<PAGE>
Filed Pursuant to Rule 424(b)(2)
Registration File No.: 33-18961
THIS INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND PROSPECTUS ARE NOT COMPLETE
AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL A FINAL PROSPECTUS
SUPPLEMENT AND PROSPECTUS HAVE BEEN DELIVERED TO YOU. THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS ARE NOT AN OFFER TO SELL THESE
SECURITIES AND ARE NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 28, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 28, 1998)
[GRAPHIC OMITTED]
$1,167,301,785 (APPROXIMATE)
CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
DEPOSITOR
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-2
--------------
Chase Commercial Mortgage Securities Corp. is offering certain classes of the
Series 1998-2 Commercial Mortgage Pass-Through Certificates, which represent
the beneficial ownership interests in a trust. The trust's assets will
primarily be 99 mortgage loans secured by first liens on 120 commercial and
multifamily properties and are generally the sole source of payments on the
certificates. The Series 1998-2 Certificates are not obligations of Chase
Commercial Mortgage Securities Corp. or any of its affiliates, and neither the
certificates nor the underlying mortgage loans are insured or guaranteed by any
governmental agency or any other person or entity.
--------------
Certain characteristics of the offered certificates include:
<TABLE>
<CAPTION>
INITIAL CLASS CERTIFICATE
BALANCE OR PASS- RATE
NOTIONAL AMOUNT (1) THROUGH RATE DESCRIPTION
--------------------------- -------------- -------------
<S> <C> <C> <C>
Class A-1 ......... $ 175,000,000 Fixed
Class A-2 ......... $ 426,000,000 Fixed
Class A-3 ......... $ 336,721,655 Fixed
Class X ........... $1,293,409,180 (2) Variable/IO
Class B ........... $ 64,670,459 Fixed
Class C ........... $ 71,137,505 Fixed
Class D ........... $ 74,371,028 Fixed
Class E ........... $ 19,401,138 Fixed
<CAPTION>
EXPECTED
ASSUMED FINAL RATINGS RATED FINAL
DISTRIBUTION DATE (3) (S&P/DCR) DISTRIBUTION DATE (4)
----------------------- ----------- ----------------------
<S> <C> <C> <C>
Class A-1 ......... July 18, 2007 AAA/AAA November 18, 2030
Class A-2 ......... October 18, 2008 AAA/AAA November 18, 2030
Class A-3 ......... November 18, 2008 AAA/AAA November 18, 2030
Class X ........... April 18, 2023 AAAr/AAA November 18, 2030
Class B ........... November 18, 2008 AA/AA November 18, 2030
Class C ........... November 18, 2008 A/A November 18, 2030
Class D ........... November 18, 2008 BBB/BBB November 18, 2030
Class E ........... November 18, 2008 BBB-/BBB- November 18, 2030
</TABLE>
- ---------
(Footnotes to table on page S-5)
--------------
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved of the offered certificates or determined if this
prospectus supplement or the accompanying prospectus are truthful or complete.
Any representation to the contrary is a criminal offense.
--------------
Chase Commercial Mortgage Securities Corp. will not list the offered
certificates on any national securities exchange or on any automated quotation
system of any registered securities association such as NASDAQ.
--------------
INVESTING IN THE OFFERED CERTIFICATES INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE S-27 IN THIS PROSPECTUS SUPPLEMENT AND PAGE 17 OF THE
PROSPECTUS.
--------------
The offered certificates are being offered by Chase Commercial Mortgage
Securities Corp. through Chase Securities Inc., the underwriter, which has
agreed to use its reasonable best efforts to solicit offers to purchase the
offered certificates, however, the underwriter is not required to sell any
dollar amount or number of certificates. The underwriter may also purchase
offered certificates as principal. Any offered certificates so purchased by the
underwriter will be resold by it in a manner similar to those offered
certificates offered through the underwriter as agent. Chase Commercial
Mortgage Securities Corp. reserves the right to withdraw, cancel or modify the
offer made hereby without notice. Chase Commercial Mortgage Securities Corp. or
the underwriter may reject any offer to purchase the offered certificates, in
whole or in part.
--------------
CHASE SECURITIES INC.
NOVEMBER , 1998
<PAGE>
CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-1
GEOGRAPHIC OVERVIEW OF MORTGAGE POOL
MISSOURI ILLINOIS WISCONSIN INDIANA
2 properties 3 properties 1 property 1 property
$22,680,339 $7,816,521 $6,861,632 $1,475,799
1.82% of total 0.60% of total 0.53% of total 0.11% of total
MICHIGAN NEW YORK NEW HAMPSHIRE PENNSYLVANIA
2 properties 14 properties 2 properties 2 properties
$15,417,308 $155,171,160 $7,235,305 $18,098,549
1.19% of total 12.00% of total 0.56% of total 1.40% of total
OHIO MASSACHUSETTS CONNECTICUT NEW JERSEY
9 properties 7 properties 2 properties 5 properties
$80,079,562 $259,911,685 $24,219,126 $46,459,973
6.19% of total 20.10% of total 1.87% of total 3.59% of total
MARYLAND VIRGINIA NORTH CAROLINA GEORGIA
1 property 8 properties 4 properties 6 properties
$140,000,000 $117,632,421 $12,184,818 $32,588,892
10.82% of total 9.09% of total 0.94% of total 2.52% of total
FLORIDA TENNESSEE ALABAMA KENTUCKY
10 properties 3 properties 1 property 1 property
$48,000,861 $8,937,111 $1,769,203 $1,965,782
3.71% of total 0.69% of total 0.14% of total 0.15% of total
LOUISIANA KANSAS TEXAS COLORADO
3 properties 1 property 8 properties 2 properties
$11,459,933 $1,584,025 $47,219,533 $12,027,106
0.89% of total 0.12% of total 3.65% of total 0.93% of total
ARIZONA UTAH NEVADA CALIFORNIA
2 properties 1 property 2 properties 16 properties
$26,747,012 $956,856 $11,851,765 $158,006,904
2.07% of total 0.07% of total 0.92% of total 12.22% of total
WASHINGTON
1 property
$15,050,000
1.16% of total
-------------------------------------------------------------
less 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 [ ]
greater than or equal to 1.00% of Initial Pool Balance [ ]
-------------------------------------------------------------
S-2
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information about the offered certificates is contained in two separate
documents that progressively provide more detail: (a) the accompanying
prospectus, which provides general information, some of which may not apply to
the offered certificates; and (b) this prospectus supplement, which describes
the specific terms of the offered certificates. IF THE TERMS OF THE OFFERED
CERTIFICATES VARY BETWEEN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT.
You should rely only on the information contained in this prospectus
supplement and the accompanying prospectus. We have not authorized anyone to
provide you with information that is different from that contained in this
prospectus supplement and the prospectus. The information in this prospectus
supplement is accurate only as of the date of this prospectus supplement.
This prospectus supplement begins with several introductory sections
describing the Series 1998-2 certificates and the trust in abbreviated form:
Summary of Certificates, commencing on page S-5 of this prospectus
supplement, which sets forth important statistical information relating to
the certificates;
Summary of Terms, commencing on page S-9 of this prospectus supplement,
which gives a brief introduction of the key features of the Series 1998-2
certificates and a description of the mortgage loans; and
Risk Factors, commencing on page S-27 of this prospectus supplement,
which describe risks that apply to the Series 1998-2 certificates which are
in addition to those described in the prospectus with respect to the
securities issued by the trust generally.
This prospectus supplement and the accompanying prospectus include cross
references to sections in these materials where you can find further related
discussions. The Tables of Contents in this prospectus supplement and the
prospectus identify the pages where these sections are located.
Certain capitalized terms are defined and used in this prospectus
supplement and the prospectus to assist you in understanding the terms of the
offered certificates and this offering. The capitalized terms used in this
prospectus supplement are defined on the pages indicated under the caption
"Index of Principal Definitions" beginning on page S-124 in this prospectus
supplement. The capitalized terms used in the prospectus are defined on the
pages indicated under the caption "Index of Principal Definitions" beginning on
page 107 in the prospectus.
In this prospectus supplement, the terms "Depositor," "we," "us" and "our"
refer to Chase Commercial Mortgage Securities Corp.
S-3
<PAGE>
STRUCTURAL OVERVIEW
Administrative fees
-------------------
Paid to
servicers
and
trustee
$1,293.4MM
Principal
Weighted and net
average net interest
mortgage rate payments
(6.93% from the
as of the mortgage
Cut-off loans
Date) paid to
the trust
1.52x DSCR $175.0MM
68.6% LTV
Class A-1
AAA(2)
5.0 yr WAL
% PTR
$1,293.4MM (notional) Class X, AAAr (S&P)/AAA (DCR)(1)
- -----------------------------------------------------------------------------
$426.0MM $336.7MM $64.7MM $71.1MM
Class A-2 Class A-3 Class B Class C
AAA AAA AA A
9.5 yr WAL 9.9 yr WAL 10.0 yr WAL 10.0 yr WAL
% PTR % PTR % PTR % PTR
2.09x DSCR(5) 1.96x DSCR 1.83x DSCR
49.7% LTV (5) 53.1% LTV 56.9% LTV
27.50% ICS(5) 22.50% ICS 17.00% ICS
$74.4MM $19.4MM $126.1MM
Class D Class E
BBB BBB- Non-offered
Certificates
10.0 yr WAL 10.0 yr WAL
% PTR % PTR % PTR(6)
1.71x DSCR 1.68x DSCR 1.52x DSCR
60.9% LTV 61.9% LTV 68.6% LTV
11.25% ICS 9.75% ICS
- -------------------------------Distributions(3)--------------------------------
- -----------------------------------Losses(4)-----------------------------------
- ------------
Footnotes:
- ----------
"PTR" means Pass-Through Rate.
"WAL" means weighted average life, expressed in years and based on the
assumptions set forth in footnote 5 on page S-5.
"DSCR" means the ratio of (x) aggregate property underwritten cash flow
to (y) the aggregate debt service on the mortgage pool or
certificates and the certificates more senior to such
certificates, as the case may be.
"LTV" means the ratio of (x) aggregate balance of the mortgage pool or
certificates and the certificates more senior to such
certificates, as the case may be, to (y) the aggregate appraised
value of the mortgage pool.
"ICS" means the initial credit support levels, or subordination
levels, for each class of certificates.
(1) The Pass-Through Rate on the Class X certificates will generally
equal (x) the weighted average net mortgage rate (adjusted, if
necessary, to a 30/360 rate), less (y) the weighted average
Pass-Through Rate on all classes.
(2) For Class A-1 through E, represents ratings by both S&P and DCR.
(3) Distributions will be made in sequential order, or from left to
right in the chart above.
(4) Losses will be allocated in reverse sequential order, or from
right to left in the chart above.
(5) Information regarding the DSCR, LTV and ICS for the Class A
certificates is presented on an aggregate basis.
(6) Subject to a cap equal to the weighted average net mortgage rate
(adjusted, if necessary, to a 30/360 rate).
S-4
<PAGE>
SUMMARY OF CERTIFICATES
<TABLE>
<CAPTION>
INITIAL AGGREGATE ASSUMED
CERTIFICATE PASS-THROUGH FINAL
BALANCE OR RATE DISTRIBUTION
CLASS NOTIONAL AMOUNT (1) DESCRIPTION DATE (3)
<S> <C> <C> <C>
Senior Classes
A-1 $ 175,000,000 Fixed 7/18/07
A-2 $ 426,000,000 Fixed 10/18/08
A-3 $ 336,721,655 Fixed 11/18/08
X $1,293,409,180 Variable (Interest Only)(2) 4/18/23
Subordinate Classes
B $ 64,670,459 Fixed 11/18/08
C $ 71,137,505 Fixed 11/18/08
D $ 74,371,028 Fixed 11/18/08
E $ 19,401,138 Fixed 11/18/08
F $ 58,203,413 Fixed (6) N/A
G $ 12,934,092 Fixed (6) N/A
H $ 22,634,661 Fixed (6) N/A
I $ 9,700,569 Fixed (6) N/A
J $ 22,634,660 Fixed (6) N/A
<CAPTION>
INITIAL
RATED PASS- WEIGHTED EXPECTED PRINCIPAL OR
FINAL THROUGH AVERAGE RATINGS NOTIONAL
DISTRIBUTION RATE LIFE S&P/ PRINCIPAL
CLASS DATE (4) (APPROX.) (APPROX.) (5) DCR WINDOW (5)
<S> <C> <C> <C> <C> <C>
Senior Classes
A-1 11/18/30 4.99 AAA/AAA 12/98- 7/07
A-2 11/18/30 9.51 AAA/AAA 7/07-10/08
A-3 11/18/30 9.93 AAA/AAA 10/08-11/08
X 11/18/30 9.52 AAAr/AAA 12/98- 4/23
Subordinate Classes
B 11/18/30 10.00 AA/AA 11/08-11/08
C 11/18/30 10.00 A/A 11/08-11/08
D 11/18/30 10.00 BBB/BBB 11/08-11/08
E 11/18/30 10.00 BBB-/BBB- 11/08-11/08
F N/A N/A Not Offered N/A
G N/A N/A Not Offered N/A
H N/A N/A Not Offered N/A
I N/A N/A Not Offered N/A
J N/A N/A Not Offered N/A
</TABLE>
(1) Approximate, subject to a permitted variance of plus or minus 10%.
(2) The Pass-Through Rate on the Class X certificates will be equal to the
excess, if any, of (i) the weighted average of the net interest rates on
the mortgage loans (in each case adjusted if necessary to accrue on the
basis of a 360-day year consisting of twelve 30-day months), over (ii)
the weighted average of the Pass-Through Rates of the other certificates
(other than the Residual Certificates) as described in this prospectus
supplement.
(3) The Assumed Final Distribution Dates set forth in this prospectus
supplement have been determined on the basis of the assumptions described
in "Description of the Certificates--Assumed Final Distribution Date;
Rated Final Distribution Date" in this prospectus supplement.
(4) The Rated Final Distribution Date for each class of certificates is
November 18, 2030. See "Description of the Certificates--Assumed Final
Distribution Date; Rated Final Distribution Date" in this prospectus
supplement.
(5) The weighted average life and period during which distributions of
principal would be received set forth in the foregoing table with respect
to each class of certificates is based on the assumptions set forth under
"Yield and Maturity Considerations--Weighted Average Life" in this
prospectus supplement and on the assumptions that there are no
prepayments (other than on each anticipated prepayment date, if any), or
losses on the mortgage loans and no extensions of maturity dates of
mortgage loans that do not have anticipated prepayment dates.
(6) For any distribution date, if the weighted average of the net interest
rates on the mortgage loans (in each case adjusted if necessary to accrue
on the basis of a 360-day year consisting of twelve 30-day months) as of
the first day of the related due period is less than the rate specified
for the Class F, Class G, Class H, Class I, or Class J certificates with
respect to such distribution date, then the Pass-Through Rate for such
class of certificates on that distribution date will equal the weighted
average net mortgage rate.
