<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration File No.: 333-24489
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JUNE 17, 1998
$923,692,000 (APPROXIMATE)
MORTGAGE CAPITAL FUNDING, INC.
MULTIFAMILY/COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES,
SERIES 1998-MC2
---------------------
The Mortgage Capital Funding, Inc., Multifamily/Commercial Mortgage
Pass-Through Certificates, Series 1998-MC2 (the "Certificates") will include 16
classes (each, a "Class") of Certificates, designated as: (i) the Class A-1 and
Class A-2 Certificates (collectively, the "Class A Certificates"); (ii) the
Class B, Class C, Class D, Class E, Class F, Class G, Class H, Class J, Class K
and Class L Certificates (collectively with the Class A Certificates, the
"Sequential Pay Certificates"); (iii) the Class X Certificates (collectively
with the Sequential Pay Certificates, the "REMIC Regular Certificates"); and
(iv) the Class R-I, Class R-II and Class R-III Certificates (collectively, the
"REMIC Residual Certificates"). Only the Class X, 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 (each, a "Certificate Balance") or, in the
case of the Class X Certificates, in the aggregate notional amount (a "Notional
Amount"), and will accrue interest at the per annum rates (each, a
"Pass-Through Rate"), set forth or otherwise described in the table below or in
the footnotes thereto.
(cover page continued on page S-3)
---------------------
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 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.
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-36 IN THIS PROSPECTUS SUPPLEMENT AND
PAGE 14 IN THE PROSPECTUS FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT
IN THE OFFERED CERTIFICATES.
---------------------
<TABLE>
<CAPTION>
INITIAL
CERTIFICATE RATED FINAL
BALANCE OR PASS-THROUGH ASSUMED FINAL RATINGS DISTRIBUTION
CLASS NOTIONAL AMOUNT (1) RATE DISTRIBUTION DATE (2) (MOODY'S/FITCH)(3) DATE (3)
- ------------------- ----------------------- ---------------- ----------------------- -------------------- --------------
<S> <C> <C> <C> <C> <C>
Class A-1 ......... $ 205,079,000 6.325% October 18, 2007 Aaa/AAA June 18, 2030
Class A-2 ......... $ 514,190,000 6.423% May 18, 2008 Aaa/AAA June 18, 2030
Class X ........... $ 1,009,500,069(4) 0.661%(5) April 18, 2018 Aaa/AAA June 18, 2030
Class B ........... $ 47,951,000 6.549% May 18, 2008 Aa2/AA June 18, 2030
Class C ........... $ 58,046,000 6.726% June 18, 2008 A2/A June 18, 2030
Class D ........... $ 60,570,000 7.091%(6) June 18, 2008 Baa2/BBB June 18, 2030
Class E ........... $ 37,856,000 7.173%(7) April 18, 2012 NR(8)/BBB- June 18, 2030
</TABLE>
(footnotes on page S-3)
---------------------
The Offered Certificates are offered severally by Citibank, N.A. and J.P.
Morgan Securities Inc. (the "Underwriters"), as specified herein, 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 approximately 106% of the initial
aggregate Certificate Balance of the Offered Certificates, plus accrued
interest, before deducting expenses payable by the Sponsor. In connection with
this offering, Citibank, N.A. is acting as lead manager and sole bookrunner,
and J.P. Morgan Securities, Inc. is acting as co-manager.
The Offered Certificates are offered by the Underwriters, subject to receipt
and acceptance by them and subject to their right to reject any order in whole
or in part. It is expected that delivery of the Offered Certificates will be
made in book-entry form only through the facilities of The Depository Trust
Company, in New York, New York on or about June 29, 1998 against payment
therefor in immediately available funds.
[CITIBANK LOGO] J.P. MORGAN & CO.
---------------------
The date of this Prospectus Supplement is June 25, 1998.
<PAGE>
MORTGAGE CAPITAL FUNDING, INC.
- -------------------------------------------------------------------------------
Multifamily/Commercial Mortgage Pass-Through Certificates, Series 1998-MC2
Geographic Overview of Mortgage Pool
ALASKA
2 properties
$11,572,596
1.1% of total
OREGON
1 property
$9,786,133
1.0% of total
WASHINGTON
2 properties
$13,655,602
1.4% of total
IDAHO
1 property
$1,153,413
0.1% of total
NEBRASKA
1 property
$10,546,188
1.0% of total
MISSOURI
1 property
$1,169,426
0.1% of total
IOWA
1 property
$4,170,410
0.4% of total
MINNESOTA
3 properties
$112,171,329
11.1% of total
ILLINOIS
7 properties
$63,550,246
6.3% of total
WISCONSIN
5 properties
$14,183,100
1.4% of total
MICHIGAN
7 properties
$24,793,738
2.5% of total
INDIANA
1 property
$1,644,770
0.2% of total
OHIO
15 properties
$31,877,517
3.2% of total
PENNSYLVANIA
4 properties
$12,207,278
1.2% of total
NEW HAMPSHIRE
3 properties
$24,513,594
2.4% of total
<PAGE>
MAINE
1 property
$17,350,000
1.7% of total
MASSACHUSETTS
5 properties
$29,082,454
2.9% of total
CONNECTICUT
3 properties
$13,469,532
1.3% of total
RHODE ISLAND
1 property
$2,696,391
0.3% of total
NEW YORK
4 properties
$193,314,919
19.1% of total
NEW JERSEY
2 properties
$12,668,105
1.3% of total
MARYLAND
1 property
$1,446,609
0.1% of total
VIRGINIA
6 properties
$17,722,679
1.8% of total
NORTH CAROLINA
3 properties
$6,103,214
0.6% of total
TENNESSEE
2 properties
$6,044,122
0.6% of total
SOUTH CAROLINA
2 properties
$5,183,304
0.5% of total
GEORGIA
8 properties
$64,739,628
6.4% of total
FLORIDA
8 properties
$33,032,694
3.3% of total
PUERTO RICO
1 property
$23,465,010
2.3% of total
ALABAMA
4 properties
$16,278,875
1.6% of total
KANSAS
1 property
$7,667,610
0.8% of total
TEXAS
11 properties
$53,801,343
5.3% of total
COLORADO
9 properties
$24,615,859
2.4% of total
ARIZONA
4 properties
$16,279,664
1.6% of total
NEVADA
1 property
$2,744,696
0.3% of total
CALIFORNIA
18 properties
$117,000,181
11.6% of total
HAWAII
1 property
$7,797,838
0.8% of total
WEIGHTED AVERAGES BY PROPERTY TYPE
Unanchored Retail
8.4%
Hotel
7.4%
Industrial
2.6%
Health Care
2.1%
Mobile Home Park
0.4%
Nursing Homes
0.2%
Office
34.4%
Multifamily
22.4%
Mixed Use
11.5%
Anchored Retail
10.7%
[ ] < 1.05%
of Initial Pool Balance
[X] 1.05 - 5.0%
of Initial Pool Balance
[X] 5.01 - 10.00%
of Initial Pool Balance
[X] > 10.00%
of Initial Pool Balance
S-2
<PAGE>
(footnotes from cover)
- ----------
(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
assumptions that each Hyper-Amortization Loan (as defined herein) is paid
in full on its Anticipated Repayment Date (as defined herein) and that no
Mortgage Loan is otherwise 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 Moody's Investors Service,
Inc. ("Moody's") and/or Fitch IBCA, Inc. ("Fitch"; and together with
Moody's, the "Rating Agencies") no lower than those set forth above. 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, (iii) whether
and to what extent Prepayment Premiums will be received on the Mortgage
Loans or (iv) whether and to what extent Excess Interest will be received
on the Hyper-Amortization Loans. Also, a security rating does not
represent any assessment of the yield to maturity that investors may
experience or the possibility that the Class X Certificateholders might
not fully recover their initial investment in the event of rapid
prepayments of the Mortgage Loans (including both voluntary and
involuntary prepayments). The "Rated Final Distribution Date" for each
Class of Offered Certificates has been set at the first Distribution Date
that follows the second anniversary of the end of the amortization term
for the Mortgage Loan that, as of the Cut-off Date, has the longest
remaining amortization term, irrespective of its scheduled maturity. See
"Ratings" herein.
(4) The Class X Certificates will not have a Certificate Balance. The Class X
Certificates will accrue interest on a Notional Amount that is equal to
the aggregate of the Certificate Balances of all the Classes of
Sequential Pay Certificates outstanding from time to time.
(5) Initial Pass-Through Rate. The Pass-Through Rate for the Class X
Certificates is variable and will, in general, equal the excess, if any,
of the Weighted Average Net Mortgage Rate (as defined herein) from time
to time, over the weighted average of the Pass-Through Rates for all the
Classes of Sequential Pay Certificates from time to time.
(6) If the Weighted Average Net Mortgage Rate for any Distribution Date is
less than the rate specified above for the Class D Certificates, then the
Pass-Through Rate in respect of such Class of Certificates for such
Distribution Date will equal the Weighted Average Net Mortgage Rate for
such Distribution Date.
(7) Initial Pass-Through Rate. The Pass-Through Rate for the Class E
Certificates is variable and will equal the Weighted Average Net Mortgage
Rate from time to time.
(8) "NR" means not rated.
---------------------
THE PHOTOGRAPHS OF THE MORTGAGED PROPERTIES INCLUDED IN THIS PROSPECTUS
SUPPLEMENT ARE NOT REPRESENTATIVE OF ALL THE MORTGAGED PROPERTIES OR OF ANY
PARTICULAR TYPE OF MORTGAGED PROPERTY.
---------------------
(continued from cover)
The Certificates will represent in the aggregate the entire beneficial
ownership interest in a trust (the "Trust") to be established by Mortgage
Capital Funding, Inc. (the "Sponsor"), the assets of which (such assets
collectively, the "Trust Fund") will consist primarily of a segregated pool
(the "Mortgage Pool") of 147 multifamily and commercial mortgage loans (the
"Mortgage Loans") having the characteristics described herein. As of the
Cut-off Date (as defined herein), 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 $1,009,500,069 (the "Initial Pool
Balance"), subject to a variance of plus or minus 5%.
One hundred twenty-two of the Mortgage Loans (the "Citi Mortgage Loans"),
which represent 86.24% of the Initial Pool Balance, were originated by or on
behalf of one or more affiliates of Citicorp Real Estate, Inc. (the "Mortgage
Loan Seller"), a commonly controlled affiliate of the Sponsor, pursuant to its
conduit program, and are currently held by the Mortgage Loan Seller or by one
or more of its affiliates. The remaining 25 Mortgage Loans (the "Morgan
Mortgage Loans"), which represent 13.76% of the Initial Pool Balance, were
originated by or on behalf of Morgan Guaranty Trust Company of New York
("Morgan Guaranty"). On or before the Delivery Date, the Mortgage Loan Seller
will acquire the Morgan Mortgage Loans from Morgan Guaranty. In addition, on or
before the Delivery Date, the Mortgage Loan Seller will, at the direction of
the Sponsor, transfer all of the Mortgage Loans, without
S-3
<PAGE>
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 on the Certificates will be made, to the extent of available
funds, on the 18th day of each month or, if any such 18th day is not a business
day, then on the next succeeding business day, beginning in July 1998 (each, a
"Distribution Date"). As more fully described herein, distributions allocable
to interest accrued on each Class of the REMIC Regular Certificates (the 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 Amount of such Class outstanding immediately prior to such
Distribution Date. Distributions allocable to principal of the respective
Classes of 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,
charges or fees, including those in the form of yield maintenance payments
(collectively, "Prepayment Premiums"), actually collected on the Mortgage Loans
will be distributed among the respective Classes of Offered 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,
Class J, Class K, Class L, Class R-I, Class R-II and Class R-III 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, further, to those of 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 or as affected by prepayments, hyper-amortization, loan extensions,
defaults and liquidations) and losses on the Mortgage Loans that result in a
reduction of the Certificate Balance or Notional Amount of such Class. The
yield to maturity of the Class X Certificates will be highly sensitive to the
rate and timing of principal payments (including by reason of or as affected by
prepayments, hyper-amortization, loan extensions, defaults and liquidations)
and losses on the Mortgage Loans, and investors in the Class X Certificates
should fully consider the associated risks, including the risk that an
extremely rapid rate of amortization, prepayment and other liquidation of the
Mortgage Loans could result in the failure of such investors to recoup fully
their initial investments. 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 Sequential Pay 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 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, three separate "real estate mortgage investment
conduit" ("REMIC") elections will be made with respect to the Trust Fund for
federal income tax purposes (the REMICs formed thereby being herein referred to
as "REMIC I", "REMIC II" and "REMIC III", respectively). The Offered
Certificates will evidence "regular interests" in REMIC III. 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 presently 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.
S-4
<PAGE>
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.
FORWARD-LOOKING STATEMENTS
IF AND WHEN INCLUDED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS OR IN DOCUMENTS INCORPORATED HEREIN OR THEREIN BY REFERENCE, THE
WORDS "EXPECTS", "INTENDS", "ANTICIPATES", "ESTIMATES" AND ANALOGOUS
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. ANY SUCH
STATEMENTS, WHICH MAY INCLUDE STATEMENTS CONTAINED IN "RISK FACTORS", ARE
INHERENTLY SUBJECT TO A VARIETY OF RISKS AND UNCERTAINTIES THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. SUCH RISKS AND
UNCERTAINTIES INCLUDE, AMONG OTHERS, GENERAL ECONOMIC AND BUSINESS CONDITIONS,
COMPETITION, CHANGES IN POLITICAL, SOCIAL AND ECONOMIC CONDITIONS, REGULATORY
INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, CUSTOMER PREFERENCES
AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND THE SPONSOR'S CONTROL.
THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS PROSPECTUS
SUPPLEMENT. THE SPONSOR EXPRESSLY DISCLAIMS ANY OBLIGATIONS OR UNDERTAKING TO
RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENT
CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE SPONSOR'S EXPECTATIONS WITH
REGARD THERETO OR ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH
ANY SUCH STATEMENT IS BASED.
S-5
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
EXECUTIVE SUMMARY ...................................................... S-8
SUMMARY OF PROSPECTUS SUPPLEMENT ....................................... S-10
RISK FACTORS ........................................................... S-36
The Certificates ...................................................... S-36
The Mortgage Loans .................................................... S-37
DESCRIPTION OF THE MORTGAGE POOL ....................................... S-45
General ............................................................... S-45
Certain Terms and Conditions of the Mortgage Loans .................... S-46
Additional Mortgage Loan Information .................................. S-49
Certain Underwriting Matters .......................................... S-50
The Hudson Street Loan ................................................ S-54
The Minneapolis City Center Loan ...................................... S-65
The Wellpoint Loan .................................................... S-80
The Mortgage Loan Seller and the Additional Warranting Party .......... S-89
Assignment of the Mortgage Loans; Repurchases ......................... S-89
Representations and Warranties; Repurchases ........................... S-91
Changes in Mortgage Pool Characteristics .............................. S-93
SERVICING OF THE MORTGAGE LOANS ........................................ S-94
General ............................................................... S-94
The Master Servicer and the Special Servicer .......................... S-96
Sub-Servicers ......................................................... S-96
Servicing and Other Compensation and Payment of Expenses .............. S-96
Evidence as to Compliance ............................................. S-99
Modifications, Waivers, Amendments and Consents ....................... S-100
Sale of Defaulted Mortgage Loans ...................................... S-101
REO Properties ........................................................ S-102
Inspections; Collection of Operating Information ...................... S-103
Termination of the Special Servicer ................................... S-103
DESCRIPTION OF THE CERTIFICATES ........................................ S-104
General ............................................................... S-104
Registration and Denominations ........................................ S-104
Certificate Balances and Notional Amount .............................. S-105
Pass-Through Rates .................................................... S-105
Interest Reserve Accounts ............................................. S-107
Distributions ......................................................... S-107
Subordination; Allocation of Losses and Certain Expenses .............. S-114
P&I Advances .......................................................... S-115
Appraisal Reductions .................................................. S-116
Reports to Certificateholders; Certain Available Information .......... S-117
Voting Rights ......................................................... S-120
Termination ........................................................... S-121
The Trustee ........................................................... S-121
YIELD AND MATURITY CONSIDERATIONS ...................................... S-123
Yield Considerations .................................................. S-123
Weighted Average Lives ................................................ S-126
Yield Sensitivity of the Class X Certificates ......................... S-130
</TABLE>
S-6
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
USE OF PROCEEDS .......................................................... S-131
CERTAIN FEDERAL INCOME TAX CONSEQUENCES .................................. S-132
General ................................................................. S-132
Discount and Premium; Prepayment Premiums ............................... S-132
Constructive Sales of Class X Certificates .............................. S-133
Characterization of Investments in Offered Certificates ................. S-133
Possible Taxes on Income From Foreclosure Property and Other Taxes ...... S-133
Reporting and Other Administrative Matters .............................. S-134
CERTAIN ERISA CONSIDERATIONS ............................................. S-135
LEGAL INVESTMENT ......................................................... S-138
METHOD OF DISTRIBUTION ................................................... S-138
LEGAL MATTERS ............................................................ S-139
RATINGS .................................................................. S-139
INDEX OF PRINCIPAL DEFINITIONS ........................................... S-141
ANNEX A--Certain Characteristics of the Mortgage Loans ................... A-1
ANNEX B--Trustee Report .................................................. B-1
ANNEX C--Term Sheet ...................................................... C-1
</TABLE>
S-7
<PAGE>
EXECUTIVE SUMMARY
The following Executive Summary does not include all relevant information
relating to the securities and collateral described herein, particularly with
respect to the risks and special considerations involved with an investment in
such securities and is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
accompanying Prospectus. Certain capitalized terms used in this Executive
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 have the
meanings specified in the Prospectus.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
INITIAL APPROXI- APPROXI- PASS-
CERTIFICATE MATE MATE THROUGH WEIGHTED
BALANCE OR PERCENT OF INITIAL RATE AS OF AVERAGE
RATINGS (1) NOTIONAL INITIAL POOL CREDIT COUPON DELIVERY LIFE PRINCIPAL
CLASS(ES) MOODY'S/FITCH AMOUNT (2) BALANCE SUPPORT DESCRIPTION DATE (YEARS)(3) WINDOW (3)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Offered Certificates
- ---------------------------------------------------------------------------------------------------------------------------------
A-1 Aaa/AAA $ 205,079,000 20.31% 28.75% Fixed Rate 6.325% 5.50 7/98-10/07
- ---------------------------------------------------------------------------------------------------------------------------------
A-2 Aaa/AAA $ 514,190,000 50.94% 28.75% Fixed Rate 6.423% 9.69 10/07-5/08
- ---------------------------------------------------------------------------------------------------------------------------------
X Aaa/AAA $1,009,500,069 N/A N/A Variable 0.661% N/A N/A
Rate
(Interest
Only)
- ---------------------------------------------------------------------------------------------------------------------------------
B Aa2/AA $ 47,951,000 4.75% 24.00% Fixed Rate 6.549% 9.88 5/08-5/08
- ---------------------------------------------------------------------------------------------------------------------------------
C A2/A $ 58,046,000 5.75% 18.25% Fixed Rate 6.726% 9.96 5/08-6/08
- ---------------------------------------------------------------------------------------------------------------------------------
D Baa2/BBB $ 60,570,000 6.00% 12.25% Lesser of 7.091% 9.97 6/08-6/08
Specified Rate
and Net WAC
- ---------------------------------------------------------------------------------------------------------------------------------
E NR/BBB- $ 37,856,000 3.75% 8.50% Net WAC 7.173% 11.97 6/08-4/12
- ---------------------------------------------------------------------------------------------------------------------------------
Private Certificates--Not Offered Hereby
- ---------------------------------------------------------------------------------------------------------------------------------
F through H $ 45,428,000 Net WAC 7.173%
- ---------------------------------------------------------------------------------------------------------------------------------
J through L $ 40,380,069 Fixed Rate 6.000%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------
(1) Ratings shown are those of Moody's and Fitch, respectively. Classes marked
"NR" will not be rated by the applicable Rating Agency.
(2) Subject to a variance of plus or minus 5%.
(3) Based on the assumptions that each Hyper-Amortization Loan is paid in full
on its Anticipated Repayment Date and that no Mortgage Loan is otherwise
prepaid prior to stated maturity and further based on the Maturity
Assumptions (as defined in "Yield and Maturity Considerations" herein).
(4) Notional Amount.
S-8
<PAGE>
Set forth below is certain information regarding the Mortgage Loans and
the Mortgaged Properties as of the Cut-off Date (all weighted averages set
forth below are based on the respective Cut-off Date Balances (as defined
herein) of the Mortgage Loans). Such information is described, and additional
information regarding the Mortgage Loans and the Mortgaged Properties is set
forth, under "Description of the Mortgage Pool" herein and in Annex A hereto.
MORTGAGE POOL CHARACTERISTICS
<TABLE>
<CAPTION>
CHARACTERISTICS MORTGAGE POOL
- -------------------------------------------------------------------------- -------------------
<S> <C>
Initial Pool Balance ..................................................... $1,009,500,069
Number of Mortgage Loans ................................................. 147
Number of Mortgaged Properties ........................................... 150
Average Cut-off Date Balance ............................................. $ 6,867,347.41
Weighted Average Mortgage Rate ........................................... 7.26%
Weighted Average Remaining Term to Maturity or Anticipated Repayment Date 132.06 months
Weighted Average Underwritten Debt Service Coverage Ratio ................ 1.40x
Weighted Average Cut-off Date Loan-to-Value Ratio ........................ 72.02%
Weighted Average Seasoning ............................................... 3 months
</TABLE>
"Cut-off Date Loan-to-Value Ratio" and "Underwritten Debt Service Coverage
Ratio" are calculated as described in Annex A hereto.
S-9
<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 1998-MC2 (the
"Certificates"), will include 16 classes (each, a
"Class"), designated as: (i) the Class A-1 and
Class A-2 Certificates (collectively, the "Class
A Certificates"); (ii) the Class B, Class C,
Class D, Class E, Class F, Class G, Class H,
Class J, Class K and Class L Certificates
(collectively with the Class A Certificates, the
"Sequential Pay Certificates"); (iii) the Class X
Certificates (collectively with the Sequential
Pay Certificates, the "REMIC Regular
Certificates"); and (iv) the Class R-I, Class
R-II and Class R-III Certificates (collectively,
the "REMIC Residual Certificates"). Only the
Class X, Class A, Class B, Class C, Class D and
Class E Certificates (collectively, the "Offered
Certificates") are offered hereby.
The Class F, Class G, Class H, Class J, Class K,
Class L, Class R-I, Class R-II and Class R-III
Certificates (collectively, the "Private
Certificates") have not been registered under
the Securities Act of 1933, as amended, 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. The Master
Servicer/Special Servicer is expected to
purchase some or all of the Private
Certificates.
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 an
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..................... State Street Bank and Trust Company, a
Massachusetts trust company. 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").
DEAL INFORMATION/ANALYTICS... It is anticipated that certain Mortgage Loan
and Certificate information will be available
from the following services: Bloomberg, Intex,
Charter Research and The Trepp Group.
S-10
<PAGE>
MASTER SERVICER AND
SPECIAL SERVICER........... CRIIMI MAE Services Limited Partnership
("CMSLP"), a Maryland limited partnership. See
"Servicing of the Mortgage Loans--The Master
Servicer and the Special Servicer" herein.
MORTGAGE LOAN SELLER........ Citicorp Real Estate, Inc., a direct,
wholly-owned subsidiary of Citibank, N.A. and an
affiliate of the Sponsor. See "Description of the
Mortgage Pool--The Mortgage Loan Seller and the
Additional Warranting Party" herein.
ADDITIONAL WARRANTING
PARTY....................... Morgan Guaranty Trust Company of New York
("Morgan Guaranty"), an affiliate of J.P. Morgan
Securities Inc. See "Description of the Mortgage
Pool--The Mortgage Loan Seller and the Additional
Warranting Party" herein.
CUT-OFF DATE................ June 1, 1998.
DELIVERY DATE............... On or about June 29, 1998.
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 18th day of each month or, if any such 18th
day is not a business day, the next succeeding
business day, commencing in July 1998.
DETERMINATION DATE.......... The 11th day of each month or, if any such 11th
day is not a business day, the immediately
preceding business day, commencing in July 1998.
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: (i)
in the case of the Class X Certificates,
$1,000,000 initial notional amount and in any
whole dollar denomination in excess thereof; and
(ii) in the case of the other Offered
Certificates, $10,000 initial 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") represent-
S-11
<PAGE>
ing 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 147
multifamily and commercial mortgage loans (the
"Mortgage Loans"), with an aggregate Cut-off Date
Balance of $1,009,500,069 (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 Balances. 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. 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 range from
$522,384.03 to $182,091,683.35 and the average
Cut-off Date Balance is $6,867,347.41. There are
three Mortgage Loans (the "Large Mortgage
Loans") that, in each case, have a Cut-off Date
Balance in excess of $50,000,000. The Large
Mortgage Loans collectively represent 33.81% of
the Initial Pool Balance.
All of the Mortgage Loans were originated during
the twelve-month period preceding 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.
Five separate sets of Mortgage Loans (the
"Cross-Collateralized Mortgage Loans") are,
solely as among the Mortgage Loans in each such
particular set, cross-defaulted and
cross-collateralized with each other. Certain
sets of such Cross-Collateralized Mortgage Loans
provide for one or more of the related Mortgaged
Properties to be released upon the fulfilment of
certain conditions, including (i) the
satisfaction of a debt service coverage and
loan-to-value test or (ii) the payment by the
related borrower of a release price equal to a
specified percentage (generally between 100% and
125%) of the loan amount allocated to the
Mortgaged Property to be released. In addition,
one set of 11 Cross-Collateralized Mortgage
Loans, represent-
S-12
<PAGE>
ing 2.86% of the Initial Pool Balance, also
permits two Mortgaged Properties to be released
from the liens securing such Mortgage Loans upon
the sale of such properties and prepayment of
the related Mortgage Notes. The largest set of
related Cross-Collateralized Mortgage Loans
represents 2.86% of the Initial Pool Balance.
See "Description of the Mortgage Pool--General"
herein and Annex A hereto.
In addition to the Cross-Collateralized Mortgage
Loans, there are three other Mortgage Loans,
which represent 2.25% of the Initial Pool
Balance, that are, in each such case, secured by
a Mortgage or Mortgages encumbering two or more
properties. Accordingly, the total number of
Mortgage Loans reflected herein is 147, and the
total number of Mortgaged Properties reflected
herein is 150. Certain of such Mortgage Loans
permit one or more of the related Mortgaged
Properties to be released from the lien of the
related Mortgage upon the satisfaction of
certain conditions (except with respect to the
release of certain undeveloped sub-parcels or
parcels that are not material to the Appraised
Value of the Mortgaged Property set forth
herein), including (i) the satisfaction of
certain property performance tests (such as an
occupancy test) or (ii) the payment of a release
price equal to a specified percentage (generally
between 100% and 125%) of the loan amount
allocated to the Mortgaged Property to be
released.
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".
Set forth below are the number of Mortgaged
Properties, and the approximate percentage of
the Initial Pool Balance secured by such
Mortgaged Properties, located in the six states
with the highest concentrations:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
MORTGAGED INITIAL POOL
STATE PROPERTIES BALANCE
- ---------------------- ------------ --------------
<S> <C> <C>
New York ........... 4 19.15%
California ......... 18 11.59%
Minnesota .......... 3 11.11%
Georgia ............ 8 6.41%
Illinois ........... 7 6.30%
Texas .............. 11 5.33%
</TABLE>
The remaining Mortgaged Properties are located
throughout 30 other states and Puerto Rico, with
no more than 3.27% of the
S-13
<PAGE>
Initial Pool Balance secured by Mortgaged
Properties located in any such other
jurisdiction.
Set forth below are the number of Mortgaged
Properties, and the approximate percentage of
the Initial Pool Balance secured by such
Mortgaged Properties, operated for each
indicated purpose:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
MORTGAGED INITIAL POOL
PROPERTY TYPE PROPERTIES BALANCE(1)
- ---------------------------- ------------ --------------
<S> <C> <C>
Office ................... 29 34.35%
Multifamily(2) ........... 36 22.35%
Anchored Retail .......... 14 10.72%
Other Retail ............. 30 8.38%
Mixed Use(3) ............. 5 11.48%
Hotel .................... 17 7.44%
Industrial ............... 12 2.64%
Health Care .............. 4 2.12%
Mobile Home Park ......... 2 0.36%
Nursing Home ............. 1 0.15%
</TABLE>
----------
(1) The sum of the percentages in this column
may not equal 100% due to rounding.
(2) Includes at least five Mortgaged Properties
that are more than 50% occupied as student
housing; the related Mortgage Loans
represent less than 2% of the Initial Pool
Balance.
(3) Mixed use includes the Mortgaged Property
that secures the Minneapolis City Center
Loan. Such Mortgage Loan represents 10.70%
of the Initial Pool Balance.
Each of the Mortgage Loans provides for
scheduled payments of principal and/or interest
("Monthly Payments") to be due on the first day
of each month (as to each such Mortgage Loan,
the "Due Date"), except that the maturity date
for certain Mortgage Loans is the last day of a
month and, as described below, the
Hyper-Amortization Loans (as defined herein) may
require that certain additional amounts be paid
each month following their respective
Anticipated Repayment Dates (as defined 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,
except that, as described below, each Hyper-
Amortization Loan will accrue interest after its
respective Anticipated Repayment Date at a rate
that is no less than two percentage points in
excess of the related Mortgage Rate. As used
herein, the term "Mortgage Rate" does not
include the incremental increase in the rate at
which interest may accrue on any Mortgage Loan
due to a default or on any Hyper-Amortization
Loan after its Anticipated Repayment Date. No
Mortgage Loan permits negative amortization and
no Mortgage Loan permits deferral of accrued
interest (except for Excess Interest (as defined
herein) on the Hyper-Amortization Loans). See
"Description of the Mortgage Pool--Certain Terms
and Conditions of the Mortgage
Loans--Amortization of Principal" herein.
One hundred fourteen Mortgage Loans (the
"Actual/360 Mortgage Loans"), which represent
62.66% of the Initial Pool
S-14
<PAGE>
Balance, accrue interest on the basis of the
actual number of days elapsed in the relevant
month of accrual and a 360-day year (an
"Actual/360 Basis"). Thirty-three Mortgage
Loans, which represent 37.34% 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"). See "Description of the
Mortgage Pool--Certain Terms and Conditions of
the Mortgage Loans--Mortgage Rates; Calculations
of Interest" herein.
One hundred twenty-two of the Mortgage Loans
(the "Balloon Loans"), which represent 59.02% of
the Initial Pool Balance, provide for monthly
payments of principal based on amortization
schedules significantly longer than the
respective remaining terms thereof, 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. Two Mortgage
Loans, which represent 28.74% of the Initial
Pool Balance, are Hyper-Amortization Loans. The
remaining Mortgage Loans, which represent 12.24%
of the Initial Pool Balance, are fully
amortizing. See "Description of the Mortgage
Pool--Certain Terms and Conditions of the
Mortgage Loans--
Amortization of Principal" herein.
A "Hyper-Amortization Loan" is a Mortgage Loan
that provides that if it is not paid in full as
of a date specified in the related Mortgage Note
(the "Anticipated Repayment Date" or "ARD"),
then (i) interest will accrue thereon at a per
annum rate (the "Revised Rate") that is no less
than two percentage points in excess of the
related Mortgage Rate (the difference between
the Revised Rate and the Mortgage Rate being
herein referred to as the "Excess Interest
Rate") and (ii) the related borrower will be
required to make payments thereon each month in
an amount that is equal to the greater of the
Monthly Payment and certain net cash flow
generated by the related Mortgaged Property. If
the net cash flow referred to in clause (ii) of
the preceding sentence exceeds the Monthly
Payment, the excess would be applied to repay
principal of the particular Hyper-Amortization
Loan (such principal payments, "Hyper-
Amortization Payments"). Interest accrued on the
principal balance of any Hyper-Amortization Loan
at the Excess Interest Rate will be deferred
and, if and to the extent provided in the
related Mortgage Note and permitted by
applicable law, may itself accrue interest,
compounded monthly, at the Revised Rate (all
such interest accrued on the principal balance
of any Hyper-Amortization Loan at the Excess
Interest Rate, together with any compound
interest on such interest at the Revised Rate,
being herein referred to as "Excess Interest").
Excess Interest and Hyper-Amortization Payments
will be considered separate from the scheduled
Monthly Payments and will not be included in the
calculation of Assumed Monthly Payments (as
defined herein). If and to the extent collected,
Excess Interest will be included as part of the
applicable Available Distribution
S-15
<PAGE>
Amount (as defined herein). See "Description of
the Mortgage Pool--Certain Terms and Conditions
of the Mortgage Loans--Hyper-amortization"
herein.
In general, a Hyper-Amortization Loan will
permit the related borrower to prepay the
related Mortgage Loan without payment of a
Prepayment Premium (as defined herein) beginning
on a date coinciding with, or up to six months
prior to, the related Anticipated Repayment Date
and on any Due Date thereafter. The Anticipated
Repayment Date for any such Hyper-Amortization
Loan is set forth in Annex A.
In addition, certain Mortgage Loans provide for
reamortization of the unpaid principal balance
and adjustment of the Monthly Payments thereon
upon application of specified amounts of
insurance proceeds to the unpaid principal
balance of such Mortgage Loans following a
casualty loss.
Except with respect to four Mortgage Loans,
which represent 11.47% of the Initial Pool
Balance, as to which there is either no Lock-out
Period (as defined below) or no Open Period (as
defined below), all of the Mortgage Loans
provided as of origination for, sequentially,
(a) a period (a "Lock-out Period") during which
voluntary principal prepayments are prohibited,
followed by (b) a period (a "Prepayment Premium
Period") during which any voluntary principal
prepayment must be accompanied by a prepayment
premium, charge or fee (a "Prepayment Premium"),
followed by (c) a period (an "Open Period")
during which voluntary principal prepayments may
be made without an accompanying Prepayment
Premium. Voluntary principal prepayments may be
made after any applicable Lock-out Period in
full (or, in certain cases, in part), subject to
certain limitations and, during a Prepayment
Premium Period, subject to payment of the
applicable Prepayment Premium. The prepayment
terms of each of the Mortgage Loans are more
fully 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.
Four of the Mortgage Loans (the "Defeasance
Loans"), representing 24.53% of the Initial Pool
Balance, provide that, during specified periods,
subject to the satisfaction of certain
conditions, the related borrower may pledge to
the holder of the subject Mortgage Loan
"Defeasance Collateral" and thereupon obtain a
release of the Mortgaged Property from the lien
of the related mortgage. In general, "Defeasance
Collateral" is required to consist of direct,
non-callable United States Treasury obligations
that provide for payments prior, but as close as
possible, to all successive Due Dates (including
the scheduled maturity date), with each such
payment being equal to or greater than (with any
excess to be returned to the borrower) the
Monthly Payment (including, in the case of the
scheduled maturity date, any Balloon Payment),
due on such date. In the
S-16
<PAGE>
case of three of the Defeasance Loans,
representing 23.64% of the Initial Pool
Balance, such defeasance may not occur earlier
than the second anniversary of the Delivery
Date. In the case of the fourth such
Defeasance Loan, representing 0.89% of the
Initial Pool Balance, such defeasance may
occur at any time after the Delivery Date,
provided that, if such defeasance occurs prior
to the second anniversary of the Delivery
Date, such Mortgage Loan would no longer be a
permitted asset for a REMIC. Morgan Guaranty
has agreed to repurchase such fourth
Defeasance Loan at the Purchase Price (as
defined herein, and which does not include a
Prepayment Premium) if such defeasance occurs
prior to the second anniversary of the
Delivery Date. A separate REMIC election may
be made as to such fourth Defeasance Loan, in
which case a fourth Class of REMIC Residual
Certificates would be issued.
As of the Cut-off Date, the Mortgage Loans had
the following additional characteristics: (i)
Mortgage Rates ranging from 6.71% per annum to
9.02% per annum and a weighted average
Mortgage Rate of 7.26% per annum; (ii)
remaining terms to stated maturity or, in the
case of the Hyper-Amortization Loans, to the
Anticipated Repayment Date ranging from 79
months to 238 months and a weighted average
remaining term to stated maturity or the
Anticipated Repayment Date, as the case may
be, of 132.06 months; (iii) remaining
amortization terms ranging from 173 months to
360 months and a weighted average remaining
amortization term of 313.88 months; (iv)
Cut-off Date Loan-to-Value Ratios ranging from
32.79% to 90.41% and a weighted average
Cut-off Date Loan-to-Value Ratio of 72.02%;
(v) in the case of the Balloon Loans and the
Hyper-Amortization Loans, Maturity Date
Loan-to-Value Ratios ranging from 15.63% to
77.92% and a weighted average Maturity Date
Loan-to-Value Ratio of 50.83%; and (vi)
Underwritten Debt Service Coverage Ratios
ranging from 1.02x to 2.73x and a weighted
average Underwritten Debt Service Coverage
Ratio of 1.40x. "Cut-off Date Loan-to-Value
Ratio," "Maturity Date Loan-to-Value Ratio"
and "Underwritten Debt Service Coverage Ratio"
are each defined in Annex A hereto.
For more detailed statistical information
regarding the Mortgage Pool, see Annex A hereto.
THE LARGE MORTGAGE LOANS
A. The Hudson Street Loan... The "Hudson Street Loan" has a Cut-off Date
Balance of approximately $182,091,683 and is
evidenced by a Mortgage Note (the "Hudson Street
Note") issued by TST 375 Hudson, L.L.C. (the
"Hudson Street Borrower"), a Delaware limited
liability company controlled by Tishman
Speyer/Travelers Real Estate Venture, L.P. The
Hudson Street Note represents the refinancing of
the approximate outstanding amount ($183,467,342
outstanding at payout) under a loan with an
original amount of $200,000,000 held by, and
later largely syndicated by, the Mortgage Loan
Seller, which loan had been made by the Mortgage
Loan Seller to Tishman Speyer Hudson
S-17
<PAGE>
Limited Partnership, the Hudson Street
Borrower's predecessor in interest. The Hudson
Street Loan is secured by a Mortgage (the
"Hudson Street Mortgage") creating a first
priority mortgage lien on the Hudson Street
Borrower's leasehold interest in an office
building located at 375 Hudson Street, New York,
New York (the "Hudson Street Property"). The
Hudson Street Property is managed by Tishman
Speyer Properties, L.P., which is related to the
Hudson Street Borrower.
The Hudson Street Property is improved by an
18-story office building located in New York,
New York, containing approximately 973,435
rentable square feet, including approximately
60,893 square feet of retail and basement space,
and an on-site 100-space parking garage.
Significant tenants in the Hudson Street
Property include Saatchi & Saatchi, NA
(occupying approximately 79% of the net rentable
space), Penguin Putnam Inc., West Publishing
Company and RC Dolner. An appraisal dated
February 12, 1998, determined a value for the
Hudson Street Property of approximately
$237,000,000, resulting in a Cut-off Date
Loan-to-Value Ratio of approximately 77%. The
Underwritten Debt Service Coverage Ratio for the
Hudson Street Loan, based on the Underwritten
NCF (as defined in Annex A) for the Hudson
Street Property, is approximately 1.35x.
The Mortgage Rate for the Hudson Street Loan is
fixed at 7.03%, and such Mortgage Loan has a
final maturity date of February 1, 2013. Until
February 1, 2003, the Hudson Street Loan
requires equal monthly payments of principal and
interest of approximately $1,296,910 (based on a
25-year amortization schedule and the specified
Mortgage Rate), and commencing on March 1, 2003
and until maturity, the Hudson Street Loan
requires equal monthly payments of principal and
interest of approximately $1,539,742 (based on a
17-year amortization schedule, its original
principal balance and the specified Mortgage
Rate).
The Hudson Street Loan is a Hyper-Amortization
Loan. From and after February 1, 2008 (its
Anticipated Repayment Date), the Hudson Street
Loan will accrue Excess Interest at a rate of 2%
per annum (its Excess Interest Rate), and
certain excess cash flow from the Hudson Street
Property will be applied to pay down the
outstanding principal balance of the Hudson
Street Loan. From and after the related
Anticipated Repayment Date, such accrued Excess
Interest will be deferred and added to the
outstanding indebtedness under the Hudson Street
Loan and will itself earn interest at the
Revised Rate. Prepayment of the Hudson Street
Loan is prohibited at any time prior to August
1, 2007. After August 1, 2007, prepayment is
permitted in whole only, and after February 1,
2008, prepayment is permitted in whole or in
part, in any event without the payment of a
Prepayment Premium. The Hudson Street Loan is a
S-18
<PAGE>
Defeasance Loan which may be defeased from and
after February 1, 2002 through and until
February 1, 2007. See "Description of the
Mortgage Pool--The Hudson Street Loan" herein.
B. The Minneapolis City Center
Loan.................. The "Minneapolis City Center Loan" has a
Cut-off Date Balance of approximately
$108,000,000 and is evidenced by a Mortgage Note
in the original principal amount of $108,000,000
(the "Minneapolis City Center Note") issued by
MCC Mortgage LP (the "Minneapolis City Center
Borrower"), a Delaware limited partnership
controlled by Brookfield Properties Corporation
("Brookfield Properties"), which is a public
company with approximately Cdn. $9.145 billion in
assets. The Minneapolis City Center Loan is
secured by a Mortgage (the "Minneapolis City
Center Mortgage") creating a first priority
mortgage lien on the fee interest of City Center
Associates Limited Partnership ("CCALP" or the
"Minneapolis City Center Mortgagor") in
Minneapolis City Center, an office/retail/
garage/hotel property located in Minneapolis,
Minnesota (the "Minneapolis City Center
Property"). The Minneapolis City Center Borrower
holds a purchase money wrap mortgage (the "Wrap
Mortgage") in the amount of approximately
$544,000,000 as of December 31, 1997 with CCALP
as the mortgagor (the "Wrap Mortgagor") and, as
described herein, has an option to purchase the
Minneapolis City Center Property at a future
date. The Wrap Mortgage and certain other rights
of the Minneapolis City Center Borrower
(including the above-referenced purchase option
on the Minneapolis City Center Property) are
subordinated to the Minneapolis City Center
Mortgage under the terms of a subordination
agreement. Brookfield Management Services, LLC,
an affiliate of the Minneapolis City Center
Borrower, is the property manager for the
Minneapolis City Center Property under a
long-term management contract.
The Minneapolis City Center Property is improved
by a 51-story, 1,582,000 square-foot building
located in Minneapolis, Minnesota. The
Minneapolis City Center Property includes
1,081,000 square feet of office space which is
99% occupied, 370,000 square feet of retail
space which is 92% occupied (including a master
lease of former Montgomery Ward space guaranteed
by Brookfield Properties), 131,000 square feet
of storage space which is 100% occupied, a
602-room Marriott Hotel constructed on land
leased from Minneapolis City Center, and a
687-car, six-level, parking garage. The
Minneapolis City Center Property is
approximately 97% occupied by a variety of (i)
office tenants (including Target (Dayton-Hudson
Stores), International Multifoods, Gray, Plant &
Mooty, and Meagher Greer) and (ii) retail
tenants (including Brookfield ARC Inc.,
Marshall's, The Limited Group, Sam Goody,
Footlocker, McDonald's, Taco Bell and the Body
Shop). An appraisal dated August 1, 1997
determined a value for the Minneapolis City
Center Property of approximately $200,000,000,
resulting in a
S-19
<PAGE>
Cut-off Date Loan-to-Value Ratio of
approximately 54%. The Underwritten Debt Service
Coverage Ratio for the Minneapolis City Center
Loan, based on the Underwritten NCF for the
Minneapolis City Center Property, is
approximately 1.85x.
The Mortgage Rate for the Minneapolis City
Center Loan is fixed at 6.72% per annum, and
such Mortgage Loan has a final maturity date of
May 31, 2028. The Minneapolis City Center Loan
requires equal monthly payments of principal and
interest (based on a 30-year amortization
schedule and the initial Mortgage Rate).
The Minneapolis City Center Loan is a
Hyper-Amortization Loan. From and after May 31,
2008 (its Anticipated Repayment Date), the
Minneapolis City Center Loan will accrue Excess
Interest at a rate of at least 2% per annum (its
Excess Interest Rate), and certain excess cash
flow from the Minneapolis City Center Property
will be applied to pay down the outstanding
principal balance of the Minneapolis City Center
Loan. From and after the related Anticipated
Repayment Date, such accrued Excess Interest
will be deferred and added to the outstanding
principal balance of the Minneapolis City Center
Loan and will itself earn interest at the
Revised Rate. Voluntary prepayment of the entire
Minneapolis City Center Loan may be made at any
time, provided that, from the first Due Date
through the date that is six months prior to the
related Anticipated Repayment Date, any
voluntary prepayment of the Minneapolis City
Center Loan is required to be accompanied by a
Prepayment Premium in an amount equal to the
greater of (a) either 5% (in the case of
prepayments made within the first four years of
the loan term) or 2% (in the case of prepayments
made within the period commencing on the
beginning of the fifth year of the loan term to
such date six months prior to the related
Anticipated Repayment Date) of then unpaid
principal amount of the Minneapolis City Center
Loan and (b) a yield maintenance payment. See
"Description of the Mortgage Pool--The
Minneapolis City Center Loan" herein.
C. The Wellpoint Loan...... The "Wellpoint Loan" has a Cut-off Date Balance
of approximately $51,200,000 and is evidenced by
a Mortgage Note in the original principal amount
of $51,200,000 (the "Wellpoint Note") issued by
TA/Warner Center Associates II, L.P., (the
"Wellpoint Borrower"), a California limited
partnership controlled by two individuals and
Apollo Real Estate & Investment Fund, LP. The
Wellpoint Loan is secured by a Mortgage (the
"Wellpoint Mortgage") creating a first priority
mortgage lien on the Wellpoint Borrower's fee
interest in a 6.28 acre site in Los Angeles,
California (the "Wellpoint Property"). LaSalle
Partners is the property manager for the
Wellpoint Property.
The Wellpoint Property consists of a 6.28 acre
site located in Woodland Hills, Los Angeles
County, California and improved by an office
complex with a total of 427,100 net rentable
square
S-20
<PAGE>
feet. The Wellpoint Property is 100% leased to
Wellpoint Health Networks, Inc. pursuant to a
triple net lease. An appraisal dated March 13,
1997 determined a value for the Wellpoint
Property of approximately $67,000,000, resulting
in a Cut-off Date Loan-to-Value Ratio of
approximately 76.42%. The Underwritten Debt
Service Coverage Ratio for the Wellpoint Loan,
based on the Underwritten NCF for the Wellpoint
Property, is approximately 1.05x.
The Mortgage Rate for the Wellpoint Loan is
fixed at 7.86% per annum, and such Mortgage Loan
has a final maturity date of December 1, 2015.
The Wellpoint Loan requires interest only
payments from July 1997 to December 1998, and
thereafter varying equal monthly payments based
on a 35-year amortization schedule (in 1999), a
30-year amortization schedule (in 2000), a
21-year amortization schedule (in 2001), a
17-year amortization schedule (in 2002), a
15-year amortization schedule (in 2003) and a
12-year amortization schedule (from 2004 through
the related maturity date).
Voluntary prepayment of the Wellpoint Loan is
prohibited at any time prior to July 1, 2004.
Thereafter, the Wellpoint Loan may be prepaid in
full, provided that any such prepayment must be
accompanied by a Prepayment Premium. The
Wellpoint Loan is a Defeasance Loan that may be
defeased during years five to seven of the loan
term. See "Description of the Mortgage Pool--The
Wellpoint Loan" herein.
DELIVERY OF THE
MORTGAGE LOANS.............. One hundred thirty-three of the Mortgage Loans
(the "Citi Mortgage Loans"), which represent
86.50% of the Initial Pool Balance, were
originated by or on behalf of one or more
affiliates of the Mortgage Loan Seller, a
commonly controlled affiliate of the Sponsor,
pursuant to its conduit program, and are
currently held by the Mortgage Loan Seller or by
one or more of its affiliates. The remaining 26
Mortgage Loans (the "Morgan Mortgage Loans"),
which represent 13.50% of the Initial Pool
Balance, were originated by or on behalf of
Morgan Guaranty. On or before the Delivery Date,
the Mortgage Loan Seller will acquire the Morgan
Mortgage Loans from Morgan Guaranty. In addition,
on or before the Delivery Date, 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 and warranties
regarding the characteristics of the Citi
Mortgage Loans, and Morgan Guaranty will make
certain representations and warranties regarding
the characteristics of the Morgan Mortgage Loans.
As more particularly described herein, the
Mortgage Loan Seller will be obligated (a) to
cure any material breach of any such
representation or warranty made by it with
respect to the Citi Mortgage Loans or (b) to
repurchase the affected Citi Mortgage Loan; and
Morgan Guaranty will be obligated (x) to cure any
material breach of any such represen-
S-21
<PAGE>
tation or warranty made by it with respect to
the Morgan Mortgage Loans or (y) to repurchase
the affected Morgan Mortgage Loan.
The Mortgage Loans are being sold without
recourse, and neither the Mortgage Loan Seller
nor Morgan Guaranty 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
replace 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.
SERVICING AND ADMINISTRATION
OF THE MORTGAGE LOANS...... The Mortgage Loans will be serviced and
administered by CMSLP, both as Master Servicer
and, if circumstances require, 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 it as Master
Servicer (including Master Servicing Fees) and
Special Servicer (including Special Servicing
Fees, Liquidation 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 June 1, 1998 (the "Pooling Agreement"), among
the Sponsor, the Master Servicer, the Special
Servicer, the Trustee, the REMIC Administrator,
the Mortgage Loan Seller, and Morgan Guaranty as
additional warranting party, and will represent
in the aggregate the entire beneficial ownership
interest in a trust (the "Trust"), the assets of
which (such assets collectively, the "Trust
Fund") will consist primarily of the Mortgage
Pool.
A. Certificate Balances
and Notional Amount... Upon initial issuance, each Class of Offered
Certificates will have the Certificate Balance or
Notional Amount 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, Class H, Class J,
Class K and Class L Certificates will have an
aggregate Certificate Balance equal to the excess
of the Initial Pool Balance over the aggregate
Certificate Balance of the Class A, Class B,
Class C, Class D and Class E Certificates.
The "Certificate Balance" of any Class of
Sequential Pay Certificates outstanding at any
time will be the then-aggregate
S-22
<PAGE>
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") 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 all the Classes of
Sequential Pay Certificates outstanding from
time to time. The Notional Amount of the Class X
Certificates is used solely for the purpose of
determining the amount of interest to be
distributed on such Class of Certificates and
does not represent the right to receive any
distributions of principal.
No Class of REMIC Residual Certificates will
have a Certificate Balance or a Notional Amount
or be entitled to any payment of principal or
interest.
A Class of Offered Certificates will be
considered outstanding until its Certificate
Balance or Notional Amount is reduced to zero;
provided, however, that, under very limited
circumstances, 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
Amount" and "--Distributions" herein.
B. Pass-Through Rates...... The Pass-Through Rate applicable to each Class
of Offered Certificates for the initial
Distribution Date is set forth on the cover page
hereof. The Pass-Through Rates for the Class A-1,
Class A-2, Class B and Class C Certificates for
each subsequent Distribution Date will, in the
case of each such Class, remain fixed at the per
annum rate set forth with respect thereto on the
cover page hereof; the Pass-Through Rate for the
Class D Certificates for each subsequent
Distribution Date will equal the lesser of (i)
the per annum rate set forth with respect thereto
on the cover page hereof and (ii) the Weighted
Average Net Mortgage Rate for such Distribution
Date (as defined herein); the Pass-Through Rate
for the Class E Certificates for each subsequent
Distribution will equal the Weighted Average Net
Mortgage Rate for such Distribution Date; and 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 Net Mortgage Rate
for such
S-23
<PAGE>
Distribution Date, over (ii) the weighted
average of the Pass-Through Rates applicable to
all the Classes of Sequential Pay Certificates
for such Distribution Date (weighted on the
basis of their respective Certificate Balances
immediately prior to such Distribution Date).
The Pass-Through Rates applicable to the Class
F, Class G and Class H Certificates for each
Distribution Date will, in the case of each such
Class, equal the Weighted Average Net Mortgage
Rate for such Distribution Date. The
Pass-Through Rates applicable to the Class J,
Class K and Class L Certificates for each
Distribution Date will, in the case of each such
Class, equal 6.00% per annum.
The "Weighted Average Net Mortgage Rate" for any
Distribution Date will, in general, equal the
weighted average of the Net Mortgage Rates in
effect for all the Mortgage Loans as of the
commencement of the related Collection Period
(weighted on the basis of such Mortgage Loans'
respective "Stated Principal Balances" (as
defined herein) immediately following the
preceding Distribution Date or, in the case of
the initial Distribution Date, as of the Cut-off
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 aggregate of the
per annum rates applicable to the calculation of
the Master Servicing Fee and the Trustee Fee
(each as defined herein) with respect to such
Mortgage Loan (such monthly fees, collectively,
the "Administrative Fees"; and such aggregate
rate, the "Administrative Fee Rate"); provided
that, solely for purposes of calculating the
Weighted Average Net Mortgage Rate for any
Distribution Date, the following adjustments
will be made in calculating the Net Mortgage
Rate for certain Mortgage Loans: (i) if the
Mortgage Rate for the subject Mortgage Loan has
been modified or changed by the Special Servicer
as described under "Servicing of the Mortgage
Loans --Modifications, Waivers, Amendments and
Consents" herein or otherwise in connection with
a bankruptcy, insolvency or similar proceeding
involving the related borrower, or if the
subject Mortgage Loan is in default, such
modification, change and/or default will be
disregarded and the Net Mortgage Rate for such
Mortgage Loan will be calculated based upon the
Mortgage Rate in effect for such Mortgage Loan
as of the Delivery Date; and (ii) if the subject
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 (with limited exception) the
Net Mortgage Rate in effect for such Mortgage
Loan during each calendar month will, in
general, be deemed to be the annualized rate at
which interest would have to accrue in respect
of such Mortgage Loan on the basis of a 360-day
year consisting of twelve 30-day months in order
to produce the aggregate amount
S-24
<PAGE>
of interest actually accrued in respect of such
Mortgage Loan during such calendar month at the
related Mortgage Rate (net of the related
Administrative Fee Rate), adjusted as described
herein for any applicable Interest Reserve
Amounts (as defined herein). The calculation of
the Net Mortgage Rate for any Hyper-Amortization
Loan (and, accordingly, the calculation of the
Weighted Average Net Mortgage Rate for any
Distribution Date) will not be affected by the
step-up from the Mortgage Rate to the Revised
Rate on the Anticipated Repayment Date for such
Hyper-Amortization Loan. As of the Cut-off Date
(without regard to the adjustment to the basis
of accrual described in clause (ii) of the
proviso to the second preceding sentence), the
Net Mortgage Rates for the Mortgage Loans will
range from 6.65% per annum to 9.00% per annum,
with a weighted average Net Mortgage Rate of
7.18% 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 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, if any;
(2) to pay principal first to the holders of the
Class A-1 Certificates and second to the
holders of the Class A-2 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 (as
defined below) for such Distribution Date;
(3) to reimburse the holders of the Class A-1
and Class A-2 Certificates, up to an amount
equal to, and pro rata as between such
Classes in accordance with, the respective
amounts of Realized Losses and Additional
Trust Fund Expenses, if any, previously
allocated to such Classes of Certificates
and for which no reimbursement has
previously been paid; and
S-25
<PAGE>
(4) to make payments on the other Classes of
Certificates (collectively, the
"Subordinate Certificates") as contemplated
below;
provided that, on each Distribution Date as of
which the aggregate Certificate Balance of the
Subordinate Certificates is to be or has been
reduced to zero, and in any event on the final
Distribution Date in connection with a
termination of the Trust (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 so forth in
such manner with respect to, sequentially, the
Class D, Class E, Class F, Class G, Class H,
Class J, Class K and Class L Certificates, in
that order):
(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, if any;
(2) if the Certificate Balances of the Class A
Certificates and of 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 allocated to
such Class of 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, the
payments of principal to be made
S-26
<PAGE>
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
Pass-Through Rate in respect of such Class of
Certificates for such Distribution Date accrued
during the related Interest Accrual Period 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. The
"Interest Accrual Period" for the REMIC Regular
Certificates for any Distribution Date will be
the month preceding the month in which such
Distribution Date occurs. 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 (without duplication) of the
following:
(a) the principal portions of all Monthly
Payments (other than Balloon
Payments) and any Assumed Monthly
Payments (as defined below) 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 Mortgage 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)
made by or
S-27
<PAGE>
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
Monthly Payment (other than a Balloon
Payment) due, or the principal portion of
any Assumed Monthly 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, Insurance
Proceeds (each as defined in the
Prospectus) and, to the extent not
included in clause (a), (b) or (c)
above, payments and other amounts
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 (i) a recovery of the
principal portion of any Monthly
Payment (other than a Balloon
Payment) due, or the principal
portion of any Assumed Monthly
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 or (ii) the principal
portion of a Monthly Payment made by
the related borrower during the
related Collection Period that is due
subsequent to the end of such
Collection Period; 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.
For purposes of the foregoing, the "Monthly
Payment" due on any Mortgage Loan on any related
Due Date will reflect 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. "Monthly Payments" for
Hyper-Amortization Loans will not include Excess
Interest or Hyper-Amortization Payments.
An "Assumed Monthly Payment" is an amount deemed
due in respect of: (i) any Mortgage 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, including an
extension of maturity; or (ii) any Mortgage Loan
as to which the related Mortgaged Property has
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 Monthly Payment deemed due on any
such Mortgage Loan
S-28
<PAGE>
delinquent as to its Balloon Payment, for its
stated maturity date and for each successive Due
Date that it remains outstanding, will equal the
Monthly 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 its
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 Monthly Payment deemed due on any such
Mortgage Loan as to which the related Mortgaged
Property has become an REO Property, for each
Due Date that such REO Property remains part of
the Trust Fund, will equal the Monthly Payment
(or, in the case of a Mortgage Loan delinquent
in respect of its Balloon Payment as described
in the prior sentence, the Assumed Monthly
Payment) due on the last Due Date prior to the
acquisition of such REO Property. "Assumed
Monthly Payments" for Hyper-Amortization Loans
do not include Excess Interest or Hyper-
Amortization Payments.
The Principal Distribution Amount will in no
event include Excess Interest or Prepayment
Premiums.
D. Distribution of Prepayment
Premiums............. 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
to the holders of each Class of Offered
Certificates (other than the Class X
Certificates) in an amount up to the product of
(a) such Prepayment Premium, (b) the applicable
Discount Rate Fraction for such Class and such
Mortgage Loan and (c) the applicable Principal
Allocation Fraction for such Class and such
Distribution Date. The "Discount Rate Fraction"
for any Class of Offered Certificates (other than
the Class X Certificates) and any prepaid
Mortgage Loan is equal to a fraction (not greater
than 1.0 or less than 0.0), (a) the numerator of
which is equal to the excess, if any, of the
Pass-Through Rate for such Class of Certificates
over the relevant Discount Rate (as defined
herein), and (b) the denominator of which is
equal to the excess, if any, of the Mortgage Rate
of such Mortgage Loan over the relevant Discount
Rate. With respect to each Class of Offered
Certificates (other than the Class X
Certificates) for any Distribution Date, the
"Principal Allocation Fraction" is a fraction,
the numerator of which is the portion of
Principal Distribution Amount allocated to such
Class of Certificates for such Distribution Date,
and the denominator of which is the entire
Principal Distribution Amount for such
Distribution Date.
The portion of any Prepayment Premium remaining
after distribution of the amounts calculated as
described above to the holders of the Offered
Certificates (other than the Class X
S-29
<PAGE>
Certificates) will be distributed to the holders
of the Class X Certificates. After the
Distribution Date on which the Certificate
Balances of the other Classes of Offered
Certificates have been reduced to zero, any
Prepayment Premiums collected on the Mortgage
Loans will be distributable entirely 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 that have
been modified or 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 Monthly Payments
(other than Balloon Payments) and any Assumed
Monthly 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.
As more fully described herein, the Master
Servicer and the Trustee will each be entitled
to interest on any P&I Advances made, and the
Master Servicer, the Special Servicer and the
Trustee 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 "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: (i) at any time, out of Default
Interest (as defined herein) and late payment
charges collected on the related Mortgage Loan;
and (ii) if such P&I Advance or servicing
expense has been reimbursed, 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
S-30
<PAGE>
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 L, Class K,
Class J, 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
and Class A-2 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 will, in general, be the
result of Realized Losses incurred in respect of
the Mortgage Pool and/or Additional Trust Fund
Expenses. Accordingly, the foregoing reductions
in the Certificate Balances of the respective
Classes of the Sequential Pay Certificates will
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, Special Servicing Fees and
Trustee Fees generally be treated as having
remained outstanding until each such REO Property
is liquidated. Among other things, such Mortgage
Loan will be taken into account when determining
the Weighted Average Net Mortgage Rate and the
Principal Distribution Amount for each
Distribution Date. 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
and/or the Trustee, 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
and the Trustee 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.
S-31
<PAGE>
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-current Certificate Balance is at
least equal to 25% of the initial Certificate
Balance thereof. The Controlling Class will
initially be the Class L Certificates. In
addition, as more particularly described herein,
any holder or holders 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. It
is anticipated that an affiliate of CMSLP will
acquire certain of the Certificates, including
Private Certificates that will constitute all or
a part of the initial "Controlling Class". See
"Servicing of the Mortgage Loans--The Special
Servicer" and "--Sale of Defaulted Mortgage
Loans" herein.
OPTIONAL TERMINATION........ At its option, the holder or holders (other
than the Sponsor or the Mortgage Loan Seller) of
Certificates representing a majority interest in
the Controlling Class or the Master Servicer (in
that order of priority) may purchase all of the
Mortgage Loans and REO Properties, and thereby
effect a termination of the Trust 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.
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES............... For federal income tax purposes, three 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", "REMIC II" and "REMIC III",
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; and the assets of REMIC
III will consist of the separate uncertificated
"regular interests" in REMIC II. For federal
income tax purposes, (i) the Class R-I
Certificates will be the sole class of "residual
interests" in REMIC I, (ii) the Class R-II
Certificates will be the sole class of "residual
interests" in REMIC II, (iii) the REMIC Regular
Certificates will evidence the "regular
interests" in, and generally will be treated as
debt obligations of, REMIC III, and (iv) the
Class R-III Certificates will be the sole class
of "residual interests" in REMIC III. See
"Certain Federal Income Tax Consequences--
General" herein.
S-32
<PAGE>
For federal income tax reporting purposes, it is
anticipated that the Class A-1, Class A-2, Class
B, Class C, and Class D Certificates will not,
the Class E Certificates may, and the Class X
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 market
discount and premium, if any, for federal income
tax purposes will be that the Mortgage Loans
will not prepay prior to maturity (that is, a
CPR of 0%), except that the Hyper-Amortization
Loans will be repaid in full on their respective
Anticipated Repayment Dates. However, no
representation is made that the Mortgage Loans
will not prepay or that, if they do, they will
prepay at any particular rate.
If the method for computing original issue
discount described in the Prospectus results in
a negative amount for any period, a possibility
of particular relevance to the holders of the
Class X Certificates, a Certificateholder will
be permitted to offset such amount only against
the future original issue discount (if any) from
such Certificate. See "Certain Federal Income
Tax Consequences" herein and "Material Federal
Income Tax Consequences--REMICs--Taxation of
Owners of REMIC Regular Certificates--Original
Issue Discount" in the Prospectus.
Generally, except to the extent noted below, the
Offered Certificates will be treated as "real
estate assets" within the meaning of Section
856(c)(4)(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. 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. To the extent an
Offered Certificate represents ownership of an
interest in any Mortgage Loan that is secured in
part by the related borrower's interest in an
account containing any holdback of loan
proceeds, a portion of such Certificate may not
represent ownership of assets described in
Section 7701(a)(19)(C) of the Code and "real
estate assets" under Section 856(c)(4)(A) of the
Code and the interest thereon may not constitute
"interest on obligations secured by mortgages on
real property" within the meaning of Section
856(c)(3)(B) of the Code. However, if 95% or
more of the Mortgage Loans are treated as assets
described in the foregoing sections of the Code,
the Offered Certificates will be treated as such
assets in their entirety. The Offered
Certificates will be treated as "qualified
mortgages" for another REMIC under Section
860G(a)(3)(C) of the Code.
S-33
<PAGE>
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.
CERTAIN ERISA CONSIDERATIONS.. A fiduciary of any employee benefit plan or other
retirement arrangement subject to Title I of 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 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 J.P. Morgan Securities Inc. an
individual prohibited transaction exemption,
Prohibited Transaction Exemption 90-23
(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, transactions relating to the
purchase, sale and holding of certain
pass-through certificates underwritten by an
underwriting syndicate or selling group of which
Citibank, N.A., as an affiliate of Citicorp, or
J.P. Morgan Securities Inc., respectively, is a
manager or co-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 Senior 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 trustee or
other fiduciary of, or with assets of a Plan,
unless the purchase and continued 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 exemption provides an
exemption from the prohibited transaction rules
for certain transactions involving an insurance
company general account. See "Certain ERISA
Considerations" herein and "ERISA
Considerations" in the Prospectus.
RATINGS..................... It is a condition to their issuance that the
respective Classes of Offered Certificates
receive the credit ratings indicated below from
Moody's Investors, Inc. ("Moody's") and/or Fitch
IBCA, Inc. ("Fitch"; and, together with Moody's,
the "Rating Agencies"):
S-34
<PAGE>
<TABLE>
<CAPTION>
CLASS MOODY'S FITCH
- --------------------- --------- -------
<S> <C> <C>
Class A-1 ......... Aaa AAA
Class A-2 ......... Aaa AAA
Class X ........... Aaa AAA
Class B ........... Aa2 AA
Class C ........... A2 A
Class D ........... Baa2 BBB
Class E ........... NR* BBB-
</TABLE>
------------
* "NR" means not rated.
The ratings of the Offered Certificates address
the timely payment thereon of interest on each
Distribution Date and, except in the case of the
Class X Certificates, 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. In
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, (iii) whether and to what extent
Prepayment Premiums will be received on the
Mortgage Loans, or (iv) whether and to what
extent Excess Interest will be collected on the
Hyper-Amortization Loans. Also a security rating
does not represent any assessment of the yield
to maturity that investors may experience or the
possibility that the Class X Certificateholders
might not fully recover their investment 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 downgraded, 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 ("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, 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.
S-35
<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 or Notional Amount 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 the failure to pay interest
on, or a reduction of the Certificate Balance or Notional Amount 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 Class A, Class B and Class C
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.
The yield to maturity of the Class X Certificates will be highly sensitive
to the rate and timing of principal payments (including by reason of or as
affected by prepayments, hyper-amortization, loan extensions, defaults and
liquidations) and losses on the Mortgage Loans, and investors in the Class X
Certificates should fully consider the associated risks, including the risk
that an extremely rapid rate of amortization, prepayment or other liquidation
of the Mortgage Loans could result in the failure of such investors to recoup
fully their initial investments. Because the Notional Amount of the Class X
Certificates will equal the aggregate of the Certificate Balances of all the
Classes of Sequential Pay Certificates outstanding from time to time, any
payment of principal or loss on any Mortgage Loan that is applied in reduction
of the Certificate Balance of a Class of Sequential Pay Certificates will
reduce such Notional Amount.
In general, in the case of the Class X Certificates and any other Class of
Offered Certificates purchased at a premium, if principal payments on the
Mortgage Loans occur at a rate faster than anticipated at the time of purchase,
then the investors' actual yield to maturity may be lower than that assumed at
the time of purchase. Conversely, in the case of any Class of Offered
Certificates purchased at a discount, if principal payments on the Mortgage
Loans occur at a rate slower than anticipated at the
S-36
<PAGE>
time of purchase, then the investors' actual yield to maturity may be lower
than that assumed at the time of purchase. Prepayment Premiums, even if
available and distributable on the Offered Certificates, may not be sufficient
to offset fully any loss in yield on a particular Class of Offered Certificates
attributable to the related prepayments of the Mortgage Loans.
Potential Conflicts of Interest. As described herein, the Special Servicer
will have considerable latitude in determining whether to liquidate or modify
defaulted Mortgage Loans, subject to certain limitations. See "Servicing of the
Mortgage Loans--Modifications, Waivers, Amendments and Consents" herein.
Subject to the conditions described herein, including approval from the Rating
Agencies, 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 an affiliate of CMSLP (which will act as Master Servicer
and Special Servicer) will acquire certain of the Private Certificates,
including those constituting the initial "Controlling Class". Accordingly,
investors in the Offered Certificates should consider that, although CMSLP (in
its capacity as Master Servicer and 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 Loan Seller funded a $25,000,000 mezzanine loan to Brookfield
Commercial Properties, Inc., secured by its equity interest in the Minneapolis
City Center Borrower. The Mortgage Loan Seller later sold such mezzanine loan
to Trilon International, Inc. (an affiliate of Brookfield Properties
Corporation). Brookfield Properties Corporation owns a controlling interest in
the Minneapolis City Center Borrower. In addition, the Hudson Street Loan was a
refinancing of an earlier loan made, and eventually syndicated by, the Mortgage
Loan Seller.
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 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
(or, in the case of an owner occupied property, if the owner's business
declined). 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), and changes in laws (including the imposition of rent control or
stabilization laws in the case of multifamily rental properties, statutory and
regulatory changes, retroactive rate adjustments and government funding
restrictions, in the case of health care-related facilities, and changes in the
tax laws, in all cases). 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.
In the case of most Mortgage Loans, there will be existing leases on the
related Mortgaged Property that expire during the term of the Mortgage Loan and
there can be no assurance that such leases will be renewed or that the subject
space will be relet at no less than comparable rental rates. In addition, there
can be no guaranty that a commercial tenant will continue operations throughout
the term of its lease. The
S-37
<PAGE>
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 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.
Although no Mortgage Loan has an Underwritten Debt Service Coverage Ratio
below 1.0x, 25 Mortgage Loans, which in the aggregate represent 19.13% of the
Initial Pool Balance, had a 1996 Debt Service Coverage Ratio and/or a 1997 Debt
Service Coverage Ratio of below 1.0x. See "Annex A" hereto. In general, this
was a result of new construction or significant renovations at the related
Mortgaged Property, a substantial nonrecurring expense with respect to the
related Mortgaged Property or a lease-up period with respect to the the related
Mortgaged Property having occurred during the relevant one-year period. When
the debt service coverage ratio of a Mortgage Loan is below 1.0x, the revenue
derived from the use and operation of the related Mortgaged Property is
insufficient to cover the operating expenses of such Mortgaged Property and to
pay debt service on such Mortgage Loan. In such cases, the related Mortgagor
will be required to pay a portion of such items from sources other than cash
flow from the related Mortgaged Property. If the related Mortgagor ceases to
use such alternative cash sources at a time when operating revenue from the
related Mortgaged Property is still insufficient to cover such items, deferred
maintenance at the related Mortgaged Property and/or a default under the
subject Mortgage Loan may occur.
Lending on commercial properties, which represent security for 77.65% 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. In such cases,
additional risk may be presented by the type and use of a particular Mortgaged
Property. For instance, Mortgaged Properties that operate as nursing homes and
other health care-related facilities may present special risks to lenders due
to the significant governmental regulation of the ownership, operation,
maintenance and financing of health care institutions. Moreover, Mortgaged
Properties used for health care or industrial purposes are not readily
convertible to other uses if the operation of such property for its current
purpose proves not to be profitable. See also "--Risks Particular to Retail
Properties", "--Risks Particular to Office Properties" and "--Risks Particular
to Hospitality Properties" below.
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) or the business plan, as the case may be, 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 maintenance of improvements, sound property management can
improve occupancy rates/business and cash flow, reduce operating 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. There are
several groups of Mortgaged Properties that have the same or related
management. Without regard to the Large Mortgage Loans, no group of such
Mortgaged Properties with the same or related management represents security
for more than 5.0% of the Initial Pool Balance.
Balloon Payments and Hyper-Amortization Loans. One hundred twenty-two of
the Mortgage Loans, which represent 59.02% of the Initial Pool Balance, will
have substantial payments (that is, Balloon Payments) due at their respective
stated maturities, in each case unless the Mortgage Loan is previously prepaid.
In addition, two of the Mortgage Loans, which represent 28.74% of the Initial
Pool Balance, are
S-38
<PAGE>
Hyper-Amortization Loans which will have substantial scheduled principal
balances as of their respective Anticipated Repayment Dates, in each case
unless the Mortgage Loan is previously prepaid. Balloon Loans, representing
59.02% of the Initial Pool Balance, and Hyper-Amortization Loans, representing
28.74% of the Initial Pool Balance, will have Balloon Payments due or
Anticipated Repayment Dates scheduled, as the case may be, during the period
from and including February 2008 through and including May 2008. 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. Similarly, the ability of a borrower to repay a
Hyper-Amortization Loan on the related Anticipated Repayment Date will depend
on its ability to either refinance the Mortgage 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 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 limitation that the maturity date of the Mortgage
Loan may not be extended beyond a date that is two years prior to the Rated
Final Distribution Date and to the other limitations described under "Servicing
of the Mortgage Loans--Modifications, Waivers, Amendments and Consents"
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 Office Properties. Office properties may be adversely
affected if a significant tenant ceases operations at such properties (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). Ability to relet vacant office space may be
adversely affected by a general economic decline in the relevant geographic
area. In addition, there may be significant costs associated with tenant
improvements and concessions in connection with reletting office space.
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 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, a downturn in the financial condition of a significant
company or type of industry in the locale, 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. At least five Multifamily Mortgaged Properties (as
defined herein), representing security for 1.86% of the Initial Pool Balance,
are more than 50% occupied as student housing. Such properties may experience a
higher turnover of tenants.
Risks Particular to Retail Properties. In addition to risks generally
associated with income-producing real estate, retail properties 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
S-39
<PAGE>
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 also 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. 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 fails to renew or terminates its lease, becomes the subject of a
bankruptcy proceeding or 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. Whether a retail property is "anchored"
or "unanchored" by a large retail tenant is also an important distinction.
Retail properties that are anchored have traditionally been perceived to be
less risky. While there is no strict definition of an anchor, it is generally
understood that a retail anchor is proportionately large in size and is vital
in attracting customers to the retail property.
Risks Particular to Hospitality Properties. Various factors, including
location, seasonality, quality and franchise affiliation, affect the economic
viability of a hotel or motel. 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 and motel rooms are
generally rented for short periods of time, hotel and motel properties tend to
respond more quickly to adverse economic conditions and competition than do
other commercial properties. In addition, the franchise license may be owned by
an entity operating the hotel or motel and not the borrower or, if the
franchise license is owned by the borrower, the transferability of the related
franchise license agreement may be restricted and, in the event of a
foreclosure on a hotel or motel property, the lender may not have the right to
use the franchise license without the franchisor's consent. Furthermore, the
ability of a hotel or motel 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. One of the Mortgaged Properties, which
represents security for 0.35% of the Initial Pool Balance, is a golf club
facility, which includes a golf course, a "pro" shop and a restaurant, but does
not provide lodging facilities. Such types of property, which are for
recreational use, may be more readily susceptible to the adverse effects of an
economic downturn than other types of commercial properties.
Risks of Subordinate Financing. Not including the Wrap Mortgage with
respect to the Minneapolis City Center Property, seven Mortgaged Properties,
representing security for 4.09% of the Initial Pool Balance, are encumbered by
secured subordinated debt; however, either (i) the holders of the subordinate
debt have agreed not to foreclose for so long as the related Mortgage Loan is
outstanding and the Trust is not pursuing a foreclosure action or (ii) the
subordinate debt is payable only out of excess cash flow after payment of all
sums due on the related Mortgage Loan. Also, notwithstanding that the 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, a violation of such
prohibition may not become evident until the related Mortgage Loan otherwise
defaults. The existence of any such 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. In addition, owners of the borrowers under the
Mortgage Loans may incur mezzanine debt secured by their ownership interests in
S-40
<PAGE>
the related borrowers. Furthermore, certain of the Mortgage Loans (particularly
those secured by hospitality properties) permit, and certain borrowers under
the Mortgage Loans have incurred, additional indebtedness for, in general,
operating or similar purposes. Additional debt, in any form, may cause a
diversion of funds from property maintenance. The Sponsor has not been able to
confirm the existence of any other debt.
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,
Morgan Guaranty, any originator, the Underwriters, the Master Servicer, the
Special Servicer, the Trustee, 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 any Citi Mortgage Loans as to which its representations and
warranties concerning such Mortgage Loans are materially breached and cannot be
cured, and Morgan Guaranty will be obligated to repurchase any Morgan Mortgage
Loans as to which its representations and warranties concerning such Mortgage
Loans are materially breached and cannot be cured.
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 the Mortgaged Properties on
or after June 1, 1997. With respect to certain Mortgage Loans the related
Mortgaged Properties were also subject to a "Phase II" environmental
assessment. No such assessment or update revealed any material adverse
environmental condition or circumstance at any Mortgaged Property, except in
those cases where environmental insurance was obtained or where an operations
and maintenance plan (including, in several cases, in respect of
asbestos-containing materials, lead-based paint and/or radon), 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, however, that all environmental conditions and risks have been
identified in such environmental assessments or that all recommended operations
and maintenance plans have been or will continue to be implemented.
Certain federal, state and local laws, regulations and ordinances govern
the management, removal, encapsulation or disturbance of asbestos-containing
materials ("ACMs"). Such laws, as well as common law standards, may impose
liability for releases of or exposure to ACMs and may provide for third parties
to seek recovery from owners or operators of real properties for personal
injuries associated with such releases.
Recent federal legislation will in the future require owners of
residential housing constructed prior to 1978 to disclose to potential
residents or purchasers any known lead-based paint hazards and will impose
treble damages for any failure to so notify. In addition, the ingestion of
lead-based paint chips or dust particles by children can result in lead
poisoning, and the owner of a property where such circumstances exist may be
held liable for such injuries and for the costs of removal or encapsulation of
the lead-based paint. Testing for lead-based paint, asbestos-containing
materials or lead in the water was conducted with respect to certain of the
Mortgaged Properties, generally based on the age, use and/or condition thereof.
S-41
<PAGE>
The information contained herein concerning environmental conditions at
the Mortgaged Properties is based on the environmental assessments and has not
been independently verified by the Sponsor, the Mortgage Loan Seller, Morgan
Guaranty, the Underwriters, the Master Servicer, the Special Servicer, the
Trustee, 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 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 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. As described
under "Description of the Mortgage Pool--General" herein, the Mortgage Pool
includes five sets of Cross-Collateralized Mortgage Loans, each of which sets
represents between 0.41% and 2.86% of the Initial Pool Balance. In addition to
the Cross-Collateralized Mortgage Loans, there are three Mortgage Loans,
representing 2.25% of the Initial Pool Balance, that are secured by a Mortgage
or Mortgages on multiple Mortgaged Properties. 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 or any such
Mortgage Loan with multiple Mortgaged Properties to generate net operating
income sufficient to pay debt service will result in defaults and ultimate
losses. However, with respect to one such set of Cross-Collateralized Mortgage
Loans, the related Mortgaged Properties are 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, one or more of the related Mortgaged
Properties for certain sets of related Cross-Collateralized Mortgage Loans and
certain individual Mortgage Loans with multiple Mortgaged Properties may be
released from the lien of the applicable Mortgage under the circumstances and
upon the satisfaction of the conditions described herein under "Description of
the Mortgage Pool--Certain Terms and Conditions of the Mortgage Loans".
Certain related Cross-Collateralized Mortgage Loans have different
borrowers. Cross-collateralization arrangements involving more than one
borrower could be challenged as a fraudulent conveyance by creditors of a
borrower or by the representative of the bankruptcy estate of a borrower, if a
borrower were to become a debtor in a bankruptcy case. Accordingly, a lien
granted by a borrower to secure repayment of another borrower's Mortgage Loan
could be avoided if a court were to determine that (i) such borrower was
insolvent at the time of granting the lien, was rendered insolvent by the
granting of the lien, was left with inadequate capital, or was not able to pay
its debts as they matured and (ii) the borrower did not, when it allowed its
Mortgaged Property to be encumbered by a lien securing the entire indebtedness
represented by the other Mortgage Loan, receive fair consideration or
reasonably equivalent value for pledging such Mortgaged Property for the equal
benefit of the other borrower.
Related Parties. Certain groups of borrowers under the Mortgage Loans are
affiliated or under common control with one another. However, without regard to
the Large Mortgage Loans, no such group of affiliated borrowers are obligors on
Mortgage Loans representing more than 3.0% 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 addition,
there are several cases in which a particular entity is a tenant at multiple
Mortgaged Properties, and although it may not be a Major Tenant at any such
property, it may be significant to the success of such properties. 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
S-42
<PAGE>
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 addition, a number of
the borrowers under the Mortgage Loans 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.
Ownership of Other Properties. Not all the borrowers have been set up
solely to own and operate Mortgaged Properties, and their financial success may
be affected by the performance of other real estate owned thereby. Any such
borrower could defer maintenance on one or more Mortgaged Properties in order
to satisfy current expenses with respect to other of its properties, or
circumstances involving other of its properties could cause the borrower to
declare bankruptcy.
Owner-Occupied and Single-Tenant Properties. Fifteen Mortgage Loans,
representing 10.07% of the Initial Pool Balance, are secured by Mortgaged
Properties that are entirely owner-occupied or occupied by a single tenant. The
full and timely repayment of any such Mortgage Loan is heavily dependent on the
viability of such single occupant and its business.
Geographic Concentration. Four of the Mortgaged Properties, which
constitute security for 19.15% of the Initial Pool Balance, are located in New
York; 18 of the Mortgaged Properties, which constitute security for 11.59% of
the Initial Pool Balance, are located in California; and three of the Mortgaged
Properties, which constitute security for 11.11% of the Initial Pool Balance,
are located in Minnesota. In general, a concentration of Mortgaged Properties
in a particular state or region increases the exposure of the Mortgage Pool to
any adverse economic developments that may occur in such state or region,
conditions in the real estate market where the Mortgaged Properties securing
the related Mortgage Loans are located, changes in governmental rules and
fiscal policies, acts of nature, including floods, tornadoes and earthquakes
(which may result in uninsured losses), and other factors which are beyond the
control of the borrowers.
Other Concentrations. Each of certain individual Mortgage Loans and groups
of Cross-Collateralized Mortgage Loans has a Cut-off Date Balance that is
higher than the average Cut-off Date Balance. The largest single Mortgage Loan
has a Cut-off Date Balance that represents approximately 18.04% of the Initial
Pool Balance, the three largest Mortgage Loans have Cut-off Date Balances that
represent in the aggregate approximately 33.81% of the Initial Pool Balance,
and the ten largest individual Mortgage Loans, or groups of
Cross-Collateralized Mortgage Loans, have Cut-off Date Balances that represent
in the aggregate approximately 50.68% of the Initial Pool Balance. In general,
concentrations in a pool of mortgage 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 and geographic location. Because
principal on the Sequential Pay Certificates is payable in sequential order,
the Classes thereof that have a lower or later 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.
