the Fiscal Agent, all unpaid interest on such Mortgage Loan at a per annum
rate equal to the Mortgage Rate, (B) all unreimbursed Advances and interest
thereon at the Advance Rate in respect of such Mortgage Loan and (C) all
currently due and unpaid real estate taxes, ground rents and assessments and
insurance premiums and all other amounts due and unpaid under the Mortgage
Loan (which tax, premiums and other amounts have not been the subject of an
Advance by the Servicer). If no independent MAI appraisal has been obtained
within twelve months prior to the first Distribution Date on or after an
Appraisal Reduction Event has occurred, the Servicer will be required to
estimate the value of the related Mortgaged Properties (the "Servicer's
Appraisal Estimate") and such estimate will be
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used for purposes of the Appraisal Reduction Amount. Within 30 days after the
Appraisal Reduction Event, the Servicer will be required to obtain an
independent MAI appraisal. On the first Distribution Date occurring on or
after the delivery of such independent MAI appraisal, the Servicer will be
required to adjust the Appraisal Reduction Amount to take into account such
appraisal (regardless of whether the independent MAI Appraisal is higher or
lower than the Servicer's Appraisal Estimate).
DELIVERY, FORM AND DENOMINATION
The Offered Certificates will be issued, maintained and transferred in the
book-entry form only in denominations of $100,000 initial Certificate Balance
and in multiples of $1 Certificate Balance in excess thereof.
The Offered Certificates will initially be represented by one or more
global Certificates for each such Class registered in the name of the nominee
of DTC. The Depositor has been informed by DTC that DTC's nominee will be
Cede & Co. No holder of an Offered Certificate will be entitled to receive a
certificate issued in fully registered, certificated form (each, a
"Definitive Certificate") representing its interest in such class, except
under the limited circumstances described in the Prospectus under
"Description of the Certificates --Book-Entry Registration." Unless and until
Definitive Certificates are issued, all references to actions by holders of
the Offered Certificates will refer to actions taken by DTC upon instructions
received from holders of Offered Certificates through its participating
organizations (together with CEDEL and Euroclear participating organizations,
the "Participants", and all references herein to payments, notices, reports,
statements and other information to holders of Offered Certificates will
refer to payments, notices, reports and statements to DTC or Cede & Co., as
the registered holder of the Offered Certificates, for distribution to
holders of Offered Certificates through its Participants in accordance with
DTC procedures; provided, however, that to the extent that the party
responsible for distributing any report, statement or other information has
been provided with the name of the beneficial owner of a Certificate (or the
prospective transferee of such beneficial owner), such report, statement or
other information will be provided to such beneficial owner (or prospective
transferee).
Until Definitive Certificates are issued in respect of the Offered
Certificates, interests in the Offered Certificates will be transferred on
the book-entry records of DTC and its Participants. The Trustee will
initially serve as certificate registrar (in such capacity, the "Certificate
Registrar" ) for purposes of recording and otherwise providing for the
registration of the Offered Certificates.
A "Certificateholder" under the Pooling and Servicing Agreement will be
the person in whose name a Certificate is registered in the certificate
register maintained pursuant to the Pooling and Servicing Agreement, except
that solely for the purpose of giving any consent or taking any action
pursuant to the Pooling and Servicing Agreement, any Certificate registered
in the name of the Depositor, the Servicer, the Special Servicer, the
Trustee, a manager of a Mortgaged Property, a Mortgagor or any person
affiliated with the Depositor, the Servicer, the Special Servicer, the
Trustee, such manager or a Mortgagor will be deemed not to be outstanding and
the Voting Rights to which it is entitled will not be taken into account in
determining whether the requisite percentage of Voting Rights necessary to
effect any such consent or take any such action has been obtained; provided,
however, that for purposes of obtaining the consent of Certificateholders to
an amendment to the Pooling and Servicing Agreement, any Certificates
beneficially owned by the Servicer or Special Servicer or an affiliate will
be deemed to be outstanding, provided that such amendment does not relate to
compensation of the Servicer or Special Servicer or otherwise benefit the
Servicer or the Special Servicer in any material respect; and, provided,
further, that for purposes of obtaining the consent of Certificateholders to
any action proposed to be taken by the Special Servicer with respect to a
Specially Serviced Mortgage Loan, any Certificates beneficially owned by the
Servicer or an affiliate will be deemed to be outstanding, provided that, the
Special Servicer is not the Servicer. Notwithstanding the foregoing, solely
for purposes of providing or distributing any reports, statements or other
information pursuant to the Pooling and Servicing Agreement, a
Certificateholder will include any beneficial owner (or prospective
transferee of a beneficial owner) to the extent that the party required or
permitted to provide or distribute such report, statement or other
information has been provided with the name of such beneficial owner (or
prospective transferee). The Percentage Interest of any Class of Offered
Certificate will be equal to the percentage obtained by dividing the
denomination of such Certificate by the aggregate initial Certificate Balance
of such Class of Certificates. See "Description of the Certificates
- --Book-Entry Registration and Definitive Certificates" in the Prospectus.
BOOK-ENTRY REGISTRATION
Holders of Offered Certificates may hold their Certificates through DTC
(in the United States) or CEDEL or Euroclear (in Europe) if they are
Participants of such system, or indirectly through organizations that are
participants in
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such systems. CEDEL and Euroclear will hold omnibus positions on behalf of
the CEDEL Participants and the Euroclear Participants, respectively, through
customers' securities accounts in CEDEL's and Euroclear's names on the books
of their respective 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 CEDEL Participants and Euroclear Participants will
occur in accordance with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly through CEDEL Participants or
Euroclear Participants, on the other, will be effected in DTC in accordance
with DTC rules on behalf of the relevant European international clearing
system by its 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. CEDEL
Participants and Euroclear Participants may not deliver instructions directly
to the Depositaries.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business
day following the DTC settlement date, and such credits or any transactions
in such securities settled during such processing will be reported to the
relevant CEDEL Participant or Euroclear Participant on such business day.
Cash received in CEDEL or Euroclear as a result of sales of securities by or
through a CEDEL Participant or a Euroclear Participant to a DTC Participant
will be received with value on the DTC settlement date but will be available
in the relevant CEDEL or Euroclear cash account only as of the business day
following settlement in DTC. For additional information regarding clearance
and settlement procedures for the Offered Certificates and for information
with respect to tax documentation procedures relating to the Offered
Certificates, see Exhibit B hereto.
The holders of Offered Certificates that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of,
or other interests in, Offered Certificates may do so only through
Participants and Indirect Participants. In addition, holders of Offered
Certificates will receive all distributions of principal and interest from
the Trustee through the Participants who in turn will receive them from DTC.
Under a book-entry format, holders of Offered Certificates may experience
some delay in their receipt of payments, since such payments will be
forwarded by the Trustee to Cede & Co., as nominee for DTC. DTC will forward
such payments to its Participants, which thereafter will forward them to
Indirect Participants or holders of Offered Certificates.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Offered Certificates among Participants on whose behalf it acts with respect
to the Offered Certificates and to receive and transmit distributions of
principal of, and interest on, the Offered Certificates. Participants and
Indirect Participants with which the holders of Offered Certificates have
accounts with respect to the Offered Certificates similarly are required to
make book-entry transfers and receive and transmit such payments on behalf of
their respective holders of Offered Certificates. Accordingly, although the
holders of Offered Certificates will not possess the Offered Certificates,
the Rules provide a mechanism by which Participants will receive payments on
Offered Certificates and will be able to transfer their interest.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a holder of
Offered Certificates to pledge such Certificates to persons or entities that
do not participate in the DTC system, or to otherwise act with respect to
such Certificates, may be limited due to the lack of a physical certificate
for such Certificates.
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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, neither the Depositor, the Servicer, the Fiscal
Agent 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.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations
("CEDEL Participants") and facilitates the clearance and settlement of
securities transactions between CEDEL Participants through electronic
book-entry changes in accounts of CEDEL Participants, thereby eliminating the
need for physical movement of certificates. Transactions may be settled in
CEDEL in any of 28 currencies, including United States dollars. CEDEL
provides to its CEDEL Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally
traded securities and securities lending and borrowing. CEDEL interfaces with
domestic markets in several countries. As a professional depository, CEDEL is
subject to regulation by the Luxembourg Monetary Institute. CEDEL
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 Underwriter. 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 CEDEL 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 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 Underwriter. 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 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 herein concerning DTC, CEDEL and Euroclear and their
book-entry systems has been obtained from sources believed to be reliable,
but the Depositor takes no responsibility for the accuracy or completeness
thereof.
Definitive Certificates
Offered Certificates issued in fully registered, certificated form
("Definitive Certificates" will be delivered to Certificate Owners (or their
nominees) only if (i) DTC is no longer willing or able properly to discharge
its responsibilities
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as depository with respect to the Book-Entry Certificates, and the Trustee is
unable to locate a qualified successor, (ii) the Depositor or the Trustee, at
its sole option, elects to terminate the book-entry system through DTC, or
(iii) after the occurrence of an Event of Default under the Pooling and
Servicing Agreement, Certificate Owners representing a majority in principal
amount of the Book-Entry Certificates then outstanding advise DTC through DTC
Participants in writing that the continuation of a book-entry system through
DTC (or a successor thereto) is no longer in the best interest of Certificate
Owners.
Upon the occurrence of any of the events described in clauses (i) through
(iii) in the immediately preceding paragraph, DTC is required to notify all
DTC Participants of the availability through DTC of Definitive Certificates.
Upon delivery of Definitive Certificates, the Trustee, Certificate Registrar,
and Servicer will recognize the holders of such Definitive Certificates as
holders under the Pooling and Servicing Agreement ("Holders"). Distributions
of principal of and interest on the Definitive Certificates will be made by
the Trustee directly to Holders of Definitive Certificates in accordance with
the procedures set forth in the Prospectus and the Pooling and Servicing
Agreement.
Upon the occurrence of any of the events described in clauses (i) through
(iii) of the second preceding paragraph, requests for transfer of Definitive
Certificates will be required to be submitted directly to the Certificate
Registrar in a form acceptable to the Certificate Registrar (such as the
forms which will appear on the back of the certificate representing a
Definitive Certificate), signed by the Holder or such Holder's legal
representative and accompanied by the Definitive Certificate or Certificates
for which transfer is being requested. The Trustee will be appointed as the
initial Certificate Registrar.
TRANSFER RESTRICTIONS
Each Class A-1D, Class A-2, Class A-3, Class A-4 and Class A-5 Certificate
will bear a legend substantially to the effect that such Certificate may not
be purchased by a transferee that is (A) an employee benefit plan or other
retirement arrangement, including an individual retirement account of a Keogh
Plan, which is subject to Title I of ERISA, Section 4975 of the Code, or any
Similar Law (each as defined herein) (each, a "Plan")), or (B) a collective
investment fund in which Plans are invested, an insurance company using
assets of separate accounts or general accounts which include assets of Plans
(or which are deemed pursuant to ERISA or any Similar Law to include assets
of Plans) or other person acting on behalf of any such Plan or using the
assets of any such Plan, other than an insurance company using the assets of
its general account under circumstances whereby such purchase and the
subsequent holding of such Certificate by such insurance company would not
constitute or result in a prohibited transaction within the meaning of
Section 406 or 407 or ERISA, Section 4975 of the Code, or a materially
similar characterization under any Similar Law. The purchaser or transferee
of any interest in a Class A-1D, Class A-2, Class A-3, Class A-4 or Class A-5
Certificate that is not a Definitive Certificate shall be deemed to represent
that it is not a person or entity referred to in clause (A) or (B) of the
legend.
In the event that holders of the Class A-1D, Class A-2, Class A-3, Class
A-4 and Class A-5 Certificates become entitled to receive Definitive
Certificates under the circumstances described under " --Definitive
Certificates" each prospective transferee of a Class A-1D, Class A-2, Class
A-3, Class A-4 and Class A-5 Certificate that is a Definitive Certificate
will be required to deliver to the Depositor, the Certificate Registrar and
the Trustee a representation letter substantially in the form set forth as an
exhibit to the Pooling and Servicing Agreement stating that such transferee
is not a person or entity referred to in clause (A) or (B) of the legend. Any
transfer of a Class A-1D, Class A-2, Class A-3, Class A-4 and Class A-5
Certificate that would result in a prohibited transaction under ERISA,
Section 4975 of the Code or Similar Law will be deemed absolutely null and
void ab initio.
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PREPAYMENT AND YIELD CONSIDERATIONS
YIELD
The yield to maturity on the Offered Certificates will depend upon the
price paid by the Certificateholder, the rate and timing of the distributions
in reduction of Certificate Balance of such Certificates and the rate, timing
and severity of Realized Losses on the Mortgage Loans and the extent to which
such losses are allocable in reduction of the Certificate Balance of such
Certificates, as well as prevailing interest rates at the time of prepayment
or default.
The rate of distributions in reduction of the Certificate Balance of any
Class of Offered Certificates, the aggregate amount of distributions on any
Class of Offered Certificates and the yield to maturity of any Class of
Offered Certificates will be directly related to the rate of payments of
principal (both scheduled and unscheduled) on the Mortgage Loans and the
amount and timing of borrower defaults. In addition, such distributions in
reduction of Certificate Balance may result from repurchases by the Mortgage
Loan Seller due to breaches of representations and warranties with respect to
the Mortgage Loans as described herein under "The Pooling and Servicing
Agreement --Representations and Warranties; Repurchase" or purchases of the
Mortgage Loans in the manner described under "The Pooling and Servicing
Agreement --Optional Termination."
Disproportionate principal payments (whether resulting from differences in
amortization terms, prepayments following expirations of the respective
Lock-out Periods or otherwise) on the Mortgage Loans having Net Mortgage Pass
Through Rates that are higher or lower than the current Pass-Through Rate for
each of the Class A-CS1, Class A-2, Class A-3, Class A-4 and Class A-5
Certificates will affect the Weighted Average Net Mortgage Pass-Through Rate
and accordingly the Pass-Through Rate of such Class for future periods and
therefore the yield on such Classes. The weighted average of the Net Mortgage
Pass-Through Rates for each Distribution Date, assuming that each Mortgage
Loan with an Anticipated Repayment Date prepays on such date and that each
other Mortgage Loan does not prepay, is set forth on Annex C hereto.
The Certificate Balance of any Class of Offered Certificates may be
reduced without distributions thereon as a result of the allocation of
Realized Losses to such Class (or the related Classes), reducing the maximum
amount distributable to such Class in respect of Certificate Balance, as well
as the amount of interest that would have accrued thereon in the absence of
such reduction. In general, a Realized Loss occurs when the aggregate
principal balance of a Mortgage Loan is reduced without an equal distribution
to Certificateholders in reduction of the Certificate Balances of the
Certificates. Realized Losses are likely to occur only in connection with a
default on a Mortgage Loan and the liquidation of the related Mortgaged
Properties or a reduction in the principal balance of a Mortgage Loan by a
bankruptcy court.
Because the ability of a borrower to make a Balloon Payment will depend
upon its ability either to refinance the Mortgage Loan or to sell the related
Mortgaged Properties, there is a risk that a borrower may default at the
maturity date. In connection with a default on the Balloon Payment, the
Servicer may agree to extend the maturity date thereof as described under
"The Pooling and Servicing Agreement --Realization Upon Mortgage Loans". In
the case of any such default, recovery of proceeds may be delayed by and
until, among other things, work-outs are negotiated, foreclosures are
completed or bankruptcy proceedings are resolved. In addition, the Directing
Holders (as defined below) may instruct to delay the commencement of any
foreclosure proceedings under certain conditions described herein.
Certificateholders are not entitled to receive distributions of Monthly
Payments or the Balloon Payment when due except to the extent they are either
covered by an Advance or actually received. Consequently, any defaulted
Monthly Payment for which no such Advance is made and a defaulted Balloon
Payment will tend to extend the weighted average lives of the Certificates,
whether or not a permitted extension of the due date of the related Mortgage
Loan has been effected.
The rate of payments (including voluntary and involuntary prepayments) on
pools of Mortgage Loans is influenced by a variety of economic, geographic,
social and other factors, including the level of mortgage interest rates and
the rate at which borrowers default on their mortgage loans.
The timing of changes in the rate of prepayment on the Mortgage Loans may
significantly affect the actual yield to maturity experienced by an investor
even if the average rate of principal payments experienced over time is
consistent with such investor's expectation. In general, the earlier a
prepayment of principal on the Mortgage Loans, the greater the effect on such
investor's yield to maturity. As a result, the effect on such investor's
yield of principal payments occurring at a rate higher (or lower) than the
rate anticipated by the investor during the period immediately following the
issuance of the Offered Certificates would not be fully offset by a
subsequent like reduction (or increase) in the rate of principal payments.
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All of the Mortgage Loans have Lock-out Periods ranging from 80 months to
296 months following origination. The weighted average Lock-out Period for
the Mortgage Loans is approximately 143 months. All Mortgage Loans are locked
out until no earlier than three months preceding their anticipated Repayment
Date or maturity date, as applicable. See "Description of the Mortgage Pool
- --Certain Terms and Conditions of the Mortgage Loans --Prepayment Provisions"
herein.
No representation is made as to the rate of principal payments on the
Mortgage Loans or as to the yield to maturity of any Class of Offered
Certificates. In addition, although Excess Cash Flow is applied to reduce the
principal of [ ]% of the Mortgage Loans after their respective Anticipated
Repayment Dates, there can be no assurance that any of such Mortgage Loans
will be prepaid on that date or any date prior to maturity. An investor is
urged to make an investment decision with respect to any Class of Offered
Certificates based on the anticipated yield to maturity of such Class of
Offered Certificates resulting from its purchase price and such investor's
own determination as to anticipated Mortgage Loan prepayment rates under a
variety of scenarios. The extent to which any Class of Offered Certificates
is purchased at a discount or a premium and the degree to which the timing of
payments on such Class of Offered Certificates is sensitive to prepayments
will determine the extent to which the yield to maturity of such Class of
Offered Certificates may vary from the anticipated yield. An investor should
carefully consider the associated risks, including, in the case of any
Offered Certificates purchased at a discount, the risk that a slower than
anticipated rate of principal payments on the Mortgage Loans could result in
an actual yield to such investor that is lower than the anticipated yield
and, in the case of any Offered Certificates purchased at a premium, the risk
that a faster than anticipated rate of principal payments could result in an
actual yield to such investor that is lower than the anticipated yield.
An investor should consider the risk that rapid rates of prepayments on
the Mortgage Loans, and therefore of amounts distributable in reduction of
principal balance of the Offered Certificates may coincide with periods of
low prevailing interest rates. During such periods, the effective interest
rates on securities in which an investor may choose to reinvest amounts
distributed in reduction of the principal balance of such investor's Offered
Certificate may be lower than the Pass-Through Rate. Conversely, slower rates
of prepayments on the Mortgage Loans, and therefore of amounts distributable
in reduction of principal balance of the Offered Certificates, may coincide
with periods of high prevailing interest rates. During such periods, the
amount of principal distributions available to an investor for reinvestment
at such high prevailing interest rates may be relatively small.
The effective yield to holders of Offered Certificates will be lower than
the yield otherwise produced by the Pass-Through Rate and applicable purchase
prices because while interest will accrue from the eleventh day of each
month, the distribution of such interest will not be made until the
Distribution Date occurring in such month, and principal paid on any
Distribution Date will not bear interest during the period after the interest
is paid and before the Distribution Date occurs. Additionally, as described
under "Description of the Offered Certificates --Distributions" herein, if
the portion of the Available Funds distributable in respect of interest on
any Class of Offered Certificates on any Distribution Date is less than the
amount of interest required to be paid to the holders of such class, the
shortfall will be distributable to holders of such Class of Certificates on
subsequent Distribution Dates, to the extent of Available Funds on such
Distribution Dates. 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 ON THE CLASS A-CS1 CERTIFICATES
Because distributions on the Class A-CS1 Certificates consist only of a
portion of the Interest received on the Mortgage Loans, the yield to maturity
of such Certificates will be extremely sensitive to the rate and timing of
principal payments (including voluntary and involuntary prepayments),
delinquencies and liquidations on such Mortgage Loans. Investors should fully
consider the associated risks, including the risk that a rapid rate of
principal payments on and liquidations of the Mortgage Loans could result in
the failure of investors in the Class A-CS1 Certificates to fully recoup
their initial investments.
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 each of the following tables, the column headed "0% CPR"
assumes that none of the Mortgage Loans is prepaid before maturity. The columns
headed "10% CPR", "25% CPR", "50% CPR" and "100% CPR" assume that prepayments on
the Mortgage Loans are made at those levels of CPR following the expiration of
any Lock-out Period until the related Anticipated Prepayment Date or maturity
date, as applicable. The column headed
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<PAGE>
"0% CPR" assumes that all of the Mortgage Loans are prepaid on their related
Anticipated Repayment Date or maturity date, as applicable. There is no
assurance, however, that prepayments of 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 following tables indicate the assumed purchase price (including
accrued interest) and the pre-tax yield on the Class A-CS1 Certificates to
maturity, stated on a corporate bond equivalent basis. For purposes of
preparing the tables, it was assumed that each of the Mortgage Loans has the
following characteristics: (i) each Mortgage Loan will pay principal and
interest in accordance with its terms and scheduled payments will be timely
received on the 11th day of each month; (ii) the Mortgage Loan Seller does
not repurchase any Mortgage Loan as described under "The Pooling and
Servicing Agreement --Representations and Warranties --Repurchase"; (iii)
none of the Depositor, Servicer, or the Class LR Certificateholders exercise
the right to cause early termination of the Trust Fund; (iv) the Servicing
Fee Rate and Additional Servicing Fee Rate for each Distribution Date is an
aggregate amount equal to a per annum rate of 0.09625% on the Stated
Principal Balance of the Mortgage Loans as of the preceding Due Date; and (v)
the date of determination of weighted average life is October 22, 1996. These
assumptions are collectively referred to as the "Mortgage Loan Assumptions".
For purposes of preparing the tables, it was also assumed that aggregate
purchase prices (including accrued interest) for the Class A-CS1 Certificates
are as set forth below;
CLASS A-CS1
SENSITIVITY TO PRINCIPAL PREPAYMENTS OF THE PRE-TAX YIELD TO MATURITY
<TABLE>
<CAPTION>
ASSUMED
PURCHASE PRICE 0% CPR 10% CPR 25% CPR 50% CPR 100% CPR
- ------------------ ---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
</TABLE>
The pre-tax yields to maturity set forth in the preceding tables were
calculated by determining the monthly discount rate that, when applied to the
assumed stream of cash flows to be paid on the Class A-CS1 Certificates,
would cause the discounted present value of such assumed cash flows to equal
the assumed purchase price thereof, and by 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 A-CS1
Certificates and consequently do not purport to reflect the return on any
investment in the Class A-CS1 Certificates when such reinvestment rates are
considered.
There can be no assurance that the Mortgage Loans will prepay at any of
the times assumed for purposes of calculating the yields shown in the tables
or at any other particular time, that the pre-tax yields on the Class A-CS1
Certificates will correspond to any of the pre-tax yields shown herein or
that the aggregate purchase prices of either Class of the Class A-CS1
Certificates will be as assumed. Investors must make their own decisions as
to the appropriate prepayment assumptions to be used in deciding whether to
purchase the Class A-CS1 Certificates.
RATED FINAL DISTRIBUTION DATE
The "Rated Final Distribution Date", October 13, 2026, is the Distribution
Date occurring three years after the end of the longest amortization period
of any Mortgage Loan. Because certain of the Mortgage Loans have maturity
dates that occur earlier than the latest maturity date, and because certain
of the Mortgage Loans may be prepaid prior to maturity, it is possible that
the Certificate Balance of each Class of Offered Certificates will be reduced
to zero significantly earlier than the Rated Final Distribution Date.
WEIGHTED AVERAGE LIFE OF OFFERED CERTIFICATES
Weighted average life refers to the average amount of time that will
elapse from the date of determination to the date of distribution to the
investor of each dollar in reduction of Certificate Balance that is
distributed or allocated, respectively. The weighted average lives of the
Offered Certificates will be influenced by, among other things, the rate at
which principal of the Mortgage Loans is paid, which may be in the form of
scheduled amortization, Balloon Payments, voluntary or involuntary
prepayments or liquidations.
S-82
<PAGE>
The weighted average lives of the Offered Certificates may also be
affected to the extent that additional distributions in reduction of the
Certificate Balance of such Certificates occur as a result of the repurchase
or purchase of Mortgage Loans from the Trust Fund as described under "The
Pooling and Servicing Agreement --Representations and Warranties; Repurchase"
or " --Optional Termination" herein. Such a repurchase or purchase from the
Trust Fund will have the same effect on distributions to the holders of
Certificates as if the related Mortgage Loans had prepaid in full, except
that no Prepayment Premiums are made in respect thereof. The tables of
"Percentages of Initial Certificate Balance Outstanding for the Offered
Certificates" set forth below indicate the weighted average life of each
Class of Offered Certificates and set forth the percentage of the initial
Certificate Balance of such Offered Certificates that would be outstanding
after each of the dates shown at the various CPRs. The tables have also been
prepared on the basis of the Mortgage Loan Assumptions described under "
- --Yield on the Class A-CS1 Certificates". The Mortgage Loan Assumptions made
in preparing the following tables are expected to vary from the actual
performance of the Mortgage Loans. It is highly unlikely that principal of
the Mortgage Loans will be repaid consistent with assumptions underlying any
one of the Scenarios. Investors are urged to conduct their own analysis
concerning the likelihood that the Mortgage Loans may pay or prepay on any
particular date.
Based on the Mortgage Loan Assumptions and the various CPRs, the tables
indicate the weighted average life of the Offered Certificates and set forth
the percentages of the initial Certificate Balance of the Offered
Certificates that would be outstanding after the Distribution Date in October
of each of the years indicated, at the indicated CPRs.
S-83
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS A-1A AND CLASS A-CS1
---------------------------------------------------------------
DISTRIBUTION 0% CPR 10% CPR 25% CPR 50% CPR 100% CPR
- ------------------------------------- ---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Initial Percentage ................... 100% 100% 100% 100% 100%
October 13, 1997 ..................... 88 88 88 88 88
October 13, 1998 ..................... 75 75 75 75 75
October 13, 1999 ..................... 61 61 61 61 61
October 13, 2000 ..................... 45 45 45 45 45
October 13, 2001 ..................... 28 28 28 28 28
October 13, 2002 ..................... 9 9 9 9 9
October 13, 2003 ..................... 0 0 0 0 0
October 13, 2004 ..................... 0 0 0 0 0
October 13, 2005 ..................... 0 0 0 0 0
October 13, 2006 ..................... 0 0 0 0 0
October 13, 2007 ..................... 0 0 0 0 0
October 13, 2008 ..................... 0 0 0 0 0
October 13, 2009 ..................... 0 0 0 0 0
October 13, 2010 ..................... 0 0 0 0 0
October 13, 2011 ..................... 0 0 0 0 0
October 13, 2012 ..................... 0 0 0 0 0
October 13, 2013 ..................... 0 0 0 0 0
October 13, 2014 ..................... 0 0 0 0 0
October 13, 2015 ..................... 0 0 0 0 0
October 13, 2016 ..................... 0 0 0 0 0
October 13, 2017 ..................... 0 0 0 0 0
October 13, 2018 ..................... 0 0 0 0 0
October 13, 2019 ..................... 0 0 0 0 0
October 13, 2020 ..................... 0 0 0 0 0
October 13, 2021 ..................... 0 0 0 0 0
October 13, 2022 ..................... 0 0 0 0 0
October 13, 2023 ..................... 0 0 0 0 0
October 13, 2024 ..................... 0 0 0 0 0
October 13, 2025 ..................... 0 0 0 0 0
October 13, 2026 ..................... 0 0 0 0 0
October 13, 2027 ..................... 0 0 0 0 0
Weighted Average Life (years)(1) .... 3.54 3.54 3.54 3.54 3.54
</TABLE>
- ------------
(1) The weighted average life of the Class A-1A and A-CS1 Certificates is
determined by (i) multiplying the amount of each distribution or
allocation in reduction of Certificate Balance or Notional Balance, as
applicable, of such Class by the number of years from the date of
determination to the related Distribution Date, (ii) adding the results
and (iii) dividing the sum by the aggregate distributions or
allocations in reduction of Certificate Balance or Notional Balance, as
applicable, referred to in clause (i).
S-84
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS A-1B
---------------------------------------------------------------
DISTRIBUTION 0% CPR 10% CPR 25% CPR 50% CPR 100% CPR
- -------------------------------------- ---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Initial Percentage .................... 100% 100% 100% 100% 100%
October 13, 1997 ...................... 100 100 100 100 100
October 13, 1998 ...................... 100 100 100 100 100
October 13, 1999 ...................... 100 100 100 100 100
October 13, 2000 ...................... 100 100 100 100 100
October 13, 2001 ...................... 100 100 100 100 100
October 13, 2002 ...................... 100 100 100 100 100
October 13, 2003 ...................... 21 21 21 21 21
October 13, 2004 ...................... 13 13 13 13 13
October 13, 2005 ...................... 3 3 3 3 3
October 13, 2006 ...................... 0 0 0 0 0
October 13, 2007 ...................... 0 0 0 0 0
October 13, 2008 ...................... 0 0 0 0 0
October 13, 2009 ...................... 0 0 0 0 0
October 13, 2010 ...................... 0 0 0 0 0
October 13, 2011 ...................... 0 0 0 0 0
October 13, 2012 ...................... 0 0 0 0 0
October 13, 2013 ...................... 0 0 0 0 0
October 13, 2014 ...................... 0 0 0 0 0
October 13, 2015 ...................... 0 0 0 0 0
October 13, 2016 ...................... 0 0 0 0 0
October 13, 2017 ...................... 0 0 0 0 0
October 13, 2018 ...................... 0 0 0 0 0
October 13, 2019 ...................... 0 0 0 0 0
October 13, 2020 ...................... 0 0 0 0 0
October 13, 2021 ...................... 0 0 0 0 0
October 13, 2022 ...................... 0 0 0 0 0
October 13, 2023 ...................... 0 0 0 0 0
October 13, 2024 ...................... 0 0 0 0 0
October 13, 2025 ...................... 0 0 0 0 0
October 13, 2026 ...................... 0 0 0 0 0
October 13, 2027 ...................... 0 0 0 0 0
Weighted Average Life (years) (1) .... 7.11 7.11 7.10 7.10 6.97
</TABLE>
- ------------
(1) The weighted average life of the Class A-1B Certificates is determined
by (i) multiplying the amount of each distribution or allocation in
reduction of Certificate Balance of such Class by the number of years
from the date of determination to the related Distribution Date, (ii)
adding the results and (iii) dividing the sum by the aggregate
distributions or allocations in reduction of Certificate Balance
referred to in clause (i).
S-85
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS A-1C
---------------------------------------------------------------
DISTRIBUTION 0% CPR 10% CPR 25% CPR 50% CPR 100% CPR
- -------------------------------------- ---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Initial Percentage ................... 100% 100% 100% 100% 100%
October 13, 1997 ..................... 100 100 100 100 100
October 13, 1998 ..................... 100 100 100 100 100
October 13, 1999 ..................... 100 100 100 100 100
October 13, 2000 ..................... 100 100 100 100 100
October 13, 2001 ..................... 100 100 100 100 100
October 13, 2002 ..................... 100 100 100 100 100
October 13, 2003 ..................... 100 100 100 100 100
October 13, 2004 ..................... 100 100 100 100 100
October 13, 2005 ..................... 100 100 100 100 100
October 13, 2006 ..................... 20 20 20 20 20
October 13, 2007 ..................... 17 17 17 17 17
October 13, 2008 ..................... 13 13 13 13 13
October 13, 2009 ..................... 2 2 2 2 2
October 13, 2010 ..................... 0 0 0 0 0
October 13, 2011 ..................... 0 0 0 0 0
October 13, 2012 ..................... 0 0 0 0 0
October 13, 2013 ..................... 0 0 0 0 0
October 13, 2014 ..................... 0 0 0 0 0
October 13, 2015 ..................... 0 0 0 0 0
October 13, 2016 ..................... 0 0 0 0 0
October 13, 2017 ..................... 0 0 0 0 0
October 13, 2018 ..................... 0 0 0 0 0
October 13, 2019 ..................... 0 0 0 0 0
October 13, 2020 ..................... 0 0 0 0 0
October 13, 2021 ..................... 0 0 0 0 0
October 13, 2022 ..................... 0 0 0 0 0
October 13, 2023 ..................... 0 0 0 0 0
October 13, 2024 ..................... 0 0 0 0 0
October 13, 2025 ..................... 0 0 0 0 0
October 13, 2026 ..................... 0 0 0 0 0
October 13, 2027 ..................... 0 0 0 0 0
Weighted Average Life (years) (1) ... 10.22 10.21 10.21 10.20 10.04
</TABLE>
- ------------
(1) The weighted average life of the Class A-1C Certificates is determined
by (i) multiplying the amount of each distribution or allocation in
reduction of Certificate Balances of such Class by the number of years
from the date of determination to the related Distribution Date, (ii)
adding the results and (iii) dividing the sum by the aggregate
distributions or allocations in reduction of Certificate Balance
referred to in clause (i).
S-86
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS A-1D
-----------------------------------------------------
DISTRIBUTION 0% CPR 10% CPR 25% CPR 50% CPR 100% CPR
- -------------------------------- -------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage .............. 100% 100% 100% 100% 100%
October 13, 1997 ................ 100 100 100 100 100
October 13, 1998 ................ 100 100 100 100 100
October 13, 1999 ................ 100 100 100 100 100
October 13, 2000 ................ 100 100 100 100 100
October 13, 2001 ................ 100 100 100 100 100
October 13, 2002 ................ 100 100 100 100 100
October 13, 2003 ................ 100 100 100 100 100
October 13, 2004 ................ 100 100 100 100 100
October 13, 2005 ................ 100 100 100 100 100
October 13, 2006 ................ 100 100 100 100 100
October 13, 2007 ................ 100 100 100 100 100
October 13, 2008 ................ 100 100 100 100 100
October 13, 2009 ................ 100 100 100 100 100
October 13, 2010 ................ 60 60 60 60 60
October 13, 2011 ................ 0 0 0 0 0
October 13, 2012 ................ 0 0 0 0 0
October 13, 2013 ................ 0 0 0 0 0
October 13, 2014 ................ 0 0 0 0 0
October 13, 2015 ................ 0 0 0 0 0
October 13, 2016 ................ 0 0 0 0 0
October 13, 2017 ................ 0 0 0 0 0
October 13, 2018 ................ 0 0 0 0 0
October 13, 2019 ................ 0 0 0 0 0
October 13, 2020 ................ 0 0 0 0 0
October 13, 2021 ................ 0 0 0 0 0
October 13, 2022 ................ 0 0 0 0 0
October 13, 2023 ................ 0 0 0 0 0
October 13, 2024 ................ 0 0 0 0 0
October 13, 2025 ................ 0 0 0 0 0
October 13, 2026 ................ 0 0 0 0 0
October 13, 2027 ................ 0 0 0 0 0
Weighted Average Life (years)(1) 14.08 14.08 14.07 14.07 14.00
</TABLE>
- ------------
(1) The weighted average life of the Class A-1D Certificates is determined
by (i) multiplying the amount of each distribution or allocation in
reduction of Certificate Balance of such Class by the number of years
from the date of determination to the related Distribution Date, (ii)
adding the results and (iii) dividing the sum by the aggregate
distributions or allocations in reduction of Certificate Balance
referred to in clause (i).
S-87
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS A-2
-----------------------------------------------------
DISTRIBUTION 0% CPR 10% CPR 25% CPR 50% CPR 100% CPR
- -------------------------------- -------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage .............. 100% 100% 100% 100% 100%
October 13, 1997 ................ 100 100 100 100 100
October 13, 1998 ................ 100 100 100 100 100
October 13, 1999 ................ 100 100 100 100 100
October 13, 2000 ................ 100 100 100 100 100
October 13, 2001 ................ 100 100 100 100 100
October 13, 2002 ................ 100 100 100 100 100
October 13, 2003 ................ 100 100 100 100 100
October 13, 2004 ................ 100 100 100 100 100
October 13, 2005 ................ 100 100 100 100 100
October 13, 2006 ................ 100 100 100 100 100
October 13, 2007 ................ 100 100 100 100 100
October 13, 2008 ................ 100 100 100 100 100
October 13, 2009 ................ 100 100 100 100 100
October 13, 2010 ................ 100 100 100 100 100
October 13, 2011 ................ 0 0 0 0 0
October 13, 2012 ................ 0 0 0 0 0
October 13, 2013 ................ 0 0 0 0 0
October 13, 2014 ................ 0 0 0 0 0
October 13, 2015 ................ 0 0 0 0 0
October 13, 2016 ................ 0 0 0 0 0
October 13, 2017 ................ 0 0 0 0 0
October 13, 2018 ................ 0 0 0 0 0
October 13, 2019 ................ 0 0 0 0 0
October 13, 2020 ................ 0 0 0 0 0
October 13, 2021 ................ 0 0 0 0 0
October 13, 2022 ................ 0 0 0 0 0
October 13, 2023 ................ 0 0 0 0 0
October 13, 2024 ................ 0 0 0 0 0
October 13, 2025 ................ 0 0 0 0 0
October 13, 2026 ................ 0 0 0 0 0
October 13, 2027 ................ 0 0 0 0 0
Weighted Average Life (years)(1) 14.59 14.59 14.58 14.57 14.36
</TABLE>
- ------------
(1) The weighted average life of the Class A-2 Certificates is determined
by (i) multiplying the amount of each distribution or allocation in
reduction of Certificate Balance of such Class by the number of years
from the date of determination to the related Distribution Date, (ii)
adding the results and (iii) dividing the sum by the aggregate
distributions or allocations in reduction of Certificate Balance
referred to in clause (i).
S-88
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS A-3
-----------------------------------------------------
DISTRIBUTION 0% CPR 10% CPR 25% CPR 50% CPR 100% CPR
- -------------------------------- -------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage .............. 100% 100% 100% 100% 100%
October 13, 1997 ................ 100 100 100 100 100
October 13, 1998 ................ 100 100 100 100 100
October 13, 1999 ................ 100 100 100 100 100
October 13, 2000 ................ 100 100 100 100 100
October 13, 2001 ................ 100 100 100 100 100
October 13, 2002 ................ 100 100 100 100 100
October 13, 2003 ................ 100 100 100 100 100
October 13, 2004 ................ 100 100 100 100 100
October 13, 2005 ................ 100 100 100 100 100
October 13, 2006 ................ 100 100 100 100 100
October 13, 2007 ................ 100 100 100 100 100
October 13, 2008 ................ 100 100 100 100 100
October 13, 2009 ................ 100 100 100 100 100
October 13, 2010 ................ 100 100 100 100 100
October 13, 2011 ................ 0 0 0 0 0
October 13, 2012 ................ 0 0 0 0 0
October 13, 2013 ................ 0 0 0 0 0
October 13, 2014 ................ 0 0 0 0 0
October 13, 2015 ................ 0 0 0 0 0
October 13, 2016 ................ 0 0 0 0 0
October 13, 2017 ................ 0 0 0 0 0
October 13, 2018 ................ 0 0 0 0 0
October 13, 2019 ................ 0 0 0 0 0
October 13, 2020 ................ 0 0 0 0 0
October 13, 2021 ................ 0 0 0 0 0
October 13, 2022 ................ 0 0 0 0 0
October 13, 2023 ................ 0 0 0 0 0
October 13, 2024 ................ 0 0 0 0 0
October 13, 2025 ................ 0 0 0 0 0
October 13, 2026 ................ 0 0 0 0 0
October 13, 2027 ................ 0 0 0 0 0
Weighted Average Life (years)(1) 14.73 14.73 14.72 14.71 14.58
</TABLE>
- ------------
(1) The weighted average life of the Class A-3 Certificates is determined
by (i) multiplying the amount of each distribution or allocation in
reduction of Certificate Balance of such Class by the number of years
from the date of determination to the related Distribution Date, (ii)
adding the results and (iii) dividing the sum by the aggregate
distributions or allocations in reduction of Certificate Balance
referred to in clause (i).
S-89
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS A-4
-----------------------------------------------------
DISTRIBUTION 0% CPR 10% CPR 25% CPR 50% CPR 100% CPR
- -------------------------------- -------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage .............. 100% 100% 100% 100% 100%
October 13, 1997 ................ 100 100 100 100 100
October 13, 1998 ................ 100 100 100 100 100
October 13, 1999 ................ 100 100 100 100 100
October 13, 2000 ................ 100 100 100 100 100
October 13, 2001 ................ 100 100 100 100 100
October 13, 2002 ................ 100 100 100 100 100
October 13, 2003 ................ 100 100 100 100 100
October 13, 2004 ................ 100 100 100 100 100
October 13, 2005 ................ 100 100 100 100 100
October 13, 2006 ................ 100 100 100 100 100
October 13, 2007 ................ 100 100 100 100 100
October 13, 2008 ................ 100 100 100 100 100
October 13, 2009 ................ 100 100 100 100 100
October 13, 2010 ................ 100 100 100 100 100
October 13, 2011 ................ 0 0 0 0 0
October 13, 2012 ................ 0 0 0 0 0
October 13, 2013 ................ 0 0 0 0 0
October 13, 2014 ................ 0 0 0 0 0
October 13, 2015 ................ 0 0 0 0 0
October 13, 2016 ................ 0 0 0 0 0
October 13, 2017 ................ 0 0 0 0 0
October 13, 2018 ................ 0 0 0 0 0
October 13, 2019 ................ 0 0 0 0 0
October 13, 2020 ................ 0 0 0 0 0
October 13, 2021 ................ 0 0 0 0 0
October 13, 2022 ................ 0 0 0 0 0
October 13, 2023 ................ 0 0 0 0 0
October 13, 2024 ................ 0 0 0 0 0
October 13, 2025 ................ 0 0 0 0 0
October 13, 2026 ................ 0 0 0 0 0
October 13, 2027 ................ 0 0 0 0 0
Weighted Average Life (years)(1) 14.89 14.89 14.89 14.89 14.76
</TABLE>
- ------------
(1) The weighted average life of the Class A-4 Certificates is determined
by (i) multiplying the amount of each distribution or allocation in
reduction of Certificate Balance of such Class by the number of years
from the date of determination to the related Distribution Date, (ii)
adding the results and (iii) dividing the sum by the aggregate
distributions or allocations in reduction of Certificate Balance
referred to in clause (i).
S-90
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE CPRS SET FORTH BELOW
<TABLE>
<CAPTION>
CLASS A-5
-----------------------------------------------------
DISTRIBUTION 0% CPR 10% CPR 25% CPR 50% CPR 100% CPR
- -------------------------------- -------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage .............. 100% 100% 100% 100% 100%
October 22, 1996 ................ 100 100 100 100 100
October 13, 1997 ................ 100 100 100 100 100
October 13, 1998 ................ 100 100 100 100 100
October 13, 1999 ................ 100 100 100 100 100
October 13, 2000 ................ 100 100 100 100 100
October 13, 2001 ................ 100 100 100 100 100
October 13, 2002 ................ 100 100 100 100 100
October 13, 2003 ................ 100 100 100 100 100
October 13, 2004 ................ 100 100 100 100 100
October 13, 2005 ................ 100 100 100 100 100
October 13, 2006 ................ 100 100 100 100 100
October 13, 2007 ................ 100 100 100 100 100
October 13, 2008 ................ 100 100 100 100 100
October 13, 2009 ................ 100 100 100 100 100
October 13, 2010 ................ 100 100 100 100 100
October 13, 2011 ................ 0 0 0 0 0
October 13, 2012 ................ 0 0 0 0 0
October 13, 2013 ................ 0 0 0 0 0
October 13, 2014 ................ 0 0 0 0 0
October 13, 2015 ................ 0 0 0 0 0
October 13, 2016 ................ 0 0 0 0 0
October 13, 2017 ................ 0 0 0 0 0
October 13, 2018 ................ 0 0 0 0 0
October 13, 2019 ................ 0 0 0 0 0
October 13, 2020 ................ 0 0 0 0 0
October 13, 2021 ................ 0 0 0 0 0
October 13, 2022 ................ 0 0 0 0 0
October 13, 2023 ................ 0 0 0 0 0
October 13, 2024 ................ 0 0 0 0 0
October 13, 2025 ................ 0 0 0 0 0
October 13, 2026 ................ 0 0 0 0 0
October 13, 2027 ................ 0 0 0 0 0
Weighted Average Life (years)(1) 14.89 14.89 14.89 14.89 14.89
</TABLE>
- ------------
(1) The weighted average life of the Class A-5 Certificates is determined
by (i) multiplying the amount of each distribution or allocation in
reduction of Certificate Balance of such Class by the number of years
from the date of determination to the related Distribution Date, (ii)
adding the results and (iii) dividing the sum by the aggregate
distributions or allocations in reduction of Certificate Balance
referred to in clause (i).
S-91
<PAGE>
THE POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement to be dated as of [October] 1, 1996 (the "Pooling and Servicing
Agreement"), by and among the Depositor, the Servicer, the Special Servicer,
the Trustee and the Fiscal Agent.
Reference is made to the Prospectus for important information in addition
to that set forth herein regarding the terms of the Pooling and Servicing
Agreement and terms and conditions of the Offered Certificates. The Depositor
will provide to a prospective or actual holder of an Offered Certificate
without charge, upon written request, a copy (without exhibits) of the
Pooling and Servicing Agreement. Requests should be addressed to Asset
Securitization Corporation, 2 World Financial Center, Building B, New York,
New York 10281-1198.
ASSIGNMENT OF THE MORTGAGE LOANS
On the Closing Date, the Depositor will sell, transfer or otherwise
convey, assign or cause the assignment of the Mortgage Loans, without
recourse, to the Trustee for the benefit of the holders of Certificates. On
or prior to the Closing Date, the Depositor will deliver to the Trustee, with
respect to each Mortgage Loan (i) the original Mortgage Note endorsed without
recourse to the order of the Trustee, as trustee; (ii) the original mortgage
or counterpart thereof; (iii) the assignment of the mortgage in recordable
form in favor of the Trustee; (iv) if applicable, preceding assignments of
mortgages; (v) to the extent not contained in the Mortgages, the original
assignments of leases and rents or counterpart thereof; (vi) if applicable,
the original assignments of assignments of leases and rents to the Trustee;
(vii) if applicable, preceding assignments of assignments of leases and
rents; (viii) where applicable, a certified copy of the UCC-1 Financing
Statements, if any, including UCC-3 continuation statements and UCC-3
assignments; and (ix) the original lender's title insurance policy (or marked
commitments to insure). The Trustee will hold such documents in trust for the
benefit of the holders of Certificates. The Trustee is obligated to review
such documents for each Mortgage Loan within 45 days after the later of
delivery or the Cut-off Date and report any missing documents or certain
types of defects therein to the Depositor.
REPRESENTATIONS AND WARRANTIES; REPURCHASE
In the Pooling and Servicing Agreement, the Depositor will assign the
representations and warranties made by the Mortgage Loan Seller to the
Depositor in the Mortgage Loan Purchase and Sale Agreement to the Trustee for
the benefit of Certificateholders. In the Mortgage Loan Purchase and Sale
Agreement the Mortgage Loan Seller will represent and warrant, among other
things, that (subject to certain exceptions specified in the Mortgage Loan
Purchase and Sale Agreement), as of the Closing Date (unless otherwise
specified):
(i) immediately prior to the sale, transfer and assignment to the
Depositor, each related Note and Mortgage were not subject to an
assignment or pledge, and the Mortgage Loan Seller has good title to, and
is the sole owner of, each Mortgage Loan;
(ii) the Mortgage Loan Seller has full right and the authority to sell,
assign and transfer such Mortgage Loan;
(iii) the Mortgage Loan Seller is transferring such Mortgage Loan free
and clear of any and all liens, pledges, charges or security interests of
any nature encumbering such Mortgage Loan;
(iv) each related Note, Mortgage, Assignment of Leases and Rents (if any)
and other agreement executed in connection with such Mortgage Loan are
legal, valid and binding obligations of the related borrower, enforceable
in accordance with their terms, except as such enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors rights generally, or by general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law);
(v) each related Assignment of Leases and Rents, if any, creates a valid,
collateral or first priority assignment of, or a valid first priority
security interest in, certain rights under the related leases, subject
only to a license granted to the related borrower to exercise certain
rights and to perform certain obligations of the lessor under such leases,
including the right to operate the related Mortgaged Property; no person
other than the related borrower owns any interest in any payments due
under such leases that is superior to or of equal priority with the
mortgagee's interest therein;
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(vi) each related assignment of Mortgage from the Mortgage Loan Seller
to the Depositor, and any related Reassignment of Assignment of Leases and
Rents, if any, or assignment of any other agreement executed in connection
with such Mortgage Loan, from the Mortgage Loan Seller to the Depositor
constitutes the legal, valid and binding assignment from the Mortgage Loan
Seller to the Depositor except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, liquidation, receivership,
moratorium or other laws relating to or affecting creditor's rights
generally, or by general principles or equity (regardless of whether such
enforcement is considered in a proceeding in equity or law);
(vii) since origination, and except as set forth in the related mortgage
file, such Mortgage Loan has not been waived, modified, altered,
satisfied, canceled, subordinated or rescinded and, each related Mortgaged
Property has not been released from the lien of the related Mortgage in
any manner which materially interferes with the security intended to be
provided by such Mortgage;
(viii) each related Mortgage is a valid and enforceable first lien on the
related Mortgaged Property, and such Mortgaged Property (subject to the
matters discussed in clause (xi) below) is free and clear of any
mechanics' and materialmen's liens which are prior to or equal with the
lien of the related Mortgage, except those which are insured against by a
lender's title insurance policy (as set forth in the Mortgage Loan
Purchase and Sale Agreement);
(ix) the Mortgage Loan Seller has not taken any action that would cause
the representations and warranties made by each related borrower in the
Mortgage Loan not to be true;
(x) the Mortgage Loan Seller has no knowledge that the representations
and warranties made by each related borrower in such Mortgage Loan are not
true in any material respect;
(xi) the lien of each related Mortgage is insured by an ALTA lender's
title insurance policy (or a binding commitment therefor), or its
equivalent as adopted in the applicable jurisdiction, insuring the
Mortgage Loan Seller, its successors and assigns, as to a valid and
perfected first priority security interest in the related Mortgaged
Property and the first priority lien of the Mortgage in the original
principal of such Mortgage Loan (as set forth on the Mortgage Loan
Schedule which is an exhibit to the Pooling and Servicing Agreement) after
all advances of principal, subject only to (a) the lien of 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 the value of the Mortgaged Property
and (c) the exceptions (general and specific) set forth in such policy,
none of which, individually or in the aggregate, materially interferes
with the security intended to be provided by such Mortgage or with the
borrower's ability to pay its obligations when they become due or the
value of the Mortgaged Property; the Mortgage Loan Seller or its
successors or assigns is the sole named insured of such policy; such
policy is assignable to the Depositor without the consent of or any
notification to the insurer, and is in full force and effect upon the
consummation of the transactions contemplated by the Mortgage Loan
Purchase and Sale Agreement; no claims have been made under such policy
and the Mortgage Loan Seller has not done anything, by act or omission,
and the Mortgage Loan Seller has no knowledge of any matter, which would
impair or diminish the coverage of such policy; to the extent required by
applicable law the insurer issuing such policy is qualified to do business
in the jurisdiction in which the related Mortgaged Properties are located;
(xii) the proceeds of such Mortgage Loan have been fully disbursed and
there is no requirement for future advances thereunder and it covenants
that it will not make any future advances under the Mortgage Loan to the
related borrower;
(xiii) each related Mortgaged Property is free of any material damage
that would affect materially and adversely the value of such Mortgaged
Property as security for the Mortgage Loan and is in good repair and there
is no proceeding pending for the total or partial condemnation of such
Mortgaged Property;
(xiv) each of the related borrowers (and in the case of certain loans,
each of the operators of the senior housing/healthcare facility) is in
possession of all material licenses, permits and other authorizations
necessary and required by all applicable laws for the conduct of its
business; all such licenses, permits and authorizations are valid and in
full force and effect; and if a related Mortgaged Property is improved by
a hotel, motel or senior housing facility, the most recent inspection or
survey by governmental authorities having jurisdiction in connection with
such licenses, permits and authorizations did not cite such Mortgaged
Property for material violations (which shall include only "Level A"
violations, in the case of skilled nursing facilities, that have not been
cured);
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(xv) the Mortgage Loan Seller or the applicable Originator has inspected
or caused to be inspected each related Mortgaged Property within the past
twelve months preceding the Cut-off Date or within one month of
origination of the Mortgage Loan;
(xvi) such Mortgage Loan does not have a shared appreciation feature,
other contingent interest feature or negative amortization;
(xvii) except with respect to the Anchorage Participation, such Mortgage
Loan is a whole loan and no other party holds a participation interest in
the Mortgage Loan;
(xviii) (A) the Mortgage Rate (exclusive of any default interest or
yield maintenance charges) of such Mortgage Loan complied as of the date
of origination with, or is exempt from, applicable state or federal laws,
regulations and other requirements pertaining to usury; any and all other
requirements of any federal, state or local laws, including, without
limitation, truth-in-lending, real estate settlement procedures, equal
credit opportunity or disclosure laws, applicable to such Mortgage Loan
have been complied with as of the date of origination of such Mortgage
Loan or (B) the Mortgage Loan Seller has received an opinion to such
effect;
(xix) no fraudulent acts were committed by the Mortgage Loan Seller or
the other Originators during the origination process of such Mortgage
Loan;
(xx) all taxes and governmental assessments that prior to the Closing
Date became due and owing in respect of each related Mortgaged Property
have been paid, or an escrow of funds in an amount sufficient to cover
such payments has been established;
(xxi) all escrow deposits and payments required pursuant to the Mortgage
Loan are in the possession, or under the control, of the Mortgage Loan
Seller or its agent and there are no deficiencies in connection therewith;
(xxii) to the extent required under applicable law, as of the Cut-off
Date, the Mortgage Loan Seller was authorized to transact and do business
in the jurisdiction in which each related Mortgaged Property is located at
all times when it held the Mortgage Loan;
(xxiii) each related Mortgaged Property is insured by a fire and extended
perils insurance policy, issued by an insurer meeting the requirements of
the Mortgage Loans, in an amount not less than the replacement cost and
the amount necessary to avoid the operation of any co-insurance provisions
with respect to the Mortgaged Property; each related Mortgaged Property is
also covered by business interruption insurance and comprehensive general
liability insurance in amounts generally required by institutional lenders
for similar properties; all premiums on such insurance policies required
to be paid as of the date hereof have been paid; such insurance policies
require prior notice to the insured of termination or cancellation, and no
such notice has been received; each related Mortgage obligates the related
borrower to maintain all such insurance and, at such borrower's failure to
do so, authorizes the mortgagee to maintain such insurance at the
borrower's cost and expense and to seek reimbursement therefor from such
borrower;
(xxiv) there is no default, breach, violation or event of acceleration
existing under the related Mortgage or the related Note and no event
(other than payments due but not yet delinquent) which, with the passage
of time or with notice and the expiration of any grace or cure period,
would and does constitute a default, breach, violation or event of
acceleration;
(xxv) such Mortgage Loan has not been 30 or more days delinquent since
origination and as of the Cut-off Date was not 30 or more days delinquent;
(xxvi) each related Mortgage contains customary and enforceable
provisions such as to render the rights and remedies of the holder thereof
adequate for the realization against the Mortgaged Property of the
benefits of the security, including realization by judicial or, if
applicable, non-judicial foreclosure, and there is no exemption available
to the borrower which would interfere with such right to foreclose;
(xxvii) in each related Mortgage or Loan Agreement, the related borrower
represents and warrants that it has not used, caused or permitted to exist
and will not use, cause or permit to exist on the related Mortgaged
Property any Hazardous Materials in any manner which violates federal,
state or local laws, ordinances, regulations, orders, directives or
policies governing the use, storage, treatment, transportation,
manufacture, refinement, handling, production or disposal of Hazardous
Materials; the related borrower agrees to indemnify, defend and hold the
mortgagee and its successors and assigns harmless from and against any and
all losses, liabilities, damages, injuries,
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penalties, fines, expenses, and claims of any kind whatsoever (including
attorneys' fees and costs) paid, incurred or suffered by, or asserted
against, any such party resulting from a breach of any representation,
warranty or covenant given by the borrower in such Mortgage or Loan
Agreement. A Phase I environmental report was conducted by a reputable
environmental engineer in connection with such Mortgage Loan, which
report, except as otherwise disclosed herein did not indicate any material
non-compliance or material existence of Hazardous Materials. To the best
of the Mortgage Loan Seller's knowledge, each related Mortgaged Property
is in material compliance with all applicable federal, state and local
laws pertaining to environmental hazards, and no notice of violation of
such laws has been issued by any governmental agency or authority; the
Mortgage Loan Seller has not taken any action which would cause the
related Mortgaged Property not to be in compliance with all federal, state
and local laws pertaining to environmental hazards;
(xxviii) each related Mortgage or Loan Agreement contains provisions for
the acceleration of the payment of the unpaid principal balance of such
Mortgage Loan if, without the prior written consent of the mortgagee or the
satisfaction of certain conditions, the related Mortgaged Property, or any
interest therein, is directly or indirectly transferred or sold, or
encumbered in connection with subordinate financing;
(xxix) in connection with the origination of such Mortgage Loan, the
Mortgage Loan Seller or applicable Originator has received an opinion of
counsel to the effect that: (A) when each related Mortgage and Assignment of
Leases and Rents, if any, are duly recorded and indexed in the appropriate
state and local offices for such recording and indexing, and when the related
UCC financing statements are filed and indexed in the appropriate state and
local offices for such filing and indexing, such recordings and filings shall
be sufficient to perfect the lien on the Mortgaged Property described
therein; (B) no recording or re-filing of any said instruments will be
necessary for the enforcement of such Mortgage Loan against the related
borrower, other than filing UCC continuation statements with the appropriate
state and local offices as required under the law of the applicable state to
continue the perfection of the liens perfected by the UCC financing
statements; and (C) when recorded and filed as provided above, each related
Mortgage and Assignment of Leases and Rents, if any, shall constitute a
valid, enforceable and perfected lien on, and security interest in, the
related Mortgaged Property;
(xxx) (1) the Mortgage Loan is directly secured by a Mortgage on a
commercial property or multifamily residential property, and (2) the fair
market value of such real property, as evidenced by an MAI appraisal
conducted within 12 months of the origination of the Mortgage Loan, was at
least equal to 80% of the principal amount of the Mortgage Loan (a) at
origination (or if the Mortgage Loan has been modified in a manner that
constituted a deemed exchange under Section 1001 of the Code at a time when
the Mortgage Loan was not in default or default with respect thereto was not
reasonably foreseeable, the date of the last such modification) or (b) at the
Closing Date; provided that the fair market value of the real property
interest must first be reduced by (A) the amount of any lien on the real
property interest that is senior to the Mortgage Loan (unless such senior
lien also secures a Mortgage Loan, in which event the computation described
in (a) and (b) shall be made on an aggregated basis) and (B) a proportionate
amount of any lien that is in parity with the Mortgage Loan (unless such
other lien secures a Mortgage Loan that is cross-collateralized with such
Mortgage Loan, in which event the computation described in (a) and (b) shall
be made on an aggregate basis);
(xxxi) neither the Mortgage Loan Seller nor any affiliate thereof has any
obligation or right to make any capital contribution to any borrower under
a Mortgage Loan, other than contributions made on or prior to the Closing
Date; and
(xxxii) with respect to each Mortgaged Property where the entire estate of
the related borrower therein is a leasehold estate, that
(A) The ground lease or a memorandum regarding it has been duly
recorded. The ground lease permits the interest of the lessee to be
encumbered by the related Mortgage and does not restrict the use of
the related Mortgaged Property by such lessee, its successors or
assigns in a manner that would adversely affect the security provided
by the related Mortgage. There has been no material change in the
terms of such ground lease since its recordation, except by written
instruments, all of which are included in the related Mortgage File;; *
(B) The lessor under such ground lease has agreed in writing and
included in the related Mortgage File that the ground lease may not be
amended, modified, canceled or terminated without the prior written
consent of the mortgagee and that any such action without such consent
is not binding on the mortgagee, its successors or assigns;
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(C) The ground lease has an original term (or an original term plus
one or more optional renewal terms, which, under all circumstances,
may be exercised, and will be enforceable, by the mortgagee) that
extends not less than 10 years beyond the stated maturity of the
related Mortgage Loan;
(D) The ground lease is not subject to any liens or encumbrances
superior to, or of equal priority with, the Mortgage. The ground lease
is, and provides that it shall remain prior to any Mortgage or other
lien upon the related fee interest;
(E) The ground lease is assignable to the mortgagee under the lease
hold estate and its assigns without the consent of the lessor
thereunder;
(F) As of the date of execution and delivery, the ground lease is in
full force and effect and no default has occurred, nor is there any
existing condition which, but for the passage of time or giving of
notice, would result in a default under the terms of the ground lease;
(G) The ground lease or ancillary agreement between the lessor and
the lessee requires the lessor to give notice of any default by the
lessee to the mortgagee. The ground lease or ancillary agreement
further provides that no notice given is effective against the
mortgagee unless a copy has been given to the mortgagee in a manner
described in the ground lease or ancillary agreement;
(H) A mortgagee is permitted a reasonable opportunity (including,
where necessary, sufficient time to gain possession of the interest of
the lessee under the ground lease through legal proceedings, or to
take other action so long as the mortgagee is proceeding diligently)
to cure any default under the ground lease which is curable after the
receipt of notice of any default before the lessor may terminate the
ground lease. All rights of the mortgagee under the ground lease and
the related Mortgage (insofar as it relates to the ground lease) may
be exercised by or on behalf of the mortgagee;
(I) The ground lease does not impose any restrictions on subletting
that would be viewed as commercially unreasonable by an institutional
investor. The lessor is not permitted to disturb the possession,
interest or quiet enjoyment of any subtenant of the lessee in the
relevant portion of the Mortgaged Property subject to the ground lease
for any reason, or in any manner, which would adversely affect the
security provided by the related Mortgage;
(J) Any related insurance proceeds or condemnation award (other than
in respect of a total or substantially total loss or taking) will be
applied either to the repair or restoration of all or part of the
related Mortgaged Property, with the mortgagee or a trustee appointed
by it having the right to hold and disburse such proceeds as repair or
restoration progresses, or to the payment of the outstanding principal
balance of the Mortgage Loan, together with any accrued interest; and
(K) Under the terms of the ground lease and the related Mortgage, any
related insurance proceeds, or condemnation award in respect of a
total or substantially total loss or taking of the related Mortgaged
Property will be applied first to the payment of the outstanding
principal balance of the Mortgage Loan, together with any accrued
interest (except in cases where a different allocation would not be
viewed as commercially unreasonable by any institutional investor,
taking into account the relative duration of the ground lease and the
related Mortgage and the ratio of the market value of the related
Mortgage property to the outstanding principal balance of such
Mortgage Loan). Until the principal balance and accrued interest rate
are paid in full, neither the lessee nor the lessor under the ground
lease will have the option to terminate or modify the ground lease
without prior written consent of the mortgagee as a result of any
casualty or partial condemnation, except to provide for an abatement
of the rent.
The Pooling and Servicing Agreement requires that the Servicer, the
Special Servicer or the Trustee notify the Mortgage Loan Seller and the
Depositor upon its becoming aware of (a) any breach of any representation or
warranty contained in clauses (i), (ii), (iii), (iv), (v), (vi), (vii),
(viii), (ix), (xi), (xii), (xv), (xvi), (xvii), (xviii), (xix), (xx), (xxiv),
(xxix) or (xxx) and (b) any breach of any representation or warranty
contained in clauses (x), (xiii), (xiv), (xxi), (xxii), (xxiii), (xxv),
(xxvi), (xxvii), (xxviii) or (xxxii) that materially and adversely affects
the value of such Mortgage Loan or the interests of the holders of the
Certificates therein. The Mortgage Loan Purchase and Sale Agreement provides
that, with respect to any such Mortgage Loan, within 90 days after notice
from the Servicer, the Special Servicer or the Trustee, the Mortgage Loan
Seller shall either (a) repurchase such Mortgage Loan at an amount equal to
(i) the outstanding principal
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balance of the Mortgage Loan as of the Due Date as to which a payment was
last made by the borrower (less any P&I Advances previously made on account
of principal), (ii) accrued interest up to the Due Date in the month
following the month in which such repurchase occurs (less P&I Advances
previously made on account of interest), (iii) the amount of any unreimbursed
Advances (with interest thereon) and any unreimbursed servicing compensation
relating to such Mortgage Loan and (iv) any expenses reasonably incurred or
to be incurred by the Servicer, the Special Servicer or the Trustee in
respect of the breach or defect giving rise to the repurchase obligation,
including any expenses arising out of the enforcement of the repurchase
obligation (such price the "Repurchase Price" or (b) promptly cure such
breach in all material respects, provided, however, that in the event that
such breach is capable of being cured but not within such 90-day period and
the Mortgage Loan Seller as determined by the Servicer has commenced and is
diligently proceeding with the cure of such breach, the Mortgage Loan Seller
will have an additional 90 days to complete such cure; provided, further,
that with respect to such additional 90-day period the Mortgage Loan Seller
shall have delivered an officer's certificate to the Trustee and the Servicer
setting forth the reason such breach is not capable of being cured within the
initial 90-day period and what actions the Mortgage Loan Seller is pursuing
in connection with the cure thereof and stating that the Mortgage Loan Seller
anticipates that such breach will be cured within the additional 90-day
period; and, provided, further, that in the event the Mortgage Loan Seller
fails to cure such breach within such additional 90-day period, the
Repurchase Price shall include interest on any Advances made in respect of
the related Mortgage Loan during such period.
Notwithstanding the foregoing, upon discovery by the Trustee, the
Custodian, the Servicer or Special Servicer of a breach of a representation
or warranty that causes any Mortgage Loan not to be a "qualified mortgage"
within the meaning of the REMIC provisions of the Code, such person shall
give prompt notice thereof to the Depositor and within 90 days after such
discovery, if such breach cannot be cured within such period, the Depositor
shall purchase, or cause the Mortgage Loan Seller to purchase, such Mortgage
Loan from the Trust Fund at the Repurchase Price.
The obligations of the Mortgage Loan Seller to repurchase or cure
constitute the sole remedies available to holders of Certificates or the
Trustee for a breach of a representation or warranty by the Mortgage Loan
Seller. None of the Depositor (except as described in the previous
paragraph), the Servicer, the Special Servicer, the Trustee or the Fiscal
Agent will be obligated to purchase a Mortgage Loan if the Mortgage Loan
Seller defaults on its obligation to repurchase or cure, and no assurance can
be given that the Mortgage Loan Seller will fulfill such obligations. If such
obligation is not met, as to a Mortgage Loan that is not a "qualified
mortgage," the Upper-Tier REMIC and Lower-Tier REMIC may be disqualified.
However, with respect to the Mortgage Loans acquired by the Mortgage Loan
Seller from the Originators, the Mortgage Loan Seller will also assign to the
Depositor, and the Depositor will further assign to the Trustee, the Mortgage
Loan Seller's rights and remedies against such Originators in respect of the
representations and warranties made by each of them in their respective
purchase and sale agreement with the Mortgage Loan Seller, except that the
Trustee will be required to reassign such rights and remedies to the Mortgage
Loan Seller as to individual Mortgage Loans repurchased by the Mortgage Loan
Seller.
SERVICING OF THE MORTGAGE LOANS; COLLECTION OF PAYMENTS
The Pooling and Servicing Agreement requires the Servicer and Special
Servicer to service and administer the Mortgage Loans on behalf of the Trust
Fund solely in the best interests of and for the benefit of all of the
holders of Certificates (as determined by the Servicer or Special Servicer in
the exercise of its reasonable judgment) in accordance with the terms of the
Pooling and Servicing Agreement. In furtherance and to the extent consistent
with the foregoing, except to the extent that the Pooling and Servicing
Agreement provides for a contrary specific course of action, the Servicer or
Special Servicer is required to service and administer the Mortgage Loans in
the same manner as it (a) services and administers similar mortgage loans
comparable to the Mortgage Loans and held for other third party portfolios,
giving due consideration to customary and usual standards of practice of
prudent institutional commercial mortgage lenders and loan servicers or (b)
administers mortgage loans for its own account, whichever standard is higher,
and with a view to the maximization of timely recovery of principal and
interest on the Mortgage Loans but without regard to (i) any other
relationship that the Servicer or Special Servicer, or an affiliate of the
Servicer or Special Servicer, may have with the borrowers; (ii) the ownership
of any Certificate by the Servicer or Special Servicer or any affiliate of
the Servicer or Special Servicer, as applicable; (iii) the Servicer's or
Special Servicer's obligation to make Advances or to incur servicing expenses
with respect to the Mortgage Loans; (iv) the Servicer's or Special Servicer's
right to receive compensation for its services under the Pooling and
Servicing Agreement or with respect to any particular transaction; or (v) the
ownership, or servicing or management for others, by the Servicer or Special
Servicer of any other mortgage loans or property. The Servicer and the
Special Servicer are permitted, at their own expense, to employ subservicers,
agents or attorneys in performing any of
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their respective obligations under the Pooling and Servicing Agreement, but
will not thereby be relieved of any such obligation, and will be responsible
for the acts and omissions of any such subservicers, agents or attorneys. The
Pooling and Servicing Agreement provides, however, that neither the Servicer,
the Special Servicer nor any of their respective directors, officers,
employees or agents shall have any liability to the Trust Fund or the
Certificateholders for taking any action or refraining from taking an action
in good faith, or for errors in judgment. The foregoing provision would not
protect the Servicer or the Special Servicer for the breach of its
representations or warranties in the Pooling and Servicing Agreement, the
breach of certain specified covenants therein or any liability by reason of
willful misfeasance, bad faith, fraud, gross negligence or a breach of the
servicing standard set forth in the Pooling and Servicing Agreement in the
performance of its duties or by reason of its reckless disregard of
obligations or duties under the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement requires the Servicer or the Special
Servicer, as applicable, to make reasonable efforts to collect all payments
called for under the terms and provisions of the Mortgage Loans, and to the
extent such procedures shall be consistent with the Pooling and Servicing
Agreement, to follow collection procedures as it would follow (i) with
respect to mortgage loans comparable to the Mortgage Loans and held for any
other third-party account or (ii) with respect to mortgage loans for its own
account, whichever standard is higher. Consistent with the above, the
Servicer may, in its discretion, waive any late payment charge in connection
with any delinquent Monthly Payment or Balloon Payment with respect to any
Mortgage Loan. With respect to the Mortgage Loans that have Anticipated
Repayment Dates, the Servicer will be directed in the Pooling and Servicing
Agreement not to take any enforcement action with respect to payment of
Excess Interest or principal in excess of the principal component of the
constant Monthly Payment prior to the final maturity date. With respect to
any Defaulted Mortgage Loan, subject to the restrictions set forth below
under " --Realization on Mortgage Loans," the Special Servicer will be
entitled to pursue any of the remedies set forth in the related Mortgage,
including the right to acquire, through foreclosure, all or any of the
Mortgaged Properties securing such Mortgage Loan. The Servicer may elect to
extend a Mortgage Loan (subject to conditions described herein)
notwithstanding its decision to foreclose on certain of the Mortgaged
Properties.
ADVANCES
The Servicer will be obligated to advance, on the business day immediately
preceding a Distribution Date (the "Servicer Remittance Date" an amount (each
such amount, a "P&I Advance") equal to the total or any portion of the
Monthly Payment or Minimum Defaulted Monthly Payment on a Mortgage Loan (with
interest at the Mortgage Pass-Through Rate) not received that was delinquent
as of the close of business on the immediately preceding Due Date (and which
delinquent payment has not been cured as of the Servicer Remittance Date),
or, in the event of a default in the payment of amounts due on the maturity
date of a Mortgage Loan, the amount equal to the principal portion of the
constant Monthly Payment or portion thereof not received that was due prior
to the maturity date; provided, however, that the Servicer will not be
required to make an Advance to the extent it determines that such advance
would not be recoverable. Notwithstanding the foregoing, the Servicer is not
required to (i) make more than one advance to the most subordinate Class of
Certificates in respect of any Mortgage Loan that is delinquent in the
payment of a Monthly Payment, unless such delinquency has been cured by the
Due Date preceding the related Distribution Date and (ii) make any P&I
Advance in respect of Reduction Interest Distribution Amounts and Reduction
Interest Shortfalls, and, accordingly, the Servicer may reduce the aggregate
amount of P&I Advances to be deposited by the Servicer in respect of the
amounts the Servicer is not required to advance. In addition, on any Servicer
Remittance Date on which the Servicer is not required to make a P&I Advance
for the benefit of the most subordinate Class as described in the preceding
sentence, the Servicer may, immediately subsequent to the making of the P&I
Advance (which includes amounts allocable to the most subordinate Class) on
such Servicer Remittance Date, reimburse itself (without interest) for the
portion of such P&I Advance allocable to the most subordinate Class from
amounts otherwise distributable to such most subordinate class on the related
Distribution Date (such amount of reimbursement, the "Subordinate Class
Advance Amount"). The Trustee will provide to the Servicer written statements
prior to the Servicer Remittance Date listing (i) the aggregate Reduction
Interest Distribution Amounts and Reduction Interest Shortfalls for such
Distribution Date and (ii) the distribution due to the Holders of the most
subordinate Class of Certificates. For purposes of determining the most
subordinate Class, (i) the Class A-1A, Class A-1B, Class A-1C, Class A-CS1
and Class A-CS2 Certificates collectively and (ii) the Class B-4 and Class
B-4H Certificates together will, in each case, be treated as one class. The
amount required to be advanced in respect of delinquent Monthly Payments,
Assumed Scheduled Payments or Minimum Defaulted Monthly Payments on a
Mortgaged Loan that has been subject to an Appraisal Reduction Event will
equal the product of (a) the amount that would be required to be advanced by
the Servicer without giving effect to such Appraisal Reduction Event and (b)
a
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fraction, the numerator of which is the Stated Principal Balance of the
Mortgage Loan less any Appraisal Reduction Amounts thereof and the
denominator of which is the Stated Principal Balance. The Servicer will not
be required to make a P&I Advance for Excess Interest or Default Interest.