S-5
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY OF TERMS .................................................................... S-9
RISK FACTORS ........................................................................ S-27
Geographic Concentration Entails Risks ............................................ S-27
Risks Relating to Loan Concentrations ............................................. S-27
Ability to Effect Other Borrowings Entails Risk .................................... S-28
Borrower May Be Unable to Repay Remaining Principal Balance on Maturity Date or
Anticipated Prepayment Date ...................................................... S-29
Commercial and Multifamily Lending is Dependent Upon Net Operating Income ......... S-30
Tenant Concentration Entails Risk ................................................. S-31
Mortgaged Properties Leased to Multiple Tenants Also Have Risks ................... S-31
Tenant Bankruptcy Entails Risks ................................................... S-31
Mortgage Loans Are Nonrecourse and Are Not Insured or Guaranteed .................. S-31
Retail Properties Have Special Risks .............................................. S-32
Office Properties Have Special Risks .............................................. S-32
Multifamily Properties Have Special Risks ......................................... S-33
Hotel Properties Have Special Risks ............................................... S-33
Risks Relating to Affiliation with a Franchise or Hotel Management Company ........ S-33
Warehouse/Industrial Properties Have Special Risks ................................ S-34
Credit Lease Properties Have Special Risks ........................................ S-35
Risks Relating to Section 8 Multifamily Properties ................................ S-35
Certain Additional Risks Relating to Tenants ...................................... S-36
Some Mortgaged Properties May Not Be Readily Convertible to Alternative Uses ...... S-36
Lack of Skillful Property Management Entails Risks ................................ S-36
Limitations of Appraisals ......................................................... S-37
Your Lack of Control Over Trust Fund Can Create Risks ............................. S-37
Special Servicer May Have a Conflict of Interest .................................. S-37
Bankruptcy Proceedings Entails Certain Risks ...................................... S-37
Risks Relating to Prepayments and Repurchases ..................................... S-38
Risks Relating to Enforceability of Prepayment Premiums ........................... S-38
Risks Relating to Borrower Default ................................................ S-39
Risks Relating to Certain Payments ................................................ S-39
Risks of Limited Liquidity and Market Value ....................................... S-39
Different Timing of Mortgage Loan Amortization Poses Certain Risks ................ S-40
Subordination of Subordinate Offered Certificates ................................. S-40
Environmental Risks Relating to the Mortgaged Properties .......................... S-40
Tax Considerations Relating to Foreclosure ........................................ S-41
Property Insurance ................................................................ S-41
Zoning Compliance and Use Restrictions ............................................ S-42
Litigation ........................................................................ S-42
Book-Entry Registration ........................................................... S-42
Risks Associated with Year 2000 Compliance ........................................ S-42
Other Risks ....................................................................... S-42
DESCRIPTION OF THE MORTGAGE POOL .................................................... S-43
General ........................................................................... S-43
Significant Mortgage Loans ........................................................ S-44
APD Loans ......................................................................... S-50
Credit Lease Loans ................................................................ S-50
Section 8 Housing Assistance Payments Programs .................................... S-52
Certain Terms and Conditions of the Mortgage Loans ................................ S-53
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
Prepayment Provisions ................................................. S-53
Defeasance; Collateral Substitution ................................... S-58
"Due-on-Sale" and "Due-on-Encumbrance" Provisions ..................... S-59
Additional Mortgage Loan Information ................................... S-60
Underwritten Net Cash Flow ............................................. S-67
Revenue ............................................................... S-67
Vacancy ............................................................... S-67
Expenses .............................................................. S-67
Replacement Reserves .................................................. S-68
Assessments of Property Condition ...................................... S-68
Property Inspection ................................................... S-68
Appraisals ............................................................ S-68
Environmental Reports ................................................. S-68
Building Condition Reports ............................................ S-68
The Mortgage Loan Seller ............................................... S-68
Underwriting Standards ................................................. S-68
General ............................................................... S-68
Loan Analysis ......................................................... S-69
Credit Lease Loans .................................................... S-69
Loan Approval ......................................................... S-69
Debt Service Coverage Ratio and LTV Ratio ............................. S-70
Escrow Requirements ................................................... S-70
Representations and Warranties; Repurchases ............................ S-71
Mortgaged Property Accounts ............................................ S-75
Lock Box Accounts ..................................................... S-75
Cash Collateral Accounts .............................................. S-75
DESCRIPTION OF THE CERTIFICATES .......................................... S-76
General ................................................................ S-76
Paying Agent, Certificate Registrar and Authenticating Agent ........... S-77
Book-Entry Registration and Definitive Certificates .................... S-77
General ............................................................... S-77
Definitive Certificates ............................................... S-79
Distributions .......................................................... S-79
Method, Timing and Amount ............................................. S-79
Priority .............................................................. S-81
Pass-Through Rates .................................................... S-83
Interest Distribution Amount .......................................... S-84
Principal Distribution Amount ......................................... S-84
Certain Calculations with Respect to Individual Mortgage Loans ........ S-85
Excess Interest ....................................................... S-86
Allocation of Prepayment Premiums and Yield Maintenance Charges ........ S-86
Assumed Final Distribution Date; Rated Final Distribution Date ......... S-86
Subordination; Allocation of Collateral Support Deficit ................ S-87
Advances ............................................................... S-89
Appraisal Reductions ................................................... S-90
Reports to Certificateholders; Certain Available Information ........... S-92
Voting Rights .......................................................... S-94
Termination; Retirement of Certificates ................................ S-95
The Trustee ............................................................ S-96
SERVICING OF THE MORTGAGE LOANS .......................................... S-97
General ................................................................ S-97
</TABLE>
S-7
<PAGE>
<TABLE>
<S> <C>
The Servicer ......................................................................... S-99
The Master Servicer .................................................................. S-99
The Special Servicer ................................................................. S-99
Replacement of the Special Servicer .................................................. S-99
Servicing and Other Compensation and Payment of Expenses ............................. S-100
Maintenance of Insurance ............................................................. S-101
Modifications, Waiver and Amendments ................................................. S-102
Realization Upon Defaulted Mortgage Loans ............................................ S-103
Inspections; Collection of Operating Information ..................................... S-105
Certain Matters Regarding the Master Servicer, the Special Servicer and the Depositor S-106
Events of Default .................................................................... S-107
Rights Upon Event of Default ......................................................... S-108
Amendment ............................................................................ S-108
YIELD AND MATURITY CONSIDERATIONS ...................................................... S-110
Yield Considerations ................................................................. S-110
General ............................................................................. S-110
Pass-Through Rate ................................................................... S-110
Rate and Timing of Principal Payments ............................................... S-110
Losses and Shortfalls ............................................................... S-111
Certain Relevant Factors ............................................................ S-111
Delay in Payment of Distributions ................................................... S-111
Unpaid Distributable Certificate Interest ........................................... S-111
Weighted Average Life ................................................................ S-112
Yield Sensitivity of the Class X Certificates ........................................ S-117
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ................................................ S-118
METHOD OF DISTRIBUTION ................................................................. S-119
LEGAL MATTERS .......................................................................... S-120
RATING ................................................................................. S-120
LEGAL INVESTMENT ....................................................................... S-121
CERTAIN ERISA CONSIDERATIONS ........................................................... S-121
INDEX OF PRINCIPAL DEFINITIONS ......................................................... S-124
</TABLE>
S-8
<PAGE>
SUMMARY OF TERMS
This summary highlights selected information from this prospectus
supplement. It does not contain all of the information you need to consider in
making your investment decision. TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING
OF THE OFFERED CERTIFICATES, READ THIS ENTIRE DOCUMENT AND THE ACCOMPANYING
PROSPECTUS CAREFULLY.
RELEVANT PARTIES AND DATES
DEPOSITOR................... Chase Commercial Mortgage Securities Corp. See
"The Depositor" in the prospectus.
SERVICER.................... The Chase Manhattan Bank will act as the
servicer of the mortgage loans pursuant to a
subservicing agreement, dated as of the Cut-off
Date, between the Master Servicer and The Chase
Manhattan Bank. See "Servicing of the Mortgage
Loans--The Servicer" in this prospectus
supplement.
MASTER SERVICER............. GMAC Commercial Mortgage Corporation. See
"Servicing of the Mortgage Loans--The Master
Servicer" in this prospectus supplement.
SPECIAL SERVICER............ GMAC Commercial Mortgage Corporation. See
"Servicing of the Mortgage Loans--The Special
Servicer" in this prospectus supplement.
TRUSTEE..................... State Street Bank and Trust Company. See
"Description of the Certificates--The Trustee" in
this prospectus supplement.
PAYING AGENT................ The Chase Manhattan Bank. The Chase Manhattan
Bank will also act as the Certificate Registrar
and Authenticating Agent. See "Description of the
Certificates--Paying Agent, Certificate Registrar
and Authenticating Agent" in this prospectus
supplement.
MORTGAGE LOAN SELLER........ The Chase Manhattan Bank. See "Description of
the Mortgage Pool--The Mortgage Loan Seller" in
this prospectus supplement.
CUT-OFF DATE................ November 10, 1998.
CLOSING DATE................ On or about November 19, 1998.
DISTRIBUTION DATE........... The 18th day of the month or, if such day is
not a business day, the next business day,
beginning in December 1998.
INTEREST ACCRUAL PERIOD..... Interest will accrue on the offered
certificates during the calendar month prior to
related distribution date and will be calculated
assuming that each month has 30 days and a
360-day year.
S-9
<PAGE>
OFFERED SECURITIES
GENERAL..................... We are offering the following eight classes of
Commercial Mortgage Pass-Through Certificates as
part of Series 1998-2:
o Class A-1
o Class A-2
o Class A-3
o Class X
o Class B
o Class C
o Class D
o Class E
Series 1998-2 will consist of a total of 15
classes, the following seven of which are not
being offered through this prospectus supplement
and the accompanying prospectus: Class F, Class
G, Class H, Class I, Class J, Class R and Class
LR.
The Offered Certificates and the Private
Certificates will represent beneficial ownership
interests in a trust created by Chase Commercial
Mortgage Securities Corp. The trust's assets
will primarily be 99 mortgage loans secured by
first liens on 120 commercial and multifamily
properties.
CERTIFICATE PRINCIPAL AMOUNTS
AND NOTIONAL AMOUNT....... Your certificates will have the approximate
aggregate initial principal amount or notional
amount set forth below, subject to a variance of
plus or minus 10%:
<TABLE>
<S> <C>
Class A-1 ......... $ 175,000,000 principal amount
Class A-2 ......... $ 426,000,000 principal amount
Class A-3 ......... $ 336,721,655 principal amount
Class X ........... $1,293,409,180 notional amount
Class B ........... $ 64,670,459 principal amount
Class C ........... $ 71,137,505 principal amount
Class D ........... $ 74,371,028 principal amount
Class E ........... $ 19,401,138 principal amount
</TABLE>
The notional amount of the Class X certificates
will generally be equal to 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, in the case of the first
distribution date, the Cut-off Date.
See "Description of the Certificates--General"
in this prospectus supplement.
S-10
<PAGE>
PASS-THROUGH RATES
A. OFFERED CERTIFICATES
(OTHER THAN CLASS X)... Your certificates will accrue interest at an
annual rate called a "Pass-Through Rate" which is
set forth below (other than for the Class X
certificates) for each class.
<TABLE>
<S> <C>
Class A-1 .........
Class A-2 .........
Class A-3 .........
Class B ...........
Class C ...........
Class D ...........
Class E ...........
</TABLE>
Interest on such Classes of Certificates will be
calculated based on a 360-day year consisting of
twelve 30-day months, or a "30/360 basis".
B. CLASS X CERTIFICATES.... If you invest in the Class X certificates, your
Pass-Through Rate will be equal to the difference
between the weighted average interest rate of the
mortgage loans (after the payment of all
servicing and trustee fees) and the weighted
average of the Pass-Through Rates of the other
certificates (other than the Class R and Class LR
Certificates) as described in this prospectus
supplement. The weighting will be based upon the
respective principal amounts of those classes.
For purposes of calculating the Class X
Pass-Through Rate, the mortgage loan interest
rates will not reflect any default interest
rate, any rate increase occurring after an
Anticipated Prepayment Date, any loan term
modifications agreed to by the Special Servicer
or any modifications resulting from a borrower's
bankruptcy or insolvency. In addition, if a
mortgage loan does not accrue interest on a
30/360 basis, its interest rate for any month
that is not a 30-day month will be recalculated
so that the amount of interest that would accrue
at that rate in such month, calculated on a
30/360 basis, will equal the amount of interest
that actually accrues on that loan in that
month.
See "Description of the
Certificates--Distributions--Pass-Through Rates"
and "Distributions--Certain Calculations with
Respect to Individual Mortgage Loans" in this
prospectus supplement.
DISTRIBUTIONS
A. AMOUNT AND ORDER
OF DISTRIBUTIONS....... On each distribution date, funds available for
distribution from the mortgage loans, net of
specified trust expenses, will be distributed in
the following amounts and order of priority:
First/Class A and Class X: To interest on Class
A and Class X, pro rata, in accordance with
their interest entitlements.
S-11
<PAGE>
Second/Class A: To the extent of funds allocated
to principal, to principal on Classes A-1, A-2
and A-3, in that order, until reduced to zero.
If each class of certificates other than Class A
has been reduced to zero, funds available for
principal will be distributed to Classes A-1,
A-2 and Class A-3, pro rata, rather than
sequentially.
Third/Class A: After each class of certificates
other than Class A has been reduced to zero, to
reimburse Classes A-1, A-2 and A-3, pro rata,
for any previously unreimbursed losses on the
mortgage loans allocable to principal that were
previously borne by those classes, together with
interest.
Fourth/Class B: To Class B as follows: (a) to
interest on Class B in the amount of its
interest entitlement; (b) to the extent of funds
allocated to principal remaining after
distributions in respect of principal to each
Class with a higher priority (in this case,
Class A), to principal on Class B until reduced
to zero; and (c) to reimburse Class B for any
previously unreimbursed losses on the mortgage
loans allocable to principal that were
previously borne by that class, together with
interest.
Fifth/Class C: To Class C in a manner analogous
to the Class B allocations of priority Fourth
above.
Sixth/Class D: To Class D in a manner analogous
to the Class B allocations of priority Fourth
above.
Seventh/Class E: To Class E in a manner
analogous to the Class B allocations of priority
Fourth above.
Eighth/Private Certificates: In the amounts and
order of priority described in "Description of
the Certificates--Distributions--Priority" in
this prospectus supplement.
B. INTEREST AND PRINCIPAL
ENTITLEMENTS.......... A description of each class's interest
entitlement can be found in "Description of the
Certificates--Distributions--Interest
Distribution Amount" in this prospectus
supplement. As described in such section, there
are circumstances in which your interest
entitlement for a distribution date could be less
than one full month's interest at the
Pass-Through Rate on your certificate's principal
amount or notional amount.
A description of the amount of principal
required to be distributed to the classes
entitled to principal on a particular
distribution date also can be found in
"Description of the
Certificates--Distributions--Principal
Distribution Amount" in this prospectus
supplement.
C. PREPAYMENT PREMIUMS; YIELD
MAINTENANCE CHARGES... Prepayment premiums and yield maintenance
charges with respect to the mortgage loans will
be allocated between the related certificates
then entitled to principal distributions and the
Class X Certificates as follows:
S-12
<PAGE>
On any distribution date, a percentage of all
prepayment premiums with respect to the mortgage
loans will be allocated to each class of
certificates then entitled to principal
distributions, which percentage will be equal to
the product of (a) the percentage of the total
principal distribution such class receives out
of the entire principal distribution amount for
such distribution date, and (b) 25%. The
remaining percentage of all prepayment premiums
will be allocated to the Class X certificates.
