<PAGE>
Filed Pursuant to Rule 424(b)(3)
Registration File Nos.: 33-25068 and 33-63924
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted without the delivery of a final prospectus
supplement and accompanying prospectus. 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.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 25, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER 25, 1996)
$403,088,874 (APPROXIMATE)
MORTGAGE CAPITAL FUNDING, INC.
MULTIFAMILY/COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1996-MC2
-------------
The Multifamily/Commercial Mortgage Pass-Through Certificates, Series
1996-MC2 (the "Certificates") will consist of 13 classes (each, a "Class") of
Certificates, designated as (i) the Class X Certificates; (ii) the Class A-1,
Class A-2 and Class A-3 Certificates (collectively, the "Class A
Certificates"); (iii) the Class B, Class C, Class D, Class E, Class F, Class
G and Class H Certificates (collectively with the Class X and Class A
Certificates, the "REMIC Regular Certificates"); and (iv) the Class R-I and
Class R-II Certificates (collectively, the "REMIC Residual Certificates").
(continued on next page)
---------------
THE OFFERED CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF
CITICORP REAL ESTATE, INC., CITIBANK, N.A., CITICORP BANKING CORPORATION,
MORTGAGE CAPITAL FUNDING, INC. OR THEIR ULTIMATE PARENT, CITICORP, EXCEPT AS
SET FORTH HEREIN. NEITHER THE OFFERED CERTIFICATES NOR THE MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY THE UNITED STATES GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER "RISK
FACTORS" BEGINNING ON PAGE S-23 IN THIS PROSPECTUS SUPPLEMENT AND THE
INFORMATION SET FORTH UNDER "RISK FACTORS" BEGINNING ON PAGE 14 IN THE
PROSPECTUS BEFORE PURCHASING ANY OF THE OFFERED CERTIFICATES.
<TABLE>
<CAPTION>
INITIAL ASSUMED FINAL RATINGS RATED FINAL
CERTIFICATE PASS-THROUGH DISTRIBUTION (FITCH AND DISTRIBUTION
CLASS BALANCE (1) RATE DATE (2) MOODY'S)(3) DATE(3)
- ------------ -------------- -------------- -------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Class A-1 .. $132,607,079 % Feb. 20, 2004 AAA/Aaa December 21, 2026
Class A-2 .. $ 24,276,943 % Feb. 20, 2006 AAA/Aaa December 21, 2026
Class A-3 .. $166,045,134 % Sept. 20, 2006 AAA/Aaa December 21, 2026
Class B ..... $ 27,483,332 % Sept. 20, 2006 AA/Aa2 December 21, 2026
Class C ..... $ 22,902,777 % Sept. 20, 2006 A/A2 December 21, 2026
Class D ..... $ 18,322,221 % Oct. 20, 2006 BBB/Baa2 December 21, 2026
Class E ..... $ 11,451,388 % Oct. 20, 2006 NR/Baa3 December 21, 2026
</TABLE>
(footnotes on next page)
The Offered Certificates will be purchased by NationsBanc Capital Markets,
Inc. and Citibank, N.A. (together, in such capacity, the "Underwriters") from
the Sponsor and will be offered by the Underwriters from time to time to the
public in negotiated transactions or otherwise at varying prices to be
determined at the time of sale (which prices will include interest from the
Cut-off Date). Proceeds to the Sponsor from the sale of the Offered
Certificates will be an amount equal to % of the initial aggregate
Certificate Balance of the Offered Certificates, plus accrued interest,
before deducting expenses payable by the Sponsor. The Offered Certificates
are offered by the Underwriters, subject to prior sale, when, as and if
delivered to and accepted by the Underwriters and subject to their right to
reject orders in whole or in part. It is expected that delivery of the
Offered Certificates will be made in book-entry form through the Same-Day
Funds Settlement System of The Depository Trust Company ("DTC"), on or about
December 19, 1996 (the "Delivery Date"), against payment therefor in
immediately available funds.
NATIONSBANC CAPITAL
MARKETS, INC. AND CITIBANK [LOGO]
The Underwriters are acting as co-lead managers in connection with all
activities relating to this offering.
The date of this Prospectus Supplement is , 1996
<PAGE>
(footnotes from previous page)
- ------------
(1) Subject to a variance of plus or minus 5%.
(2) The "Assumed Final Distribution Date" with respect to any Class of
Offered Certificates is the Distribution Date on which the final
distribution would occur for such Class of Certificates based upon the
assumption that no Mortgage Loan is prepaid prior to its stated
maturity and otherwise based on the Maturity Assumptions (as described
herein). The actual performance and experience of the Mortgage Loans
will likely differ from such assumptions. See "Yield and Maturity
Considerations" herein.
(3) It is a condition to their issuance that the respective Classes of
Offered Certificates be assigned ratings by Fitch Investors Service,
L.P. ("Fitch") and/or Moody's Investors Service, Inc. ("Moody's"; and,
together with Fitch, the "Rating Agencies") no lower than those set
forth above. No rating will be assigned to the Class E Certificates by
Fitch. The ratings on the Offered Certificates do not represent any
assessments of (i) the likelihood or frequency of voluntary or
involuntary principal prepayments on the Mortgage Loans, (ii) the
degree to which such prepayments might differ from those originally
anticipated or (iii) whether and to what extent Prepayment Premiums
will be received. Also a security rating does not represent any
assessment of the yield to maturity that investors may experience. The
"Rated Final Distribution Date" for each Class of Offered Certificates
has been set to December 21, 2026, which is the first Distribution Date
that follows the end of the amortization term for the Mortgage Loan
that, as of the Cut-off Date, has the longest remaining amortization
term, irrespective of its scheduled maturity. See "Ratings" herein.
(continued from previous page)
Only the Class A, Class B, Class C, Class D and Class E Certificates
(collectively, the "Offered Certificates") are offered hereby. The respective
Classes of Offered Certificates will be issued in the aggregate principal
amounts (as to each Class, a "Certificate Balance") and will accrue interest
at the per annum rates (as to each Class, a "Pass-Through Rate") set forth in
the table above.
The Certificates will represent in the aggregate the entire beneficial
ownership interest in a trust fund (the "Trust Fund") to be established by
Mortgage Capital Funding, Inc. (the "Sponsor"), which Trust Fund will consist
primarily of a segregated pool (the "Mortgage Pool") of 130 conventional,
fixed-rate, multifamily and commercial mortgage loans (the "Mortgage Loans").
As of December 1, 1996 (the "Cut-off Date"), the Mortgage Loans had an
aggregate principal balance, after taking into account all payments of
principal due on or before such date, whether or not received, of
$458,055,542 (the "Initial Pool Balance"), subject to a variance of plus or
minus 5%.
One hundred twenty-six of the Mortgage Loans (the "Balloon Loans"), which
represent 98.34% of the Initial Pool Balance, provide for monthly payments of
principal based on amortization schedules significantly longer than the
remaining terms of such Mortgage Loans, thereby leaving substantial principal
amounts due and payable (each such payment, together with the corresponding
interest payment, a "Balloon Payment") on their respective maturity dates,
unless prepaid prior thereto. Four of the Mortgage Loans, which represent
1.66% of the Initial Pool Balance, are fully amortizing. Forty-seven of the
Mortgage Loans (the "Citi Mortgage Loans"), which represent 37.13% of the
Initial Pool Balance, are currently held by Citicorp Real Estate, Inc. (the
"Mortgage Loan Seller"), a commonly controlled affiliate of the Sponsor, or
by one or more affiliates of the Mortgage Loan Seller, and were originated by
one or more affiliates of the Mortgage Loan Seller, acquired by the Mortgage
Loan Seller or an affiliate from various unaffiliated banks, savings
institutions or other entities in the secondary market and/or originated or
acquired pursuant to various conduit programs. Seventy-four of the Mortgage
Loans (the "NMCC Mortgage Loans"), which represent 57.63% of the Initial Pool
Balance, are currently held by NationsBanc Mortgage Capital Corporation
("NMCC"), a wholly-owned finance subsidiary of NationsBank Corporation, and
were originated by NMCC pursuant to various conduit programs. Nine of the
Mortgage Loans (the "PNC Mortgage Loans"), which represent 5.24% of the
Initial Pool Balance, were originated and are currently held by PNC Bank,
National Association ("PNC Bank"). On or before the Delivery Date, the
Mortgage Loan Seller will acquire the Citi Mortgage Loans not currently held
by it from its affiliates, the NMCC Mortgage Loans from NMCC and the PNC
Mortgage Loans from PNC Bank and will, at the direction of the Sponsor,
transfer all of the Mortgage Loans, without recourse, to the Trustee for the
benefit of holders of the Certificates (the "Certificateholders"). See
"Description of the Mortgage Pool" and "Risk Factors--The Mortgage Loans"
herein.
Distributions of interest on and principal of the Certificates will be
made, to the extent of available funds, on the 20th day of each month or, if
any such 20th day is not a business day, then on the next succeeding business
day, beginning in January 1997 (each, a "Distribution Date"). As more fully
described herein, distributions allocable to interest accrued on each Class
of the REMIC Regular Certificates (the
S-2
<PAGE>
REMIC Residual Certificates will not accrue interest) will be made on each
Distribution Date based on the Pass-Through Rate then applicable to such
Class and the Certificate Balance or, in the case of the Class X
Certificates, the notional principal amount (the "Notional Amount") of such
Class outstanding immediately prior to such Distribution Date. Distributions
allocable to principal of the respective Classes of Certificates with
Certificate Balances (the "Sequential Pay Certificates") will be made in the
amounts and in accordance with the priorities described herein until the
Certificate Balance of each such Class is reduced to zero. Neither the Class
X Certificates nor the REMIC Residual Certificates will have a Certificate
Balance or entitle the holders thereof to receive distributions of principal.
Any prepayment premiums, penalties or fees ("Prepayment Premiums") actually
collected on the Mortgage Loans will be distributed among the Class X, Class
A, Class B and Class C Certificates in the amounts and in accordance with the
priorities described herein. See "Description of the
Certificates--Distributions" herein.
As and to the extent described herein, the respective rights of the
holders of the Class B, Class C, Class D, Class E, Class F, Class G, Class H
and REMIC Residual Certificates (collectively, the "Subordinate
Certificates") to receive distributions of amounts collected or advanced on
or in respect of the Mortgage Loans will be subordinated to those of the
holders of the Class X and Class A Certificates (collectively, the "Senior
Certificates") and the holders of each other Class of Subordinate
Certificates, if any, with an earlier alphabetical Class designation. See
"Description of the Certificates--Distributions" and "--Subordination;
Allocation of Losses and Certain Expenses" herein.
The yield to maturity of each Class of Offered Certificates will depend
on, among other things, the rate and timing of principal payments (including
by reason of prepayments, loan extensions, defaults and liquidations) and
losses on or in respect of the Mortgage Loans that result in a reduction of
the Certificate Balance of such Class. Any delay in collection of a Balloon
Payment on any Mortgage Loan that would otherwise be distributable in
reduction of the Certificate Balance of a Class of Offered Certificates,
whether such delay is due to borrower default or to modification of the
related Mortgage Loan as described herein, will likely extend the weighted
average life of such Class of Offered Certificates. See "Risk Factors",
"Description of the Certificates--Distributions" and "Yield and Maturity
Considerations" herein. See also "Yield and Maturity Considerations" and
"Risk Factors--Prepayments; Average Life of Certificates; Yields" in the
Prospectus.
As described herein, two separate "real estate mortgage investment
conduit" ("REMIC") elections will be made with respect to the Trust Fund for
federal income tax purposes (the REMICs formed thereby being herein referred
to as "REMIC I" and "REMIC II", respectively). The Offered Certificates will
evidence "regular interests" in REMIC II. See "Certain Federal Income Tax
Consequences" herein and "Material Federal Income Tax Consequences" in the
Prospectus.
There is currently no secondary market for the Offered Certificates. The
Underwriters intend to make a secondary market in the Offered Certificates,
but are not obligated to do so. There can be no assurance that such a market
will develop or, if it does develop, that it will continue. The Offered
Certificates will not be listed on any securities exchange. See "Risk
Factors--The Certificates--Limited Liquidity" herein.
THE PROSPECTUS THAT ACCOMPANIES THIS PROSPECTUS SUPPLEMENT CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING THAT IS NOT CONTAINED HEREIN,
AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THE PROSPECTUS AND THIS
PROSPECTUS SUPPLEMENT IN FULL TO OBTAIN MATERIAL INFORMATION CONCERNING THE
OFFERED CERTIFICATES. SALES OF THE OFFERED CERTIFICATES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THE PROSPECTUS AND THIS
PROSPECTUS SUPPLEMENT.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS MAY BE USED BY CITIBANK,
N.A., CITICORP SECURITIES, INC. OR CITIBANK INTERNATIONAL PLC, AFFILIATES OF
THE SPONSOR AND WHOLLY OWNED SUBSIDIARIES OF CITICORP, IN CONNECTION WITH
OFFERS AND SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE CERTIFICATES.
CITIBANK, N.A., CITICORP SECURITIES, INC. OR CITIBANK INTERNATIONAL PLC MAY
ACT AS PRINCIPAL OR AGENT IN SUCH TRANSACTIONS. SUCH SALES WILL BE MADE AT
PRICES RELATED TO PREVAILING MARKET PRICES AT THE TIME OF SALE.
S-3
<PAGE>
[INTENTIONALLY LEFT BLANK]
S-4
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used in this Summary
may be defined elsewhere in this Prospectus Supplement, including in Annex A
hereto, or in the Prospectus. An "Index of Principal Definitions" is included
at the end of both this Prospectus Supplement and the Prospectus. Terms that
are used but not defined in this Prospectus Supplement will have the meanings
specified in the Prospectus.
TITLE OF CERTIFICATES
AND DESIGNATION OF
CLASSES ............... Mortgage Capital Funding, Inc.,
Multifamily/Commercial Mortgage Pass-Through
Certificates, Series 1996-MC2 (the
"Certificates"), will consist of 13 classes
(each, a "Class"), designated as: (i) the
Class X Certificates; (ii) the Class A-1,
Class A-2 and Class A-3 Certificates
(collectively, the "Class A Certificates");
(iii) the Class B, Class C, Class D, Class
E, Class F, Class G and Class H Certificates
(collectively with the Class X and Class A
Certificates, the "REMIC Regular
Certificates"); and (iv) the Class R-I and
Class R-II Certificates (collectively, the
"REMIC Residual Certificates"). Only the
Class A, Class B, Class C, Class D and Class
E Certificates (collectively, the "Offered
Certificates") are offered hereby.
The Class X, Class F, Class G and Class H
Certificates and the REMIC Residual
Certificates (collectively, the "Private
Certificates") have not been registered
under the Securities Act of 1933, as
amended, and are not offered hereby.
Accordingly, to the extent this Prospectus
Supplement contains information regarding
the terms of the Private Certificates, such
information is provided because of its
potential relevance to a prospective
purchaser of an Offered Certificate.
SPONSOR ................ Mortgage Capital Funding, Inc., a Delaware
corporation. The Sponsor is a direct,
wholly-owned subsidiary of Citicorp Banking
Corporation, which is a direct, wholly-owned
subsidiary of Citicorp. The Sponsor is a
commonly controlled affiliate of the
Mortgage Loan Seller and of Citibank, N.A.,
which is the co-lead Underwriter. See
"Mortgage Capital Funding, Inc." in the
Prospectus and "Method of Distribution"
herein. Neither the Sponsor nor any of its
affiliates has insured or guaranteed the
Offered Certificates.
TRUSTEE ................ LaSalle National Bank, a nationally
chartered bank. See "Description of the
Certificates--The Trustee" herein. The
Trustee will also have certain duties with
respect to REMIC administration (in such
capacity, the "REMIC Administrator").
FISCAL AGENT ........... ABN AMRO Bank N.V., a Netherlands banking
corporation and the parent of the Trustee.
See "Description of the Certificates--The
Fiscal Agent" herein.
MASTER SERVICER AND
SPECIAL SERVICER ..... GMAC Commercial Mortgage Corporation
("GMAC-CM"), a California corporation. See
"Servicing of the Mortgage Loans--The Master
Servicer and the Special Servicer" herein.
S-5
<PAGE>
MORTGAGE LOAN SELLER .. Citicorp Real Estate, Inc., a direct,
wholly-owned subsidiary of Citibank. See
"Description of the Mortgage Pool--The
Mortgage Loan Seller and NMCC" herein.
CUT-OFF DATE ........... December 1, 1996.
DELIVERY DATE .......... On or about December 19, 1996.
RECORD DATE ............ With respect to each Class of Offered
Certificates and each Distribution Date, the
last business day of the calendar month
immediately preceding the month in which
such Distribution Date occurs.
DISTRIBUTION DATE ...... The 20th day of each month or, if any such
20th day is not a business day, the next
succeeding business day, commencing in
January 1997.
DETERMINATION DATE ..... The day of each month or, if any such
day is not a business day, the immediately
succeeding business day, commencing in
January 1997.
COLLECTION PERIOD ...... With respect to any Distribution Date, the
period that begins immediately following the
Determination Date in the calendar month
preceding the month in which such
Distribution Date occurs (or, in the case of
the initial Distribution Date, that begins
immediately following the Cut-off Date) and
ends on and includes the Determination Date
in the calendar month in which such
Distribution Date occurs.
REGISTRATION AND
DENOMINATIONS .......... The Offered Certificates will be issued in
book-entry form in original denominations of
$100,000 actual principal amount and in any
whole dollar denomination in excess thereof.
Each Class of Offered Certificates will be
represented by one or more Certificates
registered in the name of Cede & Co., as
nominee of The Depository Trust Company
("DTC"). No person acquiring an interest in
an Offered Certificate (any such person, a
"Certificate Owner") will be entitled to
receive a fully registered physical
certificate (a "Definitive Certificate")
representing such interest, except under the
limited circumstances described herein and
in the Prospectus. See "Description of the
Certificates--Registration and
Denominations" herein and "Description of
the Certificates--Book-Entry Registration
and Definitive Certificates" in the
Prospectus.
THE MORTGAGE POOL ...... The Mortgage Pool will consist of 130
multifamily and commercial mortgage loans
(the "Mortgage Loans"), with an aggregate
Cut-off Date Balance of $458,055,542 (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 weighted average
information provided herein with respect to
the Mortgage Loans reflects weighting by
related Cut-off Date Balance. All
percentages of the Mortgage Pool, or of any
specified sub-group thereof, referred to
herein without further description are
approximate percentages by aggre-
S-6
<PAGE>
gate Cut-off Date Balance. See "Description
of the Mortgage Pool--Changes in Mortgage
Pool Characteristics" herein.
The "Cut-off Date Balance" of each Mortgage
Loan is the unpaid principal balance thereof
as of the Cut-off Date, after application of
all payments of principal due on or before
such date, whether or not received. The
Cut-off Date Balances of the Mortgage Loans
will range from $731,947 to $22,679,038, and
the average Cut-off Date Balance will be
$3,523,504. The Cut-off Date Balances of the
Mortgage Loans have been calculated based on
the scheduled principal balances of the
Mortgage Loans as of November 1, 1996 and
assuming for the period thereafter until the
Cut-off Date that (i) all scheduled
principal and interest payments due on or
before the Cut-off Date will be made and
(ii) there will be no principal prepayments
on or before the Cut-off Date.
Each Mortgage Loan is evidenced by a
promissory note (a "Mortgage Note") and is
secured by a mortgage, deed of trust or
similar security instrument (a "Mortgage")
that creates a first mortgage lien on a fee
simple and/or leasehold interest in real
property (a "Mortgaged Property") used for
commercial or multifamily residential
purposes, together with all buildings and
improvements and certain personal property
located thereon.
Seven separate sets of Mortgage Loans (the
"Cross-Collateralized Mortgage Loans"),
representing 3.40%, 2.70%, 2.04%, 1.63%,
1.22%, 0.84% and 0.72% of the Initial Pool
Balance, respectively, are, solely as among
the Cross-Collateralized Mortgage Loans in
each such particular set, cross-defaulted
and cross-collateralized with each other.
See "Description of the Mortgage Pool--
General" herein and Annex A hereto.
One of the Mortgage Loans, representing
0.33% of the Initial Pool Balance, is,
without regard to the cross-collaterali-
zation described in the previous paragraph,
secured by one Mortgage encumbering two
Mortgaged Properties. With respect to such
Mortgage Loan, the related Mortgaged
Properties are located in the same
state and are of the same property type.
Accordingly, the total number of Mortgage
Loans reflected herein is 130, while the
total number of Mortgaged Properties
reflected herein is 131.
In general, the Mortgage Loans constitute
nonrecourse obligations of the related
borrower and, upon any such borrower's
default in the payment of any amount due
under the related Mortgage Loan, the holder
thereof may look only to the related
Mortgaged Property for satisfaction of the
borrower's obligation. In those cases where
recourse to a borrower or guarantor is
permitted by the loan documents, the Sponsor
has not undertaken an evaluation of the
financial condition of any such person, and
prospective investors should thus consider
all of the Mortgage Loans to be nonrecourse.
None of the Mortgage Loans is insured or
guaranteed by the United States, any
governmental agency or instrumentality or
any private mortgage insurer. See
"Description of the Mortgage Pool--General".
S-7
<PAGE>
Set forth below are the number of Mortgage
Loans, and the approximate percentage of the
Initial Pool Balance represented by such
Mortgage Loans, that are secured by
Mortgaged Properties located in the nine
states with the highest concentrations:
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF INITIAL POOL
STATE MORTGAGE LOANS BALANCE
-------------- -------------- ---------------
<S> <C> <C>
Florida ....... 19 9.37%
Nevada ........ 4 9.20%
North Carolina 14 8.96%
Virginia ...... 5 7.26%
Georgia ....... 7 6.96%
Tennessee ..... 9 6.52%
California .... 4 6.49%
Michigan ...... 5 5.59%
Texas ......... 8 4.97%
</TABLE>
The remaining Mortgaged Properties are
located throughout 18 other states, with no
more than 4.72% of the Initial Pool Balance
secured by Mortgaged Properties located in
any such other state.
Set forth below are the number of Mortgage
Loans, and the approximate percentage of the
Initial Pool Balance represented by such
Mortgage Loans, that are secured by
Mortgaged Properties operated for each
indicated purpose:
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF INITIAL POOL
PROPERTY TYPE MORTGAGE LOANS BALANCE(1)
-------------------- -------------- ---------------
<S> <C> <C>
Retail .............. 53 42.62%
Multifamily ......... 57 39.09%
Hotel ............... 4 5.24%
Industrial .......... 6 5.07%
Health Care Facility 5 4.89%
Office .............. 3 2.28%
Mobile Home Park ... 2 0.81%
</TABLE>
(1) The sum of the percentages in this
column may not equal 100% due to
rounding.
All of the Mortgage Loans provide for
scheduled payments of principal and interest
("Monthly Payments") to be due on the first
day of each month (as to each Mortgage Loan,
the "Due Date"), except that, in the case of
certain Mortgage Loans, the related Balloon
Payment (as defined below) may be due on a
day other than the first day of the month.
Any resulting Balloon Payment Interest
Shortfalls (as defined herein) are to be
covered by the Master Servicer out of its
own funds. See "Servicing of the Mortgage
Loans--Servicing and Other Compensation and
Payment of Expenses" herein.
All of the Mortgage Loans bear interest at a
rate per annum (a "Mortgage Rate") that is
fixed for the remaining term of the Mortgage
Loan. As of the Cut-off Date, the Mortgage
Rates for the Mortgage Loans will range from
8.010% per annum to 10.250% per annum, with
a weighted average Mortgage Rate of 9.066%
per annum.
S-8
<PAGE>
Eighty-three Mortgage Loans, which represent
58.19% of the Initial Pool Balance, accrue
interest on the basis of a 360-day year
consisting of twelve 30-day months.
Forty-seven Mortgage Loans, which represent
41.81% of the Initial Pool Balance, accrue
interest on the basis of the actual number
of days in the relevant month of accrual and
a 360-day year. All but one of the Mortgage
Loans provide, however, for constant Monthly
Payments prior to stated maturity. See
"Description of the Mortgage Pool--Certain
Terms and Conditions of the Mortgage Loans--
Mortgage Rates; Calculations of Interest"
herein. For purposes of calculating
the Pass-Through Rate for the Class X
Certificates from time to time, the Net
Mortgage Rate of a Mortgage Loan bearing
interest on the basis of actual days elapsed
is calculated for any month as the effective
rate resulting from interest actually
accrued in that month being restated on a
30-day month basis. Accordingly, interest
payable to the Class X Certificates (the
only Class for which interest is determined
in part based on the weighted average of Net
Mortgage Rates) will be affected by the
month for which interest accrues. See
"Description of the Certificates--Pass-
Through Rates" herein.
No Mortgage Loan permits negative
amortization or the deferral of accrued
interest. See "Description of the Mortgage
Pool--Certain Terms and Conditions of the
Mortgage Loans--Amortization of Principal"
herein.
One hundred twenty-six of the Mortgage Loans
(the "Balloon Loans"), which represent
98.34% of the Initial Pool Balance, provide
for monthly payments of principal based on
amortization schedules significantly longer
than the remaining terms of such Mortgage
Loans, thereby leaving substantial principal
amounts due and payable (each such payment,
together with the corresponding interest
payment, a "Balloon Payment") on their
respective maturity dates, unless prepaid
prior thereto. Four of the Mortgage Loans,
which represent 1.66% of the Initial Pool
Balance, are fully amortizing.
As of the Cut-off Date, 130 Mortgage Loans,
which represent 100% of the Initial Pool
Balance, either (a) prohibit voluntary
principal prepayments, in whole or in part,
prior to a specified date (a "Lock-Out
Expiration Date") (122 Mortgage Loans,
representing 93.58% of the Initial Pool
Balance), which in no such case occurs
earlier than April 1, 1998 or later than
September 30, 2003, or (b) (without
duplication of clause (a) above) require for
a specified period that any voluntary
principal prepayment be accompanied by a
prepayment premium, penalty or fee (a
"Prepayment Premium") (eight Mortgage Loans,
representing 6.42% of the Initial Pool
Balance). Of the 122 Mortgage Loans that, as
of the Cut-off Date, prohibit voluntary
principal prepayments, in whole or in part,
prior to a Lock-Out Expiration Date, all of
such Mortgage Loans also require, for a
specified period following the related
Lock-Out Expiration Date, that any voluntary
principal prepayment be accompanied by a
Prepayment Premium. Prepayment Premiums on
the Mortgage Loans are generally calculated
either as a
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percentage (which declines over time) of the
principal amount prepaid or on the basis of
a yield maintenance formula (subject, in
certain instances, to a minimum equal to a
specified percentage of the amount prepaid).
The prepayment terms of each of the Mortgage
Loans are more particularly described in
Annex A. See "Risk Factors--The Mortgage
Loans--Prepayment Premiums" and "Description
of the Mortgage Pool--Certain Terms and
Conditions of the Mortgage Loans--Prepayment
Provisions" herein.
As of the Cut-off Date, the Mortgage Loans
will have the following additional
characteristics: (i) remaining terms to
stated maturity ranging from 40 months to
178 months and a weighted average remaining
term to stated maturity of 108 months; (ii)
remaining amortization terms ranging from 81
months to 360 months and a weighted average
remaining amortization term of 310 months;
(iii) Cut-off Date Loan-to-Value Ratios
(i.e., in each case, as defined in Annex A,
a loan-to-value ratio based upon (a) the
Cut-off Date Balance of the Mortgage Loan
and (b) the appraised value of the related
Mortgaged Property based upon the most
recent third-party appraisal available to
the Sponsor) ranging from 39.39% to 80.92%
and a weighted average Cut-off Date LTV
Ratio of 69.60%; and (iv) Underwriting Debt
Service Coverage Ratios (calculated as more
particularly described in Annex A attached
hereto) ranging from 1.05x to 2.95x and a
weighted average Underwriting Debt Service
Coverage Ratio of 1.47x.
For more detailed statistical information
regarding the Mortgage Pool, see Annex A
hereto.
All of the Mortgage Loans were originated
during the years 1994 to 1996.
Forty-seven of the Mortgage Loans (the "Citi
Mortgage Loans"), which represent 37.13% of
the Initial Pool Balance, are currently held
by the Mortgage Loan Seller or one or more
of its affiliates. Those Citi Mortgage Loans
held by an affiliate of the Mortgage Loan
Seller will be sold to the Mortgage Loan
Seller by such affiliate on or before the
Delivery Date. Seventy-four of the Mortgage
Loans (the "NMCC Mortgage Loans"), which
represent 57.63% of the Initial Pool
Balance, are currently held by NationsBanc
Mortgage Capital Corporation ("NMCC") and
will be sold to the Mortgage Loan Seller by
NMCC on or before the Delivery Date. Nine of
the Mortgage Loans (the "PNC Mortgage
Loans"), which represent 5.24% of the
Initial Pool Balance, were originated and
are currently held by PNC Bank, National
Association ("PNC Bank") and will be sold to
the Mortgage Loan Seller by PNC Bank on or
before the Delivery Date. The PNC Mortgage
Loans together with the Citi Mortgage Loans
are collectively referred to herein as the
"CREI Mortgage Loans". On or before the
Delivery Date (but after it has acquired
those Mortgage Loans not currently held by
it), the Mortgage Loan Seller will, at the
direction of the Sponsor, transfer all of
the Mortgage Loans, without recourse, to the
Trustee for the benefit of holders of the
Certificates (the "Certificateholders"). The
Mortgage Loan Seller will make certain
representations
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and warranties regarding the characteristics
of the CREI Mortgage Loans, and NMCC will
make certain representations and warranties
regarding the characteristics of the NMCC
Mortgage Loans. As more particularly
described herein, the Mortgage Loan Seller
will be obligated to cure any material
breach of any such representation or
warranty made by the Mortgage Loan Seller
with respect to the CREI Mortgage Loans or
repurchase the affected CREI Mortgage Loan,
and NMCC will be obligated to cure any
material breach of any such representation
or warranty made by NMCC with respect to the
NMCC Mortgage Loans or repurchase the
affected NMCC Mortgage Loan. The Mortgage
Loans are being sold without recourse, and
neither the Mortgage Loan Seller nor NMCC
will have any obligations with respect to
the Offered Certificates other than pursuant
to such representations, warranties and
repurchase obligations. The Sponsor 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. See "Description of the Mortgage
Pool" and "Risk Factors--The Mortgage Loans"
herein and "Description of the Trust Funds"
and "Certain Legal Aspects of Mortgage
Loans" in the Prospectus.
The Mortgage Loans will be serviced and
administered by GMAC-CM, as both Master
Servicer and Special Servicer, pursuant to
the Pooling Agreement (as defined below) and
generally in accordance with the discussion
set forth under "Servicing of the Mortgage
Loans" herein and "Description of the
Pooling Agreements" in the Prospectus. The
compensation to be received by GMAC-CM, as
both Master Servicer (including Master
Servicing Fees) and the Special Servicer
(including Special Servicing Fees and
Workout Fees), for its services is described
herein under "Servicing of the Mortgage
Loans--Servicing and Other Compensation and
Payment of Expenses".
DESCRIPTION OF THE
CERTIFICATES ........... The Certificates will be issued pursuant to
a Pooling and Servicing Agreement, to be
dated as of the Cut-off Date (the "Pooling
Agreement"), among the Sponsor, the Master
Servicer, the Special Servicer, the Trustee,
the Fiscal Agent, the REMIC Administrator,
the Mortgage Loan Seller and NMCC, as an
additional warranting party, and will
represent in the aggregate the entire
beneficial ownership interest in a trust
fund (the "Trust Fund") consisting of the
Mortgage Pool and certain related assets.
A. CERTIFICATE BALANCES
AND NOTIONAL AMOUNTS .. Upon initial issuance, each Class of Offered
Certificates will have the Certificate
Balance set forth for such Class on the
cover page hereof (in each case, subject to
a variance of plus or minus 5%). Upon
initial issuance, the Class F, Class G and
Class H Certificates (collectively with the
Offered Certificates, the "Sequential Pay
Certificates") will have an aggregate
Certificate Balance equal to the excess of
the Initial Pool Balance over the aggregate
Certificate Balance of the Offered
Certificates.
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<PAGE>
The "Certificate Balance" of any Class of
Sequential Pay Certificates outstanding at
any time will be the then aggregate stated
principal amount of such Class. On each
Distribution Date, the Certificate Balance
of each Class of Sequential Pay Certificates
will be reduced by any distributions of
principal actually made on such Class of
Certificates on such Distribution Date, and
will be further reduced by any losses on or
in respect of the Mortgage Loans (referred
to herein as "Realized Losses") and by
certain Trust Fund expenses (referred to
herein as "Additional Trust Fund Expenses")
deemed allocated to such Class of
Certificates on such Distribution Date. See
"Description of the Certificates--
Distributions" and "--Subordination;
Allocation of Losses and Certain Expenses"
herein.
The Class X Certificates will not have a
Certificate Balance; such Class of
Certificates will instead represent the
right to receive distributions of interest
accrued as described herein on a notional
principal amount (a "Notional Amount") equal
to the aggregate of the Certificate Balances
of the respective Classes of Sequential Pay
Certificates outstanding from time to time.
No Class of REMIC Residual Certificates will
have a Certificate Balance or a Notional
Amount.
A Class of Offered Certificates will be
considered outstanding until its Certificate
Balance is reduced to zero; provided,
however, that reimbursements of any
previously allocated Realized Losses and
Additional Trust Fund Expenses may
thereafter be made with respect thereto. See
"Description of the
Certificates--Certificate Balances and
Notional Amounts" and "--Distributions"
herein.
B. PASS-THROUGH RATES .. The Pass-Through Rates applicable to the
respective Classes of Offered Certificates
for each Distribution Date are set forth on
the cover page hereof.
The Pass-Through Rates applicable to the
Class F, Class G and Class H Certificates
will, for each Distribution Date, be equal
to %, % and % per annum, respectively.
The Pass-Through Rate applicable to the
Class X Certificates for the initial
Distribution Date will equal approximately
% per annum. The Pass-Through Rate
applicable to the Class X Certificates for
each subsequent Distribution Date will, in
general, equal the excess, if any, of (i)
the weighted average of the Net Mortgage
Rates in effect for the Mortgage Loans
(weighted on the basis of the respective
Stated Principal Balances of such Mortgage
Loans immediately following the prior
Distribution Date), over (ii) the weighted
average of the Pass-Through Rates applicable
to the respective Classes of Sequential Pay
Certificates for the current Distribution
Date (weighted on the basis of the
respective Certificate Balances of such
Classes of Certificates immediately prior to
such current Distribution Date).
The "Net Mortgage Rate" with respect to any
Mortgage Loan is, in general, a per annum
rate equal to the related Mortgage Rate in
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<PAGE>
effect from time to time, minus the
aggregate of the per annum rates applicable
to the calculation of the monthly fees
payable to the Master Servicer and the
Trustee with respect to such Mortgage Loan
(such monthly fees, collectively, the
"Administrative Fees"; and such aggregate
rate, the "Administrative Fee Rate");
provided that if any Mortgage Loan does not
accrue interest on the basis of a 360-day
year consisting of twelve 30-day months
(which is the basis on which interest
accrues in respect of the REMIC Regular
Certificates), then, for purposes of
calculating Pass-Through Rates, the Net
Mortgage Rate of such Mortgage Loan for any
one-month period preceding a related Due
Date will be the annualized rate at which
interest would have to accrue in respect of
such loan on the basis of a 360-day year
consisting of twelve 30-day months in order
to produce the aggregate amount of interest
actually accrued in respect of such loan
during such one-month period at the related
Mortgage Rate (net of the related
Administrative Fee Rate). As of the Cut-off
Date, the Net Mortgage Rates for the
Mortgage Loans will range from 7.713% per
annum to 9.988% per annum, with a weighted
average Net Mortgage Rate of 8.796% per
annum. See "Servicing of the Mortgage
Loans--Servicing and Other Compensation and
Payment of Expenses" and "Description of the
Certificates--Pass-Through Rates" herein.
C. DISTRIBUTIONS OF
INTEREST AND
PRINCIPAL ........... The total of all payments or other
collections (or advances in lieu thereof) on
or in respect of the Mortgage Loans
(exclusive of Prepayment Premiums) that are
available for distributions of interest on
and principal of the Certificates on any
Distribution Date is herein referred to as
the "Available Distribution Amount" for such
date. See "Description of the Certificates--
Distributions--The Available Distribution
Amount" herein.
On each Distribution Date, the Trustee will
apply the Available Distribution Amount for
such date for the following purposes and in
the following order of priority:
(1) to pay interest to the holders of the
Class A-1, Class A-2, Class A-3 and Class X
Certificates (collectively, the "Senior
Certificates"), up to an amount equal to,
and pro rata as among such Classes in
accordance with, all Distributable
Certificate Interest in respect of each such
Class of Certificates for such Distribution
Date and, to the extent not previously paid,
for all prior Distribution Dates;
(2) to pay principal first to the holders of
the Class A-1 Certificates, second to the
holders of the Class A-2 Certificates and
third to the holders of the Class A-3
Certificates, in each case, up to an amount
equal to the lesser of (a) the then
outstanding Certificate Balance of such
Class of Certificates and (b) the remaining
portion of the
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<PAGE>
Principal Distribution Amount (as defined
below) for such Distribution Date;
(3) to reimburse the holders of the
respective Classes of Class A Certificates,
up to an amount equal to, and pro rata as
among such Classes in accordance with, the
respective amounts of Realized Losses and
Additional Trust Fund Expenses, if any,
previously deemed allocated to such Classes
of Certificates and for which no
reimbursement has previously been paid; and
(4) to make payments on the other Classes of
Certificates (collectively, the "Subordinate
Certificates") as contemplated below;
provided that, on each Distribution Date
after the aggregate Certificate Balance of
the Subordinate Certificates has been
reduced to zero, and in any event on the
final Distribution Date in connection with a
termination of the Trust Fund (see
"Description of the Certificates--
Termination" herein), the payments of
principal to be made as contemplated by
clause (2) above with respect to the Class A
Certificates, will be so made (subject to
available funds) to the holders of the
respective Classes of such Certificates,
up to an amount equal to, and pro rata as
among such Classes in accordance with, the
respective then outstanding Certificate
Balances of such Classes of Certificates.
On each Distribution Date, following the
above-described distributions on the Senior
Certificates, the Trustee will apply the
remaining portion, if any, of the Available
Distribution Amount for such date to make
payments to the holders of each of the
remaining Classes of Sequential Pay
Certificates, in alphabetical order of Class
designation, in each case for the following
purposes and in the following order of
priority (i.e., payments under clauses (1),
(2) and (3) below, in that order, to the
holders of the Class B Certificates, then
payments under clauses (1), (2) and (3)
below, in that order, to the holders of the
Class C Certificates, and in such manner
with respect to the Class D, Class E, Class
F, Class G and Class H Certificates):
(1) to pay interest to the holders of such
Class of Certificates, up to an amount equal
to all Distributable Certificate Interest in
respect of such Class of Certificates for
such Distribution Date and, to the extent
not previously paid, for all prior
Distribution Dates;
(2) if the Certificate Balances of the Class
A Certificates and each other Class of
Sequential Pay Certificates, if any, with an
earlier alphabetical Class designation have
been reduced to zero, to pay principal to
the holders of such Class of Certificates,
up to an amount equal to the lesser of (a)
the then outstanding Certificate Balance of
such Class of Certificates and (b) the
remaining portion of the Principal
Distribution Amount for such Distribution
Date; and
(3) to reimburse the holders of such Class
of Certificates, up to an amount equal to
all Realized Losses and Additional Trust
Fund Expenses, if any, previously deemed
allocated to such Class of
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<PAGE>
Certificates and for which no reimbursement
has previously been paid;
provided that, on the final Distribution
Date in connection with a termination of the
Trust Fund, the payments of principal to be
made as contemplated by clause (2) above
with respect to any Class of Sequential Pay
Certificates will be so made (subject to
available funds) to the holders of such
Class of Certificates up to an amount equal
to the entire then outstanding Certificate
Balance of such Class of Certificates.
Any portion of the Available Distribution
Amount for any Distribution Date that is not
otherwise payable to the holders of REMIC
Regular Certificates as contemplated above
will be paid to the holders of the REMIC
Residual Certificates.
Reimbursement of previously allocated
Realized Losses and Additional Trust Fund
Expenses will not constitute distributions
of principal for any purpose and will not
result in an additional reduction in the
Certificate Balance of the Class of
Certificates in respect of which any such
reimbursement is made.
The "Distributable Certificate Interest" in
respect of any Class of REMIC Regular
Certificates for any Distribution Date will
generally equal one month's interest at the
applicable Pass-Through Rate accrued on the
Certificate Balance or Notional Amount, as
the case may be, of such Class of
Certificates outstanding immediately prior
to such Distribution Date, reduced (to not
less than zero) by such Class of
Certificates' allocable share (calculated as
described herein) of any Net Aggregate
Prepayment Interest Shortfall (as defined
herein) for such Distribution Date.
Distributable Certificate Interest will be
calculated on the basis of a 360-day year
consisting of twelve 30-day months. See
"Description of the Certificates--
Distributions--Distributable Certificate
Interest" and "Servicing of the
Mortgage Loans--Servicing and Other
Compensation and Payment of Expenses"
herein.
The "Principal Distribution Amount" for any
Distribution Date, will, in general, equal
the aggregate of the following:
(a) the principal portions of all Scheduled
Payments (other than Balloon Payments) and
any Assumed Scheduled Payments due or deemed
due, as the case may be, in respect of the
Mortgage Loans for their respective Due
Dates occurring during the related
Collection Period;
(b) all voluntary principal prepayments
received on the Mortgage Loans during the
related Collection Period;
(c) with respect to any Balloon Loan as to
which the related stated maturity date
occurred during or prior to the related
Collection Period, any payment of principal
(exclusive of any voluntary principal
prepayment and any amount described in
clause (d) below) made by or on behalf of
the related borrower during the related
Collection Period, net of any portion of
such payment that represents a recovery of
the principal portion of any Scheduled
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<PAGE>
Payment (other than a Balloon Payment) due,
or the principal portion of any Assumed
Scheduled Payment deemed due, in respect of
such Mortgage Loan on a Due Date during or
prior to the related Collection Period and
not previously recovered;
(d) all Liquidation Proceeds, Condemnation
Proceeds and Insurance Proceeds (each as
defined in the Prospectus) received on the
Mortgage Loans during the related Collection
Period that were identified and applied by
the Master Servicer as recoveries of
principal thereof, in each case net of any
portion of such amounts that represents a
recovery of the principal portion of any
Scheduled Payment (other than a Balloon
Payment) due, or the principal portion of
any Assumed Scheduled Payment deemed due, in
respect of the related Mortgage Loan on a
Due Date during or prior to the related
Collection Period and not previously
recovered; and
(e) if such Distribution Date is subsequent
to the initial Distribution Date, the
excess, if any, of (i) the Principal
Distribution Amount for the immediately
preceding Distribution Date, over (ii) the
aggregate distributions of principal made on
the Sequential Pay Certificates on such
immediately preceding Distribution Date.
The "Scheduled Payment" due on any Mortgage
Loan on any related Due Date will, in
general, be the scheduled payment of
principal and/or interest due thereon on
such date (taking into account any waiver,
modification or amendment of the terms of
such Mortgage Loan, whether agreed to by the
Master Servicer or Special Servicer or
resulting from a bankruptcy, insolvency or
similar proceeding involving the related
borrower).
An "Assumed Scheduled Payment" is an amount
deemed due in respect of: (i) any Balloon
Loan that is delinquent in respect of its
Balloon Payment beyond the first
Determination Date that follows its stated
maturity date and as to which no
arrangements have been agreed to for
collection of the delinquent amounts; or
(ii) any Mortgage Loan as to which the
related Mortgaged Property or Properties
have been acquired on behalf of the
Certificateholders through foreclosure, deed
in lieu of foreclosure or otherwise (each
such property, upon acquisition, an "REO
Property"). The Assumed Scheduled Payment
deemed due on any such Balloon Loan on its
stated maturity date and on each successive
Due Date that it remains or is deemed to
remain outstanding shall equal the Scheduled
Payment that would have been due thereon on
such date if the related Balloon Payment had
not come due, but rather such Mortgage Loan
had continued to amortize in accordance with
such loan's amortization schedule, if any,
in effect immediately prior to maturity and
had continued to accrue interest in
accordance with its terms in effect
immediately prior to maturity. The Assumed
Scheduled Payment deemed due on any such
Mortgage Loan as to which the related
Mortgaged Property or Properties have become
REO Property or Properties, for each Due
Date for so long as such REO Property or
Properties remain part of the Trust Fund,
shall equal the Scheduled Payment (or, in
the case of a Balloon Loan
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<PAGE>
described in the prior sentence, the Assumed
Scheduled Payment) due on the last Due Date
prior to the acquisition of such REO
Property or Properties.
D. DISTRIBUTION OF
PREPAYMENT PREMIUMS . Any Prepayment Premium actually collected
with respect to a Mortgage Loan during any
particular Collection Period will, in
general, be distributed on the related
Distribution Date as follows: (1) if the
aggregate Certificate Balance of the Class
A, Class B and Class C Certificates has not
been reduced to zero prior to such
Distribution Date, (a) 80% of each such
Prepayment Premium will be distributed to
the holders of the Class X Certificates and
(b) 20% of each such Prepayment Premium will
be distributed to the holders of the Class
or Classes of the Class A, Class B and Class
C Certificates entitled to receive
distributions of principal on such
Distribution Date (pro rata based on the
respective related Class Prepayment
Percentages (as defined herein) if there is
more than one such Class entitled to
distributions of principal); and (2) if the
aggregate Certificate Balance of the Class
A, Class B and Class C Certificates has been
reduced to zero prior to such Distribution
Date, 100% of each such Prepayment Premium
will be distributed to the holders of the
Class X Certificates. See "Description of
the Certificates--Distributions--
Distributions of Prepayment Premiums" herein.
P&I ADVANCES ........... Subject to a recoverability determination as
described herein, and further subject to
certain limitations involving Mortgage Loans
as to which the related Mortgaged Property
has declined in value as described herein,
the Master Servicer is required to make
advances (each, a "P&I Advance") with
respect to each Distribution Date for the
benefit of the Certificateholders in an
amount generally equal to the aggregate of
all Scheduled Payments (other than Balloon
Payments) and any Assumed Scheduled
Payments, in each case net of related Master
Servicing Fees and Workout Fees, that (a)
were due or deemed due, as the case may be,
in respect of the Mortgage Loans during the
related Collection Period and (b) were not
paid by or on behalf of the related
borrowers or otherwise collected as of the
close of business on the last day of the
related Collection Period. Subject to a
recoverability determination as described
herein, if the Master Servicer fails to make
a required P&I Advance, the Trustee will be
required to make such P&I Advance, and if
the Master Servicer and the Trustee both
fail to make a required P&I Advance, the
Fiscal Agent will be required to make such
P&I Advance.
As more fully described herein, the Master
Servicer, the Trustee and the Fiscal Agent
will each be entitled to interest on any P&I
Advances made, and the Master Servicer, the
Special Servicer, the Trustee and the Fiscal
Agent will each be entitled to interest on
certain servicing expenses incurred, by or
on behalf of it. Such interest will accrue
from the date any such P&I Advance is made
or such servicing expense is incurred at a
rate per annum equal to the
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"prime rate" as published in the "Money
Rates" section of The Wall Street Journal,
as such "prime rate" may change from time to
time (the "Reimbursement Rate"). Such
interest on any P&I Advance or servicing
expense will be paid out of default interest
and late payment charges collected on the
related Mortgage Loan (but only if it is a
Specially Serviced Mortgage Loan) or, in
connection with the reimbursement of such
P&I Advance or such servicing expense, out
of general collections on the Mortgage Pool
then held by the Master Servicer. See
"Description of the Certificates--P&I
Advances" and "Servicing of the Mortgage
Loans--Servicing and Other Compensation and
Payment of Expenses" herein and "Description
of the Certificates--Advances in Respect of
Delinquencies" and "Description of the
Pooling Agreements--Certificate Account" in
the Prospectus.
SUBORDINATION;
ALLOCATION OF LOSSES
AND CERTAIN EXPENSES .. As and to the extent described herein, the
Subordinate Certificates will, in the case
of each Class thereof, be subordinated with
respect to distributions of interest and
principal to the Senior Certificates and,
further, to each other Class of Subordinate
Certificates, if any, with an earlier
alphabetical Class designation.
If, following the distributions to be made
in respect of the Certificates on any
Distribution Date, the aggregate Stated
Principal Balance of the Mortgage Pool that
will be outstanding immediately following
such Distribution Date is less than the then
aggregate Certificate Balance of the
Sequential Pay Certificates, the Certificate
Balances of the Class H, Class G, Class F,
Class E, Class D, Class C and Class B
Certificates will be reduced, sequentially
in that order, in the case of each such
Class until such deficit (or the related
Certificate Balance) is reduced to zero
(whichever occurs first). If any portion of
such deficit remains at such time as the
Certificate Balances of such Classes of
Certificates are reduced to zero, then the
respective Certificate Balances of the Class
A-1, Class A-2 and Class A-3 Certificates
will be reduced, pro rata in accordance with
the relative sizes of the remaining
Certificate Balances of such Classes of
Certificates, until such deficit (or each
such Certificate Balance) is reduced to
zero. Any such deficit may be the result of
Realized Losses incurred in respect of the
Mortgage Pool and/or Additional Trust Fund
Expenses. The foregoing reductions in the
Certificate Balances of the Sequential Pay
Certificates will be deemed to constitute an
allocation of any such Realized Losses and
Additional Trust Fund Expenses.
TREATMENT OF REO
PROPERTIES ............. Notwithstanding that any Mortgaged Property
may be acquired as part of the Trust Fund
through foreclosure, deed in lieu of
foreclosure or otherwise, the related
Mortgage Loan will, for purposes of, among
other things, determining distributions on,
and allocations of Realized Losses and
Additional Trust Fund Expenses to, the
Certificates, as well as determining Master
Servicing Fees and Special Servicing Fees,
generally be treated as having remained
outstanding until each such REO Property is
liquidated. Among
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<PAGE>
other things, such Mortgage Loan will be
taken into account when determining the
Pass-Through Rate for the Class X
Certificates and the Principal Distribution
Amount. Operating revenues and other
proceeds derived from each REO Property
(after application thereof to pay certain
costs and taxes, including certain
reimbursements payable to the Master
Servicer, the Special Servicer, the Trustee
and/or the Fiscal Agent, incurred in
connection with the operation and
disposition of such REO Property) will be
"applied" or treated by the Master Servicer
as principal, interest and other amounts
"due" on the related Mortgage Loan, and,
subject to a recoverability determination as
more fully described herein (see
"Description of the Certificates--P&I
Advances"), the Master Servicer, the Trustee
and the Fiscal Agent will be obligated to
make P&I Advances in respect of such
Mortgage Loan, in all cases as if such
Mortgage Loan had remained outstanding.
CONTROLLING CLASS ...... The holder (or holders) of Certificates
representing a majority interest in the
Controlling Class will have the right,
subject to certain conditions described
herein, to replace the Special Servicer. The
"Controlling Class" will, in general, be the
most subordinate Class of Sequential Pay
Certificates then outstanding whose then
Certificate Balance is at least equal to 25%
of the initial Certificate Balance thereof.
The Controlling Class will initially be the
Class H Certificates. In addition, as more
particularly described herein, any single
holder of Certificates representing a
majority interest in the Controlling Class
will have the option of purchasing defaulted
Mortgage Loans from time to time at the
Purchase Price specified herein. See
"Servicing of the Mortgage Loans--The Master
Servicer and the Special Servicer" and
"--Sale of Defaulted Mortgage Loans" herein.
EXTENSION ADVISER ...... The holder or holders of Offered
Certificates with an aggregate principal
balance equal to more than 50% of the
aggregate Certificate Balance from time to
time of all of the Offered Certificates
(exclusive, if applicable, of the
Controlling Class and any Class of Offered
Certificates subordinate thereto) will have
the right, subject to certain conditions
described herein, to elect an adviser (the
"Extension Adviser") to whom the Special
Servicer will afford the opportunity to
object to any extension of the maturity of
any Mortgage Loan beyond the third
anniversary of such Mortgage Loan's stated
maturity date. See "Servicing of Mortgage
Loans--The Extension Adviser" herein.
OPTIONAL TERMINATION ... At its option, the Master Servicer or any
single holder (other than the Sponsor or the
Mortgage Loan Seller) of Certificates
representing a majority interest in the
Controlling Class may purchase all of the
Mortgage Loans and REO Properties, and
thereby effect a termination of the Trust
Fund and early retirement of the then
outstanding Certificates, on any
Distribution Date on which the remaining
aggregate Stated Principal Balance of the
Mortgage Pool is less than 1.0% of the
Initial Pool Balance. See "Description of
the Certificates--Termination" herein and in
the Prospectus.
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<PAGE>
CERTAIN FEDERAL INCOME
TAX CONSEQUENCES ...... For federal income tax purposes, two
separate "real estate mortgage investment
conduit" ("REMIC") elections will be made
with respect to designated portions of the
Trust Fund, the resulting REMICs being
herein referred to as "REMIC I" and "REMIC
II", respectively. The assets of REMIC I
will include the Mortgage Loans, any REO
Properties acquired on behalf of the
Certificateholders and the Certificate
Account (as defined in the Prospectus). The
assets of REMIC II will consist of the
separate uncertificated "regular interests"
in REMIC I. For federal income tax purposes,
(i) the Class R-I Certificates will be the
sole class of "residual interests" in REMIC
I, (ii) the REMIC Regular Certificates will
evidence the "regular interests" in, and
generally will be treated as debt
obligations of, REMIC II, and (iii) the
Class R-II Certificates will be the sole
class of "residual interests" in REMIC II.
See "Certain Federal Income Tax
Consequences--General" herein.
For federal income tax reporting purposes,
it is anticipated that the Class ,
Class , Class , Class and Class
Certificates will not, and the Class and
Class Certificates will, be treated as
having been issued with original issue
discount. The prepayment assumption that
will be used for purposes of computing the
accrual of original issue discount, market
discount and premium, if any, for federal
income tax purposes will be that the
Mortgage Loans prepay at a CPR of %.
However, no representation is made that the
Mortgage Loans will not prepay or that, if
they do, they will prepay at any particular
rate.
The Offered Certificates will be treated as
"real estate assets" within the meaning of
Section 856(c)(5)(A) of the Internal Revenue
Code of 1986 (the "Code"). In addition,
interest (including original issue discount)
on the Offered Certificates will be interest
described in Section 856(c)(3)(B) of the
Code. The Offered Certificates also will be
treated as "qualified mortgages" under
Section 860G(a)(3) of the Code. However, the
Offered Certificates will generally only be
considered assets described in Section
7701(a)(19)(C) of the Code to the extent
that the Mortgage Loans are secured by
residential property and, accordingly, an
investment in the Offered Certificates may
not be suitable for some thrift
institutions.
For further information regarding the
federal income tax consequences of investing
in the Offered Certificates, see "Certain
Federal Income Tax Consequences" herein and
"Material Federal Income Tax Consequences"
in the Prospectus.
ERISA CONSIDERATIONS ... A fiduciary of any employee benefit plan or
other retirement arrangement subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975
of the Code (each such plan or other
retirement arrangement, a "Plan") should
review carefully with its legal advisors
whether the purchase or holding of Offered
Certificates could give rise to a
transaction that is prohibited or that is
not otherwise permitted either under ERISA
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or Section 4975 of the Code or whether there
exists any statutory or administrative
exemption applicable to an investment
therein.
The U.S. Department of Labor has issued to
Citicorp an individual prohibited
transaction exemption, Prohibited
Transaction Exemption 90-88, and to
NationsBank Corporation an individual
prohibited transaction exemption, Prohibited
Transaction Exemption 93-31 (together, the
"Exemptions"), which generally exempt from
the application of certain of the prohibited
transaction provisions of Section 406 of
ERISA and the excise taxes imposed on such
prohibited transactions by Section 4975(a)
and (b) of the Code and Section 502(i) of
ERISA, transactions relating to the
purchase, sale and holding of pass-through
certificates underwritten by an underwriting
syndicate or selling group of which
Citibank, N.A., as an affiliate of Citicorp,
or NationsBanc Capital Markets, Inc., as a
wholly-owned subsidiary of NationsBank
Corporation, respectively, is a manager and
the servicing and operation of related asset
pools, provided that certain conditions are
satisfied. The Sponsor expects that the
Exemptions will generally apply to the Class
A Certificates, but that they will not apply
to the Class B, Class C, Class D and Class E
Certificates. AS A RESULT, NO TRANSFER OF A
CLASS B, CLASS C, CLASS D OR CLASS E
CERTIFICATE OR ANY INTEREST THEREIN MAY BE
MADE TO A PLAN OR TO ANY PERSON WHO IS
DIRECTLY OR INDIRECTLY PURCHASING SUCH
CERTIFICATE OR INTEREST THEREIN ON BEHALF
OF, AS NAMED FIDUCIARY OF, AS TRUSTEE OF, OR
WITH ASSETS OF A PLAN, UNLESS THE PURCHASE
AND HOLDING OF ANY SUCH CERTIFICATE OR
INTEREST THEREIN IS EXEMPT FROM THE
PROHIBITED TRANSACTION PROVISIONS OF SECTION
406 OF ERISA AND SECTION 4975 OF THE CODE
UNDER PROHIBITED TRANSACTION CLASS EXEMPTION
95-60 OR SECTION 401(C) OF ERISA, WHICH
PROVIDE AN EXEMPTION FROM THE PROHIBITED
TRANSACTION RULES FOR CERTAIN TRANSACTIONS
INVOLVING AN INSURANCE COMPANY GENERAL
ACCOUNT. SEE "ERISA CONSIDERATIONS" HEREIN
AND IN THE PROSPECTUS.
RATINGS ................ It is a condition to their issuance that the
following Classes of Offered Certificates
receive the credit ratings indicated below
from Fitch Investors Service, L.P. ("Fitch")
and/or Moody's Investors Service, Inc.
("Moody's"; and, together with Fitch, the
"Rating Agencies"):
<TABLE>
<CAPTION>
CLASS FITCH MOODY'S
------------- ------------- -----------
<S> <C> <C>
Class A-1 .... AAA Aaa
Class A-2 .... AAA Aaa
Class A-3 .... AAA Aaa
Class B ...... AA Aa2
Class C ...... A A2
Class D ...... BBB Baa2
Class E ...... Not Rated Baa3
</TABLE>
The ratings of the Offered Certificates
address the timely payment thereon of
interest on each Distribution Date and the
ultimate payment thereon of principal on or
before the Rated Final Distribution Date.
The ratings of the Offered Certificates do
not, however, address the tax attributes
thereof or of the Trust Fund. In
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<PAGE>
addition, the ratings on the Offered
Certificates do not represent any assessment
of (i) the likelihood or frequency of
voluntary or involuntary principal
prepayments on the Mortgage Loans, (ii) the
degree to which such prepayments might
differ from those originally anticipated or
(iii) whether and to what extent Prepayment
Premiums will be received. Also a security
rating does not represent any assessment of
the yield to maturity that investors may
experience in the event of rapid prepayments
of the Mortgage Loans (including both
voluntary and involuntary prepayments). The
ratings of the Offered Certificates also do
not address certain other matters as
described under "Ratings" herein. There is
no assurance that any such rating will not
be lowered, qualified or withdrawn by a
Rating Agency, if, in its judgment,
circumstances so warrant. There can be no
assurance whether any other rating agency
will rate any of the Offered Certificates,
or if one does, what rating such agency will
assign. A security rating is not a
recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by the assigning
rating agency. See "Ratings" herein and
"Risk Factors--Limited Nature of Credit
Ratings" in the Prospectus.
LEGAL INVESTMENT ....... The Offered Certificates will not constitute
"mortgage related securities" within the
meaning of the Secondary Mortgage Market
Enhancement Act of 1984. As a result, the
appropriate characterization of the Offered
Certificates under various legal investment
restrictions, and thus the ability of
investors subject to these restrictions to
purchase the Offered Certificates, may be
subject to significant interpretative
uncertainties. 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
Prospective purchasers of Offered Certificates should consider, among
other things, the following factors (as well as the factors set forth under
"Risk Factors" in the Prospectus) in connection with an investment therein.
THE CERTIFICATES
Limited Liquidity. There is currently no secondary market for the Offered
Certificates. The Sponsor has been advised by the Underwriters that they
presently intend to make a secondary market in the Offered Certificates;
however, neither Underwriter has any obligation to do so and any market
making activity may be discontinued at any time. There can be no assurance
that a secondary market for the Offered Certificates will develop or, if it
does develop, 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. See "Risk Factors--Certain Factors Adversely Affecting Resale of
the Offered Certificates" in the Prospectus.
Certain Yield Considerations. The yield on any Offered Certificate will
depend on (a) the price at which such Certificate is purchased by an investor
and (b) the rate, timing and amount of distributions on such Certificate. The
rate, timing and amount of distributions on any Offered Certificate will, in
turn, depend on, among other things, (v) the Pass-Through Rate for such
Certificate, (w) the rate and timing of principal payments (including
principal prepayments) and other principal collections on or in respect of
the Mortgage Loans and the extent to which such amounts are to be applied or
otherwise result in a reduction of the Certificate Balance of the Class of
Certificates to which such Certificate belongs, (x) the rate, timing and
severity of Realized Losses and Additional Trust Fund Expenses and the extent
to which such losses and expenses result in a reduction of the Certificate
Balance of the Class of Certificates to which such Certificate belongs, (y)
the timing and severity of any Net Aggregate Prepayment Interest Shortfalls
and the extent to which such shortfalls are allocated in reduction of the
Distributable Certificate Interest payable on the Class of Certificates to
which such Certificate belongs and (z) the extent to which Prepayment
Premiums are collected and, in turn, distributed on the Class of Certificates
to which such Certificate belongs. Except for the Pass-Through Rates on the
respective Classes of Offered Certificates (which are, in each case, fixed),
it is impossible to predict with certainty any of the factors described in
the preceding sentence. Accordingly, investors may find it difficult to
analyze the effect that such factors might have on the yield to maturity of
any Class of Offered Certificates. See "Description of the Mortgage Pool",
"Description of the Certificates--Distributions" and "--Subordination;
Allocation of Losses and Certain Expenses" and "Yield and Maturity
Considerations" herein. See also "Yield and Maturity Considerations" in the
Prospectus.
Potential Conflicts of Interest. As described herein, the Special Servicer
will have considerable latitude in determining whether to liquidate or modify
defaulted Mortgage Loans. See "Servicing of the Mortgage
Loans--Modifications, Waivers, Amendments and Consents" and "--The Extension
Adviser" herein. Subject to the conditions described herein, the holder or
holders of Certificates representing a majority interest in the Controlling
Class can replace the existing Special Servicer and substitute any such
holder or an affiliate thereof as the successor. The "Controlling Class"
will, in general, be the most subordinate Class of Sequential Pay
Certificates then outstanding whose then Certificate Balance is at least
equal to 25% of its initial Certificate Balance, and may have interests in
conflict with those of the holders of the Offered Certificates. It is
anticipated that GMAC-CM (which is the Special Servicer) or an entity related
thereto will acquire certain of the Certificates, one or more Classes of
which may constitute the "Controlling Class" from time to time. Accordingly,
investors in the Offered Certificates should consider that, although the
Special Servicer will be obligated to act in accordance with the terms of the
Pooling Agreement and will be governed by the servicing standard described
herein, it may have interests when dealing with defaulted Mortgage Loans that
are in conflict with those of holders of the Offered Certificates.
THE MORTGAGE LOANS
Nature of the Mortgaged Properties. The Mortgaged Properties consist
solely of multifamily rental and commercial properties. Lending on the
security of income-producing properties is generally viewed
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<PAGE>
as exposing a lender to a greater risk of loss than lending on the security
of one-to four-family residences. Multifamily and commercial real estate
lending typically involves larger loans, and repayment is typically dependent
upon the successful operation of the related real estate project. Income from
and the market value of the Mortgaged Properties would be adversely affected
if space in the Mortgaged Properties could not be leased, if tenants were
unable to meet their obligations or if for any other reason rental payments
could not be collected. Successful operation of an income-producing real
estate project is dependent upon, among other things, economic conditions
generally and in the area of such project, the degree to which such project
competes with other projects in the area, operating costs and the performance
of the management agent, if any. In some cases, that operation may also be
affected by circumstances outside the control of the borrower or lender, such
as the quality or stability of the surrounding neighborhood, the development
of competing projects or businesses, maintenance expenses (including energy
costs), the imposition of rent control or stabilization laws (in the case of
multifamily rental properties) and changes in the tax laws. If the cash flow
from a particular property is reduced (for example, if leases are not
obtained or renewed, if tenant defaults increase or rental rates decline or,
in the case of a property occupied by its owner, if the owner's business
declines), the borrower's ability to repay the loan may be impaired and the
resale value of the particular property may decline.
There can be no guaranty that tenants will renew leases upon expiration
or, in the case of a commercial tenant, that it will continue operations
throughout the term of its lease. The borrowers' income would be adversely
affected if tenants were unable to pay rent, if space were unable to be
rented on favorable terms or at all, or if a significant tenant were to
become a debtor in a bankruptcy case under the United States Bankruptcy Code.
For example, if any borrower were to relet or renew the existing leases at
rental rates significantly lower than expected rates, then such borrower's
funds from operations may be adversely affected. Changes in payment patterns
by tenants may result from a variety of social, legal and economic factors,
including, without limitation, the rate of inflation and unemployment levels
and may be reflected in the rental rates offered for comparable space. In
addition, upon reletting or renewing existing leases at commercial
properties, borrowers will likely be required to pay leasing commissions and
tenant improvement costs which may adversely affect cash flow from the
Mortgaged Property. There will be existing leases that expire during the term
of the Mortgage Loan and there can be no assurance that such leases will be
renewed. There can be no assurances whether, or to what extent, economic,
legal or social factors will affect future rental or repayment patterns. See
"Description of the Mortgage Pool--Additional Mortgage Loan
Information--Tenant Matters" herein.
Lending on the security of commercial properties, which represent security
for 60.10% of the Initial Pool Balance, is generally perceived as involving
greater risk than lending on the security of multifamily residential
properties, and certain types of commercial properties are exposed to
particular risks. For instance, shopping centers and retail stores, which
represent security for 42.62% of the Initial Pool Balance, are directly
affected by the strength of retail sales generally. The retailing industry is
currently undergoing consolidation due to many factors, including growth in
discount retailing and mail order merchandisers. If the sales by tenants in
the Mortgaged Properties that contain retail space were to decline, the rents
that are based on a percentage of revenues may decline and tenants may be
unable to pay the fixed portion of their rents or other occupancy costs. In
addition, anchor tenants in shopping centers traditionally have been a major
factor in the public's perception of a shopping center. The failure of an
anchor tenant to renew its lease, the termination of an anchor tenant's
lease, the bankruptcy or economic decline of an anchor tenant, or the
cessation of business by an anchor tenant at a Mortgaged Property
(notwithstanding its continued payment of rent) can have a material negative
effect on the economic viability of a shopping center property. The failure
of any anchor tenant to operate from its premises may give certain other
tenants at the same premises the right to terminate or reduce rents under
their leases.
Management. The successful operation of a real estate project 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 ensuring that maintenance and
capital improvements can be carried out in a timely fashion. Accordingly, by
controlling costs, providing appropriate service to tenants and seeing to the
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<PAGE>
maintenance of improvements, sound property management can improve occupancy
rates and cash flow, reduce leasing and repair costs and preserve building
value. On the other hand, management errors can, in some cases, impair the
long term viability of a real estate project. Twenty groups of Mortgage Loans
have the same or related management. No group of Mortgaged Properties with
the same or related management represents security for more than 8.48% of the
Initial Pool Balance.
Balloon Payments. One hundred twenty-six of the Mortgage Loans, which
represent 98.34% of the Initial Pool Balance, are Balloon Loans which will
have substantial payments (that is, Balloon Payments) due at their stated
maturities unless previously prepaid. Seventy Balloon Loans, representing
51.66% of the Initial Pool Balance, will have Balloon Payments due during the
period from July through October, 2006. Mortgage Loans with 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. The ability of a borrower to accomplish either of these goals will
be affected by a number of factors occurring 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. See "Description of
the Mortgage Pool--Certain Terms and Conditions of the Mortgage Loans" and
"--Additional Mortgage Loan Information" herein and "Risk Factors--Balloon
Payments; Borrower Default" in the Prospectus.
In order to maximize recoveries on defaulted Mortgage Loans, the Pooling
Agreement enables the Special Servicer to extend, modify or otherwise deal
with Mortgage Loans that are in material default or as to which a payment
default (including the failure to make a Balloon Payment) is reasonably
foreseeable; subject, however, to the limitations described under "Servicing
of the Mortgage Loans--Modifications, Waivers, Amendments and Consents" and
"--The Extension Adviser" herein. There can be no assurance, however, that
any such extension or modification will increase the present value of
recoveries in a given case. Any delay in collection of a Balloon Payment that
would otherwise be distributable in respect of a Class of Offered
Certificates, whether such delay is due to borrower default or to
modification of the related Mortgage Loan by the Special Servicer, will
likely extend the weighted average life of such Class of Offered
Certificates. See "Yield and Maturity Considerations" herein and in the
Prospectus.
Risks Particular to Retail Properties. With respect to Mortgage Loans
secured by retail properties, in addition to risks generally associated with
income-producing real estate, such Mortgage Loans are also affected
significantly by adverse changes in consumer spending patterns, local
competitive conditions (such as the supply of retail space or the existence
or construction of new competitive shopping centers or shopping malls),
alternative forms of retailing (such as direct mail and video shopping
networks which reduce the need for retail space by retail companies), the
quality and philosophy of management, the attractiveness of the properties to
tenants and their customers or clients, the public perception of the safety
of customers at shopping malls and shopping centers, and the need to make
major repairs or improvements to satisfy the needs of major tenants.
Retail properties may be adversely affected if a significant tenant ceases
operations at such locations (which may occur on account of a voluntary
decision not to renew a lease, bankruptcy or insolvency of such tenant, such
tenant's general cessation of business activities or for other reasons).
Significant tenants at a retail property play an important part in generating
customer traffic and making a retail property a desirable location for other
tenants at such property. In addition, certain tenants at retail properties
may be entitled to terminate their leases if an anchor tenant ceases
operations at such property. In such cases, there can be no assurance that
any such anchor tenants will continue to occupy space in the related shopping
centers. In this regard, it should be noted that Food Lion, Inc., a
supermarket chain, is an anchor tenant at ten of the retail Mortgaged
Properties representing security for 4.36% of the Initial Pool Balance.
Risks Particular to Multifamily Properties. In the case of multifamily
lending in particular, adverse economic conditions, either local or national,
may limit the amount of rent that can be charged and may
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<PAGE>
result in a reduction in timely rent payments or a reduction in occupancy
levels. Occupancy and rent levels may also be affected by construction of
additional housing units, local military base closings and national and local
politics, including current or future rent stabilization and rent control
laws and agreements. In addition, the level of mortgage interest rates may
encourage tenants to purchase single-family housing. Further, the cost of
operating a multifamily property may increase, including the costs of
utilities and the costs of required capital expenditures. All of these
conditions and events may increase the possibility that a borrower may be
unable to meet its obligations under its Mortgage Loan.
Risks Particular to Hotels. Various factors, including location, quality
and franchise affiliation, affect the economic viability of a hotel. Adverse
economic conditions, either local, regional or national, may limit the amount
that may be charged for a room and may result in a reduction in occupancy
levels. The construction of competing hotels or motels can have similar
effects. Because hotel rooms generally are rented for short periods of time,
hotel properties tend to respond more quickly to adverse economic conditions
and competition than do other commercial properties. In addition, the
transferability of franchise license agreements may be restricted.
Furthermore, the ability of a hotel to attract customers, and some of such
hotel's revenues, may depend in large part on its having a liquor license.
Such a license may not be transferable.
Risks Particular to Industrial Properties. Industrial properties may be
adversely affected by reduced demand for industrial space occasioned by a
decline in a particular industry segment, and an industrial property that
suited the particular needs of its original tenant may be difficult to relet
to another tenant or may become functionally obsolete relative to newer
properties.
Risks Particular to Health Care Properties. Health care facilities
typically receive a substantial portion of their revenues from government
reimbursement programs, primarily Medicaid and Medicare. Medicaid and
Medicare are subject to statutory and regulatory changes, retroactive rate
adjustments, administrative rulings, policy interpretations, delays by fiscal
intermediaries and government funding restrictions, all of which can
adversely affect revenues from operation. 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 relief that could further limit these payments. In
addition, providers of long-term nursing care and other medical services are
highly regulated by federal, state and local law and are subject to, among
other things, federal and state licensing requirements, facility inspections,
rate setting, reimbursement policies, and laws relating to the adequacy of
medical care, distribution of pharmaceuticals, equipment, personnel,
operating policies and maintenance of and additions to facilities and
services, any or all of which factors can increase the cost of operation,
limit growth and, in extreme cases, require or result in suspension or
cessation of operations.
Under applicable federal and state laws and regulations, Medicare and
Medicaid reimbursements are generally not permitted to be made to any person
other than the provider who actually furnished the related medical goods and
services. Accordingly, in the event of foreclosure on a Mortgaged Property
that is operated as a health care facility, none of the Trustee, the Special
Servicer or a subsequent lessee or operator of the Mortgaged Property would
generally be entitled to obtain from federal or state governments any
outstanding reimbursement payments relating to services furnished at the
respective Mortgaged Properties prior to such foreclosure. Furthermore, in
the event of foreclosure, there can be no assurance that the Trustee (or
Special Servicer) or purchaser in a foreclosure sale would be entitled to the
rights under any required licenses and regulatory approvals and such party
may have to apply in its own right for such licenses and approvals. There can
be no assurance that a new license could be obtained or that a new approval
would be granted. In addition, health care facilities are generally "special
purpose" properties that could not be readily converted to general
residential, retail or office use, and transfers of nursing homes and other
health care related facilities are subject to regulatory approvals under
state, and in some cases federal, law not required for transfers of other
types of commercial operations and other types of real estate, all of which
may adversely affect the liquidation value.
Risks Particular to Ground Leases. One Mortgage Loan, which represents
0.82% of the Initial Pool Balance, is secured by a Mortgage on the applicable
borrower's leasehold interest in the related Mortgaged Property. The owner of
the fee interest in such Mortgaged Property, an affiliate of such
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borrower, has agreed in the related loan documents to subordinate such fee
interest to such leasehold interest and has pledged such fee interest as
security for the Mortgage Loan. Another Mortgage Loan, which represents 0.99%
of the Initial Pool Balance, is secured, in part, by a Mortgage on the
applicable borrower's fee interest in a portion of the Mortgaged Property and
also by such borrower's short-term leasehold interest in an auxiliary parking
lot adjacent to the portion of the Mortgaged Property owned by the borrower
in fee. For such Mortgage Loan, the auxiliary parking lot was not considered
for purposes of determining the loan-to-value ratio of such Mortgage Loan at
origination, although the expenses associated with such parking lot were
taken into account at origination in determining the debt service coverage
ratio for such Mortgage Loan, and such parking lot is not necessary in order
for the related Mortgaged Property to comply with applicable zoning
ordinances. See "Certain Legal Aspects of Mortgage
Loans--Foreclosure--Leasehold Risks" in the Prospectus.
Risks of Subordinate Financing. One of the Mortgaged Properties,
representing security for a Mortgage Loan representing 0.5% of the Initial
Pool Balance, is encumbered by subordinated debt and the holder of the
subordinate debt has agreed not to foreclose for so long as the related
Mortgage Loan is outstanding and the Trust Fund is not pursuing a foreclosure
action. Other than in such case, the Sponsor knows of no other secured
subordinate financing currently encumbering any Mortgaged Property. The loan
documents relating to each Mortgaged Property that is operated as either a
hotel or a health care facility permit, without the consent of the holder of
the first lien, up to $100,000 (and, in the case of one hotel Mortgaged
Property, representing security for 2.27% of the Initial Pool Balance, up to
$300,000) of subordinate financing secured by the Mortgaged Property. All of
the other Mortgage Loans either prohibit the related borrower from
encumbering the Mortgaged Property with additional secured debt or require
the consent of the holder of the first lien prior to so encumbering such
property. The existence of subordinated indebtedness may increase the
difficulty of refinancing the related Mortgage Loan at maturity and the
possibility that reduced cash flow could result in deferred maintenance.
Also, in the event that the holder of the subordinated debt files for
bankruptcy or is placed in involuntary receivership, foreclosure on the
Mortgaged Property could be delayed. See "Certain Legal Aspects of Mortgage
Loans--Subordinate Financing" in the Prospectus.
Limited Recourse. The Mortgage Loans generally are nonrecourse obligations
of the borrowers. In those cases where recourse to a borrower or guarantor is
permitted by the loan documents, the Sponsor has not undertaken any
evaluation of the financial condition of any such person (in many cases, the
borrower is a special purpose entity having no assets other than those
pledged to secure the related Mortgage Loan). Accordingly, prospective
investors should consider all of the Mortgage Loans to be nonrecourse loans
as to which recourse in the case of default will be limited to the related
Mortgaged Property or Properties securing the defaulted 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 or Properties 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. Neither the Certificates nor the Mortgage Loans are
insured or guaranteed by any governmental entity, by any private mortgage
insurer, or by the Sponsor, the Mortgage Loan Seller, NMCC, PNC Bank, any
originator, the Underwriters, the Master Servicer, the Special Servicer, the
Trustee, the Fiscal Agent, the REMIC Administrator, any of their respective
affiliates or, in general, by any other person. However, as more fully
described under "Description of the Mortgage Pool--Representations and
Warranties; Repurchases" herein, the Mortgage Loan Seller will be obligated
to repurchase certain of the CREI Mortgage Loans if its representations and
warranties concerning such Mortgage Loans are materially breached, and NMCC
will be obligated to repurchase certain of the NMCC Mortgage Loans if its
representations and warranties concerning such Mortgage Loans are materially
breached.
Environmental Considerations. An environmental site assessment (or an
update of a previously conducted assessment) was performed (generally in a
manner consistent with industry-wide standards) at each of the Mortgaged
Properties on or after February 17, 1995. In the case of one Mortgaged
Property, which represents security for 0.39% of the Initial Pool Balance,
such assessment identified soil and ground water contamination resulting from
leaking fuel tanks. The Sponsor has been advised by NMCC that such
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tanks have been removed; however, the cost to remediate such contamination
may be substantial. Although reserves were established to cover the costs of
monitoring the situation, no such reserves were established to cover cleanup
costs. The Sponsor has been informed by NMCC, however, that such Mortgaged
Property is eligible for reimbursement of the costs of such cleanup from the
State in which it is located. No such assessment or update otherwise revealed
any material adverse environmental condition or circumstance at any Mortgaged
Property, except in those cases in which an operations and maintenance plan
(including, in several cases, in respect of asbestos containing materials and
lead-based paint), periodic monitoring of nearby properties or the
establishment of an escrow reserve to cover the estimated cost of remediation
was recommended, and which recommended actions have been or are expected to
be implemented in the manner and within the time frames specified in the
related Mortgage Loan documents. There can be no assurance that all
environmental conditions and risks have been identified in such environmental
assessments. See "Description of the Mortgage Pool--Certain Underwriting
Matters--Environmental Assessments" herein.
The information contained herein is based on the environmental assessments
and has not been independently verified by the Sponsor, the Mortgage Loan
Seller, NMCC, PNC Bank, the Underwriters, the Master Servicer, the Special
Servicer, the Trustee, the Fiscal Agent, the REMIC Administrator, or any of
their respective affiliates.
The Pooling Agreement requires that the Special Servicer obtain an
environmental site assessment of a Mortgaged Property prior to acquiring
title thereto or assuming its operation. Such requirement precludes
enforcement of the security for the related Mortgage Loan until a
satisfactory environmental site assessment is obtained (or until any required
remedial action is taken), but will decrease the likelihood that the Trust
Fund will become liable for a material adverse environmental condition at the
Mortgaged Property. However, there can be no assurance that the requirements
of the Pooling Agreement will effectively insulate the Trust Fund from
potential liability for a materially adverse environmental condition at any
Mortgaged Property. See "Servicing of the Mortgage Loans" herein and
"Description of the Pooling Agreements--Realization Upon Defaulted Mortgage
Loans", "Risk Factors--Environmental Risks" and "Certain Legal Aspects of
Mortgage Loans--Environmental Risks" in the Prospectus.
Limitations on Enforceability of Cross-Collateralization. The Mortgage
Pool includes seven sets of Cross-Collateralized Mortgage Loans, which
represent 3.40%, 2.70%, 2.04%, 1.63%, 1.22%, 0.84% and 0.72% of the Initial
Pool Balance, respectively, as described under "Description of the Mortgage
Pool--General" herein. These arrangements seek to reduce the risk that the
inability of one or more of the Mortgaged Properties securing any such set of
Cross-Collateralized Mortgage Loans to generate net operating income
sufficient to pay debt service will result in defaults and ultimate losses.
However, the Cross-Collateralized Mortgage Loans constituting one such set
are secured by mortgage liens on Mortgaged Properties located in two separate
States. Because, in general, foreclosure actions are brought in state court
and the courts of one state cannot exercise jurisdiction over property in
another state, it may be necessary upon a default under any such Mortgage
Loan to foreclose on the related Mortgaged Properties in a particular order
rather than simultaneously in order to ensure that the lien of the related
Mortgages is not impaired or released.
In addition, in the case of the set of Cross-Collateralized Mortgage Loans
representing 1.63% of the Initial Pool Balance, one or more of the related
Mortgaged Properties may be released from the cross-collateralization
arrangement upon the satisfaction of certain conditions specified in the
related Mortgage Loan documents.
Geographic Concentration. Nineteen of the Mortgage Loans, which represent
9.37% of the Initial Pool Balance, are secured by liens on Mortgaged
Properties located in Florida; four of the Mortgage Loans, which represent
9.20% of the Initial Pool Balance, are secured by liens on Mortgaged
Properties located in Nevada; 14 of the Mortgage Loans, which represent 8.96%
of the Initial Pool Balance, are secured by liens on Mortgaged Properties
located in North Carolina; five of the Mortgage Loans, which represent 7.26%
of the Initial Pool Balance, are secured by liens on Mortgaged Properties
located in Virginia; seven of the Mortgage Loans, which represent 6.96% of
the Initial Pool Balance, are secured by
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liens on Mortgaged Properties located in Georgia; nine of the Mortgage Loans,
which represent 6.52% of the Initial Pool Balance, are secured by liens on
Mortgaged Properties located in Tennessee; four of the Mortgage Loans, which
represent 6.49% of the Initial Pool Balance, are secured by liens on
Mortgaged Properties located in California; five of the Mortgage Loans, which
represent 5.59% of the Initial Pool Balance, are secured by liens on
Mortgaged Properties located in Michigan; and eight of the Mortgage Loans,
which represent 4.97% of the Initial Pool Balance, are secured by liens on
Mortgaged Properties located in Texas. In general, a concentration of
Mortgaged Properties in a particular state or region increases the exposure
of the Mortgage Pool to any adverse economic or other developments that may
occur in such state or region.
Related Parties. Certain borrowers are affiliated or under common control
with one another. With respect to two Mortgage Loans, which represent 6.91%
of the Initial Pool Balance, the related borrowers are each controlled by an
individual. No other group of affiliated borrowers are obligors on Mortgage
Loans representing more than 5% of the Initial Pool Balance. In addition,
tenants in certain Mortgaged Properties also may be tenants in other
Mortgaged Properties, and certain tenants may be owned by affiliates of the
borrowers or otherwise related to or affiliated with a borrower. In this
regard, it should be noted that Food Lion, Inc., a supermarket chain, is an
anchor tenant at ten of the retail Mortgaged Properties, which represent
security for 4.36% of the Initial Pool Balance. In such circumstances, any
adverse circumstances relating to a borrower or tenant or a respective
affiliate and affecting one of the related Mortgage Loans or Mortgaged
Properties could arise in connection with the other related Mortgage Loans or
Mortgaged Properties. In particular, the bankruptcy or insolvency of any such
borrower or tenant or respective affiliate could have an adverse effect on
the operation of all of the related Mortgaged Properties and on the ability
of such related Mortgaged Properties to produce sufficient cash flow to make
required payments on the related Mortgage Loans. For example, if a person
that owns or directly or indirectly controls several Mortgaged Properties
experiences financial difficulty at one Mortgaged Property, it could defer
maintenance at one or more other Mortgaged Properties in order to satisfy
current expenses with respect to the Mortgaged Property experiencing
financial difficulty, or it could attempt to avert foreclosure by filing a
bankruptcy petition that might have the effect of interrupting Monthly
Payments for an indefinite period on all the related Mortgage Loans. See
"Certain Legal Aspects of Mortgage Loans--Bankruptcy Laws" in the Prospectus.
In the one case where the related Mortgage Loans represent greater than 5.0%
of the Initial Pool Balance, the particular group of affiliated borrowers
described above has been structured in a manner that is intended to avoid a
bankruptcy proceeding relating to any such borrower in the event a
substantial equity owner of such borrower were to become insolvent or subject
to bankruptcy proceedings and to avoid the consolidation of the assets of the
borrower with those of such equity owner under such circumstances. However,
there can be no assurance that such arrangements will be successful or that
any such borrower will not become insolvent or subject to bankruptcy
proceedings. In addition, a number of the borrowers are limited or general
partnerships. Under certain circumstances, the bankruptcy of the general
partner in a partnership may result in the dissolution of such partnership.
The dissolution of a borrower partnership, the winding-up of its affairs and
the distribution of its assets could result in an acceleration of its payment
obligations under the related Mortgage Loan.
Other Concentrations. Forty-one of the Mortgage Loans have Cut-off Date
Balances that are higher than the average Cut-off Date Balance. The largest
single Mortgage Loan has a Cut-off Date Balance that represents approximately
4.95% of the Initial Pool Balance, and the ten largest Mortgage Loans have
Cut-off Date Balances that represent in the aggregate approximately 26.38% of
the Initial Pool Balance. In general, concentrations in a mortgage pool of
loans with larger than average balances can result in losses that are more
severe, relative to the size of the pool, than would be the case if the
aggregate balance of such pool were more evenly distributed.
Risk of Changes in Concentrations. As payments in respect of principal
(including in the form of voluntary principal prepayments, Liquidations
Proceeds and the repurchase prices for any Mortgage Loans repurchased due to
breaches of representations or warranties) are received with respect to the
Mortgage Loans, the remaining Mortgage Loans as a group may exhibit increased
concentration with respect to the type of properties, property
characteristics, number of borrowers and affiliated borrowers
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and geographic location. Because principal on the Sequential Pay Certificates
is payable in sequential order, the Classes thereof that have a lower
priority with respect to the payment of principal are relatively more likely
to be exposed to any risks associated with changes in concentrations of
borrower, loan or property characteristics.
Prepayment Premiums. Most of the Mortgage Loans require, for a specified
period following the related date of origination or, if applicable, the
related Lock-out Expiration Date, that any voluntary principal prepayment be
accompanied by a Prepayment Premium. Prepayment Premiums are generally
calculated either as a percentage (which declines over time) of the principal
amount prepaid or on the basis of a yield maintenance formula (subject, in
certain instances, to a minimum equal to a specified percentage of the amount
prepaid). See "Description of the Mortgage Pool--Certain Terms and Conditions
of the Mortgage Loans--Prepayment Provisions" herein.
For so long as the Class A, Class B and/or Class C Certificates are
outstanding, 20% of any Prepayment Premiums actually collected on the
Mortgage Loans will be distributed among such Classes of Offered Certificates
in the amounts and in accordance with the priorities described herein under
"Description of the Certificates--Distributions--Distributions of Prepayment
Premiums". Any Prepayment Premiums not otherwise distributable on such
Classes of Offered Certificates (including 100% of all Prepayment Premiums
collected after such Offered Certificates are retired) will be distributed on
the Class X Certificates. The Sponsor, however, makes no representation as to
the collectability of any Prepayment Premium.
The enforceability, under the laws of a number of states, of provisions
similar to the provisions of the Mortgage Loans providing for the payment of
a Prepayment Premium upon an involuntary prepayment is unclear. No assurance
can be given that, at any time that any Prepayment Premium is required to be
made in connection with an involuntary prepayment, the obligation to pay such
Prepayment Premium will be enforceable under applicable law or, if
enforceable, the foreclosure proceeds will be sufficient to make such
payment. Liquidation Proceeds recovered in respect of any defaulted Mortgage
Loan will, in general, be applied to cover outstanding servicing expenses and
unpaid principal and interest prior to being applied to cover any Prepayment
Premium due in connection with the liquidation of such Mortgage Loan. See
"Certain Legal Aspects of Mortgage Loans--Default Interest and Limitations on
Prepayments" in the Prospectus.
No Prepayment Premium will be payable in connection with any repurchase of
a Mortgage Loan by the Mortgage Loan Seller or NMCC for a material breach of
representation or warranty on the part of the Mortgage Loan Seller or NMCC or
any failure to deliver documentation relating thereto, nor will any
Prepayment Premium be payable in connection with the purchase of all of the
Mortgage Loans and any REO Properties by the Master Servicer or any single
holder of Certificates evidencing a majority interest in the Controlling
Class in connection with the termination of the Trust Fund or in connection
with the purchase of defaulted Mortgage Loans by the Master Servicer, Special
Servicer or any single holder of Certificates evidencing a majority interest
in the Controlling Class. See "Description of the Mortgage Pool--Assignment
of the Mortgage Loans; Repurchases" and "--Representations and Warranties;
Repurchases", "Servicing of the Mortgage Loans--Sale of Defaulted Mortgage
Loans" and "Description of the Certificates--Termination" herein.
Limited Information. The information set forth in this Prospectus
Supplement with respect to the Mortgage Loans is derived principally from (i)
a review of the available credit and legal files relating to the Mortgage
Loans, (ii) inspections of the Mortgaged Properties undertaken by or on
behalf of the Mortgage Loan Seller with respect to the CREI Mortgage Loans
and by or on behalf of NMCC with respect to the NMCC Mortgage Loans, (iii)
unaudited operating statements for the Mortgaged Properties supplied by the
borrowers and/or (iv) information supplied by entities from which the
Mortgage Loan Seller or NMCC, as the case may be, acquired, or which
currently service, certain of the Mortgage Loans. Furthermore, in those cases
where the Mortgage Loan Seller acquired a CREI Mortgage Loan from an entity
unaffiliated with CREI and such Mortgage Loan was not originated on behalf of
CREI, neither the Mortgage Loan Seller nor the Sponsor has generally examined
the books and records of such entity, and neither the Mortgage Loan Seller
nor the Sponsor has had access to all personnel of such entity who might
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be knowledgeable about such Mortgage Loan; accordingly, in those cases,
available information does not permit the Sponsor to determine fully the
origination, credit appraisal and underwriting practices of the originators
of such Mortgage Loans or the manner in which such Mortgage Loans were
serviced prior to their acquisition by the Mortgage Loan Seller. In addition,
in the case of 15 Mortgage Loans, representing 8.46% of the Initial Pool
Balance, no payment history is available because the first payment on each
such Mortgage Loan is due in December 1996 or January 1997.
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of 130 multifamily and commercial mortgage
loans (the "Mortgage Loans") with an aggregate Cut-off Date Balance of
$458,055,542 (the "Initial Pool Balance"), subject to a variance of plus or
minus 5%. See "Description of the Trust Funds" and "Certain Legal Aspects of
Mortgage Loans" in the Prospectus. The "Cut-off Date Balance" of each
Mortgage Loan is the unpaid principal balance thereof as of December 1, 1996
(the "Cut-off Date"), after application of all payments of principal due on
or before such date, whether or not received. The Cut-off Date Balances of
the Mortgage Loans have been calculated based on the scheduled principal
balances of the Mortgage Loans as of November 1, 1996 and assuming for the
period thereafter until the Cut-off Date that (i) all scheduled principal and
interest payments due on or before the Cut-off Date will be made and (ii)
there will be no principal prepayments on or before the Cut-off Date. All
numerical information provided herein with respect to the Mortgage Loans is
provided on an approximate basis. All weighted average information provided
herein with respect to the Mortgage Loans reflects weighting by related
Cut-off Date Balance. 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 Balance.
Except as otherwise described below, each Mortgage Loan is evidenced by a
promissory note (a "Mortgage Note") and secured by a mortgage, deed of trust
or other similar security instrument (a "Mortgage") that creates a first
mortgage lien on a fee simple and/or leasehold interest in real property (a
"Mortgaged Property"), improved by (i) an apartment building or complex
consisting of five or more rental living units or a mobile home park (a
"Multifamily Mortgaged Property"; and any Mortgage Loan secured thereby, a
"Multifamily Loan") (59 Mortgage Loans, representing 39.90% of the Initial
Pool Balance), or (ii) a retail shopping mall or center, a hotel, a health
care facility, an office building or complex or an industrial building (a
"Commercial Mortgaged Property"; and any Mortgage Loan secured thereby, a
"Commercial Loan") (71 Mortgage Loans which represent 60.10% of the Initial
Pool Balance).
Seven separate sets of Mortgage Loans (the "Cross-Collateralized Mortgage
Loans"), representing 3.40%, 2.70%, 2.04%, 1.63%, 1.22%, 0.84% and 0.72% of
the Initial Pool Balance, respectively, are, solely as among the
Cross-Collateralized Mortgage Loans in each such particular set,
cross-defaulted and cross-collateralized with each other. Each of the
Cross-Collateralized Mortgage Loans is evidenced by a separate Mortgage Note
and secured by a separate Mortgage, which Mortgage contains provisions
creating the relevant cross-collateralization and cross-default arrangements.
See Annex A hereto for information regarding the Cross-Collateralized
Mortgage Loans and see "Risk Factors--The Mortgage Loans--Limitations on
Enforceability of Cross-Collateralization" herein.
One of the Mortgage Loans, representing 0.33% of the Initial Pool Balance
is, without regard to the cross-collateralization described in the previous
paragraph, secured by one Mortgage encumbering two Mortgaged Properties. With
respect to such Mortgage Loan, the related Mortgaged Properties are located
in the same state and are of the same property type. Such Mortgage Loan is
evidenced by a single Mortgage Note, and despite the related multiple
Mortgaged Properties, is not treated as a set of Cross-Collateralized
Mortgage Loans. Accordingly, the total number of Mortgage Loans reflected
herein is 130, while the total number of Mortgaged Properties reflected
herein is 131.
In general, the Mortgage Loans constitute nonrecourse obligations of the
related borrower and, upon any such borrower's default in the payment of any
amount due under the related Mortgage Loan, the holder thereof may look only
to the related Mortgaged Property or Properties, for satisfaction of the
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borrower's obligation. In addition, in those cases where recourse to a
borrower or guarantor is permitted by the loan documents, the Sponsor has not
undertaken an evaluation of the financial condition of any such person, and
prospective investors should thus consider all of the Mortgage Loans to be
nonrecourse. None of the Mortgage Loans is insured or guaranteed by the
United States, any governmental entity or instrumentality, or any private
mortgage insurer. See "Risk Factors--The Mortgage Loans--Limited Recourse"
herein.
Nineteen of the Mortgage Loans, which represent 9.37% of the Initial Pool
Balance, are secured by liens on Mortgaged Properties located in Florida,
four of the Mortgage Loans, which represent 9.20% of the Initial Pool
Balance, are secured by liens on Mortgaged Properties located in Nevada, and
14 of the Mortgage Loans, which represent 8.96% of the Initial Pool Balance,
are secured by liens on Mortgaged Properties located in North Carolina. The
remaining Mortgaged Properties are located throughout 24 other states, with
no more than 7.26% of the Initial Pool Balance secured by Mortgaged
Properties located in any such other state.
Forty-seven of the Mortgage Loans (the "Citi Mortgage Loans"), which
represent 37.13% of the Initial Pool Balance, are currently held by the
Mortgage Loan Seller, a commonly controlled affiliate of the Sponsor, or by
one or more affiliates of the Mortgage Loan Seller, and were originated by
one or more affiliates of the Mortgage Loan Seller, acquired by the Mortgage
Loan Seller or an affiliate from various unaffiliated banks, savings
institutions or other entities in the secondary market and/or originated or
acquired pursuant to various conduit programs. Seventy-four of the Mortgage
Loans (the "NMCC Mortgage Loans"), which represent 57.63% of the Initial Pool
Balance, are currently held by NationsBanc Mortgage Capital Corporation
("NMCC"), a wholly-owned finance subsidiary of NationsBank Corporation, and
were originated pursuant to various conduit programs. Nine of the Mortgage
Loans (the "PNC Mortgage Loans"), which represent 5.24% of the Initial Pool
Balance, were originated and are currently held by PNC Bank, National
Association ("PNC Bank"). The PNC Mortgage Loans together with the Citi
Mortgage Loans are collectively referred to herein as the "CREI Mortgage
Loans". The Citi Mortgage Loans not currently held by CREI, the NMCC Mortgage
Loans and the PNC Mortgage Loans will be sold to the Mortgage Loan Seller by
one or more CREI affiliates, NMCC and PNC Bank, respectively, on or before
the Delivery Date. On or before the Delivery Date (but after it has acquired
those Mortgage Loans not currently held by it), the Mortgage Loan Seller
will, at the direction of the Sponsor, transfer all of the Mortgage Loans,
without recourse, to the Trustee for the benefit of the Certificateholders.
See "--The Mortgage Loan Seller and NMCC" and "--Assignment of the Mortgage
Loans; Repurchase" below.
