<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration File No.: 333-61783
THE INFORMATION CONTAINED HEREIN IS NOT COMPLETE AND MAY BE CHANGED. THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS ARE NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 20, 1999
PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED AUGUST 18, 1998)
APPROXIMATELY $439,763,663
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1999-C1
BEAR STEARNS COMMERCIAL MORTGAGE SECURITIES INC.
DEPOSITOR
The Series 1999-C1 Commercial Mortgage Pass-Through Certificates will
consist of fifteen classes of certificates, some of which are not offered by
this prospectus supplement and the accompanying prospectus. All of the Series
1999-C1 Certificates will represent beneficial ownership interests in a trust
fund whose principal assets consist of mortgage loans secured by commercial
properties, multi-family properties, and manufactured housing communities with
an aggregate principal balance of approximately $478,003,982 as of February 1,
1999. The Series 1999-C1 Certificates are payable only from the assets of the
trust described herein. Certain classes of Series 1999-C1 Certificates are
subordinated to other classes as described herein. The following table sets
forth certain information with respect to the classes of Series 1999-C1
certificates offered hereby, but all such information is incomplete and subject
to clarifications and limitations set forth herein. Multifamily properties
(consisting of multiple rental or cooperatively owned dwellings), office
properties and retail properties will represent security for a material
concentration of these mortgage loans.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CERTIFICATE
INITIAL CLASS ASSUMED FINAL RATING
CERTIFICATE PASS- THROUGH DISTRIBUTION RATED FINAL ----------------------
BALANCE(+/--5%) RATE (1) DATE (2) DISTRIBUTION DATE (3) MOODY'S (4) S&P (5)
----------------- --------------- -------------------- ---------------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Class A-1 ......... $ 89,632,000 May 14, 2008 February 14, 2031 Aaa AAA
- ------------------- ------------ -------------------- ---------------------- ---- --------
Class A-2 ......... $280,821,086 February 14, 2009 February 14, 2031 Aaa AAA
- ------------------- ------------ -------------------- ---------------------- ---- --------
Class B ........... $ 23,900,199 July 14, 2012 February 14, 2031 Aa2 AA
- ------------------- ------------ -------------------- ---------------------- ---- --------
Class C ........... $ 17,925,149 September 14, 2013 February 14, 2031 A2 A
- ------------------- ------------ -------------------- ---------------------- ---- --------
Class D ........... $ 21,510,179 October 14, 2013 February 14, 2031 Baa2 NR
- ------------------- ------------ -------------------- ---------------------- ---- --------
Class E ........... $ 5,975,050 October 14, 2013 February 14, 2031 Baa3 NR
- ------------------- ------------ -------------------- ---------------------- ---- --------
</TABLE>
- --------------------------------------------------------------------------------
(1) The Pass-through Rates of the Class A-1, Class A-2, Class B, Class C,
Class D or Class E Certificates will not 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).
(2) 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.
(3) 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.
(4) Moody's Investors Service, Inc.
(5) Standard & Poor's Ratings Services, a division of the McGraw-Hill
Companies, Inc. "NR" means Not Rated.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE OFFERED CERTIFICATES OR DETERMINED THAT THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS ACCURATE, ADEQUATE OR COMPLETE.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-24 OF THIS
PROSPECTUS SUPPLEMENT AND PAGE 17 OF THE ACCOMPANYING PROSPECTUS.
<PAGE>
The Series 1999-C1 Certificates do not represent an interest in or
obligation of Bear Stearns Commercial Mortgage Securities Inc. or any of its
affiliates. The Series 1999-C1 Certificates and the mortgage loans and other
assets of the trust are not insured or guaranteed by Bear Stearns Commercial
Mortgage Securities Inc. or any of its affiliates, or by any governmental
agency or instrumentality.
BEAR, STEARNS & CO. INC.
, 1999
<PAGE>
BEAR STEARNS COMMERCIAL MORTGAGE SECURITIES INC.
Commercial Mortgage Pass-Through Certificates Series 1999-C1
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE PURPOSE OF EDGAR
FILING.]
[MAP OF UNITED STATES]
NORTH DAKOTA MINNESOTA MICHIGAN OHIO
1 property 4 properties 3 properties 4 properties
$4,211,360 $10,557,208 $9,667,051 $8,784,097
0.88% of total 2.21% of total 2.02% of total 1.84% of total
PENNSYLVANIA NEW YORK NEW HAMPSHIRE MAINE
12 properties 16 properties 1 property 1 property
$37,070,587 $65,927,878 $4,275,392 $2,293,720
7.76% of total 13.79% of total 0.89% of total 0.48% of total
MASSACHUSETTS CONNECTICUT NEW JERSEY DELAWARE
2 properties 6 properties 8 properties 3 properties
$9,950,509 $45,301, 636 $31,960,986 $14,349,642
2.08% of total 9.48% of total 6.69% of total 3.00% of total
MARYLAND VIRGINIA NORTH CAROLINA GEORGIA
3 properties 1 property 1 property 3 properties
$8,550,650 $10,838,385 $1,898,579 $21,628,454
1.79% of total 2.27% of total 0.40% of total 4.52% of total
FLORIDA TENNESSEE KENTUCKY LOUISIANA
3 properties 1 property 1 property 1 property
$9,098,582 $1,828,277 $1,128,892 $2,332,821
1.90% of total 0.38% of total 0.24% of total 0.49% of total
TEXAS COLORADO ARIZONA NEVADA
3 properties 1 property 7 properties 1 property
$11,139,085 $4,184,392 $20,035,158 $4,987,127
2.33% of total 0.88% of total 4.19% of total 1.04% of total
CALIFORNIA OREGON WASHINGTON
33 properties 1 property 2 properties
$129,356,158 $1,671,981 $4,975,374
27.06% of total 0.35% of total 1.04% of total
[LEGEND]
(Greater than or Equal to) 10.0% of Initial Pool Balance [ ]
5.01% - 9.99% of Initial Pool Balance [ ]
1.01% - 5.00% of Initial Pool Balance [ ]
(Less than or Equal to) 1.00% of Initial Pool Balance [ ]
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
General information about mortgage pass-through certificates we might
offer publicly is contained in the accompanying prospectus, some of which may
not apply to the Series 1999-C1 Certificates or the particular classes of
Series 1999-C1 Certificates being offered. This prospectus supplement describes
the specific terms of the series of mortgage pass-through certificates being
offered to you.
IF WE DESCRIBE TERMS OF THE SERIES OF MORTGAGE PASS-THROUGH CERTIFICATES
OFFERED HEREBY DIFFERENTLY IN THIS PROSPECTUS SUPPLEMENT THAN WE DO IN THE
PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT
RATHER THAN ON THE MORE GENERAL INFORMATION IN THE PROSPECTUS. HOWEVER, YOU
SHOULD CAREFULLY REVIEW THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS TOGETHER, BECAUSE NEITHER ONE BY ITSELF PROVIDES COMPLETE
INFORMATION ABOUT THE SERIES OF MORTGAGE PASS-THROUGH CERTIFICATES OFFERED
HEREBY.
Sometimes the discussion of a particular topic in this prospectus
supplement or in the prospectus relates to a separate discussion in another
section of this prospectus supplement or in the prospectus. We make
cross-references to other sections of the prospectus supplement and the
prospectus whenever we believe that they will enhance your understanding of the
topic under discussion. The Table of Contents of this prospectus supplement and
the Table of Contents included in the accompanying prospectus list the pages on
which these captions are located.
Whenever we use words like "intends," "anticipates" or "expects" or
similar words in this prospectus supplement, we are making a forward-looking
statement, or a projection of what we think will happen in the future.
Forward-looking statements are inherently subject to a variety of
circumstances, many of which are beyond our control, that could cause actual
results to differ materially from what we think they will be. Any
forward-looking statements in this prospectus supplement speak only as of the
date of this prospectus supplement. We do not assume any responsibility to
update or review any forward-looking statement contained in this prospectus
supplement to reflect any change in our expectation with respect to the subject
of such forward-looking statement or to reflect any change in events,
conditions or circumstances on which any such forward-looking statement is
based.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement and the prospectus are defined under the caption "Index
of Significant Definitions" beginning on page S-114 in this prospectus
supplement and under the caption "Index of Significant Definitions" beginning
on page 109 in the accompanying prospectus.
S-2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SUMMARY ................................. S-5
Overview of Series 1999-C1
Certificates ...................... S-5
Summary of Subordination Levels ...... S-6
Description of the Series 1999-C1
Certificates ...................... S-7
General .............................. S-7
Book-Entry Certificates .............. S-8
Denominations ........................ S-8
Service Providers .................... S-8
Mortgage Loan Seller ................. S-8
Closing Date ......................... S-8
Cut-Off Date ......................... S-8
Distributions ........................ S-8
Amounts Available for
Distribution ...................... S-9
Interest Distributions ............... S-10
Principal Distributions .............. S-10
Yield and Prepayment
Considerations .................... S-10
Yield Maintenance Charges ............ S-11
Advances ............................. S-11
Credit Enhancement ................... S-12
Optional Termination ................. S-13
The Mortgage Pool .................... S-14
General .............................. S-14
Mortgage Pool Summary ................ S-14
Release and Defeasance Provisions S-21
Information Available to
Certificateholders ................ S-22
Ratings .............................. S-22
Certain Federal Income Tax
Consequences ...................... S-22
ERISA Considerations ................. S-23
Legal Investment ..................... S-23
RISK FACTORS ............................ S-24
Borrower Default; Nonrecourse
Mortgage Loans .................... S-24
Risks Associated with Commercial
and Multifamily Lending
Generally ......................... S-24
Exposure of the Mortgage Pool to
Adverse Economic or Other
Developments Based on
Geographic Concentration .......... S-25
Increased Risk of Loss Associated
With Concentration of Mortgage
Loans, Borrowers and Managers S-26
Other Financing and Additional
Debt .............................. S-26
Risks Associated with Recently
Constructed Properties ............ S-28
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Risks Associated with Balloon
Payments and the ARD Loan ......... S-29
Dependence on Tenants ................ S-29
Risks Particular to Retail
Properties ........................ S-29
Risks Particular to Multifamily
Properties ........................ S-30
Risks Particular to Office
Properties ........................ S-30
Risks Particular to Hotel
Properties ........................ S-31
Risks Particular to Industrial
Properties ........................ S-31
Management ........................... S-31
Risks Relating to Lack of
Certificateholder Control Over
Trust Fund ........................ S-32
Servicer or Special Servicer
May Purchase Certificates ......... S-32
Certain Yield and Prepayment
Considerations .................... S-32
Yield Risk Associated With
Changes in Concentrations ......... S-33
Sequential Pay and Subordination
of Subordinate Offered
Certificates ...................... S-33
Potential Liability to the Trust
Fund Relating to Environmental
Conditions ........................ S-33
Certain Tax Considerations
Related to Foreclosure ............ S-34
Limitations on Enforceability of
Cross-Collateralization
Arrangements ...................... S-34
No Earthquake Insurance .............. S-35
Zoning Compliance .................... S-35
Litigation ........................... S-35
Risks Associated with Year 2000 ...... S-35
DESCRIPTION OF THE MORTGAGE POOL ....... S-36
General .............................. S-36
Additional Debt ...................... S-37
Pari Passu Mortgage Loans ............ S-37
Holdback and Escrow
Arrangements ...................... S-38
The ARD Loan ...................... S-39
Certain Terms and Conditions of
the Mortgage Loans ................ S-39
Prepayment Provisions ............. S-40
Defeasance ........................ S-41
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
"Due-on-Sale" and
"Due-on-Encumbrance"
Provisions ..................... S-41
Additional Mortgage Loan
Information ....................... S-42
Ten Largest Mortgage Loans ........... S-52
Underwriting Standards ............... S-54
Underwritten Net Cash Flow ........... S-55
Revenue ........................... S-55
Vacancy ........................... S-55
Expenses .......................... S-55
Replacement Reserves .............. S-55
Tenant Improvements and
Leasing Commissions ............ S-55
Assessments of Property Condition S-56
Property Inspection ............... S-56
Appraisals ........................ S-56
Environmental Site Assessments S-56
Property Condition Assessments S-56
Seismic Reports ................... S-56
Debt Service Coverage Ratio
and LTV Ratio .................. S-56
Borrower .......................... S-57
Escrow Requirements ............... S-57
The Mortgage Loan Seller ............. S-57
Representations and Warranties;
Repurchases ....................... S-58
Mortgaged Property Accounts .......... S-68
Lock Box Accounts ................. S-68
DESCRIPTION OF THE CERTIFICATES ......... S-68
General .............................. S-68
Book-Entry Registration and
Definitive Certificates ........... S-69
Distributions ........................ S-70
Method, Timing and Amount ......... S-70
Available Distribution Amount ..... S-71
Priority .......................... S-72
Pass-Through Rates ................ S-75
Interest Distribution Amount ...... S-75
Principal Distribution Amount ..... S-75
Certain Calculations with
Respect to Individual
Mortgage Loans ................. S-76
Allocation of Yield Maintenance
Charges ........................ S-77
Assumed Final Distribution
Date; Rated Final Distribution
Date ........................... S-77
Subordination; Allocation of
Collateral Support Deficit ........ S-78
Advances ............................. S-79
Appraisal Reductions ................. S-81
Reports to Certificateholders;
Certain Available Information ..... S-82
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Voting Rights ........................ S-86
Termination; Retirement of
Certificates ...................... S-86
The Trustee .......................... S-87
Fiscal Agent ......................... S-88
Paying Agent, Certificate Registrar
and Authenticating Agent .......... S-88
YIELD AND MATURITY CONSIDERATIONS ....... S-88
Yield Considerations ................. S-88
General ........................... S-88
Pass-Through Rate ................. S-88
Rate and Timing of Principal
Payments ....................... S-89
Losses and Shortfalls ............. S-89
Certain Relevant Factors .......... S-90
Delay in Payment of
Distributions .................. S-90
Unpaid Distributable Certificate
Interest ....................... S-90
Weighted Average Life ................ S-90
SERVICING OF THE MORTGAGE LOANS ......... S-95
General .............................. S-95
The Servicer ......................... S-97
The Special Servicer ................. S-98
Servicing and Other Compensation
and Payment of Expenses ........... S-98
Maintenance of Insurance ............. S-100
Modifications, Waiver and
Amendments ........................ S-101
Realization Upon Defaulted
Mortgage Loans .................... S-103
Inspections; Collection of
Operating Information ............. S-104
Certain Matters Regarding the
Servicer, the Special Servicer and
the Depositor ..................... S-105
Events of Default .................... S-106
Rights Upon Event of Default ......... S-107
Amendment ............................ S-107
CERTAIN FEDERAL INCOME
TAX CONSEQUENCES ....................... S-109
METHOD OF DISTRIBUTION .................. S-110
LEGAL MATTERS ........................... S-110
RATINGS ................................. S-111
LEGAL INVESTMENT
CONSIDERATIONS ......................... S-111
ERISA CONSIDERATIONS .................... S-111
MORTGAGE LOAN SCHEDULE................... ANNEX A
FORMS OF SERVICING
REPORTS ................................. ANNEX B
INTEREST RESERVE LOANS .................. ANNEX C
</TABLE>
S-4
<PAGE>
SUMMARY
This summary highlights selected information contained in this document
and does not contain all of the information that you need to consider in
deciding whether to buy any class of mortgage pass-through certificates. To
understand all of the terms of the mortgage pass-through certificates, read
carefully this entire document and the accompanying prospectus.
OVERVIEW OF SERIES 1999-C1 CERTIFICATES:
<TABLE>
<CAPTION>
INITIAL
RATINGS AGGREGATE WEIGHTED
-------------- CERTIFICATE AVERAGE PRINCIPAL OR
BALANCE OR PASS-THROUGH LIFE NOTIONAL
MOODY'S S&P NOTIONAL % OF RATE PASS-THROUGH (APPROX. PRINCIPAL
CLASS (1) (2) AMOUNT TOTAL DESCRIPTION (4) RATE YEARS) (6) WINDOW (6)
- ----- ------- ----- -------------- ------- -------------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Senior Classes
A-1 Aaa AAA $ 89,632,000 18.75 Fixed % 5.5 3/1999-5/2008
A-2 Aaa AAA $ 280,821,086 58.75 Fixed % 9.7 5/2008-2/2009
X Not Offered $ 478,003,982(3) N/A Variable % (5) 9.9 3/1999-8/2018
Subordinate Classes
B Aa2 AA $ 23,900,199 5.00 Fixed % 11.1 2/2009-7/2012
C A2 A $ 17,925,149 3.75 Fixed % 14.3 7/2012-9/2013
D Baa2 NR $ 21,510,179 4.50 Fixed % 14.7 9/2013-10/2013
E Baa3 NR $ 5,975,050 1.25 Fixed % 14.7 10/2013-10/2013
F Not Offered $ 13,145,110 2.75 Fixed % 14.7 10/2013-11/2013
G Not Offered $ 4,780,040 1.00 Fixed % 14.8 11/2013-11/2013
H Not Offered $ 3,585,030 0.75 Fixed % 14.8 11/2013-11/2013
I Not Offered $ 9,560,080 2.00 Fixed % 14.9 11/2013-1/2014
J Not Offered $ 2,390,020 0.50 Fixed % 15.8 1/2014-10/2015
K Not Offered $ 4,780,040 1.00 Fixed % 18.3 10/2015-8/2018
Residual Classes
R Not Offered N/A N/A N/A N/A N/A N/A
LR Not Offered N/A N/A N/A N/A N/A N/A
</TABLE>
(1) Moody's Investors Service, Inc. ("Moody's").
(2) Standard & Poor's Ratings Services, a division of the McGraw-Hill
Companies, Inc. ("S&P"). "NR" means not rated.
(3) The Class X Certificates are interest-only certificates. Class X
Certificateholders will not receive any principal. However, they will be
entitled to receive interest that accrues on a notional amount (the
"Notional Amount") equal to the aggregate of the stated principal
balances of the Mortgage Loans determined as described herein from time
to time.
(4) The Pass-Through Rates of each class of certificates (other than Class X
and the Residual Classes) shall be the indicated fixed rate per annum or,
if a lower rate, the weighted average of the non-default interest rates
specified in the notes relating to each mortgage loan in the trust fund,
net of the related servicing fee rate, but without taking into account
any reductions of such non-default interest rates following February 1,
1999.
(5) 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 non-default interest rates specified in the notes
relating to each mortgage loan in the trust fund, net of the related
servicing fee rate, over (ii) the weighted average of the Pass-Through
Rates of the other classes of Certificates, as more fully as described
herein.
(6) The weighted average life and the period during which distributions of
principal (or, for the Class X Certificates, reductions in the Notional
Amount) will occur have been calculated using assumptions set forth under
"Yield and Maturity Considerations--Weighted Average Life" herein and
assuming that there are no extensions of Maturity Dates, delinquencies,
losses or prepayments (other than the ARD Loan on its Anticipated
Repayment Date).
S-5
<PAGE>
SUMMARY OF SUBORDINATION LEVELS:
Credit support for certain classes of Certificates is provided by the
sequential payment of interest and principal thereto (including reimbursement
of certain losses allocated thereto) based (other than with respect to the
Class X Certificates) on their alphabetical designations, and by the
subordination of certain other classes thereto in respect of the allocation of
certain losses, shortfalls and other reductions of the assets of the Trust Fund
(generally in reverse sequential order), as described more fully herein. The
following chart summarizes the protection afforded to each class of
Certificates by the initial principal amount of other classes that are
subordinated thereto.
<TABLE>
<CAPTION>
CLASS SIZE AS A
PRINCIPAL AND INITIAL RATINGS PERCENTAGE
APPROXIMATE INITIAL INTEREST-ONLY INTEREST CERTIFICATE ------------- OF INITIAL POOL
CREDIT SUPPORT CERTIFICATES CERTIFICATES BALANCE MOODY'S S&P BALANCE (1)
------------------- ------------- ------------ ----------- -------- --- ------------
<S> <C> <C> <C> <C> <C> <C>
Class A-1 $ 89,632,000 Aaa AAA 18.75%
22.50% Class A-2 $280,821,086 Aaa AAA 58.75%
17.50% Class B $ 23,900,199 Aa2 AA 5.00%
13.75% Class C $ 17,925,149 A2 A 3.75%
Class X
9.25% Class D $ 21,510,179 Baa2 NR 4.50%
8.00% Class E $ 5,975,050 Baa3 NR 1.25%
$478,003,982
5.25% Class F $ 13,145,110 Not Offered 2.75%
Initial
4.25% Class G $ 4,780,040 Not Offered 1.00%
Notional
3.50% Class H $ 3,585,030 Not Offered 0.75%
Amount
1.50% Class I $ 9,560,080 Not Offered 2.00%
(Not Offered)
1.00% Class J $ 2,390,020 Not Offered 0.50%
N/A Class K $ 4,780,040 Not Offered 1.00%
</TABLE>
- ----------
(1) Initial Pool Balance means the aggregate of the stated principal balances
of the Mortgage Loans on February 1, 1999.
S-6
<PAGE>
DESCRIPTION OF THE
SERIES 1999-C1 CERTIFICATES
General..................... Bear Stearns Commercial Mortgage Securities
Inc., as depositor (the "Depositor", "we" or
"us"), is forming a trust fund that will issue
the Commercial Mortgage Pass-Through
Certificates, Series 1999-C1, pursuant to a
pooling and servicing agreement dated as of
February 1, 1999. This series consists of 15
classes. Our address is 245 Park Avenue, New
York, New York 10167. Our telephone number is
(212) 272-2000.
The Certificates evidence all of the beneficial
ownership interests in this trust fund
(excluding any excess interest earned on the ARD
Loan after its Anticipated Repayment Date). The
primary assets of the trust fund are the fixed
rate mortgage loans described herein under
"--The Mortgage Pool" and "Description of the
Mortgage Pool." (the "Mortgage Loans").
The aggregate of the Certificate Balances of
each class of Certificates (other than Class X,
Class R and Class LR) as of the Closing Date
will equal the aggregate of the stated principal
balances of the Mortgage Loans as of the Cut-off
Date. 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%.
We are offering the Class A-1, Class A-2, Class
B, Class C, Class D and Class E Certificates
pursuant to this prospectus supplement and the
accompanying prospectus (we refer to these
classes as the "Offered Certificates"). We are
not offering the Class X, Class F, Class G,
Class H, Class I, Class J, Class K, Class R or
Class LR Certificates hereby (we refer to those
classes as the "Non-Offered Certificates"). We
refer to the Offered Certificates and the
Non-Offered Certificates collectively as the
"Series 1999-C1 Certificates" or the
"Certificates". The trust fund will also issue a
certificated interest in the excess interest, if
any, earned on any ARD Loan after its
Anticipated Repayment Date. Such certificated
interest is not a "Certificate" or "Class of
Certificates" as such terms are used herein.
Such excess interest will not be an asset of any
REMIC and no Certificateholders (as such term is
used herein) will be entitled thereto.
The Class X Certificates are interest-only
certificates, meaning that they do not have a
principal balance and are not entitled to
distributions of principal. In order to
calculate the amount of interest that accrues on
the Class X Certificates while they are
outstanding, the Class X Certificates are deemed
to have a "notional balance" on which interest
accrues. The Class X Notional Balance is deemed
to equal the aggregate of the stated principal
balances of the mortgage loans (i.e., their
initial principal balances less the portions of
principal collected and distributable to
Certificateholders as described herein that are
attributed to each mortgage loan, and less any
write-offs or
S-7
<PAGE>
reductions of such balances in connection with
defaults or bankruptcy proceedings) measured at
the beginning of each period as to which
interest will accrue on the Class X
Certificates. The Class X Certificates are not
offered hereby.
We refer to the Class R and Class LR
Certificates as "Residual Certificates" because
they represent limited rights to distributions
of certain amounts remaining after required
distributions are made to all other classes of
Certificates. The Residual Certificates do not
have principal balances. The Residual
Certificates are not offered hereby.
Book-Entry Certificates..... Each class of Offered Certificates will be
initially issued as a global security registered
in the name of the Depository Trust Company or
its nominee. Investors in such classes will hold
beneficial ownership interests in the relevant
global security. Investors in such classes will
not receive definitive certificates representing
their interests except under certain limited
circumstances described herein under "Description
of the Certificates--Book-Entry Registration and
Definitive Certificates".
Denominations............... You may hold and trade Offered Certificates
(including beneficial ownership interests in the
related global security) only in minimum
denominations of $25,000 and multiples of $1,000
in excess thereof.
Service Providers........... Servicer. GE Capital Loan Services, Inc., is
the servicer of the Mortgage Loans for the
Certificateholders.
Special Servicer. GE Capital Realty Group, Inc.
is the special servicer of the Mortgage Loans
for the Certificateholders.
Trustee. LaSalle National Bank, a nationally
chartered bank is the trustee for the
Certificateholders.
Fiscal Agent. ABN AMRO Bank N.V. is the
trustee's fiscal agent.
Mortgage Loan Seller........ We will purchase the Mortgage Loans from Bear,
Stearns Funding, Inc., which will make certain
representations and warranties about the Mortgage
Loans. We will assign those representations and
warranties to the Trustee on behalf of the
holders of the Certificates.
Closing Date................ We expect to deliver the Offered Certificates
on or about February 10, 1999.
Cut-Off Date................ February 1, 1999. All payments on the Mortgage
Loans that are due on or before this date are not
included in the trust fund.
Distributions............... Distributions on the Certificates will be made
monthly on the 14th day of the month or, if such
day is not a business day, the next succeeding
business day, commencing in March 1999.
Distributions of (1) interest; (2) principal; and
then (3) reim-
S-8
<PAGE>
bursement of previously allocated Collateral
Support Deficits will be made on each
Distribution Date to each class of Certificates
(other than the Class X Certificates) in
sequential order based on their alphabetical
designations. Investors will receive their share
of any distributions ratably with other holders
of Certificates of the same class.
We expect that the final distribution on each
class of Offered Certificates will be made on
the following dates (which we refer to as the
related "Assumed Final Distribution Dates"),
assuming that there are no prepayments (other
than with respect to ARD Loans), defaults,
delinquencies or modifications of the Mortgage
Loans after February 1, 1999:
<TABLE>
<CAPTION>
<S> <C>
Class A-1 ......... May 14, 2008
Class A-2 ......... February 14, 2009
Class B ........... July 14, 2012
Class C ........... September 14, 2013
Class D ........... October 14, 2013
Class E ........... October 14, 2013
</TABLE>
Moody's and S&P have indicated that their
ratings of the Offered Certificates address the
likelihood of payment of principal amounts due
to certificateholders on or before February 14,
2031 (the "Rated Final Distribution Date") and
not any other date. The "Determination Date" for
each Distribution Date is the 5th Business Day
immediately preceding the Distribution Date.
Amounts Available for
Distribution............... Distributions on the Certificates will be made
on each Distribution Date from the Available
Distribution Amount.
The "Available Distribution Amount" with respect
to any Distribution Date will, in general, equal
the amount of the monthly payments due on the
Mortgage Loans in the month in which such
Distribution Date occurs and received or
advanced by the Servicer on or before the second
Business Day preceding such Distribution Date
(excluding any excess interest payable on any
ARD Loan that has reached its Anticipated
Repayment Date) plus amounts received in the
related Due Period (defined below) as balloon
payments, principal prepayments (exclusive of
yield maintenance charges paid by borrowers in
connection with such prepayment) and unscheduled
collections, less trust fund expenses (which may
include indemnity payments reimbursable to the
Servicer, the Special Servicer or the Trustee).
A more detailed description of Available
Distribution Amounts is provided herein under
"Description of the Certificates--
Distributions--Available Distribution Amount".
For each Distribution Date, the related "Due
Period" is the period that begins 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
S-9
<PAGE>
occurs. Notwithstanding the foregoing, if the
last day of a Due Period is not a Business Day,
payments received on the next Business Day that
relate to such Due Period will be deemed to have
been received during such Due Period.
For each Mortgage Loan, ignoring grace periods,
scheduled payments are due on the first day of
each month. We refer to such date as the "Due
Date".
Interest Distributions...... Investors will receive interest distributions
on each Distribution Date from the Available
Distribution Amount (and subject to the
sequential payment and subordination features
described below), in amounts up to the interest
accrued on each class of Certificates during the
preceding calendar month at the applicable
Pass-Through Rate (calculated on the basis of a
360-day year consisting of twelve 30-day months),
together with any previously accrued and unpaid
interest amounts.
In general, each class of Certificates will
receive an interest distribution on any
Distribution Date only after each class with an
earlier alphabetical designation has received
all amounts distributable thereto on such date.
The Class A-1, Class A-2 and Class X
Certificates will receive interest distributions
on a pro rata basis before any other class
receives interest.
Principal Distributions..... In general, each class of Certificates will
receive a principal distribution on any
Distribution Date only after each class with an
earlier alphabetical designation has received all
amounts distributable thereto on such date and
the Certificate Balance of each class with an
earlier alphabetical designation has been reduced
to zero. Subject to the reallocation thereof
pursuant to the subordination features described
below, the principal portion of the Available
Distribution Amount generally will be distributed
to the outstanding class with the earliest
alphabetical designation until the principal
balance of such class is reduced to zero.
Yield and Prepayment
Considerations............. The yield on any Offered Certificate will 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. 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
S-10
<PAGE>
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 period of time after origination
and/or allow voluntary prepayments only with the
payment of a Yield Maintenance Charge (defined
herein) for a specified period of time from
origination. For a discussion of certain factors
affecting prepayment of the Mortgage Loans, see
"Yield and Maturity Considerations" herein.
The structure of the Offered Certificates causes
the yield of certain classes to be particularly
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.
Yield Maintenance Charges... When a borrower prepays its Mortgage Loan, in
certain circumstances it must make an additional
payment intended to compensate the lender for the
adverse effect that the prepayment has on the
lender's anticipated yield on the Mortgage Loan.
We call these amounts "Yield Maintenance
Charges," and we describe the circumstances under
which they must be paid below under "--The
Mortgage Pool" and "Description of the Mortgage
Pool."
On each Distribution Date, any Yield Maintenance
Charges paid by borrowers during the related Due
Period will be distributed to investors pursuant
to a formula described under "Description of the
Certificates--Distributions--Allocation of Yield
Maintenance Charges". Such formula will allocate
a portion of such amounts to be distributed
among the class or classes of Offered
Certificates then outstanding in proportion to
the amount of principal being distributed
thereto on the related Distribution Date, with
the remaining portion being distributed to the
Class X Certificates.
Advances.................... On the business day before each Distribution
Date, the Servicer is required to advance, from
its own funds, the scheduled monthly payment of
principal and interest on each delinquent
Mortgage Loan. In addition, in the case of each
Mortgage Loan that is delinquent in respect of
its balloon payment, the Servicer must advance an
amount equal to the regular monthly payment that
would have been required if the Mortgage Loan had
not yet matured. The Servicer will not advance
the amount of any balloon payment.
S-11
<PAGE>
The Servicer must also make advances from its
own funds to pay delinquent real estate taxes,
assessments, hazard insurance premiums or other
similar costs and expenses necessary to protect
and maintain the Mortgaged Property, to maintain
the lien of the Mortgage on the related
Mortgaged Property or to enforce the related
Mortgage Loan documents.
Notwithstanding the foregoing, the Servicer (or
the Trustee or Fiscal Agent) is not required to
make any advance if it reasonably believes in
good faith that such advance, together with
interest thereon at the prime rate, ultimately
would not be recoverable from collections on the
related Mortgage Loan. If the Servicer fails to
make any required advance, the Trustee or the
Fiscal Agent is required to make such advance.
If an advance cannot be reimbursed from
collections on, or in respect of, the related
Mortgage Loan, the Servicer (or the Trustee or
Fiscal Agent) may be reimbursed for that advance
(and interest accrued thereon) from collections
on other Mortgage Loans. Any such reimbursement
will cause Certificateholders to bear losses in
the priority specified in this prospectus
supplement.
For a more detailed discussion of advances, See
"Description of the Certificates--Advances" in
this prospectus supplement and "Description of
the Certificates--Advances in Respect of
Delinquencies" and "Description of the Pooling
Agreements--Certificate Account" in the
prospectus.
Credit Enhancement.......... Credit enhancement is provided by the
sequential payment and subordination mechanisms
set forth in the Agreement and described herein.
Generally, distributions in respect of interest
and principal will be made to each class of
Certificates sequentially, based on the
alphabetical designations of each class other
than the Class X Certificates (e.g. Class D will
receive all interest distributions to be made to
it before Class E receives any interest
distribution, and, if Class D is then receiving
principal distributions, Class D will receive
all interest and principal distributions to be
made to it before Class E receives any
distribution in respect of principal). This is
referred to as "sequential payment." The Class
A-1, Class A-2 and Class X Certificates will
receive interest distributions on a pro rata
basis before any other class receives interest.
On any Distribution Date, after making all
required distributions on the Certificates, the
aggregate of the Certificate Balances of the
Certificates may exceed the aggregate of the
stated principal balances of the Mortgage Loans
due to losses, shortfalls or reductions of the
assets of the Trust Fund (we call this excess a
"Collateral Support Deficit"). On any such
Distribution Date, the aggregate of the
Certificate Balances of the Certificates will be
reduced without an accompanying principal
S-12
<PAGE>
distribution until it equals the aggregate of
the stated principal balances of the Mortgage
Loans. Any such reduction will be allocated to
the classes of Certificates in reverse
sequential order, based on the alphabetical
designations of each class (e.g., no such
reduction will be made to the Class D principal
balance until the principal balances of each
class of Certificates with later alphabetical
designations are reduced to zero). This reverse
sequential reduction feature is referred to as
"subordination." See "Description of the
Certificates--Subordination; Allocation of
Collateral Support Deficit" herein.
If there is a recovery of losses or shortfalls
on any Mortgage Loans as to which a Collateral
Support Deficit was previously allocated,
reimbursement to the extent of such recovery
will be made in sequential order to classes
whose principal balances had previously been
reduced in connection with any Collateral
Support Deficit. A class of Certificates may be
reimbursed for previously allocated Collateral
Support Deficits even after it is no longer
outstanding.
Classes with earlier alphabetical designations
generally are said to be "senior" to classes
with later alphabetical designations, and
classes with later alphabetical designations are
said to be "subordinated" to classes with
earlier alphabetical designations.
Notwithstanding the foregoing, the Class A-1,
Class A-2 and Class X Certificates are not
subordinated to any other class of Certificates
and rank equally with each other with respect to
interest distributions. However, the Class A-1
and Class A-2 Certificates are paid sequentially
with respect to principal distributions, and, if
the Class B Certificates have been reduced to
zero as a result of the allocation of Collateral
Support Deficits, the principal balance of the
Class A-1 and Class A-2 Certificates will
thereafter be reduced with respect to any
further Collateral Support Deficits on a pro
rata basis (and will receive any reimbursements
thereof on a pro rata basis).
As a result of these sequential payment and
subordination features, the most senior class of
Certificates outstanding will amortize more
rapidly than the other classes relative to the
amortization of the Mortgage Loans. To the
extent that a class amortizes faster than the
Mortgage Loans (e.g. as a result of the
sequential payment of distributions in respect
of principal), such class will represent a
reduced percentage of the trust fund relative to
the percentages evidenced by other classes, and
the degree of protection provided to such senior
class by the subordination of the other
outstanding classes will increase.
Optional Termination........ On any Distribution Date on which the aggregate
stated principal balance of the Mortgage Loans
remaining in the trust fund is less than 1% of
the Initial Pool Balance, all of the Mortgage
Loans and foreclosed mortgaged properties in the
trust fund may be purchased by (i) the holders of
the largest amount of Certificates of the
Controlling Class, (ii) the Servicer,
S-13
<PAGE>
(iii) the Special Servicer, or (iv) the holders
of the Class LR Certificates in that order.
Any such purchase will result in the termination
of the trust fund and the retirement of all
outstanding Certificates. See "Description of
the Certificates--Termination; Retirement of the
Certificates" herein and "Description of the
Certificates--Termination" in the Prospectus.