On any distribution date, a percentage of all
yield maintenance charges with respect to the
mortgage loans will be allocated to each class
of certificates then entitled to principal
distributions, which percentage will be equal to
the product of (a) the percentage of the total
principal distribution such class receives out
of the entire principal distribution amount for
such distribution date, and (b) a percentage
(which can be no greater than 100%), the
numerator of which is the excess of the Pass-
Through Rate of the class of the certificates
currently receiving principal over the relevant
yield rate used in determining the yield
maintenance charge under the applicable mortgage
loan, and the denominator of which is the excess
of the interest rate of the related mortgage
loan over the yield rate. This formula is set
forth below.
<TABLE>
<S> <C> <C>
Yield Maintenance Charge (Pass-Through Rate (minus) yield rate)
Allocation Percentage = ------------------------------------------
(mortgage interest rate (minus) yield rate)
</TABLE>
The remaining percentage of such yield
maintenance charges will be allocated to the
Class X certificates.
For a definition of yield rate, see "Description
of the Mortgage Pool--Certain Terms and
Conditions of the Mortgage Loans--Prepayment
Provisions" in this prospectus supplement.
In general, this formula provides for an
increase in the allocation of yield maintenance
charges to the certificates then entitled to
principal distributions relative to the Class X
certificates as yield rates decrease and a
decrease in the allocation to such classes as
yield rates rise.
Example of Allocation of Yield Maintenance
Charges
Yield Rate Fraction Methodology:
<TABLE>
<S> <C>
Mortgage interest rate = 8%
Pass-Through Rate for applicable class = 6%
Yield rate = 5%
</TABLE>
<TABLE>
<CAPTION>
ALLOCATION PERCENTAGE FOR
APPLICABLE CLASS ALLOCATION PERCENTAGE FOR CLASS X
- -------------------------- ----------------------------------
<S> <C> <C>
6% (minus) 5%
------------- = 33 1/3% 100% (minus) 33 1/3% = 66 2/3%
8% (minus) 5%
</TABLE>
See "Description of the Certificates--Allocation
of Prepayment Premiums and Yield Maintenance
Charges" in this prospectus supplement.
S-13
<PAGE>
The following table contains general information
regarding the prepayment provisions of the
mortgage loans:
OVERVIEW OF PREPAYMENT PROTECTION(1)
<TABLE>
<CAPTION>
PREPAYMENT PROVISION PERCENTAGE(2)
- --------------------------------------------------- --------------
<S> <C>
Lock-out period followed by defeasance .......... 84.76%
Lock-out period followed by yield
maintenance .................................... 14.49%
Lock-out period followed by declining fixed
premium percentage.............................. 0.75%
</TABLE>
------------
(1) Most of the mortgage loans permit prepayment
without penalty for a specified period
preceding the maturity date or Anticipated
Prepayment Date.
(2) By principal balance.
See "Description of the Mortgage
Pool--Additional Mortgage Loan Information,"
"Description of the Mortgage Pool--Certain Terms
and Conditions of the Mortgage Loans" and
"--Defeasance; Collateral Substitution" in this
prospectus supplement.
SUBORDINATION
A. GENERAL................ The chart on page S-4 describes the manner in
which the rights of various classes will be
senior to the rights of other classes.
Entitlement to receive principal and interest
(other than Excess Interest) on any distribution
date is depicted from left to right. The manner
in which mortgage loan losses are allocated is
depicted from right to left. (However, no
principal payments or loan losses will be
allocated to the Class X certificates, although
loan losses will reduce the notional amount of
Class X certificates and, therefore, the amount
of interest they accrue.) NO OTHER FORM OF CREDIT
ENHANCEMENT WILL BE AVAILABLE FOR THE BENEFIT OF
THE HOLDERS OF THE OFFERED CERTIFICATES.
Any allocation of a loss to a class of
certificates will reduce the related principal
amount of such class.
See "Description of the Certificates" in this
prospectus supplement.
B. SHORTFALLS IN
AVAILABLE FUNDS....... The following types of shortfalls in available
funds will reduce distributions to the classes of
certificates with the lowest payment priorities:
(i) shortfalls resulting from additional
compensation (other than the servicing fee) which
the Master Servicer or the Special Servicer is
entitled to receive; (ii) shortfalls resulting
from interest on P&I Advances made by the Master
Servicer or the Trustee (to the extent not
covered by default interest paid by the
borrower); (iii) shortfalls resulting from
extraordinary expenses of the trust; and (iv)
shortfalls resulting from a reduction of a
mortgage loan's interest rate by a bankruptcy
court or from other unanticipated or
default-related expenses of the trust.
See "Description of the
Certificates--Distributions--Payment Priorities"
in this prospectus supplement.
S-14
<PAGE>
THE MORTGAGE LOANS
THE MORTGAGE POOL........... The trust's primary assets will be 99 fixed
rate mortgage loans, each evidenced by one or
more promissory notes secured by first mortgages,
deeds of trust or similar security instruments on
101 commercial properties and 19 multifamily
properties (or in the case of 2 mortgaged
properties, the leasehold estate in such
property).
The following tables set forth certain
anticipated characteristics of the mortgage
loans as of the Cut-off Date (unless otherwise
indicated). The sum in any column may not equal
the indicated total due to rounding. Unless
otherwise indicated, all figures presented in
this summary section are calculated as described
under "Description of the Mortgage
Pool--Additional Mortgage Loan Information" in
this prospectus supplement and all percentages
represent the indicated percentage of the
aggregate principal balance of all mortgage
loans as of the Cut-off Date.
The mortgage loans will have the following
approximate characteristics:
<TABLE>
<S> <C>
Aggregate Principal Balance(1) ...... $1,293,409,180
Number of Mortgage Loans ............ 99
Number of Mortgaged Properties ...... 120
Number of "Balloon" Mortgage
Loans .............................. 93
Range of Mortgage Loan Principal
Balances ........................... $956,856 to $184,884,329
Average Mortgage Loan Principal
Balance ............................ $13,064,739
Range of Remaining Terms to
Maturity Date(2) ................... 54 months to 293 months
Weighted Average Original Term
to Maturity Date(2) ................ 10.67 years
Weighted Average Remaining
Term to Maturity Date(2) ........... 10.41 years
Weighted Average Original
Amortization Term .................. 28.30 years
Range of Loan to Value Ratios ....... 27.00% to 98.39%
Weighted Average Loan to Value
Ratio .............................. 68.58%
Weighted Average Loan to Value
Ratio as of the Maturity Date(2) ... 56.28%
Weighted Average Occupancy
Rate ............................... 95%
Range of Debt Service Coverage
Ratios ............................. 1.00x to 3.38x
Weighted Average Debt Service
Coverage Ratio ..................... 1.52x
</TABLE>
------------
(1) Subject to a permitted variance of plus or
minus 10%.
(2) In the case of 9 mortgage loans, which are
hyperamortizing mortgage loans, the
Anticipated Prepayment Date.
S-15
<PAGE>
CURRENT USES OF THE MORTGAGED PROPERTIES(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
MORTGAGED PRINCIPAL BALANCE OF % OF INITIAL
CURRENT USE PROPERTIES THE MORTGAGE LOANS POOL BALANCE
- -------------------------- ------------ ---------------------- -------------
<S> <C> <C> <C>
Anchored Retail ........ 41 $ 543,079,730 41.99%
Office ................. 21 337,134,503 26.07
Multifamily ............ 19 147,886,479 11.43
Hotel .................. 7 133,022,445 10.28
Industrial ............. 5 47,736,849 3.69
Credit Lease ........... 20 43,220,621 3.34
Parking Garage ......... 2 21,951,372 1.70
-- -------------- -----
Unanchored Retail ...... 5 19,377,179 1.50
TOTAL .................. 120 $1,293,409,180 100.00%
=== ============== ======
</TABLE>
------------
(1) Because this table presents information
relating to the mortgaged properties and not
the mortgage loans, the information for
mortgage loans secured by more than one
mortgaged property is based on allocated
loan amounts (allocating the mortgage loan
principal amount to each such property
either as set forth in the related mortgage
note or by the appraised values of the
mortgaged properties).
[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.]
Office......................... (26%)
Multifamily.................... (11%)
Hotel.......................... (10%)
Industrial..................... (4%)
Credit Lease................... (3%)
Parking Garage................. (2%)
Unanchored Retail.............. (1%)
Anchored Retail................ (42%)
S-16
<PAGE>
GEOGRAPHIC DISTRIBUTION(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
MORTGAGED PRINCIPAL BALANCE OF % OF INITIAL
STATE PROPERTIES THE MORTGAGE LOANS POOL BALANCE
- ----------------------- ------------ ---------------------- -------------
<S> <C> <C> <C>
Massachusetts ....... 7 $ 259,911,685 20.10%
California .......... 16 158,006,904 12.22
New York ............ 14 155,171,160 12.00
Maryland ............ 1 140,000,000 10.82
Virginia ............ 8 117,632,421 9.09
Ohio ................ 9 80,079,562 6.19
Florida ............. 10 48,000,861 3.71
Texas ............... 8 47,219,533 3.65
New Jersey .......... 5 46,459,973 3.59
Other States ........ 42 240,927,082 18.61
-- -------------- -----
TOTAL ............... 120 $1,293,409,180 100%
=== ============== =====
</TABLE>
------------
(1) Because this table presents information
relating to the mortgaged properties and not
the mortgage loans, the information for
mortgage loans secured by more than one
mortgaged property is based on allocated
loan amounts (allocating the mortgage loan
principal amount to each such property
either as set forth in the related mortgage
note or by the appraised values of the
mortgaged properties).
RANGE OF MORTGAGE RATES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
MORTGAGE PRINCIPAL BALANCE OF % OF INITIAL
RANGE OF MORTGAGE RATES LOANS THE MORTGAGE LOANS POOL BALANCE
- ---------------------------- ----------- ---------------------- -------------
<S> <C> <C> <C>
6.300% to 6.499% ......... 3 $ 47,893,132 3.70%
6.500% to 6.699% ......... 14 198,481,065 15.35
6.700% to 6.799% ......... 8 279,841,765 21.64
6.800% to 6.999% ......... 16 118,572,036 9.17
7.000% to 7.249% ......... 33 408,952,108 31.62
7.250% to 7.749% ......... 19 142,142,531 10.99
7.750% to 8.500% ......... 6 97,526,543 7.54
-- -------------- -----
TOTAL .................... 99 $1,293,409,180 100%
== ============== =====
</TABLE>
S-17
<PAGE>
RANGE OF PRINCIPAL BALANCES
<TABLE>
<CAPTION>
% OF
NUMBER OF AGGREGATE INITIAL
RANGE OF MORTGAGE PRINCIPAL BALANCE OF POOL
CUT-OFF DATE BALANCES LOANS THE MORTGAGE LOANS BALANCE
- --------------------------------- ----------- ---------------------- -----------
<S> <C> <C> <C>
$956,856 to $5,000,000......... 42 $ 134,806,758 10.42%
$5,000,001 to $10,000,000...... 25 184,759,166 14.28
$10,000,001 to $15,000,000..... 11 124,749,204 9.64
$15,000,001 to $20,000,000..... 8 143,916,624 11.13
$20,000,001 to $40,000,000..... 8 240,797,474 18.62
$40,000,001 to $60,000,000..... 3 139,495,624 10.79
$60,000,001 to $184,884,329.... 2 324,884,329 25.12
-- -------------- -----
TOTAL ......................... 99 $1,293,409,180 100.00%
== ============== ======
</TABLE>
RANGE OF DSCRS
<TABLE>
<CAPTION>
% OF
NUMBER OF AGGREGATE INITIAL
MORTGAGE PRINCIPAL BALANCE OF POOL
RANGE OF DSCRS LOANS THE MORTGAGE LOANS BALANCE
- ---------------------------- ----------- ---------------------- ----------
<S> <C> <C> <C>
1.0000 to 1.0500 (1) ..... 8 $ 66,501,128 5.14%
1.0501 to 1.2999 ......... 12 94,587,111 7.31
1.3000 to 1.3999 ......... 28 227,710,896 17.61
1.4000 to 1.4999 ......... 26 362,816,076 28.05
1.5000 to 1.5999 ......... 9 354,465,588 27.41
1.6000 to 1.9999 ......... 13 108,904,668 8.42
2.0000 to 3.3779 ......... 3 78,423,712 6.06
-- -------------- -----
TOTAL .................... 99 $1,293,409,180 100.00%
== ============== ======
</TABLE>
------------
(1) 7 of such mortgage loans, representing
approximately 3.34% of the aggregate
principal balance of all mortgage loans, are
mortgage loans secured by credit leased
properties meeting the guidelines described
under "Description of the Mortgage
Pool--Underwriting Standards" in this
prospectus supplement. The DSCR for all
credit lease loans is generally 1.0x.
S-18
<PAGE>
RANGE OF LTV RATIOS
<TABLE>
<CAPTION>
% OF
NUMBER OF AGGREGATE INITIAL
MORTGAGE PRINCIPAL BALANCE OF POOL
RANGE OF LTV RATIOS LOANS THE MORTGAGE LOANS BALANCE
- ---------------------------- ----------- ---------------------- ----------
<S> <C> <C> <C>
27.00% to 49.99% ......... 3 $ 50,196,167 3.88%
50.00% to 59.99% ......... 5 205,641,262 15.90
60.00% to 69.99% ......... 16 319,952,373 24.74
70.00% to 73.33% ......... 11 174,064,475 13.46
73.34% to 76.66% ......... 24 220,184,961 17.02
76.67% to 79.99% ......... 31 266,869,321 20.63
80.00% to 98.39% (1) ..... 9 56,500,621 4.37
-- -------------- -----
TOTAL .................... 99 $1,293,409,180 100.00%
== ============== ======
</TABLE>
------------
(1) 7 of such mortgage loans, representing
approximately 3.34% of the aggregate
principal balance of all mortgage loans, are
mortgage loans secured by credit leased
properties meeting the guidelines described
under "Description of the Mortgage
Pool--Underwriting Standards" in this
prospectus supplement. The LTV for all
credit lease loans at origination is
generally 100%.
RANGE OF REMAINING TERM TO MATURITY DATE OR
ANTICIPATED PREPAYMENT DATE
<TABLE>
<CAPTION>
% OF
NUMBER OF AGGREGATE INITIAL
RANGE OF MORTGAGE PRINCIPAL BALANCE OF POOL
REMAINING TERMS (MOS.) LOANS THE MORTGAGE LOANS BALANCE
- ------------------------ ----------- ---------------------- ----------
<S> <C> <C> <C>
54 to 84 ............. 2 $ 15,385,059 1.19%
85 to 108 ............ 4 69,427,435 5.37
109 to 115 ........... 17 177,033,578 13.69
116 to 119 ........... 48 537,907,625 41.59
120 to 120 ........... 13 369,492,500 28.57
121 to 180 ........... 4 64,096,579 4.96
181 to 293 ........... 11 60,066,403 4.64
-- -------------- -----
TOTAL ................ 99 $1,293,409,180 100.00%
== ============== ======
</TABLE>
All of the mortgage loans bear interest at fixed
rates.
The mortgage loans require the borrowers to make
scheduled payments of principal and/or interest
on the following days of each month and in some
cases have the indicated grace periods: 17 of
the mortgage loans, representing approximately
15.05% of the aggregate principal balance of all
mortgage loans as of the Cut-off Date, provide
for scheduled payments of principal and/or
interest due on the first day of each month, and
82 mortgage loans, representing approximately
84.95% of the aggregate principal balance of all
the mortgage loans as of the Cut-off Date,
provide for scheduled payments of principal and
interest due on the 10th day of each month, and
all of the
S-19
<PAGE>
mortgage loans whose due date is the first day
of each month provide for no more than a 10-day
grace period. See "Description of the Mortgage
Pool--Certain Terms and Conditions of the
Mortgage Loans" in this prospectus supplement.