S-43
<PAGE>
Prepayment Premiums. With limited exception, all of the Mortgage Loans
require, for a specified period following the end of the related Lock-out
Period (or, in four cases, the related date of origination), that any voluntary
principal prepayment be accompanied by a Prepayment Premium. Prepayment
Premiums are generally calculated either as a percentage (which may decline
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. Any Prepayment Premiums actually collected on the Mortgage
Loans will be distributed among the respective Classes of the Offered
Certificates in the amounts and in accordance with the priorities described
herein under "Description of the Certificates--Distributions--Distributions of
Prepayment Premiums". 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,
that the Liquidation 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. In addition, the
Special Servicer may waive a Prepayment Premium in connection with obtaining a
pay-off of a defaulted Mortgage Loan. See "Servicing of the Mortgage
Loans--Modifications, Waivers, Amendments and Consents" herein and "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 Morgan Guaranty for a material
breach of representation or warranty on the part of the Mortgage Loan Seller or
Morgan Guaranty, as the case may be, 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 holder or holders of Certificates evidencing a majority
interest in the Controlling Class in connection with the termination of the
Trust or in connection with the purchase of defaulted Mortgage Loans by the
Master Servicer, Special Servicer or any holder or holders 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 Citi Mortgage Loans and by or on
behalf of Morgan Guaranty with respect to the Morgan Mortgage Loans, (iii)
unaudited operating statements for the Mortgaged Properties supplied by the
borrowers, (iv) appraisals for the Mortgaged Properties that generally were
performed at origination (which appraisals were used in presenting information
regarding the values of the Mortgaged Properties as of the Cut-off Date under
"Description of the Mortgage Pool" and under Annex A for illustrative purposes
only) and/or (v) information supplied by entities from which the Mortgage Loan
Seller or Morgan Guaranty, as the case may be, acquired, or which currently
service, certain of the Mortgage Loans. Also, several Mortgage Loans constitute
acquisition financing; and, accordingly, limited or no operating information is
available with respect to the related Mortgaged Property. Moreover, all of the
Mortgage Loans were originated during the 12-month period preceding the Cut-off
Date and, consequently, there are limited payment histories with respect to the
Mortgage Loans.
Litigation. There may be legal proceedings pending and, from time to time,
threatened against the borrowers and their affiliates relating to the business
of or arising out of the ordinary course of business of the borrowers and their
affiliates. There can be no assurance that such litigation will not have a
material adverse effect on the distributions to Certificateholders.
S-44
<PAGE>
Risk of Year 2000. The transition from the year 1999 to the year 2000 may
disrupt the ability of computerized systems to process information. If the
Master Servicer, the Special Servicer or the Trustee do not have by the year
2000 computerized systems which are year 2000 compliant, the ability of the
Master Servicer, the Special Servicer or the Trustee to service the Mortgage
Loans (in the case of the Master Servicer and the Special Servicer) and make
distributions to the Certificateholders (in the case of the Trustee) may be
materially and adversely affected.
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of 147 multifamily and commercial mortgage
loans (the "Mortgage Loans") with an aggregate Cut-off Date Balance of
$1,009,500,069 (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 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" will be June 1, 1998. 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.
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"). Each Mortgaged
Property is 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") (37
Mortgage Loans, representing 22.72% of the Initial Pool Balance), or (ii) a
retail shopping mall or center, an office building or complex, a hotel or
motel, a health care facility, an industrial building or a mixed use facility
(a "Commercial Mortgaged Property"; and any Mortgage Loan secured thereby, a
"Commercial Loan") (110 Mortgage Loans, representing 77.28% of the Initial Pool
Balance).
Five separate sets of Mortgage Loans (the "Cross-Collateralized Mortgage
Loans") are, solely as among the Mortgage Loans in each such particular set,
cross-defaulted and cross-collateralized with each other. The largest set of
related Cross-Collateralized Mortgage Loans represents 2.86% of the Initial
Pool Balance. 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. Except with respect to one such set of Cross-
Collateralized Mortgage Loans for which the related Mortgaged Properties are
located in two separate states, the Mortgaged Properties for each set of
Cross-Collateralized Mortgage Loans are located in the same state. 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.
Certain sets of the Cross-Collateralized Mortgage Loans provide for one or
more of the related Mortgaged Properties to be released upon the fulfilment of
certain conditions, including (i) the satisfaction of a debt service coverage
ratio and loan-to-value tests or (ii) the payment by the related borrower of a
release price equal to a specified percentage (generally between 100% and 125%)
of the allocated loan amount for the Mortgaged Property to be released. In
addition, one set of 11 Cross-Collateralized Mortgage Loans, representing 2.86%
of the Initial Pool Balance, also permits two Mortgaged Properties to be
released from the liens securing such Mortgage Loans upon the sale of such
properties and prepayment of the related Mortgage Notes.
In addition to the Cross-Collateralized Mortgage Loans, there are three
other Mortgage Loans, which represent 2.25% of the Initial Pool Balance, that
are, in each such case, secured by a Mortgage or
S-45
<PAGE>
Mortgages encumbering two or more properties. In each such case, the related
Mortgaged Properties are located in the same state. Accordingly, the total
number of Mortgage Loans reflected herein is 147, and the total number of
Mortgaged Properties reflected herein is 150. In the case of certain of such
Mortgage Loans, one or more of the related Mortgaged Properties may be released
from the lien of the related Mortgage upon the satisfaction of certain
conditions (except with respect to the release of certain undeveloped
sub-parcels or parcels that are not material to the Appraised Value of the
Mortgaged Property set forth herein), including (i) the satisfaction of certain
property performance tests (such as an occupancy test) or (ii) the payment of a
release price equal to a specified percentage (generally between 100% and 125%)
of the loan amount allocated to the Mortgaged Property to be released.
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 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.
Four of the Mortgaged Properties, which constitute security for 19.15% of
the Initial Pool Balance, are located in New York; eighteen of the Mortgaged
Properties, which constitute security for 11.59% of the Initial Pool Balance,
are located in California; three of the Mortgaged Properties, which constitute
security for 11.11% of the Initial Pool Balance, are located in Minnesota;
seven of the Mortgaged Properties, which constitute security for 6.30% of the
Initial Pool Balance, are located in Illinois; eight of the Mortgaged
Properties, which constitute security for 6.41% of the Initial Pool Balance,
are located in Georgia; and 11 of the Mortgaged Properties, which constitute
security for 5.33% of the Initial Pool Balance, are located in Texas. The
remaining Mortgaged Properties are located throughout 30 other states and
Puerto Rico, with no more than 3.27% of the Initial Pool Balance secured by
Mortgaged Properties located in any such other jurisdiction.
One hundred twenty-two of the Mortgage Loans (the "Citi Mortgage Loans"),
which represent 86.24% of the Initial Pool Balance, were originated by or on
behalf of one or more affiliates of Citicorp Real Estate, Inc. (the "Mortgage
Loan Seller"), a commonly controlled affiliate of the Sponsor, pursuant to its
conduit program, and are currently held by the Mortgage Loan Seller or by one
or more of its affiliates. The remaining 25 Mortgage Loans (the "Morgan
Mortgage Loans"), which represent 13.76% of the Initial Pool Balance, were
originated by or on behalf of Morgan Guaranty Trust Company of New York
("Morgan Guaranty"). On or before the Delivery Date, the Mortgage Loan Seller
will acquire the Morgan Mortgage Loans from Morgan Guaranty. In addition, 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
the Additional Warranting Party" and "--Assignment of the Mortgage Loans;
Repurchase" below.
CERTAIN TERMS AND CONDITIONS OF THE MORTGAGE LOANS
Due Dates. Each of the Mortgage Loans provides for scheduled payments of
principal and/or interest ("Monthly Payments") to be due on the first day of
each month (as to each such Mortgage Loan, the "Due Date"), except that the
maturity date for certain Mortgage Loans is the last day of a month and, as
described below, the Hyper-Amortization Loans (as defined herein) may require
that certain additional amounts be paid each month following their respective
Anticipated Repayment Dates.
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, except that, as described below, the
Hyper-Amortization Loans will accrue interest after their respective
Anticipated Repayment Dates at rates that are two percentage points (or, as
described herein with respect to the Minneapolis City Center Mortgage Loan, at
least two percentage points) in excess of their related
S-46
<PAGE>
Mortgage Rates prior to such Anticipated Repayment Dates. As used in this
Prospectus Supplement, the term "Mortgage Rate" does not include the
incremental increase in the rate at which interest may accrue on any Mortgage
Loan due to a default or on any such Hyper-Amortization Loan after its
Anticipated Repayment Date. As of the Cut-off Date, the Mortgage Rates of the
Mortgage Loans ranged from 6.71% per annum to 9.02% per annum, and the weighted
average Mortgage Rate of the Mortgage Loans was 7.26%. No Mortgage Loan permits
negative amortization, and no Mortgage Loan permits deferral of accrued
interest (except for the Hyper-Amortization Loans). One hundred fourteen
Mortgage Loans (the "Actual/360 Mortgage Loans"), which represent 62.66% of the
Initial Pool Balance, accrue interest on the basis of the actual number of days
elapsed in the relevant month of accrual and a 360-day year (an "Actual/360
Basis").
Hyper-amortization. Two of the Mortgage Loans (the "Hyper-Amortization
Loans"), which represent 28.74% of the Initial Pool Balance, provide for
changes in their payments and their accrual of interest if, in each such case,
the particular Mortgage Loan is not paid in full by a specified date (the
"Anticipated Repayment Date"). Each Hyper-Amortization Loan will bear interest
at its related Mortgage Rate until its Anticipated Repayment Date. Commencing
on the related Anticipated Repayment Date, if not paid in full by then, each
Hyper-Amortization Loan generally will bear interest at a fixed per annum rate
(the "Revised Rate") equal to the related Mortgage Rate plus two percentage
points (or, as described herein with respect to the Minneapolis City Center
Mortgage Loan, plus at least two percentage points). The interest accrued at
the excess of the Revised Rate over the Mortgage Rate (such difference in rate,
the "Excess Interest Rate") will be deferred until the principal of such
Mortgage Loan is paid in full and, if and to the extent provided in the related
Mortgage Note and permitted by applicable law, may itself accrue interest,
compounded monthly, at the Revised Rate (all such interest accrued on the
principal balance of any Hyper-Amortization Loan at the Excess Interest Rate,
together with any compound interest on such interest at the Revised Rate, being
herein referred to as "Excess Interest"). Non-payment of such Excess Interest
will not constitute a default under such Mortgage Loan prior to the related
maturity date. Also commencing on the related Anticipated Repayment Date, if
not paid in full by then, each Hyper-Amortization Loan provides that all
remaining monthly cash flow from the related Mortgaged Property, if any, after
paying the scheduled Monthly Payment and all permitted operating expenses and
capital expenditures, be applied to pay principal on the Mortgage Loan (such
payments of principal, "Hyper-Amortization Payments") until the Mortgage Loan
is paid in full. Excess Interest and Hyper-Amortization Payments will be
considered separate from the scheduled Monthly Payments and will not be
included in the calculation of Assumed Monthly Payments. As described below,
Hyper-Amortization Loans generally provide that the related borrower is
prohibited from prepaying the Mortgage Loan until a date coinciding with, or up
to six months prior to, the Anticipated Repayment Date; but, upon the
occurrence of such date, such borrower may prepay the loan, in whole or in
part, without payment of a Prepayment Premium. The Anticipated Repayment Date
for each Hyper-Amortization Loan is listed in Annex A.
Amortization of Principal. One hundred twenty-two of the Mortgage Loans,
which represent 59.02% of the Initial Pool Balance, provide for monthly
payments of principal based on amortization schedules significantly longer than
the respective remaining terms thereof, 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. Two Mortgage Loans, which represent 28.74% of the
Initial Pool Balance, are Hyper-Amortization Loans. The remaining Mortgage
Loans, which represent 12.24% of the Initial Pool Balance, are fully amortizing
loans.
The original term to stated maturity or, in the case of the
Hyper-Amortization Loans, to the Anticipated Repayment Date of each Mortgage
Loan was between 84 and 240 months. The original amortization schedules of the
Mortgage Loans ranged from 180 to 360 months. As of the Cut-off Date, the
remaining terms to stated maturity or, in the case of the Hyper-Amortization
Loans, to the respective Anticipated Repayment Dates of the Mortgage Loans will
range from 79 to 238 months, and the weighted average remaining term to stated
maturity or the Anticipated Repayment Date, as the case may be, of the Mortgage
Loans will be 132.06 months. As of the Cut-off Date, the remaining amortization
terms of the Mortgage Loans will range from 173 to 360 months, and the weighted
average remaining amortization term of the Mortgage Loans will be 313.88
months. See "Risk Factors--The Mortgage Loans--Balloon Payments" herein.
S-47
<PAGE>
In addition, certain Mortgage Loans provide for reamortization of the
unpaid principal balance and adjustment of the Monthly Payments thereon upon
application of specified amounts of insurance proceeds to the unpaid principal
balance of such Mortgage Loans following a casualty loss.
Prepayment Provisions. Except with respect to four Mortgage Loans, which
represent 11.47% of the Initial Pool Balance, as to which there is no Lock-out
Period (as defined below), the Mortgage Loans provided as of origination for,
sequentially, (a) a period (a "Lock-out Period") during which voluntary
principal prepayments are prohibited, followed by (b) a period (a "Prepayment
Premium Period") during which any voluntary principal prepayment be accompanied
by a premium, charge or fee (a "Prepayment Premium"), followed by (c) a period
(an "Open Period") during which voluntary principal prepayments may be made
without an accompanying Prepayment Premium. Voluntary principal prepayments may
be made after any applicable Lock-out Period in full (or, in certain cases, in
part), subject to certain limitations and, during a Prepayment Premium Period,
subject to payment of the applicable Prepayment Premium. As of the Cut-off
Date, with respect to the 143 Mortgage Loans that provide for Lock-out Periods,
the remaining Lock-out Periods ranged from six months to 117 months, with a
weighted average remaining Lock-out Period of 59.38 months. The Open Period for
most Mortgage Loans that provide for one begins four to eight months prior to
stated maturity or, in the case of a Hyper-Amortization Loan, prior to the
related Anticipated Repayment Date, except that there are 11 Mortgage Loans,
representing 9.35% of the Initial Pool Balance and excluding the
Hyper-Amortization Loans, as to which the Open Period begins more than eight
months (and, in nine such cases, begins more than two years) prior to stated
maturity. Prepayment Premiums on the Mortgage Loans are generally calculated
either 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) or as a percentage (which may decline over time) 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 Offered
Certificates 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.
Four of the Mortgage Loans (the "Defeasance Loans"), representing 24.53%
of the Initial Pool Balance, provide that, during specified periods, subject to
the satisfaction of certain conditions, the related borrower may pledge to the
holder of the subject Mortgage Loan "Defeasance Collateral" and thereupon
obtain a release of the Mortgaged Property from the lien of the related
Mortgage, provided that, the borrower (a) pays on any Due Date (the "Release
Date") (i) all interest accrued and unpaid on the Mortgage Note to and
including the Release Date; (ii) all other sums, excluding scheduled interest
or principal payments, due under the Mortgage Loan; and (iii) any costs and
expenses incurred in connection with such releases, and (b) delivers a security
agreement granting the Trust a first priority security interest in the
Defeasance Collateral and an opinion of counsel to such effect. In general,
"Defeasance Collateral" is required to consist of direct, non-callable United
States Treasury obligations that provide payments prior, but as close as
possible, to all successive Due Dates (including the scheduled maturity date),
with each such payment being equal to or greater than (with any excess to be
returned to the borrower) the Monthly Payment (including, in the case of the
scheduled maturity date, any Balloon Payment) due on such date. In the case of
three of the Defeasance Loans, representing 23.64% of the Initial Pool Balance,
such defeasance may not occur earlier than the second anniversary of the
Delivery Date. In the case of the fourth such Defeasance Loan, representing
0.89% of the Initial Pool Balance, such defeasance may occur at any time after
the Delivery Date, provided that, if such defeasance occurs prior to the second
anniversary of the Delivery Date, such Mortgage Loan would no longer be a
permitted asset for a REMIC. Morgan Guaranty has agreed to repurchase such
fourth Defeasance Loan at the Purchase Price (as defined herein, and which does
not include a Prepayment Premium) if such defeasance occurs prior to the second
anniversary of the Delivery
S-48
<PAGE>
Date. A separate REMIC election may be made as to such fourth Defeasance Loan,
in which case a fourth Class of REMIC Residual Certificates would be issued.
"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 consent of the holder of the Mortgage. See
"--Additional Mortgage Loan Information--Subordinate Financing" herein. Certain
of the Mortgage Loans permit either (i) a one-time (or, in limited cases, more
than one) transfer of the related Mortgaged Property if certain specified
conditions are satisfied or if the transfer is to a borrower reasonably
acceptable to the lender, (ii) a transfer of the related Mortgaged Property to
a person that is related to the borrower or (iii) in limited circumstances, a
transfer of beneficial interests in the borrower. The Master Servicer or the
Special Servicer, as applicable, will be required to 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 may waive
any right it has, or grant any consent that it may otherwise withhold, under
any related "due-on-sale" or "due-on-encumbrance" clause unless: (i) the Master
Servicer or the Special Servicer, as the case may be, shall have received
written confirmation from each Rating Agency that such action would not result
in the qualification, downgrade or withdrawal of the rating then assigned by
such Rating Agency to any Class of Certificates, such confirmation to be
required in the case of any waiver of rights under a related "due-on-sale"
clause only if the then-outstanding principal balance of the subject Mortgage
Loan (together with the then-outstanding aggregate principal balance of all
other Mortgage Loans that are cross-collateralized therewith or have been made
to the same borrower or borrowers that are, to the actual knowledge of the
Master Servicer or the Special Servicer, as the case may be, affiliated with
the related borrower) exceeds a specified amount; and (ii) the Master Servicer
or the Special Servicer, as the case may be, shall have provided, a specified
number of business days prior to the granting of such waiver or consent, to any
single holder of a majority interest in the Controlling Class and, in the case
of the Master Servicer, to the Special Servicer, written notice of the matter
and a written explanation of the surrounding circumstances and, upon request
made within a specified period, shall have discussed the matter with such
holder or, in the case of the Master Servicer, with the Special Servicer. 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 since origination, 30 days or more delinquent in respect of any Monthly
Payment. All of the Mortgage Loans were originated during the twelve-month
period prior to the Cut-off Date.
Tenant Matters. Fifteen Mortgage Loans secured by Commercial Mortgaged
Properties, which represent 10.07% of the Initial Pool Balance, are wholly
owner-occupied or occupied by single tenants; and 64 Mortgage Loans secured by
Commercial Mortgaged Properties, which represent 56.03% of the Initial Pool
Balance, are leased in large part to one or more Major Tenants. Three companies
are Major Tenants with respect to more than one Mortgaged Property, with the
related groups of Mortgage Loans representing 3.24%, 0.34% and 0.28%,
respectively, of the Initial Pool Balance. In addition, there are several cases
in which a particular entity is a tenant at multiple Mortgaged Properties, and
although it may not be a Major Tenant at any such property, it may be
significant to the success of such properties. "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.
S-49
<PAGE>
Certain of the Multifamily Mortgaged Properties have material
concentrations of student tenants.
Ground Leases. Five of the Mortgage Loans, which represent 19.71% of the
Initial Pool Balance, are, in each such case, secured solely by a Mortgage on
the applicable borrower's leasehold interest in the related Mortgaged Property.
In the case of each such Mortgage Loan, the related ground lease expires more
than 10 years after the stated maturity of the loan. In each case, either (i)
the ground lessor has subordinated its interest in the related Mortgaged
Property to the interest of the holder of the related Mortgage Loan or (ii) the
ground lessor has agreed to give the holder of the Mortgage Loan notice of, and
has granted such holder the right to cure, any default or breach by the lessee.
See "Certain Legal Aspects of Mortgage Loans--Foreclosure--Leasehold Risks" in
the Prospectus.
Subordinate Financing. Not including the Wrap Mortgage with respect to the
Minneapolis City Center Property, seven Mortgaged Properties, representing
security for 12 Mortgage Loans representing 4.09% of the Initial Pool Balance,
are encumbered by secured subordinated debt; however, either (i) the holders of
the subordinated debt have agreed not to foreclose for so long as the related
Mortgage Loan is outstanding and the Trust is not pursuing a foreclosure action
or (ii) the subordinated debt is payable only out of excess cash flow after
payment of all sums due on the related Mortgage Loan. Also, notwithstanding
that the 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, a violation
of such prohibition may not become evident until the related Mortgage Loan
otherwise defaults. The existence of any such 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 "Certain Legal Aspects of Mortgage
Loans--Subordinate Financing" in the Prospectus. In addition, owners of the
borrowers under the Mortgage Loans may incur mezzanine debt secured by their
ownership interests in the related borrowers. Furthermore, certain of the
Mortgage Loans (in particular, Mortgage Loans secured by hospitality
properties) permit, and certain borrowers under the Mortgage Loans have
incurred, additional indebtedness (in some cases, in a substantial amount) for,
in general, operating or similar purposes. Additional debt, in any form, may
cause a diversion of funds from property maintenance. The Sponsor has not been
able to confirm the existence of any other debt.
Lender Borrower Relationships. The Sponsor, the Mortgage Loan Seller,
Morgan Guaranty and their respective banking or finance affiliates may maintain
certain banking or other relationships with borrowers under the Mortgage Loans
or their affiliates, and proceeds of the Mortgage Loans may, in certain limited
cases, be used by such borrowers or their affiliates in whole or in part to pay
indebtedness owed to any such parties. The Mortgage Loan Seller funded a
$25,000,000 mezzanine loan to Brookfield Commercial Properties, Inc., secured
by its equity interest in the Minneapolis City Center Borrower. Such mezzanine
loan was later sold by the Mortgage Loan Seller to Trilon International, Inc.
(an affiliate of Brookfield Properties Corporation). Brookfield Properties
Corporation owns a controlling interest in the Minneapolis City Center
Borrower. The Hudson Street Loan was a refinancing of an earlier loan made, and
eventually syndicated by, the Mortgage Loan Seller.
CERTAIN UNDERWRITING MATTERS
Environmental Assessments. Each of the related 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 June 1, 1997. With respect
to certain Mortgage Loans, the related Mortgaged Properties were also subject
to a "Phase II" environmental assessment. No such assessment or update revealed
any material adverse environmental condition or circumstance at any Mortgaged
Property, except as set forth below, and further, except in those cases where
environmental insurance was obtained or where an operations and maintenance
plan (including, in several cases, in respect of asbestos-containing materials
("ACMs"), lead based paint and/or radon), 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
S-50
<PAGE>
Loan documents. There can be no assurance that the environmental assessments
identified all possible environmental conditions and risks at the Mortgaged
Properties or that recommended operations and maintenance plans have been or
will continue to be implemented. In many cases, certain potentially adverse
environmental conditions were not tested for. For example, lead based paint and
radon were tested for only at Multifamily Mortgaged Properties and only if, in
the case of lead based paint, the age of the Mortgaged Property warranted such
testing and, in the case of radon, radon is prevalent in the geographic area
where the Mortgaged Property is located. In addition, asbestos-containing
materials, lead-based paint and lead in water were generally tested for only at
Mortgaged Properties where the age and condition of such Mortgaged Properties
warranted such testing.
The information contained herein regarding environmental conditions at the
Mortgaged Properties is based on the environmental assessments and has not been
independently verified by the Sponsor, the Mortgage Loan Seller, Morgan
Guaranty, the Underwriters, the Master Servicer, the Special Servicer, the
Trustee, the REMIC Administrator, or any of their respective affiliates.
Property Condition Assessments. Inspections of the related Mortgaged
Properties 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; and, in the case of
certain Mortgaged Properties, such cost exceeded $100,000 (and, in one case,
exceeded $1,000,000). With limited exception, cash reserves (or, in some cases,
letters of credit or other non-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.
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 appraiser that is either a member of the Appraisal Institute
("MAI") or state-certified, in order 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 certain sets of related
Cross-Collateralized Mortgage Loans, the aggregate original principal balance
of such sets). Each such appraisal or property valuation 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, Morgan Guaranty, the
Underwriters, the Master Servicer, the Special Servicer, the Trustee, 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 Citi Mortgage Loans, and Morgan Guaranty, with respect to the
Morgan 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
S-51
<PAGE>
from government officials, representations by the related borrower contained in
the related Mortgage Loan documents or property condition assessments
undertaken by independent licensed engineers. Certain violations may exist, but
neither the Mortgage Loan Seller, with respect to the Citi Mortgage Loans, nor
Morgan Guaranty, with respect to the Morgan Mortgage Loans, considers them to
be material. In some cases, the use, operation and/or structure of the related
Mortgaged Property constitutes a permitted nonconforming use and/or structure
that may not be rebuilt to its current state in the event of a material
casualty event. With respect to such Mortgaged Properties, the Mortgage Loan
Seller, with respect to the Citi Mortgage Loans, and Morgan Guaranty, with
respect to the Morgan Mortgage Loans, have made one or more of the following
determinations to the effect that in the event of a material casualty affecting
the Mortgaged Property: (i) insurance proceeds would be available and
sufficient to pay off the related Mortgage Loan in full, (ii) the Mortgaged
Property, if permitted to be repaired or restored in conformity with current
law, would constitute adequate security for the related Mortgage Loan and/or
(iii) the risk that the entire Mortgaged Property would suffer a material
casualty to such a magnitude that it could not be rebuilt to its current state
is remote. If insurance proceeds are available for application to the related
Mortgage Loan in the event of a material casualty, no assurance can be given
that such proceeds would be sufficient to pay off such Mortgage Loan in full.
In addition, if the Mortgaged Property were to be repaired or restored in
conformity with current law, no assurance can be given as to what its value
would be relative to the remaining balance of the related Mortgage Loan or what
would be the revenue-producing potential of the property.
Hazard, Liability and Other Insurance. The Mortgages generally 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, that the related hazard insurance policy contain
appropriate endorsements to avoid the application of co-insurance and 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 required to be 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, 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.
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 a Mortgage encumbering a mobile home park
property) generally further requires the related borrower to maintain business
interruption or rent loss insurance in an amount not less than 100% of the
projected rental income or revenue from the related Mortgaged Property for not
less than six months.
In general, except for the Wellpoint Property (as and to the extent
described herein), the Mortgaged Properties (including those located in
California) are not insured against earthquake risks. With respect to some
Mortgaged Properties located in California, the related originator conducted
seismic studies to assess the "probable maximum loss" for such Mortgaged
Properties.
S-52
<PAGE>
375 HUDSON STREET, NEW YORK, NEW YORK
LOAN INFORMATION
- -------------------------------------------------------------------------------
ORIGINAL PRINCIPAL
BALANCE: $183,000,000
CUT-OFF DATE BALANCE: $182,091,683
ORIGINATION DATE: January 30, 1998
INTEREST RATE: 7.03%
ANTICIPATED REPAYMENT DATE
("ARD"): February 1, 2008
MATURITY DATE: February 1, 2013
BORROWER/SPONSORING
ENTITY: TST 375 Hudson, L.L.C., a special-purpose entity
controlled by Tishman Speyer/
Travelers Real Estate Venture, L.P.
AMORTIZATION TERM: The Loan will amortize for the first five years
of its term on a monthly payment of $1,296,910,
calculated based on a 25-year schedule, and for
the remaining 10 years of its term, on a monthly
payment of $1,539,742, calculated based on a
seventeen year schedule and the original
principal balance of the Mortgage Loan.
ARD;
HYPERAMORTIZATION: From and after the ARD, the interest rate will
increase to 9.03%, with such increased interest
being added to the unpaid principal balance of
the Mortgage Loan, and certain excess cash flow
will be applied to pay down the outstanding
principal balance of the Mortgage Loan.
PREPAYMENT TERMS/
DEFEASANCE/RELEASE
PROVISIONS: Prepayment is permitted in whole only after
August 1, 2007, without payment of a penalty. No
prepayment is permitted prior to such date.
Defeasance is permitted from and after February
1, 2002 to February 1, 2007 by pledging U.S.
Government obligations.
UPFRONT RESERVES: $324,423 tax and insurance escrow.
ONGOING RESERVES: $1,000,000 annually, in monthly payments of
$83,333 for tenant improvements. Monthly payments
for insurance and property taxes.
COLLECTION ACCOUNT: Mortgagee will have exclusive control over
lock-box account from and after earlier of
default and February 1, 2007.
PROPERTY INFORMATION
- --------------------------------------------------------------------------------
SINGLE ASSET/PORTFOLIO: Single asset
PROPERTY TYPE: Office
OCCUPANCY: 100%
YEAR BUILT: 1987
THE COLLATERAL: 973,435 square feet of office and retail in an
18-story tower with two levels of parking.
RENTABLE SQUARE
FEET: Office: 912,542
Retail/Basement: 60,893
-------
Total: 973,435
SIGNIFICANT TENANTS:
<TABLE>
<CAPTION>
LEASE
TENANT NAME NRSF EXPIRATION
- ------------------------- --------- --------------
<S> <C> <C>
Saatchi
& Saatchi, NA 769,768 January 2013
Penguin Putnam Inc.* 146,433 February 2010
West Publishing** 47,945 October 2004
</TABLE>
PROPERTY MANAGEMENT: Tishman Speyer Properties, L.P.
1997 NET OPERATING
INCOME: $21,002,046
UNDERWRITTEN NCF: $21,016,439
APPRAISED VALUE: $237,000,000
APPRAISAL DATE: February 12, 1998
CUT-OFF DATE
LOAN-TO-VALUE RATIO: 77%
ANNUAL DEBT SERVICE: $15,562,923
UNDERWRITTEN
DSCR (1): 1.35x
LOAN/SQ. FT. AS OF
CUT-OFF DATE: $187
- -------------------
* Penguin Putnam Inc. is a wholly owned subsidiary of Pearson Plc. Pearson
Plc is rated A2 by Moody's and A by S&P.
** West Publishing Corporation is a wholly owned subsidiary of Thomson
Corporation. Thomson Corporation is rated A low by Dominion Bond Rating
Service.
(1) Based on Underwritten NCF.
S-53
<PAGE>
THE HUDSON STREET LOAN
The Loan. The "Hudson Street Loan" has a Cut-off Date Balance of
approximately $182,091,683, as evidenced by a Mortgage Note, in the original
principal amount of $183,000,000, (the "Hudson Street Note") issued by TST 375
Hudson, L.L.C. (the "Hudson Street Borrower"), a Delaware limited liability
company controlled by Tishman Speyer / Travelers Real Estate Venture, L.P. The
Hudson Street Note represents the refinancing of the approximate outstanding
amount ($183,467,342 outstanding at payout) under a loan with an original
amount of $200,000,000 held by, and later largely syndicated by, the Mortgage
Loan Seller, which loan had been made by the Mortgage Loan Seller to Tishman
Speyer Hudson Limited Partnership, the Hudson Street Borrower's predecessor in
interest. The Hudson Street Loan is secured by a Mortgage issued by the Hudson
Street Borrower creating a first priority mortgage lien on the Hudson Street
Borrower's leasehold interest in an office building located at 375 Hudson
Street, New York, New York (the "Hudson Street Property"). References in this
"--The Hudson Street Loan" section to "mortgagee" with respect to the Hudson
Street Loan mean the Mortgage Loan Seller with respect to the period prior to
the Delivery Date, and the Trustee (acting through the Master Servicer and/or
the Special Servicer) with respect to the period thereafter.
The Hudson Street Borrower. The operating agreement of the Hudson Street
Borrower provides that, as long as the Hudson Street Loan is outstanding, its
activities are limited to the acquisition, management and development of the
Hudson Street Property. The Hudson Street Borrower owns no material assets
other than its interest in the Hudson Street Property.
The Hudson Street Property. The Hudson Street Property is improved by a
973,435 square-foot office building located in New York, New York. The 18-story
multi-tenant office building was designed by Emery Roth, developed by Tishman
Speyer Properties, L.P. and completed in 1987. Floor sizes range from 30,000
square feet to 63,500 square feet, with structural setbacks at the 11th, 15th
and 18th floors. The building has a precast concrete exterior with glazed and
insulated windows. A two-level garage is located on the west side of the
building. It has a licensed capacity of 100 parking spaces. The building is the
North American head office for Saatchi & Saatchi, a leading international
advertising agency, which leases approximately 79% of the building. This lease
is jointly and severally guaranteed by Saatchi & Saatchi Plc and Cordiant
Communications Group PLC. Other tenants include Penguin Putnam Inc., West
Publishing and RC Dolner. The Hudson Street Property also has 15,045 square
feet of retail space. An affiliate of Saatchi & Saatchi leases 14,045 square
feet of the space. The building is 100% leased.
Market Overview. The Hudson Street Property is located in the New York
City office market which consists of approximately 221 million square feet in
the midtown area and 107 million square feet in the downtown area. Vacancy
rates in both the midtown and downtown areas have fallen significantly from
their peaks in the early part of the decade. According to a third party March
1998 New York office report, overall vacancy rates at the end of the first
quarter of 1998 were 5.5% in the midtown area and 11.2% in the downtown area.
For buildings constructed after 1980, this report indicated that vacancy rates
were 2.3% in the midtown area and 7.4% in the downtown area.
Location/Access. The Hudson Street Property is located at 375 Hudson
Street and is situated on a 1.58-acre site bounded by West Houston Street, King
Street, Hudson Street and Greenwich Street. The building is located in the
Hudson Square area of the midtown south sub-market. The entrance to the Holland
Tunnel to New Jersey is three blocks to the south and West Street is two blocks
to the west. The site is accessible to public transportation as well. There are
several city bus routes on the surrounding streets and two subway lines within
a few blocks to the east.
Environmental Report. A "Phase I" environmental assessment was performed
by a third party due diligence firm in February, 1998. The "Phase I"
environmental assessment did not identify any material adverse environmental
conditions at the Hudson Street Property. Nevertheless, there can be no
assurance that all environmental conditions and risks were identified in such
environmental assessment.
Engineering Report. A property condition report dated February 6, 1998 was
prepared on the Hudson Street Property by a third party due diligence firm. The
property condition report concluded that the Hudson Street Property was well
maintained, in good condition, and identified $6,800 in deferred
maintenance/life safety/code/ADA requirements to be performed in the next 12
months.
Ground Lease. The Hudson Street Borrower is the owner of a ground
leasehold estate pursuant to an Indenture of Lease, dated November 1, 1982,
entered into between The Rector, Church-Wardens, and Vestrymen of Trinity
Church, in the City of New York, as lessor, and Tishman Speyer Crown Equities
(predecessor in interest to the Hudson Street Borrower), as lessee, as amended
(the "Hudson Street Ground Lease"). The initial lease term expires on October
31, 2050 and the Hudson Street Borrower has
S-54
<PAGE>
the option to renew the Hudson Street Ground Lease for an additional 31 years
through October 31, 2081. The rent payments under the Hudson Street Ground
Lease are subject to annual consumer price index adjustments. The ground rent
lease payments for 1997 were $1,070,454. The annual rent to be paid during
the option period will be the greater of (a) 10% of the value of the land
underlying the Hudson Street Property, as though unimproved, in the year 2050
and (b) the average of the previous five years' ground rent payments under the
Hudson Street Ground Lease.
Property Management. The Hudson Street Property is managed by Tishman
Speyer Properties, L.P. (the "Hudson Street Manager") pursuant to a management
and leasing agreement between the Hudson Street Borrower and the Hudson Street
Manager (the "Hudson Street Management Agreement"). The Hudson Street
Management Agreement provides for (i) a management fee equal to 2.5% of the
gross revenue and (ii) leasing commissions equal to the sum of various
percentages (applied on a decreasing scale based on the length of time the
applicable lease will be in effect) of the rents paid by tenants, the highest
of which is 5% (or, in any case where a commission is payable to a third-party
broker, 2.5%), which is applied to the rent for the first year of any lease
term and the lowest of which is 1% (or, in any case where a commission is
payable to a third-party broker, 0.5%), which is applied to the rent for the
21st and later years of any lease term. The Hudson Street Management Agreement
has a one year term and automatically renews thereafter for successive terms
unless terminated in accordance with its terms. Tishman Speyer Properties, L.P.
is related to the Hudson Street Borrower.
The Hudson Street Borrower is permitted to terminate the Hudson Street
Manager if the Hudson Street Manager materially breaches any of the material
terms of the Hudson Street Management Agreement and the Hudson Street Manager
fails to cure such material breach; if the Hudson Street Manager or any
principal thereof is found by a court of competent jurisdiction to have
intentionally misappropriated funds or committed fraud against the Hudson
Street Borrower or committed gross negligence; if the Hudson Street Manager
files for bankruptcy or if a petition in bankruptcy is filed against the Hudson
Street Manager and is not dismissed within a reasonable amount of time, or a
trustee or receiver is appointed for a substantial part of the Hudson Street
Manager's assets and is not vacated within a reasonable period of time; or the
Hudson Street Manager makes an assignment for the benefit of its creditors. The
Hudson Street Management Agreement will terminate automatically upon the
transfer of the Hudson Street Property to a person or entity not affiliated
with the Hudson Street Borrower and in the event of certain changes in control
of the Hudson Street Manager. The mortgagee under the Hudson Street Loan is
permitted to terminate the Hudson Street Manager if the Hudson Street Manager
becomes unable to pay its debts as they come due or upon the occurrence of a
Hudson Street Event of Default (as defined below).
Operating History. The following table presents information regarding the
financial performance of the Property:
<TABLE>
<CAPTION>
UNDERWRITTEN
1995 1996 1997 CASH FLOW
---------------- ---------------- ---------------- --------------------
<S> <C> <C> <C> <C>
Revenues ....................... $ 32,072,437 $ 32,093,172 $ 33,147,884 $ 35,092,990(1)
Expenses ....................... $ 10,901,025 $ 10,890,623 $ 12,145,838 $ 13,366,098(2)
Net Operating Income ........... $ 21,171,412 $ 21,202,549 $ 21,002,046 $ 21,726,892
Capital Expenditures ........... $ 0 $ 0 $ 0 $ 710,452(3)
Net Cash Flow .................. $ 21,171,412 $ 21,202,549 $ 21,002,046 $ 21,016,440
Occupancy ...................... 100% 100% 100%
Retail ......................... 100% 100% 100%
Office ......................... 100% 100% 100%
Weighted-Average ............... 100% 100% 100%
Cut-off Date Balance ........... $ 182,091,683
Appraised Value ................ $ 237,000,000
Cut-off Date LTV Ratio ......... 76.8%
Annual Debt Service ............ $ 15,562,923
Underwritten DSCR .............. 1.35x
</TABLE>
- ----------
(1) Revenues increase over 1997 due to a step up in the Saatchi & Saatchi, NA
rent starting 2/1/1998 and an increase in escalations reflecting the
increased real estate property tax. Revenue is net of a 5% vacancy
factor.
(2) Expenses are 1997 actuals except in the case of real estate property
taxes which were escalated based on the projected June 1998 required
payment, management fees which at 3% of "Potential Gross Income" are in
excess of 1997 actuals, the ground rent which was escalated 1.8% over the
1997 actual and "Administration" at $140,509 ($0.14/SF).
(3) Capital expenditures consist of $198,425 in leasing commissions, $366,012
in tenant allowance and $146,015 ($0.15/SF) in replacement reserves.
S-55
<PAGE>
UNDERWRITTEN NET CASH FLOW -- 375 HUDSON STREET
<TABLE>
<S> <C>
INCOME:
Base Rental Revenue .............................. $ 26,095,202
Expense Recoveries ............................... 10,366,995
Parking .......................................... 477,792
POTENTIAL GROSS INCOME ........................... 36,939,989
Vacancy .......................................... 1,846,999(1)
EFFECTIVE GROSS INCOME ........................... 35,092,990
EXPENSES:
Operating Expenses
Management Fees .................................. 1,052,790(2)
Contract Services ................................ 850,092
Repairs & Maintenance ............................ 734,193
Payroll .......................................... 1,359,465
Administration ................................... 140,509(3)
Utilities ........................................ 768,542
Fixed Expenses
Insurance ........................................ 122,018
Taxes ............................................ 7,248,422(4)
Ground Rent ...................................... 1,090,067(5)
--------------
TOTAL EXPENSES ................................... 13,366,098
NET OPERATING INCOME ............................. 21,726,892
TI's & LC's ...................................... 564,437(6)
Replacement Reserves ............................. 146,015(7)
UNDERWRITTEN NET CASH FLOW ....................... 21,016,440
Annual Debt Service .............................. 15,562,923
Underwritten Debt Service Coverage Ratio ......... 1.35x
Cut-off Date Loan-to-Value Ratio ................. 76.8%
Occupancy ........................................ 100%
</TABLE>
- ----------
(1) 5% of Potential Gross Income.
(2) 3% of Effective Gross Income.
(3) Administration is $0.14 psf.
(4) Projected June 1998 payment reflecting increase due to commencement of
Industrial and Commercial Incentive Program (ICIP) recapture.
(5) 1.8% escalation of 1997 actual ground lease payment.
(6) Commissions and tenant allowances on non-Saatchi & Saatchi, NA space.
(7) Replacement reserve is $0.15 psf.
S-56
<PAGE>
Significant Tenant Summary. The following table presents the significant
tenants occupying Hudson Street Property:
<TABLE>
<CAPTION>
CREDIT
RATING % OF TOTAL
PARENT OF PARENT NET RENTABLE NET RENTABLE LEASE
TENANT COMPANY COMPANY SQUARE FEET AREA (A) EXPIRATION
- ----------------------------------- --------------- ----------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Saatchi & Saatchi NA* ............. Saatchi Plc 755,723 77.6% January 2013
Penguin Putnam Inc. ............... Pearson Plc A2/A** 146,433 15.0% February 2010
West Publishing ................... Thomson Corp. A*** 47,945 4.9% October 2004
Hudson Retail JV .................. Saatchi 14,045 1.4% January 2013
TOTAL SIGNIFICANT TENANTS ......... 964,146 99.0%
OTHER TENANTS ..................... 9,289 1.0%
TOTAL NET RENTABLE SF ............. 973,435 100.0%
</TABLE>
- ----------
* Lease jointly and severally guaranteed by Saatchi & Saatchi Plc and Cordiant
Communications Group Plc.
** Rated by Moody's and S&P, respectively.
*** Rated by Dominion Bond Rating Service.
(a) Columns may not add due to rounding.
Lease Expiration Schedule (expressed in SF).
<TABLE>
<CAPTION>
YR 1 YR 2 YR 3 YR 4 YR 5 YR 6 YR 7 YR 8 YR 9 YR 10 2008 &
FOR YEARS ENDING DEC. 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 BEYOND
- -------------------------- ------ ------ ------ ------ ------ ------ ----------- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retail ................... -- -- -- -- -- -- -- -- -- -- 15,045
Eastern Lobby Shop ....... -- -- -- -- -- -- -- -- -- -- 1,000
Hudson Retail JV ......... -- -- -- -- -- -- -- -- -- -- 14,045
Office ................... -- -- -- -- -- -- 54,300 -- -- -- 904,090
-- -- -- -- -- -- ------ -- -- -- -------
Saatchi & Saatchi ........ -- -- -- -- -- -- -- -- -- -- 755,723
Penguin Putnam Inc. -- -- -- -- -- -- -- -- -- -- 146,433
West Publishing .......... -- -- -- -- -- -- 47,945 -- -- -- --
R.C. Dolner .............. -- -- -- -- -- -- 6,355 -- -- -- --
Building Office .......... -- -- -- -- -- -- -- -- -- -- 1,934
== == == == == == ====== == == == =======
Total .................... -- -- -- -- -- -- 54,300 -- -- -- 919,135 973,435*
== == == == == == ====== == == == ======= =======
Percent .................. 5.6%
Rent Expiring ............ 1,476M
Avg $/SF.................. $ 27.19
</TABLE>
- ----------
* Total NRSF
Security. The Hudson Street Loan is a nonrecourse loan, secured by a first
priority leasehold mortgage (the "Hudson Street Mortgage") on the Hudson Street
Property. The Hudson Street Borrower grants a security interest to the
mortgagee in the following property, rights, interest and estates owned by the
Hudson Street Borrower: the Hudson Street Ground Lease and the ground leasehold
estate in the property created thereby, the improvements, appurtenances and
equipment, and certain other collateral relating thereto (including an
assignment of leases and rents, an assignment of certain agreements and the
funds in certain accounts). The mortgagee is a named insured under the title
insurance policies which insure, among other things, that the Hudson Street
Mortgage constitutes a valid and enforceable first priority lien on the
leasehold estate held by the Hudson Street Borrower in the Hudson Street
Property, subject to certain exceptions and exclusions from coverage set forth
therein. Such title insurance policies, together with the Hudson Street Note
and all other documents and agreements evidencing and securing the Hudson
Street Loan will be assigned to the Trust.
The Guarantor. Tishman Speyer / Travelers Real Estate Venture, L.P. (the
"Hudson Street Guarantor") has provided a $5,000,000 limited guaranty of the
recourse obligations of the Hudson Street
S-57
<PAGE>
Borrower under the Hudson Street Mortgage. The Hudson Street Borrower has
recourse obligations for losses incurred by the mortgagee due to fraud or
intentional misrepresentation by the Hudson Street Borrower, its managing
member, any guarantor, environmental indemnitor or the Hudson Street Manager.
Payment Terms. The Hudson Street Loan matures on February 1, 2013 and
bears interest from January 30, 1998 through and including its maturity date as
described below. On the first day of March, 1998 and on the first day of each
calendar month thereafter up to and including the first day of February 2003,
the Hudson Street Borrower is required to pay equal consecutive monthly
installments of principal and interest of approximately $1,296,910, based on a
25-year amortization schedule and the specified Mortgage Rate, and commencing
on the first day of March 2003, and on the first day of each calendar month
thereafter, up to and including the first day of February 2013, the Hudson
Street Borrower is required to pay equal consecutive monthly installments of
principal and interest of approximately $1,539,742, based on a 17-year
amortization schedule, the original principal balance of the Hudson Street Loan
and the specified Mortgage Rate. The Mortgage Rate for the Hudson Street Loan
is fixed at 7.03% per annum. However, the Hudson Street Loan is a
Hyper-Amortization Loan. Accordingly, from and after February 1, 2008 (its
Anticipated Repayment Date) the Hudson Street Loan will accrue Excess Interest
at a rate of 2% per annum (its Excess Interest Rate), and certain excess cash
flow will be applied to pay down the outstanding principal balance of the
Hudson Street Loan. Interest on the Hudson Street Loan will be computed on an
Actual/360 Basis. From and after the Anticipated Repayment Date, accrued Excess
Interest thereon will be deferred and added to the outstanding principal
balance of the Hudson Street Loan and will itself accrue interest at the
Revised Rate.
If any sum payable under the Hudson Street Note is not paid on the related
Due Date, and such failure continues for five days after notice from the
mortgagee, the Hudson Street Borrower is required to pay to the mortgagee upon
notice and demand, an amount equal to the lesser of (i) 5% of such unpaid sum
and (ii) the maximum amount permitted by applicable law to defray the expenses
incurred by the mortgagee in handling and processing such delinquent payment
and to compensate the mortgagee for the loss of the use of such delinquent
payment and such amount is to be secured by the Hudson Street Mortgage and the
other related security documents.
Furthermore, in the event that any regularly scheduled payments of
interest or principal are not paid on their respective Due Dates seven or more
times, the Hudson Street Borrower will be required to pay to the mortgagee in
the case of the seventh and any later instances of such non-payment, such
unpaid interest and principal sum, together with interest thereon at the
applicable default rate for monetary defaults (as described below),
notwithstanding that a Hudson Street Event of Default (as defined below) shall
not have occurred.
Hudson Street Events of Default. The entire outstanding principal sum of
the Hudson Street Loan, together with all interest accrued and unpaid, shall
without notice become immediately due and payable at the option of the
mortgagee if any required payment is not paid on the due date or on the
happening of any other default, after the expiration of any applicable notice
and grace periods (hereinafter, each, a "Hudson Street Event of Default"). The
occurrence of any one or more of the following events will constitute a Hudson
Street Event of Default:
(a) failure to pay any regularly scheduled principal or interest payment
within three days after the date the same is due, or to pay any other
portion of the indebtedness under the Hudson Street Loan on the date the
same is due, or to pay the entire Hudson Street Loan on its maturity date;
(b) the Hudson Street Borrower's violation or failure to comply with
provisions of the Hudson Street Mortgage relating to leasing obligations
and its continuation to do so for 10 days following notice; failure to
comply with the covenants pertaining to its being and remaining a single
purpose entity; and the Hudson Street Borrower's violation of the
restrictions pertaining to the transfer or mortgaging of its interest in
the Hudson Street Property;
(c) any representation or warranty of the Hudson Street Borrower, the
guarantor, the managing member of the Hudson Street Borrower or the
secretary of such managing member in the Hudson Street Mortgage, any
related security document or any other related Mortgage Loan document shall
have been materially misleading or false when made;
S-58
<PAGE>
(d) any default under certain of the other related security documents
that continues after the expiration of applicable grace periods, if any;
(e) any default under any guaranty or indemnity executed in connection
with the Hudson Street Mortgage that continues after the expiration of
applicable grace periods, if any;
(f) any default with respect to the Hudson Street Borrower's obligations
under the Hudson Street Ground Lease, which default continues after the
expiration of applicable grace periods, if any;
(g) the Hudson Street Borrower's failure to provide financial statements
to the mortgagee in a timely manner in compliance with the Hudson Street
Mortgage, which default remains uncured for five days after written notice
from the mortgagee to the Hudson Street Borrower;
(h) any default (other than those specifically described under this
"--Hudson Street Events of Default" heading) under the Hudson Street
Mortgage, the Hudson Street Note or any of the other related security
documents by the Hudson Street Borrower, which default is not cured (i) in
the case of any default which can be cured by the payment of a sum of
money, within 10 days after written notice from the mortgagee to the Hudson
Street Borrower, or (ii) in the case of any other default, within 30 days
after written notice from the mortgagee to the Hudson Street Borrower;
provided that if such default cannot reasonably be cured within such 30-day
period, such cure period may be extended so long as the Hudson Street
Borrower is diligently pursuing a cure, but in no event may such cure
period be longer than 120 days (unless the cure requires construction or
remedial work that requires longer than 120 days for completion, in which
case the cure period will be extended for an additional 120 days and may be
further extended at the Hudson Street Borrower's request and the
mortgagee's approval, such approval to be exercised in the mortgagee's sole
discretion);
(i) the Hudson Street Borrower shall make an assignment for the benefit
of creditors or if the Hudson Street Borrower shall generally not be paying
its debts as they become due;
(j) the Hudson Street Borrower's failure to keep in force or deliver
evidence of insurance as required by the Hudson Street Mortgage;
(k) certain bankruptcy events; and
(l) the Hudson Street Borrower's failure to deliver to the mortgagee a
certain letter of credit in the event the mortgagee has not received
satisfactory certification from a "big six" accounting firm as to the net
worth of Hudson Street Guarantor.
Upon the occurrence of a Hudson Street Event of Default which is not cured
within any applicable grace or notice period, upon the failure of the Hudson
Street Borrower to pay off the outstanding balance of the Hudson Street Loan
and any other amounts due thereunder on the maturity date, or upon the failure
of the Hudson Street Borrower to make a prepayment in full after giving the
mortgagee irrevocable (under the terms of the Hudson Street Mortgage) notice
thereof, the mortgagee will be entitled to receive, and the Hudson Street
Borrower will be obligated to pay, interest on the entire unpaid principal sum
and any other amounts owing (including due and unpaid interest to the extent
permitted by applicable law) at the Mortgage Rate (or, if such payment is being
made after the Anticipated Repayment Date for the Hudson Street Loan, the
Revised Rate) plus either 5% (in the case of a monetary default or both a
monetary default and a non-monetary default) or 2% (in the case of a
non-monetary default).
Prepayment. The principal balance of the Hudson Street Loan may be prepaid
in whole but not in part (except after the Anticipated Repayment Date) at any
time after August 1, 2007 (its "Lockout Expiration Date") without payment of a
Prepayment Premium, except as described in the following sentence. In the event
the mortgagee exercises it right to call the Hudson Street Loan upon the
occurrence of a Hudson Street Event of Default prior to the end of the
applicable Lockout Period, the mortgagee is to be paid a Prepayment Premium in
an amount equal to the positive excess if any of (i) the present value of all
future installments of principal and interest due under the Hudson Street Note
including the principal amount due at maturity as if the last day of the
Lockout Period were the maturity date,
S-59
<PAGE>
discounted at an interest rate per annum equal to the "Treasury Constant
Maturity Yield Index" having a maturity coterminous with the remaining term of
the Hudson Street Note until the last day of the Lockout Period, over (ii) the
principal amount of the Hudson Street Note outstanding immediately before such
prepayment.
Defeasance Collateral. Provided no monetary Hudson Street Event of Default
and no material non-monetary Hudson Street Event of Default exists, the Hudson
Street Borrower may defease all (but not part) of the Hudson Street Loan on or
after February 1, 2002 but prior to February 1, 2007 by pledging substitute
collateral to the mortgagee that consists solely of direct non-callable United
States of America government securities that produce payments which replicate
the payment obligations of the Hudson Street Borrower under the Hudson Street
Note and thereby obtain the release of the Hudson Street Property from the lien
of the Hudson Street Mortgage and the other related security documents.
Loan Servicing and Escrow Accounts. A reserve account for paying future
tenant improvements, leasing commissions, and capital projects was established
at closing and an annual amount of $1,000,000 (payable monthly in arrears in
the amount of $83,333) is to be added to the reserve account, which is required
to be an interest bearing escrow account maintained by the mortgagee throughout
the term of the Hudson Street Loan. The Hudson Street Borrower will be
responsible for all inspection fees that the mortgagee may incur in connection
with the capital projects.
An escrow deposit for insurance and property taxes is required in a
monthly amount sufficient for these expenditures, as outlined in the annual
budget.
Transfer of Hudson Street Property and Interest in the Hudson Street
Borrower; Encumbrances; Other Debt. The Hudson Street Borrower is generally
prohibited from transferring or encumbering the Hudson Street Property or any
part thereof except in connection with a defeasance as described under
"--Defeasance Collateral" above. Notwithstanding the foregoing, the Hudson
Street Property may be sold with the mortgagee's prior consent (except no
consent is required in the case of a transfer to certain affiliated or related
entities) and subject to the following (including in the case of transfers to
affiliated or related entities): (i) only one transfer is permitted during the
term of the Note; (ii) the transferee is required to deliver an acceptable
assumption agreement to the mortgagee; (iii) the Hudson Street Borrower is
required to pay a transfer fee equal to 1% of the then outstanding principal
balance of the Hudson Street Loan; (iv) no Hudson Street Event of Default shall
have occurred and be continuing; (v) the transferee is required to be a single
purpose bankruptcy remote entity and the Hudson Street Borrower is required to
deliver to the mortgagee a non-consolidation opinion; (vi) the mortgagee shall
have received written confirmation from the Rating Agencies that such transfer
would not cause the qualification, downgrade or withdrawal of the ratings then
assigned by either Rating Agency to any Class of Certificates; and (vi) the
mortgagee shall have received such other opinions, title endorsements and
documentation as it shall have required.
No consent of the mortgagee is required with respect to:
(a) a transfer by devise or descent or by operation of law upon the death
of a member, general partner or stockholder of the Hudson Street Borrower
or any member or general partner thereof;
(b) the sale, transfer or hypothecation of a membership, partnership or
shareholder interest in the Hudson Street Borrower by a member, general
partner or shareholder to an immediate family member of such member,
general partner or shareholder or to a trust for the benefit of such
member, general partner or shareholder; or
(c) any sale, pledge or transfer of a direct or indirect interest in the
Hudson Street Guarantor, provided that following such transfer certain
control and ownership criteria are satisfied.
Insurance. The Hudson Street Borrower is required to maintain for the
Hudson Street Property: (a) property insurance insuring "all risks of physical
loss" with respect to the improvements and building equipment; (b)
comprehensive general liability insurance including bodily injury, death and
property damage liability, insurance against any and all claims arising out of
or connected with the possession, use, leasing, operation, maintenance or
condition of the Hudson Street Property for a combined single limit
S-60
<PAGE>
of $100,000,000; (c) statutory worker's compensation insurance with respect to
any work on or about the Hudson Street Property; (d) business interruption
and/or loss of rental income insurance in an amount sufficient to cover the
loss of at least 12 months' income; (e) broad-form boiler and machinery
insurance (without exclusion for explosion) covering boilers or other pressure
vessels, machines and equipment located in, on or about the Hudson Street
Property and insurance against loss of occupancy or use arising from any
breakdown in such amounts as are generally available at a commercially
reasonable premium and are generally required by institutional lenders for
properties comparable to the Hudson Street Property; (f) flood insurance, if
available, with respect to the Hudson Street Property to the extent located
within a federally designated flood hazard zone in an amount equal to the
lesser of the Hudson Street Loan and the maximum limit of coverage available
with respect to the Hudson Street Property; and (g) such other insurance, with
respect to the Hudson Street Property, against loss or damage of the kind
customarily insured against in such amounts as are generally required by
institutional lenders for properties comparable to the Hudson Street Property.
Any such insurance may be effected under a blanket policy so long as any
such blanket policy (except in the case of public liability insurance)
specifies the portion of the total coverage of such policy that is allocated to
the Hudson Street Property and any sublimits in such blanket policy applicable
to the Hudson Street Property, which amounts may not be less than the amounts
required pursuant to, and which must in any case comply in all other respects
with the requirements of, the Hudson Street Mortgage. All insurance policies
are required to name the mortgagee as an additional named insured, to provide
that all proceeds (except with respect to proceeds of general liability and
workers' compensation insurance) be payable to the mortgagee except with
respect to condemnations and casualties and to contain: (i) a standard
"noncontributory mortgagee" endorsement or its equivalent, relating to, among
other things, recovery by the mortgagee notwithstanding the negligent or
willful acts or omissions of the mortgagee; (ii) a waiver of subrogation
endorsement in favor of the mortgagee; (iii) an endorsement providing for a
deductible per loss of an amount not more than that which is customarily
maintained by prudent owners of properties comparable to, and in the general
vicinity of, the Hudson Street Property, but in no event in excess of $250,000;
and (iv) a provision that such policies may not be canceled, terminated or
allowed to expire without at least 30 days' prior written notice to the
mortgagee, in each instance. The Hudson Street Loan requires the Hudson Street
Borrower to obtain the insurance described above from insurance carriers having
claims-paying-abilities rated (a) not less than "A" by Moody's, Fitch, Standard
& Poor's Ratings Services, a division of the McGraw-Hill Companies, Inc. or
Duff & Phelps Credit Rating Co. and (b) not less than a general policy rating
of "A" with a financial class of not less than IX, in each case from Alfred M.
Best Company, Inc.
Condemnation and Casualty. The Hudson Street Borrower is required to
notify the mortgagee in writing promptly upon obtaining notice of an actual or
threatened commencement of any condemnation or eminent domain proceeding. The
mortgagee may participate in any such proceedings to the extent permitted by
law.
In the event of casualty or condemnation where: (i) the net proceeds,
being the net amount of insurance proceeds or a condemnation award, as the case
may be, after deduction of reasonable costs and expenses in collecting same, do
not exceed 25% of the original principal amount of the Hudson Street Note in
case of casualty or do not exceed 20% of the unpaid principal amount of the
Hudson Street Note in case of eminent domain (the "Casualty Amount"); (ii) the
costs of restoration as reasonably determined by the Hudson Street Borrower
shall be less than or equal to the Casualty Amount; (iii) no Hudson Street
Event of Default shall have occurred and be continuing; (iv) the Hudson Street
Property and its use shall be in compliance with, and permitted under, all
applicable zoning laws, ordinances, rules and regulations; and (v) such fire or
other casualty or taking does not materially impair access to the Hudson Street
Property; then the net proceeds will be required to be disbursed directly to
the Hudson Street Borrower and the Hudson Street Borrower will be required to
commence and diligently pursue restoration of the Hudson Street Property to as
nearly as possible the condition it was in immediately prior to such casualty
or taking. Except upon the occurrence and continuance of a Hudson Street Event
of Default, the Hudson Street Borrower will be entitled to settle any insurance
claims where the net proceeds are less than or equal to the Casualty Amount.
S-61
<PAGE>
The mortgagee will have the right to participate in and reasonably approve
any settlement of insurance claims with respect to net proceeds which are
greater than the Casualty Amount.
If a Hudson Street Event of Default shall have occurred and be continuing,
the mortgagee will be the lawful attorney-in-fact of the Hudson Street Borrower
to file and prosecute claims and to collect payment.
Net proceeds are required to be made available to the Hudson Street
Borrower for payment of, or reimbursement of, the Hudson Street Borrower's
expenses in connection with, the restoration of the Hudson Street Property,
subject to: (i) no Hudson Street Event of Default occurring and continuing;
(ii) the mortgagee having been furnished with an estimate of the cost of
restoration together with an architect's certification and plans and
specifications; (iii) net proceeds together with any cash or cash equivalent
deposited by the Hudson Street Borrower with the mortgagee being sufficient to
cover the cost of the restoration; (iv) in the event that net proceeds are
insurance proceeds, less than 50% of total floor area being damaged or
destroyed or, in the event that net proceeds are condemnation awards, less than
50% of land area being taken (such land that is taken to be on the periphery of
the Hudson Street Property and contain no portion of the improvements); (v) the
mortgagee being reasonably satisfied that any operating deficits, including
payments of principal and interest, will be paid from the net proceeds or other
funds with the Hudson Street Borrower; (vi) the mortgagee being reasonably
satisfied that upon completion of the restoration and related leasing
requirements, the net cash flow of the Hudson Street Property will be restored
to a level sufficient to achieve a debt service coverage ratio of 1.25x (the
Hudson Street Borrower being able to deliver a letter of credit at a level
equal to the difference between the outstanding principal balance of the Hudson
Street Loan and an amount of principal which would support a 1.25x debt service
coverage ratio); (vii) restoration being capable of reasonable completion on or
before the earliest to occur of six months prior to the maturity date, the
earliest date required for such completion under the terms of any major leases
and such time as may be required under applicable zoning law, ordinance, rule
or regulation in order to repair and restore the Hudson Street Property; (viii)
the Hudson Street Property and its use after restoration complying with all
zoning and environmental laws and ordinances; and (ix) after restoration, there
being no material impairment of access to the Hudson Street Property or its
improvements.
Net proceeds are required to be held by the mortgagee and until disbursed
in accordance with the Hudson Street Mortgage, will constitute additional
security. If the cost of any contract in connection with the restoration
exceeds $1,000,000, then the identity of the contractors, subcontractors and
materialmen engaged in the restoration, as well as the contracts under which
they have been engaged, shall be subject to prior review and acceptance by the
mortgagee and an independent consulting engineer selected by the mortgagee and
reasonably acceptable to the Hudson Street Borrower. If at any time net
proceeds or the undisbursed balance thereof are not, in the reasonable opinion
of the mortgagee, sufficient to pay in full the balance of the costs which are
estimated by the independent consulting engineer in connection with completion
of the restoration, the Hudson Street Borrower is required to deposit the
deficiency with the mortgagee before any further disbursement of net proceeds
may be made, and until disbursed, such funds will constitute additional
security.
Financial Reporting. The Hudson Street Borrower is required to keep
adequate books and records of account in accordance with generally accepted
accounting principles ("GAAP"). Within 45 days of the end of each fiscal
quarter the Hudson Street Borrower is required to supply certified rent rolls
detailing the names of all tenants, the area occupied by each tenant, the base
rent and any other charges payable under each lease, the term of the lease and
any other information reasonably required by the mortgagee. In addition, a
certified operating statement detailing the total revenues received, total
expenses incurred, total cost of all capital improvements, total debt service,
total cash flow, together with a balance sheet is required within 45 days after
the close of each fiscal quarter.
The Hudson Street Borrower is required to provide the following
information on an annual basis: (i) annual financial statements in accordance
with GAAP containing a balance sheet and statement of profit and loss and cash
flow of the Hudson Street Borrower in form reasonably required by the
mortgagee, prepared and certified by the Hudson Street Borrower, together with
audited financial statements prepared by a "Big Six" accounting firm within 90
days after the close of each fiscal year; (ii) annual
S-62
<PAGE>
certified rent roll presented on a quarterly basis within 90 days after the
close of each fiscal year; (iii) annual operating budget presented on a monthly
basis consistent with the annual operating statements and all proposed capital
replacements and improvements at least 30 days prior to the start of the
calendar year; (iv) annual certification from a "Big Six" accounting firm that
the Hudson Street Guarantor has a net worth (excluding goodwill and other
intangibles) of at least $100,000,000, provided that such certificate will not
be required if the Hudson Street Borrower shall have delivered to the mortgagee
a letter of credit in the amount of $5,000,000 in form and substance acceptable
to the mortgagee from a financial institution reasonably acceptable to the
mortgagee.
The mortgagee has the right to approve each annual budget, which approval
for the period prior to the Anticipated Repayment Date will not be unreasonably
withheld. For the period occurring after the Anticipated Repayment Date, the
annual budget must be approved by the mortgagee in its sole and absolute
discretion.
Lockbox Account. A lockbox agreement between a third-party bank, the
Hudson Street Borrower, the Hudson Street Manager and the mortgagee, and a cash
management agreement between the Hudson Street Borrower and the mortgagee, were
required to be established at closing, which agreements provide that all rents,
revenues and receipts from the Hudson Street Property are to be deposited by
the Hudson Street Borrower and Hudson Street Manager with the financial
institution where such account is maintained, within one business day of
receipt, for deposit into a rent account (the "Hudson Street Rent Account") in
the joint name of the Hudson Street Borrower and the mortgagee, which account,
except during a "lock period" (a period commencing on the earlier of (i)
February 1, 2007 and (ii) notice to such financial institution of a Hudson
Street Event of Default, and in the case of a Hudson Street Event of Default,
terminating on the mortgagee's notice to such financial institution that such
Hudson Street Event of Default has been cured) will be under the sole control
of the Hudson Street Borrower (provided, however, that the Hudson Street
Borrower shall have no authority to close the Hudson Street Rent Account). In
addition, the Mortgage Loan Seller has created a deposit account (the "Hudson
Street Deposit Account") into which, during a lock period, all funds in excess
of $1,000, on a daily basis, will be deposited. The mortgagee is to have sole
control and dominion over the Hudson Street Deposit Account and, during a lock
period, the Hudson Street Rent Account. Funds in the Hudson Streeet Rent
Account and the Hudson Street Deposit Account are to be invested in "Eligible
Investments" (as specified in the cash management agreement) for the benefit of
the Hudson Street Borrower and the mortgagee, respectively, provided that funds
in the Hudson Street Rent Account will not be invested during a lock period. On
each "disbursement date" (as specified in the cash management agreement),
provided there is no Hudson Street Event of Default, the mortgagee is required
to cause the depository financial institution to disburse to the Hudson Street
Borrower all funds remaining in the Hudson Street Deposit Account following
payment of all sums due the mortgagee and funding of all reserves and
sub-accounts created under the Hudson Street Deposit Account.
Environmental Indemnity. The Hudson Street Borrower and the Hudson Street
Guarantor have provided an environmental indemnity with respect to
environmental hazards and liabilities associated with the Hudson Street
Property. The Hudson Street Guarantor's liability under the indemnity is
limited to $5,000,000.
S-63
<PAGE>
MINNEAPOLIS CITY CENTER, MINNEAPOLIS, MINNESOTA
LOAN INFORMATION
- --------------------------------------------------------------------------------
ORIGINAL PRINCIPAL
BALANCE: $108,000,000
CUT-OFF DATE BALANCE: $108,000,000
ORIGINATION DATE: May 21, 1998
INTEREST RATE: 6.72%
ANTICIPATED REPAYMENT DATE
("ARD"): May 31, 2008
MATURITY DATE: May 31, 2028
PROPERTY OWNER,
MORTGAGOR AND WRAP
MORTGAGOR: City Center Associates Limited
Partnership ("CCALP").
BORROWER/WRAP MCC
MORTGAGEE: MCC Mortgage LP., owns a wrap mortgage, fully
subordinated to the Minneapolis City Center
Property, and an option to purchase the
Minneapolis City Center Property. An affiliate of
MCC Mortgage L.P. holds a long-term management
contract to manage the Minneapolis City Center
Property.
SPONSORING ENTITY: Brookfield Properties Corporation, a public
company with Cdn.$9.145 billion in assets which
controls the Minneapolis City Center Borrower.
AMORTIZATION TERM: The term of the Mortgage Loan is 30 years. Equal
payments of principal and interest are required
in an amount sufficient to fully amortize the
Mortgage Loan over a 30-year schedule.
ARD;
HYPERAMORTIZATION: From and after the ARD, the interest rate
increases to the greater of 8.72% or 102 basis
points above the then prevailing yield to
maturity on the "on the run" 20-year U.S.
Government Treasury security. From and after the
ARD, the Excess Interest is to be added to the
unpaid principal balance of the Mortgage Loan,
and certain excess cash flow will be applied to
pay down the outstanding principal balance of the
Mortgage Loan.
PREPAYMENT TERMS: The Mortgage Loan may be prepaid in whole, but
not in part, on any Due Date, according to the
following schedule:
Years 1-4: greater of yield maintenance payment
or 5% of outstanding principal balance. Years
5-9.5: greater of yield maintenance payment or 2%
of outstanding principal balance. Thereafter,
fully prepayable without penalty.
UPFRONT RESERVES: $5,000,000 tenant improvement leasing commission
("TI/LC")
$309,000 repair reserve
$2,270,000 debt service reserves
$646,685 tax and insurance reserve
ONGOING RESERVES: TI/LC replenished at minimum of $125,000 per
month if TI/LC reserve fund falls below
$5,000,000. Monthly repair (for first two years)
and replacement reserves required.
COLLECTION ACCOUNTS: Property revenue is deposited into a clearing
account controlled by wrap mortgagee (i.e., the
Minneapolis City Center Borrower) and then swept
into various borrower or mortgagor deposit
accounts (debt service, TI/LC, real estate
tax/insurance, etc.). Deposit accounts controlled
by mortgagee under the Mortgage Loan.
WRAP MORTGAGE: The wrap mortgage is fully subordinated to the
Minneapolis City Center Mortgage. The principal
balance and accrued interest of the wrap mortgage
is approximately $544,000,000 as of 12/31/97.
PURCHASE OPTION: The Minneapolis City Center Borrower holds an
option to purchase the MInneapolis City Center
Property from CCALP at a future date.
MANAGEMENT
AGREEMENT: An affiliate of the Minneapolis City Center
Borrower holds a long-term management contract to
manage the Minneapolis City Center Property.
MEZZANINE DEBT: $25 million, held by an affiliate of the
Minneapolis City Center Borrower.
PROPERTY INFORMATION
- --------------------------------------------------------------------------------
SINGLE ASSET/PORTFOLIO: Single asset
PROPERTY TYPE: Mixed-Use (Office, Retail, Hotel, Garage)
OCCUPANCY: 97%
YEAR BUILT: 1982
THE COLLATERAL: Minneapolis City Center, 1,582,000 square feet of
office, retail and storage, 687-car, six-level
parking garage, and land on which a 602-room
Marriott Hotel is constructed subject to a ground
lease of which the Minneapolis City Center
Mortgagor is the lessor.
RENTABLE SQUARE
FEET: Office: 1,081,000
Retail: 370,000
Storage: 131,000
---------
Total: 1,582,000
SIGNIFICANT TENANTS:
<TABLE>
<CAPTION>
LEASE
TENANT NAME (PARENT) NRSF EXPIRATION
- ----------------------------- --------- -----------
<S> <C> <C>
Target (Dayton-Hudson Jan. 1999-
Stores)* 675,065 Nov. 2013
International
Multifoods 133,737 Feb. 2003
Gray, Plant & Mooty 86,526 Mar. 1999
Marshall's (CVS Corp.)** 50,163 Jan. 2003
</TABLE>
PROPERTY MANAGEMENT: Brookfield Management Services, LLC
1997 NET OPERATING
INCOME: $15,493,928
UNDERWRITTEN NCF: $15,545,314
APPRAISED VALUE: $200,000,000
APPRAISAL DATE: August 1, 1997
CUT-OFF DATE
LOAN-TO-VALUE RATIO: 54%
ANNUAL DEBT SERVICE: $8,380,003
UNDERWRITTEN
DSCR (1): 1.85x
LOAN/SQ. FT. AS OF
CUT-OFF DATE: $68
- ---------------------
* Dayton-Hudson, the parent company, is rated Baa1 by Moody's.
** CVS Corp., the parent company, is rated A- by S&P.
(1) Based on Underwritten NCF
S-64
<PAGE>
THE MINNEAPOLIS CITY CENTER LOAN
The Loan. "The Minneapolis City Center Loan" has a Cut-off Date Balance of
approximately $108,000,000, as evidenced by a Mortgage Note in the original
principal amount of $108,000,000 (the "Minneapolis City Center Note") issued by
MCC Mortgage LP (the "Minneapolis City Center Borrower"), a Delaware limited
partnership controlled by Brookfield Properties Corporation ("Brookfield
Properties"). The general partner of the Minneapolis City Center Borrower is
Brookfield Minnesota Inc., a Minnesota corporation, and the limited partner in
the Minneapolis City Center Borrower is MCC Investor Associates, a Delaware
partnership. The Minneapolis City Center Loan is secured by a Mortgage made by
City Center Associates Limited Partnership ("CCALP" or the "Minneapolis City
Center Mortgagor") and joined by the Minneapolis City Center Borrower, creating
a first priority mortgage lien on CCALP's fee interest in a mixed use complex
in Minneapolis, Minnesota (the "Minneapolis City Center Property"). CCALP is
the owner of the fee interest in the Minneapolis City Center Property, but is
not related to the Minneapolis City Center Borrower. References in this "--The
Minneapolis City Center Loan" section to the "mortgagee under the Minneapolis
City Center Mortgage" or otherwise to the "mortgagee" with respect to the
Minneapolis City Center Loan mean the Mortgage Loan Seller with respect to the
period prior to the Delivery Date and the Trustee (acting through the Master
Servicer and/or the Special Servicer) with respect to the period thereafter.
The Minneapolis City Center Mortgagor and The Minneapolis City Center
Borrower. The Minneapolis City Center Mortgagor owns no material assets other
than Minneapolis City Center and related interests. The Minneapolis City Center
Borrower is a special purpose, bankruptcy-remote, entity whose only asset is
the Wrap Mortgage described below. The Minneapolis City Center Borrower is
required at all times to cause there to be at least one independent director
reasonably satisfactory to the mortgagee under the Minneapolis City Center
Mortgage on the board of directors of the general partner of the Minneapolis
City Center Borrower. Brookfield Properties Corporation is a Canadian public
company organized in Ontario with Cdn.$9.145 billion in assets. Brookfield
Properties owns, directly or indirectly, an interest in 55 commercial
properties totaling almost 32,000,000 square feet of space, including 20
properties in the United States totaling 18,332,000 square feet and 35
properties in Canada totaling 13,727,000 square feet. In addition, Brookfield
Properties is the majority owner of World Financial Properties, LP, which owns
six buildings totaling 9,667,000 square feet of space in New York and Boston
(such square footage being included in Brookfield Properties' United States
square footage described in the prior sentence). Brookfield Properties
Corporation is a subsidiary of The Edper Group. While the Minneapolis City
Center Mortgagor is the mortgagor under the Minneapolis City Center Loan, the
Minneapolis City Center Borrower is responsible for making payments under the
Minneapolis City Center Loan and is therefore the borrower under such Mortgage
Loan.
The Property. The Minneapolis City Center Property is improved by a mixed
use property located in Minneapolis, Minnesota and includes the following types
of space: office (1,081,000 square feet), retail (370,000 square feet), storage
(131,000 square feet), garage and hotel. The 51-story building was developed by
Oxford Development Corporation and completed in 1982. The Minneapolis City
Center Property is 97% leased. The Minneapolis City Center Property also
consists of a 687-car, six-level parking garage, and land on which a 602-room
Marriott Hotel is constructed (subject to a ground lease under which the
Minneapolis City Center Mortgagor is the lessor).
The largest tenant in the office portion of the complex is Target Stores
("Target"), a wholly owned subsidiary of Dayton-Hudson Corporation. Target
leases 675,065 square feet of space (excluding sub-leased space) under multiple
leases at an average net rent of $8.89 per square foot.
The retail space is anchored by Marshall's, occupying 50,163 square feet
of space. A 105,000 square foot retail space formerly occupied by Montgomery
Ward (which rejected their lease in bankruptcy in March 1998) is being master
leased by an affiliate of Brookfield Properties (which master lease is
guaranteed by Brookfield Properties) until the space is leased to tenants
generating income equal to or greater than that received from Montgomery Ward.
Other major retail tenants include The Limited Stores (38,000 square feet), Sam
Goody's (12,225 square feet), McDonald's (3,171 square feet) and Footlocker
(2,869 square feet). One or more retail tenants have leases that contain an
operating co-tenancy covenant
S-65
<PAGE>
which provides that in lieu of monthly minimum rent, the tenants have the right
to pay 4% of gross sales as rent. The retail component of the Minneapolis City
Center was substantially renovated and reconfigured in 1993. The retail space
is situated on three levels consisting of two anchor spaces and approximately
65 in-line retail spaces.
A 602-room Marriott Hotel is physically connected to the Minneapolis City
Center Property, but owned indirectly by Host Marriott Corporation, which, as
ground lessee, leases from the Minneapolis City Center Mortgagor ground
adjacent to the complex until 2036. The ground rental payments include a fixed
minimum rent and a percentage of the hotel's gross income over a base amount.
The ground lease is superior to the Minneapolis City Center Mortgage. If the
entity that, as leasehold lender, holds a security interest in the ground
lessee's leasehold interest was to foreclose on the hotel, it would not be
obligated to pay either the base or the percentage rent but only to pay the
common area maintenance charges and real estate taxes. The Minneapolis City
Center Borrower has delivered a letter of credit for $1,270,000 which
represents one year of base and percentage rent. If an event of default under
the hotel ground lease occurs (i.e. (i) the hotel lessee is in arrears more
than 90 days in rent payments; or (ii) if the leasehold lender provides notice
of foreclosure), Brookfield Properties is required to deliver an additional
letter of credit for up to $8,730,000. This maximum amount reduces each year by
$1,270,000. Failure to deliver the letters of credit constitutes a default
under the Minneapolis City Center Mortgage and would trigger Brookfield
Properties' $20,000,000 guaranty (see "--Subordination Agreement Guaranty"
below).
Market Overview. The Minneapolis City Center is located in the Minneapolis
office market which consists of approximately 21.7 million square feet. Vacancy
rates have fallen significantly from their peaks in the early part of the
decade. Overall vacancies at the end of 1997 were reported to be 8% in the
central business district. Class A vacancy rates in the market were lower still
at 4%. As a result of low vacancy rates at the Minneapolis City Center
Property, no large contiguous blocks are available. Construction is underway on
an approximately 750,000 square foot headquarters for IDS, an American Express
subsidiary, which is expected to open in late 2000 or early 2001. A new
building for Target (Dayton-Hudson) (approximately 500,000 square feet) will be
ready for occupancy in the fall of 1998.
Location/Access. The Minneapolis City Center is bounded by South 6th
Street, Nicollett Mall, South 7th Street and Hennepin Avenue.
Environmental Report. A "Phase I" environmental assessment was performed
by a third-party due diligence firm in July 1997. The "Phase I" environmental
assessment did not identify any material adverse environmental conditions at
the Minneapolis City Center Property. Nevertheless, there can be no assurance
that all environmental conditions and risks were identified in such
environmental assessment.
Engineering Report. A property condition report dated August 21, 1997 was
completed on the Minneapolis City Center Property by a third-party due
diligence firm. The property condition report concluded that Minneapolis City
Center Property was generally well maintained and identified $206,500 in
deferred maintenance/life safety/code/ADA requirements in the next 12 months.
These items were identified and budgeted by the Minneapolis City Center Manager
(as defined below). This amount was escrowed at closing.
Property Management. The Property is managed by Brookfield Management
Services, LLC, a Delaware limited liability company and an affiliate of the
Minneapolis City Center Borrower (the "Minneapolis City Center Manager"),
pursuant to a long-term management and leasing agreement (the "Minneapolis City
Center Management Agreement"). The agreement expires on December 31, 2009. The
Minneapolis City Center Management Agreement provides for a management fee
equal to 2.75% of net income.
Major decisions with respect to the operation of the Minneapolis City
Center Property, which must be approved by the Minneapolis City Center
Mortgagor, are summarized in the Minneapolis City Center Management Agreement.
The Minneapolis City Center Mortgagor is allowed to terminate the Minneapolis
City Center Management Agreement if the Minneapolis City Center Borrower
defaults under its Wrap Mortgage (as defined below) obligations. The
Minneapolis City Center Borrower has pledged its interest in the Wrap Mortgage
as security for its obligations under the Minneapolis City Center
S-66
<PAGE>
Management Agreement. If the debt service coverage ratio for the Minneapolis
City Center Property should fall below 1.0x for the preceding 12 months, the
mortgagee under the Minneapolis City Center Mortgage may cause the Minneapolis
City Center Mortgagor or the Minneapolis City Center Borrower to either (i)
replace the Minneapolis City Center Manager with a new property manager
reasonably satisfactory to such mortgagee or (ii) provide evidence that the
Minneapolis City Manager is performing to market standards.
Operating History. The following table presents information regarding the
financial performance of the Minneapolis City Center Property:
<TABLE>
<CAPTION>
UNDERWRITTEN
1995 1996 1997 CASH FLOW (1)
-------------- -------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Revenues ....................... $35,615,776 $37,874,540 $39,371,668 $ 43,095,721
Expenses ....................... $21,226,738 $22,610,716 $23,877,740 $ 23,877,740
Net Operating Income ........... $14,389,038 $15,263,824 $15,493,928 $ 19,217,281
Capital Expenditures ........... $ 1,319,044 $ 746,691 $ 229,290 $ 3,672,667
Net Cash Flow .................. $13,069,994 $14,516,863 $15,264,638 $ 15,545,314
Occupancy
Retail ......................... 92%
Office ......................... 99%
Weighted Average ............... 97%*
Cut-off Date Balance ........... $ 108,000,000
Appraised Value ................ $ 200,000,000
Cut-off Date LTV Ratio ......... 54%
Annual Debt Service ............ $ 8,380,003
Underwritten DSCR .............. 1.85x
</TABLE>
- ----------
* Includes Brookfield Properties Corporation's master lease of the
Montgomery Ward space.
(1) Underwritten cash flow includes adjusting the office component to market
(all other amounts are based on trailing 12 months). Higher revenues are
offset by higher tenant improvement and leasing commission deductions.
See Underwritten Net Cash Flow table below for more details.