CERTAIN TERMS AND CONDITIONS OF THE MORTGAGE LOANS
Due Dates. All of the Mortgage Loans provide for scheduled payments of
principal and/or interest ("Monthly Payments") to be due on the first day of
each month (as to each Mortgage Loan, the "Due Date"), except that, in the
case of certain Mortgage Loans, the related Balloon Payment (as defined
below) may be due on a day other than the first day of the month.
Mortgage Rates; Calculations of Interest. All of the Mortgage Loans bear
interest at a rate per annum (a "Mortgage Rate") that is fixed for the
remaining term of the Mortgage Loan. As of the Cut-off Date, the Mortgage
Rates of the Mortgage Loans will range from 8.010% to 10.250% per annum, and
the weighted average Mortgage Rate of the Mortgage Loans will be 9.066% per
annum.
Eighty-three of the Mortgage Loans, which represent 58.19% of the Initial
Pool Balance, accrue interest on the basis of a 360-day year consisting of
twelve 30-day months (a "30/360 basis"). Forty-seven Mortgage Loans, which
represent 41.81% of the Initial Pool Balance, accrue interest on the basis of
the actual number of days in the relevant month of accrual and a 360-day
year. All but one of the Mortgage Loans provide, however, for constant
Monthly Payments prior to stated maturity. One Mortgage Loan, which accrues
interest on a 30/360 basis and represents 0.24% of the Initial Pool Balance,
provides for constant Monthly Payments at one level until a specified date
and at a different, lower level thereafter until stated maturity.
Amortization of Principal. One hundred twenty-six of the Mortgage Loans
(the "Balloon Loans"), which represent 98.34% of the Initial Pool Balance,
provide for monthly payments of principal based on
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amortization schedules significantly longer than their remaining terms,
thereby leaving substantial principal amounts due and payable (each such
payment, together with the corresponding interest payment, a "Balloon
Payment") on their respective maturity dates, unless previously prepaid. Four
of the Mortgage Loans, which represent 1.66% of the Initial Pool Balance, are
fully amortizing. The original term to stated maturity of each Mortgage Loan
was between 72 and 180 months. The original amortization schedules of the
Mortgage Loans ranged from 84 to 360 months. As of the Cut-off Date, the
remaining terms to stated maturity of the Mortgage Loans will range from 40
to 178 months, and the weighted average remaining term to stated maturity of
the Mortgage Loans will be 108 months. As of the Cut-off Date, the remaining
amortization terms of the Mortgage Loans will range from 81 to 360 months,
and the weighted average remaining amortization term of the Mortgage Loans
will be 310 months. See "Risk Factors--The Mortgage Loans--Balloon Payments"
herein. No Mortgage Loan permits negative amortization or the deferral of
accrued interest.
Prepayment Provisions. As of the Cut-off Date, 130 Mortgage Loans, which
represent 100% of the Initial Pool Balance, either (a) prohibit voluntary
principal prepayments, in whole or in part, prior to a specified date (each,
a "Lock-Out Expiration Date") (122 Mortgage Loans, which represent 93.58% of
the Initial Pool Balance), which in no such case occurs earlier than April 1,
1998 or later than September 30, 2003, or (b) (without duplication of clause
(a) above) require for a specified period that any voluntary principal
prepayment be accompanied by a premium, penalty, or fee (a "Prepayment
Premium") (eight Mortgage Loans, which represent 6.42% of the Initial Pool
Balance). Of the 122 Mortgage Loans that, as of the Cut-off Date, prohibit
voluntary principal prepayments, in whole or in part, prior to a Lock-Out
Expiration Date, all of such Mortgage Loans also require, for a specified
period following the related Lock-Out Expiration Date that any voluntary
principal prepayment be accompanied by a Prepayment Premium. Prepayment
Premiums are generally calculated either as a percentage (which declines over
time) of the principal amount prepaid or on the basis of a yield maintenance
formula (subject, in certain instances, to a minimum equal to a specified
percentage of the principal amount prepaid). The prepayment terms of each of
the Mortgage Loans are more particularly described in Annex A hereto.
As more fully described herein, Prepayment Premiums actually collected on
the Mortgage Loans will be distributed to the respective Classes of
Certificateholders in the amounts and priorities described under "Description
of the Certificates--Distributions--Distributions of Prepayment Premiums"
herein. The Sponsor makes no representation as to the enforceability of the
provision of any Mortgage Loan requiring the payment of a Prepayment Premium
or as to the collectability of any Prepayment Premium. See "Risk Factors--The
Mortgage Loans--Prepayment Premiums" herein and "Certain Legal Aspects of
Mortgage Loans--Default Interest and Limitations on Prepayments" in the
Prospectus.
"Due-on-Sale" and "Due-on-Encumbrance" Provisions. All of the Mortgage
Loans contain both "due-on-sale" and "due-on-encumbrance" clauses that in
each case, subject to certain limited exceptions, permit the holder of the
Mortgage to accelerate the maturity of the related Mortgage Loan if the
borrower sells or otherwise transfers or encumbers the related Mortgaged
Property or prohibit the borrower from doing so without the consent of the
holder of the Mortgage. The loan documents relating to each Mortgaged
Property that is operated as either a hotel or a health care facility permit,
without the consent of the holder of the first lien, up to $100,000 (and, in
the case of one hotel Mortgaged Property, representing security for 2.27% of
the Initial Pool Balance, up to $300,000) of subordinate financing secured by
the Mortgaged Property. See "--Additional Mortgage Loan
Information--Subordinate Financing" herein. In addition, five Mortgage Loans,
representing 3.69% of the Initial Pool Balance, are in the process of being
assumed pursuant to agreements in place at the time of their origination. The
Master Servicer or the Special Servicer, as applicable, will determine, in a
manner consistent with the servicing standard described herein under
"Servicing of the Mortgage Loans--General" and with the REMIC Provisions,
whether to exercise any right the holder of any Mortgage may have under any
such clause to accelerate payment of the related Mortgage Loan upon, or to
withhold its consent to, any transfer or further encumbrance of the related
Mortgaged Property; provided, however, that neither the Master Servicer nor
the Special Servicer shall waive any right it has, or grant any consent that
it may otherwise withhold, under any related "due-on-encumbrance" clause
until it has received written confirmation from each Rating Agency that such
action would not result in the downgrade, qualification
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or withdrawal of the rating then assigned by any Rating Agency to any Class
of Certificates. See "Description of the Pooling Agreements--Due-on-Sale and
Due-on-Encumbrance Provisions" and "Certain Legal Aspects of Mortgage
Loans--Due-on-Sale and Due-on-Encumbrance" in the Prospectus.
ADDITIONAL MORTGAGE LOAN INFORMATION
General. For a detailed presentation of certain characteristics of the
Mortgage Loans and Mortgaged Properties, on an individual basis and in
tabular format, see Annex A hereto. Certain capitalized terms that appear
herein are defined in Annex A.
Delinquencies. No Mortgage Loan will be, as of the Cut-off Date, or has
been, during the 12 months prior thereto, 30 days or more delinquent in
respect of any Monthly Payment.
Tenant Matters. Forty-nine Commercial Mortgaged Properties, which
represent security for 38.30% of the Initial Pool Balance, are leased in
large part to one or more Major Tenants or are wholly or in large part
owner-occupied. Six companies are Major Tenants or Anchor Tenants with
respect to more than one Mortgaged Property, with the related groups of
Mortgage Loans representing 4.36%, 2.47%, 2.23%, 1.52%, 1.44% and 1.43% of
the Initial Pool Balance. Food Lion, Inc., a supermarket chain, is an anchor
tenant at ten of the retail Mortgaged Properties, which represent security
for 4.36% of the Initial Pool Balance.
"Major Tenants" means any tenant at a Commercial Mortgaged Property that
rents at least 20% of the Leasable Square Footage (as defined in Annex A) at
such property. "Anchor Tenant" means a tenant of a retail or office Mortgaged
Property that, because of characteristics such as size, diversity of
merchandise, name recognition and/or range of advertising, attracts customers
to the property from a broad geographic area in a manner that benefits all of
the tenants of such Mortgaged Property.
Certain Prior Bankruptcies. Two of the Mortgaged Properties, which
represent security for 1.52% of the Initial Pool Balance, were the subject of
prior bankruptcy proceedings, but each such property has since been
transferred to an entity not affiliated with the debtor in bankruptcy, which
transferee is the current borrower under the related Mortgage Loan. Only
limited operating information is available with respect to each such
Mortgaged Property under its current owner.
Ground Leases. One Mortgage Loan, which represents 0.82% of the Initial
Pool Balance, is secured by a Mortgage on the applicable borrower's leasehold
interest in the related Mortgaged Property. The owner of the fee interest in
such Mortgaged Property, an affiliate of such borrower, has agreed in the
related loan documents to subordinate such fee interest to such leasehold
interest and has pledged such fee interest as security for the Mortgage Loan.
Another Mortgage Loan, which represents 0.99% of the Initial Pool Balance, is
secured, in part, by a Mortgage on the applicable borrower's fee interest in
a portion of the related Mortgaged Property and also by such borrower's
short-term leasehold interest in an auxiliary parking lot adjacent to the
portion of the Mortgaged Property owned by the borrower in fee. For such
Mortgage Loan, the auxiliary parking lot was not considered for purposes of
determining the loan-to-value ratio of such Mortgage Loan at origination,
although the expenses associated with such parking lot were taken into
account at origination in determining the debt service coverage ratio for
such Mortgage Loan, and such parking lot is not necessary in order for the
related Mortgaged Property to comply with applicable zoning ordinances. See
"Risk Factors--The Mortgage Loans--Risks Particular to Ground Leases" herein
and "Certain Legal Aspects of Mortgage Loans--Foreclosure--Leasehold Risks"
in the Prospectus.
Subordinate Financing. One of the Mortgaged Properties, which represents
security for a Mortgage Loan representing 0.51% of the Initial Pool Balance,
is encumbered by subordinated debt, but the holder of the subordinated debt
has agreed not to foreclose for so long as the related Mortgage Loan is
outstanding and the Trust Fund is not pursuing a foreclosure action. Other
than in such case, the Sponsor knows of no other secured subordinate
financing currently encumbering any Mortgaged Property, and no assurance can
be given that subordinate financing will not exist as to any Mortgaged
Property in the future. The loan documents relating to each Mortgaged
Property that is operated as either a hotel or a health care facility permit,
without the consent of the holder of the first lien, up to $100,000 (and, in
the case of one hotel Mortgaged Property, representing security for 2.27% of
the Initial Pool Balance, up to $300,000) of subordinate financing secured by
the Mortgaged Property. All of the other Mortgage Loans
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either prohibit the related borrower from encumbering the Mortgaged Property
with additional secured debt or require the consent of the holder of the
first lien prior to so encumbering such property.
The existence of subordinated indebtedness may increase the difficulty of
refinancing the related Mortgage Loan at maturity and the possibility that
reduced cash flow could result in deferred maintenance. Also, in the event
that the holder of the subordinated debt files for bankruptcy or is placed in
involuntary receivership, foreclosing on the Mortgaged Property could be
delayed. See "Risk Factors--The Mortgage Loans--Risks of Subordinate
Financing" herein and "Certain Legal Aspects of Mortgage Loans--Subordinate
Financing" in the Prospectus.
CERTAIN UNDERWRITING MATTERS
Environmental Assessments. Each of the Mortgaged Properties was subject to
a "Phase I" environmental assessment or an update of a previously conducted
assessment, which assessment or update was conducted generally in accordance
with industry-wide standards, on or after February 17, 1995. In the case of
one Mortgaged Property, which represents security for 0.39% of the Initial
Pool Balance, such assessment identified soil and ground water contamination
resulting from leaking fuel tanks. The Sponsor has been advised by NMCC that
such tanks have been removed; however, the cost to remediate the
contamination may be substantial. Although reserves were established to cover
the costs of monitoring the situation, no such reserves were established to
cover cleanup costs. The Sponsor has been informed by NMCC, however, that
such Mortgaged Property is eligible for reimbursement of the costs of such
cleanup from the State in which it is located. No such assessment or update
otherwise revealed any material adverse environmental condition or
circumstance at any Mortgaged Property, except in those cases in which an
operations and maintenance plan (including, in several cases, in respect of
asbestos containing materials and lead based paint), periodic monitoring of
nearby properties or the establishment of an escrow reserve to cover the
estimated cost of remediation was recommended, and which recommended actions
have been or are expected to be implemented in the manner and within the time
frames specified in the related Mortgage Loan documents.
The information contained herein is based on the environmental assessments
and has not been independently verified by the Sponsor, the Mortgage Loan
Seller, NMCC, PNC Bank, the Underwriters, the Master Servicer, the Special
Servicer, the Trustee, the Fiscal Agent, the REMIC Administrator, or any of
their respective affiliates.
Property Condition Assessments. Inspections of all of the Mortgaged
Properties (or updates of previously conducted inspections) were conducted by
independent licensed engineers in connection with or subsequent to the
origination of the related Mortgage Loan. Such inspections were generally
commissioned to inspect the exterior walls, roofing, interior construction,
mechanical and electrical systems and general condition of the site,
buildings and other improvements located at a Mortgaged Property. With
respect to certain of the Mortgage Loans, the resulting reports indicated a
variety of deferred maintenance items and recommended capital improvements.
The estimated cost of the necessary repairs or replacements at a Mortgaged
Property was included in the related property condition assessment. In some
(but not all) instances, cash reserves were established to fund such deferred
maintenance or replacement items, generally in an amount equal to 125% of the
estimated cost of such items. In addition, various Mortgage Loans require
monthly deposits into cash reserve accounts to fund property maintenance
expenses. In the case of one Mortgaged Property representing 2.27% of the
Initial Pool Balance and operated as a hotel, approximately $2.9 million was
reserved at closing to fund the completion of certain room renovation and
exterior renovation. In the case of another Mortgaged Property representing
0.76% of the Initial Pool Balance and operated as a shopping center, a
construction reserve account in the approximate amount of $768,000 was
established to fund the reconfiguration and repaving of a parking lot and
roof renovations following the completion of road-widening eminent domain
proceedings. In the case of a third Mortgaged Property representing 0.76% of
the Initial Pool Balance and operated as an assisted living facility, a
construction reserve account in the approximate amount of $707,000 was
established to fund a 24-bed expansion. The Appraised Values for such
Mortgaged Properties do not reflect the completion of such renovations.
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Appraisals and Market Studies. An appraisal of each of the related
Mortgaged Properties was performed (or an existing appraisal updated) in
connection with or subsequent to the origination of each Mortgage Loan, by an
independent MAI or state-certified appraiser to establish that the appraised
value of the related Mortgaged Property or Properties exceeded the original
principal balance of the Mortgage Loan (or, in the case of a set of related
Cross-Collateralized Mortgage Loans, the aggregate original principal balance
of such set). Each such appraisal was prepared on or about the "Appraisal
Date" indicated on Annex A hereto and conforms to the appraisal guidelines
set forth in Title XI of the Federal Financial Institutions Reform, Recovery
and Enforcement Act of 1989 ("FIRREA"). In general, such appraisals represent
the analysis and opinions of the respective appraisers at or before the time
made, and are not guarantees of, and may not be indicative of, present or
future value. There can be no assurance that another appraiser would not have
arrived at a different valuation, even if such appraiser used the same
general approach to and same method of appraising the property. In addition,
appraisals seek to establish the amount a typically motivated buyer would pay
a typically motivated seller. Such amount could be significantly higher than
the amount obtained from the sale of a Mortgaged Property under a distress or
liquidation sale.
None of the Sponsor, the Mortgage Loan Seller, the Underwriters, NMCC, PNC
Bank, the Master Servicer, the Special Servicer, the Trustee, the Fiscal
Agent, the REMIC Administrator, or any of their respective affiliates has
prepared or conducted its own separate appraisal or reappraisal of any
Mortgaged Property.
Zoning and Building Code Compliance. The Mortgage Loan Seller, with
respect to the CREI Mortgage Loans, and NMCC, with respect to the NMCC
Mortgage Loans, have examined whether the use and operation of the related
Mortgaged Properties were in compliance in all material respects with all
applicable zoning, land-use, environmental, building, fire and health
ordinances, rules, regulations and orders applicable to such Mortgaged
Properties at the time such Mortgage Loans were originated. Establishment of
such compliance may have been supported by legal opinions, certifications
from government officials and/or representations by the related borrower
contained in the related Mortgage Loan documents. Certain violations may
exist, but neither the Mortgage Loan Seller, with respect to the CREI
Mortgage Loans, nor NMCC, with respect to the NMCC Mortgage Loans, considers
them to be material. In many cases, the use, operation and/or structure of
the related Mortgaged Property constitutes a permitted nonconforming use
and/or structure, which may not be rebuilt to its current state in the event
of a material casualty event; however, while it is expected that insurance
proceeds would be available for application to the related Mortgage Loan if
such were to occur, no assurance can be given that such proceeds would be
sufficient to pay off such Mortgage Loan in full or that, if the Mortgaged
Property were to be repaired or restored in conformity with current law, what
its value would be relative to the remaining balance on the related Mortgage
Loan or what its revenue-producing potential would be.
Hazard, Liability and Other Insurance. Substantially all of the Mortgages
require that each Mortgaged Property be insured by a hazard insurance policy
in an amount (subject to a customary deductible) at least equal to the lesser
of the outstanding principal balance of the related Mortgage Loan and 100% of
the full insurable replacement cost of the improvements located on the
related Mortgaged Property, and if applicable, the related hazard insurance
policy contains appropriate endorsements to avoid the application of
co-insurance and does not permit reduction in insurance proceeds for
depreciation; provided that, in the case of certain of the Mortgage Loans,
the hazard insurance may be in such other amounts as was required by the
related originators. In addition, if any portion of a Mortgaged Property
securing any Mortgage Loan was, at the time of the origination of such
Mortgage Loan, in an area identified in the Federal Register by the Flood
Emergency Management Agency as having special flood hazards, and flood
insurance was available, a flood insurance policy meeting any requirements of
the then current guidelines of the Federal Insurance Administration is in
effect with a generally acceptable insurance carrier, in an amount
representing coverage not less than the least of (1) the outstanding
principal balance of such Mortgage Loan, (2) the full insurable value of such
Mortgaged Property, (3) the maximum amount of insurance available under the
National Flood Insurance Act of 1968, as amended and (4) 100% of the
replacement cost of the improvements located on the related Mortgaged
Property. In general, the standard form of hazard insurance policy covers
physical damage to,
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or destruction of, the improvements on the Mortgaged Property by fire,
lightning, explosion, smoke, windstorm and hail, riot or strike and civil
commotion, subject to the conditions and exclusions set forth in each policy.
No Mortgage requires that earthquake insurance be carried with respect to the
related Mortgaged Property.
Each Mortgage generally also requires the related borrower to maintain
comprehensive general liability insurance against claims for personal and
bodily injury, death or property damage occurring on, in or about the related
Mortgaged Property in an amount customarily required by institutional
lenders.
Each Mortgage (other than Mortgages encumbering mobile home park
properties) generally further requires the related borrower to maintain
business interruption insurance in an amount not less than 100% of the
projected rental income from the related Mortgaged Property for not less than
six months.
In addition to the foregoing and to certain other policies required to be
maintained by each borrower pursuant to the related Mortgage, each Mortgage
generally further requires the borrower thereunder to maintain insurance
covering the major components of the central heating, air conditioning and
ventilating systems, boilers, other pressure vessels, high pressure piping
and machinery, elevators and escalators, if any, and any other similar
equipment installed in the improvements against physical damage thereto and
loss of occupancy and use of the improvements arising out of an accident or
breakdown of such equipment, in an amount at least equal to the full
replacement cost of the building(s) housing the equipment or, in the case of
certain of the Mortgage Loans, in amounts which are customarily required by
institutional lenders.
THE MORTGAGE LOAN SELLER AND NMCC
The Mortgage Loan Seller is a Delaware corporation and is in the business
of originating loans on income-producing properties. The principal office of
the Mortgage Loan Seller is in New York, New York. The Mortgage Loan Seller
is a direct, wholly-owned subsidiary of Citibank, N.A.
NMCC is a Texas corporation and is in the business of originating,
purchasing and packaging mortgage loans for resale. The principal office of
NMCC is in Charlotte, North Carolina. NMCC is a wholly-owned finance
subsidiary of NationsBank Corporation.
The information set forth herein concerning (i) the Mortgage Loan Seller
has been provided by the Mortgage Loan Seller and (ii) NMCC has been provided
by NMCC, and neither the Sponsor nor either Underwriter makes any
representation or warranty as to the accuracy or completeness of such
information.
ASSIGNMENT OF THE MORTGAGE LOANS; REPURCHASES
On or prior to the Delivery Date, at the direction of the Sponsor, the
Mortgage Loan Seller will assign, sell and transfer the Mortgage Loans,
without recourse, to the Trustee for the benefit of the Certificateholders.
In connection with such assignment, the Mortgage Loan Seller will be required
to deliver the following documents, among others, to the Trustee with respect
to each CREI Mortgage Loan and NMCC will be required to deliver the following
documents, among others, to the Trustee with respect to each NMCC Mortgage
Loan: (a) the original Mortgage Note, endorsed (without recourse) to the
order of the Trustee; (b) the original or a copy of the related Mortgage(s),
together with originals or copies of any intervening assignments of such
document(s), in each case (unless the particular document has not been
returned from the applicable recording office) with evidence of recording
thereon; (c) the original or a copy of any related assignment(s) of rents and
leases (if any such item is a document separate from the Mortgage), together
with originals or copies of any intervening assignments of such document(s),
in each case (unless the particular document has not been returned from the
applicable recording office) with evidence of recording thereon; (d) an
assignment of each related Mortgage in favor of the Trustee, in recordable
form (or a certified copy of such assignment as sent for recording); (e) an
assignment of any related assignment(s) of rents and leases (if any such item
is a document separate from the Mortgage) in favor of the Trustee, in
recordable form (or a certified copy of such assignment as sent for
recording); (f) an original or copy of the related lender's title insurance
policy (or, if a title insurance policy has not yet
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been issued, a commitment for title insurance "marked-up" at the closing of
such Mortgage Loan); (g) an assignment in favor of the Trustee of each
effective UCC financing statement in the possession of the transferor (or a
certified copy of such assignment as sent for filing); and (h) in the case of
two Mortgage Loans, the original or a copy of the related ground lease.
The Trustee will be required to review the documents delivered thereto by
the Mortgage Loan Seller with respect to each CREI Mortgage Loan and by NMCC
with respect to each NMCC Mortgage Loan within a specified period following
such delivery, and the Trustee will hold the related documents in trust. If
it is found during the course of such review or at any other time that any of
the above-described documents was not delivered with respect to any Mortgage
Loan or that any such document is defective, and in either case such omission
or defect materially and adversely affects the value of the related Mortgage
Loan or the interests of Certificateholders therein, and if the Mortgage Loan
Seller or NMCC, as the case may be, cannot deliver the document or cure the
defect within a period of 120 days (or 90 days, in the event of a defect that
causes the Mortgage Loan to not constitute a "qualified mortgage" within the
meaning of Section 860G(a)(3) of the Code) following its receipt of notice of
such omission or defect, then, except as otherwise provided below, the
Mortgage Loan Seller will be obligated to repurchase (or cause an affiliate
to purchase) the affected Mortgage Loan (if, and only if, the affected
Mortgage Loan is a CREI Mortgage Loan), and NMCC will be obligated to
repurchase the affected Mortgage Loan (if, and only if, the affected Mortgage
Loan is a NMCC Mortgage Loan) within such 120-day period (or 90-day period,
in the event of a defect that causes the Mortgage Loan to not constitute a
"qualified mortgage" within the meaning of Section 860G(a)(3) of the Code) at
a price (the "Purchase Price") generally equal to the unpaid principal
balance of such Mortgage Loan, together with any accrued but unpaid interest
thereon to but not including the Due Date in the Collection Period of the
repurchase, and any related unreimbursed Servicing Advances (as defined
herein). The respective cure/repurchase obligations of the Mortgage Loan
Seller (in the case of CREI Mortgage Loans) and NMCC (in the case of NMCC
Mortgage Loans) will constitute the sole remedies available to the
Certificateholders for any failure on the part of the Mortgage Loan Seller or
NMCC, as the case may be, to deliver any of the above-described documents
with respect to any Mortgage Loan or for any defect in any such document, and
neither the Sponsor nor any other person will be obligated to repurchase the
affected Mortgage Loan if either the Mortgage Loan Seller or NMCC, as the
case may be, defaults on its obligation to do so. Notwithstanding the
foregoing, if any of the above-described documents is not delivered with
respect to any Mortgage Loan because it has been submitted for recording, and
neither such document nor a copy thereof, in either case with evidence of
recording thereon, can be obtained because of delays on the part of the
applicable recording office, then neither the Mortgage Loan Seller nor NMCC
will be required to repurchase (or cause an affiliate to purchase) the
affected Mortgage Loan on the basis of such missing document so long as it
continues in good faith to obtain such document or such copy.
The Pooling Agreement will require that the assignments in favor of the
Trustee with respect to each Mortgage Loan described in clauses (d) and (e)
of the second preceding paragraph be submitted for recording in the real
property records of the appropriate jurisdictions within a specified number
of days following the Delivery Date. See "Description of the Pooling
Agreements--Assignment of Mortgage Loans; Repurchases" in the Prospectus.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
In the Pooling Agreement, the Mortgage Loan Seller will be required to
represent and warrant solely with respect to the CREI Mortgage Loans and NMCC
will be required to represent and warrant solely with respect to the NMCC
Mortgage Loans, in each case as of the Delivery Date or as of such other date
specifically provided in the related representation or warranty, among other
things, substantially as follows: (i) the information set forth in the
schedule of Mortgage Loans (the "Mortgage Loan Schedule") attached to the
Pooling Agreement (which will contain a limited portion of the information
set forth in Annex A) is true and correct in all material respects as of the
Cut-off Date; (ii) each Mortgage securing a Mortgage Loan is a valid first
lien on the related Mortgaged Property subject only to (A) the lien of
current real estate taxes and assessments not yet due and payable, (B)
covenants, conditions and restrictions, rights of way, easements and other
matters of public record, and (C) exceptions and exclusions specifically
referred to in the related lender's title insurance policy issued or, as
evidenced by
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a "marked-up" commitment, to be issued in respect of such Mortgage Loan (the
exceptions set forth in the foregoing clauses (A), (B) and (C) collectively,
"Permitted Encumbrances"); (iii) the Mortgage(s) and Mortgage Note for each
Mortgage Loan and all other documents to which the related borrower is a
party and which evidence or secure such Mortgage Loan, are the legal, valid
and binding obligations of the related borrower (subject to any non-recourse
provisions contained in any of the foregoing agreements and any applicable
state anti-deficiency legislation), enforceable in accordance with their
respective terms, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, receivership, moratorium or other laws relating
to or affecting the rights of creditors generally and by general principles
of equity regardless of whether such enforcement is considered in a
proceeding in equity or at law; (iv) no Mortgage Loan was, as of the Cut-off
Date, 30 days or more delinquent in respect of any Monthly Payment, without
giving effect to any applicable grace period; (v) there is no valid offset,
defense or counterclaim to any Mortgage Loan; (vi) it has not waived any
material default, breach, violation or event of acceleration existing under
any Mortgage or Mortgage Note; (vii) it has not received actual notice that
(A) there is any proceeding pending or threatened for the total or partial
condemnation of any Mortgaged Property, or (B) there is any material damage
at any Mortgaged Property that materially and adversely affects the value of
such Mortgaged Property; (viii) all insurance coverage required under each
Mortgage securing a Mortgage Loan is in full force and effect with respect to
the related Mortgaged Property; (ix) at origination, each Mortgage Loan
complied in all material respects with all requirements of federal and state
law, including those requirements pertaining to usury, relating to the
origination of such Mortgage Loan; (x) in connection with or subsequent to
the origination of the related Mortgage Loan, one or more environmental site
assessments (or an update of a previously conducted assessment) has been
performed with respect to each Mortgaged Property, and it, having made no
independent inquiry other than reviewing the resulting report(s) and/or
employing an environmental consultant to perform the assessments or updates
referenced herein, has no knowledge of any material and adverse environmental
condition or circumstance affecting such Mortgaged Property that was not
disclosed in the related report(s); (xi) the lien of each Mortgage is insured
by a title insurance policy issued by a nationally recognized title insurance
company that insures the originator, its successors and assigns, as to the
first priority lien of such Mortgage in the original principal amount of the
related Mortgage Loan after all advances of principal, subject only to
Permitted Encumbrances (or, if a title insurance policy has not yet been
issued in respect of any Mortgage Loan, a policy meeting the foregoing
description is evidenced by a commitment for title insurance "marked-up" at
the closing of such loan); (xii) the proceeds of each Mortgage Loan have been
fully disbursed, and there is no requirement for future advances thereunder;
(xiii) the terms of the Mortgage Note and Mortgage(s) for each Mortgage Loan
have not been impaired, waived, altered or modified in any material respect,
except as specifically set forth in the related Mortgage File; (xiv) there
are no delinquent taxes, ground rents, water charges, sewer rents, insurance
premiums, assessments, including assessments payable in future installments,
or other similar outstanding charges affecting the related Mortgaged
Property; (xv) the related borrower's interest in each Mortgaged Property
securing a Mortgage Loan consists of a fee simple and/or leasehold estate in
real property; (xvi) no Mortgage Loan contains any equity participation by
the lender or provides for any contingent or additional interest in the form
of participation in the cash flow of the related Mortgaged Property; (xvii)
all escrow deposits (including capital improvements and environmental
remediation reserves) relating to each Mortgage Loan that were required to be
delivered to the mortgagee under the terms of the related loan documents,
have been received and, to the extent of any remaining balances thereof are
in the possession or under the control of the representing party or its
agents (which shall include the Master Servicer); and (xviii) there is no
material default, breach or event of acceleration existing under the related
Mortgage or Mortgage Note, and the representing party has not received actual
notice of any event (other than payments due but not yet delinquent) that,
with the passage of time or with notice and the expiration of any grace or
cure period, would constitute such a material default, breach or event of
acceleration (provided that this representation and warranty will not cover
defaults, breaches or events of acceleration that specifically pertain to any
matter otherwise covered by any other representation or warranty made by the
representing party). In the Pooling Agreement, NMCC will also be required to
represent and warrant, as of the Delivery Date, that, immediately prior to
the transfer of the NMCC Mortgage Loans to the Mortgage Loan Seller, NMCC had
good and marketable title to, and was the sole owner of, each NMCC Mortgage
Loan and had full right and authority to sell, assign and transfer such
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Mortgage Loan. In the Pooling Agreement, the Mortgage Loan Seller will also
be required to represent and warrant, as of the Delivery Date, that,
immediately prior to the transfer of the Mortgage Loans to the Trustee, the
Mortgage Loan Seller had good and marketable title to, and was the sole owner
of, each Mortgage Loan (including each NMCC Mortgage Loan) and had full right
and authority to sell, assign and transfer such Mortgage Loan (provided that,
in the case of NMCC Mortgage Loans, such representation and warranty will be
made on the assumption that the representation and warranty of NMCC described
in the prior sentence is true and correct).
If the Mortgage Loan Seller discovers or is notified of a breach of any of
the foregoing representations and warranties with respect to any CREI
Mortgage Loan (or, in the case of a breach of the representation and warranty
described in the last sentence of the prior paragraph, with respect to any
Mortgage Loan), or NMCC discovers or is notified of a breach of any of the
foregoing representations and warranties with respect to any NMCC Mortgage
Loan, and such breach materially and adversely affects the value of such
Mortgage Loan or the interests of Certificateholders therein, and if the
Mortgage Loan Seller or NMCC, as the case may be, cannot cure such breach
within a period of 120 days (or 90 days, in the event of a defect that causes
the Mortgage Loan to not constitute a "qualified mortgage" within the meaning
of Section 860G(a)(3) of the Code) following its discovery or receipt of
notice of such breach, then the Mortgage Loan Seller (if the affected
Mortgage Loan is a CREI Mortgage Loan or the breach is in respect of the
representation and warranty described in the last sentence of the prior
paragraph) or NMCC (if the affected Mortgage Loan is an NMCC Mortgage Loan),
as the case may be, will be obligated to repurchase (or cause an affiliate to
purchase) the affected Mortgage Loan within such 120-day or 90-day period, as
applicable, at the applicable Purchase Price.
The foregoing cure/repurchase obligation of the Mortgage Loan Seller or
NMCC, as applicable, will constitute the sole remedy available to the
Certificateholders for any breach of any of the foregoing representations and
warranties, and neither the Sponsor nor any other person will be obligated to
repurchase any affected Mortgage Loan in connection with a breach of such
representations and warranties if either the Mortgage Loan Seller or NMCC, as
applicable, defaults on its obligation to do so. The Mortgage Loan Seller and
NMCC will be the sole Warranting Parties (as defined in the Prospectus) in
respect of the Mortgage Loans, with the Mortgage Loan Seller being the sole
Warranting Party with respect to the CREI Mortgage Loans (except as described
in the last sentence of the second preceding paragraph) and NMCC being the
sole Warranting Party with respect to the NMCC Mortgage Loans. See
"Description of the Pooling Agreements--Representations and Warranties;
Repurchases" in the Prospectus.
CHANGES IN MORTGAGE POOL CHARACTERISTICS
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at the time the Offered Certificates are issued, 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 Sponsor deems such removal
necessary or appropriate or if it is prepaid. A limited number of other
mortgage loans may be included in the Mortgage Pool prior to the issuance of
the Offered Certificates, unless including such mortgage loans would
materially alter the characteristics of the Mortgage Pool as described
herein. The Sponsor believes that the information set forth herein will be
representative of the characteristics of the Mortgage Pool as it will be
constituted at the time the Offered Certificates are issued, although the
range of Mortgage Rates and maturities, as well as the other characteristics
of the Mortgage Loans described herein, may vary.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Certificates on or shortly after the Delivery Date
and will be filed, together with the Pooling Agreement, with the SEC within
fifteen days after the initial issuance of the Offered Certificates. In the
event Mortgage Loans are removed from or added to the Mortgage Pool as set
forth in the preceding paragraph, such removal or addition will be noted in
the Form 8-K.
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SERVICING OF THE MORTGAGE LOANS
GENERAL
The Master Servicer and the Special Servicer, either directly or through
sub-servicers, will each be required to service and administer the respective
Mortgage Loans for which it is responsible, in the best interests and for the
benefit of the Certificateholders, in accordance with any and all applicable
laws, the terms of the Pooling Agreement, related insurance policies and the
respective Mortgage Loans and, to the extent consistent with the foregoing,
the following standard (the "Servicing Standard"): (a) in the same manner in
which, and with the same care, skill, prudence and diligence with which, the
Master Servicer or Special Servicer, as the case may be, generally services
and administers similar mortgage loans or assets, as applicable, for other
portfolios or held in its own portfolios, whichever servicing procedure is of
a higher standard; (b) with a view to the timely collection of all scheduled
payments of principal and interest under the Mortgage Loans or, if a Mortgage
Loan comes into and continues in default and if, in the good faith and
reasonable judgment of the Special Servicer, no satisfactory arrangements can
be made for the collection of the delinquent payments, the maximization of
the recovery on such Mortgage Loan to the Certificateholders (collectively)
on a present value basis; and (c) without regard to (i) any relationship that
the Master Servicer or the Special Servicer, as the case may be, or any
affiliate thereof may have with the related borrower; (ii) the ownership of
any Certificate by the Master Servicer or the Special Servicer, as the case
may be, or any affiliate thereof; (iii) the Master Servicer's obligation to
make Advances (as defined herein); (iv) the Special Servicer's obligation to
make (or to direct the Master Servicer to make) Servicing Advances (as
defined herein); and (v) the Master Servicer's or the Special Servicer's, as
the case may be, right to receive compensation for its services under the
Pooling Agreement or with respect to any particular transaction.
In general, the Master Servicer will be responsible for the servicing and
administration of all the Mortgage Loans as to which no Servicing Transfer
Event (as defined herein) has occurred and all Corrected Mortgage Loans (as
defined herein), and the Special Servicer will be obligated to service and
administer each Mortgage Loan (other than a Corrected Mortgage Loan) as to
which a Servicing Transfer Event has occurred (each, a "Specially Serviced
Mortgage Loan") and each Mortgaged Property acquired in respect of a
defaulted Mortgage Loan on behalf of the Certificateholders through
foreclosure, deed-in-lieu of foreclosure or otherwise (upon acquisition, an
"REO Property"). A "Servicing Transfer Event" with respect to any Mortgage
Loan consists of any of the following events: (i) the related borrower has
failed to make when due any Balloon Payment, which failure has continued
unremedied for 30 days; (ii) the related borrower has failed to make when due
any Monthly Payment (other than a Balloon Payment) or any other payment
required under the related Mortgage Note or the related Mortgage(s), which
failure continues unremedied for 60 days; (iii) the Master Servicer has
determined in its good faith and reasonable judgment, that a default in the
making of a Monthly Payment or any other payment required under the related
Mortgage Note or the related Mortgage(s) is likely to occur within 30 days
and is likely to remain unremedied for at least 60 days or, in the case of a
Balloon Payment, for at least 30 days; (iv) there shall have occurred a
default under the related loan documents, other than as described in clause
(i) or (ii) above, that materially impairs the value of the related Mortgaged
Property as security for the Mortgage Loan or otherwise materially and
adversely affects the interests of Certificateholders, which default has
continued unremedied for the applicable grace period under the terms of the
Mortgage Loan (or, if no grace period is specified, 60 days); (v) a decree or
order of a court or agency or supervisory authority having jurisdiction in
the premises in an involuntary case under any present or future federal or
state bankruptcy, insolvency or similar law or the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings, or for
the winding-up or liquidation of its affairs, shall have been entered against
the related borrower and such decree or order shall have remained in force
undischarged or unstayed for a period of 60 days; (vi) the related borrower
shall have consented to the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to such borrower or of or
relating to all or substantially all of its property; (vii) the related
borrower shall have admitted in writing its inability to pay its debts
generally as they become due, filed a petition to take advantage of any
applicable insolvency or reorganization statute, made an assignment for the
benefit of
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its creditors, or voluntarily suspended payment of its obligations; and
(viii) the Master Servicer shall have received notice of the commencement of
foreclosure or similar proceedings with respect to the related Mortgaged
Property or Properties. The Master Servicer shall continue to collect
information and prepare all reports to the Trustee required under the Pooling
Agreement with respect to any Specially Serviced Mortgage Loans and REO
Properties, and further to render incidental services with respect to any
Specially Serviced Mortgage Loans and REO Properties as are specifically
provided for in the Pooling Agreement. Unless the same entity is acting as
both Master Servicer and Special Servicer, the Master Servicer and the
Special Servicer shall not have any responsibility for the performance by
each other of their respective duties under the Pooling Agreement.
A Mortgage Loan will cease to be a Specially Serviced Mortgage Loan (and
will become a "Corrected Mortgage Loan" as to which the Master Servicer will
re-assume servicing responsibilities) at such time as such of the following
as are applicable occur with respect to the circumstances identified above
that caused the Mortgage Loan to be characterized as a Specially Serviced
Mortgage Loan (and provided that no other Servicing Transfer Event then
exists):
(w) with respect to the circumstances described in clauses (i) and (ii)
of the preceding paragraph, the related borrower has made three
consecutive full and timely Monthly Payments under the terms of such
Mortgage Loan (as such terms may be changed or modified in connection with
a bankruptcy or similar proceeding involving the related borrower or by
reason of a modification, waiver or amendment granted or agreed to by the
Special Servicer);
(x) with respect to the circumstances described in clauses (iii), (v),
(vi) and (vii) of the preceding paragraph, such circumstances cease to
exist in the good faith and reasonable judgment of the Special Servicer;
(y) with respect to the circumstances described in clause (iv) of the
preceding paragraph, such default is cured; and
(z) with respect to the circumstances described in clause (viii) of the
preceding paragraph, such proceedings are terminated.
The Master Servicer and Special Servicer will each be required to service
and administer the respective groups of related Cross-Collateralized Mortgage
Loans as a single Mortgage Loan as and when it deems necessary and
appropriate, consistent with the Servicing Standard. If any
Cross-Collateralized Mortgage Loan becomes a Specially Serviced Mortgage
Loan, then each other Mortgage Loan that is cross-collateralized with it
shall also become a Specially Serviced Mortgage Loan. Similarly, no
Cross-Collateralized Mortgage Loan shall subsequently become a Corrected
Mortgage Loan, unless and until all Servicing Transfer Events in respect of
each other Mortgage Loan with which it is cross-collateralized, are
remediated or otherwise addressed as contemplated above.
Set forth below is a description of certain pertinent provisions of the
Pooling Agreement relating to the servicing of the Mortgage Loans. Reference
is also made to the Prospectus, in particular to the section captioned
"Description of the Pooling Agreements," for additional important information
regarding the terms and conditions of the Pooling Agreement as such terms and
conditions relate to the rights and obligations of the Master Servicer and
the Special Servicer thereunder.
THE MASTER SERVICER AND THE SPECIAL SERVICER
GMAC Commercial Mortgage Corporation ("GMAC-CM") will initially act as
both Master Servicer and Special Servicer. The following information has been
provided by GMAC-CM. None of the Sponsor, the Underwriters, the Trustee, the
Fiscal Agent, the REMIC Administrator, or any of their respective affiliates
takes any responsibility therefor or makes any representation or warranty as
to the accuracy or completeness thereof.
The principal servicing offices of GMAC-CM are located at 650 Dresher
Road, Horsham, Pennsylvania 19044-8015. As of September 30, 1996, GMAC-CM had
a multifamily and commercial mortgage loan servicing portfolio of
approximately $20.8 billion in aggregate outstanding principal amount,
secured by properties located in all fifty states and the District of
Columbia. In September 1996,
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GMAC-CM acquired Hanford/Healy Asset Management Company, which had, as of
September 30, 1996, a multifamily and commercial mortgage loan servicing
portfolio of approximately $1.2 billion in aggregate outstanding principal
amount, secured by properties located in approximately 32 states and the
District of Columbia.
SUB-SERVICERS
The Master Servicer and Special Servicer may each delegate its servicing
obligations in respect of the Mortgage Loans serviced thereby to one or more
third-party servicers (each, a "Sub-Servicer"); provided that the Master
Servicer or Special Servicer, as the case may be, will remain obligated under
the Pooling Agreement for such delegated duties. One hundred twenty-four
Mortgage Loans, representing 93.65% of the Initial Pool Balance, are
currently being primary serviced by third-party servicers that are entitled
to and will become Sub-Servicers of such loans on behalf of the Master
Servicer. Each sub-servicing agreement between the Master Servicer or Special
Servicer, as the case may be, and a Sub-Servicer (each, a "Sub-Servicing
Agreement") must provide that, if for any reason the Master Servicer or
Special Servicer, as the case may be, is no longer acting in such capacity,
the Trustee or any successor to such Master Servicer or Special Servicer may
(i) assume such party's rights and obligations under such Sub-Servicing
Agreement, (ii) enter into a new Sub-Servicing Agreement with such
Sub-Servicer on such terms as the Trustee or such other successor Master
Servicer or Special Servicer and such Sub-Servicer shall mutually agree or
(iii) terminate such Sub-Servicer without cause (but only upon payment to the
Sub-Servicer of specified compensation). The Master Servicer and Special
Servicer will each be required to monitor the performance of Sub-Servicers
retained by it.
The Master Servicer and Special Servicer will each be solely liable for
all fees owed by it to any Sub-Servicer retained thereby, irrespective of
whether its compensation pursuant to the Pooling Agreement is sufficient to
pay such fees. Each Sub-Servicer retained thereby will be reimbursed by the
Master Servicer or Special Servicer, as the case may be, for certain
expenditures which it makes, generally to the same extent the Master Servicer
or Special Servicer would be reimbursed under the Pooling Agreement. See
"--Servicing and Other Compensation and Payment of Expenses" herein.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the Master Servicer in respect of
its master servicing activities will be the Master Servicing Fee. The "Master
Servicing Fee" will be payable monthly on a loan-by-loan basis from amounts
received in respect of interest on each Mortgage Loan (including Specially
Serviced Mortgage Loans and Mortgage Loans as to which the related Mortgaged
Property has become an REO Property), will accrue at the applicable Master
Servicing Fee Rate and will be computed on the basis of the same principal
amount and for the same period respecting which any related interest payment
on the related Mortgage Loan is computed. The "Master Servicing Fee Rate"
will range from 0.210% to 0.380% per annum, on a loan-by-loan basis, with a
weighted average Master Servicing Fee Rate of 0.263% per annum as of the
Cut-off Date. As additional servicing compensation, the Master Servicer will
be entitled to retain Prepayment Interest Excesses and Balloon Payment
Interest Excesses (each described below) collected on the Mortgage Loans. In
addition, the Master Servicer will be authorized to invest or direct the
investment of funds held in any and all accounts maintained by it that
constitute part of the Certificate Account, in certain government securities
and other investment grade obligations specified in the Pooling Agreement
("Permitted Investments"), and the Master Servicer will be entitled to retain
any interest or other income earned on such funds, but will be required to
cover any losses from its own funds without any right to reimbursement.
If a borrower prepays a Mortgage Loan, in whole or in part, after the Due
Date but on or before the Determination Date in any calendar month, the
amount of interest (net of related Master Servicing Fees) accrued on such
prepayment from such Due Date to, but not including, the date of prepayment
(or any later date through which interest accrues) will, to the extent
actually collected, constitute a "Prepayment Interest Excess". Conversely, if
a borrower prepays a Mortgage Loan, in whole or in part, after the
Determination Date in any calendar month and does not pay interest on such
prepayment through the end of such calendar month, then the shortfall in a
full month's interest (net of related Master Servicing
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Fees) on such prepayment will constitute a "Prepayment Interest Shortfall".
Similarly, if the Due Date for any Balloon Payment occurs after the first day
of, but on or before the Determination Date in, any calendar month, the
amount of interest (net of related Master Servicing Fees) accrued on the
related Balloon Loan from the beginning of such month to the maturity date
will, to the extent actually collected in connection with the payment of such
Balloon Payment on or before such Determination Date, constitute a "Balloon
Payment Interest Excess". Conversely, if the Due Date for any Balloon Payment
occurs after the Determination Date in any calendar month, the amount of
interest (net of related Master Servicing Fees) that would have accrued on
the related Balloon Loan from the stated maturity date through the end of
such calendar month will, to the extent not paid by the borrower, constitute
a "Balloon Payment Interest Shortfall". Prepayment Interest Excesses and
Balloon Payment Interest Excesses collected on the Mortgage Loans will be
retained by the Master Servicer as additional servicing compensation. The
Master Servicer will cover, out of its own funds, any Balloon Payment
Interest Shortfalls and, to the extent of that portion of its Master
Servicing Fees (in the case of each loan, calculated at 0.125% per annum) and
all other of its servicing compensation for the same Collection Period,
Prepayment Interest Shortfalls incurred with respect to the Mortgage Loans
during any Collection Period.
The principal compensation to be paid to the Special Servicer in respect
of its special servicing activities will be the Standby Fee, the Special
Servicing Fee, the Workout Fee and the Liquidation Fee. The "Standby Fee"
will accrue with respect to each Mortgage Loan (including a Specially
Serviced Mortgage Loan and a Mortgage Loan as to which the related Mortgaged
Property has become an REO Property) in the same manner as the Master
Servicing Fee (but at a rate of .005% per annum), and will be payable by the
Master Servicer out of its Master Servicing Fees with respect to such
Mortgage Loan. The "Special Servicing Fee" will accrue with respect to each
Specially Serviced Mortgage Loan and each Mortgage Loan as to which the
related Mortgaged Property has become an REO Property, at a rate equal to
0.250% per annum (the "Special Servicing Fee Rate"), on the basis of the same
principal amount and for the same period respecting which any related
interest payment due or deemed due on such Mortgage Loan is computed, and
will be payable monthly from general collections on the Mortgage Loans and
any REO Properties on deposit in the Certificate Account from time to time. A
"Workout Fee" will in general be payable with respect to each Corrected
Mortgage Loan. As to each Corrected Mortgage Loan, the Workout Fee will be
payable out of, and will be calculated by application of a "Workout Fee Rate"
of 1.0% to, each collection of interest and principal (including scheduled
payments, prepayments, Balloon Payments and payments at maturity) received on
such Mortgage Loan for so long as it remains a Corrected Mortgage Loan. The
Workout Fee with respect to any Corrected Mortgage Loan will cease to be
payable if such loan again becomes a Specially Serviced Mortgage Loan or if
the related Mortgaged Property becomes an REO Property; provided that a new
Workout Fee will become payable if and when such Mortgage Loan again becomes
a Corrected Mortgage Loan. If the Special Servicer is terminated (other than
for cause) or resigns, it shall retain the right to receive any and all
Workout Fees payable with respect to Mortgage Loans that became Corrected
Mortgage Loans during the period that it acted as Special Servicer and were
still such at the time of such termination or resignation (and the successor
Special Servicer shall not be entitled to any portion of such Workout Fees),
in each case until the Workout Fee for any such loan ceases to be payable in
accordance with the preceding sentence. A "Liquidation Fee" will be payable
with respect to each Specially Serviced Mortgage Loan as to which the Special
Servicer obtains a full or discounted payoff with respect thereto from the
related borrower and, except as otherwise described below, with respect to
any Specially Serviced Mortgage Loan or REO Property as to which the Special
Servicer receives any Liquidation Proceeds. As to each such Specially
Serviced Mortgage Loan and REO Property, the Liquidation Fee will be payable
from, and will be calculated by application of a "Liquidation Fee Rate" of
1.0% to, the related payment or proceeds. Notwithstanding anything to the
contrary described above, no Liquidation Fee will be payable based on, or out
of, Liquidation Proceeds received in connection with (i) the repurchase of
any Mortgage Loan by the Mortgage Loan Seller or NMCC for a breach of
representation or warranty or for defective or deficient Mortgage Loan
documentation so long as such repurchase occurs within 120 days (or 90 days,
in the event of a defect that causes the Mortgage Loan to not constitute a
"qualified mortgage" within the meaning of Section 860G(a)(3) of the Code) of
the Mortgage Loan Seller's or NMCC's, as applicable, notice or
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discovery of such breach, defect or deficiency, (ii) the purchase of any
Specially Serviced Mortgage Loan or REO Property by the Master Servicer, the
Special Servicer or any holder of Certificates evidencing a majority interest
in the Controlling Class or (iii) the purchase of all of the Mortgage Loans
and REO Properties by the Master Servicer or any holder of Certificates
evidencing a majority interest in the Controlling Class in connection with
the termination of the Trust Fund. If, however, Liquidation Proceeds are
received with respect to any Corrected Mortgage Loan and the Special Servicer
is properly entitled to a Workout Fee, such Workout Fee will be payable based
on and out of the portion of such Liquidation Proceeds that constitute
principal and/or interest. The Special Servicer will be authorized to invest
or direct the investment of funds held in any accounts maintained by it that
constitute part of the Certificate Account, in Permitted Investments, and the
Special Servicer will be entitled to retain any interest or other income
earned on such funds, but will be required to cover any losses from its own
funds without any right to reimbursement.
The Master Servicer and the Special Servicer will each be responsible for
the fees of any Sub-Servicers retained by it (without right of reimbursement
therefor). As additional servicing compensation, the Sub-Servicers with
respect to Mortgage Loans that are not Specially Serviced Mortgage Loans, and
the Special Servicer with respect to Specially Serviced Mortgage Loans,
generally will be entitled to retain all assumption and modification fees,
default interest and late payment charges (to the extent not otherwise
applied to cover interest on Advances if received on a Specially Serviced
Mortgage Loan), charges for beneficiary statements or demands, amounts
collected for checks returned for insufficient funds and any similar fees, in
each case to the extent actually paid by the borrowers with respect to such
loans, and such amounts therefore will not be available for distribution to
Certificateholders. Default interest and late payment charges received on a
Specially Serviced Mortgage Loan are to be applied to cover interest on
Advances in respect of such Mortgage Loan. In general, collections on a
Mortgage Loan are to be applied to interest (at the related Mortgage Rate)
and principal then due and owing prior to being applied to default interest
and late charges. However, in the case of the five Mortgage Loans secured by
health care related Mortgaged Properties, collections thereon are applied to
default interest and late charges prior to principal and interest at the
related Mortgage Rate.
The Master Servicer and the Special Servicer will, in general, each be
required to pay its overhead and any general and administrative expenses
incurred by it in connection with its servicing activities under the Pooling
Agreement, and neither will be entitled to reimbursement therefor except as
expressly provided in the Pooling Agreement. In general, customary,
reasonable and necessary "out of pocket" costs and expenses incurred by the
Master Servicer or Special Servicer in connection with the servicing of a
Mortgage Loan after a default, delinquency or other unanticipated event, or
in connection with the administration of any REO Property, will constitute
"Servicing Advances" (Servicing Advances and P&I Advances, collectively,
"Advances") and, in all cases, will be reimbursable from future payments and
other collections, including in the form of Insurance Proceeds, Condemnation
Proceeds and Liquidation Proceeds, on or in respect of the related Mortgage
Loan or REO Property ("Related Proceeds"). Notwithstanding the foregoing, the
Master Servicer and the Special Servicer will each be permitted to pay, or to
direct the payment of, certain servicing expenses directly out of the
Certificate Account and at times without regard to the relationship between
the expense and the funds from which it is being paid (including in
connection with the remediation of any adverse environmental circumstance or
condition at a Mortgaged Property or an REO Property, although in such
specific circumstances the Master Servicer may advance the costs thereof). In
addition, the Special Servicer may from time to time require the Master
Servicer to reimburse it for any Servicing Advance made thereby (in which
case, such Servicing Advance will be deemed to have been made by the Master
Servicer). Furthermore, if the Special Servicer is required under the Pooling
Agreement to make any Servicing Advance but does not desire to do so, the
Special Servicer may, in its sole discretion, request that the Master
Servicer make such Advance, such request to be made in writing and in a
timely manner that does not adversely affect the interests of any
Certificateholder; provided, however, that the Special Servicer will have an
obligation to make any such Servicing Advance that is necessary to avoid (i)
a material penalty, (ii) material harm to a Mortgaged Property or (iii) any
other material adverse consequence to the Trust Fund (an "Emergency
Advance"). The Master Servicer shall make any such Servicing Advance (other
than an Emergency Advance) that it
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is requested by the Special Servicer to so make within ten days of the Master
Servicer's receipt of such request. The Special Servicer shall be relieved of
any obligations with respect to an Advance that it requests the Master
Servicer to make (regardless of whether or not the Master Servicer makes that
Advance), other than an Emergency Advance.
If the Master Servicer or Special Servicer is required under the Pooling
Agreement to make a Servicing Advance, but neither does so within 15 days
after such Servicing Advance is required to be made, then the Trustee will,
if it has actual knowledge of such failure, be required to give the
defaulting party notice of such failure and, if such failure continues for
three more days, the Trustee will be required to make such Servicing Advance.
If the Trustee is required, but fails, to make such Servicing Advance, the
Fiscal Agent will be required to make such Servicing Advance.
The Master Servicer, the Special Servicer, the Trustee and the Fiscal
Agent will be obligated to make Servicing Advances only to the extent that
such Servicing Advances are, in the reasonable and good faith judgment of the
Master Servicer, the Special Servicer, the Trustee or the Fiscal Agent, as
the case may be, ultimately recoverable from Related Proceeds (any Servicing
Advance not so recoverable, a "Nonrecoverable Servicing Advance").
As and to the extent described herein, the Master Servicer, the Special
Servicer, the Trustee and the Fiscal Agent are each entitled to receive
interest at the Reimbursement Rate on Servicing Advances made thereby. See
"Description of the Pooling Agreements--Certificate Account" and "--Servicing
Compensation and Payment of Expenses" in the Prospectus and "Description of
the Certificates--P&I Advances" herein.
THE EXTENSION ADVISER
Election of the Extension Adviser. The holder or holders of Offered
Certificates with an aggregate principal balance equal to more than 50% of
the aggregate Certificate Balance of all the Offered Certificates (exclusive,
if applicable, of the Controlling Class (as defined below) and any Class of
Offered Certificates subordinate to the Controlling Class) will be entitled
to (i) elect an adviser (the "Extension Adviser") from whom the Special
Servicer will seek approval as described below and/or (ii) replace an
existing Extension Adviser. Upon (i) the receipt by the Trustee of written
requests for an election of an Extension Adviser from the holders of Offered
Certificates with an aggregate principal balance representing more than 50%
of the aggregate Certificate Balance of all the Offered Certificates
(exclusive, if applicable, of the Controlling Class and any Class of Offered
Certificates subordinate to the Controlling Class), or (ii) the resignation
or removal of the person acting as Extension Adviser, an election of an
Extension Adviser will be held commencing as soon as practicable thereafter.
Any Extension Adviser may be removed at any time by the written vote of
holders of Offered Certificates with an aggregate principal balance
representing more than 50% of the aggregate Certificate Balance of all the
Offered Certificates (exclusive, if applicable, of the Controlling Class and
any Class of Offered Certificates subordinate to the Controlling Class). The
Master Servicer will act as the initial Extension Adviser until removed or
replaced as described above. It is anticipated that GMAC-CM (which is the
Master Servicer) or an entity related thereto will acquire certain
Subordinate Certificates.
Duties of the Extension Adviser. The Special Servicer will not be
permitted to grant any extension of the maturity of a Specially Serviced
Mortgage Loan beyond the third anniversary of such loan's original stated
maturity date if: (i) any person or entity has been elected and is serving as
Extension Adviser; and (ii) such Extension Adviser has objected to such
action in writing within ten days of its receiving from the Special Servicer
written notice thereof and sufficient information to make an informed
decision (provided that if such written objection has not been received by
the Special Servicer within such ten-day period, then such Extension
Adviser's approval will be deemed to have been given). In addition, the
Extension Adviser may confirm to its reasonable satisfaction that all
conditions precedent to granting any such extension have been satisfied. See
"--Modifications, Waivers, Amendments and Consents" below.
Limitation on Liability of Extension Adviser. The Extension Adviser will
be acting solely as representative of the interests of the Certificateholders
entitled to vote in the election thereof, and will have no liability to the
Trust Fund or the Certificateholders for any action taken, or for refraining
from
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the taking of any action, in good faith pursuant to the Pooling Agreement, or
for errors in judgment. By its acceptance of a Certificate, each
Certificateholder confirms its understanding that the Extension Adviser may
take actions that favor the interests of one or more Classes of the
Certificates over other Classes of the Certificates, and that the Extension
Adviser may have special relationships and interests that conflict with those
of holders of some Classes of the Certificates and agrees to take no action
against the Extension Adviser or any of its officers, directors, employees,
principals or agents as a result of such a special relationship or conflict.
Limitation on Liability of the Master Servicer and the Special
Servicer. The Master Servicer and the Special Servicer will be entitled to
the same limitations on liability when acting in accordance with a direction
or approval or refraining from acting in accordance with a direction or
objection of the Extension Adviser as it would if such direction, approval or
objection, as the case may be, were an express term of the Pooling Agreement.
Compensation of the Extension Adviser. The Pooling and Servicing Agreement
will not provide for any compensation to be paid to the Extension Adviser out
of the Trust Fund.
MODIFICATIONS, WAIVERS, AMENDMENTS AND CONSENTS
The Master Servicer and the Special Servicer each may, consistent with the
Servicing Standard, agree to any modification, waiver or amendment of any
term of, forgive interest on and principal of, capitalize interest on, permit
the release, addition or substitution of collateral securing, and/or permit
the release of the borrower on or any guarantor of any Mortgage Loan it is
required to service and administer, without the consent of the Trustee or,
except as contemplated by clause (ii) below, any Certificateholder, subject,
however, to each of the following limitations, conditions and restrictions:
(i) with limited exception, the Master Servicer may not agree to any
modification, waiver or amendment of any term of, or take any of the other
above referenced actions with respect to, any Mortgage Loan it is required
to service and administer that would affect the amount or timing of any
related payment of principal, interest or other amount payable thereunder
or, in the Master Servicer's good faith and reasonable judgment, would
materially impair the security for such Mortgage Loan or reduce the
likelihood of timely payment of amounts due thereon; however, the Special
Servicer may agree to any modification, waiver or amendment of any term
of, or take any of the other above referenced actions with respect to, a
Specially Serviced Mortgage Loan that would have any such effect, but only
if 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 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 for
more than one year beyond the later of (A) such loan's original stated
maturity date and (B) the date to which the Special Servicer has
previously extended the maturity date; and, in addition, the Special
Servicer may not extend the date on which any Balloon Payment is scheduled
to be due on any Specially Serviced Mortgage Loan beyond the third
anniversary of such loan's original stated maturity date if (X) any person
or entity has been selected and is serving as Extension Adviser and (Y)
such Extension Adviser has objected to such extension as described under
"--The Extension Adviser" above;
(iii) neither the Master Servicer nor the Special Servicer shall make or
permit any modification, waiver or amendment of any term of, or take any
of the other above referenced actions with respect to, any Mortgage Loan
that would (A) cause either REMIC I or REMIC II to fail to qualify as a
REMIC under the Code or result in the imposition of any tax on "prohibited
transactions" or "contributions" after the startup date of either such
REMIC under the REMIC Provisions or (B) cause any Mortgage Loan to cease
to be a "qualified mortgage" within the meaning of Section 860G(a)(3) of
the Code (neither the Master Servicer nor the Special Servicer shall be
liable for judgments as regards decisions made under this subsection which
were made in good faith and, unless
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it would constitute bad faith or gross negligence to do so, each of the
Master Servicer and the Special Servicer may rely on opinions of counsel
in making such decisions);
(iv) neither the Master Servicer nor the Special Servicer shall permit
any borrower to add or substitute any collateral for an outstanding
Mortgage Loan, which collateral constitutes real property, unless the
Master Servicer or the Special Servicer, as the case may be, shall have
first determined in accordance with the Servicing Standard, based upon a
Phase I environmental assessment (and such additional environmental
testing as the Master Servicer or Special Servicer, as the case may be,
deems necessary and appropriate), that such additional or substitute
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; and
(v) with limited exceptions, neither the Master Servicer nor the Special
Servicer shall release any collateral securing an outstanding Mortgage
Loan;
provided that (x) the limitations, conditions and restrictions set forth in
clauses (i) through (v) above will not apply to any modification of any term
of any Mortgage Loan that is required under the terms of such Mortgage Loan
in effect on the Delivery Date, and (y) notwithstanding clauses (i) through
(v) above, neither the Master Servicer nor the Special Servicer will be
required to oppose the confirmation of a plan in any bankruptcy or similar
proceeding involving a borrower if in their reasonable and good faith
judgment such opposition would not ultimately prevent the confirmation of
such plan or one substantially similar.
SALE OF DEFAULTED MORTGAGE LOANS
The Pooling Agreement grants to the Master Servicer, the Special Servicer
and any holder of Certificates evidencing a majority interest in the
Controlling Class a right to purchase from the Trust Fund certain defaulted
Mortgage Loans in the priority described below. If the Special Servicer has
determined, in its good faith and reasonable judgment, that any defaulted
Mortgage Loan will become the subject of a foreclosure, the Special Servicer
will be required to promptly so notify in writing the Trustee and the Master
Servicer, and the Trustee will be required, within 10 days after receipt of
such notice, to notify any holder of Certificates evidencing a majority
interest in the Controlling Class. Such Certificateholder may, at its option,
purchase from the Trust Fund, at a price equal to the applicable Purchase
Price, any such defaulted Mortgage Loan. If such Certificateholder has not
purchased such defaulted Mortgage Loan within 15 days of its having received
notice in respect thereof, either the Special Servicer or the Master
Servicer, in that order, may, at its option, purchase such defaulted Mortgage
Loan from the Trust Fund, at a price equal to the applicable Purchase Price.
The Special Servicer may offer to sell any such defaulted Mortgage Loan
not otherwise purchased pursuant to the prior paragraph, if and when the
Special Servicer determines, consistent with the Servicing Standard, that
such a sale would be in the best economic interests of the Trust Fund. Such
offer is to be made in a commercially reasonable manner for a period of not
less than 30 days. Unless the Special Servicer determines that acceptance of
any offer would not be in the best economic interests of the Trust Fund, the
Special Servicer shall accept the highest cash offer received from any person
that constitutes a fair price (which may be less than the Purchase Price) for
such Mortgage Loan; provided that none of the Special Servicer, the Master
Servicer, the Sponsor, the holder of any Certificate or an affiliate of any
such party may purchase such Mortgage Loan for less than the Purchase Price
unless at least two other offers are received from independent third parties;
and provided, further, that none of the Trustee, the Fiscal Agent or any
affiliate of either of them may make an offer for any such Mortgage Loan. See
also "Description of the Pooling Agreements--Realization Upon Defaulted
Mortgage Loans" in the Prospectus.
REO PROPERTIES
If title to any Mortgaged Property is acquired by the Special Servicer on
behalf of the Certificateholders, the Special Servicer, on behalf of such
holders, will be required to sell the Mortgaged Property
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within two years of acquisition, unless (i) the Internal Revenue Service
grants an extension of time to sell such property (an "REO Extension") or
(ii) the Special Servicer obtains an opinion of independent counsel generally
to the effect that the holding of the property for more than two years after
its acquisition will not result in the imposition of a tax on the Trust Fund
or cause REMIC I or REMIC II to fail to qualify as a REMIC under the Code.
Subject to the foregoing, the Special Servicer will generally be required to
solicit cash offers for any Mortgaged Property so acquired in such a manner
as will be reasonably likely to realize a fair price for such property. The
Special Servicer may retain an independent contractor to operate and manage
any REO Property; however, the retention of an independent contractor will
not relieve the Special Servicer of its obligations with respect to such REO
Property.
In general, the Special Servicer will be obligated to operate and manage
any Mortgaged Property acquired as REO Property in a manner that would, to
the extent commercially feasible, maximize the Trust Fund's net after-tax
proceeds from such property. After the Special Servicer reviews the operation
of such property and consults with the REMIC Administrator to determine the
Trust Fund's federal income tax reporting position with respect to income it
is anticipated that the Trust Fund would derive from such property, the
Special Servicer could determine that it would not be commercially feasible
to manage and operate such property in a manner that would avoid the
imposition of a tax on "net income from foreclosure property" within the
meaning of the REMIC Provisions or a tax on "prohibited transactions" under
Section 860F of the Code (either such tax referred to herein as an "REO
Tax"). To the extent that income the Trust Fund receives from an REO Property
is subject to a tax on (i) "net income from foreclosure property", such
income would be subject to federal tax at the highest marginal corporate tax
rate (currently 35%) and (ii) "prohibited transactions", such income would be
subject to federal tax at a 100% rate. The determination as to whether income
from an REO Property would be subject to an REO Tax will depend on the
specific facts and circumstances relating to the management and operation of
each REO Property. Generally, income from an REO Property that is directly
operated by the Special Servicer would be apportioned and classified as
"service" or "non-service" income. The "service" portion of such income could
be subject to federal tax either at the highest marginal corporate tax rate
or at the 100% rate on "prohibited transactions," and the "non-service"
portion of such income could be subject to federal tax at the highest
marginal corporate tax rate or, although it appears unlikely, at the 100%
rate applicable to "prohibited transactions". Any REO Tax imposed on the
Trust Fund's income from an REO Property would reduce the amount available
for distribution to Certificateholders. Certificateholders are advised to
consult their own tax advisors regarding the possible imposition of REO Taxes
in connection with the operation of commercial REO Properties by REMICs.
INSPECTIONS; COLLECTION OF OPERATING INFORMATION
The Master Servicer or the Special Servicer, as the case may be, is
required to perform (or cause to be performed) physical inspections of each
Mortgaged Property at least once every two years (or, if the related Mortgage
Loan has a then-current balance greater than $2,000,000, at least once every
year). In addition, the Special Servicer, subject to statutory limitations or
limitations set forth in the related loan documents, is required to perform a
physical inspection of each Mortgaged Property as soon as practicable after
servicing of the related Mortgage Loan is transferred thereto. The Special
Servicer and the Master Servicer will each be required to prepare (or cause
to be prepared) a written report of each such inspection performed thereby
describing the condition of the Mortgaged Property.
With respect to each Mortgage Loan that requires the borrower to deliver
quarterly or annual operating statements with respect to the related
Mortgaged Property, the Master Servicer or the Special Servicer, depending on
which is obligated to service such Mortgage Loan, is also required to make
reasonable efforts to collect and review such statements. However, there can
be no assurance that any operating statements required to be delivered will
in fact be delivered, nor is the Master Servicer or the Special Servicer
likely to have any practical means of compelling such delivery in the case of
an otherwise performing Mortgage Loan.
TERMINATION OF THE SPECIAL SERVICER
The holder or holders of Certificates evidencing a majority interest in
the Controlling Class may at any time replace any Special Servicer. Such
holder(s) shall designate a replacement to so serve by the
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delivery to the Trustee of a written notice stating such designation. The
Trustee shall, promptly after receiving any such notice, so notify the Rating
Agencies. If the designated replacement is acceptable to the Trustee, which
approval may not be unreasonably withheld, the designated replacement shall
become the Special Servicer as of the date the Trustee shall have received:
(i) written confirmation from both Rating Agencies stating that if the
designated replacement were to serve as Special Servicer under the Pooling
Agreement, the then-current rating or ratings of one or more Classes of the
Certificates would not be qualified, downgraded or withdrawn as a result
thereof; (ii) a written acceptance of all obligations of the Special
Servicer, executed by the designated replacement; and (iii) an opinion of
counsel to the effect that the designation of such replacement to serve as
Special Servicer is in compliance with the Pooling Agreement, that the
designated replacement will be bound by the terms of the Pooling Agreement
and that the Pooling Agreement will be enforceable against such designated
replacement in accordance with its terms. The existing Special Servicer shall
be deemed to have resigned simultaneously with such designated replacement's
becoming the Special Servicer under the Pooling Agreement.
The "Controlling Class" will be the most subordinate Class of Sequential
Pay Certificates outstanding (the Class A-1, Class A-2 and Class A-3
Certificates being treated as a single Class for this purpose) that has a
Certificate Balance at least equal to 25% of its initial Certificate Balance
(or, if no Class of Sequential Pay Certificates has a Certificate Balance at
least equal to 25% of its initial Certificate Balance, then the "Controlling
Class" will be the Class of Sequential Pay Certificates with the largest
Certificate Balance then outstanding). It is anticipated that GMAC-CM (which
is the Special Servicer) or an entity related thereto will acquire certain of
the Certificates, one or more Classes of which may constitute the
"Controlling Class" from time to time.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Sponsor's Multifamily/Commercial Mortgage Pass-Through Certificates,
Series 1996-MC2 (the "Certificates") will be issued on or about December 19,
1996 pursuant to a Pooling and Servicing Agreement, to be dated as of the
Cut-off Date (the "Pooling Agreement"), among the Sponsor, the Master
Servicer, the Special Servicer, the Trustee, the Fiscal Agent, the REMIC
Administrator, the Mortgage Loan Seller and NMCC as an additional warranting
party, and will represent in the aggregate the entire beneficial ownership
interest in a trust fund (the "Trust Fund") that includes: (i) the Mortgage
Loans and all payments thereunder and proceeds thereof received after the
Cut-off Date (exclusive of payments of principal, interest and other amounts
due thereon on or before the Cut-off Date); (ii) any REO Properties; and
(iii) such funds or assets as from time to time are deposited in the
Certificate Account (see "Description of the Pooling Agreements--Certificate
Account" in the Prospectus).
The Certificates will consist of 13 classes (each, a "Class") to be
designated as: (i) the Class X Certificates; (ii) the Class A-1 Certificates,
the Class A-2 Certificates and the Class A-3 Certificates (collectively, the
"Class A Certificates"); (iii) the Class B Certificates, the Class C
Certificates, the Class D Certificates, the Class E Certificates, the Class F
Certificates, the Class G Certificates and the Class H Certificates
(collectively with the Class X and Class A Certificates, the "REMIC Regular
Certificates"); and (iv) the Class R-I Certificates and the Class R-II
Certificates (collectively, the "REMIC Residual Certificates"). Only the
Class A, Class B, Class C, Class D and Class E Certificates (collectively,
the "Offered Certificates") are offered hereby.
The Class X, Class F, Class G and Class H Certificates and the REMIC
Residual Certificates (collectively, the "Private Certificates") have not
been registered under the Securities Act and are not offered hereby.
Accordingly, to the extent this Prospectus Supplement contains information
regarding the terms of the Private Certificates, such information is provided
because of its potential relevance to a prospective purchaser of an Offered
Certificate.
REGISTRATION AND DENOMINATIONS
The Offered Certificates will be issued in book-entry format in
denominations of $100,000 actual principal amount and in any whole dollar
denomination in excess thereof.
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Each Class of Offered Certificates will initially be represented by one
or more Certificates registered in the name of the nominee of The Depository
Trust Company ("DTC"). The Sponsor has been informed by DTC that DTC's
nominee will be Cede & Co. No beneficial owner of an Offered Certificate
(each, a "Certificate Owner") will be entitled to receive a fully registered
physical certificate (a "Definitive Certificate") representing its interest
in such Class, except under the limited circumstances described under
"Description of the Certificates--Book-Entry Registration and Definitive
Certificates" in the Prospectus. Unless and until Definitive Certificates are
issued in respect of the Offered Certificates, beneficial ownership interests
in each such Class of Certificates will be maintained and transferred on the
book-entry records of DTC and its participating organizations (its
"Participants"), and all references to actions by holders of each such Class
of Certificates will refer to actions taken by DTC upon instructions received
from the related Certificate Owners through its Participants in accordance
with DTC procedures, and all references herein to payments, notices, reports
and statements to holders of each such Class of Certificates will refer to
payments, notices, reports and statements to DTC or Cede & Co., as the
registered holder thereof, for distribution to the related Certificate Owners
through its Participants in accordance with DTC procedures. The form of such
payments and transfers may result in certain delays in receipt of payments by
an investor and may restrict an investor's ability to pledge its securities.
See "Description of the Certificates--Book-Entry Registration and Definitive
Certificates" and "Risk Factors--Book-Entry Registration" in the Prospectus.
The Trustee will initially serve as registrar (in such capacity, the
"Certificate Registrar") for purposes of recording and otherwise providing
for the registration of the Offered Certificates and, if and to the extent
Definitive Certificates are issued in respect thereof, of transfers and
exchanges of the Offered Certificates.
CERTIFICATE BALANCES AND NOTIONAL AMOUNTS
Upon initial issuance, the Class A-1, Class A-2, Class A-3, Class B, Class
C, Class D, Class E, Class F, Class G and Class H Certificates (collectively,
the "Sequential Pay Certificates") will have the following Certificate
Balances (in each case, subject to a variance of plus or minus 5%):
<TABLE>
<CAPTION>
PERCENT OF
INITIAL CERTIFICATE INITIAL POOL PERCENT OF
CLASS BALANCE BALANCE CREDIT SUPPORT
- ----------- ------------------- -------------- --------------
<S> <C> <C> <C>
Class A-1 . $132,607,079 28.95% 29.50%
Class A-2 . $ 24,276,943 5.30% 29.50%
Class A-3 . $166,045,134 36.25% 29.50%
Class B .... $ 27,483,332 6.00% 23.50%
Class C .... $ 22,902,777 5.00% 18.50%
Class D .... $ 18,322,221 4.00% 14.50%
Class E .... $ 11,451,388 2.50% 12.00%
Class F .... $ 25,193,054 5.50% 6.50%
Class G .... $ 16,031,943 3.50% 3.00%
Class H .... $ 13,741,671 3.00% --
</TABLE>
The "Certificate Balance" of any Class of Sequential Pay Certificates
outstanding at any time will be the then aggregate stated principal amount
thereof. On each Distribution Date, the Certificate Balance of each Class of
Sequential Pay Certificates will be reduced by any distributions of principal
actually made on such Class of Certificates on such Distribution Date, and
will be further reduced by any Realized Losses and Additional Trust Fund
Expenses deemed allocated to such Class of Certificates on such Distribution
Date. See "--Distributions" and "--Subordination; Allocation of Losses and
Certain Expenses" below.
The Class X Certificates will not have a Certificate Balance. The Class X
Certificates will represent the right to receive distributions of interest
accrued as described herein on a notional principal amount (a "Notional
Amount") equal to the aggregate of the Certificate Balances of the respective
Classes of Sequential Pay Certificates outstanding from time to time.
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The "Stated Principal Balance" of each Mortgage Loan will generally equal
the Cut-off Date Balance thereof, reduced (to not less than zero) on each
Distribution Date by (i) any payments or other collections (or advances in
lieu thereof) of principal of such Mortgage Loan that have been or, if they
had not been applied to cover Additional Trust Fund Expenses, would have been
distributed on the Certificates on such date, and (ii) the principal portion
of any Realized Loss incurred in respect of or allocable to such Mortgage
Loan during the related Collection Period.
A Class of Offered Certificates will be considered to be outstanding until
its Certificate Balance or Notional Amount, as the case may be, is reduced to
zero; provided, however, that reimbursement of any previously allocated
Realized Losses and Additional Trust Fund Expenses may thereafter be made
with respect thereto.
PASS-THROUGH RATES
The Pass-Through Rates applicable to the Class A-1, Class A-2, Class A-3,
Class B, Class C, Class D and Class E Certificates will, at all times, be
equal to %, %, %, %, %, % and % per annum, respectively.
The Pass-Through Rates applicable to the Class F, Class G and Class H
Certificates will, at all times, be equal to %, % and %,
respectively.
The Pass-Through Rate applicable to the Class X Certificates: (a) for the
initial Distribution Date, will equal approximately % per annum; and (b)
for each subsequent Distribution Date, will, in general, equal the excess, if
any, of (i) the weighted average of the Net Mortgage Rates in effect for the
Mortgage Loans as of the first day of the related Collection Period (weighted
on the basis of the respective Stated Principal Balances of such Mortgage
Loans immediately following the prior Distribution Date), over (ii) the
weighted average of the Pass-Through Rates applicable to the respective
Classes of Sequential Pay Certificates for such current Distribution Date
(weighted on the basis of the respective Certificate Balances of such Classes
of Certificates immediately prior to such current Distribution Date).
The "Net Mortgage Rate" with respect to any Mortgage Loan is, in general,
a per annum rate equal to the related Mortgage Rate in effect from time to
time, minus the sum of the applicable Master Servicing Fee Rate and the per
annum rate at which the monthly Trustee Fee is calculated (such sum, the
"Administrative Fee Rate"); provided that if any Mortgage Loan does not
accrue interest on the basis of a 360-day year consisting of twelve 30-day
months (which is the basis on which interest accrues in respect of the REMIC
Regular Certificates), then, solely for purposes of calculating the
Pass-Through Rate for the Class IO Certificates, the Net Mortgage Rate of
such Mortgage Loan for any one-month period preceding a related Due Date will
be the annualized rate at which interest would have to accrue in respect of
such loan on the basis of a 360-day year consisting of twelve 30-day months
in order to produce the aggregate amount of interest actually accrued in
respect of such loan during such one-month period at the related Mortgage
Rate (net of the related Administrative Fee Rate). As of the Cut-off Date,
the Net Mortgage Rates for the Mortgage Loans will range from 7.713% per
annum to 9.988% per annum, with a weighted average Net Mortgage Rate of
8.796% per annum. See "Servicing of the Mortgage Loans--Servicing and Other
Compensation and Payment of Expenses" herein.
The "Collection Period" for each Distribution Date is the period that
begins immediately following the Determination Date in the calendar month
preceding the month in which such Distribution Date occurs (or, in the case
of the initial Distribution Date, immediately following the Cut-off Date) and
ends on the Determination Date in the calendar month in which such
Distribution Date occurs. The "Determination Date" will be the day of
each month or, if any such day is not a business day, the immediately
succeeding business day.
DISTRIBUTIONS
General. Distributions on or with respect to the Certificates will be
made by the Trustee, to the extent of available funds, on the 20th day of
each month or, if any such 20th day is not a business day, then on the next
succeeding business day, commencing in January 1997 (each, a "Distribution
Date"). Except
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as otherwise described below, all such distributions will be made to the
persons in whose names the Certificates are registered at the close of
business on the related Record Date and, as to each such person, will be made
by wire transfer in immediately available funds to the account specified by
the Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder will have provided the Trustee with
written wiring instructions no less than five business days prior to the
related Record Date and is the registered owner of Certificates with an
aggregate initial principal amount of at least $5,000,000 (or, alternatively,
is the registered owner of all the Class X Certificates), or otherwise by
check mailed to such Certificateholder. Until Definitive Certificates are
issued in respect thereof, Cede & Co. will be the registered holder of the
Offered Certificates. See "--Registration and Denominations" above. The final
distribution on any Certificate (determined without regard to any possible
future reimbursement of any Realized Losses or Additional Trust Fund Expense
previously allocated to such Certificate) will be made in like manner, but
only upon presentation and surrender of such Certificate at the location that
will be specified in a notice of the pendency of such final distribution. Any
distribution that is to be made with respect to a Certificate in
reimbursement of a Realized Loss or Additional Trust Fund Expense previously
allocated thereto, which reimbursement is to occur after the date on which
such Certificate is surrendered as contemplated by the preceding sentence
(the likelihood of any such distribution being remote), will be made by check
mailed to the Certificateholder that surrendered such Certificate. All
distributions made on or with respect to a Class of Certificates will be
allocated pro rata among such Certificates based on their respective
percentage interests in such Class.
With respect to any Distribution Date and any Class of Certificates, the
"Record Date" will be the last business day of the calendar month immediately
preceding the month in which such Distribution Date occurs.
The Available Distribution Amount. With respect to any Distribution Date,
distributions of interest on and principal of the Certificates will be made
from the Available Distribution Amount for such Distribution Date. The
"Available Distribution Amount" for any Distribution Date will, in general,
equal (a) all amounts on deposit in the Certificate Account as of the close
of business on the related Determination Date, exclusive of any portion
thereof that represents one or more of the following:
(i) Monthly Payments collected but due on a Due Date subsequent to the
related Collection Period;
(ii) Prepayment Premiums (which are separately distributable on the
Certificates as hereinafter described);
(iii) amounts that are payable or reimbursable to any person other than
the Certificateholders (including amounts payable to the Master Servicer,
the Special Servicer, any Sub-Servicers, the Trustee or the Fiscal Agent
as compensation (including Trustee Fees, Master Servicing Fees, Special
Servicing Fees, Workout Fees, Liquidation Fees, default interest and late
payment charges (to the extent not otherwise applied to cover interest on
Advances), assumption fees and modification fees), amounts payable in
reimbursement of outstanding Advances, together with interest thereon, and
amounts payable in respect of other Additional Trust Fund Expenses); and
(iv) amounts deposited in the Certificate Account in error; plus
(b) to the extent not already included in clause (a), any P&I Advances
made with respect to such Distribution Date and any payments made by the
Master Servicer to cover Balloon Payment Interest Shortfalls and Prepayment
Interest Shortfalls incurred during the related Collection Period.
See "Description of the Pooling Agreements--Certificate Account" in the
Prospectus.
Application of the Available Distribution Amount. On each Distribution
Date, the Trustee will apply the Available Distribution Amount for such date
for the following purposes and in the following order of priority:
(1) to pay interest to the holders of the Class A-1, Class A-2, Class A-3
and Class X Certificates (collectively, the "Senior Certificates"), up to
an amount equal to, and pro rata as among such Classes in accordance with,
all Distributable Certificate Interest in respect of each such Class of
Certificates for such Distribution Date and, to the extent not previously
paid, for all prior Distribution Dates;
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(2) to pay principal first to the holders of the Class A-1 Certificates,
second to the holders of the Class A-2 Certificates and third to the
holders of the Class A-3 Certificates, in each case, up to an amount equal
to the lesser of (a) the then outstanding Certificate Balance of such
Class of Certificates and (b) the remaining portion of the Principal
Distribution Amount for such Distribution Date;
(3) to reimburse the holders of the Class A-1, Class A-2, and Class A-3
Certificates, up to an amount equal to, and pro rata as among such Classes
in accordance with, the respective amounts of Realized Losses and
Additional Trust Fund Expenses, if any, previously deemed allocated to
such Classes of Certificates and for which no reimbursement has previously
been paid; and
(4) to make payments on the other Classes of Certificates (collectively,
the "Subordinate Certificates") as contemplated below;
provided that, on each Distribution Date after the aggregate Certificate
Balance of the Subordinate Certificates has been reduced to zero, and in any
event on the final Distribution Date in connection with a termination of the
Trust Fund (see "--Termination" below), the payments of principal to be made
as contemplated by clause (2) above with respect to the Class A Certificates,
will be so made (subject to available funds) to the holders of the respective
Classes of such Certificates, up to an amount equal to, and pro rata as among
such Classes in accordance with, the respective then outstanding Certificate
Balances of such Classes of Certificates.
On each Distribution Date, following the above-described distributions on
the Senior Certificates, the Trustee will apply the remaining portion, if
any, of the Available Distribution Amount for such date for the following
purposes and in the following order of priority:
(1) to pay interest to the holders of the Class B Certificates, up to an
amount equal to all Distributable Certificate Interest in respect of such
Class of Certificates for such Distribution Date and, to the extent not
previously paid, for all prior Distribution Dates;
(2) if the Certificate Balances of the Class A Certificates have been
reduced to zero, to pay principal to the holders of the Class B
Certificates, up to an amount equal to the lesser of (a) the then
outstanding Certificate Balance of such Class of Certificates and (b) the
remaining portion of the Principal Distribution Amount for such
Distribution Date;
(3) to reimburse the holders of the Class B Certificates, up to an amount
equal to all Realized Losses and Additional Trust Fund Expenses, if any,
previously deemed allocated to such Class of Certificates and for which no
reimbursement has previously been paid;
(4) to pay interest to the holders of the Class C Certificates, up to an
amount equal to all Distributable Certificate Interest in respect of such
Class of Certificates for such Distribution Date and, to the extent not
previously paid, for all prior Distribution Dates;
(5) if the Certificate Balances of the Class A and Class B Certificates
have been reduced to zero, to pay principal to the holders of the Class C
Certificates, up to an amount equal to the lesser of (a) the then
outstanding Certificate Balance of such Class of Certificates and (b) the
remaining portion of the Principal Distribution Amount for such
Distribution Date;
(6) to reimburse the holders of the Class C Certificates, up to an amount
equal to all Realized Losses and Additional Trust Fund Expenses, if any,
previously deemed allocated to such Class of Certificates and for which no
reimbursement has previously been received;
(7) to pay interest to the holders of the Class D Certificates, up to an
amount equal to all Distributable Certificate Interest in respect of such
Class of Certificates for such Distribution Date and, to the extent not
previously paid, for all prior Distribution Dates;
(8) if the Certificate Balances of the Class A, Class B and Class C
Certificates have been reduced to zero, to pay principal to the holders of
the Class D Certificates, up to an amount equal to the lesser of (a) the
then outstanding Certificate Balance of such Class of Certificates and (b)
the remaining portion of the Principal Distribution Amount for such
Distribution Date;
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(9) to reimburse the holders of the Class D Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously deemed allocated to such Class of Certificates and for
which no reimbursement has previously been received;
(10) to pay interest to the holders of the Class E Certificates, up to an
amount equal to all Distributable Certificate Interest in respect of such
Class of Certificates for such Distribution Date and, to the extent not
previously paid, for all prior Distribution Dates;
(11) if the Certificate Balances of the Class A, Class B, Class C and
Class D Certificates have been reduced to zero, to pay principal to the
holders of the Class E Certificates, up to an amount equal to the lesser
of (a) the then outstanding Certificate Balance of such Class of
Certificates and (b) the remaining portion of the Principal Distribution
Amount for such Distribution Date;
(12) to reimburse the holders of the Class E Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously deemed allocated to such Class of Certificates and for
which no reimbursement has previously been received;
(13) to pay interest to the holders of the Class F Certificates, up to an
amount equal to all Distributable Certificate Interest in respect of such
Class of Certificates for such Distribution Date and, to the extent not
previously paid, for all prior Distribution Dates;
(14) if the Certificate Balances of the Class A, Class B, Class C, Class
D and Class E Certificates have been reduced to zero, to pay principal to
the holders of the Class F Certificates, up to an amount equal to the
lesser of (a) the then outstanding Certificate Balance of such Class of
Certificates and (b) the remaining portion of the Principal Distribution
Amount for such Distribution Date;
(15) to reimburse the holders of the Class F Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously deemed allocated to such Class of Certificates and for
which no reimbursement has previously been received;
(16) to pay interest to the holders of the Class G Certificates, up to an
amount equal to all Distributable Certificate Interest in respect of such
Class of Certificates for such Distribution Date and, to the extent not
previously paid, for all prior Distribution Dates;
(17) if the Certificate Balances of the Class A, Class B, Class C, Class
D, Class E and Class F Certificates have been reduced to zero, to pay
principal to the holders of the Class G Certificates, up to an amount
equal to the lesser of (a) the then outstanding Certificate Balance of
such Class of Certificates and (b) the remaining portion of the Principal
Distribution Amount for such Distribution Date;
(18) to reimburse the holders of the Class G Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously deemed allocated to such Class of Certificates and for
which no reimbursement has previously been received;
(19) to pay interest to the holders of the Class H Certificates, up to an
amount equal to all Distributable Certificate Interest in respect of such
Class of Certificates for such Distribution Date and, to the extent not
previously paid, for all prior Distribution Dates;
(20) if the Certificate Balances of the Class A, Class B, Class C, Class
D, Class E, Class F and Class G Certificates have been reduced to zero, to
pay principal to the holders of the Class H Certificates, up to an amount
equal to the lesser of (a) the then outstanding Certificate Balance of
such Class of Certificates and (b) the remaining portion of the Principal
Distribution Amount for such Distribution Date;
(21) to reimburse the holders of the Class H Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously deemed allocated to such Class of Certificates and for
which no reimbursement has previously been received; and
(22) to pay to the holders of the REMIC Residual Certificates, the
balance, if any, of the Available Distribution Amount for such
Distribution Date;
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provided that, on the final Distribution Date in connection with a
termination of the Trust Fund, the payments of principal to be made as
contemplated by any of clauses (2), (5), (8), (11), (14), (17) and (20) above
with respect to any Class of Sequential Pay Certificates, will be so made
(subject to available funds) up to an amount equal to the entire then
outstanding Certificate Balance of such Class of Certificates.
Distributable Certificate Interest. The "Distributable Certificate
Interest" in respect of each Class of REMIC Regular Certificates for each
Distribution Date is equal to the Accrued Certificate Interest in respect of
such Class of Certificates for such Distribution Date, reduced by such Class
of Certificates' allocable share (calculated as described below) of any Net
Aggregate Prepayment Interest Shortfall for such Distribution Date.
The "Accrued Certificate Interest" in respect of each Class of REMIC
Regular Certificates for each Distribution Date is equal to one month's
interest at the Pass-Through Rate applicable to such Class of Certificates
for such Distribution Date accrued on the related Certificate Balance or
Notional Amount, as the case may be, outstanding immediately prior to such
Distribution Date. Accrued Certificate Interest will be calculated on the
basis of a 360-day year consisting of twelve 30-day months.
To the extent of that portion of its Master Servicing Fees (in the case of
each loan, calculated at 0.125% per annum) and all other of its servicing
compensation for the related Collection Period, the Master Servicer is
required to make a non-reimbursable payment with respect to each Distribution
Date to cover the aggregate of any Prepayment Interest Shortfalls incurred
with respect to the Mortgage Pool during such Collection Period. The "Net
Aggregate Prepayment Interest Shortfall" for any Distribution Date will be
the amount, if any, by which (a) the aggregate of all Prepayment Interest
Shortfalls incurred with respect to the Mortgage Pool during the related
Collection Period, exceeds (b) any such payment made by the Master Servicer
with respect to such Distribution Date to cover such Prepayment Interest
Shortfalls. See "Servicing of the Mortgage Loans--Servicing and Other
Compensation and Payment of Expenses" herein. The Net Aggregate Prepayment
Interest Shortfall, if any, for each Distribution Date will be allocated on
such Distribution Date: first, to the respective Classes of REMIC Regular
Certificates (other than the Senior Certificates) sequentially in reverse
alphabetical order of Class designation, in each case up to the amount of the
Accrued Certificate Interest in respect of such Class of Certificates for
such Distribution Date; and thereafter, among the respective Classes of
Senior Certificates, pro rata, in accordance with the respective amounts of
Accrued Certificate Interest for each such Class of Senior Certificates for
such Distribution Date.
Principal Distribution Amount. The "Principal Distribution Amount" for any
Distribution Date will, in general, equal the aggregate of the following:
(a) the principal portions of all Scheduled Payments (other than Balloon
Payments) and any Assumed Scheduled Payments due or deemed due, as the
case may be, in respect of the Mortgage Loans for their respective Due
Dates occurring during the related Collection Period;
(b) all voluntary principal prepayments received on the Mortgage Loans
during the related Collection Period;
(c) with respect to any Balloon Loan as to which the related stated
maturity date occurred during or prior to the related Collection Period,
any payment of principal (exclusive of any voluntary principal prepayment
and any amount described in clause (d) below) made by or on behalf of the
related borrower during the related Collection Period, net of any portion
of such payment that represents a recovery of the principal portion of any
Scheduled Payment (other than a Balloon Payment) due, or the principal
portion of any Assumed Scheduled Payment deemed due, in respect of such
Mortgage Loan on a Due Date during or prior to the related Collection
Period and not previously recovered;
(d) all Liquidation Proceeds, Condemnation Proceeds and Insurance
Proceeds received on the Mortgage Loans during the related Collection
Period that were identified and applied by the Master Servicer as
recoveries of principal thereof, in each case net of any portion of such
amounts that represents a recovery of the principal portion of any
Scheduled Payment (other than a Balloon Payment) due, or the principal
portion of any Assumed Scheduled Payment deemed due, in respect of the
related Mortgage Loan on a Due Date during or prior to the related
Collection Period and not previously recovered; and
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(e) if such Distribution Date is subsequent to the initial Distribution
Date, the excess, if any, of (i) the Principal Distribution Amount for the
immediately preceding Distribution Date, over (ii) the aggregate
distributions of principal made on the Sequential Pay Certificates in
respect of such Principal Distribution Amount on such immediately
preceding Distribution Date.
The "Scheduled Payment" due on any Mortgage Loan on any related Due Date
will, in general, be the scheduled payment of principal and/or interest due
thereon on such date (taking into account any waiver, modification or
amendment of the terms of such Mortgage Loan, whether agreed to by the Master
Servicer or Special Servicer or resulting from a bankruptcy, insolvency or
similar proceeding involving the related borrower).
An "Assumed Scheduled Payment" is an amount deemed due in respect of: (i)
any Balloon Loan that is delinquent in respect of its Balloon Payment beyond
the first Determination Date that follows its stated maturity date and as to
which no arrangements have been agreed to for collection of the delinquent
amounts; or (ii) any Mortgage Loan as to which the related Mortgaged Property
or Properties have become REO Property or Properties. The Assumed Scheduled
Payment deemed due on any such Balloon Loan on its stated maturity date and
on each successive Due Date that it remains or is deemed to remain
outstanding shall equal the Scheduled Payment that would have been due
thereon on such date if the related Balloon Payment had not come due, but
rather such Mortgage Loan had continued to amortize in accordance with such
loan's amortization schedule, if any, in effect immediately prior to maturity
and had continued to accrue interest in accordance with such loan's terms in
effect immediately prior to maturity. The Assumed Scheduled Payment deemed
due on any such Mortgage Loan as to which the related Mortgaged Property or
Properties have become REO Property or Properties, for each Due Date for so
long as such REO Property or Properties remain part of the Trust Fund, shall
equal the Scheduled Payment (or, in the case of a Balloon Loan described in
the prior sentence, the Assumed Scheduled Payment) due on the last Due Date
prior to the acquisition of such REO Property or Properties.
Distributions of Prepayment Premiums. Any Prepayment Premium (whether
described in the related Mortgage Loan documents as a fixed prepayment
premium or a yield maintenance amount) actually collected with respect to a
Mortgage Loan during any particular Collection Period will be distributed on
the related Distribution Date as follows: (1) if the aggregate Certificate
Balance of the Class A, Class B and Class C Certificates has not been reduced
to zero prior to such Distribution Date, (a) 80% of each such Prepayment
Premium will be distributed to the holders of the Class X Certificates and
(b) 20% of each such Prepayment Premium will be distributed to the Holders of
the Class or Classes of the Class A, Class B and Class C Certificates
entitled to receive distributions of principal on such Distribution Date (pro
rata based on the respective related Class Prepayment Percentages if there is
more than one such Class entitled to distributions of principal); and (2) if
the aggregate Certificate Balance of the Class A, Class B and Class C
Certificates has been reduced to zero prior to such Distribution Date, 100%
of each such Prepayment Premium will be distributed to the holders of the
Class X Certificates. With respect to any Class of Sequential Pay
Certificates, for any Distribution Date, the "Class Prepayment Percentage"
will be a fraction, expressed as a percentage, the numerator of which is the
portion of the total Principal Distribution Amount (if any) to be distributed
to the holders of such Class of Certificates on such Distribution Date, and
the denominator of which is the total Principal Distribution Amount to be
distributed on such Distribution Date.
The Prepayment Premiums, if any, collected on the Mortgage Loans during
any Collection Period may not be sufficient to fully compensate
Certificateholders of any Class entitled to distributions thereof for any
loss in yield attributable to the related prepayments of principal. See "Risk
Factors--The Mortgage Loans--Prepayment Premiums" herein.