6 of the mortgage loans, representing
approximately 2.46% of the aggregate principal
balance of all the mortgage loans as of the
Cut-off Date, have remaining amortization terms
that are generally the same as their respective
remaining terms to maturity. 93 of the mortgage
loans, representing approximately 97.54% of the
aggregate principal balance of all the mortgage
loans as of the Cut-off Date, have remaining
amortization schedules significantly longer than
the remaining terms to maturity of such mortgage
loans, thereby leaving substantial principal
amounts due and payable on their respective
maturity dates, unless previously prepaid.
Certain mortgage loans provide for an increase
in the related interest rate after a certain
date (the "Anticipated Prepayment Date"). On 9
mortgage loans, representing approximately
38.66% of the aggregate principal balance of all
mortgage loans as of the Cut-Off Date, the
interest rate will increase by 2%. The interest
accrued in excess of the original rate, together
with interest thereon (the "Excess Interest"),
will be deferred and will not be paid until the
principal balance of the related mortgage loan
has been paid. All amounts distributed in
respect of Excess Interest will be payable to
the holders of the Class J certificates.
After the Anticipated Prepayment Date, certain
cash flow in excess of that required for debt
service and other expenses with respect to the
related mortgaged properties will be applied
towards the payment of principal of such
mortgage loans until their principal balance has
been reduced to zero. A substantial principal
payment will be required to pay off these
mortgage loans on their Anticipated Prepayment
Date; however, the amortization term is
generally the same as the remaining term to
maturity if these mortgage loans are not prepaid
on their Anticipated Prepayment Date.
The mortgage loans accrue interest based on the
following conventions:
<TABLE>
<CAPTION>
% OF
NUMBER OF AGGREGATE INITIAL
MORTGAGE PRINCIPAL BALANCE OF POOL
ACCRUAL BASIS LOANS THE MORTGAGE LOANS BALANCE
- ---------------------- ----------- ---------------------- ----------
<S> <C> <C> <C>
Actual/360 ......... 72 $1,036,934,320 80.17%
30/360 ............. 27 256,474,860 19.83
== ============== =====
TOTAL .............. 99 $1,293,409,180 100%
== ============== =====
</TABLE>
See "Description of the Mortgage
Pool--Additional Mortgage Loan Information" and
"Description of the Mortgage Pool--Certain Terms
and Conditions of the Mortgage Loans" in this
prospectus supplement.
S-20
<PAGE>
SIGNIFICANT LOANS
TEN LARGEST MORTGAGE LOANS
<TABLE>
<CAPTION>
% OF
INITIAL STATED DSCR CUT-OFF
CUT-OFF POOL MORTGAGE REMAINING AT DATE LTV AT
PROPERTY NAME DATE BALANCE BALANCE RATE TERM ORIGINATION LTV RATIO MATURITY
- ----------------------------- -------------- ----------- ---------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
75 State Street ............. $184,884,329 14.29% 7.00% 119 1.51x 57.78% 50.52%
Towson Town Center .......... 140,000,000 10.82 6.75% 120 1.47x 63.06% 57.49%
Sheraton Suites
Portfolio-Pool I ........... 56,650,000 4.38 6.75% 120 1.54x 71.08% 55.83%
Sheffield Apts .............. 41,845,624 3.24 6.30% 179 3.38x 27.00% 19.58%
Smoketown Stations .......... 41,000,000 3.17 6.60% 120 1.42x 73.21% 63.27%
Arsenal Mall ................ 34,976,428 2.70 6.75% 119 1.69x 62.46% 54.25%
Hotel Monaco ................ 34,801,764 2.69 7.31% 115 1.54x 64.21% 51.56%
Sir Francis Drake Hotel ..... 32,988,210 2.55 8.50% 105 2.03x 63.44% 52.82%
Costco Plaza II ............. 31,987,500 2.47 6.60% 120 1.57x 75.00% 64.81%
G&K Portfolio II ............ 31,636,297 2.45 7.14% 114 1.32x 78.40% 69.05%
------------ -----
TOTAL/WEIGHTED AVERAGE ...... $630,770,152 48.77% 6.92% 122 1.65X 61.92% 53.36%
============ =====
</TABLE>
75 State Street Loan....... The 75 State Street Loan is secured by a "Class
A" office tower located in the financial district
of the city of Boston, Massachusetts. Completed
in 1988, 75 State Street is situated on 1.43
acres of land and contains approximately 767,096
square feet of rentable space. Major tenants
include Fleet National Bank, Wellington
Management Company, Cabot Corporation and Warner
& Stackpole. The sponsors of the borrower are
World Financial Properties, L.P. and its parent
company Brookfield Properties Corporation, which
is a publicly traded Canadian corporation. As of
September 15, 1998, 75 State Street was
approximately 100% occupied.
Towson Town Center Loan.... The Towson Town Center Loan is secured by the
Towson Town Center, a regional mall located in
Towson, Maryland. Built in 1959 and renovated in
1992, the Towson Town Center is situated on 27.7
acres of land and contains approximately 535,769
square feet of gross leaseable area. The anchors
are Hecht's and Nordstrom and are not part of the
mortgaged property. The borrower is an indirect
wholly owned subsidiary of The Rouse Company, a
publicly traded real estate company listed on the
NYSE which manages approximately 250 properties.
As of July 1, 1998, the Towson Town Center was
approximately 94% leased.
Sheraton Suites
Portfolio-Pool I.......... The Sheraton Suites Portfolio-Pool I Loan is
secured by three full-service, all suites
Sheraton Hotels containing 765 suites located in
Kansas City, Missouri (257 suites), Columbus,
Ohio (261 suites) and Alexandria, Virginia (247
suites). The Kansas City and Alexandria hotels
were both renovated during 1997 and 1998, with
renovations planned for the Columbus hotel in
December 1998. The sponsor of the borrower is
Sheraton Suites Investment Limited Partnership
("SSILP"), a partnership which is 25% owned by
ITT Sheraton Corporation. As of August 31, 1998,
the weighted average occupancy rate for the
Sheraton Suites Portfolio for the prior 12 month
period was 73%.
S-21
<PAGE>
Sheffield Loan............. The Sheffield Loan is secured by The Sheffield,
a 50 story, luxury apartment building located on
Manhattan's west side in the city of New York,
New York. Built in 1978, The Sheffield contains
845 apartment units, 90,405 square feet of office
space, 4,878 square feet of retail space, a
roof-top health club and a 372-car underground
garage. The sponsor of the borrower is Rose
Associates, a New York general partnership which,
through affiliated entities, owns over 2,000
residential units and manages over 13,000
residential units. As of July 1, 1998, The
Sheffield was approximately 99.5% occupied.
Smoketown Stations Loan.... The Smoketown Stations Loan is secured by
Smoketown Stations, a retail complex located
along the Prince William Parkway in Woodbridge,
Virginia. The complex consists of six buildings
containing 481,888 square feet of gross leaseable
area. Major tenants include Petsmart, Borders
Books, Lowe's Home Improvement, Shoppers Food
Warehouse and Best Buy. The sponsor of the
borrower is Kimco Realty Corporation, a publicly
traded owner and operator of community shopping
centers. As of July 1, 1998, Smoketown Stations
was approximately 96% occupied.
Arsenal Mall Loan.......... The Arsenal Mall Loan is secured by the Arsenal
Mall, a two-level shopping mall located in
Watertown, Massachusetts. The mall, which is
situated on 19.05 acres of land, contains 284,855
square feet of rentable space, including 221,999
square feet of retail and 52,960 square feet of
office space. Major tenants include Marshalls and
Filene's Basement. The sponsor of the borrower is
New England Development, a developer/ owner of
17 regional shopping malls in the northeast. As
of April 3, 1998, the Arsenal Mall was 100%
occupied.
Hotel Monaco Loan.......... The Hotel Monaco Loan is secured by the Hotel
Monaco, a full service boutique hotel located on
0.69 acres of land near Union Square in San
Francisco, California. The hotel contains 201
guest suites, a 120-car parking garage and 9,219
square feet of meeting space. The sponsor of the
borrower is The Kimpton Hotel & Restaurant
Management Co., a privately held company which
manages and operates over 20 boutique hotels. As
of April 30, 1998, the average occupancy rate for
the Hotel Monaco for the prior 12 month period
was 84.3%.
Sir Francis Drake Hotel.... The Sir Francis Drake Hotel Loan is secured by
The Sir Francis Drake Hotel, a full-service
boutique hotel located on 0.37 acres of land near
Union Square in San Francisco, California. The
hotel contains 417 guest rooms and 15,000 square
feet of meeting space. Additional space is
currently leased to two San Francisco
restaurants, Harry Denton's Starlight Room and
Scala's Bistro. The sponsor of the borrower is
The Kimpton Hotel & Restaurant Management Co., a
privately held company which manages and operates
over 20 boutique hotels. As of December 31, 1997,
the average occupancy rate for the Sir Francis
Drake Hotel for the prior 12 month period was
84%.
S-22
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Costco Plaza II Loan....... The Costco Plaza II Loan is secured by Costco
Plaza, a retail complex located in Fairfax,
Virginia. Costco Plaza consists of three free
standing buildings which in the aggregate contain
approximately 323,262 square feet of gross
leaseable area. Major tenants include Costco,
Home Depot and Sports Authority. The sponsor of
the borrower is Kimco Realty Corporation, a
publicly traded owner and operator of community
shopping centers. As of July 1, 1998, Costco
Plaza was approximately 100% occupied.
G&K Portfolio II........... The Goldrich & Kest (G&K) Portfolio II Loan is
secured by four garden style apartment complexes,
2 of which are located in San Jose, CA, and the
remaining 2 are located in San Diego, CA and
Canoga Park, CA. The sponsor of the borrower is
G&K Industries, a company which currently owns
over 150 multifamily properties containing over
23,000 units. As of June 30, 1998, the average
occupancy rates for the apartment complexes was
100%.
ADVANCES OF PRINCIPAL AND
INTEREST
A. P&I ADVANCES........... The Master Servicer is required to advance
delinquent monthly mortgage loan payments (each,
a "P&I Advance"), if it determines that the
advance will be recoverable. If the Master
Servicer fails to make a required P&I Advance,
the Trustee is required to make such P&I Advance.
The Master Servicer will not be required to
advance balloon payments due at maturity in
excess of the regular monthly payment or Excess
Interest or any other interest in excess of a
mortgage loan's regular interest rate. The Master
Servicer also is not required to advance amounts
deemed non-recoverable or prepayment or yield
maintenance charges. There may be other
circumstances in which the Master Servicer will
not be required to advance one full month of
principal and interest. See "Description of the
Certificates--Advances" in this prospectus
supplement. If an advance is made, the Master
Servicer will not advance its servicing fee, but
will advance the Trustee's fee.
B. PROPERTY PROTECTION
ADVANCES.............. Master Servicer may also be required to
make advances to pay delinquent real estate
taxes, assessments and hazard insurance premiums
and similar expenses necessary to protect and
maintain the mortgaged property, to maintain the
lien on the mortgaged property or enforce the
related mortgage loan documents ("Servicing
Advances," and collectively with P&I Advances,
"Advances"). If the Master Servicer fails to make
a required Servicing Advance, the Trustee is
required to make such Servicing Advance. The
Master Servicer is not required to advance
amounts deemed non-recoverable. See "Description
of the Certificates--Advances" in this prospectus
supplement.
C. INTEREST ON ADVANCES.... The Master Servicer and the Trustee, as
applicable, will be entitled to interest on
Advances at the "Prime Rate" published in The
Wall Street Journal as described in this
prospectus supplement. Interest accrued on
outstanding Advances may
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<PAGE>
result in reductions in amounts otherwise
payable on the certificates.
See "Description of the Certificates--Advances"
and "Subordination; Allocation of Collateral
Support Deficit" 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.
ADDITIONAL ASPECTS OF CERTIFICATES
DENOMINATIONS............... The offered certificates (other than the Class
X certificates) will be offered in minimum
denominations of $25,000 initial principal
amount. The Class X certificates will be offered
in minimum denominations of $1,000,000 initial
notional amount. Investments in excess of the
minimum denominations may be made in multiples of
$1000.
REGISTRATION, CLEARANCE AND
SETTLEMENT................ Each class of offered certificates will be
registered in the name of Cede & Co., as nominee
of The Depository Trust Company ("DTC").
You may hold your offered certificates through:
(i) DTC in the United States; or (ii) Cedel
Bank, S.A. ("CEDEL") or The Euroclear System
("Euroclear") in Europe. Transfers within DTC,
CEDEL or Euroclear will be made in accordance
with the usual rules and operating procedures of
those systems.
We may elect to terminate the book-entry system
through DTC with respect to all or any portion
of any class of the offered certificates.
See "Description of the Certificates--Book-Entry
Registration and Definitive Certificates" in
this prospectus supplement and in the
prospectus.
INFORMATION AVAILABLE TO
CERTIFICATEHOLDERS........ On each distribution date, the Paying Agent
will prepare and forward by mail to each
certificateholder of record (initially expected
to be Cede & Co.), a statement as to the
distributions being made on such date.
Additionally, under certain circumstances,
certificateholders of record may be entitled to
certain other information regarding the trust.
See "Description of the Certificates--Reports to
Certificateholders; Certain Available
Information" in this prospectus supplement.
DEAL INFORMATION/ANALYTICS... Certain information concerning the mortgage
loans and the offered certificates will be
available to you through the following services:
o Bloomberg, L.P.
o the Paying Agent's website at
www.chase.com/global/trust/sfs/reports.html.
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<PAGE>
OPTIONAL TERMINATION........ On any distribution date on which the aggregate
principal balance of the mortgage loans remaining
in the trust is less than 1% of the aggregate
unpaid balance of the mortgage loans as of the
Cut-off Date, certain entities specified in this
prospectus supplement will have the option to
purchase all of the remaining mortgage loans at
the price specified in this prospectus supplement
(and all property acquired through exercise of
remedies in respect of any mortgage loan).
Exercise of this option will terminate the trust
and retire the then-outstanding certificates. See
"Description of the Certificates--Termination;
Retirement of Certificates" in this prospectus
supplement and "Description of the
Certificates--Termination" in the prospectus.
TAX STATUS.................. An election will be made to treat a portion of
the Trust (exclusive of the Excess Interest and
the related distribution account for it) as two
separate REMICs--a Lower-Tier REMIC and an
Upper-Tier REMIC--for federal income tax
purposes. The portion of the trust representing
the Excess Interest will be treated as a grantor
trust for federal income tax purposes. In the
opinion of counsel, the portion of the Trust
referred to above will qualify for this
treatment.
Pertinent federal income tax consequences of an
investment in the offered certificates include:
o Each class of offered certificates
(and the Class F, Class G, Class H,
Class I and Class J certificates) will
constitute "regular interests" in the
Upper-Tier REMIC.
o The regular interests will be treated
as newly originated debt instruments
for federal income tax purposes.
o You will be required to report income
on your certificates using the accrual
method of accounting.
o The Class X certificates will, and one
or more other classes of offered
certificates may, be issued with
original issue discount.
See "Certain Federal Income Tax Consequences" in
this prospectus supplement and "Certain Federal
Income Tax Consequences--REMICs--Taxation of
Owners of REMIC Regular Certificates" in the
prospectus.