In addition to P&I Advances, the Servicer (and in limited circumstances,
the Special Servicer) will also be obligated (subject to the limitations
described herein) to make cash advances ("Property Advances," and together
with P&I Advances, "Advances") to pay delinquent real estate taxes,
assessments and hazard insurance premiums and to cover other similar costs
and expenses necessary to preserve the priority of the related Mortgage,
enforce the terms of any Mortgage Loan or to maintain such Mortgaged
Property. The obligation of the Special Servicer to make Property Advances
will be limited to obtaining insurance with respect to REO Properties and
obtaining Updated Appraisals.
To the extent the Servicer fails to make an Advance it is required to make
under the Pooling and Servicing Agreement, the Trustee, subject to a
determination of recoverability, will make such required Advance or, in the
event the Trustee fails to make such Advance, the Fiscal Agent, subject to a
determination of recoverability, will make such Advance, in each case
pursuant to the terms of the Pooling and Servicing Agreement. To the extent
the Special Servicer fails to make an Advance it is required to make under
the Pooling and Servicing Agreement, the Servicer, subject to a determination
of recoverability, will make such an Advance. Both the Trustee and the Fiscal
Agent will be entitled to rely conclusively on any non-recoverability
determination of the Servicer or the Special Servicer, as the case may be.
See " --Trustee" and " --Fiscal Agent" below.
The Servicer, the Special Servicer, the Trustee or the Fiscal Agent, as
applicable, will be entitled to reimbursement for any Advance made by it
equal to the amount of such Advance and interest accrued thereon at the
Advance Rate from (i) late payments on the Mortgage Loan by the Mortgagor,
(ii) insurance proceeds, condemnation proceeds, liquidation proceeds from the
sale of the Defaulted Mortgage Loan or the related Mortgaged Property or
other collections relating to the Mortgage Loan or (iii) upon determining in
good faith that such Advance or interest is not recoverable in the manner
described in the preceding two clauses, from any other amounts from time to
time on deposit in the Collection Account.
The Servicer, the Special Servicer, the Trustee and the Fiscal Agent will
each be entitled to receive interest on Advances at a per annum rate equal to
the sum of (i) the Prime Rate (as defined herein) plus (ii) 1% (the "Advance
Rate"), compounded monthly, as of each Servicer Remittance Date and the
Servicer will be authorized to pay itself, the Special Servicer, the Trustee
or the Fiscal Agent, as applicable, such interest monthly from general
collections with respect to all of the Mortgage Loans prior to any payment to
holders of Certificates. To the extent that the payment of such interest at
the Advance Rate results in a shortfall in amounts otherwise payable on one
or more Classes of Certificates on the next Distribution Date, the Servicer,
the Trustee or the Fiscal Agent, as applicable, will be obligated to make a
cash advance to cover such shortfall, but only to the extent the Servicer,
the Trustee or the Fiscal Agent, as applicable, concludes that, with respect
to each such Advance, such Advance can be recovered from amounts payable on
or in respect of the Mortgage Loan to which the Advance is related. If the
interest on such Advance is not recovered from Default Interest on such
Mortgage Loan, a shortfall will result which will have the same effect as a
Realized Loss. The "Prime Rate" is the rate, for any day, set forth as such
in the "Money Rates" section of The Wall Street Journal, New York edition.
The obligation of the Servicer, the Special Servicer, the Trustee or the
Fiscal Agent, as applicable, to make Advances with respect to any Mortgage
Loan pursuant to the Pooling and Servicing Agreement continues through the
foreclosure of such Mortgage Loan and until the liquidation of the Mortgage
Loan or related Mortgaged Properties. Advances are intended to provide a
limited amount of liquidity, not to guarantee or insure against losses. None
of the Servicer, the Special Servicer, the Trustee or the Fiscal Agent will
be required to make any Advance that it determines in its good faith business
judgment will not be recoverable by the Servicer, the Special Servicer, the
Trustee or the Fiscal Agent, as applicable, out of related late payments, net
insurance proceeds, net condemnation proceeds, net liquidation proceeds and
certain other collections with respect to the Mortgage Loan as to which such
Advances were made. In addition, if the Servicer, the Special Servicer, the
Trustee or the Fiscal Agent, as applicable, determines in its good faith
business judgment that any Advance previously made will not be recoverable
from the foregoing sources, then the Servicer, the Special Servicer, the
Trustee or the Fiscal Agent, as applicable, will be entitled to reimburse
itself for such Advance, plus interest thereon, out of amounts payable on or
in respect of all of the Mortgage Loans prior to distributions on the
Certificates. Any such judgment or determination with respect to the
recoverability of Advances must be evidenced by an officers' certificate
delivered to the Trustee, in the case of the Servicer, the Servicer, in the
case of the Special Servicer, and the Depositor, in the case of the Trustee
or the Fiscal Agent, setting forth such judgment or determination of
nonrecoverability
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and the considerations of the Servicer, the Special Servicer, the Trustee or
the Fiscal Agent, as applicable, forming the basis of such determination
(including but not limited to information selected by the person making such
determination in its good faith discretion such as related income and expense
statements, rent rolls, occupancy status, property inspections, inquiries by
the Servicer, the Special Servicer, the Trustee or the Fiscal Agent, as
applicable, and an independent appraisal performed in accordance with MAI
standards conducted within the past twelve months on the applicable Mortgaged
Property).
ACCOUNTS
Lock Box Accounts. With respect to 21 Mortgage Loans, which represent in
the aggregate 57.1% of the Initial Pool Balance, one or more accounts in the
name of the related Borrower (the "Lock Box Accounts") have been established
into which rents or other revenues from the related Mortgaged Properties are
deposited by the related tenants or manager. Any Lock Box which does not
require the related borrower to instruct tenants to deposit rents directly
into such account is indicated on Annex A as having a "mod." (i.e., modified)
Lock Box. Agreements governing the Lock Box Accounts provide that the
borrower has no withdrawal or transfer rights with respect thereto and that
all funds on deposit in the Lock Box Accounts are periodically swept into the
Cash Collateral Accounts (as defined below). Additionally, the Mortgage Loans
that have Anticipated Repayment Dates require that a Lock Box Account be
established prior to their respective Anticipated Repayment Dates. The Lock
Box Accounts will not be an asset of the Trust REMICs.
Cash Collateral Accounts. With respect to each Mortgage Loan that has a
Lock Box Account, one or more accounts in the name of the Servicer (the "Cash
Collateral Accounts") have been established into which funds in the related
Lock Box Accounts will be swept on a regular basis. The Reserve Accounts will
be sub-accounts of the Cash Collateral Accounts. Any excess over the amount
necessary to fund the Monthly Payment, the Reserve Accounts and any other
amounts due under the Mortgage Loans will be returned to or retained by the
related borrower provided no event of default of which the Servicer is aware
of has occurred and is continuing with respect to such Mortgage Loan.
However, as described under "Description of the Mortgage Pool --Certain Terms
and Conditions of the Mortgage Loans --Excess Interest," after the respective
Anticipated Repayment Date, if applicable, all amounts in the related Cash
Collateral Account in excess of the amount necessary to fund the Monthly
Payment and Reserve Accounts will be applied to (i) operating and capital
expenses, (ii) the reduction of the principal balance of the related Mortgage
Loan until such principal is paid in full and (iii) Excess Interest, in that
order. The Cash Collateral Accounts will not be an asset of the Trust REMICs.
Collection Account. The Servicer will, on each Due Date withdraw from each
Cash Collateral Account an amount equal to the Monthly Payment on the related
Mortgage Loan and deposit such amount into a segregated account (the
"Collection Account") established pursuant to the Pooling and Servicing
Agreement for application towards the Monthly Payment (including servicing
fees) due on the related Mortgage Loan. The Servicer shall also deposit into
the Collection Account within one business day of receipt all other payments
in respect of the Mortgage Loans.
Distribution Accounts. The Trustee will establish and maintain one or more
segregated accounts (the "Distribution Account") in the name of the Trustee
for the benefit of the holders of Certificates. With respect to each
Distribution Date, the Servicer will deposit in the Distribution Account, to
the extent of funds on deposit in the Collection Account, on the Servicer
Remittance Date an aggregate amount of immediately available funds equal to
the sum of (i) the Available Funds and (ii) the portion of the Servicing
Compensation representing the Trustee's Fee. The Servicer will deposit all
P&I Advances into the Distribution Account on the related Servicer Remittance
Date. To the extent the Servicer fails to do so, the Trustee or the Fiscal
Agent will deposit all P&I Advances into the Distribution Account as
described herein. See "Description of the Offered Certificates
- --Distributions" herein.
Interest Reserve Account. The Trustee will establish and maintain an
Interest Reserve Account ("Interest Reserve Account") in the name of the
Trustee for the benefit of the holders of the Certificates. On each Servicer
Remittance Date occurring in January and on any Servicer Remittance Date
occurring in any December which occurs in a year immediately preceding a year
which is not a leap year, the Servicer will be required to deposit, in
respect of the Mortgage Loans that provide for interest based on a 360-day
year and the actual number of days elapsed and which have Mortgage Rates less
than %, into the Interest Reserve Account, an amount equal to one day's
interest collected on the Stated Principal Balance of such Mortgage Loans as
of the Due Date occurring in the month preceding the month in which such
Servicer Remittance Date occurs at the related Mortgage Rate, to the extent a
full Monthly Payment or P&I Advance is made in
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respect thereof (all amounts so deposited in any consecutive January and
February, "Withheld Amounts"). On each Servicer Remittance Date occurring in
March, the Servicer will be required to withdraw from the Interest Reserve
Account an amount equal to the Withheld Amounts from the preceding January
and December, if any, and deposit such amount into the Distribution Account.
The Trustee will also establish and maintain one or more segregated
accounts for each of the "Upper-Tier Distribution Account", the "Default
Interest Distribution Account" and the "Excess Interest Distribution
Account", each in the name of the Trustee for the benefit of the holders of
the Certificates.
The Cash Collateral Accounts, Collection Account, the Distribution
Account, the Upper-Tier Distribution Account, the Interest Reserve Account,
the Excess Interest Distribution Account and the Default Interest
Distribution Account will be held in the name of the Trustee (or the Servicer
on behalf of the Trustee) on behalf of the holders of Certificates and the
Servicer will be authorized to make withdrawals from the Cash Collateral
Accounts and the Collection Account. Each of the Cash Collateral Account,
Collection Account, the Distribution Account, the Upper-Tier Distribution
Account, the Interest Reserve Account, the Excess Interest Distribution
Account and the Default Interest Distribution Account will be either (i) (A)
an account maintained with either a federal or state chartered depository
institution or trust company the long term unsecured debt obligations or
commercial paper of which are rated by each of the Rating Agencies in its
highest rating category at all times (or in the case of the REO Account,
Collection Account, Interest Reserve Account and Escrow Account, the long
term unsecured debt obligations of which are rated at least "AA" by Fitch and
DCR and "Aa2" by Moody's) or (B) as to which the Trustee has received written
confirmation from each of the Rating Agencies that holding funds in such
account would not cause any Rating Agency to requalify, withdraw or downgrade
any of its ratings on the Certificates, or (ii) a segregated trust account or
accounts maintained with a federal or state chartered depository institution
or trust company acting in its fiduciary capacity (an "Eligible Bank")
Amounts on deposit in the Collection Account, Cash Collateral Account, any
REO Account and the Interest Reserve Account may be invested in certain
United States government securities and other high-quality investments
specified in the Pooling and Servicing Agreement ("Permitted Investments").
Interest or other income earned on funds in the Collection Account and Cash
Collateral Accounts will be paid to the Servicer (except to the extent
required to be paid to the related borrower) as additional servicing
compensation and interest or other income earned on funds in any REO Account
will be payable to the Special Servicer. Interest or other income earned on
funds in the Interest Reserve Account will be paid to the Underwriter as
compensation for arranging for on-going monitoring and surveillance of the
Offered Certificates by the Rating Agencies.
WITHDRAWALS FROM THE COLLECTION ACCOUNT
The Servicer may make withdrawals from the Collection Account for the
following purposes, to the extent permitted and in the priorities provided in
the Pooling and Servicing Agreement: (i) to remit on or before each Servicer
Remittance Date (A) to the Distribution Account an amount equal to the sum of
(I) Available Funds and any Prepayment Premiums and (II) the Trustee Fee for
such Distribution Date, (B) to the Default Interest Distribution Account an
amount equal to the Net Default Interest received in the related Collection
Period, (C) to the Excess Interest Distribution Account an amount equal to
the Excess Interest received in the related Collection Period, if any, and
(D) to the Interest Reserve Account an amount required to be withheld as
described under " --Accounts --Interest Reserve Account"; (ii) to pay or
reimburse the Servicer, the Special Servicer, the Trustee, the Fiscal Agent
or the holders of the most subordinate Class of Certificates, as applicable,
for Advances made by any of them and, if applicable, interest on Advances
(provided, that the Trustee and Fiscal Agent will have priority with respect
to such payment or reimbursement), the Servicer and the most subordinate
Certificateholder's right to reimbursement for items described in this clause
(ii) being limited as described herein under " --Advances"; (iii) to pay on
or before each Servicer Remittance Date to the Servicer and the Special
Servicer as compensation, the aggregate unpaid Servicing Compensation (not
including the portion of the Servicing Fee representing the Trustee's Fee) in
respect of the immediately preceding calendar month; (iv) to pay on or before
each Distribution Date to the Depositor, Mortgage Loan Seller or other
Originator with respect to each Mortgage Loan or REO Property that has
previously been purchased or repurchased by it pursuant to the Pooling and
Servicing Agreement, all amounts received thereon during the related
Collection Period and subsequent to the date as of which the amount required
to effect such purchase or repurchase was determined; (v) to the extent not
reimbursed or paid pursuant to any of the above clauses, to reimburse or pay
the Servicer, the Special Servicer, the Trustee, the Fiscal Agent and/or the
Depositor for unpaid Servicing Compensation (in the case of the Servicer, the
Special Servicer or the Trustee) and certain other unreimbursed expenses
incurred by such person pursuant to and to the extent reimbursable under the
Pooling and Servicing Agreement and to satisfy any indemnification
obligations of the Trust Fund under the Pooling and Servicing Agreement; (vi)
to pay to the Trustee amounts requested by it to pay taxes on certain net
income with respect to REO
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Properties; (vii) to withdraw any amount deposited into the Collection
Account that was not required to be deposited therein; and (viii) to clear
and terminate the Collection Account pursuant to a plan for termination and
liquidation of the Trust Fund.
ENFORCEMENT OF "DUE-ON-SALE" AND "DUE-ON-ENCUMBRANCE" CLAUSES
The Servicer or Special Servicer, as applicable, will be obligated to
exercise the Trustee's rights under the "due-on-sale" or "due-on-encumbrance"
clause in the related Mortgage to accelerate the maturity of the related
Mortgage Loan, unless prohibited by law from doing so. A "due-on-sale" or
"due-on-encumbrance" clause may, under certain circumstances, be
unenforceable against a borrower which is a debtor in a case under the
Bankruptcy Code.
If applicable law prohibits the enforcement of a "due-on-sale" clause or
if the Servicer or Special Servicer, acting in accordance with the servicing
standard, determines that such enforcement would not be in the best interests
of the Trust Fund, and, as a consequence, a Mortgage Loan is assumed, the
original mortgagor may be released from liability for the unpaid principal
balance of the related Mortgage Loan and interest thereon at the applicable
Mortgage Rate during the remaining term of such Mortgage Loan and the
Servicer or Special Servicer, as applicable, may accept payments in respect
of the Mortgage Loan from the new owner of the Mortgaged Property and the
Servicer or Special Servicer, as applicable, may enter into an assumption
agreement with a new purchaser whereby the new owner of the Mortgaged
Property will be substituted as the mortgagor and the original mortgagor
released so long as (i) the credit status of the prospective new borrower is
in compliance with the underwriting requirements customarily imposed by the
Servicer and the terms of the related Mortgage Loan, and (ii) each Rating
Agency has confirmed in writing that such substitution will not, in and of
itself, cause a qualification, withdrawal or downgrading of the then-current
ratings assigned to the Certificates. In the event a Mortgage Loan is assumed
or encumbered as described in the preceding sentences, none of the Trustee,
the Servicer or Special Servicer shall permit any modification of such
Mortgage Loan other than as described above under " --Servicing of the
Mortgage Loans; Collection of Payments." The Servicer or Special Servicer, as
applicable, shall be entitled to retain as additional servicing compensation
assumption fees paid by the original mortgagor or the new owner in connection
with such assumption. See "Certain Legal Aspects of the Mortgage Loans
- --Due-on-Sale and Due-on-Encumbrance" in the Prospectus.
INSPECTIONS
The Special Servicer is required to inspect each Mortgaged Property at
such times and in such manner as are consistent with the servicing standards
described herein, (or if the Special Servicer fails to make the required
inspection, the Servicer will make such inspection) but in any event (i) is
required to inspect each Mortgaged Property securing a Note, with a Stated
Principal Balance (or in the case of a Note secured by more than one
Mortgaged Property, having an Allocated Loan Amount) of (a) $2,000,000 or
more at least once every twelve months and (b) less than $2,000,000 at least
once every 24 months, in each case commencing in October 1996 (or at such
lesser frequency, provided each Rating Agency has confirmed in writing to the
Servicer that such schedule will not result in the withdrawal, downgrading or
qualification of the then-current ratings assigned to the Certificates) and
(ii) if the Mortgage Loan (a) becomes a "Specially Serviced Mortgage Loan,"
(b) is delinquent for 60 days or (c) has a debt service coverage ratio of
less than 1.0, the Special Servicer is required to inspect the related
Mortgaged Properties as soon as practicable and thereafter at least every
twelve months.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement requires the Servicer to cause a
nationally recognized firm of independent public accountants, which is a
member of the American Institute of Certified Public Accountants, to furnish
to the Trustee on or before April 15 of each year, beginning April 15, 1997,
a statement to the effect that such firm has examined certain documents and
records relating to the servicing of similar mortgage loans for the preceding
twelve months and that their examination, conducted substantially in
compliance with generally accepted auditing standards and the Uniform Single
Attestation Program for Mortgage Bankers or the Audit Program for Mortgages
serviced for FHLMC, disclosed no exceptions or errors in records relating to
the servicing of similar mortgage loans in accordance with the terms of the
Pooling and Servicing Agreement that in their opinion are material, except
for such exceptions as are set forth in their statement.
The Pooling and Servicing Agreement also requires the Servicer to deliver
to the Trustee, on or before April 15 of each year, beginning April 15, 1997,
an officer's certificate of the Servicer stating that, to the best of such
officer's
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knowledge, the Servicer has fulfilled its obligations under the Pooling and
Servicing Agreement throughout the preceding year or, if there has been a
default, specifying each default known to such officer.
CERTAIN MATTERS REGARDING THE DEPOSITOR, THE SERVICER AND THE SPECIAL
SERVICER
The Servicer may assign its rights and delegate its duties and obligations
under the Pooling and Servicing Agreement in connection with the sale or
transfer of a substantial portion of its mortgage servicing or asset
management portfolio, provided that certain conditions are satisfied
including obtaining the consent of the Trustee and written confirmation of
each Rating Agencies that such assignment or delegation will not cause a
qualification, withdrawal or downgrading of the then-current ratings assigned
to the Certificates. The Pooling and Servicing Agreement provides that the
Servicer may not otherwise resign from its obligations and duties as Servicer
thereunder, except upon the determination that performance of its duties is
no longer permissible under applicable law and provided that such
determination is evidenced by an opinion of counsel delivered to the Trustee.
The holders of Certificates evidencing aggregate Voting Rights of at least
51% may remove the Servicer upon the occurrence of an Event of Default under
the Pooling and Servicing Agreement and upon written notice to the Servicer,
the Depositor and the Trustee; provided that each Rating Agency has provided
written confirmation that such removal will not cause a qualification,
withdrawal or downgrading of the ratings assigned to the Certificates; and
provided, further, that the Servicer will be entitled to payment of its
portion of unpaid Servicing Fees, unreimbursed Advances (with interest
thereon) and other amounts to which the Servicer is entitled, in each case
which accrued prior to its termination. No such resignation or removal may
become effective until a successor Servicer has assumed the obligations of
the Servicer under the Pooling and Servicing Agreement. The Trustee or any
other successor Servicer assuming the obligations of the Servicer under the
Pooling and Servicing Agreement will be entitled to the compensation to which
the Servicer would have been entitled. If no successor Servicer can be
obtained to perform such obligations for such compensation, additional
amounts payable to such successor Servicer will be treated as Realized
Losses.
The Pooling and Servicing Agreement also provides that neither the
Depositor, the Servicer, the Special Servicer, nor any director, officer,
employee or agent of the Depositor, the Servicer or the Special Servicer will
be under any liability to the Trust Fund or the holders of Certificates 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 neither the Depositor, the Servicer, the
Special Servicer nor any such person will be protected against any liability
which would otherwise be imposed by reason of willful misfeasance, bad faith,
fraud or gross negligence (or in the case of the Servicer, by reason of any
specific liability imposed for a breach of the servicing standard set for in
the Pooling and Servicing Agreement) in the performance of duties thereunder
or by reason of reckless disregard of obligations and duties thereunder. The
Pooling and Servicing Agreement further provides that the Depositor, the
Servicer, the Special Servicer and any director, officer, employee or agent
of the Depositor, the Servicer and the Special Servicer will be entitled to
indemnification by the Trust Fund for any loss, liability or expense incurred
in connection with any legal action relating to the Pooling and Servicing
Agreement or the Certificates, other than any loss, liability or expense
incurred by reason of willful misfeasance, bad faith, fraud or negligence (or
in the case of the Servicer, by reason of any specific liability imposed for
a breach of the servicing standard set forth in the Pooling and Servicing
Agreement) in the performance of duties thereunder or by reason of reckless
disregard of obligations and duties thereunder.
In addition, the Pooling and Servicing Agreement provides that neither the
Depositor, the Servicer, nor the Special Servicer will be under any
obligation to appear in, prosecute or defend any legal action unless such
action is related to its duties under the Pooling and Servicing Agreement and
which in its opinion does not expose it to any expense or liability. The
Depositor, the Servicer or the Special Servicer may, however, in its
discretion undertake any such action which it may deem necessary or desirable
with respect to the Pooling and Servicing Agreement and the rights and duties
of the parties thereto and the interests of the holders of Certificates
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 Trust Fund, and the Depositor, the Servicer and the Special Servicer will
be entitled to be reimbursed therefor and to charge the Collection Account.
The Depositor is not obligated to monitor or supervise the performance of
the Servicer, the Special Servicer or the Trustee under the Pooling and
Servicing Agreement. The Depositor may, but is not obligated to, enforce the
obligations of the Servicer or the Special Servicer under the Pooling and
Servicing Agreement and may, but is not obligated to, perform or cause a
designee to perform any defaulted obligation of the Servicer or the Special
Servicer or exercise any
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right of the Servicer or the Special Servicer under the Pooling and Servicing
Agreement. In the event the Depositor undertakes any such action, it will be
reimbursed by the Trust Fund in accordance with the standard set forth above.
Any such action by the Depositor will not relieve the Servicer or the Special
Servicer of its obligations under the Pooling and Servicing Agreement.
Any person into which the Servicer may be merged or consolidated, or any
person resulting from any merger or consolidation to which the Servicer is a
party, or any person succeeding to the business of the Servicer, will be the
successor of the Servicer under the Pooling and Servicing Agreement, and
shall be deemed to have assumed all of the liabilities and obligations of the
Servicer under the Pooling and Servicing Agreement.
EVENTS OF DEFAULT
Events of default of the Servicer (each, an "Event of Default") under the
Pooling and Servicing Agreement consist, among other things, of (i) any
failure by the Servicer to remit to the Collection Account or any failure by
the Servicer to remit to the Trustee for deposit into the Upper-Tier
Distribution Account, Distribution Account, Excess Interest Distribution
Account, Interest Reserve Account or Default Interest Distribution Account
any amount required to be so remitted pursuant to the Pooling and Servicing
Agreement; or (ii) any failure by the Servicer duly to observe or perform in
any material respect any of its other covenants or agreements or the breach
of its representations or warranties under the Pooling and Servicing
Agreement which continues unremedied for thirty (30) days after the giving of
written notice of such failure to the Servicer by the Depositor or the
Trustee, or to the Servicer and to the Depositor and the Trustee by the
holders of Certificates evidencing Percentage Interests of at least 25% of
any affected class; or (iii) any failure by the Servicer to make any Advances
as required pursuant to the Pooling and Servicing Agreement; or (iv)
confirmation in writing by any Rating Agency that not terminating the
Servicer would, in and of itself, cause the then-current rating assigned to
any Class of Certificates to be qualified, withdrawn or downgraded; or (v)
certain events of insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings and certain actions by, on behalf of or
against the Servicer indicating its insolvency or inability to pay its
obligations.
Events of Default of the Special Servicer under the Pooling and Servicing
Agreement include the items specified in clauses (i), (ii), (iii), (iv) and
(v) above with respect to, and to the extent applicable to, the Special
Servicer.
RIGHTS UPON EVENT OF DEFAULT
If an Event of Default with respect to the Servicer occurs, then the
Trustee may, and at the direction of the holders of Certificates evidencing
at least 25% of the aggregate Voting Rights of all Certificateholders, the
Trustee will, terminate all of the rights and obligations of the Servicer as
servicer under the Pooling and Servicing Agreement and in and to the Trust
Fund. Notwithstanding the foregoing, upon any termination of the Servicer
under the Pooling and Servicing Agreement the Servicer will continue to be
entitled to receive all accrued and unpaid servicing compensation through the
date of termination plus all Advances and interest thereon as provided in the
Pooling and Servicing Agreement. In the event that the Servicer is also the
Special Servicer and the Servicer is terminated, the Servicer will also be
terminated as Special Servicer.
On and after the date of termination following an Event of Default by the
Servicer, the Trustee will succeed to all authority and power of the Servicer
(and the Special Servicer if the Special Servicer is also the Servicer) under
the Pooling and Servicing Agreement and will be entitled to the compensation
arrangements to which the Servicer (and the Special Servicer if the Servicer
is also the Special Servicer) would have been entitled. If the Trustee is
unwilling or unable so to act, or if the holders of Certificates evidencing
at least 25% of the aggregate Voting Rights of all Certificateholders so
request, or if the long-term unsecured debt rating of the Trustee or the
Fiscal Agent is not at least "AA" or the equivalent thereof by each of the
Rating Agencies or if the Rating Agencies do not provide written confirmation
that the succession of the Trustee as Servicer, will not cause a
qualification, withdrawal or downgrading of the then-current ratings assigned
to the Certificates, the Trustee must appoint, or petition a court of
competent jurisdiction for the appointment of, a mortgage loan servicing
institution the appointment of which will not result in the downgrading,
qualification or withdrawal of the rating or ratings then assigned to any
Class of Certificates as evidenced in writing by each Rating Agency to act as
successor to the Servicer under the Pooling and Servicing Agreement. Pending
such appointment, the Trustee is obligated to act in such capacity. The
Trustee and any such successor may agree upon the servicing compensation to
be paid.
If the Special Servicer is not the Servicer and an Event of Default with
respect to the Special Servicer occurs, the Trustee will terminate the
Special Servicer and the Servicer will succeed to all the power and authority
of the Special
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Servicer under the Pooling and Servicing Agreement (provided that such
termination would not result in the downgrading, qualification or withdrawal
of the rating or ratings assigned to any Class of Certificates as evidenced
in writing by each Rating Agency) and will be entitled to the compensation to
which the Special Servicer would have been entitled.
No Certificateholder will have any right under the Pooling and Servicing
Agreement to institute any proceeding with respect to the Pooling and
Servicing Agreement or the Mortgage Loans, unless, with respect to the
Pooling and Servicing Agreement, such holder previously shall have given to
the Trustee a written notice of a default under the Pooling and Servicing
Agreement, and of the continuance thereof, and unless also the holders of
Certificates of any Class affected thereby evidencing Percentage Interests of
at least 25% of such Class shall have made written request of the Trustee to
institute such proceeding in its own name as Trustee under the Pooling and
Servicing Agreement and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby, and the Trustee, for 60 days after its receipt
of such notice, request and offer of indemnity, shall have neglected or
refused to institute such proceeding.
The Trustee will have no obligation to make any investigation of matters
arising under the Pooling and Servicing Agreement 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, unless such holders of
Certificates shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
AMENDMENT
The Pooling and Servicing Agreement may be amended at any time by the
Depositor, the Servicer, the Special Servicer, the Trustee and the Fiscal
Agent without the consent of any of the holders of Certificates (i) to cure
any ambiguity; (ii) to correct or supplement any provisions therein which may
be defective or inconsistent with any other provisions therein; (iii) to
amend any provision thereof to the extent necessary or desirable to maintain
the status of each of the Upper-Tier REMIC and Lower-Tier REMIC as a REMIC;
(iv) to amend or supplement a provision which will not adversely affect in
any material respect the interests of any Certificateholder not consenting
thereto, as evidenced in writing by an opinion of counsel or confirmation in
writing from each Rating Agency that such amendment will not result in a
qualification, withdrawal or downgrading of the then-current ratings assigned
to the Certificates; and (v) to amend or supplement any provisions therein to
the extent necessary or desirable to maintain the rating assigned to each of
the Classes of Certificates by each Rating Agency. No such amendment shall
cause either of the Upper-Tier REMIC or Lower-Tier REMIC to fail to qualify
as a REMIC or shall adversely affect in any material respect the interests of
any holder of the Certificates, and, if requested by the Servicer or the
Trustee, as evidenced by an opinion of counsel.
The Pooling and Servicing Agreement may also be amended from time to time
by the Depositor, the Servicer, the Special Servicer, the Trustee and the
Fiscal Agent with the consent of the holders of Certificates evidencing at
least 66 2/3% of the Percentage Interests of each Class of Certificates
affected thereby for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the Pooling and Servicing
Agreement or modifying in any manner the rights of the holders of
Certificates; provided, however, that no such amendment may (i) reduce in any
manner the amount of, or delay the timing of, payments received on the
Mortgage Loans which are required to be distributed on any Certificate
without the consent of each holder of such Certificate; (ii) alter the
obligations of the Servicer, the Special Servicer, the Trustee or the Fiscal
Agent to make a P&I Advance or Property Advance or alter the servicing
standards set forth in the Pooling and Servicing Agreement; (iii) change the
percentages of Voting Rights of holders of Certificates which are required to
consent to any action or inaction under the Pooling and Servicing Agreement;
or (iv) amend the section in the Pooling and Servicing Agreement relating to
the amendment of the Pooling and Servicing Agreement, in each without the
consent of the holders of all Certificates representing all the Percentage
Interests of the Class or Classes affected thereby.
VOTING RIGHTS
The "Voting Rights" assigned to each Class shall be (a) 0% in the case of
the Class V-1, Class V-2, Class R and Class LR Certificates, (b) 1% in the
case of the Class A-CS1 Certificates and 7% in the case of the Class A-CS2
Certificates (the sum of such percentages for each such Class outstanding is
the "Fixed Voting Rights Percentage"), (c) in the case of the Class A-1A,
Class A-1B, Class A-1C, Class A-1D, Class A-2, Class A-3, Class A-4, Class
A-5, Class B-1, Class B-2, Class B-3, Class B-4 and Class B-4H Certificates,
a percentage equal to the product of (i) 100% minus the Fixed Voting Rights
Percentage multiplied by (ii) a fraction, the numerator of which is equal to
the aggregate outstanding Certificate Balance
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of any such Class and the denominator of which is equal to the aggregate
outstanding Certificate Balances of all Classes of Certificates. The Coupon
Strip Certificates will not be entitled to vote with respect to proposed
extensions of a Specially Serviced Mortgage Loan. The Voting Rights of any
Class of Certificates shall be allocated among holders of Certificates of
such Class in proportion to their respective Percentage Interests, except
that any Certificate beneficially owned by the Depositor, the Servicer, the
Special Servicer, any mortgagor, the Trustee, a manager, or any of their
respective affiliates will be deemed not to be outstanding; provided,
however, that for purposes of obtaining the consent of Certificateholders to
an amendment to the Pooling and Servicing Agreement, any Certificates
beneficially owned by the Servicer or Special Servicer or an affiliate
thereof will be deemed to be outstanding, provided that such amendment does
not relate to compensation of the Servicer, Special Servicer or otherwise
benefit such entity or an affiliate; and, provided, further, that for
purposes of obtaining the consent of Certificateholders to any action
proposed to be taken by the Special Servicer with respect to a Specially
Serviced Mortgage Loan, any Certificates beneficially owned by the Servicer
or an affiliate will be deemed to be outstanding if the Special Servicer is
not the Servicer or any affiliate. The Certificates beneficially owned by the
Special Servicer or an affiliate thereof shall be deemed outstanding for
purposes of determining who the Directing Holders (as defined below) are and
for purposes of issuing Instructions (as defined below).
REALIZATION UPON MORTGAGE LOANS
Specially Serviced Mortgage Loans; Appraisals;
Extensions. Contemporaneously with the earliest of (i) the effective date of
any modification of the stated maturity, Mortgage Rate, principal balance or
amortization terms of any Mortgage Loan, any extension of the Maturity Date
of a Mortgage Loan or consent to the release of any Mortgaged Property from
the lien of the related Mortgage, (ii) 90 days after the occurrence of any
uncured payment delinquency, (iii) the date 90 days after a receiver is
appointed in respect of a Mortgaged Property, (iv) immediately after a
borrower declares bankruptcy, (v) the date a Mortgaged Property becomes an
REO Property, or (vi) upon a default in the payment of a Balloon Payment, the
Servicer will obtain an appraisal (or a letter update from an existing
appraisal which is less than three years old) of the Mortgaged Property or
REO Property, as the case may be, from an independent appraiser who is a
member of the American Institute of Real Estate Appraisers (an "Updated
Appraisal") provided, that, the Servicer will not be required to obtain an
Updated Appraisal of any Mortgaged Property with respect to which there
exists an appraisal which is less than twelve months old.
Following a default on a Balloon Payment, the Special Servicer may either
foreclose or elect to grant a one-year extension of the Specially Serviced
Mortgage Loan; provided that the Special Servicer may only extend such
Mortgage Loan if (i) immediately prior to the default on the Balloon Payment
the related borrower had made twelve consecutive Monthly Payments on or prior
to their Due Dates, (ii) the Special Servicer determines in its reasonable
judgment that such borrower has attempted in good faith to refinance such
Mortgaged Loan or Mortgaged Property, (iii) the Special Servicer determines
that (A) extension of such Mortgage Loan is consistent with the servicing
standard set forth herein and (B) extension of such Mortgage Loan is likely
to result in a recovery which on a net present value basis would be greater
than the recovery that would result from a foreclosure, (iv) such extension
requires that all cash flow on all related Mortgage Properties in excess of
amounts required to operate and maintain such Mortgaged Properties be applied
to payments of principal and interest on such Mortgage Loan and (v) the
Special Servicer terminates the related Manager unless the Special Servicer
determines that retaining such Manager is conducive to maintaining the value
of such Mortgaged Properties; provided, further, that, if, after notice to
all Certificateholders, holders of Certificates evidencing at least 66 2/3%
of the Voting Rights of each Class of Certificates entitled to vote direct
the Special Servicer not to extend, the Special Servicer will not extend;
provided, further, that, if the Special Servicer is not the Servicer and the
Servicer would not elect to extend, holders of Certificates evidencing
greater than (a) 50% of the aggregate Voting Rights of all Certificateholders
entitled to vote and (b) 66 2/3% of the aggregate Voting Rights of all
Certificateholders entitled to vote who respond to such notice, may direct
the Special Servicer not to extend. Notwithstanding the foregoing, the
Special Servicer may extend pursuant to the Instructions of the Directing
Holders (as described and defined below). The holders of the Class A-CS1 and
Class A-CS2 Certificates will not be entitled to vote with respect to
proposed extensions of a Specially Serviced Mortgage Loan.
The Special Servicer may, after presenting a proposal to and consulting
with the Servicer (if the Special Servicer is not the Servicer), and taking
into account the LTV of a Specially Serviced Mortgage Loan as indicated in
the Updated Appraisal, grant subsequent one-year extensions of such Specially
Serviced Mortgage Loan if (i) the related borrower has made twelve
consecutive monthly payments in an amount equal to or greater than the
Minimum Defaulted Monthly Payments and (ii) the requirements set forth in
clauses (ii) --(iv) of the preceding paragraph are satisfied; provided,
however, that, if, after notice to all Certificateholders, holders of
Certificates evidencing at least 66 2/3% of the aggregate
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Percentage Interests of each Class of Certificates direct the Special
Servicer not to extend, the Special Servicer will not extend; provided,
further, that, if the Special Servicer is not the Servicer and the Servicer
would not elect to extend, holders of Certificates evidencing greater than
(a) 50% of the aggregate Voting Rights of all Certificateholders and (b)
66 2/3% of the aggregate Voting Rights of all Cerificateholders who respond to
such notice, may direct the Special Servicer not to extend. Notwithstanding
the foregoing, the Special Servicer may extend pursuant to the Instructions
of the Directing Holders. The Special Servicer will not agree to any
extension of a Mortgage Loan beyond the date which is two years prior to the
Rated Final Distribution Date. If such borrower fails to make a Minimum
Defaulted Monthly Payment during an extension period, no further extensions
will be granted (provided, however, that the Special Servicer may grant such
extension if the borrower has been delinquent on no more than one such
Minimum Defaulted Monthly Payment within a 24-month period and the
requirements set forth in clauses (ii) through (iv) of the preceding
paragraph are satisfied) and the Servicer will make only one P&I Advance for
the benefit of the most subordinate Class of Certificates then outstanding,
provided, however, that for purposes of determining the most subordinate
class, (i) the Class A-1A, Class A-1B, Class A-1C, Class A-CS1 and Class
A-CS2 Certificates collectively will, and (ii) the Class B-4 and Class B-4H
Certificates together will, in each case, be treated as one class. In either
case, the Servicer shall make P&I Advances for the benefit of other Classes
of Certificates in accordance with the recoverability standard. See "
- --Advances."
Any extension pursuant to the two preceding paragraphs will require
monthly payments in an amount equal to or greater than the Minimum Defaulted
Monthly Payment.
The "Minimum Defaulted Monthly Payment" with respect to any extension of a
Mortgage Loan that is delinquent in respect of its Balloon Payment, is equal
to (a) the principal portion of the Monthly Payment that would have been due
on such Mortgage Loan on the related Due Date based on the original
amortization schedule thereof (or, if there is no amortization schedule, the
principal portion of the constant Monthly Payment that would have been due),
assuming such Balloon Payment had not become due, after giving effect to any
modification, and (b) interest at the applicable Default Rate; provided,
however, that the Special Servicer may agree that the Minimum Defaulted
Monthly Payments may include interest at a rate lower than the related
Default Rate (but in no event lower than the related Mortgage Rate) (the
"Lower Rate") provided that if, after notice to all Certificateholders,
holders of Certificates evidencing at least 66 2/3% of the Voting Rights of
each Class direct (or, in the event that the Special Servicer is not the
Servicer and the Servicer would not agree to the Lower Rate,
Certificateholders representing greater than (a) 50% of the aggregate Voting
Rights of all Certificateholders and (b) 66 2/3% of the aggregate Voting
Rights of all Certificateholders who respond to such notice) the Special
Servicer not to agree to permit payments to include interest at the Lower
Rate, the Special Servicer shall not agree to payments with interest at the
Lower Rate; provided, further, that if the Minimum Defaulted Monthly Payment
is to include interest at the Lower Rate, the Special Servicer may agree that
interest on such Mortgage Loan accrues at the Lower Rate; and provided that
if, after notice to all Certificateholders, holders of Certificates
evidencing at least 66 2/3% of the Voting Rights of each Class direct the
Special Servicer that such Mortgage Loan shall accrue interest at the related
Default Rate, then such Mortgage Loan will continue to accrue interest at the
Default Rate thereof and the excess of interest accrued on such Mortgage Loan
over the amount included in the Minimum Defaulted Monthly Payments (i.e.,
interest at the Lower Rate) will be added to the outstanding principal
balance of such Mortgage Loan. Notwithstanding the foregoing, if the
Directing Holders have given Instructions to the Special Servicer to extend,
the Special Servicer will be required to follow the Directing Holders'
Instructions with respect to interest so long as the Minimum Defaulted
Monthly Payment is at least equal to the Lower Rate.
The Special Servicer will only be permitted to extend pursuant to the
preceding paragraphs or pursuant to instructions from Directing Holders.
Under certain circumstances the Special Servicer may modify the terms of
Specially Serviced Mortgage Loans as described below under "
- --Modifications."
Foreclosure Proceedings; Action of Directing Holders. The Special Servicer
may be given revocable instructions ("Instructions") to extend a Specially
Serviced Mortgage Loan serviced by it that has defaulted on the Balloon
Payment (which extension will be restricted to the actions that the Special
Servicer could have otherwise taken with respect to such Mortgage Loan except
that (a) the actions of the Directing Holders will not be subject to the
rejection of the holders of the Certificates and (b) the related borrower
will not have had to make twelve consecutive Monthly Payments on or prior to
their Due Dates) by the holders of a majority in Percentage Interest of the
most subordinate Class of Certificates then outstanding (determined as
provided below) having an aggregate initial Certificate Balance representing
a minimum of 2.5% of the aggregate initial Certificate Balances of all
Classes of Certificates (or if the Certificate Balance of such Class
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or Classes has been reduced to less than 40% of the initial Certificate
Balances thereof, the holders of such Class or Classes together with the
holders of the next most subordinate Class) (the "Directing Holders") under
the following circumstance: if the Special Servicer has determined to
commence foreclosure or acquisition proceedings, the Special Servicer will
notify the Trustee (who will, in turn, notify the Directing Holders), the
Servicer and the Depositor of its proposed action. If the Special Servicer
receives contrary Instructions within seven days from the Directing Holders,
the Special Servicer will delay such proceedings, and the procedures
described below shall apply to the servicing of such Mortgage Loan. In the
event that the Special Servicer does not receive such Instructions within
such seven-day period, the Special Servicer may proceed with the foreclosure
or acquisition. If the Directing Holders revoke their Instructions to extend
the Mortgage Loan, the Special Servicer will service the Mortgage Loan
without regard to such original Instructions; provided, however, that the
Directing Holders will be required to maintain the Collateral Account (as
described below) unless and until the Mortgage Loan is no longer a Specially
Serviced Mortgage Loan for nine consecutive months or has been liquidated.
For purposes of determining the Directing Holders with respect to any
Mortgage Loan, the Class A-1A, Class A-1B, Class A-1C, Class A-CS1 and Class
A-CS2 Certificates collectively, and the Class B-4 and Class B-4H
Certificates together, will, in each case, be treated as one class.
Deposits by Directing Holders. If the Special Servicer receives
Instructions and has not otherwise been required to obtain an Updated
Appraisal as described above, the Servicer will obtain an Updated Appraisal
as soon as reasonably practicable to determine the fair market value of each
related Mortgaged Property, after accounting for the estimated liquidation
and carrying costs (the "Fair Market Value" of such Mortgaged Property).
Within two Business Days after the Special Servicer's receipt of
Instructions, the Directing Holders are required to deposit (in proportion to
their respective Percentage Interests) into a segregated account (the
"Collateral Account") established and maintained by the Special Servicer (or
if the Special Servicer is a Directing Holder, the Servicer) an amount equal
to the lesser of (a) 125% of the Fair Market Value of the related Mortgaged
Property and (b) the outstanding principal balance of the Mortgage Loan plus
unreimbursed Advances (with interest thereon) and unpaid accrued interest
(the "Deposit"). If no Updated Appraisal has yet been obtained, the amount of
the Deposit will be determined based on the Special Servicer's (or if the
Special Servicer is a Directing Holder, the Servicer's) estimate of the Fair
Market Value of the Mortgaged Property, in which case, upon the Special
Servicer's receipt of such Updated Appraisal, the Special Servicer (or if the
Special Servicer is a Directing Holder, the Servicer) will remit any excess
deposit to the Directing Holders, or the Directing Holders will deposit in
the Collateral Account any shortfall, as the case may be. In the event that
the Directing Holders do not make the required deposit within two business
days of the Special Servicer's receipt of Instructions, the Special Servicer
will disregard such Instructions. The Directing Holders will be deemed to
have granted to the Special Servicer (or the Servicer, if applicable) for the
benefit of Certificateholders a first priority security interest in the
Collateral Account, as security for the obligations of the Directing Holders.
If the Special Servicer is acting pursuant to Instructions, the Special
Servicer or the Servicer, as applicable, shall withdraw from the Collateral
Account and remit to the Servicer for deposit into the Collection Account on
or prior to the Business Day preceding each Servicer Remittance Date a sum
equal to the P&I Advances and Property Advances for the related Mortgage Loan
which in the absence of Instructions would be made by the Servicer (and the
obligation to make such advances shall not be subject to a non-recoverability
standard) and the Directing Holders shall, upon request therefor by the
Special Servicer (or if the Special Servicer is a Directing Holder, the
Servicer), deposit from their own funds into the Collateral Account the
amount of such P&I Advances or Property Advances. If the Directing Holders
fail to make such Deposit within one Business Day after receipt of the
Special Servicer's or Servicer's, as applicable, request, the Special
Servicer will no longer be required to follow such Instructions and will
specially service such Mortgage Loan as though no Instructions had been
given; provided, however, that the Directing Holders will be required to
maintain the Collateral Account unless and until the related Mortgage Loan is
no longer a Specially Serviced Mortgage Loan for nine consecutive months or
has been liquidated. The Special Servicer or Servicer, as applicable, will
invest amounts on deposit in the Collateral Account in Permitted Investments
upon direction by the Directing Holders. Directing Holders will be entitled
to reinvestment income as received, and will reimburse the Collateral Account
for any losses incurred.
Settlement. If the Specially Serviced Mortgage Loan or Mortgaged Property
is liquidated or disposed of, the Special Servicer or Servicer, as
applicable, will withdraw from the Collateral Account, and deposit into the
Collection Account as additional liquidation proceeds for distribution to
Certificateholders in accordance with the priorities described herein, the
lesser of (a) the amount by which 125% of the Fair Market Value (determined
at the time of the Deposit) exceeds the net sales proceeds, and (b) the
amount by which the outstanding principal balance of the related Mortgage
Loan plus unreimbursed Advances (with interest thereon) and unpaid accrued
interest exceeds the net sales proceeds.
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The Special Servicer or Servicer, as applicable, will deposit the amount
realized upon disposition of the Mortgage Loan or Mortgaged Property in the
Collection Account. If the Mortgage Loan has not been realized upon on or
before the third anniversary of the Instructions (or such earlier date so
that the Trust Fund owns the Mortgaged Property for no more than two years),
the Directing Holders will be required to purchase the Mortgage Loan for a
purchase price equal to the Fair Market Value (determined at the time of the
Deposit). Amounts on deposit in the Collateral Account will be applied toward
the purchase price.
If at any time following the establishment of a Collateral Account and
prior to the disposition of a Specially Serviced Mortgage Loan or Mortgaged
Property, the Mortgaged Property suffers a hazard loss that results in the
Mortgaged Property not being rebuilt and payments to the Trustee under the
related hazard insurance policy, the Special Servicer or Servicer, as
applicable, will pay all amounts on deposit in the Collateral Account to the
Directing Holders. In addition, after amounts required to be deposited in the
Collection Account have been withdrawn from the Collateral Account, as
described above, following foreclosure, liquidation, disposition, purchase by
Directing Holders or, if the related Mortgage Loan is no longer a Specially
Serviced Mortgage Loan for nine consecutive months, any related remaining
amounts in the Collateral Account will be released to the Directing Holders.
No Advances. Until the disposition of the Specially Serviced Mortgage Loan
or Mortgaged Property, as to which Directing Holders have provided
Instructions, or the cure of such default, no P&I Advances will be made in
respect of amounts distributable to the Class of the Directing Holders in
respect of such Mortgage Loan.
Standards for Conduct Generally in Effecting Foreclosure or the Sale of
Defaulted Loans. In connection with any foreclosure or other acquisition, the
cost and expenses of any such proceeding shall be paid by the Special
Servicer as a Property Advance.
If the Special Servicer elects to proceed with a non-judicial foreclosure
in accordance with the laws of the state where the Mortgaged Property is
located, the Special Servicer shall not be required to pursue a deficiency
judgment against the related Mortgagor, if available, or any other liable
party if the laws of the state do not permit such a deficiency judgment after
a non-judicial foreclosure or if the Special Servicer determines, in its best
judgment, that the likely recovery if a deficiency judgment is obtained will
not be sufficient to warrant the cost, time, expense and/or exposure of
pursuing the deficiency judgment and such determination is evidenced by an
officers' certificate delivered to the Trustee.
Notwithstanding any provision to the contrary, the Special Servicer shall
not, on behalf of the Trust Fund, obtain title to a Mortgaged Property as a
result of or in lieu of foreclosure or otherwise, and shall not otherwise
acquire possession of, or take any other action with respect to, any
Mortgaged Property if, as a result of any such action, the Trustee, for the
Trust Fund or the holders of Certificates, would be considered to hold title
to, to be a "mortgagee-in-possession" of, or to be an "owner" or "operator"
of, such Mortgaged Property within the meaning of CERCLA or any comparable
law, unless the Special Servicer has previously determined, based on an
environmental assessment report prepared by an independent person who
regularly conducts environmental audits, that: (i) such Mortgaged Property is
in compliance with applicable environmental laws or, if not, after
consultation with an environmental consultant that it would be in the best
economic interest of the Trust Fund to take such actions as are necessary to
bring such Mortgaged Property in compliance therewith and (ii) there are no
circumstances present at such Mortgaged Property relating to the use,
management or disposal of any hazardous materials for which investigation,
testing, monitoring, containment, clean-up or remediation could be required
under any currently effective federal, state or local law or regulation, or
that, if any such hazardous materials are present for which such action could
be required, after consultation with an environmental consultant it would be
in the best economic interest of the Trust Fund to take such actions with
respect to the affected Mortgaged Property.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of
sale shall be issued to the Trustee, or to its nominee, on behalf of holders
of Certificates. Notwithstanding any such acquisition of title and
cancellation of the related Mortgage Loan, such Mortgage Loan shall be
considered to be an REO Mortgage Loan held in the Trust Fund until such time
as the related REO Property shall be sold by the Trust Fund and shall be
reduced only by collections net of expenses.
If the Trust Fund acquires a Mortgaged Property by foreclosure or
deed-in-lieu of foreclosure upon a default of a Mortgage Loan, the Pooling
and Servicing Agreement provides that the Trustee (or the Special Servicer,
on behalf of the Trustee), must administer such Mortgaged Property so that it
qualifies at all times as "foreclosure property" within the meaning of Code
Section 860G(a)(8). The Pooling and Servicing Agreement also requires that
any such Mortgaged Property be managed and operated by an "independent
contractor," within the meaning of applicable Treasury
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regulations, who furnishes or renders services to the tenants of such
Mortgaged Property. Generally, the REMIC will not be taxable on income
received with respect to the Mortgaged Property to the extent that it
constitutes "rents from real property," within the meaning of Code Section
856(c)(3)(A) and Treasury regulations thereunder. "Rents from real property"
do not include the portion of any rental based on the net income or gain of
any tenant or sub-tenant. No determination has been made whether rent on any
of the Mortgaged Properties meets this requirement. "Rents from real
property" include charges for services customarily furnished or rendered in
connection with the rental of real property, whether or not the charges are
separately stated. Services furnished to the tenants of a particular building
will be considered as customary if, in the geographic market in which the
building is located, tenants in buildings which are of similar Class are
customarily provided with the service. No determination has been made whether
the services furnished to the tenants of the Mortgaged Properties are
"customary" within the meaning of applicable regulations. It is therefore
possible that a portion of the rental income with respect to a Mortgaged
Property owned by the Trust Fund, presumably allocated based on the value of
any non-qualifying services, would not constitute "rents from real property."
In addition to the foregoing, any net income from a trade or business
operated or managed by an independent contractor on a Mortgaged Property
owned by the REMIC, including but not limited to a hotel or skilled nursing
care business, will not constitute "rents from real property." Any of the
foregoing types of income may instead constitute "net income from foreclosure
property," which would be taxable to the REMIC at the highest marginal
federal corporate rate (currently 35%) and may also be subject to state or
local taxes. Any such taxes would be chargeable against the related income
for purposes of determining the Net REO Proceeds available for distribution
to holders of Certificates. See "Certain Federal Income Tax Consequences
- --Federal Income Tax Consequences for REMIC Certificates" and " --Taxes That
May Be Imposed on the REMIC Pool --Net Income from Foreclosure Property" in
the Prospectus.
The Special Servicer may offer to sell to any person any Defaulted
Mortgage Loan or any REO Property, or may offer to purchase any Specially
Serviced Mortgage Loan or any REO Property (in each case at the repurchase
price set forth in the Pooling and Servicing Agreement, which includes unpaid
principal and interest thereon), if and when the Special Servicer determines,
consistent with the servicing standard set forth in the Pooling and Servicing
Agreement, that no satisfactory arrangements can be made for collection of
delinquent payments thereon and such a sale would be in the best economic
interests of the Trust Fund, but shall, in any event, so offer to sell any
REO Property no later than the time determined by the Special Servicer to be
sufficient to result in the sale of such REO Property within the period
specified in the Pooling and Servicing Agreement, including extensions
thereof. The Special Servicer shall give the Trustee not less than ten days'
prior written notice of its intention to sell any Specially Serviced Mortgage
Loan or REO Property, in which case the Special Servicer shall accept the
highest offer received from any person for any Specially Serviced Mortgage
Loan or any REO Property in an amount at least equal to the Repurchase Price
or, at its option, if it has received no offer at least equal to the
Repurchase Price therefor, purchase the Specially Serviced Mortgage Loan or
REO Property at such Repurchase Price. In addition, holders of subordinate
Classes of Certificates may purchase Specially Serviced Mortgage Loans, or
may direct the Special Servicer to delay any foreclosure proceedings, subject
to certain limitations. See " --Realization on Mortgage Loans."
In the absence of any such offer (or purchase by the Special Servicer),
the Special Servicer shall accept the highest offer received from any person
that is determined by the Special Servicer to be a fair price for such
Specially Serviced Mortgage Loan or REO Property, if the highest offeror is a
person not affiliated with the Special Servicer, or is determined to be a
fair price by the Servicer (or by the Trustee after consultation with an
independent appraiser if the Servicer is an offeror), if the highest offeror
is affiliated with the Special Servicer. Notwithstanding anything to the
contrary herein, neither the Trustee, in its individual capacity, nor any of
its affiliates may make an offer for or purchase any Specially Serviced
Mortgage Loan or any REO Property.
The Special Servicer shall not be obligated by either of the foregoing
paragraphs or otherwise to accept the highest offer if the Special Servicer
determines, in accordance with the servicing standard stated in the Pooling
and Servicing Agreement, that rejection of such offer would be in the best
interests of the holders of Certificates. In addition, the Special Servicer
may accept a lower offer if it determines, in accordance with the servicing
standard stated in the Pooling and Servicing Agreement, that acceptance of
such offer would be in the best interests of the holders of Certificates (for
example, if the prospective buyer making the lower offer is more likely to
perform its obligations, or the terms offered by the prospective buyer making
the lower offer are more favorable), provided that the offeror is not a
person affiliated with the Special Servicer. The Special Servicer is required
to use its best efforts to sell all Specially Serviced Mortgage Loans and REO
Property prior to the Rated Final Distribution Date.
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MODIFICATIONS
The Special Servicer may, consistent with the servicing standard, agree to
any modification, waiver or amendment of any term of, forgive or defer
interest on and principal of, and/or add collateral for, any Mortgage Loan
with the consent of Certificateholders representing 100% of the Percentage
Interests of the most subordinate Class of Certificates then outstanding
determined as provided below, subject, however, to each of the following
limitations, conditions and restrictions: (i) a material default on such
Mortgage Loan has occurred or, in the Special Servicer's reasonable and good
faith judgment, a default in respect of payment on such Mortgage Loan is
reasonably foreseeable, and such modification, waiver, amendment or other
action is reasonably likely to produce a greater recovery to
Certificateholders on a present value basis (the relevant discounting of
anticipated collections that will be distributable to Certificateholders will
be done at the related Mortgage Rate), than would liquidation; (ii) the
Special Servicer may not extend the date on which any Balloon Payment is
scheduled to be due on any Specially Serviced Mortgage Loan except as
described under "Realization Upon Mortgage Loans"; (iii) no reduction of any
scheduled monthly payment of principal and/or interest on any Specially
Serviced Mortgage Loan may result in a debt service coverage ratio for such
Mortgage Loan of greater than 1.10 to 1, and no more than 36 consecutive
monthly payments of principal and/or interest on any Specially Serviced
Mortgage Loan may be reduced; (iv) the Special Servicer may not release or
substitute collateral or release mortgagors or guarantors; (v) the Special
Servicer may not reduce any Prepayment Premium or Lock-out Period; (vi) the
Special Servicer may not forgive an aggregate amount of principal of the
Mortgage Loans in excess of the Certificate Principal Balance most of the
subordinate Class of Certificates; and (vii) the Special Servicer will not
permit any borrower to add any collateral unless the Special Servicer has
first determined in accordance with the servicing standard, based upon an
environmental assessment prepared by an independent person who regularly
conducts environmental assessments, at the expense of the borrower, that such
additional collateral is in compliance with applicable environmental laws and
regulations and that there are no circumstances or conditions present with
respect to such new collateral relating to the use, management or disposal of
any hazardous materials for which investigation, testing, monitoring,
containment, clean-up or remediation would be required under any then
applicable environmental laws and/or regulations. For purposes of obtaining
the consent of the most subordinate Class of Certificates outstanding to any
modification described above, (i) the Class A-1A. Class A-1B, Class A-1C,
Class A-CS1, and Class A-CS2 Certificates collectively, and (ii) the Class
B-4 and Class B-4H Certificates together, will, in each case, be treated as
one class. For purposes of determining the amount of principal which the
Special Servicer may forgive pursuant to clause (vi) above, the most
subordinate Class will include the next subordinate Class (determined as
provided in the preceding sentence) provided that Certificateholders
evidencing 100% of the Percentage Interests of such Class consent to such
forgiveness. Notwithstanding the foregoing, the Special Servicer will not be
required to oppose the confirmation of a plan in any bankruptcy or similar
proceeding involving a borrower if in its reasonable and good faith judgment
such opposition would not ultimately prevent the confirmation of such plan or
one substantially similar.
The Special Servicer will have no liability to the Trust Fund, the
Certificateholders or any other person if its analysis and determination that
the modification, waiver, amendment or other action described herein is
reasonably likely to produce a greater recovery to Certificateholders on a
present value basis than would liquidation, should prove to be wrong or
incorrect, so long as the analysis and determination were made on a
reasonable basis in good faith by the Special Servicer.
Any payment of interest, which is deferred as described herein will not,
for purposes, including, without limitation, calculating monthly
distributions to Certificateholders, be added to the unpaid principal balance
of the related Mortgage Loan, notwithstanding that the terms of such Mortgage
Loan so permit or that such interest may actually be capitalized.
Following the execution of any modification, waiver or amendment agreed to
by the Special Servicer pursuant to clause (i) above, the Special Servicer
must deliver to the Trustee an officer's certificate setting forth in
reasonable detail the basis of the determination made by it pursuant to
clause (i) above.
Except as otherwise provided above under "Realization Upon Mortgage Loans"
and "Modifications", the Special Servicer or the Servicer may not modify any
term of a Mortgage Loan unless such modification (i) would not be
"significant" as such term is defined in Code Section 1001 or Treasury
Regulation Section 1.860G-2(b)(3), as evidenced by an opinion of counsel and
(ii) would be in accordance with the servicing standard set forth in the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement will
require the Servicer or Special Servicer, as applicable, to provide copies of
any modifications or extensions to each Rating Agency.
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OPTIONAL TERMINATION
The Depositor or the Servicer and, if neither the Depositor nor the
Servicer exercises its option, the holders of the Class LR Certificates
representing greater than a 50% Percentage Interest of the Class LR
Certificates will have the option to purchase all of the Mortgage Loans and
all property acquired in respect of any Mortgage Loan remaining in the Trust
Fund, and thereby effect termination of the Trust Fund and early retirement
of the then outstanding Certificates, on any Distribution Date on which the
aggregate Stated Principal Balance of the Mortgage Loans remaining in the
Trust Fund is less than 1% of the aggregate principal balance of such
Mortgage Loans as of the Cut-off Date. The purchase price payable upon the
exercise of such option on such a Distribution Date will be an amount equal
to the greater of (i) the sum of (A) 100% of the outstanding principal
balance of each Mortgage Loan included in the Trust Fund as of the last day
of the month preceding such Distribution Date; (B) the fair market value of
all other property included in the Trust Fund as of the last day of the month
preceding such Distribution Date, as determined by an independent appraiser
as of a date not more than 30 days prior to the last day of the month
preceding such Distribution Date; (C) all unpaid interest accrued on such
principal balance of each such Mortgage Loan (including any Mortgage Loans as
to which title to the related Mortgaged Property has been acquired) at the
Mortgage Rate (plus the Excess Rate, to the extent applicable) to the last
day of the month preceding such Distribution Date, and (D) unreimbursed
Advances (with interest thereon) and unpaid Trust Fund expenses and (ii) the
aggregate fair market value of the Mortgage Loans and all other property
acquired in respect of any Mortgage Loan in the Trust Fund, on the last day
of the month preceding such Distribution Date, as determined by an
independent appraiser acceptable to the Servicer, together with one month's
interest thereon at the Mortgage Rate. See "Description of the Certificates
- --Termination" in the Prospectus.
THE TRUSTEE
LaSalle National Bank, a nationally chartered bank with its principal
offices in Chicago, Illinois, will act as Trustee pursuant to the Pooling and
Servicing Agreement. The Trustee's corporate trust office is located at 135
South LaSalle Street, Suite 1740, Chicago, Illinois 60603, Attention: Asset
Backed Securities Trust Services, Nomura-D3.
The Trustee may resign at any time by giving written notice to the
Depositor, the Servicer and the Rating Agencies, provided that no such
resignation shall be effective until a successor has been appointed. Upon
such notice, the Servicer will appoint a successor trustee. If no successor
trustee is appointed within one month after the giving of such notice of
resignation, the resigning Trustee may petition the court for appointment of
a successor trustee.
The Servicer or the Depositor may remove the Trustee and the Fiscal Agent
if, among other things, the Trustee ceases to be eligible to continue as such
under the Pooling and Servicing Agreement or if at any time the Trustee
becomes incapable of acting, or is adjudged bankrupt or insolvent, or a
receiver of the Trustee or its property is appointed or any public officer
takes charge or control of the Trustee or of its property. The holders of
Certificates evidencing aggregate Voting Rights of at least 50% of all
Certificateholders may remove the Trustee and the Fiscal Agent upon written
notice to the Depositor, the Servicer, the Trustee and the Fiscal Agent. Any
resignation or removal of the Trustee and the Fiscal Agent and appointment of
a successor trustee and, if such trustee is not rated at least "AA" by each
Rating Agency, fiscal agent, will not become effective until acceptance of
the appointment by the successor trustee and, if necessary, fiscal agent.
Notwithstanding the foregoing, upon any termination of the Trustee and Fiscal
Agent under the Pooling and Servicing Agreement, the Trustee and Fiscal Agent
will continue to be entitled to receive all accrued and unpaid compensation
through the date of termination plus all Advances and interest thereon as
provided in the Pooling and Servicing Agreement. Any successor trustee must
have a combined capital and surplus of at least $50,000,000 and such
appointment must not result in the downgrade, qualification or withdrawal of
the then-current ratings assigned to the Certificates, as evidenced in
writing by the Rating Agencies.
Pursuant to the Pooling and Servicing Agreement, the Trustee will be
entitled to withdraw from the Distribution Account a monthly fee (the
"Trustee Fee"), which constitutes a portion of the Servicing Fee.
The Trust Fund will indemnify the Trustee and the Fiscal Agent against any
and all losses, liabilities, damages, claims or unanticipated expenses
(including reasonable attorneys' fees) arising in respect of the Pooling and
Servicing Agreement or the Certificates other than those resulting from the
negligence, bad faith or intentional misconduct of the Trustee or the Fiscal
Agent, as applicable. Neither the Trustee nor the Fiscal Agent will be
required to expend or risk its own funds or otherwise incur financial
liability in the performance of any of its duties under the Pooling and
Servicing Agreement, or in the exercise of any of its rights or powers, if in
the Trustee's or the Fiscal Agent's opinion, as applicable, the repayment of
such funds or adequate indemnity against such risk or liability is not
reasonably assured to it. Each of the Servicer, the
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Special Servicer, the Depositor, the Paying Agent, the Certificate Registrar
and the Custodian will indemnify the Trustee, the Fiscal Agent, and certain
related parties for similar losses incurred related to the willful
misconduct, bad faith, fraud and/or negligence in the performance of each
such party's respective duties under the Pooling and Servicing Agreement or
by reason of reckless disregard of its obligations and duties under the
Pooling and Servicing Agreement.
At any time, for the purpose of meeting any legal requirements of any
jurisdiction in which any part of the Trust Fund or property securing the
same is located, the Depositor and the Trustee acting jointly will have the
power to appoint one or more persons or entities approved by the Trustee to
act (at the expense of the Trustee) as co-trustee or co-trustees, jointly
with the Trustee, or separate trustee or separate trustees, of all or any
part of the Trust Fund, and to vest in such co-trustee or separate trustee
such powers, duties, obligations, rights and trusts as the Depositor and the
Trustee may consider necessary or desirable. Except as required by applicable
law, the appointment of a co-trustee or separate trustee will not relieve the
Trustee of its responsibilities, obligations and liabilities under the
Pooling and Servicing Agreement.
DUTIES OF THE TRUSTEE
The Trustee (except for the information under the first paragraph of "
- --The Trustee") and Servicer (except for the information under " --The
Servicer") will make no representation as to the validity or sufficiency of
the Pooling and Servicing Agreement, the Certificates or the Mortgage Loans,
this Prospectus Supplement or related documents. The Trustee will not be
accountable for the use or application by the Depositor, the Servicer or the
Special Servicer of any Certificates issued to it or of the proceeds of such
Certificates, or for the use of or application of any funds paid to the
Depositor, the Servicer or the Special Servicer in respect of the assignment
of the Mortgage Loans to the Trust Fund, or any funds deposited in or
withdrawn from the Lock Box Accounts, Cash Collateral Accounts, Reserve
Accounts, Collection Account, Upper-Tier Distribution Account, Distribution
Account, Excess Interest Distribution Account, Interest Reserve Account and
Default Interest Distribution Account or any other account maintained by or
on behalf of the Servicer or Special Servicer, nor will the Trustee be
required to perform, or be responsible for the manner of performance of, any
of the obligations of the Servicer or Special Servicer under the Pooling and
Servicing Agreement.
In the event that the Servicer fails to make a required Advance, the
Trustee will make such Advance, provided that the Trustee shall not be
obligated to make any Advance it deems to be nonrecoverable. The Trustee
shall be entitled to rely conclusively on any determination by the Servicer
or the Special Servicer that an Advance, if made, would not be recoverable.
The Trustee will be entitled to reimbursement for each Advance made by it in
the same manner and to same extent as the Servicer or the Special Servicer.
If no Event of Default has occurred, and after the curing of all Events of
Default which may have occurred, the Trustee is required to perform only
those duties specifically required under the Pooling and Servicing Agreement.
Upon receipt of the various certificates, reports or other instruments
required to be furnished to it, the Trustee is required to examine such
documents and to determine whether they conform on their face to the
requirements of the Pooling and Servicing Agreement.
THE FISCAL AGENT
ABN AMRO Bank N.V., a banking corporation organized under the laws of The
Netherlands, will act as Fiscal Agent pursuant to the Pooling and Servicing
Agreement. The Fiscal Agent's office is located at 135 South LaSalle Street,
Chicago, Illinois 60603. The Fiscal Agent will be deemed to have been removed
in the event of the resignation or removal of the Trustee.
DUTIES OF THE FISCAL AGENT
The Fiscal Agent will make no representation as to the validity or
sufficiency of the Pooling and Servicing Agreement, the Certificates, the
Mortgage Loan, this Prospectus Supplement (except for the information under
the preceding section with the heading "The Fiscal Agent") or related
documents. The duties and obligations of the Fiscal Agent consist only of
making Advances as described below and in " --Advances" above; the Fiscal
Agent shall not be liable except for the performance of such duties and
obligations.
In the event that the Servicer and the Trustee fail to make a required
Advance, the Fiscal Agent will make such Advance, provided that the Fiscal
Agent will not be obligated to make any Advance that it deems to be
nonrecoverable. The Fiscal Agent shall be entitled to rely conclusively on
any determination by the Servicer or the Trustee, as applicable, that an
Advance, if made, would not be recoverable. The Fiscal Agent will be entitled
to reimbursement for each Advance made by it in the same manner and to the
same extent as the Trustee and the Servicer.
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THE SERVICER
AMRESCO Management, Inc., a Texas corporation will be the Servicer and in
such capacity will be responsible for servicing the Mortgage Loans. AMRESCO
Management, Inc. ("AMI") is a wholly owned subsidiary of AMRESCO, INC.
("AMRESCO"), a publicly traded (NASDAQ) company. The principal offices of AMI
are located at 235 Peachtree Street, NE, Suite 900, Atlanta, Georgia 30303.
The servicing of all performing loans will be performed by the AMRESCO
Services Division of AMI located in Atlanta, Georgia.
As of September 1, 1996, AMRESCO's portfolio consists of approximately
11,127 loans with an aggregate principal balance of approximately $14.9
billion, making it the largest commercial servicer according to the 1996
ranking issued by the Mortgage banker Association of America. The portfolio
is significantly diversified both geographically and by product type. AMI
will provide servicing for this portfolio as well as other securitized
transactions under full, primary, sub and master servicing contracts for both
public and private placement transactions representing both single and
multi-borrower mortgage pools.
In addition to its loan servicing capabilities, AMI has expertise in all
areas of asset management including loan workouts, asset valuation,
environmental reviews, and REO management and disposition and is an active
purchaser of unrated and sub-investment grade interests in commercial
mortgage backed securities. The principal task of AMI's asset management
division is the management, turnaround, and capital recovery of distressed
and underperforming real estate loans and foreclosed real estate assets. The
asset management division of AMI is also responsible for the valuation of
portfolios in connection with the purchase of commercial mortgage backed
securities.
The information concerning the Servicer set forth herein has been provided
by the Servicer, and none of the Mortgage Loan Seller, the Special Servicer,
the Depositor, the Trustee, the Fiscal Agent or the Underwriter makes any
representation or warranty as to the accuracy thereof.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Pursuant to the Pooling and Servicing Agreement, the Servicer will be
entitled to withdraw monthly from the Collection Account its portion of the
Servicing Fee; provided, however, that in the event that all or any portion
of the Mortgage Loan identified in Annex A as the Pinnacle Retail Portfolio
Loan has been defeased, the Servicing Fee Rate with respect to the defeased
balance will be 0.0%. The monthly servicing fee (the "Servicing Fee") for any
Distribution Date is an amount per Interest Accrual Period equal to the
product of (i) a per annum rate of 0.05625% (the "Servicing Fee Rate") and
(ii) the Stated Principal Balance of such Mortgage Loan as of the Due Date
and includes the compensation payable to the Servicer and the Trustee Fee.
The Servicer's portion of the Servicing Fee relating to each Mortgage Loan
will be retained by the Servicer from payments and collections (including
insurance proceeds, condemnation proceeds and liquidation proceeds) in
respect of such Mortgage Loan. The Servicer will also be entitled to retain
as additional servicing compensation (i) all investment income earned on
amounts on deposit in the Collection Account and certain Reserve Accounts (to
the extent consistent with the related Mortgage Loan) and (ii) to the extent
permitted by applicable law and the related Mortgage Loans, any late payment
charges, Assumption Fees, loan modification fees, extension fees, loan
service transaction fees, beneficiary statement changes, or similar items
(but not including Prepayment Premiums).
If the Servicer accepts a voluntary prepayment on a Mortgage Loan after
the related Lock-out Period with respect to such loan which results in a
Prepayment Interest Shortfall, the Servicer will be obligated to reduce its
Servicing Fee as provided above under "Description of the Offered
Certificates --Distributions --Prepayment Interest Shortfalls."
The Servicer will pay all expenses incurred in connection with its
responsibilities under the Pooling and Servicing Agreement (subject to
reimbursement as described herein), including all fees of any subservicers
retained by it. The Trustee will withdraw monthly from the Distribution
Account the portion of the Servicing Fee representing the Trustee Fee.