S-67
<PAGE>
UNDERWRITTEN NET CASH FLOW -- MINNEAPOLIS CITY CENTER
<TABLE>
<S> <C>
INCOME:
Office Rent ........................................... $ 28,347,263(1)
Retail Rent ........................................... 3,317,542(2)
Retail Percentage Rent ................................ 27,417(3)
Hotel Ground Lease (base and percentage rent) ......... 1,816,412(3)
Parking ............................................... 2,451,387(3)
Expense Recoveries .................................... 6,181,861(3)
Storage and Other ..................................... 953,839(3)
---------------
Gross Income .......................................... $ 43,095,721
EXPENSES:
Property Taxes and Insurance .......................... $ 10,116,752(3)
Parking Expenses ...................................... 626,631(3)
Management Fee ........................................ 1,055,882(3)
Common Area Expenses .................................. 9,391,320(3)
General Administration and Other ...................... 2,687,155(3)
---------------
Total Expenses ........................................ $ 23,877,740(3)
NET OPERATING INCOME .................................. $ 19,217,981
Structural Reserve .................................... $ 316,400(4)
Tenant Improvements ................................... 2,812,867(5)
Leasing Commissions ................................... 543,400(6)
---------------
Total Capital Expenses ................................ $ 3,672,667
UNDERWRITTEN NET CASH FLOW ............................ $ 15,545,314
Annual Debt Service ................................... 8,380,003
Underwritten Debt Service Coverage Ratio .............. 1.85x
Cut-off Date Loan-to-Value ............................ 54%
Occupancy ............................................. 97%(7)
</TABLE>
- ----------
(1) Based on marking the office rents to market and deducting a vacancy
allowance of 7.5%.
(2) 1997 actual amount less adjustment to reflect potential impact of retail
co-tenancy clauses of $500,000.
(3) 1997 actual amounts.
(4) $0.20/ft per year.
(5) Estimated mark to market weighted average tenant improvements for office
space is $14/SF and for retail mall space is $24/SF, amortized over the
average lease term of 7.5 years for office space and 10 years for retail
space.
(6) Estimated market leasing commissions based on $3/SF amortized over
average lease term of 7.5 years for office space and 10 years for retail
space.
(7) Includes master lease of the Montgomery Ward space (guaranteed by
Brookfield Properties).
Significant Tenant Summary. The following table presents the significant
tenants leasing Minneapolis City Center:
<TABLE>
<CAPTION>
CREDIT
RATING OF % OF TOTAL
PARENT PARENT NET RENTABLE LEASE
TENANT COMPANY COMPANY SQUARE FEET AREA EXPIRATION
- ----------------------------------- --------------- ----------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Target Stores ..................... Dayton-Hudson Baa1* 675,065 42.7% 1999-2013
International Multi-Foods ......... 133,737 8.5% 2003
Gray, Plant & Mooty ............... 86,526 5.5% 1998-1999
Marshall's ........................ CVS Corp. A-** 50,163 3.2% 2003
Meagher & Geer .................... 41,631 2.6% 2002
TOTAL SIGNIFICANT TENANTS ......... 987,122 62.4%
</TABLE>
- ----------
* Rated by Moody's.
** Rated by S&P.
S-68
<PAGE>
Target has leased 675,065 sq. ft. of office space (excluding sublease
space), summarized as follows:
<TABLE>
<CAPTION>
SQ. FT. EXPIRY NET RENT
- ---------------- ---------- -----------------
<S> <C> <C>
77,676 Jan 1999 $ 6.50/$7.75
226,509 Dec 2002 $ 7.50/$11.50
370,880 Nov 2013 $ 8.35
- -------------- -------------
675,065 wtd. avg. $8.89
</TABLE>
Security. The Minneapolis City Center Loan is a nonrecourse loan, secured
by a Mortgage (the "Minneapolis City Center Mortgage") creating a first
priority mortgage lien on CCALP's fee interest in the Minneapolis City Center
Property (including CCALP's interest as ground lessor pursuant to the hotel
ground lease referred to in "--The Property" above), the improvements,
appurtenances and equipment, and certain other collateral relating thereto
(including an assignment of leases and rents, an assignment of certain
agreements and the funds in certain accounts). The mortgagee under the
Minneapolis City Center Mortgage is a named insured under the title insurance
policies which insure, among other things, that the Minneapolis City Center
Mortgage constitutes a valid and enforceable first lien on the fee estate held
by CCALP in the Minneapolis City Center Property. Such title insurance
policies, together with the Minneapolis City Center Note and all other
documents and agreements evidencing and securing the Minneapolis City Center
Loan will be assigned to the Trust.
The Wrap Mortgage. The Minneapolis City Center Borrower holds a purchase
money wrap mortgage (the "Wrap Mortgage") securing an indebtedness (the "Wrap
Mortgage Loan") of CCALP, the Minneapolis City Center Mortgagor, in the amount
of approximately $544,000,000 as of December 31, 1997. The Wrap Mortgage has a
maturity date of January 1, 2024. The interest rate for the Wrap Mortgage is
15.0% per annum (simple interest) until January 1, 2004 and 1.75% over
five-year U.S. Treasury notes, 10-year U.S. Treasury notes or 30-year U.S.
Treasury notes (as selected by the holder (the Minneapolis City Center
Borrower) of the Wrap Mortgage (such holder, the "Wrap Mortgagee")) for the
remainder of its term. No fixed principal or interest payment is to be made on
the Wrap Mortgage until January 1, 2007 or January 1, 2010 (which later date is
approximately 19 months after the Anticipated Repayment Date for the
Minneapolis City Center Loan), depending on the year in which the Minneapolis
City Center property is sold pursuant to the Minneapolis City Center Purchase
Option (as defined below). Interest accrues but is not required to be paid
until any such date, thereby negatively amortizing the Wrap Mortgage Loan. From
and after January 1, 2010, the Wrap Mortgage Loan provides for monthly
installments of principal and interest, based on a schedule that would fully
amortize the Wrap Mortgage Loan at maturity. A payment equal to the amounts
that would have been payable over the previous five years had amortization
commenced five years earlier is also payable when interest accrual without
amortization of principal ceases. The collateral for the Wrap Mortgage is a
second priority mortgage lien on the Minneapolis City Center Property, which
has been subordinated to the Minneapolis City Center Mortgage pursuant to a
subordination agreement (the "MCC Subordination Agreement") between the
mortgagee under the Minneapolis City Center Mortgage and the Minneapolis City
Center Borrower as mortgagee under the Wrap Mortgage, with the Minneapolis City
Center Mortgagor a party thereto with respect to certain of its rights. (See
"--The MCC Subordination Agreement" below.) Upon the satisfaction of certain
conditions, including the payment of the entire principal and all accrued
interest due on the Wrap Mortgage Loan or its delivery of a $65,000,000 letter
of credit, the Wrap Mortgagor may require that Minneapolis City Center Borrower
exercise the Minneapolis City Center Purchase Option (as defined below) by
January 1, 2007, if at all.
The Minneapolis City Center Borrower has the option (the "Minneapolis City
Center Purchase Option"), exercisable on January 1, 2010 (which date is
approximately 19 months after the Anticipated Repayment Date for the
Minneapolis City Center Loan), to purchase the Minneapolis City Center
Mortgagor's fee interest in the Minneapolis City Center Property for
approximately $692,000,000. The option price is net of amounts due in
connection with the Wrap Mortgage which is projected to then be greater than
the purchase price. Therefore, the option price is expected to be zero. The
Minneapolis City Center Borrower's rights under the Minneapolis City Center
Purchase Option have been subordinated to
S-69
<PAGE>
the Minneapolis City Center Mortgage pursuant to the terms of the MCC
Subordination Agreement. The deed under the Minneapolis City Center Purchase
Option is held in escrow and is to be released to the Minneapolis City Center
Borrower upon exercise of the Minneapolis City Center Purchase Option.
In addition to the obligations of the Minneapolis City Center Mortgagor,
the Wrap Mortgage also contains obligations for which the Minneapolis City
Center Borrower, as the Wrap Mortgagee, is responsible. These obligations
include, among other things, (i) paying all amounts due under the Minneapolis
City Center Mortgage and performing all obligations in connection therewith,
(ii) paying any amounts prepaid under the Wrap Mortgage to the mortgagee under
the Minneapolis City Center Mortgage, and (iii) if restoration is permitted
under the Wrap Mortgage, paying any net casualty proceeds or condemnation
awards to the Minneapolis City Center Mortgagor (including any amounts paid to
the mortgagee under the terms of the Minneapolis City Center Mortgage). The
Minneapolis City Center Borrower is personally liable under the terms of the
Wrap Mortgage documents for its obligations as Wrap Mortgagee under the Wrap
Mortgage. Any payments which the Wrap Mortgagee fails to make under the Wrap
Mortgage documents may be paid by the Minneapolis City Center Mortgagor, which
is then entitled to a credit for such payments against the amounts due under
the Wrap Mortgage Loan, plus interest at the rate of 16% per annum. The
Minneapolis City Center Borrower is also responsible for managing the
Minneapolis City Center Property, which it does through the Minneapolis City
Center Manager.
All cash flow from the Minneapolis City Center Property is required to be
used to service the Wrap Mortgage, provided that if the Minneapolis City Center
Property's cash flow exceeds the annual accrued interest of the Wrap Mortgage,
then the Minneapolis City Center Mortgagor is to receive the excess amount. In
light of the size of the Wrap Mortgage, it is not contemplated that the
Minneapolis City Center Mortgagor will receive any cash flow from the
Minneapolis City Center Property. To date, the Minneapolis City Center
Mortgagor has not received any cash flow from the property except that the
Minneapolis City Center Borrower pays the Minneapolis City Center Mortgagor
$50,000 per annum to cover the Minneapolis City Center Mortgagor's
administrative costs regardless of cash flow. Among the provisions of the Wrap
Mortgage documents is a restriction which prohibits the sale, transfer,
assignment, pledge or encumbrance of the Minneapolis City Center Borrower's
interest in the Wrap Mortgage except pursuant to the terms of a collateral
assignment of the Wrap Mortgage in favor of the Minneapolis City Center
Mortgagor. Moreover, the Wrap Mortgagee (the Minneapolis City Center Borrower)
may not enter into any refinancing of the wrapped mortgage (the Minneapolis
City Center Mortgage) which does not comply with certain refinancing
restrictions contained in the Wrap Mortgage documents.
The Wrap Mortgage documents also contain a liquidated damages provision
under which the Wrap Mortgagee is obligated to pay the Minneapolis City Center
Mortgagor liquidated damages in the event that: (i) the Wrap Mortgagee defaults
in its obligation to perform under the terms of the Minneapolis City Center
Mortgage; (ii) the mortgagee under the Minneapolis City Center Mortgage
commences a foreclosure proceeding, which has not been dismissed or for which a
reinstatement has not been effected; (iii) the Minneapolis City Center
Mortgagor provides notice to the mortgagee under the Minneapolis City Center
Mortgage within five days after the Minneapolis City Center Mortgagor has
received notice of the events described in (i) and (ii) above; and (iv) certain
events relating to a potential foreclosure sale occur. Upon any such
occurrence, the Minneapolis City Center Mortgagor is entitled to receive the
sum of $62,500,000 as liquidated damages, plus interest from December 29, 1983.
The Minneapolis City Center Mortgagor's right to receive such liquidated
damages are subordinate to the Minneapolis City Center Loan (see "--The MCC
Subordination Agreement" below).
The Minneapolis City Center Borrower's interest in the Wrap Mortgage
documents have been pledged to the Minneapolis City Center Mortgagor in order
to secure certain obligations of the Wrap Mortgagee. These obligations include
the payment and performance obligations of the Wrap Mortgagee under the Wrap
Mortgage, and the payment of amounts payable as a result of a default by the
Minneapolis City Center Property Manager under the terms of the Minneapolis
City Center Management Agreement.
The Minneapolis City Center Borrower's predecessor in interest has pledged
its interest in the Wrap Mortgage to CCALP in order to secure certain
obligations arising out of the prior sale of the Minneapolis
S-70
<PAGE>
City Center Property, some of which have already been satisfied. The secured
obligations which remain outstanding include certain amounts payable under the
terms of the Wrap Mortgage, and amounts payable as a result of a default by the
Minneapolis City Center Property Manager under the Minneapolis City Center
Management Agreement.
The MCC Subordination Agreement. The MCC Subordination Agreement provides
for the subordination of (i) the rights of the Minneapolis City Center Borrower
as the mortgagee under the Wrap Mortgage, (ii) the rights of the Minneapolis
City Center Borrower in connection with the Minneapolis City Center Purchase
Option, and (iii) the right of the Minneapolis City Center Mortgagor to receive
the liquidated damages from the Minneapolis City Center Borrower as described
above. The MCC Subordination Agreement provides for the forbearance by the
mortgagee under the Minneapolis City Center Mortgage (the "Forbearance
Covenant") from exercising its rights and remedies under the Minneapolis City
Center Mortgage, including the right to require a sub-manager for the
Minneapolis City Center Property or to charge interest under the Minneapolis
City Center Note at the default rate provided for therein, for the benefit of
the Wrap Mortgagee, solely as a result of a default by the Minneapolis City
Center Mortgagor, as long as the Minneapolis City Center Borrower is diligently
pursuing its remedies under the Wrap Mortgage. The Forbearance Covenant expires
(i) on the second anniversary of the default by the Minneapolis City Center
Mortgagor or (ii) if a Qualifying Condition (as defined below) no longer
exists. The Forbearance Covenant does not prevent the mortgagee under the
Minneapolis City Center Mortgage from taking any actions necessary to protect
its interest in any collateral or to seek the appointment of a receiver.
The MCC Subordination Agreement provides that the Wrap Mortgagee may
pursue enforcement actions under the Wrap Mortgage as long as a "Qualifying
Condition" exists, but that the enforcement action must cease once a Qualifying
Condition no longer exists. "Qualifying Conditions" include: (i) no MCC Event
of Default (as defined below) existing under the Minneapolis City Center Loan,
(ii) any MCC Event of Default existing under the Minneapolis City Center Loan
solely by reason of a non-material default by the Minneapolis City Center
Mortgagor, and (iii) in the case of an MCC Event of Default existing under the
Minneapolis City Center Loan solely as a result of a material default by the
Minneapolis City Center Mortgagor, (a) the "Test Conditions" (as defined below)
are at all times satisfied, and (b) an additional $20,000,000 (the "Additional
Guaranty") is delivered by Brookfield Properties. As long as a Qualifying
Condition exists, then the Wrap Mortgagee may, among other things, receive
payments under the Wrap Mortgage, accelerate the indebtedness secured by the
Wrap Mortgage, foreclose the Wrap Mortgage, seek the appointment of a receiver
for the Minneapolis City Center Property, seek a deed in lieu of foreclosure on
the Minneapolis City Center Property and/or exercise the Minneapolis City
Center Purchase Option and apply the Wrap Mortgage indebtedness to the payment
of the exercise price of the Minneapolis City Center Purchase Option. Material
Minneapolis City Center Mortgagor defaults include (i) defaults caused wholly
or in part by failure to comply with the single purpose entity requirements or
the transfer restrictions contained in the Minneapolis City Center Mortgage,
and (ii) any other default on the part of the Minneapolis City Center Mortgagor
that results in the first priority liens and security interest created by the
Minneapolis City Center Mortgage and the other related security documents not
being valid, subsisting and in full force and effect or being challenged as to
their validity, subsistence and effectiveness or results in a material adverse
effect on (A) the validity, priority, perfection or status of such mortgagee's
liens and security interest under the Minneapolis City Center Mortgage and the
other related security documents, (B) such mortgagee's rights and remedies
under the Minneapolis City Center Note, the Minneapolis City Center Mortgage or
the other related security documents or applicable law as a result of the
Minneapolis City Center Mortgagor's default and/or the Minneapolis City Center
Mortgagor's bankruptcy and/or the Forbearance Covenant or (C) such mortgagee.
The "Test Conditions" include (i) a debt service coverage ratio of at least
1.45x (based on a 9.23% debt constant), (ii) all amounts due under the
Minneapolis City Center Loan (other than amounts due solely as a result of
acceleration caused by the bankruptcy of the Minneapolis City Center Mortgagor)
being paid, (iii) the claims of the mortgagee under the Minneapolis City Center
Mortgage being unimpaired, and (iv) certain other conditions described in the
MCC Subordination Agreement.
The MCC Subordination Agreement also contains specific provisions
addressing a bankruptcy of the Minneapolis City Center Mortgagor. If the Test
Conditions are satisfied as of the date of such a
S-71
<PAGE>
bankruptcy, the Wrap Mortgagee may deliver the Additional Guaranty so that a
Qualifying Condition exists. If the Test Conditions are not satisfied as of the
date of the bankruptcy or as of any date that the debt service coverage ratio
is calculated, then the Wrap Mortgagee may prepay such amounts of the
Minneapolis City Center Loan so that the Test Conditions will be satisfied
after such prepayment. If the Additional Guaranty is not delivered or the
prepayment is not made within the times set forth in the MCC Subordination
Agreement, then the Wrap Mortgagee's rights in the event of a Minneapolis City
Center Mortgagor bankruptcy will terminate. The rights of the Wrap Mortgagee
during the bankruptcy include (i) the prohibition of the mortgagee under the
Minneapolis City Center Mortgage from seeking relief from the automatic stay
for the purpose of foreclosing on the Minneapolis City Center Mortgage until
the third anniversary of such bankruptcy, (ii) its right to seek relief from
the automatic stay in order to foreclose, exercise its right to obtain title to
the Minneapolis City Center Property, to take a deed in lieu of foreclosure or
to enforce its assignment of rents, (iii) the prohibition of the mortgagee
under the Minneapolis City Center Mortgage from voting the Wrap Mortgagee's
claim unless necessary to keep such mortgagee's claim unimpaired, and (iv) its
right to receive its payments after payment of amounts due under the
Minneapolis City Center Loan and operating expenses of the Minneapolis City
Center Property. If the Test Conditions are no longer satisfied, then, subject
to the Wrap Mortgagee's right to make a prepayment within a specified time, the
Wrap Mortgagee will no longer have the rights provided for in the MCC
Subordination Agreement and the mortgagee under the Minneapolis City Center
Mortgage may pursue its rights under the Additional Guaranty. In general, the
mortgagee under the Minneapolis City Center Mortgage may pursue its rights
under the Additional Guaranty if (i) a Qualifying Condition no longer exists,
(ii) the Minneapolis City Center Mortgagor's bankruptcy is still pending three
years after commencement, or (iii) such mortgagee's claim becomes impaired. As
long as no MCC Event of Default (as defined below) exists and none of the
triggering events described above for collection on the Additional Guaranty has
occurred and is continuing, then the Additional Guaranty will be returned on
the date which is 90 days after the date on which (i) the fee simple interest
in the Minneapolis City Center Property is conveyed to the Wrap Mortgagee
without condition, (ii) the Wrap Mortgage loan documents cease to be of any
further force and effect and (iii) there are no liens encumbering the
Minneapolis City Center Property other than permitted exceptions. At such time,
the Minneapolis City Center Loan will be reinstated to the maturity date that
existed prior to the bankruptcy as long as no MCC Event of Default exists, the
claims of the mortgagee under the Minneapolis City Center Mortgage are
unimpaired and no default exists on the part of the Wrap Mortgagee under the
MCC Subordination Agreement.
The MCC Subordination Agreement also provides that, from the commencement
of a bankruptcy of the Minneapolis City Center Mortgagor and through the third
anniversary of the commencement of such bankruptcy, the Wrap Mortgagee may
purchase the Minneapolis City Center Loan for any amount equal to the amount
that would be required to repay such loan in full at such time, plus the
payment of all of the costs of the mortgagee under the Minneapolis City Center
Mortgage in connection with such sale.
The Subordination Agreement Guaranty. Brookfield Properties has provided a
$20,000,000 guaranty to secure the Wrap Mortgagee's obligations under the terms
of the MCC Subordination Agreement as well as certain other obligations of the
Minneapolis City Center Borrower. The mortgagee under the Minneapolis City
Center Mortgage can pursue the guaranty if: (i) the Wrap Mortgagee defaults in
its obligations under the MCC Subordination Agreement; (ii) any action is taken
to challenge the validity, enforceability or perfection of the MCC
Subordination Agreement; (iii) Brookfield Properties fails to deliver the
required liquidity letter of credit; or (iv) the Minneapolis City Center
Borrower fails to provide the Third Debt Service Reserve Account (as defined
below). The principal amounts recoverable in connection with items (iii) and
(iv) in the preceding sentence would be limited to the amounts necessary to
cure the default.
Payment Terms. The Minneapolis City Center Loan matures on May 31, 2028
and bears interest from May 21, 1998 through and including its maturity date as
described below. The Mortgage Rate for the Minneapolis City Center Loan is
fixed at 6.72% per annum. Commencing on the first day of July 1998, the
Minneapolis City Center Note requires equal consecutive monthly payments of
principal and interest in the amount necessary to fully amortize the
Minneapolis City Center Loan based on a 30-year
S-72
<PAGE>
amortization schedule. The current monthly principal and interest payment is
equal to approximately $698,333. The Minneapolis City Center Loan is a
Hyper-Amortization Loan and its Anticipated Repayment Date is May 31, 2008. The
monthly principal and interest payment will be recalculated on its Anticipated
Repayment Date. From and after its Anticipated Repayment Date, the Minneapolis
City Center Loan shall bear Excess Interest at the higher of (i) a rate of 2%
per annum and (ii) a per annum rate equal to the positive excess of (a) the
prevailing yield to maturity on the "on the run" 20-year U.S. Government
Treasury (or a comparable Treasury security selected by the mortgagee under the
Minneapolis City Center Mortgage) plus 102 basis points over (b) the Mortgage
Rate. Interest on the Minneapolis City Center Loan is calculated on a 30/360
Basis. After the Anticipated Repayment Date, any excess cash flow from the
Minneapolis City Center Property available after the deposit of any operating
expense allocation under the cash management system will be applied in
accordance with the terms of the Minneapolis City Center Note which provides
that excess cash flow is to be applied in the following order: (i) to any
advances made under any of the Minneapolis City Center Loan documents; (ii) to
any Prepayment Premiums then due; (iii) to any accrued and unpaid interest at
the Mortgage Rate; (iv) to any late charges and other similar amounts; (v) to
the outstanding principal balance of the Minneapolis City Center Loan (in
inverse order of maturity without reducing the monthly amortization payments);
and (vi) to accrued and unpaid Excess Interest and accrued but unpaid interest
thereon. The application of such excess cash flow amounts provides for
hyper-amortization of the Minneapolis City Center Loan to the extent that there
is sufficient excess cash flow from the Minneapolis City Center Property.
Any failure to make any payment due under the Minneapolis City Center Note
when due, subject to the applicable grace period, will result in a liquidated
damages late charge equal to 5% of the amount overdue.
MCC Events of Default. The mortgagee under the Minneapolis City Center
Mortgage will have the right, without limitation, to accelerate the
indebtedness due under the Minneapolis City Center Loan, to appoint a receiver,
to commence foreclosure proceedings and to avail itself of other general
remedies at law or in equity on the happening of a default under the
Minneapolis City Center Loan after the expiration of any applicable notice and
grace periods (hereinafter, each, an "MCC Event of Default"). The occurrence of
any one of the following, among others, will constitute an MCC Event of Default
under the Minneapolis City Center Loan: (i) failure to pay any amount due under
the Minneapolis City Center Mortgage, the Minneapolis City Center Note or any
of the other related security documents and Mortgage Loan documents within five
days after the due date thereof, including the failure to repay the Minneapolis
City Center Loan on the maturity date thereof; (ii) the failure by the
Minneapolis City Center Mortgagor or the Minneapolis City Center Borrower to
perform any of the obligations under the Minneapolis City Center Mortgage, the
Minneapolis City Center Note, the other related security documents or Mortgage
Loan documents which has not been cured within 15 days after notice in the case
of payment obligations or 30 days after notice in the case of other obligations
(subject to an additional extended cure period of up to 90 days in the case of
a non-monetary default where the cure is being diligently pursued); (iii) any
transfer made in violation of the Minneapolis City Center Mortgage; (iv) any
false representation shall have been made in any of the Minneapolis City Center
Mortgage, the Minneapolis City Center Note, the other related security
documents or Mortgage Loan documents (subject to the same cure rights as are
afforded for non-monetary defaults); (v) a final judgment for money in excess
of $500,000 against either the Minneapolis City Center Mortgagor or the
Minneapolis City Center Borrower remaining undischarged after 30 days and for
which execution has not been stayed; (vi) the bankruptcy or insolvency of
either the Minneapolis City Center Mortgagor or the Minneapolis City Center
Borrower; (vii) the failure of the Minneapolis City Center Mortgage to be a
valid first lien; (viii) any mechanic's lien remaining on the Minneapolis City
Center Property for more than 20 days (subject to rights of contest provided
for in the Minneapolis City Center Mortgage); (ix) any default under the MCC
Subordination Agreement; (x) failure of the Minneapolis City Center Borrower to
remain a separate and distinct entity as required under the Minneapolis City
Center Mortgage for five days after receipt of notice from the mortgagee under
the Minneapolis City Center Mortgage; (xi) failure to maintain required
insurance coverage; (xii) any amendment, modification or rejection in
bankruptcy of any of the Wrap Mortgage documents, the Minneapolis City Center
Purchase Option documents, the Minneapolis City Center Management Agreement or
documents relating to the pledge of the Wrap
S-73
<PAGE>
Mortgage, other than as permitted under the MCC Subordination Agreement or by
the mortgagee under the Minneapolis City Center Mortgage; (xiii) the failure of
the Minneapolis City Center Mortgagor to exist as a special purpose entity;
(xiv) any default under the Wrap Mortgage or the Minneapolis City Center
Purchase Option; (xv) the amendment of the mezzanine loan documents referred to
in "--Mezzanine Debt" below without the consent of the mortgagee under the
Minneapolis City Center Mortgage to provide for a debt service coverage ratio
on the Minneapolis City Center Property of less than 1.0x or for the full
repayment thereof not later than the eighth anniversary of the Minneapolis City
Center Mortgage; and (xvi) any default under the clearing account agreement or
either of the deposit account agreements.
Upon the occurrence of an MCC Event of Default, the mortgagee under the
Minneapolis City Center Mortgage will be entitled to receive, and the
Minneapolis City Center Borrower is obligated to pay, interest on the entire
unpaid principal sum at the Mortgage Rate (or, if such payment is being made
after the Anticipated Repayment Date for the Minneapolis City Center Loan, at
the Revised Rate) plus 5% (in the case of a monetary default) or 1% (in the
case of a non-monetary default).
Prepayment. The Minneapolis City Center Loan may be prepaid on any Due
Date in full but not in part (unless required under the Minneapolis City Center
Mortgage, any other related security agreement or Mortgage Loan document in the
case of casualty or condemnation, or in order to satisfy the Test Conditions as
set forth in the MCC Subordination Agreement). Any prepayment requires payment
of a Prepayment Premium in an amount equal to the greater of (a) 5% (in the
case of prepayments made within the first four years of the loan term) or 2%
(in the case of prepayments made within the period commencing on the beginning
of the fifth year of the loan term and ending six months prior to the
Anticipated Repayment Date) of the principal amount being prepaid and (b) the
positive excess of (i) the present value of all future installments of
principal and interest due under the Minneapolis City Center Note, discounted
at an interest rate per annum equal to the "Treasury Constant Maturity Yield
Index" for instruments having a maturity coterminous with the related
Anticipated Repayment Date, over (ii) the outstanding principal amount of the
Minneapolis City Center Note immediately before such prepayment. No Prepayment
Premium shall be required in connection with a prepayment made after the date
that is six months prior to the Anticipated Repayment Date.
Loan Servicing, Reserve and Escrow Accounts. Reserve accounts for paying
future debt service, tenant improvements, leasing commissions and capital
projects were established at closing in the following amounts: (i) a debt
service reserve account (the "First Debt Service Reserve Account") in the
amount of $1,000,000 and a debt service reserve account (the "Second Debt
Service Reserve Account") in the amount of $1,270,000 (each in the form of a
cash deposit or a letter of credit); (ii) a tax and insurance reserve in the
amount of $645,685; (iii) a tenant improvement and leasing commission reserve
(the "Tenant Improvement and Leasing Commission Reserve") in the amount of
$5,000,000 (initially $3,000,000 cash and a $2,000,000 letter of credit); and
(iv) a required repair reserve (the "Required Repair Reserve") in the amount of
$309,000. Monthly escrow deposits for insurance and property taxes are required
in the initial amount of $530,460. The Minneapolis City Center Mortgagor is
required to deposit an additional monthly amount of $12,500 commencing on June
1, 1998 and $15,000 per month commencing on January 1, 1999 into the Required
Repair Reserve. No further deposits are required after December 1, 1999. The
Minneapolis City Center Mortgagor is also required to deposit $26,367 into a
replacement reserve on the first day of each month until the Minneapolis City
Center Loan is repaid in full and is further required to deposit an amount
equal to the lesser of $125,000 or the amount necessary to restore a $5,000,000
balance into the Tenant Improvement and Leasing Commission Reserve on the first
day of each month until the Minneapolis City Center Loan is repaid in full. An
additional debt service reserve (the "Third Debt Service Reserve") must be
established if a "Hotel Event" occurs. The amount of this Third Debt Service
Reserve will be equal to (a) the outstanding principal balance of the
Minneapolis City Center Loan, less (b) the remaining amount of the Second Debt
Service Reserve, and less (c) $98,000,000. A "Hotel Event" is either the
failure on the part of hotel lessee to make required payments under the ground
lease, which failure continues for 90 days, or the foreclosure by a leasehold
mortgagee on the leasehold interest of the hotel lessee. The amount of the
Third Debt Service Reserve will be reduced on each anniversary of its
establishment such that the amount of such reserve does not
S-74
<PAGE>
exceed the required amount taking into account the then-current principal
balance and the amount of the Second Debt Service Reserve. The Second Debt
Service Reserve is released when the remaining principal balance of the
Minneapolis City Center Loan is $98,000,000 or less. Any other debt service
reserve is to be released 91 days after the final and irrevocable payment of
the Minneapolis City Center Loan. A liquidity reserve in the form of a letter
of credit is required to be established in an amount equal to six times the
then-current monthly payment on the Minneapolis City Center Loan upon the
earlier to occur of (i) six months prior to the date that the Minneapolis City
Center Purchase Option may first be exercised and (ii) 10 days after the
commencement of a bankruptcy by or against the Minneapolis City Center
Mortgagor. The above reserve accounts are established as subaccounts of the
deposit accounts that have been established for the Minneapolis City Center
Borrower and the Minneapolis City Center Mortgagor, which are interest bearing
escrow accounts to be maintained by the mortgagee under the Minneapolis City
Center Mortgage throughout the term of the Minneapolis City Center Loan. The
Minneapolis City Center Borrower will be responsible for all inspection fees
that the mortgagee under the Minneapolis City Center Mortgage may incur in
connection with the capital projects.
Transfer of Properties and Interest in Borrower; Encumbrances; Other
Debt. Any conveyance, lease (except permitted leases), assignment, transfer,
lien or alienation (regardless of how it occurs) or any agreement to do any of
the foregoing, of any of the following properties, rights or interests, without
the prior written consent of the mortgagee under the Minneapolis City Center
Mortgage, is a "Prohibited Transfer" under the Minneapolis City Center
Mortgage: (i) the Minneapolis City Center Property or any of the rents,
profits, income, operating agreements or leases relating thereto; (ii) any of
the Minneapolis City Center Borrower's right, title and interest in the Wrap
Mortgage documents and/or the documents relating to the Minneapolis City Center
Purchase Option; (iii) (A) any interest in the Minneapolis City Center Borrower
or the general or limited partners of the Minneapolis City Center Borrower, or
in any entity which holds an interest in the Minneapolis City Center Borrower
or the general or limited partners of the Minneapolis City Center Borrower (but
the mortgagee under the Minneapolis City Center Mortgage may not unreasonably
withhold its consent to the transfer of any limited partnership interest in the
Minneapolis City Center Borrower) or (B) the general partnership interest in
the Minneapolis City Center Mortgagor (provided that any transfer of any
limited partnership interest in the Minneapolis City Center Mortgagor or of any
interest in the general partner of the Minneapolis City Center Mortgagor will
not be a Prohibited Transfer); and (iv) any amendment, alteration or
modification of the organizational documents of the Minneapolis City Center
Borrower without the consent of the mortgagee under the Minneapolis City Center
Mortgage will also be a Prohibited Transfer. The mortgagee under the
Minneapolis City Center Mortgage is required to consent to the one time
transfer of the Minneapolis City Center Property provided that certain
conditions are satisfied, including, without limitation that: (i) no MCC Event
of Default (or potential MCC Event of Default) exists; (ii) the transferee
assume all obligations under the Minneapolis City Center Loan; (iii) the
transferee be a special purpose, bankruptcy- remote entity meeting such
mortgagee's requirements for such purpose; (iv) such mortgagee receives a
non-consolidation opinion with respect to the transferee; (v) all of the
Minneapolis City Center Borrower's rights with respect to the Minneapolis City
Center Purchase Option and the Minneapolis City Center Management Agreement are
transferred to the transferee if the Wrap Mortgage documents are transferred;
(vi) payment of a 0.75% assumption fee on the then outstanding principal
balance of the Minneapolis City Center Loan be made; (vii) such mortgagee has
determined that the transfer will not affect any rating of the indebtedness
under the Minneapolis City Center Loan; and (ix) such mortgagee reasonably
approves the proposed transfer and transferee. Additionally, certain transfers
of the Wrap Mortgage documents and the documents relating to the Minneapolis
City Center Purchase Option, or the transfer of the ownership interest in the
general partner of the Minneapolis City Center Borrower, to companies wholly
owned, directly or indirectly, by Brookfield Properties are permitted as long
as the conditions applicable to other transfers (other than the payment of the
assumption fee and the approval of the transfer and transferee) are satisfied.
Insurance. The Minneapolis City Center Borrower or the Minneapolis City
Center Mortgagor is required to maintain the following insurance coverage: (i)
insurance against all perils covered by so-called "all risk" insurance as well
as coverage against contingent liability for any non-conforming uses in amounts
not less than the greater of the indebtedness under the Minneapolis City Center
Loan, the full
S-75
<PAGE>
insurable value of the improvements and personalty, or the minimum amount
necessary to avoid becoming a co-insurer, with a deductible not in excess of
$100,000; (ii) comprehensive general public liability with a combined single
limit in the amount of $2,000,000 in the aggregate and $1,000,000 per
occurrence; (iii) "broad form" business interruption insurance to cover loss of
rental income for all risks covered under the "all risk" policy, for a full 24
months, with the standard mortgagee clauses and/or loss payable clauses, in an
amount not less than $80,000,000, with no co-insurance and no deductible; (iv)
umbrella excess liability with a limit of not less than $50,000,000 in the
aggregate and $1,000,000 per occurrence; (v) steam boiler, machinery and
pressurized vessel insurance, with no co-insurance and with coverage of
$100,000,000 per occurrence as a minimum (with sublimits of $500,000 for water
damage, ammonia damage and expedited expenses and $100,000 for hazardous
substances, and naming the mortgagee under the Minneapolis City Center Mortgage
as an additional insured); (vi) flood insurance, if the Minneapolis City Center
Property is located in a flood zone or flood prone area, in the maximum amount
available; (vii) underground storage tank insurance in the amount of $1,000,000
per occurrence; and (viii) any insurance required by any lease or occupancy
agreement.
All insurance policies are required to be issued by companies that: (i)
have a general policyholder rating of "A" or better and a financial rating of
"Class X" or better from Alfred M. Best Company, Inc.; (ii) are licensed in the
State of Minnesota and have actively been in the business of providing such
insurance coverage for at least 10 years; (iii) if mutual companies, are
nonassessable companies; and (iv) have claims paying ratings of at least "AA"
by Fitch, if rated by Fitch, or if not rated by Fitch, claims paying ratings by
Moody's and Standard & Poors Ratings Services, a division of the McGraw-Hill
Companies, Inc. All insurance policies insuring against casualty and business
interruption and other appropriate policies are required to include
non-contributing mortgagee endorsements in favor of, and with loss payable to,
the mortgagee under the Minneapolis City Center Mortgage, as well as standard
waiver of subrogation endorsements, to contain a standard "New York" long form
mortgage and non-contributory endorsement clause, to provide that coverage may
not be terminated or modified, nor a risk changed, without 30 days' advance
written notice to the mortgagee under the Minneapolis City Center Mortgage, and
to provide that no claims in excess of $100,000 shall be paid thereunder
without 30 days' advance written notice to the mortgagee under the Minneapolis
City Center Mortgage.
Condemnation and Casualty. The Minneapolis City Center Borrower is
required to immediately notify the mortgagee under the Minneapolis City Center
Mortgage and the applicable insurer of any insurable loss and to provide
written notice of any loss of $100,000 or more to such mortgagee within 30 days
after the occurrence of such loss. The mortgagee under the Minneapolis City
Center Mortgage may elect to settle and adjust claims of $100,000 or more. As
long as no MCC Event of Default (or potential MCC Event of Default) has
occurred, and provided that no more than 20% of the Minneapolis City Center
Property has been damaged (in which case the mortgagee under the Minneapolis
City Center Mortgage is entitled to apply any insurance proceeds to pay down
the Minneapolis City Center Loan), the Minneapolis City Center Mortgagor will
be permitted to use any available net insurance proceeds or condemnation awards
for the repair or restoration of the Minneapolis City Center Property, subject
to certain conditions, including: (i) the net proceeds being payable to the
mortgagee under the Minneapolis City Center Mortgage; (ii) the proceeds, along
with any amounts deposited with such mortgagee for the purpose of restoration
being sufficient to complete the repair or restoration; (iii) amounts being
disbursed by such mortgagee periodically upon inspection of any work and
receipt and approval of items such as draw requests, lien waivers, releases,
certifications and other supporting documentation. Other conditions to the
disbursement of the net insurance proceeds include, without limitation: (a) the
right of the mortgagee under the Minneapolis City Center Mortgage to approve
any plans, drawings, specifications and contract documents; (b) such
mortgagee's entitlement to receive reimbursement for any of its costs incurred
in connection with the repair and restoration; (c) such mortgagee's right to
receive an endorsement to the title insurance policy insuring such mortgagee's
first lien security interest in the Minneapolis City Center Property in
connection with any disbursement; and (d) the limitation of any payment made
prior to completion to no more than 90% of the cost of the work performed. If
more than 20% of the Minneapolis City Center Property is affected, the
mortgagee under the Minneapolis City Center Mortgage may apply such proceeds or
awards to pay down the Minneapolis City Center Loan. Any prepayment provisions
would apply to such application. Any surplus amounts of awards or insurance
S-76
<PAGE>
proceeds may be applied by the mortgagee under the Minneapolis City Center
Mortgage to pay down the Minneapolis City Center Loan in the inverse order of
maturity. Any amounts held by the mortgagee under the Minneapolis City Center
Mortgage at the time that an MCC Event of Default occurs may also be applied to
the indebtedness.
The Minneapolis City Center Mortgagor and the Minneapolis City Center
Borrower are required to give the mortgagee under the Minneapolis City Center
Mortgage immediate notice of the actual or threatened commencement of any
proceedings under eminent domain affecting all or any part of the Minneapolis
City Center Property. Such mortgagee is authorized to collect, compromise,
settle and receive any awards in connection with any condemnation, but may
authorize the Minneapolis City Center Borrower to file, prosecute, settle and
adjust any such claim. All such awards are assigned to the mortgagee under the
Minneapolis City Center Mortgage and are to be applied as provided above.
The mortgagee under the Minneapolis City Center Mortgage is entitled to
deduct from all insurance proceeds or condemnation awards all costs and
expenses incurred by it in connection with any proceedings or collections.
Financial Reporting. The following items are required to be delivered to
the mortgagee under the Minneapolis City Center Mortgage: (i) within 30 days
after the end of each calendar month, the Minneapolis City Center Mortgagor is
required to deliver (A) a detailed description of any leases or occupancy
agreements or amendments entered into during such month, and (B) a list of all
tenants and occupants vacating, terminating or providing notice thereof during
such month, and within 30 days after the end of each calendar quarter, the
Minneapolis City Center Mortgagor is required to deliver (x) a rent roll, (y)
certified (by the Minneapolis City Center Mortgagor or the Minneapolis City
Center Property Manager) unaudited operating statements for the Minneapolis
City Center Property for such calendar quarter, and (z) tenant sales on a
tenant-by-tenant basis; (ii) within 90 days after the end of each calendar
year, the Minneapolis City Center Borrower is required to provide its annual
financial statements, certified by the chief executive officer or chief
financial officer; (iii) upon reasonable request by the mortgagee under the
Minneapolis City Center Mortgage, the Minneapolis City Center Mortgagor is
required to deliver an accounting of all security deposits received in
connection with any leases or occupancy agreements to such mortgagee; (iv) upon
request by the mortgagee under the Minneapolis City Center Mortgage, the
Minneapolis City Center Mortgagor is required to deliver estoppel certificates
from any one or more tenants or occupants as required by such mortgagee; and
(v) at least 30 days prior to the beginning of each calendar year, the
Minneapolis City Center Mortgagor is required to deliver an annual operating
and capital expenditure budget for the upcoming year.
Cash Management System. The cash management system provides for a sweep of
cash flow from the Minneapolis City Center Property into a clearing account
held in the name of the Minneapolis City Center Borrower for the benefit of the
Minneapolis City Center Mortgagor. Prior to the Anticipated Repayment Date, so
long as there is no MCC Event of Default, funds in the clearing account are
first deposited into the deposit account for the Minneapolis City Center
Borrower to fund any monthly debt service payments and to pay all other amounts
then due and owing under the Minneapolis City Center Loan, then into the
deposit account for the Minneapolis City Center Mortgagor for application to
(i) the tax and insurance reserve, (ii) the replacement reserve, (iii) the
tenant improvement and leasing commission reserve and (iv) the required repair
reserve, and then any remaining funds are deposited into the Minneapolis City
Center Property Manager's account. After the Anticipated Repayment Date, so
long as there is no MCC Event of Default, funds in the clearing account are
first deposited into the deposit account for the Minneapolis City Center
Borrower to fund any monthly debt service payments and to pay all other
amounts, then due and owing under the Minneapolis City Center Loan, then into
the deposit account for the Minneapolis City Center Mortgagor for application
to the various reserves identified in items (i) through (iv) in the preceding
sentence, then the amount of the operating expense allocation (less any amount
remaining from the prior disbursement period) is deposited into the Minneapolis
City Center Mortgagor's deposit account for payment of operating expenses, and
any remaining amounts are deposited into the Minneapolis City Center Borrower's
deposit account as excess cash flow for the excess cash flow subaccount. Any
tenant security deposits and net proceeds resulting from casualty insurance
proceeds or condemnation awards are deposited directly into the respective
subaccounts set up for these
S-77
<PAGE>
items. In the event that the Minneapolis City Center Mortgagor is contesting
any matters as allowed by the Minneapolis City Center Mortgage, then an amount
equal to 125% of the contested amount (100% for impositions) must be deposited
by the Minneapolis City Center Mortgagor into a separate subaccount designated
for such additional reserves. Any excess cash flow after the Anticipated
Repayment Date is to be used to reduce the indebtedness in accordance with the
terms of the Minneapolis City Center Note. It is an MCC Event of Default (as
described in "--Events of Default" above) if sufficient amounts are not
deposited into the clearing account and into the various deposit accounts and
each of the Minneapolis City Center Borrower and the Minneapolis City Center
Mortgagor (with respect to the tax and insurance reserve, the replacement
reserve and the tenant improvement and the leasing commission reserve) are
obligated to fund any deficiencies. The mortgagee under the Minneapolis City
Center Mortgage has the right to require a lockbox account arrangement
controlled by such mortgagee to administer the cash management procedures. Each
of the deposit accounts and the subaccounts established on a ledger entry basis
thereunder have been pledged to the mortgagee under the Minneapolis City Center
Mortgage as security for such Mortgage Loan and have been established in the
name of such mortgagee and under the sole dominion and control of such
mortgagee who maintains the sole right to make withdrawals.
Environmental Indemnity. The Minneapolis City Center Borrower has executed
an environmental indemnity agreement with respect to environmental hazards and
liabilities associated with the Minneapolis City Center Property.
Mezzanine Debt. In addition to the Minneapolis City Center Mortgage, the
Mortgage Loan Seller funded a twenty-five million dollar ($25,000,000)
mezzanine loan to Brookfield Commercial Properties, Inc. secured by Brookfield
Commercial Properties, Inc.'s equity interest in the Minneapolis City Center
Borrower. Subsequently, the Mortgage Loan Seller sold the mezzanine loan to
Trilon International, Inc, which is an affiliate of Brookfield Properties.
Recourse. The Minneapolis City Center Mortgage Loan is nonrecourse with
the exception of an indemnity by the Minneapolis City Center Borrower for
misapplication of rents, insurance proceeds and/or condemnation proceeds,
environmental problems and liabilities, failure to use the Minneapolis City
Center Property income to pay Minneapolis City Center Property expenses, fraud,
and failure to pay any transfer, recording, registration or similar tax due
with respect to the Minneapolis City Center Property or the Minneapolis City
Center Mortgage. Brookfield Properties has executed a nonrecourse guaranty to
back up this indemnification.
S-78
<PAGE>
WELLPOINT OFFICE COMPLEX, LOS ANGELES, CALIFORNIA
LOAN INFORMATION
- --------------------------------------------------------------------------------
ORIGINAL PRINCIPAL BALANCE: $51,200,000
CUT-OFF DATE BALANCE: $51,200,000
ORIGINATION DATE: July 11, 1997
INTEREST RATE: 7.86%
MATURITY DATE: December 1, 2015
BORROWER/SPONSORING
ENTITY: TA/Warner Center Associates II, L.P., a special
purpose entity controlled by two individuals and
Apollo Real Estate Investment Fund, LP.
AMORTIZATION TERM: The amortization schedule (based off the calendar
year) is as follows:
0-1.5: Interest Only
1999: 35 Year Schedule
2000: 30 Year Schedule
2001: 21 Year Schedule
2002: 17 Year Schedule
2003: 15 Year Schedule
2004-2015:12 Year Schedule
PREPAYMENT TERMS/
DEFEASANCE/RELEASE
PROVISIONS: The Mortgage Loan may be prepaid in whole, but
not in part according to the following schedule:
For Years 1-7: No prepayment;
Thereafter: Greater of 2% of UPB and Yield
Maintenance;
Years 5-7: Defeasance permitted with defeasance
deposit and pledge.
UPFRONT RESERVES: Annual replacement reserve of $42,710; completion
repair reserve of $130,925 (125% of the
recommended repair cost estimates that borrower
is responsible for as per third party property
condition report).
ONGOING RESERVES: Annual completion repair reserve of $42,710;
annual earthquake insurance reserves of $80,100.
COLLECTION ACCOUNT: Hard Lockbox
PROPERTY INFORMATION
- --------------------------------------------------------------------------------
SINGLE ASSET/PORTFOLIO: Single asset
PROPERTY TYPE: Office
OCCUPANCY: 100%
YEAR BUILT: 1977
THE COLLATERAL: 427,100 sq. ft. in three office buildings
RENTABLE SQUARE FEET: 427,100
SIGNIFICANT TENANTS: Wellpoint Health Networks, Inc. occupies 100% of
the building.
Public Rating as of 6/1/98:
S&P: BBB+
Moody's: Baa3
Lease expires in 2019 with two 5-year renewal
options at fair market rent.
PROPERTY MANAGEMENT: LaSalle Partners
1997 NET OPERATING INCOME: $4,270,000
UNDERWRITTEN NCF: $4,227,290
APPRAISED VALUE: $67,000,000
APPRAISAL DATE: March 13, 1997
CUT-OFF DATE
LOAN-TO-VALUE RATIO: 76.42%
ANNUAL DEBT SERVICE: $4,024,320
UNDERWRITTEN
DSCR (1): 1.05x
LOAN/SQ. FT. AS OF
CUT-OFF DATE: $119.88
- -------------------
(1) Based on Underwritten NCF which excludes the $80,100
earthquake reserve.
S-79
<PAGE>
THE WELLPOINT LOAN
The Loan. The "Wellpoint Loan" has a Cut-off Date Balance of approximately
$51,200,000 and is evidenced by a Mortgage Note in the original principal
amount of $51,200,000 (the "Wellpoint Note") issued by TA/Warner Center
Associates II, L.P. (the "Wellpoint Borrower"), a California limited
partnership. The Wellpoint Loan is secured by a Mortgage (the "Wellpoint
Mortgage") issued by the Wellpoint Borrower creating a first priority mortgage
lien on the Wellpoint Borrower's fee interest in a 6.28 acre site improved by
an office complex in Woodland Hills, California (the "Wellpoint Property").
References in this "--The Wellpoint Loan" section to "mortgagee" with respect
to the Wellpoint Loan mean the Mortgage Loan Seller with respect to the period
prior to the Delivery Date, and the Trustee (acting through the Master Servicer
and/or the Special Servicer) with respect to the period thereafter.
The Borrower. The operating agreements of the Wellpoint Borrower state
that it is organized as a special purpose entity. The Wellpoint Borrower owns
no material assets other than the Wellpoint Property and related interests. The
Wellpoint Borrower is at all times required to cause there to be at least one
independent director on the board of directors of each general partner of the
Wellpoint Borrower reasonably satisfactory to the mortgagee. The general
partner of the Wellpoint Borrower is TA/Warner Center II, Inc., a Delaware
corporation. The limited partner of the Wellpoint Borrower is TA/Warner Center
Associates whose general partners are Oldham Estates and the Apollo Real Estate
Investment Fund, L.P. Apollo Advisors, L.P. owns, directly or indirectly, all
of the general partner interests in Apollo Real Estate Investment Fund, L.P.
The Property. The Wellpoint Property is a 6.28 acre site improved by an
office complex located in Woodland Hills, Los Angeles County, California. Such
office complex, which has 427,100 net rentable square feet of space, was built
in 1977 and represents a Class A project in the West Valley submarket. The
property is zoned for commercial and industrial uses. The property is comprised
of a 13-story office building and three one-story ancillary buildings housing a
visitor center, training facility and a cafeteria. Parking is provided by
covenants for a minimum of 1,300 spaces in an adjacent surface parking lot. The
property is 100% leased to Wellpoint Health Networks, Inc. (the "Wellpoint
Tenant").
The Wellpoint Tenant is one of the largest publicly traded managed care
health care companies in the United States. They are diversified, with a broad
spectrum of quality network health plans provided through health maintenance
organizations, preferred provider organizations and specialty managed care
networks. As of June l, 1998, the Wellpoint Tenant was rated investment grade
by S&P and Moody's. The Wellpoint Tenant's lease began in January 1996 and runs
through December 2019.
Basic rent for each annual period will in no event decrease from the basic
rent payable for the preceding annual period and will in no event equal more
than 106.75% of the basic rent for the preceding annual period. In 1997, the
basic rent was equal to the lesser of (a) 106.75% of the preceding years' basic
rent and (b) basic rent x [1 + (10 (CPI comparison index 1996/base index)-1)].
The current rent schedule is as follows: For years 1998 and 1999, basic rent
shall be the lesser of: 106.75% of the preceding year's basic rent or the
higher of: (1) basic rent x [1+(10 ((CPI comparison index/preceding annual
period comparison index)-1))]; and (2) basic rent x [1+(10 (CPI comparison
index 1996/ CPI comparison index 1995) -1))]. For annual periods from January
2000 through and including December 2015, basic rent shall equal the least of:
(1) 106.75% of the preceding year's basic rent; or (2) basic rent for the
preceding annual period x [1 + (6 (CPI comparison index/ preceding annual
period comparison index) - 1)]; or (3) basic rent for the preceding annual
period x Accumulated CPI excess. There is free rent during January 2016 through
December 2019. The Accumulated CPI excess is the cumulative excess over the
relevant period over the amount necessary to increase the rent by 6.75% per
annum. For example, if the CPI is 3.0% in 1998, the calculation would increase
the rent by 30%. However, the maximum amount increase per year is capped at
6.75%. Therefore the amount of CPI, over the amount needed to increase the rent
by 6.75%, is accumulated and can be used if the CPI formula does not increase
the rent by 6.75%.
Market Overview. The Wellpoint Property is part of in the Warner Center
planned development in Woodland Hills in the West Valley submarket of the San
Fernando Valley market area, in the greater Los Angeles, California office
market. Office development in Warner Center ranges from small research and
development buildings to Class A high-rise office buildings. Formed in 1989,
Warner Center seeks to
S-80
<PAGE>
create an "Urban Village" concept to serve the west San Fernando Valley and
eastern Ventura County. The plan calls for high density office projects
surrounded by less dense retail and light industrial facilities, followed by
residential and recreational properties. Woodland Hills attracts a high quality
of financial and professional tenants; such as Rockwell, Healthnet, Prudential,
the Wellpoint Tenant, 20th Century Insurance and many others, all of whom
sought and found quality office space. The West Valley submarket consists of
184 buildings and offers more than 11.8 million square feet of rentable office
space.
According to a third party consulting firm, the San Fernando Valley office
market vacancy rate was 11.2% as of December 1997. The office market area
contains approximately 15,207,000 square feet of office space, excluding Class
C and smaller buildings. The Woodland Hills submarket is the dominant office
location in the San Fernando Valley. As of December 1997, the Woodland Hills
office vacancy rate was 12.0% with a total stock of 5,331,000 square feet.
Location/Access. Warner Center encompasses 1,100-acres, and is bounded by
Vanowen Street to the north, DeSoto Avenue to the east, Ventura Boulevard to
the south, and Topanga Canyon Boulevard to the west. The Ventura Freeway
(Interstate 101) provides freeway access to Woodland Hills/Warner Center. The
freeway parallels the southern boundary of the community. Through the Ventura
Freeway, regional access is facilitated.
Primary north/south surface arterials in Warner Center include Topanga
Canyon Boulevard, Canoga Avenue and DeSoto Avenue. Major east/west streets
include Vanowen Street, Victory Boulevard, Oxnard Street and Ventura Boulevard.
The existing surface streets allow local access both within the community and
adjacent areas.
Environmental Report. A "Phase I" environmental assessment dated as of
April 1997 was performed on the Wellpoint Property. The "Phase I" environmental
assessment did not identify any material adverse environmental conditions at
the Wellpoint Property. Nonetheless, there can be no assurance that all
environmental conditions and risks were identified in such environmental
assessment. The Wellpoint Tenant is obligated to indemnify the landlord and the
mortgagee with respect to all environmental damages that the Wellpoint Tenant
causes and to remediate such damages.
Engineering Report. A property condition report was completed on the
Wellpoint Property on April 7, 1997. The report concluded that the Wellpoint
Property was in good condition. The property's design and the materials
incorporated into the improvements are considered to be of good or above
average quality and common to similar types of property. With proper
maintenance normally expected for this type of improvement, the report noted,
the facilities should continue to perform satisfactorily according to normally
anticipated useful life schedules. A completion reserve account was held back
at $130,925, representing 125% of the repair and improvement costs recommended
in the property condition report.
Property Management. The Wellpoint Property is managed by LaSalle Partners
for the Wellpoint Tenant.
S-81
<PAGE>
Operating History. The following table presents information regarding the
financial performance of the Wellpoint Property:
<TABLE>
<CAPTION>
UNDERWRITTEN
1995 1996 1997 CASH FLOW
------ --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues ........................... N/A $ 4,000,000 $ 4,270,000 $ 4,270,000
Expenses ........................... $ 0 $ 0 $ 0
Net Operating Income ............... $ 4,000,000 $ 4,270,000 $ 4,270,000
Capital Expenditures ............... $ 42,710 $ 42,710
Underwritten Net Cash Flow ......... $ 4,000,000 $ 4,227,290 $ 4,227,290
Occupancy .......................... 100% 100% 100%
Retail ............................. 0% 0% 0%
Office ............................. 100% 100% 100%
Weighted-Average ................... 100% 100% 100%
Cut-Off Date Balance ............... $51,200,000
Appraised Value .................... $67,000,000
Cut-Off Date LTV Ratio ............. 76.42%
Annual Debt Service ................ $ 4,024,320
Underwritten DSCR .................. 1.05x
</TABLE>
UNDERWRITTEN NET CASH FLOW -- WELLPOINT
<TABLE>
<S> <C>
INCOME: $ 4,270,000
POTENTIAL GROSS INCOME ........................... $ 4,270,000
EFFECTIVE GROSS INCOME ........................... $ 4,270,000
TOTAL EXPENSES ................................... $ 0
NET OPERATING INCOME ............................. $ 4,270,000
Structural Reserves .............................. $ 42,710
*UNDERWRITTEN NET CASH FLOW ...................... $ 4,227,290
Annual Debt Service .............................. $ 4,024,320
Underwritten Debt Service Coverage Ratio ......... 1.05x
Cut-Off Date Loan-to-Value ....................... 76.42%
Occupancy ........................................ 100%
</TABLE>
- ----------
* Underwritten Net Cash Flow is based upon the Wellpoint lease revenue less
capital expenditures, excluding the earthquake insurance reserve of
$80,100.
Significant Tenant Summary. The Wellpoint Property has one significant
tenant on a triple net lease:
<TABLE>
<CAPTION>
CREDIT RATING % OF TOTAL NET LEASE
TENANT AS OF 6/1/98 SQUARE FEET RENTABLE AREA EXPIRATION
- ------------------------------- -------------------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Wellpoint Health Networks, Moody's 427,100 100% December 2019
Inc. ......................... --------------------------
Sr. Unsecured--Baa3
Sr. Unsecured Shelf--Baa3
Subordinate Shelf--Ba2
Standard & Poor's
--------------------------
BBB+
------------- ----
TOTAL NET RENTABLE SF ......... 427,100 100%
</TABLE>
S-82
<PAGE>
The Wellpoint Tenant operates a managed care network serving over six
million medical and 21 million specialty members. The Wellpoint Tenant has been
transformed over the past 10 years from a not-for-profit California Blue Cross
health plan into one of the largest investor-owned managed care companies in
the United States. Its principal products are the health maintenance
organization ("HMO"), preferred provider organization ("PPO") and
"point-of-service" health plan options, but the company also offers a range of
specialty healthcare products that are marketed as either separate plans or
incorporated into broader medical plans. At the end of 1997, Wellpoint had
HMO/PPO membership of 6.6 million, up from 4.5 million at the end of 1996.
These members were located in California (63%), Texas (4%), Georgia (1%) and
other states (32%).
Lease Expiration Schedule. The Wellpoint Tenant is the only tenant and its
lease expires in December 2019, with two renewal options.
Security. The Wellpoint Loan is a nonrecourse loan, secured by a Mortgage
(the "Wellpoint Mortgage") creating a first priority mortgage lien on the
Wellpoint Borrower's fee interest in the Wellpoint Property. The collateral for
Wellpoint Loan includes both real and personal property and all other rights
and interest, whether tangible or intangible in nature, including but not
limited to the property, land, additional land hereafter acquired by the
Wellpoint Borrower for use in connection with the land and the development of
the land, improvements, easements, fixtures and personal property, leases and
rents, condemnation awards, insurance proceeds, tax certiorari, conversion
proceeds, together with the structures and other improvements now or hereafter
and certain other collateral relating thereto. There is also an assignment of
leases and rents by the Wellpoint Borrower to the Mortgage Loan Seller. The
trustee under the deed of trust and certain other documents and instruments
evidencing and securing the Wellpoint Loan is Chicago Title Insurance Company,
as trustee for the holders of the Wellpoint Note. The Wellpoint Note and all of
the noteholder's right, title and interest in and to the Wellpoint Mortgage and
the other documents and agreements evidencing and securing the Wellpoint Loan
will be assigned to the Trust. The Wellpoint Borrower has pledged and granted
to the mortgagee a security interest in any an all monies now or hereafter held
by the mortgagee, including insurance proceeds, amounts held in the Lock Box
Account (as defined below), the payment reserve account, as additional security
for the obligations under the Wellpoint Loan.
The mortgagee is a named insured under the title insurance policies which
insure, among other things, that the Wellpoint Mortgage constitutes a valid and
enforceable first lien on the Wellpoint Property, subject to certain exceptions
and exclusions from coverage set forth therein.
Guarantors. The principals of the general partner of the Wellpoint
Borrower's limited partner and Apollo Real Estate Investment Fund, L.P., a
Delaware limited partnership (collectively, the "Wellpoint Guarantors") have
executed a Guaranty Agreement (the "Wellpoint Guaranty") in favor of the
mortgagee whereby the Wellpoint Guarantors severally, absolutely and
unconditionally guarantee to such mortgagee the prompt and unconditional
payment of the guaranteed recourse obligations of the Wellpoint Borrower. The
Wellpoint Borrower has recourse obligations for (i) fraud or intentional
misrepresentation, (ii) misapplication or misappropriation of rents after a
Wellpoint Event of Default (as defined below), (iii) misapplication or
misappropriation of security deposits or rents collected in advance, (iv)
misapplication or misappropriation of insurance proceeds or condemnation awards
after a Wellpoint Event of Default, (v) criminal acts committed in connection
with the Wellpoint Property and (vi) environmental matters.
To the extent that the mortgagee shall make a claim pursuant to the
Wellpoint Guaranty, the Wellpoint Guarantors shall be severally (but not
jointly) liable to the extent of the respective percentages (equalling 100%)
set forth therein.
Payment Terms. The Wellpoint Loan matures on December 1, 2015 and bears
interest from July 11, 1997 through and including its maturity date as
described below. The Mortgage Rate for the Wellpoint Loan is fixed at 7.86% per
annum. Interest on the Wellpoint Loan is calculated on a 30/360 Basis.
Commencing on the first day of September, 1997 and continuing through and
including the first day of December, 1998, the Wellpoint Loan requires equal
monthly payments of interest only in the amount
S-83
<PAGE>
of approximately $335,360. Commencing on the first day of January, 1999 and
continuing through and including the first day of December, 1999, the Wellpoint
Loan requires equal monthly payments of principal and interest of approximately
$358,458, based on a 35-year amortization schedule. Commencing on the first day
of January, 2000 and continuing through and including the first day of
December, 2000, the Wellpoint Loan requires equal monthly payments of principal
and interest of approximately $368,621, based on a 30-year amortization
schedule. Commencing on the first day of January, 2001 and continuing through
and including the first day of December, 2001, the Wellpoint Loan requires
equal monthly payments of principal and interest of approximately $409,667,
based on a 21-year amortization schedule. Commencing on the first day of
January, 2002 and continuing through and including the first day of December,
2002, the Wellpoint Loan requires equal monthly payments of principal and
interest of approximately $440,444, based on a 17-year amortization schedule.
Commencing on the first day of January, 2003 and continuing through and
including the first day of December, 2003, the Wellpoint Loan requires equal
monthly payments of principal and interest of approximately $455,269, based on
a 15-year amortization schedule. Commencing on the first day of January, 2004
and continuing through and including the first day of December, 2015, the
Wellpoint Loan requires equal monthly payments of principal and interest of
approximately $497,586, based on a 12-year amortization schedule. The balance
of said principal sum together with accrued and unpaid interest and any other
amounts due under the Wellpoint Note, the Wellpoint Mortgage and the other
related security documents is due and payable on the first day of December,
2015.
If any sum payable under the Wellpoint Note is not paid within five days
after receipt of written notice from the mortgagee that the Wellpoint Borrower
is in default of its obligation to pay such sum under the Wellpoint Note, the
Wellpoint Borrower is required to pay to the mortgagee upon demand an amount
equal to the lesser of (i) 4% of such unpaid sum or (ii) the maximum amount
permitted by applicable law to defray the expenses incurred by the mortgagee in
handling and processing such delinquent payment and to compensate the mortgagee
for the loss of the use of such delinquent payment and such amount is to be
secured by the Wellpoint Mortgage and the other related security documents.
Wellpoint Events of Default. The entire outstanding principal sum of the
Wellpoint Loan, together with all interest accrued and unpaid, shall without
notice become immediately due and payable at the option of the mortgagee if any
required payment is not paid within five days after receipt of written notice
from the mortgagee that the Wellpoint Borrower is in default or on the
happening of any other default after the expiration of any applicable notice
and grace periods (hereinafter, each, a "Wellpoint Event of Default"). The
occurrence of any one or more of the following events will constitute a
Wellpoint Event of Default:
(a) failure to pay any portion of the indebtedness under the Wellpoint
Loan on the date the same is due, such failure not having been cured within
five days of the receipt of written notice from the mortgagee or to pay the
entire Wellpoint Loan on its maturity date;
(b) the Wellpoint Borrower's violation or failure to comply with
provisions of the Wellpoint Loan relating to leasing obligations; failure to
comply with the covenants pertaining to its being and remaining a single
purpose entity; and the Wellpoint Borrower's violation of the restrictions
pertaining to the transfer or mortgaging of its interest in the Wellpoint
Property;
(c) any representation or warranty of the Wellpoint Borrower, the
environmental indemnitor, any Wellpoint Guarantor, the general partner of the
Wellpoint Borrower in the Wellpoint Mortgage, any related security document or
any other related Mortgage Loan document shall have been false or misleading in
any material respect when made;
(d) any default under the environmental indemnity agreement, replacement
reserve agreement or the completion/repair and security agreement that
continues after the expiration of applicable grace periods, if any;
(e) any default under any guaranty or indemnity executed in connection
with the Wellpoint Mortgage that continues after the expiration of applicable
grace periods, if any;
S-84
<PAGE>
(f) any default (other than those specifically described under this
"--Wellpoint Events of Default" heading) under the Wellpoint Mortgage, the
Wellpoint Note or any of the other related security documents by the Wellpoint
Borrower, which default is not cured (i) in the case of any default which can
be cured by the payment of a sum of money, within 10 days after written notice
from the mortgagee to the Wellpoint Borrower, or (ii) in the case of any other
default, within 30 days after written notice from the mortgagee to the
Wellpoint Borrower; provided that if such default cannot reasonably be cured
within such 30-day period, such cure period may be extended so long as the
Wellpoint Borrower is diligently pursuing a cure, but in no event may such cure
period be longer than 120 days (unless the cure requires construction or
remedial work that requires longer than 120 days for completion, in which case
the cure period shall be extended for an additional 120 days);
(g) the Wellpoint Borrower, the environmental indemnitor or any Wellpoint
Guarantor shall make an assignment for the benefit of creditors or if the
Wellpoint Borrower shall generally not be paying its debts as they become due;
(h) the Wellpoint Borrower's failure to keep in force or deliver evidence
of insurance as required by the Wellpoint Mortgage; and
(i) certain bankruptcy events.
Upon the occurrence of a Wellpoint Event of Default which is not cured
within any applicable grace or notice period, or upon the failure of the
Wellpoint Borrower to pay off the outstanding balance of the Wellpoint Loan and
any other amounts due thereunder on the maturity date, the mortgagee will be
entitled to receive, and the Wellpoint Borrower is obligated to pay, interest
on the entire unpaid principal sum at the Mortgage Rate (or, if such payment is
being made after the Anticipated Repayment Date for the Wellpoint Loan, the
Revised Rate) plus either 5% (in the case of a monetary default or in the case
of a monetary default and a non-monetary default existing at the same time) or
2% (in the case of a non-monetary default).
Prepayment. Provided no Wellpoint Event of Default exists, the principal
balance of the Wellpoint Note may be prepaid in whole but not in part (except
as otherwise specifically provided herein) at anytime after June 30, 2004 (but
may not be voluntarily prepaid prior to such date). Any prepayment after June
30, 2004 requires payment of a Prepayment Premium in an amount equal to the
greater of (A) 2.0% of the principal amount of the Wellpoint Note and (B) the
positive excess of (i) the present value of all future installments of
principal and interest due under the Wellpoint Note, discounted at an interest
rate per annum equal to the "Treasury Constant Maturity Yield Index" having a
maturity coterminous with the remaining term of the Wellpoint Note, over (ii)
the principal amount of the Wellpoint Note outstanding immediately before such
prepayment.
No Prepayment Premium will be due or payable in connection with any
prepayment resulting from application of insurance or condemnation proceeds as
provided in the Wellpoint Mortgage at any time during the loan term. Partial
prepayments of the Wellpoint Note are not be permitted, except partial
prepayments resulting from the mortgagee applying insurance or condemnation
proceeds to reduce outstanding principal balance of the Wellpoint Note as
provided in the Wellpoint Mortgage, on which no Prepayment Premiums shall be
due. If as a result of a Wellpoint Event of Default the Wellpoint Note is
declared due and payable by the mortgagee, then any tender or payment of
amounts due and owing under the Wellpoint Note prior to June 30, 2004 must be
accompanied by a Prepayment Premium plus an additional amount equal to 1% of
the principal balance of the Wellpoint Note.
Defeasance Collateral. Commencing on July 1, 2001 and continuing through
June 30, 2004, the Wellpoint Borrower may defease all (but not less than all)
of the principal balance of the Wellpoint Note subject to the satisfaction of
certain conditions, including: (i) the Wellpoint Borrower must provide at least
thirty (30) days notice prior to a scheduled Payment Date on which the
defeasance will occur (the "Defeasance Date"); (ii) the Wellpoint Borrower is
required to pay to the mortgagee all accrued and unpaid interest on the unpaid
principal balance of the Wellpoint Note, all other sums then due, the required
defeasance deposit and all reasonably incurred costs and expenses of the
mortgagee; (iii) no Wellpoint Event of Default shall exist on the Defeasance
Date; (iv) the Wellpoint Borrower is required
S-85
<PAGE>
to execute and deliver a security agreement, in form and substance reasonably
satisfactory to the mortgagee, creating a first priority lien on the defeasance
deposit and the United States of America government obligations purchased with
the defeasance deposit; and (v) the Wellpoint Borrower is required to deliver
certain opinions of counsel and certifications.
In connection with any defeasance of the Wellpoint Loan, the mortgagee has
the right to, and at the request of the Wellpoint Borrower must, establish or
designate a successor entity and the Wellpoint Borrower will be required to
transfer and assign all obligations, rights and duties under and to the
Wellpoint Note, together with defeasance collateral, to such successor entity.
The successor entity will be required to assume the obligations under the
Wellpoint Note and the defeasance security agreement, and the Wellpoint
Borrower will be relieved of its obligations thereunder.
Escrow Accounts. In addition to the initial deposit with respect to
earthquake insurance premiums made by the Wellpoint Borrower to the Mortgage
Loan Seller, the Wellpoint Borrower is required to pay to the mortgagee on the
first day of each calendar month (a) one-twelfth of the amount which would be
sufficient to pay earthquake insurance premiums due for renewal of the coverage
afforded by the insurance policy therefor upon the expiration thereof and (b)
from and after the occurrence of a Wellpoint Event of Default, one-twelfth of
an amount sufficient to pay taxes payable and other insurance premiums.
Transfer of Properties and Interest in Borrower; Encumbrances; Other
Debt. The Wellpoint Borrower may not sell, pledge, assign or otherwise transfer
the Wellpoint Property or any part thereof or permit the Wellpoint Property or
any part thereof to be sold, pledged, assigned or otherwise transferred. Such
sales, pledges, assignments or transfers are defined in the Wellpoint Mortgage
to include, without limitation, (a) an agreement wherein the Wellpoint Borrower
agrees to sell the Wellpoint Property or any part thereof for a price to be
paid in installments, (b) an agreement by the Wellpoint Borrower leasing all or
a substantial part of the Wellpoint Property for other than actual occupancy by
a space tenant thereunder or a sale, assignment or other transfer of, or the
grant of a security interest in, the Wellpoint Borrower's right, title and
interest in and to any leases and rents, (c) if the Wellpoint Borrower, any
guarantor, any indemnitor, or any general partner or managing member (or if no
managing member, any member) of the Wellpoint Borrower, any guarantor or any
indemnitor is a corporation, the voluntary or involuntary sale, conveyance,
transfer or pledge of such corporation's stock or the creation or issuance of
new stock under certain circumstances, (d) if the Wellpoint Borrower, any
guarantor or indemnitor or any general partner or managing member (or if no
managing member, any member) of the Wellpoint Borrower, any guarantor or any
indemnitor is a limited or general partnership or joint venture, the change,
removal or resignation of a general partner or the transfer or pledge of the
partnership interest of any general partner or any profits or proceeds relating
to such partnership interest, and (e) the pledge of the partnership interest of
any limited partner of the Wellpoint Borrower or of any profits or proceeds
relating to such partnership interest. Notwithstanding the foregoing
definition, certain transfers (e.g., by devise or descent or by operation of
law upon the death of a natural person, transfers to immediate family members,
sales pursuant to "buy-sell" or "right of first refusal" provisions contained
in the Wellpoint Borrower's partnership agreement, and transfers of interests
in Apollo Real Estate Investment Fund, L.P.) are permitted.
The Wellpoint Mortgage provides that Wellpoint Property may be transferred
subject to the mortgagee obtaining prior written confirmation from the Rating
Agencies that such proposed transfer will not materially affect (in effect
cause a qualification, downgrade or withdrawal) the then-current credit rating
of any Class of Certificates; provided that, (i) no more than two transfers are
permitted, (ii) a transfer fee equal to one percent of the outstanding
principal balance of the Wellpoint Loan shall be paid to the mortgagee upon
approval of the proposed transfer, and (iii) no transfer shall be permitted if
a Wellpoint Event of Default exists under the Wellpoint Loan or an event which
with the giving of notice or lapse of time or both could become, in the
reasonable judgment of the mortgagee, a material Wellpoint Event of Default.
Upon the assumption of the obligations under the Wellpoint Loan by any approved
transferee, the Wellpoint Borrower will be released from obligations other than
environmental obligations related to the Wellpoint Property.
S-86
<PAGE>
The Mortgage Loan Seller and the Wellpoint Borrower executed a side letter
agreement to the effect that, as a result of the Wellpoint Loan not having been
securitized by the end of 1997, and notwithstanding the provisions in the
Wellpoint Mortgage , the Wellpoint Borrower may transfer the Wellpoint Property
with the prior written consent of the mortgagee, which consent may not be
unreasonably withheld in the case of a proposed transferee whose entity status,
creditworthiness and management ability meet standards consistently applied by
the Mortgage Loan Seller , provided that (i) only one such transfer shall be
permitted during the term of the Wellpoint Loan, (ii) prior to the effective
date of the transfer, the transferee shall have executed and delivered to the
mortgagee an assumption agreement in form and substance acceptable to the
mortgagee, (iii) a transfer fee equal to one percent of the outstanding
principal balance of the Wellpoint Loan shall have been paid by the Wellpoint
Borrower to the mortgagee upon notice being given to the Wellpoint Borrower of
approval of the proposed transfer, (iv) no transfer would be permitted if a
Wellpoint Event of Default, or an event which with the giving of notice or
lapse of time or both could become a Wellpoint Event of Default, shall have
occurred and be continuing, and (v) such transferee is required to be a single
purpose bankruptcy remote entity.
Insurance. The Wellpoint Borrower is required to maintain for the
Wellpoint Property: (a) property insurance insuring "all risks of physical
loss" with respect to the improvements and building equipment; (b)
comprehensive general liability insurance including bodily injury, death and
property damage liability, insurance against any and all claims arising out of
or connected with the possession, use, leasing, operation, maintenance or
condition of the Wellpoint Property for a combined single limit of $10,000,000;
(c) statutory worker's compensation insurance with respect to any work on or
about the Wellpoint Property; (d) business interruption and/or loss of "rental
income" insurance in an amount sufficient to cover the loss of at least 12
months income; (e) broad-form boiler and machinery insurance (without exclusion
for explosion) covering boilers or other pressure vessels, machines and
equipment located in, on or about the Wellpoint Property and insurance against
loss of occupancy or use arising from any breakdown in such amounts as are
generally available at a commercially reasonable premium and are generally
required by institutional lenders for properties comparable to the Wellpoint
Property; (f) flood insurance, if available, with respect to the Wellpoint
Property to the extent located within a federally designated flood hazard zone
in an amount equal to the lesser of the Wellpoint Loan and the maximum limit of
coverage available with respect to the Wellpoint Property; (g) earthquake
insurance in amounts and in form and substance reasonably satisfactory to the
mortgagee provided that (A) such insurance is available at commercially
reasonable rates and (B) the amount of such insurance shall not be required by
the mortgagee to be more than $6,500,000, which amount includes the Wellpoint
Borrower's deductible portion; and (h) such other insurance, with respect to
the Wellpoint Property, against loss or damage of the kind customarily insured
against in such amounts as are generally required by institutional lenders for
properties comparable to the Wellpoint Property.
Any such insurance may be effected under a blanket policy so long as any
such blanket policy (except in the case of public liability insurance)
specifies the portion of the total coverage of such policy that is allocated to
the Wellpoint Property and any sublimits in such blanket policy applicable to
the Wellpoint Property, which amounts may not be less than the amounts required
pursuant to, and which must in any case comply in all other respects with the
requirements of, the Wellpoint Mortgage. All insurance policies are required to
name the mortgagee as an additional named insured, to provide that all proceeds
(except with respect to proceeds of general liability and workers' compensation
insurance) be payable to the mortgagee except with respect to condemnations and
casualties and to contain: (i) a standard "noncontributory mortgagee"
endorsement or its equivalent, relating, among other things, to recovery by the
mortgagee notwithstanding the negligent or willful acts or omissions of the
mortgagee; (ii) a waiver of subrogation endorsement in favor of the mortgagee;
(iii) an endorsement providing for a deductible per loss of an amount not more
than that which is customarily maintained by prudent owners of properties
comparable to, and in the general vicinity of, the Wellpoint Property, but in
no event in excess of $250,000; and (iv) a provision that such policies may not
be canceled, terminated or allowed to expire without at least 30 days' prior
written notice to the mortgagee, in each instance. The Wellpoint Loan requires
the Wellpoint Borrower to obtain the insurance described above from insurance
carriers having claims-paying-abilities rated not less than "A" by Moody's,
Fitch, Standard & Poor's Ratings Services, a division of the McGraw-Hill
Companies, Inc. or Duff & Phelps Credit Rating Co.
S-87
<PAGE>
Condemnation and Casualty. The Wellpoint Borrower is required to promptly
give the mortgagee notice of the actual or threatened commencement of any
condemnation or eminent domain proceeding and is required to deliver to the
mortgagee copies of any and all papers served in connection with such
proceedings. The mortgagee may participate in any such proceedings to the
extent permitted by law. Upon a Wellpoint Event of Default, the Wellpoint
Borrower is required to deliver to the mortgagee all instruments requested by
it to permit such participation. The Wellpoint Borrower may not make any
agreement in lieu of condemnation of the Wellpoint Property or any portion
thereof without the prior written consent of the mortgagee in each instance.
Notwithstanding any taking by public or quasi-public authority through eminent
domain or otherwise, the Wellpoint Borrower is required to continue to pay the
amounts due under the Wellpoint Loan at the time and in the manner provided for
its payment in the Wellpoint Note and Wellpoint Mortgage and the debt shall not
be reduced until any award or payment therefor shall have been actually
received and applied by the mortgagee, after the deduction of expense of
collection, to the reduction or discharge of the debt.
In the event of a casualty or taking by eminent domain, the following
provisions of the Wellpoint Mortgage will apply in connection with the
restoration of the Wellpoint Property. If (i) the "net proceeds" (defined to
include any insurance proceeds or condemnation awards received by the mortgagee
after deduction of its reasonable costs and expenses, if any, in collecting the
same) do not exceed $250,000 (the "Casualty Amount"); (ii) the costs of
completing restoration are reasonably estimated; (iii) no Wellpoint Event of
Default shall have occurred and be continuing under the Wellpoint Note, the
Wellpoint Mortgage or any Wellpoint Loan document; and (iv) the Wellpoint
Property and the use thereof after the restoration will be in compliance with,
and permitted under, all applicable zoning laws, ordinances, rules and
regulations, then net proceeds will be disbursed directly to the Wellpoint
Borrower and the Wellpoint Borrower will be required to commence and diligently
prosecute to completion. If the net proceeds are greater than the Casualty
Amount, such net proceeds are, subject to the provisions of the Wellpoint
Tenant's lease and any other leases that are superior to the lien of the
Wellpoint Mortgage, to be forthwith paid to the mortgagee to be held by the
mortgagee in a segregated account to be made available to the Wellpoint
Borrower for the restoration in accordance with the following provisions: (a)
No Wellpoint Event of Default shall have occurred; (b) the mortgagee shall be
furnished with an estimate of costs within a reasonable period; (c) the net
proceeds are sufficient to cover the cost of the restoration; (d) (1) in the
event that the net proceeds are insurance proceeds, less than 50% of the total
floor area of the improvements has been damaged or destroyed, or rendered
unusable as a result of such fire or other casualty or (2) in the event that
the net proceeds are condemnation awards, less than 50% of the land
constituting the Wellpoint Property is taken; (e) the mortgagee shall be
reasonably satisfied that any operating deficits will be covered out of the net
proceeds or other funds of the Wellpoint Borrower; (f) the mortgagee shall be
reasonably satisfied that upon completion of the restoration, (1) the debt
service coverage ratio shall be at least 1.05x and the debt service coverage
ratio (with earthquake insurance premiums included as expenses) shall be at
least 1.0x; (g) the restoration can reasonably be completed on or before either
6 months or the earliest date required for such completion under the Wellpoint
Tenant's lease or such time as may be required under applicable zoning law,
ordinance, rule or regulation; and (h) the Wellpoint Property and the use
thereof after the restoration will be in compliance with, and permitted under,
all applicable zoning laws, ordinances, rules and regulations.
The Wellpoint Tenant may not terminate its lease in connection with a
condemnation or casualty. The Wellpoint Borrower, as landlord, however, may,
with the consent of the mortgagee, so terminate the Wellpoint Tenant's lease.
Financial Reporting. The Wellpoint Borrower and any guarantors and
indemnitors are required to keep adequate books and records of account in
accordance with methods acceptable to the mortgagee in its reasonable
discretion, consistently applied and furnish to the mortgagee: (i) quarterly
rent rolls within 30 days after the end of each fiscal quarter; (ii) quarterly
operating statement within 30 days after the close of each fiscal quarter;
(iii) an annual balance sheet and profit and loss statement of the Wellpoint
Borrower, any guarantors and any indemnitors, together with audited financial
statements prepared by an independent certified public accountant within 90
days after the close of each fiscal year, provided however that any financial
statements required to be provided by individual guarantors and/or
S-88
<PAGE>
indemnitors are not required to be audited or prepared by an independent
certified public accountant so long as they are certified by each individual
guarantor; (iv) an annual certified rent roll for the Wellpoint Property
presented on a quarterly basis with the quarterly certified rent rolls
described within 90 days after the close of each fiscal year; (v) an annual
operating budget for the Wellpoint Property presented on a quarterly basis
consistent with the quarterly operating statement and all proposed capital
replacements and improvements at least 30 days prior to the start of each
calendar year; (vi) upon reasonable request from the mortgagee, the Wellpoint
Borrower and its general partner are required to furnish to the mortgagee: a
property management report, an accounting of all security deposits, additional
financial or management information as may, from time to time, be reasonably
required by the mortgagee.
Lockbox Account. An interest bearing lockbox account was established at
closing, which account will be controlled by the mortgagee or its agent. All
rents, revenue and receipts from the Wellpoint Property are required to be
deposited directly into the lockbox account. Provided no Wellpoint Event of
Default shall have occurred, the Wellpoint Borrower will be entitled to the
excess funds in such account after all payments due under the Wellpoint
Mortgage, including without limitation, any required escrows or reserves, have
been paid.
Pursuant to a side letter agreement, the Wellpoint Borrower has agreed,
upon request by the mortgagee, to enter into a lockbox account agreement,
deposit agreement or other such agreement with the mortgagee and a financial
institution selected by the mortgagee, in form reasonably satisfactory to the
mortgagee. The Wellpoint Borrower is required to pay all reasonable costs and
expenses incurred by the mortgagee in connection with such agreement.
