<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration File No.: 33-65816
PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MAY 26, 1998)
$655,773,143 (APPROXIMATE)
BEAR STEARNS COMMERCIAL MORTGAGE SECURITIES INC.
DEPOSITOR
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES,
SERIES 1998-C1
The Series 1998-C1 Commercial Mortgage Pass-Through Certificates (the
"Certificates") will consist of fifteen classes (each, a "Class"): the Class
A-1 and Class A-2 Certificates (collectively, the "Class A Certificates"),
Class X, Class B, Class C, Class D, Class E, Class F, Class G, Class H, Class
I, Class J, Class K, Class R and Class LR Certificates. The Class A
Certificates and the Class X Certificates are collectively referred to herein
as the "Senior Certificates." The Class B, Class C, Class D, Class E, Class
F, Class G, Class H, Class I, Class J and Class K Certificates are referred
to collectively herein as the "Subordinate Certificates." The Class B, Class
C, Class D and Class E Certificates are referred to herein collectively as
the "Subordinate Offered Certificates." The Class R and Class LR Certificates
are collectively referred to herein as the "Residual Certificates." Only the
Class A, Class B, Class C, Class D and Class E Certificates are being offered
hereby (collectively, the "Offered Certificates").
(continued on page S-2)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
CERTIFICATE
INITIAL CLASS ASSUMED FINAL RATED FINAL RATING
CERTIFICATE PASS-THROUGH DISTRIBUTION DISTRIBUTION -------------------
BALANCE (1) RATE (2) DATE (3) DATE (4) MOODY'S* DCR**
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A-1 .. $129,564,000 6.34% October 16, 2007 June 16, 2030 Aaa AAA
- ---------------------------------------------------------------------------------------------------
Class A-2 .. $417,211,428 6.44% June 16, 2008 June 16, 2030 Aaa AAA
- ---------------------------------------------------------------------------------------------------
Class B ..... $ 35,736,956 6.54% December 16, 2012 June 16, 2030 Aa2 AA
- ---------------------------------------------------------------------------------------------------
Class C ..... $ 32,163,260 6.75% January 16, 2013 June 16, 2030 A2 A
- ---------------------------------------------------------------------------------------------------
Class D ..... $ 32,163,260 6.75% April 16, 2013 June 16, 2030 Baa2 BBB
- ---------------------------------------------------------------------------------------------------
Class E ..... $ 8,934,239 6.75% May 16, 2013 June 16, 2030 Baa3 BBB-
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Moody's Investors Service, Inc.
** Duff & Phelps Credit Rating Co.
(Footnotes to table on page S-2)
---------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON
THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES DO NOT REPRESENT AN
INTEREST IN OR OBLIGATION OF THE DEPOSITOR OR ANY OF ITS AFFILIATES.
NEITHER THE OFFERED CERTIFICATES NOR THE MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY THE DEPOSITOR OR ANY OF ITS
AFFILIATES.
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.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER THE
CAPTION "RISK FACTORS" BEGINNING ON PAGE S-30 HEREIN AND PAGE 17 IN THE
PROSPECTUS BEFORE PURCHASING ANY OFFERED CERTIFICATE.
---------------
The Offered Certificates will be purchased from the Depositor by Bear,
Stearns & Co. Inc. (the "Underwriter") and will be offered by the Underwriter
from time to time in negotiated transactions or otherwise at varying prices
to be determined at the time of sale. Proceeds to the Depositor from the sale
of the Offered Certificates, before deducting expenses payable by the
Depositor estimated to be approximately $2,100,000, will be 100.780% of the
initial aggregate Certificate Balance of the Offered Certificates, plus
accrued interest on the Offered Certificates from the Cut-Off Date. The
Offered Certificates are offered by the Underwriter subject to prior sale,
when, as and if delivered to and accepted by the Underwriter and subject to
certain other conditions. It is expected that the Offered Certificates will
be delivered in book-entry form through the Same-Day Funds Settlement System
of The Depository Trust Company ("DTC") on or about June 29, 1998 (the
"Closing Date").
BEAR, STEARNS & CO. INC.
June 11, 1998.
<PAGE>
BEAR STEARNS COMMERCIAL MORTGAGE SECURITIES INC.
COMMRICAL MORTGAGE PASS-THROUGH CERTIFICATES SERIES 1998-C1
[MAP]
CALIFORNIA
29 properties
$195,924,576
27.41% of total
NEW YORK
32 properties
$118,179,358
16.53% of total
FLORIDA
15 properties
$63,543,057
8.89% of total
MASSACHUSETTS
10 properties
$39,302,070
5.50% of total
CONNECTICUT
7 properties
$36,246,605
5.07% of total
ARIZONA
8 properties
$33,853,457
4.74% of total
MARYLAND
5 properties
$29,342,857
4.11% of total
PENNSYLVANIA
8 properties
$24,412,619
3.42% of total
DELAWARE
4 properties
$19,380,562
2.71% of total
TEXAS
3 properties
$18,729,899
2.62% of total
MICHIGAN
4 properties
$17,128,519
2.40% of total
NEW JERSEY
3 properties
$16,796,040
2.35% of total
UTAH
3 properties
$14,600,000
2.04% of total
ILLINOIS
3 properties
$10,713,889
1.50% of total
VERMONT
2 properties
$9,435,216
1.32% of total
MINNESOTA
14 properties
$9,392,598
1.31% of total
WASHINGTON
1 property
$8,491,609
1.19% of total
NORTH CAROLINA
2 properties
$7,868,330
1.10% of total
VIRGINIA
2 properties
$7,122,151
1.00% of total
RHODE ISLAND
2 properties
$6,734,094
0.94% of total
OREGON
2 properties
$6,609,138
0.92% of total
NEW HAMPSHIRE
1 property
$4,393,682
0.61% of total
LOUISIANA
1 property
$4,300,000
0.60% of total
COLORADO
3 properties
$4,096,566
0.57% of total
NEVADA
3 properties
$3,940,645
0.55% of total
OHIO
1 property
$1,991,257
0.28% of total
ALABAMA
1 property
$1,435,783
0.20%
MAINE
1 property
$774,546
0.11%
is less than 1.00% of Cut-Off Date Allocated Loan Amount
1.00 - %5.99% of Cut-Off Date Allocated Loan Amount
6.00 - 9.99% of Cut-Off Date Allocated Loan Amount
is greater than 9.99% of Cut-Off Date Allocated Loan Amount
<PAGE>
[GRAPHIC of Sunrise Highway Property]
1851 & 1871 sunrise Highway
Bay Share, NY
[GRAPHIC of Torrey Reserve Property]
Torrey Reserve - South Court
San Diego, CA
[GRAPHIC of Lomas Santa Fe Plaza Property]
Lomas Santa Fe Plaza
San Diego, CA
[GRAPHIC of Back Bay Manor Boston Property]
Back Bay Manor
Boston, MA
[GRAPHIC of Naples Beach Hotel Property]
Naples Beach Hotel & Golf Club
Naples, FL
<PAGE>
[GRAPHIC of Broadway/Palace Property]
1564 Broadway/The Palace Theatre
New York, NY
[GRAPHIC of Shaw Plaza Property]
Shaw's Plaza Shopping Center
Southington, CT
[GRAPHIC of Mission Marketplace Property]
Mission Marketplace
Oceanside, CA
[GRAPHIC of Kerr McGee Property]
Kerr McGee Center
Houston, TX
[GRAPHIC of White Road Plaza Property]
White Road Plaza
San Jose, CA
<PAGE>
(continued from cover page)
- ------------
(1) Approximate, subject to a permitted variance of plus or minus 5%.
(2) In no event will the Pass-Through Rate of the Class A-1, Class A-2,
Class B, Class C, Class D or Class E Certificates exceed the lesser of
(x) the annual percentage rate described on the cover and (y) the
weighted average of the Net Mortgage Rates of the Mortgage Loans (such
Net Mortgage Rates determined without taking into account any
reductions thereto resulting from modifications of the Mortgage Loans
or otherwise following the Cut-Off Date).
(3) The Assumed Final Distribution Dates set forth above have been
determined on the basis of the assumptions described in "Description of
the Certificates--Assumed Final Distribution Date; Rated Final
Distribution Date" herein.
(4) The Rated Final Distribution Date is the first Distribution Date after
the 24th month following the end of the amortization term of the
Mortgage Loan that, as of the Cut-Off Date, has the longest remaining
amortization term.
The Certificates will represent, in the aggregate, the entire beneficial
ownership interest in a trust fund (the "Trust Fund") to be established by
the Depositor, which will consist primarily of a segregated pool (the
"Mortgage Pool") of commercial, multifamily and mobile home community
fixed-rate, fully amortizing and balloon mortgage loans (the "Mortgage
Loans"). Retail properties will represent security for a material
concentration of the Mortgage Loans constituting the Trust Fund, based on the
principal balances of the Mortgage Loans as of the Cut-Off Date. As of the
Cut-Off Date, the Mortgage Loans are expected to have an aggregate principal
balance of approximately $714,739,121 (the "Initial Pool Balance"), after
application of all payments of principal due on or before such date, whether
or not received. As used herein, the "Cut-Off Date" is June 1, 1998. Certain
anticipated characteristics of the Mortgage Loans are described herein under
"Description of the Mortgage Pool." The rights of the holders of the
Subordinate Certificates to receive distributions with respect to the Trust
Fund will be subordinate to the rights of the holders of the Senior
Certificates, and the rights of the holders of each Class of Subordinate
Certificates to receive distributions with respect to the Trust Fund will be
subordinate to the rights of the holders of each other Class of Subordinate
Certificates with an earlier alphabetical Class designation, in each case to
the extent described herein and in the Prospectus.
It is a condition of their issuance that the Class A Certificates be rated
not lower than "Aaa" and "AAA", the Class B Certificates be rated not lower
than "Aa2" and "AA", the Class C Certificates be rated not lower than "A2"
and "A", the Class D Certificates be rated not lower than "Baa2" and "BBB",
and the Class E Certificates be rated not lower than "Baa3" and "BBB-" by
Moody's Investors Service, Inc. ("Moody's") and Duff & Phelps Credit Rating
Co. ("DCR"), respectively. See "Ratings" herein.
There is currently no secondary market for the Offered Certificates. The
Underwriter intends to make a secondary market in the Offered Certificates,
but is not obligated to do so. There can be no assurance that a secondary
market for the Offered Certificates 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--Secondary Market" in the Prospectus.
If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will also be used by the Underwriter
after the completion of the offering in connection with offers and sales
related to market-making transactions in the Offered Certificates in which
the Underwriter acts as principal. The Underwriter may also act as agent in
such transactions. Sales will be made at negotiated prices determined at the
time of sale.
The Offered Certificates will be represented initially by certificates
registered in the name of Cede & Co., as nominee of DTC. The interests of the
beneficial owners of the Offered Certificates will be represented by book
entries on the records of participating members of DTC. Definitive
certificates will be available in exchange for the Offered Certificates only
under the limited circumstances described herein and in the Prospectus. See
"Description of the Certificates--Book-Entry Registration and Definitive
Certificates" herein and in the Prospectus.
Elections will be made to treat designated portions of the Trust Fund
(each, a "REMIC Pool") as two separate "real estate mortgage investment
conduits" (each, a "REMIC" and, respectively, the "Upper-Tier REMIC" and the
"Lower-Tier REMIC") for federal income tax purposes. As described more fully
S-2
<PAGE>
herein and in the Prospectus, the Certificates other than the Residual
Certificates will be designated as "regular interests" in the Upper-Tier
REMIC, and the Class R and Class LR Certificates will be designated as the
"residual interests" in the Upper-Tier REMIC and Lower-Tier REMIC,
respectively. See "Certain Federal Income Tax Consequences" herein and in the
Prospectus.
Distributions on the Certificates will be made, to the extent of available
funds, on the 16th day of each month or, if any such 16th day is not a
business day, then on the next succeeding business day, beginning on July 16,
1998 (each, a "Distribution Date"). As more fully described herein, interest
distributions on each Class of Offered Certificates will be made on each
Distribution Date at the pass-through rate (the "Pass-Through Rate") then
applicable to such Class on the Certificate Balance of such Class outstanding
immediately prior to such Distribution Date. Interest will accrue on each
Class of Offered Certificates from the first day of the month preceding the
month in which the related Distribution Date occurs through the last day of
such month (each such period, an "Interest Accrual Period") on the
Certificate Balance of such Class immediately preceding such Distribution
Date. Distributions of interest on and distributions of principal of each
Class of Offered Certificates will be made in the amounts and in accordance
with the priorities described herein. See "Description of the
Certificates--Distributions" herein.
The yield to maturity on each Class of Offered Certificates will depend
on, among other things, fluctuations in the Pass-Through Rate of such Class,
the rate and timing of principal payments (including by reason of
prepayments, defaults and liquidations) and principal losses on the Mortgage
Loans. See "Yield and Maturity Considerations" herein and "Yield and Maturity
Considerations" and "Risk Factors--Prepayments; Average Life of Certificates;
Yields" in the Prospectus.
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE PART OF
A SEPARATE SERIES OF THE DEPOSITOR'S COMMERCIAL MORTGAGE PASS-THROUGH
CERTIFICATES REFERRED TO IN THE DEPOSITOR'S PROSPECTUS DATED MAY 26, 1998,
WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING THAT IS NOT CONTAINED HEREIN,
AND PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS
PROSPECTUS SUPPLEMENT IN FULL. SALES OF THE OFFERED CERTIFICATES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS.
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,"
INHERENTLY ARE 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 POLITICAL, SOCIAL, ECONOMIC
AND BUSINESS CONDITIONS, COMPETITION, CHANGES IN FOREIGN POLITICAL, SOCIAL
AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE WITH
GOVERNMENTAL REGULATIONS, CUSTOMER PREFERENCES AND VARIOUS OTHER MATTERS,
MANY OF WHICH ARE BEYOND THE DEPOSITOR'S CONTROL. THESE FORWARD-LOOKING
STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS PROSPECTUS SUPPLEMENT. THE
DEPOSITOR EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO RELEASE
PUBLICLY ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENT CONTAINED
HEREIN TO REFLECT ANY CHANGE IN THE DEPOSITOR'S EXPECTATIONS WITH REGARD
THERETO OR ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY
SUCH STATEMENT IS BASED.
S-3
<PAGE>
CREDIT SUPPORT STRUCTURE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
CLASS SIZE AS
A PERCENT OF
AGGREGATE
CUT-OFF
DATE
PRINCIPAL AND INITIAL BALANCE OF
APPROXIMATE INITIAL INTEREST-ONLY INTEREST CERTIFICATE MORTGAGE
CREDIT SUPPORT CERTIFICATES CERTIFICATES BALANCE RATINGS(1) LOANS
- ------------------- ------------------------- --------------- -------------- ------------------- ---------------
<S> <C> <C> <C> <C> <C>
Class A-1 $129,564,000 ("Aaa"/"AAA") 18.13%
- ------------------- -------------- ------------------- ---------------
23.50% Class A-2 $417,211,428 ("Aaa"/"AAA") 58.37%
- ------------------- -------------- ------------------- ---------------
18.50% Class X Class B $ 35,736,956 ("Aa2"/"AA") 5.00%
- ------------------- $714,739,121 -------------- ------------------- ---------------
14.00% (Initial Notional Amount) Class C $ 32,163,260 ("A2"/"A") 4.50%
- ------------------- Not Offered -------------- ------------------- ---------------
9.50% Class D $ 32,163,260 ("Baa2"/"BBB") 4.50%
- ------------------- -------------- ------------------- ---------------
8.25% Class E $ 8,934,239 ("Baa3"/"BBB-") 1.25%
- ------------------- -------------- ------------------- ---------------
6.50% Class F $ 12,507,935 Not Offered 1.75%
- ------------------- -------------- ------------------- --------------
4.75% Class G $ 12,507,935 Not Offered 1.75%
- ------------------- -------------- ------------------- --------------
4.00% Class H $ 5,360,543 Not Offered 0.75%
- ------------------- -------------- ------------------- --------------
1.50% Class I $ 17,868,478 Not Offered 2.50%
- ------------------- -------------- ------------------- --------------
0.85% Class J $ 4,645,804 Not Offered 0.65%
- ------------------- -------------- ------------------- --------------
N/A Class K $ 6,075,283 Not Offered 0.85%
- ------------------- ------------------------- -------------- ------------------- --------------
- -------------------------------------------------------------------------------------------------------------------
(1)Ratings: Moody's/DCR
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
S-4
<PAGE>
SUMMARY OF CERTIFICATES
<TABLE>
<CAPTION>
INITIAL
AGGREGATE WEIGHTED
CERTIFICATE AVERAGE PRINCIPAL OR
BALANCE OR PASS-THROUGH LIFE NOTIONAL
NOTIONAL % OF RATE PASS-THROUGH (APPROX. PRINCIPAL
CLASS RATINGS (1) AMOUNT TOTAL DESCRIPTION (3) RATE YEARS)(5) WINDOW (5)
- ------- ----------------- --------------- ------- --------------- -------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Senior Classes
- ---------------------------------------------------------------------------------------------------------------
A-1 "Aaa"/"AAA" $129,564,000 18.13 Fixed 6.34% 5.8 7/1998-10/2007
- ------- ----------------- --------------- ------- --------------- -------------- ---------- ---------------
A-2 "Aaa"/"AAA" $417,211,428 58.37 Fixed 6.44% 9.8 10/2007-6/2008
- ------- ----------------- --------------- ------- --------------- -------------- ---------- ---------------
X Not Offered $714,739,121(2) N/A Variable 0.7993%(4) 10.1 7/1998-6/2013
- ------- ----------------- --------------- ------- --------------- -------------- ---------- ---------------
Subordinate Classes
- ---------------------------------------------------------------------------------------------------------------
B "Aa2"/"AA" $ 35,736,956 5.00 Fixed 6.54% 12.1 6/2008-12/2012
- ------- ----------------- --------------- ------- --------------- -------------- ---------- ---------------
C "A2"/"A" $ 32,163,260 4.50 Fixed 6.75% 14.5 12/2012-1/2013
- ------- ----------------- --------------- ------- --------------- -------------- ---------- ---------------
D "Baa2"/"BBB" $ 32,163,260 4.50 Fixed 6.75% 14.7 1/2013-4/2013
- ------- ----------------- --------------- ------- --------------- -------------- ---------- ---------------
E "Baa3"/"BBB-" $ 8,934,239 1.25 Fixed 6.75% 14.9 4/2013-5/2013
- ------- ----------------- --------------- ------- --------------- -------------- ---------- ---------------
F Not Offered $ 12,507,935 1.75 Fixed 6.00% 14.9 5/2013-5/2013
- ------- ----------------- --------------- ------- --------------- -------------- ---------- ---------------
G Not Offered $ 12,507,935 1.75 Fixed 6.00% 14.9 5/2013-5/2013
- ------- ----------------- --------------- ------- --------------- -------------- ---------- ---------------
H Not Offered $ 5,360,543 0.75 Fixed 6.00% 14.9 5/2013-5/2013
- ------- ----------------- --------------- ------- --------------- -------------- ---------- ---------------
I Not Offered $ 17,868,478 2.50 Fixed 6.00% 14.9 5/2013-5/2013
- ------- ----------------- --------------- ------- --------------- -------------- ---------- ---------------
J Not Offered $ 4,645,804 0.65 Fixed 6.00% 14.9 5/2013-5/2013
- ------- ----------------- --------------- ------- --------------- -------------- ---------- ---------------
K Not Offered $ 6,075,283 0.85 Fixed 6.00% 14.9 5/2013-6/2013
- ------- ----------------- --------------- ------- --------------- -------------- ---------- ---------------
</TABLE>
(1) Ratings: Moody's/DCR
(2) The Class X Certificates will not have a Certificate Principal
Balance or entitle their holders to distributions of principal. The
Class X Certificates will, however, have a notional amount (the
"Notional Amount") equal to the aggregate Stated Principal Balance
of the Mortgage Loans from time to time for purposes of calculating
the interest distributions to which such Class is entitled.
(3) The Pass-Through Rates of each Class of Certificates (other than
Class X and the Residual Certificates) shall equal the lesser of (x)
the fixed rate per annum described under "Pass-Through Rate" for
such Class and (y) the weighted average of the Net Mortgage Rates of
the Mortgage Loans (such Net Mortgage Rates determined without
taking into account any reductions thereto resulting from
modifications of the Mortgage Loans or otherwise following the
Cut-Off Date).
(4) Initial Pass-Through Rate. The Class X Pass-Through Rate with
respect to any Distribution Date shall be equal to the excess, if
any, of (i) the weighted average of the Net Mortgage Rates of the
Mortgage Loans, weighted on the basis of the Stated Principal
Balances of the Mortgage Loans as of the immediately preceding
Distribution Date after giving effect to distributions of principal
on such Distribution Date, over (ii) the weighted average of the
Pass-Through Rates of the other Classes of Certificates (other than
the Residual Certificates) as described herein.
(5) The weighted average life ("Weighted Average Life") and period
during which distributions of principal would be received (or, in
the case of the Class X Certificates, reductions in the Notional
Amount would occur) (the "Principal Window" and the "Notional
Principal Window," respectively) set forth in the foregoing table
with respect to each Class of Certificates is based on the
assumptions set forth under "Yield and Maturity
Considerations--Weighted Average Life" herein and on the assumptions
that there are no prepayments (other than on the Anticipated
Repayment Date in the case of the one ARD Loan), no delinquencies or
losses on the Mortgage Loans and no extensions of Maturity Dates (as
defined herein) of the Mortgage Loans.
S-5
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PAGE
-----------
SUMMARY OF PROSPECTUS SUPPLEMENT S-9
RISK FACTORS S-30
Exposure of the Mortgage Pool to Adverse Economic or Other Developments
Based on Geographic Concentration S-30
Increased Risk of Loss Associated With Concentration of Mortgage Loans,
Borrowers and Managers S-30
Limitations on Enforceability of Cross-Collateralization S-31
Other Financing and Additional Debt S-31
Risks Associated with Balloon Payments and the ARD Loan S-32
Borrower Default; Nonrecourse Mortgage Loans S-32
Risks Associated with Commercial and Multifamily Lending Generally S-33
Dependence on Tenants S-33
Risks Particular to Retail Properties S-34
Risks Particular to Multifamily Properties S-34
Risks Particular to Office Properties S-35
Risks Particular to Hotel Properties S-35
Risks Particular to Industrial Properties S-35
Management S-36
Risks Relating to Lack of Certificateholder Control Over Trust Fund S-36
Special Servicer May Purchase Certificates S-37
Yield Risk Associated With Changes in Concentrations S-37
Subordination of Subordinate Offered Certificates S-37
Potential Liability to the Trust Fund Relating to a Materially Adverse Environmental
Condition S-37
Tax Considerations Related to Foreclosure S-38
Earthquake Insurance S-38
Zoning Compliance S-38
Litigation S-38
DESCRIPTION OF THE MORTGAGE POOL S-39
General S-39
Additional Debt S-39
The ARD Loan S-40
Certain Terms and Conditions of the Mortgage Loans S-40
Prepayment Provisions S-41
Defeasance S-42
"Due-on-Sale" and "Due-on-Encumbrance" Provisions S-43
Additional Mortgage Loan Information S-43
Ten Largest Mortgage Loans S-56
Rady Family Trust and American Assets S-59
Underwritten Net Cash Flow S-60
Revenue S-60
Vacancy S-60
Expenses S-60
Replacement Reserves S-60
Tenant Improvements and Leasing Commissions S-61
S-6
<PAGE>
Assessments of Property Condition S-61
Property Inspection S-61
Appraisals S-61
Environmental Reports S-61
Building Condition Reports S-61
The Mortgage Loan Seller S-61
Underwriting Standards S-62
General S-62
Debt Service Coverage Ratio and LTV Ratio S-62
Borrower S-63
Escrow Requirements S-63
Representations and Warranties; Repurchases S-63
Mortgaged Property Accounts S-73
Lock Box Accounts S-73
DESCRIPTION OF THE CERTIFICATES S-74
General S-74
Book-Entry Registration and Definitive Certificates S-75
General S-75
Definitive Certificates S-75
Distributions S-76
Method, Timing and Amount S-76
Available Distribution Amount S-77
Priority S-78
Pass-Through Rates S-80
Interest Distribution Amount S-81
Principal Distribution Amount S-81
Certain Calculations with Respect to Individual Mortgage Loans S-82
Allocation of Yield Maintenance Charges S-82
Assumed Final Distribution Date; Rated Final Distribution Date S-83
Subordination; Allocation of Collateral Support Deficit S-83
Advances S-85
Appraisal Reductions S-86
Reports to Certificateholders; Available Information S-88
Trustee Reports S-88
Servicer Reports S-89
Annual Reports S-91
Voting Rights S-92
Termination; Retirement of Certificates S-92
The Trustee S-93
The Fiscal Agent S-93
Paying Agent, Certificate Registrar and Authenticating Agent S-94
YIELD AND MATURITY CONSIDERATIONS S-95
Yield Considerations S-95
General S-95
Pass-Through Rate S-95
Rate and Timing of Principal Payments S-95
Losses and Shortfalls S-96
Certain Relevant Factors S-96
S-7
<PAGE>
Delay in Payment of Distributions S-96
Unpaid Distributable Certificate Interest S-97
Weighted Average Life S-97
SERVICING OF THE MORTGAGE LOANS S-101
General S-101
The Servicer S-103
The Special Servicer S-103
Servicing and Other Compensation and Payment of Expenses S-104
Maintenance of Insurance S-105
Modifications, Waiver and Amendments S-106
Realization Upon Defaulted Mortgage Loans S-107
Inspections; Collection of Operating Information S-109
Certain Matters Regarding the Servicer, the Special Servicer and the Depositor S-110
Events of Default S-111
Rights Upon Event of Default S-111
Amendment S-112
CERTAIN FEDERAL INCOME TAX CONSEQUENCES S-113
METHOD OF DISTRIBUTION S-114
LEGAL MATTERS S-114
RATINGS S-115
LEGAL INVESTMENT CONSIDERATIONS S-115
ERISA CONSIDERATIONS S-116
INDEX OF SIGNIFICANT DEFINITIONS S-119
MORTGAGE LOAN SCHEDULE ANNEX A
FORMS OF SERVICING REPORTS ANNEX B
INTEREST RESERVE LOANS ANNEX C
</TABLE>
S-8
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used in this Summary
may be defined elsewhere in this Prospectus Supplement or in the Prospectus.
An "Index of Principal Definitions" is included at the end of both this
Prospectus Supplement and the Prospectus. Terms that are used but not defined
in this Prospectus Supplement will have the respective meanings specified in
the Prospectus.
Title of Certificates ......... Bear Stearns Commercial Mortgage Securities
Inc. Commercial Mortgage Pass-Through
Certificates, Series 1998-C1.
Depositor ..................... Bear Stearns Commercial Mortgage Securities
Inc., a Delaware corporation. The Depositor
is an affiliate of Bear, Stearns & Co. Inc.
(the "Underwriter"). The Depositor maintains
its principal office at 245 Park Avenue, New
York, New York 10167. See "The Depositor" in
the Prospectus. Neither the Depositor nor
any of its affiliates has insured or
guaranteed the Offered Certificates.
Servicer ...................... Banc One Mortgage Capital Markets, LLC, a
Delaware limited liability company. See
"Servicing of the Mortgage Loans--The
Servicer" herein.
Special Servicer .............. AMRESCO Management, Inc., a Texas
corporation. See "Servicing of the Mortgage
Loans--The Special Servicer" herein.
Trustee ....................... LaSalle National Bank, a nationally
chartered bank. See "Description of the
Certificates--The Trustee" herein.
Fiscal Agent .................. ABN AMRO Bank N.V., a Netherlands banking
corporation and the indirect corporate
parent of the Trustee. The Trustee is an
affiliate of the Fiscal Agent. See
"Description of the Certificates--The Fiscal
Agent" herein.
Mortgage Loan Seller .......... Bear, Stearns Funding, Inc., a Delaware
corporation ("Bear Stearns"). The Mortgage
Loan Seller is an affiliate of the Depositor
and the Underwriter. See "Description of the
Mortgage Pool--The Mortgage Loan Seller"
herein.
Cut-Off Date .................. June 1, 1998.
Closing Date .................. On or about June 29, 1998.
Distribution Date ............. Distributions on the Certificates will be
made monthly on the 16th day of the month
or, if such day is not a business day, the
next succeeding business day, commencing in
July 1998.
Determination Date ............ With respect to any Distribution Date, the
6th Business Day preceding the Distribution
Date.
S-9
<PAGE>
Interest Accrual Period ....... With respect to any Distribution Date, the
calendar month preceding the month in which
such Distribution Date occurs. Interest on
the Certificates is calculated based on a
360-day year consisting of twelve 30-day
months.
Due Period .................... With respect to each Distribution Date, the
period beginning on the second day of the
month preceding the month in which such
Distribution Date occurs and ending on the
first day of the month in which such
Distribution Date occurs.
Due Date ...................... With respect to any Mortgage Loan, the date
in each month on which scheduled payments
are due on such Mortgage Loan (without
regard to grace periods), which date is the
first day of the month.
Assumed Final
Distribution Date ............ The Assumed Final Distribution Dates set
forth below for each Class of the Offered
Certificates have been determined on the
basis of the assumptions described in
"Description of the Certificates--Assumed
Final Distribution Date; Rated Final
Distribution Date" herein.
<TABLE>
<CAPTION>
CLASS ASSUMED FINAL
DESIGNATION DISTRIBUTION DATE
- --------------- ---------------------
<S> <C>
Class A-1....... October 16, 2007
Class A-2....... June 16, 2008
Class B......... December 16, 2012
Class C......... January 16, 2013
Class D......... April 16, 2013
Class E......... May 16, 2013
</TABLE>
Rated Final Distribution Date . The Rated Final Distribution Date for each
Class of Offered Certificates is June 16,
2030, which is the first Distribution Date
after the 24th month following the end of
the amortization term for the Mortgage Loan
that, as of the Cut-Off Date, has the
longest remaining amortization term. See
"Description of the Certificates--Assumed
Final Distribution Date; Rated Final
Distribution Date" herein.
Denominations ................. The Offered Certificates will be issued,
maintained and transferred on the book-entry
records of DTC and its Participants in
denominations of $25,000 initial Certificate
Balance, and integral multiples of $1,000 in
excess thereof, with one Certificate of each
Class evidencing an additional amount equal
to the remainder of the Certificate Balance
of such Class.
Certificate Registration ...... Each Class of Offered Certificates will be
represented by one or more global
Certificates registered in the name of Cede
& Co., as nominee of DTC. No person
acquiring an interest in the Offered
Certificates (any such person, a
"Certificate Owner") will be entitled to
receive an Offered Certificate in fully
registered, certificated form (a "Definitive
Certificate") except
S-10
<PAGE>
under the limited circumstances described
herein and in the Prospectus. See
"Description of the Certificates--Book-Entry
Registration and Definitive Certificates"
herein and in the Prospectus.
The Mortgage Pool ............. The Mortgage Pool will consist of 106
commercial, 32 multifamily and 8 mobile home
community fixed-rate Mortgage Loans with an
Initial Pool Balance of approximately
$714,739,121. On or prior to the Closing
Date, the Depositor will acquire the
Mortgage Loans from the Mortgage Loan Seller
pursuant to a Mortgage Loan Purchase and
Sale Agreement dated as of June 1, 1998
between the Depositor and the Mortgage Loan
Seller (the "Mortgage Loan Purchase
Agreement"). As of the Cut-Off Date, none of
the Mortgage Loans is delinquent.
Each Mortgage Loan is secured by a first
priority lien on (i) with respect to 142
Mortgage Loans, representing 96.4% of the
Initial Pool Balance, a fee simple estate in
one or more commercial, multifamily or
mobile home community properties, (ii) with
respect to one Mortgage Loan, representing
approximately 1.4% of the Initial Pool
Balance, a leasehold estate and a fee simple
estate in a commercial property, (iii) with
respect to three Mortgage Loans,
representing approximately 2.2% of the
Initial Pool Balance, a leasehold estate in
a commercial, multifamily or mobile home
community property (each, a "Mortgaged
Property"). The term of any ground lease
securing any Mortgage Loan, in whole or in
part, that is not also secured by the
related fee interest, extends at least 10
years beyond the scheduled maturity of such
Mortgage Loan (including extensions at the
lender's option).
One of the Mortgage Loans described in
clause (i) of the preceding paragraph is
secured in part by unused development rights
relating to the air space above the
Mortgaged Property (the "Air Rights"), which
Air Rights have been leased by the related
borrower on a net basis (the "Air Rights
Lease") to the operator of a 43-story
DoubleTree Guest Suites Hotel.
S-11
<PAGE>
The following tables set forth certain
anticipated characteristics of the Mortgage
Loans. The sum in any column may not equal
the indicated total due to rounding. The
descriptions in this Prospectus Supplement
of the Mortgage Loans and the Mortgaged
Properties are based upon the Mortgage Pool
as it is expected to be constituted as of
the close of business on the Cut-Off Date,
assuming that (i) all scheduled principal
and interest payments due on or before the
Cut-Off Date will be made and (ii) there
will be no principal prepayments on or
before the Cut-Off Date.
SUMMARY OF MORTGAGE POOL
<TABLE>
<CAPTION>
<S> <C>
Initial Pool Balance.......................... $714,739,121
Number of Mortgage Loans ..................... 146(1)
Number of Mortgaged Properties ............... 170
Number of Balloon Loans/ARD Loan.............. 141(2)
Number of Fully-Amortizing Loans.............. 5
Average Cut-Off Date Balance.................. $4,895,473
Weighted Average Mortgage Rate................ 7.2790%
Weighted Average Original Term to Maturity .. 136 months(3)
Weighted Average Remaining Term to Maturity .. 134 months
Weighted Average Original Amortization Term .. 327 months
Weighted Average DSCR as of the Cut-Off Date . 1.62x(4)
Weighted Average LTV Ratio as of the Cut-Off
Date......................................... 63.8%(4)
Weighted Average LTV Ratio as of Maturity ... 51.3%
Weighted Average Current Occupancy Rate for
Commercial, Multifamily and Mobile Home
Properties................................... 96.1%
Weighted Average Current Occupancy Rate for
Hotels....................................... 69.1%
Balloon Loans/ARD Loan as a Percentage of the
Initial Pool Balance......................... 98.0%
Fully Amortizing Loans as a Percentage of the
Initial Pool Balance......................... 2.0%
</TABLE>
See "Risk Factors" and "Description of the
Mortgage Pool--Additional Mortgage Loan
Information" herein.
(1) A number of groups of Mortgage Loans
made to the same borrower or related
borrowers are comprised of Mortgage
Loans that are cross-collateralized and
cross-defaulted with each other. Except
in the case of two such groups, the
Mortgage Loans within such a group are
treated as a single Mortgage Loan for
purposes of this Prospectus Supplement
and the related Prospectus except where
the context otherwise requires.
S-12
<PAGE>
(2) One of the Mortgage Loans is an ARD
Loan. "ARD Loan" is defined on page
S-40. For purposes of the tables and
descriptions herein, the ARD Loan is
treated as a Balloon Loan with a
Maturity Date on the same date as the
Anticipated Repayment Date.
(3) The Maturity or Maturity Date of a
Mortgage Loan, as used herein with
respect to any Mortgage Loan other than
the ARD Loan, shall refer to the stated
maturity of the Mortgage Loan and, in
the case of the ARD Loan, shall refer to
the Anticipated Repayment Date.
(4) "DSCR", "LTV Ratio" and "Current
Occupancy Rate" are calculated as
described under "Description of the
Mortgage Pool--Additional Mortgage Loan
Information" herein.
PROPERTY TYPE
<TABLE>
<CAPTION>
AGGREGATE % OF
NUMBER CUT-OFF INITIAL CUT-OFF
OF DATE POOL DATE
PROPERTY TYPE LOANS BALANCE BALANCE LTV
- --------------------- -------- -------------- --------- ---------
<S> <C> <C> <C> <C>
Retail, Anchored .... 30 $228,775,963 32.01% 67.09%
Office ............... 26 $123,160,731 17.23% 60.16%
Multifamily........... 32 $100,791,477 14.10% 65.93%
Industrial/Warehouse 18 $ 81,568,383 11.41% 70.86%
Hotel................. 6 $ 43,316,967 6.06% 38.72%
Retail, Unanchored .. 10 $ 31,139,672 4.36% 65.46%
Mobile Home .......... 8 $ 29,430,611 4.12% 69.96%
Mixed-Use ............ 6 $ 25,463,530 3.56% 69.73%
Theater/Air Rights ... 1 $ 16,000,000 2.24% 34.86%
Medical Office ....... 3 $ 12,404,862 1.74% 68.25%
Self-Storage ......... 2 $ 8,020,347 1.12% 60.00%
Other ................ 1 $ 5,850,000 0.82% 68.82%
Parking .............. 2 $ 4,816,577 0.67% 74.11%
Multiple ............. 1 $ 4,000,000 0.56% 58.48%
-------- -------------- --------- ---------
Totals/Weighted Avg. . 146 $714,739,121 100.00% 63.82%
</TABLE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED
PROPERTIES
<TABLE>
<CAPTION>
AGGREGATE % OF
NUMBER CUT-OFF INITIAL
OF DATE POOL
STATE PROPERTIES BALANCE BALANCE
- ---------------- ------------ -------------- ---------
<S> <C> <C> <C>
California ...... 29 $195,924,576 27.41%
New York ........ 32 $118,179,358 16.53%
Florida ......... 15 $ 63,543,057 8.89%
Massachusetts .. 10 $ 39,302,070 5.50%
Connecticut ..... 7 $ 36,246,605 5.07%
Arizona ......... 8 $ 33,853,457 4.74%
22 Other States 69 $227,689,998 31.86%
------------ -------------- ---------
Totals .......... 170 $714,739,121 100.00%
</TABLE>
S-13
<PAGE>
RANGE OF CUT-OFF DATE BALANCES
<TABLE>
<CAPTION>
AGGREGATE % OF
NUMBER CUT-OFF INITIAL
RANGE OF CUT-OFF OF DATE POOL
DATE BALANCES LOANS BALANCE BALANCE
- ----------------------------- -------- -------------- ---------
<S> <C> <C> <C>
$0 to $999,999 ............... 3 $ 2,768,180 0.39%
$1,000,000 to $1,999,999 .... 36 $ 56,336,958 7.88%
$2,000,000 to $3,999,999 .... 45 $126,496,874 17.70%
$4,000,000 to $5,999,999 .... 27 $135,931,580 19.02%
$6,000,000 to $7,999,999 .... 11 $ 76,339,665 10.68%
$8,000,000 to $9,999,999 .... 6 $ 55,436,673 7.76%
$10,000,000 to $11,999,999 .. 6 $ 65,172,900 9.12%
$12,000,000 to $13,999,999 .. 4 $ 50,813,332 7.11%
$14,000,000 to $15,999,999 .. 3 $ 44,230,555 6.19%
$16,000,000 to $17,999,999 .. 2 $ 33,000,000 4.62%
$20,000,000 to $24,999,999 .. 3 $ 68,212,404 9.54%
-------- -------------- ---------
Totals ....................... 146 $714,739,121 100.00%
</TABLE>
The average Cut-Off Date Balance is $4,895,473.
RANGE OF DSCRS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
AGGREGATE % OF
RANGE OF DEBT NUMBER CUT-OFF INITIAL
SERVICE COVERAGE OF DATE POOL
RATIOS LOANS BALANCE BALANCE
- ---------------- -------- -------------- ---------
<S> <C> <C> <C>
1.25x to 1.29x . 10 $ 42,432,335 5.94%
1.30x to 1.34x . 17 $ 56,364,469 7.89%
1.35x to 1.39x . 9 $ 54,918,334 7.68%
1.40x to 1.44x . 19 $113,722,506 15.91%
1.45x to 1.49x . 21 $130,433,175 18.25%
1.50x to 1.54x .. 9 $ 28,033,130 3.92%
1.55x to 1.59x . 13 $ 46,547,589 6.51%
1.60x to 1.69x . 16 $ 53,061,857 7.42%
1.70x to 1.79x . 10 $ 37,271,871 5.21%
1.80x to 1.89x . 7 $ 43,674,013 6.11%
1.90x to 1.99x . 3 $ 16,287,375 2.28%
2.00x to 2.19x .. 3 $ 10,988,956 1.54%
2.20x to 2.49x . 7 $ 63,711,560 8.91%
2.50x to 3.00x . 2 $ 17,291,949 2.42%
-------- -------------- ---------
Totals .......... 146 $714,739,121 100.00%
</TABLE>
The weighted average DSCR as of the Cut-Off
Date is approximately 1.62x.
S-14
<PAGE>
RANGE OF LTV RATIOS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
RANGE OF AGGREGATE % OF
CUT-OFF NUMBER CUT-OFF INITIAL
DATE LTV OF DATE POOL
RATIOS LOANS BALANCE BALANCE
- ----------------- -------- -------------- ---------
<S> <C> <C> <C>
20.01% to 30.00% 1 $ 10,000,000 1.40%
30.01% to 40.00% 4 $ 52,634,527 7.36%
40.01% to 45.00% 3 $ 17,017,857 2.38%
45.01% to 50.00% 9 $ 26,950,845 3.77%
50.01% to 55.00% 4 $ 8,786,143 1.23%
55.01% to 60.00% 19 $ 72,331,730 10.12%
60.01% to 65.00% 23 $122,808,987 17.18%
65.01% to 70.00% 25 $117,481,523 16.44%
70.01% to 75.00% . 48 $233,027,007 32.60%
75.01% to 80.00% . 10 $ 53,700,503 7.51%
-------- -------------- ---------
Totals ........... 146 $714,739,121 100.00%
</TABLE>
The weighted average LTV Ratio as of the
Cut-Off Date is approximately 63.82%.
RANGE OF REMAINING TERM TO MATURITY AS OF
THE CUT-OFF DATE
<TABLE>
<CAPTION>
AGGREGATE % OF
RANGE OF NUMBER CUT-OFF INITIAL
REMAINING OF DATE POOL
TERMS (MOS.) LOANS BALANCE BALANCE
- ------------ -------- -------------- ---------
<S> <C> <C> <C>
81 to 100.... 2 $ 3,947,015 0.55%
101 to 120 .. 113 $516,296,238 72.24%
121 to 140 .. 1 $ 2,689,234 0.38%
161 to 180 .. 30 $191,806,634 26.84%
-------- -------------- ---------
Totals....... 146 $714,739,121 100.00%
</TABLE>
The weighted average remaining term to Maturity
as of the Cut-Off Date is approximately 134
months.
S-15
<PAGE>
The following table sets forth the Range of
Mortgage Rates as of the Cut-Off Date.
RANGE OF MORTGAGE RATES AS OF THE CUT-OFF
DATE
<TABLE>
<CAPTION>
AGGREGATE % OF
NUMBER CUT-OFF INITIAL
OF DATE POOL
MORTGAGE RATES LOANS BALANCE BALANCE
- --------------------- -------- -------------- ---------
<S> <C> <C> <C>
6.2500% to 6.5000% .. 1 $ 11,969,867 1.67%
6.5001% to 6.7500% .. 3 $ 7,011,479 0.98%
6.7501% to 7.0000% .. 25 $174,385,452 24.40%
7.0001% to 7.2500% .. 34 $181,852,672 25.44%
7.2501% to 7.5000% .. 34 $179,832,989 25.16%
7.5001% to 7.7500% .. 22 $ 81,161,990 11.36%
7.7501% to 8.0000% .. 12 $ 36,442,256 5.10%
8.0001% to 8.2500% .. 9 $ 33,469,426 4.68%
8.2501% to 8.7500% .. 4 $ 6,275,994 0.88%
8.7501% to 9.2500% .. 1 $ 1,562,449 0.22%
9.2501% to 10.0000% . 1 $ 774,546 0.11%
-------- -------------- ---------
Totals ............... 146 $714,739,121 100.00%
</TABLE>
The weighted average Mortgage Rate as of the
Cut-Off Date is 7.2790%.
SUMMARY OF CALL PROTECTION
<TABLE>
<CAPTION>
AGGREGATE % OF
NUMBER CUT-OFF INITIAL
OF DATE POOL
CALL PROTECTION DESCRIPTION LOANS BALANCE BALANCE
- --------------------------------- -------- -------------- ---------
<S> <C> <C> <C>
Loans Locked-out through Maturity
Date ............................ 125 $628,016,157 87.87%
Loans Locked-out through 1-3
months prior to Maturity Date .. 11 $ 51,628,650 7.22%
Loans Locked-out through 4-6
months prior to Maturity Date .. 1 $ 5,800,000 0.81%
Loans with yield maintenance
through Maturity Date ........... 2 $ 9,435,216 1.32%
Loans with yield maintenance
through 1-3 months prior to
Maturity Date ................... 3 $ 14,659,699 2.05%
Loans with yield maintenance
through 4-6 months prior to
Maturity Date .................. 4 $ 5,199,399 0.73%
-------- -------------- ---------
Totals ........................... 146 $714,739,121 100.00%
</TABLE>
S-16
<PAGE>
TEN LARGEST MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE % OF
CUT-OFF INITIAL CUT-OFF
LOAN LOAN DATE POOL DATE MATURITY
NUMBER NAME BALANCE BALANCE DSCR LTV LTV
- ----------- ---------------- -------------- --------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
6100 Mission
Marketplace...... $ 23,912,270 3.35% 1.42x 74.73% 58.30%
6008 Naples Beach
Hotel & Resort .. $ 22,913,783 3.21% 2.37x 36.26% 28.58%
9671-9675 Retail
Portfolio........ $ 22,201,914 3.11% 1.33x 68.32% 61.23%
9119 Lomas Santa Fe
Plaza............ $ 21,386,351 2.99% 1.48x 64.81% 49.49%
9140 1851 & 1871
Sunrise Hwy...... $ 17,000,000 2.38% 1.42x 71.43% 62.83%
5906 1564 Broadway ... $ 16,000,000 2.24% 2.87x 34.86% 27.96%
9121 Torrey Reserve
South Court...... $ 15,739,803 2.20% 1.61x 63.72% 48.55%
9115 White Road
Plaza............ $ 14,490,752 2.03% 1.49x 67.09% 51.23%
6605 Kerr McGee
Center........... $ 14,000,000 1.96% 1.85x 55.12% 52.15%
8785 Shaw's Plaza
Shopping Center . $ 13,300,000 1.86% 1.46x 73.08% 58.67%
-------------- --------- ------- --------- ----------
Totals/Weighted Avg........... $180,944,873 25.32% 1.72x 60.85% 49.74%
</TABLE>
See "Description of the Mortgage
Pool--Additional Mortgage Loan Information"
herein.
All of the Mortgage Loans provide for
scheduled payments of principal and/or
interest ("Monthly Payments") to be due on
the first day of each month (the "Due
Date"), and all of the Mortgage Loans
provide for no more than a ten-day grace
period. See "Description of the Mortgage
Pool--Certain Terms and Conditions of the
Mortgage Loans" herein.
Five of the Mortgage Loans, representing
approximately 2.0% of the Initial Pool
Balance, provide for monthly payments of
principal sufficient to fully amortize each
such Mortgage Loan by its Maturity Date. 140
of the Mortgage Loans, representing
approximately 96.6% of the Initial Pool
Balance, provide for monthly payments of
principal based on amortization schedules
significantly longer than the remaining
terms of such Mortgage Loans, thereby
leaving substantial principal amounts due
and payable (each such payment, together
with the corresponding interest payment, a
"Balloon Payment") on their respective
Maturity Dates, unless prepaid prior
thereto. One of the Mortgage Loans (the "ARD
Loan"), representing approximately 1.3% of
the Initial Pool Balance, provides that
after a certain date (the "Anticipated
Repayment Date") (i) the Mortgage Rate of
such Mortgage Loan will increase to a rate
(the "Revised Rate") equal to the sum of (a)
the Mortgage Rate in effect immediately
prior to the Anticipated Repayment Date and
(b) 2% per annum (any interest accrued at
the excess of the
S-17
<PAGE>
Revised Rate over the stated Mortgage Rate,
the "Excess Interest"), and (ii) property
cash flow in excess of that required for
debt service (other than Excess Interest)
and other items with respect to the related
Mortgaged Property is required to be applied
towards the payment of principal of the ARD
Loan until the principal balance has been
reduced to zero. Excess Interest may be paid
only after the principal balance of the ARD
Loan has been reduced to zero. A substantial
principal payment will be required to pay
off the ARD Loan on its Anticipated
Repayment Date; however, the ARD Loan is
scheduled to fully amortize by its stated
final maturity date if it is not prepaid in
full on its Anticipated Repayment Date. See
"Description of the Mortgage
Pool--General--ARD Loan" herein.
144 Mortgage Loans, representing
approximately 96.6% of the Initial Pool
Balance, accrue interest on the principal
balance thereof on the basis of the actual
number of days in a month, assuming a
360-day year. The remaining two Mortgage
Loans, representing approximately 3.4% of
the Initial Pool Balance, accrue interest on
the principal balance thereof on the basis
of a 30-day month, assuming a 360-day year.
137 Mortgage Loans, representing
approximately 95.9% of the Initial Pool
Balance, grant the related Borrower the
right, at any time commencing generally
three to four years after the date of
origination, to obtain the release of the
lien of the related Mortgage on the related
Mortgaged Property or Mortgaged Properties,
as applicable, by substituting for such
Mortgaged Property or Mortgaged Properties,
as the case may be, as collateral for the
Mortgage Note, direct non-callable
obligations of the United States of America
which provide for payments on or prior to
each Due Date and the Maturity Date, of
amounts at least equal to the amounts which
would have been payable on each such date
under the terms of the related Mortgage
Loan; provided, however, that no such
defeasance will be permitted if it will
result in a downgrade, withdrawal or
qualification of the then current rating on
the Offered Certificates (as evidenced by
notice to that effect in writing from each
Rating Agency then rating the Certificates).
Ten of such Mortgage Loans, representing
5.7% of the Initial Pool Balance, are
secured by two or more Mortgaged Properties
and grant the related borrower the right, at
any time commencing generally three to four
years after the date of origination, (i) to
obtain the release of all of such Mortgaged
Properties from the lien of the related
Mortgage on terms substantially similar to
those described in the immediately preceding
paragraph and (ii) to obtain the release of
one or more (but less than all) of such
Mortgaged Properties (the "Partial Release
Mortgaged Properties") by substituting for
such Partial Release Mortgaged Properties
direct, non-callable obligations of the
United States of America which provide for
S-18
<PAGE>
payments on or prior to each Due Date in an
amount equal to 125% (or, in the case of one
Mortgage Loan representing 0.4% of the
Initial Pool Balance, 110%) of the amounts
that would have been payable on each such
date that are allocable to such Partial
Release Mortgaged Property; provided,
however, that a borrower may not obtain the
release of any Partial Release Mortgaged
Property unless, immediately following such
partial release, the remaining Mortgaged
Property will have a minimum DSCR that is
generally not less than the underwritten
DSCR at origination of the Mortgage Loan.
One group of cross-collateralized Mortgage
Loans, representing 3.1% of the Initial Pool
Balance, consists of five Notes each of
which is secured by a first lien on one of
the related Mortgaged Properties and
guarantees of payment secured by liens on
the other four Mortgaged Properties. The
Mortgage Loan documents with respect to such
Mortgage Loans permit the borrowers to
obtain the release of one or more of the
Mortgaged Properties (the "Released
Mortgaged Properties") from the liens
thereon securing the related Notes and
guarantees of payment by substituting for
such Released Mortgaged Properties direct,
non-callable obligations of the United
States of America which provide for payments
on or prior to each Due Date and the
Maturity Date in an amount equal to 125% of
the amounts that would have been payable on
each such date under the terms of the Note
or Notes which had been secured by first
liens on the Released Mortgaged Property or
Properties. Accordingly, on each Due Date
and on the Maturity Date following such a
release and substitution, the payments
received on the related government
obligations will be applied, first, to pay
the amounts due on such date on the Note or
Notes that had been secured by first liens
on the Released Mortgaged Property or
Properties, and second, to pay amounts due
on the remaining Notes (effectively
supporting the borrower's ability to make
payments with respect to such remaining
Notes).
One group of cross-collateralized Mortgage
Loans, representing 0.5% of the Initial Pool
Balance, consists of two Notes each of which
is secured by a first lien on one related
Mortgaged Property and a guarantee of
payment secured by liens on the other
Mortgaged Property. The Mortgage Loan
documents with respect to such Mortgage
Loans permit the borrowers to obtain the
release of their Mortgaged Property (the
"Released Mortgaged Property") from the
liens thereon securing the related Note and
guarantee of payment by substituting for
such Released Mortgaged Property direct,
non-callable obligations of the United
States of America which provide for payments
on or prior to each Due Date and the
Maturity Date in an amount equal to the
amounts that would have been payable on each
such date under the terms of the related
Note.
S-19
<PAGE>
Information Available
to Certificateholders ........ Based on information provided in monthly
reports prepared by the Servicer and the
Special Servicer, the Trustee will prepare
and forward on each Distribution Date to
each Certificateholder and, if requested,
any potential investors in the Certificates
a monthly Distribution Date Statement and a
loan level report, each containing the items
described herein under "Description of the
Certificates--Reports to Certificateholders;
Available Information."
In addition, commencing in August 1998, the
Servicer is required to deliver to the
Trustee prior to each Distribution Date, and
the Trustee is required to deliver to each
Certificateholder and, if requested, any
potential investors in the Certificates, on
such Distribution Date (a) the following two
Commercial Real Estate Secondary Market and
Securitization Association ("CSSA") data
files: (i) the "CSSA Loan Periodic Update
File" and (ii) to the extent received from
the Servicer, the "CSSA Property Data File"
and (b) the following six reports: a
"Comparative Financial Status Report," a
"Delinquent Loan Status Report," a
"Historical Loan Modification Report," a
"Historical Loss Estimate Report," an "REO
Status Report" and a "Watch List," each
containing the information described under
"Description of the Certificates--Reports to
Certificateholders; Available Information."
See "Annex B" to this Prospectus Supplement.
In addition, the Servicer is required to
deliver on an annual basis an "Operating
Statement Analysis Report" and an "NOI
Adjustment Worksheet" with respect to the
Mortgage Loans. Such reports will be made
available to Certificateholders upon
request.
See "Description of the
Certificates--Reports to Certificateholders;
Available Information."
Description of the
Certificates ................. The Certificates will be issued pursuant to
a Pooling and Servicing Agreement, to be
dated as of the Cut-Off Date, among the
Depositor, the Servicer, the Special
Servicer, the Trustee and the Fiscal Agent
(the "Pooling and Servicing Agreement"), and
will represent in the aggregate the entire
beneficial ownership interest in the Trust
Fund, which will consist of the Mortgage
Pool and certain related assets.
The aggregate Certificate Balance of the
Certificates as of the Closing Date will
equal the Initial Pool Balance. Each Class
of Offered Certificates will have the
initial Certificate Balance set forth on the
cover page, subject to a permitted variance
of plus or minus 5%.
S-20
<PAGE>
The Class F, Class G, Class H, Class I,
Class J and Class K Certificates will have
an aggregate initial Certificate Balance of
approximately $58,965,978. The Class X
Certificates will have an initial Notional
Amount of approximately $714,739,121.
Neither the Class R Certificates nor the
Class LR Certificates will have a
Certificate Balance or a Notional Amount.
The Class X, Class F, Class G, Class H,
Class I, Class J, Class K, Class R and Class
LR Certificates are referred to herein
collectively as the "Non-Offered
Certificates." See "Description of the
Certificates--General" herein.
The Pass-Through Rate applicable to each
Class of Offered Certificates for each
Distribution Date will equal the rate for
such Class set forth on the cover page;
provided, however, that in no event shall
the Pass-Through Rate of any such Class for
any Interest Accrual Period exceed the
weighted average of the Net Mortgage Rates
of the Mortgage Loans (such Net Mortgage
Rates determined without taking into account
any reductions thereto resulting from
modifications of the Mortgage Loans or
otherwise following the Cut-Off Date). See
"Description of the
Certificates--Distributions--Pass-Through
Rates" and "--Distributions--Certain
Calculations with Respect to Individual
Mortgage Loans" herein.
Distribution of Principal
and Interest ................. Available Distribution Amount. Distributions
on the Certificates will be made on each
Distribution Date to the extent of the
"Available Distribution Amount" (as defined
below) for such Distribution Date. The
"Available Distribution Amount" with respect
to the Certificates for any Distribution
Date will, in general, equal the amount of
the monthly payments due in the month in
which such Distribution Date occurs (to the
extent received by the second Business Day
before the Distribution Date or advanced by
the Servicer) and the amount of any
principal prepayments (but exclusive of
Yield Maintenance Charges) and Balloon
Payments received during the related Due
Period, less expenses of the Trust Fund,
including without limitation, fees and other
compensation of the Servicer and Special
Servicer and any expenses including any
indemnity payments reimbursable to the
Servicer, the Special Servicer or the
Trustee. See "Servicing of the Mortgage
Loans--Servicing and Other Compensation and
Payment of Expenses" and "--Certain Matters
Regarding the Servicer, the Special Servicer
and the Depositor."
Interest Distributions. On each Distribution
Date, to the extent of the Available
Distribution Amount, and subject to the
distribution priorities described herein,
each Class of Offered Certificates will be
entitled to receive distributions of
interest in an aggregate amount equal to all
Distributable Certificate Interest with
respect to such Class for such Distribution
Date and, to the extent not previously paid,
for all prior Distribution Dates (such
amount, for such Class, the "Interest
Distribution
S-21
<PAGE>
Amount"). No interest will accrue on such
overdue amounts. See "Description of the
Certificates--Distributions" herein.
The "Distributable Certificate Interest" in
respect of any Class of Certificates (other
than the Class R and Class LR Certificates)
for any Distribution Date will equal one
month's interest at the then-applicable
Pass-Through Rate accrued during the
Interest Accrual Period that ended
immediately prior to such Distribution Date
on the Certificate Principal Balance or
Notional Amount as applicable, outstanding
immediately prior to such Distribution Date.
Interest will accrue with respect to the
Certificates on the basis of a 360-day year
consisting of twelve 30-day months. See
"Description of the Certificates--
Distributions--Method, Timing and Amount"
herein.
Principal Distributions. Distributions in
respect of principal will be made on each
Distribution Date, to the extent of the
Available Distribution Amount, in an amount
equal to the Principal Distribution Amount
(defined below). Such distribution will be
made to the Classes of Certificates (other
than the Class X and Residual Certificates)
in the order of their alphabetical Class
designation until the Certificate Balance of
each such class is reduced to zero. The
"Principal Distribution Amount" for any
Distribution Date is an amount equal to the
sum of (a) the Scheduled Principal
Distribution Amount for such Distribution
Date, (b) the Unscheduled Principal
Distribution Amount for such Distribution
Date and (c) the Principal Shortfall for
such Distribution Date. See "Description of
the Certificates--Distributions" herein.
Yield Maintenance Charges. On each
Distribution Date, any Yield Maintenance
Charges collected on the Mortgage Loans
during the related Due Period will be
distributed separately from the Available
Distribution Amount for such Distribution
Date to the Class X Certificates and the
Class A, Class B, Class C, Class D or Class
E Certificates, in the amounts described
herein under "Description of the
Certificates--Allocation of Yield
Maintenance Charges" herein.
Certain Yield and Prepayment
Considerations ............... In General. The yield on the Offered
Certificates of any Class will depend on,
among other things, the Pass-Through Rate
for such Certificates. The yield on any
Offered Certificate that is purchased at a
discount or premium will also be affected by
(i) the rate and timing of principal
payments (including voluntary and
involuntary principal prepayments and
delinquent payments) and principal losses on
the Mortgage Loans and (ii) the extent to
which such principal payments or losses are
applied or losses are allocated on any
Distribution Date in reduction of the
Certificate Balance of the Class to which
such Certificate belongs. See "Description
of the Certificates--Distributions--Priority"
and "--Distributions -- Principal Distribution
Amount" herein.
S-22
<PAGE>
An investor that purchases an Offered
Certificate at a discount should consider
the risk that a slower than anticipated rate
of principal payments on the Mortgage Loans
will result in an actual yield that is lower
than such investor's expected yield. Insofar
as an investor's initial investment in any
Offered Certificate is repaid, there can be
no assurance that such amounts can be
reinvested in a comparable alternative
investment with a comparable yield.
The actual rate of prepayment of principal
on the Mortgage Loans cannot be predicted.
All of the Mortgage Loans contain provisions
prohibiting voluntary prepayments for a
specified amount of time after origination
and/or allow voluntary prepayments only with
the payment of a Yield Maintenance Charge
(defined herein) for a specified amount of
time from origination. 125 Mortgage Loans,
representing approximately 87.9% of the
Initial Pool Balance, contain provisions
that prohibit all voluntary prepayments. 12
of the Mortgage Loans, representing
approximately 8.0% of the Initial Pool
Balance, prohibit voluntary prepayments
until a specified date (generally between
one and six months prior to the Maturity
Date of such Mortgage Loans) during which
there are no restrictions on voluntary
prepayments. Two Mortgage Loans,
representing approximately 1.3% of Initial
Pool Balance, contain provisions that allow
voluntary prepayment at any time with the
payment of a Yield Maintenance Charge. Seven
Mortgage Loans, representing approximately
2.8% of the Initial Pool Balance, contain
provisions that prohibit voluntary
prepayment for a specified period of time
(generally between two and five years) after
origination and permit voluntary prepayments
thereafter with the prepayment of a Yield
Maintenance Charge until a specified date
(generally between one and six months prior
to the Maturity Date of such Mortgage Loan)
and without restriction thereafter. See the
table entitled "Remaining Pool Balance
Subject to Prepayment Restrictions" set
forth in "Description of the Mortgage
Pool--Certain Terms and Conditions of the
Mortgage Loans" herein. The investment
performance of the Offered Certificates may
vary materially and adversely from the
investment expectations of investors due to
prepayments on the Mortgage Loans (whether
voluntary or otherwise) being higher or
lower than anticipated by investors. The
actual yield to the holder of an Offered
Certificate may not be equal to the yield
anticipated at the time of purchase of the
Certificate, and even if the actual yield is
equal to the yield anticipated at that time,
an investor may not realize its expected
total return on investment or expected
weighted average life of the Offered
Certificate.
For a discussion of certain factors
affecting prepayment of the Mortgage Loans,
see "Yield and Maturity Considerations"
herein. IN DECIDING WHETHER TO PURCHASE ANY
OFFERED CERTIFICATES, AN INVESTOR SHOULD
MAKE AN INDEPENDENT DECISION AS TO THE
APPROPRIATE PREPAYMENT ASSUMPTIONS TO BE
USED.
S-23
<PAGE>
The structure of the Offered Certificates
causes the yield of certain Classes to be
sensitive to changes in the rates of
prepayment of the Mortgage Loans and other
factors. Allocation on each Distribution
Date to the outstanding Class or Classes of
Certificates having the highest priority
with respect to distributions of principal,
for so long as such Class remains
outstanding, of the entire Principal
Distribution Amount for such Distribution
Date will generally cause such Certificates
to amortize at a faster rate than the actual
amortization rate of the Mortgage Loans.
Advances ...................... The Servicer will be required to make
advances (each, a "P&I Advance") of
delinquent principal and interest on the
Mortgage Loans or, in the case of each
Mortgage Loan that is delinquent in respect
of its Balloon Payment, advances of Assumed
Scheduled Payments under the circumstances
and subject to the limitations set forth
herein. Subject to the limitations set forth
herein, the Servicer will also be required
to make advances ("Servicing Advances," and
collectively with P&I Advances, "Advances")
to pay delinquent real estate taxes,
assessments and hazard insurance premiums
and similar expenses necessary to protect
and maintain the Mortgaged Property, to
maintain the lien of the Mortgage on the
related Mortgaged Property or enforce the
related Mortgage Loan documents. In the
event the Servicer fails to make any
required Advance, the Trustee will be
required to make such Advance in accordance
with the terms of the Pooling and Servicing
Agreement. In the event the Trustee fails to
make any required Advance, the Fiscal Agent
will be required to make such Advance in
accordance with the terms of the Pooling and
Servicing Agreement. None of the Servicer,
the Trustee or the Fiscal Agent will be
required to make P&I Advances with respect
to Excess Interest.
P&I Advances are intended to maintain a
regular flow of scheduled interest and
principal payments to the Certificateholders
and are not intended to guarantee payments
on the Certificates or insure against
losses. Advances which cannot be reimbursed
out of collections on, or in respect of, the
related Mortgage Loans (each a
"Nonrecoverable Advance") will be
reimbursable directly from any other
collections on the Mortgage Loans as
provided herein, and this will cause losses
to be borne by Certificateholders in the
priority specified herein.
The Servicer, the Trustee and the Fiscal
Agent, as the case may be, will be entitled
to receive interest on any Advances made,
such interest accruing at the rate and
payable under the circumstances described
herein. Interest accrued on outstanding
Advances may result in reductions in amounts
otherwise available for payment on the
Certificates. See "Description of the
Certificates--Advances" and
"--Subordination; Allocation of Collateral
Support Deficit" herein and "Description of
the Certificates--Advances in Respect of
Delinquencies" and "Description of the
Pooling Agreements--Certificate Account" in
the Prospectus.
S-24
<PAGE>
Subordination; Allocation of
Collateral Support Deficit ... Credit enhancement for each Class of Offered
Certificates will be provided by the Classes
of Certificates which are subordinate to
such Offered Certificates with respect to
(i) rights to receive certain distributions
of interest and of principal and (ii) the
allocation of Collateral Support Deficit.
Such subordination referred to in clause (i)
above will be accomplished by the
application of the Available Distribution
Amount on each Distribution Date to make
distributions on the respective Classes of
Certificates in the order described herein
under "Description of the
Certificates--Distributions--Priority." No
other form of credit support will be
available for the benefit of the Holders of
the Offered Certificates.
Allocation of the Principal Distribution
Amount on each Distribution Date to the
outstanding Class of Certificates (other
than the Class X Certificates) having the
highest priority (relative to the other
outstanding Classes of Certificates) with
respect to distributions of principal, for
so long as such Class remains outstanding,
will generally accelerate the amortization
of the Certificates of such Class relative
to the actual amortization of the Mortgage
Loans. To the extent that such Certificates
are amortized faster than the Mortgage
Loans, the percentage interest in the Trust
Fund evidenced by such Class of Certificates
will be decreased (with a corresponding
increase in the interest in the Trust Fund
evidenced by the remaining Classes of
Certificates), thereby increasing, relative
to their respective Certificate Balances,
the subordination afforded such Certificates
by such remaining Classes of Certificates.
As a result of losses and other shortfalls
experienced with respect to the Mortgage
Loans or otherwise with respect to the Trust
Fund (which may include, but are not limited
to, shortfalls arising from the payment of
interest accrued on Advances and
Nonrecoverable Advances and from expenses of
the Trust Fund not directly related to any
Mortgage Loan), the aggregate Stated
Principal Balance of the Mortgage Pool
expected to be outstanding immediately
following any Distribution Date may be less
than the aggregate Certificate Balance of
the Certificates immediately following the
distributions on such Distribution Date.
Such deficit (the "Collateral Support
Deficit") will be allocated (in reduction of
their respective Certificate Balances) first
to the Class K Certificates, then to the
Class J Certificates, then to the Class I
Certificates, then to the Class H
Certificates, then to the Class G
Certificates, then to the Class F
Certificates, then to the Class E
Certificates, then to the Class D
Certificates, then to the Class C
Certificates, and then to the Class B
Certificates, in each case until the related
Certificate Balance has been reduced to
zero. Following the reduction of the
Certificate Balances of all such Classes of
Certificates to zero, Collateral Support
Deficit will be allocated, pro rata, to the
Class A-1 and Class A-2 Certificates until
the Certificate Balances of such Classes
have been reduced to zero. See
S-25
<PAGE>
"Description of the Certificates--
Subordination; Allocation of Collateral
Support Deficit" herein.
A Class of Offered Certificates will be
considered outstanding until its Certificate
Balance is reduced to zero; provided,
however, that reimbursement of any
previously allocated Collateral Support
Deficit may thereafter be made to such
Class.
Optional Termination .......... At its option, on any Distribution Date on
which the remaining aggregate Stated
Principal Balance of the Mortgage Pool is
less than 1% of the Initial Pool Balance,
the Controlling Class Certificateholder may
purchase all, but not less than all, of the
Mortgage Loans and REO Properties in the
Trust Fund, and thereby effect termination
of the Trust Fund and early retirement of
the then outstanding Certificates. If the
Controlling Class Certificateholder does not
exercise such purchase option, then the
Servicer (with respect to Mortgage Loans
that are not Specially Serviced Mortgage
Loans) and the Special Servicer (with
respect to Specially Serviced Mortgage Loans
and REO Properties) may purchase all of the
Mortgage Loans or Specially Serviced
Mortgage Loans and REO Properties, as the
case may be, and thereby effect termination
of the Trust Fund in the manner described in
the preceding sentence upon purchase by
them, in the aggregate, of all of the
Mortgage Loans and REO Properties. See
"Description of the Certificates--Termination;
Retirement of Certificates" herein and
"Description of the Certificates--Termination"
in the Prospectus.
Ratings ....................... It is a condition of the issuance of the
Offered Certificates that they receive the
following credit ratings from Moody's
Investors Service, Inc. ("Moody's") and Duff
& Phelps Credit Rating Co. ("DCR") (the
"Rating Agencies").
<TABLE>
<CAPTION>
MOODY'S RATING DCR RATING
------------------ --------------
<S> <C> <C>
Class A-1...... Aaa AAA
Class A-2 ..... Aaa AAA
Class B........ Aa2 AA
Class C........ A2 A
Class D ....... Baa2 BBB
Class E........ Baa3 BBB-
</TABLE>
A rating addresses the likelihood of timely
payment of interest on the Certificates, and
ultimate payment of all principal thereof by
the Rated Final Distribution Date. The
rating takes into consideration the
characteristics of the Mortgage Loans and
the structural and legal aspects associated
with the Offered Certificates. Each rating
assigned to the Offered Certificates should
be evaluated independently of any other
rating.
A 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. In addition, a
rating does not address the likelihood or
frequency of voluntary or mandatory
prepayments of Mortgage Loans or payments of
Excess Interest on the
S-26
<PAGE>
ARD Loan, whether and to what extent
payments of Yield Maintenance Charges will
be received or the corresponding effect on
yield to investors. See "Rating" herein and
"Risk Factors--Limited Nature of Ratings" in
the Prospectus.
Form, Registration and Transfer
............................... The Offered Certificates will be maintained
and transferred on the book-entry records of
DTC and its Participants and issued in
denominations of $25,000 initial Certificate
Balance, and integral multiples of $1,000 in
excess thereof. The "Percentage Interest"
evidenced by any Certificate (other than the
Residual Certificates) is equal to the
initial denomination thereof as of the
Closing Date, divided by the initial
Certificate Balance or Notional Amount of
the Class to which it belongs.
The Offered Certificates will initially be
represented by one or more global
Certificates registered in the name of the
nominee of DTC. The Depositor has been
informed by DTC that DTC's nominee will be
Cede & Co. No Certificate Owner will be
entitled to receive a Definitive Certificate
representing its interest in such Class,
except as set forth below under "Description
of the Certificates--Book-Entry Registration
and Definitive Certificates." Unless and
until Definitive Certificates are issued,
all references to actions by holders of the
Offered Certificates will refer to actions
taken by DTC upon instructions received from
Certificate Owners through DTC's
Participants, and all references herein to
payments, notices, reports and statements to
holders of the Offered Certificates will
refer to payments, notices, reports and
statements to DTC or Cede & Co., as the
registered holder of the Offered
Certificates, for distribution to
Certificate Owners through DTC's
Participants in accordance with DTC's
procedures. See "Description of the
Certificates--Book-Entry Registration and
Definitive Certificates" herein and in the
Prospectus.
Until Definitive Certificates are issued,
interests in any Class of Offered
Certificates will be transferred on the
book-entry records of DTC and its
Participants.
Certain Federal Income Tax
Consequences ................. For federal income tax purposes, elections
will be made to treat the assets comprising
the Trust Fund as two separate real estate
mortgage investment conduits. All of the
Classes of Offered Certificates and the
Class X, Class F, Class G, Class H, Class I,
Class J and Class K Certificates will be
designated as "regular interests" in the
Upper-Tier REMIC. The Class R and Class LR
Certificates will be designated as residual
interests in the Upper-Tier REMIC and
Lower-Tier REMIC, respectively.
Because they represent regular interests,
each Class of Offered Certificates generally
will be treated as newly originated debt
instruments issued by the REMIC for federal
income tax purposes. Holders of such Classes
of Certificates will be required to include
in income all interest on such Certificates
in accordance with the accrual method of
accounting, regardless of
S-27
<PAGE>
a Certificateholder's usual method of
accounting. It is also anticipated that the
Class D and Class E Certificates will be
issued with OID in an amount equal to the
excess of the initial Certificate Balances
thereof over their respective issue prices
(including accrued interest). It is further
anticipated that the Class A-1, Class A-2,
Class B and Class C Certificates will be
issued at a premium. The prepayment
assumption that will be used in determining
the rate of accrual of OID for federal
income tax purposes and that may be used to
amortize premium, is 0% Constant Prepayment
Rate ("CPR"); provided that it is further
assumed that the ARD Loan will be prepaid on
its Anticipated Repayment Date. NO
REPRESENTATION IS MADE THAT THE MORTGAGE
LOANS WILL PREPAY AT THAT RATE OR AT ANY
OTHER RATE.
For further information regarding the
federal income tax consequences of investing
in the Offered Certificates, see "Certain
Federal Income Tax Consequences" herein and
in the Prospectus.
ERISA Considerations .......... Fiduciaries of employee benefit plans and
certain other retirement plans and
arrangements, including individual
retirement accounts, individual retirement
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 fiduciary responsibility rules of the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975
of the Internal Revenue Code of 1986, as
amended (the "Code"), or governmental plans,
as defined in Section 3(32) of ERISA,
subject to any federal, state or local law
("Similar Law") similar to the foregoing
provisions of ERISA or the Code
(collectively, a "Plan"), should 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, Section 4975 of the Code or Similar
Law. See "ERISA Considerations" herein and
in the Prospectus.
The U.S. Department of Labor has issued to
Bear, Stearns & Co. Inc. an individual
prohibited transaction exemption, Prohibited
Transaction Exemption 90-33, 55 Fed. Reg.
21,461 (May 24, 1990), as amended by
Prohibited Transaction Exemption 97-34, 62
Fed. Reg. 39,021 (July 21, 1997) (the
"Exemption"), which generally exempts from
the application of certain of the prohibited
transaction provisions of Section 406 of
ERISA and the excise taxes imposed by
Section 4975(a) and (b) of the Code,
transactions relating to the purchase, sale
and holding of pass-through certificates
underwritten by the Underwriter, Bear,
Stearns & Co. Inc., and the servicing and
operation of related asset pools, provided
that certain conditions are satisfied.
S-28
<PAGE>
The Depositor expects that the Exemption
will generally apply to the Senior
Certificates but that it will not apply to
the Subordinate Certificates. ACCORDINGLY,
THE SUBORDINATE OFFERED CERTIFICATES SHOULD
NOT BE ACQUIRED BY, ON BEHALF OF OR WITH
ASSETS OF A PLAN, UNLESS THE PURCHASE AND
HOLDING OF SUCH CERTIFICATE OR INTEREST
THEREIN IS EXEMPT FROM THE PROHIBITED
TRANSACTION PROVISIONS OF SECTION 406 OF
ERISA AND THE RELATED EXCISE TAX PROVISIONS
OF SECTION 4975 OF THE CODE UNDER PROHIBITED
TRANSACTION CLASS EXEMPTION 95-60, WHICH
PROVIDES AN EXEMPTION FROM THE PROHIBITED
TRANSACTION RULES FOR CERTAIN TRANSACTIONS
INVOLVING AN INSURANCE COMPANY GENERAL
ACCOUNT. See "ERISA Considerations" herein
and in the Prospectus.
Legal Investment/Secondary
Mortgage Market Enhancement
Act .......................... The Offered Certificates will not constitute
"mortgage related securities" within the
meaning of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA").
Investors should consult their 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.
Risk Factors .................. See "Risk Factors" immediately following
this Summary of Prospectus Supplement for a
discussion of certain factors that should be
considered in connection with the purchase
of the Offered Certificates.
S-29
<PAGE>
RISK FACTORS
Prospective purchasers of Offered Certificates should consider, among
other things, the following risk factors (as well as the risk factors set
forth under "Risk Factors" in the Prospectus) in connection with an
investment therein.
EXPOSURE OF THE MORTGAGE POOL TO ADVERSE ECONOMIC OR OTHER DEVELOPMENTS BASED
ON GEOGRAPHIC CONCENTRATION
29 Mortgage Loans, representing approximately 27.4% of the Initial Pool
Balance, are secured by liens on Mortgaged Properties located in California.
23 Mortgage Loans, representing 16.5% of the Initial Pool Balance, are
secured by liens on 32 Mortgaged Properties located in New York. Other states
also represent significant percentages of the Initial Pool Balance, as set
forth in the tables under "Description of the Mortgage Pool--Additional
Mortgage Loan Information." In general, such concentrations increase the
exposure of the Mortgage Pool to any adverse economic or other developments
or acts of nature (which may result in uninsured losses) that may occur in
California, New York and such other states. Therefore, to the extent that
general economic or other relevant conditions in states or regions in which
concentrations of Mortgaged Properties securing significant portions of the
aggregate principal balance of the Mortgage Loans are located decline and
result in a decrease in commercial property, housing or consumer demand in
the region, the income from and market value of the Mortgaged Properties may
be adversely affected.
INCREASED RISK OF LOSS ASSOCIATED WITH CONCENTRATION OF MORTGAGE LOANS,
BORROWERS AND MANAGERS
Several of the Mortgage Loans have Cut-Off Date Balances that are
substantially higher than the average Cut-Off Date Balance of the Mortgage
Loans. The largest Mortgage Loan in the Trust Fund (identified as Loan Number
6100 on the Mortgage Loan Schedule) has a Cut-Off Date Balance of
approximately $23,912,270, which represents approximately 3.3% of the Initial
Pool Balance. The ten largest Mortgage Loans have Cut-Off Date Balances that
represent, in the aggregate, approximately 25.3% of the Initial Pool Balance.
See the table entitled "Ten Largest Mortgage Loans" under "Description of the
Mortgage Pool--Additional Mortgage Loan Information" herein. In general,
concentrations of larger-than-average balances in a mortgage pool can result
in losses that are more severe, relative to the size of the pool, than would
be the case if the aggregate balance of the pool was more evenly distributed.
Certain groups of the Mortgage Loans have been made to the same borrower
or related borrowers. One such group of Mortgage Loans referred to herein as
the "Rady Loans" (see "Description of the Mortgage Pool--Rady Family Trust
and American Assets"), constitutes approximately 12.2% of the Initial Pool
Balance and each other group of Mortgage Loans made to the same borrower or
related borrowers represents less than 3.1% of the Initial Pool Balance. A
number of groups of Mortgage Loans made to the same borrower or related
borrowers (but not including the Rady Loans) are comprised of Mortgage Loans
that are cross-collateralized and cross-defaulted with each other. Except in
the case of two such groups, the Mortgage Loans within such a group are
treated as a single Mortgage Loan for purposes of this Prospectus Supplement
and the related Prospectus except where the context otherwise requires. In
the case of two such groups of Mortgage Loans (one such group including the
Mortgage Loans identified on the Mortgage Loan Schedule as Loan Numbers 9671,
9672, 9673, 9674 and 9675, and the other such group including the Mortgage
Loans identified on the Mortgage Loan Schedule as Loan Numbers 6341 and 6397
) the Mortgage Loans are treated as separate Mortgage Loans for purposes of
this Prospectus Supplement because of differences in payment terms or other
features among or between such Mortgage Loans.
Concentration of related borrowers in a mortgage pool can pose increased
risks. Mortgaged Properties that are owned by a group of related borrowers
are likely to have common management. If a mortgage pool has a concentration
of mortgage loans secured by properties owned by a group of related borrowers
or having common property management, financial or other difficulties
experienced by the property manager would have a greater impact on the
mortgage pool than would be the case if the properties did not have common
management. In addition, a financial failure or bankruptcy filing involving
an affiliate of a group of affiliated borrowers, such as a common general
partner or the owner
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of a common general partner, would have a greater impact on the Mortgage Pool
than a financial failure or bankruptcy filing involving only one borrower.
Nonetheless, the filing of a bankruptcy petition should not invalidate the
first lien position held by the Trustee on the related Mortgaged Property,
and the Servicer is required to make Advances through liquidation unless the
Servicer determines that such Advances will not be recoverable. See
"Description of the Certificates--Advances" herein. In addition, although the
borrowers with respect to certain Mortgage Loans are not special purpose
entities, the terms of the Mortgage Loans generally require that the
borrowers be single-purpose entities and, in most cases, such borrowers'
organizational documents or the terms of the Mortgage Loans limit their
activities to the ownership of only the related Mortgaged Property and limit
the borrowers' ability to incur additional indebtedness. However, there can
be no assurance that such borrowers will comply with such requirements.
Further, in many cases such borrowers are not required to observe all
covenants and conditions which typically are required in order for such
borrowers to be viewed under standard rating agency criteria as "special
purpose entities." See "Certain Legal Aspects of Mortgage Loans--Bankruptcy
Laws" in the Prospectus.
LIMITATIONS ON ENFORCEABILITY OF CROSS-COLLATERALIZATION
As described above, two groups of the Mortgage Loans, representing in the
aggregate approximately 3.6% of the Initial Pool Balance, are
cross-collateralized with other Mortgage Loans within the same respective
group. These arrangements seek to reduce the risk that the inability of a
Mortgaged Property securing each such Mortgage Loan to generate net operating
income sufficient to pay debt service will result in defaults and ultimate
losses.
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. Generally, under federal and
most state fraudulent conveyance statutes, the incurrence of an obligation or
the transfer of property by a person will be subject to avoidance under
certain circumstances if the person did not receive fair consideration or
reasonably equivalent value in exchange for such obligation or transfer and
(i) was insolvent at the time of entering into or was rendered insolvent by
such obligation or transfer, (ii) was engaged in business or a transaction,
or was about to engage in business or a transaction, for which its capital
was unreasonably small or (iii) intended to, or believed that it would, incur
debts that would be beyond the person's ability to pay as such debts matured.
Accordingly, a lien granted by a borrower to secure repayment of another
borrower's Mortgage Loan could be avoided if a court were to determine that
(i) such borrower was insolvent at the time of granting the lien, was
rendered insolvent by the granting of the lien, or was left with inadequate
capital, or was not able to pay its debts as they matured and (ii) the
borrower did not, when it allowed its Mortgaged Property to be encumbered by
a lien securing the entire indebtedness represented by the other Mortgage
Loan, receive fair consideration or reasonably equivalent value for pledging
such Mortgaged Property for the equal benefit of the other borrower.
OTHER FINANCING AND ADDITIONAL DEBT
With respect to one Mortgage Loan, representing approximately 3.0% of the
Initial Pool Balance, the related borrower has secured debt (the "Pari Passu
Debt") with an original principal balance of $2.5 million in addition to the
Mortgage Loan. Such Pari Passu Debt is secured by a lien on the Mortgaged
Property that is pari passu with the lien of the Mortgage securing the
Mortgage Loan. Such Pari Passu Debt is also secured by a $2.5 million letter
of credit issued by Bank of America that may be drawn and applied to the
repayment of the Pari Passu Debt if the gross income (as defined in the loan
documents) of the Mortgaged Property does not increase by $320,000 by May 1,
1999 (the "LC Release Date"). In the event that the earn-out target is met in
full by the LC Release Date, the letter of credit will be released to the
borrower. In the event that the earn-out target is not met by the LC Release
Date, the Letter of Credit will be drawn upon and applied to repay Pari Passu
Debt to the extent necessary so that the Mortgage Loan and the remaining Pari
Passu Debt have an aggregate DSCR that is no less than 1.43x and an aggregate
current loan-to-value ratio that is no more than 75%. The payment and other
terms of the Pari Passu Debt are substantially similar to those of the
related Mortgage Loan. The right to exercise remedies with respect to the
Pari Passu Debt, including without limitation seeking foreclosure, are
exercisable only by the holder of the Mortgage Loan.
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With respect to one Mortgage Loan, representing approximately 1.0% of the
Initial Pool Balance, the related borrower has incurred approximately $2
million of secured debt (the "Additional Debt") owed to an affiliate of the
managing member of the related borrower, which is secured by a lien on the
related Mortgaged Property that is subordinate to the lien of the Mortgage
securing the Mortgage Loan. The holder of such Additional Debt has executed a
subordination and standstill agreement that provides that the subordinated
lender may not receive any payments, assign or pledge its interests in the
Additional Debt or take any enforcement action with respect to such
Additional Debt at any time until the related Mortgage Loan is paid in full.
Except for the existing Additional Debt described above, the Mortgage
Loans generally prohibit borrowers from incurring any other debt that is
secured by the related Mortgaged Properties. The Mortgage Loans do, however,
generally permit the related borrowers to incur unsecured indebtedness in
limited circumstances for the purchase of certain items used in the ordinary
course of business, such as equipment and, in the case of certain of the
Mortgage Loans, limited amounts of secured (but not by the related Mortgaged
Properties) or unsecured debt is permitted for other purposes. The existence
of additional debt 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, if the holder of additional debt files
for bankruptcy or is placed in involuntary receivership, foreclosure of the
related Mortgage Loan could be delayed. Accordingly, the existence of
additional debt could adversely affect the financial viability of the related
borrowers or the security interest of the lender in the equipment or other
assets acquired through such financing or could complicate bankruptcy
proceedings and delay foreclosure on the Mortgaged Property. See "Certain
Legal Aspects of the Mortgage Loans--Due-on-Sale and Due-on-Encumbrance" and
"--Subordinate Financing" in the Prospectus.
RISKS ASSOCIATED WITH BALLOON PAYMENTS AND THE ARD LOAN
140 of the Mortgage Loans, representing approximately 96.6% of the Initial
Pool Balance, do not fully amortize over their stated term to maturity and
will have substantial payments of principal ("Balloon Payments") due at
maturity unless previously prepaid. In addition, the ARD Loan, which
represents approximately 1.3% of the Initial Pool Balance, has an Anticipated
Repayment Date and has a substantial scheduled principal balance as of such
date. Loans that require Balloon Payments involve a greater risk to the
lender than fully amortizing loans because the ability of a borrower to make
a Balloon Payment typically will depend upon its ability either to refinance
the loan or to sell the related Mortgaged Property at a price sufficient to
permit the borrower to make the Balloon Payment. Similarly, the ability of
the borrower under the ARD Loan to repay the ARD Loan on the Anticipated
Repayment Date will depend on its ability either to 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 all of the factors
described above and below affecting property value and cash flow, as well as
a number of other factors at the time of attempted sale or refinancing,
including the level of available mortgage rates, prevailing economic
conditions and the availability of credit for multifamily, commercial or
mobile home park properties (as the case may be) generally.
BORROWER DEFAULT; NONRECOURSE MORTGAGE LOANS
The Mortgage Loans are not insured or guaranteed by any governmental
entity, any private mortgage insurer, the Depositor, the Mortgage Loan
Seller, the Servicer, the Special Servicer, the Trustee, the Fiscal Agent,
the Underwriter or any of their respective affiliates.
Each Mortgage Loan is generally a nonrecourse loan as to which, in the
event of a default under such Mortgage Loan, recourse generally may be had
only against the specific Mortgaged Properties and other assets that have
been pledged to secure the Mortgage Loan. See "Description of the Mortgage
Pool" herein. Consequently, payment on each Mortgage Loan prior to maturity
is dependent primarily on the sufficiency of the net cash flow of the related
Mortgaged Property, and at maturity or, in the event of a default under the
related Mortgage Loan, upon the acceleration of maturity, upon the then
market value of the related Mortgaged Property (taking into account any
adverse effect of a foreclosure proceeding on the market value of the
Mortgaged Property) or the ability of the related borrower to refinance the
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Mortgaged Property. 131 Mortgage Loans, representing approximately 91.8% of
the Initial Pool Balance, were originated within six months prior to the
Cut-Off Date. Consequently, such Mortgage Loans do not have as long-standing
a payment history as Mortgage Loans originated on earlier dates.
RISKS ASSOCIATED WITH COMMERCIAL AND MULTIFAMILY LENDING GENERALLY
The Mortgage Loans are secured by anchored and unanchored retail
properties, multifamily properties, office buildings, industrial properties
and other types of commercial properties and hotels and mobile home community
properties. The repayment of loans secured by commercial or multifamily
properties is typically dependent upon the successful operation of the
related real estate project, the businesses operated by the tenants and the
creditworthiness of such tenants. Lenders typically look to the debt service
coverage ratio (i.e. the ratio of net cash flow to debt service) of a loan
secured by income-producing property as an important measure of the risk of
default on such a loan. Commercial and multifamily lending also typically
involves larger loans to a single obligor than one-to-four-family residential
lending.
Commercial and multifamily property values and cash flows are subject to
volatility and may be insufficient to cover debt service on the related
Mortgage Loans at any given time. The volatility of property values and cash
flows depends upon a number of factors, including (i) the volatility of
property revenue, and (ii) the property's "operating leverage," which
generally refers to (a) the percentage of total property operating expenses
in relation to property revenue, (b) the breakdown of property operating
expenses between those that are fixed and those that vary with revenue or
occupancy and (c) the level of capital expenditures required to maintain the
property and retain or replace tenants. The net operating income and value of
the Mortgaged Properties may be adversely affected by a number of factors,
including but not limited to, national, regional and local economic
conditions; local real estate conditions; changes or continued weakness in
specific industry segments; perceptions by prospective tenants and, in the
case of retail properties, retailers and shoppers, of the safety,
convenience, services and attractiveness of the property; the willingness and
ability of the property's owner to provide capable management and adequate
maintenance; demographic factors; retroactive changes to building or similar
codes; increases in operating expenses (such as energy costs); the number of
tenants or, if applicable, the diversity of types of business operated by
such tenants; and laws regulating the maximum rent permitted to be charged to
a residential tenant. Properties with short-term, less creditworthy revenue
sources and/or relatively high operating leverage can be expected to have
more volatile cash flows than properties with medium to long-term tenant
commitments from creditworthy tenants and/or relatively low operating
leverage. A decline in the real estate market, in the financial condition of
a major tenant or a general decline in the local or national economy will
tend to have a more immediate effect on the net operating income of such
properties and may lead to higher rates of delinquency or defaults.
Historical operating results of the Mortgaged Properties may not be
comparable to future operating results.
If, during the terms of the Mortgage Loans, competing properties of a
similar type are built in the areas where the Mortgaged Properties are
located or similar properties in the vicinity of the Mortgaged Properties are
substantially updated and refurbished, the value and net operating income of
such Mortgaged Properties could be reduced. There is no assurance that the
value of any Mortgaged Property during the term of the related Mortgage Loan
will equal or exceed the appraised value determined in connection with the
origination of such Mortgage Loan.
Additionally, some of the Mortgaged Properties may not readily be
converted to alternative uses if such Mortgaged Properties were to become
unprofitable due to competition, age of the improvements, decreased demand or
other factors. Thus, if the operation of any such Mortgaged Properties
becomes unprofitable such that the borrower becomes unable to meet its
obligations on the related loan, the liquidation value of any such Mortgaged
Property may be substantially less, relative to the amount owing on the
related loan, than would be the case if such Mortgaged Property were readily
adaptable to other uses.
DEPENDENCE ON TENANTS
The borrower under a mortgage loan secured by an income-producing property
generally relies on periodic lease or rental payments from tenants to pay for
maintenance and other operating expenses of
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the building, to fund capital improvements and to service the mortgage loan
and any other debt or obligations it may have outstanding. There can be no
guaranty that tenants will renew leases upon expiration (or, in the case of
such renewal, whether the renewal rent will be equal to the rent previously
paid) or, in the case of a commercial tenant, that it will continue
operations throughout the term of its lease. The income of borrowers under
the Mortgage Loans would be adversely affected if tenants were unable to pay
rent or if space was unable to be rented on favorable terms or at all. In
addition, upon reletting or renewing existing leases, the borrower under a
Mortgage Loan secured by commercial properties 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.
RISKS PARTICULAR TO RETAIL PROPERTIES
40 of the Mortgage Loans, representing approximately 36.4% of the Initial
Pool Balance, are secured by mortgages on fee and/or leasehold interests in
retail properties. See the table entitled "Types of Mortgaged Properties"
under "Description of the Mortgage Pool--Additional Mortgage Loan
Information" herein. Mortgage loans that are secured by liens on such types
of properties are exposed to certain unique risks. Significant factors
determining the value of retail properties are the quality of the tenants as
well as fundamental aspects of real estate such as location and market
demographics. The correlation between the performance of tenant businesses
and property value is more direct with respect to retail properties than
other types of commercial property to the extent that a component of the
total rent paid by retail tenants is tied to a percentage of gross sales.
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 than those that do not
have an anchor tenant. While there is no strict definition of an anchor, it
is generally understood that a retail anchor tenant is proportionately larger
in size and is vital in attracting customers to the retail property, whether
or not such retail anchor is located on the related Mortgaged Property. Two
of the Mortgage Loans, representing approximately 0.4% of the Initial Pool
Balance, are secured by single-tenant retail properties.
Unlike office or hotel properties, retail properties also face competition
from sources outside a given real estate market. For example, catalogue
retailers, home shopping networks, the Internet, telemarketing and outlet
centers all compete with more traditional retail properties for consumer
dollars. Continued growth of these alternative retail outlets (which are
often characterized by lower operating costs than traditional retail
properties) could adversely affect the rents collectible at the retail
properties included in the Mortgage Pool. See "Risk Factors--Certain Factors
Affecting Delinquency, Foreclosure and Loss of the Mortgage--Risks Particular
to Retail Properties" in the Prospectus.
RISKS PARTICULAR TO MULTIFAMILY PROPERTIES
32 of the Mortgage Loans, representing approximately 14.1% of the Initial
Pool Balance, are secured by mortgages on fee or leasehold interests in
multifamily properties. See the table entitled "Type of Mortgaged Properties"
under "Description of the Mortgage Pool--Additional Mortgage Loan
Information" herein.
The successful operation of a multifamily property will depend on, among
other factors, its reputation, the ability of management to provide adequate
maintenance and insurance, and the types of services it provides. In some
cases, that operation may be affected by circumstances outside the control of
the borrower or lender, such as the deterioration of the surrounding
neighborhood, the development of competitive projects, the imposition of rent
control or changes in tax laws. All of these conditions and events may
increase the possibility that a borrower may be unable to meet its
obligations under its Mortgage Loan.
Certain states regulate the relationship of landlord and its tenants.
Commonly, these laws require a written lease, good cause for eviction and
disclosure of fees, while prohibiting unreasonable rules and retaliatory
evictions. Apartment building owners have been the subject of suits under
state "Unfair and Deceptive Practices Acts" and other general consumer
protection statutes for coercive, abusive or
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unconscionable leasing and sales practices. A few states offer especially
significant protection to tenants. For example, there are provisions that
limit the basis on which a landlord may terminate a tenancy or increase its
rent or prohibit a landlord from terminating a tenancy solely by reason of
the sale of the building.
In addition to state regulation of the landlord-tenant relationship,
numerous counties and municipalities impose rent control or rent
stabilization regulations on apartment buildings. These ordinances may limit
rent increases to fixed percentages, to percentages of increases in the
consumer price index, to increases set or approved by a governmental agency,
or to increases determined through mediation or binding arbitration. In many
cases, the rent control or rent stabilization laws do not permit vacancy
decontrol or destabilization. Any limitations on a borrower's ability to
raise property rents may impair such borrower's ability to repay its Mortgage
Loan from its net cash flow or the proceeds of a sale or refinancing of the
related Mortgaged Property. See "Risk Factors--Certain Factors Affecting
Delinquency, Foreclosure and Loss of the Mortgage--Risks Particular to Retail
Properties" in the Prospectus.
RISKS PARTICULAR TO OFFICE PROPERTIES
26 of the Mortgage Loans, representing approximately 17.2% of the Initial
Pool Balance, are secured by office properties. See the table entitled "Type
of Mortgaged Properties" under "Description of the Mortgage Pool--Additional
Mortgage Loan Information" herein. Significant factors determining the value
of office properties are the quality of the tenants in the building, the
physical attributes of the building in relation to competing buildings and
the strength and stability of the market area as a desirable business
location. Office properties may be adversely affected if there is an economic
decline in the business operated by the tenants. The risk of such an adverse
effect is increased if revenue is dependent on a single tenant or if there is
a significant concentration of tenants in a particular business or industry.
See "Risk Factors--Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage--Risks Particular to Office Properties."
RISKS PARTICULAR TO HOTEL PROPERTIES
Six of the Mortgage Loans, representing approximately 6.1% of the Initial
Pool Balance, are secured by full service hotels or limited service hotels.
See the table entitled "Type of Mortgaged Properties" under "Description of
the Mortgage Pool--Additional Mortgage Loan Information" herein.
Various factors, including location, quality and franchise affiliation
affect the economic performance of a hotel. Adverse economic conditions,
either local, regional or national, may limit the amount that can be charged
for a room and may result in a reduction in occupancy levels. To meet
competition in the industry and to maintain economic values, continuing
expenditures must be made for modernizing, refurbishing, and maintaining
existing facilities prior to the expiration of their anticipated useful
lives. Because hotel rooms generally are rented for short periods of time,
hotels tend to respond more quickly to adverse economic conditions and
competition than do other commercial properties. Furthermore, the financial
strength and capabilities of the owner and operator of a hotel may have a
substantial impact on such hotel's quality of service and economic
performance. Additionally, the hotel and lodging industry is generally
seasonal in nature and this seasonality can be expected to cause periodic
fluctuations in room and other revenues, occupancy levels, room rates and
operating expenses.
In the event of a foreclosure on a hotel property, it is unlikely that the
Trustee (or Servicer or Special Servicer) or purchaser of such hotel property
would be entitled to the rights under any liquor license for such hotel
property and such party would be required to apply in its own right for such
license or licenses. There can be no assurance that a new license could be
obtained or that it could be obtained promptly. See "Risk Factors--Certain
Factors Affecting Delinquency, Foreclosure and Loss of the Mortgage--Risks
Particular to Hotel and Motel Properties in the Prospectus."
RISKS PARTICULAR TO INDUSTRIAL PROPERTIES
18 of the Mortgage Loans, representing approximately 11.4% of the Initial
Pool Balance, are secured by industrial properties. See the table entitled
"Type of Mortgaged Properties" under "Description of the
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Mortgage Pool--Additional Mortgage Loan Information" herein. Significant
factors determining the value of industrial properties are the quality of
tenants, building design and adaptability and the location of the property.
Concerns about the quality of tenants, particularly major tenants, are
similar in both office properties and industrial properties, although
industrial properties are more frequently dependent on a single tenant.
Industrial properties may be adversely affected by reduced demand for
industrial space occasioned by a decline in a particular industry segment
(for example, a decline in defense spending), and a particular industrial or
warehouse property that suited the needs of its original tenant may be
difficult to relet to another tenant or may become functionally obsolete
relative to newer properties.
Aspects of building site design and adaptability affect the value of an
industrial property. Site characteristics which are valuable to an industrial
property include high clear heights, wide column spacing, a large number of
bays and large bay depths, divisibility, large minimum truck turning radii
and overall functionality and accessibility.
Location is also important because an industrial property requires the
availability of labor sources, proximity to supply sources and customers and
accessibility to rail lines, major roadways and other distribution channels.
See "Risk Factors--Certain Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage--Risks Particular to Industrial Properties."
MANAGEMENT
Each Mortgaged Property is managed by a property manager (which in many
cases is an affiliate of the borrower) or by the borrower itself. The
successful operation of a real estate project is largely dependent on the
performance and viability of the management of such project. The property
manager is responsible for responding to changes in the local market,
planning and implementing the rental structure, including establishing levels
of rent payments and advising the borrowers so that maintenance and capital
improvements can be carried out in a timely fashion.
All of the Mortgage Loans provide for the right of the lender to terminate
the related management agreement if the borrower defaults on the Mortgage
Loan. However, in the case of one Mortgage Loan, representing approximately
0.2% of the Initial Pool Balance, such termination is subject to the consent
of the limited partner of the related borrower. The limited partner is not an
affiliate of the manager of the Mortgaged Property. In addition, 13 Mortgage
Loans, representing approximately 18.2% of the Initial Pool Balance, provide
for the termination of the related management agreement if the DSCR for the
related Mortgaged Property falls below a predetermined level even in the
absence of a default on the related Mortgage Loan.
There is no assurance regarding the performance of any operators, leasing
agents and/or managers or persons who may become operators and/or managers
upon the expiration or termination of management agreements or following any
default or foreclosure under a Mortgage Loan. In addition, generally the
property managers are operating companies and unlike limited purpose
entities, may not be restricted from incurring debt and other liabilities in
the ordinary course of business or otherwise. There can be no assurance that
the property managers will at all times be in a financial condition to
continue to fulfill their management responsibilities under the related
management agreements throughout the terms thereof.
RISKS RELATING TO LACK OF CERTIFICATEHOLDER CONTROL OVER TRUST FUND
Certificateholders generally do not have a right to vote, except with
respect to required consents to certain amendments to the Pooling and
Servicing Agreement and, in certain cases, to replace parties to the Pooling
and Servicing Agreement. Furthermore, Certificateholders will generally not
have the right to make decisions with respect to the administration of the
Trust Fund, except for the right of the Controlling Class to replace the
Special Servicer and the right of the Directing Certificateholder to object
to any Asset Status Report. See "Servicing of the Mortgage Loans--General"
herein. Such decisions are generally made, subject to the express terms of
the Pooling and Servicing Agreement, by the Servicer, the
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Trustee or the Special Servicer, as applicable. Any decision made by one of
those parties in respect of the Trust Fund, even if made in the best
interests of the Certificateholders (as determined by such party in its good
faith and reasonable judgment), may be contrary to the decision that would
have been made by the holders of any particular Class or Classes of Offered
Certificates and may negatively affect the interests of such holders.