THE SPECIAL SERVICER
CRIIMI MAE Services Limited Partnership, a Maryland limited partnership,
the general partner of which is CRIIMI MAE Management, Inc., will act as
Special Servicer with respect to the Mortgage Pool. The principal office of
the Special Servicer are located at 11200 Rockville Pike, Rockville, Maryland
20852. As of August 31, 1996, the Special Servicer was responsible for the
servicing of approximately 1,000 commercial and multifamily loans with an
aggregate principal balance of approximately $3.8 billion, the collateral for
which is located in forty-seven states. The foregoing information
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concerning the Special Servicer has been provided by it. Accordingly, neither
the Depositor nor the Underwriter makes any representation or warranty as to
the accuracy or completeness of such information.
The Special Servicer, in addition to its duties with respect to the
Specially Serviced Mortgage Loans and in accordance with applicable Accepted
Servicing Practices, will be responsible for (i) conducting (or retaining a
third party to conduct) inspections of each Mortgaged Property at least once
a year, (ii) collecting and making certain calculations based on annual and
quarterly operating statements and rent rolls with respect to each Mortgaged
Property, and (iii) making reasonable efforts to collect any delinquent
Monthly Payment and any other payments required under the terms and
provisions of the related Mortgage Loans upon notification by the Servicer
that the related borrower is delinquent and that the Servicer has made an
initial contact with such borrower in connection with such delinquency. The
Special Servicer will be entitled to a monthly fee (the "Additional Servicing
Fee") for performing the duties set forth in clauses (i)-(iii) above in an
amount per Interest Accrual Period equal to 1/12th of the product of (a) a
per annum rate of 0.04% (the "Additional Servicing Fee Rate") and (b) the
Stated Principal Balance of the Mortgage loans as of the Due Date.
The Pooling and Servicing Agreement will provide that the Special Servicer
will comply with the REMIC Provisions.
SPECIAL SERVICING
CRIIMI MAE, Inc. will initially be appointed as special servicer (the
"Special Servicer") to, among other things, oversee the resolution of
non-performing Mortgage Loans and act as disposition manager of REO
Properties. The Pooling and Servicing Agreement will provide that more than
one Special Servicer may be appointed, but only one Special Servicer may
specially service any Mortgage Loan. The Depositor anticipates that one
Special Servicer will be appointed to specially service the Senior
Housing/Healthcare Mortgage Loans and another Special Servicer will specially
service all other Mortgage Loans.
The Special Servicer will, among other things, oversee the resolution of
non-performing Mortgage Loans and act as disposition manager of REO
Properties. The Pooling and Servicing Agreement provides that holders of
Certificates evidencing greater than 50% of the Percentage Interests of the
most subordinate Class of Certificates then outstanding (provided, however,
that for purposes of determining the most subordinate class, the Class A-1A,
Class A-1B, Class A-1C, Class A-CS1 and Class A-CS2 Certificates
collectively, and the Class B-4 and Class B-4H Certificates together, will,
in each case, be treated as one class) may replace the Special Servicer,
provided that each Rating Agency confirms to the Trustee in writing that such
replacement, in and of itself, will not cause a qualification, withdrawal or
downgrading of the then-current ratings assigned to any Class of
Certificates. In the event that a Mortgage Loan secured by a senior
housing/healthcare facility or a hotel or motel becomes a Specially Serviced
Mortgage Loan, the Special Servicer will be required to hire a consultant
which is experienced in the operation of such facilities.
The duties of the Special Servicer relate to Specially Serviced Mortgage
Loans and to any REO Property. The Pooling and Servicing Agreement will
define a "Specially Serviced Mortgage Loan" to include any Mortgage Loan with
respect to which: (i) the related borrower has not made two consecutive
Monthly Payments (and has not cured at least one such delinquency by the next
due date under the related Mortgage Loan) or (ii) the Servicer, the Trustee
and/or the Fiscal Agent has made four consecutive P&I Advances (regardless of
whether such P&I Advances have been reimbursed); (iii) the borrower under
which has expressed to the Servicer an inability to pay or a hardship in
paying the Mortgage Loan in accordance with its terms; (iv) the Servicer has
received notice that the borrower has become the subject of any bankruptcy,
insolvency or similar proceeding, admitted in writing the inability to pay
its debts as they come due or made an assignment for the benefit of
creditors; (v) the Servicer has received notice of a foreclosure or
threatened foreclosure of any lien on the Mortgaged Property securing the
Mortgage Loan; (vi) a default of which the Servicer has notice (other than a
failure by the borrower to pay principal or interest) and which materially
and adversely affects the interests of the Certificateholders has occurred
and remained unremedied for the applicable grace period specified in the
Mortgage Loan (or, if no grace period is specified, 60 days); provided, that
a default requiring a Property Advance will be deemed to materially and
adversely affect the interests of Certificateholders; (vii) the Special
Servicer proposes to commence foreclosure or other workout arrangements; or
(viii) such borrower has failed to make a Balloon Payment as and when due;
provided, however, that a Mortgage Loan will cease to be a Specially Serviced
Mortgage Loan (i) with respect to the circumstances described in clauses (i),
(ii), and (viii) above, when the borrower thereunder has brought the Mortgage
Loan current (or, with respect to the circumstances described in clause
(viii), pursuant to a work-out implemented by the Special Servicer) and
thereafter made three consecutive full and timely monthly payments, including
pursuant to any workout of the Mortgage Loan, (ii) with respect to the
circumstances described in clause (iii), (iv), (v) and (vii) above, when such
circumstances cease to exist in the good faith judgment of the Servicer, or
(iii) with respect to the circumstances described
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in clause (vi) above, when such default is cured; provided, in either case,
that at that time no circumstance exists (as described above) that would
cause the Mortgage Loan to continue to be characterized as a Specially
Serviced Mortgage Loan.
Pursuant to the Pooling and Servicing Agreement, the Special Servicer will
be entitled to certain fees including a monthly special servicing fee equal
to 1/12 of 0.5% of the Stated Principal Balance of each related Specially
Serviced Mortgage Loan (the "Special Servicing Fee"). The Special Servicer
will be entitled, in addition to the Special Servicing Fee, to a "Principal
Recovery Fee" with respect to each Specially Serviced Mortgage Loan or REO
Property which Principal Recovery Fee generally will be in an amount equal to
1% of all amounts received in respect thereof and allocable as a recovery of
principal which will be payable when the Mortgage Loan or REO Property is
sold or liquidated or when the Specially Serviced Mortgage Loan ceases to be
a Specially Serviced Mortgage Loan. However, no Principal Recovery Fee will
be payable in connection with, or out of Liquidation Proceeds resulting from,
the purchase of any Specially Serviced Mortgage Loan or REO Property (i) by
the Mortgage Loan Seller or other Originator as described herein under
"Pooling and Servicing Agreement --Representations and Warranties;
Repurchase"; (ii) by the Servicer, the Depositor or the Certificateholders as
described herein under "The Pooling and Servicing Agreement --Optional
Termination" or (iii) in certain other limited circumstances. In addition,
the Special Servicer will be entitled to receive (i) any assumption fees and
loan modification fees related to the Specially Serviced Mortgage Loans and
(ii) any income earned on deposits in the REO Accounts. Notwithstanding the
foregoing, in the event that the Special Servicer is, or is an affiliate of,
the holder of Certificates representing greater than 50% of the Percentage
Interests of the most subordinate Class of Certificates then outstanding
(determined as provided below), the Special Servicer will be entitled to
receive a Special Servicing Fee equal to 1/12 of 0.25% of the Stated
Principal Balance of each Specially Serviced Mortgage Loan and one-half of
the Principal Recovery Fee it would otherwise be entitled to.
For purposes of determining whether the Special Servicer is entitled to
full compensation, with respect to any Mortgage Loan, the Class A-1A, Class
A-1B, Class A-1C, Class A-CS1 and Class A-CS2 Certificates collectively, and
the Class B-4 and Class B-4H Certificates together, will in each case, be
treated as one class.
SERVICER AND SPECIAL SERVICER PERMITTED TO BUY CERTIFICATES
The Servicer and Special Servicer will be permitted to purchase any Class
of Certificates. Such a purchase by the Servicer or Special Servicer could
cause a conflict relating to the Servicer's or Special Servicer's duties
pursuant to the Pooling and Servicing Agreement and the Servicer's or Special
Servicer's interest as a holder of Certificates, especially to the extent
that certain actions or events have a disproportionate effect on one or more
Classes of Certificates. The Pooling and Servicing Agreement provides that
the Servicer or Special Servicer shall administer the Mortgage Loans in
accordance with the servicing standard set forth therein without regard to
ownership of any Certificate by the Servicer or Special Servicer or any
affiliate thereof.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Trustee is obligated to furnish to each
Certificateholder, to the Depositor, the Paying Agent, the Servicer, the
Special Servicer and the Rating Agencies a statement setting forth certain
information with respect to the Mortgage Loans and the Certificates required
pursuant to the Pooling and Servicing Agreement. Certain information made
available on the monthly reports to Certificateholders can be retrieved via
facsimile through LaSalle National Bank's ASAP System by calling (312)
904-2200, and requesting statement No. 210. In addition, to the extent
provided to it by the Servicer and the Special Servicer, the Trustee shall
provide to each Certificateholder and Rating Agency a quarterly report and an
annual summary of quarterly reports setting forth the information with
respect to the borrowers and the Mortgaged Properties substantially in the
form of Exhibit A. Such quarterly reports and annual summaries will be
prepared by the Special Servicer, solely from information provided to the
Servicer (and forwarded to the Special Servicer) or the Special Servicer
pursuant to the Mortgage Loans without modification, interpretation or
analysis (except that the Special Servicer will use its best efforts to
isolate management fees and funded reserves from borrower reported expenses,
if necessary) and the Special Servicer will not be responsible for the
completeness or accuracy of such information. Such monthly and quarterly
reports and annual summaries as well as certain other loan level information
may also be obtained electronically for a fee by calling the Trustee.
The Servicer, on behalf of the Trust Fund, will (i) mail to the Depositor
and the Trustee (who will copy each Certificateholder upon written request
(provided that each Certificateholder may only make one request per month and
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will be required to pay any expenses incurred by the Trustee in connection
with the provision of such information)), and (ii) prepare, sign and file
with the Securities and Exchange Commission as a Current Report on Form 8-K,
copies of all quarterly and annual summaries as well as notice of certain
events with respect to the Mortgage Loans which may affect
Certificateholders, such as amendments, modifications and waivers, imminent
or actual defaults and proposed prepayments. Additionally, the Servicer shall
make available (to the extent not inconsistent with the related borrower's
rights under the Mortgage Loan or applicable law) to the Rating Agencies and
to the Trustee, which shall make available to the Certificateholders upon
written request (provided that each Certificateholder may only make one
request per month and will be required to pay any expenses incurred by the
Trustee in connection with the provision of such information), any
information relating to the Mortgaged Properties or the borrowers which has
been provided to the Servicer pursuant to the Mortgage Loans, including
financial and operating statements provided to the Servicer pursuant to the
Mortgage Loans.
USE OF PROCEEDS
The net proceeds from the sale of Offered Certificates will be used by the
Depositor to pay the purchase price of the Mortgage Loans.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Elections will be made to treat the Trust Fund, exclusive of the Reserve
Accounts, the Lock Box Accounts, the Cash Collateral Accounts, the Excess
Interest and the Default Interest in respect of the Mortgage Loans (such
portion of the Trust Fund, the "Trust REMICs"), and the Trust REMICs will
qualify, as two separate REMICs (the "Upper-Tier REMIC" and the "Lower-Tier
REMIC," respectively) within the meaning of Code Section 860D. The Reserve
Accounts, the Lock Box Accounts and Cash Collateral Accounts will be treated
as beneficially owned by the respective borrowers for federal income tax
purposes. The Lower-Tier REMIC will hold the Mortgage Loans (exclusive of the
Excess Interest and the Default Interest), proceeds therefrom, the Collection
Account, the Distribution Account and any REO Property, and will issue (i)
certain uncertificated Classes of regular interests (the "Lower-Tier Regular
Interests") to the Upper-Tier REMIC and (ii) the Class LR Certificates, which
will represent the sole Class of residual interests in the Lower-Tier REMIC.
The Upper-Tier REMIC will hold the Lower-Tier Regular Interests and the
Upper-Tier REMIC Distribution Account in which distributions thereon will be
deposited, and will issue (i) the Classes of regular interests represented by
the Regular Certificates and (ii) the Class R Certificates, which will
represent the sole Class of residual interests in the Upper-Tier REMIC. The
Class V-1 and Class V-2 Certificates will represent pro rata undivided
beneficial interests in the portion of the Trust Fund consisting of Excess
Interest and Default Interest in respect of the Mortgage Loans, respectively,
and such portions will be treated as a grantor trust for federal income tax
purposes.
The Offered Certificates will be treated as "loans . . . secured by an
interest in real property which is . . . residential real property" for
mutual savings banks and domestic building and loan associations (but only to
the extent of the allocable portion of the Mortgage Loans secured by
multifamily properties) and "real estate assets" for real estate investment
trusts, to the extent described in the Prospectus. As of the Cut-off Date,
Mortgage Loans secured by multifamily properties represented approximately
% of the Mortgage Loans by unpaid principal balance.
The Offered Certificates generally will be treated as newly originated
debt instruments for federal income tax purposes. Beneficial owners of the
Offered Certificates will be required to report income on such regular
interests in accordance with the accrual method of accounting. It is
anticipated that the Class A-1A, Class A-1B, Class A1-C, Class A-1D, Class
A-2, Class A-3, Class A-4 and Class A-5 Certificates will be issued at a
premium for federal income tax purposes. See "Certain Federal Income Tax
Consequences --Federal Income Tax Consequences for REMIC Certificates
- --Taxation of Regular Certificates --Premium" in the Prospectus.
Although unclear for federal income tax purposes, it is anticipated that
the Class A-CS1 and Class A-CS2 Certificates will be considered to be issued
with original issue discount in an amount equal to the excess of all
distributions of interest expected to be received thereon (assuming the
Weighted Average Net Mortgage Pass-Through Rate changes in accordance with
Scenario , as described under the heading "Prepayment and Yield
Considerations --Yield on the Class A-CS1 and Class A-CS2 Certificates") over
their respective issue prices. Any "negative" amounts of original issue
discount on the Coupon Strip Certificates attributable to rapid prepayments
with respect to the Mortgage Loans will not be deductible currently, but may
be offset against future positive accruals of original issue discount, if
any. Finally, a holder of a Coupon Strip Certificate may be entitled to a
loss deduction to the extent it becomes certain that such holder will not
S-117
<PAGE>
recover a portion of its basis in such Certificate, assuming no further
prepayments. In the alternative, it is possible that rules similar to the
"noncontingent bond method" of the Proposed OID Regulations may be
promulgated with respect to the Certificates. See "Certain Federal Income Tax
Consequences--Federal Tax Consequences for REMIC Certificates--Taxation of
Regular Certificates--Original Issue Discount" in the Prospectus. Under the
noncontingent bond method, if the interest payable for any period is greater
or less than the amount projected, the amount of income included for that
period would be either increased or decreased accordingly. Any reduction in
the income accrual for a period below zero (a "Negative Adjustment") would be
treated by a Certificateholder as ordinary loss to the extent of prior income
accruals and may be carried forward to offset future interest accruals. At
maturity, any remaining Negative Adjustment would be treated as a loss on
retirement of the Certificate. The legislative history of relevant Code
provisions indicate, however, that negative amount of original issue discount
on an instrument such as a REMIC regular interest may not give rise to
taxable losses in any accrual period prior to the instrument's disposition or
retirement. Thus, it is not clear whether any losses resulting from a
Negative Adjustment would be recognized currently or be carried forward until
disposition or retirement of the debt obligation.
For purposes of accruing original issue discount, determining whether such
original issue discount is de minimis and amortizing any premium, the
Prepayment Assumption will be Scenario , as set forth above under the heading
"Prepayment and Yield Considerations --Yield on the Class A-CS1 and Class
A-CS2 Certificates." No representation is made as to the rate, if any, at
which the Mortgage Loans will prepay.
For a discussion of the tax consequences of the ownership of Offered
Certificates by any person who is not a citizen or resident of the United
States, a corporation or partnership or other entity created or organized in
or under the laws of the United States or any political subdivision thereof
or is a foreign estate or trust, see "Certain Federal Income Tax Consequences
- --Federal Income Tax Consequences for REMIC Certificates --Taxation of
Certain Foreign Investors --Regular Certificates" in the Prospectus.
See "Certain Federal Income Tax Consequences --Federal Income Tax
Consequences for REMIC Certificates --Taxation of Regular Certificates
- --Treatment of Losses" in the Prospectus for discussion of the ability of
Certificateholders to deduct losses realized with respect to the Offered
Certificates.
Although not free from doubt, it is anticipated that any Prepayment
Premiums will be treated as ordinary income to beneficial owners of the
Offered Certificates as such amounts become due to such beneficial owners.
ERISA CONSIDERATIONS
The purchase by or transfer to an employee benefit plan or other
retirement arrangement, including an individual retirement account or a Keogh
plan, which is subject to Title I of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") or Section 4975 of the Code, or a
governmental plan (as defined in Section 3(32) of ERISA) that is subject to
any federal, state or local law ("Similar Law") which is, to a material
extent, similar to the foregoing provisions of ERISA or the Code (each, a
"Plan"), or a collective investment fund in which such Plans are invested, an
insurance company using the assets of separate accounts or general accounts
which include assets of Plans (or which are deemed pursuant to ERISA or any
Similar Law to include assets of Plans) or other Persons acting on behalf of
any such Plan or using the assets of any such Plan of the Class A-1D, Class
A-2, Class A-3, Class A-4 and Class A-5 Certificates is restricted. See
"Description of the Offered Certificates --Transfer Restrictions."
Accordingly, except as specifically referenced herein, the following
discussion does not purport to discuss the considerations under ERISA,
Section 4975 of the Code or Similar Law with respect to the purchase, holding
or disposition of the Class A-1D, Class A-2, Class A-3, Class A-4 and Class
A-5 Certificates.
As described in the Prospectus under "ERISA Considerations," ERISA and the
Code impose certain duties and restrictions on Plans and certain persons who
perform services for Plans. For example, unless exempted, investment by a
Plan in the Offered Certificates may constitute or give rise to a prohibited
transaction under ERISA or the Code. There are certain exemptions issued by
the United States Department of Labor (the "Department") that may be
applicable to an investment by a Plan in the Offered Certificates. The
Department has granted to the Underwriter an administrative exemption
(Prohibited Transaction Exemption 93-32, 58 Fed. Reg. 28,623 (May 14, 1993)),
referred to herein as the "Exemption," for certain mortgage-backed and asset
backed certificates underwritten in whole or in part by the Underwriter. The
Exemption might be applicable to the initial purchase, the holding, and the
subsequent resale by a Plan of certain certificates, such as the Offered
Certificates, underwritten by the Underwriter, representing interests in
pass-through trusts that consist of certain receivables, loans and other
obligations, provided that the conditions and
S-118
<PAGE>
requirements of the Exemption are satisfied. The loans described in the
Exemption include mortgage loans such as the Mortgage Loans. However, it
should be noted that in issuing the Exemption, the Department may not have
considered interests in pools of the exact nature as some of the Offered
Certificates.
Among the conditions that must be satisfied for the Exemption to apply are
the following:
(1) The acquisition of certificates by a Plan is on terms (including the
price for the certificates) that are at least as favorable to the Plan as
they would be in an arm's length transaction with an unrelated party;
(2) The rights and interests evidenced by certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by Private
Certificates of the trust fund;
(3) The certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic rating
categories from any of Moody's, DCR or Fitch;
(4) The trustee must not be an affiliate of any other member of the
Restricted Group (as defined below);
(5) The sum of all payments made to and retained by the Underwriter in
connection with the distribution of certificates represents not more than
reasonable compensation for underwriting the certificates. The sum of all
payments made to and retained by the depositor pursuant to the assignment of
the mortgage loans to the trust fund represents not more than the fair market
value of such mortgage loans. The sum of all payments made to and retained by
the Servicer and any other servicer represents 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; and
(6) The Plan investing in the certificates is an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933.
The trust fund must also meet the following requirements:
(a) the corpus of the trust fund must consist solely of assets of the type
that have been included in other investment pools;
(b) certificates in such other investment pools must have been rated in
one of the three highest rating categories of Moody's, Fitch or DCR for at
least one year prior to the Plan's acquisition of the certificates pursuant
to the Exemption; and
(c) certificates evidencing interests in such other investment pools must
have been purchased by investors other than Plans for at least one year prior
to any Plan's acquisition of the certificates pursuant to the Exemption.
If all of the conditions of the Exemption are met, whether or not a Plan's
assets would be deemed to include an ownership interest in the Mortgage Loans
in the Mortgage Pool, the acquisition, holding and resale of the Offered
Certificates by Plans would be exempt from the prohibited transaction
provisions of ERISA and the Code.
Moreover, the Exemption can provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur if a
Plan fiduciary causes a Plan to acquire certificates in a trust in which the
fiduciary (or its affiliate) is an obligor on the receivables, loans or
obligations held in the trust provided that, among other requirements, (a) in
the case of an acquisition in connection with the initial issuance of
certificates, at least fifty percent of each Class of certificates in which
Plans have invested is acquired by persons independent of the Restricted
Group (as defined below) and at least fifty percent of the aggregate interest
in the trust is acquired by persons independent of the Restricted Group (as
defined below); (b) such fiduciary (or its affiliate) is an obligor with
respect to five percent or less of the fair market value of the obligations
contained in the trust; (c) the Plan's investment in certificates of any
Class does not exceed twenty-five percent of all of the certificates of that
Class outstanding at the time of the acquisitions; and (d) immediately after
the acquisition no more than twenty-five percent of the assets of the Plan
with respect to which such person is a fiduciary are invested in certificates
representing an interest in one or more trusts containing assets sold or
served by the same entity.
The Exemption does not apply to the purchasing or holding of Certificates
by Plans sponsored by the Depositor, the Underwriter, the Trustee, the
Servicer, any obligor with respect to Mortgage Loans included in the Trust
Fund constituting more than five percent of the aggregate unamortized
principal balance of the assets in the Trust Fund, or any affiliate of such
parties (the "Restricted Group").
The Underwriter believes that the conditions to the applicability of the
Exemption will generally be met with respect to the Class A-1A, Class A-1B,
Class A1-C, Class A-CS1 and Class A-CS2 Certificates, other than possibly
those
S-119
<PAGE>
conditions which are dependent on facts unknown to the Underwriter or which
it cannot control, such as those relating to the circumstances of the Plan
purchaser or the Plan fiduciary making the decision to purchase any such
Class of Certificates. However, before purchasing an Offered Certificate, a
fiduciary of a plan should make its own determination as to the availability
of the exemptive relief provided by the Exemption or the availability of any
other prohibited transaction exemptions, and whether the conditions of any
such exemption will be applicable to the Offered Certificates. THE CLASS
A-1D, CLASS A-2, CLASS A-3, CLASS A-4 AND CLASS A-5 CERTIFICATES ARE
SUBORDINATE TO ONE OR MORE OTHER CLASSES OF CERTIFICATES AND, ACCORDINGLY,
SUCH CERTIFICATES SHOULD NOT BE PURCHASED BY OR TRANSFERRED TO A PLAN OR
PERSON ACTING ON BEHALF OF ANY PLAN OR USING THE ASSETS OF ANY SUCH PLAN,
UNLESS SUCH PERSON USING PLAN ASSETS IS AN INSURANCE COMPANY AND THE PURCHASE
AND HOLDING OF ANY SUCH CERTIFICATE WOULD BE EXEMPT FROM THE PROHIBITED
TRANSACTION PROVISIONS OF ERISA AND THE CODE UNDER PROHIBITED TRANSACTION
EXCEPTION 95-60. See "Description of the Offered Certificates --Transfer
Restrictions" herein.
Any fiduciary of a Plan considering whether to purchase an Offered
Certificate should also carefully review with its own legal advisors the
applicability of the fiduciary duty and prohibited transaction provisions of
ERISA and the Code to such investment. See "ERISA Considerations" in the
Prospectus.
A fiduciary of a governmental plan should make its own determination as to
the need for and the availability of any exemptive relief under any Similar
Law.
The sale of Certificates to a Plan is in no respect a representation by
the Depositor or the Underwriter that this investment meets all relevant
legal requirements with respect to investments by Plans generally or any
particular Plan, or that this investment is appropriate for Plans generally
or any particular Plan.
LEGAL INVESTMENT
The Offered Certificates will not constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984
("SMMEA").
The Depositor makes no representations as to the proper characterization
of the Offered Certificates for legal investment purposes, financial
institution regulatory purposes, or other purposes, or as to the ability of
particular investors to purchase the Offered Certificates under applicable
legal investment restrictions. These uncertainties may adversely affect the
liquidity of the Offered Certificates. Accordingly, 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 a legal investment 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 between the Depositor and the Underwriter, the Offered Certificates
will be purchased from the Depositor by the Underwriter, an affiliate of the
Depositor, upon issuance. Distribution of the Offered Certificates will be
made by the Underwriter from time to time in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. Proceeds to
the Depositor from the sale of the Offered Certificates will be [ ]% of the
initial principal balance thereof as of the Cut-off Date, plus accrued
interest from the Cut-off Date, before deducting expenses payable by the
Depositor.
In connection with the purchase and sale of the Offered Certificates, the
Underwriter may be deemed to have received compensation from the Depositor in
the form of underwriting discounts. The Underwriter has agreed to arrange for
on-going Rating Agency monitoring and surveillance of the Offered
Certificates and will receive as compensation for such services the
reinvestment income earned from amounts on deposit in the Interest Reserve
Account. The Mortgage Loan Seller and the Underwriter are wholly owned
subsidiaries of Nomura Holding America Inc. The Depositor is a wholly owned
subsidiary of the Mortgage Loan Seller. The Mortgage Loan Seller or an
affiliate has acquired a preferred equity interest in ten of the borrowers,
which are the borrowers with respect to Mortgage Loans representing
approximately 25.5% of the Initial Pool Balance.
S-120
<PAGE>
The Depositor also has been advised by the Underwriter that it currently
expects to make a market in the Offered Certificates, however, it has no
obligation to do so. Any market making may be discontinued at any time, and
there can be no assurance that an active public market for the Offered
Certificates will develop.
The Depositor has agreed to indemnify the Underwriter against, or make
contributions to the Underwriter with respect to, certain liabilities,
including liabilities under the Securities Act of 1933.
This Prospectus Supplement and the Prospectus dated October , 1996 may
only be issued or passed on in the United Kingdom to a person who is of a
kind described in Article 9(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1988 or is a person to whom this
Prospectus Supplement and the Prospectus dated February 6, 1996 may otherwise
lawfully be issued or passed on.
The Trust Fund described in this Prospectus Supplement may only be
promoted (whether by the issuing or passing on of documents as referred to in
the foregoing restriction or otherwise) by an authorized person under Chapter
III of the Financial Services Act 1986 of the United Kingdom ("FSA") to a
person in the United Kingdom if that person is of a kind described in section
76(2) of the FSA or as permitted by the Financial Services (Promotion of
Unregulated Schemes) Regulations 1991.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor and for the
Underwriter by Cadwalader, Wickersham & Taft, New York, New York.
RATING
It is a condition to issuance of the Certificates that each of the Class
A-1 Certificates be rated "AAA" by each of DCR and Fitch and "Aaa" by
Moody's; the Class A-CS1 Certificates be rated "AAA" by each of DCR and Fitch
and "Aaa" by Moody's; the Class A-1D Certificates be rated "AAA" by Fitch and
"Aa1" by Moody's; the Class A-2 Certificates be rated "AA" by Fitch and "Aa2"
by Moody's; the Class A-3 Certificates be rated "A" by Fitch and "A2" by
Moody's; the Class A-4 Certificates be rated "BBB" by Fitch and "Baa2" by
Moody's; the Class A-5 Certificates be rated "Baa3" by Moody's;.
The Rating Agencies' ratings on mortgage pass-through certificates address
the likelihood of the receipt by holders of payments to which they are
entitled by the Rated Final Distribution Date. The Rating Agencies' ratings
take into consideration the credit quality of the mortgage pool, structural
and legal aspects associated with the Certificates, and the extent to which
the payment stream in the mortgage pool is adequate to make payments required
under the Certificates. Ratings on mortgage pass-through certificates do not,
however, represent an assessment of the likelihood, timing or frequency of
principal prepayments (both voluntary and involuntary) by mortgagors, or the
degree to which such prepayments might differ from those originally
anticipated. The security ratings do not address the possibility that
Certificateholders might suffer a lower than anticipated yield. In addition,
ratings on mortgage pass-through certificates do not address the likelihood
of receipt of Prepayment Premiums, Net Default Interest or Excess Interest or
the timing or frequency of the receipt thereof. In general, the ratings thus
address credit risk and not prepayment risk. Also, 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 A-CS1
Certificates might not fully recover their initial investment in the event of
delinquencies or rapid prepayments of the Mortgage Loans (including both
voluntary and involuntary prepayments). As described herein, the amounts
payable with respect to the Class A-CS1 Certificates consist only of
interest. If the entire pool were to prepay in the initial month, with the
result that the Class A-CS1 Certificateholders receive only a single month's
interest and thus suffer a nearly complete loss of their investment, all
amounts "due" to such holders will nevertheless have been paid, and such
result is consistent with the rating received on the Class A-CS1
Certificates. Accordingly, the ratings of the Class A-CS1 Certificates should
be evaluated independently from similar ratings on other types of securities.
The ratings do not address the fact that the Pass-Through Rates of the
Offered Certificates to the extent that they are based on the Weighted
Average Net Mortgage Pass-Through Rate may be affected by changes thereon.
There can be no assurance as to whether any rating agency not requested to
rate the Offered Certificates will nonetheless issue a rating and, if so,
what such rating would be. A rating assigned to the Offered Certificates by a
rating agency that has not been requested by the Depositor to do so may be
lower than the rating assigned by the Rating Agencies pursuant to the
Depositor's request.
The rating of 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.
S-121
<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS
A
ACMs ................................. S-37
ADA .................................. S-39
Additional Servicing Fee ............. S-115
Additional Servicing Fee Rate......... S-115
Advance Rate.......................... S-99
Advances ............................. S-99
Allocated Loan Amount ................ S-55
AMI .................................. S-114
Amortization ......................... S-56
AMRESCO .............................. S-114
Annual Debt Service .................. S-55
Anticipated Repayment Date ........... S-7, S-16, S-50, S-55
Appraisal Reduction Amount ........... S-75
Appraisal Reduction Event ............ S-75
ARD Loan ............................. S-16
ARD Loans ............................ S-7
Assumed Maturity Date ................ S-15
Assumed Scheduled Payment ............ S-70
Available Funds ...................... S-65
B
Balloon Loans ........................ S-17, S-50
Balloon Payment ...................... S-17, S-50
Balloon Payments ..................... S-38
C
Cash Collateral Accounts.............. S-100
CEDEL ................................ S-1, S-15,S-42
CEDEL Participants ................... S-78
CERCLA ............................... S-37
Certificate Balance .................. S-2
Certificate Registrar ................ S-76
Certificateholder .................... S-76
Certificates ......................... S-1, S-13
Class ................................ S-2
Code ................................. S-26
Collateral Account ................... S-108
Collateral Substitution Deposit ...... S-51
Collection Account ................... S-100
Collection Period .................... S-67
Cooperative .......................... S-78
Coupon Strip Certificates ............ S-64
Cross-over Date ...................... S-22, S-72
Cut-off Date Allocated Loan Amount ... S-55
Cut-off Date Principal Balance ....... S-6, S-55
D
DCR ................................. S-2, S-27
Debt Service Coverage Ratio.......... S-55
Default Interest .................... S-67
Default Interest Distribution Account S-101
S-122
<PAGE>
Default Rate ............................. S-67
Defeasance Lock-out Period ............... S-18, S-51
Defeasance Option ........................ S-18, S-51
Definitive Certificate ................... S-76
Definitive Certificates .................. S-78
Delinquency .............................. S-68
Delinquency Reduction Amount ............. S-68
Department ............................... S-118
Deposit .................................. S-108
Depositaries ............................. S-77
Depositor ................................ S-1
Directing Holders ........................ S-108
Distribution Account...................... S-100
Distribution Date ........................ S-2, S-65
DSCR ..................................... S-7, S-8, S-55
DTC ...................................... S-1, S-15
E
Eligible Bank ............................ S-101
ERISA .................................... S-26, S-118
Euroclear ................................ S-1, S-15, S-42
Euroclear Operator ....................... S-78
Euroclear Participants ................... S-78
Event of Default ......................... S-104
Excess Interest .......................... S-16, S-50
Excess Interest Distribution Account ..... S-101
Excess Rate .............................. S-50
Exemption ................................ S-26
F
Fair Market Value ........................ S-108
Fiscal Agent ............................. S-2, S-13
Fitch .................................... S-2, S-27
Fixed Voting Rights Percentage ........... S-105
Form 8-K ................................. S-64
Franchise ................................ S-56
FSA ...................................... S-121
H
Holders .................................. S-79
Hotel Loan ............................... S-30, S-43
Hotel Property ........................... S-30, S-43
I
Indirect Participants .................... S-77
Industrial Loan .......................... S-43
Industrial Property ...................... S-43
Initial Pool Balance ..................... S-43
Instructions ............................. S-107
Interest Accrual Amount .................. S-67
Interest Accrual Period .................. S-68
Interest Distribution Amount ............. S-21
Interest Reserve Account ................. S-100
Interest Shortfall ....................... S-68
S-123
<PAGE>
L
Loan-to-Value Ratio ................... S-56
Lock Box Accounts ..................... S-100
Lock-out Period ....................... S-17
Lower Rate ............................ S-107
Lower-Tier Interests .................. S-21
Lower-Tier Regular Interests .......... S-117
Lower-Tier REMIC ...................... S-2, S-21, S-25, S-117
LTV ................................... S-54
M
Minimum Defaulted Monthly Payment...... S-107
Mixed Use Loan ........................ S-43
Mixed Use Property .................... S-43
Mobile Home Loan ...................... S-43
Mobile Home Property .................. S-43
Monthly Debt Service Payment .......... S-50
Monthly Mortgage Loan Payments ........ S-34
Monthly Operating Expenses ............ S-34
Monthly Payments ...................... S-16, S-50
Moody's ............................... S-2, S-27
Mortgage .............................. S-43
Mortgage Loan Assumptions ............. S-82
Mortgage Loan Purchase and Sale Agreement S-44
Mortgage Loan Seller................... S-1, S-13
Mortgage Loans ........................ S-1, S-43
Mortgage Pass-Through Rate ............ S-20
Mortgage Pool ......................... S-1
Mortgage Rate ......................... S-50
Mortgaged Properties .................. S-1
Mortgaged Property .................... S-16
Multifamily Loan ...................... S-43
Multifamily Property .................. S-43
N
Net Cash Flow ......................... S-54
Net Default Interest .................. S-67
Net Mortgage Pass-Through Rate ........ S-20
Net REO Proceeds ...................... S-67
Note .................................. S-43
Notional Balance ...................... S-2
O
Occupancy ............................. S-56
Offered Certificates .................. S-2
Office Loan ........................... S-43
Office Property ....................... S-43
Original Principal Loan Balance ....... S-55
Originators ........................... S-14
P
Participants .......................... S-76
Pass-Through Rate ..................... S-2, S-19
Percentage Interest ................... S-65
Permitted Investments ................. S-101
S-124
<PAGE>
P&I Advance ........................... S-6, S-98
P&I Advances .......................... S-23
Plan .................................. S-79, S-118
Plans ................................. S-26
Pooling and Servicing Agreement ....... S-13, S-92
Preferred Interest Holder ............. S-34
Prepayment Premium .................... S-51
Prepayment Premiums ................... S-67
Prime Rate ............................ S-99
Principal Distribution Amount ......... S-22
Principal Prepayments ................. S-67
Principal Recovery Fee ................ S-116
Private Certificates .................. S-2, S-64
Property Advances ..................... S-99
R
Rated Final Distribution Date ......... S-82
Rating Agencies........................ S-2, S-27
Rating Agency ......................... S-27
Realized Loss ......................... S-73
Record Date ........................... S-65
Reduction Interest Distribution Amount S-68
Reduction Interest Shortfalls ......... S-68
Regular Certificates .................. S-25
Release Date .......................... S-51
Remaining Lock-out .................... S-56
REMIC ................................. S-2, S-5, S-21, S-25
REO Account ........................... S-64
REO Mortgage Loan ..................... S-70
REO Property .......................... S-64
Repurchase Price ...................... S-97
Reserve Accounts ...................... S-44
Restricted Group ...................... S-119
Retail Loan ........................... S-43
Retail Property ....................... S-43
Revised Rate .......................... S-50
Rules ................................. S-77
S
SEL ................................... S-2
Senior Housing/Healthcare Loan ........ S-43
Senior Housing/Healthcare Property .... S-43
Servicer .............................. S-2, S-13
Servicer Remittance Date .............. S-98
Servicer's Appraisal Estimate ......... S-75
Servicing Fee ......................... S-114
Servicing Fee Rate .................... S-114
SMMEA ................................. S-120
Special Servicer ...................... S-2, S-13, S-115
Special Servicing Fee ................. S-116
Specially Serviced Mortgage Loan ...... S-115
Spread Rate ........................... S-73
Stated Maturity Date .................. S-55
S-125
<PAGE>
Subordinate Class Advance Amount ...... S-98
T
Terms and Conditions .................. S-78
Treasury Rate ......................... S-50
Trust Fund ............................ S-1
Trust REMIC ........................... S-2
Trust REMICs .......................... S-117
Trustee ............................... S-2, S-13
Trustee Fee ........................... S-112
U
Underwriter ........................... S-1, S-13
Unscheduled Payments .................. S-66
Updated Appraisal ..................... S-106
Upper-Tier Distribution Account ....... S-101
Upper-Tier REMIC ...................... S-2, S-21, S-25, S-117
V
Voting Rights ......................... S-105
W
Weighted Average Net Mortgage Pass-Through Rate S-20
Withheld Amounts ...................... S-101
Z
Zoning Laws ........................... S-39
S-126
<PAGE>
<TABLE>
<CAPTION>
ORIGINAL
PRINCIPAL
LOAN ASSET PROPERTY LOAN
# # PROPERTY NAME ADDRESS CITY STATE ZIP TYPE BALANCE
- ---- ----- ----------------------------- ---------------------------- -------------- ----- ----- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Hyatt Riverwalk-San Antonio 123 Lasoya St. San Antonio TX 78205 Hotel-Full Service $71,000,000
Pacific Properties
------------------
2 1 Montego Bay 1050 Whitney Ranch Drive Henderson NV 89014 Multifamily 17,330,277
2 2 Antigua Bay 5225 East Charleston Las Vegas NV 89122 Multifamily 12,192,271
2 3 Martinique Bay 3000 Highview Drive Henderson NV 89014 Multifamily 12,013,495
2 4 Club Pacific at Flamingo 3145 East Flamingo Road Las Vegas NV 89121 Multifamily 11,609,578
2 5 Club Pacific at Shores 2200 Club Pacific Way Las Vegas NV 89128 Multifamily 8,208,956
2 6 Club Pacific at Lakes 9325 West Desert Inn Road Las Vegas NV 89128 Multifamily 7,145,423
-----------
$68,500,000
3 *Mariner's Village 4600 Via Marina Marina del Rey CA 90292 Multifamily 54,866,945
4 Anchorage Shopping Center 2800 Leavenworth Street San Francisco CA 94133 Retail-Unanchored 28,250,000
5 Malibu Canyon Office Park 26565-26711 Agoura Road Calabasas CA 91302 Office 25,000,000
6 *Lee Park 1100 East Hector Street Conshohocken PA 19428 Industrial 24,400,000
7 Atlanta Decorative Art Center 351 Peachtree Hills Atlanta GA 30305 Office 23,100,000
8 Lake Arrowhead Village 28200 Highway 189 Lake Arrowhead CA 92352 Retail-Anchored 19,800,000
9 1010 Northern Boulevard 1010 Northern Boulevard Great Neck NY 11020 Office 19,500,000
Slavik Suites
-------------
10 1 Comfort Inn--Mystic 48 Whitehall Ave. Mystic CT 06355 Hotel-Ltd Service 6,790,700
10 2 Residence Inn--Norman 2681 Jefferson Street Norman OK 73072 Hotel-Ltd Service 4,047,845
10 3 Comfort Inn--Southington 120 Laning Street Southington CT 06489 Hotel-Ltd Service 2,496,279
10 4 Holiday Inn--Cromwell 4 Sebethe Drive Cromwell CT 06416 Hotel-Full Service 2,032,441
10 5 Ramada Inn--Pensacola 6550 Pensacola Blvd. Pensacola FL 32505 Hotel-Ltd Service 1,450,130
10 6 Ramada Plaza--Fon du Lac One Main Street Fon du Lac WI 54935 Hotel-Full Service 182,605
-----------
$17,000,000
Pinnacle Retail Portfolio
-------------------------
11 1 Carter Creek 4001 East 29th Street Bryan TX 77802 Retail-Anchored 5,387,556
11 2 Lakegrove 10121 Lake June Road Dallas TX 75217 Retail-Anchored 2,872,963
11 3 University Hills 101 North Judge Ely Blvd. Abilene TX 79601 Retail-Anchored 2,498,950
11 4 Triple Creek 110 Triple Creek Drive Longview TX 75601 Retail-Anchored 1,983,780
11 5 Plaza U.S. Highway 181 Floresville TX 78114 Retail-Anchored 1,360,314
11 6 Edgewood 1200 North Mockingbird St. Abilene TX 79603 Retail-Anchored 1,152,953
11 7 Limestone Square 511 East Yeagua Street Groesbeck TX 76642 Retail-Anchored 814,585
11 8 *Brookhaven 1500 11th Street Huntsville TX 77340 Retail-Unanchored 643,898
-----------
$16,714,999
12 Sacramento Office 501 J Street Sacramento CA 95814 Office 16,575,000
13 Simi Valley Plaza 1317 E. Los Angeles Simi Valley CA 93036 Retail-Anchored 16,385,496
Ambassador Apartments
---------------------
14 1 Westway Village 2401 West Belt North Houston TX 77043 Multifamily 4,950,000
14 2 Coral Cove 25 North Belcher Road Clearwater FL 34625 Multifamily 4,050,000
14 3 Summit Creek 7900 San Felipe Boulevard Austin TX 78729 Multifamily 3,600,000
14 4 Tatum Gardens 15425 North Tatum Boulevard Phoenix AZ 85032 Multifamily 3,500,000
-----------
$16,100,000
15 Days Inn--Merchandise Mart 300 Spring Street Atlanta GA 30308 Hotel-Full Service 16,850,000
16 Village Squire Apartments 5955 Edinburgh Street Canton MI 48187 Multifamily 15,000,000
17 RCA-Addison 4010 Brookhaven Club Drive Addison TX 75244 Multifamily 13,530,000
18 Camelot Care Center 11301 & 11311 N. 99th Ave. Peoria AZ 85345 Nursing Home 12,000,000
19 Hampton Inn--Key West 2801 North Roosevelt Blvd. Key West FL 33040 Hotel-Ltd Service 8,690,000
Wingray
-------
20 1 Hawaiian Gardens 104 63rd Avenue West Bradenton FL 34207 Mobile Home Park 3,900,000
20 2 Spanish Main RV & MHP 12101 Hwy 301 North Thonotosassa FL 33592 Mobile Home Park 1,825,000
20 3 Ellenton Gardens 7310 Hwy 301 North Ellenton FL 34222 Mobile Home Park 1,100,000
20 4 Millcreek RV Resorts 2775 Michigan Avenue Kissimmee FL 64744 Mobile HomePark 1,050,000
-----------
$ 7,875,000
21 Holiday Inn--Wilmington 4902 Market Street Wilmington NC 28405 Hotel-Full Service 7,300,000
22 Ridgewood Village Apartments 100 Ridgegate Lane St. Peters MO 63376 Multifamily 7,113,000
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CUT-OFF
CUT-OFF DATE DATE
PRINCIPAL PRINCIPAL ANNUAL
LOAN BALANCE/ 1996 NOI DEBT MORTGAGE
BALANCE UNIT 1993 NOI 1994 NOI 1995 NOI 1996 NOI PERIOD NET CASH FLOW DSCR SERVICE RATE
- ----------- --------- ---------- ----------- ----------- ----------- ----------- ------------- ---- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$70,939,362 $112,424 $9,991,932 $10,605,029 $11,740,053 $12,032,549 TTM 7/31/96 $11,507,060 1.58 $7,302,253 9.260%*
17,319,832 41,238 1,962,353 2,389,411 2,348,537 2,306,494 TTM 6/30/96 2,264,224 1.45
12,184,923 31,084 1,765,960 1,934,227 1,971,117 1,772,028 TTM 6/30/96 1,743,424 1.45
12,006,255 46,899 1,183,597 1,468,991 1,530,639 1,588,507 TTM 6/30/96 1,528,410 1.45
11,602,581 43,293 1,494,237 1,713,287 1,647,163 1,540,988 TTM 6/30/96 1,573,448 1.45
8,204,009 38,698 1,087,513 1,186,496 1,182,803 1,099,395 TTM 6/30/96 1,098,784 1.45
7,141,117 39,673 959,719 1,065,722 1,068,636 951,895 TTM 6/30/96 983,580 1.45
- ----------- --------- ---------- ----------- ----------- ----------- ------------- ----
$68,458,716 $ 39,617 $8,453,379 $ 9,758,134 $ 9,748,895 $ 9,259,307 $ 9,191,870 1.45 $6,335,039 8.525%*
54,709,251 55,769 7,648,075 7,858,538 8,334,671 7,725,043 TTM 7/31/96 7,538,244 1.30 5,801,587 8.710%*
28,250,000 NA 3,229,325 3,406,095 3,747,308 3,909,926 TTM 7/31/96 3,681,425 1.37 2,696,024 8.652%*
25,000,000 78 -- 3,289,720 3,704,956 4,000,205 TTM 6/30/96 3,427,873 1.44 2,383,709 8.860%*
24,365,401 35 3,830,780 3,754,865 3,746,808 3,672,313 TTM 6/30/96 3,391,937 1.34 2,533,802 9.380%*
23,040,712 54 3,598,640 3,732,650 3,847,091 3,967,008 TTM 7/31/96 3,396,977 1.34 2,537,720 9.750%*
19,789,627 87 -- 2,338,813 2,656,174 2,844,998 TTM 7/31/96 2,604,160 1.34 1,946,074 9.200%*
19,500,000 116 3,283,649 3,311,833 3,243,939 3,109,122 TTM 6/30/96 2,418,692 1.26 1,925,061 9.250%*
6,775,303 56,461 927,873 994,775 1,270,745 1,289,989 TTM 6/30/96 1,121,196 1.46
4,038,667 32,053 665,077 730,985 796,500 796,863 TTM 6/30/96 633,390 1.46
2,490,619 20,415 229,595 339,559 496,116 508,228 TTM 6/30/96 385,176 1.46
2,027,833 13,985 227,461 306,371 529,387 497,590 TTM 6/30/96 292,567 1.46
1,446,842 13,649 221,613 223,140 305,476 359,152 TTM 6/30/96 280,672 1.46
182,191 1,380 52,936 94,054 201,872 192,255 TTM 6/30/96 68,364 1.46
- ----------- --------- ---------- ----------- ----------- ----------- ------------- ----
$16,961,456 $ 22,585 $2,324,555 $ 2,688,884 $ 3,600,096 $ 3,644,077 $ 2,781,365 1.46 $1,911,579 10.400%*
5,387,556 33 360,666 621,041 851,261 852,477 TTM 6/30/96 715,489 1.30
2,872,963 34 251,798 448,086 404,661 387,968 TTM 6/30/96 343,548 1.30
2,498,950 28 238,431 442,269 392,563 406,341 TTM 6/30/96 376,220 1.30
1,983,780 17 363,926 387,600 361,312 360,977 TTM 6/30/96 264,456 1.30
1,360,314 22 152,896 211,596 227,675 242,703 TTM 6/30/96 205,087 1.30
1,152,953 13 18,134 179,805 187,479 196,023 TTM 6/30/96 169,552 1.30
814,585 13 106,078 159,726 134,499 124,923 TTM 6/30/96 99,781 1.30
643,898 14 -- 74,115 122,861 128,417 TTM 6/30/96 103,501 1.30
- ----------- --------- ---------- ----------- ----------- ----------- ------------- ----
$16,714,999 23 $1,491,929 $ 2,524,238 $ 2,682,311 $ 2,699,829 $ 2,277,634 1.30 $1,752,461 9.500%*
16,527,580 85 3,083,767 2,565,943 2,713,449 2,670,071 TTM 6/30/96 2,297,610 1.33 1,721,220 9.380%*
16,357,401 74 -- 1,385,394 2,196,623 2,349,484 YTD Ann. 6/30/96 2,209,381 1.40 1,579,268 8.980%*
4,932,548 15,131 -- 280,959 901,419 917,982 TTM 6/30/96 861,819 1.86
4,035,721 20,179 159,471 536,715 727,868 726,094 TTM 6/30/96 619,251 1.86
3,587,307 21,874 155,865 569,819 636,557 620,249 TTM 6/30/96 565,947 1.86
3,487,660 27,247 120,185 541,008 602,056 597,840 TTM 6/30/96 556,941 1.86
- ----------- --------- ---------- ----------- ----------- ----------- ------------- ----
$16,043,236 $ 19,613 $ 435,521 $ 1,928,501 $ 2,867,900 $ 2,862,165 $ 2,603,958 1.86 $1,401,773 7.882%*
16,850,000 64,068 2,760,895 2,669,916 2,944,935 2,998,083 TTM 5/31/96 2,572,435 1.40 1,833,118 9.970%*
14,930,537 24,843 1,364,232 1,622,766 1,924,355 2,264,468 TTM 5/31/96 1,810,056 1.35 1,342,170 8.170%
13,490,989 21,414 -- 963,212 1,819,350 2,082,236 TTM 6/30/96 1,885,405 1.49 1,261,895 8.617%*
11,967,095 31,410 1,820,696 2,191,872 2,571,014 2,339,266 TTM 6/30/96 2,262,853 1.65 1,373,013 10.630%
8,665,399 55,194 1,475,677 1,299,146 1,531,412 1,517,989 TTM 6/30/96 1,347,482 1.40 963,074 10.210%*
3,883,335 14,654 536,364 532,008 528,450 513,621 TTM 6/30/96 491,805 1.34
1,817,202 5,424 316,805 268,277 302,825 289,900 TTM 6/30/96 265,842 1.34
1,095,300 5,588 189,682 179,450 183,805 169,259 TTM 6/30/96 154,729 1.34
1,045,513 5,100 259,497 212,194 182,830 206,151 TTM 6/30/96 180,553 1.34
- ----------- --------- ---------- ----------- ----------- ----------- ------------- ----
$ 7,841,350 $ 7,834 $1,302,348 $ 1,191,929 $ 1,197,910 $ 1,178,931 $ 1,092,929 1.34 $ 816,373 9.357%
7,280,643 31,382 773,610 763,960 1,531,124 1,479,940 TTM 6/30/96 1,285,854 1.52 844,199 9.980%
7,108,874 28,210 775,095 899,095 918,841 897,997 TTM 7/31/96 868,430 1.30 669,059 8.710%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BALLOON/
STATED ANTICIPATED ANTICIPATED ANTICIPATED
MATURITY REPAYEMENT REMAINING REMAINING REPAYMENT
DATE DATE TERM LOCKOUT(MO.) LOCKBOX VALUE LTV DATE LTV AMORTIZATION
- ---------- ----------- ----------- ------------ ------- ------------- --- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
9/11/2021 09/11/2011 179 178 Yes $110,000,000 64% 46% 300
25,500,000 66% 62%
21,100,000 66% 62%
16,600,000 66% 62%
17,150,000 66% 62%
12,900,000 66% 62%
11,000,000 66% 62%
------------- --- -----------
10/11/2026 10/11/2003 84 80 YES $104,250,000 66% 62% 360
04/11/2013 198 197 Yes 80,000,000 68% 24% 240
04/11/2024 04/11/2009 150 149 Yes 43,600,000 65% 54% 330
10/11/2026 10/11/2011 180 177 Yes 36,000,000 69% 57% 360
08/11/2021 08/11/2006 118 117 Yes 37,000,000 66% 56% 300
01/11/2019 07/11/2006 117 116 Yes 41,000,000 56% 46% 270
09/11/2026 09/11/2011 179 175 Yes 28,500,000 69% 58% 360
10/11/2026 10/11/2006 120 116 26,900,000 72% 67% 360
11,100,000 52% 39%
6,600,000 52% 39%
4,500,000 52% 39%
5,800,000 52% 39%
2,740,000 52% 39%
1,950,000 52% 39%
------------- --- -----------
06/11/2021 06/11/11 176 175 YES $ 32,690,000 52% 39% 300
7,500,000 67% 58%
4,160,000 67% 58%
4,220,000 67% 58%
2,800,000 67% 58%
2,000,000 67% 58%
1,400,000 67% 58%
1,570,000 67% 58%
1,250,000 67% 58%
------------- --- -----------
10/11/2021 10/11/2006 120 116 YES $ 24,900,000 67% 58% 300
06/11/2021 06/11/2003 80 79 Yes 24,350,000 68% 62% 300
06/11/2026 06/11/2006 116 112 Yes 24,000,000 68% 62% 360
8,500,000 56% 53%
6,300,000 56% 53%
6,700,000 56% 53%
7,100,000 56% 53%
------------- --- -----------
04/11/2026 04/11/2003 78 77 YES $ 28,600,000 56% 53% 360
10/11/2021 10/11/2011 180 177 27,800,000 61% 44% 300
03/11/2026 03/11/2006 113 109 22,500,000 66% 59% 360
04/11/2026 04/11/2006 114 110 Yes 18,100,000 75% 68% 360
06/11/2011 176 172 17,400,000 69% 48% 300
05/11/2021 05/11/2011 175 171 13,200,000 66% 49% 300
5,900,000 63% 43%
2,950,000 63% 43%
1,650,000 63% 43%
1,900,000 63% 43%
------------- --- -----------
05/11/2011 175 171 $ 12,400,000 63% 43% 300
08/11/2016 08/11/2006 118 114 10,200,000 71% 52%
09/11/2026 09/11/2006 119 115 Yes 9,550,000 74% 66%
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
AUDIT/
AGREED UW'EN ACTUAL
UPON IDENTIFIED RESERVE FOR ONGOING ONGOING
YEAR/BUILT UNIT OF OCCUPANCY ANCHOR/MAJOR TENANTS/ PROCEDURE/ DEFERRED CAPITAL CAPITAL CAPITAL
RENOVATED UNIT MEASURE OCCUPANCY PERIOD FRANCHISE REVIEW MAINTENANCE MAINTENANCE ITEMS RESERVES
- ---------- ------- ------- --------- ----------- --------------------- ---------- ----------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1981/1996 631 rooms 79% TTM 7/31/96 Hyatt Yes $ 29,500 $ 36,875 5% 4%
1990 420 units 97% 08/29/96 186,800 196,140 $ 250 $ 250
1989 392 units 88% 08/29/96 308,000 323,400 $ 250 $ 250
1989 256 units 99% 08/29/96 117,700 123,585 $ 250 $ 250
1990 268 units 96% 08/29/96 122,000 128,100 $ 250 $ 250
1990 212 units 85% 08/29/96 98,480 103,404 $ 250 $ 250
1990 180 units 91% 08/29/96 6,750 7,088 $ 250 $ 250
------- ----------- -----------
1,728 YES $839,730 $881,717
1973 981 units 95% 6/10/96 Yes 302,750 303,000 $ 250 $ 300
1973/1991 78,732 sf 84% 08/28/96 Yes 242,500 285,625 $0.18 $0.18
1988/1990 320,358 sf 95% 06/30/96 Xylan Corp., Superior
National Yes -- -- $0.20 $0.20
1919/1990 694,579 sf 86% 6/21/96 165,500 206,875 $0.16 $0.16
1960 430,363 sf 93% 7/31/96 Yes 64,810 81,013 $0.42 $0.42
1980 228,164 sf 95% 8/21/96 Stater Brothers,
Thrifty Jr., Yes 24,670 24,670 $0.15 $0.15
1985 167,614 sf 99% 09/01/96 State Farm, Equifax
Services Yes 35,000 Work completed $0.20 $0.20
1987/1993 120 rooms 82% TTM 6/30/96 Comfort Inn 64,980 81,225 5% 5%
1983/1988 126 rooms 88% TTM 6/30/96 Residence Inn 41,550 51,938 5% 5%
1987/1993 122 rooms 76% TTM 6/30/96 Comfort Inn 45,837 57,296 5% 5%
1986/1991 145 rooms 72% TTM 6/30/96 Holiday Inn 51,600 64,500 5% 5%
1968/1993 106 rooms 80% TTM 6/30/96 Ramada Inn 28,508 35,635 5% 5%
1923/1983 132 rooms 54% TTM 6/30/96 Ramada Inn 3,350 4,175 5% 5%
------- ----------- -----------
751 YES $235,825 $294,769
1986 163,004 sf 95% 06/01/96 First American Bank,
Winn Dixie,
Dollar General 10,500 10,500 $0.15 $0.15
1985 85,285 sf 94% 06/01/96 Minyard, Family Dollar, -- -- $0.15 $0.15
1984 89,401 sf 84% 06/01/96 Fleming Foods, Eckerd Drug,
Dollar General 7,000 7,000 $0.15 $0.15
1982 117,717 sf 100% 06/01/96 Bud's 600 600 $0.15 $0.15
1982 61,435 sf 92% 06/01/96 Scrivner, Eckerd Drug,
Dollar General 29,250 29,250 $0.18 $0.18
1960 85,745 sf 60% 06/01/96 Shop & Save, Family Dollar,
Eckerd Drug 34,025 34,025 $0.22 $0.21
1986 63,410 sf 78% 06/01/96 Brookshire's, Family Dollar,
Dollar General 22,570 22,570 $0.29 $0.28
1970 47,256 sf 100% 06/01/96 Family Dollar, Hi Lo 50,500 50,500 $0.16 $0.16
------- ----------- -----------
713,253 $154,445 $154,445
1982 193,380 sf 95% 6/30/96 Department of Corrections Yes 67,400 92,500 $0.15 $0.15
1991/1994 219,627 sf 96% 4/19/96 Home Base, Edwards Theatre,
Discovery Zone 35,000 7,500 $0.15 $0.15
1981 326 units 95% 06/25/96 Yes 13,239 88,105 $ 250 $ 250
1985 200 units 99% 06/25/96 Yes 15,777 13,700 $ 250 $ 250
1985 164 units 96% 06/25/96 Yes 24,315 91,000 $ 250 $ 250
1985 128 units 95% 06/25/96 56,210 -- $ 250 $ 250
------- ----------- -----------
818 YES $109,541 $192,805
1983 263 rooms 75% TTM 5/31/96 Days Inn of America 1,000 -- 5% 4%
1970 601 units 93% 5/24/96 Yes 228,500 306,478 $ 250 $ 234
1974/1994 630 units 98% 6/30/96 60,960 235,060 $ 250 $ 250
1973/1984 381 beds 90% 8/26/96 -- -- $ 250 $ 250
1986 157 rooms 82% TTM 6/30/96 Hampton Inn 718,855 898,569 4% 4%
1968 265 pads 100% 6/30/96 20,900 36,125 $ 25
1973 335 pads 99% 5/1/96 127,150 158,938 $ 25
1977 196 pads 83% 4/30/96 7,250 9,063 $ 25
1971 205 pads 97% 5/1/96 38,300 76,313 $ 25
------- ----------- -----------
1,001 $193,600 $280,439
1965/1994 232 rooms 68% TTM 6/30/96 Holiday Inn 49,250 61,563 5% 4%
1985 252 units 95% 8/9/96 Yes 92,200 115,250 $ 250 $ 229
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ORIGINAL
PRINCIPAL
LOAN ASSET PROPERTY LOAN
# # PROPERTY NAME ADDRESS CITY STATE ZIP TYPE BALANCE
- ---- ----- ----------------------------- ----------------------------- -------------- ----- ----- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles Company I
-----------------
23 1 Van Ness 5800-5944 Santa Monica Blvd. Los Angeles CA 90038 Retail-Unanchored 5,940,000
23 2 Martin Luther King 1030 Martin Luther King Blvd. Los Angeles CA 90037 Retail-Unanchored 1,065,000
-----------
$ 7,005,000
Charles Company II
------------------
24 1 Western 1075 Western Ave. Los Angeles CA 90038 Retail-Unanchored $ 4,070,000
24 2 Hoover 1065 Hoover Street Los Angeles CA 90006 Retail-Unanchored 1,790,000
24 3 Adams 285 Adams Blvd. Los Angeles CA 90011 Retail-Unanchored 940,000
-----------
$ 6,800,000
25 Towne Pointe 357 Route 9 South Manalapan NJ 07725 Retail-Unanchored 6,550,000
26 Crosspointe 1395-1525 N.W. 167th Street Miami FL 33169 Office 6,500,000
27 Gramercy Apts 9072 Gramercy Apartments San Diego CA 92123 Multifamily 5,875,000
28 First Tennessee Bank Building 165 Madison Ave. Memphis TN 38103 Office 5,873,000
Beltway II
----------
29 1 Hechinger's Plaza 1535 University Blvd. Langley Park MD 20783 Retail-Anchored 2,910,000
29 2 Blockbuster/Staples 8904 62nd Avenue College Park MD 20740 Retail-Anchored 2,850,000
-----------
$ 5,760,000
Owensboro Hotels
----------------
30 1 Holiday Inn--Owensboro 3136 W. 2nd Street Owensboro KY 42301 Hotel-Ltd Service 4,000,000
30 2 Days Inn--Owensboro 3720 New Hartford Road Owensboro KY 42301 Hotel-Ltd Service 1,530,000
-----------
$ 5,530,000
31 Regency Towers 1600 Lehigh Parkway East Allentown PA 18103 Multifamily 5,600,000
32 Alderwood Village 37th Ave. W. & 196th St. SW Lynwood WA 98036 Retail-Anchored 5,600,000
33 Paradise Valley 13637 North Tatum Boulevard Phoenix AZ 85032 Retail-Anchored 5,400,000
Riva Office/Hotel
-----------------
34 1 Days Inn--Annapolis 2520 Riva Road Annapolis MD 21401 Hotel-Ltd Service 3,385,000
34 2 Nations Bank Building 2530 Riva Road Annapolis MD 21401 Office 1,915,000
-----------
$ 5,300,000
35 Val Vista Crossing 3655 E. Southern Mesa AZ 85206 Retail-Anchored 5,251,548
36 Charleston Park 4800 East Charleston Las Vegas NV 89104 Multifamily 5,212,500
37 Best Western--Lafayette 1801 West Pinhook Road Lafayette LA 70508 Hotel-Full Service 5,000,000
38 *Bolsa Marketplace 9500-9600 Bolsa Avenue Westinster CA 92683 Retail-Anchored 4,875,000
39 Pecan Crossing 1225 E. Pleasant Run Desota TX 75115 Multifamily 4,850,000
40 Hotel Grand Victorian 2325 West Highway 76 Branson MO 65616 Hotel-Ltd Service 4,795,000
41 Barcelona Court 5215 South Loop 289 Lubbock TX 79424 Hotel-Ltd Service 4,700,000
42 *Best Western--Sunrise Reco 400 N. Harbor Drive Redondo Beach CA 90277 Hotel-Full Service 4,400,000
43 Crestview Plaza 9282 Watson Rd. Crestwood MO 63126 Retail-Anchored 4,370,000
44 Monroe Gardens 1504-58 Schley Street Hillside NJ 07205 Multifamily 4,298,000
45 D Marysville Estate 506 N. Main St. Marysville OH 43040 Mobile Home Park 4,233,000
46 *9300 Wilshire Blvd. 9300 Wilshire Blvd. Beverly Hills CA 90212 Office 4,123,000
47 A Cypress Grove Apartments 22A Cypress Grove Drive Wilmington NC 28401 Multifamily 4,116,000
48 Best Western--Galveston 5914 Seawall Blvd. Galveston TX 77551 Hotel-Ltd Service 4,062,000
49 Comfort Inn--Goodyear 1770 N. Dysart Road Goodyear AZ 85338 Hotel-Ltd Service 3,900,000
50 Santa Rita Care Center 150 N. La Canada Drive Green Valley AZ 85614 Nursing Home 3,825,000
51 Fox Glen Apartments 6260 Fox Glen Drive Saginaw MI 48603 Multifamily 3,800,000
52 Hampton Inn--Memphis 2979 Millbranch Road Memphis TN 38116 Hotel-Ltd Service 3,800,000
53 Hampton Inn--Indianapolis 7220 Woodland Drive Indianapolis IN 46278 Hotel-Ltd Service 3,750,000
54 Holiday Inn--Monroe 2011 Louisville Avenue Monroe LA 71201 Hotel-Full Service 3,725,000
55 Ramada Inn Williamsburg 351 York Street Williamsburg VA 23185 Hotel-Full Service 3,635,000
56 M&M Mobile Villa 320 E. McKellips Road Mesa AZ 85201 Mobile Home Park 3,525,000
57 Best Western--Dorsey 6755 Dorsey Road Dorsey MD 21227 Hotel-Ltd Service 3,450,000
58 C Franklin Estates 700 W. Meade Blvd Franklin TN 37064 Mobile Home Park 3,272,000
59 Comfort Inn--Salisbury 2701 N. Salisbury Blvd. Salisbury MD 21801 Hotel-Ltd Service 3,150,000
60 122-124 Duane Street 122-124 Duane Street New York NY 10007 Multifamily 3,070,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CUT-OFF
CUT-OFF DATE DATE
PRINCIPAL PRINCIPAL ANNUAL
LOAN BALANCE/ 1996 NOI DEBT MORTGAGE
BALANCE UNIT 1993 NOI 1994 NOI 1995 NOI 1996 NOI PERIOD NET CASH FLOW DSCR SERVICE RATE
- ----------- --------- -------- ---------- ---------- ---------- ----------- ------------- ---- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5,940,000 115 797,360 876,610 936,112 955,276 TTM 6/30/96 828,371 1.36
1,065,000 84 -- 65,292 174,299 167,166 TTM 6/30/96 147,601 1.36
- ----------- --------- -------- ---------- ---------- ---------- ------------- ----
$ 7,005,000 $ 109 $797,360 $ 941,902 $1,110,411 $1,122,442 $ 975,972 1.36 $718,657 9.229%*
$ 4,070,000 $ 188 $ -- $ -- -- $ -- $ 571,948 1.36
1,790,000 141 308,274 299,108 231,378 261,917 TTM 6/30/96 246,980 1.36
940,000 100 168,981 133,225 148,863 153,302 TTM 6/30/96 132,470 1.36
- ----------- --------- -------- ---------- ---------- ---------- ------------- ----
$ 6,800,000 $ 155 $477,255 $ 432,333 $ 380,241 $ 415,219 $ 951,398 1.36 $697,626 9.229%*
6,546,799 89 841,820 930,147 776,860 735,534 TTM 7/31/96 839,079 1.27 662,633 9.530%
6,494,134 34 -- -- 470,416 719,298 TTM 6/30/96 946,658 1.45 650,838 8.930%
5,875,000 32,104 -- 624,560 693,675 713,904 TTM 7/31/96 723,617 1.32 547,590 8.610%
5,853,895 14 -- 2,030,049 1,830,855 1,766,491 TTM 6/30/96 1,076,763 1.76 612,497 9.885%
2,902,319 38 502,886 511,000 509,578 504,436 TTM 6/30/96 455,125 1.46
2,842,477 116 15,037 367,508 398,311 401,202 TTM 6/30/96 351,847 1.46
- ----------- --------- -------- ---------- ---------- ---------- ------------- ----
$ 5,744,796 $ 57 $517,923 $ 878,508 $ 907,889 $ 905,638 $ 806,972 1.46 $552,181 8.920%*
3,958,439 27,307 649,446 723,708 846,097 911,777 TTM 6/30/96 666,470 1.58
1,517,641 12,516 319,062 414,087 387,838 486,187 TTM 6/30/96 305,105 1.58
- ----------- --------- -------- ---------- ---------- ---------- ------------- ----
$ 5,476,080 $ 20,579 $968,508 $1,137,795 $1,233,935 $1,397,964 $ 971,575 1.58 $616,672 9.455%
5,591,168 31,950 662,637 686,650 716,789 704,422 TTM 5/31/96 715,140 1.30 551,378 9.220%
5,585,493 51 867,345 859,383 937,558 898,288 TTM 5/31/96 809,769 1.41 575,025 9.240%
5,388,601 62 636,370 716,129 791,421 881,358 TTM 6/30/96 776,781 1.46 531,686 9.220%
3,376,840 22,216 -- 734,473 634,343 TTM 5/31/96 512,799 1.41
1,910,384 50 -- 405,624 366,511 381,862 TTM 5/31/96 283,349 1.41
- ----------- --------- -------- ---------- ---------- ---------- ------------- ----
$ 5,287,224 NA $ -- $ 363,825 $1,100,984 $1,016,205 $ 796,148 1.41 $563,205 9.670%
5,242,812 55 -- -- 670,634 842,424 YTD Ann. 7/31/96 662,267 1.30 510,693 9.080%*
5,209,635 26,179 722,266 703,621 705,696 749,800 TTM 6/30/96 663,610 1.32 501,942 8.970%
4,956,197 16,632 806,848 1,276,404 1,528,134 1,631,963 TTM 5/31/96 1,110,716 2.01 553,415 9.350%
4,868,179 56 380,931 599,780 797,778 845,594 TTM 5/31/96 685,277 1.36 504,325 9.790%
4,847,134 19,235 756,887 700,761 634,754 594,541 TTM 7/31/96 617,062 1.36 452,467 8.620%
4,777,119 31,428 -- 195,984 1,109,488 1,188,195 TTM 5/30/96 892,220 1.55 574,854 10.510%
4,686,890 29,111 697,921 875,624 1,029,994 835,851 TTM 6/30/96 718,496 1.35 533,727 10.530%
4,393,851 39,584 1,162,737 1,198,383 1,358,551 1,370,373 TTM 7/31/96 1,002,664 2.03 493,545 9.540%
4,363,076 54 435,747 599,247 507,214 601,672 TTM 6/30/96 616,356 1.32 466,578 9.730%
4,274,524 26,716 621,694 634,978 670,855 623,191 TTM 6/30/96 602,858 1.39 432,471 8.990%
4,228,510 9,192 492,507 554,673 587,294 583,968 TTM 6/30/96 598,137 1.44 414,577 9.160%
4,107,649 73 653,409 563,232 559,650 756,491 TTM 6/30/96 652,527 1.43 455,532 10.170%
4,092,036 19,579 386,922 464,972 522,620 570,545 TTM 6/30/96 566,189 1.41 401,052 8.600%
4,045,482 26,791 658,844 718,638 860,807 853,239 TTM 5/31/96 675,504 1.45 465,235 9.840%
3,859,630 24,123 743,802 777,522 819,166 843,768 TTM 6/30/96 715,758 1.67 429,536 9.280%
3,813,383 32,593 266,290 494,867 656,690 574,259 TTM 6/30/96 559,236 1.34 418,065 10.030%
3,793,878 10,338 754,328 791,782 1,010,455 1,086,634 TTM 6/30/96 884,149 2.25 393,422 8.420%
3,786,623 29,583 -- 660,811 702,635 728,948 TTM 4/30/96 600,768 1.40 430,547 10.500%
3,721,857 30,015 788,385 928,647 991,746 989,702 TTM 6/30/96 784,059 1.92 407,775 9.100%
3,710,781 19,530 830,302 830,182 923,735 1,009,613 TTM 6/27/96 628,081 1.42 441,183 10.330%
3,621,088 25,146 601,620 706,714 694,137 717,985 TTM 5/31/96 570,398 1.33 429,940 10.310%
3,512,919 14,280 352,138 373,646 405,254 460,173 TTM 5/31/96 477,437 1.31 364,002 9.310%
3,447,496 25,728 465,020 602,104 713,154 739,869 TTM 6/30/96 593,437 1.55 382,642 10.220%
3,260,879 12,688 349,311 401,670 429,651 441,975 TTM 5/31/96 431,750 1.27 339,235 9.360%
3,135,456 32,661 476,501 543,800 560,023 603,424 TTM 6/30/96 505,889 1.47 343,489 10.000%
3,041,009 NA 236,736 533,710 579,566 698,028 TTM 6/30/96 588,879 1.81 325,559 8.750%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BALLOON/
STATED ANTICIPATED ANTICIPATED ANTICIPATED
MATURITY REPAYEMENT REMAINING REMAINING REPAYMENT
DATE DATE TERM LOCKOUT(MO.) LOCKBOX VALUE LTV DATE LTV AMORTIZATION
- ---------- ----------- ----------- ------------ ------- ------------- --- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
360
$ 9,000,000 66% 56%
1,600,000 66% 56%
------------- --- -----------
10/11/2021 10/11/2006 120 116 $ 10,600,000 66% 56% 300
6,000,000 67% 57% 300
2,600,000 67% 57% 300
1,600,000 67% 57% 300
------------- --- -----------
10/11/2021 10/11/2006 120 116 $ 10,200,000 67% 57%
09/11/2026 09/11/2006 119 115 9,000,000 73% 66% 360
09/11/2021 09/11/2003 83 79 9,400,000 69% 62% 300
10/11/2026 10/11/2006 120 116 Yes 8,700,000 68% 60% 360
03/11/2026 03/11/2011 173 169 Yes 12,900,000 45% 37% 360
4,350,000 70% 65%
3,800,000 70% 65%
------------- --- -----------
04/11/2026 04/11/2006 114 113 YES $ 8,150,000 70% 65% 360
5,960,000 65% 29%
2,410,000 65% 29%
------------- --- -----------
04/11/2016 04/11/2011 174 170 $ 8,370,000 65% 29% 240
07/11/2026 07/11/2006 117 113 7,800,000 72% 64% 360
07/11/2021 07/11/2006 117 113 8,200,000 68% 57% 300
06/11/2026 06/11/2006 116 112 8,850,000 61% 55% 360
5,800,000 52% 44%
4,400,000 52% 44%
------------- --- -----------
07/11/2021 07/11/2006 117 113 $ 10,200,000 52% 44% 300
06/11/2026 06/11/2006 116 112 7,800,000 67% 62% 360
09/11/2026 09/11/2006 119 115 Yes 7,050,000 74% 66% 360
04/11/2016 234 230 11,900,000 42% 0% 240
07/11/2026 07/11/2011 177 173 6,500,000 75% 61% 360
09/11/2026 09/11/2006 119 115 6,550,000 74% 66% 360
07/11/2016 07/11/2011 177 173 7,300,000 65% 31% 240
06/11/2021 06/11/2011 176 172 6,300,000 74% 52% 300
09/11/2016 09/11/2016 179 175 10,800,000 41% 18% 240
08/11/2021 08/11/2006 118 114 6,470,000 67% 57% 300
04/11/2021 04/11/2016 234 230 6,080,000 70% 29% 300
08/11/2006 118 114 5,790,000 73% 66% 360
05/11/2021 05/11/2011 175 171 5,700,000 72% 50% 300
04/11/2003 78 74 6,740,000 61% 54% 300
07/11/2016 07/11/2011 177 173 6,500,000 62% 28% 240
03/11/2016 233 229 6,240,000 62% 0% 240
06/11/2021 06/11/2006 116 112 5,100,000 75% 63% 300
09/11/2016 239 235 8,900,000 43% 0% 240
05/11/2021 05/11/2006 115 111 7,060,000 54% 46% 300
05/11/2016 05/11/2011 175 171 7,400,000 50% 22% 240
07/11/2016 07/11/2011 177 173 Yes 7,300,000 51% 24% 240
07/11/2016 07/11/2011 177 173 6,925,000 52% 24% 240
06/11/2016 236 232 5,300,000 66% 27% 300
09/11/2021 09/11/2011 179 175 6,200,000 56% 39% 300
06/11/2011 176 172 4,600,000 71% 48% 300
04/11/2021 01/11/2016 231 227 4,430,000 71% 32% 300
04/11/2016 04/11/2006 114 110 5,300,000 57% 41% 240
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AUDIT/
AGREED UW'EN ACTUAL
UPON IDENTIFIED RESERVE FOR ONGOING ONGOING
YEAR/BUILT UNIT OF OCCUPANCY ANCHOR/MAJOR TENANTS/ PROCEDURE/ DEFERRED CAPITAL CAPITAL CAPITAL
RENOVATED UNIT MEASURE OCCUPANCY PERIOD FRANCHISE REVIEW MAINTENANCE MAINTENANCE ITEMS RESERVES
- ---------- ------- ------- --------- ----------- --------------------- ---------- ----------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1986 51,735 sf 98% 06/30/96 Lucky Seven Market,
Chief Auto Parts 6,800 8,500 $0.15 $0.15
1993 12,676 sf 100% 06/30/96 1,000 1,250 $0.15 $0.15
------- ----------- -----------
64,411 $ 7,800 $ 9,750
1996 21,669 sf 100% 06/30/96 Hollywood Presb.