THE MORTGAGE POOL
General..................... The Certificates will represent undivided
beneficial ownership interests in a pool of
Mortgage Loans (the "Mortgage Pool") that
consists of 83 commercial, 27 multifamily and
three manufactured housing community fixed-rate
Mortgage Loans with an Initial Pool Balance of
approximately $478,003,982. As of the Cut-Off
Date, none of the Mortgage Loans is delinquent.
Each Mortgage Loan is secured by a first
priority lien on a fee simple estate and/or a
leasehold estate on one or more commercial,
multifamily or manufactured housing community
properties. Where a Mortgage Loan is secured in
whole or in part by a leasehold interest without
also being secured by the related fee interest,
each related ground lease expires at least 10
years after the scheduled maturity of such
Mortgage Loan (including extensions excercisable
at the lender's option).
Each Mortgage Loan provides for scheduled
payments of principal and/or interest ("Monthly
Payments") to be due on the first day of each
month (the "Due Date") and for a grace period of
no more than 10 days. See "Description of the
Mortgage Pool--Certain Terms and Conditions of
the Mortgage Loans" herein.
Mortgage Pool Summary....... The following tables set forth certain
anticipated characteristics of the Mortgage Loans
as of the Cut-Off Date. The sum in any column may
not equal the indicated total due to rounding.
S-14
<PAGE>
SUMMARY OF MORTGAGE POOL
<TABLE>
<CAPTION>
<S> <C>
Initial Pool Balance ........................... $478,003,982
Number of Mortgage Loans ....................... 113 (1)
Number of Mortgaged Properties ................. 123
Number of Balloon Loans/ARD Loans .............. 103 (2)
Number of Fully-Amortizing Loans ............... 10
Average Cut-Off Date Balance ................... $ 4,230,124
Weighted Average Mortgage Rate ................. 7.1383%
Weighted Average Original Term
to Maturity ................................... 137 months(3)
Weighted Average Remaining Term
to Maturity ................................... 134 months
Weighted Average Original
Amortization Term ............................. 326 months
Weighted Average DSCR as of the
Cut-Off Date .................................. 1.71x (4)
Weighted Average LTV Ratio as
of the Cut-Off Date ........................... 61.6% (4)
Weighted Average LTV Ratio as
of Maturity ................................... 47.9%
Weighted Average Current
Occupancy Rate for Commercial,
Multifamily and Manufactured Housing
Properties. ................................... 96.8% (4)
Weighted Average Current Occupancy
Rate for Hotels ............................... 75.0%
Balloon Loans/ARD Loan as a
Percentage of the Initial Pool
Balance ....................................... 93.0%
Fully Amortizing Loans as a
Percentage of the Initial Pool Balance ........ 7.0% (5)
</TABLE>
See "Risk Factors" and "Description of the
Mortgage Pool--Additional Mortgage Loan
Information" herein.
(1) Certain 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. The Mortgage Loans within
such a group may be treated as a single
Mortgage Loan for purposes of this
prospectus supplement and the accompanying
prospectus except where the context
otherwise requires. Certain Mortgage Loans
are secured by related Mortgaged Properties
on a pari passu basis with mortgage loans
not included as assets of the trust fund.
See "Description of the Mortgage Pool--Pari
Passu Mortgage Loans" herein.
(2) Mortgage Loan No. 16496 is an "ARD Loan",
meaning that because of the automatic
imposition of rapid amortization and
negative amortization features and the
imposi-
S-15
<PAGE>
tion of a lockbox arrangement with respect
to rent collections if the Mortgage Loan is
not prepaid in full on a specified date (the
"Anticipated Repayment Date"), the borrower
is expected to repay such loan on such date,
which is substantially earlier than the
maturity date specified in the mortgage (the
"Maturity Date"). 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.
(5) Substantially all of the Mortgage Loans
identified as "fully-amortizing" provide
for the accrual of interest on the basis of
the actual number of days in each payment
period and a year assumed to consist of 360
days. As a result, the Monthly Payments due
on the Maturity Dates for such Mortgage
Loans will be slightly greater than the
other Monthly Payments for such Mortgage
Loans.
PROPERTY TYPE
<TABLE>
<CAPTION>
WEIGHTED
AGGREGATE % OF AVERAGE
NUMBER CUT-OFF INITIAL CUT-OFF
OF DATE POOL DATE
PROPERTY TYPE LOANS BALANCE BALANCE LTV
- ----------------------------- -------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Multifamily ............... 27 $126,035,635 26.37% 64.45%
Office .................... 19 103,834,592 21.72 58.28%
Retail, Anchored .......... 16 72,431,441 15.15 58.82%
Mixed-Use ................. 11 42,949,005 8.99 67.09%
Hotel ..................... 11 42,856,126 8.97 59.19%
Industrial/Warehouse ...... 11 34,338,418 7.18 65.50%
Retail, Unanchored ........ 10 29,404,871 6.15 59.93%
Manufactured Housing 3 7,006,375 1.47 64.29%
Theater ................... 1 6,373,243 1.33 74.54%
Ministorage ............... 2 5,386,065 1.13 53.83%
Multiple Property Type..... 1 3,896,489 0.82 60.32%
Congregate Care ........... 1 3,491,722 0.73 34.74%
-- ------------ ------
Totals/Weighted
Average ................... 113 $478,003,982 100.00% 61.58%
=== ============ ======
</TABLE>
S-16
<PAGE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
AGGREGATE % OF
NUMBER OF CUT-OFF INITIAL
MORTGAGED DATE POOL
STATE PROPERTIES BALANCE BALANCE
- --------------------------- ------------ --------------- -----------
<S> <C> <C> <C>
California .............. 33 $129,356,158 27.06%
New York ................ 16 65,927,878 13.79
Connecticut ............. 6 45,301,636 9.48
Pennsylvania ............ 12 37,070,587 7.76
New Jersey .............. 8 31,960,986 6.69
22 Other States ......... 48 168,386,737 35.23
-- ------------ ------
Totals .................. 123 $478,003,982 100.00%
=== ============ ======
</TABLE>
RANGE OF CUT-OFF DATE BALANCES
<TABLE>
<CAPTION>
AGGREGATE % OF
CUT-OFF INITIAL
RANGE OF NUMBER DATE POOL
CUT-OFF DATE BALANCES OF LOANS BALANCE BALANCE
- ------------------------------ ---------- --------------- ----------
<S> <C> <C> <C>
$ 0 to $ 999,999 1 $ 737,992 0.15%
$ 1,000,000 to $ 1,999,999 23 36,846,086 7.71
$ 2,000,000 to $ 3,999,999 42 125,339,541 26.22
$ 4,000,000 to $ 5,999,999 27 127,707,288 26.72
$ 6,000,000 to $ 7,999,999 11 73,269,841 15.33
$ 8,000,000 to $ 9,999,999 3 28,348,930 5.93
$10,000,000 to $11,999,999 3 32,873,415 6.88
$14,000,000 to $15,999,999 1 14,100,000 2.95
$16,000,000 to $17,999,999 1 17,947,055 3.75
$20,000,000 to $24,999,999 1 20,833,835 4.36
-- ------------ ------
Totals 113 $478,003,982 100.00%
=== ============ ======
The average Cut-Off Date Balance is $4,230,124.
</TABLE>
S-17
<PAGE>
RANGE OF DSCRS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
AGGREGATE % OF
RANGE OF CUT-OFF INITIAL
DEBT SERVICE NUMBER DATE POOL
COVERAGE RATIOS OF LOANS BALANCE BALANCE
- -------------------------- ---------- --------------- ----------
<S> <C> <C> <C>
1.25x to 1.29x ......... 1 $ 6,965,929 1.46%
1.30x to 1.34x ......... 6 45,034,634 9.42
1.35x to 1.39x ......... 10 36,940,495 7.73
1.40x to 1.44x ......... 11 43,835,382 9.17
1.45x to 1.49x ......... 13 53,251,355 11.14
1.50x to 1.59x ......... 12 64,790,803 13.55
1.60x to 1.69x ......... 17 71,081,878 14.87
1.70x to 1.79x ......... 7 30,997,261 6.48
1.80x to 1.89x ......... 11 33,306,123 6.97
1.90x to 1.99x ......... 3 10,958,628 2.29
2.00x to 2.49x ......... 13 46,877,893 9.81
2.50x to 2.99x ......... 7 28,678,443 6.00
3.00x to 6.49x ......... 2 5,285,158 1.11
-- ------------ ------
Totals ................. 113 $478,003,982 100.00%
=== ============ ======
The weighted DSCR as of the Cut-Off Date is
approximately 1.71x.
</TABLE>
RANGE OF LTV RATIOS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
AGGREGATE % OF
CUT-OFF INITIAL
RANGE OF NUMBER DATE POOL
LTV RATIOS OF LOANS BALANCE BALANCE
- -------------------- ---------- --------------- ----------
<S> <C> <C> <C>
10.01% to 30.00% . 3 $ 4,647,278 0.97%
30.01% to 40.00% . 9 34,471,169 7.21
40.01% to 45.00% . 5 19,154,963 4.01
45.01% to 50.00% . 3 13,421,489 2.81
50.01% to 55.00% . 12 37,293,000 7.80
55.01% to 60.00% . 14 79,801,169 16.69
60.01% to 65.00% . 19 71,869,653 15.04
65.01% to 70.00% . 17 89,316,200 18.69
70.01% to 75.00% . 23 97,394,957 20.38
75.01% to 80.00% . 8 30,634,104 6.41
-- ------------ ------
Totals ........... 113 $478,003,982 100.00%
=== ============ ======
The weighted average LTV Ratio as of the Cut-Off Date is
approximately 61.58%.
</TABLE>
S-18
<PAGE>
RANGE OF REMAINING TERM TO MATURITY AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
AGGREGATE % OF
RANGE OF CUT-OFF INITIAL
REMAINING TERM NUMBER DATE POOL
TO MATURITY OF LOANS BALANCE BALANCE
- ----------------------------------------------------------- ---------- --------------- ----------
<S> <C> <C> <C>
71 to 100 .............................................. 3 $ 6,283,988 1.31%
101 to 120 .............................................. 79 346,859,756 72.56
161 to 180 .............................................. 29 106,505,753 22.28
181 to 240 .............................................. 2 18,354,485 3.84
-- ------------ ------
Totals .................................................. 113 $478,003,982 100.00%
=== ============ ======
The weighted average Remaining Term to Maturity as of the
Cut-Off Date is approximately 134 months.
</TABLE>
RANGE OF MORTGAGE RATES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
AGGREGATE % OF
CUT-OFF INITIAL
RANGE OF NUMBER DATE POOL
MORTGAGE RATES OF LOANS BALANCE BALANCE
- ------------------------------ ---------- -------------- ----------
<S> <C> <C> <C>
5.7500% to 6.2500% ......... 8 $ 34,074,930 7.13%
6.2501% to 6.5000% ......... 9 30,021,274 6.28
6.5001% to 6.7500% ......... 11 47,806,225 10.00
6.7501% to 7.0000% ......... 25 114,450,520 23.94
7.0001% to 7.2500% ......... 21 82,695,929 17.30
7.2501% to 7.5000% ......... 11 60,447,198 12.65
7.5001% to 7.7500% ......... 8 37,734,208 7.89
7.7501% to 8.0000% ......... 6 28,840,397 6.03
8.0001% to 8.2500% ......... 5 21,123,640 4.42
8.2501% to 8.7500% ......... 8 17,786,670 3.72
8.7501% to 9.2500% ......... 1 3,022,991 0.63
-- ------------ ------
Totals ..................... 113 $478,003,982 100.00%
=== ============ ======
The weighted average Mortgage Rate as of the Cut-Off Date
is 7.1383%.
</TABLE>
S-19
<PAGE>
SUMMARY OF CALL PROTECTION
<TABLE>
<CAPTION>
AGGREGATE % OF
CUT-OFF INITIAL
NUMBER DATE POOL
CALL PROTECTION OF LOANS BALANCE BALANCE
- ---------------------------------- ---------- --------------- -----------
<S> <C> <C> <C>
Loans Locked-out through
Maturity Date .................. 104 $436,231,516 91.26%
Loans Locked-out through 1-3
months prior to Maturity Date... 6 21,134,775 4.42
Loans Locked-out through 4-6
months prior to Maturity Date... 1 4,184,392 0.88
Loans with Lockout/YM through
Maturity Date .................. 1 5,986,157 1.25
Loans with Lockout/YM through
1-3 months prior to Maturity
Date ........................... 1 10,467,142 2.19
--- ------------ ------
Totals ......................... 113 $478,003,982 100.00%
=== ============ ======
</TABLE>
As used above "YM" means yield maintenance.
SUMMARY OF INTEREST ACCRUAL METHODS
<TABLE>
<CAPTION>
AGGREGATE % OF
CUT-OFF INITIAL
NUMBER DATE POOL
ACCRUAL METHOD OF LOANS BALANCE BALANCE
- ---------------------- ---------- --------------- ----------
<S> <C> <C> <C>
Actual/360 ......... 112 $473,031,328 99.0%
30/360 ............. 1 4,972,654 1.0
--- ------------ -----
Totals ............. 113 $478,003,982 100.0%
=== ============ =====
</TABLE>
SUMMARY OF TEN LARGEST MORTGAGE LOANS
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
% OF ----------------------------------
AGGREGATE INITIAL CUT-OFF
LOAN LOAN CUT-OFF POOL DATE MATURITY
NUMBER NAME DATE BALANCE BALANCE DSCR LTV LTV
- --------- --------------------------- -------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
11969 Founders Plaza & Tower 14 $ 20,833,835 4.36% 1.33x 67.64% 59.88%
16464 Stonecrest 17,947,055 3.75 1.55x 59.82% 51.92%
9691 Clemens Place Apartments 14,100,000 2.95 1.46x 67.14% 59.46%
16462 South Bay Marketplace 11,567,888 2.42 1.40x 74.63% 65.16%
8484 Eden Center 10,838,385 2.27 2.65x 33.87% 1.12%
16363 Clarendon Apartments 10,467,142 2.19 1.68x 62.30% 53.52%
17918 Best Western Seven Seas 9,500,000 1.99 1.53x 56.21% 39.55%
8747 Hamilton Station 9,466,781 1.98 1.70x 67.62% 49.55%
Apartments
9529 Washington Commons 9,382,149 1.96 1.32x 75.66% 66.72%
17820 240 West 35th Street 7,996,605 1.67 1.42x 57.12% 51.28%
------------ -----
Totals/Weighted Averages ......... $122,099,839 25.54% 1.58x 62.68% 50.98%
============ =====
</TABLE>
S-20
<PAGE>
Release and
Defeasance Provisions....... Full Release of Mortgaged Property or Mortgaged
Properties. 111 Mortgage Loans, representing
approximately 96.6% of the Initial Pool Balance,
permit the related borrower, at any time
commencing generally three to four years after
the date of origination (which in any case is no
earlier than two years after the Cut-Off Date),
to substitute non-callable U.S. Treasury
obligations for the Mortgaged Property and to
obtain the release of the related Mortgage on
the Mortgaged Property. Such U.S. Treasury
obligations must provide for payments on or
before each Due Date and the Maturity Date in an
amount at least equal to the amounts payable on
each such date under the terms of the related
Mortgage Loan. Following such substitution, the
U.S. Treasury obligations will be the only
collateral for the Mortgage Loan, and the
released Mortgaged Property will no longer
provide security for the Mortgage Loan. In order
for such a release to occur, each rating agency
must confirm in writing that such release will
not cause it to downgrade, withdraw or qualify
its then-current rating of any class of Offered
Certificates.
Partial Release of Mortgaged Property. Five
Mortgage Loans, representing approximately 7.9%
of the Initial Pool Balance, are secured by two
or more Mortgaged Properties and permit the
related borrower, at any time commencing
generally three to four years after the date of
origination, to substitute non-callable U.S.
Treasury obligations for some of the Mortgaged
Properties and to obtain the release of the
related Mortgage on such Mortgaged Properties as
long as the debt service coverage ratio of the
remaining Mortgaged Property is at least equal
to the underwritten debt service coverage ratio
at the time of origination of the Mortgage Loan.
Such U.S. Treasury obligations must be
sufficient to pay, on or before each day on
which payment is due on the Mortgage Loan,
including on the related Maturity Date, 125% of
the amounts payable under the related Note and
Mortgage on each such date under the terms of
the related Mortgage Loan. Following such
substitution and release, the U.S. Treasury
obligations and the remaining Mortgaged Property
will be the only collateral for the Mortgage
Loan, and the released Mortgaged Property will
no longer provide security for the Mortgage
Loan. The payments received on such U.S.
Treasury 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).
S-21
<PAGE>
Information Available to
Certificateholders......... On each Distribution Date commencing in March
1999, the Trustee must prepare and distribute to
you certain reports about the Certificates and
the Mortgage Loans. These reports will be based
in part on information prepared by the Servicer
and the Special Servicer. Each report will
contain the items described herein under
"Description of the Certificates--Reports to
Certificateholders; Available Information." In
addition, the Trustee must forward to you
certain reports that are prepared by the
Servicer in the form attached as "Annex B".
In addition, you will be entitled to request
copies of the annual "Operating Statement
Analysis Report" and "NOI Adjustment Worksheet"
with respect to the Mortgage Loans.
For detailed information about the report that
you will receive, See "Description of the
Certificates--Reports to Certificateholders;
Available Information."
Ratings..................... It is a condition of the issuance of the
Offered Certificates that they receive the
following credit ratings from Moody's and S&P
("S&P") :
RATING
<TABLE>
<CAPTION>
MOODY'S S&P
--------- -----
<S> <C> <C>
Class A-1.......... Aaa AAA
Class A-2.......... Aaa AAA
Class B ............ Aa2 AA
Class C ............ A2 A
Class D ............ Baa2 NR*
Class E ............ Baa3 NR
</TABLE>
* "NR" means not rated.
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.
Certain Federal Income Tax
Consequences............... For federal income tax purposes, the Depositor
will make elections to treat the assets
comprising the trust fund as two separate real
estate mortgage investment conduits. All of the
Offered Certificates and the Class X, Class F,
Class G, Class H, Class I, Class J and Class K
Certificates will constitute the "regular
interests" in the Upper-Tier REMIC. The Class R
Certificates will constitute the "residual
interests" in the Upper-Tier REMIC and the Class
LR Certificates will constitute the "residual
interests" in the Lower-Tier REMIC.
S-22
<PAGE>
For federal income tax purposes, the Offered
Certificates generally will be treated as newly
originated debt instruments issued by the
Upper-Tier REMIC. You will be required to
include in income all interest on your Offered
Certificates in accordance with the accrual
method of accounting, regardless of your usual
method of accounting. We also anticipate that
the Class D and Class E Certificates will each
be issued with original issue discount in an
amount equal to the excess of its initial
principal balance over its issue price
(including accrued interest). We further
anticipate that the Class A-1, Class A-2, Class
B and Class C Certificates will be issued at a
premium.
In determining the rate at which original issue
discount accrues for federal income tax purposes
and in calculating the amortization of premium
for federal income tax purposes, we generally
use a Constant Prepayment Rate of 0% except that
we assume that the ARD Loan will be prepaid on
its Anticipated Repayment Date. WE DO NOT MAKE
ANY REPRESENTATION THAT THE MORTGAGE LOANS WILL
PREPAY AT THAT RATE OR ANY OTHER RATE.
For further information regarding the federal
income tax consequences of investing in the
Offered Certificates, see "Certain Federal
Income Tax Consequences" in this prospectus
supplement and in the prospectus.
ERISA Considerations........ Subject to the considerations discussed under
"ERISA Considerations" herein and in the
prospectus, the Class A-1 and Class A-2
Certificates may be acquired by ERISA plans.
However, ERISA plans may not acquire any other
class of Offered Certificates. In addition, you
may not use the assets of an ERISA plan to
acquire such Certificates.
For further information about considerations
that are relevant to an investment in the
Offered Certificates by employee benefit plans,
See "ERISA Considerations" in this prospectus
supplement and in the prospectus.
Legal Investment............ The Class A and Class B Certificates will
constitute "mortgage related securities" within
the meaning of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA").
S-23
<PAGE>
RISK FACTORS
In deciding whether to purchase any Offered Certificates, you should
consider the following risk factors as well as the risk factors that begin on
page 17 of the accompanying prospectus.
BORROWER DEFAULT; NONRECOURSE MORTGAGE LOANS
The Mortgage Loans are not insured or guaranteed by anyone.
In general, the only source of payment for any Mortgage Loan is the
Mortgaged Property and/or other assets that have been pledged to secure the
Mortgage Loan. Before a Mortgage Loan matures, the borrower's ability to repay
the Mortgage Loan will depend primarily on the net cash flow of the related
Mortgaged Property. At maturity of a Mortgage Loan (or, upon the acceleration
of maturity following an event of default) the borrower's ability to repay the
Mortgage Loan will depend on the then market value of the related Mortgaged
Property or the ability of the related borrower to refinance the Mortgaged
Property. The net cash flow and market value of any Mortgaged Property may be
affected by a variety of factors, some of which are discussed below, and many
of which are not within the control of the borrower or originator.
If the Trustee forecloses on a Mortgaged Property, it is likely that
foreclosure proceedings would adversely affect the market value and the
refinanceability of the Mortgaged Property. 96 Mortgage Loans, representing
approximately 87.7% of the Initial Pool Balance, were originated within six
months prior to the Cut-Off Date. Consequently, such Mortgage Loans do not have
long-standing payment histories.
RISKS ASSOCIATED WITH COMMERCIAL AND MULTIFAMILY LENDING GENERALLY
The Mortgage Loans are secured by multifamily properties, anchored and
unanchored retail properties, office buildings, industrial properties, hotels
and other types of commercial properties and manufactured housing communities.
The repayment of loans secured by commercial or multifamily properties is
typically dependent upon the successful operation of the related real estate
project, the tenants' businesses and the creditworthiness of such tenants.
Commercial and multifamily lending also typically involves larger loans to a
single obligor than one-to-four-family residential lending.
Lenders typically look to the debt service coverage ratio (i.e. the ratio
of net cash flow to debt service described more fully under "Description of the
Mortgage Pool--Underwritten Net Cash Flow" herein) and loan to value ratio
(i.e. the ratio of the unpaid principal balance of a Mortgage Loan to the
appraised value of the related Mortgaged Property) as measures of the risk of
default on a loan secured by income-producing property. 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
1. the ratio of total property operating expenses to property revenue
(what we call "operating leverage");
2. the level of capital expenditures required to maintain the property and
retain or replace tenants;
3. the volatility of property revenue; and
4. the relative amounts of property operating expenses that are fixed as
compared to those that vary with revenue generated at the Mortgaged Property or
based on occupancy levels.
Each of the foregoing is a function of a variety of other factors specific
to the related Mortgaged Property, some of which are described below and many
of which are not within the control of the related borrower or the originator.
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 or 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
S-24
<PAGE>
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.
The net cash flow and market value of any Mortgaged Property may be
adversely affected by a number of factors, including but not limited to, the
following:
1. national, regional and local economic conditions;
2. local real estate conditions;
3. changes or continued weakness in specific industry segments;
4. perceptions by prospective tenants (and, in the case of retail
properties, retailers and shoppers) of the safety, convenience, services and
attractiveness of the property;
5. the willingness and ability of the property's owner to provide capable
management and adequate maintenance;
6. demographic factors;
7. retroactive changes to building codes or similar codes;
8. increases in operating expenses (such as energy costs);
9. the number of tenants (or, if applicable, the diversity of types of
business operated by such tenants); and
10. rent control laws.
The net cash flow and value of such Mortgaged Properties could be reduced
if competing properties of a similar type are built in the areas where the
Mortgaged Properties are located or if similar properties in the vicinity of
the Mortgaged Properties are substantially updated and refurbished. We cannot
assure you that the market value of any Mortgaged Property during the term of
the related Mortgage Loan will equal or exceed its 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 become unprofitable
due to competition, age, decreased demand or other factors. Such lack of
convertibility could adversely affect the liquidation value of any such
Mortgaged Property and reduce the amount that can be realized if an event of
default occurs on the related Mortgage Loan.
EXPOSURE OF THE MORTGAGE POOL TO ADVERSE ECONOMIC OR OTHER DEVELOPMENTS BASED
ON GEOGRAPHIC CONCENTRATION
Adverse conditions in the region where a Mortgaged Property is located may
reduce the Mortgaged Property's income and its foreclosure value. Such adverse
conditions may include:
1. general economic or demographic conditions in the state or region or
adverse developments affecting an industry that is concentrated in the state or
region;
2. real estate market conditions in the state or region;
3. state or local government regulations;
4. natural disasters, such as earthquakes, floods, tornadoes and
hurricanes, which may not be fully covered by insurance; and
5. other factors that are beyond the control of the related borrower.
Certain states or geographic regions may be more severely affected by such
factors than other states or regions, and to the extent that there is a
concentration of Mortgaged Properties or borrowers in such state or region, the
impact on the Trust Fund may be more significant than would be the case if the
properties were more geographically diversified.
S-25
<PAGE>
33 and 16 Mortgaged Properties, respectively, representing approximately
27.1% and 13.8% of the Mortgaged Properties by Initial Principal Balance,
respectively, are located in California and New York. Less than 10% of the
Mortgaged Properties (by Cut-off Date Balance) are located in any other state.
INCREASED RISK OF LOSS ASSOCIATED WITH CONCENTRATION OF MORTGAGE LOANS,
BORROWERS AND MANAGERS
In general, a mortgage pool with a concentration of larger-than-average
loans can result in more severe losses, relative to the size of the pool, than
would be the case if the aggregate balance of the mortgage loans in the pool
was more evenly distributed.
Several of the Mortgage Loans have stated principal balances as of the
Cut-Off Date that are substantially higher than the average stated principal
balance of all Mortgage Loans as of the Cut-Off Date.
The largest Mortgage Loan in the trust fund (identified as Loan Number
11969 on the Mortgage Loan Schedule) represents approximately 4.4% of the
Initial Pool Balance.
The ten largest Mortgage Loans have Cut-Off Date Balances that represent,
in the aggregate, approximately 25.5% of the Initial Pool Balance. See the
table entitled "Ten Largest Mortgage Loans" under "Description of the Mortgage
Pool--Additional Mortgage Loan Information" herein.
If a mortgage pool has a high concentration of mortgage loans to related
borrowers, the financial difficulties of such a borrower could have a greater
impact on the mortgage pool than it would if the borrower and its affiliates
represented a smaller proportion of the mortgage pool. Two groups of Mortgage
Loans made to affiliated borrowers each represent 6.7% of the Mortgage Loans by
Initial Principal Balance.
To the extent that mortgaged properties owned by a group of related
borrowers have common management, any financial or other difficulties
experienced by the property manager would have a greater impact on the
mortgaged properties 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 of a common general partner, would have a greater impact on the
Mortgage Pool than a financial failure or bankruptcy filing involving only one
of several borrowers without such an affiliation. 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.
OTHER FINANCING AND ADDITIONAL DEBT
Except as described below, the Mortgage Loans do not permit borrowers to
incur additional indebtedness secured by the Mortgaged Properties without the
consent of Lender. In general, borrowers may incur trade payables in the
ordinary course of business. In limited circumstances borrowers may incur
additional unsecured indebtedness to finance equipment and other assets used in
the ordinary course of business.
The existence of additional debt may increase the riskiness of a Mortgage
Loan for several reasons.
Reduced Cash Flow. Additional debt service requirements may reduce cash
available for property maintenance, thereby reducing the value of the Mortgaged
Property.
Refinancing. A borrower with additional debt outstanding when a Mortgage
Loan matures may have more difficulty refinancing the Mortgage Loan and, if the
Mortgage Loan requires the borrower to make a significant payment of principal
at maturity, the borrower could be at risk of defaulting on that payment.
Bankruptcy Risks. Additional debt increases the risk that the borrower
could become insolvent or subject to bankruptcy or similar proceedings or might
complicate bankruptcy proceedings delaying
S-26
<PAGE>
foreclosure on the Mortgaged Property. In addition, if the holder of additional
debt becomes bankrupt or insolvent, the Trustee's ability to foreclose on the
related Mortgage Loan could be delayed. See "Certain Legal Aspects of the
Mortgage Loans Due-on-Sale and Due-on-Encumbrance" and "--Subordinate
Financing" in the prospectus.
Borrower not Prevented from Incurring Additional Debt. Except with respect
to Mortgage Loans No. 16814, 11839, 12252 and 16771 on the Mortgage Loan
Schedule (the "Non-SPE Loans"), representing in the aggregate approximately
4.2% of the Initial Pool Balance, 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). We cannot assure you that borrowers will comply with
such representations or restrictions set forth in their organizational or loan
documents. Further, in many cases borrowers are not required to observe all
covenants and conditions which typically are required in order for such
borrowers to be viewed as "special purpose entities" under standard rating
agency criteria. See "Certain Legal Aspects of Mortgage Loans--Bankruptcy Laws"
in the prospectus.
With respect to the Non-SPE Loans, any such borrower may currently have
outstanding additional debt or may incur additional debt after the date of this
Prospectus Supplement, other than debt secured by the respective Mortgaged
Properties. The loan documents with respect to the Non-SPE Loans permit
additional indebtedness secured by the Mortgaged Properties but only with the
consent of the lender. In addition, the loan documents with respect to Mortgage
Loan No. 12252 prohibit the aggregate debt encumbering the related borrower's
properties from exceeding a maximum loan to value ratio. The loan documents
with respect to Mortgage Loan No. 16771 require that the related borrower
maintain a minimum net worth.
Borrower has Additional Unsubordinated Debt Secured by Mortgaged Property.
The Mortgaged Properties securing Mortgage Loans No. 11969 and 16393
on the Mortgage Loan Schedule secure certain additional debt of the Borrower
that is not included in the Trust Fund on a pari passu basis with such Mortgage
Loans as more fully described under "Description of the Mortgage Loans--Pari
Passu Mortgage Loans" herein.
Borrower has Additional Subordinated Debt Secured by Mortgaged Property.
The borrowers with respect to Mortgage Loans No. 17702 and 17820 on
the Mortgage Loan Schedule have incurred approximately $1,125,000 and $499,500,
respectively, of additional debt that is not included in the Trust Fund and
that is secured by the related Mortgaged Property ("Additional Debt"). In each
such case, the related lender has entered into a Subordination and Standstill
Agreement which provides that (A) the related lender has agreed to fully
subordinate the Additional Debt to the related Mortgage Loan and any renewals,
extensions, modifications, replacements, refinancings or consolidations of the
Mortgage Loan (collectively, the "Senior Debt"), (B) such lender may not
exercise any remedies against the related mortgagor or its assets with respect
to the Additional Debt until the Senior Debt has been paid in full, (C)
payments on Additional Debt are permitted only if cash is available after the
payment of operating expenses of the Mortgaged Property, debt service, escrow
and reserve amounts due on the Mortgage Loan, (D) such lender may not assign or
pledge its interests in the Additional Debt, (E) such Subordination and
Standstill Agreement is for the benefit of the Mortgage Loan Seller and its
successors and assigns, and (F) such lender will assign to the Mortgage Loan
Seller or its successors and assigns all of its rights, if any, to vote or
consent with respect to any plan of reorganization under such bankruptcy
proceedings. Each such Subordination and Standstill Agreement is being assigned
pursuant to the Mortgage Loan Purchase and Sale Agreement and is part of the
Mortgage File.
Borrower has Additional Debt not Secured by Mortgaged Property. The
Borrowers with respect to Mortgage Loans No. 9100, 9529, 9691 and 17820 on the
Mortgage Loan Schedule (or affiliates thereof)
S-27
<PAGE>
have incurred additional debt that is not included in the Trust Fund and that
is not secured by the related Mortgaged Property. With respect to Mortgage Loan
No. 9100, the related borrower has deposited with a third party lender 100% of
the amount owed to such lender (approximately $365,000) pending expiration of
the prepayment lockout period in June 1999 and has escrowed with the lender all
monthly payments due until such time. With respect to Mortgage Loans No. 9529
and 17820, the related borrowers have incurred approximately $3,800,000 and
$1,010,500, respectively, of additional debt that is not included in the Trust
Fund and that is unsecured. In each such case, the related lender or lenders
have entered into a Subordination and Standstill Agreement which provides that
(A) the related lender or lenders have agreed to fully subordinate the
Additional Debt to the related Mortgage Loan and any renewals, extensions,
modifications, replacements or refinancings of the Mortgage Loan (collectively,
the "Senior Debt"), (B) such lender may not exercise any remedies against the
related mortgagor or its assets with respect to the Additional Debt until the
Senior Debt has been paid in full, (C) payments on Additional Debt are
permitted only if cash is available after the payment of operating expenses of
the Mortgaged Property, debt service, escrow and reserve amounts due on the
Mortgage Loan, (D) such lender may not assign or pledge its interests in the
Additional Debt, (E) such Subordination and Standstill Agreement is for the
benefit of the Mortgage Loan Seller and its successors and assigns, and (F)
such lender will assign to the Mortgage Loan Seller or its successors and
assigns all of its rights, if any, to vote or consent with respect to any plan
of reorganization under bankruptcy proceedings. Each such Subordination and
Standstill Agreement is being assigned pursuant to the Mortgage Loan Purchase
and Sale Agreement and is part of the Mortgage File.
In the case of the borrower with respect to Mortgage Loan No. 9691 on the
Mortgage Loan Schedule, the related borrower, has an unsecured obligation of
approximately $3,368,000 plus accrued interest which is owed to its general
partners pursuant to the partnership documents for reimbursement of certain
expenses incurred in connection with the operation and rehabilitation of the
Mortgaged Property. Pursuant to the terms of a subordination agreement, such
obligation is payable only if cash is available after the payment of operating
expenses of the Mortgaged Property, debt service, reserve and escrow amounts
due on the Mortgage Loan. Such obligation is not transferable without the
consent of the lender while the Mortgage Loan is outstanding. The general
partners of such borrower have incurred indebtedness of $6,750,000, which is
owed to Resource Properties XLI, Inc. ("Resource"), an unaffiliated third
party, secured by a pledge of their partnership interests. The Resource debt
has been structured so that it is payable from the general partners'
distributions from the borrower out of excess cash flow. Resource has executed
an intercreditor agreement that provides (a) that it is not entitled to receive
any payment on the general partners' debt at any time during which a default
exists under the Mortgage Loan Documents, (b) that as long as the Mortgage Loan
remains outstanding, it may not assign the general partners' debt without the
consent of the lender and the rating agencies, and (c) that as long as the
Mortgage Loan is outstanding, it shall not exercise any remedy other than
replacing the general partners. Both the intercreditor agreement and the loan
documents provide that the debt to Resource is subject and subordinate to the
Mortgage Loan and the Mortgage Loan Documents.
Additional Obligation to Third-Party. The Mortgaged Property securing
Mortgage Loan No. 9691 on the Mortgage Loan Schedule is the subject of a tax
abatement agreement between the Borrower and the City of Hartford, Connecticut
which has the effect of deferring a portion of payments in lieu of taxes
("PILOT") by an amount equal to $320 per unit (or approximately $186,560 in the
aggregate) per annum. Per the tax abatement agreement, such deferred PILOT is
payable from the Property's excess cash flow. If the holder of the first
mortgage on the Property takes title or possession of the Property following a
default, such party will have the option of (i) assuming the tax abatement
agreement, in which case, deferred PILOT will continue to accrue or be paid
from excess cash flow, or (ii) rejecting the tax abatement agreement, and
paying taxes at market rate in which case deferred PILOT is forgiven. The
borrower's ability to refinance the property could be impacted by the
availability of cash flow to pay outstanding PILOT. A termination of the tax
abatement agreement could reduce the related net operating income thereafter
and such change in operating income may adversely affect the Borrower's ability
to refinance such Mortgage Loan.