SPECIAL SERVICER MAY PURCHASE CERTIFICATES
The Special Servicer or an affiliate thereof may (but it is not currently
anticipated that it will) purchase a portion of the Class K Certificates.
Such a purchase by the Special Servicer could cause a conflict between such
entity's duties pursuant to the Pooling and Servicing Agreement and its
interest as a holder of a Certificate. However, the Pooling and Servicing
Agreement provides that the Mortgage Loans shall be administered in
accordance with the Servicing Standards without regard to ownership of any
Certificate by the Servicer, the Special Servicer or any affiliate thereof.
See "Servicing of the Mortgage Loans--General" herein.
YIELD RISK ASSOCIATED WITH CHANGES IN CONCENTRATIONS
To the extent payments in respect of principal (including any principal
prepayments, liquidations and the principal portion of the repurchase prices
of any Mortgage Loans repurchased due to breaches of representations) 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 or geographic location.
SUBORDINATION OF SUBORDINATE OFFERED CERTIFICATES
As and to the extent described herein, the rights of the holders of the
Subordinate Offered 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 Senior Certificates. Furthermore,
the rights of the holders of the Class E Certificates to receive
distributions of amounts collected or advanced on or in respect of the
Mortgage Loans will also be subordinated to those of the holders of the Class
D, Class C and Class B Certificates, the rights of the holders of the Class D
Certificates will also be subordinated to those of the holders of the Class C
and Class B Certificates, and the rights of the holders of the Class C
Certificates will also be subordinated to those of the holders of the Class B
Certificates. See "Description of the Certificates--Distributions--Priority"
and "--Subordination; Allocation of Collateral Support Deficit" herein.
POTENTIAL LIABILITY TO THE TRUST FUND RELATING TO A MATERIALLY ADVERSE
ENVIRONMENTAL CONDITION
An environmental site assessment was performed at each of the Mortgaged
Properties during the 12-month period prior to the date of origination of the
related Mortgage Loan. In certain cases, the environmental consultant
identified a condition or circumstance (i) which was remediated or an escrow
for such remediation was established and/or (ii) for which an entity, other
than the related borrower, is responsible for remediation or the cost of such
remediation and/or (iii) for which the consultant recommended an operations
and maintenance plan or periodic monitoring of the subject properties and/or
nearby properties, which recommendations were implemented in a manner
consistent with industrywide practices. With respect to one Mortgage Loan
identified on the Mortgage Loan Schedule as Loan No. 5829, representing
approximately 0.5% of the Initial Pool Balance, the related Mortgaged
Property is part of a site that has been listed on the National Priorities
List of Superfund sites and contains groundwater contamination from an
adjacent site for which a plan of remediation has been approved and with
respect to which a party other than the borrower is obligated to complete
such remediation.
The Pooling and Servicing Agreement requires that the Special Servicer
obtain an environmental site assessment of a Mortgaged Property securing a
defaulted Mortgage Loan prior to acquiring title thereto or assuming its
operation. Such prohibition effectively precludes enforcement of the security
for the related Mortgage Note until a satisfactory environmental site
assessment is obtained (or until any
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required remedial action is thereafter taken) but will decrease the
likelihood that the Trust Fund will become liable for a material adverse
environmental condition at the Mortgaged Property. However, there can be no
assurance that the requirements of the Pooling and Servicing Agreement will
effectively insulate the Trust Fund from potential liability for a materially
adverse environmental condition at any Mortgaged Property. See "Servicing of
the Mortgage Loans--Realization Upon Defaulted Mortgage Loans" herein and
"Risk Factors--Environmental Risks" and "Certain Legal Aspects of Mortgage
Loans--Environmental Risks" in the Prospectus.
TAX CONSIDERATIONS RELATED TO FORECLOSURE
If the Trust Fund were to acquire a Mortgaged Property subsequent to a
default on the related Mortgage Loan pursuant to a foreclosure or deed in
lieu of foreclosure, the Special Servicer would be required to retain an
independent contractor to operate and manage the Mortgaged Property. Any net
income from such operation and management, other than qualifying "rents from
real property," or any rental income based on the net profits of a tenant or
sub-tenant or allocable to a service that is non-customary in the area and
for the type of building involved, will subject the Trust Fund to federal
(and possibly state or local) tax on such income at the highest marginal
corporate tax rate (currently 35%), thereby reducing net proceeds available
for distribution to Certificateholders. The Trust Fund will generally be
permitted to receive such taxable "net income from foreclosure property" if
the Special Servicer determines that the net after-tax recovery to the Trust
Fund would be greater than if such REO Property were leased to a third party
at a fixed rental so as to produce qualifying "rents from real property" or
such property could not reasonably be so leased.
EARTHQUAKE INSURANCE
29 Mortgage Loans, representing approximately 27.4% of the Initial Pool
Balance are secured by Mortgaged Properties located in California. Seismic
studies have been completed for 25 of such Mortgage Loans, representing
approximately 25.1% of the Initial Pool Balance. Of the Mortgage Loans for
which seismic studies have been completed, only three Mortgage Loans,
representing 1.0% of the Initial Pool Balance, have a "probable maximum loss"
or "bounded maximum loss" estimate exceeding 20%. Only one of such Mortgaged
Properties, securing a Mortgage Loan which represents approximately 0.3% of
the Initial Pool Balance, is insured against losses resulting from an
earthquake. No other Mortgaged Property in California is insured for any loss
resulting from an earthquake.
ZONING COMPLIANCE
Due to changes in applicable building and zoning ordinances and codes
("Zoning Laws") affecting certain of the Mortgaged Properties which have come
into effect after the construction of improvements on such Mortgaged
Properties and for other reasons, certain improvements may not comply fully
with current Zoning Laws, including density, use, parking and setback
requirements, but in certain cases qualify as permitted non-conforming uses.
Such changes may limit the ability of the borrower to rebuild the premises
"as is" in the event of a substantial casualty loss with respect thereto and
may adversely affect the ability of the borrower to meet its Mortgage Loan
obligations from cash flow.
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 performance of the related Mortgage Properties
and, thus, the distributions to Certificateholders.
S-38
<PAGE>
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
All percentages of the Mortgage Loans and Mortgaged Properties, or of any
specified group of Mortgage Loans and Mortgaged Properties, referred to
herein without further description are approximate percentages of the Initial
Pool Balance. The Trust Fund will consist primarily of 106 commercial, 32
multifamily and 8 mobile home community Mortgage Loans. The Initial Pool
Balance of the Mortgage Loan is approximately $714,739,121. Each Mortgage
Loan is evidenced by one or more promissory notes (a "Mortgage Note") and
secured by one or more mortgages, deeds of trust or other similar security
instruments (a "Mortgage") that collectively create a first mortgage lien (i)
with respect to 142 Mortgage Loans, representing approximately 96.4% of the
Initial Pool Balance, on a fee simple estate in one or more commercial,
multifamily or mobile home community properties, (ii) with respect to one
Mortgage Loan, representing approximately 1.4% of the Initial Pool Balance,
on a leasehold interest and the fee simple estate in a commercial property,
or (iii) with respect to three Mortgage Loans, representing approximately
2.2% of the Initial Pool Balance, on a leasehold estate in a commercial or
multifamily property (each, a "Mortgaged Property"). The term of any ground
lease securing any Mortgage Loan, in whole or in part, that is not also
secured by the related fee interest, extends at least 10 years beyond the
Maturity Date of such Mortgage Loan (including extensions exercisable at the
lender's option). The "Cut-Off Date Balance" of any Mortgage Loan is the
unpaid principal balance thereof as of the Cut-Off Date, after application of
all payments due on or before such date, whether or not received.
On or prior to the Closing Date, the Depositor will acquire the Mortgage
Loans from the Mortgage Loan Seller pursuant to the Purchase Agreement and
will thereupon assign its interests in the Mortgage Loans, without recourse,
to the Trustee for the benefit of the Certificateholders. See "--The Mortgage
Loan Seller" and "Representations and Warranties; Repurchases" below and
"Description of the Pooling Agreements--Assignment of Mortgage Loans;
Repurchases" in the Prospectus.
The Mortgage Loans were originated between 1997 and 1998. With the
exception of seven of the Mortgage Loans, representing 2.8% of the Initial
Pool Balance (the "Purchased Loans"), each of the Mortgage Loans has been
underwritten in accordance with the Mortgage Loan Seller's underwriting
standards. The Purchased Loans were purchased by the Mortgage Loan Seller
from an unaffiliated loan originator in 1997 and, in connection with such
purchase, the Mortgage Loan Seller underwrote the Purchased Loans generally
in accordance with the Mortgage Loan Seller's underwriting standards but with
certain exceptions. For instance, no seismic reports were required for
Purchased Loans secured by Mortgaged Properties in California and more
limited Phase I environmental reports were obtained with respect to Purchased
Loans. All of the Mortgaged Properties were inspected by or on behalf of the
Mortgage Loan Seller within the twelve month period preceding the Cut-Off
Date to assess their general condition, which in virtually all cases was
determined to be average or better than average. See "--Underwriting
Standards" below.
The Mortgage Loans are not insured or guaranteed by the Mortgage Loan
Seller, any governmental entity or private mortgage insurer. The Depositor
has not undertaken any evaluation of the significance of the recourse
provisions of any of the Mortgage Loans that provide for recourse against the
related borrower or another person in the event of a default. Accordingly,
investors should consider all of the Mortgage Loans to be nonrecourse loans
as to which recourse in the case of default will be limited to the specific
property and such other assets, if any, pledged to secure a Mortgage Loan.
Additional Debt. With respect to two of the Mortgage Loans, identified as
Loan Numbers 9119 and 6310, respectively, on the Mortgage Loan Schedule and
representing, in the aggregate, approximately 4.0% of the Initial Pool
Balance, the related borrowers have debt in addition to the debt under their
respective Mortgage Loans that is secured by a lien on the related Mortgaged
Property, in each case as described below.
With respect to one Mortgage Loan identified as Loan Number 9119 on the
Mortgage Loan Schedule, representing approximately 3.0% of the Initial Pool
Balance, the related borrower has secured debt (the "Pari Passu Debt") with
an original principal balance of $2.5 million in addition to the Mortgage
S-39
<PAGE>
Loan. Such Pari Passu Debt is secured by a lien on the Mortgaged Property
that is pari passu with the lien of the Mortgage securing the Mortgage Loan.
Such Pari Passu Debt is also secured by a $2.5 million letter of credit
issued by Bank of America that may be drawn and applied to the repayment of
the Pari Passu Debt if the gross income (as defined in the loan documents) of
the Mortgaged Property does not increase by $320,000 by May 1, 1999 (the "LC
Release Date"). In the event that the earn-out target is met in full by the
LC Release Date, the letter of credit will be released to the borrower. In
the event that the earn-out target is not met by the LC Release Date the
Letter of Credit will be drawn upon and applied to repay Pari Passu Debt to
the extent necessary so that the Mortgage Loan and the remaining Pari Passu
Debt have an aggregate DSCR that is no less than 1.43x and an aggregate
current loan-to-value ratio that is no more than 75%. The payment and other
terms of the Pari Passu Debt are substantially similar to those of the
related Mortgage Loan. The right to exercise remedies with respect to the
Pari Passu Debt, including without limitation seeking foreclosure, are only
exercisable by the holder of the Mortgage Loan.
With respect to the Mortgage Loan identified as Loan Number 6310 on the
Mortgage Loan Schedule, representing approximately 1.0% of the Initial Pool
Balance, the related borrower has incurred approximately $2 million of
secured debt ("Additional Debt") owed to an affiliate of the managing member
of the related borrower, which is secured by a lien on the related Mortgaged
Property that is subordinate to the lien of the Mortgage securing the
Mortgage Loan. The holder of such Additional Debt has executed a
subordination and standstill agreement that provides that the subordinated
lender may not receive any payments, assign or pledge its interests in the
Additional Debt or take any enforcement action with respect to the Additional
Debt at any time until the related Mortgage Loan is paid in full.
Certain risks relating to additional debt are described in "Risk
Factors--Other Financing and Additional Debt" herein and "Certain Legal
Aspects of Mortgage Loans--Subordinate Financing" in the Prospectus.
The ARD Loan. One of the Mortgage Loans (the "ARD Loan"), representing
approximately 1.3% of the Initial Pool Balance, provides that if the related
borrower has not prepaid the ARD Loan in full on or before April 1, 2008 (the
"Anticipated Repayment Date"), any principal outstanding on such date shall
accrue interest at an increased interest rate (the "Revised Rate") rather
than at the stated Mortgage Rate (the "Initial Rate"). The Anticipated
Repayment Date is 120 months after the first Due Date for the ARD Loan. The
Revised Rate for the ARD Loan will be equal to the sum of (x) the Initial
Rate, plus (y) 2% per annum. After the Anticipated Repayment Date, the ARD
Loan further requires that all cash flow available from the related Mortgaged
Property after payment of the constant monthly payment required under the
terms of the related loan documents and all escrows and expenses required
under the related loan documents will be used to accelerate amortization of
principal on the ARD Loan. While interest at the Initial Rate continues to
accrue and be payable on a current basis on the ARD Loan after the
Anticipated Repayment Date, the payment of interest at the excess of the
Revised Rate over the Initial Rate for the ARD Loan ("Excess Interest") will
be deferred and will be paid only after the outstanding principal balance of
the ARD Loan has been paid in full. The foregoing features are designed to
increase the likelihood that the ARD Loan will be repaid by the borrower on
the Anticipated Repayment Date. The failure of the related borrower to repay
the ARD Loan on the Anticipated Repayment Date will not be an event of
default under the terms of such Mortgage Loan; provided, however, that the
Servicer or the Special Servicer, as the case may be, may take action to
enforce the Trust Fund's right to apply excess cash flow to principal in
accordance with the terms of the related Mortgage Loan documents.
CERTAIN TERMS AND CONDITIONS OF THE MORTGAGE LOANS
All of the Mortgage Loans have Due Dates that occur on the first day of
each month, and all of the Mortgage Loans provide for grace periods which do
not exceed 10 days. All prepayments, if any, on the Mortgage Loans are
required to be made on a Due Date or, if not so required, provide that
payments made on a date other than a Due Date will be deemed to be paid on a
Due Date, so that prepayments are required to include one month's interest on
the amount prepaid. All of the Mortgage Loans bear fixed interest rates. 144
Mortgage Loans, representing approximately 96.6% of the Initial Pool Balance,
accrue interest on the basis of the actual number of days in a month,
assuming a 360 day year. Two Mortgage
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<PAGE>
Loans, representing approximately 3.4% of the Initial Pool Balance, accrue
interest on the basis of a 30-day month, assuming a 360-day year.
Approximately 96.6% of the Mortgage Loans provide for monthly payments of
principal based on amortization schedules significantly longer than the
remaining terms of such Mortgage Loans. In addition, the ARD Loan,
representing approximately 1.3% of the Initial Pool Balance, amortizes
principal (prior to its Anticipated Repayment Date) at a rate that will
result in a substantial principal payment being required to be paid on the
related Anticipated Repayment Date. Two Mortgage Loans, representing
approximately 2.8% of the Initial Pool Balance, pay only interest for 24
months and 60 months, respectively, from the Cut-Off Date.
Prepayment Provisions. Each Mortgage Loan restricts voluntary prepayments
in one or both of the following ways: (i) by prohibiting any prepayments for
a specified period of time generally three to four years after the date of
origination of such Mortgage Loan (a "Lockout Period"), (ii) by requiring
that any principal prepayment made during a specified period of time after
the date of origination of such Mortgage Loan or, in the case of a Mortgage
Loan also subject to a Lockout Period, after the date of expiration of such
Lockout Period (a "Yield Maintenance Period") be accompanied by a Yield
Maintenance Charge (as defined below). 125 Mortgage Loans, representing
approximately 87.9% of the Initial Pool Balance, contain provisions that
prohibit all voluntary prepayments. 12 of the Mortgage Loans, representing
approximately 8.0% of the Initial Pool Balance, prohibit voluntary
prepayments until a specified date (generally between one and six months)
prior to the Maturity Date of such Mortgage Loans during which there are no
restrictions on voluntary prepayments. Two Mortgage Loans, representing
approximately 1.3% of Initial Pool Balance, contain provisions that allow
voluntary prepayment at any time with the payment of a Yield Maintenance
Charge. Seven Mortgage Loans, representing approximately 2.8% of Initial Pool
Balance, contain provisions that prohibit voluntary prepayment for a
specified period of time (generally between two and five years) after
origination and permit voluntary prepayments thereafter with the prepayment
of a Yield Maintenance Charge until a specified date (generally between one
and six months prior to the Maturity Date of such Mortgage Loan) and without
restriction after this time. Certain state laws limit the amounts that a
lender may collect from a borrower as an additional charge in connection with
the prepayment of a mortgage loan. In addition, the enforceability of
provisions that provide for prepayment fees or penalties is unclear under the
laws of many states. See "Certain Legal Aspects of Mortgage Loans--Default
Interest and Limitations on Prepayments" in the Prospectus.
The yield maintenance provisions contained in those Mortgage Loans that
provide for the payment of a yield maintenance charge in connection with a
Principal Prepayment (a "Yield Maintenance Charge") are intended to
compensate the lender on a present value basis for the remaining interest
payments that would have become due had such prepayment not occurred to the
extent such interest payments would have accrued at a rate in excess of the
yield to maturity as of the date of the prepayment on United States Treasury
securities with a maturity generally corresponding to the maturity date of
the related Mortgage Loan. A Yield Maintenance Charge is determined utilizing
a discount rate generally equal to the rate which, when compounded monthly,
is equal to the bond equivalent yield of the corresponding Treasury
securities described in the preceding sentence (the "Yield Rate").
Yield Maintenance Charges are distributable as described herein under
"Description of the Certificates--Distribution--Allocation of Yield
Maintenance Charges."
Unless a Mortgage Loan is relatively near its stated Maturity Date or
unless the sale price or the amount of the refinancing of the related
Mortgaged Property is considerably higher than the current outstanding
principal balance of such Mortgage Loan (due to an increase in the value of
the Mortgaged Property or otherwise), the Yield Maintenance Charge may, even
in a relatively low interest rate environment, offset entirely or render
insignificant any economic benefit to be received by the borrower upon a
refinancing or sale of the Mortgaged Property. The Yield Maintenance Charge
provision of a Mortgage Loan creates an economic disincentive for the
borrower to prepay such Mortgage Loan voluntarily and, accordingly, the
related borrower may elect not to prepay such Mortgage Loan. However, there
can be no assurance that the imposition of a Yield Maintenance Charge will
provide a sufficient disincentive to prevent a voluntary principal
prepayment. All but one of the Mortgage Loans
S-41
<PAGE>
(representing approximately 0.6% of the Initial Pool Balance) prohibit
voluntary partial prepayments. Notwithstanding the foregoing, as described
under "General--ARD Loan" above, after the Anticipated Repayment Date, the
ARD Loan will be freely prepayable in whole or in part on and after the
Anticipated Repayment Date.
Defeasance. 137 Mortgage Loans, representing approximately 95.9% of the
Initial Pool Balance, grant the related Borrower the right, at any time
commencing generally three to four years after the date of origination, to
obtain the release of the lien of the related Mortgage on the related
Mortgaged Property or Mortgaged Properties, as applicable, by substituting
for such Mortgaged Property or Mortgaged Properties, as the case may be, as
collateral for the Mortgage Note, direct non-callable obligations of the
United States of America which provide for payments on or prior to each Due
Date and the Maturity Date, of amounts at least equal to the amounts which
would have been payable on each such date under the terms of the related
Mortgage Loan; provided, however, that no such defeasance will be permitted
if it will result in a downgrade, withdrawal or qualification of the then
current rating on the Offered Certificates (as evidenced by notice to that
effect in writing from each Rating Agency then rating the Certificates).
Ten of such Mortgage Loans, representing 5.7% of the Initial Pool Balance,
are secured by two or more Mortgaged Properties and grant the related
borrower the right, at any time commencing generally three to four years
after the date of origination, (i) to obtain the release of all of such
Mortgaged Properties from the lien of the related Mortgage on terms
substantially similar to those described in the immediately preceding
paragraph and (ii) to obtain the release of one or more (but less than all)
of such Mortgaged Properties (the "Partial Release Mortgaged Properties") by
substituting for such Partial Release Mortgaged Properties direct,
non-callable obligations of the United States of America which provide for
payments on or prior to each Due Date in an amount equal to 125% (or, in the
case of one Mortgage Loan representing 0.4% of the Initial Pool Balance,
110%) of the amounts that would have been payable on each such date that are
allocable to such Partial Release Mortgaged Property; provided, however, that
a borrower may not obtain the release of any Partial Release Mortgaged
Property unless immediately following such partial release the remaining
Mortgaged Properties will have a minimum DSCR that is generally not less than
the underwritten DSCR at origination of the Mortgage Loan.
One group of cross-collateralized Mortgage Loans, representing 3.1% of the
Initial Pool Balance, consists of five Notes each of which is secured by a
first lien on one of the related Mortgaged Properties and guarantees of
payment secured by liens on the other four Mortgaged Properties. The Mortgage
Loan documents with respect to such Mortgage Loans permit the borrowers to
obtain the release of one or more of the Mortgaged Properties (the "Released
Mortgaged Properties") from the liens thereon securing the related Notes and
guarantees of payment by substituting for such Released Mortgaged Properties
direct, non-callable obligations of the United States of America which
provide for payments on or prior to each Due Date and the Maturity Date in an
amount equal to 125% of the amounts that would have been payable on each such
date under the terms of the Note or Notes which had been secured by first
liens on the Released Mortgaged Property or Properties. Accordingly, on each
Due Date and on the Maturity Date following such a release and substitution,
the payments received on the related government obligations will be applied,
first, to pay the amounts due on such date on the Note or Notes that had been
secured by first liens on the Released Mortgaged Property or Properties, and
second, to pay amounts due on the remaining Notes (effectively supporting the
borrower's ability to make payments with respect to such remaining Notes).
One group of cross-collateralized Mortgage Loans, representing 0.5% of the
Initial Pool Balance, consists of two Notes each of which is secured by a
first lien on one related Mortgaged Property and guarantees of payment
secured by liens on the other Mortgaged Property. The Mortgage Loan documents
with respect to such Mortgage Loans permit the borrowers to obtain the
release of their Mortgaged Property (the "Released Mortgaged Property") from
the liens thereon securing the related Note and guarantee of payment by
substituting for such Released Mortgaged Property direct, non-callable
obligations of the United States of America which provide for payments on or
prior to each Due Date and the Maturity Date in an amount equal to the
amounts that would have been payable on each such date under the terms of the
related Note.
S-42
<PAGE>
"Due-on-Sale" and "Due-on-Encumbrance" Provisions. The Mortgage Loans
contain "due-on-sale" and "due-on-encumbrance" provisions that in each case,
with 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 without the consent of
the holder of the Mortgage; provided, however, that under the terms of
certain of the Mortgage Loans such consent must be granted if certain
conditions are met. Certain of the Mortgaged Properties have been, or may
become, subject to additional financing. See "General" above. The Servicer
(with respect to Mortgage Loans that are not Specially Serviced Mortgage
Loans) and the Special Servicer (with respect to any Specially Serviced
Mortgage Loan) will be required to exercise (or waive its right to exercise)
any right it may have with respect to a Mortgage Loan containing a
"due-on-sale" clause (i) to accelerate the payments thereon, or (ii) to
withhold its consent to any such sale or transfer, consistent with the
Servicing Standards. With respect to a Mortgage Loan with a
"due-on-encumbrance" clause, the Servicer (with respect to Mortgage Loans
that are not Specially Serviced Mortgage Loans) and the Special Servicer
(with respect to any Specially Serviced Mortgage Loan) will be required to
exercise (or waive its right to exercise) any right it may have with respect
to a Mortgage Loan containing a "due-on-encumbrance" clause (i) to accelerate
the payments thereon, or (ii) to withhold its consent to the creation of any
additional lien or other encumbrance, in each case consistent with the
Servicing Standards; provided, however, that the Servicer and Special
Servicer will not be permitted to waive a due-on-sale or due-on-encumbrance
provision under a Mortgage Loan with a Stated Principal Balance greater than
2% of the aggregate Stated Principal Balance of the Mortgage Pool without
first confirming that such waiver will not result in a downgrade, withdrawal
or qualification of the then current rating of the Offered Certificates.
ADDITIONAL MORTGAGE LOAN INFORMATION
The following tables set forth the specified characteristics of the
Mortgage Loans. The sum in any column may not equal the indicated total due
to rounding. The descriptions in this Prospectus Supplement of the Mortgage
Loans and the Mortgaged Properties are based upon the Mortgage Pool as it is
expected to be constituted as of the close of business on the Cut-Off Date,
assuming that (i) all scheduled principal and interest payments due on or
before the Cut-Off Date will be made and (ii) there will be no principal
prepayments on or before the Cut-Off Date. Mortgage Loans may be removed from
the Mortgage Pool (i.e. not sold by the Mortgage Loan Seller to the
Depositor) as a result of prepayments, delinquencies, incomplete
documentation or otherwise, if the Depositor or the Mortgage Loan Seller
deems such removal necessary, appropriate or desirable. A limited number of
other mortgage loans may be included in the Mortgage Pool prior to the
issuance of the Certificates, unless including such mortgage loans would
materially alter the characteristics of the Mortgage Pool as described
herein.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Certificates on or shortly after the Closing Date
and will be filed, together with the Pooling and Servicing Agreement, with
the Securities and Exchange Commission within fifteen days after the initial
issuance of the Offered Certificates. In the event that 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.
The following table sets forth the types of Mortgaged Properties. As used
in the following tables, "Cut-Off Date LTV" refers to the LTV Ratio based on
the scheduled Cut-Off Date Balance and "Maturity LTV" refers to the LTV Ratio
as of the Maturity Date of the Mortgage Loan based on the scheduled principal
balance of the Mortgage Loan on its Maturity Date.
S-43
<PAGE>
The following table sets forth the Types of Mortgaged Properties as of the
Cut-Off Date.
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% OF
NUMBER NUMBER AGGREGATE INITIAL
OF OF CUT-OFF DATE POOL
PROPERTY TYPE LOANS PROPERTIES BALANCE BALANCE
- --------------------- ------ ---------- ------------ -------
<S> <C> <C> <C> <C>
Retail, Anchored...... 30 30 $228,775,963 32.01%
Office................ 26 26 $123,160,731 17.23%
Multifamily........... 32 43 $100,791,477 14.10%
Industrial/Warehouse . 18 24 $ 81,568,383 11.41%
Hotel................. 6 6 $ 43,316,967 6.06%
Retail, Unanchored ... 10 10 $ 31,139,672 4.36%
Mobile Home........... 8 11 $ 29,430,611 4.12%
Mixed-Use............. 6 7 $ 25,463,530 3.56%
Theater/Air Rights .. 1 1 $ 16,000,000 2.24%
Medical Office........ 3 3 $ 12,404,862 1.74%
Self-Storage.......... 2 2 $ 8,020,347 1.12%
Other................. 1 1 $ 5,850,000 0.82%
Parking Garage or
Lot.................. 2 2 $ 4,816,577 0.67%
Multiple.............. 1 4 $ 4,000,000 0.56%
------ ---------- ------------ -------
Totals/Weighted Avg. 146 170 $714,739,121 100.00%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
----------------------------------------------------------------------
STATED REMAINING
REMAINING AMORT. AVERAGE AVERAGE
MORTGAGE TERM TERM CUT-OFF DATE MATURITY LOAN PER NUMBER OF
PROPERTY TYPE RATE (MOS.) (MOS.) DSCR LTV LTV OCCUPANCY UNIT/SF UNITS/SF
- --------------------- -------- --------- --------- ----- ------------ -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retail, Anchored...... 7.2923% 141 336 1.50x 67.09% 53.98% 94.74% $ 97 133,596
Office................ 7.2973% 127 332 1.64x 60.16% 50.55% 97.53% $ 77 87,306
Multifamily........... 7.0592% 135 325 1.64x 65.93% 52.37% 97.75% $36,224 97
Industrial/Warehouse . 7.4845% 122 326 1.46x 70.86% 59.00% 98.02% $ 34 179,583
Hotel................. 7.1076% 119 289 2.22x 38.72% 29.38% 69.08% $36,631 151
Retail, Unanchored ... 7.4410% 146 311 1.53x 65.46% 49.81% 98.48% $ 112 27,926
Mobile Home........... 7.2840% 149 346 1.44x 69.96% 57.07% 88.79% $15,320 269
Mixed-Use............. 7.4640% 133 327 1.53x 69.73% 57.37% 94.77% $ 78 132,542
Theater/Air Rights .. 7.0800% 120 300 2.87x 34.86% 27.96% 100.00% $ 304 52,657
Medical Office........ 7.1138% 135 279 1.55x 68.25% 47.99% 92.70% $ 85 62,797
Self-Storage.......... 7.2105% 117 270 1.84x 60.00% 45.89% 90.12% $ 25 184,035
Other................. 7.4700% 120 300 1.44x 68.82% 55.86% 100.00% $ 80 73,500
Parking Garage or
Lot.................. 7.9919% 146 326 1.44x 74.11% 60.35% 100.00% $ 40 113,163
Multiple.............. 7.0000% 180 180 1.65x 58.48% 1.08% 96.84% $ 37 107,965
-------- --------- --------- ----- ------------ -------- --------- -------- ---------
Totals/Weighted Avg. 7.2790% 134 325 1.62x 63.82% 51.29% N/A N/A N/A
</TABLE>
S-44
<PAGE>
The following table sets forth the Range of Mortgage Rates as of the
Cut-Off Date.
RANGE OF MORTGAGE RATES AS OF CUT-OFF DATE
<TABLE>
<CAPTION>
% OF
NUMBER NUMBER AGGREGATE INITIAL CUM. % OF
RANGE OF MORTGAGE RATES OF OF CUT-OFF DATE POOL CUT-OFF DATE
(%) LOANS PROPERTIES BALANCE BALANCE BALANCE
- ------------------------- ------ ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C>
6.2501 to 6.5000.......... 1 1 $ 11,969,867 1.67% 1.67%
6.5001 to 6.7500.......... 3 3 $ 7,011,479 0.98% 2.66%
6.7501 to 7.0000 ......... 25 38 $174,385,452 24.40% 27.05%
7.0001 to 7.2500.......... 34 34 $181,852,672 25.44% 52.50%
7.2501 to 7.5000 ......... 34 41 $179,832,989 25.16% 77.66%
7.5001 to 7.7500 ......... 22 26 $ 81,161,990 11.36% 89.01%
7.7501 to 8.0000 ......... 12 12 $ 36,442,256 5.10% 94.11%
8.0001 to 8.2500 ......... 9 9 $ 33,469,426 4.68% 98.79%
8.2501 to 8.7500.......... 4 4 $ 6,275,994 0.88% 99.67%
8.7501 to 9.2500 ......... 1 1 $ 1,562,449 0.22% 99.89%
9.2501 to 10.0000......... 1 1 $ 774,546 0.11% 100.00%
------ ---------- ------------ ------- ------------
Totals/Weighted Avg. .... 146 170 $714,739,121 100.00% 100.00%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-----------------------------------------------------------
STATED REMAINING
REMAINING AMORT.
RANGE OF MORTGAGE RATES MORTGAGE TERM TERM CUT-OFF DATE MATURITY
(%) RATE (MOS.) (MOS.) DSCR LTV LTV
- ------------------------- -------- --------- --------- ----- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
6.2501 to 6.5000.......... 6.4700% 118 298 1.87x 61.86% 48.79%
6.5001 to 6.7500.......... 6.7100% 130 269 2.06x 50.53% 31.18%
6.7501 to 7.0000 ......... 6.9159% 150 329 1.82x 56.50% 43.13%
7.0001 to 7.2500.......... 7.1267% 125 314 1.67x 63.24% 50.53%
7.2501 to 7.5000 ......... 7.3616% 140 338 1.49x 69.49% 56.61%
7.5001 to 7.7500 ......... 7.6276% 119 319 1.53x 64.88% 54.08%
7.7501 to 8.0000 ......... 7.8633% 130 334 1.35x 70.49% 59.53%
8.0001 to 8.2500 ......... 8.0892% 111 339 1.35x 70.77% 62.82%
8.2501 to 8.7500.......... 8.5967% 110 300 1.67x 57.11% 48.65%
8.7501 to 9.2500 ......... 9.1250% 171 171 1.55x 35.71% 1.11%
9.2501 to 10.0000......... 9.8750% 172 172 1.44x 63.75% 2.36%
-------- --------- --------- ----- ------------ --------
Totals/Weighted Avg. .... 7.2790% 134 325 1.62x 63.82% 51.29%
</TABLE>
S-45
<PAGE>
The following table sets forth the Mortgaged Properties by State.
MORTGAGED PROPERTIES BY STATE
<TABLE>
<CAPTION>
% OF
NUMBER AGGREGATE INITIAL
OF CUT-OFF DATE POOL
STATE PROPERTIES BALANCE BALANCE
- --------------------- ------------ -------------- ---------
<S> <C> <C> <C>
California............ 29 $195,924,576 27.41%
New York.............. 32 $118,179,358 16.53%
Florida............... 15 $ 63,543,057 8.89%
Massachusetts......... 10 $ 39,302,070 5.50%
Connecticut........... 7 $ 36,246,605 5.07%
Arizona............... 8 $ 33,853,457 4.74%
Maryland.............. 5 $ 29,342,857 4.11%
Pennsylvania.......... 8 $ 24,412,619 3.42%
Delaware.............. 4 $ 19,380,562 2.71%
Texas................. 3 $ 18,729,899 2.62%
Michigan.............. 4 $ 17,128,519 2.40%
New Jersey............ 3 $ 16,796,040 2.35%
Utah.................. 3 $ 14,600,000 2.04%
Illinois.............. 3 $ 10,713,889 1.50%
Vermont............... 2 $ 9,435,216 1.32%
Minnesota............. 14 $ 9,392,598 1.31%
Washington............ 1 $ 8,491,609 1.19%
North Carolina........ 2 $ 7,868,330 1.10%
Virginia.............. 2 $ 7,122,151 1.00%
Rhode Island.......... 2 $ 6,734,094 0.94%
Oregon................ 2 $ 6,609,138 0.92%
New Hampshire......... 1 $ 4,393,682 0.61%
Louisiana............. 1 $ 4,300,000 0.60%
Colorado.............. 3 $ 4,096,566 0.57%
Nevada................ 3 $ 3,940,645 0.55%
Ohio.................. 1 $ 1,991,257 0.28%
Alabama............... 1 $ 1,435,783 0.20%
Maine................. 1 $ 774,546 0.11%
------------ -------------- ---------
Totals/Weighted Avg. 170 $714,739,121 100.00%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-----------------------------------------------------------------------
STATED REMAINING
MORTGAGE REMAINING AMORT. CUT-OFF DATE MATURITY
STATE RATE TERM (MOS.) TERM (MOS.) DSCR LTV LTV
- --------------------- ---------- ----------- ----------- ------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
California............ 7.2936% 156 345 1.57x 64.56% 51.50%
New York.............. 7.2615% 125 309 1.64x 63.94% 48.99%
Florida............... 7.1469% 118 301 1.94x 52.20% 41.98%
Massachusetts......... 7.2761% 132 325 1.75x 60.15% 49.29%
Connecticut........... 7.3199% 119 329 1.56x 67.84% 57.13%
Arizona............... 7.3012% 145 315 1.48x 67.20% 51.36%
Maryland.............. 7.2141% 144 330 1.78x 54.37% 43.73%
Pennsylvania.......... 7.2011% 119 306 1.45x 72.34% 58.98%
Delaware.............. 7.2259% 122 352 1.45x 71.53% 61.91%
Texas................. 7.0831% 116 344 1.78x 57.56% 52.35%
Michigan.............. 6.6097% 124 286 1.82x 58.65% 42.54%
New Jersey............ 7.2804% 119 299 1.48x 70.95% 57.37%
Utah.................. 7.2900% 120 360 1.51x 74.68% 65.64%
Illinois.............. 7.7038% 116 313 1.36x 66.99% 56.39%
Vermont............... 7.6333% 119 322 1.50x 70.51% 58.64%
Minnesota............. 7.1862% 162 308 1.66x 67.45% 47.99%
Washington............ 7.2400% 119 299 1.51x 64.33% 51.91%
North Carolina........ 7.7638% 114 331 1.26x 71.86% 61.89%
Virginia.............. 7.8145% 115 334 1.38x 75.18% 65.43%
Rhode Island.......... 8.0544% 114 331 1.60x 65.57% 57.48%
Oregon................ 7.4506% 131 285 1.43x 68.14% 50.89%
New Hampshire......... 7.0400% 118 358 1.41x 77.08% 67.41%
Louisiana............. 7.0700% 120 360 1.50x 74.78% 65.35%
Colorado.............. 7.0135% 134 330 2.08x 48.19% 34.23%
Nevada................ 7.8704% 114 354 1.41x 66.39% 59.33%
Ohio.................. 7.9700% 113 353 1.34x 47.41% 42.54%
Alabama............... 8.6250% 110 290 1.60x 59.04% 48.90%
Maine................. 9.8750% 172 172 1.44x 63.75% 2.36%
---------- ----------- ----------- ------- -------------- ----------
Totals/Weighted Avg. 7.2790% 134 325 1.62x 63.82% 51.29%
</TABLE>
S-46
<PAGE>
The following table sets forth the original term and the remaining term of
the Mortgage Loans.
RANGE OF ORIGINAL TERMS IN MONTHS
<TABLE>
<CAPTION>
AGGREGATE % OF CUM. % OF
NUMBER NUMBER CUT-OFF INITIAL CUT-OFF
RANGE OF ORIGINAL TERM OF OF DATE POOL DATE
TO MATURITY (MOS.) LOANS PROPERTIES BALANCE BALANCE BALANCE
- ---------------------- -------- ------------ -------------- --------- -----------
<S> <C> <C> <C> <C> <C>
71 to 100.............. 2 2 $ 3,947,015 0.55% 0.55%
101 to 120............. 111 123 $510,123,089 71.37% 71.92%
121 to 140............. 2 2 $ 6,173,149 0.86% 72.79%
141 to 160............. 1 1 $ 2,689,234 0.38% 73.16%
161 to 180............. 30 42 $191,806,634 26.84% 100.00%
-------- ------------ -------------- --------- -----------
Totals/Weighted Avg. .. 146 170 $714,739,121 100.00% 100.00%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-----------------------------------------------------------------------
STATED REMAINING
RANGE OF ORIGINAL TERM MORTGAGE REMAINING AMORT. CUT-OFF DATE MATURITY
TO MATURITY (MOS.) RATE TERM (MOS.) TERM (MOS.) DSCR LTV LTV
- ---------------------- ---------- ----------- ----------- ------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
71 to 100.............. 7.5919% 83 311 1.64x 60.97% 54.71%
101 to 120............. 7.3077% 118 320 1.65x 63.52% 53.25%
121 to 140............. 8.0100% 114 353 1.34x 71.17% 63.82%
141 to 160............. 7.6200% 138 354 1.48x 72.68% 62.08%
161 to 180............. 7.1681% 177 337 1.56x 64.31% 45.46%
---------- ----------- ----------- ------- -------------- ----------
Totals/Weighted Avg. .. 7.2790% 134 325 1.62x 63.82% 51.29%
</TABLE>
RANGE OF REMAINING TERMS IN MONTHS
<TABLE>
<CAPTION>
AGGREGATE % OF CUM. % OF
NUMBER NUMBER CUT-OFF INITIAL CUT-OFF
RANGE OF REMAINING TERMS OF OF DATE POOL DATE
(MOS.) LOANS PROPERTIES BALANCE BALANCE BALANCE
- ------------------------ -------- ------------ -------------- --------- -----------
<S> <C> <C> <C> <C> <C>
71 to 100................ 2 2 $ 3,947,015 0.55% 0.55%
101 to 120............... 113 125 $516,296,238 72.24% 72.79%
121 to 140............... 1 1 $ 2,689,234 0.38% 73.16%
161 to 180............... 30 42 $191,806,634 26.84% 100.00%
-------- ------------ -------------- --------- -----------
Totals/Weighted Avg. .... 146 170 $714,739,121 100.00% 100.00%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-----------------------------------------------------------------------
STATED REMAINING
RANGE OF REMAINING TERMS MORTGAGE REMAINING AMORT. CUT-OFF DATE MATURITY
(MOS.) RATE TERM (MOS.) TERM (MOS.) DSCR LTV LTV
- ------------------------ ---------- ----------- ----------- ------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
71 to 100................ 7.5919% 83 311 1.64x 60.97% 54.71%
101 to 120............... 7.3161% 118 320 1.64x 63.61% 53.38%
121 to 140............... 7.6200% 138 354 1.48x 72.68% 62.08%
161 to 180............... 7.1681% 177 337 1.56x 64.31% 45.46%
---------- ----------- ----------- ------- -------------- ----------
Totals/Weighted Avg. .... 7.2790% 134 325 1.62x 63.82% 51.29%
</TABLE>
S-47
<PAGE>
The following table sets forth the range of original amortization periods
of the Mortgage Loans.
RANGE OF ORIGINAL AMORTIZATION TERMS IN MONTHS
<TABLE>
<CAPTION>
AGGREGATE % OF
RANGE OF ORIGINAL NUMBER NUMBER CUT-OFF INITIAL
AMORTIZATION TERM OF OF DATE POOL
(MOS.) LOANS PROPERTIES BALANCE BALANCE
- ---------------------- -------- ------------ -------------- ---------
<S> <C> <C> <C> <C>
180 to 200 ............ 5 8 $ 14,572,293 2.04%
201 to 300 ............ 77 90 $319,439,822 44.69%
301 to 330 ............ 1 1 $ 1,947,015 0.27%
331 to 360 ............ 63 71 $378,779,992 53.00%
-------- ------------ -------------- ---------
Totals/Weighted Avg. .. 146 170 $714,739,121 100.00%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
--------------------------------------------------------------------------------
RANGE OF ORIGINAL STATED REMAINING
AMORTIZATION TERM MORTGAGE REMAINING AMORT. CUT-OFF DATE MATURITY
(MOS.) RATE TERM (MOS.) TERM (MOS.) DSCR LTV LTV
- ---------------------- ---------- ----------- ----------- ------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
180 to 200 ............ 7.4379% 176 176 1.49x 54.12% 1.12%
201 to 300 ............ 7.2293% 121 294 1.75x 59.43% 46.83%
301 to 330 ............ 8.0150% 82 322 1.45x 64.90% 59.32%
331 to 360 ............ 7.3111% 143 357 1.52x 67.88% 56.95%
---------- ----------- ----------- ------- -------------- ----------
Totals/Weighted Avg. .. 7.2790% 134 325 1.62x 63.82% 51.29%
</TABLE>
S-48
<PAGE>
The following table sets forth the years of scheduled maturity of the
Mortgage Loans.
YEARS OF SCHEDULED MATURITY OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE % OF CUM. %
NUMBER NUMBER CUT-OFF INITIAL CUT-OFF
SCHEDULED OF OF DATE POOL DATE
MATURITY YEAR LOANS PROPERTIES BALANCE BALANCE BALANCE
- -------------------- -------- ------------ -------------- --------- ---------
<S> <C> <C> <C> <C> <C>
2005................. 2 2 $ 3,947,015 0.55% 0.55%
2007................. 12 12 $ 45,493,262 6.37% 6.92%
2008................. 101 113 $470,802,976 65.87% 72.79%
2009................. 1 1 $ 2,689,234 0.38% 73.16%
2012................. 3 3 $ 13,284,826 1.86% 75.02%
2013................. 27 39 $178,521,808 24.98% 100.00%
-------- ------------ -------------- --------- ---------
Totals/Weighted
Avg................. 146 170 $714,739,121 100.00% 100.00%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-----------------------------------------------------------------------
STATED REMAINING
SCHEDULED MORTGAGE REMAINING AMORT. CUT-OFF DATE MATURITY
MATURITY YEAR RATE TERM (MOS.) TERM (MOS.) DSCR LTV LTV
- -------------------- ---------- ----------- ----------- ------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
2005................. 7.5919% 83 311 1.64x 60.97% 54.71%
2007................. 8.0862% 112 335 1.38x 69.22% 61.02%
2008................. 7.2417% 119 319 1.67x 63.06% 52.64%
2009................. 7.6200% 138 354 1.48x 72.68% 62.08%
2012................. 7.3022% 174 322 2.10x 46.31% 29.59%
2013................. 7.1581% 177 338 1.52x 65.65% 46.64%
---------- ----------- ----------- ------- -------------- ----------
Totals/Weighted
Avg................. 7.2790% 134 325 1.62x 63.82% 51.29%
</TABLE>
S-49
<PAGE>
The following table sets forth the range of years in which the Mortgaged
Properties were built or renovated.
RANGE OF YEARS BUILT/RENOVATED FOR MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% OF
NUMBER AGGREGATE INITIAL
RANGE OF OF CUT-OFF DATE POOL
YEARS BUILT/RENOVATED PROPERTIES BALANCE BALANCE
- --------------------- ------------ -------------- ---------
<S> <C> <C> <C>
1900 to 1919.......... 3 $ 11,380,920 1.59%
1920 to 1939.......... 10 $ 16,156,479 2.26%
1940 to 1959.......... 3 $ 39,880,461 5.58%
1960 to 1969.......... 12 $ 13,773,426 1.93%
1970 to 1979.......... 19 $ 50,867,038 7.12%
1980 to 1989.......... 53 $251,801,451 35.23%
1990 to 1998.......... 70 $330,879,346 46.29%
------------ -------------- ---------
Totals/Weighted Avg. 170 $714,739,121 100.00%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-----------------------------------------------------------------------
STATED REMAINING
RANGE OF MORTGAGE REMAINING AMORT. CUT-OFF DATE MATURITY
YEARS BUILT/RENOVATED RATE TERM (MOS.) TERM (MOS.) DSCR LTV LTV
- --------------------- ---------- ----------- ----------- ------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
1900 to 1919.......... 7.0666% 122 300 1.38x 64.09% 51.08%
1920 to 1939.......... 7.1367% 122 308 1.71x 61.74% 49.87%
1940 to 1959.......... 6.8097% 125 305 2.10x 48.41% 37.95%
1960 to 1969.......... 6.9740% 146 303 1.97x 54.09% 31.74%
1970 to 1979.......... 7.4286% 140 315 1.47x 68.16% 53.25%
1980 to 1989.......... 7.3596% 135 330 1.51x 67.37% 55.21%
1990 to 1998.......... 7.2782% 134 328 1.65x 62.87% 50.57%
---------- ----------- ----------- ------- -------------- ----------
Totals/Weighted Avg. 7.2790% 134 325 1.62x 63.82% 51.29%
</TABLE>
S-50
<PAGE>
The following tables set forth a range of Debt Service Coverage Ratios for
the Mortgage Loans as of the Cut-Off Date. The "Debt Service Coverage Ratio"
or "DSCR" for any Mortgage Loan is the ratio of (i) Underwritten Net Cash
Flow produced by the related Mortgaged Property or Mortgaged Properties to
(ii) the aggregate amount of the Monthly Payments due for the 12-month period
immediately following the Cut-Off Date.
RANGE OF DEBT SERVICE COVERAGE RATIOS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
% OF
NUMBER NUMBER AGGREGATE INITIAL
RANGE OF DEBT SERVICE OF OF CUT-OFF DATE POOL
COVERAGE RATIOS LOANS PROPERTIES BALANCE BALANCE
- --------------------- -------- ------------ -------------- ---------
<S> <C> <C> <C> <C>
1.25x to 1.29x........ 10 10 $ 42,432,335 5.94%
1.30x to 1.34x........ 17 19 $ 56,364,469 7.89%
1.35x to 1.39x........ 9 9 $ 54,918,334 7.68%
1.40x to 1.44x........ 19 22 $113,722,506 15.91%
1.45x to 1.49x........ 21 23 $130,433,175 18.25%
1.50x to 1.54x........ 9 9 $ 28,033,130 3.92%
1.55x to 1.59x........ 13 19 $ 46,547,589 6.51%
1.60x to 1.69x........ 16 20 $ 53,061,857 7.42%
1.70x to 1.79x........ 10 14 $ 37,271,871 5.21%
1.80x to 1.89x........ 7 7 $ 43,674,013 6.11%
1.90x to 1.99x........ 3 5 $ 16,287,375 2.28%
2.00x to 2.19x........ 3 3 $ 10,988,956 1.54%
2.20x to 2.49x........ 7 8 $ 63,711,560 8.91%
2.50x to 3.00x........ 2 2 $ 17,291,949 2.42%
-------- ------------ -------------- ---------
Totals/Weighted Avg. . 146 170 $714,739,121 100.00%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
----------------------------------------------------------------------
STATED REMAINING
RANGE OF DEBT SERVICE MORTGAGE REMAINING AMORT. CUT-OFF DATE MATURITY
COVERAGE RATIOS RATE TERM (MOS.) TERM (MOS.) DSCR LTV LTV
- --------------------- ---------- ----------- ----------- ------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
1.25x to 1.29x........ 7.6765% 117 325 1.28x 75.05% 63.05%
1.30x to 1.34x........ 7.6788% 124 306 1.32x 69.83% 53.70%
1.35x to 1.39x........ 7.3845% 126 337 1.38x 69.02% 58.57%
1.40x to 1.44x........ 7.4058% 142 342 1.42x 72.35% 59.19%
1.45x to 1.49x........ 7.2064% 150 342 1.47x 69.20% 55.54%
1.50x to 1.54x........ 7.2505% 122 308 1.52x 65.30% 52.86%
1.55x to 1.59x........ 7.3089% 129 315 1.57x 67.51% 53.00%
1.60x to 1.69x........ 7.1517% 142 312 1.64x 64.54% 47.31%
1.70x to 1.79x........ 7.1361% 122 299 1.72x 59.93% 47.40%
1.80x to 1.89x........ 6.9089% 119 327 1.86x 59.30% 50.50%
1.90x to 1.99x........ 7.1615% 172 343 1.93x 43.93% 32.97%
2.00x to 2.19x........ 7.3183% 116 321 2.04x 52.23% 43.93%
2.20x to 2.49x........ 7.0084% 128 308 2.33x 36.38% 28.58%
2.50x to 3.00x........ 7.0636% 120 300 2.84x 35.70% 28.63%
---------- ----------- ----------- ------- -------------- ----------
Totals/Weighted Avg. . 7.2790% 134 325 1.62x 63.82% 51.29%
</TABLE>
S-51
<PAGE>
The following table sets forth the range of Scheduled Principal Balances
as of the Cut-Off Date.
RANGE OF SCHEDULED PRINCIPAL BALANCES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
% OF
NUMBER NUMBER AGGREGATE INITIAL
RANGE OF CUT-OFF OF OF CUT-OFF DATE POOL
DATE BALANCES LOANS PROPERTIES BALANCE BALANCE
- -------------------------- -------- ------------ -------------- ---------
<S> <C> <C> <C> <C>
$ 0 to $ 999,999........... 3 3 $ 2,768,180 0.39%
$1,000,000 to $1,999,999 .. 36 43 $ 56,336,958 7.88%
$2,000,000 to $3,999,999 .. 45 53 $126,496,874 17.70%
$4,000,000 to $5,999,999 .. 27 31 $135,931,580 19.02%
$6,000,000 to $7,999,999 .. 11 11 $ 76,339,665 10.68%
$8,000,000 to $9,999,999 .. 6 11 $ 55,436,673 7.76%
$10,000,000 to
$11,999,999............... 6 6 $ 65,172,900 9.12%
$12,000,000 to
$13,999,999............... 4 4 $ 50,813,332 7.11%
$14,000,000 to
$15,999,999............... 3 3 $ 44,230,555 6.19%
$16,000,000 to
$17,999,999............... 2 2 $ 33,000,000 4.62%
$18,000,000 to
$24,999,999............... 3 3 $ 68,212,404 9.54%
-------- ------------ -------------- ---------
Totals/Weighted Avg. ..... 146 170 $714,739,121 100.00%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-----------------------------------------------------------------------
STATED REMAINING
RANGE OF CUT-OFF MORTGAGE REMAINING AMORT. CUT-OFF DATE MATURITY
DATE BALANCES RATE TERM (MOS.) TERM (MOS.) DSCR LTV LTV
- -------------------------- ---------- ----------- ----------- ------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 0 to $ 999,999........... 8.2042% 154 241 1.40x 70.07% 33.39%
$1,000,000 to $1,999,999 .. 7.5215% 128 310 1.56x 60.77% 47.26%
$2,000,000 to $3,999,999 .. 7.3508% 125 310 1.61x 65.62% 52.63%
$4,000,000 to $5,999,999 .. 7.4029% 128 326 1.48x 69.80% 56.88%
$6,000,000 to $7,999,999 .. 7.3162% 133 322 1.40x 70.87% 55.47%
$8,000,000 to $9,999,999 .. 7.4386% 117 327 1.52x 68.36% 58.29%
$10,000,000 to
$11,999,999............... 7.0612% 148 328 1.87x 50.97% 40.01%
$12,000,000 to
$13,999,999............... 7.1167% 133 328 1.65x 62.21% 50.86%
$14,000,000 to
$15,999,999............... 6.9118% 159 359 1.65x 62.10% 50.57%
$16,000,000 to
$17,999,999............... 7.2036% 120 331 2.12x 53.70% 45.92%
$18,000,000 to
$24,999,999............... 7.0938% 157 337 1.76x 58.69% 45.56%
---------- ----------- ----------- ------- -------------- ----------
Totals/Weighted Avg. ..... 7.2790% 134 325 1.62x 63.82% 51.29%
</TABLE>
S-52
<PAGE>
The following two tables set forth the range of LTV Ratios of the Mortgage
Loans as of the Cut-Off Date and the Maturity Date of the Mortgage Loans. An
"LTV Ratio" for any Mortgage Loan, as of any date of determination, is a
fraction, expressed as a percentage, the numerator of which is the scheduled
principal balance of such Mortgage Loan as of such date (assuming no defaults
or prepayments on such Mortgage Loan prior to such date), and the denominator
of which is the appraised value of the related Mortgaged Property or
Mortgaged Properties as determined by an appraisal thereof obtained in
connection with the origination of such Mortgage Loan. The LTV Ratio as of
the Maturity Date described below was calculated based on the principal
balance of the related Mortgage Loan on the Maturity Date, assuming that all
Mortgage Loans are repaid at their expected Maturity Dates. In addition,
because it is based on the value of a Mortgaged Property determined as of
loan origination, the information set forth in the table below is not
necessarily a reliable measure of the related borrower's current equity in
each Mortgaged Property or of the borrower's equity in each Mortgaged
Property as of the Maturity Date of the Mortgage Loan. In a declining real
estate market, the appraised value of a Mortgaged Property could have
decreased from the appraised value determined at origination, and the LTV
Ratio of a Mortgage Loan as of the Maturity Date may be higher than its LTV
Ratio at origination, even after taking into account amortization since
origination.
RANGE OF LOAN TO VALUE RATIOS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
% OF
NUMBER NUMBER AGGREGATE INITIAL CUM. % OF
RANGE OF CUT-OFF DATE OF OF CUT-OFF DATE POOL CUT-OFF
LTV RATIOS LOANS PROPERTIES BALANCE BALANCE DATE BALANCE
- --------------------- -------- ------------ -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
20.01% to 30.00%...... 1 1 $ 10,000,000 1.40% 1.40%
30.01% to 40.00%...... 4 4 $ 52,634,527 7.36% 8.76%
40.01% to 45.00%...... 3 4 $ 17,017,857 2.38% 11.14%
45.01% to 50.00%...... 9 9 $ 26,950,845 3.77% 14.91%
50.01% to 55.00%...... 4 4 $ 8,786,143 1.23% 16.14%
55.01% to 60.00%...... 19 24 $ 72,331,730 10.12% 26.26%
60.01% to 65.00%...... 23 29 $122,808,987 17.18% 43.45%
65.01% to 70.00%...... 25 34 $117,481,523 16.44% 59.88%
70.01% to 75.00%...... 48 49 $233,027,007 32.60% 92.49%
75.01% to 80.00%...... 10 12 $ 53,700,503 7.51% 100.00%
-------- ------------ -------------- --------- --------------
Totals/Weighted Avg. . 146 170 $714,739,121 100.00% 100.00%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-----------------------------------------------------------------------
STATED REMAINING
RANGE OF CUT-OFF DATE MORTGAGE REMAINING AMORT. CUT-OFF DATE MATURITY
LTV RATIOS RATE TERM (MOS.) TERM (MOS.) DSCR LTV LTV
- --------------------- ---------- ----------- ----------- ------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
20.01% to 30.00%...... 7.5700% 120 300 2.32x 26.35% 21.45%
30.01% to 40.00%...... 7.0400% 120 294 2.48x 34.43% 26.56%
40.01% to 45.00%...... 7.0778% 162 346 1.98x 41.34% 32.15%
45.01% to 50.00%...... 7.2518% 139 320 2.09x 47.39% 37.46%
50.01% to 55.00%...... 7.0257% 138 266 1.80x 51.73% 30.93%
55.01% to 60.00%...... 7.1698% 132 300 1.70x 57.24% 40.27%
60.01% to 65.00%...... 7.0853% 139 319 1.61x 63.50% 49.90%
65.01% to 70.00%...... 7.4244% 141 337 1.46x 67.76% 55.11%
70.01% to 75.00%...... 7.3550% 133 335 1.43x 73.06% 60.28%
75.01% to 80.00%...... 7.5211% 117 345 1.33x 77.78% 68.13%
---------- ----------- ----------- ------- -------------- ----------
Totals/Weighted Avg. . 7.2790% 134 325 1.62x 63.82% 51.29%
</TABLE>
S-53
<PAGE>
RANGE OF LOAN TO VALUE RATIOS AT MATURITY
<TABLE>
<CAPTION>
% OF
NUMBER NUMBER AGGREGATE INITIAL CUM. % OF
RANGE OF MATURITY OF OF CUT-OFF DATE POOL CUT-OFF
LTV RATIOS LOANS PROPERTIES BALANCE BALANCE DATE BALANCE
- -------------------- -------- ------------ -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
0.00% to 10.00%...... 5 8 $ 14,572,293 2.04% 2.04%
10.01% to 30.00% ... 6 6 $ 66,282,667 9.27% 11.31%
30.01% to 35.00% ... 4 4 $ 17,914,423 2.51% 13.82%
35.01% to 40.00% ... 7 10 $ 24,215,054 3.39% 17.21%
40.01% to 45.00% ... 9 16 $ 18,371,335 2.57% 19.78%
45.01% to 50.00% ... 15 17 $ 87,649,894 12.26% 32.04%
50.01% to 55.00% ... 34 35 $160,363,834 22.44% 54.48%
55.01% to 60.00% ... 27 28 $140,068,030 19.60% 74.07%
60.01% to 65.00% ... 24 29 $109,035,175 15.26% 89.33%
65.01% to 70.00% ... 13 15 $ 64,516,755 9.03% 98.36%
70.01% to 75.00% ... 2 2 $ 11,749,660 1.64% 100.00%
-------- ------------ -------------- --------- --------------
Totals/Weighted
Avg................. 146 170 $714,739,121 100.00% 100.00%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-----------------------------------------------------------------------
STATED REMAINING
RANGE OF MATURITY MORTGAGE REMAINING AMORT. CUT-OFF DATE MATURITY
LTV RATIOS RATE TERM (MOS.) TERM (MOS.) DSCR LTV LTV
- -------------------- ---------- ----------- ----------- ------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
0.00% to 10.00%...... 7.4379% 176 176 1.49x 54.12% 1.12%
10.01% to 30.00% ... 7.0980% 123 293 2.41x 35.00% 26.24%
30.01% to 35.00% ... 7.1069% 163 320 1.95x 44.27% 31.60%
35.01% to 40.00% ... 6.9291% 149 324 2.12x 48.13% 36.40%
40.01% to 45.00% ... 7.4812% 125 302 1.72x 53.45% 41.70%
45.01% to 50.00% ... 6.9727% 149 328 1.65x 62.38% 48.24%
50.01% to 55.00% ... 7.2225% 137 327 1.57x 64.47% 52.09%
55.01% to 60.00% ... 7.4789% 136 324 1.44x 71.68% 58.20%
60.01% to 65.00% ... 7.3335% 119 343 1.43x 72.22% 62.18%
65.01% to 70.00% ... 7.4607% 118 356 1.39x 76.03% 67.28%
70.01% to 75.00% ... 7.9422% 113 353 1.29x 79.66% 71.42%
---------- ----------- ----------- ------- -------------- ----------
Totals/Weighted
Avg................. 7.2790% 134 325 1.62x 63.82% 51.29%
</TABLE>
S-54
<PAGE>
The following table sets forth the Mortgage Loans subject to
lockout/prepayment restrictions, expressed a percentage of the outstanding
principal balance at each period, assuming that each Mortgage Loan is repaid
on its respective Maturity Date.
REMAINING POOL BALANCE SUBJECT TO PREPAYMENT RESTRICTIONS
<TABLE>
<CAPTION>
LOCKOUT--NOT GREATER THAN
PERIOD PREPAYABLE 3% OR YM(1)
- -------------------------- ----------------- --------------
$ (MM) % $ (MM) %
-------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Current Period 6/1/98 $705.3 98.7% $9.4 1.3%
Year 1 6/1/99 697.0 98.7% 9.3 1.3%
Year 2 6/1/2000 688.3 98.7% 9.2 1.3%
Year 3 6/1/2001 672.9 97.8% 9.1 1.3%
Year 4 6/1/2002 662.6 97.9% 8.9 1.3%
Year 5 6/1/2003 639.9 96.1% 8.8 1.3%
Year 6 6/1/2004 628.2 96.1% 8.6 1.3%
Year 7 6/1/2005 610.9 95.9% 8.4 1.3%
Year 8 6/1/2006 597.4 95.9% 8.2 1.3%
Year 9 6/1/2007 582.9 95.9% 8.0 1.3%
Year 10 6/1/2008 160.8 99.3% -- 0.0%
Year 11 6/1/2009 156.2 99.4% -- 0.0%
Year 12 6/1/2010 149.0 99.6% -- 0.0%
Year 13 6/1/2011 143.8 99.7% -- 0.0%
Year 14 6/1/2012 138.2 99.9% -- 0.0%
Year 15 6/1/2013 -- 0.0 % -- 0.0%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PREPAYABLE
GREATER THAN WITHOUT
PERIOD 1% OR YM PENALTY TOTALS
- ---------------------- ----------------- -------------- ----------------------------
$ (MM) % $ (MM) % $ (MM) % % of IPB(2)
-------- ------- ------ ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Current Period $ -- 0.0% $ -- 0.0% $714.7 100.0% 100.0%
Year 1 -- 0.0% -- 0.0% 706.4 100.0% 98.8%
Year 2 -- 0.0% -- 0.0% 697.5 100.0% 97.6%
Year 3 5.7 0.8% -- 0.0% 687.7 100.0% 96.2%
Year 4 5.6 0.8% -- 0.0% 677.2 100.0% 94.7%
Year 5 17.2 2.6% -- 0.0% 665.9 100.0% 93.2%
Year 6 16.9 2.6% -- 0.0% 653.7 100.0% 91.5%
Year 7 17.6 2.8% -- 0.0% 636.9 100.0% 89.1%
Year 8 17.2 2.8% -- 0.0% 622.8 100.0% 87.1%
Year 9 1.3 0.2% 15.4 2.5% 607.6 100.0% 85.0%
Year 10 1.1 0.7% -- 0.0% 161.9 100.0% 22.6%
Year 11 0.9 0.6% -- 0.0% 157.1 100.0% 22.0%
Year 12 0.7 0.4% -- 0.0% 149.7 100.0% 20.9%
Year 13 0.4 0.3% -- 0.0% 144.2 100.0% 20.2%
Year 14 0.1 0.0% 0.1 0.1% 138.3 100.0% 19.4%
Year 15 -- 0.0% -- 0.0% -- 0.0% 0.0%
</TABLE>
- ------------
(1) As used above, "YM" means Yield Maintenance Charge.
(2) As used above, "IPB" means Initial Pool Balance.
S-55
<PAGE>
The following table sets forth certain characteristics of the ten largest
Mortgage Loans.
TEN LARGEST MORTGAGE LOANS
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-----------------------------------------------------------
AGGREGATE % OF STATED
NUMBER CUT-OFF INITIAL REMAINING
OF DATE POOL MORTGAGE TERM CUT-OFF DATE MATURITY
PROPERTY NAME PROPERTIES BALANCE BALANCE RATE (MOS.) DSCR LTV LTV
- --------------------- ------------ -------------- --------- ---------- ----------- ------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mission Marketplace .. 1 $ 23,912,270 3.35% 7.3650% 175 1.42x 74.73% 58.30%
Naples Beach Hotel &
Resort............... 1 $ 22,913,783 3.21% 6.9600% 117 2.37x 36.26% 28.58%
Retail Portfolio...... 5 $ 22,201,914 3.11% 7.9450% 113 1.33x 68.32% 61.23%
Lomas Santa Fe Plaza . 1 $ 21,386,351 2.99% 6.9340% 179 1.48x 64.81% 49.49%
1851 & 1871 Sunrise .. 1 $ 17,000,000 2.38% 7.3200% 120 1.42x 71.43% 62.83%
1564 Broadway ........ 1 $ 16,000,000 2.24% 7.0800% 120 2.87x 34.86% 27.96%
Torrey Reserve South
Court................ 1 $ 15,739,803 2.20% 6.8840% 179 1.61x 63.72% 48.55%
White Road Plaza...... 1 $ 14,490,752 2.03% 6.9340% 179 1.49x 67.09% 51.23%
Kerr McGee Center .... 1 $ 14,000,000 1.96% 6.9200% 116 1.85x 55.12% 52.15%
Shaw's Plaza Shopping
Center............... 1 $ 13,300,000 1.86% 7.1100% 120 1.46x 73.08% 58.67%
- --------------------- ------------ -------------- --------- ---------- ----------- ------- -------------- ----------
Totals/Weighted Avg. . 14 $180,944,873 25.32% 7.1750% 143 1.72x 60.85% 49.74%
</TABLE>
TEN LARGEST MORTGAGE LOANS
Below is a brief summary of the ten largest Mortgage Loans in the pool.
The ten largest Mortgage Loans represent, in the aggregate, 25.3% of the
Initial Pool Balance and no single Mortgage Loan represents more than 3.4% of
the Initial Pool Balance. The terms of these Mortgage Loans require that the
related borrower be, and each of the borrowers has represented that it is, a
single purpose entity. A "single purpose entity" for these purposes means an
entity other than an individual that does not engage in any business
unrelated to the related Mortgaged Property and its financing, does not have
any assets other than those related to its interest in such Mortgaged
Property or its financing, or any indebtedness other than as permitted by the
related Mortgage Loan documents, has its own books and records separate and
apart from any other person and holds itself out as being a legal entity,
separate and apart from any other person. However, there can be no assurance
that any borrower will comply with such requirements or its representation
and warranty, or that a borrower will not file for bankruptcy protection or
that a creditor of a borrower will not initiate a bankruptcy proceeding
against such borrower. See "Risk Factors--Increased Risk of Loss Associated
with Concentration of Mortgage Loans, Borrowers and Managers" and
representation 30 described under "Description of the Mortgage
Pool--Representations and Warranties; Repurchases."
In addition, with respect to eight of these ten Mortgage Loans (i.e., each
of the following Mortgage Loans other than "Kerr McGee Center" and "Shaw's
Plaza Shopping Center"), counsel to the borrowers have delivered opinions to
the Mortgage Loan Seller to the effect that in the event of a bankruptcy
proceeding involving certain significant affiliates of the borrower, the
borrower's assets and liabilities would not be substantively consolidated
with the assets and liabilities of such affiliates. However, such opinions
are based upon and subject to a number of facts and assumptions, as well as
counsel's analysis of analogous case law and statutes. The Cut-Off Date
Balance of each of such Mortgage Loans is indicated in parentheses following
the name of the related Mortgaged Property.
Mission Marketplace ($23,912,270). This shopping center, located in the
heart of North San Diego County, California, consists of four anchor
buildings, five outparcel buildings, a thirteen screen multi-cinema theater,
shop space and a child day care facility, for a total of 344,009 gross
leasable square feet ("GLA"). The anchors, shop space and two outparcel
buildings were constructed in 1989, three additional outparcel buildings were
developed in 1994, and the theater was expanded in 1997, from eight to
thirteen screens. The anchor tenants are Kmart (89,483 GLA), Ralph's (45,000
GLA), Thrifty Drug
S-56
<PAGE>
(19,000 GLA), Pic-N-Save (17,250 GLA) and CinemaStar Theater (43,940 GLA).
Other tenants include McDonald's, Dairy Queen, Hometown Buffet, Hancock
Fabrics, and One Price Clothing Store. As of November 11, 1997, the appraised
value was $32,000,000, with a Cut-Off Date LTV of 74.73%. As of March 24,
1998, the shopping center was 96% leased, and Underwritten Net Cash Flow
indicated a DSCR of 1.42x. See Loan No. 6100 in the Mortgage Loan Schedule.
Naples Beach Hotel & Golf Club ($22,913,784). This 284-key family oriented
resort hotel, located directly on the beach in Naples, Florida, includes
1,000 feet of private beachfront, an 18-hole championship golf course, tennis
courts, 12,500 square feet of meeting/banquet space and a swimming pool. The
property, which was established in 1946, and has been continually expanded
and upgraded throughout the years, is the only resort in the area that
features both beach frontage and a golf course. As of January 1, 1998, the
appraised value was $63,200,000, with a Cut-Off Date LTV of 36.26%. As of
February 28, 1998, the average occupancy was 67%, and Underwritten Net Cash
Flow indicated a DSCR of 2.73x. See Loan No. 6008 in the Mortgage Loan
Schedule.
Equity Investment Group Retail Portfolio ($22,201,914).(1) This portfolio
consists of five cross-defaulted Mortgage Loans secured by five
cross-collateralized shopping centers, located in five cities, for a total of
753,398 GLA. The general partner of each borrowing entity is an affiliate of
Equity Investment Group ("Equity"). The company's current retail portfolio
comprises over 3.0 million square feet in almost 30 properties. The
management of Equity combines over 90 years of real estate management
expertise to create a fully integrated real estate operation concentrating in
acquisition, management, marketing, finance and development of predominantly
retail properties. The weighted average DSCR of the Equity portfolio is 1.33x
and the Cut-Off Date LTV is 68.32%. The property breakdown is as follows:
Interchange Square ($1,493,504). This shopping center, located in Palm
Bay, Florida, consists of two one-story buildings, constructed in 1986 and
1989, with a total of 97,250 GLA. Tenants include Dollar General and a
U.S. Post Office. As of October 1, 1997, the appraised value was
$3,000,000. As of April 2, 1998, the property was 52% leased. See Loan No.
9671 in the Mortgage Loan Schedule.
Mountainview Square ($4,679,645). This shopping center, located in
Wytheville, Virginia, and constructed in 1989, is a one-story strip
center, containing a total of 122,529 GLA. The anchor tenant is Kmart
(86,479 GLA). As of October 25, 1997, the appraised value was $6,000,000.
As of April 2, 1998, the center was 90% leased. See Loan No. 9672 in the
Mortgage Loan Schedule.
Dixie Village ($6,370,622). This shopping center, located in Gastonia,
North Carolina, consists of eleven one-story buildings, with a total of
221,203 GLA. The center was constructed in 1965 and was renovated in 1995.
The anchor tenants are Winn-Dixie (42,000 GLA) and Matthews Belk (34,500
GLA). Other tenants include the Salvation Army, Radio Shack, and
Firestone. As of October 6, 1997, the appraised value was $8,600,000. As
of April 2, 1998, the shopping center was 98% leased. See Loan No. 9673 in
the Mortgage Loan Schedule.
Eastland Square ($1,911,257). This shopping center, located in Columbus,
Ohio, and constructed in 1980, consists of two one-story buildings, with a
total of 133,588 GLA. The anchor tenants are Big Bear (38,300 GLA) and
Hancock Fabrics (11,320 GLA). Other tenants include Family Dollar and
Jenny Craig. As of October 21, 1997, the appraised value was $4,200,000.
As of April 2, 1998, the center was 66% leased. See Loan No. 9674 in the
Mortgage Loan Schedule.
Swansea Crossing ($7,666,887). This shopping center, located in Swansea,
Massachusetts, consists of a one-story strip center containing 178,828
GLA. The center was constructed in 1975 and was renovated in 1985. The
anchor tenants are Sears (44,285 GLA), Marshalls (27,000 GLA), Rx
- ------------
(1) The Mortgage Loans comprising the Equity Investment Group Retail
Portfolio are treated as individual Mortgage Loans in the other sections
of this Prospectus Supplement (see "Risk Factors--Increased Risk of Loss
Associated with Concentration of Mortgage Loans, Borrowers and
Managers") but are treated as a single Mortgage Loan in this section for
purposes of providing this summary of such Mortgage Loans.
S-57
<PAGE>
Place (26,100 GLA) and Jo Ann's Fabrics (12,944 GLA). Other tenants
include Payless Shoe Source and Jenny Craig. As of October 20, 1997, the
appraised value was $11,500,000. As of April 2, 1998, the center was 78%
leased. See Loan No. 9675 in the Mortgage Loan Schedule.
Lomas Santa Fe Plaza ($21,386,351). This shopping center, located in an
affluent residential area in San Diego County, California, contains eight
buildings comprised of three two-story office/retail buildings, four one
story retail buildings and one two-story building, with a total of 214,093
GLA. The center, which was originally constructed in 1969, has been remodeled
and renovated a number of times over the years, most recently in 1998. The
anchor tenants are Vons (49,895 GLA), Ross Dress for Less (30,531 GLA), and
We-R-Fabrics (13,926 GLA). Other tenants include Baskin Robbins, Einstein
Bagels, Big 5 Sporting Goods, Blockbuster Video, and Wells Fargo Bank. As of
March 5, 1998, the appraised value was $33,000,000, with a Cut-Off Date LTV
of 64.81%. As of February 19, 1998, the shopping center was 90% leased, and
Underwritten Net Cash Flow indicated a DSCR of 1.48x. See Loan No. 9119 in
the Mortgage Loan Schedule.
1851 & 1871 Sunrise Highway ($17,000,000). This shopping center, located
in Bayshore, Long Island, and constructed in 1983, contains three one story
buildings with a total of 173,723 GLA. The anchor tenants are Toys 'R Us
(43,123 GLA), Waldbaum's (39,478 GLA), Kids 'R Us (25,000 GLA), and Rock
Bottom (20,965 GLA). Other tenants include Pier One Imports, Fashion Bug, and
Dress Barn. As of March 27, 1998, the appraised value was $23,800,000, with a
Cut-Off Date LTV of 71.43%. As of April 1, 1998, the shopping center was 100%
leased, and Underwritten Net Cash Flow indicated a DSCR of 1.42x. See Loan
No. 9140 in the Mortgage Loan Schedule.
1564 Broadway ($16,000,000). This property consists of (i) a 1,784-seat
theater and (ii) unused development rights relating to the air space above
the theater (the "Air Rights"). The theater, which was originally constructed
in 1912 and was completely renovated in 1990, is located in the heart of
Manhattan's "Times Square" theater district. It is leased to Walt Disney
Theatrical Productions under a terminable license agreement for the staging
of the musical "Beauty and the Beast." The Air Rights have been leased to the
operator of a 43-story DoubleTree Guest Suites Hotel pursuant to a net lease
(the "Air Rights Lease") which expires in 2037 with three consecutive
thirty-year renewal options. The Air Rights Lease represents approximately
27% of Underwritten Net Cash Flow for this property. As of February 19, 1998,
the theater was 100% leased, and Underwritten Net Cash Flow indicated a DSCR
of 2.87x. As of January 29, 1998, the appraised value was $45,900,000, with a
Cut-Off Date LTV of 34.86%. See Loan No. 5906 in the Mortgage Loan Schedule.
Torrey Reserve South Court ($15,739,803). This office property, located in
San Diego, California, and constructed in 1997, consists of one four-story,
elevator-served office building and one three-story, elevator-served office
building, with a total of 130,641 net rentable square feet ("NRA"). The
primary tenants are Household Automotive Finance (46,307 NRA), the Herb Farm
(17,444 NRA), LSI Logic Corporation (13,291 NRA), and A.G. Edwards (11,917
NRA). One of the tenants, the Herb Farm, is currently subject to a proceeding
under Chapter 11 of the Bankruptcy Code. It is anticipated that the Herb Farm
will elect to affirm the related lease, but there can be no assurance that it
will do so. A letter of credit has been obtained by the related borrower for
the benefit of the lender under the Mortgage Loan in an amount sufficient to
cover anticipated costs of tenant improvements, leasing commissions and other
losses that could be incurred in connection with re-leasing the Herb Farm
space. Other tenants include First American Title Insurance Company and
American Express Travel. As of March 4, 1998, the appraised value was
$24,700,000, with a Cut-Off Date LTV of 63.72%. As of March 1, 1998, the
office building was 100% leased, and Underwritten Net Cash Flow indicated a
DSCR of 1.61x. See Loan No. 9121 in the Mortgage Loan Schedule.
White Road Plaza ($14,490,752). This shopping center, located in San Jose,
California, consists of nine one story buildings, with a total of 153,849
GLA. Six of the buildings were constructed in 1997 and the remaining three
buildings were constructed in 1989, 1995, and 1997. The anchor tenants are
Lucky Food Store (39,880 GLA), Pic-n-Save (25,500 GLA) and Payless Drugs
(23,672 GLA). Other tenants include Blockbuster Video, Payless Shoe Source,
and Boston Market. As of March 6, 1998, the appraised value was $21,600,000,
with a Cut-Off Date LTV of 67.09%. As of March 1, 1998, the shopping center
was 95% leased, and Underwritten Net Cash Flow indicated a DSCR of 1.49x. See
Loan No. 9115 in the Mortgage Loan Schedule.
S-58
<PAGE>
Kerr McGee Center ($14,000,000). This office property, located in the
northern suburbs of Houston, Texas, consists of one six-story elevator-served
atrium office building which was constructed in 1984 and one three-story
elevator-served atrium office building which was completed in 1974, for a
total of 233,860 NRA. Both buildings were substantially renovated in 1997.
The primary tenant is the Kerr-McGee Corporation (208,006 NRA). Other tenants
include Dobbs Temporary Services, Uniglobe Travel and Clearinghouse, Inc. As
of January 21, 1998, the appraised value was $25,400,000, with a Cut-Off Date
LTV of 55.12%. As of April 1, 1998, the property was 100% leased, and
Underwritten Net Cash Flow indicated a DSCR of 1.85x. See Loan No. 6605 in
the Mortgage Loan Schedule.
Shaw's Plaza Shopping Center ($13,300,000). This shopping center is
located in Southington, Connecticut, in the Hartford MSA just east of the
I-84 interchange. The property includes one single story building, which was
originally constructed in 1961 and renovated in 1988, with a total of 151,846
GLA. The anchor tenants include Shaw's Supermarket (60,000 GLA), Toy Works
(14,450 GLA), Bernie's TV & Appliances (13,490 GLA), Petco (13,082 GLA) and
CVS Pharmacy (8,496 GLA). Other tenants include Town Fair Tire Center, Burger
King and Woodworkers Warehouse. As of March 23, 1998 the appraised value was
$18,200,000 with a Cut-Off Date LTV of 73.08%. As of February 1, 1998, the
property was 98% leased, and Underwritten Net Cash Flow indicated a DSCR of
1.46x. See Loan No. 8785 in the Mortgage Loan Schedule.
RADY FAMILY TRUST AND AMERICAN ASSETS
Nine of the Mortgage Loans (each, a "Rady Loan," and collectively, the
"Rady Loans") were made to single purpose entities that are owned directly or
indirectly in part by the Ernest S. Rady Family Trust (the "Rady Family
Trust"), although the ownership structure of each of such entities differs
from that of each of the other such entities. The Rady Family Trust was
created in March 1983. The Rady Loans were originated by Bear Stearns in
December, 1997 and in April, 1998. Each Rady Loan is secured by a mortgage
encumbering a fee interest in a commercial property (each a "Rady Property"
and collectively the "Rady Properties"). The Rady Loans had a total original
principal balance of $87,425,000, and as of the Cut-Off Date the aggregate
combined principal balance of the Rady Loans was $87,296,600, which
represents approximately 12.2% of the Initial Pool Balance. The Rady Loans
range in size from $1,875,000 to $21,386,351. The Rady Loans are not
cross-defaulted or cross-collateralized with each other or with any other
Mortgage Loans.
SUMMARY OF RADY LOANS
<TABLE>
<CAPTION>
% OF
INITIAL
PROPERTY SQ. FT/ OCCUPANCY CUT-OFF DATE POOL CUT-OFF DATE
LOAN NO. PROPERTY NAME TYPE UNITS PERCENT BALANCE BALANCE LTV DSCR
- ---------- -------------- ------------- --------- ----------- -------------- --------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
9119....... Lomas Santa Fe Anchored 214,093 90.30% $21,386,351 2.99% 64.81% 1.48x
Plaza Retail
9121....... Torrey Reserve Office 130,641 100.00% $15,739,803 2.20% 63.72% 1.61x
South Court
9115....... White Road Anchored 153,849 95.40% $14,490,752 2.03% 67.09% 1.49x
Shopping Retail
Center
6101....... Carmel Country Unanchored 77,781 100.00% $12,255,038 1.71% 72.09% 1.48x
Plaza Retail
5351....... Clairemont Anchored 127,148 97.25% $10,262,346 1.44% 67.07% 1.48x
Village Retail
9114....... Coast Industrial/ 127,226 100.00% $ 6,995,535 0.98% 69.96% 1.47x
Distributing Warehouse
6102....... Sante Fe Park Mobile Home 129 69.76% $ 2,241,775 0.31% 64.05% 1.87x
Park
9488....... ICW-Encino Office 24,845 91.60% $ 2,050,000 0.29% 73.21% 1.42x
9489....... ICW-Walnut Office 29,343 95.30% $ 1,875,000 0.26% 59.71% 1.50x
Creek
-------------- ------------- --------- ----------- -------------- --------- -------------- -------
Totals/Weighted Avg. ...... 95.46% $87,296,600 12.21% 66.76% 1.51x
</TABLE>
S-59
<PAGE>
The Rady Properties, in addition to one other property representing 0.7%
of the Initial Pool Balance, are managed by American Assets, Inc. ("American
Assets"), a company founded by Ernest S. Rady in 1967. As of March 31, 1998,
The Rady Family Trust was the largest shareholder of American Assets.
American Assets is the parent company for a diverse group of operating
entities including, among others, real estate, insurance, and banking
operations. American Assets provides managerial expertise in real estate
acquisition, development, construction, property and asset management for
many of its affiliates. As of March 31, 1998, American Assets employed 41
real estate professionals, and managed over 1,800 apartment units and
approximately 2.4 million square feet of office, retail, and industrial
properties. Since 1967, American Assets has developed over 1,150 apartment
units and 1.5 million square feet of retail, industrial, and office space in
the San Diego, California, area. Mr. Rady currently serves as the chairman of
the board of American Assets and John W. Chamberlain currently serves as
chief executive officer.
UNDERWRITTEN NET CASH FLOW
The "Underwritten Net Cash Flow" for a Mortgaged Property is the estimated
stabilized annual revenue derived from the use and operation of the Mortgaged
Property, less the following: (i) variable annual expenses, including such
operating expenses as utilities, administrative expenses, repairs and
maintenance, management fees and advertising; (ii) fixed expenses, including
insurance and real estate taxes; and (iii) capital expenditures for annual
estimated replacement reserves, tenant improvements and leasing commissions.
In calculating Underwritten Net Cash Flow certain non-operating items such as
depreciation, amortization, partnership distributions and financing fees were
not included as expenses.
Revenue. In determining potential gross revenue for each Mortgaged
Property, the Mortgage Loan Seller generally annualized the potential rent as
presented in the latest available rent roll or used the potential gross
revenue received over a consecutive 12-month period or used historical
operating statements for 1997. In determining other income for each Mortgaged
Property, the Mortgage Loan Seller generally relied on historical operating
statements for 1997, or, if available and more recent, the other income
received over a consecutive 12-month period ("Rolling 12 Months"). Operating
statements were generally certified but unaudited.
Vacancy. In determining the vacancy allowance for each Mortgaged Property
(other than a hotel property), the Mortgage Loan Seller generally used the
greatest of (i) the actual vacancy rate, (ii) the vacancy rate in the related
sub-market, and (iii) a 5% vacancy rate. With respect to certain Mortgage
Loans, the Mortgage Loan Seller used the greater of (i) the Rolling 12 Months
vacancy rate (or in certain cases, the actual 1997 vacancy rate) and (ii) a
5% vacancy rate. With respect to the vacancy allowance for Mortgaged
Properties secured by a hotel property, the Mortgage Loan Seller underwrote
the hotel's occupancy based on either (i) the trailing 12 months average
occupancy or (ii) the average occupancy for 1997, whichever was available. In
either case, the Mortgage Loan Seller further imposed a cap on the
underwritten occupancy of 75% for a hotel property.
Expenses. In determining expenses for each Mortgaged Property, the
Mortgage Loan Seller relied on either historical operating statements for
calendar year 1997, or the Rolling 12 Months. In all cases where historical
operating statements did not, in the opinion of the Mortgage Loan Seller,
reflect the true stabilized level of an expense, other data such as prior
year expense levels or comparable property expenses were considered. Property
management fees were generally assumed to be as follows: 5% of effective
gross income (i.e., gross rental revenue including base rent, expense
reimbursements and other income less a vacancy factor) for most commercial
and multi-family properties with the exception of hotels (3.5%-5.0% of gross
revenues) and self-storage facilities (6% of effective gross income).
Replacement Reserves. Replacement reserves were calculated in accordance
with the expected useful life of the components of the related Mortgaged
Property during the term of the Mortgage Loan. The useful life and cost of
replacements were based upon estimates provided by licensed engineers
pursuant to building condition reports completed for each Mortgaged Property,
subject to certain minimum underwritten replacement reserves which are
described under the heading "Escrow Requirements" set forth under
"Underwriting Standards" below.
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Tenant Improvements and Leasing Commissions. For commercial properties
(with the exception of hotel properties and self-storage facilities), an
annual estimate of capital expenditures for the cost of re-tenanting a
property are calculated in determining Underwritten Net Cash Flow. Such costs
are commonly referred to as tenant improvements ("TIs"), which generally
include items such as repainting, wall covers, window treatments, carpeting,
demising walls, ceiling tiles and lighting fixtures, and leasing commissions
("LCs"), which are the gross commissions paid to real estate leasing brokers
for finding a new tenant (or re-signing an existing tenant to a new lease) to
occupy rentable space in a commercial property. Depending on market
conditions, the amount and frequency of TIs and LCs will vary. In addition,
the lease expiration schedule of a particular commercial property will
determine when TIs and LCs, if any, will be required. The underwriter
estimates that the annual expected capital expenditure for TIs and LCs based
on the Mortgaged Property's lease expiration schedule, market rents, average
term of lease, probability of renewal, and the market cost for new TIs versus
renewal TIs as well as market leasing commissions for a new tenant lease
versus a renewal of an existing tenant lease. The total costs for TIs and LCs
are calculated and then averaged over the term of the loan to determine an
annual estimated amount for such re-tenanting costs.
ASSESSMENTS OF PROPERTY CONDITION
Property Inspection. All of the Mortgaged Properties were inspected by a
member of Bear Stearns' professional staff to assess the Mortgaged Property's
general condition. No inspection revealed any patent structural deficiency or
any deferred maintenance considered material and adverse to the interest of
the holders of the Offered Certificates or for which adequate reserves have
not been established.
Appraisals. All of the Mortgaged Properties were appraised in connection
with the origination of the related Mortgage Loans. Each such appraisal was
in compliance with the Code of Professional Ethics and Standards of
Professional Conduct of the Appraisal Institute and the Uniform Standards of
Professional Appraisal Practice as adopted by the Appraisal Standards Board
of the Appraisal Foundation and accepted and incorporated into the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA").
The purpose of each appraisal was to provide an opinion as to the fair
market value of the related Mortgaged Property. There can be no assurance
that another appraiser would have arrived at the same opinion of fair market
value.
Environmental Reports. A "Phase I" environmental site assessment was
performed with respect to each Mortgaged Property at the time of origination
of the related Mortgage Loan. See "--Representations and Warranties;
Repurchases" below.
Building Condition Reports. In connection with the origination of each
Mortgage Loan, a professional engineer, licensed architect or qualified
consultant inspected each related Mortgaged Property to assess the condition
of the structure, exterior walls, roofing, interior structure and mechanical
and electrical systems. The resulting reports indicated deferred maintenance
items on certain Mortgaged Properties and recommended certain capital
improvements for which escrows were generally established at origination. In
addition, the building condition reports provided a projection of necessary
replacements and repair of structural and mechanical systems over the life of
the related Mortgage Loan, which were used to establish replacement reserve
requirements.
THE MORTGAGE LOAN SELLER
On or prior to the Closing Date, the Depositor will acquire the Mortgage
Loans from Bear, Stearns Funding, Inc., a Delaware corporation ("Bear
Stearns" or the "Mortgage Loan Seller") pursuant to a Mortgage Loan Purchase
Agreement, dated as of June 1, 1998, between the Depositor and the Mortgage
Loan Seller (the "Mortgage Loan Purchase Agreement"). The Mortgage Loan
Seller originated 139 of the Mortgage Loans, which represent 97.2% of the
Initial Pool Balance, and acquired the remaining Mortgage Loans from one
unaffiliated institution, generally in accordance with the underwriting
criteria described below under "--Underwriting Standards."
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The Mortgage Loan Seller is a wholly-owned subsidiary of Bear Stearns
Mortgage Capital Corporation, a corporation organized under the laws of the
State of Delaware and an affiliate of Bear, Stearns & Co. Inc., the
Underwriter. As of March 27, 1998 the Mortgage Loan Seller had a net worth of
approximately $25.7 million.
The information set forth herein concerning the Mortgage Loan Seller and
the underwriting standards has been provided by the Mortgage Loan Seller, and
neither the Depositor nor the Underwriter makes any representation or
warranty as to the accuracy or completeness of such information.
UNDERWRITING STANDARDS
General. 139 of the Mortgage Loans, representing 97.2% of the Initial Pool
Balance, were originated by Bear Stearns and seven of the Mortgage Loans,
representing 2.8% of the Initial Pool Balance, were acquired by Bear Stearns
from an unaffiliated institution, in each case, generally in accordance with
the underwriting criteria described herein (however, with respect to the
Mortgage Loans acquired by Bear Stearns, see "Description of the Mortgage
Pool--General" for a description of certain exceptions with respect thereto).
The Bear Stearns credit underwriting team for each Mortgage Loan was
comprised exclusively of professional full-time real estate employees of
Bear, Stearns & Co. Inc. Members of the underwriting team are not paid a
commission or success fee for the origination of Mortgage Loans.
Bear Stearns originates loans secured by retail, office, industrial,
multifamily, self-storage, other commercial property types, hotel properties
and mobile home communities located in the United States. Generally, mortgage
loans funded by Bear Stearns are fixed rate loans with amortization schedules
of 30 years or less.
The underwriting team for each Mortgage Loan is required to conduct an
extensive review of the related Mortgaged Property, including an analysis of
the appraisal, building condition report, environmental report and historical
property operating statements. A review of the property casualty, liability
and special hazard insurance for each Mortgaged Property, if applicable, is
conducted by a third party risk management firm to confirm that the insurance
meets the requirements of the mortgage loan documents. The credit of the
borrower and certain key principals of the borrower are examined for
financial strength and character prior to approval of the loan. The credit of
key tenants is also examined as part of the underwriting process. A member of
the Bear Stearns underwriting team visits the property for a site inspection
to confirm the occupancy rates of the property, analyze the property's
condition and market and the utility of the property within the market.
Prior to commitment, all mortgage loans must be approved by a loan
committee composed of senior Bear Stearns real estate professionals who may
reject a mortgage loan, approve a mortgage loan, recommend further due
diligence or a restructuring of the loan terms or a re-underwriting of the
property cash flow.
Debt Service Coverage Ratio and LTV Ratio. Bear Stearns' underwriting
standards generally require the following minimum Debt Service Coverage
Ratios and maximum Loan-to-Value Ratios for each of the indicated property
types:
<TABLE>
<CAPTION>
DSCR MINIMUM MAXIMUM LTV RATIO
PROPERTY TYPE GUIDELINE GUIDELINE
- ------------------------ -------------- -----------------
<S> <C> <C>
Anchored Retail ......... 1.25x 80%
Unanchored Retail ....... 1.30x 75%
Multifamily ............. 1.20x 80%
Industrial .............. 1.25x 75%
Office .................. 1.25x 75%
Hotel.................... 1.40x 70%
Mobile Home Communities 1.25x 80%
</TABLE>
The debt service coverage ratio guidelines listed above are calculated
based on anticipated Underwritten Net Cash Flow at the time of origination.
Therefore, the Debt Service Coverage Ratio for each Mortgage Loan as reported
elsewhere in this Prospectus Supplement may differ from the amount calculated
at the time of origination.
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Borrower. The quality and financial condition of the borrower is an
important consideration to Bear Stearns and therefore a thorough
investigation is performed as part of the underwriting process. Credit
analysis on a borrower includes a review of historical financial statements
(which are not necessarily audited), historical income tax returns for the
borrowing entity and/or its principals, third party credit reports and public
records searches ordered by Bear Stearns, periodical searches, industry
contacts and internal and published Bear Stearns debt and equity research.
Qualitative analysis is performed through conversations with individuals and
companies with whom the borrower has conducted business. Borrowers are
generally required to be single asset entities.
Escrow Requirements. Bear Stearns generally requires a borrower to fund
various escrows for taxes and insurance, replacement reserves and capital
expenses. Generally, the required escrows for Mortgage Loans originated by
Bear Stearns are as follows:
o TAXES AND INSURANCE--Typically, a pro rated initial deposit and monthly
deposits equal to 1/12 of the annual property taxes (based on the most
recent property assessment and the current millage rate) and annual
property insurance premium.
o REPLACEMENT RESERVES--Monthly deposits generally based on the greater
of the amount recommended pursuant to a building condition report prepared
for Bear Stearns or the following minimum amounts:
<TABLE>
<CAPTION>
<S> <C>
Retail ...................... $0.15 per square foot
Multifamily ................. $250 per unit
Industrial .................. $0.10 per square foot
Office ...................... $0.20 per square foot
Hotel ....................... 4% of gross revenue
Mobile Home Communities .... $50 per pad
</TABLE>
O DEFERRED MAINTENANCE/ENVIRONMENTAL REMEDIATION--An initial deposit,
upon funding of the mortgage loan, in an amount generally equal to 125%,
and in any case no less than 100%, of the estimated cost of the
recommended substantial repairs or replacements pursuant to a building
condition report completed by a licensed engineer and the estimated cost
of environmental remediation expenses as recommended by an independent
environmental assessment unless such repairs or remediations have been
completed prior to closing.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
In the Mortgage Loan Purchase Agreement, the Mortgage Loan Seller has
represented and warranted with respect to each Mortgage Loan, as of the
Cut-Off Date, or as of such other date specifically provided in the
representation and warranty, among other things, that:
(1) Title. Immediately prior to the sale, transfer and assignment to the
Purchaser the Mortgage Loan Seller had good title to, and was the sole
owner of, each Mortgage Loan;
(2) No Other Security Interests. The Mortgage Loan Seller is transferring
such Mortgage Loan free and clear of any and all liens, pledges, charges
or security interests of any nature encumbering such Mortgage Loan;
(3) Documents Valid. Each related Mortgage Note, Mortgage, Assignment of
Leases (if any) and other agreement executed in connection with such
Mortgage Loan (collectively, the "Mortgage Loan Documents") are legal,
valid and binding obligations of the related Mortgagor, enforceable in
accordance with their terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
the enforcement of creditors' rights generally, or by general principles
of equity (regardless of whether such 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 law, but such unenforceability of such provisions
does not render such Mortgage Loan Documents inadequate for the practical
realization of the principal rights and benefits intended to be afforded
thereby;
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(4) Assignment of Leases. The Mortgage File with respect to such Mortgage
Loan contains an assignment of leases either as a separate instrument or
incorporated into the related Mortgage, which creates a valid, collateral
or first priority assignment of, or a valid first priority security
interest in, certain rights under the related lease, subject only to a
license granted to the related Mortgagor to exercise certain rights and to
perform certain obligations of the lessor under such leases, including the
right to operate the related Mortgaged Property;
(5) Assignment of Mortgage. Each related assignment of Mortgage,
assignment of Mortgage Loan Documents and Mortgage Note allonge from the
Mortgage Loan Seller to the Purchaser and any related reassignment of
Assignment of Leases, if any, and assignment of any other agreement
executed in connection with the assignment of such Mortgage Loan, from the
Mortgage Loan Seller to the Purchaser has been duly authorized, executed
and delivered by the Mortgage Loan Seller and constitutes the legal, valid
and binding assignment from the Mortgage Loan Seller to the Purchaser,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, liquidation, receivership, moratorium or other laws
relating to or affecting creditors' rights generally or by general
principles of equity (regardless of whether such enforcement is considered
in a proceeding in equity or at law);
(6) No Modification; No Release. Since origination of such Mortgage Loan
neither such Mortgage Loan nor any related Mortgage Loan Document has been
modified, altered, satisfied, canceled, subordinated, impaired, waived or
rescinded, and no material portion of the related Mortgaged Property has
been released from the lien of the related Mortgage, in each case, in any
manner which materially and adversely affects the value of the Mortgage
Loan or materially interferes with the security intended to be provided by
such Mortgage; and (except with respect to Mortgage Loan Nos. 5237, 5819,
5867, 5874, 5876, 5995, 6187, 6189, 6191, 6599, 6605, 9204 and 9496, which
permit partial defeasance) the terms of the related Mortgage do not
provide for release of any material portion of the Mortgaged Property from
the lien of the Mortgage (except in consideration of payment therefor) in
any manner that would materially and adversely affect the value of the
Mortgage Loan or materially interfere with the security intended to be
provided by such Mortgage;
(7) No Mechanics' Liens. Each related Mortgage is a valid and enforceable
first priority lien on the related Mortgaged Property (subject to the
matters described in clause (8) below), and such Mortgaged Property is
free and clear of any mechanics' and materialmen's liens which are
superior to or equal with the lien of the related Mortgage, except those
which are insured against by a lender's title insurance policy (as
described in clause (8) below);
(8) First Priority Lien. The lien of each related Mortgage as a first
priority lien in the original principal amount of such Mortgage Loan (as
set forth on the Mortgage Loan Schedule) after all advances of principal,
is insured by an ALTA lender's title insurance policy (or a binding
commitment therefor), or its equivalent as adopted in the applicable
jurisdiction, insuring the Mortgage Loan Seller, its successors and
assigns, subject only to (a) the lien of current real property taxes,
ground rents, water charges, sewer rents and assessments not yet due and
payable, (b) covenants, conditions and restrictions, rights of way,
easements and other matters of public record, none of which, individually
or in the aggregate, materially interferes with the current use of the
Mortgaged Property or the security intended to be provided by such
Mortgage or with the Mortgagor's ability to pay its obligations when they
become due or materially and adversely affects the value of the Mortgaged
Property and (c) the exceptions (general and specific) set forth in such
policy, none of which, individually or in the aggregate, materially
interferes with the current use of the Mortgaged Property or the security
intended to be provided by such Mortgage or with the Mortgagor's ability
to pay its obligations when they become due or materially and adversely
affects the value of the Mortgaged Property; the Mortgage Loan Seller and
its successors or assigns are the only named insureds of such policy; such
policy is assignable to the Purchaser without the consent of or any
notification to the insurer, and is in full force and effect upon the
consummation of the transactions contemplated by this Agreement; no claims
have been made under such policy and to Mortgage Loan Seller's knowledge,
no prior holder of the related Mortgage has done anything, by act or
omission, and the Mortgage Loan Seller has no knowledge of any matter,
which would impair or diminish the coverage of such policy, and the
insurer issuing such policy is qualified to do business in the
jurisdiction in which the related Mortgaged Property is located;
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(9) Proceeds Fully Disbursed. The proceeds of such Mortgage Loan have
been fully disbursed and there is no requirement for future advances
thereunder and the Mortgage Loan Seller covenants that it will not make
any future advances under the Mortgage Loan to the related Mortgagor;
(10) Physical Condition of Mortgaged Property. To the Mortgage Loan
Seller's knowledge, after conducting due diligence consistent with the
practice of institutional lenders generally for properties of the same
type as the related Mortgaged Property (including the review of any
engineering report prepared in connection with the origination of, or
obtained in connection with the Mortgage Loan Seller's acquisition of,
each Mortgage Loan), each related Mortgaged Property is free and clear of
any damage that would affect materially and adversely the value of such
Mortgaged Property as security for the Mortgage Loan and there is no
proceeding pending or, to the knowledge of the Mortgage Loan Seller,
threatened, seeking the total or partial condemnation of such Mortgaged
Property, other than proceedings as to partial condemnation which do not
materially and adversely affect the value of such Mortgaged Property as
security for such Mortgage Loan;
(11) Licenses and Authorizations. With the exception of Mortgage Loan No.