Hosp, Hollywood
Video -- -- $0.15 $0.15
1986 12,688 sf 100% 06/30/96 2,000 2,500 $0.15 $0.15
1990 9,420 sf 100% 06/30/96 1,000 1,250 $0.15 $0.15
------- ----------- -----------
43,777 $ 3,000 $ 3,750
1987 73,720 sf 100% 08/01/96 5,225 6,531 $0.23 $0.23
1977/1994 189,768 sf 96% 7/1/96 Percession Responce,
FL National Guard
Republic National Bank 42,000 52,500 $0.27 $0.47
1979 183 units 91% 07/31/96 7,000 8,750 $ 250 $ 200
1965 411,503 sf 85% 5/31/96 First Tennessee, Baker,
Donelson, Arthur Andersen 231,669 289,586 $0.20 $0.20
1971/1995 76,964 sf 100% 06/01/96 Hechinger's 3,500 4,375 $0.15 $0.15
1971 24,473 sf 100% 06/01/96 Staples, Blockbuster 1,150 2,425 $0.15 $0.15
------- ----------- -----------
101,437 $ 4,650 $ 6,800
1963/1986 145 rooms 72% TTM 6/30/96 Holiday Inn 25,700 32,125 5% 4%
1975/1990 121 rooms 72% TTM 6/30/96 Days Inn of America 41,800 52,250 5% 4%
------- ----------- -----------
266 $ 67,500 $ 84,375
1972 175 units 95% 8/1/96 24,870 31,088 $ 250 $ 231
1969/1990 109,559 sf 100% 5/31/96 Drug Emporium,
Eastgate Theatre,
Hancock Fabrics 2,900 -- $0.20 $0.20
1986 87,289 sf 95% 6/30/96 Roomstores, Kinko's,
Blockbuster Video 500 -- $0.23 $0.23
1971/1994 152 rooms 67% TTM 5/31/96 Days Inn of America 32,900 39,125 5% 4%
1989 38,384 sf 92% 04/09/96 750 938 $0.20 $0.20
------- ----------- -----------
NA $ 33,650 $ 40,063
1988 95,978 sf 90% 8/1/96 United Artists Theatre -- -- $0.15 $0.15
1981 199 units 95% 6/30/96 42,200 52,750 $ 287 $ 289
1980/1993 298 rooms 69% TTM 5/31/96 Best Western 67,250 84,063 5% 4%
1992 86,711 sf 98% 6/1/96 Bolsa Supermarket -- -- $0.20 $0.20
1984 252 units 96% 7/20/96 124,750 155,938 $ 276 $ 225
1994 152 rooms 68% TTM 5/30/96 2,300 -- 5% 4%
1981/1992 161 rooms 68% TTM 6/30/96 36,250 45,313 5% 4%
1978/1994 111 rooms 88% TTM 7/31/96 Best Western 29,250 36,563 5% 4%
1963/1988 80,261 sf 96% 6/26/96 Circuit City 54,275 67,844 $0.20 $0.20
1948 160 units 98% TTM 6/30/96 246,459 308,074 $ 250 $ 250
1967 306/ pads/ 99% 5/31/96 48,000 60,000 $ 25 --
154SS units
1964/1995 56,428 sf 99% 4/29/96 8,500 10,625 $0.23 $0.23
1970/1990 209 units 98% 04/25/96 131,300 164,125 $ 250 $ 245
1984/ 151 rooms 60% TTM 5/31/96 Best Western 9,900 24,375 5% 4%
ongoing
1980 160 rooms 58% TTM 6/30/96 Comfort Inn -- -- 5% 4%
1975/1984 117 beds 93% 7/31/96 -- -- $ 250 $ 250
1980/1986 367 units 96% 6/29/96 73,790 92,238 $ 250 $ 243
1987 128 rooms 83% TTM 4/30/96 Hampton Inn 79,900 64,500 5% 4%
1990/1995 124 rooms 82% TTM 6/30/96 Hampton Inn 1,525 -- 5% 4%
1968/1985 190 rooms 71% TTM 6/27/96 Holiday Inn 11,691 14,614 5% 4%
1972 144 rooms 62% TTM 5/31/96 Ramada Inn 74,493 93,154 5% 4%
1986 246 pads 99% 7/31/96 -- -- $ 25 --
1988 134 rooms 66% TTM 6/30/96 Best Western -- -- 5% 4%
1970 257 pads 100% TTM 5/31/96 24,200 29,000 $ 25 --
1987 96 rooms 83% TTM 6/30/96 Comfort Inn 50,894 63,618 5% 4%
1920/1995 16/ units/ 100% 05/01/96 121,300 151,625 $ 375 $ 375
4,855 sf
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ORIGINAL
PRINCIPAL
LOAN ASSET PROPERTY LOAN
# # PROPERTY NAME ADDRESS CITY STATE ZIP TYPE BALANCE
- ---- ----- ----------------------------- ----------------------------- -------------- ----- ----- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
61 East Street Trading Center 801 East Street Fredrick MD 21701 Industrial $ 2,948,000
62 Westwood Plaza 2228 Westwood Blvd Westwood CA 90064 Nursing Home 2,822,000
63 Market at Uvalde 13502-13560 I-10 Frontage Rd. Houston TX 77015 Retail-Anchored 2,750,000
64 Brookwood MHP 1908 East 19th Street Lawrence KS 66046 Mobile Home Park 2,755,000
65 Holiday Inn--Denton 1500 Dallas Drive Denton TX 76205 Hotel-Full Service 2,703,000
66 D Woodridge Estates 2284 W. Gelena Ave. Freeport IL 61032 Mobile Home Park 2,700,000
67 Torrance Plaza Hotel 20801 S. Western Avenue Torrance CA 90501 Hotel-Full Service 2,642,000
68 Foothill Courtyard Apartments 1360 Foothill Drive Vista CA 92084 Multifamily 2,633,000
69 Leaden Hall II Med Centre 7271 Wurbach Road San Antonio TX 78240 Retail-Unanchored 2,600,000
70 Medford Nursing Home 616 South Front Street Medford OK 73759 Nursing Home 2,550,000
71 I. Goldberg Shopping Center 1615 N. Kings Highway Cherry Hill NJ 08034 Retail-Anchored 2,550,000
Chateau Oaks
------------
72 1 Chateau Forrest 604 N. Kingsway Dr. Seffner FL 33584 Mobile Home Park 1,310,000
72 2 Plantation Oaks 700 N. Kingsway Dr. Seffner FL 33584 Mobile Home Park 1,190,000
------------
$ 2,500,000
73 Maple Park Terrace Apartments 5414 Maple Park Drive Flint MI 48507 Multifamily 2,500,000
74 Best Western--Goodyear 1100 N. Litchfield Road Goodyear AZ 85338 Hotel-Ltd Service 2,500,000
75 Best Western (Morristown Inn) 270 South Street Morristown NJ 07960 Hotel-Ltd Service 2,310,000
76 Holiday Inn--Salt Lake 2080 West North Temple Drive Salt Lake City UT 84116 Hotel-Ltd Service 2,300,000
77 Days Inn--San Jose 2460 Fontaine Road San Jose CA 95121 Hotel-Ltd Service 2,275,000
78 Casas Adobes 7000-7051 North Oracle Rd Tuscon AZ 85704 Retail-Anchored 2,165,000
79 Ramada Limited--Denver North 110 West 104th Street Northglen CO 80234 Hotel-Ltd Service 2,100,000
80 Holiday Inn Express-- 5479 Westmoreland Plaza Douglasville GA 30134 Hotel-Ltd Service 2,080,000
Douglasville
81 Branch Avenue Plaza 650 Branch Avenue Providence RI 02903 Retail-Unanchored 2,075,000
82 C Gwinnett Estates 211 Howe Lane Loganville GA 30249 Mobile Home Park 2,029,000
83 Ravines MHP 2088 East Empire Avenue Benton Harbor MI 49022 Mobile Home Park 1,968,000
84 Best Western McMinnville 2035 South Highway 99 West McMinnville OR 97218 Hotel-Ltd Service 1,930,000
85 Crystal Lake MHP 1330 Hanover Road Delaware OH 43015 Mobile Home Park 1,927,000
86 Park Hallow Apartments 4343 South Shaver Pasadena TX 77504 Multifamily 1,875,000
87 A Stratford Arms Apartments 1900 South Charles Blvd. Greenville NC 27858 Multifamily 1,871,000
88 Best Western--Monterey 420 North Atlantic Blvd. Monterey Park CA 91754 Hotel-Ltd Service 1,819,000
89 Country Hearth Inn--Auburn 1115 West 7th Street Auburn IN 46706 Hotel-Ltd Service 1,809,000
90 Johanna Woods 2909 Montpelier Street Broken Arrow OK 74014 Mobile Home Park 1,800,000
91 C Tara--MHP 7735 Tara Blvd. Jonesboro GA 30236 Mobile Home Park 1,781,000
92 B Royal Palm MHP 720 S. Federal Highway Hallandale FL 33009 Mobile Home Park 1,725,000
93 Country Hearth Inn--Findlay 1020 Interstate Court Findlay OH 45840 Hotel-Ltd Service 1,711,000
94 F Ridgewood MHP 6825 W. Mississippi Lakewood CO 80226 Mobile Home Park 1,700,000
95 Coachland MHP 10500 Hwy. 89N Truckee CA 96161 Mobile Home Park 1,700,000
96 A Cardinal Village Apartments 2301 Indian Drive Jacksonville FL 28546 Multifamily 1,677,000
97 E Comfort Inn--North Carolina 1636 Carolina Avenue Washington NC 27889 Hotel-Ltd Service 1,674,000
98 Grandmont Gardens 16151 Grandmont Court Roseville MI 48066 Multifamily 1,619,000
99 B Galway Bay 1361 Overseas Hwy. Marathon FL 33050 Mobile Home Park 1,550,000
100 E Quality Inn Roanoke 501 Orange Avenue Roanoke VA 24016 Hotel-Full Service 1,500,000
101 Red Carpet Apartments 24440 Russell Road Kent WA 98032 Multifamily 1,400,000
102 G Silver Sands RV Resort 9252 East Broadway Mesa AZ 85208 Mobile Home Park 1,355,000
103 G Locust Grove MHP 778 Highway 36 Hazlet NJ 07730 Mobile Home Park 1,300,000
104 Georgian Heights Apartments 1931 N. Bowman Ave. Danville IL 61832 Multifamily 1,288,000
105 Country Club Corners 7120 South Polk Street Dallas TX 75232 Retail-Anchored 1,100,000
106 Grogan's Mills 303 Sawdust Rd. The Woodlands TX 77380 Retail-Unanchored 1,090,000
107 Mobile Gardens MHP 1901 N. Glasscock Road Mission TX 78572 Mobile Home Park 1,050,000
108 Cactus Wren MHP 235 North Ellsworth Road Mesa AZ 85207 Mobile Home Park 996,000
109 Solana Y. Sombra 4828 East Grant Road Tucson AZ 85012 Mobile Home Park 988,000
110 F Mobile Estates 1717 & 1823 5th St. Greeley CO 80631 Mobile Home Park 860,000
111 Phoenix West MHP 3150 West Glendale Avenue Phoenix AZ 85021 Mobile Home Park 850,000
112 Havre de Grace Super 8 929 Pulaski Highway Havre de Grace MD 21078 Hotel-Ltd Service 699,992
113 Farmville Super 8 Highway 15 South Farmville VA 61755 Hotel-Ltd Service 553,326
----------------- ------------
TOTAL / WTD. AVG.: $784,184,806
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CUT-OFF
CUT-OFF DATE DATE
PRINCIPAL PRINCIPAL ANNUAL
LOAN BALANCE/ 1996 NOI DEBT MORTGAGE
BALANCE UNIT 1993 NOI 1994 NOI 1995 NOI 1996 NOI PERIOD NET CASH FLOW DSCR SERVICE RATE
- ------------ --------- -------- -------- -------- -------- ----------- ------------- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 2,935,879 $ 17 $396,920 $522,269 $526,834 $502,949 TTM 6/30/96 $425,267 1.37 $311,049 9.580%
2,806,675 37,422 219,192 471,574 530,266 551,813 TTM 6/30/96 492,986 1.52 323,660 9.860%
2,744,750 64 426,874 410,862 432,887 443,944 TTM 4/30/96 377,254 1.34 282,310 9.700%
2,742,933 9,624 296,678 365,680 348,457 336,185 TTM 5/31/96 355,936 1.26 281,980 9.200%
2,699,491 18,746 216,303 301,563 489,263 538,863 TTM 6/30/96 448,661 1.42 315,382 10.110%
2,697,136 7,471 267,531 317,200 342,681 373,773 TTM 6/30/96 359,519 1.36 264,436 9.160%
2,638,347 25,615 467,995 565,285 709,106 801,208 TTM 6/30/96 521,195 1.74 300,023 10.530%
2,631,488 24,366 -- 199,532 285,774 339,592 TTM 7/31/96 343,615 1.38 248,792 8.760%
2,595,943 56 386,489 378,285 384,321 414,640 TTM 7/31/96 365,136 1.31 279,565 9.820%
2,544,390 30,290 -- 308,096 550,325 544,571 TTM 5/31/96 504,482 1.79 282,605 10.210%
2,540,950 63 320,972 348,299 376,192 376,192 1995 YE 331,475 1.28 258,893 9.100%
1,309,223 12,963 172,956 183,499 177,895 174,310 TTM 6/30/96 173,914 1.40
1,189,294 11,012 148,190 159,074 167,521 164,789 TTM 6/30/96 151,638 1.40
- ------------ --------- -------- -------- -------- -------- ------------- ----
$ 2,498,516 $ 11,955 $321,146 $342,573 $345,416 $339,099 $325,552 1.40 $232,803 8.600%
2,495,973 13,565 471,173 496,733 567,182 580,147 TTM 6/30/96 511,433 1.98 258,830 8.420%
2,475,763 29,127 562,883 587,228 522,334 574,187 TTM 3/31/96 429,976 1.51 285,543 9.800%
2,306,795 38,447 332,587 320,066 426,490 491,651 TTM 6/30/96 369,338 1.41 261,925 10.510%
2,287,558 24,865 342,080 369,854 434,606 434,606 YE 1995 362,700 1.45 250,801 10.000%
2,273,351 42,099 325,637 342,656 418,599 582,923 TTM 6/30/96 392,972 1.56 252,515 10.230%
2,161,661 31 278,642 345,047 334,000 304,708 TTM 7/31/96 330,115 1.41 234,069 9.890%
2,097,136 14,980 -- 354,332 464,062 521,974 TTM 6/30/96 362,188 1.52 238,695 9.730%
2,071,925 41,439 N/A N/A 447,017 424,333 TTM 6/30/96 346,103 1.42 244,186 10.200%
2,071,701 26 284,066 315,927 348,554 353,536 TTM 7/31/96 278,547 1.26 221,196 9.710%
2,022,104 10,111 161,569 96,830 236,545 283,567 TTM 5/31/96 271,929 1.29 210,363 9.360%
1,964,883 8,811 194,287 217,485 232,827 248,781 TTM 6/30/96 260,223 1.35 193,428 9.200%
1,925,058 29,616 211,549 239,414 425,918 487,508 TTM 6/30/96 377,740 1.66 27,349 10.250%
1,915,126 10,944 250,037 269,254 280,302 287,781 TTM 6/30/96 273,186 1.50 182,321 8.250%
1,861,647 10,887 -- 169,094 306,819 306,819 YE 1995 269,326 1.51 178,606 8.330%
1,860,457 12,743 241,576 267,672 278,063 249,141 TTM 6/30/96 237,579 1.28 185,351 8.800%
1,816,523 33,028 378,779 356,905 415,651 426,746 TTM 5/31/96 352,569 1.70 206,899 9.740%
1,804,678 23,137 191,881 343,670 405,083 375,919 TTM 6/30/96 329,332 1.49 220,826 10.780%
1,797,015 7,488 197,007 216,903 264,930 313,495 TTM 5/31/96 309,297 1.64 188,118 9.460%
1,775,194 8,966 254,660 247,646 257,364 248,255 TTM 5/31/96 246,218 1.31 188,363 9.610%
1,715,640 15,318 288,586 295,021 293,834 302,077 TTM 6/30/96 285,481 1.64 174,139 9.030%
1,706,912 24,041 229,672 311,917 343,589 336,645 TTM 6/30/96 292,460 1.40 208,863 10.780%
1,699,102 17,517 N/A 66,678 243,475 233,155 TTM 6/30/96 232,812 1.40 166,497 9.160%
1,690,881 9,342 216,401 243,346 255,458 291,565 TTM 6/30/96 267,788 1.55 172,595 9.100%
1,667,550 12,444 221,011 170,598 253,282 240,673 TTM 6/30/96 220,069 1.32 166,132 8.800%
1,657,038 29,590 137,738 277,419 363,788 341,906 TTM 6/30/96 257,071 1.38 186,591 9.450%
1,617,452 21,282 255,611 220,090 252,450 275,379 T-11 Annualized 230,776 1.47 157,488 8.580%
1,543,086 9,077 377,091 368,622 371,436 430,558 TTM 6/30/96 314,989 2.00 157,238 9.090%
1,498,132 9,856 181,577 376,734 335,600 377,393 TTM 3/31/96 278,784 1.56 178,863 10.430%
1,399,219 17,064 140,871 211,841 185,454 194,034 TTM 7/31/96 173,303 1.29 133,970 8.900%
1,352,928 7,601 131,458 156,331 196,987 212,676 TTM 6/24/96 200,000 1.36 147,068 9.940%
1,292,614 13,057 159,206 169,054 181,332 181,332 1995 YE 177,358 1.38 128,254 8.750%
1,287,277 17,879 175,792 178,180 171,763 181,953 TTM 7/31/96 160,048 1.30 122,921 8.870%
1,093,650 22 210,817 221,102 215,358 131,617 TTM 6/25/96 158,077 1.30 122,009 9.380%
1,089,147 65 -- 133,298 146,752 166,463 TTM 7/31/96 159,526 1.37 116,836 9.780%
1,047,443 6,125 147,339 158,550 179,334 179,334 YE 1995 170,884 1.54 111,051 9.610%
994,950 10,050 N/A 103,785 113,402 129,127 TTM 5/31/96 132,667 1.36 97,807 9.190%
982,656 10,566 149,630 160,332 165,363 165,363 YE 1995 161,055 1.61 99,901 9.050%
859,272 9,045 118,734 146,999 137,632 141,397 TTM 6/30/96 153,453 1.73 88,806 9.310%
848,552 9,753 111,836 117,367 121,167 132,514 TTM 5/31/96 123,045 1.40 87,703 9.300%
693,863 11,191 95,430 120,302 140,637 133,199 TTM 6/30/96 111,922 1.41 79,233 9.670%*
549,669 13,087 76,662 122,797 104,361 156,832 TTM 6/30/96 116,477 1.89 61,487 9.820%*
- ------------ ---- --------
$782,586,993 1.44 9.226%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BALLOON/
STATED ANTICIPATED ANTICIPATED ANTICIPATED
MATURITY REPAYEMENT REMAINING REMAINING REPAYMENT
DATE DATE TERM LOCKOUT(MO.) LOCKBOX VALUE LTV DATE LTV AMORTIZATION
- ---------- ----------- ----------- ------------ ------- -------------- --- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
06/11/2021 05/11/2006 115 111 $ 5,100,000 58% 48% 300
06/11/2016 06/11/2006 116 112 4,250,000 66% 48% 240
06/11/2026 06/11/2006 116 112 3,600,000 76% 69% 360
05/11/2006 115 111 3,675,000 75% 62% 300
09/11/2016 09/11/2011 179 175 4,400,000 61% 28% 240
08/11/2006 118 114 3,500,000 77% 69% 360
08/11/2021 08/11/2011 178 174 4,500,000 59% 41% 300
09/11/2026 09/11/2006 119 115 Yes 3,350,000 79% 70% 360
08/11/2021 08/11/2011 178 174 4,450,000 58% 40% 300
07/11/2006 117 113 3,400,000 75% 64% 300
06/11/2021 06/11/2003 80 76 3,600,000 71% 64% 300
1,830,000 71% 67%
1,670,000 71% 67%
-------------- --- -----------
09/11/2026 09/11/2003 83 79 $ 3,500,000 71% 67% 360
09/11/2016 239 235 5,000,000 50% 0% 240
03/11/2016 03/11/2006 113 109 3,600,000 69% 50% 240
08/11/2021 08/11/2011 178 174 3,300,000 70% 49% 300
03/11/2021 03/11/2006 113 109 3,300,000 69% 59% 300
09/11/2021 09/11/2011 179 175 3,450,000 66% 46% 300
08/11/2021 08/11/2006 118 114 4,900,000 44% 37% 300
09/11/2016 09/11/2011 179 175 4,200,000 50% 22% 240
07/11/2016 07/11/2008 141 137 3,000,000 69% 44% 240
08/11/2021 08/11/2006 118 114 2,900,000 71% 60% 300
06/11/2011 176 172 2,800,000 72% 49% 300
07/11/2006 117 113 2,900,000 68% 61% 360
08/11/2016 08/11/2011 178 174 3,200,000 60% 28% 240
04/11/2003 78 74 2,675,000 72% 64% 300
03/11/2006 113 109 2,500,000 74% 61% 300
04/11/2003 78 74 3,200,000 58% 52% 300
09/11/2016 09/11/2006 119 115 2,900,000 63% 45% 240
08/11/2016 08/11/2006 118 114 2,720,000 66% 50% 240
08/11/2006 118 114 2,500,000 72% 60% 300
06/11/2011 176 172 2,450,000 72% 49% 300
04/11/2021 294 290 2,700,000 64% 0% 300
08/11/2016 08/11/2006 118 114 2,720,000 63% 47% 240
09/11/2006 119 115 2,375,000 72% 64% 360
04/11/2006 114 110 2,670,000 63% 53% 300
04/11/2003 78 74 2,910,000 57% 51% 300
03/11/2016 233 229 2,400,000 69% 0% 240
09/11/2006 119 115 2,250,000 72% 59% 300
05/11/2021 295 291 3,430,000 45% 0% 300
09/11/2016 09/11/2011 179 175 2,325,000 64% 30% 240
09/11/2026 09/11/2006 119 115 1,905,000 73% 66% 360
08/11/2021 08/11/2011 178 174 2,025,000 67% 46% 300
04/11/2006 114 110 2,060,000 63% 52% 300
09/11/2026 09/11/2006 119 115 1,800,000 72% 64% 360
06/11/2016 06/11/2006 116 112 1,850,000 59% 43% 240
09/11/2021 09/11/2006 119 115 1,800,000 61% 51% 300
07/11/2006 117 113 1,500,000 70% 59% 300
08/11/2006 118 114 1,475,000 67% 61% 360
04/11/2016 234 230 1,350,000 73% 30% 300
09/11/2006 119 115 1,340,000 64% 53% 300
08/11/2006 118 114 1,280,000 66% 55% 300
04/11/2016 04/11/2011 174 170 1,120,000 62% 30% 240
04/11/2018 04/11/2011 174 170 850,000 65% 39% 264
----------- ------------ -------------- --- -----------
144 141 $1,214,500,000 65% 50%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AUDIT/
AGREED UW'EN ACTUAL
UPON IDENTIFIED RESERVE FOR ONGOING ONGOING
YEAR/BUILT UNIT OF OCCUPANCY ANCHOR/MAJOR TENANTS/ PROCEDURE/ DEFERRED CAPITAL CAPITAL CAPITAL
RENOVATED UNIT MEASURE OCCUPANCY PERIOD FRANCHISE REVIEW MAINTENANCE MAINTENANCE ITEMS RESERVES
- ---------- ------- ------- --------- ----------- --------------------- ---------- ----------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1960/1993 168,530 sf 94% TTM 6/30/96 19,500 24,375 $0.20 $0.20
1976 75 beds 74% 6/30/96 -- $ 287 $ 287
1988 42,724 sf 79% 6/4/96 5,300 -- $0.23 $0.20
1974/1995 285 pads 94% 5/31/96 30,500 38,125 $ 25
1968/1994 144 rooms 55% TTM 6/30/96 Holiday Inn 72,910 91,125 5% 4%
1975/1994 361 Pads 91% 6/1/96 50,500 63,125 $ 25
1985/1995 103 rooms 62% TTM 6/30/96 24,000 26,876 5% 4%
1974/1994 108 units 98% 8/10/96 11,125 13,906 $ 250 $ 200
1985 46,651 sf 88% 7/1/96 UT Pediatrics,
Medplex Labs 1,250 -- $0.29 $0.27
1964/1985 84 beds 94% 7/31/96 -- -- $ 250 $ 250
1957/1985 40,300 sf 95% 8/23/96 7,095 8,870 $0.25 $0.25
1971 101 pads 94% 03/01/96 6,000 7,500 $ 25
1982 108 pads 98% 03/01/96 4,000 5,000 $ 25
------- ----------- -----------
209 $ 10,000 $ 12,500
1980/1986 184 units 99% 7/1/96 37,706 47,133 $ 290 $ 290
1970/1994 85 rooms 70% TTM 3/31/96 Best Western 4,325 5,408 5% 4%
1980 60 rooms 78% TTM 6/30/96 Best Western 2,700 -- 5% 4%
1979/1995 92 rooms 61% YE 1995 Holiday Inn 35,455 119,899 5% 4%
1982/1991 54 rooms 91% TTM 6/30/96 Days Inn of America 22,500 28,125 5% 4%
1953 70,116 sf 100% 6/1/96 Reay's, Bullards 12,000 15,000 $0.20 $0.20
1969/1994 140 rooms 64% TTM 6/30/96 Ramada Inn 11,165 13,956 5% 4%
1994/N/A 50 rooms 71% TTM 6/30/96 Holiday Inn Express -- -- 5% 4%
1965 78,561 sf 100% 8/1/96 Georgia Carpet Outlet,
NHD Hardware 197,709 247,136 $0.15 $0.19
1980 200 pads 100% 5/31/96 -- -- $ 25
1970/1994 223 pads 82% 6/30/96 2,860 -- $ 25
1992/1995 65 rooms 75% TTM 6/30/96 Best Western -- -- 5% 4%
1972/1993 175 pads 100% 4/30/96 4,706 5,883 $ 25 $ 25
1971/1994 171 units 84% 7/17/96 219,250 384,376 $ 266 $ 266
1969 146 units 90% 02/25/96 198,400 251,650 $ 250 $ 250
1978/1988 55 rooms 74% TTM 5/31/96 Best Western 10,100 12,625 5% 4%
1989 78 rooms 68% TTM 6/96 17,950 22,438 5% 4%
1983 240 pads 96% 6/18/96 8,500 10,625 $ 25
1965 198 pads 95% 5/31/96 108,000 135,000 $ 35 $ 35
1960/1993 112 pads 100% 6/30/96 500 -- $ 25
1988/1994 71 rooms 74% TTM 6/96 5,800 7,250 5% 4%
1976 97 pads 100% 08/01/96 6,500 8,125 $ 25
1969/1994 181 pads 99% 4/30/96 13,100 16,375 $ 25
1969 134 units 96% 04/25/96 53,175 66,469 $ 271 $ 271
1993 56 rooms 81% TTM 6/30/96 Comfort Inn -- -- 4% 4%
1990 76 units 99% 8/22/96 8,580 10,725 $ 200 $ 200
1972/1995 170 pads 100% 6/30/96 1,000 -- $ 25
1962/1995 152 rooms 52% TTM 3/31/96 Quality Inn 45,250 56,563 5% 4%
1969 82 units 94% 7/31/96 54,282 67,853 $ 325 $ 325
1979/1984 178 pads 74% TTM 6/24/96 -- -- $ 25
1965 99 pads 99% 7/31/96 6,500 8,126 $ 25
1972 72 units 99% 6/1/96 35,690 44,613 $ 233 $ 233
1971 48,886 sf 94% TTM 6/25/96 Minyard Food Stores 35,000 43,750 $0.38 $0.38
1992 16,740 sf 100% 08/01/96 2,395 -- $0.23 $0.23
1970 171 pads 97% 5/25/96 4,560 5,700 $ 25
1973 99 pads 93% 6/3/96 8,500 10,625 $ 25
1951/1970 93 pads 99% 03/31/96 6,900 12,919 $ 25
1966 95 pads 100% TTM 6/30/96 7,800 10,000 $ 25
1966 87 pads 100% 5/9/96 27,540 34,425 $ 25
1988 62 rooms 50% TTM 6/30/96 Super 8 Yes 50 63 5% 4%
1986/1995 42 rooms 71% TTM 6/30/96 Super 8 Yes 625 781 5% 4%
</TABLE>
<PAGE>
ANNEX B
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Asset
Securitization Corporation, Commercial Mortgage Pass-Through Certificates,
Series 1996-D3 (the "Global Securities") will be available only in book-entry
form. Investors in the Global Securities may hold such Global Securities
through any of The Depository Trust Company ("DTC"), CEDEL or Euroclear. The
Global Securities will be tradable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary
trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional Eurobond practice (i.e., seven calendar days settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures
applicable to U.S. corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Offered Certificates will be effected on a delivery
against payment basis through the respective Depositaries of CEDEL and
Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing
organizations of their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name
of CEDE & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, CEDEL and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts
as DTC Participants.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional Eurobonds, except that there will be no temporary global
security and no "lock-up" or restricted period. Global Securities will be
credited to the securities custody accounts on the settlement date against
payment in same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser|Als and seller|Als
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional Eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a CEDEL Participant or a Euroclear Participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL Participant or
Euroclear Participant at least one business day prior to settlement. CEDEL or
Euroclear will instruct the respective Depositary, as the case may be, to
receive the Global Securities against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment
date to and excluding the settlement date, calculated on the basis of a year
of 360 days consisting of twelve 30-day months. Payment will then be made by
the respective Depositary to the DTC Participant's account against delivery
of the Global Securities. After settlement has been completed, the Global
Securities will be credited to the respective clearing system and by the
clearing system, in accordance with its usual procedures, to the CEDEL
Participant's
B-1
<PAGE>
or Euroclear Participant's account. The securities credit will appear the
next day (European time) and the cash debit will be back-valued to, and the
interest on the Global Securities will accrue from, the value date (which
would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade
fails), the CEDEL or Euroclear cash debit will be valued instead as of the
actual settlement date.
CEDEL Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day
funds settlement. The most direct means of doing so is to pre-position funds
for settlement, either from cash on hand or existing lines of credit, as they
would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants can elect not to pre-position funds and allow that
credit line to be drawn upon to finance settlement. Under this procedure,
CEDEL Participants or Euroclear Participants purchasing Global Securities
would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts.
However, interest on the Global Securities would accrue from the value date.
Therefore, in many cases the investment income on the Global Securities
earned during that one day period may substantially reduce or offset the
amount of such overdraft charges, although this result will depend on each
CEDEL Participant|Als or Euroclear Participant|Als particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities
to the respective Depositary for the benefit of CEDEL Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller
on the settlement date. Thus, to the DTC Participant a cross-market
transaction will settle no differently than a trade between two DTC
Participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, CEDEL Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. In these cases,
CEDEL or Euroclear will instruct the respective Depositary, as appropriate,
to deliver the bonds to the DTC Participant's account against payment.
Payment will include interest accrued on the Global Securities from and
including the last coupon payment date to and excluding the settlement date,
calculated on the basis of a year of 360 days consisting of 12 30-day months.
The payment will then be reflected in the account of the CEDEL Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in
the CEDEL Participant's or Euroclear Participant's account would be
back-valued to the value date (which would be the preceding day, when
settlement occurred in New York). Should the CEDEL Participant or Euroclear
Participant have a line of credit with its respective clearing system and
elect to be in debit in anticipation of receipt of the sale proceeds in its
account, the back-valuation will extinguish any overdraft charges incurred
over the one-day period. If settlement is not completed on the intended value
date (i.e., the trade fails) receipt of the cash proceeds in the CEDEL
Participant's or Euroclear Participant's account would instead be valued as
of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase Global
Securities from DTC Participants for delivery to CEDEL Participants or
Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system|Als customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at least one
day prior to the value date for the sale to the CEDEL Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through CEDEL
or Euroclear (or through DTC if the holder has an address outside the U.S.)
will be subject to the 30% U.S. withholding tax that generally applies to
payments
B-2
<PAGE>
of interest (including original issue discount) on registered debt issued by
U.S. Persons (as defined herein), unless (i) each clearing system, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain or intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes
one of the following steps to obtain an exemption or reduced tax rate.
Exceptions for non-U.S. Persons (Form W-8): Beneficial owners of
Certificates that are non-U.S. Persons can obtain a complete exemption from
the withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status). If the information shown on Form W-8 changes, a new Form W-8 must be
filed within 30 days of such change.
Exception for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form 4224 (Exemption from Withholding of
Tax on Income Effectively Connected with the Conduct of a Trade or Business
in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are beneficial owners of a
Certificate and reside in a country that has a tax treaty with the United
States can obtain an exemption or reduced tax rate (depending on the treaty
terms) by filing Form 1001 (Ownership, Exemption or Reduced Rate
Certificate). If the treaty provides only for a reduced rate, withholding tax
will be imposed at that rate unless the filer alternatively files Form W-8.
Form 1001 may be filed by the holder of a Certificate or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer|Als Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The holder of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of
the United States or any political subdivision thereof or (iii) an estate or
trust the income of which is includible in gross income for United States tax
purposes, regardless of its source. This summary does not deal with all
aspects of U.S. federal income tax withholding that may be relevant to
foreign holders of the Global Securities. Investors are advised to consult
their own tax advisors for specific tax advice concerning their holding and
disposing of the Global Securities.
B-3
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
ANNEX C
WEIGHTED AVERAGE NET MORTGAGE PASS-THROUGH RATES
DISTRIBUTION DATE
(ASSUMING THAT THE 13TH DAY OF EACH
MONTH IS THE DISTRIBUTION DATE) WAC
November 13, 1996 ...... =
December 13, 1996 ...... =
January 13, 1997 ....... =
February 13, 1997 ...... =
March 13, 1997 ......... =
April 13, 1997 ......... =
May 13, 1997 ........... =
June 13, 1997 .......... =
July 13, 1997 .......... =
August 13, 1997 ........ =
September 13, 1997 .... =
October 13, 1997 ....... =
November 13, 1997 ...... =
December 13, 1997 ...... =
January 13, 1998 ....... =
February 13, 1998 ...... =
March 13, 1998 ......... =
April 13, 1998 ......... =
May 13, 1998 ........... =
June 13, 1998 .......... =
July 13, 1998 .......... =
August 13, 1998 ........ =
September 13, 1998 .... =
October 13, 1998 ....... =
November 13, 1998 ...... =
December 13, 1998 ...... =
January 13, 1999 ....... =
February 13, 1999 ...... =
March 13, 1999 ......... =
April 13, 1999 ......... =
May 13, 1999 ........... =
June 13, 1999 .......... =
July 13, 1999 .......... =
August 13, 1999 ........ =
September 13, 1999 .... =
October 13, 1999 ....... =
November 13, 1999 ...... =
December 13, 1999 ...... =
January 13, 2000 ....... =
February 13, 2000 ...... =
March 13, 2000 ......... =
April 13, 2000 ......... =
May 13, 2000 ........... =
June 13, 2000 .......... =
July 13, 2000 .......... =
August 13, 2000 ........ =
September 13, 2000 .... =
October 13, 2000 ....... =
November 13, 2000 ...... =
December 13, 2000 ...... =
January 13, 2001 ....... =
February 13, 2001 ...... =
March 13, 2001 ......... =
April 13, 2001 ......... =
May 13, 2001 ........... =
June 13, 2001 .......... =
July 13, 2001 .......... =
August 13, 2001 ........ =
September 13, 2001 .... =
October 13, 2001 ....... =
November 13, 2001 ...... =
December 13, 2001 ...... =
January 13, 2002 ....... =
February 13, 2002 ...... =
March 13, 2002 ......... =
April 13, 2002 ......... =
May 13, 2002 ........... =
June 13, 2002 .......... =
July 13, 2002 .......... =
August 13, 2002 ........ =
September 13, 2002 .... =
October 13, 2002 ....... =
November 13, 2002 ...... =
December 13, 2002 ...... =
January 13, 2003 ....... =
February 13, 2003 ...... =
March 13, 2003 ......... =
April 13, 2003 ......... =
May 13, 2003 ........... =
June 13, 2003 .......... =
July 13, 2003 .......... =
August 13, 2003 ........ =
September 13, 2003 .... =
October 13, 2003 ....... =
November 13, 2003 ...... =
December 13, 2003 ...... =
January 13, 2004 ....... =
February 13, 2004 ...... =
March 13, 2004 ......... =
April 13, 2004 ......... =
C-1
<PAGE>
DISTRIBUTION DATE
(ASSUMING THAT THE 13TH DAY OF EACH
MONTH IS THE DISTRIBUTION DATE) WAC
May 13, 2004 ........... =
June 13, 2004 .......... =
July 13, 2004 .......... =
August 13, 2004 ........ =
September 13, 2004 .... =
October 13, 2004 ....... =
November 13, 2004 ...... =
December 13, 2004 ...... =
January 13, 2005 ....... =
February 13, 2005 ...... =
March 13, 2005 ......... =
April 13, 2005 ......... =
May 13, 2005 ........... =
June 13, 2005 .......... =
July 13, 2005 .......... =
August 13, 2005 ........ =
September 13, 2005 .... =
October 13, 2005 ....... =
November 13, 2005 ...... =
December 13, 2005 ...... =
January 13, 2006 ....... =
February 13, 2006 ...... =
March 13, 2006 ......... =
April 13, 2006 ......... =
May 13, 2006 ........... =
June 13, 2006 .......... =
July 13, 2006 .......... =
August 13, 2006 ........ =
September 13, 2006 .... =
October 13, 2006 ....... =
November 13, 2006 ...... =
December 13, 2006 ...... =
January 13, 2007 ....... =
February 13, 2007 ...... =
March 13, 2007 ......... =
April 13, 2007 ......... =
May 13, 2007 ........... =
June 13, 2007 .......... =
July 13, 2007 .......... =
August 13, 2007 ........ =
September 13, 2007 .... =
October 13, 2007 ....... =
November 13, 2007 ...... =
December 13, 2007 ...... =
January 13, 2008 ....... =
February 13, 2008 ...... =
March 13, 2008 ......... =
April 13, 2008 ......... =
May 13, 2008 ........... =
June 13, 2008 .......... =
July 13, 2008 .......... =
August 13, 2008 ........ =
September 13, 2008 .... =
October 13, 2008 ....... =
November 13, 2008 ...... =
December 13, 2008 ...... =
January 13, 2009 ....... =
February 13, 2009 ...... =
March 13, 2009 ......... =
April 13, 2009 ......... =
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C-2
<PAGE>
DISTRIBUTION DATE
(ASSUMING THAT THE 13TH DAY OF EACH
MONTH IS THE DISTRIBUTION DATE) WAC
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C-3
<PAGE>
DISTRIBUTION DATE (ASSUMING
THAT THE 13TH DAY OF EACH
MONTH IS THE DISTRIBUTION
DATE) WAC
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C-4
<PAGE>
PROSPECTUS DATED OCTOBER 7, 1996
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
ASSET SECURITIZATION CORPORATION
DEPOSITOR
The Certificates offered hereby and by Supplements to this Prospectus (the
"Offered Certificates") will be offered from time to time in series. Each
series of Certificates will represent in the aggregate the entire beneficial
ownership interest in a trust fund (with respect to any series, the "Trust
Fund") consisting of a segregated pool of various types of multifamily or
commercial mortgage loans and/or installment contracts for the sale of
multifamily or commercial properties (the "Mortgage Loans"), mortgage-backed
securities evidencing interests therein or secured thereby (the "MBS"), or a
combination of Mortgage Loans and MBS (with respect to any series,
collectively, "Mortgage Assets"). The Trust Fund for a series of Certificates
may also include letters of credit, insurance policies, guarantees, reserve
funds or other types of credit support, or any combination thereof (with
respect to any series, collectively, "Credit Support"), and currency or
interest rate exchange agreements and other financial assets, or any
combination thereof (with respect to any series, collectively, "Cash Flow
Agreements"). See "Description of the Trust Funds", "Description of the
Certificates" and "Description of Credit Support".
Each series of Certificates will consist of one or more classes of
Certificates that may (i) provide for the accrual of interest thereon based
on fixed, variable or adjustable rates; (ii) be senior or subordinate to one
or more other classes of Certificates in respect of certain distributions on
the Certificates; (iii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iv) be
entitled to interest distributions, with disproportionately low, nominal or
no principal distributions; (v) provide for distributions of accrued interest
thereon only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such series; or
(vi) provide for distributions of principal sequentially, or based on
specified payment schedules, to the extent of available funds, in each case
as described in the related Prospectus Supplement. Any such classes may
include classes of Offered Certificates. See "Description of the
Certificates".
Principal and interest with respect to Certificates will be distributable
monthly, quarterly, semi-annually or at such other intervals and on the dates
specified in the related Prospectus Supplement. Distributions on the
Certificates of any series will be made only from the assets of the related
Trust Fund.
The Certificates of each series will not represent an obligation of or
interest in the Depositor, any Master Servicer, any Special Servicer or any
of their respective affiliates, except to the limited extent described herein
and in the related Prospectus Supplement. Only those Certificates and assets
in the related Trust Fund as are disclosed in the related Prospectus
Supplement will be guaranteed or insured by any governmental agency or
instrumentality or by any other person. The assets in each Trust Fund will be
held in trust for the benefit of the holders of the related series of
Certificates pursuant to a Pooling and Servicing Agreement or a Trust
Agreement, as more fully described herein.
The yield on each class of Certificates of a series will be affected by,
among other things, the rate of payment of principal (including voluntary and
involuntary prepayments) on the Mortgage Assets in the related Trust Fund and
the timing of receipt of such payments as described under the caption "Yield
Considerations" herein and in the related Prospectus Supplement. A Trust Fund
may be subject to early termination under the circumstances described herein
and in the related Prospectus Supplement.
Prospective investors should review the information appearing under the
caption "Special Considerations" herein and such information as may be set
forth under the caption "Special Considerations" in the related Prospectus
Supplement before purchasing any Offered Certificate.
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Trust Fund or a designated portion thereof
as one or more "real estate mortgage investment conduits" for federal income
tax purposes. See also "Federal Income Tax Consequences" herein.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prior to issuance there will have been no market for the Certificates of
any series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will
continue. This Prospectus may not be used to consummate sales of a series of
Offered Certificates unless accompanied by a Prospectus Supplement.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters, as more fully
described under "Method of Distribution" herein and in the related Prospectus
Supplement. All Offered Certificates will be distributed by, or sold by
underwriters managed by:
NOMURA SECURITIES INTERNATIONAL, INC.
THE DATE OF THIS PROSPECTUS IS OCTOBER 7, 1996
<PAGE>
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the Offered Certificates covered by such Prospectus
Supplement, whether or not participating in the distribution thereof, may be
required to deliver such Prospectus Supplement and this Prospectus. This is
in addition to the obligation of dealers to deliver a Prospectus and
Prospectus Supplement when acting as underwriters and with respect to their
unsold allotments or subscriptions.
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement relating
to the Offered Certificates of each series will, among other things, set
forth with respect to such Certificates, as appropriate: (i) a description of
the class or classes of Certificates, the payment provisions with respect to
each such class and the Pass-Through Rate or method of determining the
Pass-Through Rate with respect to each such class; (ii) the aggregate
principal amount and distribution dates relating to such series and, if
applicable, the initial and final scheduled distribution dates for each
class; (iii) information as to the assets comprising the Trust Fund,
including the general characteristics of the assets included therein,
including the Mortgage Assets and any Credit Support and Cash Flow Agreements
(with respect to the Certificates of any series, the "Trust Assets"); (iv)
the circumstances, if any, under which the Trust Fund may be subject to early
termination; (v) additional information with respect to the method of
distribution of such Certificates; (vi) whether one or more REMIC elections
will be made and designation of the regular interests and residual interests;
(vii) the aggregate original percentage ownership interest in the Trust Fund
to be evidenced by each class of Certificates; (viii) information as to any
Master Servicer, any Special Servicer (or provision for the appointment
thereof) and the Trustee, as applicable; (ix) information as to the nature
and extent of subordination with respect to any class of Certificates that is
subordinate in right of payment to any other class; and (x) whether such
Certificates will be initially issued in definitive or book-entry form.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus forms a
part) under the Securities Act of 1933, as amended, with respect to the
Offered Certificates. This Prospectus and the Prospectus Supplement relating
to each series of Certificates contain summaries of the material terms of the
documents referred to herein and therein, but do not contain all of the
information set forth in the Registration Statement pursuant to the rules and
regulations of the Commission. For further information, reference is made to
such Registration Statement and the exhibits thereto. Such Registration
Statement and exhibits can be inspected and copied at prescribed rates at the
public reference facilities maintained by the Commission at its Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
Regional Offices located as follows: Chicago Regional Office, Northwestern
Atrium Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661; and New
York Regional Office, 75 Park Place, 14th Floor, New York, New York 10007.
The Commission also maintains a site on the World Wide Web (the "Web") at
"http://www.sec.gov" at which users can view and download copies of reports,
proxy and information statements and other information filed electronically
through the Electronic Data Gathering, Analysis and Retrieval ("EDGAR")
system.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and any
Prospectus Supplement with respect hereto and, if given or made, such
information or representations must not be relied upon. This Prospectus and
any Prospectus Supplement with respect hereto do not constitute an offer to
sell or a solicitation of an offer to buy any securities other than the
Offered Certificates or an offer of the Offered Certificates to any person in
any state or other jurisdiction in which such offer would be unlawful. The
delivery of this Prospectus at any time does not imply that information
herein is correct as of any time subsequent to its date; however, if any
material change occurs while this Prospectus is required by law to be
delivered, this Prospectus will be amended or supplemented accordingly.
A Master Servicer or the Trustee will be required to mail to holders of
Offered Certificates of each series periodic unaudited reports concerning the
related Trust Fund. Unless and until definitive Certificates are issued, such
reports may be sent on behalf of the related Trust Fund to Cede & Co.
("Cede"), as nominee of The Depository Trust Company ("DTC") and registered
holder of the Offered Certificates, pursuant to the applicable Agreement. If
so specified in the related Prospectus Supplement, such reports may be sent
to beneficial owners identified to the Master Servicer or Trustee. Such
reports may also be available to holders of interests in the Certificates
(the "Certificateholders") upon request to their respective DTC participants.
See "Description of the Certificates --Reports to Certificateholders" and
"Description of the Agreements --Evidence as to Compliance". The Depositor
will file or cause to be filed with the Commission such
2
<PAGE>
periodic reports with respect to each Trust Fund as are required under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations of the Commission thereunder. Reports filed by the
Depositor with the Commission pursuant to the Exchange Act will be filed by
means of EDGAR system and therefore should be available at the Commission's
site on the Web.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Depositor with respect to a Trust Fund pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of the offering of the Offered Certificates evidencing an
interest therein. The Depositor will provide or cause to be provided without
charge to each person to whom this Prospectus is delivered in connection with
the offering of one or more classes of Offered Certificates, a copy of any or
all documents or reports incorporated herein by reference, in each case to
the extent such documents or reports relate to one or more of such classes of
such Offered Certificates, other than the exhibits to such documents (unless
such exhibits are specifically incorporated by reference in such documents).
Requests to the Depositor should be directed in writing to its principal
executive office at 2 World Financial Center --Building B, New York, New York
10281-1198, Attention: Secretary, or by telephone at (212) 667-9300. The
Depositor has determined that its financial statements are not material to
the offering of any Offered Certificates. See "Financial Information" herein.
3
APITAL PRINTING SYSTEMS]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Supplement ................................................................. 2
Available Information ................................................................. 2
Incorporation of Certain Information by Reference ..................................... 3
Summary of Prospectus ................................................................. 8
Special Considerations ................................................................ 13
Limited Liquidity .................................................................... 13
Limited Assets ....................................................................... 13
Average Life of Certificates; Prepayments; Yields .................................... 13
Limited Nature of Ratings ............................................................ 14
Risks Associated with Certain Mortgage Loans and Mortgaged Properties ............... 14
Balloon Payments ..................................................................... 15
Obligor Default ...................................................................... 15
Mortgagor Type ....................................................................... 15
Credit Support Limitations ........................................................... 15
Enforceability ....................................................................... 16
Environmental Risks .................................................................. 16
ERISA Considerations ................................................................. 16
Certain Federal Tax Considerations Regarding Residual Certificates ................... 17
Certain Federal Tax Considerations Regarding Original Issue Discount ................ 17
Consent .............................................................................. 17
Book-Entry Registration .............................................................. 17
Description of the Trust Funds ........................................................ 17
Mortgage Assets ...................................................................... 17
Mortgage Loans ...................................................................... 18
Default and Loss Considerations with Respect to the Mortgage Loans ................. 18
Mortgage Loan Information in Prospectus Supplements ................................. 19
Mortgage Underwriting Standards and Procedures ....................................... 20
Payment Provisions of the Mortgage Loans ............................................ 20
MBS ................................................................................. 21
Collection Accounts .................................................................. 22
Credit Support ....................................................................... 22
Cash Flow Agreements ................................................................. 22
Use of Proceeds ....................................................................... 22
Yield Considerations .................................................................. 22
General .............................................................................. 22
Pass-Through Rate .................................................................... 22
Timing of Payment of Interest and Principal .......................................... 23
Principal Prepayments ................................................................ 23
Prepayments --Maturity and Weighted Average Life ..................................... 23
Other Factors Affecting Weighted Average Life ........................................ 24
Type of Mortgage Loan ............................................................... 24
Foreclosures and Payment Plans ...................................................... 25
Due-on-Sale and Due-on-Encumbrance Clauses .......................................... 25
The Depositor ......................................................................... 25
Description of the Certificates ....................................................... 26
General .............................................................................. 26
Distributions ........................................................................ 28
Available Funds ...................................................................... 28
4
<PAGE>
PAGE
Distributions of Interest on the Certificates ........................................ 28
Distributions of Principal of the Certificates ....................................... 29
Distributions on the Certificates of Prepayment Premiums or in
Respect of Equity Participations ................................................... 29
Allocation of Losses and Shortfalls .................................................. 29
Advances in Respect of Delinquencies ................................................. 30
Reports to Certificateholders ........................................................ 30
Termination .......................................................................... 32
Book-Entry Registration and Definitive Certificates .................................. 32
Description of the Agreements ......................................................... 34
Assignment of Mortgage Assets; Repurchases ........................................... 34
Representations and Warranties; Repurchases .......................................... 35
Payments on Mortgage Assets; Deposits to Collection Account .......................... 36
Collection and Other Servicing Procedures ............................................ 37
Special Servicers .................................................................... 38
Sub-Servicers ........................................................................ 38
Realization Upon Defaulted Whole Loans ............................................... 38
Hazard Insurance Policies ............................................................ 40
Due-on-Sale and Due-on-Encumbrance Provisions ........................................ 41
Retained Interest; Servicing Compensation and Payment of Expenses .................... 41
Evidence as to Compliance ............................................................ 42
Certain Matters Regarding a Master Servicer, a Special Servicer and the Depositor ... 42
Event of Default ..................................................................... 43
Rights Upon Event of Default ......................................................... 43
Amendment ............................................................................ 43
Duties of the Trustee ................................................................ 44
The Trustee .......................................................................... 44
Description of Credit Support ......................................................... 45
General .............................................................................. 45
Subordinate Certificates ............................................................. 45
Cross-Support Provisions ............................................................. 45
Insurance or Guarantees with Respect to the Mortgage Assets .......................... 45
Letter of Credit ..................................................................... 46
Insurance Policies and Surety Bonds .................................................. 46
Certificate Guarantee Insurance ...................................................... 46
Reserve Funds ........................................................................ 46
Certain Legal Aspects of Mortgage Loans ............................................... 48
General .............................................................................. 48
Types of Mortgage Instruments ........................................................ 48
Leases and Rents ..................................................................... 48
Personalty ........................................................................... 49
Installment Contracts ................................................................ 49
Junior Mortgages; Rights of Senior Mortgages or Beneficiaries ........................ 49
Subordinate Financing ................................................................ 50
Foreclosure .......................................................................... 51
Judicial Foreclosure ................................................................ 51
Non-Judicial Foreclosure/Power of Sale .............................................. 51
Limitations on Lender's Rights ...................................................... 51
Rights of Redemption ................................................................ 53
Anti-Deficiency Legislation ......................................................... 53
5
<PAGE>
PAGE
Leasehold Risks ..................................................................... 54
Bankruptcy Laws ..................................................................... 54
Environmental Legislation ............................................................ 56
Due-on-Sale and Due-on-Encumbrance ................................................... 57
Acceleration on Default .............................................................. 57
Default Interest, Prepayment Charges and Prepayments ................................. 57
Applicability of Usury Laws .......................................................... 57
Alternative Mortgage Instruments ..................................................... 58
Soldiers' and Sailors' Civil Relief Act of 1940 ...................................... 58
Forfeitures in Drug and RICO Proceedings ............................................. 58
Certain Laws and Regulations ......................................................... 59
Type of Mortgaged Property ........................................................... 59
Americans with Disabilities Act ...................................................... 59
Federal Income Tax Consequences ....................................................... 60
Federal Income Tax Consequences for REMIC Certificates ............................... 60
General ............................................................................. 60
Status of REMIC Certificates ........................................................ 60
Qualification as a REMIC ............................................................ 61
Taxation of Regular Certificates ..................................................... 62
General ............................................................................. 62
Original Issue Discount ............................................................. 63
Acquisition Premium ................................................................. 65
Variable Rate Regular Certificates .................................................. 65
Deferred Interest ................................................................... 66
Market Discount ..................................................................... 66
Premium ............................................................................. 67
Election to Treat All Interest Under the Constant Yield Method ...................... 67
Sale or Exchange of Regular Certificates ............................................ 67
Treatment of Losses ................................................................. 68
Taxation of Residual Certificates .................................................... 68
Taxation of REMIC Income ............................................................ 68
Basis and Losses .................................................................... 69
Treatment of Certain Items of REMIC Income and Expense .............................. 70
Limitations on Offset or Exemption of REMIC Income .................................. 71
Tax-Related Restrictions on Transfer of Residual Certificates ....................... 71
Sale or Exchange of a Residual Certificate .......................................... 73
Mark to Market Regulations .......................................................... 74
Taxes That May Be Imposed on the REMIC Pool .......................................... 74
Prohibited Transactions ............................................................. 74
Contributions to the REMIC Pool After the Startup Day ............................... 74
Net Income from Foreclosure Property ................................................ 74
Liquidation of the REMIC Pool ........................................................ 75
Administrative Matters ............................................................... 75
Limitations on Deduction of Certain Expenses ......................................... 75
Taxation of Certain Foreign Investors ................................................ 76
Regular Certificates ................................................................ 76
Residual Certificates ............................................................... 76
Backup Withholding ................................................................... 76
Reporting Requirements ............................................................... 77
6
<PAGE>
PAGE
Federal Income Tax Consequences for Certificates as to
Which No REMIC Election Is Made ..................................................... 77
Standard Certificates ................................................................ 77
General ............................................................................. 77
Tax Status .......................................................................... 78
Premium and Discount ................................................................ 78
Recharacterization of Servicing Fees ................................................ 79
Sale or Exchange of Standard Certificates ........................................... 79
Stripped Certificates ................................................................ 80
General ............................................................................. 80
Status of Stripped Certificates ..................................................... 81
Taxation of Stripped Certificates ................................................... 81
Reporting Requirements and Backup Withholding ........................................ 82
Taxation of Certain Foreign Investors ................................................ 82
ERISA Considerations .................................................................. 84
General .............................................................................. 84
Certain Requirements Under ERISA ..................................................... 84
General ............................................................................. 84
Parties in Interest/Disqualified Persons ............................................ 84
Delegation of Fiduciary Duty ........................................................ 84
Administrative Exemptions ............................................................ 85
Governmental Plans ................................................................... 85
Unrelated Business Taxable Income; Residual Certificates ............................. 85
Legal Investment ...................................................................... 85
Method of Distribution ................................................................ 87
Legal Matters ......................................................................... 88
Financial Information ................................................................. 88
Rating ................................................................................ 88
Index of Principal Definitions ........................................................ 89
</TABLE>
7
<PAGE>
SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in its
entirety by reference to the more detailed information appearing elsewhere in
this Prospectus and by reference to the information with respect to each
series of Certificates contained in the Prospectus Supplement to be prepared
and delivered in connection with the offering of such series. An Index of
Principal Definitions is included at the end of this Prospectus.
Title of Certificates .. Mortgage Pass-Through Certificates, issuable
in series (the "Certificates").
Depositor .............. Asset Securitization Corporation, a
wholly-owned subsidiary of Nomura Asset
Capital Corporation. See "The Depositor".
Master Servicer ........ The master servicer (the "Master Servicer"),
if any, for each series of Certificates will
be named in the related Prospectus
Supplement. See "Description of the
Agreements --Collection and Other Servicing
Procedures".
Special Servicer ....... The special servicer (the "Special
Servicer"), if any, for each series of
Certificates will be named, or the
circumstances in accordance with which a
Special Servicer will be appointed will be
described, in the related Prospectus
Supplement. See "Description of the
Agreements --Special Servicer".
Trustee ................ The trustee (the "Trustee") for each series
of Certificates will be named in the related
Prospectus Supplement. See "Description of
the Agreements --The Trustee".
The Trust Assets ....... Each series of Certificates will represent
in the aggregate the entire beneficial
ownership interest in a Trust Fund
consisting primarily of:
(a) Mortgage Assets ... The Mortgage Assets with respect to each
series of Certificates will consist of a
pool of multifamily and/or commercial
mortgage loans and/or installment contracts
("Installment Contracts") for the sale of
commercial or multifamily properties
(collectively, the "Mortgage Loans"),
mortgage participations, mortgage
pass-through certificates or other
mortgage-backed securities evidencing
interests in or secured by Mortgage Loans
(collectively, the "MBS") or a combination
of Mortgage Loans and MBS. Except to the
extent described in the related Prospectus
Supplement, the Mortgage Loans will not be
guaranteed or insured by the Depositor or
any of its affiliates or by any governmental
agency or instrumentality or other person.
As more specifically described herein, the
Mortgage Loans will be secured by liens on,
or security interest in, properties
consisting of (i) residential properties
consisting of five or more rental or
cooperatively-owned dwelling units (the
"Multifamily Properties") or (ii) office
buildings, shopping centers, hotels, motels,
nursing homes, hospitals or other
health-care related facilities, mobile home
parts, warehouse facilities, mini-warehouse
facilities or self-storage facilities,
industrial plants, mixed use or other types
of commercial properties (the "Commercial
Properties" and together with Multifamily
Properties, the "Mortgaged Properties"). The
Mortgaged Properties may be located in any
one of the fifty states or the District of
Co lumbia or such other locations as are
disclosed in the related Prospectus
Supplement. All Mortgage Loans will have
individual principal balances at origination
of not less than $25,000 and original terms
to maturity of not more than 40 years. All
Mortgage Loans will have been originated by
persons other than the Depositor, and all
Mortgage Assets will have been purchased,
either directly or indirectly, by the
Depositor on or before the date of initial
issuance of the related series of
Certificates. As described herein and in the
Prospectus Supplement, each Mortgage Loan
may (i) provide for no accrual of interest
or for accrual of interest thereon at an
interest rate (a "Mortgage Rate") that is
fixed over its term or that adjusts from
time to time, or that may be converted from
an adjustable
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to a fixed Mortgage Rate, or from a fixed to
an adjustable Mortgage Rate, from time to
time at the mortgagor's election; (ii)
provide for scheduled payments to maturity,
payments that adjust from time to time in
accommodate changes in the Mortgage Rate or
to reflect the occurrence of certain events,
and may provide negative amortization or
accelerated amortization; (iii) be fully
amortizing or require a balloon payment due
on its stated maturity date; (iv) contain
prohibitions on prepayment or require
payment of a premium or a yield maintenance
penalty in connection with a prepayment; and
(v) provide for payments of principal,
interest or both, on due dates that occur
monthly, quarterly, semi-annually or other
interval. See "Description of the Trust
Funds --Mortgage Assets".
(b) Collection Account Each Trust Fund will include one or more
accounts (collectively, the "Collection
Account") established and maintained on
behalf of the Certificateholders into which
the person or persons designated in the
related Prospectus Supplement will deposit
all payments and collections received or
advanced with respect to the Mortgage Assets
and other assets in the Trust Fund other
than certain fees and expenses. A Collection
Account may be maintained as an interest
bearing or a non-interest bearing account,
and funds held therein may be invested in
certain short-term, investment grade
obligations, as described in the related
Prospectus Supplement. See "Description of
the Agreements --Payments on Mortgage
Assets; Deposits to Collection Account".
(c) Credit Support .... If so provided in the related Prospectus
Supplement, partial or full protection
against certain defaults and losses on the
Mortgage Assets in the related Trust Fund
may be provided to one or more classes of
Certificates of the related series in the
form of subordination of one or more other
classes of Certificates of such series or by
one or more other types of credit support,
such as a letter of credit, an insurance
policy on the Mortgage Loans, guarantee,
certificate guarantee insurance policy,
reserve fund or another type of credit
support, or a combination thereof (any such
coverage with respect to the Certificates of
any series, "Credit Support"). The amount
and types of coverage, the identification of
the entity providing the coverage (if
applicable) and related information with
respect to each type of Credit Support, if
any, will be described in the Prospectus
Supplement for a series of Certificates. The
Prospectus Supplement for any series of
Certificates evidencing an interest in a
Trust Fund that includes MBS will describe
any credit support that is included as part
of the trust fund evidenced or secured by
such MBS. See "Special Considerations
--Credit Support Limitations" and
"Description of Credit Support".
(d) Cash Flow
Agreements ......... If so provided in the related Prospectus
Supplement, the Trust Fund may include
guaranteed investment contracts pursuant to
which moneys held in the funds and accounts
established for the related series will be
invested at a specified rate. The Trust Fund
may also include certain other agreements,
such as interest rate exchange agreements,
interest rate cap or floor agreements,
currency exchange agreements or similar
agreements provided to reduce the effects of
interest rate or currency exchange rate
fluctuations on the Mortgage Assets on one
or more classes of Certificates. The
principal terms of any such guaranteed
investment contract or other agreement (any
such agreement, a "Cash Flow Agreement"),
including provisions relating to the timing,
manner and amount of payments thereunder and
provisions relating to the termination
thereof, will be described in the Prospectus
Supplement for the related series. In
addition, the related Prospectus Supplement
will provide certain information with
respect to the obligor under any such Cash
Flow Agreement. The Prospectus Supplement
for any series of Certificates evidencing an
interest in a Trust Fund that includes MBS
will describe any cash flow agreements that
are included as part of the trust fund
evidenced
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<PAGE>
or secured by such MBS. See "Description of
the Trust Funds --Cash Flow Agreements".
Description of
Certificates ........... Each series of Certificates evidencing an
interest in a Trust Fund consisting of
Mortgage Loans will be issued pursuant to a
Pooling and Servicing Agreement and each
series of Certificates evidencing an
interest in a Trust Fund the Mortgage Assets
of which consisting of MBS will be issued
pursuant to a Trust Agreement. Pooling and
Servicing Agreements and Trust Agreements
are sometimes referred to herein as
"Agreements". Each series of Certificates
(including any class or classes of
Certificates of such series not offered
hereby) will represent in the aggregate the
entire beneficial ownership interest in the
Trust Fund. Each class of Certificates
(other than certain Stripped Interest
Certificates, as defined below) will have a
stated principal amount (a "Certificate
Balance") and (other than certain Stripped
Principal Certificates, as defined below),
will accrue interest thereon based on a
fixed, variable or adjustable interest rate
(a "Pass-Through Rate"). The related
Prospectus Supplement will specify the
Certificate Balance and the Pass-Through
Rate for each class of Certificates, as
applicable, or in the case of a variable or
adjustable Pass-Through Rate, the method for
determining the Pass-Through Rate. Each
series of Certificates will consist of one
or more classes or subclasses of
Certificates that may (i) be senior
(collectively, "Senior Certificates") or
subordinate (collectively, "Subordinate
Certificates") to one or more other classes
of Certificates in respect of certain
distributions on the Certificates; (ii) be
entitled to principal distributions, with
disproportionately low, nominal or no
interest distributions (collectively,
"Stripped Principal Certificates"); (iii) be
entitled to interest distributions, with
disproportionately low, nominal or no
principal distributions (collectively,
"Stripped Interest Certificates"), (iv)
provide for distributions of accrued
interest thereon only following the
occurrence of certain events, such as the
retirement of one or more other classes of
Certificates of such series (collectively,
"Accrual Certificates"); and/or (v) provide
for payments of principal sequentially,
based on specified payment schedules or
other methodologies, to the extent of
available funds. Any such classes or
subclasses may include classes or subclasses
of Offered Certificates. The Certificates
will not be guaranteed or insured by the
Depositor or any of its affiliates, by any
governmental agency or instrumentality or by
any other person, unless otherwise provided
in the related Prospectus Supplement. See
"Special Considerations --Limited Assets"
and "Description of the Certificates".
Distributions of
Interest on
Certificates .......... Interest on each class of Offered
Certificates (other than certain classes of
Stripped Interest Certificates and Stripped
Principal Certificates) of each series will
accrue at the applicable Pass-Through Rate
on the outstanding Certificate Balance
thereof and will be distributed to
Certificateholders as provided in the
related Prospectus Supplement (each of the
specified dates on which distributions are
to be made, a "Distribution Date").
Distributions with respect to interest on
Stripped Interest Certificates may be made
on each Distribution Date on the basis of a
notional amount as described in the related
Prospectus Supplement. Distributions of
interest with respect to one or more classes
of Certificates may be reduced to the extent
of certain delinquencies and other
contingencies described herein and in the
related Prospectus Supplement. See "Special
Considerations --Average Life of
Certificates; Prepayments; Yields", "Yield
Considerations", and "Description of the
Certificates --Distributions of Interest on
the Certificates".
Distributions of
Principal of
Certificates .......... The initial aggregate Certificate Balance of
the Certificates of each series (other than
certain classes of Stripped Interest
Certificates) will generally not exceed the
outstanding principal balance of the
Mortgage Assets as of the close of business
on the day of the month specified in the
related Trust Fund (the "Cut-off Date"),
after application of
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<PAGE>
scheduled payments due on or before such
date, whether or not received. The
Certificate Balance of a Certificate
outstanding from time to time represents the
maximum amount that the holder thereof is
then entitled to receive in respect of
principal from future cash flow on the
assets in the related Trust Fund.
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 have been reduced to zero.
Distributions of principal of any class of
Certificates will be made on a pro rata
basis among all of the Certificates of such
class. Stripped Interest Certificates with
no Certificate Balance will not receive
distributions in respect of principal. See
"Description of the Certificates
--Distributions of Principal of the
Certificates".
Advances ............... In connection with a series of Certificates
evidencing an interest in a Trust Fund
consisting of Mortgage Assets other than
MBS, the Master Servicer may be obligated as
part of its servicing responsibilities to
make certain advances with respect to
delinquent scheduled payments or the
Mortgage Loans in such Trust Fund. Advances
made by a Master Servicer are reimbursable
generally from subsequent recoveries in
respect of such Mortgage Loans, and in
certain circumstances, from other assets
available in the Trust Fund. The Master
Servicer will be entitled to receive
interest on its outstanding advances,
payable from amounts in the related Trust
Fund. The Prospectus Supplement for any
series of Certificates evidencing an
interest in a Trust Fund that includes MBS
will describe any corresponding advancing
obligation of any person in connection with
such MBS. See "Description of the
Certificates --Advances in Respect of
Delinquencies".
Termination ............ A series of Certificates may be subject to
optional early termination through the
repurchase of the Mortgage Assets in the
related Trust Fund. If so provided in the
related Prospectus Supplement, upon the
reduction of the Certificate Balance of a
specified class or classes of Certificates
by a specified percentage or amount, the
party specified therein will solicit bids
for the purchase of all of the Mortgage
Assets of the Trust Fund under the
circumstances and in the manner set forth
therein. See "Description of the
Certificates --Termination".
Registration of
Certificates ........... If so provided in the related Prospectus
Supplement, one or more classes of the
Offered Certificates will initially be
represented by one or more Certificates
registered in the name of Cede & Co., as the
nominee of DTC. No person acquiring an
interest in Offered Certificates so
registered will be entitled to receive a
definitive certificate representing such
person's interest except in the event that
definitive certificates are issued under the
limited circumstances described herein. See
"Special Considerations --Book-Entry
Registration" and "Description of the
Certificates --Book-Entry Registration and
Definitive Certificates".
Federal Income Tax
Consequences .......... The federal income tax consequences to
Certificateholders will vary depending on
whether one or more elections are made to
treat the Trust Fund or specified portions
thereof as one or more "real estate mortgage
investment conduits" (each, a "REMIC") under
the provisions of the Internal Revenue Code
of 1986, as amended (the "Code"). The
Prospectus Supplement for each series of
Certificates will specify whether one or
more such elections will be made. See
"Federal Income Tax Consequences".
ERISA Considerations ... A fiduciary of an employee benefit plan or
other retirement arrangement, including an
individual retirement account, or a Keogh
plan which is subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the
Code (each a "Plan"), or a collective
investment fund in which such Plans are
invested, or an insurance company using
assets of a separate account or general
account which
11
AGE>
includes assets of Plans (or which is deemed
pursuant to ERISA to include assets of
Plans), or other pensions acting on behalf
of any such Plan or using the assets of any
such Plan, which proposes to cause a Plan to
acquire any of the Offered Certificates
should carefully review with its legal
advisors whether the purchase or holding of
Offered Certificates could give rise to a
transaction that is prohibited or is not
otherwise permissible either under ERISA or
Section 4975 of the Code. See "ERISA
Considerations" herein and in the related
Prospectus Supplement.