RISKS ASSOCIATED WITH RECENTLY CONSTRUCTED PROPERTIES
Five of the Mortgage Loans, representing approximately 5.1% of the Initial
Pool Balance, are secured by Mortgaged Properties constructed after January
1st, 1998. Consequently, such Mortgaged Properties
S-28
<PAGE>
do not have significant operating histories. There can be no assurance that the
businesses will be successful as operated at such Mortgaged Properties. There
can be no assurances that current occupancy levels of such Mortgaged Properties
will be maintained or that full occupancy will be achieved. There also can be
no assurance that as yet undiscovered physical or design problems with the
recently constructed properties will not adversely affect occupancy levels of
the Mortgaged Property.
RISKS ASSOCIATED WITH BALLOON PAYMENTS AND THE ARD LOAN
103 of the Mortgage Loans, representing approximately 93.0% of the Initial
Pool Balance, do not fully amortize over their stated term to maturity (or
until the Anticipated Repayment Date in the case of the ARD Loan) and will have
substantial payments of principal ("Balloon Payments") due at maturity unless
previously prepaid.
If a loan requires the borrower to make a significant principal payment at
maturity (or on the Anticipated Repayment Date), the borrower will typically be
able to repay the loan only if it can refinance the loan or sell the related
Mortgaged Property at a price sufficient to permit it to pay the Mortgage Loan
in full. A borrower's ability to sell or refinance a Mortgaged Property depends
upon many factors. Some of those factors that affect property value and cash
flow are described above in this section. Other relevant factors include the
level of available mortgage rates, prevailing economic conditions and the
general availability of credit for the type of property being financed at the
time of the sale or refinancing.
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 the building, to fund capital
improvements and to service the mortgage loan and any other debt or obligations
it may have outstanding. Eight of the Mortgage Loans, representing
approximately 5.4% of the Initial Pool Balance, are secured by single-tenant
properties. The net cash flow and market value of such Mortgaged Properties are
at more risk to changes in the performance of such tenants' business than are
multi-tenant properties.
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. A borrower would be
adversely affected if its tenants were unable to pay rent or if the borrower
could not rent space 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. We cannot give you any assurances as to whether, or to what
extent, economic, legal or social factors will affect future rental or
repayment patterns.
RISKS PARTICULAR TO RETAIL PROPERTIES
26 of the Mortgage Loans, representing approximately 21.3% of the Initial
Pool Balance, are secured by mortgages on fee and/or leasehold interests in
retail properties.
Mortgage loans that are secured by liens on retail properties are exposed
to certain unique risks. In certain cases, rents on retail properties are
linked to a percentage of gross sales generated by the tenant's business. Such
arrangements cause the value of such properties to correlate to the performance
of tenant businesses, and increase the risk that the borrower will be unable to
make payments on the related mortgage loan if the tenants' businesses perform
poorly. Therefore, the value of retail properties are significantly impacted by
the quality of the tenants as well as fundamental aspects of real estate such
as location and market demographics.
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 tenant, it
is generally understood that a retail anchor tenant is proportionately larger
in size and is vital in attracting customers to the retail property.
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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, internet based "e-commerce", telemarketers,
multi-level marketers 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
27 of the Mortgage Loans, representing approximately 26.4% of the Initial
Pool Balance, are secured by mortgages on fee or leasehold interests in
multifamily properties.
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, the operation of a multifamily property may be affected by circumstances
outside the borrower's control, 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 a
Mortgage Loan.
Certain states strictly regulate the relationship between landlords and
tenants. Commonly, these laws require a written lease, good cause for eviction
and disclosure of fees, and prohibit unreasonable rules and retaliatory
evictions. Apartment building owners also 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. In such jurisdictions and potentially others, borrowers are facing
new and more complicated challenges to their rights to tenant rents, which may
reduce the value of multifamily properties or increase the volatility of the
related net cash flows. A few states offer especially significant protection to
tenants. For example, some states 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 which in turn may be linked to increases in the consumer
price index, schedules approved by a governmental agency, or to increases
determined through mediation or binding arbitration. In many cases, rent
control or rent stabilization laws do not permit vacancy decontrol or
destabilization, and therefore limit the projected future net cash flows and
market value of the affected multifamily properties. 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 Multifamily Properties" in the prospectus.
RISKS PARTICULAR TO OFFICE PROPERTIES
19 of the Mortgage Loans, representing approximately 21.7% of the Initial
Pool Balance, are secured by office properties.
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. Negative changes in the physical plant
or surroundings with respect to such features may have a significant impact on
occupancy levels, tenant turnover and lease or rental income with respect to
such properties. 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" in the Prospectus.
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RISKS PARTICULAR TO HOTEL PROPERTIES
11 of the Mortgage Loans, representing approximately 9.0% of the Initial
Pool Balance, are secured by full service hotels or limited service hotels.
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 at
higher levels than are applicable to many other property types. Hotels tend to
respond more quickly to adverse economic conditions and to competition than
other commercial properties because hotel rooms generally are rented for short
periods of time. Furthermore, the financial strength and capabilities of the
owner and operator of a hotel may have a substantial impact on that 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.
If the Servicer forecloses on a hotel property, the Trustee (or Servicer
or Special Servicer) or the purchaser of such hotel property would probably not
be able to use the borrower's liquor license and would have to apply for a new
liquor license. We cannot assure you 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
11 of the Mortgage Loans, representing approximately 7.2% of the Initial
Pool Balance, are secured by industrial properties.
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" in the Prospectus.
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 manager of the property. 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 as to which there is a management agreement
permit the lender to terminate the related management agreement upon an "Event
of Default" as defined in the related
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Mortgage. In addition, 6 Mortgage Loans, representing approximately 11.8% 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 operator or manager
currently in place or put in place upon the expiration or termination of
current management agreements or following any default or foreclosure under a
Mortgage Loan. In addition, the property managers generally 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. We cannot assure you that the property managers will always 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
Your Certificates generally do not entitle you 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. Generally, you have only very limited rights to
participate in decisions with respect to the administration of the Trust Fund
(although, among other things, the Controlling Class will have the right to
replace the Special Servicer and the Directing Certificateholder will have
certain rights with respect to approving Asset Status Reports, the conduct of
property appraisals and Appraisal Reductions described herein). 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 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.
SERVICER OR SPECIAL SERVICER MAY PURCHASE CERTIFICATES
The Servicer, Special Servicer, or one of their affiliates is expected to
purchase all or a portion of several classes of Certificates. In such event,
the Servicer and/or Special Servicer may be subject to a conflict of interest
because it would have an economic interest in the trust fund that is distinct
from that of holders of other classes of Certificates. However, the Pooling and
Servicing Agreement requires the Servicer and Special Servicer to service
Mortgage Loans in accordance with specified objective standards and 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.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
The yield on any Offered Certificate will be affected by (i) the related
Pass-Through Rate (and whether such rate is limited by the weighted average Net
Mortgage Rate of the Mortgage Loans), (ii) the purchase price paid for such
Certificate (and whether such price represents a premium over or discount to
the principal amount represented by such Certificate), the rate and timing of
principal payments (including voluntary and involuntary principal prepayments
and delinquent payments) and principal losses on the Mortgage Loans and (iii)
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.
If you purchase an Offered Certificate at a discount, you 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 your expected
yield. If you purchase a Certificate at a premium, you should consider the risk
that a faster than anticipated rate of principal payments on the Mortgage Loans
will result in an actual yield that is lower than your expected yield. Insofar
as your initial investment in any Offered Certificate is repaid, you may not be
able to reinvest such amounts in an alternative investment with a comparable
yield as the yield on your Offered Certificates.
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We cannot predict the actual rate of prepayment of principal on the
Mortgage Loans. 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 an additional charge
intended to compensate the lender for foregone interest (the "Yield Maintenance
Charge") for a specified amount of time from origination.
1. 104 Mortgage Loans, representing approximately 91.3% of the Initial
Pool Balance, contain provisions that prohibit all voluntary prepayments.
2. Seven Mortgage Loans, representing approximately 5.3% 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)
and without restriction thereafter.
3. One Mortgage Loan, representing approximately 1.3% of the Initial Pool
Balance, contains a provision that prohibits voluntary prepayment for a period
of four years after origination and permits voluntary prepayment at any time
thereafter with the payment of a Yield Maintenance Charge.
4. One Mortgage Loan, representing approximately 2.2% of the Initial Pool
Balance, contains a provision that prohibits voluntary prepayment for five
years after origination and permits voluntary prepayment thereafter with the
payment of a Yield Maintenance Charge until three months prior to the Maturity
Date and without restriction thereafter.
The investment performance of your Offered Certificates may vary
materially and adversely from your investment expectations due to prepayments
on the Mortgage Loans (whether voluntary or otherwise) being higher or lower
than you anticipated. Even if the actual yield is equal to your anticipated
yield, you may not realize your expected total return on investment or the
expected weighted average life of your 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.
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. If you are purchasing any class of Offered
Certificates other than the Class A-1 Certificates you will not receive any
principal distributions until the Certificate Balance of each class that is
senior to your class is reduced to zero.
YIELD RISK ASSOCIATED WITH CHANGES IN CONCENTRATIONS
To the extent that any borrower pays down the principal of any of 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.
SEQUENTIAL PAY AND SUBORDINATION OF SUBORDINATE OFFERED CERTIFICATES
The sequential pay and subordination features governing the priority of
distributions to Certificateholders may result in delays in the payment of
interest and/or principal to any subordinated class of Certificates or to the
reduction of the related Certificate Balance in connection with the realization
of a Collateral Support Deficit which may remain unreimbursed. Any such delay
or reduction will adversely effect the yield to maturity of such class of
Certificates. See "Description of the Certificates --Distributions--Priority"
and "--Subordination; Allocation of Collateral Support Deficit" herein.
POTENTIAL LIABILITY TO THE TRUST FUND RELATING TO ENVIRONMENTAL CONDITIONS
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:
(1) which was remediated or for which an escrow for remediation costs has
been established and/or
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(2) for which an entity other than the related borrower is responsible for
remediation or the cost of such remediation and/or
(3) for which the consultant recommended an operations and maintenance
plan or periodic monitoring of the subject properties and/or nearby properties,
which recommendations were required to be implemented in a manner consistent
with industrywide practices.
With respect to Mortgage Loan No. 11279 representing approximately 0.7% 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 with respect to which a party other than the borrower
is obligated to remediate. Although the Trust may not have legal liability for
this contamination of the related Mortgaged Property, the enforcement of rights
against the party obligated to remediate may result in additional transaction
costs.
Federal law requires owners of multifamily housing constructed prior to
1978 to disclose to potential residents or purchasers any condition on the
property that causes exposure to lead-based paint and the related hazards to
pregnant women and young children. Property owners may be liable for tenant
injuries from such exposure under federal and state laws that impose
affirmative discovery and remediation obligations on owners of multifamily
housing containing lead-based paint. The environmental assessments revealed the
existence of lead-based paint at certain of the Multifamily Properties. In
these cases, the borrowers have either implemented operations and maintenance
programs or are in the process of removing the lead-based paint.
The Pooling and Servicing Agreement requires the Special Servicer to
obtain an environmental site assessment of a Mortgaged Property securing a
defaulted Mortgaged Loan prior to acquiring title thereto or assuming its
operation. This restriction may delay enforcement of the security for the
related Mortgage Note and will make it impossible for the Servicer or Special
Servicer to foreclose on a Mortgaged Property if a satisfactory environmental
site assessment is not obtained (or required remedial action is not taken).
This prohibition is meant to decrease the likelihood that the trust fund will
become liable for an environmental condition at any Mortgaged Property.
However, we cannot assure you that the requirements of the Pooling and
Servicing Agreement will completely protect the assets of the trust fund from
liability for an environmental condition. 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.
CERTAIN 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 you and to other 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.
LIMITATIONS ON ENFORCEABILITY OF CROSS-COLLATERALIZATION ARRANGEMENTS
When a mortgage loan ("Loan A") is cross-collateralized with another
mortgage loan ("Loan B"), the collateral securing Loan A also secures Loan B
and the collateral securing Loan B also secures Loan A.
Cross-collateralization arrangements seek to minimize defaults and
ultimate losses that could result if the Mortgaged Property primarily securing
a Mortgage Loan fails to generate enough net operating
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income to pay debt service on that Mortgage Loan. However, when a borrower
pledges its property to secure repayment of another borrower's obligations,
there is a risk that the creditors of that borrower (or that borrower's trustee
in bankruptcy) could challenge the arrangement as a "fraudulent conveyance."
Such a challenge could eliminate or reduce the benefits of
cross-collateralization with respect to one or more cross-collateralized
Mortgage Loans.
In general, a pledge or transfer may be set aside as a "fraudulent
conveyance" if a court finds that the following circumstances exist:
1. Insufficient Consideration. The pledgor or transferor did not receive
fair consideration or reasonably equivalent value in exchange for its agreement
to pledge its property for the equal benefit of the other borrower; and
2. Insolvency. The pledgor or transferor was insolvent at the time of
granting the lien on its property or was rendered insolvent as a result of
granting the lien on its property.
NO EARTHQUAKE INSURANCE
35 Mortgage Loans, representing approximately 28.5% of the Initial Pool
Balance, are secured by Mortgaged Properties located in areas classified as
seismic zones 3 or 4. Seismic studies have been completed for all of such
Mortgage Loans.
Of the Mortgage Loans for which seismic studies have been completed, 11
Mortgage Loans, representing 6.0% of the Initial Pool Balance, have a "probable
maximum loss" or "bounded maximum loss" estimate exceeding 20%. All of such
Mortgaged Properties are insured against losses resulting from an earthquake,
except for the Mortgaged Properties securing Mortgage Loan Nos. 9072 and 11272
representing in the aggregate 0.7% of the Initial Pool Balance. Except with
respect to Mortgage Loan No. 9056, no other Mortgaged Property 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, to the extent law and
ordinance insurance coverage is not in place, 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. We cannot assure you that such litigation will not have a material
adverse effect on the performance of the related Mortgaged Properties and,
thus, the distributions to Certificateholders.
RISKS ASSOCIATED WITH YEAR 2000
The transition from the year 1999 to the year 2000 may disrupt the ability
of computerized systems to process information, the collection of payments on
the Mortgaged Loans, the servicing of the Mortgage Loans and the performance of
related duties by the Servicer, the Special Servicer, the Trustee, the
borrowers and other third parties. The Depositor has been advised by the
Servicer, the Special Servicer and the Trustee that, with respect to those
computer systems identified as being mission critical for the performance of
the servicing functions described herein, they are committed to either (i)
modifying their respective existing systems to the extent required to cause
them to be Year 2000 capable, or (ii) acquiring new and/or upgraded computer
systems that are Year 2000 capable in each case prior to August 31, 1999.
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The Master Servicer, the Special Servicer and the Trustee consider their
products and services to be "Year 2000 capable" if the product or service will
be capable of accurately processing, proving and receiving date data from, into
and between the twentieth and twenty-first centuries, and will correctly
create, store, process and output information related to or including dates on
or after December 31, 1999 as a result of the changing of the date from 1999 to
2000, including leap year calculations, when used for the purpose for which it
was intended, assuming that all other products, including hardware and
software, when used in combination with the product or service properly
exchange date data. However, neither the Depositor nor any affiliate of the
Depositor has made any independent investigation of the computer systems of the
Master Servicer, the Special Servicer or the Trustee. In the event that the
computer systems of the Master Servicer, the Special Servicer or the Trustee
are not fully Year 2000 capable, the resulting disruption in the collection or
distribution of receipts on the Mortgage Loans could materially adversely
affect the Certificateholders.
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 by Initial Pool
Balance. The Trust Fund will consist primarily of 83 commercial, 27 multifamily
and three manufactured housing community Mortgage Loans. The Initial Pool
Balance is approximately $478,003,982. 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 in one of the following
properties (each, a "Mortgaged Property"):
(i) with respect to 108 Mortgage Loans, representing approximately 92.4%
of the Initial Pool Balance, on a fee simple estate (i.e. the borrower owns
the land and any improvements that comprise the Mortgaged Property) in one
or more commercial, multifamily or manufactured housing community
properties;
(ii) with respect to one Mortgage Loan, representing approximately 2.9%
of the Initial Pool Balance, a leasehold interest (and a fee simple estate
in a small portion of the Mortgaged Property) in a multifamily property
(i.e. the borrower has the interest of a tenant in the land but an
ownership interest in certain of the improvements that comprise the
Mortgaged Property); or
(iii) with respect to four Mortgage Loans, representing approximately
4.7% of the Initial Pool Balance, a leasehold estate in a commercial
property (i.e. the borrower has the interest of a tenant in the land and/or
improvements that comprise the Mortgaged Property).
The term (including extensions exercisable at the lender's option) 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. 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 the "Representations and Warranties; Repurchases" below and
"Description of the Pooling Agreements--Assignment of Mortgage Loans;
Repurchases" in the prospectus.
The Mortgage Loans were originated in 1998 or 1999. Each of the Mortgage
Loans has been underwritten in accordance with the Mortgage Loan Seller's
underwriting standards. All of the Mortgaged Properties were inspected by or on
behalf of the Mortgage Loan Seller within the 12-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".
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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 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.
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. In the prospectus supplement we may treat the
Mortgage Loans as a group if they collectively constituted a single Mortgage
Loan except where the context makes it clear that we are talking about the
individual Mortgage Loans within that group.
ADDITIONAL DEBT
In general, borrowers may incur trade payables in the ordinary course of
business. In limited circumstances borrowers may incur additional unsecured
indebtedness to finance equipment and other assets used in the ordinary course
of business. In some circumstances borrowers may incur additional unsecured
indebtedness for other purposes. Although the Mortgage Loans generally do not
permit borrowers to incur additional indebtedness secured by the Mortgaged
Properties, potential investors should note the exceptions to this rule as
described below and in "Risk Factors--Other Financing and Additional Debt"
herein and "Certain Legal Aspects of Mortgage Loans--Subordinate Financing" as
described in the prospectus.
PARI PASSU MORTGAGE LOANS
Founders Plaza and Tower 14 Loan No. 11969. The Founders Property and the
Tower 14 Property secure the cross-collateralized Mortgage Loans identified by
loan numbers 11969A and 11969B on the Mortgage Loan Schedule, as described
above under "--Ten Largest Mortgage Loans". These properties also secure
$5,100,000 representing the principal amount of a prefunded earnout (the
related "Full Earnout Amount") loaned to the borrower pursuant to first lien
mortgages that is on a pari passu basis with the Mortgage Loans described above
(the related "Pari Passu Debt") for the purpose of completing certain
improvements on the properties. By "pari passu," we mean that collections and
losses will be allocated between the Mortgage Loans and the mortgage loans
comprising the related Pari Passu Debt on a pro rata basis and with equal
priority. The mortgage loans comprising the related Pari Passu Debt are not
Mortgage Loans, and are owed to the Mortgage Loan Seller. The mortgage loans
comprising the related Pari Passu Debt are allocated such that $1,750,000 is
secured by the Founders Property and $3,350,000 is secured by the Tower 14
Property. The borrower expects that, following the completion of such
improvements, the properties may be leased for amounts that will increase the
net cash flow of the properties to the extent that repayment of the related
Full Earnout Amount on a scheduled basis and the ongoing satisfaction of
certain related conditions would be achieved (including maintenance of a DSCR
of 1.33x and an LTV of 75%, and execution of leases acceptable to Lender with
tenants who, among other things, are in occupancy and paying full contractual
rent without any right of free rent, rent credit, or rent concessions).
The related Pari Passu Debt is also secured by a $5,100,000 letter of
credit ("Letter of Credit") issued by Bank of America. If the net cash flow
from the properties satisfies the conditions described above by April 7, 1999
(eight months from the initial funding date), subject to extension to October
15, 1999 (the related "Earnout Period"), the Letter of Credit will be released
to the borrower. If such conditions are not satisfied within the related
Earnout Period, the Letter of Credit will be drawn and applied to the repayment
of the related Pari Passu Debt to the extent necessary so that the Mortgage
Loans and the mortgage loans comprising the related Pari Passu Debt together
have an aggregate DSCR that is no less than 1.33x and an aggregate current
loan-to-value ratio that is no more than 75%.
The payment and other terms of the mortgage loans comprising the related
Pari Passu Debt are substantially similar to those of the Mortgage Loans. The
Trustee, as holder of the Mortgage Loans, has
S-37
<PAGE>
the exclusive right to exercise remedies with respect to the mortgage loans
comprising the related Pari Passu Debt, including without limitation seeking
foreclosure. The originator of the related Pari Passu Debt retains the right to
draw upon the Letter of Credit if the net cash flow and other conditions
described above are not satisfied. The originator of the related Pari Passu
Debt has agreed to exercise this right if such conditions are not satisfied.
Lomas Sante Fe Center Loan No. 16393. The land and improvements securing
the Mortgage Loan identified as Mortgage Loan No. 16393 on the Mortgage Loan
Schedule, which Mortgage Loan had an original principal balance of $2.5
million, also secure a separate loan with an original principal balance of
$21,400,000 (the related "Pari Passu Debt"). The related Pari Passu Debt is
secured by a first mortgage lien on the Mortgaged Property that is pari passu
with the lien of the Mortgage securing the Mortgage Loan. The related Pari
Passu Debt is a mortgage loan included as an asset of the trust that issued the
Bear Stearns Commercial Mortgage Securities Inc., Commercial Mortgage
Pass-Through Certificates, Series 1998 C-1 (the "1998-C1 Trust"). The payment
and other terms of the Pari Passu Debt are substantially similar to those of
the related Mortgage Loan, however, the trustee of the 1998-C1 Trust, as holder
of the related Pari Passu Debt, has the exclusive right to exercise remedies
with respect to Mortgage Loan No. 16393, including without limitation seeking
foreclosure.
Mortgage Loan No. 16393 and the related Pari Passu Debt are serviced by
Banc One Mortgage Capital Markets, LLC ("BOMCM"), the servicer of the assets
included in the 1998 C-1 Trust, and will be specially serviced by AMRESCO
Management, Inc. ("AMRESCO"), the special servicer of the assets included in
the 1998-C1 Trust, on substantially the same terms as are applicable to the
other mortgage loans included in the 1998-C1 Trust. The borrower makes monthly
payments to BOMCM which, in turn pays the holders of the Pari Passu Debt and
the Mortgage Loan on a pari passu basis. BOMCM also maintains all required
escrow accounts. AMRESCO will, if required, specially service both Mortgage
Loan No. 16393 and the related Pari Passu Debt. Any losses incurred in respect
of Mortgage Loan No. 16393 and the related Pari Passu Debt will be shared on a
pari passu basis.
HOLDBACK AND ESCROW ARRANGEMENTS
With respect to the Mortgage Loan identified as Loan Number 9056 on the
Mortgage Loan Schedule, which Mortgage Loan has a Cut-Off Date principal amount
of approximately $4,679,984.89, approximately 17,000 square feet of the
Mortgaged Property currently leased to Sav-On, Inc. is to be occupied by
Thrifty/Rite Aid, Inc. on or about August, 2001 pursuant to a fully executed
lease of such space between the borrower and Thrifty/Rite Aid. A holdback of
$1,500,000 was established at the funding of the Mortgage Loan which will be
released to the borrower when such space has been occupied by Thrifty/Rite Aid
upon terms the lender has approved. Such terms include a net effective rent of
$23.00 per square foot per annum, and maintenance of a minimum debt service
coverage ratio on the Mortgage Loan of 1.80x. Until such space has been
occupied by Thrifty/Rite Aid and Thrifty/Rite Aid has been open for business
and paying rent for at least three months, all rents from the related Mortgaged
Property are to be paid into a cash management account over which the lender
has sole control, to be disbursed to pay (i) debt service, (ii) specified
required reserves and (iii) qualified operating expenses.
With respect to the Mortgage Loan identified as Loan Number 11839 on the
Mortgage Loan Schedule, which Mortgage Loan has a Cut-Off Date principal amount
of approximately $4,394,971.78, the related borrower deposited $1,000,000 into
an escrow account established on the date of the initial funding as security
for the borrower's obligation to expand certain improvements on the related
Mortgaged Property. The tenant, Pitney Bowes, Inc., has an option in its lease
to require the borrower to expand the building on the Mortgaged Property by
15,000 square feet. The escrow will be disbursed to the borrower (i) on an
ongoing basis to pay for work completed in connection with the expansion,
including, without limitation, approval of plans and specifications, management
contracts, sources and uses of the expansion budget and an engineer's review or
(ii) upon receipt of an estoppel letter from Pitney Bowes waiving its right to
exercise the option.
With respect to the Mortgage Loans identified as Loan Nos. 9327 and 9328
on the Mortgage Loan Schedule, which Mortgage Loans have Cut-Off Date principal
amounts of approximately $2,430,143.29 and $1,388,653.31, respectively, the
borrower has entered into a contract of sale which provides that a
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<PAGE>
third party purchaser may acquire title to the related Mortgaged Properties on
July 1, 2006 (the Maturity Date of the Mortgage Loan). A third party appraiser
commissioned by lender has determined that the aggregate purchase price set
forth in the contract of sale, together with any outstanding accrued interest
under the contract of sale, will be well in excess of the unpaid principal
balance of the Mortgage Loan at July 1, 2006. The borrower is required annually
to certify as to the total amount of principal and accrued interest outstanding
on the contract of sale. If the sale price allocable to either of the related
Mortgaged Properties is determined to be less than 106% or 110%, respectively,
of the original outstanding principal amount of the related Mortgage Loan, the
lender may require the borrower to begin to deposit into an escrow account held
by the lender simultaneously with each subsequent payment of principal and
interest under the Mortgage Loan an amount (the "Liquidity Escrow") sufficient
to ensure that on the maturity of the Mortgage Loan, the contract of sale
balance plus the amounts held in the Liquidity Escrow are substantially greater
than the allocable outstanding principal balance of the Mortgage Loan. The
contract of sale also requires the purchaser to pay to the lender all
accelerated amounts due under the Mortgage Loan if the maturity of the Mortgage
Loan is accelerated for any reason other than an act or omission of the
borrower, in which case the lender can foreclose on the Mortgaged Property
subject to the contract of sale. Failure of the purchaser to pay any such
amounts will terminate the purchaser's right to acquire the related Mortgaged
Properties in which case the lender can foreclose on the Mortgaged Property
subject to the contract of sale.
The ARD Loan
Mortgage Loan No. 16496 (the "ARD Loan"), representing approximately 0.9%
of the Initial Pool Balance, provides that if the related borrower has not
prepaid the ARD Loan in full on or before December 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 119
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) 2.0% 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, and until paid will
increase the principal balance of the ARD Loan (negative amortization), in
effect increasing the amount of interest accruing thereon during each Due
Period. 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 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. 112 Mortgage Loans,
representing approximately 99.0% of the Initial Pool Balance, accrue interest
on the basis of the actual number of days in a month, assuming a 360 day year.
One Mortgage Loan, representing approximately 1.0% of the Initial Pool Balance,
accrues interest on the basis of a 30-day month, assuming a 360-day year.
Approximately 93.0% of the Mortgage Loans provide for monthly payments of
principal based on amortization schedules significantly longer than the
remaining terms of
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<PAGE>
such Mortgage Loans. In addition, the ARD Loan, representing approximately 0.9%
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."
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 two to five 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). 104 of the Mortgage Loans, representing
approximately 91.3% of the Initial Pool Balance, contain provisions that
prohibit all voluntary prepayments. Seven of the Mortgage Loans, representing
approximately 5.3% 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.
One Mortgage Loan, representing approximately 1.3% of the Initial Pool
Balance, contains provisions that prohibit voluntary prepayment for four years
after origination and permits voluntary prepayments thereafter with the payment
of a Yield Maintenance Charge. One Mortgage Loan, representing approximately
2.2% of the Initial Pool Balance, contains a provision that prohibits voluntary
prepayment for five years after the date of origination and permits voluntary
prepayments thereafter with payment of a Yield Maintenance Charge until three
months prior to its Maturity Date and without restriction thereafter. 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 charge in those Mortgage Loans that provide for the
payment of a yield maintenance charge in connection with a Principal Prepayment
(a "Yield Maintenance Charge") is calculated so as to result in a payment to
the lender, of an amount which is generally equal to the present value of 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 (and in no event less than 1% of the
amount of the principal prepayment). A Yield Maintenance Charge is determined
utilizing a discount rate generally equal to the rate which, when compounded
monthly, is equal to the semi-annual 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 of the Mortgage Loans prohibit voluntary
partial prepayments. Notwithstanding the foregoing, as described under
"General--ARD Loan" above, the ARD Loan will be freely prepayable in whole or
in part on and after the Anticipated Repayment Date. You should note that the
enforceability of provisions concerning Yield Maintenance Charges has been
challenged in several states.
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<PAGE>
Involuntary prepayments due to casualty or condemnation may occur at any
time without the payment of a Yield Maintenance Charge.
Defeasance. 111 Mortgage Loans, representing approximately 96.6% 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 Mortgage on the Mortgaged Property or
Mortgaged Properties as applicable, by substituting for such Mortgaged Property
or Mortgaged Properties as applicable, as collateral for the related 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).
Five Mortgage Loans representing 7.9% 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 four years after the date of
origination (which in each case is at least two years after the Cut-Off Date),
(i) to obtain the release of all of such Mortgaged Properties from the lien of
the 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 at least
equal to 125%, of the amounts that would have been payable on each such date
that are allocable to such Partial Release Mortgaged Property; provided,
however, that no such partial release 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); further provided that a
borrower may not obtain the release of any Partial Release Mortgaged Property
unless following such partial release the DSCR of the remaining Mortgaged
Properties, sufficient to pay all carrying costs and operating expenses of such
Mortgaged Property or Properties at least equal to the DSCR at the time of
origination of the Mortgage Loan.
"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 Standard. 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 (i)
to accelerate the payments thereon, or (ii) to withhold its consent to the
creation of any additional lien or other encumbrance, consistent with the
Servicing Standard; provided, however, that the Servicer and Special Servicer
will not be permitted to waive a due-on-sale provision under a Mortgage Loan
with a scheduled principal balance greater than 2% of the aggregate principal
balance of the Mortgage Pool or any due-on-encumbrance provision without first
confirming that such waiver will not result in a downgrade, withdrawal or
qualification of the then current rating of any class of Offered Certificates
and will not be permitted to waive a due-on-encumbrance provision without the
consent of the Special Servicer (except that the Special Servicer will be
deemed to have consented if it does not respond to written notice requesting
such consent within five business days).
S-41
<PAGE>
Waiver of any due-on-sale provision (or waiver of any assumption of a
Mortgage Loan) will also require notice to the Special Servicer.
In addition, with respect to Mortgage Loans Nos. 16814, 11839, 12252 and
16771, if the borrower is required under the loan documents to seek the consent
of the lender to incur additional unsecured debt, at any time that any such
Mortgage Loan has an outstanding scheduled principal balance of $2,500,000 or
more, or represents 2% or more of the aggregate Stated Principal Balance of the
Mortgage Pool, the Servicer and/or Special Servicer will not be permitted to
give such consent without first confirming that such consent will not result in
a downgrade, withdrawal or qualification of the then current rating of any
Class of 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.
S-42
<PAGE>
The following table sets forth information as of the Cut-Off Date with
respect to 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.