9329, with respect to which funds have been escrowed to remediate a fire
code violation, as of the date of origination of such Mortgage Loan, to
the Mortgage Loan Seller's best knowledge, the related Mortgagor was in
possession of all material licenses, permits and other authorizations
necessary and required by all applicable laws with regard to Mortgagor's
ownership and operation of the related Mortgaged Property and all such
licenses, permits and authorizations were valid and in full force and
effect, except to the extent the failure to obtain or maintain such
licenses, permits and other authorizations does not materially impair the
current use of the related Mortgaged Property or the rights of a holder of
the related Mortgage Loan;
(12) Property Inspection. The Mortgage Loan Seller has inspected or
caused to be inspected each related Mortgaged Property within the past 12
months;
(13) No Contingent Interest or Negative Amortization. Such Mortgage Loan
does not have a shared appreciation feature, other contingent interest
feature or negative amortization feature (except with respect to Mortgage
Loan No. 5995, which is the ARD Loan, as to which negative amortization
may be permitted in certain circumstances);
(14) Whole Loan. Such Mortgage Loan is a whole loan and contains no
equity participation by the lender;
(15) No Usury. The Mortgage Rate (exclusive of any default interest, late
charges or prepayment premiums) of such Mortgage Loan complied as of the
date of origination with, or was exempt from, all applicable state or
federal laws, regulations and other requirements pertaining to usury; any
and all other requirements of any federal, state or local laws, including,
without limitation, truth-in-lending, real estate settlement procedures,
equal credit opportunity or disclosure laws, applicable to such Mortgage
Loan have been complied with as of the date of origination of such
Mortgage Loan;
(16) Taxes. All taxes, governmental assessments, water charges, sewer
rents or other similar charges with respect to the related Mortgage
Property that prior to the Closing Date became due and payable in respect
of such Mortgaged Property have been paid or an escrow of funds in an
amount sufficient to cover such payments has been established;
(17) Escrow Deposits. All escrow deposits and payments required pursuant
to the Mortgage Loan are in the possession, or under the control, of the
Mortgage Loan Seller or its agent and there are no deficiencies in
connection therewith and all such escrows and deposits have been conveyed
by the Mortgage Loan Seller to the Purchaser and identified as such with
appropriate detail;
(18) Hazard Insurance. Each related Mortgaged Property is insured by a
fire and extended perils insurance policy, issued by an insurer meeting
the requirements of the Pooling and Servicing Agreement, and in an amount
not less than the greater of (a) the replacement cost and (b) the amount
necessary to avoid the operation of any co-insurance provisions with
respect to the
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Mortgaged Property; each related Mortgaged Property is also covered by
business interruption insurance (or rent loss insurance) and comprehensive
general liability insurance in amounts generally required by institutional
commercial mortgage lenders for similar properties; all premiums on such
insurance policies required to be paid as of the date hereof have been
paid; such insurance policies require prior notice to the mortgagee of
termination or cancellation, and no such notice has been received; each
related Mortgage or loan agreement obligates the related Mortgagor to
maintain all such insurance and, at such Mortgagor's failure to do so,
authorizes the mortgagee to acquire and maintain such insurance at the
Mortgagor's cost and expense and to seek reimbursement therefor from such
Mortgagor;
(19) No Default. There is no material monetary default, breach, violation
or event of acceleration existing under the related Mortgage or the
related Mortgage Note and, to the Mortgage Loan Seller's best knowledge,
no material non-monetary default, breach, violation or event of
acceleration existing under the related Mortgage Loan Documents. To the
Mortgage Loan Seller's knowledge, there is no event (other than payments
due but not yet delinquent) which, with the passage of time or with notice
and the expiration of any grace or cure period, would constitute such a
material default, breach, violation or event of acceleration.
Notwithstanding the foregoing, the Mortgage Loan Seller makes no
representation or warranty with respect to any default, breach, violation
or event of acceleration that specifically pertains to any matter
otherwise covered by any other representation and warranty made by the
Mortgage Loan Seller;
(20) Delinquency. No Monthly Payment on such Mortgage Loan has been more
than 30 days delinquent (without giving effect to any applicable grace
period) from the later of the date of origination of such Mortgage Loan
or, if applicable, the date of acquisition by the Mortgage Loan Seller of
such Mortgage Loan, through the Cut-Off Date; the Mortgage Loan Seller has
not waived any default, breach, violation or event of acceleration that
was material in nature and existed under the related Mortgage Loan
Documents;
(21) Customary Provisions. The related Mortgage contains customary and
enforceable provisions such as to render the principal rights and remedies
of the holder thereof adequate for the realization against the Mortgaged
Property of the principal benefits of the security intended to be provided
thereby, including realization by judicial or, if applicable, non-judicial
foreclosure, subject to the effects of bankruptcy or similar law affecting
the right of creditors and the application of principles of equity, and
there is no exemption available to the Mortgagor which would interfere
with such right to foreclose;
(22) Environmental Matters. A Phase I environmental report (or an update
to an existing Phase I environmental report) was conducted by a reputable
environmental consultant within 12 months of the origination of such
Mortgage Loan which report (or update) did not indicate any material
existence of any dangerous, toxic or hazardous pollutants, chemicals,
wastes or substances ("Hazardous Materials"), except for those conditions
(the "Existing Conditions") that were remediated prior to the Cut-Off
Date, or for which an operations and maintenance plan is in effect or with
respect to which a hold-back or other escrow of funds not less than the
costs of such remediation as estimated in such environmental report (or
update) has been created to be held by the Mortgage Loan Seller or its
agent until such remediation has been completed. To the best of the
Mortgage Loan Seller's knowledge (based on the Phase I environmental
reports or updates and a representation of the related Borrower at the
time of origination of each Mortgage Loan), except for the Existing
Conditions, each related Mortgaged Property is in material compliance with
all applicable federal, state and local laws pertaining to environmental
hazards, and no notice of violation of such laws has been issued by any
governmental agency or authority. In each Mortgage, the related Mortgagor
represents and warrants that, except for the Existing Conditions, it will
not use or cause or permit to exist on the related Mortgaged Property any
Hazardous Materials in any manner that violates federal, state or local
laws, ordinances, regulations, orders or directives relating to the use,
storage, treatment, transportation, manufacture, refinement, handling,
production or disposal of Hazardous Materials. In each Mortgage, the
Mortgagor represents and warrants that no Hazardous Materials exist on the
related Mortgaged Property in any manner that violates federal,
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state or local laws, ordinances, regulations, orders or directives
relating to hazardous materials; provided, however, that in certain
instances this representation is limited to the Mortgagor's knowledge; the
related Mortgagor agrees to indemnify, defend and hold the Mortgage Loan
Seller and its successors and assigns harmless from and against any and
all losses, liabilities, damages, injuries, penalties, fines, expenses and
claims of any kind whatsoever (including attorney's fees and costs) paid,
incurred or suffered by, or asserted against, any such party resulting
from any inaccuracy in any representation or warranty or any material
breach of any covenant pertaining to Hazardous Materials given by the
related Mortgagor under the related Mortgage;
(23) Acceleration Provisions. Each related Mortgage or loan agreement
contains provisions for the acceleration of the payment of the unpaid
principal balance of such Mortgage Loan if, (A) without obtaining the
written consent of the mortgagee, the related Mortgaged Property is
transferred, sold or encumbered in connection with any additional
financing (other than any existing Other Debt referenced in clause (43)
below), or (B) without complying with the requirements of the Mortgage or
loan agreement, any controlling interest in the related Mortgagor is
directly or indirectly transferred or sold, and each related Mortgage or
loan agreement prohibits the pledge or encumbrance of the Mortgaged
Property (except for matters of the type described in clause (8) above)
without the consent of the holder of the Mortgage Loan;
(24) Mortgage. The Mortgage Loan is directly secured by a Mortgage on a
commercial property, multifamily residential property or mobile home
community property, and either (1) substantially all of the proceeds of
the Mortgage Loan were used to acquire, improve or protect an interest in
such real property which, as of the origination date, was the sole
security for such Mortgage Loan (unless the Mortgage Loan has been
modified in a manner that constituted a deemed exchange under Section 1001
of the Code at a time when the Mortgage Loan was not in default or default
with respect thereto was not reasonably foreseeable) or (2) the fair
market value of such real property was at least equal to 80% of the
principal amount of the Mortgage Loan (a) at origination (or if the
Mortgage Loan has been modified in a manner that constituted a deemed
exchange under Section 1001 of the Code at a time when the Mortgage Loan
was not in default or default with respect thereto was not reasonably
foreseeable, the date of the last such modification) or (b) at the Closing
Date; provided that the fair market value of the real property interest
must first be reduced by (i) the amount of any lien on the real property
interest that is senior to the Mortgage Loan (unless such senior lien also
secures a Mortgage Loan, in which event the computation described in
clauses (a) and (b) shall be made on an aggregate basis) and (ii) a
proportionate amount of any lien that is in parity with the Mortgage Loan
(unless such other lien secures a Mortgage Loan that is
cross-collateralized with such Mortgage Loan, in which event the
computation described in clauses (a) and (b) shall be made on an aggregate
basis);
(25) Mortgage Loan Schedule. The Mortgage Loan Schedule in the Mortgage
Loan Purchase and Sale Agreement is complete and accurate in all material
respects as of the Cut-Off Date;
(26) REMIC Qualification. Each Mortgage Loan constitutes a "qualified
mortgage" within the meaning of Section 860G(a)(3) of the Code (but
without regard to the rule in Treasury Regulations 1.860 G-2(f)(2) that
treats a defective obligation as a qualified mortgage, or any
substantially similar successor provision) and each Mortgage Loan bears
interest at a "fixed rate" or at a "variable rate" within the meaning of
Section 860G(a)(1)(B) of the Code;
(27) Appraisal. The Mortgage File contains an appraisal of the related
Mortgaged Property which appraisal is signed by a qualified appraiser,
who, to the Mortgage Loan Seller's knowledge, had no interest, direct or
indirect, in the Mortgaged Property or in any loan made on the security
thereof, and whose compensation is not affected by the approval or
disapproval of the Mortgage Loan, and the appraisal and appraiser both
satisfy the requirements of Title XI of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 and the regulations promulgated
thereunder, all in effect on the date the Mortgage Loan was originated;
(28) Encroachments. None of the material improvements which were included
for the purposes of determining the appraised value of the related
Mortgaged Property at the time of the
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origination of the Mortgage Loan lies outside of the boundaries and
building restriction lines of such property (except for (i) de minimis
encroachments for which the related title insurance policy provides
affirmative insurance or (ii) Mortgaged Properties which are legal
non-conforming uses), and no improvements on adjoining properties
materially encroach upon such Mortgaged Property, or the requisite title
insurance has been obtained with respect to the foregoing;
(29) Compliance with Law. As of the date of origination of such Mortgage
Loan, and, to the Mortgage Loan Seller's knowledge, as of the Cut-Off
Date, (A) each Mortgaged Property was in material compliance with all
applicable laws, zoning ordinances (including legal non-conforming uses),
rules, covenants and restrictions affecting the construction, occupancy,
use and operation of such Mortgaged Property (except that in the case of
Mortgage Loan No. 9329, the fire prevention system violated the fire code
and the related Mortgagor contracted to have the corrective work completed
within 90 days), and (B) all material inspections, licenses and
certificates, including certificates of occupancy, required by law,
ordinance or regulation to be made or issued with regard to the Mortgaged
Property were issued or made and were in full force and effect, or, in the
case of certificates of occupancy, an opinion of counsel or architect, or
a letter from the appropriate municipal authority was delivered which
provides that (i) all certificates of occupancy have been issued, or (ii)
no certificates of occupancy are required, or (iii) there are no
violations of existing building codes;
(30) Single-Purpose Borrower. Except with respect to Mortgage Loan No.
8874, the related Mortgagor is an entity which has represented in
connection with the origination of the Mortgage Loan, or whose
organizational documents provide, that so long as the Mortgage Loan is
outstanding it will be a single-purpose entity. (For this purpose,
"single-purpose entity" shall mean a person, other than an individual,
which does not engage in any business unrelated to the related Mortgaged
Property and its financing, does not have any assets other than those
related to its interest in such Mortgaged Property or its financing, or
any indebtedness other than as permitted by the related Mortgage or the
other documents in the Mortgage Loan File, has its own books and records
separate and apart from any other person, and holds itself out as being a
legal entity, separate and apart from any other person);
(31) Underwriting Standards. Except with respect to Mortgage Loan Nos.
6233, 6234, 6235, 6236, 6237, 6238 and 6239, the Mortgage Loan complied,
in all material respects, with all of the terms, conditions and
requirements of the Mortgage Loan Seller's underwriting standards in
effect at the time of the origination or acquisition of such Mortgage
Loan, which are described in the Prospectus Supplement;
(32) No Insolvency. To the Mortgage Loan Seller's knowledge, no Mortgagor
is a debtor in any state or federal bankruptcy or insolvency proceeding;
(33) Interests in Mortgaged Property. Such Mortgage Loan was originated
or acquired by the Mortgage Loan Seller for sale or securitization. The
interest of the related Mortgagor in the related Mortgaged Property
consists of a fee simple and/or leasehold estate in real property (and, in
the case of Mortgage Loan No. 5906, also includes ownership of the air
rights appurtenant to the related Mortgaged Property);
(34) No Defense to Payment. There is no right of rescission, offset,
abatement, diminution, defense or counterclaim to the Mortgage Loan
(including the defense of usury), nor will the operation of any of the
terms of the Mortgage Note or the Mortgage, or the exercise of any rights
thereunder, render the Mortgage Note or the Mortgage unenforceable
(excluding provisions relating to default interest, yield maintenance
charges or prepayment premiums), or subject to any right of rescission,
offset, abatement, diminution, defense or counterclaim (including the
defense of usury or the violation of any applicable disclosure or consumer
credit laws), except in any such case as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
the enforcement of creditors' rights generally or by general principles of
equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law), and no such right of rescission, offset,
abatement, diminution, defense or counterclaim has been asserted with
respect thereto;
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(35) Mortgages Secured by Deeds of Trust. In the case of any Mortgage
which is a deed of trust, a trustee, duly qualified under applicable law
to serve as such, has been properly designated and currently so serves and
is named in the deed of trust or has been substituted in accordance with
applicable law, and no fees or expenses are, or will become, payable to
the trustee under the deed of trust, except in connection with a trustee's
sale after default by the Mortgagor or in connection with the release of
the Mortgaged Property or related security for the Mortgage Loan following
the payment of the Mortgage Loan in full;
(36) Flood Hazard. The improvements located on the related Mortgaged
Property are either not located in a federally designated special flood
hazard area or the Mortgagor is required to maintain or the mortgagee
maintains, flood insurance with respect to such improvements;
(37) Leasehold Interests. If the Mortgaged Property is subject to any
leases, the Mortgagor (or in the case of multiple Mortgagors, one of the
parties constituting the Mortgagor) is the owner and holder of the
landlord's interest under any leases (other than "ground leases") and the
related Mortgage or Assignment of Leases provides for the appointment of a
receiver for rents or allows the mortgagee to enter into possession to
collect rent or provides for rents to be paid directly to mortgagee in the
event of a default;
(38) Collateral. Each Mortgage Note is not secured by any collateral
except the lien of the related Mortgage, the related Assignment of Leases
(if any) and any related security agreement;
(39) Cross-Collateralization. Such Mortgage Loan, if
cross-collateralized, is cross-collateralized only with one or more other
Mortgage Loans being transferred to the Purchaser;
(40) Origination. The origination (or acquisition, as the case may be),
servicing and collection practices used by the Mortgage Loan Seller with
respect to the Mortgage Loan have complied in all material respects with
all requirements of relevant federal, state and local law, rules and
regulations (including, without limitation, usury, truth-in-lending, real
estate settlement procedures, consumer credit protection, equal credit
opportunity and disclosure) and are consistent with the servicing standard
set forth in the Pooling and Servicing Agreement;
(41) No Advance of Funds from Person other than Mortgagor. To the
knowledge of the Mortgage Loan Seller, no advance of funds has been made
after the Cut-Off Date, directly or indirectly, by any holder of such
Mortgage Loan, nor have any funds been received from any person other than
the related Mortgagor, for or on account of payments due on the related
Mortgage Note or the related Mortgage;
(42) UCC Financing Statements. (a) UCC Financing Statements covering all
furniture, fixtures, equipment and other personal property owned by a
Mortgagor and located on the related Mortgaged Property (i) which are
collateral under the related Mortgage or under a security agreement,
chattel mortgage or equivalent document executed and delivered in
connection with such Mortgage Loan, and (ii) in which a security interest
can be perfected by the filing of UCC Financing Statements under
applicable law have been filed and/or recorded (or have been sent for
filing or recording) in all UCC filing offices necessary to perfect a
valid security interest in such furniture, fixtures, equipment and other
personal property, and the Mortgages, security agreements, chattel
mortgages or equivalent documents related to and delivered in connection
with the related Mortgage Loans establish and create a valid and
enforceable security interest on such furniture, fixtures, equipment and
other personal property; and (b) with respect to each Mortgaged Property
improved with a hotel, such UCC Financing Statements, together with the
Mortgages, security agreements, chattel mortgages or equivalent documents
related to and delivered in connection with the related Mortgage Loan,
establish and create a valid and enforceable first priority security
interest in the furniture, fixtures and equipment located thereon and
owned by the related Mortgagor, to the extent a security interest in such
furniture, fixtures and equipment can be perfected by the filing of UCC
Financing Statements under applicable law; except, in each case, as
enforceability may be limited by bankruptcy or other laws affecting
creditor's rights generally or by the application of the rules of equity,
and except that certain provisions of the Mortgages, security agreements,
chattel mortgages
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or equivalent documents related to and delivered in connection with the
related Mortgage Loans are or may be unenforceable in whole or in part
under applicable law, but such unenforceability of such provisions does
not render such documents inadequate for the practical realization of the
principal rights and benefits intended to be afforded thereby;
(43) Other Indebtedness of Mortgagor. Except with respect to Mortgage
Loan Nos. 6310 and 9119, to the best of the Mortgage Loan Seller's
knowledge, the Mortgagor has no indebtedness for borrowed money other than
the Mortgage Loan and trade debt incurred in the ordinary course of
business. With respect to Mortgage Loan No. 6310, the creditor (the
"Subordinate Lender") under the other indebtedness for borrowed money
("Other Debt") of the Mortgagor has entered into a subordination agreement
with the Mortgage Loan Seller pursuant to which (A) the Subordinate Lender
has agreed to fully subordinate the Other Debt to the Mortgage Loan and
any renewals, extensions, modifications, replacements, refinancings or
consolidations of the Mortgage Loan (collectively, the "Senior Debt"), (B)
the Subordinate Lender has agreed not to declare a default or exercise any
remedies against the related Mortgagor or its assets with respect to the
Other Debt until the Senior Debt has been paid in full, (C) the
Subordinate Lender has agreed that it is prohibited from collecting or
receiving payments in respect of the Other Debt from the related Mortgagor
or its assets until the Senior Debt is paid in full, (D) the Subordinate
Lender may not assign or pledge its interests on the Other Debt, (E) such
subordination agreement is assignable to the Purchaser and its successors
and assigns and is being assigned pursuant to the Mortgage Loan Purchase
and Sale Agreement and is part of the Mortgage File, and (F) such
subordination agreement provides that the Subordinate Lender will assign
to the Mortgage Loan Seller or its successors and assigns any right of the
Subordinate Lender to vote or consent with respect to any plan of
reorganization under the federal Bankruptcy Code or other similar state or
federal bankruptcy, insolvency or reorganization proceedings. With respect
to Mortgage Loan No. 9119, the other indebtedness for borrowed money is
secured debt with an original principal balance of $2.5 million (the "Pari
Passu Debt"), which Pari Passu Debt (i) is secured by a lien on the
related Mortgaged Property that is pari passu with the lien of the
Mortgage securing the related Mortgage Loan, (ii) is secured by a letter
of credit in the amount of $2.5 million and (iii) is on payment and other
terms substantially similar to those of the related Mortgage Loan;
(44) Ground Leases. No Mortgage Loan is secured in whole or in part by
the interest of a Borrower as lessee under a ground lease underlying the
related Mortgaged Property unless (i) the Mortgage Loan is also secured by
a first priority lien (subject to the matters described in clause (8)
above) on the related fee interest, (ii) the ground lease represents a
non-essential portion of the Mortgaged Property, or (iii) the ground lease
satisfies the following criteria:
(a) The ground lease or a memorandum regarding it has been duly
recorded. The ground lease permits the interest of the lessee to be
encumbered by the related Mortgage and does not restrict the use of
the related Mortgaged Property by such lessee, its successors or
assigns in a manner that would adversely affect the security provided
by the related Mortgage. There has been no material change in the
terms of such ground lease since its recordation, except by written
instruments, all of which are included in the related Mortgage File;
(b) The lessor under such ground lease has agreed in a writing
included in the related Mortgage File that the ground lease may not be
amended, modified, canceled or terminated without the prior written
consent of the mortgagee and that any such action without such consent
is not binding on the mortgagee, its successors or assigns, except if
an event of default occurs under the ground lease and notice is
provided to the Mortgagee and such default is curable by the
Mortgagee, but remains uncured beyond the applicable cure period;
(c) The ground lease has an original term (or an original term plus
one or more optional renewal terms, which, under all circumstances,
may be exercised, and will be enforceable, by the related Mortgagor,
or the mortgagee if the mortgagee acquires the related Mortgaged
Property upon foreclosure, assignment in lieu-of-foreclosure or
otherwise) that extends not less than 10 years beyond the stated
maturity of the related Mortgage Loan;
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(d) The ground lease is not subject to any liens or encumbrances
superior to, or of equal priority with, the Mortgage, subject to the
matters described in clause (8) above, and such ground lease does not
provide that it shall be subordinate, and is not subordinate (subject
to the matters described in clause (8) above), to any mortgage or
other lien or encumbrance upon the related fee interest;
(e) The ground lease is assignable to the mortgagee under the
leasehold estate without the consent of the lessor thereunder or such
consent has been obtained;
(f) The ground lease is in full force and effect and no default has
occurred, nor is there any existing condition which, but for the
passage of time or giving of notice, would result in a default under
the terms of the ground lease;
(g) The ground lease or ancillary agreement between the lessor and
the lessee or separate agreement between the lessor and the mortgagee
requires the lessor to give notice of any default by the lessee to the
mortgagee. The ground lease or ancillary agreement further provides
that no notice given is effective against the mortgagee unless a copy
has been given to the mortgagee in a manner described in the ground
lease or such ancillary or other agreement;
(h) A mortgagee is permitted a reasonable opportunity (including,
where necessary, sufficient time to gain possession of the interest of
the lessee under the ground lease through legal proceedings, or to
take other action so as the mortgagee is proceeding diligently) to
cure any default under the ground lease which is curable after the
receipt of notice of any default before the lessor may terminate the
ground lease. All rights of the mortgagor under the ground lease and
the related Mortgage (insofar as it relates to the ground lease) may
be exercised by or on behalf of the mortgagee;
(i) The ground lease does not impose any restrictions on subletting
that would be viewed as commercially unreasonable by an institutional
investor;
(j) Under the terms of the ground lease and/or a separate agreement
between the related lessor and the mortgagee and the related Mortgage,
any related insurance proceeds or condemnation award (other than in
respect of a total or substantially total loss or taking) will be
applied either to the repair or restoration of all or part of the
related Mortgaged Property, with the mortgagee or a trustee appointed
by it having the right to hold and disburse such proceeds as repair or
restoration progresses, or to the payment of the outstanding principal
balance of the Mortgage Loan, together with any accrued interest
(except in cases where a different allocation would not typically be
viewed as commercially unreasonable by an institutional investor,
taking into account the relative duration of the ground lease and the
related Mortgage and the ratio of the market value of the related
Mortgaged Property to the outstanding principal balance of such
Mortgage Loan); and
(k) Under the terms of the ground lease and/or a separate agreement
between the related lessor and the mortgagee and the related Mortgage,
any related insurance proceeds, or condemnation award in respect of a
total or substantially total loss or taking of the related Mortgaged
Property will be applied first to the payment of the outstanding
principal balance of the Mortgage Loan, together with any accrued
interest if such proceeds have not been used to restore the premises
(except in cases where a different allocation would not typically be
viewed as commercially unreasonable by an institutional investor,
taking into account the relative duration of the ground lease and the
related Mortgage and the ratio of the market value of the related
Mortgaged Property to the outstanding principal balance of such
Mortgage Loan). Until the principal balance and accrued interest are
paid in full, neither the lessee nor the lessor under the ground lease
will have the option to terminate or modify the ground lease without
prior written consent of the mortgagee as a result of any casualty or
partial condemnation, except to provide for an abatement of rent; and
(l) The terms of the related ground lease and/or a separate agreement
between the lessor and the mortgagee require the related lessor to
enter into a new lease upon termination of the ground lease due to the
default of the lessee thereunder, including rejection of the ground
lease in a bankruptcy proceeding;
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(45) Concentration. Except with respect to Mortgage Loan Nos. 5351, 6101,
6102, 9114, 9115, 9119, 9121, 9488 and 9489, such Mortgage Loans, together
with all other Mortgage Loans to the same Mortgagor and/or affiliates of
such Mortgagor, do not constitute more than 5% of the aggregate
outstanding principal balance of all Mortgage Loans transferred by the
Mortgage Loan Seller to the Purchaser. For purposes of the foregoing, an
"affiliate" of, or person or entity "affiliated with", a specified person
or entity, is a person or entity that directly, or indirectly through one
or more intermediaries, controls, is controlled by, or is under common
control with, the specified person or entity;
(46) No Proceedings. As of the date of origination and, to the best of
the Mortgage Loan Seller's knowledge, as of the Cut-Off Date, there was no
pending, or, to the knowledge of the Mortgage Loan Seller, threatened
action, suit, proceeding, arbitration or governmental investigation
against any Mortgagor or the related Mortgaged Property an adverse outcome
of which would materially affect either such Mortgagor's performance under
the related Mortgage Loan documents or the holders of the Certificates;
(47) Defeasance. Each Mortgage Loan which grants the related Mortgagor
the option to obtain the release of the lien of the Mortgage on the
related Mortgaged Property by substituting U.S. Treasury securities for
such Mortgaged Property, as collateral for the related Mortgage Notes,
requires that the related Mortgagor pay all of the reasonable costs and
expenses incurred in connection with the exercise of such options; and
(48) Annual Reports. The related Mortgage Loan Documents require the
related Mortgagor to furnish to the mortgagee at least annually an
operating statement and (except in the case of the mortgagor-occupied or
single tenant Mortgaged Property) a rent roll with respect to the related
Mortgage Property or, in the case of mortgagor-occupied Mortgaged
Property, a financial statement with respect to the related Mortgagor.
If the Mortgage Loan Seller has been notified of a material breach of any
of the foregoing representations and warranties and if the Mortgage Loan
Seller cannot cure such breach within a period of 90 days following the
earlier of its receipt of such notice or its discovery of the breach, then
the Mortgage Loan Seller will be obligated pursuant to the related Purchase
Agreement (the relevant rights under which will be assigned, together with
its interests in the Mortgage Loans, by the Depositor to the Trustee) to
repurchase the affected Mortgage Loan within such 90-day period at a price
(the "Purchase Price") equal to the sum of (i) the outstanding principal
balance of such Mortgage Loan as of the date of purchase, (ii) all accrued
and unpaid interest on such Mortgage Loan at the related Mortgage Rate, in
effect from time to time, to but not including the Due Date in the Due Period
of purchase, (iii) all related unreimbursed Servicing Advances plus accrued
and unpaid interest on related Advances at the Reimbursement Rate, and unpaid
Special Servicing Fees allocable to such Mortgage Loan and (iv) all
reasonable out-of-pocket expenses reasonably incurred or to be incurred by
the Special Servicer, the Depositor and the Trustee in respect of the breach
giving rise to the repurchase obligation, including any expenses arising out
of the enforcement of the repurchase obligation.
The foregoing repurchase obligation will constitute the sole remedy
available to the Certificateholders and the Trustee for any breach of the
Mortgage Loan Seller's representations and warranties regarding the Mortgage
Loans. The Mortgage Loan Seller will be the sole Warranting Party in respect
of the Mortgage Loans sold by such Mortgage Loan Seller to the Depositor, and
none of the Depositor, the Servicer, the Special Servicer, the Trustee, the
Fiscal Agent, the Underwriter or any of its affiliates (other than the
Mortgage Loan Seller) will be obligated to repurchase any affected Mortgage
Loan in connection with a breach of the Mortgage Loan Seller's
representations and warranties if the Mortgage Loan Seller defaults on its
obligation to do so. However, the Depositor will not include any Mortgage
Loan in the Mortgage Pool if anything has come to the Depositor's attention
prior to the Closing Date that causes it to believe that the representations
and warranties made by the Mortgage Loan Seller regarding such Mortgage Loan
will not be correct in all material respects when made. See "Description of
the Pooling Agreements--Representations and Warranties; Repurchases" in the
Prospectus.
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MORTGAGED PROPERTY ACCOUNTS
Lock Box Accounts. With respect to 11 Mortgage Loans (the "Lock Box
Loans"), representing approximately 7.0% of the Initial Pool Balance, one or
more accounts (collectively, the "Lock Box Accounts") have been, or may be,
established in the name of the lender pursuant to the related loan documents.
With respect to one Lock Box Loan, representing approximately 1.3% of the
Initial Pool Balance, the tenants are required to deposit their rent directly
into the Lock Box Account. The terms of ten Lock Box Loans, representing
approximately 5.7% of the Initial Pool Balance, provide for the establishment
of a Lock Box Account upon the occurrence and continuation of certain events,
generally relating to the failure of certain major tenants to renew or extend
their respective leases, the failure of the related borrower to lease such
premises to new tenants acceptable to the lender, or the failure of the
Mortgaged Property to meet certain DSCR requirements. The agreement which
governs the existing Lock Box Account provides, and in the event that a Lock
Box Account is required to be established in the case of any of the other
Lock Box Loans, such agreements will provide, that the borrower has no
withdrawal or transfer rights with respect thereto except to the extent that
funds on deposit in the related Lockbox Account are released to the borrower
in accordance with the applicable agreements. Pursuant to the terms of the
agreement governing the Lockbox Account for the ARD Loan, the funds in the
Lockbox Account may be released to the related borrower prior to the
Anticipated Repayment Date to the extent that such amounts are in excess of
amounts needed to pay debt service and property operating expenses and
reserves. After the Anticipated Repayment Date all funds on deposit in the
Lock Box, in excess of amounts needed to pay property operating expenses and
reserves will be applied to repayment of the Mortgage Loan. The Lock Box
Accounts will not be assets of either REMIC.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The Depositor's Commercial Mortgage Pass-Through Certificates, Series
1998-C1 (the "Certificates") will be issued pursuant to the Pooling and
Servicing Agreement and will represent in the aggregate the entire beneficial
ownership interest in the Trust Fund consisting of: (i) the Mortgage Loans
and all payments under and proceeds of the Mortgage Loans received after the
Cut-Off Date (exclusive of payments of principal and interest due on or
before the Cut-Off Date); (ii) any REO Property; (iii) such funds or assets
as from time to time are deposited in the Certificate Account, the Upper-Tier
Distribution Account, the Lower-Tier Distribution Account, the Interest
Reserve Account and the REO Account, if established; (iv) the rights of the
mortgagee under all insurance policies with respect to the Mortgage Loans;
and (v) certain rights of the Depositor under the Purchase Agreement relating
to Mortgage Loan document delivery requirements and the representations and
warranties of the Mortgage Loan Seller regarding the Mortgage Loans.
The Certificates will consist of the following fifteen classes (each, a
"Class"): the Class A-1 and Class A-2 Certificates (collectively, the "Class
A Certificates"), the Class X, Class B, Class C, Class D, Class E, Class F,
Class G, Class H, Class I, Class J, Class K, Class R and Class LR
Certificates. The Class A Certificates and the Class X Certificates are
referred to collectively herein as the "Senior Certificates." The Class B,
Class C, Class D, Class E, Class F, Class G, Class H, Class I, Class J and
Class K Certificates are referred to collectively herein as the "Subordinate
Certificates." The Class B, Class C, Class D and Class E Certificates are
referred to collectively herein as the "Subordinate Offered Certificates."
The Class R and Class LR Certificates are referred to collectively herein as
the "Residual Certificates."
Only the Class A, Class B, Class C, Class D and Class E Certificates are
offered hereby (collectively, the "Offered Certificates"). The Class X, Class
F, Class G, Class H, Class I, Class J, Class K, Class R and Class LR
Certificates (collectively, the "Non-Offered Certificates") have not been
registered under the Securities Act of 1933 and are not offered hereby.
The "Pass-Through Rate" of any Class of Certificates (other than the
Residual Certificates) is a per annum rate that has been assigned to such
Class of Certificates for purposes of calculating the maximum amount of
distributions allocable to interest that the holders of such Class of
Certificates are entitled to receive from the cash flow on the Mortgage Loans
and the other assets in the Trust Fund. Accordingly, on each Distribution
Date each Class of Certificates (other than the Residual Certificates) shall
be entitled to receive distributions of interest accrued as described herein
at the Pass-Through Rate of such Class on the Certificate Balance or, in the
case of the Class X Certificates, the Notional Amount thereof (as described
below), in each case subject to available funds.
The "Certificate Balance" of any Class of Certificates (other than the
Class X and Residual Certificates) outstanding at any time represents the
maximum amount that the holders thereof are entitled to receive as
distributions allocable to principal from the cash flow on the Mortgage Loans
and the other assets in the Trust Fund. On each Distribution Date, the
Certificate Balance of each Class of Certificates (other than the Class X and
Residual Certificates) will be reduced by any distributions of principal
actually made on, and any Collateral Support Deficit actually allocated to,
such Class of Certificates on such Distribution Date. The initial Certificate
Balance of each Class of Offered Certificates is expected to be the balance
set forth on the cover of this Prospectus Supplement. The Class X
Certificates will not have a Certificate Balance or entitle their holders to
distributions of principal.
The Class X Certificates will, however, be assigned a notional amount (the
"Notional Amount") which, with respect to each Distribution Date, will equal
the aggregate Stated Principal Balance of the Mortgage Loans as of the
preceding Distribution Date (after giving effect to the distribution of
principal on such Distribution Date) or, prior to the first Distribution
Date, the Cut-Off Date. The Notional Amount of the Class X Certificates is
used solely for purposes of describing the amounts of interest payable on the
Class X Certificates and does not represent a right to receive any
distribution allocable to principal.
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The Offered Certificates will be maintained and transferred on the
book-entry records of DTC and its Participants and issued in denominations of
$25,000 initial Certificate Balance and integral multiples of $1,000 in
excess thereof, with one Certificate of each Class evidencing an additional
amount equal to the remainder of the Certificate Balance of such Class. The
"Percentage Interest" evidenced by any Certificate (other than the Residual
Certificates) is equal to the initial denomination thereof as of the Closing
Date, divided by the initial Certificate Balance of the Class to which it
belongs.
The Offered Certificates will initially be represented by one or more
global Certificates registered in the name of the nominee of DTC. The
Depositor has been informed by DTC that DTC's nominee will be Cede & Co. No
Certificate Owner will be entitled to receive a Definitive Certificate
representing its interest in such Class, except as set forth below under
"--Book-Entry Registration and Definitive Certificates." Unless and until
Definitive Certificates are issued, all references to actions by holders of
the Offered Certificates will refer to actions taken by DTC upon instructions
received from Certificate Owners through DTS's Participants, and all
references herein to payments, notices, reports and statements to holders of
the Offered Certificates will refer to payments, notices, reports and
statements to DTC or Cede & Co., as the registered holder of the Offered
Certificates, for distribution to Certificate Owners through its Participants
in accordance with DTC's procedures. See "Description of the
Certificates--Book-Entry Registration and Definitive Certificates" in the
Prospectus.
Until Definitive Certificates are issued, interests in any Class of
Offered Certificates will be transferred on the book-entry records of DTC and
its Participants.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
General. Certificate Owners that are not direct or indirect participants
of DTC ("Participants") but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, the Offered Certificates may do so only
through direct and indirect Participants. In addition, Certificate Owners
will receive all distributions of principal of and interest on the Offered
Certificates from the Paying Agent through DTC and its direct and indirect
Participants. Accordingly, Certificate Owners may experience delays in their
receipt of payments. Unless and until Definitive Certificates are issued, it
is anticipated that the only registered Certificateholder of the Offered
Certificates will be Cede & Co., as nominee of DTC. Except as otherwise
provided under "--Reports to Certificateholders; Certain Available
Information" below, Certificate Owners will not be recognized by the Paying
Agent, the Certificate Registrar, the Trustee, the Fiscal Agent, the Special
Servicer or the Servicer as Certificateholders, as such term is used in the
Pooling and Servicing Agreement, and Certificate Owners will be permitted to
receive information furnished to Certificateholders and to exercise the
rights of Certificateholders only indirectly through DTC and its direct and
indirect Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
the Offered Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, the Offered Certificates.
Direct and indirect Participants with which Certificate Owners have accounts
with respect to the Offered Certificates similarly are required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess physical certificates evidencing their interests in the
Offered Certificates, the Rules provide a mechanism by which Certificate
Owners, through their direct and indirect Participants, will receive
distributions and will be able to transfer their interests in the Offered
Certificates.
None of the Depositor, the Servicer, the Paying Agent, the Certificate
Registrar, the Underwriter, the Special Servicer, the Trustee or the Fiscal
Agent will have any liability for any actions taken by DTC or its nominee,
including, without limitation, actions with respect to payments made by DTC
to its participants on account of beneficial ownership interests in the
Offered Certificates held by Cede & Co., as nominee for DTC, or with respect
to maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
Definitive Certificates. Definitive Certificates will be issued to
Certificate Owners or their nominees, respectively, rather than to DTC or its
nominee, only under the limited conditions set forth in the Prospectus under
"Description of the Certificates--Book-Entry Registration and Definitive
Certificates."
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Upon the occurrence of an event described in the Prospectus in the last
paragraph under "Description of the Certificates--Book-Entry Registration and
Definitive Certificates," the Paying Agent is required to notify, through
DTC, direct Participants of DTC who have ownership of Offered Certificates as
indicated on the records of DTC of the availability of definitive
certificates. Upon surrender by DTC of the definitive certificates
representing the Offered Certificates and upon receipt of instructions from
DTC for re-registration, the Certificate Registrar and the Authenticating
Agent will reissue the Offered Certificates as definitive certificates issued
in the respective Certificate Balances or Notional Amounts, as applicable,
owned by individual Certificate Owners, and thereafter the Paying Agent, the
Certificate Registrar, the Trustee, the Fiscal Agent, the Special Servicer
and the Servicer will recognize the holders of such definitive certificates
as Certificateholders under the Pooling and Servicing Agreement.
For additional information regarding DTC and Certificates maintained on
the book-entry records thereof, see "Description of the
Certificates--Book-Entry Registration and Definitive Certificates" in the
Prospectus.
DISTRIBUTIONS
Method, Timing and Amount. Distributions on the Certificates will be made
by the Trustee, to the extent of available funds, on the 16th day of each
month or, if any such 16th day is not a business day, then on the next
succeeding business day, commencing in July 1998 (each, a "Distribution
Date"). All such distributions (other than the final distribution on any
Certificate) will be made to the Certificateholders in whose names the
Certificates are registered at the close of business on each Record Date.
With respect to any Distribution Date, the "Record Date" will be the last
business day of the month preceding the month in which such Distribution Date
occurs. Each such distribution 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 has provided the Trustee with written wiring instructions
no less than five business days prior to the related Record Date (which
wiring instructions may be in the form of a standing order applicable to all
subsequent distributions), or otherwise by check mailed to such
Certificateholder. The final distribution on any 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. All distributions made with respect to a Class of Certificates
will be allocated pro rata among the outstanding Certificates of such Class
based on their respective Percentage Interests.
The Servicer shall establish and maintain, or cause to be established and
maintained, one or more segregated trust accounts (or subaccounts)
(collectively, the "Certificate Account"), into which the Servicer is
required to deposit, on a daily basis (and in no event later than the
business day following receipt in available funds) all payments and
collections due after the Cut-Off Date and other amounts received or advanced
with respect to the Mortgage Loans (including, without limitation, Insurance
and Condemnation Proceeds and Liquidation Proceeds), and from which the
Servicer will be permitted to make withdrawals to pay (including without
limitation certain fees and expenses of the Trust Fund, including without
limitation the Servicing Fee, the Special Servicer's Fee and indemnities to
the Servicer, the Special Servicer, the Trustee, the Fiscal Agent and the
Depositor. See "Servicing of the Mortgage Loans--Servicing and Other
Compensations and Payment of Expenses" and "--Certain Matters Regarding the
Servicer, the Special Servicer and the Depositor").
The Trustee will establish and maintain an account or subaccount (the
"Lower-Tier Distribution Account"), and a second account or subaccount (the
"Upper-Tier Distribution Account" and, together with the Lower-Tier
Distribution Account, the "Distribution Accounts") for the benefit of the
Certificateholders. On each Distribution Date, the Trustee will apply amounts
on deposit in the Upper-Tier Distribution Account (which will include all
funds that were remitted by the Servicer from the Certificate Account plus,
among other things, any P&I Advances less amounts, if any, distributable to
the Class LR Certificates as set forth in the Pooling and Servicing
Agreement) generally to make distributions of interest and principal from the
Available Distribution Amount to the Certificateholders as described herein.
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The Servicer will establish and maintain an "Interest Reserve Account" for
the benefit of the holders of the Certificates. On each Servicer Remittance
Date occurring in February and on any Servicer Remittance Date occurring in
any January which occurs in a year that is not a leap year, the Servicer will
be required to deposit, in respect of the Mortgage Loans that accrue on the
basis of actual days and a year of 360 days that are identified on the
schedule of Interest Reserve Loans attached hereto as Annex C (collectively,
the "Interest Reserve Loans"), an amount equal to one day's interest at the
related Mortgage Rate on the respective Stated Principal Balance, as of the
Distribution Date in the month preceding the month in which such Servicer
Remittance Date occurs, of each such Mortgage Loan, to the extent a Monthly
Payment or P&I Advance is made in respect thereof (all amounts so deposited
in any consecutive January (if applicable) and February, "Withheld Amounts").
On each Servicer Remittance Date occurring in March, the Servicer will be
required to withdraw from the Interest Reserve Account an amount equal to the
Withheld Amounts from the preceding January (if applicable) and February, if
any, and deposit such amount into the Lower-Tier Distribution Account. The
Servicer is authorized but not required to direct the investment of funds
held in the Interest Reserve Account, the Certificate Account and the
Distribution Accounts in Permitted Investments, and the Servicer will be
entitled to retain any interest or other income earned on such funds. The
Servicer will be required to bear any losses resulting from the investment of
such funds.
Available Distribution Amount. The aggregate amount available for
distribution to Certificateholders on each Distribution Date (the "Available
Distribution Amount") will, in general, equal the sum of the following
amounts:
(a) the total amount of all cash received on the Mortgage Loans and any
REO Properties that is on deposit in the Certificate Account and the
Lower-Tier Distribution Account as of the business day preceding the related
Servicer Remittance Date, exclusive of (without duplication):
(i) all Monthly Payments collected but due on a Due Date subsequent to
the related Due Period;
(ii) all principal prepayments, Balloon Payments, Liquidation Proceeds,
Insurance and Condemnation Proceeds and other unscheduled recoveries
received subsequent to the related Due Period;
(iii) all amounts in the Certificate Account and Lower-Tier Distribution
Account that are due or reimbursable to any person other than the
Certificateholders (including without limitation the Servicing Fee, the
Special Servicer's Fee, indemnities to the Servicer, the Special Servicer,
the Trustee, the Fiscal Agent and the Depositor and certain expenses of
the Trust Fund. See "Servicing of the Mortgage Loans--Servicing and Other
Compensations and Payment of Expenses" and "--Certain Matters Regarding
the Servicer, the Special Servicer and the Depositor");
(iv) all Yield Maintenance Charges;
(v) with respect to each Interest Reserve Loan and any Distribution Date
occurring in each February and in any January occurring in a year that is
not a leap year, the related Withheld Amount to the extent such funds are
on deposit in the Certificate Account or the Lower-Tier Distribution
Account;
(vi) all amounts deposited in the Certificate Account and Lower-Tier
Distribution Account in error; and
(b) all P&I Advances made by the Servicer, the Trustee or the Fiscal
Agent, as applicable, with respect to such Distribution Date. See
"Description of the Pooling Agreement Certificate Account" in the Prospectus;
and
(c) for the Distribution Date occurring in each March, the related
Withheld Amounts required to be deposited in the Lower-Tier Distribution
Account on the related Servicer Remittance Date.
The "Due Period" for each Distribution Date and each Mortgage Loan will be
the period commencing on the second day of the month preceding the month in
which such Distribution Date occurs and ending on the first day of the month
in which such Distribution Date occurs. Notwithstanding the
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foregoing, in the event that the last day of a Due Period is not a business
day, any payments received with respect to the Mortgage Loans relating to
such Due Period on the business day immediately following such day shall be
deemed to have been received during such Due Period and not during any other
Due Period. For purposes of the discussion in the Prospectus, the Due Period
is also the Prepayment Period (as defined in the Prospectus).
Priority. On each Distribution Date, the Trustee will apply amounts on
deposit in the Upper-Tier Distribution Account, to the extent of the
Available Distribution Amount in the following order of priority:
first, to the Class A-1, Class A-2 and Class X Certificates, pro rata
(based upon their respective entitlements to interest for such Distribution
Date), in respect of interest, up to an amount equal to the aggregate
Interest Distribution Amount for such Classes;
second, (i) to the Class A-1 Certificates, in reduction of the Certificate
Balance thereof, an amount equal to the Principal Distribution Amount until
the Certificate Balance of such Class is reduced to zero, and (ii) following
reduction of the Certificate Balance of the Class A-1 Certificates to zero,
to the Class A-2 Certificates, in reduction of the Certificate Balance
thereof, an amount equal to the Principal Distribution Amount (or portion
thereof remaining after distributions on the Class A-1 Certificates on such
Distribution Date) until the Certificate Balance of such Class is reduced to
zero;
third, to the Class A-1 and Class A-2 Certificates, pro rata (based upon
the aggregate unreimbursed Collateral Support Deficit allocated to each such
Class), until all amounts of Collateral Support Deficit previously allocated
to such Classes, but not previously reimbursed, have been reimbursed in full;
fourth, to the Class B Certificates, in respect of interest, up to an
amount equal to the Interest Distribution Amount for such Class;
fifth, following reduction of the Certificate Balances of the Class A
Certificates to zero, to the Class B Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount (or portion thereof remaining after distributions on the Class A
Certificates on such Distribution Date), until the Certificate Balance of
such Class is reduced to zero;
sixth, to the Class B Certificates, until all amounts of Collateral
Support Deficit previously allocated to the Class B Certificates, but not
previously reimbursed, have been reimbursed in full;
seventh, to the Class C Certificates, in respect of interest, up to an
amount equal to the Interest Distribution Amount for such Class;
eighth, following reduction of the Certificate Balances of the Class A and
Class B Certificates to zero, to the Class C Certificates, in reduction of
the Certificate Balance thereof, an amount equal to the Principal
Distribution Amount (or portion thereof remaining after distributions on the
Class A and Class B Certificates on such Distribution Date), until the
Certificate Balance of such Class is reduced to zero;
ninth, to the Class C Certificates, until all amounts of Collateral
Support Deficit previously allocated to the Class C Certificates, but not
previously reimbursed, have been reimbursed in full;
tenth, to the Class D Certificates, in respect of interest, up to an
amount equal to the Interest Distribution Amount for such Class;
eleventh, following reduction of the Certificate Balances of the Class A,
Class B, and Class C Certificates to zero, to the Class D Certificates, in
reduction of the Certificate Balance thereof, an amount equal to the
Principal Distribution Amount (or portion thereof remaining after
distributions on the Class A, Class B and Class C Certificates on such
Distribution Date), until the Certificate Balance of such Class is reduced to
zero;
twelfth, to the Class D Certificates, until all amounts of Collateral
Support Deficit previously allocated to the Class D Certificates, but not
previously reimbursed, have been reimbursed in full;
thirteenth, to the Class E Certificates, in respect of interest, up to an
amount equal to the Interest Distribution Amount for such Class;
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fourteenth, following reduction of the Certificate Balances of the Class
A, Class B, Class C and Class D Certificates to zero, to the Class E
Certificates, in reduction of the Certificate Balance thereof, amount equal
to the Principal Distribution Amount (or portion thereof remaining after
distributions on the Class A, Class B, Class C and Class D Certificates on
such Distribution Date), until the Certificate Balance of such Class is
reduced to zero;
fifteenth, to the Class E Certificates, until all amounts of Collateral
Support Deficit previously allocated to the Class E Certificates, but not
previously reimbursed, have been reimbursed in full;
sixteenth, to the Class F Certificates, in respect of interest, up to an
amount equal to the Interest Distribution Amount for such Class;
seventeenth, following reduction of the Certificate Balances of the Class
A, Class B, Class C, Class D and Class E Certificates to zero, to the Class F
Certificates, in reduction of the Certificate Balance thereof, an amount
equal to the Principal Distribution Amount (or portion thereof remaining
after distributions on the Class A, Class B, Class C, Class D and Class E
Certificates on such Distribution Date), until the Certificate Balance of
such Class is reduced to zero;
eighteenth, to the Class F Certificates, until all amounts of Collateral
Support Deficit previously allocated to the Class F Certificates, but not
previously reimbursed, have been reimbursed in full;
nineteenth, to the Class G Certificates, in respect of interest, up to an
amount equal to the Interest Distribution Amount for such Class;
twentieth, following reduction of the Certificate Balances of the Class A,
Class B, Class C, Class D, Class E and Class F Certificates to zero, to the
Class G Certificates, in reduction of the Certificate Balance thereof, an
amount equal to the Principal Distribution Amount (or portion thereof
remaining after distributions on the Class A, Class B, Class C, Class D,
Class E and Class F Certificates on such Distribution Date), until the
Certificate Balance of such Class is reduced to zero;
twenty-first, to the Class G Certificates, until all amounts of Collateral
Support Deficit previously allocated to the Class G Certificates, but not
previously reimbursed, have been reimbursed in full;
twenty-second, to the Class H Certificates, in respect of interest, up to
an amount equal to the Interest Distribution Amount for such Class;
twenty-third, following reduction of the Certificate Balances of the Class
A, Class B, Class C, Class D, Class E, Class F and Class G Certificates to
zero, to the Class H Certificates, in reduction of the Certificate Balance
thereof, an amount equal to the Principal Distribution Amount (or portion
thereof remaining after distributions on the Class A, Class B, Class C, Class
D, Class E, Class F and Class G Certificates on such Distribution Date),
until the Certificate Balance of such Class is reduced to zero;
twenty-fourth, to the Class H Certificates, until all amounts of
Collateral Support Deficit previously allocated to the Class H Certificates,
but not previously reimbursed, have been reimbursed in full;
twenty-fifth, to the Class I Certificates, in respect of interest, up to
an amount equal to the Interest Distribution Amount for such Class;
twenty-sixth, following reduction of the Certificate Balances of the Class
A, Class B, Class C, Class D, Class E, Class F, Class G and Class H
Certificates to zero, to the Class I Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount (or portion thereof remaining after distributions on the Class A,
Class B, Class C, Class D, Class E, Class F, Class G and Class H Certificates
on such Distribution Date), until the Certificate Balance of such Class is
reduced to zero;
twenty-seventh, to the Class I Certificates, until all amounts of
Collateral Support Deficit previously allocated to the Class I Certificates,
but not previously reimbursed, have been reimbursed in full;
twenty-eighth, to the Class J Certificates, in respect of interest, up to
an amount equal to the Interest Distribution Amount for such Class;
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twenty-ninth, following reduction of the Certificate Balances of the Class
A, Class B, Class C, Class D, Class E, Class F, Class G, Class H, and Class I
Certificates to zero, to the Class J Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount (or portion thereof remaining after distributions on the Class A,
Class B, Class C, Class D, Class E, Class F, Class G, Class H, and Class I
Certificates on such Distribution Date), until the Certificate Balance of
such Class is reduced to zero;
thirtieth, to the Class J Certificates, until all amounts of Collateral
Support Deficit previously allocated to the Class J Certificates, but not
previously reimbursed, have been reimbursed in full;
thirty-first, to the Class K Certificates, in respect of interest, up to
an amount equal to the Interest Distribution Amount for such Class;
thirty-second, following reduction of the Certificate Balances of the
Class A, Class B, Class C, Class D, Class E, Class F, Class G, Class H, Class
I, and Class J Certificates to zero, to the Class K Certificates, in
reduction of the Certificate Balance thereof, an amount equal to the
Principal Distribution Amount (or portion thereof remaining after
distributions on the Class A, Class B, Class C, Class D, Class E, Class F,
Class G, Class H, Class I, and Class J Certificates on such Distribution
Date), until the Certificate Balance of such Class is reduced to zero;
thirty-third, to the Class K Certificates, until all amounts of Collateral
Support Deficit previously allocated to the Class K Certificates, but not
previously reimbursed, have been reimbursed in full; and
thirty-fourth, to the Class R Certificates, the amount, if any, of the
Available Distribution Amount remaining in the Upper-Tier Distribution
Account with respect to such Distribution Date.
Reimbursement of previously allocated Collateral Support Deficit 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.
Notwithstanding the distribution priority second set forth above, on and
after the Distribution Date on which the Certificate Balances of the
Subordinate Certificates have all been reduced to zero (such date, the
"Cross-Over Date"), the Principal Distribution Amount will be distributed,
pro rata (based upon their respective Certificate Balances), among the
Classes of Class A Certificates without regard to the priorities set forth
above.
Pass-Through Rates. During each Interest Accrual Period, interest will
accrue on the Certificate Principal Balance (or, in the case of the Class X
Certificates on the Notional Amount) of each Class (other than the Residual
Certificates) at the Pass-Through Rate of such Class. The Pass-Through Rate
applicable to each Class of Offered Certificates for any Distribution Date
will equal the rate per annum specified on the cover of this Prospectus
Supplement; provided, however that in no event will the Pass-Through Rate of
any such Class exceed the weighted average of the Net Mortgage Rates of the
Mortgage Loans (such Net Mortgage Rates determined without giving effect to
any reduction of the Mortgage Rates as a result of the modification of any
Mortgage Loans after the Cut-Off Date).
The "Net Mortgage Rate" for each Mortgage Loan is equal to the related
Mortgage Rate less the Servicing Fee Rate (which Servicing Fee Rate shall be
a rate equal to (a) 0.08% per annum with respect to 17 Mortgage Loans,
representing 9.6% of the Initial Pool Balance, and (b) 0.055% per annum with
respect to 129 Mortgage Loans, representing 90.4% of the Initial Pool
Balance).
The "Mortgage Rate" with respect to any Mortgage Loan is the per annum
rate at which interest accrues on such Mortgage Loan as stated in the related
Mortgage Note without giving effect to any default rate or Revised Rate.
Notwithstanding the foregoing, if any Mortgage Loan does not accrue interest
on the basis of a 360-day year consisting of twelve 30-day months, then,
solely for purposes of calculating the Class X Pass-Through Rate and the
limit on the Pass-Through Rate for the Classes of Offered Certificates, the
Mortgage Rate of such Mortgage Loan for any one-month period preceding a
related Due Date will be the annualized rate at which interest would have to
accrue in respect of such Mortgage Loan on the basis of a 360-day year
consisting of twelve 30-day months in order to produce the aggregate amount
of interest actually accrued in respect of such Mortgage Loan during such
one-month period at
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the related Mortgage Rate; provided, however, that with respect to each
Interest Reserve Loan, the Mortgage Rate for the one month period (i)
preceding the Due Dates in January and February in any year which is not a
leap year or in February in any year which is a leap year, and (ii) preceding
the Due Date in March, will be the per annum rate stated in the related
Mortgage Note.
Interest Distribution Amount. The "Interest Distribution Amount" for any
Class of Certificates (other than the Residual Certificates) for any
Distribution Date is an amount equal to all Distributable Certificate
Interest in respect of such Class for such Distribution Date and, to the
extent not previously paid, for all prior Distribution Dates.
The "Distributable Certificate Interest" in respect of each Class of
Certificates (other than the Residual 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 for 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. Distributable Certificate Interest will be calculated on
the basis of a 360-day year consisting of twelve 30-day months.
Principal Distribution Amount. The "Principal Distribution Amount" for any
Distribution Date is an amount equal to the sum of (a) the Scheduled
Principal Distribution Amount for such Distribution Date, (b) the Unscheduled
Principal Distribution Amount for such Distribution Date and (c) the
Principal Shortfall for such Distribution Date.
The "Scheduled Principal Distribution Amount" for each Distribution Date
will equal the aggregate of the principal portions of (a) all Monthly
Payments (excluding Balloon Payments) due during or, if and to the extent not
previously received or advanced and distributed to Certificateholders on a
preceding Distribution Date, prior to the related Due Period and all Assumed
Scheduled Payments for the related Due Period, in each case to the extent
paid by the related borrower as of the business day preceding the related
Servicer Remittance Date or advanced by the Servicer, the Trustee or the
Fiscal Agent, as applicable, and (b) all Balloon Payments to the extent
received during the related Due Period, and to the extent not included in
clause (a) above. The Scheduled Principal Distribution Amount from time to
time will include all late payments of principal made by a borrower,
including late payments in respect of a delinquent Balloon Payment,
regardless of the timing of such late payments, except to the extent such
late payments are otherwise reimbursable to the Servicer, the Trustee or the
Fiscal Agent, as the case may be, for prior Advances.
The "Unscheduled Principal Distribution Amount" for each Distribution Date
will equal the aggregate of: (a) all prepayments of principal received on the
Mortgage Loans during the related Due Period; and (b) any other collections
(exclusive of payments by borrowers) received on the Mortgage Loans and any
REO Properties during the related Due Period, whether in the form of
Liquidation Proceeds, Insurance and Condemnation Proceeds, net income, rents,
and profits from REO Property or otherwise, that were identified and applied
by the Servicer as recoveries of previously unadvanced principal of the
related Mortgage Loan.
The "Assumed Scheduled Payment" for any Due Period and with respect to any
Mortgage Loan that is delinquent in respect of its Balloon Payment (including
any REO Loan as to which the Balloon Payment would have been past due), is an
amount equal to the sum of (a) the principal portion of the Monthly Payment
that would have been due on such Mortgage Loan on the related Due Date based
on the constant payment required by the related Mortgage Note or the original
amortization schedule thereof (as calculated with interest at the related
Mortgage Rate), if applicable, assuming such Balloon Payment has not become
due, after giving effect to any modification, and (b) interest on the Stated
Principal Balance of such Mortgage Loan at the applicable Mortgage Rate (net
of the applicable rate at which the Servicing Fee is calculated).
For purposes of the foregoing definitions of Principal Distribution
Amount, the term "Principal Shortfall" for any Distribution Date means the
amount, if any, by which (i) the Principal Distribution Amount for the
preceding Distribution Date, exceeds (ii) the aggregate amount distributed in
respect of principal on the Class A, Class B, Class C, Class D, Class E,
Class F, Class G, Class H, Class I, Class J and Class K Certificates on such
preceding Distribution Date. There will be no Principal Shortfall on the
first Distribution Date.
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Certain Calculations with Respect to Individual Mortgage Loans. The Stated
Principal Balance of each Mortgage Loan outstanding at any time represents
the principal balance of such Mortgage Loan ultimately due and payable to the
Certificateholders. The "Stated Principal Balance" of each Mortgage Loan will
initially equal the Cut-Off Date Balance thereof and, on each Distribution
Date, will be reduced by the portion of the Principal Distribution Amount for
such date that is attributable to such Mortgage Loan. The Stated Principal
Balance of a Mortgage Loan may also be reduced in connection with any forced
reduction of the actual unpaid principal balance thereof imposed by a court
presiding over a bankruptcy proceeding in which the related borrower is the
debtor. See "Certain Legal Aspects of Mortgage Loans--Bankruptcy Laws" in the
Prospectus. If any Mortgage Loan is paid in full or such Mortgage Loan (or
any Mortgaged Property acquired in respect thereof) is otherwise liquidated,
then, as of the first Distribution Date that follows the end of the Due
Period in which such payment in full or liquidation occurred (and
notwithstanding that a loss may have occurred in connection with any such
liquidation), the Stated Principal Balance of such Mortgage Loan shall be
zero.
For purposes of calculating distributions on, and allocations of
Collateral Support Deficit to, the Certificates, as well as for purposes of
calculating the Servicing Fee payable each month, each REO Property will be
treated as if there exists with respect thereto an outstanding mortgage loan
(an "REO Loan"), and all references to "Mortgage Loan", "Mortgage Loans" and
"Mortgage Pool" herein and in the Prospectus, when used in such context, will
be deemed to also be references to or to also include, as the case may be,
any REO Loans. Each REO Loan will generally be deemed to have the same
characteristics as its actual predecessor Mortgage Loan, including the same
fixed Mortgage Rate (and, accordingly, the same Net Mortgage Rate) and the
same unpaid principal balance and Stated Principal Balance. Amounts due on
such predecessor Mortgage Loan, including any portion thereof payable or
reimbursable to the Servicer, will continue to be "due" in respect of the REO
Loan; and amounts received in respect of the related REO Property, net of
payments to be made, or reimbursement to the Servicer or the Special Servicer
for payments previously advanced, in connection with the operation and
management of such property, generally will be applied by the Servicer or the
Special Servicer as if received on the predecessor Mortgage Loan.
Allocation of Yield Maintenance Charges. On any Distribution Date, Yield
Maintenance Charges collected during the related Due Period will be
distributed by the Paying Agent on the Classes of Offered Certificates as
follows: to each of the Class A, Class B, Class C, Class D and Class E
Certificates, for each such Class an amount equal to the product of (a) a
fraction, the numerator of which is the amount distributed as principal to
such Class on such Distribution Date, and the denominator of which is the
total amount distributed as principal to all Classes of Certificates on such
Distribution Date, (b) the Base Interest Fraction for the related principal
prepayment and such Class of Offered Certificates and (c) the aggregate
amount of Yield Maintenance Charges collected on such principal prepayment
during the related Due Period. Any Yield Maintenance Charges collected during
the related Due Period remaining after such distributions will be distributed
to the holders of the Class X Certificates.
The "Base Interest Fraction" with respect to any principal prepayment on
any Mortgage Loan and with respect to any Class of Offered Certificates is a
fraction (A) whose numerator is the greater of (x) zero and (y) the
difference between (i) the Pass-Through Rate on such Class of Offered
Certificates and (ii) the Yield Rate used in calculating the Yield
Maintenance Charge with respect to such principal prepayment and (B) whose
denominator is the difference between (i) the Mortgage Rate on the related
Mortgage Loan and (ii) the Yield Rate used in calculating the Yield
Maintenance Charge with respect to such principal prepayment; provided,
however, that under no circumstances shall the Base Interest Fraction be
greater than one. If such Yield Rate is greater than the Mortgage Rate on the
related Mortgage Loan, then the Base Interest Fraction shall equal zero.
No Yield Maintenance Charges will be distributed to holders of the Class
F, Class G, Class H, Class I, Class J, Class K or Residual Certificates;
instead, after the Certificate Principal Balances of the Class A, Class B,
Class C, Class D and Class E Certificates have been reduced to zero, all
Yield Maintenance Charges will be distributed to holders of the Class X
Certificates.
For a description of Yield Maintenance Charges, see "Description of the
Mortgage Pool--Certain Terms and Conditions of the Mortgage Loans--Prepayment
Provisions" herein. See also "Certain Legal Aspects of the Mortgage
Loans--Default Interest and Limitations on Prepayments" in the Prospectus
regarding the enforceability of Yield Maintenance Charges.
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Assumed Final Distribution Date; Rated Final Distribution Date. The
"Assumed Final Distribution Date" with respect to any Class of Offered
Certificates is the Distribution Date on which the aggregate Certificate
Balance of such Class of Certificates would be reduced to zero based on the
assumptions set forth below. Such Distribution Date shall in each case be as
follows:
<TABLE>
<CAPTION>
CLASS DESIGNATION ASSUMED FINAL DISTRIBUTION DATE
- --------------------- -----------------------------------
<S> <C>
Class A-1 ............ October 16, 2007
Class A-2 ............ June 16, 2008
Class B .............. December 16, 2012
Class C .............. January 16, 2013
Class D .............. April 16, 2013
Class E .............. May 16, 2013
</TABLE>
THE ASSUMED FINAL DISTRIBUTION DATES SET FORTH ABOVE WERE CALCULATED
WITHOUT REGARD TO ANY DELAYS IN THE COLLECTION OF BALLOON PAYMENTS, WITHOUT
REGARD TO A REASONABLE LIQUIDATION TIME WITH RESPECT TO ANY MORTGAGE LOANS
THAT MAY BECOME DELINQUENT AND ASSUMING THE ARD LOAN IS PREPAID ON THE
ANTICIPATED REPAYMENT DATE. ACCORDINGLY, IN THE EVENT OF DEFAULTS ON THE
MORTGAGE LOANS (OR IN THE EVENT THE ARD LOAN IS NOT PREPAID ON THE
ANTICIPATED REPAYMENT DATE), THE ACTUAL FINAL DISTRIBUTION DATE FOR ONE OR
MORE CLASSES OF THE OFFERED CERTIFICATES MAY BE LATER, AND COULD BE
SUBSTANTIALLY LATER, THAN THE RELATED ASSUMED FINAL DISTRIBUTION DATE(S).
In addition, the Assumed Final Distribution Dates set forth above were
calculated on the basis of a 0% CPR. Since the rate of payment (including
prepayments) of the Mortgage Loans may exceed the scheduled rate of payments,
and could exceed such scheduled rate by a substantial amount, the actual
final Distribution Date for one or more Classes of the Offered Certificates
may be earlier, and could be substantially earlier, than the related Assumed
Final Distribution Date(s). The rate of payments (including prepayments) on
the Mortgage Loans will depend on the characteristics of the Mortgage Loans,
as well as on the prevailing level of interest rates and other economic
factors, and no assurance can be given as to actual payment experience.
Finally, the Assumed Distribution Dates were calculated assuming that there
would not be an early termination of the Trust Fund and that no losses were
experienced as a result of a default on any of the Mortgage Loans.
The "Rated Final Distribution Date" for each Class of Offered Certificates
will be June 16, 2030, the first Distribution Date after the 24th month
following the end of the amortization term for the Mortgage Loan that, as of
the Cut-Off Date, has the longest remaining amortization term.
SUBORDINATION; ALLOCATION OF COLLATERAL SUPPORT DEFICIT
The rights of holders of the Subordinate Certificates to receive
distributions of amounts collected or advanced on the Mortgage Loans will be
subordinated, to the extent described herein, to the rights of holders of the
Senior Certificates. Moreover, to the extent described herein, the rights of
the holders of the Class K Certificates will be subordinated to the rights of
holders of the Class J Certificates, the rights of the holders of the Class J
and Class K Certificates will be subordinated to the rights of the holders of
the Class I Certificates, the rights of the holders of the Class I, Class J
and Class K Certificates will be subordinated to the rights of the holders of
the Class H Certificates, the rights of the holders of the Class H, Class I,
Class J and Class K Certificates will be subordinated to the rights of the
holders of the Class G Certificates, the rights of the holders of the Class
G, Class H, Class I, Class J and Class K Certificates will be subordinated to
the rights of the holders of the Class F Certificates, the rights of the
holders of the Class F, Class G, Class H, Class I, Class J and Class K
Certificates will be subordinated to the rights of the holders of the Class E
Certificates, the rights of the holders of the Class E, Class F, Class G,
Class H, Class I, Class J and Class K Certificates will be subordinated to
the rights of the holders of the Class D Certificates, the rights of the
holders of the Class D, Class E, Class F, Class G, Class H, Class I, Class J
and Class K Certificates will be subordinated to the rights of the holders of
the Class C Certificates, and the rights of the holders of the Class C, Class
D, Class E, Class F, Class G, Class H, Class I, Class J and Class K
Certificates will be subordinated to the rights of the holders of the Class B
Certificates. This subordination is intended to enhance the likelihood of
timely receipt by the holders of the Senior
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Certificates of the full amount of all interest payable in respect of the
Senior Certificates on each Distribution Date, and the ultimate receipt by
the holders of the Class A Certificates of principal in an amount equal to,
in each case, the entire Certificate Balance of such Class of Certificates.
Similarly, but to decreasing degrees, this subordination is also intended to
enhance the likelihood of timely receipt by the holders of the Class B
Certificates, the holders of the Class C Certificates, the holders of the
Class D Certificates and the holders of the Class E Certificates of the full
amount of interest payable in respect of such Classes of Certificates on each
Distribution Date, and the ultimate receipt by the holders of the Class B
Certificates, the holders of the Class C Certificates, the holders of the
Class D Certificates and the holders of the Class E Certificates of principal
equal to, in each case, the entire Certificate Balance of such Class of
Certificates. The protection afforded to the holders of the Class E
Certificates by means of the subordination of the Non-Offered Certificates
that are Subordinate Certificates (the "Non-Offered Subordinate
Certificates"), to the holders of the Class D Certificates by the
subordination of the Class E Certificates and the Non-Offered Subordinate
Certificates, to the holders of the Class C Certificates by means of the
subordination of the Class D and Class E Certificates and the Non-Offered
Subordinate Certificates, to the holders of the Class B Certificates by means
of the subordination of the Class C, Class D and Class E Certificates and the
Non-Offered Subordinate Certificates and to the holders of the Senior
Certificates by means of the subordination of the Subordinate Certificates,
will be accomplished by the application of the Available Distribution Amount
on each Distribution Date in accordance with the order of priority described
under "--Distributions" above and by the allocation of Collateral Support
Deficits in the manner described below. No other form of credit support will
be available for the benefit of the holders of the Offered Certificates.
Allocation to the Class A Certificates (unless the Cross-Over Date has
occurred, first to the Class A-1 Certificates until the Certificate Balance
has been reduced to zero and then to the Class A-2 Certificates), for so long
as they are outstanding, of the entire Principal Distribution Amount for each
Distribution Date will have the effect of reducing the aggregate Certificate
Balance of the Class A Certificates at a proportionately faster rate than the
rate at which the aggregate Stated Principal Balance of the Mortgage Pool
will reduce. Thus, as principal is distributed to the holders of such Class A
Certificates, the percentage interest in the Trust Fund evidenced by such
Class A Certificates will be decreased (with a corresponding increase in the
percentage interest in the Trust Fund evidenced by the Subordinate
Certificates), thereby increasing, relative to their respective Certificate
Balances, the subordination afforded such Class A Certificates by the
Subordinate Certificates.
Following retirement of the Class A Certificates, the successive
allocation on each Distribution Date of the Principal Distribution Amount to
the Class B Certificates, the Class C Certificates, the Class D Certificates
and the Class E Certificates, in that order, in each case for so long as they
are outstanding, will provide a similar benefit to each such Class of
Certificates as to the relative amount of subordination afforded by the
outstanding Classes of Certificates (other than the Class X and the Residual
Certificates) with later alphabetical Class designations.
On each Distribution Date, immediately following the distributions to be
made to the Certificateholders on such date, the Trustee is required to
calculate the amount, if any, by which (i) the aggregate Stated Principal
Balance of the Mortgage Loans expected to be outstanding immediately
following such Distribution Date is less than (ii) the aggregate Certificate
Balance of the Certificates after giving effect to distributions of principal
on such Distribution Date (any such deficit, "Collateral Support Deficit").
The Trustee will be required to allocate any such Collateral Support Deficit
among the respective Classes of Certificates as follows: to the Class K,
Class J, Class I, Class H, Class G, Class F, Class E, Class D, Class C and
Class B Certificates in that order, and in each case in respect of and until
the remaining Certificate Balance of such Class has been reduced to zero.
Following the reduction of the Certificate Balances of all such Classes to
zero, the Trustee will be required to allocate any such Collateral Support
Deficit among the Class A Certificates, pro rata (based upon their respective
Certificate Balances), until the remaining Certificate Balances of such
Classes have been reduced to zero. Any Collateral Support Deficit allocated
to a Class of Certificates will be allocated among respective Certificates of
such Class in proportion to the Percentage Interests evidenced thereby.
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In general, Collateral Support Deficits could result from the occurrence
of: (i) losses and other shortfalls on or in respect of the Mortgage Loans,
including as a result of defaults and delinquencies thereon, Nonrecoverable
Advances made in respect thereof, the payment to the Special Servicer of any
compensation as described in "Servicing of the Mortgage Loans--Servicing and
Other Compensation and Payment of Expenses" herein, and the payment of
interest on Advances and certain servicing expenses; and (ii) certain
unanticipated, non-Mortgage Loan specific expenses of the Trust Fund,
including certain reimbursements to the Trustee as described under
"Description of the Pooling Agreements--Certain Matters Regarding the
Trustee" in the Prospectus, certain reimbursements to the Servicer and the
Depositor as described under "Description of the Pooling Agreements--Certain
Matters Regarding the Servicer and the Depositor" 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--Federal Income Tax Consequences for REMIC Certificates" and
"--Taxes That May Be Imposed on the REMIC Pool" in the Prospectus.
Accordingly, the allocation of Collateral Support Deficit as described above
will constitute an allocation of losses and other shortfalls experienced by
the Trust Fund.
A Class of Offered Certificates will be considered outstanding until its
Certificate Balance is reduced to zero; provided, however, that reimbursement
of any previously allocated Collateral Support Deficit may thereafter be made
to such Class.
ADVANCES
On the business day immediately preceding each Distribution Date (the
"Servicer Remittance Date"), the Servicer will be obligated, subject to the
recoverability determination described below, to make an advance (a "P&I
Advance") out of its own funds or, subject to the replacement thereof as
provided in the Pooling and Servicing Agreement, certain 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 equal to (but
subject to reduction as described in the following paragraph) the aggregate
of: (i) all Monthly Payments (net of the applicable Servicing Fee), other
than Balloon Payments, which were due on the Mortgage Loans during the
related Due Period and delinquent (or not advanced by any subservicer) as of
the business day preceding such Servicer Remittance Date; and (ii) in the
case of each Mortgage Loan delinquent in respect of its Balloon Payment as of
the end of the related Due Period (including any REO Loan as to which the
Balloon Payment would have been past due), an amount equal to the Assumed
Scheduled Payment therefor. The Servicer's obligations to make P&I Advances
in respect of any Mortgage Loan or REO Property will continue through
liquidation of such Mortgage Loan or disposition of such REO Property, as the
case may be. To the extent that the Servicer fails to make a P&I Advance that
it is required to make under the Pooling and Servicing Agreement, the Trustee
will make such required P&I Advance pursuant to the Pooling and Servicing
Agreement. To the extent that the Trustee fails to make a P&I Advance that it
is required to make under the Pooling and Servicing Agreement, the Fiscal
Agent will make such required P&I Advance pursuant to the Pooling and
Servicing Agreement.
The amount required to be advanced in respect of delinquent Monthly
Payments or Assumed Scheduled Payments on a Mortgage Loan with respect to any
Distribution Date that has been subject to an Appraisal Reduction Event will
equal the amount that would be required to be advanced by the Servicer
without giving effect to the Appraisal Reduction less any Appraisal Reduction
Amount with respect to such Mortgage Loan for such Distribution Date. Neither
the Servicer, the Trustee nor the Fiscal Agent will be required to make a P&I
Advance for default interest, Yield Maintenance Charges or Excess Interest.
In addition to P&I Advances, the Servicer will also be obligated (subject
to the limitations described herein) to make advances ("Servicing Advances"
and, collectively with P&I Advances, "Advances") in connection with the
servicing and administration of any Mortgage Loan in respect of which a
default, delinquency or other unanticipated event has occurred or is
reasonably foreseeable or in connection with the servicing and administration
of any Mortgaged Property or REO Property, to pay delinquent real estate
taxes, assessments and hazard insurance premiums and to cover other similar
costs and expenses
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necessary to preserve the priority of or enforce the related Mortgage Loan
documents or to protect, lease, manage and maintain the related Mortgaged
Property. To the extent that the Servicer fails to make a Servicing Advance
that it is required to make under the Pooling and Servicing Agreement and the
Trustee has notice of such failure, the Trustee will make such required
Servicing Advance pursuant to the Pooling and Servicing Agreement. To the
extent that the Trustee fails to make a Servicing Advance that it is required
to make under the Pooling and Servicing Agreement, the Fiscal Agent will make
such required Servicing Advance pursuant to the Pooling and Servicing
Agreement.
The Servicer, the Trustee or the Fiscal Agent, as the case may be, will be
entitled to recover any Advance made out of its own funds from any amounts
collected in respect of the Mortgage Loan as to which such Advance was made,
whether in the form of late payments, Insurance and Condemnation Proceeds,
Liquidation Proceeds or otherwise from the Mortgage Loan ("Related
Proceeds"). Notwithstanding the foregoing, neither the Servicer, the Trustee
nor the Fiscal Agent will be obligated to make any Advance that it determines
in its reasonable good faith judgment would, if made, not be recoverable
(including interest thereon) out of Related Proceeds (a "Nonrecoverable
Advance"), and the Servicer, the Trustee or the Fiscal Agent, as applicable,
will be entitled to recover any Advance that it so determines to be a
Nonrecoverable Advance out of general funds on deposit in the Certificate
Account. The Trustee will be entitled to rely conclusively on any
nonrecoverability determination of the Servicer. Nonrecoverable Advances will
represent a portion of the losses to be borne by the Certificateholders. See
"Description of the Certificates--Advances in Respect of Delinquencies" and
"Description of the Pooling Agreements--Certificate Account" in the
Prospectus.
In connection with its recovery of any Advance, each of the Servicer, the
Trustee and the Fiscal Agent, as appropriate, will be entitled to be paid,
out of any amounts then on deposit in the Certificate Account, interest at
the Prime Rate (the "Reimbursement Rate") accrued on the amount of such
Advance from the date made to but not including the date of reimbursement.
The "Prime Rate" shall be the rate, for any day, set forth as such in The
Wall Street Journal, New York edition.
Each Distribution Date Statement delivered by the Trustee to the
Certificateholders will contain information relating to the amounts of
Advances made with respect to the related Distribution Date. See "Description
of the Certificates--Reports to Certificateholders; Certain Available
Information" herein and "Description of Certificates--Reports to
Certificateholders" in the Prospectus.
APPRAISAL REDUCTIONS
After an Appraisal Reduction Event has occurred, an Appraisal Reduction
will be calculated. An "Appraisal Reduction Event" will occur on the earliest
of (i) the third anniversary of the date on which an extension of the
maturity date of a Mortgage Loan becomes effective as a result of a
modification of such Mortgage Loan by the Special Servicer, which extension
does not change the amount of Monthly Payments on the Mortgage Loan, (ii) 120
days after an uncured delinquency occurs in respect of a Mortgage Loan, (iii)
the date on which a reduction in the amount of Monthly Payments on a Mortgage
Loan, or a change in any other material economic term of the Mortgage Loan
(other than an extension that is the result of a modification of such
Mortgage Loan by the Special Servicer) occurs, (iv) 60 days after a receiver
has been appointed, (v) 60 days after a borrower declares bankruptcy and (vi)
immediately after a Mortgage Loan becomes an REO Loan; provided, however,
that an Appraisal Reduction Event shall not occur at any time when the
aggregate Certificate Balances of all Classes of Certificates (other than the
Class A Certificates) has been reduced to zero. The "Appraisal Reduction" for
any Distribution Date and for any Mortgage Loan as to which any Appraisal
Reduction Event has occurred will be an amount equal to the excess of (a) the
outstanding Stated Principal Balance of such Mortgage Loan over (b) the
excess of (i) 90% of the appraised value of the related Mortgaged Property as
determined (A) by one or more independent MAI appraisals with respect to any
Mortgage Loan with an outstanding principal balance equal to or in excess of
$2,000,000 (the costs of which shall be paid by the Servicer as an Advance),
and (B) by an internal valuation performed by the Special Servicer with
respect to any Mortgage Loan with an outstanding principal balance less than
$2,000,000, over (ii) the sum as of the Due Date occurring in the month of
such Distribution Date of (A) to the extent not previously advanced by the
Servicer, the Trustee or the Fiscal Agent, as applicable, all unpaid interest
on such
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Mortgage Loan at a per annum rate equal to the Mortgage Rate, (B) all
unreimbursed Advances and interest thereon at the Reimbursement Rate in
respect of such Mortgage Loan and (C) all currently due and unpaid real
estate taxes and assessments, insurance premiums and ground rents and all
other amounts due and unpaid under the Mortgage Loan (which tax, premiums,
ground rents and other amounts have not been the subject of an Advance by the
Servicer, the Trustee or the Fiscal Agent and/or for which funds have not
been escrowed). Within 60 days after the Appraisal Reduction Event, the
Special Servicer will be required to receive such appraisal; provided,
however, that with respect to an Appraisal Reduction Event described in
clause (ii), the Special Servicer will be required to receive such appraisal
within the 120-day period set forth in such clause (ii). On the first
Determination Date occurring on or after the delivery of such MAI appraisal,
the Special Servicer will be required to calculate and report to the
Servicer, and the Servicer will report to the Trustee, the Appraisal
Reduction to take into account such appraisal. In the event that the Special
Servicer has not received such MAI appraisal within the timeframe described
above (or, in the case of an appraisal in connection with an Appraisal
Reduction Amount described in clause (ii), within 60 days following the
120-day period set forth in such clause (ii)), the amount of the Appraisal
Reduction will be deemed to be an amount equal to 35% of the current Stated
Principal Balance of the related Mortgage Loan until such MAI appraisal is
received. The "Determination Date" for each Distribution Date is the sixth
Business Day immediately preceding the Distribution Date. Notwithstanding the
foregoing, within six months of receiving any appraisal required to be
obtained as described above, the Controlling Class Representative shall have
the right to require the Special Servicer to obtain a new appraisal of the
same Mortgaged Property from an appraiser chosen by the Special Servicer. The
cost of such appraisal shall be paid, without right of reimbursement, by the
Controlling Class, and the Special Servicer shall not be required to seek to
obtain any such appraisal unless the Special Servicer has received reasonable
assurance of payment for such appraisal and any expenses related thereto.
Upon receipt of the new appraisal, the Special Servicer will be required to
recalculate the related Appraisal Reduction and Appraisal Reduction Amount
with respect to the related Mortgage Loan on the basis of such new appraisal
(until the next Appraisal Reduction Event or as otherwise required by the
Pooling and Servicing Agreement).
As a result of calculating one or more Appraisal Reductions, the amount of
any required P&I Advance will be reduced by an amount equal to the Appraisal
Reduction Amount (defined below), which will have the effect of reducing the
amount of interest available to the most subordinate Class of Certificates
then outstanding (i e., first to the Class K Certificates, then to the Class
J Certificates, then to the Class I Certificates, then to the Class H
Certificates, then to the Class G Certificates, then to the Class F
Certificates, then to the Class E Certificates, then to the Class D
Certificates, then to the Class C Certificates and then to the Class B
Certificates). See "--Advances" above. The "Appraisal Reduction Amount" for
any Distribution Date shall equal the product of (i) the applicable per annum
Pass-Through Rate (i.e., for any month, one twelfth of the Pass-Through Rate)
on the Class of Certificates to which the Appraisal Reduction is allocated,
and (ii) the sum of all Appraisal Reductions with respect to such
Distribution Date. In addition, Appraisal Reductions will be allocated to the
most subordinate Class of Certificates then outstanding (i.e., first to the
Class K Certificates, then to the Class J Certificates, then to the Class I
Certificates, then to the Class H Certificates, then to the Class G
Certificates, then to the Class F Certificates, then to the Class E
Certificates, then to the Class D Certificates, then to the Class C
Certificates and then to the Class B Certificates) for purposes of
determining Voting Rights and the identity of the Controlling Class. See
"--Voting Rights" below and "Servicing of the Mortgage Loans--General"
herein.
With respect to each Mortgage Loan as to which an Appraisal Reduction has
occurred (unless such Mortgage Loan has become a Corrected Mortgage Loan and
has remained current for twelve consecutive Monthly Payments, and with
respect to which no other Appraisal Reduction Event has occurred with respect
thereto during the preceding twelve months), the Special Servicer is
required, within 30 days of each anniversary of the related Appraisal
Reduction Event, to order an appraisal (which may be an update of a prior
appraisal), the cost of which shall be a Servicing Advance. Based upon such
appraisal, the Special Servicer shall redetermine and report to the Trustee
the amount of the Appraisal Reduction with respect to such Mortgage Loan.
Notwithstanding the foregoing, the Special Servicer will not be required to
obtain an appraisal with respect to a Mortgage Loan which is the subject of
an Appraisal
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Reduction Event to the extent the Special Servicer has obtained an appraisal
with respect to the related Mortgaged Property within the 12-month period
prior to the occurrence of such Appraisal Reduction Event. Instead, the
Special Servicer may use such prior appraisal in calculating any Appraisal
Reduction with respect to such Mortgage Loan.
With respect to each Mortgage Loan as to which an Appraisal Reduction has
occurred and which has become current and has remained current for twelve
consecutive Monthly Payments, and with respect to which no other Appraisal
Reduction Event has occurred and is continuing, the Special Servicer may
within 30 days of the date of such twelfth Monthly Payment, order an
appraisal (which may be an update of a prior appraisal), the cost of which
shall be a Servicing Advance. Based upon such appraisal, the Special Servicer
shall redetermine and report to the Trustee the amount of the Appraisal
Reduction with respect to such Mortgage Loan.
REPORTS TO CERTIFICATEHOLDERS; AVAILABLE INFORMATION
Trustee Reports. Based on information provided in monthly reports prepared
by the Servicer and the Special Servicer and delivered to the Trustee, the
Trustee will prepare and forward on each Distribution Date to each
Certificateholder, the Depositor, the Servicer, the Special Servicer, the
Underwriter, each Rating Agency and, if requested, any potential investors in
the Certificates:
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 Certificates applied to
reduce the respective Certificate Balances thereof; (ii) the amount of
distributions, if any, made on such Distribution Date to holders of each
Class of Certificates allocable to (A) Distributable Certificate Interest
and/or (B) Yield Maintenance Charges; (iii) the number of outstanding
Mortgage Loans, the aggregate unpaid principal balance of the Mortgage
Loans at the close of business on the related Determination Date; (iv) the
number and aggregate unpaid principal balance of Mortgage Loans (A)
delinquent 30-59 days, (B) delinquent 60-89 days, (C) delinquent 90 days
or more, (D) that are Specially Serviced Mortgage Loans that are not
delinquent, or (E) as to which foreclosure proceedings have been
commenced; (v) with respect to any Mortgage Loan as to which the related
Mortgaged Property became an REO Property during the preceding Due Period,
the Stated Principal Balance and unpaid principal balance of such Mortgage
Loan as of the date such Mortgaged Property became an REO Property; (vi)
as to any Mortgage Loan repurchased by the Mortgage Loan Seller or
otherwise liquidated or disposed of during the related Due Period, the
Loan Number thereof and the amount of proceeds of any repurchase of a
Mortgage Loan, Liquidation Proceeds and/or other amounts, if any, received
thereon during the related Due Period and the portion thereof included in
the Available Distribution Amount for such Distribution Date; (vii) with
respect to any REO Property included in the Trust Fund as of the end the
related Due Period, the Loan Number of the related Mortgage Loan, the
value of such REO Property based on the most recent Appraisal or valuation
and the amount of any other income collected with respect to any REO
Property net of related expenses and other amounts, if any, received on
such REO Property during the related Due Period and the portion thereof
included in the Available Distribution Amount for such Distribution Date;
(viii) with respect to any REO Property sold or otherwise disposed of
during the related Due Period, (A) the Loan Number of the related Mortgage
Loan and the amount of sale proceeds and other amounts, if any, received
in respect of such REO Property during the related Due Period and the
portion thereof included in the Available Distribution Amount for such
Distribution Date and (B) the date of the related determination by the
Special Servicer that it has recovered all payments which it expects to be
finally recoverable (the "Final Recovery Determination"); (ix) the
aggregate Certificate Balance of each Class of Certificates before and
after giving effect to the distributions made on such Distribution Date,
separately identifying any reduction in the aggregate Certificate Balance
of each such Class due to Collateral Support Deficits and Certificate
Deferred Interest; (x) the aggregate amount of Unscheduled Principal
Distribution Amount received during the related Due Period; (xi) the
Pass-Through Rate applicable to each Class of Certificates for such
Distribution Date; (xii) the aggregate amount of the Servicing Fee,
Special Servicing Fee, Workout Fee, Liquidation Fee and any other
servicing or special servicing compensation retained by or paid to the
Servicer, or the Special Servicer for the related Due Period; (xiii) the
amount of Collateral
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Support Deficits, if any, incurred with respect to the Mortgage Loans
during the related Due Period and in the aggregate for all prior Due
Periods (except to the extent reimbursed or paid); (xiv) the aggregate
amount of Servicing Advances and P&I Advances outstanding which have been
made by the Servicer, the Special Servicer, the Trustee and the Fiscal
Agent; (xv) the amount of any Appraisal Reduction allocable to the related
Due Period on a loan-by-loan basis and the total Appraisal Reduction
Amount as of such Distribution Date. In the case of information furnished
pursuant to subclauses (i), (ii) and (ix) above, the amounts shall be
expressed as a dollar amount in the aggregate for all Certificates of each
applicable Class and per single Certificate of a specified minimum
denomination.
2. A report containing information regarding the Mortgage Loans as of the
end of the related Due Period, which report shall contain substantially
the categories of information regarding the Mortgage Loans set forth in
this Prospectus Supplement in the tables under the caption "Description of
the Mortgage Pool--Additional Mortgage Loan Information" (calculated,
where applicable, on the basis of the most recent relevant information
provided by the borrowers to the Servicer or the Special Servicer and by
the Servicer or the Special Servicer, as the case may be, to the Trustee)
and such information shall be presented in a tabular format substantially
similar to the format utilized in this Prospectus Supplement under such
caption and a loan-by-loan listing (in descending balance order) showing
loan number, property type, location, unpaid principal balance, Mortgage
Rate, paid through date, maturity date, net interest portion of the
Monthly Payment, principal portion of the Monthly Payment and any Yield
Maintenance Charges received. Such loan-by-loan listing is required to be
made available electronically; provided, however, the Trustee is required
to provide Certificateholders with a written copy of such report upon
request.
Certain information made available in the Distribution Date Statements
referred to in item (1) above may be obtained by calling LaSalle National
Bank's ASAP System at (312) 904-2200 and requesting statement number 335.
Additionally, certain information regarding the Mortgage Loans will be made
accessible at the website maintained by LaSalle National Bank at
www.linbabs.com or their electronic bulletin board service at 714-282-3990 or
such other mechanism as the Trustee may have in place from time-to-time.
After all of the Certificates have been sold by the Underwriters, certain
information will be made accessible at the website maintained by the Servicer
at www.bomcm.com.
Servicer Reports. Commencing in August, 1998, the Servicer is required to
deliver to the Trustee prior to each Distribution Date, and the Trustee is to
deliver to each Certificateholder, the Depositor, the Underwriter, each
Rating Agency and, if requested, any potential investor in the Certificates,
on each Distribution Date,
(i) The following two CSSA data files:
(a) the "CSSA Loan Periodic Update File;" and
(b) to the extent received from the Servicer, the "CSSA Property Data
File"; and
(ii) The following six reports:
(a) A "Comparative Financial Status Report" setting forth, to the extent
such information is provided by the related borrowers, among other things,
the occupancy, revenue, underwritten cash flow and DSCR for the Mortgage
Loans as of the current Determination Date for each of the following three
periods; (i) the most current available year-to-date, (ii) the previous
two full fiscal years (if made available to the Servicer), and (iii) the
"base year" (representing the original underwriting information used as of
the Cut-Off Date).
(b) A "Delinquent Loan Status Report" setting forth, among other things,
those Mortgage Loans which, as of the close of business on the
Determination Date immediately preceding the respective Distribution Date,
were delinquent 30-59 days, 60-89 days, 90 days or more, current but
specially serviced, or in foreclosure but not REO Property.
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(c) A "Historical Loan Modification Report" setting forth, among other
things, those Mortgage Loans which, as of the close of business on the
Determination Date immediately preceding the respective Distribution Date,
have been modified pursuant to the Pooling and Servicing Agreement (i)
during the related Due Period and (ii) since the Cut-Off Date, showing the
original and the revised terms thereof.
(d) A "Historical Loss Report" setting forth, among other things, as of
the close of business on the Determination Date immediately preceding the
respective Distribution Date, (i) the aggregate amount of liquidation
proceeds and liquidation expenses, both for the related Due Period and
historically, and (ii) the amount of Collateral Support Deficits occurring
during the related Due Period, set forth on a Mortgage Loan-by-Mortgage
Loan basis.
(e) 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 Determination Date immediately preceding the
respective Distribution Date (but which became an REO Property during or
prior to the related Due Period), (i) the acquisition date of such REO
Property, (ii) the amount of income collected with respect to any REO
Property net of related expenses and other amounts, if any, received on
such REO Property during the related Due Period and (iii) the value of the
REO Property based on the most recent appraisal or other valuation thereof
available to the Servicer as of such date of determination (including any
prepared internally by the Special Servicer).
(f) A "Watch List" as of the close of business on the Determination Date
immediately preceding the respective Distribution Date setting forth,
among other things, any Mortgage Loan that is in jeopardy of becoming a
Specially Serviced Mortgage Loan.
Commencing in August 1998, subject to the receipt of necessary information
from any subservicer, such loan-by-loan listing will be made available
electronically in the form of the standard CSSA Reports; provided, however,
the Trustee will provide Certificateholders with a written copy of such
report upon request. See "Annex B" to this Prospectus Supplement for the
forms of Servicing Reports.
The Servicer is also required to deliver to the Trustee the following
materials:
(a) Annually, on or before September 30, 1998 and thereafter annually by
June 30 of each year, with respect to each Mortgaged Property and REO
Property, an "Operating Statement Analysis Report" together with copies of
the operating statements and rent rolls (but only to the extent the
related borrower is required by the Mortgage to deliver or otherwise
agrees to provide such information and has in fact delivered such items)
for such Mortgaged Property or REO Property as of the end of the preceding
calendar year. The Servicer (or the Special Servicer in the case of
Specially Serviced Mortgage Loans and REO Properties) is required to use
its best reasonable efforts to obtain said annual operating statements and
rent rolls.
(b) Promptly upon receipt by the Servicer (or within twenty days of
receipt by the Special Servicer with respect to any Specially Serviced
Mortgage Loan or REO Property) of annual operating statements, if any,
with respect to any Mortgaged Property or REO Property, an "NOI Adjustment
Worksheet" for such Mortgaged Property (with the annual operating
statements attached thereto as an exhibit), presenting the computations
made in accordance with the methodology described in the Pooling and
Servicing Agreement to "normalize" the full year net operating income and
debt service coverage numbers used by the Servicer in the other reports
referenced above.
The Trustee is to deliver a copy of each Operating Statement Analysis
Report and NOI Adjustment Worksheet that it receives from the Servicer to the
Depositor, the Underwriter and each Rating Agency promptly after its receipt
thereof. Upon request, the Trustee will make such reports available to the
Certificateholders and the Special Servicer. Any Certificateholder and any
potential investor in the Certificates may obtain a copy of any NOI
Adjustment Worksheet for a Mortgaged Property or REO Property in the
possession of the Trustee upon request.
The Trustee, the Servicer and the Special Servicer will be indemnified by
the Trust Fund against any loss, liability or expense incurred in connection
with any legal action relating to any statement or omission
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based upon information supplied by a borrower or third party under a Mortgage
Loan and reasonably relied upon by such party. None of the above reports will
include any information that the 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 Servicer no later than at least one
business day after the related Determination Date. Absent manifest error,
none of the 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 Servicer, the Special
Servicer or the Trustee, as applicable. See "Annex B" to this Prospectus
Supplement for the forms of Servicing Reports.
Annual Reports. In addition, within a reasonable period of time after the
end of each calendar year, the Trustee shall furnish to each person or entity
who at any time during the calendar year was a holder of a Certificate, a
statement containing the information set forth in clauses (1)(i), (ii) and
(ix) above as to the applicable Class, aggregated for such calendar year or
applicable portion thereof during which such person was a Certificateholder,
together with such other information as the Servicer deems necessary or
desirable, or that a Certificateholder or Certificate Owner reasonably
requests, to enable Certificateholders to prepare their tax returns for such
calendar year. Such obligation of the Trustee shall be deemed to have been
satisfied to the extent that substantially comparable information shall be
provided by the Trustee pursuant to any requirements of the Code as from time
to time are in force.
The Pooling and Servicing Agreement will require that the Trustee make
available at its offices primarily responsible for administering the Trust
Fund, during normal business hours, for review by any holder of an Offered
Certificate, originals or copies of, among other things, the following items:
(a) the Pooling and Servicing Agreement and any amendments thereto, (b) all
Distribution Date Statements delivered to holders of the relevant Class of
Offered Certificates since the Closing Date, (c) all officer's certificates
delivered to the Trustee since the Closing Date as described under
"Description of the Pooling Agreements--Evidence as to Compliance" in the
Prospectus, (d) all accountants' reports delivered to the Trustee since the
Closing Date as described under "Description of the Pooling
Agreements--Evidence as to Compliance" in the Prospectus, (e) the most recent
property inspection report prepared by or on behalf of the Servicer in
respect of each Mortgaged Property, (f) the most recent Mortgaged Property
annual operating statements, if any, collected by or on behalf of the
Servicer, and (g) any and all modifications, waivers and amendments of the
terms of a Mortgage Loan entered into by the Servicer. Copies of any and all
of the foregoing items will be available from the Servicer upon request.
Pursuant to the Pooling and Servicing Agreement, the Servicer will be
responsible for enforcing all provisions of the Mortgage Loan documents
relating to the submission of financial and property information.
The Pooling and Servicing Agreement will require the Trustee, subject to
certain restrictions set forth therein, to provide the reports available to
Certificateholders set forth above, as well as certain other information
received by the Trustee, to any Certificateholder, the Underwriter, any
Certificate Owner or any prospective investor identified as such by a
Certificate Owner or Underwriter, that requests such reports or information;
provided, however, that the Trustee will be permitted to require payment of a
sum sufficient to cover the reasonable costs and expenses of providing copies
of such reports or information.
Except as otherwise set forth in this paragraph, until such time as
Definitive Certificates are issued, the foregoing information will be
available to Certificate Owners only to the extent it is forwarded by or
otherwise available through DTC and its Participants. Conveyance of notices
and other communications by DTC to Participants, and by Participants to
Certificate Owners, will be governed by arrangements among them, subject to
any statutory or regulatory requirements as may be in effect from time to
time. Except as otherwise set forth in this paragraph, the Servicer, the
Trustee, the Fiscal Agent, the Depositor, the Paying Agent 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. The initial registered holder of the
Offered Certificates will be Cede & Co. as nominee for DTC.
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VOTING RIGHTS
At all times during the term of the Pooling and Servicing Agreement, the
voting rights for the Certificates (the "Voting Rights") shall be allocated
among the respective Classes of Certificateholders as follows: (i) 4% in the
case of the Class X Certificates, and (ii) in the case of any other Class of
Certificates (other than the Residual Certificates), a percentage equal to
the product of 96% and a fraction, the numerator of which is equal to the
aggregate Certificate Balance of such Class, in each case, determined as of
the Distribution Date immediately preceding such time, and the denominator of
which is equal to the aggregate Certificate Balance of all Classes of
Certificates with Certificate Balances, each determined as of the
Distribution Date immediately preceding such time. Neither the Class R nor
the Class LR Certificates will be entitled to any Voting Rights. For purposes
of determining Voting Rights, the Certificate Balance of any Class shall be
deemed to be reduced by the amount allocated to such Class of any Appraisal
Reductions related to Mortgage Loans as to which Liquidation Proceeds or
other final payment has not yet been received. Voting Rights allocated to a
Class of Certificateholders shall be allocated among such Certificateholders
in proportion to the Percentage Interests evidenced by their respective
Certificates. Solely for purposes of giving any consent, approval or waiver
pursuant to the Pooling and Servicing Agreement, neither the Servicer, the
Special Servicer nor the Depositor will be entitled to exercise any Voting
Rights with respect to any Certificates registered in its name, if such
consent, approval or waiver would in any way increase its compensation or
limit its obligations in such capacity under the Pooling and Servicing
Agreement; provided, however, that such restrictions will not apply to the
exercise of the Special Servicer's rights, if any, as a member of the
Controlling Class. See "Description of the Certificates--Voting Rights" in
the Prospectus.
TERMINATION; RETIREMENT OF CERTIFICATES
The obligations created by the Pooling and Servicing Agreement will
terminate upon payment (or provision for payment) to all Certificateholders
of all amounts held by or on behalf of the Trustee and required to be paid
following the earlier of (i) the final payment (or advance in respect
thereof) or other liquidation of the last Mortgage Loan or REO Property
subject thereto or (ii) the purchase of all of the assets of the Trust Fund
by the Servicer, the Special Servicer, the holders of the Controlling Class
or the holders of the Class LR Certificates. Written notice of termination of
the Pooling and Servicing Agreement will be given to each Certificateholder,
and the final distribution will be made only upon surrender and cancellation
of the Certificates at the office of the Certificate Registrar or other
location specified in such notice of termination.