Legal Investment ....... The related Prospectus Supplement will
specify whether the Offered Certificates
will constitute "mortgage related
securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984. It
is not currently anticipated that such
Certificates will constitute "mortgage
related securities" for purposes of such
Act. Accordingly, investors whose investment
authority is subject to legal restrictions
should consult their own legal advisors to
determine whether and to what extent the
Offered Certificates constitute legal
investments for them. See "Legal Investment"
herein and in the related Prospectus
Supplement.
Rating ................. At the date of issuance, as to each series,
each class of Offered Certificates will be
rated not lower than investment grade by one
or more nationally recognized statistical
rating agencies (each, a "Rating Agency").
See "Rating" herein and in the related
Prospectus Supplement.
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<PAGE>
SPECIAL CONSIDERATIONS
Investors should consider, in connection with the purchase of Offered
Certificates, among other things, the following factors and certain other
factors as may be set forth in "Special Considerations" in the related
Prospectus Supplement.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates of
any series will develop or, if it does develop, that it will provide holders
with liquidity of investment or will continue while Certificates of such
series remain outstanding. Any such secondary market may provide less
liquidity to investors than any comparable market for securities evidencing
interests in single-family mortgage loans. The market value of Certificates
will fluctuate with changes in prevailing rates of interest. Consequently,
sale of Certificates by a holder in any secondary market that may develop may
be at a discount from 100% of their original principal balance or from their
purchase price. Furthermore, secondary market purchasers may look only
hereto, to the related Prospectus Supplement and to the reports to
Certificateholders delivered pursuant to the Agreement as described herein
under the heading "Description of the Certificates --Reports to
Certificateholders," "--Book-Entry Registration and Definitive Certificates"
and "Description of the Agreements -- Evidence as to Compliance" for
information concerning the Certificates. Certificateholders will have no
redemption rights. Each class of Offered Certificates of a series will be
issued in minimum denominations corresponding to Certificate Balances or, in
the case of Stripped Interest Certificates, notional amounts specified in the
related Prospectus Supplement. Nomura Securities International, Inc., through
one or more of its affiliates, currently expects to make a secondary market
in the Offered Certificates, but has no obligation to do so.
LIMITED ASSETS
A series of Certificates will not have any claim against or security
interest in the Trust Funds for any other series. If the related Trust Fund
is insufficient to make payments on such Certificates, no other assets will
be available for payment of the deficiency. Additionally, certain amounts
remaining in certain funds or accounts, including the Certificate Account and
any accounts maintained as Credit Support, may be withdrawn under certain
conditions, as described in the related Prospectus Supplement. In the event
of such withdrawal, such amounts will not be available for future payment of
principal of or interest on the Certificates. With respect to a series of
Certificates consisting of one or more classes of Subordinate Certificates,
on any Distribution Date in respect of which losses or shortfalls in
collections on the Mortgage Assets have been incurred, the amount of such
losses or shortfalls will be borne first by one or more classes of the
Subordinate Certificates, and, thereafter, by the remaining classes of
Certificates in the priority and manner and subject to the limitations
specified in the related Prospectus Supplement.
AVERAGE LIFE OF CERTIFICATES; PREPAYMENTS; YIELDS
Prepayments on the Mortgage Assets in any Trust Fund (including principal
prepayments on the Mortgage Loans resulting from both voluntary and
involuntary liquidations) generally will result in a faster rate of principal
payments on one or more classes of the related Certificates than if payments
on such Mortgage Assets were made as scheduled. Thus, the prepayment
experience on the Mortgage Assets may affect the average life of each class
of related Certificates. The rate of principal payments on pools of mortgage
loans varies between pools and from time to time is influenced by a variety
of economic, demographic, geographic, social, tax, legal and other factors.
There can be no assurance as to the rate of prepayment on the Mortgage Assets
in any Trust Fund or that the rate of payments will conform to any model
described herein or in any Prospectus Supplement. If prevailing interest
rates fall significantly below the applicable mortgage rates, principal
prepayments are likely to be higher than if prevailing rates remain at or
above the rates borne by the Mortgage Loans underlying or comprising the
Mortgage Assets in any Trust Fund. As a result, the actual maturity of any
class of Certificates could occur significantly earlier than expected. A
series of Certificates may include one or more classes of Certificates with
priorities of payment and, as a result, yields on other classes of
Certificates, including classes of Offered Certificates, of such series may
be more sensitive to prepayments on Mortgage Assets. A series of Certificates
may include one or more classes offered at a significant premium or discount.
Yields on such classes of Certificates will be sensitive, and in some cases
extremely sensitive, to voluntary and involuntary prepayments on Mortgage
Assets and, where the amount of interest payable with respect to a class is
disproportionately high, as compared to the amount of principal, as with
certain classes of Stripped Interest Certificates, a holder might, in some
prepayment scenarios, fail to recoup its original investment. A series of
Certificates may include one or more classes of Certificates, including
classes of Offered Certificates, that provide for distribution of principal
thereof from amounts attributable to interest accrued but not
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<PAGE>
currently distributable on one or more classes of Accrual Certificates and,
as a result, yields on such Certificates will be sensitive to (a) the
provisions of such Accrual Certificates relating to the timing of
distributions of interest thereon and (b) if such Accrual Certificates accrue
interest at a variable or adjustable Pass-Through Rate, changes in such rate.
See "Yield Considerations" herein and, if applicable, in the related
Prospectus Supplement.
LIMITED NATURE OF RATINGS
Any rating assigned by a Rating Agency to a class of Certificates will
reflect such Rating Agency's assessment solely of the likelihood that holders
of Certificates of such class will receive payments to which such
Certificateholders are entitled under the related Agreement. Such rating will
not constitute an assessment of the likelihood that principal prepayments on
the related Mortgage Assets will be made, the degree to which the rate of
such prepayments might differ from that originally anticipated or the
likelihood of early optional termination of the series of Certificates. Such
rating will not address the possibility that prepayment at higher or lower
rates than anticipated by an investor may cause such investor to experience a
lower than anticipated yield or that an investor purchasing a Certificate at
a significant premium might fail to recoup its initial investment under
certain prepayment scenarios. Each Prospectus Supplement will identify any
payment to which holders of Offered Certificates of the related series are
entitled that is not covered by the applicable rating.
The amount, type and nature of credit support, if any, established with
respect to a series of Certificates will be determined on the basis of
criteria established by each Rating Agency rating classes of such series.
Such criteria are sometimes based upon an actuarial analysis of the behavior
of mortgage loans in a larger group. Such analysis is often the basis upon
which each Rating Agency determines the amount of credit support required
with respect to each such class. There can be no assurance that the
historical data supporting any such actuarial analysis will accurately
reflect future experience nor any assurance that the data derived from a
large pool of mortgage loans accurately predicts the delinquency, foreclosure
or loss experience of any particular pool of Mortgage Assets. No assurance
can be given that values of any Mortgaged Properties have remained or will
remain at their levels on the respective dates of origination of the related
Mortgage Loans. Moreover, there is no assurance that appreciation of real
estate values generally will limit loss experiences on the Mortgaged
Properties. If the commercial or multifamily residential real estate markets
should experience an overall decline in property values such that the
outstanding principal balances of the Mortgage Loans underlying or comprising
the Mortgage Assets in a particular Trust Fund and any secondary financing on
the related Mortgaged Properties become equal to or greater than the value of
the Mortgaged Properties, the rates of delinquencies, foreclosures and losses
could be higher than those now generally experienced by institutional
lenders. In addition, adverse economic conditions (which may or may not
affect real property values) may affect the timely payment by mortgagors of
scheduled payments of principal and interest on the Mortgage Loans and,
accordingly, the rates of delinquencies, foreclosures and losses with respect
to any Trust Fund. To the extent that such losses are not covered by Credit
Support, such losses will be borne, at least in part, by the holders of one
or more classes of the Certificates of the related series. See "Description
of Credit Support" and "Rating".
RISKS ASSOCIATED WITH CERTAIN MORTGAGE LOANS AND MORTGAGED PROPERTIES
Mortgage loans made with respect to multifamily or commercial property may
entail risks of delinquency and foreclosure, and risks of loss in the event
thereof, that are greater than similar risks associated with single-family
property. See "Description of the Trust Funds--Mortgage Assets". The ability
of a mortgagor to repay a loan secured by an income-producing property
typically is dependent primarily upon the successful operation of such
property rather than any independent income or assets of the mortgagor; thus,
the value of an income-producing property is directly related to the net
operating income derived from such property. In contrast, the ability of a
mortgagor to repay a single-family loan typically is dependent primarily upon
the mortgagor's household income, rather than the capacity of the property to
produce income; thus, other than in geographical areas where employment is
dependent upon a particular employer or an industry, the mortgagor's income
tends not to reflect directly the value of such property. A decline in the
net operating income of an income-producing property will likely affect both
the performance of the related loan as well as the liquidation value of such
property, whereas a decline in the income of a mortgagor on a single-family
property will likely affect the performance of the related loan but may not
affect the liquidation value of such property.
The performance of a mortgage loan secured by an income-producing property
leased by the mortgagor to tenants as well as the liquidation value of such
property may be dependent upon the business operated by such tenants in
connection with such property, the creditworthiness of such tenants or both;
the risks associated with such loans may be offset by the number of tenants
or, of applicable, a diversity of types of business operated by such tenants.
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<PAGE>
It is anticipated that all or a substantial portion of the Mortgage Loans
included in any Trust Fund will be nonrecourse loans or loans for which
recourse may be restricted or unenforceable, as to which, in the event of
mortgagor default, recourse may be had only against the specific multifamily
or commercial property and such other assets, if any, as have been pledged to
secure the Mortgage Loan. With respect to those Mortgage Loans that provide
for recourse against the mortgagor and its assets generally, there can be no
assurance that such recourse will ensure a recovery in respect of a defaulted
Mortgage Loan greater than the liquidation value of the related Mortgaged
Property.
Further, the concentration of default, foreclosure and loss risks in
individual mortgagors or Mortgage Loans in a particular Trust Fund or the
related Mortgaged Properties will generally be greater than for pools of
single-family loans both because the Mortgage Assets in a Trust Fund will
generally consist of a smaller number of loans than would a single-family
pool of comparable aggregate unpaid principal balance and because of the
higher principal balance of individual Mortgage Loans.
BALLOON PAYMENTS
Certain of the Mortgage Loans as of the Cut-off Date may not be fully
amortizing over their terms to maturity and, thus, will require substantial
principal payments (i.e., balloon payments) at their stated maturity.
Mortgage Loans with balloon payments involve a greater degree of risk because
the ability of a mortgagor to make a balloon payment typically will depend
upon its ability either to timely refinance the loan or to timely sell the
related Mortgaged Property. The ability of a mortgagor to accomplish either
of these goals will be affected by a number of factors, including the level
of available mortgage rates at the time of sale or refinancing, the
mortgagor's equity in the related Mortgaged Property, the financial condition
and operating history of the mortgagor and the related Mortgaged Property,
tax laws, rent control laws (with respect to certain Multifamily Properties
and mobile home parks), reimbursement rates (with respect to certain
hospitals, nursing homes and convalescent homes), renewability of operating
licenses, prevailing general economic conditions and the availability of
credit for commercial or multifamily, as the case may be, real properties
generally.
OBLIGOR DEFAULT
In order to maximize recoveries on defaulted Mortgage Loans, a Master
Servicer typically will have considerable flexibility to extend and modify
Mortgage Loans that are in default or as to which a payment default is
reasonably foreseeable, including in particular with respect to balloon
payments. In addition, a Master Servicer or a Special Servicer may receive a
workout fee based on receipts from or proceeds of such Mortgage Loans. While
a Master Servicer generally will be required to determine that any such
extension or modification is likely to produce a greater recovery on a
present value basis than liquidation, there can be no assurance that such
flexibility with respect to extensions or modifications or payment of a
workout fee will increase the present value of receipts from or proceeds of
Mortgage Loans that are in default or as to which a default is reasonably
foreseeable. The recent foreclosure and delinquency experience with respect
to loans serviced by a Master Servicer or, if applicable, any Special
Servicer or significant Sub-Servicer will be provided in the related
Prospectus Supplement.
MORTGAGOR TYPE
Mortgage Loans made to partnerships, corporations or other entities may
entail risks of loss from delinquency and foreclosure that are greater than
those of Mortgage Loans made to individuals. The mortgagor's sophistication
and form of organization may increase the likelihood of protracted litigation
or bankruptcy in default situations.
CREDIT SUPPORT LIMITATIONS
The Prospectus Supplement for a series of Certificates will describe any
Credit Support in the related Trust Fund, which may include letters of
credit, insurance policies, guarantees, reserve funds or other types of
credit support, or combinations thereof. Use of Credit Support will be
subject to the conditions and limitations described herein and in the related
Prospectus Supplement. Moreover, such Credit Support may not cover all
potential losses or risks; for example, Credit Support may or may not cover
fraud or negligence by a mortgage loan originator or other parties.
A series of Certificates may include one or more classes of Subordinate
Certificates (which may include Offered Certificates). 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. Any limits with
respect to the aggregate amount of claims under any related Credit Support
may be exhausted before the
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<PAGE>
principal of the lower priority classes of Certificates of a series has been
repaid. As a result, the impact of significant losses and shortfalls on the
Mortgage Assets may fall primarily upon those classes of Certificates having
a lower priority of payment. Moreover, if a form of Credit Support covers
more than one series of Certificates (each, a "Covered Trust"), holders of
Certificates evidencing an interest in a Covered Trust will be subject to the
risk that such Credit Support will be exhausted by the claims of other
Covered Trusts.
The amount of any applicable Credit Support supporting one or more classes
of Offered Certificates, including the subordination of one or more classes
of Certificates, will be determined on the basis of criteria established by
each Rating Agency rating such classes of Certificates based on an assumed
level of defaults, delinquencies, other losses or other factors. There can,
however, be no assurance that the loss experience on the related Mortgage
Assets will not exceed such assumed levels. See "--Limited Nature of
Ratings", "Description of the Certificates" and "Description of Credit
Support".
ENFORCEABILITY
Mortgages may contain a due-on-sale clause, which permits the lender to
accelerate the maturity of the Mortgage Loan if the mortgagor sells,
transfers or conveys the related Mortgaged Property or its interest in the
Mortgaged Property. Mortgages may also include a debt-acceleration clause,
which permits the lender to accelerate the debt upon a monetary or
non-monetary default of the mortgagor. The courts of all states will enforce
clauses providing for acceleration in the event of a material payment
default. The equity courts of any state, however, may refuse the foreclosure
of a mortgage or deed of trust when an acceleration of the indebtedness would
be inequitable or unjust or the circumstances would render the acceleration
unconscionable.
If so specified in the related Prospectus Supplement, the Mortgage Loans
will be secured by an assignment of leases and rents pursuant to which the
mortgagor typically assigns its right, title and interest as landlord under
the leases on the related Mortgaged Property and the income derived therefrom
to the lender as further security for the related Mortgage Loan, while
retaining a license to collect rents for so long as there is no default. In
the event the mortgagor defaults, the license terminates and the lender is
entitled to collect rents. Such assignments may not be perfected as security
interests prior to actual possession of the cash flows. Some state laws may
require that the lender take possession of the Mortgaged Property and obtain
a judicial appointment of a receiver before becoming entitled to collect the
rents. In addition, if bankruptcy or similar proceedings are commenced by or
in respect of the mortgagor, the lender's ability to collect the rents may be
adversely affected. See "Certain Legal Aspects of Mortgage Loans --Leases and
Rents".
ENVIRONMENTAL RISKS
Real property pledged as security for a mortgage loan may be subject to
certain environmental risks. Under the laws of certain states, contamination
of a property may give rise to a lien on the property to assure the costs of
cleanup. In several states, such a lien has priority over the lien of an
existing mortgage against such property. In addition, under the laws of some
states and under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), a lender may be liable, as
an "owner" or "operator," for the costs of addressing releases or threatened
releases of hazardous substances that require remedial action at a property,
if agents or employees of the lender have become sufficiently involved in the
operations of the mortgagor, regardless of whether the environmental damage
or threat was caused by a prior owner. A lender also risks such liability on
foreclosure of the mortgage. Each Pooling and Servicing Agreement will
provide that the Master Servicer, acting on behalf of the Trust Fund, may not
acquire title to a Mortgaged Property securing a Mortgage Loan or take over
its operation unless the Master Servicer has previously determined, based
upon a report prepared by a person who regularly conducts environmental
audits, that (i) the Mortgaged Property is in compliance with applicable
environmental laws and regulations or, if not, that taking such actions as
are necessary to bring the Mortgaged Property in compliance therewith is
reasonably likely to produce a greater recovery on a present value basis than
not taking such actions and (ii) there are no circumstances or conditions
that have resulted in any contamination or, if circumstances or conditions
have resulted in any contamination or if such circumstances or conditions
require remedial action, taking such actions with respect to the affected
Mortgaged Property is reasonably likely to produce a greater recovery on a
present value basis that not taking such actions. See "Certain Legal Aspects
of Mortgage Loans -- Environmental Legislation".
ERISA CONSIDERATIONS
Generally, ERISA applies to investments made by employee benefit plans and
transactions involving the assets of such plans. Due to the complexity of
regulations which govern such plans, prospective investors that are subject
to ERISA
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are urged to consult their own counsel regarding consequences under ERISA of
acquisition, ownership and disposition of the Offered Certificates of any
series. See "ERISA Considerations".
CERTAIN FEDERAL TAX CONSIDERATIONS REGARDING RESIDUAL CERTIFICATES
Holders of Residual Certificates will be required to report on their
federal income tax returns as ordinary income their pro rata share of the
taxable income of the REMIC, regardless of the amount or timing of their
receipt of cash payments, as described in "Federal Income Tax Consequences
- --Federal Income Tax Consequences for REMIC Certificates". Accordingly, under
certain circumstances, holders of Offered Certificates that constitute
Residual Certificates may have taxable income and tax liabilities arising
from such investment during a taxable year in excess of the cash received
during such period. The requirement that holders of Residual Certificates
report their pro rata share of the taxable income and net loss of the REMIC
will continue until the Certificate Balances of all classes of Certificates
of the related series have been reduced to zero, even though holders of
Residual Certificates have received full payment of their stated interest and
principal. A portion (or, in certain circumstances, all) of such
Certificateholder's share of the REMIC taxable income may be treated as
"excess inclusion" income to such holder which (i) generally, will not be
subject to offset by losses from other activities, (ii) for a tax-exempt
holder, will be treated as unrelated business taxable income and (iii) for a
foreign holder, will not qualify for exemption from withholding tax.
Individual holders of Residual Certificates may be limited in their ability
to deduct servicing fees and other expenses of the REMIC. In addition,
Residual Certificates are subject to certain restrictions on transfer.
Because of the special tax treatment of Residual Certificates, the taxable
income arising in a given year on a Residual Certificate will not be equal to
the taxable income associated with investment in a corporate bond or stripped
instrument having similar cash flow characteristics and pre-tax yield.
Therefore, the after-tax yield on the Residual Certificate may be
significantly less than that of a corporate bond or stripped instrument
having similar cash flow characteristics.
CERTAIN FEDERAL TAX CONSIDERATIONS REGARDING ORIGINAL ISSUE DISCOUNT
Accrual Certificates will be, and certain of the other Classes of
Certificates of a series may be, issued with "original issue discount" for
federal income tax purposes, which generally will result in recognition of
some taxable income in advance of the receipt of cash attributable to such
income. See "Federal Income Tax Consequences --Federal Income Tax
Consequences for REMIC Certificates --Taxation of Regular Certificates".
CONSENT
Under certain circumstances, the consent or approval of the holders of a
specified percentage of the aggregate Certificate Balance of all outstanding
Certificates of all series or a similar means of allocating decision-making
under the Agreement ("Voting Rights") will be required to direct, and will be
sufficient to bind all Certificateholders to, certain actions, including
amending the related Agreement in certain circumstances. See "Description of
the Agreements -- Events of Default", "--Rights Upon Event of Default" and "
- -- Amendment".
BOOK-ENTRY REGISTRATION
If so provided in the Prospectus Supplement, one or more classes of the
Certificates will be initially represented by one or more certificates
registered in the name of Cede, the nominee for DTC, and will not be
registered in the names of the Certificateholders or their nominees. Because
of this, unless and until Definitive Certificates are issued,
Certificateholders will not be recognized by the Trustee as
"Certificateholders" (as that term is to be used in the related Agreement).
Hence, until such time, Certificateholders will be able to exercise the
rights of Certificateholders only indirectly through DTC and its
participating organizations. See "Description of the Certificates
- --Book-Entry Registration and Definitive Certificates".
DESCRIPTION OF THE TRUST FUNDS
MORTGAGE ASSETS
The primary assets of each Trust Fund (the "Mortgage Assets") will include
(i) Multifamily and/or Commercial Loans and/or Installment Contracts
(collectively, the "Mortgage Loans") or (ii) mortgage participations,
pass-through certificates or other mortgage-backed securities evidencing
interests in or secured by one or more Mortgage Loans ("MBS"). As used
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herein, "Mortgage Loans" refers to both whole Mortgage Loans and Mortgage
Loans underlying MBS. Mortgage Loans that secure, or interests in which are
evidenced by, MBS are herein sometimes referred to as Underlying Mortgage
Loans. Mortgage Loans that are not Underlying Mortgage Loans are sometimes
referred to as "Whole Loans". The Mortgage Assets will not be guaranteed or
insured by the Depositor or any of its affiliates. The Prospectus Supplement
will describe any guarantee or insurance relating to the Mortgage Assets by
any governmental agency or instrumentality or by any other person. Each
Mortgage Asset will be selected by the Depositor for inclusion in a Trust
Fund from among those purchased, either directly or indirectly, from a prior
holder thereof (a "Mortgage Asset Seller"), which prior holder may or may not
be the originator of such Mortgage Loan or the issuer of such MBS and may be
an affiliate of the Depositor.
Mortgage Loans
The Mortgage Loans will be secured by liens on, or security interests in,
Mortgaged Properties consisting of (i) residential properties consisting of
five or more rental or cooperatively-owned dwelling units in high-rise,
mid-rise or garden apartment buildings ("Multifamily Properties" and the
related loans, "Multifamily Loans") or (ii) office buildings, retail stores,
hotels or motels, nursing homes, hospitals or other health care-related
facilities, mobile home parks, warehouse facilities, mini-warehouse
facilities or self-storage facilities, industrial plants, mixed use or other
types of commercial properties ("Commercial Properties" and the related
loans, "Commercial Loans") located in any one of the fifty states or the
District of Columbia or such other locations as are disclosed in the related
Prospectus Supplement. The Mortgage Loans will be secured by mortgages or
deeds of trust or other similar security instruments creating a first or more
junior lien on Mortgaged Properties. Multifamily Property may include mixed
commercial and residential structures and may include apartment buildings
owned by private cooperative housing corporations ("Cooperatives"). The
Mortgaged Properties may include leasehold interest in properties, the title
to which is held by third party lessors. 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 (the "Originator") other than the
Depositor. The Mortgage Loans will be evidenced by promissory notes (the
"Mortgage Notes") secured by mortgages or deeds of trust (the "Mortgages")
creating a lien on the Mortgaged Properties. Mortgage Loans will generally
also be secured by an assignment of leases and rents and/or operating or
other cash flow guarantees relating to the Mortgage Loan.
Default and Loss Considerations with Respect to the Mortgage Loans
Mortgage Loans secured by commercial and multifamily properties are
markedly different from owner-occupied single-family home mortgage loans. The
repayment of loans secured by commercial or multifamily properties is
typically dependent upon the successful operation of such property rather
than upon the liquidation value of the real estate. The Mortgage Loans will
be non-recourse loans, which means that, absent special facts, the mortgagee
may look only to the Net Operating Income from the property for repayment of
the mortgage debt, and not to any other of the mortgagor's assets, in the
event of the mortgagor's default. Lenders typically look to the Debt Service
Coverage Ratio of a loan secured by income-producing property as an important
measure of the risk of default on such a loan. The "Debt Service Coverage
Ratio" of a Mortgage Loan at any given time is the ratio of the Net Operating
Income for a twelve-month period to the annualized scheduled payments on the
Mortgage Loan. "Net Operating Income" is typically defined as total operating
revenues (including primarily rental income and any expense reimbursement,
ancillary income, late charges and deposit forfeitures) minus total operating
expenses (including primarily expenses for advertising, general
administration, management fees and disbursements, utilities, repairs and
maintenance, insurance, real estate taxes and replacement reserves based
solely on the mortgagor's estimates of the useful lives of various assets).
Net Operating Income does not reflect capital expenditures or partnership
expenses. The Net Operating Income of a Mortgaged Property will fluctuate
over time and may be sufficient or insufficient to cover debt service on the
related Mortgage Loan at any given time.
As the primary component of Net Operating Income, rental income (and
maintenance payments from tenant-stockholders of a Cooperative) is subject to
the vagaries of the applicable real estate market and/or business climate.
Properties typically leased, occupied or used on a short-term basis, such as
health care-related facilities, hotels and motels, and mini-warehouse and
self-storage facilities, tend to be affected more rapidly by changes in
market or business conditions than do properties leased, occupied or used for
longer periods, such as (typically) warehouses, retail stores, office
buildings and industrial plants. Commercial Loans may be secured by
owner-occupied Mortgaged Properties or Mortgaged Properties leased to a
single tenant. Accordingly, a decline in the financial condition of the
mortgagor or single tenant, as applicable, may have a disproportionately
greater effect on the Net Operating Income from such Mortgaged Properties
than would be the case with respect to Mortgaged Properties with multiple
tenants.
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Changes in the expense components of Net Operating Income due to the
general economic climate or economic conditions in a locality or industry
segment, such as increases in interest rates, real estate and personal
property tax rates and other operating expenses including energy costs;
changes in governmental rules, regulations and fiscal policies, including
environmental legislation; and acts of God may also affect the risk of
default on the related Mortgage Loan. As may be further described in the
related Prospectus Supplement, in some cases leases of Mortgaged Properties
may provide that the lessee, rather than the mortgagor, is responsible for
payment of certain of these expenses ("Net Leases"); however, because leases
are subject to default risks as well when a tenant's income is insufficient
to cover its rent and operating expenses, the existence of such "net of
expense" provisions will only temper, not eliminate, the impact of expense
increases on the performance of the related Mortgage Loan.
While the duration of leases and the existence of any "net of expense"
provisions are often viewed as the primary considerations in evaluating the
credit risk of mortgage loans secured by certain income-producing properties,
such risk may be affected equally or to a greater extent by changes in
government regulation of the operator of the property. Examples of the latter
include mortgage loans secured by health care-related facilities and
hospitals, the income from which and the operating expenses of which are
subject to state and/or federal regulations, such as Medicare and Medicaid,
and multifamily properties and mobile home parks, which may be subject to
state or local rent control regulation and, in certain cases, restrictions on
changes in use of the property. Low-and moderate-income housing may be
particularly subject to legal limitations and regulations but, because of
such regulations, may also be less sensitive to fluctuations in market rents
generally.
The liquidation value of any Mortgaged Property may be adversely affected
by risks generally incident to interests in real property, including declines
in rental or occupancy rates. Lenders generally use the Loan-to-Value Ratio
of a mortgage loan as a measure of risk of loss if a property must be
liquidated upon a default by the mortgagor. The "Loan-to-Value Ratio" of a
Mortgage Loan at any given time is the ratio (expressed as a percentage) of
the then outstanding principal balance of the Mortgage Loan to the Value of
the related Mortgaged Property. The "Value" of a Mortgaged Property, other
than with respect to Refinance Loans, is generally the lesser of (a) the
appraised value determined in an appraisal obtained by the originator at
origination of such loan and (b) the sales price for such property. Refinance
Loans are loans made to refinance existing loans. The Value of the Mortgaged
Property securing a Refinance Loan is the appraised value thereof determined
in an appraisal obtained at the time of origination of the Refinance Loan.
The Value of a Mortgaged Property as of the date of initial issuance of the
related series of Certificates may be less than the value at origination and
will fluctuate from time to time based upon changes in economic conditions
and the real estate market.
Appraised values of income-producing properties may be based on the market
comparison method (recent resale value of comparable properties at the date
of the appraisal), the cost replacement method (the cost of replacing the
property at such date), the income capitalization method (a projection of
value based upon the property's projected net cash flow), or upon a selection
from or interpolation of the values derived from such methods. Each of these
appraisal methods presents analytical challenges. It is often difficult to
find truly comparable properties that have recently been sold; the
replacement cost of a property may have little to do with its current market
value; and income capitalization is inherently based on inexact projections
of income and expense and the selection of an appropriate capitalization
rate. Where more than one of these appraisal methods are used and create
significantly different results, or where a high Loan-to-Value Ratio
accompanies a high Debt Service Coverage Ratio (or vice versa), the analysis
of default and loss risks is even more difficult.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish the Mortgage Loans from
single-family mortgage loans and provide insight to the risks associated with
income-producing real estate, there is no assurance that such factors will in
fact have been considered by the Originators of the Mortgage Loans, or that,
for a particular Mortgage Loan, they are complete or relevant. See "Special
Considerations --Risks Associated with Certain Mortgage Loans and Mortgaged
Properties", "--Balloon Payments", "--Mortgagor Default" and "--Mortgagor
Type".
Mortgage Loan Information in Prospectus Supplements
Each Prospectus Supplement will contain information, as of the date of
such Prospectus Supplement and to the extent then applicable and specifically
known to the Depositor, with respect to the Mortgage Loans constituting
related Trust Assets, including (i) the aggregate outstanding principal
balance and the largest, smallest and average outstanding principal balance
of the Mortgage Loans as of the applicable Cut-off Date, (ii) the type of
property securing the Mortgage Loans (e.g., Multifamily Property or
Commercial Property and the type of property in each such category), (iii)
the
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original and remaining terms to maturity of the Mortgage Loans, and the
seasoning of the Mortgage Loans, (iv) the earliest and latest origination
date and maturity date and weighted average original and remaining terms to
maturity of the Mortgage Loans, (v) the Loan-to-Value Ratios at origination
of the Mortgage Loans, (vi) the Mortgage Rates or range of Mortgage Rates and
the weighted average Mortgage Rate borne by the Mortgage Loans, (vii) the
geographical distribution of the Mortgaged Properties on a state-by-state
basis, (viii) information with respect to prepayment provisions, if any, of
the Mortgage Loans, (ix) the weighted average Retained Interest, if any, (x)
with respect to Mortgage Loans with adjustable Mortgage Rates ("ARM Loans"),
the adjustment dates, the highest, lowest and weighted average margin, and
the maximum Mortgage Rate variation at the time of any adjustment and over
the life of the ARM Loan, (xi) the Debt Service Coverage Ratio either at
origination or as of a more recent date (or both) and (xii) information
regarding the payment characteristics of the Mortgage Loans, including
without limitation balloon payment and other amortization provisions. The
related Prospectus Supplement will also contain certain information available
to the Depositor with respect to the provisions of leases and the nature of
tenants of the Mortgaged Properties and other information referred to in a
general manner under "Description of the Trust Funds --Mortgage Assets
- --Default and Loss Considerations with Respect to the Mortgage Loans" above.
If specific information respecting the Mortgage Loans is not known to the
Depositor at the time Certificates are initially offered, more general
information of the nature described above will be provided in the Prospectus
Supplement, and specific information will be set forth in a report which will
be available to purchasers of the related Certificates at or before the
initial issuance thereof and will be filed as part of a Current Report on
Form 8-K with the Commission within fifteen days after such initial issuance.
MORTGAGE UNDERWRITING STANDARDS AND PROCEDURES
The underwriting procedures and standards for Mortgage Loans included in a
Mortgage Pool will be specified in the related Prospectus Supplement to the
extent such procedures and standards are known or available. Such Mortgage
Loans may be originated by an affiliate of the Depositor in contemplation of
the transactions contemplated by this Prospectus and the related Prospectus
Supplement or may be have been originated by third-parties and acquired by
the Depositor directly or through its affiliates in negotiated transactions.
Underwriting procedures are intended to evaluate, among other things, the
income derived from the Mortgaged Property, the capabilities of the
management of the project, including a review of management's past
performance record, its management reporting and control procedures (to
determine its ability to recognize and respond to problems) and its
accounting procedures to determine cash management ability, the obligor's
credit standing and repayment ability and the value and adequacy of the
Mortgaged Property as collateral. Mortgage Loans insured by the Federal
Housing Administration ("FHA"), a division of the United States Department of
Housing and Urban Development ("HUD"), will have been originated by mortgage
lenders which are approved by HUD as an FHA mortgagee in the orginated course
of their real estate lending activities and will comply with the underwriting
policies of FHA.
The adequacy of a Mortgaged Property as security for repayment will
generally have been determined by appraisal by appraisers selected in
accordance with preestablished guidelines established by or acceptable to the
loan originator for appraisers or other appropriate market studies. If so
specified in the related Prospectus Supplement, the appraiser must have
personally inspected the property and verified that it was in good condition
and that construction, if new, has been completed. An appraisal can be based
upon, among other things, a cash flow analysis and/or a market data analysis
of recent sales of comparable properties or a replacement cost analysis based
on the current cost of constructing or purchasing a similar property.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. Further, there is no assurance that appreciation of
real estate values generally will limit loss experiences on commercial
properties or multifamily properties. If the commercial real estate market
should experience an overall decline in property values such that the
outstanding balances of the Mortgage Loans and any additional financing on
the Mortgaged Properties in a particular Mortgage Pool become equal to or
greater than the value of the Mortgaged Properties, the actual rates of
delinquencies, foreclosures and losses could be higher than those now
generally experienced in the mortgage lending industry. Even where Credit
Support covers all losses resulting from defaults and foreclosure, the effect
of defaults and foreclosures may be to increase prepayment experience on the
Mortgage Loans, thus shortening weighted average life and affecting yield to
maturity.
Payment Provisions of the Mortgage Loans
The Mortgage Loans generally will (i) have individual principal balances
at origination of not less than $25,000, (ii) have original terms to maturity
of not more than 40 years and (iii) provide for payments of principal,
interest or both, on
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due dates that occur monthly, quarterly or semi-annually or at such other
interval as is specified in the related Prospectus Supplement. Mortgage Loan
may: (i) provide for no accrual of interest or for accrual of interest
thereon at an interest rate (a "Mortgage Rate") that is fixed over its term
or that adjusts from time to time, or that may be converted from an
adjustable to a fixed Mortgage Rate, or from a fixed to an adjustable
Mortgage Rate, from time to time at the mortgagor's election; (ii) provide
for scheduled payments to maturity or payments that adjust from time to time
to accommodate changes in the Mortgage Rate or to reflect the occurrence of
certain events, and may provide for negative amortization or accelerated
amortization, (iii) be fully amortizing or require a balloon payment due on
its stated maturity date; and (iv) contain prohibitions on prepayment (a
"Lock-out Period" and the date of expiration thereof, a "Lock-out Date") or
require payment of a premium or a yield maintenance penalty (a "Prepayment
Premium") in connection with a prepayment, in each case as described in the
related Prospectus Supplement. In the event that holders of any class or
classes of Offered Certificates will be entitled to all or a portion of any
Prepayment Premiums collected in respect of Mortgage Loans, the related
Prospectus Supplement will specify the method or methods by which any such
amounts will be allocated. A Mortgage Loan may also contain provisions
entitling the mortgagee to a share of profits realized from the operation or
disposition of the Mortgaged Property ("Equity Participations"), as described
in the related Prospectus Supplement. In the event that holders of any class
or classes of Offered Certificates will be entitled to all or a portion of an
Equity Participation, the related Prospectus Supplement will specify the
terms and provisions of the Equity Participation and the method or methods by
which distributions in respect thereof will be allocated among such
Certificates.
MBS
Any MBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, an indenture or similar
agreement (an "MBS Agreement"). A seller (the "MBS Issuer") and/or servicer
(the "MBS Servicer") of the underlying Mortgage Loans will have entered into
the MBS Agreement with a trustee or a custodian under the MBS Agreement (the
"MBS Trustee"), if any, or with the original purchaser of the interest in the
underlying Mortgage Loans evidenced by the MBS.
Distributions of principal and interest will be made on MBS on the dates
specified in the related Prospectus Supplement. The MBS may be issued in one
or more classes with characteristics similar to the classes of Certificates
described in this Prospectus. Principal and interest distributions will be
made on the MBS by the MBS Trustee or the MBS Servicer. The MBS Issuer or the
MBS Servicer or another person specified in the related Prospectus Supplement
may have the right or obligation to repurchase or substitute assets
underlying the MBS after a certain date or under other circumstances
specified in the related Prospectus Supplement.
Enhancement in the form of reserve funds, subordination of other credit
support similar to that described for the Certificates under "Description of
Credit Support" may be provided with respect to the MBS. The type,
characteristics and amount of such credit support, if any, will be a function
of certain characteristics of the Mortgage Loans evidenced or secured by such
MBS and other factors and generally will have been established for the MBS on
the basis of requirements of either any Rating Agency that may have assigned
a rating to the MBS or the initial purchasers of the MBS. In addition, MBS
may consist of classes of MBS which are subordinate to other classes of MBS
of the same series.
The Prospectus Supplement for a series of Certificates evidencing
interests in Mortgage Assets that included MBS will specify, to the extent
available, (i) the aggregate approximate initial and outstanding principal
amount and type of the MBS to be included in the Trust Fund, (ii) the
original and remaining term to stated maturity of the MBS, if applicable,
(iii) the pass-through or bond rate of the MBS or formula for determining
such rates, (iv) the applicable payment provisions for the MBS, (v) the MBS
Issuer, MBS Servicer and MBS Trustee, as applicable, (vi) certain
characteristics of the credit support, if any, such as subordination, reserve
funds, insurance policies, letters of credit or guarantees relating to the
related Underlying Mortgage Loans or directly to such MBS, (vii) the
characteristics of any subordination to which such MBS may be subject; (viii)
the terms on which the related Underlying Mortgage Loans for such MBS or the
MBS may, or are required to, be purchased prior to their maturity, (ix) the
terms on which Mortgage Loans may be substituted for those originally
underlying the MBS, (x) the servicing fees payable under the MBS Agreement,
(xi) to the extent available to the Depositor, the type of information in
respect of the Underlying Mortgage Loans described under "Description of the
Trust Funds --Mortgage Assets --Mortgage Loan Information in Prospectus
Supplements" and (xii) the characteristics of any cash flow agreements that
are included as part of the trust fund evidenced or secured by the MBS.
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COLLECTION ACCOUNTS
Each Trust Fund will include one or more accounts (collectively, the
"Collection Account") established and maintained on behalf of the
Certificateholders into which the person or persons designated in the related
Prospectus Supplement will deposit all payments and collections received or
advanced with respect to the Mortgage Assets and other assets in the Trust
Fund. A Collection Account may be maintained as an interest bearing or a
non-interest bearing account, and funds held therein may be invested in
certain short-term, investment grade obligations.
CREDIT SUPPORT
If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Mortgage Assets in the
related Trust Fund may be provided to one or more classes of Certificates in
the related series in the form of subordination of one or more other classes
of Certificates in such series or by one or more other types of credit
support, such as a letter of credit, insurance policy for the Mortgage Loans,
certificate guarantee insurance, guarantee, reserve fund or another type of
credit support, or a combination thereof (any such coverage with respect to
the Certificates of any series, "Credit Support"). The amount and types of
coverage, the identification of the entity providing the coverage (if
applicable) and related information with respect to each type of Credit
Support, if any, will be described in the Prospectus Supplement for a series
of Certificates. See "Special Considerations --Credit Support Limitations"
and "Description of Credit Support".
CASH FLOW AGREEMENTS
The Trust Fund may include guaranteed investment contracts pursuant to
which moneys held in the funds and accounts established for the related
series will be invested at a specified rate. The Trust Fund may also include
certain other agreements, such as interest rate exchange agreements, interest
rate cap or floor agreements, currency exchange agreements or similar
agreements provided to reduce the effects of interest rate or currency
exchange rate fluctuations on the Mortgage Assets on one or more classes of
Certificates. The principal terms of any such guaranteed investment contract
or other agreement (any such agreement, a "Cash Flow Agreement"), including,
without limitation, provisions relating to the timing, manner and amount of
payments thereunder and provisions relating to the termination thereof, will
be described in the Prospectus Supplement for the related series. In
addition, the related Prospectus Supplement will provide certain information
with respect to the obligor under any such Cash Flow Agreement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will be
applied by the Depositor to the purchase of Trust Assets or will be used by
the Depositor for general corporate purposes. The Depositor expects to sell
the Certificates from time to time, but the timing and amount of offerings of
Certificates will depend on a number of factors, including the volume of
Mortgage Assets acquired by the Depositor, prevailing interest rates,
availability of funds and general market conditions.
YIELD CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on the price paid by the
Certificateholder, the Pass-Through Rate of the Certificate, the receipt and
timing of receipt of distributions on the Certificate and the weighted
average life of the Mortgage Assets in the related Trust Fund. See "Special
Considerations --Average Life of Certificates; Prepayments; Yields".
PASS-THROUGH RATE
Certificates of any class within a series may have fixed, variable or
adjustable Pass-Through Rates, which may or may not be based upon the
interest rates borne by the Mortgage Assets in the related Trust Fund. The
Prospectus Supplement with respect to any series of Certificates will specify
the Pass-Through Rate for each class of such Certificates or in the case of a
variable or adjustable Pass-Through Rate, the method of determining the
Pass-Through Rate; the effect, if any, of the prepayment of any Mortgage
Asset on the Pass-Through Rate of one or more classes of Certificates; and
whether the distributions of interest on the Certificates of any class will
be dependent, in whole or in part, on the performance of any obligor under a
Cash Flow Agreement.
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TIMING OF PAYMENT OF INTEREST AND PRINCIPAL
Each payment of interest on the Certificates (or addition to the
Certificate Balance of a class of Accrual Certificates) on a Distribution
Date will include interest accrued during the Interest Accrual Period for
such Distribution Date. If the Interest Accrual Period ends on a date other
than a Distribution Date for the related series, the yield realized by the
holders of such Certificates may be lower than the yield that would result in
the Interest Accrual Period ended on such Distribution Date. In addition,
interest accrued for an Interest Accrual period for one or more classes of
Certificates may be calculated on the assumption that distributions of
principal (and additions to the Certificate Balance of Accrual Certificates)
and allocations of losses on the Mortgage Assets may be made on the first day
of the Interest Accrual Period for a Distribution Date and not on such
Distribution Date. Such method would produce a lower effective yield than if
interest were calculated on the basis of the actual principal amount
outstanding during an Interest Accrual Period. The Interest Accrual Period
for any class of Offered Certificates will be described in the related
Prospectus Supplement.
PRINCIPAL PREPAYMENTS
The yield to maturity on the Certificates will be affected by the rate of
principal payments on the Mortgage Assets (including principal prepayments on
Mortgage Loans resulting from both voluntary prepayments by the mortgagors
and involuntary liquidations). The rate at which principal prepayments occur
on the Mortgage Loans will be affected by a variety of factors, including,
without limitation, the terms of the Mortgage Loans, the level of prevailing
interest rates, the availability of mortgage credit and economic,
demographic, geographic, tax, legal and other factors. In general, however,
if prevailing interest rates fall significantly below the Mortgage Rates on
the Mortgage Loans comprising or underlying the Mortgage Assets in a
particular Trust Fund, such Mortgage Loans are likely to be the subject of
higher principal prepayments than if prevailing rates remain at or above the
rates borne by such Mortgage Loans. In this regard, it should be noted that
certain Mortgage Assets may consist of Mortgage Loans with different Mortgage
Rates and the stated pass-through or pay-through interest rate of certain MBS
may be a number of percentage points higher or lower than certain of the
Underlying Mortgage Loans. The rate of principal payments on some or all of
the classes of Certificates of a series will correspond to the rate of
principal payments on the Mortgage Assets in the related Trust Fund and is
likely to be affected by the existence of Lock-out Periods and Prepayment
Premium provisions of the Mortgage Loans underlying or comprising such
Mortgage Assets, and by the extent to which the servicer of any such Mortgage
Loan is able to enforce such provisions. Mortgage Loans with a Lock-out
Period or a Prepayment Premium provision, to the extent enforceable,
generally would be expected to experience a lower rate of principal
prepayments than otherwise identical Mortgage Loans without such provisions,
with shorter Lock-out Periods or with lower Prepayment Premiums.
If the purchaser of a Certificate offered at a discount calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the Mortgage
Assets, the actual yield to maturity will be lower than that so calculated.
Conversely, if the purchaser of a Certificate offered at a premium calculates
its anticipated yield to maturity based on an assumed rate of distributions
or principal that is slower than that actually experienced on the Mortgage
Assets, the actual yield to maturity will be lower than that so calculated.
In either case, the effect of voluntary and involuntary prepayments of the
Mortgage Assets on the yield on one or more classes of the Certificates of
such series in the related Trust Fund may be mitigated or exacerbated by any
provisions for sequential or selective distribution of principal to such
classes.
The timing of changes in the rate of principal payments on the Mortgage
Assets may significantly affect an investor's actual yield to maturity, even
if the average rate of distributions of principal is consistent with an
investor's expectation. In general, the earlier a principal payment is
received on the Mortgage Assets and distributed on a Certificate, the greater
the effect on such investor's yield to maturity. The effect of an investor's
yield of principal payments occurring at a rate higher (or lower) than the
rate anticipated by the investor during a given period may not be offset by a
subsequent like decrease (or increase) in the rate of principal payments.
PREPAYMENTS --MATURITY AND WEIGHTED AVERAGE LIFE
The rates at which principal payments are received on the Mortgage Assets
included in or comprising a Trust Fund and the rate at which payments are
made from any Credit Support or Cash Flow Agreement for the related series of
certificates may affect the ultimate maturity and the weighted average life
of each class of such series. Prepayments on the Mortgage Loans comprising or
underlying the Mortgage Assets in a particular Trust Fund will generally
accelerate the rate at which principal is paid on some or all of the classes
of the Certificates of the related series.
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Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of a
class of Certificates of a series will be influenced by the rate at which
principal on the Mortgage Loans comprising or underlying the Mortgage Assets
is paid to such class, which may be in the form of scheduled amortization or
prepayments (for this purpose, the term "prepayment" includes prepayments, in
whole or in part, and liquidations due to default).
In addition, the weighted average life of the Certificates may be affected
by the varying maturities of the Mortgage Loans comprising or underlying the
Mortgage Assets. If any Mortgage Loans comprising or underlying the Mortgage
Assets in a particular Trust Fund have actual terms to maturity of less than
those assumed in calculating final scheduled Distribution Dates for the
classes of Certificates of the related series, one or more classes of such
Certificates may be fully paid prior to their respective final scheduled
Distribution Dates, even in the absence of prepayments. Accordingly, the
prepayment experience of the Mortgage Assets will, to some extent, be a
function of the mix of Mortgage Rates and maturities of the Mortgage Loans
comprising or underlying such Mortgage Assets. See "Description of the Trust
Funds".
Prepayments on loans are also commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ("CPR") prepayment
model or the Standard Prepayment Assumption ("SPA") prepayment model, each as
described below. CPR represents a constant assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of loans
for the life of such loans. SPA represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of loans.
A prepayment assumption of 100% SPA assumes prepayment rates of 0.2% per
annum of the then outstanding principal balance of such loans in the first
month of the life of the loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month and in
each month thereafter during the life of the loans, 100% of SPA assumes a
constant prepayment rate of 6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption purports
to be a historical description of prepayment experience or a prediction of
the anticipated rate of prepayment of any pool of loans, including the
Mortgage Loans underlying or comprising the Mortgage Assets. Moreover, CPR
and SPA were developed based upon historical prepayment experience for
single-family loans. Thus, it is likely that prepayment of any Mortgage Loans
comprising or underlying the Mortgage Assets for any series will not conform
to any particular level of CPR or SPA.
The Prospectus Supplement with respect to each series of Certificates will
contain tables, if applicable, setting forth the projected weighted average
life of each life of Offered Certificates of such series and the percentage
of the Initial Certificate Balance of each such class that would be
outstanding on specified Distribution Dates based on the assumptions stated
in such Prospectus Supplement, including assumptions that prepayments on the
Mortgage Loans comprising or underlying the related Mortgage Assets are made
at rates corresponding to various prepayment rates. Such tables and
assumptions are intended to illustrate the sensitivity of weighted average
life of the Certificates to various prepayment rates and will not be intended
to predict or to provide information that will enable investors to predict
the actual weighted average life of the Certificates. It is unlikely that
prepayment of any Mortgage Loans comprising or underlying the Mortgage Assets
for any series will conform to any particular prepayment rate.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
Type of Mortgage Loan
A number of Mortgage Loans may have balloon payments due at maturity, and
because the ability of a mortgagor to make a balloon payment typically will
depend upon its ability either to refinance the loan or to sell the related
Mortgaged Property, there is a risk that a number of Mortgage Loans having
balloon payments may default at maturity, or that the servicer may extend the
maturity of such a Mortgage Loan in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things,
bankruptcy of the mortgagor or adverse conditions in the market where the
property is located. In order to minimize losses on defaulted Mortgage Loans,
the servicer may be given considerable flexibility to modify Mortgage Loans
that are in default or as to which a default is reasonably foreseeable. Any
defaulted balloon payment or modification that extends the maturity of a
Mortgage Loan will tend to extend the weighted average life of the
Certificates, thereby lengthening the period of time elapsed from the date of
issuance of a Certificate until it is retired.
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Foreclosures and Payment Plans
The number of foreclosures and the principal amount of the Mortgage Loans
comprising or underlying the Mortgage Assets that are foreclosed in relation
to the number of Mortgage Loans that are repaid in accordance with their
terms will affect the weighted average life of the Mortgage Loans comprising
or underlying the Mortgage Assets and that of the related series of
Certificates. Servicing decisions made with respect to the Mortgage Loans,
including the use of payment plans prior to a demand for acceleration and the
restructuring of Mortgage Loans in bankruptcy proceeds, may also have an
effect upon the payment patterns of particular Mortgage Loans and thus the
weighted average life of the Certificates.
Due-on-Sale and Due-on-Encumbrance Clauses
Acceleration of mortgage payments as a result of certain transfers of or
the creation of encumbrances upon underlying Mortgaged Property is another
factor affecting prepayment rates. A number of the Mortgage Loans comprising
or underlying the Mortgage Assets may include "due-on-sale" clauses or
"due-on-encumbrance" clauses that allow the holder of the Mortgage Loans to
demand payment in full of the remaining principal balance of the Mortgage
Loans upon sale or certain other transfers of or the creation of encumbrances
upon the related Mortgaged Property. With respect to any Whole Loans, the
Master Servicer will, if required by the related Agreement, on behalf of the
Trust Fund, employ its usual practices in determining whether to exercise any
such right that the Trustee may have as mortgagee to accelerate payment of
the Whole Loan. See "Certain Legal Aspects of Mortgage Loans --Due-on-Sale
and Due-on-Encumbrance" and "Description of the Agreements --Due-on-Sale and
Due-on-Encumbrance Provisions".
THE DEPOSITOR
Asset Securitization Corporation, the Depositor, is a Delaware corporation
organized on June 23, 1992 for the purpose of acquiring Mortgage Assets and
selling interests therein or bonds secured thereby. It is a wholly owned
subsidiary of Nomura Asset Capital Corporation, which is in turn a
wholly-owned subsidiary of Nomura Holding America Inc., a United States-based
holding company, incorporated in Delaware, which is wholly owned by The
Nomura Securities Co., Ltd., a Japanese corporation. The Nomura Securities
Co., Ltd. is engaged in the domestic and international securities business.
The Depositor maintains its principal office at Two World Financial Center
- --Building B, 21st Floor, New York, New York 10281-1198. Its telephone number
is (212) 667-9300.
The Depositor does not have, nor is it expected in the future to have, any
significant assets.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates of each series (including any class of Certificates not
offered hereby) will represent the entire beneficial ownership interest in
the Trust Fund created pursuant to the related Agreement. Each series of
Certificates will consist of one or more classes or subclasses of
Certificates that may be senior (collectively, "Senior Certificates") or
subordinate (collectively, "Subordinate Certificates") Certificates. Each
series may consist of one or more of the types of Certificates described
below.
Types of Certificates classified by interest payments can include:
<TABLE>
<CAPTION>
CATEGORY OF CLASS DEFINITION
- ----------------------------------------- ----------------------------------------------------------------------------------
<S> <C>
Ascending Rate: Certificates that have predetermined Pass-Through Rates that change one or more times
on dates determined before issuance.
Fixed Rate: Certificates with Pass-Through Rates that are fixed throughout the life of such
Certificates.
Floating Rate: Certificates with Pass-Through Rates that are reset periodically based on an index and
that vary directly with changes in the index.
Inverse Floating Rate: Certificates with Pass-Through Rates that are reset periodically based on an index and
that vary inversely with changes in the index.
Stripped Interest: Certificates that receive some or all of the interest payments made on the underlying
Mortgage Loans or other Trust Fund assets and little or no principal. Stripped
Interest Certificates have either a nominal or a notional principal amount. A nominal
principal amount represents actual principal that will be paid on the class. It is
referred to as nominal since it is extremely small compared to other classes of
Certificates. A notional principal amount is the amount used as a reference to calculate
the amount of interest due on a Stripped Interest Certificate that is not entitled to
any principal.
Stripped Principal: Certificates that do not receive any interest.
WAC (or Weighted Average Coupon): Certificates whose Pass-Through Rate represents a blended interest rate that may
change from period to period.
Accrual: Certificates that accrete all or a portion of their interest, which is added to the
outstanding principal balance. This accretion may continue until the class of
Certificates begins receiving principal payments, until some other event has occurred
or until the class is retired.
Types of Certificates classified by allocation of principal distributions can include:
PAC (or Planned Amortization Class): Certificates that are designed to receive principal payments using a predetermined
schedule derived by assuming two constant prepayment rates for the underlying
Mortgage Loans. A PAC schedule will reflect a "structuring range" both above and
below the Prepayment Assumption for the related series. The PAC Certificates in any
series may include two or more "types". The PAC Certificates within any typehave a
single structuring range. The different types have different structuring ranges
and/or different principal payment priorities.
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CATEGORY OF CLASS DEFINITION
- ----------------------------------------- ----------------------------------------------------------------------------------
Scheduled: Certificates that are designed to receive principal payments using a predetermined
schedule, but that are not designated as PAC or TAC Certificates. Classes consisting
of both PAC and TAC components are also designated as Scheduled Classes.
Sequential Pay: Certificates that receive principal payments in a prescribed sequence, that do not
have predetermined schedules and that under all circumstances receive payments of
principal continuously from the first Distribution Date on which they receive
principal until they are retired. Sequential Pay Certificates may receive principal
payments concurrently with one or more other classes of Sequential Pay Certificates.
A single class of Certificates that receives principal payments before or after all
other classes in the same series may be identified as a Sequential Pay Certificate.
Sticky Jump/Non-Sticky Jump: Certificates whose principal payment priorities change temporarily or permanently
upon the occurrence of one or more "trigger" events. A Sticky Jump Certificate "jumps"
to its new priority on the first Distribution Date when the trigger condition is met
and retains ("sticks" to) that priority until retired. If the principal payment change
is not permanent, the Certificate is referred to as a Non-Sticky Jump.
Strip: Certificates that receive a constant proportion, or "strip", of the principal payments
on the underlying Mortgage Loans or other Trust Fund assets.
Support (or Companion): Certificates that receive principal payments on any Payment Date only if scheduled
payments have been made on specified PAC, TAC and/or Scheduled Classes.
TAC (or Targeted Amortization Class): Certificates that are designed to receive principal payments using a predetermined
schedule derived by assuming a single constant prepayment rate for the underlying
Mortgage Loans. The TAC Certificates in any series may include two or more "types".
The different types have different principal payment priorities and/or have schedules
that are derived from different assumed prepayment rates.
Index Allocation Class: Certificates whose principal payment allocations are based on the value of an index.
</TABLE>
The Prospectus Supplement for any series including classes similar to any
of those described above will contain a complete description of their
characteristics and risk factors, including, as applicable, (i) mortgage
principal prepayment effects on the weighted average lives of classes; (ii)
the risk that Stripped Interest Certificates purchased at a premium may not
return their purchase prices under rapid prepayment scenarios and (iii) the
degree to which an investor's yield is sensitive to principal prepayment. Any
class of Certificates may be divided into two or more subclasses of
Certificates.
Each class of Offered Certificates of a series will be issued in minimum
denominations corresponding to Certificate Balances or, in case of Stripped
Interest Certificates, notional amounts specified in the related Prospectus
Supplement. The transfer of any Offered Certificates may be registered and
such Certificates may be exchanged without the payment of any service charge
payable in connection with such registration of transfer or exchange, but the
Depositor or the Trustee or any agent thereof may require payment of a sum
sufficient to cover any tax or other governmental charge. One or more classes
of Certificates of a series may be issued in definitive form ("Definitive
Certificates") or in book-entry form ("Book-Entry Certificates"), as provided
in the related Prospectus Supplement. See "Special Considerations
- --Book-Entry Registration" and "Description of the Certificates --Book-Entry
Registration and Definitive Certificates". Definitive Certificates will be
exchangeable for other Certificates of the same class and series of a like
aggregate Certificate Balance or notional amount but of different authorized
denominations. See "Special Considerations --Limited Liquidity" and "
- --Limited Assets".
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<PAGE>
DISTRIBUTIONS
Distributions allocable to principal and interest on the Certificates of
each series will be made by or on behalf of the Trustee on each Distribution
Date as specified in the related Prospectus Supplement from the Available
Funds for such series on such Distribution Date. Distributions (other than
the final distribution) will be made to the persons in whose names the
Certificates are registered (the "Record Date"), and the amount of each
distribution will be determined (the "Determination Date") as of the close of
business on the date specified in the related 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 such
class. Payments will be made either by wire transfer in immediately available
funds to the account of a Certificateholder at a bank or other entity having
appropriate facilities therefor, if such Certificateholder has so notified
the Trustee or its designee no later than the date specified in the related
Prospectus Supplement (and, if so provided in the related Prospectus
Supplement, holds Certificates in the requisite amount specified therein), or
by check mailed to the address of the person entitled thereto as it appears
on the Certificate Register; provided, however, that the final distribution
in retirement of the Certificates (whether Definitive Certificates or
Book-Entry Certificates) will be made only upon presentation and surrender of
the Certificates at the office or agency of the Trustee or its agent
specified in the notice to Certificateholders of such final distribution.
AVAILABLE FUNDS
All distributions on the Certificates of each series on each Distribution
Date will be made from the Available Funds described below, in accordance
with the terms described in the related Prospectus Supplement. "Available
Funds" for each Distribution Date will generally equal the sum of the
following amounts:
(i) the total amount of all cash on deposit in the related Collection
Account as of the corresponding Determination Date, exclusive of:
(a) all scheduled payments of principal and interest collected but
due on a date subsequent to the related Collection Period (a
"Collection Period" with respect to any Distribution Date will usually
commence on the second day of the month in which the immediately
preceding Distribution Date occurs, or the day after Cut-off Date in
the case of the first Collection Period, and will end on the first day
of the month of the related Distribution Date).
(b) all prepayments, together with related payments of the interest
thereon, Liquidation Proceeds, Insurance Proceeds, and other
unscheduled recoveries received subsequent to the related Prepayment
Period, as defined in the related Prospectus Supplement, and
(c) all amounts in the Collection Account that are due or
reimbursable to the Depositor, the Trustee, a Mortgage Asset Seller, a
Sub-Servicer or the Master Servicer or that are payable in respect of
certain expenses of the related Trust Fund;
(ii) if the related Prospectus Supplement so provides, interest or
investment income on amounts on deposit in the Collection Account,
including any net amounts paid under any Cash Flow Agreements;
(iii) all advances made by a Master Servicer with respect to such
Distribution Date;
(iv) if and to the extent the related Prospectus Supplement so provides,
amounts paid by a Master Servicer with respect to interest shortfalls
resulting from voluntary and involuntary prepayments during the related
Prepayment Period; and
(v) to the extent not on deposit in the related Collection Account as of
the corresponding Determination Date, any amounts collected under, from or
in respect of any Credit Support with respect to such Distribution Date.
As described below, the entire Available Distribution Amount will be
distributed among the related Certificates (including any Certificates not
offered hereby) on each Distribution Date, and accordingly will be released
from the Trust Fund and will not be available for any future distributions.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each class of Certificates (other than classes of Stripped Principal
Certificates that have no Pass-Through Rate) may have a different
Pass-Through Rate, which may be a fixed, variable or adjustable Pass-Through
Rate. The related
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<PAGE>
Prospectus Supplement will specify the Pass-Through Rate for each class or,
in the case of a variable or adjustable Pass-Through Rate, the method for
determining the Pass-Through Rate. Interest on the Certificates will
typically be calculated on the basis of a 360-day year consisting of twelve
30-day months.
Distributions of interest in respect of the Certificates of any class will
be made on each Distribution Date (other than any class of Accrual
Certificates, which will be entitled to distributions of accrued interest
commencing only on the Distribution Date, or under the circumstances,
specified in the related Prospectus Supplement, and any class of Stripped
Principal Certificates that are not entitled to any distributions of
interest) based on the Accrued Certificate Interest for such class and such
Distribution Date, subject to the sufficiency of the portion of the Available
Distribution Amount allocable to such class on such Distribution Date. Prior
to the time interest is distributable on any class of Accrual Certificates,
Accrued Certificate Interest on such class will be added to the Certificate
Balance thereof on each Distribution Date. With respect to each class of
Certificates and each Distribution Date (other than certain classes of
Stripped Interest Certificates), "Accrued Certificate Interest" will be equal
to interest accrued during the related Interest Accrual Period on the
outstanding Certificate Balance thereof immediately prior to the Distribution
Date, at the applicable Pass-Through Rate, reduced to reflect prepayment
interest shortfalls as described below (for this purpose, the term
"prepayment" includes prepayments, in whole or in part, and liquidations due
to default). Accrued Certificate Interest on Stripped Interest Certificates
will be equal to interest accrued on the outstanding notional amount thereof
immediately prior to each Distribution Date, at the applicable Pass-Through
Rate, reduced as described below. The method of determining the notional
amount for any class of Stripped Interest Certificates will be described in
the related Prospectus Supplement. Reference to notional amount is solely for
convenience in certain calculations and does not represent the right to
receive any distributions of principal. The Accrued Certificate Interest on
each class of Certificates will be reduced in the event of prepayment
interest shortfalls, which are shortfalls in collections of interest for a
full accrual period resulting from prepayments prior to the due date in such
accrual period on the Mortgage Loans comprising or underlying the Mortgage
Assets in the Trust Fund for the related series, with such shortfall
allocated among all of the classes of Certificates of that series in the
manner specified in the related Prospectus Supplement. See "Special
Considerations --Average Life of Certificates; Prepayments; Yields" and
"Yield Considerations".
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
The Certificates of each series, other than certain classes of Stripped
Interest Certificates, will have a "Certificate Balance" which, at any time,
will equal the then maximum amount that the holder will be entitled to
receive in respect of principal out of the future cash flow on the Mortgage
Assets and other assets included in the related Trust Fund. The outstanding
Certificate Balance of a Certificate will be reduced to the extent of
distributions of principal thereon from time to time, and by the amount of
losses allocated to such Certificate incurred in respect of the related
Mortgage Assets, may be increased in respect of deferred interest on the
related Mortgage Loans to the extent provided in the related Prospectus
Supplement and, in the case of Accrual Certificates prior to the Distribution
Date on which distributions of interest are required to commence, will be
increased by any Accrued Certificate Interest. The initial aggregate
Certificate Balance of all classes of Certificates of a series will not be
greater than the outstanding aggregate principal balance of the related
Mortgage Assets as of the applicable Cut-off Date. The initial aggregate
Certificate Balance of a series and each class thereof will be specified in
the related Prospectus Supplement. Distributions of principal will be made on
each Distribution Date to the class or classes of Certificates entitled
thereto in accordance with the provisions described in such Prospectus
Supplement until the Certificate Balance of such class has been reduced to
zero. Stripped Interest Certificates with no Certificate Balance are not
entitled to any distributions of principal.
DISTRIBUTIONS ON THE CERTIFICATES OF PREPAYMENT PREMIUMS OR IN RESPECT OF
EQUITY PARTICIPATIONS
Prepayment Premiums or payments in respect of Equity Participations that
are collected on the Mortgage Assets in the related Trust Fund will be
distributed on each Distribution Date to the class or classes of Certificates
entitled thereto in accordance with the provisions described in the related
Prospectus Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
With respect to 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
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<PAGE>
subject to the limitations specified in the related Prospectus Supplement.
See "Description of Credit Support" for a description of the types of
protection that may be included in a Trust Fund against losses and shortfalls
on Mortgage Assets comprising such Trust Fund.
ADVANCES IN RESPECT OF DELINQUENCIES
With respect to any series of Certificates evidencing an interest in a
Trust Fund consisting of Mortgage Assets other than MBS, the Master Servicer,
if required by the related Agreement, 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 Collection Account that are not included in
the Available Funds for such Distribution Date, in an amount equal to the
aggregate of payments of principal (other than any balloon payments) and
interest (net of related servicing fees and Retained Interest) that were due
on the Whole Loans in such Trust Fund during the related Collection Period
and were delinquent on the related Determination Date, subject to the Master
Servicer's good faith determination that such advances will be reimbursable
from (a) Related Proceeds (as defined below) or (b) in the case of a series
of Certificates that includes one or more classes of Subordinate Certificates
and if so provided in the related Prospectus Supplement, the greater of (x)
the outstanding Certificate Balance of such Subordinate Certificates and (y)
Related Proceeds. 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. Advances
of the Master Servicer's funds will typically be reimbursable only out of
related recoveries on the Mortgage Loans (including amounts received under
any form of Credit Support) respecting which such advances were made (as to
any Mortgage Loan, "Related Proceeds"); provided, however, that any such
advance will be reimbursable from any amounts in the Collection Account to
the extent that the Master Servicer shall determine that such advance (a
"Nonrecoverable Advance") is not ultimately recoverable from Related
Proceeds. If advances have been made by the Master Servicer from excess funds
in the Collection Account, the Master Servicer is required to replace such
funds in the Collection Account on any future Distribution Date to the extent
that funds in the Collection Account on such Distribution Date are less than
payments required to be made to Certificateholders on such date. The
obligations of the Master Servicer to make advances may be secured by a cash
advance reserve fund or a surety bond. Information regarding the
characteristics of, and the identity of any obligor on, any such surety bond,
will be set forth in the related Prospectus Supplement.
The Master Servicer will be entitled to receive interest at the rate
specified in the related Prospectus Supplement on its outstanding advances
and will be entitled to pay itself such interest periodically from general
collections on the Mortgage Loans prior to any payment to Certificateholders
or as otherwise provided in the related Agreement and described in such
Prospectus Supplement.
The Prospectus Supplement for any series of Certificates evidencing an
interest in a Trust fund that includes MBS will describe any corresponding
advancing obligation of any person in connection with such MBS.
REPORTS TO CERTIFICATEHOLDERS
With each distribution to holders of any class of Certificates of a
series, a Master Servicer or the Trustee, as provided in the related
Prospectus Supplement, will forward or cause to be forwarded to each such
holder, to the Depositor and to such other parties as may be specified in the
related Agreement, a statement setting forth, in each case to the extent
applicable and available:
(i) the amount of such distribution to holders of Certificates of such
class applied to reduce the Certificate Balance thereof;
(ii) the amount of such distribution to holders of Certificates of such
class allocable to Accrued Certificate Interest;
(iii) the amount of such distribution allocable to (a) Prepayment
Premiums and (b) payments on account of Equity Participations;
(iv) the amount of related servicing compensation received by a Master
Servicer, any Special Servicer and any Sub-Servicer and such other
customary information as any such Master Servicer or the Trustee deems
necessary or desirable, or that a Certificateholder reasonably requests,
to enable Certificateholders to prepare their tax returns;
(v) the aggregate amount of advances included in such distribution, and
the aggregate amount of unreimbursed advances at the close of business on
such Distribution Date;
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<PAGE>
(vi) the aggregate principal balance of the Mortgage Assets at the close
of business on such Distribution Date;
(vii) the number and aggregate principal balance of Mortgage Loans in
respect of which (a) one scheduled payment is delinquent, (b) two
scheduled payments are delinquent, (c) three or more scheduled payments
are delinquent and (d) foreclosure proceedings have been commenced;
(viii) with respect to each Mortgage Loan that is delinquent two or more
months, (a) the loan number thereof, (b) the unpaid balance thereof, (c)
whether the delinquency is in respect of any balloon payment, (d) the
aggregate amount of unreimbursed servicing expenses and unreimbursed
advances in respect thereof, (e) the aggregate amount of any interest
accrued and payable on related servicing expenses and related advances
assuming such Mortgage Loan is subsequently liquidated through
foreclosure, (f) whether a notice of acceleration has been sent to the
mortgagor and, if so, the date of such notice, (g) whether foreclosure
proceedings have been commenced and, if so, the date so commenced and (h)
if such Mortgage Loan is more than three months delinquent and foreclosure
has not been commenced, the reason therefor;
(ix) with respect to any Whole Loan liquidated during the related
Collection Period or Prepayment Period, as applicable (other than by
payment in full), (a) the loan number thereof, (b) the manner in which it
was liquidated, (c) the aggregate amount of liquidation proceeds received,
(d) the portion of such liquidation proceeds payable or reimbursable to
the Master Servicer in respect of such Mortgage Loan and (e) the amount of
any loss to Certificateholders;
(x) with respect to each REO Property relating to a Whole Loan and
included in the Trust Fund as of the end of the related Collection Period
or Prepayment Period, as applicable, (a) the loan number of the related
Mortgage Loan, (b) the date of acquisition, (c) the book value, (d) the
principal balance of the related Mortgage Loan immediately following such
Distribution Date (calculated as if such Mortgage Loan were still
outstanding taking into account certain limited modifications to the terms
thereof specified in the Agreement), (e) the aggregate amount of
unreimbursed servicing expenses and unreimbursed advances in respect
thereof and (f) if applicable, the aggregate amount of interest accrued
and payable on related servicing expenses and related advances;
(xi) with respect to any such REO Property sold during the related Due
Period or Prepayment Period, as applicable, (a) the loan number of the
related Mortgage Loan, (b) the aggregate amount of sale proceeds, (c) the
portion of such sales proceeds payable or reimbursable to the Master
Servicer or a Special Servicer in respect of such REO Property or the
related Mortgage Loan and (d) the amount of any loss to Certificateholders
in respect of the related Mortgage Loan;
(xii) the aggregate Certificate Balance or notional amount, as the case
may be, of each class of Certificates (including any class of Certificates
not offered hereby) at the close of business on such Distribution Date,
separately identifying any reduction in such Certificate Balance due to
the allocation of any loss and increase in the Certificate Balance of a
class of Accrual Certificates in the event that Accrued Certificate
Interest has been added to such balance;
(xiii) the aggregate amount of principal prepayments made during the
related Prepayment Period;
(xiv) the amount deposited in the reserve fund, if any, on such
Distribution Date;
(xv) the amount remaining in the reserve fund, if any, as of the close of
business on such Distribution Date;
(xvi) the aggregate unpaid Accrued Certificate Interest, if any, on each
class of Certificates at the close of business on such Distribution Date;
(xvii) in the case of Certificates with a variable Pass-Through Rate, the
Pass-Through Rate applicable to such Distribution Date, as calculated in
accordance with the method specified in the related Prospectus Supplement;
(xviii) in the case of Certificates with an adjustable Pass-Through Rate,
for statements to be distributed in any month in which an adjustment date
occurs, the adjustable Pass-Through Rate applicable to the next succeeding
Distribution Date as calculated in accordance with the method specified in
the related Prospectus Supplement;
(xix) as to any series which incudes Credit Support, the amount of
coverage of each instrument of Credit Support included therein as of the
close of business on such Distribution Date; and
(xx) the aggregate amount of payments by the mortgagors of (a) default
interest, (b) late charges and (c) assumption and modification fees
collected during the related Collection Period or Prepayment Period, as
applicable.
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In the case of information furnished pursuant to subclauses (i)-(iv)
above, the amounts shall be expressed as a dollar amount per minimum
denomination of Certificates or for such other specified portion thereof. The
Prospectus Supplement for each series of Offered Certificates will describe
any additional information to be included in reports to the holders of such
Certificates.
Within a reasonable period of time after the end of each calendar year,
the Master Servicer, if any, or the Trustee, as provided in the related
Prospectus Supplement, shall furnish to each person who at any time during
the calendar year was a holder of a Certificate a statement containing the
information set forth in subclauses (i)-(iv) above, aggregated for such
calendar year or the applicable portion thereof during which such person was
a Certificateholder. Such obligation of the Master Servicer or the Trustee
shall be deemed to have been satisfied to the extent that substantially
comparable information shall be provided by the Master Servicer or the
Trustee pursuant to any requirements of the Code as are from time to time in
force. See "Description of the Certificates -- Book-Entry Registration and
Definitive Certificates".
TERMINATION
The obligations created by the Agreement for each series of Certificates
will terminate upon the payment to Certificateholders of that series of all
amounts held in the Collection Account or by the Master Servicer, if any, or
the Trustee and required to be paid to them pursuant to such Agreement
following the earlier of (i) the final payment or other liquidation of the
last Mortgage Asset subject thereto or the disposition of all property
acquired upon foreclosure of any Mortgage Loan subject thereto and (ii) the
purchase of all of the assets of the Trust Fund by the party entitled to
effect such termination. In no event, however, will the trust created by the
Agreement continue beyond the date specified in the related Prospectus
Supplement. Written notice of termination of the Agreement will be given to
each Certificateholder, and the final distribution will be made only upon
surrender and cancellation of the Certificates at an office or agency
appointed by the Trustee, which will be specified in the notice of
termination.