Recourse. The Wellpoint Loan is nonrecourse with the exception of an
indemnity by the Wellpoint Borrower for misapplication of rents, insurance
proceeds and/or condemnation proceeds, environmental problems and liabilities,
failure to use the Wellpoint Property income to pay property expenses, fraud
and failure to pay any transfer, recording, registration or similar tax due
with respect to the Wellpoint Property or the Wellpoint Mortgage.
Environmental Indemnity. The Wellpoint Tenant is obligated to indemnify
the Wellpoint Borrower and the mortgagee with respect to all environmental
damages that the Wellpoint Tenant causes and to cause any required remediation
to be performed.
THE MORTGAGE LOAN SELLER AND THE ADDITIONAL WARRANTING PARTY
The Mortgage Loan Seller. 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.
The Additional Warranting Party. Morgan Guaranty is a New York banking
corporation. Morgan Guaranty is a direct, wholly-owned subsidiary of J.P.
Morgan & Co. Incorporated, a Delaware corporation whose principal office is
located in New York, New York, and is an affiliate of J.P. Morgan Securities
Inc. Morgan Guaranty is a commercial bank offering a wide range of banking
services to its customers both domestically and internationally. Its business
is subject to examination and regulation by federal and New York State banking
authorities.
The information set forth herein concerning (i) the Mortgage Loan Seller
has been provided by the Mortgage Loan Seller, and (ii) Morgan Guaranty has
been provided by Morgan Guaranty, 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 Citi Mortgage Loan,
S-89
<PAGE>
and Morgan Guaranty will be required to deliver the following documents, among
others, to the Trustee with respect to each Morgan Mortgage Loan: (a) the
original Mortgage Note, endorsed (without recourse) to the order of the Trustee
(or, if such original Mortgage Note has been lost, a copy thereof, together
with a lost note affidavit); (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 leases and
rents (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) a
completed 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) a completed assignment of any related assignment(s) of leases and rents (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 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 those cases where applicable, 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 Citi Mortgage Loan and by Morgan
Guaranty with respect to each Morgan 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 time
thereafter 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,
then the Mortgage Loan Seller (if, but only if, the affected Mortgage Loan is a
Citi Mortgage Loan) or Morgan Guaranty (if, but only if, the affected Mortgage
Loan is a Morgan Mortgage Loan) will be obligated, except as otherwise
described below, within a period of 90 days following the earlier of its
discovery or receipt of notice of such omission or defect, to deliver the
missing documents or cure the defect in all material respects, as the case may
be, or to repurchase (or cause the repurchase of) the affected Mortgage Loan at
a price (the "Purchase Price") generally equal to the sum of the unpaid
principal balance of such Mortgage Loan, plus any accrued but unpaid interest
thereon at the related Mortgage Rate to but not including the Due Date in the
Collection Period of repurchase, plus any related unreimbursed Servicing
Advances (as defined herein); provided that, if the Mortgage Loan Seller or
Morgan Guaranty, as the case may be, certifies to the Trustee that (i) such
defect is not reasonably susceptible of correction or cure, or such missing
document cannot reasonably be obtained, within such 90-day period and is
susceptible to correction or cure, or can be obtained, within an additional
90-day period, (ii) such defect or the absence of such document does not cause
the related Mortgage Loan to fail to be a "qualified mortgage" or a "qualified
replacement mortgage" within the meaning of Section 860G of the Code, and (iii)
the Mortgage Loan Seller or Morgan Guaranty, as the case may be, is diligently
prosecuting the correction or cure of such defect, or the obtaining of such
missing document, then such party shall have an additional period of 90 days in
which to correct or cure such defect or obtain such missing document (or, if
ultimately unable to do so, to effect such repurchase). The respective
cure/repurchase obligations of the Mortgage Loan Seller (in the case of Citi
Mortgage Loans) and Morgan Guaranty (in the case of Morgan Mortgage Loans) will
constitute the sole remedies available to the Certificateholders for any
failure on the part of the Mortgage Loan Seller or Morgan Guaranty, 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 Morgan Guaranty, 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 such document 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
S-90
<PAGE>
applicable recording office, then neither the Mortgage Loan Seller nor Morgan
Guaranty will be required to repurchase (or cause the repurchase of) 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 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, except as otherwise specified in the Pooling
Agreement and under this "--Representations and Warranties; Repurchases"
caption, the Mortgage Loan Seller will be required to represent and warrant
solely with respect to the Citi Mortgage Loans, and Morgan Guaranty will be
required to represent and warrant solely with respect to the Morgan 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) was 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
borrower's interest in 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 other matters to which like properties are
commonly subject, which do not materially and adversely affect the current use
of the Mortgaged Property, the security interest of the lender or the value of
the property, (C) rights of tenants (whether under ground leases or space
leases) at the Mortgaged Property to remain following a foreclosure or similar
proceeding (provided that such tenants are performing under such leases), (D)
exceptions and exclusions specifically referred to in the related lender's
title insurance policy issued or, as evidenced by a "marked-up" commitment, to
be issued in respect of such Mortgage Loan, and (E) if such Mortgage Loan is
cross-collateralized with any other Mortgage Loan, the lien of the Mortgage for
such other Mortgage Loan (the exceptions set forth in the foregoing clauses
(A), (B), (C), (D) and (E) 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 nonrecourse 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,
redemption, fraudulent conveyance, 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), and except that certain provisions of such
Mortgage Loan documents are or may be unenforceable in whole or in part under
applicable state or federal laws, but the inclusion of such provisions does not
render any of the Mortgage Loan documents invalid as a whole, and such Mortgage
Loan documents taken as a whole are enforceable to the extent necessary and
customary for the practical realization of the rights and benefits afforded
thereby; (iv) no Mortgage Loan was as of the Cut-off Date, or during the
twelve-month period prior thereto, more than 30 days 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 (except in those cases where there is an
escrow of funds, or an effective insurance policy provides coverage, sufficient
to effect the necessary repairs and maintenance); (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
S-91
<PAGE>
of federal and state law, including those requirements pertaining to usury,
relating to the origination of such Mortgage Loan; (x) one or more
environmental site assessments (or an update of a previously conducted
assessment) has been performed with respect to each Mortgaged Property not more
than 13 months prior to the Delivery Date, and it 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 Mortgage 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, or other similar outstanding charges affecting the
related Mortgaged Property that are not otherwise covered by an escrow of funds
sufficient to pay such charges; (xv) the related borrower's interest in each
Mortgaged Property securing a Mortgage Loan consists of a fee simple and/or
leasehold estate or interest in real property; (xvi) no Mortgage Loan contains
any equity participation by the lender, provides for any contingent or
additional interest in the form of participation in the cash flow of the
related Mortgaged Property or provides for the negative amortization of
interest, except for the Hyper-Amortization Loans to the extent described above
under "--Certain Terms and Conditions of the Mortgage Loans--
Hyper-amortization"; and (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 of such escrow deposits, are in the possession or under the control of
the representing party or its agents. In the Pooling Agreement, Morgan Guaranty
will also be required to represent and warrant, as of the Delivery Date, that,
immediately prior to the transfer of the Morgan Mortgage Loans to the Mortgage
Loan Seller, Morgan Guaranty was the sole owner of each Morgan Mortgage Loan
and had full right and authority to sell, assign and transfer such 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 was
the sole owner of each Mortgage Loan (including each Morgan Mortgage Loan) and
had full right and authority to sell, assign and transfer such Mortgage Loan
(provided that, in the case of the Morgan Mortgage Loans, such representation
and warranty will be made on the assumption that the representations and
warranties of Morgan Guaranty described in the prior sentence are true and
correct).
If the Mortgage Loan Seller discovers or is notified of a breach of any of
the foregoing representations and warranties made by it with respect to any
Citi 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, if Morgan Guaranty discovers or is notified of a breach
of any of the foregoing representations and warranties made by it with respect
to any Morgan Mortgage Loan, and in any case such breach materially and
adversely affects the value of such Mortgage Loan or the interests of
Certificateholders therein, then the party that made the representation and
warranty that was breached will be obligated, within a period of 90 days
following the earlier of its discovery or receipt of notice of such breach, to
cure such breach in all material respects or to repurchase (or cause the
repurchase of) the affected Mortgage Loan at the applicable Purchase Price;
provided that, if the Mortgage Loan Seller or Morgan Guaranty, as the case may
be, certifies to the Trustee that (a) such breach is not reasonably susceptible
of correction or cure within such 90-day period and is susceptible of
correction or cure within an additional 90-day period, (b) such breach does not
cause the related Mortgage Loan to fail to be a "qualified mortgage" or a
"qualified replacement mortgage" within the meaning of Section 860G of the Code
and (c) the Mortgage Loan Seller or Morgan Guaranty, as the case may be, is
diligently prosecuting the correction or cure of such breach, then such party
shall have an additional period of 90 days in which to correct or cure such
breach (or, if ultimately unable to do so, to effect such repurchase).
S-92
<PAGE>
The foregoing cure/repurchase obligation of the Mortgage Loan Seller or
Morgan Guaranty, 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 Morgan
Guaranty, as applicable, defaults on its obligation to do so. The Mortgage Loan
Seller and Morgan Guaranty 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 Citi Mortgage Loans and
Morgan Guaranty being the sole Warranting Party with respect to the Morgan
Mortgage Loans (except as described in the last sentence of the second
preceding paragraph). 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 Securities and
Exchange Commission 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.
S-93
<PAGE>
SERVICING OF THE MORTGAGE LOANS
GENERAL
Although the obligations and duties of the Master Servicer and the Special
Servicer with respect to the Mortgage Pool will initially be performed by a
single entity (see "--The Master Servicer and the Special Servicer" below), the
discussion herein is presented so as to reflect an allocation of
responsibilities as if two separate entities were acting as Master Servicer and
Special Servicer. In the event the obligations and duties of the Master
Servicer and the Special Servicer are performed by separate entities, neither
entity will be liable for the actions of the other as Master Servicer or
Special Servicer.
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 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 third parties or generally
services and administers similar mortgage loans or assets, as applicable, held
in its own portfolio, 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 any
related borrower or any other party to the Pooling Agreement; (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); (v) the right of the Master Servicer or the
Special Servicer, as the case may be, or any affiliate thereof to receive
compensation for its services or reimbursement of costs under the Pooling
Agreement generally or with respect to any particular transaction; (vi) the
management and/or servicing of mortgage loan portfolios for other third
parties; and (vii) any indemnity or repurchase obligation on the part of the
Master Servicer or the Special Servicer, as the case may be, or any of their
respective affiliates with respect to the Mortgage Loans.
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 below) 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 on behalf of the
Certificateholders in respect of a defaulted Mortgage Loan 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, or the Master Servicer
determines in its good faith and reasonable judgment will continue, 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 has continued,
or the Master Servicer determines in its good faith and reasonable judgment
will continue, 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 (including a Balloon 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 may, in the Master Servicer's good faith and
reasonable judgment, materially impair the value of the related Mortgaged
Property as security for the Mortgage Loan or
S-94
<PAGE>
otherwise materially and adversely affect the interests of Certificateholders,
which default has continued unremedied for the applicable cure period under the
terms of the Mortgage Loan (or, if no cure 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 its creditors, or voluntarily suspended payment of its obligations;
or (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. The Master Servicer and the Special
Servicer will 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 any group 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.
S-95
<PAGE>
THE MASTER SERVICER AND THE SPECIAL SERVICER
The duties of both Master Servicer and Special Servicer will be performed
by CRIIMI MAE Services Limited Partnership, a Maryland limited partnership
("CMSLP"), the general partner of which is CRIIMI MAE Management, Inc. CMSLP's
principal offices are located at 11200 Rockville Pike, Rockville, Maryland
20852.
As of March 31, 1998, CMSLP was master servicer for three commercial
mortgage-backed securities ("CMBS") mortgage portfolios comprised of
approximately 504 loans totaling approximately $2.1 billion. In addition, CMSLP
was direct servicer for 505 loans totaling approximately $2.8 billion, of which
322 and $1.3 billion, respectively, are in CMBS transactions. As a special
servicer, CMSLP is authorized to act, if necessary, with respect to
approximately 4,200 commercial mortgage loans in the aggregate principal amount
of approximately $22 billion as of March 31, 1998. Also in connection with its
special servicing duties, as of March 31, 1998, CMSLP performed loan management
duties (financial statement analysis and/or property site inspections) with
respect to approximately $16.5 billion of mortgage loans underlying CMBS pools
in which CRIIMI MAE Inc. owns subordinated classes of CMBS.
It is anticipated that an affiliate of CMSLP will purchase some or all of
the Class F Certificates, the Class G Certificates, the Class H Certificates,
the Class J Certificates, the Class K Certificates and Class L Certificates
(which will be the initial Controlling Class), on or about the Delivery Date.
The information set forth herein concerning CMSLP has been provided by it,
and none of the Sponsor or either Underwriter makes any representation or
warranty as to the accuracy or completeness of such information.
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. Some of the Mortgage Loans 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.
One or more such Sub-Servicers may be affiliates of the Mortgage Loan Seller or
Morgan Guaranty. 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, or (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. 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 each Specially
Serviced Mortgage Loan, if any, and each Mortgage Loan, if any, as to which the
related Mortgaged Property has become an REO Property), will accrue at the
applicable Master Servicing Fee Rate for such Mortgage Loan and will be
computed on the basis of the same principal amount and for the same number of
days respecting which any related interest payment on such Mortgage Loan is
computed
S-96
<PAGE>
under the terms of the related Mortgage Note and applicable law, and without
giving effect to any Excess Interest that may accrue on any Hyper-Amortization
Loan on or after its Anticipated Repayment Date. The "Master Servicing Fee
Rate" will range from 0.050% to 0.145% per annum, on a loan-by-loan basis, with
a weighted average Master Servicing Fee Rate of 0.0785% per annum as of the
Cut-off Date. As additional servicing compensation, the Master Servicer will be
entitled to retain Prepayment Interest Excesses (as described below) collected
on the Mortgage Loans (to the extent such Prepayment Interest Excesses are not
applied to offset Prepayment Interest Shortfalls (as defined below)). 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
related Due Date during any Collection Period, the amount of interest (net of
related Master Servicing Fees and any Excess Interest) 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, prior to the related Due Date
during any Collection Period and does not pay interest on such prepayment
through such Due Date, then the shortfall in a full month's interest (net of
related Master Servicing Fees and any Excess Interest) on such prepayment will
constitute a "Prepayment Interest Shortfall." Prepayment Interest Excesses
collected on the Mortgage Loans during any Collection Period will be retained
by the Master Servicer as additional servicing compensation, but only to the
extent that such Prepayment Interest Excesses exceed the aggregate amount of
Prepayment Interest Shortfalls incurred with respect to the Mortgage Loans
during such Collection Period. The Master Servicer will cover, out of its own
funds, any Prepayment Interest Shortfalls incurred with respect to the Mortgage
Loans during any Collection Period that are not offset by Prepayment Interest
Excesses collected on the Mortgage Loans during such Collection Period, but
only to the extent of that portion of its aggregate Master Servicing Fee for
the related Collection Period that is, in the case of each and every Mortgage
Loan, calculated at 0.02% per annum, together with all of its other servicing
compensation for the same Collection Period.
The principal compensation to be paid to the Special Servicer in respect
of its special servicing activities will be the Special Servicing Fee, the
Workout Fee and the Liquidation Fee. 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 0.25% per annum (the "Special Servicing Fee Rate"), on the basis of
the same principal amount and for the same number of days respecting which any
related interest payment due or deemed due on such Mortgage Loan is computed
under the related Mortgage Loan and applicable law, and without giving effect
to any Excess Interest that may accrue on any Hyper-Amortization Loan on or
after its Anticipated Repayment Date. All such Special Servicing Fees 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 (other than Default Interest (as defined below) and
Excess 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
S-97
<PAGE>
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 (other than any portion thereof that represents
accrued but unpaid Excess Interest or Default Interest). 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 Morgan Guaranty
for a breach of representation or warranty or for defective or deficient
Mortgage Loan documentation so long as such repurchase occurs within 120 days
of the Mortgage Loan Seller's or Morgan Guaranty's, as applicable, notice or
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 or holders 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 or holders of
Certificates evidencing a majority interest in the Controlling Class in
connection with the termination of the Trust. 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 (or, to the
extent such Sub-Servicers are not entitled thereto, the Master Servicer) 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, and
all "Default Interest" (that is, interest (other than Excess Interest) in
excess of interest at the related Mortgage Rate accrued as a result of a
default) and late payment charges (to the extent such Default Interest and/or
late payment charges are not otherwise applied to cover interest on Advances),
in each case to the extent actually paid by the borrowers with respect to such
Mortgage Loans (and, accordingly, such amounts will not be available for
distribution to Certificateholders). The respective Sub-Servicers (or, to the
extent such Sub-Servicers are not entitled thereto, the Master Servicer) shall
be entitled to receive all charges for beneficiary statements or demands and
any similar fees, and all amounts collected for checks returned for
insufficient funds with respect to all Mortgage Loans (including Specially
Serviced Mortgage Loans), as additional servicing compensation. Default
Interest and late payment charges accrued in respect of any Mortgage Loan are
to be applied to cover interest on Advances in respect of such Mortgage Loan.
In addition, 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 payment charges.
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
S-98
<PAGE>
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). 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 (i) is required under
the Pooling Agreement to direct the Master Servicer to make a Servicing Advance
or (ii) is otherwise aware a reasonable period in advance that it is reasonably
likely that the Special Servicer will incur a cost or expense that will, when
incurred, constitute a Servicing Advance, the Special Servicer is required (in
the case of clause (i) preceding), or is required to use reasonable efforts (in
the case of clause (ii) preceding), to 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 is obligated to make any Servicing Advance
in an emergency or in circumstances where the failure to make the Advance in
lieu of requesting that the Master Servicer make such Advance would be
inconsistent with the Servicing Standard; and provided, further, that the
Special Servicer is obligated to make any Servicing Advance with respect to
Specially Serviced Mortgage Loans and REO Properties that it fails to timely
request the Master Servicer to make. The Master Servicer will be required to
make any such Servicing Advance (other than a Nonrecoverable Servicing Advance
(as defined below)) that it is requested by the Special Servicer to so make
within five business days of the Master Servicer's receipt of such request. The
Special Servicer will, with limited exception as described in the preceding
sentence, be relieved of any obligations with respect to an Advance that it
timely requests the Master Servicer to make (regardless of whether or not the
Master Servicer makes that Advance).
If the Master Servicer or Special Servicer is required under the Pooling
Agreement to make a Servicing Advance, but neither does so within 10 days after
such Servicing Advance is required to be made, then the Trustee will be
required: (i) if it has actual knowledge of such failure, to give the
defaulting party notice of such failure; and (ii) if such failure continues for
three more business days, to make such Servicing Advance.
Notwithstanding anything to the contrary herein, the Master Servicer, the
Special Servicer and the Trustee will be obligated to make Servicing Advances
(including, in the case of the Master Servicer, at the request or direction of
the Special Servicer) only to the extent that such Servicing Advances are, in
the reasonable and good faith judgment of the Master Servicer, the Special
Servicer or the Trustee, as the case may be, ultimately recoverable from
Related Proceeds (any Servicing Advance not so recoverable, a "Nonrecoverable
Servicing Advance").
The foregoing paragraph notwithstanding, the Master Servicer is required
(at the direction of the Special Servicer if a Specially Serviced Mortgage Loan
or an REO Property is involved) to pay directly out of the Certificate Account
any servicing expense that, if paid by the Master Servicer or the Special
Servicer, would constitute a Nonrecoverable Servicing Advance, provided that
the Master Servicer (or the Special Servicer, if a Specially Serviced Mortgage
Loan or an REO Property is involved) has determined in accordance with the
Servicing Standard that making such payment is in the best interests of the
Certificateholders (as a collective whole), as evidenced by an officer's
certificate delivered promptly to the Trustee, the Sponsor and the Rating
Agencies, setting forth the basis for such determination and accompanied by any
supporting information the Master Servicer or the Special Servicer may have
obtained.
As and to the extent described herein, the Master Servicer, the Special
Servicer and the Trustee 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.
EVIDENCE AS TO COMPLIANCE
On or before March 15 of each year, beginning March 15, 1999, each of the
Master Servicer and the Special Servicer, at its expense, will be required to
cause a firm of independent public accountants that is a member of the American
Institute of Certified Public Accountants to furnish a statement to the Sponsor
S-99
<PAGE>
and the Trustee to the effect that such firm has examined such documents and
records as it has deemed necessary and appropriate relating to the Master
Servicer's or Special Servicer's, as the case may be, servicing of the Mortgage
Loans under the Pooling Agreement or servicing of mortgage loans similar to the
Mortgage Loans under substantially similar agreements for the preceding
calendar year (or during the period from the date of commencement of the Master
Servicer's or Special Servicer's, as the case may be, duties under the Pooling
Agreement until the end of such preceding calendar year in the case of the
first such certificate) and that the assertion of the management of the Master
Servicer or Special Servicer, as the case may be, that it maintained an
effective internal control system over servicing of the Mortgage Loans or
similar mortgage loans is fairly stated in all material respects, based upon
established criteria, which statement meets the standards applicable to
accountants' reports intended for general distribution.
The Pooling Agreement will also require that, on or before March 15 of
each year, beginning March 15, 1999, each of the Master Servicer and the
Special Servicer deliver to the Trustee a statement signed by one or more
officers thereof to the effect that the Master Servicer or Special Servicer, as
the case may be, has fulfilled its obligations under the Pooling Agreement in
all material respects throughout the preceding calendar year or the portion
thereof during which the Certificates were outstanding.
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 or defer the payment of interest on and principal of, 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 any
Certificateholder, subject, however, to each of the following limitations,
conditions and restrictions:
(i) with limited exception (including as described below with respect to
Excess Interest), 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 (collectively) on a
present value basis than would liquidation as certified to the Trustee in
an officer's certificate;
(ii) the Special Servicer may not, in connection with any particular
extension, (A) extend the maturity date of a Mortgage Loan beyond a date
that is two years prior to the Rated Final Distribution Date, (B) in the
case of a Mortgage Loan secured solely by a Mortgage on the applicable
borrower's leasehold interest in the related Mortgaged Property, beyond a
date that is ten years prior to the expiration of the ground lease or (C)
in the case of a Mortgage Loan that is a Balloon Mortgage Loan, extend the
maturity date beyond the amortization term thereof (without regard to the
Balloon Payment);
(iii) neither the Master Servicer nor the Special Servicer may 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, REMIC II or REMIC III 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
S-100
<PAGE>
and, unless it would constitute bad faith or 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 may permit any
borrower to add or substitute any collateral for an outstanding Mortgage
Loan, which collateral constitutes real property, unless the Special
Servicer shall have first determined in accordance with the Servicing
Standard, based upon a Phase I environmental assessment (and such
additional environmental testing as the Special Servicer 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 may 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 either occurs automatically, or results from the
exercise of a unilateral option by the borrower within the meaning of Treasury
Regulations Section 1.1001-3(c)(2)(ii), in any event 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.
With respect to the Hyper-Amortization Loans, the Master Servicer shall be
permitted, in its discretion, to waive all or any accrued Excess Interest if,
prior to the related maturity date, the related borrower has requested the
right to prepay the Mortgage Loan in full together with all other payments
required by the Mortgage Loan in connection with such prepayment except for
such accrued Excess Interest, provided that the Master Servicer's determination
to waive the right to such accrued Excess Interest is reasonably likely to
produce a greater payment to Certificateholders on a present value basis than a
refusal to waive the right to such accrued Excess Interest. The Master Servicer
will have no liability to the Trust, the Certificateholders or any other person
so long as such determination is based on such criteria.
SALE OF DEFAULTED MORTGAGE LOANS
The Pooling Agreement grants to the Master Servicer, the Special Servicer
and any holder or holders of Certificates evidencing a majority interest in the
Controlling Class a right to purchase from the Trust 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 sale or similar proceeding and that
the sale of such Mortgage Loan under the circumstances described in this
paragraph is in accordance with the Servicing Standard, 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 the holder (or holders) of the Controlling Class. A
single holder or particular group of holders of Certificates evidencing a
majority interest in the Controlling Class may, at its or their option,
purchase any such defaulted Mortgage Loan from the Trust, at a price equal to
the applicable Purchase Price. If such Certificateholder(s) has (have) 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, at a price equal to the applicable Purchase Price.
The Special Servicer may offer to sell any defaulted Mortgage Loan that
has not otherwise been purchased as described in 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. Such
offer is to be made in a commercially reasonable manner for a period of not
less than 30 days. Unless the
S-101
<PAGE>
Special Servicer determines that acceptance of any offer would not be in the
best economic interests of the Trust, the Special Servicer will be required to
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 Mortgage Loan Seller, Morgan Guaranty, the holder of any Certificate or any
affiliate of any such party (each, an "Interested Person") may purchase such
Mortgage Loan (or any REO Property acquired in respect thereof) for less than
the Purchase Price unless at least two other offers are received from
independent third parties at a price that is less than both the Purchase Price
and the price proposed by any Interested Persons; and provided, further, that
neither the Trustee nor any of its affiliates 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 not later than the end
of the third calendar year following the year of acquisition, unless (i) the
Internal Revenue Service grants an extension of time to sell such property (an
"REO Extension") or (ii) the Special Servicer obtains an opinion of independent
counsel generally to the effect that the holding of the property subsequent to
the end of the third calendar year following the year in which such acquisition
occurred will not result in the imposition of a tax on the Trust or cause REMIC
I, REMIC II or REMIC III 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 reasonable, maximize the Trust'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's
federal income tax reporting position with respect to income it is anticipated
that the Trust would derive from such property, the Special Servicer could
determine that it would not be commercially reasonable to manage and operate
such property in a manner that would avoid the imposition of a tax on "net
income from foreclosure property" (generally, income not derived from renting
or selling real 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
receives from an REO Property is subject to (i) a tax on "net income from
foreclosure property," such income would be subject to federal tax at the
highest marginal corporate tax rate (currently 35%) or (ii) a tax on
"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." The
considerations will be of particular relevance with respect to any health care
facilities or hotels that become REO Property. Any REO Tax imposed on the
Trust'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.
S-102
<PAGE>
INSPECTIONS; COLLECTION OF OPERATING INFORMATION
Commencing in 1999, the Master Servicer is required to perform (or cause
to be performed) physical inspections of each Mortgaged Property (other than
REO Properties and Mortgaged Properties securing Specially Serviced Mortgage
Loans) 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) as
soon as reasonably possible 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 so 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 delivery to the
Trustee of a written notice stating such designation. The Trustee will be
required, promptly after receiving any such notice, to 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 each Rating Agency 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 applicable provisions of 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 will 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 from time to time (the Class A-1 and Class A-2
Certificates being treated as a single Class for this purpose) that has a
then-current Certificate Balance at least equal to 25% of its initial
Certificate Balance (or, if no Class of Sequential Pay Certificates has a
then-current 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). The Class L Certificates will be the initial Controlling Class.
It is anticipated that an affiliate of CMSLP (which will act as Master Servicer
and Special Servicer) will acquire certain of the Private Certificates,
including Private Certificates constituting the initial "Controlling Class".
S-103
<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Mortgage Capital Funding, Inc., Multifamily/Commercial Mortgage
Pass-Through Certificates, Series 1998-MC2 (the "Certificates") will be issued
on or about June 29, 1998 (the "Delivery Date"), 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 REMIC Administrator, the Mortgage Loan Seller, and Morgan Guaranty
as additional warranting party. The Certificates will represent in the
aggregate the entire beneficial ownership interest in a trust (the "Trust"),
the assets of which (such assets collectively, the "Trust Fund") will include:
(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 include 16 classes (each, a "Class") to be
designated as: (i) the Class A-1 Certificates and the Class A-2 Certificates
(collectively, the "Class A Certificates"); (ii) the Class B Certificates, the
Class C Certificates, the Class D Certificates, the Class E Certificates, the
Class F Certificates, the Class G Certificates, the Class H Certificates, the
Class J Certificates, the Class K Certificates and the Class L Certificates
(collectively with the Class A Certificates, the "Sequential Pay
Certificates"); (iii) the Class X Certificates (collectively with the
Sequential Pay Certificates, the "REMIC Regular Certificates"); and (iv) the
Class R-I Certificates, the Class R-II Certificates and the Class R-III
Certificates (collectively, the "REMIC Residual Certificates"). Only the Class
X, Class A, Class B, Class C, Class D and Class E Certificates (collectively,
the "Offered Certificates") are offered hereby.
The Class F, Class G, Class H, Class J, Class K, Class L, Class R-I, Class
R-II and Class R-III 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: (i) in the case of the Class X Certificates, $1,000,000
initial notional amount and in any whole dollar denomination in excess thereof;
and (ii) in the case of the other Offered Certificates, $10,000 initial
principal amount and in any whole dollar denomination in excess thereof.
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
S-104
<PAGE>
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 AMOUNT
Upon initial issuance, the respective classes of Sequential Pay
Certificates will have the following Certificate Balances (in each case,
subject to a variance of plus or minus 5%):
<TABLE>
<CAPTION>
INITIAL APPROXIMATE APPROXIMATE
CERTIFICATE PERCENT OF INITIAL CREDIT
CLASS BALANCE INITIAL POOL BALANCE SUPPORT
- ------------------------ --------------- ---------------------- ---------------
<S> <C> <C> <C>
Class A-1 ......... $205,079,000 20.31% 28.75%
Class A-2 ......... $514,190,000 50.94% 28.75%
Class B ........... $ 47,951,000 4.75% 24.00%
Class C ........... $ 58,046,000 5.75% 18.25%
Class D ........... $ 60,570,000 6.00% 12.25%
Class E ........... $ 37,856,000 3.75% 8.50%
</TABLE>
The aggregate of the initial Certificate Balances for the Class F, Class
G, Class H, Class J, Class K and Class L Certificates will equal the excess of
the Initial Pool Balance over the aggregate of the initial Certificate Balances
for the Class A-1, Class A-2, Class B, Class C, Class D and Class E
Certificates.
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
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 amount (a "Notional Amount") equal to
the aggregate of the Certificate Balances of all of the Classes of Sequential
Pay Certificates outstanding from time to time. The initial Notional Amount for
the Class X Certificates is $1,009,500,069.
No class of REMIC Residual Certificates will have a Certificate Balance or
a Notional Amount or be entitled to any distribution of principal or interest.
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, under very limited circumstances, 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 B,
Class C, Class D and Class E Certificates for the initial Distribution Date are
set forth on the cover page hereof. The Pass-Through Rates for the Class A-1,
Class A-2, Class B and Class C Certificates for each subsequent Distribution
Date will, in the case of each such Class, remain fixed at the per annum rate
set forth with respect thereto on the cover page hereof; the Pass-Through Rate
for the Class D Certificates for each subsequent Distribution Date will equal
the lesser of (i) the per annum rate set forth with respect thereto on the
cover page hereof and (ii) the Weighted Average Net Mortgage Rate for such
Distribution Date; and the Pass-Through Rate for the Class E Certificates for
each subsequent Distribution Date will equal the Weighted Average Net Mortgage
Rate for such Distribution Date.
The Pass-Through Rate applicable to the Class X Certificates for the
initial Distribution Date is also set forth on the cover page hereof. The
Pass-Through Rate applicable to the Class X Certificates for each
S-105
<PAGE>
subsequent Distribution Date will, in general, equal the excess, if any, of (i)
the Weighted Average Net Mortgage Rate for each Distribution Date, over (ii)
the weighted average of the Pass-Through Rates applicable to all the Classes of
Sequential Pay Certificates for such Distribution Date (weighted on the basis
of their respective Certificate Balances immediately prior to such Distribution
Date).
The Pass-Through Rates applicable to the Class F, Class G and Class H
Certificates for each Distribution Date will, in the case of each such Class,
equal the Weighted Average Net Mortgage Rate for such Distribution Date. The
Pass-Through Rates applicable to the Class J, Class K and Class L Certificates
for each Distribution Date will, in the case of each such Class, equal 6.00%
per annum, respectively.
The "Weighted Average Net Mortgage Rate" for any Distribution Date will,
in general, equal the weighted average of the Net Mortgage Rates in effect for
all the Mortgage Loans as of the commencement of the related Collection Period
(weighted on the basis of such Mortgage Loans' respective "Stated Principal
Balances" (as defined below) immediately following the preceding Distribution
Date or, in the case of the initial Distribution Date, as of the Cut-off 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 aggregate of the per annum rates applicable to the calculation
of the Master Servicing Fee and the Trustee Fee (each as defined herein) with
respect to such Mortgage Loan (such monthly fees, collectively, the
"Administrative Fees"; and such aggregate rate, the "Administrative Fee Rate");
provided that, solely for purposes of calculating the Weighted Average Net
Mortgage Rate for any Distribution Date, the following adjustments will be made
in calculating the Net Mortgage Rate for certain Mortgage Loans: (a) if the
Mortgage Loan has been modified or changed by the Special Servicer as described
under "Servicing of the Mortgage Loans--Modifications, Waivers, Amendments and
Consents" herein or otherwise in connection with a bankruptcy, insolvency or
similar proceeding involving the related borrower, or if the subject Mortgage
Loan is in default, such modification, change and/or default will be
disregarded and the Net Mortgage Rate for such Mortgage Loan will be calculated
based upon the Mortgage Rate in effect for such Mortgage Loan as of the
Delivery Date; and (b) if the subject 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 (with limited exception) the Net Mortgage Rate in effect for such Mortgage
Loan during any calendar month will, in general, be deemed to be the annualized
rate at which interest would have to accrue in respect of such Mortgage Loan on
the basis of a 360-day year consisting of twelve 30-day months in order to
produce, subject to adjustment as described in the next sentence, the aggregate
amount of interest actually accrued in respect of such Mortgage Loan during
such calendar month at the related Mortgage Rate (net of the related
Administrative Fee Rate). For purposes of clause (b) of the proviso to the
preceding sentence, the "aggregate amount of interest actually accrued" in
respect of any Actual/360 Mortgage Loan during the following calendar months
will be adjusted as indicated: (i) in the case of December of each year that
does not immediately precede a leap year and in the case of January of each and
every year, such interest will be deemed reduced by any Interest Reserve Amount
to be deposited in the Interest Reserve Account in respect of such Mortgage
Loan in the immediately following month as described below; and (ii) in the
case of February of each and every year, such interest will be deemed increased
by any Interest Reserve Amounts in respect of such Mortgage Loan to be included
in the Available Distribution Amount for the Distribution Date in the
immediately following month as described below. See "--Interest Reserve
Accounts" below. The calculation of the Net Mortgage Rate for any
Hyper-Amortization Loan (and, accordingly, the calculation of Weighted Average
Net Mortgage Rate for any Distribution Date) will not be affected by the
step-up from the Mortgage Rate to the Revised Rate on the Anticipated Repayment
Date for such Hyper-Amortization Loan. As of the Cut-off Date (without regard
to the adjustment to the basis of accrual described in clause (ii) of the
proviso to the second preceding sentence), the Net Mortgage Rates for the
Mortgage Loans will range from 6.65% per annum to 8.96% per annum, with a
weighted average Net Mortgage Rate of 7.17% 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.
S-106
<PAGE>
The "Stated Principal Balance" of each Mortgage Loan will initially equal
the Cut-off Date Balance thereof and will be permanently reduced (to not less
than zero) on each Distribution Date by (i) any payments or other collections
(or advances in lieu thereof) of principal on 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 such Mortgage
Loan during the related Collection Period.
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 11th day of each month or, if any
such 11th day is not a business day, the immediately preceding business day.
INTEREST RESERVE ACCOUNTS
The Servicer will establish and maintain an "Interest Reserve Account" in
the name of the Trustee for the benefit of the holders of the Certificates.
With respect to each Distribution Date occurring in February of any year and
each Distribution Date occurring in January of any year that is not a leap
year, there will be deposited in the Interest Reserve Account, in respect of
each Actual/360 Mortgage Loan, an amount generally equal to one day's interest
at the related Net Mortgage Rate on the Stated Principal Balance of such
Mortgage Loan as of the Due Date in the month in which such Distribution Date
occurs, to the extent a Monthly Payment or P&I Advance is timely made in
respect thereof for such Due Date (the amount so deposited in any consecutive
January (if applicable) and February in respect of each Actual/360 Mortgage
Loan, the "Interest Reserve Amount"). With respect to each Distribution Date
occurring in March of any year, an amount is required to be withdrawn from the
Interest Reserve Account in respect of each Actual/360 Mortgage Loan equal to
the related Interest Reserve Amounts, if any, from the preceding January (if
applicable) and February, and such withdrawn amount is to be included as part
of the Available Distribution Amount for such March Distribution Date.
DISTRIBUTIONS
General. Distributions on or with respect to the Certificates will be made
by the Trustee, to the extent of available funds, on the 18th day of each month
or, if any such 18th day is not a business day, then on the next succeeding
business day, commencing in July 1998 (each, a "Distribution Date"). Except 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 (or, in the case of the initial Distribution Date, as of the related
Record Date), 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.
S-107
<PAGE>
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
end of 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 or the Trustee as compensation
(including Trustee Fees, Master Servicing Fees, Special Servicing Fees,
Workout Fees, Liquidation Fees, assumption fees, modification fees and, to
the extent not otherwise applied to cover interest on Advances, Default
Interest and late payment charges), amounts payable in reimbursement of
outstanding Advances, together with interest thereon, and amounts payable
in respect of other Additional Trust Fund Expenses);
(iv) if such Distribution Date occurs during February of any year or
during January of any year that is not a leap year, the Interest Reserve
Amounts with respect to the Actual/360 Mortgage Loans to be deposited in
the Interest Reserve Account and held for future distribution; and
(v) 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 Prepayment Interest Shortfalls incurred during the related
Collection Period; plus
(c) if such Distribution Date occurs during March of any year, the
aggregate of the Interest Reserve Amounts then on deposit in the Interest
Reserve Account in respect of each Interest Reserve Loan.
See "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 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, if any;
(2) to pay principal first to the holders of the Class A-1 Certificates
and second to the holders of the Class A-2 Certificates, in each such 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 and Class A-2 Certificates,
up to an amount equal to, and pro rata as between such Classes in
accordance with, the respective amounts of Realized Losses and Additional
Trust Fund Expenses, if any, previously allocated to such Classes of
Certificates and for which no reimbursement has previously been 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 as of which the aggregate Certificate
Balance of the Subordinate Certificates is to be or has been reduced to zero,
and in any event on the final Distribution Date in connection with a
termination of the Trust (see "--Termination" below), the payments of principal
to be
S-108
<PAGE>
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, if any;
(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 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, if any;
(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 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, if any;
(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;
(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 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, if any;
(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 allocated to such Class of Certificates and for which no
reimbursement has previously been received;
S-109
<PAGE>
(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, if any;
(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 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, if any;
(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 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, if any;
(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 allocated to such Class of Certificates and for which no
reimbursement has previously been received;
(22) to pay interest to the holders of the Class J 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, if any;
(23) if the Certificate Balances of the Class A, Class B, Class C, Class
D, Class E, Class F, Class G and Class H Certificates have been reduced to
zero, to pay principal to the holders of the Class J 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;
(24) to reimburse the holders of the Class J Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to such Class of Certificates and for which no
reimbursement has previously been received;
(25) to pay interest to the holders of the Class K 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, if any;
S-110
<PAGE>
(26) if the Certificate Balances of the Class A, Class B, Class C, Class
D, Class E, Class F, Class G, Class H and Class J Certificates have been
reduced to zero, to pay principal to the holders of the Class K
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;
(27) to reimburse the holders of the Class K Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to such Class of Certificates and for which no
reimbursement has previously been received;
(28) to pay interest to the holders of the Class L 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, if any;
(29) if the Certificate Balances of the Class A, Class B, Class C, Class
D, Class E, Class F, Class G, Class H, Class J and Class K Certificates
have been reduced to zero, to pay principal to the holders of the Class L
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;
(30) to reimburse the holders of the Class L Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to such Class of Certificates and for which no
reimbursement has previously been received; and
(31) to pay to the holders of the REMIC Residual Certificates, the
balance, if any, of the Available Distribution Amount for such Distribution
Date;
provided that, on the final Distribution Date in connection with a termination
of the Trust, the payments of principal to be made as contemplated by any of
clauses (2), (5), (8), (11), (14), (17), (20), (23), (26) and (29) 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 during the related Interest Accrual Period 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. The "Interest Accrual Period" for the REMIC Regular Certificates
for any Distribution Date will be the month preceding the month in which such
Distribution Date occurs.
To the extent of that portion of its aggregate Master Servicing Fee for
the related Collection Period that is, in the case of each and every Mortgage
Loan, calculated at 0.02% per annum, together with all of its other servicing
compensation for the same Collection Period in addition to Master Servicing
Fees, 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 that are not offset by Prepayment Interest Excesses collected
on the Mortgage Loans 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 that are
not offset by Prepayment Interest Excesses collected on the Mortgage Loans
during such Collection Period, exceeds (b) any such payment made by the Master
Servicer with respect to such Distribution Date to
S-111
<PAGE>
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 an
amount equal to the lesser of any remaining unallocated portion of such Net
Aggregate Prepayment Interest Shortfall and any Accrued Certificate Interest in
respect of the particular Class of Certificates for such Distribution Date; and
thereafter, if and to the extent that any portion of such Net Aggregate
Prepayment Interest Shortfall remains unallocated, 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.
Principal Distribution Amount. The "Principal Distribution Amount" for any
Distribution Date will, in general, equal the aggregate (without duplication)
of the following:
(a) the principal portions of all Monthly Payments (other than Balloon
Payments) and any Assumed Monthly 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)
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 Monthly Payment (other than a Balloon Payment)
due, or the principal portion of any Assumed Monthly 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, Insurance Proceeds
and, to the extent not included in clause (a), (b) or (c) above, payments
and other amounts 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 (i) a recovery of the principal portion of any
Monthly Payment (other than a Balloon Payment) due, or the principal
portion of any Assumed Monthly 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 or (ii) the principal
portion of a Monthly Payment made by the related borrower during the
related Collection Period that is due subsequent to the end of the related
Collection Period; 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 in
respect of such Principal Distribution Amount on such immediately preceding
Distribution Date.
For purposes of the foregoing, the Monthly Payment due on any Mortgage
Loan on any related Due Date will reflect 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. "Monthly Payments" for
Hyper-Amortization Loans will not include Excess Interest or Hyper-Amortization
Payments.
An "Assumed Monthly Payment" is an amount deemed due in respect of: (i)
any Mortgage 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, including an extension of maturity; or (ii) any Mortgage Loan as to
which the related Mortgaged Property has become an REO Property. The Assumed
Monthly Payment deemed due on any such Mortgage Loan delinquent as to its
Balloon Payment, for its stated maturity date and for each successive Due Date
that it remains outstanding, will equal the Monthly Payment that would have
been due thereon
S-112
<PAGE>
on such date if the related Balloon Payment had not come due, but rather such
Mortgage Loan had continued to amortize in accordance with its 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 Monthly Payment deemed due on any such Mortgage
Loan as to which the related Mortgaged Property has become an REO Property, for
each Due Date that such REO Property remains part of the Trust Fund, will equal
the Monthly Payment (or, in the case of a Mortgage Loan delinquent in respect
of its Balloon Payment as described in the prior sentence, the Assumed Monthly
Payment) due on the last Due Date prior to the acquisition of such REO
Property. "Assumed Monthly Payments" for Hyper-Amortization Loans do not
include Excess Interest or Hyper-Amortization Payments.
The Principal Distribution Amount will in no event include Excess Interest
or Prepayment Premiums.
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 to the holders of each Class of Offered Certificates (other
than the Class X Certificates) in an amount up to the product of (a) such
Prepayment Premium, (b) the applicable Discount Rate Fraction for such Class
and such Mortgage Loan and (c) the applicable Principal Allocation Fraction for
such Class and such Distribution Date.
The "Discount Rate Fraction" for any Class of Offered Certificates (other
than the Class X Certificates) and any prepaid Mortgage Loan is equal to a
fraction (not greater than 1.0 or less than 0.0), (a) the numerator of which is
equal to the excess, if any, of the Pass-Through Rate for such Class of
Certificates over the relevant Discount Rate (as defined herein), and (b) the
denominator of which is equal to the excess, if any, of the Mortgage Rate of
such Mortgage Loan over the relevant Discount Rate. With respect to each Class
of Offered Certificates (other than the Class X Certificates) for any
Distribution Date, the "Principal Allocation Fraction" is a fraction, the
numerator of which is the portion of Principal Distribution Amount allocated to
such Class of Certificates for such Distribution Date, and the denominator of
which is the entire Principal Distribution Amount for such Distribution Date.
The "Discount Rate" means the yield for "This Week" as reported by the
Federal Reserve Board in Federal Reserve Statistical Release H.15(519) for the
constant maturity treasury having a maturity coterminous with the maturity date
or, in the case of a Hyper-Amortization Loan, the Anticipated Repayment Date of
the prepaid Mortgage Loan as of the related Determination Date. If there is no
Discount Rate for instruments having a maturity coterminous with the remaining
term (to maturity or Anticipated Repayment Date, as applicable) of the
applicable Mortgage Loan, then the Discount Rate will be equal to the
interpolation of the yields of the constant maturity treasuries with maturities
next longer and shorter than such remaining term to maturity or Anticipated
Repayment Date.
The portion of any Prepayment Premium remaining after distribution of the
amounts calculated as described above to the holders of the Offered
Certificates (other than the Class X Certificates) will be distributed to the
holders of the Class X Certificates. After the Distribution Date on which the
Certificate Balances of the other Classes of Offered Certificates have been
reduced to zero, any Prepayment Premiums collected on the Mortgage Loans will
be distributable entirely to the holders of the Class X Certificates.
The Sponsor makes no representation as to the enforceability of the
provision of any Mortgage Note requiring the payment of a Prepayment Premium or
of the collectability of any Prepayment Premium. See "Description of the
Mortgage Pool--Certain Terms and Conditions of the Mortgage Loans-- Prepayment
Provisions" and "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
S-113
<PAGE>
of Master Servicing Fees, Special Servicing Fees and Trustee Fees payable under
the Pooling Agreement, as having remained outstanding until such REO Property
is liquidated. Among other things, such Mortgage Loan will be taken into
account when determining the Weighted Average Net Mortgage Rate and the
Principal Distribution Amount for each Distribution Date. 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 and/or the
Trustee, 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 and
the Trustee 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 related Certificate Balance. 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 related Certificate Balance. 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 L, Class K, Class J, 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 and Class A-2 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
will, in general, be the result of Realized Losses incurred in respect of the
Mortgage Loans and/or Additional Trust Fund Expenses. Accordingly, the
foregoing reductions in the Certificate Balances of the respective Classes of
the Sequential Pay Certificates will constitute an allocation of any such
Realized Losses and Additional Trust Fund Expenses. Any such reduction in the
Certificate Balance of a Class of Sequential Pay Certificates will result in a
corresponding reduction in the Notional Amount of the Class X Certificates.
"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) is an amount
generally equal to the excess, if any, of (a) the outstanding principal balance
of such Mortgage Loan as of the date of liquidation, together with (i) all
accrued and unpaid interest thereon to but not including the Due Date in the
Collection Period in
S-114
<PAGE>
which the liquidation occurred (exclusive, however, of any such accrued and
unpaid interest that constitutes Default Interest or Excess Interest) 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 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 (other than Default Interest and
Excess Interest) 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
and/or the Trustee 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, including certain reimbursements and indemnifications to the Trustee as
described under "Description of the Pooling Agreements--Certain Matters
Regarding the Trustee" in the Prospectus, 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 and Other Taxes" herein and "Material Federal Income Tax
Consequences--Taxation of Owners of REMIC Regular Certificates--Prohibited
Transactions Tax and Other Taxes" in the Prospectus, (v) any amounts expended
on behalf of the Trust 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 and to the extent 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 Monthly Payments (other than Balloon
Payments) and any Assumed Monthly 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. 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 on such Mortgage Loan, the interest portion
of the P&I Advance required to be made 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
S-115
<PAGE>
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. See "--The
Trustee" below.
The Master Servicer and the Trustee will each be entitled to recover any
P&I Advance made out of its own funds from any Related Proceeds.
Notwithstanding the foregoing, neither the Master Servicer nor the Trustee 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 and the Trustee,
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 and the Trustee 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 or the Trustee, as the case may be: (i) at any
time, out of Default Interest and late payment charges collected on the related
Mortgage Loan; and (ii) if such Advance has been reimbursed, 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 or
the Trustee, as the case may be, on such P&I Advance. To the extent not offset
by Default Interest and/or late payment charges accrued and 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 the appraisal referred to below) 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 the
Mortgaged Property securing any Mortgage Loan, (iv) the date on which the
borrower under any Mortgage Loan becomes the subject of bankruptcy, insolvency
or similar 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"; and each such date, a "Required Appraisal Date"), 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, 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, in general, be an amount (determined as of the Determination Date
immediately succeeding the later of the date on which the relevant appraisal is
obtained and the earliest relevant Required Appraisal Date) equal to the
excess, if any, of (a) the sum of (i) the Stated Principal Balance of such
Required Appraisal Loan, (ii) to the extent not previously advanced by or on
behalf of the Master Servicer or the Trustee, all accrued and unpaid interest
(excluding, in the case of a Hyper-Amortization Loan after its Anticipated
Repayment Date, Excess 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 sum of the related Net Mortgage Rate and the per annum rate at which the
Trustee Fee is calculated, (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 or the Trustee with respect to such Required Appraisal Loan
plus interest accrued thereon at the
S-116
<PAGE>
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 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
obligations secured by liens on such property (not otherwise arising out of the
items described 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 Required Appraisal Loan will be deemed to equal 30% of
the Stated Principal Balance of such Required Appraisal Loan (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, in which case
it will cease to be a Required Appraisal Loan), 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 advanced by the Master Servicer at the direction of the Special
Servicer and will be reimbursable as a Servicing Advance). Based upon such
appraisal, the Special Servicer is to redetermine and report to the Trustee and
the Master Servicer 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 good faith and
reasonable 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 be required to prepare and deliver (or, if not prepared by the
Trustee, to forward) on each Distribution Date to the holders of each Class of
REMIC Regular Certificates and the Rating Agencies, 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 the
immediately preceding Distribution Date; (v) the aggregate Stated Principal
Balance of the Mortgage Pool outstanding immediately before and immediately
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 the
prior Distribution Date; (vii) as of the close of business on the last day
of the most recently ended calendar month, the number and aggregate unpaid
principal balance of Mortgage Loans (A) delinquent one month, (B)
delinquent two months, (C) delinquent three or more months, and (D) as to
which foreclosure proceedings have been commenced; (viii) the most
S-117
<PAGE>
recent appraised value 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 each Class of REMIC Regular Certificates for such Distribution
Date; (x) the aggregate amount of Distributable Certificate Interest
payable in respect of each Class of REMIC Regular Certificates on such
Distribution Date, including, without limitation, any Distributable
Certificate Interest remaining unpaid from prior Distribution Dates; (xi)
any unpaid Distributable Certificate Interest in respect of each Class of
REMIC Regular Certificates after giving effect to the distributions made on
such Distribution Date; (xii) the Pass-Through Rate for each 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 Certificate Balance or Notional Amount, as the
case may be, 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; (xvi) the
aggregate amount of servicing fees paid to the Master Servicer and the
Special Servicer, collectively and separately, during the Collection Period
for the prior Distribution Date; (xvii) 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; and (xviii) any item of information
disclosed to the Trustee by the Master Servicer as described under
"--Reports to Certificateholders; Certain Available Information--Other
Information" below since the preceding Distribution Date or, in the case of
the first Distribution Date Statement, since the Delivery Date. 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 expenses, actual revenues and actual net operating
income for the respective Mortgaged Properties 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 last day of
the most recently ended calendar month, 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 received, 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.
S-118
<PAGE>
(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 such 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 Determination Date (including any prepared
internally by the Special Servicer).
(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 and the 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 will 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 130
days following the end of each calendar quarter, commencing with the calendar
quarter ending September 30, 1998, 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
therein as of the end of such calendar quarter (but only to the extent, in the
case of a Mortgaged Property, that 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. The
Trustee will make available, upon request, copies of each Operating Statement
Analysis to holders of the REMIC Regular Certificates on or about the first
Distribution Date following the Trustee's receipt thereof.
Certificate Owners who have certified to the Trustee as to their
beneficial ownership of any Offered Certificate will be given access to 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 made 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 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.
Certificate Owners can also receive copies of information made available
on the monthly Trustee Reports to Certificateholders via facsimile through the
Trustee's Street Fax system. For those who have obtained an account number and
PIN on the Trustee's Street Fax system, the Trustee Reports may be obtained
from the Trustee via automated facsimile by calling (617) 664-5600 and
requesting the report code associated with Mortgage Capital Funding, Inc.,
Series 1998-MC2. Report codes can be obtained by calling the same telephone
number and requesting a report listing. Interested parties can register for
Street Fax by calling (617) 664-5600 and requesting an account application
through the system. In addition, if the Sponsor so directs the Trustee and on
terms acceptable to the Trustee, the Trustee will make Trustee Reports and
certain other information related to the Mortgage Loans available through its
Corporate Trust web site and through its Trade Winds electronic bulletin board.
To register for the Trade Winds bulletin board, Certificateholders should call
the Trustee at (617) 664-5443. To visit the web page, interested parties need
to access "corporatetrust.statestreet.com" using any java-enabled web browser.
Then click on the "Investor Information & Reporting" button, and select the
appropriate transaction.
S-119
<PAGE>
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 and at the expense of the requesting party,
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 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 "Servicing of the Mortgage Loans--Evidence as to Compliance"
herein, (d) all accountant's reports delivered to the Trustee since the
Delivery Date as described under "Servicing of the Mortgage Loans--Evidence as
to Compliance" herein, 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 and at the expense of
the requesting party, 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, in each case except to
the extent the Master Servicer in its reasonable and good faith determination
believes that any item of information contained in such servicing file is of a
nature that it should be conveyed to all Certificateholders at the same time,
in which case the Master Servicer is required, as soon as reasonably possible
following its receipt of any such item of information, to disclose such item of
information to the Trustee for inclusion by the Trustee as part of the Trustee
Reports referred to under "--Reports to Certificateholders; Certain Available
Information--Trustee Reports" above; provided that, until the Trustee has
either disclosed such information to all Certificateholders as part of the
Trustee Reports or such information has been filed with the Securities and
Exchange Commission on behalf of the Trust under the Securities Exchange Act of
1934, the Master Servicer is entitled to withhold such item of information from
any Certificateholder or Certificate Owner or prospective transferee of a
Certificate or an interest therein; and, provided, further, that the Master
Servicer is not required to make information contained in any servicing file
available to any person to the extent that doing so is prohibited by applicable
law or by any documents related to a Mortgage Loan.
The Trustee and, subject to the last sentence of the prior paragraph, the
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
and will 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, 94.0% of the voting
rights for the Certificates (the "Voting Rights") will be allocated among the
holders of the respective Classes of Sequential Pay Certificates in proportion
to the Certificate Balances of their Certificates, 5.0% of the Voting Rights
will
S-120
<PAGE>
be allocated to the holders of the Class X Certificates and the remaining
Voting Rights will be allocated among the respective 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 any holder or holders (other than the
Sponsor or Mortgage Loan Seller) of Certificates representing a majority
interest in the Controlling Class or by the Master Servicer (in that order of
priority). 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 majority holder(s) of the Controlling Class or
the Master Servicer 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 any Mortgage Loans as to which the related Mortgaged
Properties have become REO Properties) 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 majority holder(s) of the Controlling Class
or the Master Servicer 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 majority
holder(s) of the Controlling Class or the Master Servicer, exclusive of any
portion thereof payable or reimbursable to any person other than the
Certificateholders, will constitute part of the Available Distribution Amount
for the final Distribution Date.
THE TRUSTEE
State Street Bank and Trust Company ("State Street") will act as Trustee
of the Trust. State Street is a Massachusetts trust company. The Trustee is at
all times to be, and will be required to resign if it fails to be, (i) a
corporation, bank or 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 (ii) an institution whose long-term senior
unsecured debt is rated not less than "Aa2" by Moody's and "AA" by Fitch (or
such lower rating as would not result, as confirmed in writing by each Rating
Agency, in a qualification, downgrade or withdrawal of any of the then-current
ratings assigned by such Rating Agency to the Certificates). The corporate
trust office of the Trustee responsible for administration of the Trust Fund
(the "Corporate Trust Office") is located at Two International Place, Boston,
Massachusetts 02110, attention: Corporate Trust Department--Mortgage Capital
Funding, Inc., Series 1998-MC2. 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 and calculated at a specified rate per annum on
the aggregate Stated Principal Balance of each Mortgage Loan outstanding from
time to time.
S-121
<PAGE>
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.
S-122
<PAGE>
YIELD AND MATURITY CONSIDERATIONS
YIELD CONSIDERATIONS
General. The yield on any Offered Certificate will depend on (a) the price
at which such Certificate is purchased by an investor and (b) the rate, timing
and amount of distributions on such Certificate. The rate, timing and amount of
distributions on any Offered Certificate will in turn depend on, among other
things, (v) the Pass-Through Rate for such Certificate (which is fixed in the
case of the Class A, Class B and Class C Certificates), (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 or Notional Amount of the Class of Certificates to which such
Certificate belongs, (x) the rate, timing and severity of Realized Losses,
Additional Trust Fund Expenses and Appraisal Reductions and the extent to which
such losses, expenses and reductions result in the nonpayment or deferred
payment of interest on, or reduction of the Certificate Balance or Notional
Amount 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
Prepayment Premiums belong.
Pass-Through Rates. The Pass-Through Rate applicable to the Class X
Certificates will be variable and will be calculated based in part on the
Weighted Average Net Mortgage Rate from time to time. In addition, the
Pass-Through Rate on the Class E Certificates will equal, and the Pass-Through
Rate on the Class D Certificates may not exceed, the Weighted Average Net
Mortgage Rate from time to time. Accordingly, the yield on such Certificates
will be sensitive to changes in the relative composition of the Mortgage Pool
as a result of scheduled amortization, voluntary prepayments and liquidations
of Mortgage Loans following default. The Pass-Through Rates and yields to
maturity of the Class X and Class E Certificates will, and the Pass-Through
Rate and yield to maturity of the Class D Certificates may, be adversely
affected if Mortgage Loans with relatively higher Mortgage Rates amortize
and/or prepay faster than Mortgage Loans with relatively lower Mortgage Rates.
In addition, the Pass-Through Rate for the Class X Certificates will vary with
the changes in the relative sizes of the Certificate Balances of the respective
Classes of Sequential Pay Certificates. See "Description of the
Certificates--Pass-Through Rates" and "Description of the Mortgage Pool" herein
and "--Rate and Timing of Principal Payments" below.
Rate and Timing of Principal Payments. The yield to holders of the Class X
Certificates will be extremely sensitive to, and the yield to holders of any
other Class of Offered Certificates purchased at a discount or premium will be
affected by, the rate and timing of reductions of the Certificate Balance or
Notional Amount, as the case may be, of such Class of 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 other
Classes of Sequential Pay Certificates, sequentially in alphabetical order of
Class designation, in each such case until the related Certificate Balance is
reduced to zero. The Notional Amount of the Class X Certificates will equal the
aggregate of the Certificate Balances of all the Classes of Sequential Pay
Certificates outstanding from time to time. Consequently, the rate and timing
of reductions of the Certificate Balance or Notional Amount, as the case may
be, of each Class of Offered Certificates will depend on 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 any
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.
S-123
<PAGE>
Defaults on the Mortgage Loans, particularly in the case of Balloon Loans 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. Failure of the borrower under any Hyper-Amortization Loan to
repay its Mortgage Loan by or shortly after the related Anticipated Repayment
Date, for whatever reason, will also tend to lengthen the weighted average
lives of the Sequential Pay Certificates. Although each Hyper-Amortization Loan
includes incentives for the related borrower to repay the Mortgage Loan by its
Anticipated Repayment Date (e.g., an increase in the rate at which interest
accrues and the application of all excess cash (net of the minimum required
debt service, approved property expenses and any required reserves) from the
related Mortgaged Property to pay down the Mortgage Loan, in each case
following the passage of such date), there can be no assurance that the related
borrower will want or be able to repay the Mortgage Loan in full. 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 or
Notional Amount of such Certificates. An investor should consider, in the case
of any Offered Certificate purchased at a discount, the risk that a slower than
anticipated rate of principal payments on the Mortgage Loans could result in an
actual yield to such investor that is lower than the anticipated yield and, in
the case of a Class X Certificate or any other 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 or otherwise
results in reduction of the notional amount of a Class X Certificate or the
principal balance of any other 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. Investors in the Class X
Certificates should fully consider the risk that an extremely rapid rate of
principal payments on the Mortgage Loans could result in the failure of such
investors to fully recoup their initial investments. 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.
Prepayment Premiums, even if available and distributable on the Offered
Certificates, may not be sufficient to offset fully any loss in yield on a
particular Class of Offered Certificates attributable to the related
prepayments of 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
allocated 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
and Class A-2 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. Any such reduction in the
Certificate Balance of a Class of Sequential Pay Certificates will cause a
corresponding reduction of the Notional Amount of the Class X Certificates.
S-124
<PAGE>
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 an
amount equal to the lesser of any remaining unallocated portion of such Net
Aggregate Prepayment Interest Shortfall and any Accrued Certificate Interest in
respect of such Class of Certificates for such Distribution Date; and,
thereafter, if and to the extent that any portion of such Net Aggregate
Prepayment Interest Shortfall remains unallocated, 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 retail shopping space, rental apartments, office space, hotel and motel
rooms, industrial space, health care facility beds, senior living units or
mobile home park pads, 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 (or, in the case of a Hyper-Amortization Loan after its Anticipated
Repayment Date, the Revised Rate) at which a Mortgage Loan accrues interest, a
borrower may have an increased incentive to refinance such Mortgage Loan.
Conversely, to the extent prevailing market interest rates exceed the
applicable Mortgage Rate (or, for Hyper-Amortization Loans after the
Anticipated Repayment Date, the Revised Rate) for any Mortgage Loan, such
Mortgage Loan may be less likely to prepay (other than, in the case of the
Hyper-Amortization Loans, out of certain net cash flow from the related
Mortgaged Property). Assuming prevailing market interest rates exceed the
related Revised Rate, the primary incentive to prepay a Hyper-Amortization Loan
on or before its Anticipated Repayment Date is to give the borrower access to
excess cash flow, all of which (net of the minimum required debt service,
approved property expenses and any required reserves) must be applied to pay
down principal of the Mortgage Loan. Accordingly, there can be no assurance
that any Hyper-Amortization Loan will be prepaid on or before its Anticipated
Repayment Date or on any other date prior to maturity.
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.
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 or a sale of the related Mortgaged Property. See
"Description of the Mortgage Pool--Certain Terms and Conditions of the Mortgage
Loans" herein.
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.
S-125
<PAGE>
Unpaid Distributable Certificate Interest. As described under "Description
of the Certificates-- Distributions--Application of the Available Distribution
Amount" herein, if the portion of the Available Distribution Amount
distributable in respect of interest on any Class of Offered Certificates on
any Distribution Date is less than the Distributable Certificate Interest then
payable for such Class, the shortfall will be distributable to holders of such
Class of Certificates on subsequent Distribution Dates, to the extent of
available funds. Any such shortfall will not bear interest, however, and will
therefore negatively affect the yield to maturity of such Class of Certificates
for so long as it is outstanding.
WEIGHTED AVERAGE LIVES
The weighted average life of any Offered Certificate (other than a Class X
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 any such
Offered Certificate is determined by (i) multiplying the amount of each
principal distribution thereon by the number of years from the assumed
Settlement Date (as defined below) 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 such 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 other Classes of
Sequential Pay Certificates, sequentially in alphabetical order of Class
designation, in each such case until the related Certificate Balance 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
described in the Prospectus). As used in each of the following tables, the
column headed "0%" assumes that none of the Mortgage Loans is prepaid before
maturity (except that each Hyper-Amortization Loan is paid in full on its
related Anticipated Repayment Date). The columns headed "4%", "8%", "12%",
"16%" and 20% assume that no prepayments are made on any Mortgage Loan during
such Mortgage Loan's Lock-out Period, defeasance period or yield maintenance
period, in each case if any, and are otherwise made on each of the Mortgage
Loans at the indicated CPRs (except that each Hyper-Amortization Loan is paid
in full on its related Anticipated Repayment Date). There is no assurance,
however, that prepayments of the Mortgage Loans (whether or not in a Lock-out
Period, a defeasance 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 set forth herein 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 set forth herein at the same
rate or that Mortgage Loans that are in a Lock-out Period, a defeasance period
or a yield maintenance period will not prepay as a result of involuntary
liquidations upon default or otherwise. 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 initial Certificate
Balances of the Class A-1, Class A-2, Class B, Class C, Class D and Class E
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 $1,009,500,069, (ii) the initial Pass-Through Rate for,
and the initial Certificate Balance or Notional Amount, as the case may be, of,
each Class of REMIC Regular Certificates are as described herein, (iii) there
are no delinquencies or
S-126
<PAGE>
losses in respect of the Mortgage Loans, there are no modifications,
extensions, waivers or amendments affecting the payment by borrowers of
principal or interest on 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, (iv) scheduled Monthly
Payments on the Mortgage Loans are timely received on the first day of each
month, (v) no voluntary or involuntary prepayments are received as to any
Mortgage Loan during such Mortgage Loan's Lock-out Period ("LOP"), defeasance
period or yield maintenance period ("YMP"), in each case if any, each
Hyper-Amortization Loan is paid in full on its related Anticipated Repayment
Date and, otherwise, prepayments are made on each of the Mortgage Loans at the
indicated CPRs set forth in the tables (without regard to any limitations in
such Mortgage Loans on partial voluntary principal prepayments), (vi) no person
or entity entitled thereto exercises its right of optional termination
described herein under "Description of the Certificates--Termination", (vii) no
Mortgage Loan is required to be repurchased by the Mortgage Loan Seller or
Morgan Guaranty, (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 18th
day of each month, commencing in July 1998, and (xi) the Offered Certificates
are settled on June 29, 1998 (the "Settlement Date"). To the extent that the
Mortgage Loans have characteristics that differ from those assumed in preparing
the tables set forth below, the Class A-1, Class A-2, Class B, Class C, Class D
and/or Class E 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.
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS A-1 CERTIFICATES AT THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP, DEFEASANCE AND YMP, THEN AT THE
FOLLOWING CPR)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
-------------------------------------------------------------------------
DATE 0% CPR 4% CPR 8% CPR 12% CPR 16% CPR 20% CPR
- ----------------------- ---------- ---------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Delivery Date ......... 100% 100% 100% 100% 100% 100%
June 18, 1999 ......... 94% 94% 94% 94% 94% 94%
June 18, 2000 ......... 87% 87% 87% 87% 87% 87%
June 18, 2001 ......... 80% 80% 80% 79% 79% 79%
June 18, 2002 ......... 71% 71% 71% 71% 71% 71%
June 18, 2003 ......... 62% 62% 61% 61% 60% 60%
June 18, 2004 ......... 51% 50% 49% 49% 48% 47%
June 18, 2005 ......... 31% 30% 30% 29% 28% 28%
June 18, 2006 ......... 18% 17% 16% 15% 14% 13%
June 18, 2007 ......... 4% 2% 1% 0% 0% 0%
June 18, 2008 ......... 0% 0% 0% 0% 0% 0%
----- ----- ----- ----- ----- -----
Weighted Average Life
(in years) ......... 5.5 5.4 5.4 5.4 5.3 5.3
===== ===== ===== ===== ===== =====
</TABLE>
S-127
<PAGE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS A-2 CERTIFICATES AT THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP, DEFEASANCE AND YMP, THEN AT THE
FOLLOWING CPR)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
-----------------------------------------------------------------
DATE 0% CPR 4% CPR 8% CPR 12% CPR 16% CPR 20% CPR
- ----------------------- -------- -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Delivery Date ......... 100% 100% 100% 100% 100% 100%
June 18, 1999 ......... 100% 100% 100% 100% 100% 100%
June 18, 2000 ......... 100% 100% 100% 100% 100% 100%
June 18, 2001 ......... 100% 100% 100% 100% 100% 100%
June 18, 2002 ......... 100% 100% 100% 100% 100% 100%
June 18, 2003 ......... 100% 100% 100% 100% 100% 100%
June 18, 2004 ......... 100% 100% 100% 100% 100% 100%
June 18, 2005 ......... 100% 100% 100% 100% 100% 100%
June 18, 2006 ......... 100% 100% 100% 100% 100% 100%
June 18, 2007 ......... 100% 100% 100% 100% 100% 99%
June 18, 2008 ......... 0% 0% 0% 0% 0% 0%
--- --- --- --- --- ---
Weighted Average Life
(in years) ......... 9.7 9.7 9.7 9.7 9.7 9.6
=== === === === === ===
</TABLE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS B CERTIFICATES AT THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP, DEFEASANCE AND YMP, THEN AT THE
FOLLOWING CPR)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
-------------------------------------------------------------------------
DATE 0% CPR 4% CPR 8% CPR 12% CPR 16% CPR 20% CPR
- ----------------------- ---------- ---------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Delivery Date ......... 100% 100% 100% 100% 100% 100%
June 18, 1999 ......... 100% 100% 100% 100% 100% 100%
June 18, 2000 ......... 100% 100% 100% 100% 100% 100%
June 18, 2001 ......... 100% 100% 100% 100% 100% 100%
June 18, 2002 ......... 100% 100% 100% 100% 100% 100%
June 18, 2003 ......... 100% 100% 100% 100% 100% 100%
June 18, 2004 ......... 100% 100% 100% 100% 100% 100%
June 18, 2005 ......... 100% 100% 100% 100% 100% 100%
June 18, 2006 ......... 100% 100% 100% 100% 100% 100%
June 18, 2007 ......... 100% 100% 100% 100% 100% 100%
June 18, 2008 ......... 0% 0% 0% 0% 0% 0%
----- ----- ----- ----- ----- -----
Weighted Average Life
(in years) ......... 9.9 9.9 9.9 9.9 9.9 9.9
===== ===== ===== ===== ===== =====
</TABLE>
S-128
<PAGE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS C CERTIFICATES AT THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP, DEFEASANCE AND YMP, THEN AT THE
FOLLOWING CPR)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
-----------------------------------------------------------------
DATE 0% CPR 4% CPR 8% CPR 12% CPR 16% CPR 20% CPR
- ----------------------- -------- -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Delivery Date ......... 100% 100% 100% 100% 100% 100%
June 18, 1999 ......... 100% 100% 100% 100% 100% 100%
June 18, 2000 ......... 100% 100% 100% 100% 100% 100%
June 18, 2001 ......... 100% 100% 100% 100% 100% 100%
June 18, 2002 ......... 100% 100% 100% 100% 100% 100%
June 18, 2003 ......... 100% 100% 100% 100% 100% 100%
June 18, 2004 ......... 100% 100% 100% 100% 100% 100%
June 18, 2005 ......... 100% 100% 100% 100% 100% 100%
June 18, 2006 ......... 100% 100% 100% 100% 100% 100%
June 18, 2007 ......... 100% 100% 100% 100% 100% 100%
June 18, 2008 ......... 0% 0% 0% 0% 0% 0%
--- --- --- --- --- ---
Weighted Average Life
(in years) ......... 10.0 10.0 10.0 10.0 10.0 9.9
==== ==== ==== ==== ==== ===
</TABLE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS D CERTIFICATES AT THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP, DEFEASANCE AND YMP, THEN AT THE
FOLLOWING CPR)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
-----------------------------------------------------------------
DATE 0% CPR 4% CPR 8% CPR 12% CPR 16% CPR 20% CPR
- ----------------------- -------- -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Delivery Date ......... 100% 100% 100% 100% 100% 100%
June 18, 1999 ......... 100% 100% 100% 100% 100% 100%
June 18, 2000 ......... 100% 100% 100% 100% 100% 100%
June 18, 2001 ......... 100% 100% 100% 100% 100% 100%
June 18, 2002 ......... 100% 100% 100% 100% 100% 100%
June 18, 2003 ......... 100% 100% 100% 100% 100% 100%
June 18, 2004 ......... 100% 100% 100% 100% 100% 100%
June 18, 2005 ......... 100% 100% 100% 100% 100% 100%
June 18, 2006 ......... 100% 100% 100% 100% 100% 100%
June 18, 2007 ......... 100% 100% 100% 100% 100% 100%
June 18, 2008 ......... 0% 0% 0% 0% 0% 0%
Weighted Average Life
(in years) ......... 10.0 10.0 10.0 10.0 10.0 10.0
==== ==== ==== ==== ==== ====
</TABLE>
S-129
<PAGE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS E CERTIFICATES AT THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP, DEFEASANCE AND YMP, THEN AT THE
FOLLOWING CPR)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
-----------------------------------------------------------------
DATE 0% CPR 4% CPR 8% CPR 12% CPR 16% CPR 20% CPR
- ----------------------- -------- -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Delivery Date ......... 100% 100% 100% 100% 100% 100%
June 18, 1999 ......... 100% 100% 100% 100% 100% 100%
June 18, 2000 ......... 100% 100% 100% 100% 100% 100%
June 18, 2001 ......... 100% 100% 100% 100% 100% 100%
June 18, 2002 ......... 100% 100% 100% 100% 100% 100%
June 18, 2003 ......... 100% 100% 100% 100% 100% 100%
June 18, 2004 ......... 100% 100% 100% 100% 100% 100%
June 18, 2005 ......... 100% 100% 100% 100% 100% 100%
June 18, 2006 ......... 100% 100% 100% 100% 100% 100%
June 18, 2007 ......... 100% 100% 100% 100% 100% 100%
June 18, 2008 ......... 100% 100% 100% 100% 100% 100%
June 18, 2009 ......... 76% 76% 76% 75% 75% 75%
June 18, 2010 ......... 50% 49% 48% 47% 46% 45%
June 18, 2011 ......... 22% 20% 18% 16% 13% 11%
June 18, 2012 ......... 0% 0% 0% 0% 0% 0%
--- --- --- --- --- ---
Weighted Average Life
(in years) ......... 12.0 11.9 11.9 11.9 11.8 11.8
==== ==== ==== ==== ==== ====
</TABLE>
YIELD SENSITIVITY OF THE CLASS X CERTIFICATES
The yield to maturity of the Class X Certificates will be highly sensitive
to the rate and timing of principal payments (including by reason of or as
affected by prepayments, hyper-amortization, loan extensions, defaults and
liquidations) and losses on or in respect of the Mortgage Loans. Investors in
the Class X Certificates should fully consider the associated risks, including
the risk that an extremely rapid rate of amortization, prepayment or other
liquidation of the Mortgage Loans could result in the failure of such investors
to recoup fully their initial investments.
The following tables indicate the approximate pre-tax yield to maturity on
a corporate bond equivalent ("CBE") basis on the Class X Certificates for the
specified CPRs based on the Maturity Assumptions. Furthermore, it was assumed
that, when specifically indicated in a particular table, 100% of any Prepayment
Premium calculated as a declining percentage of the amount prepaid (a "Decl. %
Premium") is collected in connection with each prepayment as to which such a
Prepayment Premium is applicable and, further, that the yield curve, for
purposes of calculating the allocation of such Prepayment Premiums, is and
remains as follows: (A) 3 mo. T-bill-4.96% per annum, (B) 6 mo. T-bill-5.29%
per annum, (C) 1 yr treasury-5.40% per annum, (D) 2 yr treasury-5.50% per
annum, (E) 3 yr treasury-5.52% per annum, (F) 5 yr treasury-5.517% per annum,
(G) 10 yr treasury-5.455% per annum and (H) 30 yr treasury-5.645% per annum. It
was also assumed that the purchase price of the Class X Certificates is as
specified below, expressed in 32nds (i.e., 4.28 means 4 28/32%) as a percentage
of the initial Notional Amount of such Certificates, plus accrued interest.
The yields set forth in the following tables were calculated by
determining the monthly discount rates that, when applied to the assumed
streams of cash flows to be paid on the Class X Certificates, would cause the
discounted present value of such assumed stream of cash flows to equal the
assumed purchase price thereof, and by converting such monthly rates to
semi-annual corporate bond equivalent rates. Such calculation does not take
into account shortfalls in collection of interest due to prepayments (or other
liquidations) of the Mortgage Loans or the interest rates at which investors
may be able to reinvest funds received by them as distributions on the Class X
Certificates (and, accordingly, does not purport to reflect the return on any
investment in the Class X Certificates when such reinvestment rates are
considered).
S-130
<PAGE>
The characteristics of the Mortgage Loans may differ from those assumed in
preparing the tables below. In addition, there can be no assurance that the
Mortgage Loans will prepay in accordance with the above assumptions at any of
the rates shown in the tables or at any other particular rate, that the cash
flows on the Class X Certificates will correspond to the cash flows shown
herein or that the aggregate purchase price of the Class X Certificates will be
as assumed. In addition, it is 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. Timing
of changes in the rate of prepayments may significantly affect the actual yield
to maturity to investors, even if the average rate of principal prepayments is
consistent with the expectations of investors. Investors must make their own
decisions as to the appropriate prepayment assumption to be used in deciding
whether to purchase Class X Certificates.
PRE-TAX YIELD TO MATURITY (CBE)
OF THE CLASS X CERTIFICATES ASSUMING 100% OF RECOVERY OF DECL. % PREMIUMS
(PREPAYMENTS LOCKED OUT THROUGH LOP, DEFEASANCE AND YMP, THEN AT THE FOLLOWING
CPR)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
-------------------------------------------------------------------------
PRICE 0% CPR 4% CPR 8% CPR 12% CPR 16% CPR 20% CPR
- ------------------- ---------- ---------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
4.468750% ......... 8.53% 8.50% 8.47% 8.45% 8.42% 8.39%
4.500000% ......... 8.37% 8.34% 8.31% 8.28% 8.25% 8.23%
4.531250% ......... 8.20% 8.17% 8.14% 8.12% 8.09% 8.06%
</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.
S-131
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
Upon the issuance of the Certificates, Sidley & Austin, counsel to the
Sponsor, will deliver its opinion generally to the effect that, assuming
compliance with the Pooling Agreement, the portions of the Trust Fund
designated as "REMIC I", "REMIC II", and "REMIC III", respectively, will each
qualify as a REMIC under the Code. For federal income tax purposes, (i) the
separate non-certificated regular interests in REMIC I will be "regular
interests" in REMIC I and will constitute the assets of REMIC II, (ii) the
Class R-I Certificates will evidence the sole class of "residual interests" in
REMIC I, (iii) the separate non-certificated regular interests in REMIC II will
be "regular interests" in REMIC II and will constitute the assets of REMIC III,
(iv) the Class R-II Certificates will evidence the sole class of "residual
interests" in REMIC II, (v) the REMIC Regular Certificates will constitute the
"regular interests" in, and generally will be treated as debt obligations of,
REMIC III, and (vi) the Class R-III Certificates will evidence the sole class
of residual interests in REMIC III.
DISCOUNT AND PREMIUM; PREPAYMENT PREMIUMS
For federal income tax reporting purposes, it is anticipated that the
Class A-1, Class A-2, Class B, Class C and Class D Certificates will not, the
Class E Certificates may, and the Class X 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 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 not prepay
(that is, a CPR of 0%), except that the Hyper-Amortization Loans will be repaid
in full on their respective Anticipated Repayment Dates. 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.
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.
If the method for computing original issue discount described in the
Prospectus results in a negative amount for any period, a possibility of
particular relevance to the Class X Certificates, the amount of original issue
discount allocable to such period would be zero and such Certificateholders
will be permitted to offset such negative amount only against future original
issue discount (if any) attributable to such Certificate. Although the matter
is not free from doubt, a holder of a Class X Certificate may be permitted to
deduct a loss to the extent that his or her respective remaining basis in such
Certificate exceeds the maximum amount of future payments to which such
Certificateholder is entitled, assuming no further prepayments of the Mortgage
Loans. Any such loss might be treated as a capital loss.
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.
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
S-132
<PAGE>
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 to which such Class of
Certificates is entitled under the terms of the Pooling Agreement. The Internal
Revenue Service may nevertheless seek to require that an assumed amount of
Prepayment Premiums be included in distributions projected to be made on the
Certificates and that taxable income be reported based on the projected
constant yield to maturity of the Certificates, including such projected
Prepayment Premiums prior to their actual receipt. In the event that such
projected Prepayment Premiums were not actually received, presumably the holder
of a Certificate would be allowed to claim a deduction or reduction in gross
income at the time such unpaid Prepayment Premiums had been projected to be
received. Moreover, 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.
CONSTRUCTIVE SALES OF CLASS X CERTIFICATES
The Taxpayer Relief Act of 1997 added a provision to the Code that
requires the recognition of gain upon the "constructive sale of an appreciated
financial position." A constructive sale of a financial position occurs if a
taxpayer enters into certain transactions or series of such transactions that
have the effect of substantially eliminating the taxpayer's risk of loss and
opportunity for gain with respect to the financial instrument. Debt instruments
that (i) entitle the holder to a specified principal amount, (ii) pay interest
at a fixed or variable rate and (iii) are not convertible into the stock of the
issuer or a related party cannot be the subject of a constructive sale for this
purpose. Accordingly, only Class X Certificates, which do not have a principal
balance, could be subject to this provision and only if a holder of a Class X
Certificate engages in a constructive sale transaction.
CHARACTERIZATION OF INVESTMENTS IN OFFERED CERTIFICATES
Generally, except to the extent noted below, the Offered Certificates will
be "real estate assets" within the meaning of Section 856(c)(4)(A) of the Code
in the same proportion that the assets of the Trust 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)(4)(A) of the Code.
Most of the Mortgage Loans are not secured by real estate used for
residential or certain other purposes prescribed in Section 7701(a)(19)(C) of
the Code, and consequently the REMIC Regular Certificates will be treated as
assets qualifying under that section to only a limited extent. Accordingly,
investment in the REMIC Regular Certificates may not be suitable for thrift
institutions seeking to be treated as a "domestic building and loan
association" under Section 7701(a)(19)(C) of the Code.
The Offered Certificates will be treated as "qualified mortgages" for
another REMIC under Section 860G(a)(3)(C) of the Code and "permitted assets"
for a "financial asset securitization investment trust" under Section 860L(c)
of the Code. To the extent an Offered Certificate represents ownership of an
interest in any Mortgage Loan that is secured in part by the related borrower's
interest in an account containing any holdback of loan proceeds, a portion of
such Certificate may not represent ownership of assets described in Section
7701(a)(19)(C) of the Code and "real estate assets" under Section 856(c)(4)(A)
of the Code and the interest thereon may not constitute "interest on
obligations secured by mortgages on real property" within the meaning of
Section 856(c)(3)(B) of the Code. 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 AND OTHER TAXES
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 reasonable, maximize the
S-133
<PAGE>
Trust'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's federal income tax reporting position
with respect to income it is anticipated that the Trust would derive from such
property, the Special Servicer could determine that it would not be
commercially reasonable to manage and operate such property in a manner that
would avoid the imposition of a tax on "net income from foreclosure property"
(generally, income not derived from renting or selling real 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 receives from an REO Property is subject to
(i) a tax on "net income from foreclosure property," such income would be
subject to federal tax at the highest marginal corporate tax rate (currently
35%) and (ii) a tax on "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". These considerations will be of particular relevance with
respect to any health care facilities or hotels that become REO Property.