At its option, on any Distribution Date on which the remaining aggregate
Stated Principal Balance of the Mortgage Pool is less than 1% of the Initial
Pool Balance, the Controlling Class Certificateholder may purchase all, but
not less than all, of the Mortgage Loans and REO properties in the Trust
Fund, and thereby effect termination of the Trust Fund and early retirement
of the then outstanding Certificates. If the Controlling Class
Certificateholder does not exercise such purchase option, then the Servicer
may purchase all of the Mortgage Loans that are not Specially Serviced
Mortgage Loans and the Special Servicer may purchase all of the Specially
Serviced Mortgage Loans and REO Properties. If the Controlling Class
Certificateholder does not exercise such purchase option and all of the
remaining Mortgage Loans, Specially Serviced Mortgage Loans and REO
Properties are not purchased by the Servicer and the Special Servicer
pursuant to their respective options, then the holder of the Class LR
Certificates may purchase such assets then included in the Trust Fund. Any
such purchase of Mortgage Loans, Specially Serviced Mortgage Loans or REO
Properties is required to be made at a price equal to the aggregate Purchase
Price of all of the Mortgage Loans, Specially Serviced Mortgaged Loans
(exclusive of REO Loans) or REO Properties being purchased. The "Purchase
Price" for any Mortgage Loan or Specially Serviced Mortgage Loan is an amount
equal to the sum of (i) the Stated Principal Balance of such Mortgage Loan or
Specially Serviced Mortgage Loan, (ii) all accrued and unpaid interest on
such Mortgage Loan or Specially Serviced Mortgage Loan at the related
Mortgage Rate to but not including the Due Date in the Due Period of
purchase, (iii) (except where the Servicer is the purchaser of such Mortgage
Loan) all related unreimbursed Servicing Advances, together with accrued
interest thereon and (iv) (except where the Special Servicer is the purchaser
of such Specially Serviced Mortgage Loan) any unpaid Special Servicing Fees
allocable to such Specially Serviced Mortgage Loan. The "Purchase Price" for
any REO Property is the fair market value of such REO Property (which fair
market value for any REO Property may be less than the Purchase Price for the
corresponding REO Loan), as determined by
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an appraiser selected and mutually agreed upon by the Special Servicer and
the Trustee, and approved by more than 50% of the Voting Rights of the
Classes of Certificates then outstanding, other than the Controlling Class,
unless the Controlling Class is the only Class of Certificates outstanding.
On the final Distribution Date, the aggregate amount paid by the holders
of the Controlling Class, the Special Servicer, the Servicer or the holders
of the Class LR Certificates, as the case may be, for the Mortgage Loans and
other assets in the Trust Fund (if the Trust Fund is to be terminated as a
result of the purchase described in the preceding paragraph), together with
all other amounts on deposit in the Certificate Account and not otherwise
payable to a person other than the Certificateholders (see "Description of
the Pooling Agreements--Certificate Account" in the Prospectus), will be
applied generally as described above under "Distributions--Priority."
Any optional termination by the Controlling Class Certificateholders, the
Servicer, the Special Servicer or the holders of the Class LR Certificates
would result in prepayment in full of the Certificates and would have an
adverse effect on the yield of the Class X Certificates because a termination
would have an effect similar to a principal prepayment in full of the
Mortgage Loans (without, however, the payment of any Yield Maintenance
Charges) and, as a result, investors in the Class X Certificates and any
other Certificates purchased at premium might not fully recoup their initial
investment. See "Yield and Maturity Considerations" herein.
THE TRUSTEE
LaSalle National Bank, a nationally chartered bank, will act as trustee
(the "Trustee") on behalf of the Certificateholders. LaSalle is a subsidiary
of LaSalle National Corporation, which is a subsidiary of the Fiscal Agent.
The Trustee is at all times required 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 (or that of its fiscal
agent) is rated not less than "AA" or its equivalent by each of Moody's and
DCR (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 135 South LaSalle
Street, Chicago, Illinois 60674-4107, Attention: Asset Backed Securities
Trust Services Group--Bear Stearns Commercial Mortgage Securities Inc.
Commercial Mortgage Pass-Through Certificates, Series 1998-C1. As of December
31, 1997, the Trustee had assets of approximately $19 billion.
Pursuant to the Pooling and Servicing Agreement, the Trustee will be
entitled to receive a monthly fee from the Servicer. The Trustee will be
entitled to recover from the Trust Fund all reasonable unanticipated expenses
and disbursements incurred or made by the Trustee in accordance with any of
the provisions of the Pooling and Servicing Agreement, but not including
expenses incurred in the ordinary course of performing its duties as Trustee
under the Pooling and Servicing Agreement, and not including any such
expense, disbursement or advance as may arise from its willful misconduct,
negligence or bad faith. 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.
The Trustee will also have certain duties with respect to REMIC
administration (in such capacity the "REMIC Administrator"). See "Certain
Federal Income Tax Consequences--Federal Income Tax Consequences for REMIC
Certificates" and "--Administrative Matters" in the Prospectus.
THE FISCAL AGENT
ABN AMRO Bank N.V., a Netherlands banking corporation ("ABN AMRO"), will
act as Fiscal Agent on behalf of the Certificateholders and will be obligated
to make any Advance required to be made, but not made, by the Servicer and
the Trustee under the Pooling and Servicing Agreement; provided, however,
that the Fiscal Agent will not be obligated to make any Advance that it deems
to be
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a Nonrecoverable Advance. The Fiscal Agent will be entitled (but not
obligated) to rely conclusively on any determination by the Servicer or the
Trustee that an Advance, if made, would be a Nonrecoverable Advance. The
Fiscal Agent will be entitled to reimbursement for each Advance made by it in
the same manner and to the same extent as, but prior to, the Servicer and the
Trustee. See "--Advances" above. The Fiscal Agent will be entitled to various
rights, protections and indemnities similar to those afforded the Trustee.
The Trustee will be responsible for payment of the compensation of the Fiscal
Agent. As of December 31, 1997, the Fiscal Agent had assets of approximately
$414 billion. In the event that LaSalle National Bank shall for any reason
cease to act as Trustee under the Pooling and Servicing Agreement, ABN AMRO
likewise shall no longer serve in the capacity of Fiscal Agent thereunder.
PAYING AGENT, CERTIFICATE REGISTRAR AND AUTHENTICATING AGENT
The Trustee will act as initial paying agent (in such capacity, the
"Paying Agent"), as initial registrar (in such capacity, the "Certificate
Registrar") for purposes of recording and otherwise providing for the
registration of the Offered Certificates and of transfers and exchanges of
definitive certificates, if issued, and as initial authenticating agent of
the Certificates (in such capacity, the "Authenticating Agent").
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YIELD AND MATURITY CONSIDERATIONS
YIELD CONSIDERATIONS
General. The yield on any Offered Certificate will depend on: (i) the
Pass-Through Rate for such Certificate; (ii) the price paid for such
Certificate and, if the price was other than par, the rate and timing of
payments of principal on such Offered Certificate; (iii) the aggregate amount
of distributions on such Offered Certificate and (iv) the aggregate amount of
Collateral Support Deficit amounts allocated to the Class of Offered
Certificates.
Pass-Through Rate. The Pass-Through Rate applicable to each Class of
Offered Certificates for any Distribution Date will equal the rate set forth
on the cover of this Prospectus Supplement; provided, however, that in no
event will the Pass-Through Rate of any such Class exceed the weighted
average of the Net Mortgage Rates of the Mortgage Loans (such Net Mortgage
Rates determined without taking into account any reductions thereto resulting
from modifications of the Mortgage Loans or otherwise following the Cut-Off
Date). Certain of the Mortgage Loans have a Net Mortgage Rate which may be
less than the Pass-Through Rate of a Class of the Offered Certificates.
However, the shortfall between the Net Mortgage Rate of such Mortgage Loans
and the fixed Pass-Through Rates of the Offered Certificates is expected to
be covered at all times during the life of the Offered Certificates by the
amount of interest payments on the other Mortgage Loans in the Mortgage Pool,
all of which bear interest at Mortgage Rates (and with corresponding Net
Mortgage Rates) greater than the Mortgage Rate for such Mortgage Loans.
However, in the very unlikely event that substantially all of the other
Mortgage Loans pay off or are otherwise liquidated before the Offered
Certificates are retired it is possible that the Pass-Through Rate could be
adjusted downward to avoid a mismatch between such rate and the Net Mortgage
Rate of such Mortgage Loans. See "Description of the Certificates" herein.
Rate and Timing of Principal Payments. The yield to holders of Offered
Certificates that are purchased at a discount or premium will be affected by
the rate and timing of principal payments on the Mortgage Loans (including
principal prepayments on the Mortgage Loans resulting from both voluntary
prepayments by the mortgagors and involuntary liquidations). The rate and
timing of principal payments on the Mortgage Loans will in turn be affected
by the amortization schedules thereof, the dates on which Balloon Payments
are due, any extensions of maturity dates by the Special Servicer and the
rate and timing of principal prepayments and other unscheduled collections
thereon (including for this purpose, collections made in connection with
liquidations of Mortgage Loans due to defaults, casualties or condemnations
affecting the Mortgaged Properties, or purchases of Mortgage Loans out of the
Trust Fund). In addition, although the borrower under the ARD Loan may have
certain incentives to repay the Mortgage Loan on the related Anticipated
Repayment Date, there can be no assurance that the borrower under the ARD
Loan will be able to repay such Mortgage Loan on the related Anticipated
Repayment Date. The failure of the related borrower to repay the ARD Loan on
the Anticipated Repayment Date will not be an event of default under the
terms of such Mortgage Loan; provided, that the Servicer or the Special
Servicer, as the case may be, may take action to enforce the Trust Fund's
right to apply excess cash flow to principal in accordance with the terms of
the related Mortgage Loan documents. See "Risk Factors--Risks Associated with
Balloon Payments and ARD Loan" herein.
Prepayments and, assuming the respective Maturity Dates therefor have not
occurred, liquidations and purchases of the Mortgage Loans, will result in
distributions on the Offered Certificates of amounts that would otherwise be
distributed over the remaining terms of the Mortgage Loans. Defaults on the
Mortgage Loans, particularly at or near their stated maturity dates, may
result in significant delays in payments of principal on the Mortgage Loans
(and, accordingly, on the Offered Certificates) while work-outs are
negotiated or foreclosures are completed. See "Servicing of the Mortgage
Loans--Modifications, Waiver and Amendments" and "--Realization Upon
Defaulted Mortgage Loans" herein and "Certain Legal Aspects of Mortgage
Loans--Foreclosure" in the Prospectus. Because the rate of principal payments
on the Mortgage Loans will depend on future events and a variety of factors
(as described below), no assurance can be given as to such rate or the rate
of principal prepayments in particular. The Depositor is not aware of any
relevant publicly available or authoritative statistics with respect to the
historical prepayment experience of a large group of mortgage loans
comparable to the Mortgage Loans.
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The extent to which the yield to maturity of any Class of Offered
Certificates may vary from the anticipated yield will depend upon the degree
to which such Certificates are purchased at a discount or premium and when,
and to what degree, payments of principal on the Mortgage Loans are in turn
distributed on 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 will result in
an actual yield to such investor that is lower than the anticipated yield
and, in the case of any Offered Certificate purchased at a premium, the risk
that a faster than anticipated rate of principal payments on the Mortgage
Loans will result in an actual yield to such investor that is lower than the
anticipated yield. In general, the earlier a payment of principal is
distributed on an Offered Certificate purchased at a discount or premium, the
greater will be the effect on an investor's yield to maturity. As a result,
the effect on an investor's yield of principal payments distributed on such
investor's Offered Certificates occurring at a rate higher (or lower) than
the rate anticipated by the investor during any particular period would not
be fully offset by a subsequent like reduction (or increase) in the rate of
principal payments.
Losses and Shortfalls. The yield to holders of the Offered Certificates
will also depend on the extent to which such holders are required to bear the
effects of any losses or shortfalls on the Mortgage Loans. Losses and other
shortfalls on the Mortgage Loans will generally be borne by the holders of
the Class K, Class J, Class I, Class H, Class G, Class F, Class E, Class D,
Class C and Class B Certificates, in that order, and in each case to the
extent of amounts otherwise distributable in respect of such Class of
Certificates. In the event of the reduction of the Certificate Balances of
all such Classes of Certificates to zero, such losses and shortfalls will
then be borne, pro rata, by the Class A-1 and Class A-2 Certificates (and
Class X Certificates with respect to shortfalls of interest).
Certain Relevant Factors. The rate and timing of principal payments and
defaults and the severity of losses on the Mortgage Loans may be affected by
a number of factors, including, without limitation, prevailing interest
rates, the terms of the Mortgage Loans (for example, due-on-sale clauses,
Lockout Periods, Yield Maintenance Charges and amortization terms that
require Balloon Payments), the demographics and relative economic vitality of
the areas in which the Mortgaged Properties are located and the general
supply and demand for rental properties 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" and "Description of the Mortgage Pool" herein and "Risk
Factors" and "Yield and Maturity Considerations--Yield and Prepayment
Considerations" in the Prospectus.
The rate of prepayment on the Mortgage Pool is likely to be affected by
prevailing market interest rates for mortgage loans of a comparable type,
term and risk level as the Mortgage Loans. When the prevailing market
interest rate is below a mortgage coupon, a borrower may have an increased
incentive to refinance its mortgage loan. However, under all of the Mortgage
Loans voluntary prepayments are subject to Lockout Periods and/or Yield
Maintenance Periods, although the enforceability of such provision is
doubtful in certain states. See "Description of the Mortgage Pool--Certain
Terms and Conditions of the Mortgage Loans--Prepayment Provisions" herein.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash
flow needs or to make other investments. In addition, some borrowers may be
motivated by federal and state tax laws (which are subject to change) to sell
Mortgaged Properties prior to the exhaustion of tax depreciation benefits.
The Depositor makes no representation as to the particular factors that
will affect the rate and timing of prepayments and defaults on the Mortgage
Loans, as to the relative importance of such factors, as to the percentage of
the principal balance of the Mortgage Loans that will be prepaid or as to
which a default will have occurred as of any date or as to the overall rate
of prepayment or default on the Mortgage Loans.
Delay in Payment of Distributions. Because each monthly distribution is
made on each Distribution Date, which is at least 16 days after the end of
the related Interest Accrual Period, the effective yield to
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the holders of the Offered Certificates will be lower than the yield that
would otherwise be produced by the applicable Pass-Through Rates and purchase
prices (assuming such prices did not account for such delay).
Unpaid Distributable Certificate Interest. As described under "Description
of the Certificates--Distributions--Priority" 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 LIFE
The weighted average life of an Offered Certificate refers to the average
amount of time that will elapse from the date of its issuance until each
dollar allocable to principal of such Certificate is distributed to the
investor. The weighted average life of an Offered Certificate will be
influenced by, among other things, the rate at which principal on the
Mortgage Loans is paid or otherwise collected, which may be in the form of
scheduled amortization, voluntary prepayments, Insurance and Condemnation
Proceeds and Liquidation Proceeds.
Prepayments on mortgage loans may be measured by a prepayment standard or
model. The model used in this Prospectus Supplement is the "Constant
Prepayment Rate" or "CPR" model. The CPR model represents an assumed constant
annual rate of prepayment each month, expressed as a per annum percentage of
the then-scheduled principal balance of the pool of mortgage loans. As used
in each of the following tables, the column headed "0% CPR" assumes that none
of the Mortgage Loans is prepaid before the Mortgage Loan Maturity Date. The
columns headed "3% CPR", "6% CPR", "9% CPR" and "12% CPR" assume that
prepayments on the Mortgage Loans are made at those levels of CPR following
the expiration of any Lockout Period and/or Yield Maintenance Period. There
is no assurance, however, that prepayments of the Mortgage Loans will conform
to any level of CPR, and no representation is made that the Mortgage Loans
will prepay at the levels of CPR shown or at any other prepayment rate.
The following tables indicate the percentage of the initial Certificate
Balance of each Class of the Offered Certificates that would be outstanding
after each of the dates shown at various CPRs and the corresponding weighted
average life of each such Class of Certificates. The tables have been
prepared on the basis of the following assumptions, among others: (i)
scheduled monthly payments of principal and/or interest on the Mortgage
Loans, in each case prior to any prepayment of the Mortgage Loan, will be
timely received (with no defaults) and will be distributed on the 16th day of
each month commencing on July 16, 1998; (ii) the Mortgage Rate in effect for
each Mortgage Loan as of the Cut-Off Date will remain in effect to the
Maturity Date of such Mortgage Loan; (iii) the monthly principal and interest
payment due for each Mortgage Loan on the first Due Date following the
Cut-Off Date will continue to be due on each Due Date until the Maturity Date
of such Mortgage Loan; (iv) any principal prepayments on the Mortgage Loans
will be received on their respective Due Dates after the expiration of any
applicable Lockout Period and/or Yield Maintenance Period at the respective
levels of CPR set forth in the tables; (v) the Mortgage Loan Seller will not
be required to repurchase any Mortgage Loan, and none of the Servicer, the
Special Servicer, the holders of the Controlling Class or the holders of the
Class LR Certificates will exercise its option to purchase all the Mortgage
Loans and thereby cause an early termination of the Trust Fund; (vi) no Yield
Maintenance Charges are included in any allocations or calculations; (vii)
any principal prepayments received on the Mortgage Loans are prepayments in
full; (vii) the Closing Date is June 29, 1998; and (ix) the ARD Loan prepays
on the Anticipated Repayment Date. To the extent that the Mortgage Loans have
characteristics that differ from those assumed in preparing the tables set
forth below, a Class of Offered Certificates may mature earlier or later than
indicated by the tables. It is highly unlikely that the Mortgage Loans will
prepay at any constant rate until maturity or that all the Mortgage Loans
will 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.
S-97
<PAGE>
Such variations may occur even if the average prepayment experience of the
Mortgage Loans were to equal any of the specified CPR percentages. Investors
are urged to conduct their own analyses of the rates at which the Mortgage
Loans may be expected to prepay. Based on the foregoing assumptions, the
following tables indicate the resulting weighted average lives of each Class
of Offered Certificates and set forth the percentage of the initial
Certificate Balance of such Class of Offered Certificate that would be
outstanding after each of the dates shown at the indicated CPRs.
PERCENT OF THE INITIAL CERTIFICATE BALANCE
OF THE CLASS A-1 CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0%CPR 3%CPR 6%CPR 9%CPR 12%CPR
- --------------------------------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Initial Percent .................. 100 100 100 100 100
June 16, 1999 .................... 94 94 94 94 94
June 16, 2000 .................... 87 87 87 87 87
June 16, 2001 .................... 79 79 79 79 79
June 16, 2002 .................... 71 71 71 71 71
June 16, 2003 .................... 62 62 62 62 62
June 16, 2004 .................... 53 53 53 53 53
June 16, 2005 .................... 40 40 40 40 40
June 16, 2006 .................... 29 29 29 29 29
June 16, 2007 .................... 17 17 17 17 17
June 16, 2008..................... 0 0 0 0 0
Weighted Average Life (Years)(A) 5.8 5.8 5.8 5.8 5.8
</TABLE>
- ------------
(A) The weighted average life of the Class A-1 Certificates is determined
by (i) multiplying the amount of each principal distribution thereon
by the number of years from the date of issuance of the Class A-1
Certificates 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 Class A-1 Certificates.
PERCENT OF THE INITIAL CERTIFICATE BALANCE
OF THE CLASS A-2 CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0%CPR 3%CPR 6%CPR 9%CPR 12%CPR
- --------------------------------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Initial Percent .................. 100 100 100 100 100
June 16, 1999 .................... 100 100 100 100 100
June 16, 2000 .................... 100 100 100 100 100
June 16, 2001 .................... 100 100 100 100 100
June 16, 2002 .................... 100 100 100 100 100
June 16, 2003 .................... 100 100 100 100 100
June 16, 2004 .................... 100 100 100 100 100
June 16, 2005 .................... 100 100 100 100 100
June 16, 2006 .................... 100 100 100 100 100
June 16, 2007 .................... 100 100 100 100 100
June 16, 2008 .................... 0 0 0 0 0
Weighted Average Life (Years)(A) 9.8 9.8 9.8 9.8 9.8
</TABLE>
- ------------
(A) The weighted average life of the Class A-2 Certificates is determined
by (i) multiplying the amount of each principal distribution thereon
by the number of years from the date of issuance of the Class A-2
Certificates 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 Class A-2 Certificates.
S-98
<PAGE>
PERCENT OF THE INITIAL CERTIFICATE BALANCE
OF THE CLASS B CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0%CPR 3%CPR 6%CPR 9%CPR 12%CPR
- --------------------------------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Initial Percent .................. 100 100 100 100 100
June 16, 1999 .................... 100 100 100 100 100
June 16, 2000 .................... 100 100 100 100 100
June 16, 2001 .................... 100 100 100 100 100
June 16, 2002 .................... 100 100 100 100 100
June 16, 2003 .................... 100 100 100 100 100
June 16, 2004 .................... 100 100 100 100 100
June 16, 2005 .................... 100 100 100 100 100
June 16, 2006 .................... 100 100 100 100 100
June 16, 2007 .................... 100 100 100 100 100
June 16, 2008 .................... 83 83 83 83 83
June 16, 2009 .................... 70 70 70 70 70
June 16, 2010 .................... 49 49 49 49 49
June 16, 2011 .................... 33 33 33 33 33
June 16, 2012 .................... 17 17 17 17 17
June 16, 2013..................... 0 0 0 0 0
Weighted Average Life (Years)(A) 12.1 12.1 12.1 12.1 12.1
</TABLE>
- ------------
(A) The weighted average life of the Class B Certificates is determined
by (i) multiplying the amount of each principal distribution thereon
by the number of years from the date of issuance of the Class B
Certificates 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 Class B Certificates.
PERCENT OF THE INITIAL CERTIFICATE BALANCE
OF THE CLASS C CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0%CPR 3%CPR 6%CPR 9%CPR 12%CPR
- --------------------------------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Initial Percent .................. 100 100 100 100 100
June 16, 1999 .................... 100 100 100 100 100
June 16, 2000 .................... 100 100 100 100 100
June 16, 2001 .................... 100 100 100 100 100
June 16, 2002 .................... 100 100 100 100 100
June 16, 2003 .................... 100 100 100 100 100
June 16, 2004 .................... 100 100 100 100 100
June 16, 2005 .................... 100 100 100 100 100
June 16, 2006 .................... 100 100 100 100 100
June 16, 2007 .................... 100 100 100 100 100
June 16, 2008 .................... 100 100 100 100 100
June 16, 2009 .................... 100 100 100 100 100
June 16, 2010 .................... 100 100 100 100 100
June 16, 2011 .................... 100 100 100 100 100
June 16, 2012 .................... 100 100 100 100 100
June 16, 2013..................... 0 0 0 0 0
Weighted Average Life (Years)(A) 14.5 14.5 14.5 14.5 14.5
</TABLE>
- ------------
(A) The weighted average life of the Class C Certificates is determined
by (i) multiplying the amount of each principal distribution thereon
by the number of years from the date of issuance of the Class C
Certificates 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 Class C Certificates.
S-99
<PAGE>
PERCENT OF THE INITIAL CERTIFICATE BALANCE
OF THE CLASS D CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0%CPR 3%CPR 6%CPR 9%CPR 12%CPR
- --------------------------------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Initial Percent .................. 100 100 100 100 100
June 16, 1999 .................... 100 100 100 100 100
June 16, 2000 .................... 100 100 100 100 100
June 16, 2001 .................... 100 100 100 100 100
June 16, 2002 .................... 100 100 100 100 100
June 16, 2003 .................... 100 100 100 100 100
June 16, 2004 .................... 100 100 100 100 100
June 16, 2005 .................... 100 100 100 100 100
June 16, 2006 .................... 100 100 100 100 100
June 16, 2007 .................... 100 100 100 100 100
June 16, 2008 .................... 100 100 100 100 100
June 16, 2009 .................... 100 100 100 100 100
June 16, 2010 .................... 100 100 100 100 100
June 16, 2011 .................... 100 100 100 100 100
June 16, 2012 .................... 100 100 100 100 100
June 16, 2013..................... 0 0 0 0 0
Weighted Average Life (Years)(A) 14.7 14.7 14.7 14.7 14.7
</TABLE>
- ------------
(A) The weighted average life of the Class D Certificates is determined
by (i) multiplying the amount of each principal distribution thereon
by the number of years from the date of issuance of the Class D
Certificates 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 Class D Certificates.
PERCENT OF THE INITIAL CERTIFICATE BALANCE
OF THE CLASS E CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0%CPR 3%CPR 6%CPR 9%CPR 12%CPR
- --------------------------------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Initial Percent .................. 100 100 100 100 100
June 16, 1999 .................... 100 100 100 100 100
June 16, 2000 .................... 100 100 100 100 100
June 16, 2001 .................... 100 100 100 100 100
June 16, 2002 .................... 100 100 100 100 100
June 16, 2003 .................... 100 100 100 100 100
June 16, 2004 .................... 100 100 100 100 100
June 16, 2005 .................... 100 100 100 100 100
June 16, 2006 .................... 100 100 100 100 100
June 16, 2007 .................... 100 100 100 100 100
June 16, 2008 .................... 100 100 100 100 100
June 16, 2009 .................... 100 100 100 100 100
June 16, 2010 .................... 100 100 100 100 100
June 16, 2011 .................... 100 100 100 100 100
June 16, 2012 .................... 100 100 100 100 100
June 16, 2013..................... 0 0 0 0 0
Weighted Average Life (Years)(A) 14.9 14.9 14.9 14.9 14.9
</TABLE>
- ------------
(A) The weighted average life of the Class E Certificates is determined
by (i) multiplying the amount of each principal distribution thereon
by the number of years from the date of issuance of the Class E
Certificates 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 Class E Certificates.
S-100
<PAGE>
SERVICING OF THE MORTGAGE LOANS
GENERAL
The servicing of the Mortgage Loans and any REO Properties will be
governed by the Pooling and Servicing Agreement. The following summaries
describe certain provisions of the Pooling and Servicing Agreement relating
to the servicing and administration of the Mortgage Loans and any REO
Properties. The summaries do not purport to be complete and are subject, and
qualified in their entirety by reference, to the provisions of the Pooling
and Servicing Agreement. Reference is made to the Prospectus for additional
information regarding the terms of the Pooling and Servicing Agreement
relating to the servicing and administration of the Mortgage Loans and any
REO Properties, provided that the information herein supersedes any contrary
information set forth in the Prospectus. See "Description of the Pooling
Agreements" in the Prospectus.
Each of the Servicer (directly or through one or more subservicers) and
the Special Servicer will be required to service and administer the Mortgage
Loans. The Servicer may delegate and/or assign some or all of its servicing
obligations and duties with respect to some or all of the Mortgage Loans to
one or more affiliates so long as such delegation and/or assignment, in and
of itself, does not cause the qualification, withdrawal or downgrading of the
then-current ratings assigned to any Class of Certificates as confirmed in
writing by the Rating Agencies. Each of the Servicer and the Special Servicer
is permitted to appoint subservicers; provided, however, that the Servicer
and the Special Servicer, as the case may be, will remain primarily liable
for the actions and omissions of any subservicer appointed by it.
Each of the Servicer and the Special Servicer will service and administer
the respective Mortgage Loans for which each is responsible on behalf of the
Trustee and in the best interests of and for the benefit of the
Certificateholders (as determined by the Servicer or the Special Servicer, as
the case may be, in its good faith and reasonable judgment), in accordance
with applicable law, the terms of the Pooling and Servicing Agreement, the
terms of the respective Mortgage Loans and, to the extent consistent with the
foregoing, in accordance with the higher of the following standards of care:
(i) the same manner in which, and with the same care, skill, prudence and
diligence with which the Servicer or the Special Servicer, as the case may
be, services and administers similar mortgage loans for other third-party
portfolios, giving due consideration to the customary and usual standards of
practice of prudent institutional commercial, and multifamily mortgage
lenders servicing their own mortgage loans and (ii) the same care, skill,
prudence and diligence with which the Servicer or the Special Servicer, as
the case may be, services and administers commercial, multifamily and mobile
home community mortgage loans owned by the Servicer or the Special Servicer,
as the case may be, in either case exercising reasonable business judgment
and acting in accordance with applicable law, the terms of the Pooling and
Servicing Agreement, the respective Mortgage Loans or Specially Serviced
Mortgage Loans, as applicable, and with a view to the maximization of timely
recovery on a present value basis of principal of and interest on the
Mortgage Loans or Specially Serviced Mortgage Loans, as applicable, and the
best interests of the Trust and the Certificateholders, as determined by the
Servicer or the Special Servicer, as the case may be, in its reasonable
judgment, but without regard to: (A) any relationship that the Servicer or
the Special Servicer, as the case may be, or any affiliate thereof, may have
with the related borrower or any other party to the Pooling and Servicing
Agreement; (B) the ownership of any Certificate by the Servicer or the
Special Servicer, as the case may be, or any affiliate thereof; (C) the
Servicer's obligation to make Advances; and (D) the Servicer's or the Special
Servicer's, as the case may be, right to receive compensation for its
services under the Pooling and Servicing Agreement or with respect to any
particular transaction (the foregoing, collectively referred to as the
"Servicing Standards").
Except as otherwise described under "--Inspections; Collection of
Operating Information" below, the Servicer initially will be responsible for
the servicing of the entire Mortgage Pool. With respect to any Mortgage Loan
(i) as to which a payment default has occurred at its Maturity Date, or, if
the Maturity Date has been extended, at its extended maturity, (ii) as to
which any Monthly Payment (other than a Balloon Payment) is more than 60 days
delinquent, (iii) as to which the Servicer determines that a payment default
has occurred or is imminent and is not likely to be cured by the related
borrower within 60 days, (iv) as to which the borrower has entered into or
consented to bankruptcy, appointment of a
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<PAGE>
receiver or conservator or a similar insolvency proceeding, or the borrower
has become the subject of a decree or order for such a proceeding (provided
that if such appointment, decree or order is stayed or discharged, or such
consent revoked within 60 days such Mortgage Loan shall not be considered a
Specially Serviced Mortgage Loan during such period), or the related borrower
has admitted in writing its inability to pay its debts generally as they
become due, (v) as to which the Servicer shall have received notice of the
foreclosure or proposed foreclosure of any other lien on the Mortgaged
Property, (vi) as to which, in the judgment of the Servicer, a payment
default has occurred or is reasonably foreseeable and is not likely to be
cured by the borrower within 60 days, and prior to acceleration of amounts
due under the related Mortgage Note or commencement of any foreclosure or
similar proceedings, (vii) as to which a default of which the Servicer has
notice (other than a failure by the related borrower to pay principal or
interest) and which materially and adversely affects the interests of the
Certificateholders has occurred and remains unremediated for the applicable
grace period specified in such Mortgage Loan (or if no grace period is
specified, 60 days), or (viii) as to which the Servicer has received notice
of the foreclosure or proposed foreclosure of any lien on the related
Mortgaged Property, the Servicer will transfer its servicing responsibilities
to the Special Servicer, but will continue to receive payments on such
Mortgage Loan (including amounts collected by the Special Servicer), to make
certain calculations with respect to such Mortgage Loan and to make
remittances and prepare certain reports to the Certificateholders with
respect to such Mortgage Loan. If the related Mortgaged Property is acquired
in respect of any such Mortgage Loan (upon acquisition, an "REO Property")
whether through foreclosure, deed-in-lieu of foreclosure or otherwise, the
Special Servicer will continue to be responsible for the operation and
management thereof. The Mortgage Loans serviced by the Special Servicer and
any Mortgage Loans that have become REO Properties are referred to herein as
the "Specially Serviced Mortgage Loans". The Servicer shall have no
responsibility for the performance by the Special Servicer of its duties
under the Pooling and Servicing Agreement.
If any Specially Serviced Mortgage Loan, in accordance with its original
terms or as modified in accordance with the Pooling and Servicing Agreement,
becomes current and remains current for three consecutive monthly payments
(provided no additional event of default is foreseeable in the reasonable
judgment of the Special Servicer), the Special Servicer will return servicing
of such Mortgage Loan (a "Corrected Mortgage Loan") to the Servicer.
The Special Servicer will prepare a report (an "Asset Status Report") for
each Mortgage Loan which becomes a Specially Serviced Mortgage Loan not later
than 30 days after the servicing of such Mortgage Loan is transferred to the
Special Servicer. Each Asset Status Report will be delivered to the Directing
Certificateholder (as defined below) and the Rating Agencies. If the
Directing Certificateholder does not disapprove an Asset Status Report within
10 business days, the Special Servicer shall implement the recommended action
as outlined in such Asset Status Report. The Directing Certificateholder may
object to any Asset Status Report within 10 business days of receipt;
provided, however, that the Special Servicer shall implement the recommended
action as outlined in such Asset Status Report if it makes an affirmative
determination that such objection is not in the best interest of all the
Certificateholders. In connection with making such affirmative determination,
the Special Servicer will request a vote by all Certificateholders. If the
Directing Certificateholder disapproves such Asset Status Report and the
Special Servicer has not made the affirmative determination described above,
the Special Servicer will revise such Asset Status Report as soon as
practicable thereafter, but in no event later than 30 days after such
disapproval. The Special Servicer will revise such Asset Status Report until
the Directing Certificateholder fails to disapprove such revised Asset Status
Report as described above or until the Special Servicer makes a determination
that such objection is not in the best interests of the Certificateholders.
The "Directing Certificateholder" will be the Controlling Class
Certificateholder selected by more than 50% of the Controlling Class
Certificateholders, by Certificate Balance, as certified by the Trustee from
time to time; provided, however, that (i) absent such selection, or (ii)
until a Directing Certificateholder is so selected or (iii) upon receipt of a
notice from a majority of the Controlling Class Certificateholders, by
Certificate Balance, that a Directing Certificateholder is no longer
designated, the Controlling Class Certificateholder that owns the largest
aggregate Certificate Balance of the Controlling
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<PAGE>
Class will be the Directing Certificateholder. The Directing
Certificateholder will have no liability to the Certificateholders for any
action taken, or for refraining from the taking of any action, in good faith
pursuant to the Pooling and Servicing Agreement, or for errors in judgment;
provided, however, that the Directing Certificateholder will not be protected
against any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations or duties. By accepting any
Certificates the related Holder will be deemed to have acknowledged and
agreed that the Directing Certificateholder may have special relationships
and interests that conflict with those of Holders of one or more Classes of
Certificates, that the Directing Certificateholder may act solely in the
interests of the Holders of the Controlling Class and may take actions that
favor interests of the Holders of the Controlling Class over the interests of
the Holders of one or more other Classes of Certificates, that the Directing
Certificateholder shall not be deemed to have been negligent or reckless, or
to have acted in bad faith or engaged in willful misconduct solely by reason
of its having acted in the interests of the Holders of the Controlling Class,
and that the Directing Certificateholder shall have no liability whatsoever
for having so acted.
A "Controlling Class Certificateholder" is each holder (or Certificate
Owner, if applicable) of a Certificate of the Controlling Class as certified
to the Trustee from time to time by such holder (or Certificate Owner).
The "Controlling Class" will be as of any time of determination the most
subordinate Class of Certificates then outstanding that has a Certificate
Balance at least equal to the lesser of (a) 1% of the Initial Pool Balance,
(b) 50% of the Initial Certificate Balance of such Class, in the case of the
Class A, Class B, Class C, Class D and Class E Certificates and (c) 25% of
the initial Certificate Balance of such Class in the case of any other Class
of Certificates (other than the Residual Certificates). For purposes of
determining identity of the Controlling Class, the Certificate Balance of
each Class shall be deemed to be reduced by the amount allocated to such
Class of any Appraisal Reductions relating to Mortgage Loans as to which
Liquidation Proceeds or other final payment has not yet been received.
The Controlling Class as of the Closing Date will be the Class K
Certificates.
The Special Servicer will not be required to take or refrain from taking
any action pursuant to instructions from the Directing Certificateholder that
would cause it to violate applicable law, the Pooling and Servicing
Agreement, including the Servicing Standards, or the REMIC Provisions.
THE SERVICER
Banc One Mortgage Capital Markets, LLC ("Banc One"), a Delaware limited
liability company, will be the Servicer and in such capacity will be
responsible for servicing the Mortgage Loans. The principal offices of Banc
One Mortgage Capital Markets, LLC are located at 1717 Main Street, Dallas,
Texas 75201.
As of December 31, 1997, Banc One and its affiliates were responsible for
servicing approximately 5,829 commercial and multifamily loans with an
aggregate principal balance of approximately $7.38 billion, the collateral
for which is located in 49 states, Puerto Rico and the District of Columbia.
With respect to such loans, approximately 4,441 loans with an aggregate
principal balance of approximately $4.34 billion pertain to commercial and
multifamily mortgage backed securities.
The information concerning the Servicer set forth herein has been provided
by the Servicer, and none of the Mortgage Loan Seller, the Special Servicer,
the Depositor, the Trustee, the Fiscal Agent or the Underwriter makes any
representation or warranty as to the accuracy thereof. The Servicer (except
for the information under this heading) will make no representation as to the
validity or sufficiency of the Pooling and Servicing Agreement, the
Certificates, the Mortgage Loans, this Prospectus Supplement, the Prospectus
or any related documents.
THE SPECIAL SERVICER
AMRESCO Management, Inc., a Texas corporation ("AMI") (in such capacity,
the "Special Servicer"), will enter into the Pooling and Servicing Agreement,
pursuant to which the Special Servicer will, among other things, be
responsible for servicing Mortgage Loans that are in default or as to which
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<PAGE>
default is imminent and administering REO Property, act as disposition
manager of REO Properties acquired on behalf of the Trustee through
foreclosure or deed in lieu of foreclosure, maintain insurance with respect
to REO Properties and provide certain monthly reports to the Servicer and the
Trustee with respect to Specially Serviced Mortgage Loans and REO Property.
The principal offices of the Special Servicer are located at 700 North Pearl
Street, Suite 2400, Dallas, Texas 75201.
As of December 31, 1997, the Special Servicer was the designated special
servicer for securitized pools containing approximately $13.5 billion (face
value) of loans, $459.2 million (face value) of which has been assigned to
the Company for resolution in its capacity as special servicer.
The information concerning the Special Servicer set forth herein has been
provided by the Special Servicer, and none of the Mortgage Loan Seller, the
Servicer, the Depositor, the Trustee, the Fiscal Agent or the Underwriter
makes any representation or warranty as to the accuracy thereof.
The Special Servicer may be removed, and a successor Special Servicer
appointed, at any time by the holders of Certificates representing more than
50% of the aggregate Certificate Balance of the Controlling Class, provided
that each Rating Agency confirms in writing that such replacement of the
Special Servicer, in and of itself, will not cause a qualification,
withdrawal or downgrading of the then-current ratings assigned to any Class
of Certificates.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The fee of the Servicer (the "Servicing Fee") will be payable monthly on a
loan-by-loan basis from amounts received in respect of interest on each
Mortgage Loan, and will accrue at a rate (the "Servicing Fee Rate"),
calculated on a basis of a 360-day year consisting of twelve 30-day months
equal to (i) 0.08% per annum with respect to 17 Mortgage Loans, representing
9.6% of the Initial Pool Balance and (ii) 0.055% per annum with respect to
129 Mortgage Loans, representing 90.4% of the Initial Pool Balance, and will
be computed on the basis of the Stated Principal Balance of the related
Mortgage Loan. The Servicer will be responsible for paying the Trustee Fee
from the Servicing Fee. In addition to the Servicing Fee, the Servicer will
be entitled to retain, as additional servicing compensation, (i) all
assumption fees paid by the borrowers on Mortgage Loans that are not
Specially Serviced Mortgage Loans, and (ii) late payment charges and default
interest paid by the borrowers (other than on Specially Serviced Mortgage
Loans), but only to the extent the amounts are not needed to pay interest on
Advances. The Servicer also is authorized but not required to invest or
direct the investment of funds held in the Certificate Account and the
Distribution Accounts in Permitted Investments, and the Servicer will be
entitled to retain any interest or other income earned on such funds and will
bear any losses resulting from the investment of such funds. The Servicer
also is entitled to retain any interest earned on any servicing escrow
account to the extent such interest is not required to be paid to the related
borrowers. The Servicer will be obligated to pay the annual fees of each
Rating Agency and the fees of the Trustee.
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 at a rate equal to
0.25% per annum (the "Special Servicing Fee Rate") calculated on the basis of
the Stated Principal Balance of the related Specially Serviced Mortgage Loans
and on the basis of a 360-day year consisting of twelve 30-day months, and
will be payable monthly from the Trust Fund. 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 1.00% to each collection of
interest and principal (including scheduled payments, prepayments, Balloon
Payments, and payments at maturity) received on such Mortgage Loan for so
long as it remains a Corrected Mortgage Loan. The Workout Fee with respect to
any Corrected Mortgage Loan will cease to be payable if such Corrected
Mortgage Loan again becomes a Specially Serviced Mortgage Loan; 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), 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
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<PAGE>
Workout Fees), in each case until the Workout Fee for any such loan ceases to
be payable in accordance with the preceding sentence. A "Liquidation Fee"
will be payable with respect to each Specially Serviced Mortgage Loan as to
which the Special Servicer obtains a full or discounted payoff with respect
thereto from the related borrower and, except as otherwise described below,
with respect to any Specially Serviced Mortgage Loan or REO Property as to
which the Special Servicer receives any Liquidation Proceeds. As to each such
Specially Serviced Mortgage Loan, the Liquidation Fee will be payable from,
and will be calculated by application of a "Liquidation Fee Rate" of 1.00% to
the Net Liquidation Proceeds (defined below). Notwithstanding anything to the
contrary described above, no Liquidation Fee will be payable based on, or out
of, Liquidation Proceeds (defined below) received in connection with the
repurchase of any Mortgage Loan by the Mortgage Loan Seller for a breach of
representation or warranty or for defective or deficient Mortgage Loan
documentation, the purchase of any Specially Serviced Mortgage Loan by the
Servicer or the Special Servicer or the purchase of all of the Mortgage Loans
and REO Properties in connection with an optional termination of the Trust
Fund. If, however, Liquidation Proceeds are received with respect to any
Corrected Mortgage Loan and the Special Servicer is properly entitled to a
Workout Fee, such Workout Fee will be payable based on and out of the portion
of such Liquidation Proceeds that constitutes principal and/or interest. The
Special Servicer will be entitled to additional servicing compensation in the
form of all assumption fees on or with respect to Specially Serviced Mortgage
Loans and all modification fees with respect to all Mortgage Loans (without
regard to whether such Mortgage Loans are Specially Serviced Mortgage Loans).
The Special Servicer will also be entitled to late payment charges and
default interest paid by the borrowers on Specially Serviced Mortgage Loans,
but only to the extent such amounts are not needed to pay interest on
Advances. The Special Servicer will not be entitled to retain any portion of
Excess Interest paid on the ARD Loan. "Liquidation Proceeds" means cash
(other than insurance and condemnation proceeds and revenues from REO
Properties) received or paid by the Servicer in connection with (i) the
liquidation of a Mortgaged Property or other collateral constituting security
for a defaulted Mortgage Loan, (ii) the realization upon any deficiency
judgment obtained against a borrower; (iii) any sale of a defaulted Mortgage
Loan less related expenses. The Special Servicer will have the right to
consent to any assumption of a Mortgage Loan, which consent may not be
unreasonably withheld; provided that if the Special Servicer does not respond
to a request for consent to an assumption within ten Business Days of such
request it will be deemed to have consented to such assumption. The Special
Servicer will be entitled to receive, from amounts paid by the related
borrowers, a fee of $2,500 for every Mortgage Loan that is not a Specially
Serviced Mortgage Loan with respect to which it consents to an assumption.
Although the Servicer and the Special Servicer are each required to
service and administer the Mortgage Pool in accordance with the Servicing
Standards above and, accordingly, without regard to its right to receive
compensation under the Pooling and Servicing Agreement, additional servicing
compensation in the nature of assumption and modification fees may under
certain circumstances provide the Servicer or the Special Servicer, as the
case may be, with an economic disincentive to comply with such standard.
As and to the extent described herein under "Description of the
Certificates--Advances," the Servicer will be entitled to receive interest on
Advances, such interest to be paid contemporaneously with the reimbursement
of the related Advance.
Each of the Servicer and the Special Servicer generally will be required
to pay all expenses incurred by it in connection with its servicing
activities under the Pooling and Servicing Agreement and will not be entitled
to reimbursement therefor except as expressly provided in the Pooling and
Servicing Agreement. In connection therewith, the Servicer will be
responsible for all fees of any subservicers. See "Description of the
Certificates--Distributions--Method, Timing and Amount" herein and
"Description of the Pooling Agreements--Certificate Account" and "--Servicing
Compensation and Payment of Expenses" in the Prospectus.
MAINTENANCE OF INSURANCE
To the extent permitted by the related Mortgage Loan and required by the
Servicing Standards, the Servicer will use its reasonable best efforts to
cause each borrower to maintain, and if the borrower does
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not so maintain, shall itself maintain to the extent available at
commercially reasonable rates (as determined by the Servicer in accordance
with Servicing Standards), a fire and hazard insurance policy with extended
coverage covering the related Mortgaged Property. The coverage of each such
policy will be in an amount that is not less than the lesser of the full
replacement cost of the improvements securing such Mortgage Loan or the
outstanding principal balance owing on such Mortgage Loan, but in any event,
in an amount sufficient to avoid the application of any co-insurance clause
unless otherwise noted in the related Mortgage Loan documents. During all
such times as the Mortgaged Property is located in an area identified as a
federally designated special flood hazard area (and such flood insurance has
been made available), the Servicer will use its reasonable best efforts to
cause each borrower to maintain (to the extent required by the related
Mortgage Loan), and if the borrower does not so maintain, shall itself
maintain to the extent available at commercially reasonable rates (as
determined by the Servicer in accordance with the Servicing Standards), a
flood insurance policy in an amount representing coverage not less than the
lesser of (i) the outstanding principal balance of the related Mortgage Loan
and (ii) the maximum amount of insurance which is available under the Flood
Disaster Protection Act of 1973, as amended, but only to the extent that the
related Mortgage Loan permits the lender to require such coverage and
maintaining such coverage is consistent with the Servicing Standards. The
Special Servicer will be required to maintain (or cause to be maintained),
fire and hazard insurance on each REO Property, to the extent obtainable, in
an amount which is at least equal to the lesser of (i) an amount necessary to
avoid the application of any co-insurance clause and (ii) the full
replacement cost of the improvements on such REO Property. In addition,
during all such times as the REO Property is located in an area identified as
a federally designated special flood hazard area, the Special Servicer will
cause to be maintained, to the extent available at commercially reasonable
rates (as determined by the Special Servicer in accordance with the Servicing
Standards), a flood insurance policy meeting the requirements of the current
guidelines of the Federal Insurance Administration in an amount representing
coverage not less than the maximum amount of insurance which is available
under the Flood Disaster Protection Act of 1973, as amended. The Pooling and
Servicing Agreement provides that the Servicer and the Special Servicer may
satisfy their respective obligations to cause each borrower to maintain a
hazard insurance policy by maintaining a blanket or master single interest
policy insuring against hazard losses on the Mortgage Loans and REO
Properties. Any losses incurred with respect to Mortgage Loans or REO
Properties due to uninsured risks (including earthquakes, mudflows and
floods) or insufficient hazard insurance proceeds may adversely affect
payments to Certificateholders. Any cost incurred by the Servicer in
maintaining any such insurance policy if the borrower defaults on its
obligation to do so shall be advanced by the Servicer as a Servicing Advance
and will be charged to the related borrower. Generally, no borrower is
required by the Mortgage Loan documents to maintain earthquake insurance on
any Mortgaged Property and the Special Servicer will not be required to
maintain earthquake insurance on any REO Properties. Any cost of maintaining
any such required insurance or other earthquake insurance obtained by the
Special Servicer shall be paid out of a segregated custodial account (or
sub-account) created and maintained by the Special Servicer on behalf of the
Trustee in trust for the Certificateholders (the "REO Account") or advanced
by the Servicer as a Servicing Advance.
Such costs may be recovered by the Servicer from reimbursements received
from the borrower or, if the borrower does not pay such amounts, as Servicing
Advances as set forth in the Pooling and Servicing Agreement.
No pool insurance policy, special hazard insurance policy, bankruptcy
bond, repurchase bond or certificate guarantee insurance will be maintained
with respect to the Mortgage Loans, nor will any Mortgage Loan be subject to
FHA insurance.
MODIFICATIONS, WAIVER AND AMENDMENTS
The Special Servicer may agree to extend the Maturity Date of a Mortgage
Loan that is not a Specially Serviced Mortgage Loan; provided, however, that,
no such extension entered into by the Special Servicer shall extend the
Maturity Date beyond the earlier of (i) two years prior to the Rated Final
Distribution Date and (ii) in the case of a Mortgage Loan secured by a
leasehold estate, the date ten years prior to the expiration of such
leasehold estate; and provided further that, if such extension would extend
the Maturity Date of a Mortgage Loan for more than twelve months from and
after the original Maturity
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Date of such Mortgage Loan, the Special Servicer must obtain the opinion of
counsel described in the next sentence. Except as otherwise set forth in this
paragraph, the Special Servicer (or in certain circumstances the Servicer)
may not waive, modify or amend any provision of a Mortgage Loan which is not
in default or as to which default is not reasonably foreseeable except for
(i) the waiver of any due-on-sale clause or due-on-encumbrance clause to the
extent permitted in the Pooling and Servicing Agreement, and (ii) any waiver,
modification or amendment that would not be a "significant modification" of
the Mortgage Loan within the meaning of Treasury Regulations Section
1.860G-2(b) and as to which the Special Servicer has provided the Trustee
with an opinion of counsel that such waiver, modification or amendment will
not constitute such a "significant modification."
If, but only if, the Special Servicer determines that a modification,
waiver or amendment (including the forgiveness or deferral of interest or
principal or the substitution or release of collateral or the pledge of
additional collateral) of the terms of a Specially Serviced Mortgage Loan
with respect to which a payment default or other material default has
occurred or a payment default or other material default is, in the Special
Servicer's judgment, reasonably foreseeable, is reasonably likely to produce
a greater recovery on a present value basis (the relevant discounting to be
performed at the related Mortgage Rate) than liquidation of such Specially
Serviced Mortgage Loan, then the Special Servicer may, but is not required
to, agree to a modification, waiver or amendment of such Specially Serviced
Mortgage Loan, subject to the restrictions and limitations described below.
The Special Servicer will use its best efforts to the extent possible to
fully amortize a modified Mortgage Loan prior to the Rated Final Distribution
Date.
The Special Servicer may not agree to a modification, waiver or amendment
of any term of any Specially Serviced Mortgage Loan if such modification,
waiver or amendment would:
(i) extend the Maturity Date of any such Specially Serviced Mortgage Loan
to a date occurring later than the earlier of (A) two years prior to the
Rated Final Distribution Date and (B) if such Specially Serviced Mortgage
Loan is secured by a leasehold estate, the date ten years prior to the
expiration of such leasehold;
(ii) reduce the related Net Mortgage Rate to less than the lesser of (A)
the original Net Mortgage Rate and (B) the highest Pass-Through Rate on
any Class of Certificates (other than the Class X Certificates); or
(iii) provide for the deferral of interest unless (A) interest accrues
thereon, generally, at the related Mortgage Rate and (B) the aggregate
amount of such deferred interest does not exceed 10% of the unpaid
principal balance of such Specially Serviced Mortgage Loan.
In the event of a modification which creates a deferral of interest, the
Pooling and Servicing Agreement will provide that the amount of deferred
interest will be allocated to reduce the Distributable Certificate Interest
of the Class or Classes (other than the Class X Certificates) with the latest
alphabetical designation then outstanding, and to the extent so allocated,
shall be added to the Certificate Balance of such Class or Classes.
The Special Servicer or the Servicer, as the case may be, will notify each
other, the Rating Agencies and the Trustee of any modification, waiver or
amendment of any term of any Mortgage Loan and must deliver to the Trustee
for deposit in the related mortgage file, an original counterpart of the
agreement related to such modification, waiver or amendment, promptly
following the execution thereof. Copies of each agreement whereby any such
modification, waiver or amendment of any term of any Mortgage Loan is
effected are to be available for review during normal business hours at the
offices of the Trustee. See "Description of the Certificates--Reports to
Certificateholders; Certain Available Information" herein.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
Pursuant to the Pooling and Servicing Agreement, 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, is
required to exercise reasonable efforts, consistent with the servicing
standard set forth in the Pooling and Servicing Agreement, to institute
foreclosure proceedings, exercise any power of sale
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contained in the related Mortgage, obtain a deed in lieu of foreclosure or
otherwise acquire title to the related Mortgaged Property. The Special
Servicer may not, however, acquire title to any Mortgaged Property or take
any other action with respect to any Mortgaged Property that would cause the
Trustee, for the benefit of the 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 received a report prepared by a person who regularly conducts
environmental audits (which report will be paid by the Servicer as a
Servicing Advance) and either:
(i) such report indicates that (a) the Mortgaged Property is in
compliance with applicable environmental laws and regulations and (b)
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
(ii) the Special Servicer, based solely (as to environmental matters and
related costs) on the information set forth in such report, determines
that taking such actions as are necessary to bring the Mortgaged Property
into compliance with applicable environmental laws and regulations and/or
taking the actions contemplated by clause (i)(b) above, is reasonably
likely to produce a greater recovery, taking into account the time value
of money, than not taking such actions. See "Certain Legal Aspects of
Mortgage Loans--Environmental Risks" in the Prospectus.
The Pooling and Servicing Agreement grants to the Servicer, the Special
Servicer and the Controlling Class Certificateholder a right of first refusal
to purchase from the Trust Fund, at the Purchase Price, any Mortgage Loan as
to which two scheduled payments are delinquent. In addition, the Special
Servicer may offer to sell any such defaulted Mortgage Loan if and when the
Special Servicer determines, consistent with the Servicing Standards, that
such a sale would produce a greater recovery, taking into account the time
value of money, than would liquidation of the related Mortgaged Property. In
the absence of any such sale, the Special Servicer will generally be required
to proceed against the related Mortgaged Property, subject to the discussion
above.
If title to any Mortgaged Property is acquired by the Trust Fund, the
Special Servicer, on behalf of the Trust Fund, will be required to sell the
Mortgaged Property prior to the close of the third calendar year following
the year of acquisition, unless (i) the Internal Revenue Service (the "IRS")
grants an extension of time to sell such property or (ii) the Trustee
receives an opinion of independent counsel to the effect that the holding of
the property by the Trust Fund longer than such period will not result in the
imposition of a tax on either the Upper-Tier REMIC or the Lower-Tier REMIC or
cause the Trust Fund (or either the Upper-Tier REMIC or the Lower-Tier REMIC)
to fail to qualify as a REMIC under the Code at any time that any Certificate
is outstanding. Subject to the foregoing and any other tax-related
limitations, pursuant to the Pooling and Servicing Agreement, the Special
Servicer will generally be required to attempt to sell any Mortgaged Property
so acquired on the same terms and conditions it would if it were the owner.
The Special Servicer will also be required to ensure that any Mortgaged
Property acquired by the Trust Fund is administered so that it constitutes
"foreclosure property" within the meaning of Code Section 860G(a)(8) at all
times, that the sale of such property does not result in the receipt by the
Trust Fund of any income from nonpermitted assets as described in Code
Section 860F(a)(2)(B). If the Trust Fund acquires title to any Mortgaged
Property, the Special Servicer, on behalf of the Trust Fund, will retain, at
the expense of the Trust Fund, 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 as required under the Pooling and Servicing Agreement.
Generally, neither the Upper-Tier REMIC nor the Lower-Tier REMIC will be
taxable on income received with respect to a Mortgaged Property acquired by
the Trust Fund to the extent that it constitutes "rents from real property,"
within the meaning of Code Section 856(c)(3)(A) and Treasury regulations
thereunder. "Rents from real property" include fixed rents and rents based on
the receipts or sales of a tenant but do not include the portion of any
rental based on the net income or profit of any tenant or
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sub-tenant. No determination has been made whether rent on any of the
Mortgaged Properties meets this requirement. "Rents from real property"
include charges for services customarily furnished or rendered in connection
with the rental of real property, whether or not the charges are separately
stated. Services furnished to the tenants of a particular building will be
considered as customary if, in the geographic market in which the building is
located, tenants in buildings which are of similar class are customarily
provided with the service. No determination has been made whether the
services furnished to the tenants of the Mortgaged Properties are "customary"
within the meaning of applicable regulations. It is therefore possible that a
portion of the rental income with respect to a Mortgaged Property owned by
the Trust Fund, presumably allocated based on the value of any non-qualifying
services, would not constitute "rents from real property." Any of the
foregoing types of income may instead constitute "net income from foreclosure
property," which would be taxable to the Lower-Tier REMIC at the highest
marginal federal corporate rate (currently 35%) and may also be subject to
state or local taxes. Because these sources of income, if they exist, are
already in place with respect to the Mortgaged Properties, it is generally
viewed as beneficial to Certificateholders to permit the Trust Fund to
continue to earn them if it acquires a Mortgaged Property, even at the cost
of this tax. Any such taxes would be chargeable against the related income
for purposes of determining the proceeds available for distribution to
holders of Certificates. See "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates" and
"--Taxes That May Be Imposed on the REMIC Pool--Net Income from Foreclosure
Property" in the Prospectus.
To the extent that Liquidation Proceeds collected with respect to any
Mortgage Loan are less than the sum of (i) the outstanding principal balance
of such Mortgage Loan, (ii) interest accrued thereon and (iii) the aggregate
amount of outstanding reimbursable expenses (including any unreimbursed
Servicing Advances and unpaid and accrued interest thereon) incurred with
respect to such Mortgage Loan, then the Trust Fund will realize a loss in the
amount of such shortfall. The Trustee, the Servicer and/or the Special
Servicer will be entitled to reimbursement out of the Liquidation Proceeds
recovered on any Mortgage Loan, prior to the distribution of such Liquidation
Proceeds to Certificateholders, of any and all amounts that represent unpaid
servicing compensation in respect of such Mortgage Loan, certain unreimbursed
expenses incurred with respect to such Mortgage Loan and any unreimbursed
Advances made with respect to such Mortgage Loan. In addition, amounts
otherwise distributable on the Certificates will be further reduced by
interest payable to the Servicer or Trustee on any such Advances.
If any Mortgaged Property suffers damage such that the proceeds, if any,
of the related hazard insurance policy are insufficient to restore fully the
damaged property, the Servicer will not be required to expend its own funds
to effect such restoration unless (i) the Special Servicer determines that
such restoration will increase the proceeds to Certificateholders on
liquidation of the Mortgage Loan after reimbursement of the Special Servicer
or the Servicer, as the case may be, for its expenses and (ii) the Servicer
determines that such expenses will be recoverable by it from related
Insurance and Condemnation Proceeds and Liquidation Proceeds.
INSPECTIONS; COLLECTION OF OPERATING INFORMATION
The Servicer will perform (at its own expense), or shall cause to be
performed (at its own expense), physical inspections of each Mortgaged
Property at such times and in such manner as are consistent with the
Servicing Standards, but in any event shall inspect each Mortgaged Property
securing a Mortgage Note with a Stated Principal Balance of (A) $2,000,000 or
more at least once every 12 months and (B) less than $2,000,000 at least once
every 24 months, in each case commencing in the calendar year 1999; provided,
however, that if the Servicer has a reasonable basis to believe that (i) the
DSCR with respect to any Mortgage Loan has decreased by 25% or more from the
DSCR as of the Cut-off Date or (ii) the DSCR with respect to any Mortgaged
Property has decreased to 1.05x or less, the Servicer shall inspect the
related Mortgaged Property as soon as practicable thereafter (the cost of
which inspection shall be a Servicing Advance); provided, further, however,
that if any scheduled payment becomes more than 60 days delinquent on the
related Mortgage Loan, the Special Servicer shall inspect the related
Mortgaged Property as soon as practicable thereafter (the cost of which
inspection shall be a Servicing Advance). The Special Servicer or the
Servicer, as applicable, will prepare a written report of each such
inspection describing the condition of and any damage to the Mortgaged
Property and specifying the existence of any
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material vacancies in the Mortgaged Property, of any sale, transfer or
abandonment of the Mortgaged Property, of any material change in the
condition of the Mortgaged Property, or of any waste committed thereon.
With respect to each Mortgage Loan that requires the borrower to deliver
such statements, the Special Servicer or the Servicer, as applicable, is also
required to collect and review the annual operating statements of the related
Mortgaged Property. Most of the Mortgages obligate the related borrower to
deliver annual property operating statements. However, there can be no
assurance that any operating statements required to be delivered will in fact
be delivered, nor is the Special Servicer or the Servicer likely to have any
practical means of compelling such delivery in the case of an otherwise
performing Mortgage Loan.
Copies of the inspection reports and operating statements referred to
above are to be available for review by Certificateholders during normal
business hours at the offices of the Trustee. See "Description of the
Certificates--Reports to Certificateholders; Certain Available Information"
herein.
CERTAIN MATTERS REGARDING THE SERVICER, THE SPECIAL SERVICER AND THE
DEPOSITOR
The Pooling and Servicing Agreement permits the Servicer and the Special
Servicer to resign from their respective obligations thereunder only upon (a)
in the case of the Servicer only, 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, in and of itself, not cause a downgrade, withdrawal or
qualification of the rating assigned by such Rating Agency to any Class of
Certificates or (b) a determination that such obligations are no longer
permissible with respect to the Servicer or the Special Servicer, as the case
may be, 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 Servicer or Special
Servicer, as the case may be, under the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement will provide that none of the
Servicer, the Special Servicer, the Depositor or any director, officer,
employee or agent of any of them will be under any liability to the Trust
Fund or the Certificateholders for any action taken, or not taken, in good
faith pursuant to the Pooling and Servicing Agreement or for errors in
judgment; provided, however, that none of the Servicer, the Special Servicer,
the Depositor or any such person will be protected against any liability that
would otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in the performance of obligations or duties thereunder or by
reason of reckless disregard of such obligations and duties. The Pooling and
Servicing Agreement will also provide that the Servicer, the Special
Servicer, the Depositor and any director, officer, employee or agent of any
of them will be entitled to indemnification by the related Trust Fund against
any loss, liability or expense incurred in connection with any legal action
that relates to the Pooling and Servicing Agreement or the Certificates;
provided, however, that such indemnification will not extend to any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
negligence in the performance of obligations or duties under the Pooling and
Servicing Agreement, by reason of reckless disregard of such obligations or
duties, or in the case of the Depositor and any of its directors, officers,
employees and agents, any violation by any of them of any state or federal
securities law.
In addition, the Pooling and Servicing Agreement will provide that none of
the Servicer, the Special Servicer or the Depositor will be under any
obligation to appear in, prosecute or defend any legal action that is not
incidental to its respective responsibilities under the Pooling and Servicing
Agreement and that in its opinion may involve it in any expense or liability.
However, each of the Servicer, the Special Servicer and the Depositor will be
permitted, in the exercise of its discretion, to undertake any such action
that it may deem necessary or desirable with respect to the enforcement
and/or protection of the rights and duties of the parties to the Pooling and
Servicing Agreement and the interests of the Certificateholders thereunder.
In such event, the legal expenses and costs of such action, and any liability
resulting therefrom, will be expenses, costs and liabilities of the
Certificateholders, and the Servicer, the Special Servicer or the Depositor,
as the case may be, will be entitled to charge the Certificate Account
therefor.
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Pursuant to the Pooling and Servicing Agreement, the Servicer and Special
Servicer will each 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 Pooling and Servicing Agreement.
Notwithstanding the foregoing, the Servicer will be allowed to self-insure
with respect to a fidelity bond so long as certain conditions set forth in
the Pooling and Servicing Agreement are met.
Any person into which the Servicer, the Special Servicer or the Depositor
may be merged or consolidated, or any person resulting from any merger or
consolidation to which the Servicer, the Special Servicer or the Depositor is
a party, or any person succeeding to the business of the Servicer, the
Special Servicer or the Depositor, will be the successor of the Servicer, the
Special Servicer or the Depositor, as the case may be, under the Pooling and
Servicing Agreement. The Servicer and the Special Servicer may have other
normal business relationships with the Depositor or the Depositor's
affiliates.
EVENTS OF DEFAULT
"Events of Default" under the Pooling and Servicing Agreement with respect
to the Servicer or the Special Servicer, as the case may be, will include,
without limitation, (i) any failure by the Servicer to make any remittance
required to be made by the Servicer on the day and by the time such
remittance is required to be made under the terms of the Pooling and
Servicing Agreement; (ii) any failure by the Special Servicer to deposit into
the REO Account within one business day after the day such deposit is
required to be made, or to remit to the Servicer for deposit in the
Certificate Account any such remittance required to be made by the Special
Servicer on the day such remittance is required to be made under the Pooling
and Servicing Agreement; (iii) any failure by the Servicer or the Special
Servicer duly to observe or perform in any material respect any of its other
covenants or obligations under the Pooling and Servicing Agreement, which
failure continues unremedied for thirty days after written notice thereof has
been given to the Servicer or the Special Servicer, as the case may be, by
any other party to the Pooling and Servicing Agreement, or to the Servicer or
the Special Servicer, as the case may be, with a copy to each other party to
the related Pooling and Servicing Agreement, by Certificateholders of any
Class, evidencing, as to such Class, Percentage Interests aggregating not
less than 25%; (iv) certain events of insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings in respect of or
relating to the Servicer or the Special Servicer, and certain actions by or
on behalf of the Servicer or the Special Servicer indicating its insolvency
or inability to pay its obligations; and (v) the Trustee shall have received
written notice from either Rating Agency that the continuation, of the
Servicer or the Special Servicer in such capacity would result, or has
resulted, in a downgrade, qualification or withdrawal of any rating then
assigned by such Rating Agency to any Class of Certificates.
RIGHTS UPON EVENT OF DEFAULT
If an Event of Default occurs with respect to the Servicer or the Special
Servicer under the Pooling and Servicing Agreement, then, in each and every
such case, so long as the Event of Default remains unremedied, the Depositor
or the Trustee will be authorized, and at the direction of Certificateholders
entitled to not less than 51% of the Voting Rights, the Trustee will be
required, to terminate all of the rights and obligations of the defaulting
party as Servicer or Special Servicer, as applicable, under the Pooling and
Servicing Agreement, whereupon the Trustee will succeed to all of the
responsibilities, duties and liabilities of the defaulting party as Servicer
or Special Servicer, as applicable, under the Pooling and Servicing Agreement
and will be entitled to similar compensation arrangements. If the Trustee is
unwilling or unable so to act, it may (or, at the written request of
Certificateholders entitled to not less than 51% of the Voting Rights, it
will be required to) appoint, or petition a court of competent jurisdiction
to appoint, a loan servicing or other entity that would not result in the
downgrading, qualification or withdrawal of the ratings assigned to any Class
of Certificates by any Rating Agency to act as successor to the Servicer or
Special Servicer, as the case may be, under the Pooling and Servicing
Agreement.
No Certificateholder will have any right under the Pooling and Servicing
Agreement to institute any proceeding with respect to the Certificates or the
Pooling and Servicing Agreement unless such holder
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previously has given to the Trustee written notice of default and the
continuance thereof and unless the holders of Certificates of any Class
evidencing not less than 25% of the aggregate Percentage Interests
constituting such Class have made written request upon the Trustee to
institute such proceeding in its own name (as Trustee thereunder) and have
offered to the Trustee reasonable indemnity, and the Trustee for 60 days
after receipt of such request and indemnity has neglected or refused to
institute any such proceeding. However, the Trustee will be under no
obligation to exercise any of the trusts or powers vested in it by the
Pooling and Servicing Agreement or to institute, conduct or defend any
litigation thereunder or in relation thereto at the request, order or
direction of any of the Certificateholders, 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
The Pooling and Servicing Agreement may be amended by the parties thereto,
without the consent of any of the holders of Certificates (i) to cure any
ambiguity, (ii) to correct or supplement any provision therein which may be
inconsistent with any other provision therein or to correct any error, (iii)
to change the timing and/or nature of deposits in the Certificate Account,
the Distribution Accounts or the REO Account, provided that (A) the date of
any P&I Advance would not be later than the related Distribution Date, (B)
such change would not adversely affect in any material respect the interests
of any Certificateholder, as evidenced by an opinion of counsel (at the
expense of the party requesting the amendment) and (C) such change would not
result in the downgrading, qualification or withdrawal of the ratings
assigned to any Class of Certificates by any Rating Agency, as evidenced by a
letter from each Rating Agency, (iv) to modify, eliminate or add to any of
its provisions (A) to such extent as shall be necessary to maintain the
qualification of the Trust Fund (or either the Upper-Tier REMIC or Lower-Tier
REMIC) as a REMIC or to avoid or minimize the risk of imposition of any tax
on the Trust Fund, provided that the Trustee has received a satisfactory
opinion of counsel (at the expense of the party requesting the amendment) to
the effect that (1) such action is necessary or desirable to maintain such
qualification or to avoid or minimize such risk and (2) such action will not
adversely affect in any material respect the interests of any holder of the
Certificates and (3) such change shall not result in the withdrawal,
downgrade or qualification of the then-current rating assigned to any Class
of Certificates or (B) to restrict the transfer of the Residual Certificates,
provided that the Depositor has determined that the then-current ratings of
any Class of the Certificates will not be downgraded, qualified or withdrawn,
as evidenced by a letter from each Rating Agency, and that any such amendment
will not give rise to any tax with respect to the transfer of the Residual
Certificates to a non-permitted transferee, as evidenced by a satisfactory
opinion of counsel (at the expense of the party requesting the amendment)
(see "Certain Federal Income Tax Consequences--Federal Income Tax
Consequences for REMIC Certificates--Taxation of Residual
Certificates--Tax-Related Restrictions on Transfer of Residual Certificates"
in the Prospectus), (v) to make any other provisions with respect to matters
or questions arising under the Pooling and Servicing Agreement or any other
change, provided that such action will not adversely affect in any material
respect the interests of any Certificateholder or (vi) to amend or supplement
any provision of the Pooling and Servicing Agreement to the extent necessary
to maintain the ratings assigned to each Class of Certificates by each Rating
Agency.
The Pooling and Servicing Agreement may also be amended by the parties
thereto with the consent of the holders of Certificates of each Class
affected thereby evidencing, in each case, not less than 66 2/3% of the
aggregate Percentage Interests constituting such Class for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of the Pooling and Servicing Agreement or of modifying in any
manner the rights of the holders of the Certificates, except that no such
amendment may (i) reduce in any manner the amount of, or delay the timing of,
payments received on the Mortgage Loans which are required to be distributed
on a Certificate of any Class without the consent of the Holder of such
Certificate, (ii) reduce the aforesaid percentage of Certificates of any
Class without the consent of the holders of all Certificates of such Class
then outstanding or (iii) adversely affect the Voting Rights of any Class of
Certificates without the consent of the holders of all Certificates of such
Class then outstanding of (iv) amend the amendment provisions of the Pooling
and Servicing.
S-112
<PAGE>
Notwithstanding the foregoing, the Trustee will not be required to consent
to any amendment to the Pooling and Servicing Agreement without having first
received an opinion of counsel (at the Trust Fund's expense) to the effect
that such amendment or the exercise of any power granted to the Servicer, the
Special Servicer, the Depositor, the Trustee or any other specified person in
accordance with such amendment, will not result in the imposition of a tax on
the REMIC constituted by the Trust Fund or cause the Trust Fund (or either
the Upper-Tier REMIC or Lower-Tier REMIC) to fail to qualify as a REMIC.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, O'Melveny & Myers LLP,
counsel to the Depositor, will deliver its opinion that, assuming (i) the
making of appropriate elections, (ii) compliance with the provisions of the
Pooling and Servicing Agreement and (iii) compliance with applicable changes
in the Code, including the REMIC Provisions, for federal income tax purposes,
the Trust Fund will qualify as two separate real estate mortgage investment
conduits (the "Upper-Tier REMIC" and the "Lower-Tier REMIC," respectively,
and each a "REMIC") within the meaning of Sections 860A through 860G (the
"REMIC Provisions") of the Code, and (i) the Class A-1, Class A-2, Class X,
Class B, Class C, Class D, Class E, Class F, Class G, Class H, Class I, Class
J and Class K Certificates will evidence the "regular interests" in the
Upper-Tier REMIC and (ii) the Class R and Class LR Certificates will be the
sole classes of "residual interests" in the Upper-Tier REMIC and Lower-Tier
REMIC, respectively, within the meaning of the REMIC Provisions in effect on
the date hereof. The Offered Certificates are "Regular Certificates" as
defined in the Prospectus.
Because they represent regular interests, each Class of Offered
Certificates generally will be treated as newly originated debt instruments
for federal income tax purposes. Holders of such Classes of Certificates will
be required to include in income all interest on such Certificates in
accordance with the accrual method of accounting, regardless of a
Certificateholder's usual method of accounting. It is anticipated that the
Class D and Class E Certificates will be issued with OID for federal income
tax purposes in an amount equal to the excess of the initial Certificate
Balances thereof over their respective issue prices (including accrued
interest). It is also anticipated that the Class A-1, Class A-2, Class B and
Class C Certificates will be issued at a premium. The prepayment assumption
that will be used in determining the rate of accrual of OID and that may be
used to amortize premium, if any, for federal income tax purposes will be
based on the assumption that subsequent to the date of any determination the
Mortgage Loans will prepay at a rate equal to a CPR of 0%; provided, however,
that it is further assumed that each ARD Loan prepays on its Anticipated
Repayment Date (the "Prepayment Assumption"). No representation is made that
the Mortgage Loans will prepay at that rate or at any other rate. See
"Certain Federal Income Tax Consequences--Federal Income Tax Consequences for
REMIC Certificates--Taxation of Regular Certificates--Original Issue
Discount" and "--Premium" in the Prospectus.
Yield Maintenance Charges actually collected will be distributed among the
holders of the respective Classes of Certificates as described herein under
"Description of the Certificates--Allocation of Yield Maintenance Charges."
It is not entirely clear under the Code when the amount of Yield Maintenance
Charges so allocated should be taxed to the holder of an Offered Certificate,
but it is not expected, for federal income tax reporting purposes, that Yield
Maintenance Charges will be treated as giving rise to any income to the
holder of an Offered Certificate prior to the Servicer's actual receipt of a
Yield Maintenance Charge. It appears that Yield Maintenance Charges, if any,
will be treated as ordinary income rather than capital gain. However, that
result is not entirely clear and Certificateholders should consult their own
tax advisers concerning the treatment of Yield Maintenance Charges.
The Offered Certificates will be treated as "real estate assets" within
the meaning of Section 856(c)(4)(A) of the Code, and interest (including OID,
if any) on the Offered Certificates will be interest described in Section
856(c)(3)(B) of the Code. Moreover, the Offered Certificates will be
"qualified mortgages" within the meaning of Section 860G(a)(3) of the Code.
The Offered Certificates will be treated as "loans . . . secured by an
interest in real property which is . . . residential real property" to the
extent such loans are secured by multifamily properties and mobile home
communities, respectively. As
S-113
<PAGE>
of the Cut-Off Date, Mortgage Loans secured by multifamily properties
represented approximately 14.1% of the Initial Pool Balance; and the Mortgage
Loans secured by mobile home communities represented approximately 4.1% of
the Initial Pool Balance. See "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates--Status
of REMIC Certificates" in the Prospectus.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC
Certificates--Taxation of Regular Certificates" in the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement between the Depositor and the Underwriter, the Offered Certificates
will be purchased from the Depositor by the Underwriter, an affiliate of the
Depositor, upon issuance.
The Depositor has been advised by the Underwriter that it proposes to
offer the Offered Certificates to the public from time to time in one or more
negotiated transactions, or otherwise, at varying prices to be determined at
the time of sale. Proceeds to the Depositor from the sale of Offered
Certificates, before deducting expenses payable by the Depositor, estimated
to be approximately $2,100,000, will be 100.780% of the initial aggregate
Certificate Balance of the Offered Certificates, plus accrued interest on the
Offered Certificates from the Cut-off Date. The Underwriter may effect such
transactions by selling Offered Certificates to or through dealers, and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriter. In connection with the
purchase and sale of the Offered Certificates offered hereby, the Underwriter
may be deemed to have received compensation from the Depositor in the form of
underwriting discounts.
Bear, Stearns & Co. Inc. is an affiliate of the Mortgage Loan Seller and
the Depositor.
There can be no assurance that a secondary market for the Offered
Certificates will develop or, if it does develop, that it will continue. The
Underwriter expects to make, but is not obligated to make, a secondary market
in the Offered Certificates. The primary source of ongoing information
available to investors concerning the Offered Certificates will be the
monthly statements discussed in the Prospectus under "Description of the
Certificates--Reports to Certificateholders," which will include information
as to the outstanding principal balance of the Offered Certificates and the
status of the applicable form of credit enhancement. Except as described
herein under "Description of the Certificates--Reports to Certificateholders;
Certain Available Information," there can be no assurance that any additional
information regarding the Offered Certificates will be available through any
other source. In addition, the Depositor is not aware of any source through
which price information about the Offered Certificates will be generally
available on an ongoing basis. The limited nature of such information
regarding the Offered Certificates may adversely affect the liquidity of the
Offered Certificates, even if a secondary market for the Offered Certificates
becomes available.
If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will be used by Bear, Stearns & Co.
Inc. in connection with offers and sales related to market-making
transactions in the Offered Certificates with respect to which Bear, Stearns
& Co. Inc. acts as principal. Bear, Stearns & Co. Inc. may also act as agent
in such transactions. Sales may be made at negotiated prices determined at
the time of sale.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor and the
Underwriter by O'Melveny & Myers LLP, New York, New York.
S-114
<PAGE>
RATINGS
It is a condition to issuance that the Offered Certificates be rated not
lower than the following ratings by the Rating Agencies:
<TABLE>
<CAPTION>
CLASS MOODY'S DCR
- --------- ----------- -------
<S> <C> <C>
A-1 ...... Aaa AAA
A-2 ...... Aaa AAA
B ........ Aa2 AA
C ........ A2 A
D ........ Baa2 BBB
E ........ Baa3 BBB-
</TABLE>
A securities rating on mortgage pass-through certificates addresses the
likelihood of the timely payment of interest on the Certificates and ultimate
payment of principal thereof by the Rated Final Distribution Date. The rating
takes 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
required under the certificates. The ratings on the Offered Certificates do
not, however, constitute a statement regarding the likelihood or frequency of
prepayments (whether voluntary or involuntary) on the Mortgage Loans. In
addition, a rating does not address the likelihood or frequency of voluntary
or mandatory prepayments of Mortgage Loans, payment of Excess Interest, or
whether and to what extent payments of Yield Maintenance Charges will be
received or the corresponding effect on yield to investors.
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
Depositor to do so may be lower than the rating assigned thereto by Moody's
or DCR.
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.
LEGAL INVESTMENT CONSIDERATIONS
The Offered Certificates will not constitute "mortgage related securities"
within the meaning of the Secondary Mortgage Market Enhancement Act of 1984
("SMMEA").
The Depositor makes no representation 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 the Offered
Certificates under applicable legal investment or other restrictions. All
institutions whose investment activities are subject to legal investment laws
and regulations, regulatory capital requirements or review by regulatory
authorities should consult with their own legal advisors in determining
whether and to what extent the Offered Certificates constitute legal
investments for them or are subject to investment, capital or other
restrictions.
See "Legal Investment" in the Prospectus.
S-115
<PAGE>
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities, Keogh
plans and collective investment funds and separate accounts in which such
plans, annuities, accounts or arrangements are invested, including insurance
company general accounts, that is subject to the fiduciary responsibility
rules of ERISA, or Section 4975 of the Code (an "ERISA Plan") or which is a
governmental plan, as defined in Section 3(32) of ERISA, subject to any
federal, state or local law ("Similar Law") which is, to a material extent,
similar to the foregoing provisions of ERISA or the Code (collectively, with
an ERISA Plan, a "Plan") should review with its legal advisors whether the
purchase or holding of Offered Certificates could give rise to a transaction
that is prohibited or is not otherwise permitted either under ERISA, the Code
or Similar Law and whether there exists any statutory or administrative
exemption applicable thereto. Moreover, each Plan fiduciary should determine
whether an investment in the Offered Certificates is appropriate for the
Plan, taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
The U.S. Department of Labor has issued to Bear, Stearns & Co. Inc. an
individual prohibited transaction exemption, Prohibited Transaction Exemption
90-33, 55 Fed. Reg. 21,461 (May 24, 1990), as amended by Prohibited
Transaction Exemption 97-34, 62 Fed. Reg. 39,021 (July 21, 1997) (the
"Exemption"), which generally exempts from the application of the prohibited
transaction provisions of Section 406 of ERISA, and the excise taxes imposed
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 Class A Certificates, underwritten by
the Underwriter, provided that certain conditions set forth in the Exemption
are satisfied.
The Exemption sets forth six general conditions that must be satisfied for
a transaction involving the purchase, sale and holding of the Class A
Certificates to be eligible for exemptive relief thereunder. First, the
acquisition of the Senior Certificates by a Plan must be on terms that are at
least as favorable to the Plan as they would be in an arm's-length
transaction with an unrelated party. Second, the rights and interests
evidenced by the Senior Certificates must not be subordinated to the rights
and interests evidenced by the other certificates of the same trust. Third,
the Class A Certificates at the time of acquisition by the Plan must be rated
in one of the three highest generic rating categories by at least one of
Standard & Poor's Ratings Group, Moody's, DCR or Fitch IBCA, Inc. Fourth, the
Trustee cannot be an affiliate of any other member of the "Restricted Group",
which consists of the Underwriter, the Depositor, the Trustee, the Servicer,
the Special Servicer, any sub-servicer and any mortgagor with respect to
Mortgage Loans constituting more than 5% of the aggregate unamortized
principal balance of the Mortgage Loans as of the date of initial issuance of
the Class A Certificates. Fifth, the sum of all payments made to and retained
by the Underwriter must represent not more than reasonable compensation for
underwriting the Class A Certificates, the sum of all payments made to and
retained by the Depositor pursuant to the assignment of the Mortgage Loans to
the Trust Fund must represent not more than the fair market value of such
obligations and the sum of all payments made to and retained by the Servicer,
the Special Servicer and any sub-servicer must represent not more than
reasonable compensation for such person's services under the Pooling and
Servicing Agreement and reimbursement of such person's reasonable expenses in
connection therewith. Sixth, the investing Plan must be an accredited
investor as defined in Rule 501(a)(1) of Regulation D of the Securities and
Exchange Commission under the Securities Act of 1933, as amended.
Because the Class A Certificates are not subordinated to any other Class
of Certificates, the second general condition set forth above is satisfied
with respect to such Certificates. It is a condition of the issuance of the
Class A Certificates that they be rated not lower than "Aaa" by Moody's and
"AAA" by DCR. As of the Closing 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 Class A Certificate in the secondary
market must make its own determination that, at the time of such purchase the
Class A Certificates continue to satisfy the third and fourth general
conditions set forth above. A fiduciary of a
S-116
<PAGE>
Plan contemplating purchasing a Class A Certificate, whether in the initial
issuance of such Certificates or in the secondary market, must make its own
determination that the first, fifth and sixth general conditions set forth
above will be satisfied with respect to such Class A Certificate.
The Exemption also requires that the Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type
that have been included in other investment pools; (ii) certificates in such
other investment pools must have been rated in one of the three highest
categories of S&P's, Moody's, Fitch or DCR for at least one year prior to the
Plan's acquisition of Class A Certificates; and (iii) certificates in such
other investment pools must have been purchased by investors other than Plans
for at least one year prior to any Plan's acquisition of Class A
Certificates.
If the general conditions of the Exemption are satisfied, the Exemption
may provide an exemption from the restrictions imposed by Sections 406(a) and
407(a) of ERISA (as well as the excise taxes imposed by Sections 4975(a) and
(b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code)
in connection with (i) the direct or indirect sale, exchange or transfer of
Senior Certificates in the initial issuance of Certificates between the
Depositor or an Underwriter and a Plan when the Depositor, an Underwriter,
the Trustee, the Servicer, the Special Servicer, a sub-servicer or a borrower
is a Party in Interest with respect to the investing Plan, (ii) the direct or
indirect acquisition or disposition in the secondary market of the Class A
Certificates by a Plan and (iii) the holding of Class A Certificates by a
Plan. However, no exemption is provided from the restrictions of Sections
406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or holding of a
Class A Certificate on behalf of an "Excluded Plan" or any person who has
discretionary authority or renders investment advice with respect to the
assets of such Excluded Plan. For purposes hereof, an Excluded Plan is a Plan
sponsored by any member of the Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA and the taxes imposed by Section 4975(c)(1)(E)
of the Code in connection with (1) the direct or indirect sale, exchange or
transfer of Class A Certificates in the initial issuance of Certificates
between the Depositor or an Underwriter and a Plan when the person who has
discretionary authority or renders investment advice with respect to the
investment of Plan assets in such Certificates is (a) a borrower with respect
to 5% or less of the fair market value of the Mortgage Loans or (b) an
affiliate of such a person, (2) the direct or indirect acquisition or
disposition in the secondary market of Class A Certificates by a Plan and (3)
the holding of Class A Certificates by a Plan.
Further, if certain specific conditions of the Exemption are satisfied,
the Exemption may provide an exemption from the restrictions imposed by
Sections 406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code
for transactions in connection with the servicing, management and operation
of the Mortgage Pool.
Before purchasing a Class A Certificate, a fiduciary of a Plan should
itself confirm that (i) the Class A Certificates constitute "certificates"
for purposes of the Exemption and (ii) the specific and general conditions
and the other requirements set forth in the Exemption would be satisfied. In
addition to making its own determination as to the availability of the
exemptive relief provided in the Exemption, the Plan fiduciary should
consider the availability of any other prohibited transaction exemption,
including with respect to governmental plans, any exemptive relief afforded
under Similar Laws. See "ERISA Considerations" in the Prospectus. A purchaser
of a Class A Certificate should be aware, however, that even if the
conditions specified in one or more exemptions are satisfied, the scope of
relief provided by an exemption may not cover all acts which might be
construed as prohibited transactions.
Because the characteristics of the Subordinate Offered Certificates do not
meet the requirements of the Exemption, the purchase or holding of such
Certificates by a Plan may result in prohibited transactions or the
imposition of excise taxes or civil penalties. In no event may any transfer
of a Subordinate Offered Certificate or any interest therein be made to a
Plan or to any person who is directly or indirectly purchasing such
Certificate or interest therein on behalf of, as named fiduciary of, as
trustee of, or with assets of a Plan, unless the purchase and holding of such
Certificate or interest therein is exempt from the prohibited transaction
provisions of Section 406 of ERISA and the related excise tax
S-117
<PAGE>
provisions of Section 4975 of the Code under Prohibited Transaction Class
Exemption 95-60, which provides an exemption from the prohibited transaction
rules for certain transactions involving an insurance company general
account. Any such Plan or person to whom a transfer of any such Certificate
or interest therein is made shall be deemed to have represented to the
Depositor, the Servicer, the Special Servicer, the Trustee, the Underwriter,
any sub-servicer and any borrower with respect to the Mortgage Loans that the
purchase and holding of such Certificate or interest therein is so exempt on
the basis of Prohibited Transaction Class Exemption 95-60. See "ERISA
Considerations" in the Prospectus.
ANY PLAN FIDUCIARY CONSIDERING WHETHER TO PURCHASE AN OFFERED CERTIFICATE
ON BEHALF OF A PLAN SHOULD CONSULT WITH ITS COUNSEL REGARDING THE
APPLICABILITY OF THE FIDUCIARY RESPONSIBILITY AND PROHIBITED TRANSACTION
PROVISIONS OF ERISA AND THE CODE TO SUCH INVESTMENT.
The sale of Certificates to a Plan is in no respect a representation by
the Depositor or Underwriter that this investment meets all relevant legal
requirements with respect to investments by Plans generally or any particular
Plan, or that this investment is appropriate for Plans generally or any
particular Plan.
S-118
<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS
A
ABN AMRO .................................................... S-93
Advances .................................................... S-24, S-85
affiliate ................................................... S-72
Air Rights .................................................. S-11, S-58
Air Rights Lease ............................................ S-11, S-58
American Assets ............................................. S-60
AMI ......................................................... S-103
anchored .................................................... S-34
Anticipated Repayment Date .................................. S-17, S-40
Appraisal Reduction ......................................... S-86
Appraisal Reduction Amount .................................. S-87
Appraisal Reduction Event ................................... S-86
ARD Loan .................................................... S-13, S-40
Asset Status Report ......................................... S-102
Assumed Final Distribution Date ............................. S-83
Assumed Scheduled Payment ................................... S-81
Authenticating Agent ........................................ S-94
Available Distribution Amount ............................... S-21, S-77
B
Balloon Payment ............................................. S-17
Banc One .................................................... S-103
Base Interest Fraction ...................................... S-82
base year ................................................... S-89
Bear Stearns ................................................ S-9, S-61
bounded maximum loss ........................................ S-38
C
Certificate Account ......................................... S-76
Certificate Balance ......................................... S-74
Certificate Owner ........................................... S-10
Certificate Registrar ....................................... S-94
Certificates ................................................ S-1, S-74
Class ....................................................... S-1, S-74
Closing Date ................................................ S-1
Code ........................................................ S-28
Collateral Support Deficit .................................. S-25, S-84
Comparative Financial Status Report ......................... S-89
Constant Prepayment Rate .................................... S-97
Controlling Class ........................................... S-103
Controlling Class Certificateholder ......................... S-103
Corporate Trust Office ...................................... S-93
Corrected Mortgage Loan ..................................... S-102
CPR ......................................................... S-28
Cross-Over Date ............................................. S-80
Current Occupancy Rate ...................................... S-13
Cut-Off Date ................................................ S-2
Cut-Off Date Balance ........................................ S-39
Cut-Off Date LTV ............................................ S-43
S-119
<PAGE>
D
DCR ......................................................... S-2, S-26
Debt Service Coverage Ratio ................................. S-51
Definitive Certificate ...................................... S-10
Delinquent Loan Status Report ............................... S-89
Determination Date .......................................... S-87
Directing Certificateholder ................................. S-102
Distributable Certificate Interest .......................... S-22, S-81
Distribution Accounts ....................................... S-76
Distribution Date ........................................... S-76
Distribution Date Statement ................................. S-88
DSCR ........................................................ S-13, S-51
DTC ......................................................... S-1
Due Date .................................................... S-17
Due Period .................................................. S-77
due-on-encumbrance .......................................... S-43
due-on-sale ................................................. S-43
E
Equity ...................................................... S-57
ERISA ....................................................... S-28
ERISA Plan .................................................. S-116
Events of Default ........................................... S-111
Excess Interest ............................................. S-18, S-40
Excluded Plan ............................................... S-117
Exemption ................................................... S-28, S-116
Existing Conditions ......................................... S-66
F
Final Recovery Determination ................................ S-88
FIRREA ...................................................... S-61
Form 8-K .................................................... S-43
G
GLA ......................................................... S-56
H
Hazardous Materials ......................................... S-66
Historical Loan Modification Report ......................... S-90
Historical Loss Report ...................................... S-90
I
Initial Pool Balance ........................................ S-2
Initial Rate ................................................ S-40
Interest Accrual Period ..................................... S-3
Interest Distribution Amount ................................ S-21, S-81
Interest Reserve Account .................................... S-77
Interest Reserve Loans ...................................... S-77
IRS ......................................................... S-108
L
LC Release Date ............................................. S-31, S-40
LCs ......................................................... S-61
Liquidation Fee ............................................. S-105
Liquidation Fee Rate ........................................ S-105
Liquidation Proceeds ........................................ S-105
Lock Box Accounts ........................................... S-73
S-120
<PAGE>
Lock Box Loans .............................................. S-73
Lockout Period .............................................. S-41
Lower-Tier Distribution Account ............................. S-76
Lower-Tier REMIC ............................................ S-2, S-113
LTV Ratio ................................................... S-13, S-53
M
Maturity LTV ................................................ S-43
Monthly Payments ............................................ S-17
Moody's ..................................................... S-2, S-26
Mortgage .................................................... S-39
Mortgage Loan Documents ..................................... S-63
Mortgage Loan Purchase Agreement ............................ S-11, S-61
Mortgage Loan Seller ........................................ S-61
Mortgage Loans .............................................. S-2, S-82
Mortgage Note ............................................... S-39
Mortgage Pool ............................................... S-2
Mortgage Rate ............................................... S-80
mortgage related securities ................................. S-29, S-115
Mortgaged Property .......................................... S-11, S-39
mortgagee-in-possession ..................................... S-108
N ...........................................................
Net Mortgage Rate ........................................... S-80
NOI Adjustment Worksheet .................................... S-90
Non-Offered Certificates .................................... S-74
Non-Offered Subordinate Certificates ........................ S-84
Nonrecoverable Advance ...................................... S-86
Notional Amount ............................................. S-5, S-74
Notional Principal Window ................................... S-5
NRA ......................................................... S-58
O
Offered Certificates ........................................ S-1, S-74
Operating Statement Analysis Report ......................... S-90
Other Debt .................................................. S-70
P
Pari Passu Debt ............................................. S-31, S-39, S-70
Partial Release Mortgaged Properties ........................ S-18, S-42
Participants ................................................ S-75
Pass-Through Rate ........................................... S-3, S-5, S-74
Paying Agent ................................................ S-94
Percentage Interest ......................................... S-27, S-75
P&I Advance ................................................. S-24, S-85
Plan ........................................................ S-28, S-116
Pooling and Servicing Agreement ............................. S-20
Prepayment Assumption ....................................... S-113
Prime Rate .................................................. S-86
Principal Distribution Amount ............................... S-81
Principal Shortfall ......................................... S-81
Principal Window ............................................ S-5
probable maximum loss ....................................... S-38
Purchase Price .............................................. S-72, S-92
Purchased Loans ............................................. S-39
S-121
<PAGE>
qualified mortgage .......................................... S-67
R
Rady Family Trust ........................................... S-59
Rady Loans .................................................. S-59
Rady Properties ............................................. S-59
Rated Final Distribution Date ............................... S-83
Rating Agencies ............................................. S-26
real estate assets .......................................... S-113
Record Date ................................................. S-76
Regular Certificates ........................................ S-113
Reimbursement Rate .......................................... S-86
Related Proceeds ............................................ S-86
REMIC ....................................................... S-2, S-113
REMIC Administrator ......................................... S-93
REMIC Pool .................................................. S-2
REMIC Provisions ............................................ S-113
REO Account ................................................. S-106
REO Loan .................................................... S-82
REO Property ................................................ S-102
REO Status Report ........................................... S-90
Residual Certificates ....................................... S-1, S-74
residual interests .......................................... S-113
Restricted Group ............................................ S-116
Revised Rate ................................................ S-17, S-40
Rolling 12 Months ........................................... S-60
Rules ....................................................... S-75
S
Scheduled Principal Distribution Amount ..................... S-81
Senior Certificates ......................................... S-1, S-74
Senior Debt ................................................. S-70
Servicer Remittance Date .................................... S-85
Servicing Advances .......................................... S-24, S-85
Servicing Fee ............................................... S-104
Servicing Fee Rate .......................................... S-104
Servicing Standards ......................................... S-101
significant modification .................................... S-107
Similar Law ................................................. S-28, S-116
single-purpose entity ....................................... S-68
SMMEA ....................................................... S-29, S-115
special purpose entities .................................... S-31
Special Servicer ............................................ S-103
Special Servicing Fee ....................................... S-104
Special Servicing Fee Rate .................................. S-104
Specially Serviced Mortgage Loans ........................... S-102
Stated Principal Balance .................................... S-82
Subordinate Certificates .................................... S-74
Subordinate Lender .......................................... S-70
Subordinate Offered Certificates ............................ S-1, S-74
T
TIs ......................................................... S-61
Trust Fund .................................................. S-2
S-122
<PAGE>
Trustee ..................................................... S-93
U
Underwriter ................................................. S-1
Underwritten Net Cash Flow .................................. S-60
Unscheduled Principal Distribution Amount ................... S-81
Upper-Tier Distribution Account ............................. S-76
Upper-Tier REMIC ............................................ S-113
V
Voting Rights ............................................... S-92
W
Watch List .................................................. S-90
Weighted Average Life ....................................... S-5
Withheld Amounts ............................................ S-77
Workout Fee ................................................. S-104
Workout Fee Rate ............................................ S-104
Y
Yield Maintenance Charge .................................... S-41
Yield Maintenance Period .................................... S-41
Yield Rate .................................................. S-41
Z
Zoning Laws ................................................. S-38
S-123
<PAGE>
LOAN CHARACTERISTICS
ANNEX A
<TABLE>
<CAPTION>
Loan Original Cut-Off
Number Loan Name Property Name Balance Date Balance
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6100 Mission Marketplace Mission Marketplace $24,000,000 $23,912,270
6008 Naples Beach Hotel & Golf Club Naples Beach Hotel & Golf Club 23,000,000 22,913,783
- ------------------------------------------------------------------------------------------------------------------------------------
9671-9675 Retail Portfolio 22,300,000 22,201,914
9671 Retail Portfolio - Interchange Square Retail Portfolio - Interchange Square 1,500,000 1,493,504
9672 Retail Portfolio - Mountainview Square Retail Portfolio - Mountainview Square 4,700,000 4,679,645
9673 Retail Portfolio - Dixie Village Retail Portfolio - Dixie Village 6,400,000 6,370,622
9674 Retail Portfolio - Eastland Sq. Retail Portfolio - Eastland Sq. 2,000,000 1,991,257
9675 Retail Portfolio - Swansea Crossing Retail Portfolio - Swansea Crossing 7,700,000 7,666,887
- ------------------------------------------------------------------------------------------------------------------------------------
9119 Lomas Santa Fe Plaza Lomas Santa Fe Plaza 21,400,000 21,386,351
9140 1851 & 1871 Sunrise Highway 1851 & 1871 Sunrise Highway 17,000,000 17,000,000
5906 1564 Broadway/The Palace Theatre 1564 Broadway/The Palace Theatre 16,000,000 16,000,000
9121 Torrey Reserve South Court Torrey Reserve South Court 15,750,000 15,739,803
9115 White Road Plaza White Road Plaza 14,500,000 14,490,752
- ------------------------------------------------------------------------------------------------------------------------------------
6605 Kerr McGee Center Kerr McGee Center 14,000,000 14,000,000
8785 Shaw's Plaza Shopping Center Shaw's Plaza Shopping Center 13,300,000 13,300,000
8489 Computer Science Corp. Computer Science Corp. 13,100,000 13,100,000
6101 Carmel Country Carmel Country 12,300,000 12,255,038
6204 Biltmore Hotel & Suites Biltmore Hotel & Suites 12,200,000 12,158,294
- ------------------------------------------------------------------------------------------------------------------------------------
6430 Rio Entertainment Center Rio Entertainment Center 12,000,000 11,992,857
6151 Lincoln Park Shopping Center Lincoln Park Shopping Center 12,000,000 11,969,867
5005 Back Bay Manor Back Bay Manor 11,000,000 10,947,831
5351 Clairemont Village Shopping Center Clairemont Village Shopping Center 10,300,000 10,262,346
8976 701-709 Madison Avenue 701-709 Madison Avenue 10,000,000 10,000,000
8587 The L.A. Mart The L.A. Mart 10,000,000 10,000,000
5857 Cromwell Field Shopping Center Cromwell Field Shopping Center 9,950,000 9,950,000
- ------------------------------------------------------------------------------------------------------------------------------------
5995 Federal Express Buildings I 9,600,000 9,588,410
5995a Federal Express Buildings - Warwick, RI
5995b Federal Express Buildings I- Hatfield, MA
5995c Federal Express Buildings I - North Haven, CT
6233 Park Plaza on Maine Park Plaza on Maine 9,400,000 9,349,660
- ------------------------------------------------------------------------------------------------------------------------------------
5237 Boulter Warehouse Portfolio 9,100,000 9,066,374
5237a Boulter Warehouse - 680 Basket
5237b Boulter Warehouse - 2 Potomac
5237c Boulter Warehouse - 691 Phillips
5237d Boulter Warehouse - 1750A Basket Road
- ------------------------------------------------------------------------------------------------------------------------------------
5615 301 Boulevard West 301 Boulevard West 9,000,000 8,990,620
6082 Continental Plaza Continental Plaza 8,500,000 8,491,609
5828 Edwards Medical Plaza Edwards Medical Plaza 7,560,000 7,542,302
6310 Rockaway Industrial Complex Rockaway Industrial Complex 7,500,000 7,476,040
9333 Brynwood Apartments Brynwood Apartments 7,410,000 7,402,302
- ------------------------------------------------------------------------------------------------------------------------------------
9114 The Coast Distributing Bldg. The Coast Distributing Bldg. 7,000,000 6,995,535
9305 Plaza Del Sol Mobile Home Park Plaza Del Sol Mobile Home Park 7,000,000 6,990,596
9495 Creekview Shopping Center Creekview Shopping Center 6,750,000 6,750,000
5833 Eastgate Plaza Eastgate Plaza 6,750,000 6,645,382
5819 Green Mountain Mall Green Mountain Mall 6,500,000 6,500,000
- ------------------------------------------------------------------------------------------------------------------------------------
6072 127-131 Second Avenue 127-129-131 Second Avenue 6,000,000 6,000,000
8669 Prestige MHP Prestige MHP 6,000,000 5,996,451
6386 Parking Palace Parking Palace 6,000,000 5,983,530
- ------------------------------------------------------------------------------------------------------------------------------------
9204 365 & 405 Fifth Ave. South 5,900,000 5,900,000
9204a 365 Fifth Ave.
9204b 405 Fifth Ave. South
- ------------------------------------------------------------------------------------------------------------------------------------
9306 Sunshine Valley Mobile Home Park Sunshine Valley Mobile Home Park 5,900,000 5,892,075
5610 Enterprise Business Center Enterprise Business Center 5,870,000 5,870,000
9371 The Beacon School The Beacon School 5,850,000 5,850,000
9326 Baywood Apts Baywood Apts 5,800,000 5,800,000
9145 Clay Street Clay Street 5,700,000 5,700,000
- ------------------------------------------------------------------------------------------------------------------------------------
9588 Central Avenue Central Ave. 5,400,000 5,400,000
6070 86-10 Roosevelt Avenue 86-10 Roosevelt Avenue 5,350,000 5,350,000
5589 OECO Industrial Facility OECO Industrial Facility 5,175,000 5,164,222
9332 Cooper River Apartments Cooper River Apartments 5,070,000 5,070,000
6414 North Shore Self Storage North Shore Self Storage 5,037,224 5,020,347
- ------------------------------------------------------------------------------------------------------------------------------------
9123 Woodland Gardens Woodland Gardens 5,000,000 4,996,811
5923 Corporate Square Corporate Square 5,000,000 4,980,423
9277 155-165 Mason Street 155-165 Mason Street 4,700,000 4,700,000
9329 Grant Meadows Grant Meadows 4,575,000 4,570,298
6234 Plan Hold Corporation Plan Hold Corporation 4,575,000 4,535,493
- ------------------------------------------------------------------------------------------------------------------------------------
8874 Kleban Properties Kleban Properties 4,520,000 4,520,000
5632 Shaw's Cove VI Shaw's Cove VI 4,500,000 4,483,604
8666 Oak Bridge Condominiums Oak Bridge Condominiums 4,400,000 4,393,682
8597 Rosewood Apartments Rosewood Apartments 4,300,000 4,300,000
9669 37-39 Breck Street 37-39 Breck Street 4,275,000 4,275,000
9014 Crossroads Business Center Crossroads Business Center 4,250,000 4,250,000
9496 Richfield Plaza Shopping Ctr. Richfield Plaza Shopping Ctr. 4,250,000 4,250,000
- ------------------------------------------------------------------------------------------------------------------------------------
6161 Benderson Office and Retail Portfolio 4,000,000 4,000,000
6161a Benderson - 570 Delaware Ave.