Treatment of REO Properties. Notwithstanding that any Mortgaged Property
may be acquired as part of the Trust Fund through foreclosure, deed in lieu
of foreclosure or otherwise, the related Mortgage Loan will be treated, for
purposes of, among other things, determining distributions on the
Certificates, allocations of Realized Losses and Additional Trust Fund
Expenses to the Certificates, and the amount of Master Servicing Fees and
Special Servicing Fees payable under the Pooling Agreement, as having
remained outstanding until such REO Property is liquidated. Among other
things, such Mortgage Loan
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will be taken into account when determining the Pass-Through Rate for the
Class X Certificates and the Principal Distribution Amount. In connection
therewith, operating revenues and other proceeds derived from such REO
Property (after application thereof to pay certain costs and taxes, including
certain reimbursements payable to the Master Servicer, the Special Servicer,
the Trustee and/or the Fiscal Agent, incurred in connection with the
operation and disposition of such REO Property) will be "applied" by the
Master Servicer as principal, interest and other amounts "due" on such
Mortgage Loan, and, subject to the recoverability determination described
below (see "--P&I Advances"), the Master Servicer will be required to make
P&I Advances in respect of such Mortgage Loan, in all cases as if such
Mortgage Loan had remained outstanding.
SUBORDINATION; ALLOCATION OF LOSSES AND CERTAIN EXPENSES
As and to the extent described herein, the rights of holders of the
Subordinate Certificates to receive distributions of amounts collected or
advanced on the Mortgage Loans will, in the case of each Class thereof, be
subordinated to the rights of holders of the Senior Certificates and,
further, to the rights of holders of each other Class of Subordinate
Certificates, if any, with an earlier alphabetical Class designation. This
subordination is intended to enhance the likelihood of timely receipt by
holders of the respective Classes of Senior Certificates of the full amount
of Distributable Certificate Interest payable in respect of their
Certificates on each Distribution Date, and the ultimate receipt by holders
of the respective Classes of Class A Certificates of principal equal to, in
each such case, the entire Certificate Balance of such Class of Certificates.
Similarly, but to decreasing degrees, this subordination is also intended to
enhance the likelihood of timely receipt by holders of the other Classes of
Offered Certificates of the full amount of Distributable Certificate Interest
payable in respect of their Certificates on each Distribution Date, and the
ultimate receipt by holders of the other Classes of Offered Certificates of
principal equal to, in each such case, the entire Certificate Balance of such
Class of Certificates. The subordination of any Class of Subordinate
Certificates will be accomplished by, among other things, the application of
the Available Distribution Amount on each Distribution Date in the order of
priority described under "--Distributions--Application of the Available
Distribution Amount" above. No other form of Credit Support will be available
for the benefit of holders of the Offered Certificates.
If, following the distributions to be made in respect of the Certificates
on any Distribution Date, the aggregate Stated Principal Balance of the
Mortgage Pool that will be outstanding immediately following such
Distribution Date is less than the then aggregate Certificate Balance of the
Sequential Pay Certificates, the Certificate Balances of the Class H, Class
G, Class F, Class E, Class D, Class C and Class B Certificates will be
reduced, sequentially in that order, in the case of each such Class until
such deficit (or the related Certificate Balance) is reduced to zero
(whichever occurs first). If any portion of such deficit remains at such time
as the Certificate Balances of such Classes of Certificates are reduced to
zero, then the respective Certificate Balances of the Class A-1, Class A-2
and Class A-3 Certificates will be reduced, pro rata in accordance with the
relative sizes of the remaining Certificate Balances of such Classes of
Certificates, until such deficit (or each such Certificate Balance) is
reduced to zero. Any such deficit may be the result of Realized Losses
incurred in respect of the Mortgage Loans and/or Additional Trust Fund
Expenses. The foregoing reductions in the Certificate Balances of the
Sequential Pay Certificates will be deemed to constitute an allocation of any
such Realized Losses and Additional Trust Fund Expenses.
"Realized Losses" are losses on or in respect of the Mortgage Loans
arising from the inability of the Master Servicer and/or the Special Servicer
to collect all amounts due and owing under any such Mortgage Loan, including
by reason of the fraud or bankruptcy of a borrower or a casualty of any
nature at a Mortgaged Property, to the extent not covered by insurance. The
Realized Loss in respect of a liquidated Mortgage Loan (or related REO
Property or Properties) is an amount generally equal to the excess, if any,
of (a) the outstanding principal balance of such Mortgage Loan as of the date
of liquidation, together with (i) all accrued and unpaid interest thereon at
the related Mortgage Rate to but not including the Due Date in the Collection
Period in which the liquidation occurred and (ii) all related unreimbursed
Servicing Advances and outstanding liquidation expenses, over (b) the
aggregate amount of Liquidation Proceeds, if any, recovered in connection
with such liquidation. If any portion of the debt due under a Mortgage Loan
is forgiven, whether in connection with a modification, waiver or amendment
granted or
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agreed to by the Master Servicer or the Special Servicer or in connection
with the bankruptcy or similar proceeding involving the related borrower, the
amount so forgiven also will be treated as a Realized Loss.
"Additional Trust Fund Expenses" include, among other things, (i) all
Special Servicing Fees, Workout Fees and Liquidation Fees paid to the Special
Servicer, (ii) any interest paid to the Master Servicer, the Special
Servicer, the Trustee and/or the Fiscal Agent in respect of unreimbursed
Advances, (iii) the cost of various opinions of counsel required or permitted
to be obtained in connection with the servicing of the Mortgage Loans and the
administration of the Trust Fund, (iv) certain unanticipated, non-Mortgage
Loan specific expenses of the Trust Fund, including certain reimbursements
and indemnifications to the Trustee as described under "Description of the
Pooling Agreements--Certain Matters Regarding the Trustee" in the Prospectus
(and certain comparable reimbursements and indemnifications to the Fiscal
Agent), certain reimbursements to the Master Servicer, the Special Servicer,
the REMIC Administrator and the Sponsor as described under "Description of
the Pooling Agreements--Certain Matters Regarding the Master Servicer, the
Special Servicer, the REMIC Administrator and the Sponsor" in the Prospectus
and certain federal, state and local taxes, and certain tax-related expenses,
payable out of the Trust Fund as described under "Certain Federal Income Tax
Consequences--Possible Taxes on Income From Foreclosure Property" herein and
"Material Federal Income Tax Consequences--Taxation of Owners of REMIC
Regular Certificates--Prohibited Transactions Tax and Other Taxes" in the
Prospectus, (v) if not advanced by the Master Servicer, any amounts expended
on behalf of the Trust Fund to remediate an adverse environmental condition
at any Mortgaged Property securing a defaulted Mortgage Loan (see
"Description of the Pooling Agreements--Realization Upon Defaulted Mortgage
Loans" in the Prospectus), and (vi) any other expense of the Trust Fund not
specifically included in the calculation of "Realized Loss" for which there
is no corresponding collection from a borrower. Additional Trust Fund
Expenses will reduce amounts payable to Certificateholders and, consequently,
may result in a loss on the Offered Certificates.
P&I ADVANCES
With respect to each Distribution Date, the Master Servicer will be
obligated, subject to the recoverability determination described below, to
make advances (each, a "P&I Advance") out of its own funds or, subject to the
replacement thereof as provided in the Pooling Agreement, funds held in the
Certificate Account that are not required to be part of the Available
Distribution Amount for such Distribution Date, in an amount generally equal
to the aggregate of all Scheduled Payments (other than Balloon Payments) and
any Assumed Scheduled Payments, in each case net of related Master Servicing
Fees and Workout Fees, that were due or deemed due, as the case may be, in
respect of the Mortgage Loans during the related Collection Period and that
were not paid by or on behalf of the related borrowers or otherwise collected
as of the close of business on the last day of the related Collection Period.
The Master Servicer's obligations to make P&I Advances in respect of any
Mortgage Loan will continue through liquidation of such Mortgage Loan or
disposition of any REO Property acquired in respect thereof. Notwithstanding
the foregoing, if it is determined that an Appraisal Reduction Amount (as
defined below) exists with respect to any Required Appraisal Mortgage Loan
(as defined below), then, with respect to the Distribution Date immediately
following the date of such determination and with respect to each subsequent
Distribution Date for so long as such Appraisal Reduction Amount exists, in
the event of subsequent delinquencies thereon, the interest portion of the
P&I Advance in respect of such Mortgage Loan will be reduced (no reduction to
be made in the principal portion, however) to an amount equal to the product
of (i) the amount of the interest portion of such P&I Advance that would
otherwise be required to be made for such Distribution Date without regard to
this sentence, multiplied by (ii) a fraction (expressed as a percentage), the
numerator of which is equal to the Stated Principal Balance of such Mortgage
Loan, net of such Appraisal Reduction Amount, and the denominator of which is
equal to the Stated Principal Balance of such Mortgage Loan. See "--Appraisal
Reductions" below. Subject to the recoverability determination described
below, if the Master Servicer fails to make a required P&I Advance, the
Trustee will be required to make such P&I Advance, and if the Trustee fails
to make such P&I Advance, the Fiscal Agent will be required to do so. See
"--The Trustee" and "--The Fiscal Agent" below.
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The Master Servicer, the Trustee and the Fiscal Agent will each be
entitled to recover any P&I Advance made out of its own funds from any
Related Proceeds. Notwithstanding the foregoing, none of the Master Servicer,
the Trustee or the Fiscal Agent will be obligated to make any P&I Advance
that it determines in its reasonable good faith judgment would, if made, not
be recoverable out of Related Proceeds (a "Nonrecoverable P&I Advance"; and,
together with a Nonrecoverable Servicing Advance, "Nonrecoverable Advances"),
and the Master Servicer, the Trustee and the Fiscal Agent, as applicable,
will be entitled to recover any P&I Advance that at any time is determined to
be a Nonrecoverable P&I Advance out of funds received on or in respect of
other Mortgage Loans. See "Description of the Certificates--Advances in
Respect of Delinquencies" and "Description of the Pooling
Agreements--Certificate Account" in the Prospectus.
The Master Servicer, the Trustee and the Fiscal Agent will each be
entitled with respect to any Advance made thereby, and the Special Servicer
will be entitled with respect to any Servicing Advance made thereby, to
interest accrued on the amount of such Advance for so long as it is
outstanding at a rate per annum (the "Reimbursement Rate") equal to the
"prime rate" as published in the "Money Rates" section of The Wall Street
Journal, as such "prime rate" may change from time to time. Such interest on
any Advance will be payable to the Master Servicer, the Special Servicer, the
Trustee or the Fiscal Agent, as the case may be, out of default interest and
late payment charges collected on the related Mortgage Loan (but only if it
is a Specially Serviced Mortgage Loan) or, in connection with the
reimbursement of such Advance, out of any amounts then on deposit in the
Certificate Account. Any delay between a Sub-Servicer's receipt of a late
collection of a Monthly Payment as to which a P&I Advance was made and the
forwarding of such late collection to the Master Servicer will increase the
amount of interest accrued and payable to the Master Servicer on such P&I
Advance. To the extent not offset by default interest and/or late payment
charges actually collected on the related Mortgage Loan while it is a
Specially Serviced Mortgage Loan, interest accrued on outstanding Advances
will result in a reduction in amounts payable on the Certificates.
APPRAISAL REDUCTIONS
Within 30 days (or within such longer period as the Master Servicer or the
Special Servicer, as applicable, is diligently and in good faith proceeding
to obtain such) after the earliest of (i) the date on which any Mortgage Loan
becomes a Modified Mortgage Loan (as defined below), (ii) the 90th day
following the occurrence of any uncured delinquency in Monthly Payments with
respect to any Mortgage Loan, (iii) the date on which a receiver is appointed
and continues in such capacity in respect of a Mortgaged Property securing
any Mortgage Loan, (iv) the date on which the borrower under any Mortgage
Loan becomes the subject of bankruptcy or insolvency proceedings, and (v) the
date on which a Mortgaged Property securing any Mortgage Loan becomes an REO
Property (each such Mortgage Loan, a "Required Appraisal Loan"), the Master
Servicer or the Special Servicer, as applicable, will be required to obtain
an appraisal of the related Mortgaged Property from an independent
MAI-designated appraiser, unless such an appraisal had previously been
obtained within the prior twelve months. The cost of such appraisal will be
advanced by the Master Servicer or the Special Servicer, as the case may be,
subject to its right to be reimbursed therefor as a Servicing Advance. As a
result of any such appraisal, it may be determined that an Appraisal
Reduction Amount exists with respect to the related Required Appraisal Loan.
The "Appraisal Reduction Amount" for any Required Appraisal Loan will
generally equal the excess, if any, of (a) the sum, as calculated as of the
Determination Date immediately succeeding the date on which the appraisal is
obtained, of (i) the Stated Principal Balance of such Required Appraisal
Loan, (ii) to the extent not previously advanced by or on behalf of the
Master Servicer, the Trustee or the Fiscal Agent, all unpaid interest on the
Required Appraisal Loan through the most recent Due Date prior to such
Determination Date at a per annum rate equal to the related Net Mortgage
Rate, (iii) all accrued but unpaid Master Servicing Fees and Special
Servicing Fees in respect of such Required Appraisal Loan, (iv) all related
unreimbursed Advances made by or on behalf of the Master Servicer, the
Special Servicer, the Trustee or the Fiscal Agent with respect to such
Required Appraisal Loan plus interest accrued thereon at the Reimbursement
Rate and (v) all currently due and unpaid real estate taxes and assessments,
insurance premiums, and, if applicable, ground rents in respect of the
related Mortgaged Property, net of any escrow reserves held by the Master
Servicer or Special Servicer to cover any such
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item, over (b) 90% of an amount equal to (i) the appraised value of the
related Mortgaged Property or REO Property as determined by such appraisal,
net of (ii) the amount of any liens on such property (not otherwise taken
into account in clause (a)(v) above) that are prior to the lien of the
Required Appraisal Loan; provided that, if an appraisal is required to be
obtained as contemplated by the first sentence of this paragraph but has not
been obtained within the 30-day period contemplated by such sentence, then
until (but just until) such appraisal is obtained the "Appraisal Reduction
Amount" for the subject Mortgage Loan will be deemed to equal 30% of the
amount calculated pursuant to clause (a) of this sentence (after receipt of
such appraisal, the Appraisal Reduction Amount, if any, will be calculated
without regard to this proviso).
With respect to each Required Appraisal Loan (unless such Mortgage Loan
has become a Corrected Mortgage Loan and has remained current for twelve
consecutive Monthly Payments, and no other Servicing Transfer Event has
occurred with respect thereto during the preceding twelve months), the
Special Servicer is required, within 30 days of each anniversary of such
loan's becoming a Required Appraisal Loan, to order an update of the prior
appraisal (the cost of which will be covered by and reimbursable as a
Servicing Advance). Based upon such appraisal, the Special Servicer is to
redetermine and report to the Trustee the Appraisal Reduction Amount, if any,
with respect to such Mortgage Loan.
A "Modified Mortgage Loan" is any Mortgage Loan as to which any Servicing
Transfer Event has occurred and which has been modified by the Special
Servicer in a manner that: (A) affects the amount or timing of any payment of
principal or interest due thereon (other than, or in addition to, bringing
current Monthly Payments with respect to such Mortgage Loan); (B) except as
expressly contemplated by the related Mortgage, results in a release of the
lien of the Mortgage on any material portion of the related Mortgaged
Property without a corresponding principal prepayment in an amount not less
than the fair market value (as is) of the property to be released; or (C) in
the reasonable good faith judgment of the Special Servicer, otherwise
materially impairs the security for such Mortgage Loan or reduces the
likelihood of timely payment of amounts due thereon.
REPORTS TO CERTIFICATEHOLDERS; CERTAIN AVAILABLE INFORMATION
Trustee Reports. Based on information provided in monthly reports prepared
by the Master Servicer and the Special Servicer and delivered to the Trustee,
the Trustee will prepare and/or forward on each Distribution Date to the
holders of each Class of REMIC Regular Certificates, the following statements
and reports (collectively, the "Trustee Reports") substantially in the forms
set forth in Annex B (although such forms may be subject to change over time)
and substantially containing the information set forth below:
(1) A statement (a "Distribution Date Statement") setting forth, among
other things: (i) the amount of distributions, if any, made on such
Distribution Date to the holders of each Class of REMIC Regular
Certificates and applied to reduce the respective Certificate Balances
thereof; (ii) the amount of distributions, if any, made on such
Distribution Date to the holders of each Class of REMIC Regular
Certificates allocable to Distributable Certificate Interest and
Prepayment Premiums; (iii) the Available Distribution Amount for such
Distribution Date; (iv) the aggregate amount of P&I Advances made in
respect of such Distribution Date; (v) the aggregate Stated Principal
Balance of the Mortgage Pool outstanding immediately before and after such
Distribution Date; (vi) the number, aggregate principal balance, weighted
average remaining term to maturity and weighted average Mortgage Rate of
the Mortgage Pool as of the end of the Collection Period for such
Distribution Date; (vii) the number and aggregate unpaid principal balance
of Mortgage Loans (A) delinquent one month, (B) delinquent two months, (C)
delinquent three or more months, or (D) as to which foreclosure
proceedings have been commenced; (viii) the book value (within the meaning
of 12 C.F.R. Section 571.13 or comparable provision) of any REO Property
included in the Trust Fund as of the end of the Collection Period for such
Distribution Date; (ix) the Accrued Certificate Interest and Distributable
Certificate Interest in respect of such Class of REMIC Regular
Certificates for such Distribution Date; (x) the aggregate amount of
Distributable Certificate Interest payable in respect of such Class of
REMIC Regular Certificates on such Distribution Date, including, without
limitation, any Distributable Certificate Interest remaining unpaid from
prior Distribution Dates; (xi)
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any unpaid Distributable Certificate Interest in respect of such Class of
REMIC Regular Certificates after giving effect to the distributions made
on such Distribution Date; (xii) the Pass-Through Rate for such Class of
REMIC Regular Certificates for such Distribution Date; (xiii) the
Principal Distribution Amount for such Distribution Date, separately
identifying the respective components of such amount; (xiv) the aggregate
of all Realized Losses incurred during the related Collection Period and,
aggregated by type, all Additional Trust Fund Expenses incurred during the
related Collection Period; (xv) the aggregate of all Realized Losses and
Additional Trust Fund Expenses that remain unallocated immediately
following such Distribution Date; (xvi) the Certificate Balance of each
Class of REMIC Regular Certificates outstanding immediately before and
immediately after such Distribution Date, separately identifying any
reduction therein due to the allocation of Realized Losses and Additional
Trust Fund Expenses on such Distribution Date; (xvii) the aggregate amount
of servicing compensation paid to the Master Servicer and the Special
Servicer, collectively and separately, during the related Collection
Period; and (xviii) a brief description of any material waiver,
modification or amendment of any Mortgage Loan entered into by the Master
Servicer or Special Servicer pursuant to the Pooling Agreement during the
related Collection Period. In the case of information furnished pursuant
to clauses (i) and (ii) above, the amounts shall be expressed as a dollar
amount in the aggregate for all Certificates of each applicable Class and
per a specified denomination.
(2) A report containing information regarding the Mortgage Loans as of
the close of business on the immediately preceding Determination Date,
which report shall contain certain of the categories of information
regarding the Mortgage Loans set forth in this Prospectus Supplement in
the tables under the caption "Annex A: Certain Characteristics of the
Mortgage Loans" (calculated, where applicable, on the basis of the most
recent relevant information provided by the borrowers to the Master
Servicer or the Special Servicer and by the Master Servicer or the Special
Servicer, as the case may be, to the Trustee) and such information shall
be presented in a loan-by-loan and tabular format substantially similar to
the formats utilized in this Prospectus Supplement on Annex A (provided
that no information will be provided as to any repair and replacement or
other cash reserve and the only financial information to be reported on an
ongoing basis will be actual net operating income; actual expense, actual
revenue and a debt service coverage ratio calculated on the basis
thereof).
(3) A "Delinquent Loan Status Report" setting forth, among other things,
those Mortgage Loans which, as of the close of business on the immediately
preceding Determination Date, were delinquent 30-59 days, delinquent 60-89
days, delinquent 90 days or more, current but specially serviced, or in
foreclosure but not REO Property.
(4) An "Historical Loan Modification Report" setting forth, among other
things, those Mortgage Loans which, as of the close of business on the
immediately preceding Determination Date, have been modified pursuant to
the Pooling Agreement (i) during the Collection Period ending on such
Determination Date and (ii) since the Cut-off Date, showing the original
and the revised terms thereof.
(5) An "Historical Loss Report" setting forth, among other things, as of
the close of business on the immediately preceding Determination Date, (i)
the aggregate amount of liquidation proceeds and liquidation expenses,
incurred both during the Collection Period ending on such Determination
Date and historically, and (ii) the amount of Realized Losses occurring
during such Collection Period and historically, set forth on a Mortgage
Loan-by-Mortgage Loan basis.
(6) An "REO Status Report" setting forth, among other things, with
respect to each REO Property that was included in the Trust Fund as of the
close of business on the immediately preceding Determination Date, (i) the
acquisition date of such REO Property, (ii) the amount of income collected
with respect to any REO Property (net of related expenses) and other
amounts, if any, received on such REO Property during the Collection
Period ending on such Determination Date and (iii) the value of the REO
Property based on the most recent appraisal or other valuation thereof
available to the Master Servicer as of such date of determination
(including any prepared internally by the Special Servicer).
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(7) A "Special Servicer Loan Status Report" setting forth, among other
things, as of the close of business on the immediately preceding
Determination Date, (i) the aggregate principal balance of all Specially
Serviced Mortgage Loans and (ii) a loan-by-loan listing of all Specially
Serviced Mortgage Loans indicating their status, date and reason for
transfer to the Special Servicer.
None of the above reports will include any information that the Master
Servicer deems to be confidential. The information that pertains to Specially
Serviced Mortgage Loans and REO Properties reflected in such reports shall be
based solely upon the reports delivered by the Special Servicer to the Master
Servicer prior to the related Distribution Date. None of the Master Servicer,
the Special Servicer or the Trustee shall be responsible for the accuracy or
completeness of any information supplied to it by a borrower or other third
party that is included in any reports, statements, materials or information
prepared or provided by the Master Servicer, the Special Servicer or the
Trustee, as applicable.
The Master Servicer is also required to deliver to the Trustee within 90
days following the end of each calendar quarter, commencing with the calendar
quarter ending December 31, 1996, with respect to each Mortgaged Property and
REO Property, an "Operating Statement Analysis" containing revenue, expense
and net operating income information normalized using the methodology
described in Annex A as of the end of such calendar quarter, together with
copies of the operating statements and rent rolls (but only to the extent the
related borrower is required by the Mortgage to deliver, or otherwise agrees
to provide, such information) for such Mortgaged Property or REO Property as
of the end of such calendar quarter.
Certificate Owners who have certified to the Trustee as to their
beneficial ownership of any Offered Certificate may also obtain copies of any
of the Trustee Reports and Operating Statement Analyses described above.
Otherwise, until such time as Definitive Certificates are issued in respect
of the Offered Certificates, the foregoing information will be available to
the related Certificate Owners only to the extent that it is forwarded by or
otherwise available through DTC and its Participants. Conveyance of notices
and other communications by DTC to Participants, and by Participants to
Certificate Owners, will be governed by arrangements among them, subject to
any statutory or regulatory requirements as may be in effect from time to
time. The Master Servicer, the Special Servicer, the Trustee, the Fiscal
Agent, the Sponsor, the REMIC Administrator, the Mortgage Loan Seller and the
Certificate Registrar are required to recognize as Certificateholders only
those persons in whose names the Certificates are registered on the books and
records of the Certificate Registrar.
For a discussion of certain annual information reports to be furnished by
the Trustee to persons who at any time during the prior calendar year were
holders of the Offered Certificates, see "Description of the
Certificates--Reports to Certificateholders" in the Prospectus.
Other Information. The Pooling Agreement requires that the Trustee make
available at its Corporate Trust Office, during normal business hours, upon
reasonable advance written notice, for review by any holder or Certificate
Owner of an Offered Certificate or any person identified to the Trustee by
any such holder or Certificate Owner as a prospective transferee of an
Offered Certificate or any interest therein, originals or copies of, among
other things, the following items: (a) the Pooling Agreement and any
amendments thereto, (b) all Trustee Reports delivered to holders of the
relevant Class of Offered Certificates since the Delivery Date, (c) all
officer's certificates delivered to the Trustee since the Delivery Date as
described under "Description of the Pooling Agreements--Evidence as to
Compliance" in the Prospectus, (d) all accountant's reports delivered to the
Trustee since the Delivery Date as described under "Description of the
Pooling Agreements--Evidence as to Compliance" in the Prospectus, and (e) the
Mortgage Note, Mortgage and other legal documents relating to each Mortgage
Loan, including any and all modifications, waivers and amendments of the
terms of a Mortgage Loan entered into by the Master Servicer or the Special
Servicer and delivered to the Trustee. In addition, the Master Servicer is
required to make available, during normal business hours, upon reasonable
advance written notice, for review by any holder or Certificate Owner of an
Offered Certificate or any person identified to the Master Servicer as a
prospective transferee of an Offered Certificate or any interest therein,
originals or copies of any and all documents (in the case of documents
generated by the Special Servicer, to the extent received therefrom) that
constitute the servicing file for each Mortgage Loan. Copies of any and all
of the
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foregoing items will be available from the Trustee or the Master Servicer, as
the case may be, upon request; however, the Trustee or the Master Servicer,
as the case may be, will be permitted to require payment of a sum sufficient
to cover the reasonable costs and expenses of providing such services.
The Trustee and Master Servicer will each make available, upon reasonable
advance written notice and at the expense of the requesting party, originals
or copies of the items referred to in the prior paragraph that are maintained
thereby, to Certificateholders, Certificate Owners and prospective purchasers
of Certificates and interests therein; provided that the Trustee and Master
Servicer may each require (a) in the case of a Certificate Owner, a written
confirmation executed by the requesting person or entity, in a form
reasonably acceptable to the Trustee or Master Servicer, as applicable,
generally to the effect that such person or entity is a beneficial owner of
Offered Certificates, is requesting the information solely for use in
evaluating such person's or entity's investment in such Certificates and will
otherwise keep such information confidential and (b) in the case of a
prospective purchaser, confirmation executed by the requesting person or
entity, in a form reasonably acceptable to the Trustee or Master Servicer, as
applicable, generally to the effect that such person or entity is a
prospective purchaser of Offered Certificates or an interest therein, is
requesting the information solely for use in evaluating a possible investment
in such Certificates and will otherwise keep such information confidential.
Certificateholders, by the acceptance of their Certificates, will be deemed
to have agreed to keep such information confidential.
VOTING RIGHTS
At all times during the term of the Pooling Agreement, % of the voting
rights for the Certificates (the "Voting Rights") shall be allocated among
the holders of the respective Classes of Sequential Pay Certificates in
proportion to the Certificate Balances of their Certificates, % of the
Voting Rights shall be allocated to the holders of the Class X Certificates
and % of the Voting Rights shall be allocated equally between the two
Classes of REMIC Residual Certificates. Voting Rights allocated to a Class of
Certificateholders shall be allocated among such Certificateholders in
proportion to the percentage interests in such Class evidenced by their
respective Certificates. See "Description of the Certificates--Voting Rights"
in the Prospectus.
TERMINATION
The obligations created by the Pooling Agreement will terminate following
the earliest of (i) the final payment (or advance in respect thereof) or
other liquidation of the last Mortgage Loan or related REO Property remaining
in the Trust Fund, and (ii) the purchase of all of the Mortgage Loans and REO
Properties remaining in the Trust Fund by the Master Servicer or by any
holder (other than the Sponsor or Mortgage Loan Seller) of Certificates
representing a majority of the Voting Rights allocated to the Controlling
Class. Written notice of termination of the Pooling Agreement will be given
to each Certificateholder, and the final distribution with respect to each
Certificate will be made only upon surrender and cancellation of such
Certificate at the office of the Certificate Registrar or other location
specified in such notice of termination.
Any such purchase by the Master Servicer or a majority holder of the
Controlling Class of all the Mortgage Loans and REO Properties remaining in
the Trust Fund is required to be made at a price equal to (a) the sum of (i)
the aggregate Purchase Price of all the Mortgage Loans then included in the
Trust Fund (other than the Mortgage Loans as to which the related Mortgaged
Property or Properties has become REO Property) and (ii) the fair market
value of all REO Properties then included in the Trust Fund, as determined by
an appraiser mutually agreed upon by the Master Servicer and the Trustee,
minus (b) (solely in the case of a purchase by the Master Servicer) the
aggregate of all amounts payable or reimbursable to the Master Servicer under
the Pooling Agreement. Such purchase will effect early retirement of the then
outstanding Certificates, but the right of the Master Servicer or a majority
holder of the Controlling Class to effect such termination is subject to the
requirement that the then aggregate Stated Principal Balance of the Mortgage
Pool be less than 1.0% of the Initial Pool Balance. The purchase price paid
by the Master Servicer or a majority holder of the Controlling Class,
exclusive of any portion thereof payable or reimbursable to any person other
than the Certificateholders, will constitute part of the Available
Distribution Amount for the final Distribution Date.
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THE TRUSTEE
LaSalle National Bank ("LaSalle") will act as Trustee of the Trust.
LaSalle is a subsidiary of LaSalle National Corporation which is a subsidiary
of the Fiscal Agent. The Trustee is at all times to be, and will be required
to resign if it fails to be, (i) an institution insured by the FDIC, (ii) a
corporation, national bank or national banking association, organized and
doing business under the laws of the United States of America or any state
thereof, authorized under such laws to exercise corporate trust powers,
having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by federal or state authority and (iii)
an institution whose long-term senior unsecured debt is rated either (A) if a
fiscal agent is then currently in place, not less than (1) if ABN AMRO Bank
N.V. ("ABN AMRO") is the Fiscal Agent, (a) "Baa2" by Moody's and (b) "A-" by
Fitch or another nationally recognized statistical rating organization (other
than Moody's), or (2) if ABN AMRO and LaSalle are then no longer the Fiscal
Agent and Trustee, respectively, (a) "Baa2" by Moody's and (b) "A-" by Fitch
or (B) if a fiscal agent is not then in place, not less than "Aa2" by Moody's
and "AA" by Fitch (or, in the case of each of clause (iii)(A) and (iii)(B),
such other lower rating by any Rating Agency as would not, as evidenced in
writing by such Rating Agency, adversely affect any of the ratings then
assigned thereby to the Certificates). The corporate trust office of the
Trustee responsible for administration of the Trust (the "Corporate Trust
Office") is located at 135 South LaSalle Street, Suite 1740, Chicago,
Illinois 60674-4107 Attention: Asset-Backed Securities Trust
Services--Mortgage Capital Funding, Inc., Multifamily/ Commercial Mortgage
Pass-Through Certificates, Series 1996-MC2. As of December 31, 1995, the
Trustee had assets of approximately $15 billion. See "Description of the
Pooling Agreements--The Trustee", "--Duties of the Trustee", "--Certain
Matters Regarding the Trustee" and "--Resignation and Removal of the Trustee"
in the Prospectus.
Pursuant to the Pooling Agreement, the Trustee will be entitled to a
monthly fee (the "Trustee Fee"; and, together with the Master Servicing Fee,
the "Administrative Fees") payable out of general collections on the Mortgage
Loans and any REO Properties.
The Trustee will also have certain duties with respect to REMIC
administration (in such capacity the "REMIC Administrator"). See "Material
Federal Income Tax Consequences--REMICs--Reporting and Other Administrative
Matters" and "Description of the Pooling Agreements--Certain Matters
Regarding the Master Servicer, the Special Servicer, the REMIC Administrator
and the Sponsor", "--Events of Default" and "--Rights Upon Event of Default"
in the Prospectus.
THE FISCAL AGENT
ABN AMRO Bank N.V., a Netherlands banking corporation and the corporate
parent of the Trustee, will act as Fiscal Agent for the Trust Fund and will
be obligated to make any Advance required to be made, and not made, by the
Master Servicer and the Trustee under the Pooling Agreement, provided that
the Fiscal Agent will not be obligated to make any Advance that it deems to
be a Nonrecoverable Advance. The Fiscal Agent will be entitled (but not
obligated) to rely conclusively on any determination by the Master Servicer
or the Trustee that an Advance, if made, would be a Nonrecoverable Advance.
The Fiscal Agent will be entitled to reimbursement for each Advance made by
it in the same manner and to the same extent as, but prior to, the Master
Servicer and the Trustee. See "--P&I Advances" above. The Fiscal Agent will
be entitled to various rights, protections and indemnities similar to those
afforded the Trustee. The Trustee will be responsible for payment of the
compensation of the Fiscal Agent. As of December 31, 1995, the Fiscal Agent
had assets of approximately $340 billion. In the event that LaSalle shall,
for any reason, cease to act as Trustee under the Pooling Agreement, ABN AMRO
Bank N.V. likewise shall no longer serve in the capacity of Fiscal Agent
thereunder.
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YIELD AND MATURITY CONSIDERATIONS
YIELD CONSIDERATIONS
General. The yield on any Offered Certificate will depend on (a) the price
at which such Certificate is purchased by an investor and (b) the rate,
timing and amount of distributions on such Certificate. The rate, timing and
amount of distributions on any Offered Certificate will in turn depend on,
among other things, (v) the Pass-Through Rate for such Certificate (which in
the case of each Class of Offered Certificates is fixed), (w) the rate and
timing of principal payments (including principal prepayments) and other
principal collections on or in respect of the Mortgage Loans and the extent
to which such amounts are to be applied or otherwise result in reduction of
the Certificate Balance of the Class of Certificates to which such
Certificate belongs, (x) the rate, timing and severity of Realized Losses on
or in respect of the Mortgage Loans and of Additional Trust Fund Expenses and
Appraisal Reductions and the extent to which such losses and expenses are
allocable or otherwise result in nonpayment of interest on or reduction of
the Certificate Balance of the Class of Certificates to which such
Certificate belongs, (y) the timing and severity of any Net Aggregate
Prepayment Interest Shortfalls and the extent to which such shortfalls are
allocable in reduction of the Distributable Certificate Interest payable on
the Class of Certificates to which such Certificate belongs and (z) the
extent to which Prepayment Premiums are collected and, in turn, distributed
on the Class of Certificates to which such Certificate belongs.
Rate and Timing of Principal Payments. The yield to holders of any Offered
Certificates purchased at a discount or premium will be affected by the rate
and timing of principal payments made in reduction of the principal balances
of such Certificates. As described herein, the Principal Distribution Amount
for each Distribution Date will be distributable entirely in respect of the
Class A Certificates until the related Certificate Balances thereof are
reduced to zero. Following retirement of the Class A Certificates, the
Principal Distribution Amount for each Distribution Date will be
distributable entirely in respect of the Class B, Class C, Class D, Class E,
Class F, Class G and Class H Certificates, in that order, in each case until
the Certificate Balance of such Class of Certificates is reduced to zero.
Consequently, the rate and timing of principal payments that are distributed
in reduction of the Certificate Balance of each Class of Offered Certificates
will be directly related to the rate and timing of principal payments on or
in respect of the Mortgage Loans, which will in turn be affected by the
amortization schedules thereof, the dates on which Balloon Payments are due
and the rate and timing of principal prepayments and other unscheduled
collections thereon (including for this purpose, collections made in
connection with liquidations of Mortgage Loans due to defaults, casualties or
condemnations affecting the Mortgaged Properties, or purchases of Mortgage
Loans out of the Trust Fund). Prepayments and, assuming the respective stated
maturity dates therefor have not occurred, liquidations of the Mortgage Loans
will result in distributions on the Sequential Pay Certificates of amounts
that would otherwise be distributed over the remaining terms of the Mortgage
Loans and will tend to shorten the weighted average lives of those
Certificates. Defaults on the Mortgage Loans, particularly at or near their
stated maturity dates, may result in significant delays in payments of
principal on the Mortgage Loans (and, accordingly, on the Sequential Pay
Certificates) while workouts are negotiated or foreclosures are completed,
and such delays will tend to lengthen the weighted average lives of those
Certificates. See "Servicing of the Mortgage Loans--Modifications, Waivers,
Amendments and Consents" herein and "Description of the Pooling
Agreements--Realization Upon Defaulted Mortgage Loans" and "Certain Legal
Aspects of Mortgage Loans--Foreclosure" in the Prospectus.
The extent to which the yield to maturity of any Class of Offered
Certificates may vary from the anticipated yield will depend upon the degree
to which such Certificates are purchased at a discount or premium and when,
and to what degree, payments of principal on or in respect of the Mortgage
Loans are distributed or otherwise result in a reduction of the Certificate
Balance of such Certificates. An investor should consider, in the case of any
Offered Certificate purchased at a discount, the risk that a slower than
anticipated rate of principal payments on the Mortgage Loans could result in
an actual yield to such investor that is lower than the anticipated yield
and, in the case of any Offered Certificate purchased at a premium, the risk
that a faster than anticipated rate of principal payments on the Mortgage
Loans could result in an actual yield to such investor that is lower than the
anticipated yield. In general, the earlier a payment of principal on or in
respect of the Mortgage Loans is distributed in reduction of
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the principal balance of an Offered Certificate purchased at a discount or
premium, the greater will be the effect on an investor's yield to maturity.
As a result, the effect on an investor's yield of principal payments
occurring at a rate higher (or lower) than the rate anticipated by the
investor during any particular period may not be fully offset by a subsequent
like reduction (or increase) in the rate of principal payments. Because the
rate of principal payments on or in respect of the Mortgage Loans will depend
on future events and a variety of factors (as described more fully below), no
assurance can be given as to such rate or the rate of principal prepayments
in particular. The Sponsor is not aware of any relevant publicly available or
authoritative statistics with respect to the historical prepayment experience
of a large group of mortgage loans comparable to the Mortgage Loans.
Losses and Shortfalls. The yield to holders of the Offered Certificates
will also depend on the extent to which such holders are required to bear the
effects of any losses or shortfalls on the Mortgage Loans. As and to the
extent described herein, Realized Losses and Additional Trust Fund Expenses
will be applied to the respective Classes of Sequential Pay Certificates (in
each case, to reduce the Certificate Balance thereof) in the following order:
first, to each Class of Sequential Pay Certificates (other than the Class A
Certificates), in reverse alphabetical order of Class designation, until the
Certificate Balance thereof has been reduced to zero; then, to the Class A-1,
Class A-2 and Class A-3 Certificates pro rata in accordance with their
respective remaining Certificate Balances, until the remaining Certificate
Balance of each such Class of Certificates has been reduced to zero. The Net
Aggregate Prepayment Interest Shortfall, if any, for each Distribution Date
will be allocated to the respective Classes of REMIC Regular Certificates (in
each case, to reduce the amount of interest otherwise payable thereon on such
Distribution Date) as follows: first, to the respective Classes of REMIC
Regular Certificates (other than the Senior Certificates) sequentially in
reverse alphabetical order of Class designation, in each case up to the
amount of the Accrued Certificate Interest in respect of such Class of
Certificates for such Distribution Date; and thereafter, among the respective
Classes of Senior Certificates, up to, and pro rata in accordance with, the
respective amounts of Accrued Certificate Interest for each such Class of
Senior Certificates for such Distribution Date.
Certain Relevant Factors. The rate and timing of principal payments and
defaults and the severity of losses on or in respect of the Mortgage Loans
may be affected by a number of factors, including, without limitation,
prevailing interest rates, the terms of the Mortgage Loans (for example,
Prepayment Premiums, lock-out periods and amortization terms that require
Balloon Payments), the demographics and relative economic vitality of the
areas in which the Mortgaged Properties are located and the general supply
and demand for rental units, office space, retail shopping space, or health
care facility beds or senior living units, as the case may be, in such areas,
the quality of management of the Mortgaged Properties, the servicing of the
Mortgage Loans, possible changes in tax laws and other opportunities for
investment. See "Risk Factors--The Mortgage Loans", "Description of the
Mortgage Pool" and "Servicing of the Mortgage Loans" herein and "Description
of the Pooling Agreements" and "Yield and Maturity Considerations--Yield and
Prepayment Considerations" in the Prospectus.
The rate of prepayment on the Mortgage Loans is likely to be affected by
prevailing market interest rates for mortgage loans of a comparable type,
term and risk level. When the prevailing market interest rate is below the
Mortgage Rate at which a Mortgage Loan accrues interest, a borrower may have
an increased incentive to refinance such Mortgage Loan. If a Mortgage Loan is
not in a lock-out period, any Prepayment Premium in respect of such Mortgage
Loan may not be sufficient economic disincentive to prevent the related
borrower from voluntarily prepaying the loan as part of a refinancing
thereof. See "Description of the Mortgage Pool--Certain Terms and Conditions
of the Mortgage Loans" herein.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash
flow needs or to make other investments. In addition, some borrowers may be
motivated by Federal and state tax laws (which are subject to change) to sell
Mortgaged Properties prior to the exhaustion of tax depreciation benefits.
The Sponsor makes no representation or warranty as to the particular
factors that will affect the rate and timing of prepayments and defaults on
the Mortgage Loans, as to the relative importance of such factors, as to the
percentage of the principal balance of the Mortgage Loans that will be
prepaid or as to which a default will have occurred as of any date or as to
the overall rate of prepayment or default on the Mortgage Loans.
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WEIGHTED AVERAGE LIVES
The weighted average life of any Offered Certificate refers to the average
amount of time that will elapse from the date of its issuance until each
dollar to be applied in reduction of the principal balance of such
Certificate is distributed to the investor. For purposes of this Prospectus
Supplement, the weighted average life of an Offered Certificate is determined
by (i) multiplying the amount of each principal distribution thereon by the
number of years from the Delivery Date to the related Distribution Date, (ii)
summing the results and (iii) dividing the sum by the aggregate amount of the
reductions in the principal balance of such Certificate. Accordingly, the
weighted average life of any Offered Certificate will be influenced by, among
other things, the rate at which principal of the Mortgage Loans is paid or
otherwise collected or advanced and the extent to which such payments,
collections and/or advances of principal are in turn applied in reduction of
the Certificate Balance of the Class of Certificates to which such Offered
Certificate belongs. As described herein, the Principal Distribution Amount
for each Distribution Date will be distributable entirely in respect of the
Class A Certificates until the Certificate Balances thereof are reduced to
zero, and will thereafter be distributable entirely in respect of the Class
B, Class C, Class D, Class E, Class F, Class G and Class H Certificates, in
that order, in each case until the Certificate Balance of each such Class of
Certificates is reduced to zero. As a consequence of the foregoing, the
weighted average lives of the Class A Certificates may be shorter, and the
weighted average lives of the other Classes of Sequential Pay Certificates
may be longer, than would otherwise be the case if the Principal Distribution
Amount for each Distribution Date was being distributed on a pro rata basis
among the respective Classes of Sequential Pay Certificates.
Prepayments on mortgage loans may be measured by a prepayment standard or
model. The model used in this Prospectus Supplement is the CPR model. As used
in each of the following tables, the column headed "0%" assumes that none of
the Mortgage Loans is prepaid before maturity. The columns headed "4%", "8%",
"12%" and "16%" assume that no prepayments are made on any Mortgage Loan
during such Mortgage Loan's prepayment lock-out period, if any, or during
such Mortgage Loan's yield maintenance period, if any, and are otherwise made
on each of the Mortgage Loans at the indicated CPRs. There is no assurance,
however, that prepayments of the Mortgage Loans (whether or not in a
prepayment lock-out period or a yield maintenance period) will conform to any
particular CPR, and no representation is made that the Mortgage Loans will
prepay in accordance with the assumptions at any of the CPRs shown or at any
other particular prepayment rate, that all the Mortgage Loans will prepay in
accordance with the assumptions at the same rate or that Mortgage Loans that
are in a prepayment lock-out period or a yield maintenance period will not
prepay as a result of involuntary liquidations upon default or otherwise. A
"prepayment lock-out period" is any period during which a Mortgage Loan
prohibits voluntary prepayments on the part of the borrower. A "yield
maintenance period" is any period during which a Mortgage Loan provides that
voluntary prepayments be accompanied by a Prepayment Premium calculated on
the basis of a yield maintenance formula.
The following tables indicate the percentages of the respective initial
Certificate Balances of the various Classes of Offered Certificates that
would be outstanding after each of the dates shown at various CPRs, and the
corresponding weighted average lives of such Classes of Certificates, under
the following assumptions (the "Maturity Assumptions"): (i) the Mortgage
Loans have the characteristics set forth on Annex A and the Initial Pool
Balance is $458,055,542, (ii) the initial Certificate Balances of the
respective Classes of Offered Certificates are as described herein, and the
Pass-Through Rates for the respective Classes of Offered Certificates are as
described herein, (iii) the scheduled Monthly Payments for each Mortgage Loan
(except one) that accrues interest on the basis of a 360-day year consisting
of twelve 30-day months (a "30/360 basis"), are based on such Mortgage Loan's
Cut-off Date Balance, calculated remaining amortization term as of the
Cut-off Date and Mortgage Rate as of the Cut-off Date, and Monthly Payments
for each Mortgage Loan that accrues interest on the basis of actual number of
days elapsed and for one Mortgage Loan that accrues interest on a 30/360
basis, are the actual contractual Monthly Payments, (iv) there are no
delinquencies or losses in respect of the Mortgage Loans, there are no
extensions of maturity in respect of the Mortgage Loans, there are no
Appraisal Reduction Amounts with respect to the Mortgage Loans and there are
no casualties or condemnations affecting the Mortgaged Properties, (v)
scheduled Monthly Payments on the Mortgage Loans are timely received and,
subject to
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assumption (xii) below, prepayments are made on each of the Mortgage Loans at
the indicated CPRs set forth in the table (without regard to any limitations
in such Mortgage Loans on partial voluntary principal prepayments), (vi)
neither the Master Servicer nor any majority holder of the Controlling Class
exercises its right of optional termination described herein, (vii) no
Mortgage Loan is required to be repurchased by the Mortgage Loan Seller or
NMCC, (viii) no Prepayment Interest Shortfalls are incurred and no Prepayment
Premiums are collected, (ix) there are no Additional Trust Fund Expenses, (x)
distributions on the Offered Certificates are made on the 20th day of each
month, commencing in January 1997, (xi) the Offered Certificates are issued
on December 30, 1996, and (xii) no voluntary or involuntary prepayments are
received as to any Mortgage Loan during such Mortgage Loan's prepayment
lock-out period ("LOP"), if any, or yield maintenance period ("YMP"), if any.
To the extent that the Mortgage Loans have characteristics that differ from
those assumed in preparing the tables set forth below, any Class of Offered
Certificates may mature earlier or later than indicated by the tables. It is
highly unlikely that the Mortgage Loans will prepay in accordance with the
above assumptions at any of the specified CPRs until maturity or that all the
Mortgage Loans will so prepay at the same rate. In addition, variations in
the actual prepayment experience and the balance of the Mortgage Loans that
prepay may increase or decrease the percentages of initial Certificate
Balances (and weighted average lives) shown in the following tables. Such
variations may occur even if the average prepayment experience of the
Mortgage Loans were to conform to the assumptions and be equal to any of the
specified CPRs. Investors are urged to conduct their own analyses of the
rates at which the Mortgage Loans may be expected to prepay.
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<PAGE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS A-1 CERTIFICATES AT THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
DATE 0% 4% 8% 12% 16%
- ----------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Delivery Date ................ 100.00% 100.00% 100.00% 100.00% 100.00%
December 20, 1997 ............ 96.19 96.19 96.19 96.19 96.19
December 20, 1998 ............ 92.01 92.01 92.01 92.01 92.01
December 20, 1999 ............ 87.44 87.44 87.44 87.44 87.44
December 20, 2000 ............ 78.40 78.36 78.32 78.28 78.24
December 20, 2001 ............ 66.55 65.94 65.32 64.69 64.04
December 20, 2002 ............ 58.23 55.74 53.28 50.85 48.44
December 20, 2003 ............ 2.09 0.43 0.00 0.00 0.00
December 20, 2004 ............ 0.00 0.00 0.00 0.00 0.00
December 20, 2005 ............ 0.00 0.00 0.00 0.00 0.00
December 20, 2006 ............ 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years) 5.40 5.36 5.32 5.28 5.24
</TABLE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS A-2 CERTIFICATES AT THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
DATE 0% 4% 8% 12% 16%
- ----------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Delivery Date ................ 100.00% 100.00% 100.00% 100.00% 100.00%
December 20, 1997 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 1998 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 1999 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2000 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2001 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2002 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2003 ............ 100.00 100.00 93.07 83.58 73.86
December 20, 2004 ............ 47.71 13.47 0.00 0.00 0.00
December 20, 2005 ............ 14.45 0.00 0.00 0.00 0.00
December 20, 2006 ............ 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years) 8.04 7.53 7.32 7.20 7.12
</TABLE>
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PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS A-3 CERTIFICATES AT THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
DATE 0% 4% 8% 12% 16%
- ----------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Delivery Date ................ 100.00% 100.00% 100.00% 100.00% 100.00%
December 20, 1997 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 1998 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 1999 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2000 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2001 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2002 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2003 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2004 ............ 100.00 100.00 97.03 92.16 87.36
December 20, 2005 ............ 100.00 93.56 85.45 77.79 70.55
December 20, 2006 ............ 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years) 9.52 9.44 9.32 9.20 9.07
</TABLE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS B CERTIFICATES AT THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
DATE 0% 4% 8% 12% 16%
- ----------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Delivery Date ................ 100.00% 100.00% 100.00% 100.00% 100.00%
December 20, 1997 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 1998 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 1999 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2000 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2001 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2002 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2003 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2004 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2005 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2006 ............ 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years) 9.72 9.72 9.71 9.69 9.67
</TABLE>
S-71
<PAGE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF THE
CLASS C CERTIFICATES AT THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
DATE 0% 4% 8% 12% 16%
- ----------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Delivery Date ................ 100.00% 100.00% 100.00% 100.00% 100.00%
December 20, 1997 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 1998 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 1999 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2000 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2001 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2002 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2003 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2004 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2005 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2006 ............ 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years) 9.72 9.72 9.72 9.72 9.72
</TABLE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS D CERTIFICATES AT THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
DATE 0% 4% 8% 12% 16%
- ----------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Delivery Date ................ 100.00% 100.00% 100.00% 100.00% 100.00%
December 20, 1997 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 1998 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 1999 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2000 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2001 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2002 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2003 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2004 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2005 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2006 ............ 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years) 9.79 9.77 9.74 9.73 9.72
</TABLE>
S-72
<PAGE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS E CERTIFICATES AT THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
DATE 0% 4% 8% 12% 16%
- ----------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Delivery Date ................ 100.00% 100.00% 100.00% 100.00% 100.00%
December 20, 1997 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 1998 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 1999 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2000 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2001 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2002 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2003 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2004 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2005 ............ 100.00 100.00 100.00 100.00 100.00
December 20, 2006 ............ 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years) 9.81 9.81 9.81 9.81 9.78
</TABLE>
USE OF PROCEEDS
Substantially all of the proceeds from the sale of the Offered
Certificates will be used by the Sponsor to purchase the Mortgage Loans and
to pay certain expenses in connection with the issuance of the Certificates.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
For federal income tax purposes, two separate "real estate mortgage
investment conduit" ("REMIC") elections will be made with respect to
designated portions of the Trust Fund, the resulting REMICs being herein
referred to as "REMIC I" and "REMIC II", respectively. The assets of REMIC I
will include the Mortgage Loans, any REO Properties acquired on behalf of the
Certificateholders and the Certificate Account (as defined in the
Prospectus). The assets of REMIC II will consist of the separate,
noncertificated "regular interests" in REMIC I. For federal income tax
purposes, (i) the Class R-I Certificates will be the sole class of "residual
interests" in REMIC I, (ii) the REMIC Regular Certificates will evidence the
"regular interests" in, and generally will be treated as debt obligations of,
REMIC II, and (iii) the Class R-II Certificates will be the sole class of
"residual interests" in REMIC II. Upon issuance of the Offered Certificates,
Thacher Proffitt & Wood, special tax counsel to the Sponsor, will deliver its
opinion generally to the effect that, assuming compliance with all provisions
of the Pooling Agreement, for federal income tax purposes, REMIC I and REMIC
II will each qualify as a REMIC under the Code. See "Material Federal Income
Tax Consequences--REMICs" in the Prospectus.
ORIGINAL ISSUE DISCOUNT AND PREMIUM
For federal income tax reporting purposes, it is anticipated that the
Class , Class , Class , Class and Class Certificates will not,
and the Class and Class Certificates will, be treated as having been
issued with original issue discount. The prepayment assumption that will be
used in determining the rate of accrual of original issue discount, market
discount and premium, if any, for federal income tax purposes will be based
on the assumption that subsequent to the date of any determination the
Mortgage Loans will prepay at a rate equal to a CPR of %, and there will be
no extensions of maturity for any Mortgage Loan. However, no representation
is made that the Mortgage Loans will not prepay or that, if they do, they
will prepay at any particular rate. See "Material Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates" in
the Prospectus.
S-73
<PAGE>
The Internal Revenue Service (the "IRS") has issued regulations (the "OID
Regulations") under Sections 1271 to 1275 of the Internal Revenue Code of
1986 (the "Code") generally addressing the treatment of debt instruments
issued with original issue discount. Purchasers of the Offered Certificates
should be aware that the OID Regulations and Section 1272(a)(6) of the Code
do not adequately address certain issues relevant to, or are not applicable
to, prepayable securities such as the Offered Certificates. Prospective
purchasers of the Offered Certificates are advised to consult their tax
advisors concerning the tax treatment of such Certificates.
Prepayment Premiums actually collected on the Mortgage Loans will be
distributed to the holders of each Class of Certificates entitled thereto as
described herein. It is not entirely clear under the Code when the amount of
a Prepayment Premium should be taxed to the holder of a Class of Certificates
entitled to a Prepayment Premium. For federal income tax reporting purposes,
Prepayment Premiums will be treated as income to the holders of a Class of
Certificates entitled to Prepayment Premiums only after the Master Servicer's
actual receipt of a Prepayment Premium as to which such Class of Certificates
is entitled under the terms of the Pooling Agreement. It appears that
Prepayment Premiums are to be treated as ordinary income rather than capital
gain. However, the correct characterization of such income is not entirely
clear and Certificateholders should consult their own tax advisors concerning
the treatment of Prepayment Premiums.
The OID Regulations in some circumstances permit the holder of a debt
instrument to recognize original issue discount under a method that differs
from that of the issuer. Accordingly, it is possible that holders of Offered
Certificates issued with original issue discount may be able to select a
method for recognizing original issue discount that differs from that used by
the REMIC Administrator in preparing reports to Certificateholders and the
IRS. Prospective purchasers of Offered Certificates issued with original
issue discount are advised to consult their tax advisors concerning the
treatment of such Certificates.
Certain Classes of the Offered Certificates may be treated for federal
income tax purposes as having been issued at a premium. Whether any holder of
such a Class of Certificates will be treated as holding a Certificate with
amortizable bond premium will depend on such Certificateholder's purchase
price and the distributions remaining to be made on such Certificate at the
time of its acquisition by such Certificateholder. Holders of such Classes of
Certificates should consult their own tax advisors regarding the possibility
of making an election to amortize such premium. See "Material Federal Income
Tax Consequences--REMICs--Taxation of Owners of REMIC Regular
Certificates--Premium" in the Prospectus.
CHARACTERIZATION OF INVESTMENTS IN OFFERED CERTIFICATES
The Offered Certificates will be "real estate assets" within the meaning
of Section 856(c)(5)(A) of the Code in the same proportion that the assets of
the Trust Fund would be so treated. In addition, interest (including original
issue discount, if any) on the Offered Certificates will be interest
described in Section 856(c)(3)(B) of the Code to the extent that such
Certificates are treated as "real estate assets" within the meaning of
Section 856(c)(5)(A) of the Code. Moreover, the Offered Certificates will be
"qualified mortgages" under Section 860G(a)(3) of the Code if transferred to
another REMIC on its start-up day in exchange for regular or residual
interests therein.
The Offered Certificates will be treated as assets within the meaning of
Section 7701(a)(19)(C) of the Code generally only to the extent that the
Multifamily Loans and the loans secured by health care facilities are a
percentage of the principal balance of the Mortgage Pool. The percentage of
such Mortgage Loans included in the initial principal balance of the Mortgage
Pool (which is subject to change due to changes in principal balances and
prepayments) is initially approximately 44.0%. See "Description of the
Mortgage Pool" herein and "Material Federal Income Tax
Consequences--REMICs--Characterization of Investments in REMIC Certificates"
in the Prospectus.
POSSIBLE TAXES ON INCOME FROM FORECLOSURE PROPERTY
In general, the Special Servicer will be obligated to operate and manage
any Mortgaged Property acquired as REO Property in a manner that would, to
the extent commercially feasible, maximize the
S-74
<PAGE>
Trust Fund's net after-tax proceeds from such property. After the Special
Servicer reviews the operation of such property and consults with the REMIC
Administrator to determine the REMIC Administrator's federal income tax
reporting position with respect to income it is anticipated that the Trust
Fund would derive from such property, the Special Servicer could determine
that it would not be commercially feasible to manage and operate such
property in a manner that would avoid the imposition of a tax on "net income
from foreclosure property" within the meaning of the REMIC Provisions or a
tax on "prohibited transactions" under Section 860F of the Code (either such
tax referred to herein as an "REO Tax"). To the extent that income the Trust
Fund receives from an REO Property is subject to a tax on (i) "net income
from foreclosure property," such income would be subject to federal tax at
the highest marginal corporate tax rate (currently 35%) and (ii) "prohibited
transactions", such income would be subject to federal tax at a 100% rate.
The determination as to whether income from an REO Property would be subject
to an REO Tax will depend on the specific facts and circumstances relating to
the management and operation of each REO Property. Generally, income from an
REO Property that is directly operated by the Special Servicer would be
apportioned and classified as "service" or "non-service" income. The
"service" portion of such income could be subject to federal tax either at
the highest marginal corporate tax rate or at the 100% rate on "prohibited
transactions," and the "non-service" portion of such income could be subject
to federal tax at the highest marginal corporate tax rate or, although it
appears unlikely, at the 100% rate applicable to "prohibited transactions".
Any REO Tax imposed on the Trust Fund's income from an REO Property would
reduce the amount available for distribution to Certificateholders.
Certificateholders are advised to consult their own tax advisors regarding
the possible imposition of REO Taxes in connection with the operation of
commercial REO Properties by REMICs.
REPORTING AND OTHER ADMINISTRATIVE MATTERS
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be
required more frequently under Treasury regulations. These information
reports generally are required to be sent to individual holders of REMIC
Regular Certificates and the IRS; holders of REMIC Regular Certificates that
are corporations, trusts, securities dealers and certain other
non-individuals will be provided interest and original issue discount income
information and the information set forth in the following paragraph upon
request in accordance with the requirements of the applicable regulations.
The information must be provided by the later of 30 days after the end of the
quarter for which the information was requested, or two weeks after the
receipt of the request. The REMIC must also comply with rules requiring a
REMIC Regular Certificate issued with original issue discount to disclose on
its face the amount of original issue discount and the issue date, and
requiring such information to be reported to the IRS. Reporting with respect
to the REMIC Residual Certificates, including income, excess inclusions,
investment expenses and relevant information regarding qualification of the
REMIC's assets will be made as required under the Treasury regulations,
generally on a quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular
Certificate at the beginning of each accrual period. In addition, the reports
will include information required by regulations with respect to computing
the accrual of any market discount. Because exact computation of the accrual
of market discount on a constant yield method would require information
relating to the holder's purchase price that the REMIC may not have, such
regulations only require that information pertaining to the appropriate
proportionate method of accruing market discount be provided.
The "tax matters person" for each REMIC will be the holder of REMIC
Residual Certificates evidencing the largest percentage interest in its Class
of REMIC Residual Certificates. All holders of REMIC Residual Certificates
will irrevocably designate the REMIC Administrator as agent for such "tax
matters persons" in all respects.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "Material Federal Income Tax
Consequences--REMICs" in the Prospectus.
S-75
<PAGE>
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities, Keogh
plans and collective investment funds and separate accounts in which such
plans, accounts or arrangements are invested, that is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975
of the Code (each, a "Plan") should carefully review with its legal advisors
whether the purchase or holding of Offered Certificates could give rise to a
transaction that is prohibited or is not otherwise permitted either under
ERISA or Section 4975 of the Code or whether there exists any statutory or
administrative exemption applicable thereto.
The U.S. Department of Labor issued to Citicorp an individual prohibited
transaction exemption, Prohibited Transaction Exemption ("PTE") 90-88, and to
NationsBank Corporation an individual prohibited transaction exemption, PTE
93-31 (the "Exemptions"), which generally exempt from the application of the
prohibited transaction provisions of Section 406 of ERISA, and the excise
taxes imposed on such prohibited transactions pursuant to Sections 4975(a)
and (b) of the Code and Section 502(i) of ERISA, certain transactions, among
others, relating to the servicing and operation of mortgage pools, such as
the Mortgage Pool, and the purchase, sale and holding of mortgage
pass-through certificates, such as the Class A Certificates, underwritten by
an Underwriter (as hereinafter defined), provided that certain conditions set
forth in the Exemptions are satisfied. For purposes of this Section "ERISA
Considerations", the term "Underwriter" shall include (a) Citicorp, (b)
NationsBank Corporation, (c) any person directly or indirectly, through one
or more intermediaries, controlling, controlled by or under common control
with either Citicorp (such as Citibank, N.A.) or NationsBank Corporation
(such as NationsBanc Capital Markets, Inc.), and (d) any member of the
underwriting syndicate or selling group of which a person described in (a),
(b) or (c) is a manager or co-manager with respect to the Class A
Certificates.
The Exemptions set forth six general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of a Class A
Certificate to be eligible for exemptive relief thereunder. First, the
acquisition of such Certificate by a Plan must be on terms that are at least
as favorable to the Plan as they would be in an arm's-length transaction with
an unrelated party. Second, the rights and interests evidenced by such
Certificate must not be subordinated to the rights and interests evidenced by
the other certificates of the same trust. Third, such Certificate at the time
of acquisition by the Plan must be rated in one of the three highest generic
rating categories by Fitch, Moody's, Standard & Poor's Ratings Services, a
Division of the McGraw-Hill Companies, Inc. ("S&P") or Duff & Phelps Credit
Rating Co. ("Duff & Phelps"). Fourth, the Trustee cannot be an affiliate of
any other member of the "Restricted Group", which consists of any
Underwriter, the Sponsor, the Trustee, the Master Servicer, the Special
Servicer, any sub-servicer, and any borrower with respect to Mortgage Loans
constituting more than 5% of the aggregate unamortized principal balance of
the Mortgage Pool as of the date of initial issuance of the Certificates.
Fifth, the sum of all payments made to and retained by the Underwriters must
represent not more than reasonable compensation for underwriting the Class A
Certificates; the sum of all payments made to and retained by the Sponsor
pursuant to the assignment of the Mortgage Loans to the Trust Fund must
represent not more than the fair market value of such obligations; and the
sum of all payments made to and retained by the Master Servicer, the Special
Servicer and any sub-servicer must represent not more than reasonable
compensation for such person's services under the Pooling Agreement and
reimbursement of such person's reasonable expenses in connection therewith.
Sixth, the investing Plan must be an accredited investor as defined in Rule
501(a)(1) of Regulation D of the Commission under the Securities Act.
Because the Class A Certificates are not subordinated to any other Class
of Certificates, the second general condition set forth above is satisfied
with respect to such Certificates. It is a condition of their issuance that
each Class of Class A Certificates be rated not lower than "AAA" by each of
Fitch and Moody's. As of the Delivery Date, the fourth general condition set
forth above will be satisfied with respect to the Class A Certificates. A
fiduciary of a Plan contemplating purchasing a Class A Certificate in the
secondary market must make its own determination that, at the time of such
purchase, such Certificate continues to satisfy the third and fourth general
conditions set forth above. A fiduciary of a
S-76
<PAGE>
Plan contemplating purchasing a Class A Certificate, whether in the initial
issuance of such Certificate or in the secondary market, must make its own
determination that the first, fifth and sixth general conditions set forth
above will be satisfied with respect to such Certificate.
The Exemptions also require that the Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type
that have been included in other investment pools; (ii) certificates
evidencing interests in such other investment pools must have been rated in
one of the three highest categories of Fitch, Moody's, S&P or Duff & Phelps
for at least one year prior to the Plan's acquisition of a Class A
Certificate; and (iii) certificates evidencing interests in such other
investment pools must have been purchased by investors other than Plans for
at least one year prior to any Plan's acquisition of a Class A Certificate.
The Sponsor has confirmed to its satisfaction that such requirements have
been satisfied as of the date hereof.
If the general conditions of the Exemptions are satisfied, the Exemptions
may provide an exemption from the restrictions imposed by Sections 406(a) and
407(a) of ERISA, and the excise taxes imposed by Sections 4975(a) and (b) of
the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code, in
connection with (i) the direct or indirect sale, exchange or transfer of
Class A Certificates in the initial issuance of Certificates between the
Sponsor or an Underwriter and a Plan when the Sponsor, an Underwriter, the
Trustee, the Master Servicer, the Special Servicer, a sub-servicer or a
borrower is a Party in Interest with respect to the investing Plan, (ii) the
direct or indirect acquisition or disposition in the secondary market of
Class A Certificates by a Plan and (iii) the holding of Class A Certificates
by a Plan. However, no exemption is provided from the restrictions of
Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or
holding of a Class A Certificate on behalf of an "Excluded Plan" by any
person who has discretionary authority or renders investment advice with
respect to the assets of such Excluded Plan. For purposes hereof, an Excluded
Plan is a Plan sponsored by any member of the Restricted Group.
If certain specific conditions of the Exemptions are also satisfied, the
Exemptions may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA, and the excise taxes imposed by Sections
4975(a) and (b) of the Code by reason of Section 4975(c)(1)(E) of the Code,
in connection with (1) the direct or indirect sale, exchange or transfer of
Class A Certificates in the initial issuance of Certificates between the
Sponsor or an Underwriter and a Plan when the person who has discretionary
authority or renders investment advice with respect to the investment of Plan
assets in such Certificates is (a) a borrower with respect to 5% or less of
the fair market value of the Mortgage Pool or (b) an affiliate of such a
person, (2) the direct or indirect acquisition or disposition in the
secondary market of Class A Certificates by a Plan and (3) the holding of
Class A Certificates by a Plan.
Further, if certain specific conditions of the Exemptions are satisfied,
the Exemptions may provide an exemption from the restrictions imposed by
Sections 406(a), 406(b) and 407(a) of ERISA, and the excise taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the
Code, for transactions in connection with the servicing, management and
operation of the Mortgage Pool. The Sponsor expects that the specific
conditions of the Exemptions required for this purpose will be satisfied with
respect to the Class A Certificates.
The Exemptions also may provide an exemption from the restrictions imposed
by Sections 406(a) and 407(a) of ERISA, and the excise taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Sections 4975(c)(1) (A)
through (D) of the Code, if such restrictions are deemed to otherwise apply
merely because a person is deemed to be a Party in Interest with respect to
an investing Plan by virtue of providing services to the Plan (or by virtue
of having certain specified relationships to such a person) solely as a
result of the Plan's ownership of Class A Certificates.
Before purchasing a Class A Certificate, a fiduciary of a Plan should
itself confirm that (i) the Class A Certificates constitute "certificates"
for purposes of the Exemptions and (ii) the specific and general conditions
and the other requirements set forth in the Exemptions would be satisfied. In
addition to making its own determination as to the availability of the
exemptive relief provided in the Exemptions, the Plan fiduciary should
consider the availability of any other prohibited transaction exemptions. See
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<PAGE>
"ERISA Considerations" in the Prospectus. A purchaser of a Class A
Certificate should be aware, however, that even if the conditions specified
in one or more exemptions are satisfied, the scope of relief provided by an
exemption may not cover all acts which might be construed as prohibited
transactions.
The Small Business Job Protection Act of 1996 added a new Section 401(c)
to ERISA, which provides certain exemptive relief from the provisions of Part
4 of Title I of ERISA and Section 4975 of the Code, including the prohibited
transaction restrictions imposed by ERISA and the related excise taxes
imposed by the Code, for transactions involving an insurance company general
account. Pursuant to Section 401(c) of ERISA, the DOL is required to issue
final regulations ("401(c) Regulations") no later than December 31, 1997
which are to provide guidance for the purpose of determining, in cases where
insurance policies supported by an insurer's general account are issued to or
for the benefit of a Plan on or before December 31, 1998, which general
account assets constitute Plan Assets. Section 401(c) of ERISA generally
provides that, until the date which is 18 months after the 401(c) Regulations
become final, no person shall be subject to liability under Part 4 of Title I
of ERISA and Section 4975 of the Code on the basis of a claim that the assets
of an insurance company general account constitute Plan Assets, unless (i) as
otherwise provided by the Secretary of Labor in the 401(c) Regulations to
prevent avoidance of the regulations or (ii) an action is brought by the
Secretary of Labor for certain breaches of fiduciary duty which would also
constitute a violation of federal or state criminal law. Any assets of an
insurance company general account which support insurance policies issued to
a Plan after December 31, 1998 or issued to Plans on or before December 31,
1998 for which the insurance company does not comply with the 401(c)
Regulations may be treated as Plan Assets. In addition, because Section
401(c) does not relate to insurance company separate accounts, separate
account assets are still treated as Plan Assets of any Plan invested in such
separate account. Insurance companies contemplating the investment of general
account assets in the Offered Certificates should consult with their legal
counsel with respect to the applicability of Section 401(c) of ERISA,
including the general account's ability to continue to hold the Offered
Certificates after the date which is 18 months after the date the 401(c)
Regulations become final.
Because the characteristics of the Class B, Class C, Class D and Class E
Certificates do not meet the requirements of the Exemptions, the purchase or
holding of such Certificates or interests therein by a Plan may result in
prohibited transactions or the imposition of excise taxes or civil penalties.
AS A RESULT, NO TRANSFER OF A CLASS B, CLASS C, CLASS D AND CLASS E
CERTIFICATE OR ANY INTEREST THEREIN MAY BE MADE TO A PLAN OR TO ANY PERSON
WHO IS DIRECTLY OR INDIRECTLY PURCHASING SUCH CERTIFICATE OR INTEREST THEREIN
ON BEHALF OF, AS NAMED FIDUCIARY OF, AS TRUSTEE OF, OR WITH ASSETS OF A PLAN,
UNLESS THE PURCHASE AND HOLDING OF ANY SUCH CERTIFICATE OR INTEREST THEREIN
IS EXEMPT FROM THE PROHIBITED TRANSACTION PROVISIONS OF SECTION 406 OF ERISA
AND SECTION 4975 OF THE CODE UNDER PROHIBITED TRANSACTION CLASS EXEMPTION
95-60, WHICH PROVIDES AN EXEMPTION FROM THE PROHIBITED TRANSACTION RULES FOR
CERTAIN TRANSACTIONS INVOLVING AN INSURANCE COMPANY GENERAL ACCOUNT, OR
SECTION 401(C) OF ERISA. See "ERISA Considerations" in the Prospectus.
Any Plan fiduciary considering whether to purchase an Offered Certificate
on behalf of a Plan should consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment.
LEGAL INVESTMENT
The Offered Certificates will not constitute "mortgage related securities"
for purposes of SMMEA. As a result, the appropriate characterization of the
Offered Certificates under various legal investment restrictions, and thus
the ability of investors subject to these restrictions to purchase the
Offered Certificates, is subject to significant interpretive uncertainties.
The Sponsor makes no representation as to the ability of particular investors
to purchase the Offered Certificates under applicable legal investment or
other restrictions. All institutions whose investment activities are subject
to legal investment laws and regulations, regulatory capital requirements or
review by regulatory authorities should consult with their own legal advisors
in determining whether and to what extent the Offered Certificates constitute
legal investments for them or are subject to investment, capital or other
restrictions. See "Legal Investment" in the Prospectus.
S-78
<PAGE>
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement between the Sponsor and the Underwriters, the Offered Certificates
will be purchased from the Sponsor by the Underwriters upon issuance.
Citibank, N.A. is an affiliate of the Sponsor. Proceeds to the Sponsor from
the sale of the Offered Certificates, before deducting expenses payable by
the Sponsor, will be an amount equal to % of the initial aggregate
Certificate Balance thereof, plus accrued interest.
Citibank, N.A. and NationsBanc Capital Markets, Inc. have agreed in the
Underwriting Agreement to purchase % and %, respectively, of the aggregate
principal of each Class of Offered Certificates.
Distribution of the Offered Certificates will be made by the Underwriters
from time to time in negotiated transactions or otherwise at varying prices
to be determined at the time of sale. The Underwriters may effect such
transactions by selling the Offered Certificates to or through dealers, and
such dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriters. In connection with the
purchase and sale of the Offered Certificates, the Underwriters may be deemed
to have received compensation from the Sponsor in the form of underwriting
discounts. The Underwriters and any dealers that participate with the
Underwriter in the distribution of the Offered Certificates may be deemed to
be underwriters and any profit on the resale of the Offered Certificates
positioned by them may be deemed to be underwriting discounts and commissions
under the Securities Act.
Purchasers of the Offered Certificates, including dealers, may, depending
on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Securities Act in connection with
reoffers and sales by them of Offered Certificates. Certificateholders should
consult with their legal advisors in this regard prior to any such reoffer or
sale.
The Sponsor also has been advised by the Underwriters that the
Underwriters presently intend to make a market in the Offered Certificates;
however, neither Underwriter has any obligation to do so, any market making
may be discontinued at any time and there can be no assurance that an active
public market for the Offered Certificates will develop. See "Risk
Factors--The Certificates--Limited Liquidity" herein and "Risk
Factors--Certain Factors Adversely Affecting Resale of the Offered
Certificates" in the Prospectus.
The Sponsor has agreed to indemnify each Underwriter and each person, if
any, who controls each Underwriter within the meaning of Section 15 of the
Securities Act against, or make contributions to each Underwriter and each
such controlling person with respect to, certain liabilities, including
certain liabilities under the Securities Act. Each of the Mortgage Loan
Seller and NMCC has agreed to indemnify the Sponsor with respect to certain
liabilities, including certain liabilities under the Securities Act, relating
to certain of the Mortgage Loans. NMCC has agreed to indemnify the Mortgage
Loan Seller with respect to certain liabilities, including certain
liabilities under the Securities Act, relating to the NMCC Mortgage Loans.
PNC Bank has agreed to indemnify the Mortgage Loan Seller with respect to
certain liabilities, including certain liabilities under the Securities Act,
with respect to the PNC Mortgage Loans.
LEGAL MATTERS
Certain legal matters will be passed upon for the Sponsor by Thacher
Proffitt & Wood, New York, New York and by Stephen E. Dietz, as an Associate
General Counsel of Citibank, N.A. and for the Underwriters by Cadwalader,
Wickersham & Taft, New York, New York. Mr. Dietz owns or has the right to
acquire a number of shares of common stock of Citicorp equal to less than
.01% of the outstanding common stock of Citicorp.
S-79
<PAGE>
RATINGS
It is a condition to their issuance that the Offered Certificates receive
the credit ratings indicated below from Fitch Investors Service, L.P.
("Fitch") and/or Moody's Investors Service, Inc. ("Moody's" and, together
with Fitch, the "Rating Agencies"):
<TABLE>
<CAPTION>
CLASS FITCH MOODY'S
- ------------- ------------- -----------
<S> <C> <C>
Class A-1 .... AAA Aaa
Class A-2 .... AAA Aaa
Class A-3 .... AAA Aaa
Class B ...... AA Aa2
Class C ...... A A2
Class D ...... BBB Baa2
Class E ...... Not Rated Baa3
</TABLE>
The ratings of the Offered Certificates address the likelihood of the
timely receipt by holders thereof of all payments of interest to which they
are entitled on each Distribution Date and the ultimate receipt by holders
thereof of all payments of principal to which they are entitled by December
21, 2026 ("Rated Final Distribution Date"). The 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 from the Mortgage Pool is adequate to make payments of principal and
interest required under the Offered Certificates. The ratings of the Offered
Certificates do not, however, represent any assessments of (i) the likelihood
or frequency of voluntary or involuntary principal prepayments on the
Mortgage Loans, (ii) the degree to which such prepayments might differ from
those originally anticipated or (iii) whether and to what extent Prepayment
Premiums will be collected in connection with such prepayments or the
corresponding effect on yield to investors.
There is no assurance that any rating assigned to the Offered Certificates
by either Rating Agency will not be lowered, qualified or withdrawn by such
Rating Agency, if, in its judgment, circumstances so warrant. There can be no
assurance as to whether any rating agency not requested to rate the Offered
Certificates will nonetheless issue a rating to any Class thereof and, if so,
what such rating would be. A rating assigned to any Class of Offered
Certificates by a rating agency that has not been requested by the Sponsor to
do so may be lower than the ratings assigned thereto by Fitch and Moody's.
The ratings on the Offered Certificates should be evaluated independently
from similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision
or withdrawal at any time by the assigning rating agency. See "Risk
Factors--Limited Nature of Credit Ratings" in the Prospectus.
S-80
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
PAGE
---------------
<S> <C>
401(c) Regulations ...................... S-78
ABN AMRO ................................ S-65
Accrued Certificate Interest ............ S-56
Additional Trust Fund Expenses .......... S-12, S-59
Administrative Fee Rate ................. S-13
Administrative Fees ..................... S-13, S-65
Advances ................................ S-45
Anchor Tenant ........................... S-34
Appraisal Reduction Amount .............. S-60
Assumed Final Distribution Date ........ S-2
Assumed Scheduled Payment ............... S-16, S-57
Available Distribution Amount ........... S-13, S-53
Balloon Loans ........................... S-2, S-9, S-32
Balloon Payment ......................... S-2, S-9, S-33
Balloon Payment Interest Excess ........ S-44
Balloon Payment Interest Shortfall ..... S-44
Balloon Payment Interest Shortfalls .... S-8
Certificate Balance ..................... S-2, S-51
Certificate Owner ....................... S-6, S-51
Certificate Registrar ................... S-51
Certificateholders ...................... S-2, S-10
Certificates ............................ S-1, S-5, S-50
Citi Mortgage Loans ..................... S-2, S-10, S-32
Class ................................... S-1, S-5, S-50
Class A Certificates .................... S-1, S-5, S-50
Class Prepayment Percentage ............. S-57
Code .................................... S-20, S-74
Collection Period ....................... S-52
Commercial Loan ......................... S-31
Commercial Mortgaged Property ........... S-31
Controlling Class ....................... S-19, S-23, S-50
Corporate Trust Office .................. S-65
Corrected Mortgage Loan ................. S-42
CREI Mortgage Loans ..................... S-10, S-32
Cross-Collateralized Mortgage Loans .... S-7, S-31
Cut-off Date ............................ S-2, S-31
Cut-off Date Balance .................... S-7, S-31
Definitive Certificate .................. S-6, S-51
Delinquent Loan Status Report ........... S-62
Delivery Date ........................... S-1
Distributable Certificate Interest ..... S-15, S-56
Distribution Date ....................... S-2, S-52
Distribution Date Statement ............. S-61
DTC ..................................... S-1, S-6, S-51
Due Date ................................ S-8, S-32
Duff & Phelps ........................... S-76
Emergency Advance ....................... S-45
ERISA ................................... S-20, S-76
Exemptions .............................. S-21
Extension Adviser ....................... S-19, S-46
FIRREA .................................. S-36
Fitch ................................... S-21
Form 8-K ................................ S-40
GAAP .................................... A-2
GMAC-CM ................................. S-5, S-42
Historical Loan Modification Report .... S-62
Historical Loss Report .................. S-62
Initial Pool Balance .................... S-2, S-31
IRS ..................................... S-74
LaSalle ................................. S-65
Liquidation Fee ......................... S-44
Liquidation Fee Rate .................... S-44
Lock-Out Expiration Date ................ S-9, S-33
LOP ..................................... S-69
Major Tenants ........................... S-34
Master Servicing Fee .................... S-43
Master Servicing Fee Rate ............... S-43
Maturity Assumptions .................... S-68
Modified Mortgage Loan .................. S-61
Monthly Payments ........................ S-8, S-32
Moody's ................................. S-21
Mortgage ................................ S-7, S-31
Mortgage Loan Schedule .................. S-38
Mortgage Loan Seller .................... S-2
Mortgage Loans .......................... S-2, S-6, S-31
Mortgage Note ........................... S-7, S-31
Mortgage Pool ........................... S-2
Mortgage Rate ........................... S-8, S-32
Mortgaged Property ...................... S-7, S-31
Multifamily Loan ........................ S-31
Multifamily Mortgaged Property .......... S-31
Net Aggregate Prepayment Interest
Shortfall .............................. S-56
Net Mortgage Rate ....................... S-12, S-52
NMCC .................................... S-2, S-10, S-32
NMCC Mortgage Loans ..................... S-2, S-10, S-32
Nonrecoverable Advances ................. S-60
Nonrecoverable P&I Advance .............. S-60
Nonrecoverable Servicing Advance ....... S-46
<PAGE>
Notional Amount ......................... S-3, S-12, S-51
Offered Certificates .................... S-2, S-5, S-50
OID Regulations ......................... S-74
Operating Statement Analysis ............ S-63
Participants ............................ S-51
Pass-Through Rate ....................... S-2
Permitted Encumbrances .................. S-39
Permitted Investments ................... S-43
P&I Advance ............................. S-17, S-59
Plan .................................... S-20, S-76
PNC Bank ................................ S-2, S-10, S-32
PNC Mortgage Loans ...................... S-2, S-10, S-32
Pooling Agreement ....................... S-11, S-50
Prepayment Interest Excess .............. S-43
Prepayment Interest Shortfall ........... S-44
Prepayment Premium ...................... S-9, S-33
Prepayment Premiums ..................... S-3
Principal Distribution Amount ........... S-15, S-56
Private Certificates .................... S-5, S-50
PTE ..................................... S-76
Purchase Price .......................... S-38
Rated Final Distribution Date ........... S-80
Rating Agencies ......................... S-21, S-79
Realized Loss ........................... S-59
Realized Losses ......................... S-12, S-58
Record Date ............................. S-53
Reimbursement Rate ...................... S-18, S-60
Related Proceeds ........................ S-45
REMIC ................................... S-3, S-20, S-73
REMIC Administrator ..................... S-5, S-65
REMIC I ................................. S-20, S-73
REMIC II ................................ S-3, S-20, S-73
REMIC Regular Certificates .............. S-1, S-5, S-50
REMIC Residual Certificates ............. S-1, S-5, S-50
REO Extension ........................... S-49
REO Property ............................ S-16, S-41
REO Status Report ....................... S-62
REO Tax ................................. S-49, S-75
S-81
<PAGE>
PAGE
---------------
Required Appraisal Loan ................. S-60
Risk Factors ............................ S-23
Scheduled Payment ....................... S-16, S-57
Senior Certificates ..................... S-3, S-13, S-53
Sequential Pay Certificates ............. S-3, S-11, S-51
Servicing Advances ...................... S-45
Servicing Standard ...................... S-41
Servicing Transfer Event ................ S-41
S&P ..................................... S-76
Special Servicer Loan Status Report .... S-63
Special Servicing Fee ................... S-44
Special Servicing Fee Rate .............. S-44
Specially Serviced Mortgage Loan ....... S-41
Sponsor ................................. S-2
Standby Fee ............................. S-44
Stated Principal Balance ................ S-52
Subordinate Certificates ................ S-3, S-14, S-54
Sub-Servicer ............................ S-43
Sub-Servicing Agreement ................. S-43
Trust Fund .............................. S-2, S-11, S-50
Trustee Fee ............................. S-65
Trustee Reports ......................... S-61
Underwriters ............................ S-1
Voting Rights ........................... S-64
Workout Fee ............................. S-44
Workout Fee Rate ........................ S-44
YMP .....................................
</TABLE>
S-82
<PAGE>
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
CONTROL LOAN
NUMBER NUMBER PROPERTY NAME PROPERTY ADDRESS CITY STATE
- ------- -------- ----------------------------------- -------------------------------------- --------------- -----
<S> <C> <C> <C> <C> <C>
C001 650927-1 Plaza America 11685 Sunset Hills Road Reston VA
C002 655165-6 Sweetwater Town & Country 1502-1910 Sweetwater Road National City CA
C003 643088-7 Stage Centre 6600 Stage Road Bartlett TN
C004 655143-6 Northridge Commons SC 33523 Eight Mile Road Livonia MI
C005 650708-2 Vestavia Hills Shopping Center 610 Montgomery Highway Vestavia Hills AL
N006 300003 Portsmouth Station Shopping Center 10440 Portsmouth Road Manassas VA
N007 300009 Bethesda Home Center 11711 Parklawn Dr. Rockville MD
& 5040 Boiling Brook Parkway
C008 650890-0 Snowmass Village Mall Snowmass Village Pitkin County CO
N009 300022 Mallory Corners Shopping Center SWC Mallory Lane and Moores Lane Brentwood TN
N010 300002 Walker's Village Shopping Center MD. Rt. 194 & Glade Blvd. Walkersville MD
N011 962135 Merchant Square Shopping Center GA Highway 9 at Hutchinson Road Cumming GA
N012 100131 Evergreen Plaza Shopping Center 11820 Northeast Fourth Plain Road Orchards WA
N013 962151 Palm Square Shopping Center 9801-9965 Pines Blvd. Pembroke Pines FL
N014 300023 Village Mall 436 Broadway Methuen MA
N015 100143 Altamonte Shopping Center SWC SR 434 & Montgomery Road Altamonte Springs FL
C016 655144-9 Laurel Commons SC 37100-37164 Six Mile Road Livonia MI
N017 100136 Johnston Square Shopping Center Hwy. 70A and Hwy. 301 Selma NC
N018 951114 Lantern Crossing Shoppes East 96th Street & Lantern Road Fishers IN
C019 650443-8 Vons Pavillion 9852 Chapman Avenue Garden Grove CA
N020 962128 Pasadena Plaza 1721 University Drive Pembroke Pines FL
N021 100125 Northside Village Shopping Center 425 Sigman Road Conyers GA
N022 962156 Cheesecake Factory 3024 Peachtree Road Atlanta GA
N023 962153 University Commons 6700 North University Drive Tamarac FL
N024 951122 Plymouth Landing Shopping Center US Highway 64 East Plymouth NC
N025 300013 Shoppes of Victoria Square 3580-3590 Hwy 17-92 Lake Mary FL
N026 100122 Skyline Plaza Shopping Center 4001 Government Blvd. Mobile AL
N027 300012 Village Square Shopping Center 912-980 Bragg Road Fredericksburg VA
N028 962152 Luria Plaza 1230-1324 Military Trail Palm Beach FL
C029 650645-2 SunRise Plaza 10800-10820 Rhode Island Avenue Beltsville MD
N030 300019 Julington Square Shopping Center 445 State Road 13 Jacksonville FL
N031 300004 Tamiami Lakes Plaza Shopping Center 13200 SW 8th Street Miami FL
N032 300025 Masonboro Commons Hwy 421 at Golden Road Wilmington NC
N033 100138 Dutch Village Shopping Center SE Quad. of I-85 and SR 56 Creedmoor NC
N034 100066 The Woods Shopping Center 1716 17th Street Sarasota FL
C035 655166-9 Norwalk Citibank Branch 586 Connecticut Avenue Norwalk CT
N036 100090 Coral West Plaza III 2610-2788 SW 137th Ave. at Coral Way Miami FL
N037 300026 Andrews Commons Shopping Center 150 Andrews Road Fayetteville NC
N038 962136 Rainbow Village Shopping Center 11411 North Dale Mabry Highway Tampa FL
N039 962129 Eckerds at Biscayne 4800 Biscayne Blvd. Miami FL
N040 100089 Coral West Plaza II 2400-2486 SW 137th Ave. at Coral Way Miami FL
N041 100146 Plum Pointe Plaza Shopping Center US Hwy 17 & Maplehurst Road Jacksonville NC
N042 100121 Shoppes of Tynecastle Hwy. 105 & Hwy. 184 Town of Seven Devils NC
N043 100142 Monument Landing Shopping Center 2485 Monument Road Jacksonville FL
N044 300018 Orange Grove Shopping Center Hwy. 49 at Dedeaux Road Gulfport MS
N045 300021 Hillsboro Corner Shopping Center 4121 Hillsboro Road Nashville TN
C046 650942-0 Mentor Towne Center SC 9666-9710 Mentor Avenue Mentor OH
C047 655131-3 Eastmoor Shopping Center NEC East 4th Street & Eastern Avenue Moore OK
N048 100145 Williamston Square Shopping Center U.S. 13/17 Williamston NC
N049 951126 Kroger 4319 Ft. Jackson Blvd. Columbia SC
N050 962144 Brownfield Plaza Shopping Centeriii 1401 Tahoka Road Brownfield TX
C051 650846-3 Dominion Square Shopping Center 10444-10466 Dumfries Road Manassas VA
C052 650940-4 Capital Square Shopping Center 1585-1603 Capital Avenue NE Battle Creek MI
N053 962150 Essex Square Shopping Center 2100, 2300 & 2500 Winchester Place Spartanburg SC
N054 100213 Grand Plaza Apartments 4320 Koval Lane Las Vegas NV
N055 100214 Lake Sahara Apartments 2500 East Karen Street Las Vegas NV
C056 650919-0 Shadowridge Apartments 3200 Arville Street Las Vegas NV
N057 100192 The Pines Apartments 3320-3360 Topaz Lane & 3321 Quartz Lane Fullerton CA
N058 100178 Christy Estates Apartments & Suites 3942 Holly Road Corpus Christi TX
C059 655148-1 Fox Run Apartments 1337-1359 Fox Run Drive Willoughby OH
N060 100209 Champion Pines Apartments 1500 Champion Pines Lane Augusta GA
N061 100229 Wildflower II Apartments 6031 Pineland Drive Dallas TX
C062 655174-0 Embassy Apartments 2100 Walnut Street Philadelphia PA
N063 100196 Godby Crossing Apartments 2301 Godby Road College Park GA
N064 100118 Nottingham & Camelot Apartments 4141 Jackson Street EXT Alexandria LA
N065 100187 City View Apartments 840 17th Street San Diego CA
C066 650572-5 Torrey Place Apartments 575 East Torrey Street New Braunfels TX
C067 650903-5 Brown Ridge Apartments 400 East Broad Street Newnan GA
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
ANTICIPATED LOAN
CONTROL ZIP PROPERTY ORIGINAL CUT-OFF DATE BALANCE AT MORTGAGE MORTGAGE
NUMBER CODE TYPE BALANCE BALANCE MATURITY RATE TYPE RATE
- ------- ----- ----------- ----------- ------------ ---------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
C001 22090 RETAIL $19,500,000 $19,422,636 $17,416,802 FIXED 8.930%
C002 91950 RETAIL 15,669,000 15,648,735 13,699,018 FIXED 9.150%
C003 38134 RETAIL 9,730,000 9,713,257 8,669,903 FIXED 8.800%
C004 48152 RETAIL 9,097,409 9,083,850 8,205,192 FIXED 9.490%
C005 35216 RETAIL 8,880,000 8,852,786 7,814,041 FIXED 9.490%
N006 22110 RETAIL 8,419,800 8,413,092 7,731,665 FIXED 9.190%
N007 20852 RETAIL 7,650,000 7,637,568 6,393,756 FIXED 9.310%
C008 81615 RETAIL 7,200,000 7,185,506 6,245,237 FIXED 9.510%
N009 37027 RETAIL 7,000,000 6,990,360 6,409,042 FIXED 9.060%
N010 21793 RETAIL 5,527,400 5,510,475 5,025,033 FIXED 9.060%
N011 30128 RETAIL 5,550,000 5,476,240 3,869,571 FIXED 8.370%
N012 98682 RETAIL 4,400,000 4,380,094 3,744,827 FIXED 9.170%
N013 33026 RETAIL 4,365,000 4,344,036 3,581,294 FIXED 8.640%
N014 01844 RETAIL 3,750,000 3,744,832 3,219,387 FIXED 9.510%
N015 32714 RETAIL 3,500,000 3,494,534 2,959,581 FIXED 8.930%
C016 48152 RETAIL 3,276,328 3,272,036 2,984,036 FIXED 10.100%
N017 27577 RETAIL 3,028,850 3,021,660 2,575,596 FIXED 9.150%
N018 46038 RETAIL 3,000,000 2,977,108 2,467,792 FIXED 8.750%
C019 92641 RETAIL 2,833,500 2,796,196 0 FIXED 9.210%
N020 33024 RETAIL 2,780,000 2,742,200 1,984,138 FIXED 9.170%
N021 30207 RETAIL 2,752,258 2,739,134 2,326,966 FIXED 8.920%
N022 30305 RETAIL 2,700,000 2,688,701 1,977,880 FIXED 9.150%
N023 33321 RETAIL 2,610,000 2,597,465 2,141,392 FIXED 8.640%
N024 27962 RETAIL 2,600,000 2,577,306 2,134,710 FIXED 8.670%
N025 60261 RETAIL 2,550,000 2,544,053 2,173,509 FIXED 9.240%
N026 36693 RETAIL 2,453,000 2,442,160 2,093,752 FIXED 9.280%
N027 22407 RETAIL 2,429,000 2,420,553 2,219,164 FIXED 9.350%
N028 33409 RETAIL 2,425,000 2,413,353 1,989,608 FIXED 8.640%
C029 20705 RETAIL 2,200,000 2,191,513 1,858,810 FIXED 9.960%
N030 32259 RETAIL 2,200,000 2,174,417 962,743 FIXED 8.960%
N031 33184 RETAIL 2,104,000 2,098,307 1,811,947 FIXED 9.630%
N032 28412 RETAIL 1,950,000 1,948,246 1,773,675 FIXED 8.940%
N033 27522 RETAIL 1,950,000 1,943,590 1,639,710 FIXED 8.720%
N034 34231 RETAIL 1,950,000 1,939,865 1,629,939 FIXED 8.500%
C035 06854 RETAIL 1,900,000 1,889,891 106,660 FIXED 8.320%
N036 33175 RETAIL 1,819,400 1,805,929 0 FIXED 9.730%
N037 28311 RETAIL 1,800,000 1,798,347 1,636,236 FIXED 8.720%
N038 33618 RETAIL 1,800,000 1,786,085 1,477,876 FIXED 8.670%
N039 33137 RETAIL 1,768,000 1,754,310 1,451,258 FIXED 8.660%
N040 33175 RETAIL 1,762,400 1,749,351 0 FIXED 9.730%
N041 28540 RETAIL 1,739,052 1,733,073 1,489,325 FIXED 9.400%
N042 28604 RETAIL 1,715,200 1,707,341 1,457,498 FIXED 9.110%
N043 32225 RETAIL 1,700,000 1,680,231 743,939 FIXED 8.960%
N044 38503 RETAIL 1,635,000 1,631,149 1,391,787 FIXED 9.190%
N045 37215 RETAIL 1,279,600 1,277,898 1,103,010 FIXED 9.670%
C046 44060 RETAIL 1,275,000 1,240,869 0 FIXED 8.170%
C047 73160 RETAIL 1,225,000 1,225,000 1,017,483 FIXED 9.170%
N048 27892 RETAIL 1,175,000 1,170,724 999,730 FIXED 9.150%
N049 29205 RETAIL 1,140,000 1,124,700 792,916 FIXED 8.290%
N050 79316 RETAIL 1,150,000 1,119,894 698,528 FIXED 8.010%
C051 22110 RETAIL 1,100,000 1,095,757 929,406 FIXED 9.960%
C052 49014 RETAIL 1,100,000 1,094,933 778,130 FIXED 8.860%
N053 29301 RETAIL 935,000 927,998 795,125 FIXED 9.760%
N054 89109 MULTIFAMILY 22,700,000 22,679,038 21,445,476 FIXED 8.700%
N055 89121 MULTIFAMILY 9,002,000 8,993,939 8,516,862 FIXED 8.805%
C056 89102 MULTIFAMILY 7,200,000 7,185,961 6,340,632 FIXED 8.190%
N057 92631 MULTIFAMILY 6,741,000 6,729,491 6,164,210 FIXED 8.990%
N058 78415 MULTIFAMILY 6,488,000 6,453,255 5,381,612 FIXED 9.110%
C059 44094 MULTIFAMILY 6,525,000 6,369,980 5,767,310 FIXED 8.375%
N060 30909 MULTIFAMILY 6,050,000 6,050,000 5,468,609 FIXED 8.470%
N061 75231 MULTIFAMILY 5,020,000 5,017,033 4,736,646 FIXED 8.620%
C062 19146 MULTIFAMILY 4,800,000 4,782,738 3,973,304 FIXED 9.020%
N063 30349 MULTIFAMILY 4,700,000 4,691,829 4,292,279 FIXED 8.930%
N064 71303 MULTIFAMILY 4,638,000 4,606,248 4,072,851 FIXED 8.050%
N065 92101 MULTIFAMILY 4,560,000 4,546,455 4,253,052 FIXED 8.665%
C066 78130 MULTIFAMILY 4,487,500 4,471,039 3,704,368 FIXED 8.900%
C067 30263 MULTIFAMILY 4,250,000 4,247,452 3,769,219 FIXED 8.550%
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NET FIRST
CONTROL ADMINISTRATIVE SUB-SERVICER MORTGAGE NOTE PAYMENT
NUMBER FEE RATE I FEE RATE RATE DATE DATE
- ------- -------------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
C001 0.217% 0.080% 8.713% 04/29/96 06/01/96
C002 0.262% 0.125% 8.888% 09/30/96 11/01/96
C003 0.217% 0.080% 8.583% 08/08/96 10/01/96
C004 0.262% 0.125% 9.228% 08/06/96 10/01/96
C005 0.262% 0.125% 9.228% 06/21/96 08/01/96
N006 0.262% 0.125% 8.928% 09/27/96 11/01/96
N007 0.262% 0.125% 9.048% 09/09/96 11/01/96
C008 0.262% 0.125% 9.248% 08/22/96 10/01/96
N009 0.262% 0.125% 8.798% 08/16/96 10/01/96
N010 0.262% 0.125% 8.798% 07/02/96 09/01/96
N011 0.257% 0.120% 8.113% 03/07/96 05/01/96
N012 0.262% 0.125% 8.908% 05/23/96 07/01/96
N013 0.262% 0.125% 8.378% 06/21/96 08/01/96
N014 0.262% 0.125% 9.248% 09/26/96 11/01/96
N015 0.262% 0.125% 8.668% 09/24/96 11/01/96
C016 0.262% 0.125% 9.838% 08/06/96 10/01/96
N017 0.262% 0.125% 8.888% 08/05/96 10/01/96
N018 0.257% 0.120% 8.493% 03/21/96 05/01/96
C019 0.262% 0.125% 8.948% 06/26/96 08/01/96
N020 0.257% 0.120% 8.913% 02/29/96 04/01/96
N021 0.262% 0.125% 8.658% 05/22/96 07/01/96
N022 0.307% 0.170% 8.843% 08/08/96 10/01/96
N023 0.262% 0.125% 8.378% 06/21/96 08/01/96
N024 0.257% 0.120% 8.413% 02/29/96 04/01/96
N025 0.262% 0.125% 8.978% 08/27/96 10/01/96
N026 0.262% 0.125% 9.018% 05/31/96 07/01/96
N027 0.262% 0.125% 9.088% 06/28/96 08/01/96
N028 0.262% 0.125% 8.378% 06/21/96 08/01/96
C029 0.262% 0.125% 9.698% 07/11/96 08/01/96
N030 0.262% 0.125% 8.698% 07/26/96 09/01/96
N031 0.262% 0.125% 9.368% 07/17/96 09/01/96
N032 0.262% 0.125% 8.678% 09/16/96 11/01/96
N033 0.262% 0.125% 8.458% 07/19/96 09/01/96
N034 0.262% 0.125% 8.238% 05/30/96 07/01/96
C035 0.262% 0.125% 8.058% 09/13/96 11/01/96
N036 0.262% 0.125% 9.468% 09/04/96 11/01/96
N037 0.262% 0.125% 8.458% 09/09/96 11/01/96
N038 0.257% 0.120% 8.413% 03/25/96 05/01/96
N039 0.257% 0.120% 8.403% 03/21/96 05/01/96
N040 0.262% 0.125% 9.468% 09/04/96 11/01/96
N041 0.262% 0.125% 9.138% 06/07/96 08/01/96
N042 0.262% 0.125% 8.848% 05/28/96 07/01/96
N043 0.262% 0.125% 8.698% 07/26/96 09/01/96
N044 0.287% 0.150% 8.903% 08/28/96 10/01/96
N045 0.262% 0.125% 9.408% 09/10/96 11/01/96
C046 0.262% 0.125% 7.908% 08/05/96 10/01/96
C047 0.262% 0.125% 8.908% 11/12/96 01/01/97
N048 0.262% 0.125% 8.888% 06/07/96 08/01/96
N049 0.257% 0.120% 8.033% 03/07/96 05/01/96
N050 0.257% 0.120% 7.753% 02/02/96 04/01/96
C051 0.262% 0.125% 9.698% 07/11/96 08/01/96
C052 0.262% 0.125% 8.598% 08/09/96 10/01/96
N053 0.387% 0.250% 9.373% 05/16/96 07/01/96
N054 0.262% 0.125% 8.438% 09/17/96 11/01/96
N055 0.262% 0.125% 8.543% 09/26/96 11/01/96
C056 0.262% 0.125% 7.928% 08/22/96 10/01/96
N057 0.287% 0.150% 8.703% 07/15/96 09/01/96
N058 0.287% 0.150% 8.823% 05/16/96 07/01/96
C059 0.262% 0.125% 8.113% 01/26/94 03/01/94
N060 0.287% 0.150% 8.183% 11/04/96 01/01/97
N061 0.287% 0.150% 8.333% 10/30/96 12/01/96
C062 0.262% 0.125% 8.758% 07/03/96 09/01/96
N063 0.287% 0.150% 8.643% 07/19/96 09/01/96
N064 0.337% 0.200% 7.713% 01/11/96 03/01/96
N065 0.262% 0.125% 8.403% 05/30/96 08/01/96
C066 0.262% 0.125% 8.638% 07/15/96 09/01/96
C067 0.262% 0.125% 8.288% 10/08/96 12/01/96
</TABLE>
(i) Administrative Fee Rate includes the Sub-Servicer Fee Rate.