However, unless otherwise required by expressly applicable authority, it is
anticipated that the Trust will take the position that no income from
foreclosure property will be subject to the 100% "prohibited transactions" tax.
Any REO Tax imposed on the Trust'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.
To the extent permitted by then applicable laws, any Prohibited
Transactions Tax (as defined in the Prospectus), Contributions Tax (also as
defined in the Prospectus) or tax on "net income from foreclosure property"
that may be imposed on any of REMIC I, REMIC II or REMIC III will be borne by
the REMIC Administrator, the Trustee, the Master Servicer or the Special
Servicer, 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 certain specified sections of the
Pooling Agreement. Any such tax not borne by the REMIC Administrator, the
Trustee, the Master Servicer or the Special Servicer will be charged against
the Trust resulting in a reduction in amounts available for distribution to the
Certificateholders. See "Material Federal Income Tax
Consequences--REMICs--Prohibited Transactions Tax and Other Taxes" in the
Prospectus.
REPORTING AND OTHER ADMINISTRATIVE MATTERS
Reporting of interest income, including any original issue discount, if
any, 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
related 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 related 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
S-134
<PAGE>
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
Administrator may not have, such regulations only require that information
pertaining to the appropriate proportionate method of accruing market discount
be provided.
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.
CERTAIN 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, including insurance company
general accounts, that is subject to Title I of 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 constitute or 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. Certain fiduciary and prohibited
transaction issues arise only if the assets of the Trust constitute "plan
assets" for purposes of Part 4 of Title I of ERISA and Section 4975 of the Code
("Plan Assets"). Whether the assets of the Trust will constitute Plan Assets at
any time will depend on a number of factors, including the portion of any Class
of Certificates that is held by "benefit plan investors" (as defined in U.S.
Department of Labor Regulation Section 2510.3-101).
The U.S. Department of Labor issued to Citicorp an individual prohibited
transaction exemption, Prohibited Transaction Exemption ("PTE") 90-88, and to
J.P. Morgan Securities Inc. ("J.P. Morgan") an individual prohibited
transaction exemption, PTE 90-23 (the "Exemptions"), which generally exempt
from the application of the prohibited transaction provisions of Sections
406(a) and (b) and 407(a) of ERISA, and the excise taxes imposed on such
prohibited transactions pursuant to Sections 4975(a) and (b) of the Code,
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 Senior Certificates,
underwritten by an Exemption-Favored Party (as hereinafter defined), provided
that certain conditions set forth in the Exemptions are satisfied.
"Exemption-Favored Parties" include (a) Citicorp, (b) J.P. Morgan, (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 J.P. Morgan, 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 Senior Certificates.
The Exemptions set forth six general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of a Senior
Certificate to be eligible for exemptive relief thereunder. First, the
acquisition of such Senior 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
Senior Certificate must not be subordinated to the rights and interests
evidenced by the other Certificates. Third, such Senior Certificate at the time
of acquisition by the Plan must be rated in one of the three highest generic
rating categories by Moody's, Fitch, Duff & Phelps Credit Rating Co. ("DCR") or
Standard & Poor's Ratings Services, a division of the McGraw-Hill Companies,
Inc. ("S&P"). Fourth, the Trustee cannot be an affiliate of any other member of
the "Restricted Group", which (in addition to the Trustee) consists of any
Exemption-Favored Party, the Sponsor, the Master Servicer, the Special
Servicer, any sub-servicer, the Mortgage Loan Seller, Morgan Guaranty, 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 and any affiliate of any of the
aforementioned persons. Fifth, the sum of all payments made to and retained by
the Exemption-Favored Parties must represent not more than reasonable
compensation for underwriting the Senior Certificates; the sum of all payments
made to and retained by the Sponsor pursuant to the assignment of the Mortgage
Loans to the Trust must represent not more than the fair
S-135
<PAGE>
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 Senior 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 Senior Certificates be rated not lower than "Aaa" by Moody's and "AAA"
by Fitch. As of the Delivery Date, the fourth general condition set forth above
will be satisfied with respect to the Senior Certificates. A fiduciary of a
Plan contemplating purchasing a Senior 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 Plan contemplating purchasing a Senior Certificate, whether in
the initial issuance of such Certificate or in the secondary market, must make
its own determination that the first and fifth general conditions set forth
above will be satisfied with respect to such Certificate as of the date of such
purchase. A Plan's authorizing fiduciary will be deemed to make a
representation regarding satisfaction of the sixth general condition set forth
above in connection with the purchase of a Senior Certificate.
The Exemptions also require that the Trust 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 Moody's, Fitch, DCR or S&P for at least one year
prior to the Plan's acquisition of a Senior 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 Senior 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, as well as the excise taxes imposed by Sections 4975(a) and
(b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code, in
connection with (i) the direct or indirect sale, exchange or transfer of Senior
Certificates in the initial issuance of Certificates between the Sponsor or an
Exemption-Favored Party and a Plan when the Sponsor, an Exemption-Favored
Party, the Trustee, the Master Servicer, the Special Servicer, a sub-servicer,
the Mortgage Loan Seller, Morgan Guaranty or a borrower is a party in interest
(within the meaning of Section 3(14) of ERISA) or a disqualified person (within
the meaning of Section 4975(e)(2) of the Code) (a "Party in Interest") with
respect to the investing Plan, (ii) the direct or indirect acquisition or
disposition in the secondary market of Senior Certificates by a Plan and (iii)
the continued holding of Senior Certificates by a Plan. However, no exemption
is provided from the restrictions of Sections 406(a)(1)(E), 406(a)(2) and 407
of ERISA for the acquisition or holding of a Senior Certificate on behalf of an
Excluded Plan (as defined in the next sentence) 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.
Moreover, if the general conditions of the Exemptions, as well as certain
other specific conditions set forth in the Exemptions, are satisfied, the
Exemptions may also 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 Senior Certificates in the initial issuance of Certificates between the
Sponsor or an Exemption-Favored Party 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 Senior Certificates by a Plan and (3) the continued holding
of Senior Certificates by a Plan.
Further, if the general conditions of the Exemptions, as well as certain
other conditions set forth in the Exemptions, are satisfied, the Exemptions may
provide an exemption from the restrictions imposed
S-136
<PAGE>
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.
Lastly, if the general conditions of the Exemptions are satisfied, 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 Senior Certificates.
Before purchasing a Senior Certificate, a fiduciary of a Plan should
itself confirm that (i) the Senior 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 class exemptions. See "ERISA
Considerations" in the Prospectus. There can be no assurance that any such
class exemptions will apply with respect to any particular Plan investment in
the Offered Certificates or, even if it were deemed to apply, that any
exemption would apply to all transactions that may occur in connection with
such transaction. A purchaser of a Senior 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 CHARACTERISTICS OF THE CLASS B, CLASS C, CLASS D AND CLASS E
CERTIFICATES DO NOT MEET THE REQUIREMENTS OF THE EXEMPTIONS. ACCORDINGLY, THE
CERTIFICATES OF THOSE CLASSES MAY NOT BE ACQUIRED BY A PLAN, OTHER THAN AN
INSURANCE COMPANY GENERAL ACCOUNT, WHICH MAY BE ABLE TO RELY ON SECTION III OF
PTCE 95-60 (DISCUSSED BELOW).
Section III of Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60")
exempts from the application of the prohibited transaction provisions of
Sections 406(a), 406(b) and 407(a) of ERISA and Section 4975 of the Code
transactions in connection with the servicing, management and operation of a
trust (such as the Trust) in which an insurance company general account has an
interest as a result of its acquisition of certificates issued by the trust,
provided that certain conditions are satisfied. If these conditions are met,
insurance company general accounts would be allowed to purchase certain Classes
of Certificates (such as the Class B, Class C, Class D and Class E
Certificates) that do not meet the requirements of the Exemptions solely
because they (i) are subordinated to other Classes of Certificates in the Trust
and/or (ii) have not received a rating at the time of the acquisition in one of
the three highest rating categories from Moody's, Fitch, DCR and S&P. All other
conditions of the Exemptions would have to be satisfied in order for PTCE 95-60
to be available. Before purchasing Class B, Class C, Class D and Class E
Certificates, an insurance company general account seeking to rely on Section
III of PTCE 95-60 should itself confirm that all applicable conditions and
other requirements have been satisfied.
A governmental plan as defined in Section 3(32) of ERISA is not subject to
Title I of ERISA or Section 4975 of the Code. However, such a governmental plan
may be subject to a federal, state or local law which is, to a material extent,
similar to the foregoing provisions of ERISA or the Code ("Similar Law"). A
fiduciary of a governmental plan should make its own determination as to the
need for and the availability of any exemptive relief under Similar Law.
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.
The sale of Offered Certificates to a Plan is in no respect a
representation by the Sponsor or the Underwriters that this investment meets
all relevant legal requirements with respect to investments by Plans generally
or by any particular Plan, or that this investment is appropriate for Plans
generally or for any particular Plan.
S-137
<PAGE>
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. Neither the
Sponsor nor the Underwriters make any representation as to the ability of
particular investors to purchase the Offered Certificates under applicable
legal investment or other restrictions. All institutions whose investment
activities are subject to legal investment laws and regulations, regulatory
capital requirements or review by regulatory authorities should consult with
their own legal advisors in determining whether and to what extent the Offered
Certificates constitute legal investments for them or are subject to
investment, capital or other restrictions. See "Legal Investment" in the
Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement 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, and the Mortgage Loan Seller. J.P. Morgan
Securities Inc. is an affiliate of Morgan Guaranty. Proceeds to the Sponsor
from the sale of the Offered Certificates, before deducting expenses payable by
the Sponsor, will be an amount equal to approximately 106% of the initial
aggregate Certificate Balance of the Class A, Class B, Class C, Class D and
Class E Certificates, plus accrued interest on all the Offered Certificates,
before deducting expenses payable by the Sponsor.
Citibank, N.A. and J.P. Morgan Securities Inc. have agreed in the
Underwriting Agreement to purchase approximately 80% and 20%, respectively, of
the aggregate principal balance or notional amount, as the case may be, 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
Morgan Guaranty has agreed to indemnify the Sponsor, its officers and
directors, the Underwriters, and each person, if any, who controls the Sponsor
or either Underwriter within the meaning of Section 15 of the Securities Act,
with respect to certain liabilities, including certain liabilities under the
Securities Act, relating to certain of the Mortgage Loans.
S-138
<PAGE>
LEGAL MATTERS
Certain legal matters will be passed upon for the Sponsor by Sidley &
Austin, New York, New York and by Stephen E. Dietz, as an Associate General
Counsel of Citibank, N.A., and for the Underwriters by Brown & Wood LLP 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.
RATINGS
It is a condition to their issuance that the Offered Certificates receive
the credit ratings indicated below from Moody's Investors Service, Inc.
("Moody's") and/or Fitch IBCA, Inc. ("Fitch"; and, together with Moody's, the
"Rating Agencies"):
<TABLE>
<CAPTION>
CLASS MOODY'S FITCH
- ------------------------------- --------- ------
<S> <C> <C>
Class A-1 ................... Aaa AAA
Class A-2 ................... Aaa AAA
Class X ..................... Aaa AAA
Class B ..................... Aa2 AA
Class C ..................... A2 A
Class D ..................... Baa2 BBB
Class E ..................... NR* BBB-
</TABLE>
- ----------
* "NR" means not rated.
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, except in the case of the Class X
Certificates, the ultimate receipt by holders thereof of all payments of
principal to which they are entitled by the Distribution Date in June 2030 (the
"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/or interest, as
applicable, 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, (iii) whether and to what extent Prepayment Premiums
will be collected on the Mortgage Loans in connection with such prepayments or
the corresponding effect on yield to investors, or (iv) whether and to what
extent Excess Interest will be collected on the Hyper-Amortization Loans. Also,
a security rating does not represent any assessment of the yield to maturity
that investors may experience or the possibility that the Class X
Certificateholders might not fully recover their investment in the event of
rapid prepayments and/or other liquidations of the Mortgage Loans. In general,
the ratings address credit risk and not prepayment risk. As described herein,
the amounts payable with respect to the Class X Certificates consist only of
interest (and, to the extent described herein, may consist of a portion of the
Prepayment Premiums actually collected on the Mortgage Loans). If the entire
pool were to prepay in the initial month, with the result that the Class X
Certificateholders receive only a single month's interest and thus suffer a
nearly complete loss of their investment, all amounts "due" to such
Certificateholders will nevertheless have been paid, and such result is
consistent with the ratings received on the Class X Certificates. The Notional
Amount upon which interest is calculated with respect to the Class X
Certificates is subject to reduction in connection with each reduction in the
Certificate Balance of a Class of Sequential Pay Certificates, whether as a
result of principal payments or the allocation of Realized Losses and
Additional Trust Fund Expenses. The ratings on the Class X Certificates do not
address the timing or magnitude of reduction of such Notional Amount, but only
the obligation to pay interest timely on such Notional Amount as so reduced
from time to time. Accordingly, the ratings on the Class X Certificates should
be evaluated independently from similar ratings on other types of securities.
S-139
<PAGE>
There is no assurance that any rating assigned to the Offered Certificates
by a Rating Agency will not be downgraded, 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 Moody's and/or Fitch.
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-140
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<S> <C>
30/360 Basis ................................ S-15
Accrued Certificate Interest ................ S-111
Actual/360 Basis ............................ S-15
Actual/360 Mortgage Loans ................... S-14
Additional Trust Fund Expenses .............. S-23
Administrative Fee Rate ..................... S-24
Administrative Fees ......................... S-24
Advances .................................... S-98
Anticipated Repayment Date .................. S-15
Appraisal Reduction Amount .................. S-116
ARD ......................................... S-15
Assumed Final Distribution Date ............. S-3
Assumed Monthly Payment ..................... S-28
Assumed Monthly Payments .................... S-113
Available Distribution Amount ............... S-25
Balloon Loans ............................... S-15
Balloon Payment ............................. S-15
Certificate Balance ......................... S-1
Certificate Owner ........................... S-11
Certificate Registrar ....................... S-105
Certificateholders .......................... S-4
Certificates ................................ S-1
Citi Mortgage Loans ......................... S-3
Class ....................................... S-1
Class A Certificates ........................ S-1
CMSLP ....................................... S-11
Code ........................................ S-33
Collection Period ........................... S-107
Commercial Loan ............................. S-45
Commercial Mortgaged Property ............... S-45
Controlling Class ........................... S-103
Cross-Collateralized Mortgage Loans ......... S-12
DCR ......................................... S-135
Defeasance Loans ............................ S-16
Definitive Certificate ...................... S-11
Distribution Date ........................... S-4
DTC ......................................... S-11
Due Date .................................... S-14
ERISA ....................................... S-34
Excess Interest ............................. S-15
Excess Interest Rate ........................ S-15
Exemptions .................................. S-34
Fitch ....................................... S-3
GAAP ........................................ S-62
Hudson Street Borrower ...................... S-17
Hudson Street Event of Default .............. S-58
Hudson Street Ground Lease .................. S-54
Hudson Street Guarantor ..................... S-57
Hudson Street Management Agreement .......... S-55
</TABLE>
S-141
<PAGE>
<TABLE>
<S> <C>
Hudson Street Manager ................................ S-55
Hudson Street Mortgage ............................... S-18
Hudson Street Note ................................... S-17
Hudson Street Property ............................... S-18
Hyper-Amortization Loans ............................. S-47
Hyper-Amortization Payments .......................... S-15
Initial Pool Balance ................................. S-3
Large Mortgage Loans ................................. S-12
Lock-out Period ...................................... S-16
Minneapolis City Center Borrower ..................... S-19
Minneapolis City Center Management Agreement ......... S-66
Minneapolis City Center Manager ...................... S-66
Minneapolis City Center Mortgage ..................... S-19
Minneapolis City Center Mortgagor .................... S-19
Minneapolis City Center Note ......................... S-19
Minneapolis City Center Property ..................... S-19
Minneapolis City Center Purchase Option .............. S-69
Monthly Payments ..................................... S-14
Moody's .............................................. S-3
Morgan Guaranty ...................................... S-3
Morgan Mortgage Loans ................................ S-3
Mortgage ............................................. S-12
Mortgage Loan Seller ................................. S-3
Mortgage Loans ....................................... S-3
Mortgage Note ........................................ S-12
Mortgage Pool ........................................ S-3
Mortgage Rate ........................................ S-14
Mortgaged Property ................................... S-12
Multifamily Loan ..................................... S-45
Multifamily Mortgaged Property ....................... S-45
Notional Amount ...................................... S-1
Offered Certificates ................................. S-1
Open Period .......................................... S-16
Pass-Through Rate .................................... S-1
P&I Advance .......................................... S-30
Plan ................................................. S-34
Pooling Agreement .................................... S-22
Prepayment Premium ................................... S-16
Prepayment Premium Period ............................ S-16
Prepayment Premiums .................................. S-4
Private Certificates ................................. S-10
Rating Agencies ...................................... S-3
Realized Losses ...................................... S-23
Reimbursement Rate ................................... S-30
Release Date ......................................... S-48
REMIC ................................................ S-4
REMIC Administrator .................................. S-10
REMIC I .............................................. S-4
REMIC II ............................................. S-4
REMIC III ............................................ S-4
REMIC Regular Certificates ........................... S-1
</TABLE>
S-142
<PAGE>
<TABLE>
<S> <C>
REMIC Residual Certificates ............... S-1
REO Property .............................. S-28
Revised Rate .............................. S-15
Senior Certificates ....................... S-4
Sequential Pay Certificates ............... S-1
SMMEA ..................................... S-35
S&P ....................................... S-135
Sponsor ................................... S-3
Stated Principal Balances ................. S-24
Subordinate Certificates .................. S-4
Trust ..................................... S-3
Trust Fund ................................ S-3
Underwriters .............................. S-1
Wellpoint Borrower ........................ S-20
Wellpoint Mortgage ........................ S-20
Wellpoint Note ............................ S-20
Wellpoint Property ........................ S-20
Wellpoint Tenant .......................... S-80
Wrap Mortgage ............................. S-19
Wrap Mortgage Loan ........................ S-69
Yield and Maturity Considerations ......... S-8
</TABLE>
S-143
<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. "Underwritten NOI" or "U/W NOI" as used herein with respect to any
Mortgaged Property means an estimate, made at origination 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) "Underwritten Revenues" or "U/W Revenues" were generally assumed to
equal (subject to the assumptions and adjustments specified in the
following three sentences): (a) the amount 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); (b) annual contractual base rents (in the case of the
Commercial Mortgaged Properties other than the health care and hospitality
Mortgaged Properties) that either are annualized based on leases in effect
as reflected on a rent roll provided by the borrower in connection with the
origination of the related Mortgage Loan or are based on a prior 12 month
period; and (c) annual revenues consistent with historical operating trends
and market and competitive conditions, in the case of health care and
hospitality Mortgaged Properties. Such Underwritten 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. Also, in
the case of certain Mortgaged Properties that are operated as nursing home
or hospitality properties and are subject to an operating lease with a
single operator, Underwritten Revenues were calculated as described above
based on revenues received by the operator rather than rental payments
received by the related borrower under the operating lease; provided that
such rental payments are sufficient to pay debt service on the related
Mortgage Loan.
Underwritten Revenues generally include: (w) for the Multifamily
Mortgaged Properties, rental and other revenues; (x) for the Commercial
Mortgaged Properties (other than the health care related and hospitality
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 hospitality
Mortgaged Properties, guest room rates, food and beverage charges,
telephone charges and other revenues.
(ii) "Underwritten 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% and 10% of assumed gross revenues for the year, (b)
adjusting certain historical expense items upwards or downwards to
A-1
<PAGE>
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 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).
Underwritten 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, Underwritten Expenses may have included
leasing commissions and tenant improvements. In the case of hospitality
Mortgaged Properties, Underwritten Expenses included such departmental
expenses as guest rooms, food and beverage, telephone bills, 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, Underwritten Expenses included routine and ancillary
contractual expenses, nursing expenses, dietary expenses,
laundry/housekeeping expenses, 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, (y) by analyzing and annualizing 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 Underwritten 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 Underwritten 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
Underwritten 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, "Underwritten NOI" or "U/W NOI" describes the cash flow
available before deductions for capital expenditures such as tenant
improvements, leasing commissions and structural reserves. In most cases,
"Underwritten NOI" or "U/W NOI" has been calculated without including U/W
Reserves or any other reserves among Underwritten Expenses. Had such reserves
been so included, "Underwritten NOI" or "U/W NOI" would have been lower. Even
in those cases where such "reserves" were so included, no cash may have been
actually escrowed. No representation is made as to the future net cash flow of
the properties, nor is "Underwritten NOI" or "U/W NOI" set forth herein
intended to represent such future net cash flow.
Underwritten NOI and the Underwritten Revenues and Underwritten Expenses
used to determine Underwritten 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 Underwritten NOI for such Mortgaged
Property as set forth in the following schedule or tables. In addition,
Underwritten 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.
A-2
<PAGE>
In the case of the Large Mortgage Loans, the foregoing is subject to the
specific discussion in respect of such Mortgage Loans set forth under
"Description of the Mortgage Pool" herein.
2. "Underwritten Net Cash Flow", "Underwritten NCF" or "U/W NCF" means,
with respect to any Mortgaged Property, the "Underwritten NOI" for such
Mortgaged Property reduced by the following items (if and to the extent that
such items have not already been netted out in calculating Underwritten NOI):
capital expenditures, replacement reserves, tenant improvements and leasing
commissions.
3. "Underwritten NOI Debt Service Coverage Ratio", "Underwritten NOI DSCR"
or "U/W NOI DSCR" as used herein with respect to any Mortgage Loan means (a)
the Underwritten NOI for the related Mortgaged Property or Properties, divided
by (b) the Annual Debt Service for such Mortgage Loan.
4. "Underwritten Debt Service Coverage Ratio", "Underwritten DSCR" or "U/W
DSCR" as used herein with respect to any Mortgage Loan means (a) the
Underwritten NCF for the related Mortgaged Property or Properties, divided by
(b) the Annual Debt Service for such Mortgage Loan.
5. "1997 NCF" means, with respect to any Mortgaged Property, the net cash
flow derived therefrom for 1997 (equal to 1997 Revenues less 1997 Expenses)
that was available for debt service, 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. 1997 NCF does not necessarily reflect accrual of
certain costs such as capital expenditures and leasing commissions and 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 1997 Expenses to reflect
normalized 1997 NCF. The Sponsor has not made any attempt to verify the
accuracy of any information provided by each borrower or to reflect changes in
net cash flow that may have occurred since the date of the information provided
by each borrower for the related Mortgaged Property. 1997 NCF was not
necessarily determined in accordance with GAAP. Moreover, 1997 NCF 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 as a measure of
liquidity and in certain cases may reflect partial-year annualizations.
(i) "1997 Revenues" are the gross revenues received in respect of a
Mortgaged Property for the year ended December 31, 1997 (or annualized or
estimated in certain cases) or for a fiscal year primarily overlapping with
calendar year 1997, 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
hospitality Mortgaged Properties, guest room, food and beverage, telephone
and other revenues. In addition, in the case of certain Mortgaged
Properties that are operated as nursing homes or hotels and are subject to
an operating lease with a single operator, 1997 Revenues were calculated as
described above based on revenues received by the operators rather than
rental payments received by the related borrower under the operating lease.
(ii) "1997 Expenses" are the operating expenses incurred for a Mortgaged
Property for the year ended December 31, 1997 (or annualized or estimated
in certain cases) or for a fiscal year primarily overlapping with calendar
year 1997, 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, 1997 Expenses may
have included leasing commissions and tenant improvements. In the case of
hospitality Mortgaged Properties, 1997 Expenses included such departmental
expenses as guest room, food and beverage, telephone, and
A-3
<PAGE>
rental and other expenses, and such undistributed operating expenses as
marketing and franchise fees. In the case of health care Mortgaged
Properties, 1997 Expenses included routine and ancillary contractual
expenses, nursing expenses, dietary expenses, laundry/ housekeeping,
activities/social service expenses, equipment rental expenses and other
expenses.
6. "1997 Debt Service Coverage Ratio" or "1997 DSCR" means, with respect
to any Mortgage Loan, (a) the 1997 NCF for the related Mortgaged Property or
Properties, divided by (b) the Annual Debt Service for such Mortgage Loan.
7. "1996 NCF" means, with respect to any Mortgaged Property, the net cash
flow derived therefrom for 1996, equal to 1996 Revenues less 1996 Expenses and
calculated in a manner consistent with 1997 NCF.
(i) "1996 Revenues" are the revenues for a Mortgaged Property for the
year ended December 31, 1996 or for a fiscal year primarily overlapping
with calendar 1996, calculated in a manner consistent with 1996 Revenues.
(ii) "1996 Expenses" are the actual expenses incurred for a Mortgaged
Property for the year ended December 31, 1996 or for a fiscal year
primarily overlapping with calendar 1996, calculated in a manner consistent
with 1997 Expenses.
8. "1996 Debt Service Coverage Ratio" or "1996 DSCR" means, with respect
to any Mortgage Loan, (a) the 1996 NCF for the related Mortgaged Property or
Properties, divided by (b) the Annual Debt Service for such Mortgage Loan.
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. "Appraisal Value" or "Appraised Value" means, for any Mortgaged
Property, the appraiser's value as stated in the appraisal available to the
Sponsor as of the date specified on the schedule.
11. "Cut-off Date Loan-to-Value Ratio" or "Cut-off Date LTV Ratio" 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.
12. "Maturity Date/ARD Loan-to-Value Ratio" or "Maturity Date/ARD LTV
Ratio" means, with respect to any Balloon Loan or Hyper-Amortization Loan, the
related Anticipated Loan Balance at Scheduled Maturity Date/ARD, divided by the
Appraisal Value of the related Mortgaged Property.
13. "Leasable Square Footage", "NSF" or "NRSF" 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. "Units", "Rooms" and "Beds", respectively, mean: (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 (referred to in
the schedule as "Units") and, in the case of a Mortgaged Property operated as a
mobile home park, the number of pads (also referred to in the schedule as
"Units"); (ii) in the case of a Mortgaged Property operated as a hotel or
motel, the number of rooms (referred to in the schedule as "Rooms"); and (iii)
in the case of a Mortgaged Property operated as a health care facility, the
number of beds (referred to in the schedule as "Beds").
15. "SF" means, with respect to any Commercial Mortgaged Property, square
footage.
16. "U/W Reserves" means: (i) in the case of a Mortgaged Property operated
as a retail center, office complex or industrial facility, on-going reserves
required to be maintained on a net leasable area basis; (ii) in the case of a
Mortgaged Property operated as multifamily housing or a mobile home park,
on-going reserves required to be maintained on a per Unit basis; (iii) in the
case of a Mortgaged Property operated as a hotel or motel calculated as a
percentage of U/W Revenues; and (iv) in the case of a Mortgaged Property
operated as a health care facility, on-going reserves required to be maintained
on a per Bed basis; however, in each case, actual reserves may be less than the
amount of required reserves or no reserves may have been escrowed.
A-4
<PAGE>
17. "Occupancy %" or "Occupancy Percent" means the percentage of Leasable
Square Footage or Total Units/Rooms/Beds/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.
18. "Administrative Fee Rate" means, with respect to any Mortgage Loan,
the sum of the Master Servicing Fee Rate (including the per annum rate at which
the monthly sub-servicing fee is payable to any related Sub-Servicer (the
"Sub-Servicing Fee Rate")), plus the per annum rate applicable to the
calculation of the Trustee Fee.
19. "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.
20. "Anticipated Loan Balance at Scheduled Maturity Date/ARD" means, with
respect to any Mortgage Loan, the balance due at maturity or, in the case of a
Hyper-Amortization Loan, the related Anticipated Repayment Date pursuant to the
payment schedule for such Mortgage Loan and assuming no prepayments, defaults
or extensions.
21. "UPB" means, with respect to any Mortgage Loan, its unpaid principal
balance.
23. "Hyperamortizing" means Hyper-Amortization Loan.
24. "Fully Amortizing" means fully amortizing Mortgage Loan.
25. "Balloon" means Balloon Loan.
25. "Scheduled Maturity Date/ARD" or "Maturity/ARD" means, with respect to
any Mortgage Loan, the date specified in the related Mortgage Note as its
stated maturity date or, with respect to any Hyper-Amortization Loan, its
Anticipated Repayment Date.
27. "Prepayment Provisions" for each Mortgage Loan are: "LO" means the
duration of lockout period; "Defeasance" means the duration of the defeasance
period; "greater of x% or YM" means the greater of the applicable yield
maintenance charge and x% of the principal amount prepaid; "YM" means yield
maintenance charge (calculated as described in clauses 28 or 29 below); and
"x%" means a Prepayment Premium equal to "x%" of the principal amount prepaid.
The number in parenthesis is the number of months for which the related call
protection provision is in effect, exclusive of the maturity date for
calculation purpose only.
28. Prepayment Premiums for Mortgage Loans with yield maintenance of type
"Present Value" are generally equal to the product of (a) the amount of
principal being prepaid (expressed as a percentage of the principal balance
outstanding assuming no prepayments have been made) and (b) the present value
as of the prepayment date of the remaining scheduled payments of principal and
interest from the prepayment date through the maturity date or Anticipated
Repayment Date (including any Balloon Payment) determined by discounting such
payments at the Monthly Discount Rate, less the amount of principal being
prepaid. The term "Monthly Discount Rate" means the rate which, when compounded
monthly, is equivalent to the "Discount Rate" as defined herein.
29. Prepayment Premiums for Mortgage Loans with yield maintenance of type
"Int. Dif." are generally equal to the product obtained by multiplying (a) the
amount of principal balance being prepaid times (b) the difference obtained by
subtracting from the Mortgage Rate the Discount Rate, times (c) the present
value factor calculated using the following formula:
1--(1+r)-n
----------
r
r = Discount Rate
n = the number of years, and any fraction thereof, remaining between the
prepayment date and the maturity date or Anticipated Repayment Date, as
applicable.
A-5
<PAGE>
<TABLE>
<CAPTION>
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
Control Loan Loan
Number Number Contributor Property Name Property Address
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
C001 6601056 Citicorp 375 Hudson Street 375 Hudson Street
C002 6601257 Citicorp Wellpoint Office Complex 2155 Oxnard Street
C003 6201867 Citicorp IBM Plaza Building 654 Munoz Rivera Avenue
C004 6600965 Citicorp 201 Broadway 201 Broadway
C005 6600030 Citicorp 1241 East Main Street 1241 East Main Street
- ------------------------------------------------------------------------------------------------------------------------------------
C006 6600911 Citicorp Henderson Carriage Building 2067 Massaachusetts Avenue
J007 521 JPM Brunswig Square Office Building 360 East Second Street
C008 6202723 Citicorp Westgate Office Center 3400 Demetropolis Road
C009 6600691 Citicorp Weir Canyon 160 Old Springs Road
C010 6201994 Citicorp Old City Hall 1001 and 1000 E. Broad Steet
- ------------------------------------------------------------------------------------------------------------------------------------
C011 6202009 Citicorp Cocoview - Coconut Grove 2977 McFarlane Road
C012 6202568 Citicorp Paramount Office Center 1141 Montlimar Drive
C013 6600918 Citicorp One Appleton Street One Appleton Street
C014 6600167 Citicorp Wells Fargo Cypress Office Bldg. 12337 Jones Road
C015 6202785 Citicorp 309 & 311 Plus Park Blvd. 309 & 311 Plus Park Blvd
- ------------------------------------------------------------------------------------------------------------------------------------
C016 6600637 Citicorp Grove Square Office Center 13601 80th Circle North
C017 6600183 Citicorp Riverside Village Shopping Center 4541 Shirley Ave.
C018 6600206 Citicorp Merchants Grove 2420-2422-2424-2426-2428-2430 N.
Grandview Boulevard
C019 6600190 Citicorp BPI Lincolnia Centre 4810 Beauregard Street
C020 6110111 Citicorp Aquia Commerce Center 2721 Jefferson Davis HWY
- ------------------------------------------------------------------------------------------------------------------------------------
C021 6600704 Citicorp 2900 South College Building 2900 South College Avenue
C022 6202756 Citicorp Coronada Plaza 1085 and 1095 N. Main Street
C023 6600710 Citicorp Harmony Medical Center 1330 Oakridge Drive
C025 6600991 Citicorp Building 38 Charleston Navy Yard
C028 6600553 Citicorp Everitt Plaza 3000 & 3030 South College
- ------------------------------------------------------------------------------------------------------------------------------------
C029 6600707 Citicorp 4700 McMurry Building 4700 McMurry Avenue
C030 6600706 Citicorp Building One Oakridge 1100 Haxton Drive
C031 6600705 Citicorp 1609 Oakridge Building 1609 Oakridge Drive
C032 6600568 Citicorp Ruben-Plaza Properties 3016 Maryland Avenue
C033 6601072 Citicorp Minneapolis City Center 33 South 6th St. & 40 South 7th St.
- ------------------------------------------------------------------------------------------------------------------------------------
C034 6201909 Citicorp Townside Retail & Office Center 2114-2220 Ivy Road
C035 6000159 Citicorp Harbor Cove Building 310-312 Broadway
C036 6600916 Citicorp Bushnell Plaza One Gold Street
C037 6600281 Citicorp The Landing 530 Causeway Drive
C038 6600012 Citicorp Brittany Springs 2504 Bordeaux Lane
- ------------------------------------------------------------------------------------------------------------------------------------
C039 6600711 Citicorp Collingwood Apts 3400 Kimball Bridge Road
J040 604 JPM Alton Woods Apartments 241 Loudon Road
C041 6600105 Citicorp French Quarter Apts-Aurora 3227 S. Parker Road
C042 6202137 Citicorp Fairwood Pond Apartments 14700 SE Petrovitsky Road
C043 6600456 Citicorp Alpine Apartments 5210-5411 Mockingbird Dr.
- ------------------------------------------------------------------------------------------------------------------------------------
C044 6000145 Citicorp Eagle Creek Apts 1128 S. Williams Street
C045 6000168 Citicorp Commons at Hawthorne Village 1221 NE 51st Avenue
C046 6202786 Citicorp Summerhill Plaza Apartments 650 W. Broadway
J047 573 JPM Rolling Hills Apartments 891 Rolling Hills Lane
C048 6000150 Citicorp Village Gardens Townhomes 120th & Ridgeview
- ------------------------------------------------------------------------------------------------------------------------------------
C049 6202563 Citicorp Gillespie/Roland Apartments 805-809,901-913 So. First St, 56-58 Daniel St,
60 E.Chalmers
J050 603 JPM Salisbury Green Apartments 201 Loudon Road
J051 571 JPM Birchwood Pointe 1500 Wood Pointe Lane
J052 644 JPM Randall Station Apartments and Townhomes 27 North Randall Avenue
C053 6600600 Citicorp Ruben-Bexley Apartments 3018 Maryland Avenue
- ------------------------------------------------------------------------------------------------------------------------------------
C054 6600022 Citicorp Martinbrook Apartments 1817-A Bond Circle, Polly Reed Rd
C056 6201545 Citicorp Springville Heights/90 Richmond Hill Rd 90 Richmond Hill Road
J057 514 JPM Windsor Park Apartments 1220 Sierra Drive NE
C058 6600037 Citicorp Adams Place Apartments 750 Adams Place and 141 Manassas Street
C059 6600036 Citicorp Atrium Apartments 1306 N. Lincoln Avenue
- ------------------------------------------------------------------------------------------------------------------------------------
C060 6600516 Citicorp Springville Heights Condo/80 Richmond 80 Richmond Hill Road
Hill Road
C062 6600075 Citicorp Emerald Estates Apts 3300 Civic Center Drive
C063 6000220 Citicorp Oak Run Apartments 37701-37776 Oak Run Circle
C064 6600383 Citicorp Ridgebrook Apartments 1601South 24th Street
C065 6202353 Citicorp Kendall Village Townhomes 1113 Kimbark Ave. ,2925-2927 W. Michigan Ave.,
301-319 S. & 220-222 N. Kenda
- ------------------------------------------------------------------------------------------------------------------------------------
C066 6202567 Citicorp Carriage Lane, Carriage Way and 302 South Busey Avenue, 705 Colorado Avenue,
Colorado Oaks Apts. 709 West Green
J067 574 JPM Hunter Woods Apartments 772 South Saginaw Street
C068 6600598 Citicorp Larkway Garden Apartments 1604 Monroe Ave SW
C069 6110157 Citicorp Lake Chalet Apartments 2506 103rd Street E.
C070 6600455 Citicorp Taiga Twins Apts 403 & 423 W. 22nd Avenue
- ------------------------------------------------------------------------------------------------------------------------------------
J071 572 JPM Arbors of Lapeer 952 Dewey Street
C072 6600589 Citicorp Wolhurst Point Apartments 7312 & 7322 South Bryant Street
C073 6000165 Citicorp Northwoods Apartments 200 East 19th Avenue
C074 6600280 Citicorp Riverview Apartments 1230 E Auer Street
C075 6600600 Citicorp Ruben-Janet Circle Apartments 2936-2978 North Gould Road
- ------------------------------------------------------------------------------------------------------------------------------------
C076 6000175 Citicorp Fiesta Trails Power Center I H 10 & DeZavala Rd.
C077 6600079 Citicorp Aroostook Centre Mall US Route 1
J078 608 JPM Venice Villages Shoppes 4105 Tamiami Trail
J079 562 JPM Industry Marketplace Shopping Center 17259-17363 Gale Avenue
C080 6600562 Citicorp K-Mart Super Store 3300 N. 27th Street
- ------------------------------------------------------------------------------------------------------------------------------------
J081 525 JPM K-Mart Kahului Dairy Rd. at Hanna Highway
C082 6202163 Citicorp K-Mart - Lancaster 1842-1890 Fruitville Pike
C083 6600592 Citicorp Ruben-North High Center 5030-5086 North High Street
C084 6201963 Citicorp Frenchtown Plaza 5943 Post Road
C086 6600684 Citicorp Courtesy Town Center Hwy 70 & Nine Foot Rd
- ------------------------------------------------------------------------------------------------------------------------------------
C087 6000185 Citicorp Park Place Shopping Center 3050 Clarksville Street
C088 6600605 Citicorp Eastgrove Shopping Center 3949 Hoover Road
C089 6600557 Citicorp Ruben-James & Livingston Center 1214-1220 South James Road
C090 6600613 Citicorp Delaware Shopping Center 153-193 S. Sandusky Street
J091 619 JPM Castle Ridge Shopping Center Route 10 and River Road
- ------------------------------------------------------------------------------------------------------------------------------------
C092 6600548 Citicorp Ruben-Bethel Centre 1440-1530, 5207-5236 Bethel Road
J093 630 JPM Oak Creek Plaza Shopping Center 8-120 Oak Creek Plaza
C094 6600083 Citicorp Grove Plaza 2220-2240 E Plaza Blvd.
C095 6202673 Citicorp Almeda Depot Shopping center 12344 Interstate 45
C096 6600096 Citicorp Ingram Square Shopping Center 6531-6844 Ingram Road
- ------------------------------------------------------------------------------------------------------------------------------------
J097 629 JPM Howell Ferry Shopping Center 3585 Peachtree Industrial Blvd
C098 6201732 Citicorp 1740 Utica Avenue 1740 Utica Avenue
C099 6201964 Citicorp Parktown Plaza 301 N. Lewis Road
C101 6600698 Citicorp Bethlehem Village Shoppes 3650 Nazareth Pike
C102 6600108 Citicorp Summerton Plaza 300 Route 9
- ------------------------------------------------------------------------------------------------------------------------------------
J103 623 JPM Washington Park Shopping Center 7663-7887 26 Mile Road
C104 6600560 Citicorp Ruben-Beechcroft Center 1931-1977 East Dublin-Granville Rd.
C105 6600593 Citicorp Ruben-Wyandotte Center 5091-5139 East Main Street
C106 6600718 Citicorp White Rock Shopping Center 9005-9069 Garland Road
C107 6202584 Citicorp 99 Cents Only Store 5270 Sunset Blvd
- ------------------------------------------------------------------------------------------------------------------------------------
C108 6202463 Citicorp Illuminations Plaza 618 NW 60th Street
C109 6600566 Citicorp Ruben-Barnes & Noble/Kinko's 5160 East Main Street
C110 6202698 Citicorp Taschner Shopping Center 500 West Southern Avenue
C111 6600594 Citicorp Ruben-McNaughten Center 6085-6115 E. Main Street
C112 6202501 Citicorp Magnolia Laurel Canyon Shopping Center 12115-12129 Magnolia Boulevard
- ------------------------------------------------------------------------------------------------------------------------------------
C113 6600686 Citicorp CVS Drugstore - Baltimore 5200 York Road
C114 6600779 Citicorp CVS-Manayunk 3720-80 Main Street
C115 6201809 Citicorp Family Bargain Center 6711 Van Nuys Blvd
C116 6600595 Citicorp Ruben-Village Center 1995-2019 East Dublin-Granville Road
C117 6202680 Citicorp Almeda West Shopping Center 9940-9944 Kleckly Street
- ------------------------------------------------------------------------------------------------------------------------------------
C118 6600570 Citicorp Ruben-West Broad Center 3631-3659 West Broad Street
C119 6000213 Citicorp Blockbuster Building O'Connor Drive & FM 620
C120 6202705 Citicorp Fiesta Square 2 1660-1720 W. Southern Avenue
C121 6202704 Citicorp Goodyear Plaza 2180 N. Alma School Road
C122 6600347 Citicorp Hampton Inn - Savannah 201 E. Bay Street
- ------------------------------------------------------------------------------------------------------------------------------------
C123 6600349 Citicorp Mulberry Inn - Savannah 601 E. Bay Street
C125 6203080 Citicorp Radisson Inn -Northpoint 10740 Westside Pkwy
C127 6553913 Citicorp Durango Holiday Inn 800 Camino Del Rio
C128 6202751 Citicorp Wingate Inn 1005 Kingswood Place
C129 6000228 Citicorp Holiday Inn Express 4911 Oaklawn Boulevard
- ------------------------------------------------------------------------------------------------------------------------------------
C131 6202743 Citicorp Hampton Inn-Gainesville 4225 SW 40th Boulevard
J132 496 JPM Midway Hotel 1835 Rose Street
C133 6000227 Citicorp Hampton Inn 5103 Plaza Drive
C135 6600203 Citicorp Marsh Creek Country Club 88 Marshside Ct.
C136 6202118 Citicorp Holiday Inn - Aiken, SC 155 Colony Parkway
- ------------------------------------------------------------------------------------------------------------------------------------
C138 6600940 Citicorp Days Inn - Thomasville 895 Lake Road
J139 515 JPM Tanners Lake Super 8 Motel 285 North Century Avenue
C140 6201571 Citicorp Comfort Inn - Greer 611 West Wade Hampton Blvd
C141 6202088 Citicorp Super 8 Motel 2100 North State Steet
C142 6600765 Citicorp Sleep Inn 17013 Abercorn Street
- ------------------------------------------------------------------------------------------------------------------------------------
J143 549 JPM Best Western Midway Hotel - Wausau 2901 Martin Avenue
J144 617 JPM Standard Warehouse 922 Molly Pond Road
J145 516 JPM 8100 Camino Arroyo Building 8100 Camino Arroyo Road
C146 6600094 Citicorp International Paper Box Machine 90 NE Blvd.
Company-Nashua
C147 6600082 Citicorp 1891 Alton Parkway 1891 Alton Parkway
- ------------------------------------------------------------------------------------------------------------------------------------
J148 598 JPM Park Heights 43350-43352 Business Park Drive
J149 634 JPM River Road Industrial Park 399 River Road
C150 6600030 Citicorp 120 Hamilton Avenue 120 Hamilton Avenue
C151 6600352 Citicorp Faulkenburg Centre 501 South Faulkenburg Road
C152 6000218 Citicorp RT Commerce Park 709 & 717 Lingco Drive
- ------------------------------------------------------------------------------------------------------------------------------------
C153 6202760 Citicorp 23161 Antonio Parkway 23161 Antonio Parkway
C154 6600095 Citicorp 14 Mason 14 Mason
C155 6600094 Citicorp International Paper Box Machine Co.-Milford 1300 U.S. 50 Hwy
C156 6202627 Citicorp Cascades of Tucson 201 N. Jessica Ave.
C157 6600166 Citicorp River Oaks Convalescent Center 300 North Street
- ------------------------------------------------------------------------------------------------------------------------------------
C158 6203006 Citicorp Americare Convalescent Center 18211 Anglin Ave
J159 538 JPM Sonoma Acres Convalescent Hospital 765 Donald Street
C160 6600098 Citicorp Valley Ridge Mobile Home Park 8671 SW Loop 410
C161 6600168 Citicorp Stonecroft Mobile Home Park 4900 Raytown Road
J162 504 JPM Eisenhower Nursing & Conv. Hosp. 1470 North Fair Oaks Ave.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
% of Total
Zip Property Original Cut-off Mortgage Loan
City State Code Type Balance Date Balance Pool Balance
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
New York City NY 10014 Office $ 183,000,000 $ 182,091,683.35 18.04%
Los Angeles CA 91367 Office $ 51,200,000 $ 51,200,000.00 5.07%
San Juan PR 00918 Office $ 23,500,000 $ 23,465,010.18 2.32%
Cambridge MA 02139 Office $ 14,000,000 $ 13,991,692.13 1.39%
Stamford CT 06902 Office $ 9,831,325 $ 9,684,338.03 0.96%
- ---------------------------------------------------------------------------------------------------------------------------
Cambridge MA 02140 Office $ 9,000,000 $ 8,994,592.46 0.89%
Los Angeles CA 90012 Office $ 9,000,000 $ 8,933,383.45 0.88%
Mobile AL 36609 Office $ 6,500,000 $ 6,496,598.71 0.64%
Anaheim CA 92808 Office $ 6,100,000 $ 6,096,797.34 0.60%
Richmond VA 23219 Office $ 4,100,000 $ 4,086,588.24 0.40%
- ---------------------------------------------------------------------------------------------------------------------------
Coconut Grove FL 33133 Office $ 4,000,000 $ 3,994,837.87 0.40%
Mobile AL 36609 Office $ 2,950,000 $ 2,945,967.17 0.29%
Boston MA 02116 Office $ 2,500,000 $ 2,498,544.07 0.25%
Houston TX 77070 Office $ 2,485,000 $ 2,483,708.34 0.25%
Nashville TN 37217 Office $ 2,160,000 $ 2,158,019.51 0.21%
- ---------------------------------------------------------------------------------------------------------------------------
Maple Grove MN 55369 Office $ 2,000,000 $ 1,996,111.43 0.20%
Jacksonville FL 32210 Office $ 1,950,000 $ 1,947,527.84 0.19%
Waukesha WI 53188 Office $ 1,600,000 $ 1,598,539.65 0.16%
Alexandria VA 22312 Office $ 1,575,000 $ 1,574,235.47 0.16%
Stafford VA 22555 Office $ 1,500,000 $ 1,481,346.56 0.15%
- ---------------------------------------------------------------------------------------------------------------------------
Fort Collins CO 80525 Office $ 1,445,000 $ 1,443,510.05 0.14%
Orange CA 92687 Office $ 1,350,000 $ 1,348,314.55 0.13%
Fort Collins CO 80526 Office $ 1,334,000 $ 1,332,624.50 0.13%
Charleston Navy Yard MA 02129 Office $ 1,250,000 $ 1,249,260.53 0.12%
Fort Collins CO 80525 Office $ 984,000 $ 982,985.39 0.10%
- ---------------------------------------------------------------------------------------------------------------------------
Fort Collins CO 80525 Office $ 900,000 $ 899,072.00 0.09%
Fort Collins CO 80525 Office $ 652,000 $ 651,327.72 0.06%
Fort Collins CO 80525 Office $ 630,000 $ 629,350.40 0.06%
Columbus OH 43209 Office $ 525,000 $ 522,384.03 0.05%
Minneapolis MN 55402 Mixed Use $ 108,000,000 $ 108,000,000.00 10.70%
- ---------------------------------------------------------------------------------------------------------------------------
Charlottesville VA 22903 Mixed Use $ 2,900,000 $ 2,894,022.85 0.29%
Laguna Beach CA 92651 Mixed Use $ 2,250,000 $ 2,246,939.34 0.22%
Hartford CT 06103 Mixed Use $ 1,650,000 $ 1,648,943.19 0.16%
Wrightsville Beach NC 28480 Mixed Use $ 1,100,000 $ 1,098,937.84 0.11%
Naperville IL 60540 Multifamily $ 32,750,000 $ 32,592,221.88 3.23%
- ---------------------------------------------------------------------------------------------------------------------------
Alpharetta GA 30022 Multifamily $ 18,900,000 $ 18,806,597.71 1.86%
Concord NH 03301 Multifamily $ 14,862,000 $ 14,824,584.68 1.47%
Aurora CO 80014 Multifamily $ 12,200,000 $ 12,175,441.37 1.21%
Renton WA 98058 Multifamily $ 12,000,000 $ 11,957,938.00 1.18%
Anchorage AK 99507 Multifamily $ 10,000,000 $ 9,976,376.07 0.99%
- ---------------------------------------------------------------------------------------------------------------------------
Westmont IL 60559 Multifamily $ 10,000,000 $ 9,961,386.25 0.99%
Hillsboro OR 97124 Multifamily $ 9,800,000 $ 9,786,133.03 0.97%
Anaheim CA 92805 Multifamily $ 8,700,000 $ 8,694,965.24 0.86%
Lapeer MI 48446 Multifamily $ 8,060,000 $ 8,027,483.65 0.80%
Olathe KS 66061 Multifamily $ 7,700,000 $ 7,667,610.45 0.76%
- ---------------------------------------------------------------------------------------------------------------------------
Champaign IL 61820 Multifamily $ 6,800,000 $ 6,790,750.00 0.67%
Concord NH 03301 Multifamily $ 6,578,000 $ 6,561,439.80 0.65%
Midland MI 48462 Multifamily $ 6,490,000 $ 6,463,817.48 0.64%
Madison WI 53715 Multifamily $ 6,400,000 $ 6,400,000.00 0.63%
Columbus OH 43209 Multifamily $ 5,931,098 $ 5,913,422.28 0.59%
- ---------------------------------------------------------------------------------------------------------------------------
Birmingham AL 35215 Multifamily $ 5,100,000 $ 5,090,030.82 0.50%
Staten Island NY 10314 Multifamily $ 4,300,000 $ 4,286,556.94 0.42%
Cedar Rapids IA 52402 Multifamily $ 4,200,000 $ 4,170,409.81 0.41%
Memphis TN 38104 Multifamily $ 3,900,000 $ 3,886,102.54 0.38%
Urbana IL 68101 Multifamily $ 3,500,000 $ 3,495,095.83 0.35%
- ---------------------------------------------------------------------------------------------------------------------------
Staten Island NY 10314 Multifamily $ 3,200,000 $ 3,190,055.08 0.32%
N. Las Vegas NV 89030 Multifamily $ 2,750,000 $ 2,744,696.11 0.27%
Zephyrhills FL 33541 Multifamily $ 2,450,000 $ 2,446,541.72 0.24%
Quincy IL 62301 Multifamily $ 2,400,000 $ 2,398,494.86 0.24%
Kalamazoo MI 49006 Multifamily $ 2,360,000 $ 2,355,399.15 0.23%
- ---------------------------------------------------------------------------------------------------------------------------
Urbana IL 61801 Multifamily $ 2,320,000 $ 2,316,921.86 0.23%
Lapeer MI 48446 Multifamily $ 1,820,000 $ 1,812,657.59 0.18%
Birmingham AL 35211 Multifamily $ 1,750,000 $ 1,746,278.71 0.17%
Edgewood WA 98372 Multifamily $ 1,700,000 $ 1,697,664.48 0.17%
Anchorage AK 99503 Multifamily $ 1,600,000 $ 1,596,220.17 0.16%
- ---------------------------------------------------------------------------------------------------------------------------
Lapeer MI 48446 Multifamily $ 1,440,000 $ 1,434,190.63 0.14%
Littleton CO 80120 Multifamily $ 1,400,000 $ 1,395,557.64 0.14%
Post Falls ID 83854 Multifamily $ 1,155,000 $ 1,153,413.21 0.11%
Milwaukee WI 53212 Multifamily $ 920,000 $ 920,000.00 0.09%
Columbus OH 43209 Multifamily $ 918,902 $ 916,164.02 0.09%
- ---------------------------------------------------------------------------------------------------------------------------
San Antonio TX 78231 Anchored Retail $ 28,000,000 $ 27,850,130.85 2.76%
Presque Isle ME 04769 Anchored Retail $ 17,350,000 $ 17,350,000.00 1.72%
Venice FL 34293 Anchored Retail $ 13,500,000 $ 13,467,516.33 1.33%
City of Industry CA 91745 Anchored Retail $ 13,500,000 $ 13,449,476.17 1.33%
Lincoln NE 68504 Anchored Retail $ 10,600,000 $ 10,546,188.38 1.04%
- ---------------------------------------------------------------------------------------------------------------------------
Kahului, Maui HI 96732 Anchored Retail $ 7,850,000 $ 7,797,837.91 0.77%
Lancaster PA 17601 Anchored Retail $ 4,800,000 $ 4,793,274.27 0.47%
Columbus OH 43214 Anchored Retail $ 3,200,000 $ 3,184,055.00 0.32%
North Kingston RI 02852 Anchored Retail $ 2,700,000 $ 2,696,390.69 0.27%
Newport NC 28570 Anchored Retail $ 2,400,000 $ 2,381,726.75 0.24%
- ---------------------------------------------------------------------------------------------------------------------------
Paris TX 75461 Anchored Retail $ 1,800,000 $ 1,795,668.84 0.18%
Columbus OH 43123 Anchored Retail $ 1,250,000 $ 1,245,665.85 0.12%
Columbus OH 43227 Anchored Retail $ 885,000 $ 880,590.20 0.09%
Delaware OH 43015 Anchored Retail $ 800,000 $ 795,269.67 0.08%
East Hanover NJ 07936 Retail $ 10,000,000 $ 9,976,086.57 0.99%
- ---------------------------------------------------------------------------------------------------------------------------
Columbus OH 43220 Retail $ 7,100,000 $ 7,064,622.01 0.70%
Mundelein IL 60060 Retail $ 6,000,000 $ 5,995,374.96 0.59%
National City CA 91950 Retail $ 5,400,000 $ 5,400,000.00 0.53%
Houston TX 77060 Retail $ 4,675,000 $ 4,665,983.40 0.46%
San Antonio TX 78238 Retail $ 4,500,000 $ 4,490,715.87 0.44%
- ---------------------------------------------------------------------------------------------------------------------------
Duluth GA 30096 Retail $ 4,350,000 $ 4,345,648.81 0.43%
Brooklyn NY 11234 Retail $ 3,750,000 $ 3,746,624.04 0.37%
Limerick PA 19468 Retail $ 3,200,000 $ 3,193,335.06 0.32%
Bethlehem PA 18020 Retail $ 2,900,000 $ 2,890,816.07 0.29%
Manalapan NJ 07726 Retail $ 2,700,000 $ 2,692,018.43 0.27%
- ---------------------------------------------------------------------------------------------------------------------------
Washington MI 48094 Retail $ 2,410,000 $ 2,406,361.20 0.24%
Columbus OH 43229 Retail $ 2,325,000 $ 2,313,414.96 0.23%
Columbus OH 43213 Retail $ 2,325,000 $ 2,313,414.96 0.23%
Dallas TX 75234 Retail $ 2,100,000 $ 2,098,025.95 0.21%
Los Angeles CA 90027 Retail $ 2,075,000 $ 2,067,514.86 0.20%
- ---------------------------------------------------------------------------------------------------------------------------
Gainesville FL 32607 Retail $ 1,860,000 $ 1,859,074.96 0.18%
Columbus OH 43213 Retail $ 1,780,000 $ 1,771,130.60 0.18%
Mesa AZ 85210 Retail $ 1,750,000 $ 1,746,524.92 0.17%
Columbus OH 43232 Retail $ 1,725,000 $ 1,716,404.64 0.17%
Los Angeles CA 91607 Retail $ 1,625,000 $ 1,623,451.75 0.16%
- ---------------------------------------------------------------------------------------------------------------------------
Baltimore MD 21212 Retail $ 1,465,000 $ 1,446,608.85 0.14%
Philadelphia PA 19127 Retail $ 1,350,000 $ 1,329,852.32 0.13%
Van Nuys CA 91405 Retail $ 1,200,000 $ 1,198,459.19 0.12%
Columbus OH 43229 Retail $ 1,185,000 $ 1,179,095.38 0.12%
Houston TX 77075 Retail $ 1,150,000 $ 1,148,732.65 0.11%
- ---------------------------------------------------------------------------------------------------------------------------
Columbus OH 43228 Retail $ 1,100,000 $ 1,094,518.90 0.11%
Round Rock TX 78717 Retail $ 1,050,000 $ 1,046,483.72 0.10%
Mesa AZ 85202 Retail $ 900,000 $ 898,002.29 0.09%
Chandler AZ 85224 Retail $ 850,000 $ 848,165.20 0.08%
Savannah GA 31401 Hotel $ 13,500,000 $ 13,486,906.42 1.34%
- ---------------------------------------------------------------------------------------------------------------------------
Savannah GA 31401 Hotel $ 12,000,000 $ 11,988,361.26 1.19%
Alpharetta GA 30201 Hotel $ 6,550,000 $ 6,530,322.65 0.65%
Durango CO 81301 Hotel $ 5,150,000 $ 5,105,990.15 0.51%
Alpharetta GA 30004 Hotel $ 4,350,000 $ 4,345,984.20 0.43%
Hopewell VA 23860 Hotel $ 4,075,000 $ 4,061,255.25 0.40%
- ---------------------------------------------------------------------------------------------------------------------------
Gainsville FL 32608 Hotel $ 3,935,000 $ 3,927,019.50 0.39%
LaCrosse WI 54601 Hotel $ 3,725,000 $ 3,696,667.69 0.37%
Hopewell VA 23860 Hotel $ 3,637,500 $ 3,625,230.90 0.36%
St. Augustine FL 32084 Hotel $ 3,550,000 $ 3,546,804.10 0.35%
Aiken SC 29803 Hotel $ 3,500,000 $ 3,488,178.32 0.35%
- ---------------------------------------------------------------------------------------------------------------------------
Thomasville NC 27340 Hotel $ 2,625,000 $ 2,622,549.07 0.26%
Maplewood MN 55119 Hotel $ 2,200,000 $ 2,175,217.86 0.22%
Greer SC 29650 Hotel $ 1,700,000 $ 1,695,125.54 0.17%
Greenfield IN 46140 Hotel $ 1,650,000 $ 1,644,769.92 0.16%
Savannah GA 31419 Hotel $ 1,650,000 $ 1,644,429.69 0.16%
- ---------------------------------------------------------------------------------------------------------------------------
Wausau WI 54401 Hotel $ 1,575,000 $ 1,567,893.11 0.16%
Augusta GA 30901 Industrial $ 3,600,000 $ 3,591,377.47 0.36%
Gilroy CA 95020 Industrial $ 3,600,000 $ 3,525,189.81 0.35%
Nashua NH 03061 Industrial $ 3,131,439 $ 3,127,569.17 0.31%
Irvine CA 92714 Industrial $ 3,000,000 $ 2,993,751.61 0.30%
- ---------------------------------------------------------------------------------------------------------------------------
Temecula CA 92590 Industrial $ 2,600,000 $ 2,590,889.70 0.26%
Hudson MA 01749 Industrial $ 2,350,000 $ 2,348,364.67 0.23%
Stamford CT 06902 Industrial $ 2,168,675 $ 2,136,251.03 0.21%
Tampa FL 33619 Industrial $ 1,850,000 $ 1,843,371.65 0.18%
Richardson TX 75081 Industrial $ 1,240,000 $ 1,235,983.97 0.12%
- ---------------------------------------------------------------------------------------------------------------------------
Rancho Santa Margarita CA 92688 Industrial $ 1,200,000 $ 1,199,301.16 0.12%
Irvine CA 92618 Industrial $ 1,100,000 $ 1,097,785.96 0.11%
Milford OH 45150 Industrial $ 968,561 $ 967,364.42 0.10%
Tuscon AZ 85710 Health Care $ 12,800,000 $ 12,786,971.86 1.27%
Columbus TX 78934 Health Care $ 4,500,000 $ 4,490,538.46 0.44%
- ---------------------------------------------------------------------------------------------------------------------------
Detroit MI 48234 Health Care $ 2,300,000 $ 2,293,828.61 0.23%
Sonoma CA 95476 Health Care $ 1,800,000 $ 1,788,285.13 0.18%
San Antonio TX 78242 Mobile Home Park $ 2,500,000 $ 2,495,370.78 0.25%
Kansas City MO 64133 Mobile Home Park $ 1,170,000 $ 1,169,426.11 0.12%
Pasadena CA 91103 Nursing Home $ 1,565,000 $ 1,545,676.04 0.15%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Anticipated Loan Loan Mortgage Administrative Sub-Servicing Net Mortgage Note
Balance at Maturity/ARD Type Rate Fee Rate Fee Rate Rate Date
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 128,999,124.00 Hyperamortizing (ARD) 7.030 0.0629 0.0400 6.9671 01/30/98
Fully Amortizing 7.860 0.0629 0.0400 7.7971 07/11/97
$ 20,396,821.92 Balloon 7.500 0.0629 0.0400 7.4371 03/13/98
$ 12,268,606.00 Balloon 7.170 0.0629 0.0400 7.1071 04/23/98
$ 204,385.06 Fully Amortizing 7.600 0.1479 0.1250 7.4521 12/12/97
- -----------------------------------------------------------------------------------------------------------------------------------
$ 7,878,711.00 Balloon 7.130 0.0629 0.0400 7.0671 04/23/98
$ 7,285,270.73 Balloon 8.090 0.0729 0.0500 8.0171 10/30/97
$ 5,753,261.00 Balloon 7.560 0.1479 0.1250 7.4121 04/23/98
$ 5,397,859.00 Balloon 7.550 0.1479 0.1250 7.4021 04/24/98
$ 2,873,508.00 Balloon 7.810 0.1479 0.1250 7.6621 03/04/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 3,531,993.00 Balloon 7.470 0.1479 0.1250 7.3221 03/12/98
$ 2,589,566.00 Balloon 7.240 0.1479 0.1250 7.0921 03/30/98
$ 2,194,246.00 Balloon 7.230 0.0629 0.0400 7.1671 04/23/98
$ 2,200,618.00 Balloon 7.580 0.1229 0.1000 7.4571 04/17/98
$ 1,758,866.00 Balloon 7.570 0.1479 0.1250 7.4221 04/21/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 1,756,817.00 Balloon 7.260 0.1479 0.1250 7.1121 02/18/98
$ 1,724,885.00 Balloon 7.540 0.1479 0.1250 7.3921 03/23/98
$ 1,303,643.00 Balloon 7.590 0.1479 0.1250 7.4421 04/17/98
$ 1,401,679.68 Balloon 7.780 0.1479 0.1250 7.6321 05/05/98
$ 28,225.61 Fully Amortizing 7.280 0.1479 0.1250 7.1321 01/08/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 1,157,768.00 Balloon 7.040 0.1129 0.0900 6.9271 04/02/98
$ 1,195,943.00 Balloon 7.600 0.1479 0.1250 7.4521 03/31/98
$ 1,068,832.00 Balloon 7.040 0.1129 0.0900 6.9271 04/02/98
$ 1,095,696.00 Balloon 7.180 0.0629 0.0400 7.1171 04/23/98
$ 788,403.00 Balloon 7.040 0.1129 0.0900 6.9271 04/02/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 721,101.00 Balloon 7.040 0.1129 0.0900 6.9271 04/02/98
$ 522,398.00 Balloon 7.040 0.1129 0.0900 6.9271 04/02/98
$ 504,770.00 Balloon 7.040 0.1129 0.0900 6.9271 04/02/98
$ 20,673.00 Fully Amortizing 7.570 0.0629 0.0400 7.5071 02/23/98
$ 92,057,825.91 Hyperamortizing (ARD) 6.720 0.0629 0.0400 6.6571 06/01/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 2,532,756.25 Balloon 7.040 0.1479 0.1250 6.8921 03/05/98
$ 1,976,115.00 Balloon 7.260 0.1479 0.1250 7.1121 03/02/98
$ 1,436,411.00 Balloon 6.920 0.0629 0.0400 6.8571 04/23/98
$ 889,526.00 Balloon 7.340 0.1479 0.1250 7.1921 04/03/98
$ 28,221,417.04 Balloon 7.180 0.0629 0.0400 7.1171 11/18/97
- -----------------------------------------------------------------------------------------------------------------------------------
$ 16,237,565.85 Balloon 7.050 0.0829 0.0600 6.9671 11/24/97
$ 12,726,305.98 Balloon 6.910 0.0729 0.0500 6.8371 02/17/98
$ 10,080,105.00 Balloon 6.720 0.0629 0.0400 6.6571 03/31/98
$ 10,379,658.42 Balloon 6.710 0.0629 0.0400 6.6471 01/16/98
$ 7,953,492.00 Balloon 6.810 0.0629 0.0400 6.7471 03/31/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 9,220,128.00 Balloon 7.110 0.1479 0.1250 6.9621 12/19/97
$ 8,571,277.00 Balloon 7.100 0.1479 0.1250 6.9521 03/17/98
$ 7,639,938.00 Balloon 7.250 0.1229 0.1000 7.1271 04/15/98
$ 6,939,087.11 Balloon 7.140 0.0729 0.0500 7.0671 12/23/97
$ 6,782,475.00 Balloon 7.390 0.1479 0.1250 7.2421 11/04/97
- -----------------------------------------------------------------------------------------------------------------------------------
$ 5,972,259.00 Balloon 7.260 0.1479 0.1250 7.1121 03/31/98
$ 5,632,731.23 Balloon 6.910 0.0729 0.0500 6.8371 02/17/98
$ 5,587,428.55 Balloon 7.140 0.0729 0.0500 7.0671 12/23/97
$ - Fully Amortizing 6.970 0.0729 0.0500 6.8971 05/22/98
$ 2,460,340.49 Balloon 7.570 0.0629 0.0400 7.5071 02/23/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 4,477,560.00 Balloon 7.240 0.1479 0.1250 7.0921 02/10/98
$ 3,476,305.14 Balloon 7.330 0.0629 0.0400 7.2671 02/10/98
$ 3,268,732.70 Balloon 8.400 0.0629 0.0400 8.3371 06/30/97
$ 2,673,719.00 Balloon 7.190 0.1479 0.1250 7.0421 03/03/98
$ 3,069,128.54 Balloon 7.140 0.1479 0.1250 6.9921 03/20/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 2,589,382.00 Balloon 7.360 0.0629 0.0400 7.2971 02/10/98
$ 2,417,494.00 Balloon 7.290 0.1479 0.1250 7.1421 02/25/98
$ 2,143,381.00 Balloon 7.110 0.0629 0.0400 7.0471 03/19/98
$ 2,093,234.73 Balloon 6.990 0.1479 0.1250 6.8421 04/10/98
$ 2,072,507.00 Balloon 7.250 0.1479 0.1250 7.1021 02/17/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 2,042,838.00 Balloon 7.360 0.1479 0.1250 7.2121 03/31/98
$ 1,566,890.47 Balloon 7.140 0.0729 0.0500 7.0671 12/23/97
$ 1,416,670.00 Balloon 7.380 0.1479 0.1250 7.2321 03/16/98
$ 1,491,520.41 Balloon 7.220 0.1479 0.1250 7.0721 03/13/98
$ 1,272,559.00 Balloon 6.810 0.0629 0.0400 6.7471 03/31/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 1,239,737.69 Balloon 7.140 0.0729 0.0500 7.0671 12/23/97
$ 1,293,093.00 Balloon 7.220 0.1479 0.1250 7.0721 01/23/98
$ 1,013,355.56 Balloon 7.220 0.1479 0.1250 7.0721 03/02/98
$ 813,968.77 Balloon 7.550 0.1479 0.1250 7.4021 04/30/98
$ 381,179.51 Balloon 7.570 0.0629 0.0400 7.5071 02/23/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 21,962,766.00 Balloon 7.560 0.0529 0.0300 7.5071 10/01/97
$ 14,121,010.00 Balloon 7.560 0.0979 0.0750 7.4621 05/28/98
$ 11,622,540.59 Balloon 7.140 0.0729 0.0500 7.0671 02/26/98
$ 11,722,480.11 Balloon 7.520 0.0629 0.0400 7.4571 12/12/97
$ 401,632.00 Fully Amortizing 7.440 0.1029 0.0800 7.3371 02/03/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 4,547,245.58 Balloon 7.780 0.0629 0.0400 7.7171 10/31/97
$ 4,202,581.00 Balloon 7.140 0.0629 0.0400 7.0771 03/11/98
$ 125,995.00 Fully Amortizing 7.570 0.0629 0.0400 7.5071 02/23/98
$ 2,375,615.00 Balloon 7.330 0.0979 0.0750 7.2321 03/12/98
$ 78,494.00 Fully Amortizing 7.150 0.0629 0.0400 7.0871 01/22/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 1,549,672.51 Balloon 7.140 0.1479 0.1250 6.9921 02/18/98
$ 863,147.74 Balloon 7.390 0.1479 0.1250 7.2421 03/20/98
$ 34,844.00 Fully Amortizing 7.570 0.0629 0.0400 7.5071 02/23/98
$ 378,928.00 Balloon 7.390 0.1479 0.1250 7.2421 03/20/98
$ 7,911,510.76 Balloon 7.220 0.0729 0.0500 7.1471 03/23/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 279,547.00 Fully Amortizing 7.570 0.0629 0.0400 7.5071 02/23/98
$ 5,185,672.26 Balloon 7.310 0.0629 0.0400 7.2471 04/14/98
$ 4,759,582.00 Balloon 7.400 0.1479 0.1250 7.2521 05/28/98
$ 4,109,741.14 Balloon 7.290 0.1029 0.0800 7.1871 02/20/98
$ 3,660,461.00 Balloon 7.540 0.1479 0.1250 7.3921 03/05/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 3,577,459.55 Balloon 7.250 0.0729 0.0500 7.1771 04/07/98
$ 3,060,875.00 Balloon 7.650 0.0629 0.0400 7.5871 04/27/98
$ 2,599,094.00 Balloon 7.490 0.1479 0.1250 7.3421 03/05/98
$ 2,543,195.00 Balloon 7.230 0.1479 0.1250 7.0821 01/13/98
$ 2,201,293.00 Balloon 7.610 0.0629 0.0400 7.5471 02/25/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 2,088,521.65 Balloon 7.430 0.0729 0.0500 7.3571 03/27/98
$ 91,544.00 Fully Amortizing 7.570 0.0629 0.0400 7.5071 02/23/98
$ 91,544.00 Fully Amortizing 7.570 0.0629 0.0400 7.5071 02/23/98
$ 1,704,371.00 Balloon 7.460 0.1479 0.1250 7.3121 04/20/98
$ 863,675.00 Balloon 7.100 0.0629 0.0400 7.0371 03/17/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 1,652,470.67 Balloon 7.710 0.1479 0.1250 7.5621 04/02/98
$ 70,086.00 Fully Amortizing 7.570 0.0629 0.0400 7.5071 02/23/98
$ 1,431,989.00 Balloon 7.740 0.1479 0.1250 7.5921 03/11/98
$ 67,918.00 Fully Amortizing 7.570 0.0629 0.0400 7.5071 02/23/98
$ 1,316,469.00 Balloon 7.400 0.0629 0.0400 7.3371 04/10/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 26,793.00 Fully Amortizing 7.170 0.1479 0.1250 7.0221 01/29/98
$ 28,208.00 Fully Amortizing 7.620 0.0629 0.0400 7.5571 12/19/97
$ 1,060,133.00 Balloon 7.490 0.0629 0.0400 7.4271 03/23/98
$ 46,659.00 Fully Amortizing 7.570 0.0629 0.0400 7.5071 02/23/98
$ 921,856.93 Balloon 7.710 0.1479 0.1250 7.5621 04/14/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 43,308.00 Fully Amortizing 7.570 0.0629 0.0400 7.5071 02/23/98
$ 658,570.36 Balloon 7.670 0.1479 0.1250 7.5221 02/26/98
$ 723,467.00 Balloon 7.150 0.1479 0.1250 7.0021 03/13/98
$ 686,424.85 Balloon 7.300 0.1479 0.1250 7.1521 03/13/98
$ 10,910,267.00 Balloon 7.320 0.0779 0.0550 7.2421 04/03/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 9,698,015.00 Balloon 7.320 0.0779 0.0550 7.2421 04/03/98
$ 5,327,416.00 Balloon 7.530 0.0979 0.0750 7.4321 02/13/98
$ 3,611,454.96 Balloon 7.850 0.0629 0.0400 7.7871 12/26/97
$ 3,538,982.00 Balloon 7.540 0.1479 0.1250 7.3921 04/02/98
$ 159,193.00 Fully Amortizing 7.590 0.1479 0.1250 7.4421 03/24/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 3,209,470.00 Balloon 7.630 0.1179 0.0950 7.5121 03/31/98
$ 2,445,541.22 Balloon 8.770 0.0629 0.0400 8.7071 09/25/97
$ 142,098.00 Fully Amortizing 7.590 0.1479 0.1250 7.4421 03/24/98
$ 2,897,628.00 Balloon 7.650 0.1479 0.1250 7.5021 04/15/98
$ 2,433,216.00 Balloon 7.580 0.0629 0.0400 7.5171 03/10/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 2,132,388.86 Balloon 7.490 0.1479 0.1250 7.3421 04/02/98
$ - Fully Amortizing 8.600 0.0629 0.0400 8.5371 10/24/97
$ 1,392,174.00 Balloon 7.760 0.0629 0.0400 7.6971 02/20/98
$ 1,331,081.00 Balloon 7.260 0.1479 0.1250 7.1121 02/24/98
$ 1,295,394.00 Balloon 8.010 0.1479 0.1250 7.8621 02/24/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 1,044,210.40 Balloon 9.020 0.0629 0.0400 8.9571 12/04/97
$ 3,132,137.66 Balloon 7.210 0.0629 0.0400 7.1471 03/19/98
$ - Fully Amortizing 7.920 0.0729 0.0500 7.8471 10/30/97
$ 2,776,852.93 Balloon 7.640 0.1479 0.1250 7.4921 03/31/98
$ 2,436,650.00 Balloon 7.490 0.1029 0.0800 7.3871 03/13/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 2,273,732.97 Balloon 7.850 0.0629 0.0400 7.7871 12/31/97
$ 2,053,807.81 Balloon 7.820 0.0629 0.0400 7.7571 04/24/98
$ 45,084.94 Fully Amortizing 7.600 0.1479 0.1250 7.4521 12/12/97
$ 1,266,468.00 Balloon 7.150 0.1479 0.1250 7.0021 03/24/98
$ 996,948.00 Balloon 7.150 0.0629 0.0400 7.0871 02/27/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 1,053,239.00 Balloon 7.230 0.1479 0.1250 7.0821 04/07/98
$ 962,981.00 Balloon 7.130 0.1479 0.1250 6.9821 02/23/98
$ 858,887.07 Balloon 7.640 0.1479 0.1250 7.4921 03/31/98
$ 10,274,807.00 Balloon 7.100 0.0629 0.0400 7.0371 04/17/98
$ 3,649,480.00 Balloon 7.440 0.1479 0.1250 7.2921 03/05/98
- -----------------------------------------------------------------------------------------------------------------------------------
$ 1,901,143.00 Balloon 8.080 0.1479 0.1250 7.9321 02/13/98
$ 1,450,401.58 Balloon 7.910 0.0629 0.0400 7.8471 11/20/97
$ 2,206,175.00 Balloon 7.440 0.1479 0.1250 7.2921 02/24/98
$ 1,090,424.00 Balloon 7.750 0.1479 0.1250 7.6021 04/22/98
$ - Fully Amortizing 7.850 0.0629 0.0400 7.7871 09/29/97
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
First Interest Original Term Original Remaining Term
Payment Accrual Monthly to Maturity/ARD Amortization Seasoning to Maturity/ARD
Date Method Payment (Months) Term (Months) (Months) (Months)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
03/01/98 Actual/360 $ 1,296,910.27 120 300 4 116
09/01/97 30/360 $ 335,360.00 220 220 10 210
05/01/98 30/360 $ 164,315.41 120 360 2 118
06/01/98 Actual/360 $ 94,746.20 120 360 1 119
02/01/98 Actual/360 $ 91,697.18 180 180 5 175
- ----------------------------------------------------------------------------------------------------------------------------------
06/01/98 Actual/360 $ 60,665.04 120 360 1 119
12/01/97 30/360 $ 70,000.90 120 300 7 113
06/01/98 Actual/360 $ 45,716.29 120 360 1 119
06/01/98 Actual/360 $ 42,861.13 120 360 1 119
05/01/98 Actual/360 $ 33,810.82 120 240 2 118
- ----------------------------------------------------------------------------------------------------------------------------------
05/01/98 Actual/360 $ 27,886.46 120 360 2 118
05/01/98 Actual/360 $ 20,104.20 120 360 2 118
06/01/98 Actual/360 $ 17,020.51 120 360 1 119
06/01/98 Actual/360 $ 17,511.81 120 360 1 119
06/01/98 Actual/360 $ 16,060.69 120 300 1 119
- ----------------------------------------------------------------------------------------------------------------------------------
04/01/98 Actual/360 $ 13,657.09 120 360 3 117
05/01/98 Actual/360 $ 13,688.13 120 360 2 118
06/01/98 Actual/360 $ 11,917.68 120 300 1 119
06/01/98 Actual/360 $ 11,316.16 120 360 1 119
03/01/98 Actual/360 $ 13,718.32 180 180 4 176
- ----------------------------------------------------------------------------------------------------------------------------------
06/01/98 Actual/360 $ 10,249.86 120 300 1 119
05/01/98 Actual/360 $ 9,532.01 120 360 2 118
06/01/98 Actual/360 $ 9,462.50 120 300 1 119
06/01/98 Actual/360 $ 8,467.94 120 360 1 119
06/01/98 Actual/360 $ 6,979.84 120 300 1 119
- ----------------------------------------------------------------------------------------------------------------------------------
06/01/98 Actual/360 $ 6,384.00 120 300 1 119
06/01/98 Actual/360 $ 4,624.85 120 300 1 119
06/01/98 Actual/360 $ 4,468.80 120 300 1 119