6161b Benderson - 3190 Niagara
6161c Benderson - 621 Delaware
6161d Benderson - 600 Delaware
- ------------------------------------------------------------------------------------------------------------------------------------
5981 Blue Island Industrial Terminal Blue Island Industrial Terminal 4,000,000 3,992,003
6388 206 & 210 East 67 Street 206 & 210 East 67 Street 3,900,000 3,895,795
5914 The Boylston Trust The Boylston Trust 3,850,000 3,829,912
5829 Samaritan West Valley Samaritan West Valley 3,800,000 3,765,673
6378 University Mall University Mall 3,700,000 3,682,675
- ------------------------------------------------------------------------------------------------------------------------------------
9497 Cedar South Shopping Center Cedar South Shopping Center 3,600,000 3,600,000
6461 Crown Industrial Park Crown Industrial Park 3,500,000 3,497,891
6382 Brewster Business Park Brewster Business Park 3,500,000 3,489,698
6016 5050 North 40th Street 5050 North 40th Street 3,500,000 3,488,709
9002 Sharon Center Apartments Sharon Center Apartments 3,400,000 3,400,000
- ------------------------------------------------------------------------------------------------------------------------------------
9213 1401-1407 Kings Highway 1401-1407 Kings Highway 3,340,000 3,336,972
4500 Grant Road Properties Grant Road Properties 3,150,000 3,130,201
9331 Beekman Place Beekman Place 3,112,000 3,108,767
- ------------------------------------------------------------------------------------------------------------------------------------
6599 Campus & Varsity Apartments 3,100,000 3,100,000
6599a Campus Apartments
6599b Varsity Apartments
9210 Tallahassee Mini Storage Tallahassee Mini Storage 3,000,000 3,000,000
6557 Via Bice Via Bice 3,000,000 2,989,105
6266 Holiday Inn Express Holiday Inn Express 2,950,000 2,935,216
- ------------------------------------------------------------------------------------------------------------------------------------
5876 Rousso Portfolio 2,940,000 2,929,812
5876a Rousso Portfolio - 4575 South Procyon
5876b Rousso Portfolio - 4560 - 4580 South Valley
6529 Macungie Square Shopping Macungie Square Shopping 2,860,000 2,858,621
8462 Bellevue Apartments Bellevue Apartments 2,800,000 2,795,891
6017 Sea Bay Inn (Best Western) Sea Bay Inn (Best Western) 2,700,000 2,700,000
9430 Midtown Marketplace Midtown Marketplace 2,700,000 2,700,000
- ------------------------------------------------------------------------------------------------------------------------------------
9173 Sakellaris Apartments 2,700,000 2,700,000
9173a Sakellaris Apartments - Lothian
9173b Sakellaris Apartments - Commonwealth
8497 Crossroads Plaza Crossroads Plaza 2,700,000 2,697,192
4950 White Clay White Clay 2,700,000 2,689,234
3912 Blackstone Valley Place Blackstone Valley Place 2,639,044 2,639,044
6041 Seven Creek Parkway Seven Creek Parkway 2,600,000 2,587,475
8460 Pacific Plaza Pacific Plaza 2,550,000 2,550,000
- ------------------------------------------------------------------------------------------------------------------------------------
5874 Westover/Belair Portfolio 2,550,000 2,547,505
5874a Bel-Air
5874b Westover
6526 Mears Park Corner Mears Park Corner 2,550,000 2,545,176
5596 San Marco Apartments San Marco Apartments 2,500,000 2,485,721
6365 American Press Building American Press Building 2,450,000 2,442,506
8672 Northrups MHP Northrups MHP 2,400,000 2,400,000
9406 Tanglewood Plaza Tanglewood Plaza 2,310,000 2,310,000
6638 Hobart Apartments Hobart Apartments 2,300,000 2,295,122
- ------------------------------------------------------------------------------------------------------------------------------------
6191 Hornig V 2,300,000 2,294,518
6191a Hornig V - Aldrich
6191b Hornig V - Dupont
6191c Hornig V - Colfax
6027 4400 Coldwater 4400 Coldwater 2,300,000 2,286,763
9025 LA Times Parking LA Times Parking 2,275,000 2,271,401
6102 Santa Fe Santa Fe 2,250,000 2,241,775
- ------------------------------------------------------------------------------------------------------------------------------------
5867 Fulton MHP Portfolio 2,150,000 2,143,252
5867a Fulton - Fox Meadow MHP
5867b Fulton - Somerlawn MHP
5867c Fulton - Wooded Acres MHP
6042 21 Industrial 21 Industrial 2,100,000 2,093,252
- ------------------------------------------------------------------------------------------------------------------------------------
9488 ICW-Encino ICW-Encino 2,050,000 2,050,000
5979 Dumbarton Square Dumbarton Square 2,000,000 2,000,000
6221 459-461 Fulton Street 459-461 Fulton Street 2,000,000 2,000,000
9073 Lion Alvin Shopping Center Lion Alvin Shopping Center 2,000,000 2,000,000
5483 62 West 45th Street 62 West 45th Street 2,000,000 1,995,610
- ------------------------------------------------------------------------------------------------------------------------------------
6146 Asia Bank Building Asia Bank Building 1,990,000 1,986,631
9423 Federal Express II Federal Express II 1,950,000 1,950,000
6347 Park 16 Park 16 1,950,000 1,947,015
6028 Yucca Yucca 1,950,000 1,942,693
6591 Barclay Circle Office Buildings Barclay Circle Office Buildings 1,925,000 1,925,000
- ------------------------------------------------------------------------------------------------------------------------------------
6341 Barclay Square Barclay Square 1,921,398 1,921,398
6116 Harvard Apartments Harvard Apartments 1,900,000 1,897,265
9489 ICW-Walnut Creek ICW-Walnut Creek 1,875,000 1,875,000
9330 Fairway Apartments Fairway Apartments 1,840,000 1,838,088
- ------------------------------------------------------------------------------------------------------------------------------------
6187 Hornig I 1,800,000 1,795,710
6187a Hornig I - Girard
6187b Hornig I - Fremont
6187c Hornig I - 3447 Garfield
6187d Hornig I - Harriet
6187e Hornig I - 3439/3446 Garfield
- ------------------------------------------------------------------------------------------------------------------------------------
6225 Byron Loft Apartments Byron Loft Apartments 1,750,000 1,741,463
6383 Spectrum Office & Technology Park Spectrum Office & Technology Park 1,700,000 1,700,000
8652 Andrews Square Andrews Square 1,680,000 1,680,000
5405 Somerset Apartments Somerset Apartments 1,650,000 1,643,737
5915 Cambridge Realty Trust Cambridge Realty Trust 1,600,000 1,591,652
- ------------------------------------------------------------------------------------------------------------------------------------
6021 Hidden Oaks Apartments Hidden Oaks Apartments 1,600,000 1,589,915
6235 Sandman Hotel Sandman Hotel 1,600,000 1,562,449
6190 Hornig IV Hornig IV 1,550,000 1,550,000
6397 Buttonwood Plaza Buttonwood Plaza 1,510,000 1,506,978
6284 Aero Park Aero Park 1,500,000 1,498,076
- ------------------------------------------------------------------------------------------------------------------------------------
9365 Kmart Kmart 1,500,000 1,497,707
6059 Tigard Retail Center Tigard Retail Center 1,450,000 1,444,917
6236 Southtrust Bank Building Southtrust Bank Building 1,450,000 1,435,783
5535 Nob Hill Business Plaza Nob Hill Business Plaza 1,300,000 1,291,949
5873 Monte Carlo MHP Monte Carlo MHP 1,218,958 1,218,958
- ------------------------------------------------------------------------------------------------------------------------------------
6189 Hornig III 1,210,000 1,207,194
6189a Hornig III - Grand
6189b Hornig III - Colfax
6189c Hornig III - Pillsbury
6189d Hornig III - Hennipen
- ------------------------------------------------------------------------------------------------------------------------------------
6237 Los Osos Center Los Osos Center 1,200,000 1,190,334
8782 Leisure Pointe Apartments Leisure Pointe Apartments 1,190,000 1,190,000
6475 Gary Hall Eye Surgery Institute Gary Hall Eye Surgery Institute 1,100,000 1,096,888
8749 Le Colonial Le Colonial 1,050,000 1,050,000
8574 Comfort Inn - Big Spring Comfort Inn - Big Spring 1,050,000 1,047,224
- ------------------------------------------------------------------------------------------------------------------------------------
8466 304 East 89 Street 304 East 89 Street 1,035,000 1,031,732
6238 Casey Richards Family Casey Richards Family 1,015,000 1,010,833
6230 Stockade Plaza Stockade Plaza 1,000,000 997,068
6254 Woodmen Plaza Blockbuster/Subway Woodmen Plaza Blockbuster/Subway 1,000,000 996,566
6239 HCR Properties HCR Properties 789,750 774,546
Totals/Weighted Avg. $716,143,374 $714,739,121
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Cum. Stated
% of % of Original Remaining
Initial Initial Number Gross Interest Net Term to Term to
Pool Pool of Mortgage Accrual Servicing Mortgage Maturity Maturity
Balance Balance Properties Rate Method Fee Rate (mo.) (mo.)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3.35% 3.35% 1 7.3650% Actual/360 0.055% 7.3100% 180 175
3.21% 6.55% 1 6.9600% 30/360 0.055% 6.9050% 120 117
- ------------------------------------------------------------------------------------------------------------------
3.11% 9.66% 7.9450% Actual/360 0.055% 7.8900% 120 113
0.21% 9.66% 1 8.0100% Actual/360 0.055% 7.9550% 121 114
0.65% 9.66% 1 8.0100% Actual/360 0.055% 7.9550% 121 114
0.89% 9.66% 1 7.7600% Actual/360 0.055% 7.7050% 120 113
0.28% 9.66% 1 7.9700% Actual/360 0.055% 7.9150% 120 113
1.07% 9.66% 1 8.0400% Actual/360 0.055% 7.9850% 120 113
- ------------------------------------------------------------------------------------------------------------------
2.99% 12.65% 1 6.9340% Actual/360 0.055% 6.8790% 180 179
2.38% 15.03% 1 7.3200% Actual/360 0.055% 7.2650% 120 120
2.24% 17.27% 1 7.0800% Actual/360 0.055% 7.0250% 120 120
2.20% 19.47% 1 6.8840% Actual/360 0.055% 6.8290% 180 179
2.03% 21.50% 1 6.9340% Actual/360 0.055% 6.8790% 180 179
- ------------------------------------------------------------------------------------------------------------------
1.96% 23.46% 1 6.9200% Actual/360 0.055% 6.8650% 120 116
1.86% 25.32% 1 7.1100% Actual/360 0.080% 7.0300% 120 120
1.83% 27.15% 1 7.1200% Actual/360 0.055% 7.0650% 120 120
1.71% 28.86% 1 7.3650% Actual/360 0.055% 7.3100% 180 175
1.70% 30.57% 1 6.8700% Actual/360 0.055% 6.8150% 120 117
- ------------------------------------------------------------------------------------------------------------------
1.68% 32.24% 1 7.1600% Actual/360 0.055% 7.1050% 180 179
1.67% 33.92% 1 6.4700% Actual/360 0.055% 6.4150% 120 118
1.53% 35.45% 1 6.8600% Actual/360 0.055% 6.8050% 180 174
1.44% 36.89% 1 7.3650% Actual/360 0.055% 7.3100% 180 175
1.40% 38.28% 1 7.0500% Actual/360 0.055% 6.9950% 120 120
1.40% 39.68% 1 7.5700% Actual/360 0.055% 7.5150% 120 120
1.39% 41.08% 1 7.2000% Actual/360 0.055% 7.1450% 120 120
- ------------------------------------------------------------------------------------------------------------------
1.34% 42.42% 3 7.7300% Actual/360 0.055% 7.6750% 120 118
1
1
1
1.31% 43.73% 1 8.1250% Actual/360 0.055% 8.0700% 120 111
- ------------------------------------------------------------------------------------------------------------------
1.27% 44.99% 4 7.3150% Actual/360 0.055% 7.2600% 120 115
1
1
1
1
- ------------------------------------------------------------------------------------------------------------------
1.26% 46.25% 1 6.9900% Actual/360 0.055% 6.9350% 120 119
1.19% 47.44% 1 7.2400% Actual/360 0.055% 7.1850% 120 119
1.06% 48.50% 1 6.8600% Actual/360 0.055% 6.8050% 120 118
1.05% 49.54% 1 7.2200% Actual/360 0.055% 7.1650% 120 117
1.04% 50.58% 1 7.0050% Actual/360 0.080% 6.9250% 120 119
- ------------------------------------------------------------------------------------------------------------------
0.98% 51.56% 1 6.9340% Actual/360 0.055% 6.8790% 180 179
0.98% 52.53% 1 7.3100% Actual/360 0.055% 7.2550% 180 178
0.94% 53.48% 1 7.2900% Actual/360 0.055% 7.2350% 120 120
0.93% 54.41% 1 7.1950% Actual/360 0.055% 7.1400% 180 175
0.91% 55.32% 1 7.6800% Actual/360 0.055% 7.6250% 120 120
- ------------------------------------------------------------------------------------------------------------------
0.84% 56.16% 1 7.2200% Actual/360 0.055% 7.1650% 120 117
0.84% 57.00% 1 7.1800% Actual/360 0.055% 7.1250% 120 119
0.84% 57.83% 1 7.9500% Actual/360 0.055% 7.8950% 180 176
- ------------------------------------------------------------------------------------------------------------------
0.83% 58.66% 2 7.3500% Actual/360 0.080% 7.2700% 120 120
1
1
- ------------------------------------------------------------------------------------------------------------------
0.82% 59.48% 1 7.3100% Actual/360 0.055% 7.2550% 180 178
0.82% 60.30% 1 7.1000% Actual/360 0.055% 7.0450% 120 120
0.82% 61.12% 1 7.4700% Actual/360 0.055% 7.4150% 120 120
0.81% 61.93% 1 7.3000% Actual/360 0.055% 7.2450% 120 120
0.80% 62.73% 1 7.4700% Actual/360 0.055% 7.4150% 120 120
- ------------------------------------------------------------------------------------------------------------------
0.76% 63.49% 1 7.5200% Actual/360 0.055% 7.4650% 120 120
0.75% 64.24% 1 7.3800% Actual/360 0.055% 7.3250% 120 120
0.72% 64.96% 1 7.4900% Actual/360 0.055% 7.4350% 120 118
0.71% 65.67% 1 7.0050% Actual/360 0.080% 6.9250% 120 120
0.70% 66.37% 1 7.3900% Actual/360 0.055% 7.3350% 118 115
- ------------------------------------------------------------------------------------------------------------------
0.70% 67.07% 1 6.9340% Actual/360 0.055% 6.8790% 180 179
0.70% 67.77% 1 7.9000% Actual/360 0.055% 7.8450% 120 115
0.66% 68.42% 1 7.5900% Actual/360 0.055% 7.5350% 120 120
0.64% 69.06% 1 7.0550% Actual/360 0.080% 6.9750% 120 119
0.63% 69.70% 1 8.2500% Actual/360 0.055% 8.1950% 120 111
- ------------------------------------------------------------------------------------------------------------------
0.63% 70.33% 1 7.1100% Actual/360 0.080% 7.0300% 120 120
0.63% 70.96% 1 7.3800% Actual/360 0.055% 7.3250% 120 115
0.61% 71.57% 1 7.0400% Actual/360 0.080% 6.9600% 120 118
0.60% 72.17% 1 7.0700% Actual/360 0.055% 7.0150% 120 120
0.60% 72.77% 1 7.5800% Actual/360 0.055% 7.5250% 120 120
0.59% 73.37% 1 7.7150% Actual/360 0.055% 7.6600% 120 120
0.59% 73.96% 1 7.2900% Actual/360 0.055% 7.2350% 120 120
- ------------------------------------------------------------------------------------------------------------------
0.56% 74.52% 4 7.0000% Actual/360 0.055% 6.9450% 180 180
1
1
1
1
- ------------------------------------------------------------------------------------------------------------------
0.56% 75.08% 1 7.7050% Actual/360 0.055% 7.6500% 120 118
0.55% 75.62% 1 6.8300% Actual/360 0.055% 6.7750% 180 179
0.54% 76.16% 1 6.7100% Actual/360 0.055% 6.6550% 120 116
0.53% 76.69% 1 7.4150% Actual/360 0.055% 7.3600% 180 175
0.52% 77.20% 1 7.4000% Actual/360 0.055% 7.3450% 120 116
- ------------------------------------------------------------------------------------------------------------------
0.50% 77.71% 1 7.2900% Actual/360 0.055% 7.2350% 120 120
0.49% 78.20% 1 7.1200% Actual/360 0.055% 7.0650% 120 119
0.49% 78.68% 1 7.6000% Actual/360 0.055% 7.5450% 120 116
0.49% 79.17% 1 7.1700% Actual/360 0.055% 7.1150% 120 117
0.48% 79.65% 1 7.4600% Actual/360 0.080% 7.3800% 120 120
- ------------------------------------------------------------------------------------------------------------------
0.47% 80.11% 1 7.6200% Actual/360 0.055% 7.5650% 120 119
0.44% 80.55% 1 7.7100% Actual/360 0.055% 7.6550% 120 114
0.43% 80.99% 1 7.0050% Actual/360 0.080% 6.9250% 120 119
- ------------------------------------------------------------------------------------------------------------------
0.43% 81.42% 2 6.8700% Actual/360 0.055% 6.8150% 120 120
1
1
0.42% 81.84% 1 6.9100% Actual/360 0.055% 6.8550% 120 120
0.42% 82.26% 1 7.0500% Actual/360 0.055% 6.9950% 120 118
0.41% 82.67% 1 7.5300% Actual/360 0.055% 7.4750% 120 117
- ------------------------------------------------------------------------------------------------------------------
0.41% 83.08% 2 7.6100% Actual/360 0.055% 7.5550% 120 115
1
1
0.40% 83.48% 1 7.8000% Actual/360 0.055% 7.7450% 120 119
0.39% 83.87% 1 6.9500% Actual/360 0.055% 6.8950% 120 118
0.38% 84.25% 1 7.4000% Actual/360 0.055% 7.3450% 120 120
0.38% 84.63% 1 7.4200% Actual/360 0.055% 7.3650% 120 120
- ------------------------------------------------------------------------------------------------------------------
0.38% 85.00% 2 7.5200% Actual/360 0.080% 7.4400% 120 120
1
1
0.38% 85.38% 1 7.0000% Actual/360 0.080% 6.9200% 120 119
0.38% 85.76% 1 7.6200% Actual/360 0.080% 7.5400% 144 138
0.37% 86.13% 1 8.5578% Actual/360 0.055% 8.5028% 109 109
0.36% 86.49% 1 7.2200% Actual/360 0.080% 7.1400% 120 116
0.36% 86.85% 1 7.8300% Actual/360 0.055% 7.7750% 120 120
- ------------------------------------------------------------------------------------------------------------------
0.36% 87.20% 2 7.2800% Actual/360 0.055% 7.2250% 120 119
1
1
0.36% 87.56% 1 7.9900% Actual/360 0.055% 7.9350% 120 118
0.35% 87.91% 1 7.3450% Actual/360 0.055% 7.2900% 120 115
0.34% 88.25% 1 7.4400% Actual/360 0.055% 7.3850% 120 117
0.34% 88.58% 1 7.2300% Actual/360 0.055% 7.1750% 120 120
0.32% 88.91% 1 7.7600% Actual/360 0.055% 7.7050% 120 120
0.32% 89.23% 1 6.9300% Actual/360 0.055% 6.8750% 120 117
- ------------------------------------------------------------------------------------------------------------------
0.32% 89.55% 3 6.7610% Actual/360 0.055% 6.7060% 180 178
1
1
1
0.32% 89.87% 1 7.3000% Actual/360 0.055% 7.2450% 120 115
0.32% 90.19% 1 7.9940% Actual/360 0.055% 7.9390% 180 177
0.31% 90.50% 1 7.3650% Actual/360 0.055% 7.3100% 180 175
- ------------------------------------------------------------------------------------------------------------------
0.30% 90.80% 3 7.3100% Actual/360 0.055% 7.2550% 120 117
1
1
1
0.29% 91.09% 1 7.1900% Actual/360 0.080% 7.1100% 120 117
- ------------------------------------------------------------------------------------------------------------------
0.29% 91.38% 1 6.9340% Actual/360 0.055% 6.8790% 180 180
0.28% 91.66% 1 7.0800% Actual/360 0.055% 7.0250% 120 120
0.28% 91.94% 1 7.1800% Actual/360 0.055% 7.1250% 84 84
0.28% 92.22% 1 7.6300% Actual/360 0.055% 7.5750% 120 120
0.28% 92.50% 1 7.2100% Actual/360 0.055% 7.1550% 120 118
- ------------------------------------------------------------------------------------------------------------------
0.28% 92.78% 1 7.7600% Actual/360 0.055% 7.7050% 120 117
0.27% 93.05% 1 7.6800% Actual/360 0.055% 7.6250% 120 120
0.27% 93.32% 1 8.0150% Actual/360 0.055% 7.9600% 84 82
0.27% 93.59% 1 7.2500% Actual/360 0.055% 7.1950% 120 115
0.27% 93.86% 1 6.9000% Actual/360 0.055% 6.8450% 120 120
- ------------------------------------------------------------------------------------------------------------------
0.27% 94.13% 1 7.7026% Actual/360 0.055% 7.6476% 118 118
0.27% 94.40% 1 7.0300% Actual/360 0.055% 6.9750% 120 118
0.26% 94.66% 1 6.9200% Actual/360 0.055% 6.8650% 180 180
0.26% 94.92% 1 7.0050% Actual/360 0.080% 6.9250% 120 119
- ------------------------------------------------------------------------------------------------------------------
0.25% 95.17% 5 6.7610% Actual/360 0.055% 6.7060% 180 178
1
1
1
1
1
- ------------------------------------------------------------------------------------------------------------------
0.24% 95.41% 1 7.1400% Actual/360 0.055% 7.0850% 120 116
0.24% 95.65% 1 8.0500% Actual/360 0.055% 7.9950% 120 120
0.24% 95.88% 1 7.5100% Actual/360 0.055% 7.4550% 120 120
0.23% 96.11% 1 7.1900% Actual/360 0.055% 7.1350% 120 115
0.22% 96.34% 1 6.7100% Actual/360 0.055% 6.6550% 120 116
- ------------------------------------------------------------------------------------------------------------------
0.22% 96.56% 1 6.7100% Actual/360 0.055% 6.6550% 180 178
0.22% 96.78% 1 9.1250% Actual/360 0.055% 9.0700% 180 171
0.22% 96.99% 1 7.2030% Actual/360 0.055% 7.1480% 180 180
0.21% 97.21% 1 7.7000% Actual/360 0.055% 7.6450% 120 118
0.21% 97.42% 1 7.4950% Actual/360 0.080% 7.4150% 120 118
- ------------------------------------------------------------------------------------------------------------------
0.21% 97.62% 1 7.7800% Actual/360 0.055% 7.7250% 120 119
0.20% 97.83% 1 7.3100% Actual/360 0.055% 7.2550% 180 178
0.20% 98.03% 1 8.6250% 30/360 0.055% 8.5700% 120 110
0.18% 98.21% 1 6.8600% Actual/360 0.055% 6.8050% 120 115
0.17% 98.38% 1 7.4400% Actual/360 0.055% 7.3850% 115 115
- ------------------------------------------------------------------------------------------------------------------
0.17% 98.55% 4 6.9110% Actual/360 0.055% 6.8560% 180 178
1
1
1
1
- ------------------------------------------------------------------------------------------------------------------
0.17% 98.71% 1 8.6250% Actual/360 0.055% 8.5700% 120 111
0.17% 98.88% 1 7.5100% Actual/360 0.055% 7.4550% 120 120
0.15% 99.03% 1 7.8250% Actual/360 0.055% 7.7700% 120 117
0.15% 99.18% 1 8.0400% Actual/360 0.080% 7.9600% 120 120
0.15% 99.33% 1 8.1500% Actual/360 0.055% 8.0950% 120 117
- ------------------------------------------------------------------------------------------------------------------
0.14% 99.47% 1 7.2800% Actual/360 0.055% 7.2250% 120 117
0.14% 99.61% 1 8.6250% Actual/360 0.055% 8.5700% 120 112
0.14% 99.75% 1 7.6500% Actual/360 0.055% 7.5950% 120 117
0.14% 99.89% 1 7.4600% Actual/360 0.055% 7.4050% 180 178
0.11% 100.00% 1 9.8750% Actual/360 0.055% 9.8200% 180 172
7.2790% 0.057% 7.2216% 136 134
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Annual Annual
Original Interest First Principal Interest 1996 Net 1997 Net
Amortization Only Payment Maturity & Interest Only Operating Operating
Term (mo.) Months Date Date Payments Payments Income (a) Income (a)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
360 0 02/01/98 01/02/13 $1,987,182 $2,595,257 $2,915,571
300 0 04/01/98 03/01/08 1,943,673 5,616,083 6,435,912
- ---------------------------------------------------------------------------------------------------------
360 0 12/01/97 11/01/07 1,953,354
360 0 12/01/97 12/01/07 132,203 154,936 241,616
360 0 12/01/97 12/01/07 414,236 531,310 486,832
360 0 12/01/97 11/01/07 550,735 778,282 850,833
360 0 12/01/97 11/01/07 175,602 0 408,672
360 0 12/01/97 11/01/07 680,577 1,119,305 1,043,997
- ---------------------------------------------------------------------------------------------------------
360 0 06/01/98 05/01/13 1,697,129 1,592,990 1,557,773
360 0 07/01/98 06/01/08 1,401,339 2,216,207 2,156,712
300 0 07/01/98 06/01/08 1,366,830 4,285,745 4,232,987
360 0 06/01/98 05/01/13 1,242,732
360 0 06/01/98 05/01/13 1,149,924 1,749,425 1,781,508
- ---------------------------------------------------------------------------------------------------------
360 60 03/01/98 02/01/08 1,108,697 968,800 621,007
300 0 07/01/98 06/01/08 1,139,244 1,374,665 1,795,199
360 0 07/01/98 06/01/08 1,058,555
360 0 02/01/98 01/02/13 1,018,431 1,624,125 1,634,867
300 0 04/01/98 03/01/08 1,022,616 2,447,407 3,069,860
- ---------------------------------------------------------------------------------------------------------
360 0 06/01/98 05/01/13 973,559 2,325,975 2,410,190
300 0 05/01/98 04/01/08 969,601 1,575,979 1,880,147
360 0 01/01/98 12/01/12 865,823 1,196,745 1,891,251
360 0 02/01/98 01/01/13 852,840 1,299,876 1,321,541
300 0 07/01/98 06/01/08 851,966 1,224,807 1,308,986
300 0 07/01/98 06/01/08 892,260 2,731,755 3,363,811
300 0 07/01/98 06/01/08 859,189 1,505,018 1,685,846
- ---------------------------------------------------------------------------------------------------------
360 0 05/01/98 04/01/08 823,715 1,004,041 1,094,301
486,537 492,344
172,898 193,190
344,606 408,767
360 0 10/01/97 09/01/07 837,537 1,069,526 1,026,041
- ---------------------------------------------------------------------------------------------------------
360 0 02/01/98 01/01/08 749,757 498,805 582,576
67,803 83,379
174,442 179,129
592,635 660,719
- ---------------------------------------------------------------------------------------------------------
300 0 06/01/98 05/01/08 762,633 1,560,080 1,710,444
300 0 06/01/98 05/01/08 736,606 798,315 951,220
300 0 05/01/98 04/01/08 633,111 687,476 761,787
300 0 04/01/98 03/01/08 648,788 697,141 1,158,768
300 0 06/01/98 05/01/08 628,752 639,829 711,912
- ---------------------------------------------------------------------------------------------------------
360 0 06/01/98 05/01/13 555,136
360 0 05/01/98 04/01/13 576,451 818,329 805,842
360 0 07/01/98 06/01/08 554,762 929,527 941,941
180 0 02/01/98 01/01/13 736,910 871,116 964,149
360 0 07/01/98 06/01/08 555,033 832,902 977,491
- ---------------------------------------------------------------------------------------------------------
336 24 04/01/98 03/01/08 499,797 433,200
360 0 06/01/98 05/01/08 487,753 672,257
360 0 03/01/98 02/01/13 525,803 805,111
- ---------------------------------------------------------------------------------------------------------
360 0 07/01/98 06/01/08 487,792 888,607 787,503
483,641 420,642
404,966 366,861
- ---------------------------------------------------------------------------------------------------------
360 0 05/01/98 04/01/13 485,856 547,572 651,046
300 0 07/01/98 06/01/08 502,358 878,150 988,385
300 0 07/01/98 06/01/08 517,403 842,640 834,304
360 0 07/01/98 06/01/08 477,157 508,581 764,402
360 0 07/01/98 06/01/08 476,858 806,687
- ---------------------------------------------------------------------------------------------------------
360 0 07/01/98 06/01/08 453,979 497,960 662,306
300 0 07/01/98 06/01/08 469,433 961,148
300 0 05/01/98 04/01/08 458,510 741,501 752,100
300 0 07/01/98 06/01/08 430,199 430,836 641,851
291 0 04/01/98 01/01/08 447,608 613,151 707,536
- ---------------------------------------------------------------------------------------------------------
360 0 06/01/98 05/01/13 396,525 515,750 594,207
336 0 02/01/98 01/01/08 443,959 335,118 651,017
300 0 07/01/98 06/01/08 420,098 680,525 703,817
300 0 06/01/98 05/01/08 389,950 432,503 558,016
300 0 10/01/97 08/31/07 432,859
- ---------------------------------------------------------------------------------------------------------
360 0 07/01/98 06/01/08 364,876 788,330 841,193
360 0 02/01/98 01/01/08 373,149 765,979 859,289
360 0 05/01/98 04/01/08 352,699 504,022 544,934
360 0 07/01/98 06/01/08 345,725 523,437 558,518
240 0 07/01/98 06/01/08 415,782 737,345 256,284
300 0 07/01/98 06/01/08 384,047
360 0 07/01/98 06/01/08 349,295 530,348 569,410
- ---------------------------------------------------------------------------------------------------------
180 0 07/01/98 06/01/13 431,438
106,395 104,595
0 0
219,160 217,587
- ---------------------------------------------------------------------------------------------------------
300 0 05/01/98 04/01/08 361,141 517,787 618,199
300 0 06/01/98 05/01/13 325,715 31,376 220,729
300 0 03/01/98 02/01/08 318,035 615,569 668,815
240 0 02/01/98 01/01/13 364,984
300 0 03/01/98 02/01/08 325,230 603,355 570,824
- ---------------------------------------------------------------------------------------------------------
360 0 07/01/98 06/01/08 295,873 488,587 496,119
360 0 06/01/98 05/01/08 282,820 496,114 588,337
360 0 03/01/98 02/01/08 296,551 131,594 50,114
300 0 04/01/98 03/01/08 301,418 525,012 734,680
300 0 07/01/98 06/01/08 300,448 438,579 466,771
- ---------------------------------------------------------------------------------------------------------
300 0 06/01/98 05/01/08 299,323
300 0 01/01/98 12/01/07 284,522 388,776 502,283
300 0 06/01/98 05/01/08 264,059 462,513 485,748
- ---------------------------------------------------------------------------------------------------------
360 0 07/01/98 06/01/08 244,253 485,695 600,456
177,392 217,301
308,303 383,155
240 0 07/01/98 06/30/08 277,166 758,612 778,148
240 0 05/01/98 04/01/08 280,189 428,559 492,756
240 0 04/01/98 03/01/08 285,830 557,396 581,306
- ---------------------------------------------------------------------------------------------------------
360 0 02/01/98 01/01/08 249,346 259,963 396,436
129,735 150,911
130,228 245,525
360 0 06/01/98 05/01/08 247,060
360 0 05/01/98 04/01/08 222,414 288,141 333,701
300 0 07/01/98 06/01/08 237,330 489,550 500,821
360 0 07/01/98 06/01/08 224,773
- ---------------------------------------------------------------------------------------------------------
300 0 07/01/98 06/01/08 239,855 297,348 271,257
148,146 139,339
149,202 131,918
300 0 06/01/98 05/01/08 228,996 308,311 327,211
360 0 01/01/98 12/01/09 229,214 353,008 337,537
289 0 07/01/98 07/01/07 259,073 554,197 498,629
300 0 03/01/98 02/01/08 224,913 225,123 396,406
300 0 07/01/98 06/01/08 232,740 363,977 333,625
- ---------------------------------------------------------------------------------------------------------
300 0 06/01/98 05/01/08 221,771 358,532
184,728
173,804
300 0 05/01/98 04/01/08 235,973 139,317 279,731
300 0 02/01/98 01/01/08 218,682
300 0 04/01/98 03/01/08 216,117
360 0 07/01/98 06/01/08 196,076 239,490 265,508
300 0 07/01/98 06/01/08 209,559 238,919 272,521
360 0 04/01/98 03/01/08 182,328 341,861
- ---------------------------------------------------------------------------------------------------------
300 0 05/01/98 04/01/13 190,883 394,195 430,054
131,674 135,331
121,407 135,331
141,114 159,392
300 0 02/01/98 01/01/08 200,385 408,829 416,704
360 0 04/01/98 03/01/13 200,204
360 0 02/01/98 01/01/13 186,298 310,513 360,778
- ---------------------------------------------------------------------------------------------------------
300 0 04/01/98 03/01/08 187,483 202,256 269,522
159,119 218,920
25,496 27,247
17,641 23,355
300 0 04/01/98 03/01/08 181,174 385,540 422,492
- ---------------------------------------------------------------------------------------------------------
360 0 07/01/98 06/01/13 162,576 201,916 144,871
300 0 07/01/98 06/01/08 170,854 501,900 268,121
300 0 07/01/98 06/01/05 172,393 334,540 381,777
300 0 07/01/98 06/01/08 179,392 336,335 376,549
300 0 05/01/98 04/01/08 172,856 336,657 306,927
- ---------------------------------------------------------------------------------------------------------
360 0 04/01/98 03/01/08 171,244 274,752 279,936
360 0 07/01/98 06/01/08 187,165 260,979
324 0 05/01/98 04/01/05 176,739 121,647 263,654
360 0 02/01/98 01/01/08 159,629 268,037
240 0 07/01/98 06/01/08 177,710 356,629 398,045
- ---------------------------------------------------------------------------------------------------------
298 0 07/01/98 04/01/08 173,822 251,541 220,956
360 0 05/01/98 04/01/08 152,149 270,729
360 0 07/01/98 06/01/13 148,486 146,692 243,220
300 0 06/01/98 05/01/08 156,127 201,199 210,501
- ---------------------------------------------------------------------------------------------------------
300 0 05/01/98 04/01/13 149,387 290,527 298,114
78,735 84,759
41,618 40,324
47,693 43,854
53,673 52,070
68,808 77,107
- ---------------------------------------------------------------------------------------------------------
300 0 03/01/98 02/01/08 150,304 258,696 244,498
360 0 07/01/98 06/01/08 150,400 164,426 258,075
360 0 07/01/98 06/01/08 141,100 236,205 261,573
360 0 02/01/98 01/01/08 134,266 286,709 245,287
300 0 03/01/98 02/01/08 132,170 262,396 212,986
- ---------------------------------------------------------------------------------------------------------
180 0 05/01/98 04/01/13 169,477 298,348 306,788
180 0 10/01/97 09/01/12 196,170 409,649 455,342
360 0 07/01/98 06/01/13 126,292 34,836 242,656
300 0 05/01/98 04/01/08 136,271 155,047
360 0 05/01/98 04/01/08 125,797 236,947 254,613
- ---------------------------------------------------------------------------------------------------------
240 0 06/01/98 05/01/08 148,104
240 0 05/01/98 04/01/13 138,159 260,041 224,075
300 0 09/01/97 08/01/07 141,578 231,106 311,063
300 0 02/01/98 01/01/08 108,868 212,098 310,907
295 0 07/01/98 01/01/08 108,156 158,845 168,078
- ---------------------------------------------------------------------------------------------------------
300 0 05/01/98 04/01/13 101,801 190,360 184,786
55,040 44,564
42,404 48,872
41,837 39,045
51,079 52,305
- ---------------------------------------------------------------------------------------------------------
300 0 10/01/97 09/01/07 117,168 120,181 183,962
300 0 07/01/98 06/01/08 105,621 134,031
300 0 04/01/98 03/01/08 100,354
300 0 07/01/98 06/01/08 97,583
300 0 04/01/98 03/01/08 98,504 236,915 164,098
- ---------------------------------------------------------------------------------------------------------
300 0 04/01/98 03/01/08 90,013 138,602
360 0 11/01/97 10/01/07 94,735 105,880
300 0 04/01/98 03/01/08 89,853 133,903 118,574
240 0 05/01/98 04/01/13 96,378
180 0 11/01/97 10/01/12 101,117
327
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Underwritten Debt
Net Underwritten Service Effective Prepayment
Operating Net Cash Lockbox Coverage Appraised Cut-Off Maturity LockOut LockOut
Income Flow in Place Ratio Value Date LTV LTV Period (mo.) End Date
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,962,703 $2,826,206 No 1.42 $32,000,000 74.73% 58.30% 180 12/31/12
5,456,477 4,602,923 No 2.37 63,200,000 36.26% 28.58% 120 02/29/08
- ---------------------------------------------------------------------------------------------------------------------------
2,607,498 1.33 33,300,000 66.67% 59.79% 120 10/31/07
241,038 201,158 No 1.52 3,000,000 49.78% 44.64% 121 11/30/07
561,029 530,027 No 1.28 6,000,000 77.99% 69.94% 121 11/30/07
807,204 694,649 No 1.26 8,600,000 74.08% 66.15% 120 10/31/07
288,470 235,930 No 1.34 4,200,000 47.41% 42.54% 120 10/31/07
1,014,387 945,734 No 1.39 11,500,000 66.67% 59.92% 120 10/31/07
- ---------------------------------------------------------------------------------------------------------------------------
2,626,786 2,518,434 No 1.48 33,000,000 64.81% 49.49% 180 04/30/13
2,056,916 1,992,700 No 1.42 23,800,000 71.43% 62.83% 120 05/31/08
3,934,595 3,924,064 No 2.87 45,900,000 34.86% 27.96% 120 05/31/08
2,016,285 2,003,221 No 1.61 24,700,000 63.72% 48.55% 180 04/30/13
1,774,492 1,708,805 No 1.49 21,600,000 67.09% 51.23% 180 04/30/13
- ---------------------------------------------------------------------------------------------------------------------------
2,262,861 2,053,640 No 1.85 25,400,000 55.12% 52.15% 120 01/31/08
1,734,994 1,659,459 No 1.46 18,200,000 73.08% 58.67% 120 05/31/08
1,491,513 1,476,104 No 1.39 18,300,000 71.58% 62.64% 120 05/31/08
1,582,547 1,511,199 No 1.48 17,000,000 72.09% 56.24% 180 12/31/12
2,887,972 2,367,422 No 2.32 40,200,000 30.24% 24.19% 120 02/29/08
- ---------------------------------------------------------------------------------------------------------------------------
2,004,120 1,872,357 No 1.92 29,300,000 40.93% 31.58% 180 04/30/13
1,969,324 1,811,916 No 1.87 19,350,000 61.86% 48.79% 120 03/31/08
1,998,990 1,925,490 No 2.22 23,500,000 46.59% 35.58% 178 09/30/12
1,312,998 1,259,814 No 1.48 15,300,000 67.07% 52.33% 180 12/31/12
1,230,339 1,182,362 No 1.39 15,900,000 62.89% 50.40% 120 05/31/08
2,675,622 2,067,465 No 2.32 37,950,000 26.35% 21.45% 120 05/31/08
1,565,077 1,468,782 No 1.71 15,900,000 62.58% 50.38% 117 02/29/08
- ---------------------------------------------------------------------------------------------------------------------------
1,140,070 1,094,124 Yes 1.33 12,475,000 76.86% 68.39% 120 03/31/08
493,252 465,567 Yes 5,325,000 76.90% 68.43%
177,341 166,997 Yes 2,125,000 68.15% 60.64%
469,477 461,560 Yes 5,025,000 80.50% 71.63%
1,137,869 1,072,539 No 1.28 11,750,000 79.57% 71.74% 60 08/31/02
- ---------------------------------------------------------------------------------------------------------------------------
1,265,694 1,180,860 1.57 13,300,000 68.17% 60.14% 120 12/31/07
208,948 204,948 No 1,900,000 74.72% 65.93%
256,417 221,917 No 2,200,000 73.59% 64.93%
158,951 141,018 No 1,900,000 57.68% 50.89%
641,378 612,977 No 7,300,000 67.56% 59.60%
- ---------------------------------------------------------------------------------------------------------------------------
1,407,821 1,304,461 No 1.71 15,500,000 58.00% 46.45% 120 04/30/08
1,195,912 1,113,923 No 1.51 13,200,000 64.33% 51.91% 120 04/30/08
1,121,427 990,810 No 1.56 10,500,000 71.83% 57.36% 120 03/31/08
1,009,129 930,435 No 1.43 10,000,000 74.76% 60.43% 120 02/29/08
833,540 801,140 No 1.27 9,675,000 76.51% 61.30% 120 04/30/08
- ---------------------------------------------------------------------------------------------------------------------------
844,926 817,443 No 1.47 10,000,000 69.96% 53.42% 180 04/30/13
813,076 780,276 No 1.35 10,500,000 66.58% 51.74% 180 03/31/13
924,315 867,469 No 1.56 9,000,000 75.00% 65.92% 120 05/31/08
1,040,263 982,124 No 1.33 12,000,000 55.38% 1.05% 180 12/31/12
870,176 780,927 No 1.41 9,000,000 72.22% 64.11% 0 05/31/98
- ---------------------------------------------------------------------------------------------------------------------------
714,096 688,782 No 1.38 7,800,000 76.92% 68.56% 120 02/29/08
706,851 690,651 No 1.42 7,600,000 78.90% 69.20% 120 04/30/08
761,449 742,708 No 1.41 8,150,000 73.42% 58.67% 177 10/31/12
- ---------------------------------------------------------------------------------------------------------------------------
739,572 695,631 1.43 8,290,000 71.17% 62.65% 120 05/31/08
431,605 405,033 No 4,850,000 70.62% 62.16%
307,967 290,598 No 3,440,000 71.95% 63.33%
- ---------------------------------------------------------------------------------------------------------------------------
708,623 690,373 No 1.42 8,500,000 69.32% 53.87% 180 03/31/13
1,097,516 941,782 No 1.87 9,200,000 63.80% 51.21% 119 04/30/08
750,101 742,751 No 1.44 8,500,000 68.82% 55.86% 120 05/31/08
640,871 615,871 No 1.29 8,060,000 71.96% 63.26% 114 11/30/07
738,082 710,259 No 1.49 8,500,000 67.06% 59.21% 120 05/31/08
- ---------------------------------------------------------------------------------------------------------------------------
701,596 634,636 No 1.40 7,300,000 73.97% 65.40% 120 05/31/08
822,982 771,603 No 1.64 8,300,000 64.46% 52.18% 120 05/31/08
703,611 639,402 No 1.39 7,150,000 72.23% 58.79% 120 03/31/08
767,609 713,359 No 1.66 8,000,000 63.38% 50.71% 120 05/31/08
696,288 662,533 No 1.48 7,500,000 66.94% 53.70% 118 11/30/07
- ---------------------------------------------------------------------------------------------------------------------------
617,479 579,979 No 1.46 6,950,000 71.90% 54.90% 180 04/30/13
698,261 584,123 No 1.32 7,300,000 68.22% 59.44% 120 12/31/07
593,079 551,828 No 1.31 6,700,000 70.15% 57.14% 120 05/31/08
627,399 576,649 No 1.48 6,150,000 74.31% 59.63% 120 04/30/08
627,383 571,095 No 1.32 6,750,000 67.19% 56.25% 36 08/31/00
- ---------------------------------------------------------------------------------------------------------------------------
770,911 731,020 No 2.00 8,200,000 55.12% 48.22% 120 05/31/08
774,012 689,878 No 1.85 7,600,000 58.99% 52.13% 120 12/31/07
532,553 496,053 No 1.41 5,700,000 77.08% 67.41% 120 03/31/08
558,242 520,242 No 1.50 5,750,000 74.78% 65.35% 119 04/30/08
588,168 535,730 No 1.29 5,700,000 75.00% 52.14% 120 05/31/08
538,553 510,278 No 1.33 5,800,000 73.28% 59.91% 120 05/31/08
538,094 507,844 No 1.45 5,675,000 74.89% 65.82% 120 05/31/08
- ---------------------------------------------------------------------------------------------------------------------------
807,000 710,837 1.65 6,840,000 58.48% 1.08% 180 05/31/13
507,190 459,162 No 4,070,000 60.20% 1.11%
92,455 84,573 No 970,000 56.70% 1.05%
40,777 40,132 No 350,000 57.14% 1.06%
166,578 126,970 No 1,450,000 55.17% 1.02%
- ---------------------------------------------------------------------------------------------------------------------------
633,112 505,196 No 1.40 6,100,000 65.44% 53.60% 120 03/31/08
486,414 465,649 No 1.43 5,340,000 72.95% 45.80% 180 04/30/13
699,381 669,131 No 2.10 7,400,000 51.76% 41.22% 120 01/31/08
581,306 576,033 No 1.58 6,360,000 59.21% 25.33% 180 12/31/12
574,373 500,231 No 1.54 5,700,000 64.61% 52.54% 120 01/31/08
- ---------------------------------------------------------------------------------------------------------------------------
478,647 431,192 No 1.46 4,875,000 73.85% 64.91% 120 05/31/08
572,936 486,570 No 1.72 5,600,000 62.46% 54.70% 120 04/30/08
478,082 433,883 No 1.46 5,000,000 69.79% 61.96% 120 01/31/08
490,241 475,912 No 1.58 6,000,000 58.15% 46.93% 120 02/29/08
429,647 401,487 No 1.34 4,700,000 72.34% 58.70% 120 05/31/08
- ---------------------------------------------------------------------------------------------------------------------------
408,868 391,456 No 1.31 4,500,000 74.15% 60.53% 118 02/29/08
483,977 442,970 No 1.56 4,350,000 71.96% 59.17% 120 11/30/07
514,007 479,007 No 1.81 5,350,000 58.11% 46.55% 120 04/30/08
- ---------------------------------------------------------------------------------------------------------------------------
599,008 572,008 2.34 7,600,000 40.79% 35.46% 120 05/31/08
216,742 208,342 No 2,800,000 40.36% 35.08%
382,266 363,666 No 4,800,000 41.04% 35.68%
709,598 674,673 No 2.43 6,200,000 48.39% 32.83% 120 05/31/08
448,255 419,531 No 1.50 5,250,000 56.94% 38.98% 119 02/29/08
557,284 490,634 No 1.72 4,400,000 66.71% 46.54% 0 02/28/98
- ---------------------------------------------------------------------------------------------------------------------------
388,122 363,860 1.46 4,260,000 68.77% 61.12% 117 09/30/07
142,584 132,419 No 1,525,000 69.27% 61.55%
245,538 231,441 No 2,735,000 68.50% 60.87%
331,541 321,863 No 1.30 3,700,000 77.26% 68.82% 120 04/30/08
337,524 329,594 No 1.48 3,900,000 71.69% 62.54% 120 03/31/08
467,505 412,539 No 1.74 4,600,000 58.70% 47.54% 120 05/31/08
365,400 351,266 No 1.56 3,750,000 72.00% 63.49% 120 05/31/08
- ---------------------------------------------------------------------------------------------------------------------------
366,380 351,130 1.46 3,900,000 69.23% 56.28% 120 05/31/08
189,072 180,322 No 2,100,000 66.67% 54.19%
177,308 170,808 No 1,800,000 72.22% 58.71%
357,661 348,768 No 1.52 3,600,000 74.92% 60.02% 120 04/30/08
346,644 339,283 No 1.48 3,700,000 72.68% 62.08% 144 11/30/09
626,272 525,371 No 2.03 5,500,000 47.98% 40.49% 109 06/30/07
360,164 332,941 No 1.48 3,500,000 73.93% 59.80% 120 01/31/08
349,870 334,960 No 1.44 4,130,000 61.74% 50.65% 120 05/31/08
- ---------------------------------------------------------------------------------------------------------------------------
366,604 355,104 1.60 3,800,000 67.04% 54.17% 120 04/30/08
204,659 198,259 No 2,200,000 63.57% 51.37%
161,945 156,845 No 1,600,000 71.80% 58.02%
379,818 342,230 No 1.45 3,400,000 74.86% 61.82% 120 03/31/08
394,116 368,366 No 1.68 3,450,000 72.05% 58.56% 120 12/31/07
356,996 339,146 No 1.57 3,500,000 69.79% 56.78% 120 02/29/08
269,039 262,039 No 1.34 3,000,000 80.00% 70.21% 120 05/31/08
315,336 288,065 No 1.37 3,200,000 72.19% 59.10% 120 05/31/08
310,425 293,675 No 1.61 3,100,000 74.04% 64.61% 120 02/29/08
- ---------------------------------------------------------------------------------------------------------------------------
402,810 374,310 1.96 4,000,000 57.36% 35.91% 180 03/31/13
134,077 124,327 No 1,410,000 63.68% 39.87%
117,342 108,842 No 1,180,000 54.95% 34.40%
151,391 141,141 No 1,410,000 53.06% 33.22%
375,129 333,305 No 1.66 3,670,000 62.31% 50.58% 120 12/31/07
295,488 286,030 No 1.43 3,100,000 73.27% 58.70% 177 11/30/12
354,391 347,941 No 1.87 3,500,000 64.05% 49.97% 180 12/31/12
- ---------------------------------------------------------------------------------------------------------------------------
280,623 269,373 1.44 3,500,000 61.24% 49.63% 120 02/29/08
280,623 219,257 No 2,400,000 72.69% 58.91%
25,058 No 600,000 33.23% 26.93%
25,058 No 500,000 39.87% 32.32%
317,376 297,039 No 1.64 2,900,000 72.18% 58.29% 120 02/29/08
- ---------------------------------------------------------------------------------------------------------------------------
267,828 230,799 No 1.42 2,800,000 73.21% 55.86% 180 05/31/13
298,104 286,663 No 1.68 3,100,000 64.52% 51.75% 117 02/29/08
340,734 313,456 No 1.82 3,500,000 57.14% 50.21% 84 05/31/05
366,157 342,039 No 1.91 4,300,000 46.51% 37.93% 120 05/31/08
357,014 301,599 No 1.74 4,000,000 49.89% 40.27% 120 03/31/08
- ---------------------------------------------------------------------------------------------------------------------------
233,642 231,002 No 1.35 2,700,000 73.58% 65.56% 120 02/29/08
250,621 244,916 No 1.31 2,800,000 69.64% 52.31% 120 05/31/08
263,701 256,174 No 1.45 3,000,000 64.90% 59.32% 84 03/31/05
273,620 257,620 No 1.61 2,600,000 74.72% 65.82% 120 12/31/07
338,661 303,767 No 1.71 4,300,000 44.77% 30.37% 120 05/31/08
- ---------------------------------------------------------------------------------------------------------------------------
326,842 255,089 No 1.47 3,790,000 50.70% 41.51% 118 03/31/08
253,295 236,045 No 1.55 2,600,000 72.97% 63.80% 120 03/31/08
265,401 222,860 No 1.50 3,140,000 59.71% 45.53% 180 05/31/13
291,622 274,622 No 1.76 2,840,000 64.72% 51.85% 120 04/30/08
- ---------------------------------------------------------------------------------------------------------------------------
282,735 257,280 1.72 2,790,000 64.36% 40.29% 180 03/31/13
72,196 66,946 No 725,000 55.04% 34.46%
45,020 40,015 No 465,000 42.91% 26.86%
40,111 35,211 No 440,000 73.69% 46.13%
48,338 44,838 No 490,000 66.17% 41.42%
77,070 70,270 No 670,000 81.89% 51.27%
- ---------------------------------------------------------------------------------------------------------------------------
218,919 210,419 No 1.40 2,600,000 66.98% 54.05% 120 01/31/08
216,740 204,362 No 1.36 2,900,000 58.62% 52.50% 120 05/31/08
282,055 236,009 No 1.67 2,900,000 57.93% 51.20% 120 05/31/08
269,933 238,933 No 1.78 2,800,000 58.70% 51.63% 120 12/31/07
320,228 307,728 No 2.33 3,400,000 46.81% 37.28% 120 01/31/08
- ---------------------------------------------------------------------------------------------------------------------------
309,219 283,779 No 1.67 3,100,000 51.29% 0.89% 180 03/31/13
380,746 303,419 No 1.55 4,375,000 35.71% 1.11% 90 02/28/05
207,141 198,641 No 1.57 2,250,000 68.89% 53.20% 180 05/31/13
246,886 209,501 No 1.54 2,450,000 61.51% 50.37% 120 03/31/08
227,317 202,505 No 1.61 2,200,000 68.09% 60.24% 120 03/31/08
- ---------------------------------------------------------------------------------------------------------------------------
208,631 184,844 No 1.25 2,400,000 62.40% 43.77% 120 04/30/08
238,222 213,809 No 1.55 2,700,000 53.52% 22.66% 180 03/31/13
281,626 225,897 No 1.60 2,432,000 59.04% 48.90% 36 07/31/00
301,929 274,482 No 2.52 2,800,000 46.14% 36.96% 120 12/31/07
143,231 140,531 No 1.30 2,000,000 60.95% 49.66% 115 12/31/07
- ---------------------------------------------------------------------------------------------------------------------------
178,316 160,629 1.58 1,770,000 68.20% 43.04% 180 03/31/13
47,467 44,467 No 420,000 71.26% 44.97%
45,426 41,426 No 470,000 63.68% 40.19%
38,132 33,632 No 330,000 78.61% 49.61%
47,291 41,104 No 550,000 63.49% 40.07%
- ---------------------------------------------------------------------------------------------------------------------------
181,939 155,063 No 1.32 1,630,000 73.03% 61.73% 60 08/31/02
151,175 137,425 No 1.30 1,616,000 73.64% 59.84% 120 05/31/08
135,641 133,309 No 1.33 1,470,000 74.62% 61.40% 120 02/29/08
129,010 124,556 No 1.28 1,475,000 71.19% 58.76% 117 02/29/08
189,886 163,335 No 1.66 1,600,000 65.45% 54.35% 120 02/29/08
- ---------------------------------------------------------------------------------------------------------------------------
123,642 119,142 No 1.32 1,360,000 75.86% 61.43% 120 02/29/08
128,986 118,486 No 1.25 1,700,000 59.46% 54.16% 60 09/30/02
150,500 137,228 No 1.53 1,350,000 73.86% 60.46% 120 02/29/08
125,383 120,617 No 1.25 1,400,000 71.18% 30.42% 180 03/31/13
155,135 145,635 No 1.44 1,215,000 63.75% 2.36% 60 09/30/02
1.62 63.82% 51.29% 132 03/30/09
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Call Free
Call Protection Prepay
Protection Period Period
Description End Date (mo.) Address City
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Defeasance 12/31/12 0 427-499 College Boulevard Oceanside
Defeasance 02/29/08 0 851 Gulf Shore Boulevard North Naples
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 10/31/07 0
Defeasance 11/30/07 0 1153-1155 Malabar Road Palm Bay
Defeasance 11/30/07 0 1480 East Main Street Wytheville
Defeasance 10/31/07 0 2500 West Franklin Gastonia
Defeasance 10/31/07 0 4249 Eastland Square Drive Columbus
Defeasance 10/31/07 0 Swansea Crossing, Route 118 Swansea
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 04/30/13 0 905-993 Lomas Santa Fe Drive Solana Beach
Defeasance 05/31/08 0 1851 & 1871 Sunrise Highway (Route 27) Bayshore
Defeasance 05/31/08 0 1564 Broadway New York
Defeasance 04/30/13 0 11452-11512 El Camino Real San Diego
Defeasance 04/30/13 0 1020-1080 White Road San Jose
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 01/31/08 0 16666 Northchase Drive & 263 Sam Housten Tollway Houston
Defeasance 05/31/08 0 750 Queen Street Southington
Defeasance 05/31/08 0 400 Commerce Drive New Castle
Defeasance 12/31/12 0 12720-12784 Carmel Country Road San Diego
Defeasance 02/29/08 0 2151 Laurelwood Road Santa Clara
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 04/30/13 0 9811 Washington Blvd Gaithersburg
Defeasance 03/31/08 0 Southfield Rd & Dix Toledo Hwy Lincoln Park
Defeasance 09/30/12 2 75 St. Alphonsus Street Boston
Defeasance 12/31/12 0 2903-3089 Clairemont Drive San Diego
Defeasance 05/31/08 0 701-709 Madison Avenue New York
Defeasance 05/31/08 0 1933 S. Broadway Los Angeles
Defeasance 02/29/08 3 Baltimore Annapolis Blvd. & Dorsey Rd. Glen Burnie
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 03/31/08 0
255 Metro Center Boulevard Warwick
174 West Street Hatfield
347 State Street North Haven
> 1% or YM 05/31/07 3 NEC Ramona Blvd. & Maine Ave. Baldwin Park
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 12/31/07 0
680 Basket Road Webster
2 Potomac Street Rochester
691 Phillips Road Webster
1750 Basket Road Webster
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 04/30/08 0 301 Boulevard West Bradenton
Defeasance 04/30/08 0 550 Kirkland Way Kirkland
Defeasance 03/31/08 0 1300 North 12th Street Phoenix
Defeasance 02/29/08 0 315,321 & 351 Richard Mine Road Rockaway
Defeasance 04/30/08 0 250 Wynnewood Road Wynnewood
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 04/30/13 0 5959 Santa Fe Street San Diego
Defeasance 03/31/13 0 1655 West Ajo Highway Tucson
Defeasance 05/31/08 0 690 West Price River Drive Price
Defeasance 12/31/12 0 Transit Road and Greiner Road Clarence
> 3% or YM 05/31/08 0 Memorial Drive (Route 5) St. Johnsbury
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 02/29/08 0 127-129-131 Second Ave. New York
Defeasance 04/30/08 0 3180 Route 96 Manchester
Defeasance 10/31/12 3 1350 Sixth Avenue San Diego
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 05/31/08 0
365 Fifth Ave. South Naples
405 Fifth Ave. South Naples
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 03/31/13 0 1650 South Arizona Avenue Chandler
Defeasance 04/30/08 1 6251 44th St. North Pinellas Park
Defeasance 05/31/08 0 227-243 West 61st Street New York
Defeasance 11/30/07 6 31010-31294 Brae Burn Avenue Hayward
Defeasance 05/31/08 0 1200 Clay Street Oakland
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 05/31/08 0 5327 Jacuzzi Street Richmond
Defeasance 05/31/08 0 8602-8610 Roosevelt Avenue Queens
Defeasance 03/31/08 0 4607 SE International Way Milwaukie
Defeasance 05/31/08 0 215 Garfield Ave. Collingswood
Defeasance 11/30/07 0 38 Swampscott Road Salem
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 04/30/13 0 502-545 Woodlawn Avenue Chula Vista
Defeasance 12/31/07 0 1400 South Wolf Road Wheeling
Defeasance 05/31/08 0 155-165 Mason Street Greenwich
Defeasance 04/30/08 0 3100 Grant Meadows Philadelphia
> 1% or YM 05/30/07 3 17421 Von Karman Avenue Irvine
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 05/31/08 0 1940, 1968 & 1865 Black Rock Tpke Fairfield
Defeasance 12/31/07 0 Howard Street New London
Defeasance 03/31/08 0 120 Fisherville Road Concord
Defeasance 04/30/08 1 4051 Rapids Bayou Road Alexandria
Defeasance 05/31/08 0 Mustard, Breck, and Chapel Streets Rochester
Defeasance 05/31/08 0 122 Kissel Road Burlington
Defeasance 05/31/08 0 1080 South Highway 89 Richfield
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 05/31/13 0
570 Delaware Ave. Buffalo
3190 Niagara Falls Blvd. Amherst
621 Delaware Ave. Buffalo
600 Delaware Ave. Buffalo
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 03/31/08 0 13636 Western Avenue Blue Island
Defeasance 04/30/13 0 206 & 210 East 67th Street New York
Defeasance 01/31/08 0 1197-1209 Boylston Street Boston
Defeasance 12/31/12 0 1000 North Litchfield Road Goodyear
Defeasance 01/31/08 0 1122 North University Blvd. Nacogdoches
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 05/31/08 0 905 South Main Street Cedar City
Defeasance 04/30/08 0 315-319 Ella Grasso Blvd. & 1-3 Choice Rd. Windsor Locks
Defeasance 01/31/08 0 Route 22 Brewster
Defeasance 02/29/08 0 5050 North 40th Street Phoenix
Defeasance 05/31/08 0 12-28 & 47-61 Pond Street Sharon
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 02/29/08 2 1401-1407 Kings Highway Brooklyn
Defeasance 11/30/07 0 1857, 1859 & 1861 West Grant Road Tucson
Defeasance 04/30/08 0 2746 Belmont Ave. Philadelphia
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 05/31/08 0
1133 Pleasant Street Boulder
1555 Broadway Boulder
Defeasance 05/31/08 0 West Side of Capital Circle, NE, south of US Highway Tallahassee
Defeasance 02/29/08 1 313 1/2 Worth Avenue Palm Beach
> 3% or YM 02/29/08 0 818 Charlestown Road Springfield
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 09/30/07 3
4575 South Proycon Las Vegas
4560-4580 South Valley View Boulevard Las Vegas
Defeasance 04/30/08 0 185-205 West Main Street Macungie
Defeasance 03/31/08 0 1422 Bellevue Ave. Burlingame
Defeasance 05/31/08 0 6007 Coastal Highway Ocean City
Defeasance 05/31/08 0 Howard & 21st Street Baltimore
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 05/31/08 0
3-5 Lothian Road Boston
Commonwealth Ave. Boston
Defeasance 04/30/08 0 26 East Washington Street North Attleborough
Defeasance 11/30/09 0 101 White Clay Center Drive Newark
Defeasance 06/30/07 0 25 Blackstone Valley Place Lincoln
Defeasance 01/31/08 0 7 Creek Parkway Boothwyn
Defeasance 05/31/08 0 2910, 2920, 2924, & 2930 Damon Avenue San Diego
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 04/30/08 0
State Route 14 Wellsburg
2782 South Broadway Wellsburg
Defeasance 03/31/08 0 227-235 East Sixth St. Paul
Defeasance 12/31/07 0 311,351,421,501 NW 42nd Street Pompano Beach
Defeasance 02/29/08 0 1 American Place Gordonsville
Defeasance 05/31/08 0 8199 Route 5 West Bloomfield
Defeasance 05/31/08 0 9600 Pines Boulevard Pembroke Pines
Defeasance 02/29/08 0 825 South Hobart Blvd. Los Angeles
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 03/31/13 0
2321 Aldrich Ave. South Minneapolis
2509 Dupont Ave. South Minneapolis
2211 Colfax Ave. South Minneapolis
Defeasance 12/31/07 0 4400 Coldwater Canyon Avenue Studio City
Defeasance 11/30/12 3 236-240 South Hill Street Los Angeles
Defeasance 12/31/12 0 5707 Santa Fe Street San Diego
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 02/29/08 0
County Route 8 @ Johnny Cake Road Fulton
Route 48 North Fulton
Rathburn Road Fulton
Defeasance 02/29/08 0 21 Industrial Boulevard New Castle
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 05/31/13 0 17323 Ventura Boulevard Encino
Defeasance 02/29/08 3 3700 Old Court Road Pikesville
Defeasance 05/31/05 0 459-461 Fulton Street Brooklyn
Defeasance 05/31/08 0 2435 Alvin Avenue San Jose
Defeasance 03/31/08 0 62 West 45th Street New York
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 02/29/08 0 135-34 Roosevelt Avenue Flushing
Defeasance 05/31/08 0 2400 Richmond Avenue Staten Island
Defeasance 03/31/05 0 3221 North 16th Street Phoenix
Defeasance 12/31/07 0 6633 Yucca Street Los Angeles
Defeasance 05/31/08 0 705-745 Barclay Circle Drive Rochester Hills
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 03/31/08 0 2900 Jog Road Greenacres
Defeasance 03/31/08 0 400 South Harvard Boulevard Los Angeles
Defeasance 05/31/13 0 1575 Treat Blvd Walnut Creek
Defeasance 04/30/08 0 5000 Woodbine Ave. Philadelphia
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 03/31/13 0
3252 Girard Ave. South Minneapolis
3305 Fremont Ave. South Minneapolis
3447 Garfield Ave. South Minneapolis
3400 Harriet Ave. South Minneapolis
3439/3446 Garfield Ave. South Minneapolis
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 01/31/08 0 3900 North Damen Avenue Chicago
Defeasance 05/31/08 0 375 Willard Ave. Newington
Defeasance 05/31/08 0 150 North Andrews Ave. Pompano Beach
Defeasance 12/31/07 0 300 & 320 Terrace Street Flushing
Defeasance 01/31/08 0 1610-1622 Massachusetts Avenue Cambridge
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 03/31/13 0 15801-15901 Eleven Mile Road Southfield
> 1% or YM 02/29/12 6 3421 Cleveland Avenue Santa Rosa
Defeasance 05/31/13 0 4410-4450 Park Glen Road Minneapolis
Defeasance 03/31/08 0 3060 Jog Road Greenacres
Defeasance 03/31/08 0 34 Startlifter Avenue Dover
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 04/30/08 0 2005 E. Cone Boulevard Greensboro
Defeasance 03/31/13 0 13727 Southwest Pacific Highway 99W Tigard
> 1% or YM 01/31/07 6 61 St. Joseph Street Mobile
Defeasance 12/31/07 0 10000-10140 NW 53rd Street Sunrise
Defeasance 12/31/07 0 4249 Avon-Caledonia Road Caledonia
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 03/31/13 0
2122 Grand Ave. South Minneapolis
3508 Colfax Ave. South Minneapolis
2712 Pillsbury Ave. South Minneapolis
2121 Hennipen Ave. South Minneapolis
- --------------------------------------------------------------------------------------------------------------------------------
> 1% or YM 02/28/07 6 1230-1236 Los Osos Valley Rd. Los Osos
Defeasance 05/31/08 0 3111 NE 1st Ave. Pompano Beach
Defeasance 02/29/08 0 2501 North 32nd St. Phoenix
Defeasance 02/29/08 3 1623 Walnut St. Philadelphia
Defeasance 02/29/08 0 2900 East Interstate Highway 20 Big Spring
- --------------------------------------------------------------------------------------------------------------------------------
Defeasance 02/29/08 0 304 East 89th Street New York
> 1% or YM 03/31/07 6 301&304 Eastminster, 151&155 Westminster, 148,156,160,164&172
Judy, 805 Palo Verde Henderson
Defeasance 02/29/08 0 246-270 East Street Road Lower Southampton
Defeasance 03/31/13 0 3790 East Woodmen Drive Colorado Springs
> 1% or YM 06/30/12 3 201-203 & 264 State St., 55 & 75 Sherman St. Portland
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Cut-Off
Date Cut-Off
Balance Date
Year per Balance
Zip Property Built/ Square Number Square per Occupancy
State Code Type Renovated Feet of Units Foot Unit Rate
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CA 92057 Retail, Anchored 1989 344,009 70 96%
FL 34102 Hotel 1950 284 80,682 67%
- -----------------------------------------------------------------------------------------------------------------------------
Retail, Anchored 753,398
FL 32907 Retail, Anchored 1986 97,250 15 52%
VA 24382 Retail, Anchored 1989 122,529 38 90%
NC 28052 Retail, Anchored 1995 221,203 29 98%
OH 43215 Retail, Anchored 1980 133,588 15 66%
MA 02777 Retail, Anchored 1985 178,828 43 73%
- -----------------------------------------------------------------------------------------------------------------------------
CA 92075 Retail, Anchored 1998 214,093 100 90%
NY 11706 Retail, Anchored 1983 173,723 98 100%
NY 10036 Theater/Air Rights to Hotel 1990 52,657 304 100%
CA 92130 Office 1997 130,641 120 100%
CA 95127 Retail, Anchored 1987 153,849 94 95%
- -----------------------------------------------------------------------------------------------------------------------------
TX 77060 Office 1997 233,860 60 100%
CT 06489 Retail, Anchored 1988 151,846 88 98%
DE 19711 Office 1998 154,086 85 100%
CA 92130 Retail, Unanchored 1991 77,781 158 100%
CA 95054 Hotel 1990 262 46,406 77%
- -----------------------------------------------------------------------------------------------------------------------------
MD 20885 Retail, Anchored 1989 198,057 61 97%
MI 48146 Retail, Anchored 1957 296,000 40 94%
MA 02111 Multifamily 1997 294 37,238 98%
CA 92130 Retail, Anchored 1988 127,148 81 97%
NY 10021 Retail, Anchored 1901 11,276 887 100%
CA 90007 Office 1992 614,860 16 86%
MD 21061 Retail, Anchored 1984 234,186 42 100%
- -----------------------------------------------------------------------------------------------------------------------------
Industrial/Warehouse 136,780 70 100%
RI 02886 Industrial/Warehouse 1988 60,000 68 100%
MA 01088 Industrial/Warehouse 1991 24,000 60 100%
CT 06473 Industrial/Warehouse 1988 52,780 77 100%
CA 92279 Retail, Anchored 1990 94,093 99 88%
- -----------------------------------------------------------------------------------------------------------------------------
Industrial/Warehouse 544,380 108 100%
NY 14580 Industrial/Warehouse 1995 40,000 35 100%
NY 14611 Industrial/Warehouse 1993 345,000 5 100%
NY 14580 Industrial/Warehouse 1994 44,500 25 100%
NY 14580 Industrial/Warehouse 1991 114,880 43 100%
- -----------------------------------------------------------------------------------------------------------------------------
FL 34205 Office 1995 133,451 67 100%
WA 98033 Office 1990 62,953 135 95%
AZ 85006 Medical Office 1985 141,583 53 88%
NJ 07866 Industrial/Warehouse 1972 242,288 31 100%
PA 19096 Multifamily 1995 144 51,405 99%
- -----------------------------------------------------------------------------------------------------------------------------
CA 92109 Industrial/Warehouse 1981 127,226 55 100%
AZ 85713 Mobile Home 1973 681 10,265 83%
UT 84501 Retail, Anchored 1997 199,646 34 99%
NY 14031 Retail, Anchored 1995 110,488 60 100%
VT 05819 Retail, Anchored 1991 179,619 36 100%
- -----------------------------------------------------------------------------------------------------------------------------
NY 10003 Multifamily 1983 63 95,238 100%
NY 15404 Mobile Home 1990 324 18,508 94%
CA 92101 Mixed-Use 1991 220,297 27 98%
- -----------------------------------------------------------------------------------------------------------------------------
Mixed-Use 39,638 7 298 489,286
FL 34102 Mixed-Use 1995 19,793 7 173 489,286 100%
FL 34102 Mixed-Use 1996 19,845 125 90%
- -----------------------------------------------------------------------------------------------------------------------------
AZ 85224 Mobile Home 1975 365 16,143 91%
FL 34665 Mixed-Use 1986 448,342 13 97%
NY 10023 Other 1995 73,500 80 100%
CA 94544 Multifamily 1997 100 58,000 97%
CA 94612 Office 1991 79,364 72 95%
- -----------------------------------------------------------------------------------------------------------------------------
CA 94804 Industrial/Warehouse 1980 146,328 37 94%
NY 11372 Retail, Unanchored 1990 48,915 109 98%
OR 97222 Industrial/Warehouse 1985 171,440 30 100%
NJ 08108 Multifamily 1995 217 23,364 95%
MA 01970 Self-Storage 1988 135,234 37 89%
- -----------------------------------------------------------------------------------------------------------------------------
CA 91910 Multifamily 1958 150 33,312 100%
IL 60090 Office 1994 112,674 44 100%
CT 06830 Office 1983 27,396 172 100%
PA 19114 Multifamily 1988 203 22,514 94%
CA 92714 Industrial/Warehouse 1974 118,392 38 100%
- -----------------------------------------------------------------------------------------------------------------------------
CT 06430 Retail, Anchored 1963 42,400 107 100%
CT 06320 Office 1989 87,666 51 100%
NH 03301 Multifamily 1992 146 30,094 97%
LA 71303 Multifamily 1997 152 28,289 97%
NY 14609 Industrial/Warehouse 1981 350,000 12 90%
NJ 08016 Industrial/Warehouse 1985 159,000 27 100%
UT 84701 Retail, Anchored 1992 112,856 38 99%
- -----------------------------------------------------------------------------------------------------------------------------
Multiple 107,965 133
NY 14202 Office 1964 53,246 46 100%
NY 14221 Retail, Unanchored 1995 12,358 45 77%
NY 14202 Parking 1960 12,891 16 100%
NY 14202 Office 1964 29,470 27 100%
- -----------------------------------------------------------------------------------------------------------------------------
IL 60406 Industrial/Warehouse 1920 469,544 9 96%
NY 10021 Multifamily 1993 69 56,461 100%
MA 02215 Multifamily 1925 121 31,652 98%
AZ 85338 Medical Office 1997 35,151 107 100%
TX 75961 Retail, Anchored 1981 171,225 22 82%
- -----------------------------------------------------------------------------------------------------------------------------
UT 84720 Retail, Anchored 1992 126,178 29 97%
CT 06096 Industrial/Warehouse 1981 175,250 20 96%
NY 10509 Industrial/Warehouse 1981 134,938 26 90%
AZ 85018 Office 1989 71,644 49 100%
MA 02067 Mixed-Use 1972 25,116 51 135 66,667 85%
- -----------------------------------------------------------------------------------------------------------------------------
NY 11229 Retail, Anchored 1997 29,600 113 100%
AZ 85711 Industrial/Warehouse 1985 147,900 21 100%
PA 19131 Multifamily 1997 140 22,205 99%
- -----------------------------------------------------------------------------------------------------------------------------
90 72,131
CO 80302 Multifamily 1969 28 40,357 100%
CO 80302 Multifamily 1969 62 31,774 100%
FL 32308 Self-Storage 1990 232,835 13 92%
FL 33480 Retail, Unanchored 1987 16,573 180 96%
VT 05156 Hotel 1995 88 33,355 64%
- -----------------------------------------------------------------------------------------------------------------------------
62,746 92
NV 89103 Industrial/Warehouse 1988 25,000 42 100%
NV 89103 Industrial/Warehouse 1996 37,746 50 89%
PA 18062 Retail, Anchored 1997 27,622 103 97%
CA 94010 Multifamily 1929 26 107,534 100%
MD 21842 Hotel 1986 93 29,032 59%
MD 21218 Retail, Anchored 1997 38,900 69 100%
- -----------------------------------------------------------------------------------------------------------------------------
61 90,000
MA 02135 Multifamily 1928 35 40,000 97%
MA 02135 Multifamily 1920 26 50,000 96%
MA 02760 Retail, Anchored 1986 18,840 143 100%
DE 19711 Office 1983 49,072 55 100%
RI 02865 Office 1987 78,372 34 100%
PA 19061 Office 1996 39,644 65 100%
CA 92109 Retail, Unanchored 1991 14,842 172 100%
- -----------------------------------------------------------------------------------------------------------------------------
231 22,618
NY 14894 Mobile Home 1970 102 13,712 100%
NY 14894 Mobile Home 1970 129 8,906 84%
MN 55101 Parking 1995 37,156 68 100%
FL 33064 Multifamily 1973 104 23,901 97%
VA 22942 Industrial/Warehouse 1973 119,000 21 100%
NY 14585 Mobile Home 1991 140 17,143 100%
FL 33025 Mixed-Use 1986 36,243 64 89%
CA 90005 Multifamily 1989 67 34,256 94%
- -----------------------------------------------------------------------------------------------------------------------------
114 60,343
MN 55405 Multifamily 1974 39 23,022 100%
MN 55405 Multifamily 1965 34 19,072 100%
MN 55405 Multifamily 1969 41 18,249 100%
CA 91604 Office 1984 23,587 97 100%
CA 90012 Parking 1970 189,169 12 100%
CA 92109 Mobile Home 1971 129 17,378 70%
- -----------------------------------------------------------------------------------------------------------------------------
225 22,158
NY 13069 Mobile Home 1970 0 145 12,031 86%
NY 13069 Mobile Home 1961 0 45 4,430 93%
NY 13069 Mobile Home 1970 0 35 5,696 66%
DE 19720 Industrial/Warehouse 1989 52,200 40 100%
- -----------------------------------------------------------------------------------------------------------------------------
CA 91316 Office 1985 24,845 83 92%
MD 21208 Mixed-Use 1970 25,615 78 100%
NY 11201 Retail, Anchored 1996 6,240 321 100%
CA 95121 Retail, Unanchored 1995 20,240 99 100%
NY 10036 Office 1980 45,200 44 91%
- -----------------------------------------------------------------------------------------------------------------------------
NY 11354 Office 1995 5,400 368 100%
NY 10302 Industrial/Warehouse 1992 20,000 98 100%
AZ 86016 Office 1982 50,182 39 90%
CA 90028 Multifamily 1997 64 30,355 95%
MI 48307 Office 1987 31,063 62 100%
- -----------------------------------------------------------------------------------------------------------------------------
FL 33467 Retail, Anchored 1987 78,401 25 87%
CA 90020 Multifamily 1997 69 27,497 96%
CA 94598 Office 1982 29,343 64 95%
PA 19131 Multifamily 1997 68 27,031 96%
- -----------------------------------------------------------------------------------------------------------------------------
121 102,616
MN 55408 Multifamily 1923 21 19,002 100%
MN 55408 Multifamily 1928 13 15,348 100%
MN 55408 Multifamily 1930 14 23,159 100%
MN 55408 Multifamily 1929 14 23,159 100%
MN 55408 Multifamily 1968 25 21,948 100%
- -----------------------------------------------------------------------------------------------------------------------------
IL 60618 Multifamily 1993 34 51,219 100%
CT 06131 Office 1986 26,997 63 100%
FL 33069 Office 1988 39,558 42 95%
MI 48433 Multifamily 1971 124 13,256 91%
MA 01238 Multifamily 1920 50 31,833 98%
- -----------------------------------------------------------------------------------------------------------------------------
MI 48076 Multifamily 1977 96 16,562 93%
CA 95403 Hotel 1994 112 13,950 67%
MN 55436 Multifamily 1997 34 45,588 100%
FL 33467 Retail, Unanchored 1986 46,082 33 89%
DE 19901 Office 1989 34,000 44 100%
- -----------------------------------------------------------------------------------------------------------------------------
NC 27405 Retail, Anchored 1976 114,180 13 74%
OR 97223 Retail, Unanchored 1990 22,275 65 94%
AL 36606 Office 1996 59,539 24 86%
FL 33351 Industrial/Warehouse 1995 55,090 23 100%
NY 14232 Mobile Home 1980 54 22,573 100%
- -----------------------------------------------------------------------------------------------------------------------------
69 73,242
MN 55412 Multifamily 1996 12 24,942 100%
MN 55412 Multifamily 1960 16 18,707 100%
MN 55412 Multifamily 1966 18 14,411 100%
MN 55412 Multifamily 1913 23 15,182 100%
- -----------------------------------------------------------------------------------------------------------------------------
CA 93402 Office 1988 24,552 48 100%
FL 33064 Multifamily 1997 55 21,636 100%
AZ 85008 Medical Office 1986 11,658 94 100%
PA 19103 Retail, Unanchored 1997 9,242 114 100%
TX 79720 Hotel 1995 64 16,363 62%
- -----------------------------------------------------------------------------------------------------------------------------
NY 10128 Multifamily 1910 18 57,318 100%
NV 89015 Multifamily 1977 42 24,067 93%
PA 19407 Retail, Unanchored 1997 14,975 67 100%
CO 80903 Retail, Unanchored 1997 8,333 120 100%
ME 04101 Multifamily 1992 38 20,383 97%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Annual
Occupancy Replacement Annual Largest Largest
Rate Reserves Replacement Tenant Tenant
as of per Square Reserves Square Lease
Date Foot (b) per Unit (b) Largest Tenant Feet Expiration
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
03/24/98 0.11 Kmart 89,483 3/31/16
02/28/98 3,424
- --------------------------------------------------------------------------------------------------------------------------------
04/02/98 Dollar General Store 8,450 4/30/98
04/02/98 Kmart 86,479 6/30/14
04/02/98 Winn Dixie 42,000 6/6/10
04/02/98 Big Bear 38,300 6/14/00
04/02/98 Sears Home Life 44,285 7/15/00
- --------------------------------------------------------------------------------------------------------------------------------
02/19/98 0.14 Vons 49,895 12/31/17
04/01/98 0.15 Toys 'R Us 43,123 1/31/08
02/19/98 0.20 Walt Disney Theatrical Production LTD 52,657 NA
03/01/98 0.10 Household Finance 46,307 9/30/04
02/19/98 0.15 Lucky Store 39,880 3/31/08
- --------------------------------------------------------------------------------------------------------------------------------
04/01/98 Kerr McGee 208,006 6/30/09
02/28/98 0.15 Shaw's 60,000 11/30/16
Computer Science Corporation 154,000 5/31/07
03/24/98 0.11 Sharp Rees-Stealy 6,987 3/26/00
12/31/97 1,908
- --------------------------------------------------------------------------------------------------------------------------------
02/28/98 0.15 Cineplex Odeon (Plitt Theatres, Inc.) 56,035 9/30/09
02/02/98 0.15 Farmer Jack 53,000 5/31/03
03/24/98 247
03/24/98 0.10 Keils Food Stores 29,585 12/31/11
03/08/98 0.17 Club Macanudo 5,475 7/31/05
01/07/98 0.15
01/21/98 0.15 Caldor Inc. 83,910 1/31/12
- --------------------------------------------------------------------------------------------------------------------------------
0.15 Federal Express 60,000 6/30/04
0.15 Federal Express 24,000 6/30/04
0.15 Federal Express 52,500 8/31/08
01/08/98 Sav-On 19,920 8/31/15
- --------------------------------------------------------------------------------------------------------------------------------
12/31/97 0.10 Boulter Rigging 40,000 8/31/12
12/31/97 0.10 Boulter Carting 345,000 8/30/12
09/01/97 0.10 Xerox PE&M 15,000 1/14/01
12/31/97 0.10 Xerox 50,000 1/14/01
- --------------------------------------------------------------------------------------------------------------------------------
04/15/98 Staff Leasing 81,669 12/31/05
05/01/98 0.15 Eastside Executive Suites 30,028 12/31/05
03/31/98 0.15 Phoenix Children's Hospital 12,542 2/16/03
01/20/98 0.15 Independent Enclosures 56,000 2/28/03
02/20/98 225
- --------------------------------------------------------------------------------------------------------------------------------
04/01/98 0.10 Coast Distributing 127,226 3/31/13
01/01/98 48
02/28/98 0.15 Kmart 91,266 11/30/17
03/31/98 0.15 Homeplace Stores Two, Inc. 53,000 10/31/10
04/08/98 0.15 Ames Department Store 60,526 1/31/12
- --------------------------------------------------------------------------------------------------------------------------------
05/01/98 262 NY Village 850 12/31/02
04/09/98 49
04/01/98 0.10 Five Star Parking 205,000 1/7/08
- --------------------------------------------------------------------------------------------------------------------------------
05/15/98 Smith Barney 6,334 10/31/05
05/15/98 Raymond James 4,200 1/31/01
- --------------------------------------------------------------------------------------------------------------------------------
02/17/98 50
02/01/98 0.15
0.15 NYC School Constuction Authority 73,500 9/30/10
03/10/98 250
03/24/98 0.15 Club One @ City Center 56,080 11/30/10
- --------------------------------------------------------------------------------------------------------------------------------
04/03/98 0.15 Clothing Broker 13,780 12/1/03
01/01/98 0.38 86 St. Parking Corp. 20,750 7/1/11
04/06/98 0.15 OECO Corporation 171,440 3/31/06
02/20/98 225
03/14/98 0.15 Gold's Gym 12,500 2/28/99
- --------------------------------------------------------------------------------------------------------------------------------
03/11/98 250
03/06/98 0.17 Sportmart, Inc. 43,127 5/31/05
03/26/98 0.15 W.R. Berkley Corporation 22,469 7/31/04
02/20/98 225
0.10 Plan Hold 118,392 8/31/07
- --------------------------------------------------------------------------------------------------------------------------------
04/24/98 CVS 9,604 1/31/04
04/03/98 0.15 EB/General Dynamics 61,356 12/31/03
02/11/98 250
02/23/98 250
01/00/00 0.10 Monroe FTZ Operators 265,000 3/31/07
03/01/98 0.10 Paris Business Products 125,000 3/31/01
02/28/98 0.15 Kmart 84,183 10/31/06
- --------------------------------------------------------------------------------------------------------------------------------
04/02/98 0.15 Benderson Development Co. 53,246 2/1/13
04/02/98 0.15 Blockbuster Video 6,500 10/1/05
04/02/98 0.15 Benderson Development 12,891 2/1/13
12/19/97 0.15 La Salle Ambulance 29,470 2/1/01
- --------------------------------------------------------------------------------------------------------------------------------
02/23/98 0.16 Allied Tube & Conduit 129,536 7/31/03
04/03/98 279
03/19/98
02/28/98 0.10 Samaritan Health System 35,151 8/31/12
03/01/98 0.17 JC Penney 34,364 4/1/01
- --------------------------------------------------------------------------------------------------------------------------------
02/28/98 0.15 Kmart 83,552 11/30/06
01/31/98 0.25 US Postal Service 51,000 1/31/99
01/15/98 0.15 Matco-Norca, Inc. 44,500 4/30/02
02/23/98 0.20 John M. Driscoll Co. 12,738 5/31/00
03/31/98 0.65 319 ETZ Chaim, Inc. 1,860 1/31/99
- --------------------------------------------------------------------------------------------------------------------------------
02/24/98 0.15 Rock Bottom 20,300 4/30/13
03/01/98 0.10 AMA Plastic Corp. 59,400 10/31/02
02/20/98 225
- --------------------------------------------------------------------------------------------------------------------------------
02/28/98 300
02/28/98 300
02/28/98 0.15
03/31/98 0.15 Bice Restaurant 4,635 9/30/05
02/28/98 702
- --------------------------------------------------------------------------------------------------------------------------------
03/31/98 0.10 Regency Cleaners 8,000 12/31/99
03/31/98 0.10 Betson Coin-Op 5,362 6/30/01
04/01/98 0.15 CVS (Revco) 10,722 6/30/17
03/01/98 300
03/31/98
04/16/98 0.15 Save A Lot (Super Valu Guaranty) 18,000 3/31/13
- --------------------------------------------------------------------------------------------------------------------------------
04/06/98 250 0
04/06/98 250 0
0.18 CVS 11,840 1/1/08
10/01/97 0.15 Bank of New York 38,452 3/31/08
04/13/98 0.15 CVS 33,600 3/31/01
01/27/98 0.15 IKON Office Solutions, Inc. 15,444 8/3/02
04/07/98 0.18 In-N-Out 3,566 1/1/16
- --------------------------------------------------------------------------------------------------------------------------------
03/31/98 50
03/31/98 50
04/13/98 0.20 MMI Risk Mgt Resources, Inc. 8,300 7/31/02
03/27/98 250
0.15 American Press 119,000
01/31/98 50
04/21/98 0.15 General Rental Co. 6,157 2/28/02
02/11/98 250
- --------------------------------------------------------------------------------------------------------------------------------
03/30/98 0
03/30/98 0
03/30/98 0
10/10/97 0.20 iMall 5,376 11/30/98
03/01/98 0.06 L & R Auto Parks, Inc. 189,169 4/1/13
02/25/98 50
- --------------------------------------------------------------------------------------------------------------------------------
03/31/98 50
03/31/98 50
03/31/98 50
03/01/98 0.15 E.J. DeSeta Company, Inc. 52,200 12/31/08
- --------------------------------------------------------------------------------------------------------------------------------
03/25/98 0.23 WFS Financial Inc. 3,882 12/31/01
02/23/98 0.15 Community First, FSB 4,676 2/1/08
0.20 Payless Shoe Source Inc. 6,240 3/1/02
03/23/98 0.18 Quynh Huong Cafe 2,200 11/30/99
09/01/97 0.20 Lattera 8,000 4/30/06
- --------------------------------------------------------------------------------------------------------------------------------
0.49 Asia Bank, N.A. 6,400 3/31/08
0.10 Federal Express 20,000 10/31/07
01/01/98 0.15 Arizona Dept. of Economic Security 13,193 9/14/00
04/06/98 225
03/03/98 0.16 Michigan Medical Properties, Inc. 6,617 11/30/99
- --------------------------------------------------------------------------------------------------------------------------------
05/18/98 0.40 Believers Victory Church 15,500 6/1/01
03/25/98 200
03/01/98 0.33 CMG Mortgage 5,686 3/31/02
03/20/98 225
- --------------------------------------------------------------------------------------------------------------------------------
03/30/98
03/30/98
03/30/98
03/30/98
03/30/98
- --------------------------------------------------------------------------------------------------------------------------------
04/01/98 250
04/06/98 0.15 Abrahms Life Services 8,871 10/30/08
05/01/98 0.20 Occupational Health Medical Systems of Florida Inc 4,600 1/31/04
03/31/98 250
03/01/98
- --------------------------------------------------------------------------------------------------------------------------------
03/30/98
12/31/97
02/28/98 300
03/05/98 0.24 EBS 2000 5,098 10/1/99
12/11/97 0.15 Discover Card 34,000 1/1/01
- --------------------------------------------------------------------------------------------------------------------------------
03/25/98 0.15 Kmart 84,180 2/28/08
02/07/98 0.31 Hollywood Video 6,450 6/30/00
03/03/98 0.00 Southtrust Bank 25,899 8/31/99
03/01/98 0.15 One Price Concepts, Inc. 3,000 1/31/99
04/07/98 65
- --------------------------------------------------------------------------------------------------------------------------------
02/01/98
02/01/98
02/01/98
02/01/98
- --------------------------------------------------------------------------------------------------------------------------------
12/31/97 0.13 Teatronics, Inc. 7,922 10/31/01
04/09/98 250
02/01/98 0.20 Gary Hall Eye Institute 11,658 1/31/13
0.15 Le Colonial 9,242 2/28/12
11/30/97 415
- --------------------------------------------------------------------------------------------------------------------------------
01/06/98 250
07/23/97
01/15/98 0.10 Weight Watchers of Phila. 3,000 10/31/00
01/07/98 0.10 Blockbuster 6,500 6/30/07
07/24/97
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2nd 2nd
Largest Largest
Tenant Tenant Cross-
Square Lease Cross- Collateralized
2nd Largest Tenant Feet Expiration Collateralized Description
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ralph's 45,000 12/31/06 No
No
- -----------------------------------------------------------------------------------------------------------------------------------
Yes Multiple Properties
US Post Office 5,600 11/30/16 Yes Crossed With Loan #9672,9673,9674,9675
General Services Administration 5,100 3/27/04 Yes Crossed With Loan #9671,9673,9674,9675
Mathews Belk 34,500 3/16/00 Yes Crossed With Loan #9671,9672,9674,9675
Hancock Fabrics 11,320 2/28/02 Yes Crossed With Loan #9671,9672,9673,9675
Marshalls 27,000 1/31/07 Yes Crossed With Loan #9671,9672,9673,9674
- -----------------------------------------------------------------------------------------------------------------------------------
Ross 30,531 1/31/03 No
Waldbaum's 39,478 1/31/08 No
Air Rights Lease to 1568 Broadway Assc. 2/28/37 No
The Herb Farm 17,444 10/31/04 No
Pic-N-Save 25,500 1/31/11 No
- -----------------------------------------------------------------------------------------------------------------------------------
Oil and Gas Asset Clearinghouse Inc 11,630 4/30/02 No
Toy Works, Inc. (Consolidated Stores) 14,450 12/31/99 No
No
Frazee Industries, Inc. 5,053 9/8/01 No
No
- -----------------------------------------------------------------------------------------------------------------------------------
Washingtonian Sport & Health 50,889 12/31/03 No
Loew's Theater 37,400 5/31/03 No
No
Payless Drug 25,488 8/31/12 No
Timberland 3,514 12/31/06 No
No
Giant Food 52,706 5/31/16 No
- -----------------------------------------------------------------------------------------------------------------------------------
Yes Multiple Properties
Yes Multiple Properties
Yes Multiple Properties
Yes Multiple Properties
Trak Auto 9,960 4/30/98 No
- -----------------------------------------------------------------------------------------------------------------------------------
Yes Multiple Properties
Yes Multiple Properties
Yes Multiple Properties
Xerox 13,000 8/31/00 Yes Multiple Properties
PCS, Inc. 28,000 12/31/01 Yes Multiple Properties
- -----------------------------------------------------------------------------------------------------------------------------------
Signature 12,240 12/31/00 No
Nutley Sytems 16,977 5/31/02 No
SHS Family Practice Center 11,568 2/16/03 No
Sears 22,850 6/27/00 No
No
- -----------------------------------------------------------------------------------------------------------------------------------
No
No
City Mart 42,001 3/31/06 No
Dick's Clothing & Sporting Goods, Inc. 50,000 10/31/10 No
JC Penney 35,340 1/31/00 No
- -----------------------------------------------------------------------------------------------------------------------------------
Omni Park Place 700 7/30/17 No
No
US Recruiters (Army) 2,242 4/30/98 No
- -----------------------------------------------------------------------------------------------------------------------------------
Yes Multiple Properties
Point Marco Development 5,628 12/31/02 Yes Multiple Properties
Print Media Graphics 3,377 5/14/03 Yes Multiple Properties
- -----------------------------------------------------------------------------------------------------------------------------------
No
No
No
No
Medical Group @ City Center 16,084 8/31/01 No
- -----------------------------------------------------------------------------------------------------------------------------------
Miracle Auto 12,850 12/1/98 No
NY Billiards 10,000 3/1/07 No
No
No
Community Newsdealers, Inc. 5,000 12/31/99 No
- -----------------------------------------------------------------------------------------------------------------------------------
No
Capital Construction 38,800 3/31/01 No
No
No
No
- -----------------------------------------------------------------------------------------------------------------------------------
People's Bank 5,985 11/25/02 Yes Multiple Parcels
Dept. of Labor 13,912 9/19/99 No
No
No
RCN Fulfillment 50,000 12/31/03 No
American Casein 34,000 3/31/01 No
Reel Theatres 8,000 12/31/00 No
- -----------------------------------------------------------------------------------------------------------------------------------
Yes Multiple Properties
Yes Multiple Properties
Mighty Taco, Inc. 3,003 12/1/00 Yes Multiple Properties
Yes Multiple Properties
Yes Multiple Properties
- -----------------------------------------------------------------------------------------------------------------------------------
Gallway Warehouse Dist. 33,073 9/30/98 No
No
No
No
Beall's 30,000 1/1/09 No
- -----------------------------------------------------------------------------------------------------------------------------------
Christensens 22,272 7/31/15 No
Federal Reserve Bank of Boston 38,364 10/31/02 No
The Feed Barn 16,630 9/30/02 No
Main Street & Main Inc. 12,102 1/31/99 No
CVS 1,254 3/31/99 No
- -----------------------------------------------------------------------------------------------------------------------------------
No-Life Properties 5,786 4/30/03 No
AMA Plasic Corp. 32,730 8/31/01 No
No
- -----------------------------------------------------------------------------------------------------------------------------------
Yes Multiple Properties
Yes Multiple Properties
Yes Multiple Properties
No
European Collections 3,177 11/30/01 No
No
- -----------------------------------------------------------------------------------------------------------------------------------
Yes Multiple Properties
American Racing 7,000 9/30/99 Yes Multiple Properties
Mothers Cookies 5,362 11/30/01 Yes Multiple Properties
Video Update 5,100 11/30/07 No
No
No
Parts America 8,400 12/31/07 No
- -----------------------------------------------------------------------------------------------------------------------------------
Yes Multiple Properties
Yes Multiple Properties
Yes Multiple Properties
Blockbuster Video 7,000 1/1/02 No
Bank of New York 10,620 3/31/08 No
CVS - Pharmacare 14,741 1/31/99 No
Delaware Valley Surgical Supply, Inc. 12,800 8/30/02 No
Auto Max 2,684 1/1/02 No
- -----------------------------------------------------------------------------------------------------------------------------------
Yes Multiple Properties
Yes Multiple Properties
Yes Multiple Properties
Insty Print 5,200 8/31/02 No
No
No
No
Christian Missionary Church 5,340 2/28/02 No
No
- -----------------------------------------------------------------------------------------------------------------------------------
Yes Multiple Properties
Yes Multiple Properties
Yes Multiple Properties
Yes Multiple Properties
MPH Entertainment 3,645 8/31/98 No
No
No
- -----------------------------------------------------------------------------------------------------------------------------------
Yes Multiple Properties
Yes Multiple Properties
Yes Multiple Properties
Yes Multiple Properties
No
- -----------------------------------------------------------------------------------------------------------------------------------
Screenmedia Entertainment 3,471 3/31/03 No
Gourmet Again 3,452 4/1/99 No
No
Thanh Tam Restaurant 2,200 11/30/99 No
Cliff Schwarz Music 4,000 12/31/06 No
- -----------------------------------------------------------------------------------------------------------------------------------
No
No
General Services Administration 9,639 10/31/99 No
No
No
- -----------------------------------------------------------------------------------------------------------------------------------
Lawnmower Headquarters 6,523 2/1/00 Yes Crossed With Loan #6397
No
Alisto Engineering 5,526 4/30/00 No
No
- -----------------------------------------------------------------------------------------------------------------------------------
Yes Multiple Properties
Yes Multiple Properties
Yes Multiple Properties
Yes Multiple Properties
Yes Multiple Properties
Yes Multiple Properties
- -----------------------------------------------------------------------------------------------------------------------------------
No
Bio Medical 8,305 6/30/09 No
Atlantic Surgical/ MUA Center 3,175 4/30/98 No
No
No
- -----------------------------------------------------------------------------------------------------------------------------------
No
No
No
Job Site Personnel, Inc. 4,200 12/1/01 Yes Crossed With Loan #6341
No
- -----------------------------------------------------------------------------------------------------------------------------------
No
AAMCO 4,125 5/31/02 No
Jackson & Taylor 8,792 8/31/02 No
Performance Brands, Inc. 3,000 5/31/98 No
No
- -----------------------------------------------------------------------------------------------------------------------------------
Yes Multiple Properties
Yes Multiple Properties
Yes Multiple Properties
Yes Multiple Properties
Yes Multiple Properties
- -----------------------------------------------------------------------------------------------------------------------------------
Los Osos Christian Fellowship 7,295 6/30/98 No
No
No
No
No
- -----------------------------------------------------------------------------------------------------------------------------------
No
No
Freedom Valley Girl Scouts 3,000 7/31/02 No
Subway 1,833 12/31/07 No
No
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Replacement
Release Tax Insurance Reserve
Provision Release Provision Description Escrow Escrow Escrow Springing Escrow Description
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
No Yes Yes Yes
No Yes Yes Yes Liquidity Reserve
- -----------------------------------------------------------------------------------------------------------------------------------
Yes 1.30x Dscr - 125% Defeasance Release Yes Yes Yes
Yes 1.30x Dscr - 125% Defeasance Release Yes Yes Yes
Yes 1.30x Dscr - 125% Defeasance Release Yes Yes Yes
Yes 1.30x Dscr - 125% Defeasance Release Yes Yes Yes
Yes 1.30x Dscr - 125% Defeasance Release Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
No Yes No Yes Insurance
No Yes Yes Yes
No Yes No Yes
No Yes No Yes Insurance
No Yes No Yes Insurance
- -----------------------------------------------------------------------------------------------------------------------------------
Yes 1.74x Dscr - 125% Defeasance Release Yes Yes No Replacement Reserve
No Yes Yes Yes TI/LC Escrow for all
tenants > 7500 Sq. Ft.