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>
Multifamily ................. 27 31 $126,035,635 26.37%
Office ...................... 19 20 103,834,592 21.72
Retail, Anchored ............ 16 16 72,431,441 15.15
Mixed-Use ................... 11 11 42,949,005 8.99
Hotel ....................... 11 14 42,856,126 8.97
Industrial/Warehouse ........ 11 11 34,338,418 7.18
Retail, Unanchored .......... 10 10 29,404,871 6.15
Manufactured Housing
Communities ................ 3 4 7,006,375 1.47
Theater ..................... 1 1 6,373,243 1.33
Ministorage ................. 2 2 5,386,065 1.13
Multiple Property Type ...... 1 2 3,896,489 0.82
Congregate Care ............. 1 1 3,491,722 0.73
-- -- ------------ ------
Totals/Weighted Averages..... 113 123 $478,003,982 100.00%
=== === ============ ======
<CAPTION>
WEIGHTED AVERAGES
---------------------------------------------------------------------------------------
STATED REMAINING AVERAGE
MORTGAGE REMAINING AMORT. CUT-OFF DATE MATURITY LOAN PER
PROPERTY TYPE RATE TERM (MO.) TERM (MO.) DSCR LTV LTV OCCUPANCY UNIT/SF
- ----------------------------- ------------ ------------ ------------ ---------- -------------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Multifamily ................. 6.7515% 133 331 1.70x 64.45% 50.00% 98.17% $37,962
Office ...................... 7.1317% 133 332 1.66x 58.28% 46.10% 96.14% $ 74
Retail, Anchored ............ 7.1709% 145 319 1.84x 58.82% 44.20% 95.74% $ 54
Mixed-Use ................... 7.1202% 133 330 1.65x 67.09% 53.06% 96.00% $ 170
Hotel ....................... 7.9974% 119 276 1.77x 59.19% 46.24% 75.04% $31,655
Industrial/Warehouse ........ 7.1661% 148 330 1.56x 65.50% 51.03% 97.01% $ 32
Retail, Unanchored .......... 7.5156% 132 318 1.64x 59.93% 47.01% 96.54% $ 73
Manufactured Housing
Communities ................ 6.8947% 130 318 1.63x 64.29% 45.99% 97.58% $ 9,694
Theater ..................... 7.2500% 116 296 1.38x 74.54% 60.35% 100.00% $ 125
Ministorage ................. 7.1785% 148 328 2.20x 53.83% 42.66% 94.54% $ 40
Multiple Property Type ...... 7.6500% 119 299 1.61x 60.32% 49.25% 97.69% $ 91
Congregate Care ............. 6.5000% 117 357 3.70x 34.74% 29.96% 98.50% $25,865
Totals/Weighted Averages..... 7.1383% 134 323 1.71x 61.58% 47.94% 94.88% N/A
<CAPTION>
AVERAGE
NUMBER OF MAXIMUM
PROPERTY TYPE UNITS/SF LTV
- ----------------------------- ----------- -----------
<S> <C> <C>
Multifamily ................. 150 78.01%
Office ...................... 95,800 73.29%
Retail, Anchored ............ 101,951 78.30%
Mixed-Use ................... 39,031 79.83%
Hotel ....................... 149 68.71%
Industrial/Warehouse ........ 116,653 74.66%
Retail, Unanchored .......... 44,591 68.52%
Manufactured Housing
Communities ................ 233 76.18%
Theater ..................... 51,000 74.54%
Ministorage ................. 69,838 64.79%
Multiple Property Type ...... 42,603 60.32%
Congregate Care ............. 135 34.74%
Totals/Weighted Averages..... N/A N/A
</TABLE>
S-43
<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
OF OF CUT-OFF DATE POOL CUT-OFF DATE
RANGE OF MORTGAGE RATES LOANS PROPERTIES BALANCE BALANCE BALANCE
- ------------------------------- -------- ------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
5.7500% to 6.2500% ............ 8 8 $ 34,074,930 7.13% 7.13%
6.2501% to 6.5000% ............ 9 9 30,021,274 6.28 13.41%
6.5001% to 6.7500% ............ 11 12 47,806,225 10.00 23.41%
6.7501% to 7.0000% ............ 25 25 114,450,520 23.94 47.35%
7.0001% to 7.2500% ............ 21 23 82,695,929 17.30 64.65%
7.2501% to 7.5000% ............ 11 13 60,447,198 12.65 77.30%
7.5001% to 7.7500% ............ 8 13 37,734,208 7.89 85.19%
7.7501% to 8.0000% ............ 6 6 28,840,397 6.03 91.23%
8.0001% to 8.2500% ............ 5 5 21,123,640 4.42 95.65%
8.2501% to 8.7500% ............ 8 8 17,786,670 3.72 99.37%
8.7501% to 9.2500% ............ 1 1 3,022,991 0.63 100.00%
-- -- ------------ ------
Totals/Weighted Averages ...... 113 123 $478,003,982 100.00% 100.00%
=== === ============ ======
<CAPTION>
WEIGHTED AVERAGES
----------------------------------------------------------------------------
STATED REMAINING
MORTGAGE REMAINING AMORT. CUT-OFF DATE MATURITY
RANGE OF MORTGAGE RATES RATE TERM (MO.) TERM (MO.) DSCR LTV LTV
- ------------------------------- ------------ ------------ ------------ ---------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
5.7500% to 6.2500% ............ 6.0315% 150 356 2.34x 57.50% 44.47%
6.2501% to 6.5000% ............ 6.4121% 122 321 2.08x 53.55% 41.52%
6.5001% to 6.7500% ............ 6.6787% 125 326 1.69x 59.35% 48.03%
6.7501% to 7.0000% ............ 6.8948% 148 319 1.75x 61.77% 44.44%
7.0001% to 7.2500% ............ 7.1716% 143 326 1.69x 62.50% 49.39%
7.2501% to 7.5000% ............ 7.4013% 120 343 1.48x 66.56% 56.94%
7.5001% to 7.7500% ............ 7.6295% 123 301 1.59x 64.87% 48.93%
7.7501% to 8.0000% ............ 7.9213% 121 289 1.49x 62.03% 47.56%
8.0001% to 8.2500% ............ 8.1831% 123 326 1.51x 59.54% 48.54%
8.2501% to 8.7500% ............ 8.3895% 124 292 1.59x 61.87% 48.10%
8.7501% to 9.2500% ............ 8.8750% 119 299 1.41x 58.13% 49.13%
Totals/Weighted Averages ...... 7.1383% 134 323 1.71x 61.58% 47.94%
</TABLE>
S-44
<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 ....................... 33 $129,356,158 27.06%
New York ......................... 16 65,927,878 13.79
Connecticut ...................... 6 45,301,636 9.48
Pennsylvania ..................... 12 37,070,587 7.76
New Jersey ....................... 8 31,960,986 6.69
Georgia .......................... 3 21,628,454 4.52
Arizona .......................... 7 20,035,158 4.19
Delaware ......................... 3 14,349,642 3.00
Texas ............................ 3 11,139,085 2.33
Virginia ......................... 1 10,838,385 2.27
Minnesota ........................ 4 10,557,208 2.21
Massachusetts .................... 2 9,950,509 2.08
Michigan ......................... 3 9,667,051 2.02
Florida .......................... 3 9,098,582 1.90
Ohio ............................. 4 8,784,097 1.84
Maryland ......................... 3 8,550,650 1.79
Nevada ........................... 1 4,987,127 1.04
Washington ....................... 2 4,975,374 1.04
New Hampshire .................... 1 4,275,392 0.89
North Dakota ..................... 1 4,211,360 0.88
Colorado ......................... 1 4,184,392 0.88
Louisiana ........................ 1 2,332,821 0.49
Maine ............................ 1 2,293,720 0.48
North Carolina ................... 1 1,898,579 0.40
Tennessee ........................ 1 1,828,277 0.38
Oregon ........................... 1 1,671,981 0.35
Kentucky ......................... 1 1,128,892 0.24
-- ------------ ------
Totals/Weighted Averages ......... 123 $478,003,982 100.00%
=== ============ ======
<CAPTION>
WEIGHTED AVERAGES
----------------------------------------------------------------------------
STATED REMAINING
MORTGAGE REMAINING AMORT. CUT-OFF DATE MATURITY
STATE RATE TERM (MO.) TERM (MO.) DSCR LTV LTV
- ---------------------------------- ------------ ------------ ------------ ---------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
California ....................... 7.1222% 140 326 1.62x 62.46% 47.76%
New York ......................... 7.2323% 131 320 1.80x 55.27% 42.07%
Connecticut ...................... 7.2893% 117 349 1.76x 62.66% 54.54%
Pennsylvania ..................... 7.0060% 140 323 1.75x 65.56% 51.48%
New Jersey ....................... 7.1753% 120 333 1.57x 68.16% 57.78%
Georgia .......................... 6.2677% 176 356 1.71x 67.20% 49.77%
Arizona .......................... 7.4640% 116 311 1.82x 60.86% 49.85%
Delaware ......................... 6.9622% 117 297 1.33x 72.16% 57.81%
Texas ............................ 7.5489% 124 303 1.66x 62.83% 47.34%
Virginia ......................... 7.0000% 232 232 2.65x 33.87% 1.12%
Minnesota ........................ 6.8943% 118 304 1.57x 63.94% 48.35%
Massachusetts .................... 6.6801% 146 296 1.72x 57.46% 40.82%
Michigan ......................... 7.2694% 129 332 1.50x 67.55% 54.37%
Florida .......................... 8.0424% 120 317 1.68x 59.16% 50.29%
Ohio ............................. 7.6068% 142 299 1.97x 57.68% 43.67%
Maryland ......................... 7.5181% 129 286 1.61x 54.65% 34.02%
Nevada ........................... 6.1500% 117 357 2.93x 37.50% 32.02%
Washington ....................... 7.3062% 118 327 1.60x 64.20% 54.12%
New Hampshire .................... 6.9600% 116 356 1.38x 71.26% 57.00%
North Dakota ..................... 6.3400% 116 356 1.71x 64.79% 55.68%
Colorado ......................... 5.7600% 116 356 1.98x 70.92% 59.95%
Louisiana ........................ 7.3350% 113 293 1.50x 68.61% 55.88%
Maine ............................ 8.0000% 117 297 1.41x 66.48% 54.95%
North Carolina ................... 8.4200% 119 299 1.57x 60.27% 50.31%
Tennessee ........................ 8.5000% 119 275 1.84x 63.04% 50.25%
Oregon ........................... 7.6600% 118 298 1.46x 64.31% 52.58%
Kentucky ......................... 7.6200% 120 240 2.18x 56.44% 39.27%
Totals/Weighted Averages ......... 7.1383% 134 323 1.71x 61.58% 47.94%
</TABLE>
S-45
<PAGE>
The following table sets forth the original terms to maturity and the
remaining terms to maturity of the Mortgage Loans.
RANGE OF ORIGINAL TERMS TO MATURITY IN MONTHS
<TABLE>
<CAPTION>
AGGREGATE % OF CUM. % OF
NUMBER NUMBER CUT-OFF INITIAL CUT-OFF
RANGE OF ORIGINAL TERMS OF OF DATE POOL DATE
TO MATURITY (MOS.) LOANS PROPERTIES BALANCE BALANCE BALANCE
- --------------------------- -------- ------------ --------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
71 to 100 ................ 3 3 $ 6,283,988 1.31% 1.31%
101 to 120 ................ 79 89 346,859,756 72.56 73.88%
161 to 180 ................ 29 29 106,505,753 22.28 96.16%
181 to 240 ................ 2 2 18,354,485 3.84 100.00%
-- -- ------------ ------
Totals/Weighted
Averages ................. 113 123 $478,003,982 100.00% 100.00%
=== === ============ ======
<CAPTION>
WEIGHTED AVERAGES
------------------------------------------------------------------------------
STATED REMAINING
RANGE OF ORIGINAL TERMS 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 ................ 7.1567% 86 280 1.98x 63.08% 53.85%
101 to 120 ................ 7.2186% 117 327 1.67x 62.62% 52.45%
161 to 180 ................ 6.9057% 176 326 1.76x 61.15% 40.93%
181 to 240 ................ 6.9631% 233 233 2.18x 43.86% 1.43%
Totals/Weighted
Averages ................. 7.1383% 134 323 1.71x 61.58% 47.94%
</TABLE>
RANGE OF REMAINING TERMS TO MATURITY IN MONTHS
<TABLE>
<CAPTION>
AGGREGATE % OF CUM. % OF
NUMBER NUMBER CUT-OFF INITIAL CUT-OFF
RANGE OF REMAINING TERMS OF OF DATE POOL DATE
TO MATURITY (MOS.) LOANS PROPERTIES BALANCE BALANCE BALANCE
- ---------------------------- -------- ------------ --------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
71 to 100 ................. 3 3 $ 6,283,988 1.31% 1.31%
101 to 120 ................. 79 89 346,859,756 72.56 73.88%
161 to 180 ................. 29 29 106,505,753 22.28 96.16%
181 to 240 ................. 2 2 18,354,485 3.84 100.00%
-- -- ------------ ------
Totals/Weighted
Averages .................. 113 123 $478,003,982 100.00% 100.00%
=== === ============ ======
<CAPTION>
WEIGHTED AVERAGES
------------------------------------------------------------------------------
STATED REMAINING
RANGE OF REMAINING TERMS 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 ................. 7.1567% 86 280 1.98x 63.08% 53.85%
101 to 120 ................. 7.2186% 117 327 1.67x 62.62% 52.45%
161 to 180 ................. 6.9057% 176 326 1.76x 61.15% 40.93%
181 to 240 ................. 6.9631% 233 233 2.18x 43.86% 1.43%
Totals/Weighted
Averages .................. 7.1383% 134 323 1.71x 61.58% 47.94%
</TABLE>
S-46
<PAGE>
The following table sets forth the range of original amortization terms of
the Mortgage Loans.
RANGE OF ORIGINAL AMORTIZATION TERMS IN MONTHS
<TABLE>
<CAPTION>
AGGREGATE % OF
NUMBER NUMBER CUT-OFF INITIAL
RANGE OF ORIGINAL OF OF DATE POOL
AMORTIZATION TERMS (MOS.) LOANS PROPERTIES BALANCE BALANCE
- ------------------------------ -------- ------------ --------------- -----------
<S> <C> <C> <C> <C>
60 to 120 .................... 3 3 $ 4,864,327 1.02%
121 to 180 ................... 5 5 10,454,801 2.19
181 to 240 ................... 6 9 43,401,052 9.08
241 to 300 ................... 40 43 130,197,086 27.24
301 to 360 ................... 59 63 289,086,717 60.48
-- -- ------------ ------
Totals/Weighted
Averages .................... 113 123 $478,003,982 100.00%
=== === ============ ======
<CAPTION>
WEIGHTED AVERAGES
-----------------------------------------------------------------------------
STATED REMAINING
RANGE OF ORIGINAL MORTGAGE REMAINING AMORT. CUT-OFF DATE MATURITY
AMORTIZATION TERMS (MOS.) RATE TERM (MOS.) TERM (MOS.) DSCR LTV LTV
- ------------------------------ ------------ ------------- ------------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
60 to 120 .................... 6.6289% 115 115 1.73x 35.44% 0.31%
121 to 180 ................... 7.7882% 178 178 1.42x 54.03% 1.22%
181 to 240 ................... 7.2772% 175 236 2.01x 48.19% 19.83%
241 to 300 ................... 7.3726% 120 296 1.59x 64.76% 51.69%
301 to 360 ................... 6.9970% 133 357 1.74x 62.87% 52.97%
Totals/Weighted
Averages .................... 7.1383% 134 323 1.71x 61.58% 47.94%
</TABLE>
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 ............. 1 1 $ 2,465,191 0.52% 0.52%
2006 ............. 2 2 3,818,797 0.80 1.31%
2008 ............. 56 60 249,505,250 52.20 53.51%
2009 ............. 23 29 97,354,505 20.37 73.88%
2013 ............. 25 25 93,643,382 19.59 93.47%
2014 ............. 4 4 12,862,372 2.69 96.16%
2018 ............. 2 2 18,354,485 3.84 100.00%
-- -- ------------ ------
Totals/Weighted
Averages ......... 113 123 $478,003,982 100.00% 100.00%
=== === ============ ====== ======
<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 ............. 7.7000% 81 261 1.38x 73.37% 62.50%
2006 ............. 6.8060% 89 293 2.36x 56.44% 48.26%
2008 ............. 7.0115% 116 329 1.67x 63.83% 53.42%
2009 ............. 7.7494% 119 323 1.68x 59.54% 49.97%
2013 ............. 6.8354% 176 335 1.74x 63.30% 44.07%
2014 ............. 7.4181% 179 254 1.92x 45.51% 18.03%
2018 ............. 6.9631% 233 233 2.18x 43.86% 1.43%
Totals/Weighted
Averages ......... 7.1383% 134 323 1.71x 61.58% 47.94%
</TABLE>
S-47
<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>
1920 to 1939 .......... 1 $ 7,996,605 1.67%
1940 to 1959 .......... 3 5,742,612 1.20
1960 to 1969 .......... 7 25,686,688 5.37
1970 to 1979 .......... 19 78,623,221 16.45
1980 to 1989 .......... 38 122,551,455 25.64
1990 to 1998 .......... 55 237,403,401 49.67
-- ------------ ------
Totals/Weighted
Averages ............. 123 $478,003,982 100.00%
=== ============ ======
<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>
1920 to 1939 .......... 8.1500% 119 359 1.42x 57.12% 51.28%
1940 to 1959 .......... 6.7187% 134 333 1.99x 56.97% 45.32%
1960 to 1969 .......... 7.0003% 122 321 1.68x 67.28% 55.41%
1970 to 1979 .......... 7.1953% 123 339 1.66x 63.24% 53.11%
1980 to 1989 .......... 7.0239% 138 335 1.76x 62.38% 50.01%
1990 to 1998 .......... 7.1694% 138 310 1.71x 60.34% 44.36%
Totals/Weighted
Averages ............. 7.1383% 134 323 1.71x 61.58% 47.94%
</TABLE>
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 ........... 1 1 $ 6,965,929 1.46%
1.30x to 1.34x ........... 6 7 45,034,634 9.42
1.35x to 1.39x ........... 10 10 36,940,495 7.73
1.40x to 1.44x ........... 11 11 43,835,382 9.17
1.45x to 1.49x ........... 13 15 53,251,355 11.14
1.50x to 1.59x ........... 12 14 64,790,803 13.55
1.60x to 1.69x ........... 17 19 71,081,878 14.87
1.70x to 1.79x ........... 7 7 30,997,261 6.48
1.80x to 1.89x ........... 11 11 33,306,123 6.97
1.90x to 1.99x ........... 3 3 10,958,628 2.29
2.00x to 2.49x ........... 13 16 46,877,893 9.81
2.50x to 2.99x ........... 7 7 28,678,443 6.00
3.00x to 6.49x ........... 2 2 5,285,158 1.11
-- -- ------------ ------
Totals/Weighted
Averages ................ 113 123 $478,003,982 100.00%
=== === ============ ======
<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 ........... 7.1900% 115 295 1.28x 64.26% 51.98%
1.30x to 1.34x ........... 7.5857% 125 332 1.33x 68.77% 54.21%
1.35x to 1.39x ........... 7.1554% 114 309 1.38x 73.23% 59.81%
1.40x to 1.44x ........... 7.6002% 139 330 1.42x 68.15% 53.30%
1.45x to 1.49x ........... 7.3175% 128 343 1.46x 69.29% 58.40%
1.50x to 1.59x ........... 7.0829% 134 301 1.54x 61.98% 44.45%
1.60x to 1.69x ........... 6.9293% 127 337 1.64x 64.90% 53.03%
1.70x to 1.79x ........... 7.1756% 136 315 1.73x 60.54% 47.04%
1.80x to 1.89x ........... 7.1023% 156 320 1.84x 56.68% 42.45%
1.90x to 1.99x ........... 6.5524% 152 333 1.96x 60.56% 45.69%
2.00x to 2.49x ........... 6.9788% 135 320 2.25x 47.96% 36.97%
2.50x to 2.99x ........... 6.6503% 170 304 2.72x 36.63% 19.92%
3.00x to 6.49x ........... 6.2760% 117 357 4.59x 29.16% 25.06%
Totals/Weighted
Averages ................ 7.1383% 134 323 1.71x 61.58% 47.94%
</TABLE>
S-48
<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 1 1 $ 737,992 0.15%
$ 1,000,000 to $ 1,999,999 23 24 36,846,086 7.71
$ 2,000,000 to $ 3,999,999 42 46 125,339,541 26.22
$ 4,000,000 to $ 5,999,999 27 28 127,707,288 26.72
$ 6,000,000 to $ 7,999,999 11 14 73,269,841 15.33
$ 8,000,000 to $ 9,999,999 3 3 28,348,930 5.93
$10,000,000 to $11,999,999 3 3 32,873,415 6.88
$14,000,000 to $15,999,999 1 1 14,100,000 2.95
$16,000,000 to $17,999,999 1 1 17,947,055 3.75
$20,000,000 to $24,999,999 1 2 20,833,835 4.36
-- -- ------------ ------
Totals/Weighted Averages 113 123 $478,003,982 100.00%
=== === ============ ======
<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 8.0300% 117 297 1.47x 67.09% 55.50%
$ 1,000,000 to $ 1,999,999 7.1529% 139 292 2.10x 52.10% 33.88%
$ 2,000,000 to $ 3,999,999 7.1816% 127 313 1.71x 63.04% 50.33%
$ 4,000,000 to $ 5,999,999 7.0689% 135 341 1.73x 62.35% 50.12%
$ 6,000,000 to $ 7,999,999 7.2082% 144 303 1.70x 60.15% 42.38%
$ 8,000,000 to $ 9,999,999 7.1019% 138 317 1.52x 66.46% 51.88%
$10,000,000 to $11,999,999 6.9174% 154 315 1.90x 57.27% 40.34%
$14,000,000 to $15,999,999 7.6050% 120 360 1.46x 67.14% 59.46%
$16,000,000 to $17,999,999 6.7050% 116 356 1.55x 59.82% 51.92%
$20,000,000 to $24,999,999 7.4550% 115 355 1.33x 67.64% 59.88%
Totals/Weighted Averages 7.1383% 134 323 1.71x 61.58% 47.94%
</TABLE>
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.
S-49
<PAGE>
RANGE OF LOAN TO VALUE RATIOS AT 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>
10.01% to 30.00% 3 3 $ 4,647,278 0.97% 0.97%
30.01% to 40.00% 9 9 34,471,169 7.21 8.18%
40.01% to 45.00% 5 5 19,154,963 4.01 12.19%
45.01% to 50.00% 3 3 13,421,489 2.81 15.00%
50.01% to 55.00% 12 12 37,293,000 7.80 22.80%
55.01% to 60.00% 14 17 79,801,169 16.69 39.50%
60.01% to 65.00% 19 20 71,869,653 15.04 54.53%
65.01% to 70.00% 17 18 89,316,200 18.69 73.22%
70.01% to 75.00% 23 27 97,394,957 20.38 93.59%
75.01% to 80.00% 8 9 30,634,104 6.41 100.00%
-- -- ------------ ------
Totals/Weighted
Averages 113 123 $478,003,982 100.00% 100.00%
=== === ============ ======
<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>
10.01% to 30.00% 6.3983% 116 302 3.95x 24.19% 15.70%
30.01% to 40.00% 6.7353% 168 259 2.58x 35.57% 13.86%
40.01% to 45.00% 6.7412% 126 357 2.45x 43.17% 36.80%
45.01% to 50.00% 6.8099% 153 358 2.26x 46.45% 37.23%
50.01% to 55.00% 7.3491% 139 292 1.77x 52.60% 36.83%
55.01% to 60.00% 7.3461% 141 304 1.65x 58.31% 39.81%
60.01% to 65.00% 7.2708% 122 324 1.61x 62.76% 52.08%
65.01% to 70.00% 7.2624% 127 343 1.50x 67.59% 57.04%
70.01% to 75.00% 7.0458% 134 341 1.49x 73.01% 59.77%
75.01% to 80.00% 6.9193% 121 325 1.42x 77.51% 63.75%
Totals/Weighted
Averages 7.1383% 134 323 1.71x 61.58% 47.94%
</TABLE>
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% 10 10 $ 33,673,613 7.04% 7.04%
10.01% to 20.00% 2 2 7,813,268 1.63 8.68%
20.01% to 30.00% 4 4 9,319,668 1.95 10.63%
30.01% to 35.00% 5 5 18,144,607 3.80 14.42%
35.01% to 40.00% 7 7 35,194,734 7.36 21.79%
40.01% to 45.00% 9 12 32,823,134 6.87 28.65%
45.01% to 50.00% 13 14 51,184,079 10.71 39.36%
50.01% to 55.00% 18 18 90,689,373 18.97 58.33%
55.01% to 60.00% 28 31 123,631,284 25.86 84.20%
60.01% to 65.00% 11 12 40,828,565 8.54 92.74%
65.01% to 70.00% 6 8 34,701,658 7.26 100.00%
-- -- ------------ ------
Totals/Weighted
Averages 113 123 $478,003,982 100.00% 100.00%
=== === ============ ======
<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% 7.1710% 199 199 1.88x 45.80% 1.20%
10.01% to 20.00% 6.8493% 165 266 3.21x 33.19% 15.67%
20.01% to 30.00% 6.5388% 126 340 2.99x 33.10% 27.27%
30.01% to 35.00% 6.6432% 148 316 2.34x 46.27% 33.54%
35.01% to 40.00% 7.0465% 134 326 2.07x 48.06% 37.79%
40.01% to 45.00% 7.4128% 124 303 1.94x 52.89% 41.95%
45.01% to 50.00% 6.9293% 153 330 1.76x 62.67% 47.68%
50.01% to 55.00% 7.2639% 125 335 1.55x 62.63% 52.27%
55.01% to 60.00% 7.2057% 126 343 1.50x 68.90% 57.93%
60.01% to 65.00% 7.1293% 114 321 1.45x 74.56% 62.51%
65.01% to 70.00% 7.1753% 117 357 1.41x 75.19% 66.00%
Totals/Weighted
Averages 7.1383% 134 323 1.71x 61.58% 47.94%
</TABLE>
S-50
<PAGE>
The following table sets forth the Mortgage Loans subject to
lockout/prepayment restrictions, expressed as 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) (greater than)
PERIOD PREPAYABLE 3% OR YM(1) 1% OR YM(1)
- ------------------------- ----------------------- ------------------ ------------------
$ (MM) % $ (MM) % $ (MM) %
----------- ----------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Current Period 2/1/99 $ 478.0 100.0% $-- 0.0% $ -- 0.0%
Year 1 2/1/00 471.7 100.0% -- 0.0% -- 0.0%
Year 2 2/1/01 465.0 100.0% -- 0.0% -- 0.0%
Year 3 2/1/02 457.7 100.0% -- 0.0% -- 0.0%
Year 4 2/1/03 444.1 98.7% -- 0.0% 5.7 1.3%
Year 5 2/1/04 425.9 96.5% -- 0.0% 15.5 3.5%
Year 6 2/1/05 417.2 96.5% -- 0.0% 15.2 3.5%
Year 7 2/1/06 405.7 96.4% -- 0.0% 15.0 3.6%
Year 8 2/1/07 392.4 96.4% -- 0.0% 14.7 3.6%
Year 9 2/1/08 381.7 96.4% -- 0.0% 14.4 3.6%
Year 10 2/1/09 92.9 94.8% -- 0.0% 5.1 5.2%
Year 11 2/1/10 89.2 94.7% -- 0.0% 5.0 5.3%
Year 12 2/1/11 85.1 94.6% -- 0.0% 4.9 5.4%
Year 13 2/1/12 80.8 94.4% -- 0.0% 4.8 5.6%
Year 14 2/1/13 76.1 94.3% -- 0.0% 4.6 5.7%
Year 15 2/1/14 7.0 100.0% -- 0.0% -- 0.0%
Year 16 2/1/15 5.7 100.0% -- 0.0% -- 0.0%
Year 17 2/1/16 4.3 100.0% -- 0.0% -- 0.0%
Year 18 2/1/17 2.8 100.0% -- 0.0% -- 0.0%
Year 19 2/1/18 1.3 100.0% -- 0.0% -- 0.0%
Year 20 2/1/19 -- 0.0% -- 0.0% -- 0.0%
<CAPTION>
PREPAYABLE WITHOUT
PENALTY TOTALS
------------------ ------------------------------------
$ (MM) % $ (MM) % % OF IPB(2)
-------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Current Period $-- 0.0% $ 478.0 100.0% 100.0%
Year 1 -- 0.0% 471.7 100.0% 98.7%
Year 2 -- 0.0% 465.0 100.0% 97.3%
Year 3 -- 0.0% 457.7 100.0% 95.7%
Year 4 -- 0.0% 449.8 100.0% 94.1%
Year 5 -- 0.0% 441.4 100.0% 92.3%
Year 6 -- 0.0% 432.4 100.0% 90.5%
Year 7 -- 0.0% 420.6 100.0% 88.0%
Year 8 -- 0.0% 407.1 100.0% 85.2%
Year 9 -- 0.0% 396.1 100.0% 82.9%
Year 10 -- 0.0% 98.1 100.0% 20.5%
Year 11 -- 0.0% 94.2 100.0% 19.7%
Year 12 -- 0.0% 90.0 100.0% 18.8%
Year 13 -- 0.0% 85.5 100.0% 17.9%
Year 14 -- 0.0% 80.7 100.0% 16.9%
Year 15 -- 0.0% 7.0 100.0% 1.5%
Year 16 -- 0.0% 5.7 100.0% 1.2%
Year 17 -- 0.0% 4.3 100.0% 0.9%
Year 18 -- 0.0% 2.8 100.0% 0.6%
Year 19 -- 0.0% 1.3 100.0% 0.3%
Year 20 -- 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-51
<PAGE>
The following table sets forth certain characteristics of the ten largest
Mortgage Loans.
TEN LARGEST MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF CUT-OFF DATE % OF INITIAL
PROPERTY NAME PROPERTIES BALANCE POOL BALANCE
- ------------------ ------------ -------------- --------------
<S> <C> <C> <C>
Founders Plaza
& Tower 14 ...... 2 $ 20,833,835 4.36%
Stonecrest ....... 1 17,947,055 3.75
Clemens Place
Apartments ...... 1 14,100,000 2.95
South Bay
Marketplace ..... 1 11,567,888 2.42
Eden Center ...... 1 10,838,385 2.27
Clarendon
Apartments ...... 1 10,467,142 2.19
Best Western
Seven Seas ...... 1 9,500,000 1.99
Hamilton Station
Apartments ...... 1 9,466,781 1.98
Washington
Commons ......... 1 9,382,149 1.96
240 West 35th
Street .......... 1 7,996,605 1.67
- ------------ -----
Totals/Weighted
Averages ........ 11 $122,099,839 25.54%
== ============ =====
<CAPTION>
WEIGHTED AVERAGE
-------------------------------------------------------------------------
STATED
REMAINING REMAINING CUT-OFF LTV
MORTGAGE TERM AMORT. DATE RATIO AT
PROPERTY NAME RATE (MO.) TERM (MOS.) DSCR LTV RATIO MATURITY
- ------------------ ------------ ----------- ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Founders Plaza
& Tower 14 ...... 7.4550% 115 355 1.33x 67.64% 59.88%
Stonecrest ....... 6.7050% 116 356 1.55x 59.82% 51.92%
Clemens Place
Apartments ...... 7.6050% 120 360 1.46x 67.14% 59.46%
South Bay
Marketplace ..... 6.9350% 116 356 1.40x 74.63% 65.16%
Eden Center ...... 7.0000% 232 232 2.65x 33.87% 1.12%
Clarendon
Apartments ...... 6.8125% 116 356 1.68x 62.30% 53.52%
Best Western
Seven Seas ...... 7.9400% 120 240 1.53x 56.21% 39.55%
Hamilton Station
Apartments ...... 6.0150% 176 356 1.70x 67.62% 49.55%
Washington
Commons ......... 7.3500% 117 357 1.32x 75.66% 66.72%
240 West 35th
Street .......... 8.1500% 119 359 1.42x 57.12% 51.28%
Totals/Weighted
Averages ........ 7.1809% 132 337 1.58x 62.68% 50.98%
</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, less than 26% of
the aggregate Cut-Off Date Balance and no single Mortgage Loan represents more
than 4.4% of the aggregate principal balance of the Mortgage Loans as of
February 1, 1999. The borrower under each of these Mortgage Loans is a single
purpose entity. The Cut-Off Date Balance of each of such Mortgage Loans is
indicated in parentheses following the name of the related Mortgaged Property.
Loan No. 11969 -- Founders Plaza and Tower 14 ($20,833,834.70). This
Mortgage Loan is secured by two cross-collateralized and cross-defaulted
Mortgages. One such Mortgage was in the original amount of $15,000,000 and is
secured by Founders Plaza, two adjacent office buildings built on 20.2 acres of
land in 1972 in East Hartford, Connecticut (the "Founders Property"). The other
Mortgage was in the original amount of $5,900,000, and is secured by Tower 14,
a 251,683 square foot office building built on 3.8 acres of land in 1973 in the
Northfield Center in Southfield, Michigan (the "Tower 14 Property"). The
Cut-Off Date LTV is 67.64% based on a July 1998 appraised value of $30,800,000,
of which amount $21,500,000 was attributable to the Founders Property and
$9,300,000 to the Tower 14 Property. DSCR based on Underwritten Net Cash Flow
is 1.33x. The borrower has the right to uncross the Mortgages after February 1,
1999, provided, among other requirements, that the Mortgage Loans maintain a
75% LTV and a 1.38x DSCR. Additional debt is secured by these properties on a
pari passu basis with the Mortgage Loan. See "Pari Passu Mortgage Loans" above.
The Founders Property is comprised of two buildings. 111 Founders Plaza is
a 19 story, 242,106 square foot building whose major tenants are Phoenix Home
Life Mutual Insurance Company leasing 44,882 square feet of net rentable area
("NRA") under a lease expiring May 2002 and Sprint Corporation (13,958 NRA)
under a lease expiring September 2008. 111 Founders Plaza was 92% occupied as
of December 11, 1998. 99 Founders Plaza, a 3 story, 148,000 square foot
building, is occupied 100% by Fleet National Bank under a lease expiring
December 2006 and is used as a regional lock box facility.
S-52
<PAGE>
The Tower 14 Property is a 14 story, 251,683 square foot building whose
major tenants are Health Alliance Plan ("HAP"), the managed health care
provider for General Motors, Ford and Chrysler, (60,626 NRA) under a lease
expiring January 1999, Lutheran Social Service (37,021 NRA) under a lease
expiring December 2007 and DAC of the United Methodist Church (9,736 NRA) under
a lease expiring September 2000. The borrower has provided the mortgagee with a
$1,000,000 irrevocable site draft letter of credit issued by Bank of America
until HAP either renews its lease or the HAP space is leased to a tenant, in
each case pursuant to terms approved by lender. The letter of credit may be
drawn upon by lender to make principal and interest payments due under the Loan
Agreement after a default by borrower. The Tower 14 Property was 80.6% occupied
as of November 30, 1998. See Loan No. 11969 in the Mortgage Loan Schedule.
Loan No. 16464 -- Stonecrest ($17,947,054.90). This Mortgage Loan is
secured by three low rise office buildings totaling 215,503 square feet built
in 1991 on 10.3 acres of land in the Kearney Mesa section of San Diego,
California. The buildings are 2, 3 and 6 stories. Stonecrest was 99.7% occupied
as of November 2, 1998. Major tenants are Lucent Technologies Inc. (16,345 NRA)
under a lease expiring October 1999, WellPoint Health Network, Inc. (Blue Cross
of California) (26,521 NRA) under a lease expiring September 2001, Paychex,
Inc. (23,329 NRA) under a lease expiring March 2001 and ITT Educational
Services (39,534 NRA) under a lease expiring February 2009. The Cut-Off Date
LTV is 59.82% based on a September 1998 appraised value of $30,000,000. DSCR
based on Underwritten Net Cash Flow is 1.55x. See Loan No. 16464 in the
Mortgage Loan Schedule.
Loan No. 9691 -- Clemens Place Apartments ($14,100,000). This Mortgage
Loan is secured by 41 three and four story multifamily apartment buildings with
584 residential units and two commercial units built between 1915 and 1971 and
renovated in the early 1980s (the "Property"). The Property is located in the
West End of Hartford, Connecticut on 17.4 acres of land most of which is leased
from the City of Hartford pursuant to a ground lease expiring in 2079 and a
portion of which is held in fee simple. Clemens Place was 98.1% occupied as of
October 1, 1998. The Property benefits from two Section 8 HUD contracts
covering 173 units (29.7% of the total number of units). The Cut-Off Date LTV
is 67.14% based on a July 1998 appraised value of $21,000,000. DSCR based on
Underwritten Net Cash Flow is 1.46x. See Loan No. 9691 in the Mortgage Loan
Schedule.
Loan No. 16462 -- South Bay Marketplace ($11,567,888.28). This Mortgage
Loan is secured by a strip center consisting of seven one story buildings
totaling 154,668 square feet built in 1997 on 12.6 acres of land in San Diego,
California. South Bay Marketplace was 100% occupied as of January 6, 1999. The
major tenants are Auto Parts Club (42,560 NRA) under a lease expiring August
2008, Office Depot (30,686 NRA) under a lease expiring April 2012, Ross Stores
(27,125 NRA) under a lease expiring January 2008 and Family Bargain Center
(15,024 NRA) under a lease expiring May 2002. The Cut-Off Date LTV is 74.63%
based on a October 1998 appraised value of $15,500,000. DSCR based on
Underwritten Net Cash Flow is 1.40x. See Loan No. 16462 in the Mortgage Loan
Schedule.
Loan No. 8484 -- Eden Center ($10,838,384.65). This Mortgage Loan is
secured by a shopping center and mini-mall consisting of 206,647 square feet
built in stages between 1961 and 1996 on 16.0 acres of land in Falls Church,
Virginia. The major tenants are Ames Department Stores (77,120 NRA) under a
lease expiring July 2001 (subject to three remaining options held by the tenant
to extend for five years each at below current market rates) and Olympus Gym
(20,000 NRA) under a lease expiring in February 2002. Eden Center was 89.6%
occupied as of September 30, 1998. The Cut-Off Date LTV is 33.87% based on a
March 1998 appraised value of $32,000,000. DSCR based on Underwritten Net Cash
Flow is 2.65x. See Loan No. 8484 in the Mortgage Loan Schedule.
Loan No. 16363 -- Clarendon Apartments ($10,467,141.83). This Mortgage
Loan is secured by a 17-story, 128 residential unit, apartment building located
at 247 East 28th Street on 0.319 acres of land in the Kips Bay area of
Manhattan. The borrower completed construction of the property in 1979. In
addition to the multifamily rental units, the property contains a ground floor
retail store currently leased and occupied by a Duane Reade drug store (3,850
NRA). As of November 1998, the property was 100% occupied. The Cut-Off Date LTV
is 62.3% based on an April 1998 appraised value of $16,800,000. The DSCR based
on Underwritten Net Cash Flow is 1.68x. See Loan No. 16363 in the Mortgage Loan
Schedule.
S-53
<PAGE>
Loan No. 17918 -- Best Western Seven Seas Lodge ($9,500,000). This
Mortgage Loan is secured by a 307 room, full service Best Western hotel
situated in the Mission Valley section of San Diego, California. The property
was originally constructed in 1967 and was substantially upgraded in 1995-1997.
The six building development encompasses 91,335 square feet on 12.0 acres of
land, and includes a 140 seat restaurant/coffee shop, a 50 seat cocktail lounge
and an outdoor pool. The borrower's leasehold interest in the property exists
by virtue of a ground lease which matures in August 2048. The property was
83.1% occupied during the 12 month period ending October 31, 1998. The Cut-Off
Date LTV is 56.2% based on an appraised value of $16,900,000 as of September
15, 1998. DSCR based on Underwritten Net Cash Flow is 1.53x. See Loan No. 17918
in the Mortgage Loan Schedule.
Loan No. 8747 -- Hamilton Station Apartments ($9,466,781.34). This
Mortgage Loan is secured by 17 two and three story multifamily apartment
buildings with 284 residential units built in three stages in 1985, 1986 and
1987 (the "Property"). The Property is located in Columbus, Georgia on 27.5
acres of land. Hamilton Station was 95.1% occupied as of December 22, 1998. The
Cut-Off Date LTV is 67.62% based on a June 1998 appraised value of $14,000,000.
DSCR based on Underwritten Net Cash Flow is 1.70x. See Loan No. 8747 in the
Mortgage Loan Schedule.