04/01/98 Actual/360 $ 4,251.86 240 240 3 237
07/01/98 30/360 $ 698,333.60 120 360 0 120
- ----------------------------------------------------------------------------------------------------------------------------------
04/01/98 Actual/360 $ 19,371.88 120 360 3 117
05/01/98 Actual/360 $ 15,364.23 120 360 2 118
06/01/98 Actual/360 $ 10,888.98 120 360 1 119
06/01/98 Actual/360 $ 8,014.77 120 300 1 119
01/01/98 30/360 $ 221,859.91 120 360 6 114
- ----------------------------------------------------------------------------------------------------------------------------------
01/01/98 30/360 $ 126,377.47 120 360 6 114
04/01/98 30/360 $ 97,980.58 120 360 3 117
05/01/98 Actual/360 $ 81,699.27 120 324 2 118
03/01/98 Actual/360 $ 77,512.97 120 360 4 116
05/01/98 Actual/360 $ 69,470.50 120 300 2 118
- ----------------------------------------------------------------------------------------------------------------------------------
02/01/98 Actual/360 $ 67,270.64 84 360 5 79
05/01/98 Actual/360 $ 65,859.13 120 360 2 118
06/01/98 Actual/360 $ 59,349.34 120 360 1 119
02/01/98 30/360 $ 54,383.34 120 360 5 115
01/01/98 Actual/360 $ 53,260.73 120 360 6 114
- ----------------------------------------------------------------------------------------------------------------------------------
05/01/98 Actual/360 $ 46,434.12 120 360 2 118
04/01/98 30/360 $ 43,366.72 120 360 3 117
02/01/98 30/360 $ 43,790.06 120 360 5 115
07/01/98 30/360 $ 57,417.72 180 180 0 180
04/01/98 Actual/360 $ 44,100.70 240 300 3 237
- ----------------------------------------------------------------------------------------------------------------------------------
04/01/98 Actual/360 $ 34,756.41 120 360 3 117
04/01/98 Actual/360 $ 31,302.66 120 300 3 117
08/01/97 30/360 $ 31,997.18 180 360 11 169
05/01/98 Actual/360 $ 30,683.04 120 240 2 118
05/01/98 Actual/360 $ 23,615.59 120 360 2 118
- ----------------------------------------------------------------------------------------------------------------------------------
04/01/98 Actual/360 $ 23,357.08 120 300 3 117
04/01/98 Actual/360 $ 18,834.52 120 360 3 117
05/01/98 Actual/360 $ 16,481.31 120 360 2 118
06/01/98 Actual/360 $ 15,951.14 120 360 1 119
04/01/98 Actual/360 $ 16,099.36 120 360 3 117
- ----------------------------------------------------------------------------------------------------------------------------------
05/01/98 Actual/360 $ 15,999.95 120 360 2 118
02/01/98 30/360 $ 12,280.11 120 360 5 115
05/01/98 Actual/360 $ 12,796.06 120 300 2 118
05/01/98 Actual/360 $ 11,562.42 120 360 2 118
05/01/98 Actual/360 $ 11,115.28 120 300 2 118
- ----------------------------------------------------------------------------------------------------------------------------------
02/01/98 30/360 $ 9,716.13 120 360 5 115
03/01/98 Actual/360 $ 9,522.00 84 360 4 80
05/01/98 Actual/360 $ 7,855.65 120 360 2 118
07/01/98 Actual/360 $ 6,464.30 120 360 0 120
04/01/98 Actual/360 $ 6,832.50 240 300 3 237
- ----------------------------------------------------------------------------------------------------------------------------------
11/01/97 Actual/360 $ 196,931.73 180 360 8 172
07/01/98 Actual/360 $ 128,892.86 120 300 0 120
04/01/98 30/360 $ 91,088.72 120 360 3 117
02/01/98 30/360 $ 94,578.91 120 360 5 115
04/01/98 Actual/360 $ 85,004.41 240 240 3 237
- ----------------------------------------------------------------------------------------------------------------------------------
01/01/98 30/360 $ 59,448.00 194 300 6 188
05/01/98 Actual/360 $ 32,387.10 120 360 2 118
04/01/98 Actual/360 $ 25,916.12 240 240 3 237
05/01/98 Actual/360 $ 18,565.49 120 360 2 118
03/01/98 Actual/360 $ 18,823.88 240 240 4 236
- ----------------------------------------------------------------------------------------------------------------------------------
04/01/98 30/360 $ 12,145.16 120 360 3 117
05/01/98 Actual/360 $ 9,986.01 120 240 2 118
04/01/98 Actual/360 $ 7,167.43 240 240 3 237
05/01/98 Actual/360 $ 7,366.18 120 180 2 118
05/01/98 30/360 $ 72,087.52 120 300 2 118
- ----------------------------------------------------------------------------------------------------------------------------------
04/01/98 Actual/360 $ 57,501.40 240 240 3 237
06/01/98 30/360 $ 41,175.04 120 360 1 119
07/01/98 Actual/360 $ 37,388.51 120 360 0 120
04/01/98 Actual/360 $ 32,018.68 120 360 3 117
05/01/98 Actual/360 $ 33,371.77 120 300 2 118
- ----------------------------------------------------------------------------------------------------------------------------------
06/01/98 30/360 $ 30,632.44 121 324 1 120
06/01/98 Actual/360 $ 28,079.08 120 300 1 119
05/01/98 Actual/360 $ 23,626.91 120 300 2 118
03/01/98 Actual/360 $ 19,743.79 120 360 4 116
04/01/98 Actual/360 $ 20,146.34 120 300 3 117
- ----------------------------------------------------------------------------------------------------------------------------------
05/01/98 30/360 $ 16,735.70 120 360 2 118
04/01/98 Actual/360 $ 18,829.68 240 240 3 237
04/01/98 Actual/360 $ 18,829.68 240 240 3 237
06/01/98 Actual/360 $ 15,464.22 120 300 1 119
05/01/98 Actual/360 $ 16,212.24 180 240 2 178
- ----------------------------------------------------------------------------------------------------------------------------------
06/01/98 Actual/360 $ 13,273.89 120 360 1 119
04/01/98 Actual/360 $ 14,415.84 240 240 3 237
05/01/98 Actual/360 $ 13,206.77 120 300 2 118
04/01/98 Actual/360 $ 13,970.41 240 240 3 237
06/01/98 Actual/360 $ 11,903.11 120 300 1 119
- ----------------------------------------------------------------------------------------------------------------------------------
03/01/98 Actual/360 $ 13,307.47 180 180 4 176
02/01/98 Actual/360 $ 12,606.90 180 180 5 175
05/01/98 Actual/360 $ 8,382.36 120 360 2 118
04/01/98 Actual/360 $ 9,597.06 240 240 3 237
06/01/98 30/360 $ 8,656.10 120 300 1 119
- ----------------------------------------------------------------------------------------------------------------------------------
04/01/98 Actual/360 $ 8,908.67 240 240 3 237
04/01/98 30/360 $ 7,875.88 180 300 3 177
05/01/98 Actual/360 $ 6,447.39 120 300 2 118
05/01/98 Actual/360 $ 6,171.27 120 300 2 118
06/01/98 Actual/360 $ 98,188.58 120 300 1 119
- ----------------------------------------------------------------------------------------------------------------------------------
06/01/98 Actual/360 $ 87,278.74 120 300 1 119
04/01/98 Actual/360 $ 48,531.81 120 300 3 117
02/01/98 Actual/360 $ 42,597.14 120 240 5 115
06/01/98 Actual/360 $ 32,259.38 120 300 1 119
05/01/98 Actual/360 $ 33,052.54 240 240 2 238
- ----------------------------------------------------------------------------------------------------------------------------------
05/01/98 Actual/360 $ 29,412.86 120 300 2 118
11/01/97 30/360 $ 30,675.48 180 300 8 172
05/01/98 Actual/360 $ 29,503.96 240 240 2 238
06/01/98 Actual/360 $ 26,581.53 120 300 1 119
05/01/98 Actual/360 $ 28,367.22 120 240 2 118
- ----------------------------------------------------------------------------------------------------------------------------------
06/01/98 Actual/360 $ 19,381.45 120 300 1 119
12/01/97 30/360 $ 19,231.58 240 240 7 233
04/01/98 Actual/360 $ 12,851.75 120 300 3 117
04/01/98 Actual/360 $ 11,936.95 120 300 3 117
04/01/98 Actual/360 $ 13,102.65 120 276 3 117
- ----------------------------------------------------------------------------------------------------------------------------------
02/01/98 30/360 $ 13,238.92 180 300 5 175
05/01/98 30/360 $ 25,928.35 84 300 2 82
12/01/97 30/360 $ 34,237.42 180 180 7 173
05/01/98 Actual/360 $ 22,196.45 120 360 2 118
05/01/98 Actual/360 $ 22,150.23 120 300 2 118
- ----------------------------------------------------------------------------------------------------------------------------------
02/01/98 30/360 $ 18,806.71 120 360 5 115
06/01/98 30/360 $ 16,949.50 120 360 1 119
02/01/98 Actual/360 $ 20,227.32 180 180 5 175
05/01/98 Actual/360 $ 14,510.07 120 240 2 118
04/01/98 Actual/360 $ 8,883.07 120 300 3 117
- ----------------------------------------------------------------------------------------------------------------------------------
06/01/98 Actual/360 $ 8,169.84 120 360 1 119
04/01/98 Actual/360 $ 7,414.62 120 360 3 117
05/01/98 Actual/360 $ 6,865.41 120 360 2 118
06/01/98 Actual/360 $ 91,285.92 120 300 1 119
05/01/98 Actual/360 $ 33,079.18 120 300 2 118
- ----------------------------------------------------------------------------------------------------------------------------------
04/01/98 Actual/360 $ 17,873.84 120 300 3 117
01/01/98 30/360 $ 13,785.55 120 300 6 114
04/01/98 Actual/360 $ 17,377.77 120 360 3 117
06/01/98 Actual/360 $ 8,382.02 84 360 1 83
11/01/97 30/360 $ 12,944.57 240 240 8 232
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Scheduled Cross Lockout
Maturity Date/ Collateralized Related Expiration
ARD Loans Loans Date Prepayment Penalty Description (Months)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
02/01/08 07/31/07 LO(48)/Defeasance(66)/FREE(6)
12/01/15 06/30/04 LO(82)/Grtr2%UPBorYM(96)/FREE(42)
04/01/08 04/01/02 LO(48)/Grtr2%UPBorYM(66)/FREE(6)
05/01/08 Yes(l) 04/30/00 LO(23)/YM(90)/FREE(7)
01/01/13 12/31/05 LO(95)/YM(78)/FREE(7)
- -----------------------------------------------------------------------------------------------------------------------------------
05/01/08 Yes(l) 04/30/00 LO(23)/YM(90)/FREE(7)
11/01/07 11/01/03 LO(72)/3%(12)/2%(12)/1%(18)(Defeasable 0-114)/FREE(6)
05/01/08 Yes(c) 04/30/02 LO(47)/YM(66)/FREE(7)
05/01/08 04/30/02 LO(47)/YM(66)/FREE(7)
04/01/08 03/31/03 LO(59)/YM(54)/FREE(7)
- -----------------------------------------------------------------------------------------------------------------------------------
04/01/08 03/31/02 LO(47)/YM(66)/FREE(7)
04/01/08 Yes(c) 03/31/02 LO(47)/YM(66)/FREE(7)
05/01/08 Yes(l) 04/30/00 LO(23)/YM(90)/FREE(7)
05/01/08 04/30/02 LO(47)/YM(66)/FREE(7)
05/01/08 04/30/02 LO(47)/YM(66)/FREE(7)
- -----------------------------------------------------------------------------------------------------------------------------------
03/01/08 02/28/02 LO(47)/YM(66)/FREE(7)
04/01/08 03/31/02 LO(47)/YM(66)/FREE(7)
05/01/08 05/31/02 LO(48)/YM(66)/FREE(6)
05/01/08 04/30/02 LO(47)/YM(66)/FREE(7)
02/01/13 01/31/06 LO(95)/YM(78)/FREE(7)
- -----------------------------------------------------------------------------------------------------------------------------------
05/01/08 Yes(k) 04/30/02 LO(47)/YM(69)/FREE(4)
04/01/08 03/31/02 LO(47)/YM(66)/FREE(7)
05/01/08 Yes(k) 04/30/02 LO(47)/YM(69)/FREE(4)
05/01/08 Yes(l) 04/30/00 LO(23)/YM(90)/FREE(7)
05/01/08 Yes(k) 04/30/02 LO(47)/YM(57)/FREE(16)
- -----------------------------------------------------------------------------------------------------------------------------------
05/01/08 Yes(k) 04/30/02 LO(47)/YM(69)/FREE(4)
05/01/08 Yes(k) 04/30/02 LO(47)/YM(69)/FREE(4)
05/01/08 Yes(k) 04/30/02 LO(47)/YM(69)/FREE(4)
03/01/18 Yes(c) Yes(i) 02/29/08 LO(119)/YM(114)/FREE(7)
05/31/08 Grtr5%UPBorYM(47)/Grtr2%UPBorYM(67)/FREE(6)
- -----------------------------------------------------------------------------------------------------------------------------------
03/01/08 02/28/02 LO(47)/YM(66)/FREE(7)
04/01/08 03/31/02 LO(47)/YM(66)/FREE(7)
05/01/08 Yes(l) 04/30/00 LO(23)/YM(90)/FREE(7)
05/01/08 04/30/02 LO(47)/YM(66)/FREE(7)
12/01/07 11/30/01 LO(47)/YM(66)/FREE(7)
- -----------------------------------------------------------------------------------------------------------------------------------
12/01/07 11/30/01 LO(47)/YM(66)/FREE(7)
03/01/08 Yes(d) Yes(o) 03/01/03 LO(60)/Grtr1%UPBorYM(54)/FREE(6)
04/01/08 Yes(h) 03/31/02 LO(47)/YM(65)/FREE(8)
02/01/08 01/31/02 LO(47)/YM(66)/FREE(7)
04/01/08 yes(h) 03/31/02 LO(47)/YM(65)/FREE(8)
- -----------------------------------------------------------------------------------------------------------------------------------
01/01/05 12/31/98 LO(11)/YM(66)/FREE(7)
04/01/08 03/31/02 LO(47)/YM(66)/FREE(7)
05/01/08 04/30/02 LO(47)/YM(66)/FREE(7)
01/01/08 Yes(e) Yes(n) 01/01/04 LO(72)/Grtr1%UPBorYM(42)/FREE(6)
12/01/07 11/30/01 LO(47)/YM(66)/FREE(7)
- -----------------------------------------------------------------------------------------------------------------------------------
04/01/08 Yes(b) 03/31/02 LO(47)/YM(66)/FREE(7)
03/01/08 Yes(d) Yes(o) 03/01/03 LO(60)/Grtr1%UPBorYM(54)/FREE(6)
01/01/08 Yes(n) 01/01/04 LO(72)/Grtr1%UPBorYM(42)/FREE(6)
06/01/13 06/01/04 LO(72)/Grtr1%UPBorYM(72)/FREE(36)
03/01/18 Yes(c) Yes(i) 02/29/08 LO(119)/YM(114)/FREE(7)
- -----------------------------------------------------------------------------------------------------------------------------------
03/01/08 02/28/02 LO(47)/YM(66)/FREE(7)
03/01/08 Yes(a) 02/28/02 LO(47)/YM(66)/FREE(7)
07/01/12 Grtr1%UPBorYM(156)/FREE(24)
04/01/08 Yes(e) 03/31/02 LO(47)/YM(36)/3%(12)/2%(12)/1%(6)/FREE(7)
03/31/08 03/31/02 LO(47)/YM(66)/FREE(7)
- -----------------------------------------------------------------------------------------------------------------------------------
03/01/08 Yes(a) 02/28/02 LO(47)/YM(66)/FREE(7)
03/01/08 02/28/02 LO(47)/YM(66)/FREE(7)
04/01/08 03/31/02 LO(47)/YM(66)/FREE(7)
05/01/08 04/30/02 LO(47)/YM(66)/FREE(7)
03/01/08 02/28/03 LO(59)/YM(54)/FREE(7)
- -----------------------------------------------------------------------------------------------------------------------------------
04/01/08 Yes(b) 03/31/02 LO(47)/YM(66)/FREE(7)
01/01/08 Yes(e) Yes(n) 01/01/04 LO(72)/Grtr1%UPBorYM(42)/FREE(6)
04/01/08 03/31/02 LO(47)/YM(66)/FREE(7)
04/01/08 03/31/02 LO(47)/YM(66)/FREE(7)
04/01/08 yes(h) 03/31/02 LO(47)/YM(65)/FREE(8)
- -----------------------------------------------------------------------------------------------------------------------------------
01/01/08 Yes(e) Yes(n) 01/01/04 LO(72)/Grtr1%UPBorYM(42)/FREE(6)
02/01/05 01/31/00 LO(23)/YM(54)/FREE(7)
04/01/08 04/30/02 LO(48)/YM(65)/FREE(7)
06/01/08 05/31/02 LO(47)/YM(66)/FREE(7)
03/01/18 Yes(c) Yes(i) 02/29/08 LO(119)/YM(114)/FREE(7)
- -----------------------------------------------------------------------------------------------------------------------------------
10/01/12 09/30/05 LO(95)/YM(78)/FREE(7)
06/01/08 05/31/02 LO(47)/YM(66)/FREE(7)
03/01/08 03/01/03 LO(60)YM(54)/FREE(6)
01/01/08 02/01/02 LO(48)/Grtr1%UPBorYM(66)/FREE(6)
03/01/18 02/29/08 LO(119)/YM(72)/FREE(49)
- -----------------------------------------------------------------------------------------------------------------------------------
02/01/14 12/01/04 LO(84)/Grtr1%UPBorYM(50)/FREE(60)
04/01/08 03/31/02 LO(47)/YM(66)/FREE(7)
03/01/18 Yes(c) Yes(i) 02/29/08 LO(119)/YM(114)/FREE(7)
04/01/08 03/31/02 LO(47)/YM(66)/FREE(7)
02/01/18 01/31/08 LO(119)/YM(114)/FREE(7)
- -----------------------------------------------------------------------------------------------------------------------------------
03/01/08 02/28/02 LO(47)/YM(66)/FREE(7)
04/01/08 Yes(j) 03/31/02 LO(47)/YM(66)/FREE(7)
03/01/18 Yes(c) Yes(i) 02/29/08 LO(119)/YM(114)/FREE(7)
04/01/08 Yes(j) 03/31/02 LO(47)/YM(66)/FREE(7)
04/01/08 04/01/03 LO(60)/Grtr1%UPBorYM(54)/FREE(6)
- -----------------------------------------------------------------------------------------------------------------------------------
03/01/18 Yes(c) Yes(i) 02/29/08 LO(119)/YM(114)/FREE(7)
05/01/08 05/01/03 LO(60)/Grtr1%UPBorYM(54)/FREE(6)
06/01/08 02/01/08 LO(35)/Defeasance(81)/FREE(4)
03/01/08 03/31/02 LO(48)/5%(12)/4%(12)/3%(12)/2%(12)/1%(17)/FREE(7)
04/01/08 03/31/02 LO(47)/YM(66)/FREE(7)
- -----------------------------------------------------------------------------------------------------------------------------------
06/01/08 05/01/03 LO(60)/Grtr1%UPBorYM(55)/FREE(6)
05/01/08 04/30/02 LO(47)/YM(66)/FREE(7)
04/01/08 02/28/02 LO(46)/YM(67)/FREE(7)
02/01/08 01/31/02 LO(47)/YM(66)/FREE(7)
03/01/08 02/28/02 LO(47)/YM(67)/FREE(6)
- -----------------------------------------------------------------------------------------------------------------------------------
04/01/08 04/01/05 LO(84)/Grtr1%UPBorYM(30)/FREE(6)
03/01/18 Yes(c) Yes(i) 02/29/08 LO(119)/YM(114)/FREE(7)
03/01/18 Yes(c) Yes(i) 02/29/08 LO(119)/YM(114)/FREE(7)
05/01/08 04/30/02 LO(47)/YM(66)/FREE(7)
04/01/13 03/31/06 LO(95)/YM(78)/FREE(7)
- -----------------------------------------------------------------------------------------------------------------------------------
05/01/08 04/30/02 LO(47)/YM(66)/FREE(7)
03/01/18 Yes(c) Yes(i) 02/29/08 LO(119)/YM(114)/FREE(7)
04/01/08 03/31/00 LO(23)/5%(24)/4%(24)/3%(12)/2%(12)/1%(12)/FREE(13)
03/01/18 Yes(c) Yes(i) 02/29/08 LO(119)/YM(114)/FREE(7)
05/01/08 04/30/02 LO(47)/YM(65)/FREE(8)
- -----------------------------------------------------------------------------------------------------------------------------------
02/01/13 01/31/05 LO(83)/YM(90)/FREE(7)
01/01/13 12/31/04 LO(83)/YM(90)/FREE(7)
04/01/08 03/31/01 LO(35)/YM(78)/FREE(7)
03/01/18 Yes(c) Yes(i) 02/29/08 LO(119)/YM(114)/FREE(7)
05/01/08 YM(23)/5%(24)/4%(24)/3%(24)/2%(12)/1%(6)/FREE(7)
- -----------------------------------------------------------------------------------------------------------------------------------
03/01/18 Yes(c) Yes(i) 02/29/08 LO(119)/YM(114)/FREE(7)
03/01/13 02/28/05 LO(83)/YM(90)/FREE(7)
04/01/08 04/30/02 LO(48)/YM(65)/FREE(7)
04/01/08 04/30/02 LO(48)/YM(65)/FREE(7)
05/01/08 Yes(g) 04/30/02 LO(47)/YM(66)/FREE(7)
- -----------------------------------------------------------------------------------------------------------------------------------
05/01/08 Yes(g) 04/30/02 LO(47)/YM(66)/FREE(7)
03/01/08 Yes(d) 02/28/02 LO(47)/YM(66)/FREE(7)
01/01/08 12/31/01 LO(47)/YM(66)/FREE(7)
05/01/08 Yes(d) 05/01/02 LO(48)/YM(66)/FREE(6)
04/01/18 Yes(a) 03/31/08 LO(119)/YM(114)/FREE(7)
- -----------------------------------------------------------------------------------------------------------------------------------
04/01/08 03/31/02 LO(47)/YM(66)/FREE(7)
10/01/12 Yes(m) 10/01/01 LO(48)/Grtr1%UPBorYM(96)/FREE(36)
04/01/18 Yes(a) 03/31/08 LO(119)/YM(114)/FREE(7)
05/01/08 04/30/02 LO(47)/YM(67)/FREE(6)
04/01/08 03/31/02 LO(47)/YM(66)/FREE(7)
- -----------------------------------------------------------------------------------------------------------------------------------
05/01/08 03/31/02 LO(46)/YM(66)/FREE(8)
11/01/17 11/01/04 LO(84)/Grtr1%UPBorYM(120)/FREE(36)
03/01/08 02/28/02 LO(47)/YM(67)/FREE(6)
03/01/08 02/28/02 LO(47)/YM(66)/FREE(7)
03/01/08 02/28/02 LO(47)/YM(66)/FREE(7)
- -----------------------------------------------------------------------------------------------------------------------------------
01/01/13 Yes(m) 01/01/03 LO(60)/Grtr1%UPBorYM(84)/FREE(36)
04/01/05 04/01/02 LO(48)/Grtr1%UPBorYM(7)/1%(17)/FREE(12)
11/01/12 11/01/04 LO(84)/Grtr1%UPBorYM(90)/FREE(6)
04/01/08 Yes(b) 04/30/02 LO(48)/YM(66)/FREE(6)
04/01/08 04/30/02 LO(48)/YM(65)/FREE(7)
- -----------------------------------------------------------------------------------------------------------------------------------
01/01/08 01/01/02 LO(48)/Grtr1%UPBorYM(66)/FREE(6)
05/01/08 05/31/02 LO(48)/Grtr1%UPBorYM(66)/FREE(6)
01/01/13 12/31/05 LO(95)/YM(78)/FREE(7)
04/01/08 03/31/02 LO(47)/YM(66)/FREE(7)
03/01/08 02/28/02 LO(47)/YM(66)/FREE(7)
- -----------------------------------------------------------------------------------------------------------------------------------
05/01/08 05/31/02 LO(48)/YM(65)/FREE(7)
03/01/08 03/31/02 LO(48)/YM(65)/FREE(7)
04/01/08 Yes(b) 04/30/02 LO(48)/YM(66)/FREE(6)
05/01/08 04/30/02 LO(47)/YM(66)/FREE(7)
04/01/08 04/30/02 LO(48)/YM(65)/FREE(7)
- -----------------------------------------------------------------------------------------------------------------------------------
03/01/08 02/28/03 LO(59)/YM(54)/FREE(7)
12/01/07 12/01/01 LO(48)/Grtr1%UPBorYM(66)/FREE(6)
03/01/08 Yes(f) YM(48)/5%(12)/4%(12)/3%(12)/2%(12)/1%(17)/FREE(7)
05/01/05 Yes(f) 04/30/00 LO(23)/4%(12)/3%(12)/2%(12)/1%(18)/FREE(7)
10/01/17 10/01/04 LO(84)/Grtr1%UPBorYM(120)/FREE(36)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Yield Cut-off Maturity Date/ Total Units/
Maintenance Appraised Appraisal Date LTV ARD LTV Year Built/ Rooms
Type Value Date Ratio Ratio Renovated Beds
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NA 237,000,000 02/12/98 76.83 54.43 1987 973,435
Present Value 67,000,000 03/13/97 76.42 - 1977 427,100
Present Value 33,900,000 11/01/97 69.22 60.17 1978 259,028
Interest Differential 22,600,000 03/10/98 61.91 54.29 1989 119,114
Interest Differential 13,600,000 11/18/97 71.21 1.50 1958/1991 92,904
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Differential 15,100,000 03/10/98 59.57 52.18 1892/1983 111,360
Present Value 14,750,000 09/11/97 60.57 49.39 1931/1986 133,825
Interest Differential 9,500,000 02/09/98 68.39 60.56 1973/1990 115,500
Interest Differential 8,120,000 02/26/98 75.08 66.48 1985 74,760
Interest Differential 6,175,000 11/17/97 66.18 46.53 1894 81,802
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Differential 4,950,000 02/10/98 80.70 71.35 1990/1995 33,681
Interest Differential 4,050,000 02/09/98 72.74 63.94 1987/1997 41,328
Interest Differential 3,900,000 03/01/98 64.07 56.26 1920/1988 31,015
Interest Differential 3,350,000 11/12/97 74.14 65.69 1980 83,049
Interest Differential 2,950,000 03/03/98 73.15 59.62 1973/1990 67,490
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Differential 2,650,000 11/11/97 75.33 66.29 1997 25,562
Interest Differential 2,600,000 10/15/97 74.90 66.34 1989/1992 64,905
Interest Differential 2,325,000 01/26/98 68.75 56.07 1985 24,000
Interest Differential 2,100,000 01/06/98 74.96 66.75 1965/1987 20,289
Interest Differential 2,900,000 10/17/97 51.08 0.97 1988 33,920
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Differential 2,200,000 02/27/98 65.61 52.63 1985 31,949
Interest Differential 1,800,000 02/18/98 74.91 66.44 1970 35,893
Interest Differential 1,800,000 02/27/98 74.03 59.38 1994 15,963
Interest Differential 2,900,000 04/01/98 43.08 37.78 1991/1996 32,800
Interest Differential 1,900,000 02/27/98 51.74 41.49 1974 43,682
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Differential 1,450,000 02/27/98 62.01 49.73 1987 17,200
Interest Differential 1,050,000 02/27/97 62.03 49.75 1993 8,478
Interest Differential 1,000,000 02/27/98 62.94 50.48 1989 11,935
Present Value 640,000 11/12/97 81.62 3.23 1950/1989 15,244
Present Value 200,000,000 08/01/97 54.00 46.03 1982/1993 1,582,490
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Differential 3,950,000 11/02/97 73.27 64.12 1991 34,820
Interest Differential 3,220,000 12/22/97 69.78 61.37 1989/1997 19,836
Interest Differential 2,200,000 03/20/98 74.95 65.29 1969 19,347
Interest Differential 1,630,000 01/06/98 67.42 54.57 1979/1996 23,469
Interest Differential 40,000,000 10/07/97 81.48 70.55 1997 336
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Differential 23,700,000 10/06/97 79.35 68.51 1996 342
Present Value 19,000,000 01/21/98 78.02 66.98 1986 384
Interest Differential 15,520,000 02/03/98 78.45 64.95 1973 436
Interest Differential 15,400,000 12/18/97 77.65 67.40 1997 194
Interest Differential 15,750,000 02/25/98 63.34 50.50 1983 383
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Differential 12,570,000 09/18/97 79.25 73.35 1975/1998 346
Interest Differential 11,000,000 11/25/97 88.96 77.92 1990/1998 214
Interest Differential 10,850,000 03/08/98 80.14 70.41 1987 162
Present Value 10,200,000 11/18/97 78.70 68.03 1990 198
Interest Differential 10,000,000 09/10/97 76.68 67.82 1996 140
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Differential 8,750,000 01/30/98 77.61 68.25 1988 185
Present Value 8,200,000 01/21/98 80.02 68.69 1972 226
Present Value 8,700,000 11/17/97 74.30 64.22 1992 130
Present Value 9,770,000 04/06/98 65.51 - 1992 79
Present Value 7,100,000 11/12/97 83.29 34.65 1968 324
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Differential 6,500,000 04/01/98 78.31 68.89 1970/1997 262
Interest Differential 5,200,000 10/06/97 82.43 66.85 1990 88
Present Value 5,250,000 06/06/97 79.44 62.26 1977/1992 164
Interest Differential 4,950,000 01/28/98 78.51 54.01 1964/1995 201
Interest Differential 4,700,000 02/11/98 74.36 65.30 1988 60
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Differential 5,500,000 10/06/97 58.00 47.08 1988 93
Interest Differential 3,700,000 11/04/97 74.18 65.34 1983/1997 127
Interest Differential 3,100,000 01/16/98 78.92 69.14 1997 60
Interest Differential 3,100,000 03/20/98 77.37 67.52 1975 114
Interest Differential 2,950,000 12/16/97 79.84 70.25 1997 30
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Differential 2,900,000 11/12/97 79.89 70.44 1978 51
Present Value 2,300,000 11/17/97 78.81 68.13 1980 72
Interest Differential 2,300,000 01/26/98 75.93 61.59 1940/1987 221
Interest Differential 2,365,000 01/15/98 71.78 63.07 1985 36
Interest Differential 2,350,000 02/23/98 67.92 54.15 1973 60
- -----------------------------------------------------------------------------------------------------------------------------------
Present Value 2,000,000 11/18/97 71.71 61.99 1986 56
Interest Differential 1,870,000 10/03/97 74.63 69.15 1982 36
Interest Differential 1,600,000 12/12/97 72.09 63.33 1996 32
Interest Differential 1,220,000 06/18/97 75.41 66.72 1964 42
Present Value 1,100,000 11/12/97 83.29 34.65 1950 44
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Differential 37,500,000 08/21/97 74.27 58.57 1997 327,337
Interest Differential 23,000,000 12/02/97 75.43 61.40 1993 452,369
Present Value 17,500,000 12/04/97 76.96 66.41 1989 170,364
Present Value 19,000,000 11/16/97 70.79 61.70 1986 254,667
Interest Differential 15,000,000 12/31/97 70.31 2.68 1994 192,929
- -----------------------------------------------------------------------------------------------------------------------------------
Present Value 11,000,000 08/26/97 70.89 41.34 1992 107,806
Interest Differential 6,000,000 12/09/97 79.89 70.04 1970 166,438
Present Value 3,800,000 11/10/97 83.79 3.32 1990 54,089
Interest Differential 3,375,000 11/13/97 79.89 70.39 1970 124,178
Interest Differential 3,000,000 12/05/97 79.39 2.62 1997 35,200
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Differential 3,200,000 12/16/97 56.11 48.43 1985 127,565
Interest Differential 2,750,000 10/09/97 45.30 31.39 1970 49,346
Present Value 1,300,000 11/15/97 67.74 2.68 1975 42,920
Interest Differential 2,425,000 10/09/97 32.79 15.63 1971/1980 58,167
Present Value 17,100,000 01/01/98 58.34 46.27 1989 149,160
- -----------------------------------------------------------------------------------------------------------------------------------
Present Value 9,650,000 11/04/97 73.21 2.90 1980 117,624
Present Value 8,865,000 03/01/98 67.63 58.50 1990 192,524
NA 7,200,000 08/26/97 75.00 66.11 1988 48,607
NA 6,000,000 12/30/97 77.77 68.50 1986 104,519
Interest Differential 8,100,000 01/02/98 55.44 45.19 1981 123,978
- -----------------------------------------------------------------------------------------------------------------------------------
Present Value 6,200,000 02/23/98 70.09 57.70 1988 64,683
Interest Differential 5,000,000 10/15/97 74.93 61.22 1965/1989 20,700
Interest Differential 4,500,000 01/06/98 70.96 57.76 1967/1997 61,992
Interest Differential 3,300,000 11/01/97 87.60 77.07 1986/1997 25,600
Interest Differential 3,600,000 01/12/98 74.78 61.15 1987 38,500
- -----------------------------------------------------------------------------------------------------------------------------------
Present Value 3,000,000 02/05/98 80.21 69.62 1997 26,210
Present Value 2,900,000 11/14/97 79.77 3.16 1975 34,000
Present Value 3,200,000 11/10/97 72.29 2.86 1982 43,660
Interest Differential 2,500,000 09/04/97 83.92 68.17 1968/1986 39,302
Interest Differential 4,025,000 02/09/98 51.37 21.46 1969 27,000
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Differential 2,480,000 02/09/98 74.96 66.63 1997 23,625
Present Value 2,100,000 11/21/97 84.34 3.34 1980/1993 22,724
NA 2,440,000 01/27/98 71.58 58.69 1979 47,916
Present Value 2,400,000 11/10/97 71.52 2.83 1980/1986 34,370
Interest Differential 2,120,000 03/13/98 76.58 62.10 1952 18,690
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Differential 1,600,000 10/24/97 90.41 1.67 1996 10,000
Interest Differential 1,550,000 01/25/98 85.80 1.82 1997 9,734
Interest Differential 1,500,000 10/13/97 79.90 70.68 1948/1995 13,962
Present Value 1,400,000 11/14/97 84.22 3.33 1975/1990 20,682
Interest Differential 1,550,000 03/10/98 74.11 59.47 1978 23,110
- -----------------------------------------------------------------------------------------------------------------------------------
Present Value 1,350,000 11/05/97 81.08 3.21 1990 17,169
Interest Differential 1,400,000 03/01/98 74.75 47.04 1997 8,904
Interest Differential 1,720,000 01/28/98 52.21 42.06 1996 27,389
Interest Differential 1,460,000 02/26/98 58.09 47.02 1986 19,885
Interest Differential 18,000,000 01/29/98 74.93 60.61 1996 144
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Differential 16,100,000 01/29/98 74.46 60.24 1982/1993 122
Interest Differential 8,750,000 10/22/97 74.63 60.88 1996 106
Interest Differential 6,600,000 09/12/97 77.36 54.72 1966/1995 142
Interest Differential 5,800,000 02/12/98 74.93 61.02 1996 84
Interest Differential 5,650,000 01/12/98 71.88 2.82 1987 115
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Differential 5,250,000 01/29/98 74.80 61.13 1994 106
Present Value 5,800,000 06/01/97 63.74 42.16 1972/1995 121
Interest Differential 4,850,000 01/12/98 74.75 2.93 1994 74
Interest Differential 5,850,000 01/30/98 60.63 49.53 1987 18
Interest Differential 5,100,000 12/09/97 68.40 47.71 1996 99
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Differential 4,600,000 01/05/98 57.01 46.36 1986/1996 132
Present Value 3,650,000 09/18/97 59.60 - 1982 110
Interest Differential 2,585,000 09/16/97 65.58 53.86 1994 62
Interest Differential 3,050,000 11/18/97 53.93 43.64 1988 80
Interest Differential 2,350,000 10/28/97 69.98 55.12 1995 51
- -----------------------------------------------------------------------------------------------------------------------------------
Present Value 3,520,000 06/01/97 44.54 29.67 1969/1986 98
Present Value 4,900,000 09/23/97 73.29 63.92 1983 237,500
Present Value 6,000,000 09/09/97 58.75 - 1985 71,380
Interest Differential 4,300,000 10/27/97 72.73 64.58 1968 131,882
Interest Differential 4,480,000 01/13/98 66.82 54.39 1977 70,500
- -----------------------------------------------------------------------------------------------------------------------------------
Present Value 3,625,000 09/12/97 71.47 62.72 1988 86,784
Present Value 3,200,000 01/01/98 73.39 64.18 1986 54,406
Interest Differential 3,000,000 11/18/97 71.21 1.50 1958/1991 37,449
Interest Differential 2,525,000 01/20/98 73.00 50.16 1987 87,730
Interest Differential 1,550,000 12/19/97 79.74 64.32 1978 43,190
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Differential 1,700,000 02/25/98 70.55 61.96 1998 24,145
Interest Differential 1,650,000 01/09/98 66.53 58.36 1980 18,105
Interest Differential 1,330,000 01/16/98 72.73 64.58 1993 35,760
Interest Differential 16,000,000 02/23/98 79.92 64.22 1980 238
Interest Differential 6,500,000 11/14/97 69.09 56.15 1965/1996 142
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Differential 3,500,000 11/25/97 65.54 54.32 1970/1996 139
Present Value 2,600,000 10/22/97 68.78 55.78 1955/1990 32
Interest Differential 3,350,000 12/03/97 74.49 65.86 1960 305
NA 1,685,000 12/04/97 69.40 64.71 1970 147
Present Value 2,400,000 08/14/97 64.40 - 1963/1995 71
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Net Occupancy
Rentable Loan Balance Occupancy As of U/W U/W U/W
SF/Units Area(SF) per SF/Unit Percent Date Revenues Expenses NOI
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SF 973,435 187.06 100.00 01/07/98 35,092,989.55 13,366,098.00 21,726,891.55
SF 427,100 119.88 100.00 01/01/96 4,270,000.00 - 4,270,000.00
SF 259,028 90.59 93.71 11/12/97 4,990,532.00 2,265,706.00 2,724,826.00
SF 119,114 117.46 100.00 03/31/98 2,677,021.15 1,031,479.90 1,645,541.25
SF 92,904 104.24 100.00 01/01/98 2,228,700.00 858,166.00 1,370,534.00
- ---------------------------------------------------------------------------------------------------------------------------------
SF 111,360 80.77 100.00 02/28/98 1,719,390.50 639,937.19 1,079,453.31
SF 133,825 66.75 86.00 10/01/97 2,346,124.88 1,013,432.00 1,332,692.88
SF 115,500 56.25 100.00 02/09/98 969,478.00 137,074.00 832,404.00
SF 74,760 81.55 100.00 02/23/98 1,111,527.00 405,176.35 706,350.65
SF 81,802 49.96 97.94 03/02/98 1,312,965.00 692,803.00 620,162.00
- ---------------------------------------------------------------------------------------------------------------------------------
SF 33,681 118.61 83.04 09/11/97 671,197.00 214,522.00 456,675.00
SF 41,328 71.28 94.43 02/09/98 544,670.31 192,810.05 351,860.26
SF 31,015 80.56 100.00 02/28/98 569,617.79 242,986.38 326,631.41
SF 83,049 29.91 99.10 03/25/98 745,697.00 416,593.00 329,104.00
SF 67,490 31.98 94.69 01/11/98 801,580.00 487,741.00 313,839.00
- ---------------------------------------------------------------------------------------------------------------------------------
SF 25,562 78.09 100.00 11/11/97 471,510.00 202,522.82 268,987.18
SF 64,905 30.01 85.52 01/01/98 327,591.70 79,708.71 247,882.99
SF 24,000 66.61 93.97 02/23/98 302,044.00 101,724.20 200,319.80
SF 20,289 77.59 96.76 01/01/98 315,232.00 114,905.00 200,327.00
SF 33,920 43.67 100.00 01/01/98 439,525.00 134,645.00 304,880.00
- ---------------------------------------------------------------------------------------------------------------------------------
SF 31,949 45.18 100.00 03/31/98 452,896.35 206,690.81 246,205.54
SF 35,893 37.56 90.84 03/17/98 301,886.00 126,718.30 175,167.70
SF 15,963 83.48 100.00 02/28/98 243,086.00 59,198.20 183,887.80
SF 32,800 38.09 100.00 02/05/98 241,143.00 72,867.00 168,276.00
SF 43,682 22.50 81.29 02/01/98 418,697.83 269,299.15 149,398.68
- ---------------------------------------------------------------------------------------------------------------------------------
SF 17,200 52.27 100.00 03/31/98 216,110.93 69,249.63 146,861.30
SF 8,478 76.83 100.00 02/28/98 150,865.35 53,619.26 97,246.09
SF 11,935 52.73 100.00 01/31/98 133,296.40 45,978.14 87,318.26
SF 15,244 34.27 100.00 12/10/97 72,000.00 7,600.00 64,400.00
SF 1,582,490 68.25 98.00 04/23/98 43,095,721.00 23,877,740.00 19,217,981.00
- ---------------------------------------------------------------------------------------------------------------------------------
SF 34,820 83.11 96.97 02/09/98 491,893.00 113,348.00 378,545.00
SF 19,836 113.28 100.00 12/31/97 343,924.36 97,253.12 246,671.24
SF 19,347 85.23 100.00 02/26/98 370,462.95 155,627.06 214,835.89
SF 23,469 46.83 100.00 01/30/98 311,437.00 151,302.00 160,135.00
Units 379,256 97,000.66 93.00 11/18/97 4,582,500.00 1,326,685.00 3,255,815.00
- ---------------------------------------------------------------------------------------------------------------------------------
Units 325,965 54,990.05 91.00 10/07/97 2,698,740.00 866,887.00 1,831,853.00
Units 38,605.69 96.35 01/31/98 2,995,752.80 1,339,040.00 1,656,712.80
Units 297,280 27,925.32 95.18 03/03/98 2,827,451.00 1,252,980.55 1,574,470.45
Units 189,260 61,638.86 94.30 01/08/98 1,938,171.00 711,827.00 1,226,344.00
Units 270,447 26,047.98 90.33 02/25/98 3,210,335.00 1,536,830.75 1,673,504.25
- ---------------------------------------------------------------------------------------------------------------------------------
Units 277,379 28,790.13 92.77 03/01/98 2,236,095.00 1,199,683.00 1,036,412.00
Units 171,590 45,729.59 95.00 01/31/98 1,737,674.00 517,141.00 1,220,533.00
Units 121,675 53,672.62 93.00 04/01/98 1,306,326.00 393,351.14 912,974.86
Units 40,542.85 97.00 11/30/97 1,529,689.42 577,506.00 952,183.00
Units 171,780 54,768.65 100.00 09/01/97 1,279,080.00 424,954.00 854,126.00
- ---------------------------------------------------------------------------------------------------------------------------------
Units 103,611 36,706.76 100.00 02/04/98 1,361,239.80 575,080.00 786,159.80
Units 29,032.92 94.25 05/26/98 1,459,620.00 730,089.00 729,531.00
Units 49,721.67 98.00 11/30/97 1,133,120.75 393,987.00 739,134.00
Units 81,012.66 100.00 04/01/98 1,228,464.00 346,430.00 882,033.80
Units 209,760 18,251.30 98.00 12/05/97 1,390,808.00 623,991.00 766,817.00
- ---------------------------------------------------------------------------------------------------------------------------------
Units 270,390 19,427.60 92.00 01/22/98 1,195,538.40 588,236.92 607,301.48
Units 48,710.87 100.00 10/01/97 799,735.00 319,327.00 480,408.00
Units 25,429.33 100.00 12/15/97 1,062,906.00 531,565.00 531,340.70
Units 113,310 19,333.84 100.00 01/01/98 1,166,755.80 701,972.43 464,783.37
Units 74,760 58,251.60 100.00 02/04/98 895,040.60 412,232.53 482,808.07
- ---------------------------------------------------------------------------------------------------------------------------------
Units 67,500 34,301.67 100.00 09/30/97 849,493.00 345,655.00 503,838.00
Units 72,743 21,611.78 94.00 01/22/98 627,936.00 295,887.44 332,048.56
Units 62,950 40,775.70 98.34 02/20/98 400,776.50 107,638.82 293,137.68
Units 82,240 21,039.43 91.00 02/19/98 594,415.00 309,520.75 284,894.25
Units 48,908 78,513.30 100.00 12/31/97 451,017.52 146,710.00 304,307.52
- ---------------------------------------------------------------------------------------------------------------------------------
Units 59,601 45,429.84 100.00 02/13/98 474,468.00 201,154.08 273,313.92
Units 25,175.80 93.00 11/30/97 402,081.24 204,293.00 197,788.24
Units 175,541 7,901.71 100.00 01/01/98 552,833.00 312,541.00 240,292.00
Units 35,520 47,157.35 100.00 01/01/98 287,950.00 110,818.00 177,132.00
Units 61,627 26,603.67 98.33 02/25/98 448,240.00 243,585.00 204,655.00
- ---------------------------------------------------------------------------------------------------------------------------------
Units 25,610.55 100.00 11/30/97 324,082.38 131,209.00 192,873.31
Units 34,175 38,765.49 90.60 09/03/97 274,502.00 108,050.00 166,452.00
Units 33,584 36,044.16 100.00 02/01/98 199,329.00 53,969.00 145,360.00
Units 24,530 21,904.76 98.00 03/11/98 225,279.20 119,931.36 105,347.84
Units 42,900 20,821.91 93.00 12/05/97 200,604.00 95,852.00 104,752.00
- ---------------------------------------------------------------------------------------------------------------------------------
SF 327,337 85.08 81.47 05/07/98 4,254,455.00 1,089,159.00 3,165,296.00
SF 452,369 38.35 89.35 03/12/98 4,045,054.00 1,916,150.40 2,128,903.60
SF 170,364 79.05 100.00 02/26/98 2,041,236.02 474,033.00 1,567,203.22
SF 254,667 52.81 92.14 11/01/97 2,395,301.00 707,898.00 1,687,402.96
SF 192,929 54.66 100.00 01/30/98 1,381,372.00 27,627.00 1,353,745.00
- ---------------------------------------------------------------------------------------------------------------------------------
SF 107,806 72.33 100.00 08/22/97 2,184,720.15 1,310,605.00 874,115.10
SF 166,438 28.80 99.95 02/24/98 890,221.00 249,078.00 641,143.00
SF 54,089 58.87 100.00 12/05/97 532,885.00 129,719.00 403,166.00
SF 124,178 21.71 98.05 02/01/98 459,862.00 130,367.00 329,495.00
SF 35,200 67.66 100.00 12/16/97 327,168.00 50,343.00 276,825.00
- ---------------------------------------------------------------------------------------------------------------------------------
SF 127,565 14.08 99.06 02/09/98 450,926.00 182,029.00 268,897.00
SF 49,346 25.24 100.00 10/23/97 399,689.00 128,984.00 270,705.00
SF 42,920 20.52 100.00 12/05/97 193,568.00 62,778.00 130,790.00
SF 58,167 13.67 100.00 03/02/98 338,241.00 104,980.00 233,261.00
SF 149,160 66.88 100.00 03/03/98 2,132,676.00 634,440.00 1,498,236.00
- ---------------------------------------------------------------------------------------------------------------------------------
SF 117,624 60.06 98.81 07/08/97 1,236,835.00 347,742.00 889,093.00
SF 192,524 31.14 98.44 03/31/98 1,394,673.20 532,984.00 861,689.54
SF 48,607 111.10 93.50 04/01/98 939,644.00 228,882.00 710,762.00
SF 104,519 44.64 96.06 01/09/98 869,015.35 252,950.70 616,064.65
SF 123,978 36.22 97.98 05/01/98 1,047,299.08 360,125.66 687,173.42
- ---------------------------------------------------------------------------------------------------------------------------------
SF 64,683 67.18 84.72 03/17/98 805,955.00 214,917.00 591,038.00
SF 20,700 181.00 100.00 12/31/97 759,807.00 257,441.35 502,365.65
SF 61,992 51.51 94.19 11/06/97 584,783.00 157,239.00 427,544.00
SF 25,600 112.92 92.42 01/08/98 431,203.00 93,266.00 337,937.00
SF 38,500 69.92 92.56 02/10/98 543,501.00 204,905.00 338,596.00
- ---------------------------------------------------------------------------------------------------------------------------------
SF 26,210 91.81 100.00 03/20/98 428,160.25 104,610.00 323,550.25
SF 34,000 68.04 100.00 12/05/97 380,833.00 87,942.00 292,891.00
SF 43,660 52.99 92.70 06/01/98 421,706.00 124,785.00 296,921.00
SF 39,302 53.38 94.91 08/01/97 393,577.20 91,718.00 301,859.20
SF 27,000 76.57 100.00 02/09/98 420,598.00 107,654.90 312,943.10
- ---------------------------------------------------------------------------------------------------------------------------------
SF 23,625 78.69 100.00 03/03/98 309,926.00 84,290.30 225,635.70
SF 22,724 77.94 100.00 12/05/97 305,500.00 62,575.00 242,925.00
SF 47,916 36.45 73.81 11/26/97 352,669.17 88,087.79 264,581.38
SF 34,370 49.94 100.00 12/05/97 337,695.00 115,685.00 222,010.00
SF 18,690 86.86 91.44 03/13/98 302,702.00 96,359.10 206,342.90
- ---------------------------------------------------------------------------------------------------------------------------------
SF 10,000 144.66 100.00 10/24/97 165,000.00 - 165,000.00
SF 9,734 136.62 100.00 01/25/98 160,000.00 1,600.00 158,400.00
SF 13,962 85.84 100.00 02/25/98 166,837.00 25,291.00 141,546.00
SF 20,682 57.01 100.00 12/05/97 216,135.00 64,007.00 152,128.00
SF 23,110 49.71 100.00 02/10/98 192,511.80 43,911.59 148,600.21
- ---------------------------------------------------------------------------------------------------------------------------------
SF 17,169 63.75 86.02 06/01/98 200,306.00 61,015.00 139,291.00
SF 8,904 117.53 73.90 02/02/98 118,744.50 5,937.22 112,807.28
SF 27,389 32.79 92.16 02/17/98 268,274.28 80,722.73 187,551.55
SF 19,885 42.65 100.00 02/17/98 233,580.48 78,505.60 155,074.88
Units 93,659.07 94.70 10/31/97 3,345,227.37 1,382,107.95 1,963,119.42
- ---------------------------------------------------------------------------------------------------------------------------------
Units 98,265.26 87.70 12/31/97 3,718,086.10 1,902,176.14 1,815,909.96
Units 56,925 61,606.82 52.30 12/31/97 2,135,812.00 1,143,175.00 992,637.00
Units 56,235 35,957.68 55.00 12/31/96 2,385,468.00 1,623,307.00 762,161.00
Units 51,737.91 58.50 01/01/98 1,271,400.00 613,275.00 658,125.00
Units 35,315.26 81.90 01/12/98 1,257,874.00 482,997.00 774,877.00
- ---------------------------------------------------------------------------------------------------------------------------------
Units 37,047.35 71.80 12/31/97 1,176,224.00 576,907.00 599,317.00
Units 30,550.97 75.55 12/28/97 2,312,674.00 1,543,816.00 768,858.00
Units 48,989.61 84.00 06/30/97 1,157,185.00 455,494.00 701,691.00
Units 18 197,044.67 1,288,227.00 761,467.88 526,759.12
Units 35,234.12 63.00 11/30/97 1,048,395.52 467,041.34 581,354.18
- ---------------------------------------------------------------------------------------------------------------------------------
Units 0 19,867.80 45.00 01/09/98 776,013.00 319,396.00 456,617.00
Units 19,774.71 63.00 09/30/97 1,214,610.00 823,847.00 390,763.50
Units 27,340.73 77.90 09/16/97 740,250.00 499,585.00 240,665.00
Units 33,849 20,559.62 75.90 11/18/97 745,300.00 332,696.00 412,604.00
Units 19,382 32,243.72 77.60 08/31/97 537,961.00 281,156.00 256,805.00
- ---------------------------------------------------------------------------------------------------------------------------------
Units 15,998.91 78.03 11/02/97 3,024,521.00 2,672,136.00 352,385.00
SF 237,500 15.12 100.00 03/01/98 581,993.00 94,723.00 487,270.00
SF 71,380 49.39 100.00 03/05/98 708,823.00 103,972.00 604,851.00
SF 131,882 23.71 100.00 01/30/98 501,152.00 25,057.00 476,095.00
SF 70,500 42.46 100.00 01/31/98 480,516.00 88,311.80 392,204.20
- ---------------------------------------------------------------------------------------------------------------------------------
SF 86,784 29.85 100.00 04/06/98 421,385.35 85,816.00 335,569.08
SF 54,406 43.16 100.00 01/20/98 388,626.00 93,975.00 294,651.00
SF 37,449 57.04 100.00 01/01/98 671,689.00 371,611.00 300,078.00
SF 87,730 21.01 99.00 02/23/98 457,069.00 183,046.00 274,023.00
SF 43,190 28.62 100.00 12/31/97 233,045.00 80,588.00 152,457.00
- ---------------------------------------------------------------------------------------------------------------------------------
SF 24,145 49.67 100.00 04/01/98 159,646.00 7,982.00 151,664.00
SF 18,105 60.63 100.00 01/28/98 154,801.00 7,740.05 147,060.95
SF 35,760 27.05 100.00 01/30/98 135,888.00 6,794.00 129,094.00
Units 115,522 53,726.77 96.00 03/01/98 3,820,979.80 2,415,300.99 1,405,678.81
Units 36,727 31,623.51 91.00 01/19/98 3,386,873.00 2,627,940.00 758,933.00
- ---------------------------------------------------------------------------------------------------------------------------------
Units 34,260 16,502.36 97.70 12/01/97 4,913,059.00 4,478,694.00 434,365.00
Units 55,883.91 87.42 06/30/97 1,465,501.00 1,189,250.00 276,251.00
Units 8,181.54 85.25 01/04/98 565,920.00 294,236.00 271,684.00
Units 7,955.28 82.00 12/31/97 293,724.00 152,500.00 141,224.00
Units 21,770.09 80.12 12/31/97 2,298,417.00 1,856,808.00 441,609.00
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U/W
NOI U/W U/W U/W U/W Reserves 1997 1997
DSCR NCF DSCR Reserves per Unit Revenues Expenses
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1.40 21,016,439.30 1.35 146,015.25 0.15 33,147,884.00 12,145,838.00
1.06 4,227,290.00 1.05 42,710.00 0.10 4,270,000.00 -
1.38 2,535,217.51 1.29 38,854.20 0.15 3,767,396.00 2,037,221.00
1.45 1,535,383.44 1.35 17,867.10 0.15 2,728,179.00 1,026,585.00
1.25 1,302,109.00 1.18 15,300.00 0.16 - 831,271.00
- -------------------------------------------------------------------------------------------------------
1.48 983,384.45 1.35 17,012.00 0.15 1,669,411.00 624,153.00
1.59 1,026,637.88 1.22 26,765.00 0.20 2,591,571.00 1,107,558.00
1.52 703,691.00 1.28 36,313.00 0.31 1,010,170.00 116,638.00
1.37 644,667.63 1.25 11,214.00 0.15 557,989.00 334,082.00
1.53 536,571.00 1.32 16,360.00 0.20 1,279,548.00 727,943.00
- -------------------------------------------------------------------------------------------------------
1.36 433,998.00 1.30 5,023.00 0.15 450,048.00 171,676.00
1.46 308,310.88 1.28 8,265.60 0.20 386,298.00 149,818.00
1.60 299,361.16 1.47 4,652.25 0.15 584,650.00 221,829.00
1.57 265,949.00 1.27 14,949.00 0.18 726,049.00 306,628.00
1.63 240,949.80 1.25 18,897.20 0.28 687,720.00 461,151.00
- -------------------------------------------------------------------------------------------------------
1.64 249,575.03 1.52 1,956.20 0.08
1.51 209,963.46 1.28 9,735.75 0.15 246,585.00 72,732.00
1.40 183,389.49 1.28 3,641.55 0.15 270,998.00 93,103.00
1.48 181,630.69 1.34 3,854.91 0.19 306,487.00 109,547.00
1.85 278,380.00 1.69 6,784.00 0.20 343,936.00 102,729.00
- -------------------------------------------------------------------------------------------------------
2.00 209,360.23 1.70 10,942.53 0.34 477,971.00 206,307.00
1.53 154,550.77 1.35 7,178.60 0.20 257,110.00 102,076.00
1.62 169,540.98 1.49 1,939.98 0.12 231,802.00 50,611.00
1.66 144,347.00 1.42 4,920.00 0.15 241,143.00 81,066.00
1.78 104,764.37 1.25 17,472.80 0.40 471,336.00 263,356.00
- -------------------------------------------------------------------------------------------------------
1.92 132,497.37 1.73 2,050.06 0.12 222,401.00 54,271.00
1.75 88,887.14 1.60 1,520.21 0.18 155,011.00 50,685.00
1.63 71,860.01 1.34 7,280.35 0.61 145,909.00 41,598.00
1.26 62,113.40 1.22 2,286.60 0.15
2.29 15,545,314.00 1.86 316,400.00 0.20 39,371,668.00 23,877,740.00
- -------------------------------------------------------------------------------------------------------
1.63 346,581.00 1.49 5,500.00 0.16 503,885.00 139,001.00
1.34 230,792.49 1.25 8,025.00 0.40 341,043.00 100,257.00
1.64 196,454.84 1.50 2,902.05 0.15 451,140.00 188,601.00
1.66 142,624.00 1.48 5,163.00 0.22 312,578.00 146,902.00
1.22 3,188,615.00 1.20 67,200.00 200.00
- -------------------------------------------------------------------------------------------------------
1.21 1,780,553.00 1.17 51,300.00 150.00 1,377,204.00 463,024.00
1.41 1,577,479.80 1.34 79,233.00 206.34 3,001,611.00 1,346,281.00
1.61 1,473,550.45 1.50 100,920.00 231.47 2,816,053.00 1,177,629.00
1.32 1,187,544.00 1.28 38,800.00 200.00
2.01 1,577,754.25 1.89 95,750.00 250.00 3,130,664.00 1,338,806.00
- -------------------------------------------------------------------------------------------------------
1.28 949,412.00 1.18 87,000.00 251.45 2,271,096.00 903,407.00
1.54 1,174,523.00 1.49 46,010.00 215.00 1,490,507.00 535,781.00
1.28 872,474.86 1.23 40,500.00 250.00 1,278,378.00 364,534.00
1.46 912,583.00 1.40 39,600.00 200.00 1,547,798.00 561,977.00
1.34 819,126.00 1.28 35,000.00 250.00 401,376.00 89,725.00
- -------------------------------------------------------------------------------------------------------
1.41 730,359.80 1.31 55,800.00 301.62 1,401,415.00 568,457.00
1.40 672,185.00 1.29 57,346.00 253.74 1,457,472.00 761,139.00
1.41 713,134.00 1.36 26,000.00 200.00 1,240,950.00 396,431.00
1.28 854,383.80 1.24 27,650.00 350.00 1,292,301.00 234,816.00
1.45 684,197.00 1.29 82,620.00 255.00 1,404,420.00 594,740.00
- -------------------------------------------------------------------------------------------------------
1.46 541,801.48 1.30 65,500.00 250.00 1,094,578.00 519,337.00
1.28 458,408.00 1.22 22,000.00 250.00 841,351.00 209,771.00
1.38 478,040.70 1.25 53,300.00 325.00 1,049,656.00 297,488.00
1.26 419,558.37 1.14 45,225.00 225.00 1,198,270.00 690,424.00
1.70 464,808.07 1.64 18,000.00 300.00 917,138.00 430,972.00
- -------------------------------------------------------------------------------------------------------
1.80 480,838.00 1.72 23,000.00 247.31 888,720.00 313,759.00
1.47 300,298.56 1.33 31,750.00 250.00 556,794.00 287,530.00
1.48 281,137.68 1.42 12,000.00 200.00 287,838.00 75,354.00
1.49 256,144.25 1.34 28,750.00 252.19 621,003.00 303,827.00
1.58 289,307.52 1.50 15,000.00 500.00 351,631.00 37,482.00
- -------------------------------------------------------------------------------------------------------
1.42 255,871.92 1.33 17,442.00 342.00 495,087.00 197,700.00
1.34 183,028.24 1.24 14,760.00 205.00 405,982.00 211,468.00
1.56 186,042.00 1.21 54,250.00 245.48 527,000.00 279,827.00
1.28 169,212.00 1.22 7,920.00 220.00 286,732.00 124,139.00
1.53 186,655.00 1.40 18,000.00 300.00 433,553.00 238,498.00
- -------------------------------------------------------------------------------------------------------
1.65 181,673.31 1.56 11,200.00 200.00 385,026.00 154,293.60
1.46 157,452.00 1.38 9,000.00 250.00 266,619.00 92,182.00
1.54 138,960.00 1.47 6,400.00 200.00 205,797.00 38,122.00
1.36 92,747.84 1.20 12,600.00 300.00 236,901.00 145,910.00
1.28 92,652.00 1.13 12,100.00 275.00 200,611.00 82,621.00
- -------------------------------------------------------------------------------------------------------
1.34 3,021,791.00 1.28 85,107.00 0.26 3,387,156.00 740,931.00
1.38 1,940,811.77 1.25 67,855.35 0.15 3,830,096.00 1,702,852.00
1.43 1,461,096.45 1.34 39,053.00 0.23 2,079,879.00 433,179.00
1.49 1,481,222.96 1.31 50,262.00 0.20 2,148,554.40 461,065.20
1.33 1,353,745.00 1.33 - - 1,381,372.00 134,513.00
- -------------------------------------------------------------------------------------------------------
1.23 823,387.66 1.15 25,873.00 0.24 1,839,509.00 843,902.00
1.65 585,129.00 1.51 35,870.00 0.22 796,026.00 184,508.00
1.30 386,233.00 1.24 5,569.00 0.10 553,982.00 127,632.00
1.48 293,630.00 1.32 18,627.00 0.15 401,250.00 131,893.00
1.23 264,449.00 1.17 5,280.00 0.15
- -------------------------------------------------------------------------------------------------------
1.85 206,390.00 1.42 19,135.00 0.15 587,298.00 140,784.00
2.26 242,571.00 2.02 10,979.00 0.22 444,397.00 125,022.00
1.52 108,203.35 1.26 11,588.40 0.27 210,792.00 60,497.00
2.64 201,560.00 2.28 13,960.00 0.24
1.73 1,385,419.63 1.60 22,374.00 0.15 2,342,736.00 600,093.00
- -------------------------------------------------------------------------------------------------------
1.29 835,059.48 1.21 29,406.00 0.25 1,364,084.00 318,566.00
1.74 725,671.63 1.47 28,879.00 0.15 1,264,885.00 528,903.00
1.58 668,505.00 1.49 10,207.00 0.21 953,148.00 212,519.00
1.60 548,649.90 1.43 19,858.61 0.19 894,168.00 248,105.00
1.72 604,571.60 1.51 29,754.72 0.24 1,085,663.00 355,658.00
- -------------------------------------------------------------------------------------------------------
1.61 536,860.00 1.46 9,702.00 0.15 715,572.00 204,771.00
1.49 471,419.15 1.40 3,519.00 0.17 839,300.00 231,192.00
1.51 382,251.00 1.35 8,679.00 0.14 449,609.00 152,248.00
1.43 314,065.50 1.33 4,717.50 0.18 353,014.00 70,731.00
1.40 316,555.00 1.31 7,700.00 0.20 482,771.00 220,242.00
- -------------------------------------------------------------------------------------------------------
1.61 304,456.50 1.52 4,021.00 0.15 - -
1.30 276,146.00 1.22 7,820.00 0.23 382,476.00 81,000.00
1.31 278,508.00 1.23 10,262.00 0.24 420,562.00 104,420.00
1.63 274,446.06 1.48 10,218.52 0.26 377,480.00 89,216.00
1.61 300,794.23 1.55 4,050.00 0.15
- -------------------------------------------------------------------------------------------------------
1.42 211,088.61 1.33 3,543.75 0.15 332,035.00 53,292.00
1.40 228,793.00 1.32 4,545.00 0.20 302,392.00 57,530.00
1.67 239,665.06 1.51 7,187.40 0.15 333,975.88 81,893.11
1.32 205,814.00 1.23 9,967.00 0.29 368,865.00 110,893.00
1.44 189,496.63 1.33 5,607.00 0.30 334,086.00 96,889.00
- -------------------------------------------------------------------------------------------------------
1.03 163,000.00 1.02 2,000.00 0.20
1.05 158,400.00 1.05 - -
1.41 134,027.00 1.33 1,572.00 0.11 187,554.00 16,458.00
1.32 141,031.00 1.22 5,377.00 0.26 213,451.00 64,159.00
1.43 136,449.81 1.31 5,546.40 0.24 197,403.00 35,584.00
- -------------------------------------------------------------------------------------------------------
1.30 131,437.00 1.23 4,292.00 0.25 180,609.00 62,799.00
1.19 109,196.40 1.16 873.60 0.10
2.42 171,830.48 2.22 4,101.15 0.15 241,236.00 78,516.00
2.09 139,614.30 1.89 4,772.40 0.24 217,878.00 76,841.00
1.67 1,805,641.98 1.53 157,477.44 1,093.59 3,346,141.00 1,319,288.00
- -------------------------------------------------------------------------------------------------------
1.73 1,614,664.50 1.54 201,245.46 1,649.55 3,984,338.00 1,961,206.00
1.70 887,886.00 1.52 104,751.00 988.22 2,217,769.00 1,213,154.00
1.49 666,742.00 1.30 95,419.00 671.96
1.70 610,380.00 1.58 47,745.00 568.39 1,271,252.00 549,256.00
1.95 710,381.00 1.79 64,496.00 560.83 1,690,354.00 625,888.00
- -------------------------------------------------------------------------------------------------------
1.70 538,885.00 1.53 60,432.00 570.11 1,247,244.00 625,032.00
2.09 676,351.00 1.84 92,507.00 764.52 2,338,553.00 1,492,013.00
1.98 642,689.00 1.82 59,002.00 797.32 1,502,900.00 604,406.00
1.65 439,666.21 1.38 87,092.91 4,838.50 1,288,227.00 698,264.00
1.71 539,008.44 1.58 42,345.74 427.73 1,078,833.60 384,917.60
- -------------------------------------------------------------------------------------------------------
1.96 418,250.00 1.80 38,367.00 290.66 776,590.00 292,863.00
1.69 342,179.50 1.48 48,584.00 441.67 1,181,456.40 771,516.00
1.56 216,406.00 1.40 24,259.00 391.27 866,723.00 495,543.00
2.88 375,588.00 2.62 37,016.00 462.70 788,201.00 349,097.00
1.63 228,925.00 1.46 27,880.00 546.67 596,908.00 250,502.00
- -------------------------------------------------------------------------------------------------------
2.22 231,404.00 1.46 120,981.00 1,234.50 3,024,521.00 2,671,750.00
1.57 429,812.00 1.38 23,750.00 0.10 378,753.00 31,019.00
1.47 568,894.00 1.38 7,138.00 0.10 770,341.00 63,826.00
1.79 411,473.00 1.54 26,376.00 0.20
1.48 353,054.50 1.33 10,581.00 0.15 479,567.00 54,369.00
- -------------------------------------------------------------------------------------------------------
1.49 295,092.76 1.31 16,500.00 0.19 420,494.00 72,481.00
1.45 268,442.00 1.32 8,160.00 0.15 322,301.00 22,386.00
1.24 285,181.00 1.17 5,617.00 0.15 - 326,859.00
1.57 243,815.37 1.40 13,159.50 0.15 448,343.00 189,553.00
1.43 136,326.00 1.28 6,485.00 0.15 245,386.00 66,666.00
- -------------------------------------------------------------------------------------------------------
1.55 136,467.16 1.39 3,621.75 0.15
1.65 137,827.36 1.55 2,715.75 0.15
1.57 111,571.00 1.35 7,152.00 0.20
1.28 1,339,514.81 1.22 66,164.00 278.00 3,785,534.00 2,217,027.00
1.91 716,333.00 1.80 42,600.00 300.00 3,487,403.00 2,824,832.00
- -------------------------------------------------------------------------------------------------------
2.03 395,306.00 1.84 39,059.00 281.00 5,016,255.00 4,517,978.00
1.67 268,251.00 1.62 8,000.00 250.00 1,443,209.00 1,134,403.00
1.30 250,876.00 1.20 20,808.00 68.22 612,333.00 395,353.00
1.40 133,924.00 1.33 7,300.00 49.66 299,984.00 150,516.00
2.84 423,859.00 2.73 17,750.00 250.00 2,393,882.00 2,045,006.00
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1997 1997 1996 1996 1996 1996
NCF DSCR Revenues Expenses NCF DSCR Largest Tenant
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
21,002,046.00 1.35 32,093,142.00 10,890,623.00 21,202,519.00 1.36 Saatchi & Saatchi - 5-18th floor
4,227,290.00 1.05 4,000,000.00 - 4,000,000.00 0.99 Wellpoint Health Networks
1,730,175.00 0.88 4,886,596.00 2,358,229.00 2,378,367.00 1.21 International Business Machine
1,551,394.00 1.36 2,771,342.00 981,466.00 1,755,387.00 1.54 Mitsubishi Electric
(831,271.00) (0.76) - 747,594.00 (747,594.00) (0.68) WWF
- -----------------------------------------------------------------------------------------------------------------------------------
1,045,258.00 1.44 1,650,432.00 616,509.00 1,033,923.00 1.42 Technical Educational Research Ctr.
1,484,013.00 1.77 2,688,138.89 1,163,876.00 1,524,262.95 1.81 GSA- I.N.S.
893,532.00 1.63 932,745.00 164,503.00 740,142.00 1.35 MaxServ( Sears)
223,907.00 0.44 - Racal Datacom
551,605.00 1.36 1,302,550.00 633,890.00 668,660.00 1.65 MCV Pediatrics
- -----------------------------------------------------------------------------------------------------------------------------------
278,372.00 0.83 578,337.00 160,877.00 417,460.00 1.25 Murphy's Law, Inc.
194,470.00 0.81 502,735.00 223,361.00 207,370.00 0.86 Allstate Claims Office
346,821.00 1.70 579,633.00 257,654.00 321,979.00 1.58 Edlund MulCrone, Inc.
419,421.00 2.00 623,655.00 329,240.00 294,415.00 1.40 Applied Training
226,569.00 1.18 687,586.00 475,454.00 212,132.00 1.10 Gibson Musical Instruments
- -----------------------------------------------------------------------------------------------------------------------------------
- Counselor Reatly
173,853.00 1.06 189,165.00 61,351.00 127,814.00 0.78 Save a Lot Supermarket
177,895.00 1.24 232,667.00 87,098.00 145,569.00 1.02 Carpentier-Vet
193,167.00 1.42 339,182.00 115,519.00 223,663.00 1.65 Alex Plastic Surgery
228,590.00 1.39 266,990.00 98,597.00 167,615.00 1.02 GSA-FBI
- -----------------------------------------------------------------------------------------------------------------------------------
258,839.00 2.10 418,593.00 214,885.00 198,701.00 1.62 Coldwell Banker-Everitt
59,036.00 0.52 264,639.00 106,564.00 (62,367.00) (0.55) Rescue Rooter
181,191.00 1.60 239,784.00 51,134.00 188,650.00 1.66 Harmony Medical Center
160,077.00 1.58 172,315.00 70,515.00 101,800.00 1.00 Partners Healthcare
29,549.00 0.35 507,375.00 243,452.00 252,106.00 3.01 Pacificare Secure Horizons
- -----------------------------------------------------------------------------------------------------------------------------------
168,130.00 2.19 214,985.00 56,265.00 125,717.00 1.64 Secor
104,326.00 1.88 150,692.00 47,593.00 103,099.00 1.86 Coldwell Banker Everit
104,311.00 1.95 129,979.00 40,671.00 89,308.00 1.67 Institute of Medical & Business
- Plaza Properties, Inc.
15,264,638.00 1.82 37,874,540.00 22,610,716.00 14,216,863.00 1.70 Other
- -----------------------------------------------------------------------------------------------------------------------------------
364,884.00 1.57 466,129.00 109,817.00 356,312.00 1.53 UVA Health
220,521.00 1.20 301,301.00 84,272.00 182,231.00 0.99
262,539.00 2.01 445,189.00 201,525.00 243,664.00 1.86 MCI
153,138.00 1.59 309,626.00 181,714.00 127,912.00 1.33 River Enterprises
-
- -----------------------------------------------------------------------------------------------------------------------------------
914,180.00 0.60 674,034.00 470,963.00 203,071.00 0.13
1,665,329.00 1.42 2,707,326.17 1,186,750.00 1,520,576.58 1.29
1,451,723.00 1.48 2,721,502.00 1,133,591.00 1,377,240.00 1.40
-
1,695,860.00 2.03 3,061,901.00 1,401,808.00 1,439,651.00 1.73
- -----------------------------------------------------------------------------------------------------------------------------------
1,367,689.00 1.69 -
954,726.00 1.21 1,447,579.00 494,955.00 952,624.00 1.21
880,639.00 1.24 1,259,952.00 367,619.00 892,333.00 1.25
985,821.00 1.51 1,503,720.00 538,169.00 965,551.00 1.48
311,651.00 0.49 82,824.00 33,140.00 49,684.00 0.08
- -----------------------------------------------------------------------------------------------------------------------------------
741,086.00 1.33 1,351,565.00 559,275.00 712,170.00 1.28
696,333.00 1.34 1,347,074.00 639,797.00 707,277.00 1.36
844,519.00 1.61 1,170,561.00 395,243.00 775,318.00 1.48
1,057,485.00 1.53 1,241,518.00 284,636.00 956,882.00 1.39
809,680.00 1.53 1,396,030.00 607,931.00 788,099.00 1.49
- -----------------------------------------------------------------------------------------------------------------------------------
575,241.00 1.38 1,116,666.00 524,119.00 587,418.00 1.41
631,580.00 1.68 819,782.00 198,407.00 621,375.00 1.65
752,168.00 1.96 1,028,817.00 630,028.00 398,789.00 1.04
507,846.00 1.38 1,103,119.00 678,932.00 424,187.00 1.15
486,166.00 1.72 827,711.00 405,594.00 422,117.00 1.49
- -----------------------------------------------------------------------------------------------------------------------------------
574,961.00 2.05 823,465.00 278,733.00 544,732.00 1.94
269,264.00 1.19 502,051.00 148,810.00 353,241.00 1.56
204,395.00 1.03 184,371.00 55,190.00 129,181.00 0.65
317,176.00 1.66 598,467.50 298,540.00 293,597.50 1.53
314,149.00 1.63 202,484.00 35,529.00 166,955.00 0.86
- -----------------------------------------------------------------------------------------------------------------------------------
297,387.00 1.55 478,245.00 193,009.00 285,236.00 1.49
194,515.00 1.32 415,013.00 193,352.00 221,661.00 1.50
215,553.00 1.40 507,393.00 300,303.00 207,090.00 1.35
162,593.00 1.17 266,888.00 128,513.00 138,375.00 1.00
157,035.00 1.18 444,352.00 213,522.00 207,197.00 1.55
- -----------------------------------------------------------------------------------------------------------------------------------
230,731.20 1.98 324,320.00 127,835.00 196,485.00 1.69
174,437.00 1.53 252,249.00 91,579.00 160,670.00 1.41
162,875.00 1.73 1,255,000.00 28,757.00 1,226,243.00 13.01
90,991.00 1.17 236,159.00 100,514.17 135,644.83 1.75
117,990.00 1.44 205,403.00 93,654.00 109,403.00 1.33
- -----------------------------------------------------------------------------------------------------------------------------------
2,646,225.00 1.12 2,298,411.00 863,646.00 1,434,765.00 0.61 Act III Inner Loop Theaters
2,093,776.00 1.35 4,085,842.00 1,792,830.00 2,229,249.00 1.44 K-Mart
1,646,700.00 1.51 1,995,322.00 430,125.00 1,565,197.00 1.43 Publix Super Markets, Inc.
1,687,489.20 1.49 2,376,161.00 610,116.00 1,766,045.00 1.56 Price/Costco
1,246,859.00 1.22 1,381,372.00 14,663.00 1,366,709.00 1.34 K-Mart
- -----------------------------------------------------------------------------------------------------------------------------------
995,607.00 1.40 1,799,749.85 845,458.00 954,292.00 1.34
611,518.00 1.57 813,366.00 193,632.00 619,734.00 1.59 K-Mart
426,350.00 1.37 551,169.00 127,472.00 417,772.00 1.34 Pier 1 Imports
269,357.00 1.21 475,126.00 138,275.00 336,851.00 1.51 Ames Dept Stores
- Food lion
- -----------------------------------------------------------------------------------------------------------------------------------
446,514.00 3.06 569,201.00 128,981.00 440,220.00 3.02 Sears
319,375.00 2.67 419,540.00 121,074.00 298,466.00 2.49 Odd Lots
150,295.00 1.75 201,981.00 61,682.00 140,299.00 1.63 Big Bear
363,710.00 81,563.00 282,147.00 3.19 Kroger
1,742,643.00 2.01 2,207,467.00 641,630.00 1,565,837.00 1.81 Tops Appliance
- -----------------------------------------------------------------------------------------------------------------------------------
1,045,518.00 1.52 1,295,885.00 368,981.00 790,949.00 1.15 Shooters Cafe
735,982.00 1.49 1,391,548.00 506,922.00 884,626.00 1.79 Manard's
740,629.00 1.65 1,007,620.00 206,180.00 801,440.00 1.79 Manila Seafood
646,063.00 1.68 770,075.00 244,150.00 525,925.00 1.37 Hilton Furniture
666,104.00 1.66 1,037,404.00 366,653.00 652,395.00 1.63 Solo Serve
- -----------------------------------------------------------------------------------------------------------------------------------
510,801.00 1.39 676,910.00 192,030.00 484,880.00 1.32 Austrailian Body Work
608,108.00 1.80 842,259.00 204,026.00 638,233.00 1.89 State Farm
297,361.00 1.05 427,177.00 137,704.00 289,473.00 1.02 Shur Fine
271,809.00 1.15 376,476.00 84,760.00 291,716.00 1.23 MAB Paints
260,985.00 1.08 447,819.00 241,220.00 198,644.00 0.82 Coldwell Banker/Schlott
- -----------------------------------------------------------------------------------------------------------------------------------
- - - - - - Mammoth Entertainment, Inc.
301,476.00 1.33 372,942.00 89,738.00 279,387.00 1.24 West Coast Video
316,142.00 1.40 415,466.00 133,427.00 282,039.00 1.25 Blockbuster Video
288,264.00 1.55 346,942.00 82,073.00 182,361.00 0.98 Napa Auto Parts
- 99 Cents Only Store
- -----------------------------------------------------------------------------------------------------------------------------------
273,114.00 1.71 - Showcase Furniture
244,862.00 1.42 268,916.00 61,020.00 (22,324.00) (0.13) Barnes & Noble Bookstore
223,590.18 1.41 338,666.92 86,735.60 156,238.32 0.99 La-z-Boy Showcase Shoppes
257,972.00 1.54 337,843.00 124,210.00 210,261.00 1.25 Block's Bagel
218,711.00 1.53 266,387.00 100,419.00 125,874.00 0.88 Satellite Super Store
- -----------------------------------------------------------------------------------------------------------------------------------
- CVS Drugstore
- CVS
171,096.00 1.70 181,685.00 18,216.00 163,469.00 1.63 Family Bargain Center
149,292.00 1.30 192,789.00 60,902.00 97,405.00 0.85 Hammonds Bar & Grill
142,318.00 1.37 151,186.00 48,579.00 102,607.00 0.99 Cloth World
- -----------------------------------------------------------------------------------------------------------------------------------
117,810.00 1.10 210,213.00 56,700.00 153,513.00 1.44 Blockbuster Video
- Texoma Video, Ltd (d/b/a Blockbuster)
153,207.00 1.98 224,711.00 68,838.00 155,723.00 2.01 Occucenters
96,630.00 1.30 202,786.00 69,178.00 107,789.00 1.46 Goodyear Tire Company
2,026,853.00 1.72 -
- -----------------------------------------------------------------------------------------------------------------------------------
2,007,665.00 1.92 3,659,290.00 1,796,056.00 1,847,766.00 1.76
1,004,615.00 1.73 850,510.00 500,736.00 349,774.00 0.60
1,541,857.00 631,428.00 910,429.00 1.78
721,996.00 1.87 -
1,064,466.00 2.68 1,533,561.00 601,404.00 932,157.00 2.35
- -----------------------------------------------------------------------------------------------------------------------------------
622,212.00 1.76 1,117,678.00 575,849.00 541,829.00 1.54
846,540.00 2.30 2,385,619.00 1,517,969.00 867,650.00 2.36
898,494.00 2.54 1,499,573.00 659,543.00 840,030.00 2.37
396,881.00 1.24 1,159,620.00 608,221.00 477,667.00 1.50
693,916.00 2.04 1,019,311.00 418,692.00 600,619.00 1.76
- -----------------------------------------------------------------------------------------------------------------------------------
483,727.00 2.08 -
409,940.40 1.78 1,160,264.00 801,174.00 359,090.00 1.56
371,180.00 2.41 803,460.00 449,709.00 353,751.00 2.29
439,104.00 3.07 807,273.00 308,348.00 477,925.00 3.34
346,406.00 2.20 634,791.00 228,488.00 406,303.00 2.58
- -----------------------------------------------------------------------------------------------------------------------------------
352,771.00 2.22 3,089,138.00 2,703,067.00 386,071.00 2.43
347,753.00 1.12 528,240.00 75,159.00 453,081.00 1.46 Standard Corporation
706,515.00 1.72 819,504.00 69,510.00 749,994.00 1.83
- IPBMC
280,176.00 1.05 455,167.00 52,354.00 397,989.00 1.50 Sony Trans Com. Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
348,014.00 1.54 391,711.00 81,466.00 310,245.00 1.37 Solid State Stamping, Inc.
299,915.00 1.47 310,187.00 22,212.00 287,975.00 1.42 Ikon Office Solutions, Inc.
(326,859.00) (1.35) - 286,447.00 (286,447.00) (1.18) WWF
256,125.00 1.47 413,246.00 178,490.00 229,174.00 1.32 Universal Fire Sys.
176,456.00 1.66 195,933.00 84,710.00 111,223.00 1.04 Greenleaf Herb
- -----------------------------------------------------------------------------------------------------------------------------------
- Clintas Sales Corporation
- Ushiro America
- IPBMC
1,058,475.00 0.97 3,270,858.00 2,156,036.00 996,485.00 0.91
619,971.00 1.56 2,955,214.00 2,406,630.00 505,984.00 1.27
- -----------------------------------------------------------------------------------------------------------------------------------
498,277.00 2.32 -
308,806.00 1.87 1,450,020.00 1,112,094.00 337,926.00 2.04
216,980.00 1.04 355,456.00 248,574.00 106,882.00 0.51
149,468.00 1.49 302,047.00 161,855.00 140,192.00 1.39
348,876.00 2.25 2,153,245.00 1,630,449.00 522,796.00 3.37
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Largest Largest Largest Second Largest Second Largest Second Largest
Tenant Tenant % of Tenant Tenant Tenant % of Tenant
Leased SF Total NSF Lease Expiration Second Largest Tenant Leased SF Total NSF Lease Expiration
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
769,768.00 79 01/31/13 Penguin Books 146,433 15 02/28/10
427,100.00 100 12/31/19
50,741.00 20 12/31/03 Banco Bilbao Vizcaya 43,848 17 12/31/98
28,862.00 24 02/28/06 DE Shaw & Co., LP 25,402 21 04/30/00
92,904.00 100 12/31/12
- -----------------------------------------------------------------------------------------------------------------------------------
29,022.00 26 12/31/98 Industrial Economics 21,163 19 08/31/03
42,703.00 32 05/31/02 Department of Pensions 18,729 14 12/31/01
54,000.00 47 10/31/03 FCA International 37,000 32 03/31/01
22,113.00 30 01/31/00 Freemont Investments 21,201 28 03/31/03
5,347.00 7 01/31/04 Va Association of Countries 5,299 6 04/30/02
- -----------------------------------------------------------------------------------------------------------------------------------
5,825.00 17 06/30/00 Coconut Grove Assoc., Inc. 1,911 6 06/30/98
14,554.00 35 02/28/01 Unity Home Health 12,132 29 11/30/02
12,200.00 39 12/31/98 Judith Nitsch Engineering 7,990 26 05/31/99
14,670.00 18 08/31/99 Wells Fargo 9,819 12 03/28/01
33,827.00 50 03/30/08 A+/Stat Homecare Inc. 10,408 15 07/10/02
- -----------------------------------------------------------------------------------------------------------------------------------
6,650.00 26 07/30/02 First Plus 3,500 14 08/31/00
15,260.00 24 11/30/01 Bailey's Gym Inc. 8,100 12 07/31/99
3,499.00 15 02/28/04 Associated Bank 2,346 10 10/31/01
2,801.00 14 01/01/05 Landmark Travel 2,364 12 07/31/99
8,711.00 26 11/30/00 GSA-FBI 8,466 25 11/30/00
- -----------------------------------------------------------------------------------------------------------------------------------
15,017.00 47 06/30/00 First State Bank of Ft. Collins 5,849 18 01/04/02
6,583.00 18 01/31/99 GYM 3,680 10 09/30/98
15,963.00 100 03/31/10
32,800.00 100 02/11/06
6,857.00 16 09/30/98 Transnation Title Ins. 5,755 13 11/30/99
- -----------------------------------------------------------------------------------------------------------------------------------
8,550.00 50 11/30/99 Farmer's Insuranc Exchange 4,979 29 05/31/01
3,650.00 43 12/31/03 Campbel Development, Inc.. 2,576 30 12/31/03
8,045.00 67 05/01/02 Terrscon 3,890 33 07/01/99
15,244.00 100 12/30/17
738,668.00 47 Target 370,880 23 10/01/13
- -----------------------------------------------------------------------------------------------------------------------------------
5,139.00 15 12/02/98 Blue Ridge Pharmacies 3,049 9 07/31/02
10,072.00 52 12/31/00 Brooks Fiber 9,275 48 06/30/04
6,655.00 28 05/31/98 Surf City 3,548 15 10/31/98
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
56,000.00 17 06/30/22 Homeplace Stores 53,000 16 08/31/11
86,479.00 19 10/31/18 Sears 84,434 19 10/31/08
42,112.00 25 09/27/09 Beall's Department Stores, Inc. 35,626 21 09/20/04
122,400.00 48 12/31/01 Staples, Inc. 28,800 11 12/31/98
192,929.00 100 10/31/18
- -----------------------------------------------------------------------------------------------------------------------------------
124,725.00 75 05/31/03 Everfast Industries 8,000 5 04/30/99
10,030.00 19 02/28/00 Blockbuster Video 6,690 12 04/30/00
70,000.00 56 04/30/09 Dave's Marketplace 25,000 20 06/30/04
29,000.00 82 10/31/17 Cowell's Cleaners 2,000 6 11/30/02
- -----------------------------------------------------------------------------------------------------------------------------------
60,000.00 47 10/01/04 Winn-Dixie Texas, Inc. 30,625 24 04/01/05
28,396.00 58 02/28/03 Eastgrove Cleaners 4,000 8 02/28/02
33,320.00 78 12/15/00 Rite Aid 8,400 20 11/30/06
31,155.00 54 01/02/00 Revco 11,172 19 01/31/02
60,000.00 40 04/30/99 Linens & Things 26,000 17 12/31/98
- -----------------------------------------------------------------------------------------------------------------------------------
15,000.00 13 10/01/07 CVS 8,400 7 10/31/03
119,851.00 62 04/30/08 Card & Party Marts, Inc. 16,150 8 08/31/17
5,680.00 12 07/31/98 Karihan Rest. 2,615 5 05/20/00
35,000.00 33 09/30/96 Dollar General 6,904 7 06/30/99
36,250.00 29 01/31/99 Santikos Theatre 14,520 12 03/31/03
- -----------------------------------------------------------------------------------------------------------------------------------
9,800.00 15 09/30/00 Amy's Clothesline 4,732 7 12/01/01
12,700.00 61 08/31/99 R&S Strauss 8,000 39 01/31/06
27,000.00 44 06/30/07 Park Town Fitness 6,520 11 07/30/02
4,000.00 16 06/30/02 Wasserotts 2,300 9 06/30/02
5,100.00 13 12/31/00 The Manalapan Pre-School 2,500 6 09/30/02
- -----------------------------------------------------------------------------------------------------------------------------------
5,743.00 22 12/15/07 Crittenton Corporation 3,500 13 01/01/08
5,400.00 16 07/31/99 Jenny Craig 3,600 11 08/31/98
7,320.00 17 08/31/99 CBS Personnel 5,700 13 12/31/00
7,200.00 18 06/30/04 Jack Johnston Bicyles Inc. 4,265 11 11/30/98
27,000.00 100 01/31/07
- -----------------------------------------------------------------------------------------------------------------------------------
6,120.00 26 05/01/00 Fit for Life 5,850 25 12/01/02
15,050.00 66 01/31/04 Kinko's 7,674 34 09/30/04
11,786.00 25 09/30/00 Patio Connection 5,000 10 06/30/99
4,500.00 13 02/28/00 Honey Baked Hams 4,500 13 08/31/99
2,126.00 11 09/30/99 Clinica Popular 1,800 10 04/30/98
- -----------------------------------------------------------------------------------------------------------------------------------
10,000.00 100
9,734.00 100 01/31/13
10,478.00 75 01/31/04
4,224.00 20 11/30/99 B&A Paint Company, Inc. 4,000 19 12/31/97
12,500.00 54 04/30/02 Al's Formal Wear 3,205 14 01/30/05
- -----------------------------------------------------------------------------------------------------------------------------------
5,669.00 33 02/28/00 Casual Male 2,700 16 12/31/01
6,580.00 74 12/31/12
5,649.00 21 01/14/01 Cycle Spectrum 3,008 11 12/31/00
4,560.00 23 04/30/01 Gun's Etc. 2,100 11
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
237,500.00 100 10/31/07
131,882.00 100 01/31/13
39,424.00 56 01/31/00 Maruchan, Inc. 16,128 23 12/31/98
- -----------------------------------------------------------------------------------------------------------------------------------
43,611.00 50 04/30/05 Tamura Corporation of America 43,171 50 07/31/02
54,406.00 100 10/31/02
37,449.00 100 12/31/12
2,200.00 3 09/30/97 Commercial Metal 2,000 2 02/28/98
2,640.00 6 07/01/98 MariLou's Child 2,640 6 12/31/97
- -----------------------------------------------------------------------------------------------------------------------------------
24,145.00 100 03/31/03
18,105.00 100 09/30/02
35,760.00 100 01/31/13
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DEBT SERVICE COVERAGE RATIO
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AGGREGATE PERCENTAGE OF AVERAGE AVERAGE AVERAGE
RANGE OF MORTGAGE CUT-OFF DATE INITIAL POOL U/W CUT-OFF DATE MORTGAGE
U/W DSCR'S (X) LOANS BALANCE (a) BALANCE DSCR LTV RATIO RATE
-------------- ----- ----------- ------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C>
1.00 -- 1.09x (b) .......... 3.0 $ 53,976,461 5.3% 1.05x 77.02% 7.836%
1.10 -- 1.19 ............... 7.0 55,700,724 5.5 1.17 76.28 7.305
1.20 -- 1.29 ............... 38.0 236,679,764 23.4 1.25 75.43 7.396
1.30 -- 1.39 ............... 37.0 341,343,833 33.8 1.34 74.73 7.178
1.40 -- 1.49 ............... 22.0 69,056,545 6.8 1.45 73.58 7.342
1.50 -- 1.59 ............... 18.0 84,073,969 8.3 1.53 73.69 7.293
1.60 -- 1.69 ............... 5.0 17,392,142 1.7 1.62 62.15 7.273
1.70 -- 1.79 ............... 4.0 9,593,892 1.0 1.75 65.40 7.379
1.80 -- 1.89 ............... 8.0 135,553,356 13.4 1.86 56.29 6.871
2.00 -- 2.99 ............... 5.0 6,129,384 0.6 2.42 51.82 7.436
----- -------------- ----- ---- ----- -----
Total\Avg.\Wtd.Avg ......... 147.0 $1,009,500,069 100.0% 1.40x 72.02% 7.256%
===== ============== ===== ==== ===== =====
</TABLE>
- ----------
(a) Column total may not add up due to rounding.