No Yes Yes Yes
No Yes Yes Yes
No Yes No Yes Insurance
- -----------------------------------------------------------------------------------------------------------------------------------
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
Yes
Yes 1.20x Dscr - 125% Defeasance Release No No Yes Tax & Insurance
Yes 1.20x Dscr - 125% Defeasance Release No No Yes Tax & Insurance
Yes 1.20x Dscr - 125% Defeasance Release No No Yes Tax & Insurance
No Yes No No
- -----------------------------------------------------------------------------------------------------------------------------------
Yes 1.40x Dscr - 125% Defeasance Release Yes No Yes Insurance
Yes 1.40x Dscr - 125% Defeasance Release Yes No Yes
Yes 1.40x Dscr - 125% Defeasance Release Yes No Yes
Yes 1.40x Dscr - 125% Defeasance Release Yes No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
No Yes Yes No Replacement
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes
No Yes No Yes Insurance
- -----------------------------------------------------------------------------------------------------------------------------------
No Yes No Yes Insurance
No Yes Yes Yes
No Yes Yes Yes
No Yes No Yes
Yes >125% of Appraised Val or $375K YM Release Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
Yes 1.41x Dscr - 125% Defeasance Release Yes Yes Yes Tax, Insurance, & Replacement
Yes 1.41x Dscr - 125% Defeasance Release Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
No Yes Yes Yes
No Yes Yes Yes
No No Yes Yes
No Yes Yes Yes
No Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes
No Yes No Yes Insurance
No Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
No Yes No Yes Insurance
No Yes No Yes Insurance
No Yes Yes Yes
No Yes No Yes Insurance
No Yes No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
No Yes Yes No
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes
Yes 1.50x Dscr - $219,426 Par Defeasance Release Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
No Yes No Yes
No Yes No Yes
No Yes No Yes
No Yes No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes
No Yes No Yes Insurance - @ Default
No Yes Yes Yes Deferred Maint
- -----------------------------------------------------------------------------------------------------------------------------------
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
No Yes Yes Yes
No Yes Yes Yes
No Yes No Yes Insurance
- -----------------------------------------------------------------------------------------------------------------------------------
Yes 1.75x Dscr - 125% Defeasance Release Yes No Yes Insurance
Yes 1.75x Dscr - 125% Defeasance Release Yes No Yes
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
Yes 1.38x Dscr - 110% Defeasance Release Yes Yes Yes
Yes 1.38x Dscr - 110% Defeasance Release Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes No
No Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
No Yes Yes Yes
No Yes Yes Yes
No Yes No Yes Insurance
No Yes Yes Yes
No Yes Yes Yes
No Yes No Yes Insurance
No Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
Yes 1.30x Dscr - 125% Defeasance Release Yes Yes Yes
Yes 1.30x Dscr - 125% Defeasance Release Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes Additional Replacement
No Yes Yes Yes
No Yes Yes Yes
No Yes No Yes Insurance
- -----------------------------------------------------------------------------------------------------------------------------------
Yes 1.61x Dscr - 125% Defeasance Release Yes Yes No Replacement
Yes 1.61x Dscr - 125% Defeasance Release Yes Yes No Replacement
Yes 1.61x Dscr - 125% Defeasance Release Yes Yes No Replacement
No Yes Yes Yes
No Yes No Yes
No Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
Yes 1.33x Dscr - 125% Defeasance Release Yes Yes Yes
Yes 1.33x Dscr - 125% Defeasance Release Yes Yes Yes
Yes 1.33x Dscr - 125% Defeasance Release Yes Yes Yes
No No No Yes T&I
- -----------------------------------------------------------------------------------------------------------------------------------
No Yes No Yes Insurance
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
No Yes Yes Yes
No No No Yes Real Estate Taxes
No Yes Yes Yes
No Yes No Yes Insurance
No Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
Yes 1.54x Dscr - Par Defeasance Release Yes Yes Yes
No Yes No Yes Insurance
No Yes No Yes Insurance
No Yes No Yes Insurance
- -----------------------------------------------------------------------------------------------------------------------------------
Yes 1.59x Dscr - 125% Defeasance Release Yes Yes No Replacement
Yes 1.59x Dscr - 125% Defeasance Release Yes Yes No Replacement
Yes 1.59x Dscr - 125% Defeasance Release Yes Yes No Replacement
Yes 1.59x Dscr - 125% Defeasance Release Yes Yes No Replacement
Yes 1.59x Dscr - 125% Defeasance Release Yes Yes No Replacement
- -----------------------------------------------------------------------------------------------------------------------------------
No Yes Yes Yes
No Yes No Yes Insurance
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes No
- -----------------------------------------------------------------------------------------------------------------------------------
No Yes Yes No Replacement Escrow
No Yes Yes No
No Yes Yes Yes
Yes 1.54x Dscr - Par Defeasance Release Yes Yes Yes
No Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
Yes 1.46x Dscr - 125% Defeasance Release Yes Yes No Replacement
Yes 1.46x Dscr - 125% Defeasance Release Yes Yes No Replacement
Yes 1.46x Dscr - 125% Defeasance Release Yes Yes No Replacement
Yes 1.46x Dscr - 125% Defeasance Release Yes Yes No Replacement
- -----------------------------------------------------------------------------------------------------------------------------------
No Yes Yes Yes
No Yes Yes Yes
No Yes Yes Yes
No Yes No Yes
No Yes Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
No Yes No Yes Insurance
No No No No
No Yes Yes Yes
No Yes Yes Yes
No No No No Tax & Insurance
(a) 1997 Net Operating Income reflects the property's historical operating performance over the most recent twelve month period for
which operating statements are available. 1996 Net Operating Income reflects the property's historical operating performance for a
previous twelve month period which, in most cases is equivalent to calendar year 1996.
(b) The Annual Replacement Reserves per Square Foot or Unit with respect to Loan Numbers 6100, 9119, 9121, 9115, 6101, 9114, 9123
and 6102 represent a single initial deposit made by the Borrower at the closing of the related Mortgage Loan.
Note: Loan Numbers 9671 - 9675 (The Retail Portfolio) consists of five Mortgage Loans which are cross-collateralized and
cross-defaulted. For purposes of this Annex, this group of loans has been treated as one Mortgage Loan.
Note: With respect to loan numbers 6414, 5873, 6341, 3912, the terms of the original loan agreements provided for an earnout
option, or a one time principal curtailment. Such earnout (or curtailment, as the case may be) has been fully funded to the extent
applicable, as of the Cut-Off Date, and no future advances are required. For purposes of this annex, the loan is presented as if it
was fully funded on the earnout/curtailment date, with the Stated Original Term to Maturity and Original Amortization Term reduced
by the number of months from origination to such earnout/curtailment date.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Comparative Financial Status Report
Exhibit I-1
LAST ENDING
PROPERTY SCHEDULED PAID ANNUAL
PROPECTUS INSPECTION PRINCIPAL THRU DEBT
NUMBER CITY STATE DATE BALANCE DATE SERVICE
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL INFORMATION:
CURRENT FULL YEAR:
CURRENT FULL YR. RECEIVED WITH DSC less than 1:
PRIOR FULL YEAR:
PRIOR FULL YR. RECEIVED WITH DSC less than 1:
<CAPTION>
ORIGINAL UNDERWRITING INFORMATION PRIOR FULL YEAR OPERATING INFORMATION
AS OF Y-E YYYY NORMALIZED
FINANCIAL
FINANCIAL INFO % TOTAL $ INFO AS OF % TOTAL $
AS OF DATE OCC REVENUE NOI DSCR DATE OCC REVENUE NOI DSCR
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
RECEIVED REQUIRED
LOANS BALANCE BALANCE
# % $ % % $ %
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
CURRENT ANNUAL OPERATING INFORMATION "ACTUAL" YTD FINANCIAL INFORMATION
AS OF Y-E YYYY NORMALIZED MONTH REPORTED
FINANCIAL FS FS
INFO AS OF % TOTAL $ START END % TOTAL $
DATE OCC REVENUE NOI DSCR DATE DATE OCC REVENUE NOI DSCR
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
NET CHANGE
CURRENT & BASIS
%
% TOTAL
OCC REV DSCR
<S> <C> <C>
</TABLE>
B-1
<PAGE>
<TABLE>
<CAPTION>
Delinquent Loan Status Report
Exhibit I-2
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL TOTAL OTHER
ENDING O/S P&I O/S ADVANCES
PROSPECTUS PROPERTY PROPERTY SQ FT PAID TO SCHEDULED ADVANCES EXPENSES (TAXES & TOTAL
ID NAME TYPE CITY STATE OR UNITS DATE BALANCE TO DATE TO DATE INSURANCE) EXPOSURE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
- ---------------------------------------------------------------------------
CURRENT CURRENT LTM CAP
PROSPECTUS MONTHLY INTEREST MAT. NOI LTM RATE
ID P&I RATE DATE DATE LTM NOI DSCR ASSIGNED
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
B-2
<PAGE>
Delinquent Loan Status Report
Exhibit I-2
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
VALUE APPRAISAL, LOSS TOTAL
USING VALUATION/ BPO, OR USING 92% APPRAISAL
PROSPECTUS PROPERTY PROPERTY NOI & CAP APPRAISAL INTERNAL APPRAISAL ESTIMATED REDUCTION
ID NAME TYPE CITY STATE RATE DATE VALUE OR BPO RECOVERY % REALIZED
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
- -------------------------------------------------------------------
EXPECTED
FCL FCL
PROSPECTUS TRANSFER RESOLUTION START SALE WORKOUT
ID DATE DATE DATE DATE STRATEGY
- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
B-3
<PAGE>
Delinquent Loan Status Report
Exhibit I-2
<CAPTION>
- --------------------------------------------------------------
PROSPECTUS PROPERTY PROPERTY
ID NAME TYPE CITY STATE COMMENTS
- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
</TABLE>
B-4
<PAGE>
HISTORICAL LOAN MODIFICATION REPORT
EXHIBIT I-3
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE WHEN BALANCE AT
MODIFICATION MODIFICATION SENT TO THE EFFECTIVE
PROSPECTUS OR EXT EFFECTIVE SPECIAL DATE OF OLD NEW # OF OLD NEW OLD
ID CITY STATE FLAG DATE SERVICER MODIFICATION RATE RATE MONTHS P & I P & I MATURITY
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
B-5
<PAGE>
HISTORICAL LOAN MODIFICATION REPORT
EXHIBIT I-3
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
PROSPECTUS NEW MONTHS FOR REALIZED LOSS ESTIMATED INTEREST
ID CITY MATURITY MOD CHANGE TO TRUST LOSS TO TRUST COMMENTS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
B-6
<PAGE>
HISTORICAL LOSS ESTIMATE REPORT
EXHIBIT I-4
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
LATEST NET AMOUNT SCHEDULED TOTAL
% REC APPRAISAL EFFECTIVE RECEIVED BALANCE P&I
PROSPECTUS PROPERTY PROPERTY FROM OR BROKERS DATE OF SALES FROM (AS OF PAID
ID NAME TYPE CITY STATE SALE OPINION SALE PRICE SALE RESOLUTION) (ADVANCES)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
- ----------------------------------------
TOTAL SERVICING
PROSPECTUS EXPENSES FEES
ID (OUTSTANDING) EXPENSE
- ----------------------------------------
<S> <C> <C>
</TABLE>
B-7
<PAGE>
HISTORICAL LOSS ESTIMATE REPORT
EXHIBIT I-4
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
ACUTAL DATE MINOR DATE TOTAL LOSS %
LOSSES LOSS ADJ MINOR ADJ LOSS OF
PROSPECTUS PROPERTY PROPERTY NET PASSED PASSED TO PASSED WITH SCHEDULED
ID NAME TYPE CITY PROCEEDS THROUGH THROUGH TRUST THROUGH ADJUSTMENT BALANCE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
B-8
<PAGE>
REO STATUS REPORT
EXHIBIT I-5
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER
ENDING P&I TOTAL ADVANCES
PROSPECTUS PROPERTY PROPERTY SQ FT PAID THRU SCHEDULED ADVANCES EXPENSES (TAXES & TOTAL
ID NAME TYPE CITY STATE OR UNITS DATE BALANCE TO DATE TO DATE INSURANCE) EXPOSURE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
- -----------------------------------------------------------------------------------
VALUATION
CURRENT CAP /
PROSPECTUS MONTHLY MATURITY LTM NOI LTM LTM RATE APPRAISAL
ID P&I DATE DATE NOI DSCR ASSIGNED DATE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
B-9
<PAGE>
REO STATUS REPORT
EXHIBIT I-5
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
VALUE APPRAISAL / TOTAL SPECIAL
USING BPO OR LOSS USING APPRAISAL SERVICING
PROSPECTUS PROPERTY PROPERTY NOI & CAP INTERNAL 92% APPRAISAL ESTIMATED REDUCTION TRANSFER
ID NAME TYPE CITY STATE RATE VALUE OR BPO RECOVERY % REALIZED DATE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
- ------------------------------------------------------
REO PENDING
PROSPECTUS ACQUISITION RESOLUTION
ID DATE DATE COMMENTS
- ------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
B-10
<PAGE>
SERVICER WATCH LIST
EXHIBIT I-6
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
ENDING PAID
PROSPECTUS PROPERTY PROPERTY SCHEDULED THRU MATURITY LTM COMMENT/REASON
ID NAME TYPE CITY STATE BALANCE DATE DATE DSCR ON WATCH LIST
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
B-11
<PAGE>
OPERATING STATEMENT ANALYSIS REPORT
Exhibit I-7
As of
<TABLE>
<S> <C> <C> <C> <C> <C>
PROPERTY OVERVIEW:
Prospectus Number
Sched Balance/Paid to Date
Property Name
Property Type
Property Address
City, State
Net Rentable Square Feet
Year Built/Renovated
<CAPTION>
Year of Operations UNDERWRITING 1995 1996 1997 1998 YTD
<S> <C> <C> <C> <C> <C>
Occupancy Rate
Average Rental Rate
INCOME:
<CAPTION>
No. of Months Annualized # OF MONTHS
Period Ended UNDERWRITING 1995 1996 1997 1998 YTD 1997-BASE 1997-1996
Statement Classification BASIS NORMALIZED NORMALIZED NORMALIZED VARIANCE VARIANCE
<S> <C> <C> <C> <C> <C> <C> <C>
Rental Income - Category 1
Rental Income - Category 2
Rental Income - Category 3
Pass Through/Escalations
Other Income
EFFECTIVE GROSS INCOME
OPERATING EXPENSES:
Real Estate Taxes
Property insurance
Utilities
General and Administration
Repairs and Maintenance
Management Fees
Payroll and Benefits
Advertising and Marketing
Professional Fees
Other Expenses
Ground Rent
TOTAL OPERATING EXPENSES
OPERATING EXPENSE RATIO
NET OPERATING INCOME
Leasing Commissions
Tenant Improvements
Replacement Reserves
Other Capital Expense
Total Capital Items
NOI AFTER CAPITAL ITEMS
Debt Service (per servicer)
Cash Flow after Debt Service
DSCR (NOI/Debt Service)
DSCR (after reserves\cap exp)
Source of Financial Data :
Income Comments :
Expense Comments :
Capital Items Comments :
</TABLE>
B-12
<PAGE>
NOI ADJUSTMENT WORKSHEET
EXHIBIT I-8
AS OF MM/DD/YY
<TABLE>
<S> <C> <C> <C>
PROPERTY OVERVIEW:
Prospectus Number
Sched Balance/Paid to Date
Property Name
Property Type
Property Address
City, State
Net Rentable Square Feet
Year Built/Renovated
<CAPTION>
Year of Operations BORROWER ADJUSTMENT NORMALIZED
<S> <C> <C> <C>
Occupancy Rate
Average Rental Rate
INCOME:
<CAPTION>
No. of Months Annualized # OF MONTHS
Period Ended UNDERWRITING 1998 YTD
Statement Classification BASIS NORMALIZED
<S> <C> <C> <C>
Rental Income - Category 1
Rental Income - Category 2
Rental Income - Category 3
Pass Through/Escalations
Other Income
EFFECTIVE GROSS INCOME
OPERATING EXPENSES:
Real Estate Taxes
Property insurance
Utilities
General and Administration
Repairs and Maintenance
Management Fees
Payroll and Benefits
Advertising and Marketing
Professional Fees
Other Expenses
Ground Rent
TOTAL OPERATING EXPENSES
OPERATING EXPENSE RATIO
NET OPERATING INCOME
Leasing Commissions
Tenant Improvements
Replacement Reserves
Other Capital Expense
Total Capital Items
NOI AFTER CAPITAL ITEMS
Debt Service (per servicer)
Cash Flow after Debt Service
DSCR (NOI/Debt Service)
DSCR (after reserves\cap exp)
Source of Financial Data :
Income Comments :
Expense Comments :
Capital Items Comments :
</TABLE>
B-13
<PAGE>
CSSA Set-Up Data Record Layout
Exhibit I-9
<TABLE>
<CAPTION>
FIELD
FIELD NAME NUMBER TYPE FORMAT DESCRIPTION
- ---------- ------ ---- ------ -----------
<S> <C> <C> <C> <C>
Transaction Id 1 AN XXX97001 Unique Issue Identification Mnemonic
Group Id 2 AN XXX9701A Unique Indentification Number Assigned To
Each Loan Group Within An Issue
Loan Id 3 AN 00000000012345 Unique Indentification Number Assigned To
Each Collateral Item In A Pool
Offering Document Loan Id 4 AN 123 Unique Indentification Number Assigned To
Each Collateral Item In The Prospectus
Original Note Amount 5 Numeric 1000000.00 The Mortgage Loan Balance At Inception Of
The Note
Original Term Of Loan 6 Numeric 240 Original Number Of Months Until Maturity Of
Loan
Original Amortization Term 7 Numeric 360 Original Number Of Months Loan Amortized Over
Original Note Rate 8 Numeric 0.095 The Note Rate At Inception Of The Note
Original Payment Rate 9 Numeric 0.095 Original Rate Payment Calculated On
First Loan Payment Due Date 10 AN YYYYMMDD First Payment Date On The Mortgage Loan
Grace Days Allowed 11 Numeric 10 Number Of Days From Due Date Borrower Is
Permitted To Remit Payment
Interest Only (Y/N) 12 AN Y Y=Yes, N=No
Balloon (Y/N) 13 AN Y Y=Yes, N=No
Interest Rate Type 14 Numeric 1 1=Fixed, 2=Arm, 3=Step, 9=Other
Interest Accrual Method Code 15 Numeric 1 1=30/360, 2=Actual/365, 3=Actual/360,
4=Actual/Actual, 5=Actual/366, 6=Simple,
7=78'S
Interest in Arrears (Y/N) 16 AN Y Y=Yes, N=No
Payment Type Code 17 Numeric 1 See Payment Type Code Legend
Prepayment Lock-out End Date 18 AN YYYYMMDD Date After Which Loan Can Be Prepaid
Yield Maintenance End Date 19 AN YYYYMMDD Date After Which Loan Can Be Prepaid Without
Yield Maintenance
Prepayment Premium End Date 20 AN YYYYMMDD Date After Which Loan Can Be Prepaid Without
Penalty
Prepayment Terms Description 21 AN Text Description Of Prepayment Terms (Not To
Exceed 50 Characters)
ARM Index Code 22 AN A See Arm Index Code Legend
First Rate Adjustment Date 23 AN YYYYMMDD Date Note Rate Originally Changed
First Payment Adjustment Date 24 AN YYYYMMDD Date Payment Originally Changed
ARM Margin 25 Numeric 0.025 Rate Added To Index Used In The Determination
Of The Gross Interest Rate
Lifetime Rate Cap 26 Numeric 0.15 Maximum Rate That The Borrower Must Pay On
An Arm Loan Per The Loan Agreement
Lifetime Rate Floor 27 Numeric 0.05 Minimum Rate That The Borrower Must Pay On
An Arm Loan Per The Loan Agreement
Periodic Rate Increase Limit 28 Numeric 0.02 Maximum Periodic Increase To The Note Rate
Allowed Per The Loan Agreement
Periodic Rate Decrease Limit 29 Numeric 0.02 Minimum Periodic Increase To The Note Rate
Allowed Per The Loan Agreement
Periodic Payment Adjustment Max-% 30 Numeric 0.03 Maximum Periodic Percentage Increase To The
Borrowers P&I Payment Allowed Per The Loan
Agreement
Periodic Payment Adjustment Max-$ 31 Numeric 5000.00 Maximum Periodic Dollar Increase To The
Borrowers P&I Payment Allowed Per The Loan
Agreement
Payment Frequency 32 Numeric 1 1=Monthly, 3=Quarterly, 6=Semi-Annually,
12=Annually...
B-14
<PAGE>
CSSA Set-Up Data Record Layout
Exhibit I-9
<CAPTION>
FIELD
FIELD NAME NUMBER TYPE FORMAT DESCRIPTION
- ---------- ------ ---- ------ -----------
<S> <C> <C> <C> <C>
Rate Reset Frequency In Months 33 Numeric 1 1=Monthly, 3=Quarterly, 6=Semi-Annually,
12=Annually...
Payment Reset Frequency In Months 34 Numeric 1 1=Monthly, 3=Quarterly, 6=Semi-Annually,
12=Annually...
Rounding Code 35 Numeric 1 Rounding Method For Sum Of Index Plus Margin
(See Rounding Code Legend)
Rounding Increment 36 Numeric 0.00125 Used In Conjunction With Rounding Code
Index Look Back In Days 37 Numeric 45 Use Index In Effect X Days Prior To
Adjustment Date
Negative Amortization Allowed (Y/N) 38 AN Y Y=Yes, N=No
Max Negam Allowed (% Of Orig Balance) 39 Numeric 0.075 Maximum Lifetime Percentage Increase To The
Original Balance Allowed Per The Loan
Agreement
Maximum Negam Allowed ($) 40 Numeric 25000.00 Maximum Lifetime Dollar Increase To The
Original Balance Allowed Per The Loan
Agreement
Remaining Term At Securitization 41 Numeric 240 Remaining Number Of Months Until Maturity
Of Loan At Cutoff
Remaining Amortized Term At Securitization 42 Numeric 360 Remaining Number Of Months Loan Amortized
Over At Cutoff
Maturity Date At Securitization 43 AN YYYYMMDD The Scheduled Maturity Date Of The Mortgage
Loan At Securitization
Scheduled Principal Balance At Securitization 44 Numeric 1000000.00 The Scheduled Principal Balance Of The
Mortgage Loan At Securitization
Note Rate At Securitization 45 Numeric 0.095 Cutoff Annualized Gross Interest Rate
Applicable To The Calculation Of Scheduled
Interest
Servicer And Trustee Fee Rate 46 Numeric 0.00025 Cutoff Annualized Fee Paid To The Servicer
And Trustee
Fee Rate / Strip Rate 1 47 Numeric 0.00001 Cutoff Annualized Fee/Strip Netted Against
Current Note Rate To Determine Net
Pass-Through Rate
Fee Rate / Strip Rate 2 48 Numeric 0.00001 Cutoff Annualized Fee/Strip Netted Against
Current Note Rate To Determine Net
Pass-Through Rate
Fee Rate / Strip Rate 3 49 Numeric 0.00001 Cutoff Annualized Fee/Strip Netted Against
Current Note Rate To Determine Net
Pass-Through Rate
Fee Rate / Strip Rate 4 50 Numeric 0.00001 Cutoff Annualized Fee/Strip Netted Against
Current Note Rate To Determine Net
Pass-Through Rate
Fee Rate / Strip Rate 5 51 Numeric 0.00001 Cutoff Annualized Fee/Strip Netted Against
Current Note Rate To Determine Net
Pass-Through Rate
Net Rate At Securitization 52 Numeric 0.00001 Cutoff Annualized Interest Rate Applicable
To The Calculation Of Remittance Interest
Periodic P&I Payment At Securitization 53 Numeric 3000.00 The Periodic Scheduled Principal & Interest
Payment
# Of Properties 54 Numeric 13 The Number Of Properties Underlying The
Mortgage Loan
Property Name 55 AN Text If Number Of Properties Is Greater Than
1 Then "Various"
Property Address 56 AN Text If Number Of Properties Is Greater Than
1 Then "Various"
Property City 57 AN Text If Number Of Properties Is Greater Than
1 Then "Various"
Property State 58 AN Text If Number Of Properties Is Greater Than
1 Then "Various"
Property Zip Code 59 AN Text If Number Of Properties Is Greater Than
1 Then "Various"
Property County 60 AN Text If Number Of Properties Is Greater Than
1 Then "Various"
Property Type Code 61 AN MF If Number Of Properties Is Greater Than
1 Then "Various" (See Property Type Code
Legend)
Net Square Feet At Securitization 62 Numeric 25000 If Number Of Properties Is Greater Than
1 Then "Various"
# Of Units/Beds/Rooms At Securitization 63 Numeric 75 If Number Of Properties Is Greater Than
1 Then "Various"
Year Built 64 AN 1990 If Number Of Properties Is Greater Than
1 Then "Various"
B-15
<PAGE>
CSSA Set-Up Data Record Layout
Exhibit I-9
<CAPTION>
FIELD
FIELD NAME NUMBER TYPE FORMAT DESCRIPTION
- ---------- ------ ---- ------ -----------
<S> <C> <C> <C> <C>
NOI At Securitization 65 Numeric 100000.00 Net Operating Income At Securitization
DSCR At Securitization 66 Numeric 2.11 DSCR At Securitization
Appraisal Value At Securitization 67 Numeric 1000000.00 Appraisal Value At Securitization
Appraisal Date At Securitization 68 AN YYYYMMDD Appraisal Date At Securitization
Physical Occupancy At Securitization 69 Numeric 0.88 Physical Occupancy At Securitization
Revenue At Securitization 70 Numeric 100000.00 Revenue At Securitization
Operating Expenses At Securitization 71 Numeric 100000.00 Expenses At Securitization
Securitization Financials As Of Date 72 AN YYYYMMDD Securitization Financials As Of Date
Recourse (Y/N) 73 AN Y Y=Yes, N=No
Ground Lease (Y/N) 74 AN Y Y=Yes, N=No
Cross-Collateralized Loan Grouping 75 Numeric 9(3) All Loans With The Same Numeric Value Are
Crossed
Collection Of Escrows (Y/N) 76 AN Y Y=Yes, N=No
Collection Of Other Reserves (Y/N) 77 AN Y Y=Yes, N=No
Lien Position At Securitization 78 Numeric 1 1=First, 2=Second...
</TABLE>
B-16
<PAGE>
CSSA Periodic Data Record Layout
Exhibit I-10
<TABLE>
<CAPTION>
FIELD
FIELD NAME NUMBER TYPE FORMAT DESCRIPTION
- ---------- ------ ---- ------ -----------
<S> <C> <C> <C> <C>
Transaction Id (pool ID) 1 AN XXX97001 Unique Issue Identification Mnemonic
Group Id (subgroup within a pool) 2 AN XXX9701A Unique Identification Number Assigned To
Each Loan Group Within An Issue
Loan Id (loan number) 3 AN 00000000012345 Unique Identification Number Assigned To Each
Collateral Item In A Pool
Prospectus Id 4 AN 123 Unique Identification Number Assigned To Each
Collateral Item In The Prospectus
Distribution Date 5 AN YYYYMMDD Date Payments Made To Certificateholders
Current Beginning Scheduled Balance 6 Numeric 100000.00 Outstanding Scheduled Principal Balance At
The Beginning Of The Current Period
Current Ending Scheduled Balance 7 Numeric 100000.00 Outstanding Scheduled Principal Balance At
The End Of The Current Period
Paid To Date 8 AN YYYYMMDD Due Date Of The Last Interest Payment
Received
Current Index Rate 9 Numeric 0.09 Index Rate Used In The Determination Of
The Current Period Gross Interest Rate
Current Note Rate 10 Numeric 0.09 Annualized Gross Rate Applicable To The
Calculation Of The Current Period Scheduled
Interest
Maturity Date 11 AN YYYYMMDD Date Collateral Is Scheduled To Make Its
Final Payment
Servicer and Trustee Fee Rate 12 Numeric 0.00025 Annualized Fee Paid To The Servicer And
Trustee
Fee Rate/Strip Rate 1 13 Numeric 0.00001 Annualized Fee/Strip Netted Against Current
Note Rate To Determine Net Pass-Through Rate
Fee Rate/Strip Rate 2 14 Numeric 0.00001 Annualized Fee/Strip Netted Against Current
Note Rate To Determine Net Pass-Through Rate
Fee Rate/Strip Rate 3 15 Numeric 0.00001 Annualized Fee/Strip Netted Against Current
Note Rate To Determine Net Pass-Through Rate
Fee Rate/Strip Rate 4 16 Numeric 0.00001 Annualized Fee/Strip Netted Against Current
Note Rate To Determine Net Pass-Through Rate
Fee Rate/Strip Rate 5 17 Numeric 0.00001 Annualized Fee/Strip Netted Against Current
Note Rate To Determine Net Pass-Through Rate
Net Pass-Through Rate 18 Numeric #VALUE! Annualized Interest Rate Applicable To The
Calculation Of The Current Period Remittance
Interest
Next Index Rate 19 Numeric 0.09 Index Rate Used In The Determination Of The
Next Period Gross Interest Rate
Next Note Rate 20 Numeric 0.09 Annualized Gross Interest Rate Applicable To
The Calculation Of The Next Period Scheduled
Interest
Next Rate Adjustment Date 21 AN YYYYMMDD Date Note Rate Is Next Scheduled To Change
Next Payment Adjustment Date 22 AN YYYYMMDD Date Scheduled P&I Amount Is Next Scheduled
To Change
Scheduled Interest Amount 23 Numeric 1000.00 Scheduled Gross Interest Payment Due For The
Current Period
Scheduled Principal Amount 24 Numeric 1000.00 Scheduled Principal Payment Due For The
Current Period
Total Scheduled P&I Due 25 Numeric 1000.00 Scheduled Principal And Interest Payment Due
For The Current Period
Neg am/Deferred Interest Amount 26 Numeric 1000.00 Negative Amortization/Deferred Interest
Amount Due For The Current Period
Unscheduled Principal Collections 27 Numeric 1000.00 Unscheduled Payments Of Principal Received
During The Related Collection Period
Other Principal Adjustments 28 Numeric 1000.00 Unscheduled Principal Adjustments For The
Related Collection Period
Liquidation/Prepayment Date 29 AN YYYYMMDD Date Unscheduled Payment Of Principal
Received
Prepayment Penalty/Yield Maint Received 30 Numeric 1000.00 Additional Payment Required From Borrower
Due To Prepayment Of Loan Prior To Maturity
Prepayment Interest Excess (Shortfall) 31 Numeric 1000.00 Scheduled Gross Interest Applicable To The
Prepayment Amount
B-17
<PAGE>
CSSA Periodic Data Record Layout
Exhibit I-10
<CAPTION>
FIELD
FIELD NAME NUMBER TYPE FORMAT DESCRIPTION
- ---------- ------ ---- ------ -----------
<S> <C> <C> <C> <C>
Liquidation/Prepayment Code 32 Numeric 1 See Liquidation/Prepayment Codes Legend
Most Recent ASER $ 33 Numeric 1000.00 Excess Of The Principal Balance Over The
Defined Appraisal Percentage
Most Recent ASER Date 34 AN YYYYMMDD Date ASER Amount Applied To Loan
Cumulative ASER $ 35 Numeric 1000.00 Cumulative ASER Amount
Actual Balance 36 Numeric 100000.00 Outstanding Actual Principal Balance At the
End of The Current Period
Total P&I Advance Outstanding 37 Numeric 1000.00 Outstanding P&I Advances At The End Of The
Current Period
Total T&I Advance Outstanding 38 Numeric 1000.00 Outstanding Taxes & Insurance Advances At
The End Of The Current Period
Other Expense Advance Outstanding 39 Numeric 1000.00 Other Outstanding Advances At The End Of
The Current Period
Status of Loan 40 AN 1 See Status Of Loan Legend
In Bankruptcy 41 AN Y Bankruptcy Status Of Loan (If In Bankruptcy
"Y", Else "N")
Foreclosure Date 42 AN YYYYMMDD Date Of Foreclosure
REO Date 43 AN YYYYMMDD Date Of REO
Bankruptcy Date 44 AN YYYYMMDD Date of Bankruptcy
Net Proceeds Received on Liquidation 45 Numeric 100000.00 Net Proceeds Received On Liquidation To Be
Remitted To The Trust Per The Trust
Documentation
Liquidation Expense 46 Numeric 100000.00 Expenses Associated With The Liquidation To
Be Netted From The Trust Per The Trust
Documentation
Realized Loss to Trust 47 Numeric 10000.00 Liquidation Balance Less Net Liquidation
Proceeds Received
Date of Last Modification 48 AN YYYYMMDD Date Loan Was Modified
Modification Code 49 Numeric 1 See Modification Codes Legend
Modified Note Rate 50 Numeric 0.09 Note Rate Loan Modified To
Modified Payment Rate 51 Numeric 0.09 Payment Rate Loan Modified To
Preceding Fiscal Year Revenue 52 Numeric 1000.00 Preceding Fiscal Year Revenue
Preceding Fiscal Year Expenses 53 Numeric 1000.00 Preceding Fiscal Year Expenses
Preceding Fiscal Year NOI 54 Numeric 1000.00 Preceding Fiscal Year Net Operating Income
Preceding Fiscal Year Debt Service Amt. 55 Numeric 1000.00 Preceding Fiscal Year Debt Service Amount
Preceding Fiscal Year DSCR 56 Numeric 2.55 Preceding Fiscal Year Debt Service Coverage
Ratio
Preceding Fiscal Year Physical Occupancy 57 Numeric 0.85 Preceding Fiscal Year Physical Occupancy
Preceding FY Financial As of Date 58 AN YYYYMMDD Preceding Fiscal Year Financial As Of Date
Second Preceding FY Revenue 59 Numeric 1000.00 Second Preceding Fiscal Year Revenue
Second Preceding FY Expenses 60 Numeric 1000.00 Second Preceding Fiscal Year Expenses
Second Preceding FY NOI 61 Numeric 1000.00 Second Preceding Fiscal Year Net Operating
Income
Second Preceding FY Debt Service 62 Numeric 1000.00 Second Preceding Fiscal Year Debt Service
B-18
<PAGE>
CSSA Periodic Data Record Layout
Exhibit I-10
<CAPTION>
FIELD
FIELD NAME NUMBER TYPE FORMAT DESCRIPTION
- ---------- ------ ---- ------ -----------
<S> <C> <C> <C> <C>
Second Preceding FY DSCR 63 Numeric 2.55 Second Preceding Fiscal Year Debt Service
Coverage Ratio
Sec Preceding FY Physical Occupancy 64 Numeric 0.85 Second Preceding Fiscal Year Physical
Occupancy
Sec Preceding FY Financial As of Date 65 AN YYYYMMDD Second Preceding Fiscal Year Financial As
Of Date
Most Recent Fiscal YTD Revenue 66 Numeric 1000.00 Most Recent Fiscal Year To Date Revenue
Most Recent Fiscal YTD Expenses 67 Numeric 1000.00 Most Recent Fiscal Year To Date Expenses
Most Recent Fiscal YTD NOI 68 Numeric 1000.00 Most Recent Fiscal Year To Date Net Operating
Income
Most Recent Fiscal YTD Debt Service 69 Numeric 1000.00 Most Recent Fiscal Year To Date Debt Service
Most Recent Fiscal YTD DSCR 70 Numeric 2.55 Most Recent Fiscal Year To Date Debt Service
Coverage Ratio
Most Recent Fiscal YTD Phys. Occ. 71 Numeric 0.85 Most Recent Fiscal Year To Date Physical
Occupancy
Most Recent Fiscal YTD Start Date 72 AN YYYYMMDD Most Recent Fiscal Year To Date Start Date
Most Recent Fiscal YTD End Date 73 AN YYYYMMDD Most Recent Fiscal Year To Date End Date
Most Recent Appraisal Date 74 AN YYYYMMDD The Date Of The Latest Available Appraisal
For The Property
Most Recent Appraisal Value 75 Numeric 100000.00 The Latest Available Appraisal Value For
The Property
Workout Strategy Code 76 Numeric 1 See Workout Strategy Codes Legend
Most Recent Spec Service Transfer Date 77 AN YYYYMMDD Date Transferred To The Special Servicer
Most Recent Master Service Return Date 78 AN YYYYMMDD Date Returned To The Master Servicer
Date Asset is Expected to Be Resolved 79 AN YYYYMMDD Date Asset Is Expected To Be Resolved
Year Last Renovated 80 AN 1997 Year Property Last Renovated
</TABLE>
B-19
<PAGE>
CSSA Property Data File
Exhibit I-11
<TABLE>
<CAPTION>
FIELD
FIELD NAME NUMBER TYPE FORMAT DESCRIPTION
- ---------- ------ ---- ------ -----------
<S> <C> <C> <C> <C>
Transaction Id 1 AN XXX97001 Unique Issue Identification Mnemonic
Loan Id 2 AN 00000000012345 Unique Indentification Number Assigned To Each
Collateral Item In A Pool
Prospectus Loan ID 3 AN 123 Unique Indentification Number Assigned To Each
Collateral Item In The Prospectus
Property ID 4 AN 1001-001 Should contain Prospectus ID and property
identifier, e.g., 1001-001, 1000-002
Distribution Date 5 AN YYYYMMDD
Cross-Collateralized Loan Grouping 6 Numeric 9(3) All Loans With The Same Numeric Value Are
Crossed
Property Name 7 AN Text
Property Address 8 AN Text
Property City 9 AN Text
Property State 10 AN Text
Property Zip Code 11 AN 30303
Property County 12 AN Text
Property Type Code 13 AN MF
Year Built 14 AN YYYY
Year Last Renovated 15 AN YYYY
Net Square Feet At Securitization 16 Numeric 25000 RT, IN, WH, OF, MU, SS, OT - SF
# Of Units/Beds/Rooms At Securitization 17 Numeric 75 MF, MHP, LO, HC - Units
Property Status 18 AN 1 1=FCL, 2-REO, 3=Defeased, 4=partial Releases,
5=Released, 6=Same as at Securitization
Allocated Percentage of Loan at Securitization 19 Numeric 0.75 Issuer to allocate loan % attributable to
property for multi-property loans
Current Allocated Percentage 20 Numeric 0.75 Calculation based on Current Allocated Loan
Amount and Current SPB for associated loan
Current Allocated Loan Amount 21 Numeric 5900900 Maintained by servicer
Ground Lease (Y/N) 22 AN N Either Y=Yes, S=Subordinate, N=No ground lease
Other Escrow / Reserve Balances 23 Numeric 25000
Most Recent Appraisal Date 24 AN YYYYMMDD
Most Recent Appraised Value 25 Numeric 10000000
Date Asset is Expected to Be Resolved 26 AN YYYYMMDD Could be different dates for different
properties if foreclosing
Foreclosure Date 27 AN YYYYMMDD
REO Date 28 AN YYYYMMDD
Occupancy % 29 Numeric 0.75 Map to Most Recent Fiscal YTD Physical
Occupancy in CSSA, multiply times Current
Allocated %
Occupancy Date 30 Numeric YYYYMMDD
Date Lease Rollover Review 31 AN YYYYMMDD Roll over review to be completed every 12
months
% Sq. Feet expiring 1-12 months 32 Numeric 0.20
% Sq. Feet expiring 13-24 months 33 Numeric 0.20
% Sq. Feet expiring 25-36 months 34 Numeric 0.20
% Sq. Feet expiring 37-48 months 35 Numeric 0.20
% Sq. Feet expiring 49-60 months 36 Numeric 0.20
B-20
<PAGE>
CSSA Property Data File
Exhibit I-11
<CAPTION>
FIELD
FIELD NAME NUMBER TYPE FORMAT DESCRIPTION
- ---------- ------ ---- ------ -----------
<S> <C> <C> <C> <C>
Largest Tenant (Tenant Name) 37 AN Text For Office, WH, Retail, Industrial, *Only if
disclosed in the offering document
Square Feet of Largest Tenant 38 Numeric 15000
2nd Largest Tenant (Tenant Name) 39 AN Text For Office, WH, Retail, Industrial, *Only if
disclosed in the offering document
Square Feet of 2nd Largest Tenant 40 Numeric 15000.000
3rd Largest Tenant (Tenant Name) 41 AN Text
Square Feet of 3rd Largest Tenant 42 Numeric 15000
Fiscal Year End Month 43 Numeric 12 Needed to indicate month ending for borrower's
Fiscal Year
Securitization Financials As Of Date 44 AN YYYYMMDD
Revenue At Securitization 45 Numeric 1000000.00
Operating Expenses At Securitization 46 Numeric 1000000.00
NOI At Securitization 47 Numeric 1000000.00
DSCR At Securitization 48 Numeric 1.5 Multiply times the Allocated % at
Securitization
Appraisal Value At Securitization 49 Numeric 1000000.00
Appraisal Date At Securitization 50 AN YYYYMMDD
Physical Occupancy At Securitization 51 Numeric Multiply times the Allocated % at
Securitization
Date of Last Inspection 52 AN YYYYMMDD
Preceding FY Financial As of Date 53 AN YYYYMMDD
Preceding Fiscal Year Revenue 54 Numeric 1000000.00
Preceding Fiscal Year Expenses 55 Numeric 1000000.00
Preceding Fiscal Year NOI 56 Numeric 1000000.00
Preceding Fiscal Year Debt Service Amt 57 Numeric 1000000.00
Preceding Fiscal Year DSCR 58 Numeric 1.3 Multiply times the Allocated % at
Securitization
Preceding Fiscal Year Physical Occupancy 59 Numeric 0.9 Multiply times the Allocated % at
Securitization
Sec Preceding FY Financial As of Date 60 AN YYYYMMDD
Second Preceding FY Revenue 61 Numeric 1000000.00
Second Preceding FY Expenses 62 Numeric 1000000.00
Second Preceding FY NOI 63 Numeric 1000000.00
Second Preceding FY Debt Service 64 Numeric 1000000.00
Second Preceding FY DSCR 65 Numeric 1.3
Second Preceding FY Physical Occupancy 66 Numeric 0.90
</TABLE>
B-21
<PAGE>
ANNEX C
SCHEDULE OF INTEREST RESERVE LOANS
<TABLE>
<CAPTION>
GROSS INTEREST
LOAN ORIGINAL CUT-OFF DATE MORTGAGE ACCRUAL SERVICING
COUNT NUMBER LOAN NAME BALANCE BALANCE RATE METHOD FEE
- ------- -------- ------------------------------------- ------------- -------------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 6151 Lincoln Park Shopping Center $12,000,000 $11,969,867 6.4700% Actual/360 0.055%
2 5914 The Boylston Trust 3,850,000 3,829,912 6.7100% Actual/360 0.055%
3 5915 Cambridge Realty Trust 1,600,000 1,591,652 6.7100% Actual/360 0.055%
4 6021 Hidden Oaks Apartments 1,600,000 1,589,915 6.7100% Actual/360 0.055%
5 6191 Hornig V 2,300,000 2,294,518 6.7610% Actual/360 0.055%
6 6187 Hornig I 1,800,000 1,795,710 6.7610% Actual/360 0.055%
7 6388 206 & 210 East 67 Street 3,900,000 3,895,795 6.8300% Actual/360 0.055%
8 5005 Back Bay Manor 11,000,000 10,947,831 6.8600% Actual/360 0.055%
9 5535 Nob Hill Business Plaza 1,300,000 1,291,949 6.8600% Actual/360 0.055%
10 5828 Edwards Medical Plaza 7,560,000 7,542,302 6.8600% Actual/360 0.055%
11 6204 Biltmore Hotel & Suites 12,200,000 12,158,294 6.8700% Actual/360 0.055%
12 6599 Campus & Varsity Apartments 3,100,000 3,100,000 6.8700% Actual/360 0.055%
13 9121 Torrey Reserve South Court 15,750,000 15,739,803 6.8840% Actual/360 0.055%
14 6591 Barclay Circle Office Buildings 1,925,000 1,925,000 6.9000% Actual/360 0.055%
15 9210 Tallahassee Mini Storage 3,000,000 3,000,000 6.9100% Actual/360 0.055%
16 6189 Hornig III 1,210,000 1,207,194 6.9110% Actual/360 0.055%
17 6605 Kerr McGee Center 14,000,000 14,000,000 6.9200% Actual/360 0.055%
18 9489 ICW-Walnut Creek 1,875,000 1,875,000 6.9200% Actual/360 0.055%
19 6638 Hobart Apartments 2,300,000 2,295,122 6.9300% Actual/360 0.055%
20 9119 Lomas Santa Fe Plaza 21,400,000 21,386,351 6.9340% Actual/360 0.055%
21 9115 White Road Plaza 14,500,000 14,490,752 6.9340% Actual/360 0.055%
22 9114 The Coast Distributing Bldg. 7,000,000 6,995,535 6.9340% Actual/360 0.055%
23 9123 Woodland Gardens 5,000,000 4,996,811 6.9340% Actual/360 0.055%
24 9488 ICW-Encino 2,050,000 2,050,000 6.9340% Actual/360 0.055%
25 8462 Bellevue Apartments 2,800,000 2,795,891 6.9500% Actual/360 0.055%
26 8497 Crossroads Plaza 2,700,000 2,697,192 7.0000% Actual/360 0.080%
27 9333 Brynwood Apartments 7,410,000 7,402,302 7.0050% Actual/360 0.080%
28 9332 Cooper River Apartments 5,070,000 5,070,000 7.0050% Actual/360 0.080%
29 9331 Beekman Place 3,112,000 3,108,767 7.0050% Actual/360 0.080%
30 9330 Fairway Apartments 1,840,000 1,838,088 7.0050% Actual/360 0.080%
31 5615 301 Boulevard West 9,000,000 8,990,620 6.9900% Actual/360 0.055%
32 6161 Benderson Office and Retail Portfolio 4,000,000 4,000,000 7.0000% Actual/360 0.055%
33 8666 Oak Bridge Condominiums 4,400,000 4,393,682 7.0400% Actual/360 0.080%
34 9329 Grant Meadows 4,575,000 4,570,298 7.0550% Actual/360 0.080%
C-1
<PAGE>
GROSS INTEREST
LOAN ORIGINAL CUT-OFF DATE MORTGAGE ACCRUAL SERVICING
COUNT NUMBER LOAN NAME BALANCE BALANCE RATE METHOD FEE
- ------- -------- ------------------------------------- ------------- -------------- ---------- ------------ -----------
35 6116 Harvard Apartments $ 1,900,000 $ 1,897,265 7.0300% Actual/360 0.055%
36 8976 701-709 Madison Avenue 10,000,000 10,000,000 7.0500% Actual/360 0.055%
37 6557 Via Bice 3,000,000 2,989,105 7.0500% Actual/360 0.055%
38 8597 Rosewood Apartments 4,300,000 4,300,000 7.0700% Actual/360 0.055%
39 5906 1564 Broadway/The Palace Theatre 16,000,000 16,000,000 7.0800% Actual/360 0.055%
40 5979 Dumbarton Square 2,000,000 2,000,000 7.0800% Actual/360 0.055%
41 8785 Shaw's Plaza Shopping Center 13,300,000 13,300,000 7.1100% Actual/360 0.080%
42 8874 Kleban Properties 4,520,000 4,520,000 7.1100% Actual/360 0.080%
43 5610 Enterprise Business Center 5,870,000 5,870,000 7.1000% Actual/360 0.055%
44 8489 Computer Science Corp. 13,100,000 13,100,000 7.1200% Actual/360 0.055%
45 6461 Crown Industrial Park 3,500,000 3,497,891 7.1200% Actual/360 0.055%
46 6225 Byron Loft Apartments 1,750,000 1,741,463 7.1400% Actual/360 0.055%
47 6430 Rio Entertainment Center 12,000,000 11,992,857 7.1600% Actual/360 0.055%
48 6042 21 Industrial 2,100,000 2,093,252 7.1900% Actual/360 0.080%
49 6016 5050 North 40th Street 3,500,000 3,488,709 7.1700% Actual/360 0.055%
50 8669 Prestige MHP 6,000,000 5,996,451 7.1800% Actual/360 0.055%
51 6221 459-461 Fulton Street 2,000,000 2,000,000 7.1800% Actual/360 0.055%
52 5405 Somerset Apartments 1,650,000 1,643,737 7.1900% Actual/360 0.055%
53 5833 Eastgate Plaza 6,750,000 6,645,382 7.1950% Actual/360 0.055%
54 6041 Seven Creek Parkway 2,600,000 2,587,475 7.2200% Actual/360 0.080%
55 5857 Cromwell Field Shopping Center 9,950,000 9,950,000 7.2000% Actual/360 0.055%
56 6190 Hornig IV 1,550,000 1,550,000 7.2030% Actual/360 0.055%
57 5483 62 West 45th Street 2,000,000 1,995,610 7.2100% Actual/360 0.055%
58 6310 Rockaway Industrial Complex 7,500,000 7,476,040 7.2200% Actual/360 0.055%
59 6072 127-131 Second Avenue 6,000,000 6,000,000 7.2200% Actual/360 0.055%
60 8672 Northrups MHP 2,400,000 2,400,000 7.2300% Actual/360 0.055%
61 6082 Continental Plaza 8,500,000 8,491,609 7.2400% Actual/360 0.055%
62 6028 Yucca 1,950,000 1,942,693 7.2500% Actual/360 0.055%
63 5874 Westover/Belair Portfolio 2,550,000 2,547,505 7.2800% Actual/360 0.055%
64 8466 304 East 89 Street 1,035,000 1,031,732 7.2800% Actual/360 0.055%
65 9495 Creekview Shopping Center 6,750,000 6,750,000 7.2900% Actual/360 0.055%
66 9496 Richfield Plaza Shopping Ctr. 4,250,000 4,250,000 7.2900% Actual/360 0.055%
67 9497 Cedar South Shopping Center 3,600,000 3,600,000 7.2900% Actual/360 0.055%
</TABLE>
C-2
<PAGE>
PROSPECTUS
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
BEAR STEARNS COMMERCIAL MORTGAGE SECURITIES INC.
(DEPOSITOR)
The commercial 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 (each a
"Series"). The Offered Certificates of any 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 various types of multifamily or commercial mortgage loans
(the "Mortgage Loans"), mortgage-backed securities ("MBS") that evidence
interests in, or that are secured by pledges of, one or more of the following
types of real property (each, a "Mortgaged Property"): (i) residential
properties consisting of multiple rental or cooperatively-owned dwelling
units and mobile home parks; (ii) commercial properties consisting of office
buildings, retail facilities related to the sale of goods and products and
facilities related to providing entertainment, recreation or personal
services, hotels and motels, casinos, health care-related facilities,
recreational vehicle parks, warehouse facilities, mini-warehouse facilities,
self-storage facilities, industrial facilities, parking lots, auto parks,
golf courses, arenas and restaurants (or cooperatively owned units therein);
and (iii) mixed use properties (that is, any combination of the foregoing)
and unimproved land. Retail properties will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the
MBS included in a particular Trust Fund) constituting the Trust Fund for any
Series, based on principal balance at the time such Series is issued.
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 described in this
Prospectus, or any combination thereof (with respect to any Series,
collectively, "Credit Support"), and interest rate exchange agreements,
interest rate cap or floor agreements or currency exchange agreements
described in this Prospectus, or any combination thereof (with respect to any
Series, collectively, "Cash Flow Agreements"). See "Description of the Trust
Funds", "Description of the Certificates" and "Description of Credit
Support".
The Depositor does not intend to list any of the Offered Certificates on
any securities exchange and has not made any other arrangement for secondary
trading of the Offered Certificates. There will have been no public market
for the Certificates of any series prior to the offering thereof. No
assurance can be given that such a market will develop as a result of such an
offering. See "Risk Factors".
(cover continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 17 OF THIS PROSPECTUS FOR CERTAIN
FACTORS TO BE CONSIDERED IN PURCHASING THE OFFERED CERTIFICATES.
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, which may
include Bear, Stearns & Co. Inc., an affiliate of the Depositor, as more
fully described under "Method of Distribution" and in the related Prospectus
Supplement.
This Prospectus may not be used to consummate sales of the Offered
Certificates of any series unless accompanied by the Prospectus Supplement
for such series.
The date of this Prospectus is May 26, 1998
<PAGE>
(cover continued)
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".
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 Depositor 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 Collateral or Trust Fund, as the case may
be, or a designated portion thereof as a "real estate mortgage investment
conduit" (each, a "REMIC") for federal income tax purposes. If applicable,
the Prospectus Supplement for a Series of Securities will specify which Class
or Classes of such Series will be considered to be regular interests in the
related REMIC and which Class or Classes will be designated as the residual
interest in the related REMIC. See "Certain Federal Income Tax Consequences".
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
2
<PAGE>
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) whether one
or more REMIC elections will be made and the designation of the "regular
interests" and "residual interests" in each REMIC to be created; (viii) the
initial percentage ownership interest in the related Trust Fund to be
evidenced by each class of Certificates of such series; (ix) information
concerning the trustee (as to any series, the "Trustee") of the related Trust
Fund; (x) if the related Trust Fund includes Mortgage Loans, information
concerning the master servicer (as to any series, the "Master Servicer") and
any special servicer (as to any series, the "Special Servicer") of such
Mortgage Loans; (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 Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus forms a
part) under the Securities Act of 1933, as amended, with respect to the
Offered Certificates. This Prospectus and the Prospectus Supplement relating
to each series of 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 Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at its Regional Offices located as follows: Chicago Regional Office, 500 West
Madison, 14th Floor, Chicago, Illinois 60661; and New York Regional Office,
Seven World Trade Center, New York, New York 10048. The Commission also
maintains a World Wide Web site which provides on-line access to reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission at the address
"http://www.sec.gov."
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 Master Servicer or Trustee for each series 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 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 such 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 Depositor will file or cause to
be filed with the Commission such periodic reports with respect to each Trust
Fund as are required under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations of the Commission
thereunder.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Depositor with respect to a Trust Fund pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange
3
<PAGE>
Act, prior to the termination of an offering of Offered Certificates
evidencing interests therein. The Depositor will provide or cause to be
provided without charge to each person to whom this Prospectus is delivered
in connection with the offering of one or more classes of Offered
Certificates, 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 Depositor should be directed in writing to its principal
executive offices at 245 Park Avenue, New York, New York 10167, Attention:
James G. Reichek, or by telephone at 212-272-2000. The Depositor has
determined that its financial statements will not be material to the offering
of any Offered Certificates.
4
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT.............................................................. 2
AVAILABLE INFORMATION.............................................................. 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.................................. 3
SUMMARY OF PROSPECTUS.............................................................. 9
RISK FACTORS....................................................................... 17
Secondary Market................................................................. 17
Limited Assets................................................................... 17
Prepayments; Average Life of Certificates; Yields................................ 18
Limited Nature of Ratings........................................................ 19
Factors Affecting Delinquency, Foreclosure and Loss of the Mortgage
Loans--General.................................................................... 19
Risks Particular to Cooperatively-Owned Apartment Buildings..................... 21
Balloon Payments; Borrower Default............................................... 22
Credit Support Limitations....................................................... 22
Leases and Rents................................................................. 23
Environmental Risks.............................................................. 23
Special Hazard Losses............................................................ 24
ERISA Considerations............................................................. 24
Certain Federal Tax Considerations Regarding Residual Certificates .............. 24
Certain Federal Tax Considerations Regarding Original Issue Discount ............ 25
Book-Entry Registration.......................................................... 25
Delinquent Mortgage Loan......................................................... 25
DESCRIPTION OF THE TRUST FUNDS..................................................... 25
General.......................................................................... 25
Mortgage Loans................................................................... 26
General........................................................................ 26
Default and Loss Considerations with Respect to the Mortgage Loans ............ 28
Payment Provisions of the Mortgage Loans....................................... 30
Mortgage Loan Information in Prospectus Supplements............................ 30
MBS.............................................................................. 31
Certificate Accounts............................................................. 32
Credit Support................................................................... 32
Cash Flow Agreements............................................................. 32
YIELD AND MATURITY CONSIDERATIONS.................................................. 32
General.......................................................................... 32
Pass-Through Rate................................................................ 32
Payment Delays................................................................... 33
Certain Shortfalls in Collections of Interest.................................... 33
Yield and Prepayment Considerations.............................................. 33
Weighted Average Life and Maturity............................................... 35
Controlled Amortization Classes and Companion Classes............................ 36
Other Factors Affecting Yield, Weighted Average Life and Maturity .............. 36
Balloon Payments; Extensions of Maturity....................................... 36
Negative Amortization.......................................................... 37
Foreclosures and Payment Plans................................................. 37
Losses and Shortfalls on the Mortgage Assets................................... 37
Additional Certificate Amortization............................................ 38
Optional Early Termination..................................................... 38
THE DEPOSITOR...................................................................... 38
USE OF PROCEEDS.................................................................... 39
5
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PAGE
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DESCRIPTION OF THE CERTIFICATES.................................................... 39
General.......................................................................... 39
Distributions.................................................................... 39
Distributions of Interest on the Certificates.................................... 40
Distributions of Principal on the Certificates................................... 41
Distributions on the Certificates in Respect of Prepayment Premiums or in
Respect of Equity Participations................................................ 41
Allocation of Losses and Shortfalls.............................................. 42
Advances in Respect of Delinquencies............................................. 42
Reports to Certificateholders.................................................... 43
Voting Rights.................................................................... 44
Termination...................................................................... 44
Book-Entry Registration and Definitive Certificates.............................. 45
DESCRIPTION OF THE POOLING AGREEMENTS.............................................. 47
General.......................................................................... 47
Assignment of Mortgage Loans; Repurchases........................................ 47
Representations and Warranties; Repurchases...................................... 48
Collection and Other Servicing Procedures........................................ 49
Sub-Servicers.................................................................... 49
Special Servicers................................................................ 50
Certificate Account.............................................................. 50
General........................................................................ 50
Deposits....................................................................... 50
Withdrawals.................................................................... 51
Modifications, Waivers and Amendments of Mortgage Loans.......................... 53
Realization Upon Defaulted Mortgage Loans........................................ 53
Hazard Insurance Policies........................................................ 55
Due-on-Sale and Due-on-Encumbrance Provisions.................................... 56
Servicing Compensation and Payment of Expenses................................... 56
Evidence as to Compliance........................................................ 56
Certain Matters Regarding the Master Servicer and the Depositor ................ 57
Events of Default................................................................ 58
Rights Upon Event of Default..................................................... 58
Amendment........................................................................ 59
List of Certificateholders....................................................... 59
The Trustee...................................................................... 59
Duties of the Trustee............................................................ 60
Certain Matters Regarding the Trustee............................................ 60
Resignation and Removal of the Trustee........................................... 60
DESCRIPTION OF CREDIT SUPPORT...................................................... 61
General.......................................................................... 61
Subordinate Certificates......................................................... 61
Cross-Support Provisions......................................................... 61
Insurance or Guarantees with Respect to Mortgage Loans........................... 62
Letter of Credit................................................................. 62
Certificate Insurance and Surety Bonds........................................... 62
Reserve Funds.................................................................... 62
Credit Support with Respect to MBS............................................... 63
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS............................................ 63
General.......................................................................... 63
Types of Mortgage Instruments.................................................... 63
Leases and Rents................................................................. 64
6
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Personalty....................................................................... 64
Foreclosure...................................................................... 64
General........................................................................ 64
Foreclosure procedures vary from state to state................................ 64
Judicial Foreclosure........................................................... 64
Equitable Limitations on Enforceability of Certain Provisions.................. 65
Non-Judicial Foreclosure/Power of Sale......................................... 65
Public Sale.................................................................... 65
Rights of Redemption........................................................... 66
Anti-Deficiency Legislation.................................................... 67
Leasehold Risks.................................................................. 67
Cooperative Shares............................................................... 68
Bankruptcy Laws.................................................................. 68
Environmental Risks.............................................................. 71
Due-on-Sale and Due-on-Encumbrance Provisions.................................... 72
Subordinate Financing............................................................ 72
Default Interest and Limitations on Prepayments.................................. 73
Adjustable Rate Loans............................................................ 73
Applicability of Usury Laws...................................................... 73
Soldiers' and Sailors' Civil Relief Act of 1940.................................. 73
Type of Mortgaged Property....................................................... 74
Americans with Disabilities Act.................................................. 74
Forfeitures in Drug and RICO Proceedings......................................... 74
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................ 76
Federal Income Tax Consequences for REMIC Certificates .......................... 76
General........................................................................ 76
Status of REMIC Certificates................................................... 76
Qualification as a REMIC....................................................... 77
Taxation of Regular Certificates................................................. 79
General........................................................................ 79
Original Issue Discount........................................................ 79
Acquisition Premium............................................................ 81
Variable Rate Regular Certificates............................................. 81
Deferred Interest.............................................................. 83
Market Discount................................................................ 83
Premium........................................................................ 84
Election to Treat All Interest Under the Constant Yield Method ................ 84
Sale or Exchange of Regular Certificates....................................... 84
Treatment of Losses............................................................ 85
Taxation of Residual Certificates................................................ 86
Taxation of REMIC Income....................................................... 86
Basis and Losses............................................................... 87
Treatment of Certain Items of REMIC Income and Expense......................... 87
Original Issue Discount and Premium............................................ 87
Deferred Interest.............................................................. 88
Market Discount................................................................ 88
Premium........................................................................ 88
Limitations on Offset or Exemption of REMIC Income............................. 88
Tax-Related Restrictions on Transfer of Residual Certificates ................ 89
Disqualified Organizations..................................................... 89
Noneconomic Residual Interests................................................. 90
Foreign Investors.............................................................. 91
7
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PAGE
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Sale or Exchange of a Residual Certificate..................................... 91
Mark to Market Regulations..................................................... 92
Taxes That May Be Imposed on the REMIC Pool...................................... 92
Prohibited Transactions........................................................ 92
Contributions to the REMIC Pool After the Startup Day.......................... 92
Net Income from Foreclosure Property........................................... 93
Liquidation of the REMIC Pool.................................................... 93
Administrative Matters........................................................... 93
Limitations on Deduction of Certain Expenses..................................... 93
Taxation of Certain Foreign Investors............................................ 94
Regular Certificates........................................................... 94
Residual Certificates.......................................................... 94
Backup Withholding............................................................... 95
Reporting Requirements........................................................... 95
Federal Income Tax Consequences For Certificates as to Which No REMIC Election
Is Made......................................................................... 96
Standard Certificates.......................................................... 96
General....................................................................... 96
Tax Status.................................................................... 96
Premium and Discount........................................................... 97
Premium....................................................................... 97
Original Issue Discount....................................................... 97
Market Discount............................................................... 97
Recharacterization of Servicing Fees........................................... 97
Sale or Exchange of Standard Certificates..................................... 98
Stripped Certificates............................................................ 98
General........................................................................ 98
Status of Stripped Certificates................................................ 100
Taxation of Stripped Certificates.............................................. 100
Original Issue Discount........................................................ 100
Sale or Exchange of Stripped Certificates...................................... 100
Purchase of More Than One Class of Stripped Certificates....................... 101
Possible Alternative Characterizations......................................... 101
Federal Income Tax Consequences for FASIT Certificates........................... 101
Reporting Requirements and Backup Withholding.................................... 102
Taxation of Certain Foreign Investors............................................ 102
STATE AND OTHER TAX CONSIDERATIONS................................................. 102
ERISA CONSIDERATIONS............................................................... 102
General.......................................................................... 102
Plan Asset Regulations........................................................... 103
Administrative Exemptions........................................................ 104
Unrelated Business Taxable Income; Residual Certificates......................... 104
LEGAL INVESTMENT................................................................... 104
METHOD OF DISTRIBUTION............................................................. 106
LEGAL MATTERS...................................................................... 107
FINANCIAL INFORMATION.............................................................. 107
RATING............................................................................. 108
INDEX OF PRINCIPAL DEFINITIONS..................................................... 109
</TABLE>
8
<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").
DEPOSITOR ..................... Bear Stearns Commercial Mortgage Securities
Inc., a Delaware corporation. See "The
Depositor".
MASTER SERVICER ............... The master servicer (the "Master Servicer"),
if any, for a series of Certificates will be
named in the related Prospectus Supplement.
The Master Servicer for any series of
Certificates may be an affiliate of the
Depositor or a Special Servicer. See
"Description of the Pooling
Agreements--Collection and Other Servicing
Procedures".
SPECIAL SERVICER .............. One or more special servicers (each, a
"Special Servicer"), if any, for a series of
Certificates will be named, or the
circumstances under which a Special Servicer
will be appointed will be described, in the
related Prospectus Supplement. A Special
Servicer for any series of Certificates may
be an affiliate of the Depositor or the
Master Servicer. See "Description of the
Pooling Agreements--Special Servicers".
TRUSTEE ....................... The trustee (the "Trustee") for each series
of Certificates will be named in the related
Prospectus Supplement. See "Description of
the Pooling Agreements--The Trustee".
THE TRUST ASSETS .............. Each series of Certificates will represent
in the aggregate the entire beneficial
ownership interest in a Trust Fund
consisting primarily of:
A. MORTGAGE ASSETS ............ The Mortgage Assets with respect to each
series of Certificates will, in general,
consist of a pool of loans or participations
therein, together with installment sales
contracts, or any combination thereof
(collectively, the "Mortgage Loans") secured
by liens on, or security interests in, (i)
residential properties consisting of five or
more rental or cooperatively-owned dwelling
units or by shares allocable to a number of
such units and proprietary leases
appurtenant thereto (the "Multifamily
Properties") or and mobile home parks, (ii)
commercial properties consisting of office
buildings, retail facilities related to the
sale of goods and products and facilities
related to providing entertainment,
recreation or personal services, hotels and
motels, casinos, health care-related
facilities, recreational vehicle parks,
warehouse facilities, mini-warehouse
facilities, self-storage facilities,
industrial facilities, parking lots, auto
parks, golf courses,
9
<PAGE>
arenas and restaurants (or cooperatively
owned units therein) and (iii) mixed use
properties (that is, any combination of the
foregoing) and 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 Depositor 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. 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 no accrual of
interest or for accrual of interest thereon
at an interest rate (a "Mortgage Rate") that
is fixed over its term or that adjusts from
time to time, or that may be converted at
the borrower's election from an adjustable
to a fixed Mortgage Rate, or from a fixed to
an adjustable Mortgage Rate, (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
or partially amortizing or non-amortizing,
with a balloon payment due on its stated
maturity date, (iv) may prohibit over its
term or for a certain period prepayments
and/or require payment of a premium or a
yield maintenance penalty in connection with
certain prepayments and (v) may provide for
payments of principal, interest or both, on
due dates that occur monthly, quarterly,
semi-annually or at such other interval as
is specified in the related Prospectus
Supplement. Unless otherwise provided in the
related Prospectus Supplement, each Mortgage
Loan will have had a principal balance at
origination of not less than $25,000 and 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
Depositor; however, some or all of the
Mortgage Loans in any Trust Fund may have
been originated by an affiliate of the
Depositor. See "Description of the Trust
Funds--Mortgage Loans".
If and to the extent specified in the
related Prospectus Supplement, the Mortgage
Assets with respect to a series of
Certificates may also include, or consist
of, (i) private mortgage pass-through
certificates or other mortgage-backed
securities or (ii) certificates insured or
guaranteed by the Federal Home Loan Mortgage
Corporation ("FHLMC"), the Federal National
Mortgage Association ("FNMA"), the
Governmental National Mortgage Association
("GNMA") or the Federal Agricultural
Mortgage Corporation ("FAMC") (collectively,
the mortgage-backed securities referred to
in clauses (i) and (ii), "MBS"), provided
that each MBS will evidence an interest in,
or will be
10
<PAGE>
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".
B. CERTIFICATE ACCOUNT ........ Each Trust Fund will include one or more
accounts (collectively, the "Certificate
Account") established and maintained on
behalf of the Certificateholders into which
the person or persons designated in the
related Prospectus Supplement will, to the
extent described herein and in such
Prospectus Supplement, deposit all payments
and other collections received or advanced
with respect to the Mortgage Assets and
other assets in such Trust Fund. A
Certificate Account may be maintained as an
interest bearing or a non-interest bearing
account, and funds held therein may be held
as cash or invested in certain obligations
acceptable to each Rating Agency (as defined
below) rating one or more classes of the
related series of Offered Certificates. See
"Description of the Trust Funds--Certificate
Accounts" and "Description of the Pooling
Agreements--Certificate Account".
C. CREDIT SUPPORT ............. If so provided in the related Prospectus
Supplement, partial or full protection
against certain defaults and losses on the
Mortgage Assets in the related Trust Fund
may be provided to one or more classes of
Certificates of the related series in the
form of subordination of one or more other
classes of Certificates of such series,
which other classes may include one or more
classes of Offered Certificates, or by one
or more other types of credit support, such
as a letter of credit, insurance policy,
guarantee, reserve fund or another type of
credit support described in this Prospectus,
or a combination thereof (any such coverage
with respect to the Certificates of any
series, "Credit Support"). The amount and
types of any Credit Support, 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 interest rate exchange
agreements, interest rate cap or floor
agreements, or currency exchange agreements,
which agreements are 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
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<PAGE>
Prospectus Supplement for the related
series. In addition, the related Prospectus
Supplement will contain certain information
that pertains to the obligor or counterparty
under any such Cash Flow Agreement. See
"Description of the Trust Funds--Cash Flow
Agreements".
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, among other things:
(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 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; (vi) provide for distributions of
principal thereof to be made, subject to
available funds, based on a specified
principal payment schedule or other
methodology; or (vii) provide for
distribution based on collections on the
Mortgage Assets in the related Trust Fund
attributable to prepayment premiums, yield
maintenance penalties or equity
participations.
Each class of Certificates, other than
certain classes of Stripped Interest
Certificates and certain classes of Residual
Certificates (as defined herein), will have
a stated principal amount (a "Certificate
Balance"); and each class of Certificates,
other than certain classes of Stripped
Principal Certificates and certain classes
of Residual Certificates, will accrue
interest on its Certificate Balance or, in
the case of certain classes of Stripped
Interest Certificates, on a notional amount
(a "Notional Amount"), based on a fixed,
variable or adjustable interest rate (a
"Pass-Through Rate"). The related Prospectus
Supplement will specify the Certificate
Balance and/or Notional Amount and the
Pass-Through Rate (or, in the case of a
variable or
12
<PAGE>
adjustable Pass-Through Rate, the method for
determining such rate), as applicable, for
each class of Offered Certificates.
The Certificates will not be guaranteed or
insured by the Depositor or any of its
affiliates, by any governmental agency or
instrumentality or by any other person or
entity, unless otherwise provided in the
related Prospectus Supplement. See "Risk
Factors--Limited Assets" 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 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".
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
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
Certificates of a series 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 each
Prospectus Supplement, distributions of
principal with respect to the related series
of Certificates will be made on each
Distribution Date to the holders of the
class or classes of Certificates of such
13
<PAGE>
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 certain
limitations, 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 Offered
Certificates will be made on a pro rata
basis among all of the Certificates of such
class. See "Description of the
Certificates--Distributions of Principal of
the Certificates".
ADVANCES ...................... If and to the extent provided in the related
Prospectus Supplement, if a Trust Fund
includes Mortgage Loans, the Master
Servicer, a 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 maybe entitled to receive
interest thereon for the period that such
advances are outstanding, payable from
amounts in the related Trust Fund. See
"Description of the Certificates--Advances
in Respect of Delinquencies". If a Trust
Fund includes MBS, any comparable advancing
obligation of a party to the related Pooling
Agreement, or of a party to the related MBS
Agreement, will be described in the related
Prospectus Supplement.
TERMINATION ................... If so specified in the related Prospectus
Supplement, a series of Certificates may be
subject to optional early termination
through
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<PAGE>
there purchase 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
Certificates of such class in fully
registered, definitive form ("Definitive
Certificates"), except under the limited
circumstances described herein. See "Risk
Factors--Book-Entry Registration" and
"Description of the Certificates--Book-Entry
Registration and Definitive Certificates".
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES ................. The federal income tax consequences to
Certificateholders will vary depending on
whether one or more elections are made to
treat the Trust Fund or specified portions
thereof as one or more "real estate mortgage
investment conduits" (each, a "REMIC") under
the provisions of the Internal Revenue Code
of 1986, as amended (the "Code"). The
Prospectus Supplement for each series of
Certificates will specify whether one or
more such elections will be made. See
"Certain Federal Income Tax Consequences".
ERISA CONSIDERATIONS .......... Fiduciaries of employee benefit plans and
certain other retirement plans and
arrangements, including individual
retirement accounts, individual retirement
annuities, Keogh plans, and collective
investment funds and insurance company
general 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
and holding of Offered Certificates could
give rise to a transaction that is
prohibited or is not otherwise permissible
under either ERISA or Section 4975 of the
Code. See "ERISA Considerations" herein and
in the related Prospectus Supplement.
15
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LEGAL INVESTMENT .............. The Offered Certificates will constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market Enhancement
Act of 1984, as amended ("SMMEA") 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.
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RISK FACTORS
In considering an investment in the Offered Certificates of any series,
investors should consider, among other things, the following risk 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.
SECONDARY MARKET
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 with respect to any series of
Offered Certificates or class thereof, the market value of such Certificates
will be affected by several factors, including the perceived liquidity
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 Depositor 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
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 Depositor or any of its
affiliates, by any governmental agency or instrumentality or by any other
person or entity; 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
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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 and to the
extent 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, all or a portion of 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.
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 in a
Trust Fund may affect the average life of one or more classes of Certificates
of the related series, 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, legal and other factors. For example, if prevailing interest
rates fall significantly below the Mortgage Rates borne by the Mortgage Loans
included in a Trust Fund, then, subject to, among other things, the
particular terms of the Mortgage Loans (e.g., provisions that prohibit
voluntary prepayments during specified periods or impose penalties in
connection therewith) and the ability of borrowers to get new financing,
principal prepayments on such Mortgage Loans 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, then principal prepayments on such Mortgage Loans are likely to be
lower than if prevailing interest rates remain at or below the rates borne by
those Mortgage Loans. 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 increases the likelihood 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 increases the likelihood 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, which 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
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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 disproportionately
large, as compared to the amount of principal, as with certain classes of
Stripped Interest Certificates, a holder might fail to recover 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.
LIMITED NATURE OF 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 recover 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. See "Description of Credit Support" and "Rating".
FACTORS AFFECTING DELINQUENCY, FORECLOSURE AND LOSS OF THE MORTGAGE
LOANS--GENERAL
General. A description of risks associated with investments in mortgage
loans is included herein under "Certain Legal Aspects of Mortgage Loans".
Mortgage loans made on the security of multifamily
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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 an owner-occupied single-family
property. See "Description of the Trust Funds--Mortgage Loans". The ability
of a borrower to 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 or a small
number of significant tenants. Accordingly, a decline in the financial
condition of the borrower or a significant tenant, as applicable, may have a
disproportionately greater effect on the net operating income from such
Mortgaged Properties than would be the case with respect to Mortgaged
Properties with multiple tenants. Furthermore, the value of any Mortgaged
Property may be adversely affected by risks generally incident to interests
in real property, including changes in general or local economic conditions
and/or specific industry segments; declines in real estate values; declines
in rental or occupancy rates; increases in interest rates, real estate tax
rates and other operating expenses; changes in governmental rules,
regulations and fiscal policies, including environmental legislation; acts of
God; and other factors beyond the control of the Master Servicer. In the case
of Mortgage Loans that represent participation interests in a mortgage loan,
the Trustee's or the Master Servicer's enforcement rights may be limited in
the event of default by the related borrower.
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 that 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. The ability of a borrower to repay a Mortgage Loan
secured by shares allocable to one or more cooperative dwelling units may be
dependent upon the ability of the dwelling units to generate sufficient
rental income, which may be subject to rent control or stabilization laws, to
cover both debt service on the loan as well as maintenance charges to the
cooperative. Further, a Mortgage Loan secured by cooperative shares is
subordinate to the mortgage, if any, on the cooperative apartment building.
Other multifamily and commercial properties located in the areas of the
Mortgaged Properties and of the same types as the Mortgaged Properties
compete with the Mortgaged Properties to attract residents and customers. The
leasing of real estate is highly competitive. The principal means of
competition are price, location and the nature and condition of the facility
to be leased. A borrower under a Mortgage Loan competes with all lessors and
developers of comparable types of real estate in the area in which the
Mortgaged Property is located. Such lessors or developers could have lower
rentals, lower operating costs, more favorable locations or better
facilities. While a borrower under a Mortgaged Property may renovate,
refurbish or expand the Mortgaged Property to maintain it and remain
competitive, such renovation, refurbishment or expansion may itself entail
significant risk. Increased competition could adversely affect income from
and market value of the Mortgaged Properties. In addition, the business
conducted at each Mortgaged Property may face competition from other
industries and industry segments.
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 any such Mortgage Loan, 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. See "Certain Legal Aspects of Mortgage
Loans--Foreclosure".
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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.
Risks Particular to Multifamily Rental Properties. Adverse economic
conditions, either local, regional or national, may limit the amount of rent
that can be charged for rental units, may adversely affect tenants' ability
to pay rent and may result in a reduction in timely rent payments or a
reduction in occupancy levels without a corresponding decrease in expenses.
Occupancy and rent levels may also be affected by construction of additional
housing units, local military base closings, company relocations and closings
and national and local politics, including current or future rent
stabilization and rent control laws and agreements. Multifamily apartment
units are typically leased on a short-term basis, and consequently, the
occupancy rate of a multifamily rental property may be subject to rapid
decline, including for some of the foregoing reasons. In addition, the level
of mortgage interest rates may encourage tenants in multifamily rental
properties to purchase single-family housing rather than continue to lease
housing or the characteristics of a neighborhood may change over time or in
relation to newer developments. Further, the cost of operating a multifamily
rental property may increase, including the cost of utilities and the costs
of required capital expenditures. Also, multifamily rental properties may be
subject to rent control laws which could impact the future cash flows of such
properties.
Certain multifamily rental properties are eligible to receive low-income
housing tax credits pursuant to Section 42 of the Code ("Section 42
Properties"). However, rent limitations associated therewith may adversely
affect the ability of the applicable borrowers to increase rents to maintain
such Mortgaged Properties in proper condition during periods of rapid
inflation or declining market value of such Mortgaged Properties. In
addition, the income restrictions on tenants imposed by Section 42 of the
Code may reduce the number of eligible tenants in such Mortgaged Properties
and result in a reduction in occupancy rates applicable thereto. Furthermore,
some eligible tenants may not find any differences in rents between the
Section 42 Properties and other multifamily rental properties in the same
area to be a sufficient economic incentive to reside at a Section 42
Property, which may have fewer amenities or otherwise be less attractive as a
residence. All of these conditions and events may increase the possibility
that a borrower may be unable to meet its obligations under its Mortgage
Loan.
Risks Particular to Cooperatively-Owned Apartment Buildings. Generally, a
tenant-shareholder of a cooperative corporation must make a monthly
maintenance payment to the cooperative corporation that owns the subject
apartment building representing such tenant-shareholder's pro rata share of
the corporation's payments in respect of the Mortgage Loan secured by, and
all real property taxes, maintenance expenses and other capital and ordinary
expenses with respect to, such property, less any other income that the
cooperative corporation may realize. Adverse economic conditions, either
local regional or national, may adversely affect tenant-shareholders' ability
to make required maintenance payments, either because such adverse economic
conditions have impaired the individual financial conditions of such
tenant-shareholders or their ability to sub-let the subject apartments. To
the extent that a large number of tenant-shareholders in a
cooperatively-owned apartment building rely on sub-letting their apartments
to make maintenance payments, the lender on any mortgage loan secured by such
building will be subject to all the risks that it would have in connection
with lending on the security of a multifamily rental property. See "--Risks
Particular to Multifamily Rental Properties" above. In addition, if in
connection with any cooperative conversion of an apartment building, the
sponsor holds the shares allocated to a large number of the apartment units,
any lender secured by a mortgage on such building will be subject to a risk
associated with such sponsor's creditworthiness.
Risks Particular to Retail Properties. In addition to risks generally
associated with real estate, Mortgage Loans secured by 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 as direct mail, video shopping
networks and selling through the Internet, which reduce the need for retail
space by retail companies), the quality and management philosophy of
management, the
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attractiveness of the properties and the surrounding neighborhood to tenants
and their customers, the public perception of the safety of customers (at
shopping malls and shopping centers, for example) and the need to make major
repairs or improvements to satisfy the needs of major tenants.
Retail properties may be adversely affected if an anchor or other
significant tenant ceases operations at such locations (which may occur on
account of a 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 shopping center play an important part in
generating customer traffic and making the property a desirable location for
other tenants at such property. In addition, certain tenants at retail
properties may be entitled to terminate their leases if an anchor tenant
ceases operations at such property.
BALLOON PAYMENTS; BORROWER DEFAULT
Certain of the Mortgage Loans included in a Trust Fund may be
non-amortizing or only partially amortizing 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 multifamily or commercial, as the case may be,
real properties generally. Neither the Depositor 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 or a Special Servicer will be permitted (within prescribed
limits) to extend and modify Mortgage Loans that are in default or as to
which a payment default is imminent. While the Master Servicer or a Special
Servicer generally will be required to determine that any such extension or
modification is reasonably likely to produce a greater recovery, taking into
account the time value of money, than liquidation, there can be no assurance
that any such extension or modification will in fact increase the present
value of receipts from or proceeds of the affected Mortgage Loans.
CREDIT SUPPORT LIMITATIONS
The Prospectus Supplement for a series of 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 an instrument 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.
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The amount of any applicable Credit Support supporting one or more classes
of Offered Certificates, including the subordination of one or more classes
of Certificates, will be determined on the basis of criteria established by
each Rating Agency rating such classes of Certificates based on an assumed
level of defaults, delinquencies and losses on the underlying Mortgage Assets
and certain other factors. There can, however, be no assurance that the loss
experience on the related Mortgage Assets will not exceed such assumed
levels. See "--Limited Nature of Ratings", "Description of the Certificates"
and "Description of Credit Support".
LEASES AND RENTS
Each Mortgage Loan included in any Trust Fund secured by Mortgaged
Property that is subject to leases typically will be secured by an assignment
of leases and rents pursuant to which the borrower assigns to the lender its
right, title and interest as landlord under the leases of the related
Mortgaged Property, and the income derived therefrom, as further security for
the related Mortgage Loan, while retaining a license to collect rents for so
long as there is no default. If the borrower defaults, the license terminates
and the lender is entitled to collect rents. Some state laws may require that
the lender take possession of the Mortgaged Property and obtain a judicial
appointment of a receiver before becoming entitled to collect the rents. In
addition, if bankruptcy or similar proceedings are commenced by or in respect
of the borrower, the lender's ability to collect the rents may be adversely
affected. See "Certain Legal Aspects of Mortgage Loans--Leases and Rents".
ENVIRONMENTAL RISKS
Under the laws of certain states, contamination of real property may give
rise to a lien on the property to assure the costs of cleanup. In several
states, such a lien has priority over an existing mortgage lien on such
property. In addition, under various federal, state and local laws,
ordinances and regulations, an owner or operator of real estate may be liable
for the costs of removal or remediation of hazardous substances or toxic
substances on, in or beneath such property. Such liability may be imposed
without regard to whether the owner knew of, or was responsible for, the
presence of such hazardous or toxic substances. The cost of any required
remediation and the owner or operator's liability therefor as to any property
is generally not limited under such laws, ordinances and regulations and
could exceed the value of the mortgaged property and the aggregate assets of
the owner or operator. In addition, as to the owners or operators of
mortgaged properties that generate hazardous substances that are disposed of
at "off-site" locations, such owners or operators may be held strictly,
jointly and severally liable if there are releases or threatened releases of
hazardous substances at the off-site locations where such person's hazardous
substances were disposed.
Although the federal Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended ("CERCLA"), provides an exemption from the
definition of "owner" for lenders whose primary indicia of ownership in a
particular property is the holding of a security interest, lenders may
forfeit, as a result of their actions with respect to particular borrowers,
their secured creditor exemption and be deemed an owner or operator of
property such that they are liable for remediation costs. See "Certain Legal
Aspects of Mortgage Loans--Environmental Risks" herein. 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 the Master Servicer, acting on behalf of the Trust Fund, may not
acquire title to a Mortgaged Property or assume control of its operation
unless the Master Servicer, based upon a report prepared by a person who
regularly conducts environmental audits, has made the determination that it
is appropriate to do so, as described under "Description of the Pooling
Agreements--Realization Upon Defaulted Mortgage Loans". See "Certain Legal
Aspects of Mortgage Loans--Environmental Risks". There can be no assurance
that any such requirements of a Pooling Agreement will effectively insulate
the related Trust Fund from potential liability for a materially adverse
environmental condition at a Mortgaged Property.
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SPECIAL HAZARD LOSSES
Unless otherwise specified in a Prospectus Supplement, the Master Servicer
for the related Trust Fund will be required to cause the borrower on each
Mortgage Loan in such Trust Fund 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, the Master
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 certain other kinds of risks. 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. In addition, certain other
retirement plans and arrangements, including individual retirement accounts
and Keogh plans, are subject to Section 4975 of the Code. Due to the
complexity of regulations that govern such plans, prospective investors that
are subject to ERISA or Section 4975 of the Code are urged to consult their
own counsel regarding the consequences under ERISA or the Code of
acquisition, ownership and disposition of the Offered Certificates of any
series. See "ERISA Considerations".
CERTAIN FEDERAL TAX CONSIDERATIONS REGARDING RESIDUAL CERTIFICATES
Holders of Residual Certificates will be required to report on their
federal income tax returns as ordinary income their pro rata share of the
taxable income of the REMIC, regardless of the amount or timing of their
receipt of cash payments, as described in "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates".
Accordingly, under certain circumstances, holders of Offered Certificates
that constitute Residual Certificates may have taxable income and tax
liabilities arising from such investment during a taxable year in excess of
the cash received during such period. The requirement that holders of
Residual Certificates report their pro rata share of the taxable income and
net loss of the REMIC will continue until the Certificate Balances of all
classes of Certificates of the related series have been reduced to zero, even
though holders of Residual Certificates have received full payment of their
stated interest and principal. A portion (or, in certain circumstances, all)
of such Certificateholder's share of the REMIC taxable income may be treated
as "excess inclusion" income to such holder which (i) generally, will not be
subject to offset by losses from other activities, (ii) for a tax-exempt
holder, will be treated as unrelated business taxable income and (iii) for a
foreign holder, will not qualify for exemption from withholding tax.
Individual holders of Residual Certificates may be limited in their ability
to deduct servicing fees and other expenses of the REMIC. In addition,
Residual Certificates are subject to certain restrictions on transfer.
Because of the special tax treatment of Residual Certificates, the taxable
income arising in a given year on a Residual Certificate will not be equal to
the taxable income associated with investment in a corporate bond or stripped
instrument having similar cash flow characteristics and pre-tax yield.
Therefore, the after-tax yield on the Residual Certificate may be
significantly less than that of a corporate bond or stripped instrument
having similar cash flow characteristics.
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CERTAIN FEDERAL TAX CONSIDERATIONS REGARDING ORIGINAL ISSUE DISCOUNT
Accrual Certificates will be, and certain of the other Classes of
Certificates of a series may be, issued with "original issue discount" for
federal income tax purposes, which generally will result in recognition of
some taxable income in advance of the receipt of cash attributable to such
income. See "Certain Federal Income Tax Consequences--Federal Income Tax
Consequences for REMIC Certificates--Taxation of Regular Certificates".
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".
DELINQUENT 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 (i.e. beyond any applicable grace period); provided, however, that
such delinquent Mortgage Loans may only constitute up to, but not including,
20% (by principal balance) of the Trust Fund. If so specified in the related
Prospectus Supplement, the servicing of such Mortgage Loans may be performed
by a Special Servicer. When a Mortgage Loan has a loan-to-value ratio of 100%
or more, the related borrower will have no equity in the related Mortgaged
Property. In such cases, the related borrower may not have an incentive to
continue to perform under the subject Mortgage Loan. In addition, 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 and all mortgage loans senior
thereto. In such cases, the related borrower will be required to pay a
portion of such items from sources other than cash flow from the related
Mortgaged Property. If the related borrower 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. Credit Support provided with respect to a particular Series
of Certificates may not cover all losses related to delinquent Mortgage Loans
and, 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) various types of
multifamily or commercial mortgage loans or participations therein (the
"Mortgage Loans"), (ii) pass-through certificates or other mortgage-backed
securities ("MBS") that evidence interests in, or that are secured by pledges
of, one or
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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 Bear Stearns Commercial Mortgage Securities
Inc. (the "Depositor"). Each Mortgage Asset will be selected by the Depositor
for inclusion in a Trust Fund from among those purchased, either directly or
indirectly, from a prior holder thereof (a "Mortgage Asset Seller"), which
prior holder may or may not be the originator of such Mortgage Loan or the
issuer of such MBS and may be an affiliate of the Depositor. The Mortgage
Assets will not be guaranteed or insured by the Depositor 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 or other
evidences of indebtedness (the "Mortgage Notes") secured by liens on fee or
leasehold estates in properties (the "Mortgaged Properties") consisting of
(i) residential properties consisting of five or more rental or
cooperatively-owned dwelling units in high-rise, mid-rise or garden apartment
buildings or other residential structures ("Multifamily Properties") and
mobile home parks, (ii) commercial properties consisting of office buildings,
retail facilities related to the sale of goods and products and facilities
related to providing entertainment, recreation or personal services, hotels
and motels, casinos, health care-related facilities, recreational vehicle
parks, warehouse facilities, mini-warehouse facilities, self-storage
facilities, industrial facilities, parking lots, auto parks, golf courses,
arenas and restaurants (or cooperatively owned units therein) and (iii) mixed
use properties (that is, any combination of the foregoing) and unimproved
land (the "Commercial Properties"). The Multifamily Properties may include
mixed commercial and residential structures, apartment buildings owned by
private cooperative housing corporations ("Cooperatives"), and shares of the
Cooperative allocable to one or more dwelling units occupied by non-owner
tenants or to vacant units. Such liens may be created by mortgages, deeds of
trust and similar security instruments (the "Mortgages"). Each Mortgage will
create a first priority or junior 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 two years. Unless otherwise specified
in the related Prospectus Supplement, each Mortgage Loan will have been
originated by a person (the "Originator") other than the Depositor; however,
the Originator may be or may have been an affiliate of the Depositor.
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, some of the Mortgage Loans included in
the Trust Fund for a particular Series of Certificates may be 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.
Mortgage Loans Secured by Multifamily Rental Properties. Significant
factors determining the value and successful operation of a multifamily
rental property are the location of the property, the number of competing
residential developments in the local market (such as apartment buildings,
manufactured housing communities and site-built single family homes), the
physical attributes of the multifamily building (such as its age and
appearance) and state and local regulations affecting such property. In
addition, the successful operation of an apartment building will depend upon
other factors such as its reputation, the ability of management to provide
adequate maintenance and insurance, and the types of services it provides.
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Certain states regulate the relationship of an owner and its tenants.
Commonly, these laws require a written lease, good cause for eviction,
disclosure of fees, and notification to residents of changed land use, while
prohibiting unreasonable rules, retaliatory evictions, and restrictions on a
resident's choice of unit vendors. Apartment building owners have been the
subject of suits under state "Unfair and Deceptive Practices Acts" and other
general consumer protection statutes for coercive, abusive or unconscionable
leasing and sales practices. A few states offer more significant protection.
For example, there are provisions that limit the basis on which a landlord
may terminate a tenancy or increase its rent or prohibit a landlord from
terminating a tenancy solely by reason of the sale of the owner's building.
In addition to state regulation of the landlord-tenant relationship,
numerous counties and municipalities impose rent control on apartment
buildings. These ordinances may limit rent increases to fixed percentages, to
percentages of increases in the consumer price index, to increases set or
approved by a governmental agency, or to increases determined through
mediation or binding arbitration. In many cases, the rent control laws do not
provide for decontrol of rental rates upon vacancy of individual units. Any
limitations on a borrower's ability to raise property rents may impair such
borrower's ability to repay its Mortgage Loan from its net operating income
or the proceeds of a sale or refinancing of the related Mortgaged Property.
Adverse economic conditions, either local, regional or national, may limit
the amount of rent that can be charged, may adversely affect tenants' ability
to pay rent 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,
company relocations and closings and national and local politics, including
current or future rent stabilization and rent control laws and agreements.
Multifamily apartment units are typically leased on a short-term basis, and
consequently, the occupancy rate of a multifamily rental property may be
subject to rapid decline, including for some of the foregoing reasons. In
addition, the level of mortgage interest rates may encourage tenants to
purchase single-family housing rather than continue to lease housing. The
location and construction quality of a particular building may affect the
occupancy level as well as the rents that may be charged for individual
units. The characteristics of a neighborhood may change over time or in
relation to newer developments.
Mortgage Loans Secured by Cooperatively-Owned Apartment Buildings. A
cooperative apartment building and the land under the building are owned or
leased by a non-profit cooperative corporation. The cooperative corporation
is in turn owned by tenant-shareholders who, through ownership of stock,
shares or membership certificates in the corporation, receive proprietary
leases or occupancy agreements which confer exclusive rights to occupy
specific apartments or units. Generally, a tenant-shareholder of a
cooperative corporation must make a monthly maintenance payment to the
corporation representing such tenant-shareholder's pro rata share of the
corporation's payments in respect of any mortgage loan secured by, and all
real property taxes, maintenance expenses and other capital and ordinary
expenses with respect to, the real property owned by such cooperative
corporation, less any other income that the cooperative corporation may
realize. Such payments to the cooperative corporation are in addition to any
payments of principal and interest the tenant-shareholder must make on any
loans of the tenant-shareholder secured by its shares in the corporation.
A cooperative corporation is directly responsible for building management
and payment of real estate taxes and hazard and liability insurance premiums.
A cooperative corporation's ability to meet debt service obligations on a
mortgage loan secured by the real property owned by such corporation, as well
as all other operating expenses of such property, is dependent primarily upon
the receipt of maintenance payments from the tenant-shareholders, together
with any rental income from units or commercial space that the cooperative
corporation might control. Unanticipated expenditures may in some cases have
to be paid by special assessments on the tenant-shareholders. A cooperative
corporation's ability to pay the amount of any balloon payment due at the
maturity of a mortgage loan secured by the real property owned by such
cooperative corporation depends primarily on its ability to refinance the
mortgage loan. Neither the Depositor nor any other person will have any
obligation to provide refinancing for any of the Mortgage Loans.
In a typical cooperative conversion plan, the owner of a rental apartment
building contracts to sell the building to a newly formed cooperative
corporation. Shares are allocated to each apartment unit by
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the owner or sponsor, and the current tenants have a certain period to
subscribe at prices discounted from the prices to be offered to the public
after such period. As part of the consideration for the sale, the owner or
sponsor receives all the unsold shares of the cooperative corporation. The
sponsor usually also controls the corporation's board of directors and
management for a limited period of time.
Each purchaser of shares in the cooperative corporation generally enters
into a long-term proprietary lease which provides the shareholder with the
right to occupy a particular apartment unit. However, many cooperative
conversion plans are "non-eviction" plans. Under a non-eviction plan, a
tenant at the time of conversion who chooses not to purchase shares is
entitled to reside in the unit as a subtenant from the owner of the shares
allocated to such apartment unit. Any applicable rent control or rent
stabilization laws would continue to be applicable to such subtenancy, and
the subtenant may be entitled to renew its lease for an indefinite number of
times, with continued protection from rent increases above those permitted by
any applicable rent control and rent stabilization laws. The shareholder is
responsible for the maintenance payments to the cooperative without regard to
its receipt or non-receipt of rent from the subtenant, which may be lower
than maintenance payments on the unit. Newly-formed cooperative corporations
typically have the greatest concentration of non-tenant shareholders.
Mortgage Loans Secured by Retail Properties. Retail properties generally
derive all or a substantial percentage of their income from lease payments
from commercial tenants. Income from and the market value of retail
properties is dependent on various factors including, but not limited to, the
ability to lease space in such properties, the ability of tenants to meet
their lease obligations, the possibility of a significant tenant becoming
bankrupt or insolvent, as well as fundamental aspects of real estate such as
location and market demographics.
The correlation between the success of tenant businesses and property
value is more direct with respect to retail properties than other types of
commercial property because a significant component of the total rent paid by
retail tenants is often tied to a percentage of gross sales. Declines in
tenant sales will cause a corresponding decline in percentage rents and may
cause such tenants to become unable to pay their rent or other occupancy
costs. The default by a tenant under its lease could result in delays and
costs in enforcing the lessor's rights. Repayment of the related Mortgage
Loans will be affected by the expiration of space leases and the ability of
the respective borrowers to renew or relet the space on comparable terms.
Even if vacated space is successfully relet, the costs associated with
reletting, including tenant improvements, leasing commissions and free rent,
could be substantial and could reduce cash flow from the retail properties.
The correlation between the success of tenant businesses and property value
is increased when the property is a single tenant property.
Whether a shopping center is "anchored" or "unanchored" is also an
important distinction. Anchor tenants in shopping centers traditionally have
been a major factor in the public's perception of a shopping center. The
anchor tenants at a shopping center play an important part in generating
customer traffic and making a center a desirable location for other tenants
of the center. The failure of an anchor tenant to renew its leases, the
termination of an anchor tenant's lease, the bankruptcy or economic decline
of an anchor tenant, or the cessation of the business of an anchor tenant
(notwithstanding any continued payment of rent) can have a material negative
effect on the economic performance of a shopping center. Furthermore, the
correlation between the success of tenant businesses and property value is
increased when the property is a single tenant property.
Unlike certain other types of commercial properties, retail properties
also face competition from sources outside a given real estate market.
Catalogue retailers, home shopping networks, telemarketing, selling through
the Internet, and outlet centers all compete with more traditional retail
properties for consumer dollars. Continued growth of these alternative retail
outlets (which are often characterized by lower operating costs) could
adversely affect the retail properties.
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
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generate income). Moreover, some or all of the Mortgage Loans included in a
particular Trust Fund may be non-recourse loans, which means that, absent
special facts, recourse in the case of default will be limited to the
Mortgaged Property and such other assets, if any, that were pledged to secure
repayment of the Mortgage Loan.
Lenders typically look to the Debt Service Coverage Ratio of a loan
secured by income-producing property as an important factor in evaluating 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, with respect to a Mortgage
Loan secured by a Cooperative apartment building, maintenance payments from
tenant-stockholders of a Cooperative) may be affected by the condition of the
applicable real estate market and/or the economy of the area in which the
Mortgaged Property is located or the industry that it services. In addition,
properties typically leased, occupied or used on a short-term basis, such as
certain healthcare-related facilities, hotels and motels, and mini-warehouse
and self-storage facilities, tend to be affected more rapidly by changes in
market or business conditions than do properties typically leased for longer
periods, such as warehouses, retail stores, office buildings and industrial
plants. Commercial Properties may be owner-occupied or leased to a small
number of tenants. Thus, the Net Operating Income of such a Mortgaged
Property may depend substantially on the financial condition of the borrower
or a 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
factor in evaluating risk of loss if a property must be liquidated following
a default. Unless otherwise defined in the related Prospectus Supplement, the
"Loan-to-Value Ratio" of a Mortgage Loan at any given time is the ratio
(expressed as a percentage) of (i) the then outstanding principal balance of
the Mortgage Loan and any other loans senior thereto that are secured by the
related Mortgaged Property to (ii) the Value of the related Mortgaged
Property. The "Value" of a Mortgaged Property is generally its fair market
value 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 (a) the
greater the incentive of the borrower to perform under the terms of the
related Mortgage Loan (in order to protect such equity) and (b) 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
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will likely continue to fluctuate from time to time based upon changes in
economic conditions, the real estate market and other factors described
herein. 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 and discount
rate. Where more than one of these appraisal methods are used and provide
significantly different results, an accurate determination of value and,
correspondingly, a reliable analysis of default and loss risks, is even more
difficult.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish loans secured by liens on
income-producing real estate from single-family mortgage loans, there can be
no assurance that all of such factors will in fact have been prudently
considered by the Originators of the Mortgage Loans, or that, for a
particular Mortgage Loan, they are complete or relevant. See "Risk
Factors--Risks Associated with Certain Mortgage Loans and Mortgaged
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 (i) have
had individual principal balances at origination of not less than $25,000,
(ii) have had original terms to maturity of not more than 40 years and (iii)
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 no accrual of interest or for
accrual of interest thereon at an interest rate (a "Mortgage Rate") that is
fixed over its term or that adjusts from time to time, or that may be
converted at the borrower's election from an adjustable to a fixed Mortgage
Rate, or from a fixed to an adjustable Mortgage Rate, (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 or partially amortizing or non-amortizing, with a balloon payment
due on its stated maturity date, and (iv) may prohibit over its term or for a
certain period prepayments (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 certain prepayments, 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 appreciation of the related Mortgaged
Property, or profits realized from the operation or disposition of such
Mortgaged Property or the benefit, if any, resulting from the refinancing of
the Mortgage Loan (any such provision, 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 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
in the related Trust Fund, 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 Depositor, will include the
following: (i) the aggregate outstanding principal balance and the largest,
smallest and average outstanding principal balance of the Mortgage Loans,
(ii) the type or types of property that provide security for repayment of the
Mortgage Loans, (iii) the earliest and latest origination date and maturity
date of the Mortgage Loans, (iv) the original and remaining terms to maturity
of the Mortgage Loans, or the respective ranges thereof, and the weighted
average original and remaining terms to maturity of the Mortgage Loans, (v)
the original Loan-to-Value Ratios of the Mortgage Loans, or the range
thereof, and the weighted average original
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Loan-to-Value Ratio of the Mortgage Loans, (vi) the Mortgage Rates borne by
the Mortgage Loans, or 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 also contain certain information available to the
Depositor that pertains to the provisions of leases and the nature of tenants
of the Mortgaged Properties. If the Depositor 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, unless otherwise
specified in the related Prospectus Supplement, each MBS will evidence an
interest in, or will be secured by a pledge of, mortgage loans that conform
to the descriptions of the Mortgage Loans contained herein.
Any MBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, an indenture or similar
agreement (an "MBS Agreement"). The issuer of the MBS (the "MBS Issuer")
and/or the servicer of the underlying mortgage loans (the "MBS Servicer")
will have entered into the MBS Agreement, generally with a trustee (the "MBS
Trustee") or, in the alternative, with the original purchaser or purchasers
of the MBS.
The MBS may have been issued in one or more classes with characteristics
similar to the classes of Certificates described herein. Distributions in
respect of the MBS will be made by the MBS Issuer, 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 be a function of the characteristics of
the underlying mortgage loans and other factors and generally will have been
established on the basis of the requirements of any Rating Agency that may
have assigned a rating to the 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 Depositor and appropriate under the circumstances, such
other information in respect of the underlying mortgage loans
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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 described herein and in such
Prospectus Supplement, deposit all payments and collections received or
advanced with respect to the Mortgage Assets and other assets in the Trust
Fund. A Certificate Account may be maintained as an interest bearing or a
non-interest bearing account, and funds held therein may be held as cash or
invested in certain 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 Prospectus Supplement for a series of Certificates,
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 such series in the form of subordination of one or
more other classes of Certificates of such series or by one or more other
types of credit support arrangements, such as letters of credit, insurance
policies, guarantees, surety bonds or reserve funds, among others, or a
combination thereof (any such coverage with respect to the Certificates of
any series, "Credit Support"). The amount and types of Credit Support, 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 Certificates. See "Risk
Factors--Credit Support Limitations" and "Description of Credit Support".