CERTAIN ERISA
CONSIDERATIONS.............. Subject to important considerations described
under "Certain ERISA Considerations" in this
prospectus supplement and in the accompanying
prospectus, the Class A-1, Class A-2, Class A-3
and Class X certificates are eligible for
purchase by persons investing assets of employee
benefit plans or individual retirement accounts.
THE CLASS B, CLASS C, CLASS D AND CLASS E
CERTIFICATES MAY NOT BE PURCHASED BY, OR
TRANSFERRED TO, A PLAN OR ANY PERSON INVESTING
THE ASSETS OF A PLAN. (THIS PROHIBITION DOES NOT
APPLY
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<PAGE>
TO AN INSURANCE COMPANY INVESTING ASSETS OF ITS
GENERAL ACCOUNT UNDER CIRCUMSTANCES WHICH WOULD
QUALIFY FOR AN EXEMPTION UNDER SECTION III OF
PROHIBITED TRANSACTION CLASS EXEMPTION 95-60.)
LEGAL INVESTMENT............ The Class A, Class X and Class B certificates
will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended ("SMMEA"), so
long as: (i) those certificates are rated in one
of the two highest rating categories by one or
more rating agencies; and (ii) the underlying
mortgage loans are secured by real estate. The
other classes of offered certificates will NOT
constitute "mortgage related securities" within
the meaning of SMMEA.
See "Legal Investment" in this prospectus
supplement and in the accompanying prospectus.
RATING...................... The offered certificates will not be issued
unless each of the offered classes receives the
following ratings from Standard & Poor's Ratings
Services and Duff & Phelps Credit Rating Co.:
<TABLE>
<CAPTION>
S&P DCR
------ -----
<S> <C> <C>
Class A-1 .......... AAA AAA
Class A-2 .......... AAA AAA
Class A-3 .......... AAA AAA
Class X ............ AAAr AAA
Class B ............ AA AA
Class C ............ A A
Class D ............ BBB BBB
Class E ............ BBB- BBB-
</TABLE>
A rating agency may downgrade, qualify or
withdraw a security rating at any time. A rating
agency not requested to rate the offered
certificates may nonetheless issue a rating and,
if one does, it may be lower than those stated
above. S&P assigns the additional rating of "r"
to highlight classes of securities that S&P
believes may experience high volatility or high
variability in expected returns due to
non-credit risks. The security ratings do not
address the frequency of prepayments (whether
voluntary or involuntary) of mortgage loans, or
the degree to which such prepayments might
differ from those originally anticipated, or the
likelihood of collection of excess interest,
default interest, prepayment premiums or yield
maintenance charges, or the tax treatment of the
certificates. Even though the Class X
certificates will be rated "AAAr/AAA," it is
still possible that you may fail to recover your
full initial investment due to a rapid rate of
prepayments, defaults or liquidations. See
"Yield and Maturity Considerations" in this
prospectus supplement, "Risk Factors" and
"Rating" in this prospectus supplement, and in
the prospectus, and "Yield and Maturity
Considerations" in the prospectus.
See "Ratings" in this prospectus supplement and
the prospectus for a discussion of the basis
upon which ratings are given and the conclusions
that may not be drawn from a rating.
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<PAGE>
RISK FACTORS
You should carefully consider the following risks before making an
investment decision. In particular, distributions on your certificates will
depend on payments received on and other recoveries with respect to the
mortgage loans. Therefore, you should carefully consider the risk factors
relating to the mortgage loans and the mortgaged properties.
The risks and uncertainties described below are not the only ones relating
to your certificates. Additional risks and uncertainties not presently known to
us or that we currently deem immaterial may also impair your investment.
If any of the following risks are realized, your investment could be
materially and adversely affected.
This prospectus supplement also contains forward-looking statements that
involve risks and uncertainties. Actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including the risks described below and elsewhere in this prospectus
supplement.
GEOGRAPHIC CONCENTRATION ENTAILS RISKS
Mortgaged properties located in Massachusetts, California, New York and
Maryland represent 20.10%, 12.22%, 12.00% and 10.82%, respectively, of the
mortgaged properties by allocated loan amount. Concentrations of mortgaged
properties in geographic areas may increase the risk that adverse economic or
other developments or natural disaster affecting a particular region of the
country could increase the frequency and severity of losses on mortgage loans
secured by those properties. In recent periods, several regions of the United
States have experienced significant real estate downturns. Regional economic
declines or conditions in regional real estate markets could adversely affect
the income from, and market value of, the mortgaged properties. Other regional
factors--e.g., earthquakes, floods or hurricanes or changes in governmental
rules or fiscal policies--also may adversely affect the mortgaged properties.
For example, mortgaged properties located in California may be more susceptible
to certain hazards (such as earthquakes) than properties in other parts of the
country.
RISKS RELATING TO LOAN CONCENTRATIONS
The effect of mortgage pool loan losses will be more severe if the losses
relate to loans that account for a disproportionately large percentage of the
pool's aggregate principal balance. In this regard:
o The largest mortgage loan represents approximately 14.29% of the
aggregate principal balance of the mortgage loans as of the Cut-off
Date.
o The 3 largest mortgage loans represent, in the aggregate, approximately
29.50% of the aggregate principal balance of the mortgage loans as of
the Cut-off Date.
o The ten largest mortgage loans represent, in the aggregate,
approximately 48.77% of the aggregate principal balance of the mortgage
loans as of the Cut-off Date.
Each of the other mortgage loans represents less than 5% of the Cut-off
Date aggregate principal balance of the mortgage loans as of the Cut-off Date.
A concentration of mortgaged property types also can pose increased risks.
In that regard:
o retail properties represent approximately 43.49% of the aggregate
principal balance of the mortgage pool as of the Cut-off Date (based on
the primary property type for combined office/retail properties);
o office properties represent 26.07% (based on the primary property type
for combined office/retail properties);
o multifamily properties represent 11.43%; and
o hotel properties represent 10.28%.
A concentration of mortgaged property types can increase the risk that a
decline in a particular industry or business would have a disproportionately
large impact on the pool of mortgage loans. For
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<PAGE>
example, if there is a decline in tourism, the hotel industry might be
adversely effected, leading to increased losses on loans secured by hotel
properties as compared to the mortgage loans secured by other property types.
A concentration of mortgage loans with the same borrower or related
borrowers can also pose risks. In that regard:
MORTGAGE LOANS WITH SIGNIFICANT BORROWER CONCENTRATIONS
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
----------------------------------------------------
NUMBER OF AGGREGATE PERCENTAGE STATED CUT-OFF LTV
LOANS/ CUT-OFF DATE OF INITIAL MORTGAGE REMAINING DATE RATIO AT
ENTITY PROPERTIES BALANCE POOL BALANCE RATE TERM (MO.) DSCR LTV RATIO MATURITY
- ---------------------------- ------------ -------------- ------------- ---------- ------------ ------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kimco Realty Corp. ......... 9 / 9 $160,412,500 12.40% 6.60% 120 1.49 74.54% 64.42%
Kimpton .................... 2 / 2 67,789,974 5.24 7.89% 110 1.78 63.83% 52.18%
------------ ------------ -----
TOTAL/WEIGHTED AVERAGE 11 / 11 $228,202,474 17.64%
============ ============ =====
</TABLE>
See the table entitled "Certain Mortgage Loans With Related Borrowers"
under "Description of the Mortgage Pool--Additional Mortgage Loan Information"
in this prospectus supplement and Exhibit A attached hereto.
Mortgaged properties owned by related borrowers are likely to:
o have common management, increasing the risk that financial or other
difficulties experienced by the property manager could have a greater
impact on the pool of mortgage loans; and
o have common general partners which would increase the risk that a
financial failure or bankruptcy filing would have a greater impact on
the pool of mortgage loans.
The terms of the mortgage loans generally require that the borrowers be
single-purpose entities. In addition, in most cases, such borrowers'
organizational documents or the terms of the mortgage loans limit their
activities to the ownership of only the related mortgaged property or
properties and limit the borrowers' ability to incur additional indebtedness.
Such provisions are designed to mitigate the possibility that the borrower's
financial condition would be adversely impacted by factors unrelated to the
mortgaged property and the mortgage loan in the pool. However, we cannot assure
you that such borrowers will comply with such requirements. Further, in many
cases such borrowers are not required to observe all covenants and conditions
which typically are required in order for such borrowers to be viewed under
standard rating agency criteria as "special purpose entities." See "Certain
Legal Aspects of Mortgage Loans--Bankruptcy Laws" in the prospectus.
ABILITY TO EFFECT OTHER BORROWINGS ENTAILS RISK
The borrower under 1 mortgage loan, known as the 75 State Street Loan,
representing approximately 14.29% of the aggregate principal balance of the
mortgage pool as of the Cut-off Date, has unsecured debt ("Affiliate Debt")
payable to an affiliate of such borrower in addition to the debt owed under the
mortgage loan and the terms of the mortgage loan allows the borrower to incur
additional Affiliate Debt under certain circumstances. In addition, 5 mortgage
loans, representing approximately 19.24% of the aggregate principal balance of
the mortgage pool as of the Cut-off Date, do not currently have any Affiliate
Debt, but the terms of the mortgage loans allow the related borrowers to incur
Affiliate Debt. Also, substantially all of the mortgage loans permit the
related borrower to incur limited indebtedness in the ordinary course of
business. Additionally, with respect to the 75 State Street Loan, affiliates of
the borrower have obtained a loan secured by the equity interests in the
borrower. See "Description of the Mortgage Pool--Significant Mortgage
Loans--The 75 State Street Loan--75 State Street Mezzanine Debt" in this
prospectus supplement.
When a mortgage loan borrower (or its constituting members) also has one
or more other outstanding loans (even if subordinated loans), the trust is
subjected to additional risk. The borrower may have difficulty servicing and
repaying multiple loans. The existence of another loan generally also will
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<PAGE>
make it more difficult for the borrower to obtain refinancing of the mortgage
loan and may thereby jeopardize repayment of the mortgage loan. Moreover, the
need to service additional debt may reduce the cash flow available to the
borrower to operate and maintain the mortgaged property.
Additionally, if the borrower (or its constituent members) defaults on the
mortgage loan and/or any other loan, actions taken by other lenders such as a
foreclosure by another lender or an involuntary petition for bankruptcy against
the borrower could impair the security available to the trust, including the
mortgaged property, or stay the trust's ability to foreclose during the course
of the bankruptcy case. The bankruptcy of another lender also may operate to
stay foreclosure by the trust. The trust may also be subject to the costs and
administrative burdens of involvement in foreclosure or bankruptcy proceedings
or related litigation.
The Affiliate Debt creditor under the 75 State Street Loan has entered
into a subordination agreement with the lender acknowledging that such
Affiliate Debt is non-foreclosable and non-defaultable unless the Affiliate
Debt creditor has obtained written confirmation from the Rating Agencies that
such foreclosure or default would not cause the downgrade, withdrawal or
qualification of the then current ratings of the certificates. Payments on any
such Affiliate Debt are required to be made solely out of excess cash flow
after monthly payments of principal and interest have been made and any
reserves required by the terms of the related mortgage loans have been funded
as required under the mortgage loan documents. See "Description of the Mortgage
Pool--General" in this prospectus supplement and "Certain Legal Aspects of
Mortgage Loans--Subordinate Financing" in the prospectus.
Except for the existing Affiliate Debt described above, the mortgage loans
generally prohibit borrowers from incurring any debt that is secured by the
related mortgaged properties.
BORROWER MAY BE UNABLE TO REPAY REMAINING PRINCIPAL BALANCE ON MATURITY DATE OR
ANTICIPATED PREPAYMENT DATE
93 of the mortgage loans, representing approximately 97.54% of the
aggregate principal balance of the mortgage pool as of the Cut-off Date, are
expected to have substantial remaining principal balances as of their
respective Anticipated Prepayment Dates or stated maturity dates. 84 of the
mortgage loans require balloon payments at stated maturity, and 9 of the loans
would require a substantial payment at their Anticipated Prepayment Date.
Mortgage loans with substantial remaining principal balances at their stated
maturity (i.e., "balloon loans") involve greater risk than fully amortizing
loans.
A borrower's ability to repay a loan on its Anticipated Prepayment Date or
maturity date typically will depend upon its ability either to refinance the
loan or to sell the mortgaged property at a price sufficient to permit
repayment. A borrower's ability to achieve either of these goals will be
affected by a number of factors, including:
o the availability of, and competition for, credit for commercial real
estate projects;
o the prevailing interest rates;
o the fair market value of the related properties;
o the borrower's equity in the related properties;
o the borrower's financial condition;
o the operating history and occupancy level of the property;
o the tax laws; and
o prevailing general and regional economic conditions.
The availability of funds in the credit markets fluctuates over time.
We cannot assure you that each borrower will have the ability to repay the
remaining principal balances on the pertinent date.
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<PAGE>
See "Description of the Mortgage Pool--Certain Terms and Conditions of the
Mortgage Loans" in this prospectus supplement and "Risk Factors--Balloon
Payments; Borrower Default" in the prospectus.
COMMERCIAL AND MULTIFAMILY LENDING IS DEPENDENT UPON NET OPERATING INCOME
The mortgage loans are secured by various income-producing commercial and
multifamily properties. Commercial and multifamily lending are generally
thought to expose a lender to greater risk than residential one-to-four family
lending because it typically involves larger loans to a single borrower or
groups of related borrowers.
The repayment of a commercial or multifamily loan is typically dependent
upon the ability of the applicable property to produce cash flow through the
collection of rents. Even the liquidation value of a commercial property is
determined, in substantial part, by the capitalization of the property's cash
flow. However, net operating income can be volatile and may be insufficient to
cover debt service on the loan at any given time.
The net operating incomes and property values of the mortgaged properties
may be adversely affected by a large number of factors. Some of these factors
relate to the properties themselves, such as:
o the age, design and construction quality of the properties;
o perceptions regarding the safety, convenience and attractiveness of the
properties;
o the proximity and attractiveness of competing properties;
o the adequacy of the property's management and maintenance;
o increases in operating expenses;
o an increase in the capital expenditures needed to maintain the
properties or make improvements;
o a decline in the financial condition of a major tenant;
o an increase in vacancy rates; and
o a decline in rental rates as leases are renewed or entered into with
new tenants.
Other factors are more general in nature, such as:
o national, regional or local economic conditions (including plant
closings, industry slowdowns and unemployment rates);
o local real estate conditions (such as an oversupply of retail space,
office space or multifamily housing);
o demographic factors;
o consumer confidence;
o consumer tastes and preferences; and
o retroactive changes in building codes.
The volatility of net operating income will be influenced by many of the
foregoing factors, as well as by:
o the length of tenant leases;
o the creditworthiness of tenants;
o in the case of rental properties, the rate at which new rentals occur;
and
o the property's "operating leverage" (i.e., the percentage of total
property expenses in relation to revenue, the ratio of fixed operating
expenses to those that vary with revenues, and the level of capital
expenditures required to maintain the property and to retain or replace
tenants).
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<PAGE>
A decline in the real estate market or in the financial condition of a
major tenant will tend to have a more immediate effect on the net operating
income of properties with short-term revenue sources, such as short-term or
month to month leases, and may lead to higher rates of delinquency or defaults.