(b) All three of these loans are NNN leases to investment grade tenants.
<TABLE>
<CAPTION>
CUT-OFF DATE LOAN TO VALUE RATIO (b)
WEIGHTED WEIGHTED WEIGHTED
RANGE OF NUMBER OF AGGREGATE PERCENTAGE OF AVERAGE AVERAGE AVERAGE
CUT-OFF DATE MORTGAGE CUT-OFF DATE INITIAL POOL U/W CUT-OFF DATE MORTGAGE
LOAN-TO-VALUE RATIOS (%) LOANS BALANCE (a) BALANCE DSCR LTV RATIO RATE
------------------------ ----- ----------- ------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C>
25.0% - 49.9% ............... 4.0 $ 4,858,089 0.5% 1.73x 42.44% 7.862%
50.0% - 59.9% ............... 15.0 152,692,860 15.1 1.78 54.94 6.911
60.0% - 64.9% ............... 10.0 46,368,894 4.6 1.55 62.22 7.454
65.0% - 69.9% ............... 20.0 75,969,659 7.5 1.39 68.05 7.474
70.0% - 74.9% ............... 46.0 205,183,595 20.3 1.38 73.17 7.475
75.0% - 79.9% ............... 35.0 433,758,385 43.0 1.29 77.31 7.206
80.0% - 91.0% ............... 17.0 90,668,589 9.0 1.27 82.79 7.262
----- -------------- ----- ---- ----- -----
Total\Avg.\Wtd.Avg. ......... 147.0 $1,009,500,069 100.0% 1.40x 72.02% 7.256%
===== ============== ===== ==== ===== =====
</TABLE>
- ----------
(a) Column total may not add up due to rounding.
(b) Ratio of Cut-off Date Balance over Appraisal Value at Origination.
<TABLE>
<CAPTION>
PROPERTY TYPE DISTRIBUTION BY CUT-OFF DATE BALANCE
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
NUMBER OF AGGREGATE PERCENTAGE AVERAGE AVERAGE CUT-OFF AVERAGE
MORTGAGE NUMBER OF CUT-OFF DATE OF INITIAL POOL CUT-OFF DATE U/W DATE MORTGAGE
PROPERTY TYPE LOANS PROPERTIES BALANCE (a) BALANCE BALANCE DSCR LTV RATIO RATE
------------- ----- ---------- ----------- ------- ------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Office .................. 28.5 29.0 $ 346,778,351 34.4% $11,957,874 1.29x 73.67% 7.295%
Multifamily ............. 35.0 36.0 225,652,619 22.4 6,268,128 1.33 77.87 7.117
Mixed Use(b) ............ 5.0 5.0 115,888,843 11.5 23,177,769 1.83 55.21 6.747
Anchored Retail ......... 14.0 14.0 108,233,791 10.7 7,730,985 1.31 73.52 7.464
Unanchored Retail ....... 30.0 30.0 84,566,463 8.4 2,818,882 1.41 71.71 7.430
Hotel ................... 17.0 17.0 75,152,706 7.4 4,420,747 1.58 70.80 7.632
Industrial .............. 10.5 12.0 26,657,201 2.6 2,221,433 1.37 70.10 7.539
Health Care ............. 4.0 4.0 21,359,624 2.1 5,339,906 1.44 75.16 7.345
Mobile Home Park ........ 2.0 2.0 3,664,797 0.4 1,832,398 1.24 72.87 7.539
Nursing Home ............ 1.0 1.0 1,545,676 0.2 1,545,676 2.73 64.40 7.850
----- ----- -------------- ----- ----------- ---- ----- -----
Total\Avg.\Wtd.Avg ...... 147.0 150.0 $1,009,500,069 100.0% $ 6,867,347 1.40x 72.02% 7.256%
===== ===== ============== ===== =========== ==== ===== =====
</TABLE>
- ----------
(a) Column total may not add up due to rounding.
(b) Mixed use includes the $108mm Minneapolis City Center Loan which
represents 10.70% of the pool.
A-9
<PAGE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION BY CUT-OFF DATE BALANCE
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
NUMBER OF AGGREGATE PERCENTAGE OF AVERAGE CUT-OFF AVERAGE
MORTGAGE NUMBER OF CUT-OFF DATE INITIAL POOL U/W DATE MORTGAGE
PROPERTY STATE LOANS PROPERTIES BALANCE (a) BALANCE DSCR LTV RATIO RATE
- -------------- ----- ---------- ----------- ------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
New York ................... 4.0 4.0 $ 193,314,919 19.1% 1.35x 76.6% 7.054%
California ................. 18.0 18.0 117,000,181 11.6 1.22 72.8 7.697
Minnesota .................. 3.0 3.0 112,171,329 11.1 1.85 54.5 6.766
Georgia .................... 8.0 8.0 64,739,628 6.4 1.41 75.6 7.284
Illinois ................... 7.0 7.0 63,550,246 6.3 1.27 78.8 7.187
Texas ...................... 11.0 11.0 53,801,343 5.3 1.36 72.5 7.498
Florida .................... 8.0 8.0 33,032,694 3.3 1.37 75.1 7.347
Ohio ....................... 13.5 15.0 31,877,517 3.2 1.30 75.9 7.561
Massachusetts .............. 5.0 5.0 29,082,454 2.9 1.36 61.5 7.216
Michigan ................... 7.0 7.0 24,793,738 2.5 1.45 76.2 7.266
Colorado ................... 9.0 9.0 24,615,859 2.4 1.46 74.5 7.060
New Hampshire .............. 2.5 3.0 24,513,594 2.4 1.35 77.9 7.003
Puerto Rico ................ 1.0 1.0 23,465,010 2.3 1.29 69.2 7.500
Virginia ................... 6.0 6.0 17,722,679 1.8 1.59 69.9 7.542
Maine ...................... 1.0 1.0 17,350,000 1.7 1.25 75.4 7.560
Arizona .................... 4.0 4.0 16,279,664 1.6 1.34 76.4 7.182
Alabama .................... 4.0 4.0 16,278,875 1.6 1.28 73.1 7.383
Wisconsin .................. 5.0 5.0 14,183,100 1.4 1.42 63.7 7.773
Washington ................. 2.0 2.0 13,655,602 1.4 1.27 76.9 6.773
Connecticut ................ 2.0 3.0 13,469,532 1.3 1.22 71.7 7.517
New Jersey ................. 2.0 2.0 12,668,105 1.3 1.54 61.8 7.303
Pennsylvania ............... 4.0 4.0 12,207,278 1.2 1.38 80.0 7.305
Alaska ..................... 2.0 2.0 11,572,596 1.1 1.82 64.0 6.810
Nebraska ................... 1.0 1.0 10,546,188 1.0 1.33 70.3 7.440
Oregon ..................... 1.0 1.0 9,786,133 1.0 1.49 89.0 7.100
Hawaii ..................... 1.0 1.0 7,797,838 0.8 1.15 70.9 7.780
Kansas ..................... 1.0 1.0 7,667,610 0.8 1.28 76.7 7.390
North Carolina ............. 3.0 3.0 6,103,214 0.6 1.50 67.6 7.330
Tennessee .................. 2.0 2.0 6,044,122 0.6 1.18 76.6 7.326
South Carolina ............. 2.0 2.0 5,183,304 0.5 1.52 67.5 7.639
Iowa ....................... 1.0 1.0 4,170,410 0.4 1.25 79.4 8.400
Nevada ..................... 1.0 1.0 2,744,696 0.3 1.33 74.2 7.290
Rhode Island ............... 1.0 1.0 2,696,391 0.3 1.32 79.9 7.330
Indiana .................... 1.0 1.0 1,644,770 0.2 2.62 53.9 7.260
Maryland ................... 1.0 1.0 1,446,609 0.1 1.02 90.4 7.170
Missouri ................... 1.0 1.0 1,169,426 0.1 1.33 69.4 7.750
Idaho ...................... 1.0 1.0 1,153,413 0.1 1.47 72.1 7.220
----- ----- -------------- ----- ---- ----- -----
Total\Avg.\Wtd.Avg ......... 147.0 150.0 $1,009,500,069 100.0% 1.40x 72.02% 7.256%
===== ===== ============== ===== ==== ===== =====
</TABLE>
- ----------
(a) Column total may not add up due to rounding.
A-10
<PAGE>
<TABLE>
<CAPTION>
CURRENT MORTGAGE RATES
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AGGREGATE PERCENTAGE OF AVERAGE AVERAGE AVERAGE
MORTGAGE CUT-OFF DATE INITIAL POOL U/W CUT-OFF DATE MORTGAGE
RANGE OF MORTGAGE RATES (%) LOANS BALANCE (a) BALANCE DSCR LTV RATIO RATE
- --------------------------- ----- ----------- ------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C>
0.00% - 6.99% ............... 10.0 $ 175,539,438 17.4% 1.69x 61.90% 6.763%
7.00% - 7.49% ............... 78.0 527,517,508 52.3 1.37 75.08 7.159
7.50% - 7.99% ............... 52.0 281,961,293 27.9 1.28 73.25 7.650
8.00% - 8.49% ............... 4.0 17,042,052 1.7 1.33 66.76 8.157
8.50% - 8.99% ............... 2.0 5,871,886 0.6 1.71 62.20 8.707
9.00% - 9.49 ................ 1.0 1,567,893 0.2 1.46 44.54 9.020
----- -------------- ----- ---- ----- -----
Total\Avg.\Wtd.Avg .......... 147.0 $1,009,500,069 100.0% 1.40x 72.02% 7.256%
===== ============== ===== ==== ===== =====
</TABLE>
- ----------
(a) Column total may not add up due to rounding.
<TABLE>
<CAPTION>
DISTRIBUTION OF CUT-OFF DATE BALANCE
PERCENTAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE OF INITIAL WEIGHTED AVERAGE AVERAGE
RANGE OF CUT-OFF DATE MORTGAGE NUMBER OF CUT-OFF DATE POOL AVERAGE U/W CUT--OFF DATE MORTGAGE
BALANCE ($) LOANS PROPERTIES BALANCE (a) BALANCE DSCR LTV RATE
----------- ----- ---------- ----------- ------- ---- --- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 - $ 999,999......... 10.0 10 $ 8,027,147 0.8% 1.61x 59.86% 7.266%
$ 1,000,000 - $ 2,499,999......... 61.0 61 105,986,864 10.5 1.42 71.67 7.459
$ 2,500,000 - $ 4,999,999......... 34.0 35 122,993,564 12.2 1.46 72.24 7.527
$ 5,000,000 - $ 7,499,999......... 13.0 14 80,825,330 8.0 1.33 74.62 7.369
$ 7,500,000 - $ 9,999,999......... 10.0 10 89,815,855 8.9 1.39 71.48 7.286
$10,000,000 - $ 14,999,999......... 11.0 12 140,495,666 13.9 1.36 74.05 7.172
$15,000,000 - $182,091,684......... 8.0 8 461,355,644 45.7 1.41 71.28 7.137
----- -- -------------- ----- ---- ----- -----
Total\Avg.\Wtd.Avg. ............... 147.0 150 $1,009,500,069 100.0% 1.40x 72.02% 7.256%
===== === ============== ===== ==== ===== =====
</TABLE>
- ----------
(a) Column total may not add up due to rounding.
<TABLE>
<CAPTION>
YEAR OF ORIGINATION
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
NUMBER OF AGGREGATE PERCENTAGE OF AVERAGE CUT-OFF AVERAGE
MORTGAGE CUT-OFF DATE INITIAL POOL U/W DATE MORTGAGE
YEAR OF ORIGINATION LOANS BALANCE (a) BALANCE DSCR LTV RATIO RATE
------------------- ----- ----------- ------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C>
1997 ....................... 24.0 $ 235,313,455 23.3% 1.23x 74.97% 7.576%
1998 ....................... 123.0 774,186,615 76.7 1.46 71.12 7.159
----- -------------- ----- ---- ----- -----
Total\Avg.\Wtd.Avg ......... 147.0 $1,009,500,069 100.0% 1.40x 72.02% 7.256%
===== ============== ===== ==== ===== =====
</TABLE>
- ----------
(a) Column total may not add up due to rounding.
A-11
<PAGE>
<TABLE>
<CAPTION>
REMAINING TERM TO MATURITY (IN MONTHS) (b)
RANGE OF WEIGHTED WEIGHTED WEIGHTED
REMAINING NUMBER OF AGGREGATE PERCENTAGE OF AVERAGE AVERAGE AVERAGE
TERM TO MATURITY MORTGAGE CUT-OFF DATE INITIAL POOL U/W CUT-OFF DATE MORTGAGE
(MOS.) LOANS BALANCE (a) BALANCE DSCR LTV RATIO RATE
------ ----- ----------- ------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C>
60 -- 83 .................. 4.0 $ 16,117,747 1.6% 1.25x 76.8% 7.188%
84 -- 119 ................. 107.0 678,761,637 67.2 1.38 74.3 7.217
120 -- 360 ................. 36.0 314,620,686 31.2 1.47 66.9 7.343
----- -------------- ----- ---- ----- -----
Total\Avg.\Wtd.Avg ......... 147.0 $1,009,500,069 100.0% 1.40x 72.02% 7.256%
===== ============== ===== ==== ===== =====
</TABLE>
- ----------
(a) Column total may not add up due to rounding.
(b) "Maturity" means the stated maturity date or, with respect to any
Hyper-Amortization Loan, its Anticipated Repayment Date.
<TABLE>
<CAPTION>
REMAINING AMORTIZATION TERM (IN MONTHS)
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AGGREGATE PERCENTAGE OF AVERAGE AVERAGE AVERAGE
MORTGAGE CUT-OFF DATE INITIAL POOL U/W CUT-OFF DATE MORTGAGE
RANGE OF AMORTIZATION TERMS (MOS.) LOANS BALANCE (a) BALANCE DSCR LTV RATIO RATE
- ---------------------------------- ----- ----------- ------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C>
0 -- 179 ............................ 6.0 $ 20,398,856 2.0% 1.27x 68.41% 7.595%
180 -- 239 ............................ 25.0 125,698,337 12.5 1.25 73.66 7.653
240 -- 275 ............................ 1.0 1,644,430 0.2 1.46 69.98 8.010
276 -- 299 ............................ 48.0 354,983,652 35.2 1.42 73.41 7.240
300 -- 360 ............................ 67.0 506,774,794 50.2 1.44 70.79 7.152
----- -------------- ----- ---- ----- -----
Total\Avg.\Wtd.Avg .................... 147.0 $1,009,500,069 100.0% 1.40x 72.02% 7.256%
===== ============== ===== ==== ===== =====
</TABLE>
- ----------
(a) Column total may not add up due to rounding.
A-12
<PAGE>
<TABLE>
<CAPTION>
AMORTIZATION CHARACTERISTICS
WEIGHTED WEIGHTED WEIGHTED
NUMBER AGGREGATE PERCENTAGE OF AVERAGE AVERAGE AVERAGE
OF MORTGAGE CUT-OFF DATE INITIAL POOL U/W CUT-OFF DATE MORTGAGE
BALLOON TYPE LOANS BALANCE (a) BALANCE DSCR LTV RATIO RATE
- ------------ ----- ----------- ------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Balloon ..................... 122.0 $ 595,829,874 59.02% 1.37x 73.44% 7.337%
Fully Amortizing ............ 23.0 123,578,512 12.24 1.22 73.82 7.668
ARD ......................... 2.0 290,091,683 28.74 1.54 68.33 6.915
----- -------------- ------ ---- ----- -----
Total\Avg.\Wtd.Avg. ......... 147.0 $1,009,500,069 100.00% 1.40x 72.02% 7.256%
===== ============== ====== ==== ===== =====
</TABLE>
- ---------
(a) Column total may not add up due to rounding.
<TABLE>
<CAPTION>
LOAN PREPAYMENT TABLE
NUMBER AGGREGATE PERCENTAGE WTD. AVG. WTD. AVG.
OF MORTGAGE CUT-OFF DATE OF INITIAL WTD. AVG. CUT-OFF DATE MORTGAGE
RESTRICTION AT ORIGINATION LOANS BALANCE (MM) POOL BALANCE U/W DSCR LTV RATIO RATE
-------------------------- ----- ------------ ------------ -------- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Lockout/YM ...................................... 112.0 $ 498.80 49.41% 1.37x 74.15% 7.320%
Lockout/ (greater than) of YM or 1% ............ 21.0 108.73 10.77 1.41 70.55 7.397
Lockout/YM/Declining Fee ........................ 1.0 3.89 0.38 1.14 78.51 7.190
Lockout/Declining Fee ........................... 3.0 7.58 0.75 1.43 75.05 7.465
Lockout/Defeasance .............................. 2.0 187.49 18.57 1.35 76.78 7.041
Lockout/ (greater than) of YM or 2% ............ 2.0 74.67 7.40 1.13 74.16 7.747
YM/Declining Fee ................................ 2.0 3.64 0.36 1.23 74.37 7.525
(greater than) of YM or 1% ..................... 1.0 4.17 0.41 1.25 79.44 8.400
Lockout/ (greater than) of YM or 1% Declining .. 1.0 3.59 0.36 1.38 73.29 7.210
Lockout/Declining Fee (but
Defeasable) .................................... 1.0 8.93 0.88 1.22 60.57 8.090
(greater than) of YM or 5%/ (greater than)
of YM or 2% .................................. 1.0 108.00 10.70 1.86 54.00 6.720
----- ---------- ------ ---- ----- -----
Total\Avg.\Wtd.Avg .............................. 147.0 $ 1,009.50 100.00% 1.40x 72.02% 7.256%
===== ========== ====== ==== ===== =====
</TABLE>
<TABLE>
<CAPTION>
PREPAYMENT RESTRICTION ANALYSIS (a)(b)
PREPAYMENT JUNE JUNE JUNE JUNE JUNE JUNE JUNE JUNE JUNE JUNE
RESTRICTION CURRENT 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
----------- ------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lock-out (c) ......... 88.50% 87.50% 84.20% 84.00% 44.20% 37.40% 28.80% 26.80% 22.20% 21.70% 0.00%
Yield Maintenance .... 11.50 12.50 15.40 15.60 54.70 61.10 67.80 70.80 75.40 68.80 100.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Lock-out/YM 100.00% 100.00% 99.60% 99.60% 98.90% 98.50% 96.60% 97.70% 97.70% 90.50% 100.00%
====== ====== ===== ===== ===== ===== ===== ===== ===== ===== ======
5.00 - 5.99% ......... 0.00% 0.00% 0.30% 0.30% 0.70% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
4.00 - 4.99% ......... 0.00 0.00 0.10 0.00 0.30 1.00 0.00 0.00 0.00 0.00 0.00
3.00 - 3.99% ......... 0.00 0.00 0.00 0.10 0.00 0.00 1.90 0.50 0.00 0.00 0.00
2.00 - 2.99% ......... 0.00 0.00 0.00 0.00 0.10 0.00 0.00 1.80 0.50 0.00 0.00
1.00 - 1.99% ......... 0.00 0.00 0.00 0.00 0.00 0.50 0.10 0.00 1.80 1.30 0.00
0.01 - 0.99% ......... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
No Prepay Penalties 0.00 0.00 0.00 0.00 0.00 0.00 1.40 0.00 0.00 8.20 0.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total ................ 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Aggregate Mtg
Balance ............. $1,009.5 $996.8 $983.1 $967.9 $951.0 $931.7 $908.5 $868.6 $841.7 $812.8 $123.6
% of Aggregate
Cut-off Balance ..... 100.00% 98.70% 97.40% 95.90% 94.20% 92.30% 90.00% 86.00% 83.40% 80.50% 12.20%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
</TABLE>
- ---------
(a) Table calculated using modeling assumptions and assuming that all
Hyper-Amortization Loans are paid in full on their respective
anticipated repayments dates.
(b) Totals may not equal due to rounding.
(c) Includes defeasance.
A-13
<PAGE>
ANNEX B
<TABLE>
<CAPTION>
[STATE STREET LOGO]
MORTGAGE CAPITAL FUNDING, INC. W.A.C.
MULTIFAMILY/COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES W.A.M.
SERIES 1998-MC2 PAYMENT DATE
RECORD DATE
TRUSTEE'S REPORT TO CERTIFICATEHOLDERS
PAYMENT SUMMARY
- ----------------------------------------------------------------------------------------------------------------------------
Current
Pass-Through Interest Moody's/Fitch Original Beginning Principal Interest Total Ending
Class CUSIP Rate Type Rating Balance Balance Paid Paid Paid Balance
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
TOTALS:
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS PER CERTIFICATE
- ------------------------------------------------------------------------------------------
Beginning Principal Interest Ending
Class Certificate Factor Distribution Distribution Certificate Factor
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------
For additional information or with questions, please contact:
- -------------------------------------------------------------------------
STATE STREET CORPORATE TRUST
- -------------------------------------------------------------------------
Bond Analyst:
Account Officer:
Street Connection:(factor and rate by cusip) (617) 664-5500
To receive current or historical reports for this deal please use:
Website: http://CorporateTrust.StateStreet.com
Street Fax:Bondholder & Secondary Market Reports (617) 664-5600
- -------------------------------------------------------------------------
STATE STREET
Serving Institutional Investors Worldwide
- -------------------------------------------------------------------------------
This report has been prepared by or based on information furnished to State
Street Bank and Trust Company ("State Street") by one or more third parties
(e.g.,Servicer, Master Servicer, etc.). State Street shall not have and does
not undertake responsibility for the accuracy or completeness of information
provided by such third parties, and makes no representations or warranties with
respect to the accuracy or completeness thereof or the sufficiency thereof for
any particular purpose. State Street has not independently verified information
received from third parties, and shall have no liability for any inaccuracies
therein or caused thereby.
B-1
<PAGE>
<TABLE>
<CAPTION>
[STATE STREET LOGO]
MORTGAGE CAPITAL FUNDING, INC. W.A.C.
MULTIFAMILY/COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES W.A.M.
SERIES 1998-MC2 PAYMENT DATE
RECORD DATE
TRUSTEE'S REPORT TO CERTIFICATEHOLDERS
Principal Detail
- ----------------------------------------------------------------------------------------------------------------------------
Other Total
Principal Principal Realized Cumulative Cumulative
Beginning Scheduled Unscheduled Cash Distribution losses/ Appraisal Ending Realized Appraisal
Class Balance Principal Principal Adjustments Amount Balance Adj. Reduction Amt. Balance losses Reduction
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
TOTALS:
-----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INTEREST DETAIL
- --------------------------------------------------------------------------------------------------------------------------------
Accrued Beg. Prepayment Current Additional
Certificate Unpaid Int. Interest Trust Prepayment Additional Total Interest Cumulative Unpaid
Class Interest Interest Shortfall Shortfalls Fund Expenses Premiums Adjustments Distr. Amount Interest Shortfall
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
TOTALS:
------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-2
<PAGE>
<TABLE>
<CAPTION>
[STATE STREET LOGO]
MORTGAGE CAPITAL FUNDING, INC. W.A.C.
MULTIFAMILY/COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES W.A.M.
SERIES 1998-MC2 PAYMENT DATE
RECORD DATE
TRUSTEE'S REPORT TO CERTIFICATEHOLDERS
BOND CLASS RATING, SUBORDINATION LEVEL AND MATURITIES:
---------------------------------------------------------------------------------------------------------------
Ratings Original Current Last Original Current Orig. Class Maturity
Class As Of Date Rating Rating Rating Subordination Level Sub.Level at 0% CPR
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
DELINQUENCIES One Month Two Months Three+Months Foreclosures Total
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
# of Loans 0 0 0 0 0
-------------------------------------------------------------------------------------------------------
Ending APB $0.00 $0.00 $0.00 $0.00 $0.00
-------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TWELVE MONTH SUMMARY OF PREPAYMENTS AND PREPAYMENT PENALTIES:
-------------------------------------------------------------
MONTH/YEAR PREPAYMENTS PENALTIES
---------- ----------- ---------
<S> <C> <C>
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Current Cum.
APPRAISAL REDUCTIONS: Total Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loan # 0 0 0 0 0 0
--------------------------------------------------------------------------
Amount $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
--------------------------------------------------------------------------
</TABLE>
B-3
<PAGE>
<TABLE>
<CAPTION>
[STATE STREET LOGO]
MORTGAGE CAPITAL FUNDING, INC. W.A.C.
MULTIFAMILY/COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES W.A.M.
SERIES 1998-MC2 PAYMENT DATE
RECORD DATE
TRUSTEE'S REPORT TO CERTIFICATEHOLDERS
OTHER INFORMATION
============================================================================================================================
AVAILABLE DISTRIBUTION AMOUNT:
COLLATERAL INFORMATION: CLOSING BEG ENDING
COLL. BALANCE COLL. BALANCE COLL. BALANCE
------------- ------------- -------------
<S> <C> <C> <C>
LOAN COUNT
Aggregate amount of P&I Advances made during current period:
SERVICING FEES:
Aggregate Amount of servicing compensation paid to Master Servicer:
Aggregate Amount of servicing compensation paid to Trustee:
Additional Special Servicing Fee:
AGGREGATE AMOUNT OF:
Additional Trust Fund Expenses:
Mortgage Loans that have been paid in full:
Mortgage Loans that have been paid at their Maturity Date:
Prepayment Penalties paid on the Mortgage Loans:
============================================================================================================================
</TABLE>
B-4
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE CAPITAL FUNDING, INC. STATE STREET CORPORATE TRUST
MULTIFAMILY/COMMERCIAL MORTGAGE WEB: CORPORATETRUST.STATESTREET.COM
PASS-THROUGH CERTIFICATES PAYMENT DATE
SERIES 1998-MC2 REPORT #
DISTRIBUTION OF CURRENT SCHEDULED PRINCIPAL BALANCES
- --------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------
Current Weighted Averages
Scheduled # of Aggregate % Tot ---------------------------------
Principal Mtg Sched Prin Sched Mnths Mort
Balance Loans Balance Bal DSCR to Mat Rate
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
less than 1,000,000.00
1,000,000.00+
2,000,000.00+
3,000,000.00+
4,000,000.00+
5,000,000.00+
5,999,999.91+
7,000,000.00+
8,000,000.00+
9,000,000.00+
10,000,000.00+
15,000,000.00+
20,000,000.00+
- --------------------------------------------------------------------------------------------------------------
Total
- --------------------------------------------------------------------------------------------------------------
</TABLE>
DISTRIBUTION OF CURRENT MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------
Current Weighted Averages
Mortgage # of Aggregate % Tot ---------------------------------
Interest Mtg Sched Prin Sched Mnths Mort
Rate Loans Balance Bal DSCR to Mat Rate
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
less than 8.50%
8.50% +
8.75% +
9.00% +
9.25% +
9.50% +
9.75% +
10.00% +
10.25% +
- --------------------------------------------------------------------------------------------------------------
Total
- --------------------------------------------------------------------------------------------------------------
</TABLE>
DISTRIBUTION OF TOP TEN STATES BY BALANCE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Weighted Averages
Top # of Aggregate % Tot ---------------------------------
10 Mtg Sched Prin Sched Mnths Mort
States Loans Balance Bal DSCR to Mat Rate
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Texas
California
Florida
New York
New Jersey
Ohio
Pennsylvania
Oregon
Nevada
North Carolina
Other
- ----------------------------------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------------
</TABLE>
DISTRIBUTION OF PROPERTY TYPE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Weighted Averages
# of Aggregate % Tot ---------------------------------
Property Mtg Sched Prin Sched Mnths Mort
Types Loans Balance Bal DSCR to Mat Rate
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Multi-Family
Anchored Retail
Hospitality
Office
Industrial
Unanchored Retail
Health Care
Mobile Home Park
Mixed
- ----------------------------------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------------
</TABLE>
B-5
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE CAPITAL FUNDING, INC. STATE STREET CORPORATE TRUST
MULTIFAMILY/COMMERCIAL MORTGAGE WEB: CORPORATETRUST.STATESTREET.COM
PASS-THROUGH CERTIFICATES PAYMENT DATE
SERIES 1998-MC2 REPORT #
DISTRIBUTION OF REMAINING STATED TERM (BALLOON LOANS ONLY)
- ------------------------------------------------------------------------------------------
-------------------------------------------------------------------
Remaining Weighted Averages
Stated # of Aggregate % Tot --------------------------------
Term Mtg Sched Prin Sched Mnths Mort
(Months) Loans Balance Bal DSCR to Mat Rate
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
less than 60
60+
96+
132+
180+
240+
- -------------------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------------------
</TABLE>
DIST. OF REMAINING STATED TERM (FULLY AMORTIZING LOANS ONLY)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
-------------------------------------------------------------------
Remaining Weighted Averages
Stated # of Aggregate % Tot --------------------------------
Term Mtg Sched Prin Sched Mnths Mort
(Months) Loans Balance Bal DSCR to Mat Rate
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
less than 60
60+
96+
132+
180+
240+
- ------------------------------------------------------------------------------------------
Total
- ------------------------------------------------------------------------------------------
</TABLE>
DISTRIBUTION OF REMAINING STATED TERM (ALL LOANS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
-------------------------------------------------------------------
Remaining Weighted Averages
Stated # of Aggregate % Tot --------------------------------
Term Mtg Sched Prin Sched Mnths Mort
(Months) Loans Balance Bal DSCR to Mat Rate
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0+
60+
96+
132+
180+
240+
- ------------------------------------------------------------------------------------------
Total
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
DISTRIBUTION OF REMAINING AMORTIZATION TERM
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Weighted Averages
Original # of Aggregate % Tot ---------------------------------
Amortization Mtg Sched Prin Sched Mnths Mort
Term Loans Balance Bal DSCR to Mat Rate
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
less than 60
60+
120+
180+
240+
300+
360+
- -------------------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------------------
</TABLE>
DISTRIBUTION OF SEASONING
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Weighted Averages
# of Aggregate % Tot ---------------------------------
Seasoning Mtg Sched Prin Sched Mnths Mort
(months) Loans Balance Bal DSCR to Mat Rate
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
less than 13
13-24
25-36
37-48
49-60
61-120
121+
- ------------------------------------------------------------------------------------------------
Total
- ------------------------------------------------------------------------------------------------
</TABLE>
B-6
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE CAPITAL FUNDING, INC. STATE STREET CORPORATE TRUST
MULTIFAMILY/COMMERCIAL MORTGAGE WEB: CORPORATETRUST.STATESTREET.COM
PASS-THROUGH CERTIFICATES PAYMENT DATE
SERIES 1998-MC2 REPORT #
DISTRIBUTION OF ORIGINAL TERM TO STATED MATURITY
- -------------------------------------------------------------------------------------------
Weighted Averages
Original # of Aggregate % Tot ---------------------------------
Term to Mtg Sched Prin Sched Mnths Mort
Maturity Loans Balance Bal DSCR to Mat Rate
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0+
50+
100+
150+
200+
250+
300+
400+
- -------------------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------------------
</TABLE>
DISTRIBUTION OF LOAN TO VALUE RATIO
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Weighted Averages
Most # of Aggregate % Tot ---------------------------------
Recent Mtg Sched Prin Sched Mnths Mort
LTV Loans Balance Bal DSCR to Mat Rate
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Not Populated
Less than 50.01
50.01+
55.01+
60.01+
65.01+
70.01+
75.01+
80.01+
- -------------------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------------------
</TABLE>
DISTRIBUTION OF AMORTIZATION TYPE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Weighted Averages
# of Aggregate % Tot ---------------------------------
Amortization Mtg Sched Prin Sched Mnths Mort
Type Loans Balance Bal DSCR to Mat Rate
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Amortizing Balloon
Fully Amortizing
- -------------------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
DISTRIBUTION OF MOST RECENT DEBT SERVICE COVERAGE RATIO
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Weighted Averages
# of Aggregate % Tot ---------------------------------
Mtg Sched Prin Sched Mnths Mort
DSCR Loans Balance Bal DSCR to Mat Rate
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Not populated
less than 1.20x
1.20x+
1.25x+
1.30x+
1.35x+
1.40x+
1.45x+
1.50x+
1.55x+
1.60x+
1.70x+
1.80x+
- -------------------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------------------
</TABLE>
B-7
<PAGE>
<TABLE>
<CAPTION>
DEAL NAME: MORTGAGE CAPITAL FUNDING, INC STATE STREET CORPORATE TRUST
MULTIFAMILY/COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES WEB: CORPORATETRUST.STATESTREET.COM
SERIES 1998-MC2 PAYMENT DATE
REPORT
LOAN LEVEL DETAIL
---------------------- -------------------------------------------------------------------------
CLOSING TERMS CURRENT TERMS
- --------------------------------------------------------------------------------------------------------------------------------
Offer Prepay/ Paid
Control Property Sched Note Maturity Sched Note Maturity Sched Liquid/ Prepay Thru Prepmt Transfer Loan
# Type City State Bal Rate Date Bal Rate Date P&I adj Date Date Premium Date Status
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
totals
- --------------------------------------------------------------------------------------------------------------------------------
Loan Status:
A = Payment not rec'd. but still in grace period, B = Late payment, but less than 1 mo., O = Current, 1 = 1 mo. delinquent,
2 = 2mo. delinquent, 3 = Three or more mo. delinquent
4 = Assumed scheduled payment (performing matured balloon), 7 = Foreclosure, 9 = REO
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-8
<PAGE>
<TABLE>
<CAPTION>
DEAL NAME: MORTGAGE CAPITAL FUNDING, INC STATE STREET CORPORATE TRUST
MULTIFAMILY/COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES WEB: CORPORATETRUST.STATESTREET.COM
SERIES 1998-MC2 PAYMENT DATE
REPORT
SPECIALLY SERVICED LOAN DETAIL HISTORY
- --------------------------------------------------------------------------------------------------------------------------------
Offer Transfer Actual Maturity Prop Spec Serv
Control # Date Prin Bal Date Type State NOI NOI Date DSCR Status Code*
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<FN>
- --------------------------------------------------------------------------------------------------------------------------------
* LEGEND
- --------
1 = Request for waiver of Prepayment Penalty 4 = Loans with Borrower Bankruptcy 7 = Loan Paid Off
2 = Payment Default 5 = Loans in Process of Foreclosure 8 = Loans Returned to Master Servicer
3 = Request for Loan Modification or Workout 6 = Loans now REO Property
- --------------------------------------------------------------------------------------------------------------------------------
</FN>
</TABLE>
B-9
<PAGE>
<TABLE>
<CAPTION>
DEAL NAME: MORTGAGE CAPITAL FUNDING, INC STATE STREET CORPORATE TRUST
MULTIFAMILY/COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES WEB: CORPORATETRUST.STATESTREET.COM
SERIES 1998-MC2 PAYMENT DATE
REPORT
DELINQUENCY/PREPAYMENT REPORTING HISTORY: ROLLING 24 MONTHS
- --------------------------------------------------------------------------------------------------------------------------
Delinq Delinq Delinq Foreclosure/ Specially
1 Month 2 Month 3+ Month Bank REO Modifications Serviced Prepayments
Dist ------------------------------------------------------------------------------------------------------------------
Date # Bal # Bal # Bal # Bal # Bal # Bal # Bal # Bal
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-10
<PAGE>
Information in this material regarding any assets backing any securities
discussed herein supersedes all prior information regarding such assets. All
information in this Term Sheet, whether regarding the assets backing any
securities discussed herein or otherwise, will be superseded by the information
contained in any final prospectus for any securities actually sold to you.
- -------------------------------------------------------------------------------
MORTGAGE CAPITAL FUNDING, INC.
MULTIFAMILY / COMMERCIAL MORTGAGE PASS-THROUGH
CERTIFICATES, SERIES 1998-MC2
CLASSES A-1, A-2, B, C, D, E & X
$923,692,000 (APPROXIMATE)
-------------
CMBS NEW ISSUE TERM SHEET
-------------
JUNE 25, 1998
[CITIBANK LOGO] J.P. MORGAN & CO.
- -------------------------------------------------------------------------------
This material is for your private information and we are not soliciting any
action based upon it. This material is not to be construed as an offer to sell
or the solicitation of any offer to buy any security in any jurisdiction where
such an offer or solicitation would be illegal. This material is based on
information that we consider reliable, but we do not represent that it is
accurate or complete and it should not be relied upon as such. By accepting
this material the recipient agrees that it will not distribute or provide the
material to any other person. The information contained in this material may be
based on assumptions regarding market conditions and other matters as reflected
therein. We make no representations regarding the reasonableness of such
assumptions or the likelihood that any of such assumptions will coincide with
actual market conditions or events, and this material should not be relied upon
for such purposes. We and our affiliates, officers, directors, partners and
employees, including persons involved in the preparation or issuance of this
material may, from time to time, have long or short positions in, and buy and
sell, the securities mentioned therein or derivatives thereof (including
options). This material may be filed with the Securities and Exchange
Commission (the "SEC") and incorporated by reference into an effective
registration statement previously filed with the SEC under Rule 415 of the
Securities Act of 1933, including in cases where the material does not pertain
to securities that are ultimately offered for sale pursuant to such
registration statement. Information contained in this material is current as of
the date appearing on this material only. Information in this material
regarding any assets backing any securities discussed herein supersedes all
prior information regarding such assets. All information in this Term Sheet,
whether regarding the assets backing any securities discussed herein or
otherwise, will be superseded by the information contained in any final
prospectus for any securities actually sold to you.
This material is furnished to you by Citibank, N.A. and J.P. Morgan Securities
Inc. and not by the issuer of the securities. Citibank, N.A. and J.P. Morgan
Securities Inc. are not acting as agents for the issuer or its affiliates in
connection with the proposed transaction. The issuer has not prepared or taken
part in the preparation of these materials.
<PAGE>
Information in this material regarding any assets backing any securities
discussed herein supersedes all prior information regarding such assets. All
information in this Term Sheet, whether regarding the assets backing any
securities discussed herein or otherwise, will be superseded by the information
contained in any final prospectus for any securities actually sold to you.
- -------------------------------------------------------------------------------
Mortgage Capital Funding, Inc.
Multifamily/Commercial Mortgage Pass-Through Certificates, Series 1998-MC2
Classes A-1, A-2, B, C, D, E & X
$923,692,000 (approximate)
- -------------------------------------------------------------------------------
STRUCTURAL AND COLLATERAL TERM SHEET
<TABLE>
<CAPTION>
CITIBANK, N.A. J.P. MORGAN & CO.
399 PARK AVENUE, 7TH FLOOR 60 WALL STREET, 3RD FLOOR
NEW YORK, NY 10043 NEW YORK, NY 10260
MORTGAGE TRADING & ANALYTICS, AND MORTGAGE SALES &
STRUCTURED FINANCE TRADING AND STRUCTURING
<S> <C> <C> <C>
Frank Forelle Phone: (212) 291-3320 Brian Baker Phone: (212) 648-1413
Vice President Fax: (212) 291-3687 Vice President Fax: (212) 648-5907
Jeff Sturdevant Phone: (212) 291-3320 Andy Taylor Phone: (212) 648-1413
Vice President Fax: (212) 291-3687 Vice President Fax: (212) 648-5907
Richard Cohen Phone: (212) 291-3320 Tom Doherty Phone: (212) 648-1413
Vice President Fax: (212) 291-3687 Vice President Fax: (212) 648-5907
Nancy Wilt Phone: (212) 291-3320
Vice President Fax: (212) 291-3687
REAL ESTATE FINANCE REAL ESTATE FINANCE
AND STRUCTURING
Richard L. Jarocki Jr. Phone: (212) 559-0217 Larry Blume Phone: (212) 648-3238
Managing Director Fax: (212) 793-5602 Vice President Fax: (212) 648-5138
Darrell Wheeler Phone: (212) 559-0206 Chris Taylor Phone: (212) 648-6267
Vice President Fax: (212) 793-5602 Associate Fax: (212) 648-5138
Mark Horinbein Phone: (212) 559-0216
Vice President Fax: (212) 793-5602
Matt Aaronson Phone: (212) 559-0266 SYNDICATE/PRODUCT
Associate Fax: (212) 793-5602 MANAGEMENT
Bret Costain Phone (212) 648-0660
Vice President Fax: (212) 648-5909
Brad Craighead Phone (212) 648-0112
Vice President Fax (212) 648-5909
Michael Glover Phone (212) 648-0258
Vice President Fax (212) 648-5379
</TABLE>
This material is for your private information and we are not soliciting any
action based upon it. This material is not to be construed as an offer to sell
or the solicitation of any offer to buy any security in any jurisdiction where
such an offer or solicitation would be illegal. This material is based on
information that we consider reliable, but we do not represent that it is
accurate or complete and it should not be relied upon as such. By accepting
this material the recipient agrees that it will not distribute or provide the
material to any other person. The information contained in this material may be
based on assumptions regarding market conditions and other matters as reflected
therein. We make no representations regarding the reasonableness of such
assumptions or the likelihood that any of such assumptions will coincide with
actual market conditions or events, and this material should not be relied upon
for such purposes. We and our affiliates, officers, directors, partners and
employees, including persons involved in the preparation or issuance of this
material may, from time to time, have long or short positions in, and buy and
sell, the securities mentioned therein or derivatives thereof (including
options). This material may be filed with the Securities and Exchange
Commission (the "SEC") and incorporated by reference into an effective
registration statement previously filed with the SEC under Rule 415 of the
Securities Act of 1933, including in cases where the material does not pertain
to securities that are ultimately offered for sale pursuant to such
registration statement. Information contained in this material is current as of
the date appearing on this material only. Information in this material
regarding any assets backing any securities discussed herein supersedes all
prior information regarding such assets. All information in this Term Sheet,
whether regarding the assets backing any securities discussed herein or
otherwise, will be superseded by the information contained in any final
prospectus for any securities actually sold to you.
This material is furnished to you by Citibank, N.A. and J.P. Morgan Securities
Inc. and not by the issuer of the securities. Citibank, N.A. and J.P. Morgan
Securities Inc. are not acting as agents for the issuer or its affiliates in
connection with the proposed transaction. The issuer has not prepared or taken
part in the preparation of these materials.
<PAGE>
Information in this material regarding any assets backing any securities
discussed herein supersedes all prior information regarding such assets. All
information in this Term Sheet, whether regarding the assets backing any
securities discussed herein or otherwise, will be superseded by the information
contained in any final prospectus for any securities actually sold to you.
- -------------------------------------------------------------------------------
Mortgage Capital Funding, Inc.
Multifamily/Commercial Mortgage Pass-Through Certificates, Series 1998-MC2
Classes A-1, A-2, B, C, D, E & X
$923,692,000 (approximate)
- -------------------------------------------------------------------------------
COLLATERAL FACTS
- -------------------------------------------------------------------------------
INITIAL POOL BALANCE: $1,009,500,069
NUMBER OF MORTGAGE LOANS: 147
NUMBER OF PROPERTIES 150
AVERAGE LOAN CUT-OFF DATE BALANCE: $6,867,347
AVERAGE PROPERTY CUT-OFF DATE BALANCE: $6,730,000
WEIGHTED AVERAGE CURRENT MORTGAGE RATE(a): 7.256%
WEIGHTED AVERAGE REMAINING AMORTIZATION TERM: 313.9 mos.
WEIGHTED AVERAGE U/W DSCR (b): 1.40x
WEIGHTED AVERAGE CUT-OFF DATE LTV RATIO: 72.02%
WEIGHTED AVERAGE REMAINING TERM TO MATURITY(c): 132.1 mos.
WEIGHTED AVERAGE SEASONING: 3 mos.
- -------------------------------------------------------------------------------
(a) Gross Coupon.
(b) U/W DSCR is the ratio of Underwritten Net Cash Flow over the annualized
debt service payments.
(c) Anticipated Repayment Date for loans with Hyper-Amortization. All
information presented herein with respect to Hyper-Amortization Loans
assumes that they mature on their respective Anticipated Repayment Dates.
KEY FEATURES
- -------------------------------------------------------------------------------
Lead Manager: Citibank, N.A.
Co-Manager JP Morgan Securities, Inc.
Mortgage Loan Sellers: Citicorp Real Estate, Inc. (86.2% of
Initial Pool Balance) and Morgan Guaranty
Trust Company of New York (13.8% of
Initial Pool Balance)
Master Servicer: CRIIMI MAE Services, L.P..
Special Servicer: CRIIMI MAE Services, L.P.
Purchaser of Classes F, G, H, J, K, CRIIMI MAE Inc.
L
Trustee: State Street Bank and Trust Company
Pricing: On or about June 25,1998
Closing: On or about June 29, 1998
Settlement: On or about June 30, 1998
Cut-Off Date: June 1,1998
Distribution Date: 18th of each month, or following business
day (commencing July 1998)
ERISA Eligible: Classes A1, A2 and X are ERISA eligible
under the individual underwriters'
prohibited transaction exemptions,
subject to certain conditions for
eligibility
Representations & Warranties: Provided by applicable Mortgage Loan
Sellers
Structure: Sequential pay
Interest Accrual Period: With respect to any Distribution Date,
the calendar month preceding the month in
which such Distribution Date occurs.
Day Count: 30/360
Tax Treatment: REMIC
Rated Final Distribution Date: May 18, 2030
Clean up Call: 1.0%
Minimum Denominations: Publicly Offered Classes except Class X:
$10,000 & $1 Class X: $1,000,000 Notional
Amount & $1
Deal Information/Analytics It is anticipated that certain Mortgage
Loan and Certificate information will be
available from the following services:
Bloomberg, Intex, Charter Research, and
The Trepp Group.
- -------------------------------------------------------------------------------
LOAN PREPAYMENT TABLE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
% OF WTD. WTD. AVG.
# OF AGGREGATE INITIAL AVG. CUT-OFF WTD. AVG.
MORTGAGE CUT-OFF DATE POOL U/W DATE LTV MORTGAGE
RESTRICTION AT ORIGINATION LOANS BALANCE (MM) BALANCE DSCR RATIO RATE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lockout/YM 112.0 498.80 49.41% 1.37x 74.15% 7.320%
Lockout/> of YM or 1% 21.0 108.73 10.77 1.41 70.55 7.397
Lockout/YM/Declining Fee 1.0 3.89 0.38 1.14 78.51 7.190
Lockout/Declining Fee 3.0 7.58 0.75 1.43 75.05 7.465
Lockout/Defeasance 2.0 187.49 18.57 1.35 76.78 7.041
Lockout/> of YM or 2% 2.0 74.67 7.40 1.13 74.16 7.747
YM/Declining Fee 2.0 3.64 0.36 1.23 74.37 7.525
> of YM or 1% 1.0 4.17 0.41 1.25 79.44 8.400
Lockout/> of YM or 1% 1.0 3.59 0.36 1.38 73.29 7.210
Declining
Lockout/Declining Fee (but 1.0 8.93 0.88 1.22 60.57 8.090
Defeasable)
> of YM or 5%/> of YM or 2% 1.0 108.00 10.70 1.86 54.00 6.720
- -----------------------------------------------------------------------------------------
TOTAL\AVG.\WTD.AVG 147.0 $1,009.50 100.00% 1.40x 72.02% 7.256
- -----------------------------------------------------------------------------------------
</TABLE>
This material is for your private information and we are not soliciting any
action based upon it. This material is not to be construed as an offer to sell
or the solicitation of any offer to buy any security in any jurisdiction where
such an offer or solicitation would be illegal. This material is based on
information that we consider reliable, but we do not represent that it is
accurate or complete and it should not be relied upon as such. By accepting
this material the recipient agrees that it will not distribute or provide the
material to any other person. The information contained in this material may be
based on assumptions regarding market conditions and other matters as reflected
therein. We make no representations regarding the reasonableness of such
assumptions or the likelihood that any of such assumptions will coincide with
actual market conditions or events, and this material should not be relied upon
for such purposes. We and our affiliates, officers, directors, partners and
employees, including persons involved in the preparation or issuance of this
material may, from time to time, have long or short positions in, and buy and
sell, the securities mentioned therein or derivatives thereof (including
options). This material may be filed with the Securities and Exchange
Commission (the "SEC") and incorporated by reference into an effective
registration statement previously filed with the SEC under Rule 415 of the
Securities Act of 1933, including in cases where the material does not pertain
to securities that are ultimately offered for sale pursuant to such
registration statement. Information contained in this material is current as of
the date appearing on this material only. Information in this material
regarding any assets backing any securities discussed herein supersedes all
prior information regarding such assets. All information in this Term Sheet,
whether regarding the assets backing any securities discussed herein or
otherwise, will be superseded by the information contained in any final
prospectus for any securities actually sold to you.
This material is furnished to you by Citibank, N.A. and J.P. Morgan Securities
Inc. and not by the issuer of the securities. Citibank, N.A. and J.P. Morgan
Securities Inc. are not acting as agents for the issuer or its affiliates in
connection with the proposed transaction. The issuer has not prepared or taken
part in the preparation of these materials.
<PAGE>
Information in this material regarding any assets backing any securities
discussed herein supersedes all prior information regarding such assets. All
information in this Term Sheet, whether regarding the assets backing any
securities discussed herein or otherwise, will be superseded by the information
contained in any final prospectus for any securities actually sold to you.
- -------------------------------------------------------------------------------
Mortgage Capital Funding, Inc.
Multifamily/Commercial Mortgage Pass-Through Certificates, Series 1998-MC2
Classes A-1, A-2, B, C, D, E & X
$923,692,000 (approximate)
- -------------------------------------------------------------------------------
APPROXIMATE SECURITIES STRUCTURE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
RATING APPROX. CREDIT COUPON WTD AVERAGE PAYMENT
CLASS (MOODY'S/FITCH)(a) SIZE SUPPORT DESCRIPTION DELIVERY LIFE (YRS.) WINDOW(b)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PUBLICLY OFFERED CLASSES:
X Aaa/AAA 1,009,500,069(c) Variable Rate DTC
(Interest Only)
A1 Aaa/AAA 205,079,000 28.75% Fixed Rate DTC 5.50 07/98 - 10/07
A2 Aaa/AAA 514,190,000 28.75 Fixed Rate DTC 9.69 10/07 - 5/08
B Aa2/AA 47,951,000 24.00 Fixed Rate DTC 9.88 5/08 - 5/08
C A2/A 58,046,000 18.25 Fixed Rate DTC 9.96 5/08 - 6/08
D Baa2/BBB 60,570,000 12.25 Lesser of DTC 9.97 6/08 - 6/08
Specified rate
and Net WAC
E NR/BBB- 37,856,000 8.50 Net WAC DTC 11.97 6/08 - 4/12
PRIVATELY PLACED CLASSES (144A ELIGIBLE):
- -----------------------------------------------------------------------------------------------------------------------------------
F NOT OFFERED HEREBY
G NOT OFFERED HEREBY
H NOT OFFERED HEREBY
J NOT OFFERED HEREBY
K NOT OFFERED HEREBY
L NOT OFFERED HEREBY
TOTAL SECURITIES: $1,009,500,069
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Ratings shown are those of Moody's and Fitch, respectively. Classes marked "NR" will not be rated by the applicable Rating
Agency.
(b) Calculated at 0% CPR, no balloon extension and Hyper-Amortization Loans pay in full on Anticipated Repayment Dates.
(c) Notional amount.
</TABLE>
<TABLE>
<CAPTION>
STRUCTURAL OVERVIEW
<S> <C>
- ---- ----
Offered Certificates //// Certificates Not Offered
- ---- ----
- ------------------------------------------------------------------------------------------------------------ <--- Inital Net WAC
| |
| |
| ------- ----- |
| X-IO | |/////| |
| Aaa/AAA -------| E |/ F /| |
| 1,009.5 ($mm) Notional Amount | |NR/BBB-|/////| |
| -------| D | |/////| |
| | | Baa2 | |/////| |
| -------| C | /BBB | |/////| |
| | | A2/A | | |/////| |
| -----------------------------| B | | | |/////|----- ----- ----- ----- -----|
| | | Aa2/AA| | | |/////|/////|/////|/////|/////|/////|
|--------| A2 | | | | |/////|/ G /|/ H /|/ J /|/ K /|/ L /|
| | Aaa/AAA | | | | |/////|/////|/////|/////|/////|/////|
| A1 | | | | | |/////|/////|/////|/////|/////|/////|
| Aaa/AAA| | | | | |/////|/////|/////|/////|/////|/////|
| | | | | | |/////|/////|/////|/////|/////|/////|
| | | | | | |/////|/////|/////|/////|/////|/////|
| | | | | | |/////|/////|/////|/////|/////|/////|
| | | | | | |/////|/////|/////|/////|/////|/////|
| | | | | | |/////|/////|/////|/////|/////|/////|
- ------------------------------------------------------------------------------------------------------------
Note: Bars are not drawn to portion
</TABLE>
This material is for your private information and we are not soliciting any
action based upon it. This material is not to be construed as an offer to sell
or the solicitation of any offer to buy any security in any jurisdiction where
such an offer or solicitation would be illegal. This material is based on
information that we consider reliable, but we do not represent that it is
accurate or complete and it should not be relied upon as such. By accepting
this material the recipient agrees that it will not distribute or provide the
material to any other person. The information contained in this material may be
based on assumptions regarding market conditions and other matters as reflected
therein. We make no representations regarding the reasonableness of such
assumptions or the likelihood that any of such assumptions will coincide with
actual market conditions or events, and this material should not be relied upon
for such purposes. We and our affiliates, officers, directors, partners and
employees, including persons involved in the preparation or issuance of this
material may, from time to time, have long or short positions in, and buy and
sell, the securities mentioned therein or derivatives thereof (including
options). This material may be filed with the Securities and Exchange
Commission (the "SEC") and incorporated by reference into an effective
registration statement previously filed with the SEC under Rule 415 of the
Securities Act of 1933, including in cases where the material does not pertain
to securities that are ultimately offered for sale pursuant to such
registration statement. Information contained in this material is current as of
the date appearing on this material only. Information in this material
regarding any assets backing any securities discussed herein supersedes all
prior information regarding such assets. All information in this Term Sheet,
whether regarding the assets backing any securities discussed herein or
otherwise, will be superseded by the information contained in any final
prospectus for any securities actually sold to you.
This material is furnished to you by Citibank, N.A. and J.P. Morgan Securities
Inc. and not by the issuer of the securities. Citibank, N.A. and J.P. Morgan
Securities Inc. are not acting as agents for the issuer or its affiliates in
connection with the proposed transaction. The issuer has not prepared or taken
part in the preparation of these materials.
<PAGE>
Information in this material regarding any assets backing any securities
discussed herein supersedes all prior information regarding such assets. All
information in this Term Sheet, whether regarding the assets backing any
securities discussed herein or otherwise, will be superseded by the information
contained in any final prospectus for any securities actually sold to you.
- -------------------------------------------------------------------------------
Mortgage Capital Funding, Inc.
Multifamily/Commercial Mortgage Pass-Through Certificates, Series 1998-MC2
Classes A-1, A-2, B, C, D, E & X
$923,692,000 (approximate)
- -------------------------------------------------------------------------------
STRUCTURAL OVERVIEW - CONT.
- -------------------------------------------------------------------------------
O The Mortgage Pool will be comprised of one Loan Group
O Principal will be paid sequentially to Class A1, A2, B, C, D, E, F,
G, H, J, K and L Certificates (If principal balances of all such
Classes other than Classes A1 and A2 have reduced to zero,
principal will be allocated to Class A1 and A2 pro-rata)
O Class X will receive interest payments pro-rata (based on interest
entitlements) with the Class A1 and Class A2 Certificates each month
O Each of the Classes (except Class X) will be subordinate to earlier
alphabetically lettered classes (Losses will be allocated in reverse
alphabetical order to Classes with certificate balances and pro-rata to
Classes A1 and A2)
O The Master Servicer will cover net prepayment interest shortfalls, up to
the portion of the Master Servicing Fee equal to 0.02% per annum. Net
shortfalls (after application of prepayment interest excesses and other
Servicer coverage from the Master Servicing Fee) will be allocated in
reverse alphabetical order to the Subordinate Certificates and then
pro-rata (based on interest entitlements) to the Class A1, Class A2 and
Class X Certificates
O All Classes will pay interest on a 30/360 basis
O Shortfalls resulting from Master Servicer and Special Servicer
modifications, Special Servicer compensation or other extraordinary trust
fund expenses will be allocated in reverse alphabetical order to Classes
with certificate balances (in the case of the Class A1 and Class A2
Certificates, pro rata based on certificate balances)
O IO protected with regard to loan modifications and waivers that reduce
Mortgage Rate
MORTGAGE POOL OVERVIEW
- -------------------------------------------------------------------------------
O The Mortgage Pool is comprised of 147 multifamily and commercial loans
with an aggregate Cut-Off Date Balance of approximately $1,009,500,069
O All of the Mortgage Loans are secured by first mortgage liens on
multifamily and commercial properties
O The Mortgage Pool's average Cut-Off Date Balance is approximately
$6,867,347
O The Mortgage Pool's weighted average current Underwritten Debt Service
Coverage Ratio is 1.40x (a)
O The Mortgage Pool's Cut-Off Date LTV is 72.02%
O The Mortgage Pool's weighted average Mortgage Rate is approximately
7.256% per annum
(a) Underwritten Debt Service Coverage Ratio is the ratio of Underwritten
NCF over the annualized debt service payments.
This material is for your private information and we are not soliciting any
action based upon it. This material is not to be construed as an offer to sell
or the solicitation of any offer to buy any security in any jurisdiction where
such an offer or solicitation would be illegal. This material is based on
information that we consider reliable, but we do not represent that it is
accurate or complete and it should not be relied upon as such. By accepting
this material the recipient agrees that it will not distribute or provide the
material to any other person. The information contained in this material may be
based on assumptions regarding market conditions and other matters as reflected
therein. We make no representations regarding the reasonableness of such
assumptions or the likelihood that any of such assumptions will coincide with
actual market conditions or events, and this material should not be relied upon
for such purposes. We and our affiliates, officers, directors, partners and
employees, including persons involved in the preparation or issuance of this
material may, from time to time, have long or short positions in, and buy and
sell, the securities mentioned therein or derivatives thereof (including
options). This material may be filed with the Securities and Exchange
Commission (the "SEC") and incorporated by reference into an effective
registration statement previously filed with the SEC under Rule 415 of the
Securities Act of 1933, including in cases where the material does not pertain
to securities that are ultimately offered for sale pursuant to such
registration statement. Information contained in this material is current as of
the date appearing on this material only. Information in this material
regarding any assets backing any securities discussed herein supersedes all
prior information regarding such assets. All information in this Term Sheet,
whether regarding the assets backing any securities discussed herein or
otherwise, will be superseded by the information contained in any final
prospectus for any securities actually sold to you.
This material is furnished to you by Citibank, N.A. and J.P. Morgan Securities
Inc. and not by the issuer of the securities. Citibank, N.A. and J.P. Morgan
Securities Inc. are not acting as agents for the issuer or its affiliates in
connection with the proposed transaction. The issuer has not prepared or taken
part in the preparation of these materials.
<PAGE>
Information in this material regarding any assets backing any securities
discussed herein supersedes all prior information regarding such assets. All
information in this Term Sheet, whether regarding the assets backing any
securities discussed herein or otherwise, will be superseded by the information
contained in any final prospectus for any securities actually sold to you.
- -------------------------------------------------------------------------------
Mortgage Capital Funding, Inc.
Multifamily/Commercial Mortgage Pass-Through Certificates, Series 1998-MC2
Classes A-1, A-2, B, C, D, E & X
$923,692,000 (approximate)
- -------------------------------------------------------------------------------
ALLOCATION OF PREPAYMENT PENALTIES
- -------------------------------------------------------------------------------
ALLOCATION OF PREPAYMENT PREMIUMS
Prepayment premiums will be allocated between the Publicly Offered Certificates
then entitled to principal distributions and the Class X Certificates as
follows:
O A percentage of all prepayment premiums (either fixed prepayment
premiums or yield maintenance amount) will be allocated to each class
of the Publicly Offered Certificates then entitled to principal
distributions, which percentage will be equal to the product of (a)
the percentage of the total principal distribution that such Class
receives, and (b) a fraction (expressed as a percentage which can be
no greater than 100%), the numerator of which is the excess of the
Pass-Through Rate of such Class of the Publicly Offered Certificates
currently receiving principal over the relevant Discount Rate, and the
denominator of which is the excess of the Mortgage Rate of the related
Mortgage Loan over the Discount Rate.
-------------------------------------------------------------
Prepayment (Pass-Through Rate - Discount Rate )
Premium Allocation = ------------------------------------
Percentage (Mortgage Rate - Discount Rate)
-------------------------------------------------------------
O The remaining percentage of the Prepayment Premiums will be allocated
to the Class X Certificates
O In general, this formula provides for an increase in the allocation of
Prepayment Premiums to the Publicly Offered Certificates then entitled
to principal distributions relative to the Class X Certificates as
Discount Rates decrease and a decrease in the allocation to such
Classes as Discount Rates rise
Allocation of Prepayment Premiums Example
Discount Rate Fraction Methodology:
Mortgage Rate = 9%
Bond Class Rate = 7%
Treasury Rate = 6%
BOND CLASS ALLOCATION | CLASS X ALLOCATION
----------------------------|----------------------------------------------
7% - 6% |
------- = 33 1/3% | Receives excess premiums = 66 2/3% thereof
9% - 6% |
This material is for your private information and we are not soliciting any
action based upon it. This material is not to be construed as an offer to sell
or the solicitation of any offer to buy any security in any jurisdiction where
such an offer or solicitation would be illegal. This material is based on
information that we consider reliable, but we do not represent that it is
accurate or complete and it should not be relied upon as such. By accepting
this material the recipient agrees that it will not distribute or provide the
material to any other person. The information contained in this material may be
based on assumptions regarding market conditions and other matters as reflected
therein. We make no representations regarding the reasonableness of such
assumptions or the likelihood that any of such assumptions will coincide with
actual market conditions or events, and this material should not be relied upon
for such purposes. We and our affiliates, officers, directors, partners and
employees, including persons involved in the preparation or issuance of this
material may, from time to time, have long or short positions in, and buy and
sell, the securities mentioned therein or derivatives thereof (including
options). This material may be filed with the Securities and Exchange
Commission (the "SEC") and incorporated by reference into an effective
registration statement previously filed with the SEC under Rule 415 of the
Securities Act of 1933, including in cases where the material does not pertain
to securities that are ultimately offered for sale pursuant to such
registration statement. Information contained in this material is current as of
the date appearing on this material only. Information in this material
regarding any assets backing any securities discussed herein supersedes all
prior information regarding such assets. All information in this Term Sheet,
whether regarding the assets backing any securities discussed herein or
otherwise, will be superseded by the information contained in any final
prospectus for any securities actually sold to you.
This material is furnished to you by Citibank, N.A. and J.P. Morgan Securities
Inc. and not by the issuer of the securities. Citibank, N.A. and J.P. Morgan
Securities Inc. are not acting as agents for the issuer or its affiliates in
connection with the proposed transaction. The issuer has not prepared or taken
part in the preparation of these materials.
<PAGE>
Information in this material regarding any assets backing any securities
discussed herein supersedes all prior information regarding such assets. All
information in this Term Sheet, whether regarding the assets backing any
securities discussed herein or otherwise, will be superseded by the information
contained in any final prospectus for any securities actually sold to you.
- -------------------------------------------------------------------------------
Mortgage Capital Funding, Inc.
Multifamily/Commercial Mortgage Pass-Through Certificates, Series 1998-MC2
Classes A-1, A-2, B, C, D, E & X
$923,692,000 (approximate)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREPAYMENT RESTRICTION ANALYSIS (a)(b)
- ------------------------------------------------------------------------------------------------------------------------------------
JUNE JUNE JUNE JUNE JUNE JUNE JUNE JUNE JUNE JUNE
PREPAYMENT RESTRICTION CURRENT 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lock-out (c) 88.50 87.50 84.20 84.00 44.20 37.40 28.80 26.80 22.20 21.70 0.00
Yield Maintenance 11.50 12.50 15.40 15.60 54.70 61.10 67.80 70.80 75.40 68.80 100.00
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LOCK-OUT/YM 100.00 100.00 99.50 99.60 98.90 98.50 97.60 97.70 97.70 91.10 99.90
- ------------------------------------------------------------------------------------------------------------------------------------
5.00 - 5.99% 0.00 0.00 0.30 0.30 0.70 0.00 0.00 0.00 0.00 0.00 0.00
4.00 - 4.99% 0.00 0.00 0.10 0.00 0.30 1.00 0.00 0.00 0.00 0.00 0.00
3.00 - 3.99% 0.00 0.00 0.00 0.10 0.00 0.00 1.90 0.50 0.00 0.00 0.00
2.00 - 2.99% 0.00 0.00 0.00 0.00 0.10 0.00 0.00 1.80 0.50 0.00 0.00
1.00 - 1.99% 0.00 0.00 0.00 0.00 0.00 0.50 0.10 0.00 1.80 1.30 0.00
0.01 - 0.99% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
No Prepay Penalties 0.00 0.00 0.00 0.00 0.00 0.00 1.40 0.00 0.00 8.20 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.10 100.00 100.00
- ------------------------------------------------------------------------------------------------------------------------------------
AGGREGATE MTG BALANCE 1,009.5 996.8 983.1 967.9 951.0 931.7 908.5 868.6 841.7 812.8 123.6
% OF CUT-OFF BALANCE 100.00 98.70 97.40 95.90 94.20 92.30 90.00 86.00 83.40 80.50 12.20
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Table calculated using modeling assumptions and assuming all Hyper-Amortization Loans are paid in full on their respective
Anticipated Repayment Dates.
(b) Totals may not equal due to rounding. (c) Includes defeasance.
</TABLE>
This material is for your private information and we are not soliciting any
action based upon it. This material is not to be construed as an offer to sell
or the solicitation of any offer to buy any security in any jurisdiction where
such an offer or solicitation would be illegal. This material is based on
information that we consider reliable, but we do not represent that it is
accurate or complete and it should not be relied upon as such. By accepting
this material the recipient agrees that it will not distribute or provide the
material to any other person. The information contained in this material may be
based on assumptions regarding market conditions and other matters as reflected
therein. We make no representations regarding the reasonableness of such
assumptions or the likelihood that any of such assumptions will coincide with
actual market conditions or events, and this material should not be relied upon
for such purposes. We and our affiliates, officers, directors, partners and
employees, including persons involved in the preparation or issuance of this
material may, from time to time, have long or short positions in, and buy and
sell, the securities mentioned therein or derivatives thereof (including
options). This material may be filed with the Securities and Exchange
Commission (the "SEC") and incorporated by reference into an effective
registration statement previously filed with the SEC under Rule 415 of the
Securities Act of 1933, including in cases where the material does not pertain
to securities that are ultimately offered for sale pursuant to such
registration statement. Information contained in this material is current as of
the date appearing on this material only. Information in this material
regarding any assets backing any securities discussed herein supersedes all
prior information regarding such assets. All information in this Term Sheet,
whether regarding the assets backing any securities discussed herein or
otherwise, will be superseded by the information contained in any final
prospectus for any securities actually sold to you.
This material is furnished to you by Citibank, N.A. and J.P. Morgan Securities
Inc. and not by the issuer of the securities. Citibank, N.A. and J.P. Morgan
Securities Inc. are not acting as agents for the issuer or its affiliates in
connection with the proposed transaction. The issuer has not prepared or taken
part in the preparation of these materials.
<PAGE>
Information in this material regarding any assets backing any securities
discussed herein supersedes all prior information regarding such assets. All
information in this Term Sheet, whether regarding the assets backing any
securities discussed herein or otherwise, will be superseded by the information
contained in any final prospectus for any securities actually sold to you.
- -------------------------------------------------------------------------------
Mortgage Capital Funding, Inc.
Multifamily/Commercial Mortgage Pass-Through Certificates, Series 1998-MC2
Classes A-1, A-2, B, C, D, E & X
$923,692,000 (approximate)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DISTRIBUTION OF CUT-OFF DATE BALANCE
- ----------------------------------------------------------------------------------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED
NUMBER OF AGGREGATE % OF INITIAL WEIGHTED CUT-OFF AVERAGE
RANGE OF CUT-OFF DATE MORTGAGE NUMBER OF CUT-OFF DATE POOL AVERAGE U/W DATE MORTGAGE
BALANCE ($) LOANS PROPERTIES BALANCE (a) BALANCE DSCR LTV RATE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0 - $999,999 10 10 $8,027,147 0.8% 1.61x 59.86% 7.266%
$1,000,000 - $2,499,999 61 61 105,986,864 10.5 1.42 71.67 7.459
$2,500,000 - $4,999,999 34 35 122,993,564 12.2 1.46 72.24 7.527
$5,000,000 - $7,499,999 13 14 80,825,330 8.0 1.33 74.62 7.369
$7,500,000 - $9,999,999 10 10 89,815,855 8.9 1.39 71.48 7.286
$10,000,000 - $14,999,999 11 12 140,495,666 13.9 1.36 74.05 7.172
$15,000,000 - $182,091,684 8 8 461,355,644 45.7 1.41 71.28 7.137
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL\AVG.\WTD.AVG. 147 150 $1,009,500,069 100.0% 1.40x 72.02% 7.256%
- ----------------------------------------------------------------------------------------------------------------------------
(a) Column total may not add up due to rounding.
</TABLE>
This material is for your private information and we are not soliciting any
action based upon it. This material is not to be construed as an offer to sell
or the solicitation of any offer to buy any security in any jurisdiction where
such an offer or solicitation would be illegal. This material is based on
information that we consider reliable, but we do not represent that it is
accurate or complete and it should not be relied upon as such. By accepting
this material the recipient agrees that it will not distribute or provide the
material to any other person. The information contained in this material may be
based on assumptions regarding market conditions and other matters as reflected
therein. We make no representations regarding the reasonableness of such
assumptions or the likelihood that any of such assumptions will coincide with
actual market conditions or events, and this material should not be relied upon
for such purposes. We and our affiliates, officers, directors, partners and
employees, including persons involved in the preparation or issuance of this
material may, from time to time, have long or short positions in, and buy and
sell, the securities mentioned therein or derivatives thereof (including
options). This material may be filed with the Securities and Exchange
Commission (the "SEC") and incorporated by reference into an effective
registration statement previously filed with the SEC under Rule 415 of the
Securities Act of 1933, including in cases where the material does not pertain
to securities that are ultimately offered for sale pursuant to such
registration statement. Information contained in this material is current as of
the date appearing on this material only. Information in this material
regarding any assets backing any securities discussed herein supersedes all
prior information regarding such assets. All information in this Term Sheet,
whether regarding the assets backing any securities discussed herein or
otherwise, will be superseded by the information contained in any final
prospectus for any securities actually sold to you.
This material is furnished to you by Citibank, N.A. and J.P. Morgan Securities
Inc. and not by the issuer of the securities. Citibank, N.A. and J.P. Morgan
Securities Inc. are not acting as agents for the issuer or its affiliates in
connection with the proposed transaction. The issuer has not prepared or taken
part in the preparation of these materials.
<PAGE>
Information in this material regarding any assets backing any securities
discussed herein supersedes all prior information regarding such assets. All
information in this Term Sheet, whether regarding the assets backing any
securities discussed herein or otherwise, will be superseded by the information
contained in any final prospectus for any securities actually sold to you.
- -------------------------------------------------------------------------------
Mortgage Capital Funding, Inc.
Multifamily/Commercial Mortgage Pass-Through Certificates, Series 1998-MC2
Classes A-1, A-2, B, C, D, E & X
$923,692,000 (approximate)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION BY CUT-OFF DATE BALANCE
- -------------------------------------------------------------------------------------------------------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
NUMBER OF AGGREGATE PERCENTAGE AVERAGE CUT-OFF AVERAGE
MORTGAGE NUMBER OF CUT-OFF DATE OF INITIAL U/W DATE MORTGAGE
PROPERTY STATE LOANS PROPERTIES BALANCE (a) POOL BALANCE DSCR LTV RATIO RATE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
New York 4.0 4.0 $193,314,919 19.1% 1.35x 76.6% 7.054%
California 18.0 18.0 117,000,181 11.6 1.22 72.8 7.697
Minnesota 3.0 3.0 112,171,329 11.1 1.85 54.5 6.766
Georgia 8.0 8.0 64,739,628 6.4 1.41 75.6 7.284
Illinois 7.0 7.0 63,550,246 6.3 1.27 78.8 7.187
Texas 11.0 11.0 53,801,343 5.3 1.36 72.5 7.498
Florida 8.0 8.0 33,032,694 3.3 1.37 75.1 7.347
Ohio 13.5 15.0 31,877,517 3.2 1.30 75.9 7.561
Massachusetts 5.0 5.0 29,082,454 2.9 1.36 61.5 7.216
Michigan 7.0 7.0 24,793,738 2.5 1.45 76.2 7.266
Colorado 9.0 9.0 24,615,859 2.4 1.46 74.5 7.060
New Hampshire 2.5 3.0 24,513,594 2.4 1.35 77.9 7.003
Puerto Rico 1.0 1.0 23,465,010 2.3 1.29 69.2 7.500
Virginia 6.0 6.0 17,722,679 1.8 1.59 69.9 7.542
Maine 1.0 1.0 17,350,000 1.7 1.25 75.4 7.560
Arizona 4.0 4.0 16,279,664 1.6 1.34 76.4 7.182
Alabama 4.0 4.0 16,278,875 1.6 1.28 73.1 7.383
Wisconsin 5.0 5.0 14,183,100 1.4 1.42 63.7 7.773
Washington 2.0 2.0 13,655,602 1.4 1.27 76.9 6.773
Connecticut 2.0 3.0 13,469,532 1.3 1.22 71.7 7.517
New Jersey 2.0 2.0 12,668,105 1.3 1.54 61.8 7.303
Pennsylvania 4.0 4.0 12,207,278 1.2 1.38 80.0 7.305
Alaska 2.0 2.0 11,572,596 1.1 1.82 64.0 6.810
Nebraska 1.0 1.0 10,546,188 1.0 1.33 70.3 7.440
Oregon 1.0 1.0 9,786,133 1.0 1.49 89.0 7.100
Hawaii 1.0 1.0 7,797,838 0.8 1.15 70.9 7.780
Kansas 1.0 1.0 7,667,610 0.8 1.28 76.7 7.390
North Carolina 3.0 3.0 6,103,214 0.6 1.50 67.6 7.330
Tennessee 2.0 2.0 6,044,122 0.6 1.18 76.6 7.326
South Carolina 2.0 2.0 5,183,304 0.5 1.52 67.5 7.639
Iowa 1.0 1.0 4,170,410 0.4 1.25 79.4 8.400
Nevada 1.0 1.0 2,744,696 0.3 1.33 74.2 7.290
Rhode Island 1.0 1.0 2,696,391 0.3 1.32 79.9 7.330
Indiana 1.0 1.0 1,644,770 0.2 2.62 53.9 7.260
Maryland 1.0 1.0 1,446,609 0.1 1.02 90.4 7.170
Missouri 1.0 1.0 1,169,426 0.1 1.33 69.4 7.750
Idaho 1.0 1.0 1,153,413 0.1 1.47 72.1 7.220
- -------------------------------------------------------------------------------------------------------------------
TOTAL\AVG.\WTD.AVG 147.0 150.0 $1,009,500,069 100.0% 1.40x 72.02% 7.256%
- -------------------------------------------------------------------------------------------------------------------
(a) Column total may not add up due to rounding.
</TABLE>
This material is for your private information and we are not soliciting any
action based upon it. This material is not to be construed as an offer to sell
or the solicitation of any offer to buy any security in any jurisdiction where
such an offer or solicitation would be illegal. This material is based on
information that we consider reliable, but we do not represent that it is
accurate or complete and it should not be relied upon as such. By accepting
this material the recipient agrees that it will not distribute or provide the
material to any other person. The information contained in this material may be
based on assumptions regarding market conditions and other matters as reflected
therein. We make no representations regarding the reasonableness of such
assumptions or the likelihood that any of such assumptions will coincide with
actual market conditions or events, and this material should not be relied upon
for such purposes. We and our affiliates, officers, directors, partners and
employees, including persons involved in the preparation or issuance of this
material may, from time to time, have long or short positions in, and buy and
sell, the securities mentioned therein or derivatives thereof (including
options). This material may be filed with the Securities and Exchange
Commission (the "SEC") and incorporated by reference into an effective
registration statement previously filed with the SEC under Rule 415 of the
Securities Act of 1933, including in cases where the material does not pertain
to securities that are ultimately offered for sale pursuant to such
registration statement. Information contained in this material is current as of
the date appearing on this material only. Information in this material
regarding any assets backing any securities discussed herein supersedes all
prior information regarding such assets. All information in this Term Sheet,
whether regarding the assets backing any securities discussed herein or
otherwise, will be superseded by the information contained in any final
prospectus for any securities actually sold to you.
This material is furnished to you by Citibank, N.A. and J.P. Morgan Securities
Inc. and not by the issuer of the securities. Citibank, N.A. and J.P. Morgan
Securities Inc. are not acting as agents for the issuer or its affiliates in
connection with the proposed transaction. The issuer has not prepared or taken
part in the preparation of these materials.
<PAGE>
Information in this material regarding any assets backing any securities
discussed herein supersedes all prior information regarding such assets. All
information in this Term Sheet, whether regarding the assets backing any
securities discussed herein or otherwise, will be superseded by the information
contained in any final prospectus for any securities actually sold to you.
- -------------------------------------------------------------------------------
Mortgage Capital Funding, Inc.
Multifamily/Commercial Mortgage Pass-Through Certificates, Series 1998-MC2
Classes A-1, A-2, B, C, D, E & X
$923,692,000 (approximate)
- -------------------------------------------------------------------------------
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[MAP OF THE UNITED STATES]
ME PA MI MO WA
1.7% 1.2% 2.5% 0.1% 1.4%
NH VA IN NE OR
2.4% 1.8% 0.2% 1.0% 1.0%
MA NC TN KS CA
2.9% 0.6% 0.6% 0.8% 11.6%
RI SC AL TX AK
0.3% 0.5% 1.6% 5.3% 1.1%
CT GA WI CO HI
1.3% 6.4% 1.4% 2.4% 0.8%
NJ FL IL ID
1.3% 3.3% 6.3% 0.1%
MD PR MN NV
0.1% 2.3% 11.1% 0.3%
NY OH IA AZ
19.1% 3.2% 0.4% 1.6%
[PIE CHART]
Other Georgia
30.80% 6.40%
Minnesota Texas
11.10% 5.30%
New York Florida
19.10% 3.30%
California Ohio
11.60% 3.20%
Illinois Massachusetts
6.30% 2.90%
GEOGRAPHIC DISTRIBUTION BY CUT-OFF DATE BALANCE
---------------------------------------------------------------------
- -------------------------------------------------------------------------------
Totals may not add up due to rounding.