CASH FLOW AGREEMENTS
If so provided in the Prospectus Supplement for a series of Certificates,
the related Trust Fund may include guaranteed investment contracts pursuant
to which moneys held in the funds and accounts established for such series
will be invested at a specified rate. The Trust Fund may also include
interest rate exchange agreements, interest rate cap or floor agreements, or
currency exchange agreements, which agreements are designed to reduce the
effects of interest rate or currency exchange rate fluctuations on the
Mortgage Assets on one or more classes of Certificates. The principal terms
of any such guaranteed investment contract or other agreement (any such
agreement, a "Cash Flow Agreement"), and the identity of the Cash Flow
Agreement obligor or counterparty, will be described in the Prospectus
Supplement for a series of 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 an 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 of the related series.
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
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Trust Fund. The Prospectus Supplement with respect to any series of
Certificates will specify the Pass-Through Rate for each class of Offered
Certificates of such series 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 on the amount of such prepayment
only through the date of such prepayment, instead of through 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 Prospectus Supplement for a series of Certificates, 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 the related 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 or other
specified person, be distributed to the holders of the Certificates of such
series 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 each series
of Certificates will describe the manner in which any such Prepayment
Interest Shortfalls will be allocated among the classes of such Certificates.
If so specified in the Prospectus Supplement for a series of Certificates,
the Master Servicer for such series will be required to apply some or all of
its servicing compensation for the corresponding period to offset the amount
of any such Prepayment Interest 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, may 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.
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The extent to which the yield to maturity of a class of Offered
Certificates of any series may vary from the anticipated yield will depend
upon the degree to which they are purchased at a discount or premium and
when, and to what degree, payments of principal on the Mortgage Loans in the
related Trust Fund are in turn distributed on such Certificates (or, in the
case of a class of Stripped Interest Certificates, result in the reduction of
the Notional Amount thereof). An investor should consider, in the case of any
Offered Certificate purchased at a discount, the risk that a slower than
anticipated rate of principal payments on the Mortgage Loans in the related
Trust Fund could result in an actual yield to such investor that is lower
than the anticipated yield and, in the case of any Offered Certificate
purchased at a premium, the risk that a faster than anticipated rate of
principal payments on such Mortgage Loans could result in an actual yield to
such investor that is lower than the anticipated yield. In addition, if an
investor purchases an Offered Certificate at a discount (or premium), and
principal payments are made in reduction of the principal balance or notional
amount of such investor's Offered Certificates at a rate slower (or faster)
than the rate anticipated by the investor during any particular period, the
consequent adverse effects on such investor's yield would not be fully offset
by a subsequent like increase (or decrease) in the rate of principal
payments.
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 Certificates of any series to receive distributions in respect of
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 to provide
information that will enable investors to predict, yields or prepayment
rates.
The Depositor is not aware of any relevant publicly available or
authoritative statistics with respect to the historical prepayment experience
of a group of multifamily or commercial mortgage loans. However, the extent
of prepayments of principal of the Mortgage Loans in any Trust Fund may be
affected by a number of factors, including, without limitation, the
availability of mortgage credit, the relative economic vitality of the area
in which the Mortgaged Properties are located, the quality of management of
the Mortgaged Properties, the servicing of the Mortgage Loans, possible
changes in tax laws and other opportunities for investment. In addition, the
rate of principal payments on the Mortgage Loans in any Trust Fund may be
affected by the existence of Lock-out Periods and requirements that principal
prepayments be accompanied by Prepayment Premiums, and by the extent to which
such provisions may be practicably enforced.
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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 a different index, margin or rate cap or floor on another
adjustable rate mortgage loan.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash
flow needs or to make other investments. In addition, some borrowers may be
motivated by federal and state tax laws (which are subject to change) to sell
Mortgaged Properties prior to the exhaustion of tax depreciation benefits.
The Depositor will make no representation as to the particular factors that
will affect the prepayment of the Mortgage Loans in any Trust Fund, as to the
relative importance of such factors, as to the percentage of the principal
balance of 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 at rates corresponding to various percentages
of CPR or SPA, or at such other rates specified in such Prospectus
Supplement. Such tables
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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, which will entitle the holders thereof to receive principal
distributions according to a specified principal payment schedule, which
schedule is supported by creating priorities, as and to the extent described
in the related Prospectus Supplement, to receive 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 on
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
payments 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
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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 or a Special Servicer, to the extent and under the
circumstances set forth herein and in the related Prospectus Supplement, may
be authorized to modify Mortgage Loans that are in default or as to which a
payment default is imminent. Any defaulted balloon payment or modification
that extends the maturity of a Mortgage Loan may delay distributions of
principal on a class of Offered Certificates and thereby extend the weighted
average life of 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 provides for the payment of
interest calculated at a rate lower than the rate at which interest accrues
thereon 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 may 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
that would bear the effects of a slower rate of amortization on such Mortgage
Loans) may increase as a result of such feature.
Negative amortization also may occur in respect of an ARM Loan that limits
the amount by which its scheduled payment may adjust in response to a change
in its Mortgage Rate, provides that its scheduled payment will adjust less
frequently than its Mortgage Rate or provides for constant scheduled payments
notwithstanding adjustments to its Mortgage Rate. Conversely, during a period
of declining interest rates, the scheduled payment on such a Mortgage Loan
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
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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 be effected by a reduction in the entitlements to
interest and/or Certificate Balances of one or more such classes of
Certificates, or by establishing a priority of payments among such classes of
Certificates.
The yield to maturity on a class of Subordinate Certificates may be
extremely sensitive to losses and shortfalls in collections on the Mortgage
Loans in the related Trust Fund.
Additional Certificate Amortization. In addition to entitling the holders
thereof to a specified portion (which may during specified periods 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 accrued on the 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.
THE DEPOSITOR
Bear Stearns Commercial Mortgage Securities Inc., the Depositor, is a
Delaware corporation organized on April 20, 1987. It has remained inactive
until the filing of the Registration Statement of which this Prospectus is a
part. The primary business of the Depositor is to acquire Mortgage Assets and
sell interests therein or bonds secured thereby. It is an affiliate of Bear,
Stearns & Co. Inc. The Depositor maintains its principal office at 245 Park
Avenue, New York, New York 10167. Its telephone number is (212) 272-2000. The
Depositor does not have, nor is it expected in the future to have, any
significant assets.
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USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates of any
series will be applied by the Depositor to the purchase of Trust Assets or
will be used by the Depositor for general corporate purposes. The Depositor
expects to sell the Certificates from time to time, but the timing and amount
of offerings of Certificates will depend on a number of factors, including
the volume of Mortgage Assets acquired by the Depositor, prevailing interest
rates, availability of funds and general market conditions.
DESCRIPTION OF THE CERTIFICATES
GENERAL
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, among other things: (i) provide for the
accrual of interest thereon at a fixed, variable or adjustable rate; (ii) are
senior (collectively, "Senior Certificates") or subordinate (collectively,
"Subordinate Certificates") to one or more other classes of Certificates in
entitlement to certain distributions on the Certificates; (iii) are entitled
to distributions of principal, with disproportionately small, nominal or no
distributions of interest (collectively, "Stripped Principal Certificates");
(iv) are entitled to distributions of interest, with disproportionately
small, nominal or no distributions of principal (collectively, "Stripped
Interest Certificates"); (v) provide for distributions of interest thereon or
principal thereof that commence only after the occurrence of certain events,
such as the retirement of one or more other classes of Certificates of such
series; (vi) provide for distributions of principal thereof to be made, from
time to time or for designated periods, at a rate that is faster (and, in
some cases, substantially faster) or slower (and, in some cases,
substantially slower) than the rate at which payments or other collections of
principal are received on the Mortgage Assets in the related Trust Fund;
(vii) provide for distributions of principal thereof to be made, subject to
available funds, based on a specified principal payment schedule or other
methodology; or (viii) provide for distributions based on collections on the
Mortgage Assets in the related Trust Fund attributable to Prepayment Premiums
and Equity Participations.
Each class of Offered Certificates of a series will be issued in minimum
denominations corresponding to the principal balances or, in case of certain
classes of Stripped Interest Certificates or 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. See "Risk Factors--Limited Liquidity" 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 holders of Certificates 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.
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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 Residual Certificates
that have no Pass-Through Rate) may have a different Pass-Through Rate, which
in each case may be fixed, variable or adjustable. The related Prospectus
Supplement will specify the Pass-Through Rate or, in the case of a variable
or adjustable Pass-Through Rate, the method for determining the Pass-Through
Rate, for each class. Unless otherwise specified in the related Prospectus
Supplement, interest on the Certificates of each series will be calculated on
the basis of a 360-day year consisting of twelve 30-day months.
Distributions of interest in respect of any class of Certificates (other
than certain classes of Certificates that will be entitled to distributions
of accrued interest commencing only on the Distribution Date, or under the
circumstances, specified in the related Prospectus Supplement ("Accrual
Certificates"), and other than any class of Stripped Principal Certificates
or 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 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 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, all or a portion of the Master Servicer's servicing
compensation) that are applied to offset the amount of such
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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 ON THE CERTIFICATES
Each class of Certificates of each series (other than certain classes of
Stripped Interest Certificates and certain classes of 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, will be further reduced by any losses
incurred in respect of the related Mortgage Assets allocated thereto from
time to time. In turn, the outstanding Certificate Balance of a class of
Certificates may be increased as a result of any deferred interest on or in
respect of the related Mortgage Assets being allocated thereto from time to
time, and will be increased, in the case of a class of Accrual Certificates
prior to the Distribution Date on which distributions of interest thereon are
required to commence, by the amount of any Accrued Certificate Interest in
respect thereof (reduced as described above). Unless otherwise provided in
the related Prospectus Supplement, the initial aggregate Certificate Balance
of all classes of a series of Certificates will not be greater than the
aggregate outstanding principal balance of the related Mortgage Assets as of
the applicable Cut-off Date, after application of scheduled payments due on
or before such date, whether or not received. The initial Certificate Balance
of each class of a series of Certificates will be specified in the related
Prospectus Supplement. As and to the extent described in the related
Prospectus Supplement, distributions of principal with respect to a series of
Certificates will be made on each Distribution Date to the holders of the
class or classes of Certificates of such series entitled thereto until the
Certificate Balances of such Certificates have been reduced to zero.
Distributions of principal with respect to one or more classes of
Certificates may be made at a rate that is faster (and, in some cases,
substantially faster) than the rate at which payments or other collections of
principal are received on the Mortgage Assets in the related Trust Fund.
Distributions of principal with respect to one or more classes of
Certificates may not commence until the occurrence of certain events, such as
the retirement of one or more other classes of Certificates of the same
series, or may be made at a rate that is slower (and, in some cases,
substantially slower) than the rate at which payments or other collections of
principal are received on the Mortgage Assets in the related Trust Fund.
Distributions of principal with respect to one or more classes of
Certificates (each such class, a "Controlled Amortization Class") may be
made, subject to available funds, based on a specified principal payment
schedule. Distributions of principal with respect to one or more classes of
Certificates (each such class, a "Companion Class") may be contingent on the
specified principal payment schedule for a Controlled Amortization Class of
the same series and the rate at which payments and other collections of
principal on the Mortgage Assets in the related Trust Fund are received.
Unless otherwise specified in the related Prospectus Supplement,
distributions of principal of any class of Offered 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.
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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 be effected by a reduction in the entitlements to
interest and/or Certificate Balances of one or more such classes of
Certificates, or by establishing a priority 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, a 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 the Master Servicer, a Special Servicer or the Trustee
if, in the good faith judgment of the Master Servicer, a Special Servicer or
the 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 the Master Servicer,
a Special Servicer or the Trustee, a Nonrecoverable Advance will be
reimbursable thereto from any amounts in the related Certificate Account
prior to any distributions being made to the related series of
Certificateholders.
If advances have been made by the 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 the 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 will 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.
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REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, together with the distribution to the holders
of each class of the Offered Certificates of a series, the 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) if the related Trust Fund includes Mortgage Loans, the aggregate
amount of advances included in such distribution;
(vi) if the related Trust Fund includes Mortgage Loans, the amount of
servicing compensation received by the related Master Servicer (and, if
payable directly out of the related Trust Fund, by any Special Servicer
and any Sub-Servicer) and such other customary information as the
reporting party deems necessary or desirable, or that a Certificateholder
reasonably requests, to enable Certificateholders to prepare their tax
returns;
(vii) information regarding the aggregate principal balance of the
related Mortgage Assets on or about such Distribution Date;
(viii) if the related Trust Fund includes Mortgage Loans, information
regarding the number and aggregate principal balance of such Mortgage
Loans that are delinquent in varying degrees (including specific
identification of Mortgage Loans that are more than 60 days delinquent or
in foreclosure);
(ix) if the related Trust Fund includes Mortgage Loans, information
regarding the aggregate amount of losses incurred and principal
prepayments made with respect to such Mortgage Loans during the related
Prepayment Period (that is, the specified period, generally equal in
length to the time period between Distribution Dates, during which
prepayments and other unscheduled collections on the Mortgage Loans in the
related Trust Fund must be received in order to be distributed on a
particular Distribution Date);
(x) 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;
(xi) if such class of Offered Certificates has a variable Pass-Through
Rate or an adjustable Pass-Through Rate, the Pass-Through Rate applicable
thereto for such Distribution Date and, if determinable, for the next
succeeding Distribution Date;
(xii) 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;
(xiii) 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
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(xiv) to the extent not otherwise reflected through the information
furnished pursuant to subclauses (x) and (xiii) above, the amount of
Credit Support being afforded by any classes of Subordinate Certificates.
In the case of information furnished pursuant to subclauses (i)-(iii)
above, the amounts will be expressed as a dollar amount per minimum
denomination of the relevant class of Offered Certificates or per a specified
portion of such minimum denomination. The Prospectus Supplement for each
series of Certificates may describe additional information to be included in
reports to the holders of the Offered Certificates of such series.
Within a reasonable period of time after the end of each calendar year,
the Master Servicer or Trustee for a series of Certificates, 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 of such series 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. Such obligation will be deemed to
have been satisfied to the extent that substantially comparable information
is provided pursuant to any requirements of the Code as are from time to time
in force. See, however, "Description of the Certificates--Book-Entry
Registration and Definitive Certificates".
If the Trust Fund for a series of Certificates includes 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. 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 the 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 designated 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.
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BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the Prospectus Supplement for a series of Certificates,
one or more classes of the Offered Certificates of such series will be
offered in book-entry format through the facilities of The Depository Trust
Company ("DTC"), and each such class will be represented by one or more
global Certificates registered in the name of DTC or its nominee.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking corporation" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities for its participating organizations
("Participants") and facilitate the clearance and settlement of securities
transactions between Participants through electronic computerized book-entry
changes in their accounts, thereby eliminating the need for physical movement
of securities certificates. "Direct Participants", which maintain accounts
with DTC, include securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. DTC is
owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the DTC system also is
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Direct Participant,
either directly or indirectly ("Indirect Participants"). The rules applicable
to DTC and its Participants are on file with the Commission.
Purchases of Book-Entry Certificates under the DTC system must be made by
or through Direct Participants, which will receive a credit for the
Book-Entry Certificates on DTC's records. The ownership interest of each
actual purchaser of a Book-Entry Certificate (a "Certificate Owner") is in
turn to be recorded on the Direct and Indirect Participants' records.
Certificate Owners will not receive written confirmation from DTC of their
purchases, but Certificate Owners are expected to receive written
confirmations providing details of such transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participant through
which each Certificate Owner entered into the transaction. Transfers of
ownership interest in the Book-Entry Certificates are to be accomplished by
entries made on the books of Participants acting on behalf of Certificate
Owners. Certificate Owners will not receive certificates representing their
ownership interests in the Book-Entry Certificates, except in the event that
use of the book-entry system for the Book-Entry Certificates of any series is
discontinued as described below.
To facilitate subsequent transfer, all Offered Certificates deposited by
Participants with DTC are registered in the name of DTC's partnership
nominee, Cede & Co. The deposit of Offered Certificates with DTC and their
registration with Cede & Co. effect no change in beneficial ownership. 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 Depositor or any Trustee or Master
Servicer), subject to any statutory or regulatory requirements as may be in
effect from time to time. Under a book-entry system, Certificate Owners may
receive payments after the related Distribution Date.
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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 Depositor is informed that DTC will
take action permitted to be taken by a Certificateholder under a Pooling
Agreement only at the direction of one or more Participants to whose account
with DTC interests in the Book-Entry Certificates are credited.
Because DTC can act only on behalf of 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 as Definitive
Certificates to Certificate Owners or their nominees, rather than to DTC or
its nominee, only if (i) the Depositor advises the Trustee in writing that
DTC is no longer willing or able to discharge properly its responsibilities
as depository with respect to such Certificates and the Depositor is unable
to locate a qualified successor or (ii) the Depositor, at its option, elects
to terminate the book-entry system through DTC with respect to such
Certificates. Upon the occurrence of either of the events described in the
preceding sentence, DTC will be required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the certificate or certificates representing a class of Book-Entry
Certificates, together with instructions for registration, the Trustee for
the related series 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.
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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 Depositor, the Trustee, the Master
Servicer and, in some cases, a Special Servicer appointed as of the date of
the Pooling Agreement. However, a Pooling Agreement may include a Mortgage
Asset Seller as a party, and a Pooling Agreement that relates to a Trust Fund
that consists solely of MBS may not include the Master Servicer or other
servicer as a party. All parties to each Pooling Agreement under which
Certificates of a series are issued will be identified in the related
Prospectus Supplement. If so specified in the related Prospectus Supplement,
an affiliate of the Depositor, or the Mortgage Asset Seller or an affiliate
thereof, may perform the functions of Master Servicer or Special Servicer.
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 Master
Servicer or a Special Servicer for the related series will not be allocated
Voting Rights.
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 Depositor will provide
a copy of the Pooling Agreement (without exhibits) that relates to any series
of Certificates without charge upon written request of a holder of a
Certificate of such series addressed to Bear Stearns Commercial Mortgage
Securities Inc., 245 Park Avenue, New York, New York 10167, Attention: James
G. Reichek.
ASSIGNMENT OF MORTGAGE LOANS; REPURCHASES
At the time of issuance of any series of Certificates, the Depositor will
assign (or cause to be assigned) to the designated Trustee the Mortgage 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 Depositor in exchange for the Mortgage Loans and
the other assets to be included in the Trust Fund for such series. Each
Mortgage Loan will be identified in a schedule appearing as an exhibit to the
related Pooling Agreement. Such schedule generally will include detailed
information that pertains to each Mortgage Loan included in the related Trust
Fund, which information will typically include the address of the related
Mortgaged Property and type of such property; the Mortgage 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
Depositor 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
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a certified copy thereof) with evidence of recording indicated thereon and an
assignment of the Mortgage to the Trustee in recordable form. Unless
otherwise provided in the Prospectus Supplement for a series of Certificates,
the related Pooling Agreement will require that the Depositor or another
party thereto promptly cause each such assignment of Mortgage to be recorded
in the appropriate public office for real property records.
The Trustee (or a custodian appointed by the Trustee) for a series of
Certificates 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 such 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 Certificateholders of the related
series, the Trustee (or such custodian) will be required to notify the Master
Servicer and the Depositor, 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 neither the Depositor
nor, unless it is the Mortgage Asset Seller, the Master Servicer 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, unless otherwise specified
in the related Prospectus Supplement, 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 Prospectus Supplement for a series of
Certificates, the Depositor 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 (the person making such representations and
warranties, the "Warranting Party") covering, by way of example: (i) the
accuracy of the information set forth for such Mortgage Loan on the schedule
of Mortgage Loans appearing as an exhibit to the related Pooling Agreement;
(ii) the enforceability of the related Mortgage Note and Mortgage and the
existence of title insurance insuring the lien priority of the related
Mortgage; (iii) the Warranting Party's title to the Mortgage Loan and the
authority of the Warranting Party to sell the Mortgage Loan; and (iv) the
payment status of the Mortgage Loan. It is expected that in most cases the
Warranting Party will be the Mortgage Asset Seller; however, the Warranting
Party may also be an affiliate of the Mortgage Asset Seller, the Depositor or
an affiliate of the Depositor, the Master Servicer, a Special Servicer or
another person acceptable to the Depositor. The Warranting Party, if other
than the Mortgage Asset Seller, will be identified in the related Prospectus
Supplement.
Unless otherwise provided in the related Prospectus Supplement, each
Pooling Agreement will provide that the Master Servicer 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 Certificateholders of
the related series. If such Warranting Party cannot cure such breach within a
specified period following the date on which it was notified of such
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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 neither the Depositor nor the Master Servicer, in
either 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
Depositor will not include any Mortgage Loan in the Trust Fund for any series
of Certificates if anything has come to the Depositor's attention that would
cause it to believe that the representations and warranties made in respect
of such Mortgage Loan will not be accurate in all material respects as of 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 for any Trust Fund, directly or through Sub-Servicers,
will be required to make reasonable efforts to collect all scheduled payments
under the Mortgage Loans in such Trust Fund, and will 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 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 for any Trust Fund, directly or through Sub-Servicers,
will also 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, if required under the
related Pooling Agreement, 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;
negotiating modifications; conducting property inspections on a periodic or
other basis; managing (or overseeing the management of) 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. 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
The Master 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 will remain obligated
under the related Pooling Agreement. A Sub-Servicer for any series of
Certificates may be an affiliate of the Depositor or Master Servicer. Unless
otherwise provided in the related Prospectus Supplement, each sub-servicing
agreement between the Master Servicer and a Sub-Servicer (a "Sub-Servicing
Agreement") will provide that, if for any reason the Master Servicer is no
longer acting in such capacity, the Trustee or any successor Master Servicer
may assume the Master Servicer's rights and obligations under such
Sub-Servicing Agreement. The Master Servicer will be required to monitor the
performance of
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Sub-Servicers retained by it and will 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, the Master
Servicer will be solely liable for all fees owed by it to any Sub-Servicer,
irrespective of whether the Master Servicer's compensation pursuant to the
related Pooling Agreement is sufficient to pay such fees. Each Sub-Servicer
will be reimbursed by the Master Servicer that retained it for certain
expenditures which it makes, generally to the same extent the Master Servicer
would be reimbursed under a Pooling Agreement. See "--Certificate Account"
and "--Servicing Compensation and Payment of Expenses".
SPECIAL SERVICERS
To the extent so specified in the related Prospectus Supplement, one or
more special servicers (each, a "Special Servicer") may be a party to the
related Pooling Agreement or may be appointed by the Master Servicer or
another specified party. A Special Servicer for any series of Certificates
may be an affiliate of the Depositor or the Master Servicer. A Special
Servicer may be entitled to any of the rights, and subject to any of the
obligations, described herein in respect of the Master Servicer including the
ability to appoint subservicers to the extent specified in the related
Prospectus Supplement. The related Prospectus Supplement will describe the
rights, obligations and compensation of any Special Servicer for a particular
Series of Certificates. The Master Servicer will be liable for the
performance of a Special Servicer only if, and to the extent, set forth in
the related Prospectus Supplement.
CERTIFICATE ACCOUNT
General. The Master Servicer, the Trustee and/or a Special Servicer 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 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,
Trustee or Special Servicer (if any) 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 Depositor, 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 (if any) or serviced by either on behalf
of others.
Deposits. Unless otherwise provided in the related Pooling Agreement and
described in the related Prospectus Supplement, the Master Servicer, Trustee
or Special Servicer 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 Trustee or any Special Servicer subsequent to the
Cut-off Date (other than payments due on or before the Cut-off Date):
(i) all payments on account of principal, including principal
prepayments, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans, including
any default interest collected, in each case net of any portion thereof
retained by the Master Servicer or any Special Servicer as its servicing
compensation or as compensation to the Trustee;
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(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 or in connection with the full or partial
condemnation of a 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, if applicable, a Special Servicer) and/or the terms and conditions of
the related Mortgage) (collectively, "Insurance and 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 Depositor, 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 a Special Servicer, any
payments on account of modification or assumption fees, late payment
charges, Prepayment Premiums or Equity Participations with respect to the
Mortgage Loans;
(x) all payments required to be deposited in the Certificate Account with
respect to any deductible clause in any blanket insurance policy described
under "--Hazard Insurance Policies";
(xi) any amount required to be deposited by the Master Servicer or the
Trustee in connection with losses realized on investments for the benefit
of the Master Servicer or the Trustee, as the case may be, of funds held
in the Certificate Account; and
(xii) any other amounts required to be deposited in the Certificate
Account as provided in the related Pooling Agreement and described in the
related Prospectus Supplement.
Withdrawals. Unless otherwise provided in the related Pooling Agreement
and described in the related Prospectus Supplement, the Master Servicer,
Trustee or Special Servicer 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 Trustee or a Special Servicer any
servicing fees not previously retained thereby, such payment to be made
out of payments on the particular Mortgage Loans as to which such fees
were earned;
(iii) to reimburse the Master Servicer, a Special Servicer, the Trustee
or any other specified person for any unreimbursed amounts advanced by it
as described under "Description of the
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Certificates--Advances in Respect of Delinquencies", such reimbursement to
be made out of amounts received that were identified and applied by the
Master Servicer or a 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
instrument of Credit Support with respect to such Mortgage Loans;
(iv) to reimburse the Master Servicer, the Trustee or a Special Servicer
for unpaid servicing fees earned by it and certain unreimbursed servicing
expenses incurred by it with respect to Mortgage Loans in the Trust Fund
and properties acquired in respect thereof, such reimbursement to be made
out of amounts that represent Liquidation Proceeds and Insurance and
Condemnation 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 instrument of Credit Support with respect
to such Mortgage Loans and properties;
(v) to reimburse the Master Servicer, a Special Servicer, the Trustee or
other specified person 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 that, in the good faith judgment of the Master Servicer,
Special Servicer, Trustee or other specified person, 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, a Special Servicer, the Trustee or any other
specified person interest accrued on the advances described in clause
(iii) above made by it and 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
Depositor, or any of their respective directors, officers, employees and
agents, as the case may be, for certain expenses, costs and liabilities
incurred thereby, as and to the extent described under "--Certain Matters
Regarding the Master Servicer and the Depositor";
(ix) if and to the extent described in the related Prospectus Supplement,
to pay the fees of Trustee;
(x) 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";
(xi) if and to the extent described in the related Prospectus Supplement,
to pay the fees of any provider of Credit Support;
(xii) if and to the extent described in the related Prospectus
Supplement, to reimburse prior draws on any instrument of Credit Support;
(xiii) to pay the Master Servicer, a 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;
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(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 "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC
Certificates--Taxes That May Be Imposed on the REMIC Pool";
(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.
MODIFICATIONS, WAIVERS AND AMENDMENTS OF MORTGAGE LOANS
The Master 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, unless otherwise set forth in the related
Prospectus Supplement, 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, materially impair the security for the Mortgage Loan or reduce the
likelihood of timely payment of amounts due thereon and (iii) will not
adversely affect the coverage under any applicable instrument of Credit
Support. Unless otherwise provided in the related Prospectus Supplement, the
Master Servicer also may agree to any other modification, waiver or amendment
if, in its judgment, (i) a material default on the Mortgage Loan has occurred
or a payment default is imminent, (ii) such modification, waiver or amendment
is reasonably likely to produce a greater recovery with respect to the
Mortgage Loan, taking into account the time value of money, than would
liquidation and (iii) such modification, waiver or amendment will not
adversely affect the coverage under any applicable instrument of Credit
Support.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
A borrower's failure to make required Mortgage Loan payments may mean that
operating income is insufficient to service the mortgage debt, or may reflect
the diversion of that income from the servicing of the mortgage debt. In
addition, a borrower that is unable to make Mortgage Loan payments may also
be unable to make timely payment of taxes and insurance premiums and to
otherwise maintain the related Mortgaged Property. In general, the Special
Servicer for a series of Certificates will be required to monitor any
Mortgage Loan in the related Trust Fund that is in default, evaluate whether
the causes of the default can be corrected over a reasonable period without
significant impairment of the value of the related Mortgaged Property,
initiate corrective action in cooperation with the borrower if cure is
likely, inspect the related Mortgaged Property and take such other actions as
are consistent with the Servicing Standard. 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".
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A Pooling Agreement may grant to the Master Servicer, a Special Servicer,
a provider of Credit Support and/or the holder or holders of certain classes
of 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, taking into account the time value of money, 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 Depositor or any affiliate of either
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, the Special Servicer may not, however, 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 Mortgaged
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, taking into account the time value
of money, 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, taking into
account the time value of money, 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 one or more
REMIC elections have been made, the Special Servicer, on behalf of the Trust
Fund, will be required to sell the Mortgaged Property within two years of
acquisition, unless (i) the Internal Revenue Service grants an extension of
time to sell such property or (ii) the Trustee receives an opinion of
independent counsel to the effect that the holding of the property by the
Trust Fund for more than two years after its acquisition will not result in
the imposition of a tax on the Trust Fund or cause the Trust Fund (or any
designated portion thereof) to fail to qualify as a REMIC under the Code at
any time that any Certificate is outstanding. Subject to the foregoing, the
Special Servicer will generally be required to solicit bids for any Mortgaged
Property so acquired in such a manner as will be reasonably likely to realize
a fair price for such property. If the Trust Fund acquires title to any
Mortgaged Property, the Special Servicer, on behalf of the Trust Fund, may
retain an independent contractor to manage and operate such property. The
retention of an independent contractor, however, will not relieve the Special
Servicer of its obligation to manage such Mortgaged Property in a manner
consistent with the Servicing Standard.
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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 in connection with
such Mortgage Loan, the Trust Fund will realize a loss in the amount of such
shortfall. The Special 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 restore fully the
damaged property, the Special Servicer will not be required to expend its own
funds to effect such restoration unless (and to the extent not otherwise
provided in the related Prospectus Supplement) it determines (i) that such
restoration will increase the proceeds to Certificateholders on liquidation
of the Mortgage Loan after reimbursement of the Special Servicer for its
expenses and (ii) that such expenses will be recoverable by it from related
Insurance and Condemnation Proceeds or Liquidation Proceeds.
HAZARD INSURANCE POLICIES
Unless otherwise specified in the related Prospectus Supplement, each
Pooling Agreement will require the Master Servicer to cause each Mortgage
Loan borrower to maintain a hazard insurance policy that provides for such
coverage as is required under the related Mortgage or, if the Mortgage
permits the holder thereof to dictate to the borrower the insurance coverage
to be maintained on the related Mortgaged Property, such coverage as is
consistent with the requirements of the Servicing Standard. 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 the Master Servicer to assure that hazard insurance proceeds are
appropriately applied may be dependent upon its being named as an additional
insured under any hazard insurance policy and under any other insurance
policy referred to below, or upon the extent to which information concerning
covered losses is furnished by borrowers. All amounts collected by the Master
Servicer under any such policy (except for amounts to be applied to the
restoration or repair of the Mortgaged Property or released to the borrower
in accordance with the Master Servicer's normal servicing procedures and/or
to the terms and conditions of the related Mortgage and Mortgage Note) will
be deposited in the related Certificate Account. The Pooling Agreement may
provide that the Master Servicer may satisfy its obligation to cause each
borrower to maintain such a hazard insurance policy by maintaining a blanket
policy insuring against hazard losses on all of the Mortgage Loans in a Trust
Fund. If such blanket policy contains a deductible clause, the Master
Servicer will be required, in the event of a casualty covered by such blanket
policy, to deposit in the related Certificate Account all sums that would
have been deposited therein but for such deductible clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by
fire, lightning, explosion, smoke, windstorm and hail, 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
certain other kinds of risks. 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
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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 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 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, the
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 and
any Special Servicer's compensation with respect to a Series of Certificates
will come from payments or other collections on or with respect to Specially
Serviced Mortgage Loans and REO Properties. Because that compensation is
generally based on a percentage of the principal balance of each such
Mortgage Loan outstanding from time to time, it will decrease in accordance
with the amortization of the Mortgage Loans. The Prospectus Supplement with
respect to a series of Certificates may provide that, as additional
compensation, the Master Servicer may retain all or a portion of late payment
charges, Prepayment Premiums, modification fees and other fees collected from
borrowers and any interest or other income that may be earned on funds held
in the Certificate Account. Any Sub-Servicer will receive a portion of the
Master Servicer's compensation as its sub-servicing compensation.
In addition to amounts payable to any Sub-Servicer, the Master 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, and the fees of any Special
Servicer, may be required to be borne by the Trust Fund.
If and to the extent provided in the related Prospectus Supplement, the
Master Servicer may be required to apply a portion of the servicing
compensation otherwise payable to it in respect of any 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, on or before a specified date in each year,
the Master Servicer to cause a firm of independent public accountants to
furnish to the Trustee a statement to the effect that, on the basis of the
examination by such firm conducted substantially in compliance with either
the Uniform Single Audit Program for Mortgage Bankers or the Audit Program
for Mortgages serviced for FHLMC, the servicing by or on behalf of the Master
Servicer of mortgage loans under pooling and servicing agreements
substantially
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similar to each other (which may include such Pooling Agreement) was
conducted through the preceding calendar year or other specified twelve month
period in compliance with the terms of such agreements except for any
significant exceptions or errors in records that, in the opinion of the firm,
either the Audit Program for Mortgages serviced for FHLMC, or paragraph 4 of
the Uniform Single Audit Program for Mortgage Bankers, requires it to report.
Each Pooling Agreement will also require, on or before a specified date in
each year, the Master Servicer to furnish to the Trustee a statement signed
by one or more officers of the Master Servicer to the effect that the Master
Servicer has fulfilled its material obligations under such Pooling Agreement
throughout the preceding calendar year or other specified twelve month
period.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE DEPOSITOR
The entity serving as Master Servicer under a Pooling Agreement may be an
affiliate of the Depositor and may have other normal business relationships
with the Depositor or the Depositor's affiliates. Unless otherwise specified
in the Prospectus Supplement for a series of Certificates, the related
Pooling Agreement will permit the Master Servicer 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 a successor servicer has assumed the Master
Servicer's obligations and duties under the Pooling Agreement. Unless
otherwise specified in the related Prospectus Supplement, the Master 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, any
Special Servicer, the Depositor or any director, officer, employee or agent
of either of them will be under any liability to the related Trust Fund or
Certificateholders for any action taken, or not taken, in good faith pursuant
to the Pooling Agreement or for errors in judgment; provided, however, that
none of the Master Servicer, the Depositor or any such person will be
protected against any breach of a representation, warranty or covenant made
in such Pooling Agreement, or against any expense or liability that such
person is specifically required to bear pursuant to the terms of such Pooling
Agreement, or against any liability that would otherwise be imposed by reason
of willful misfeasance, bad faith or gross negligence in the performance of
obligations or duties thereunder or by reason of reckless disregard of such
obligations and duties. Unless otherwise specified in the related Prospectus
Supplement, each Pooling Agreement will further provide that the Master
Servicer, the Depositor and any director, officer, employee or agent of
either of them will be entitled to indemnification by the related Trust Fund
against any loss, liability or expense incurred in connection with 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 (i) that such person is specifically required
to bear pursuant to the terms of such agreement, or is incidental to the
performance of obligations and duties thereunder and is not otherwise
reimbursable pursuant to such Pooling Agreement; (ii) incurred in connection
with any breach of a representation, warranty or covenant made in such
Pooling Agreement; (iii) incurred by reason of misfeasance, bad faith or
gross negligence in the performance of obligations or duties under such
Pooling Agreement, or by reason of reckless disregard of such obligations or
duties; or (iv) incurred in connection with any violation of any state or
federal securities law. In addition, each Pooling Agreement will provide that
neither the Master Servicer nor the Depositor will be under any obligation to
appear in, prosecute or defend any legal action that is not incidental to its
respective responsibilities under the Pooling Agreement and that in its
opinion may involve it in any expense or liability. However, each of the
Master Servicer and the Depositor will be permitted, in the exercise of its
discretion, to undertake any such action that it may deem necessary or
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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 or the Depositor, as the case may
be, will be entitled to charge the related Certificate Account therefor.
Any person into which the Master Servicer or the Depositor may be merged
or consolidated, or any person resulting from any merger or consolidation to
which the Master Servicer or the Depositor is a party, or any person
succeeding to the business of the Master Servicer or the Depositor, will be
the successor of the Master Servicer or the Depositor, as the case may be,
under the related Pooling Agreement.
EVENTS OF DEFAULT
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
the Trustee or the Depositor, or to the Master Servicer, the Depositor and
the Trustee 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 Master 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 by the Trustee or the Depositor, or to the Master Servicer,
the Depositor and the Trustee 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 (iii) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities, or similar
proceedings in respect of or relating to the Master Servicer and certain
actions by or on behalf of the Master Servicer indicating its insolvency or
inability to pay its obligations. Material variations to the foregoing Events
of Default (other than to add thereto or shorten cure periods or eliminate
notice requirements) will be specified in the related Prospectus Supplement.
RIGHTS UPON EVENT OF DEFAULT
If an Event of Default occurs with respect to the Master Servicer under a
Pooling Agreement, then, in each and every such case, so long as the Event of
Default remains unremedied, the Depositor 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 Master
Servicer as master servicer under the Pooling Agreement, whereupon the
Trustee will succeed to all of the responsibilities, duties and liabilities
of the Master Servicer under the Pooling Agreement (except that if the Master
Servicer is required to make advances thereunder regarding delinquent
Mortgage Loans, but the Trustee is prohibited by law from obligating itself
to do so, or if the related Prospectus Supplement so specifies, the Trustee
will not be obligated to make such advances) and will be entitled to similar
compensation arrangements. Unless otherwise specified in the related
Prospectus Supplement, if the Trustee is unwilling or unable so to act, it
may (or, at the written request of Certificateholders of the related series
entitled to not less than 51% (or such other percentage specified in the
related Prospectus Supplement) of the Voting Rights for such series, it will
be required to) appoint, or petition a court of competent jurisdiction to
appoint, a loan servicing institution that (unless otherwise provided in the
related Prospectus Supplement) is acceptable to each applicable Rating Agency
to act as successor to the Master Servicer 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
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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 the related Pooling Agreement or to make any
investigation of matters arising thereunder or to institute, conduct or
defend any litigation thereunder or in relation thereto at the request, order
or direction of any of the holders of Certificates of the related series,
unless such Certificateholders have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may
be incurred therein or thereby.
AMENDMENT
Each Pooling Agreement may be amended by the respective parties thereto,
without the consent of any of the holders of the related series of
Certificates, (i) to cure any ambiguity, (ii) to correct a defective
provision therein or to correct, modify or supplement any provision therein
that may be inconsistent with any other provision therein, (iii) to add any
other provisions with respect to matters or questions arising under the
Pooling Agreement that are not inconsistent with the provisions thereof, (iv)
to comply with any requirements imposed by the Code, or (v) for any other
purpose; provided that such amendment (other than an amendment for the
specific purpose referred to in clause (iv) above) may not (as evidenced by
an opinion of counsel to such effect satisfactory to the Trustee) adversely
affect in any material respect the interests of any such holder; and provided
further that such amendment (other than an amendment for one of the specific
purposes referred to in clauses (i) through (iv) above) must be acceptable to
each applicable Rating Agency. Unless otherwise specified in the related
Prospectus Supplement, each Pooling Agreement may also be amended by the
respective parties thereto, with the consent of the holders of the related
series of Certificates entitled to not less than 51% (or such other
percentage specified in the related Prospectus Supplement) of the Voting
Rights for such series allocated to the affected classes, for any purpose;
provided that, unless otherwise specified in the related Prospectus
Supplement, no such amendment may (i) reduce in any manner the amount of, or
delay the timing of, payments received or advanced on Mortgage Loans that are
required to be distributed in respect of any Certificate without the consent
of the holder of such Certificate, (ii) adversely affect in any material
respect the interests of the holders of any class of Certificates, in a
manner other than as described in clause (i), without the consent of the
holders of all Certificates of such class or (iii) modify the provisions of
the Pooling Agreement described in this paragraph without the consent of the
holders of all Certificates of the related series. However, unless otherwise
specified in the related Prospectus Supplement, the Trustee will be
prohibited from consenting to any amendment of a Pooling Agreement pursuant
to which one or more REMIC elections are to be or have been made unless the
Trustee shall first have received an opinion of counsel to the effect that
such amendment will not result in the imposition of a tax on the related
Trust Fund or cause the related Trust Fund (or designated portion thereof) to
fail to qualify as a REMIC at any time that the related Certificates are
outstanding.
LIST OF CERTIFICATEHOLDERS
Unless otherwise specified in the related Prospectus Supplement, upon
written request of three or more Certificateholders of record made for
purposes of communicating with other holders of Certificates of the same
series with respect to their rights under the related Pooling Agreement, the
Trustee or other specified person will afford such Certificateholders access
during normal business hours to the most recent list of Certificateholders of
that series held by such person. If such list is of a date more than 90 days
prior to the date of receipt of such Certificateholders' request, then such
person, if not the registrar for such series of Certificates, will be
required to request from such registrar a current list and to afford such
requesting Certificateholders access thereto promptly upon receipt.
THE TRUSTEE
The Trustee under each Pooling Agreement will be named in the related
Prospectus Supplement. The commercial bank, national banking association,
banking corporation or trust company that serves as
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Trustee may have typical banking relationships with the Depositor and its
affiliates and with any Master Servicer or Special Servicer and its
affiliates. If and to the extent specified under the related Pooling
Agreement, certain functions of the Trustee may be performed by a fiscal
agent under certain circumstances.
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 the Master
Servicer for such series of any funds paid to the Master Servicer or any
Special Servicer in respect of the Certificates or the underlying Mortgage
Loans, or any funds deposited into or withdrawn from the Certificate Account
or any other account for such series by or on behalf of the Master Servicer
or any 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 that constitutes a specific liability imposed
on the Trustee pursuant to the related Pooling Agreement, or 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, or as may arise from a breach of any
representation, warranty or covenant of the Trustee made therein.
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.
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 Depositor. Upon receiving such notice of resignation, the Depositor
(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 Depositor
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 51%
(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.
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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 letters of credit,
overcollateralization, the subordination of one or more classes of
Certificates, insurance policies, surety bonds, guarantees or reserve funds,
or any combination of the foregoing. If so provided in the related Prospectus
Supplement, any instrument 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 an instrument 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 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
method 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.
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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 deemed by
the Depositor to be 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.
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
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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 instrument of Credit Support, the information indicated above with
respect thereto, to the extent such information is material and available.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential
properties. Because such legal aspects are governed by applicable state law
(which laws may differ substantially), the summaries do not purport to be
complete, to reflect the laws of any particular state, or to encompass the
laws of all states in which the security for the Mortgage Loans (or mortgage
loans underlying any MBS) is situated. Accordingly, the summaries are
qualified in their entirety by reference to the applicable laws of those
states. See "Description of the Trust Funds--Mortgage Loans". For purposes of
the following discussion, "Mortgage Loan" includes a mortgage loan underlying
an MBS.
GENERAL
Each Mortgage Loan will be evidenced by a note or bond and secured by an
instrument granting a security interest in real property, which may be a
mortgage, deed of trust or a deed to secure debt, depending upon the
prevailing practice and law in the state in which the related Mortgaged
Property is located. Mortgages, deeds of trust and deeds to secure debt are
herein collectively referred to as "mortgages". A mortgage creates a lien
upon, or grants a title interest in, the real property covered thereby, and
represents the security for the repayment of the indebtedness customarily
evidenced by a promissory note. The priority of the lien created or interest
granted will depend on the terms of the mortgage and, in some cases, on the
terms of separate subordination agreements or intercreditor agreements with
others that hold interests in the real property, the knowledge of the parties
to the mortgage and, generally, the order of recordation of the mortgage in
the appropriate public recording office. However, the lien of a recorded
mortgage will generally be subordinate to later-arising liens for real estate
taxes and assessments and other charges imposed under governmental police
powers.
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 grantor (the borrower) conveys title to
the real property to the grantee (the 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 related
note. The mortgagee's authority under a mortgage, the trustee's authority
under a deed of trust and the grantee's authority under a deed to secure debt
are governed by the express provisions of the related instrument, the law of
the state in which the real property is located, certain federal laws
(including, without limitation, the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended) and, in some deed of trust transactions, the directions
of the beneficiary.
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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 revenues are considered accounts
receivable under the Uniform Commercial Code ("UCC"); in cases where hotels
or motels constitute loan security, the revenues 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
revenues and must file continuation statements, generally every five years,
to maintain perfection of such security interest. Even if the lender's
security interest in room revenues is perfected under the UCC, it may be
required to commence a foreclosure action or otherwise take possession of the
property in order to collect the room revenues following a default. See
"--Bankruptcy Laws".
PERSONALTY
In the case of certain types of mortgaged properties, such as hotels,
motels and nursing homes, personal property (to the extent owned by the
borrower and not previously pledged) may constitute a significant portion of
the property's value as security. The creation and enforcement of liens on
personal property are governed by the 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.
FORECLOSURE
General. Foreclosure is a legal procedure that allows the lender to
recover its mortgage debt by enforcing its rights and available legal
remedies under the mortgage. If the borrower defaults in payment or
performance of its obligations under the note or mortgage, the lender has the
right to institute foreclosure proceedings to sell the real property at
public auction to satisfy the indebtedness.
Foreclosure procedures vary from state to state. Two primary methods of
foreclosing a mortgage are judicial foreclosure, involving court proceedings,
and non-judicial foreclosure pursuant to a power of sale granted in the
mortgage instrument. Other foreclosure procedures are available in some
states, but they are either infrequently used or available only in limited
circumstances.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses are raised or counterclaims are interposed, and
sometimes requires several years to complete. Moreover, as discussed below,
even a non-collusive, regularly conducted foreclosure sale may be challenged
as a fraudulent conveyance, regardless of the parties' intent, if a court
determines that the sale was for less than fair consideration and such sale
occurred while the borrower was insolvent and within a specified period prior
to the borrower's filing for bankruptcy protection.
Judicial Foreclosure. A judicial foreclosure proceeding is conducted in a
court having jurisdiction over the mortgaged property. Generally, the action
is initiated by the service of legal pleadings upon all parties having a
subordinate interest of record in the real property and all parties in
possession of the property, under leases or otherwise, whose interests are
subordinate to the mortgage. Delays in completion of the foreclosure may
occasionally result from difficulties in locating defendants. When the
lender's right to foreclose is contested, the legal proceedings can be
time-consuming. Upon successful completion of a judicial foreclosure
proceeding, the court generally issues a judgment of foreclosure and appoints
a referee or other officer to conduct a public sale of the mortgaged
property, the proceeds of which are used to satisfy the judgment. Such sales
are made in accordance with procedures that vary from state to state.
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Equitable Limitations on Enforceability of Certain Provisions. United
States courts have traditionally imposed general equitable principles to
limit the remedies available to lenders in foreclosure actions. These
principles are generally designed to relieve borrowers from the effects of
mortgage defaults perceived as harsh or unfair. Relying on such principles, a
court may alter the specific terms of a loan to the extent it considers
necessary to prevent or remedy an injustice, undue oppression or
overreaching, or may require the lender to undertake affirmative actions to
determine the cause of the borrower's default and the likelihood that the
borrower will be able to reinstate the loan. In some cases, courts have
substituted their judgment for that of the lenders 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.
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 value
of such property at the time of sale, due to, among other things, redemption
rights which may exist and the possibility of physical deterioration of the
property during the foreclosure proceedings. Potential buyers may be
reluctant to purchase property at a foreclosure sale as a result of the 1980
decision of the United States Court of Appeals for the Fifth Circuit in
Durrett v. Washington National Insurance Company and other decisions that
have followed its reasoning. The court in Durrett held that even a
non-collusive, regularly conducted foreclosure sale was a fraudulent transfer
under the federal Bankruptcy Code, as amended from time to time (11 U.S.C.)
and, therefore, could be rescinded in favor of the bankrupt's estate, if (i)
the foreclosure sale was held while the debtor was insolvent and not more
than one year prior to the filing of the bankruptcy petition and (ii) the
price paid for the foreclosed property did not represent "fair consideration"
("reasonably equivalent value" under the Bankruptcy Code). Although the
reasoning and result of Durrett in respect of the Bankruptcy Code was
rejected by the United States Supreme Court in May 1994, the case could
nonetheless be persuasive to a court applying a state fraudulent conveyance
law which has provisions similar to those construed in Durrett. For these
reasons, it is common for the lender to purchase the mortgaged property for
an amount equal to the lesser of fair market value and the underlying debt
and accrued and unpaid interest plus the expenses of foreclosure. Generally,
state law controls the amount of foreclosure costs and expenses which may be
recovered by a lender. Thereafter, subject to the mortgagor's
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right in some states to remain in possession during a redemption period, if
applicable, the lender will become the owner of the property and have both
the benefits and burdens of ownership of the mortgaged property. For example,
the lender will have the obligation to pay debt service on any senior
mortgages, to pay taxes, obtain casualty insurance and to make such repairs
at its own expense as are necessary to render the property suitable for sale.
Frequently, the lender employs a third party management company to manage and
operate the property. The costs of operating and maintaining a commercial or
multifamily residential property may be significant and may be greater than
the income derived from that property. The costs of management and operation
of those mortgaged properties which are hotels, motels or nursing or
convalescent homes or hospitals may be particularly significant because of
the expertise, knowledge and, with respect to nursing or convalescent homes
or hospitals, regulatory compliance, required to run such operations and the
effect which foreclosure and a change in ownership may have on the public's
and the industry's (including franchisors') perception of the quality of such
operations. The lender will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale of the
property. Depending upon market conditions, the ultimate proceeds of the sale
of the property may not equal the amount of the mortgage against the
property. Moreover, a lender commonly incurs substantial legal fees and court
costs in acquiring a mortgaged property through contested foreclosure and/or
bankruptcy proceedings. Furthermore, a few states require that any
environmental contamination at certain types of properties be cleaned up
before a property may be resold. In addition, a lender may be responsible
under federal or state law for the cost of cleaning up a mortgaged property
that is environmentally contaminated. See "--Environmental Risks". Generally
state law controls the amount of foreclosure expenses and costs, including
attorneys' fees, that may be recovered by a lender.
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.
The proceeds received by the referee or trustee from a foreclosure sale
are generally applied first to the costs, fees and expenses of sale and then
in satisfaction of the indebtedness secured by the mortgage under which the
sale was conducted. Any proceeds remaining after satisfaction of senior
mortgage debt are generally payable to the holders of junior mortgages and
other liens and claims in order of their priority, whether or not the
borrower is in default. Any additional proceeds are generally payable to the
borrower. The payment of the proceeds to the holders of junior mortgages may
occur in the foreclosure action of the senior mortgage or a subsequent
ancillary proceeding or may require the institution of separate legal
proceedings by such holders.
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
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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 mortgage on the borrower's leasehold
interest in a ground lease. Leasehold mortgage loans are subject to certain
risks not associated with mortgage loans secured by a lien on the fee estate
of the borrower. The most significant of these risks is that if the
borrower's leasehold were to be terminated upon a lease default, the
leasehold mortgagee would lose its security. This risk may be lessened if the
ground lease requires the lessor to give the leasehold mortgagee notices of
lessee defaults and an opportunity to cure them, permits the leasehold estate
to be assigned to and by the leasehold mortgagee or the purchaser at a
foreclosure sale, and contains certain other protective provisions typically
included in a "mortgageable" ground lease. The ground leases that secure the
Mortgage Loans at issue may not contain some of these protective provisions,
and the related mortgages may not contain the other protections discussed in
the next paragraph. Protective ground lease provisions include the right of
the leasehold mortgagee to receive notices from the ground lessor of any
defaults by the borrower under the ground lease; the right to cure such
defaults, with adequate cure periods; if a default is not susceptible of cure
by the leasehold mortgagee, the right to acquire the leasehold estate through
foreclosure or otherwise; the ability of the ground lease to be assigned to
and by the leasehold mortgagee or purchaser at a foreclosure sale and for the
concomitant release of the ground lessee's liabilities thereunder; and the
right of the leasehold mortgagee to enter into a new ground lease with the
ground lessor on the same terms and conditions as the old ground lease in the
event of a termination of the ground lease.
In addition to the foregoing protections, a leasehold mortgagee may
prohibit the ground lessee from treating the ground lease as terminated in
the event of the ground lessor's bankruptcy and rejection of the ground lease
in the lessor's bankruptcy case. As further protection, a leasehold mortgage
may provide for the assignment of the debtor-ground lessee's right to reject
the lease in a ground lessee bankruptcy case, although the enforceability of
such a provision has not been established. Without the protections described
in this and the foregoing paragraph, a leasehold mortgagee may be more likely
to lose the collateral securing its leasehold mortgage. In addition, the
terms and conditions of a leasehold mortgage are subject to the terms and
conditions of the ground lease. Although certain rights given to a ground
lessee can be limited by the terms of a leasehold mortgage, the rights of a
ground lessee or a leasehold mortgagee with respect to, among other things,
insurance, casualty and condemnation proceeds will ordinarily be governed by
the provisions of the ground lease, unless otherwise agreed to by the ground
lessee and leasehold mortgagee.
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COOPERATIVE SHARES
Mortgage Loans may be secured by a security interest on the borrower's
ownership interest in shares, and the proprietary leases appurtenant thereto,
allocable to cooperative dwelling units that may be vacant or occupied by
non-owner tenants. Such loans are subject to certain risks not associated
with mortgage loans secured by a lien on the fee estate of a borrower in real
property. Such a loan typically is subordinate to the mortgage, if any, on
the Cooperative's building which, if foreclosed, could extinguish the equity
in the building and the proprietary leases of the dwelling units derived from
ownership of the shares of the Cooperative. Further, transfer of shares in a
Cooperative are subject to various regulations as well as to restrictions
under the governing documents of the Cooperative, and the shares may be
cancelled in the event that associated maintenance charges due under the
related proprietary leases are not paid. Typically, a recognition agreement
between the lender and the Cooperative provides, among other things, the
lender with an opportunity to cure a default under a proprietary lease.
Under the laws applicable in many states, "foreclosure" on Cooperative
shares is accomplished by a sale in accordance with the provisions of Article
9 of the UCC and the security agreement relating to the shares. Article 9 of
the UCC requires that a sale be conducted in a "commercially reasonable"
manner, which may be dependent upon, among other things, the notice given the
debtor and the method, manner, time, place and terms of the sale. Article 9
of the UCC provides that the proceeds of the sale will be applied first to
pay the costs and expenses of the sale and then to satisfy the indebtedness
secured by the lender's security interest. A recognition agreement, however,
generally provides that the lender's right to reimbursement is subject to the
right of the Cooperative to receive sums due under the proprietary leases.
If, following payment to the lender, there are proceeds remaining, the lender
must account to the tenant-stockholder for the surplus. Conversely, if a
portion of the indebtedness remains unpaid, the tenant-stockholder may be
responsible for the deficiency. See "--Anti-Deficiency Legislation".
BANKRUPTCY LAWS
Operation of the Bankruptcy Code and related state laws may interfere with
or affect the ability of a secured lender to realize upon collateral and/or
to enforce a deficiency judgment. For example, under the Bankruptcy Code,
virtually all actions (including foreclosure actions and deficiency judgment
proceedings) to collect a debt are automatically stayed upon the filing of
the bankruptcy petition and, often, no interest or principal payments are
made during the course of the bankruptcy case. The delay and the consequences
thereof caused by such automatic stay can be significant. Also, under the
Bankruptcy Code, the filing of a petition in bankruptcy by or on behalf of a
junior lienor may stay the senior lender from taking action to foreclose out
such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards protective of the lender are met, the amount and terms of a
mortgage loan secured by a lien on property of the debtor may be modified.
For example, the lender's lien may be transferred to other collateral and/or
the outstanding amount of the secured loan may be reduced to the then-current
value of the property (with a corresponding partial reduction of the amount
of the 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. The priority of a mortgage loan may also be subordinated to
bankruptcy court-approved financing. 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.
The bankruptcy court can also reinstate accelerated indebtedness and also,
in effect, invalidate due-on-sale clauses through confirmed Chapter 11 plans
of reorganization. Under Section 363(b) and (f)
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of the Bankruptcy Code, a trustee for a lessor, or a lessor as
debtor-in-possession, may, despite the provisions of the related Mortgage
Loan to the contrary, sell the Mortgaged Property free and clear of all
liens, which liens would then attach to the proceeds of such sale.
The Bankruptcy Code provides 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" and such term is defined and interpreted under the
Bankruptcy Code. It should be noted, however, that the court may find that
the lender has no security interest in either pre-petition or post-petition
revenues if the court finds that the loan documents do not contain language
covering accounts, room rents, or other forms of personalty necessary for a
security interest to attach to hotel revenues.
Lessee bankruptcies at the Mortgaged Properties could have an adverse
impact on the borrowers' ability to meet their obligations. For example,
Section 365(e) of the Bankruptcy Code provides generally that rights and
obligations under an unexpired lease may not be terminated or modified at any
time after the commencement of a case under the Bankruptcy Code solely
because of a provision in the lease conditioned upon the commencement of a
case under the Bankruptcy Code or certain other similar events. In addition,
Section 362 of the Bankruptcy Code operates as an automatic stay of, among
other things, any act to obtain possession of property of or from a debtor's
estate, which may delay the borrower's exercise of such remedies in the event
that a lessee becomes the subject of a proceeding under the Bankruptcy Code.
Section 365(a) of the Bankruptcy Code generally provides that a trustee or
a debtor-in-possession in a case under the Bankruptcy Code has the power to
assume or to reject an executory contract or an unexpired lease of the
debtor, in each case subject to the approval of the bankruptcy court
administering such case. If the trustee or debtor-in-possession rejects an
executory contract or an unexpired lease, such rejection generally
constitutes a breach of the executory contract or unexpired lease immediately
before the date of the filing of the petition. As a consequence, the other
party or parties to such executory contract or unexpired lease, such as the
lessor or borrower, as lessor under a lease, would have only an unsecured
claim against the debtor for damages resulting from such breach, which could
adversely affect the security for the related Mortgage Loan. Moreover, under
Section 502(b)(6) of the Bankruptcy Code, the claim of a lessor for such
damages from the termination of a lease of real property will be limited to
the sum of (i) the rent reserved by such lease, without acceleration, for the
greater of one year or 15 percent, not to exceed three years, of the
remaining term of such lease, following the earlier of the date of the filing
of the petition and the date on which such lender repossessed, or the lessee
surrendered, the leased property, and (ii) any unpaid rent due under such
lease, without acceleration, on the earlier of such dates.
Under Section 365(f) of the Bankruptcy Code, if a trustee or
debtor-in-possession assumes an executory contract or an unexpired lease of
the debtor, the trustee or debtor-in-possession generally may assign such
executory contract or unexpired lease, notwithstanding any provision therein
or in applicable law that prohibits, restricts or conditions such assignment,
provided that the trustee or debtor-in-possession provides "adequate
assurance of future performance" by the assignee. The Bankruptcy Code
specifically provides, however, that adequate assurance of future performance
for purposes of a lease of real property in a shopping center includes
adequate assurance of the source of rent and other consideration due under
such lease, and in the case of an assignment, that the financial condition
and operating performance of the proposed assignee and its guarantors, if
any, shall be similar to the financial condition and operating performance of
the debtor and its guarantors, if any, as of the time the debtor became the
lessee under the lease, that any percentage rent due under such lease will
not decline substantially, that the assumption and assignment of the lease is
subject to all the provisions thereof, including (but not limited to)
provisions such as a radius location, use or exclusivity provision, and will
not breach any such provision contained in any other lease, financing
agreement, or master agreement
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relating to such shopping center, and that the assumption or assignment of
such lease will not disrupt the tenant mix or balance in such shopping
center. Thus, an undetermined third party may assume the obligations of the
lessee under a lease in the event of commencement of a proceeding under the
Bankruptcy Code with respect to the lessee.
Under Section 365(h) of the Bankruptcy Code, if a trustee for a lessor as
a debtor-in-possession, rejects an unexpired lease of real property, the
lessee may treat such lease as terminated by such rejection or, in the
alternative, may remain in possession of the leasehold for the balance of
such term and for any renewal or extension of such term that is enforceable
by the lessee under applicable nonbankruptcy law. The Bankruptcy Code
provides that if a lessee elects to remain in possession after such a
rejection of a lease, the lessee may offset against rents reserved under the
lease for the balance of the term after the date of rejection of the lease,
and any such renewal or extension thereof, any damages occurring after such
date caused by the nonperformance of any obligation of the lessor under the
lease after such date.
In a bankruptcy or similar proceeding, action may be taken seeking the
recovery as a preferential transfer of any payments made by the mortgagor
under the related Mortgage Loan to the related Trust Fund. Payments on
long-term debt may be protected from recovery as preferences if they are
payments in the ordinary course of business made on debts incurred in the
ordinary course of business. Whether any particular payment would be
protected depends upon the facts specific to a particular transaction. In
addition, some court decisions suggest that even a non-collusive, regularly
conducted foreclosure sale could be challenged in a bankruptcy case as a
"fraudulent conveyance," regardless of the parties' intent, if a bankruptcy
court determines that the mortgaged property has been sold for less than fair
consideration while the mortgagor was insolvent and within one year (or
within any longer state statutes of limitations periods if the trustee in
bankruptcy elects to proceed under state fraudulent conveyance law) of the
filing of the bankruptcy.
A trustee in bankruptcy, in some cases, may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the lender. In certain circumstances, a debtor in bankruptcy may
have the power to grant liens senior to the lien of a mortgage, and analogous
state statutes and general principles of equity may also provide a mortgagor
with means to halt a foreclosure proceeding or sale and to force a
restructuring of a mortgage loan on terms a lender would not otherwise
accept. Moreover, the laws of certain states also give priority to certain
tax liens over the lien of a mortgage or deed of trust. Under the Bankruptcy
Code, if the court finds that actions of the mortgagee have been
unreasonable, the lien of the related mortgage may be subordinated to the
claims of unsecured creditors.
Pursuant to the federal doctrine of "substantive consolidation" or to the
(predominantly state law) doctrine of "piercing the corporate veil", a
bankruptcy court, in the exercise of its equitable powers, also has the
authority to order that the assets and liabilities of a related entity be
consolidated with those of an entity before it. Thus, property ostensibly the
property of one entity may be determined to be the property of a different
entity in bankruptcy, the automatic stay applicable to the second entity may
be extended to the first and the rights of creditors of the first entity may
be impaired in the fashion set forth above in the discussion of bankruptcy
principles. Depending on facts and circumstances not wholly in existence at
the time a Mortgage Loan is originated or transferred to the related Trust
Fund, the application of any of these doctrines to one or more of the
mortgagors in the context of the bankruptcy of one or more of their
affiliates could result in material impairment of the rights of the
Certificateholders.
For each mortgagor that is described as a "special purpose entity",
"single purpose entity" or "bankruptcy-remote entity" in the Prospectus
Supplement, the activities that may be conducted by such mortgagor and its
ability to incur debt are restricted by the applicable Mortgage or the
organizational documents of such mortgagor in such manner as is intended to
make the likelihood of a bankruptcy proceeding being commenced by or against
such mortgagor remote, and such mortgagor has been organized and is designed
to operate in a manner such that its separate existence should be respected
notwithstanding a bankruptcy proceeding in respect of one or more affiliated
entities of such mortgagor. However, the Depositor makes no representation as
to the likelihood of the institution of a bankruptcy proceeding by or in
respect of any mortgagor or the likelihood that the separate existence of any
mortgagor would be respected if there were to be a bankruptcy proceeding in
respect of any affiliated entity of a mortgagor.
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ENVIRONMENTAL RISKS
A lender may be subject to unforeseen environmental risks with respect to
loans secured by real or personal property, such as the Mortgage Loans. Such
environmental risks may give rise to (i) a diminution in value of property
securing a Mortgage Loan or the inability to foreclose against such property
or (ii) in certain circumstances as more fully described below, liability for
clean-up costs or other remedial actions, which liability could exceed the
value of such property or the principal balance of the related Mortgage Loan.
Under the laws of many states, contamination on a property may give rise to a
lien on the property for cleanup costs. In several states, such a lien has
priority over all existing liens (a "superlien"), including those of existing
mortgages; in these states, the lien of the mortgage for any Mortgage Loan
may lose its priority to such a superlien.
Under the federal Comprehensive Response Compensation and Liability Act
("CERCLA"), a lender may be liable either to the government or to private
parties for cleanup costs on a property securing a loan, even if the lender
does not cause or contribute to the contamination. CERCLA imposes strict, as
well as joint and several, liability on several classes of potentially
responsible parties ("PRPs"), including current owners and operators of the
property who did not cause or contribute to the contamination. Many states
have laws similar to CERCLA.
Lenders may be held liable under CERCLA as owners or operators unless they
qualify for the secured creditor exemption to CERCLA. A 1990 decision of the
United States Court of Appeals for the Eleventh Circuit, United States v.
Fleet Factors Corp., 901 F.2d 1550 (11th Cir. 1990), narrowly construed the
security interest exemption under CERCLA to hold lenders liable if they had
the capacity to influence their borrower's management of hazardous waste. In
response to the Fleet Factors case, the Environmental Protection Agency
("EPA") promulgated a rule in 1992 intended to reduce interpretive
uncertainties that surrounded the scope of the secured lender exemption to
liability under CERCLA. The rule, which the EPA stated would be entitled to
deference in CERCLA cost recovery actions brought against lenders by private
parties, clarified the scope of the secured creditor exemption and identified
specific types of actions that, if taken by a lender, would preclude
application of the exemption. In the decision of Kelley v. EPA, 15 F.3d 1100
(D.C. Cir. 1994), the Court of Appeals for the District of Columbia vacated
the EPA's lender liability rule. On September 30, 1996, President Clinton
signed into law the "Asset Conservation, Lender Liability and Deposit
Insurance Protection Act of 1996" (the "Asset Conservation Act"), which
substantially protects lenders and fiduciaries from liability for the
environmental obligations of borrowers and beneficiaries. The Asset
Conservation Act includes amendments to CERCLA and to the underground storage
tank provisions of the Resource Conservation and Recovery Act and applies to
any claim that was not finally adjudicated as of September 30, 1996. The Act
offers substantial protection to lenders by defining the activities in which
a lender can engage and still have the benefit of a secured creditor
exemption. However, the secured creditor exemption is not available to a
lender that participates in management of mortgaged property prior to a
foreclosure. In order for a lender to be deemed to have participated in the
management of a mortgaged property, the lender must actually participate in
the operational affairs of the property of the borrower. The Act provides
that "merely having the capacity to influence, or unexercised right to
control" operations does not constitute participation in management. A lender
will be deemed to have participated in management and will lose the
protection of the secured creditor exemption only if it exercises
decision-making control over the borrower's environmental compliance and
hazardous substance handling and disposal practices, or assumes day-to-day
management of all operational functions of the mortgaged property. The Act
also provides that a lender will continue to have the benefit of the secured
creditor exemption even if it forecloses on a mortgaged property, purchases
it at a foreclosure sale or accepts a deed-in-lieu of foreclosure provided
that the lender seeks to sell the mortgaged property at the earliest
practicable commercially reasonable time on commercially reasonable terms.
Environment clean-up costs may be substantial. It is possible that such
costs could become a liability of the related Trust Fund and occasion a loss
to Certificateholders if such remedial costs were incurred.
In a few states, transfers of some types of properties are conditioned
upon cleanup of contamination prior to transfer. It is possible that a
property securing a Mortgage Loan could be subject to such transfer
restrictions. In such a case, if the lender becomes the owner upon
foreclosure, it may be required to clean up the contamination before selling
the property.
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The cost of remediating hazardous substance contamination at a property
can be substantial. If a lender is or becomes liable, it can bring an action
for contribution against the owner or operator that created the environmental
hazard, but that person 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 the Master Servicer, acting on behalf of the related Trust Fund, may not
acquire title to a Mortgaged Property or take over its operation unless the
Master Servicer, based on 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". There can be no
assurance that any environmental site assessment obtained by the Master
Servicer will detect all possible environmental contamination or conditions
or that the other requirements of the related Pooling Agreement, even if
fully observed by the Master Servicer, will in fact insulate the related
Trust Fund from liability with respect to environmental matters.
Even when a lender is not directly liable for cleanup costs on property
securing loans, if a property securing a loan is contaminated, the value of
the security is likely to be affected. In addition, a lender bears the risk
that unanticipated cleanup costs may jeopardize the borrower's repayment.
Neither of these two issues is likely to pose risks exceeding the amount of
unpaid principal and interest of a particular loan secured by a contaminated
property, particularly if the lender declines to foreclose on a mortgage
secured by the property.
If a lender forecloses on a mortgage secured by a property the operations
of which are subject to environmental laws and regulations, the lender will
be required to operate the property in accordance with those laws and
regulations. Compliance may entail some expense.
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 and thereby lessen the ability
of the lender to recover its investment in a loan upon foreclosure.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Mortgage Loans may contain "due-on-sale" and
"due-on-encumbrance" clauses that purport to permit the lender to accelerate
the maturity of the loan if the borrower transfers or encumbers the related
Mortgaged Property. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce such
clauses in many states. By virtue, however, of the Garn-St Germain Depository
Institutions Act of 1982 (the "Garn Act"), effective October 15, 1982 (which
purports to preempt state laws that prohibit the enforcement of due-on-sale
clauses by providing among other matters, that "due-on-sale" clauses in
certain loans made after the effective date of the Garn Act are enforceable,
within certain limitations, as set forth in the Garn Act and the regulations
promulgated thereunder), the Master Servicer may nevertheless have the right
to accelerate the maturity of a Mortgage Loan that contains a "due-on-sale"
provision upon transfer of an interest in the property, regardless of the
Master Servicer's ability to demonstrate that a sale threatens its legitimate
security interest.
SUBORDINATE FINANCING
Certain of the Mortgage Loans may not restrict the ability of the borrower
to use the Mortgaged Property as security for one or more additional loans.
Where a borrower encumbers a Mortgaged Property with one or more junior
liens, the senior lender is subjected to additional risk. First, the borrower
may have difficulty servicing and repaying multiple loans. Moreover, if the
subordinate financing permits recourse to the borrower (as is frequently the
case) and the senior loan does not, a borrower may have more incentive to
repay sums due on the subordinate loan. Second, acts of the senior lender
that prejudice
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the junior lender or impair the junior lender's security may create a
superior equity in favor of the junior lender. For example, if the borrower
and the senior lender agree to an increase in the principal amount of or the
interest rate payable on the senior loan, the senior lender may lose its
priority to the extent any existing junior lender is harmed or the borrower
is additionally burdened. Third, if the borrower defaults on the senior loan
and/or any junior loan or loans, the existence of junior loans and actions
taken by junior lenders can impair the security available to the senior
lender and can interfere with or delay the taking of action by the senior
lender. Moreover, the bankruptcy of a junior lender may operate to stay
foreclosure or similar proceedings by the senior lender.
DEFAULT INTEREST AND LIMITATIONS ON PREPAYMENTS
Notes and mortgages may contain provisions that obligate the borrower to
pay a late charge or additional interest if payments are not timely made, and
in some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower
for delinquent payments. Certain states also limit the amounts that a lender
may collect from a borrower as an additional charge if the loan is prepaid.
In addition, the enforceability of provisions that provide for prepayment
fees or penalties upon an involuntary prepayment is unclear under the laws of
many states.
ADJUSTABLE RATE LOANS
The laws of certain states may provide that mortgage notes relating to
adjustable rate loans are not negotiable instruments under the UCC. In such
event, the related Trust Fund will not be deemed to be a "holder in due
course" within the meaning of the UCC and may take such a mortgage note
subject to certain restrictions on the ability to foreclose and to certain
contractual defenses available to a mortgagor.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, as amended ("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 under the laws of 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
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are called to active duty) after origination of the related Mortgage Loan, no
information can be provided as to the number of loans with individuals as
borrowers that may be affected by the Relief Act. Application of the Relief
Act would adversely affect, for an indeterminate period of time, the ability
of any servicer to collect full amounts of interest on certain of the
Mortgage Loans. Any shortfalls in interest collections resulting from the
application of the Relief Act would result in a reduction of the amounts
distributable to the holders of the related series of Certificates, and would
not be covered by advances or, unless otherwise specified in the related
Prospectus Supplement, any instrument of Credit Support provided in
connection with such Certificates. In addition, the Relief Act imposes
limitations that would impair the ability of the servicer to foreclose on an
affected Mortgage Loan during the borrower's period of active duty status,
and, under certain circumstances, during an additional three-month period
thereafter. Thus, in the event such a Mortgage Loan goes into default, there
may be delays and losses occasioned by the inability to realize upon the
Mortgaged Property in a timely fashion.
TYPE OF MORTGAGED PROPERTY
The lender may be subject to additional risk depending upon the type and
use of the Mortgaged Property in question. For instance, Mortgaged Properties
which are hospitals, nursing homes or convalescent homes may present special
risks to lenders in large part due to significant governmental regulation of
the operation, maintenance, control and financing of health care
institutions. Mortgages on Mortgaged Properties which are owned by the
borrower under a condominium form of ownership are subject to the
declaration, by-laws and other rules and regulation of the condominium
association. Mortgaged Properties which are hotels or motels may present
additional risk to the lender in that: (i) hotels and motels are typically
operated pursuant to franchise, management and operating agreements which may
be terminable by the operator; and (ii) the transferability of the hotel's
operating, liquor and other licenses to the entity acquiring the hotel either
through purchase or foreclosure is subject to the vagaries of local law
requirements. In addition, Mortgaged Properties which are multifamily
properties or cooperatively owned multifamily properties may be subject to
rent control laws, which could impact the future cash flows of such
properties.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which
are structural in nature from existing places of public accommodation to the
extent "readily achievable." In addition, under the ADA, alterations to a
place of public accommodation or a commercial facility are to be made so
that, to the maximum extent feasible, each altered portions are readily
accessible to and usable by disabled individuals. The "readily achievable"
standard takes into account, among other factors, the financial resources of
the affected site, owner, landlord or other applicable person. In addition to
imposing a possible financial burden on the borrower in its capacity as owner
or landlord, the ADA may also impose such requirements on a foreclosing
lender who succeeds to the interest of the borrower as owner or landlord.
Furthermore, since the "readily achievable" standard may vary depending on
the financial condition of the owner or landlord, a foreclosing lender who is
financially more capable than the borrower of complying with the requirements
of the ADA may be subject to more stringent requirements than those to which
the borrower is subject.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984 (the
"Crime Control Act"), the government may seize the property even before
conviction. The government must publish notice of the forfeiture proceeding
and may give notice to all parties "known to have an alleged interest in the
property", including the holders of mortgage loans.
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A lender may avoid forfeiture of its interest in the property if it
established that: (i) its mortgage was executed and recorded before
commission of the crime upon which the forfeiture is based, or (ii) the
lender was, at the time of execution of the mortgage, "reasonably without
cause to believe" that the property was used in, or purchased with the
proceeds of, illegal drug or RICO activities.
In addition, there may be other state or municipal laws providing for
forfeiture of mortgaged properties.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of
Certificates. The discussion below does not purport to address all federal
income tax consequences that may be applicable to particular categories of
investors, some of which may be subject to special rules. The authorities on
which this discussion is based are subject to change or differing
interpretations, and any such change or interpretation could apply
retroactively. This discussion reflects the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), as well as
regulations (the "REMIC Regulations") promulgated by the U.S. Department of
Treasury (the "Treasury"). Investors should consult their own tax advisors in
determining the federal, state, local and other tax consequences to them of
the purchase, ownership and disposition of Certificates.
For purposes of this discussion, (i) references to the Mortgage Loans
include references to the mortgage loans underlying MBS included in the
Mortgage Assets and (ii) where the applicable Prospectus Supplement provides
for a fixed retained yield with respect to the Mortgage Loans underlying a
series of Certificates, references to the Mortgage Loans will be deemed to
refer to that portion of the Mortgage Loans held by the Trust Fund which does
not include the Retained Interest. References to a "holder" or
"Certificateholder" in this discussion generally mean the beneficial owner of
a Certificate.
FEDERAL INCOME TAX CONSEQUENCES FOR REMIC CERTIFICATES
General. With respect to a particular Series of Certificates, an election
may be made to treat the Trust Fund or one or more segregated pools of assets
therein as one or more REMICs within the meaning of Code Section 860D. A
Trust Fund or a portion thereof as to which a REMIC election will be made
will be referred to as a "REMIC Pool". For purposes of this discussion,
Certificates of a series as to which one or more REMIC elections are made are
referred to as "REMIC Certificates" and will consist of one or more Classes
of "Regular Certificates" and one Class of "Residual Certificates" in the
case of each REMIC Pool. Qualification as a REMIC requires ongoing compliance
with certain conditions. With respect to each series of REMIC Certificates,
O'Melveny & Myers LLP, counsel to the Depositor, has advised the Depositor
that in the firm's opinion, assuming (i) the making of such an election, (ii)
compliance with the Pooling Agreement and (iii) compliance with any changes
in the law, including any amendments to the Code or applicable Treasury
regulations thereunder, each REMIC Pool will qualify as a REMIC. In such
case, the Regular Certificates will be considered to be "regular interests"
in the REMIC Pool and generally will be treated for federal income tax
purposes as if they were newly originated debt instruments, and the Residual
Certificates will be considered to be "residual interests" in the REMIC Pool.
The Prospectus Supplement for each series of Certificates will indicate
whether one or more REMIC elections will be made with respect to the related
Trust Fund, in which event references to "REMIC" or "REMIC Pool" herein shall
be deemed to refer to each such REMIC Pool. If so specified in the applicable
Prospectus Supplement, the portion of a Trust Fund as to which a REMIC
election is not made may be treated as either a financial asset
securitization investment trust (a "FASIT") a grantor trust for federal
income tax purposes. See "--Federal Income Tax Consequences for FASIT
Certificates and "--Federal Income Tax Consequences for Certificates as to
Which No REMIC Election Is Made".
Status of REMIC Certificates. REMIC Certificates held by a domestic
building and loan association will constitute "a regular or residual interest
in a REMIC" within the meaning of Code Section 7701(a)(19)(C)(xi), but only
in the same proportion that the assets of the REMIC Pool would be treated as
"loans . . . secured by an interest in real property which is . . .
residential real property" (such as single family or multifamily properties,
but not commercial properties) within the meaning of Code Section
7701(a)(19)(C)(v) or as other assets described in Code Section
7701(a)(19)(C), and otherwise will not qualify for such treatment. REMIC
Certificates held by a real estate investment trust will constitute "real
estate assets" within the meaning of Code Section 856(c)(4)(A), and interest
on the Regular Certificates and income with respect to Residual Certificates
will be considered "interest on obligations secured by mortgages on real
property or on interests in real property" within the meaning of Code Section
856(c)(3)(B) in the same proportion that, for both purposes, the assets of
the REMIC Pool would be so treated. If at all times 95% or more of the assets
of the REMIC Pool qualify for each of the foregoing respective treatments,
the REMIC Certificates will qualify for the corresponding status in their
entirety.
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For purposes of Code Section 856(c)(4)(A), payments of principal and interest
on the Mortgage Loans that are reinvested pending distribution to holders of
REMIC Certificates qualify for such treatment. Where two REMIC Pools are a
part of a tiered structure they will be treated as one REMIC for purposes of
the tests described above respecting asset ownership of more or less than
95%. In addition, if the assets of the REMIC include Buy-Down Mortgage Loans,
it is possible that the percentage of such assets constituting "loans . . .
secured by an interest in real property which is . . . residential real
property" for purposes of Code Section 7701(a)(19)(C)(v) may be required to
be reduced by the amount of the related Buy-Down Funds. REMIC Certificates
held by a regulated investment company will not constitute "Government
Securities" within the meaning of Code Section 851(b)(3)(A)(i). REMIC
Certificates held certain financial institutions will constitute an "evidence
of indebtedness" within the meaning of Code Section 582(c)(1). The Small
Business Job Protection Act of 1996 (the "SBJPA of 1996") repealed the
reserve method for bad debts of domestic building and loan associations and
mutual savings banks, and thus has eliminated the asset category of
"qualifying real property loans" in former Code Section 593(d) for taxable
years beginning after December 31, 1995. The requirement in the SBJPA of 1996
that such institutions must "recapture" a portion of their existing bad debt
reserves is suspended if a certain portion of their assets are maintained in
"residential loans" under Code Section 7701(a)(19)(C)(v), but only if such
loans were made to acquire, construct or improve the related real property
and not for the purpose of refinancing. However, no effort will be made to
identify the portion of the Mortgage Loans of any Series meeting this
requirement, and no representation is made in this regard.
Qualification as a REMIC. In order for the REMIC Pool to qualify as a
REMIC, there must be ongoing compliance on the part of the REMIC Pool with
the requirements set forth in the Code. The REMIC Pool must fulfill an asset
test, which requires that no more than a de minimis portion of the assets of
the REMIC Pool, as of the close of the third calendar month beginning after
the "Startup Day" (which for purposes of this discussion is the date of
issuance of the REMIC Certificates) and at all times thereafter, may consist
of assets other than "qualified mortgages" and "permitted investments". The
REMIC Regulations provide a safe harbor pursuant to which the de minimis
requirement is met if at all times the aggregate adjusted basis of the
nonqualified assets is less than 1% of the aggregate adjusted basis of all
the REMIC Pool's assets. An entity that fails to meet the safe harbor may
nevertheless demonstrate that it holds no more than a de minimis amount of
nonqualified assets. A REMIC also must provide "reasonable arrangements" to
prevent its residual interest from being held by "disqualified organizations"
and must furnish applicable tax information to transferors or agents that
violate this requirement. The Pooling Agreement for each Series will contain
a provision designed to meet this requirement. See "Taxation of Residual
Certificates--Tax-Related Restrictions on Transfer of Residual
Certificates--Disqualified Organizations".
A qualified mortgage is any obligation that is principally secured by an
interest in real property and that is either transferred to the REMIC Pool on
the Startup Day in exchange for Regular Certificates or Residual Certificates
or is purchased by the REMIC Pool within a three-month period thereafter
pursuant to a fixed price contract in effect on the Startup Day. Qualified
mortgages include whole mortgage loans, such as the Mortgage Loans,
certificates of beneficial interest in a grantor trust that holds mortgage
loans, including certain of the MBS, regular interests in another REMIC, such
as MBS in a trust as to which a REMIC election has been made, loans secured
by timeshare interests and loans secured by shares held by a tenant
stockholder in a cooperative housing corporation, provided, in general, (i)
the fair market value of the real property securing the mortgage (including
buildings and structural components thereof) is at least 80% of the principal
balance of the related Mortgage Loan or mortgage loan underlying the Mortgage
Certificate either at origination of the relevant loan or as of the Startup
Day (an original loan-to-value ratio of not more than 125% with respect to
the real property securing the mortgage) or (ii) substantially all the
proceeds of the Mortgage Loan or the underlying mortgage loan were used to
acquire, improve or protect an interest in real property that, at the
origination date, was the only security for the Mortgage Loan or underlying
mortgage loan. If the Mortgage Loan has been substantially modified other
than in connection with a default or reasonably foreseeable default, it must
meet the loan-to-value test in (i) of the preceding sentence as of the date
of the last such modification or at closing. A qualified mortgage includes a
qualified replacement mortgage, which is any property that would have been
treated as a qualified mortgage if it were transferred to the REMIC Pool on
the Startup Day and that is received
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either (i) in exchange for any qualified mortgage within a three-month period
thereafter or (ii) in exchange for a "defective obligation" within a two-year
period thereafter. A "defective obligation" includes (i) a mortgage in
default or as to which default is reasonably foreseeable, (ii) a mortgage as
to which a customary representation or warranty made at the time of transfer
to the REMIC Pool has been breached, (iii) a mortgage that was fraudulently
procured by the mortgagor, and (iv) a mortgage that was not in fact
principally secured by real property (but only if such mortgage is disposed
of within 90 days of discovery). A Mortgage Loan that is "defective" as
described in clause (iv) that is not sold or, if within two years of the
Startup Day, exchanged, within 90 days of discovery, ceases to be a qualified
mortgage after such 90-day period. A qualified mortgage also includes any
regular interest in a FASIT transferred to the REMIC Pool on the Startup Day
in exchange for Regular Certificates or Residual Certificates, or purchased
by the REMIC Pool within three months after the Startup Day pursuant to a
fixed price contract in effect on the Startup Day, provided that at least 95%
of the value of the FASIT assets is at all times attributable to obligations
principally secured by interests in real property and which are transferred
to, or purchased by, a REMIC as provided in this sentence.
Permitted investments include cash flow investments, qualified reserve
assets, and foreclosure property. A cash flow investment is an investment,
earning a return in the nature of interest, of amounts received on or with
respect to qualified mortgages for a temporary period, not exceeding 13
months, until distributed to holders of interests in the REMIC Pool. A
qualified reserve asset is any intangible property (other than a REMIC
residual interest) held for investment that is part of any reasonably
required reserve maintained by the REMIC Pool to provide for payments of
expenses of the REMIC Pool or amounts due on the regular or residual
interests in the event of defaults (including delinquencies) on the qualified
mortgages, lower than expected reinvestment returns, prepayment interest
shortfalls and certain other contingencies. The reserve fund will be
disqualified if more than 30% of the gross income from the assets in such
fund for the year is derived from the sale or other disposition of property
held for less than three months, unless required to prevent a default on the
regular interests caused by a default on one or more qualified mortgages. A
reserve fund must be reduced "promptly and appropriately" as payments on the
Mortgage Loans are received. Foreclosure property is real property acquired
by the REMIC Pool in connection with the default or imminent default of a
qualified mortgage and generally held beyond the close of the third calendar
year following the acquisition of the property by REMIC Pool for not more
than two years, with possible extensions granted by the Internal Revenue
Service (the "Service") of up to an additional four years.
In addition to the foregoing requirements, the various interests in a
REMIC Pool also must meet certain requirements. All of the interests in a
REMIC Pool must be either of the following: (i) one or more classes of
regular interests or (ii) a single class of residual interests on which
distributions, if any, are made pro rata. A regular interest is an interest
in a REMIC Pool that is issued on the Startup Day with fixed terms, is
designated as a regular interest, and unconditionally entitles the holder to
receive a specified principal amount (or other similar amount), and provides
that interest payments (or other similar amounts), if any, at or before
maturity either are payable based on a fixed rate or a qualified variable
rate, or consist of a specified, nonvarying portion of the interest payments
on qualified mortgages. Such a specified portion may consist of a fixed
number of basis points, a fixed percentage of the total interest, or a fixed
or qualified variable or inverse variable rate on some or all of the
qualified mortgages minus a different fixed or qualified variable rate. The
specified principal amount of a regular interest that provides for interest
payments consisting of a specified, nonvarying portion of interest payments
on qualified mortgages may be zero. A residual interest is an interest in a
REMIC Pool other than a regular interest that is issued on the Startup Day
and that is designated as a residual interest. An interest in a REMIC Pool
may be treated as a regular interest even if payments of principal with
respect to such interest are subordinated to payments on other regular
interests or the residual interest in the REMIC Pool, and are dependent on
the absence of defaults or delinquencies on qualified mortgages or permitted
investments, lower than reasonably expected returns on permitted investments,
unanticipated expenses incurred by the REMIC Pool or prepayment interest
shortfalls. Accordingly, the Regular Certificates of a series will constitute
one or more classes of regular interests, and the Residual Certificates with
respect to that series will constitute a single class of residual interests
on which distributions are made pro rata.
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If an entity, such as the REMIC Pool, fails to comply with one or more of
the ongoing requirements of the Code for REMIC status during any taxable
year, the Code provides that the entity will not be treated as a REMIC for
such year and thereafter. In this event, an entity with multiple classes of
ownership interests may be treated as a separate association taxable as a
corporation under Treasury regulations, and the Regular Certificates may be
treated as equity interests therein. The Code, however, authorizes the
Treasury Department to issue regulations that address situations where
failure to meet one or more of the requirements for REMIC status occurs
inadvertently and in good faith, and disqualification of the REMIC Pool would
occur absent regulatory relief. Investors should be aware, however, that the
Conference Committee Report to the Tax Reform Act of 1986 (the "1986 Act")
indicates that the relief may be accompanied by sanctions, such as the
imposition of a corporate tax on all or a portion of the REMIC Pool's income
for the period of time in which the requirements for REMIC status are not
satisfied.
TAXATION OF REGULAR CERTIFICATES
General
In general, interest, original issue discount and market discount on a
Regular Certificate will be treated as ordinary income to a holder of the
Regular Certificate (the "Regular Certificateholder") as they accrue, and
principal payments on a Regular Certificate will be treated as a return of
capital to the extent of the Regular Certificateholder's basis in the Regular
Certificate allocable thereto. Regular Certificateholders must use the
accrual method of accounting with regard to Regular Certificates, regardless
of the method of accounting otherwise used by such Regular
Certificateholders.
Original Issue Discount
Accrual Certificates and principal-only Certificates will be, and other
Classes of Regular Certificates may be, issued with "original issue discount"
within the meaning of Code Section 1273(a). Holders of any Class of Regular
Certificates having original issue discount generally must include original
issue discount in ordinary income for federal income tax purposes as it
accrues, in accordance with the constant yield method that takes into account
the compounding of interest, in advance of receipt of the cash attributable
to such income. The following discussion is based in part on temporary and
final Treasury regulations issued on February 2, 1994, as amended on June 14,
1996, (the "OID Regulations") under Code Sections 1271 through 1273 and 1275
and in part on the provisions of the 1986 Act. Regular Certificateholders
should be aware, however, that the OID Regulations do not adequately address
certain issues relevant to prepayable securities, such as the Regular
Certificates. To the extent such issues are not addressed in such
regulations, the Depositor intends to apply the methodology described in the
Conference Committee Report to the 1986 Act. No assurance can be provided
that the Service will not take a different position as to those matters not
currently addressed by the OID Regulations. Moreover, the OID Regulations
include an anti-abuse rule allowing the Service to apply or depart from the
OID Regulations where necessary or appropriate to ensure a reasonable tax
result in light of the applicable statutory provisions. A tax result will not
be considered unreasonable under the anti-abuse rule in the absence of a
substantial effect on the present value of a taxpayer's tax liability.
Investors are advised to consult their own tax advisors as to the discussion
herein and the appropriate method for reporting interest and original issue
discount with respect to the Regular Certificates.
Each Regular Certificate (except to the extent described below with
respect to a Regular Certificate on which principal is distributed by random
lot ("Random Lot Certificates")) will be treated as a single installment
obligation for purposes of determining the original issue discount includible
in a Regular Certificateholder's income. The total amount of original issue
discount on a Regular Certificate is the excess of the "stated redemption
price at maturity" of the Regular Certificate over its "issue price". The
issue price of a Class of Regular Certificates offered pursuant to this
Prospectus generally is the first price at which a substantial amount of
Regular Certificates of that Class is sold to the public (excluding bond
houses, brokers and underwriters). Although unclear under the OID
Regulations, the Depositor intends to treat the issue price of a Class as to
which there is no substantial sale as of the issue date or that is retained
by the Depositor as the fair market value of that Class as of the issue date.
The issue price of a Regular Certificate also includes the amount paid by an
initial Regular Certificateholder for accrued
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interest that relates to a period prior to the issue date of the Regular
Certificate, unless the Regular Certificateholder elects on its federal
income tax return to exclude such amount from the issue price and to recover
it on the first Distribution Date. The stated redemption price at maturity of
a Regular Certificate always includes the original principal amount of the
Regular Certificate, but generally will not include distributions of stated
interest if such interest distributions constitute "qualified stated
interest". Under the OID Regulations, qualified stated interest generally
means interest payable at a single fixed rate or a qualified variable rate
(as described below) provided that such interest payments are unconditionally
payable at intervals of one year or less during the entire term of the
Regular Certificate. Because there is no penalty or default remedy in the
case of nonpayment of interest with respect to a Regular Certificate, it is
possible that no interest on any Class of Regular Certificates will be
treated as qualified stated interest. However, except as provided in the
following three sentences or in the applicable Prospectus Supplement, because
the underlying Mortgage Loans provide for remedies in the event of default,
the Depositor intends to treat interest with respect to the Regular
Certificates as qualified stated interest. Distributions of interest on an
Accrual Certificate, or on other Regular Certificates with respect to which
deferred interest will accrue, will not constitute qualified stated interest,
in which case the stated redemption price at maturity of such Regular
Certificates includes all distributions of interest as well as principal
thereon. Likewise, the Depositor intends to treat an "interest only" class,
or a class on which interest is substantially disproportionate to its
principal amount (a so-called "super-premium" class) as having no qualified
stated interest. Where the interval between the issue date and the first
Distribution Date on a Regular Certificate is shorter than the interval
between subsequent Distribution Dates, the interest attributable to the
additional days will be included in the stated redemption price at maturity.
Under a de minimis rule, original issue discount on a Regular Certificate
will be considered to be zero if such original issue discount is less than
0.25% of the stated redemption price at maturity of the Regular Certificate
multiplied by the weighted average maturity of the Regular Certificate. For
this purpose, the weighted average maturity of the Regular Certificate is
computed as the sum of the amounts determined by multiplying the number of
full years (i.e., rounding down partial years) from the issue date until all
distributions in reduction of are scheduled to be made by a fraction, the
numerator of which is the amount of each distribution included in the stated
redemption price at maturity of the Regular Certificate and the denominator
of which is the stated redemption price at maturity of the Regular
Certificate. The Conference Committee Report to the 1986 Act provides that
the schedule of such distributions should be determined in accordance with
the assumed rate of prepayment of the Mortgage Loans (the "Prepayment
Assumption") and the anticipated reinvestment rate, if any, relating to the
Regular Certificates. The Prepayment Assumption with respect to a Series of
Regular Certificates will be set forth in the related Prospectus Supplement.
Holders generally must report de minimis original issue discount pro rata as
principal payments are received, and such income will be capital gain if the
Regular Certificate is held as a capital asset. However, under the OID
Regulations, Regular Certificateholders may elect to accrue all de minimis
original issue discount as well as market discount and market premium under
the constant yield method. See "Election to Treat All Interest Under the
Constant Yield Method".
A Regular Certificateholder generally must include in gross income for any
taxable year the sum of the "daily portions," as defined below, of the
original issue discount on the Regular Certificate accrued during an accrual
period for each day on which it holds the Regular Certificate, including the
date of purchase but excluding the date of disposition. The Depositor will
treat the monthly period ending on the day before each Distribution Date as
the accrual period. With respect to each Regular Certificate, a calculation
will be made of the original issue discount that accrues during each
successive full accrual period (or shorter period from the date of original
issue) that ends on the day before the related Distribution Date on the
Regular Certificate. The Conference Committee Report to the 1986 Act states
that the rate of accrual of original issue discount is intended to be based
on the Prepayment Assumption. Other than as discussed below with respect to a
Random Lot Certificate, the original issue discount accruing in a full
accrual period would be the excess, if any, of (i) the sum of (a) the present
value of all of the remaining distributions to be made on the Regular
Certificate as of the end of that accrual period that are included in the
Regular Certificate's stated redemption price at maturity and (b) the
distributions made on the Regular Certificate during the accrual period that
are included in the Regular Certificate's stated redemption price at
maturity, over (ii) the adjusted issue price of the Regular Certificate at
the
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beginning of the accrual period. The present value of the remaining
distributions referred to in the preceding sentence is calculated based on
(i) the yield to maturity of the Regular Certificate at the issue date, (ii)
events (including actual prepayments) that have occurred prior to the end of
the accrual period and (iii) the Prepayment Assumption. For these purposes,
the adjusted issue price of a Regular Certificate at the beginning of any
accrual period equals the issue price of the Regular Certificate, increased
by the aggregate amount of original issue discount with respect to the
Regular Certificate that accrued in all prior accrual periods and reduced by
the amount of distributions included in the Regular Certificate's stated
redemption price at maturity that were made on the Regular Certificate in
such prior periods. The original issue discount accruing during any accrual
period (as determined in this paragraph) will then be divided by the number
of days in the period to determine the daily portion of original issue
discount for each day in the period. With respect to an initial accrual
period shorter than a full accrual period, the daily portions of original
issue discount must be determined according to an appropriate allocation
under any reasonable method.
Under the method described above, the daily portions of original issue
discount required to be included in income by a Regular Certificateholder
generally will increase to take into account prepayments on the Regular
Certificates as a result of prepayments on the Mortgage Loans that exceed the
Prepayment Assumption, and generally will decrease (but not below zero for
any period) if the prepayments are slower than the Prepayment Assumption. An
increase in prepayments on the Mortgage Loans with respect to a Series of
Regular Certificates can result in both a change in the priority of principal
payments with respect to certain Classes of Regular Certificates and either
an increase or decrease in the daily portions of original issue discount with
respect to such Regular Certificates.
In the case of a Random Lot Certificate, the Depositor intends to
determine the yield to maturity of such Certificate based upon the
anticipated payment characteristics of the Class as a whole under the
Prepayment Assumption. In general, the original issue discount accruing on
each Random Lot Certificate in a full accrual period would be its allocable
share of the original issue discount with respect to the entire Class, as
determined in accordance with the preceding paragraph. However, in the case
of a distribution in retirement of the entire unpaid principal balance of any
Random Lot Certificate (or portion of such unpaid principal balance), (a) the
remaining unaccrued original issue discount allocable to such Certificate (or
to such portion) will accrue at the time of such distribution, and (b) the
accrual of original issue discount allocable to each remaining Certificate of
such Class (or the remaining unpaid principal balance of a partially redeemed
Random Lot Certificate after a distribution of principal has been received)
will be adjusted by reducing the present value of the remaining payments on
such Class and the adjusted issue price of such Class to the extent
attributable to the portion of the unpaid principal balance thereof that was
distributed. The Depositor believes that the foregoing treatment is
consistent with the "pro rata prepayment" rules of the OID Regulations, but
with the rate of accrual of original issue discount determined based on the
Prepayment Assumption for the Class as a whole. Investors are advised to
consult their tax advisors as to this treatment.
Acquisition Premium
A purchaser of a Regular Certificate at a price greater than its adjusted
issue price but less than its stated redemption price at maturity will be
required to include in gross income the daily portions of the original issue
discount on the Regular Certificate reduced pro rata by a fraction, the
numerator of which is the excess of its purchase price over such adjusted
issue price and the denominator of which is the excess of the remaining
stated redemption price at maturity over the adjusted issue price.
Alternatively, such a subsequent purchaser may elect to treat all such
acquisition premium under the constant yield method, as described below under
the heading "Election to Treat All Interest Under the Constant Yield Method".
Variable Rate Regular Certificates
Regular Certificates may provide for interest based on a variable rate.
Under the OID Regulations, interest is treated as payable at a variable rate
if, generally, (i) the issue price does not exceed the original principal
balance by more than a specified de minimis amount and (ii) the interest
compounds or is payable at least annually at current values of (a) one or
more "qualified floating rates", (b) a single fixed rate and one or more
qualified floating rates, (c) a single "objective rate", or (d) a single
fixed rate and
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a single objective rate that is a "qualified inverse floating rate". A
floating rate is a qualified floating rate if variations in the rate can
reasonably be expected to measure contemporaneous variations in the cost of
newly borrowed funds, or where such rate is subject to a fixed multiple that
is greater than 0.65, but not more than 1.35. Such rate may also be increased
or decreased by a fixed spread or subject to a fixed cap or floor, or a cap
or floor that is not reasonably expected as of the issue date to affect the
yield of the instrument significantly. Two or more qualified floating rates
will be treated as a single qualified floating rate if all such qualified
floating rates can reasonably be expected to have approximately the same
values throughout the terms of the instrument. This requirement will be
conclusively presumed to be satisfied if the values of all such qualified
floating rates are within 0.25% of each other on the issue date. An objective
rate (other than a qualified floating rate) is a rate that is determined
using a single fixed formula and that is based on objective financial or
economic information, provided that such information is not (i) within the
control of the issuer or a related party or (ii) unique to the circumstances
of the issuer or a related party. A qualified inverse floating rate is an
objective rate that is equal to a fixed rate minus a qualified floating rate
that inversely reflects contemporaneous variations in the cost of newly
borrowed funds; an inverse floating rate that is not a qualified floating
rate may nevertheless be an objective rate. A Class of Regular Certificates
may be issued under this Prospectus that does not have a variable rate under
the OID Regulations, for example, a Class that bears different rates at
different times during the period it is outstanding such that it is
considered significantly "front-loaded" or "back-loaded" within the meaning
of the OID Regulations. It is possible that such a Class may be considered to
bear "contingent interest" within the meaning of the OID Regulations. The OID
Regulations, as they relate to the treatment of contingent interest, are by
their terms not applicable to Regular Certificates. However, if final
regulations dealing with contingent interest with respect to Regular
Certificates apply the same principles as the OID Regulations, such
regulations may lead to different timing of income inclusion than would be
the case under the OID Regulations. Furthermore, application of such
principles could lead to the characterization of gain on the sale of
contingent interest Regular Certificates as ordinary income. Investors should
consult their tax advisors regarding the appropriate treatment of any Regular
Certificate that does not pay interest at a fixed rate or variable rate as
described in this paragraph.
Under the REMIC Regulations, a Regular Certificate (i) bearing a rate that
qualifies as a variable rate under the OID Regulations that is tied to
current values of a variable rate (or the highest, lowest or average of two
or more variable rates), including a rate based on the average cost of funds
of one or more financial institutions, or a positive or negative multiple of
such a rate (plus or minus a specified number of basis points), or that
represents a weighted average of rates on some or all of the Mortgage Loans
which bear interest at a fixed rate or at a qualifying variable rate under
the REMIC Regulations, including such a rate that is subject to one or more
caps or floors, or (ii) bearing one or more such variable rates for one or
more periods or one or more fixed rates for one or more periods, and a
different variable rate or fixed rate for other periods qualifies as a
regular interest in a REMIC. Accordingly, unless otherwise indicated in the
applicable Prospectus Supplement, the Depositor intends to treat Regular
Certificates that qualify as regular interests under this rule in the same
manner as obligations bearing a variable rate for original issue discount
reporting purposes.