(ii) For Mortgage Loans which accrue interest on the basis of actual days and
a 360-day year, the amortization term is the term in which the Mortgage
Loan would amortize if interest paid on the basis of a 30-day month and
a 360-day year. The actual amortization term would be longer.
(iii) Monthly payment steps down to $8,433.02 in the 73rd month of the
Mortgage Loan.
1
<PAGE>
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
CONTROL LOAN
NUMBER NUMBER PROPERTY NAME PROPERTY ADDRESS CITY STATE
- ------- -------- -------------------------------- --------------------------------------- ---------------------- -----
<S> <C> <C> <C> <C> <C>
N068 100185 Walnut Gardens 6700 Northwest 16th Street Oklahoma City OK
N069 100197 Jefferson Shadows Apartments 9971 Jefferson Highway Baton Rouge LA
C070 655151-7 Lantern Square Apartments 1151 Meadow Lane Waterloo IA
N071 100195 Longwood Apartments 2012 West Second St. Long Beach MS
C072 655147-8 Colonial Fountain Terrace 33-26 Cooper Place New Haven CT
C073 655178-2 Walnut Square Apartments 201 S. 13th Street Philadelphia PA
C074 655172-2 Willington Oaks 380 Daleville Road Willington CT
C075 644110-6 Prescott Place Apartments 3475 Steve Road Memphis TN
C076 655149-4 Cottonwood Terrace 8176 South 1300 East Sandy UT
N077 100210 Grosvenor Square 74 Woodbine Street Kernersville NC
C078 650872-2 Cypresswood Apartments 564 Cypress Lane Greenville MS
N079 100204 Grand Concourse Apartments 2255 Grand Concourse Bronx NY
N080 100170 Barstone Apartments 913 Honeysuckle Rd. Dothan AL
C081 655173-7 Liberty View Apartments 2031 South Street Philadelphia PA
N082 100183 The Arbors of Macarthur 1601 North MacArthur Blvd. Oklahoma City OK
C083 650886-1 Highlander Apartments 10621 Monaco Drive Jacksonville FL
C084 655150-4 Colonial Gardens 455 West State Street Trenton NJ
C085 655175-3 Pin Oak MHC 429 S. Baltimore St. Dillsburg (Harrisburg) PA
N086 216807 Highpointe Village 308 S. Clark Road Cedar Hill TX
C087 650886-7 Belvedere Apartments 2625 Belvedere Drive Jackson MS
C088 650905-1 The Birches Apartments 1466 Birch Bend Road Memphis TN
C089 655177-9 Clayton Court Duck Creek Road Clayton (Dover) DE
N090 100200 Berkshire Square Apartments 2617, 2647, 2667 W. Evans Ave. Denver CO
C091 650875-1 Maple Ridge Apartments 3373 Regal Plaza Drive Memphis TN
C092 655158-8 The Rockland 541-7 West 180th Street New York NY
C093 650772-3 Hickory Hills Apartments 3491 Graceland Drive Memphis TN
N094 100211 Windriver Apartments 8725 Calmont Avenue Ft. Worth TX
N095 100212 Park Street Apartments 76, 80 & 90 Park Street Lynn MA
C096 655159-1 Tanglewood Apartments 1111 Musken Road Abilene TX
C097 655176-6 Midtown Apartments 1216-18 Walnut Street Philadelphia PA
C098A 655089-3 Woodgate Court Apartmentsv 1433 Covington Road Piqua OH
C098B 655089-3 Ivy Court Apartmentsv 311 Jefferson Avenue Urbana OH
N099 100215 Yorkleigh Apartments 103 Yorkleigh Ave. Jamestown NC
C100 650773-6 The Loft Apartments 4187 Rainbranch Drive Memphis TN
N101 100184 Apple Tree Apartments 6014 Northwest 23rd Street Oklahoma City OK
C102 655179-5 3920 Broadway 3920 Broadway New York NY
C103 650868-3 Cypress Lane Apartments 1224 29th Street Gulfport MS
C104 655130-0 Foxglove Apartments 1117 South Street Wilmington OH
C105 655137-1 Randall Court Apartments 6090 Terry Road Jacksonville FL
C106 655138-4 Greenglen Apartments 2015 N. McCord Road Lucas County OH
C107 655134-2 Andover Court Apartments 145 Newell Street Painesville Twnshp OH
N108 100117 Gatehouse Apartments 4040 Parliament Dr. Alexandria LA
C109 650547-9 Silver Pines Apartments 7225 Crane Avenue Jacksonville FL
N110 100186 56 Fort Washington Avenue West 161st Street & Ft. Washington Ave. New York NY
C111 655142-3 Kempwood Townhomes 8800-8888 Kempwood Drive Houston TX
C112 655086-4 Bridgepoint II Apts 1500 Monument Road Jacksonville FL
C113 655168-5 DiSaronno Plaza 80 Cottontail Lane Somerset NJ
C114 650996-7 Midstate Office Park 15,19,23 & 27 Midstate Drive Auburn MA
C115 655125-8 Twelve Oaks Office Building 5401 Kingston Pike Knoxville TN
C116 655104-1 Reid Road Warehouse 3085 Reid Road Grand Blanc MI
C117 655105-4 Studio Center 23801 Industrial Park Farmington Hills MI
C118 650907-7 Badanco/994 Riverview 994 Riverview Drive Totowa NJ
N119 300001 Arville Industrial Park 4520 Arville Street Las Vegas NV
N120 951221 Winn Dixie Warehouse 1053 East Whitaker Mill Road Raleigh NC
C121 655171-1 Brewer's Hill Business Center 3701 Dillon Street Baltimore MD
N122 300005 Holiday Inn Woodlawn 212 W. Woodlawn Road Charlotte NC
N123 300006 Hampton Inn Executive Park 440 Griffith Road Charlotte NC
N124 300017 Holiday Inn Gulf Breeze 51 Gulf Breeze Pkwy Gulf Breeze FL
N125 300011 Howard Johnson, Coliseum 3030 High Point Road Greensboro NC
N126 400005 Phoenix Nursing Center 2055 Rex Road Lake City GA
N127 962355 Heatherdowns Convalescent Center 2401 Cass Road Toledo OH
N128 951325 Harahan Living Center 405 Folse Drive Harahan LA
N129 962354 McCrea Manor 2040 McCrea Street Alliance OH
N130 400004 Eden Pines 550 Flank Road Petersburg VA
TOTALS / WEIGHTED AVERAGES
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
ANTICIPATED LOAN
CONTROL ZIP PROPERTY ORIGINAL CUT-OFF DATE BALANCE AT MORTGAGE MORTGAGE
NUMBER CODE TYPE BALANCE BALANCE MATURITY RATE TYPE RATE
- ------- ----- ----------- ------------ ------------ ---------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
N068 73127 MULTIFAMILY $4,200,000 $4,177,693 $3,487,725 FIXED 9.160%
N069 70809 MULTIFAMILY 4,000,000 3,993,645 3,618,488 FIXED 8.510%
C070 50701 MULTIFAMILY 3,275,000 3,269,294 2,914,941 FIXED 8.740%
N071 39560 MULTIFAMILY 3,200,000 3,192,988 2,863,801 FIXED 9.040%
C072 06050 MULTIFAMILY 3,180,000 3,141,078 3,009,850 FIXED 10.000%
C073 19146 MULTIFAMILY 3,150,000 3,138,950 2,616,384 FIXED 9.170%
C074 06279 MULTIFAMILY 3,000,000 2,994,628 2,482,177 FIXED 9.000%
C075 38111 MULTIFAMILY 2,947,000 2,938,521 2,626,888 FIXED 8.820%
C076 84094 MULTIFAMILY 2,775,000 2,695,148 2,296,013 FIXED 9.000%
N077 27284 MULTIFAMILY 2,650,000 2,650,000 2,396,971 FIXED 8.500%
C078 38701 MULTIFAMILY 2,450,000 2,445,947 2,190,636 FIXED 8.990%
N079 10453 MULTIFAMILY 2,375,000 2,373,608 2,242,198 FIXED 8.660%
N080 36301 MULTIFAMILY 2,350,000 2,337,695 2,180,126 FIXED 8.240%
C081 19146 MULTIFAMILY 2,165,000 2,157,342 1,796,213 FIXED 9.120%
N082 73127 MULTIFAMILY 2,000,000 1,989,377 1,660,821 FIXED 9.160%
C083 32218 MULTIFAMILY 1,930,000 1,927,888 1,726,303 FIXED 9.010%
C084 08650 MULTIFAMILY 1,923,000 1,902,552 1,820,107 FIXED 10.000%
C085 17019 MOBILE HOME 1,875,000 1,871,763 1,559,123 FIXED 9.220%
N086 75104 MULTIFAMILY 1,900,000 1,866,531 1,715,779 FIXED 9.530%
C087 39212 MULTIFAMILY 1,867,000 1,861,958 1,544,387 FIXED 8.990%
C088 38116 MULTIFAMILY 1,850,000 1,846,983 1,656,224 FIXED 9.060%
C089 19938 MOBILE HOME 1,830,000 1,821,810 1,516,553 FIXED 9.070%
N090 80219 MULTIFAMILY 1,700,000 1,698,438 1,432,896 FIXED 8.820%
C091 38116 MULTIFAMILY 1,650,000 1,645,114 1,466,949 FIXED 8.680%
C092 10033 MULTIFAMILY 1,600,000 1,598,452 1,308,645 FIXED 8.510%
C093 38116 MULTIFAMILY 1,600,000 1,593,107 1,332,830 FIXED 9.300%
N094 75041 MULTIFAMILY 1,560,000 1,559,095 1,387,715 FIXED 8.710%
N095 01905 MULTIFAMILY 1,522,000 1,519,377 1,265,876 FIXED 9.230%
C096 79604 MULTIFAMILY 1,500,000 1,498,655 1,240,233 FIXED 8.970%
C097 19146 MULTIFAMILY 1,500,000 1,494,738 1,245,897 FIXED 9.170%
C098A 45356 MULTIFAMILY 720,000 717,015 602,812 FIXED 9.530%
C098B 43078 MULTIFAMILY 780,000 776,766 653,047 FIXED 9.530%
N099 27282 MULTIFAMILY 1,400,000 1,399,200 1,274,015 FIXED 8.780%
C100 38116 MULTIFAMILY 1,379,500 1,375,668 1,233,463 FIXED 8.990%
N101 73101 MULTIFAMILY 1,300,000 1,293,095 1,079,534 FIXED 9.160%
C102 10032 MULTIFAMILY 1,200,000 1,198,837 981,247 FIXED 8.500%
C103 39501 MULTIFAMILY 1,200,000 1,197,403 1,075,071 FIXED 9.100%
C104 45177 MULTIFAMILY 1,200,000 1,195,769 996,043 FIXED 9.140%
C105 32216 MULTIFAMILY 1,190,000 1,186,029 995,016 FIXED 9.470%
C106 43615 MULTIFAMILY 1,140,000 1,136,196 953,208 FIXED 9.470%
C107 44077 MULTIFAMILY 1,120,000 1,116,231 935,459 FIXED 9.420%
N108 71303 MULTIFAMILY 1,007,000 1,000,106 884,295 FIXED 8.050%
C109 32216 MULTIFAMILY 850,000 849,095 762,046 FIXED 9.140%
N110 10032 MULTIFAMILY 794,000 793,379 730,026 FIXED 9.250%
C111 77080 MULTIFAMILY 775,000 773,666 690,564 FIXED 8.800%
C112 32225 MULTIFAMILY 735,000 731,947 615,238 FIXED 9.520%
C113 08873 OFFICE 4,300,000 4,296,346 3,581,187 FIXED 9.290%
C114 01501 OFFICE 3,640,000 3,634,015 3,046,229 FIXED 9.510%
C115 37919 OFFICE 2,500,000 2,500,000 2,071,794 FIXED 9.070%
C116 48439 INDUSTRIAL 6,600,000 6,366,623 5,572,587 FIXED 10.250%
C117 48024 INDUSTRIAL 5,964,666 5,778,934 5,466,358 FIXED 9.900%
C118 07512 INDUSTRIAL 4,200,000 4,185,412 3,493,219 FIXED 9.230%
N119 89103 INDUSTRIAL 3,300,000 3,273,861 2,699,732 FIXED 8.520%
N120 27604 INDUSTRIAL 2,250,000 2,192,440 1,539,681 FIXED 8.505%
C121 21224 INDUSTRIAL 1,450,000 1,448,715 1,200,818 FIXED 9.040%
N122 28210 HOTEL 10,450,000 10,397,716 7,791,334 FIXED 9.690%
N123 28210 HOTEL 5,200,000 5,173,983 3,877,028 FIXED 9.690%
N124 32561 HOTEL 5,100,000 5,080,888 3,828,427 FIXED 9.920%
N125 27403 HOTEL 3,350,000 3,336,945 2,493,577 FIXED 9.650%
N126 30260 HEALTHCARE 6,000,000 5,982,074 5,537,283 FIXED 9.990%
N127 43614 HEALTHCARE 5,600,000 5,566,003 5,023,389 FIXED 8.940%
N128 70123 HEALTHCARE 5,500,000 5,456,914 4,564,003 FIXED 8.990%
N129 44601 HEALTHCARE 3,500,000 3,484,929 3,199,832 FIXED 9.400%
N130 23805 HEALTHCARE 1,900,000 1,893,162 1,618,669 FIXED 9.199%
TOTALS / WEIGHTED AVERAGES $460,329,863 $458,055,542 $388,154,025 9.066%
</TABLE>
2
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CONTROL ADMINISTRATIVE SUB-SERVICER MORTGAGE NOTE PAYMENT
NUMBER FEE RATE I FEE RATE RATE DATE DATE
- ------- -------------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
N068 0.337% 0.200% 8.823% 05/20/96 07/01/96
N069 0.337% 0.200% 8.173% 08/06/96 10/01/96
C070 0.262% 0.125% 8.478% 08/21/96 10/01/96
N071 0.337% 0.200% 8.703% 07/23/96 09/01/96
C072 0.262% 0.125% 9.738% 10/27/94 12/01/94
C073 0.262% 0.125% 8.908% 07/03/96 09/01/96
C074 0.262% 0.125% 8.738% 09/30/96 11/01/96
C075 0.262% 0.125% 8.558% 06/26/96 08/01/96
C076 0.262% 0.125% 8.738% 06/30/94 08/01/94
N077 0.287% 0.150% 8.213% 11/01/96 01/01/97
C078 0.262% 0.125% 8.728% 08/08/96 10/01/96
N079 0.337% 0.200% 8.323% 10/16/96 12/01/96
N080 0.337% 0.200% 7.903% 03/19/96 05/01/96
C081 0.262% 0.125% 8.858% 07/03/96 09/01/96
N082 0.337% 0.200% 8.823% 05/20/96 07/01/96
C083 0.262% 0.125% 8.748% 09/17/96 11/01/96
C084 0.262% 0.125% 9.738% 01/27/95 03/01/95
C085 0.262% 0.125% 8.958% 09/03/96 11/01/96
N086 0.387% 0.250% 9.143% 03/16/95 05/01/95
C087 0.262% 0.125% 8.728% 08/08/96 10/01/96
C088 0.262% 0.125% 8.798% 08/02/96 10/01/96
C089 0.262% 0.125% 8.808% 07/01/96 08/01/96
N090 0.287% 0.150% 8.533% 10/30/96 12/01/96
C091 0.262% 0.125% 8.418% 06/12/96 08/01/96
C092 0.262% 0.125% 8.248% 10/10/96 12/01/96
C093 0.262% 0.125% 9.038% 06/24/96 08/01/96
N094 0.287% 0.150% 8.423% 10/08/96 12/01/96
N095 0.387% 0.250% 8.843% 09/12/96 11/01/96
C096 0.262% 0.125% 8.708% 10/10/96 12/01/96
C097 0.287% 0.150% 8.883% 07/03/96 09/01/96
C098A 0.262% 0.125% 9.268% 06/24/96 08/01/96
C098B 0.262% 0.125% 9.268% 06/24/96 08/01/96
N099 0.287% 0.150% 8.493% 10/03/96 12/01/96
C100 0.262% 0.125% 8.728% 06/26/96 08/01/96
N101 0.337% 0.200% 8.823% 05/20/96 07/01/96
C102 0.262% 0.125% 8.238% 10/31/96 12/01/96
C103 0.262% 0.125% 8.838% 07/01/96 09/01/96
C104 0.262% 0.125% 8.878% 07/23/96 09/01/96
C105 0.262% 0.125% 9.208% 08/01/96 09/01/96
C106 0.262% 0.125% 9.208% 08/01/96 09/01/96
C107 0.262% 0.125% 9.158% 07/30/96 09/01/96
N108 0.337% 0.200% 7.713% 01/11/96 03/01/96
C109 0.262% 0.125% 8.878% 08/28/96 11/01/96
N110 0.337% 0.200% 8.913% 09/11/96 11/01/96
C111 0.262% 0.125% 8.538% 08/05/96 10/01/96
C112 0.262% 0.125% 9.258% 06/17/96 08/01/96
C113 0.262% 0.125% 9.028% 10/31/96 12/01/96
C114 0.262% 0.125% 9.248% 09/26/96 11/01/96
C115 0.262% 0.125% 8.808% 11/05/96 01/01/97
C116 0.262% 0.125% 9.988% 10/07/94 12/01/94
C117 0.262% 0.125% 9.638% 04/28/94 05/01/94
C118 0.262% 0.125% 8.968% 07/03/96 09/01/96
N119 0.257% 0.120% 8.263% 03/13/96 05/01/96
N120 0.382% 0.245% 8.123% 02/29/96 04/01/96
C121 0.287% 0.150% 8.753% 10/16/96 12/01/96
N122 0.262% 0.125% 9.428% 07/19/96 09/01/96
N123 0.262% 0.125% 9.428% 07/19/96 09/01/96
N124 0.262% 0.125% 9.658% 08/28/96 10/01/96
N125 0.312% 0.175% 9.338% 08/08/96 10/01/96
N126 0.362% 0.225% 9.628% 06/07/96 08/01/96
N127 0.262% 0.125% 8.678% 04/11/96 06/01/96
N128 0.317% 0.180% 8.673% 02/16/96 04/01/96
N129 0.262% 0.125% 9.138% 05/15/96 07/01/96
N130 0.337% 0.200% 8.862% 06/19/96 08/01/96
TOTALS / 0.270% 0.133% 8.796%
</TABLE>
(i) Administrative Fee Rate includes the Sub-Servicer Fee Rate.
(ii) For Mortgage Loans which accrue interest on the basis of actual days and
a 360-day year, the amortization term is the term in which the Mortgage
Loan would amortize if interest paid on the basis of a 30-day month and
a 360-day year. The actual amortization term would be longer.
(v) These two Mortgaged Properties secure one Mortgage Loan evidenced by
one Mortgage Note. An original balance was attributed to each such
Mortgaged Property for the purpose of determining (among other things)
a Cut-off Date LTV Ratio, a U/W DSCR and a 1995 DSCR for each such
Mortgaged Property.
2
<TABLE>
<CAPTION>
ORIGINAL ORIGINAL REMAINING
TERM TO AMORTIZATION TERM TO CROSS-
MONTHLY MATURITY TERM SEASONING MATURITY MATURITY COLLATERALIZED
PAYMENT (MONTHS) (MONTHS)II (MONTHS) (MONTHS) DATE LOANS
- ------------- -------- ------------ --------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
$155,920.25 120 360 7 113 05/01/2006 No
129,570.12 120 336 2 118 10/01/2006 No
76,893.68 120 360 3 117 09/01/2006 No
76,429.58 120 360 3 117 09/01/2006 Yes(2)
75,583.46 120 336 5 115 07/01/2006 No
68,901.84 120 360 2 118 10/01/2006 No
66,536.04 120 288 2 118 10/01/2006 No
61,853.13 120 324 3 117 09/01/2006 No
56,626.05 120 360 3 117 09/01/2006 No
46,613.06 84 300 4 80 08/01/2003 No
47,708.52 120 240 8 112 04/01/2006 No
37,438.20 120 300 6 114 06/01/2006 No
35,560.93 120 300 5 115 07/01/2006 Yes(4)
32,789.70 120 300 2 118 10/01/2006 No
29,204.28 120 300 2 118 10/01/2006 No
28,994.50 120 360 3 117 09/01/2006 Yes(2)
25,729.84 120 300 3 117 09/01/2006 No
24,664.31 120 300 8 112 04/01/2006 No
29,094.29 180 180 5 175 07/01/2011 No
25,317.13 120 240 9 111 03/01/2006 No
22,946.26 120 300 6 114 06/01/2006 No
24,553.68 120 240 3 117 09/01/2006 No
21,263.24 120 300 5 115 07/01/2006 Yes(4)
21,234.60 120 300 9 111 03/01/2006 No
21,820.14 120 300 3 117 09/01/2006 No
21,057.85 120 300 6 114 06/01/2006 No
20,969.37 84 300 5 79 07/01/2003 No
19,756.07 120 300 5 115 07/01/2006 Yes(4)
19,929.42 120 300 5 115 07/31/2006 Yes(1)
23,025.22 120 168 4 116 08/01/2006 Yes(5)
18,573.07 120 300 4 116 08/01/2006 No
15,644.35 120 360 2 118 10/01/2006 No
15,992.07 120 300 4 116 08/01/2006 No
15,701.93 120 300 6 114 06/01/2006 No
18,210.53 180 186 2 178 10/01/2011 No
21,460.42 144 144 2 142 10/01/2008 No
14,122.06 120 360 2 118 10/01/2006 No
14,700.88 120 300 8 112 04/01/2006 No
14,427.55 120 300 8 112 04/01/2006 No
20,788.09 144 144 2 142 10/01/2008 No
15,073.33 120 300 5 115 07/01/2006 No
14,523.32 120 300 6 114 06/01/2006 No
17,792.21 120 168 4 116 08/01/2006 Yes(5)
13,934.21 120 300 3 117 09/01/2006 No
11,331.41 120 300 2 118 10/01/2006 No
19,980.58 84 84 3 81 09/01/2003 No
10,423.14 120 300 0 120 12/01/2006 No
9,981.53 120 300 5 115 07/01/2006 No
9,742.19 120 240 8 112 04/01/2006 No
10,933.02 120 240 9 111 03/01/2006 No
9,964.71 120 300 5 115 07/31/2006 Yes(1)
9,798.16 120 240 3 117 09/01/2006 No
8,874.78 84 240 6 78 06/01/2003 No
177,770.97 84 360 2 82 10/01/2003 No
71,172.68 84 360 2 82 10/01/2003 No
53,787.80 120 360 3 117 09/01/2006 No
54,191.00 120 360 4 116 08/01/2006 No
54,936.61 120 300 6 114 06/01/2006 No
49,594.71 120 360 34 86 02/01/2004 No
46,390.76 120 360 0 120 12/01/2006 No
39,027.19 84 360 1 83 11/01/2003 No
40,347.19 120 300 4 116 08/01/2006 No
37,580.78 120 360 4 116 08/01/2006 No
34,193.80 120 360 10 110 02/01/2006 Yes(3)
35,597.07 84 360 5 79 07/01/2003 No
37,352.12 120 300 4 116 08/01/2006 No
32,829.54 120 360 1 119 11/01/2006 No
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
LOCKOUT
MONTHLY RELATED EXPIRATION
PAYMENT LOANS DATE PREPAYMENT PENALTY DESCRIPTION
- ------------- ------- ---------- -----------------------------------------------------------------------------
<S> <C> <C> <C>
$155,920.25 No 04/30/2000 YM years 5-9.5; 0 last 6 months
129,570.12 No 09/30/2000 YM years 5-9.5; 0 last 6 months
76,893.68 No 08/31/2000 YM years 5-9.5; 0 last 6 months
76,429.58 Yes(e) 08/31/2000 YM years 5-9.5; 0 last 6 months
75,583.46 No 06/30/2000 YM years 5-9.5; 0 last 6 months
68,901.84 No 11/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
66,536.04 No 11/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
61,853.13 No 08/31/2000 YM years 5-9.5; 0 last 6 months
56,626.05 No 10/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
46,613.06 No 09/01/98 Greater of 1% of UPB or YM for yrs 3-5; 2% yr6; 1% yr7; 0 last 5 mths
47,708.52 No 05/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
37,438.20 No 07/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
35,560.93 Yes(m) 08/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
32,789.70 No 11/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
29,204.28 No 11/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
28,994.50 Yes(e) 08/31/2000 YM years 5-9.5; 0 last 6 months
25,729.84 Yes(t) 10/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
24,664.31 No 05/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
29,094.29 No 06/30/2001 YM years 6-10; 0 last 5 years
25,317.13 Yes(s) 04/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
22,946.26 Yes(r) 07/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
24,553.68 No 10/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
21,263.24 Yes(m) 08/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
21,234.60 Yes(t) 04/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
21,820.14 No 10/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
21,057.85 No 07/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
20,969.37 No 08/01/98 Greater of 1% of UPB or YM for yrs 3-5; 2% yr6; 1% yr7; 0 last 5 mths
19,756.07 Yes(m) 08/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
19,929.42 Yes(b) 07/31/2000 YM years 5-9.5; 0 last 6 months
23,025.22 Yes(r) 09/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
18,573.07 No 09/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
15,644.35 Yes(l) 11/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
15,992.07 No 09/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
15,701.93 No 07/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
18,210.53 No 09/30/2003 YM years 8-14; 0 last 12 months
21,460.42 Yes(u) 11/01/99 Greater of 1% of UPB or YM for yrs 4-9; 3% yr10; 2% yr11; 1% yr12; 0 last 5 mths
14,122.06 Yes(l) 11/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
14,700.88 No 04/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
14,427.55 Yes(s) 05/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
20,788.09 Yes(u) 11/01/99 Greater of 1% of UPB or YM for yrs 4-9; 3% yr10; 2% yr11; 1% yr12; 0 last 5 mths
15,073.33 Yes(t) 08/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
14,523.32 No 07/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
17,792.21 Yes(r) 09/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
13,934.21 No 10/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
11,331.41 No 11/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
19,980.58 No 08/31/98 YM years 3-6.5; 0 last 6 months
10,423.14 No 11/30/2000 YM years 5-9.5; 0 last 6 months
9,981.53 Yes(t) 08/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
9,742.19 No 05/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
10,933.02 No 04/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
9,964.71 Yes(b) 07/31/2000 YM years 5-9.5; 0 last 6 months
9,798.16 No 08/30/2000 YM years 5-9.5; 0 last 6 months
8,874.78 No 07/01/98 Greater of 1% of UPB or YM for yrs 3-5; 2% yr6; 1% yr7; 0 last 5 mths
177,770.97 Yes(k) 11/01/98 Greater of 1% of UPB or YM for yrs 3-5; 2% yr6; 1% yr7; 0 last 5 mths
71,172.68 Yes(k) 11/01/98 Greater of 1% of UPB or YM for yrs 3-5; 2% yr6; 1% yr7; 0 last 5 mths
53,787.80 No 08/31/2000 YM years 5-9.5; 0 last 6 months
54,191.00 No 09/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1.5% yr10; 0 last 5 mths
54,936.61 Yes(j) 07/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
49,594.71 No n/a Greater of 1% of UPB or YM for yrs 0-9; 1% yr 10; 0 last 3 mths
46,390.76 No 01/01/2000 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
39,027.19 No 12/01/98 Greater of 1% of UPB or YM for yrs 3-5; 2% yr6; 1% yr7; 0 last 5 mths
40,347.19 Yes(g) 07/31/2000 YM years 5-9.5; 0 last 6 months
37,580.78 No 09/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
34,193.80 Yes(p) 03/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
35,597.07 No 08/01/98 Greater of 1% of UPB or YM for yrs 3-5; 2% yr6; 1% yr7; 0 last 5 mths
37,352.12 No 07/31/2000 YM years 5-9.5; 0 last 6 months
32,829.54 No 10/31/2000 YM years 5-9.5; 0 last 6 months
</TABLE>
1
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
ORIGINAL ORIGINAL REMAINING
TERM TO AMORTIZATION TERM TO CROSS-
MONTHLY MATURITY TERM SEASONING MATURITY MATURITY COLLATERALIZED
PAYMENT (MONTHS) (MONTHS)II (MONTHS) (MONTHS) DATE LOANS
- ------------- -------- ------------ --------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 35,707.56 120 300 6 114 06/01/2006 Yes(7)
30,784.89 120 360 3 117 09/01/2006 No
25,741.05 120 360 3 117 09/01/2006 No
25,840.08 120 360 4 116 08/01/2006 No
27,906.77 84 360 25 59 11/01/2001 No
26,802.35 120 300 4 116 08/01/2006 No
25,175.89 120 300 2 118 10/01/2006 No
23,331.55 120 360 5 115 07/01/2006 No
23,287.70 120 300 29 91 07/01/2004 No
20,376.21 120 360 0 120 12/01/2006 No
19,695.63 120 360 3 117 09/01/2006 No
18,531.68 84 360 1 83 11/01/2003 No
17,638.25 84 360 8 76 04/01/2003 No
18,346.84 120 300 4 116 08/01/2006 No
17,003.60 120 300 6 114 06/01/2006 Yes(7)
15,543.11 120 360 2 118 10/01/2006 No
16,875.70 84 360 22 62 02/01/2002 No
16,018.36 120 300 2 118 10/01/2006 No
16,639.88 84 300 20 64 04/01/2002 No
15,655.01 120 300 3 117 09/01/2006 No
14,965.46 120 360 3 117 09/01/2006 No
15,445.11 120 300 5 115 07/01/2006 No
14,057.38 120 300 1 119 11/01/2006 No
12,898.16 120 360 5 115 07/01/2006 No
12,894.42 120 300 1 119 11/01/2006 No
13,757.36 120 300 5 115 07/01/2006 No
12,227.99 120 360 1 119 11/01/2006 No
13,013.13 120 300 2 118 10/01/2006 No
12,557.14 120 300 1 119 11/01/2006 No
12,763.02 120 300 4 116 08/01/2006 No
6,305.64 120 300 5 115 07/01/2006 No
6,831.11 120 300 5 115 07/01/2006 No
11,043.82 120 360 1 119 11/01/2006 No
11,089.84 120 360 5 115 07/01/2006 No
11,052.34 120 300 6 114 06/01/2006 Yes(7)
9,662.73 120 300 1 119 11/01/2006 No
9,741.94 120 360 4 116 08/01/2006 No
10,185.65 120 300 4 116 08/01/2006 No
10,372.18 120 300 4 116 08/01/2006 No
9,936.38 120 300 4 116 08/01/2006 No
9,723.19 120 300 4 116 08/01/2006 No
7,424.14 120 360 10 110 02/01/2006 Yes(3)
6,925.09 120 360 2 118 10/01/2006 No
6,532.04 120 360 2 118 10/01/2006 No
6,124.62 120 360 3 117 09/01/2006 No
6,431.89 120 300 5 115 07/01/2006 No
36,943.18 120 300 1 119 11/01/2006 No
31,827.87 120 300 2 118 10/01/2006 No
21,099.88 120 300 0 120 12/01/2006 No
64,788.46 84 240 25 59 11/01/2001 No
54,303.93 72 288 32 40 04/01/2000 No
35,910.09 120 300 4 116 08/01/2006 No
26,616.99 120 300 8 112 04/01/2006 No
22,163.23 84 180 9 75 03/01/2003 No
12,208.09 120 300 1 119 11/01/2006 No
98,707.91 120 240 4 116 08/01/2006 Yes(6)
49,117.81 120 240 4 116 08/01/2006 Yes(6)
48,946.09 120 240 3 117 09/01/2006 No
31,555.26 120 240 3 117 09/01/2006 No
54,479.75 84 300 5 79 07/01/2003 No
47,265.16 84 300 7 77 05/01/2003 No
46,612.77 120 300 9 111 03/01/2006 No
30,336.44 84 300 6 78 06/01/2003 No
16,204.44 120 300 5 115 07/01/2006 No
$3,884,681.75 113 315 5 108
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
LOCKOUT
MONTHLY RELATED EXPIRATION
PAYMENT LOANS DATE PREPAYMENT PENALTY DESCRIPTION
- ------------- ------- ---------- -----------------------------------------------------------------------------
<S> <C> <C> <C>
$ 35,707.56 Yes(j) 07/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
30,784.89 No 10/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
25,741.05 No 08/31/2000 YM years 5-9.5; 0 last 6 months
25,840.08 Yes(i) 09/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
27,906.77 No n/a Greater of 1% of UPB or YM for yrs 0-6; 1% yr 7; 0 last 3 mths
26,802.35 Yes(g) 07/31/2000 YM years 5-9.5; 0 last 6 months
25,175.89 No 09/30/2000 YM years 5-9.5; 0 last 6 months
23,331.55 Yes(a) 06/30/2000 YM years 5-9.5; 0 last 6 months
23,287.70 No n/a Greater of 1% of UPB or YM for yrs 0-9; 1% yr 10; 0 last 3 mths
20,376.21 No 01/01/2000 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
19,695.63 Yes(c) 08/31/2000 YM years 5-9.5; 0 last 6 months
18,531.68 Yes(o) 12/01/98 Greater of 1% of UPB or YM for yrs 3-5; 2% yr6; 1% yr7; 0 last 5 mths
17,638.25 No 05/01/98 Greater of 1% of UPB or YM for yrs 3-5; 2% yr6; 1% yr7; 0 last 5 mths
18,346.84 Yes(g) 07/31/2000 YM years 5-9.5; 0 last 6 months
17,003.60 Yes(j) 07/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
15,543.11 No 09/30/2000 YM years 5-9.5; 0 last 6 months
16,875.70 No n/a Greater of 1% of UPB or YM for years 0-6; 1% yr7; 0 last 3 mths
16,018.36 Yes(h) 10/31/2000 YM years 5-9.5; 0 last 6 months
16,639.88 No n/a Greater of 1% of UPB or YM for yrs 0-5; 2% yr6; 1% yr7; 0 last 5 mths
15,655.01 Yes(c) 08/31/2000 YM years 5-9.5; 0 last 6 months
14,965.46 No 08/31/2000 YM years 5-9.5; 0 last 6 months
15,445.11 Yes(h) 07/31/2000 YM years 5-9.5; 0 last 6 months
14,057.38 No 12/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
12,898.16 No 06/30/2000 YM years 5-9.5; 0 last 6 months
12,894.42 Yes(f) 10/31/2000 YM years 5-9.5; 0 last 6 months
13,757.36 No 06/30/2000 YM years 5-9.5; 0 last 6 months
12,227.99 No 12/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
13,013.13 No 11/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
12,557.14 No 10/31/2000 YM years 5-9.5; 0 last 6 months
12,763.02 Yes(g) 07/31/2000 YM years 5-9.5; 0 last 6 months
6,305.64 Yes(d) 06/30/2000 YM years 5-9; 0 last 12 months
6,831.11 Yes(d) 06/30/2000 YM years 5-9; 0 last 12 months
11,043.82 No 12/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
11,089.84 Yes(a) 06/30/2000 YM years 5-9.5; 0 last 6 months
11,052.34 Yes(j) n/a Greater of 1% of UPB or YM for yrs 0-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
9,662.73 Yes(f) 10/31/2000 YM years 5-9.5; 0 last 6 months
9,741.94 Yes(i) 07/31/2000 YM years 5-9.5; 0 last 6 months
10,185.65 No 07/31/2000 YM years 5-9; 0 last 12 months
10,372.18 Yes(d) 07/31/2000 YM years 5-9; 0 last 12 months
9,936.38 No 07/31/2000 YM years 5-9.5; 0 last 6 months
9,723.19 Yes(d) 07/31/2000 YM years 5-9.5; 0 last 6 months
7,424.14 Yes(p) 03/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
6,925.09 No 09/30/2000 YM years 5-9.5; 0 last 6 months
6,532.04 Yes(o) 11/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
6,124.62 No 08/31/2000 YM years 5-9.5; 0 last 6 months
6,431.89 No 06/30/2000 YM years 5-9; 0 last 12 months
36,943.18 No 10/31/2000 YM years 5-9.5; 0 last 6 months
31,827.87 No 09/30/2000 YM years 5-9.5; 0 last 6 months
21,099.88 No 11/30/2000 YM years 5-9.5; 0 last 6 months
64,788.46 No n/a YM
54,303.93 No n/a YM
35,910.09 No 07/31/2000 YM years 5-9.5; 0 last 6 months
26,616.99 No 05/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
22,163.23 No 04/01/98 Greater of 1% of UPB or YM for yrs 3-5; 2% yr6; 1% yr7; 0 last 5 mths
12,208.09 No 10/31/2000 YM years 5-9.5; 0 last 6 months
98,707.91 Yes(n) 09/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
49,117.81 Yes(n) 09/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
48,946.09 No 10/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
31,555.26 No 10/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
54,479.75 No 06/07/98 Greater of 1% of UPB or YM for yrs 3-5; 2% yr6; 1% yr7; 0 last 6 mths
47,265.16 Yes(q) 04/11/98 Greater of 1% of UPB or YM for yrs 3-5; 2% yr6; 1% yr7; 0 last 6 mths
46,612.77 No 02/16/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
30,336.44 Yes(q) 05/15/98 Greater of 1% of UPB or YM for yrs 3-5; 2% yr6; 1% yr7; 0 last 6 mths
16,204.44 No 08/01/99 Greater of 1% of UPB or YM for yrs 4-7; 3% yr8; 2% yr9; 1% yr10; 0 last 5 mths
$3,884,681.75
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
CUT-OFF
CONTROL LOAN APPRAISAL DATE LTV YEAR BUILT/
NUMBER NUMBER PROPERTY NAME APPRAISAL VALUE DATE RATIO RENOVATED
- ------- -------- ------------------------------------ --------------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
C001 650927-1 Plaza America $26,900,000 04/01/96 72.2% 1995
C002 655165-6 Sweetwater Town & Country 20,800,000 08/01/96 75.2% 1975/1996
C003 643088-7 Stage Centre 13,225,000 10/30/95 73.5% 1993
C004 655143-6 Northridge Commons SC 11,950,000 04/08/96 76.0% 1990
C005 650708-2 Vestavia Hills Shopping Center 12,200,000 02/13/96 72.6% 1964/1989
N006 300003 Portsmouth Station Shopping Center 11,300,000 06/28/96 74.5% 1989
N007 300009 Bethesda Home Center 11,250,000 05/22/96 67.9% 1970
C008 650890-0 Snowmass Village Mall 9,800,000 04/15/96 73.3% 1967
N009 300022 Mallory Corners Shopping Center 9,400,000 06/18/96 74.4% 1995
N010 300002 Walker/'s Village Shopping Center 7,600,000 03/27/96 72.5% 1985
N011 962135 Merchant Square Shopping Center 7,650,000 12/21/95 71.6% 1985/1993
N012 100131 Evergreen Plaza Shopping Center 6,700,000 02/01/96 65.4% 1977/1995
N013 962151 Palm Square Shopping Center 8,700,000 12/28/95 49.9% 1988/1991
N014 300023 Village Mall 6,000,000 06/10/96 62.4% 1962/1985
N015 100143 Altamonte Shopping Center 4,600,000 04/01/96 76.0% 1979/1996
C016 655144-9 Laurel Commons SC 5,000,000 04/26/96 65.4% 1988
N017 100136 Johnston Square Shopping Center 3,850,000 03/18/96 78.5% 1986
N018 951114 Lantern Crossing Shoppes 4,300,000 06/08/95 69.2% 1995
C019 650443-8 Vons Pavillion 3,800,000 03/20/96 73.6% 1963/1985
N020 962128 Pasadena Plaza 4,200,000 11/14/95 65.3% 1975
N021 100125 Northside Village Shopping Center 4,000,000 02/05/96 68.5% 1984/1992
N022 962156 Cheesecake Factory 4,650,000 01/04/96 57.8% 1975/1993
N023 962153 University Commons 5,700,000 01/15/96 45.6% 1961/1994
N024 951122 Plymouth Landing Shopping Center 3,725,000 12/05/95 69.2% 1989
N025 300013 Shoppes of Victoria Square 3,400,000 05/20/96 74.8% 1989
N026 100122 Skyline Plaza Shopping Center 3,809,000 01/22/96 64.1% 1974/1992
N027 300012 Village Square Shopping Center 4,100,000 05/10/96 59.0% 1985
N028 962152 Luria Plaza 4,900,000 01/08/96 49.3% 1978/1993
C029 650645-2 SunRise Plaza 3,200,000 04/23/96 68.5% 1986
N030 300019 Julington Square Shopping Center 3,200,000 03/24/96 68.0% 1988
N031 300004 Tamiami Lakes Plaza Shopping Center 3,200,000 04/19/96 65.6% 1986
N032 300025 Masonboro Commons 2,650,000 07/23/96 73.5% 1991
N033 100138 Dutch Village Shopping Center 2,540,000 04/01/96 76.5% 1983/1995
N034 100066 The Woods Shopping Center 2,800,000 12/18/95 69.3% 1991
C035 655166-9 Norwalk Citibank Branch 2,500,000 06/05/96 75.6% 1995
N036 100090 Coral West Plaza III 3,500,000 04/11/96 51.6% 1987/1992
N037 300026 Andrews Commons Shopping Center 2,450,000 06/26/96 73.4% 1990/1996
N038 962136 Rainbow Village Shopping Center 2,400,000 11/01/95 74.4% 1982/1994
N039 962129 Eckerds at Biscayne 2,380,000 11/02/95 73.7% 1995
N040 100089 Coral West Plaza II 3,650,000 04/11/96 47.9% 1986/1992
N041 100146 Plum Pointe Plaza Shopping Center 2,250,000 04/08/96 77.0% 1990
N042 100121 Shoppes of Tynecastle 2,550,000 04/11/96 67.0% 1985/1991
N043 100142 Monument Landing Shopping Center 3,150,000 03/24/96 53.3% 1988
N044 300018 Orange Grove Shopping Center 2,900,000 05/29/96 56.3% 1972/1992
N045 300021 Hillsboro Corner Shopping Center 2,000,000 06/22/96 63.9% 1985/1994
C046 650942-0 Mentor Towne Center SC 3,150,000 03/21/96 39.4% 1978
C047 655131-3 Eastmoor Shopping Center 1,900,000 09/10/96 64.5% 1980
N048 100145 Williamston Square Shopping Center 1,510,000 04/16/96 77.5% 1986
N049 951126 Kroger 2,050,000 12/26/95 54.9% 1978/1993
N050 962144 Brownfield Plaza Shopping Center 1,700,000 12/02/95 65.9% 1978/1992
C051 650846-3 Dominion Square Shopping Center 2,100,000 04/18/96 52.2% 1987
C052 650940-4 Capital Square Shopping Center 1,460,000 03/11/96 75.0% 1979/1994
N053 962150 Essex Square Shopping Center 1,850,000 03/14/96 50.2% 1982
N054 100213 Grand Plaza Apartments 28,500,000 08/16/96 79.6% 1963/1994
N055 100214 Lake Sahara Apartments 11,800,000 08/28/96 76.2% 1972
C056 650919-0 Shadowridge Apartments 12,600,000 05/27/96 57.0% 1984
N057 100192 The Pines Apartments 9,600,000 04/12/96 70.1% 1969
N058 100178 Christy Estates Apartments & Suites(iv) 11,650,000 02/12/96 55.4% 1970/1993
C059 655148-1 Fox Run Apartments 8,700,000 12/01/93 73.2% 1986/1991
N060 100209 Champion Pines Apartments 7,625,000 06/27/96 79.3% 1987
N061 100229 Wildflower II Apartments 6,200,000 09/12/96 80.9% 1981
C062 655174-0 Embassy Apartments 6,500,000 05/08/96 73.6% 1920/1993
N063 100196 Godby Crossing Apartments 6,000,000 04/12/96 78.2% 1971/1994
N064 100118 Nottingham & Camelot Apartments 5,956,434 11/29/95 77.3% 1970
N065 100187 City View Apartments 6,100,000 03/11/96 74.5% 1990
C066 650572-5 Torrey Place Apartments 6,000,000 03/13/96 74.5% 1986
C067 650903-5 Brown Ridge Apartments 5,700,000 08/21/96 74.5% 1986/1995
</TABLE>
(iv) Because 127 units of this Mortgaged Property are leased on a short-term
basis (daily, weekly and monthly), many units are not reported as
occupied on the date the rent roll is produced. Therefore occupancy
percentage is not a meaningful indicator of the Mortgaged Property's
stabilized occupancy.
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
TOTAL
UNITS/ UNITS/ LOAN PER OCCUPANCY
CONTROL ROOMS ROOMS/ NET RENTABLE UNIT/ROOM OCCUPANCY AS OF U/W
NUMBER /PADS PADS/SF AREA (SF) /PAD/SF % DATE REVENUES
- ------- ------ ------- ------------ ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
C001 0 SF 164,025 $ 118.41 99% 03/15/96 $3,098,519
C002 0 SF 206,214 75.89 97% 08/01/96 2,491,527
C003 0 SF 140,385 69.19 96% 07/16/96 1,559,308
C004 0 SF 125,573 72.34 99% 05/30/96 1,559,981
C005 0 SF 128,848 68.71 96% 04/01/96 1,513,548
N006 0 SF 147,113 57.19 95% 07/31/96 1,437,507
N007 0 SF 129,124 59.15 100% 06/30/96 1,477,086
C008 0 SF 56,257 127.73 100% 06/01/96 1,630,485
N009 0 SF 70,000 99.86 96% 06/30/96 1,083,187
N010 0 SF 88,755 62.09 90% 02/28/96 969,283
N011 0 SF 154,705 35.40 99% 06/30/96 887,874
N012 0 SF 110,746 39.55 98% 02/28/96 796,939
N013 0 SF 77,621 55.96 95% 06/30/96 986,942
N014 0 SF 94,761 39.52 96% 05/30/96 876,624
N015 0 SF 83,178 42.01 98% 08/31/96 671,349
C016 0 SF 37,927 86.27 88% 05/30/96 630,860
N017 0 SF 109,231 27.66 100% 06/30/96 517,911
N018 0 SF 35,200 84.58 100% 06/30/96 500,472
C019 0 SF 71,940 38.87 100% 04/24/96 561,093
N020 0 SF 72,626 37.76 94% 09/30/96 686,425
N021 0 SF 75,154 36.45 100% 06/30/96 525,200
N022 0 SF 13,378 200.98 100% 04/30/96 384,588
N023 0 SF 80,244 32.37 98% 06/30/96 707,895
N024 0 SF 79,228 32.53 96% 06/30/96 432,796
N025 0 SF 53,960 47.15 97% 04/30/96 523,071
N026 0 SF 155,583 15.70 100% 06/30/96 521,790
N027 0 SF 76,223 31.76 95% 04/30/96 509,235
N028 0 SF 68,214 35.38 100% 06/30/96 595,065
C029 0 SF 44,254 49.52 80% 05/17/96 512,343
N030 0 SF 66,205 32.84 98% 06/30/96 524,047
N031 0 SF 39,706 52.85 100% 06/30/96 477,855
N032 0 SF 47,550 40.97 100% 07/31/96 317,295
N033 0 SF 58,200 33.40 100% 06/30/96 349,451
N034 0 SF 38,940 49.82 100% 06/30/96 425,883
C035 0 SF 6,770 279.16 100% 06/27/96 236,950
N036 0 SF 49,508 36.48 88% 06/30/96 525,502
N037 0 SF 45,280 39.72 100% 06/30/96 288,640
N038 0 SF 27,842 64.15 100% 06/30/96 390,449
N039 0 SF 12,030 145.83 100% 11/01/96 273,889
N040 0 SF 58,841 29.73 94% 06/30/96 554,994
N041 0 SF 48,100 36.03 95% 02/28/96 286,917
N042 0 SF 36,406 46.90 89% 06/30/96 360,761
N043 0 SF 57,530 29.21 100% 06/30/96 485,725
N044 0 SF 110,604 14.75 100% 07/31/96 382,894
N045 0 SF 18,574 68.80 100% 07/31/96 306,674
C046 0 SF 64,785 19.15 95% 04/30/96 443,803
C047 0 SF 51,774 23.66 100% 06/13/96 262,521
N048 0 SF 31,400 37.28 100% 02/28/96 204,245
N049 0 SF 56,000 20.08 100% 11/01/96 265,273
N050 0 SF 89,600 12.50 96% 06/30/96 290,269
C051 0 SF 23,576 46.48 91% 05/17/96 252,823
C052 0 SF 51,000 21.47 100% 04/30/96 282,643
N053 0 SF 25,079 37.00 100% 06/30/96 240,820
N054 660 Unit 538,194 34,362.18 99% 06/30/96 4,321,946
N055 296 Unit 209,352 30,384.93 97% 07/31/96 1,909,017
C056 312 Unit 266,448 23,031.93 94% 06/18/96 2,025,088
N057 229 Unit 176,796 29,386.42 95% 05/31/96 1,488,650
N058 261 Unit 235,310 24,725.12 n/a n/a 2,850,390
C059 160 Unit 143,976 39,812.37 94% 04/01/96 1,237,413
N060 220 Unit 165,800 27,500.00 94% 06/30/96 1,261,526
N061 304 Unit 227,688 16,503.40 95% 08/30/96 1,530,950
C062 180 Unit 105,381 26,570.77 98% 09/30/96 1,237,514
N063 240 Unit 244,452 19,549.29 97% 05/31/96 1,267,217
N064 198 Unit 225,184 23,263.88 98% 06/30/96 1,074,033
N065 122 Unit 81,802 37,266.03 95% 03/31/96 950,778
C066 148 Unit 118,260 30,209.72 97% 06/01/96 1,009,216
C067 98 Unit 114,738 43,341.35 97% 09/19/96 761,102
</TABLE>
(iv) Because 127 units of this Mortgaged Property are leased on a short-term
basis (daily, weekly and monthly), many units are not reported as
occupied on the date the rent roll is produced. Therefore occupancy
percentage is not a meaningful indicator of the Mortgaged Property's
stabilized occupancy.
1
<PAGE>
<TABLE>
<CAPTION>
CUT-OFF
CONTROL LOAN APPRAISAL DATE LTV YEAR BUILT/
NUMBER NUMBER PROPERTY NAME APPRAISAL VALUE DATE RATIO RENOVATED
- ------- -------- ------------------------------------ --------------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
N068 100185 Walnut Gardens (vi) $ 7,150,000 02/15/96 58.4% 1975/1993
N069 100197 Jefferson Shadows Apartments 6,500,000 03/04/96 61.4% 1975
C070 655151-7 Lantern Square Apartments 4,410,000 05/10/96 74.1% 1972
N071 100195 Longwood Apartments 4,300,000 03/20/96 74.3% 1972/1993
C072 655147-8 Colonial Fountain Terrace 4,700,000 04/29/94 66.8% 1947
C073 655178-2 Walnut Square Apartments 4,200,000 05/08/96 74.7% 1901/1994
C074 655172-2 Willington Oaks 3,900,000 09/12/96 76.8% 1966
C075 644110-6 Prescott Place Apartments 4,100,000 02/12/96 71.7% 1960/1995
C076 655149-4 Cottonwood Terrace 5,100,000 06/10/94 52.9% 1992
N077 100210 Grosvenor Square 4,100,000 08/15/96 64.6% 1973
C078 650872-2 Cypresswood Apartments 3,400,000 04/15/96 71.9% 1973/1996
N079 100204 Grand Concourse Apartments (vii) 3,140,000 06/05/96 75.6% 1938/1987
N080 100170 Barstone Apartments 2,970,000 12/11/95 78.7% 1975
C081 655173-7 Liberty View Apartments 3,000,000 05/10/96 71.9% 1880/1980
N082 100183 The Arbors of Macarthur (vi) 3,600,000 02/15/96 55.3% 1972/1993
C083 650886-1 Highlander Apartments 2,700,000 06/11/96 71.4% 1966
C084 655150-4 Colonial Gardens 2,780,000 12/27/94 68.4% 1938
C085 655175-3 Pin Oak MHC 2,520,000 03/11/96 74.3% 1970
N086 216807 Highpointe Village 3,000,000 02/02/95 62.2% 1981
C087 650886-7 Belvedere Apartments 2,600,000 04/11/96 71.6% 1969
C088 650905-1 The Birches Apartments 2,530,000 05/22/96 73.0% 1972
C089 655177-9 Clayton Court 2,440,000 03/22/96 74.7% 1972
N090 100200 Berkshire Square Apartments 2,400,000 08/14/96 70.8% 1974
C091 650875-1 Maple Ridge Apartments 2,445,000 03/31/96 67.3% 1969/1990
C092 655158-8 The Rockland 2,100,000 06/12/96 76.1% 1928/1992
C093 650772-3 Hickory Hills Apartments 2,150,000 02/26/96 74.1% 1967
N094 100211 Windriver Apartments 2,260,000 07/18/96 69.0% 1985
N095 100212 Park Street Apartments 2,300,000 07/26/96 66.1% 1969
C096 655159-1 Tanglewood Apartments 2,000,000 04/29/96 74.9% 1973
C097 655176-6 Midtown Apartments 2,000,000 05/10/96 74.7% 1911/1994
C098A 655089-3 Woodgate Court Apartments 960,000 10/16/95 74.7% 1973/1995
C098B 655089-3 Ivy Court Apartments 975,000 10/23/95 79.7% 1973/1995
N099 100215 Yorkleigh Apartments 1,900,000 09/16/96 73.6% 1973
C100 650773-6 The Loft Apartments 2,000,000 02/12/96 68.8% 1973/1995
N101 100184 Apple Tree Apartments (vi) 3,200,000 02/15/96 40.4% 1972/1993
C102 655179-5 3920 Broadway 1,500,000 09/20/96 79.9% 1910/1991
C103 650868-3 Cypress Lane Apartments 1,900,000 04/22/96 63.0% 1986
C104 655130-0 Foxglove Apartments 2,100,000 10/23/95 56.9% 1975/1995
C105 655137-1 Randall Court Apartments 1,600,000 10/23/95 74.1% 1987
C106 655138-4 Greenglen Apartments 1,650,000 09/14/95 68.9% 1979
C107 655134-2 Andover Court Apartments 1,525,000 09/25/95 73.2% 1979
N108 100117 Gatehouse Apartments 1,293,568 11/29/95 77.3% 1970
C109 650547-9 Silver Pines Apartments 1,140,000 04/11/96 74.5% 1984
N110 100186 56 Fort Washington Avenue 1,000,000 04/04/96 79.3% 1913/1988
C111 655142-3 Kempwood Townhomes 1,250,000 04/19/96 61.9% 1978
C112 655086-4 Bridgepoint II Apts 980,000 10/09/95 74.7% 1987
C113 655168-5 DiSaronno Plaza 6,500,000 08/21/96 66.1% 1986/1995
C114 650996-7 Midstate Office Park 5,200,000 08/16/96 69.9% 1991
C115 655125-8 Twelve Oaks Office Building 4,000,000 08/27/96 62.5% 1981/1994
C116 655104-1 Reid Road Warehouse 8,900,000 08/03/94 71.5% 1968/1994
C117 655105-4 Studio Center 7,700,000 12/20/93 75.1% 1976/1988
C118 650907-7 Badanco/994 Riverview 5,800,000 05/15/96 72.2% 1968/1996
N119 300001 Arville Industrial Park 5,075,000 01/02/96 64.5% 1986
N120 951221 Winn Dixie Warehouse 3,000,000 09/06/95 73.1% 1956
C121 655171-1 Brewer/'s Hill Business Center 2,100,000 08/08/96 69.0% 1945/1988
N122 300005 Holiday Inn Woodlawn 19,400,000 04/15/96 53.6% 1971/1996
N123 300006 Hampton Inn Executive Park 8,500,000 04/15/96 60.9% 1986/1995
N124 300017 Holiday Inn Gulf Breeze 8,225,000 04/19/96 61.8% 1964/1996
N125 300011 Howard Johnson, Coliseum 6,473,000 05/08/96 51.6% 1972/1993
N126 400005 Phoenix Nursing Center 8,000,000 04/02/96 74.8% 1977/1992
N127 962355 Heatherdowns Convalescent Center 8,700,000 12/31/95 64.0% 1989
N128 951325 Harahan Living Center 7,700,000 11/21/95 70.9% 1977/1988
N129 962354 McCrea Manor 5,000,000 12/31/95 69.7% 1984
N130 400004 Eden Pines 3,300,000 04/01/96 57.4% 1994
TOTALS / WEIGHTED AVERAGES $668,822,002 69.6%
</TABLE>
(vi) A significant portion of the units of these Mortgaged Properties are
leases to students of the training institute of the Federal Aviation
Administration on a short-term basis. Because the Mortgaged Properties
are operated more like hotels than conventional multifamily Mortgaged
Properties, occupancy percentage is not a meaningful indicator of the
Mortgaged Property's stabilized occupancy.
(vii) The borrower acquired the Mortgaged Property in April 1996. Operating
statements for 1996 are not available.
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
TOTAL
UNITS/ UNITS/ LOAN PER OCCUPANCY
CONTROL ROOMS ROOMS/ NET RENTABLE UNIT/ROOM OCCUPANCY AS OF U/W
NUMBER /PADS PADS/SF AREA (SF) /PAD/SF % DATE REVENUES
- ------- ------ ------- ------------ ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
N068 198 Unit 141,148 $21,099.46 n/a n/a $2,664,250
N069 187 Unit 202,590 21,356.39 99% 04/30/96 1,116,574
C070 132 Unit 131,526 24,767.38 97% 06/24/96 779,783
N071 200 Unit 187,048 15,964.94 90% 06/30/96 970,616
C072 135 Unit 108,853 23,267.24 86% 06/01/96 753,276
C073 132 Unit 73,370 23,779.92 93% 09/30/96 832,766
C074 128 Unit 83,840 23,395.53 97% 09/24/96 859,464
C075 272 Unit 215,146 10,803.39 95% 02/28/96 1,002,000
C076 102 Unit 83,708 26,423.02 95% 06/01/96 640,272
N077 145 Unit 56,560 18,275.86 97% 06/30/96 638,893
C078 122 Unit 122,070 20,048.75 95% 06/01/96 602,452
N079 68 Unit 81,450 34,906.00 n/a n/a 632,519
N080 159 Unit 150,492 14,702.48 93% 09/30/96 637,244
C081 61 Unit 54,490 35,366.26 95% 09/30/96 447,606
N082 120 Unit 81,000 16,578.15 n/a n/a 1,316,886
C083 112 Unit 97,776 17,213.29 98% 06/01/96 546,315
C084 96 Unit 82,305 19,818.25 95% 04/01/96 574,480
C085 121 Pad 1,010,592 15,469.12 100% 03/25/96 324,398
N086 168 Unit 156,000 11,110.30 82% 09/30/96 715,694
C087 136 Unit 108,392 13,690.87 93% 06/01/96 553,047
C088 105 Unit 100,797 17,590.31 95% 05/03/96 512,110
C089 115 Pad 1,271,952 15,841.83 100% 03/25/96 323,767
N090 126 Unit 65,532 13,479.66 96% 07/31/96 529,954
C091 120 Unit 117,624 13,709.28 99% 03/25/96 504,587
C092 60 Unit 38,265 26,640.87 100% 09/01/96 476,964
C093 96 Unit 96,776 16,594.86 97% 06/01/96 467,938
N094 168 Unit 99,600 9,280.33 98% 06/30/96 600,929
N095 78 Unit 59,011 19,479.19 100% 06/30/96 469,018
C096 128 Unit 114,472 11,708.24 93% 08/16/96 526,710
C097 66 Unit 38,848 22,647.55 97% 09/30/96 472,190
C098A 48 Unit 27,648 14,937.81 98% 03/01/96 194,107
C098B 42 Unit 24,192 18,494.43 91% 03/01/96 179,610
N099 60 Unit 54,240 23,319.99 92% 06/30/96 293,131
C100 112 Unit 92,500 12,282.75 97% 03/13/96 462,000
N101 69 Unit 50,737 18,740.51 n/a n/a 767,834
C102 42 Unit 45,312 28,543.74 100% 09/01/96 363,041
C103 68 Unit 72,760 17,608.87 89% 06/01/96 384,690
C104 86 Unit 45,936 13,904.29 92% 04/01/96 372,286
C105 75 Unit 38,016 15,813.72 93% 03/01/96 319,000
C106 79 Unit 43,776 14,382.23 86% 06/01/96 308,494
C107 64 Unit 40,896 17,441.11 95% 06/01/96 308,404
N108 43 Unit 39,526 23,258.28 98% 06/30/96 235,764
C109 64 Unit 35,136 13,267.11 93% 06/01/96 273,877
N110 43 Unit 55,302 18,450.68 94% 12/31/96 284,456
C111 35 Unit 47,950 22,104.74 100% 05/01/96 199,939
C112 48 Unit 27,360 15,248.90 93% 06/01/96 227,794
C113 0 SF 88,504 48.54 100% 08/31/96 1,301,780
C114 0 SF 86,286 42.12 89% 08/29/96 974,537
C115 0 SF 53,915 46.37 94% 09/02/96 641,969
C116 0 SF 667,913 9.53 99% 09/18/96 1,998,720
C117 0 SF 95,674 60.40 94% 09/01/96 1,054,753
C118 0 SF 152,043 27.53 100% 06/03/96 664,422
N119 0 SF 158,910 20.60 100% 06/30/96 779,941
N120 0 SF 178,660 12.27 100% 06/30/96 429,767
C121 0 SF 121,900 11.88 100% 08/31/96 298,942
N122 425 Room 256,621 24,465.21 71% 03/31/96 8,769,462
N123 161 Room 70,640 32,136.54 81% 03/31/96 2,622,105
N124 168 Room 71,554 30,243.38 80% 06/30/96 3,638,092
N125 176 Room 107,664 18,959.92 61% 08/31/96 2,165,099
N126 242 Room 51,164 24,719.31 98% 03/31/96 7,877,633
N127 100 Room 40,762 55,660.03 87% 06/30/96 3,967,409
N128 206 Room 60,560 26,489.87 92% 06/30/96 4,689,383
N129 100 Room 37,022 34,849.29 97% 06/30/96 3,542,219
N130 56 Room 17,025 33,806.46 98% 06/30/96 1,022,061
TOTALS / WEIGHTED AVERAGES $133,109,489
</TABLE>
(vi) A significant portion of the units of these Mortgaged Properties are
leases to students of the training institute of the Federal Aviation
Administration on a short-term basis. Because the Mortgaged Properties
are operated more like hotels than conventional multifamily Mortgaged
Properties, occupancy percentage is not a meaningful indicator of the
Mortgaged Property's stabilized occupancy.
(vii) The borrower acquired the Mortgaged Property in April 1996. Operating
statements for 1996 are not available.
2
<PAGE>
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
U/W U/W 1995 1995 1995
EXPENSES U/W NOI DSCR REVENUES EXPENSES 1995 NOI DSCR
- ----------- ----------- ---- ------------ ----------- ----------- ----
<S> <C> <C> <C> <C> <C> <C>
$ 619,448 $2,479,071 1.32 $ 110,855 $ 116,985 $ (6,130) 0.00
499,073 1,992,454 1.28 1,959,871 448,856 1,511,015 0.97
336,981 1,222,327 1.32 1,490,653 409,460 1,081,193 1.17
370,239 1,189,742 1.30 1,616,262 370,484 1,245,778 1.36
310,677 1,202,871 1.33 1,403,798 299,583 1,104,215 1.22
335,070 1,102,437 1.33 1,249,411 304,251 945,160 1.14
396,084 1,081,002 1.35 1,457,867 398,756 1,059,111 1.33
649,540 980,945 1.32 1,604,983 654,036 950,947 1.28
192,727 890,460 1.31 n/a n/a n/a n/a
224,610 744,673 1.33 967,458 207,140 760,318 1.36
156,460 731,414 1.28 923,360 178,421 744,939 1.30
172,914 624,025 1.39 536,280 159,493 376,787 0.84
206,440 780,502 1.83 1,041,037 190,428 850,609 1.99
271,167 605,457 1.54 983,599 274,436 709,163 1.80
185,485 485,864 1.39 730,318 188,222 542,096 1.55
140,999 489,861 1.41 674,782 146,260 528,522 1.52
91,774 426,137 1.38 421,913 83,421 338,492 1.10
106,824 393,648 1.33 n/a n/a n/a n/a
160,230 400,863 1.15 557,734 179,265 378,469 1.08
209,636 476,789 1.57 567,873 150,131 417,742 1.38
145,012 380,188 1.38 525,556 144,463 381,093 1.38
5,184 379,404 1.29 341,995 n/a 341,995 1.16
213,316 494,579 1.94 538,069 165,764 372,305 1.46
80,695 352,101 1.38 443,325 81,933 361,392 1.42
143,952 379,119 1.45 487,759 132,468 355,291 1.36
142,786 379,004 1.50 548,422 149,220 399,202 1.58
128,015 381,220 1.51 502,415 127,629 374,786 1.49
143,183 451,882 1.91 643,208 134,008 509,200 2.15
175,525 336,818 1.41 573,687 174,059 399,628 1.67
145,106 378,941 1.37 431,932 137,608 294,324 1.07
154,510 323,345 1.45 514,823 154,351 360,472 1.62
58,185 259,110 1.38 296,650 59,044 237,606 1.27
80,556 268,895 1.40 361,776 72,804 288,972 1.51
122,428 303,455 1.61 464,882 122,787 342,095 1.82
7,109 229,841 1.05 n/a n/a n/a n/a
185,387 340,115 1.32 542,014 186,013 356,001 1.38
58,094 230,546 1.36 267,105 41,481 225,624 1.33
127,945 262,504 1.49 300,425 107,622 192,803 1.09
57,692 216,197 1.25 n/a n/a n/a n/a
215,776 339,218 1.36 620,952 214,099 406,853 1.63
43,238 243,679 1.35 270,376 35,971 234,405 1.30
113,057 247,704 1.42 389,761 108,314 281,447 1.61
152,912 332,813 1.56 404,986 140,138 264,848 1.24
116,774 266,120 1.59 368,553 106,791 261,762 1.57
112,195 194,479 1.43 313,924 94,660 219,264 1.61
116,968 326,835 1.36 403,037 97,613 305,424 1.27
75,242 187,279 1.50 291,536 75,541 215,995 1.73
42,283 161,962 1.35 192,445 38,537 153,908 1.28
81,045 184,228 1.58 206,995 16,857 190,138 1.63
94,608 195,661 1.49 301,767 106,506 195,261 1.49
68,852 183,971 1.54 215,127 59,611 155,516 1.30
124,451 158,192 1.35 184,556 21,115 163,441 1.39
84,869 155,951 1.46 262,634 83,072 179,562 1.69
1,500,593 2,821,353 1.32 4,112,875 1,388,119 2,724,756 1.28
774,828 1,134,189 1.33 1,851,128 768,685 1,082,443 1.27
817,618 1,207,470 1.87 2,007,108 816,999 1,190,109 1.84
629,866 858,784 1.32 1,453,044 588,262 864,782 1.33
1,639,862 1,210,528 1.84 2,473,542 1,359,403 1,114,139 1.69
419,033 818,380 1.38 1,205,686 346,757 858,929 1.44
489,642 771,884 1.39 1,252,785 528,609 724,176 1.30
843,538 687,412 1.47 1,433,611 840,785 592,826 1.27
570,226 667,288 1.38 1,237,514 550,617 686,897 1.42
600,652 666,565 1.48 1,210,483 467,392 743,091 1.65
502,942 571,091 1.39 1,136,169 458,622 677,547 1.65
390,927 559,851 1.31 942,001 435,920 506,081 1.18
404,538 604,678 1.35 1,033,579 371,392 662,187 1.48
221,924 539,178 1.37 649,709 196,389 453,320 1.15
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
U/W 1994 1994
EXPENSES REVENUES EXPENSES 1994 NOI LARGEST TENANT
- ----------- ------------ ----------- ---------- ------------------------
<S> <C> <C> <C> <C>
$ 619,448 $ n/a $ n/a $ n/a Michaels
499,073 1,858,696 443,471 1,415,225 Town & Country Lanes
336,981 1,348,167 261,638 1,086,529 Piggly Wiggly
370,239 1,415,529 358,290 1,057,239 Kroger Food Stores
310,677 1,430,712 144,761 1,285,951 Delchamps
335,070 1,413,703 343,792 1,069,911 Toys R Us
396,084 1,497,256 391,087 1,106,169 GSA
649,540 1,530,497 637,569 892,928 Gene Taylor Sports
192,727 n/a n/a n/a Barnes & Noble
224,610 941,971 206,982 734,989 Safeway
156,460 897,711 133,917 763,794 Wal Mart
172,914 703,052 186,569 516,483 Bi-Mart (Thrifty Payless)
206,440 1,053,819 210,288 843,531 Livingwell Lady
271,167 946,182 225,739 720,443 X-Pect Drugs
185,485 663,737 182,045 481,692 Goodings of Altamonte
140,999 605,716 187,743 417,973 Shoten Japanese Market
91,774 424,191 92,615 331,576 Food Lion
106,824 n/a n/a n/a Hallmark Cards
160,230 561,778 212,974 348,804 Vons
209,636 987,657 165,017 822,640 State Farm
145,012 474,543 132,923 341,620 Winn Dixie
5,184 262,125 n/a 262,125 Cheesecake Factory
213,316 n/a n/a n/a Lord & Taylor
80,695 387,129 79,808 307,321 Food Lion
143,952 479,799 130,985 348,814 Regal Cinemas
142,786 546,758 133,990 412,768 Old Time Pottery
128,015 508,837 147,251 361,586 Leggett's Outlet
143,183 647,579 135,081 512,498 Luria & Sons
175,525 599,320 189,801 409,519 MO Athletic Corporation
145,106 380,382 127,822 252,560 Food Lion
154,510 428,262 151,352 276,910 First Service Realty
58,185 259,885 55,551 204,334 Food Lion
80,556 330,667 66,627 264,040 Food Lion
122,428 416,563 115,884 300,679 Food Lion
7,109 n/a n/a n/a Citibank Branch
185,387 528,104 212,149 315,955 E&C Intl. Tile
58,094 269,197 40,141 229,056 Food Lion
127,945 n/a n/a n/a Carraba's
57,692 n/a n/a n/a Eckerd
215,776 579,907 224,313 355,594 Adrian Investments
43,238 273,141 36,017 237,124 Food Lion
113,057 356,149 102,358 253,791 Eckerd
152,912 439,152 175,096 264,056 Food Lion
116,774 311,129 99,604 211,525 Winn Dixie
112,195 220,713 79,934 140,779 Oriental Rug Liquid.
116,968 311,903 102,809 209,094 Rini Rego's
75,242 280,112 72,373 207,739 Buchanan's
42,283 187,583 36,401 151,182 Food Lion
81,045 206,995 15,223 191,772 Kroger
94,608 328,346 96,624 231,722 Wal Mart
68,852 298,870 78,730 220,140 Coaches Corner
124,451 162,495 36,239 126,256 Felpausch Food Center
84,869 226,475 87,376 139,099 Kanpai of Tokyo
1,500,593 3,666,146 1,246,885 2,419,261
774,828 1,700,453 877,572 822,881
817,618 1,907,992 776,340 1,131,62
629,866 1,519,836 556,842 962,994
1,639,862 2,767,129 1,351,668 1,415,461
419,033 1,465,190 277,673 1,187,517
489,642 1,233,467 533,757 699,710
843,538 1,419,730 792,149 627,581
570,226 1,151,951 575,289 576,662
600,652 983,140 578,160 404,980
502,942 1,066,652 579,269 487,383
390,927 n/a n/a n/a
404,538 966,002 345,131 620,871
221,924 645,849 176,812 469,037
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
U/W LARGEST TENANT LARGEST TENANT LARGEST TENANT
EXPENSES LEASED SF % OF TOTAL SF LEASE EXPIRATION SECOND LARGEST TENANT
- ----------- -------------- -------------- ---------------- ------------------------------------
<S> <C> <C> <C> <C>
$ 619,448 31,000 19% 10/31/2005 FRESH FIELDS SUPERMARKET
499,073 41,600 20% 12/01/2003 CIRCUIT CITY
336,981 55,695 40% 10/31/2011 WALGREENS
370,239 46,849 37% 01/01/2010 GOLD'S GYM
310,677 51,348 40% 02/28/2011 HARCO DRUGS
335,070 45,183 31% 01/31/2015 PARTY COMPANY
396,084 30,595 24% 12/17/2005 CORT FURNITURE
649,540 8,380 15% 08/31/2000 SNOWMASS RESORT ASSOCIATION
192,727 25,000 36% 10/31/2010 COMPUTER CITY
224,610 38,410 43% 11/01/2005 CVS DRUGS
156,460 103,865 67% 11/25/2005 INGLES
172,914 37,440 34% 10/01/2007 GOLD'S GYM
206,440 8,820 11% 03/31/99 SHERWIN WILLIAMS
271,167 29,512 31% 12/01/99 SO FRO FABRICS
185,485 42,824 51% 04/30/99 ECKERD
140,999 4,200 11% 01/01/99 CENTURY 21 ROW OFFICE
91,774 32,040 29% 11/22/2006 BIG LOTS
106,824 8,000 23% 02/28/2001 JOE'S GRILL
160,230 71,940 100% 10/31/2005
209,636 16,885 22% 05/01/98 GENERIC DEPOT
145,012 32,000 43% 08/31/2002 BIG B DRUGS
5,184 13,378 100% 09/30/2007
213,316 36,700 46% 09/30/2000 RC HOBBIES
80,695 25,000 32% 12/16/2009 BELK
143,952 32,000 59% 10/19/2014 BACK TO BASICS
142,786 80,155 52% 08/31/2003 DELCHAMP'S
128,015 35,000 46% 12/31/2000 BUMPER'S BAR & GRILL
143,183 27,000 40% 03/31/99 SHORELINE FURNITURE
175,525 7,748 18% 12/31/99 HAMLET CORPORATION
145,106 25,000 38% 08/31/2008 YELLOW DOG RENTALS
154,510 5,280 13% 11/30/96 NATIONSBANK
58,185 25,000 53% 04/30/2011 REVCO
80,556 30,720 53% 04/01/2016 KERR DRUG
122,428 29,000 75% 10/31/2011 BCK FOODS (TEX MEX CAFE)
7,109 6,770 100% 09/12/2010
185,387 4,133 8% 10/31/97 READY STATE BANK
58,094 30,280 67% 05/31/2012 DICK'S PUB
127,945 6,300 23% 05/31/2000 PET SUPERMARKET
57,692 12,030 100% 10/31/2015
215,776 3,500 6% 03/31/2001 RAY'S PIZZA
43,238 30,280 57% 04/17/2010 SUPER 10
113,057 8,640 24% 12/31/2010 CMC SERVICES, INC.
152,912 29,000 50% 12/30/2008 SUNSHINE DAYCARE
116,774 57,876 52% 06/05/2010 FRED'S
112,195 5,260 28% 05/31/2000 TCBY
116,968 38,256 57% 05/31/98 E&B MARINE SUPER STORE
75,242 26,148 51% 12/01/2000 DOLLAR GENERAL
42,283 30,280 83% 12/16/2006 AMERICAN GEN. FINANCE
81,045 56,000 100% 05/31/2004
94,608 41,200 46% 01/31/2002 UNITED SUPER FOODS
68,852 3,680 16% 11/30/2005 HARDEE'S FOOD SYSTEMS
124,451 38,000 75% 06/30/2005 RITE AID PHARMACY/MAGGIE'S HALLMARK
84,869 4,641 19% 03/31/2001 USA (RECRUITING)
1,500,593
774,828
817,618
629,866
1,639,862
419,033
489,642
843,538
570,226
600,652
502,942
390,927
404,538
221,924
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
SECOND LARGEST SECOND LARGEST
U/W SECOND LARGEST TENANT % OF TENANT LEASE
EXPENSES TENANT LEASED SF TOTAL SF EXPIRATION
- ----------- ---------------- -------------- --------------
<S> <C> <C> <C>
$ 619,448 25,173 15% 10/31/2015
499,073 32,995 16% 03/31/2010
336,981 13,000 9% 06/30/2040
370,239 12,000 10% 01/01/99
310,677 9,100 7% 04/08/2005
335,070 25,288 17% 11/30/2000
396,084 17,280 13% 06/03/2000
649,540 7,320 13% 10/31/98
192,727 21,000 30% 09/30/2010
224,610 11,995 14% 11/01/2000
156,460 27,200 17% 11/05/2005
172,914 36,400 33% 10/01/2010
206,440 5,000 6% 11/30/97
271,167 14,600 15% 05/01/2002
185,485 10,800 13% 03/26/99
140,999 4,400 11% 01/01/97
91,774 27,000 25% 01/31/2001
106,824 4,400 13% 03/31/2001
160,230
209,636 16,000 22% 03/31/2000
145,012 8,954 12% 08/31/2002
5,184
213,316 9,240 12% 10/14/98
80,695 22,400 28% 02/27/2010
143,952 7,200 13% 08/31/99
142,786 31,262 20% 03/31/99
128,015 8,750 11% 12/31/2004
143,183 6,370 9% 09/30/2000
175,525 5,190 12% 05/31/2000
145,106 5,760 9% 03/31/2001
154,510 3,988 10% 05/23/2001
58,185 8,450 18% 04/30/2001
80,556 9,600 16% 10/11/2003
122,428 3,250 8% 10/31/2000
7,109
185,387 3,300 7% 01/31/2000
58,094 2,700 6% 04/30/2001
127,945 5,638 20% 12/31/99
57,692
215,776 3,000 5% 05/31/2000
43,238 6,000 11% 03/14/97
113,057 5,380 15% 03/31/98
152,912 6,000 10% 10/31/2000
116,774 20,490 19% 03/31/99
112,195 1,100 6% 12/31/98
116,968 10,800 16% 05/31/2002
75,242 8,640 17% 06/01/2001
42,283 3,200 9% 10/31/97
81,045
94,608 32,250 36% 12/31/2002
68,852 3,416 14% 05/31/2008
124,451 13,000 25% 07/31/2000
84,869 3,600 14% 12/30/99
1,500,593
774,828
817,618
629,866
1,639,862
419,033
489,642
843,538
570,226
600,652
502,942
390,927
404,538
221,924
</TABLE>
1
<PAGE>
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
U/W U/W 1995 1995 1995
EXPENSES U/W NOI DSCR REVENUES EXPENSES 1995 NOI DSCR
- ----------- ----------- ---- ------------ ----------- ----------- ----
<S> <C> <C> <C> <C> <C> <C>
$1,696,434 $ 967,816 2.26 $2,686,596 $1,676,180 $1,010,416 2.36
518,877 597,697 1.62 1,099,374 523,915 575,459 1.56
350,391 429,392 1.39 773,203 360,025 413,178 1.34
512,665 457,951 1.48 906,077 517,654 388,423 1.25
380,109 373,167 1.11 786,890 486,614 300,276 0.90
382,246 450,520 1.40 832,568 353,845 478,723 1.49
414,524 444,940 1.47 791,022 407,104 383,918 1.27
584,037 417,963 1.49 942,904 580,617 362,287 1.29
247,030 393,242 1.41 631,003 221,602 409,401 1.47
287,916 350,977 1.44 635,762 259,863 375,899 1.54
266,542 335,910 1.42 531,796 269,650 262,146 1.11
326,579 305,940 1.38 648,605 287,199 361,406 1.63
348,695 288,549 1.36 636,158 338,261 297,897 1.41
152,865 294,741 1.34 443,968 130,459 313,509 1.42
848,572 468,314 2.30 1,345,262 829,073 516,189 2.53
283,538 262,777 1.41 538,165 269,015 269,150 1.44
293,008 281,472 1.39 550,265 260,009 290,256 1.43
73,799 250,599 1.30 338,528 53,603 284,925 1.48
400,859 314,835 1.58 438,997 402,270 36,727 0.18
277,414 275,633 1.47 536,509 269,650 266,859 1.42
252,420 259,690 1.45 509,308 260,341 248,967 1.39
57,769 265,998 1.44 337,181 70,017 267,164 1.44
277,728 252,226 1.50 493,465 259,442 234,023 1.39
272,331 232,256 1.50 495,591 253,517 242,074 1.56
249,152 227,812 1.47 475,161 174,998 300,163 1.94
225,134 242,804 1.47 467,938 225,785 242,153 1.47
368,493 232,436 1.58 577,724 402,665 175,059 1.19
236,737 232,281 1.49 468,107 207,273 260,834 1.67
298,984 227,726 1.51 530,392 274,200 256,192 1.70
257,579 214,611 1.40 490,238 243,232 247,006 1.61
83,255 110,852 1.46 191,402 88,557 102,845 1.36
58,782 120,828 1.47 179,195 55,815 123,380 1.51
107,062 186,069 1.40 285,969 98,355 187,614 1.42
261,995 200,005 1.50 488,865 250,880 237,985 1.79
376,369 391,465 2.95 785,098 373,841 411,257 3.10
191,504 171,537 1.48 n/a n/a n/a n/a
188,092 196,598 1.68 398,929 184,745 214,184 1.83
126,299 245,987 2.01 394,001 135,197 258,804 2.12
144,750 174,250 1.40 335,121 157,118 178,003 1.43
144,670 163,824 1.37 307,000 153,017 153,983 1.29
137,870 170,534 1.46 301,042 156,400 144,642 1.24
110,403 125,361 1.41 243,718 100,673 143,045 1.61
127,290 146,587 1.76 267,852 143,691 124,161 1.49
173,474 110,982 1.42 262,666 212,835 49,831 0.64
93,137 106,802 1.45 202,457 101,611 100,846 1.37
107,582 120,212 1.56 231,923 114,630 117,293 1.52
576,589 725,191 1.64 n/a n/a n/a n/a
431,205 543,332 1.42 783,439 412,473 370,966 0.97
231,098 410,871 1.62 489,000 211,000 278,000 1.10
548,728 1,449,992 1.87 1,685,812 496,133 1,189,679 1.53
258,300 796,453 1.22 1,075,848 251,569 824,279 1.26
33,221 631,201 1.46 n/a n/a n/a n/a
178,952 600,989 1.88 684,084 167,504 516,580 1.62
59,345 370,422 1.39 432,073 17,128 414,945 1.56
74,199 224,743 1.53 273,264 68,084 205,180 1.56
6,677,798 2,091,664 1.77 8,794,401 6,521,999 2,272,402 1.92
1,619,954 1,002,151 1.70 2,599,668 1,534,689 1,064,979 1.81
2,664,473 973,619 1.66 3,630,773 2,561,455 1,069,318 1.82
1,458,343 706,756 1.87 2,352,857 1,489,663 863,194 2.28
6,737,579 1,140,054 1.74 7,508,872 6,349,522 1,159,350 1.77
2,807,066 1,160,343 2.05 4,070,861 2,782,696 1,288,165 2.27
3,708,596 980,787 1.75 4,676,630 3,773,033 903,597 1.62
2,955,479 586,740 1.61 3,584,438 2,957,590 626,848 1.72
655,792 366,269 1.88 784,566 549,747 234,819 1.21
$64,311,195 $68,798,294 1.47 $121,748,557 $60,407,384 $61,341,173
</TABLE>
<PAGE>
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
U/W 1994 1994
EXPENSES REVENUES EXPENSES 1994 NOI LARGEST TENANT
- ----------- ------------ ----------- ---------- ------------------------
<S> <C> <C> <C> <C>
$1,696,434 $2,535,163 $1,917,472 $ 617,691
518,877 1,036,768 470,542 566,226
350,391 773,314 334,351 438,963
512,665 995,426 501,467 493,959
380,109 n/a n/a n/a
382,246 n/a n/a n/a
414,524 n/a n/a n/a
584,037 396,052 527,875 (131,823)
247,030 591,094 251,443 339,651
287,916 616,908 264,066 352,842
266,542 496,915 222,242 274,673
326,579 648,252 254,903 393,349
348,695 633,219 356,134 277,085
152,865 n/a n/a n/a
848,572 1,203,721 817,448 386,273
283,538 512,722 248,926 263,796
293,008 569,050 262,455 306,595
73,799 348,214 91,847 256,367
400,859 n/a n/a n/a
277,414 499,288 249,736 249,552
252,420 507,947 255,212 252,735
57,769 329,513 75,815 253,698
277,728 443,242 241,209 202,033
272,331 460,761 233,739 227,022
249,152 438,899 185,611 253,288
225,134 449,151 214,707 234,444
368,493 585,719 406,034 179,685
236,737 461,269 226,632 234,637
298,984 514,826 260,429 254,397
257,579 407,342 219,577 187,765
83,255 192,384 77,041 115,343
58,782 169,841 55,705 114,136
107,062 273,019 91,730 181,289
261,995 448,617 302,796 145,821
376,369 715,408 449,420 265,988
191,504 n/a n/a n/a
188,092 428,086 183,974 244,112
126,299 372,075 119,427 252,648
144,750 312,813 142,148 170,665
144,670 315,760 137,009 178,751
137,870 280,346 106,309 174,037
110,403 234,143 127,156 106,987
127,290 255,060 129,285 125,775
173,474 234,136 189,598 44,538
93,137 189,416 90,603 98,813
107,582 217,082 112,713 104,369
576,589 n/a n/a n/a United HealthCare Services, Inc.
431,205 n/a n/a n/a National Grange
231,098 472,000 218,000 254,000 McWilliams & Company
548,728 1,714,908 605,804 1,109,104 Universal Applicators
258,300 1,076,250 252,667 823,583 Grace & Wild
33,221 n/a n/a n/a Badanco Enterprises
178,952 589,190 140,063 449,127 Great Amer. Furniture
59,345 461,642 53,290 408,352 Winn Dixie
74,199 266,176 70,755 195,421 Wollenweber's Trucking
6,677,798 7,973,823 6,204,766 1,769,057
1,619,954 2,381,062 1,427,874 953,188
2,664,473 3,457,716 2,466,534 991,182
1,458,343 2,112,994 1,364,986 748,008
6,737,579 6,798,798 5,902,319 896,479
2,807,066 3,477,593 2,201,538 1,276,055
3,708,596 4,854,859 3,653,138 1,201,721
2,955,479 3,362,319 2,683,453 678,866
655,792 n/a n/a n/a
$64,311,195 $109,568,322 $54,664,479 $54,903,843
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
U/W LARGEST TENANT LARGEST TENANT LARGEST TENANT
EXPENSES LEASED SF % OF TOTAL SF LEASE EXPIRATION SECOND LARGEST TENANT
- ----------- -------------- -------------- ---------------- -----------------------------------
<S> <C> <C> <C> <C>
$ 1,696,434
518,877
350,391
512,665
380,109
382,246
414,524
584,037
247,030
287,916
266,542
326,579
348,695
152,865
848,572
283,538
293,008
73,799
400,859
277,414
252,420
57,769
277,728
272,331
249,152
225,134
368,493
236,737
298,984
257,579
83,255
58,782
107,062
261,995
376,369
191,504
188,092
126,299
144,750
144,670
137,870
110,403
127,290
173,474
93,137
107,582
576,589 66,185 75% 07/25/2001 VISTA COMPUTER SERVICES, INC.
431,205 14,128 16% 12/01/2000 ADP INC.
231,098 8,422 16% 05/31/98 WILBUR SMITH ASSOCIATES INC.
548,728 309,920 46% 04/30/97 SECURITY PACKAGING
258,300 55,000 57% 05/01/2004 VICTOR DUNCAN
33,221 152,043 100% 06/30/2006
178,952 12,000 9% 12/01/98 MAST TECH
59,345 178,660 100% 07/31/97
74,199 41,556 34% 12/31/98 CINDER EXPRESS
6,677,798
1,619,954
2,664,473
1,458,343
6,737,579
2,807,066
3,708,596
2,955,479
655,792
$64,311,195
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
SECOND LARGEST SECOND LARGEST
U/W SECOND LARGEST TENANT % OF TENANT LEASE
EXPENSES TENANT LEASED SF TOTAL SF EXPIRATION
- ----------- --------------- -------------- --------------
<S> <C> <C> <C>
$ 1,696,434
518,877
350,391
512,665
380,109
382,246
414,524
584,037
247,030
287,916
266,542
326,579
348,695
152,865
848,572
283,538
293,008
73,799
400,859
277,414
252,420
57,769
277,728
272,331
249,152
225,134
368,493
236,737
298,984
257,579
83,255
58,782
107,062
261,995
376,369
191,504
188,092
126,299
144,750
144,670
137,870
110,403
127,290
173,474
93,137
107,582
576,589 11,269 13% 07/09/2001
431,205 5,174 6% 12/01/96
231,098 7,454 14% 03/31/2001
548,728 215,342 32% 07/31/99
258,300 16,667 17% 12/31/97
33,221
178,952 11,400 7% 07/31/98
59,345
74,199 25,233 21% 08/31/98
6,677,798
1,619,954
2,664,473
1,458,343
6,737,579
2,807,066
3,708,596
2,955,479
655,792
$64,311,195
</TABLE>
2
<PAGE>
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
The schedule and tables appearing in this Annex A set forth certain
information with respect to the Mortgage Loans and Mortgaged Properties.
Unless otherwise indicated, such information is presented as of the Cut-off
Date. The statistics in such schedule and tables were derived, in many cases,
from information and operating statements furnished by or on behalf of the
respective borrowers. Such information and operating statements were
generally unaudited and have not been independently verified by the Sponsor
or the Underwriters or any of their respective affiliates or any other
person.
For purposes of the Prospectus Supplement, including the schedule and
tables in this Annex A, the indicated terms shall have the following
meanings:
1. "Underwriting NOI" or "U/W NOI" as used herein with respect to any
Mortgaged Property means an estimate, made at origination or purchase of the
related Mortgage Loan, of the total cash flow anticipated to be available for
annual debt service on such Mortgage Loan, calculated as the excess of U/W
Revenues over U/W Expenses, each of which was generally derived in the
following manner:
(i) "Underwriting Revenues" or "U/W Revenues" were generally assumed to
equal (subject to the assumptions and adjustments specified in the
following two sentences): (a) the actual amounts of gross rents (in the
case of the Multifamily Mortgaged Properties) received during the latest
full calendar year (on a rolling 12 month basis, or annualized or
estimated in certain cases); and (b) monthly contractual base rents (in
the case of the Commercial Mortgaged Properties other than the health care
and hotel Mortgaged Properties) for a 12 month period under leases in
effect as reflected on a rent roll provided by the borrower in connection
with the origination of the related Mortgage Loan or, in the case of one
Mortgage Loan, representing 0.92% of the Initial Pool Balance, existing
market rents; and (c) annual amounts consistent with historical operating
trends and market and competitive conditions, in the case of health care
and hotel Mortgaged Properties. Such Underwriting Revenues were generally
modified by (x) assuming that the occupancy rate for the Mortgaged
Property was consistent with the relevant market if such was less than the
occupancy rate reflected in the most recent rent roll or operating
statements, as the case may be, furnished by the related borrower, and (y)
in the case of retail, office and industrial Mortgaged Properties,
assuming a level of reimbursements from tenants consistent with the terms
of the lease or historical trends at the property, and in certain cases,
assuming that a specified percentage of rent will become defaulted or
otherwise uncollectible. In addition, in the case of retail, office and
industrial Mortgaged Properties, upward adjustments may have been made
with respect to such revenues to account for all or a portion of the rents
provided for under any new leases scheduled to take effect later in the
year.
Underwriting Revenues generally include: (w) for the Multifamily
Mortgaged Properties, rental and other revenues; (x) for the retail,
office and industrial Mortgaged Properties, base rent (less mark-to-market
adjustments in some cases), percentage rent, expense reimbursements and
other revenues; (y) for the health care Mortgaged Properties, resident
charges, Medicaid and Medicare payments, and other revenues; and (z) for
the hotel Mortgaged Properties, guest room rates, food and beverage
charges, telephone charges and other revenues.
(ii) "Underwriting Expenses" or "U/W Expenses" were generally assumed to
be equal to historical annual expenses reflected in the operating
statements and other information furnished by the borrower, except that
such expenses were generally modified by (a) if there was no management
fee or a below market management fee, assuming that a management fee was
payable with respect to the Mortgaged Property in an amount approximately
equal to between 0.0% and 6.09% of assumed gross revenues for the year,
(b) adjusting certain historical expense items upwards or downwards to
amounts that reflect industry norms for the particular type of property
and/or taking into consideration material changes in the operating
position of the related Mortgaged Property (such as newly signed leases
and market data) and (c) adjusting for non-recurring items (such as
capital expenditures), and tenant improvement and leasing commissions, if
applicable (in the case of certain retail, office and industrial Mortgaged
Properties, adjustments may have been made to account for
A-1
<PAGE>
tenant improvements and leasing commissions at costs consistent with
historical trends or prevailing market conditions and, in other cases,
operating expenses did not include such costs).
Underwriting Expenses generally include salaries and wages, the costs or
fees of utilities, repairs and maintenance, marketing, insurance,
management, landscaping, security (if provided at the Mortgaged Property)
and the amount of real estate taxes, general and administrative expenses,
ground lease payments, and other costs but without any deductions for debt
service, depreciation and amortization or capital expenditures therefor
(except as described above). In the case of certain retail, office and/or
industrial Mortgaged Properties, Underwriting Expenses may have included
leasing commissions and tenant improvements. In the case of hotel
Mortgaged Properties, Underwriting Expenses included such departmental
expenses as guest rooms, food and beverage, telephone, and rental and
other expenses, and such undistributed operating expenses as general and
administrative, marketing and franchise fee. In the case of health care
Mortgaged Properties, Underwriting Expenses included routine and ancillary
contractual expenses, nursing expenses, dietary expenses,
laundry/housekeeping, activities/social service expenses, equipment rental
expenses and other expenses.