This material is for your private information and we are not soliciting any
action based upon it. This material is not to be construed as an offer to sell
or the solicitation of any offer to buy any security in any jurisdiction where
such an offer or solicitation would be illegal. This material is based on
information that we consider reliable, but we do not represent that it is
accurate or complete and it should not be relied upon as such. By accepting
this material the recipient agrees that it will not distribute or provide the
material to any other person. The information contained in this material may be
based on assumptions regarding market conditions and other matters as reflected
therein. We make no representations regarding the reasonableness of such
assumptions or the likelihood that any of such assumptions will coincide with
actual market conditions or events, and this material should not be relied upon
for such purposes. We and our affiliates, officers, directors, partners and
employees, including persons involved in the preparation or issuance of this
material may, from time to time, have long or short positions in, and buy and
sell, the securities mentioned therein or derivatives thereof (including
options). This material may be filed with the Securities and Exchange
Commission (the "SEC") and incorporated by reference into an effective
registration statement previously filed with the SEC under Rule 415 of the
Securities Act of 1933, including in cases where the material does not pertain
to securities that are ultimately offered for sale pursuant to such
registration statement. Information contained in this material is current as of
the date appearing on this material only. Information in this material
regarding any assets backing any securities discussed herein supersedes all
prior information regarding such assets. All information in this Term Sheet,
whether regarding the assets backing any securities discussed herein or
otherwise, will be superseded by the information contained in any final
prospectus for any securities actually sold to you.
This material is furnished to you by Citibank, N.A. and J.P. Morgan Securities
Inc. and not by the issuer of the securities. Citibank, N.A. and J.P. Morgan
Securities Inc. are not acting as agents for the issuer or its affiliates in
connection with the proposed transaction. The issuer has not prepared or taken
part in the preparation of these materials.
<PAGE>
Information in this material regarding any assets backing any securities
discussed herein supersedes all prior information regarding such assets. All
information in this Term Sheet, whether regarding the assets backing any
securities discussed herein or otherwise, will be superseded by the information
contained in any final prospectus for any securities actually sold to you.
- -------------------------------------------------------------------------------
Mortgage Capital Funding, Inc.
Multifamily/Commercial Mortgage Pass-Through Certificates, Series 1998-MC2
Classes A-1, A-2, B, C, D, E & X
$923,692,000 (approximate)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPERTY TYPE DISTRIBUTION BY CUT-OFF DATE BALANCE
- ---------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
NUMBER OF AGGREGATE PERCENTAGE AVERAGE AVERAGE CUT-OFF AVERAGE
MORTGAGE NUMBER OF CUT-OFF DATE OF INITIAL CUT-OFF DATE U/W DATE MORTGAGE
PROPERTY TYPE LOANS PROPERTIES BALANCE (a) POOL BALANCE BALANCE DSCR LTV RATIO RATE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Office 28.5 29.0 $346,778,351 34.4% $11,957,874 1.29x 73.67% 7.295%
Multifamily 35.0 36.0 225,652,619 22.4 6,268,128 1.33 77.87 7.117
Mixed Use 5.0 5.0 115,888,843 11.5 23,177,769 1.83 55.21 6.747
Anchored Retail 14.0 14.0 108,233,791 10.7 7,730,985 1.31 73.52 7.464
Unanchored Retail 30.0 30.0 84,566,463 8.4 2,818,882 1.41 71.71 7.430
Hotel 17.0 17.0 75,152,706 7.4 4,420,747 1.58 70.80 7.632
Industrial 10.5 12.0 26,657,201 2.6 2,221,433 1.37 70.10 7.539
Health Care 4.0 4.0 21,359,624 2.1 5,339,906 1.44 75.16 7.345
Mobile Home Park 2.0 2.0 3,664,797 0.4 1,832,398 1.24 72.87 7.539
Nursing Home 1.0 1.0 1,545,676 0.2 1,545,676 2.73 64.40 7.850
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL\AVG.\WTD.AVG 147.0 150.0 $1,009,500,069 100.0% $6,867,347 1.40x 72.02% 7.256%
- ---------------------------------------------------------------------------------------------------------------------------------
(a) Mixed use includes the $108mm Minneapolis City Center Loan which represents 10.7% of the pool .
</TABLE>
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[PIE CHART]
Multifamily Industrial
22.4% 2.6%
Mixed Use Health Care
11.5% 2.1%
Anchored Retail Mobile Home Park
10.7% 0.4%
Hotel Nursing Home
7.4% 0.2%
Unanchored Retail Office
8.4% 34.4%
- -------------------------------------------------------------------------------
Totals may not add up due to rounding
This material is for your private information and we are not soliciting any
action based upon it. This material is not to be construed as an offer to sell
or the solicitation of any offer to buy any security in any jurisdiction where
such an offer or solicitation would be illegal. This material is based on
information that we consider reliable, but we do not represent that it is
accurate or complete and it should not be relied upon as such. By accepting
this material the recipient agrees that it will not distribute or provide the
material to any other person. The information contained in this material may be
based on assumptions regarding market conditions and other matters as reflected
therein. We make no representations regarding the reasonableness of such
assumptions or the likelihood that any of such assumptions will coincide with
actual market conditions or events, and this material should not be relied upon
for such purposes. We and our affiliates, officers, directors, partners and
employees, including persons involved in the preparation or issuance of this
material may, from time to time, have long or short positions in, and buy and
sell, the securities mentioned therein or derivatives thereof (including
options). This material may be filed with the Securities and Exchange
Commission (the "SEC") and incorporated by reference into an effective
registration statement previously filed with the SEC under Rule 415 of the
Securities Act of 1933, including in cases where the material does not pertain
to securities that are ultimately offered for sale pursuant to such
registration statement. Information contained in this material is current as of
the date appearing on this material only. Information in this material
regarding any assets backing any securities discussed herein supersedes all
prior information regarding such assets. All information in this Term Sheet,
whether regarding the assets backing any securities discussed herein or
otherwise, will be superseded by the information contained in any final
prospectus for any securities actually sold to you.
<PAGE>
This material is furnished to you by Citibank, N.A. and J.P. Morgan Securities
Inc. and not by the issuer of the securities. Citibank, N.A. and J.P. Morgan
Securities Inc. are not acting as agents for the issuer or its affiliates in
connection with the proposed transaction. The issuer has not prepared or taken
part in the preparation of these materials.
<PAGE>
Information in this material regarding any assets backing any securities
discussed herein supersedes all prior information regarding such assets. All
information in this Term Sheet, whether regarding the assets backing any
securities discussed herein or otherwise, will be superseded by the information
contained in any final prospectus for any securities actually sold to you.
- -------------------------------------------------------------------------------
Mortgage Capital Funding, Inc.
Multifamily/Commercial Mortgage Pass-Through Certificates, Series 1998-MC2
Classes A-1, A-2, B, C, D, E & X
$923,692,000 (approximate)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEBT SERVICE COVERAGE RATIO
- ---------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AGGREGATE PERCENTAGE OF AVERAGE AVERAGE AVERAGE
RANGE OF MORTGAGE CUT-OFF DATE INITIAL POOL U/W CUT-OFF DATE MORTGAGE
U/W DSCR'S (X) LOANS BALANCE (a) BALANCE DSCR LTV RATIO RATE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1.00 - 1.09x (b) 3.0 $53,976,461 5.3% 1.05x 77.02% 7.836%
1.10 - 1.19 7.0 55,700,724 5.5 1.17 76.28 7.305
1.20 - 1.29 38.0 236,679,764 23.4 1.25 75.43 7.396
1.30 - 1.39 37.0 341,343,833 33.8 1.34 74.73 7.178
1.40 - 1.49 22.0 69,056,545 6.8 1.45 73.58 7.342
1.50 - 1.59 18.0 84,073,969 8.3 1.53 73.69 7.293
1.60 - 1.69 5.0 17,392,142 1.7 1.62 62.15 7.273
1.70 - 1.79 4.0 9,593,892 1.0 1.75 65.40 7.379
1.80 - 1.89 8.0 135,553,356 13.4 1.86 56.29 6.871
2.00 - 2.99 5.0 6,129,384 0.6 2.42 51.82 7.436
- ---------------------------------------------------------------------------------------------------------
TOTAL\AVG.\WTD.AVG 147.0 $1,009,500,069 100.0% 1.40x 72.02% 7.256%
- ---------------------------------------------------------------------------------------------------------
(a) Column total may not add up due to rounding.
(b) All three of these loans are NNN leases to investment grade tenants.
</TABLE>
O Weighted Average Current Debt Service Coverage Ratio: 1.40x
<TABLE>
<CAPTION>
CUT-OFF DATE LOAN TO VALUE RATIO (b)
- ---------------------------------------------------------------------------------------------------------
WEIGHTED
RANGE OF WEIGHTED AVERAGE WEIGHTED
CUT-OFF DATE NUMBER OF AGGREGATE PERCENTAGE OF AVERAGE CUT-OFF AVERAGE
LOAN-TO-VALUE MORTGAGE CUT-OFF DATE INITIAL POOL U/W DATE LTV MORTGAGE
RATIOS (%) LOANS BALANCE (a) BALANCE DSCR RATIO RATE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
25.0% - 49.9% 4.0 $4,858,089 0.5% 1.73x 42.44% 7.862%
50.0% - 59.9% 15.0 152,692,860 15.1 1.78 54.94 6.911
60.0% - 64.9% 10.0 46,368,894 4.6 1.55 62.22 7.454
65.0% - 69.9% 20.0 75,969,659 7.5 1.39 68.05 7.474
70.0% - 74.9% 46.0 205,183,595 20.3 1.38 73.17 7.475
75.0% - 79.9% 35.0 433,758,385 43.0 1.29 77.31 7.206
80.0% - 91.0% 17.0 90,668,589 9.0 1.27 82.79 7.262
- ---------------------------------------------------------------------------------------------------------
TOTAL\AVG.\WTD.AVG. 147.0 $1,009,500,069 100.0% 1.40x 72.02% 7.256%
- ---------------------------------------------------------------------------------------------------------
(a) Column total may not add up due to rounding.
(b) Ratio of Cut-Off Date Balance over Appraisal Value at Origination.
</TABLE>
O Weighted Average Cut-off Date Loan-to-Value Ratio: 72.02%
This material is for your private information and we are not soliciting any
action based upon it. This material is not to be construed as an offer to sell
or the solicitation of any offer to buy any security in any jurisdiction where
such an offer or solicitation would be illegal. This material is based on
information that we consider reliable, but we do not represent that it is
accurate or complete and it should not be relied upon as such. By accepting
this material the recipient agrees that it will not distribute or provide the
material to any other person. The information contained in this material may be
based on assumptions regarding market conditions and other matters as reflected
therein. We make no representations regarding the reasonableness of such
assumptions or the likelihood that any of such assumptions will coincide with
actual market conditions or events, and this material should not be relied upon
for such purposes. We and our affiliates, officers, directors, partners and
employees, including persons involved in the preparation or issuance of this
material may, from time to time, have long or short positions in, and buy and
sell, the securities mentioned therein or derivatives thereof (including
options). This material may be filed with the Securities and Exchange
Commission (the "SEC") and incorporated by reference into an effective
registration statement previously filed with the SEC under Rule 415 of the
Securities Act of 1933, including in cases where the material does not pertain
to securities that are ultimately offered for sale pursuant to such
registration statement. Information contained in this material is current as of
the date appearing on this material only. Information in this material
regarding any assets backing any securities discussed herein supersedes all
prior information regarding such assets. All information in this Term Sheet,
whether regarding the assets backing any securities discussed herein or
otherwise, will be superseded by the information contained in any final
prospectus for any securities actually sold to you.
This material is furnished to you by Citibank, N.A. and J.P. Morgan Securities
Inc. and not by the issuer of the securities. Citibank, N.A. and J.P. Morgan
Securities Inc. are not acting as agents for the issuer or its affiliates in
connection with the proposed transaction. The issuer has not prepared or taken
part in the preparation of these materials.
<PAGE>
Information in this material regarding any assets backing any securities
discussed herein supersedes all prior information regarding such assets. All
information in this Term Sheet, whether regarding the assets backing any
securities discussed herein or otherwise, will be superseded by the information
contained in any final prospectus for any securities actually sold to you.
- -------------------------------------------------------------------------------
Mortgage Capital Funding, Inc.
Multifamily/Commercial Mortgage Pass-Through Certificates, Series 1998-MC2
Classes A-1, A-2, B, C, D, E & X
$923,692,000 (approximate)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
REMAINING AMORTIZATION TERM (IN MONTHS)
- ------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AGGREGATE PERCENTAGE OF AVERAGE AVERAGE AVERAGE
RANGE OF AMORTIZATION MORTGAGE CUT-OFF DATE INITIAL POOL U/W CUT-OFF DATE MORTGAGE
TERMS (MOS.) LOANS BALANCE (a) BALANCE DSCR LTV RATIO RATE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0 - 179 6.0 $20,398,856 2.0% 1.27x 68.41% 7.595%
180 - 239 25.0 125,698,337 12.5 1.25 73.66 7.653
240 - 275 1.0 1,644,430 0.2 1.46 69.98 8.010
276 - 299 48.0 354,983,652 35.2 1.42 73.41 7.240
300 - 360 67.0 506,774,794 50.2 1.44 70.79 7.152
- ------------------------------------------------------------------------------------------------------------
TOTAL\AVG.\WTD.AVG 147.0 $1,009,500,069 100.0% 1.40x 72.02% 7.256%
- ------------------------------------------------------------------------------------------------------------
(a) Column total may not add up due to rounding.
</TABLE>
<TABLE>
<CAPTION>
CURRENT MORTGAGE RATES
- ------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AGGREGATE PERCENTAGE OF AVERAGE AVERAGE AVERAGE
RANGE OF MORTGAGE CUT-OFF DATE INITIAL POOL U/W CUT-OFF DATE MORTGAGE
MORTGAGE RATES (%) LOANS BALANCE (a) BALANCE DSCR LTV RATIO RATE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0.00% - 6.99% 10 .0 $175,539,438 17.4% 1.69x 61.90% 6.763%
7.00% - 7.49% 78 .0 527,517,508 52.3 1.37 75.08 7.159
7.50% - 7.99% 52 .0 281,961,293 27.9 1.28 73.25 7.650
8.00% - 8.49% 4 .0 17,042,052 1.7 1.33 66.76 8.157
8.50% - 8.99% 2 .0 5,871,886 0.6 1.71 62.20 8.707
9.00% - 9.49 1 .0 1,567,893 0.2 1.46 44.54 9.020
- ------------------------------------------------------------------------------------------------------------
TOTAL\AVG.\WTD.AVG 147 .0 $1,009,500,069 100.0% 1.40x 72.02% 7.256%
- ------------------------------------------------------------------------------------------------------------
(a) Column total may not add up due to rounding.
</TABLE>
This material is for your private information and we are not soliciting any
action based upon it. This material is not to be construed as an offer to sell
or the solicitation of any offer to buy any security in any jurisdiction where
such an offer or solicitation would be illegal. This material is based on
information that we consider reliable, but we do not represent that it is
accurate or complete and it should not be relied upon as such. By accepting
this material the recipient agrees that it will not distribute or provide the
material to any other person. The information contained in this material may be
based on assumptions regarding market conditions and other matters as reflected
therein. We make no representations regarding the reasonableness of such
assumptions or the likelihood that any of such assumptions will coincide with
actual market conditions or events, and this material should not be relied upon
for such purposes. We and our affiliates, officers, directors, partners and
employees, including persons involved in the preparation or issuance of this
material may, from time to time, have long or short positions in, and buy and
sell, the securities mentioned therein or derivatives thereof (including
options). This material may be filed with the Securities and Exchange
Commission (the "SEC") and incorporated by reference into an effective
registration statement previously filed with the SEC under Rule 415 of the
Securities Act of 1933, including in cases where the material does not pertain
to securities that are ultimately offered for sale pursuant to such
registration statement. Information contained in this material is current as of
the date appearing on this material only. Information in this material
regarding any assets backing any securities discussed herein supersedes all
prior information regarding such assets. All information in this Term Sheet,
whether regarding the assets backing any securities discussed herein or
otherwise, will be superseded by the information contained in any final
prospectus for any securities actually sold to you.
This material is furnished to you by Citibank, N.A. and J.P. Morgan Securities
Inc. and not by the issuer of the securities. Citibank, N.A. and J.P. Morgan
Securities Inc. are not acting as agents for the issuer or its affiliates in
connection with the proposed transaction. The issuer has not prepared or taken
part in the preparation of these materials.
<PAGE>
Information in this material regarding any assets backing any securities
discussed herein supersedes all prior information regarding such assets. All
information in this Term Sheet, whether regarding the assets backing any
securities discussed herein or otherwise, will be superseded by the information
contained in any final prospectus for any securities actually sold to you.
- -------------------------------------------------------------------------------
Mortgage Capital Funding, Inc.
Multifamily/Commercial Mortgage Pass-Through Certificates, Series 1998-MC2
Classes A-1, A-2, B, C, D, E & X
$923,692,000 (approximate)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZATION CHARACTERISTICS
- --------------------------------------------------------------------------------------------------------------
NUMBER WEIGHTED WEIGHTED WEIGHTED
OF AGGREGATE PERCENTAGE AVERAGE AVERAGE AVERAGE
MORTGAGE CUT-OFF DATE OF INITIAL U/W CUT-OFF DATE MORTGAGE
BALLOON TYPE LOANS BALANCE (a) POOL BALANCE DSCR LTV RATIO RATE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balloon 122.0 $595,829,874 59.02% 1.37x 73.44% 7.337%
Fully Amortizing 23.0 123,578,512 12.24 1.22 73.82 7.668
ARD 2.0 290,091,683 28.74 1.54 68.33 6.915
- --------------------------------------------------------------------------------------------------------------
TOTAL\AVG.\WTD.AVG. 147.0 $1,009,500,069 100.00% 1.40x 72.02% 7.256%
- --------------------------------------------------------------------------------------------------------------
(a) Column total may not add up due to rounding.
</TABLE>
<TABLE>
<CAPTION>
REMAINING TERM TO MATURITY (IN MONTHS) (b)
- --------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF REMAINING NUMBER OF AGGREGATE PERCENTAGE OF AVERAGE AVERAGE AVERAGE
TERM TO MATURITY MORTGAGE CUT-OFF DATE INITIAL POOL U/W CUT-OFF DATE MORTGAGE
(MOS.) LOANS BALANCE (a) BALANCE DSCR LTV RATIO RATE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
60 - 83 4.0 $16,117,747 1.6% 1.25x 76.8% 7.188%
84 - 119 107.0 678,761,637 67.2 1.38 74.3 7.217
120 - 360 36.0 314,620,686 31.2 1.47 66.9 7.343
- --------------------------------------------------------------------------------------------------------------
TOTAL\AVG.\WTD.AVG 147.0 $1,009,500,069 100.0% 1.40x 72.02% 7.256%
- --------------------------------------------------------------------------------------------------------------
(a) Column total may not add up due to rounding.
(b) "Maturity" means the stated maturity date or, with respect to any Hyper-Amortization Loan, its
Anticipated Repayment Date.
</TABLE>
<TABLE>
<CAPTION>
YEAR OF ORIGINATION
- --------------------------------------------------------------------------------------------------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
NUMBER OF AGGREGATE PERCENTAGE OF AVERAGE CUT-OFF AVERAGE
MORTGAGE CUT-OFF DATE INITIAL POOL U/W DATE MORTGAGE
YEAR OF ORIGINATION LOANS BALANCE (a) BALANCE DSCR LTV RATIO RATE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 24.0 $235,313,455 23.3% 1.23x 74.97% 7.576
1998 123.0 774,186,615 76.7 1.46 71.12 7.159
- --------------------------------------------------------------------------------------------------------------
TOTAL\AVG.\WTD.AVG 147.0 $1,009,500,069 100.0% 1.40x 72.02% 7.256%
- --------------------------------------------------------------------------------------------------------------
(a) Column total may not add up due to rounding.
</TABLE>
This material is for your private information and we are not soliciting any
action based upon it. This material is not to be construed as an offer to sell
or the solicitation of any offer to buy any security in any jurisdiction where
such an offer or solicitation would be illegal. This material is based on
information that we consider reliable, but we do not represent that it is
accurate or complete and it should not be relied upon as such. By accepting
this material the recipient agrees that it will not distribute or provide the
material to any other person. The information contained in this material may be
based on assumptions regarding market conditions and other matters as reflected
therein. We make no representations regarding the reasonableness of such
assumptions or the likelihood that any of such assumptions will coincide with
actual market conditions or events, and this material should not be relied upon
for such purposes. We and our affiliates, officers, directors, partners and
employees, including persons involved in the preparation or issuance of this
material may, from time to time, have long or short positions in, and buy and
sell, the securities mentioned therein or derivatives thereof (including
options). This material may be filed with the Securities and Exchange
Commission (the "SEC") and incorporated by reference into an effective
registration statement previously filed with the SEC under Rule 415 of the
Securities Act of 1933, including in cases where the material does not pertain
to securities that are ultimately offered for sale pursuant to such
registration statement. Information contained in this material is current as of
the date appearing on this material only. Information in this material
regarding any assets backing any securities discussed herein supersedes all
prior information regarding such assets. All information in this Term Sheet,
whether regarding the assets backing any securities discussed herein or
otherwise, will be superseded by the information contained in any final
prospectus for any securities actually sold to you.
This material is furnished to you by Citibank, N.A. and J.P. Morgan Securities
Inc. and not by the issuer of the securities. Citibank, N.A. and J.P. Morgan
Securities Inc. are not acting as agents for the issuer or its affiliates in
connection with the proposed transaction. The issuer has not prepared or taken
part in the preparation of these materials.
<PAGE>
Information in this material regarding any assets backing any securities
discussed herein supersedes all prior information regarding such assets. All
information in this Term Sheet, whether regarding the assets backing any
securities discussed herein or otherwise, will be superseded by the information
contained in any final prospectus for any securities actually sold to you.
- -------------------------------------------------------------------------------
Mortgage Capital Funding, Inc.
Multifamily/Commercial Mortgage Pass-Through Certificates, Series 1998-MC2
Classes A-1, A-2, B, C, D, E & X
$923,692,000 (approximate)
- -------------------------------------------------------------------------------
375 HUDSON STREET
New York, NY
- -------------------------------------------------------------------------------
Loan Information
- -------------------------------------------------------------------------------
Original Principal Balance: $183,000,000
Cut-off Date Balance: $182,091,684
Origination Date: January 30, 1998
Interest Rate: 7.03%
Anticipated Repayment Date ("ARD): February 1, 2008
Maturity Date: February 1, 2013
Borrower/ TST 375 Hudson,LLC, a special-
Sponsoring purpose entity controlled by
Entity: Tishman Speyer/Travelers Real
Estate Venture, L.P.
Amortization Term: The Loan will amortize for the first five
(5) years of the term on a monthly
payment of $1,296,910, implying a
twenty five (25) year schedule, and
thereafter on a monthly payment of
$1,539,742 implying a seventeen (17)
year schedule based on the original
principal balance.
Hyperamoritization: From and after the ARD, the interest
rate increases to 9.03%, with such
increased interest being added to the
unpaid principal balance of the Mortgage
Loan and certain excess cash flow will
be applied to pay down the oustanding
principal balance of the Mortgage Loan.
Prepayment Terms/ Prepayment is permitted in whole only
Defeasance/Release after August 1, 2007, without
Provisions: payment of a penalty. No prepayment
is permitted prior to such date.
Defeasance is permitted from and
after February 1, 2002 to February 1,
2007 by pledging U.S. Government
obligations.
Up-Front Reserves: $324,423 tax and insurance escrow
Ongoing Reserves: $1,000,000 annually, in monthly
payments of $83,333 for tenant
improvements.
Monthly payments for insurance and
property taxes
Collection Account: Lender will have exclusive control over
lock-box account from and after earlier
of default and February 1, 2007.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Property Information
- -------------------------------------------------------------------------------
Single Asset/Portfolio: Single asset
Property Type: Office
Occupancy: 100%
Year Built: 1987
The Collateral: 973,435 square feet of office and retail
in an 18-story tower with two levels of
parking.
Rentable Square Feet: Office: 912,542
Retail/Basement: 60,893
Total: 973,435
Significant Tenants: Lease
Tenant NRSF Expiration
------ ---- ----------
Saatchi & Saatchi NA 769,768 Jan 2013
Penguin Putnam Inc. 146,433 Feb 2010
West Publishing 47,945 Oct 2004
Penguin Putnam Inc. is a wholly owned
subsidiary of Pearson Plc. Pearson Plc
is rated A2 by Moody's and A by S&P.
West Publishing Corporation is a wholly
owned subsidiary of Thomson Corporation.
Thomson Corporation is rated A, low by
Dominion Bond Rating Service.
Property Management: Tishman Speyer Properties, LP
1997 Net Operating Income: $21,002,046
Underwritten Net Cash Flow: $21,016,439
Appraised Value: $237,000,000
Appraisal Date: February 12, 1998
Cut-off Date Loan-to-Value Ratio: 77%
Annual Debt Service: $15,562,923
Underwritten DSCR (1): 1.35x
Loan/Sq.Ft. as of Cut-off Date $187
- -------------------------------------------------------------------------------
(1) Based on underwritten net cash flow
This material is for your private information and we are not soliciting any
action based upon it. This material is not to be construed as an offer to sell
or the solicitation of any offer to buy any security in any jurisdiction where
such an offer or solicitation would be illegal. This material is based on
information that we consider reliable, but we do not represent that it is
accurate or complete and it should not be relied upon as such. By accepting
this material the recipient agrees that it will not distribute or provide the
material to any other person. The information contained in this material may be
based on assumptions regarding market conditions and other matters as reflected
therein. We make no representations regarding the reasonableness of such
assumptions or the likelihood that any of such assumptions will coincide with
actual market conditions or events, and this material should not be relied upon
for such purposes. We and our affiliates, officers, directors, partners and
employees, including persons involved in the preparation or issuance of this
material may, from time to time, have long or short positions in, and buy and
sell, the securities mentioned therein or derivatives thereof (including
options). This material may be filed with the Securities and Exchange
Commission (the "SEC") and incorporated by reference into an effective
registration statement previously filed with the SEC under Rule 415 of the
Securities Act of 1933, including in cases where the material does not pertain
to securities that are ultimately offered for sale pursuant to such
registration statement. Information contained in this material is current as of
the date appearing on this material only. Information in this material
regarding any assets backing any securities discussed herein supersedes all
prior information regarding such assets. All information in this Term Sheet,
whether regarding the assets backing any securities discussed herein or
otherwise, will be superseded by the information contained in any final
prospectus for any securities actually sold to you.
This material is furnished to you by Citibank, N.A. and J.P. Morgan Securities
Inc. and not by the issuer of the securities. Citibank, N.A. and J.P. Morgan
Securities Inc. are not acting as agents for the issuer or its affiliates in
connection with the proposed transaction. The issuer has not prepared or taken
part in the preparation of these materials.
<PAGE>
Information in this material regarding any assets backing any securities
discussed herein supersedes all prior information regarding such assets. All
information in this Term Sheet, whether regarding the assets backing any
securities discussed herein or otherwise, will be superseded by the information
contained in any final prospectus for any securities actually sold to you.
- -------------------------------------------------------------------------------
Mortgage Capital Funding, Inc.
Multifamily/Commercial Mortgage Pass-Through Certificates, Series 1998-MC2
Classes A-1, A-2, B, C, D, E & X
$923,692,000 (approximate)
- -------------------------------------------------------------------------------
MINNEAPOLIS CITY CENTER
Minneapolis, MN
- -------------------------------------------------------------------------------
Loan Information
- -------------------------------------------------------------------------------
Original Principal Balance: $108,000,000
Cut-off Date Balance: $108,000,000
Origination Date: May 21, 1998
Interest Rate: 6.72%
Anticipated May 31, 2008
Repayment Date
("ARD):
Maturity Date: May 31, 2028
Property Owner, City Center Associates Limited
Mortgagor, & Wrap Partnership
Mortgagor
Borrower/Wrap MCC Mortgage LP owns a wrap mortgage,
Mortgagor: fully subordinated, to the 1st Mortgage
Loan, and an option to purchase the
Minneapolis City Center property. An
affiliate of MCC Mortgage L.P. holds a
long-term management contract to manage
the Minneapolis City Center Property.
Sponsoring Entity: Brookfield Properties Corporation, a
Canadian public company with CDN$ 9.145
billion in assets which controls the
Minneapolis City Center Borrower.
Amortization Term: The term of the loan is thirty (30)
years. Equal monthly payments of
principal and interest are required in
an amount sufficient to fully amortize
the Loan over a thirty (30) year
schedule
Hyperamoritization: From and after the ARD, the interest
rate increases to the greater of 8.72%,
or 102 basis points above the then
prevailing yield to maturity on the "on
the run" 20-year US Government Treasury
security. Additional interest in excess
of the initial interest rate shall be
added to unpaid principal balance of the
Mortgage Loan, and certain excess cash
flow will be applied to pay down the
outstanding principal balance of the
Mortgage Loan.
Prepayment Terms: The Mortgage Loan may be prepaid in
whole, but not in part, on any Due Date,
according payment date, according to the
following schedule:
Years 1-4: greater of yield maintenance
payment or 5% of the outstanding
principal balance.
Years 5-9.5: greater of yield
maintenance payment or 2% of outstanding
principal balance.
Thereafter fully prepayable without
penalty.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Property Information
- -------------------------------------------------------------------------------
Single Asset/Portfolio: Single asset
Property Type: Mixed Use (Office, Retail, Hotel, Garage)
Occupancy: 97%
Year Built: 1982
The Collateral: Minneapolis City Center, 1,582,000 sf of
office, retail, and storage, 687-car,
six-level parking garage, and land on
which a 602-room Marriott Hotel is
constructed subject to a ground lease of
which the CCALP is the lessor
Rentable Square Feet: Office: 1,081,000
Retail: 370,000
Storage: 131,000
Total: 1,582,000
Significant Tenants: Lease
Tenant NRSF Expiration
------ ---- ----------
Target (Dayton-Hudson) 675,064 1/99-11/13
International Multifoods 133,737 2/2003
Gray, Plant & Mooty 72,832 3/1999
Marshall's (CVS Corp.) 50,163 1/2003
Dayton & Hudson, the parent company, is
rated Baa1 by Moody's.
CVS Corp, the parent company, is rated
A- by S&P.
Property Management: Brookfield Management Services LLC
1997 Net Operating Income: $15,493,928
Underwritten Net Cash Flow: $15,545,314
Appraised Value: $200,000,000
Appraisal Date: August 1, 1997
Cut-off Date Loan-to-Value Ratio: 54%
Annual Debt Service: $8,380,003
Underwritten DSCR: (1) 1.85x
Loan/Sq.Ft. as of Cut-off Date $68
- -------------------------------------------------------------------------------
(1) Based on underwritten net cash flow
This material is for your private information and we are not soliciting any
action based upon it. This material is not to be construed as an offer to sell
or the solicitation of any offer to buy any security in any jurisdiction where
such an offer or solicitation would be illegal. This material is based on
information that we consider reliable, but we do not represent that it is
accurate or complete and it should not be relied upon as such. By accepting
this material the recipient agrees that it will not distribute or provide the
material to any other person. The information contained in this material may be
based on assumptions regarding market conditions and other matters as reflected
therein. We make no representations regarding the reasonableness of such
assumptions or the likelihood that any of such assumptions will coincide with
actual market conditions or events, and this material should not be relied upon
for such purposes. We and our affiliates, officers, directors, partners and
employees, including persons involved in the preparation or issuance of this
material may, from time to time, have long or short positions in, and buy and
sell, the securities mentioned therein or derivatives thereof (including
options). This material may be filed with the Securities and Exchange
Commission (the "SEC") and incorporated by reference into an effective
registration statement previously filed with the SEC under Rule 415 of the
Securities Act of 1933, including in cases where the material does not pertain
to securities that are ultimately offered for sale pursuant to such
registration statement. Information contained in this material is current as of
the date appearing on this material only. Information in this material
regarding any assets backing any securities discussed herein supersedes all
prior information regarding such assets. All information in this Term Sheet,
whether regarding the assets backing any securities discussed herein or
otherwise, will be superseded by the information contained in any final
prospectus for any securities actually sold to you.
This material is furnished to you by Citibank, N.A. and J.P. Morgan Securities
Inc. and not by the issuer of the securities. Citibank, N.A. and J.P. Morgan
Securities Inc. are not acting as agents for the issuer or its affiliates in
connection with the proposed transaction. The issuer has not prepared or taken
part in the preparation of these materials.
<PAGE>
Information in this material regarding any assets backing any securities
discussed herein supersedes all prior information regarding such assets. All
information in this Term Sheet, whether regarding the assets backing any
securities discussed herein or otherwise, will be superseded by the information
contained in any final prospectus for any securities actually sold to you.
- -------------------------------------------------------------------------------
Mortgage Capital Funding, Inc.
Multifamily/Commercial Mortgage Pass-Through Certificates, Series 1998-MC2
Classes A-1, A-2, B, C, D, E & X
$923,692,000 (approximate)
- -------------------------------------------------------------------------------
MINNEAPOLIS CITY CENTER
Minneapolis, MN (...continued...)
- -------------------------------------------------------------------------------
Loan Information
- -------------------------------------------------------------------------------
Upfront Reserves: $5,000,000 tenant improvement leasing
commission ("TI/LC")
$309,000 repair reserve
$2,270,000 debt service reserves
$646,685 tax and insurance reserve
Ongoing Reserves: TI/LC replenished at minimum of $125,000
per month if TI/LC reserve fund falls
below $5,000,000; monthly repair (for
first 2 years) and replacement reserves
required.
Collection Property revenue is deposited into a
Accounts: clearing account controlled by the wrap
mortgagee (i.e., the borrower) and then
swept into the various borrower or
mortgagor deposit accounts (debt
service, TI/LC, real estate
tax/insurance, etc.). The deposit
accounts are controlled by the first
mortgagee.
Subordinate Debt: Subordinate wrap mortgage, together with
subordinated option to purchase
property, held by Minneapolis City
Center Borrower. Such wrap mortgage has
principal balance and accrued interest
of approximately $544,000,000 as of
12/31/97.
Mezzanine Debt: $25 million, held by an affiliate of the
Minneapolis City Center Borrower.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Property Information
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
This material is for your private information and we are not soliciting any
action based upon it. This material is not to be construed as an offer to sell
or the solicitation of any offer to buy any security in any jurisdiction where
such an offer or solicitation would be illegal. This material is based on
information that we consider reliable, but we do not represent that it is
accurate or complete and it should not be relied upon as such. By accepting
this material the recipient agrees that it will not distribute or provide the
material to any other person. The information contained in this material may be
based on assumptions regarding market conditions and other matters as reflected
therein. We make no representations regarding the reasonableness of such
assumptions or the likelihood that any of such assumptions will coincide with
actual market conditions or events, and this material should not be relied upon
for such purposes. We and our affiliates, officers, directors, partners and
employees, including persons involved in the preparation or issuance of this
material may, from time to time, have long or short positions in, and buy and
sell, the securities mentioned therein or derivatives thereof (including
options). This material may be filed with the Securities and Exchange
Commission (the "SEC") and incorporated by reference into an effective
registration statement previously filed with the SEC under Rule 415 of the
Securities Act of 1933, including in cases where the material does not pertain
to securities that are ultimately offered for sale pursuant to such
registration statement. Information contained in this material is current as of
the date appearing on this material only. Information in this material
regarding any assets backing any securities discussed herein supersedes all
prior information regarding such assets. All information in this Term Sheet,
whether regarding the assets backing any securities discussed herein or
otherwise, will be superseded by the information contained in any final
prospectus for any securities actually sold to you.
This material is furnished to you by Citibank, N.A. and J.P. Morgan Securities
Inc. and not by the issuer of the securities. Citibank, N.A. and J.P. Morgan
Securities Inc. are not acting as agents for the issuer or its affiliates in
connection with the proposed transaction. The issuer has not prepared or taken
part in the preparation of these materials.
<PAGE>
Information in this material regarding any assets backing any securities
discussed herein supersedes all prior information regarding such assets. All
information in this Term Sheet, whether regarding the assets backing any
securities discussed herein or otherwise, will be superseded by the information
contained in any final prospectus for any securities actually sold to you.
- -------------------------------------------------------------------------------
Mortgage Capital Funding, Inc.
Multifamily/Commercial Mortgage Pass-Through Certificates, Series 1998-MC2
Classes A-1, A-2, B, C, D, E & X
$923,692,000 (approximate)
- -------------------------------------------------------------------------------
WELLPOINT OFFICE COMPLEX
Los Angeles, CA
- -------------------------------------------------------------------------------
Loan Information
- -------------------------------------------------------------------------------
Original Principal Balance: $51,200,000
Cut-off Date Balance: $51,200,000
Origination Date: July 11, 1997
Interest Rate: 7.86%
Maturity Date: December 1, 2015
Borrower/ TA/Warner Center Associates II, L.P., a
Sponsoring Entity: special purpose entity controlled by two
individuals and Apollo Real Estate &
Investment Fund, LC
Amortization Term: The amoritization schedule is
based off the calendar year as
follows:
7/97-12/31/98: Interest Only
1999: 35 year schedule
2000: 30 year schedule
2001: 21 year schedule
2002: 17 year schedule
2003: 15 year schedule
2004-2015: 12 year schedule
Prepayment Terms/ The loan may be prepaid in whole,
Defeasance/Release but not in part according to the
Provisions: following schedule: For years 1-7:
no prepayment; Thereafter: Greater
of 2% of UPB or Yield Maintenance;
Years 5-7: Defeasance permitted
with defeasance deposit and pledge.
Up-Front Reserves: Annual Replacement Reserve of
$42,710; Completion Repair Reserve
of $130,925 (125% of the
recommended repair cost estimates
that borrower is responsible for as
per the third party property condition
report)
Ongoing Reserves: Annual Completion Repair Reserve of
$42,710. Annual Earthquake Insurance
Reserves of $80,100.
Collection Account: Hard Lock Box
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Property Information
- -------------------------------------------------------------------------------
Single Asset/Portfolio: Single asset
Property Type: Office
Occupancy: 100%
Year Built: 1977
The Collateral: 427,100 sq.ft. office building
Rentable Square Feet: 427,100
Significant Tenant: Wellpoint Health Networks occupies
100% of the building.
Public Rating as of 6/1/98:
S&P: BBB+
Moody's: Baa3
Lease expires in 2019 with two 5-year
renewal options at fair market rent
Property Management: LaSalle Partners
1997 Net Operating Income: $4,270,000
Underwritten Net Cash Flow: $4,227,290
Appraised Value: $67,000,000
Appraisal Date: March 13, 1997
Cut-off Date Loan-to-Value Ratio: 76%
Annual Debt Service: $4,024,320
Underwritten DSCR (1): 1.05x
Loan/Sq.Ft. as of Cut-off Date: $120
- -------------------------------------------------------------------------------
(1) Based on underwritten net cash flow which is calculated excluding the
$80,100 reserve for earthquake insurance.
This material is for your private information and we are not soliciting any
action based upon it. This material is not to be construed as an offer to sell
or the solicitation of any offer to buy any security in any jurisdiction where
such an offer or solicitation would be illegal. This material is based on
information that we consider reliable, but we do not represent that it is
accurate or complete and it should not be relied upon as such. By accepting
this material the recipient agrees that it will not distribute or provide the
material to any other person. The information contained in this material may be
based on assumptions regarding market conditions and other matters as reflected
therein. We make no representations regarding the reasonableness of such
assumptions or the likelihood that any of such assumptions will coincide with
actual market conditions or events, and this material should not be relied upon
for such purposes. We and our affiliates, officers, directors, partners and
employees, including persons involved in the preparation or issuance of this
material may, from time to time, have long or short positions in, and buy and
sell, the securities mentioned therein or derivatives thereof (including
options). This material may be filed with the Securities and Exchange
Commission (the "SEC") and incorporated by reference into an effective
registration statement previously filed with the SEC under Rule 415 of the
Securities Act of 1933, including in cases where the material does not pertain
to securities that are ultimately offered for sale pursuant to such
registration statement. Information contained in this material is current as of
the date appearing on this material only. Information in this material
regarding any assets backing any securities discussed herein supersedes all
prior information regarding such assets. All information in this Term Sheet,
whether regarding the assets backing any securities discussed herein or
otherwise, will be superseded by the information contained in any final
prospectus for any securities actually sold to you.
This material is furnished to you by Citibank, N.A. and J.P. Morgan Securities
Inc. and not by the issuer of the securities. Citibank, N.A. and J.P. Morgan
Securities Inc. are not acting as agents for the issuer or its affiliates in
connection with the proposed transaction. The issuer has not prepared or taken
part in the preparation of these materials.
<PAGE>
P R O S P E C T U S
MORTGAGE CAPITAL FUNDING, INC.
(SPONSOR)
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 or participations therein (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)
FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE
SECURITIES, SEE THE INFORMATION UNDER "RISK FACTORS" ON PAGE 14 AND SUCH
INFORMATION AS MAY BE SET FORTH UNDER THE CAPTION "RISK FACTORS" IN THE
RELATED PROSPECTUS SUPPLEMENT.
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.
JUNE 17, 1998
<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".
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 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
2
<PAGE>
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
Regional Offices located as follows: Midwest Regional Office, Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and
Northeast Regional Office, Seven World Trade Center, Suite 1300, New York, New
York 10048. The Commission maintains a Web site at http://www.sec.gov
containing reports, proxy and information statements and other information
regarding registrants, including the Sponsor, that file electronically with the
Commission.
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 or the Trustee 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
Enforceability 18
Leases and Rents as Security for a Mortgage
Loan 18
Environmental Risks 19
Special Hazard Losses 19
ERISA Considerations 19
Certain Federal Tax Considerations Regarding
REMIC Residual Certificates 19
Book-Entry Registration 20
Potential Conflicts of Interest 20
Delinquent and Non-Performing Mortgage Loans 20
DESCRIPTION OF THE TRUST FUNDS 21
General 21
Mortgage Loans 21
MBS 23
Certificate Accounts 24
Credit Support 24
Cash Flow Agreements 24
YIELD AND MATURITY CONSIDERATIONS 25
General 25
Pass-Through Rate 25
Payment Delays 25
Certain Shortfalls in Collections of Interest 25
Yield and Prepayment Considerations 26
Weighted Average Life and Maturity 27
Controlled Amortization Classes and Companion
Classes 28
Other Factors Affecting Yield, Weighted
Average Life and Maturity 28
MORTGAGE CAPITAL FUNDING, INC 30
USE OF PROCEEDS 30
DESCRIPTION OF THE CERTIFICATES 30
General 30
Distributions 31
Distributions of Interest on the Certificates 31
Distributions of Principal of the
Certificates 32
Distributions on the Certificates in Respect
of Prepayment Premiums or in Respect of
Equity Participations 33
Allocation of Losses and Shortfalls 33
Advances in Respect of Delinquencies 33
Reports to Certificateholders 34
Voting Rights 35
Termination 35
Book-Entry Registration and Definitive
Certificates 35
DESCRIPTION OF THE POOLING AGREEMENTS 37
General 37
Assignment of Mortgage Loans; Repurchases 37
Representations and Warranties; Repurchases 38
Collection and Other Servicing Procedures 39
Sub-Servicers 40
Certificate Account 40
Escrow Accounts 43
Modifications, Waivers and Amendments of
Mortgage Loans 43
Realization Upon Defaulted Mortgage Loans 43
Hazard Insurance Policies 45
Due-on-Sale and Due-on-Encumbrance Provisions 46
Servicing Compensation and Payment of
Expenses 46
Evidence as to Compliance 47
Certain Matters Regarding the Master
Servicer, the Special Servicer, the REMIC
Administrator and the Sponsor 47
Events of Default 48
Rights Upon Event of Default 49
Amendment 49
List of Certificateholders 50
The Trustee 50
Duties of the Trustee 50
Certain Matters Regarding the Trustee 50
Resignation and Removal of the Trustee 51
DESCRIPTION OF CREDIT SUPPORT 51
General 51
Subordinate Certificates 51
Cross-Support Provisions 52
Insurance or Guarantees with Respect to
Mortgage Loans 52
Letter of Credit 52
Certificate Insurance and Surety Bonds 52
Reserve Funds 52
Credit Support with Respect to MBS 53
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS 53
General 53
4
<PAGE>
PAGE
--------
Types of Mortgage Instruments 53
Leases and Rents 54
Personalty 54
Foreclosure 54
Bankruptcy Laws 57
Environmental Risks 58
Due-on-Sale and Due-on-Encumbrance 59
Subordinate Financing 59
Default Interest and Limitations on
Prepayments 60
Applicability of Usury Laws 60
Soldiers' and Sailors' Civil Relief Act of
1940 60
Americans with Disabilities Act 60
Forfeitures in Drug and RICO Proceedings 61
MATERIAL FEDERAL INCOME TAX CONSEQUENCES 61
General 61
REMICs 62
Taxation of Owners of REMIC Regular
Certificates 63
Taxation of Owners of REMIC Residual
Certificates 67
Grantor Trust Funds 75
Characterization of Investments in Grantor
Trust Certificates 75
Taxation of Owners of Grantor Trust
Fractional Interest Certificates 76
Taxation of Owners of Stripped Interest
Certificates 80
STATE AND OTHER TAX CONSEQUENCES 83
ERISA CONSIDERATIONS 83
General 83
Plan Asset Regulations 84
LEGAL INVESTMENT 84
METHOD OF DISTRIBUTION 86
FINANCIAL INFORMATION 87
RATING 87
</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 ......... 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,
including participations therein
(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 facilities, 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 Supplement, by any
6
<PAGE>
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 and/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)
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 Government
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 Prospectus Supplement will, to
the extent provided in the related Pooling
Agreement (as defined below) 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
7
<PAGE>
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, "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
8
<PAGE>
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".
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 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".
9
<PAGE>
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 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
10
<PAGE>
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 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 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
11
<PAGE>
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 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, (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".
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 treated as
owning an interest in qualifying assets and
income under Sections 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
856(c)(5)(A) and 856(c)(3)(B) of the Code.
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
12
<PAGE>
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
15
<PAGE>
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
16
<PAGE>
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 either
reasonably foreseeable or imminent. In addition, if any such Mortgage Loan
thereafter comes current in accordance with its modified terms, the Special
Servicer may receive a workout fee based on receipts from or proceeds of such
Mortgage Loans. While a Master Servicer and/or Special Servicer generally will
be required to determine
17
<PAGE>
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 (particularly taking account
of the payment of a workout fee to the Special Servicer) will in fact increase
the present value of receipts from or proceeds of the affected Mortgage Loans.
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".
ENFORCEABILITY
Mortgages may contain a due-on-sale clause, which permits the lender to
accelerate the maturity of the Mortgage Loan if the mortgagor sells, transfers
or conveys the related Mortgaged Property or its interest in the Mortgaged
Property. Mortgages may also include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary or non-monetary default of
the mortgagor. Such clauses are generally enforceable subject to certain
exceptions. The courts of all states will generally enforce clauses providing
for acceleration in the event of a material payment default. The equity courts
of any state, however, may refuse the foreclosure of a mortgage or deed of
trust when an acceleration of the indebtedness would be inequitable or unjust
or the circumstances would render the acceleration unconscionable.
Notes and mortgages may contain provisions that obligate the Mortgagor 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 Mortgagor'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 Mortgagor
for delinquent payments. Certain states also limit the amounts that a lender
may collect from a Mortgagor as an additional charge if the loan is prepaid. 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.
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".
18
<PAGE>
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 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". REMIC Residual Certificates may have "phantom income"
associated with them, which is to say that taxable income may be reportable
with respect to a REMIC Residual Certificate early in the term of the related
REMIC with a corresponding amount of tax losses reportable in later years of
that REMIC's term. Under these circumstances, the present value of the tax
detriments with respect to the related REMIC Residual Certificates exceeds the
present value of the related tax benefits accruing later. 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, and certain REMIC Residual Certificates may have a negative
"value". 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. All or a portion of such a
Certificateholder's share of the REMIC taxable income may
19
<PAGE>
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. Moreover, because an amount of gross income equal to the fees and
non-interest expenses of each REMIC will be allocated to the REMIC Residual
Certificates, but such expenses will be deductible by holders of REMIC Residual
Certificates who are individuals only as miscellaneous itemized deductions,
REMIC Residual Certificates will generally not be appropriate investments for
individuals, estates or trusts or for pass-through entities (including
partnerships and S corporations) beneficially owned by, or having as partners
or shareholders, one or more individuals, estates or trusts. In addition, REMIC
Residual Certificates are subject to certain restrictions on transfer,
including, but not limited to, a prohibition to investors that are not United
States Persons (as defined herein).
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".
POTENTIAL CONFLICTS OF INTEREST
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. Also, as specified in the related Prospectus
Supplement, the holders of interests in a specified class or classes of
Subordinate Certificates may have the ability to replace the Special Servicer
or direct the Special Servicer's actions in connection with liquidating or
modifying defaulted Mortgage Loans. Accordingly, investors in those Classes of
Offered Certificates more senior thereto 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
therein, it may have interests when dealing with defaulted Mortgage Loans that
are in conflict with those of holders of the Offered Certificates.
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
20
<PAGE>
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 or participations
therein (the "Mortgage Loans"), (ii) mortgage 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 facilities,
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 Prospectus
Supplement, the term of any such leasehold will exceed the term of the Mortgage
Note by at least ten years. 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.
21
<PAGE>
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 facilities. 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 pari passu therewith or 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 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
22
<PAGE>
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") and/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 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 current Loan-to-Value Ratios of the Mortgage Loans, or the range
thereof, and the weighted average current Loan-to-Value Ratio of the Mortgage
Loans, in each case based on an appraisal done at origination or, in some
instances, a more recent appraisal, (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 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 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.
23
<PAGE>
Any MBS will have been issued pursuant to 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.
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
24
<PAGE>
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 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
25
<PAGE>
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 or otherwise result
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).
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
26
<PAGE>
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) 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
27
<PAGE>
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 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
28
<PAGE>
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 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.
29
<PAGE>
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) 559-6899. All inquiries, requests and other
communications to the Sponsor regarding the matters described herein should be
made or sent to the attention of "Real Estate Capital Markets". The Sponsor
does not have, nor is it expected in the future to have, any significant
assets.
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
30
<PAGE>
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 certain 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 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.
31
<PAGE>
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 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
32
<PAGE>
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. Alternatively, payments in respect of Equity Participations
received on or in respect of any Mortgage Asset in any Trust Fund may be
retained by the Sponsor or another prior owner of such Mortgage Asset.
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.
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.
33
<PAGE>
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;
(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.
34
<PAGE>
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.
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.
35
<PAGE>
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 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
36
<PAGE>
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 also 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."
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
37
<PAGE>
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
(each 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.
38
<PAGE>
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 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
39
<PAGE>
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 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;
40
<PAGE>
(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.
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
41
<PAGE>
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";
(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";
42
<PAGE>
(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, (iii) will not adversely affect the coverage under any
applicable instrument of Credit Support or (iv) will not adversely affect the
Trust Fund's status as a REMIC or grantor trust, as the case may be. Unless
otherwise provided in the related Prospectus Supplement, a Special Servicer
also may agree to any other modification, waiver or amendment that would have
the effect described in clauses (i) and (ii) of the proviso to the preceding
sentence 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, (iii) such
modification, waiver or amendment will not adversely affect the coverage under
any applicable instrument of Credit Support and (iv) such modification, waiver
or amendment would not adversely affect the Trust Fund's status as a REMIC or
grantor trust, as the case may be.
If described in the related Prospectus Supplement, the holders of interests
in a specified class or classes of Subordinate Certificates may have the
ability to direct the Special Servicer's actions in connection with liquidating
or modifying defaulted Mortgage Loans or to replace the Special Servicer and
substitute any such holder or an affiliate thereof as the successor. See "Risk
Factors--Potential Conflicts of Interest." The Prospectus Supplement will
describe, however, whether and to what extent holders of Offered Certificates
may object to the Special Servicer extending the maturity of a defaulted
Mortgage Loan beyond a certain date.
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
43
<PAGE>
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 by the end of the third taxable year
following the taxable year in which such acquisition occurred, 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 beyond the end of the third taxable year following the taxable year in
which the property was
44
<PAGE>
acquired will not result in the imposition of a tax on the Trust Fund or cause
the Trust Fund (or any designated portion 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 cash 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. The Special
Servicer may be authorized to conduct activities with respect to a Mortgaged
Property acquired by a Trust Fund that cause the Trust Fund to incur a federal
income or other tax, provided that doing so would, in reasonable discretion of
the Special Servicer, maximize net after-tax proceeds to Certificateholders.
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 (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.
45
<PAGE>
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies 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. 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 to 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. 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.
46
<PAGE>
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 that the Master
Servicer, the Special Servicer, the REMIC Administrator (if any), the Sponsor
and any director, officer,
47
<PAGE>
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 willful
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,
marshaling 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 Servicer or a REMIC Administrator (if any) indicating its insolvency or
inability to pay its obligations. Material variations
48
<PAGE>
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 described above 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 qualified and established 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 without such holder's consent
or adversely affect the status of the Trust Fund as either a REMIC or grantor
trust, as the case may be, for federal income tax purposes; 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
49
<PAGE>
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 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 amendment 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 as 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.
50
<PAGE>
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 1/3% (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
51
<PAGE>
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.
52
<PAGE>
Amounts on deposit in any reserve fund for a series, together with the
reinvestment income thereon, if any, will be applied for the purposes, in the
manner, and to the extent specified in the related Prospectus Supplement. 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,
53
<PAGE>
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
54
<PAGE>
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 in light of State law fraudulent
conveyance concerns. 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
55
<PAGE>
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 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
56
<PAGE>
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 its consequences caused by the
automatic stay can be significant. Also, under the Bankruptcy Code, the filing
of a petition in bankruptcy by or on behalf of a junior lienor 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.
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
57
<PAGE>
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 (except potentially to the extent of any security deposit)
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 (a) 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, plus (b) unpaid rent to the earlier of the surrender of the property or
the lessee's bankruptcy filing. 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 Conservation, Lender Liability and Deposit Insurance Act of 1996
(the "Lender Liability Act") amended, among other things, the provisions of
CERCLA with respect to lender liability and the secured creditor exemption. The
Lender Liability 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 Lender Liability 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 operational functions
of the mortgaged property. The Lender Liability 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
underground storage tanks pursuant to Subtitle I of the federal Resource
Conservation and Recovery Act ("RCRA").
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.
58
<PAGE>
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
certain conditions relating to environmental matters, as described under
"Description of the Pooling Agreements--Realization Upon Defaulted Mortgage
Loans", have been satisfied.
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 without the lender's consent. 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 or Special
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 or Special
Servicer's, as the case may be, ability to demonstrate that a sale threatens
its legitimate security interest.
SUBORDINATE FINANCING
Certain of the Mortgage Loans may not restrict the ability of the borrower
to use the Mortgaged Property as security for one or more additional loans.
Where a borrower encumbers a mortgaged property with one or more junior liens,
the senior lender is subjected to additional risk. First, the borrower may have
difficulty servicing and repaying multiple loans, and 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.
59
<PAGE>
DEFAULT INTEREST AND LIMITATIONS ON PREPAYMENTS
Notes and mortgages may contain provisions that obligate the borrower to pay
a late charge or additional interest if payments are not timely made, and in
some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower
for delinquent payments. Certain states also limit the amounts that a lender
may collect from a borrower as an additional charge if the loan is prepaid. In
addition, the enforceability of provisions that provide for prepayment fees or
penalties upon an involuntary prepayment is unclear under the laws of many
states.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control Act
of 1980 ("Title V") provides that state usury limitations shall not apply to
certain types of residential (including multifamily) first mortgage loans
originated by certain lenders after March 31, 1980. Title V authorized any
state to reimpose interest rate limits by adopting, before April 1, 1983, a law
or constitutional provision that expressly rejects application of the federal
law. In addition, even where Title V is not so rejected, any state is
authorized by the law to adopt a provision limiting discount points or other
charges on mortgage loans covered by Title V. Certain states have taken action
to reimpose interest rate limits and/or to limit discount points or other
charges.
No Mortgage Loan originated in any state in which application of Title V has
been expressly rejected or a provision limiting discount points or other
charges has been adopted, will (if originated after that rejection or adoption)
be eligible for inclusion in a Trust Fund unless (i) such Mortgage Loan
provides for such interest rate, discount points and charges as are permitted
in such state or (ii) such Mortgage Loan provides that the terms thereof are to
be construed in accordance with the laws of another state under which such
interest rate, discount points and charges would not be usurious and the
borrower's counsel has rendered an opinion that such choice of law provision
would be given effect.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a borrower who enters military service after the
origination of such borrower's mortgage loan (including a borrower who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an annual
rate of 6% during the period of such borrower's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies
to individuals who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Relief Act applies to
individuals who enter military service (including reservists who are called to
active duty) after origination of the related mortgage loan, no information can
be provided as to the number of loans with individuals as borrowers that may be
affected by the Relief Act. Application of the Relief Act would adversely
affect, for an indeterminate period of time, the ability of a Master Servicer
or Special Servicer to collect full amounts of interest on certain of the
Mortgage Loans. Any shortfalls in interest collections resulting from the
application of the Relief Act would result in a reduction of the amounts
distributable to the holders of the related series of Certificates, and would
not be covered by advances or, unless otherwise specified in the related
Prospectus Supplement, any form of Credit Support provided in connection with
such Certificates. In addition, the Relief Act imposes limitations that would
impair the ability of a Master Servicer or Special Servicer to foreclose on an
affected Mortgage Loan during the borrower's 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
60
<PAGE>
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.
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 is based on the advice of the special tax counsel to the
Sponsor specified in the related Prospectus Supplement. 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 below are based are subject to change or differing interpretations,
which could apply retroactively. Taxpayers and preparers of tax returns
(including those filed by any REMIC or other issuer) should be aware that under
applicable Treasury regulations a provider of advice on specific issues of law
is not considered an income tax return preparer unless the advice (i) is given
with respect to events that have occurred at the time the advice is rendered
and is not given with respect to the consequences of contemplated actions, and
(ii) is directly relevant to the determination of an entry on a tax return.
Accordingly, taxpayers should consult their own tax advisors and tax return
preparers regarding the treatment of any item on their tax return, even where
the anticipated tax consequences have 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".
61
<PAGE>
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 and certain other documents (and subject to certain assumptions set
forth therein), 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 entity may lose its status as a REMIC for such year and thereafter.
In that event, such entity may be taxable as a corporation and the related
REMIC Certificates may not be accorded the status or given the tax treatment
described below. Although the Code authorizes the Treasury Department to issue
regulations providing relief in the event of an inadvertent termination of
REMIC status, no such regulations have been issued. Any such relief, moreover,
may be accompanied by sanctions, such as the imposition of a corporate tax on
all or a portion of the Trust Fund's income for the period in which the
requirements for such status are not satisfied. The 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)(4)(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)(4)(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 in the hands of another REMIC and will be "permitted
assets" under Section 860L(c)(1)(G) for a "financial asset securitization
investment trust", or "FASIT". 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. Treasury
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)(4)(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 separate 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
62
<PAGE>
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)(4)(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 the cash method of accounting will be required to report
income with respect to REMIC Regular Certificates under the 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 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, however, 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 or that such Prepayment Assumption will not be
challenged by the Internal Revenue Service (the "IRS") on audit.
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", at a combination of a single fixed rate and one or more
"qualified floating rates" or one "qualified inverse floating rate", or at 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 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",
63
<PAGE>
some or all interest payments may be required to be included in the stated
redemption price of the REMIC Regular Certificate and accounted for as original
issue discount. Because interest on REMIC Regular Certificates must in any
event be accounted for under an accrual method, applying this analysis would
result in only a slight difference in the timing of the inclusion in income of
the yield on the REMIC Regular Certificates.
In addition, if the accrued interest to be paid on the first Distribution
Date is computed with respect to a period that begins prior to the Closing
Date, a portion of the purchase price paid for a REMIC Regular Certificate will
reflect such accrued interest. In such cases, information returns provided to
the Certificateholders and the IRS will be based on the position that the
portion of the purchase price paid for the interest accrued with respect to
periods prior to the Closing Date is treated as part of the overall cost of
such REMIC Regular Certificate (and not as a separate asset the cost of which
is recovered entirely out of interest received on the next Distribution Date)
and that portion of the interest paid on the first Distribution Date in excess
of interest accrued for a number of days corresponding to the number of days
from the Closing Date to the first Distribution Date should be included in the
stated redemption price of such REMIC Regular Certificate. However, the OID
Regulations state that all or some portion of such accrued interest may be
treated as a separate asset the cost of which is recovered entirely out of
interest paid on the first Distribution Date. It is unclear how an election to
do so would be made under the OID Regulations and whether such an election
could be made unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue discount, original
issue discount on a REMIC Regular Certificate will be considered to be de
minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average 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
64
<PAGE>
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.
If the foregoing method for computing original issue discount results in a
negative amount of original issue discount as to any accrual period with
respect to a REMIC Regular Certificate, the amount of original issue discount
allocable to such accrual period will be zero. That is, no current deduction of
such negative amount will be allowed to the holder of such Certificate. The
holder will instead only be permitted to offset such negative amount against
future positive original issue discount (if any) attributable to such a
Certificate. Although not free from doubt, it is possible that a
Certificateholder may be permitted to deduct a loss to the extent his or her
basis in the Certificate exceeds the maximum amount of payments such
Certificateholder could ever receive with respect to such Certificate. However,
any such loss may be a capital loss, which is limited in its deductibility. The
foregoing considerations are particularly relevant to Stripped Interest
Certificates which can have negative yields under certain circumstances that
are not default related. See "Risk Factors--Prepayments; Average Life of
Certificates; Yields" herein.
Market Discount. A Certificateholder that purchases a REMIC Regular
Certificate at a market discount (other than a de minimis amount), that is, in
the case of a REMIC Regular Certificate issued without original issue discount,
at a purchase price less than its remaining stated principal amount, or in the
case of a REMIC Regular Certificate issued with original issue discount, at a
purchase price less than its adjusted issue price, will recognize gain upon
receipt of each distribution representing some or all of the 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.
The OID Regulations also 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
the elections in this and the preceding paragraph 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.
65
<PAGE>
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, however, has elected to include market discount in income currently as
it accrues, the interest deferral rule described above would not apply.
Premium. A REMIC Regular Certificate purchased at a cost (excluding any
portion of such cost attributable to accrued qualified stated interest) greater
than its remaining stated redemption price will be considered to be purchased
at a premium. The holder of such a REMIC Regular Certificate may elect under
Section 171 of the Code to amortize such premium under the constant yield
method over the life of the Certificate. If a holder elects to amortize bond
premium, bond premium would be amortized on a constant yield method and would
be applied as an offset against qualified stated interest. If made, such an
election will apply to all debt instruments having amortizable bond premium
that the holder owns or subsequently acquires. The IRS recently finalized new
regulations on the amortization of bond premium. However, the regulations do
not apply to holders of REMIC Regular Certificates. 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
66
<PAGE>
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 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. REMIC Residual Certificates may in some instances have negative
"value". See "Risk Factors--Certain Federal Tax Considerations Regarding REMIC
Residual Certificates".
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
67
<PAGE>
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),
for amortization of any premium on the Mortgage Loans, for 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.
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
68
<PAGE>
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.
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 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,
69
<PAGE>
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." Unless otherwise stated in the related Prospectus
Supplement, no REMIC Residual Certificate will have "significant value" for
these purposes.
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 alternative
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 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.
70
<PAGE>
Mark-to-Market Rules. On December 24, 1996, the IRS released regulations
under Section 475 of the Code (the "Mark-to-Market Regulations") relating to
the requirement that a securities dealer mark-to-market securities held for
sale to customers. This mark-to-market requirement applies to all securities
owned by a dealer, except to the extent that the dealer has specifically
identified a security as held for investment. The Mark-to-Market Regulations
provide that a REMIC residual interest issued 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 Mark-to-Market
Regulations.
Possible Pass-Through of Miscellaneous Itemized Deductions. Fees and other
non-interest expenses of a REMIC generally will be allocated to the holders of
the related REMIC Residual Certificates. The applicable Treasury regulations
indicate, however, that in the case of a REMIC that is similar to a single
class grantor trust, all or a portion of such fees and expenses should be
allocated to the holders of the related REMIC Regular Certificates. Unless
otherwise stated in the related Prospectus Supplement, such fees and expenses
will be allocated to holders of the related REMIC Residual Certificates in
their entirety and not to the holders of the related REMIC Regular
Certificates.
With respect to REMIC Residual Certificates or REMIC Regular Certificates
the holders of which receive an allocation of fees and expenses in accordance
with the preceding discussion, if any holder thereof is an individual, estate
or trust, or a "pass-through entity" beneficially owned by one or more
individuals, estates or trusts, (i) an amount equal to such individual's,
estate's or trust's share of such fees and expenses will be added to the gross
income of such holder and (ii) such individual's, estate's or trust's share of
such fees and expenses will be treated as a miscellaneous itemized deduction
allowable subject to the limitation of Section 67 of the Code, which permits
such deductions only to the extent they exceed in the aggregate two percent of
a taxpayer's adjusted gross income. In addition, Section 68 of the Code
provides that the amount of itemized deductions otherwise allowable for an
individual whose adjusted gross income exceeds a specified amount will be
reduced by the lesser of (i) 3% of the excess of the individual's adjusted
gross income over such amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for the taxable year. The amount of additional taxable
income reportable by REMIC Certificateholders that are subject to the
limitations of either Section 67 or Section 68 of the Code may be substantial.
Furthermore, in determining the alternative minimum taxable income of such a
holder of a REMIC Certificate that is an individual, estate or trust, or a
"pass-through entity" beneficially owned by one or more individuals, estates or
trusts, no deduction will be allowed for such holder's allocable portion of
servicing fees and other miscellaneous itemized deductions of the REMIC, even
though an amount equal to the amount of such fees and other deductions will be
included in such holder's gross income. Accordingly, such REMIC Certificates
may not be appropriate investments for individuals, estates, or trusts, or
pass-through entities beneficially owned by one or more individuals, estates or
trusts. Such prospective investors should 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 described
below, 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 lower rates as to mid-term capital gains,
and still lower rates as to long-term capital gains, than those applicable to
the short-term capital gains and ordinary income realized or received by
individuals. 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
71
<PAGE>
sale. In addition, gain recognized on the sale of a REMIC Regular Certificate
by a seller who purchased such REMIC Regular Certificate at a market discount
will be taxable as ordinary income in an amount not exceeding the portion of
such discount that accrued during the period such REMIC Certificate was held by
such holder, reduced by any market discount included in income under the rules
described above under "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" and "--Premium".
REMIC Certificates will be "evidences of indebtedness" within the meaning of
Section 582(c)(1) of the Code, so that gain or loss recognized from the sale of
a REMIC Certificate by a bank or thrift institution to which such Section
applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, 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 engage in any prohibited transactions as to which it would
be subject to a material Prohibited Transaction Tax.
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 income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment
trust. Under certain circumstances, the Special Servicer may be authorized to
conduct activities with respect to a Mortgaged Property acquired by a Trust
Fund that causes the Trust Fund to incur a tax, provided that doing so would,
in reasonable discretion of the Special Servicer, maximize net after-tax
proceeds to Certificateholders.
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
72
<PAGE>
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. Any such tax not borne by a REMIC Administrator,
Master Servicer, Special Servicer or Trustee would 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 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 capital loss
equal to the amount of such difference.
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
73
<PAGE>
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's tax return may
require a Residual Certificateholder to make corresponding adjustments on its
return, and an audit of the REMIC's tax return, or the adjustments resulting
from such an audit, could result in an audit of a 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
74
<PAGE>
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 persons have the authority to control all substantial
decisions of the trust. It is possible that the IRS may assert that the
foregoing tax exemption should not apply with respect to 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.
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.
New Withholding Regulations. On October 6, 1997, the Treasury Department
issued new regulations (the "New Regulations") which make certain modifications
to the withholding, backup withholding and information reporting rules
described above. The New Regulations attempt to unify certification
requirements and modify reliance standards. The New Regulations will generally
be effective for payments made after December 31, 1999, subject to certain
transition rules. Prospective investors are urged to consult their own tax
advisors regarding the New Regulations.
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
underlying 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 specified 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.
75
<PAGE>
Stripped Interest Certificates. It is unclear whether 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)(4)(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. Counsel to
the Sponsor will not deliver any opinion on this question. 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.
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.
The servicing fees paid with respect to the Mortgage Loans for certain series
of Grantor Trust Fractional Interest Certificates 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.
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.
76
<PAGE>
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
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, but have not been, adopted applying
those provisions to the Grantor Trust Fractional Interest Certificates. It is
unclear 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 or that the Prepayment Assumption will not be
challenged by the IRS on audit. Certificateholders also 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.
77
<PAGE>
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, 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. In that case, the
original issue discount rules will apply to a Grantor Trust Fractional Interest
Certificate only 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
78
<PAGE>
information reports or returns to the IRS and Certificateholders on the use of
a prepayment assumption in transactions not subject to the stripped bond rules.
However, Section 1272(a)(6) of the Code may require that a prepayment
assumption be made in computing yield with respect to all mortgage-backed
securities. Certificateholders are advised to consult their own tax advisors
concerning whether a prepayment assumption should be used in reporting original
issue discount with respect to Grantor Trust Fractional Interest Certificates.
Certificateholders should refer to the related Prospectus Supplement with
respect to each series to determine whether and in what manner the original
issue discount rules will apply to Mortgage Loans in such series.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases such Grantor Trust Fractional Interest Certificate at a cost less
than such Certificate's allocable portion of the aggregate remaining stated
redemption price of the Mortgage Loans held in the related Trust Fund will also
be required to include in gross income such Certificate's daily portions of any
original issue discount with respect to such Mortgage Loans. However, each such
daily portion will be reduced, if the cost of such Grantor Trust Fractional
Interest Certificate to such purchaser is in excess of such Certificate's
allocable portion of the aggregate "adjusted issue prices" of the Mortgage
Loans held in the related Trust Fund, approximately in proportion to the ratio
such excess bears to such Certificate's allocable portion of the aggregate
original issue discount remaining to be accrued on such Mortgage Loans. The
adjusted issue price of a Mortgage Loan on any given day equals the sum of (i)
the adjusted issue price (or, in the case of the first accrual period, the
issue price) of such Mortgage Loan at the beginning of the accrual period that
includes such day and (ii) the daily portions of original issue discount for
all days during such accrual period prior to such day. The adjusted 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
79
<PAGE>
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 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
General. 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
80
<PAGE>
Rules Apply", no regulations or published rulings under Section 1286 of the
Code have been issued and some uncertainty exists as to how such Section 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.
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 or that the Prepayment
Assumption will not be challenged by the IRS on audit. Certificateholders also
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 Stripped Interest Certificates would cease if the Mortgage Loans were
prepaid in full, Stripped Interest 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 have been
promulgated regarding contingent payment debt instruments (the "Contingent
Payment Regulations"), but it appears that Stripped Interest Certificates due
to their similarity to other
81
<PAGE>
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
Stripped Interest 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 Stripped Interest Certificate would be required
to apply the "noncontingent bond method." Under the "noncontingent bond
method", the issuer of a Stripped Interest Certificate determines a projected
payment schedule on which interest will accrue. Holders of Stripped Interest
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 the projected yield (as
described below) of the Stripped Interest 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
Stripped Interest 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
Stripped Interest Certificate would be required to include as interest income
in each month the adjusted issue price of the Stripped Interest 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 Stripped Interest Certificates,
the amount of income reported with respect thereto would be substantially
similar to that described under "Taxation of Owners of Stripped Interest
Certificates".
Certificateholders should consult their tax advisors concerning the possible
application of the contingent payment rules to the Striped Interest
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
for lower rates as to mid-term capital gains, and still lower rates as to
long-term capital gains, than those applicable to the short-term capital gains
and ordinary income realized or received by individuals. 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
82
<PAGE>
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.
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. The types of transactions
between Plans and Parties in Interest that are prohibited include: (a) sales,
exchanges or leases of property, (b) loans or other extensions of credit and
(c) the furnishing of goods and services. Certain Parties in Interest that
participate in a prohibited transaction may be subject to an excise tax imposed
pursuant
83
<PAGE>
to Section 4975 of the Code, unless a statutory or administrative exemption is
available. In addition, the persons involved in the prohibited transaction may
have to rescind the transaction and pay an amount to the Plan for any losses
realized by the Plan or profits realized by such persons, individual retirement
accounts involved in the transaction may be disqualified resulting in adverse
tax consequences to the owner of such account and certain other liabilities
could result that have a significant adverse effect on such person.
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 apply, including that 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 (determined by
not including the investments of persons with discretionary authority or
control over the assets of such entity, of any person who provides investment
advice for a fee (direct or indirect) with respect to such assets, and of
"affiliates" (as defined in the Plan Asset Regulations) of such persons).
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 (determined by
not including the investments of the Sponsor, the Trustee, the Master Servicer,
the Special Servicer, any other parties with discretionary authority over the
assets of a Trust Fund and their respective affiliates).
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, a Special Servicer, any Sub-Servicer, a Trustee, the obligor
under any credit enhancement mechanism, or certain affiliates thereof, may be
deemed to be a Plan "fiduciary" with respect to the investing Plan, and thus
subject to the fiduciary responsibility provisions of ERISA. In addition, if
the underlying assets of a Trust Fund constitute Plan assets, the Sponsor, the
REMIC Administrator, any borrower, as well as each of the parties described in
the preceding sentence, may become Parties in Interest with respect to an
investing Plan (or of a Plan holding an interest in an investing entity). Thus,
if the Trust Assets constitute Plan assets, the operation of the Trust Fund may
involve a prohibited transaction under ERISA and the Code. For example, if a
person who is a Party in Interest with respect to an investing Plan is
borrower, the purchase of Certificates by the Plan could constitute a
prohibited loan between a Plan and a Party in Interest.
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.
Prior to December 31, 1996, only classes of Offered Certificates that (i)
were rated in one of the two highest rating categories by one or more Rating
Agencies and (ii) were 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
84
<PAGE>
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). However, under SMMEA as originally enacted, if a state enacted
legislation prior to October 3, 1991 that specifically limited the legal
investment authority of any such entities with respect to "mortgage related
securities" under such definition, Offered Certificates would constitute legal
investments for entities subject to such legislation only to the extent
provided in such legislation.
Effective December 31, 1996, the definition of "mortgage related securities"
was modified 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.
SMMEA also amended the legal investment authority of federally chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with "mortgage
related securities" without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without
regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. 24 (Seventh), subject in each case to such regulations as
the applicable federal regulatory authority may prescribe. In this connection,
effective December 31, 1996, the Office of the Comptroller of the Currency (the
"OCC") amended 12 C.F.R. Part 1 to authorize national banks to purchase and
sell for their own account, without limitation as to a percentage of the bank's
capital and surplus (but subject to compliance with certain general standards
concerning "safety and soundness" and retention of credit information in 12
C.F.R. Section 1.5), certain "Type IV securities", defined in 12 C.F.R. Section
1.2(1) to include certain "commercial mortgage-related securities" and
"residential mortgage-related securities". As so defined, "commercial
mortgage-related security" and "residential mortgage-related security" mean, in
relevant part, "mortgage related security" within the meaning of SMMEA,
provided that, in the case of a "commercial mortgage-related security," it
"represents ownership of a promissory note or certificate of interest or
participation that is directly secured by a first lien on one or more parcels
of real estate upon which one or more commercial structures are located and
that is fully secured by interests in a pool of loans to numerous obligors." In
the absence of any rule or administrative interpretation by the OCC defining
the term "numerous obligors," no representation is made as to whether any class
of Offered Certificates will qualify as "commercial mortgage-related
securities", and thus as "Type IV securities", for investment by national
banks. Federal credit unions should review NCUA Letter to Credit Unions No. 96,
as modified by Letter to Credit Unions No. 108, which includes guidelines to
assist federal credit unions in making investment decisions for mortgage
related securities. The NCUA has adopted rules, codified as 12 C.F.R. Section
703.5(f)-(k), which prohibit federal credit unions from investing in certain
mortgage related securities (including securities such as certain classes of
Offered Certificates), except under limited circumstances.
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 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
85
<PAGE>
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. Except as to the status of certain classes of Offered
Certificates as "mortgage related securities", 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 (and any
unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the Offered Certificates) 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:
(i) By negotiated firm commitment underwriting and public offering by
one or more underwriters specified in the related Prospectus Supplement;
(ii) by placements through one or more placement agents specified in the
related Prospectus Supplement primarily with institutional investors and
dealers; and
(iii) 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 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.
86
<PAGE>
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.
Affiliates of the Sponsor may act as principals or agents in connection with
market-making transactions relating to the Offered Certificates. This
Prospectus and the related Prospectus Supplement may be used by such affiliates
in connection with offers and sales related to market-making transactions in
the Offered Certificates. Such sales will be made at prices related to
prevailing market prices at the time of sale.
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.
87
<PAGE>
INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Accrual Certificates 9, 32
ADA 60
ARM Loans 23
Book-Entry Certificates 11, 31
Cash Flow Agreement 8, 25
Cash Flow Agreements 1
CERCLA 19, 58
Certificate Account 7, 24, 40
Certificate Balance 2, 9
Certificate Owner 11, 36
Certificateholders 2
Certificates 6
Closing Date 63
Code 11, 61
Commercial Properties 6, 21
Commission 2
Committee Report 63
Companion Class 10, 33
Condemnation Proceeds 41
Contingent Payment Regulations 81
Contributions Tax 72
Controlled Amortization Class 10, 33
Cooperatives 21
CPR 27
Credit Support 1, 8, 24
Cut-off Date 10
Definitive Certificate 11
Definitive Certificates 31, 36
Determination Date 25, 31
Distribution Date 9
Distribution Date Statement 34
DOL 84
DTC 3, 11, 31, 35
Due Dates 23
Equity Participation 23
ERISA 13, 83
Exchange Act 3
FAMC 7
FHLMC 7
FNMA 7
Garn Act 59
GNMA 7
Grantor Trust Certificates 11, 61
Grantor Trust Fractional Interest Certificates 12
Grantor Trust Fund 61
Indirect Participants 36
Insurance Proceeds 41
IRS 63
88
<PAGE>
PAGE
--------
Issue Premium 68
L/C Bank 52
Lender Liability Act 58
Liquidation Proceeds 41
Lock-out Date 23
Lock-out Period 23
Mark-to-Market Regulations 71
Master Servicer 2, 6
MBS 1, 21
MBS Agreement 24
MBS Issuer 24
MBS Servicer 24
MBS Trustee 24
Mortgage Asset Pool 1
Mortgage Asset Seller 7, 21
Mortgage Assets 1, 21
Mortgage Loans 1, 6, 21
Mortgage Notes 21
Mortgage Rate 7, 23
Mortgaged Properties 21
Mortgages 21
Multifamily Properties 6, 21
Net Leases 22
Nonrecoverable Advance 33
Notional Amount 9, 32
OCC 85
Offered Certificates 1
OID Regulations 62
Originator 21
OTS 85
PAC 28
Participants 20, 31, 36
Parties in Interest 83
Pass-Through Rate 2, 9
Permitted Investments 40
Plans 83
Policy Statement 85
Pooling Agreement 8, 37
Prepayment Assumption 63, 77
Prepayment Interest Shortfall 25
Prepayment Premium 23
Prohibited Transactions Tax 72
Prospectus Supplement 1
Rating Agency 13
RCRA 58
Record Date 31
Related Proceeds 33
Relief Act 60
REMIC 2, 11, 61
REMIC Administrator 2, 6
89
<PAGE>
PAGE
--------
REMIC Certificates 61
REMIC Provisions 61
REMIC Regular Certificates 11, 62
REMIC Regulations 62
REMIC Residual Certificates 11, 62
REO Property 39
RICO 61
Securities Act 87
Senior Certificates 8, 30
Servicing Standard 39
SMMEA 84
SPA 27
Special Servicer 2, 6
Sponsor 21
Stripped Interest Certificates 9, 31
Stripped Principal Certificates 8, 31
Subordinate Certificates 8, 31
Sub-Servicer 40
Sub-Servicing Agreement 40
TAC 28
Tiered REMICs 62
Title V 60
Trust Assets 2
Trust Fund 1
Trustee 2, 6
UCC 54
Voting Rights 35
Warranting Party 38
</TABLE>
90
<PAGE>
This diskette contains a spreadsheet file that can be put on a user-specified
hard drive or network drive. The file is "MCF98s2.xls". The file "MCF98s2.xls"
is a Microsoft Excel1, Version 5.0 spreadsheet. The file provides, in
electronic format, certain loan level information shown in ANNEX A of the
Prospectus Supplement.
Open the file as you would normally open any spreadsheet in Microsoft
Excel. After the file is opened, a securities law legend will be displayed.
READ THE LEGEND CAREFULLY. To view the ANNEX A data, "click" on the worksheet
labeled "Sheet 2."
- ----------
(1) Microsoft Excel is a registered trademark of Microsoft Corporation.
<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 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 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 PROSPECTUS NOR ANY SALE MADE
HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SINCE THE DATE OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
PROSPECTUS SUPPLEMENT
Executive Summary ................................ S-8
Summary of Prospectus Supplement ................. S-10
Risk Factors ..................................... S-36
Description of the Mortgage Pool ................. S-45
Servicing of the Mortgage Loans .................. S-94
Description of the Certificates .................. S-104
Yield and Maturity Considerations ................ S-123
Use of Proceeds .................................. S-131
Certain Federal Income Tax Consequences .......... S-132
Certain ERISA Considerations ..................... S-135
Legal Investment ................................. S-138
Method of Distribution ........................... S-138
Legal Matters .................................... S-139
Ratings .......................................... S-139
Index of Principal Definitions ................... S-141
ANNEX A -- Certain Characteristics of the
Mortgage Loans ................................. A-1
ANNEX B -- Trustee Report ........................ B-1
ANNEX C -- Term Sheet ............................ C-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 ................... 21
Yield and Maturity Considerations ................ 25
Mortgage Capital Funding, Inc. ................... 30
Use of Proceeds .................................. 30
Description of the Certificates .................. 30
Description of the Pooling Agreements ............ 37
Description of Credit Support .................... 51
Certain Legal Aspects of Mortgage Loans .......... 53
Material Federal Income Tax Consequences ......... 61
State and Other Tax Consequences ................. 83
ERISA Considerations ............................. 83
Legal Investment ................................. 84
Method of Distribution ........................... 86
Financial Information ............................ 87
Rating ........................................... 87
Index of Principal Definitions ................... 88
</TABLE>
THROUGH AND INCLUDING SEPTEMBER 29, 1998, 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.
$923,692,000
(APPROXIMATE)
MORTGAGE CAPITAL
FUNDING, INC.
(SPONSOR)
CITICORP REAL ESTATE, INC.
(MORTGAGE LOAN SELLER)
CLASS A-1, CLASS A-2, CLASS X,
CLASS B, CLASS C, CLASS D AND CLASS E, MORTGAGE CAPITAL FUNDING, INC.
MULTIFAMILY/COMMERCIAL
MORTGAGE PASS-THROUGH
CERTIFICATES
SERIES 1998-MC2
-----------------------------------------------------
PROSPECTUS SUPPLEMENT
-----------------------------------------------------
[CITIBANK LOGO]
AND
J.P. MORGAN & CO.
JUNE 25, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