TENANT CONCENTRATION ENTAILS RISK
A deterioration in the financial condition of a tenant can be particularly
significant if a mortgaged property is leased to a single tenant, or a small
number of tenants. Mortgaged properties leased to a single tenant, or a small
number of tenants, also are more susceptible to interruptions of cash flow if a
tenant fails to renew its lease. This is so because: (i) the financial effect
of the absence of rental income may be severe; (ii) more time may be required
to re-lease the space; and (iii) substantial capital costs may be incurred to
make the space appropriate for replacement tenants.
For example, with respect to the 75 State Street Loan, the lease with
Fleet National Bank, which represents approximately 34.9% of the gross
leaseable area of the 75 State Street Property, expires on March 31, 2008, 6
months prior to the Anticipated Prepayment Date for the 75 State Street Loan.
Additionally, the lease with Wellington Management Company, which represents
approximately 18.22% of the gross leaseable area of the 75 State Street
Property, expires on March 31, 2011, 2 years and 6 months following the
Anticipated Prepayment Date of the 75 State Street Loan. Pursuant to the terms
of the 75 State Street Loan documents, the 75 State Street Borrower is required
to fund a reserve of an amount which could equal or exceed $20,000,000 to be
used for expenses incurred in reletting the applicable space in the event
either tenant vacates. However, we cannot assure you that the 75 State Street
Borrower will have sufficient funds to fund such amounts or sufficient time to
relet the applicable space. If Fleet National Bank does not extend its lease or
if the 75 State Street Borrower is not able to relet the applicable space, the
75 State Street Borrower may not be able to locate financing to prepay the 75
State Street Loan on the Anticipated Prepayment Date.
Retail and office properties also may be adversely affected if there is a
concentration of particular tenants among the mortgaged properties or of
tenants in a particular business or industry.
MORTGAGED PROPERTIES LEASED TO MULTIPLE TENANTS ALSO HAVE RISKS
If a mortgaged property has multiple tenants, re-leasing expenditures may
be more frequent than in the case of mortgaged properties with fewer tenants,
thereby reducing the cash flow available for debt service payments.
Multi-tenanted mortgaged properties also may experience higher continuing
vacancy rates and greater volatility in rental income and expenses.
TENANT BANKRUPTCY ENTAILS RISKS
The bankruptcy or insolvency of a major tenant, or a number of smaller
tenants, in retail and office properties may adversely affect the income
produced by a mortgaged property. Under the federal bankruptcy code (the
"Bankruptcy Code"), a tenant has the option of assuming or rejecting any
unexpired lease. If the tenant rejects the lease, the landlord's claim for
breach of the lease would be a general unsecured claim against the tenant
(absent collateral securing the claim). The claim would be limited to the
unpaid rent reserved under the lease for the periods prior to the bankruptcy
petition (or earlier surrender of the leased premises) which are unrelated to
the rejection, plus the greater of one year's rent or 15% of the remaining
reserved rent (but not more than three years' rent).
MORTGAGE LOANS ARE NONRECOURSE AND ARE NOT INSURED OR GUARANTEED
The mortgage loans are not insured or guaranteed by any person or entity,
governmental or otherwise.
Each mortgage loan is a nonrecourse loan. If a default occurs, recourse
generally may be had only against the specific properties and other assets that
have been pledged to secure the loan. Payment prior to maturity is consequently
dependent primarily on the sufficiency of the net operating income of the
mortgaged property. Payment at maturity is primarily dependent upon the market
value of the mortgaged property or the borrower's ability to refinance the
property.
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<PAGE>
However, with respect to 3 of the mortgage loans which are secured by
credit lease properties, which represent in the aggregate approximately 2.15%
of the aggregate principal balance of the mortgage pool as of the Cut-off Date,
the related borrower has purchased a surety bond which guarantees the payment
of all principal due at the stated maturity date of the related mortgage loan.
The surety bond issuer in each case is Centre Reinsurance (U.S.) Limited, which
has a claims paying ability rating of "AA" by S&P. See "Description of the
Mortgage Pool--General" in this prospectus supplement.
RETAIL PROPERTIES HAVE SPECIAL RISKS
Retail properties secure 43 of the underlying mortgage loans, representing
approximately 43.49% of the aggregate principal balance of the mortgage pool as
of the Cut-off Date.
The quality and success of a retail property's tenants significantly
affect the property's value. For example, if the sales revenue of retail
tenants were to decline, rents tied to a percentage of gross sales may decline
and those tenants may be unable to pay their rent or other occupancy costs.
The presence or absence of an "anchor tenant" in a shopping center also
can be important, because anchors play a key role in generating customer
traffic and making a center desirable for other tenants. An "anchor tenant" is
usually proportionately larger in size and is vital in attracting customers to
a retail property, whether or not it is located on the related mortgaged
property. 38 of the mortgage loans, which represent in the aggregate
approximately 41.99% of the aggregate principal balance of the pool of mortgage
loans as of the Cut-off Date, are secured by retail properties that are
"anchored" and 5 of the mortgage loans, which represent in the aggregate
approximately 1.5% of the aggregate principal balance of the pool of mortgage
loans as of the Cut-off Date, are secured by retail properties that are
"unanchored".
Two of the non-borrower leased anchor stores Nordstrom and Hecht's
Department Store for the mortgaged property securing the Towson Town Center
Loan are subject to operating agreements which expire in 2005. Those anchor
stores will not be obligated to operate at the related mortgaged property after
the operating agreements expire.
If anchor stores in a mortgaged property were to close, the related
borrower may be unable to replace those anchors in a timely manner or without
suffering adverse economic consequences.
Retail properties also face competition from sources outside a given real
estate market. For example, all of the following compete with more traditional
retail properties for consumer dollars: factory outlet centers; discount
shopping centers and clubs; catalogue retailers; home shopping networks;
Internet web sites; and telemarketing. Continued growth of these alternative
retail outlets (which often have lower operating costs) could adversely affect
the rents collectible at the retail properties included in the mortgage pool,
as well as the income from, and market value of, the mortgaged properties.
Moreover, additional competing retail properties may be built in the areas
where the retail properties are located.
OFFICE PROPERTIES HAVE SPECIAL RISKS
21 of the mortgage loans, representing approximately 26.07% of the
aggregate principal balance of the mortgage pool as of the Cut-off Date, are
secured primarily by office properties.
A large number of factors may adversely affect the value of office
properties, including:
o the quality of an office building's tenants;
o the physical attributes of the building in relation to competing
buildings (e.g., age, condition, design, access to transportation and
ability to offer certain amenities, such as sophisticated building
systems);
o the desirability of the area as a business location; and
o the strength and nature of the local economy (including labor costs and
quality, tax environment and quality of life for employees).
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Moreover, the cost of refitting office space for a new tenant is often
higher than the cost of refitting other types of property for new tenants. See
"--Tenant Concentration Entails Risk" above.
MULTIFAMILY PROPERTIES HAVE SPECIAL RISKS
Multifamily properties secure 16 of the mortgage loans, representing
approximately 11.43% of the aggregate principal balance of the mortgage pool as
of the Cut-off Date. A large number of factors may adversely affect the value
and successful operation of a multifamily property, including:
o the physical attributes of the apartment building (e.g., its age,
appearance and construction quality);
o the location of the property (e.g., a change in the neighborhood over
time);
o the ability of management to provide adequate maintenance and
insurance;
o the types of services (amenities) that the property provides;
o the property's reputation;
o the level of mortgage interest rates (which may encourage tenants to
purchase rather than lease housing);
o the presence of competing properties;
o adverse local or national economic conditions; and
o state and local regulations.
HOTEL PROPERTIES HAVE SPECIAL RISKS
5 of the mortgage loans, representing approximately 10.28% of the
aggregate principal balance of the mortgage pool as of the Cut-off Date, are
secured by hotel properties.
Various factors may adversely affect the economic performance of a hotel,
including:
o adverse economic and social conditions, either local, regional or
national (which may limit the amount that can be charged for a room and
reduce occupancy levels);
o the construction of competing hotels or resorts;
o continuing expenditures for modernizing, refurbishing and maintaining
existing facilities prior to the expiration of their anticipated useful
lives;
o a deterioration in the financial strength or managerial capabilities of
the owner and operator of a hotel; and
o changes in travel patterns caused by changes in access, energy prices,
strikes, relocation of highways, the construction of additional
highways or other factors.
Because hotel rooms generally are rented for short periods of time, the
financial performance of hotels tends to be affected by adverse economic
conditions and competition more quickly than other commercial properties.
Moreover, the hotel and lodging industry is generally seasonal in nature,
different seasons affect different hotels depending on type and location. This
seasonality can be expected to cause periodic fluctuations in a hotel
property's revenues, occupancy levels, room rates and operating expenses.
RISKS RELATING TO AFFILIATION WITH A FRANCHISE OR HOTEL MANAGEMENT COMPANY
3 of the mortgage loans on the hotel properties, representing
approximately 5.04% of the aggregate principal balance of the mortgage pool as
of the Cut-off Date, are affiliated with a franchise or hotel management
company. The performance of a hotel property affiliated with a franchise or
hotel management company depends in part on:
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o the continued existence and financial strength of the franchisor or
hotel management company;
o the public perception of the franchise or hotel chain service mark; and
o the duration of the franchise licensing or management agreements.
Any provision in a franchise agreement or management agreement providing
for termination because of a bankruptcy of a franchisor or manager generally
will not be enforceable. Replacement franchises may require significantly
higher fees.
The transferability of franchise license agreements is restricted. In the
event of a foreclosure, the lender or its agent would not have the right to use
the franchise license without the franchisor's consent. Conversely, in the case
of certain mortgage loans, the lender may be unable to remove a franchisor or a
hotel management company that it desires to replace following a foreclosure.
Further, in the event of a foreclosure, the Trustee or a purchaser of such
mortgaged property probably would not be entitled to the rights under any
liquor license for the mortgaged property. Such party would be required to
apply in its own right for such a license, and we cannot assure you that a new
license could be obtained.
WAREHOUSE/INDUSTRIAL PROPERTIES HAVE SPECIAL RISKS
Industrial properties secure 5 of the mortgage loans, representing
approximately 3.69% of the aggregate principal balance of the mortgage pool as
of the Cut-off Date. Significant factors determining the value of industrial
properties are:
o the quality of tenants;
o building design and adaptability; and
o 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 a
warehouse/industrial property include high clear ceiling heights, wide column
spacing, a large number of bays (loading docks) 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.
CREDIT LEASE PROPERTIES HAVE SPECIAL RISKS
7 of the mortgage loans, representing approximately 3.34% of the aggregate
principal balance of the mortgage pool as of the Cut-off Date, are secured by
properties backed by net lease obligations ("Credit Leases") of a tenant, or
net lease obligations guaranteed by an entity.
<TABLE>
<CAPTION>
TENANT/GUARANTOR RATING BY PERCENTAGE OF
NUMBER OF CREDIT LEASE LOANS AT LEAST ONE RATING AGENCY INITIAL POOL BALANCE
- ------------------------------ ---------------------------- ---------------------
<S> <C> <C>
6 Investment Grade 2.57%
1 Non-investment Grade 0.77%
</TABLE>
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Any rating assigned to the tenant or guarantor, as applicable, by a Rating
Agency will reflect only such Rating Agency's assessment of the long-term
unsecured debt obligations of the tenant or its guarantor. Such rating does NOT
imply an assessment of the likelihood that:
o the credit leases will not be terminated or the related mortgage loans
prepaid (through the exercise of a purchase option by the lessee or
otherwise);
o that principal prepayments on the related mortgage loans will be made
by the related borrowers; or
o that any prepayment premium will be paid, or, if paid, will be
sufficient to provide the anticipated yield on the loan.
As a result, such rating will not address the possibility that a
prepayment of a mortgage loan may cause you to experience a lower than
anticipated yield. See "Prepayment and Yield Considerations" in this prospectus
supplement. See "Description of the Mortgage Pool--Additional Mortgage Loan
Information--Cut-off Date Loan Amount by Property Type" in this prospectus
supplement for certain statistical information on mortgage loans backed by
Credit Leases.
A downgrade in the credit rating of any of the tenants and/or the
guarantors may have a related adverse effect on the rating of your
certificates. If a tenant or guarantor defaults on its obligation to make
monthly rental payments under a Credit Lease or the related guarantee, the
borrower under a mortgage loan backed by Credit Leases may not have the ability
to make required payments on such loan. If the default occurs before
significant amortization of the loan has occurred and no recovery is available
from the related borrower, the tenant or any guarantor, it is unlikely in most
cases that the Special Servicer will be able to recover in full the amounts
then due under the loan.
Certain mortgage loans backed by Credit Leases have insurance policies for
the benefit of the lender to cover certain lease termination and abatement
events arising out of a condemnation and/or casualty of a credit lease
property. Certain of the Credit Leases have surety bonds for the benefit of the
lender to cover the principal payments on the related loans at maturity.
<TABLE>
<CAPTION>
RATINGS OF NUMBER OF
PROVIDER BY CREDIT LEASE % OF INITIAL
CREDIT LEASE LOAN PROTECTION S&P LOANS POOL BALANCE
- ------------------------------ ------------- -------------- -------------
<S> <C> <C> <C>
Lease Enhancement Policies AAA 4 1.20%
Surety Bonds AA 3 2.15%
</TABLE>
Your investment would be adversely affected by any failure by the insurer
to pay under the terms of such policies or surety bonds, and any downgrade of
the credit rating of such insurer may adversely affect the ratings of your
certificates.
See "Description of the Mortgage Pool--Credit Lease Loans" in this
prospectus supplement.
RISKS RELATING TO SECTION 8 MULTIFAMILY PROPERTIES
2 of the mortgage loans (those identified as loan numbers 43 and 74 on
Annex A hereto), representing approximately 2.60% of the aggregate principal
balance of the mortgage pool as of the Cut-off Date, are secured by mortgaged
properties in which the rents charged to some of the tenants are subsidized by
housing assistance payments under HUD's Section 8 Tenant-Based Assistance
Rental Voucher Program or Section 8 Tenant-Based Assistance Rental Certificate
Program (now combined into one voucher program). Such payments are made
pursuant to Housing Assistance Payments Contracts ("HAP Contracts") between the
borrower and a local housing authority which receives Section 8 funds from HUD.
The term of each HAP Contract is limited to the term of the related tenant
lease, generally one year, renewable at the option of the tenant. Tenants may
choose to move out of the mortgaged properties and utilize their vouchers
elsewhere, and we cannot assure you that such units will be re-rented. The HAP
Contracts impose certain management and maintenance obligations on the
borrowers, and housing assistance payments can be suspended, reduced, or
terminated if HUD or the local housing
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authority determines that the borrowers have breached the HAP Contracts. HUD
may in the future elect, or be required by Congress, to take actions with the
effect of limiting increases in rents subsidized under Section 8, or reducing
rent levels currently in effect. The ability of the respective borrowers to pay
their mortgage loans, and the value of their Mortgaged Properties and
consequent ability to refinance the mortgage loans which are subject to HAP
Contracts, could be adversely affected by some or all of the abovementioned
risks. See "Description of the Mortgage Pool--Section 8 Housing Assistance
Payments Programs" in this prospectus supplement.
CERTAIN ADDITIONAL RISKS RELATING TO TENANTS
The income from, and market value of, the mortgaged properties leased to
various tenants would be adversely affected if:
o space in the mortgaged properties could not be leased or re-leased;
o tenants were unable to meet their lease obligations;
o a significant tenant were to become a debtor in a bankruptcy case; or
o rental payments could not be collected for any other reason.
Repayment of the mortgage loans secured by retail and office properties
will be affected by the expiration of leases and the ability of the respective
borrowers to renew the leases or relet the space on comparable terms.