The historical expenses with respect to any Mortgaged Property were
generally obtained (x) from operating statements relating to the latest
full calendar year (or, annualized or estimated in certain cases), (y) by
analyzing the amount of expenses for previous partial periods for which
operating statements were available, with certain adjustments for items
deemed inappropriate for annualization, and/or (z) by reviewing the
amounts of expenses for periods prior to the latest full calendar year,
where such information was available.
The management fees used in calculating Underwriting NOI differ in many
cases from the management fees provided for under the loan documents for the
Mortgage Loans. Further, actual conditions at the Mortgaged Properties will
differ, and may differ substantially, from the assumed conditions used in
calculating Underwriting NOI. In particular, the assumptions regarding tenant
vacancies, tenant improvements and leasing commissions, future rental rates,
future expenses and other conditions if and to the extent used in calculating
Underwriting NOI for a Mortgaged Property, may differ substantially from
actual conditions with respect to such Mortgaged Property. There can be no
assurance that the actual costs of reletting and capital improvements will
not exceed those estimated or assumed in connection with the origination or
purchase of the Mortgage Loans.
In some cases, "Underwriting NOI" or "U/W NOI" describes the cash flow
available before deductions for capital expenditures such as tenant
improvements, leasing commissions and structural reserves. No representation
is made as to the future net cash flow of the properties, nor is
"Underwriting NOI" or "U/W NOI" set forth herein intended to represent such
future net cash flow.
Underwriting NOI and the Underwriting Revenues and Underwriting Expenses
used to determine Underwriting NOI for each Mortgaged Property are derived
from information furnished by the respective borrowers. Net income for a
Mortgaged Property as determined under generally accepted accounting
principles ("GAAP") would not be the same as the stated Underwriting NOI for
such Mortgaged Property as set forth in the following schedule or tables. In
addition, Underwriting NOI is not a substitute for or comparable to operating
income as determined in accordance with GAAP as a measure of the results of a
property's operations or a substitute for cash flows from operating
activities determined in accordance with GAAP as a measure of liquidity.
2. "Underwriting Debt Service Coverage Ratio" or "U/W DSCR" as used herein
with respect to any Mortgage Loan means (a) the Underwriting NOI for the
related Mortgaged Property or Properties, divided by (b) the Annual Debt
Service for such Mortgage Loan.
3. "1995 NOI" means, with respect to any Mortgaged Property, the net
operating income derived therefrom for 1995 (equal to 1995 Revenues less 1995
Expenses), as established by information provided by the related borrower,
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. 1995 NOI does not necessarily reflect accrual of certain
costs such as capital expenditures and leasing commissions and
A-2
<PAGE>
does not reflect non-cash items such as depreciation or amortization. In some
cases, capital expenditures and non-recurring items may have been treated by
a borrower as an expense but were deducted from 1995 Expenses to reflect
normalized 1995 NOI. The Sponsor 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.
1995 NOI was not necessarily determined in accordance with GAAP. Moreover,
1995 NOI is not a substitute for net income determined in accordance with
GAAP as a measure of the results of a Mortgaged Property's operations or a
substitute for cash flows from operating activities determined in accordance
with GAAP a measure of liquidity and in certain cases may reflect
partial-year annualizations.
4. "1995 Revenues" are the gross revenues received in respect of a
Mortgaged Property for the year ended December 31, 1995 (or, annualized or
estimated in certain cases), as reflected in the operating statements and
other information furnished by the related borrower, and such revenues
generally include: (a) for the Multifamily Mortgaged Properties, gross rental
and other revenues; (b) for the retail, office and industrial Mortgaged
Properties, base rent, percentage rent, expense reimbursements and other
revenues; (c) for the health care Mortgaged Properties, resident charges,
Medicaid and Medicare payments and other revenues; and (d) for the hotel
Mortgaged Properties, guest room, food and beverage, telephone and other
revenues.
5. "1995 Expenses" are the operating expenses incurred for a Mortgaged
Property for the year ended December 31, 1995 (or, annualized or estimated in
certain cases), as reflected in the operating statements and other
information furnished by the related borrower, and such expenses generally
include salaries and wages, the costs or fees of utilities, repairs and
maintenance, marketing, insurance, management, landscaping, security (if
provided at the Mortgaged Property) and the amount of real estate taxes,
general and administrative expenses, ground lease payments, and other costs
(but without any deductions for debt service, depreciation and amortization
or capital expenditures or reserves therefor). In the case of certain retail,
office, and/or industrial Mortgaged Properties, 1995 Expenses may have
included leasing commissions and tenant improvements. In the case of hotel
Mortgaged Properties, 1995 Expenses included such departmental expenses as
guest room, food and beverage, telephone, and rental and other expenses, and
such undistributed operating expenses as marketing and franchise fees. In the
case of health care Mortgaged Properties, 1995 Expenses included routine and
ancillary contractual expenses, nursing expenses, dietary expenses,
laundry/housekeeping, activities/social service expenses, equipment rental
expenses and other expenses.
6. "1994 NOI" means, with respect to any Mortgaged Property, the net
operating income derived therefrom for 1994, equal to 1994 Revenues less 1994
Expenses and calculated in a manner consistent with 1995 NOI.
7. "1994 Expenses" are the actual expenses incurred for a Mortgaged
Property for the year ended December 31, 1994, calculated in a manner
consistent with 1995 Expenses.
8. "1994 Revenues" are the revenues for a Mortgaged Property for the year
ended December 31, 1994, calculated in a manner consistent with 1995
Revenues.
9. "Annual Debt Service" means, for any Mortgage Loan, twelve times the
amount of the Monthly Payment under such Mortgage Loan as of the Cut-off
Date.
10. "1995 Debt Service Coverage Ratio" or "1995 DSCR" means, with respect
to any Mortgage Loan, (a) the 1995 NOI for the related Mortgaged Property or
Properties, divided by (b) the Annual Debt Service for such Mortgage Loan.
11. "Appraisal Value" means, for any Mortgaged Property, the appraiser's
adjusted value as stated in the most recent third party appraisal available
to the Sponsor.
12. "Cut-off Date Loan-to-Value Ratio" or "Cut-off Date LTV Ratio" or
"LTV" means, with respect to any Mortgage Loan, the Cut-off Date Balance of
such Mortgage Loan divided by the Appraisal Value of the related Mortgaged
Property.
A-3
<PAGE>
13. "Leasable Square Footage", "Property Size (SF)" or "Net Rentable
Area" means, in the case of a Mortgaged Property operated as a retail center,
office complex or industrial facility, the square footage of the net leasable
area.
14. "Total Units/Rooms/Pads" means: (i) in the case of a Mortgaged
Property operated as multifamily housing, the number of apartments,
regardless of the size of or number of rooms in such apartment; (ii) in the
case of a Mortgaged Property operated as a hotel, the number of rooms; (iii)
in the case of a Mortgaged Property operated as a health care facility, the
number of dwelling units; and (iv) in the case of a Mortgaged Property
constituting a mobile home park, the number of pads.
15. "Occupancy %" means the percentage of Leasable Square Footage or Total
Units/Rooms/Pads, as the case may be, of the Mortgaged Property that was
occupied as of a specified date as specified by the borrower or as derived
from the Mortgaged Property's rent rolls, which generally are calculated by
physical presence or, alternatively, collected rents as a percentage of
potential rental revenues.
16 "Administrative Fee Rate" means the sum of the Master Servicing Fee
Rate (including the per annum rates at which the monthly sub-servicing fee is
payable to the related Sub-Servicer and the Standby Fee is payable to the
Special Servicer), plus the per annum rate applicable to the calculation of
the Trustee Fee.
17. "Related Loans" means two or more Mortgage Loans with respect to which
the related Mortgaged Properties are either owned by the same entity or owned
by two or more entities controlled by the same key principals.
18. "Anticipated Loan Balance at Maturity" means, with respect to any
Mortgage Loan, the balance due at maturity pursuant to the payment schedule
for such Mortgage Loan and assuming no prepayments, defaults or extensions.
19. "UPB" means, with respect to any Mortgage Loan, its unpaid principal
balance.
20. "YM" means, with respect to any Mortgage Loan, a yield maintenance
premium.
In the schedule and tables set forth in this Annex A, with respect to the
Mortgage Loan evidenced by one Mortgage Note, but secured by two Mortgaged
Properties, a portion of the principal balance of such Mortgage Loan has been
allocated based on appraised value to each related Mortgaged Property for
certain purposes, including determining the Cut-off Date Loan-to-Value Ratio,
the U/W DSCR and the 1995 Debt Service Coverage Ratio.
A-4
<PAGE>
PREPAYMENT LOCK-OUT/PREPAYMENT PREMIUM ANALYSIS
OUTSTANDING PRINCIPAL BALANCE ANALYSIS (1)
<TABLE>
<CAPTION>
DEC-1996 DEC-1997 DEC-1998 DEC-1999 DEC-2000
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1.00-1.99% .................. 0.00% 0.00% 0.00% 0.00% 0.71%
2.00-2.99% .................. 0.00% 0.00% 0.00% 0.00% 0.41%
3.00-3.99% .................. 0.00% 0.00% 0.00% 0.00% 0.00%
Greater of 1% of UPB or YM . 3.77% 3.77% 19.59% 58.76% 60.32%
Locked Out .................. 93.58% 93.59% 77.59% 38.48% 0.92%
Yield Maintenance ........... 2.65% 2.63% 2.82% 2.77% 37.64%
No Penalty .................. 0.00% 0.00% 0.00% 0.00% 0.00%
---------- ---------- ---------- ---------- ----------
Totals(2): 100.00% 100.00% 100.00% 100.00% 100.00%
========== ========== ========== ========== ==========
Aggregate Principal Balance
of the Mortgage Loans ($MM) $458.06 $453.00 $447.46 $441.40 $429.41
Percentage of the Cut-Off
Date Balance of the
Mortgage
Loans Outstanding .......... 100.00% 98.90% 97.69% 96.36% 93.75%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
DEC-2001 DEC-2002 DEC-2003 DEC-2004 DEC-2005 DEC-2006
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1.00-1.99% .................. 0.00% 13.73% 0.71% 0.00% 40.26% 0.00%
2.00-2.99% .................. 16.52% 0.00% 0.00% 49.35% 2.62% 27.46%
3.00-3.99% .................. 0.00% 0.00% 48.22% 2.59% 0.41% 0.00%
Greater of 1% of UPB or YM . 44.59% 44.87% 3.09% 0.52% 0.00% 0.00%
Locked Out .................. 0.37% 0.35% 0.00% 0.00% 0.00% 0.00%
Yield Maintenance ........... 37.67% 38.05% 46.22% 47.54% 40.67% 30.40%
No Penalty .................. 0.86% 3.00% 1.76% 0.00% 16.04% 42.14%
---------- ---------- ---------- ---------- ---------- ----------
Totals(2): 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
========== ========== ========== ========== ========== ==========
Aggregate Principal Balance
of the Mortgage Loans ($MM) $413.70 $402.66 $328.22 $312.75 $304.68 $ 3.09
Percentage of the Cut-Off
Date Balance of the
Mortgage
Loans Outstanding .......... 90.32% 87.91% 71.66% 68.28% 66.52% 0.67%
</TABLE>
- ------------
(1) Prepayment provisions in effect as a percentage of loans outstanding as
of the date indicated assuming no prepayments, defaults or extensions.
(2) The sum of the percentages in this table may not equal 100% due to
rounding.
PREPAYMENT LOCK-OUT/PREPAYMENT PREMIUM ANALYSIS
CUT-OFF DATE BALANCE ANALYSIS (1)
<TABLE>
<CAPTION>
DEC-1996 DEC-1997 DEC-1998 DEC-1999 DEC-2000
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1.00-1.99% .................. 0.00% 0.00% 0.00% 0.00% 0.66%
2.00-2.99% .................. 0.00% 0.00% 0.00% 0.00% 0.38%
3.00-3.99% .................. 0.00% 0.00% 0.00% 0.00% 0.00%
Greater of 1% of UPB or YM . 3.77% 3.73% 19.13% 56.62% 56.55%
Locked Out .................. 93.58% 92.56% 75.79% 37.08% 0.86%
Yield Maintenance ........... 2.65% 2.60% 2.76% 2.66% 35.28%
No Penalty .................. 0.00% 0.00% 0.00% 0.00% 0.00%
Paid Down (2) ............... 0.00% 1.10% 2.31% 3.64% 6.25%
---------- ---------- ---------- ---------- ----------
Totals(3): 100.00% 100.00% 100.00% 100.00% 100.00%
========== ========== ========== ========== ==========
Aggregate Principal Balance
of the Mortgage Loans ($MM) $458.06 $453.00 $447.46 $441.40 $429.41
% of the Cut-Off
Date Balance of the
Mortgage
Loans Outstanding .......... 100.00% 98.90% 97.69% 96.36% 93.75%
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
DEC-2001 DEC-2002 DEC-2003 DEC-2004 DEC-2005 DEC-2006
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1.00-1.99% .................. 0.00% 12.07% 0.51% 0.00% 26.78% 0.00%
2.00-2.99% .................. 14.92% 0.00% 0.00% 33.70% 1.74% 0.19%
3.00-3.99% .................. 0.00% 0.00% 34.55% 1.77% 0.27% 0.00%
Greater of 1% of UPB or YM . 40.28% 39.45% 2.21% 0.35% 0.00% 0.00%
Locked Out .................. 0.33% 0.31% 0.00% 0.00% 0.00% 0.00%
Yield Maintenance ........... 34.02% 33.45% 33.12% 32.46% 27.05% 0.20%
No Penalty .................. 0.78% 2.63% 1.26% 0.00% 10.67% 0.28%
Paid Down (2) ............... 9.68% 12.09% 28.34% 31.72% 33.48% 99.33%
---------- ---------- ---------- ---------- ---------- ----------
Totals(3): 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
========== ========== ========== ========== ========== ==========
Aggregate Principal Balance
of the Mortgage Loans ($MM) $413.70 $402.66 $328.22 $312.75 $304.68 $ 3.09
% of the Cut-Off
Date Balance of the
Mortgage
Loans Outstanding .......... 90.32% 87.91% 71.66% 68.28% 66.52% 0.67%
</TABLE>
- ------------
(1) Prepayment provisions in effect as a percentage of loans outstanding as
of the date indicated assuming no prepayments, defaults or extensions.
(2) Scheduled amortization and balloon payments only.
(3) The sum of the percentages in this table may not equal 100% due to
rounding.
A-5
<PAGE>
UNDERWRITING DEBT SERVICE COVERAGE RATIO
<TABLE>
<CAPTION>
RANGE OF NUMBER OF % OF NUMBER OF AGGREGATE
UNDERWRITING MORTGAGE MORTGAGE MORTGAGED CUT-OFF DATE
DSCR LOANS LOANS PROPERTIES BALANCE
- -------------- ----------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
1.00-1.09x .... 1 0.8% 1 $ 1,889,891
1.10-1.19x .... 2 1.5% 2 $ 5,937,274
1.20-1.29x .... 5 3.8% 5 $ 31,346,920
1.30-1.39x .... 42 32.3% 42 $207,432,527
1.40-1.49x .... 37 28.5% 38 $ 79,078,727
1.50-1.59x .... 17 13.1% 17 $ 29,930,745
1.60-1.69x .... 7 5.4% 7 $ 22,493,077
1.70-1.79x .... 5 3.8% 5 $ 27,859,782
1.80-1.89x .... 7 5.4% 7 $ 32,853,843
1.90-1.99x .... 2 1.5% 2 $ 5,010,818
2.00-2.99x .... 5 3.8% 5 $ 14,221,938
----------- ---------- ------------ --------------
Total ......... 130 100.0% 131 $458,055,542
=========== ========== ============ ==============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED WEIGHTED
RANGE OF INITIAL AVERAGE AVERAGE AVERAGE
UNDERWRITING POOL UNDERWRITING CUT-OFF DATE MORTGAGE
DSCR BALANCE DSCR LTV RATIO RATE
- -------------- --------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
1.00-1.09x .... 0.4% 1.05 75.6% 8.320%
1.10-1.19x .... 1.3% 1.13 70.0% 9.628%
1.20-1.29x .... 6.8% 1.27 73.0% 9.125%
1.30-1.39x .... 45.3% 1.34 73.4% 8.948%
1.40-1.49x .... 17.3% 1.45 71.9% 9.089%
1.50-1.59x .... 6.5% 1.54 63.7% 9.157%
1.60-1.69x .... 4.9% 1.63 64.6% 9.208%
1.70-1.79x .... 6.1% 1.75 63.5% 9.601%
1.80-1.89x .... 7.2% 1.86 58.8% 9.069%
1.90-1.99x .... 1.1% 1.93 47.3% 8.640%
2.00-2.99x .... 3.1% 2.23 58.4% 9.072%
--------- -------------- -------------- ----------
Total ......... 100.0% 1.47 69.6% 9.066%
========= ============== ============== ==========
</TABLE>
CUT-OFF DATE LOAN TO VALUE RATIO
<TABLE>
<CAPTION>
NUMBER OF % OF NUMBER OF AGGREGATE
RANGE OF MORTGAGE MORTGAGE MORTGAGED CUT-OFF DATE
CUT-OFF DATE LTV LOANS LOANS PROPERTIES BALANCE
- ---------------- ----------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
25% -- 49% ...... 6 4.6% 6 $ 13,638,169
50% -- 59% ...... 17 13.1% 17 $ 52,700,044
60% -- 69% ...... 38 29.2% 38 $103,465,741
70% -- 79% ...... 68 52.3% 69 $283,234,555
80% -- 90% ...... 1 0.8% 1 $ 5,017,033
----------- ---------- ------------ --------------
Total ........... 130 100.0% 131 $458,055,542
=========== ========== ============ ==============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED WEIGHTED
INITIAL AVERAGE AVERAGE AVERAGE
RANGE OF POOL UNDERWRITING CUT-OFF DATE MORTGAGE
CUT-OFF DATE LTV BALANCE DSCR LTV RATIO RATE
- ---------------- --------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
25% -- 49% ...... 3.0% 1.87 46.9% 8.786%
50% -- 59% ...... 11.5% 1.77 55.2% 9.181%
60% -- 69% ...... 22.6% 1.53 65.7% 9.233%
70% -- 79% ...... 61.8% 1.38 74.6% 9.005%
80% -- 90% ...... 1.1% 1.47 80.9% 8.620%
--------- -------------- -------------- ----------
Total ........... 100.0% 1.47 69.6% 9.066%
========= ============== ============== ==========
</TABLE>
<PAGE>
PROPERTY TYPE
<TABLE>
<CAPTION>
NUMBER OF % OF NUMBER OF AGGREGATE
MORTGAGE MORTGAGE MORTGAGED CUT-OFF DATE
PROPERTY TYPE LOANS LOANS PROPERTIES BALANCE
- --------------- ----------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
Retail ......... 53 40.8% 53 $195,239,346
Multifamily ... 57 43.8% 58 $179,073,661
Hotel .......... 4 3.1% 4 $ 23,989,532
Industrial .... 6 4.6% 6 $ 23,245,986
Health Care ... 5 3.8% 5 $ 22,383,083
Office ......... 3 2.3% 3 $ 10,430,361
Mobile Home ... 2 1.5% 2 $ 3,693,573
----------- ---------- ------------ --------------
Total .......... 130 100.0% 131 $458,055,542
=========== ========== ============ ==============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED WEIGHTED
INITIAL AVERAGE AVERAGE AVERAGE
POOL UNDERWRITING CUT-OFF DATE MORTGAGE
PROPERTY TYPE BALANCE DSCR LTV RATIO RATE
- --------------- --------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
Retail ......... 42.6% 1.38 69.3% 9.102%
Multifamily ... 39.1% 1.48 71.7% 8.832%
Hotel .......... 5.2% 1.75 56.6% 9.733%
Industrial .... 5.1% 1.57 71.5% 9.496%
Health Care ... 4.9% 1.81 68.9% 9.326%
Office ......... 2.3% 1.56 66.6% 9.314%
Mobile Home ... 0.8% 1.37 74.5% 9.146%
--------- -------------- -------------- ----------
Total .......... 100.0% 1.47 69.6% 9.066%
========= ============== ============== ==========
</TABLE>
A-6
<PAGE>
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
NUMBER OF % OF NUMBER OF AGGREGATE
MORTGAGE MORTGAGE MORTGAGED CUT-OFF DATE
STATES LOANS LOANS PROPERTIES BALANCE
- -------------- ----------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
Florida ....... 19 14.6% 19 $ 42,899,984
Nevada ........ 4 3.1% 4 $ 42,132,800
North Carolina 14 10.8% 14 $ 41,050,571
Virginia ...... 5 3.8% 5 $ 33,245,199
Georgia ...... 7 5.4% 7 $ 31,875,430
Tennessee ..... 9 6.9% 9 $ 29,880,908
California .... 4 3.1% 4 $ 29,720,877
Michigan ...... 5 3.8% 5 $ 25,596,376
Texas ......... 8 6.2% 8 $ 22,759,168
Ohio .......... 8 6.2% 9 $ 21,603,758
Maryland ..... 4 3.1% 4 $ 16,788,272
Louisiana ..... 4 3.1% 4 $ 15,056,913
Alabama ....... 3 2.3% 3 $ 13,632,641
Pennsylvania . 5 3.8% 5 $ 13,445,531
New Jersey .... 3 2.3% 3 $ 10,384,310
Mississippi .. 5 3.8% 5 $ 10,329,445
Massachusetts 3 2.3% 3 $ 8,898,224
Colorado ...... 2 1.5% 2 $ 8,883,944
Oklahoma ...... 4 3.1% 4 $ 8,685,166
Connecticut .. 3 2.3% 3 $ 8,025,597
New York ...... 4 3.1% 4 $ 5,964,276
Washington .... 1 0.8% 1 $ 4,380,094
Iowa .......... 1 0.8% 1 $ 3,269,294
Indiana ....... 1 0.8% 1 $ 2,977,108
Utah .......... 1 0.8% 1 $ 2,695,148
South Carolina 2 1.5% 2 $ 2,052,698
Delaware ...... 1 0.8% 1 $ 1,821,810
----------- ---------- ------------ --------------
Total ......... 130 100.0% 131 $458,055,542
=========== ========== ============ ==============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED WEIGHTED
INITIAL AVERAGE AVERAGE AVERAGE
POOL UNDERWRITING CUT-OFF DATE MORTGAGE
STATES BALANCE DSCR LTV RATIO RATE
- -------------- --------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
Florida ....... 9.4% 1.57 62.8% 9.112%
Nevada ........ 9.2% 1.46 73.8% 8.621%
North Carolina 9.0% 1.56 64.7% 9.236%
Virginia ...... 7.3% 1.38 70.3% 9.076%
Georgia ...... 7.0% 1.44 73.6% 8.912%
Tennessee ..... 6.5% 1.40 71.6% 8.967%
California .... 6.5% 1.28 73.8% 9.045%
Michigan ...... 5.6% 1.44 73.3% 9.823%
Texas ......... 5.0% 1.57 68.3% 8.894%
Ohio .......... 4.7% 1.63 67.5% 8.908%
Maryland ..... 3.7% 1.37 69.6% 9.289%
Louisiana ..... 3.3% 1.58 70.8% 8.513%
Alabama ....... 3.0% 1.37 72.1% 9.238%
Pennsylvania . 2.9% 1.37 73.8% 9.116%
New Jersey .... 2.3% 1.52 69.0% 9.396%
Mississippi .. 2.3% 1.50 69.1% 9.050%
Massachusetts 1.9% 1.48 66.1% 9.462%
Colorado ...... 1.9% 1.35 72.8% 9.378%
Oklahoma ...... 1.9% 2.26 55.9% 9.161%
Connecticut .. 1.8% 1.23 72.6% 9.231%
New York ...... 1.3% 1.43 77.1% 8.666%
Washington .... 1.0% 1.39 65.4% 9.170%
Iowa .......... 0.7% 1.39 74.1% 8.740%
Indiana ....... 0.6% 1.33 69.2% 8.750%
Utah .......... 0.6% 1.41 52.9% 9.000%
South Carolina 0.4% 1.53 52.7% 8.955%
Delaware ...... 0.4% 1.44 74.7% 9.070%
--------- -------------- -------------- ----------
Total ......... 100.0% 1.47 69.6% 9.066%
========= ============== ============== ==========
</TABLE>
<PAGE>
MORTGAGE RATE
<TABLE>
<CAPTION>
NUMBER OF % OF NUMBER OF AGGREGATE
RANGE OF MORTGAGE MORTGAGE MORTGAGED CUT-OFF DATE
MORTGAGE RATES LOANS LOANS PROPERTIES BALANCE
- -------------- ----------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
8.00%--8.49% . 11 8.5% 11 $ 38,401,584
8.50%--8.99% . 46 35.4% 46 $176,544,446
9.00%--9.49% . 50 38.5% 50 $162,873,318
9.50%--9.99% . 19 14.6% 20 $ 65,553,906
10.00%--10.49% 4 3.1% 4 $ 14,682,289
----------- ---------- ------------ --------------
Total ......... 130 100.0% 131 $458,055,542
=========== ========== ============ ==============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED WEIGHTED
INITIAL AVERAGE AVERAGE AVERAGE
RANGE OF POOL UNDERWRITING CUT-OFF DATE MORTGAGE
MORTGAGE RATES BALANCE DSCR LTV RATIO RATE
- -------------- --------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
8.00%--8.49% 8.4% 1.45 70.1% 8.277%
8.50%--8.99% 38.5% 1.45 71.7% 8.780%
9.00%--9.49% 35.6% 1.47 69.6% 9.204%
9.50%--9.99% 14.3% 1.55 63.9% 9.716%
10.00%--10.49% 3.2% 1.54 68.8% 10.131%
--------- -------------- -------------- ----------
Total ......... 100.0% 1.47 69.6% 9.066%
========= ============== ============== ==========
</TABLE>
A-7
<PAGE>
CUT-OFF DATE BALANCE
<TABLE>
<CAPTION>
RANGE OF NUMBER OF % OF NUMBER OF AGGREGATE
CUT-OFF DATE MORTGAGE MORTGAGE MORTGAGED CUT-OFF DATE
BALANCES ($000) LOANS LOANS PROPERTIES BALANCE
- ----------------- ----------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
$0 -- $999 5 3.8% 5 $ 4,076,085
$1,000 -- $2,499 61 46.9% 62 $102,594,552
$2,500 -- $4,999 37 28.5% 37 $128,168,568
$5,000 -- $7,499 17 13.1% 17 $102,373,721
$7,500 -- $9,999 6 4.6% 6 $ 52,694,492
$10,000 -- $14,999 1 0.8% 1 $ 10,397,716
$15,000 -- $22,679 3 2.3% 3 $ 57,750,409
----------- ---------- ------------ --------------
Total ............ 130 100.0% 131 $458,055,542
=========== ========== ============ ==============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED WEIGHTED
RANGE OF INITIAL AVERAGE AVERAGE AVERAGE
CUT-OFF DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
BALANCES ($000) BALANCE DSCR LTV RATIO RATE
- ----------------- --------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
$0 -- $999 0.9% 1.53 67.5% 9.306%
$1,000 -- $2,499 22.4% 1.50 67.6% 9.030%
$2,500 -- $4,999 28.0% 1.50 68.1% 9.014%
$5,000 -- $7,499 22.3% 1.56 69.7% 9.133%
$7,500 -- $9,999 11.5% 1.33 73.6% 9.172%
$10,000 -- $14,999 2.3% 1.77 53.6% 9.690%
$15,000 -- $22,679 12.6% 1.31 75.9% 8.899%
--------- -------------- -------------- ----------
Total ............ 100.0% 1.47 69.6% 9.066%
========= ============== ============== ==========
</TABLE>
YEAR OF ORIGINATION
<TABLE>
<CAPTION>
NUMBER OF % OF NUMBER OF AGGREGATE
YEAR OF MORTGAGE MORTGAGE MORTGAGED CUT-OFF DATE
ORIGINATION LOANS LOANS PROPERTIES BALANCE
- ------------- ----------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
1994 ......... 5 3.8% 5 $ 24,351,763
1995 ......... 2 1.5% 2 $ 3,769,083
1996 ......... 123 94.6% 124 $429,934,696
----------- ---------- ------------ --------------
Total ........ 130 100.0% 131 $458,055,542
=========== ========== ============ ==============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED WEIGHTED
INITIAL AVERAGE AVERAGE AVERAGE
YEAR OF POOL UNDERWRITING CUT-OFF DATE MORTGAGE
ORIGINATION BALANCE DSCR LTV RATIO RATE
- ------------- --------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
1994 ......... 5.3% 1.44 70.1% 9.506%
1995 ......... 0.8% 1.48 65.4% 9.767%
1996 ......... 93.9% 1.48 69.6% 9.035%
--------- -------------- -------------- ----------
Total ........ 100.0% 1.47 69.6% 9.066%
========= ============== ============== ==========
</TABLE>
<PAGE>
ORIGINAL TERM TO MATURITY
<TABLE>
<CAPTION>
RANGE OF
ORIGINAL NUMBER OF % OF NUMBER OF AGGREGATE
TERMS TO MORTGAGE MORTGAGE MORTGAGED CUT-OFF DATE
MATURITY LOANS LOANS PROPERTIES BALANCE
- ---------- ----------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
72 Mos ... 1 0.8% 1 $ 5,778,934
84 Mos ... 18 13.8% 18 $ 86,549,894
120 Mos .. 107 82.3% 108 $357,485,346
144 Mos .. 2 1.5% 2 $ 3,555,281
180 Mos .. 2 1.5% 2 $ 4,686,087
----------- ---------- ------------ --------------
Total ..... 130 100.0% 131 $458,055,542
=========== ========== ============ ==============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
RANGE OF % OF WEIGHTED WEIGHTED WEIGHTED
ORIGINAL INITIAL AVERAGE AVERAGE AVERAGE
TERMS TO POOL UNDERWRITING CUT-OFF DATE MORTGAGE
MATURITY BALANCE DSCR LTV RATIO RATE
- ---------- --------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
72 Mos ... 1.3% 1.22 75.0% 9.900%
84 Mos ... 18.9% 1.47 73.4% 9.071%
120 Mos .. 78.0% 1.48 68.7% 9.047%
144 Mos .. 0.8% 1.34 49.8% 9.730%
180 Mos .. 1.0% 1.11 74.4% 8.851%
--------- -------------- -------------- ----------
Total ..... 100.0% 1.47 69.6% 9.066%
========= ============== ============== ==========
</TABLE>
ORIGINAL AMORTIZATION TERM(1)
<TABLE>
<CAPTION>
RANGE OF
ORIGINAL NUMBER OF % OF NUMBER OF AGGREGATE
AMORTIZATION MORTGAGE MORTGAGE MORTGAGED CUT-OFF DATE
TERMS (MOS.) LOANS LOANS PROPERTIES BALANCE
- --------------- ----------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
less than 180 Mos 5 3.8% 5 $ 8,650,798
180 -- 239 Mos 3 2.3% 3 $ 6,878,527
240 -- 299 Mos 14 10.8% 14 $ 58,947,323
300 -- 360 Mos 108 83.1% 109 $383,578,894
----------- ---------- ------------ --------------
Total .......... 130 100.0% 131 $458,055,542
=========== ========== ============ ==============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
RANGE OF % OF WEIGHTED WEIGHTED WEIGHTED
ORIGINAL INITIAL AVERAGE AVERAGE AVERAGE
AMORTIZATION POOL UNDERWRITING CUT-OFF DATE MORTGAGE
TERMS (MOS.) BALANCE DSCR LTV RATIO RATE
- --------------- --------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
less than 180 Mos 1.9% 1.39 53.6% 9.163%
180 -- 239 Mos 1.5% 1.20 74.0% 8.741%
240 -- 299 Mos 12.9% 1.56 63.7% 9.495%
300 -- 360 Mos 83.7% 1.47 70.8% 9.004%
--------- -------------- -------------- ----------
Total .......... 100.0% 1.47 69.6% 9.066%
========= ============== ============== ==========
</TABLE>
- ------------
(1) For Mortgage Loans which accrue interest on the basis of actual days
and a 360-day year, the amortization term is the term in which the loan
would amortize if interest paid on the basis of a 30-day month and
360-day year. The actual amortization term would be longer.
A-8
<PAGE>
YEAR OF MORTGAGE MATURITY
<TABLE>
<CAPTION>
NUMBER OF % OF NUMBER OF AGGREGATE
YEAR OF MORTGAGE MORTGAGE MORTGAGED CUT-OFF DATE
MATURITY LOANS LOANS PROPERTIES BALANCE
- ---------- ----------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
2000 ...... 1 0.8% 1 $ 5,778,934
2001 ...... 2 1.5% 2 $ 9,507,701
2002 ...... 2 1.5% 2 $ 3,769,083
2003 ...... 14 10.8% 14 $ 73,273,110
2004 ...... 2 1.5% 2 $ 9,065,128
2006 ...... 105 80.8% 106 $348,420,219
2008 ...... 2 1.5% 2 $ 3,555,281
2011 ...... 2 1.5% 2 $ 4,686,087
----------- ---------- ------------ --------------
Total ..... 130 100.0% 131 $458,055,542
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
% OF WEIGHTED WEIGHTED WEIGHTED
INITIAL AVERAGE AVERAGE AVERAGE
YEAR OF POOL UNDERWRITING CUT-OFF DATE MORTGAGE
MATURITY BALANCE DSCR LTV RATIO RATE
- ---------- --------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
2000 ...... 1.3% 1.22 75.0% 9.900%
2001 ...... 2.1% 1.62 70.0% 10.167%
2002 ...... 0.8% 1.48 65.4% 9.767%
2003 ...... 16.0% 1.45 74.3% 8.893%
2004 ...... 2.0% 1.39 67.2% 8.561%
2006 ...... 76.1% 1.49 68.8% 9.060%
2008 ...... 0.8% 1.34 49.8% 9.730%
2011 ...... 1.0% 1.11 74.4% 8.851%
--------- -------------- -------------- ----------
Total ..... 100.0% 1.47 69.6% 9.066%
</TABLE>
REMAINING TERM TO MATURITY
<TABLE>
<CAPTION>
RANGE OF
REMAINING NUMBER OF % OF NUMBER OF AGGREGATE
TERMS TO MORTGAGE MORTGAGE MORTGAGED CUT-OFF DATE
MATURITY LOANS LOANS PROPERTIES BALANCE
- ------------- ----------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
40-- 59 Mos 3 2.3% 3 $ 15,286,635
60-- 83 Mos 16 12.3% 16 $ 77,042,193
84--119 Mos 103 79.2% 104 $345,060,346
120--180 Mos 8 6.2% 8 $ 20,666,368
----------- ---------- ------------ --------------
Total ........ 130 100.0% 131 $458,055,542
=========== ========== ============ ==============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
RANGE OF % OF WEIGHTED WEIGHTED WEIGHTED
REMAINING INITIAL AVERAGE AVERAGE AVERAGE
TERMS TO POOL UNDERWRITING CUT-OFF DATE MORTGAGE
MATURITY BALANCE DSCR LTV RATIO RATE
- ------------- --------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
40-- 59 Mos 3.3% 1.47 71.9% 10.066%
60-- 83 Mos 16.8% 1.45 73.8% 8.936%
84--119 Mos 75.3% 1.48 68.7% 9.061%
120--180 Mos 4.5% 1.36 68.3% 8.891%
--------- -------------- -------------- ----------
Total ........ 100.0% 1.47 69.6% 9.066%
========= ============== ============== ==========
</TABLE>
A-9
<PAGE>
ANNEX B
MORTGAGE CAPITAL FUNDING, INC.
GMAC COMMERCIAL MORTGAGE CORPORATION AS MASTER
SERVICER AND SPECIAL SERVICER
LA SALLE NATIONAL BANK AS TRUSTEE
MULTIFAMILY/COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-MC2
Statement Date:
Payment Date:
Prior Payment:
Record Date:
REPORTING PACKAGE CONTENTS
<TABLE>
<CAPTION>
NUMBER OF PAGE DESCRIPTION
-------------- -----------------------------------------------------------------
<S> <C> <C>
Table of Contents 1 Summary of Reports
REMIC Certificate Report 1 Payment information by Certificate Class
Other Related Information 2 Miscellaneous reporting items as per pooling agreement
Delinquency / Prepayment / Rate History 1 Rolling 15 months of summarized information
Report
Delinquency Detail Report 1 Detail listing of all loans not paid through the most recent
payment date
Mortgage Loan Stratification Report 1 Update of selected stratification tables for all outstanding
loans and loan groups
Loan Level Detail Listing 1 Current status of all loans assigned to the trust on the Closing
Date
Total pages included in this package 8
Appendix A -Special Servicing Summary 1 Current summary information regarding loans now specially
services
Appendix B -Special Servicing Detail 1 Current detail information regarding loans now specially serviced
Appendix C -Loan Modification Detail 1 Cumulative list of all loan modications executed since the
Closing Date
Appendix D -Realized Loss Detail 1 Cumulative list of all loans experiencing realized losses since
the Closing Date
</TABLE>
B-1
<PAGE>
MORTGAGE CAPITAL FUNDING, INC.
GMAC COMMERCIAL MORTGAGE CORPORATION AS MASTER
SERVICER AND SPECIAL SERVICER
LA SALLE NATIONAL BANK AS TRUSTEE
MULTIFAMILY/COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-MC2
Statement Date:
Payment Date:
Prior Payment:
Record Date:
<TABLE>
<CAPTION>
PASS-
ORIGINAL OPENING PRINCIPAL PRINCIPAL NEGATIVE CLOSING INTEREST INTEREST THROUGH
CLASS FACE VALUE BALANCE PAYMENT ADJ. OR LOSS AMORTIZATION BALANCE PAYMENT ADJUSTMENT RATE NEXT
CUSIP PER $1,000 PER $1,000 PER $1,000 PER $1,000 PER $1,000 PER $1,000 PER $1,000 PER $1,000 RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
- ----- ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ---------
Total P&I Payment
</TABLE>
B-2
<PAGE>
MORTGAGE CAPITAL FUNDING, INC.
GMAC COMMERCIAL MORTGAGE CORPORATION AS MASTER
SERVICER AND SPECIAL SERVICER
LA SALLE NATIONAL BANK AS TRUSTEE
MULTIFAMILY/COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-MC2
Statement Date:
Payment Date:
Prior Payment:
Record Date:
OTHER RELATED INFORMATION
Servicing Fees
Servicing Fees per $1,000
Special Servicing Fees per $1,000
Interest Shortfall
Aggregate Advance Reconciliation (Table)
B-3
<PAGE>
MORTGAGE CAPITAL FUNDING, INC.
GMAC COMMERCIAL MORTGAGE CORPORATION AS MASTER
SERVICER AND SPECIAL SERVICER
LA SALLE NATIONAL BANK AS TRUSTEE
MULTIFAMILY/COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-MC2
Statement Date:
Payment Date:
Prior Payment:
Record Date:
OTHER RELATED INFORMATION
ASER Loan and Aggregate Information
SER Information:
Controlling Class / Operating Advisor Information
Class Determination Balance, etc.
B-4
<PAGE>
MORTGAGE CAPITAL FUNDING, INC.
GMAC COMMERCIAL MORTGAGE CORPORATION AS MASTER
SERVICER AND SPECIAL SERVICER
LA SALLE NATIONAL BANK AS TRUSTEE
MULTIFAMILY/COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-MC2
DELINQUENCY/PREPAYMENT/RATE HISTORY REPORTING
Statement Date:
Payment Date:
Prior Payment:
Record Date:
<TABLE>
<CAPTION>
DELINQ 2 DELINQ 3+ FORECLOSURE/
DELINQ 1 MONTH MONTHS MONTHS BANKRUPTCY REO
DETERMINATION ------------------ ------------- ------------- ---------------- -------------
DATE # BALANCE # BALANCE # BALANCE # BALANCE # BALANCE
<S> <C> <C> <C> <C> <C>
- ----------------- ------------------ ------------- ------------- ---------------- -------------
- ----------------- ------------------ ------------- ------------- ---------------- -------------
- ----------------- ------------------ ------------- ------------- ---------------- -------------
- ----------------- ------------------ ------------- ------------- ---------------- -------------
- ----------------- ------------------ ------------- ------------- ---------------- -------------
- ----------------- ------------------ ------------- ------------- ---------------- -------------
- ----------------- ------------------ ------------- ------------- ---------------- -------------
- ----------------- ------------------ ------------- ------------- ---------------- -------------
- ----------------- ------------------ ------------- ------------- ---------------- -------------
- ----------------- ------------------ ------------- ------------- ---------------- -------------
- ----------------- ------------------ ------------- ------------- ---------------- -------------
- ----------------- ------------------ ------------- ------------- ---------------- -------------
- ----------------- ------------------ ------------- ------------- ---------------- -------------
- ----------------- ------------------ ------------- ------------- ---------------- -------------
- ----------------- ------------------ ------------- ------------- ---------------- -------------
- ----------------- ------------------ ------------- ------------- ---------------- -------------
- ----------------- ------------------ ------------- ------------- ---------------- -------------
- ----------------- ------------------ ------------- ------------- ---------------- -------------
- ----------------- ------------------ ------------- ------------- ---------------- -------------
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
MODIFICATIONS PREPAYMENTS NET WEIGHTED AVG.
- ----------------- ----------------- ----------------------------
# BALANCE # BALANCE COUPON REMIT
<S> <C> <C> <C>
- ----------------- ----------------- --------------- ----------
- ----------------- ----------------- --------------- ----------
- ----------------- ----------------- --------------- ----------
- ----------------- ----------------- --------------- ----------
- ----------------- ----------------- --------------- ----------
- ----------------- ----------------- --------------- ----------
- ----------------- ----------------- --------------- ----------
- ----------------- ----------------- --------------- ----------
- ----------------- ----------------- --------------- ----------
- ----------------- ----------------- --------------- ----------
- ----------------- ----------------- --------------- ----------
- ----------------- ----------------- --------------- ----------
- ----------------- ----------------- --------------- ----------
- ----------------- ----------------- --------------- ----------
- ----------------- ----------------- --------------- ----------
- ----------------- ----------------- --------------- ----------
- ----------------- ----------------- --------------- ----------
- ----------------- ----------------- --------------- ----------
</TABLE>
Note: Foreclosure and REO Totals are Included in the Appropriate Delinquency
Aging Category
B-5
<PAGE>
MORTGAGE CAPITAL FUNDING, INC.
GMAC COMMERCIAL MORTGAGE CORPORATION AS MASTER
SERVICER AND SPECIAL SERVICER
LA SALLE NATIONAL BANK AS TRUSTEE
MULTIFAMILY/COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-MC2
DELINQUENCY LOAN DETAIL
Statement Date:
Payment Date:
Prior Payment:
Record Date:
<TABLE>
<CAPTION>
OUTSTANDING
OFFERING CURRENT OUTSTANDING PROPERTY
CIRCULAR LOAN PAID THRU P&I P&I PROTECTION
CONTROL # GROUP PERIOD DATE ADVANCE ADVANCES* ADVANCES
=========== ======= ======== =========== ========= =========== ============
<S> <C> <C> <C> <C> <C> <C>
TOTALS: 0.00 0.00 0.00
=========================================== ========= =========== ============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SPECIAL
OFFERING ADVANCE LOAN SERVICER
CIRCULAR DESCRIPTION STATUS TRANSFER FORECLOSURE BANKRUPTCY REO
CONTROL # (1) (2) DATE DATE DATE DATE
=========== ============= ======== ========== ======== ============ ======
<S> <C> <C> <C> <C> <C> <C>
========================================================================================
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(1) Advance Description 0. P&I Advance -Late Payment but less than (2) Loan Status 1. Specially Serviced 6. DPO
one month delinquent
1. P&I Advance -Loan delinquent 1 month 2. Foreclosure 7. Foreclosure Sale
2. P&I Advance -Loan delinquent 2 months 3. Bankruptcy 8. Bankruptcy Sale
3. P&I Advance -Loan delinquent 3 months 4. REO 9. REO Disposition
or more
4. P&I Advance -Loan in Grace Period 5. Prepay in Full 10. Modification
/Workout
5. P&I Advance -Assumed Scheduled Payment
</TABLE>
* Outstanding P&I Advances Include the current period P&I Advance
B-6
<PAGE>
MORTGAGE CAPITAL FUNDING, INC.
GMAC COMMERCIAL MORTGAGE CORPORATION AS MASTER
SERVICER AND SPECIAL SERVICER
LA SALLE NATIONAL BANK AS TRUSTEE
MULTIFAMILY/COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-MC2
Statement Date:
Payment Date:
Prior Payment:
Record Date:
- -------------------------------------------------------------------------------
MORTGAGE LOAN STRATIFICATION REPORT
Updated Collateral Tables as they appear in Prospectus
- -------------------------------------------------------------------------------
B-7
<PAGE>
MORTGAGE CAPITAL FUNDING, INC.
GMAC COMMERCIAL MORTGAGE CORPORATION AS MASTER
SERVICER AND SPECIAL SERVICER
LA SALLE NATIONAL BANK AS TRUSTEE
MULTIFAMILY/COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-MC2
Statement Date:
Payment Date:
Prior Payment:
Record Date:
LOAN LEVEL DETAIL
<TABLE>
<CAPTION>
SPECIAL
OFFERING SERVICER BEGINNING SCHEDULED
CIRCULAR PROPERTY TRANSFER MATURITY NEG AM SCHEDULED NOTE PRINCIPAL
CONTROL # GRP ID TYPE DATE STATE DATE (Y/N) BALANCE RATE PAYMENT
============= ======= ============ ============ ========= ============ ======= ============= ======== =============
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
============= ======= ============ ============ ========= ============ ======= ============= ======== =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
OFFERING PAID
CIRCULAR PREPAYMENTS PREPAYMENT THROUGH PREPAYMENT LOAN
CONTROL # LIQUIDATIONS DATE DATE PREMIUM AMOUNT STATUS(*)
============= ================ ============== =========== ============== ===========
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(*) Legend 1) Specially Serviced 4) REO 7) Foreclosure Sale 10) Modification / Workout
2) Foreclosure 5) Prepay in Full 8) Bankruptcy Sale
3) Bankruptcy 6) DPO 9) REO Disposition
</TABLE>
B-8
<PAGE>
MORTGAGE CAPITAL FUNDING, INC.
GMAC COMMERCIAL MORTGAGE CORPORATION AS MASTER
SERVICER AND SPECIAL SERVICER
LA SALLE NATIONAL BANK AS TRUSTEE
MULTIFAMILY/COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-MC2
Statement Date:
Payment Date:
Prior Payment:
Record Date:
SPECIALLY SERVICED LOAN SUMMARY
<TABLE>
<CAPTION>
<S> <C>
Number of Loans as of the Closing Date 0
Principal Balance as of the Closing Date 0.00
Current Number of Loans 0
Current Outstanding Principal Balance 0.00
Current Number of Secially Serviced Loans 0
Current Outstanding Principal Balance of Specially Serviced Loans 0.00
Percent of Specially Serviced Loans (per Current Number of Loans) 0.0000%
Percent of Specially Serviced Loans (per Current Outstanding Principal 0.0000%
</TABLE>
Balance)
<TABLE>
<CAPTION>
CURRENT
PRINCIPAL
BALANCE CURRENT
AS A % PRINCIPAL
INITIAL CURRENT SPECIALLY BALANCE AS A %
NUMBER OF PRINCIPAL PRINCIPAL SERVICED OF TOTAL POOL
SPECIALLY SERVICED LOAN STATUS LOANS BALANCE BALANCE LOANS BALANCE
- ------------------------------------------------ ---------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
1) Request for waiver of Prepayment Penalty
2) Payment Default
3) Request for Loan Modification or Workout
4) Loans with Borrower Bankruptcy
5) Loans in Process of Foreclosure
6) Loans now REO Property
7) Loans Paid Off
8) Loans Returned to Master Servicer
- -------------------------------------------- ------------- --------------------- ------------- ------------------
Total 0.00 0.00 0.00
</TABLE>
B-9
<PAGE>
MORTGAGE CAPITAL FUNDING, INC.
GMAC COMMERCIAL MORTGAGE CORPORATION AS MASTER
SERVICER AND SPECIAL SERVICER
LA SALLE NATIONAL BANK AS TRUSTEE
MULTIFAMILY/COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-MC2
Statement Date:
Payment Date:
Prior Payment:
Record Date:
SPECIALLY SERVICED LOAN DETAIL
<TABLE>
<CAPTION>
SPECIAL
OFFERING SERVICER SCHED SCHED
CIRCULAR TRANSFER PRINCIPAL INTEREST MATURITY PROPERTY
CONTROL # DATE BALANCE RATE DATE TYPE STATE
- ------------- ------------ ------------- ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
- ------------- ------------ ------------- ------------ ------------ ------------ ---------
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
DEBT SERVICE SPECIALLY
NET OPERATING COVERAGE SERVICED
INCOME NOI DATE RATIO STATUS CODE*
- ------------- ------------ ------------ -------------
<S> <C> <C> <C>
- ------------- ------------- ------------ ------------
</TABLE>
*Legend: 1) Request for waiver of Prepayment Penalty
2) Payment Default
3) Request for Loan Modification or Workout
4) Loans with Borrower Bankruptcy
5) Loan in Process of Foreclosure
6) Loans now REO Property
7) Loan Paid Off
8) Loans Returned to Master Servicer
B-10
<PAGE>
MORTGAGE CAPITAL FUNDING, INC.
GMAC COMMERCIAL MORTGAGE CORPORATION AS MASTER
SERVICER AND SPECIAL SERVICER
LA SALLE NATIONAL BANK AS TRUSTEE
MULTIFAMILY/COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-MC2
Statement Date:
Payment Date:
Prior Payment:
Record Date:
MODIFIED LOAN DETAIL
<TABLE>
<CAPTION>
OFFERING
MODIFICATION CIRCULAR MODIFICATION MODIFICATION
DATE CONTROL # DATE DESCRIPTION
- ---------------- ------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
B-11
<PAGE>
MORTGAGE CAPITAL FUNDING, INC.
GMAC COMMERCIAL MORTGAGE CORPORATION AS MASTER
SERVICER AND SPECIAL SERVICER
LA SALLE NATIONAL BANK AS TRUSTEE
MULTIFAMILY/COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-MC2
Statement Date:
Payment Date:
Prior Payment:
Record Date:
REALIZED LOSS DETAIL
<TABLE>
<CAPTION>
APPRAISAL GROSS
OFFERING VALUE/ SCHED PROCEEDS AS A
DISTRIBUTION CIRCULAR APPRAISAL BROKERS PRINCIPAL GROSS % OF SCHED
DATE CONTROL # DATE ESTIMATE BALANCE PROCEEDS PRINCIPAL
- ------------------ ------------- ------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------ ------------- ------------- ------------- ------------- ------------ -------------
CURRENT TOTAL 0 0 0
CUMULATIVE 0 0 0
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NET PROCEEDS
AGGREGATE AS A % OF CURRENT
DISTRIBUTION LIQUIDATION NET LIQUIDATION SCHEDULED REALIZED
DATE EXPENSES* PROCEEDS BALANCE LOSS
- ------------------ --------------- --------------- ------------- ------------
<S> <C> <C> <C> <C>
- ------------------ --------------- --------------- ------------- ------------
CURRENT TOTAL 0
CUMULATIVE 0 0 0
0 0
</TABLE>
* Aggregate liquidation expenses also include outstanding P&I advances and
unpaid servicing fees, unpaid special servicing fees, unpaid trustee fees,
etc.
B-12
<PAGE>
PROSPECTUS
MORTGAGE CAPITAL FUNDING, INC.
(SPONSOR)
COMMERCIAL AND MULTIFAMILY
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
The mortgage pass-through certificates (the "Offered Certificates")
offered hereby and by the supplements hereto (each, a "Prospectus
Supplement") will be offered from time to time in series. The Offered
Certificates of each series, together with any other mortgage pass-through
certificates of such series, are collectively referred to herein as the
"Certificates".
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 primarily of a segregated pool (a "Mortgage
Asset Pool") of one or more of various types of multifamily or commercial
mortgage loans (the "Mortgage Loans"), mortgage-backed securities ("MBS")
that evidence interests in, or that are secured by pledges of, one or more of
various types of multifamily or commercial mortgage loans, or a combination
of Mortgage Loans and MBS (collectively, "Mortgage Assets"). If so specified
in the related Prospectus Supplement, the Trust Fund for a series of
Certificates may include letters of credit, insurance policies, guarantees,
reserve funds or other types of credit support, or any combination thereof
(with respect to any series, collectively, "Credit Support"), and currency or
interest rate exchange agreements and other financial assets, or any
combination thereof (with respect to any series, collectively, "Cash Flow
Agreements"). See "Description of the Trust Funds", "Description of the
Certificates" and "Description of Credit Support".
As described in the related Prospectus Supplement, the Certificates of
each series, including the Offered Certificates of such series, may consist
of one or more classes of Certificates that: (i) provide for the accrual of
interest thereon based on a fixed, variable or adjustable interest rate; (ii)
are senior or subordinate to one or more other classes of Certificates in
entitlement to certain distributions on the Certificates; (iii) are entitled
to distributions of principal, with disproportionately small, nominal or no
distributions of interest; (iv) are entitled to distributions of interest,
with disproportionately small, nominal or no distributions of principal; (v)
provide for distributions of interest thereon or principal thereof that
commence only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such series; (vi)
provide for distributions of principal thereof to be made, from time to time
or for designated periods, at a rate that is faster (and, in some cases,
substantially faster) or slower (and, in some cases, substantially slower)
than the rate at which payments or other collections of principal are
received on the Mortgage Assets in the related Trust Fund; or (vii) provide
for distributions of principal thereof to be made, subject to available
funds, based on a specified principal payment schedule or other methodology.
See "Description of the Certificates".
(cover continued on next page)
----------
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.
----------
The Offered Certificates of any series may be offered through one or more
different methods, including offerings through underwriters, as more fully
described under "Method of Distribution" and in the related Prospectus
Supplement.
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. See "Risk Factors".
This Prospectus may not be used to consummate sales of the Offered
Certificates of any series unless accompanied by the Prospectus Supplement
for such series.
----------
NOVEMBER 25, 1996
<PAGE>
(cover continued)
Distributions in respect of the Certificates of each series will be made
on a monthly, quarterly, semi-annual, annual or other periodic basis as
specified in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, such distributions will be made only from
the assets of the related Trust Fund. No series of Certificates will
represent an obligation of or interest in the Sponsor or any of its
affiliates, except to the limited extent described herein and in the related
Prospectus Supplement. Neither the Certificates of any series nor the assets
in any Trust Fund will be guaranteed or insured by any governmental agency or
instrumentality or by any other person, unless otherwise provided in the
related Prospectus Supplement. The assets in each Trust Fund will be held in
trust for the benefit of the holders of the related series of Certificates
(the "Certificateholders") pursuant to a Pooling 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 prepayments)
on the Mortgage Assets in the related Trust Fund and the timing of receipt of
such payments as described herein and in the related Prospectus Supplement.
See "Yield and Maturity Considerations". A Trust Fund may be subject to early
termination under the circumstances described herein and in the related
Prospectus Supplement. See "Description of the Certificates".
Prospective investors should review the information appearing under the
caption "Risk Factors" herein and such information as may be set forth under
the caption "Risk Factors" 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 a "real estate mortgage investment conduit" (a "REMIC") for federal income
tax purposes. See "Material Federal Income Tax Consequences" herein.
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement relating
to each series of Offered Certificates will, among other things, set forth,
as and to the extent appropriate: (i) a description of the class or classes
of such Offered Certificates, including the payment provisions with respect
to each such class, the aggregate principal amount of each such class (the
"Certificate Balance"), the rate at which interest accrues from time to time,
if at all, with respect to each such class (the "Pass-Through Rate") or the
method of determining such rate, and whether interest with respect to each
such class will accrue from time to time on its aggregate principal amount or
a specified notional amount, if at all; (ii) information with respect to any
other classes of Certificates of the same series; (iii) the respective dates
on which distributions are to be made; (iv) information as to the assets
constituting the related 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"); (v) the circumstances, if any, under which the
related Trust Fund may be subject to early termination; (vi) additional
information with respect to the method of distribution of such Offered
Certificates; (vii) the initial percentage ownership interest in the related
Trust Fund to be evidenced by each class of Certificates of such series;
(viii) information concerning the trustee (as to any series, the "Trustee")
of the related Trust Fund; (ix) if the related Trust Fund includes Mortgage
Loans, information concerning the master servicer (as to any series, the
"Master Servicer") and, if different than the Master Servicer, the special
servicer (as to any series, the "Special Servicer") of such Mortgage Loans
and the circumstances under which all or a portion, as specified, of the
servicing of a Mortgage Loan would transfer from the Master Servicer to the
Special Servicer; (x) whether one or more REMIC elections will be made, the
designation of the "regular interests" and "residual interests" in each REMIC
to be created and the identity of the person (the "REMIC Administrator")
responsible for the various tax-related administrative duties in respect of
each REMIC to be created; (xi) information as to the nature and extent of
subordination of any class of Certificates of such series, including a class
of Offered Certificates; and (xii) whether such Offered Certificates will be
initially issued in definitive or book-entry form.
AVAILABLE INFORMATION
The Sponsor 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 Offered Certificates contain summaries of the material
terms of the documents referred to herein and therein, but do not contain all
of the information
2
<PAGE>
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, 500 West Madison, 14th
Floor, Chicago, Illinois 60661; and New York Regional Office, Seven World
Trade Center, New York, New York 10048.
No person has been authorized to give any information or to make any
representation not contained in this Prospectus and any related Prospectus
Supplement and, if given or made, such information or representation must not
be relied upon. This Prospectus and any related Prospectus Supplement 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.
The related Master Servicer or Trustee will be required to mail to holders
of the Offered Certificates of each series periodic unaudited reports
concerning the related Trust Fund. If beneficial interests in a class or
series of Offered Certificates are being held and transferred in book-entry
format through the facilities of The Depository Trust Company ("DTC") as
described herein, then unless otherwise provided in the related Prospectus
Supplement, such reports will be sent on behalf of the related Trust Fund to
a nominee of DTC as the registered holder of the Offered Certificates.
Conveyance of notices and other communications by DTC to its participating
organizations, and directly or indirectly through such participating
organizations to the beneficial owners of the applicable Offered
Certificates, will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
See "Description of the Certificates -- Reports to Certificateholders" and
"--Book-Entry Registration and Definitive Certificates" and "Description of
the Pooling Agreements -- Evidence as to Compliance."
The Sponsor will file or cause to be filed with the Commission such
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. The Sponsor intends to
make a written request to the staff of the Commission that the staff either
(i) issue an order pursuant to Section 12(h) of the Exchange Act exempting
the Sponsor from certain reporting requirements under the Exchange Act with
respect to each Trust Fund or (ii) state that the staff will not recommend
that the Commission take enforcement action if the Sponsor fulfills its
reporting obligations as described in its written request. If such request is
granted, the Sponsor will file or cause to be filed with the Commission as to
each Trust Fund the periodic unaudited reports to holders of the Offered
Certificates referenced in the preceding paragraph; however, because of the
nature of the Trust Funds, it is unlikely that any significant additional
information will be filed. In addition, because of the limited number of
Certificateholders expected for each series, the Sponsor anticipates that a
significant portion of such reporting requirements will be permanently
suspended following the first fiscal year for the related Trust Fund.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Sponsor 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 an offering of Offered Certificates evidencing interests
therein. The Sponsor 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, upon written or oral
request of such person, 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 Sponsor should be directed in writing to its principal executive offices
specified herein under "Mortgage Capital Funding, Inc." The Sponsor has
determined that its financial statements will not be material to the offering
of any Offered Certificates.
3
<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 ................................ 6
RISK FACTORS ......................................... 14
Certain Factors Adversely Affecting Resale of the
Offered Certificates ................................ 14
Limited Assets for Payment of Certificates ......... 14
Prepayments; Average Life of Certificates; Yields . 15
Limited Nature of Credit Ratings .................... 16
Certain Risks Associated with Mortgage Loans
Secured by Commercial and Multifamily Properties . 16
Balloon Payments; Borrower Default .................. 17
Credit Support Limitations .......................... 18
Leases and Rents as Security for a Mortgage Loan .. 18
Environmental Risks ................................. 18
Special Hazard Losses ............................... 18
ERISA Considerations ................................ 19
Certain Federal Tax Considerations Regarding REMIC
Residual Certificates ............................... 19
Book-Entry Registration ............................. 19
Conflicts of Interest Involving Parties to a
Pooling Agreement .................................. 20
Delinquent and Non-Performing Mortgage Loans ...... 20
DESCRIPTION OF THE TRUST FUNDS ....................... 20
General ............................................. 20
Mortgage Loans ...................................... 20
General ............................................ 20
Default and Loss Considerations with Respect to
the Mortgage Loans .................................. 21
Payment Provisions of the Mortgage Loans .......... 22
Mortgage Loan Information in Prospectus
Supplements ....................................... 22
MBS ................................................. 23
Certificate Accounts ................................ 23
Credit Support ...................................... 24
Cash Flow Agreements ................................ 24
YIELD AND MATURITY CONSIDERATIONS .................... 24
General ............................................. 24
Pass-Through Rate ................................... 24
Payment Delays ...................................... 24
Certain Shortfalls in Collections of Interest ...... 24
Yield and Prepayment Considerations ................. 25
Weighted Average Life and Maturity .................. 26
Controlled Amortization Classes and Companion
Classes ............................................. 27
Other Factors Affecting Yield, Weighted Average
Life and Maturity ................................... 28
Balloon Payments; Extensions of Maturity .......... 28
Negative Amortization .............................. 28
Foreclosures and Payment Plans ..................... 28
<PAGE>
Losses and Shortfalls on the Mortgage Assets ...... 29
Additional Certificate Amortization ................ 29
Optional Early Termination ......................... 29
MORTGAGE CAPITAL FUNDING, INC. ....................... 29
USE OF PROCEEDS ...................................... 30
DESCRIPTION OF THE CERTIFICATES ...................... 30
General ............................................. 30
Distributions ....................................... 30
Distributions of Interest on the Certificates ...... 31
Distributions of Principal of the Certificates ..... 31
Distributions on the Certificates in Respect of
Prepayment Premiums or in Respect of Equity
Participations ...................................... 32
Allocation of Losses and Shortfalls ................. 32
Advances in Respect of Delinquencies ................ 32
Reports to Certificateholders ....................... 33
Voting Rights ....................................... 34
Termination ......................................... 34
Book-Entry Registration and Definitive Certificates 35
DESCRIPTION OF THE POOLING AGREEMENTS ................ 36
General ............................................. 36
Assignment of Mortgage Loans; Repurchases .......... 37
Representations and Warranties; Repurchases ........ 37
Collection and Other Servicing Procedures .......... 38
Sub-Servicers ....................................... 39
Certificate Account ................................. 39
General ............................................ 39
Deposits ........................................... 40
Withdrawals ........................................ 41
Escrow Accounts ..................................... 42
Modifications, Waivers and Amendments of Mortgage
Loans ............................................... 42
Realization Upon Defaulted Mortgage Loans .......... 42
Hazard Insurance Policies ........................... 44
Due-on-Sale and Due-on-Encumbrance Provisions ..... 45
Servicing Compensation and Payment of Expenses .... 45
Evidence as to Compliance ........................... 46
Certain Matters Regarding the Master Servicer, the
Special Servicer, the REMIC Administrator and the
Sponsor ............................................. 46
Events of Default ................................... 47
Rights Upon Event of Default ........................ 48
Amendment ........................................... 48
List of Certificateholders .......................... 49
The Trustee ......................................... 49
Duties of the Trustee ............................... 49
Certain Matters Regarding the Trustee ............... 49
Resignation and Removal of the Trustee .............. 50
DESCRIPTION OF CREDIT SUPPORT ........................ 50
General ............................................. 50
Subordinate Certificates ............................ 50
Cross-Support Provisions ............................ 51
4
<PAGE>
PAGE
--------
Insurance or Guarantees with Respect to Mortgage
Loans ............................................... 51
Letter of Credit .................................... 51
Certificate Insurance and Surety Bonds .............. 51
Reserve Funds ....................................... 51
Credit Support with Respect to MBS .................. 52
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS .............. 52
General ............................................. 52
Types of Mortgage Instruments ....................... 52
Leases and Rents .................................... 53
Personalty .......................................... 53
Foreclosure ......................................... 53
General ............................................ 53
Judicial Foreclosure ............................... 54
Equitable Limitations on Enforceability of
Certain Provision ................................. 54
Non-Judicial Foreclosure/Power of Sale ............. 54
Public Sale ........................................ 54
Rights of Redemption ............................... 55
Anti-Deficiency Legislation ........................ 55
Leasehold Risks .................................... 56
Bankruptcy Laws ..................................... 56
Environmental Risks ................................. 57
General ............................................ 57
Superlien Laws ..................................... 57
CERCLA ............................................. 57
Certain Other Federal and State Laws ............... 58
Additional Considerations .......................... 58
Environmental Site Assessments ..................... 58
Due-on-Sale and Due-on-Encumbrance .................. 58
Subordinate Financing ............................... 58
Default Interest and Limitations on Prepayments ... 59
Applicability of Usury Laws ......................... 59
Soldiers' and Sailors' Civil Relief Act of 1940 .... 59
Americans with Disabilities Act ..................... 60
Forfeitures in Drug and RICO Proceedings ............ 60
MATERIAL FEDERAL INCOME TAX CONSEQUENCES ............. 61
General ............................................. 61
REMICs .............................................. 61
Classification of REMICs ........................... 61
Characterization of Investments in REMIC
Certificates ...................................... 62
Tiered REMIC Structures ............................ 62
Taxation of Owners of REMIC Regular Certificates .. 62
General ............................................ 62
Original Issue Discount ............................ 62
Market Discount .................................... 64
Premium ............................................ 66
<PAGE>
Realized Losses .................................... 66
Taxation of Owners of REMIC Residual Certificates ... 66
General ............................................ 66
Taxable Income of the REMIC ........................ 67
Basis Rules, Net Losses and Distributions ......... 68
Excess Inclusions .................................. 69
Noneconomic REMIC Residual Certificates ............ 69
Mark-to-Market Rules ............................... 70
Possible Pass-Through of Miscellaneous Itemized
Deductions .......................................... 70
Sales of REMIC Certificates ........................ 71
Prohibited Transactions Tax and Other Taxes ....... 72
Tax and Restrictions on Transfers of REMIC
Residual Certificates to Certain Organizations . 72
Termination ........................................ 73
Reporting and Other Administrative Matters ........ 73
Backup Withholding with Respect to REMIC
Certificates ...................................... 74
Foreign Investors in REMIC Certificates ............ 74
Grantor Trust Funds ................................. 75
Classification of Grantor Trust Funds .............. 75
Characterization of Investments in Grantor Trust
Certificates ........................................ 75
Grantor Trust Fractional Interest Certificates .... 75
Stripped Interest Certificates ..................... 75
Taxation of Owners of Grantor Trust Fractional
Interest Certificates ............................... 76
General ............................................ 76
If Stripped Bond Rules Apply ....................... 76
If Stripped Bond Rules Do Not Apply ................ 78
Market Discount .................................... 79
Premium ............................................ 80
Taxation of Owners of Stripped Interest
Certificates ...................................... 80
Possible Application of Contingent Payment Rules 81
Sales of Grantor Trust Certificates ................ 82
Grantor Trust Reporting ............................ 82
Backup Withholding ................................. 83
Foreign Investors .................................. 83
STATE AND OTHER TAX CONSEQUENCES ..................... 84
ERISA CONSIDERATIONS ................................. 84
General ............................................. 84
Plan Asset Regulations .............................. 84
LEGAL INVESTMENT ..................................... 85
METHOD OF DISTRIBUTION ............................... 86
FINANCIAL INFORMATION ................................ 87
RATING ............................................... 87
INDEX OF PRINCIPAL DEFINITIONS ....................... 88
</TABLE>
5
<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 Offered Certificates of such
series. An Index of Principal Definitions is included at the end of this
Prospectus.
Title of Certificates .. Commercial and Multifamily Mortgage
Pass-Through Certificates, issuable in
series (the "Certificates").
Sponsor ................ Mortgage Capital Funding, Inc., a
wholly-owned subsidiary of Citicorp
Banking Corporation, which in turn is a
wholly-owned subsidiary of Citicorp. See
"Mortgage Capital Funding, Inc."
Master Servicer ........ The master servicer (the "Master Servicer"),
if any, for a series of Certificates will
be named in the related Prospectus
Supplement. Any Master Servicer may be an
affiliate of the Sponsor. See "Description
of the Pooling Agreements--Collection and
Other Servicing Procedures".
Special Servicer ....... The special servicer (the "Special
Servicer"), if any, for a series of
Certificates will be named in the related
Prospectus Supplement. Any Special
Servicer may be an affiliate of the
Sponsor and/or may also be acting as
Master Servicer. See "Description of the
Pooling Agreements--Collection and Other
Servicing Procedures".
Trustee ................ The trustee (the "Trustee") for each series
of Certificates will be named in the
related Prospectus Supplement. See
"Description of the Pooling
Agreements--The Trustee".
REMIC Administrator .... The person (the "REMIC Administrator")
responsible for the various tax-related
administrative duties for a series of
Certificates as to which one or more REMIC
elections have been made, will be named in
the related Prospectus Supplement. Any
REMIC Administrator may be an affiliate of
the Sponsor and/or may also be acting as
Master Servicer, Special Servicer or
Trustee. See "Material Federal Income Tax
Consequences--REMICs--Reporting and Other
Administrative Matters".
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, in general,
consist of a pool of mortgage loans
(collectively, the "Mortgage Loans")
secured by liens on, or security interests
in, without limitation, (i) residential
properties consisting of five or more
rental or cooperatively-owned dwelling
units (the "Multifamily Properties") or
(ii) office buildings, shopping centers,
retail stores, hotels or motels, nursing
homes, hospitals or other health-care
related facilities, mobile home parks,
warehouse facilities, mini-warehouse
facilities or self-storage facilities,
industrial plants, mixed use or various
other types of income-producing properties
or unimproved land (the "Commercial
Properties"). If so specified in the
related Prospectus Supplement, a Trust
Fund may include Mortgage Loans secured by
liens on real estate projects under
construction. The Mortgage Loans will not
be guaranteed or insured by the Sponsor or
any of its affiliates or, unless otherwise
provided in the related Prospectus Supple-
6
<PAGE>
ment, by any governmental agency or
instrumentality or by any other person. If
so specified in the related Prospectus
Supplement, some Mortgage Loans may be
delinquent or non-performing as of the
date the related Trust Fund is formed.
As and to the extent described in the
related Prospectus Supplement, a Mortgage
Loan (i) may provide 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 at the borrower's
election from an adjustable to a fixed
Mortgage Rate, or from a fixed to an
adjustable Mortgage Rate, and in some
cases back again, (ii) may provide for
level payments to maturity or for payments
that adjust from time to time to
accommodate changes in the Mortgage Rate
or to reflect the occurrence of certain
events, and may permit negative
amortization, (iii) may be fully
amortizing over its term to maturity or
may require a balloon payment on its
stated maturity date, (iv) may provide for
no amortization prior to its stated
maturity date, (v) may contain a
prohibition on prepayment or require
payment of a premium or a yield
maintenance penalty in connection with a
prepayment and (vi) may provide for
payments of principal, interest or both,
on due dates that occur monthly,
quarterly, semi-annually, annually or at
such other interval as is specified in the
related Prospectus Supplement. Unless
otherwise provided in the related
Prospectus Supplement, each Mortgage Loan
will have had an original term to maturity
of not more than 40 years. Unless
otherwise provided in the related
Prospectus Supplement, no Mortgage Loan
will have been originated by the Sponsor;
however, some or all of the Mortgage Loans
in any Trust Fund may have been originated
by an affiliate of the Sponsor. See
"Description of the Trust Funds--Mortgage
Loans".
If and to the extent specified in the
related Prospectus Supplement, the
Mortgage Assets with respect to a series
of Certificates may also include, or
consist of, (i) private mortgage
participations, mortgage pass-through
certificates or other mortgage-backed
securities or (ii) certificates insured or
guaranteed by the Federal Home Loan
Mortgage Corporation ("FHLMC"), the
Federal National Mortgage Association
("FNMA"), the Governmental National
Mortgage Association ("GNMA") or the
Federal Agricultural Mortgage Corporation
("FAMC") (collectively, the
mortgage-backed securities referred to in
clauses (i) and (ii), "MBS"), provided
that each MBS will evidence an interest
in, or will be secured by a pledge of, one
or more mortgage loans that conform to the
descriptions of the Mortgage Loans
contained herein. See "Description of the
Trust Funds--MBS".
Each Mortgage Asset will be selected by the
Sponsor 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
Sponsor.
B. Certificate Account. Each Trust Fund will include one or more
accounts (collectively, the "Certificate
Account") established and maintained on
behalf of the Certificateholders into
which the person or persons designated in
the related
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<PAGE>
Prospectus Supplement will, to
the extent provided in the related Pooling
Agreement (as defined below) and described
herein and in the related
Prospectus Supplement, deposit all
payments and other collections received or
advanced with respect to the Mortgage
Assets and other assets in such Trust
Fund. A Certificate Account may be
maintained as an interest bearing or a
non-interest bearing account, and funds
held therein may be held as cash or
invested in certain obligations acceptable
to each Rating Agency (as defined below)
rating one or more classes of the related
series of Offered Certificates. See
"Description of the Trust
Funds--Certificate Accounts" and
"Description of the Pooling
Agreements--Certificate Account".
C. Credit Support .... If so provided in the related Prospectus
Supplement, partial or full protection
against certain defaults and losses on the
Mortgage Assets in the related Trust Fund
may be provided to one or more classes of
Certificates of the related series in the
form of subordination of one or more other
classes of Certificates of such series,
which other classes may include one or
more classes of Offered Certificates, or
by one or more other types of credit
support, such as a letter of credit,
insurance policy, guarantee, reserve fund
or another type of credit support, or a
combination thereof (any such coverage
with respect to the Certificates of any
series, "Credit Support"). If so specified
in the related Prospectus Supplement, any
form of Credit Support may offer
protection only against specific types of
losses and shortfalls. The amount and
types of any Credit Support, the coverage
afforded by it, the identification of the
entity providing it (if applicable) and
related information will be set forth in
the Prospectus Supplement for a series of
Offered Certificates. See "Risk
Factors--Credit Support Limitations",
"Description of the Trust Funds--Credit
Support" and "Description of Credit
Support".
D. Cash Flow
Agreements ........ If so provided in the related Prospectus
Supplement, a 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 designed
to reduce the effects of interest rate or
currency exchange rate fluctuations on the
Mortgage Assets or 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 contain certain
information that pertains to the obligor
under any such Cash Flow Agreement. See
"Description of the Trust Funds--Cash Flow
Agreements".
<PAGE>
Description of
Certificates ......... Each series of Certificates will be issued
in one or more classes pursuant to a
pooling and servicing agreement or other
agreement specified in the related
Prospectus Supplement (in either case, a
"Pooling Agreement") and will represent in
the aggregate the entire beneficial
ownership interest in the related Trust
Fund. As described in the related
Prospectus Supplement, the Certificates of
each series, including the Offered
Certificates of such series, may consist
of one or more classes of Certificates
that: (i) are senior (collectively,
"Senior Certificates") or subordinate
(collectively,
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<PAGE>
"Subordinate Certificates") to one or more
other classes of Certificates in
entitlement to certain distributions on
the Certificates; (ii) are entitled to
distributions of principal, with
disproportionately small, nominal or no
distributions of interest (collectively,
"Stripped Principal Certificates"); (iii)
are entitled to distributions of interest,
with disproportionately small, nominal or
no distributions of principal
(collectively, "Stripped Interest
Certificates"); (iv) provide for
distributions of interest thereon or
principal thereof that commence only after
the occurrence of certain events, such as
the retirement of one or more other
classes of Certificates of such series;
(v) provide for distributions of principal
thereof to be made, from time to time or
for designated periods, at a rate that is
faster (and, in some cases, substantially
faster) or slower (and, in some cases,
substantially slower) than the rate at
which payments or other collections of
principal are received on the Mortgage
Assets in the related Trust Fund; or (vi)
provide for distributions of principal
thereof to be made, subject to available
funds, based on a specified principal
payment schedule or other method.
Each class of Certificates, other than
certain classes of Stripped Interest
Certificates and certain classes of REMIC
Residual Certificates (as defined below),
will have a stated principal amount (a
"Certificate Balance"); and each class of
Certificates, other than certain classes
of Stripped Principal Certificates and
certain REMIC Residual Certificates, will
accrue interest at a fixed, variable or
adjustable interest rate (a "Pass-Through
Rate") on its Certificate Balance or, in
the case of certain classes of Stripped
Interest Certificates, on a hypothetical
or notional amount (a "Notional Amount")
used solely for such purpose and not
evidencing a right to receive
distributions of principal. The related
Prospectus Supplement will specify the
Certificate Balance, Notional Amount
and/or Pass-Through Rate (or, in the case
of a variable or adjustable Pass-Through
Rate, the method for determining such), as
applicable, for each class of Offered
Certificates.
The Certificates will not be guaranteed or
insured by the Sponsor or any of its
affiliates, by any governmental agency or
instrumentality or by any other person,
unless otherwise provided in the related
Prospectus Supplement. See "Risk
Factors--Limited Assets for Payment of
Certificates" and "Description of the
Certificates".
<PAGE>
Distributions of
Interest on the
Certificates......... Interest on each class of Offered
Certificates (other than certain classes
of Stripped Principal Certificates and
certain classes of REMIC Residual
Certificates) of each series will accrue
at the applicable Pass-Through Rate on the
Certificate Balance or, in the case of
certain classes of Stripped Interest
Certificates, the Notional Amount thereof
outstanding from time to time 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 of
interest with respect to one or more
classes of Certificates (collectively,
"Accrual Certificates") may not commence
until the occurrence of certain events,
such as the retirement of one or more
other classes of Certificates, and
interest accrued with respect to a class
of Accrual Certificates prior to the
occurrence of such an event will either be
added to the Certificate Balance thereof
or otherwise deferred. Distributions of
interest with respect to one or more
classes of Certificates may be reduced to
the extent of certain delinquencies,
losses and other contingencies described
herein
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<PAGE>
and in the related Prospectus Supplement.
See "Risk Factors--Prepayments; Average
Life of Certificates; Yields", "Yield and
Maturity Considerations", and "Description
of the Certificates--Distributions of
Interest on the Certificates".
Distributions of
Principal of the
Certificates .......... Each class of Certificates of each series
(other than certain classes of Stripped
Interest Certificates and certain classes
of REMIC Residual Certificates) will have
a Certificate Balance. The Certificate
Balance of a class of Certificates
outstanding from time to time will
represent the maximum amount that the
holders thereof are then entitled to
receive in respect of principal from
future cash flow on the assets in the
related Trust Fund. Unless otherwise
specified in the related Prospectus
Supplement, the initial aggregate
Certificate Balance of all classes of a
series of Certificates will not be greater
than the outstanding principal balance of
the related Mortgage Assets as of a
specified date (the "Cut-off Date"), after
application of scheduled payments due on
or before such date, whether or not
received. As and to the extent described
in the related Prospectus Supplement,
distributions of principal with respect to
each series of Certificates will be made
on each Distribution Date to the holders
of the class or classes of Certificates of
such series entitled thereto until the
Certificate Balances of such Certificates
have been reduced to zero. Distributions
of principal with respect to one or more
classes of Certificates may be made at a
rate that is faster (and, in some cases,
substantially faster) than the rate at
which payments or other collections of
principal are received on the Mortgage
Assets in the related Trust Fund.
Distributions of principal with respect to
one or more classes of Certificates may
not commence until the occurrence of
certain events, such as the retirement of
one or more other classes of Certificates
of the same series, or may be made at a
rate that is slower (and, in some cases,
substantially slower) than the rate at
which payments or other collections of
principal are received on the Mortgage
Assets in the related Trust Fund.
Distributions of principal with respect to
one or more classes of Certificates (each
such class, a "Controlled Amortization
Class") may be made, subject to available
funds, based on a specified principal
payment schedule. Distributions of
principal with respect to one or more
classes of Certificates (each such class,
a "Companion Class") may be contingent on
the specified principal payment schedule
for a Controlled Amortization Class of the
same series and the rate at which payments
and other collections of principal on the
Mortgage Assets in the related Trust Fund
are received. Unless otherwise specified
in the related Prospectus Supplement,
distributions of principal of any class of
Certificates will be made on a pro rata
basis among all of the Certificates of
such class. See "Description of the
Certificates--Distributions of Principal
of the Certificates".
<PAGE>
Advances ............... If and to the extent provided in the related
Prospectus Supplement, if a Trust Fund
includes Mortgage Loans, the Master
Servicer, the Special Servicer, the
Trustee, any provider of Credit Support
and/or any other specified person may be
obligated to make, or have the option of
making, certain advances with respect to
delinquent scheduled payments of principal
and/or interest on such Mortgage Loans.
Any such advances made with respect to a
particular Mortgage Loan will be
reimbursable from subsequent recoveries in
respect of such Mortgage Loan and
otherwise to the
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<PAGE>
extent described herein and in the related
Prospectus Supplement. If and to the
extent provided in the Prospectus
Supplement for a series of Certificates,
any entity making such advances may be
entitled to receive interest thereon for
the period that such advances are
outstanding, payable from amounts in the
related Trust Fund. See "Description of
the Certificates--Advances in Respect of
Delinquencies". If a Trust Fund includes
MBS, any comparable advancing obligation
of a party to the related Pooling
Agreement, or of a party to the related
MBS Agreement, will be described in the
related Prospectus Supplement.
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 Mortgage
Assets in the related Trust Fund by the
party or parties specified therein, under
the circumstances and in the manner set
forth therein. If so provided in the
related Prospectus Supplement, upon the
reduction of the Certificate Balance of a
specified class or classes of Certificates
by a specified percentage or amount, a
party specified therein may be authorized
or required to solicit bids for the
purchase of all of the Mortgage Assets of
the related Trust Fund, or of a sufficient
portion of such Mortgage Assets to retire
such class or classes, under the
circumstances and in the manner set forth
therein. See "Description of the
Certificates--Termination".
Registration of
Book-Entry
Certificates .......... If so provided in the related Prospectus
Supplement, one or more classes of the
Offered Certificates of any series will be
offered in book-entry format
(collectively, "Book-Entry Certificates")
through the facilities of The Depository
Trust Company ("DTC"). Each class of
Book-Entry Certificates will be initially
represented by one or more Certificates
registered in the name of a nominee of
DTC. No person acquiring an interest in a
class of Book-Entry Certificates (a
"Certificate Owner") will be entitled to
receive a Certificate of such class in
fully registered, definitive form (a
"Definitive Certificate"), except under
the limited circumstances described
herein. See "Risk Factors--Book-Entry
Registration" and "Description of the
Certificates--Book-Entry Registration and
Definitive Certificates".
Tax Status of the
Certificates ........... The Certificates of each series will
constitute either (i) "regular interests"
("REMIC Regular Certificates") and
"residual interests" ("REMIC Residual
Certificates") in a Trust Fund, or a
designated portion thereof, treated as a
real estate mortgage investment conduit (a
"REMIC") under Sections 860A through 860G
of the Internal Revenue Code of 1986 (the
"Code"), or (ii) interests ("Grantor Trust
Certificates") in a Trust Fund treated as
a grantor trust under applicable
provisions of the Code.
<PAGE>
A. REMIC ............. REMIC Regular Certificates generally will be
treated as debt obligations of the
applicable REMIC for federal income tax
purposes. In general, to the extent the
assets and income of the REMIC are treated
as qualifying assets and income under the
following sections of the Code, REMIC
Regular Certificates owned by a thrift
institution will be treated as "qualifying
real property loans" within the meaning of
Section 593(d) of the Code, and REMIC
Regular Certificates owned by a real
estate investment trust will be treated as
"real estate assets" for purposes of
Section 856(c)(5)(A) of the Code and
interest income therefrom will be treated
as "interest on
11
<PAGE>
obligations secured by mortgages on real
property" for purposes of Section
856(c)(3)(B) of the Code. In addition,
REMIC Regular Certificates will be
"qualified mortgages" within the meaning
of Section 860G(a)(3) of the Code.
Moreover, if 95% or more of the assets and
the income of the REMIC qualify for any of
the foregoing treatments, the REMIC
Regular Certificates will qualify for the
foregoing treatments in their entirety.
However, REMIC Regular Certificates owned
by a thrift institution will constitute
"loans . . . secured by an interest in
real property" for purposes of Section
7701(a)(19)(C)(v) of the Code only if so
specified in the related Prospectus
Supplement. Holders of REMIC Regular
Certificates must report income with
respect thereto on the accrual method,
regardless of their method of tax
accounting generally. Holders of any class
of REMIC Regular Certificates issued with
original issue discount generally will be
required to include the original issue
discount in income as it accrues, which
will be determined using an initial
prepayment assumption and taking into
account, from time to time, actual
prepayments occurring at a rate different
than the prepayment assumption. See
"Material Federal Income Tax
Consequences--REMICs--Taxation of Owners
of REMIC Regular Certificates" and
"--REMICs--Foreign Investors in REMIC
Certificates".
REMIC Residual Certificates generally will
be treated as representing an interest in
qualifying assets and income to the same
extent described above for institutions
subject to Sections 593(d), 856(c)(5)(a)
and 856(c)(3)(B) of the Code, but not for
purposes of Section 7701(a)(19)(C)(v) of
the Code unless otherwise stated in the
related Prospectus Supplement. A portion
(or, in certain cases, all) of the income
from REMIC Residual Certificates (i) may
not be offset by any losses from other
activities of the holder of such REMIC
Residual Certificates (except generally
with respect to thrift institutions
described in Section 593 of the Code, if
such REMIC Residual Certificate has
"significant value"), (ii) may be treated
as unrelated business taxable income for
holders of REMIC Residual Certificates
that are subject to tax on unrelated
business taxable income (as defined in
Section 511 of the Code), and (iii) may be
subject to foreign withholding rules. In
addition, transfers of certain REMIC
Residual Certificates may be prohibited,
or may be disregarded under some
circumstances for federal income tax
purposes. See "Material Federal Income Tax
Consequences--REMICs--Taxation of Owners
of REMIC Residual Certificates" and
"--REMICs--Foreign Investors in REMIC
Certificates".
<PAGE>
B. Grantor Trust ..... Unless otherwise provided in the related
Prospectus Supplement, Grantor Trust
Certificates may be either (i)
Certificates that have a Certificate
Balance and a Pass-Through Rate or that
are Stripped Principal Certificates
(collectively, "Grantor Trust Fractional
Interest Certificates") or (ii) Stripped
Interest Certificates.
Owners of Grantor Trust Fractional Interest
Certificates will be treated for federal
income tax purposes as owners of an
undivided pro rata interest in the assets
of the related Trust Fund, and generally
will be required to report their pro rata
share of the entire gross income
(including amounts incurred as servicing
or other fees and expenses) from the
Mortgage Assets and will be entitled,
subject to certain limitations, to deduct
their pro rata shares of any servicing or
other fees and expenses incurred during
the year. Holders of Grantor Trust
Fractional Interest Certificates generally
will be
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<PAGE>
treated as owning an interest in
qualifying assets and income under
Sections 593(d), 856(c)(5)(A),
856(c)(3)(B) and 860G(a)(3)(A) of the
Code, but will not be so treated for
purposes of Section 7701(a)(19)(C)(v) of
the Code unless otherwise stated in the
related Prospectus Supplement.
It is unclear whether Stripped Interest
Certificates will be treated as
representing an ownership interest in
qualifying assets and income under
Sections 593(d), 856(c)(5)(A) and
856(c)(3)(B) of the Code, although the
policy considerations underlying those
Sections suggest that such treatment
should be available. However, such
Certificates will not be treated as
representing an ownership interest in
assets described in Section
7701(a)(19)(C)(v) of the Code unless
otherwise stated in the related Prospectus
Supplement. The taxation of holders of
Stripped Interest Certificates is
uncertain in various respects, including
in particular the method such holders
should use to recover their purchase price
and to report their income with respect to
such Stripped Interest Certificates. See
"Material Federal Income Tax
Consequences--Grantor Trust Funds".
Investors are advised to consult their tax
advisors and to review "Material Federal
Income Tax Consequences" herein and
"Certain Federal Income Tax Consequences"
in the related Prospectus Supplement.
ERISA Considerations ... Fiduciaries of employee benefit plans and
certain other retirement plans and
arrangements, including individual
retirement accounts, annuities, Keogh
plans, and collective investment funds and
separate accounts in which such plans,
accounts, annuities or arrangements are
invested, that are subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the
Code, should carefully review with their
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 Offered Certificates will constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market
Enhancement Act of 1984 only if so
specified in the related Prospectus
Supplement. 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 their respective dates of issuance, 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.
13
<PAGE>
RISK FACTORS
In considering an investment in the Offered Certificates of any series,
investors should consider, among other things, the following factors and any
other factors set forth under the heading "Risk Factors" in the related
Prospectus Supplement. In general, to the extent that the factors discussed
below pertain to or are influenced by the characteristics or behavior of
Mortgage Loans included in a particular Trust Fund, they would similarly
pertain to and be influenced by the characteristics or behavior of the
mortgage loans underlying any MBS included in such Trust Fund.
CERTAIN FACTORS ADVERSELY AFFECTING RESALE OF THE OFFERED CERTIFICATES
There can be no assurance that a secondary market for the Offered
Certificates of any series will develop or, if it does develop, that it will
provide holders with liquidity of investment or will continue for as long as
such Certificates remain outstanding. The Prospectus Supplement for any
series of Offered Certificates may indicate that an underwriter specified
therein intends to make a secondary market in such Offered Certificates;
however, no underwriter will be obligated to do so. Any such secondary market
may provide less liquidity to investors than any comparable market for
securities that evidence interests in single-family mortgage loans.
The primary source of ongoing information regarding the Offered
Certificates of any series, including information regarding the status of the
related Mortgage Assets and any Credit Support for such Certificates, will be
the periodic reports to Certificateholders to be delivered pursuant to the
related Pooling Agreement as described herein under the heading "Description
of the Certificates--Reports to Certificateholders". There can be no
assurance that any additional ongoing information regarding the Offered
Certificates of any series will be available through any other source. The
limited nature of such information in respect of a series of Offered
Certificates may adversely affect the liquidity thereof, even if a secondary
market for such Certificates does develop.
Insofar as a secondary market does develop for any series of Offered
Certificates or class thereof, the market value of such Certificates will be
affected by several factors, including the perceived liquidity and riskiness
thereof, the anticipated cash flow thereon (which may vary widely depending
upon the prepayment and default assumptions applied in respect of the
underlying Mortgage Loans) and prevailing interest rates. The price payable
at any given time in respect of certain classes of Offered Certificates (in
particular, a class with a relatively long average life, a Companion Class or
a class of Stripped Interest Certificates or Stripped Principal Certificates)
may be extremely sensitive to small fluctuations in prevailing interest
rates; and the relative change in price for an Offered Certificate in
response to an upward or downward movement in prevailing interest rates may
not necessarily equal the relative change in price for such Offered
Certificate in response to an equal but opposite movement in such rates.
Accordingly, the sale of Offered Certificates by a holder in any secondary
market that may develop may be at a discount from the price paid by such
holder. The Sponsor is not aware of any source through which price
information about the Offered Certificates will be generally available on an
ongoing basis.
Except to the extent described herein and in the related Prospectus
Supplement, Certificateholders will have no redemption rights, and the
Offered Certificates of each series are subject to early retirement only
under certain specified circumstances described herein and in the related
Prospectus Supplement. See "Description of the Certificates--Termination".
LIMITED ASSETS FOR PAYMENT OF CERTIFICATES
Unless otherwise specified in the related Prospectus Supplement, neither
the Offered Certificates of any series nor the Mortgage Assets in the related
Trust Fund will be guaranteed or insured by the Sponsor or any of its
affiliates, by any governmental agency or instrumentality or by any other
person; and no Offered Certificate of any series will represent a claim
against or security interest in the Trust Funds for any other series.
Accordingly, if the related Trust Fund has insufficient assets to make
payments on a series of Offered Certificates, no other assets will be
available for payment of the deficiency. Additionally, certain amounts on
deposit from time to time in certain funds or accounts constituting part of a
Trust Fund, including the Certificate Account and any accounts maintained as
Credit Support, may be withdrawn under certain conditions, as described in
the related Prospectus Supplement, for purposes other than the payment of
principal of or interest on the related series of Certificates. If so
provided in the Prospectus Supplement for a series of Certificates consisting
of one or more classes of Subordinate Certificates, on any Distribution Date
in respect of which losses or shortfalls in collections on the Mortgage
Assets have been incurred, the amount of such losses or shortfalls will be
borne first by one or more classes of the Subordinate Certificates, and,
thereafter, by the remaining classes of Certificates in the priority and
manner and subject to the limitations specified in such Prospectus
Supplement.
14
<PAGE>
PREPAYMENTS; AVERAGE LIFE OF CERTIFICATES; YIELDS
As a result of, among other things, prepayments on the Mortgage Loans in
any Trust Fund, the amount and timing of distributions of principal and/or
interest on the Offered Certificates of the related series may be highly
unpredictable. Prepayments on the Mortgage Loans in any Trust Fund will
result in a faster rate of principal payments on one or more classes of the
related series of Certificates than if payments on such Mortgage Loans were
made as scheduled. Thus, the prepayment experience on the Mortgage Loans may
affect the average life of each class of such Certificates, including a class
of Offered Certificates. The rate of principal payments on pools of mortgage
loans varies among pools and from time to time is influenced by a variety of
economic, demographic, geographic, social, tax and legal factors, as well as
acts of God. For example, if prevailing interest rates fall significantly
below the Mortgage Rates borne by the Mortgage Loans included in a Trust
Fund, principal prepayments thereon are likely to be higher than if
prevailing interest rates remain at or above the rates borne by those
Mortgage Loans. Conversely, if prevailing interest rates rise significantly
above the Mortgage Rates borne by the Mortgage Loans included in a Trust
Fund, principal prepayments thereon are likely to be lower than if prevailing
interest rates remain at or below the rates borne by those Mortgage Loans.
The foregoing is subject, however, to, among other things, the particular
terms of the Mortgage Loans (e.g., provisions which prohibit voluntary
prepayments during specified periods or impose penalties in connection
therewith) and the ability of borrowers to get new financing. There can be no
assurance as to the actual rate of prepayment on the Mortgage Loans in any
Trust Fund or that such rate of prepayment will conform to any model
described herein or in any Prospectus Supplement. As a result, depending on
the anticipated rate of prepayment for the Mortgage Loans in any Trust Fund,
the retirement of any class of Certificates of the related series could occur
significantly earlier or later than expected.
The extent to which prepayments on the Mortgage Loans in any Trust Fund
ultimately affect the average life of any class of Certificates of the
related series will depend on the terms of such Certificates. A class of
Certificates, including a class of Offered Certificates, may provide that on
any Distribution Date the holders of such Certificates are entitled to a pro
rata share of the prepayments on the Mortgage Loans in the related Trust Fund
that are distributable on such date, to a disproportionately large share
(which, in some cases, may be all) of such prepayments, or to a
disproportionately small share (which, in some cases, may be none) of such
prepayments. A class of Certificates that entitles the holders thereof to a
disproportionately large share of the prepayments on the Mortgage Loans in
the related Trust Fund enhances the risk of early retirement of such class
("call risk") if the rate of prepayment is relatively fast; while a class of
Certificates that entitles the holders thereof to a disproportionately small
share of the prepayments on the Mortgage Loans in the related Trust Fund
enhances the risk of an extended average life of such class ("extension
risk") if the rate of prepayment is relatively slow. As and to the extent
described in the related Prospectus Supplement, the respective entitlements
of the various classes of Certificateholders of any series to receive
payments (and, in particular, prepayments) of principal of the Mortgage Loans
in the related Trust Fund may vary based on the occurrence of certain events
(e.g., the retirement of one or more classes of Certificates of such series)
or subject to certain contingencies (e.g., prepayment and default rates with
respect to such Mortgage Loans).
A series of Certificates may include one or more Controlled Amortization
Classes that will entitle the holders thereof to receive principal
distributions according to a specified principal payment schedule. Although
prepayment risk cannot be eliminated entirely for any class of Certificates,
a Controlled Amortization Class will generally provide a relatively stable
cash flow so long as the actual rate of prepayment on the Mortgage Loans in
the related Trust Fund remains relatively constant at the rate, or within the
range of rates, of prepayment used to establish the specific principal
payment schedule for such Certificates. Prepayment risk with respect to a
given Mortgage Asset Pool does not disappear, however, and the stability
afforded to a Controlled Amortization Class comes at the expense of one or
more Companion Classes of the same series, any of which Companion Classes may
also be a class of Offered Certificates. In general, and as more specifically
described in the related Prospectus Supplement, a Companion Class may entitle
the holders thereof to a disproportionately large share of prepayments on the
Mortgage Loans in the related Trust Fund when the rate of prepayment is
relatively fast, and/or may entitle the holders thereof to a
disproportionately small share of prepayments on the Mortgage Loans in the
related Trust Fund when the rate of prepayment is relatively slow. As and to
the extent described in the related Prospectus Supplement, a Companion Class
absorbs some (but not all) of the "call risk" and/or "extension risk" that
would otherwise belong to the related Controlled Amortization Class if all
payments of principal of the Mortgage Loans in the related Trust Fund were
allocated on a pro rata basis.