The amount of original issue discount with respect to a Regular
Certificate bearing a variable rate of interest will accrue in the manner
described above under "Original Issue Discount" with the yield to maturity
and future payments on such Regular Certificate generally to be determined by
assuming that interest will be payable for the life of the Regular
Certificate based on the initial rate (or, if different, the value of the
applicable variable rate as of the pricing date) for the relevant Class.
Unless otherwise specified in the applicable Prospectus Supplement, the
Depositor intends to treat such variable interest as qualified stated
interest, other than variable interest on an interest-only or super-premium
Class, which will be treated as non-qualified stated interest includible in
the stated redemption price at maturity. Ordinary income reportable for any
period will be adjusted based on subsequent changes in the applicable
interest rate index.
Although unclear under the OID Regulations, unless required otherwise by
applicable final regulations, the Depositor intends to treat Regular
Certificates bearing an interest rate that is a weighted average of the net
interest rates on Mortgage Loans or Mortgage Certificates having fixed or
adjustable
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rates, as having qualified stated interest, except to the extent that initial
"teaser" rates cause sufficiently "back-loaded" interest to create more than
de minimis original issue discount. The yield on such Regular Certificates
for purposes of accruing original issue discount will be a hypothetical fixed
rate based on the fixed rates, in the case of fixed rate Mortgage Loans, and
initial "teaser rates" followed by fully indexed rates, in the case of
adjustable rate Mortgage Loans. In the case of adjustable rate Mortgage
Loans, the applicable index used to compute interest on the Mortgage Loans in
effect on the pricing date (or possibly the issue date) will be deemed to be
in effect beginning with the period in which the first weighted average
adjustment date occurring after the issue date occurs. Adjustments will be
made in each accrual period either increasing or decreasing the amount of
ordinary income reportable to reflect the actual Pass-Through Rate on the
Regular Certificates.
Deferred Interest
Under the OID Regulations, all interest on a Regular Certificate as to
which there may be Deferred Interest is includible in the stated redemption
price at maturity thereof. Accordingly, any Deferred Interest that accrues
with respect to a Class of Regular Certificates may constitute income to the
holders of such Regular Certificates prior to the time distributions of cash
with respect to such Deferred Interest are made.
Market Discount
A purchaser of a Regular Certificate also may be subject to the market
discount rules of Code Section 1276 through 1278. Under these Code sections
and the principles applied by the OID Regulations in the context of original
issue discount, "market discount" is the amount by which the purchaser's
original basis in the Regular Certificate (i) is exceeded by the then-current
principal amount of the Regular Certificate or (ii) in the case of a Regular
Certificate having original issue discount, is exceeded by the adjusted issue
price of such Regular Certificate at the time of purchase. Such purchaser
generally will be required to recognize ordinary income to the extent of
accrued market discount on such Regular Certificate as distributions
includible in the stated redemption price at maturity thereof are received,
in an amount not exceeding any such distribution. Such market discount would
accrue in a manner to be provided in Treasury regulations and should take
into account the Prepayment Assumption. The Conference Committee Report to
the 1986 Act provides that until such regulations are issued, such market
discount would accrue either (i) on the basis of a constant interest rate or
(ii) in the ratio of stated interest allocable to the relevant period to the
sum of the interest for such period plus the remaining interest as of the end
of such period, or in the case of a Regular Certificate issued with original
issue discount, in the ratio of original issue discount accrued for the
relevant period to the sum of the original issue discount accrued for such
period plus the remaining original issue discount as of the end of such
period. Such purchaser also generally will be required to treat a portion of
any gain on a sale or exchange of the Regular Certificate as ordinary income
to the extent of the market discount accrued to the date of disposition under
one of the foregoing methods, less any accrued market discount previously
reported as ordinary income as partial distributions in reduction of the
stated redemption price at maturity were received. Such purchaser will be
required to defer deduction of a portion of the excess of the interest paid
or accrued on indebtedness incurred to purchase or carry a Regular
Certificate over the interest distributable thereon. The deferred portion of
such interest expense in any taxable year generally will not exceed the
accrued market discount on the Regular Certificate for such year. Any such
deferred interest expense is, in general, allowed as a deduction not later
than the year in which the related market discount income is recognized or
the Regular Certificate is disposed of. As an alternative to the inclusion of
market discount in income on the foregoing basis, the Regular
Certificateholder may elect to include market discount in income currently as
it accrues on all market discount instruments acquired by such Regular
Certificateholder in that taxable year or thereafter, in which case the
interest deferral rule will not apply. See "Election to Treat All Interest
Under the Constant Yield Method" below regarding an alternative manner in
which such election may be deemed to be made.
Market discount with respect to a Regular Certificate will be considered
to be zero if such market discount is less than 0.25% of the remaining stated
redemption price at maturity of such Regular Certificate multiplied by the
weighted average maturity of the Regular Certificate (determined as
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described above in the third paragraph under "Original Issue Discount")
remaining after the date of purchase. It appears that de minimis market
discount should be reported in a manner similar to de minimis original issue
discount. See "Original Issue Discount" above. Treasury regulations
implementing the market discount rules have not yet been issued, and
therefore investors should consult their own tax advisors regarding the
application of these rules. Investors should also consult Revenue Procedure
92-67 concerning the elections to include market discount in income currently
and to accrue market discount on the basis of the constant yield method.
Premium
A Regular Certificate purchased at a cost greater than its remaining
stated redemption price at maturity generally is considered to be purchased
at a premium. If the Regular Certificateholder holds such Regular Certificate
as a "capital asset" within the meaning of Code Section 1221, the Regular
Certificateholder may elect under Code Section 171 to amortize such premium
under the constant yield method. The Conference Committee Report to the 1986
Act indicates a Congressional intent that the same rules that will apply to
the accrual of market discount on installment obligations will also apply to
amortizing bond premium under Code Section 171 on installment obligations
such as the Regular Certificates, although it is unclear whether the
alternatives to the constant yield method described above under "Market
Discount" are available. Amortizable bond premium will be treated as an
offset to interest income on a Regular Certificate rather than as a separate
deduction item. See "Election to Treat All Interest Under the Constant Yield
Method" below regarding an alternative manner in which the Code Section 171
election may be deemed to be made.
Election to Treat All Interest Under the Constant Yield Method
A holder of a debt instrument such as a Regular Certificate may elect to
treat all interest that accrues on the instrument using the constant yield
method, with none of the interest being treated as qualified stated interest.
For purposes of applying the constant yield method to a debt instrument
subject to such an election, (i) "interest" includes stated interest,
original issue discount, de minimis original issue discount, market discount
and de minimis market discount, as adjusted by any amortizable bond premium
or acquisition premium and (ii) the debt instrument is treated as if the
instrument were issued on the holder's acquisition date in the amount of the
holder's adjusted basis immediately after acquisition. It is unclear whether,
for this purpose, the initial Prepayment Assumption would continue to apply
or if a new prepayment assumption as of the date of the holder's acquisition
would apply. A holder generally may make such an election on an instrument by
instrument basis or for a class or group of debt instruments. However, if the
holder makes such an election with respect to a debt instrument with
amortizable bond premium or with market discount, the holder is deemed to
have made elections to amortize bond premium or to report market discount
income currently as it accrues under the constant yield method, respectively,
for all debt instruments acquired by the holder in the same taxable year or
thereafter. The election is made on the holder's federal income tax return
for the year in which the debt instrument is acquired and is irrevocable
except with the approval of the Service. Investors should consult their own
tax advisors regarding the advisability of making such an election.
Sale or Exchange of Regular Certificates
If a Regular Certificateholder sells or exchanges a Regular Certificate,
the Regular Certificateholder will recognize gain or loss equal to the
difference, if any, between the amount received and its adjusted basis in the
Regular Certificate. The adjusted basis of a Regular Certificate generally
will equal the cost of the Regular Certificate to the seller, increased by
any original issue discount or market discount previously included in the
seller's gross income with respect to the Regular Certificate and reduced by
amounts included in the stated redemption price at maturity of the Regular
Certificate that were previously received by the seller, by any amortized
premium and by previously recognized losses.
Except as described above with respect to market discount, and except as
provided in this paragraph, any gain or loss on the sale or exchange of a
Regular Certificate realized by an investor who holds the Regular Certificate
as a capital asset will be capital gain or loss and will be long-term or
short-term depending on whether the Regular Certificate has been held for the
long-term capital gain holding period
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(currently more than one year). Such gain will be treated as ordinary income
(i) if a Regular Certificate is held as part of a "conversion transaction" as
defined in Code Section 1258(c), up to the amount of interest that would have
accrued on the Regular Certificateholder's net investment in the conversion
transaction at 120% of the appropriate applicable Federal rate under Code
Section 1274(d) in effect at the time the taxpayer entered into the
transaction minus any amount previously treated as ordinary income with
respect to any prior distribution of property that was held as a part of such
transaction, (ii) in the case of a non-corporate taxpayer, to the extent such
taxpayer has made an election under Code Section 163(d)(4) to have net
capital gains taxed as investment income at ordinary rates, or (iii) to the
extent that such gain does not exceed the excess, if any, of (a) the amount
that would have been includible in the gross income of the holder if its
yield on such Regular Certificate were 110% of the applicable Federal rate as
of the date of purchase, over (b) the amount of income actually includible in
the gross income of such holder with respect to the Regular Certificate. In
addition, gain or loss recognized from the sale of a Regular Certificate by
certain banks or thrift institutions will be treated as ordinary income or
loss pursuant to Code Section 582(c). Capital gains of certain non-corporate
taxpayers are subject to a lower maximum tax rate (28%) than ordinary income
of such taxpayers (39.6%), and still a lower maximum rate (20%) for property
held for more than 18 months. The maximum tax rate for corporations is the
same with respect to both ordinary income and capital gains.
Treatment of Losses
Holders of Regular Certificates will be required to report income with
respect to Regular Certificates on the accrual method of accounting, without
giving effect to delays or reductions in distributions attributable to
defaults or delinquencies on the Mortgage Loans allocable to a particular
class of Regular Certificates, except to the extent it can be established
that such losses are uncollectible. Accordingly, the holder of a Regular
Certificate may have income, or may incur a diminution in cash flow as a
result of a default or delinquency, but may not be able to take a deduction
(subject to the discussion below) for the corresponding loss until a
subsequent taxable year. In this regard, investors are cautioned that while
they may generally cease to accrue interest income if it reasonably appears
that the interest will be uncollectible, the Internal Revenue Service may
take the position that original issue discount must continue to be accrued in
spite of its uncollectibility until the debt instrument is disposed of in a
taxable transaction or becomes worthless in accordance with the rules of Code
Section 166. To the extent the rules of Code Section 166 regarding bad debts
are applicable, it appears that holders of Regular Certificates that are
corporations or that otherwise hold the Regular Certificates in connection
with a trade or business should in general be allowed to deduct as an
ordinary loss any such loss sustained during the taxable year on account of
any such Regular Certificates becoming wholly or partially worthless, and
that, in general, holders of Regular Certificates that are not corporations
and do not hold the Regular Certificates in connection with a trade or
business will be allowed to deduct as a short-term capital loss any loss with
respect to principal sustained during the taxable year on account of a
portion of any class or subclass of such Regular Certificates becoming wholly
worthless. Although the matter is not free from doubt, non-corporate holders
of Regular Certificates should be allowed a bad debt deduction at such time
as the principal balance of any class or subclass of such Regular
Certificates is reduced to reflect losses resulting from any liquidated
Mortgage Loans. The Service, however, could take the position that
non-corporate holders will be allowed a bad debt deduction to reflect such
losses only after all Mortgage Loans remaining in the Trust Fund have been
liquidated or such class of Regular Certificates has been otherwise retired.
The Service could also assert that losses on the Regular Certificates are
deductible based on some other method that may defer such deductions for all
holders, such as reducing future cash flow for purposes of computing original
issue discount. This may have the effect of creating "negative" original
issue discount which would be deductible only against future positive
original issue discount or otherwise upon termination of the Class. Holders
of Regular Certificates are urged to consult their own tax advisors regarding
the appropriate timing, amount and character of any loss sustained with
respect to such Regular Certificates. While losses attributable to interest
previously reported as income should be deductible as ordinary losses by both
corporate and non-corporate holders, the Internal Revenue Service may take
the position that losses attributable to accrued original issue discount may
only be deducted as short-term capital losses by non-corporate holders not
engaged in a trade or business. Special loss rules are applicable to banks
and thrift institutions, including rules regarding reserves for bad debts.
Such taxpayers are advised to consult their tax advisors regarding the
treatment of losses on Regular Certificates.
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TAXATION OF RESIDUAL CERTIFICATES
Taxation of REMIC Income
Generally, the "daily portions" of REMIC taxable income or net loss will
be includible as ordinary income or loss in determining the federal taxable
income of holders of Residual Certificates ("Residual Certificateholders"),
and will not be taxed separately to the REMIC Pool. The daily portions of
REMIC taxable income or net loss of a Residual Certificateholder are
determined by allocating the REMIC Pool's taxable income or net loss for each
calendar quarter ratably to each day in such quarter and by allocating such
daily portion among the Residual Certificateholders in proportion to their
respective holdings of Residual Certificates in the REMIC Pool on such day.
REMIC taxable income is generally determined in the same manner as the
taxable income of an individual using the accrual method of accounting,
except that (i) the limitations on deductibility of investment interest
expense and expenses for the production of income do not apply, (ii) all bad
loans will be deductible as business bad debts and (iii) the limitation on
the deductibility of interest and expenses related to tax-exempt income will
apply. The REMIC Pool's gross income includes interest, original issue
discount income and market discount income, if any, on the Mortgage Loans,
reduced by amortization of any premium on the Mortgage Loans, plus income
from amortization of issue premium, if any, on the Regular Certificates, plus
income on reinvestment of cash flows and reserve assets, plus any
cancellation of indebtedness income upon allocation of realized losses to the
Regular Certificates. The REMIC Pool's deductions include interest and
original issue discount expense on the Regular Certificates, servicing fees
on the Mortgage Loans, other administrative expenses of the REMIC Pool and
realized losses on the Mortgage Loans. The requirement that Residual
Certificateholders report their pro rata share of taxable income or net loss
of the REMIC Pool will continue until there are no Certificates of any class
of the related series outstanding.
The taxable income recognized by a Residual Certificateholder in any
taxable year will be affected by, among other factors, the relationship
between the timing of recognition of interest and original issue discount or
market discount income or amortization of premium with respect to the
Mortgage Loans, on the one hand, and the timing of deductions for interest
(including original issue discount) on the Regular Certificates or income
from amortization of issue premium on the Regular Certificates, on the other
hand. In the event that an interest in the Mortgage Loans is acquired by the
REMIC Pool at a discount, and one or more of such Mortgage Loans is prepaid,
the Residual Certificateholder may recognize taxable income without being
entitled to receive a corresponding amount of cash because (i) the prepayment
may be used in whole or in part to make distributions in reduction of
principal on the Regular Certificates and (ii) the discount on the Mortgage
Loans which is includible in income may exceed the deduction allowed upon
such distributions on those Regular Certificates on account of any unaccrued
original issue discount relating to those Regular Certificates. When there is
more than one class of Regular Certificates that distribute principal
sequentially, this mismatching of income and deductions is particularly
likely to occur in the early years following issuance of the Regular
Certificates when distributions in reduction of principal are being made in
respect of earlier classes of Regular Certificates to the extent that such
classes are not issued with substantial discount. If taxable income
attributable to such a mismatching is realized, in general, losses would be
allowed in later years as distributions on the later classes of Regular
Certificates are made. Taxable income may also be greater in earlier years
than in later years as a result of the fact that interest expense deductions,
expressed as a percentage of the outstanding principal amount of such a
series of Regular Certificates, may increase over time as distributions in
reduction of principal are made on the lower yielding classes of Regular
Certificates, whereas to the extent that the REMIC Pool includes fixed rate
Mortgage Loans, interest income with respect to any given Mortgage Loan will
remain constant over time as a percentage of the outstanding principal amount
of that loan. Consequently, Residual Certificateholders must have sufficient
other sources of cash to pay any federal, state or local income taxes due as
a result of such mismatching or unrelated deductions against which to offset
such income, subject to the discussion of "excess inclusions" below under
"Limitations on Offset or Exemption of REMIC Income". The timing of such
mismatching of income and deductions described in this paragraph, if present
with respect to a series of Certificates, may have a significant adverse
effect upon the Residual Certificateholder's after-tax rate of return. In
addition, a Residual Certificateholder's taxable
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income during certain periods may exceed the income reflected by such
Residual Certificateholder for such periods in accordance with generally
accepted accounting principles. Investors should consult their own
accountants concerning the accounting treatment of their investment in
Residual Certificates.
Basis and Losses
The amount of any net loss of the REMIC Pool that may be taken into
account by the Residual Certificateholder is limited to the adjusted basis of
the Residual Certificate as of the close of the quarter (or time of
disposition of the Residual Certificate if earlier), determined without
taking into account the net loss for the quarter. The initial adjusted basis
of a purchaser of a Residual Certificate is the amount paid for such Residual
Certificate. Such adjusted basis will be increased by the amount of taxable
income of the REMIC Pool reportable by the Residual Certificateholder and
will be decreased (but not below zero), first, by a cash distribution from
the REMIC Pool and, second, by the amount of loss of the REMIC Pool
reportable by the Residual Certificateholder. Any loss that is disallowed on
account of this limitation may be carried over indefinitely with respect to
the Residual Certificateholder as to whom such loss was disallowed and may be
used by such Residual Certificateholder only to offset any income generated
by the same REMIC Pool.
A Residual Certificateholder will not be permitted to amortize directly
the cost of its Residual Certificate as an offset to its share of the taxable
income of the related REMIC Pool. However, that taxable income will not
include cash received by the REMIC Pool that represents a recovery of the
REMIC Pool's basis in its assets. Such recovery of basis by the REMIC Pool
will have the effect of amortization of the issue price of the Residual
Certificates over their life. However, in view of the possible acceleration
of the income of Residual Certificateholders described above under "Taxation
of REMIC Income", the period of time over which such issue price is
effectively amortized may be longer than the economic life of the Residual
Certificates.
A Residual Certificate may have a negative value if the net present value
of anticipated tax liabilities exceeds the present value of anticipated cash
flows. The REMIC Regulations appear to treat the issue price of such a
residual interest as zero rather than such negative amount for purposes of
determining the REMIC Pool's basis in its assets. The preamble to the REMIC
Regulations states that the Service may provide future guidance on the proper
tax treatment of payments made by a transferor of such a residual interest to
induce the transferee to acquire the interest, and Residual
Certificateholders should consult their own tax advisors in this regard.
Further, to the extent that the initial adjusted basis of a Residual
Certificateholder (other than an original holder) in the Residual Certificate
is greater that the corresponding portion of the REMIC Pool's basis in the
Mortgage Loans, the Residual Certificateholder will not recover a portion of
such basis until termination of the REMIC Pool unless future Treasury
regulations provide for periodic adjustments to the REMIC income otherwise
reportable by such holder. The REMIC Regulations currently in effect do not
so provide. See "Treatment of Certain Items of REMIC Income and
Expense--Market Discount" below regarding the basis of Mortgage Loans to the
REMIC Pool and "Sale or Exchange of a Residual Certificate" below regarding
possible treatment of a loss upon termination of the REMIC Pool as a capital
loss.
Treatment of Certain Items of REMIC Income and Expense
Although the Depositor intends to compute REMIC income and expense in
accordance with the Code and applicable regulations, the authorities
regarding the determination of specific items of income and expense are
subject to differing interpretations. The Depositor makes no representation
as to the specific method that it will use for reporting income with respect
to the Mortgage Loans and expenses with respect to the Regular Certificates,
and different methods could result in different timing of reporting of
taxable income or net loss to Residual Certificateholders or differences in
capital gain versus ordinary income.
Original Issue Discount and Premium. Generally, the REMIC Pool's
deductions for original issue discount and income from amortization of issue
premium will be determined in the same manner as
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original issue discount income on Regular Certificates as described above
under "Taxation of Regular Certificates--Original Issue Discount" and
"--Variable Rate Regular Certificates", without regard to the de minimis rule
described therein, and "--Premium".
Deferred Interest. Any Deferred Interest that accrues with respect to any
adjustable rate Mortgage Loans held by the REMIC Pool will constitute income
to the REMIC Pool and will be treated in a manner similar to the Deferred
Interest that accrues with respect to Regular Certificates as described above
under "Taxation of Regular Certificates--Deferred Interest".
Market Discount. The REMIC Pool will have market discount income in
respect of Mortgage Loans if, in general, the basis of the REMIC Pool
allocable to such Mortgage Loans is exceeded by their unpaid principal
balances. The REMIC Pool's basis in such Mortgage Loans is generally the fair
market value of the Mortgage Loans immediately after the transfer thereof to
the REMIC Pool. The REMIC Regulations provide that such basis is equal in the
aggregate to the issue prices of all regular and residual interests in the
REMIC Pool (or the fair market value thereof at the Closing Date, in the case
of a retained Class). In respect of Mortgage Loans that have market discount
to which Code Section 1276 applies, the accrued portion of such market
discount would be recognized currently as an item of ordinary income in a
manner similar to original issue discount. Market discount income generally
should accrue in the manner described above under "Taxation of Regular
Certificates--Market Discount".
Premium. Generally, if the basis of the REMIC Pool in the Mortgage Loans
exceeds the unpaid principal balances thereof, the REMIC Pool will be
considered to have acquired such Mortgage Loans at a premium equal to the
amount of such excess. As stated above, the REMIC Pool's basis in Mortgage
Loans is the fair market value of the Mortgage Loans, based on the aggregate
of the issue prices (or the fair market value of retained Classes) of the
regular and residual interests in the REMIC Pool immediately after the
transfer thereof to the REMIC Pool. In a manner analogous to the discussion
above under "Taxation of Regular Certificates--Premium", a REMIC Pool that
holds a Mortgage Loan as a capital asset under Code Section 1221 may elect
under Code Section 171 to amortize premium on whole mortgage loans or
mortgage loans underlying MBS that were originated after September 27, 1985
or MBS that are REMIC regular interests under the constant yield method.
Amortizable bond premium will be treated as an offset to interest income on
the Mortgage Loans, rather than as a separate deduction item. To the extent
that the mortgagors with respect to the Mortgage Loans are individuals, Code
Section 171 will not be available for premium on Mortgage Loans (including
underlying mortgage loans) originated on or prior to September 27, 1985.
Premium with respect to such Mortgage Loans may be deductible in accordance
with a reasonable method regularly employed by the holder thereof. The
allocation of such premium pro rata among principal payments should be
considered a reasonable method; however, the Service may argue that such
premium should be allocated in a different manner, such as allocating such
premium entirely to the final payment of principal.
Limitations on Offset or Exemption of REMIC Income
A portion or all of the REMIC taxable income includible in determining the
federal income tax liability of a Residual Certificateholder will be subject
to special treatment. That portion, referred to as the "excess inclusion", is
equal to the excess of REMIC taxable income for the calendar quarter
allocable to a Residual Certificate over the daily accruals for such
quarterly period of (i) 120% of the long-term applicable Federal rate that
would have applied to the Residual Certificate (if it were a debt instrument)
on the Startup Day under Code Section 1274(d), multiplied by (ii) the
adjusted issue price of such Residual Certificate at the beginning of such
quarterly period. For this purpose, the adjusted issue price of a Residual
Certificate at the beginning of a quarter is the issue price of the Residual
Certificate, plus the amount of such daily accruals of REMIC income described
in this paragraph for all prior quarters, decreased by any distributions made
with respect to such Residual Certificate prior to the beginning of such
quarterly period. Accordingly, the portion of the REMIC Pool's taxable income
that will be treated as excess inclusions will be a larger portion of such
income as the adjusted issue price of the Residual Certificates diminishes.
The portion of a Residual Certificateholder's REMIC taxable income
consisting of the excess inclusions generally may not be offset by other
deductions, including net operating loss carry forwards, on
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such Residual Certificateholder's return. However, net operating loss
carryovers are determined without regard to excess inclusion income. Further,
if the Residual Certificateholder is an organization subject to the tax on
unrelated business income imposed by Code Section 511, the Residual
Certificateholder's excess inclusions will be treated as unrelated business
taxable income of such Residual Certificateholder for purposes of Code
Section 511. In addition, REMIC taxable income is subject to 30% withholding
tax with respect to certain persons who are not U.S. Persons (as defined
below under "Tax-Related Restrictions on Transfer of Residual
Certificates--Foreign Investors"), and the portion thereof attributable to
excess inclusions is not eligible for any reduction in the rate of
withholding tax (by treaty or otherwise). See "Taxation of Certain Foreign
Investors--Residual Certificates" below. Finally, if a real estate investment
trust or a regulated investment company owns a Residual Certificate, a
portion (allocated under Treasury regulations yet to be issued) of dividends
paid by the real estate investment trust or a regulated investment company
could not be offset by net operating losses of its shareholders, would
constitute unrelated business taxable income for tax-exempt shareholders, and
would be ineligible for reduction of withholding to certain persons who are
not U.S. Persons. The SBJPA of 1996 has eliminated the special rule
permitting Section 593 institutions ("thrift institutions") to use net
operating losses and other allowable deductions to offset their excess
inclusion income from Residual Certificates that have "significant value"
within the meaning of the REMIC Regulations, effective for taxable years
beginning after December 31, 1995, except with respect to Residual
Certificates continuously held by thrift institutions since November 1, 1995.
In addition, the SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on the alternative minimum taxable income of a
Residual Certificateholder. First, alternative minimum taxable income for a
Residual Certificateholder is determined without regard to the special rule,
discussed above, that taxable income cannot be less than excess inclusions.
Second, a Residual Certificateholder's alternative minimum taxable income for
a taxable year cannot be less than the excess inclusions for the year. Third,
the amount of any alternative minimum tax net operating loss deduction must
be computed without regard to any excess inclusions. These rules are
effective for taxable years beginning after December 31, 1996, unless a
Residual Certificateholder elects to have such rules apply only to taxable
years beginning after August 20, 1996.
Tax-Related Restrictions on Transfer of Residual Certificates
Disqualified Organizations. If any legal or beneficial interest in a
Residual Certificate is transferred to a Disqualified Organization (as
defined below) other than in connection with the formation of a REMIC Pool,
if the Disqualified Organization is required, pursuant to a binding contract,
to sell such Residual Certificate, which sale occurs within seven days after
the Startup Days, a tax would be imposed in an amount equal to the product of
(i) the present value of the total anticipated excess inclusions with respect
to such Residual Certificate for periods after the transfer and (ii) the
highest marginal federal income tax rate applicable to corporations. The
REMIC Regulations provide that the anticipated excess inclusions are based on
actual prepayment experience to the date of the transfer and projected
payments based on the Prepayment Assumption. The present value rate equals
the applicable Federal rate under Code Section 1274(d) as of the date of the
transfer for a term ending with the last calendar quarter in which excess
inclusions are expected to accrue. Such a tax generally would be imposed on
the transferor of the Residual Certificate, except that where such transfer
is through an agent (including a broker, nominee or other middleman) for a
Disqualified Organization, the tax would instead be imposed on such agent.
However, a transferor of a Residual Certificate would in no event be liable
for such tax with respect to a transfer if the transferee furnishes to the
transferor an affidavit that the transferee is not a Disqualified
Organization and, as of the time of the transfer, the transferor does not
have actual knowledge that such affidavit is false. The tax also may be
waived by the Treasury Department if the Disqualified Organization promptly
disposes of the residual interest and the transferor pays income tax at the
highest corporate rate on the excess inclusions for the period the Residual
Certificate is actually held by the Disqualified Organization.
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
such entity, then a tax is imposed on such entity equal to the product of (i)
the amount
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of excess inclusions on the Residual Certificate that are allocable to the
interest in the Pass-Through Entity during the period such interest is held
by such Disqualified Organization, and (ii) the highest marginal federal
corporate income tax rate. Such tax would be deductible from the ordinary
gross income of the Pass-Through Entity for the taxable year. The
Pass-Through Entity would not be liable for such tax if it has received an
affidavit from such record holder that it is not a Disqualified Organization
or stating such holder's taxpayer identification number and, during the
period such person is the record holder of the Residual Certificate, the
Pass-Through Entity does not have actual knowledge that such affidavit is
false.
For these purposes, (i) "Disqualified Organization" means the United
States, any state or political subdivision thereof, any foreign government,
any international organization, any agency or instrumentality of any of the
foregoing (provided, that such term does not include an instrumentality if
all of its activities are subject to tax and, except in the case of the
Federal Home Loan Mortgage Corporation, a majority of its board of directors
is not selected by any such governmental entity), any cooperative
organization furnishing electric energy or providing telephone service to
persons in rural areas as described in Code Section 1381(a)(2)(C), and any
organization (other than a farmers' cooperative described in Code Section
521) that is exempt from taxation under the Code unless such organization is
subject to the tax on unrelated business income imposed by Code Section 511,
and (ii) "Pass-Through Entity" means any regulated investment company, real
estate investment trust, common trust fund, partnership, trust or estate and
certain corporations operating on a cooperative basis. Except as may be
provided in Treasury regulations, any person holding an interest in a
Pass-Through Entity as a nominee for another will, with respect to such
interest, be treated as a Pass-Through Entity.
The Pooling Agreement with respect to a series of Certificates will
provide that no legal or beneficial interest in a Residual Certificate may be
transferred unless (i) the proposed transferee provides to the transferor and
the Trustee an affidavit providing its taxpayer identification number and
stating that such transferee is the beneficial owner of the Residual
Certificate, is not a Disqualified Organization and is not purchasing such
Residual Certificates on behalf of a Disqualified Organization (i.e., as a
broker, nominee or middleman thereof), and (ii) the transferor provides a
statement in writing to the Depositor and the Trustee that it has no actual
knowledge that such affidavit is false. Moreover, the Pooling Agreement will
provide that any attempted or purported transfer in violation of these
transfer restrictions will be null and void and will vest no rights in any
purported transferee. Each Residual Certificate with respect to a series will
bear a legend referring to such restrictions on transfer, and each Residual
Certificateholder will be deemed to have agreed, as a condition of ownership
thereof, to any amendments to the related Pooling Agreement required under
the Code or applicable Treasury regulations to effectuate the foregoing
restrictions. Information necessary to compute an applicable excise tax must
be furnished to the Service and to the requesting party within 60 days of the
request, and the Depositor or the Trustee may charge a fee for computing and
providing such information.
Noneconomic Residual Interests. The REMIC Regulations would disregard
certain transfers of Residual Certificates, in which case the transferor
would continue to be treated as the owner of the Residual Certificates and
thus would continue to be subject to tax on its allocable portion of the net
income of the REMIC Pool. Under the REMIC Regulations, a transfer of a
"noneconomic residual interest" (as defined below) to a Residual
Certificateholder (other than a Residual Certificateholder who is not a U.S.
Person, as defined below under "Foreign Investors") is disregarded for all
federal income tax purposes if a significant purpose of the transferor is to
impede the assessment or collection of tax. A residual interest in a REMIC
(including a residual interest with a positive value at issuance) is a
"noneconomic residual interest" unless, at the time of the transfer, (i) the
present value of the expected future distributions on the residual interest
at least equals the product of the present value of the anticipated excess
inclusions and the highest corporate income tax rate in effect for the year
in which the transfer occurs, and (ii) the transferor reasonably expects that
the transferee will receive distributions from the REMIC at or after the time
at which taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. The anticipated excess inclusions
and the present value rate are determined in the same manner as set forth
above under "Disqualified Organizations". The REMIC Regulations explain that
a significant purpose to impede the assessment or collection of tax exists if
the
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transferor, at the time of the transfer, either knew or should have known
that the transferee would be unwilling or unable to pay taxes due on its
share of the taxable income of the REMIC. A safe harbor is provided if (i)
the transferor conducted, at the time of the transfer, a reasonable
investigation of the financial condition of the transferee and found that the
transferee historically had paid its debts as they came due and found no
significant evidence to indicate that the transferee would not continue to
pay its debts as they came due in the future, and (ii) the transferee
represents to the transferor that it understands that, as the holder of the
noneconomic residual interest, the transferee may incur tax liabilities in
excess of cash flows generated by the interest and that the transferee
intends to pay taxes associated with holding the residual interest as they
become due. The Pooling Agreement with respect to each series of Certificates
will require the transferee of a Residual Certificate to certify to the
matters in the preceding sentence as part of the affidavit described above
under the heading "Disqualified Organizations". The transferor must have no
actual knowledge or reason to know that such statements are false.
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Certificate that has "tax avoidance potential" to a "foreign person"
will be disregarded for all federal tax purposes. This rule appears intended
to apply to a transferee who is not a "U.S. Person" (as defined below),
unless such transferee's income is effectively connected with the conduct of
a trade or business within the United States or not otherwise subject to a
withholding tax. A Residual Certificate is deemed to have tax avoidance
potential unless, at the time of the transfer, (i) the future value of
expected distributions equals at least 30% of the anticipated excess
inclusions after the transfer, and (ii) the transferor reasonably expects
that the transferee will receive sufficient distributions from the REMIC Pool
at or after the time at which the excess inclusions accrue and prior to the
end of the next succeeding taxable year for the accumulated withholding tax
liability to be paid. If the non-U.S. Person transfers the Residual
Certificate back to a U.S. Person, the transfer will be disregarded and the
foreign transferor will continue to be treated as the owner unless
arrangements are made so that the transfer does not have the effect of
allowing the transferor to avoid tax on accrued excess inclusions.
The Prospectus Supplement relating to a series of Certificates may provide
that a Residual Certificate may not be purchased by or transferred to any
person that is not a U.S. Person or may describe the circumstances and
restrictions pursuant to which such a transfer may be made. The term "U.S.
Person" means a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any State, an estate that is subject to United States
federal income tax regardless of the source of its income or a trust if (A)
for taxable years beginning after December 31, 1996 (or for taxable years
ending after August 20, 1996, if the trustee has made an applicable
election), a court within the United States is able to exercise primary
supervision over the administration of such trust, and one or more United
States persons have the authority to control all substantial decisions of
such trust, or (B) for all other taxable years, such trust is subject to
United States federal income tax regardless of the source of its income (or,
to the extent provided in applicable Treasury Regulations, certain trusts in
existence on August 20, 1996 which are eligible to elect to be treated as
U.S. Persons).
Sale or Exchange of a Residual Certificate
Upon the sale or exchange of a Residual Certificate, the Residual
Certificateholder will recognize gain or loss equal to the excess, if any, of
the amount realized over the adjusted basis (as described above under
"Taxation of Residual Certificates--Basis and Losses") of such Residual
Certificateholder in such Residual Certificate at the time of the sale or
exchange. In addition to reporting the taxable income of the REMIC Pool, a
Residual Certificateholder will have taxable income to the extent that any
cash distribution to it from the REMIC Pool exceeds such adjusted basis on
that Distribution Date. Such income will be treated as gain from the sale or
exchange of the Residual Certificate. It is possible that the termination of
the REMIC Pool may be treated as a sale or exchange of a Residual
Certificateholder's Residual Certificate, in which case, if the Residual
Certificateholder has an adjusted basis in such Residual Certificateholder's
Residual Certificate remaining when its interest in the REMIC Pool
terminates, and if such Residual Certificateholder holds such Residual
Certificate as a capital asset under Code Section 1221, then such Residual
Certificateholder will recognize a capital loss at that time in the amount of
such remaining adjusted basis.
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Any gain on the sale of a Residual Certificate will be treated as ordinary
income (i) if a Residual Certificate is held as part of a "conversion
transaction" as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the Residual Certificateholder's net investment in
the conversion transaction at 120% of the appropriate applicable Federal rate
in effect at the time the taxpayer entered into the transaction minus any
amount previously treated as ordinary income with respect to any prior
disposition of property that was held as a part of such transaction or (ii)
in the case of a non-corporate taxpayer, to the extent such taxpayer has made
an election under Code Section 163(d)(4) to have net capital gains taxed as
investment income at ordinary income rates. In addition, gain or loss
recognized from the sale of a Residual Certificate by certain banks or thrift
institutions will be treated as ordinary income or loss pursuant to Code
Section 582(c).
The Conference Committee Report to the 1986 Act provides that, except as
provided in Treasury regulations yet to be issued, the wash sale rules of
Code Section 1091 will apply to dispositions of Residual Certificates where
the seller of the Residual Certificate, during the period beginning six
months before the sale or disposition of the Residual Certificate and ending
six months after such sale or disposition, acquires (or enters into any other
transaction that results in the application of Section 1091) any residual
interest in any REMIC or any interest in a "taxable mortgage pool" (such as a
non-REMIC owner trust) that is economically comparable to a Residual
Certificate.
Mark-to-Market Regulations
The Service has issued regulations (the "Mark-to-Market Regulations")
under Code Section 475 relating to the requirement that a securities dealer
mark-to-market securities held for sale to customers. This mark-to-market
requirement applies to all securities of a dealer, except to the extent that
the dealer has specifically identified a security as held for investment. The
Mark-to-Market Regulations provide that, for purposes of this mark-to-market
requirement, a Residual Certificate is not treated as a security and thus may
not be marked-to-market. The Mark-to-Market Regulations apply to all Residual
Certificates acquired on or after January 4, 1995.
TAXES THAT MAY BE IMPOSED ON THE REMIC POOL
Prohibited Transactions
Income from certain transactions by the REMIC Pool, called prohibited
transactions, will not be part of the calculation of income or loss
includible in the federal income tax returns of Residual Certificateholders,
but rather will be taxed directly to the REMIC Pool at a 100% rate.
Prohibited transactions generally include (i) the disposition of a qualified
mortgage other than pursuant to a (a) substitution within two years of the
Startup Day for a defective (including a defaulted) obligation (or repurchase
in lieu of substitution of a defective (including a defaulted) obligation at
any time) or for any qualified mortgage within three months of the Startup
Day, (b) foreclosure, default or imminent default of a qualified mortgage,
(c) bankruptcy or insolvency of the REMIC Pool or (d) qualified (complete)
liquidation, (ii) the receipt of income from assets that are not the type of
mortgages or investments that the REMIC Pool is permitted to hold, (iii) the
receipt of compensation for services or (iv) the receipt of gain from
disposition of cash flow investments other than pursuant to a qualified
liquidation. Notwithstanding (i) and (iv), it is not a prohibited transaction
to sell REMIC Pool property to prevent a default on Regular Certificates as a
result of a default on qualified mortgages or to facilitate a clean-up call
(generally, an optional termination to save administrative costs when no more
than a small percentage of the Certificates is outstanding). The REMIC
Regulations indicate that the modification of a Mortgage Loan generally will
not be treated as a disposition if it is occasioned by a default or
reasonably foreseeable default, an assumption of the Mortgage Loan, the
waiver of a due-on-sale or due-on-encumbrance clause or the conversion of an
interest rate by a mortgagor pursuant to the terms of a convertible
adjustable rate Mortgage Loan.
Contributions to the REMIC Pool After the Startup Day
In general, the REMIC Pool will be subject to a tax at a 100% rate on the
value of any property contributed to the REMIC Pool after the Startup Day.
Exceptions are provided for cash contributions to the REMIC Pool (i) during
the three months following the Startup Day, (ii) made to a qualified reserve
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fund by a Residual Certificateholder, (iii) in the nature of a guarantee,
(iv) made to facilitate a qualified liquidation or clean-up call and (v) as
otherwise permitted in Treasury regulations yet to be issued.
Net Income from Foreclosure Property
The REMIC Pool will be subject to federal income tax at the highest
corporate rate on "net income from foreclosure property", determined by
reference to the rules applicable to real estate investment trusts.
Generally, property acquired by deed in lieu of foreclosure would be treated
as "foreclosure property" for a period of two years, with possible extensions
of up to an additional four years. Net income from foreclosure property
generally means gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment
trust.
It is not anticipated that the REMIC Pool will receive income or
contributions subject to tax under the preceding three paragraphs, except as
described in the applicable Prospectus Supplement with respect to net income
from foreclosure property on a commercial or multifamily residential property
that secured a Mortgage Loan. In addition, unless otherwise disclosed in the
applicable Prospectus Supplement, it is not anticipated that any material
state income or franchise tax will be imposed on a REMIC Pool.
LIQUIDATION OF THE REMIC POOL
If a REMIC Pool adopts a plan of complete liquidation, within the meaning
of Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in
the REMIC Pool's final tax return a date on which such adoption is deemed to
occur, and sells all of its assets (other than cash) within a 90-day period
beginning on the date of the adoption of the plan of liquidation, the REMIC
Pool will not be subject to the prohibited transaction rules on the sale of
its assets, provided that the REMIC Pool credits or distributes in
liquidation all of the sale proceeds plus its cash (other than amounts
retained to meet claims) to holders of Regular Certificates and Residual
Certificateholders within the 90-day period.
ADMINISTRATIVE MATTERS
The REMIC Pool will be required to maintain its books on a calendar year
basis and to file federal income tax returns for federal income tax purposes
in a manner similar to a partnership. The form for such income tax return is
Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return.
The Trustee will be required to sign the REMIC Pool's returns. Treasury
regulations provide that, except where there is a single Residual
Certificateholder for an entire taxable year, the REMIC Pool will be subject
to the procedural and administrative rules of the Code applicable to
partnerships, including the determination by the Service of any adjustments
to, among other things, items of REMIC income, gain, loss, deduction or
credit in a unified administrative proceeding. The Residual Certificateholder
owning the largest percentage interest in the Residual Certificates will be
obligated to act as "tax matters person", as defined in applicable Treasury
regulations, with respect to the REMIC Pool. Each Residual Certificateholder
will be deemed, by acceptance of such Residual Certificates, to have agreed
(i) to the appointment of the tax matters person as provided in the preceding
sentence and (ii) to the irrevocable designation of the Master Servicer as
agent for performing the functions of the tax matters person.
LIMITATIONS ON DEDUCTION OF CERTAIN EXPENSES
An investor who is an individual, estate or trust will be subject to
limitation with respect to certain itemized deductions described in Code
Section 67, to the extent that such itemized deductions, in the aggregate, do
not exceed 2% of the investor's adjusted gross income. In addition, Code
Section 68 provides that itemized deductions otherwise allowable for a
taxable year of an individual taxpayer will be reduced by the lesser of (i)
3% of the excess, if any, of adjusted gross income over $124,500 for the
taxable year beginning in 1998 ($62,250 in the case of a married individual
filing a separate return) (subject to adjustments for inflation in subsequent
years) or (ii) 80% of the amount of itemized deductions otherwise allowable
for such year. In the case of a REMIC Pool, such deductions may include
deductions under Code Section 212 for the servicing fee and all
administrative and other expenses relating to the REMIC Pool, or any similar
expenses allocated to the REMIC Pool with respect to a regular interest it
holds in
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another REMIC. Such investors who hold REMIC Certificates either directly or
indirectly through certain pass-through entities may have their pro rata
share of such expenses allocated to them as additional gross income, but may
be subject to such limitation on deductions. In addition, such expenses are
not deductible at all for purposes of computing the alternative minimum tax,
and may cause such investors to be subject to significant additional tax
liability. Temporary Treasury regulations provide that the additional gross
income and corresponding amount of expenses generally are to be allocated
entirely to the holders of Residual Certificates in the case of a REMIC Pool
that would not qualify as a fixed investment trust in the absence of a REMIC
election. However, such additional gross income and limitation on deductions
will apply to the allocable portion of such expenses to holders of Regular
Certificates, as well as holders of Residual Certificates, where such Regular
Certificates are issued in a manner that is similar to pass-through
certificates in a fixed investment trust. In general, such allocable portion
will be determined based on the ratio that a REMIC Certificateholder's
income, determined on a daily basis, bears to the income of all holders of
Regular Certificates and Residual Certificates with respect to a REMIC Pool.
As a result, individuals, estates or trusts holding REMIC Certificates
(either directly or indirectly through a grantor trust, partnership, S
corporation, REMIC, or certain other pass-through entities described in the
foregoing temporary Treasury regulations) may have taxable income in excess
of the interest income at the pass-through rate on Regular Certificates that
are issued in a single Class or otherwise consistently with fixed investment
trust status or in excess of cash distributions for the related period on
Residual Certificates. Unless otherwise indicated in the applicable
Prospectus Supplement, all such expenses will be allocable to the Residual
Certificates.
TAXATION OF CERTAIN FOREIGN INVESTORS
Regular Certificates
Interest, including original issue discount, distributable to Regular
Certificateholders who are non-resident aliens, foreign corporations, or
other Non-U.S. Persons (as defined below), will be considered "portfolio
interest" and, therefore, generally will not be subject to 30% United States
withholding tax, provided that such Non-U.S. Person (i) is not a "10-percent
shareholder" within the meaning of Code Section 871(h)(3)(B) or a controlled
foreign corporation described in Code Section 881(c)(3)(C) and (ii) provides
the Trustee, or the person who would otherwise be required to withhold tax
from such distributions under Code Section 1441 or 1442, with an appropriate
statement, signed under penalties of perjury, identifying the beneficial
owner and stating, among other things, that the beneficial owner of the
Regular Certificate is a Non-U.S. Person. If such statement, or any other
required statement, is not provided, 30% withholding will apply unless
reduced or eliminated pursuant to an applicable tax treaty or unless the
interest on the Regular Certificate is effectively connected with the conduct
of a trade or business within the United States by such Non-U.S. Person. In
the latter case, such Non-U.S. Person will be subject to United States
federal income tax at regular rates. Prepayment Premiums distributable to
Regular Certificateholders who are Non-U.S. Persons may be subject to 30%
United States withholding tax. Investors who are Non-U.S. Persons should
consult their own tax advisors regarding the specific tax consequences to
them of owning a Regular Certificate. The term "Non-U.S. Person" means any
person who is not a U.S. Person.
Residual Certificates
The Conference Committee Report to the 1986 Act indicates that amounts
paid to Residual Certificateholders who are Non-U.S. Persons are treated as
interest for purposes of the 30% (or lower treaty rate) United States
withholding tax. Treasury regulations provide that amounts distributed to
Residual Certificateholders may qualify as "portfolio interest", subject to
the conditions described in "Regular Certificates" above, but only to the
extent that (i) the Mortgage Loans (including mortgage loans underlying MBS)
were issued after July 18, 1984 and (ii) the Trust Fund or segregated pool of
assets therein (as to which a separate REMIC election will be made), to which
the Residual Certificate relates, consists of obligations issued in
"registered form" within the meaning of Code Section 163(f)(1). Generally,
whole mortgage loans will not be, but MBS and regular interests in another
REMIC Pool will be, considered obligations issued in registered form.
Furthermore, a Residual Certificateholder will not be entitled to any
exemption from the 30% withholding tax (or lower treaty rate) to the extent
of that portion
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of REMIC taxable income that constitutes an "excess inclusion". See "Taxation
of Residual Certificates--Limitations on Offset or Exemption of REMIC
Income". If the amounts paid to Residual Certificateholders who are Non-U.S.
Persons are effectively connected with the conduct of a trade or business
within the United States by such Non-U.S. Persons, 30% (or lower treaty rate)
withholding will not apply. Instead, the amounts paid to such Non-U.S.
Persons will be subject to United States federal income tax at regular rates.
If 30% (or lower treaty rate) withholding is applicable, such amounts
generally will be taken into account for purposes of withholding only when
paid or otherwise distributed (or when the Residual Certificate is disposed
of) under rules similar to withholding upon disposition of debt instruments
that have original issue discount. See "Tax-Related Restrictions on Transfer
of Residual Certificates--Foreign Investors" above concerning the disregard
of certain transfers having "tax avoidance potential". Investors who are
Non-U.S. Persons should consult their own tax advisors regarding the specific
tax consequences to them of owning Residual Certificates.
BACKUP WITHHOLDING
Distributions made on the Regular Certificates, and proceeds from the sale
of the Regular Certificates to or through certain brokers, may be subject to
a "backup" withholding tax under Code Section 3406 of 31% on "reportable
payments" (including interest distributions, original issue discount, and,
under certain circumstances, principal distributions) unless the Regular
Certificateholder complies with certain reporting and/or certification
procedures, including the provision of its taxpayer identification number to
the Trustee, its agent or the broker who effected the sale of the Regular
Certificate, or such Certificateholder is otherwise an exempt recipient under
applicable provisions of the Code. Any amounts to be withheld from
distribution on the Regular Certificates would be refunded by the Service or
allowed as a credit against the Regular Certificateholder's federal income
tax liability.
REPORTING REQUIREMENTS
Reports of accrued interest, original issue discount and information
necessary to compute the accrual of any market discount on the Regular
Certificates will be made annually to the Service and to individuals,
estates, non-exempt and non-charitable trusts, and partnerships who are
either holders of record of Regular Certificates or beneficial owners who own
Regular Certificates through a broker or middleman as nominee. All brokers,
nominees and all other non-exempt holders of record of Regular Certificates
(including corporations, non-calendar year taxpayers, securities or
commodities dealers, real estate investment trusts, investment companies,
common trust funds, thrift institutions and charitable trusts) may request
such information for any calendar quarter by telephone or in writing by
contacting the person designated in Service Publication 938 with respect to a
particular Series of Regular Certificates. Holders through nominees must
request such information from the nominee.
The Service's Form 1066 has an accompanying Schedule Q, Quarterly Notice
to Residual Interest Holders of REMIC Taxable Income or Net Loss Allocation.
Treasury regulations require that Schedule Q be furnished by the REMIC Pool
to each Residual Certificateholder by the end of the month following the
close of each calendar quarter (41 days after the end of a quarter under
proposed Treasury regulations) in which the REMIC Pool is in existence.
Treasury regulations require that, in addition to the foregoing
requirements, information must be furnished quarterly to Residual
Certificateholders, furnished annually, if applicable, to holders of Regular
Certificates, and filed annually with the Service concerning Code Section 67
expenses (see "Limitations on Deduction of Certain Expenses" above) allocable
to such holders. Furthermore, under such regulations, information must be
furnished quarterly to Residual Certificateholders, furnished annually to
holders of Regular Certificates, and filed annually with the Service
concerning the percentage of the REMIC Pool's assets meeting the qualified
asset tests described above under "Status of REMIC Certificates".
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FEDERAL INCOME TAX CONSEQUENCES FOR CERTIFICATES AS TO WHICH NO REMIC
ELECTION IS MADE
STANDARD CERTIFICATES
General
In the event that no election is made to treat a Trust Fund (or a
segregated pool of assets therein) with respect to a series of Certificates
that are not designated as "Stripped Certificates", as described below, as a
REMIC (Certificates of such a series hereinafter referred to as "Standard
Certificates"), the Trust Fund will be classified as a grantor trust under
subpart E, Part 1 of subchapter J of the Code and not as an association
taxable as a corporation or a "taxable mortgage pool" within the meaning of
Code Section 7701(i). Where there is no fixed retained yield with respect to
the Mortgage Loans underlying the Standard Certificates, the holder of each
such Standard Certificate (a "Standard Certificateholder") in such series
will be treated as the owner of a pro rata undivided interest in the ordinary
income and corpus portions of the Trust Fund represented by its Standard
Certificate and will be considered the beneficial owner of a pro rata
undivided interest in each of the Mortgage Loans, subject to the discussion
below under "Recharacterization of Servicing Fees". Accordingly, the holder
of a Standard Certificate of a particular series will be required to report
on its federal income tax return its pro rata share of the entire income from
the Mortgage Loans represented by its Standard Certificate, including
interest at the coupon rate on such Mortgage Loans, original issue discount
(if any), prepayment fees, assumption fees, and late payment charges received
by the Master Servicer, in accordance with such Standard Certificateholder's
method of accounting. A Standard Certificateholder generally will be able to
deduct its share of the servicing fee and all administrative and other
expenses of the Trust Fund in accordance with its method of accounting,
provided that such amounts are reasonable compensation for services rendered
to that Trust Fund. However, investors who are individuals, estates or trusts
who own Standard Certificates, either directly or indirectly through certain
pass-through entities, will be subject to limitation with respect to certain
itemized deductions described in Code Section 67, including deductions under
Code Section 212 for the servicing fee and all such administrative and other
expenses of the Trust Fund, to the extent that such deductions, in the
aggregate, do not exceed two percent of an investor's adjusted gross income.
In addition, Code Section 68 provides that itemized deductions otherwise
allowable for a taxable year of an individual taxpayer will be reduced by the
lesser of (i) 3% of the excess, if any, of adjusted gross income over
$124,500 for the taxable year beginning in 1998 ($62,250 in the case of a
married individual filing a separate return) (subject to adjustments for
inflation in subsequent years), or (ii) 80% of the amount of itemized
deductions otherwise allowable for such year. As a result, such investors
holding Standard Certificates, directly or indirectly through a pass-through
entity, may have aggregate taxable income in excess of the aggregate amount
of cash received on such Standard Certificates with respect to interest at
the pass-through rate on such Standard Certificates. In addition, such
expenses are not deductible at all for purposes of computing the alternative
minimum tax, and may cause such investors to be subject to significant
additional tax liability. Moreover, where there is fixed retained yield with
respect to the Mortgage Loans underlying a series of Standard Certificates or
where the servicing fee is in excess of reasonable servicing compensation,
the transaction will be subject to the application of the "stripped bond" and
"stripped coupon" rules of the Code, as described below under "Stripped
Certificates" and "Recharacterization of Servicing Fees", respectively.
Tax Status
Standard Certificates will have the following status for federal income
tax purposes:
1. A Standard Certificate owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19) will be
considered to represent "loans . . . secured by an interest in real
property which is . . . residential real property" within the meaning of
Code Section 7701(a)(19)(C)(v), provided that the real property securing
the Mortgage Loans represented by that Standard Certificate is of the type
described in such section of the Code.
2. A Standard Certificate owned by a real estate investment trust will be
considered to represent "real estate assets" within the meaning of Code
Section 856(c)(4)(A) to the extent that the assets of the related Trust
Fund consist of qualified assets, and interest income on such assets will
be considered "interest on obligations secured by mortgages on real
property" to such extent within the meaning of Code Section 856(c)(3)(B).
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3. A Standard Certificate owned by a REMIC will be considered to
represent an "obligation . . . which is principally secured by an interest
in real property" within the meaning of Code Section 860G(a)(3)(A) to the
extent that the assets of the related Trust Fund consist of "qualified
mortgages" within the meaning of Code Section 860G(a)(3).
Premium and Discount
Standard Certificateholders are advised to consult with their tax advisors
as to the federal income tax treatment of premium and discount arising either
upon initial acquisition of Standard Certificates or thereafter.
Premium. The treatment of premium incurred upon the purchase of a Standard
Certificate will be determined generally as described above under "Certain
Federal Income Tax Consequences for REMIC Certificates--Taxation of Residual
Certificates--Treatment of Certain Items of REMIC Income and
Expense--Premium".
Original Issue Discount. The original issue discount rules will be
applicable to a Standard Certificateholder's interest in those Mortgage Loans
as to which the conditions for the application of those sections are met.
Rules regarding periodic inclusion of original issue discount income are
applicable to mortgages of corporations originated after May 27, 1969,
mortgages of noncorporate mortgagors (other than individuals) originated
after July 1, 1982, and mortgages of individuals originated after March 2,
1984. Under the OID Regulations, such original issue discount could arise by
the charging of points by the originator of the mortgages in an amount
greater than a statutory de minimis exception, including a payment of points
currently deductible by the borrower under applicable Code provisions or,
under certain circumstances, by the presence of "teaser rates" on the
Mortgage Loans.
Original issue discount must generally be reported as ordinary gross
income as it accrues under a constant interest method that takes into account
the compounding of interest, in advance of the cash attributable to such
income. Unless indicated otherwise in the applicable Prospectus Supplement,
no prepayment assumption will be assumed for purposes of such accrual.
However, Code Section 1272 provides for a reduction in the amount of original
issue discount includible in the income of a holder of an obligation that
acquires the obligation after its initial issuance at a price greater than
the sum of the original issue price and the previously accrued original issue
discount, less prior payments of principal. Accordingly, if such Mortgage
Loans acquired by a Standard Certificateholder are purchased at a price equal
to the then unpaid principal amount of such Mortgage Loans, no original issue
discount attributable to the difference between the issue price and the
original principal amount of such Mortgage Loans (i.e., points) will be
includible by such holder.
Market Discount. Standard Certificateholders also will be subject to the
market discount rules to the extent that the conditions for application of
those sections are met. Market discount on the Mortgage Loans will be
determined and will be reported as ordinary income generally in the manner
described above under "Certain Federal Income Tax Consequences for REMIC
Certificates--Taxation of Regular Certificates--Market Discount", except that
the ratable accrual methods described therein will not apply and it is
unclear whether a Prepayment Assumption would apply. Rather, the holder will
accrue market discount pro rata over the life of the Mortgage Loans, unless
the constant yield method is elected. Unless indicated otherwise in the
applicable Prospectus Supplement, no prepayment assumption will be assumed
for purposes of such accrual.
Recharacterization of Servicing Fees. If the servicing fee paid to the
Master Servicer were deemed to exceed reasonable servicing compensation, the
amount of such excess would represent neither income nor a deduction to
Certificateholders. In this regard, there are no authoritative guidelines for
federal income tax purposes as to either the maximum amount of servicing
compensation that may be considered reasonable in the context of this or
similar transactions or whether, in the case of the Standard Certificate, the
reasonableness of servicing compensation should be determined on a weighted
average or loan-by-loan basis. If a loan-by-loan basis is appropriate, the
likelihood that such amount would exceed reasonable servicing compensation as
to some of the Mortgage Loans would be increased. Service guidance indicates
that a servicing fee in excess of reasonable compensation ("excess
servicing") will cause the Mortgage
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Loans to be treated under the "stripped bond" rules. Such guidance provides
safe harbors for servicing deemed to be reasonable and requires taxpayers to
demonstrate that the value of servicing fees in excess of such amounts is not
greater than the value of the services provided.
Accordingly, if the Service's approach is upheld, a servicer who receives
a servicing fee in excess of such amounts would be viewed as retaining an
ownership interest in a portion of the interest payments on the Mortgage
Loans. Under the rules of Code Section 1286, the separation of ownership of
the right to receive some or all of the interest payments on an obligation
from the right to receive some or all of the principal payments on the
obligation would result in treatment of such Mortgage Loans as "stripped
coupons" and "stripped bonds". Subject to the de minimis rule discussed below
under "--Stripped Certificates", each stripped bond or stripped coupon could
be considered for this purpose as a non-interest bearing obligation issued on
the date of issue of the Standard Certificates, and the original issue
discount rules of the Code would apply to the holder thereof. While Standard
Certificateholders would still be treated as owners of beneficial interests
in a grantor trust for federal income tax purposes, the corpus of such trust
could be viewed as excluding the portion of the Mortgage Loans the ownership
of which is attributed to the Master Servicer, or as including such portion
as a second class of equitable interest. Applicable Treasury regulations
treat such an arrangement as a fixed investment trust, since the multiple
classes of trust interests should be treated as merely facilitating direct
investments in the trust assets and the existence of multiple classes of
ownership interests is incidental to that purpose. In general, such a
recharacterization should not have any significant effect upon the timing or
amount of income reported by a Standard Certificateholder, except that the
income reported by a cash method holder may be slightly accelerated. See
"Stripped Certificates" below for a further description of the federal income
tax treatment of stripped bonds and stripped coupons.
Sale or Exchange of Standard Certificates. Upon sale or exchange of a
Standard Certificate, a Standard Certificateholder will recognize gain or
loss equal to the difference between the amount realized on the sale and its
aggregate adjusted basis in the Mortgage Loans and the other assets
represented by the Standard Certificate. In general, the aggregate adjusted
basis will equal the Standard Certificateholder's cost for the Standard
Certificate, increased by the amount of any income previously reported with
respect to the Standard Certificate and decreased by the amount of any losses
previously reported with respect to the Standard Certificate and the amount
of any distributions received thereon. Except as provided above with respect
to market discount on any Mortgage Loans, and except for certain financial
institutions subject to the provisions of Code Section 582(c), any such gain
or loss would be capital gain or loss if the Standard Certificate was held as
a capital asset. However, gain on the sale of a Standard Certificate will be
treated as ordinary income (i) if a Standard Certificate is held as part of a
"conversion transaction" as defined in Code Section 1258(c), up to the amount
of interest that would have accrued on the Standard Certificateholder's net
investment in the conversion transaction at 120% of the appropriate
applicable Federal rate in effect at the time the taxpayer entered into the
transaction minus any amount previously treated as ordinary income with
respect to any prior disposition of property that was held as a part of such
transaction or (ii) in the case of a non-corporate taxpayer, to the extent
such taxpayer has made an election under Code Section 163(d)(4) to have net
capital gains taxed as investment income at ordinary income rates. Capital
gains of certain non-corporate taxpayers are subject to a lower maximum tax
rate (28%) than ordinary income of such taxpayers (39.6%) for property held
for more than one year but not more than 18 months, and a still lower maximum
rate (20%) for property held for more than 18 months. The maximum tax rate
for corporations is the same with respect to both ordinary income and capital
gains.
STRIPPED CERTIFICATES
General
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the principal payments on an obligation from ownership
of the right to receive some or all of the interest payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
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coupons" with respect to interest payments. For purposes of this discussion,
Certificates that are subject to those rules will be referred to as "Stripped
Certificates". Stripped Certificates include "Stripped Interest Certificates"
and "Stripped Principal Certificates" (as defined in this Prospectus) as to
which no REMIC election is made.
The Certificates will be subject to those rules if (i) the Depositor or
any of its affiliates retains (for its own account or for purposes of
resale), in the form of fixed retained yield or otherwise, an ownership
interest in a portion of the payments on the Mortgage Loans, (ii) the Master
Servicer is treated as having an ownership interest in the Mortgage Loans to
the extent it is paid (or retains) servicing compensation in an amount
greater than reasonable consideration for servicing the Mortgage Loans (see
"Standard Certificates--Recharacterization of Servicing Fees" above) and
(iii) Certificates are issued in two or more classes or subclasses
representing the right to non-pro-rata percentages of the interest and
principal payments on the Mortgage Loans.
In general, a holder of a Stripped Certificate will be considered to own
"stripped bonds" with respect to its pro rata share of all or a portion of
the principal payments on each Mortgage Loan and/or "stripped coupons" with
respect to its pro rata share of all or a portion of the interest payments on
each Mortgage Loan, including the Stripped Certificate's allocable share of
the servicing fees paid to the Master Servicer, to the extent that such fees
represent reasonable compensation for services rendered. See discussion above
under "Standard Certificates--Recharacterization of Servicing Fees". Although
not free from doubt, for purposes of reporting to Stripped
Certificateholders, the servicing fees will be allocated to the Stripped
Certificates in proportion to the respective entitlements to distributions of
each class (or subclass) of Stripped Certificates for the related period or
periods. The holder of a Stripped Certificate generally will be entitled to a
deduction each year in respect of the servicing fees, as described above
under "Standard Certificates--General", subject to the limitation described
therein.
Code Section 1286 treats a stripped bond or a stripped coupon as an
obligation issued at an original issue discount on the date that such
stripped interest is purchased. Although the treatment of Stripped
Certificates for federal income tax purposes is not clear in certain respects
at this time, particularly where such Stripped Certificates are issued with
respect to a Mortgage Pool containing variable-rate Mortgage Loans, the
Depositor has been advised by counsel that (i) the Trust Fund will be treated
as a grantor trust under subpart E, Part 1 of subchapter J of the Code and
not as an association taxable as a corporation or a "taxable mortgage pool"
within the meaning of Code Section 7701(i), and (ii) each Stripped
Certificate should be treated as a single installment obligation for purposes
of calculating original issue discount and gain or loss on disposition. This
treatment is based on the interrelationship of Code Section 1286, Code
Sections 1272 through 1275, and the OID Regulations. While under Code Section
1286 computations with respect to Stripped Certificates arguably should be
made in one of the ways described below under "Taxation of Stripped
Certificates--Possible Alternative Characterizations," the OID Regulations
state, in general, that two or more debt instruments issued by a single
issuer to a single investor in a single transaction should be treated as a
single debt instrument for original issue discount purposes. The Pooling
Agreement requires that the Trustee make and report all computations
described below using this aggregate approach, unless substantial legal
authority requires otherwise.
Furthermore, Treasury regulations issued December 28, 1992, assume that a
Stripped Certificate will be treated as a single debt instrument issued on
the date it is purchased for purposes of calculating any original issue
discount and that the interest component of such a Stripped Certificate would
be treated as qualified stated interest under the OID Regulations. Further
pursuant to these final regulations the purchaser of such a Stripped
Certificate will be required to account for any discount as market discount
rather than original issue discount unless either (i) the initial discount
with respect to the Stripped Certificate was treated as zero under the de
minimis rule of Code Section 1273(a)(3), or (ii) no more than 100 basis
points in excess of reasonable servicing is stripped off the related Mortgage
Loans. Any such market discount would be reportable as described under
"Certain Federal Income Tax Consequences for REMIC Certificates--Taxation of
Regular Certificates--Market Discount," without regard to the de minimis rule
therein, assuming that a prepayment assumption is employed in such
computation.
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Status of Stripped Certificates
No specific legal authority exists as to whether the character of the
Stripped Certificates, for federal income tax purposes, will be the same as
that of the Mortgage Loans. Although the issue is not free from doubt,
counsel has advised the Depositor that Stripped Certificates owned by
applicable holders should be considered to represent "real estate assets"
within the meaning of Code Section 856(c)(4)(A), "obligation[s] principally
secured by an interest in real property" within the meaning of Code Section
860G(a)(3)(A), and "loans . . . secured by an interest in real property which
is . . . residential real property" within the meaning of Code Section
7701(a)(19)(C)(v), and interest (including original issue discount) income
attributable to Stripped Certificates should be considered to represent
"interest on obligations secured by mortgages on real property" within the
meaning of Code Section 856(c)(3)(B), provided that in each case the Mortgage
Loans and interest on such Mortgage Loans qualify for such treatment.
Taxation of Stripped Certificates
Original Issue Discount. Except as described above under "General", each
Stripped Certificate will be considered to have been issued at an original
issue discount for federal income tax purposes. Original issue discount with
respect to a Stripped Certificate must be included in ordinary income as it
accrues, in accordance with a constant interest method that takes into
account the compounding of interest, which may be prior to the receipt of the
cash attributable to such income. Based in part on the OID Regulations and
the amendments to the original issue discount sections of the Code made by
the 1986 Act, the amount of original issue discount required to be included
in the income of a holder of a Stripped Certificate (referred to in this
discussion as a "Stripped Certificateholder") in any taxable year likely will
be computed generally as described above under "Federal Income Tax
Consequences for REMIC Certificates--Taxation of Regular
Certificates--Original Issue Discount" and "--Variable Rate Regular
Certificates". However, with the apparent exception of a Stripped Certificate
qualifying as a market discount obligation, as described above under
"General", the issue price of a Stripped Certificate will be the purchase
price paid by each holder thereof, and the stated redemption price at
maturity will include the aggregate amount of the payments, other than
qualified stated interest to be made on the Stripped Certificate to such
Stripped Certificateholder, presumably under the Prepayment Assumption.
If the Mortgage Loans prepay at a rate either faster or slower than that
under the Prepayment Assumption, a Stripped Certificateholder's recognition
of original issue discount will be either accelerated or decelerated and the
amount of such original issue discount will be either increased or decreased
depending on the relative interests in principal and interest on each
Mortgage Loan represented by such Stripped Certificateholder's Stripped
Certificate. While the matter is not free from doubt, the holder of a
Stripped Certificate should be entitled in the year that it becomes certain
(assuming no further prepayments) that the holder will not recover a portion
of its adjusted basis in such Stripped Certificate to recognize an ordinary
loss equal to such portion of unrecoverable basis.
As an alternative to the method described above, the fact that some or all
of the interest payments with respect to the Stripped Certificates will not
be made if the Mortgage Loans are prepaid could lead to the interpretation
that such interest payments are "contingent" within the meaning of the OID
Regulations. The OID Regulations, as they relate to the treatment of
contingent interest, are by their terms not applicable to prepayable
securities such as the Stripped Certificates. However, if final regulations
dealing with contingent interest with respect to the Stripped Certificates
apply the same principles as the OID Regulations, such regulations may lead
to different timing of income inclusion that would be the case under the OID
Regulations. Furthermore, application of such principles could lead to the
characterization of gain on the sale of contingent interest Stripped
Certificates as ordinary income. Investors should consult their tax advisors
regarding the appropriate tax treatment of Stripped Certificates.
Sale or Exchange of Stripped Certificates. Sale or exchange of a Stripped
Certificate prior to its maturity will result in gain or loss equal to the
difference, if any, between the amount received and the Stripped
Certificateholder's adjusted basis in such Stripped Certificate, as described
above under "Certain Federal Income Tax Consequences for REMIC
Certificates--Taxation of Regular Certificates--Sale or
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Exchange of Regular Certificates". To the extent that a subsequent
purchaser's purchase price is exceeded by the remaining payments on the
Stripped Certificates, such subsequent purchaser will be required for federal
income tax purposes to accrue and report such excess as if it were original
issue discount in the manner described above. It is not clear for this
purpose whether the assumed prepayment rate that is to be used in the case of
a Stripped Certificateholder other than an original Stripped
Certificateholder should be the Prepayment Assumption or a new rate based on
the circumstances at the date of subsequent purchase.
Purchase of More Than One Class of Stripped Certificates. Where an
investor purchases more than one class of Stripped Certificates, it is
currently unclear whether for federal income tax purposes such classes of
Stripped Certificates should be treated separately or aggregated for purposes
of the rules described above.
Possible Alternative Characterizations. The characterizations of the
Stripped Certificates discussed above are not the only possible
interpretations of the applicable Code provisions. For example, the Stripped
Certificateholder may be treated as the owner of (i) one installment
obligation consisting of such Stripped Certificate's pro rata share of the
payments attributable to principal on each Mortgage Loan and a second
installment obligation consisting of such Stripped Certificate's pro rata
share of the payments attributable to interest on each Mortgage Loan, (ii) as
many stripped bonds or stripped coupons as there are scheduled payments of
principal and/or interest on each Mortgage Loan or (iii) a separate
installment obligation for each Mortgage Loan, representing the Stripped
Certificate's pro rata share of payments of principal and/or interest to be
made with respect thereto. Alternatively, the holder of one or more classes
of Stripped Certificates may be treated as the owner of a pro rata fractional
undivided interest in each Mortgage Loan to the extent that such Stripped
Certificate, or classes of Stripped Certificates in the aggregate, represent
the same pro rata portion of principal and interest on each such Mortgage
Loan, and a stripped bond or stripped coupon (as the case may be), treated as
an installment obligation or contingent payment obligation, as to the
remainder. Final regulations issued on December 28, 1992 regarding original
issue discount on stripped obligations make the foregoing interpretations
less likely to be applicable. The preamble to those regulations states that
they are premised on the assumption that an aggregation approach is
appropriate for determining whether original issue discount on a stripped
bond or stripped coupon is de minimis, and solicits comments on appropriate
rules for aggregating stripped bonds and stripped coupons under Code Section
1286.
Because of these possible varying characterizations of Stripped
Certificates and the resultant differing treatment of income recognition,
Stripped Certificateholders are urged to consult their own tax advisors
regarding the proper treatment of Stripped Certificates for federal income
tax purposes.
FEDERAL INCOME TAX CONSEQUENCES FOR FASIT CERTIFICATES
If and to the extent set forth in the Prospectus Supplement relating to a
particular Series of Certificates, an election may be made to treat the
related Trust Fund or one or more segregated pools of assets therein as one
or more financial asset securitization investment trusts ("FASITs") within
the meaning of Code Section 860L(a). Qualification as a FASIT requires
ongoing compliance with certain conditions. With respect to each series of
FASIT Certificates, O'Melveny & Myers LLP, counsel to the Depositor, will
advise the Depositor that in the firm's opinion, assuming (i) the making of
such an election, (ii) compliance with the Pooling Agreement and (iii)
compliance with any changes in the law, including any amendments to the Code
or applicable Treasury Regulations thereunder, each FASIT Pool will qualify
as a FASIT. In such case, the Regular Certificates will be considered to be
"regular interests" in the FASIT and will be treated for federal income tax
purposes as if they were newly originated debt instruments, and the Residual
Certificate will be considered the "ownership interest" in the FASIT Pool.
The Prospectus Supplement for each series of Certificates will indicate
whether one or more FASIT elections will be made with respect to the related
Trust Fund.
FASIT treatment has become available pursuant to recently enacted
legislation, and no Treasury Regulations have as yet been issued detailing
the circumstances under which a FASIT election may be made or the
consequences of such an election. If a FASIT election is made with respect to
any Trust Fund or as to any segregated pool of assets therein, the related
Prospectus Supplement will describe the Federal income tax consequences of
such election.
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REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
The Trustee will furnish, within a reasonable time after the end of each
calendar year, to each Standard Certificateholder or Stripped
Certificateholder at any time during such year, such information (prepared on
the basis described above) as the Trustee deems to be necessary or desirable
to enable such Certificateholders to prepare their federal income tax
returns. Such information will include the amount of original issue discount
accrued on Certificates held by persons other than Certificateholders
exempted from the reporting requirements. The amounts required to be reported
by the Trustee may not be equal to the proper amount of original issue
discount required to be reported as taxable income by a Certificateholder,
other than an original Certificateholder that purchased at the issue price.
In particular, in the case of Stripped Certificates, unless provided
otherwise in the applicable Prospectus Supplement, such reporting will be
based upon a representative initial offering price of each class of Stripped
Certificates. The Trustee will also file such original issue discount
information with the Service. If a Certificateholder fails to supply an
accurate taxpayer identification number or if the Secretary of the Treasury
determines that a Certificateholder has not reported all interest and
dividend income required to be shown on his federal income tax return, 31%
backup withholding may be required in respect of any reportable payments, as
described above under "Certain Federal Income Tax Consequences for REMIC
Certificates--Backup Withholding".
TAXATION OF CERTAIN FOREIGN INVESTORS
To the extent that a Certificate evidences ownership in Mortgage Loans
that are issued on or before July 18, 1984, interest or original issue
discount paid by the person required to withhold tax under Code Section 1441
or 1442 to nonresident aliens, foreign corporations, or other Non-U.S.
Persons generally will be subject to 30% United States withholding tax, or
such lower rate as may be provided for interest by an applicable tax treaty.
Accrued original issue discount recognized by the Standard Certificateholder
or Stripped Certificateholder on original issue discount recognized by the
Standard Certificateholder or Stripped Certificateholders on the sale or
exchange of such a Certificate also will be subject to federal income tax at
the same rate.
Treasury regulations provide that interest or original issue discount paid
by the Trustee or other withholding agent to a Non-U.S. Person evidencing
ownership interest in Mortgage Loans issued after July 18, 1984 will be
"portfolio interest" and will be treated in the manner, and such persons will
be subject to the same certification requirements, described above under
"Certain Federal Income Tax Consequences for REMIC Certificates--Taxation of
Certain Foreign Investors--Regular Certificates".
STATE AND OTHER TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences", potential investors should consider the
state and local tax consequences of the acquisition, ownership, and
disposition of the Offered Certificates. State tax law may differ
substantially from the corresponding federal law, and the discussion above
does not purport to describe any aspect of the 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 Section 4975 of 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, collective
investment funds, insurance company separate accounts and some insurance
company general accounts in which such plans, accounts or arrangements are
invested (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.
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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. Parties in Interest that
participate in a prohibited transaction may be subject to an excise tax
imposed pursuant to Section 4975 of the Code, unless a statutory or
administrative exemption is available. These prohibited transactions
generally are set forth in Section 406 of ERISA and Section 4975 of the Code.
Special caution should be exercised before the assets of a Plan are used to
purchase a Certificate if, with respect to such assets, the Depositor, the
Master Servicer, a Special Servicer or any Sub-Servicer or the Trustee or an
affiliate thereof, either: (a) has discretionary authority or control with
respect to the investment of such assets of such Plan; or (b) has authority
or responsibility to give, or regularly gives, investment advice with respect
to such assets of such Plan for a fee and pursuant to an agreement or
understanding that such advice will serve as a primary basis for investment
decisions with respect to such assets and that such advice will be based on
the particular investment needs of the Plan.
Before purchasing any Offered Certificates, a Plan fiduciary should
consult with its counsel and determine whether there exists any prohibition
to such purchase under the requirements of ERISA, whether any prohibited
transaction class exemption or any individual prohibited transaction
exemption (as described below) applies, including whether the appropriate
conditions set forth therein would be met, or whether any statutory
prohibited transaction exemption is applicable, and further should consult
the applicable Prospectus Supplement relating to such Series of Certificates.
Certain 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 governmental and
church 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.
PLAN ASSET REGULATIONS
A Plan's investment in Offered Certificates may cause the Trust Assets to
be deemed Plan assets. Section 2510.3-101 of the regulations ("Plan Asset
Regulations") of the United States Department of Labor ("DOL") provides that
when a Plan acquires an equity interest in an entity, the Plan's assets
include both such equity interest and an undivided interest in each of the
underlying assets of the entity, unless certain exceptions not applicable to
this discussion apply, or unless the equity participation in the entity by
"benefit plan investors" (that is, Plans, certain employee benefit plans not
subject to ERISA, and entities whose underlying assets include plan assets)
is not "significant". For this purpose, the Plan Asset Regulations provide,
in general, that participation in an entity, such as a Trust Fund, is
"significant" if, immediately after the most recent acquisition of any equity
interest, 25% or more of any class of equity interests, such as Certificates,
is held by benefit plan investors. Unless restrictions on ownership of and
transfer to Plans apply with respect to a Series of Certificates, there can
be no assurance that benefit plan investors will not own at least 25% of a
class of Certificates.
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 or any Sub-Servicer, may be
deemed to be a Plan "fiduciary" with respect to the investing Plan, and thus
subject to the fiduciary responsibility provisions and prohibited transaction
provisions of ERISA and the Code. In addition, if the Trust Assets constitute
Plan assets, the purchase of Certificates by a Plan, as well as the operation
of the Trust Fund, may constitute or involve one or more prohibited
transactions under ERISA and the Code.
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ADMINISTRATIVE EXEMPTIONS
Several underwriters of mortgage-backed securities have applied for and
obtained from DOL individual prohibited transaction exemptions that apply to
the purchase and holding of mortgage-backed securities which, among other
conditions, are sold in an offering with respect to which such underwriter
serves as the sole or a managing underwriter or as a selling or placement
agent. If such an exemption may be applicable to a Series of Certificates,
the related Prospectus Supplement will refer to such possibility, as well as
provide a summary of the conditions to the exemption's applicability.
UNRELATED BUSINESS TAXABLE INCOME; RESIDUAL CERTIFICATES
The purchase of a Residual Certificate by any employee benefit plan
qualified under Code Section 401(a) and exempt from taxation under Code
Section 501(a), including most varieties of ERISA plans, may give rise to
"unrelated business taxable income" as described in Code Sections 511-515 and
860E. Further, prior to the purchase of Residual Certificates, a prospective
transferee may be required to provide an affidavit to a transferor that it is
not, nor is it purchasing a Residual Certificate on behalf of, a
"Disqualified Organization," which term as defined above includes certain
tax-exempt entities not subject to Code Section 511 including certain
governmental plans, as discussed above under the caption "Certain Federal
Income Tax Consequences--Federal Income Tax Consequences for REMIC
Certificates--Taxation of Residual Certificates--Tax-Related Restrictions on
Transfer of Residual Certificates--Disqualified Organizations."
Due to the complexity of these rules and the penalties that may be imposed
upon persons involved in prohibited transactions, it is particularly
important that potential investors who are Plan fiduciaries consult with
their counsel regarding the consequences under ERISA of their acquisition and
ownership of Certificates.
The sale of Certificates to an employee benefit plan is in no respect a
representation by the Depositor or the Underwriter that this investment meets
all relevant legal requirements with respect to investments by plans
generally or by any particular plan, or that this investment is appropriate
for plans generally or for any particular plan.
LEGAL INVESTMENT
The Offered Certificates will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984, as amended
("SMMEA"), only if so specified in the related Prospectus Supplement. The
appropriate characterization of those Certificates not qualifying as
"mortgage related securities" ("Non-SMMEA Certificates") under various legal
investment restriction, and thus the ability of investors subject to these
restrictions to purchase such Certificates, may be subject to significant
interpretive uncertainties. Accordingly, investors whose investment authority
is subject to legal restrictions should consult their own legal advisors to
determine whether and to what extent the Non-SMMEA Certificates constitute
legal investments for them.
Generally, only classes of Offered Certificates that (i) are rated in one
of the two highest rating categories by one or more Rating Agencies, (ii) are
part of a series evidencing interests in a Trust Fund consisting of loans
originated by certain types of Originators as specified in SMMEA and (iii)
are part of a series evidencing interests in a Trust Fund consisting of
mortgage loans each of which is secured by a first lien on (a) a single
parcel of real estate on which is located a residential and/or mixed
residential and commercial structure or (b) one or more parcels of real
estate upon which are located one or more commercial structures will be
"mortgage related securities" for purposes of SMMEA. As "mortgage related
securities," such classes will constitute legal investments, for persons,
trusts, corporations, partnerships, associations, business trusts and
business entities (including depository institutions, insurance companies,
trustees and pension funds) created pursuant to or existing under the laws of
the United States or of any state (including the District of Columbia and
Puerto Rico) whose authorized investments are subject to state regulation, to
the same extent that obligations issued by or guaranteed as to principal and
interest by the United States or any agency or instrumentality thereof
constitute legal investments for such entities under applicable law. Under
SMMEA, a number of states enacted legislation on or prior to
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the October 3, 1991 cut-off for such enactments limiting to various extends
the ability of certain entities (in particular, insurance companies) to
invest in "mortgage related securities," secured by liens on residential, or
mixed residential and commercial properties, in most cases by requiring the
affected investors to rely solely upon existing state law, and not SMMEA.
Pursuant to Section 347 of the Riegle Community Development and Regulatory
Improvement Act of 1994, states are authorized to enact legislation, on or
before September 23, 2001, prohibiting or restricting the purchase, holding
or investment by state regulated entities in certificates satisfying the
rating and qualified Originator requirements for "mortgage related
securities," but evidencing interests in a Trust Fund consisting, in whole or
in part, of first liens on one or more parcels of real estate upon which are
located one or more commercial structures. Accordingly, the investors
affected by such legislation will be authorized to invest in Offered
Certificates qualifying as "mortgage related securities" only to the extent
provided in such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in "mortgage
related securities" without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without
regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. Section 24 (Seventh), subject in each case to such
regulations as the applicable federal regulatory authority may prescribe. In
this connection, effective December 31, 1996, the Office of the Comptroller
of the Currency (the "OCC") has 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 in 12 C.F.R. ss.1.5 concerning
"safety and soundness" and retention of credit information), certain "Type IV
securities," defined in 12 C.F.R. ss.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 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. ss.ss.703.5(f)-(k), which
prohibit federal credit unions from investing in certain mortgage related
securities (including securities such as certain classes of the Offered
Certificates), except under limited circumstances. Effective January 1, 1998,
the NCUA has amended its rules governing investments by federal credit unions
at 12 C.F.R. Part 703; the revised rules will permit investments in "mortgage
related securities" under certain limited circumstances, but will prohibit
investments in stripped mortgage related securities, residual interests in
mortgage related securities, and commercial mortgage related securities,
unless the credit union has obtained written approval from the NCUA to
participate in the "investment pilot program" described in 12 C.F.R. Section
703.140.
All depository institutions considering an investment in the Offered
Certificates should review the "Supervisory Policy Statement on Securities
Activities" dated January 28, 1992, as revised April 15, 1994 (the "Policy
Statement") of the Federal Financial Institutions Examination Council (the
"FFIEC"). The Policy Statement, which has been adopted by the Board of
Governors of the Federal Reserve System, the OCC, the Federal Depository
Insurance Company and the Office of Thrift Supervision, and by the NCUA (with
certain modifications), prohibits depository institutions from investing in
certain "high-risk mortgage securities" (including securities such as certain
classes of the Offered Certificates), except under limited circumstances, and
sets forth certain investment practices deemed to be unsuitable for regulated
institutions. On September 29, 1997, the FFEIC released for public comment a
proposed "Supervisory Policy Statement on Investment Securities and End-User
Derivatives Activities" (the "1997 Statement"), which would replace the
Policy Statement. As proposed, the 1997 Statement would delete the specific
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"high-risk mortgage securities" tests, and substitute general guidelines
which depository institutions should follow in managing risks (including
market, credit, liquidity, operational (transactional), and legal risks)
applicable to all securities (including mortgage pass-through securities and
mortgage-derivative products) used for investment purposes.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any class of
the Offered Certificates, as certain classes may be deemed unsuitable
investments, or may otherwise be restricted, under such rules, policies or
guidelines (in certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not
limited to, "prudent investor" provisions, percentage-of-assets limits,
provisions which may restrict or prohibit investment in securities which are
not "interest bearing" or "income paying," and, with regard to any class of
the Offered Certificates issued in book-entry form, provisions which may
restrict or prohibit investments in securities which are issued in book-entry
form.
Except as to the status of certain classes of Offered Certificates as
"mortgage related securities," no representations are made as to the proper
characterization of any class of Offered Certificates for legal investment
purposes, financial institution regulatory purposes, 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 Depositor from such sale.
The Depositor 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 Offered Certificates may be made through a combination
of two or more of these methods. Such methods are as follows:
1. by negotiated firm commitment underwriting and public offering by one
or more underwriters specified in the related Prospectus Supplement;
2. by placements through one or more placement agents specified in the
related Prospectus Supplement primarily with institutional investors and
dealers; and
3. through direct offerings by the Depositor.
If specified in the Prospectus Supplement relating to a Series of Offered
Certificates, the Depositor, any affiliate thereof or any other person or
persons specified therein (including Originators of Mortgage Loans) may
purchase some or all of one or more Classes of Offered Certificates of such
Series from the underwriter or underwriters or such other person or persons
specified in such Prospectus Supplement. Pursuant to this Prospectus and the
related Prospectus Supplement, such purchaser may thereafter from time to
time offer and sell some or all of such Certificates directly, or through one
or more underwriters to be designated at the time of the offering of such
Certificates, or through dealers (whether acting as agent or as principal) or
in such other manner as may be specified in the related Prospectus
Supplement.
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Such offering may be restricted in the manner specified in the related
Prospectus Supplement. Such transactions may be effected at market prices
prevailing at the time of sale, at negotiated prices or at fixed prices.
If underwriters are used in a sale of any Offered Certificates (other than
in connection with an underwriting on a best efforts basis), such
Certificates will be acquired by the underwriters for their own account and
may be resold from time to time in one or more transactions, including
negotiated transactions, at fixed public offering prices or at varying prices
to be determined at the time of sale or at the time of commitment therefor.
Such underwriters may be broker-dealers affiliated with the Depositor whose
identities and relationships to the Depositor will be as set forth in the
related Prospectus Supplement. The managing underwriter or underwriters with
respect to the offer and sale of a particular Series of Offered Certificates
will be set forth in 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.
In connection with the sale of the Offered Certificates, underwriters may
receive compensation from the Depositor or from purchasers of the Offered
Certificates in the form of discounts, concessions or commissions.
Underwriters and dealers participating in the distribution of the Offered
Certificates may be deemed to be underwriters in connection with such Offered
Certificates, and any discounts or commissions received by them from the
Depositor and any profit on the resale of Offered Certificates by them may be
deemed to be underwriting discounts and commissions under the Securities Act
of 1933, as amended (the "Securities Act").
It is anticipated that the underwriting agreement pertaining to the sale
of any series of Certificates will provide that the obligations of the
underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all Offered Certificates if any
are purchased (other than in connection with an underwriting on a best
efforts basis) and that the Depositor will indemnify the several
underwriters, and each person, if any, who controls any such underwriter
within the meaning of Section 15 of the Securities Act, against certain civil
liabilities, including liabilities under the Securities Act, or will
contribute to payments required to be made in respect thereof.
The Prospectus Supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of such
offering and any agreements to be entered into between the Depositor and
purchasers of Offered Certificates of such series.
The Depositor anticipates that the Offered Certificates offered hereby
will be sold primarily to institutional investors. Purchasers of Offered
Certificates, including dealers, may, depending on the facts and
circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them
of Offered Certificates. Certificateholders should consult with their legal
advisors in this regard prior to any such reoffer or sale.
As to each series of Certificates, only those classes rated in an
investment grade rating category by any Rating Agency will be offered hereby.
Any unrated class may be initially retained by the Depositor, and may be sold
by the Depositor at any time to one or more institutional investors.
If and to the extent required by applicable law or regulation, this
Prospectus will be used by Bear, Stearns & Co. Inc., an affiliate of the
Depositor, in connection with offers and sales related to market-making
transactions in the Offered Certificates previously offered hereunder in
transactions in which Bear, Stearns & Co. Inc. acts as principal. Bear,
Stearns & Co. Inc. may also act as agent in such transactions. Sales may be
made at negotiated prices determined at the time of sale.
LEGAL MATTERS
The validity of the Certificates of each series will be passed upon for
the Depositor by O'Melveny & Myers LLP, New York, New York.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each series of
Certificates, and no Trust Fund will engage in any business activities or
have any assets or obligations prior to the issuance of the related series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement.
107
<PAGE>
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.
108
<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS
<TABLE>
<CAPTION>
<S> <C>
1986 Act ............................................ 79
1997 Statement ...................................... 105
A
Accrual Certificates ................................ 13, 40
Accrued Certificate Interest ........................ 40
ADA ................................................. 74
ARM Loans ........................................... 31
Asset Conservation Act .............................. 71
B
Book-Entry Certificates ............................. 15, 39
call risk ........................................... 18, 36
capital asset ....................................... 84
C
Cash Flow Agreement ................................. 11, 32
Cash Flow Agreements ................................ 1
CERCLA .............................................. 23, 71
Certificate ......................................... 47
Certificate Account ................................. 11, 32, 50
Certificate Balance ................................. 2, 12
Certificate Owner ................................... 15, 45
Certificateholders .................................. 2
Certificates ........................................ 9
Code ................................................ 15, 76
commercial mortgage-related securities .............. 105
Commercial Properties ............................... 10, 26
Commission .......................................... 3
Companion Class ..................................... 14, 41
Controlled Amortization Class ....................... 14, 41
Cooperatives ........................................ 26
CPR ................................................. 35
Credit Support ...................................... 1, 11, 32
Crime Control Act ................................... 74
Cut-Off Date ........................................ 13
D
Debt Service Coverage Ratio ......................... 29
defective obligation ................................ 78
Definitive Certificates ............................. 15, 39
Depositor ........................................... 26
Determination Date .................................. 33, 40
Direct Participants ................................. 45
Disqualified Organization ........................... 90
Distribution Date ................................... 13
Distribution Date Statement ......................... 43
DOL ................................................. 103
DTC .................................................3, 15, 39, 45
Due Dates ........................................... 30
Due Period .......................................... 33
E
EPA ................................................. 71
109
<PAGE>
Equity Participation ................................ 30
ERISA ............................................... 15, 102
Events of Default ................................... 58
excess inclusion .................................... 24
Exchange Act ........................................ 3
extension risk ...................................... 18, 36
F
FAMC ................................................ 10
FASIT ............................................... 76
FASITs .............................................. 101
FFIEC ............................................... 105
FHLMC ............................................... 10
FNMA ................................................ 10
Foreign Investors ................................... 90
G
Garn Act ............................................ 72
GNMA ................................................ 10
I
Indirect Participants ............................... 45
Insurance and Condemnation Proceeds ................. 51
L
L/C Bank ............................................ 62
Limitations on Deduction of Certain Expenses ........ 95
Liquidation Proceeds ................................ 51
Loan-to-Value Ratio ................................. 29
Lock-out Date ....................................... 30
Lock-out Period ..................................... 30
M
Mark-to-Market Regulations .......................... 92
Master Servicer ..................................... 3, 9
MBS ................................................. 1, 25
MBS Agreement ....................................... 31
MBS Issuer .......................................... 31
MBS Servicer ........................................ 31
MBS Trustee ......................................... 31
Mortgage Asset Pool ................................. 1
Mortgage Asset Seller ............................... 26
Mortgage Assets ..................................... 26
Mortgage Loans ...................................... 1, 9, 25
Mortgage Notes ...................................... 26
Mortgage Rate ....................................... 10, 30
mortgage related securities ......................... 16, 104
mortgage related security ........................... 105
Mortgaged Properties ................................ 26
Mortgaged Property .................................. 1
mortgagee-in-possession ............................. 54
Mortgages ........................................... 26
Multifamily Properties .............................. 9, 26
N
Net Leases .......................................... 29
net of expense ...................................... 29
110
<PAGE>
Net Operating Income ................................ 29
noneconomic residual interest ....................... 90
Nonrecoverable Advance .............................. 42
Non-SMMEA Certificates .............................. 104
Non-U.S. Person ..................................... 94
Notional Amount ..................................... 12, 40
numerous obligors ................................... 105
O
OCC ................................................. 105
Offered Certificates ................................ 1
OID Regulations ..................................... 79
operator ............................................ 54
Original Issue Discount ............................. 84
Originator .......................................... 26
P
PAC ................................................. 36
Participants ........................................ 25, 45
Parties in Interest ................................. 103
Pass-Through Entity ................................. 89
Pass-Through Rate ................................... 2, 12
Permitted Investments ............................... 50
Plan Asset Regulations .............................. 103
Plans ............................................... 102
Policy Statement .................................... 105
Pooling Agreement ................................... 12, 47
portfolio interest .................................. 94
prepayment .......................................... 35
Prepayment Assumption ............................... 80
Prepayment Interest Shortfall ....................... 33
Prepayment Premium .................................. 30
Prospectus Supplement ............................... 1
PRPs ................................................ 71
R
Random Lot Certificates ............................. 79
Rating Agency ....................................... 16
real estate mortgage investment conduit ............. 2
real estate mortgage investment conduits ............ 15
Record Date ......................................... 40
Regular Certificateholder ........................... 79
Regular Certificates ................................ 76
Related Proceeds .................................... 42
Relief Act .......................................... 73
REMIC ............................................... 2, 15
REMIC Certificates .................................. 76
REMIC Pool .......................................... 76
REMIC Regulations ................................... 76
REO Property ........................................ 49
Residual Certificateholders ......................... 86
Residual Certificates ............................... 76
RICO ................................................ 74
111
<PAGE>
S
SBJPA of 1996 ....................................... 77
Section 42 Properties ............................... 21
Securities Act ...................................... 107
Senior Certificates ................................. 12, 39
Series .............................................. 1
Service ............................................. 78
Servicing Standard .................................. 49
SMMEA ............................................... 16, 104
SPA ................................................. 35
Special Servicer .................................... 3, 9, 50
Standard Certificateholder .......................... 96
Standard Certificates ............................... 96
Stripped Certificateholder .......................... 100
Stripped Certificates ............................... 96, 98
Stripped Interest Certificates ...................... 12, 39
Stripped Principal Certificates ..................... 12, 39
Subordinate Certificates ............................ 12, 39
Sub-Servicer ........................................ 49
Sub-Servicing Agreement ............................. 49
superlien ........................................... 71
super-premium ....................................... 80
T
TAC ................................................. 36
Title V ............................................. 73
Treasury ............................................ 76
Trust Assets ........................................ 2
Trust Fund .......................................... 1
Trustee ............................................. 3, 9
U
UCC ................................................. 64
U.S. Person ......................................... 91
V
Voting Rights ....................................... 44
W
Warranting Party .................................... 48
</TABLE>
112
<PAGE>
[TEXT FOR DISKETTE LABEL]
Prospectus Supplement dated June 11, 1998
To Prospectus dated May 26, 1998
BEAR STEARNS COMMERCIAL MORTGAGE SECURITIES INC.
Commercial Mortgage Pass-Through Certificates,
Series 1998-C1
- -----------------------------------------------------------------------------
(Microsoft Excel Version 5.0)
<PAGE>
This diskette contains one spreadsheet file (the "Spreadsheet File") that
can be put on a user-specified hard drive or network drive. The Spreadsheet
File "BS98C1.XLS" is a Microsoft Excel,(1) Version 5.0 spreadsheet. The
Spreadsheet File provides, in electronic format, all of the information shown
in Annex A of the Prospectus Supplement dated May 26, 1998 (the "Prospectus
Supplement"). The information contained in this diskette appears elsewhere in
paper form in this Prospectus Supplement and must be considered as part of,
and together with, the information contained elsewhere in this Prospectus
Supplement and the Prospectus. Defined terms used in this diskette but not
otherwise defined therein shall have the respective meanings assigned to them
in the paper portion of the Prospectus Supplement and Prospectus. All of the
information contained in this diskette is subject to the same limitations and
qualifications contained elsewhere in this Prospectus Supplement and the
Prospectus. Prospective investors are strongly urged to read the paper
portion of this Prospectus Supplement and the Prospectus in its entirety
prior to accessing this diskette. If this diskette was not received in a
sealed package, there can be no assurances that it remains in its original
format and should not be relied upon for any purpose. Prospective investors
may contact Bear, Stearns & Co. Inc. at (212) 272-4192 to receive an original
copy of the diskette. As a precautionary measure, scan this diskette for
computer viruses before opening. Upon opening the Microsoft Excel file
contained on this diskette, a legend will be displayed, which should be read
carefully.
Open the file as you would normally open any Spreadsheet File in Microsoft
Excel. After the Spreadsheet File is opened, a legend will be displayed. READ
THE LEGEND CAREFULLY. The data in the Spreadsheet File that corresponds to
the information shown in Annex A is in the worksheet labeled "ANNEX A".
(1) Microsoft Excel is a registered trademark of Microsoft Corporation.
<PAGE>
(GRAPH OF 365-405 Fifth Avenue Property)
365-405 Fifth Avenue Property
Naples, FL
(GRAPH OF Mears Park Corner Property)
Mears Park Corner
St. Paul, MN
(GRAPH OF Continental Plaza Property)
Continental Plaza
Kirkland, WA
(GRAPH OF Shaw's Cove Property)
Shaw's Cove VI
New London, CT
(GRAPH OF Clairemont Village Property)
Clairemont Village
San Diego, CA
(GRAPH OF Carmel Country Property)
Carmel Country Plaza
San Diego, CA
(GRAPH OF Park Plaza on Marine Property)
Park Plaza on Marine
Baldwin Park, CA
<PAGE>
(GRAPH OF PROPERTY)
127-131 Second Avenue
New York, NY
(GRAPH OF PARKING PALACE PROPERTY)
Parking Palace
San Diego, CA
(GRAPH OF HOLIDAY INN EXPRESS PROPERTY)
Holiday Inn Express
Springfield, VT
(GRAPH OF SUNSHINE VALLEY MOBILE HOME PARK PROPERTY)
SUNSHINE VALLEY MOBILE HOME PARK
Chandler, AZ
(GRAPH OF COOPER RIVER APARTMENTS PROPERTY)
Cooper River Apartments
Collingswood, NJ
(GRAPH OF RIO ENTERTAINMENT PLAZA PROPERTY)
Rio Entertainment Plaza
Gaithersburg, MD
(GRAPH OF COAST DISTRIBUTING PROPERTY)
Coast Distributing
San Diego, CA
(GRAPH OF 5050 NORTH 40TH STREET PROPERTY)
5050 North 40th Street
Phoenix, AZ
**************
<PAGE>
===============================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE DEPOSITOR OR BY THE UNDERWRITER. THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY TO ANYONE IN
ANY JURISDICTION IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATIONS 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 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 ACCOMPANYING
PROSPECTUS.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Summary of Prospectus Supplement ........... S-9
Risk Factors ............................... S-30
Description of the Mortgage Pool ........... S-39
Description of the Certificates ............ S-74
Yield and Maturity Considerations .......... S-95
Servicing of the Mortgage Loans ............ S-101
Certain Federal Income Tax Consequences .... S-113
Method of Distribution ..................... S-114
Legal Matters .............................. S-114
Ratings .................................... S-115
Legal Investment Considerations ............ S-115
ERISA Considerations ....................... S-116
Index of Significant Definitions ........... S-119
Mortgage Loan Schedule...................... ANNEX A
Forms of Servicing Reports ................. ANNEX B
Interest Reserve Mortgage Loans............. ANNEX C
</TABLE>
PROSPECTUS
<TABLE>
<CAPTION>
<S> <C>
Prospectus Supplement.................... 2
Available Information ................... 3
Incorporation of Certain Information by
Reference .............................. 3
Summary of Prospectus ................... 9
Risk Factors ............................ 17
Description of Trust Funds .............. 25
Yield and Maturity Considerations ...... 32
The Depositor ........................... 38
Use of Proceeds ......................... 39
Description of the Certificates ........ 39
Description of the Pooling Agreements .. 47
Description of Credit Support ........... 61
Certain Legal Aspects of Mortgage Loans 63
Certain Federal Income Tax Consequences . 76
State and Other Tax Considerations ..... 102
ERISA Considerations .................... 102
Legal Investment ........................ 104
Method of Distribution .................. 106
Legal Matters ........................... 107
Financial Information ................... 107
Rating .................................. 108
Index of Principal Terms ................ 109
</TABLE>
$655,773,143
BEAR STEARNS COMMERCIAL
MORTGAGE SECURITIES INC.
DEPOSITOR
COMMERCIAL MORTGAGE PASS-THROUGH
CERTIFICATES, SERIES 1998-C1
CLASS A-1 CERTIFICATES ........................................ $129,564,000
CLASS A-2 CERTIFICATES ....................................... $417,211,428
CLASS B CERTIFICATES ......................................... $ 35,736,956
CLASS C CERTIFICATES ......................................... $ 32,163,260
CLASS D CERTIFICATES ......................................... $ 32,163,260
CLASS E CERTIFICATES ......................................... $ 8,934,239
PROSPECTUS SUPPLEMENT
[BEAR STEARNS LOGO]
JUNE 11, 1998
BEAR, STEARNS & CO. INC.
===============================================================================