Loan No. 9529 -- Washington Commons ($9,382,148.57). This Mortgage Loan is
secured by a neighborhood shopping center and a 26 unit apartment building
(23,000 NRA) built in 1997 on 6.6 acres of land in Dumont, New Jersey (the
"Property"). The major tenants are Grand Union (44,282 NRA) under a lease
expiring October 2017, Health Net (4,275 NRA) under a lease expiring June 2002
and Pet Valu (2,860 NRA) under a lease expiring October 2002. The Property was
100% occupied as of September 1, 1998. The Cut-Off Date LTV is 75.66% based on
a July 1998 appraised value of $12,400,000. DSCR based on Underwritten Net Cash
Flow is 1.32x. See Loan No. 9529 on the Mortgage Loan Schedule.
Loan No. 17820 -- 240 West 35th Street ($7,996,604.59). This Mortgage Loan
is secured by a 160,279 square foot, 17 story office building situated on 0.23
acres of land in New York City (the "Property"). The Property was originally
developed in 1925 as a loft building catering to the garment industry and was
subsequently converted to office use. As of December 1, 1998, the Property was
92.0% occupied. Major tenants include Mary McFadden (15,100 NRA) under a lease
expiring June 2002, One Notch Up (8,500 NRA) under a lease expiring May 2004
and Emuna (8,100 NRA) under a lease expiring November 2000. The Cut-Off Date
LTV is 57.12% based on an appraised value of $14,000,000. DSCR based on
Underwritten Net Cash Flow is 1.42x. See Loan No. 17820 in the Mortgage Loan
Schedule.
UNDERWRITING STANDARDS
General. 112 of the Mortgage Loans, representing 97.8% of the Initial Pool
Balance, were originated by the Mortgage Loan Seller and one of the Mortgage
Loans, representing 2.2% of the Initial Pool Balance, was acquired by the
Mortgage Loan Seller from an unaffiliated institution, in each case, generally
in accordance with the underwriting criteria described herein. The Mortgage
Loan Seller's credit underwriting team for each Mortgage Loan was comprised
exclusively of professional full-time real estate employees of the Mortgage
Loan Seller or an affiliate thereof. Members of the underwriting team are not
paid a commission or success fee for the origination of Mortgage Loans.
The Mortgage Loan Seller originates loans secured by retail, office,
industrial, multifamily, self-storage, hotel and other commercial property
types as well as manufactured housing communities located in the United States.
Generally, mortgage loans funded by the Mortgage Loan Seller 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 and historical property operating statements. The Mortgage Loan
Seller's technical services director reviews environmental site assessments,
seismic reports and property condition assessments with respect to
substantially all Mortgaged Properties. 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 Seller's underwriting
guidelines. The credit of the borrower
S-54
<PAGE>
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 Mortgage Loan
Seller's 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 real estate professionals of the Mortgage Loan
Seller or an affiliate 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.
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 by the borrower but unaudited.
Vacancy. In determining the vacancy allowance for each Mortgaged Property
(other than a Mortgaged Property improved by a hotel), 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
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 multifamily
properties with the exception of hotels (4.0%-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.
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, party walls, ceiling
tiles and lighting fixtures, and leasing
S-55
<PAGE>
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 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 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 the Mortgage Loan Seller's 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 Site Assessments. A "Phase I" environmental site assessment
was performed with respect to each Mortgaged Property in connection with the
origination of the related Mortgage Loan. See "--Representations and
Warranties; Repurchases" below.
Property Condition Assessments. 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 reserves were generally established at origination. In addition, the
property condition assessments 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.
Seismic Reports. Seismic reports have been completed for each Mortgaged
Property located in areas classified as seismic zones 3 or 4 in order to
determine a "probable maximum loss" or "bounded maximum loss" estimate.
The Mortgage Loan Seller's technical services director, who is not a
member of the Mortgage Loan Seller's underwriting group, has reviewed
substantially all environmental site assessments, seismic reports and property
condition assessments in conjunction with the professional consultant who
prepared such assessment.
Debt Service Coverage Ratio and LTV Ratio. The Mortgage Loan Seller's
underwriting standards generally require the following minimum Debt Service
Coverage Ratios and maximum Loan-to-Value Ratios for each of the indicated
property types:
S-56
<PAGE>
<TABLE>
<CAPTION>
DSCR MINIMUM MAXIMUM LTV
PROPERTY TYPE GUIDELINE RATIO 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%
Manufactured Housing Communities ......... 1.25x 80%
Self-Storage ............................. 1.30x 75%
Senior Housing ........................... 1.25x 75%
</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.
Borrower. The quality and financial condition of the borrower is an
important consideration to the Mortgage Loan Seller and therefore a thorough
investigation is performed as part of the underwriting process. Credit analysis
on a borrower generally 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 the Mortgage Loan Seller, periodical searches,
industry contacts and internal and published Bear, Stearns & Co. Inc. debt and
equity research. Qualitative analysis is performed through conversations with
individuals and companies with whom the borrower has conducted business.
Borrowers were generally required to be single asset entities.
Escrow Requirements. The Mortgage Loan Seller 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 the Mortgage Loan Seller 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 the Mortgage Loan Seller or the following minimum annual
amounts:
<TABLE>
<CAPTION>
<S> <C>
Retail ................................... $0.15 per square foot
Multifamily .............................. $250 per unit
Industrial ............................... $0.10 per square foot
Office ................................... $0.15 per square foot
Hotel .................................... 4% of gross revenue
Manufactured Housing Communities ......... $50 per pad
Self-Storage ............................. $0.15 per square foot
Senior Housing ........................... $300 per unit
</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 property condition
assessment 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.
THE MORTGAGE LOAN SELLER
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 February 1, 1999,
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between the Depositor and the Mortgage Loan Seller (the "Mortgage Loan Purchase
and Sale Agreement"). The Mortgage Loan Seller originated all of the Mortgage
Loans, generally in accordance with the underwriting criteria described above
under "--Underwriting Standards".
The Mortgage Loan Seller is a wholly-owned subsidiary of Bear Stearns
Mortgage Capital Corporation, a Delaware corporation and an affiliate of Bear,
Stearns & Co. Inc., the Underwriter. As of December 31, 1998 the Mortgage Loan
Seller had a net worth of approximately $37.92 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.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
In the Mortgage Loan Purchase and Sale Agreement, the Mortgage Loan Seller
will represent and warrant 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 and had full right and authority to sell,
transfer and assign 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 and none of
the Mortgage Note, the Mortgage or any other Mortgage Loan Documents (as
defined below) prohibits such transfer;
(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 rights and benefits intended to be afforded thereby;
(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 or both, which creates a valid
collateral or first priority assignment of, or a valid first priority
security interest in, certain rights under the related lease (including
rights to receive payments thereunder), 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 any 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). Each assignment of Mortgage and any
related reassignments of Assignment of leases, if any, is in recordable
form;
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(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 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 operation or value of the Mortgaged
Property and (c) the exceptions (general and specific) set forth in such
policy, (i) none of which, individually or in the aggregate, materially
interferes with the current use or operation 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
(ii) none of which constitute standard general exceptions for
encroachments, boundary and other survey matters; 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;
(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, to the best knowledge of the
Mortgage Loan Seller, there is no proceeding pending for 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;
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(11) Licenses and Authorizations. As of the date of origination of such
Mortgage Loan, to the Mortgage Loan Seller's best knowledge, after
conducting due diligence consistent with the practice of institutional
lenders generally for properties of the same type as the related Mortgaged
Property, the related Mortgagor was in possession of all material licenses,
permits and other authorizations necessary and required by all applicable
laws with regard to the 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, operation or value 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. 16496, 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 to the extent necessary to comply with
applicable usury law) 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 Mortgaged
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 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; and such
other insurance in such amounts and types as would be required generally by
institutional lenders for Mortgaged Properties of the same types in similar
locations. All premiums on such insurance policies required to be paid as
of the date hereof have been paid; such insurance policies contain a
standard mortgagee clause for the benefit of the holder of the related
Mortgage, its successors and assigns; 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. Each Mortgage provides that any insurance
proceeds in respect of a casualty (other than business interruption/rental
income insurance) and any condemnation awards or insurance proceeds will be
applied either to the repair or restoration of the Mortgaged Property or
the repayment of the outstanding principal balance of the Mortgage Loan;
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(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 or the related Mortgage Note. 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.
(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 and permitted
under local law, 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 remediation 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 and the absence of any notice to the
contrary), 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 or published policies 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, 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 best of 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
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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,
or any controlling interest therein, is directly or indirectly transferred
or sold, or in connection with any 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 a manufactured
housing community, 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 origination of the Mortgage Loan lies
outside of the boundaries and building restriction lines of such property
(except for (i) de minimis encroachments or 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; and either (x) the title insurance policy
obtained for each related Mortgaged Property contains no exclusion for lack
of access or affirmatively insures a right of access to a public road or
(y) to the Mortgage Loan Seller's knowledge, based on 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 a survey), each related Mortgaged Property has a right of
access to a public road.
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(29) Compliance with Law. As of the date of origination of such Mortgage
Loan, and or 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, 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 a letter from an engineer 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 Nos.
11839, 12252, 16771, and 16814, 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. Each 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;
(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;
(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
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maintain or the mortgagee maintains, flood insurance with respect to such
improvements, in an amount equal to the lesser of (a) the outstanding
principal amount of the related Mortgage Loan or (b) the amount available
under the National Flood Insurance Act.
(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 (and excluding Mortgage
Loans as to which there is pari passu debt as described herein), if
cross-collateralized, is cross-collateralized only with one or more other
Mortgage Loans being transferred to the Depositor;
(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,
consumer credit protection, equal credit opportunity and disclosure) and
are consistent with the Servicing Standard;
(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 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 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 rights and benefits
intended to be afforded thereby;
(43) Other Indebtedness of Mortgagor. Except as set forth below, to the
best of the Mortgage Loan Seller's knowledge, the Mortgagor has no
indebtedness for borrowed money and, except as
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provided below, the Mortgage Loan Documents do not provide or permit,
without the consent of the lender, any indebtedness to encumber the
Mortgaged Property, other than the Mortgage Loan and trade debt incurred in
the ordinary course of business.
(a) The borrowers with respect to Mortgage Loans No. 16814, 11839,
12252 and 16771 on the Mortgage Loan Schedule are entities that are not
single purpose entities and whose related loan documents do not prevent
them from incurring additional debt on other properties, but do prevent
them from incurring additional debt without the consent of the lender
for the respective Mortgaged Properties.
(b) The Mortgaged Properties securing Mortgage Loans No. 11969 and
16393 on the Mortgage Loan Schedule secure certain additional debt of
the borrower on a pari passu basis with such Mortgage Loans.
(c) The borrowers with respect to Mortgage Loans No. 17702 and 17820
and on the Mortgage Loan Schedule have incurred additional debt that is
not included in the Trust Fund and that is secured by the related
Mortgaged Property.
(d) The borrowers with respect to Mortgage Loans No. 9100, 9529, 9691
and 17820 on the Mortgage Loan Schedule (or affiliates thereof) have
incurred additional debt that is not included in the Trust Fund and that
is not secured by the related Mortgaged Property.
(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) with respect to
Mortgage Loan Nos. 8939, 9691, 12147, 16496 and 17918 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 of 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;
(d) The ground lessee's interest in 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 to (subject to the matters described in clause (8) above)
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;
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(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 long as the mortgagee is proceeding diligently) to cure
any default under the ground lease which is curable after the receipt of
notice of any default before the lessor may terminate the ground lease.
All rights of the 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) Except in the case of Mortgage Loan No. 17918, as to which a
condemnation insurance policy is in place the proceeds of which are
payable to the lender in reduction of the debt secured by the related
Mortgage, 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 an 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 related mortgagee, 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 any institutional investor, talking 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;
(45) Concentration. Except with respect to Mortgage Loan Nos. 5193, 8939,
11969 and 17187, which are Mortgage Loans made to affiliated borrowers,
representing approximately 6.7% of the Initial Pool Balance, and Mortgage
Loan Nos. 16462, 16464 and 16393, which are Mortgage Loans made to
affiliated borrowers, representing approximately 6.7% of the Initial Pool
Balance, the 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
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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, (i) does
not, as a factual matter, permit defeasance prior to the date such
defeasance would be permitted under the applicable REMIC provisions and
(ii) requires (a) that the replacement collateral consist of U.S. Treasury
securities in an amount sufficient to make all scheduled payments under the
Mortgage Note when due and (b) delivery of an opinion of counsel to the
effect that the holder of the Mortgage Loan has a perfected security
interest in such collateral prior to any other claim or interest and (c)
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 or hotels) a rent roll with respect to the
related Mortgaged 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 16.5% 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 4 of such Lock Box Loans, representing approximately 5.7% of
the Initial Pool Balance, the tenants or related property manager are required
to deposit rents directly into the related Lock Box Account. The terms of 7
Lock Box Loans, representing approximately 10.9% 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, or 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. Pursuant to the terms of the agreement governing the Lock Box
Account for the ARD Loan (the "ARD Lock Box"), prior to the Anticipated
Repayment Date, the funds in the ARD Lock Box may be released to the related
borrower 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 ARD 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.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Depositor's Commercial Mortgage Pass-Through Certificates, Series
1999-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 and exclusive of any Excess Interest paid on an ARD Loan after
its Anticipated Repayment 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 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, the
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.
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The "Certificate Balance" of any class of Certificates (other than the
Class X and Residual Certificates) outstanding at any time represents the
maximum amount which the holders thereof are entitled to receive as
distributions allocable to principal from the cash flow on the Mortgage Loans
and the other assets in the Trust Fund. 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 subject to a variance of plus
and minus 5%. The Class X Certificates will not have a Certificate Balance and
will not 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.
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 each 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 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 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.
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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 for 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."
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 14th day of each month
or, if any such 14th day is not a business day, then on the next succeeding
business day, commencing in March 1999 (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 accounts (or subaccounts) (collectively, the
"Certificate Account"), into which the Servicer is
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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.
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 certain 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 Mortgage 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 and the Certificate Account 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 other than as a result of the insolvency of the
institution holding such account.
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, any other amounts payable as compensation to the
Servicer, 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");
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(iv) all Yield Maintenance Charges;
(v) all Excess Interest;
(vi) with respect to the Interest Reserve Loans and any Distribution Date
occurring in (1) each January or (2) any December in a year immediately
preceding a year which is not a leap year, an amount equal to one day of
interest on the stated principal balance of such Mortgage Loan as of the
Due Date in the month preceding the month in which such Distribution Date
occurs at the related Mortgage Rate to the extent such amounts are to be
deposited in the Interest Reserve Account and held for future distribution
pursuant to the Pooling and Servicing Agreement;
(vii) all amounts deposited in the Certificate Account and Lower-Tier
Distribution Account in error;
(viii) all amounts received with respect to the Pari Passu Loan that are
required to be paid to the lender thereunder pursuant to the terms of the
Pari Passu Loan, the Pari Passu Intercreditor Agreement and the Pooling and
Servicing Agreement; and
(b) if and to the extent not already included in clause (a) hereof, the
total amount of all cash transferred from the REO Account to the Certificate
Account for such Distribution Date, less all amounts payable or reimbursable to
any Person from the Certificate Account pursuant to the Pooling and Servicing
Agreement;
(c) 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
(d) 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 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;
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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;
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;
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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
hero, 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;
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.
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Notwithstanding the distribution priority 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 Balance (or, in the case of the Class X Certificates,
on the Notional Amount) of each Class (other than the Residual Certificates),
calculated as of the close of business on the Distribution Date during such
Interest Accrual Period, 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 Rate 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 equal to 0.057% per annum for all
Mortgage Loans other than Mortgage Loan No. 16393 with respect to which the
servicing fee is 0.055% per annum.
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 the Revised Rate
applicable to the ARD Loan. Notwithstanding the foregoing, if any Mortgage Loan
does not accrue interest on the basis of a 360-day year consisting of twelve
30-day months, 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 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
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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 (other than any
capitalized Excess Interest for an ARD Loan) 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.
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
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
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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.
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 ............... May 14, 2008
Class A-2 ............... February 14, 2009
Class B ................. July 14, 2012
Class C ................. September 14, 2013
Class D ................. October 14, 2013
Class E ................. October 14, 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).
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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 February 14, 2031 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
Generally, distributions in respect of interest and principal will be made
to each class of Certificates sequentially, based on the alphabetical
designations of each class (e.g. Class D will receive all interest
distributions to be made to it before Class E receives any interest
distribution, and Class D will receive all interest and principal distributions
to be made to it before Class E receives any distribution in respect of
principal). This is referred to as "sequential payment." On any Distribution
Date, after making all required distributions on the Certificates, the
aggregate of the principal balances of the Certificates may exceed the
aggregate of the stated principal balances of the Mortgage Loans (we call this
excess a "Collateral Support Deficit"). On any such Distribution Date, the
aggregate of the Certificate balances of the Certificates will be reduced until
it equals the aggregate of the stated principal balances of the Mortgage Loans
on such date. Any such reduction will be allocated to the classes of
Certificates in reverse sequential order, based on the alphabetical
designations of each class (e.g., no such reduction will be made to the Class D
principal balance until the principal balances of each class of Certificates
with later alphabetical designations are reduced to zero). These features are
referred to as "subordination."
Subordination is intended to enhance the likelihood of timely receipt by
the holders of senior Certificates of the full amount of all interest payable
in respect thereof on each Distribution Date, and the ultimate receipt by the
holders thereof of principal in an amount equal to, in each case, the entire
Certificate Balance of such class of Certificates. 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
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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.
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.
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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 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,
first out of Default Interest and Penalty Charges, and then 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 (compounded monthly). The "Prime
Rate" shall be the rate, for any day, set forth as such in The Wall Street
Journal, New York edition.
Mortgage Loan No. 16393, as to which there is pari passu debt (as
described above under "Description of the Mortgage Pool--Pari Passu Mortgage
Loans"), will be serviced by BOMCM and specially serviced by AMRESCO pursuant
to the pooling and servicing agreement that established the 1998-C1 Trust.
Advances will be made with respect thereto by BOMCM (or by the related
trustee). Repayment of such Advances (and any interest accrued thereon) will be
from the proceeds of such Mortgage Loan prior to the transfer of such proceeds
by BOMCM to the Servicer. If such Advances become Nonrecoverable Advances
(which will be on substantially the same conditions that govern such
determinations with respect to the other Mortgage Loans), BOMCM (or the related
trustee) will be repaid from assets of the Trust Fund.
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.
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APPRAISAL REDUCTIONS
After an Appraisal Reduction Event has occurred, an Appraisal Reduction
will be calculated. As a result of calculating one or more Appraisal
Reductions, the amount of any required P&I Advance in respect of interest will
be reduced by an amount equal to the portion of the Appraisal Reduction Amount
(defined below) attributable to the interest component of the related Monthly
Payment or Assumed Scheduled Payment, which will have the effect of reducing
the amount of interest available to the most subordinate class or classes 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.
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) twenty days after the
uncured failure of the borrower with respect to any Balloon Loan to make the
Balloon Payment thereon, (iv) 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, (v) the
date on which a receiver has been appointed, (vi) the date on which 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 scheduled 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 such appraisal 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 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).
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.
The Special Servicer will be required to receive such appraisal within 60
days after the Appraisal Reduction Event. 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, the amount of the Appraisal
Reduction will be deemed to be an amount equal to 25% of the current scheduled
principal balance of the related Mortgage Loan until such MAI appraisal is
received.
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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.
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 or sooner
if a material event has occurred that the Special Servicer reasonably believes
will positively or negatively affect the valuation of the Mortgaged Property,
to order a new 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 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 unless any
event has occurred or circumstances arisen that could materially affect the
market value of such Mortgaged Property. 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 shall
report that the Appraisal Reduction then in effect is zero, and shall return to
making Advances on the basis of a new Appraisal and the provisions of such
Mortgage Loan without any reductions for such Appraisal Reduction.
REPORTS TO CERTIFICATEHOLDERS; CERTAIN 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 become 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
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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 of 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 sold or
otherwise disposed of during the Due Related 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 Support Deficits, if
any, incurred with respect to the Mortgage Loans during the related Due
Period and in the aggregate for all 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 and the amount of interest
accrued thereon; (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
provided 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 (714) 282-5518 and requesting statement number 384.
Additionally, certain information regarding the Mortgage Loans will be made
accessible at the website maintained by LaSalle National Bank at www.lnbabs.com
or their electronic bulletin board service at 714-282-5518 or such other
mechanism as the Trustee may have in place from time-to-time.
Servicer Reports. Commencing in March, 1999, the Servicer is required to
deliver to the Trustee, the Rating Agencies and the Depositor prior to each
Distribution Date, and the Trustee is to make available to each
Certificateholder, the Underwriter and, if requested, any potential investor in
the Certificates, on each Distribution Date,
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(i) The following two Commercial Real Estate Secondary Market and
Securitization Association ("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 Determination Date,
were delinquent 30-59 days, delinquent 60-89 days, 90 days or more, current
but specially serviced, or in foreclosure but not REO Property.
(c) An "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 Determination 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) An "Historical Loss Report" setting forth, among other things, as of
the close of business on the Determination Date immediately preceding the
respective Determination Date, (i) the aggregate amount of liquidation
proceeds and liquidation expenses, both for the related Due Period,
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 Determination 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 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 March, 1999, 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 or the forms of Servicing
Reports.
The Servicer is also required to deliver to the Trustee and Special
Servicer the following materials:
(a) Annually, on or before June 30, 1999 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
reasonable best efforts consistent with the Servicing Standard to obtain
said annual operating statements and rent rolls.
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(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, and "NOI Adjustment
Worksheet" for such Mortgaged Property (with 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, the Special Servicer 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 Operating Statement Analysis Report and 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 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 it 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" 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), (ix)
and (xiii) 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 Trustee 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.
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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.
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 will be deemed to be
reduced by the amount of any Appraisal Reductions allocated to such class
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 any other exercise
of the rights of the Controlling Class Certificateholders, whether or not such
a Certificateholder is an affiliate of the Servicer or Special Servicer. 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 holder of the largest amount of the Controlling Class
Certificates may purchase all, but not less than all, of the Mortgage Loans and
REO
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Properties in the Trust Fund, and thereby effect termination of the Trust Fund
and early retirement of the then outstanding Certificates. If such
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 such 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 aggregate
Purchase Price of all of the Mortgage Loans, Specially Serviced Mortgaged Loans
(exclusive or 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).
The fees and expenses of the Servicer and Special Servicer incurred in
connection with the related termination of the Trust Fund will be paid from the
proceeds of any such sale or liquidation.
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 such Certificateholder, 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 S&P (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, Suite
1625, Chicago, Illinois 60674-4107. Attention: Asset Backed Securities Trust
Services Group--Bear Stearns Commercial Mortgage Securities Inc. Commercial
Mortgage Pass-Through Certificates, Series 1999-C1. As of December 31, 1997,
the Trustee had assets of approximately $19 billion.
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<PAGE>
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.
FISCAL AGENT
ABN AMRO Bank N.V., a Netherlands banking corporation, 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 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
June 30, 1998, the Fiscal Agent had assets of approximately $491 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 Bank N.V. 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").
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 Certificate; (iii) the aggregate amount of
distributions on such 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
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(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.
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 prepay 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 prepay
such Mortgage Loan on the related Anticipated Repayment Date. The failure of
the related borrower to prepay 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.
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 or shortfalls or
losses otherwise resulting in the reduction of the assets of the Trust Fund.
Losses and other
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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 provisions is, in many states, subject to certain
equitable principles even outside of the bankruptcy context. 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 14 days after the end of the
related Interest Accrual Period, the effective yield to the holders of the
Offered Certificates will be lower than the yield that would otherwise be
produced by the applicable Pass-Through Rates and purchase prices.
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.
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<PAGE>
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 14th day of each month (or the next
business day if the 14th day of the month is not a business day) commencing in
March, 1999; (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 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; (viii) the Closing Date is February 10, 1999; 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. 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.
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<PAGE>
PERCENT OF THE INITIAL CERTIFICATE BALANCE
OF THE CLASS A-1 CERTIFICATES AT THE RESPECTIVE CPRS
<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
February 14, 2000 ......................... 93 93 93 93 93
February 14, 2001 ......................... 85 85 85 85 85
February 14, 2002 ......................... 77 77 77 77 77
February 14, 2003 ......................... 69 69 69 69 69
February 14, 2004 ......................... 59 59 59 59 59
February 14, 2005 ......................... 49 49 49 49 49
February 14, 2006 ......................... 36 36 36 36 36
February 14, 2007 ......................... 21 21 21 21 21
February 14, 2008 ......................... 9 9 9 9 9
February 14, 2009 ......................... 0 0 0 0 0
Weighted Average Life (Years)(A) .......... 5.5 5.5 5.5 5.5 5.5
</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
<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
February 14, 2000 ......................... 100 100 100 100 100
February 14, 2001 ......................... 100 100 100 100 100
February 14, 2002 ......................... 100 100 100 100 100
February 14, 2003 ......................... 100 100 100 100 100
February 14, 2004 ......................... 100 100 100 100 100
February 14, 2005 ......................... 100 100 100 100 100
February 14, 2006 ......................... 100 100 100 100 100
February 14, 2007 ......................... 100 100 100 100 100
February 14, 2008 ......................... 100 100 100 100 100
February 14, 2009 ......................... 0 0 0 0 0
Weighted Average Life (Years)(A) .......... 9.7 9.7 9.7 9.7 9.7
</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.
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<PAGE>
PERCENT OF THE INITIAL CERTIFICATE BALANCE
OF THE CLASS B CERTIFICATES AT THE RESPECTIVE CPRS
<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
February 14, 2000 ......................... 100 100 100 100 100
February 14, 2001 ......................... 100 100 100 100 100
February 14, 2002 ......................... 100 100 100 100 100
February 14, 2003 ......................... 100 100 100 100 100
February 14, 2004 ......................... 100 100 100 100 100
February 14, 2005 ......................... 100 100 100 100 100
February 14, 2006 ......................... 100 100 100 100 100
February 14, 2007 ......................... 100 100 100 100 100
February 14, 2008 ......................... 100 100 100 100 100
February 14, 2009 ......................... 60 60 60 60 60
February 14, 2010 ......................... 44 44 44 44 44
February 14, 2011 ......................... 27 27 27 27 27
February 14, 2012 ......................... 8 8 8 8 8
February 14, 2013 ......................... 0 0 0 0 0
Weighted Average Life (Years)(A) .......... 11.1 11.1 11.1 11.1 11.1
</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
<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
February 14, 2000 ......................... 100 100 100 100 100
February 14, 2001 ......................... 100 100 100 100 100
February 14, 2002 ......................... 100 100 100 100 100
February 14, 2003 ......................... 100 100 100 100 100
February 14, 2004 ......................... 100 100 100 100 100
February 14, 2005 ......................... 100 100 100 100 100
February 14, 2006 ......................... 100 100 100 100 100
February 14, 2007 ......................... 100 100 100 100 100
February 14, 2008 ......................... 100 100 100 100 100
February 14, 2009 ......................... 100 100 100 100 100
February 14, 2010 ......................... 100 100 100 100 100
February 14, 2011 ......................... 100 100 100 100 100
February 14, 2012 ......................... 100 100 100 100 100
February 14, 2013 ......................... 84 84 84 84 84
February 14, 2014 ......................... 0 0 0 0 0
Weighted Average Life (Years)(A) .......... 14.3 14.3 14.3 14.3 14.3
</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.
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<PAGE>
PERCENT OF THE INITIAL CERTIFICATE BALANCE
OF THE CLASS D CERTIFICATES AT THE RESPECTIVE CPRS
<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
February 14, 2000 ......................... 100 100 100 100 100
February 14, 2001 ......................... 100 100 100 100 100
February 14, 2002 ......................... 100 100 100 100 100
February 14, 2003 ......................... 100 100 100 100 100
February 14, 2004 ......................... 100 100 100 100 100
February 14, 2005 ......................... 100 100 100 100 100
February 14, 2006 ......................... 100 100 100 100 100
February 14, 2007 ......................... 100 100 100 100 100
February 14, 2008 ......................... 100 100 100 100 100
February 14, 2009 ......................... 100 100 100 100 100
February 14, 2010 ......................... 100 100 100 100 100
February 14, 2011 ......................... 100 100 100 100 100
February 14, 2012 ......................... 100 100 100 100 100
February 14, 2013 ......................... 100 100 100 100 100
February 14, 2014 ......................... 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
<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
February 14, 2000 ......................... 100 100 100 100 100
February 14, 2001 ......................... 100 100 100 100 100
February 14, 2002 ......................... 100 100 100 100 100
February 14, 2003 ......................... 100 100 100 100 100
February 14, 2004 ......................... 100 100 100 100 100
February 14, 2005 ......................... 100 100 100 100 100
February 14, 2006 ......................... 100 100 100 100 100
February 14, 2007 ......................... 100 100 100 100 100
February 14, 2008 ......................... 100 100 100 100 100
February 14, 2009 ......................... 100 100 100 100 100
February 14, 2010 ......................... 100 100 100 100 100
February 14, 2011 ......................... 100 100 100 100 100
February 14, 2012 ......................... 100 100 100 100 100
February 14, 2013 ......................... 100 100 100 100 100
February 14, 2014 ......................... 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 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.
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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. 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 diligently service and
administer the respective Mortgage Loans for which each is responsible on
behalf of the Trustee 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 business 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, with the same care,
skill, prudence and diligence with which the Servicer or the Special Servicer,
as the case may be, (i) 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 or (ii)
services and administers commercial, multifamily and manufactured housing
mortgage loans owned by the Servicer or the Special Servicer, as the case may
be, whichever standard is higher, and with a view to the maximization of timely
recovery of principal 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, notwithstanding: (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; (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 and (E) owning or managing any other mortgage loans or
mortgaged properties for third parties (the foregoing, collectively referred to
as the "Servicing Standard"). Each of the Servicer and Special Servicer has
full power and authority, acting alone, to do or cause to be done any and all
things in connection with the servicing and administration of the Mortgage
Loans which it may deem necessary or desirable, subject only to the Servicing
Standard and the terms of the Pooling and Servicing Agreement and the
respective Mortgage Loans.
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,
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(iv) as to which the borrower has entered into or consented to
bankruptcy, appointment of a 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 actual 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 actual 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 the Trust Fund. 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 Trust Fund.
The "Directing Certificateholder" will be a holder of Controlling Class
Certificates selected by more than 50% of the Controlling Class
Certificateholders, by Certificate Balance, as certified by the Trustee
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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 Class will be the Directing
Certificateholder. The Directing Certificateholder will have no duty or
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 reasons of willful misfeasance, bad faith or
negligence in the performance of duties or by reasons of reckless disregard of
obligations or duties. By accepting any Certificate, the related Holder will be
deemed to have acknowledged and agreed that the Directing Certificateholder may
have special relationships 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 reasons 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 the identity of the Controlling Class, the Certificate Balance of
any Class shall be deemed to be reduced by the amount of any Appraisal
Reductions allocated to such class related 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 require or cause it to violate the terms of a Specially Serviced Mortgage
Loan, applicable law or any provision of the Pooling and Servicing Agreement,
including its obligation to maintain the REMIC status of each of the Lower-Tier
REMIC and the Upper-Tier REMIC, or (b) result in the imposition of a
"prohibited transaction" or "prohibited contribution" tax under the REMIC
Provisions, or (c) expose it, the Servicer, the Depositor, the Mortgage Loan
Seller, the Trust Fund, the Trustee, the Fiscal Agent or their officers,
directors, employees or agents to any claim, suit or liability or (d)
materially expand the scope of its or the Servicer's responsibilities under the
Pooling and Servicing Agreement or cause or direct it to act in a manner
contrary to the Servicing Standard.
THE SERVICER
GE Capital Loan Services, Inc. or an affiliate thereof is expected to act
as the master servicer (the "Master Servicer") pursuant to the Pooling and
Servicing Agreement. The Master Servicer is a Delaware corporation and an
affiliate of the Special Servicer. The Master Servicer is a wholly owned
subsidiary of GECIA Holdings, Inc., which is itself a wholly owned subsidiary
of GE Capital Services Corporation, which is itself a wholly owned subsidiary
of The General Electric Company. The principal servicing offices of the Master
Servicer are located at 363 North Sam Houston Parkway E., Suite 200, Houston,
Texas 77060. As of June 30, 1998, the Master Servicer was the servicer of a
portfolio of multifamily and commercial mortgage loans, secured by properties
located throughout the United States and totaling approximately $14.5 billion
in aggregate outstanding principal amounts, including loans securitized in
mortgage backed securitization transactions. The Master Servicer intends to
engage one or more
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sub-servicers to service a portion of the Mortgage Loans. The Master Servicer
will be responsible for servicing the Mortgage Loans (other than Specially
Serviced Mortgage Loans and REO Properties). Although the Master Servicer is
authorized to employ agents, including sub-servicers, to directly service the
Mortgage Loans that are not Specially Serviced Mortgage Loans, the Master
Servicer will remain liable for its servicing obligations under the Pooling and
Servicing Agreement.
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
GE Capital Realty Group, Inc. or an affiliate thereof is expected to act
as the special servicer (the "Special Servicer") pursuant to the Pooling and
Servicing Agreement. The Special Servicer is a Texas corporation and an
affiliate of the Master Servicer, and a wholly owned subsidiary of GE Capital
Access, Inc., which is a wholly owned subsidiary of GE Capital Services
Corporation. The Special Servicer will conduct property inspections, collect
financial statements, rent rolls and other financial data on the Mortgaged
Properties and prepare reports, with respect to the Specially Serviced Mortgage
Loans and upon written notice to the Master Servicer with respect to any other
Mortgage Loans for administering any REO Property and for performing certain
other servicing functions with respect to the Mortgage Pool under the Pooling
and Servicing Agreement. One or more affiliates of the Special Servicer are
expected to purchase the Class F, Class G, Class H, Class J and Class K
Certificates on the Closing Date. The Special Servicer's principal offices are
located at 2 Bent Tree Tower, 16479 Dallas Parkway, Suite 400, Addison, Texas
75001.
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 with respect to the Mortgage Loans, 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 0.057% per annum computed on the basis of the
stated principal balance of the related Mortgage Loan. The servicing fee
payable with respect to Mortgage Loan Number 16393 under the pooling and
servicing agreement for the 1998-C1 Trust is 0.055% per annum. 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 and processing
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 Interest Reserve Account 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
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to the related borrowers. The Servicer will be obligated to pay the annual fees
of each Rating Agency up to an aggregate of $25,000 per annum. Rating Agency
fees in excess of $25,000 are the obligation of the Depositor.
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% 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 by the Directing Certificateholder (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 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% 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.
Although the Servicer and the Special Servicer are each required to
service and administer the Mortgage Pool in accordance with the Servicing
Standard 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.
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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
The Servicer will use its reasonable best efforts consistent with the
Servicing Standard to cause each borrower to maintain, to the extent required
by the terms of the related Mortgage Note, all insurance coverage required
under the related Mortgage (to the extent that the Trustee has an insurable
interest and such insurance policy coverage is available at commercially
reasonable rates, consistent with the Servicing Standard), or, if the related
borrower does not maintain such coverage, the Servicer will maintain the
insurance coverage, provided, however, that if the Servicer obtains such
insurance coverage, the related insurance policy will include a replacement
cost endorsement providing for no deduction for depreciation but, in any event,
in an amount sufficient to avoid the application of any co-insurance clause
unless otherwise permitted 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
consistent with the Servicing Standard 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 Standard), 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
Standard.
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 Standard),
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 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. With
respect to any Mortgage Loan documents that require or permit that earthquake
insurance be maintained, the Directing
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Certificateholder may request that earthquake insurance be secured for one or
more Mortgaged Properties and, upon such request, the Servicer or Special
Servicer, as applicable, will use its reasonable best efforts consistent with
the Servicing Standard to enforce such obligations consistent with the terms of
the related Loan Documents; provided, however, that the Directing
Certificateholder may not make such request with respect to Mortgaged
Properties with respect to which earthquake insurance was not maintained at
origination unless there is a material adverse change in the facts and
circumstances relating to the Mortgaged Property. A decrease in the NOI or
Appraised Value of the related Mortgaged Property in excess of 10% since the
Cut-Off Date shall constitute such a material adverse change. With respect to
any Mortgage Loan (i) that does not require or permit the related lender to
require that earthquake insurance be maintained or (ii) that the Servicer or
Special Servicer, as applicable, has been unable to enforce the provisions of
the preceding sentence, the Directing Certificateholder may request that
earthquake insurance be secured by the Servicer or Special Servicer, as
applicable, at the expense of the Directing Certificateholder. 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
subaccount) 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 Date of such Mortgage Loan, the Special Servicer may only enter into
such extension if it provides the Trustee with 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 net 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 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 reasonable
best efforts consistent with the servicing standard set forth in the Pooling
and Servicing Agreement to the extent possible to fully amortize a modified
Mortgage Loan prior to the Rated Final Distribution Date.