If so specified in the related Prospectus Supplement, a series of
Certificates may be subject to optional early termination through the
repurchase of the assets in the related Trust Fund by the party specified
therein. If so provided in the related Prospectus Supplement, upon the
reduction of the Certificate Balance of a specified class or classes of
Certificates by a specified percentage or amount, the party specified therein
will solicit bids for the purchase of all assets of the Trust Fund under the
circumstances and in the manner set forth therein.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the Prospectus Supplement for a series of Certificates,
the Offered Certificates of one or more classes of such series will be issued
as Book-Entry Certificates, and each such class will be represented by one or
more single Certificates registered in the name of the depository, The
Depository Trust Company ("DTC").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the UCC and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was
created to hold securities for its participating organizations
("Participants") and facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in
their accounts, thereby eliminating the need for physical movement of
certificates. Participants include Nomura Securities International, Inc.,
securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. Indirect access to
the DTC system also is available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly ("Indirect Participants").
Holders of 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, such Certificateholders will receive all
distributions of principal of and interest on the Offered Certificates from
the Trustee or the applicable paying agent through DTC and its Participants.
Under a book-entry format, Certificateholders will receive payments after the
related Distribution Date because, while payments are required to be
forwarded to Cede & Co. ("Cede"), as nominee for DTC, on each such date, DTC
will forward such payments to its Participants which thereafter will be
required to forward them to Indirect Participants or Certificateholders. The
only "Certificateholder" (as such term is used in the Agreement) will be
Cede, as nominee of DTC, and the Certificateholders will not be recognized by
the Trustee as Certificateholders under the Agreement. Certificateholders
will be permitted to exercise the rights of Certificateholders under the
related Agreement only indirectly through DTC and its Participants who in
turn will exercise their rights through DTC.
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Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Certificates and is
required to receive and transmit distributions of principal and interest on
the Certificates. Participants and Indirect Participants with which
Certificateholders have accounts with respect to the Certificates similarly
are required to make book-entry transfers and receive and transmit such
payments on behalf of their respective Certificateholders.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Certificateholder to pledge Certificates to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Certificates, may be limited due to the lack of a physical certificate for
such Certificates.
DTC has advised the Depositor that it will take any action permitted to be
taken by a Certificateholder under an Agreement only at the direction of one
or more Participants to whose account with DTC the Certificates are credited.
Certificates initially issued in book-entry form will be issued in fully
registered, certificated form to Certificateholders or their nominees
("Definitive Certificates"), rather than to DTC or its nominee only if (i)
the Depositor advises the Trustee in writing that DTC is no longer willing or
able to properly discharge its responsibilities as depository with respect to
the Certificates and the Depositor is unable to locate a qualified successor
or (ii) the Depositor, at its option, elects to terminate the book-entry
system through DTC.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates for the Certificates.
Under surrender by DTC of the certificate or certificates representing such
Certificates and instructions for reregistration, the Trustee will issue such
Certificates in the form of Definitive Certificates, and thereafter the
Trustee will recognize the holders of such Definitive Certificates as
Certificateholders under the Agreement. In the event that Definitive
Certificates are issued or DTC ceases to be the clearing agency for the
Certificates, the Agreement will provide that the applicable
Certificateholders will be notified of such event.
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DESCRIPTION OF THE AGREEMENTS
The Certificates of each series evidencing interests in a Trust Fund
consisting of Mortgage Loans will be issued pursuant to a Pooling and
Servicing Agreement among the Depositor, a Master Servicer, any Special
Servicer appointed as of the date of the Pooling and Servicing Agreement and
the Trustee. The Certificates of each series evidencing interests in a Trust
Fund consisting exclusively of MBS will be issued pursuant to a Trust
Agreement between the Depositor and a Trustee. Any Master Servicer, any such
Special Servicer and the Trustee with respect to any series of Certificates
will be named in the related Prospectus Supplement. The provisions of each
Agreement will vary depending upon the nature of the Certificates to be
issued thereunder and the nature of the related Trust Fund. A form of a
Pooling and Servicing Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summaries describe certain provisions that may appear in each Agreement. The
Prospectus Supplement for a series of Certificates will describe any
provision of the Agreement relating to such series that materially differs
from the description thereof contained in this Prospectus. The summaries do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Agreement for each
Trust Fund and the related Prospectus Supplement. As used herein with respect
to any series, the term "Certificate" refers to all of the Certificates of
that series, whether or not offered hereby and by the related Prospectus
Supplement, unless the context otherwise requires. The Depositor will provide
a copy of the Agreement (without exhibits) relating to any series of
Certificates without charge upon written request of a holder of a Certificate
of such series addressed to Asset Securitization Corporation, Two World
Financial Center -- Building B, 21st Floor, New York, New York 10281-1198.
Attention: Secretary.
ASSIGNMENT OF MORTGAGE ASSETS; REPURCHASES
At the time of issuance of any series of Certificates, the Depositor will
cause the Mortgage Assets included in the related Trust Fund to be assigned
to the Trustee, together with all principal and interest received by or on
behalf of the Depositor on or with respect to such Mortgage Assets after the
Cut-off Date, other than principal and interest due on or before the Cut-off
Date and other than any Retained Interest. The Trustee will, concurrently
with such assignment, deliver the Certificates to the Depositor in exchange
for the Mortgage Assets and the other assets comprising the Trust Fund for
such series. Each Mortgage Asset will be identified in a schedule appearing
as an exhibit to the related Agreement. Such schedule will include detailed
information in respect of each Mortgage Loan included in the related Trust
Fund such as the address of the related Mortgaged Property and type of such
property, the Mortgage Rate and, if applicable, the applicable index, margin,
adjustment date and any rate cap information, the original and remaining term
to maturity, the original and outstanding principal balance and balloon
payment, if any, the Value, Loan-to-Value Ratio and Debt Service Coverage
Ratio as of the date indicated and payment and prepayment provisions, if
applicable and in respect of each MBS included in the related Trust Fund,
including without limitation, the MBS Issuer, MBS Servicer and MBS Trustee,
the pass-through or bond rate or formula for determining such rates, the
issue date and original and remaining term to maturity, if applicable, the
original and outstanding principal amount and payment provisions, if
applicable.
With respect to each Whole Loan, the Depositor will deliver or cause to be
delivered to the Trustee (or to the custodian hereinafter referred to)
certain loan documents, including the Mortgage Note endorsed, without
recourse, to the order of the Trustee, the Mortgage with evidence of
recording indicated thereon (except for any Mortgage not returned from the
public recording office, in which case the Depositor will deliver or cause to
be delivered a copy of such Mortgage together with its certificate that the
original of such Mortgage was delivered to such recording office) and an
assignment of the Mortgage to the Trustee in recordable form. The Depositor
will promptly cause the assignment of each related Whole Loan to be recorded
in the appropriate public office for real property records, except in the
State of California or in other states where, in the opinion of counsel
acceptable to the Trustee, such recording is not required to protect the
Trustee's interest in the Whole Loan against the claim of any subsequent
transferee or any successor to or creditor of the Depositor, the Master
Servicer, the relevant Mortgage Asset Seller or any other prior holder of the
Whole Loan.
The Trustee (or the custodian) will review such Whole Loan documents
within a specified period of days after receipt thereof, and the Trustee (or
the custodian) will hold such documents in trust for the benefit of the
Certificateholders. If any such document is found to be missing or defective
in any material respect, the Trustee (or such custodian) shall take such
action as required in the Agreement, which may include immediately notifying
the Master Servicer and the Depositor. If the Mortgage Asset Seller, upon
notification, cannot cure the omission or defect within a specified number of
days after receipt of such notice, the Mortgage Asset Seller will be
obligated, within a specified number of days of receipt of such notice, to
repurchase the related Whole Loan from the Trustee at the Purchase Price or
substitute for such Mortgage Loan. There can be no assurance that a Mortgage
Asset Seller will fulfill this repurchase or substitution obligation.
Although the
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Master Servicer is obligated to use its best efforts to enforce such
obligation to the extent of its obligations with respect to a Warranting
Party as described under "--Representations and Warranties; Repurchases",
neither the Master Servicer nor the Depositor will be obligated to repurchase
or substitute for such Mortgage Loan if the Mortgage Asset Seller defaults on
its obligation. This repurchase or substitution obligation may constitute the
sole remedy available to the Certificateholders or the Trustee for omission
of, or a material defect in, a constituent document.
With respect to each MBS, the Depositor will deliver or cause to be
delivered to the Trustee (or the custodian) the original certificate or other
definitive evidence of the MBS, together with bond power or other
instruments, certifications or documents required to transfer fully the MBS
to the Trustee for the benefit of the Certificateholders in accordance with
the related MBS Agreement. The Depositor will promptly cause the Trustee to
be registered, with the applicable persons, as the holder of the MBS.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
The Depositor may make or assign certain representations and warranties
pursuant to the related Agreement with respect to each Whole Loan
constituting a Mortgage Asset in the related Trust Fund, as of a specified
date (the person making such representations and warranties, the "Warranting
Party") covering, by way of example, the following types of matters: (i) the
accuracy of the information set forth for such Whole Loan on the schedule of
Mortgage Assets appearing as an exhibit to the Agreement; (ii) the existence
of title insurance insuring the lien priority of the Whole Loan; (iii) the
authority of the Mortgage Asset Seller to sell the Whole Loan; (iv) the
payment status of the Whole Loan and the status of payments of taxes,
assessments and other charges affecting the related Mortgaged Property; (v)
the existence of customary provisions in the related Mortgage Note and
Mortgage to permit realization against the Mortgaged Property of the benefit
of the security of the Mortgage; and (vi) the existence of hazard and
extended perils insurance coverage on the Mortgaged Property.
Any Warranting Party shall be a Mortgage Asset Seller or an affiliate
thereof or such other person acceptable to the Depositor and shall be
identified in the related Prospectus Supplement.
Representations and warranties made in respect of a Whole Loan may have
been made as of a date prior to the applicable Cut-off Date. A substantial
period of time may have elapsed between such date and the date of initial
issuance of the related series of Certificates evidencing an interest in such
Whole Loan. In the event of a breach of any such representation or warranty,
the Warranting Party may be obligated pursuant to the related Agreement to
cure such breach or repurchase or replace the affected Whole Loan as
described below. Since the representations and warranties may not address
events that may occur following the date as of which they were made, the
Warranting Party will have a cure, repurchase or substitution obligation in
connection with a breach of such a representation and warranty only if the
relevant event that causes such breach occurs prior to such date. Such party
would have no such obligations if the relevant event that causes such breach
occurs after such date. However, the Depositor will not include any Whole
Loan in the Trust Fund for any series of Certificates if anything has come to
the Depositor's attention that would cause it to believe that the
representations and warranties made in respect of such Whole Loan will not be
accurate and complete in all material respects as of the date of initial
issuance of the related series of Certificates.
Each Agreement will provide that the Master Servicer and/or Trustee will
be required to notify promptly the relevant Warranting Party of any breach of
any representation or warranty made by or on behalf of it in respect of a
Whole Loan that materially and adversely affects the value of such Mortgage
Loan or the interests therein of the Certificateholders. If such Warranting
Party cannot cure such breach within a specified period following the date on
which such party was notified of such breach, then such Warranting Party will
be obligated to repurchase such Mortgage Loan from the Trustee within a
specified period from the date on which the Warranting Party was notified of
such breach, at the Purchase Price therefor. As to any Whole Loan, the
"Purchase Price" will typically equal to the sum of the unpaid principal
balance thereof plus unpaid accrued interest thereon at the Mortgage Rate
from the date as to which interest was last paid to the end of the accrual
period in which the relevant purchase is to occur. If so provided in the
Prospectus Supplement for a series, a Warranting Party, rather than
repurchase a Mortgage Loan as to which a breach has occurred, will have the
option, within a specified period after initial issuance of such series of
Certificates, to cause the removal of such Mortgage Loan from the Trust Fund
and substitute in its place one or more other Whole Loans, in accordance with
the standards described in the related Prospectus Supplement. The Master
Servicer will be required under the applicable Agreement to use its best
efforts to enforce such obligations of the Warranting Party for the benefit
of the Trustee and the holders of the Certificates, following the practices
it would employ in its good faith business judgment were it the owner of such
Whole Loan. This repurchase or substitution obligation will constitute the
sole remedy available to holders of Certificates or the Trustee for a breach
of representation by a Warranting Party.
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Neither the Depositor (except to the extent that it is the Warranting
Party) nor the Master Servicer will be obligated to purchase or substitute
for a Whole Loan if a Warranting Party defaults on its obligation to do so,
and no assurance can be given that Warranting Parties will carry out such
obligations with respect to Whole Loans.
With respect to a Trust Fund that includes MBS, the related Prospectus
Supplement will describe any representations or warranties made or assigned
by the Depositor with respect to such MBS, the person making them and the
remedies for breach thereof.
A Master Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the related Agreement. Upon a breach of any such
representation of the Master Servicer which materially and adversely affects
the interests of the Certificateholders, the Master Servicer will be
obligated to cure the breach in all material respects.
PAYMENTS ON MORTGAGE ASSETS; DEPOSITS TO COLLECTION ACCOUNT
The Master Servicer, if any, and/or the Trustee will, as to each Trust
Fund, establish and maintain or cause to be established and maintained one or
more Collection Accounts for the collection of payments on the related
Mortgage Assets, which must be either (i) maintained with a bank or trust
company, and in a manner, satisfactory to the Rating Agency or Agencies
rating any class of Certificates of such series or (ii) an account or
accounts the deposits in which are insured by the Bank Insurance Fund ("BIF")
or the Savings Association Insurance Fund ("SAIF") of the Federal Deposit
Insurance Corporation ("FDIC") (to the limits established by the FDIC) and
the uninsured deposits in which are otherwise secured such that the
Certificateholders have a claim with respect to the funds in the Collection
Account or a certified first priority security interest against any
collateral securing such funds that is superior to the claims of any other
depositors or general creditors of the institution with which the Collection
Account is maintained. The collateral eligible to secure amounts in the
Collection Account is limited to United States government securities and
other investment grade investments specified in the Agreement ("Permitted
Investments"). A Collection Account may be maintained as an interest bearing
or a non-interest bearing account and the funds held therein may be invested
pending each succeeding Distribution Date in Permitted Investments. Any
interest or other income earned on funds in the Collection Account will
generally be paid to a Master Servicer or its designee as additional
servicing compensation. The Collection Account may be maintained with an
institution that is an affiliate of the Master Servicer, if applicable,
provided that such institution meets the standards set forth above. If
permitted by the Rating Agency or Agencies and so specified in the related
Prospectus Supplement, a Collection Account may contain funds relating to
more than one series of mortgage pass-through certificates and may contain
other funds respecting payments on mortgage loans belonging to the Master
Servicer or serviced or master serviced by it on behalf of others.
A Master Servicer or the Trustee will deposit or cause to be deposited in
the Collection Account for each Trust Fund on a daily basis, unless otherwise
provided in the Agreement and described in the related Prospectus Supplement,
the following payments and collections received, or advances made, by the
Master Servicer or the Trustee or on its behalf subsequent to the Cut-off
Date (other than payments due on or before the Cut-off Date, and exclusive of
any amounts representing a Retained Interest):
(i) all payments on account of principal, including principal
prepayments, and on account of modification or assumption fees, on the
Mortgage Assets;
(ii) all payments on account of interest on the Mortgage Assets,
including any late charges or default interest collected, and to the
extent that any class or classes of Certificates is entitled thereto, all
payments on account of Prepayment Premiums or Equity Participations, in
each case net of any portion thereof retained by a Master Servicer or a
Sub-Servicer as its servicing compensation and net of any Retained
Interest;
(iii) all proceeds of the hazard insurance policies (to the extent such
proceeds are not applied to the restoration of the property or released to
the mortgagor in accordance with the normal servicing procedures of a
Master Servicer or the related Sub-Servicer, subject to the terms and
conditions of the related Mortgage and Mortgage Note) (collectively,
"Insurance Proceeds") and all other amounts received and retained in
connection with a taking of a Mortgaged Property by exercise of a power of
eminent domain or condemnation or the liquidation of defaulted Mortgage
Loans, by foreclosure or otherwise ("Liquidation Proceeds"), together with
the net proceeds on a monthly basis with respect to any Mortgaged
Properties acquired for the benefit of Certificateholders by foreclosure
or by deed in lieu of foreclosure or otherwise;
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(iv) any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for the related series of Certificates as
described under "Description of Credit Support";
(v) any advances made as described under "Description of the Certificates
-- Advances in Respect of Delinquencies";
(vi) any amounts paid under any Cash Flow Agreement, as described under
"Description of the Trust Funds -- Cash Flow Agreements";
(vii) all proceeds of any Mortgage Loan or property in respect thereof
purchased by the Master Servicer, the Depositor, any Sub-Servicer or any
Mortgage Asset Seller as described under "Description of the Agreements
-- Assignment of Mortgage Assets; Repurchases" -- and "-- Representations
and Warranties; Repurchases", exclusive of the Retained Interest, if any, in
respect of such Mortgage Loan, and all proceeds of any Mortgage Asset
purchased as described under "Description of the Certificates
-- Termination";
(viii) all payments required to be deposited in the Collection Account
with respect to any deductible clause in any blanket insurance policy
described under "-- Hazard Insurance Policies"; and
(ix) any amount required to be deposited by a Master Servicer or the
Trustee in connection with losses realized on investments for the benefit
of the Master Servicer or the Trustee, as the case may be, of funds held
in the Collection Account.
The Agreement for a series of Certificates may provide that a special
trust account (the "REO Account") will be established and maintained in order
to be used in connection with REO Properties and, if specified in the related
Prospectus Supplement, certain other Mortgaged Properties. To the extent set
forth in the Agreement, certain withdrawals from the REO Account will be made
to, among other things, (i) make remittances to the Collection Account as
required by the Agreement, (ii) pay taxes, assessments, insurance premiums,
other amounts necessary for the proper operation, management and maintenance
of the REO Properties and such Mortgaged Properties and certain third-party
expenses in accordance with the Agreement and (iii) provide for the
reimbursement of certain expenses in respect of the REO Properties and such
Mortgaged Properties.
The amount at any time credited to the REO Account will be fully insured
to the maximum coverage possible or will be invested in Permitted Investments
that mature, or are subject to withdrawal or redemption, on or before the
business day on which such amounts are required to be remitted to the Master
Servicer for deposit in the Collection Account. The income from the
investment of funds in the REO Account in Permitted Investments shall be
deposited in the REO Account for remittance to the Collection Account, and
the risk of loss of funds in the REO Account resulting from such investments
will be borne by the Trust Fund.
COLLECTION AND OTHER SERVICING PROCEDURES
The Master Servicer, directly or through Sub-Servicers, is required to
make reasonable efforts to collect all scheduled payments under the Whole
Loans and will follow or cause to be followed such collection procedures as
it would follow with respect to mortgage loans that are comparable to the
Whole Loans and held for its own account, provided such procedures are
consistent with the Agreement and any related hazard insurance policy or
instrument of Credit Support included in the related Trust Fund described
herein or under "Description of Credit Support". Each Master Servicer will be
required to perform the customary functions of a servicer of comparable
loans, including collecting payments from mortgagors; maintaining hazard
insurance policies as described herein and in any related Prospectus
Supplement, and filing and settling claims thereunder; maintaining escrow or
impoundment accounts of mortgagors for payment of taxes, insurance and other
items required to be paid by any mortgagor pursuant to the Whole Loan;
processing assumptions or substitutions, although the Master Servicer is
generally required to exercise due-on-sale clauses to the extent such
exercise is permitted by law and would not adversely affect insurance
coverage; attempting to cure delinquencies; supervising foreclosures;
inspecting and managing Mortgaged Properties under certain circumstances; and
maintaining accounting records relating to the Whole Loans. The Master
Servicer will be responsible for filing and settling claims in respect of
particular Whole Loans under any applicable instrument of Credit Support. See
"Description of Credit Support".
Consistent with the general servicing standard set forth above, the Master
Servicer may, in its discretion, waive any late payment charge in respect of
a late Whole Loan payment and, only upon determining that the coverage under
any related hazard insurance policy or instrument of Credit Support will not
be affected, extend or cause to be extended the due dates for payments due on
a Whole Loan for a period not greater than that specified in the applicable
Agreement.
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The Master Servicer may agree to modify, waive or amend any term of any
Whole Loan in a manner consistent with the general servicing standards set
forth above so long as the modification, waiver or amendment will not (i)
affect the amount or timing of any payments of principal or interest on the
Whole Loan or (ii) in its judgment, materially impair the security for the
Whole Loan or reduce the likelihood of timely payment of amounts due thereon.
The Master Servicer also may agree to any modification, waiver or amendment
that would so affect or impair the payments on, or the security for, a Whole
Loan if (i) in its judgment, a material default on the Whole Loan has
occurred or a payment default is imminent and (ii) in its judgment, such
modification, waiver or amendment will minimize the loss that might otherwise
be experienced with respect to the Whole Loan. The Master Servicer is
required to notify the Trustee in the event of any modification, waiver or
amendment of any Whole Loan.
SPECIAL SERVICERS
To the extent so specified in the related Prospectus Supplement, a special
servicer (the "Special Servicer") may be appointed to service Mortgage Loans
that are in default or otherwise require special servicing. The related
Prospectus Supplement will set forth certain information with respect to the
Special Servicer and will describe the rights, obligations and compensation
of a Special Servicer. A Master Servicer will only be responsible for the
duties and obligations of a Special Servicer to the extent set forth in the
Prospectus Supplement. A Special Servicer may be an affiliate of the
Depositor and may have other business relationships with the Depositor and
its affiliates.
SUB-SERVICERS
A Master Servicer and/or any Special Servicer may each delegate their
respective servicing obligations in respect of the Whole Loans to third-party
servicers (each, a "Sub-Servicer"), but such Master Servicer and/or Special
Servicer will remain obligated under the related Agreement. The sub-servicing
agreement between a Master Servicer and/or Special Servicer and a
Sub-Servicer (a "Sub-Servicing Agreement") will be consistent with the terms
of the related Agreement and will not result in a withdrawal or downgrading
of the rating of any class of Certificates issued pursuant to such Agreement.
Although each Sub-Servicing Agreement will be a contract solely between the
Master Servicer or Special Servicer, as applicable, and the Sub-Servicer, the
related Agreement will provide that, if for any reason the Master Servicer or
Special Servicer for such series of Certificates is no longer acting in such
capacity, the Trustee or any successor Master Servicer or Special Servicer
must recognize the Sub-Servicer's rights and obligations under such
Sub-Servicing Agreement.
The Master Servicer or Special Servicer, as applicable, will be solely
liable for all fees owed by it to any Sub-Servicer, irrespective of whether
the Master Servicer's or Special Servicer's compensation pursuant to the
related Agreement is sufficient to pay such fees. However, a Sub-Servicer may
be entitled to a Retained Interest in certain Whole Loans. Each Sub-Servicer
will be reimbursed by the Master Servicer or Special Servicer, as applicable,
for certain expenditures which it makes, generally to the same extent the
Master Servicer or Special Servicer, as applicable, would be reimbursed under
an Agreement. See "-- Retained Interest, Servicing Compensation and Payment of
Expenses".
The Master Servicer or Special Servicer, as applicable, may require any
Sub-Servicer to agree to indemnify the Master Servicer or Special Servicer
for any liability or obligation sustained by the Master Servicer or Special
Servicer in connection with any act or failure to act by the Sub-Servicer in
its servicing capacity. An Agreement may require a Sub-Servicer to maintain a
fidelity bond and an errors and omissions policy with respect to its
officers, employees and other persons acting on its behalf or on behalf of
the Master Servicer or Special Servicer.
REALIZATION UPON DEFAULTED WHOLE LOANS
A mortgagor's failure to make required payments may reflect inadequate
operating income or the diversion of that income from the service of payments
due under the Mortgage Loan, and may call into question such mortgagor's
ability to make timely payment of taxes and to pay for necessary maintenance
of the related Mortgaged Property. The Master Servicer is required to monitor
any Whole Loan which is in default, contact the mortgagor concerning the
default, evaluate whether the causes of the default can be cured over a
reasonable period without significant impairment of the value of the
Mortgaged Property, initiate corrective action in cooperation with the
mortgagor if cure is likely, inspect the Mortgaged Property and take such
other actions as it would normally take with respect to similar loans
serviced for its own portfolio. A significant period of time may elapse
before the Master Servicer is able to assess the success of such corrective
action or the need for additional initiatives.
The time within which the Master Servicer makes the initial determination
of appropriate action, evaluates the success of corrective action, develops
additional initiatives, institutes foreclosure proceedings and actually
forecloses (or takes a
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deed to a Mortgaged Property in lieu of foreclosure) on behalf of the
Certificateholders, may vary considerably depending on the particular Whole
Loan, the Mortgaged Property, the mortgagor, the presence of an acceptable
party to assume the Mortgage Loan and the laws of the jurisdiction in which
the Mortgaged Property is located. Under federal bankruptcy law, in certain
cases the Master Servicer may not be permitted to accelerate a Whole Loan or
to foreclose on a Mortgaged Property for a considerable period of time. See
"Certain Legal Aspects of Mortgage Loans".
If so specified in the Prospectus Supplement for a series of Certificates
that includes one or more subordinate classes, any holder or holders of a
class of Subordinate Certificates having the lowest priority of payment may
purchase from the Trust Fund at the purchase price described in such
Supplement any Whole Loan as to which the number of scheduled payments
thereunder specified in such Supplement are delinquent.
The Master Servicer, on behalf of the Trustee, may at any time institute
foreclosure proceedings, exercise any power of sale contained in any
mortgage, obtain a deed in lieu of foreclosure, or otherwise acquire title to
a Mortgaged Property securing a Whole Loan by operation of law or otherwise,
if such action is consistent with the servicing standard described herein and
a default on the related Mortgage Loan has occurred or, in the Master
Servicer's judgment, is imminent. The Master Servicer may not, however,
acquire title to any Mortgaged Property or take any action that would cause
the Trust Fund to be an "owner" or an "operator" within the meaning of
certain federal or state environmental laws, unless the Master Servicer has
also 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) The Mortgaged Property is in compliance with applicable environmental
laws or, if not, that it would be in the best economic interest of the
Trust Fund to take such actions as are necessary to cause the Mortgaged
Property to comply therewith (the cost of which actions will be an expense
of the Trust Fund); and
(ii) There are no circumstances or conditions present at the Mortgaged
Property relating to the use, management or disposal of any hazardous
substances, hazardous materials, wastes, or petroleum-based materials for
which investigation, testing, monitoring, containment, clean-up or
remediation could be required under any federal, state or local law or
regulation, or, if such substances, materials or wastes are present for
which such action could be required, that it would be in the best economic
interest of the Trust Fund to take such actions with respect to the
Mortgaged Property (the cost of which actions will be an expense of the
Trust Fund).
If title to any Mortgaged Property is acquired by the Trust Fund, the
Master Servicer, pursuant to the related Agreement and on behalf of the Trust
Fund, will be required to sell the Mortgaged Property within two years of
acquisition, unless the Trustee receives (i) an opinion of independent
counsel to the effect that the holding of the property by the Trust Fund
subsequent to two years after its acquisition will not result in the
imposition of a tax on the Trust Fund or cause the Trust Fund to fail to
qualify as a REMIC under the Code at any time that any Certificate is
outstanding or (ii) an extension from the Internal Revenue Service.
If the Trust Fund acquires title to any Mortgaged Property, the Master
Servicer, on behalf of the Trust Fund, may retain an independent contractor
to manage and operate such property. The retention of an independent
contractor, however, will not relieve the Master Servicer of any of its
obligations with respect to the management and operation of such Mortgaged
Property. Any such property acquired by the Trust Fund will be managed in a
manner consistent with the management and operation by the Master Servicer of
similar property owned by it.
The limitations imposed by the Agreement and the REMIC provisions of the
Code (if a REMIC election has been made with respect to the related Trust
Fund) on the operations and ownership of any Mortgaged Property acquired on
behalf of the Trust Fund may result in the recovery of an amount less than
the amount that would otherwise be recovered. See "Certain Legal Aspects of
Mortgage Loans--Foreclosure".
If recovery on a defaulted Whole Loan under any related instrument of
Credit Support is not available, the Master Servicer nevertheless will be
obligated to follow or cause to be followed such normal practices and
procedures as it deems necessary or advisable to realize upon the defaulted
Whole Loan. If the proceeds of any liquidation of the property securing the
defaulted Whole Loan are less than the outstanding principal balance of the
defaulted Whole Loan plus interest accrued thereon at the Mortgage Rate plus
the aggregate amount of expenses incurred by the Master Servicer in
connection with such proceedings and which are reimbursable under the
Agreement, the Trust Fund will realize a loss in the amount of such
difference. The Master Servicer will be entitled to withdraw or cause to be
withdrawn from the Collection Account out of the Liquidation Proceeds
recovered on any defaulted Whole Loan, prior to the distribution of
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such Liquidation Proceeds to Certificateholders, amounts representing its
normal servicing compensation on the Whole Loan, unreimbursed servicing
expenses incurred with respect to the Whole Loan and any unreimbursed
advances of delinquent payments made with respect to the Whole Loan.
If any property securing a defaulted Whole Loan is damaged and proceeds,
if any, from the related hazard insurance policy are insufficient to restore
the damaged property to a condition sufficient to permit recovery under the
related instrument of Credit Support, if any, the Master Servicer is not
required to expend its own funds to restore the damaged property unless it
determines (i) that such restoration will increase the proceeds to
Certificateholders on liquidation of the Whole Loan after reimbursement of
the Master Servicer for its expenses and (ii) that such expenses will be
recoverable by it from related Insurance Proceeds or Liquidation Proceeds.
As servicer of the Whole Loans, a Master Servicer, on behalf of itself,
the Trustee and the Certificateholders, will present claims to the obligor
under each instrument of Credit Support, and will take such reasonable steps
as are necessary to receive payment or to permit recovery thereunder with
respect to defaulted Whole Loans.
If a Master Servicer or its designee recovers payments under any
instrument of Credit Support with respect to any defaulted Whole Loan, the
Master Servicer will be entitled to withdraw or cause to be withdrawn from
the Collection Account out of such proceeds, prior to distribution thereof to
Certificateholders, amounts representing its normal servicing compensation on
such Whole Loan, unreimbursed servicing expenses incurred with respect to the
Whole Loan and any unreimbursed advances of delinquent payments made with
respect to the Whole Loan. See "--Hazard Insurance Policies" and "Description
of Credit Support".
HAZARD INSURANCE POLICIES
Any Agreement for a Trust Fund that includes Whole Loans will require the
Master Servicer to cause the mortgagor on each Whole Loan to maintain a
hazard insurance policy providing for coverage of the standard form of fire
insurance policy with extended coverage customary in the state in which the
Mortgaged Property is located. Such coverage generally will be in general in
an amount equal to the lesser of the principal balance owing on such Whole
Loan and the amount necessary to fully compensate for any damage or loss to
the improvements on the Mortgaged Property on a replacement cost basis, but
in either case not less than the amount necessary to avoid the application of
any co-insurance clause contained in the hazard insurance policy. The ability
of the Master Servicer to assure that hazard insurance proceeds are
appropriately applied may be dependent upon its being named as an additional
insured under an hazard insurance policy and under any flood insurance policy
referred to below, or upon the extent to which information in this regard is
furnished by mortgagors. All amounts collected by the Master Servicer under
any such policy (except for amounts to be applied to the restoration or
repair of the Mortgaged Property or released to the mortgagor in accordance
with the Master Servicer's normal servicing procedures, subject to the terms
and conditions of the related Mortgage and Mortgage Note) will be deposited
in the Collection Account. The Agreement will provide that the Master
Servicer may satisfy its obligation to cause each mortgagor to maintain such
a hazard insurance policy by the Master Servicer's maintaining a blanket
policy insuring against hazard losses on the Whole Loans. If such blanket
policy contains a deductible clause, the Master Servicer will be required to
deposit in the Collection Account all sums that would have been deposited
therein but for such clause. The Master Servicer will also be required to
maintain a fidelity bond and errors and omission policy with respect to its
officers and employees that provides coverage against losses that may be
sustained as a result of an officer's or employee's misappropriation of funds
or errors and omissions in failing to maintain insurance, subject to certain
limitations as to amount of coverage, deductible amounts, conditions,
exclusions and exceptions.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by
fire, lightning, explosion, smoke, windstorm and hail, and riot, strike and
civil commotion, subject to the conditions and exclusions specified in each
policy. Although the policies relating to the Whole Loans will be
underwritten by different insurers under different state laws in accordance
with different applicable state forms, and therefore will not contain
identical terms and conditions, the basic terms thereof are dictated by
respective state laws, and most such policies typically do not cover any
physical damage resulting from war, revolution, governmental actions, floods
and other water-related causes, earth movement (including earthquakes,
landslides and mudflows), wet or dry rot, vermin, domestic animals and
certain other kinds of uninsured risks. When a Mortgaged Property securing a
Whole Loan is located at origination in a federally designated flood area,
each Agreement requires the Master Servicer to cause the mortgagor to acquire
and maintain flood insurance in an amount equal in general to the lesser of
(i) the
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amount necessary to fully compensate for any damage or loss to the
improvements which are part of the Mortgaged Property or a replacement cost
basis and (ii) the maximum amount of insurance available under the federal
flood insurance program, whether or not the area is participating in the
program.
The hazard insurance policies covering the Mortgaged Properties securing
the Whole Loans will typically contain a co-insurance clause that in effect
requires the insured at all times to carry insurance of a specified
percentage (generally 80% to 90%) of the full replacement value of the
improvements on the property in order to recover the full amount of any
partial loss. If the insured's coverage falls below this specified
percentage, such clause generally provides that the insurer's liability in
the event of partial loss does not exceed the lesser of (i) the replacement
cost of the improvements less physical depreciation and (ii) such proportion
of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such improvements.
Under the terms of the Whole Loans, mortgagors will be required to present
claims to insurers under hazard insurance policies maintained on the related
Mortgaged Properties. The Master Servicer, on behalf of the Trustee and
Certificateholders, is obligated to present or cause to be presented claims
under any blanket insurance policy insuring against hazard losses on
Mortgaged Properties securing the Whole Loans. However, the ability of the
Master Servicer to present or cause to be presented such claims is dependent
upon the extent to which information in this regard is furnished to the
Master Servicer by mortgagors.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Whole Loans may contain clauses requiring the consent of
the mortgagee to any sale or other transfer of the related Mortgaged
Property, or due-on-sale clauses entitling the mortgagee to accelerate
payment of the Whole Loan upon any sale or other transfer of the related
Mortgaged Property. Certain of the Whole Loans may contain clauses requiring
the consent of the mortgagee to the creation of any other lien or encumbrance
on the Mortgaged Property or due-on-encumbrance clauses entitling the
mortgagee to accelerate payment of the Whole Loan upon the creation of any
other lien or encumbrance upon the Mortgaged Property. The Master Servicer,
on behalf of the Trust Fund, will determine whether to exercise any right the
Trustee may have as mortgagee to accelerate payment of any such Whole Loan or
to withhold its consent to any transfer or further encumbrance in accordance
with the general servicing standard described herein under "Description of
the Agreements -- Collection and Other Servicing Procedures".
Any fee collected by or on behalf of the Master Servicer for entering into
an assumption agreement will be retained by or on behalf of the Master
Servicer as additional servicing compensation. See "Certain Legal Aspects of
Mortgage Loans --Due-on-Sale and Due-on-Encumbrance".
RETAINED INTEREST; SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Prospectus Supplement for a series of Certificates will specify
whether there will be any Retained Interest in the Mortgage Assets, and, if
so, the owner thereof. If so, the Retained Interest will be established on a
loan-by-loan basis and will be specified on an exhibit to the related
Agreement. A "Retained Interest" in a Mortgage Asset represents a specified
portion of the interest payable thereon. The Retained Interest will be
deducted from mortgagor payments as received and will not be part of the
related Trust Fund.
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 payment on each Whole Loan. Since any Retained Interest and a
Master Servicer's primary compensation are percentages of the principal
balance of each Mortgage Asset, such amounts will decrease in accordance with
the amortization schedule of the Mortgage Loans underlying or comprising such
Mortgage Asset. The Prospectus Supplement with respect to a series of
Certificates evidencing interests in a Trust Fund that includes Whole Loans
may provide that, as additional compensation, the Master Servicer or the
Sub-Servicers may retain all or a portion of assumption fees, modification
fees, late payment charges or Prepayment Premiums collected from mortgagors
and any interest or other income which may be earned on funds held in the
Collection Account or any Sub-Servicing Account. Any Sub-Servicer will
receive a portion of the Master Servicer's compensation as its sub-servicing
compensation.
In addition to amounts payable to any Sub-Servicer, a Master Servicer may,
to the extent provided in the related Prospectus Supplement, pay from its
servicing compensation certain expenses incurred in connection with its
servicing of the Mortgage Loans, including, without limitation, payment of
the fees and disbursements of the Trustee and independent accountants,
payment of expenses incurred in connection with distributions and reports to
Certificateholders, and payment
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of any other expenses described in the related Prospectus Supplement. Certain
other expenses, including certain expenses relating to defaults and
liquidations on the Mortgage Loans and, to the extent so provided in the
related Prospectus Supplement, interest thereon at the rate specified
therein, and the fees of any Special Servicer, may be borne by the Trust
Fund.
EVIDENCE AS TO COMPLIANCE
Each Agreement relating to Mortgage Assets which include Whole Loans will
provide that on or before a specified date in each year, beginning with the
first such date at least six months after the related Cut-off Date, a firm of
independent public accountants will furnish a statement to the Trustee to the
effect that, on the basis of the examination by such firm conducted
substantially in compliance with either the Uniform Single Audit Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FHLMC, the
servicing by or on behalf of the Master Servicer of mortgage loans under
pooling and servicing agreements substantially similar to each other
(including the related Agreement) was conducted in compliance with the terms
of such agreements except for any significant exceptions or errors in records
that, in the opinion of the firm, either the Audit Program for Mortgages
serviced for FHLMC, or paragraph 4 of the Uniform Single Audit Program for
Mortgage Bankers, requires it to report. In rendering its statement such firm
may rely, as to matters relating to the direct servicing of mortgage loans by
Sub-Servicers, upon comparable statements for examinations conducted
substantially in compliance with the Uniform Single Audit Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FHLMC
(rendered within one year of such statement) of firms of independent public
accountants with respect to the related Sub-Servicer.
Each such Agreement will also provide for delivery to the Trustee, on or
before a specified date in each year, of an annual statement signed by two
officers of the Master Servicer to the effect that the Master Servicer has
fulfilled its obligations under the Agreement throughout the preceding year.
Copies of the annual accountants' statement and the statement of officers
of a Master Servicer will be obtainable by Certificateholders without charge
upon written request to the Master Servicer at the address set forth in the
related Prospectus Supplement.
CERTAIN MATTERS REGARDING A MASTER SERVICER, A SPECIAL SERVICER AND THE
DEPOSITOR
The Master Servicer, if any, under each Agreement will be named in the
related Prospectus Supplement. The entity serving as Master Servicer may be
an affiliate of the Depositor and may have other normal business
relationships with the Depositor or Depositor's affiliates.
The Agreement will provide that the Master Servicer may resign from its
obligations and duties thereunder only if such resignation, and the
appointment of a successor, will not result in a downgrading of the rating of
any class of Certificates or upon a determination that its duties under the
Agreement are no longer permissible under applicable law. No such resignation
will become effective until the Trustee or a successor servicer has assumed
the Master Servicer's obligations and duties under the Agreement.
Each Agreement will further provide that neither any Master Servicer, the
Depositor nor any director, officer, employee, or agent of a Master Servicer
or the Depositor will be under any liability to the related Trust Fund or
Certificateholders for any action taken, or for refraining from the taking of
any action, in good faith pursuant to the Agreement; provided, however, that
neither a Master Servicer, the Depositor nor any such person will be
protected against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence in the performance of
duties thereunder or by reason of reckless disregard of obligations and
duties thereunder. Each Agreement will further provide that any Master
Servicer, the Depositor and any director, officer, employee or agent of a
Master Servicer or the Depositor will be entitled to indemnification by the
related Trust Fund and will be held harmless against any loss, liability or
expense incurred in connection with any legal action relating to the
Agreement or the Certificates, other than any loss, liability or expense
related to any specific Mortgage Loan or Mortgage Loans (unless any such
loss, liability or expense is otherwise reimbursable pursuant to the
Agreement) and any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties
thereunder or by reason of reckless disregard of obligations and duties
thereunder. In addition, each Agreement will provide that neither any Master
Servicer nor the Depositor will be under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its
respective responsibilities under the Agreement and which in its opinion may
involve it in any expense or liability. Any such Master Servicer or the
Depositor may, however, in its discretion undertake any such action which it
may
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deem necessary or desirable with respect to the Agreement and the rights and
duties of the parties thereto and the interests of the Certificateholders
thereunder. In such event, the legal expenses and costs of such action and
any liability resulting therefrom will be expenses, costs and liabilities of
the Certificateholders, and the Master Servicer or the Depositor, as the case
may be, will be entitled to be reimbursed therefor and to charge the
Collection Accounts.
Any person into which the Master Servicer may be merged or consolidated,
or any person resulting from any merger or consolidation to which the Master
Servicer is a party, or any person succeeding to the business of the Master
Servicer, will be the successor of the Master Servicer under the related
Agreement, provided that such person satisfies the criteria specified in the
Agreement.
If the Master Servicer retains a Special Servicer, the standard of care
for, and any indemnification to be provided to, the Special Servicer will be
set forth in the related Agreement.
EVENT OF DEFAULT
Events of Default under the related Agreement for a Trust Fund that
includes Whole Loans will, in general, consist of (i) any failure by the
Master Servicer to distribute or cause to be distributed to
Certificateholders, or to remit to the Trustee for distribution to
Certificateholders, any required payment that continues unremedied for five
days after the giving of written notice of such failure to the Master
Servicer by the Trustee or the Depositor, or to the Master Servicer, the
Depositor and the Trustee by the holders of Certificates evidencing not less
than 25% of the Voting Rights, (ii) any failure by the Master Servicer duly
to observe or perform in any material respect any of its other covenants or
obligations under the Agreement which continues unremedied for thirty days
(fifteen days in the case of a failure to pay the premium for any insurance
policy or instrument of Credit Support required to be maintained pursuant to
the Agreement) after the giving of written notice of such failure to the
Master Servicer by the Trustee or the Depositor, or to the Master Servicer,
the Depositor and the Trustee by the holders of Certificates evidencing not
less than 25% of the Voting Rights; and (iii) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings and certain actions by or on behalf of the Master Servicer
indicating its insolvency or inability to pay its obligations.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under an Agreement remains unremedied, the
Depositor or the Trustee may, at the direction of holders of Certificates
evidencing not less than 51% of the Voting Rights, the Trustee shall,
terminate all of the rights and obligations of the Master Servicer under the
Agreement relating to such Trust Fund and in and to the Mortgage Loans (other
than any Retained Interest of the Master Servicer), whereupon the Trustee
will succeed to all of the responsibilities, duties and liabilities of the
Master Servicer under the Agreement (except that if the Trustee is prohibited
by law from obligating itself to make advances regarding delinquent mortgage
loans, then the Trustee will not be so obligated) and will be entitled to
similar compensation arrangements. In the event that the Trustee is unwilling
or unable so to act, it may or, at the written request of the holders of
Certificates entitled to at least 51% of the Voting Rights, it shall appoint,
or petition a court of competent jurisdiction for the appointment of, a loan
servicing institution acceptable to the Rating Agency with a net worth at the
time of such appointment of at least $15,000,000 to act as successor to the
Master Servicer under the Agreement. Pending such appointment, the Trustee is
obligated to act in such capacity. The Trustee and any such successor may
agree upon the servicing compensation to be paid, which in no event may be
greater than the compensation payable to the Master Servicer under the
Agreement.
No Certificateholder will have the right under any Agreement to institute
any proceeding with respect thereto unless such holder previously has given
to the Trustee written notice of default and unless the holders of
Certificates evidencing not less than 25% of the Voting Rights have made
written request upon the Trustee to institute such proceeding in its own name
as Trustee thereunder and have offered to the Trustee reasonable indemnity,
and the Trustee for fifteen days has neglected or refused to institute any
such proceeding. The Trustee, however, is under no obligation to exercise any
of the trusts or powers vested in it by any Agreement or to make any
investigation of matters arising thereunder or to institute, conduct or
defend any litigation thereunder or in relation thereto at the request, order
or direction of any of the holders of Certificates covered by such Agreement,
unless such Certificateholders have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may
be incurred therein or thereby.
AMENDMENT
Each Agreement may be amended by the Depositor, the Master Servicer, if
any, and the Trustee, without the consent of any of the holders of
Certificates covered by the Agreement, to cure any ambiguity, to correct,
modify or supplement
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any provision therein, or to make any other provisions with respect to
matters or questions arising under the Agreement which are not inconsistent
with the provisions thereof, provided that such action will not adversely
affect in any material respect the interests of any holder of Certificates
covered by the Agreement. An Agreement may also be amended by the Depositor,
the Master Servicer, if any, and the Trustee with the consent of the holders
of Certificates evidencing not less than 66% of the Voting Rights, for any
purpose; provided, however, that no such amendment may (i) reduce in any
manner the amount of or delay the timing of, payments received on Mortgage
Loans which are required to be distributed on any Certificate without the
consent of the holder of such Certificate, (ii) adversely affect in any
material respect the interests of the holders of any class of Certificates in
a manner other than as described in (i), without the consent of the holders
of Certificates of such class evidencing not less than 66% of the aggregate
Voting Rights of such class or (iii) reduce the aforesaid percentage of
Voting Rights required for the consent to any such amendment without the
consent of the holders of all Certificates covered by such Agreement then
outstanding. However, with respect to any series of Certificates as to which
one or more REMIC elections is to be made, the Trustee will not consent to
any amendment of the Agreement unless it shall first have received an opinion
of counsel to the effect that such amendment will not cause the Trust Fund
(or designated portion thereof) to fail to qualify as a REMIC at any time
that the related Certificates are outstanding.
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or sufficiency
of any Agreement, the Certificates or any Mortgage Loan or related document
and is not accountable for the use or application by or on behalf of any
Master Servicer of any funds paid to the Master Servicer or its designee or
any Special Servicer in respect of the Certificates or the Mortgage Loans, or
deposited into or withdrawn from the Certificate Account or any other account
by or on behalf of the Master Servicer or any Special Servicer. If no Event
of Default has occurred and is continuing, the Trustee is required to perform
only those duties specifically required under the related Agreement. However,
upon receipt of the various certificates, reports or other instruments
required to be furnished to it, the Trustee is required to examine such
documents and to determine whether they conform to the requirements of the
Agreement.
THE TRUSTEE
The Trustee under each Agreement will be named in the related Prospectus
Supplement. The commercial bank, national banking association or trust
company serving as Trustee may have typical banking relationships with the
Depositor and its affiliates and with any Master Servicer and its affiliates.
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DESCRIPTION OF CREDIT SUPPORT
GENERAL
For any series of Certificates, Credit Support may be provided with
respect to one or more classes thereof or the related Mortgage Assets. Credit
Support may be in the form of the subordination of one or more classes of
Certificates, letters of credit, insurance policies on the Mortgage Loans,
certificate guarantee insurance, guarantees, the establishment of one or more
reserve funds or another method of Credit Support described in the related
Prospectus Supplement, or any combination of the foregoing. If so provided in
the related Prospectus Supplement, any form of Credit Support may be
structured so as to be drawn upon by more than one series to the extent
described therein.
Credit Support will generally not provide protection against all risks of
loss and will not guarantee repayment of the entire Certificate Balance of
the Certificates and interest thereon. If losses or shortfalls occur that
exceed the amount covered by Credit Support or that are not covered by Credit
Support, Certificateholders will bear their allocable share of deficiencies.
Moreover, holders of Certificates of a Covered Trust will be subject to the
risk that such Credit Support will be exhausted by the claims of other
Covered Trusts prior to such Covered Trust receiving any of its intended
share of such coverage.
If Credit Support is provided with respect to one or more classes of
Certificates of a series, or the related Mortgage Assets, the related
Prospectus Supplement will include a description of (a) the nature and amount
of coverage under such Credit Support, (b) any conditions to payment
thereunder not otherwise described herein, (c) the conditions (if any) under
which the amount of coverage under such Credit Support may be reduced and
under which such Credit Support may be terminated or replaced and (d) the
material provisions relating to such Credit Support. Additionally, the
related Prospectus Supplement will set forth certain information with respect
to the obligor under any instrument of Credit Support, including (i) a brief
description of its principal business activities, (ii) its principal place of
business, place or incorporation and the jurisdiction under which it is
chartered or licensed to do business, (iii) if applicable, the identity of
regulatory agencies that exercise primary jurisdiction over the conduct of
its business and (iv) its total assets, and its stockholders' or
policyholders' surplus, if applicable, as of the date specified in the
Prospectus Supplement. See "Special Considerations --Credit Support
Limitations".
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more classes
of Certificates of a series may be Subordinate Certificates. The rights of
the holders of Subordinate Certificates to receive distributions of principal
and interest from the Certificate Account on any Distribution Date will be
subordinated to such rights of the holders of Senior Certificates to the
extent specified in the related Prospectus Supplement. The subordination of a
class may apply only in the event of (or may be limited to) certain types of
losses or shortfalls. The relative interests of the Senior Certificates and
the Subordinate Certificates of a Series may be subject to adjustment from
time to time on the basis of distributions received in respect thereof. The
related Prospectus Supplement will set forth information concerning the
amount of subordination of a class or classes of Subordinate Certificates in
a series, the circumstances in which such subordination will be applicable
and the manner, if any, in which the amount of subordination will be
effected. If one or more classes of Subordinate Certificates of a series are
Offered Certificates, the related Prospectus Supplement will provide
information as to the sensitivity of distributions on such Certificates based
on certain default assumptions.
CROSS-SUPPORT PROVISIONS
If the Mortgage Assets for a series are divided into separate groups, each
supporting a separate class or classes of Certificates of a series, credit
support may be provided by cross-support provisions requiring that
distributions be made on Senior Certificates evidencing interests in one
group of Mortgage Assets prior to distributions on Subordinate Certificates
evidencing interests in a different group of Mortgage Assets within the Trust
Fund. The Prospectus Supplement for a series that includes a cross-support
provision will describe the manner and conditions for applying such
provisions.
INSURANCE OR GUARANTEES WITH RESPECT TO THE MORTGAGE ASSETS
If so provided in the Prospectus Supplement for a series of Certificates,
the Mortgage Loans underlying or comprising the Mortgage Assets in the
related Trust Fund will be covered for various default risks by insurance
policies or guarantees,
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or the MBS comprising the Mortgage Assets in the related Trust Fund will be
covered by the types of Credit Support described herein. A copy of any such
material instrument for a series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed within 15 days of
issuance of the Certificates of the related series.
LETTER OF CREDIT
If so provided in the Prospectus Supplement for a series of Certificates,
the Mortgage Loans underlying or comprising the Mortgage Assets in the
related Trust Fund will be covered by one or more letters of credit, issued
by a bank or financial institution specified in such Prospectus Supplement
(the "L/C Bank"). Under a letter of credit, the L/C Bank will be obligated to
honor draws thereunder in an aggregate fixed dollar amount, net of
unreimbursed payments thereunder, equal to the percentage specified in the
related Prospectus Supplement of the aggregate principal balance of the
Mortgage Assets on the related Cut-off Date or one or more classes of
Certificates. If so specified in the related Prospectus Supplement, the
letter of credit may permit draws in the event of only certain types of
losses. The amount available under the letter of credit will, in all cases,
be reduced to the extent of the unreimbursed payments thereunder. The
obligations of the L/C Bank under the letter of credit for each series of
Certificates will expire at the earlier of the date specified in the related
Prospectus Supplement or the termination of the Trust Fund. A copy of any
such letter of credit for a series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed within 15 days of
issuance of the Certificates of the related series.
INSURANCE POLICIES AND SURETY BONDS
If so provided in the Prospectus Supplement for a series of Certificates,
the Mortgage Loans underlying or comprising the Mortgage Assets in the
related Trust Fund will be covered by insurance policies and/or surety bonds
provided by one or more insurance companies or sureties. Such instruments may
cover, with respect to one or more classes of Certificates of the related
series, timely distributions of interest and/or full distributions of
principal on the basis of a schedule of principal distributions set forth in
or determined in the manner specified in the related Prospectus Supplement. A
copy of any such instrument for a series will be filed with the Commission as
an exhibit to a Current Report on Form 8-K to be filed with the Commission
within 15 days of issuance of the Certificates of the related series.
CERTIFICATE GUARANTEE INSURANCE
If so specified in the related Prospectus Supplement, certificate
guarantee insurance, if any, with respect to a series of Certificates will be
provided by one or more insurance companies. Such certificate guarantee
insurance will guarantee, with respect to one or more classes of Certificates
of the applicable series, timely distributions of interest and full
distributions of principal on the basis of a schedule of principal
distributions set forth in or determined in the manner specified in the
related Prospectus Supplement. If so specified in the related Prospectus
Supplement, the certificate guarantee insurance will also guarantee against
any payment made to a Certificateholder which is subsequently covered as a
"voidable preference" payment under the Bankruptcy Code. A copy of the
certificate guarantee insurance for a series, if any, will be filed with the
Commission as an exhibit to a Current Report on Form 8-K to be filed with the
Commission within 15 days of issuance of the Certificates of the applicable
series.
RESERVE FUNDS
If so provided in the Prospectus Supplement for a series of Certificates,
the Mortgage Loans underlying or comprising the Mortgage Assets in the
related Trust Fund will be covered by one or more reserve funds in which
cash, a letter of credit, Permitted Investments, a demand note or a
combination thereof will be deposited, in the amounts so specified in such
Prospectus Supplement. The reserve funds for a series may also be funded over
time by depositing therein a specified amount of the distributions received
on the related Mortgage Assets as specified in the related Prospectus
Supplement.
Amounts on deposit in any reserve fund for a series, together with the
reinvestment income thereon, if any, will be applied for the purposes, in the
manner, and to the extent specified in the related Prospectus Supplement. A
reserve fund may be provided to increase the likelihood of timely
distributions of principal of and interest on the Certificates. Reserve funds
may be established to provide limited protection against only certain types
of losses and shortfalls. Following each Distribution Date amounts in a
reserve fund in excess of any amount required to be maintained therein may be
released from the reserve fund under the conditions and to the extent
specified in the related Prospectus Supplement and will not be available for
further application to the Certificates.
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Moneys deposited in any Reserve Funds will be invested in Permitted
Investment. 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. Whether a Reserve Fund, if any,
for a series will be a part of the Trust Fund will be disclosed in the
related Prospectus Supplement.
Additional information concerning any Reserve Fund will be set forth in
the related Prospectus Supplement, including the initial balance of such
Reserve Fund, the balance required to be maintained in the Reserve Fund, the
manner in which such required balance will decrease over time, the manner of
funding such Reserve Fund, the purposes for which funds in the Reserve Fund
may be applied to make distributions to Certificateholders and use of
investment earnings from the Reserve Fund, if any.
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CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential properties
that are general in nature. Because such legal aspects are governed by
applicable state law (which laws may differ substantially), the summaries do
not purport to be complete nor to reflect the laws of any particular state,
nor to encompass the laws of all states in which the security for the
Mortgage Loans is situated. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the Mortgage
Loans. See "Description of the Trust Funds --Mortgage Assets".
GENERAL
All of the Mortgage Loans are loans evidenced by a note or bond and
secured by instruments granting a security interest in real property which
may be mortgages, deeds of trust, or deeds to secure debt, depending upon the
prevailing practice and law in the state in which the Mortgaged Property is
located. Mortgages, deeds of trust and deeds to secure debt are herein
collectively referred to as "mortgages". Any of the foregoing types of
mortgages will create a lien upon, or grant a title interest in, the subject
property, the priority of which will depend on the terms of the particular
security instrument, as well as separate, recorded, contractual arrangements
with others holding interests in the mortgaged property, the knowledge of the
parties to such instrument as well as the order of recordation of the
instrument in the appropriate public recording office. However, recording
does not generally establish priority over governmental claims for real
estate taxes and assessments and other charges imposed under governmental
police powers.
TYPES OF MORTGAGE INSTRUMENTS
A mortgage either creates a lien against or constitutes a conveyance of
real property between two parties --a mortgagor (the borrower and usually the
owner of the subject property) and a mortgagee (the lender). In contrast, a
deed of trust is a three-party instrument, among a trustor (the equivalent of
a mortgagor), a trustee to whom the mortgaged property is conveyed, and a
beneficiary (the lender) for whose benefit the conveyance is made. As used in
this Prospectus, unless the context otherwise requires, "mortgagor" includes
the trustor under a deed of trust and a grantor under a deed to secure debt.
Under a deed of trust, the mortgagor grants the property, irrevocably until
the debt is paid, in trust, generally with a power of sale as security for
the indebtedness evidenced by the related note. A deed to secure debt
typically has two parties. By executing a deed to secure debt, the grantor
conveys title to, as opposed to merely creating a lien upon, the subject
property to the grantee until such time as the underlying debt is repaid,
generally with a power of sale as security for the indebtedness evidenced by
the related mortgage note. As used in this Prospectus, unless the context
otherwise requires, the term "mortgagee" means the lender and, in the case of
the deed of trust, the trustee thereunder in certain cases. In case the
mortgagor under a mortgage is a land trust, there would be an additional
party because legal title to the property is held by a land trustee under a
land trust agreement for the benefit of the mortgagor. At origination of a
mortgage loan involving a land trust, the mortgagor executes a separate
undertaking to make payments on the mortgage note. The mortgagee's authority
under a mortgage, the trustee's authority under a deed of trust and the
grantee's authority under a deed to secure debt are governed by the express
provisions of the mortgage, the law of the state in which the real property
is located, certain federal laws (including, without limitation, the
Soldiers' and Sailor's Civil Relief Act of 1940) and, in some cases, in 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 mortgagor assigns its
right, title and interest as landlord under each lease and the income derived
therefrom to the lender, while the mortgagor retains a revocable license to
collect the rents for so long as there is no unremedied default. If the
mortgagor defaults and such default is not remedied by the mortgagor within
the cure period, if any, the license terminates and the lender is entitled to
collect the rents. Local law may require that the lender take possession of
the property and/or obtain a court-appointed receiver before becoming
entitled to collect the rents. In most States, hotel and motel room rates are
considered accounts receivable under the Uniform Commercial Code ("UCC");
generally these rates are either assigned by the mortgagor, which remains
entitled to collect such rates absent a default, or pledged by the mortgagor,
as security for the loans. 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 UCC, the lender will generally be
required to commence a foreclosure or otherwise take possession of the
property in order to collect the room rates after a default.
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Even after a foreclosure, the potential rent payments from the property
may be less than the periodic payments that had been due under the mortgage.
For instance, the net income that would otherwise be generated from the
property may be less than the amount that would have been needed to service
the mortgage debt if the leases on the property are at below-market rents, or
as the result of excessive maintenance, repair or other obligations which a
lender succeeds to as landlord.
PERSONALTY
Certain types of Mortgaged Properties, such as hotels, motels and
industrial plants, are likely to derive a significant part of their value
from personal property which does not constitute "fixtures" under applicable
state real property law, and hence, would not be subject to the lien of a
mortgage. Such property is generally pledged or assigned as security to the
lender under the UCC. In order to perfect its security interest therein, the
lender generally must file UCC financing statements and, to maintain
perfection of such security interest, file continuation statements generally
every five years.
INSTALLMENT CONTRACTS
The Mortgage Loans included in a Trust Fund may also consist of
Installment Contracts. Under an Installment Contract the seller (hereinafter
referred to in this Section as the "lender") retains legal title to the
property and enters into an agreement with the purchaser (hereinafter
referred to in this Section as the "borrower") for the payment of the
purchase price, plus interest, over the term of such contract. Only after
full performance by the borrower of the contract is the lender obligated to
convey title to the real estate to the borrower. As with mortgage or deed of
trust financing, during the effective period of the Installment Contract, the
borrower is generally responsible for maintaining the property in good
condition and for paying real estate taxes, assessments and hazard insurance
premiums associated with the property.
The method of enforcing the rights of the lender under an Installment
Contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to its terms. The terms of Installment Contracts
generally provide that upon a default by the borrower, the borrower loses his
or her right to occupy the property, the entire indebtedness is accelerated,
and the buyer's equitable interest in the property is forfeited. The lender
in such a situation does not have to foreclose in order to obtain title to
the property, although in some cases a quiet title action is in order if the
borrower has filed the Installment Contract in local land records and an
ejectment action may be necessary to recover possession. In a few states,
particularly in cases of borrower default during the early years of an
Installment Contract, the courts will permit ejectment of the buyer and a
forfeiture of his or her interest in the property. However, most state
legislatures have enacted provisions by analogy to mortgage law protecting
borrowers under Installment Contracts from the harsh consequences of
forfeiture. Under such statutes, a judicial or nonjudicial foreclosure may be
required, the lender may be required to give notice of default and the
borrower may be granted some grace period during which the contract may be
reinstated upon full payment of the default amount and the borrower may have
a post-foreclosure statutory redemption right. In other states, courts in
equity may permit a borrower with significant investment in the property
under an Installment Contract for the sale of real estate to share in the
proceeds of sale of the property after the indebtedness is repaid or may
otherwise refuse to enforce the forfeiture clause. Nevertheless, generally
speaking, the lender's procedures for obtaining possession and clear title
under an Installment Contract for the sale of real estate in a given state
are simpler and less time-consuming and costly than are the procedures for
foreclosing and obtaining clear title to a mortgaged property.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGES OR BENEFICIARIES
Some of the Mortgage Loans included in the Mortgage Pool for a series will
be secured by junior mortgages or deeds of trust which are subordinate to
senior mortgages or deeds of trust held by other lenders or institutional
investors. The rights of the Trust Fund (and therefore the
Certificateholders), as beneficiary under a junior deed of trust or as
mortgagee under a junior mortgage, are subordinate to those of the mortgagee
or beneficiary under the senior mortgage or deed of trust, including the
prior rights of the senior mortgagee or beneficiary to receive rents, hazard
insurance and condemnation proceeds and to cause the property securing the
Mortgage Loan to be sold upon default of the mortgagor or trustor, thereby
extinguishing the junior mortgagee's or junior beneficiary's lien unless the
Master Servicer asserts its subordinate interest in a property in foreclosure
litigation or satisfies the defaulted senior loan. As discussed more fully
below, in many states a junior mortgagee or beneficiary may satisfy a
defaulted senior loan in full, adding the amounts expended to the balance due
on the junior loan. Absent a provision in the senior mortgage, no notice of
default is required to be given to the junior mortgagee.
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The form of the mortgage or deed of trust used by many institutional
lenders confers on the mortgagee or beneficiary the right both to receive all
proceeds collected under any hazard insurance policy and all awards made in
connection with any condemnation proceedings, and to apply such proceeds and
awards to any indebtedness secured by the mortgage or deed of trust, in such
order as the mortgage or beneficiary may determine. Thus, in the event
improvements on the property are damaged or destroyed by fire or other
casualty, or in the event the property is taken by condemnation, the
mortgagee or beneficiary under the senior mortgage or deed of trust will have
the prior right to collect any insurance proceeds payable under a hazard
insurance policy and any award of damages in connection with the condemnation
and to apply the same to the indebtedness secured by the senior mortgage or
deed of trust. Proceeds in excess of the amount of senior mortgage
indebtedness will, in most cases, be applied to the indebtedness of a junior
mortgage or trust deed to the extent the junior mortgage or deed of trust so
provides. The laws of certain states may limit the ability of mortgagees or
beneficiaries to apply the proceeds of hazard insurance and partial
condemnation awards to the secured indebtedness. In such states, the
mortgagor or trustor must be allowed to use the proceeds of hazard insurance
to repair the damage unless the security of the mortgagee or beneficiary has
been impaired. Similarly, in certain states, the mortgagee or beneficiary is
entitled to the award for a partial condemnation of the real property
security only to the extent that its security is impaired.
The form of mortgage or deed of trust used by many institutional lenders
typically contains a "future advance" clause, which provides, in essence,
that additional amounts advanced to or on behalf of the mortgagor or trustor
by the mortgagee or beneficiary are to be secured by the mortgage or deed of
trust. While such a clause is valid under the laws of most states, the
priority of any advance made under the clause depends, in some states, on
whether the advance was an "obligatory" or "optional" advance. If the
mortgagee or beneficiary is obligated to advance the additional amounts, the
advance may be entitled to receive the same priority as amounts initially
made under the mortgage or deed of trust, notwithstanding that there may be
intervening junior mortgages or deeds of trust and other liens between the
date of recording of the mortgage or deed of trust and the date of the future
advance, and notwithstanding that the mortgagee or beneficiary had actual
knowledge of such intervening junior mortgages or deeds of trust and other
liens at the time of the advance. Where the mortgagee or beneficiary is not
obligated to advance the additional amounts and has actual knowledge of the
intervening junior mortgages or deeds of trust and other liens, the advance
may be subordinate to such intervening junior mortgages or deeds of trust and
other liens. Priority of advances under a "future advance" clause rests, in
many other states, on state law giving priority to all advances made under
the loan agreement up to a "credit limit" amount stated in the recorded
mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by many institutional lenders obligates the mortgagor or trustor
to pay before delinquency all taxes and assessments on the property and, when
due, all encumbrances, charges and liens on the property which appear prior
to the mortgage or deed of trust, to provide and maintain fire insurance on
the property, to maintain and repair the property and not to commit or permit
any waste thereof, and to appear in and defend any action or proceeding
purporting to affect the property or the rights of the mortgagee or
beneficiary under the mortgage or deed of trust. Upon a failure of the
mortgagor or trustor to perform any of these obligations, the mortgagee or
beneficiary is given the right under the mortgage or deed of trust to perform
the obligation itself, at its election, with the mortgagor or trustor
agreeing to reimburse the mortgagee or beneficiary for any sums expended by
the mortgagee or beneificary on behalf of the trustor. All sums so expended
by the mortgagee or beneficiary become part of the indebtedness secured by
the mortgage or deed of trust.
The form of mortgage or deed of trust used by many institutional lenders
typically requires the mortgagor or trustor to obtain the consent of the
mortgagee or beneficiary in respect of actions affecting the mortgaged
property, including, without limitation, leasing activities (including new
leases and termination or modification of existing leases), alterations and
improvements to buildings forming a part of the mortgaged property and
management and leasing agreements for the mortgaged property. Tenants will
often refuse to execute lease unless the mortgagee or beneficiary executes a
written agreement with the tenant not to disturb the tenant's possession of
its premises in the event of a foreclosure. A senior mortgagee or beneficiary
may refuse to consent to matters approved by a junior mortgagee or
beneficiary with the result that the value of the security for the junior
mortgage or deed of trust is diminished. For example, a senior mortgagee or
beneficiary may decide not to approve a lease or to refuse to grant to a
tenant a non-disturbance agreement. If, as a result, the lease is not
executed, the value of the mortgaged property may be diminished.
SUBORDINATE FINANCING
Where the mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the
mortgagor may have difficulty servicing and repaying multiple loans. In
addition, if the junior loan permits recourse to the mortgagor (as junior
loans often do) and the senior loan does not, a mortgagor may be more likely
to repay sums due on the junior loan than those on the senior loan. Second,
acts of the senior lender that prejudice the junior lender or impair the
junior lender's security may create a superior equity in favor of the junior
lender. For example,
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if the mortgagor and the senior lender agree to an increase in the principal
amount of or the interest rate payable on the senior loan, the senior lender
may lose its priority to the extent any existing junior lender is harmed or
the mortgagor is additionally burdened. Third, if the mortgagor defaults on
the senior loan and/or any junior loan or loans, the existence of junior
loans and actions taken by junior lenders can impair the security available
to the senior lender and can interfere with or delay the taking of action by
the senior lender. Moreover, the bankruptcy of a junior lender may operate to
stay foreclosure or similar proceedings by the senior lender.
FORECLOSURE
Foreclosure is a legal procedure that allows the mortgagee to recover its
mortgage debt by enforcing its rights and available legal remedies under the
mortgage. If the mortgagor defaults in payment or performance of its
obligations under the note or mortgage and, by reason thereof, the
indebtedness has been accelerated, the mortgagee has the right to institute
foreclosure proceedings to sell the mortgaged property at public auction to
satisfy the indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage vary
from state to state. Two primary methods of foreclosing a mortgage are
judicial foreclosure and non-judicial foreclosure pursuant to a power of sale
granted in the mortgage instrument. There are other foreclosure procedures
available in some states that are either infrequently used or available only
in certain limited circumstances, such as strict foreclosure.
Judicial Foreclosure
A judicial foreclosure proceeding is conducted in a court having
jurisdiction over the mortgaged property. Generally, the action is initiated
by the service of legal pleadings upon all parties having a subordinate
interest of record in the real property and all parties in possession of the
property, under leases or otherwise, whose interests are subordinate to the
mortgage. Delays in completion of the foreclosure may occasionally result
from difficulties in locating defendants. When the lender's right to
foreclosure is contested, the legal proceedings can be costly and
time-consuming. Upon successful completion of a judicial foreclosure
proceeding, the court generally issues a judgment of foreclosure and appoints
a referee or other officer to conduct a public sale of the mortgaged
property, the proceeds of which are used to satisfy the judgment. Such sales
are made in accordance with procedures that vary from state to state.
Non-Judicial Foreclosure/Power of Sale
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale pursuant to the power of sale granted in the deed of trust. A
power of sale is typically granted in a deed of trust. It may also be
contained in any other type of mortgage instrument. A power of sale allows a
non-judicial public sale to be conducted generally following a request from
the beneficiary/lender to the trustee to sell the property upon any default
by the mortgagor under the terms of the mortgage note or the mortgage
instrument and after notice of sale is given in accordance with the terms of
the mortgage instrument, as well as applicable state law. In some states,
prior to such sale, the trustee under a deed of trust must record a notice of
default and notice of sale and send a copy to the mortgagor and to any other
party who has recorded a request for a copy of a notice of default and notice
of sale. In addition, in some states the trustee must provide notice to any
other party having an interest of record in the real property, including
junior lienholders. A notice of sale must be posted in a public place and, in
most states, published for a specified period of time in one or more
newspapers. The mortgagor or junior lienholder may then have the right,
during a reinstatment period required in some states, to cure the default by
paying the entire actual amount in arrears (without acceleration) plus the
expenses incurred in enforcing the obligation. In other states, the mortgagor
or the junior lienholder is not provided a period to reinstate the loan, but
has only the right to pay off the entire debt to prevent the foreclosure
sale. Generally, the procedure for public sale, the parties entitled to
notice, the method of giving notice and the applicable time periods are
governed by state law and vary among the states. Foreclosure of a deed to
secure debt is also generally accomplished by a non-judicial sale similar to
that required by a deed of trust, except that the lender or its agent, rather
than a trustee, is typically empowered to perform the sale in accordance with
the terms of the deed to secure debt and applicable law.
Limitations on Lender's Rights
United States courts have traditionally imposed general equitable
principles to limit the remedies available to a mortgagee in connection with
foreclosure. These equitable principles are generally designed to relieve the
mortgagor from the legal effect of mortgage defaults, to the extent that such
effect is perceived as harsh or unfair. Relying on such principles, a court
may alter the specific terms of a loan to the extent it considers necessary
to prevent an injustice, undue
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oppression or overreaching, or may require the lender to undertake
affirmative and expensive actions to determine the cause of the mortgagor's
default and the likelihood that the mortgagor will be able to reinstate the
loan. In some cases, courts have substituted their judgment for the lender's
and have required that lenders reinstate loans or recast payment schedules in
order to accommodate mortgagors who are suffering from a temporary financial
disability. In other cases, courts have limited the right of the lender to
foreclose if the default under the mortgage is not monetary, e.g., the
mortgagor failed to maintain the mortgaged property adequately or the
mortgagor executed a junior mortgage on the mortgaged property. The exercise
by the court of its equity powers will depend on the individual circumstances
of each case presented to it. Finally, some courts have been faced with the
issue of whether federal or state constitutional provisions reflecting due
process concerns for adequate notice require that a mortgagor receive notice
in addition to statutorily-prescribed minimum notice. For the most part,
these cases have upheld the reasonableness of the notice provisions or have
found that a public sale under a mortgage providing for a power of sale does
not involve sufficient state action to afford constitutional protections to
the mortgagor.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses are raised or counterclaims are interposed, and
sometimes require several years to complete.
Also, a third party may be unwilling to purchase a mortgaged property at a
public sale because of the difficulty in determining the value of such
property at the time of sale, due to, among other things, redemption rights
which may exist and the possibility of physical deterioration of the property
during the foreclosure proceedings. Potential buyers may 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 and other decisions that have followed
its reasoning. The court in Durrett held that even a non-collusive, regularly
conducted foreclosure sale was a fraudulent transfer under the federal
Bankruptcy Code, as amended from time to time (11 U.S.C.) 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 in respect of the Bankruptcy Code was 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 which has
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 lesser of fair market value and the underlying debt and accrued and
unpaid interest plus the expenses of foreclosure. Generally, state law
controls the amount of foreclosure costs and expenses which may be recovered
by a lender. Thereafter, subject to the mortgagor's right in some states to
remain in possession during a redemption period, if applicable, the lender
will become the owner of the property and have both the benefits and burdens
of ownership of the mortgaged property. For example, the lender will have the
obligation to pay debt service on any senior mortgages, to pay taxes, obtain
casualty insurance and to make such repairs at its own expense as are
necessary to render the property suitable for sale. Frequently, the lender
employs a third party management company to manage and operate the property.