A series of Certificates may include one or more classes of Offered
Certificates offered at a premium or discount. Yields on such classes of
Certificates will be sensitive, and in some cases extremely sensitive, to
prepayments on the Mortgage Loans in the related Trust Fund and, where the
amount of interest payable with respect to a class is
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disproportionately large, as compared to the amount of principal, as with
certain classes of Stripped Interest Certificates, a holder might fail to
recoup its original investment under some prepayment scenarios. The extent to
which the yield to maturity of any class of Offered Certificates may vary
from the anticipated yield will depend upon the degree to which they are
purchased at a discount or premium and the amount and timing of distributions
thereon. An investor should consider, in the case of any Offered Certificate
purchased at a discount, the risk that a slower than anticipated rate of
principal payments on the Mortgage Loans could result in an actual yield to
such investor that is lower than the anticipated yield and, in the case of
any Offered Certificate purchased at a premium, the risk that a faster than
anticipated rate of principal payments could result in an actual yield to
such investor that is lower than the anticipated yield. See "Yield and
Maturity Considerations" herein.
When considering the effects of prepayments on the average life and yield
of an Offered Certificate, an investor should also consider provisions of the
related Pooling Agreement that permit the optional early termination of the
class of Certificates to which such Offered Certificate belongs. If so
specified in the related Prospectus Supplement, a series of Certificates may
be subject to optional early termination through the repurchase of the
Mortgage Assets in the related Trust Fund by the party or parties specified
therein, under the circumstances and in the manner set forth therein. If so
provided in the related Prospectus Supplement, upon the reduction of the
Certificate Balance of a specified class or classes of Certificates by a
specified percentage or amount, a party specified therein may be authorized
or required to solicit bids for the purchase of all of the Mortgage Assets of
the related Trust Fund, or of a sufficient portion of such Mortgage Assets to
retire such class or classes, under the circumstances and in the manner set
forth therein. See "Description of the Certificates--Termination".
LIMITED NATURE OF CREDIT RATINGS
Any rating assigned by a Rating Agency to a class of Offered Certificates
will reflect only its assessment of the likelihood that holders of such
Offered Certificates will receive payments to which such Certificateholders
are entitled under the related Pooling Agreement. Such rating will not
constitute an assessment of the likelihood that principal prepayments on the
related Mortgage Loans will be made, the degree to which the rate of such
prepayments might differ from that originally anticipated or the likelihood
of early optional termination of the related Trust Fund. Furthermore, such
rating will not address the possibility that prepayment of the related
Mortgage Loans at a higher or lower rate than anticipated by an investor may
cause such investor to experience a lower than anticipated yield or that an
investor that purchases an Offered Certificate at a significant premium might
fail to recoup its initial investment under certain prepayment scenarios.
The amount, type and nature of Credit Support, if any, provided with
respect to a series of Certificates will be determined on the basis of
criteria established by each Rating Agency rating classes of the Certificates
of such series. Those criteria are sometimes based upon an actuarial analysis
of the behavior of mortgage loans in a larger group. However, there can be no
assurance that the historical data supporting any such actuarial analysis
will accurately reflect future experience, or that the data derived from a
large pool of mortgage loans will accurately predict the delinquency,
foreclosure or loss experience of any particular pool of Mortgage Loans. In
other cases, such criteria may be based upon determinations of the values of
the Mortgaged Properties that provide security for the Mortgage Loans.
However, no assurance can be given that those values will not decline in the
future. If the commercial or multifamily residential real estate markets
should experience an overall decline in property values such that the
outstanding principal balances of the Mortgage Loans in a particular Trust
Fund and any secondary financing on the related Mortgaged Properties become
equal to or greater than the value of the Mortgaged Properties, the rates of
delinquencies, foreclosures and losses could be higher than those now
generally experienced by institutional lenders. In addition, adverse economic
conditions (which may or may not affect real property values) may affect the
timely payment by mortgagors of scheduled payments of principal and interest
on the Mortgage Loans and, accordingly, the rates of delinquencies,
foreclosures and losses with respect to any Trust Fund. To the extent that
such losses are not covered by Credit Support, such losses may be borne, at
least in part, by the holders of one or more classes of Offered Certificates
of the related series. See "Description of Credit Support" and "Rating".
CERTAIN RISKS ASSOCIATED WITH MORTGAGE LOANS SECURED BY COMMERCIAL AND
MULTIFAMILY PROPERTIES
Mortgage Loans made on the security of 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 loans made
on the security of single-family property. See "Description of the Trust
Funds--Mortgage Loans". The ability of a borrower to
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repay a loan secured by an income-producing property typically is dependent
primarily upon the successful operation of such property rather than upon the
existence of independent income or assets of the borrower; thus, the value of
an income-producing property is directly related to the net operating income
derived from such property. If the net operating income of the property is
reduced (for example, if rental or occupancy rates decline or real estate tax
rates or other operating expenses increase), the borrower's ability to repay
the loan may be impaired. A number of the Mortgage Loans may be secured by
liens on owner-occupied Mortgaged Properties or on Mortgaged Properties
leased to a single tenant. Accordingly, a decline in the financial condition
of the borrower or single tenant, as applicable, may have a
disproportionately greater effect on the net operating income from such
Mortgaged Properties than would be the case with respect to Mortgaged
Properties with multiple tenants. Furthermore, the value of any Mortgaged
Property may be adversely affected by risks generally incident to interests
in real property, including various events which the Sponsor, a Master
Servicer and a Special Servicer may be unable to predict or control such as
changes in general or local economic conditions and/or specific industry
segments; declines in real estate values; declines in rental or occupancy
rates; increases in interest rates, real estate tax rates and other operating
expenses; changes in governmental rules, regulations and fiscal policies,
including environmental legislation; acts of God; environmental hazards; and
social unrest and civil disturbances.
In addition, additional risk may be presented by the type and use of a
particular Mortgaged Property. For instance, Mortgaged Properties that
operate as hospitals and nursing homes may present special risks to lenders
due to the significant governmental regulation of the ownership, operation,
maintenance and financing of health care institutions. Hotel and motel
properties are often operated pursuant to franchise, management or operating
agreements which may be terminable by the franchisor or operator. Moreover,
the transferability of a hotel's operating, liquor and other licenses upon a
transfer of the hotel, whether through purchase or foreclosure, is subject to
local law requirements.
It is anticipated that some or all 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 those Mortgage Loans, recourse in the
event of borrower default will be limited to the specific real property and
other assets, if any, that were pledged to secure the Mortgage Loan. However,
even with respect to those Mortgage Loans that provide for recourse against
the borrower and its assets generally, there can be no assurance that
enforcement of such recourse provisions will be practicable, or that the
assets of the borrower will be sufficient to permit a recovery in respect of
a defaulted Mortgage Loan in excess of the liquidation value of the related
Mortgaged Property.
Further, the concentration of default, foreclosure and loss risks in
individual Mortgage Loans in a particular Trust Fund will generally be
greater than for pools of single-family loans because Mortgage Loans in a
Trust Fund will generally consist of a smaller number of higher balance loans
than would a pool of single-family loans of comparable aggregate unpaid
principal balance.
BALLOON PAYMENTS; BORROWER DEFAULT
Certain of the Mortgage Loans included in a Trust Fund may not be fully
amortizing, and in some cases may provide for no amortization, over their
terms to maturity and, thus, will require substantial principal payments
(that is, balloon payments) at their stated maturity. Mortgage Loans of this
type involve a greater degree of risk than self-amortizing loans because the
ability of a borrower to make a balloon payment typically will depend upon
its ability either to 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, including the value of the related
Mortgaged Property, the level of available mortgage rates at the time of sale
or refinancing, the borrower's equity in the related Mortgaged Property, the
financial condition and operating history of the borrower and the related
Mortgaged Property, tax laws, rent control laws (with respect to certain
residential properties), Medicaid and Medicare reimbursement rates (with
respect to hospitals and nursing homes), prevailing general economic
conditions and the availability of credit for loans secured by commercial or
multifamily, as the case may be, real properties generally. Neither the
Sponsor nor any of its affiliates will be required to refinance any Mortgage
Loan.
If and to the extent described herein and in the related Prospectus
Supplement, in order to maximize recoveries on defaulted Mortgage Loans, the
Master Servicer and/or Special Servicer for a Trust Fund will be permitted
(within prescribed limits) to extend and modify the Mortgage Loans in such
Trust Fund that are in default or as to which a payment default is imminent.
While a Master Servicer and/or Special Servicer generally will be required to
determine that any such extension or modification is reasonably likely to
produce a greater recovery on a present value basis than liquidation, there
can be no assurance that any such extension or modification will in fact
increase the present value of receipts from or proceeds of the affected
Mortgage Loans.
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CREDIT SUPPORT LIMITATIONS
The Prospectus Supplement for a series of Offered Certificates will
describe any Credit Support provided with respect thereto. Use of Credit
Support will be subject to the conditions and limitations described herein
and in the related Prospectus Supplement. Moreover, such Credit Support may
not cover all potential losses or risks; for example, Credit Support may or
may not cover fraud or negligence by a mortgage loan originator or other
parties.
A series of Certificates may include one or more classes of Subordinate
Certificates (which may include Offered Certificates), if so provided in the
related Prospectus Supplement. Although subordination is intended to reduce
the risk to holders of Senior Certificates of delinquent distributions or
ultimate losses, the amount of subordination will be limited and may decline
under certain circumstances. In addition, if principal payments on one or
more classes of Certificates of a series are made in a specified order of
priority, any limits with respect to the aggregate amount of claims under any
related Credit Support may be exhausted before the principal of the later
paid classes of Certificates of such series has been repaid in full. As a
result, the impact of losses and shortfalls experienced with respect to the
Mortgage Assets may fall primarily upon those classes of Certificates having
a later right of payment. Moreover, if a form of Credit Support covers more
than one series of Certificates, holders of Certificates of one series will
be subject to the risk that such Credit Support will be exhausted by the
claims of the holders of Certificates of one or more other series.
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 that take into account
an assumed level of defaults, delinquencies and losses on the underlying
Mortgage Assets. 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 Credit Ratings", "Description of the Certificates" and
"Description of Credit Support".
LEASES AND RENTS AS SECURITY FOR A MORTGAGE LOAN
The Mortgage Loans included in any Trust Fund typically will be secured by
an assignment of leases and rents pursuant to which the borrower assigns to
the lender its right, title and interest as landlord under the leases of the
related Mortgaged Property, and the income derived therefrom, as further
security for the related Mortgage Loan, while retaining a license to collect
rents for so long as there is no default. If the borrower defaults, the
license terminates and the lender is entitled to collect rents. Some state
laws may require that the lender take possession of the Mortgaged Property
and obtain a judicial appointment of a receiver before becoming entitled to
collect the rents. In addition, if bankruptcy or similar proceedings are
commenced by or in respect of the borrower, the lender's ability to collect
the rents may be adversely affected. See "Certain Legal Aspects of Mortgage
Loans--Leases and Rents".
ENVIRONMENTAL RISKS
Under the laws of certain states, contamination of real 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 an existing mortgage lien on such
property. In addition, under the laws of some states and under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), a lender may be liable, as an "owner" or "operator", for costs of
addressing releases or threatened releases of hazardous substances on a
property, if agents or employees of the lender have become sufficiently
involved in the operations of the borrower, regardless of whether or not the
environmental damage or threat was caused by the borrower or a prior owner. A
lender also risks such liability on foreclosure of the mortgage. Unless
otherwise specified in the related Prospectus Supplement, if a Trust Fund
includes Mortgage Loans, then the related Pooling Agreement will contain
provisions generally to the effect that neither the Master Servicer nor the
Special Servicer may, on behalf of the Trust Fund, acquire title to a
Mortgaged Property or assume control of its operation unless the Special
Servicer, based upon a report prepared by a person who regularly conducts
environmental site assessments, has made the determination that it is
appropriate to do so, as described under "Description of the Pooling
Agreements--Realization Upon Defaulted Mortgage Loans". See "Certain Legal
Aspects of Mortgage Loans--Environmental Risks".
SPECIAL HAZARD LOSSES
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer and Special Servicer for any Trust Fund will each be required
to cause the borrower on each Mortgage Loan serviced by it to maintain such
insurance coverage in respect of the related Mortgaged Property as is
required under the related Mortgage, including hazard
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insurance; provided that, as and to the extent described herein and in the
related Prospectus Supplement, each of the Master Servicer and the Special
Servicer may satisfy its obligation to cause hazard insurance to be
maintained with respect to any Mortgaged Property through acquisition of a
blanket policy. 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 covering the Mortgaged
Properties will be underwritten by different insurers under different state
laws in accordance with different applicable state forms, and therefore will
not contain identical terms and conditions, most such policies typically do
not cover any physical damage resulting from war, revolution, governmental
actions, floods and other water-related causes, earth movement (including
earthquakes, landslides and mudflows), wet or dry rot, vermin, domestic
animals and other kinds of risks not specified in the preceding sentence.
Unless the related Mortgage specifically requires the mortgagor to insure
against physical damage arising from such causes, then, to the extent any
consequent losses are not covered by Credit Support, such losses may be
borne, at least in part, by the holders of one or more classes of Offered
Certificates of the related series. See "Description of the Pooling
Agreements--Hazard Insurance Policies".
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 that govern such plans, prospective investors that are subject to
ERISA are urged to consult their own counsel regarding consequences under
ERISA of acquisition, ownership and disposition of the Offered Certificates
of any series. See "ERISA Considerations".
CERTAIN FEDERAL TAX CONSIDERATIONS REGARDING REMIC RESIDUAL CERTIFICATES
Holders of REMIC Residual Certificates will be required to report on their
federal income tax returns as ordinary income their pro rata share of the
taxable income of the REMIC, regardless of the amount or timing of their
receipt of cash payments, as described under "Material Federal Income Tax
Consequences--REMICs". Accordingly, under certain circumstances, holders of
Offered Certificates that constitute REMIC Residual Certificates may have
taxable income and tax liabilities arising from such investment during a
taxable year in excess of the cash received during such period. The
requirement that holders of REMIC Residual Certificates report their pro rata
share of the taxable income and net loss of the REMIC will continue until the
Certificate Balances of all classes of Certificates of the related series
have been reduced to zero, even though holders of REMIC Residual Certificates
have received full payment of their stated interest and principal. A portion
(or, in certain circumstances, all) of such Certificateholder's share of the
REMIC taxable income may be treated as "excess inclusion" income to such
holder, which (i) generally will not be subject to offset by losses from
other activities, (ii) for a tax-exempt holder, will be treated as unrelated
business taxable income and (iii) for a foreign holder, will not qualify for
exemption from withholding tax. Individual holders of REMIC Residual
Certificates may be limited in their ability to deduct servicing fees and
other expenses of the REMIC. In addition, REMIC Residual Certificates are
subject to certain restrictions on transfer. Because of the special tax
treatment of REMIC Residual Certificates, the taxable income arising in a
given year on a REMIC Residual Certificate will not be equal to the taxable
income associated with investment in a corporate bond or stripped instrument
having similar cash flow characteristics and pre-tax yield. Therefore, the
after-tax yield on a REMIC Residual Certificate may be significantly less
than that of a corporate bond or stripped instrument having similar cash flow
characteristics.
BOOK-ENTRY REGISTRATION
If so provided in the related Prospectus Supplement, one or more classes
of the Offered Certificates of any series will be issued as Book-Entry
Certificates. Each class of Book-Entry Certificates will be initially
represented by one or more Certificates registered in the name of a nominee
for DTC. As a result, unless and until corresponding Definitive Certificates
are issued, the Certificate Owners with respect to any class of Book-Entry
Certificates will be able to exercise the rights of Certificateholders only
indirectly through DTC and its participating organizations ("Participants").
In addition, the access of Certificate Owners to information regarding the
Book-Entry Certificates in which they hold interests may be limited.
Conveyance of notices and other communications by DTC to its Participants,
and directly and indirectly through such Participants to Certificate Owners,
will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time. Furthermore,
as described herein, Certificate Owners may suffer delays in the receipt of
payments on the Book-Entry Certificates, and the ability of any Certificate
Owner to pledge or otherwise take actions with respect to its interest in the
Book-Entry Certificates may be limited due to the lack of a physical
certificate evidencing such interest. See "Description of the
Certificates--Book-Entry Registration and Definitive Certificates".
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CONFLICTS OF INTEREST INVOLVING PARTIES TO A POOLING AGREEMENT
If so specified in the related Prospectus Supplement, the Master Servicer
may also perform the duties of Special Servicer, and the Master Servicer, the
Special Servicer or the Trustee may also perform the duties of REMIC
Administrator. If so specified in the related Prospectus Supplement, an
affiliate of the Sponsor, or the Mortgage Asset Seller or an affiliate
thereof, may perform the functions of Master Servicer, Special Servicer
and/or REMIC Administrator. In addition, any party to a Pooling Agreement or
any affiliate thereof may own Certificates. Investors in the Offered
Certificates should consider that any resulting conflicts of interest could
affect the performance of duties under the related Pooling Agreement. For
example, if the same party serves as both Master Servicer and Special
Servicer for any Trust Fund and, as Master Servicer, such party is obligated
to make advances in respect of delinquent payments on the Mortgage Loans in
such Trust Fund, or if the Master Servicer or Special Servicer for any Trust
Fund owns a significant portion of any class of Offered Certificates of the
related series, then, notwithstanding the applicable servicing standard
imposed by the related Prospectus Supplement, either such fact could
influence servicing decisions in respect of the Mortgage Loans in such Trust
Fund.
DELINQUENT AND NON-PERFORMING MORTGAGE LOANS
If so provided in the related Prospectus Supplement, the Trust Fund for a
particular series of Certificates may include Mortgage Loans that are past
due or are non-performing. Unless otherwise described in the related
Prospectus Supplement, the servicing of such Mortgage Loans as to which a
specified number of payments are delinquent will be performed by the Special
Servicer; however, the same entity may act as both Master Servicer and
Special Servicer. Credit Support provided with respect to a particular series
of Certificates may not cover all losses related to such delinquent or
non-performing Mortgage Loans, and investors should consider the risk that
the inclusion of such Mortgage Loans in the Trust Fund may adversely affect
the rate of defaults and prepayments on the Mortgage Assets in such Trust
Fund and the yield on the Offered Certificates of such series. See
"Description of the Trust Funds--Mortgage Loans--General".
DESCRIPTION OF THE TRUST FUNDS
GENERAL
The primary assets of each Trust Fund will consist of (i) one or more
various types of multifamily or commercial mortgage loans (the "Mortgage
Loans"), (ii) mortgage participations, pass-through certificates or other
mortgage-backed securities ("MBS") that evidence interests in, or that are
secured by pledges of, one or more of various types of multifamily or
commercial mortgage loans or (iii) a combination of Mortgage Loans and MBS
(collectively, "Mortgage Assets"). Each Trust Fund will be established by
Mortgage Capital Funding, Inc. (the "Sponsor"). Each Mortgage Asset will be
selected by the Sponsor 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 Sponsor. The Mortgage Assets will not be guaranteed or insured by the
Sponsor or any of its affiliates or, unless otherwise provided in the related
Prospectus Supplement, by any governmental agency or instrumentality or by
any other person. The discussion below under the heading "--Mortgage Loans",
unless otherwise noted, applies equally to mortgage loans underlying any MBS
included in a particular Trust Fund.
MORTGAGE LOANS
General. The Mortgage Loans will be evidenced by promissory notes (the
"Mortgage Notes") secured by mortgages, deeds of trust or similar security
instruments (the "Mortgages") that create liens on fee or leasehold estates
in properties (the "Mortgaged Properties") consisting of, without limitation,
(i) residential properties consisting of five or more rental or
cooperatively-owned dwelling units in high-rise, mid-rise or garden apartment
buildings or other residential structures ("Multifamily Properties") 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, self-storage facilities, industrial
plants, mixed use or various other types of income-producing properties or
unimproved land ("Commercial Properties"). The Multifamily Properties may
include mixed commercial and residential structures and may include apartment
buildings owned by private cooperative housing corporations ("Cooperatives").
Unless otherwise specified in the related Prospectus Supplement, each
Mortgage will create a first priority mortgage lien on a borrower's fee
estate in a Mortgaged Property. If a Mortgage creates a lien on a borrower's
leasehold estate in a property, then, unless otherwise specified in the
related
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Prospectus Supplement, the term of any such leasehold will exceed the term of
the Mortgage Note. Unless otherwise specified in the related Prospectus
Supplement, each Mortgage Loan will have been originated by a person (the
"Originator") other than the Sponsor; however, the Originator may be or may
have been an affiliate of the Sponsor.
If so specified in the related Prospectus Supplement, Mortgage Assets for
a series of Certificates may include Mortgage Loans made on the security of
real estate projects under construction. In that case, the related Prospectus
Supplement will describe the procedures and timing for making disbursements
from construction reserve funds as portions of the related real estate
project are completed. In addition, the Mortgage Assets for a particular
series of Certificates may include Mortgage Loans that are delinquent or
non-performing as of the date such Certificates are issued. In that case, the
related Prospectus Supplement will set forth, as to each such Mortgage Loan,
available information as to the period of such delinquency or
non-performance, any forbearance arrangement then in effect, the condition of
the related Mortgaged Property and the ability of the Mortgaged Property to
generate income to service the mortgage debt.
Default and Loss Considerations with Respect to the Mortgage
Loans. Mortgage loans secured by liens on income-producing properties are
substantially different from loans made on the security of owner-occupied
single-family homes. The repayment of a loan secured by a lien on an
income-producing property is typically dependent upon the successful
operation of such property (that is, its ability to generate income.)
Moreover, some or all of the Mortgage Loans included in a particular Trust
Fund may be non-recourse loans, which means that, absent special facts,
recourse in the case of default will be limited to the Mortgaged Property and
such other assets, if any, that were pledged to secure repayment of the
Mortgage Loan.
Lenders typically look to the Debt Service Coverage Ratio of a loan
secured by income-producing property as an important measure of the risk of
default on such a loan. Unless otherwise defined in the related Prospectus
Supplement, the "Debt Service Coverage Ratio" of a Mortgage Loan at any given
time is the ratio of (i) the Net Operating Income derived from the related
Mortgaged Property for a twelve-month period to (ii) the annualized scheduled
payments on the Mortgage Loan and any other loans senior thereto that are
secured by the related Mortgaged Property. Unless otherwise defined in the
related Prospectus Supplement, "Net Operating Income" means, for any given
period, the total operating revenues derived from a Mortgaged Property during
such period, minus the total operating expenses incurred in respect of such
Mortgaged Property during such period other than (i) non-cash items such as
depreciation and amortization, (ii) capital expenditures and (iii) debt
service on the related Mortgage Loan or on any other loans that are secured
by such Mortgaged Property. The Net Operating Income of a Mortgaged Property
will fluctuate over time and may or may not be sufficient to cover debt
service on the related Mortgage Loan at any given time. As the primary source
of the operating revenues of a non-owner occupied, income-producing property,
rental income (and maintenance payments from tenant-stockholders of a
Cooperative) may be affected by the condition of the applicable real estate
market and/or area economy. In addition, properties typically leased,
occupied or used on a short-term basis (i.e., six months or less) such as
certain health care-related facilities, hotels and motels, and mini-warehouse
and self-storage facilities, tend to be affected more rapidly by changes in
market or business conditions than do properties typically leased for longer
periods, such as warehouses, retail stores, office buildings and industrial
plants. Commercial Properties may be owner-occupied or leased to a single
tenant. Thus, the Net Operating Income of such a Mortgaged Property may
depend substantially on the financial condition of the borrower or the single
tenant, and Mortgage Loans secured by liens on such properties may pose
greater risks than loans secured by liens on Multifamily Properties or on
multi-tenant Commercial Properties.
Increases in operating expenses due to the general economic climate or
economic conditions in a locality or industry segment, such as increases in
interest rates, real estate tax rates, energy costs, labor costs and other
operating expenses, and/or to changes in governmental rules, regulations and
fiscal policies, may also affect the risk of default on a Mortgage Loan. As
may be further described in the related Prospectus Supplement, in some cases
leases of Mortgaged Properties may provide that the lessee, rather than the
borrower/landlord, is responsible for payment of operating expenses ("Net
Leases"). However, the existence of such "net of expense" provisions will
result in stable Net Operating Income to the borrower/landlord only to the
extent that the lessee is able to absorb operating expense increases while
continuing to make rent payments.
Lenders also look to the Loan-to-Value Ratio of a mortgage loan as a
measure of risk of loss if a property must be liquidated following a default.
Unless otherwise defined in the related Prospectus Supplement, the
"Loan-to-Value Ratio" of a Mortgage Loan at any given time is the ratio
(expressed as a percentage) of (i) the then outstanding principal balance of
the Mortgage Loan and any other loans senior thereto that are secured by the
related Mortgaged Property to (ii) the Value of the related Mortgaged
Property. The "Value" of a Mortgaged Property is generally its fair market
value
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determined in an appraisal obtained by the Originator at the origination of
such loan. The lower the Loan-to-Value Ratio, the greater the percentage of
the borrower's equity in a Mortgaged Property, and thus the greater the
cushion provided to the lender against loss on liquidation following a
default.
Loan-to-Value Ratios will not necessarily constitute an accurate measure
of the risk of liquidation loss in a pool of Mortgage Loans. For example, the
value of a Mortgaged Property as of the date of initial issuance of the
related series of Certificates may be less than the Value determined at loan
origination, and will likely continue to fluctuate from time to time based
upon changes in economic conditions and the real estate market. Moreover,
even when current, an appraisal is not necessarily a reliable estimate of
value. Appraised values of income-producing properties are generally based on
the market comparison method (recent resale value of comparable properties at
the date of the appraisal), the cost replacement method (the cost of
replacing the property at such date), the income capitalization method (a
projection of value based upon the property's projected net cash flow), or
upon a selection from or interpolation of the values derived from such
methods. Each of these appraisal methods can present analytical difficulties.
It is often difficult to find truly comparable properties that have recently
been sold; the replacement cost of a property may have little to do with its
current market value; and income capitalization is inherently based on
inexact projections of income and expense and the selection of an appropriate
capitalization rate. Where more than one of these appraisal methods are used
and provide significantly different results, an accurate determination of
value and, correspondingly, a reliable analysis of default and loss risks, is
even more difficult.
While the Sponsor believes that the foregoing considerations are important
factors that generally distinguish loans secured by liens on income-producing
real estate from single-family mortgage loans there is no assurance that all
of such factors will in fact have been prudently considered by the
Originators of the Mortgage Loans, or that, for a particular Mortgage Loan,
they are complete or relevant. See "Risk Factors--Certain Risks Associated
with Mortgage Loans Secured by Commercial and Multifamily Properties" and
"--Balloon Payments; Borrower Default".
Payment Provisions of the Mortgage Loans. Unless otherwise specified in
the related Prospectus Supplement, all of the Mortgage Loans will have had
original terms to maturity of not more than 40 years, and will provide for
scheduled payments of principal, interest or both, to be made on specified
dates ("Due Dates") that occur monthly, quarterly, semi-annually or annually.
A Mortgage Loan (i) may provide 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 at the borrower's election from
an adjustable to a fixed Mortgage Rate, or from a fixed to an adjustable
Mortgage Rate, and in some cases back again, (ii) may provide for level
payments to maturity or for payments that adjust from time to time to
accommodate changes in the Mortgage Rate or to reflect the occurrence of
certain events, and may permit negative amortization, (iii) may be fully
amortizing over its term to maturity or may require a balloon payment on its
stated maturity date, (iv) may provide for no amortization prior to its
stated maturity date, and (v) may contain a prohibition on prepayment (the
period of such prohibition, a "Lock-out Period" and its date of expiration, 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. A Mortgage Loan may
also contain a provision that entitles the lender to a share of profits
realized from the operation or disposition of the Mortgaged Property (an
"Equity Participation"), as described in the related Prospectus Supplement.
If holders of any class or classes of Offered Certificates of a series will
be entitled to all or a portion of an Equity Participation in addition to
normal payments of interest on and/or principal of such Offered Certificates,
the related Prospectus Supplement will describe the Equity Participation and
the method or methods by which distributions in respect thereof will be made
to such holders.
Mortgage Loan Information in Prospectus Supplements. Each Prospectus
Supplement will contain certain information pertaining to the Mortgage Loans
which will generally be current as of a date specified in the related
Prospectus Supplement and which, to the extent then applicable and
specifically known to the Sponsor, will include the following: (i) the
aggregate outstanding principal balance and the largest, smallest and average
outstanding principal balance of the Mortgage Loans, (ii) the type or types
of property that provide security for repayment of the Mortgage Loans, (iii)
the earliest and latest origination date and maturity date of the Mortgage
Loans, (iv) the original and remaining terms to maturity of the Mortgage
Loans, or the respective ranges thereof, and the weighted average original
and remaining terms to maturity of the Mortgage Loans, (v) the original
Loan-to-Value Ratios of the Mortgage Loans, or the range thereof, and the
weighted average original Loan-to-Value Ratio of the Mortgage Loans, (vi) the
Mortgage Rates borne by the Mortgage Loans, or the range thereof, and the
weighted average Mortgage Rate borne by the Mortgage Loans, (vii) with
respect to Mortgage Loans with adjustable Mortgage Rates ("ARM Loans"), the
index or indices upon which such adjustments are based, the adjustment dates,
the range of gross margins and the weighted average gross margin, and any
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limits on Mortgage Rate adjustments at the time of any adjustment and over
the life of the ARM Loan, (viii) information regarding the payment
characteristics of the Mortgage Loans, including without limitation balloon
payment and other amortization provisions, Lock-out Periods and Prepayment
Premiums, (ix) the Debt Service Coverage Ratios of the Mortgage Loans (either
at origination or as of a more recent date), or the range thereof, and the
weighted average of such Debt Service Coverage Ratios, and (x) the geographic
distribution of the Mortgaged Properties on a state-by-state basis. In
appropriate cases, the related Prospectus Supplement will, as to certain
Mortgage Loans, provide the information described above on a loan-by-loan
basis and will also contain certain information available to the Sponsor that
pertains to the provisions of leases and the nature of tenants of the
Mortgaged Properties. If the Sponsor is unable to tabulate the specific
information described above at the time Offered Certificates of a series are
initially offered, more general information of the nature described above
will be provided in the related Prospectus Supplement, and specific
information will be set forth in a report which will be available to
purchasers of those 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 following such issuance.
MBS
MBS may include (i) private (that is, not guaranteed or insured by the
United States or any agency or instrumentality thereof) mortgage
participations, mortgage pass-through certificates or other mortgage-backed
securities or (ii) certificates insured or guaranteed by FHLMC, FNMA, GNMA or
FAMC, provided that each MBS will evidence an interest in, or will be secured
by a pledge of, mortgage loans that conform to the descriptions of the
Mortgage Loans contained herein.
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"). The issuer of the MBS (the "MBS Issuer")
and/or the servicer of the underlying mortgage loans (the "MBS Servicer")
will have entered into the MBS Agreement, generally with a trustee (the "MBS
Trustee") or, in the alternative, with the original purchaser or purchasers
of the MBS.
The MBS may have been issued in one or more classes with characteristics
similar to the classes of Certificates described herein. Distributions in
respect of the MBS will be made by the MBS Servicer or the MBS Trustee on the
dates specified in the related Prospectus Supplement. 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.
Reserve funds, subordination or other credit support similar to that
described for the Certificates under "Description of Credit Support" may have
been provided with respect to the MBS. The type, characteristics and amount
of such credit support, if any, will reflect the characteristics of the MBS
and the underlying mortgage loans and generally will have been established on
the basis of the requirements of any Rating Agency that may have assigned a
rating to the MBS, or by the initial purchasers of the MBS.
The Prospectus Supplement for a series of Certificates that evidence
interests in 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 the formula for determining such rates (iv) the payment
characteristics of the MBS, (v) the MBS Issuer, MBS Servicer and MBS Trustee,
as applicable, (vi) a description of the credit support, if any, (vii) the
circumstances under which the related underlying mortgage loans, or the MBS
themselves, may be purchased prior to their maturity, (viii) the terms on
which mortgage loans may be substituted for those originally underlying the
MBS, (ix) the type of mortgage loans underlying the MBS and, to the extent
available to the Sponsor and appropriate under the circumstances, such other
information in respect of the underlying mortgage loans described under
"--Mortgage Loans--Mortgage Loan Information in Prospectus Supplements" and
(x) the characteristics of any cash flow agreements that relate to the MBS.
CERTIFICATE ACCOUNTS
Each Trust Fund will include one or more accounts (collectively, the
"Certificate Account") established and maintained on behalf of the
Certificateholders into which the person or persons designated in the related
Prospectus Supplement will, to the extent provided in the related Pooling
Agreement and described herein and in the related Prospectus Supplement,
deposit all payments and collections received or advanced with respect to the
Mortgage Assets and other assets in the Trust Fund. A Certificate Account may
be maintained as an interest bearing or a non-interest bearing account, and
funds held therein may be held as cash or invested in certain obligations
acceptable to each Rating Agency rating one or more classes of the related
series of Offered Certificates.
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CREDIT SUPPORT
If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Mortgage Assets in the
related Trust Fund may be provided to one or more classes of Certificates in
the related series in the form of subordination of one or more other classes
of Certificates in such series or by one or more other types of credit
support, such as a letter of credit, insurance policy, guarantee or reserve
fund, among others, or a combination thereof (any such coverage with respect
to the Certificates of any series, "Credit Support"). If so specified in the
related Prospectus Supplement, any form of Credit Support may offer
protection only against specific types of losses and shortfalls. The amount
and types of Credit Support, the coverage afforded by it, the identification
of the entity providing it (if applicable) and related information with
respect to each type of Credit Support, if any, will be set forth in the
Prospectus Supplement for a series of Offered Certificates. See "Risk
Factors--Credit Support Limitations" and "Description of Credit Support".
CASH FLOW AGREEMENTS
If so provided in the related Prospectus Supplement, the Trust Fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related series will be invested at a
specified rate. The Trust Fund may also include certain other agreements,
such as interest rate exchange agreements, interest rate cap or floor
agreements, currency exchange agreements or similar agreements designed to
reduce the effects of interest rate or currency exchange rate fluctuations on
the Mortgage Assets on one or more classes of Certificates. The principal
terms of any such guaranteed investment contract or other agreement (any such
agreement, a "Cash Flow Agreement"), and the identity of the Cash Flow
Agreement obligor, will be described in the Prospectus Supplement for a
series of Offered Certificates.
YIELD AND MATURITY CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on the price paid by the
Certificateholder, the Pass-Through Rate of the Certificate and the amount
and timing of distributions on the Certificate. See "Risk
Factors--Prepayments; Average Life of Certificates; Yields". The following
discussion contemplates a Trust Fund that consists solely of Mortgage Loans.
While the characteristics and behavior of mortgage loans underlying MBS can
generally be expected to have the same effect on the yield to maturity and/or
weighted average life of a Class of Certificates as will the characteristics
and behavior of comparable Mortgage Loans, the effect may differ due to the
payment characteristics of the MBS. If a Trust Fund includes MBS, the related
Prospectus Supplement will discuss the effect that the MBS payment
characteristics may have on the yield to maturity and weighted average lives
of the Offered Certificates offered thereby.
PASS-THROUGH RATE
The Certificates of any class within a series may have a fixed, variable
or adjustable Pass-Through Rate, which may or may not be based upon the
interest rates borne by the Mortgage Loans in the related Trust Fund. The
Prospectus Supplement with respect to any series of Offered Certificates will
specify the Pass-Through Rate for each class of such Certificates or, in the
case of a class of Offered Certificates with a variable or adjustable
Pass-Through Rate, the method of determining the Pass-Through Rate; the
effect, if any, of the prepayment of any Mortgage Loan on the Pass-Through
Rate of one or more classes of Offered Certificates; and whether the
distributions of interest on the Offered Certificates of any class will be
dependent, in whole or in part, on the performance of any obligor under a
Cash Flow Agreement.
PAYMENT DELAYS
With respect to any series of Certificates, a period of time will elapse
between the date upon which payments on the Mortgage Loans in the related
Trust Fund are due and the Distribution Date on which such payments are
passed through to Certificateholders. That delay will effectively reduce the
yield that would otherwise be produced if payments on such Mortgage Loans
were distributed to Certificateholders on or near the date they were due.
CERTAIN SHORTFALLS IN COLLECTIONS OF INTEREST
When a principal prepayment in full or in part is made on a Mortgage Loan,
the borrower is generally charged interest only for the period from the Due
Date of the preceding scheduled payment up to the date of such prepayment,
instead
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of up to the Due Date for the next succeeding scheduled payment. However,
interest accrued on any series of Certificates and distributable thereon on
any Distribution Date will generally correspond to interest accrued on the
Mortgage Loans to their respective Due Dates during the related Due Period.
Unless otherwise specified in the related Prospectus Supplement, a "Due
Period" is a specified time period generally corresponding in length to the
time period between Distribution Dates, and all scheduled payments on the
Mortgage Loans in any Trust Fund that are due during a given Due Period will,
to the extent received by a specified date (the "Determination Date") or
otherwise advanced by the related Master Servicer, Special Servicer or other
specified person, be distributed to the related series of Certificateholders
on the next succeeding Distribution Date. Consequently, if a prepayment on
any Mortgage Loan is distributable to Certificateholders on a particular
Distribution Date, but such prepayment is not accompanied by interest thereon
to the Due Date for such Mortgage Loan in the related Due Period, then the
interest charged to the borrower (net of servicing and administrative fees)
may be less (such shortfall, a "Prepayment Interest Shortfall") than the
corresponding amount of interest accrued and otherwise payable on the
Certificates of the related series. If and to the extent that any such
shortfall is allocated to a class of Offered Certificates, the yield thereon
will be adversely affected. The Prospectus Supplement for a series of
Certificates will describe the manner in which any such shortfalls will be
allocated among the classes of such Certificates. If so specified in the
related Prospectus Supplement, the Master Servicer will be required to apply
some or all of its servicing compensation for the corresponding period to
offset the amount of any such shortfalls. The related Prospectus Supplement
will also describe any other amounts available to offset such shortfalls. See
"Description of the Pooling Agreements--Servicing Compensation and Payment of
Expenses".
YIELD AND PREPAYMENT CONSIDERATIONS
A Certificate's yield to maturity will be affected by the rate of
principal payments on the Mortgage Loans in the related Trust Fund and the
allocation thereof to reduce the principal balance (or notional amount, if
applicable) of such Certificate. The rate of principal payments on the
Mortgage Loans in any Trust Fund will in turn be affected by the amortization
schedules thereof (which, in the case of ARM Loans, will change periodically
to accommodate adjustments to the Mortgage Rates thereon), the dates on which
any balloon payments are due, and the rate of principal prepayments thereon
(including for this purpose, prepayments resulting from liquidations of
Mortgage Loans due to defaults, casualties or condemnations affecting the
Mortgaged Properties, or purchases of Mortgage Loans out of the related Trust
Fund). Because the rate of principal prepayments on the Mortgage Loans in any
Trust Fund will depend on future events and a variety of factors (as
described more fully below), no assurance can be given as to such rate.
The extent to which the yield to maturity of a class of Offered
Certificates of any series may vary from the anticipated yield will depend
upon the degree to which they are purchased at a discount or premium and
when, and to what degree, payments of principal on the Mortgage Loans in the
related Trust Fund are in turn distributed on such Certificates (or, in the
case of a class of Stripped Interest Certificates, result in the reduction of
the Notional Amount thereof). An investor should consider, in the case of any
Offered Certificate purchased at a discount, the risk that a slower than
anticipated rate of principal payments on the Mortgage Loans in the related
Trust Fund could result in an actual yield to such investor that is lower
than the anticipated yield and, in the case of any Offered Certificate
purchased at a premium, the risk that a faster than anticipated rate of
principal payments on such Mortgage Loans could result in an actual yield to
such investor that is lower than the anticipated yield. In addition, if an
investor purchases an Offered Certificate at a discount (or premium), and
principal payments are made in reduction of the principal balance or notional
amount of such investor's Offered Certificates at a rate slower (or faster)
than the rate anticipated by the investor during any particular period, the
consequent adverse effects on such investor's yield would not be fully offset
by a subsequent like increase (or decrease) in the rate of such principal
payments at a later date.
A class of Certificates, including a class of Offered Certificates, may
provide that on any Distribution Date the holders of such Certificates are
entitled to a pro rata share of the prepayments on the Mortgage Loans in the
related Trust Fund that are distributable on such date, to a
disproportionately large share (which, in some cases, may be all) of such
prepayments, or to a disproportionately small share (which, in some cases,
may be none) of such prepayments. As and to the extent described in the
related Prospectus Supplement, the respective entitlements of the various
classes of Certificateholders of any series to receive payments (and, in
particular, prepayments) of principal of the Mortgage Loans in the related
Trust Fund may vary based on the occurrence of certain events (e.g., the
retirement of one or more classes of Certificates of such series) or subject
to certain contingencies (e.g., prepayment and default rates with respect to
such Mortgage Loans).
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In general, the Notional Amount of a class of Stripped Interest
Certificates will either (i) be based on the principal balances of some or
all of the Mortgage Assets in the related Trust Fund or (ii) equal the
Certificate Balances of one or more of the other classes of Certificates of
the same series. Accordingly, the yield on such Stripped Interest
Certificates will be inversely related to the rate at which payments and
other collections of principal are received on such Mortgage Assets or
distributions are made in reduction of the Certificate Balances of such
classes of Certificates, as the case may be.
Consistent with the foregoing, if a class of Certificates of any series
consists of Stripped Interest Certificates or Stripped Principal
Certificates, a lower than anticipated rate of principal prepayments on the
Mortgage Loans in the related Trust Fund will negatively affect the yield to
investors in Stripped Principal Certificates, and a higher than anticipated
rate of principal prepayments on such Mortgage Loans will negatively affect
the yield to investors in Stripped Interest Certificates. If the Offered
Certificates of a series include any such Certificates, the related
Prospectus Supplement will include a table showing the effect of various
assumed levels of prepayment on yields on such Certificates. Such tables will
be intended to illustrate the sensitivity of yields to various assumed
prepayment rates and will not be intended to predict, or provide information
that will enable investors to predict, yields or prepayment rates.
The Sponsor is not aware of any relevant publicly available or
authoritative statistics with respect to the historical prepayment experience
of a large group of multifamily or commercial mortgage loans. However, the
extent of prepayments of principal of the Mortgage Loans in any Trust Fund
may be affected by a number of factors, including, without limitation, the
availability of mortgage credit, the relative economic vitality of the area
in which the Mortgaged Properties are located, the quality of management of
the Mortgaged Properties, the servicing of the Mortgage Loans, possible
changes in tax laws and other opportunities for investment. In addition, the
rate of principal payments on the Mortgage Loans in any Trust Fund may be
affected by the existence of Lock-out Periods and requirements that principal
prepayments be accompanied by Prepayment Premiums, and by the extent to which
such provisions may be practicably enforced.
The rate of prepayment on a pool of mortgage loans is also affected by
prevailing market interest rates for mortgage loans of a comparable type,
term and risk level. When the prevailing market interest rate is below a
mortgage coupon, a borrower may have an increased incentive to refinance its
mortgage loan. Even in the case of ARM Loans, as prevailing market interest
rates decline, and without regard to whether the Mortgage Rates on such ARM
Loans decline in a manner consistent therewith, the related borrowers may
have an increased incentive to refinance for purposes of either (i)
converting to a fixed rate loan and thereby "locking in" such rate or (ii)
taking advantage of the initial "teaser rate" (a mortgage interest rate below
what it would otherwise be if the applicable index and gross margin were
applied) on another adjustable rate mortgage loan.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash
flow needs or to make other investments. In addition, some borrowers may be
motivated by federal and state tax laws (which are subject to change) to sell
Mortgaged Properties prior to the exhaustion of tax depreciation benefits.
The Sponsor will make no representation as to the particular factors that
will affect the prepayment of the Mortgage Loans in any Trust Fund, as to the
relative importance of such factors, as to the percentage of the principal
balance of such Mortgage Loans that will be paid as of any date or as to the
overall rate of prepayment on such Mortgage Loans.
WEIGHTED AVERAGE LIFE AND MATURITY
The rate at which principal payments are received on the Mortgage Loans in
any Trust Fund will affect the ultimate maturity and the weighted average
life of one or more classes of the Certificates of such series. Weighted
average life refers to the average amount of time that will elapse from the
date of issuance of an instrument until each dollar allocable as principal of
such instrument is repaid to the investor.
The weighted average life and maturity of a class of Certificates of any
series will be influenced by the rate at which principal on the related
Mortgage Loans, whether in the form of scheduled amortization or prepayments
(for this purpose, the term "prepayment" includes voluntary prepayments,
liquidations due to default and purchases of Mortgage Loans out of the
related Trust Fund), is paid to such class. Prepayment rates on loans are
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. CPR represents an assumed constant rate
of prepayment each month (expressed as an annual percentage) relative to the
then outstanding principal balance of a pool of loans for the life of such
loans. SPA represents an assumed variable rate of prepayment each month
(expressed as an annual percentage)
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relative to the then outstanding principal balance of a pool of loans, with
different prepayment assumptions often expressed as percentages of SPA. For
example, a prepayment assumption of 100% of SPA assumes prepayment rates of
0.2% per annum of the then outstanding principal balance of 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 particular pool of loans. Moreover,
the CPR and SPA models were developed based upon historical prepayment
experience for single-family loans. Thus, it is unlikely that the prepayment
experience of the Mortgage Loans included in any Trust Fund will conform to
any particular level of CPR or SPA.
The Prospectus Supplement with respect to each series of Certificates will
contain tables, if applicable, setting forth the projected weighted average
life of each class of Offered Certificates of such series and the percentage
of the initial Certificate Balance of each such class that would be
outstanding on specified Distribution Dates based on the assumptions stated
in such Prospectus Supplement, including assumptions that prepayments on the
related Mortgage Loans are made at rates corresponding to various percentages
of CPR or SPA, or at such other rates specified in such Prospectus
Supplement. Such tables and assumptions will illustrate the sensitivity of
the weighted average lives of the Certificates to various assumed prepayment
rates and will not be intended to predict, or to provide information that
will enable investors to predict, the actual weighted average lives of the
Certificates.
CONTROLLED AMORTIZATION CLASSES AND COMPANION CLASSES
A series of Certificates may include one or more Controlled Amortization
Classes that will entitle the holders thereof to receive principal
distributions according to a specified principal payment schedule, which
schedule is protected by prioritizing, as and to the extent described in the
related Prospectus Supplement, the principal payments from the Mortgage Loans
in the related Trust Fund. Unless otherwise specified in the related
Prospectus Supplement, each Controlled Amortization Class will either be a
Planned Amortization Class (a "PAC") or a Targeted Amortization Class (a
"TAC"). In general, a PAC has a "prepayment collar" (that is, a range of
prepayment rates that can be sustained without disruption) that determines
the principal cash flow of such Certificates. Such a prepayment collar is not
static, and may expand or contract after the issuance of the PAC depending
upon the actual prepayment experience for the underlying Mortgage Loans.
Distributions of principal on a PAC would be made in accordance with the
specified schedule so long as prepayments on the underlying Mortgage Loans
remain at a relatively constant rate within the prepayment collar and, as
described below, Companion Classes exist to absorb "excesses" or "shortfalls"
in principal payments on the underlying Mortgage Loans. If the rate of
prepayment on the underlying Mortgage Loans from time to time falls outside
the prepayment collar, or fluctuates significantly within the prepayment
collar, especially for any extended period of time, such an event may have
material consequences in respect of the anticipated weighted average life and
maturity for a PAC. A TAC is structured so that principal distributions
generally will be payable thereon in accordance with its specified principal
payment schedule so long as the rate of prepayments on the related Mortgage
Assets remains relatively constant at the particular rate used in
establishing such schedule. A TAC will generally afford the holders thereof
some protection against early retirement or some protection against an
extended average life, but not both.
Although prepayment risk cannot be eliminated entirely for any class of
Certificates, a Controlled Amortization Class will generally provide a
relatively stable cash flow so long as the actual rate of prepayment on the
Mortgage Loans in the related Trust Fund remains relatively constant at the
rate, or within the range of rates, of prepayment used to establish the
specific principal payment schedule for such Certificates. Prepayment risk
with respect to a given Mortgage Asset Pool does not disappear, however, and
the stability afforded to a Controlled Amortization Class comes at the
expense of one or more Companion Classes of the same series, any of which
Companion Classes may also be a class of Offered Certificates. In general,
and as more particularly described in the related Prospectus Supplement, a
Companion Class will entitle the holders thereof to a disproportionately
large share of prepayments on the Mortgage Loans in the related Trust Fund
when the rate of prepayment is relatively fast, and will entitle the holders
thereof to a disproportionately small share of prepayments on the Mortgage
Loans in the related Trust Fund when the rate of prepayment is relatively
slow. A class of Certificates that entitles the holders thereof to a
disproportionately large share of the prepayments on the Mortgage Loans in
the related Trust Fund enhances the risk of early retirement of such class
("call risk") if the rate of prepayment is relatively fast; while a class of
Certificates that entitles the holders thereof to a disproportionately small
share of the
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prepayments on the Mortgage Loans in the related Trust Fund enhances the risk
of an extended average life of such class ("extension risk") if the rate of
prepayment is relatively slow. Thus, as and to the extent described in the
related Prospectus Supplement, a Companion Class absorbs some (but not all)
of the "call risk" and/or "extension risk" that would otherwise belong to the
related Controlled Amortization Class if all payments of principal of the
Mortgage Loans in the related Trust Fund were allocated on a pro rata basis.
OTHER FACTORS AFFECTING YIELD, WEIGHTED AVERAGE LIFE AND MATURITY
Balloon Payments; Extensions of Maturity. Some or all of the Mortgage
Loans included in a particular Trust Fund may require that balloon payments
be made at maturity. Because the ability of a borrower to make a balloon
payment typically will depend upon its ability either to refinance the loan
or to sell the related Mortgaged Property, there is a risk that Mortgage
Loans that require balloon payments may default at maturity, or that the
maturity of such a Mortgage Loan may be extended in connection with a
workout. In the case of defaults, recovery of proceeds may be delayed by,
among other things, bankruptcy of the borrower or adverse conditions in the
market where the property is located. In order to minimize losses on
defaulted Mortgage Loans, the Master Servicer and/or Special Servicer for a
Trust Fund, to the extent and under the circumstances set forth herein and in
the related Prospectus Supplement, may be authorized to modify Mortgage Loans
in such Trust Fund that are in default or as to which a payment default is
imminent. Any defaulted balloon payment or modification that extends the
maturity of a Mortgage Loan may delay distributions of principal on a class
of Offered Certificates and thereby extend the weighted average life of such
Certificates and, if such Certificates were purchased at a discount, reduce
the yield thereon.
Negative Amortization. The weighted average life of a class of
Certificates can be affected by Mortgage Loans that permit negative
amortization to occur. A Mortgage Loan that permits negative amortization
would be expected during a period of increasing interest rates to amortize at
a slower rate (and perhaps not at all) than if interest rates were declining
or were remaining constant. Such slower rate of Mortgage Loan amortization
would correspondingly be reflected in a slower rate of amortization for one
or more classes of Certificates of the related series. In addition, negative
amortization on one or more Mortgage Loans in any Trust Fund may result in
negative amortization on the Certificates of the related series. The related
Prospectus Supplement will describe, if applicable, the manner in which
negative amortization in respect of the Mortgage Loans in any Trust Fund is
allocated among the respective classes of Certificates of the related series.
The portion of any Mortgage Loan negative amortization allocated to a class
of Certificates (other than certain classes of REMIC Residual Certificates)
will result in a deferral of some or all of the interest payable thereon,
which deferred interest may be added to the Certificate Balance thereof.
Accordingly, the weighted average lives of Mortgage Loans that permit
negative amortization (and that of the classes of Certificates to which any
such negative amortization would be allocated or which would bear the effects
of a slower rate of amortization on such Mortgage Loans) may increase as a
result of such feature.
Notwithstanding the foregoing, negative amortization generally occurs in
respect of those ARM Loans that allow for such because the related Mortgage
Note limits the amount by which the scheduled payment thereon may adjust in
response to a change in the Mortgage Rate thereon and/or the related Mortgage
Note provides that the scheduled payment thereon will adjust less frequently
than the Mortgage Rate thereon. Accordingly, during a period of declining
interest rates, the scheduled payment on a Mortgage Loan that permits
negative amortization may exceed the amount necessary to amortize the loan
fully over its remaining amortization schedule and pay interest at the then
applicable Mortgage Rate, thereby resulting in the accelerated amortization
of such Mortgage Loan. Any such acceleration in amortization of its principal
balance will shorten the weighted average life of such Mortgage Loan and,
correspondingly, the weighted average lives of those classes of Certificates
entitled to a portion of the principal payments on such Mortgage Loan.
The extent to which the yield on any Offered Certificate will be affected
by the inclusion in the related Trust Fund of Mortgage Loans that permit
negative amortization, will depend upon (i) whether such Offered Certificate
was purchased at a premium or a discount and (ii) the extent to which the
payment characteristics of such Mortgage Loans delay or accelerate the
distributions of principal on such Certificate (or, in the case of a Stripped
Interest Certificate, delay or accelerate the amortization of the notional
amount thereof). See "--Yield and Prepayment Considerations" above.
Foreclosures and Payment Plans. The number of foreclosures and the
principal amount of the Mortgage Loans that are foreclosed in relation to the
number and principal amount of Mortgage Loans that are repaid in accordance
with their terms will affect the weighted average lives of those Mortgage
Loans and, accordingly, the weighted average lives of and yields on the
Certificates of the related series. Servicing decisions made with respect to
the Mortgage Loans, including the use of payment plans prior to a demand for
acceleration and the restructuring of Mortgage Loans in bankruptcy
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proceedings, may also have an effect upon the payment patterns of particular
Mortgage Loans and thus the weighted average lives of and yields on the
Certificates of the related series.
Losses and Shortfalls on the Mortgage Assets. The yield to holders of the
Offered Certificates of any series will directly depend on the extent to
which such holders are required to bear the effects of any losses or
shortfalls in collections arising out of defaults on the Mortgage Loans in
the related Trust Fund and the timing of such losses and shortfalls. In
general, the earlier that any such loss or shortfall occurs, the greater will
be the negative effect on yield for any class of Certificates that is
required to bear the effects thereof.
The amount of any losses or shortfalls in collections on the Mortgage
Assets in any Trust Fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of Credit Support) will be allocated
among the respective classes of Certificates of the related series in the
priority and manner, and subject to the limitations, specified in the related
Prospectus Supplement. As described in the related Prospectus Supplement,
such allocations may result in reductions in the entitlements to interest
and/or Certificate Balances of one or more such classes of Certificates, or
may be effected simply by a prioritization of payments among such classes of
Certificates.
The yield to maturity on a class of Subordinate Certificates may be
extremely sensitive to losses and shortfalls in collections on the Mortgage
Loans in the related Trust Fund.
Additional Certificate Amortization. In addition to entitling the holders
thereof to a specified portion (which may range from none to all) of the
principal payments received on the Mortgage Assets in the related Trust Fund,
one or more classes of Certificates of any series, including one or more
classes of Offered Certificates of such series, may provide for distributions
of principal thereof from (i) amounts attributable to interest accrued but
not currently distributable on one or more classes of Accrual Certificates,
(ii) Excess Funds or (iii) any other amounts described in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, "Excess Funds" will, in general, represent that portion of the
amounts distributable in respect of the Certificates of any series on any
Distribution Date that represent (i) interest received or advanced on the
Mortgage Assets in the related Trust Fund that is in excess of the interest
currently distributable on the Certificates of such series, as well as any
interest accrued but not currently distributable on any Accrual Certificates
of such series, or (ii) Prepayment Premiums, payments from Equity
Participations or any other amounts received on the Mortgage Assets in the
related Trust Fund that do not constitute interest thereon or principal
thereof.
The amortization of any class of Certificates out of the sources described
in the preceding paragraph would shorten the weighted average life of such
Certificates and, if such Certificates were purchased at a premium, reduce
the yield thereon. The related Prospectus Supplement will discuss the
relevant factors to be considered in determining whether distributions of
principal of any class of Certificates out of such sources would have any
material effect on the rate at which such Certificates are amortized.
Optional Early 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 Mortgage Assets in the related
Trust Fund by the party or parties specified therein, under the circumstances
and in the manner set forth therein. If so provided in the related Prospectus
Supplement, upon the reduction of the Certificate Balance of a specified
class or classes of Certificates by a specified percentage or amount, a party
specified therein may be authorized or required to solicit bids for the
purchase of all of the Mortgage Assets of the related Trust Fund, or of a
sufficient portion of such Mortgage Assets to retire such class or classes,
under the circumstances and in the manner set forth therein. In the absence
of other factors, any such early retirement of a class of Offered
Certificates would shorten the weighted average life thereof and, if such
Certificates were purchased at premium, reduce the yield thereon.
MORTGAGE CAPITAL FUNDING, INC.
The Sponsor was incorporated in the State of Delaware on October 7, 1986
under its former name of CitiCMO, Inc., and is a direct wholly-owned
subsidiary of Citicorp Banking Corporation, which in turn is a direct
wholly-owned subsidiary of Citicorp. The principal executive offices of the
Sponsor are located at 399 Park Avenue, 3rd floor, New York, New York 10043,
and its telephone number is (212) 793-5880. All inquiries, requests and other
communications to the Sponsor regarding the matters described herein should
be made or sent to the attention of "Mortgage Finance". The Sponsor does not
have, nor is it expected in the future to have, any significant assets.
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USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates of any
series will be applied by the Sponsor to the purchase of Trust Assets or will
be used by the Sponsor for general corporate purposes. The Sponsor 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 Sponsor, prevailing interest rates,
availability of funds and general market conditions.
DESCRIPTION OF THE CERTIFICATES
GENERAL
Each series of Certificates will represent the entire beneficial ownership
interest in the Trust Fund created pursuant to the related Pooling Agreement.
As described in the related Prospectus Supplement, the Certificates of each
series, including the Offered Certificates of such series, may consist of one
or more classes of Certificates that: (i) provide for the accrual of interest
thereon at a fixed, variable or adjustable rate; (ii) are senior
(collectively, "Senior Certificates") or subordinate (collectively,
"Subordinate Certificates") to one or more other classes of Certificates in
entitlement to certain distributions on the Certificates; (iii) are entitled
to distributions of principal, with disproportionately small, nominal or no
distributions of interest (collectively, "Stripped Principal Certificates");
(iv) are entitled to distributions of interest, with disproportionately
small, nominal or no distributions of principal (collectively, "Stripped
Interest Certificates"); (v) provide for distributions of interest thereon or
principal thereof that commence only after the occurrence of certain events,
such as the retirement of one or more other classes of Certificates of such
series; (vi) provide for distributions of principal thereof to be made, from
time to time or for designated periods, at a rate that is faster (and, in
some cases, substantially faster) or slower (and, in some cases,
substantially slower) than the rate at which payments or other collections of
principal are received on the Mortgage Assets in the related Trust Fund; or
(vii) provide for distributions of principal thereof to be made, subject to
available funds, based on a specified principal payment schedule or other
methodology.
Each class of Offered Certificates of a series will be issued in minimum
denominations corresponding to the principal balances or, in case of Stripped
Interest Certificates or REMIC Residual Certificates, notional amounts or
percentage interests, specified in the related Prospectus Supplement. As
provided in the related Prospectus Supplement, one or more classes of Offered
Certificates of any series may be issued in fully registered, definitive form
(such Certificates, "Definitive Certificates") or may be offered in
book-entry format (such Certificates, "Book-Entry Certificates") through the
facilities of The Depository Trust Company ("DTC"). The Offered Certificates
of each series (if issued as Definitive Certificates) may be transferred or
exchanged, subject to any restrictions on transfer described in the related
Prospectus Supplement, at the location specified in the related Prospectus
Supplement, without the payment of any service charges, other than any tax or
other governmental charge payable in connection therewith. Interests in a
class of Book-Entry Certificates will be transferred on the book-entry
records of DTC and its participating organizations ("Participants"). See
"Risk Factors--Limited Assets for Payment of Certificates" and "--Book-Entry
Registration".
DISTRIBUTIONS
Distributions on the Certificates of each series will be made by or on
behalf of the related Trustee or Master Servicer on each Distribution Date as
specified in the related Prospectus Supplement from the Available
Distribution Amount for such series and such Distribution Date. Unless
otherwise provided in the related Prospectus Supplement, the "Available
Distribution Amount" for any series of Certificates and any Distribution Date
will refer to the total of all payments or other collections (or advances in
lieu thereof) on, under or in respect of the Mortgage Assets and any other
assets included in the related Trust Fund that are available for distribution
to the Certificateholders of such series on such date. The particular
components of the Available Distribution Amount for any series on each
Distribution Date will be more specifically described in the related
Prospectus Supplement.
Except as otherwise specified in the related Prospectus Supplement,
distributions on the Certificates of each series (other than the final
distribution in retirement of any such Certificate) will be made to the
persons in whose names such Certificates are registered at the close of
business on the last business day of the month preceding the month in which
the applicable Distribution Date occurs (the "Record Date"), and the amount
of each distribution will be determined as of the close of business on the
date (the "Determination 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
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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 provided the person required to make such payments with
wiring instructions (which may be provided in the form of a standing order
applicable to all subsequent distributions) no later than the date specified
in the related Prospectus Supplement (and, if so provided in the related
Prospectus Supplement, such Certificateholder holds Certificates in the
requisite amount or denomination specified therein), or by check mailed to
the address of such Certificateholder as it appears on the Certificate
Register; provided, however, that the final distribution in retirement of any
class of Certificates (whether Definitive Certificates or Book-Entry
Certificates) will be made only upon presentation and surrender of such
Certificates at the location specified in the notice to Certificateholders of
such final distribution.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each class of Certificates of each series (other than certain classes of
Stripped Principal Certificates and certain classes of REMIC Residual
Certificates that have no Pass-Through Rate) may have a different
Pass-Through Rate, which in each case may be fixed, variable or adjustable.
The related Prospectus Supplement will specify the Pass-Through Rate or, in
the case of a variable or adjustable Pass-Through Rate, the method for
determining the Pass-Through Rate, for each class. Unless otherwise specified
in the related Prospectus Supplement, interest on the Certificates of each
series will be calculated on the basis of a 360-day year consisting of twelve
30-day months.
Distributions of interest in respect of any class of Certificates (other
than certain classes of Certificates that will be entitled to distributions
of accrued interest commencing only on the Distribution Date, or under the
circumstances, specified in the related Prospectus Supplement ("Accrual
Certificates"), and other than any class of Stripped Principal Certificates
or REMIC Residual Certificates that is not entitled to any distributions of
interest) will be made on each Distribution Date based on the Accrued
Certificate Interest for such class and such Distribution Date, subject to
the sufficiency of the portion of the Available Distribution Amount allocable
to such class on such Distribution Date. Prior to the time interest is
distributable on any class of Accrual Certificates, the amount of Accrued
Certificate Interest otherwise distributable on such class will be added to
the Certificate Balance thereof on each Distribution Date. With respect to
each class of Certificates (other than certain classes of Stripped Interest
Certificates and certain classes of REMIC Residual Certificates), the
"Accrued Certificate Interest" for each Distribution Date will be equal to
interest at the applicable Pass-Through Rate accrued for a specified period
(generally equal to the time period between Distribution Dates) on the
outstanding Certificate Balance of such class of Certificates immediately
prior to such Distribution Date. Unless otherwise provided in the related
Prospectus Supplement, the Accrued Certificate Interest for each Distribution
Date on a class of Stripped Interest Certificates will be similarly
calculated except that it will accrue on a hypothetical or notional amount (a
"Notional Amount") that is either (i) based on the principal balances of some
or all of the Mortgage Assets in the related Trust Fund or (ii) equal to the
Certificate Balances of one or more other classes of Certificates of the same
series. Reference to a Notional Amount with respect to a class of Stripped
Interest Certificates is solely for convenience in making certain
calculations and does not represent the right to receive any distributions of
principal. If so specified in the related Prospectus Supplement, the amount
of Accrued Certificate Interest that is otherwise distributable on (or, in
the case of Accrual Certificates, that may otherwise be added to the
Certificate Balance of) one or more classes of the Certificates of a series
will be reduced to the extent that any Prepayment Interest Shortfalls, as
described under "Yield and Maturity Considerations--Certain Shortfalls in
Collections of Interest", exceed the amount of any sums (including, if and to
the extent specified in the related Prospectus Supplement, the Master
Servicer's servicing compensation) that are applied to offset such
shortfalls. The particular manner in which such shortfalls will be allocated
among some or all of the classes of Certificates of that series will be
specified in the related Prospectus Supplement. The related Prospectus
Supplement will also describe the extent to which the amount of Accrued
Certificate Interest that is otherwise distributable on (or, in the case of
Accrual Certificates, that may otherwise be added to the Certificate Balance
of) a class of Offered Certificates may be reduced as a result of any other
contingencies, including delinquencies, losses and deferred interest on or in
respect of the Mortgage Assets in the related Trust Fund. Unless otherwise
provided in the related Prospectus Supplement, any reduction in the amount of
Accrued Certificate Interest otherwise distributable on a class of
Certificates by reason of the allocation to such class of a portion of any
deferred interest on or in respect of the Mortgage Assets in the related
Trust Fund will result in a corresponding increase in the Certificate Balance
of such class. See "Risk Factors--Prepayments; Average Life of Certificates;
Yields" and "Yield and Maturity Considerations".
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
Each class of Certificates of each series (other than certain classes of
Stripped Interest Certificates and certain classes of REMIC Residual
Certificates) will have a "Certificate Balance" which, at any time, will
equal the then maximum
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amount that the holders of Certificates of such class will be entitled to
receive in respect of principal out of the future cash flow on the Mortgage
Assets and other assets included in the related Trust Fund. The outstanding
Certificate Balance of a class of Certificates will be reduced by
distributions of principal made thereon from time to time and, if so provided
in the related Prospectus Supplement, further by any losses incurred in
respect of the related Mortgage Assets allocated thereto from time to time.
In turn, the outstanding Certificate Balance of a class of Certificates may
be increased as a result of any deferred interest on or in respect of the
related Mortgage Assets being allocated thereto from time to time, and will
be increased, in the case of a class of Accrual Certificates prior to the
Distribution Date on which distributions of interest thereon are required to
commence, by the amount of any Accrued Certificate Interest in respect
thereof (reduced as described above). Unless otherwise provided in the
related Prospectus Supplement, the initial aggregate Certificate Balance of
all classes of a series of Certificates will not be greater than the
aggregate outstanding principal balance of the related Mortgage Assets as of
the applicable Cut-off Date, after application of scheduled payments due on
or before such date, whether or not received. The initial Certificate Balance
of each class of a series of Certificates will be specified in the related
Prospectus Supplement. As and to the extent described in the related
Prospectus Supplement, distributions of principal with respect to a series of
Certificates will be made on each Distribution Date to the holders of the
class or classes of Certificates of such series entitled thereto until the
Certificate Balances of such Certificates have been reduced to zero.
Distributions of principal with respect to one or more classes of
Certificates may be made at a rate that is faster (and, in some cases,
substantially faster) than the rate at which payments or other collections of
principal are received on the Mortgage Assets in the related Trust Fund.
Distributions of principal with respect to one or more classes of
Certificates may not commence until the occurrence of certain events, such as
the retirement of one or more other classes of Certificates of the same
series, or may be made at a rate that is slower (and, in some cases,
substantially slower) than the rate at which payments or other collections of
principal are received on the Mortgage Assets in the related Trust Fund.
Distributions of principal with respect to one or more classes of
Certificates (each such class, a "Controlled Amortization Class") may be
made, subject to available funds, based on a specified principal payment
schedule. Distributions of principal with respect to one or more classes of
Certificates (each such class, a "Companion Class") may be contingent on the
specified principal payment schedule for a Controlled Amortization Class of
the same series and the rate at which payments and other collections of
principal on the Mortgage Assets in the related Trust Fund are received.
Unless otherwise specified in the related Prospectus Supplement,
distributions of principal of any class of Certificates will be made on a pro
rata basis among all of the Certificates of such class.
DISTRIBUTIONS ON THE CERTIFICATES IN RESPECT OF PREPAYMENT PREMIUMS OR IN
RESPECT OF EQUITY PARTICIPATIONS
If so provided in the related Prospectus Supplement, Prepayment Premiums
or payments in respect of Equity Participations received on or in connection
with the Mortgage Assets in any Trust Fund will be distributed on each
Distribution Date to the holders of the class of Certificates of the related
series entitled thereto in accordance with the provisions described in such
Prospectus Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
The amount of any losses or shortfalls in collections on the Mortgage
Assets in any Trust Fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of Credit Support) will be allocated
among the respective classes of Certificates of the related series in the
priority and manner, and subject to the limitations, specified in the related
Prospectus Supplement. As described in the related Prospectus Supplement,
such allocations may result in reductions in the entitlements to interest
and/or Certificate Balances of one or more such classes of Certificates, or
may be effected simply by a prioritization of payments among such classes of
Certificates.
ADVANCES IN RESPECT OF DELINQUENCIES
If and to the extent provided in the related Prospectus Supplement, if a
Trust Fund includes Mortgage Loans, the Master Servicer, the Special
Servicer, the Trustee, any provider of Credit Support and/or any other
specified person may be obligated to advance, or have the option of
advancing, on or before each Distribution Date, from its or their own funds
or from excess funds held in the related Certificate Account that are not
part of the Available Distribution Amount for the related series of
Certificates for such Distribution Date, an amount up to the aggregate of any
payments of principal (other than any balloon payments) and interest that
were due on or in respect of such Mortgage Loans during the related Due
Period and were delinquent on the related Determination Date.
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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.
Accordingly, all advances made out of a specific entity's own funds will be
reimbursable out of related recoveries on the Mortgage Loans (including
amounts received under any instrument of Credit Support) respecting which
such advances were made (as to any Mortgage Loan, "Related Proceeds") and
such other specific sources as may be identified in the related Prospectus
Supplement, including in the case of a series that includes one or more
classes of Subordinate Certificates, collections on other Mortgage Loans in
the related Trust Fund that would otherwise be distributable to the holders
of one or more classes of such Subordinate Certificates. No advance will be
required to be made by a Master Servicer, Special Servicer or Trustee if, in
the judgment of the Master Servicer, Special Servicer or Trustee, as the case
may be, such advance would not be recoverable from Related Proceeds or
another specifically identified source (any such advance, a "Nonrecoverable
Advance"); and, if previously made by a Master Servicer, Special Servicer or
Trustee, a Nonrecoverable Advance will be reimbursable thereto from any
amounts in the related Certificate Account prior to any distributions being
made to the related series of Certificateholders.
If advances have been made by a Master Servicer, Special Servicer, Trustee
or other entity from excess funds in a Certificate Account, such Master
Servicer, Special Servicer, Trustee or other entity, as the case may be, will
be required to replace such funds in such Certificate Account on any future
Distribution Date to the extent that funds in such Certificate Account on
such Distribution Date are less than payments required to be made to the
related series of Certificateholders on such date. If so specified in the
related Prospectus Supplement, the obligation of a Master Servicer, Special
Servicer, Trustee or other entity to make advances may be secured by a cash
advance reserve fund or a surety bond. If applicable, information regarding
the characteristics of, and the identity of any obligor on, any such surety
bond, will be set forth in the related Prospectus Supplement.
If and to the extent so provided in the related Prospectus Supplement, any
entity making advances may be entitled to receive interest thereon for the
period that such advances are outstanding at the rate specified in such
Prospectus Supplement, and such entity will be entitled to payment of such
interest periodically from general collections on the Mortgage Loans in the
related Trust Fund prior to any payment to the related series of
Certificateholders or as otherwise provided in the related Pooling 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 comparable
advancing obligation of a party to the related Pooling Agreement or of a
party to the related MBS Agreement.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, together with the distribution to the holders
of each class of the Offered Certificates of a series, a Master Servicer or
Trustee, as provided in the related Prospectus Supplement, will forward to
each such holder, a statement (a "Distribution Date Statement") that, unless
otherwise provided in the related Prospectus Supplement, will set forth,
among other things, in each case to the extent applicable:
(i) the amount of such distribution to holders of such class of Offered
Certificates that was applied to reduce the Certificate Balance thereof;
(ii) the amount of such distribution to holders of such class of Offered
Certificates that is allocable to Accrued Certificate Interest;
(iii) the amount, if any, of such distribution to holders of such class
of Offered Certificates that is allocable to (A) Prepayment Premiums and
(B) payments on account of Equity Participations;
(iv) the amount, if any, by which such distribution is less than the
amounts to which holders of such class of Offered Certificates are
entitled;
(v) the 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 or
Notional Amount due to the allocation of any losses in respect of the
related Mortgage Assets, any increase in such Certificate Balance or
Notional Amount due to the allocation of any negative amortization in
respect of the related Mortgage Assets and any increase in the Certificate
Balance of a class of Accrual Certificates, if any, in the event that
Accrued Certificate Interest has been added to such balance;
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(vi) information regarding the aggregate principal balance of the related
Mortgage Assets on or shortly before such Distribution Date;
(vii) if such class of Offered Certificates has a variable Pass-Through
Rate or an adjustable Pass-Through Rate, the Pass-Through Rate applicable
thereto for such Distribution Date;
(viii) the amount deposited in or withdrawn from any reserve fund on such
Distribution Date, and the amount remaining on deposit in such reserve
fund as of the close of business on such Distribution Date;
(ix) if the related Trust Fund includes one or more instruments of Credit
Support, such as a letter of credit, an insurance policy and/or a surety
bond, the amount of coverage under each such instrument as of the close of
business on such Distribution Date; and
(x) to the extent not otherwise reflected through the information
furnished pursuant to subclauses (v) and (vi) above, the amount of Credit
Support being afforded by any classes of Subordinate Certificates.
In the case of information furnished pursuant to subclauses (i)-(iii)
above, the amounts will be expressed as a dollar amount per minimum
denomination of the relevant class of Offered Certificates or per a specified
portion of such minimum denomination. The Prospectus Supplement for each
series of Offered Certificates will describe any additional information to be
included in reports to the holders of such Certificates. Upon request, a
Certificateholder may receive with respect to the Mortgage Loans, if any, in
the related Trust Fund, a monthly report regarding the delinquencies thereon,
indicating the number and aggregate principal amount of such Mortgage Loans
delinquent one month and two or more months, as well as the book value of any
related Mortgaged Property acquired through foreclosure, deed in lieu of
foreclosure or other exercise of rights respecting the Trustee's interest in
such Mortgage Loans.
Within a reasonable period of time after the end of each calendar year,
the related Master Servicer or Trustee, as the case may be, will be required
to furnish to each person who at any time during the calendar year was a
holder of an Offered Certificate a statement containing the information set
forth in subclauses (i)-(iii) above, aggregated for such calendar year or the
applicable portion thereof during which such person was a Certificateholder,
together with such other customary information as the Sponsor or the
reporting party determines to be necessary to enable Certificateholders to
prepare their tax returns for such calendar year. See, however, "Description
of the Certificates--Book-Entry Registration and Definitive Certificates". If
the Trust Fund for a series of Certificates includes MBS, the ability of the
related Master Servicer or Trustee, as the case may be, to include in any
Distribution Date Statement information regarding the mortgage loans
underlying such MBS will depend on the reports received with respect to such
MBS. In such cases, the related Prospectus Supplement will describe the
loan-specific information to be included in the Distribution Date Statements
that will be forwarded to the holders of the Offered Certificates of that
series in connection with distributions made to them.
VOTING RIGHTS
The voting rights evidenced by each series of Certificates (as to such
series, the "Voting Rights") will be allocated among the respective classes
of such series in the manner described in the related Prospectus Supplement.
Certificateholders will generally not have a right to vote, except with
respect to required consents to certain amendments to the related Pooling
Agreement and as otherwise specified in the related Prospectus Supplement.
See "Description of the Pooling Agreements--Amendment". The holders of
specified amounts of Certificates of a particular series will have the right
to act as a group to remove the related Trustee and also upon the occurrence
of certain events which if continuing would constitute an Event of Default on
the part of the related Master Servicer, Special Servicer or REMIC
Administrator. See "Description of the Pooling Agreements--Events of
Default", "--Rights Upon Event of Default" and "--Resignation and Removal of
the Trustee".
TERMINATION
The obligations created by the Pooling Agreement for each series of
Certificates will terminate following (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 payment to Certificateholders of that series of all amounts
required to be paid to them pursuant to such Pooling Agreement. Written
notice of termination of a Pooling Agreement will be given to each
Certificateholder of the related series, and the final distribution will be
made only upon presentation and surrender of the Certificates of such series
at the location to be specified in the notice of termination.
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If so specified in the related Prospectus Supplement, a series of
Certificates may be subject to optional early termination through the
repurchase of the Mortgage Assets in the related Trust Fund by the party or
parties specified therein, under the circumstances and in the manner set
forth therein. If so provided in the related Prospectus Supplement, upon the
reduction of the Certificate Balance of a specified class or classes of
Certificates by a specified percentage or amount, a party specified therein
may be authorized or required to solicit bids for the purchase of all the
Mortgage Assets of the related Trust Fund, or of a sufficient portion of such
Mortgage Assets to retire such class or classes, under the circumstances and
in the manner set forth therein.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the related Prospectus Supplement, one or more classes
of the Offered Certificates of any series will be offered in book-entry
format through the facilities of The Depository Trust Company ("DTC"), and
each such class will be represented by one or more global Certificates
registered in the name of DTC or its nominee.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking corporation" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the 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 computerized book-entry
changes in their accounts, thereby eliminating the need for physical movement
of securities certificates. "Direct Participants", which maintain accounts
with DTC, include securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. DTC is
owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. Access to the DTC system also is
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Direct Participant,
either directly or indirectly ("Indirect Participants"). The Rules applicable
to DTC and its Participants are on file with the Commission.
Purchases of Book-Entry Certificates under the DTC system must be made by
or through Direct Participants, which will receive a credit for the
Book-Entry Certificates on DTC's records. The ownership interest of each
actual purchaser of a Book-Entry Certificate (a "Certificate Owner") is in
turn to be recorded on the Direct and Indirect Participants' records.
Certificate Owners will not receive written confirmation from DTC of their
purchases, but Certificate Owners are expected to receive written
confirmations providing details of such transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participant through
which each Certificate Owner entered into the transaction. Transfers of
ownership interest in the Book-Entry Certificates are to be accomplished by
entries made on the books of Participants acting on behalf of Certificate
Owners. Certificate Owners will not receive certificates representing their
ownership interests in the Book-Entry Certificates, except in the event that
use of the book-entry system for the Book-Entry Certificates of any series is
discontinued as described below.
DTC has no knowledge of the actual Certificate Owners of the Book-Entry
Certificates; DTC's records reflect only the identity of the Direct
Participants to whose accounts such Certificates are credited, which may or
may not be the Certificate Owners. The Participants will remain responsible
for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Certificate Owners will be governed
by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Distributions on the Book-Entry Certificates will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the related
Distribution Date in accordance with their respective holdings shown on DTC's
records unless DTC has reason to believe that it will not receive payment on
such date. Disbursement of such distributions by Participants to Certificate
Owners will be governed by standing instructions and customary practices, as
is the case with securities held for the accounts of customers in bearer form
or registered in "street name", and will be the responsibility of each such
Participant (and not of DTC, the Sponsor or any Trustee, Master Servicer or
Special Servicer), subject to any statutory or regulatory requirements as may
be in effect from time to time. Under a book-entry system, Certificate Owners
may receive payments after the related Distribution Date.
Unless otherwise provided in the related Prospectus Supplement, the only
"Certificateholder" (as such term is used in the related Pooling Agreement)
will be the nominee of DTC, and the Certificate Owners will not be recognized
as
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Certificateholders under the Pooling Agreement. Certificate Owners will be
permitted to exercise the rights of Certificateholders under the related
Pooling Agreement only indirectly through the Participants who in turn will
exercise their rights through DTC. The Sponsor is informed that DTC will take
action permitted to be taken by a Certificateholder under a Pooling Agreement
only at the direction of one or more Participants to whose account with DTC
interests in the Book-Entry Certificates are credited.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain Certificate Owners, the ability
of a Certificate Owner to pledge its interest in Book-Entry Certificates to
persons or entities that do not participate in the DTC system, or otherwise
take actions in respect of its interest in Book-Entry Certificates, may be
limited due to the lack of a physical certificate evidencing such interest.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued in fully
registered, certificated form (as so issued, "Definitive Certificates") to
Certificate Owners or their nominees, rather than to DTC or its nominee, only
if (i) the Sponsor advises the Trustee in writing that DTC is no longer
willing or able to properly discharge its responsibilities as depository with
respect to such Certificates and the Sponsor is unable to locate a qualified
successor or (ii) the Sponsor, at its option, elects to terminate the
book-entry system through DTC with respect to such Certificates. Upon the
occurrence of either of the events described in the preceding sentence, DTC
will be required to notify all Participants of the availability through DTC
of Definitive Certificates. Upon surrender by DTC of the certificate or
certificates representing a class of Book-Entry Certificates, together with
instructions for registration, the Trustee or other designated party will be
required to issue to the Certificate Owners identified in such instructions
the Definitive Certificates to which they are entitled, and thereafter the
holders of such Definitive Certificates will be recognized as
Certificateholders under the related Pooling Agreement.
DESCRIPTION OF THE POOLING AGREEMENTS
GENERAL
The Certificates of each series will be issued pursuant to a pooling and
servicing agreement or other agreement specified in the related Prospectus
Supplement (in either case, a "Pooling Agreement"). In general, the parties
to a Pooling Agreement will include the Sponsor, the Trustee, the Master
Servicer, the Special Servicer and, if one or more REMIC elections have been
made with respect to the related Trust Fund, the REMIC Administrator.
However, a Pooling Agreement may include a Mortgage Asset Seller as a party,
and a Pooling Agreement that relates to a Trust Fund that consists solely of
MBS may not include a Master Servicer, Special Servicer or other servicer as
a party. All parties to each Pooling Agreement under which Certificates of a
series are issued will be identified in the related Prospectus Supplement. If
so specified in the related Prospectus Supplement, the Mortgage Asset Seller
or an affiliate thereof or of the Sponsor may perform the duties of Master
Servicer, Special Servicer or REMIC Administrator. If so specified in the
related Prospectus Supplement, the Master Servicer may also perform the
duties of Special Servicer, and the Master Servicer, the Special Servicer or
the Trustee may also perform the duties of REMIC Administrator. Any party to
a Pooling Agreement may own Certificates issued thereunder; however, except
with respect to required consents to certain amendments to a Pooling
Agreement, Certificates issued thereunder that are held by the related Master
Servicer or Special Servicer will not be allocated Voting Rights. See "Risk
Factors--Conflicts of Interest Involving Parties to a Pooling Agreement".
A form of a pooling and servicing agreement has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. However,
the provisions of each Pooling Agreement will vary depending upon the nature
of the Certificates to be issued thereunder and the nature of the related
Trust Fund. The following summaries describe certain provisions that may
appear in a Pooling Agreement under which Certificates that evidence
interests in Mortgage Loans will be issued. The Prospectus Supplement for a
series of Certificates will describe any provision of the related Pooling
Agreement that materially differs from the description thereof contained in
this Prospectus and, if the related Trust Fund includes MBS, will summarize
all of the material provisions of the related Pooling Agreement. The
summaries herein do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all of the provisions of the
Pooling Agreement for each series of Certificates and the description of such
provisions in the 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 Sponsor will provide a
copy of the Pooling Agreement (without exhibits) that relates to any series
of Certificates without charge upon written request of a holder of a
Certificate of such series addressed to it at its principal executive offices
specified herein under "Mortgage Capital Funding, Inc."
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ASSIGNMENT OF MORTGAGE LOANS; REPURCHASES
At the time of issuance of any series of Certificates, the Sponsor will
assign (or cause to be assigned) to the designated Trustee the Mortgage Loans
to be included in the related Trust Fund, together with, unless otherwise
specified in the related Prospectus Supplement, all principal and interest to
be received on or with respect to such Mortgage Loans after the Cut-off Date,
other than principal and interest due on or before the Cut-off Date. The
Trustee will, concurrently with such assignment, deliver the Certificates to
or at the direction of the Sponsor in exchange for the Mortgage Loans and the
other assets to be included in the Trust Fund for such series. Each Mortgage
Loan will be identified in a schedule appearing as an exhibit to the related
Pooling Agreement. Such schedule generally will include detailed information
that pertains to each Mortgage Loan included in the related Trust Fund, which
information will typically include: the address of the related Mortgaged
Property and type of such property; the Mortgage Rate and, if applicable, the
applicable index, gross margin, adjustment date and any rate cap information;
the original and remaining term to maturity; the original amortization term;
and the original and outstanding principal balance.
With respect to each Mortgage Loan to be included in a Trust Fund, the
Sponsor will deliver (or cause to be delivered) to the related Trustee (or to
a custodian appointed by the Trustee) certain loan documents which, unless
otherwise specified in the related Prospectus Supplement, will include the
original Mortgage Note endorsed, without recourse, to the order of the
Trustee, the original Mortgage or a certified copy thereof, with evidence of
recording or filing indicated thereon, and an assignment of the Mortgage to
the Trustee in recordable form. In certain cases where documents respecting a
Mortgage Loan may not be available prior to execution of the related Pooling
Agreement, the Sponsor may be permitted to deliver (or cause to be delivered)
copies thereof (if applicable, without evidence of recording or filing
thereon) to the related Trustee (or to a custodian appointed by the Trustee),
provided that such documents or certified copies thereof are delivered (if
applicable, with evidence of recording or filing thereon) promptly upon
receipt.
Assignments of Mortgage to a Trustee will be recorded or filed in the
appropriate jurisdictions except in states where, in the written opinion of
local counsel acceptable to the Sponsor, such filing or recording is not
required to protect the Trustee's interests in the related Mortgage Loans
against sale, further assignment, satisfaction or discharge by the related
Mortgage Asset Seller, the related Master Servicer, the related Special
Servicer, any Sub-Servicers or the Sponsor.
The related Trustee (or a custodian appointed by the Trustee) will be
required to review the Mortgage Loan documents delivered to it within a
specified period of days after receipt thereof, and the Trustee (or such
custodian) will hold such documents in trust for the benefit of the
Certificateholders of the related series. Unless otherwise specified in the
related Prospectus Supplement, if any such document is found to be missing or
defective, and such omission or defect, as the case may be, materially and
adversely affects the interests of the related series of Certificateholders,
the Trustee (or such custodian) will be required to notify the Master
Servicer, the Special Servicer and the Sponsor, and one of such persons will
be required to notify the relevant Mortgage Asset Seller. In that case, and
if the Mortgage Asset Seller cannot deliver the document or cure the defect
within a specified number of days after receipt of such notice, then, except
as otherwise specified below or in the related Prospectus Supplement, the
Mortgage Asset Seller will be obligated to repurchase the related Mortgage
Loan from the Trustee at a price that will be specified in the related
Prospectus Supplement. If so provided in the Prospectus Supplement for a
series of Certificates, a Mortgage Asset Seller, in lieu of repurchasing a
Mortgage Loan as to which there is missing or defective loan documentation,
will have the option, exercisable upon certain conditions and/or within a
specified period after initial issuance of such series of Certificates, to
replace such Mortgage Loan with one or more other mortgage loans, in
accordance with standards that will be described in the Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
this repurchase or substitution obligation will constitute the sole remedy to
holders of the Certificates of any series or to the related Trustee on their
behalf for missing or defective loan documentation, and none of the Sponsor,
the Master Servicer or the Special Servicer, in the last two cases unless it
is the Mortgage Asset Seller, will be obligated to purchase or replace a
Mortgage Loan if a Mortgage Asset Seller defaults on its obligation to do so.
Notwithstanding the foregoing, if a document has not been delivered to the
related Trustee (or to a custodian appointed by the Trustee) because such
document has been submitted for recording, and neither such document nor a
certified copy thereof, in either case with evidence of recording thereon,
can be obtained because of delays on the part of the applicable recording
office, then the Mortgage Asset Seller will not be required to repurchase or
replace the affected Mortgage Loan on the basis of such missing document so
long as it continues in good faith to attempt to obtain such document or such
certified copy.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
Unless otherwise provided in the related Prospectus Supplement, the
Sponsor will, with respect to each Mortgage Loan in the related Trust Fund,
make or assign, or cause to be made or assigned, certain representations and
warranties
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(the person making such representations and warranties, the "Warranting
Party") covering, by way of example: (i) the accuracy of the information set
forth for such Mortgage Loan on the schedule of Mortgage Loans appearing as
an exhibit to the related Pooling Agreement; (ii) the enforceability of the
related Mortgage Note and Mortgage and the existence of title insurance
insuring the lien priority of the related Mortgage; (iii) the Warranting
Party's title to the Mortgage Loan and the authority of the Warranting Party
to sell the Mortgage Loan; and (iv) the payment status of the Mortgage Loan.
It is expected that in most cases the Warranting Party will be the Mortgage
Asset Seller; however, the Warranting Party may also be an affiliate of the
Mortgage Asset Seller, the Sponsor or an affiliate of the Sponsor, the Master
Servicer, the Special Servicer or another person acceptable to the Sponsor.
The Warranting Party, if other than the Mortgage Asset Seller, will be
identified in the related Prospectus Supplement.
Unless otherwise provided in the related Prospectus Supplement, each
Pooling Agreement will provide that the Master Servicer, Special Servicer
and/or Trustee will be required to notify promptly any Warranting Party of
any breach of any representation or warranty made by it in respect of a
Mortgage Loan that materially and adversely affects the interests of the
related series of Certificateholders. If such Warranting Party cannot cure
such breach within a specified period following the date on which it was
notified of such breach, then, unless otherwise provided in the related
Prospectus Supplement, it will be obligated to repurchase such Mortgage Loan
from the Trustee at a price that will be specified in the related Prospectus
Supplement. If so provided in the Prospectus Supplement for a series of
Certificates, a Warranting Party, in lieu of repurchasing a Mortgage Loan as
to which a breach has occurred, will have the option, exercisable upon
certain conditions and/or within a specified period after initial issuance of
such series of Certificates, to replace such Mortgage Loan with one or more
other mortgage loans, in accordance with standards that will be described in
the Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, this repurchase or substitution obligation will
constitute the sole remedy available to holders of the Certificates of any
series or to the related Trustee on their behalf for a breach of
representation and warranty by a Warranting Party, and none of the Sponsor,
the Master Servicer or the Special Servicer, in each case unless it is the
Warranting Party, will be obligated to purchase or replace a Mortgage Loan if
a Warranting Party defaults on its obligation to do so.
In some cases, representations and warranties will have been made in
respect of a Mortgage Loan as of a date prior to the date upon which the
related series of Certificates is issued, and thus may not address events
that may occur following the date as of which they were made. However, the
Sponsor will not include any Mortgage Loan in the Trust Fund for any series
of Certificates if anything has come to the Sponsor's attention that would
cause it to believe that the representations and warranties made in respect
of such Mortgage Loan will not be accurate in all material respects as of the
date of issuance. The date as of which the representations and warranties
regarding the Mortgage Loans in any Trust Fund were made, will be specified
in the related Prospectus Supplement.
COLLECTION AND OTHER SERVICING PROCEDURES
The Master Servicer and Special Servicer for any Trust Fund, directly or
through Sub-Servicers, will each be required to make reasonable efforts to
collect all scheduled payments under the Mortgage Loans in such Trust Fund
serviced thereby, and will each be required to follow such collection
procedures as it would follow with respect to mortgage loans that are
comparable to the Mortgage Loans in such Trust Fund serviced thereby and held
for its own account, provided such procedures are consistent with (i) the
terms of the related Pooling Agreement and any related instrument of Credit
Support included in such Trust Fund, (ii) applicable law and (iii) the
servicing standard specified in the related Pooling Agreement and Prospectus
Supplement (the "Servicing Standard").
The Master Servicer and Special Servicer for any Trust Fund, either
jointly or separately, directly or through Sub-Servicers, also will be
required to perform as to the Mortgage Loans in such Trust Fund various other
customary functions of a servicer of comparable loans, including maintaining
escrow or impound accounts for payment of taxes, insurance premiums, ground
rents and similar items, or otherwise monitoring the timely payment of those
items; attempting to collect delinquent payments; supervising foreclosures;
conducting property inspections on a periodic or other basis; managing
Mortgaged Properties acquired on behalf of such Trust Fund through
foreclosure, deed-in-lieu of foreclosure or otherwise (each, an "REO
Property"); and maintaining servicing records relating to such Mortgage
Loans. The related Prospectus Supplement will specify when and the extent to
which servicing of a Mortgage Loan is to be transferred from the Master
Servicer to the Special Servicer. In general, and subject to the discussion
in the related Prospectus Supplement, a Special Servicer will be responsible
for the servicing and administration of: (i) Mortgage Loans that are
delinquent in respect of a specified number of scheduled payments; (ii)
Mortgage Loans as to which the related borrower has entered into or consented
to bankruptcy, appointment of a receiver or conservator or similar insolvency
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proceeding, or the related borrower has become the subject of a decree or
order for such a proceeding which shall have remained in force undischarged
or unstayed for a specified number of days; and (iii) REO Properties. If so
specified in the related Prospectus Supplement, a Pooling Agreement also may
provide that if a default on a Mortgage Loan has occurred or, in the judgment
of the related Master Servicer, a payment default is imminent, the related
Master Servicer may elect to transfer the servicing thereof, in whole or in
part, to the related Special Servicer. Unless otherwise provided in the
related Prospectus Supplement, when the circumstances no longer warrant a
Special Servicer's continuing to service a particular Mortgage Loan (e.g.,
the related borrower is paying in accordance with the forbearance arrangement
entered into between the Special Servicer and such borrower), the Master
Servicer will resume the servicing duties with respect thereto. If and to the
extent provided in the related Pooling Agreement and described in the related
Prospectus Supplement, a Special Servicer may perform certain limited duties
in respect of Mortgage Loans for which the Master Servicer is primarily
responsible (including, if so specified, performing property inspections and
evaluating financial statements); and a Master Servicer may perform certain
limited duties in respect of any Mortgage Loan for which the Special Servicer
is primarily responsible (including, if so specified, continuing to receive
payments on such Mortgage Loan (including amounts collected by the Special
Servicer), making certain calculations with respect to such Mortgage Loan and
making remittances and preparing certain reports to the Trustee and/or
Certificateholders with respect to such Mortgage Loan). Unless otherwise
specified in the related Prospectus Supplement, the Master Servicer will be
responsible for filing and settling claims in respect of particular Mortgage
Loans under any applicable instrument of Credit Support. See "Description of
Credit Support".
SUB-SERVICERS
A Master Servicer or Special Servicer may delegate its servicing
obligations in respect of the Mortgage Loans serviced thereby to one or more
third-party servicers (each, a "Sub-Servicer"); provided that, unless
otherwise specified in the related Prospectus Supplement, such Master
Servicer or Special Servicer will remain obligated under the related Pooling
Agreement. Unless otherwise provided in the related Prospectus Supplement,
each sub-servicing agreement between a Master Servicer or Special Servicer,
as the case may be, and a Sub-Servicer (a "Sub-Servicing Agreement") must
provide that, if for any reason such Master Servicer or Special Servicer is
no longer acting in such capacity, the Trustee or any successor to such
Master Servicer or Special Servicer may assume such party's rights and
obligations under such Sub-Servicing Agreement. The Master Servicer and
Special Servicer for any Trust Fund will each be required to monitor the
performance of Sub-Servicers retained by it, and will each have the right to
remove a Sub-Servicer retained by it at any time it considers such removal to
be in the best interests of Certificateholders.
Unless otherwise provided in the related Prospectus Supplement, a Master
Servicer or Special Servicer will be solely liable for all fees owed by it to
any Sub-Servicer, irrespective of whether its compensation pursuant to the
related Pooling Agreement is sufficient to pay such fees. Each Sub-Servicer
will be reimbursed by the Master Servicer or Special Servicer, as the case
may be, that retained it for certain expenditures which it makes, generally
to the same extent such Master Servicer or Special Servicer would be
reimbursed under a Pooling Agreement. See "--Certificate Account" and
"--Servicing Compensation and Payment of Expenses".
CERTIFICATE ACCOUNT
General. The Master Servicer, the Special Servicer and/or the Trustee
will, as to each Trust Fund that includes Mortgage Loans, establish and
maintain or cause to be established and maintained one or more separate
accounts for the collection of payments on or in respect of such Mortgage
Loans (collectively, the "Certificate Account"), which will be established so
as to comply with the standards of each Rating Agency that has rated any one
or more classes of Certificates of the related series. A Certificate Account
may be maintained as an interest-bearing or a non-interest-bearing account
and the funds held therein may be invested pending each succeeding
Distribution Date in United States government securities and other
obligations (including guaranteed investment contracts) that are acceptable
to each Rating Agency that has rated any one or more classes of Certificates
of the related series ("Permitted Investments"). Unless otherwise provided in
the related Prospectus Supplement, any interest or other income earned on
funds in a Certificate Account will be paid to the related Master Servicer,
Special Servicer or Trustee as additional compensation. A Certificate Account
may be maintained with the related Master Servicer, Special Servicer or
Mortgage Asset Seller or with a depository institution that is an affiliate
of any of the foregoing or of the Sponsor, provided that it complies with
applicable Rating Agency standards. If permitted by the applicable Rating
Agency or Agencies and so specified in the related Prospectus Supplement, a
Certificate Account may contain funds relating to more than one series of
mortgage pass-through
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certificates and may contain other funds representing payments on mortgage
loans owned by the related Master Servicer or Special Servicer or any related
Sub-Servicer or serviced by any of them on behalf of others.