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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 Servicer may, consistent with the Servicing Standards, modify or amend
the terms of any Mortgage Loan without the consent of the Special Servicer in
order to (i) cure any ambiguity therein, (ii) correct or supplement any
provisions therein which may be inconsistent with any other provisions therein
or correct any error (iii) waive defaults with respect to minor covenants
(other than financial covenants), including with respect to late financial
statements, to the extent such waiver will not have any material adverse effect
on the rights or interests of the Certificateholder or any Class, (iv) release
parcels of a Mortgaged Property to the extent that any such release will not
have any material adverse affect on the rights or interests of the
Certificateholders of any Class, if each Rating Agency has been notified by the
Servicer of its intent to permit such release and each Rating Agency has
provided written notice that such release will not result in the withdrawal,
qualification or downgrade of its then current rating of any Class of
Certificates (provided that releases as to which Mortgage Loan documents
expressly require the borrower thereunder to make such releases upon the
satisfaction of certain conditions shall be made as required in the Mortgage
Loan documents), (v) make any other modifications, waivers or amendments which
the Servicer determined, in accordance with the Servicing Standards are of
routine nature and will not have a material adverse affect on the rights or
interests of the Certificateholders of any Class, and provided that such
modification or amendment would not be a "signficient modification" of the
Mortgage Loan within the meaning of Treasury Regulations Section 1.860G-2(b),
and provided further that the proposed modification or amendment will not cause
(x) either the Upper-Tier REMIC or the Lower-Tier REMIC to fail to qualify as a
REMIC for purposes of the Code or (y) either the Upper-Tier REMIC or the
Lower-Tier REMIC to be subject to any tax under the REMIC Provisions.
Notwithstanding anything to the contrary herein, with respect to any
Mortgage Loan the outstanding principal balance of which exceeds the lesser of
$15,000,000 or 5% of the outstanding aggregate balance of all Mortgage Loans in
the Trust Fund, to the extent the related Loan Documents require the related
borrower to obtain the consent to or approval of the related mortgagee, the
Servicer or the Special Servicer, as applicable, will not (a) consent to the
removal or replacement of any property manager or (b) consent to or approve of
any transfer of equity of (or equivalent ownership interests in) the related
borrower or of any equity owner of the borrower that is itself required to be a
special purpose entity if, during the term of such Mortgage Loan, in excess of
49% of such equity (or equivalent) will have been transferred to any other
party, in either case unless notice thereof shall have been given to each
Rating Agency and each Rating Agency shall have confirmed in writing that such
action will not, by itself, result in the downgrade, withdrawal or reduction of
its then-current rating of any outstanding Class of Certificates.
The Special Servicer or the Servicer, as the case may be, will notify each
other, the Rating Agencies, the Trustee and the Directing Certificateholder of
any modification, waiver or amendment of any term of
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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 best efforts, consistent with the Servicing
Standard, to 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. 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 material
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 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 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. 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
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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 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 will 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
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the Servicing Standard, but in any event shall inspect each Mortgaged Property
securing a Mortgage Note with a scheduled 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 at the expense of the Trust Fund); 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 reasonable cost of
which inspection shall be at the expense of the Trust Fund). 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 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. The Servicer and the Special Servicer will
deliver a copy of each such report prepared by the Servicer and Special
Servicer to each other, each Rating Agency and the Trustee. The Special
Servicer will have the right to inspect or cause to be inspected (at its own
expense) every calendar year any Mortgaged Property related to a loan that is
not a Specially Serviced Mortgage Loan, provided that the Special Servicer
notifies the Servicer prior to such inspection, and provides a copy of such
inspection to the Servicer. The Special Servicer may, upon notice to the
Servicer, perform or cause to be performed (at its own expense) the inspections
otherwise required to be performed by the Servicer under certain circumstances
specified in the Pooling and Servicing Agreement.
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 or the Special Servicer, 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 of its other activities. 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
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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.
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 or
errors and omissions policy (or their equivalent) 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
provided, however, that if such failure to remit occurs only once in any
consecutive 12 month period, which failure is corrected by 11:00 a.m. New York
City time on the following Business Day and does not result in any delay in any
distributions to be made on the related Distribution Date, then, with respect
to such one failure only, a default shall not be deemed to have occurred; (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 provided; however
that if such failure to deposit or remit occurs only once in any consecutive 12
month period, which failure is corrected by 11:00 a.m. New York City time on
the related Distribution Date and does not result in any delay in any
distributions to be made on the related Distribution Date, then with respect to
such one failure only, a default shall not be deemed to have occurred; (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
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for thirty days or under certain limited circumstances 60 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 notice from Moody's that the continuation of the
Servicer or Special Servicer, as the case may be, has resulted, or would
result, in and of itself, in a downgrading, qualification or withdrawal of the
then-current rating on any Class of Certificates that are rated by Moody's if
the Servicer or Special Servicer, as the case may be, is not replaced, or the
Trustee has knowledge that the Servicer or Special Servicer, as the case may
be, has been removed from S&P's list of approved servicers.
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 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
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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 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, as
evidenced in writing from each Rating Agency;
(v) to modify, eliminate or add to any of its provisions 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);
(vi) to modify any provision of the Pooling and Servicing Agreement
relating to the Pari Passu Loans; provided, however, that such action shall
not, as evidenced by an Opinion of Counsel, adversely affect in any
material respects the interests of any Certificateholder not consenting
thereto and such action will not result in the withdrawal, downgrade or
qualification of the then-current rating assigned to any Class of
Certificates, as evidenced by a letter from each Rating Agency to such
effect;
(vii) 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; and
(viii) 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 provided that such amendment
does not adversely impact any of the Certificateholders.
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 (iv) amend the
amendment provisions of the Pooling and Servicing Agreement or (v) amend the
definition of Servicing Standard.
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.
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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 and Class A-2 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)(5)(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 manufactured housing communities,
respectively. Mortgage Loans secured by multifamily properties represented
approximately 26.37% of the Initial Pool Balance; and the Mortgage Loans
secured by manufactured housing represented approximately 1.47% 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.
S-109
<PAGE>
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 $ , will be % 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.
S-110
<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 S&P
- --------------------- --------- ----
<S> <C> <C>
A-1 ............... Aaa AAA
A-2 ............... Aaa AAA
B ................. Aa2 AA
C ................. A2 A
D ................. Baa2 NR*
E ................. Baa3 NR
</TABLE>
- ----------
* "NR" means not rated.
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
S&P.
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 Class A Certificates and the Class B Certificates will 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.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities, Keogh
plans and collective investment funds, separate accounts and insurance company
general accounts in which such plans, annuities, accounts or arrangements are
invested 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 and 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.
S-111
<PAGE>
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
Class A 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 Moody's, S&P, Duff &
Phelps Credit Rating Co. ("DCR") or Fitch IBCA, Inc. ("Fitch"). 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 Senior
Certificates and any affiliate of any such member. 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
S&P. As of the Closing Date, the fourth general condition set forth above will
be satisfied with respect to the Class A Certificates. A fiduciary of a Plan
contemplating purchasing a Class A Certificate in the secondary market must
make its own determination that, at the time of such purchase the Class A
Certificates continue to satisfy the third and fourth general conditions set
forth above. A fiduciary of a 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, 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 Class
A 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
S-112
<PAGE>
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 Senior 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 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-113
<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS
<TABLE>
<S> <C>
1998-C1 Trust ............................... S-38
A
Aaa ......................................... S-112
AAA ......................................... S-112
Additional Debt ............................. S-27
Advances .................................... S-80
AMRESCO ..................................... S-38
Anticipated Repayment Date .................. S-16, S-39, S-40
Appraisal Reduction ......................... S-81
Appraisal Reduction Amount .................. S-81
Appraisal Reduction Event ................... S-81
ARD Loan .................................... S-39
Asset Status Report ......................... S-96
Assumed Final Distribution Dates ............ S-9
Assumed Scheduled Payment ................... S-76
Authenticating Agent ........................ S-88
Available Distribution Amount ............... S-71
B
Balloon Payments ............................ S-29
Base Interest Fraction ...................... S-77
BOMCM ....................................... S-38
C
Certificate Account ......................... S-70
Certificate Balance ......................... S-69
Certificate Registrar ....................... S-88
Certificates ................................ S-68
Class ....................................... S-68
Class A Certificates ........................ S-68
Collateral Support Deficit .................. S-12, S-78, S-79
Comparative Financial Status Report ......... S-84
Controlling Class ........................... S-97
Controlling Class Certificateholder ......... S-97
Corporate Trust Office ...................... S-87
Corrected Mortgage Loan ..................... S-96
Cross-Over Date ............................. S-75
CSSA Property Data File ..................... S-84
Current Occupancy Rate ...................... S-16
customary ................................... S-104
Cut-Off Date Balance ........................ S-36
Cut-Off Date LTV ............................ S-43
D
DCR ......................................... S-112
Debt Service Coverage Ratio ................. S-48
Delinquent Loan Status Report ............... S-84
Depositor ................................... S-7
Directing Certificateholder ................. S-96
Distributable Certificate Interest .......... S-75
Distribution Accounts ....................... S-71
</TABLE>
S-114
<PAGE>
<TABLE>
<S> <C>
Distribution Date ........................... S-70
Distribution Date Statement ................. S-82
DSCR ........................................ S-16
due ......................................... S-76
Due Date .................................... S-14
Due Period .................................. S-9
due-on-encumbrance .......................... S-41
due-on-sale ................................. S-41
E
Earnout Period .............................. S-37
e-commerce .................................. S-30
ERISA Considerations ........................ S-23
ERISA Plan .................................. S-111
Escrow Requirements ......................... S-55
Excess Interest ............................. S-39
Exemption ................................... S-112
Existing Conditions ......................... S-61
F
Final Recovery Determination ................ S-83
FIRREA ...................................... S-56
Fitch ....................................... S-112
fixed rate .................................. S-62
foreclosure property ........................ S-103
Form 8-K .................................... S-42
Founders Property ........................... S-52
fraudulent conveyance ....................... S-35
Full Earnout Amount ......................... S-37
ground leases ............................... S-64
H
HAP ......................................... S-53
Hazardous Materials ......................... S-61
Historical Loan Modification Report ......... S-84
Historical Loss Report ...................... S-84
I
Initial Rate ................................ S-39
Interest Distribution Amount ................ S-75
Interest Reserve Account .................... S-71
Interest Reserve Loans ...................... S-71
IRS ......................................... S-103
L
LCs ......................................... S-56
Letter of Credit ............................ S-37
Liquidation Fee ............................. S-99
Liquidation Fee Rate ........................ S-99
Liquidity Escrow ............................ S-39
Loan A ...................................... S-34
Loan B ...................................... S-34
Lock Box Accounts ........................... S-68
Lock Box Loans .............................. S-68
Lockout Period .............................. S-40
</TABLE>
S-115
<PAGE>
<TABLE>
<S> <C>
Lower-Tier Distribution Account ................... S-71
Lower-Tier REMIC .................................. S-109
LTV Ratio ......................................... S-16
M
Master Servicer ................................... S-97
Maturity LTV ...................................... S-43
Monthly Payments .................................. S-14
Moody's ........................................... S-5
Mortgage .......................................... S-36
Mortgage Loan ..................................... S-76
Mortgage Loan Documents ........................... S-58
Mortgage Loan Purchase and Sale Agreement ......... S-58
Mortgage Loans .................................... S-7
Mortgage Note ..................................... S-36
Mortgage Pool ..................................... S-14
Mortgage Rate ..................................... S-75
mortgage related securities ....................... S-111
Mortgaged Property ................................ S-36
N
Net Mortgage Rate ................................. S-75
NOI Adjustment Worksheet .......................... S-85
Non-Offered Certificates .......................... S-7, S-68
Nonrecoverable Advance ............................ S-80
Non-SPE Loans ..................................... S-27
Notional Amount ................................... S-5, S-69
NRA ............................................... S-52
O
Offered Certificates .............................. S-7, S-68
operating leverage ................................ S-24
Operating Statement Analysis Report ............... S-84
operator .......................................... S-103
owner ............................................. S-103
P
Pari Passu Debt ................................... S-37, S-38
Partial Release Mortgaged Properties .............. S-41
Participants ...................................... S-69
Pass-Through Rate ................................. S-68
Paying Agent ...................................... S-88
Percentage Interest ............................... S-69
Phase I ........................................... S-56
P&I Advance ....................................... S-79
Plan .............................................. S-111
Prepayment Assumption ............................. S-109
Principal Distribution Amount ..................... S-75
Principal Shortfall ............................... S-76
Property .......................................... S-53
Purchase Price .................................... S-67
qualified mortgage ................................ S-62
R
Rated Final Distribution Date ..................... S-9
</TABLE>
S-116
<PAGE>
<TABLE>
<S> <C>
real estate assets .......................... S-109
Regular Certificates ........................ S-109
regular interests ........................... S-109
Reimbursement Rate .......................... S-80
Related Proceeds ............................ S-80
REMIC ....................................... S-109
REMIC Administrator ......................... S-88
REMIC Provisions ............................ S-109
Rents from real property .................... S-104
REO Account ................................. S-101
REO Loan .................................... S-76
REO Property ................................ S-96
REO Status Report ........................... S-84
Residual Certificates ....................... S-8
residual interests .......................... S-109
Resource .................................... S-28
Revised Rate ................................ S-39
Risk Factors ................................ S-15
Rolling 12 Months ........................... S-55
Rules ....................................... S-70
S
Senior Debt ................................. S-27, S-28
sequential payment .......................... S-12
Series 1999-C1 Certificates ................. S-7
Servicer Remittance Date .................... S-79
Servicing Advances .......................... S-80
Servicing Fee ............................... S-98
Servicing Fee Rate .......................... S-98
Servicing Standard .......................... S-95
Similar Law ................................. S-111
single-purpose entity ....................... S-27
SMMEA ....................................... S-23, S-111
S&P ......................................... S-22
Special Servicer ............................ S-98
Special Servicing Fee ....................... S-99
Special Servicing Fee Rate .................. S-99
Subordinate Certificates .................... S-68
Subordinate Offered Certificates ............ S-68
T
TIs ......................................... S-55
Tower 14 Property ........................... S-52
Trustee ..................................... S-87
U
Underwriting Standards ...................... S-55
Underwritten Net Cash Flow .................. S-55
Unfair and Deceptive Practices Acts ......... S-30
Upper-Tier Distribution Account ............. S-71
Upper-Tier REMIC ............................ S-109
us .......................................... S-7
variable rate ............................... S-62
</TABLE>
S-117
<PAGE>
<TABLE>
<S> <C>
V
Voting Rights ............................. S-86
W
Watch List ................................ S-84
we ........................................ S-7
Withheld Amounts .......................... S-71
Workout Fee ............................... S-99
Workout Fee Rate .......................... S-99
Y
Yield and Maturity Considerations ......... S-33
Yield Maintenance Charge .................. S-33, S-40
Yield Maintenance Period .................. S-40
Yield Rate ................................ S-40
Z
Zoning Laws ............................... S-35
</TABLE>
S-118
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<PAGE>
PROSPECTIVE INVESTORS ARE ADVISED TO READ CAREFULLY, AND SHOULD RELY SOLELY ON,
THE FINAL PROSPECTUS SUPPLEMENT ("PROSPECTUS SUPPLEMENT") AND PROSPECTUS
("PROSPECTUS") RELATING TO THE CERTIFICATES REFERRED TO BELOW IN MAKING THEIR
INVESTMENT DECISION.
THE INFORMATION CONTAINED IN THIS DISKETTE IS ALL OF THE INFORMATION SET FORTH
ON ANNEX A TO THE PRELIMINARY PROSPECTUS SUPPLEMENT DATED JANUARY 20, 1999 TO
THE PROSPECTUS DATED AUGUST 18, 1998, (COLLECTIVELY, THE "PROSPECTUS"), RELATING
TO THE BEAR STEARNS COMMERCIAL MORTGAGE SECURITIES INC. COMMERCIAL MORTGAGE
PASS-THROUGH CERTIFICATES, SERIES 1999-C1, CLASS A-1, CLASS A-2, CLASS B, CLASS
C, CLASS D, AND CLASS E (THE "OFFERED CERTIFICATES") AND SHOULD BE REVIEWED ONLY
IN CONJUNCTION WITH A CAREFUL REVIEW OF THE PROSPECTUS. SUCH INFORMATION DOES
NOT INCLUDE ANY INFORMATION RELATING TO THE STRUCTURE OF THE OFFERED
CERTIFICATES AND DOES NOT INCLUDE ALL RELEVANT INFORMATION RELATING TO THE
UNDERLYING MORTGAGE LOANS. ADDITIONAL INFORMATION IS SET FORTH IN THE
PROSPECTUS, AND PARTICULAR ATTENTION SHOULD BE PAID TO THE RISKS AND SPECIAL
CONSIDERATIONS ASSOCIATED WITH AN INVESTMENT IN THE OFFERED CERTIFICATES
DESCRIBED IN THE PROSPECTUS. THE INFORMATION CONTAINED IN THIS DISKETTE SHOULD
NOT BE VIEWED AS PROJECTIONS, FORECASTS, PREDICTIONS OR OPINIONS WITH RESPECT TO
VALUE.
ANY INFORMATION CONTAINED IN THIS DISKETTE WILL BE MORE FULLY DESCRIBED IN THE
PROSPECTUS. PRIOR TO MAKING ANY INVESTMENT DECISION, A PROSPECTIVE INVESTOR
SHALL RECEIVE AND SHOULD CAREFULLY REVIEW THE PROSPECTUS. SALES OF THE OFFERED
CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS REVIEWED THE
PROSPECTUS. NOTHING IN THIS DISKETTE SHOULD BE CONSIDERED AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE CERTIFICATES.
<PAGE>
LOAN CHARACTERISTICS
ANNEX A
<TABLE>
<CAPTION>
LOAN NUMBER LOAN NAME PROPERTY NAME ORIGINAL BALANCE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
11969 FOUNDERS PLAZA & TOWER 14 $ 20,900,000.00
11969A Founders Plaza
11969B Tower 14
16464 Stonecrest Stonecrest 18,000,000.00
9691 Clemens Place Apartments Clemens Place Apartments 14,100,000.00
- -------------------------------------------------------------------------------------------------------------------------------
16462 South Bay Marketplace South Bay Marketplace 11,600,000.00
8484 Eden Center Eden Center 11,000,000.00
16363 Clarendon Apartments Claredon Apartments 10,500,000.00
17918 Best Western Seven Seas Best Western Seven Seas 9,500,000.00
8747 Hamilton Station Apartments Hamilton Station Apartments 9,500,000.00
- -------------------------------------------------------------------------------------------------------------------------------
9529 Washington Commons Washington Commons 9,400,000.00
17820 240 West 35th Street 240 West 35th Street 8,000,000.00
9144 Regent Place Apartments Regent Place Apartments 7,600,000.00
9100 PATIDAR HOTEL PORTFOLIO 6,080,000.00
9100A Comfort Inn West Middlesex
9100B Comfort Inn Elyria
9100C Days Inn Georgetown
9100D Holiday Inn Medina
- -------------------------------------------------------------------------------------------------------------------------------
16771 Central Park Mews Central Park Mews 7,000,000.00
9586 Gateway West Shopping Center Gateway West Shopping Center 6,988,763.29
11853 1380 University Avenue 1380 University Avenue 6,500,000.00
8722 The Lakes Apartment Complex The Lakes Apartment Complex 6,400,000.00
9412 Crown Theater Crown Theater 6,400,000.00
- -------------------------------------------------------------------------------------------------------------------------------
16718 Gateway Inn Gateway Inn 6,400,000.00
8548 Hyde Park Office Condominiums Hyde Park Office Condominiums 6,100,000.00
11931 580 Broadway 580 Broadway 6,030,000.00
12073 Stoneridge Corporate Park Stoneridge Corporate Park 6,000,000.00
9291 Airport Thruway Plaza Airport Thruway Plaza 5,800,000.00
- -------------------------------------------------------------------------------------------------------------------------------
16814 Timonium Crossing S.C. Timonium Crossing S.C. 5,600,000.00
5193 Encino Medical Tower Encino Medical Tower 5,556,400.93
17735 42 W. 48th Street 42 W. 48th Street 5,500,000.00
6073 155 Spring Street 155 Spring Street 5,489,903.38
11472 Ramada Inn & Holiday Inn Ramada Inn/Holiday Inn 5,375,000.00
- -------------------------------------------------------------------------------------------------------------------------------
16823 Simi Commerce Center Simi Commerce Center 5,050,000.00
11423 Tropicana Royale Apartments Tropicana Royale Apartments 5,000,000.00
11516 Kingsbury Square Kingsbury Square 5,000,000.00
11721 Strathmore/Orkney Realty Trust Strathmore/Orkney Realty Trust 5,000,000.00
9056 Highlander Shopping Center Highlander Shopping Center 4,700,000.00
- -------------------------------------------------------------------------------------------------------------------------------
16561 Landmark West Apartments Landmark West Apartments 4,600,000.00
16496 Hancock Plaza Hancock Plaza 4,505,000.00
11839 Pitney Bowes Pitney Bowes 4,400,000.00
9565 Washington Tower Washington Tower 4,300,000.00
9513 Cohas Brook Shopping Center Cohas Brook Shopping Center 4,300,000.00
- -------------------------------------------------------------------------------------------------------------------------------
8939 Sutter Square Galleria Sutter Square Galleria 4,250,000.00
17637 HIGHLAND CHATEAU & SEWARD FLATS 4,225,000.00
17637A Highland Chateau
17637B Seward Flats
9709 Evergreen Valley Plaza Evergreen Valley Plaza 4,240,000.00
- -------------------------------------------------------------------------------------------------------------------------------
9424 Brookwood Mobile Home Park Brookwood Mobile Home Park 4,225,000.00
9556 Victoria Inn Apartments Victoria Inn Apartments 4,200,000.00
16936 Mobius Management Systems Mobius Management Systems 4,200,000.00
12147 Kingman Square Kingman Square 4,150,000.00
16826 Ventura Business Park II Ventura Business Park II 4,150,000.00
- -------------------------------------------------------------------------------------------------------------------------------
11506 Woodstream Apartments Woodstream Apartments 4,150,000.00
11997 Kittridge Apartments Kittridge Apartments 4,100,000.00
12022 North Village Apartments North Village Apartments 4,000,000.00
6561 Aborn Shopping Center Aborn Shopping Center 4,000,000.00
11868 144 East 44th Street 144 East 44th Street 4,000,000.00
- -------------------------------------------------------------------------------------------------------------------------------
9491 Main Street Commons Main Street Commons 3,950,000.00
11895 DIXON LANDING & BRANHAM SELF STORAGE 3,900,000.00
11895A Dixon Landing Center
11895B Branham Self-Storage
16830 Newbury Park Commerce Center Newbury Park Commerce Center 3,900,000.00
- -------------------------------------------------------------------------------------------------------------------------------
12074 325 East Main Street 325 East Main Street 3,900,000.00
11102 1509 Glen Avenue Associates 1509 Glen Avenue Associates 3,750,000.00
11552 Lake Hills Shopping Center Lake Hills Shopping Center 3,700,000.00
8487 World Gym Plaza World Gym Plaza 3,500,000.00
12075 123 East Main Street 123 East Main Street 3,500,000.00
- -------------------------------------------------------------------------------------------------------------------------------
11279 The Springs of Scottsdale The Springs of Scottsdale 3,500,000.00
17138 Holiday Inn Express Holiday Inn Express 3,460,000.00
6019 525 Broadway 525 Broadway 3,500,000.00
17702 Camino Encinitas Plaza Camino Encinitas Plaza 3,300,000.00
11978 Timber Creek Apartments Timber Creek Apartments 3,350,000.00
- -------------------------------------------------------------------------------------------------------------------------------
12252 Narberth Hall Apartments Narberth Hall Apartments 3,250,000.00
9125 Wyndmoor Garden Apartments Wyndmoor Gardens 3,145,512.24
11207 Encanto Plaza Encanto Plaza 3,100,000.00
17027 Budwey's Plaza Shopping Center Budwey's Plaza Shopping Center 3,025,000.00
16820 Simi Business Park West Simi Business Park West 2,975,000.00
- -------------------------------------------------------------------------------------------------------------------------------
12178 The Drexel Building The Drexel Building 2,900,000.00
16609 Simi Lock-up Simi Lock-up 2,800,000.00
11162 PINE BEIL PORTFOLIO 2,750,000.00
11162A 37 Charles Street
11162B 234 East 81 Street
11162C 105 East 37 Street
- -------------------------------------------------------------------------------------------------------------------------------
12203 REX HAVEN & REX TERRACE APARTMENTS 2,700,000.00
12203A Rex Haven Apartments
12203B Rex Terrace Apartments
11999 Holiday Inn Express Holiday Inn Express 2,650,000.00
11116 Madison Plaza Madison Plaza 2,650,000.00
11411 People's Storage People's Self Storage 2,600,000.00
- -------------------------------------------------------------------------------------------------------------------------------
16393 Lomas Santa Fe Center Lomas Santa Fe Center 2,500,000.00
16498 Engine Supply Co Engine Supply Co 2,475,000.00
9327 Green Countrie Apartments Green Countrie Apartments 2,450,000.00
9382 Colonial Grand Pacific Building Colonial Grand Pacific Building 2,385,000.00
11687 Windom Gables Townhomes Windom Gables Townhomes 2,400,000.00
- -------------------------------------------------------------------------------------------------------------------------------
9422 Houma Kmart Houma Kmart 2,350,000.00
11845 Midtown Mall Midtown Mall 2,300,000.00
16829 Ventura Business Park III Ventura Business Park III 2,275,000.00
12033 Montclair Arms Apartments Montclair Arms Apartments 2,240,000.00
9280 The Arbor Plaza The Arbor Plaza 2,200,000.00
- -------------------------------------------------------------------------------------------------------------------------------
12253 Merion Court Apartments Merion Court Apartments 2,190,000.00
16957 200-204 Santa Monica Blvd. 200-204 Santa Monica Blvd. 2,175,000.00
17417 Holiday Inn Express Holiday Inn Express 2,100,000.00
17137 Comfort Inn - Black Mt. Comfort Inn - Black Mt. 1,900,000.00
17140 Comfort Inn - Concord Comfort Inn - Concord 2,000,000.00
- -------------------------------------------------------------------------------------------------------------------------------
11647 3344 Castle Heights Apartments 3344 Castle Heights Apartments 2,000,000.00
17194 101 Broadway 101 Broadway 2,000,000.00
11260 1630-38 12th Street Radical Media 1,945,000.00
9072 Tully Road Shopping Center Tully Road Shopping Center 1,850,000.00
17704 Holiday Inn Express Holiday Inn Express 1,830,000.00
- -------------------------------------------------------------------------------------------------------------------------------
12257 Yellowstone Shopping Center Yellowstone Shopping Center 1,800,000.00
11851 Turnpike Shopping Center Turnpike Shopping Center 1,800,000.00
11098 Lowden Gardens Lowden Gardens 1,775,000.00
11599 Sandy Plaza Sandy Plaza 1,675,000.00
11265 Multi-Media Office Multi-Media Office 1,645,000.00
- -------------------------------------------------------------------------------------------------------------------------------
5296 Comfort Inn Comfort Inn 1,600,000.00
17741 Silent Valley MHP Silent Valley MHP 1,500,000.00
12050 Hilltop Shopping Center Hilltop Shopping Center 1,500,000.00
11639 MAI Chaimson Headquarters MAI Chaimson Headquarters 1,500,000.00
17187 North La Cienega Retail Center North La Cienega Retail Center 1,510,000.00
- -------------------------------------------------------------------------------------------------------------------------------
11272 Fox Hill Park Offices Fox Hills Park Offices 1,400,000.00
11384 Fox Hill Garden Offices Fox Hill Garden Offices 1,400,000.00
9328 Abbey House Abbey House 1,400,000.00
16956 Silicon Graphics Silicon Graphics 1,300,000.00
6129 Santa Fe Center Santa Fe Center 1,325,000.00
- -------------------------------------------------------------------------------------------------------------------------------
8673 MEADOW VALLEY & VALLEY STREAM MHP MEADOW VALLEY & VALLEY STREAM MHP 1,300,000.00
8673A Meadow Valley
8673B Valley Stream
6131 Southwest Industrial Center Southwest Industrial Center 1,100,000.00
9436 3424 Simpson Ferry Road 3424 Simpson Ferry Road 740,000.00
===============================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CUMULATIVE % INTEREST NET
CUT-OFF % OF INITIAL OF INITIAL NUMBER OF GROSS ACCRUAL ADMINISTRATIVE MORTGAGE
BALANCE POOL BALANCE POOL BALANCE PROPERTIES MORTGAGE RATE METHOD FEE RATE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 20,833,834.70 4.36% 4.36% 2 7.4550% ACTUAL/360 0.057% 7.3980%
1
1
17,947,054.90 3.75% 8.11% 1 6.7050% Actual/360 0.057% 6.6480%
14,100,000.00 2.95% 11.06% 1 7.6050% Actual/360 0.057% 7.5480%
- -------------------------------------------------------------------------------------------------------------------
11,567,888.28 2.42% 13.48% 1 6.9350% Actual/360 0.057% 6.8780%
10,838,384.65 2.27% 15.75% 1 7.0000% Actual/360 0.057% 6.9430%
10,467,141.83 2.19% 17.94% 1 6.8125% Actual/360 0.057% 6.7555%
9,500,000.00 1.99% 19.93% 1 7.9400% Actual/360 0.057% 7.8830%
9,466,781.34 1.98% 21.91% 1 6.0150% Actual/360 0.057% 5.9580%
- -------------------------------------------------------------------------------------------------------------------
9,382,148.57 1.96% 23.87% 1 7.3500% Actual/360 0.057% 7.2930%
7,996,604.59 1.67% 25.54% 1 8.1500% Actual/360 0.057% 8.0930%
7,516,100.56 1.57% 27.12% 1 6.9100% Actual/360 0.057% 6.8530%
6,080,000.00 1.27% 28.39% 4 7.6200% ACTUAL/360 0.057% 7.5630%
1
1
1
1
- -------------------------------------------------------------------------------------------------------------------
6,978,073.89 1.46% 29.85% 1 6.4600% Actual/360 0.057% 6.4030%