Even if vacated space is successfully relet, the costs associated with
reletting, including tenant improvements and leasing commissions, could be
substantial and could reduce cash flow from the mortgaged properties. Moreover,
if a tenant defaults in its obligations to a borrower, the borrower may incur
substantial costs and experience significant delays associated with enforcing
its rights and protecting its investment, including costs incurred in
renovating and reletting the property.
SOME MORTGAGED PROPERTIES MAY NOT BE READILY CONVERTIBLE TO ALTERNATIVE USES
Some of the mortgaged properties may not be readily convertible to
alternative uses if those properties were to become unprofitable for any
reason. Converting commercial properties to alternate uses generally requires
substantial capital expenditures. The liquidation value of any such mortgaged
property consequently may be substantially less than would be the case if the
property were readily adaptable to other uses.
Zoning or other restrictions also may prevent alternative use.
LACK OF SKILLFUL PROPERTY MANAGEMENT ENTAILS RISKS
The successful operation of a real estate project depends upon the
property manager's performance and viability. The property manager is
responsible for:
o responding to changes in the local market;
o planning and implementing the rental structure;
o operating the property and providing building services;
o managing operating expenses; and
o assuring that maintenance and capital improvements are carried out in a
timely fashion.
Properties deriving revenues primarily from short-term sources, such as
short-term or month-to-month leases, are generally more management intensive
than properties leased to creditworthy tenants under long-term leases.
We make no representation or warranty as to the skills of any present or
future managers. Additionally, we cannot assure you that the property managers
will be in a financial condition to fulfill their management responsibilities
throughout the terms of their respective management agreements.
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LIMITATIONS OF APPRAISALS
Appraisals were obtained with respect to each of the mortgaged properties
prior to the origination of the applicable mortgage loan. In general,
appraisals represent the analysis and opinion of qualified appraisers and are
not guarantees of present or future value. One appraiser may reach a different
conclusion than the conclusion that would be reached if a different appraiser
were appraising such property. Moreover, appraisals seek to establish the
amount a typically motivated buyer would pay a typically motivated seller and,
in certain cases, may have taken into consideration the purchase price paid by
the borrower. Such amount could be significantly higher than the amount
obtained from the sale of a mortgaged property under a distress or liquidation
sale. We cannot assure you that the information set forth in this prospectus
supplement regarding appraised values or loan-to-value ratios accurately
reflects past, present or future market values of the mortgaged properties.
YOUR LACK OF CONTROL OVER TRUST FUND CAN CREATE RISKS
You and other certificateholders generally do not have a right to vote and
do not have the right to make decisions with respect to the administration of
the trust. See "Servicing of the Mortgage Loans--General" in this prospectus
supplement. Such decisions are generally made, subject to the express terms of
the pooling and servicing agreement, by the Master Servicer, the Trustee or the
Special Servicer, as applicable. Any decision made by one of those parties in
respect of the trust, even if such decision is determined to be in your best
interests by such party, may be contrary to the decision that you or other
certificateholders would have made and may negatively affect your interests.
SPECIAL SERVICER MAY HAVE A CONFLICT OF INTEREST
We anticipate that the Special Servicer or an affiliate will purchase all
or a portion of the Class J certificates. This could cause a conflict between
the Special Servicer's duties to the trust under the pooling and servicing
agreement and its interest as a holder of a certificate. However, the pooling
and servicing agreement provides that the mortgage loans shall be administered
in accordance with the servicing standards without regard to ownership of any
certificate by the Master Servicer, the Special Servicer or any affiliates
thereof. See "Servicing of the Mortgage Loans--General" in this prospectus
supplement.
BANKRUPTCY PROCEEDINGS ENTAILS CERTAIN RISKS
Under the Bankruptcy Code, the filing of a petition in bankruptcy by or
against a borrower will stay the sale of the mortgaged property owned by that
borrower, as well as the commencement or continuation of a foreclosure action.
In addition, if a court determines that the value of the mortgaged property is
less than the principal balance of the mortgage loan it secures, the court may
prevent a lender from foreclosing on the mortgaged property (subject to certain
protections available to the lender). As part of a restructuring plan, a court
also may reduce the amount of secured indebtedness to the then-current value of
the mortgaged property. Such an action would make the lender a general
unsecured creditor for the difference between the then-current value and the
amount of its outstanding mortgage indebtedness. A bankruptcy court also may:
(i) grant a debtor a reasonable time to cure a payment default on a mortgage
loan; (ii) reduce monthly payments due under a mortgage loan; (iii) change the
rate of interest due on a mortgage loan; or (iv) otherwise alter the mortgage
loan's repayment schedule.
Moreover, the filing of a petition in bankruptcy by, or on behalf of, a
junior lienholder may stay the senior lienholder from taking action to
foreclose on the junior lien. Additionally, the borrower's trustee or the
borrower, as debtor-in-possession, has certain special powers to avoid,
subordinate or disallow debts. In certain circumstances, the claims of the
trustee may be subordinated to financing obtained by a debtor-in-possession
subsequent to its bankruptcy.
Under the Bankruptcy Code, the lender will be stayed from enforcing a
borrower's assignment of rents and leases. The Bankruptcy Code also may
interfere with the Trustee's ability to enforce lockbox requirements. The legal
proceedings necessary to resolve these issues can be time consuming and costly
and may significantly delay or diminish the receipt of rents. Rents also may
escape an assignment to the extent they are used by the borrower to maintain
the mortgaged property or for other court authorized expenses.
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As a result of the foregoing, the Trustee's recovery with respect to
borrowers in bankruptcy proceedings may be significantly delayed, and the
aggregate amount ultimately collected may be substantially less than the amount
owed.
RISKS RELATING TO PREPAYMENTS AND REPURCHASES
The yield to maturity on your certificates will depend, in significant
part, upon the rate and timing of principal payments on the mortgage loans. For
this purpose, principal payments include both voluntary prepayments, if
permitted, and involuntary prepayments, such as prepayments resulting from
casualty or condemnation, defaults and liquidations or repurchases upon
breaches of representations and warranties. BECAUSE THE NOTIONAL AMOUNT OF THE
CLASS X CERTIFICATES IS BASED UPON THE OUTSTANDING PRINCIPAL BALANCE OF THE
MORTGAGE LOANS, THE YIELD TO MATURITY ON THE CLASS X CERTIFICATES WILL BE
EXTREMELY SENSITIVE TO THE RATE AND TIMING OF PREPAYMENTS OF PRINCIPAL.
The investment performance of your certificates may vary materially and
adversely from your expectations if the actual rate of prepayment on the
mortgage loans is higher or lower than you anticipate.
Voluntary prepayments, if permitted, generally require payment of a
prepayment premium or yield maintenance charge unless the loan is within 90 to
180 days of the stated maturity date or on or after the Anticipated Prepayment
Date, as the case may be. See "Description of the Mortgage Pool--Certain Terms
and Condition of the Mortgage Loans--Prepayment Provisions" in this prospectus
supplement. Nevertheless, we cannot assure you that the related borrowers will
refrain from prepaying their mortgage loans due to the existence of a
prepayment premiums or yield maintenance charges. Also, we cannot assure you
that involuntary prepayments will not occur.
The rate at which voluntary prepayments occur on the mortgage loans will
be affected by a variety of factors, including:
o the terms of the mortgage loans;
o the length of any prepayment lockout period;
o the level of prevailing interest rates;
o the availability of mortgage credit;
o the applicable yield maintenance charges or prepayment premiums;
o the Master Servicer's or Special Servicer's ability to enforce those
charges or premiums;
o the occurrence of casualties or natural disasters; and
o economic, demographic, tax, legal or other factors.
No yield maintenance charge or prepayment premium will be required for
prepayments in connection with a casualty or condemnation unless, in the case
of most of the mortgage loans, an event of default has occurred and is
continuing. In addition, if The Chase Manhattan Bank repurchases any mortgage
from the trust due to breaches of representations or warranties, the repurchase
price paid will be passed through to the holders of the certificates with the
same effect as if the mortgage loan had been prepaid in part or in full, except
that no prepayment premium or yield maintenance charge would be payable. Such a
repurchase may therefore adversely affect the yield to maturity on your
certificates.
RISKS RELATING TO ENFORCEABILITY OF PREPAYMENT PREMIUMS
Provisions requiring yield maintenance charges or prepayment premiums may
not be enforceable in some states or under the Bankruptcy Code. Those
provisions also may be interpreted as constituting the collection of interest
for usury purposes. Accordingly, we cannot assure you that the obligation to
pay a yield maintenance charge or prepayment premium will be enforceable. Also,
we cannot assure you that foreclosure proceeds will be sufficient to pay an
enforceable yield maintenance charge or prepayment premium.
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Additionally, although the collateral substitution provisions related to
defeasance do not have the same effect on the certificateholders as prepayment,
we cannot assure you that a court would not interpret those provisions as
requiring a yield maintenance charge or prepayment premium. In certain
jurisdictions, those collateral substitution provisions might therefore be
deemed unenforceable under applicable law or usurious.
RISKS RELATING TO BORROWER DEFAULT
The rate and timing of delinquencies or defaults on the mortgage loans
will affect:
o the aggregate amount of distributions on the offered certificates;
o their yield to maturity;
o the rate of principal payments; and
o their weighted average life.
If losses on the mortgage loans exceed the aggregate principal amount of
the classes of certificates subordinated to a particular class, such class will
suffer a loss equal to the full amount of such excess (up to the outstanding
principal amount of such certificate).
If you calculate your anticipated yield based on assumed rates of defaults
and losses that are lower than the default rate and losses actually experienced
and such losses are allocated to your certificates, your actual yield to
maturity will be lower than the assumed yield. Under certain extreme scenarios,
such yield could be negative. In general, the earlier a loss borne by you on
your certificates occurs, the greater the effect on your yield to maturity.
Even if losses on the mortgage loans are not borne by your certificates,
those losses may affect the weighted average life and yield to maturity of your
certificates. This may be so, because those losses lead to your certificates
having a higher percentage ownership interest in the trust and related
distributions of principal payments on the mortgage loans than would otherwise
have been the case. The effect on the weighted average life and yield to
maturity of your certificates will depend upon the characteristics of the
remaining mortgage loans.
Additionally, delinquencies and defaults on the mortgage loans may
significantly delay the receipt of distributions by you on your certificates,
unless P&I Advances are made to cover delinquent payments or the subordination
of another class of certificates fully offsets the effects of any such
delinquency or default.
RISKS RELATING TO CERTAIN PAYMENTS
To the extent described in this prospectus supplement, the Master
Servicer, the Special Servicer or the Trustee, as applicable, will be entitled
to receive interest on unreimbursed Advances. This interest will generally
accrue from the date on which the related Advance is made through the date of
reimbursement. In addition, under certain circumstances, including
delinquencies in the payment of principal and interest, a mortgage loan will be
specially serviced and the Special Servicer is entitled to compensation for
special servicing activities. The right to receive interest on Advances or
special servicing compensation is senior to the rights of certificateholders to
receive distributions on the offered certificates. The payment of interest on
advances and the payment of compensation to the Special Servicer may lead to
shortfalls in amounts otherwise distributable on your certificates.
RISKS OF LIMITED LIQUIDITY AND MARKET VALUE
Your certificates will not be listed on any national securities exchange
or traded on any automated quotation system of any registered securities
association such as NASDAQ, and there is currently no secondary market for your
certificates. While Chase Securities Inc. currently intends to make a secondary
market in the offered certificates, it is not obligated to do so. Accordingly,
you may not have an active or liquid secondary market for your certificates.
Lack of liquidity could result in a substantial decrease in the market value of
your certificates. The market value of your certificates also may be affected
by many other factors, including the then-prevailing interest rates.
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DIFFERENT TIMING OF MORTGAGE LOAN AMORTIZATION POSES CERTAIN RISKS
As principal payments or prepayments are made on a mortgage loan that is
part of a pool of mortgage loans, the pool will be subject to more concentrated
risks with respect to the diversity of mortgaged properties, types of mortgaged
properties and number of borrowers, as described above. Classes that have a
later sequential designation or a lower payment priority are more likely to be
exposed to this concentration risk than are classes with an earlier sequential
designation or a higher priority. This is so because principal on the offered
certificates is generally payable in sequential order, and no class entitled to
distribution of principal generally receives principal until the principal
amount of the preceding class or classes entitled to receive principal have
been reduced to zero.
SUBORDINATION OF SUBORDINATE OFFERED CERTIFICATES
As described in this prospectus supplement, unless your certificates are
Class A-1, Class A-2, Class A-3 or Class X certificates, your rights to receive
distributions of amounts collected or advanced on or in respect of the mortgage
loans (other than Excess Interest) will be subordinated to those of the holders
of the offered certificates with an earlier alphabetical designation.
See "Description of the Certificates--Distributions--Priority" and
"Subordination; Allocation of Collateral Support Deficit" in this prospectus
supplement.
ENVIRONMENTAL RISKS RELATING TO THE MORTGAGED PROPERTIES
All of the mortgaged properties have been subject to recent environmental
site assessments, including Phase I site assessments or updates of previously
performed Phase I site assessments. In some cases, Phase II site assessments
also have been performed. Although those assessments involved site visits and
other types of review, we cannot assure you that all environmental conditions
and risks were identified.
Except as indicated below, no such environmental assessment revealed any
material adverse environmental condition or circumstance at any mortgaged
property (i) which will not be remediated by the Cut-off Date, (ii) for which
an escrow for such remediation was established and/or (iii) for which the
consultant recommended an operations and maintenance plan or periodic
monitoring of nearby properties, which recommendations are consistent with
industrywide practices. Those conditions could, for example, include the
presence of asbestos containing materials, leaks from chemical storage tanks
and on-site spills. Corrective action, as required by the regulatory agencies,
has been undertaken and, in some cases, the related borrowers have made
deposits into environmental reserve accounts. However, we cannot assure you
that the reserve amounts will be sufficient to remediate such environmental
conditions or that all such environmental conditions have been identified.
1 mortgaged property, with a principal balance of $25,272,997,
representing approximately 1.95% of the aggregate balance of the mortgage loans
as of the Cut-off Date, is currently undergoing corrective action for
contamination associated with leaking underground storage tanks. Texaco
Refining & Marketing, Inc. is conducting and financing the cleanup, and has
indemnified the related borrower from all liabilities arising out of the
corrective action, including third party claims.
1 mortgaged property, with a principal balance of $1,757,448, representing
approximately 0.14% of the aggregate balance of the mortgage loans as of the
Cut-off Date, has contamination associated with the operation of a dry cleaner.
The related borrower is in the process of submitting an application to the
State of Florida's Dry Cleaning Solvent Cleanup Program, pursuant to which the
subject property will be scheduled for a state-funded cleanup. The related
borrower has funded an escrow in the amount of $100,000 to be released when the
remediation is completed.
1 mortgaged property, with a principal balance of $12,729,784 representing
approximately 0.98% of the aggregate principal balance of the mortgage loans as
of the Cut-off Date, is currently undergoing remediation conducted by the
related borrower pursuant to a Remediation Agreement with the New Jersey
Department of Environmental Protection ("NJDEP"). This remediation is estimated
to cost approximately $1.1 million. The owner of the borrower, Starwood Heller,
LLC, has procured two
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environmental insurance policies to cover any increased costs of required
remediation above $1.3 million, as well as any other contamination which may
arise on the mortgaged property. These insurance policies provide coverage for
increased costs up to an amount equal to $8 million. The related borrower has
also provided a $250,000 letter of credit as further security for its
remediation obligations and its obligations under the mortgage loan, which
letter of credit is to be released when the remediation is completed, provided
that no event of default under the related loan documents exists. Additionally,
Starwood Heller, LLC has agreed to indemnify the mortgagee for liabilities
arising from environmental claims. While these should be sufficient to cover
any unanticipated environmental costs, we cannot assure you that this will be
sufficient to cover any unanticipated environmental costs.