The costs of operating and maintaining a commercial or multifamily
residential property may be significant and may be greater than the income
derived from that property. The costs of management and operation of those
mortgaged properties which are hotels, motels or restaurants or nursing or
convalescent homes or hospitals may be particularly significant because of
the expertise, knowledge and, with respect to nursing or convalescent homes
or hospitals, regulatory compliance, required to run such operations and the
effect which foreclosure and a change in ownership may have on the public's
and the industry's (including franchisors') perception of the quality of such
operations. The lender will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale of the
property. Depending upon market conditions, the ultimate proceeds of the sale
of the property may not equal the lender's investment in the property.
Moreover, a lender commonly incurs substantial legal fees and court costs in
acquiring a mortgaged property through contested foreclosure and/or
bankruptcy proceedings. Furthermore, a few states require that any
environmental contamination at certain types of properties be cleaned up
before a property may be resold. In addition, a lender may be responsible
under federal or state law for the cost of cleaning up a mortgaged property
that is environmentally contaminated. See "--Environmental Legislation".
Generally state law controls the amount of foreclosure expenses and costs,
including attorneys' fees, that may be recovered by a lender.
A junior mortgagee may not foreclose on the property securing the junior
mortgage unless it forecloses subject to senior mortgages and any other prior
liens, in which case it may be obliged to make payments on the senior
mortgages to avoid their foreclosure. In addition, in the event that the
foreclosure of a junior mortgage triggers the enforcement of a
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"due-on-sale" clause contained in a senior mortgage, the junior mortgagee may
be required to pay the full amount of the senior mortgage to avoid its
foreclosure. Accordingly, with respect to those Mortgage Loans which are
junior mortgage loans, if the lender purchases the property the lender's
title will be subject to all senior mortgages, prior liens and certain
governmental liens.
The proceeds received by the referee or trustee from the sale are
generally applied first to the costs, fees and expenses of sale, to unpaid
real estate taxes and assessments and then in satisfaction of the
indebtedness secured by the mortgage under which the sale was conducted. Any
proceeds remaining after satisfaction of senior mortgage debt are generally
payable to the holders of junior mortgages and other liens and claims in
order of their priority, whether or not the mortgagor is in default. Any
additional proceeds are generally payable to the mortgagor. The payment of
the proceeds to the holders of junior mortgages may occur in the foreclosure
action of the senior mortgage or a subsequent ancillary proceeding or may
require the institution of separate legal proceedings by such holders.
In connection with a series of Certificates for which an election is made
to qualify the Trust Fund, or a portion thereof, as a REMIC, the REMIC
Regulations and the Agreement may require the Master Servicer to hire an
independent contractor to operate any foreclosed property relating to Whole
Loans.
Rights of Redemption
The purposes of a foreclosure action are to enable the mortgagee to
realize upon its security and to bar the mortgagor, and all persons who have
an interest in the property which is subordinate to the mortgage being
foreclosed, from exercise of their "equity of redemption". The doctrine of
equity of redemption provides that, until the property covered by a mortgage
has been sold in accordance with a properly conducted foreclosure and
foreclosure sale, those having an interest which is subordinate to that of
the foreclosing mortgagee have an equity of redemption and may redeem the
property by paying the entire debt with interest. In addition, in some
states, when a foreclosure action has been commenced, the redeeming party
must pay certain costs of such action. Those having an equity of redemption
must generally be made parties and joined in the foreclosure proceeding in
order for their equity of redemption to be cut off and terminated.
The equity of redemption is generally a common-law (non-statutory) right
which exists prior to completion of the foreclosure, is not waivable by the
mortgagor, must be exercised prior to foreclosure sale and should be
distinguished from the post-sale statutory rights of redemption. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage,
the mortgagor and foreclosed junior lienors are given a statutory period in
which to redeem the property from the foreclosure sale. In some states,
statutory redemption may occur only upon payment of the foreclosure sale
price. In other states, redemption may be authorized if the former mortgagor
pays only a portion of the sums due. The effect of a statutory right of
redemption is to diminish the ability of the lender to sell the foreclosed
property. The exercise of a right of redemption would defeat the title of any
purchaser from a foreclosure sale or sale under a deed of trust.
Consequently, the practical effect of the redemption right is to force the
lender to maintain the property and pay the expenses of ownership until the
redemption period has expired. In some states, a post-sale statutory right of
redemption may exist following a judicial foreclosure, but not following a
trustee's sale under a deed of trust.
Under the REMIC Regulations currently in effect, property acquired by
foreclosure generally must not be held for more than two years. With respect
to a series of Certificates for which an election is made to qualify the
Trust Fund or a part thereof as a REMIC, the Agreement will permit foreclosed
property to be held for more than two years if the Trustee receives (i) an
extension from the Internal Revenue Service or (ii) an opinion of counsel to
the effect that holding such property for such period is permissible under
the REMIC Regulations.
Anti-Deficiency Legislation
Some or all of the Mortgage Loans may be nonrecourse loans, as to which
recourse may be had only against the specific property securing the related
Mortgage Loan and a personal money judgment may not be obtained against the
mortgagor. Even if a mortgage loan by its terms provides for recourse to the
mortgagor, some states impose prohibitions or limitations on such recourse.
For example, statutes in some states limit the right of the lender to obtain
a deficiency judgment against the mortgagor following foreclosure or sale
under a deed of trust. A deficiency judgment would be a personal judgment
against the former mortgagor equal to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. Some states require the lender to exhaust the security afforded under
a mortgage by foreclosure in an attempt to satisfy the full debt before
bringing a personal action against the mortgagor. In certain other states,
the lender has the option of bringing a personal action against the mortgagor
on the debt
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without first exhausting such security; however, in some of these states, the
lender, following judgment on such personal action, may be deemed to have
elected a remedy and may be precluded from exercising remedies with respect
to the security. In some cases, a lender will be precluded from exercising
any additional rights under the note or mortgage if it has taken any prior
enforcement action. Consequently, the practical effect of the election
requirement, in those states permitting such election, is that lenders will
usually proceed against the security first rather than bringing a personal
action against the mortgagor. Finally, other statutory provisions limit any
deficiency judgment against the former mortgagor following a judicial sale to
the excess of the outstanding debt over the fair market value of the property
at the time of the public sale. The purpose of these statutes is generally to
prevent a lender from obtaining a large deficiency judgment against the
former mortgagor as a result of low or no bids at the judicial sale.
Leasehold Risks
Mortgage Loans may be secured by a mortgage on a ground lease. Leasehold
mortgages are subject to certain risks not associated with mortgage loans
secured by the fee estate of the mortgagor. The most significant of these
risks is that the ground lease creating the leasehold estate could terminate,
leaving the leasehold mortgagee without its security. The ground lease may
terminate if, among other reasons, the ground lessee breaches or defaults in
its obligations under the ground lease or there is a bankruptcy of the ground
lessee or the ground lessor. This risk may be minimized if the ground lease
contains certain provisions protective of the mortgagee, but the ground
leases that secure Mortgage Loans may not contain some of these protective
provisions, and mortgages may not contain the other protections discussed in
the next paragraph. Protective ground lease provisions include the right of
the leasehold mortgagee to receive notices from the ground lessor of any
defaults by the the mortgagor; the right to cure such defaults, with adequate
cure periods; if a default is not susceptible of cure by the leasehold
mortgagee, the right to acquire the leasehold estate through foreclosure or
otherwise; the ability of the ground lease to be assigned to and by the
leasehold mortgagee or purchaser at a foreclosure sale and for the
concomitant release of the ground lessee's liabilities thereunder; and the
right of the leasehold mortgagee to enter into a new ground lease with the
ground lessor on the same terms and conditions as the old ground lease in the
event of a termination thereof.
In addition to the foregoing protections, a leasehold mortgagee may
require that the ground lease or leasehold mortgage prohibit the ground
lessee from treating the ground lease as terminated in the event of the
ground lessor's bankruptcy and rejection of the ground lease by the trustee
for the debtor-ground lessor. As further protection, a leasehold mortgage may
provide for the assignment of the debtor-ground lessee's right to reject a
lease pursuant to Section 365 of the Bankruptcy Reform Act of 1978, as
amended (11 U.S.C.) (the "Bankruptcy Code"), although the enforceability of
such clause has not been established. Without the protections described in
the foregoing paragraph, a leasehold mortgagee may lose the collateral
securing its leasehold mortgage. In addition, terms and conditions of a
leasehold mortgage are subject to the terms and conditions of the ground
lease. Although certain rights given to a ground lessee can be limited by the
terms of a leasehold mortgage, the rights of a ground lessee or a leasehold
mortgagee with respect to, among other things, insurance, casualty and
condemnation will be governed by the provisions of the ground lease.
Bankruptcy Laws
The Bankruptcy Code and related state laws may interfere with or affect
the ability of a lender to realize upon collateral and/or to enforce a
deficiency judgment. For example, under the Bankruptcy Code, virtually all
actions (including foreclosure actions and deficiency judgment proceedings)
are automatically stayed upon the filing of the bankruptcy petition, and,
usually, no interest or principal payments are made during the course of the
bankruptcy case. The delay and the consequences thereof caused by such
automatic stay can be significant. Also, under the Bankruptcy Code, the
filing of a petition in bankruptcy by or on behalf of a junior lienor may
stay the senior lender from taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards for the lender are met, the amount and terms of a mortgage secured
by property of the debtor may be modified under certain circumstances. The
outstanding amount of the loan secured by the real property may be reduced to
the then-current value of the property (with a corresponding partial
reduction of the amount of lender's security interest) pursuant to a
confirmed plan or lien avoidance proceeding, thus leaving the lender a
general unsecured creditor for the difference between such value and the
outstanding balance of the loan. Other modifications may include the
reduction in the amount of each scheduled payment, which reduction may result
from a reduction in the rate of interest and/or the alteration of the
repayment schedule (with or without affecting the unpaid principal balance of
the loan), and/or an extension (or reduction) of the final maturity date.
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Some courts with federal bankruptcy jurisdiction have approved plans, based
on the particular facts of the reorganization case, that effected the curing
of a mortgage loan default by paying arrearages over a number of years. Also,
under federal bankruptcy law, a bankruptcy court may permit a debtor through
its rehabilitative plan to de-accelerate a secured loan and to reinstate the
loan even though the lender accelerated the mortgage loan and final judgment
of foreclosure had been entered in state court (provided no sale of the
property had yet occurred) prior to the filing of the debtor's petition. This
may be done even if the full amount due under the original loan is never
repaid.
The Bankruptcy Code has been amended to provide that a lender's perfected
pre-petition security interest in leases, rents and hotel revenues continues
in the post-petition leases, rents and hotel revenues, unless a bankruptcy
court orders to the contrary "based on the equities of the case." Thus,
unless a court orders otherwise, revenues from a Mortgaged Property generated
after the date the bankruptcy petition is filed will constitute "cash
collateral" under the Bankruptcy Code. Debtors may only use cash collateral
upon obtaining the lender's consent or a prior court order finding that the
lender's interest in the Mortgaged Properties and the cash collateral is
"adequately protected" as such term is defined and interpreted under the
Bankruptcy Code. It should be noted, however, that the court may find that
the lender has no security interest in either pre-petition or post-petition
revenues if the court finds that the loan documents do not contain language
covering accounts, room rents, or other forms of personalty necessary for a
security interest to attach to hotel revenues.
To the extent that a mortgagor's ability to make payment on a mortgage
loan is dependent on its receipt of payments of rent under a lease of the
related property, such ability may be impaired by the commencement of a
bankruptcy proceeding relating to a lessee under such lease. Under the
Bankruptcy Code, the filing of a petition in bankruptcy by or on behalf of a
lessee results in a stay in bankruptcy against the commencement or
continuation of any state court proceeding for past due rent, for accelerated
rent, for damages or for a summary eviction order with respect to a default
under the lease that occurred prior to the filing of the lessee's petition.
In addition, 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 or debtor in possession (or assignee, if
applicable) must cure any defaults under the lease, compensate the lessor for
its losses and provide the lessor with "adequate assurance" of future
performance. Such remedies may be insufficient, however, as the lessor may be
forced to continue under the lease with a lessee that is a poor credit risk
or an unfamiliar tenant if the lease was assigned, and any assurances
provided to the lessor may, in fact, be inadequate. If the lease is rejected,
the lessor will be treated as an unsecured credit or with respect to its
claim for damages for termination of the lease. In addition, pursuant to
Section 502(b)(6) of the Bankruptcy Code, a lessor's damages for lease
rejection in respect of future rent installments are limited to the rent
reserved by the lease, without acceleration, for the greater of one year, or
15%, not to exceed three years, of the remaining term of the lease.
In a bankruptcy or similar proceeding, action may be taken seeking the
recovery as a preferential transfer of any payments made by the mortgagor
under the related Mortgage Loan to the Trust Fund. Payments on long-term debt
may be protected from recovery as preferences if they are payments in the
ordinary course of business made on debts incurred in the ordinary course of
business. Whether any particular payment would be protected depends upon the
facts specific to a particular transaction.
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.
Pursuant to the federal doctrine of "substantive consolidation" or to the
(predominantly state law) doctrine of "piercing the corporate veil", a
bankruptcy court, in the exercise of its equitable powers, also has the
authority to order that the assets and liabilities of a related entity be
consolidated with those of an entity before it. Thus, property ostensibly the
property of one entity may be determined to be the property of a different
entity in bankruptcy, the automatic stay applicable to the second entity
extended to the first and the rights of creditors of the first entity
impaired in the fashion set forth above in the discussion of ordinary
bankruptcy principles. Depending on facts and circumstances not wholly in
existence at the time a loan is originated or transferred to the Trust Fund,
the application of any of these doctrines to one or more of the mortgagors in
the context of the bankruptcy of one or more of their affiliates could result
in material impairment of the rights of the Certificateholders.
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For each mortgagor that is described as a "special purpose entity",
"single purpose entity" or "bankruptcy-remote entity" in the Prospectus
Supplement, the activities that may be conducted by such mortgagor and its
ability to incur debt are restricted by the applicable Mortgage or the
organizational documents of such mortgagor in such manner as is intended to
make the likelihood of a bankruptcy proceeding being commenced by or against
such mortgagor remote, and such mortgagor has been organized and is designed
to operate in a manner such that its separate existence should be respected
notwithstanding a bankruptcy proceeding in respect of one or more affiliated
entities of such mortgagor. However, the Depositor makes no representation as
to the likelihood of the institution of a bankruptcy proceeding by or in
respect of any mortgagor or the likelihood that the separate existence of any
mortgagor would be respected if there were to be a bankruptcy proceeding in
respect of any affiliated entity of a mortgagor.
ENVIRONMENTAL LEGISLATION
A lender may be subject to unforeseen environmental risks when taking a
security interest in real or personal property.
Under the laws of many states, contamination on a property may give rise
to a lien on the property for cleanup costs. In several states, such a lien
has priority over all existing liens (a "superlien") including those of
existing mortgages; in those states, the lien of a mortgage contemplated by
this transaction may lose its priority to such a superlien.
CERCLA imposes strict, as well as joint and several, liability on several
classes of potentially responsible parties, including current owners and
operators of the property, regardless of whether they caused or contributed
to the contamination. Many states have laws similar to CERCLA. CERCLA
excludes from the definition of "owner or operator" any person "who, without
participating in the mangement of . . . [the] facility, holds indicia of
ownership primarily to protect his security interest" ("secured-creditor
exemption").
A lender may lose its secured-creditor exemption and be held liable under
CERCLA as an owner or operator, if such lender or its employees or agents
participate in management of the property. Also, if the lender takes title to
or possession of the property, the secured-creditor exemption may be deemed
to be unavailable, and the lender may be liable to the government or private
parties for clean-up or other remedial costs pursuant to CERCLA.
A decision in May 1990 of the United States Court of Appeals for the
Eleventh Circuit in United States v. Fleet Factors Corp. very narrowly
construed the CERCLA secured-creditor exemption. The Court held that a
mortgagee need not have involved itself in the day-to-day operations of the
mortgaged property or in decisions relating to hazardous waste in order to be
liable under CERCLA; rather, liability could attach to a mortgagee if its
involvement in the management of the property is sufficiently broad to
support the inference that it had the capacity to influence the mortgagor's
treatment of hazardous waste. Such capacity to influence could be inferred
from the extent of the mortgagee's involvement in the mortgagor's financial
management. A subsequent decision by the United States Court of Appeals for
the Ninth Circuit in In re Bergsoe Metal Corp. disagreed with the Fleet
Factors opinion, ruling that a secured lender had no liability absent "some
actual management of the facility" on the part of the lender. The scope of
the secured-creditor exemption is thus unclear.
If a lender is or becomes liable, it may bring an action for contribution
against the owner or operator who created the environmental contamination,
but that person or entity may be bankrupt or otherwise judgment proof. It is
possible that cleanup costs could become a liability of the Trust Fund and
occasion a loss to Certificateholders in certain circumstances described
above if such remedial costs were incurred.
Unless otherwise provided in the related Prospectus Supplement, the
Warranting Party with respect to any Whole Loan included in a Trust Fund for
a particular series of Certificates will represent that a "Phase I
assessment" as described in and meeting the requirements of the then current
version of Chapter 5 of the Federal National Mortgage Association Multifamily
Guide has been received and reviewed. In addition, the Agreement may provide
that the Master Servicer, acting on behalf of the Trustee, will not acquire
title to a Mortgaged Property or take over its operation unless the Master
Servicer has previously determined, based on a report prepared by a person
who regularly conducts environmental audits, that (a) there are no
circumstances or conditions present at the Mortgaged Property relating to
substances for which some investigation or clean-up action could be required
or that it would be in the best economic interest of the Trust Fund to take
such actions with respect to the affected Mortgaged Property and (b) that the
Mortgaged Property is in compliance with applicable environmental laws or
that it would be in the best economic interest of the Trust Fund to take the
actions necessary to comply with such laws. See "Description of the
Agreements --Realization Upon Defaulted Whole Loans".
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DUE-ON-SALE AND DUE-ON-ENCUMBRANCE
Certain of the Mortgage Loans may contain due-on-sale and
due-on-encumbrance clauses. These clauses generally provide that the lender
may accelerate the maturity of the loan if the mortgagor sells or otherwise
transfers or encumbers the mortgaged property. Certain of these clauses may
provide that, upon an attempted breach thereof by the mortgagor of an
otherwise non-recourse loan, the mortgager becomes personally liable for the
mortgage debt. The enforceability of due-on-sale clauses has been the subject
of legislation or litigation in many states and, in some cases, the
enforceability of these clauses was limited or denied. However, with respect
to certain loans the Garn-St Germain Depository Institutions Act of 1982
preempts state constitutional, statutory and case law that prohibits the
enforcement of due-on-sale clauses and permits lenders to enforce these
clauses in accordance with their terms subject to certain limited exceptions.
Unless otherwise provided in the related Prospectus Supplement, a Master
Servicer, on behalf of the Trust Fund, will determine whether to exercise any
right the Trustee may have as mortgagee to accelerate payment of any such
Mortgage Loan or to withhold its consent to any transfer or further
encumbrance in accordance with the general servicing standard described
herein under "Description of the Agreements -- Collection and Other Servicing
Procedures".
ACCELERATION ON DEFAULT
Some of the Mortgage Loans included in a Trust Fund will include a
"debt-acceleration" clause, which permits the lender to accelerate the full
debt upon a monetary or nonmonetary default of the borrower. The courts of
all states will enforce clauses providing for acceleration in the event of a
material payment default after giving effect to any appropriate notices. The
equity courts of any state, however, may refuse to foreclose a mortgage or
deed of trust when an acceleration of the indebtedness would be inequitable
or unjust or the circumstances would render the acceleration unconscionable.
Furthermore, in some states, the borrower may avoid foreclosure and reinstate
an accelerated loan by paying only the defaulted amounts and the costs and
attorneys' fees incurred by the lender in collecting such defaulted payments.
State courts also are known to apply various legal and equitable
principles to avoid enforcement of the forfeiture provisions of Installment
Contracts. For example, a lender's practice of accepting late payments from
the borrower may be deemed a waiver of the forfeiture clause. State courts
also may impose equitable grace periods for payment of arrearages or
otherwise permit reinstatement of the contract following a default. Not
infrequently, if a borrower under an Installment Contract has significant
equity in the property, equitable principles will be applied to reform or
reinstate the contract or to permit the borrower to share the proceeds upon a
foreclosure sale of the property if the sale price exceeds the debt.
DEFAULT INTEREST, PREPAYMENT CHARGES AND PREPAYMENTS
Forms of notes and mortgages used by lenders may contain provisions
obligating the mortgagor to pay a late charge or additional interest if
payments are not timely made, and in some circumstances may provide for
prepayment fees or yield maintenance penalties if the obligation is paid
prior to maturity or prohibit such prepayment for a specified period. In
certain states, there are or may be specific limitations upon the late
charges which a lender may collect from a mortgagor for delinquent payments.
Certain states also limit the amounts that a lender may collect from a
mortgagor as an additional charge if the loan is prepaid. The enforceability,
under the laws of a number of states of provisions providing for prepayment
fees or penalties upon, or prohibition of, an involuntary prepayment is
unclear, and no assurance can be given that, at the time a Prepayment Premium
is required to be made on a Mortgage Loan in connection with an involuntary
prepayment, the obligation to make such payment, or the provisions of any
such prohibition, will be enforceable under applicable state law. The absence
of a restraint on prepayment, particularly with respect to Mortgage Loans
having higher Mortgage Rates, may increase the likelihood of refinancing or
other early retirements of the Mortgage Loans.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential (including
multifamily but not other commercial) first mortgage loans originated by
certain lenders after March 31, 1980. A similar federal statute was in effect
with respect to mortgage loans made during the first three months of 1980.
The statute authorized any state to reimpose interest rate limits by
adopting, before April 1, 1983, a law or constitutional provision that
expressly rejects application of the federal law. In addition, even where
Title V is not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on mortgage loans covered
by Title V. Certain states have taken action to reimpose interest rate limits
and/or to limit discount points or other charges.
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The Depositor has been advised by counsel that a court interpreting Title
V would hold that first mortgage loans secured by primarily residential
properties that are originated on or after January 1, 1980 are subject to
federal preemption. Therefore, in a state that has not taken the requisite
action to reject application of Title V or to adopt a provision limiting
discount points or other charges prior to origination of such mortgage loans,
any such limitation under such state's usury law would not apply to such
mortgage loans.
ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including adjustable rate mortgage
loans, originated by non-federally chartered lenders have historically been
subjected to a variety of restrictions. Such restrictions differed from state
to state, resulting in difficulties in determining whether a particular
alternative mortgage instrument originated by a state-chartered lender was in
compliance with applicable law. These difficulties were alleviated
substantially as a result of the enactment of Title VIII of the Garn-St
Germain Act ("Title VIII"). Title VIII provides that, notwithstanding any
state law to the contrary, state-chartered banks may originate alternative
mortgage instruments in accordance with regulations promulgated by the
Comptroller of the Currency with respect to origination of alternative
mortgage instruments by national banks, state-chartered credit unions may
originate alternative mortgage instruments in accordance with regulations
promulgated by the National Credit Union Administration (the "NCUA") with
respect to origination of alternative mortgage instruments by federal credit
unions, and all other non-federally chartered housing creditors, including
state-chartered savings and loan associations, state-chartered savings banks
and mortgage banking companies, may originate alternative mortgage
instruments in accordance with the regulations promulgated by the Federal
Home Loan Bank Board (now the Office of Thrift Supervision) with respect to
origination of alternative mortgage instruments by federal savings and loan
associations. Title VIII provides that any state may reject applicability of
the provision of Title VIII by adopting, prior to October 15, 1985, a law or
constitutional provision expressly rejecting the applicability of such
provisions. Certain states have taken such action.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a mortgagor who enters military service after the
origination of such mortgagor's Mortgage Loan (including a mortgagor who was
in reserve status and is called to active duty after origination of the
Mortgage Loan), may not be charged interest (including fees and charges)
above an annual rate of 6% during the period of such mortgagor's active duty
status, unless a court orders otherwise upon application of the lender. The
Relief Act applies to mortgagors who are members of the Army, Navy, Air
Force, Marines, National Guard, Reserves, Coast Guard and officers of the
U.S. Public Health Service assigned to duty with the military. Because the
Relief Act applies to mortgagors who enter military service (including
reservists who are called to active duty) after origination of the related
Mortgage Loan, no information can be provided as to the number of loans that
may be affected by the Relief Act. Application of the Relief Act would
adversely affect, for an indeterminate period of time, the ability of any
servicer to collect full amounts of interest on certain of the Mortgage
Loans. Any shortfalls in interest collections resulting from the application
of the Relief Act would result in a reduction of the amounts distributable to
the holders of the related series of Certificates and would not be covered by
advances or any form of Credit Support (if any) provided in connection with
such Certificates. In addition, the Relief Act imposes limitations that would
impair the ability of the servicer to foreclose on an affected Mortgage Loan
during the mortgagor's period of active duty status, and, under certain
circumstances, during an additional three month period thereafter. Thus, in
the event that such a Mortgage Loan goes into default, there may be delays
and losses occasioned thereby.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984 (the
"Crime Control Act"), the government may seize the property even before
conviction. The government must publish notice of the forfeiture proceeding
and may give notice to all parties "known to have an alleged interest in the
property", including the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before
commission of the crime upon which the forfeiture is based, or (ii) the
lender was, at the time of execution of the mortgage, "reasonably without
cause to believe" that the property was used in, or purchased with the
proceeds of, illegal drug or RICO activities.
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CERTAIN LAWS AND REGULATIONS
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 (i.e., a nursing or convalescent home or hospital), result
in a failure to realize the full principal amount of the related Mortgage
Loan.
TYPE OF MORTGAGED PROPERTY
The lender may be subject to additional risk depending upon the type and
use of the Mortgaged Property in question. For instance, Mortgaged Properties
which are hospitals, nursing homes or convalescent homes may present special
risks to lenders in large part due to significant governmental regulation of
the operation, maintenance, control and financing of health care
institutions. Mortgages on Mortgaged Properties which are owned by the
borrower under a condominium form of ownership are subject to the
declaration, by-laws and other rules and regulations of the condominium
association. Mortgaged Properties which are hotels or motels may present
additional risk to the lender in that: (i) hotels and motels are typically
operated pursuant to franchise, management and operating agreements which may
be terminable by the operator; and (ii) the transferability of the hotel's
operating, liquor and other licenses to the entity acquiring the hotel either
through purchase or foreclosure is subject to the vagaries of local law
requirements. In addition, Mortgaged Properties which are multifamily
residential properties or cooperatively owned multifamily properties may be
subject to rent control laws, which could impact the future cash flows of
such properties.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which
are structural in nature from existing places of public accommodation to the
extent "readily achievable." In addition, under the ADA, alterations to a
place of public accommodation or a commercial facility are to be made so
that, to the maximum extent feasible, such altered portions are readily
accessible to and usable by disabled individuals. The "readily achievable"
standard takes into account, among other factors, the financial resources of
the affected site, owner, landlord or other applicable person. In addition to
imposing a possible financial burden on the borrower in its capacity as owner
or landlord, the ADA may also impose such requirements on a foreclosing
lender who succeeds to the interest of the borrower as owner or landlord.
Furthermore, since the "readily achievable" standard may vary depending on
the financial condition of the owner or landlord, a foreclosing lender who is
financially more capable than the borrower of complying with the requirements
of the ADA may be subject to more stringent requirements than those to which
the borrower is subject.
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FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of
Certificates. The discussion below does not purport to address all federal
income tax consequences that may be applicable to particular categories of
investors, some of which may be subject to special rules. The authorities on
which this discussion is based are subject to change or differing
interpretations, and any such change or interpretation could apply
retroactively. This discussion reflects the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), as well as
regulations (the "REMIC Regulations") promulgated by the U.S. Department of
Treasury (the "Treasury") on December 23, 1992. Investors should consult
their own tax advisors in determining the federal, state, local and other tax
consequences to them of the purchase, ownership and disposition of
Certificates.
For purposes of this discussion, where the applicable Prospectus
Supplement provides for a fixed retained yield with respect to the Mortgage
Assets underlying a series of Certificates, references to the Mortgage will
be deemed to refer to that portion of the Mortgage Assets held by the Trust
Fund which does not include the Retained Interest. References to a "holder"
or "Certificateholder" in this discussion generally mean the beneficial owner
of a Certificate.
FEDERAL INCOME TAX CONSEQUENCES FOR REMIC CERTIFICATES
General
With respect to a particular series of Certificates, an election may be
made to treat the Trust Fund or one or more segregated pools of assets
therein as one or more REMICs within the meaning of Code Section 860D. A
Trust Fund or a portion thereof as to which a REMIC election will be made
will be referred to as a "REMIC Pool". For purposes of this discussion,
Certificates of a series as to which one or more REMIC elections are made are
referred to as "REMIC Certificates" and will consist of one or more Classes
of "Regular Certificates" and one Class of "Residual Certificates" in the
case of each REMIC Pool. Qualification as a REMIC requires ongoing compliance
with certain conditions. With respect to each series of REMIC Certificates,
Cadwalader, Wickersham & Taft, counsel to the Depositor, has advised the
Depositor that in the firm's opinion, assuming (i) the making of such an
election, (ii) compliance with the Agreement and (iii) compliance with any
changes in the law, including any amendments to the Code or applicable
Treasury regulations thereunder, each REMIC Pool will qualify as a REMIC. In
such case, the Regular Certificates will be considered to be "regular
interests" in the REMIC Pool and generally will be treated for federal income
tax purposes as if they were newly originated debt instruments, and the
Residual Certificates will be considered to be "residual interests" in the
REMIC Pool. The Prospectus Supplement for each series of Certificates will
indicate whether one or more REMIC elections with respect to the related
Trust Fund will be made, in which event references to "REMIC" or "REMIC Pool"
herein shall be deemed to refer to each such REMIC Pool. If so specified in
the applicable Prospectus Supplement, the portion of a Trust Fund as to which
a REMIC election is not made may be treated as a grantor trust for federal
income tax purposes. See "--Federal Income Tax Consequences for Certificates
as to Which No REMIC Election Is Made". For purposes of this discussion,
unless otherwise specified, the term "Mortgage Loans" will be used to refer
to Mortgage Loans, MBS and Installment Contracts.
Status of REMIC Certificates
REMIC Certificates held by a domestic building and loan association will
constitute "a regular or residual interest in a REMIC" within the meaning of
Code Section 7701(a)(19)(C)(xi) but only in the same proportion that the
assets of the REMIC Pool would be treated as "loans . . . secured by an
interest in real property which is . . . residential real property" (such as
single family or multifamily properties, but not commercial properties)
within the meaning of Code Section 7701(a)(19)(C)(v) or as other assets
described in Code Section 7701(a)(19)(C), and otherwise will not qualify for
such treatment. REMIC Certificates held by a real estate investment trust
will constitute "real estate assets" within the meaning of Code Section
856(c)(5)(A), and interest on the Regular Certificates and income with
respect to Residual Certificates will be considered "interest on obligations
secured by mortgages on real property or on interests in real property"
within the meaning of Code Section 856(c)(3)(B) in the same proportion that,
for both purposes, the assets of the REMIC Pool would be so treated. If at
all times 95% or more of the assets of the REMIC Pool qualify for each of the
foregoing respective treatments, the REMIC Certificates will qualify for the
corresponding status in their entirety. For purposes of Code Sections
593(d)(1) and 856(c)(5)(A), payments of principal and interest on the
Mortgage Loans that are reinvested pending distribution to holders of REMIC
Certificates qualify for such treatment. Where two REMIC Pools are a part of
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a tiered structure they will be treated as one REMIC for purposes of the
tests described above respecting asset ownership of more or less than 95%. In
addition, if the assets of the REMIC include Buy-Down Mortgage Loans, it is
possible that the percentage of such assets constituting "qualifying real
property loans" or "loans . . . secured by an interest in real property" for
purposes of Code Section 7701(a)(19)(C)(v), respectively, may be required to
be reduced by the amount of the related Buy-Down Funds. REMIC Certificates
held by a regulated investment company will not constitute "Government
securities" within the meaning of Code Section 851(b)(4)(A)(i). REMIC
Certificates held by certain financial institutions will constitute an
"evidence of indebtedness" within the meaning of Code Section 582(c)(1). The
Small Business Job Protection Act of 1966 (the "SBJPA of 1996") repealed the
reserve method for bad debts of domestic building and loan associations and
mutual savings banks, and thus has eliminated the asset category of
"qualifying real property loans" in former Code Section 593(d) for taxable
years beginning after December 31, 1995. The requirement in the SBJPA of 1996
that such institutions must "recapture" a portion of their existing bad debt
reserves is suspended if a certain portion of their assets are maintained in
"residential loans" under Code Section 7701(a)(19)(C)(v), but only if such
loans were made to acquire, construct or improve the related real property
and not for the purpose of refinancing. However, no effort will be made to
identify the portion of the Mortgage Loans of any Series meeting this
requirement, and no representation is made in this regard.
Qualification as a REMIC
In order for the REMIC Pool to qualify as a REMIC, there must be ongoing
compliance on the part of the REMIC Pool with the requirements set forth in
the Code. The REMIC Pool must fulfill an asset test, which requires that no
more than a de minimis portion of the assets of the REMIC Pool, as of the
close of the third calendar month beginning after the "Startup Day" (which
for purposes of this discussion is the date of issuance of the REMIC
Certificates) and at all times thereafter, may consist of assets other than
"qualified mortgages" and "permitted investments". The REMIC Regulations
provide a safe harbor pursuant to which the de minimis requirement is met if
at all times the aggregate adjusted basis of the nonqualified assets is less
than 1% of the aggregate adjusted basis of all the REMIC Pool's assets. An
entity that fails to meet the safe harbor may nevertheless demonstrate that
it holds no more than a de minimis amount of nonqualified assets. A REMIC
also must provide "reasonable arrangements" to prevent its residual interest
from being held by "disqualified organizations" and must furnish applicable
tax information to transferors or agents that violate this requirement. See
"Taxation of Residual Certificates --Tax-Related Restrictions on Transfer of
Residual Certificates --Disqualified Organizations".
A qualified mortgage is any obligation that is principally secured by an
interest in real property and that is either transferred to the REMIC Pool on
the Startup Day or is purchased by the REMIC Pool within a three-month period
thereafter pursuant to a fixed price contract in effect on the Startup Day.
Qualified mortgages include whole mortgage loans, such as the Mortgage Loans,
certificates of beneficial interest in a grantor trust that holds mortgage
loans, such as the Mortgage Certificates, regular interests in another REMIC,
such as Mortgage Certificates in a trust as to which a REMIC election has
been made, loans secured by timeshare interests and loans secured by shares
held by a tenant stockholder in a cooperative housing corporation, provided,
in general, (i) the fair market value of the real property security
(including buildings and structural components thereof) is at least 80% of
the principal balance of the related Mortgage Loan or mortgage loan
underlying the Mortgage Certificate either at origination or as of the
Startup Day (an original loan-to-value ratio of not more than 125% with
respect to the real property security) or (ii) substantially all the proceeds
of the Mortgage Loan or the underlying mortgage loan were used to acquire,
improve or protect an interest in real property that, at the origination
date, was the only security for the Mortgage Loan or underlying mortgage
loan. If the Mortgage Loan has been substantially modified other than in
connection with a default or reasonably foreseeable default, it must meet the
loan-to-value test in (i) of the preceding sentence as of the date of the
last such modification). A qualified mortgage includes a qualified
replacement mortgage, which is any property that would have been treated as a
qualified mortgage if it were transferred to the REMIC Pool on the Startup
Day and that is received either (i) in exchange for any qualified mortgage
within a three-month period thereafter or (ii) in exchange for a "defective
obligation" within a two-year period thereafter. A "defective obligation"
includes (i) a mortgage in default or as to which default is reasonably
foreseeable, (ii) a mortgage as to which a customary representation or
warranty made at the time of transfer to the REMIC Pool has been breached,
(iii) a mortgage that was fraudulently procured by the mortgagor, and (iv) a
mortgage that was not in fact principally secured by real property (but only
if such mortgage is disposed of within 90 days of discovery). A Mortgage Loan
that is "defective" as described in clause (iv) that is not sold or, if
within two years of the Startup Day, exchanged, within 90 days of discovery,
ceases to be a qualified mortgage after such 90-day period.
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The REMIC Regulations provide that obligations secured by interests in
manufactured housing which qualify as "single family residences" within the
meaning of Code Section 25(e)(10) may be treated as "qualified mortgages" of
a REMIC. Under Code Section 25(e)(10), the term "single family residence"
includes any manufactured home which has a minimum of 400 square feet of
living space and a minimum width in excess of 102 inches and which is of a
kind customarily used at a fixed location. With respect to each series with
respect to which Contracts are included in a REMIC Pool, the Depositor will
represent and warrant that each of the manufactured homes securing the
Contracts meets this definition of "single family residence".
Permitted investments include cash flow investments, qualified reserve
assets, and foreclosure property. A cash flow investment is an investment,
earning a return in the nature of interest, of amounts received on or with
respect to qualified mortgages for a temporary period, not exceeding 13
months, until the next scheduled distribution to holders of interests in the
REMIC Pool. A qualified reserve asset is any intangible property held for
investment that is part of any reasonably required reserve maintained by the
REMIC Pool to provide for payments of expenses of the REMIC Pool or amounts
due on the regular or residual interests in the event of defaults (including
delinquencies) on the qualified mortgages, lower than expected reinvestment
returns, prepayment interest shortfalls and certain other contingencies. The
reserve fund will be disqualified if more than 30% of the gross income from
the assets in such fund for the year is derived from the sale or other
disposition of property held for less than three months, unless required to
prevent a default on the regular interests caused by a default on one or more
qualified mortgages. A reserve fund must be reduced "promptly and
appropriately" as payments on the Mortgage Loans are received. Foreclosure
property is real property acquired by the REMIC Pool in connection with the
default or imminent default of a qualified mortgage and generally held for
not more than two years, with extensions granted by the Internal Revenue
Service (the "Service").
In addition to the foregoing requirements, the various interests in a
REMIC Pool also must meet certain requirements. All of the interests in a
REMIC Pool must be either of the following: (i) one or more classes of
regular interests or (ii) a single class of residual interests on which
distributions, if any, are made pro rata. A regular interest is an interest
in a REMIC Pool that is issued on the Startup Day with fixed terms, is
designated as a regular interest, and unconditionally entitles the holder to
receive a specified principal amount (or other similar amount), and provides
that interest payments (or other similar amounts), if any, at or before
maturity either are payable based on a fixed rate or a qualified variable
rate, or consist of a specified, nonvarying portion of the interest payments
on qualified mortgages. Such a specified portion may consist of a fixed
number of basis points, a fixed percentage of the total interest, or a fixed
or qualified variable or inverse variable rate on some or all of the
qualified mortgages minus a different fixed or qualified variable rate. The
specified principal amount of a regular interest that provides for interest
payments consisting of a specified, nonvarying portion of interest payments
on qualified mortgages may be zero. A residual interest is an interest in a
REMIC Pool other than a regular interest that is issued on the Startup Day
and that is designated as a residual interest. An interest in a REMIC Pool
may be treated as a regular interest even if payments of principal with
respect to such interest are subordinated to payments on other regular
interests or the residual interest in the REMIC Pool, and are dependent on
the absence of defaults or delinquencies on qualified mortgages or permitted
investments, lower than reasonably expected returns on permitted investments,
unanticipated expenses incurred by the REMIC Pool or prepayment interest
shortfalls. Accordingly, the Regular Certificates of a series will constitute
one or more classes of regular interests, and the Residual Certificates with
respect to that series will constitute a single class of residual interests
on which distributions are made pro rata.
If an entity, such as the REMIC Pool, fails to comply with one or more of
the ongoing requirements of the Code for REMIC status during any taxable
year, the Code provides that the entity will not be treated as a REMIC for
such year and thereafter. In this event, an entity with multiple classes of
ownership interests may be treated as a separate association taxable as a
corporation under Treasury regulations, and the Regular Certificates may be
treated as equity interests therein. The Code, however, authorizes the
Treasury Department to issue regulations that address situations where
failure to meet one or more of the requirements for REMIC status occurs
inadvertently and in good faith, and disqualification of the REMIC Pool would
occur absent regulatory relief. Investors should be aware, however, that the
Conference Committee Report to the Tax Reform Act of 1986 (the "1986 Act")
indicates that the relief may be accompanied by sanctions, such as the
imposition of a corporate tax on all or a portion of the REMIC Pool's income
for the period of time in which the requirements for REMIC status are not
satisfied.
TAXATION OF REGULAR CERTIFICATES
General
In general, interest, original issue discount and market discount on a
Regular Certificate will be treated as ordinary income to a holder of the
Regular Certificate (the "Regular Certificateholder") as they accrue, and
principal payments on
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a Regular Certificate will be treated as a return of capital to the extent of
the Regular Certificateholder's basis in the Regular Certificate allocable
thereto. Regular Certificateholders must use the accrual method of accounting
with regard to Regular Certificates, regardless of the method of accounting
otherwise used by such Regular Certificateholders.
Original Issue Discount
Accrual Certificates will be, and other Classes of Regular Certificates
may be, issued with "original issue discount" within the meaning of Code
Section 1273(a). Holders of any Class of Regular Certificates having original
issue discount generally must include original issue discount in ordinary
income for federal income tax purposes as it accrues, in accordance with the
constant yield method that takes into account the compounding of interest, in
advance of receipt of the cash attributable to such income. The following
discussion is based in part on temporary and final Treasury regulations
issued on February 2, 1994 (the "OID Regulations"), as amended on June 14,
1996, under Code Sections 1271 through 1273 and 1275 and in part on the
provisions of the 1986 Act. Regular Certificateholders should be aware,
however, that the OID Regulations and the Proposed OID Regulations do not
adequately address certain issues relevant to prepayable securities, such as
the Regular Certificates. To the extent such issues are not addressed in such
regulations, the Depositor intends to apply the methodology described in the
Conference Committee Report to the 1986 Act. No assurance can be provided
that the Service will not take a different position as to those matters not
currently addressed by the OID Regulations. Moreover, the OID Regulations
include an anti-abuse rule allowing the Service to apply or depart from the
OID Regulations where necessary or appropriate to ensure a reasonable tax
result in light of the applicable statutory provisions. A tax result will not
be considered unreasonable under the anti-abuse rule in the absence of a
substantial effect on the present value of a taxpayer's tax liability.
Investors are advised to consult their own tax advisors as to the discussion
herein and the appropriate method for reporting interest and original issue
discount with respect to the Regular Certificates.
Each Regular Certificate (except to the extent described below with
respect to a Regular Certificate on which principal is distributed by random
lot ("Random Lot Certificates")) will be treated as a single installment
obligation for purposes of determining the original issue discount includible
in a Regular Certificateholder's income. The total amount of original issue
discount on a Regular Certificate is the excess of the "stated redemption
price at maturity" of the Regular Certificate over its "issue price". The
issue price of a Class of Regular Certificates offered pursuant to this
Prospectus generally is the first price at which a substantial amount of
Regular Certificates of that Class is sold to the public (excluding bond
houses, brokers and underwriters). Although unclear under the OID
Regulations, the Depositor intends to treat the issue price of a Class as to
which there is no substantial sale as of the issue date or that is retained
by the Depositor as the fair market value of that Class as of the issue date.
The issue price of a Regular Certificate also includes the amount paid by an
initial Regular Certificateholder for accrued interest that relates to a
period prior to the issue date of the Regular Certificate, unless the Regular
Certificateholder elects on its federal income tax return to exclude such
amount from the issue price and to recover it on the first Distribution Date.
The stated redemption price at maturity of a Regular Certificate always
includes the original principal amount of the Regular Certificate, but
generally will not include distributions of stated interest if such interest
distributions constitute "qualified stated interest". Under the OID
Regulations, qualified stated interest generally means interest payable at a
single fixed rate or a qualified variable rate (as described below) provided
that such interest payments are unconditionally payable at intervals of one
year or less during the entire term of the Regular Certificate. Distributions
of interest on an Accrual Certificate, or on other Regular Certificates with
respect to which deferred interest will accrue, will not constitute qualified
stated interest, in which case the stated redemption price at maturity of
such Regular Certificates includes all distributions of interest as well as
principal thereon. Likewise, the Depositor intends to treat an "interest
only" class, or a class on which interest is substantially disproportionate
to its principal amount (a so-called "super-premium" class) as having no
qualified stated interest. Where the interval between the issue date and the
first Distribution Date on a Regular Certificate is shorter than the interval
between subsequent Distribution Dates, the interest attributable to the
additional days will be included in the stated redemption price at maturity.
Under a de minimis rule, original issue discount on a Regular Certificate
will be considered to be zero if such original issue discount is less than
0.25% of the stated redemption price at maturity of the Regular Certificate
multiplied by the weighted average maturity of the Regular Certificate. For
this purpose, the weighted average maturity of the Regular Certificate is
computed as the sum of the amounts determined by multiplying the number of
full years (i.e., rounding down partial years) from the issue date until each
distribution is scheduled to be made by a fraction, the numerator of which is
the amount of each distribution included in the stated redemption price at
maturity of the Regular Certificate and the denominator of which is the
stated redemption price at maturity of the Regular Certificate. The
Conference Committee
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Report to the 1986 Act provides that the schedule of such distributions
should be determined in accordance with the assumed rate of prepayment of the
Mortgage Loans (the "Prepayment Assumption") and the anticipated reinvestment
rate, if any, relating to the Regular Certificates. The Prepayment Assumption
with respect to a Series of Regular Certificates will be set forth in the
related Prospectus Supplement. Holders generally must report de minimis OID
pro rata as principal payments are received, and such income will be capital
gain if the Regular Certificate is held as a capital asset. However, under
the OID Regulations, Regular Certificateholders may elect to accrue all de
minimis original issue discount as well as market discount and market premium
under the constant yield method. See "Election to Treat All Interest Under
the Constant Yield Method".
A Regular Certificateholder generally must include in gross income for any
taxable year the sum of the "daily portions," as defined below, of the
original issue discount on the Regular Certificate accrued during an accrual
period for each day on which it holds the Regular Certificate, including the
date of purchase but excluding the date of disposition. The Depositor will
treat the monthly period ending on the day before each Distribution Date as
the accrual period. With respect to each Regular Certificate, a calculation
will be made of the original issue discount that accrues during each
successive full accrual period (or shorter period from the date of original
issue) that ends on the day before the related Distribution Date on the
Regular Certificate. The Conference Committee Report to the 1986 Act states
that the rate of accrual of original issue discount is intended to be based
on the Prepayment Assumption. Other than as discussed below with respect to a
Random Lot Certificate, the original issue discount accruing in a full
accrual period would be the excess, if any, of (i) the sum of (a) the present
value of all of the remaining distributions to be made on the Regular
Certificate as of the end of that accrual period that are included in the
Regular Certificate's stated redemption price at maturity and (b) the
distributions made on the Regular Certificate during the accrual period that
are included in the Regular Certificate's stated redemption price at
maturity, over (ii) the adjusted issue price of the Regular Certificate at
the beginning of the accrual period. The present value of the remaining
distributions referred to in the preceding sentence is calculated based on
(i) the yield to maturity of the Regular Certificate at the issue date, (ii)
events (including actual prepayments) that have occurred prior to the end of
the accrual period and (iii) the Prepayment Assumption. For these purposes,
the adjusted issue price of a Regular Certificate at the beginning of any
accrual period equals the issue price of the Regular Certificate, increased
by the aggregate amount of original issue discount with respect to the
Regular Certificate that accrued in all prior accrual periods and reduced by
the amount of distributions included in the Regular Certificate's stated
redemption price at maturity that were made on the Regular Certificate in
such prior periods. The original issue discount accruing during any accrual
period (as determined in this paragraph) will then be divided by the number
of days in the period to determine the daily portion of original issue
discount for each day in the period. With respect to an initial accrual
period shorter than a full accrual period, the daily portions of original
issue discount must be determined according to an appropriate allocation
under any reasonable method.
Under the method described above, the daily portions of original issue
discount required to be included in income by a Regular Certificateholder
generally will increase to take into account prepayments on the Regular
Certificates as a result of prepayments on the Mortgage Loans that exceed the
Prepayment Assumption, and generally will decrease (but not below zero for
any period) if the prepayments are slower than the Prepayment Assumption. An
increase in prepayments on the Mortgage Loans with respect to a Series of
Regular Certificates can result in both a change in the priority of principal
payments with respect to certain Classes of Regular Certificates and either
an increase or decrease in the daily portions of original issue discount with
respect to such Regular Certificates.
In the case of a Random Lot Certificate, the Depositor intends to
determine the yield to maturity of such Certificate based upon the
anticipated payment characteristics of the Class as a whole under the
Prepayment Assumption. In general, the original issue discount accruing on
each Random Lot Certificate in a full accrual period would be its allocable
share of the original issue discount with respect to the entire Class, as
determined in accordance with the preceding paragraph. However, in the case
of a distribution in retirement of the entire unpaid principal balance of any
Random Lot Certificate (or portion of such unpaid principal balance), (a) the
remaining unaccrued original issue discount allocable to such Certificate (or
to such portion) will accrue at the time of such distribution, and (b) the
accrual of original issue discount allocable to each remaining Certificate of
such Class (or the remaining unpaid principal balance of a partially redeemed
Random Lot Certificate after a distribution of principal has been received)
will be adjusted by reducing the present value of the remaining payments on
such Class and the adjusted issue price of such Class to the extent
attributable to the portion of the unpaid principal balance thereof that was
distributed. The Depositor believes that the foregoing treatment is
consistent with the "pro rata prepayment" rules of the OID Regulations, but
with the rate of accrual of original issue discount determined based on the
Prepayment Assumption for the Class as a whole. Investors are advised to
consult their tax advisors as to this treatment.
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Acquisition Premium
A purchaser of a Regular Certificate at a price greater than its adjusted
issue price but less than its stated redemption price at maturity will be
required to include in gross income the daily portions of the original issue
discount on the Regular Certificate reduced pro rata by a fraction, the
numerator of which is the excess of its purchase price over such adjusted
issue price and the denominator of which is the excess of the remaining
stated redemption price at maturity over the adjusted issue price.
Alternatively, such a subsequent purchaser may elect to treat all such
acquisition premium under the constant yield method, as described below under
the heading "Election to Treat All Interest Under the Constant Yield Method".
Variable Rate Regular Certificates
Regular Certificates may provide for interest based on a variable rate.
Under the OID Regulations, interest is treated as payable at a variable rate
if, generally, (i) the issue price does not exceed the original principal
balance by more than a specified amount and (ii) the interest compounds or is
payable at least annually at current values of (a) one or more "qualified
floating rates", (b) a single fixed rate and one or more qualified floating
rates, (c) a single "objective rate", or (d) a single fixed rate and a single
objective rate that is a "qualified inverse floating rate". A floating rate
is a qualified floating rate if variations in the rate can reasonably be
expected to measure contemporaneous variations in the cost of newly borrowed
funds, where such rate is subject to a fixed multiple that is greater than
0.65 but not more than 1.35. Such rate may also be increased or decreased by
a fixed spread or subject to a fixed cap or floor, or a cap or floor that is
not reasonably expected as of the issue date to affect the yield of the
instrument significantly. An objective rate is any rate (other than a
qualified floating rate) that is determined using a single fixed formula and
that is based on objective financial or economic information, provided that
such information is not (i) within the control of the issuer or a related
party or (ii) unique to the circumstances of the issuer or a related party. A
qualified inverse floating rate is a rate equal to a fixed rate minus a
qualified floating rate that inversely reflects contemporaneous variations in
the cost of newly borrowed funds; an inverse floating rate that is not a
qualified inverse floating rate may nevertheless be an objective rate. A
Class of Regular Certificates may be issued under this Prospectus that does
not have a variable rate under the foregoing rules, for example, a Class that
bears different rates at different times during the period it is outstanding
such that it is considered significantly "front-loaded" or "back-loaded"
within the meaning of the OID Regulations. It is possible that such a Class
may be considered to bear "contingent interest" within the meaning of the OID
Regulations. The OID Regulations, as they relate to the treatment of
contingent interest rate by their terms not applicable to Regular
Certificates. However, if final regulations dealing with contingent interest
with respect to Regular Certificates apply the same principles as the OID
Regulations, such regulations may lead to different timing of income
inclusion that would be the case under the OID Regulations. Furthermore,
application of such principles could lead to the characterization of gain on
the sale of contingent interest Regular Certificates as ordinary income.
Investors should consult their tax advisors regarding the appropriate
treatment of any Regular Certificate that does not pay interest at a fixed
rate or variable rate as described in this paragraph.
Under the REMIC Regulations, a Regular Certificate (i) bearing a rate that
qualifies as a variable rate under the OID Regulations that is tied to
current values of a variable rate (or the highest, lowest or average of two
or more variable rates, including a rate based on the average cost of funds
of one or more financial institutions), or a positive or negative multiple of
such a rate (plus or minus a specified number of basis points), or that
represents a weighted average of rates on some or all of the Mortgage Loans,
including such a rate that is subject to one or more caps or floors, or (ii)
bearing one or more such variable rates for one or more periods or one or
more fixed rates for one or more periods, and a different variable rate or
fixed rate for other periods qualifies as a regular interest in a REMIC.
Accordingly, unless otherwise indicated in the applicable Prospectus
Supplement, the Depositor intends to treat Regular Certificates that qualify
as regular interests under this rule in the same manner as obligations
bearing a variable rate for original issue discount reporting purposes.
The amount of original issue discount with respect to a Regular
Certificate bearing a variable rate of interest will accrue in the manner
described above under "Original Issue Discount" with the yield to maturity
and future payments on such Regular Certificate generally to be determined by
assuming that interest will be payable for the life of the Regular
Certificate based on the initial rate (or, if different, the value of the
applicable variable rate as of the pricing date) for the relevant Class.
Unless otherwise specified in the applicable Prospectus Supplement, the
Depositor intends to treat such variable interest as qualified stated
interest, other than variable interest on an interest-only or super-premium
Class, which will be treated as non-qualified stated interest includible in
the stated redemption price at maturity. Ordinary income reportable for any
period will be adjusted based on subsequent changes in the applicable
interest rate index.
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Although unclear under the OID Regulations, the Depositor intends to treat
Regular Certificates bearing an interest rate that is a weighted average of
the net interest rates on Mortgage Loans or Mortgage Certificates having
fixed or adjustable rates, as having qualified stated interest. In the case
of adjustable rate Mortgage Loans, the applicable index used to compute
interest on the Mortgage Loans in effect on the pricing date (or possibly the
issue date) will be deemed to be in effect beginning with the period in which
the first weighted average adjustment date occurring after the issue date
occurs. Adjustments will be made in each accrual period either increasing or
decreasing the amount or ordinary income reportable to reflect the actual
Pass-Through Rate on the Regular Certificates.
Deferred Interest
Under the OID Regulations, all interest on a Regular Certificate as to
which there may be Deferred Interest is includible in the stated redemption
price at maturity thereof. Accordingly, any Deferred Interest that accrues
with respect to a Class of Regular Certificates may constitute income to the
holders of such Regular Certificates prior to the time distributions of cash
with respect to such Deferred Interest are made.
Market Discount
A purchaser of a Regular Certificate also may be subject to the market
discount rules of Code Section 1276 through 1278. Under these Code sections
and the principles applied by the OID Regulations in the context of original
issue discount, "market discount" is the amount by which the purchaser's
original basis in the Regular Certificate (i) is exceeded by the then-current
principal amount of the Regular Certificate or (ii) in the case of a Regular
Certificate having original issue discount, is exceeded by the adjusted issue
price of such Regular Certificate at the time of purchase. Such purchaser
generally will be required to recognize ordinary income to the extent of
accrued market discount on such Regular Certificate as distributions
includible in the stated redemption price at maturity thereof are received,
in an amount not exceeding any such distribution. Such market discount would
accrue in a manner to be provided in Treasury regulations and should take
into account the Prepayment Assumption. The Conference Committee Report to
the 1986 Act provides that until such regulations are issued, such market
discount would accrue either (i) on the basis of a constant interest rate or
(ii) in the ratio of stated interest allocable to the relevant period to the
sum of the interest for such period plus the remaining interest as of the end
of such period, or in the case of a Regular Certificate issued with original
issue discount, in the ratio of original issue discount accrued for the
relevant period to the sum of the original issue discount accrued for such
period plus the remaining original issue discount as of the end of such
period. Such purchaser also generally will be required to treat a portion of
any gain on a sale or exchange of the Regular 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 as partial distributions in reduction of the
stated redemption price at maturity were received. Such purchaser will be
required to defer deduction of a portion of the excess of the interest paid
or accrued on indebtedness incurred to purchase or carry a Regular
Certificate over the interest distributable thereon. The deferred portion of
such interest expense in any taxable year generally will not exceed the
accrued market discount on the Regular Certificate for such year. Any such
deferred interest expense is, in general, allowed as a deduction not later
than the year in which the related market discount income is recognized or
the Regular Certificate is disposed of. As an alternative to the inclusion of
market discount in income on the foregoing basis, the Regular
Certificateholder may elect to include market discount in income currently as
it accrues on all market discount instruments acquired by such Regular
Certificateholder in that taxable year or thereafter, in which case the
interest deferral rule will not apply. See "Election to Treat All Interest
Under the Constant Yield Method" below regarding an alternative manner in
which such election may be deemed to be made.
Market discount with respect to a Regular Certificate will be considered
to be zero if such market discount is less than 0.25% of the remaining stated
redemption price at maturity of such Regular Certificate multiplied by the
weighted average maturity of the Regular Certificate (determined as described
above in the third paragraph under "Original Issue Discount") remaining after
the date of purchase. It appears that de minimis market discount would be
reported in a manner similar to de minimis original issue discount. See
"Original Issue Discount" above. Treasury regulations implementing the market
discount rules have not yet been issued, and therefore investors should
consult their own tax advisors regarding the application of these rules.
Investors should also consult Revenue Procedure 92-67 concerning the
elections to include market discount in income currently and to accrue market
discount on the basis of the constant yield method.
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Premium
A Regular Certificate purchased at a cost greater than its remaining
stated redemption price at maturity generally is considered to be purchased
at a premium. If the Regular Certificateholder holds such Regular Certificate
as a "capital asset" within the meaning of Code Section 1221, the Regular
Certificateholder may elect under Code Section 171 to amortize such premium
under the constant yield method. The Conference Committee Report to the 1986
Act indicates a Congressional intent that the same rules that will apply to
the accrual of market discount on installment obligations will also apply to
amortizing bond premium under Code Section 171 on installment obligations
such as the Regular Certificates, although it is unclear whether the
alternatives to the constant yield method described above under "Market
Discount" are available. Amortizable bond premium will be treated as an
offset to interest income on a Regular Certificate rather than as a separate
deduction item. See "Election to Treat All Interest Under the Constant Yield
Method" below regarding an alternative manner in which the Code Section 171
election may be deemed to be made.
Election to Treat All Interest Under the Constant Yield Method
A holder of a debt instrument such as a Regular Certificate may elect to
treat all interest that accrues on the instrument using the constant yield
method, with none of the interest being treated as qualified stated interest.
For purposes of applying the constant yield method to a debt instrument
subject to such an election, (i) "interest" includes stated interest,
original issue discount, de minimis original issue discount, market discount
and de minimis market discount, as adjusted by any amortizable bond premium
or acquisition premium and (ii) the debt instrument is treated as if the
instrument were issued on the holder's acquisition date in the amount of the
holder's adjusted basis immediately after acquisition. It is unclear whether,
for this purpose, the initial Prepayment Assumption would continue to apply
or if a new prepayment assumption as of the date of the holder's acquisition
would apply. A holder generally may make such an election on an instrument by
instrument basis or for a class or group of debt instruments. However, if the
holder makes such an election with respect to a debt instrument with
amortizable bond premium or with market discount, the holder is deemed to
have made elections to amortize bond premium or to report market discount
income currently as it accrues under the constant yield method, respectively,
for all debt instruments acquired by the holder in the same taxable year or
thereafter. The election is made on the holder's federal income tax return
for the year in which the debt instrument is acquired and is irrevocable
except with the approval of the Service. Investors should consult their own
tax advisors regarding the advisability of making such an election.
Sale or Exchange of Regular Certificates
If a Regular Certificateholder sells or exchanges a Regular Certificate,
the Regular Certificateholder will recognize gain or loss equal to the
difference, if any, between the amount received and its adjusted basis in the
Regular Certificate. The adjusted basis of a Regular Certificate generally
will equal the cost of the Regular Certificate to the seller, increased by
any original issue discount or market discount previously included in the
seller's gross income with respect to the Regular Certificate and reduced by
amounts included in the stated redemption price at maturity of the Regular
Certificate that were previously received by the seller and by any amortized
premium.
Except as described above with respect to market discount, and except as
provided in this paragraph, any gain or loss on the sale or exchange of a
Regular Certificate realized by an investor who holds the Regular Certificate
as a capital asset will be capital gain or loss and will be long-term or
short-term depending on whether the Regular Certificate has been held for the
long-term capital gain holding period (currently more than one year). Such
gain will be treated as ordinary income (i) if a Regular Certificate is held
as part of a "conversion transaction" as defined in Code Section 1258(c), up
to the amount of interest that would have accrued on the Regular
Certificateholder's net investment in the conversion transaction at 120% of
the appropriate applicable Federal rate under Code Section 1274(d) in effect
at the time the taxpayer entered into the transaction minus any amount
previously treated as ordinary income with respect to any prior distribution
of property that was held as a part of such transaction, (ii) in the case of
a non-corporate taxpayer, to the extent such taxpayer has made an election
under Code Section 163(d)(4) to have net capital gains taxed as investment
income at ordinary rates, or (iii) to the extent that such gain does not
exceed the excess, if any, of (a) the amount that would have been includible
in the gross income of the holder if its yield on such Regular Certificate
were 110% of the applicable Federal rate as of the date of purchase, over (b)
the amount of income actually includible in the gross income of such holder
with respect to the Regular Certificate. In addition, gain or loss recognized
from the sale of a Regular Certificate by certain banks or
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thrift institutions will be treated as ordinary income or loss pursuant to
Code Section 582(c). Pursuant to the Revenue Reconciliation Act of 1993,
capital gains of certain non-corporate taxpayers are subject to a lower
maximum tax rate than ordinary income of such taxpayers. The maximum tax rate
for corporations is the same with respect to both ordinary income and capital
gains.
Treatment of Losses
Holders of Regular Certificates will be required to report income with
respect to Regular Certificates on the accrual method of accounting, without
giving effect to delays or reductions in distributions attributable to
defaults or delinquencies on the Mortgage Loans allocable to a particular
class of Regular Certificates, except to the extent it can be established
that such losses are uncollectible. Accordingly, the holder of a Regular
Certificate may have income, or may incur a diminution in cash flow as a
result of a default or delinquency, but may not be able to take a deduction
(subject to the discussion below) for the corresponding loss until a
subsequent taxable year. To the extent the rules of Code Section 166
regarding bad debts are applicable, it appears that holders of Regular
Certificates that are corporations or that otherwise hold the Regular
Certificates in connection with a trade or business should in general be
allowed to deduct as an ordinary loss any such loss sustained during the
taxable year on account of any such Regular Certificates becoming wholly or
partially worthless, and that, in general, holders of Regular Certificates
that are not corporations and do not hold the Regular Certificates in
connection with a trade or business will be allowed to deduct as a short-term
capital loss any loss with respect to principal sustained during the taxable
year on account of a portion of any class or subclass of such Regular
Certificates becoming wholly worthless. Although the matter is not free from
doubt, non-corporate holders of Regular Certificates should be allowed a bad
debt deduction at such time as the principal balance of any class or subclass
of such Regular Certificates is reduced to reflect losses resulting from any
liquidated Mortgage Loans. The Service, however, could take the position that
non-corporate holders will be allowed a bad debt deduction to reflect such
losses only after all Mortgage Loans remaining in the Trust Fund have been
liquidated or such class of Regular Certificates has been otherwise retired.
The Service could also assert that losses on the Regular Certificates are
deductible based on some other method that may defer such deductions for all
holders, such as reducing future cash flow for purposes of computing original
issue discount. This may have the effect of creating "negative" original
issue discount which would be deductible only against future positive
original issue discount or otherwise upon termination of the Class. Holders
of Regular Certificates are urged to consult their own tax advisors regarding
the appropriate timing, amount and character of any loss sustained with
respect to such Regular Certificates. While losses attributable to interest
previously reported as income should be deductible as ordinary losses by both
corporate and non-corporate holders the Service may take the position that
losses attributable to accrued original issue discount may only be deducted
as capital losses in the case of non-corporate holders who do not hold
Regular Certificates in connection with a trade or business. Special loss
rules are applicable to banks and thrift institutions, including rules
regarding reserves for bad debts. Such taxpayers are advised to consult their
tax advisors regarding the treatment of losses on Regular Certificates.
TAXATION OF RESIDUAL CERTIFICATES
Taxation of REMIC Income
Generally, the "daily portions" of REMIC taxable income or net loss will
be includible as ordinary income or loss in determining the federal taxable
income of holders of Residual Certificates ("Residual Certificateholders"),
and will not be taxed separately to the REMIC Pool. The daily portions of
REMIC taxable income or net loss of a Residual Certificateholder are
determined by allocating the REMIC Pool's taxable income or net loss for each
calendar quarter ratably to each day in such quarter and by allocating such
daily portion among the Residual Certificateholders in proportion to their
respective holdings of Residual Certificates in the REMIC Pool on such day.
REMIC taxable income is generally determined in the same manner as the
taxable income of an individual using the accrual method of accounting,
except that (i) the limitations on deductibility of investment interest
expense and expenses for the production of income do not apply, (ii) all bad
loans will be deductible as business bad debts and (iii) the limitation on
the deductibility of interest and expenses related to tax-exempt income will
apply. The REMIC Pool's gross income, includes interest, original issue
discount income and market discount income, if any, on the Mortgage Loans,
reduced by amortization of any premium on the Mortgage Loans plus income on
reinvestment of cash flows and reserve assets, plus any cancellation of
indebtedness income upon allocation of realized losses to the Regular
Certificates. The REMIC Pool's deductions include interest and original issue
discount expense on the Regular Certificates, servicing fees on the Mortgage
Loans, other administrative
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expenses of the REMIC Pool and realized losses on the Mortgage Loans. The
requirement that Residual Certificateholders report their pro rata share of
taxable income or net loss of the REMIC Pool will continue until there are no
Certificates of any class of the related series outstanding.
The taxable income recognized by a Residual Certificateholder in any
taxable year will be affected by, among other factors, the relationship
between the timing of recognition of interest and original issue discount or
market discount income or amortization of premium with respect to the
Mortgage Loans, on the one hand, and the timing of deductions for interest
(including original issue discount) on the Regular Certificates, on the other
hand. In the event that an interest in the Mortgage Loans is acquired by the
REMIC Pool at a discount, and one or more of such Mortgage Loans is prepaid,
the Residual Certificateholder may recognize taxable income without being
entitled to receive a corresponding amount of cash because (i) the prepayment
may be used in whole or in part to make distributions in reduction of
principal on the Regular Certificates and (ii) the discount on the Mortgage
Loans which is includible in income may exceed the deduction allowed upon
such distributions on those Regular Certificates on account of any unaccrued
original issue discount relating to those Regular Certificates. When there is
more than one class of Regular Certificates that distribute principal
sequentially, this mismatching of income and deductions is particularly
likely to occur in the early years following issuance of the Regular
Certificates when distributions in reduction of principal are being made in
respect of earlier classes of Regular Certificates to the extent that such
classes are not issued with substantial discount. If taxable income
attributable to such a mismatching is realized, in general, losses would be
allowed in later years as distributions on the later classes of Regular
Certificates are made. Taxable income may also be greater in earlier years
than in later years as a result of the fact that interest expense deductions,
expressed as a percentage of the outstanding principal amount of such a
series of Regular Certificates, may increase over time as distributions in
reduction of principal are made on the lower yielding classes of Regular
Certificates, whereas to the extent that the REMIC Pool includes fixed rate
Mortgage Loans, interest income with respect to any given Mortgage Loan will
remain constant over time as a percentage of the outstanding principal amount
of that loan. Consequently, Residual Certificateholders must have sufficient
other sources of cash to pay any federal, state or local income taxes due as
a result of such mismatching or unrelated deductions against which to offset
such income, subject to the discussion of "excess inclusions" below under
"Limitations on Offset or Exemption of REMIC Income". The timing of such
mismatching of income and deductions described in this paragraph, if present
with respect to a series of Certificates, may have a significant adverse
effect upon the Residual Certificateholder's after-tax rate of return. In
addition, a Residual Certificateholder's taxable income during certain
periods may exceed the income reflected by such Residual Certificateholder
for such periods in accordance with generally accepted accounting principles.
Investors should consult their own accountants concerning the accounting
treatment of their investment in Residual Certificates.
Basis and Losses
The amount of any net loss of the REMIC Pool that may be taken into
account by the Residual Certificateholder is limited to the adjusted basis of
the Residual Certificate as of the close of the quarter (or time of
disposition of the Residual Certificate if earlier), determined without
taking into account the net loss for the quarter. The initial adjusted basis
of a purchaser of a Residual Certificate is the amount paid for such Residual
Certificate. Such adjusted basis will be increased by the amount of taxable
income of the REMIC Pool reportable by the Residual Certificateholder and
will be decreased (but not below zero), first, by a cash distribution from
the REMIC Pool and, second, by the amount of loss of the REMIC Pool
reportable by the Residual Certificateholder. Any loss that is disallowed on
account of this limitation may be carried over indefinitely with respect to
the Residual Certificateholder as to whom such loss was disallowed and may be
used by such Residual Certificateholder only to offset any income generated
by the same REMIC Pool.
A Residual Certificateholder will not be permitted to amortize directly
the cost of its Residual Certificate as an offset to its share of the taxable
income of the related REMIC Pool. However, that taxable income will not
include cash received by the REMIC Pool that represents a recovery of the
REMIC Pool's basis in its assets. Such recovery of basis by the REMIC Pool
will have the effect of amortization of the issue price of the Residual
Certificates over their life. However, in view of the possible acceleration
of the income of Residual Certificateholders described above under "Taxation
of REMIC Income", the period of time over which such issue price is
effectively amortized may be longer than the economic life of the Residual
Certificates.
A Residual Certificate may have a negative value if the net present value
of anticipated tax liabilities exceeds the present value of anticipated cash
flows. The REMIC Regulations appear to treat the issue price of such a
residual interest as zero rather than such negative amount for purposes of
determining the REMIC Pool's basis in its assets. The preamble to the REMIC
Regulations states that the Service may provide future guidance on the proper
tax treatment of payments
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made by a transferor of such a residual interest to induce the transferee to
acquire the interest, and Residual Certificateholders should consult their
own tax advisors in this regard.
Further, to the extent that the initial adjusted basis of a Residual
Certificateholder (other than an original holder) in the Residual Certificate
is greater that the corresponding portion of the REMIC Pool's basis in the
Mortgage Loans, the Residual Certificateholder will not recover a portion of
such basis until termination of the REMIC Pool unless future Treasury
regulations provide for periodic adjustments to the REMIC income otherwise
reportable by such holder. The REMIC Regulations currently in effect do not
so provide. See "Treatment of Certain Items of REMIC Income and Expense
- -- Market Discount" below regarding the basis of Mortgage Loans to the REMIC
Pool and "Sale or Exchange of a Residual Certificate" below regarding
possible treatment of a loss upon termination of the REMIC Pool as a capital
loss.
Treatment of Certain Items of REMIC Income and Expense
Although the Depositor intends to compute REMIC income and expense in
accordance with the Code and applicable regulations, the authorities
regarding the determination of specific items of income and expense are
subject to differing interpretations. The Depositor makes no representation
as to the specific method that it will use for reporting income with respect
to the Mortgage Loans and expenses with respect to the Regular Certificates,
and different methods could result in different timing of reporting of
taxable income or net loss to Residual Certificateholders or differences in
capital gain versus ordinary income.
Original Issue Discount. Generally, the REMIC Pool's deductions for
original issue discount will be determined in the same manner as original
issue discount income on Regular Certificates as described above under
"Taxation of Regular Certificates -- Original Issue Discount" and " -- Variable
Rate Regular Certificates", without regard to the de minimis rule described
therein.
Deferred Interest. Any Deferred Interest that accrues with respect to any
adjustable rate Mortgage Loans held by the REMIC Pool will constitute income
to the REMIC Pool and will be treated in a manner similar to the Deferred
Interest that accrues with respect to Regular Certificates as described above
under "Taxation of Regular Certificates -- Deferred Interest".
Market Discount. The REMIC Pool will have market discount income in
respect of Mortgage Loans if, in general, the basis of the REMIC Pool
allocable to such Mortgage Loans is exceeded by their unpaid principal
balances. The REMIC Pool's basis in such Mortgage Loans is generally the fair
market value of the Mortgage Loans immediately after the transfer thereof to
the REMIC Pool. The REMIC Regulations provide that such basis is equal in the
aggregate to the issue prices of all regular and residual interests in the
REMIC Pool (or the fair market value thereof at the Closing Date, in the case
of a retained Class). In respect of Mortgage Loans that have market discount
to which Code Section 1276 applies, the accrued portion of such market
discount would be recognized currently as an item of ordinary income in a
manner similar to original issue discount. Market discount income generally
should accrue in the manner described above under "Taxation of Regular
Certificates -- Market Discount".