6,965,929.20 1.46% 31.31% 1 7.1900% Actual/360 0.057% 7.1330%
6,479,346.66 1.36% 32.66% 1 7.2500% Actual/360 0.057% 7.1930%
6,377,621.11 1.33% 33.99% 1 6.0150% Actual/360 0.057% 5.9580%
6,373,242.79 1.33% 35.33% 1 7.2500% Actual/360 0.057% 7.1930%
- -------------------------------------------------------------------------------------------------------------------
6,400,000.00 1.34% 36.67% 1 8.2500% Actual/360 0.057% 8.1930%
6,083,091.08 1.27% 37.94% 1 6.9300% Actual/360 0.057% 6.8730%
6,019,831.38 1.26% 39.20% 1 7.1500% Actual/360 0.057% 7.0930%
5,986,156.80 1.25% 40.45% 1 6.6000% Actual/360 0.057% 6.5430%
5,784,051.28 1.21% 41.66% 1 6.9600% Actual/360 0.057% 6.9030%
- -------------------------------------------------------------------------------------------------------------------
5,596,985.92 1.17% 42.83% 1 7.4750% Actual/360 0.057% 7.4180%
5,550,946.67 1.16% 43.99% 1 7.9700% Actual/360 0.057% 7.9130%
5,496,817.11 1.15% 45.14% 1 7.2500% Actual/360 0.057% 7.1930%
5,478,561.51 1.15% 46.29% 1 7.1250% Actual/360 0.057% 7.0680%
5,354,937.81 1.12% 47.41% 1 7.8000% Actual/360 0.057% 7.7430%
- -------------------------------------------------------------------------------------------------------------------
5,039,855.62 1.05% 48.46% 1 7.1400% Actual/360 0.057% 7.0830%
4,987,126.66 1.04% 49.51% 1 6.1500% Actual/360 0.057% 6.0930%
4,977,854.14 1.04% 50.55% 1 6.9600% Actual/360 0.057% 6.9030%
4,972,654.50 1.04% 51.59% 1 6.4000% 30/360 0.057% 6.3430%
4,679,984.89 0.98% 52.57% 1 6.9500% Actual/360 0.057% 6.8930%
- -------------------------------------------------------------------------------------------------------------------
4,596,973.85 0.96% 53.53% 1 6.8300% Actual/360 0.057% 6.7730%
4,501,162.50 0.94% 54.47% 1 8.1500% Actual/360 0.057% 8.0930%
4,394,971.78 0.92% 55.39% 1 7.3000% Actual/360 0.057% 7.2430%
4,284,147.62 0.90% 56.29% 1 6.8600% Actual/360 0.057% 6.8030%
4,275,391.78 0.89% 57.18% 1 6.9600% Actual/360 0.057% 6.9030%
- -------------------------------------------------------------------------------------------------------------------
4,240,876.43 0.89% 58.07% 1 6.8850% Actual/360 0.057% 6.8280%
4,222,597.28 0.88% 58.95% 2 7.3050% ACTUAL/360 0.057% 7.2480%
1
1
4,220,657.19 0.88% 59.84% 1 7.2300% Actual/360 0.057% 7.1730%
- -------------------------------------------------------------------------------------------------------------------
4,211,360.45 0.88% 60.72% 1 6.3400% Actual/360 0.057% 6.2830%
4,184,392.31 0.88% 61.59% 1 5.7600% Actual/360 0.057% 5.7030%
4,176,695.99 0.87% 62.47% 1 7.6600% Actual/360 0.057% 7.6030%
4,146,242.00 0.87% 63.33% 1 7.9850% Actual/360 0.057% 7.9280%
4,141,663.53 0.87% 64.20% 1 7.1400% Actual/360 0.057% 7.0830%
- -------------------------------------------------------------------------------------------------------------------
4,116,455.03 0.86% 65.06% 1 6.8200% Actual/360 0.057% 6.7630%
4,087,766.98 0.86% 65.92% 1 6.6500% Actual/360 0.057% 6.5930%
3,991,112.42 0.83% 66.75% 1 6.7500% Actual/360 0.057% 6.6930%
3,986,631.56 0.83% 67.58% 1 6.9900% Actual/360 0.057% 6.9330%
3,986,333.66 0.83% 68.42% 1 6.8750% Actual/360 0.057% 6.8180%
- -------------------------------------------------------------------------------------------------------------------
3,929,207.95 0.82% 69.24% 1 7.3800% Actual/360 0.057% 7.3230%
3,896,488.98 0.82% 70.06% 2 7.6500% ACTUAL/360 0.057% 7.5930%
1
1
3,892,165.73 0.81% 70.87% 1 7.1400% Actual/360 0.057% 7.0830%
- -------------------------------------------------------------------------------------------------------------------
3,891,331.65 0.81% 71.68% 1 6.7000% Actual/360 0.057% 6.6430%
3,734,276.13 0.78% 72.47% 1 7.0100% Actual/360 0.057% 6.9530%
3,687,541.57 0.77% 73.24% 1 6.1700% Actual/360 0.057% 6.1130%
3,494,612.54 0.73% 73.97% 1 8.3200% Actual/360 0.057% 8.2630%
3,492,381.60 0.73% 74.70% 1 6.8000% Actual/360 0.057% 6.7430%
- -------------------------------------------------------------------------------------------------------------------
3,491,722.06 0.73% 75.43% 1 6.5000% Actual/360 0.057% 6.4430%
3,457,382.85 0.72% 76.15% 1 8.3750% Actual/360 0.057% 8.3180%
3,446,735.31 0.72% 76.87% 1 6.7400% Actual/360 0.057% 6.6830%
3,296,925.79 0.69% 77.56% 1 7.5000% Actual/360 0.057% 7.4430%
3,347,989.69 0.70% 78.26% 1 7.1340% Actual/360 0.057% 7.0770%
- -------------------------------------------------------------------------------------------------------------------
3,237,860.97 0.68% 78.94% 1 6.4000% Actual/360 0.057% 6.3430%
3,138,435.59 0.66% 79.60% 1 6.7606% Actual/360 0.057% 6.7036%
3,080,120.88 0.64% 80.24% 1 7.2500% Actual/360 0.057% 7.1930%
3,022,990.88 0.63% 80.87% 1 8.8750% Actual/360 0.057% 8.8180%
2,969,023.86 0.62% 81.50% 1 7.1400% Actual/360 0.057% 7.0830%
- -------------------------------------------------------------------------------------------------------------------
2,891,635.54 0.60% 82.10% 1 6.7800% Actual/360 0.057% 6.7230%
2,794,375.39 0.58% 82.69% 1 7.1400% Actual/360 0.057% 7.0830%
2,731,669.14 0.57% 83.26% 3 7.0500% ACTUAL/360 0.057% 6.9930%
1
1
1
- -------------------------------------------------------------------------------------------------------------------
2,698,582.43 0.56% 83.82% 2 7.5500% ACTUAL/360 0.057% 7.4930%
1
1
2,645,267.70 0.55% 84.37% 1 7.7000% Actual/360 0.057% 7.6430%
2,633,702.98 0.55% 84.93% 1 6.5500% Actual/360 0.057% 6.4930%
2,591,689.94 0.54% 85.47% 1 7.2200% Actual/360 0.057% 7.1630%
- -------------------------------------------------------------------------------------------------------------------
2,483,822.90 0.52% 85.99% 1 6.9340% Actual/360 0.055% 6.8790%
2,465,191.42 0.52% 86.50% 1 7.7000% Actual/360 0.057% 7.6430%
2,430,143.29 0.51% 87.01% 1 6.8060% Actual/360 0.057% 6.7490%
2,383,684.49 0.50% 87.51% 1 7.4000% Actual/360 0.057% 7.3430%
2,343,498.13 0.49% 88.00% 1 6.4000% Actual/360 0.057% 6.3430%
- -------------------------------------------------------------------------------------------------------------------
2,332,820.79 0.49% 88.49% 1 7.3350% Actual/360 0.057% 7.2780%
2,293,720.33 0.48% 88.97% 1 8.0000% Actual/360 0.057% 7.9430%
2,270,430.01 0.47% 89.44% 1 7.1400% Actual/360 0.057% 7.0830%
2,235,631.52 0.47% 89.91% 1 7.3100% Actual/360 0.057% 7.2530%
2,192,375.45 0.46% 90.37% 1 6.8000% Actual/360 0.057% 6.7430%
- -------------------------------------------------------------------------------------------------------------------
2,176,629.82 0.46% 90.82% 1 6.5900% Actual/360 0.057% 6.5330%
2,175,000.00 0.46% 91.28% 1 7.1250% Actual/360 0.057% 7.0680%
2,098,397.56 0.44% 91.72% 1 8.3400% Actual/360 0.057% 8.2830%
1,898,579.04 0.40% 92.12% 1 8.4200% Actual/360 0.057% 8.3630%
2,000,000.00 0.42% 92.53% 1 8.2700% Actual/360 0.057% 8.2130%
- -------------------------------------------------------------------------------------------------------------------
1,995,211.18 0.42% 92.95% 1 6.4500% Actual/360 0.057% 6.3930%
1,994,550.49 0.42% 93.37% 1 7.8000% Actual/360 0.057% 7.7430%
1,938,515.04 0.41% 93.77% 1 6.2100% Actual/360 0.057% 6.1530%
1,838,389.58 0.38% 94.16% 1 7.3600% Actual/360 0.057% 7.3030%
1,828,277.20 0.38% 94.54% 1 8.5000% Actual/360 0.057% 8.4430%
- -------------------------------------------------------------------------------------------------------------------
1,798,796.56 0.38% 94.92% 1 6.7750% Actual/360 0.057% 6.7180%
1,793,436.42 0.38% 95.29% 1 5.8400% Actual/360 0.057% 5.7830%
1,767,185.64 0.37% 95.66% 1 6.8200% Actual/360 0.057% 6.7630%
1,671,981.15 0.35% 96.01% 1 7.6600% Actual/360 0.057% 7.6030%
1,639,515.29 0.34% 96.36% 1 6.2100% Actual/360 0.057% 6.1530%
- -------------------------------------------------------------------------------------------------------------------
1,593,283.73 0.33% 96.69% 1 7.2300% Actual/360 0.057% 7.1730%
1,500,000.00 0.31% 97.00% 1 8.6200% Actual/360 0.057% 8.5630%
1,487,880.56 0.31% 97.31% 1 8.2500% Actual/360 0.057% 8.1930%
1,465,783.38 0.31% 97.62% 1 6.9400% Actual/360 0.057% 6.8830%
1,509,420.92 0.32% 97.94% 1 8.4100% Actual/360 0.057% 8.3530%
- -------------------------------------------------------------------------------------------------------------------
1,395,446.43 0.29% 98.23% 1 6.3100% Actual/360 0.057% 6.2530%
1,395,446.43 0.29% 98.52% 1 6.3100% Actual/360 0.057% 6.2530%
1,388,653.31 0.29% 98.81% 1 6.8060% Actual/360 0.057% 6.7490%
1,300,000.00 0.27% 99.08% 1 7.1250% Actual/360 0.057% 7.0680%
1,295,673.80 0.27% 99.35% 1 6.6900% Actual/360 0.057% 6.6330%
- -------------------------------------------------------------------------------------------------------------------
1,295,014.83 0.27% 99.62% 2 6.7000% ACTUAL/360 0.057% 6.6430%
1
1
1,055,045.28 0.22% 99.85% 1 6.7050% Actual/360 0.057% 6.6480%
737,992.20 0.15% 100.00% 1 8.0300% Actual/360 0.057% 7.9730%
===================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATED
ORIGINAL REMAINING
TERM TO TERM TO ORIGINAL FIRST 1997 NET 1998 NET UNDERWRITTEN
MATURITY MATURITY AMORTIZATION PAYMENT OPERATING OPERATING NET OPERATING
(MOS.) (MOS.) (MOS.) DATE MATURITY DATE ANNUAL P&I INCOME (A) INCOME (A) INCOME
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
120 115 360 10/01/98 09/01/08 $ 1,745,908.3 $3,077,812 $ 2,158,391 $ 2,913,519
2,130,378 2,158,391 1,997,463
947,434 - 916,055
120 116 360 11/01/98 10/01/08 1,394,516.90 1,969,041 2,131,856 2,200,266
120 120 360 03/01/99 02/01/09 1,195,260.00 1,773,127 1,899,886 1,887,477
- ---------------------------------------------------------------------------------------------------------------------------------
120 116 360 11/01/98 10/01/08 920,032.46 508,066 970,458 1,347,479
240 232 240 07/01/98 06/01/18 1,023,394.60 2,525,668 - 2,831,041
120 116 360 11/01/98 10/01/08 830,893.68 1,251,140 1,501,651 1,438,848
120 120 240 03/01/99 02/01/09 949,289.16 2,476,984 3,106,019 2,460,641
180 176 360 11/01/98 10/01/13 684,587.38 1,239,006 1,185,389 1,234,756
- ---------------------------------------------------------------------------------------------------------------------------------
120 117 360 12/01/98 11/01/08 777,160.55 - 971,714 1,050,106
120 119 360 02/01/99 01/01/09 714,478.20 1,034,124 1,027,945 1,049,814
240 234 240 09/01/98 08/01/18 702,154.17 1,011,610 1,277,526 1,104,690
120 120 240 03/01/99 02/01/09 593,125.92 1,720,293 1,864,085 1,630,080
387,395 497,739 432,837
523,248 569,017 461,646
356,022 329,270 299,490
453,628 468,059 436,107
- ---------------------------------------------------------------------------------------------------------------------------------
120 116 360 11/01/98 10/01/08 528,729.36 1,218,219 - 1,305,943
118 115 298 12/01/98 09/01/08 604,397.27 - - 808,002
120 117 300 12/01/98 11/01/08 563,789.35 721,988 824,022 805,036
180 176 360 11/01/98 10/01/13 461,195.71 782,285 808,661 796,260
120 116 300 11/01/98 10/01/08 555,115.67 - - 805,752
- ---------------------------------------------------------------------------------------------------------------------------------
120 120 300 03/01/99 02/01/09 605,529.72 2,066,906 2,021,326 1,706,179
180 176 360 11/01/98 10/01/13 483,565.04 6,104 - 822,098
180 179 240 02/01/99 01/01/14 567,539.91 1,469,856 - 1,543,260
180 177 360 12/01/98 11/01/13 459,834.35 - 953,658 1,185,804
180 176 360 11/01/98 10/01/13 461,182.32 984,283 947,170 908,332
- ---------------------------------------------------------------------------------------------------------------------------------
120 119 360 02/01/99 01/01/09 468,722.28 703,529 873,206 803,156
113 111 353 01/01/99 05/01/08 490,220.31 876,382 305,186 780,474
120 119 360 02/01/99 01/01/09 450,236.34 1,200,110 1,270,090 1,108,471
177 174 357 12/01/98 08/01/13 444,911.64 827,885 859,115 955,080
120 116 300 11/01/98 10/01/08 489,306.27 1,076,592 1,077,593 1,133,539
- ---------------------------------------------------------------------------------------------------------------------------------
180 177 360 12/01/98 11/01/13 408,887.15 627,380 652,403 647,256
120 117 360 12/01/98 11/01/08 365,536.90 1,222,682 1,191,342 1,153,176
180 176 300 11/01/98 10/01/13 422,537.72 1,023,238 1,101,808 854,582
120 116 300 11/01/98 10/01/08 401,383.13 577,210 635,412 649,826
180 174 360 09/01/98 08/01/13 373,338.62 320,498 403,139 711,533
- ---------------------------------------------------------------------------------------------------------------------------------
120 119 360 02/01/99 01/01/09 360,966.48 658,893 648,725 636,314
120 118 360 01/01/99 12/01/08 402,340.54 550,095 463,791 562,688
120 118 360 01/01/99 12/01/08 361,981.45 816,350 - 869,078
120 115 360 10/01/98 09/01/08 338,458.25 683,248 - 658,521
120 116 360 11/01/98 10/01/08 379,922.31 551,331 - 551,385
- ---------------------------------------------------------------------------------------------------------------------------------
120 117 360 12/01/98 11/01/08 335,374.54 377,190 462,770 634,783
120 119 360 02/01/99 01/01/09 347,756.76 252,759 561,383 561,561
252,759 243,947 248,996
- 317,436 312,565
120 113 360 08/01/98 07/01/08 346,401.35 473,157 663,952 538,576
- ---------------------------------------------------------------------------------------------------------------------------------
120 116 360 11/01/98 10/01/08 315,142.35 575,474 - 557,607
120 116 360 11/01/98 10/01/08 294,440.97 716,959 720,583 638,388
180 178 180 01/01/99 12/01/13 471,808.44 - 717,251 668,541
120 118 360 01/01/99 12/01/08 364,894.14 522,652 553,767 521,488
180 177 360 12/01/98 11/01/13 336,016.17 498,414 508,993 551,176
- ---------------------------------------------------------------------------------------------------------------------------------
120 113 300 08/01/98 07/01/08 346,278.40 - 536,481 538,115
120 116 360 11/01/98 10/01/08 315,846.72 - 529,800 519,693
120 117 360 12/01/98 11/01/08 311,327.09 502,060 517,391 550,484
120 117 300 12/01/98 11/01/08 338,947.87 - - 654,256
120 117 300 12/01/98 11/01/08 335,436.07 498,497 - 523,996
- ---------------------------------------------------------------------------------------------------------------------------------
180 175 300 10/01/98 09/01/13 346,590.40 - 526,438 593,837
120 119 300 02/01/99 01/01/09 350,427.24 508,721 551,864 584,583
336,550 375,846 379,096
172,171 176,018 205,487
180 177 360 12/01/98 11/01/13 315,774.23 532,660 500,140 513,158
- ---------------------------------------------------------------------------------------------------------------------------------
120 118 300 01/01/99 12/01/08 321,870.50 - - 454,378
120 114 360 09/01/98 08/01/08 299,688.40 544,863 587,053 536,451
120 116 360 11/01/98 10/01/08 271,072.48 664,209 - 815,647
120 118 300 01/01/99 12/01/08 333,116.03 500,130 507,735 507,804
120 118 300 01/01/99 12/01/08 291,510.28 - - 414,890
- ---------------------------------------------------------------------------------------------------------------------------------
120 117 360 12/01/98 11/01/08 265,468.57 1,040,344 1,115,260 1,018,228
120 119 300 02/01/99 01/01/09 330,840.00 808,766 858,586 659,418
120 112 240 07/01/98 06/01/08 319,103.23 756,621 - 572,186
120 119 300 02/01/99 01/01/09 292,640.51 513,706 577,390 486,200
180 179 360 02/01/99 01/01/14 271,079.04 351,600 492,173 581,228
- ---------------------------------------------------------------------------------------------------------------------------------
120 117 300 12/01/98 11/01/08 260,899.03 395,907 - 395,951
118 115 358 12/01/98 09/01/08 245,509.88 338,132 - 360,532
120 114 300 09/01/98 08/01/08 268,884.15 483,845 510,097 413,952
120 119 300 02/01/99 01/01/09 301,527.12 440,511 621,325 471,576
180 177 360 12/01/98 11/01/13 240,879.06 388,670 388,645 375,880
- ---------------------------------------------------------------------------------------------------------------------------------
120 116 360 11/01/98 10/01/08 226,406.54 276,241 386,587 383,080
180 177 360 12/01/98 11/01/13 226,709.70 349,204 571,518 638,059
120 114 300 09/01/98 08/01/08 234,290.77 231,220 - 359,972
18,807 - 34,777
101,662 - 150,946
110,751 - 174,249
- ---------------------------------------------------------------------------------------------------------------------------------
120 119 360 02/01/99 01/01/09 227,655.84 376,862 405,469 359,188
185,716 232,705 200,649
191,146 172,764 158,539
120 118 300 01/01/99 12/01/08 239,151.63 626,232 489,775 618,655
120 115 300 10/01/98 09/01/08 215,710.47 479,138 570,555 595,734
120 117 300 12/01/98 11/01/08 224,913.06 372,030 408,089 365,946
- ---------------------------------------------------------------------------------------------------------------------------------
180 171 360 06/01/98 05/01/13 198,262.80 1,565,310 2,511,318 309,716
84 81 264 12/01/98 11/01/05 233,771.31 - - 380,891
96 89 300 08/01/98 07/01/06 204,168.83 443,116 584,219 535,428
120 119 360 02/01/99 01/01/09 198,159.12 296,762 330,713 352,328
120 116 120 11/01/98 10/01/08 325,554.72 613,165 665,630 591,994
- ---------------------------------------------------------------------------------------------------------------------------------
120 113 300 08/01/98 07/01/08 205,378.38 356,593 438,375 348,095
120 117 300 12/01/98 11/01/08 213,021.28 336,170 - 346,945
180 177 360 12/01/98 11/01/13 184,201.63 296,467 298,013 298,277
120 118 300 01/01/99 12/01/08 195,330.76 - 273,310 279,632
180 177 300 12/01/98 11/01/13 183,235.03 303,518 336,062 278,024
- ---------------------------------------------------------------------------------------------------------------------------------
120 115 300 10/01/98 09/01/08 178,925.20 244,471 269,770 271,226
120 120 360 03/01/99 02/01/09 175,841.76 427,672 404,808 384,687
120 119 300 02/01/99 01/01/09 200,207.28 141,340 501,041 444,035
120 119 300 02/01/99 01/01/09 182,364.24 447,294 498,219 368,378
120 120 300 03/01/99 02/01/09 189,548.88 472,533 466,750 420,571
- ---------------------------------------------------------------------------------------------------------------------------------
120 117 360 12/01/98 11/01/08 150,908.01 265,203 247,227 251,867
180 179 180 02/01/99 01/01/14 226,594.08 308,008 - 313,818
180 176 360 11/01/98 10/01/13 143,101.75 - 415,494 388,015
120 114 300 09/01/98 08/01/08 162,039.77 354,921 399,212 317,185
120 119 276 02/01/99 01/01/09 181,408.56 473,437 433,749 431,169
- ---------------------------------------------------------------------------------------------------------------------------------
120 119 360 02/01/99 01/01/09 140,456.28 469,127 471,071 434,521
120 116 360 11/01/98 10/01/08 127,289.39 1,036,879 - 891,196
180 174 360 09/01/98 08/01/13 139,143.95 42,912 - 276,975
120 118 300 01/01/99 12/01/08 150,635.40 183,563 230,532 246,137
180 176 360 11/01/98 10/01/13 121,029.50 - 281,199 292,945
- ---------------------------------------------------------------------------------------------------------------------------------
120 116 300 11/01/98 10/01/08 138,531.62 413,867 506,107 419,108
180 180 180 03/01/99 02/01/14 178,521.48 278,366 309,639 261,601
180 177 180 12/01/98 11/01/13 174,625.26 264,278 - 263,898
120 116 120 11/01/98 10/01/08 208,439.07 - - 367,317
120 119 360 02/01/99 01/01/09 138,173.04 198,844 - 208,878
- ---------------------------------------------------------------------------------------------------------------------------------
180 176 360 11/01/98 10/01/13 104,096.96 242,630 324,632 226,544
180 176 360 11/01/98 10/01/13 104,096.96 344,640 414,502 281,763
96 89 300 08/01/98 07/01/06 116,667.90 253,318 294,592 281,046
120 120 360 03/01/99 02/01/09 105,100.08 271,292 282,322 268,552
180 173 180 08/01/98 07/01/13 140,172.22 271,386 - 334,808
- ---------------------------------------------------------------------------------------------------------------------------------
120 115 360 10/01/98 09/01/08 100,663.36 159,274 - 170,796
67,196 - 72,058
92,078 - 98,738
120 113 120 8/1/98 7/1/08 151,263.82 307,816 - 343,819
120 117 300 12/1/98 11/1/08 68,713.85 94,243 - 111,112
=================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DEBT EFFECTIVE
SERVICE LOCKOUT
UNDERWRITTEN COVERAGE APPRAISED CUT-OFF MATURITY PERIODE LOCKOUT END CALL
NET CASH FLOW LOCKBOX RATIO VALUE LTV LTV (MOS.) DATE PROTECTION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 2,322,057 SPRINGING 1.33X $ 30,800,000 67.64% 59.88% 120 08/31/08 DEFEASANCE
1,666,548 Springing 21,500,000
655,509 Springing 9,300,000
2,155,010 1.55 30,000,000 59.82% 51.92% 120 09/30/08 Defeasance
1,741,477 In Place 1.46 21,000,000 67.14% 59.46% 120 01/31/09 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
1,289,044 Springing 1.40 15,500,000 74.63% 65.16% 120 09/30/08 Defeasance
2,713,370 2.65 32,000,000 33.87% 1.12% 240 05/31/18 Defeasance
1,395,584 1.68 16,800,000 62.30% 53.52% 60 10/31/03 > 1% or YM
1,448,479 1.53 16,900,000 56.21% 39.55% 120 01/31/09 Defeasance
1,163,756 1.70 14,000,000 67.62% 49.55% 180 09/30/13 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
1,026,292 1.32 12,400,000 75.66% 66.72% 120 10/31/08 Defeasance
1,017,758 1.42 14,000,000 57.12% 51.28% 120 12/31/08 Defeasance
1,058,798 Springing 1.51 12,900,000 58.26% 1.87% 240 07/31/18 Defeasance
1,292,094 2.18 10,460,000 58.13% 40.44% 120 01/31/09 DEFEASANCE
342,872 2,710,000
362,806 2,400,000
239,907 2,000,000
346,509 3,350,000
- -----------------------------------------------------------------------------------------------------------------------------------
1,281,193 2.42 16,000,000 43.61% 37.60% 119 08/31/08 Defeasance
771,011 1.28 10,840,000 64.26% 51.98% 118 08/31/08 Defeasance
770,286 1.37 9,365,000 69.19% 55.95% 120 10/31/08 Defeasance
753,260 1.63 8,650,000 73.73% 54.03% 180 09/30/13 Defeasance
765,098 1.38 8,550,000 74.54% 60.35% 120 09/30/08 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
1,067,009 1.76 12,000,000 53.33% 44.26% 120 01/31/09 Defeasance
771,932 1.60 8,300,000 73.29% 56.05% 180 09/30/13 Defeasance
1,289,912 2.27 16,000,000 37.62% 15.72% 180 12/31/13 Defeasance
992,082 2.16 12,800,000 46.77% 35.20% 48 10/31/02 > 1% or YM
843,321 1.83 9,750,000 59.32% 45.43% 180 09/30/13 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
765,484 1.63 9,600,000 58.30% 51.50% 120 12/31/08 Defeasance
709,988 1.45 8,500,000 65.31% 57.53% 113 04/30/13 Defeasance
1,017,490 2.26 12,000,000 45.81% 40.23% 120 12/31/08 Defeasance
865,311 1.94 9,300,000 58.91% 45.47% 177 07/31/13 Defeasance
838,644 1.71 8,700,000 61.55% 50.64% 120 09/30/08 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
584,443 1.43 6,750,000 74.66% 57.59% 180 10/31/13 Defeasance
1,071,852 2.93 13,300,000 37.50% 32.02% 120 10/31/08 Defeasance
798,446 1.89 9,300,000 53.53% 33.93% 180 09/30/13 Defeasance
624,576 1.56 8,100,000 61.39% 47.71% 120 09/30/08 Defeasance
690,728 In Place 1.85 7,500,000 62.40% 47.84% 180 07/31/13 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
594,314 1.65 7,100,000 64.75% 56.25% 120 12/31/08 Defeasance
536,473 In Place 1.33 6,300,000 71.45% 64.19% 120 11/30/08 Defeasance
750,205 Springing 2.07 10,000,000 43.95% 38.68% 120 11/30/08 Defeasance
567,713 1.68 6,300,000 68.00% 59.30% 120 08/31/08 Defeasance
523,514 1.38 6,000,000 71.26% 57.00% 120 09/30/08 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
566,649 1.69 6,000,000 70.68% 61.59% 119 09/30/08 Defeasance
516,061 1.48 5,650,000 74.74% 65.73% 120 12/31/08 DEFEASANCE
233,996 2,350,000
282,065 3,300,000
509,981 1.47 6,920,000 60.99% 53.78% 120 06/30/08 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
538,657 1.71 6,500,000 64.79% 55.68% 120 09/30/08 Defeasance
583,480 1.98 5,900,000 70.92% 59.95% 114 03/31/08 Defeasance
615,127 Springing 1.30 7,100,000 58.83% 1.28% 180 11/30/13 Defeasance
483,926 1.33 5,675,000 73.06% 65.38% 120 11/30/08 Defeasance
488,081 1.45 6,100,000 67.90% 52.37% 180 10/31/13 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
506,115 1.46 5,300,000 77.67% 62.30% 120 06/30/08 Defeasance
497,168 1.57 5,240,000 78.01% 67.60% 120 09/30/08 Defeasance
499,734 1.61 6,000,000 66.52% 57.75% 120 10/31/08 Defeasance
619,267 1.83 7,850,000 50.79% 40.75% 120 10/31/08 Defeasance
513,677 1.53 7,500,000 53.15% 42.49% 120 10/31/08 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
542,243 1.56 5,400,000 72.76% 47.19% 180 08/31/13 Defeasance
563,235 1.61 6,460,000 60.32% 49.25% 120 12/31/08 DEFEASANCE
361,235 3,850,000
202,000 2,610,000
457,356 1.45 5,450,000 71.42% 55.09% 180 10/31/13 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
441,900 1.37 4,900,000 79.41% 63.07% 120 11/30/08 Defeasance
497,523 In Place 1.66 5,300,000 70.46% 61.73% 120 07/31/08 Defeasance
740,816 2.73 9,000,000 40.97% 35.04% 120 09/30/08 Defeasance
480,922 1.44 5,100,000 68.52% 57.09% 120 11/30/08 Defeasance
405,937 1.39 4,375,000 79.83% 63.60% 120 11/30/08 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
981,103 3.70 10,050,000 34.74% 29.96% 120 10/31/08 Defeasance
531,492 1.61 5,500,000 62.86% 52.40% 120 12/31/08 Defeasance
525,972 1.65 6,890,000 50.03% 34.26% 120 05/31/08 Defeasance
446,857 1.53 5,150,000 64.02% 52.04% 120 12/31/08 Defeasance
504,728 1.86 6,500,000 51.51% 39.66% 180 12/31/13 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
380,451 1.46 4,340,000 74.61% 58.76% 120 10/31/08 Defeasance
338,532 1.38 4,250,000 73.85% 64.22% 118 08/31/08 Defeasance
368,533 1.37 4,300,000 71.63% 58.13% 120 07/31/08 Defeasance
424,934 1.41 5,200,000 58.13% 49.13% 120 12/31/08 Defeasance
343,064 1.42 4,000,000 74.23% 57.25% 180 10/31/13 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
372,365 1.64 4,200,000 68.85% 59.87% 119 08/31/08 Defeasance
625,709 2.76 6,400,000 43.66% 33.68% 180 10/31/13 Defeasance
351,178 1.50 3,830,000 71.32% 57.54% 120 07/31/08 DEFEASANCE
32,753 350,000
145,926 1,380,000
172,499 2,100,000
- -----------------------------------------------------------------------------------------------------------------------------------
335,188 1.47 3,700,000 72.93% 64.55% 120 12/31/08 DEFEASANCE
186,649 2,100,000
148,539 1,600,000
430,204 1.80 3,850,000 68.71% 56.25% 120 11/30/08 Defeasance
554,489 2.57 8,700,000 30.27% 24.02% 119 07/31/08 Defeasance
357,614 1.59 4,000,000 64.79% 52.35% 117 07/31/08 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
295,276 1.49 3,727,500 66.64% 51.19% 180 04/30/13 Defeasance
321,605 1.38 3,360,000 73.37% 62.50% 84 10/31/05 Defeasance
498,678 2.44 4,385,000 55.42% 47.39% 96 06/30/06 Defeasance
318,241 1.61 3,750,000 63.56% 56.04% 120 12/31/08 Defeasance
548,819 1.69 5,960,000 39.32% 0.32% 120 09/30/08 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
308,003 1.50 3,400,000 68.61% 55.88% 120 06/30/08 Defeasance
301,350 1.41 3,450,000 66.48% 54.95% 120 10/31/08 Defeasance
261,886 1.42 3,150,000 72.08% 55.60% 180 10/31/13 Defeasance
268,105 1.37 3,100,000 72.12% 58.36% 120 11/30/08 Defeasance
256,649 1.40 2,800,000 78.30% 49.15% 180 10/31/13 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
258,726 1.45 2,825,000 77.05% 61.21% 120 08/31/08 Defeasance
357,184 2.03 4,200,000 51.79% 45.30% 120 01/31/09 Defeasance
358,436 1.79 3,300,000 63.59% 52.96% 120 12/31/08 Defeasance
286,544 1.57 3,150,000 60.27% 50.31% 120 12/31/08 Defeasance
328,486 1.73 3,750,000 53.33% 44.29% 120 01/31/09 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
243,367 1.61 2,950,000 67.63% 58.25% 120 10/31/08 Defeasance
301,408 1.33 3,700,000 53.91% 1.19% 180 12/31/13 Defeasance
367,579 Springing 2.57 4,100,000 47.28% 34.98% 180 09/30/13 Defeasance
302,032 1.86 3,400,000 54.07% 44.02% 120 07/31/08 Defeasance
332,939 1.84 2,900,000 63.04% 50.25% 120 12/31/08 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
393,618 2.80 6,250,000 28.78% 24.96% 117 09/30/08 Defeasance
807,036 6.34 9,800,000 18.30% 15.50% 120 09/30/08 Defeasance
256,919 1.85 2,900,000 60.94% 46.45% 180 07/31/13 Defeasance
219,427 1.46 2,600,000 64.31% 52.58% 120 11/30/08 Defeasance
280,958 Springing 2.32 3,000,000 54.65% 40.43% 180 09/30/13 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
315,380 2.28 2,320,000 68.68% 55.57% 120 09/30/08 Defeasance
252,051 1.41 2,850,000 52.63% 1.39% 180 01/31/14 Defeasance
243,675 1.40 2,500,000 59.52% 1.48% 180 10/31/13 Defeasance
359,317 1.72 4,100,000 35.75% 0.33% 120 09/30/08 Defeasance
190,854 1.38 2,400,000 62.89% 56.80% 120 12/31/08 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
188,988 1.82 2,450,000 56.96% 42.33% 180 09/30/13 Defeasance
236,318 2.27 3,500,000 39.87% 29.63% 180 09/30/13 Defeasance
259,546 2.22 2,385,000 58.22% 49.79% 96 06/30/06 Defeasance
247,104 2.35 3,000,000 43.33% 37.91% 120 01/31/09 Defeasance
271,890 1.94 3,800,000 34.10% 0.60% 180 06/30/13 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
164,246 1.63 1,700,000 76.18% 66.16% 120 08/31/08 DEFEASANCE
69,295 717,262
94,951 982,738
278,262 1.84 4,000,000 26.38% 0.24% 120 06/30/08 Defeasance
101,037 1.47 1,100,000 67.09% 55.50% 120 10/31/08 Defeasance
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FREE PREPAY
CALL PROTECTION WINDOW
END DATE (MOS.) ADDRESS CITY STATE ZIP CODE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
08/31/08 0
99, 111 Founders Plaza East Hartford CT 11969
21700 Northwestern Highway Southfield MI 48075
09/30/08 0 9645, 9655, & 9680 Granite Drive San Diego CA 92123
01/31/09 0 16 Owen Street Hartford CT 06105
- ---------------------------------------------------------------------------------------------------------------------------------
09/30/08 0 3400-3470 Highland Avenue San Diego CA 91950
05/31/18 0 6751-6801 Wilson Boulevard Falls Church VA 22044
06/30/08 3 247 E. 28th St. New York NY 10016
01/31/09 0 411 Hotel Circle South San Diego CA 92108
09/30/13 0 100 Hamilton Station Drive Columbus GA 31908
- ---------------------------------------------------------------------------------------------------------------------------------
10/31/08 0 40 Washington Avenue Dumont NJ 07628
12/31/08 0 240 West 35th Street New York NY 10001
07/31/18 0 426-32 S. Norton;427-39 Westminster Los Angeles CA 90020
01/31/09 0
State Route 18 at Wilson Rd West Middlesex PA 16159
739 Leona Street Elyria OH 44035
385 Cherry Blossom Way Georgetown KY 40324
2850 Medina Road Medina OH 44256
- ---------------------------------------------------------------------------------------------------------------------------------
08/31/08 1 117 West 58th Street New York NY 10019
08/31/08 0 Route 8 & Saulsbury Road Dover DE 19904
10/31/08 0 1380 University Avenue Bronx NY 10452
09/30/13 0 4343 Warm Springs Road Columbus GA 31904
09/30/08 0 W/S Quarry Road, Lot 2 Trumbull CT 06611
- ---------------------------------------------------------------------------------------------------------------------------------
01/31/09 0 7050 Kirkman Rd. Orlando FL 32819
09/30/13 0 3841 Mechanicsville Road Doylestown PA 18934
12/31/13 0 580 Broadway New York NY 10012
10/31/13 0 180 Sheree Blvd Uwchlan PA 19341
09/30/13 0 5300 Sidney Simmons Boulevard Columbus GA 31904
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/08 0 2080 York Road Timonium MD 21093
04/30/13 0 16260 Ventura Boulevard Encino CA 91416
12/31/08 0 42 W. 48th Street New York NY 10036
07/31/13 0 155 Spring Street New York NY 10012
09/30/08 0 1900 A-B East Elizabeth Street Brownsville TX 78523
- ---------------------------------------------------------------------------------------------------------------------------------
10/31/13 0 2205-2245 First Street Simi Valley CA 93063
10/31/08 0 1900 East Tropicana Avenue Las Vegas NV 89119
09/30/13 0 182 Summer Street Kingstown MA 02364
09/30/08 0 42 Strathmore & 6, 10, 14 Orkney Road Boston MA 02135
07/31/13 0 1190-165 East Foothill Boulevard Arcadia CA 91006
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/08 0 Swartswood Road Newton NJ 07860
11/30/08 0 SEC Tatum & Greenway Phoenix AZ 85032
11/30/08 0 37 Executive Drive Danbury CT 06810
08/31/08 0 712 North Washington Dallas TX 75223
09/30/08 0 1875 South Willow Street Manchester NH 03103
- ---------------------------------------------------------------------------------------------------------------------------------
09/30/08 1 2929 K Street Sacramento CA 95816
12/31/08 0
822 Baylis Street Duluth MN 55811
2101 21st Avenue South Minneapolis MN 55404
06/30/08 0 3202 Aborn Road San Jose CA 95630
- ---------------------------------------------------------------------------------------------------------------------------------
09/30/08 0 825 First Avenue East West Fargo ND 58078
03/31/08 6 2400 W. 17th Avenue Longmont CO 80503
11/30/13 0 120 Old Post Road Rye NY 10580
11/30/08 0 3117-3157 Stockton Road & 1899 Detroit Avenue Kingman AZ 86401
10/31/13 0 2064-2290 Eastman Avenue Ventura CA 93003
- ---------------------------------------------------------------------------------------------------------------------------------
06/30/08 0 700 Conestoga Drive Marlton NJ 08053
09/30/08 0 14220 Kittridge Street Van Nuys CA 91405
10/31/08 0 3201 14th Street North St. Cloud MN 56303
10/31/08 0 1900-1948 Aborn Road San Jose CA 95121
10/31/08 0 144 East 44th Street New York NY 10017
- ---------------------------------------------------------------------------------------------------------------------------------
08/31/13 0 559-573 Main Street Bethlehem PA 18018
12/31/08 0
1770-1838 Milmont Drive Milpitas CA 95035
1056 Branham Lane San Jose CA 95136
10/31/13 0 2363-2393 Teller Road Newbury Park CA 91320
- ---------------------------------------------------------------------------------------------------------------------------------
11/30/08 0 325 East Main Street Newark DE 19711
07/31/08 0 1601 Schlumberger Drive Moorestown NJ 08057
09/30/08 0 2260-2320 Black Rock Turnpike Fairfield CT 06430
11/30/08 0 801-803 Tilton Road Northfield NJ 08225
11/30/08 0 123 East Main Street Newark DE 19711
- ---------------------------------------------------------------------------------------------------------------------------------
10/31/08 0 3212 North Miller Road Scottsdale AZ 85251
12/31/08 0 3620 Hamilton Boulevard Allentown PA 18103
05/31/08 0 525 Broadway Santa Monica CA 90401
12/31/08 0 318-330 El Camino Real Encinitas CA 92024
12/31/13 0 1223-1231 North Road Niles OH 44446
- ---------------------------------------------------------------------------------------------------------------------------------
10/31/08 0 300 North Essex Avenue Narberth PA 19072
08/31/08 0 219 East Willow Grove Avenue Chestnut Hill PA 19118
07/31/08 0 2222 West Encanto Boulevard Phoenix AZ 85040
12/31/08 0 535- 537 Division Street North Tonawanda (Buffalo) NY 14120
10/31/13 0 65 and 67 West Easy Street Simi Valley CA 93065
- ---------------------------------------------------------------------------------------------------------------------------------
08/31/08 1 1435-1441 Walnut Street Philadelphia PA 19102
10/31/13 0 4495 East Industrial Street Simi Valley CA 93065
07/31/08 0
37 Charles Street New York NY 10014
234 East 81 Street New York NY 10028
105 East 37 Street New York NY 10016
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/08 0
220 Henthorne Drive Village of Palm Springs FL 33461
100 Rex Avenue Village of Palm Springs FL 33461
11/30/08 0 16855 Old Harland Road Lathrop CA 93245
07/31/08 1 300 Main Street Madison NJ 07940
07/31/08 3 7909 Broadway Everett WA 98203
- ---------------------------------------------------------------------------------------------------------------------------------
04/30/13 0 905-989 Lomas Santa Fe Drive San Diego County CA 92075
10/31/05 0 2601 W. Cypress St., 2522, 2530, 2601/2609 W. Holly StPhoenix AZ 85009
06/30/06 0 7841 Ridge Avenue Philadelphia PA 19128
12/31/08 0 1113-1123 First Avenue Seattle WA 98101
09/30/08 0 23 West 61 Street Minneapolis MN 55419
- ---------------------------------------------------------------------------------------------------------------------------------
06/30/08 0 1510-1512 West Park Avenue Houma LA 70364
10/31/08 0 160 Main Street Sanford ME 04073
10/31/13 0 4464 McGrath and 2175 Goodyear Avenye Ventura CA 93003
11/30/08 0 65 North Fullerton Avenue Montclair NJ 07042
10/31/13 0 5039-5065 State Road Saginaw MI 48603
- ---------------------------------------------------------------------------------------------------------------------------------
08/31/08 0 118 Montgomery Avenue Bala Cynwyd PA 19004