Deposits. Unless otherwise provided in the related Pooling Agreement and
described in the related Prospectus Supplement, a Master Servicer, Special
Servicer or Trustee will be required to deposit or cause to be deposited in
the Certificate Account for each Trust Fund that includes Mortgage Loans,
within a certain period following receipt (in the case of collections on or
in respect of the Mortgage Loans) or otherwise as provided in the related
Pooling Agreement, the following payments and collections received or made by
the Master Servicer, the Special Servicer or the Trustee subsequent to the
Cut-off Date (other than payments due on or before the Cut-off Date):
(i) all payments on account of principal, including principal
prepayments, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans, including
any default interest collected, in each case net of any portion thereof
retained by the Master Servicer, the Special Servicer or any Sub-Servicer
as its servicing compensation or as compensation to the Trustee;
(iii) all proceeds received under any hazard, title or other insurance
policy that provides coverage with respect to a Mortgaged Property or the
related Mortgage Loan (other than proceeds applied to the restoration of
the property or released to the related borrower in accordance with the
customary servicing practices of the Master Servicer (or the Special
Servicer, with respect to Mortgage Loans serviced by it) and/or the terms
and conditions of the related Mortgage) (collectively, "Insurance
Proceeds"), all proceeds received in connection with the condemnation or
other governmental taking of all or any Mortgaged Property (other than
proceeds applied to the restoration of the property or released to the
related borrower in accordance with the customary servicing practices of
the Master Servicer (or the Special Servicer, with respect to Mortgage
Loans serviced by it) and/or the terms and conditions of the related
Mortgage) (collectively, "Condemnation Proceeds") and all other amounts
received and retained in connection with the liquidation of defaulted
Mortgage Loans or property acquired in respect thereof, by foreclosure or
otherwise ("Liquidation Proceeds"), together with the net operating income
(less reasonable reserves for future expenses) derived from the operation
of any Mortgaged Properties acquired by the Trust Fund through foreclosure
or otherwise;
(iv) any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for the related series of Certificates as
described under "Description of Credit Support";
(v) any advances made as described under "Description of the
Certificates--Advances in Respect of Delinquencies";
(vi) any amounts paid under any Cash Flow Agreement, as described under
"Description of the Trust Funds--Cash Flow Agreements";
(vii) all proceeds of the purchase of any Mortgage Loan, or property
acquired in respect thereof, by the Sponsor, any Mortgage Asset Seller or
any other specified person as described under "--Assignment of Mortgage
Loans; Repurchases" and "--Representations and Warranties; Repurchases",
all proceeds of the purchase of any defaulted Mortgage Loan as described
under "--Realization Upon Defaulted Mortgage Loans", and all proceeds of
any Mortgage Asset purchased as described under "Description of the
Certificates--Termination" (all of the foregoing, also "Liquidation
Proceeds");
(viii) any amounts paid by the Master Servicer to cover Prepayment
Interest Shortfalls arising out of the prepayment of Mortgage Loans as
described under "--Servicing Compensation and Payment of Expenses";
(ix) to the extent that any such item does not constitute additional
servicing compensation to the Master Servicer or Special Servicer, any
payments on account of modification or assumption fees, late payment
charges, Prepayment Premiums or Equity Participations on the Mortgage
Loans;
(x) all payments required to be deposited in the Certificate Account with
respect to any deductible clause in any blanket insurance policy described
under "--Hazard Insurance Policies";
(xi) any amount required to be deposited by the Master Servicer, the
Special Servicer or the Trustee in connection with losses realized on
investments for the benefit of the Master Servicer, the Special Servicer
or the Trustee, as the case may be, of funds held in the Certificate
Account; and
(xii) any other amounts required to be deposited in the Certificate
Account as provided in the related Pooling Agreement and described in the
related Prospectus Supplement.
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Withdrawals. Unless otherwise provided in the related Pooling Agreement
and described in the related Prospectus Supplement, a Master Servicer,
Special Servicer or Trustee may make withdrawals from the Certificate Account
for each Trust Fund that includes Mortgage Loans for any of the following
purposes:
(i) to make distributions to the Certificateholders on each Distribution
Date;
(ii) to pay the Master Servicer, the Special Servicer or any Sub-Servicer
any servicing fees not previously retained thereby, such payment to be
made, unless otherwise provided in the related Prospectus Supplement, out
of payments on the particular Mortgage Loans as to which such fees were
earned;
(iii) to reimburse the Master Servicer, the Special Servicer, the Trustee
or any other specified person for any unreimbursed amounts advanced by it
as described under "Description of the Certificates--Advances in Respect
of Delinquencies", such reimbursement to be made out of amounts received
which were identified and applied by the Master Servicer or Special
Servicer, as applicable, as late collections of interest on and principal
of the particular Mortgage Loans with respect to which the advances were
made or out of amounts drawn under any form of Credit Support with respect
to such Mortgage Loans;
(iv) to reimburse the Master Servicer or the Special Servicer for unpaid
servicing fees earned by it and certain unreimbursed servicing expenses
incurred by it with respect to Mortgage Loans in the Trust Fund and
properties acquired in respect thereof, such reimbursement to be made out
of amounts that represent Liquidation Proceeds, Condemnation Proceeds and
Insurance Proceeds collected on the particular Mortgage Loans and
properties, and net income collected on the particular properties, with
respect to which such fees were earned or such expenses were incurred or
out of amounts drawn under any form of Credit Support with respect to such
Mortgage Loans and properties;
(v) to reimburse the Master Servicer, the Special Servicer or the Trustee
for any advances described in clause (iii) above made by it and/or any
servicing expenses referred to in clause (iv) above incurred by it which,
in the good faith judgment of the Master Servicer, the Special Servicer or
the Trustee, as applicable, will not be recoverable from the amounts
described in clauses (iii) and (iv), respectively, such reimbursement to
be made from amounts collected on other Mortgage Loans in the same Trust
Fund or, if and to the extent so provided by the related Pooling Agreement
and described in the related Prospectus Supplement, only from that portion
of amounts collected on such other Mortgage Loans that is otherwise
distributable on one or more classes of Subordinate Certificates of the
related series;
(vi) if and to the extent described in the related Prospectus Supplement,
to pay the Master Servicer, the Special Servicer, the Trustee or any other
specified person interest accrued on the advances described in clause
(iii) above made by it and/or the servicing expenses described in clause
(iv) above incurred by it while such remain outstanding and unreimbursed;
(vii) to pay for costs and expenses incurred by the Trust Fund for
environmental site assessments performed with respect to Mortgaged
Properties that constitute security for defaulted Mortgage Loans, and for
any containment, clean-up or remediation of hazardous wastes and materials
present on such Mortgaged Properties, as described under "--Realization
Upon Defaulted Mortgage Loans";
(viii) to reimburse the Master Servicer, the Special Servicer, the REMIC
Administrator (if any), the Sponsor, or any of their respective directors,
officers, employees and agents, as the case may be, for certain expenses,
costs and liabilities incurred thereby, as and to the extent described
under "--Certain Matters Regarding the Master Servicer, the Special
Servicer, the REMIC Administrator and the Sponsor";
(ix) if and to the extent described in the related Prospectus Supplement,
to pay the fees of the Trustee and/or the REMIC Administrator (if any);
(x) if and to the extent described in the related Prospectus Supplement,
to pay the fees of any provider of Credit Support;
(xi) if and to the extent described in the related Prospectus Supplement,
to reimburse prior draws on any form of Credit Support;
(xii) to reimburse the Trustee or any of its directors, officers,
employees and agents, as the case may be, for certain expenses, costs and
liabilities incurred thereby, as and to the extent described under
"--Certain Matters Regarding the Trustee";
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(xiii) to pay the Master Servicer, the Special Servicer or the Trustee,
as appropriate, interest and investment income earned in respect of
amounts held in the Certificate Account as additional compensation;
(xiv) to pay (generally from related income) for costs incurred in
connection with the operation, management and maintenance of any Mortgaged
Property acquired by the Trust Fund by foreclosure or otherwise;
(xv) if one or more elections have been made to treat the Trust Fund or
designated portions thereof as a REMIC, to pay any federal, state or local
taxes imposed on the Trust Fund or its assets or transactions, as and to
the extent described under "Material Federal Income Tax
Consequences--REMICS--Prohibited Transactions Tax and Other Taxes";
(xvi) to pay for the cost of an independent appraiser or other expert in
real estate matters retained to determine a fair sale price for a
defaulted Mortgage Loan or a property acquired in respect thereof in
connection with the liquidation of such Mortgage Loan or property;
(xvii) to pay for the cost of various opinions of counsel obtained
pursuant to the related Pooling Agreement for the benefit of
Certificateholders;
(xviii) to make any other withdrawals permitted by the related Pooling
Agreement and described in the related Prospectus Supplement; and
(xix) to clear and terminate the Certificate Account upon the termination
of the Trust Fund.
ESCROW ACCOUNTS
A Pooling Agreement may require the Master Servicer or Special Servicer
thereunder to establish and maintain, as and to the extent permitted by the
terms of the related Mortgage Loans, one or more escrow accounts into which
mortgagors deposit amounts sufficient to pay taxes, assessments, hazard
insurance premiums or comparable items. Withdrawals from the escrow accounts
maintained in respect of the Mortgage Loans in any Trust Fund may be made to
effect timely payment of taxes, assessments and hazard insurance premiums or
comparable items, to reimburse the related Master Servicer or Special
Servicer out of related collections for prior advances in respect of taxes,
assessments and hazard insurance premiums or comparable items, to refund to
mortgagors amounts determined to be overages, to remit to mortgagors, if
required, interest earned, if any, on balances in any of the escrow accounts,
to repair or otherwise protect the related Mortgaged Property and to clear
and terminate any of the escrow accounts. The Master Servicer and Special
Servicer each will be solely responsible for administration of the escrow
accounts maintained by it.
MODIFICATIONS, WAIVERS AND AMENDMENTS OF MORTGAGE LOANS
Unless otherwise provided in the related Prospectus Supplement, a Master
Servicer or Special Servicer may agree to modify, waive or amend any term of
any Mortgage Loan serviced by it in a manner consistent with the applicable
Servicing Standard; provided that the modification, waiver or amendment (i)
will not affect the amount or timing of any scheduled payments of principal
or interest on the Mortgage Loan, (ii) will not, in the judgment of the
Master Servicer or Special Servicer, as the case may be, materially impair
the security for the Mortgage Loan or reduce the likelihood of timely payment
of amounts due thereon, and (iii) will not adversely affect the coverage
under any applicable instrument of Credit Support. Unless otherwise provided
in the related Prospectus Supplement, a Special Servicer also may agree to
any other modification, waiver or amendment if, in its judgment, (i) a
material default on the Mortgage Loan has occurred or a payment default is
imminent, (ii) such modification, waiver or amendment is reasonably likely to
produce a greater recovery with respect to the Mortgage Loan on a present
value basis than would liquidation, and (iii) such modification, waiver or
amendment will not adversely affect the coverage under any applicable
instrument of Credit Support.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
A borrower's failure to make required Mortgage Loan payments may mean that
operating income is insufficient to service the mortgage debt, or may reflect
the diversion of that income from the servicing of the mortgage debt. In
addition, a borrower that is unable to make Mortgage Loan payments may also
be unable to make timely payment of taxes and insurance premiums and to
otherwise maintain the related Mortgaged Property. In general, and subject to
the discussion in the related Prospectus Supplement, the related Special
Servicer will be required to monitor any Mortgage Loan that is in default
more than a specified number of scheduled payments, evaluate whether the
causes of the default can be
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corrected over a reasonable period without significant impairment of the
value of the related Mortgaged Property, initiate corrective action in
cooperation with the borrower if cure is likely, inspect the related
Mortgaged Property and take such other actions as are consistent with the
Servicing Standard. A significant period of time may elapse before the
Special Servicer is able to assess the success of any such corrective action
or the need for additional initiatives.
The time within which the Special Servicer can make the initial
determination of appropriate action, evaluate the success of corrective
action, develop additional initiatives, institute foreclosure proceedings and
actually foreclose (or accept a deed to a Mortgaged Property in lieu of
foreclosure) on behalf of the Certificateholders may vary considerably
depending on the particular Mortgage Loan, the Mortgaged Property, the
borrower, the presence of an acceptable party to assume the Mortgage Loan and
the laws of the jurisdiction in which the Mortgaged Property is located. If a
borrower files a bankruptcy petition, the Special Servicer may not be
permitted to accelerate the maturity of the related Mortgage Loan or to
foreclose on the related Mortgaged Property for a considerable period of
time, and such Mortgage Loan may be restructured in the resulting bankruptcy
proceedings. See "Certain Legal Aspects of Mortgage Loans".
A Pooling Agreement may grant to the Master Servicer, the Special
Servicer, a provider of Credit Support and/or the holder or holders of
certain classes of the related series of Certificates a right of first
refusal to purchase from the Trust Fund, at a predetermined purchase price
(which, if insufficient to fully fund the entitlements of Certificateholders
to principal and interest thereon, will be specified in the related
Prospectus Supplement), any Mortgage Loan as to which a specified number of
scheduled payments are delinquent. In addition, unless otherwise specified in
the related Prospectus Supplement, the Special Servicer may offer to sell any
defaulted Mortgage Loan if and when the Special Servicer determines,
consistent with the applicable Servicing Standard, that such a sale would
produce a greater recovery on a present value basis than would liquidation of
the related Mortgaged Property. Unless otherwise provided in the related
Prospectus Supplement, the related Pooling Agreement will require that the
Special Servicer accept the highest cash bid received from any person
(including itself, the Master Servicer, the Sponsor or any affiliate of any
of them or any Certificateholder) that constitutes a fair price for such
defaulted Mortgage Loan. In the absence of any bid determined in accordance
with the related Pooling Agreement to be fair, the Special Servicer will
generally be required to proceed against the related Mortgaged Property,
subject to the discussion below.
If a default on a Mortgage Loan has occurred or, in the Special Servicer's
judgment, a payment default is imminent, the Special Servicer, on behalf of
the Trustee, may at any time institute foreclosure proceedings, exercise any
power of sale contained in the related Mortgage, obtain a deed in lieu of
foreclosure, or otherwise acquire title to the related Mortgaged Property, by
operation of law or otherwise, if such action is consistent with the
Servicing Standard. Unless otherwise specified in the related Prospectus
Supplement, however, neither the Special Servicer nor the Master Servicer may
acquire title to any Mortgaged Property, have a receiver of rents appointed
with respect to any Mortgaged Property or take any other action with respect
to any Mortgage Property that would cause the Trustee, for the benefit of the
related series of Certificateholders, or any other specified person to be
considered to hold title to, to be a "mortgagee-in-possession" of, or to be
an "owner" or an "operator" of such Mortgaged Property within the meaning of
certain federal environmental laws, unless the Special Servicer has
previously determined, based on a report prepared by a person who regularly
conducts environmental audits (which report will be an expense of the Trust
Fund), that either:
(i) the Mortgaged Property is in compliance with applicable environmental
laws and regulations or, if not, that taking such actions as are necessary
to bring the Mortgaged Property into compliance therewith is reasonably
likely to produce a greater recovery to Certificateholders on a present
value basis than not taking such actions; and
(ii) there are no circumstances or conditions present at the Mortgaged
Property that have resulted in any contamination for which investigation,
testing, monitoring, containment, clean-up or remediation could be
required under any applicable environmental laws and regulations or, if
such circumstances or conditions are present for which any such action
could be required, taking such actions with respect to the Mortgaged
Property is reasonably likely to produce a greater recovery to
Certificateholders on a present value basis than not taking such actions.
See "Certain Legal Aspects of Mortgage Loans--Environmental Risks".
Unless otherwise provided in the related Prospectus Supplement, if title
to any Mortgaged Property is acquired by a Trust Fund as to which a REMIC
election has been made, the Special Servicer, on behalf of the Trust Fund,
will be required to sell the Mortgaged Property within two years of
acquisition, unless (i) the Internal Revenue Service grants an extension of
time to sell such property or (ii) the Trustee and REMIC Administrator each
receives an opinion of independent counsel to the effect that the holding of
the property by the Trust Fund for more than two years after its acquisition
will not result in the imposition of a tax on the Trust Fund or cause the
Trust Fund (or any designated portion
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thereof) to fail to qualify as a REMIC under the Code at any time that any
Certificate is outstanding. Subject to the foregoing, the Special Servicer
will generally be required to solicit bids for any Mortgaged Property so
acquired in such a manner as will be reasonably likely to realize a fair
price for such property. If the Trust Fund acquires title to any Mortgaged
Property, the Special 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 Special Servicer of
its obligation to manage such Mortgaged Property in a manner consistent with
the Servicing Standard.
If Liquidation Proceeds collected with respect to a defaulted Mortgage
Loan are less than the outstanding principal balance of the defaulted
Mortgage Loan plus interest accrued thereon plus the aggregate amount of
reimbursable expenses incurred by the Special Servicer and/or Master Servicer
in connection with such Mortgage Loan, the Trust Fund will realize a loss in
the amount of such difference. The Special Servicer and/or Master Servicer
will be entitled to reimbursement out of the Liquidation Proceeds recovered
on any defaulted Mortgage Loan, prior to the distribution of such Liquidation
Proceeds to Certificateholders, amounts that represent unpaid servicing
compensation in respect of the Mortgage Loan, unreimbursed servicing expenses
incurred with respect to the Mortgage Loan and any unreimbursed advances of
delinquent payments made with respect to the Mortgage Loan.
If any Mortgaged Property suffers damage such that the proceeds, if any,
of the related hazard insurance policy are insufficient to fully restore the
damaged property, neither the Special Servicer nor the Master Servicer will
be required to expend its own funds to effect such restoration unless (and to
the extent not otherwise provided in the related Prospectus Supplement) it
determines (i) that such restoration will increase the proceeds to
Certificateholders on liquidation of the Mortgage Loan after reimbursement of
the Special Servicer or Master Servicer, as the case may be, for its expenses
and (ii) that such expenses will be recoverable by it from related Insurance
Proceeds or Liquidation Proceeds.
Notwithstanding the foregoing discussion, if and to the extent described
in the related Prospectus Supplement, the related Pooling Agreement may
provide that any or all of the rights, duties and obligations of a Special
Servicer with respect to any defaulted Mortgage Loan or REO Property as
described under this section "--Realization Upon Defaulted Mortgage Loans"
and elsewhere in this Prospectus, may be exercised or performed by a Master
Servicer with the consent of, at the direction of or following consultation
with the Special Servicer. Moreover, a single entity may act as both Master
Servicer and Special Servicer for any Trust Fund.
HAZARD INSURANCE POLICIES
Unless otherwise specified in the related Prospectus Supplement, each
Pooling Agreement will require the Master Servicer (or the Special Servicer
with respect to Mortgage Loans serviced thereby) to cause each Mortgage Loan
borrower to maintain a hazard insurance policy that provides for such
coverage as is required under the related Mortgage or, if the Mortgage
permits the holder thereof to dictate to the borrower the insurance coverage
to be maintained on the related Mortgaged Property, such coverage as is
consistent with the requirements of the Servicing Standard. Unless otherwise
specified in the related Prospectus Supplement, such coverage generally will
be in an amount equal to the lesser of the principal balance owing on such
Mortgage Loan and the replacement cost of the related Mortgaged Property. The
ability of a Master Servicer (or Special Servicer) to assure that hazard
insurance proceeds are appropriately applied may be dependent upon its being
named as an additional insured under any hazard insurance policy and under
any other insurance policy referred to below, or upon the extent to which
information concerning covered losses is furnished by borrowers. All amounts
collected by a Master Servicer (or Special Servicer) under any such policy
(except for amounts to be applied to the restoration or repair of the
Mortgaged Property or released to the borrower in accordance with the Master
Servicer's (or Special Servicer's) normal servicing procedures and/or to the
terms and conditions of the related Mortgage and Mortgage Note) will be
deposited in the related Certificate Account. The Pooling Agreement may
provide that the Master Servicer (or Special Servicer) may satisfy its
obligation to cause borrowers to maintain such hazard insurance policies by
maintaining a blanket policy insuring against hazard losses on all of the
related Mortgage Loans. If such blanket policy contains a deductible clause,
the Master Servicer (or Special Servicer) will be required, in the event of a
casualty covered by such blanket policy, to deposit or cause to be deposited
in the related Certificate Account all sums that would have been deposited
therein but for such deductible clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by
fire, lightning, explosion, smoke, windstorm and hail, and riot, strike and
civil commotion, subject to the conditions and exclusions specified in each
policy. Although the policies covering the Mortgaged Properties will be
underwritten by different insurers under different state laws in accordance
with different applicable state forms, and therefore will not contain
identical terms and conditions, most such policies typically do not cover any
physical
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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 other kinds of risks
not specified in the preceding sentence. Accordingly, a Mortgaged Property
may not be insured for losses arising from any such cause unless the related
Mortgage specifically requires, or permits the holder thereof to require,
such coverage.
The hazard insurance policies covering the Mortgaged Properties will
typically contain co-insurance clauses that in effect require an insured at
all times to carry insurance of a specified percentage (generally 80% to 90%)
of the full replacement value of the improvements on the property in order to
recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, such clauses generally provide that the
insurer's liability in the event of partial loss does not exceed the lesser
of (i) the replacement cost of the improvements less physical depreciation
and (ii) such proportion of the loss as the amount of insurance carried bears
to the specified percentage of the full replacement cost of such
improvements.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Mortgage Loans may contain a due-on-sale clause that
entitles the lender to accelerate payment of the Mortgage Loan upon any sale
or other transfer of the related Mortgaged Property made without the lender's
consent. Certain of the Mortgage Loans may also contain a due-on-encumbrance
clause that entitles the lender to accelerate the maturity of the Mortgage
Loan upon the creation of any other lien or encumbrance upon the Mortgaged
Property. Unless otherwise provided in the related Prospectus Supplement, the
Master Servicer or the Special Servicer will determine whether to exercise
any right the Trustee may have under any such provision in a manner
consistent with the Servicing Standard. Unless otherwise specified in the
related Prospectus Supplement, the Master Servicer or Special Servicer, as
applicable, will be entitled to retain as additional servicing compensation
any fee collected in connection with the permitted transfer of a Mortgaged
Property. See "Certain Legal Aspects of Mortgage Loans--Due-on-Sale and
Due-on-Encumbrance".
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the related Prospectus Supplement, a Master
Servicer's primary servicing compensation with respect to a series of
Certificates will come from the periodic payment to it of a specified portion
of the interest payments on each Mortgage Loan in the related Trust Fund,
including Mortgage Loans serviced by the related Special Servicer. If and to
the extent described in the related Prospectus Supplement, a Special
Servicer's primary compensation with respect to a series of Certificates may
consist of any or all of the following components: (i) a specified portion of
the interest payments on each Mortgage Loan in the related Trust Fund,
whether or not serviced by it; (ii) an additional specified portion of the
interest payments on each Mortgage Loan then currently serviced by it; and
(iii) subject any specified limitations, a fixed percentage of some or all of
the collections and proceeds received with respect to each Mortgage Loan
which was at any time serviced by it, including Mortgage Loans for which
servicing was returned to the Master Servicer. Insofar as any portion of the
Master Servicer's or Special Servicer's compensation consists of a specified
portion of the interest payments on a Mortgage Loan, such compensation will
generally be based on a percentage of the principal balance of such Mortgage
Loan outstanding from time to time and, accordingly, will decrease with the
amortization of the Mortgage Loan. As additional compensation, a Master
Servicer or Special Servicer may be entitled to retain all or a portion of
late payment charges, Prepayment Premiums, modification fees and other fees
collected from borrowers and any interest or other income that may be earned
on funds held in the related Certificate Account. A more detailed description
of each Master Servicer's and Special Servicer's compensation will be
provided in the related Prospectus Supplement. Any Sub-Servicer will receive
as its sub-servicing compensation a portion of the servicing compensation to
be paid to the Master Servicer or Special Servicer that retained such
Sub-Servicer.
In addition to amounts payable to any Sub-Servicer retained by it, a
Master Servicer or Special Servicer may be required, to the extent provided
in the related Prospectus Supplement, to pay from amounts that represent its
servicing compensation certain expenses incurred in connection with the
administration of the related Trust Fund, including, without limitation,
payment of the fees and disbursements of independent accountants and payment
of expenses incurred in connection with distributions and reports to
Certificateholders. Certain other expenses, including certain expenses
related to Mortgage Loan defaults and liquidations and, to the extent so
provided in the related Prospectus Supplement, interest on such expenses at
the rate specified therein, may be required to be borne by the Trust Fund.
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If and to the extent provided in the related Prospectus Supplement, a
Master Servicer may be required to apply a portion of the servicing
compensation otherwise payable to it in respect of any period to Prepayment
Interest Shortfalls. See "Yield and Maturity Considerations--Certain
Shortfalls in Collections of Interest".
EVIDENCE AS TO COMPLIANCE
Unless otherwise provided in the related Prospectus Supplement, each
Pooling Agreement will require that, on or before a specified date in each
year, the Master Servicer and, if and to the extent appropriate, the Special
Servicer each cause a firm of independent public accountants to furnish to
the Trustee a statement to the effect that (i) such firm has obtained a
letter of representations regarding certain matters relating to the
management of the Master Servicer or the Special Servicer, as the case may
be, which includes an assertion that the Master Servicer or the Special
Servicer, as the case may be, has complied with certain minimum mortgage loan
servicing standards (to the extent applicable to commercial and multifamily
mortgage loans), identified in the Uniform Single Attestation Program for
Mortgage Bankers established by the Mortgage Bankers Association of America,
with respect to the servicing of commercial and multifamily mortgage loans
during the most recently completed calendar year and (ii) on the basis of an
examination conducted by such firm in accordance with standards established
by the American Institute of Certified Public Accountants, such
representation is fairly stated in all material respects, subject to such
exceptions and other qualifications that may be appropriate. In rendering its
report, such firm may rely, as to matters relating to the direct servicing of
commercial and multifamily mortgage loans by sub-servicers, upon comparable
reports of firms of independent public accountants rendered on the basis of
examinations conducted in accordance with the same standards (rendered within
one year of such report) with respect to those sub-servicers. A Prospectus
Supplement may provide that additional or alternative reports of independent
certified public accountants relating to the servicing of mortgage loans may
be required to be delivered to the Trustee.
Each Pooling Agreement will also require that, on or before a specified
date in each year, the Master Servicer and Special Servicer each deliver to
the Trustee a statement signed by one or more officers thereof to the effect
that the Master Servicer or the Special Servicer, as the case may be, has
fulfilled its material obligations under the Pooling Agreement throughout the
preceding calendar year or other specified twelve month period.
CERTAIN MATTERS REGARDING THE MASTER SERVICER, THE SPECIAL SERVICER, THE
REMIC ADMINISTRATOR AND THE SPONSOR
Any entity serving as Master Servicer, Special Servicer or REMIC
Administrator under a Pooling Agreement may be an affiliate of the Sponsor
and may have other normal business relationships with the Sponsor or the
Sponsor's affiliates. Unless otherwise specified in the Prospectus Supplement
for a series of Certificates, the related Pooling Agreement will permit the
Master Servicer, the Special Servicer and any REMIC Administrator to resign
from its obligations thereunder only upon (a) the appointment of, and the
acceptance of such appointment by, a successor thereto and receipt by the
Trustee of written confirmation from each applicable Rating Agency that such
resignation and appointment will not have an adverse effect on the rating
assigned by such Rating Agency to any class of Certificates of such series or
(b) a determination that such obligations are no longer permissible under
applicable law or are in material conflict by reason of applicable law with
any other activities carried on by it. No such resignation will become
effective until the Trustee or other successor has assumed the obligations
and duties of the resigning Master Servicer, Special Servicer or REMIC
Administrator, as the case may be, under the Pooling Agreement. The Master
Servicer and Special Servicer for each Trust Fund will be required to
maintain a fidelity bond and errors and omissions policy or their equivalent
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,
subject to certain limitations as to amount of coverage, deductible amounts,
conditions, exclusions and exceptions permitted by the related Pooling
Agreement.
Unless otherwise specified in the related Prospectus Supplement, each
Pooling Agreement will further provide that none of the Master Servicer, the
Special Servicer, the REMIC Administrator (if any), the Sponsor or any
director, officer, employee or agent of any of them will be under any
liability to the related Trust Fund or Certificateholders for any action
taken, or not taken, in good faith pursuant to the Pooling Agreement or for
errors in judgment; provided, however, that none of the Master Servicer, the
Special Servicer, the REMIC Administrator (if any), the Sponsor or any such
person will be protected against any liability that would otherwise be
imposed by reason of willful misfeasance, bad faith or gross negligence in
the performance of obligations or duties thereunder or by reason of reckless
disregard of such obligations and duties. Unless otherwise specified in the
related Prospectus Supplement, each Pooling Agreement will further provide
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that the Master Servicer, the Special Servicer, the REMIC Administrator (if
any), the Sponsor and any director, officer, employee or agent of any of them
will be entitled to indemnification by the related Trust Fund against any
loss, liability or expense incurred in connection with any legal action that
relates to such Pooling Agreement or the related series of Certificates;
provided, however, that such indemnification will not extend to any loss,
liability or expense incurred by reason of misfeasance, bad faith or gross
negligence in the performance of obligations or duties under such Pooling
Agreement, or by reason of reckless disregard of such obligations or duties.
In addition, each Pooling Agreement will provide that none of the Master
Servicer, the Special Servicer, the REMIC Administrator (if any) or the
Sponsor will be under any obligation to appear in, prosecute or defend any
legal action that is not incidental to its respective responsibilities under
the Pooling Agreement and that in its opinion may involve it in any expense
or liability. However, each of the Master Servicer, the Special Servicer, the
REMIC Administrator (if any) and the Sponsor will be permitted, in the
exercise of its discretion, to undertake any such action that it may deem
necessary or desirable with respect to the enforcement and/or protection of
the rights and duties of the parties to the Pooling Agreement and the
interests of the related series of 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 related
series of Certificateholders, and the Master Servicer, the Special Servicer,
the REMIC Administrator or the Sponsor, as the case may be, will be entitled
to charge the related Certificate Account therefor.
Any person into which the Master Servicer, the Special Servicer, the REMIC
Administrator (if any) or the Sponsor may be merged or consolidated, or any
person resulting from any merger or consolidation to which the Master
Servicer, the Special Servicer, the REMIC Administrator (if any) or the
Sponsor is a party, or any person succeeding to the business of the Master
Servicer, the Special Servicer, the REMIC Administrator (if any) or the
Sponsor, will be the successor of the Master Servicer, the Special Servicer,
the REMIC Administrator or the Sponsor, as the case may be, under the related
Pooling Agreement.
Unless otherwise specified in the related Prospectus Supplement, a REMIC
Administrator will be entitled to perform any of its duties under the related
Pooling Agreement either directly or by or through agents or attorneys, and
the REMIC Administrator will not be responsible for any willful misconduct or
gross negligence on the part of any such agent or attorney appointed by it
with due care.
EVENTS OF DEFAULT
Unless otherwise provided in the Prospectus Supplement for a series of
Certificates, "Events of Default" under the related Pooling Agreement will
include (i) any failure by the Master Servicer to distribute or cause to be
distributed to the Certificateholders of such series, or to remit to the
Trustee for distribution to such Certificateholders, any amount required to
be so distributed or remitted, which failure continues unremedied for five
days after written notice thereof has been given to the Master Servicer by
any other party to the related Pooling Agreement, or to the Master Servicer,
with a copy to each other party to the related Pooling Agreement, by
Certificateholders entitled to not less than 25% (or such other percentage
specified in the related Prospectus Supplement) of the Voting Rights for such
series; (ii) any failure by the Special Servicer to remit to the Master
Servicer or the Trustee any amount required to be so remitted, which failure
continues unremedied for five days after written notice thereof has been
given to the Special Servicer by any other party to the related Pooling
Agreement, or to the Special Servicer, with a copy to each other party to the
related Pooling Agreement, by the Certificateholders entitled to not less
than 25% (or such other percentage specified in the related Prospectus
Supplement) of the Voting Rights of such series; (iii) any failure by the
Master Servicer or the Special Servicer duly to observe or perform in any
material respect any of its other covenants or obligations under the related
Pooling Agreement, which failure continues unremedied for sixty days after
written notice thereof has been given to the Master Servicer or the Special
Servicer, as the case may be, by any other party to the related Pooling
Agreement, or to the Master Servicer or the Special Servicer, as the case may
be, with a copy to each other party to the related Pooling Agreement, by
Certificateholders entitled to not less than 25% (or such other percentage
specified in the related Prospectus Supplement) of the Voting Rights for such
series; (iv) any failure by a REMIC Administrator (if any) duly to observe or
perform in any material respect any of its covenants or obligations under the
related Pooling Agreement, which failure continues unremedied for sixty days
after written notice thereof has been given to the REMIC Administrator by any
other party to the related Pooling Agreement, or to the REMIC Administrator,
with a copy to each other party to the related Pooling Agreement, by
Certificateholders entitled to not less than 25% (or such other percentage
specified in the related Prospectus Supplement) of the Voting Rights for such
series; and (v) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities, or similar proceedings in respect of
or relating to the Master Servicer, the Special Servicer, or a REMIC
Administrator (if any), and certain actions by or on behalf of the Master
Servicer, the Special
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Servicer or a REMIC Administrator (if any) indicating its insolvency or
inability to pay its obligations. Material variations to the foregoing Events
of Default (other than to add thereto or shorten cure periods or eliminate
notice requirements) will be specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, when a
single entity acts as Master Servicer, Special Servicer and REMIC
Administrator, or in any two of the foregoing capacities, for any Trust Fund,
an Event of Default in one capacity will constitute an Event of Default in
each capacity.
RIGHTS UPON EVENT OF DEFAULT
If an Event of Default occurs with respect to the Master Servicer, the
Special Servicer or a REMIC Administrator (if any) under a Pooling Agreement,
then, in each and every such case, so long as the Event of Default remains
unremedied, the Sponsor or the Trustee will be authorized, and at the
direction of Certificateholders of the related series entitled to not less
than 51% (or such other percentage specified in the related Prospectus
Supplement) of the Voting Rights for such series, the Trustee will be
required, to terminate all of the rights and obligations of the defaulting
party as Master Servicer, Special Servicer or REMIC Administrator, as
applicable, under the Pooling Agreement, whereupon the Trustee will succeed
to all of the responsibilities, duties and liabilities of the defaulting
party as Master Servicer, Special Servicer or REMIC Administrator, as
applicable, under the Pooling Agreement (except that if the defaulting party
is required to make advances thereunder regarding delinquent Mortgage Loans,
but the Trustee is prohibited by law from obligating itself to make such
advances, or if the related Prospectus Supplement so specifies, the Trustee
will not be obligated to make such advances) and will be entitled to similar
compensation arrangements. Unless otherwise specified in the related
Prospectus Supplement, if the Trustee is unwilling or unable so to act, it
may (or, at the written request of Certificateholders of the related series
entitled to not less than 51% (or such other percentage specified in the
related Prospectus Supplement) of the Voting Rights for such series, it will
be required to) appoint, or petition a court of competent jurisdiction to
appoint, a loan servicing institution that (unless otherwise provided in the
related Prospectus Supplement) is acceptable to each applicable Rating Agency
to act as successor to the Master Servicer, Special Servicer or REMIC
Administrator, as the case may be, under the Pooling Agreement. Pending such
appointment, the Trustee will be obligated to act in such capacity.
No Certificateholder will have the right under any Pooling Agreement to
institute any proceeding with respect thereto unless such holder previously
has given to the Trustee written notice of default and unless
Certificateholders of the same series entitled to not less than 25% (or such
other percentage specified in the related Prospectus Supplement) of the
Voting Rights for such series shall have made written request upon the
Trustee to institute such proceeding in its own name as Trustee thereunder
and shall have offered to the Trustee reasonable indemnity, and the Trustee
for sixty days (or such other period specified in the related Prospectus
Supplement) shall have neglected or refused to institute any such proceeding.
The Trustee, however, will be under no obligation to exercise any of the
trusts or powers vested in it by any Pooling Agreement or to make any
investigation of matters arising thereunder or to institute, conduct or
defend any litigation thereunder or in relation thereto at the request, order
or direction of any of the holders of Certificates of the related series,
unless such Certificateholders have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may
be incurred therein or thereby.
AMENDMENT
Each Pooling Agreement may be amended by the respective parties thereto,
without the consent of any of the holders of the related series of
Certificates, (i) to cure any ambiguity, (ii) to correct a defective
provision therein or to correct, modify or supplement any provision therein
that may be inconsistent with any other provision therein, (iii) to add any
other provisions with respect to matters or questions arising under the
Pooling Agreement that are not inconsistent with the provisions thereof, (iv)
to comply with any requirements imposed by the Code, or (v) for any other
purpose; provided that such amendment (other than an amendment for the
specific purpose referred to in clause (iv) above) may not (as evidenced by
an opinion of counsel to such effect satisfactory to the Trustee) adversely
affect in any material respect the interests of any such holder; and provided
further that such amendment (other than an amendment for one of the specific
purposes referred to in clauses (i) through (iv) above) must be acceptable to
each applicable Rating Agency. Unless otherwise specified in the related
Prospectus Supplement, each Pooling Agreement may also be amended by the
respective parties thereto, with the consent of the holders of the related
series of Certificates entitled to not less than 51% (or such other
percentage specified in the related Prospectus Supplement) of the Voting
Rights for such series allocated to the affected classes, for any purpose;
provided that, unless otherwise specified in the related Prospectus
Supplement, no such amendment may (i) reduce in any manner the amount of, or
delay the timing of, payments received or advanced on Mortgage Loans that are
required to be distributed in respect of any Certificate without the consent
of the holder of such
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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 clause (i), without the consent of the holders of all Certificates of such
class or (iii) modify the provisions of the Pooling Agreement described in
this paragraph without the consent of the holders of all Certificates of the
related series. However, unless otherwise specified in the related Prospectus
Supplement, the Trustee will be prohibited from consenting to any amendment
of a Pooling Agreement pursuant to which a REMIC election is to be or has
been made unless the Trustee shall first have received an opinion of counsel
to the effect that such amendment will not result in the imposition of a tax
on the related Trust Fund or cause the related Trust Fund (or designated
portion thereof) to fail to qualify as a REMIC at any time that the related
Certificates are outstanding.
LIST OF CERTIFICATEHOLDERS
Unless otherwise specified in the related Prospectus Supplement, upon
written request of three or more Certificateholders of record made for
purposes of communicating with other holders of Certificates of the same
series with respect to their rights under the related Pooling Agreement, the
Trustee or other specified person will afford such Certificateholders access
during normal business hours to the most recent list of Certificateholders of
that series held by such person. If such list is of a date more than 90 days
prior to the date of receipt of such Certificateholders' request, then such
person, if not the registrar for such series of Certificates, will be
required to request from such registrar a current list and to afford such
requesting Certificateholders access thereto promptly upon receipt.
THE TRUSTEE
The Trustee under each Pooling Agreement will be named in the related
Prospectus Supplement. The commercial bank, national banking association,
banking corporation or trust company that serves as Trustee may have typical
banking relationships with the Sponsor and its affiliates and with any Master
Servicer, Special Servicer or REMIC Administrator and its affiliates.
DUTIES OF THE TRUSTEE
The Trustee for each series of Certificates will make no representation as
to the validity or sufficiency of the related Pooling Agreement, the
Certificates or any underlying Mortgage Loan or related document and will not
be accountable for the use or application by or on behalf of any Master
Servicer or Special Servicer of any funds paid to the Master Servicer or
Special Servicer in respect of the Certificates or the underlying Mortgage
Loans, or any funds deposited into or withdrawn from the Certificate Account
for such series or any other account by or on behalf of the Master Servicer
or Special Servicer. If no Event of Default has occurred and is continuing,
the Trustee for each series of Certificates will be required to perform only
those duties specifically required under the related Pooling Agreement.
However, upon receipt of any of the various certificates, reports or other
instruments required to be furnished to it pursuant to the related Pooling
Agreement, a Trustee will be required to examine such documents and to
determine whether they conform to the requirements of such agreement.
CERTAIN MATTERS REGARDING THE TRUSTEE
As and to the extent described in the related Prospectus Supplement, the
fees and normal disbursements of any Trustee may be the expense of the
related Master Servicer or other specified person or may be required to be
borne by the related Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each series of Certificates will be entitled to indemnification,
from amounts held in the Certificate Account for such series, for any loss,
liability or expense incurred by the Trustee in connection with the Trustee's
acceptance or administration of its trusts under the related Pooling
Agreement; provided, however, that such indemnification will not extend to
any loss, liability or expense incurred by reason of willful misfeasance, bad
faith or gross negligence on the part of the Trustee in the performance of
its obligations and duties thereunder, or by reason of its reckless disregard
of such obligations or duties.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each series of Certificates will be entitled to execute any of
its trusts or powers under the related Pooling Agreement or perform any of
its duties thereunder either directly or by or through agents or attorneys,
and the Trustee will not be responsible for any willful misconduct or gross
negligence on the part of any such agent or attorney appointed by it with due
care.
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RESIGNATION AND REMOVAL OF THE TRUSTEE
A Trustee will be permitted at any time to resign from its obligations and
duties under the related Pooling Agreement by giving written notice thereof
to the Sponsor. Upon receiving such notice of resignation, the Sponsor (or
such other person as may be specified in the related Prospectus Supplement)
will be required to use its best efforts to promptly appoint a successor
trustee. If no successor trustee shall have accepted an appointment within a
specified period after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction to appoint
a successor trustee.
If at any time a Trustee ceases to be eligible to continue as such under
the related Pooling Agreement, or if at any time the Trustee becomes
incapable of acting, or if certain events of (or proceedings in respect of)
bankruptcy or insolvency occur with respect to the Trustee, the Sponsor will
be authorized to remove the Trustee and appoint a successor trustee. In
addition, holders of the Certificates of any series entitled to at least 33
1/8% (or such other percentage specified in the related Prospectus
Supplement) of the Voting Rights for such series may at any time (with or
without cause) remove the Trustee under the related Pooling Agreement and
appoint a successor trustee, provided that other holders of Certificates of
the same series entitled to a greater percentage of the Voting Rights for
such series do not object.
Any resignation or removal of a Trustee and appointment of a successor
trustee will not become effective until acceptance of appointment by the
successor trustee.
DESCRIPTION OF CREDIT SUPPORT
GENERAL
Credit Support may be provided with respect to one or more classes of the
Certificates of any series, or with respect to the related Mortgage Assets.
Credit Support may be in the form of a letter of credit, the subordination of
one or more classes of Certificates, the use of a pool insurance policy or
guarantee insurance, the establishment of one or more reserve funds or
another method of Credit Support described in the related Prospectus
Supplement, or any combination of the foregoing. If so provided in the
related Prospectus Supplement, any form of Credit Support may provide credit
enhancement for more than one series of Certificates to the extent described
therein.
Unless otherwise provided in the related Prospectus Supplement for a
series of Certificates, the Credit Support will not provide protection
against all risks of loss and will not guarantee payment to
Certificateholders of all amounts to which they are entitled under the
related Pooling Agreement. If losses or shortfalls occur that exceed the
amount covered by the related Credit Support or that are not covered by such
Credit Support, Certificateholders will bear their allocable share of
deficiencies. Moreover, if a form of Credit Support covers more than one
series of Certificates, holders of Certificates of one series will be subject
to the risk that such Credit Support will be exhausted by the claims of the
holders of Certificates of one or more other series before the former receive
their intended share of such coverage.
If Credit Support is provided with respect to one or more classes of
Certificates of a series, or with respect to the related Mortgage Assets, the
related Prospectus Supplement will include a description of (i) the nature
and amount of coverage under such Credit Support, (ii) any conditions to
payment thereunder not otherwise described herein, (iii) the conditions (if
any) under which the amount of coverage under such Credit Support may be
reduced and under which such Credit Support may be terminated or replaced and
(iv) the material provisions relating to such Credit Support. Additionally,
the related Prospectus Supplement will set forth certain information with
respect to the obligor under any instrument of Credit Support, including (i)
a brief description of its principal business activities, (ii) its principal
place of business, place of incorporation and the jurisdiction under which it
is chartered or licensed to do business, (iii) if applicable, the identity of
regulatory agencies that exercise primary jurisdiction over the conduct of
its business and (iv) its total assets, and its stockholders' equity or
policyholders' surplus, if applicable, as of a date that will be specified in
the Prospectus Supplement. See "Risk Factors--Credit Support Limitations".
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more classes
of Certificates of a series may be Subordinate Certificates. To the extent
specified in the related Prospectus Supplement, the rights of the holders of
Subordinate Certificates to receive distributions from the Certificate
Account on any Distribution Date will be subordinated to the corresponding
rights of the holders of Senior Certificates. If so provided in the related
Prospectus Supplement, the
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subordination of a class may apply only in the event of (or may be limited
to) certain types of losses or shortfalls. The related Prospectus Supplement
will set forth information concerning the manner and amount of subordination
provided by a class or classes of Subordinate Certificates in a series and
the circumstances under which such subordination will be available.
CROSS-SUPPORT PROVISIONS
If the Mortgage Assets in any Trust Fund are divided into separate groups,
each supporting a separate class or classes of Certificates of the related
series, Credit Support may be provided by cross-support provisions requiring
that distributions be made on Senior Certificates evidencing interests in one
group of Mortgage Assets prior to distributions on Subordinate Certificates
evidencing interests in a different group of Mortgage Assets within the Trust
Fund. The Prospectus Supplement for a series that includes a cross-support
provision will describe the manner and conditions for applying such
provisions.
INSURANCE OR GUARANTEES WITH RESPECT TO MORTGAGE LOANS
If so provided in the Prospectus Supplement for a series of Certificates,
Mortgage Loans included in the related Trust Fund will be covered for certain
default risks by insurance policies or guarantees. To the extent material, a
copy of each such instrument will accompany the Current Report on Form 8-K to
be filed with the Commission within 15 days of issuance of the Certificates
of the related series.
LETTER OF CREDIT
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by one or more letters of credit, issued by a
bank or financial institution specified in such Prospectus Supplement (the
"L/C Bank"). Under a letter of credit, the L/C Bank will be obligated to
honor draws thereunder in an aggregate fixed dollar amount, net of
unreimbursed payments thereunder, generally equal to a percentage specified
in the related Prospectus Supplement of the aggregate principal balance of
the Mortgage Assets on the related Cut-off Date or of the initial aggregate
Certificate Balance of one or more classes of Certificates. If so specified
in the related Prospectus Supplement, the letter of credit may permit draws
only in the event of certain types of losses and shortfalls. The amount
available under the letter of credit will, in all cases, be reduced to the
extent of the unreimbursed payments thereunder and may otherwise be reduced
as described in the related Prospectus Supplement. The obligations of the L/C
Bank under the letter of credit for each series of Certificates will expire
at the earlier of the date specified in the related Prospectus Supplement or
the termination of the Trust Fund. A copy of any such letter of credit will
accompany the 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 INSURANCE AND SURETY BONDS
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by insurance policies and/or surety bonds
provided by one or more insurance companies or sureties. Such instruments may
cover, with respect to one or more classes of Certificates of the related
series, timely distributions of interest and/or full distributions of
principal on the basis of a schedule of principal distributions set forth in
or determined in the manner specified in the related Prospectus Supplement.
The related Prospectus Supplement will describe any limitations on the draws
that may be made under any such instrument. A copy of any such instrument
will accompany the Current Report on Form 8-K to be filed with the Commission
within 15 days of issuance of the Certificates of the related series.
RESERVE FUNDS
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered (to the extent of available funds) by one or
more reserve funds in which cash, a letter of credit, Permitted Investments,
a demand note or a combination thereof will be deposited, in the amounts
specified in such Prospectus Supplement. If so specified in the related
Prospectus Supplement, the reserve fund for a series may also be funded over
time by a specified amount of the collections received on the related
Mortgage Assets.
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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. If
so specified in the related Prospectus Supplement, reserve funds may be
established to provide protection only against certain types of losses and
shortfalls. Following each Distribution Date, amounts in a reserve fund in
excess of any amount required to be maintained therein may be released from
the reserve fund under the conditions and to the extent specified in the
related Prospectus Supplement.
If so specified in the related Prospectus Supplement, amounts deposited in
any reserve fund will be invested in Permitted Investments. Unless otherwise
specified in the related Prospectus Supplement, any reinvestment income or
other gain from such investments will be credited to the related reserve fund
for such series, and any loss resulting from such investments will be charged
to such reserve fund. However, such income may be payable to any related
Master Servicer or another service provider as additional compensation for
its services. The reserve fund, if any, for a series will not be a part of
the Trust Fund unless otherwise specified in the related Prospectus
Supplement.
CREDIT SUPPORT WITH RESPECT TO MBS
If so provided in the Prospectus Supplement for a series of Certificates,
any MBS included in the related Trust Fund and/or the related underlying
mortgage loans may be covered by one or more of the types of Credit Support
described herein. The related Prospectus Supplement will specify, as to each
such form of Credit Support, the information indicated above with respect
thereto, to the extent such information is material and available.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential
properties. Because such legal aspects are governed by applicable state law
(which laws may differ substantially), the summaries do not purport to be
complete, to reflect the laws of any particular state, or to encompass the
laws of all states in which the security for the Mortgage Loans (or mortgage
loans underlying any MBS) is situated. Accordingly, the summaries are
qualified in their entirety by reference to the applicable laws of those
states. If the Mortgage Assets in any Trust Fund that are ultimately secured
by the properties in a particular state represent a significant concentration
(by balance) of all the Mortgage Assets in such Trust Fund, the Sponsor will
include in the related Prospectus Supplement such additional information
regarding the real estate laws of such state as may be material to an
investment decision with respect to the related series of Offered
Certificates. See "Description of the Trust Funds--Mortgage Loans". For
purposes of the following discussion, "Mortgage Loan" includes a mortgage
loan underlying an MBS.
GENERAL
Each Mortgage Loan will be evidenced by a note or bond and secured by an
instrument granting a security interest in real property, which may be a
mortgage, deed of trust or a deed to secure debt, depending upon the
prevailing practice and law in the state in which the related Mortgaged
Property is located. Mortgages, deeds of trust and deeds to secure debt are
herein collectively referred to as "mortgages". A mortgage creates a lien
upon, or grants a title interest in, the real property covered thereby, and
represents the security for the repayment of the indebtedness customarily
evidenced by a promissory note. The priority of the lien created or interest
granted will depend on the terms of the mortgage and, in some cases, on the
terms of separate subordination agreements or intercreditor agreements with
others that hold interests in the real property, the knowledge of the parties
to the mortgage and, generally, the order of recordation of the mortgage in
the appropriate public recording office. However, the lien of a recorded
mortgage will generally be subordinate to later-arising liens for real estate
taxes and assessments and other charges imposed under governmental police
powers.
TYPES OF MORTGAGE INSTRUMENTS
There are two parties to a mortgage: a mortgagor (the borrower and usually
the owner of the subject property) and a mortgagee (the lender). In contrast,
a deed of trust is a three-party instrument, among a trustor (the equivalent
of a borrower), a trustee to whom the real property is conveyed, and a
beneficiary (the lender) for whose benefit the conveyance is made. Under a
deed of trust, the trustor grants the property, irrevocably until the debt is
paid, in trust and generally with a power of sale, to the trustee to secure
repayment of the indebtedness evidenced by the related note. A deed to secure
debt typically has two parties. The borrower, or grantor, conveys title to
the real property to the grantee,
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or lender, generally with a power of sale, until such time as the debt is
repaid. In a case where the borrower is a land trust, there would be an
additional party because legal title to the property is held by a land
trustee under a land trust agreement for the benefit of the borrower. At
origination of a mortgage loan involving a land trust, the borrower executes
a separate undertaking to make payments on the mortgage note. The mortgagee's
authority under a mortgage, the trustee's and beneficiary's authority under a
deed of trust and the grantee's authority under a deed to secure debt are
governed by the express provisions of the related instrument, the law of the
state in which the real property is located, certain federal laws (including,
without limitation, the Soldiers' and Sailors' Civil Relief Act of 1940). In
addition, in some deed of trust transactions, the trustee's authority may be
governed by the directions of the beneficiary.
LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases, pursuant to which the borrower assigns to the
lender the borrower's right, title and interest as landlord under each lease
and the income derived therefrom, while (unless rents are to be paid directly
to the lender) retaining a revocable license to collect the rents for so long
as there is no default. If the borrower defaults, the license terminates and
the lender is entitled to collect the rents. Local law may require that the
lender take possession of the property and/or obtain a court-appointed
receiver before becoming entitled to collect the rents.
In most states, hotel and motel room rates are considered accounts
receivable under the Uniform Commercial Code ("UCC"); in cases where hotels
or motels constitute loan security, the rates are generally pledged by the
borrower as additional security for the loan. In general, the lender must
file financing statements in order to perfect its security interest in the
room rates and must file continuation statements, generally every five years,
to maintain perfection of such security interest. In certain cases, Mortgage
Loans secured by hotels or motels may be included in a Trust Fund even if the
security interest in the room rates was not perfected or the requisite UCC
filings were allowed to lapse; and, if such fact is deemed by the Sponsor to
be material to the investment decision with respect to a series of Offered
Certificates, it will be set forth in the related Prospectus Supplement. Even
if the lender's security interest in room rates is perfected under the UCC,
it will generally be required to commence a foreclosure action or otherwise
take possession of the property in order to collect the room rates following
a default. In the bankruptcy setting, the lender will be stayed from
enforcing its rights to collect room rates, but those room rates (in light of
certain revisions to the Bankruptcy Code which are effective for all
bankruptcy cases commenced on or after October 22, 1994) constitute "cash
collateral" and therefore cannot be used by the bankruptcy debtor without a
hearing or lender's consent and unless the lender's interest in the room
rates is given adequate protection (e.g., cash payment for otherwise
encumbered funds or a replacement lien on unencumbered property, in either
case equal in value to the amount of room rates that the debtor proposes to
use, or other similar relief). See "--Bankruptcy Laws".
PERSONALTY
In the case of certain types of mortgaged properties, such as hotels,
motels and nursing homes, personal property (to the extent owned by the
borrower and not previously pledged) may constitute a significant portion of
the property's value as security. The creation and enforcement of liens on
personal property are governed by the UCC. Accordingly, if a borrower pledges
personal property as security for a mortgage loan, the lender generally must
file UCC financing statements in order to perfect its security interest
therein, and must file continuation statements, generally every five years,
to maintain that perfection. In certain cases, Mortgage Loans secured in part
by personal property may be included in a Trust Fund even if the security
interest in such personal property was not perfected or the requisite UCC
filings were allowed to lapse; and, if such fact is deemed by the Sponsor to
be material to the investment decision with respect to a series of Offered
Certificates, it will be set forth in the related Prospectus Supplement.
FORECLOSURE
General. Foreclosure is a legal procedure that allows the lender to
recover its mortgage debt by enforcing its rights and available legal
remedies under the mortgage. If the borrower defaults in payment or
performance of its obligations under the note or mortgage, the lender has the
right to institute foreclosure proceedings to sell the real property at
public auction to satisfy the indebtedness.
Foreclosure procedures vary from state to state. Two primary methods of
foreclosing a mortgage are judicial foreclosure, involving court proceedings,
and non-judicial foreclosure pursuant to a power of sale granted in the
mortgage
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instrument. Other foreclosure procedures are available in some states, but
they are either infrequently used or available only in limited circumstances.
A foreclosure action is subject to most of the delays and expenses of other
lawsuits if defenses are raised or counterclaims are interposed, and
sometimes requires several years to complete.
Judicial Foreclosure. A judicial foreclosure proceeding is conducted in a
court having jurisdiction over the mortgaged property. Generally, the action
is initiated by the service of legal pleadings upon the borrower and all
parties having a subordinate interest of record in the real property and all
parties in possession of the property, under leases or otherwise, whose
interests are subordinate to the mortgage. Delays in completion of the
foreclosure may occasionally result from difficulties in locating defendants.
When the lender's right to foreclose is contested, the legal proceedings can
be time-consuming. Upon successful completion of a judicial foreclosure
proceeding, the court generally issues a judgment of foreclosure and appoints
a referee or other officer to conduct a public sale of the mortgaged
property, the proceeds of which are used to satisfy the judgment. Such sales
are made in accordance with procedures that vary from state to state.
Equitable Limitations on Enforceability of Certain Provision. United
States courts have traditionally imposed general equitable principles to
limit the remedies available to lenders in foreclosure actions. These
principles are generally designed to relieve borrowers from the effects of
mortgage defaults perceived as harsh or unfair. Relying on such principles, a
court may alter the specific terms of a loan to the extent it considers
necessary to prevent or remedy an injustice, undue oppression or
overreaching, or may require the lender to undertake affirmative actions to
determine the cause of the borrower's default and the likelihood that the
borrower will be able to reinstate the loan. In some cases, courts have
substituted their judgment for the lender's and have required that lenders
reinstate loans or recast payment schedules in order to accommodate borrowers
who are suffering from a temporary financial disability. In other cases,
courts have limited the right of the lender to foreclose in the case of a
non-monetary default, such as a failure to adequately maintain the mortgaged
property or an impermissible further encumbrance of the mortgaged property.
Finally, some courts have addressed the issue of whether federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that a borrower receive notice in addition to statutorily-prescribed
minimum notice. For the most part, these cases have upheld the reasonableness
of the notice provisions or have found that a public sale under a mortgage
providing for a power of sale does not involve sufficient state action to
trigger constitutional protections. In addition, some states may provide
statutory protections such as the right of the borrower to cure outstanding
defaults and reinstate a mortgage loan after commencement of foreclosure
proceedings but prior to a foreclosure sale.
Non-Judicial Foreclosure/Power of Sale. Foreclosure of a deed of trust is
generally accomplished by a non-judicial trustee's sale pursuant to a power
of sale typically granted in the deed of trust. A power of sale may also be
contained in any other type of mortgage instrument if applicable law so
permits. A power of sale under a deed of trust allows a non-judicial public
sale to be conducted generally following a request from the
beneficiary/lender to the trustee to sell the property upon default by the
borrower and after notice of sale is given in accordance with the terms of
the mortgage and applicable state law. In some states, prior to such sale,
the trustee under the deed of trust must record a notice of default and
notice of sale and send a copy to the borrower and to any other party who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, in some states the trustee must provide notice to any other party
having an interest of record in the real property, including junior
lienholders. A notice of sale must be posted in a public place and, in most
states, published for a specified period of time in one or more newspapers.
The borrower or junior lienholder may then have the right, during a
reinstatement period required in some states, to cure the default by paying
the entire actual amount in arrears (without regard to the acceleration of
the indebtedness), plus the lender's expenses incurred in enforcing the
obligation. In other states, the borrower or the junior lienholder is not
provided a period to reinstate the loan, but has only the right to pay off
the entire debt to prevent the foreclosure sale. Generally, state law governs
the procedure for public sale, the parties entitled to notice, the method of
giving notice and the applicable time periods.
Public Sale. A third party may be unwilling to purchase a mortgaged
property at a public sale because of the difficulty in determining the exact
status of title to the property (due to, among other things, redemption
rights that may exist) (see "--Foreclosure--Rights of Redemption" below) and
because of the possibility that physical deterioration of the property may
have occurred during the foreclosure proceedings. Potential buyers may also
be reluctant to purchase property at a foreclosure sale as a result of the
1980 decision of the United States Court of Appeals for the Fifth Circuit in
Durrett v. Washington National Insurance Company. The court in Durrett held
that even a non-collusive, regularly conducted foreclosure sale was a
fraudulent transfer under Section 67d of the former Bankruptcy Act (Section
548 of the Bankruptcy Code, Bankruptcy Reform Act of 1978, as amended, 11
U.S.C. Section Section 101-1330 (the "Bankruptcy Code")) regardless of the
parties' intent and, therefore, could be rescinded in favor of the bankrupt's
estate, if (i) the foreclosure sale was held while the debtor was insolvent,
maintained unreasonably small capital or intended to incur debts beyond its
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ability to pay and not more than one year prior to the filing of the
bankruptcy petition and (ii) the price paid for the foreclosed property did
not represent "fair consideration" ("reasonably equivalent value" under the
Bankruptcy Code). Although the reasoning and result of Durrett were rejected
by the United States Supreme Court in May 1994, the case could nonetheless be
persuasive to a court applying a state fraudulent conveyance law with
provisions similar to those construed in Durrett. For these reasons, it is
common for the lender to purchase the mortgaged property for an amount equal
to the secured indebtedness and accrued and unpaid interest plus the expenses
of foreclosure, in which event the borrower's debt will be extinguished, or
for a lesser amount in order to preserve its right to seek a deficiency
judgment if such is available under state law. (The Mortgage Loans, however,
are generally expected to be non-recourse. See "Risk Factors--Certain Risks
Associated with Mortgage Loans Secured by Commercial and Multifamily
Properties".) Thereafter, subject to the borrower's right in some states to
remain in possession during a redemption period, the lender will become the
owner of the property and have both the benefits and burdens of ownership,
including the obligation to pay debt service on any senior mortgages, to pay
taxes, to obtain casualty insurance and to make such repairs as are necessary
to render the property suitable for sale. The costs of operating and
maintaining a commercial or multifamily residential property may be
significant and may be greater than the income derived from that property.
The lender also will commonly obtain the services of a real estate broker and
pay the broker's commission in connection with the sale or lease of the
property. Depending upon market conditions, the ultimate proceeds of the sale
of the property may not equal the lender's investment in the property.
Moreover, because of the expenses associated with acquiring, owning and
selling a mortgaged property, a lender could realize an overall loss on a
mortgage loan even if the mortgaged property is sold at foreclosure, or
resold after it is acquired through foreclosure, for an amount equal to the
full outstanding principal amount of the loan plus accrued interest.
The holder of a junior mortgage that forecloses on a mortgaged property
does so subject to senior mortgages and any other prior liens, and may be
obliged to keep senior mortgage loans current in order to avoid foreclosure
of its interest in the property. In addition, if the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause contained in a
senior mortgage, the junior mortgagee could be required to pay the full
amount of the senior mortgage indebtedness or face foreclosure.
Rights of Redemption. The purposes of a foreclosure action are to enable
the lender to realize upon its security and to bar the borrower, and all
persons who have interests in the property that are subordinate to that of
the foreclosing lender, from exercise of their "equity of redemption". The
doctrine of equity of redemption provides that, until the property encumbered
by a mortgage has been sold in accordance with a properly conducted
foreclosure and foreclosure sale, those having interests that are subordinate
to that of the foreclosing lender have an equity of redemption and may redeem
the property by paying the entire debt with interest. Those having an equity
of redemption must generally be made parties and joined in the foreclosure
proceeding in order for their equity of redemption to be terminated.
The equity of redemption is a common-law (non-statutory) right which
should be distinguished from post-sale statutory rights of redemption. In
some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property. In some states, statutory redemption
may occur only upon payment of the foreclosure sale price. In other states,
redemption may be permitted if the former borrower pays only a portion of the
sums due. The effect of a statutory right of redemption is to diminish the
ability of the lender to sell the foreclosed property because the exercise of
a right of redemption would defeat the title of any purchaser through a
foreclosure. Consequently, the practical effect of the redemption right is to
force the lender to maintain the property and pay the expenses of ownership
until the redemption period has expired. In some states, a post-sale
statutory right of redemption may exist following a judicial foreclosure, but
not following a trustee's sale under a deed of trust.
Anti-Deficiency Legislation. Some or all of the Mortgage Loans may be
nonrecourse loans, as to which recourse in the case of default will be
limited to the Mortgaged Property and such other assets, if any, that were
pledged to secure the Mortgage Loan. However, even if a mortgage loan by its
terms provides for recourse to the borrower's other assets, a lender's
ability to realize upon those assets may be limited by state law. For
example, in some states a lender cannot obtain a deficiency judgment against
the borrower following foreclosure or sale under a deed of trust. A
deficiency judgment is a personal judgment against the former borrower equal
to the difference between the net amount realized upon the public sale of the
real property and the amount due to the lender. Other statutes may require
the lender to exhaust the security afforded under a mortgage before bringing
a personal action against the borrower. In certain other states, the lender
has the option of bringing a personal action against the borrower on the debt
without first exhausting such security; however, in some of those states, the
lender, following judgment on such personal action, may be deemed to have
elected a remedy
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and thus may be precluded from foreclosing upon the security. Consequently,
lenders in those states where such an election of remedy provision exists
will usually proceed first against the security. Finally, other statutory
provisions, designed to protect borrowers from exposure to large deficiency
judgments that might result from bidding at below-market values at the
foreclosure sale, limit any deficiency judgment to the excess of the
outstanding debt over the fair market value of the property at the time of
the sale.
Leasehold Risks. Mortgage Loans may be secured by a lien on the borrower's
leasehold interest in a ground lease. Leasehold mortgage loans are subject to
certain risks not associated with mortgage loans secured by a lien on the fee
estate of the borrower. The most significant of these risks is that if the
borrower's leasehold were to be terminated (for example, as a result of a
lease default or the bankruptcy of the ground lessor or the borrower/ground
lessee), the leasehold mortgagee would be left without its security. This
risk may be substantially lessened if the ground lease contains provisions
protective of the leasehold mortgagee, such as a provision that requires the
ground lessor to give the leasehold mortgagee notices of lessee defaults and
an opportunity to cure them, a provision that permits the leasehold estate to
be assigned to and by the leasehold mortgagee or the purchaser at a
foreclosure sale, a provision that gives the leasehold mortgagee the right to
enter into a new ground lease with the ground lessor on the same terms and
conditions as the old ground lease or a provision that prohibits the ground
lessee/borrower from treating the ground lease as terminated in the event of
the ground lessor's bankruptcy and rejection of the ground lease by the
trustee for the debtor/ground lessor. Certain Mortgage Loans, however, may be
secured by liens on ground leases that do not contain these provisions. In
addition, the enforceability of certain of these provisions is not assured.
BANKRUPTCY LAWS
Operation of the Bankruptcy Code and related state laws may interfere with
or affect the ability of a lender to realize upon collateral and/or to
enforce a deficiency judgment. For example, under the Bankruptcy Code,
virtually all actions (including foreclosure actions and deficiency judgment
proceedings) to collect a debt are automatically stayed upon the filing of
the bankruptcy petition and, often, no interest or principal payments are
made during the course of the bankruptcy case. The delay and the consequences
thereof caused by such automatic stay can be significant. Also, under the
Bankruptcy Code, the filing of a petition in bankruptcy by or on behalf of a
junior lienor may stay the senior lender from taking action to foreclose out
such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards protective of the lender are met, the amount and terms of a
mortgage loan secured by a lien on property of the debtor may be modified
under certain circumstances. For example, the outstanding amount of the loan
may be reduced to the then-current value of the property (with a
corresponding partial reduction of the amount of lender's security interest)
pursuant to a confirmed plan or lien avoidance proceeding, thus leaving the
lender a general unsecured creditor for the difference between such value and
the outstanding balance of the loan. Other modifications may include the
reduction in the amount of each scheduled payment, by means of a reduction in
the rate of interest and/or an alteration of the repayment schedule (with or
without affecting the unpaid principal balance of the loan), and/or by an
extension (or shortening) of the term to maturity. Some bankruptcy courts
have approved plans, based on the particular facts of the reorganization
case, that effected the cure of a mortgage loan default by paying arrearages
over a number of years. Also, a bankruptcy court may permit a debtor, through
its rehabilitative plan, to reinstate a loan mortgage payment schedule even
if the lender has obtained a final judgment of foreclosure prior to the
filing of the debtor's petition.
Federal bankruptcy law may also have the effect of interfering with or
affecting the ability of the secured lender to enforce the borrower's
assignment of rents and leases related to the mortgaged property even where
the secured lender has received an absolute assignment of rents rather than
an assignment of rents as additional security. Under Section 362 of the
Bankruptcy Code, the lender will usually be stayed from enforcing the
assignment, and the legal proceedings necessary to resolve the issue could be
time-consuming, with resulting delays in the lender's receipt of the rents.
However, the Bankruptcy Code has recently 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.
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If a borrower's ability to make payment on a mortgage loan is dependent on
its receipt of rent payments under a lease of the related property, that
ability may be impaired by the commencement of a bankruptcy 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, (i) assume the lease and retain it or
assign it to a third party even when the lease prohibits such assignment or
(ii) reject the lease. If the lease is assumed, the trustee or
debtor-in-possession (or assignee, if applicable) must cure any pre-and
post-petition defaults under the lease, compensate the lessor for its losses
and provide the lessor with "adequate assurance" of future performance. Such
remedies may be insufficient, and any assurances provided to the lessor may,
after the fact, eventually be inadequate. If the lease is rejected, the
lessor will be treated as an unsecured creditor with respect to its claim for
damages for termination of the lease. The Bankruptcy Code also limits a
lessor's damages for lease rejection to the rent reserved by the lease
(without regard to acceleration) for the greater of one year, or 15%, not to
exceed three years, of the remaining term of the lease. In addition, some
courts have limited a lessor's post-petition pre-rejection priority claim for
lease payments to fair market value or less based on the benefit of the lease
to the debtor's bankruptcy estate.
ENVIRONMENTAL RISKS
General. A lender may be subject to environmental risks when taking a
security interest in real property. Of particular concern may be properties
that are or have been used for industrial, manufacturing, military or
disposal activity. Such environmental risks include the risk of the
diminution of the value of a contaminated property or, as discussed below,
liability for clean-up costs or other remedial actions that could exceed the
value of the property or the amount of the lender's loan. In certain
circumstances, a lender could determine to abandon a contaminated mortgaged
property as collateral for its loan rather than foreclose and risk liability
for clean-up costs.
Superlien Laws. Under the laws of many states, contamination on a property
may give rise to a lien on the property for clean-up costs. In several
states, such a lien has priority over all existing liens, including those of
existing mortgages. In these states, the lien of a mortgage may lose its
priority to such a "superlien".
CERCLA. The federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), imposes strict liability on
present and past "owners" and "operators" of contaminated real property for
the costs of clean-up. A secured lender may be liable as an "owner" or
"operator" of a contaminated mortgaged property if agents or employees of the
lender have become sufficiently involved in the management of such mortgaged
property or the operations of the borrower. Such liability may exist even if
the lender did not cause or contribute to the contamination and regardless of
whether or not the lender has actually taken possession of a mortgaged
property through foreclosure, deed in lieu of foreclosure or otherwise.
Moreover, such liability is not limited to the original or unamortized
principal balance of a loan or to the value of the property securing a loan.
Excluded from CERCLA's definition of "owner" or "operator", however, is a
person "who without participating in the management of the facility, holds
indicia of ownership primarily to protect his security interest". This is the
so called "secured creditor exemption".
The Asset Conversation, Lender Liability and Deposit Insurance Act of 1996
(the "Act") amended, among other things, the provisions of CERCLA with
respect to lender liability and the secured creditor exemption. The Act
offers substantial protection to lenders by defining the activities in which
a lender can engage and still have the benefit of the secured creditor
exemption. In order for a lender to be deemed to have participated in the
management of a mortgaged property, the lender must actually participate in
the operational affairs of the property of the borrower. The Act provides
that "merely having the capacity to influence, or unexercised right to
control" operations does not constitute participation in management. A lender
will lose the protection of the secured creditor exemption only if it
exercises decision-making control over the borrower's environmental
compliance and hazardous substance handling and disposal practices, or
assumes day-to-day management of all operational functions of the mortgaged
property. The Act also provides that a lender will continue to have the
benefit of the secured creditor exemption even if it forecloses on a
mortgaged property, purchases it at a foreclosure sale or accepts a
deed-in-lieu of foreclosure provided that the lender seeks to sell the
mortgaged property at the earliest practicable commercially reasonable time
on commercially reasonable terms.
Certain Other Federal and State Laws. Many states have statutes similar to
CERCLA, and not all those statutes provide for a secured creditor exemption.
In addition, under federal law, there is potential liability relating to
hazardous
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waste and underground storage tanks pursuant to Subtitle I of the federal
Resource Conservation and Recovery Act ("RCRA").
In addition, the definition of "hazardous substances" under CERCLA
specifically excludes petroleum products. Subtitle I of RCRA governs
underground petroleum storage tanks. Under the Act the protections accorded
to lenders under CERCLA are also accorded to the holders of security
interests in underground storage tanks. It should be noted, however, that
liability for cleanup of petroleum contamination may be governed by state
law, which may not provide for any specific protection for secured creditors.
In a few states, transfer of some types of properties is conditioned upon
clean-up of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed in lieu of
foreclosure or otherwise, may be required to clean-up the contamination
before selling or otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law
causes of action (for example, actions based on nuisance or on toxic tort
resulting in death, personal injury or damage to property) related to
hazardous environmental conditions on a property. While it may be more
difficult to hold a lender liable in such cases, unanticipated or uninsurable
liabilities of the borrower may jeopardize the borrower's ability to meet its
loan obligations.
Additional Considerations. The cost of remediating hazardous substance
contamination at a property can be substantial. If a lender becomes liable,
it can bring an action for contribution against the owner or operator who
created the environmental hazard, but that individual or entity may be
without substantial assets. Accordingly, it is possible that such costs could
become a liability of a Trust Fund and occasion a loss to Certificateholders
of the related series.
To reduce the likelihood of such a loss, and unless otherwise provided in
the related Prospectus Supplement, the related Pooling Agreement will provide
that neither the Master Servicer nor the Special Servicer, acting on behalf
of the Trustee, may acquire title to a Mortgaged Property or take over its
operation unless the Special Servicer, based on a report prepared by a person
who regularly conducts environmental audits, has made the determination that
it is appropriate to do so, as described under "Description of the Pooling
Agreements--Realization Upon Defaulted Mortgage Loans".
If a lender forecloses on a mortgage secured by a property, the operations
on which are subject to environmental laws and regulations, the lender will
be required to operate the property in accordance with those laws and
regulations. Such compliance may entail substantial expense, especially in
the case of industrial or manufacturing properties.
In addition, a lender may be obligated to disclose environmental
conditions on a property to government entities and/or to prospective buyers
(including prospective buyers at a foreclosure sale or following
foreclosure). Such disclosure may decrease the amount that prospective buyers
are willing to pay for the affected property, sometimes substantially, and
thereby decrease the ability of the lender to recoup its investment in a loan
upon foreclosure.
Environmental Site Assessments. In most cases, an environmental site
assessment of each Mortgaged Property will have been performed in connection
with the origination of the related Mortgage Loan or at some time prior to
the issuance of the related series of Certificates. Environmental site
assessments, however, vary considerably in their content, quality and cost.
Even when adhering to good, commercial and customary professional practices,
environmental consultants will sometimes not detect significant environmental
problems because carrying out an exhaustive environmental assessment would be
far too costly and time-consuming to be practical.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE
Certain of the Mortgage Loans may contain "due-on-sale" and
"due-on-encumbrance" clauses that purport to permit the lender to accelerate
the maturity of the loan if the borrower transfers or encumbers the related
Mortgaged Property. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce such
clauses in many states. By virtue, however, of the Garn-St Germain Depository
Institutions Act of 1982 (the "Garn Act"), effective October 15, 1982 (which
purports to preempt state laws that prohibit the enforcement of due-on-sale
clauses by providing among other matters, that "due-on-sale" clauses in
certain loans made after the effective date of the Garn Act are enforceable,
within certain limitations as set forth in the Garn Act and the regulations
promulgated thereunder), a Master Servicer may nevertheless have the right to
accelerate the maturity of a Mortgage Loan that contains a "due-on-sale"
provision upon transfer of an interest in the property, regardless of the
Master Servicer's ability to demonstrate that a sale threatens its legitimate
security interest.
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SUBORDINATE FINANCING
Certain of the Mortgage Loans may not restrict the ability of the borrower
to use the Mortgaged Property as security for one or more additional loans.
Where a borrower encumbers a mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the borrower
may have difficulty servicing and repaying multiple loans. Moreover, if the
subordinate financing permits recourse to the borrower (as is frequently the
case) and the senior loan does not, a borrower may have more incentive to
repay sums due on the subordinate loan. Second, acts of the senior lender
that prejudice the junior lender or impair the junior lender's security may
create a superior equity in favor of the junior lender. For example, if the
borrower and the senior lender agree to an increase in the principal amount
of or the interest rate payable on the senior loan, the senior lender may
lose its priority to the extent any existing junior lender is harmed or the
borrower is additionally burdened. Third, if the borrower defaults on the
senior loan and/or any junior loan or loans, the existence of junior loans
and actions taken by junior lenders can impair the security available to the
senior lender and can interfere with or delay the taking of action by the
senior lender. Moreover, the bankruptcy of a junior lender may operate to
stay foreclosure or similar proceedings by the senior lender.
DEFAULT INTEREST AND LIMITATIONS ON PREPAYMENTS
Notes and mortgages may contain provisions that obligate the borrower to
pay a late charge or additional interest if payments are not timely made, and
in some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower
for delinquent payments. Certain states also limit the amounts that a lender
may collect from a borrower as an additional charge if the loan is prepaid.
In addition, the enforceability of provisions that provide for prepayment
fees or penalties upon an involuntary prepayment is unclear under the laws of
many states.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 ("Title V") provides that state usury limitations shall not apply
to certain types of residential (including multifamily) first mortgage loans
originated by certain lenders after March 31, 1980. Title V authorized any
state to reimpose interest rate limits by adopting, before April 1, 1983, a
law or constitutional provision that expressly rejects application of the
federal law. In addition, even where Title V is not so rejected, any state is
authorized by the law to adopt a provision limiting discount points or other
charges on mortgage loans covered by Title V. Certain states have taken
action to reimpose interest rate limits and/or to limit discount points or
other charges.
No Mortgage Loan originated in any state in which application of Title V
has been expressly rejected or a provision limiting discount points or other
charges has been adopted, will (if originated after that rejection or
adoption) be eligible for inclusion in a Trust Fund unless (i) such Mortgage
Loan provides for such interest rate, discount points and charges as are
permitted in such state or (ii) such Mortgage Loan provides that the terms
thereof are to be construed in accordance with the laws of another state
under which such interest rate, discount points and charges would not be
usurious and the borrower's counsel has rendered an opinion that such choice
of law provision would be given effect.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a borrower who enters military service after the
origination of such borrower's mortgage loan (including a borrower who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an
annual rate of 6% during the period of such borrower's active duty status,
unless a court orders otherwise upon application of the lender. The Relief
Act applies to individuals who are members of the Army, Navy, Air Force,
Marines, National Guard, Reserves, Coast Guard and officers of the U.S.
Public Health Service assigned to duty with the military. Because the Relief
Act applies to individuals who enter military service (including reservists
who are called to active duty) after origination of the related mortgage
loan, no information can be provided as to the number of loans with
individuals as borrowers that may be affected by the Relief Act. Application
of the Relief Act would adversely affect, for an indeterminate period of
time, the ability of a Master Servicer or Special Servicer to collect full
amounts of interest on certain of the Mortgage Loans. Any shortfalls in
interest collections resulting from the application of the Relief Act would
result in a reduction of the amounts distributable to the holders of the
related series of Certificates, and would
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not be covered by advances or, unless otherwise specified in the related
Prospectus Supplement, any form of Credit Support provided in connection with
such Certificates. In addition, the Relief Act imposes limitations that would
impair the ability of a Master Servicer or Special Servicer to foreclose on
an affected Mortgage Loan during the borrower's period of active duty status,
and, under certain circumstances, during an additional three month period
thereafter.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers that are
structural in nature from existing places of public accommodation to the
extent "readily achievable". In addition, under the ADA, alterations to a
place of public accommodation or a commercial facility are to be made so
that, to the maximum extent feasible, such altered portions are readily
accessible to and usable by disabled individuals. The "readily achievable"
standard takes into account, among other factors, the financial resources of
the affected site, owner, landlord or other applicable person. The
requirements of the ADA may also be imposed on a foreclosing lender who
succeeds to the interest of the borrower as owner or landlord. Since the
"readily achievable" standard may vary depending on the financial condition
of the owner or landlord, a foreclosing lender who is financially more
capable than the borrower of complying with the requirements of the ADA may
be subject to more stringent requirements than those to which the borrower is
subject.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984, the
government may seize the property even before conviction. The government must
publish notice of the forfeiture proceeding and may give notice to all
parties "known to have an alleged interest in the property", including the
holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before
commission of the crime upon which the forfeiture is based, or (ii) the
lender was, at the time of execution of the mortgage, "reasonably without
cause to believe" that the property was used in, or purchased with the
proceeds or, illegal drug or RICO activities.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of Offered
Certificates by Certificateholders that will hold the Certificates as capital
assets within the meaning of Section 1221 of the Internal Revenue Code of
1986 (the "Code"), and represents the opinion of Thacher Proffitt & Wood on
the material matters associated with such consequences. However, the
following discussion does not purport to discuss all federal income tax
consequences that may be applicable to particular categories of investors,
some of which (such as banks, insurance companies and foreign investors) may
be subject to special rules. Further, the authorities on which this
discussion, and the opinion referred to above, are based are subject to
change or differing interpretations, which could apply retroactively.
Taxpayers and preparers of tax returns (including those filed by any REMIC or
other issuer) should be aware that under applicable Treasury regulations a
provider of advice on specific issues of law is not considered an income tax
return preparer unless the advice (i) is given with respect to events that
have occurred at the time the advice is rendered and is not given with
respect to the consequences of contemplated actions, and (ii) is directly
relevant to the determination of an entry on a tax return. Accordingly,
taxpayers should consult their own tax advisors and tax return preparers
regarding the preparation of any item on a tax return, even where the
anticipated tax treatment has been discussed herein. In addition to the
federal income tax consequences described herein, potential investors should
consider the state and local tax consequences, if any, of the purchase,
ownership and disposition of the Certificates. See "State and Other Tax
Consequences". Certificateholders are advised to consult their own tax
advisors concerning the federal, state, local or other tax consequences to
them of the purchase, ownership and disposition of Offered Certificates.
The following discussion addresses securities of two general types: (i)
certificates ("REMIC Certificates") representing interests in a Trust Fund,
or a portion thereof, that a REMIC Administrator will elect to have treated
as a real estate mortgage investment conduit ("REMIC") under Sections 860A
through 860G (the "REMIC Provisions") of the Code, and (ii) certificates
("Grantor Trust Certificates") representing interests in a Trust Fund
("Grantor Trust Fund") as to which no such election will be made. The
Prospectus Supplement for each series of Certificates will indicate whether a
REMIC election (or elections) will be made for the related Trust Fund and, if
such an election is to be made, will identify all "regular interests" and
"residual interests" in the REMIC. For purposes of this tax discussion,
references to a "Certificateholder" or a "holder" are to the beneficial owner
of a Certificate.
The following discussion is limited in applicability to Offered
Certificates. Moreover, this discussion applies only to the extent that
Mortgage Assets held by a Trust Fund consist solely of Mortgage Loans. To the
extent that other Mortgage Assets, including REMIC certificates and mortgage
pass-through certificates, are to be held by a Trust Fund, the tax
consequences associated with the inclusion of such assets will be disclosed
in the related Prospectus Supplement. In addition, if Cash Flow Agreements,
other than guaranteed investment contracts, are included in a Trust Fund, the
tax consequences associated with such Cash Flow Agreements also will be
disclosed in the related Prospectus Supplement. See "Description of the Trust
Funds--Cash Flow Agreements".
Furthermore, the following discussion is based in part upon the rules
governing original issue discount that are set forth in Sections 1271-1273
and 1275 of the Code and in the Treasury regulations issued thereunder (the
"OID Regulations"), and in part upon the REMIC Provisions and the Treasury
regulations issued thereunder (the "REMIC Regulations"). The OID Regulations
do not adequately address certain issues relevant to, and in some instances
provide that they are not applicable to securities such as the Certificates.
REMICS
Classification of REMICs. Upon the issuance of each series of REMIC
Certificates, counsel to the Sponsor will deliver its opinion generally to
the effect that, assuming compliance with all provisions of the related
Pooling Agreement, the related Trust Fund (or each applicable portion
thereof) will qualify as a REMIC and the REMIC Certificates offered with
respect thereto will be considered to evidence ownership of "regular
interests" ("REMIC Regular Certificates") or "residual interests" ("REMIC
Residual Certificates") in that REMIC within the meaning of the REMIC
Provisions.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any
taxable year, the Code provides that the entity will not be treated as a
REMIC for such year and thereafter. In that event, such entity may be taxable
as a corporation under Treasury regulations, and the related
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REMIC Certificates may not be accorded the status or given the tax treatment
described below. Although the Code authorizes the Treasury Department to
issue regulations providing relief in the event of an inadvertent termination
of REMIC status, no such regulations have been issued. Any such relief,
moreover, may be accompanied by sanctions, such as the imposition of a
corporate tax on all or a portion of the Trust Fund's income for the period
in which the requirements for such status are not satisfied. The Pooling
Agreement with respect to each REMIC will include provisions designed to
maintain the Trust Fund's status as a REMIC under the REMIC Provisions. It is
not anticipated that the status of any Trust Fund as a REMIC will be
terminated.
Characterization of Investments in REMIC Certificates. In general, unless
otherwise provided in the related Prospectus Supplement, the REMIC
Certificates will be "real estate assets" within the meaning of Section
856(c)(5)(A) of the Code and assets described in Section 7701(a)(19)(C) of
the Code in the same proportion that the assets of the REMIC underlying such
Certificates would be so treated. However, to the extent that the REMIC
assets constitute mortgages on property not used for residential or certain
other prescribed purposes, the REMIC Certificates will not be treated as
assets qualifying under Section 7701(a)(19)(C)(v). Moreover, if 95% or more
of the assets of the REMIC qualify for any of the foregoing treatments at all
times during a calendar year, the REMIC Certificates will qualify for the
corresponding status in their entirety for that calendar year. Interest
(including original issue discount) on the REMIC Regular Certificates and
income allocated to the class of REMIC Residual Certificates will be interest
described in Section 856(c)(3)(B) of the Code to the extent that such
Certificates are treated as "real estate assets" within the meaning of
Section 856(c)(5)(A) of the Code. In addition, the REMIC Regular Certificates
will be "qualified mortgages" within the meaning of Section 860G(a)(3) of the
Code. The determination as to the percentage of the REMIC's assets that
constitute assets described in the foregoing sections of the Code will be
made with respect to each calendar quarter based on the average adjusted
basis of each category of the assets held by the REMIC during such calendar
quarter. The REMIC Administrator will report those determinations to
Certificateholders in the manner and at the times required by the applicable
Treasury regulations.
The assets of the REMIC will include, in addition to Mortgage Loans,
payments on Mortgage Loans held pending distribution on the REMIC
Certificates and property acquired by foreclosure held pending sale, and may
include amounts in reserve accounts. It is unclear whether property acquired
by foreclosure held pending sale and amounts in reserve accounts would be
considered to be part of the Mortgage Loans, or whether such assets (to the
extent not invested in assets described in the foregoing sections) otherwise
would receive the same treatment as the Mortgage Loans for purposes of all of
the foregoing sections. In addition, in some instances Mortgage Loans may not
be treated entirely as assets described in the foregoing sections. If so, the
related Prospectus Supplement will describe those Mortgage Loans that may be
so treated. The REMIC Regulations do provide, however, that payments on
Mortgage Loans held pending distribution are considered part of the Mortgage
Loans for purposes of Section 856(c)(5)(A) of the Code.
Tiered REMIC Structures. For certain series of REMIC Certificates, two or
more separate elections may be made to treat designated portions of the
related Trust Fund as REMICs ("Tiered REMICs") for federal income tax
purposes. Upon the issuance of any such series of REMIC Certificates, counsel
to the Sponsor will deliver its opinion generally to the effect that,
assuming compliance with all provisions of the related Pooling Agreement,
each of the Tiered REMICs will qualify as a REMIC, and the REMIC Certificates
issued by each of the Tiered REMICs will be considered to evidence ownership
of REMIC Regular Certificates or REMIC Residual Certificates, as the case may
be, in such REMIC, within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will be
"real estate assets" within the meaning of Section 856(c)(5)(A) of the Code,
and "loans secured by an interest in real property" under Section
7701(a)(19)(C) of the Code, and whether the income on such Certificates is
interest described in Section 856(c)(3)(B) of the Code, the Tiered REMICs
will be treated as one REMIC.
TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES.
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt
instruments issued by the REMIC and not as ownership interests in the REMIC
or its assets. Moreover, holders of REMIC Regular Certificates that otherwise
report income under a cash method of accounting will be required to report
income with respect to REMIC Regular Certificates under an accrual method.
Original Issue Discount. Certain classes of REMIC Regular Certificates may
be issued with "original issue discount" within the meaning of Section
1273(a) of the Code. Any holders of REMIC Regular Certificates issued with
original issue
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discount generally will be required to include original issue discount in
income as it accrues, in accordance with the method described below, in
advance of the receipt of the cash attributable to such income. In addition,
Section 1272(a)(6) of the Code provides special rules applicable to REMIC
Regular Certificates and certain other debt instruments issued with original
issue discount. Regulations have not been issued under that section.
The Code requires that a prepayment assumption be used with respect to
Mortgage Loans held by a REMIC in computing the accrual of original issue
discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of such discount to
reflect differences between the actual prepayment rate and the prepayment
assumption. The prepayment assumption is to be determined in a manner
prescribed in Treasury regulations; as noted above, those regulations have
not been issued. The Conference Committee Report accompanying the Tax Reform
Act of 1986 (the "Committee Report") indicates that the regulations will
provide that the prepayment assumption used with respect to a REMIC Regular
Certificate must be the same as that used in pricing the initial offering of
such REMIC Regular Certificate. The prepayment assumption (the "Prepayment
Assumption") used in reporting original issue discount for each series will
be consistent with this standard and will be disclosed in the related
Prospectus Supplement. However, neither the Sponsor nor any other person will
make any representation that the Mortgage Loans will in fact prepay at a rate
conforming to the Prepayment Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular Certificate will
be the excess of its stated redemption price at maturity over its issue
price. The issue price of a particular class of REMIC Regular Certificates
will be the first cash price at which a substantial amount of REMIC Regular
Certificates of that class is sold (excluding sales to bond houses, brokers
and underwriters). If less than a substantial amount of a particular class of
REMIC Regular Certificates is sold for cash on or prior to the date of their
initial issuance (the "Closing Date") the issue price for such class will be
the fair market value of such class on the Closing Date. Under the OID
Regulations, the stated redemption price of a REMIC Regular Certificate is
equal to the total of all payments to be made on such Certificate other than
"qualified stated interest". "Qualified stated interest" includes interest
that is unconditionally payable at least annually at a single fixed rate, at
a "qualified floating rate" or at an "objective rate", a combination of a
single fixed rate and one or more "qualified floating rates" or one
"qualified inverse floating rate", or a combination of "qualified floating
rates" that does not operate in a manner that accelerates or defers interest
payments on such REMIC Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and
the timing of the inclusion thereof will vary according to the
characteristics of such REMIC Regular Certificates. If the original issue
discount rules apply to such Certificates, the related Prospectus Supplement
will describe the manner in which such rules will be applied with respect to
those Certificates in preparing information returns to the Certificateholders
and the Internal Revenue Service (the "IRS").
Certain classes of the REMIC Regular Certificates may provide for the
first interest payment with respect to such Certificates to be made more than
one month after the date of issuance, a period which is longer than the
subsequent monthly intervals between interest payments. Assuming the "accrual
period" (as defined below) for original issue discount is each monthly period
that ends on a Distribution Date, in some cases, as a consequence of this
"long first accrual period", some or all interest payments may be required to
be included in the stated redemption price of the REMIC Regular Certificate
and accounted for as original issue discount. Because interest on REMIC
Regular Certificates must in any event be accounted for under an accrual
method, applying this analysis would result in only a slight difference in
the timing of the inclusion in income of the yield on the REMIC Regular
Certificates.
In addition, if the accrued interest to be paid on the first Distribution
Date is computed with respect to a period that begins prior to the Closing
Date, a portion of the purchase price paid for a REMIC Regular Certificate
will reflect such accrued interest. In such cases, information returns
provided to the Certificateholders and the IRS will be based on the position
that the portion of the purchase price paid for the interest accrued with
respect to periods prior to the Closing Date is treated as part of the
overall cost of such REMIC Regular Certificate (and not as a separate asset
the cost of which is recovered entirely out of interest received on the next
Distribution Date) and that portion of the interest paid on the first
Distribution Date in excess of interest accrued for a number of days
corresponding to the number of days from the Closing Date to the first
Distribution Date should be included in the stated redemption price of such
REMIC Regular Certificate. However, the OID Regulations state that all or
some portion of such accrued interest may be treated as a separate asset the
cost of which is recovered entirely out of interest paid on the first
Distribution Date. It is unclear how an election to do so would be made under
the OID Regulations and whether such an election could be made unilaterally
by a Certificateholder.
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Notwithstanding the general definition of original issue discount,
original issue discount on a REMIC Regular Certificate will be considered to
be de minimis if it is less than 0.25% of the stated redemption price of the
REMIC Regular Certificate multiplied by its weighted average life. For this
purpose, the weighted average life of the REMIC Regular Certificate is
computed as the sum of the amounts determined, as to each payment included in
the stated redemption price of such REMIC Regular Certificate, by multiplying
(i) the number of complete years (rounding down for partial years) from the
issue date until such payment is expected to be made (presumably taking into
account the Prepayment Assumption) by (ii) a fraction, the numerator of which
is the amount of the payment and the denominator of which is the stated
redemption price at maturity of such REMIC Regular Certificate. Under the OID
Regulations, original issue discount of only a de minimis amount (other than
de minimis original issue discount attributable to a so-called "teaser"
interest rate or an initial interest holiday) will be included in income as
each payment of stated principal is made, based on the product of the total
amount of such de minimis original issue discount and a fraction, the
numerator of which is the amount of such principal payment and the
denominator of which is the outstanding stated principal amount of the REMIC
Regular Certificate. The OID Regulations also would permit a
Certificateholder to elect to accrue de minimis original issue discount into
income currently based on a constant yield method. See "--Taxation of Owners
of REMIC Regular Certificates--Market Discount" for a description of such
election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess of
a de minimis amount, the holder of such Certificate must include in ordinary
gross income the sum of the "daily portions" of original issue discount for
each day during its taxable year on which it held such REMIC Regular
Certificate, including the purchase date but excluding the disposition date.
In the case of an original holder of a REMIC Regular Certificate, the daily
portions of original issue discount will be determined as follows.
As to each "accrual period", that is, unless otherwise stated in the
related Prospectus Supplement, each period that ends on a date that
corresponds to a Distribution Date and begins on the first day following the
immediately preceding accrual period (or in the case of the first such
period, begins on the Closing Date), a calculation will be made of the
portion of the original issue discount that accrued during such accrual
period. The portion of original issue discount that accrues in any accrual
period will equal the excess, if any, of (i) the sum of (a) the present
value, as of the end of the accrual period, of all of the distributions
remaining to be made on the REMIC Regular Certificate, if any, in future
periods and (b) the distributions made on such REMIC Regular Certificate
during the accrual period of amounts included in the stated redemption price,
over (ii) the adjusted issue price of such REMIC Regular Certificate at the
beginning of the accrual period. The present value of the remaining
distributions referred to in the preceding sentence will be calculated (i)
assuming that distributions on the REMIC Regular Certificate will be received
in future periods based on the Mortgage Loans being prepaid at a rate equal
to the Prepayment Assumption and (ii) using a discount rate equal to the
original yield to maturity of the Certificate. For these purposes, the
original yield to maturity of the Certificate will be calculated based on its
issue price and assuming that distributions on the Certificate will be made
in all accrual periods based on the Mortgage Loans being prepaid at a rate
equal to the Prepayment Assumption. The adjusted issue price of a REMIC
Regular Certificate at the beginning of any accrual period will equal the
issue price of such Certificate, increased by the aggregate amount of
original issue discount that accrued with respect to such Certificate in
prior accrual periods, and reduced by the amount of any distributions made on
such REMIC Regular Certificate in prior accrual periods of amounts included
in the stated redemption price. The original issue discount accruing during
any accrual period, computed as described above, will be allocated ratably to
each day during the accrual period to determine the daily portion of original
issue discount for such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of
any original issue discount with respect to such Certificate. However, each
such daily portion will be reduced, if such cost is in excess of its
"adjusted issue price", in proportion to the ratio such excess bears to the
aggregate original issue discount remaining to be accrued on such REMIC
Regular Certificate. The adjusted issue price of a REMIC Regular Certificate
on any given day equals the sum of (i) the adjusted issue price (or, in the
case of the first accrual period, the issue price) of such Certificate at the
beginning of the accrual period which includes such day and (ii) the daily
portions of original issue discount for all days during such accrual period
prior to such day.