Premium. Generally, if the basis of the REMIC Pool in the Mortgage Loans
exceeds the unpaid principal balances thereof, the REMIC Pool will be
considered to have acquired such Mortgage Loans at a premium equal to the
amount of such excess. As stated above, the REMIC Pool's basis in Mortgage
Loans is the fair market value of the Mortgage Loans, based on the aggregate
of the issue prices (or the fair market value of retained Classes) of the
regular and residual interests in the REMIC Pool immediately after the
transfer thereof to the REMIC Pool. In a manner analogous to the discussion
above under "Taxation of Regular Certificates -- Premium", a REMIC Pool that
holds a Mortgage Loan as a capital asset under Code Section 1221 may elect
under Code Section 171 to amortize premium on whole mortgage loans or
mortgage loans underlying MBS that were originated after September 27, 1985
or on Agency Securities, or Private Mortgage-Backed Securities that are REMIC
regular interests under the constant yield method. Amortizable bond premium
will be treated as an offset to interest income on the Mortgage Loans, rather
than as a separate deduction item. To the extent that the mortgagors with
respect to the Mortgage Loans are individuals, Code Section 171 will not be
available for premium on Mortgage Loans (including underlying mortgage loans)
originated on or prior to September 27, 1985. Premium with respect to such
Mortgage Loans may be deductible in accordance with a reasonable method
regularly employed by the holder thereof. The allocation of such premium pro
rata among principal payments should be considered a reasonable method;
however, the Service may argue that such premium should be allocated in a
different manner, such as allocating such premium entirely to the final
payment of principal.
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Limitations on Offset or Exemption of REMIC Income
A portion or all of the REMIC taxable income includible in determining the
federal income tax liability of a Residual Certificateholder will be subject
to special treatment. That portion, referred to as the "excess inclusion", is
equal to the excess of REMIC taxable income for the calendar quarter
allocable to a Residual Certificate over the daily accruals for such
quarterly period of (i) 120% of the long-term applicable Federal rate that
would have applied to the Residual Certificate (if it were a debt instrument)
on the Startup Day under Code Section 1274(d), multiplied by (ii) the
adjusted issue price of such Residual Certificate at the beginning of such
quarterly period. For this purpose, the adjusted issue price of a Residual
Certificate at the beginning of a quarter is the issue price of the Residual
Certificate, plus the amount of such daily accruals of REMIC income described
in this paragraph for all prior quarters, decreased by any distributions made
with respect to such Residual Certificate prior to the beginning of such
quarterly period. Accordingly, the portion of the REMIC Pool's taxable income
that will be treated as excess inclusions will be a larger portion of such
income as the adjusted issue price of the Residual Certificates diminishes.
The portion of a Residual Certificateholder's REMIC taxable income
consisting of the excess inclusions generally may not be offset by other
deductions, including net operating loss carryforwards, on such Residual
Certificateholder's return. However, net operating loss carryovers are
determined without regard to excess inclusion income. Further, if the
Residual Certificateholder is an organization subject to the tax on unrelated
business income imposed by Code Section 511, the Residual Certificateholder's
excess inclusions will be treated as unrelated business taxable income of
such Residual Certificateholder for purposes of Code Section 511. In
addition, REMIC taxable income is subject to 30% withholding tax with respect
to certain persons who are not U.S. Persons (as defined below under
"Tax-Related Restrictions on Transfer of Residual Certificates -- Foreign
Investors"), and the portion thereof attributable to excess inclusions is not
eligible for any reduction in the rate of withholding tax (by treaty or
otherwise). See "Taxation of Certain Foreign Investors -- Residual
Certificates" below. Finally, if a real estate investment trust or a
regulated investment company owns a Residual Certificate, a portion
(allocated under Treasury regulations yet to be issued) of dividends paid by
the real estate investment trust or a regulated investment company could not
be offset by net operating losses of its shareholders, would constitute
unrelated business taxable income for tax-exempt shareholders, and would be
ineligible for reduction of withholding to certain persons who are not U.S.
Persons. The SBJPA of 1996 has eliminated the special rule permitting Section
593 institutions ("thrift institutions") to use net operating losses and
other allowable deductions to offset their excess inclusion income from
Residual Certificates that have "significant value" within the meaning of the
REMIC Regulations, effective for taxable years beginning after December 31,
1995, except with respect to Residual Certificates continuously held by
thrift institutions since November 1, 1995.
In addition, the SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on the alternative minimum taxable income of a
Residual Holder. First, alternative minimum taxable income for a Residual
Holder is determined without regard to the special rule, discussed above,
that taxable income cannot be less than excess inclusions. Second, a Residual
Holder's alternative minimum taxable income for a taxable year cannot be less
than the excess inclusions for the year. Third, the amount of any alternative
minimum tax net operating loss deduction must be computed without regard to
any excess inclusions. These rules are effective for taxable years beginning
after December 31, 1986, unless a Residual Holder elects to have such rules
apply only to taxable years beginning after August 20, 1996.
Tax-Related Restrictions on Transfer of Residual Certificates
Disqualified Organizations. If any legal or beneficial interest in a
Residual Certificate is transferred to a Disqualified Organization (as
defined below), a tax would be imposed in an amount equal to the product of
(i) the present value of the total anticipated excess inclusions with respect
to such Residual Certificate for periods after the transfer and (ii) the
highest marginal federal income tax rate applicable to corporations. The
REMIC Regulations provide that the anticipated excess inclusions are based on
actual prepayment experience to the date of the transfer and projected
payments based on the Prepayment Assumption. The present value rate equals
the applicable Federal rate under Code Section 1274(d) as of the date of the
transfer for a term ending with the last calendar quarter in which excess
inclusions are expected to accrue. Such a tax generally would be imposed on
the transferor of the Residual Certificate, except that where such transfer
is through an agent (including a broker, nominee or other middleman) for a
Disqualified Organization, the tax would instead be imposed on such agent.
However, a transferor of a 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
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and, as of the time of the transfer, the transferor does not have actual
knowledge that such affidavit is false. The tax also may be waived by the
Treasury Department if the Disqualified Organization promptly disposes of the
residual interest and the transferor pays income tax at the highest corporate
rate on the excess inclusions for the period the Residual Certificate is
actually held by the Disqualified Organization.
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
such entity, then a tax is imposed on such entity equal to the product of (i)
the amount of excess inclusions on the Residual Certificate that are
allocable to the interest in the Pass-Through Entity during the period such
interest is held by such Disqualified Organization, and (ii) the highest
marginal federal corporate income tax rate. Such tax would be deductible from
the ordinary gross income of the Pass-Through Entity for the taxable year.
The Pass-Through Entity would not be liable for such tax if it has received
an affidavit from such record holder that it is not a Disqualified
Organization or stating such holder's taxpayer identification number and,
during the period such person is the record holder of the Residual
Certificate, the Pass-Through Entity does not have actual knowledge that such
affidavit is false.
For these purposes, (i) "Disqualified Organization" means the United
States, any state or political subdivision thereof, any foreign government,
any international organization, any agency or instrumentality of any of the
foregoing (provided, that such term does not include an instrumentality if
all of its activities are subject to tax and a majority of its board of
directors is not selected by any such governmental entity), any cooperative
organization furnishing electric energy or providing telephone service to
persons in rural areas as described in Code Section 1381(a)(2)(C), and any
organization (other than a farmers' cooperative described in Code Section
521) that is exempt from taxation under the Code unless such organization is
subject to the tax on unrelated business income imposed by Code Section 511,
and (ii) "Pass-Through Entity" means any regulated investment company, real
estate investment trust, common trust fund, partnership, trust or estate and
certain corporations operating on a cooperative basis. Except as may be
provided in Treasury regulations, any person holding an interest in a
Pass-Through Entity as a nominee for another will, with respect to such
interest, be treated as a Pass-Through Entity.
The Agreement with respect to a series of Certificates will provide that
no legal or beneficial interest in a Residual Certificate may be transferred
unless (i) the proposed transferee provides to the transferor and the Trustee
an affidavit providing its taxpayer identification number and stating that
such transferee is the beneficial owner of the Residual Certificate, is not a
Disqualified Organization and is not purchasing such Residual Certificates on
behalf of a Disqualified Organization (i.e., as a broker, nominee or
middleman thereof), and (ii) the transferor provides a statement in writing
to the Depositor and the Trustee that it has no actual knowledge that such
affidavit is false. Moreover, the Agreement will provide that any attempted
or purported transfer in violation of these transfer restrictions will be
null and void and will vest no rights in any purported transferee. Each
Residual Certificate with respect to a series will bear a legend referring to
such restrictions on transfer, and each Residual Certificateholder will be
deemed to have agreed, as a condition of ownership thereof, to any amendments
to the related Agreement required under the Code or applicable Treasury
regulations to effectuate the foregoing restrictions. Information necessary
to compute an applicable excise tax must be furnished to the Service and to
the requesting party within 60 days of the request, and the Depositor or the
Trustee may charge a fee for computing and providing such information.
Noneconomic Residual Interests. The REMIC Regulations would disregard
certain transfers of Residual Certificates, in which case the transferor
would continue to be treated as the owner of the Residual Certificates and
thus would continue to be subject to tax on its allocable portion of the net
income of the REMIC Pool. Under the REMIC Regulations, a transfer of a
"noneconomic residual interest" (as defined below) to a Residual
Certificateholder (other than a Residual Certificateholder who is not a U.S.
Person, as defined below under "Foreign Investors") is disregarded for all
federal income tax purposes if a significant purpose of the transferor is to
impede the assessment or collection of tax. A residual interest in a REMIC
(including a residual interest with a positive value at issuance) is a
"noneconomic residual interest" unless, at the time of the transfer, (i) the
present value of the expected future distributions on the residual interest
at least equals the product of the present value of the anticipated excess
inclusions and the highest corporate income tax rate in effect for the year
in which the transfer occurs, and (ii) the transferor reasonably expects that
the transferee will receive distributions from the REMIC at or after the time
at which taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. The anticipated excess inclusions
and the present value rate are determined in the same manner as set forth
above under "Disqualified Organizations". The REMIC Regulations explain that
a significant purpose to impede the assessment or collection of tax exists if
the transferor, at the time of the transfer, either knew or should have known
that the transferee would be unwilling or unable to pay taxes due on its
share of the taxable
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income of the REMIC. A safe harbor is provided if (i) the transferor
conducted, at the time of the transfer, a reasonable investigation of the
financial condition of the transferee and found that the transferee
historically had paid its debts as they came due and found no significant
evidence to indicate that the transferee would not continue to pay its debts
as they came due in the future, and (ii) the transferee represents to the
transferor that it understands that, as the holder of the noneconomic
residual interest, the transferee may incur tax liabilities in excess of cash
flows generated by the interest and that the transferee intends to pay taxes
associated with holding the residual interest as they become due. The
Agreement with respect to each series of Certificates will require the
transferee of a Residual Certificate to certify to the matters in the
preceding sentence as part of the affidavit described above under the heading
"Disqualified Organizations". The transferor must have no actual knowledge or
reason to know that such statements are false.
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Certificate that has "tax avoidance potential" to a "foreign person"
will be disregarded for all federal tax purposes. This rule appears intended
to apply to a transferee who is not a "U.S. Person" (as defined below),
unless such transferee's income is effectively connected with the conduct of
a trade or business within the United States. A Residual Certificate is
deemed to have tax avoidance potential unless, at the time of the transfer,
(i) the future value of expected distributions equals at least 30% of the
anticipated excess inclusions after the transfer, and (ii) the transferor
reasonably expects that the transferee will receive sufficient distributions
from the REMIC Pool at or after the time at which the excess inclusions
accrue and prior to the end of the next succeeding taxable year for the
accumulated withholding tax liability to be paid. If the non-U.S. Person
transfers the Residual Certificate back to a U.S. Person, the transfer will
be disregarded and the foreign transferor will continue to be treated as the
owner unless arrangements are made so that the transfer does not have the
effect of allowing the transferor to avoid tax on accrued excess inclusions.
The Prospectus Supplement relating to a series of Certificates may provide
that a Residual Certificate may not be purchased by or transferred to any
person that is not a U.S. Person or may describe the circumstances and
restrictions pursuant to which such a transfer may be made. The term "U.S.
Person" means a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, an estate that is subject
to U.S. federal income tax regardless of the source of its income or a trust
if (A) for taxable years beginning after December 31, 1996 (or for taxable
years ending August 20, 1996, if the trustee has made an applicable
election), a court within the United States is able to exercise primary
supervision over the administration of such trust, and one or more United
States fiduciaries have the authority to control all substantial decisions of
such trust, or (B) for all other taxable years, such trust is subject to
United States federal income tax regardless of the source of its income.
Sale or Exchange of a Residual Certificate
Upon the sale or exchange of a Residual Certificate, the Residual
Certificateholder will recognize gain or loss equal to the excess, if any, of
the amount realized over the adjusted basis (as described above under
"Taxation of Residual Certificates -- Basis and Losses") of such Residual
Certificateholder in such Residual Certificate at the time of the sale or
exchange. In addition to reporting the taxable income of the REMIC Pool, a
Residual Certificateholder will have taxable income to the extent that any
cash distribution to it from the REMIC Pool exceeds such adjusted basis on
that Distribution Date. Such income will be treated as gain from the sale or
exchange of the Residual Certificate. It is possible that the termination of
the REMIC Pool may be treated as a sale or exchange of a Residual
Certificateholder's Residual Certificate, in which case, if the Residual
Certificateholder has an adjusted basis in such Residual Certificateholder's
Residual Certificate remaining when its interest in the REMIC Pool
terminates, and if such Residual Certificateholder holds such Residual
Certificate as a capital asset under Code Section 1221, then such Residual
Certificateholder will recognize a capital loss at that time in the amount of
such remaining adjusted basis.
Any gain on the sale of a Residual Certificate will be treated as ordinary
income (i) if a Residual Certificate is held as part of a "conversion
transaction" as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the Residual Certificateholder's net investment in
the conversion transaction at 120% of the appropriate applicable Federal rate
in effect at the time the taxpayer entered into the transaction minus any
amount previously treated as ordinary income with respect to any prior
disposition of property that was held as a part of such transaction or (ii)
in the case of a non-corporate taxpayer, to the extent such taxpayer has made
an election under Code Section 163(d)(4) to have net capital gains taxed as
investment income at ordinary income rates. In addition, gain or loss
recognized from the sale of a Residual Certificate by certain banks or thrift
institutions will be treated as ordinary income or loss pursuant to Code
Section 582(c).
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The Conference Committee Report to the 1986 Act provides that, except as
provided in Treasury regulations yet to be issued, the wash sale rules of
Code Section 1091 will apply to dispositions of Residual Certificates where
the seller of the Residual Certificate, during the period beginning six
months before the sale or disposition of the Residual Certificate and ending
six months after such sale or disposition, acquires (or enters into any other
transaction that results in the application of Section 1091) any residual
interest in any REMIC or any interest in a "taxable mortgage pool" (such as a
non-REMIC owner trust) that is economically comparable to a Residual
Certificate.
Mark to Market Regulations
Prospective purchasers of the Residual Certificates should also be aware
that on January 3, 1995, the Service released proposed regulations (the
"Proposed Mark to Market Regulations") under Code Section 475 relating to the
requirement that a securities dealer mark to market securities held for sale
to customers. This mark-to-market requirement applies to all securities of a
dealer, except to the extent that the dealer has specifically identified a
security as held for investment. The Proposed Mark to Market Regulations
provide that, for purposes of this mark-to-market requirement, a Residual
Certificate is not treated as a security and thus may not be marked to
market. The Proposed Mark to Market Regulations would apply to all Residual
Certificates acquired on or after January 4, 1995.
TAXES THAT MAY BE IMPOSED ON THE REMIC POOL
Prohibited Transactions
Income from certain transactions by the REMIC Pool, called prohibited
transactions, will not be part of the calculation of income or loss
includible in the federal income tax returns of Residual Certificateholders,
but rather will be taxed directly to the REMIC Pool at a 100% rate.
Prohibited transactions generally include (i) the disposition of a qualified
mortgage other than for (a) substitution within two years of the Startup Day
for a defective (including a defaulted) obligation (or repurchase in lieu of
substitution of a defective (including a defaulted) obligation at any time)
or for any qualified mortgage within three months of the Startup Day, (b)
foreclosure, default or imminent default of a qualified mortgage, (c)
bankruptcy or insolvency of the REMIC Pool or (d) a qualified (complete)
liquidation, (ii) the receipt of income from assets that are not the type of
mortgages or investments that the REMIC Pool is permitted to hold, (iii) the
receipt of compensation for services or (iv) the receipt of gain from
disposition of cash flow investments other than pursuant to a qualified
liquidation. Notwithstanding (i) and (iv), it is not a prohibited transaction
to sell REMIC Pool property to prevent a default on Regular Certificates as a
result of a default on qualified mortgages or to facilitate a clean-up call
(generally, an optional termination to save administrative costs when no more
than a small percentage of the Certificates is outstanding). The REMIC
Regulations indicate that the modification of a Mortgage Loan generally will
not be treated as a disposition if it is occasioned by a default or
reasonably foreseeable default, an assumption of the Mortgage Loan, the
waiver of a due-on-sale or due-on-encumbrance clause or the conversion of an
interest rate by a mortgagor pursuant to the terms of a convertible
adjustable rate Mortgage Loan.
Contributions to the REMIC Pool After the Startup Day
In general, the REMIC Pool will be subject to a tax at a 100% rate on the
value of any property contributed to the REMIC Pool after the Startup Day.
Exceptions are provided for cash contributions to the REMIC Pool (i) during
the three months following the Startup Day, (ii) made to a qualified reserve
fund by a Residual Certificateholder, (iii) in the nature of a guarantee,
(iv) made to facilitate a qualified liquidation or clean-up call and (v) as
otherwise permitted in Treasury regulations yet to be issued.
Net Income from Foreclosure Property
The REMIC Pool will be subject to federal income tax at the highest
corporate rate on "net income from foreclosure property", determined by
reference to the rules applicable to real estate investment trusts.
Generally, property acquired by deed in lieu of foreclosure would be treated
as "foreclosure property" for a period of two years, with possible
extensions. 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.
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It is not anticipated that the REMIC Pool will receive income or
contributions subject to tax under the preceding three paragraphs, except as
described in the applicable Prospectus Supplement with respect to net income
from foreclosure property on a commercial or multifamily residential property
that secured a Mortgage Loan. In addition, unless otherwise disclosed in the
applicable Prospectus Supplement, it is not anticipated that any material
state income or franchise tax will be imposed on a REMIC Pool.
LIQUIDATION OF THE REMIC POOL
If a REMIC Pool adopts a plan of complete liquidation, within the meaning
of Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in
the REMIC Pool's final tax return a date on which such adoption is deemed to
occur, and sells all of its assets (other than cash) within a 90-day period
beginning on the date of the adoption of the plan of liquidation, the REMIC
Pool will not be subject to the prohibited transaction rules on the sale of
its assets, provided that the REMIC Pool credits or distributes in
liquidation all of the sale proceeds plus its cash (other than amounts
retained to meet claims) to holders of Regular Certificates and Residual
Certificateholders within the 90-day period.
ADMINISTRATIVE MATTERS
The REMIC Pool will be required to maintain its books on a calendar year
basis and to file federal income tax returns for federal income tax purposes
in a manner similar to a partnership. The form for such income tax return is
Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return.
The Trustee will be required to sign the REMIC Pool's returns. Treasury
regulations provide that, except where there is a single Residual
Certificateholder for an entire taxable year, the REMIC Pool will be subject
to the procedural and administrative rules of the Code applicable to
partnerships, including the determination by the Service of any adjustments
to, among other things, items of REMIC income, gain, loss, deduction or
credit in a unified administrative proceeding. The Residual Certificateholder
owning the largest percentage interest in the Residual Certificates will be
obligated to act as "tax matters person", as defined in applicable Treasury
regulations, with respect to the REMIC Pool. Each Residual Certificateholder
will be deemed, by acceptance of such Residual Certificates, to have agreed
(i) to the appointment of the tax matters person as provided in the preceding
sentence and (ii) to the irrevocable designation of the Master Servicer as
agent for performing the functions of the tax matters person.
LIMITATIONS ON DEDUCTION OF CERTAIN EXPENSES
An investor who is an individual, estate or trust will be subject to
limitation with respect to certain itemized deductions described in Code
Section 67, to the extent that such itemized deductions, in the aggregate, do
not exceed 2% of the investor's adjusted gross income. In addition, Code
Section 68 provides that itemized deductions otherwise allowable for a
taxable year of an individual taxpayer will be reduced by the lesser of (i)
3% of the excess, if any, of adjusted gross income over $100,000 ($50,000 in
the case of a married individual filing a separate return) (subject to
adjustments for inflation) or (ii) 80% of the amount of itemized deductions
otherwise allowable for such year. In the case of a REMIC Pool, such
deductions may include deductions under Code Section 212 for the Servicer Fee
and all administrative and other expenses relating to the REMIC Pool, any
similar fees paid to the issuer or guarantor of the Agency Certificates or
the Private Mortgage-Backed Securities or Contracts, or any similar expenses
allocated to the REMIC Pool with respect to a regular interest it holds in
another REMIC. Such investors who hold REMIC Certificates either directly or
indirectly through certain pass-through entities may have their pro rata
share of such expenses allocated to them as additional gross income, but may
be subject to such limitation on deductions. In addition, such expenses are
not deductible at all for purposes of computing the alternative minimum tax,
and may cause such investors to be subject to significant additional tax
liability. Temporary Treasury regulations provide that the additional gross
income and corresponding amount of expenses generally are to be allocated
entirely to the holders of Residual Certificates in the case of a REMIC Pool
that would not qualify as a fixed investment trust in the absence of a REMIC
election. However, such additional gross income and limitation on deductions
will apply to the allocable portion of such expenses to holders of Regular
Certificates, as well as holders of Residual Certificates, where such Regular
Certificates are issued in a manner that is similar to pass-through
certificates in a fixed investment trust. In general, such allocable portion
will be determined based on the ratio that a REMIC Certificateholder's
income, determined on a daily basis, bears to the income of all holders of
Regular Certificates and Residual Certificates with respect to a REMIC Pool.
As a result, individuals, estates or trusts holding REMIC Certificates
(either directly or indirectly through a grantor trust, partnership, S
corporation, REMIC, or certain other pass-through entities described in the
foregoing temporary Treasury regulations) may have taxable income in excess
of the
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interest income at the pass-through rate on Regular Certificates that are
issued in a single Class or otherwise consistently with fixed investment
trust status or in excess of cash distributions for the related period on
Residual Certificates. Unless otherwise indicated in the applicable
Prospectus Supplement, all such expenses will be allocable to the Residual
Certificates.
TAXATION OF CERTAIN FOREIGN INVESTORS
Regular Certificates
Interest, including original issue discount, distributable to Regular
Certificateholders who are non-resident aliens, foreign corporations, or
other Non-U.S Persons (as defined below), will be considered "portfolio
interest" and, therefore, generally will not be subject to 30% United States
withholding tax, provided that such Non-U.S. Person (i) is not a "10-percent
shareholder" within the meaning of Code Section 871(h)(3)(B) or a controlled
foreign corporation described in Code Section 881(c)(3)(C) and (ii) provides
the Trustee, or the person who would otherwise be required to withhold tax
from such distributions under Code Section 1441 or 1442, with an appropriate
statement, signed under penalties of perjury, identifying the beneficial
owner and stating, among other things, that the beneficial owner of the
Regular Certificate is a Non-U.S. Person. If such statement, or any other
required statement, is not provided, 30% withholding will apply unless
reduced or eliminated pursuant to an applicable tax treaty or unless the
interest on the Regular Certificate is effectively connected with the conduct
of a trade or business within the United States by such Non-U.S. Person. In
the latter case, such Non-U.S. Person will be subject to United States
federal income tax at regular rates. Prepayment Premiums distributable to
Regular Certificateholders who are Non-U.S. Persons may be subject to 30%
United States withholding tax. Investors who are Non-U.S. Persons should
consult their own tax advisors regarding the specific tax consequences to
them of owning a Regular Certificate. The term "Non-U.S. Person" means any
person who is not a U.S. Person.
Residual Certificates
The Conference Committee Report to the 1986 Act indicates that amounts
paid to Residual Certificateholders who are Non-U.S. Persons are treated as
interest for purposes of the 30% (or lower treaty rate) United States
withholding tax. Treasury regulations provide that amounts distributed to
Residual Certificateholders may qualify as "portfolio interest", subject to
the conditions described in "Regular Certificates" above, but only to the
extent that (i) the Mortgage Loans (including mortgage loans underlying MBS)
were issued after July 18, 1984 and (ii) the Trust Fund or segregated pool of
assets therein (as to which a separate REMIC election will be made), to which
the Residual Certificate relates, consists of obligations issued in
"registered form" within the meaning of Code Section 163(f)(1). Generally,
whole mortgage loans will not be, but MBS and regular interests in another
REMIC Pool will be, considered obligations issued in registered form.
Furthermore, a Residual Certificateholder will not be entitled to any
exemption from the 30% withholding tax (or lower treaty rate) to the extent
of that portion of REMIC taxable income that constitutes an "excess
inclusion". See "Taxation of Residual Certificates -- Limitations on Offset or
Exemption of REMIC Income". If the amounts paid to Residual
Certificateholders who are Non-U.S. Persons are effectively connected with
the conduct of a trade or business within the United States by such Non-U.S.
Persons, 30% (or lower treaty rate) withholding will not apply. Instead, the
amounts paid to such Non-U.S. Persons will be subject to United States
federal income tax at regular rates. If 30% (or lower treaty rate)
withholding is applicable, such amounts generally will be taken into account
for purposes of withholding only when paid or otherwise distributed (or when
the Residual Certificate is disposed of) under rules similar to withholding
upon disposition of debt instruments that have original issue discount. See
"Tax-Related Restrictions on Transfer of Residual Certificates -- Foreign
Investors" above concerning the disregard of certain transfers having "tax
avoidance potential". Investors who are Non-U.S. Persons should consult their
own tax advisors regarding the specific tax consequences to them of owning
Residual Certificates.
BACKUP WITHHOLDING
Distributions made on the Regular Certificates, and proceeds from the sale
of the Regular Certificates to or through certain brokers, may be subject to
a "backup" withholding tax under Code Section 3406 of 31% on "reportable
payments" (including interest distributions, original issue discount, and,
under certain circumstances, principal distributions) unless the Regular
Certificateholder complies with certain reporting and/or certification
procedures, including the provision of its
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taxpayer identification number to the Trustee, its agent or the broker who
effected the sale of the Regular Certificate, or such Certificateholder is
otherwise an exempt recipient under applicable provisions of the Code. Any
amounts to be withheld from distribution on the Regular Certificates would be
refunded by the Service or allowed as a credit against the Regular
Certificateholder's federal income tax liability.
REPORTING REQUIREMENTS
Reports of accrued interest, original issue discount and information
necessary to compute the accrual of any market discount on the Regular
Certificates will be made annually to the Service and to individuals,
estates, non-exempt and non-charitable trusts, and partnerships who are
either holders of record of Regular Certificates or beneficial owners who own
Regular Certificates through a broker or middleman as nominee. All brokers,
nominees and all other non-exempt holders of record of Regular Certificates
(including corporations, non-calendar year taxpayers, securities or
commodities dealers, real estate investment trusts, investment companies,
common trust funds, thrift institutions and charitable trusts) may request
such information for any calendar quarter by telephone or in writing by
contacting the person designated in Service Publication 938 with respect to a
particular series of Regular Certificates. Holders through nominees must
request such information from the nominee.
The Service's Form 1066 has an accompanying Schedule Q, Quarterly Notice
to Residual Interest Holders of REMIC Taxable Income or Net Loss Allocation.
Treasury regulations require that Schedule Q be furnished by the REMIC Pool
to each Residual Certificateholder by the end of the month following the
close of each calendar quarter (41 days after the end of a quarter under
proposed Treasury regulations) in which the REMIC Pool is in existence.
Treasury regulations require that, in addition to the foregoing
requirements, information must be furnished quarterly to Residual
Certificateholders, furnished annually, if applicable, to holders of Regular
Certificates, and filed annually with the Service concerning Code Section 67
expenses (see "Limitations on Deduction of Certain Expenses" above) allocable
to such holders. Furthermore, under such regulations, information must be
furnished quarterly to Residual Certificateholders, furnished annually to
holders of Regular Certificates, and filed annually with the Service
concerning the percentage of the REMIC Pool's assets meeting the qualified
asset tests described above under "Status of REMIC Certificates".
FEDERAL INCOME TAX CONSEQUENCES FOR CERTIFICATES
AS TO WHICH NO REMIC ELECTION IS MADE
STANDARD CERTIFICATES
General
In the event that no election is made to treat a Trust Fund (or a
segregated pool of assets therein) with respect to a series of Certificates
that are not designated as "Stripped Certificates", as described below, as a
REMIC (Certificates of such a series hereinafter referred to as "Standard
Certificates"), the Trust Fund will be classified as a grantor trust under
subpart E, Part 1 of subchapter J of the Code and not as an association
taxable as a corporation or a "taxable mortgage pool" within the meaning of
Code Section 7701(i). Where there is no fixed retained yield with respect to
the Mortgage Loans underlying the Standard Certificates, the holder of each
such Standard Certificate (a "Standard Certificateholder") in such series
will be treated as the owner of a pro rata undivided interest in the ordinary
income and corpus portions of the Trust Fund represented by its Standard
Certificate and will be considered the beneficial owner of a pro rata
undivided interest in each of the Mortgage Loans, subject to the discussion
below under "Recharacterization of Servicing Fees". Accordingly, the holder
of a Standard Certificate of a particular series will be required to report
on its federal income tax return its pro rata share of the entire income from
the Mortgage Loans represented by its Standard Certificate, including
interest at the coupon rate on such Mortgage Loans, original issue discount
(if any), prepayment fees, assumption fees, and late payment charges received
by the Master Servicer, in accordance with such Standard Certificateholder's
method of accounting. A Standard Certificateholder generally will be able to
deduct its share of the Servicing Fee and all administrative and other
expenses of the Trust Fund in accordance with its method of accounting,
provided that such amounts are reasonable compensation for services rendered
to that Trust Fund. However, investors who are individuals, estates or trusts
who own Standard Certificates, either directly or indirectly through certain
pass-through entities, will be subject to limitation with respect to certain
itemized deductions described in Code Section 67, including deductions under
Code Section 212 for the Servicing Fee and all such administrative and other
expenses of the Trust Fund, to the extent that
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such deductions, in the aggregate, do not exceed two percent of an investor's
adjusted gross income. In addition, Code Section 68 provides that itemized
deductions otherwise allowable for a taxable year of an individual taxpayer
will be reduced by the lesser of (i) 3% of the excess, if any, of adjusted
gross income over $100,000 ($50,000 in the case of a married individual
filing a separate return) (subject to adjustments for inflation), or (ii) 80%
of the amount of itemized deductions otherwise allowable for such year. As a
result, such investors holding Standard Certificates, directly or indirectly
through a pass-through entity, may have aggregate taxable income in excess of
the aggregate amount of cash received on such Standard Certificates with
respect to interest at the pass-through rate on such Standard Certificates.
In addition, such expenses are not deductible at all for purposes of
computing the alternative minimum tax, and may cause such investors to be
subject to significant additional tax liability. Moreover, where there is
fixed retained yield with respect to the Mortgage Loans underlying a series
of Standard Certificates or where the Servicing Fee is in excess of
reasonable servicing compensation, the transaction will be subject to the
application of the "stripped bond" and "stripped coupon" rules of the Code,
as described below under "Stripped Certificates" and "Recharacterization of
Servicing Fees", respectively.
Tax Status
Standard Certificates will have the following status for federal income
tax purposes:
1. A Standard Certificate owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19) will be
considered to represent "loans secured by an interest in real property"
within the meaning of Code Section 7701(a)(19)(C)(v), provided that the
real property securing the Mortgage Loans represented by that Standard
Certificate is of the type described in such section of the Code.
2. A Standard Certificate owned by a real estate investment trust will
be considered to represent "real estate assets" within the meaning of Code
Section 856(c)(5)(A) to the extent that the assets of the related Trust
Fund consist of qualified assets, and interest income on such assets will
be considered "interest on obligations secured by mortgages on real
property" to such extent within the meaning of Code Section 856(c)(3)(B).
3. A Standard Certificate owned by a REMIC will be considered to
represent an "obligation. . . which is principally secured by an interest
in real property" within the meaning of Code Section 860G(a)(3)(A) to the
extent that the assets of the related Trust Fund consist of "qualified
mortgages" within the meaning of Code Section 860G(a)(3).
Premium and Discount
Standard Certificateholders are advised to consult with their tax advisors
as to the federal income tax treatment of premium and discount arising either
upon initial acquisition of Standard Certificates or thereafter.
Premium. The treatment of premium incurred upon the purchase of a Standard
Certificate will be determined generally as described above under "Federal
Income Tax Consequences for REMIC Certificates -- Taxation of Residual
Certificates -- Premium".
Original Issue Discount. The original issue discount rules will be
applicable to a Standard Certificateholder's interest in those Mortgage Loans
as to which the conditions for the application of those sections are met.
Rules regarding periodic inclusion of original issue discount income are
applicable to mortgages of corporations originated after May 27, 1969,
mortgages of noncorporate mortgagors (other than individuals) originated
after July 1, 1982, and mortgages of individuals originated after March 2,
1984. Under the OID Regulations, such original issue discount could arise by
the charging of points by the originator of the mortgages in an amount
greater than a statutory de minimis exception, including a payment of points
currently deductible by the borrower under applicable Code provisions or,
under certain circumstances, by the presence of "teaser rates" on the
Mortgage Loans.
Original issue discount must generally be reported as ordinary gross
income as it accrues under a constant interest method that takes into account
the compounding of interest, in advance of the cash attributable to such
income. Unless indicated otherwise in the applicable Prospectus Supplement,
no prepayment assumption will be assumed for purposes of such accrual.
However, Code Section 1272 provides for a reduction in the amount of original
issue discount includible in the income of a holder of an obligation that
acquires the obligation after its initial issuance at a price greater than
the sum of the original issue price and the previously accrued original issue
discount, less prior payments of principal. Accordingly, if such Mortgage
Loans acquired by a Standard Certificateholder are purchased at a price equal
to the then unpaid principal amount of such Mortgage Loans, no original issue
discount attributable to the difference between the issue price and the
original principal amount of such Mortgage Loans (i.e., points) will be
includible by such holder.
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Market Discount. Standard Certificateholders also will be subject to the
market discount rules to the extent that the conditions for application of
those sections are met. Market discount on the Mortgage Loans will be
determined and will be reported as ordinary income generally in the manner
described above under "Federal Income Tax Consequences for REMIC Certificates
- --Taxation of Regular Certificates -- Market Discount", except that the
ratable accrual methods described therein will not apply. Rather, the holder
will accrue market discount pro rata over the life of the Mortgage Loans,
unless the constant yield method is elected. Unless indicated otherwise in
the applicable Prospectus Supplement, no prepayment assumption will be
assumed for purposes of such accrual.
Recharacterization of Servicing Fees
If the Servicing Fee paid to the Master Servicer were deemed to exceed
reasonable servicing compensation, the amount of such excess would represent
neither income nor a deduction to Certificateholders. In this regard, there
are no authoritative guidelines for federal income tax purposes as to either
the maximum amount of servicing compensation that may be considered
reasonable in the context of this or similar transactions or whether, in the
case of the Standard Certificate, the reasonableness of servicing
compensation should be determined on a weighted average or loan-by-loan
basis. If a loan-by-loan basis is appropriate, the likelihood that such
amount would exceed reasonable servicing compensation as to some of the
Mortgage Loans would be increased. Service guidance indicates that a
servicing fee in excess of reasonable compensation ("excess servicing") will
cause the Mortgage Loans to be treated under the "stripped bond" rules. Such
guidance provides safe harbors for servicing deemed to be reasonable and
requires taxpayers to demonstrate that the value of servicing fees in excess
of such amounts is not greater than the value of the services provided.
Accordingly, if the Service's approach is upheld, a servicer who receives
a servicing fee in excess of such amounts would be viewed as retaining an
ownership interest in a portion of the interest payments on the Mortgage
Loans. Under the rules of Code Section 1286, the separation of ownership of
the right to receive some or all of the interest payments on an obligation
from the right to receive some or all of the principal payments on the
obligation would result in treatment of such Mortgage Loans as "stripped
coupons" and "stripped bonds". Subject to the de minimis rule discussed below
under " -- Stripped Certificates", each stripped bond or stripped coupon could
be considered for this purpose as a non-interest bearing obligation issued on
the date of issue of the Standard Certificates, and the original issue
discount rules of the Code would apply to the holder thereof. While Standard
Certificateholders would still be treated as owners of beneficial interests
in a grantor trust for federal income tax purposes, the corpus of such trust
could be viewed as excluding the portion of the Mortgage Loans the ownership
of which is attributed to the Master Servicer, or as including such portion
as a second class of equitable interest. Applicable Treasury regulations
treat such an arrangement as a fixed investment trust, since the multiple
classes of trust interests should be treated as merely facilitating direct
investments in the trust assets and the existence of multiple classes of
ownership interests is incidental to that purpose. In general, such a
recharacterization should not have any significant effect upon the timing or
amount of income reported by a Standard Certificateholder, except that the
income reported by a cash method holder may be slightly accelerated. See
"Stripped Certificates" below for a further description of the federal income
tax treatment of stripped bonds and stripped coupons.
Sale or Exchange of Standard Certificates
Upon sale or exchange of a Standard Certificate, a Standard
Certificateholder will recognize gain or loss equal to the difference between
the amount realized on the sale and its aggregate adjusted basis in the
Mortgage Loans and the other assets represented by the Standard Certificate.
In general, the aggregate adjusted basis will equal the Standard
Certificateholder's cost for the Standard Certificate, increased by the
amount of any income previously reported with respect to the Standard
Certificate and decreased by the amount of any losses previously reported
with respect to the Standard Certificate and the amount of any distributions
received thereon. Except as provided above with respect to market discount on
any Mortgage Loans, and except for certain financial institutions subject to
the provisions of Code Section 582(c), any such gain or loss would be capital
gain or loss if the Standard Certificate was held as a capital asset.
However, gain on the sale of a Standard Certificate will be treated as
ordinary income (i) if a Standard Certificate is held as part of a
"conversion transaction" as defined in Code Section 1258(c), up to the amount
of interest that would have accrued on the Standard Certificateholder's net
investment in the conversion transaction at 120% of the appropriate
applicable Federal rate in effect at the time the taxpayer entered into the
transaction minus any amount previously treated as ordinary income with
respect to any prior disposition of property that was held as a part of such
transaction or (ii) in the case of a non-corporate taxpayer, to the extent
such taxpayer has made an election under Code Section 163(d)(4) to have net
capital gains taxed as investment income at ordinary income rates. Pursuant
to the Revenue Reconciliation Act
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of 1993, capital gains of certain non-corporate taxpayers are subject to a
lower maximum tax rate than ordinary income of such taxpayers. The maximum
tax rate for corporations is the same with respect to both ordinary income
and capital gains.
STRIPPED CERTIFICATES
General
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the principal payments on an obligation from ownership
of the right to receive some or all of the interest payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of this discussion,
Certificates that are subject to those rules will be referred to as "Stripped
Certificates".
The Certificates will be subject to those rules if (i) the Depositor or
any of its affiliates retains (for its own account or for purposes of
resale), in the form of fixed retained yield or otherwise, an ownership
interest in a portion of the payments on the Mortgage Loans, (ii) the Master
Servicer is treated as having an ownership interest in the Mortgage Loans to
the extent it is paid (or retains) servicing compensation in an amount
greater than reasonable consideration for servicing the Mortgage Loans (see
"Standard Certificates -- Recharacterization of Servicing Fees" above) and
(iii) Certificates are issued in two or more classes or subclasses
representing the right to non-pro-rata percentages of the interest and
principal payments on the Mortgage Loans.
In general, a holder of a Stripped Certificate will be considered to own
"stripped bonds" with respect to its pro rata share of all or a portion of
the principal payments on each Mortgage Loan and/or "stripped coupons" with
respect to its pro rata share of all or a portion of the interest payments on
each Mortgage Loan, including the Stripped Certificate's allocable share of
the servicing fees paid to the Master Servicer, to the extent that such fees
represent reasonable compensation for services rendered. See discussion above
under "Standard Certificates -- Recharacterization of Servicing Fees".
Although not free from doubt, for purposes of reporting to Stripped
Certificateholders, the servicing fees will be allocated to the Stripped
Certificates in proportion to the respective entitlements to distributions of
each class (or subclass) of Stripped Certificates for the related period or
periods. The holder of a Stripped Certificate generally will be entitled to a
deduction each year in respect of the servicing fees, as described above
under "Standard Certificates -- General", subject to the limitation described
therein.
Code Section 1286 treats a stripped bond or a stripped coupon as an
obligation issued at an original issue discount on the date that such
stripped interest is purchased. Although the treatment of Stripped
Certificates for federal income tax purposes is not clear in certain respects
at this time, particularly where such Stripped Certificates are issued with
respect to a Mortgage Pool containing variable-rate Mortgage Loans, the
Depositor has been advised by counsel that (i) the Trust Fund will be treated
as a grantor trust under subpart E, Part 1 of subchapter J of the Code and
not as an association taxable as a corporation or a "taxable mortgage pool"
within the meaning of Code Section 7701(i), and (ii) each Stripped
Certificate should be treated as a single installment obligation for purposes
of calculating original issue discount and gain or loss on disposition. This
treatment is based on the interrelationship of Code Section 1286, Code
Sections 1272 through 1275, and the OID Regulations. While under Code Section
1286 computations with respect to Stripped Certificates arguably should be
made in one of the ways described below under "Taxation of Stripped
Certificates -- Possible Alternative Characterizations," the OID Regulations
state, in general, that two or more debt instruments issued by a single
issuer to a single investor in a single transaction should be treated as a
single debt instrument for original issue discount purposes. The Agreement
requires that the Trustee make and report all computations described below
using this aggregate approach, unless substantial legal authority requires
otherwise.
Furthermore, Treasury regulations issued December 28, 1992 provide for the
treatment of a Stripped Certificate as a single debt instrument issued on the
date it is purchased for purposes of calculating any original issue discount.
In addition, under these regulations, a Stripped Certificate that represents
a right to payments of both interest and principal may be viewed either as
issued with original issue discount or market discount (as described below),
at a de minimis original issue discount, or, presumably, at a premium. This
treatment suggests that the interest component of such a Stripped Certificate
would be treated as qualified stated interest under the OID Regulations.
Further, these final regulations provide that the purchaser of such a
Stripped Certificate will be required to account for any discount as market
discount rather than original issue discount if either (i) the initial
discount with respect to the Stripped Certificate was treated as zero under
the de minimis rule, or (ii) no more than 100 basis points in excess of
reasonable servicing is stripped
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off the related Mortgage Loans. Any such market discount would be reportable
as described under "Federal Income Tax Consequences for REMIC Certificates
- --Taxation of Regular Certificates -- Market Discount," without regard to the
de minimis rule therein, assuming that a prepayment assumption is employed in
such computation.
Status of Stripped Certificates
No specific legal authority exists as to whether the character of the
Stripped Certificates, for federal income tax purposes, will be the same as
that of the Mortgage Loans. Although the issue is not free from doubt,
counsel has advised the Depositor that Stripped Certificates owned by
applicable holders should be considered to represent "qualifying real
property loans" within the meaning of Code Section 593(d)(1), "real estate
assets" within the meaning of Code Section 856(c)(5)(A), "obligation[s]
principally secured by an interest in real property" within the meaning of
Code Section 860G(a)(3)(A), and "loans secured by an interest in real
property" within the meaning of Code Section 7701(a)(19)(C)(v), and interest
(including original issue discount) income attributable to Stripped
Certificates should be considered to represent "interest on obligations
secured by mortgages on real property" within the meaning of Code Section
856(c)(3)(B), provided that in each case the Mortgage Loans and interest on
such Mortgage Loans qualify for such treatment. The application of such Code
provisions to Buy-Down Mortgage Loans is uncertain. See "Standard
Certificates -- Tax Status" above.
Taxation of Stripped Certificates
Original Issue Discount. Except as described above under "General", each
Stripped Certificate will be considered to have been issued at an original
issue discount for federal income tax purposes. Original issue discount with
respect to a Stripped Certificate must be included in ordinary income as it
accrues, in accordance with a constant interest method that takes into
account the compounding of interest, which may be prior to the receipt of the
cash attributable to such income. Based in part on the OID Regulations and
the amendments to the original issue discount sections of the Code made by
the 1986 Act, the amount of original issue discount required to be included
in the income of a holder of a Stripped Certificate (referred to in this
discussion as a "Stripped Certificateholder") in any taxable year likely will
be computed generally as described above under "Federal Income Tax
Consequences for REMIC Certificates -- Taxation of Regular Certificates
- -- Original Issue Discount" and "-- Variable Rate Regular Certificates".
However, with the apparent exception of a Stripped Certificate issued with de
minimis original issue discount as described above under "General", the issue
price of a Stripped Certificate will be the purchase price paid by each
holder thereof, and the stated redemption price at maturity will include the
aggregate amount of the payments to be made on the Stripped Certificate to
such Stripped Certificateholder, presumably under the Prepayment Assumption.
If the Mortgage Loans prepay at a rate either faster or slower than that
under the Prepayment Assumption, a Stripped Certificateholder's recognition
of original issue discount will be either accelerated or decelerated and the
amount of such original issue discount will be either increased or decreased
depending on the relative interests in principal and interest on each
Mortgage Loan represented by such Stripped Certificateholder's Stripped
Certificate. While the matter is not free from doubt, the holder of a
Stripped Certificate should be entitled in the year that it becomes certain
(assuming no further prepayments) that the holder will not recover a portion
of its adjusted basis in such Stripped Certificate to recognize an ordinary
loss equal to such portion of unrecoverable basis.
As an alternative to the method described above, the fact that some or all
of the interest payments with respect to the Stripped Certificates will not
be made if the Mortgage Loans are prepaid could lead to the interpretation
that such interest payments are "contingent" within the meaning of the OID
Regulations and the Proposed OID Regulations. The Proposed OID Regulations,
as they relate to the treatment of contingent interest, are by their terms
not applicable to prepayable securities such as the Stripped Certificates.
However, if future Treasury Regulations dealing with contingent interest with
respect to the Stripped Certificates apply the same principles as the
Proposed OID Regulations, such regulations may lead to different timing of
income inclusion that would be the case under the OID Regulations.
Furthermore, application of such principles could lead to the
characterization of gain on the sale of contingent interest Stripped
Certificates as ordinary income. Investors should consult their tax advisors
regarding the appropriate tax treatment of Stripped Certificates.
Sale or Exchange of Stripped Certificates. Sale or exchange of a Stripped
Certificate prior to its maturity will result in gain or loss equal to the
difference, if any, between the amount received and the Stripped
Certificateholder's adjusted basis in such Stripped Certificate, as described
above under "Federal Income Tax Consequences for REMIC Certificates
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- --Taxation of Regular Certificates -- Sale or Exchange of Regular
Certificates". To the extent that a subsequent purchaser's purchase price is
exceeded by the remaining payments on the Stripped Certificates, such
subsequent purchaser will be required for federal income tax purposes to
accrue and report such excess as if it were original issue discount in the
manner described above. It is not clear for this purpose whether the assumed
prepayment rate that is to be used in the case of a Stripped
Certificateholder other than an original Stripped Certificateholder should be
the Prepayment Assumption or a new rate based on the circumstances at the
date of subsequent purchase.
Purchase of More Than One Class of Stripped Certificates. Where an
investor purchases more than one class of Stripped Certificates, it is
currently unclear whether for federal income tax purposes such classes of
Stripped Certificates should be treated separately or aggregated for purposes
of the rules described above.
Possible Alternative Characterizations. The characterizations of the
Stripped Certificates discussed above are not the only possible
interpretations of the applicable Code provisions. For example, the Stripped
Certificateholder may be treated as the owner of (i) one installment
obligation consisting of such Stripped Certificate's pro rata share of the
payments attributable to principal on each Mortgage Loan and a second
installment obligation consisting of such Stripped Certificate's pro rata
share of the payments attributable to interest on each Mortgage Loan, (ii) as
many stripped bonds or stripped coupons as there are scheduled payments of
principal and/or interest on each Mortgage Loan or (iii) a separate
installment obligation for each Mortgage Loan, representing the Stripped
Certificate's pro rata share of payments of principal and/or interest to be
made with respect thereto. Alternatively, the holder of one or more classes
of Stripped Certificates may be treated as the owner of a pro rata fractional
undivided interest in each Mortgage Loan to the extent that such Stripped
Certificate, or classes of Stripped Certificates in the aggregate, represent
the same pro rata portion of principal and interest on each such Mortgage
Loan, and a stripped bond or stripped coupon (as the case may be), treated as
an installment obligation or contingent payment obligation, as to the
remainder. Final regulations issued on December 28, 1992 regarding original
issue discount on stripped obligations make the foregoing interpretations
less likely to be applicable. The preamble to those regulations states that
they are premised on the assumption that an aggregation approach is
appropriate for determining whether original issue discount on a stripped
bond or stripped coupon is de minimis, and solicits comments on appropriate
rules for aggregating stripped bonds and stripped coupons under Code Section
1286.
Because of these possible varying characterizations of Stripped
Certificates and the resultant differing treatment of income recognition,
Stripped Certificateholders are urged to consult their own tax advisors
regarding the proper treatment of Stripped Certificates for federal income
tax purposes.
REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
The Trustee will furnish, within a reasonable time after the end of each
calendar year, to each Standard Certificateholder or Stripped
Certificateholder at any time during such year, such information (prepared on
the basis described above) as the Trustee deems to be necessary or desirable
to enable such Certificateholders to prepare their federal income tax
returns. Such information will include the amount of original issue discount
accrued on Certificates held by persons other than Certificateholders
exempted from the reporting requirements. The amounts required to be reported
by the Trustee may not be equal to the proper amount of original issue
discount required to be reported as taxable income by a Certificateholder,
other than an original Certificateholder that purchased at the issue price.
In particular, in the case of Stripped Certificates, unless provided
otherwise in the applicable Prospectus Supplement, such reporting will be
based upon a representative initial offering price of each class of Stripped
Certificates. The Trustee will also file such original issue discount
information with the Service. If a Certificateholder fails to supply an
accurate taxpayer identification number or if the Secretary of the Treasury
determines that a Certificateholder has not reported all interest and
dividend income required to be shown on his federal income tax return, 31%
backup withholding may be required in respect of any reportable payments, as
described above under "Federal Income Tax Consequences for REMIC Certificates
- --Backup Withholding".
TAXATION OF CERTAIN FOREIGN INVESTORS
To the extent that a Certificate evidences ownership in Mortgage Loans
that are issued on or before July 18, 1984, interest or original issue
discount paid by the person required to withhold tax under Code Section 1441
or 1442 to nonresident aliens, foreign corporations, or other Non-U.S.
Persons generally will be subject to 30% United States withholding tax, or
such lower rate as may be provided for interest by an applicable tax treaty.
Accrued original issue
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discount recognized by the Standard Certificateholder or Stripped
Certificateholder on original issue discount recognized by the Standard
Certificateholder or Stripped Certificateholders on the sale or exchange of
such a Certificate also will be subject to federal income tax at the same
rate.
Treasury regulations provide that interest or original issue discount paid
by the Trustee or other withholding agent to a Non-U.S. Person evidencing
ownership interest in Mortgage Loans issued after July 18, 1984 will be
"portfolio interest" and will be treated in the manner, and such persons will
be subject to the same certification requirements, described above under
"Federal Income Tax Consequences for REMIC Certificates -- Taxation of Certain
Foreign Investors -- Regular Certificates".
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ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Code impose certain requirements on employee benefit
plans and on certain other retirement plans and arrangements, including
individual retirement accounts, Keogh plans, collective investment funds,
insurance company separate accounts, and some insurance company general
accounts in which such plans, accounts or arrangements are invested, which
are subject to ERISA and the Code (all of which are hereinafter referred to
for purposes of this discussion as "Plans") and on persons who are
fiduciaries with respect to such Plans. The following is a general discussion
of such requirements, and certain applicable exceptions to and administrative
exemptions from such requirements.
Before purchasing any Offered Certificates, a Plan fiduciary should
consult with its counsel and determine whether there exists any prohibition
to such purchase under the requirements of ERISA, whether any prohibited
transaction class-exemption or any individual administrative prohibited
transaction exemption (as described below) applies, including whether the
appropriate conditions set forth therein would be met, or whether any
statutory prohibited transaction exemption is applicable, and further should
consult the applicable Prospectus Supplement relating to such Series of
Certificates.
CERTAIN REQUIREMENTS UNDER ERISA
General
In accordance with ERISA's general fiduciary standards, before investing
in a Certificate a Plan fiduciary should determine whether to do so is
permitted under the governing Plan instruments and is appropriate for the
Plan in view of its overall investment policy and the composition and
diversification of its portfolio. A Plan fiduciary should especially consider
the ERISA requirement of investment prudence and the sensitivity of the
return on the Certificates to the rate of principal repayments (including
voluntary prepayments by the mortgagors and involuntary liquidations) on the
Mortgage Loans, as discussed in "Yield Considerations" herein.
Parties in Interest/Disqualified Persons
Other provisions of ERISA (and corresponding provisions of the Code)
prohibit certain transactions involving the assets of a Plan and persons who
have certain specified relationships to the Plan (so-called "parties in
interest" within the meaning of ERISA or "disqualified persons" within the
meaning of the Code, including, in both cases, Plan fiduciaries). The
Depositor, Master Servicer or the Trustee or certain affiliates thereof,
might be considered or might become "parties in interest" or "disqualified
persons" with respect to a Plan. If so, the acquisition or holding of
Certificates by or on behalf of such Plan could be considered to give rise to
a "prohibited transaction" within the meaning of ERISA and the Code unless an
administrative exemption described below or some other exemption is
available. Special caution should be exercised before the assets of a Plan
are used to purchase a Certificate if, with respect to such assets, the
Depositor, the Master Servicer or the Trustee or an affiliate thereof,
either: (a) has investment discretion with respect to the investment of such
assets of such Plan; or (b) has authority or responsibility to give, or
regularly gives investment advice with respect to such assets for a fee and
pursuant to an agreement or understanding that such advice will serve as a
primary basis for investment decisions with respect to such assets and that
such advice will be based on the particular investment needs of the Plan.
Delegation of Fiduciary Duty
Further, if the assets included in a Trust Fund were deemed to constitute
Plan assets, it is possible that a Plan's investment in the Certificates
might be deemed to constitute a delegation, under ERISA, of the duty to
manage Plan assets by the fiduciary deciding to invest in the Certificates,
and certain transactions involved in the operation of the Trust Fund might be
deemed to constitute prohibited transactions under ERISA and the Code.
Neither ERISA nor the Code define the term "plan assets."
The U.S. Department of Labor (the "Department") has published final
regulations (the "Regulations") concerning whether or not a Plan's assets
would be deemed to include an interest in the underlying assets of an entity
(such as a Trust Fund) for purposes of the reporting and disclosure and
general fiduciary responsibility provisions of ERISA, as well as for the
prohibited transaction provisions of ERISA and the Code, if the Plan acquires
an "equity interest" (such as a Certificate) in such an entity.
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Certain exceptions are provided in the Regulations whereby an investing
Plan's assets would be deemed merely to include its interest in the
Certificates instead of being deemed to include an interest in the assets of
a Trust Fund. However, the Depositor cannot predict in advance, nor can there
be any continuing assurance, whether such exceptions may be met, because of
the factual nature of certain of the rules set forth in the Regulations. For
example, one of the exceptions in the Regulations states that the underlying
assets of an entity will not be considered "plan assets" if less than 25% of
the value of all classes of equity interests are held by "benefit plan
investors," which are defined as Plans, IRAs, and employee benefit plans not
subject to ERISA (for example, governmental plans). However, this exception
is tested immediately after each acquisition of an equity interest in the
entity whether upon initial issuance or in the secondary market.
ADMINISTRATIVE EXEMPTIONS
Several underwriters of mortgage-backed securities have applied for and
obtained individual administrative ERISA prohibited transaction exemptions
which can only apply to the purchase and holding of mortgage-backed
securities which, among other conditions, are sold in an offering with
respect to which such underwriter serves as the sole or a managing
underwriter, or as a selling or placement agent. If such an exemption might
be applicable to a Series of Certificates, the related Prospectus Supplement
will refer to such possibility, as well as provide a summary of the
conditions to the applicability.
GOVERNMENTAL PLANS
A governmental plan as defined in Section 3(32) of ERISA is not subject to
ERISA, or Code Section 4975. However, such a governmental plan may be subject
to a federal, state, or local law, which is, to a material extent, similar to
the provisions of ERISA or Code Section 4975 ("Similar Law"). A fiduciary of
a governmental plan should make its own determination as to the need for and
the availability of any exemptive relief under Similar Law.
UNRELATED BUSINESS TAXABLE INCOME; RESIDUAL CERTIFICATES
The purchase of a Residual Certificate by any employee benefit plan
qualified under Code Section 401(a) and exempt from taxation under Code
Section 501(a), including most varieties of ERISA Plans, may give rise to
"unrelated business taxable income" as described in Code Sections 511-515 and
860E. Further, prior to the purchase of Residual Certificates, a prospective
transferee may be required to provide an affidavit to a transferor that it is
not, nor is it purchasing a Residual Certificate on behalf of, a
"Disqualified Organization," which term as defined above includes certain
tax-exempt entities not subject to Code Section 511 including certain
governmental plans, as discussed above under the caption "Federal Income Tax
Consequences -- Federal Income Tax Consequences for REMIC Certificates
- -- Taxation of Residual Certificates -- Tax-Related Restrictions on Transfer of
Residual Certificates -- Disqualified Organizations."
Due to the complexity of these rules and the penalties imposed upon
persons involved in prohibited transactions, it is particularly important
that potential investors who are Plan fiduciaries consult with their counsel
regarding the consequences under ERISA of their acquisition and ownership of
Certificates.
The sale of Certificates to an employee benefit plan is in no respect a
representation by the Depositor or the Underwriter that this investment meets
all relevant legal requirements with respect to investments by plans
generally or by any particular plan, or that this investment is appropriate
for plans generally or for any particular plan.
LEGAL INVESTMENT
Unless otherwise specified in the related Prospectus Supplement, the
Certificates will not constitute "mortgage related securities" for purposes
of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"). The
appropriate characterization of those Certificates not qualifying as
"mortgage related securities" ("Non-SMMEA Certificates") under various legal
investment restrictions, and thus the ability of investors subject to these
restrictions to purchase such Certificates, may be subject to significant
interpretive uncertainties. Accordingly, investors whose investment authority
is subject to legal restrictions should consult their own legal advisors to
determine whether and to what extent the Non-SMMEA Certificates constitute
legal investments for them.
Generally, only Classes of Certificates that (i) are rated in one of the
two highest rating categories by one or more Rating Agencies and (ii) are
part of a Series evidencing interests in a Trust Fund consisting of loans
secured by, among other things, a single parcel of real estate upon which is
located a dwelling or mixed residential and commercial structure,
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such as certain Multifamily Loans, originated by certain types of Originators
as specified in SMMEA, will be "mortgage related securities" for purposes of
SMMEA. As "mortgage related securities," such Classes will constitute legal
investments for persons, trusts, corporations, partnerships, associations,
business trusts and business entities (including, but not limited to,
state-chartered savings banks, commercial banks, savings and loan
associations and insurance companies, as well as trustees and state
government employee retirement systems) created pursuant to or existing under
the laws of the United States or of any state (including the District of
Columbia and Puerto Rico) whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations issued
by or guaranteed as to principal and interest by the United States or any
agency or instrumentality thereof constitute legal investments for such
entities. Pursuant to SMMEA, a number of states enacted legislation, on or
before the October 3, 1991 cutoff for such enactments, limiting to varying
extents the ability of certain entities (in particular, insurance companies)
to invest in "mortgage related securities," in most cases by requiring the
affected investors to rely solely upon existing state law, and not SMMEA.
Accordingly, the investors affected by such legislation will be authorized to
invest in 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 in mortgage
related securities without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without
regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. Section 24 (Seventh), subject in each case to such
regulations as the applicable federal regulatory authority may prescribe. In
this connection, federal credit unions should review NCUA Letter to Credit
Unions No. 96, as modified by Letter to Credit Unions No. 108, which includes
guidelines to assist federal credit unions in making investment decisions for
mortgage related securities. The NCUA has adopted rules, codified as 12
C.F.R. SectionSection 703.5(f)-(k), which prohibit federal credit unions from
investing in certain mortgage related securities (including securities such
as certain Series, Classes or subclasses of Certificates), except under
limited circumstances.
All depository institutions considering an investment in the Certificates
should review the "Supervisory Policy Statement on Securities Activities"
dated January 28, 1992, as revised April 15, 1994 (the "Policy Statement") of
the Federal Financial Institutions Examination Council. The Policy Statement,
which has been adopted by the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation, the Comptroller of the
Currency and the Office of Thrift Supervision, and by the NCUA (with certain
modifications), prohibits depository institutions from investing in certain
"high-risk mortgage securities" (including securities such as certain Series,
Classes or subclasses of the Certificates), except under limited
circumstances, and sets forth certain investment practices deemed to be
unsuitable for regulated institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any
Certificates, as certain Series, Classes or subclasses 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,
provisions which may restrict or prohibit investment in securities which are
not "interest bearing" or "income paying," and, with regard to any
Certificates issued in book-entry form, provisions which may restrict or
prohibit investments in securities which are issued in book-entry form.
Except as to the status of certain Classes of Certificates as "mortgage
related securities," no representation is made as to the proper
characterization of the Certificates for legal investment purposes, financial
institution regulatory purposes, or other purposes, or as to the ability of
particular investors to purchase Certificates under applicable legal
investment restrictions. The uncertainties described above (and any
unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the Certificates) may adversely
affect the liquidity of the Certificates.
Investors should consult their own legal advisors in determining whether
and to what extent the Certificates constitute legal investments for such
investors.
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METHOD OF DISTRIBUTION
The Certificates offered hereby and by the Prospectus Supplement will be
offered in Series through one or more of the various methods described below.
The Prospectus Supplement for each Series of Certificates will describe the
method of offering being utilized for that Series, the public offering or
purchase price of the Certificates and the net proceeds to the Depositor from
such sale. If so specified in the Prospectus Supplement, one or more Classes
of Certificates may be offered for sale only outside of the United States and
only to non-U.S. persons and foreign branches of U.S. banks (or in such other
manner and to such other persons as may be specified therein) and will not be
offered hereby.
The Certificates will be offered through the following methods from time
to time and that offerings may be made concurrently through more than one of
these methods or that an offering of a particular Series of Certificates may
be made through any combination of these methods:
1. Negotiated firm commitment underwriting and public reoffering by
underwriters;
2. Placements by the Depositor to institutional investors through
affiliated or unaffiliated dealers or agents; and
3. Direct placements by the Depositor to institutional investors.
If underwriters are used in a sale of any Certificates, such Certificates
will be acquired by the underwriters for their own account and may be resold.
The distribution of the Certificates may be effected from time to time in one
or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices to be determined at the time of sale or
at the time of commitment therefor. If so specified in the related Prospectus
Supplement, the Certificates will be distributed in a firm commitment
underwriting, subject to the terms and conditions of the underwriting
agreement, by Nomura Securities International, Inc. ("Nomura") acting as
underwriter with other underwriters, if any, named therein. Asset
Securitization Corporation, the Depositor, is a wholly-owned subsidiary of
Nomura Asset Capital Corporation ("Nomura Capital"). Nomura and Nomura
Capital are both wholly-owned subsidiaries of Nomura Holding America Inc. See
"The Depositor" herein.
In connection with the sale of the Certificates, underwriters, dealers or
placement agents may receive compensation from the Depositor or from
purchasers of the Certificates in the form of discounts, concessions or
commissions. Underwriters, agents and dealers participating in the
distributions of the Certificates may be deemed to be underwriters in
connection with such Certificates, and any discounts or commissions received
by them from the Issuer and any profit on the resale of the Certificates by
them may be deemed to be underwriting discounts and commissions under the
Securities Act of 1933, as amended (the "1933 Act").
Any sales by the Depositor directly to investors, whether using an
affiliated or other placement agent or otherwise, may be made from time to
time in one or more transactions, including negotiated transactions, at a
fixed offering price or at varying prices to be determined at the time of
sale or the time of commitment therefor. The Prospectus Supplement with
respect to any Series of Certificates offered other than through underwriters
will contain information regarding the nature of such offering and any
agreements to be entered into between the Depositor and dealers or purchasers
of the Certificates for such Series.
The underwriting agreement pertaining to a sale of a series of
Certificates will provide that the obligations of Nomura and any underwriters
will be subject to certain conditions precedent, that the underwriters will
be obligated to purchase all such Certificates if any are purchased, and that
the Depositor will indemnify Nomura and any underwriters against certain
civil liabilities, including liabilities under the 1933 Act, or will
contribute to payments Nomura and any underwriters may be required to make in
respect thereof.
In the ordinary course of business, Nomura 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.
Purchasers of Certificates, including dealers, may, depending on the facts
and circumstances of such purchases, be deemed to be "underwriters" within
the meaning of the Securities Act of 1933 in connection with reoffers and
sales by them of Certificates. Holders of Certificates should consult with
their legal advisors in this regard prior to any such reoffer or sale.
If and to the extent required by applicable law or regulation, this
Prospectus will be used by Nomura in connection with offers and sales related
to market-making transactions in Certificates previously offered hereunder in
transactions in which Nomura acts as principal. Nomura may also act as agent
in such transactions. Sales may be made at negotiated prices determined at
the time of sale.
87
<PAGE>
LEGAL MATTERS
The legality of the Certificates of each Series, including certain federal
income tax consequences with respect thereto, will be passed upon for the
Depositor by Cadwalader, Wickersham & Taft, New York, New York.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each series of
Certificates and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement.
RATING
It is a condition to the issuance of any class of Offered Certificates
that they shall have been rated not lower than investment grade, that is, in
one of the four highest categories, by a Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage
loans and the credit quality of the guarantor, if any. Ratings on mortgage
pass-through certificates do not represent any assessment of the likelihood
of principal prepayments by mortgagors or of the degree by which such
prepayments might differ from those originally anticipated. As a result,
certificateholders might suffer a lower than anticipated yield, and, in
addition, holders of stripped interest certificates in extreme cases might
fail to recoup their initial investments.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating organization. Each security rating should be evaluated independently
of any other security rating.
88
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
PAGE(S) ON WHICH TERM
IS DEFINED IN THE
TERM PROSPECTUS
- ------------------------------------ ---------------------
<S> <C>
1933 Act ............................ 87
1986 Act ............................ 62
Accrual Certificates ................ 10
Accrued Certificate Interest ....... 29
ADA ................................. 59
Agreements .......................... 10
ARM Loans ........................... 20
Available Funds ..................... 28
Bankruptcy Code ..................... 54
BIF ................................. 36
Book-Entry Certificates ............. 27
Cash Flow Agreement ................. 22
Cede ................................ 32
CERCLA .............................. 16
Certificate Balance ................. 29
Certificateholders .................. 2
Certificates ........................ 8
Code ................................ 60
Collection Account .................. 22
Collection Period ................... 28
Commercial Loans .................... 18
Commercial Properties ............... 18
Commission .......................... 2
Cooperatives ........................ 18
Covered Trust ....................... 16
CPR ................................. 24
Credit Support ...................... 22
Crime Control Act ................... 59
Cut-off Date ........................ 10
Debt Service Coverage Ratio ......... 18
Definitive Certificates ............. 27
Department .......................... 84
Depositor ........................... 28
Determination Date .................. 28
Disqualified Organization ........... 72
Distribution Date ................... 10
DTC ................................. 32
Equity Participations ............... 21
ERISA ............................... 84
Exchange Act ........................ 2
FDIC ................................ 36
FHA ................................. 20
HUD ................................. 20
Indirect Participants ............... 32
Installment Contracts ............... 8
Insurance Proceeds .................. 36
L/C Bank ............................ 46
89
<PAGE>
PAGE(S) ON WHICH TERM
IS DEFINED IN THE
TERM PROSPECTUS
- ------------------------------------ ---------------------
Liquidation Proceeds ................ 36
Loan-to-Value Ratio ................. 19
Lock-out Date ....................... 21
Lock-out Period ..................... 21
Master Servicer ..................... 8
MBS ................................. 17
MBS Agreement ....................... 21
MBS Issuer .......................... 21
MBS Servicer ........................ 21
MBS Trustee ......................... 21
Mortgage Asset Seller ............... 18
Mortgage Assets ..................... 17
Mortgage Loans ...................... 17
Mortgage Notes ...................... 18
Mortgage Rate ....................... 21
Mortgaged Properties ................ 8
Mortgages ........................... 18
Multifamily Loans ................... 18
Multifamily Properties .............. 18
NCUA ................................ 58
Net Leases .......................... 19
Net Operating Income ................ 18
Nomura .............................. 87
Nomura Capital ...................... 87
Nonrecoverable Advance .............. 30
Non-SMMEA Certificates .............. 85
non-U.S. person ..................... 87
Offered Certificates ................ 1
OID Regulations ..................... 63
Originator .......................... 18
Participants ........................ 32
Pass-Through Entity ................. 72
Pass-Through Rate ................... 10
Permitted Investments ............... 36
Plans ............................... 84
Policy Statement .................... 86
Prepayment Assumption ............... 63
Prepayment Premium .................. 21
Purchase Price ...................... 35
Random Lot Certificates ............. 63
Rating Agency ....................... 14
Record Date ......................... 28
Regular Certificateholder ........... 62
Regular Certificates ................ 60
Regulations ......................... 84
Related Proceeds .................... 30
Relief Act .......................... 58
REMIC ............................... 11
REMIC Certificates .................. 60
90
<PAGE>
PAGE(S) ON WHICH TERM
IS DEFINED IN THE
TERM PROSPECTUS
- ------------------------------------ ---------------------
REMIC Pool .......................... 60
REMIC Regulations ................... 60
REO Account ......................... 37
Residual Certificateholders ......... 68
Residual Certificates ............... 60
RICO ................................ 59
SAIF ................................ 36
Senior Certificates ................. 26
Service ............................. 62
Similar Law ......................... 85
SMMEA ............................... 85
SPA ................................. 24
Special Servicer .................... 38
Standard Certificateholder .......... 77
Standard Certificates ............... 77
Startup Day ......................... 61
Stripped Certificateholder .......... 81
Stripped Certificates ............... 77
Stripped Interest Certificates ..... 10
Stripped Principal Certificates .... 10
Subordinate Certificates ............ 26
Sub-Servicer ........................ 38
Sub-Servicing Agreement ............. 38
Title V ............................. 58
Title VIII .......................... 58
Treasury ............................ 60
Trust Assets ........................ 2
Trust Fund .......................... 1
Trustee ............................. 8
UCC ................................. 48
U.S. Person ......................... 73
Value ............................... 19
Voting Rights ....................... 17
Warranting Party .................... 35
Whole Loans ......................... 18
Window Period Loans ................. 57
</TABLE>
91
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES OFFERED HEREBY NOR AN OFFER OF SUCH
SECURITIES TO ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH AN
OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE; HOWEVER, IF ANY MATERIAL CHANGE OCCURS
WHILE THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS ARE REQUIRED BY LAW TO BE
DELIVERED, THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WILL BE AMENDED OR
SUPPLEMENTED ACCORDINGLY.
----------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
----
Executive Summary ........................... S-3
Summary of Prospectus Supplement ............ S-13
Risk Factors and Other Special
Considerations ............................. S-28
Description of the Mortgage Pool ............ S-43
Description of the Offered Certificates .... S-64
Prepayment and Yield Considerations ........ S-80
The Pooling and Servicing Agreement ........ S-92
Use of Proceeds ............................. S-117
Certain Federal Income Tax Consequences .... S-117
ERISA Considerations ........................ S-118
Legal Investment ............................ S-120
Method of Distribution ...................... S-120
Legal Matters ............................... S-121
Rating ...................................... S-121
Index of Significant Definitions ............ S-122
Annex A--Loan Characteristics ............... A
Annex B--Global Clearance, Settlement and
Tax Documentation Procedures ............... B
Annex C--Schedule of Weighted Average Net
Mortgage Pass-Through Rates ................ C
PROSPECTUS
Prospectus Supplement ....................... 2
Available Information ....................... 2
Incorporation of Certain Information by
Reference .................................. 3
Table of Contents ........................... 4
Summary of Prospectus ....................... 8
Special Considerations ...................... 13
Description of the Trust Funds .............. 17
Use of Proceeds ............................. 22
Yield Considerations ........................ 22
The Depositor ............................... 25
Description of the Certificates ............. 26
Description of Agreements ................... 34
Description of Credit Support ............... 45
Certain Legal Aspects of the Mortgage Loans 48
Federal Income Tax Consequences ............. 60
ERISA Considerations ........................ 84
Legal Investment ............................ 85
Method of Distribution ...................... 87
Legal Matters ............................... 88
Financial Information ....................... 88
Rating ...................................... 88
Index of Principal Definition ............... 89
<PAGE>
$688,676,550
(Approximate)
Asset Securitization
Corporation,
Depositor
Commercial Mortgage
Pass-Through Certificates,
Series 1996-D3
---------------------
PROSPECTUS SUPPLEMENT
---------------------
NOMURA SECURITIES
INTERNATIONAL, INC.
OCTOBER , 1996