01/31/09 0 200-204 2nd Street Santa Monica CA 90401
12/31/08 0 51654 National Road St. Clairsville OH 43950
12/31/08 0 585 North Carolina/Hwy 9 Black Mountain NC 28711
01/31/09 0 1370 Monument Boulevard Concord CA 94520
- ---------------------------------------------------------------------------------------------------------------------------------
10/31/08 0 3344 Castle Heights Ave. Los Angeles CA 90034
12/31/13 0 101 Broadway Santa Monica CA 90401
09/30/13 0 1630-38 12th Street Santa Monica CA 90404
07/31/08 0 1055-1095 Tully Road San Jose CA 95121
12/31/08 0 4833 Hixson Pike Chattanooga TN 37343
- ---------------------------------------------------------------------------------------------------------------------------------
09/30/08 3 64-10 108th Street Forest Hills (Queens) NY 11375
09/30/08 0 1901-2009 Black Rock Turnpike Fairfield CT 06430
07/31/13 0 111-123 Bath Avenue Long Branch NJ 07740
11/30/08 0 13810-14090 NE Sandy Boulevard Portland OR 97230
09/30/13 0 1615 16th Street and 1616 17th Street Santa Monica CA 90403
- ---------------------------------------------------------------------------------------------------------------------------------
09/30/08 0 422 East 32nd Street Holland MI 49423
01/31/14 0 314 Silent Valley Rd Lockhart TX 78644
10/31/13 0 5415-55 Reistertown Road Baltimore MD 21045
09/30/08 0 6822 Oak Hall Lane Columbia MD 21045
12/31/08 0 1106-1112 North La Cienga Boulevard West Hollywood CA 90069
- ---------------------------------------------------------------------------------------------------------------------------------
09/30/13 0 5839 Green Valley Circle Culver City CA 90232
09/30/13 0 5855 Green Valley Circle Culver City CA 90232
06/30/06 0 450 Domino Lane Philadelphia PA 19128
01/31/09 0 1415-1419 2nd Street Santa Monica CA 90401
06/30/13 0 4502-4622 West Indian School Road Phoenix AZ 85031
- ---------------------------------------------------------------------------------------------------------------------------------
08/31/08 0
State Route 7 Unadilla NY 13820
County Route 11 Laurens NY 13820
06/30/08 0 2465 South 19th Avenue Phoenix AZ 85007
10/31/08 0 3424 Simpson Ferry Road Camp Allen PA 17011
=================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CUT-OFF CUT-OFF
NUMBER BALANCE PER BALANCE
PROPERTY TYPE YEAR BUILT/RENOVATED SQUARE FEET OF UNITS SQUARE FOOT PER UNIT OCCUPANCY
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OFFICE
Office 1972 390,106 95.1%
Office 1973 251,683 80.6%
Office 1991 215,503 83.28 99.7%
Multifamily Early 1980's 584 24,143.84 98.1%
- -------------------------------------------------------------------------------------------------------------------
Retail, Anchored 1997 154,668 74.79 100.0%
Retail, Anchored 1996 206,647 52.45 89.6%
Multifamily 1979 128 81,774.55 100.0%
Hotel 1995 - 1997 307 30,944.63 83.1%
Multifamily 1985 - 1987 284 33,333.74 95.1%
- -------------------------------------------------------------------------------------------------------------------
Mixed-Use 1997 54,752 26 171.36 360,851.87 100.0%
Office 1925 160,279 49.89 92.0%
Multifamily 1997 154 48,805.85 100.0%
HOTEL
Hotel 1989 61 68.0%
Hotel 1997 65 68.5%
Hotel 1992 - 1998 67 63.9%
Hotel 1995 79 61.7%
- -------------------------------------------------------------------------------------------------------------------
Multifamily 1995 - 1997 99 70,485.59 97.0%
Retail, Anchored 1998 101,957 68.32 82.8%
Multifamily 1967 139 46,614.00 97.8%
Multifamily 1995 - 1996 172 37,079.19 98.8%
Theater 1994 51,000 124.97 100.0%
- -------------------------------------------------------------------------------------------------------------------
Hotel 1978 355 18,028.17 89.3%
Office 1996 - 1998 63,393 95.96 100.0%
Office 1985 - present 122,100 49.30 99.3%
Office 1988 107,437 55.72 96.6%
Retail, Unanchored 1995 / 1988 128,187 45.12 93.9%
- -------------------------------------------------------------------------------------------------------------------
Retail, Unanchored 1996 59,620 93.88 94.8%
Office 1998 60,001 92.51 87.2%
Office 1994 - 1997 57,086 96.29 100.0%
Mixed-Use 1986 36,240 151.17 84.6%
Hotel 1996 - 1998 272 19,687.27 67.7%
- -------------------------------------------------------------------------------------------------------------------
Industrial/Warehouse 1986 104,202 48.37 97.8%
Multifamily 1997 / 1998 324 15,392.37 93.5%
Retail, Anchored 1996 134,788 36.93 100.0%
Multifamily 1993 - 1998 101 49,234.20 97.0%
Retail, Anchored 1965 56,297 83.13 100.0%
- -------------------------------------------------------------------------------------------------------------------
Multifamily 1972 168 27,362.94 98.2%
Retail, Anchored 1987 106,625 42.21 100.0%
Industrial/Warehouse 1991 278,000 15.81 100.0%
Office 1963 50,710 84.48 93.2%
Retail, Anchored 1991 46,395 92.15 100.0%
- -------------------------------------------------------------------------------------------------------------------
Mixed-Use 1986 61,254 69.23 96.5%
MULTIFAMILY
Multifamily 1972 60 100.0%
Multifamily 1963 - 1966 122 100.0%
Retail, Anchored 1986 26,351 160.17 96.7%
- -------------------------------------------------------------------------------------------------------------------
Manufactured Housing 1978 379 11,111.77 99.2%
Multifamily 1980 108 38,744.37 99.1%
Office 1998 44,708 93.42 100.0%
Retail, Anchored 1973 103,951 39.89 97.8%
Industrial/Warehouse 1983 114,348 36.22 87.2%
- -------------------------------------------------------------------------------------------------------------------
Multifamily 1967 128 32,159.80 95.3%
Multifamily 1987 85 48,091.38 100.0%
Multifamily 1974 203 19,660.65 100.0%
Retail, Unanchored 1998 46,753 85.27 96.1%
Office 1990 51,539 77.35 100.0%
- -------------------------------------------------------------------------------------------------------------------
Mixed-Use 1998 61,567 63.82 97.3%
MULTIPLE PROPERTY TYPE
Retail, Unanchored 1991 19,359 96.4%
Ministorage 1988 23,244 415 100.0%
Industrial/Warehouse 1985 85,204 45.68 98.6%
- -------------------------------------------------------------------------------------------------------------------
Mixed-Use 1998 6,735 42 577.78 92,650.75 92.9%
Industrial/Warehouse 1997 77,700 48.06 100.0%
Mixed-Use 1987 68,054 54.19 98.8%
Retail, Unanchored 1996 47,956 72.87 100.0%
Mixed-Use 1998 15,334 20 227.75 174,619.08 92.3%
- -------------------------------------------------------------------------------------------------------------------
Congregate Care 1986 119,875 135 29.13 25,864.61 98.5%
Hotel 1996 70 49,391.18 74.5%
Office 1988 34,969 98.57 100.0%
Retail, Unanchored 1979 47,609 69.25 97.7%
Multifamily 1971 306 10,941.14 97.7%
- -------------------------------------------------------------------------------------------------------------------
Multifamily 1988 62 52,223.56 100.0%
Multifamily 1998 88 35,664.04 97.7%
Industrial/Warehouse 1975 88,507 34.80 100.0%
Retail, Anchored 1997 80,078 37.75 86.4%
Industrial/Warehouse 1984 61,649 48.16 97.0%
- -------------------------------------------------------------------------------------------------------------------
Office 1980 53,574 53.97 100.0%
Ministorage 1985 82,333 812 33.94 3,441.35 96.9%
MULTIFAMILY
Multifamily 1988 8 100.0%
Multifamily 1988 20 100.0%
Multifamily 1988 7 100.0%
- -------------------------------------------------------------------------------------------------------------------
MULTIFAMILY
Multifamily 1974 56 100.0%
Multifamily 1997 - 1998 40 100.0%
Hotel 1996 66 40,079.81 78.9%
Retail, Anchored 1987 83,850 31.41 97.7%
Ministorage 1970 57,343 601 45.20 4,312.30 92.0%
- -------------------------------------------------------------------------------------------------------------------
Retail, Anchored 1997 213,365 11.64 97.6%
Industrial/Warehouse 1985 150,280 16.40 100.0%
Multifamily 1961 147 16,531.59 97.3%
Mixed-Use 1982 29,820 79.94 100.0%
Multifamily 1998 157 14,926.74 99.4%
- -------------------------------------------------------------------------------------------------------------------
Retail, Anchored 1996 122,009 19.12 100.0%
Mixed-Use 1997 74,325 26 30.86 88,220.01 98.7%
Industrial/Warehouse 1985 65,292 34.77 94.0%
Multifamily 1998 43 51,991.43 100.0%
Retail, Anchored 1970 / 1971 38,139 57.48 100.0%
- -------------------------------------------------------------------------------------------------------------------
Multifamily 1954 50 43,532.60 98.0%
Mixed-Use 1990 14,553 5 149.45 435,000.00 100.0%
Hotel 1997 65 32,283.04 70.0%
Hotel 1995 57 33,308.40 63.8%
Hotel 1984 42 47,619.05 78.2%
- -------------------------------------------------------------------------------------------------------------------
Multifamily 1989 34 58,682.68 100.0%
Mixed-Use 1994 6,710 12 297.25 166,212.54 100.0%
Office 1997 19,335 100.26 100.0%
Retail, Unanchored 1985 17,061 107.75 100.0%
Hotel 1994 57 32,075.04 67.0%
- -------------------------------------------------------------------------------------------------------------------
Retail, Anchored 1955 49,383 36.43 100.0%
Retail, Anchored 1959 - 1970 106,716 16.81 100.0%
Multifamily 1953 80 22,089.82 97.5%
Retail, Unanchored 1987 28,191 59.31 91.5%
Office 1997 14,438 113.56 100.0%
- -------------------------------------------------------------------------------------------------------------------
Hotel 1987 71 22,440.62 50.2%
Manufactured Housing 1984 191 7,853.40 93.2%
Retail, Unanchored 1993 44,000 33.82 100.0%
Office 1978 40,000 36.64 100.0%
Retail, Unanchored 1989 15,316 98.55 100.0%
- -------------------------------------------------------------------------------------------------------------------
Office 1979 30,152 46.28 97.1%
Office 1978 41,006 34.03 89.5%
Multifamily 1963 86 16,147.13 96.5%
Office 1995 12,200 106.56 100.0%
Industrial/Warehouse 1988 83,498 15.52 96.6%
- -------------------------------------------------------------------------------------------------------------------
MANUFACTURED HOUSING
Manufactured Housing 1990 54 97.4%
Manufactured Housing 1990 74 97.4%
Industrial/Warehouse 1985 174,500 6.05 94.0%
Retail, Unanchored 1983 11,220 65.77 100.0%
===================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ANNUAL
ANNUAL REPLACEMENT REPLACEMENT
OCCUPANCY RESERVES PER SQUARE RESERVES PER
DATE FOOT (B) UNIT (B)
- -----------------------------------------------------------------
<S> <C> <C>
12/11/98 0.20
11/30/98 0.20
11/02/98 -
10/01/98 250.00
- -----------------------------------------------------------------
01/06/99 -
09/30/98 -
11/09/98 328.13
10/31/98 1,078.30
12/22/98 -
- -----------------------------------------------------------------
09/01/98 0.27 565.91
12/01/98 0.20
09/30/98 300.00
10/31/98 696.59
10/31/98 720.61
10/31/98 511.66
10/31/98 692.96
- -----------------------------------------------------------------
09/01/98 -
10/16/98 0.11
07/14/98 250.00
07/31/98 -
11/01/98 0.15
- -----------------------------------------------------------------
10/31/98 815.66
08/12/98 0.05
12/01/98 -
10/13/98 0.15
10/30/98 0.15
- -----------------------------------------------------------------
09/30/98 -
10/01/98 0.15
12/01/98 0.20
10/01/98 0.26
08/31/98 509.68
- -----------------------------------------------------------------
08/14/98 0.15
08/05/98 -
07/01/98 0.15
10/15/98 250.00
10/28/98 0.15
- -----------------------------------------------------------------
12/07/98 250.00
09/11/98 0.07
09/16/98 0.10
10/01/98 -
09/11/98 0.15
- -----------------------------------------------------------------
08/24/98 0.20
10/01/98 250.00
10/15/98 250.00
09/30/98 0.18
- -----------------------------------------------------------------
07/01/98 50.00
06/30/98 200.00
10/01/98 0.15
09/18/98 0.15
08/14/98 0.15
- -----------------------------------------------------------------
10/06/98 225.00
10/28/98 265.00
11/17/98 250.00
09/10/98 0.15
06/01/98 -
- -----------------------------------------------------------------
08/13/98 0.15
09/01/98 0.15
09/21/98 0.15 8.39
08/13/98 0.15
- -----------------------------------------------------------------
10/27/98 1.71 273.48
05/01/98 0.15
10/13/98 0.15
10/28/98 0.15
10/27/98 0.48 365.08
- -----------------------------------------------------------------
09/29/98 - -
08/31/98 1,100.00
08/01/98 0.21
11/19/98 0.15
11/25/98 250.00
- -----------------------------------------------------------------
10/05/98 225.00
10/05/98 252.84
06/08/98 0.15
10/01/98 0.15
08/14/98 0.15
- -----------------------------------------------------------------
07/09/98 0.10
08/16/98 0.15 15.21
10/07/98 1,093.76
10/07/98 -
10/07/98 -
- -----------------------------------------------------------------
11/01/98 250.00
11/01/98 250.00
04/01/98 550.78
09/24/98 0.15
11/14/98 0.15 13.84
- -----------------------------------------------------------------
12/07/98 -
10/21/98 0.20
10/01/98 225.00
11/24/98 -
09/01/98 275.00
- -----------------------------------------------------------------
09/29/98 0.15
08/15/98 0.15 428.80
08/14/98 0.15
10/26/98 268.00
09/30/98 0.15
- -----------------------------------------------------------------
10/06/98 225.00
12/28/98 0.17 494.81
10/31/98 791.37
12/31/97 718.00
09/30/98 991.88
- -----------------------------------------------------------------
10/13/98 202.00
11/06/98 0.60 334.00
09/21/98 0.15
10/13/98 0.23
09/30/98 752.00
- -----------------------------------------------------------------
10/22/98 0.15
10/13/98 -
06/30/98 250.00
09/01/98 0.37
06/24/98 0.15
- -----------------------------------------------------------------
09/30/98 615.00
11/01/98 50.01
07/01/98 0.15
10/01/98 0.22
12/21/98 0.33
- -----------------------------------------------------------------
11/02/98 0.25
11/02/98 0.21
10/01/98 225.00
12/08/98 0.15
10/01/98 -
- -----------------------------------------------------------------
03/16/98 50.00
03/16/98 50.00
07/15/98 -
07/06/98 0.16
=================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LARGEST TENANT LARGEST TENANT 2ND LARGEST TENANT
LARGEST TENANT SQUARE FEET EXPIRATION 2ND LARGEST TENANT SQUARE FEET
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fleet Bank 148,000 12/31/06 Phoenix Home Life 44,882
Health Alliance Plan "HAP" 60,626 01/01/99 Lutheran Social Service 37,201
ITT Technical Institute 39,534 02/01/09 Paychex 23,329
- ----------------------------------------------------------------------------------------------------------------------
Auto Parts Club 42,560 08/31/08 Office Depot 30,686
Ames 77,120 07/01/16 Olympus Gym 20,000
- ----------------------------------------------------------------------------------------------------------------------
Grand Union 44,282 10/31/17 Health Net 4,275
Mary McFadden 15,100 06/30/02 One Notch Up 8,500
- ----------------------------------------------------------------------------------------------------------------------
Food Lion 37,909 11/30/17 Goodwill 12,000
Crown Theaters L.P. 51,000 11/30/14
- ----------------------------------------------------------------------------------------------------------------------
DVI Inc. 27,604 08/14/07 Merrill Lynch 9,610
Zara International, Ltd 18,800 01/20/10 Lee, Lin & Tong 9,600
Bell Atlantic 24,176 04/30/01 Allstate 18,118
Supervalue 43,700 04/30/08 Office Depot 27,256
- ----------------------------------------------------------------------------------------------------------------------
US Martial Arts 6,108 12/31/00 Bryn Mawr 5,436
Pejman Salimpour 6,519 07/31/02 Indianer, Lasa, Rosen 4,829
NYC OTB Corp 4,820 12/31/04 Christopher Designes 4,098
Country Road 7,750 03/31/03 Smatt Florence 6,198
- ----------------------------------------------------------------------------------------------------------------------
Frederick Klingenstein 8,736 01/31/99 Robert Williams 5,341
Victory Supermarket 60,000 07/31/11 Ocean State Job Lot 27,768
Vons 24,600 02/01/02 Thrifty Drug 17,000
- ----------------------------------------------------------------------------------------------------------------------
Safeway 42,215 05/05/04 Walgreens 13,000
Pitney Bowes 278,000 09/30/02
Texas Cardiology 12,342 11/30/02 The Arthritis Centers 6,506
Sears Home Life 36,767 07/31/00 Pizzeria Uno 6,312
- ----------------------------------------------------------------------------------------------------------------------
UC Davis Extension 21,981 12/31/05 John Robert Powers 10,000
Blockbuster Video 4,524 08/31/02 Round Table Pizza 4,000
- ----------------------------------------------------------------------------------------------------------------------
Mobius Management Systems Inc 44,708 02/28/08
Safeway 37,325 03/31/99 JC Penney's 20,200
Jaycor 6,008 10/31/99 Implantech Association 5,832
- ----------------------------------------------------------------------------------------------------------------------
Maxim Supermarket 19,063 08/27/08 Goldilocks Bakery 2,093
Duane Reade 8,800 05/01/06 Lucent Technology 7,200
- ----------------------------------------------------------------------------------------------------------------------
Cabot Marsh 22,160 05/08/08 Bethlehem Beer Works 7,511
Classic Components 5,064 04/01/00 RM Controls 3,474
- ----------------------------------------------------------------------------------------------------------------------
Delaware Eye Care 4,375 05/31/13 Plant Wholesale 1,180
Schlumberger Technologies 77,700 04/15/03
Sprouts 8,625 02/20/02 Fairmart Drugs 8,000
World Gym 14,993 07/14/07 Big M, Inc. 9,815
The Learning Station 11,460 08/31/08 Mellon Bank 1,500
- ----------------------------------------------------------------------------------------------------------------------
Berlitz International 12,275 06/30/06 Western Mutual Insurance 8,193
El Camino Transmission 8,300 07/31/03 Fender Mender 8,260
- ----------------------------------------------------------------------------------------------------------------------
Department of Economic Security (DES) 44,987 06/30/02 John H. Harland Co. 33,076
Jubilee Foods 36,915 07/08/05 DeGraff Hospital 12,113
World Circuit 11,921 02/28/99 Paul Teagle 7,632
- ----------------------------------------------------------------------------------------------------------------------
Holiday Universal 20,662 05/31/10 Tele America Media, Inc. 6,308
N/A N/A
- ----------------------------------------------------------------------------------------------------------------------
Staples, Inc. 24,000 01/31/02 Plaza Lanes 22,500
- ----------------------------------------------------------------------------------------------------------------------
Vons 49,895 12/31/17 Ross Store 30,531
Engine Supply Co. 150,280 02/24/08
Fine - Com Corporation 6,540 04/15/01 La Fiesta Inc. 4,477
- ----------------------------------------------------------------------------------------------------------------------
Kmart 92,039 11/30/01 A&P (Weiners) 29,970
State of Maine 14,296 05/15/08 Body Works 9,325
Pamela Stephens 7,000 08/31/99 Michael Janowski 4,840
Arbor Drugs 10,500 05/31/00 Panorama Videos 7,650
- ----------------------------------------------------------------------------------------------------------------------
Jigsaw 5,105 10/31/01 W/F Tudor House 3,862
- ----------------------------------------------------------------------------------------------------------------------
Rebecca's 3,250 01/31/04 Sit Still 1,100
Radical Media 19,335 06/30/07
Pho Kin 2,514 12/31/03 Apple Video 2,226
- ----------------------------------------------------------------------------------------------------------------------
Waldbaums Supermarket 20,815 12/03/99 Rainbow 7,280
Shaw's 38,675 01/31/01 United Home Care 16,550
H&H Kids 7,400 09/30/07 Royal Garden Restaurant 4,000
Adventure Film & Tape 7,219 01/14/03 Admusic Inc. 7,219
- ----------------------------------------------------------------------------------------------------------------------
Zion Temple 12,171 01/31/03 Murray's Steaks (Food Marke 11,000
MAI - Chaimson, Inc. 40,000 12/31/10
LA Health Management 3,800 08/30/03 Head Shot Photo 3,033
- ----------------------------------------------------------------------------------------------------------------------
Walker Associates West 5,023 03/31/00 Transcriptions Unlimited 4,858
Paragon 2,938 10/09/03 S.O.S. Enterprises 2,457
Silicon Graphics 8,600 12/31/99 Silcon Graphics 3,600
Ariz Fitness 13,824 08/31/03 La Mansion 20,738
- ----------------------------------------------------------------------------------------------------------------------
Smith Moulding 35,750 01/31/03 Globe Furniture 33,000
Sunrise Computers 5,400 05/31/02 Mr. Mattress 4,000
======================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2ND LARGEST
2ND LARGEST TENANT TENANT CROSS- CROSS-COLLATERAL RELEASE
SQUARE FEET EXPIRATION COLLATERALIZED DESCRIPTION PROVISIONS RELEASE PROVISION TERMS TAX ESCROW
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YES MULTIPLE PROPERTIES
44,882 05/31/02 Yes Multiple Properties Yes 1.38x DSCR at Par Yes
37,201 12/15/07 Yes Multiple Properties Yes 1.38x DSCR at Par Yes
23,329 03/01/01 No No Yes
No No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
30,686 04/30/12 No No Yes
20,000 02/01/02 No No Yes
No No Yes
No No Yes
No No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
4,275 06/30/02 No No Yes
8,500 05/31/04 No No Yes
No No Yes
YES MUTIPLE PROPERTIES
Yes Mutiple Properties Yes 2.05x DSCR - 125% Defeasance Release Yes
Yes Mutiple Properties Yes 2.05x DSCR - 125% Defeasance Release Yes
Yes Mutiple Properties Yes 2.05x DSCR - 125% Defeasance Release Yes
Yes Mutiple Properties Yes 2.05x DSCR - 125% Defeasance Release Yes
- -----------------------------------------------------------------------------------------------------------------------------------
No No No
12,000 09/30/03 No No Yes
No No Yes
No No Yes
No No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
No No Yes
9,610 04/30/08 No No Yes
9,600 02/28/02 No No Yes
18,118 09/30/02 No No Yes
27,256 07/01/10 No No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
5,436 09/30/00 No No Yes
4,829 07/31/02 No No Yes
4,098 04/30/00 No No Yes
6,198 06/30/03 No No Yes
No No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
5,341 07/31/99 No No Yes
No No
27,768 02/28/03 No No No
No No Yes
17,000 08/31/21 No No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
No No Yes
13,000 03/31/15 No No Yes
No No No
6,506 09/30/02 No No Yes
6,312 09/30/10 No No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
10,000 02/28/08 No No No
YES MUTIPLE PROPERTIES
Yes Mutiple Properties Yes 1.48x DSCR - 125% Defeasance Release Yes
Yes Mutiple Properties Yes 1.48x DSCR - 125% Defeasance Release Yes
4,000 01/31/01 No No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
No No Yes
No No Yes
No No Yes
20,200 03/01/04 No No Yes
5,832 01/31/99 No No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
No No Yes
No No Yes
No No Yes
2,093 08/27/03 No No Yes
7,200 06/30/00 No No No
- -----------------------------------------------------------------------------------------------------------------------------------
7,511 04/19/08 No No Yes
YES MULTIPLE PROPERTIES
Yes Multiple Properties Yes 125% Defeasance Release Yes
Yes Multiple Properties Yes 125% Defeasance Release No
3,474 09/30/00 No No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
1,180 09/14/03 No No Yes
No No No
8,000 01/31/00 No No Yes
9,815 01/31/03 No No Yes
1,500 11/30/08 No No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
No No Yes
No No Yes
8,193 04/30/99 No No Yes
8,260 03/31/04 No No Yes
No No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
No No Yes
No No Yes
33,076 08/01/00 No No Yes
12,113 08/31/05 No No Yes
7,632 11/30/98 No No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
6,308 03/31/08 No No Yes
No No Yes
YES MULTIPLE PROPERTIES
Yes Multiple Properties No Yes
Yes Multiple Properties No Yes
Yes Multiple Properties No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
YES MUTIPLE PROPERTIES
Yes Mutiple Properties Yes 1.46x DSCR - 125% Defeasance Release Yes
Yes Mutiple Properties Yes 1.46x DSCR - 125% Defeasance Release Yes
No No Yes
22,500 09/30/01 No No Yes
No No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
30,531 01/31/03 No No Yes
No No Yes
No No Yes
4,477 07/31/04 No No Yes
No No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
29,970 09/30/04 No No Yes
9,325 11/30/04 No No Yes
4,840 04/30/00 No No Yes
No No Yes
7,650 12/31/00 No No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
No No Yes
3,862 01/31/00 No No Yes
No No Yes
No No Yes
No No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
No No Yes
1,100 09/25/99 No No Yes
No No Yes
2,226 01/31/99 No No Yes
No No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
7,280 02/28/04 No No Yes
16,550 07/31/00 No No
No No Yes
4,000 09/30/04 No No Yes
7,219 01/31/08 No No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
No No Yes
No No Yes
11,000 07/31/02 No No Yes
No No Yes
3,033 12/31/03 No No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
4,858 09/30/03 No No Yes
2,457 08/14/99 No No Yes
No No Yes
3,600 12/31/00 No No Yes
20,738 02/28/03 No No Yes
- -----------------------------------------------------------------------------------------------------------------------------------
NO
No No Yes
No No Yes
33,000 01/31/99 No No Yes
4,000 11/18/02 No No Yes
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INSURANCE REPLACEMENT
ESCROW ESCROW SPRINGING ESCROW DESCRIPTION
- ----------------------------------------------------------------
<S> <C> <C>
Yes Yes
Yes Yes
No Yes Insurance
Yes Yes
- ----------------------------------------------------------------
No Yes Insurance
Yes No Replacement Reserve
Yes Yes
Yes Yes
Yes No Replacement Reserve
- ----------------------------------------------------------------
Yes Yes
No Yes
Yes Yes
Yes Yes
Yes Yes
Yes Yes
Yes Yes
- ----------------------------------------------------------------
No No Replacement Reserve, Tax, Insurance
Yes Yes
Yes Yes
Yes No Replacement Reserve
Yes Yes
- ----------------------------------------------------------------
Yes Yes
Yes Yes
Yes Yes Replacement Reserve
Yes Yes
Yes Yes
- ----------------------------------------------------------------
No Yes
No Yes Insurance
Yes Yes
Yes Yes
Yes Yes
- ----------------------------------------------------------------
Yes Yes
No Yes Tax & Insurance
Yes Yes
Yes Yes
- ----------------------------------------------------------------
Yes Yes
Yes Yes
No Yes Tax & Insurance
Yes No Replacement Reserve
Yes Yes
- ----------------------------------------------------------------
No Yes Tax, Insurance, Ground Rent
Yes Yes
Yes Yes
Yes Yes
- ----------------------------------------------------------------
Yes Yes
No Yes Insurance
Yes Yes
Yes Yes
Yes Yes
- ----------------------------------------------------------------
No Yes Insurance
No Yes Insurance
Yes Yes
Yes Yes
No No Replacement Reserve, Tax & Insurance
- ----------------------------------------------------------------
Yes Yes
Yes Yes
No No
Yes Yes
- ----------------------------------------------------------------
Yes Yes
No Yes Tax & Insurance
Yes Yes Replacement Reserve, Tax, Insurance
Yes Yes
Yes Yes
- ----------------------------------------------------------------
No No Replacement Reserve, Insurance
Yes Yes
Yes Yes
Yes Yes
No Yes
- ----------------------------------------------------------------
No Yes Insurance
Yes Yes
Yes Yes
Yes Yes
Yes Yes
- ----------------------------------------------------------------
No Yes Insurance
Yes Yes
Yes Yes
Yes Yes
Yes Yes
- ----------------------------------------------------------------
Yes Yes
Yes Yes
Yes Yes
No Yes Insurance
Yes Yes
- ----------------------------------------------------------------
No Yes Insurance
Yes Yes
No Yes Insurance
Yes No Replacement Reserve
Yes Yes
- ----------------------------------------------------------------
Yes Yes
Yes Yes
Yes Yes
Yes Yes
Yes Yes
- ----------------------------------------------------------------
No Yes Insurance
Yes Yes
Yes Yes
Yes Yes
Yes Yes
- ----------------------------------------------------------------
No Yes Insurance
Yes Yes
Yes Yes
Yes Yes
Yes Yes
- ----------------------------------------------------------------
No Yes Springing to $20,000 per annum
Replacement Reserve, Tax, Ins
Yes Yes
Yes Yes
Yes Yes
- ----------------------------------------------------------------
Yes Yes
Yes Yes
Yes Yes
Yes Yes
No Yes
- ----------------------------------------------------------------
Yes Yes
Yes Yes
No Yes Insurance
Yes Yes
No No Insurance
- ----------------------------------------------------------------
Yes Yes
Yes Yes
No No Insurance
Yes Yes
================================================================
</TABLE>
(a) 1998 Net Operating Income reflects the property's historical operating
performance over the most recent twelve month period for which operating
statements are available. 1997 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 1997.
(b) In certain limited cases, the Annual Replacement Reserves per Square Foot or
Unit may represent a single initial deposit made by the borrower at the closing
of the related Mortgage Loan.
Note: With respect to loan numbers 5193, 6073, 9125 and 9586, 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.
<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>
CSSA Property Data File
Exhibit-11
B-22
<PAGE>
CSSA Property Data File
Exhibit-11
B-23
<PAGE>
CSSA Property Data File
Exhibit-11
B-24
<PAGE>
CSSA Property Data File
Exhibit-11
B-25
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<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>
</TABLE>
C-1
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<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. Multifamily properties
(consisting of multiple rental or cooperatively owned dwellings), office
properties and 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 August 18, 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
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<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 Multifamily Rental Properties ..................................... 21
Risks Particular to Cooperatively-Owned Apartment Buildings. .......................... 21
Risks Particular to Retail Properties ................................................. 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 Loans .............................................................. 25
DESCRIPTION OF THE TRUST FUNDS ........................................................... 25
General ................................................................................ 25
Mortgage Loans ......................................................................... 26
General .............................................................................. 26
Mortgage Loans Secured by Multifamily Rental Properties .............................. 26
Mortgage Loans Secured by Cooperatively-Owned Apartment Buildings .................... 27
Mortgage Loans Secured by Retail Properties .......................................... 28
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
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Additional Certificate Amortization ............................................... 38
Optional Early Termination ........................................................ 38
THE DEPOSITOR ......................................................................... 38
USE OF PROCEEDS ....................................................................... 39
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
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS .................................. 63
General ................................................................ 63
Types of Mortgage Instruments .......................................... 63
Leases and Rents ....................................................... 64
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
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Tax-Related Restrictions on Transfer of Residual Certificates .................. 89
Disqualified Organizations ..................................................... 89
Noneconomic Residual Interests ................................................. 90
Foreign Investors .............................................................. 91
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,
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<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
<PAGE>
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.
16
<PAGE>
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
17
<PAGE>
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.
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RATING
It is a condition to the issuance of any class of Offered Certificates
that they shall have been rated not lower than investment grade, that is, in
one of the four highest rating categories, by at least one Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by the holders thereof of all collections on the underlying mortgage
assets to which such holders are entitled. These ratings address the
structural, legal and issuer-related aspects associated with such certificates,
the nature of the underlying mortgage assets and the credit quality of the
guarantor, if any. Ratings on mortgage pass-through certificates do not
represent any assessment of the likelihood of principal prepayments by
borrowers or of the degree by which such prepayments might differ from those
originally anticipated. As a result, certificateholders might suffer a lower
than anticipated yield, and, in addition, holders of stripped interest
certificates in extreme cases might fail to recoup their initial investments.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating organization. Each security rating should be evaluated independently of
any other security rating.
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INDEX OF SIGNIFICANT DEFINITIONS
<TABLE>
<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
</TABLE>
109
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
110
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
111
<PAGE>
<TABLE>
<S> <C>
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>
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 "BS99C1.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 January 20, 1999 (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>
- -------------------------------------------------------------------------------
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
OF 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 ...................................... S-5
Risk Factors ................................. S-24
Description of the Mortgage Pool ............. S-36
Description of the Certificates .............. S-60
Yield and Maturity Considerations ............ S-88
Servicing of the Mortgage Loans .............. S-95
Certain Federal Income Tax Consequences....... S-109
Method of Distribution ....................... S-110
Legal Matters ................................ S-110
Ratings ...................................... S-111
Legal Investment Considerations .............. S-111
ERISA Considerations ......................... S-111
Index of Principal Definitions ............... S-114
Mortgage Loan Schedule ....................... ANNEX A
Forms of Servicing Reports ................... ANNEX B
Interest Reserve Loans ....................... ANNEX C
PROSPECTUS
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>
$439,763,663
BEAR STEARNS COMMERCIAL
MORTGAGE SECURITIES INC.
DEPOSITOR
COMMERCIAL MORTGAGE PASS-THROUGH
CERTIFICATES, SERIES 1999-C1
<TABLE>
<CAPTION>
<S> <C>
CLASS A-1 CERTIFICATES ......... $ 89,632,000
CLASS A-2 CERTIFICATES ......... $280,821,086
CLASS B CERTIFICATES ........... $ 23,900,199
CLASS C CERTIFICATES ........... $ 17,925,149
CLASS D CERTIFICATES ........... $ 21,510,179
CLASS E CERTIFICATES ........... $ 5,975,050
</TABLE>
---------------------
PROSPECTUS SUPPLEMENT
---------------------
[LOGO OF BEAR STERNS]
, 1999
BEAR, STEARNS & CO. INC.
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