Market Discount. A Certificateholder that purchases a REMIC Regular
Certificate at a market discount, that is, in the case of a REMIC Regular
Certificate issued without original issue discount, at a purchase price less
than its remaining stated principal amount, or in the case of a REMIC Regular
Certificate issued with original issue discount, at a purchase
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price less than its adjusted issue price will recognize gain upon receipt of
each distribution representing stated redemption price. In particular, under
Section 1276 of the Code such a Certificateholder generally will be required
to allocate the portion of each such distribution representing stated
redemption price first to accrued market discount not previously included in
income, and to recognize ordinary income to that extent. A Certificateholder
may elect to include market discount in income currently as it accrues rather
than including it on a deferred basis in accordance with the foregoing. If
made, such election will apply to all market discount bonds acquired by such
Certificateholder on or after the first day of the first taxable year to
which such election applies. In addition, the OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in income as interest,
based on a constant yield method. If such an election were made with respect
to a REMIC Regular Certificate with market discount, the Certificateholder
would be deemed to have made an election to include currently market discount
in income with respect to all other debt instruments having market discount
that such Certificateholder acquires during the taxable year of the election
or thereafter, and possibly previously acquired instruments. Similarly, a
Certificateholder that made this election for a Certificate that is acquired
at a premium would be deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that such Certificateholder owns or acquires. See "--Taxation of Owners of
REMIC Regular Certificates--Premium" below. Each of these elections to accrue
interest, discount and premium with respect to a Certificate on a constant
yield method or as interest would be irrevocable.
However, market discount with respect to a REMIC Regular Certificate will
be considered to be de minimis for purposes of Section 1276 of the Code if
such market discount is less than 0.25% of the remaining stated redemption
price of such REMIC Regular Certificate multiplied by the number of complete
years to maturity remaining after the date of its purchase. In interpreting a
similar rule with respect to original issue discount on obligations payable
in installments, the OID Regulations refer to the weighted average maturity
of obligations, and it is likely that the same rule will be applied with
respect to market discount, presumably taking into account the Prepayment
Assumption. If market discount is treated as de minimis under this rule, it
appears that the actual discount would be treated in a manner similar to
original issue discount of a de minimis amount. See "--Taxation of Owners of
REMIC Regular Certificates--Original Issue Discount". Such treatment would
result in discount being included in income at a slower rate than discount
would be required to be included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than
one installment. Until regulations are issued by the Treasury Department,
certain rules described in the Committee Report apply. The Committee Report
indicates that in each accrual period market discount on REMIC Regular
Certificates should accrue, at the Certificateholder's option: (i) on the
basis of a constant yield method, (ii) in the case of a REMIC Regular
Certificate issued without original issue discount, in an amount that bears
the same ratio to the total remaining market discount as the stated interest
paid in the accrual period bears to the total amount of stated interest
remaining to be paid on the REMIC Regular Certificate as of the beginning of
the accrual period, or (iii) in the case of a REMIC Regular Certificate
issued with original issue discount, in an amount that bears the same ratio
to the total remaining market discount as the original issue discount accrued
in the accrual period bears to the total original issue discount remaining on
the REMIC Regular Certificate at the beginning of the accrual period.
Moreover, the Prepayment Assumption used in calculating the accrual of
original issue discount is also used in calculating the accrual of market
discount. Because the regulations referred to in this paragraph have not been
issued, it is not possible to predict what effect such regulations might have
on the tax treatment of a REMIC Regular Certificate purchased at a discount
in the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or other
periodic distributions throughout their term, the effect of these rules may
be to require market discount to be includible in income at a rate that is
not significantly slower than the rate at which such discount would accrue if
it were original issue discount. Moreover, in any event a holder of a REMIC
Regular Certificate generally will be required to treat a portion of any gain
on the sale or exchange of such Certificate as ordinary income to the extent
of the market discount accrued to the date of disposition under one of the
foregoing methods, less any accrued market discount previously reported as
ordinary income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year
or thereafter, the interest deferral rule described above will not apply.
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Premium. A REMIC Regular Certificate purchased at a cost (excluding any
portion of such cost attributable to accrued qualified stated interest)
greater than its remaining stated redemption price will be considered to be
purchased at a premium. The holder of such a REMIC Regular Certificate may
elect under Section 171 of the Code to amortize such premium under the
constant yield method over the life of the Certificate. If made, such an
election will apply to all debt instruments having amortizable bond premium
that the holder owns or subsequently acquires. Amortizable premium will be
treated as an offset to interest income on the related debt instrument,
rather than as a separate interest deduction. The OID Regulations also permit
Certificateholders to elect to include all interest, discount and premium in
income based on a constant yield method, further treating the
Certificateholder as having made the election to amortize premium generally.
See "--Taxation of Owners of REMIC Regular Certificates--Market Discount".
The Committee Report states that the same rules that apply to accrual of
market discount (which rules will require use of a Prepayment Assumption in
accruing market discount with respect to REMIC Regular Certificates without
regard to whether such Certificates have original issue discount) will also
apply in amortizing bond premium under Section 171 of the Code.
Realized Losses. Under Section 166 of the Code, both corporate holders of
the REMIC Regular Certificates and noncorporate holders of the REMIC Regular
Certificates that acquire such Certificates in connection with a trade or
business should be allowed to deduct, as ordinary losses, any losses
sustained during a taxable year in which their Certificates become wholly or
partially worthless as the result of one or more realized losses on the
Mortgage Loans. However, it appears that a noncorporate holder that does not
acquire a REMIC Regular Certificate in connection with a trade or business
will not be entitled to deduct a loss under Section 166 of the Code until
such holder's Certificate becomes wholly worthless (i.e., until its
outstanding principal balance has been reduced to zero) and that the loss
will be characterized as a short-term capital loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate,
without giving effect to any reductions in distributions attributable to
defaults or delinquencies on the Mortgage Assets until it can be established
that any such reduction ultimately will not be recoverable. As a result, the
amount of taxable income reported in any period by the holder of a REMIC
Regular Certificate could exceed the amount of economic income actually
realized by the holder in such period. Although the holder of a REMIC Regular
Certificate eventually will recognize a loss or reduction in income
attributable to previously accrued and included income that as a result of a
realized loss ultimately will not be realized, the law is unclear with
respect to the timing and character of such loss or reduction in income.
TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES.
General. As residual interests, the REMIC Residual Certificates will be
subject to tax rules that differ significantly from those that would apply if
the REMIC Residual Certificates were treated for federal income tax purposes
as direct ownership interests in the Mortgage Loans or as debt instruments
issued by the REMIC.
A holder of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the REMIC for each day during a
calendar quarter that such holder owned such REMIC Residual Certificate. For
this purpose, the taxable income or net loss of the REMIC will be allocated
to each day in the calendar quarter ratably using a "30 days per month/90
days per quarter/360 days per year" convention unless otherwise disclosed in
the related Prospectus Supplement. The daily amounts so allocated will then
be allocated among the Residual Certificateholders in proportion to their
respective ownership interests on such day. Any amount included in the gross
income or allowed as a loss of any Residual Certificateholder by virtue of
this paragraph will be treated as ordinary income or loss. The taxable income
of the REMIC will be determined under the rules described below in "--Taxable
Income of the REMIC" and will be taxable to the Residual Certificateholders
without regard to the timing or amount of cash distributions by the REMIC.
Ordinary income derived from REMIC Residual Certificates will be "portfolio
income" for purposes of the taxation of taxpayers subject to limitations
under Section 469 of the Code on the deductibility of "passive losses".
A holder of a Residual Certificate that purchased such Certificate from a
prior holder of such Certificate also will be required to report on its
federal income tax return amounts representing its daily share of the taxable
income (or net loss) of the REMIC for each day that it holds such REMIC
Residual Certificate. Those daily amounts generally will equal the amounts of
taxable income or net loss determined as described above. The Committee
Report indicates that certain modifications of the general rules may be made,
by regulations, legislation or otherwise to reduce (or increase) the income
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of a Residual Certificateholder that purchased such REMIC Residual
Certificate from a prior holder of such Certificate at a price greater than
(or less than) the adjusted basis (as defined below) such REMIC Residual
Certificate would have had in the hands of an original holder of such
Certificate. The REMIC Regulations, however, do not provide for any such
modifications.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such REMIC Residual Certificate will be
taken into account in determining the income of such holder for federal
income tax purposes. Although it appears likely that any such payment would
be includible in income immediately upon its receipt, the IRS might assert
that such payment should be included in income over time according to an
amortization schedule or according to some other method. Because of the
uncertainty concerning the treatment of such payments, holders of REMIC
Residual Certificates should consult their tax advisors concerning the
treatment of such payments for income tax purposes.
The amount of income Residual Certificateholders will be required to
report (or the tax liability associated with such income) may exceed the
amount of cash distributions received from the REMIC for the corresponding
period. Consequently, Residual Certificateholders should have other sources
of funds sufficient to pay any federal income taxes due as a result of their
ownership of REMIC Residual Certificates or unrelated deductions against
which income may be offset, subject to the rules relating to "excess
inclusions", residual interests without "significant value" and "noneconomic"
residual interests discussed below. The fact that the tax liability
associated with the income allocated to Residual Certificateholders may
exceed the cash distributions received by such Residual Certificateholders
for the corresponding period may significantly adversely affect such Residual
Certificateholders' after-tax rate of return.
Taxable Income of the REMIC. The taxable income of the REMIC will equal
the income from the Mortgage Loans and other assets of the REMIC plus any
cancellation of indebtedness income due to the allocation of realized losses
to REMIC Regular Certificates, less the deductions allowed to the REMIC for
interest (including original issue discount and reduced by any premium on
issuance) on the REMIC Regular Certificates (and any other class of REMIC
Certificates constituting "regular interests" in the REMIC not offered
hereby), amortization of any premium on the Mortgage Loans, bad debt losses
with respect to the Mortgage Loans and, except as described below, for
servicing, administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates (or, if a class of REMIC Certificates is not sold
initially, their fair market values). Such aggregate basis will be allocated
among the Mortgage Loans and the other assets of the REMIC in proportion to
their respective fair market values. The issue price of any REMIC
Certificates offered hereby will be determined in the manner described above
under "--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount". The issue price of a REMIC Certificate received in exchange for an
interest in the Mortgage Loans or other property will equal the fair market
value of such interests in the Mortgage Loans or other property. Accordingly,
if one or more classes of REMIC Certificates are retained initially rather
than sold, the REMIC Administrator may be required to estimate the fair
market value of such interests in order to determine the basis of the REMIC
in the Mortgage Loans and other property held by the REMIC.
Subject to possible application of the de minimis rules, the method of
accrual by the REMIC of original issue discount income and market discount
income with respect to Mortgage Loans that it holds will be equivalent to the
method for accruing original issue discount income for holders of REMIC
Regular Certificates (that is, under the constant yield method taking into
account the Prepayment Assumption). However, a REMIC that acquires loans at a
market discount must include such market discount in income currently, as it
accrues, on a constant yield basis. See "--Taxation of Owners of REMIC
Regular Certificates" above, which describes a method for accruing such
discount income that is analogous to that required to be used by a REMIC as
to Mortgage Loans with market discount that it holds.
A Mortgage Loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis therein, determined as
described in the preceding paragraph, is less than (or greater than) its
stated redemption price. Any such discount will be includible in the income
of the REMIC as it accrues, in advance of receipt of the cash attributable to
such income, under a method similar to the method described above for
accruing original issue discount on the REMIC Regular Certificates. It is
anticipated that each REMIC will elect under Section 171 of the Code to
amortize any premium on the Mortgage Loans. Premium on any Mortgage Loan to
which such election applies may be amortized under a constant yield method,
presumably taking into account a Prepayment Assumption. Further, such an
election would not apply to any Mortgage Loan originated on or before
September 27, 1985. Instead, premium on such a Mortgage Loan should be
allocated among the principal payments thereon and be deductible by the REMIC
as those payments become due or upon the prepayment of such Mortgage Loan.
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A REMIC will be allowed deductions for interest (including original issue
discount) on the REMIC Regular Certificates (including any other class of
REMIC Certificates constituting "regular interests" in the REMIC not offered
hereby) equal to the deductions that would be allowed if the REMIC Regular
Certificates (including any other class of REMIC Certificates constituting
"regular interests" in the REMIC not offered hereby) were indebtedness of the
REMIC. Original issue discount will be considered to accrue for this purpose
as described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount", except that the de minimis rule and
the adjustments for subsequent holders of REMIC Regular Certificates
(including any other class of REMIC Certificates constituting "regular
interests" in the REMIC not offered hereby) described therein will not apply.
If a class of REMIC Regular Certificates is issued at a price in excess of
the stated redemption price of such class (such excess "Issue Premium"), the
net amount of interest deductions that are allowed the REMIC in each taxable
year with respect to the REMIC Regular Certificates of such class will be
reduced by an amount equal to the portion of the Issue Premium that is
considered to be amortized or repaid in that year. Although the matter is not
entirely certain, it is likely that Issue Premium would be amortized under a
constant yield method in a manner analogous to the method of accruing
original issue discount described above under "--Taxation of Owners of REMIC
Regular Certificates--Original Issue Discount".
As a general rule, the taxable income of a REMIC will be determined in the
same manner as if the REMIC were an individual having the calendar year as
its taxable year and using the accrual method of accounting. However, no item
of income, gain, loss or deduction allocable to a prohibited transaction will
be taken into account. See "--Prohibited Transactions Tax and Other Taxes"
below. Further, the limitation on miscellaneous itemized deductions imposed
on individuals by Section 67 of the Code (which allows such deductions only
to the extent they exceed in the aggregate two percent of the taxpayer's
adjusted gross income) will not be applied at the REMIC level so that the
REMIC will be allowed deductions for servicing, administrative and other
non-interest expenses in determining its taxable income. All such expenses
will be allocated as a separate item to the holders of REMIC Certificates,
subject to the limitation of Section 67 of the Code. See "--Possible
Pass-Through of Miscellaneous Itemized Deductions" below. If the deductions
allowed to the REMIC exceed its gross income for a calendar quarter, such
excess will be the net loss for the REMIC for that calendar quarter.
Basis Rules, Net Losses and Distributions. The adjusted basis of a REMIC
Residual Certificate will be equal to the amount paid for such REMIC Residual
Certificate, increased by amounts included in the income of the Residual
Certificateholder and decreased (but not below zero) by distributions made,
and by net losses allocated, to such Residual Certificateholder.
A Residual Certificateholder is not allowed to take into account any net
loss for any calendar quarter to the extent such net loss exceeds such
Residual Certificateholder's adjusted basis in its REMIC Residual Certificate
as of the close of such calendar quarter (determined without regard to such
net loss). Any loss that is not currently deductible by reason of this
limitation may be carried forward indefinitely to future calendar quarters
and, subject to the same limitation, may be used only to offset income from
the REMIC Residual Certificate. The ability of Residual Certificateholders to
deduct net losses may be subject to additional limitations under the Code, as
to which Residual Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
non-taxable return of capital to the extent it does not exceed the holder's
adjusted basis in such REMIC Residual Certificate. To the extent a
distribution on a REMIC Residual Certificate exceeds such adjusted basis, it
will be treated as gain from the sale of such REMIC Residual Certificate.
Holders of certain REMIC Residual Certificates may be entitled to
distributions early in the term of the related REMIC under circumstances in
which their bases in such REMIC Residual Certificates will not be
sufficiently large that such distributions will be treated as nontaxable
returns of capital. Their bases in such REMIC Residual Certificates will
initially equal the amount paid for such REMIC Residual Certificates and will
be increased by their allocable shares of taxable income of the Trust Fund.
However, such bases increases may not occur until the end of the calendar
quarter, or perhaps the end of the calendar year, with respect to which such
REMIC taxable income is allocated to the REMIC Residual Certificateholders.
To the extent such REMIC Residual Certificateholders' initial bases are less
than the distributions to such Residual Certificateholders, and increases in
such initial bases either occur after such distributions or (together with
their initial bases) are less than the amount of such distributions, gain
will be recognized to such Residual Certificateholders on such distributions
and will be treated as gain from the sale of their REMIC Certificates.
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The effect of these rules is that a Residual Certificateholder may not
amortize its basis in a REMIC Residual Certificate, but may only recover its
basis through distributions, through the deduction of any net losses of the
REMIC or upon the sale of its REMIC Residual Certificate. See "--Sales of
REMIC Certificates". For a discussion of possible modifications of these
rules that may require adjustments to income of a holder of a REMIC Residual
Certificate other than an original holder in order to reflect any difference
between the cost of such REMIC Residual Certificate to such Residual
Certificateholder and the adjusted basis such REMIC Residual Certificate
would have in the hands of an original holder. See "--Taxation of Owners of
REMIC Residual Certificates--General".
Excess Inclusions. Any "excess inclusions" with respect to a REMIC
Residual Certificate will, with an exception discussed below for certain
REMIC Residual Certificates held by thrift institutions, be subject to
federal income tax in all events.
In general, the "excess inclusions" with respect to a REMIC Residual
Certificate for any calendar quarter will be the excess, if any, of (i) the
sum of the daily portions of REMIC taxable income allocable to such REMIC
Residual Certificate over (ii) the sum of the "daily accruals" (as defined
below) for each day during such quarter that such REMIC Residual Certificate
was held by such Residual Certificateholder. The daily accruals of a Residual
Certificateholder will be determined by allocating to each day during a
calendar quarter its ratable portion of the product of the "adjusted issue
price" of the REMIC Residual Certificate at the beginning of the calendar
quarter and 120% of the "long-term Federal rate" in effect on the Closing
Date. For this purpose, the adjusted issue price of a REMIC Residual
Certificate as of the beginning of any calendar quarter will be equal to the
issue price of the REMIC Residual Certificate, increased by the sum of the
daily accruals for all prior quarters and decreased (but not below zero) by
any distributions made with respect to such REMIC Residual Certificate before
the beginning of such quarter. The issue price of a REMIC Residual
Certificate is the initial offering price to the public (excluding bond
houses and brokers) at which a substantial amount of the REMIC Residual
Certificates were sold. The "long-term Federal rate" is an average of current
yields on Treasury securities with a remaining term of greater than nine
years, computed and published monthly by the IRS. Although it has not done
so, the Treasury has the authority to issue regulations that would treat the
entire amount of income accruing on a REMIC Residual Certificate as an excess
inclusion if the REMIC Residual Certificates are considered not to have
"significant value."
For Residual Certificateholders, an excess inclusion (i) will not be
permitted to be offset by deductions, losses or loss carryovers from other
activities, (ii) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (iii) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the
30% United States withholding tax imposed on distributions to Residual
Certificateholders that are foreign investors. See, however, "--Foreign
Investors in REMIC Certificates," below. Furthermore, for purposes of the
alternative minimum tax, (i) excess inclusions will not be permitted to be
offset by the alternative tax net operating loss deduction and (ii)
alternative minimum taxable income may not be less than the taxpayer's excess
inclusions. This last rule has the effect of preventing nonrefundable tax
credits from reducing the taxpayer's income tax to an amount lower than the
tentative minimum tax on excess inclusions.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Section 857(b)(2) of
the Code, excluding any net capital gain), will be allocated among the
shareholders of such trust in proportion to the dividends received by such
shareholders from such trust, and any amount so allocated will be treated as
an excess inclusion with respect to a REMIC Residual Certificate as if held
directly by such shareholder. Treasury regulations yet to be issued could
apply a similar rule to regulated investment companies, common trust funds
and certain cooperatives; the REMIC Regulations currently do not address this
subject.
Noneconomic REMIC Residual Certificates. Under the REMIC Regulations,
transfers of "noneconomic" REMIC Residual Certificates will be disregarded
for all federal income tax purposes if "a significant purpose of the transfer
was to enable the transferor to impede the assessment or collection of tax".
If such transfer is disregarded, the purported transferor will continue to
remain liable for any taxes due with respect to the income on such
"noneconomic" REMIC Residual Certificate. The REMIC Regulations provide that
a REMIC Residual Certificate is noneconomic unless, based on the Prepayment
Assumption and on any required or permitted clean up calls, or required
liquidation provided for in the REMIC's organizational documents, (1) the
present value of the expected future distributions (discounted using the
"applicable Federal rate" for obligations whose term ends on the close of the
last quarter in which excess inclusions are expected to accrue with respect
to the REMIC Residual Certificate, which rate is computed and published
monthly by the
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IRS) on the REMIC Residual Certificate equals at least the present value of
the expected tax on the anticipated excess inclusions, and (2) the transferor
reasonably expects that the transferee will receive distributions with
respect to the REMIC Residual Certificate at or after the time the taxes
accrue on the anticipated excess inclusions in an amount sufficient to
satisfy the accrued taxes. Accordingly, all transfers of REMIC Residual
Certificates that may constitute noneconomic residual interests will be
subject to certain restrictions under the terms of the related Pooling
Agreement that are intended to reduce the possibility of any such transfer
being disregarded. Such restrictions will require each party to a transfer to
provide an affidavit that no purpose of such transfer is to impede the
assessment or collection of tax, including certain representations as to the
financial condition of the prospective transferee, as to which the transferor
is also required to make a reasonable investigation to determine such
transferee's historic payment of its debts and ability to continue to pay its
debts as they come due in the future. Prior to purchasing a REMIC Residual
Certificate, prospective purchasers should consider the possibility that a
purported transfer of such REMIC Residual Certificate by such a purchaser to
another purchaser at some future date may be disregarded in accordance with
the above-described rules which would result in the retention of tax
liability by such purchaser.
The related Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests
under the REMIC Regulations; provided, however, that any disclosure that a
REMIC Residual Certificate will not be considered "noneconomic" will be based
upon certain assumptions, and the Sponsor will make no representation that a
REMIC Residual Certificate will not be considered "noneconomic" for purposes
of the above-described rules.
Unless otherwise stated in the related Prospectus Supplement, transfers of
REMIC Residual Certificates to investors that are not United States Persons
(as defined below in "--Foreign Investors in REMIC Certificates") will be
prohibited under the related Pooling Agreement. If transfers of REMIC
Residual Certificates to investors that are not United States Persons are
permitted pursuant to the related Pooling Agreement, the related Prospectus
Supplement will describe additional restrictions applicable to transfers of
certain REMIC Residual Certificates to such persons.
Mark-to-Market Rules. Prospective purchasers of a REMIC Residual
Certificate should be aware that on December 28, 1993, the IRS released
temporary regulations under Code Section 475 (the "Temporary Mark-to-Market
Regulations") relating to the requirement that a securities dealer mark to
market securities held for sale to customers. This mark-to-market requirement
applies to all securities owned by a dealer, except to the extent that the
dealer has specifically identified a security as held for investment. The
Temporary Mark-to-Market Regulations provide that for purposes of this
mark-to-market requirement, a "negative value" REMIC Residual Certificate is
not treated as a security and thus generally may not be marked to market. In
general, a REMIC Residual Certificate has negative value if, as of the date a
taxpayer acquires the REMIC Residual Certificate, the present value of the
tax liabilities associated with holding the REMIC Residual Certificate
exceeds the sum of (i) the present value of the expected future distributions
on the REMIC Residual Certificate, and (ii) the present value of the
anticipated tax savings associated with holding the REMIC Residual
Certificate as the REMIC generates losses. The amounts and present values of
the anticipated tax liabilities, expected future distributions and
anticipated tax savings are all to be determined using (i) the prepayment and
reinvestment assumptions adopted under Section 1272(a)(6) of the Code, or
that would have been adopted had the REMIC's regular interests been issued
with original issue discount, (ii) any required or permitted clean up calls,
or required qualified liquidation, provided for in the REMIC's organizational
documents and (iii) a discount rate equal to the "applicable Federal rate"
(as specified in Section 1274(d)(1) of the Code) that would apply to a debt
instrument issued on the date of acquisition of the REMIC Residual
Certificate. The Temporary Mark-to-Market Regulations apply to taxable years
ending on or after December 31, 1993. Furthermore, the Temporary
Mark-to-Market Regulations provide the IRS with the authority to treat any
REMIC Residual Certificate having substantially the same economic effect as a
"negative value" residual interest. On January 3, 1995, the IRS released
proposed regulations under Section 475 of the Code (the "Proposed
Mark-to-Market Regulations"). The Proposed Mark-to-Market Regulations provide
that any residual interest (regardless of whether it has a negative value)
that is acquired on or after January 4, 1995 is not a "security" for the
purposes of Section 475 of the Code, and thus is not subject to the
mark-to-market rules. Prospective purchasers of a REMIC Residual Certificate
should consult their tax advisors regarding the possible application of the
Temporary Mark-to-Market Regulations and the Proposed Mark-to-Market
Regulations.
Possible Pass-Through of Miscellaneous Itemized Deductions. Fees and
expenses of a REMIC generally will be allocated to the holders of the related
REMIC Residual Certificates. The applicable Treasury regulations indicate,
however, that in the case of a REMIC that is similar to a single class
grantor trust, all or a portion of such fees and expenses
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should be allocated to the holders of the related REMIC Regular Certificates.
Unless otherwise stated in the related Prospectus Supplement, such fees and
expenses will be allocated to holders of the related REMIC Residual
Certificates in their entirety and not to the holders of the related REMIC
Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular Certificates
the holders of which receive an allocation of fees and expenses in accordance
with the preceding discussion, if any holder thereof is an individual, estate
or trust, or a "pass-through entity" beneficially owned by one or more
individuals, estates or trusts, (i) an amount equal to such individual's,
estate's or trust's share of such fees and expenses will be added to the
gross income of such holder and (ii) such individual's, estate's or trust's
share of such fees and expenses will be treated as a miscellaneous itemized
deduction allowable subject to the limitation of Section 67 of the Code,
which permits such deductions only to the extent they exceed in the aggregate
two percent of a taxpayer's adjusted gross income. In addition, Section 68 of
the Code provides that the amount of itemized deductions otherwise allowable
for an individual whose adjusted gross income exceeds a specified amount will
be reduced by the lesser of (i) 3% of the excess of the individual's adjusted
gross income over such amount or (ii) 80% of the amount of itemized
deductions otherwise allowable for the taxable year. The amount of additional
taxable income reportable by REMIC Certificateholders that are subject to the
limitations of either Section 67 or Section 68 of the Code may be
substantial. Furthermore, in determining the alternative minimum taxable
income of such a holder of a REMIC Certificate that is an individual, estate
or trust, or a "pass-through entity" beneficially owned by one or more
individuals, estates or trusts, no deduction will be allowed for such
holder's allocable portion of servicing fees and other miscellaneous itemized
deductions of the REMIC, even though an amount equal to the amount of such
fees and other deductions will be included in such holder's gross income.
Accordingly, such REMIC Certificates may not be appropriate investments for
individuals, estates, or trusts, or pass-through entities beneficially owned
by one or more individuals, estates or trusts. Such prospective investors
should carefully consult with their own tax advisors prior to making an
investment in such Certificates.
Sales of REMIC Certificates. If a REMIC Certificate is sold, the selling
Certificateholder will recognize gain or loss equal to the difference between
the amount realized on the sale and its adjusted basis in the REMIC
Certificate. The adjusted basis of a REMIC Regular Certificate generally will
equal the cost of such REMIC Regular Certificate to such Certificateholder,
increased by income reported by such Certificateholder with respect to such
REMIC Regular Certificate (including original issue discount and market
discount income) and reduced (but not below zero) by distributions on such
REMIC Regular Certificate received by such Certificateholder and by any
amortized premium. The adjusted basis of a REMIC Residual Certificate will be
determined as described under "--Taxation of Owners of REMIC Residual
Certificates--Basis Rules, Net Losses and Distributions". Except as provided
in the following two paragraphs, any such gain or loss will be capital gain
or loss, provided such REMIC Certificate is held as a capital asset
(generally, property held for investment) within the meaning of Section 1221
of the Code. The Code as of the date of this Prospectus, provides for a top
marginal tax rate of 39.6% for individuals and a maximum marginal rate for
long-term capital gains of individuals of 28%. No such rate differential
exists for corporations. In addition, the distinction between a capital gain
or loss and ordinary income or loss remains relevant for other purposes.
Gain from the sale of a REMIC Regular Certificate that might otherwise be
capital gain will be treated as ordinary income to the extent such gain does
not exceed the excess, if any, of (i) the amount that would have been
includible in the seller's income with respect to such REMIC Regular
Certificate assuming that income had accrued thereon at a rate equal to 110%
of the "applicable Federal rate" (generally, a rate based on an average of
current yields on Treasury securities having a maturity comparable to that of
the Certificate based on the application of the Prepayment Assumption to such
Certificate, which rate is computed and published monthly by the IRS),
determined as of the date of purchase of such REMIC Regular Certificate, over
(ii) the amount of ordinary income actually includible in the seller's income
prior to such sale. In addition, gain recognized on the sale of a REMIC
Regular Certificate by a seller who purchased such REMIC Regular Certificate
at a market discount will be taxable as ordinary income in an amount not
exceeding the portion of such discount that accrued during the period such
REMIC Certificate was held by such holder, reduced by any market discount
included in income under the rules described above under "--Taxation of
Owners of REMIC Regular Certificates--Market Discount" and "--Premium".
REMIC Certificates will be "evidences of indebtedness" within the meaning
of Section 582(c)(1) of the Code, so that gain or loss recognized from the
sale of a REMIC Certificate by a bank or thrift institution to which such
section applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the
extent that such Certificate is held as part of a "conversion transaction"
within the
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meaning of Section 1258 of the Code. A conversion transaction generally is
one in which the taxpayer has taken two or more positions in the same or
similar property that reduce or eliminate market risk, if substantially all
of the taxpayer's return is attributable to the time value of the taxpayer's
net investment in such transaction. The amount of gain so realized in a
conversion transaction that is recharacterized as ordinary income generally
will not exceed the amount of interest that would have accrued on the
taxpayer's net investment at 120% of the appropriate "applicable Federal
rate" (which rate is computed and published monthly by the IRS) at the time
the taxpayer enters into the conversion transaction, subject to appropriate
reduction for prior inclusion of interest and other ordinary income items
from the transaction.
Finally, a taxpayer may elect to have net capital gains taxed at ordinary
income rates rather than capital gain rates in order to include such net
capital gain in total net investment income for the taxable year, for
purposes of the rule that limits the deduction of interest on indebtedness
incurred to purchase or carry property held for investment to a taxpayer's
net investment income.
Except as may be provided in Treasury regulations yet to be issued, if the
seller of a REMIC Residual Certificate reacquires a REMIC Residual
Certificate, or acquires any other residual interest in a REMIC or any
similar interest in a "taxable mortgage pool" (as defined in Section 7701(i)
of the Code) during the period beginning six months before, and ending six
months after, the date of such sale, such sale will be subject to the "wash
sale" rules of Section 1091 of the Code. In that event, any loss realized by
the REMIC Residual Certificateholder on the sale will not be deductible, but
instead will be added to such REMIC Residual Certificateholder's adjusted
basis in the newly-acquired asset.
Prohibited Transactions Tax and Other Taxes. The Code imposes a tax on
REMICs equal to 100% of the net income derived from "prohibited transactions"
(a "Prohibited Transactions Tax"). In general, subject to certain specified
exceptions a prohibited transaction means the disposition of a Mortgage Loan,
the receipt of income from a source other than a Mortgage Loan or certain
other permitted investments, the receipt of compensation for services, or
gain from the disposition of an asset purchased with the payments on the
Mortgage Loans for temporary investment pending distribution on the REMIC
Certificates. Unless otherwise disclosed in the related Prospectus
Supplement, it is not anticipated that any REMIC will recognize "net income
from foreclosure property" subject to federal income tax. It is not
anticipated that the REMIC will engage in any prohibited transactions in
which it would recognize a material amount of net income.
In addition, certain contributions to a REMIC made after the day on which
the REMIC issues all of its interests could result in the imposition of a tax
on the REMIC equal to 100% of the value of the contributed property (a
"Contributions Tax"). Each Pooling Agreement will include provisions designed
to prevent the acceptance of any contributions that would be subject to such
tax.
REMICs also are subject to federal income tax at the highest corporate
rate on "net income from foreclosure property", determined by reference to
the rules applicable to real estate investment trusts. "Net income from
foreclosure property" generally means gain from the sale of a foreclosure
property that is inventory property and gross income from foreclosure
property other than qualifying rents and other qualifying income for a real
estate investment trust. Unless otherwise disclosed in the related Prospectus
Supplement, it is not anticipated that any REMIC will recognize "net income
from foreclosure property" subject to federal income tax.
Unless otherwise disclosed in the related Prospectus Supplement, it is not
anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
Unless otherwise stated in the related Prospectus Supplement, and to the
extent permitted by then applicable laws, any Prohibited Transactions Tax,
Contributions Tax, tax on "net income from foreclosure property" or state or
local income or franchise tax that may be imposed on the REMIC will be borne
by the related REMIC Administrator, Master Servicer, Special Servicer or
Trustee in any case out of its own funds, provided that such person has
sufficient assets to do so, and provided further that such tax arises out of
a breach of such person's obligations under the related Pooling Agreement and
in respect of compliance with applicable laws and regulations. Any such tax
not borne by a REMIC Administrator, Master Servicer, Special Servicer or
Trustee will be charged against the related Trust Fund resulting in a
reduction in amounts payable to holders of the related REMIC Certificates.
Tax and Restrictions on Transfers of REMIC Residual Certificates to
Certain Organizations. If a REMIC Residual Certificate is transferred to a
"disqualified organization" (as defined below), a tax would be imposed in an
amount (determined under the REMIC Regulations) equal to the product of (i)
the present value (discounted using the "applicable Federal rate" for
obligations whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the REMIC Residual
Certificate, which rate is computed and published monthly by the
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IRS) of the total anticipated excess inclusions with respect to such REMIC
Residual Certificate for periods after the transfer and (ii) the highest
marginal federal income tax rate applicable to corporations. The anticipated
excess inclusions must be determined as of the date that the REMIC Residual
Certificate is transferred and must be based on events that have occurred up
to the time of such transfer, the Prepayment Assumption and any required or
permitted clean up calls or required liquidation provided for in the REMIC's
organizational documents. Such a tax generally would be imposed on the
transferor of the REMIC Residual Certificate, except that where such transfer
is through an agent for a disqualified organization, the tax would instead be
imposed on such agent. However, a transferor of a REMIC Residual Certificate
would in no event be liable for such tax with respect to a transfer if the
transferee furnishes to the transferor an affidavit that the transferee is
not a disqualified organization and, as of the time of the transfer, the
transferor does not have actual knowledge that such affidavit is false.
Moreover, an entity will not qualify as a REMIC unless there are reasonable
arrangements designed to ensure that (i) residual interests in such entity
are not held by disqualified organizations and (ii) information necessary for
the application of the tax described herein will be made available.
Restrictions on the transfer of REMIC Residual Certificates and certain other
provisions that are intended to meet this requirement will be included in the
Pooling Agreement, and will be discussed more fully in any Prospectus
Supplement relating to the offering of any REMIC Residual Certificate.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (i) the
amount of excess inclusions on the REMIC Residual Certificate that are
allocable to the interest in the pass-through entity held by such
disqualified organization and (ii) the highest marginal federal income tax
rate imposed on corporations. A pass-through entity will not be subject to
this tax for any period, however, if each record holder of an interest in
such pass-through entity furnishes to such pass-through entity (i) such
holder's social security number and a statement under penalty of perjury that
such social security number is that of the record holder or (ii) a statement
under penalty of perjury that such record holder is not a disqualified
organization.
For these purposes, a "disqualified organization" means (i) the United
States, any State or political subdivision thereof, any foreign government,
any international organization, or any agency or instrumentality of the
foregoing (but would not include instrumentalities described in Section
168(h)(2)(D) of the Code or the Federal Home Loan Mortgage Corporation), (ii)
any organization (other than a cooperative described in Section 521 of the
Code) that is exempt from federal income tax, unless it is subject to the tax
imposed by Section 511 of the Code or (iii) any organization described in
Section 1381(a)(2)(C) of the Code. For these purposes, a "pass-through
entity" means any regulated investment company, real estate investment trust,
trust, partnership or certain other entities described in Section 860E(e)(6)
of the Code. In addition, a person holding an interest in a pass-through
entity as a nominee for another person will, with respect to such interest,
be treated as a pass-through entity.
Termination. A REMIC will terminate immediately after the Distribution
Date following receipt by the REMIC of the final payment in respect of the
Mortgage Loans or upon a sale of the REMIC's assets following the adoption by
the REMIC of a plan of complete liquidation. The last distribution on a REMIC
Regular Certificate will be treated as a payment in retirement of a debt
instrument. In the case of a REMIC Residual Certificate, if the last
distribution on such REMIC Residual Certificate is less than the Residual
Certificateholder's adjusted basis in such REMIC Residual Certificate, such
Residual Certificateholder should (but may not) be treated as realizing a
loss equal to the amount of such difference, and such loss may be treated as
a capital loss.
Reporting and Other Administrative Matters. Solely for purposes of the
administrative provisions of the Code, the REMIC will be treated as a
partnership and Residual Certificateholders will be treated as partners.
Unless otherwise stated in the related Prospectus Supplement, the REMIC
Administrator will file REMIC federal income tax returns on behalf of the
REMIC, will be designated as and will act as the "tax matters person" with
respect to the REMIC in all respects, and will generally hold at least a
nominal amount of REMIC Residual Certificates.
As the tax matters person, the REMIC Administrator, subject to certain
notice requirements and various restrictions and limitations, generally will
have the authority to act on behalf of the REMIC and the Residual
Certificateholders in connection with the administrative and judicial review
of items of income, deduction, gain or loss of the REMIC, as well as the
REMIC's classification. Residual Certificateholders generally will be
required to report such REMIC items consistently with their treatment on the
related REMIC's tax return and may in some circumstances be bound by a
settlement agreement between the REMIC Administrator, as tax matters person,
and the IRS concerning any such REMIC item. Adjustments made to the REMIC tax
return may require a Residual Certificateholder to make
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corresponding adjustments on its return, and an audit of the REMIC's tax
return, or the adjustments resulting from such an audit, could result in an
audit of a Residual Certificateholder's return. No REMIC will be registered
as a tax shelter pursuant to Section 6111 of the Code because it is not
anticipated that any REMIC will have a net loss for any of the first five
taxable years of its existence. Any person that holds a REMIC Residual
Certificate as a nominee for another person may be required to furnish the
related REMIC, in a manner to be provided in Treasury regulations, with the
name and address of such person and other information.
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be
required more frequently under Treasury regulations. These information
reports generally are required to be sent to individual holders of REMIC
Regular Interests and the IRS; holders of REMIC Regular Certificates that are
corporations, trusts, securities dealers and certain other non-individuals
will be provided interest and original issue discount income information and
the information set forth in the following paragraph upon request in
accordance with the requirements of the applicable regulations. The
information must be provided by the later of 30 days after the end of the
quarter for which the information was requested, or two weeks after the
receipt of the request. The REMIC must also comply with rules requiring a
REMIC Regular Certificate issued with original issue discount to disclose on
its face the amount of original issue discount and the issue date, and
requiring such information to be reported to the IRS. Reporting with respect
to the REMIC Residual Certificates, including income, excess inclusions,
investment expenses and relevant information regarding qualification of the
REMIC's assets will be made as required under the Treasury regulations,
generally on a quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular
Certificate at the beginning of each accrual period. In addition, the reports
will include information required by regulations with respect to computing
the accrual of any market discount. Because exact computation of the accrual
of market discount on a constant yield method would require information
relating to the holder's purchase price that the REMIC may not have, such
regulations only require that information pertaining to the appropriate
proportionate method of accruing market discount be provided. See "--Taxation
of Owners of REMIC Regular Certificates--Market Discount".
Unless otherwise specified in the related Prospectus Supplement, the
responsibility for complying with the foregoing reporting rules will be borne
by the person designated as REMIC Administrator.
Backup Withholding with Respect to REMIC Certificates. Payments of
interest and principal, as well as payments of proceeds from the sale of
REMIC Certificates, may be subject to the "backup withholding tax" under
Section 3406 of the Code at a rate of 31% if recipients of such payments fail
to furnish to the payor certain information, including their taxpayer
identification numbers, or otherwise fail to establish an exemption from such
tax. Any amounts deducted and withheld from a distribution to a recipient
would be allowed as a credit against such recipient's federal income tax.
Furthermore, certain penalties may be imposed by the IRS on a recipient of
payments that is required to supply information but that does not do so in
the proper manner.
Foreign Investors in REMIC Certificates. A REMIC Regular Certificateholder
that is not a "United States person" (as defined below) and is not subject to
federal income tax as a result of any direct or indirect connection to the
United States in addition to its ownership of a REMIC Regular Certificate
will not, unless otherwise disclosed in the related Prospectus Supplement, be
subject to United States federal income or withholding tax in respect of a
distribution on a REMIC Regular Certificate, provided that the holder
complies to the extent necessary with certain identification requirements
(including delivery of a statement, signed by the Certificateholder under
penalties of perjury, certifying that such Certificateholder is not a United
States person and providing the name and address of such Certificateholder).
For these purposes, "United States person" means a citizen or resident of the
United States, a corporation, partnership or other entity created or
organized in, or under the laws of, the United States or any political
subdivision thereof, or an estate whose income is subject to United States
federal income tax regardless of its source, or a trust if a court within the
United States is able to exercise primary supervision over the administration
of the trust and one or more United States fiduciaries have the authority to
control all substantial decisions of the trust. It is possible that the IRS
may assert that the foregoing tax exemption should not apply with respect to
a REMIC Regular Certificate held by a Residual Certificateholder that owns
directly or indirectly a 10% or greater interest in the REMIC Residual
Certificates. If the holder does not qualify for exemption, distributions of
interest, including distributions in respect of accrued original issue
discount, to such holder may be subject to a tax rate of 30%, subject to
reduction under any applicable tax treaty.
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In addition, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on such United
States shareholder's allocable portion of the interest income received by
such controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be included
in the estate of a non-resident alien individual and would not be subject to
United States estate taxes. However, Certificateholders who are non-resident
alien individuals should consult their tax advisors concerning this question.
Unless otherwise stated in the related Prospectus Supplement, transfers of
REMIC Residual Certificates to investors that are not United States Persons
will be prohibited under the related Pooling Agreement.
GRANTOR TRUST FUNDS
Classification of Grantor Trust Funds. With respect to each series of
Grantor Trust Certificates, counsel to the Sponsor will deliver its opinion
to the effect that, assuming compliance with all provisions of the related
Pooling Agreement, the related Grantor Trust Fund will be classified as a
grantor trust under subpart E, part I of subchapter J of the Code and not as
a partnership or an association taxable as a corporation. Accordingly, each
holder of a Grantor Trust Certificate generally will be treated as the owner
of an interest in the Mortgage Loans included in the Grantor Trust Fund.
For purposes of the following discussion, a Grantor Trust Certificate
representing an undivided equitable ownership interest in the principal of
the Mortgage Loans constituting the related Grantor Trust Fund, together with
interest thereon at a pass-through rate, will be referred to as a "Grantor
Trust Fractional Interest Certificate". A Grantor Trust Certificate
representing ownership of all or a portion of the difference between interest
paid on the Mortgage Loans constituting the related Grantor Trust Fund (net
of normal administration fees and any spread) and interest paid to the
holders of Grantor Trust Fractional Interest Certificates issued with respect
to such Grantor Trust Fund will be referred to as a "Stripped Interest
Certificate". A Stripped Interest Certificate may also evidence a nominal
ownership interest in the principal of the Mortgage Loans constituting the
related Grantor Trust Fund.
CHARACTERIZATION OF INVESTMENTS IN GRANTOR TRUST CERTIFICATES.
Grantor Trust Fractional Interest Certificates. In the case of Grantor
Trust Fractional Interest Certificates, unless otherwise disclosed in the
related Prospectus Supplement, counsel to the Sponsor will deliver an opinion
that, in general, Grantor Trust Fractional Interest Certificates will
represent interests in (i) "loans . . . secured by an interest in real
property" within the meaning of Section 7701(a)(19)(C)(v) of the Code (but
generally only to the extent that the underlying Mortgage Loans have been
made with respect to property that is used for residential or certain other
prescribed purposes); (ii) "obligations (including any participation or
certificate of beneficial ownership therein) which . . . [are] principally
secured by an interest in real property" within the meaning of Section
860G(a)(3)(A) of the Code; and (iii) "real estate assets" within the meaning
of Section 856(c)(5)(A) of the Code. In addition, counsel to the Sponsor will
deliver an opinion that interest on Grantor Trust Fractional Interest
Certificates will to the same extent be considered "interest on obligations
secured by mortgages on real property or on interests in real property"
within the meaning of Section 856(c)(3)(B) of the Code.
Stripped Interest Certificates. Even if Stripped Interest Certificates
evidence an interest in a Grantor Trust Fund consisting of Mortgage Loans
that are "loans . . . secured by an interest in real property" within the
meaning of Section 7701(a)(19)(C)(v) of the Code, and "real estate assets"
within the meaning of Section 856(c)(5)(A) of the Code, and the interest on
which is "interest on obligations secured by mortgages on real property"
within the meaning of Section 856(c)(3)(B) of the Code, it is unclear whether
the Stripped Interest Certificates, and the income therefrom, will be so
characterized. However, the policies underlying such sections (namely, to
encourage or require investments in mortgage loans by thrift institutions and
real estate investment trusts) may suggest that such characterization is
appropriate. Counsel to the Sponsor will not deliver any opinion on these
questions. Prospective purchasers to which such characterization of an
investment in Stripped Interest Certificates is material should consult their
tax advisors regarding whether the Stripped Interest Certificates, and the
income therefrom, will be so characterized.
The Stripped Interest Certificates will be "obligations (including any
participation or certificate of beneficial ownership therein) which . . .
[are] principally secured by an interest in real property" within the meaning
of Section 860G(a)(3)(A) of the Code.
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TAXATION OF OWNERS OF GRANTOR TRUST FRACTIONAL INTEREST CERTIFICATES
General. Holders of a particular series of Grantor Trust Fractional
Interest Certificates generally will be required to report on their federal
income tax returns their shares of the entire income from the Mortgage Loans
(including amounts used to pay reasonable servicing fees and other expenses)
and will be entitled to deduct their shares of any such reasonable servicing
fees and other expenses. Because of stripped interests, market or original
issue discount, or premium, the amount includible in income on account of a
Grantor Trust Fractional Interest Certificate may differ significantly from
the amount distributable thereon representing interest on the Mortgage Loans.
Under Section 67 of the Code, an individual, estate or trust holding a
Grantor Trust Fractional Interest Certificate directly or through certain
pass-through entities will be allowed a deduction for such reasonable
servicing fees and expenses only to the extent that the aggregate of such
holder's miscellaneous itemized deductions exceeds two percent of such
holder's adjusted gross income. In addition, Section 68 of the Code provides
that the amount of itemized deductions otherwise allowable for an individual
whose adjusted gross income exceeds a specified amount will be reduced by the
lesser of (i) 3% of the excess of the individual's adjusted gross income over
such amount or (ii) 80% of the amount of itemized deductions otherwise
allowable for the taxable year. The amount of additional taxable income
reportable by holders of Grantor Trust Fractional Interest Certificates who
are subject to the limitations of either Section 67 or Section 68 of the Code
may be substantial. Further, Certificateholders (other than corporations)
subject to the alternative minimum tax may not deduct miscellaneous itemized
deductions in determining such holder's alternative minimum taxable income.
Although it is not entirely clear, it appears that in transactions in which
multiple classes of Grantor Trust Certificates (including Stripped Interest
Certificates) are issued, such fees and expenses should be allocated among
the classes of Grantor Trust Certificates using a method that recognizes that
each such class benefits from the related services. In the absence of
statutory or administrative clarification as to the method to be used, it
currently is intended to base information returns or reports to the IRS and
Certificateholders on a method that allocates such expenses among classes of
Grantor Trust Certificates with respect to each period based on the
distributions made to each such class during that period.
The federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any series will depend on whether they are subject to the
"stripped bond" rules of Section 1286 of the Code. Grantor Trust Fractional
Interest Certificates may be subject to those rules if (i) a class of
Stripped Interest Certificates is issued as part of the same series of
Certificates or (ii) the Sponsor or any of its affiliates retains (for its
own account or for purposes of resale) a right to receive a specified portion
of the interest payable on a Mortgage Asset. Further, the IRS has ruled that
an unreasonably high servicing fee retained by a seller or servicer will be
treated as a retained ownership interest in mortgages that constitutes a
stripped coupon. For purposes of determining what constitutes reasonable
servicing fees for various types of mortgages, the IRS has established
certain "safe harbors". The servicing fees paid with respect to the Mortgage
Loans for certain series of Grantor Trust Fractional Interest Certificates
may be higher than the "safe harbors" and, accordingly, may not constitute
reasonable servicing compensation. The related Prospectus Supplement will
include information regarding servicing fees paid to a Master Servicer, a
Special Servicer, any Sub-Servicer or their respective affiliates necessary
to determine whether the preceding "safe harbor" rules apply.
If Stripped Bond Rules Apply. If the stripped bond rules apply, each
Grantor Trust Fractional Interest Certificate will be treated as having been
issued with "original issue discount" within the meaning of Section 1273(a)
of the Code, subject, however, to the discussion below regarding the
treatment of certain stripped bonds as market discount bonds and the
discussion regarding de minimis market discount. See "--Taxation of Owners of
Grantor Trust Fractional Interest Certificates--Market Discount". Under the
stripped bond rules, the holder of a Grantor Trust Fractional Interest
Certificate (whether a cash or accrual method taxpayer) will be required to
report interest income from its Grantor Trust Fractional Interest Certificate
for each month in an amount equal to the income that accrues on such
Certificate in that month calculated under a constant yield method, in
accordance with the rules of the Code relating to original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of such Certificate's stated redemption price
over its issue price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by such
purchaser for the Grantor Trust Fractional Interest Certificate. The stated
redemption price of a Grantor Trust Fractional Interest Certificate will be
the sum of all payments to be made on such Certificate, other than "qualified
stated interest", if any, as well as such Certificate's share of reasonable
servicing fees and other expenses. See "--Taxation of Owners of Grantor Trust
Fractional Interest Certificates--If Stripped Bond Rules Do Not Apply" for a
definition of "qualified stated interest". In general, the amount of such
income that accrues in any month would equal the product of such holder's
adjusted basis in such Grantor Trust Fractional Interest Certificate at the
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beginning of such month (see "--Sales of Grantor Trust Certificates") and the
yield of such Grantor Trust Fractional Interest Certificate to such holder.
Such yield would be computed at the rate (compounded based on the regular
interval between payment dates) that, if used to discount the holder's share
of future payments on the Mortgage Loans, would cause the present value of
those future payments to equal the price at which the holder purchased such
Certificate. In computing yield under the stripped bond rules, a
Certificateholder's share of future payments on the Mortgage Loans will not
include any payments made in respect of any spread or any other ownership
interest in the Mortgage Loans retained by the Sponsor, a Master Servicer, a
Special Servicer, any Sub-Servicer or their respective affiliates, but will
include such Certificateholder's share of any reasonable servicing fees and
other expenses.
Section 1272(a)(6) of the Code requires (i) the use of a reasonable
prepayment assumption in accruing original issue discount and (ii)
adjustments in the accrual of original issue discount when prepayments do not
conform to the prepayment assumption, with respect to certain categories of
debt instruments, and regulations could be adopted applying those provisions
to the Grantor Trust Fractional Interest Certificates. It is unclear whether
those provisions would be applicable to the Grantor Trust Fractional Interest
Certificates or whether use of a reasonable prepayment assumption may be
required or permitted without reliance on these rules. It is also uncertain,
if a prepayment assumption is used, whether the assumed prepayment rate would
be determined based on conditions at the time of the first sale of the
Grantor Trust Fractional Interest Certificate or, with respect to any holder,
at the time of purchase of the Grantor Trust Fractional Interest Certificate
by that holder. Certificateholders are advised to consult their own tax
advisors concerning reporting original issue discount in general and, in
particular, whether a prepayment assumption should be used in reporting
original issue discount with respect to Grantor Trust Fractional Interest
Certificates.
In the case of a Grantor Trust Fractional Interest Certificate acquired at
a price equal to the principal amount of the Mortgage Loans allocable to such
Certificate, the use of a prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of interest
income. In the case, however, of a Grantor Trust Fractional Interest
Certificate acquired at a discount or premium (that is, at a price less than
or greater than such principal amount, respectively), the use of a reasonable
prepayment assumption would increase or decrease such yield, and thus
accelerate or decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when a Mortgage Loan prepays
in full, the holder of a Grantor Trust Fractional Interest Certificate
acquired at a discount or a premium generally will recognize ordinary income
or loss equal to the difference between the portion of the prepaid principal
amount of the Mortgage Loan that is allocable to such Certificate and the
portion of the adjusted basis of such Certificate that is allocable to such
Certificateholder's interest in the Mortgage Loan. If a prepayment assumption
is used, it appears that no separate item of income or loss should be
recognized upon a prepayment. Instead, a prepayment should be treated as a
partial payment of the stated redemption price of the Grantor Trust
Fractional Interest Certificate and accounted for under a method similar to
that described for taking account of original issue discount on REMIC Regular
Certificates. See "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount". It is unclear whether any other
adjustments would be required to reflect differences between an assumed
prepayment rate and the actual rate of prepayments.
In the absence of statutory or administrative clarification, it is
currently intended to base information reports or returns to the IRS and
Certificateholders in transactions subject to the stripped bond rules on a
prepayment assumption (the "Prepayment Assumption") that will be disclosed in
the related Prospectus Supplement and on a constant yield computed using a
representative initial offering price for each class of Certificates.
However, neither the Sponsor nor any other person will make any
representation that the Mortgage Loans will in fact prepay at a rate
conforming to such Prepayment Assumption or any other rate and
Certificateholders should bear in mind that the use of a representative
initial offering price will mean that such information returns or reports,
even if otherwise accepted as accurate by the IRS, will in any event be
accurate only as to the initial Certificateholders of each series who bought
at that price.
Under Treasury regulation Section 1.1286-1, certain stripped bonds are to
be treated as market discount bonds and, accordingly, any purchaser of such a
bond is to account for any discount on the bond as market discount rather
than original issue discount. This treatment only applies, however, if
immediately after the most recent disposition of the bond by a person
stripping one or more coupons from the bond and disposing of the bond or
coupon (i) there is no original issue discount (or only a de minimis amount
of original issue discount) or (ii) the annual stated rate of interest
payable on the original bond is no more than one percentage point lower than
the gross interest rate payable on the original mortgage loan (before
subtracting any servicing fee or any stripped coupon). If interest payable on
a Grantor Trust Fractional Interest Certificate is more than one percentage
point lower than the gross interest rate payable on the Mortgage Loans,
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the related Prospectus Supplement will disclose that fact. If the original
issue discount or market discount on a Grantor Trust Fractional Interest
Certificate determined under the stripped bond rules is less than 0.25% of
the stated redemption price multiplied by the weighted average maturity of
the Mortgage Loans, then such original issue discount or market discount will
be considered to be de minimis. Original issue discount or market discount of
only a de minimis amount will be included in income in the same manner as de
minimis original issue and market discount described in "--Taxation of Owners
of Grantor Trust Fractional Interest Certificates--If Stripped Bond Rules Do
Not Apply" and "--Market Discount".
If Stripped Bond Rules Do Not Apply. Subject to the discussion below on
original issue discount, if the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, the Certificateholder will be required
to report its share of the interest income on the Mortgage Loans in
accordance with such Certificateholder's normal method of accounting. The
original issue discount rules will apply to a Grantor Trust Fractional
Interest Certificate to the extent it evidences an interest in Mortgage Loans
issued with original issue discount.
The original issue discount, if any, on the Mortgage Loans will equal the
difference between the stated redemption price of such Mortgage Loans and
their issue price. Under the OID Regulations the stated redemption price is
equal to the total of all payments to be made on such Mortgage Loan other
than "qualified stated interest". "Qualified stated interest" includes
interest that is unconditionally payable at least annually at a single fixed
rate, at a "qualified floating rate", or at an "objective rate", a
combination of a single fixed rate and one or more "qualified floating rates"
or one "qualified inverse floating rate", or a combination of "qualified
floating rates" that does not operate in a manner that accelerates or defers
interest payments on such Mortgage Loan. In general, the issue price of a
Mortgage Loan will be the amount received by the borrower from the lender
under the terms of the Mortgage Loan, less any "points" paid by the borrower,
and the stated redemption price of a Mortgage Loan will equal its principal
amount, unless the Mortgage Loan provides for an initial below-market rate of
interest or the acceleration or the deferral of interest payments.
In the case of Mortgage Loans bearing adjustable or variable interest
rates, the related Prospectus Supplement will describe the manner in which
such rules will be applied with respect to those Mortgage Loans by the
Trustee or Master Servicer, as applicable, in preparing information returns
to the Certificateholders and the IRS.
Notwithstanding the general definition of original issue discount,
original issue discount will be considered to be de minimis if such original
issue discount is less than 0.25% of the stated redemption price multiplied
by the weighted average maturity of the Mortgage Loan. For this purpose, the
weighted average maturity of the Mortgage Loan will be computed as the sum of
the amounts determined, as to each payment included in the stated redemption
price of such Mortgage Loan, by multiplying (i) the number of complete years
(rounding down for partial years) from the issue date until such payment is
expected to be made, by (ii) a fraction, the numerator of which is the amount
of the payment and the denominator of which is the stated redemption price of
the Mortgage Loan. Under the OID Regulations, original issue discount of only
a de minimis amount (other than de minimis original issue discount
attributable to a so-called "teaser" rate or initial interest holiday) will
be included in income as each payment of stated principal is made, based on
the product of the total amount of such de minimis original issue discount
and a fraction, the numerator of which is the amount of each such payment and
the denominator of which is the outstanding stated principal amount of the
Mortgage Loan. The OID Regulations also permit a Certificateholder to elect
to accrue de minimis original issue discount into income currently based on a
constant yield method. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--Market Discount" below.
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a Mortgage Loan will be required to
be accrued and reported in income in each month, based on a constant yield.
The OID Regulations suggest that no prepayment assumption is appropriate in
computing the yield on prepayable obligations issued with original issue
discount. In the absence of statutory or administrative clarification, it
currently is not intended to base information reports or returns to the IRS
and Certificateholders on the use of a prepayment assumption in transactions
not subject to the stripped bond rules. However, Section 1272(a)(6) of the
Code may require that a prepayment assumption be made in computing yield with
respect to all mortgage-backed securities. Certificateholders are advised to
consult their own tax advisors concerning whether a prepayment assumption
should be used in reporting original issue discount with respect to Grantor
Trust Fractional Interest Certificates. Certificateholders should refer to
the related Prospectus Supplement with respect to each series to determine
whether and in what manner the original issue discount rules will apply to
Mortgage Loans in such series.
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A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases such Grantor Trust Fractional Interest Certificate at a cost less
than such Certificate's allocable portion of the aggregate remaining stated
redemption price of the Mortgage Loans held in the related Trust Fund will
also be required to include in gross income such Certificate's daily portions
of any original issue discount with respect to such Mortgage Loans. However,
each such daily portion will be reduced, if the cost of such Grantor Trust
Fractional Interest Certificate to such purchaser is in excess of such
Certificate's allocable portion of the aggregate "adjusted issue prices" of
the Mortgage Loans held in the related Trust Fund, approximately in
proportion to the ratio such excess bears to such Certificate's allocable
portion of the aggregate original issue discount remaining to be accrued on
such Mortgage Loans. The adjusted issue price of a Mortgage Loan on any given
day equals the sum of (i) the adjusted issue price (or, in the case of the
first accrual period, the issue price) of such Mortgage Loan at the beginning
of the accrual period that includes such day and (ii) the daily portions of
original issue discount for all days during such accrual period prior to such
day. The adjusted issued price of a Mortgage Loan at the beginning of any
accrual period will equal the issue price of such Mortgage Loan, increased by
the aggregate amount of original issue discount with respect to such Mortgage
Loan that accrued in prior accrual periods, and reduced by the amount of any
payments made on such Mortgage Loan in prior accrual periods of amounts
included in its stated redemption price.
Unless otherwise provided in the related Prospectus Supplement, the
Trustee or Master Servicer, as applicable, will provide to any holder of a
Grantor Trust Fractional Interest Certificate such information as such holder
may reasonably request from time to time with respect to original issue
discount accruing on Grantor Trust Fractional Interest Certificates. See
"--Grantor Trust Reporting" below.
Market Discount. If the stripped bond rules do not apply to the Grantor
Trust Fractional Interest Certificate, a Certificateholder may be subject to
the market discount rules of Sections 1276 through 1278 of the Code to the
extent an interest in a Mortgage Loan is considered to have been purchased at
a "market discount", that is, in the case of a Mortgage Loan issued without
original issue discount, at a purchase price less than its remaining stated
redemption price (as defined above), or in the case of a Mortgage Loan issued
with original issue discount, at a purchase price less than its adjusted
issue price (as defined above). If market discount is in excess of a de
minimis amount (as described below), the holder generally will be required to
include in income in each month the amount of such discount that has accrued
(under the rules described in the next paragraph) through such month that has
not previously been included in income, but limited, in the case of the
portion of such discount that is allocable to any Mortgage Loan, to the
payment of stated redemption price on such Mortgage Loan that is received by
(or, in the case of accrual basis Certificateholders, due to) the Trust Fund
in that month. A Certificateholder may elect to include market discount in
income currently as it accrues (under a constant yield method based on the
yield of the Certificate to such holder) rather than including it on a
deferred basis in accordance with the foregoing. If made, such election will
apply to all market discount bonds acquired by such Certificateholder during
or after the first taxable year to which such election applies. In addition,
the OID Regulations would permit a Certificateholder to elect to accrue all
interest, discount (including de minimis market or original issue discount)
and premium in income as interest, based on a constant yield method. If such
an election were made with respect to a Mortgage Loan with market discount,
the Certificateholder would be deemed to have made an election to include
currently market discount in income with respect to all other debt
instruments having market discount that such Certificateholder acquires
during the taxable year of the election and thereafter, and possibly
previously acquired instruments. Similarly, a Certificateholder that made
this election for a Certificate acquired at a premium would be deemed to have
made an election to amortize bond premium with respect to all debt
instruments having amortizable bond premium that such Certificateholder owns
or acquires. See "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Premium". Each of these elections to accrue interest, discount
and premium with respect to a Certificate on a constant yield method or as
interest is irrevocable.
Section 1276(b)(3) of the Code authorized the Treasury Department to issue
regulations providing for the method for accruing market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. Under those rules, in each
accrual period market discount on the Mortgage Loans should accrue, at the
Certificateholder's option: (i) on the basis of a constant yield method, (ii)
in the case of a Mortgage Loan issued without original issue discount, in an
amount that bears the same ratio to the total remaining market discount as
the stated interest paid in the accrual period bears to the total stated
interest remaining to be paid on the Mortgage Loan as of the beginning of the
accrual period, or (iii) in the case of a Mortgage Loan issued with original
issue discount, in an amount that bears the same ratio to the total remaining
market discount as the original issue discount accrued in the accrual period
bears to the total original issue
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discount remaining at the beginning of the accrual period. The prepayment
assumption, if any, used in calculating the accrual of original issue
discount is to be used in calculating the accrual of market discount. The
effect of using a prepayment assumption could be to accelerate the reporting
of such discount income. Because the regulations referred to in this
paragraph have not been issued, it is not possible to predict what effect
such regulations might have on the tax treatment of a Mortgage Loan purchased
at a discount in the secondary market.
Because the Mortgage Loans will provide for periodic payments of stated
redemption price, such discount may be required to be included in income at a
rate that is not significantly slower than the rate at which such discount
would be included in income if it were original issue discount.
Market discount with respect to Mortgage Loans generally will be
considered to be de minimis if it is less than 0.25% of the stated redemption
price of the Mortgage Loans multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect
to market discount, presumably taking into account the prepayment assumption
used, if any. The effect of using a prepayment assumption could be to
accelerate the reporting of such discount income. If market discount is
treated as de minimis under the foregoing rule, it appears that actual
discount would be treated in a manner similar to original issue discount of a
de minimis amount. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--If Stripped Bond Rules Do Not Apply".
Further, under the rules described in "--REMICs--Taxation of Owners of
REMIC Regular Certificates--Market Discount", any discount that is not
original issue discount and exceeds a de minimis amount may require the
deferral of interest expense deductions attributable to accrued market
discount not yet includible in income, unless an election has been made to
report market discount currently as it accrues. This rule applies without
regard to the origination dates of the Mortgage Loans.
Premium. If a Certificateholder is treated as acquiring the underlying
Mortgage Loans at a premium, that is, at a price in excess of their remaining
stated redemption price, such Certificateholder may elect under Section 171
of the Code to amortize using a constant yield method the portion of such
premium allocable to Mortgage Loans originated after September 27, 1985.
Amortizable premium is treated as an offset to interest income on the related
debt instrument, rather than as a separate interest deduction. However,
premium allocable to Mortgage Loans originated before September 28, 1985 or
to Mortgage Loans for which an amortization election is not made, should be
allocated among the payments of stated redemption price on the Mortgage Loan
and be allowed as a deduction as such payments are made (or, for a
Certificateholder using the accrual method of accounting, when such payments
of stated redemption price are due).
It is unclear whether a prepayment assumption should be used in computing
amortization of premium allowable under Section 171 of the Code. If premium
is not subject to amortization using a prepayment assumption and a Mortgage
Loan prepays in full, the holder of a Grantor Trust Fractional Interest
Certificate acquired at a premium should recognize a loss equal to the
difference between the portion of the prepaid principal amount of the
Mortgage Loan that is allocable to the Certificate and the portion of the
adjusted basis of the Certificate that is allocable to the Mortgage Loan. If
a prepayment assumption is used to amortize such premium, it appears that
such a loss would be unavailable. Instead, if a prepayment assumption is
used, a prepayment should be treated as a partial payment of the stated
redemption price of the Grantor Trust Fractional Interest Certificate and
accounted for under a method similar to that described for taking account of
original issue discount on REMIC Regular Certificates. See
"--REMICs--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount". It is unclear whether any other adjustments would be required to
reflect differences between the prepayment assumption and the actual rate of
prepayments.
Taxation of Owners of Stripped Interest Certificates. The "stripped
coupon" rules of Section 1286 of the Code will apply to the Stripped Interest
Certificates. Except as described above in "--Taxation of Owners of Grantor
Trust Fractional Interest Certificates--If Stripped Bond Rules Apply", no
regulations or published rulings under Section 1286 of the Code have been
issued and some uncertainty exists as to how it will be applied to securities
such as the Stripped Interest Certificates. Accordingly, holders of Stripped
Interest Certificates should consult their own tax advisors concerning the
method to be used in reporting income or loss with respect to such
Certificates.
The OID Regulations do not apply to "stripped coupons", although they
provide general guidance as to how the original issue discount sections of
the Code will be applied. In addition, the discussion below is subject to the
discussion under "--Possible Application of Contingent Payment Rules" below
and assumes that the holder of a Stripped Interest Certificate will not own
any Grantor Trust Fractional Interest Certificates.
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Under the stripped coupon rules, it appears that original issue discount
will be required to be accrued in each month on the Stripped Interest
Certificates based on a constant yield method. In effect, each holder of
Stripped Interest Certificates would include as interest income in each month
an amount equal to the product of such holder's adjusted basis in such
Stripped Interest Certificate at the beginning of such month and the yield of
such Stripped Interest Certificate to such holder. Such yield would be
calculated based on the price paid for that Stripped Interest Certificate by
its holder and the payments remaining to be made thereon at the time of the
purchase, plus an allocable portion of the servicing fees and expenses to be
paid with respect to the Mortgage Loans. See "--Taxation of Owners of Grantor
Trust Fractional Interest Certificates--If Stripped Bond Rules Apply" above.
As noted above, Section 1272(a)(6) of the Code requires that a prepayment
assumption be used in computing the accrual of original issue discount with
respect to certain categories of debt instruments, and that adjustments be
made in the amount and rate of accrual of such discount when prepayments do
not conform to such prepayment assumption. Regulations could be adopted
applying those provisions to the Stripped Interest Certificates. It is
unclear whether those provisions would be applicable to the Stripped Interest
Certificates or whether use of a prepayment assumption may be required or
permitted in the absence of such regulations. It is also uncertain, if a
prepayment assumption is used, whether the assumed prepayment rate would be
determined based on conditions at the time of the first sale of the Stripped
Interest Certificate or, with respect to any subsequent holder, at the time
of purchase of the Stripped Interest Certificate by that holder.
The accrual of income on the Stripped Interest Certificates will be
significantly slower if a prepayment assumption is permitted to be made than
if yield is computed assuming no prepayments. In the absence of statutory or
administrative clarification, it currently is intended to base information
returns or reports to the IRS and Certificateholders on the Prepayment
Assumption disclosed in the related Prospectus Supplement and on a constant
yield computed using a representative initial offering price for each class
of Certificates. However, neither the Sponsor nor any other person will make
any representation that the Mortgage Loans will in fact prepay at a rate
conforming to the Prepayment Assumption or at any other rate and
Certificateholders should bear in mind that the use of a representative
initial offering price will mean that such information returns or reports,
even if otherwise accepted as accurate by the IRS, will in any event be
accurate only as to the initial Certificateholders of each series who bought
at that price. Prospective purchasers of the Stripped Interest Certificates
should consult their own tax advisors regarding the use of the Prepayment
Assumption.
It is unclear under what circumstances, if any, the prepayment of a
Mortgage Loan will give rise to a loss to the holder of a Stripped Interest
Certificate. If a Stripped Interest Certificate is treated as a single
instrument (rather than an interest in discrete mortgage loans) and the
effect of prepayments is taken into account in computing yield with respect
to such Stripped Interest Certificate, it appears that no loss may be
available as a result of any particular prepayment unless prepayments occur
at a rate faster than the Prepayment Assumption. However, if a Stripped
Interest Certificate is treated as an interest in discrete Mortgage Loans, or
if the Prepayment Assumption is not used, then when a Mortgage Loan is
prepaid, the holder of a Stripped Interest Certificate should be able to
recognize a loss equal to the portion of the adjusted issue price of the
Stripped Interest Certificate that is allocable to such Mortgage Loan.
Possible Application of Contingent Payment Rules. The coupon stripping
rules' general treatment of stripped coupons is to regard them as newly
issued debt instruments in the hands of each purchaser. To the extent that
payments on the Grantor Trust Strip Certificates would cease if the Mortgage
Loans were prepaid in full, the Grantor Trust Strip Certificates could be
considered to be debt instruments providing for contingent payments. Under
the OID Regulations, debt instruments providing for contingent payments are
not subject to the same rules as debt instruments providing for noncontingent
payments. Regulations were promulgated on June 14, 1996 regarding contingent
payment debt instruments (the "Contingent Payment Regulations"), but it
appears that Grantor Trust Strip Certificates, due to their similarity to
other mortgage-backed securities (such as REMIC regular interests and debt
instruments subject to Section 1272(a)(6) of the Code) that are expressly
excepted from the application of the Contingent Payment Regulations, may be
excepted from such regulations. Like the OID Regulations, the Contingent
Payment Regulations do not specifically address securities, such as the
Grantor Trust Strip Certificates, that are subject to the stripped bond rules
of Section 1286 of the Code.
If the contingent payment rules under the Contingent Payment Regulations
were to apply, the holder of a Grantor Trust Strip Certificate would be
required to apply the "noncontingent bond method." Under the "noncontingent
bond method", the issuer of a Grantor Trust Strip Certificate determines a
projected payment schedule on which interest will accrue. Holders of Grantor
Trust Strip Certificates are bound by the issuer's projected payment
schedule. The projected payment schedule consists of all noncontingent
payments and a projected amount for each contingent payment based on
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the projected yield (as described below) of the Grantor Trust Strip
Certificate. The projected amount of each payment is determined so that the
projected payment schedule reflects the projected yield. The projected amount
of each payment must reasonably reflect the relative expected values of the
payments to be received by the holders of a Grantor Trust Strip Certificate.
The projected yield referred to above is a reasonable rate, not less than the
"applicable Federal rate" that, as of the issue date, reflects general market
conditions, the credit quality of the issuer, and the terms and conditions of
the Mortgage Loans. The holder of a Grantor Trust Strip Certificate would be
required to include as interest income in each month the adjusted issue price
of the Grantor Trust Strip Certificate at the beginning of the period
multiplied by the projected yield.
Assuming that a prepayment assumption were used, if the Continent Payment
Regulations or their principles were applied to Grantor Trust Strip
Certificates, the amount of income reported with respect thereto would be
substantially similar to that described under "Taxation of Owners of Grantor
Trust Strip Certificates".
Certificateholders should consult their tax advisors concerning the
possible application of the contingent payment rules to the Grantor Trust
Strip Certificates.
Sales of Grantor Trust Certificates. Any gain or loss, equal to the
difference between the amount realized on the sale or exchange of a Grantor
Trust Certificate and its adjusted basis, recognized on such sale or exchange
of a Grantor Trust Certificate by an investor who holds such Grantor Trust
Certificate as a capital asset, will be capital gain or loss, except to the
extent of accrued and unrecognized market discount, which will be treated as
ordinary income, and (in the case of banks and other financial institutions)
except as provided under Section 582(c) of the Code. The adjusted basis of a
Grantor Trust Certificate generally will equal its cost, increased by any
income reported by the seller (including original issue discount and market
discount income) and reduced (but not below zero) by any previously reported
losses, any amortized premium and by any distributions with respect to such
Grantor Trust Certificate. The Code as of the date of this Prospectus
provides a top marginal tax rate of 39.6% for individuals and a maximum
marginal rate for long-term capital gains of individuals of 28%. No such rate
differential exists for corporations. In addition, the distinction between a
capital gain or loss and ordinary income or loss remains relevant for other
purposes.
Gain or loss from the sale of a Grantor Trust Certificate may be partially
or wholly ordinary and not capital in certain circumstances. Gain
attributable to accrued and unrecognized market discount will be treated as
ordinary income, as will gain or loss recognized by the banks and other
financial institutions subject to Section 582(c) of the Code. Furthermore, a
portion of any gain that might otherwise be capital gain may be treated as
ordinary income to the extent that the Grantor Trust Certificate is held as
part of a "conversion transaction" within the meaning of Section 1258 of the
Code. A conversion transaction generally is one in which the taxpayer has
taken two or more positions in the same or similar property that reduce or
eliminate market risk, if substantially all of the taxpayer's return is
attributable to the time value of the taxpayer's net investment in such
transaction. The amount of gain realized in a conversion transaction that is
recharacterized as ordinary income generally will not exceed the amount of
interest that would have accrued on the taxpayer's net investment at 120% of
the appropriate "applicable Federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion
of interest and other ordinary income items from the transaction. Finally, a
taxpayer may elect to have net capital gain taxed at ordinary income rates
rather than capital gains rates in order to include such net capital gain in
total net investment income for that taxable year, for purposes of the rule
that limits the deduction of interest on indebtedness incurred to purchase or
carry property held for investment to a taxpayer's net investment income.
Grantor Trust Reporting. Unless otherwise provided in the related
Prospectus Supplement, the Trustee or Master Servicer, as applicable, will
furnish to each holder of a Grantor Trust Certificate with each distribution
a statement setting forth the amount of such distribution allocable to
principal on the underlying Mortgage Loans and to interest thereon at the
related Pass-Through Rate. In addition, within a reasonable time after the
end of each calendar year, the Trustee or Master Servicer, as applicable,
will furnish to each Certificateholder during such year such customary
factual information as the Sponsor or the reporting party deems necessary or
desirable to enable holders of Grantor Trust Certificates to prepare their
tax returns and will furnish comparable information to the IRS as and when
required by law to do so. Because the rules for accruing discount and
amortizing premium with respect to the Grantor Trust Certificates are
uncertain in various respects, there is no assurance the IRS will agree with
the Trustee's or Master Servicer's, as the case may be, information reports
of such items of income and expense. Moreover, such information reports, even
if otherwise accepted as accurate by the IRS, will in any event be accurate
only as to the initial Certificateholders that bought their Certificates at
the representative initial offering price used in preparing such reports.
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Backup Withholding. In general, the rules described in "--Taxation of
Owners of REMIC Residual Certificates--Backup Withholding with Respect to
REMIC Certificates" will also apply to Grantor Trust Certificates.
Foreign Investors. In general, the discussion with respect to REMIC
Regular Certificates in "--REMICs--Foreign Investors in REMIC Certificates"
applies to Grantor Trust Certificates except that Grantor Trust Certificates
will, unless otherwise disclosed in the related Prospectus Supplement, be
eligible for exemption from United States withholding tax, subject to the
conditions described in such discussion, only to the extent the related
Mortgage Loans were originated after July 18, 1984.
To the extent that interest on a Grantor Trust Certificate would be exempt
under Sections 871(h)(1) and 881(c) of the Code from United States
withholding tax, and the Grantor Trust Certificate is not held in connection
with a Certificateholder's trade or business in the United States, such
Grantor Trust Certificate will not be subject to U.S. estate taxes in the
estate of non-resident alien individual.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Material
Federal Income Tax Consequences", potential investors should consider the
state and local tax consequences of the acquisition, ownership, and
disposition of the Offered Certificates. State tax law may differ
substantially from the corresponding federal law, and the discussion above
does not purport to describe any aspect of the tax laws of any state or other
jurisdiction. Therefore, prospective investors should consult their own tax
advisors with respect to the various tax consequences of investments in the
Offered Certificates.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain requirements on employee benefit plans, and on
certain other retirement plans and arrangements, including individual
retirement accounts and annuities, Keogh plans and collective investment
funds and separate accounts in which such plans, accounts or arrangements are
invested that are subject to the fiduciary responsibility provisions of ERISA
and Section 4975 of the Code (all of which are hereinafter referred to as
"Plans"), and on persons who are fiduciaries with respect to Plans, in
connection with the investment of Plan assets. Certain employee benefit
plans, such as governmental plans (as defined in ERISA Section 3(32)), and,
if no election has been made under Section 410(d) of the Code, church plans
(as defined in Section 3(33) of ERISA) are not subject to ERISA requirements.
Accordingly, assets of such plans may be invested in Offered Certificates
without regard to the ERISA considerations described below, subject to the
provisions of other applicable federal and state law. Any such plan which is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the
Code, however, is subject to the prohibited transaction rules set forth in
Section 503 of the Code.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and
the requirement that a Plan's investments be made in accordance with the
documents governing the Plan. In addition, ERISA and the Code prohibit a
broad range of transactions involving assets of a Plan and persons ("Parties
in Interest") who have certain specified relationships to the Plan, unless a
statutory or administrative exemption is available. Certain Parties in
Interest that participate in a prohibited transaction may be subject to an
excise tax imposed pursuant to Section 4975 of the Code, unless a statutory
or administrative exemption is available. These prohibited transactions
generally are set forth in Section 406 of ERISA and Section 4975 of the Code.
PLAN ASSET REGULATIONS
A Plan's investment in Certificates may cause the Trust Assets to be
deemed Plan assets. Section 2510.3-101 of the regulations of the United
States Department of Labor ("DOL") provides that when a Plan acquires an
equity interest in an entity, the Plan's assets include both such equity
interest and an undivided interest in each of the underlying assets of the
entity, unless certain exceptions not applicable to this discussion apply, or
unless the equity participation in the entity by "benefit plan investors"
(that is, Plans and certain employee benefit plans not subject to ERISA) is
not "significant". For this purpose, in general, equity participation in a
Trust Fund will be "significant" on any date if, immediately after the most
recent acquisition of any Certificate, 25% or more of any class of
Certificates is held by benefit plan investors.
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Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides
investment advice with respect to such assets for a fee, is a fiduciary of
the investing Plan. If the Trust Assets constitute Plan assets, then any
party exercising management or discretionary control regarding those assets,
such as a Master Servicer, Special Servicer or any Sub-Servicer, may be
deemed to be a Plan "fiduciary" with respect to the investing Plan, and thus
subject to the fiduciary responsibility provisions and prohibited transaction
provisions of ERISA and the Code. In addition, if the Trust Assets constitute
Plan assets, the purchase of Certificates by a Plan, as well as the operation
of the Trust Fund, may constitute or involve a prohibited transaction under
ERISA and the Code.
Any Plan fiduciary that proposes to cause such Plan to purchase Offered
Certificates should consult with its counsel with respect to the potential
applicability of ERISA and the Code, in particular the fiduciary
responsibility and prohibited transaction provisions, to such investment and
the availability of (and scope of relief provided by) any prohibited
transaction exemption in connection therewith. The Prospectus Supplement with
respect to a series of Certificates may contain additional information
regarding the application of any exemption with respect to the Certificates
offered thereby. In addition, any Plan fiduciary that proposes to cause a
Plan to purchase Stripped Interest Certificates should consider the federal
income tax consequences of such investment.
LEGAL INVESTMENT
The Offered Certificates will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA")
only if so specified in the related Prospectus Supplement. Accordingly,
investors whose investment authority is subject to legal restrictions should
consult their own legal advisors to determine whether and to what extent the
Offered Certificates constitute legal investments for them.
Generally, only classes of Offered Certificates that (i) are rated in one
of the two highest rating categories by one or more Rating Agencies and (ii)
are part of a series evidencing interests in a Trust Fund consisting of loans
secured by a single parcel of real estate upon which is located a dwelling or
mixed residential and commercial structure, such as certain Multifamily
Loans, and originated by types of Originators specified in SMMEA, will be
"mortgage related securities" for purposes of SMMEA. "Mortgage related
securities" are legal investments to the same extent that, under applicable
law, obligations issued by or guaranteed as to principal and interest by the
United States or any agency or instrumentality thereof constitute legal
investments for persons, trusts, corporations, partnerships, associations,
business trusts and business entities (including depository institutions,
insurance companies and pension funds created pursuant to or existing under
the laws of the United States or of any state, the authorized investments of
which are subject to state regulation). Under SMMEA, if a state enacted
legislation prior to October 3, 1991 that specifically limits the legal
investment authority of any such entities with respect to "mortgage related
securities", Offered Certificates would constitute legal investments for
entities subject to such legislation only to the extent provided in such
legislation.
SMMEA also amended the legal investment authority of federally chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with "mortgage
related securities" without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without
regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. 24 (Seventh), subject in each case to such regulations as
the applicable federal regulatory authority may prescribe.
Upon the issuance of final implementing regulations under the Riegle
Community Development and Regulatory Improvement Act of 1994 and subject to
any limitations those regulations may impose, a modification of the
definition of "mortgage related securities" will become effective to include
among the types of loans to which such securities may relate loans secured by
"one or more parcels of real estate upon which is located one or more
commercial structures". In addition, the related legislative history states
that this expanded definition includes multifamily loans secured by more than
one parcel of real estate upon which is located more than one structure.
Until September 23, 2001, any state may enact legislation limiting the extent
to which "mortgage related securities" under this expanded definition would
constitute legal investments under that state's laws.
The Federal Financial Institutions Examination Council has issued a
supervisory policy statement (the "Policy Statement") applicable to all
depository institutions, setting forth guidelines for and significant
restrictions on investments in "high-risk mortgage securities". The Policy
Statement has been adopted by the Federal Reserve Board, the Office of the
Comptroller of the Currency, the FDIC and the OTS. The Policy Statement
generally indicates that a mortgage derivative product will be deemed to be
high risk if it exhibits greater price volatility than a standard fixed rate
thirty-year
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mortgage security. According to the Policy Statement, prior to purchase, a
depository institution will be required to determine whether a mortgage
derivative product that it is considering acquiring is high-risk, and if so
that the proposed acquisition would reduce the institution's overall interest
rate risk. Reliance on analysis and documentation obtained from a securities
dealer or other outside party without internal analysis by the institution
would be unacceptable. There can be no assurance as to which classes of
Certificates, including Offered Certificates, will be treated as high-risk
under the Policy Statement.
The predecessor to the Office of Thrift Supervision (the "OTS") issued a
bulletin, entitled, "Mortgage Derivative Products and Mortgage Swaps", which
is applicable to thrift institutions regulated by the OTS. The bulletin
established guidelines for the investment by savings institutions in certain
"high-risk" mortgage derivative securities and limitations on the use of such
securities by insolvent, undercapitalized or otherwise "troubled"
institutions. According to the bulletin, such "high-risk" mortgage derivative
securities include securities having certain specified characteristics, which
may include certain classes of Offered Certificates. In addition, the
National Credit Union Administration has issued regulations governing federal
credit union investments which prohibit investment in certain specified types
of securities, which may include certain classes of Offered Certificates.
Similar policy statements have been issued by regulators having jurisdiction
over other types of depository institutions.
There may be other restrictions on the ability of certain investors either
to purchase certain classes of Offered Certificates or to purchase any class
of Offered Certificates representing more than a specified percentage of the
investor's assets. The Sponsor will make no representations as to the proper
characterization of any class of Offered Certificates for legal investment or
other purposes, or as to the ability of particular investors to purchase any
class of Offered Certificates under applicable legal investment restrictions.
These uncertainties may adversely affect the liquidity of any class of
Offered Certificates. Accordingly, all investors whose investment activities
are subject to legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities should consult with their
own legal advisors in determining whether and to what extent the Offered
Certificates of any class constitute legal investments or are subject to
investment, capital or other restrictions.
METHOD OF DISTRIBUTION
The Offered Certificates offered hereby and by Prospectus Supplements
hereto will be offered in series through one or more of the methods described
below. The Prospectus Supplement prepared for each series will describe the
method of offering being utilized for that series and will state the net
proceeds to the Sponsor from such sale.
The Sponsor intends that Offered 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 a combination of two or
more of these methods. Such methods are as follows:
1. by negotiated firm commitment underwriting and public offering by one
or more underwriters specified in the related Prospectus Supplement;
2. by placements through one or more placement agents specified in the
related Prospectus Supplement primarily with institutional investors and
dealers; and
3. through offerings by the Sponsor.
The Prospectus Supplement for each series of Offered Certificates will, as
to each class of such Certificates, describe the method of offering being
used for that class and either the price at which such class is being
offered, the nature and amount of any underwriting discounts or additional
compensation to underwriters and the proceeds of the offering to the Sponsor,
or the method for determining the price at which such class will be sold to
the public. A firm commitment underwriting and public offering by
underwriters may be done through underwriting syndicates led by one or more
managing underwriters or through one or more underwriters acting alone. The
managing underwriter or underwriters with respect to the offer and sale of a
particular series of Offered Certificates will be set forth on the cover of
the Prospectus Supplement relating to such series and the members of the
underwriting syndicate, if any, will be named in such Prospectus Supplement.
The firms acting as underwriters with respect to the Offered Certificates of
any series may include Citicorp Securities, Inc. and Citibank, N.A., each of
which is an affiliate of the Sponsor. Any of the above-named firms not named
in the related Prospectus Supplement will not be parties to the Underwriting
Agreement in respect of a series of Offered Certificates, will not be
purchasing any such Certificates from the Sponsor and will have no direct or
indirect participation in the underwriting of such Certificates, although any
of such firms may participate in the distribution of such Certificates
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under circumstances entitling it to a dealer's commission. Each Prospectus
Supplement for an underwritten offering will also contain information
regarding the nature of the underwriters' obligations, any material
relationships between the Sponsor and any underwriter, and, where
appropriate, information regarding any discounts or concessions to be allowed
or reallowed to dealers or others and any arrangements to stabilize the
market for the Certificates so offered. In a firm commitment underwritten
offering, the underwriters will be obligated to purchase all of the Offered
Certificates of a series if any such Certificates are purchased. Offered
Certificates may be acquired by the underwriters for their own accounts and
may be resold from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying
prices determined at the time of sale. In connection with the sale of the
Offered Certificates of any series, underwriters may receive compensation
from the Sponsor or from purchasers of such Certificates in the form of
discounts, concessions or commissions. The related Prospectus Supplement will
describe any such compensation paid by the Sponsor.
In underwritten offerings, the underwriters and their agents may be
entitled, under agreements entered into with the Sponsor, to indemnification
from the Sponsor against certain civil liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"), or to
contribution with respect to payments which such underwriters or agents may
be required to make in respect thereof. Such rights to indemnification or
contribution may also extend to each person, if any, who controls any such
underwriter within the meaning of the Securities Act.
If a series or class of Offered Certificates is offered otherwise than
through underwriters, the Prospectus Supplement relating thereto will contain
information regarding the nature of such offering and any agreements to be
entered into between the Sponsor and purchasers of such Certificates. It is
contemplated that Citicorp Securities, Inc. or Citibank, N.A. will act as
placement agent on behalf of the Sponsor in such offerings of a series or
class of Offered Certificates. If Citicorp Securities, Inc. does act as
placement agent in the sale of Offered Certificates, it will receive a
selling commission which will be disclosed in the related Prospectus
Supplement. Citicorp Securities, Inc. or Citibank, N.A. may also purchase
Offered Certificates acting as principal.
It is expected that the Sponsor will from time to time form Mortgage Asset
Pools and cause series of Offered Certificates evidencing an ownership
interest in such Mortgage Asset Pools to be issued to the related Mortgage
Asset Sellers. Thereafter, and pending final sale of such a series of Offered
Certificates, the related Mortgage Asset Seller may enter into repurchase
arrangements or secured lending arrangements with institutions that may
include Citicorp Securities, Inc. or any of its affiliates for purposes of
financing the holding of such series. Prior to any sales of such Certificates
to investors, the related Mortgage Asset Seller will prepare and deliver a
Prospectus Supplement containing updated information regarding the Mortgage
Asset Pool as of the first day of the month in which such sale occurs.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each series of
Certificates, and no Trust Fund will engage in any business activities or
have any assets or obligations prior to the issuance of the related series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement.
RATING
It is a condition to the issuance of any class of Offered Certificates
that they shall have been rated not lower than investment grade, that is, in
one of the four highest rating categories, by at least one Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by the holders thereof of all collections on the underlying mortgage
assets to which such holders are entitled. These ratings address the
structural, legal and issuer-related aspects associated with such
certificates, the nature of the underlying mortgage assets and the credit
quality of the guarantor, if any. Ratings on mortgage pass-through
certificates do not represent any assessment of the likelihood of principal
prepayments by borrowers or of the degree by which such prepayments might
differ from those originally anticipated. As a result, Certificateholders
might suffer a lower than anticipated yield, and, in addition, holders of
stripped interest certificates in extreme cases might fail to recoup their
initial investments.
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.
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INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
<S> <C>
Accrual Certificates .............................................. 9, 31
Accrued Certificate Interest ...................................... 31
Act ............................................................... 57
ARM Loans ......................................................... 22
Available Distribution Amount ..................................... 30
Book-Entry Certificates ........................................... 11, 30
Cash Flow Agreement ............................................... 8, 24
CERCLA ............................................................ 18, 57
Certificate Account ............................................... 7, 23, 39
Certificate Balance ............................................... 2, 9
Certificate Owner ................................................. 11, 35
Certificateholders ................................................ 2
Certificates ...................................................... 6
Characterization of Investments in Grantor Trust Certificates. ... 75
Code .............................................................. 11, 61
Commercial Properties ............................................. 6, 20
Commission ........................................................ 2
Companion Class ................................................... 10, 32
Condemnation Proceeds ............................................. 40
Contingent Payment Regulations .................................... 81
Controlled Amortization Class ..................................... 10, 32
Cooperatives ...................................................... 20
CPR ............................................................... 26
Credit Support .................................................... 1, 8, 24
Cut-off Date ...................................................... 10
Debt Service Coverage Ratio ....................................... 21
Definitive Certificate ............................................ 11
Determination Date ................................................ 25, 30
Direct Participants ............................................... 35
Distribution Date ................................................. 9
Distribution Date Statement ....................................... 33
DTC ............................................................... 3, 11, 30, 35
Due Dates ......................................................... 22
Equity Participation .............................................. 22
ERISA ............................................................. 13, 83
Exchange Act ...................................................... 3
FAMC .............................................................. 7
FHLMC ............................................................. 7
FNMA .............................................................. 7
GNMA .............................................................. 7
Grantor Trust Certificates ........................................ 11, 61
Grantor Trust Fractional Interest Certificates .................... 12, 75
Grantor Trust Fund ................................................ 61
Indirect Participants ............................................. 35
Insurance Proceeds ................................................ 40
IRS ............................................................... 63
Issue Premium ..................................................... 68
L/C Bank .......................................................... 51
Liquidation Proceeds .............................................. 40
87
<PAGE>
Loan-to-Value Ratio ............................................... 21
Lock-out Date ..................................................... 22
Lock-out Period ................................................... 22
Master Servicer ................................................... 2, 6
MBS ............................................................... 1, 20
MBS Agreement ..................................................... 23
MBS Issuer ........................................................ 23
MBS Servicer ...................................................... 23
MBS Trustee ....................................................... 23
Mortgage Asset Pool ............................................... 1
Mortgage Asset Seller ............................................. 7, 20
Mortgage Assets ................................................... 1, 20
Mortgage Loans .................................................... 1, 6, 20
Mortgage Notes .................................................... 20
Mortgage Rate ..................................................... 7, 22
Mortgaged Properties .............................................. 20
Multifamily Properties ............................................ 6, 20
Net Leases ........................................................ 21
Nonrecoverable Advance ............................................ 33
Notional Amount ................................................... 9, 31
Offered Certificates .............................................. 1
OID Regulations ................................................... 61
Originator ........................................................ 21
PAC ............................................................... 27
Participants ...................................................... 19, 30, 35
Pass-Through Rate ................................................. 2, 9
Permitted Investments ............................................. 39
Plans ............................................................. 83
Pooling Agreement ................................................. 8, 36
Prepayment Assumption ............................................. 63, 77
Prepayment Interest Shortfall ..................................... 25
Prepayment Premium ................................................ 22
Prospectus Supplement ............................................. 1
Rating Agency ..................................................... 13
Record Date ....................................................... 30
Related Proceeds .................................................. 33
Relief Act ........................................................ 59
REMIC ............................................................. 2, 11, 61
REMIC Administrator ............................................... 2, 6
REMIC Certificates ................................................ 61
REMIC Provisions .................................................. 61
REMIC Regular Certificates ........................................ 11, 61
REMIC Regulations ................................................. 61
REMIC Residual Certificates ....................................... 11, 61
REO Property ...................................................... 38
Securities Act .................................................... 86
Senior Certificates ............................................... 8, 30
Servicing Standard ................................................ 38
SMMEA ............................................................. 84
SPA ............................................................... 26
Special Servicer .................................................. 2, 6
88
<PAGE>
Sponsor ........................................................... 20
Stripped Interest Certificates .................................... 9, 30
Stripped Principal Certificates ................................... 9, 30
Subordinate Certificates .......................................... 9, 30
Sub-Servicer ...................................................... 39
Sub-Servicing Agreement ........................................... 39
TAC ............................................................... 27
Title V ........................................................... 59
Trust Assets ...................................................... 2
Trust Fund ........................................................ 1
Trustee ........................................................... 2, 6
UCC ............................................................... 53
Value ............................................................. 21
Voting Rights ..................................................... 34
Warranting Party ..................................................
</TABLE>
89
<PAGE>
This diskette contains two spreadsheet files that can be put on a
user-specified hard drive or network drive. These two files are "MCF96s2.xls"
and "MCF96s2.wk1." The file "MCF96s2.xls" is a Microsoft Excel1 , Version 5.0
spreadsheet, and the file "MCF96s2.wk1" is a Lotus 123(1), Version 2.1
spreadsheet. Each file provides, in electronic format, certain loan level
information shown in ANNEX A of the Prospectus Supplement.
Open either file as you would normally open any spreadsheet in either
Microsoft Excel or Lotus 123. After either file is opened, a securities law
legend will be displayed. READ THE LEGEND CAREFULLY. To view the ANNEX A
data, in the case of the Microsoft Excel file, the data appears on the
worksheet labeled "Sheet 2," and in the case of the Lotus 123 file, the data
appears directly to the right of the legend.
- ------------
(1) Microsoft Excel and Lotus 123 are registered trademarks of Microsoft
Corporation and Lotus Development Corporation, respectively.
<PAGE>
==========================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE SPONSOR OR BY THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY TO ANYONE IN
ANY JURISDICTION IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT INFORMATION HEREIN OR THEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS SUPPLEMENT
OR THE ACCOMPANYING PROSPECTUS.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
--------
Summary ...................................... S-5
Risk Factors ................................. S-23
Description of the Mortgage Pool ............. S-31
Servicing of the Mortgage Loans .............. S-41
Description of the Certificates .............. S-50
Yield and Maturity Considerations ............ S-66
Use of Proceeds .............................. S-73
Certain Federal Income Tax Consequences ..... S-73
ERISA Considerations ......................... S-76
Legal Investment ............................. S-78
Method of Distribution ....................... S-79
Legal Matters ................................ S-79
Ratings ...................................... S-80
Index of Principal Definitions ............... S-81
Annex A ...................................... A-1
Annex B ...................................... B-1
PROSPECTUS
Prospectus Supplement ........................ 2
Available Information ........................ 2
Incorporation of Certain Information by
Reference ................................... 3
Summary of Prospectus ........................ 6
Risk Factors ................................. 14
Description of the Trust Funds ............... 20
Yield and Maturity Considerations ............ 24
Mortgage Capital Funding, Inc ................ 29
Use of Proceeds .............................. 30
Description of the Certificates .............. 30
Description of the Pooling Agreements ....... 36
Description of Credit Support ................ 50
Certain Legal Aspects of Mortgage Loans ..... 52
Material Federal Income Tax Consequences .... 61
State and Other Tax Considerations ........... 83
ERISA Considerations ......................... 83
Legal Investment ............................. 84
Method of Distribution ....................... 85
Financial Information ........................ 86
Rating ....................................... 86
Index of Principal Definitions ............... 87
THROUGH AND INCLUDING MARCH , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN
THE OFFERED CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS. 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.
<PAGE>
$403,088,874
(APPROXIMATE)
MORTGAGE CAPITAL FUNDING, INC.
(SPONSOR)
CITICORP REAL ESTATE, INC.
(MORTGAGE LOAN SELLER)
CLASS A-1, CLASS A-2, CLASS A-3, CLASS B,
CLASS C, CLASS D AND CLASS E
MULTIFAMILY/COMMERCIAL
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-MC2
-----------------------
PROSPECTUS SUPPLEMENT
-----------------------
NATIONSBANC CAPITAL
MARKETS, INC.
AND
CITIBANK [LOGO]
, 1996