1 mortgaged property, with a principal balance of $5,000,000, representing
approximately 0.39% of the aggregate balance of the mortgage loans as of the
Cut-off Date, has soil contamination associated with the operation of a dry
cleaner. The related borrower is currently conducting remediation activities.
It is estimated that remediation efforts will continue until January 1999, at a
total cost of approximately $47,000; however actual remediation duration will
depend on future testing results. The related borrower has funded an escrow in
the amount of $100,000 to be released when the remediation is completed.
See "Servicing of the Mortgage Loans--Realization Upon Defaulted Mortgage
Loans" in this prospectus supplement and "Risk Factors--Environmental Risks"
and "Certain Legal Aspects of Mortgage Loans--Environmental Risks" in the
prospectus.
TAX CONSIDERATIONS RELATING TO FORECLOSURE
If the trust acquires a mortgaged property pursuant to a foreclosure or
deed in lieu of foreclosure, the Special Servicer must retain an independent
contractor to operate the property. Any net income from such operation (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 non-customary service,
will subject the Lower-Tier REMIC to federal tax (and possibly state or local
tax) on such income at the highest marginal corporate tax rate (currently 35%).
In such event, the net proceeds available for distribution to
certificateholders will be reduced. The Special Servicer may permit the
Lower-Tier REMIC to earn "net income from foreclosure property" that is subject
to tax if it determines that the net after-tax benefit to certificateholders is
greater than under another method of operating or net leasing the mortgaged
property.
PROPERTY INSURANCE
All of the mortgaged properties are covered by property insurance.
However, the mortgaged properties may suffer casualty losses due to risks which
were not covered by insurance or for which insurance coverage is inadequate. In
addition, 19.58% of the mortgaged properties, by aggregate principal balance of
the mortgage pool as of the Cut-off Date, are located in California, Texas and
Florida, states that have historically been at greater risk regarding acts of
nature (such as hurricanes, floods and earthquakes) than other states. We
cannot assure you that borrowers will be able to maintain adequate insurance.
Moreover, if reconstruction or any major repairs are required, changes in laws
may materially affect the borrower's ability to effect such reconstruction or
major repairs or may materially increase the cost thereof.
As a result of any of the foregoing, the amount available to make
distributions on your certificates could be reduced.
ZONING COMPLIANCE AND USE RESTRICTIONS
Due to changes in zoning requirements after certain of the mortgaged
properties were constructed, those mortgaged properties may not comply with
current zoning laws, including density, use, parking and set back requirements.
The operation of these properties is considered to be a "permitted
non-conforming use." This means that the borrower is not required to alter its
structure to comply with the new law; however, the borrower may not be able to
rebuild the premises "as is" in the event of a substantial casualty loss. This
may adversely affect the cash flow of the property following such loss. If a
substantial
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casualty were to occur, we cannot assure you that insurance proceeds would be
available to pay the mortgage loan in full. In addition, if the property were
repaired or restored in conformity with the current law, the value of the
property or the revenue-producing potential of the property may not be equal to
that before the casualty.
In addition, certain of the mortgaged properties which are non-conforming
may not be "permitted non-conforming" uses. The failure of a mortgaged property
to comply with zoning laws or to be a "permitted non-conforming" use may
adversely affect market value of the mortgaged property or the borrower's
ability to continue to use it in the manner it is currently being used.
In addition, certain of the mortgaged properties are subject to certain
use restrictions imposed pursuant to reciprocal easement agreements or
operating agreements. Such use restrictions include, for example, limitations
on the character of the improvements or the properties, limitations affecting
noise and parking requirements, among other things, and limitations on the
borrowers' right to operate certain types of facilities within a prescribed
radius. These limitations could adversely affect the ability of the related
borrower to lease the mortgaged property on favorable terms, thus adversely
affecting the borrower's ability to fulfill its obligations under the related
mortgage loan.
LITIGATION
There may be pending or threatened legal proceedings against the borrowers
and managers of the mortgaged properties and their respective affiliates
arising out of the ordinary business of the borrowers, managers and affiliates.
We cannot assure you that any such litigation would not have a material adverse
effect on your investment.
BOOK-ENTRY REGISTRATION
Your certificates will be initially represented by one or more
certificates registered in the name of Cede & Co., as the nominee for DTC, and
will not be registered in your name. As a result, you will not be recognized as
a "Certificateholder," or holder of record of your certificates. See "Risk
Factors--Book-Entry Registration" in the prospectus for a discussion of
important considerations relating to not being a certificateholder of record.
RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE
We are aware of the issues associated with the programming code in
existing computer systems as the millennium (year 2000) approaches. The "year
2000 problem" is pervasive and complex; virtually every computer operation will
be affected in some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
We have been advised by each of the Master Servicer, the Special Servicer
and the Paying Agent that they are committed either to (i) implement
modifications to their respective existing systems to the extent required to
cause them to be year 2000 compliant or (ii) acquire computer systems that are
year 2000 compliant in each case prior to August 31, 1999. However, we have not
made any independent investigation of the computer systems of the Master
Servicer, the Special Servicer or the Paying Agent. In the event that computer
problems arise out of a failure of such efforts to be completed on time, or in
the event that the computer systems of the Master Servicer, the Special
Servicer or the Paying Agent are not fully year 2000 compliant, the resulting
disruptions in the collection or distribution of receipts or the mortgage loans
could materially and adversely affect your investment.
OTHER RISKS
See "Risk Factors" in the prospectus for a description of certain other
risks and special considerations that may be applicable to your certificates.
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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 in this
prospectus supplement without further description are approximate percentages
by Initial Pool Balance. The trust will consist primarily of 83 commercial and
16 multifamily mortgage loans (the "Mortgage Loans") with an aggregate
principal balance of approximately $1,293,409,180 (the "Initial Pool Balance").
Each Mortgage Loan is evidenced by a promissory note (a "Mortgage Note") and
secured by a mortgage, deed of trust or other similar security instrument (a
"Mortgage") that creates a first mortgage lien:
(i) on a fee simple estate in one or more commercial or multifamily
properties; or
(ii) with respect to 1 Mortgage Loan, representing approximately 0.23% of
the Initial Pool Balance, the fee simple estate and a leasehold estate in a
commercial property; or
(iii) with respect to 2 Mortgage Loans, representing approximately 0.86%
of the Initial Pool Balance, a leasehold estate in a commercial property
(each of clauses (i) through (iii), a "Mortgaged Property").
The term of any ground lease securing any Mortgage Loan that is not also
secured by the related fee interest, extends at least 10 years beyond the
stated maturity of such Mortgage Loan (including extensions at the lender's
option). The "Cut-off Date Balance" of any Mortgage Loan will be 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, Chase Commercial Mortgage Securities
Corp. (the "Depositor") will either acquire the Mortgage Loans from The Chase
Manhattan Bank (the "Mortgage Loan Seller") or from a newly-formed Delaware
business trust which will in turn acquire them from the Mortgage Loan Seller.
The Depositor will then assign its interests in the Mortgage Loans, without
recourse, to the Trustee for the benefit of the Certificateholders. See "The
Mortgage Loan Seller" below and "Description of the Pooling
Agreements--Assignment of Mortgage Loans; Repurchases" in the prospectus. For
purposes of the prospectus, the Mortgage Loan Seller constitutes a Mortgage
Asset Seller.
The Mortgage Loans were originated in the period between June 1997 and
November 1998.
The Mortgage Loans are not insured or guaranteed by the Mortgage Loan
Seller or any other person or entity. You 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.
With respect to 3 of the Mortgage Loans, representing approximately 2.15%
of the Initial Pool Balance, the related borrower has purchased a surety bond
in favor of the lender under such Mortgage Loan which guarantees the payment of
all principal due on such Mortgage Loans at the stated maturity date. The
surety bond issuer in each instance is Centre Reinsurance (U.S.) Limited, which
has a claims paying ability rating of "AA" by Standard & Poor's Ratings
Services ("S&P"). Pursuant to the terms of the Pooling Agreement, the Master
Servicer or Special Servicer, as applicable, will be required to enforce the
terms of such surety bonds and perform the obligations, if any, of the insured
under such surety bonds.
With respect to 1 Mortgage Loan, representing approximately 14.29% of the
Initial Pool Balance, known as the 75 State Street Mortgage Loan, the borrower
has unsecured debt payable to an affiliate of such borrower ("Affiliate Debt")
in addition to the debt under the Mortgage Loan. For such Mortgage Loan, the
Affiliate Debt creditor has entered into a subordination agreement with the
lender acknowledging that such Affiliate Debt is non-foreclosable and
non-defaultable unless the Affiliate Debt creditor has obtained written
confirmation from the Rating Agencies that such foreclosure or default would
not cause the downgrade, withdrawal or qualification of the then current
ratings of the certificates. Payments on any such Affiliate Debt are required
to be made out of excess cash flow after monthly payments of principal and
interest have been made and any reserves required by the terms of the related
Mortgage Loans have been funded as required under the Mortgage Loan Documents.
Additionally, 5 of such Mortgage Loans, representing approximately 19.24% of
the Initial Pool Balance, do not currently have
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Affiliate Debt but the terms of the Mortgage Loans permit the related borrowers
to incur Affiliate Debt. Additionally, with respect to the 75 State Street
Loan, affiliates of the borrower have obtained a loan secured by the equity
interests in the borrower. See "--Significant Mortgage Loans--The 75 State
Street Loan--75 State Street Mezzanine Debt" below.
Certain risks relating to additional debt are described in "Risk
Factors--Other Financing and Additional Debt" in this prospectus supplement and
"Certain Legal Aspects of Mortgage Loans--Subordinate Financing" in the
prospectus.
SIGNIFICANT MORTGAGE LOANS
The 75 State Street Loan
The Loan. The largest Mortgage Loan in the Mortgage Pool (the "75 State
Street Loan") will have a Cut-off Date Balance of approximately $184,884,329,
representing approximately 14.29% of the Initial Pool Balance. The 75 State
Street Loan was made by the Mortgage Loan Seller to WFP 75 State Street Co.
L.P. (the "75 State Street Borrower") on September 16, 1998. The 75 State
Street Loan is evidenced by a single note secured by a first priority fee
mortgage encumbering the 75 State Street Borrower's interest in an office
building located at 75 State Street, Boston, Massachusetts (the "75 State
Street Property"). $15,000,000 of additional security for the Mortgage Loan is
provided in the form of cash or a letter of credit, which may be released over
time upon satisfaction of certain conditions, including, but not limited to,
certain debt service coverage tests--See "--Letters of Credit" below.
The 75 State Street Loan accrues interest at a fixed per annum rate equal
to 7.00% (the "75 State Street Initial Interest Rate") until October 10, 2008
(the "75 State Street Anticipated Prepayment Date"). From and after the 75
State Street Anticipated Prepayment Date, the 75 State Street Loan accrues
interest at 2% above the 75 State Street Initial Interest Rate (the "75 State
Street Revised Interest Rate"). All interest accrued at the excess of the 75
State Street Revised Interest Rate over the 75 State Street Initial Interest
Rate (the "75 State Street Excess Interest") will be deferred and will not be
paid until after the principal balance of the 75 State Street Loan has been
reduced to zero. Amounts so deferred, will to the extent permitted by
applicable law, accrue interest at the 75 State Street Revised Interest Rate.
Interest will be calculated on the 75 State Street Loan based upon a 360-day
year and the actual number of days elapsed.
The 75 State Street Loan requires monthly payments of principal and
interest of approximately $1,230,810 (based on a 30-year amortization schedule
and the 75 State Street Initial Interest Rate). From and after the 75 State
Street Anticipated Prepayment Date, the 75 State Street Loan requires that all
cash flow available from the 75 State Street Property after the payment of (i)
the constant monthly payment of the debt service on the 75 State Street Loan,
(ii) all required escrow payments and (iii) certain other operating expenses
required under the 75 State Street Loan documents be applied towards the
reduction of the outstanding principal balance of the 75 State Street Loan. The
scheduled principal balance of the 75 State Street Loan on the 75 State Street
Anticipated Prepayment Date is expected to be approximately $161,651,414.
The Borrower. The 75 State Street Borrower is a recently formed Delaware
special purpose limited partnership established for the purpose of acquiring,
holding and leasing the 75 State Street Property and borrowing pursuant to the
75 State Street Loan. The 75 State Street Borrower is controlled by World
Financial Properties, L.P. which in turn is controlled by Brookfield Properties
Corporation, a publicly traded Canadian corporation. Brookfield Properties
Corporation is a diversified real estate company which owns approximately 56
office buildings containing over 32 million net rentable square feet as well as
land development, selling approximately 3,000 lots annually. Its property
management subsidiary provides services to over 95 million square feet of
space.
Cash Management Accounts; Reserve Accounts. The 75 State Street Borrower
has entered into a cash management agreement pursuant to which all rents from
the 75 State Street Property are required to be deposited by the tenants at the
75 State Street Property into a lock box account controlled by the lender. The
75 State Street Borrower has also established an on-going tax and insurance
reserve account as well as a tenant improvement and leasing commission reserve
account. The 75 State Street Borrower
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is required, at the option of the lender, to deposit funds to the tax and
insurance reserve account to cover an insurance premium if the liability or
casualty policy maintained by the 75 State Street Borrower is not an approved
blanket or umbrella policy pursuant to the 75 State Street Loan documentation.
Provided no default exists under the 75 State Street Loan and so long as the 75
State Street Anticipated Prepayment Date has not occurred, amounts held in the
lock box account will be disbursed each month to the 75 State Street Borrower
after the payment of debt service and the required deposits into the tax and
insurance account and the tenant improvement and leasing accounts.
In connection with the origination of the 75 State Street Loan, the 75
State Street Borrower deposited $3,000,000 and is required to deposit monthly
payments of approximately $73,982 into the tenant improvement and leasing
reserve account to be used for certain deferred purchase price payments to be
made by the 75 State Street Borrower to the Boston Redevelopment Authority and
various tenant improvements required under the existing leases with Fleet
National Bank ("Fleet") and Wellington Management Company ("Wellington") until
October 1999. In addition, beginning on April 10, 2005, the 75 State Street
Borrower is further required to deposit monthly payments in an initial amount
equal to $558,333 which may be adjusted based on the actual amount of expenses
incurred into a tenant improvement and leasing reserve account which will be
used to ensure available funds for tenant improvements and leasing commission
costs that may be incurred upon the expiration of the Fleet and Wellington
leases. If the 75 State Street Borrower has not received notice of Fleet's
intention to renew by April 2006, all excess cash flow after the payment of the
required monthly payment amount, required reserves and certain other expenses,
will be swept into the tenant improvements and leasing reserve account.
Disbursements from the tenant improvement and leasing reserve account will
occur in accordance with the terms of the 75 State Street Loan documents
provided that no event of default under the 75 State Street Loan documents has
occurred and is continuing.
In lieu of making the monthly payments required under the tax and
insurance reserve accounts as well as the tenant improvement and leasing
commission account, the 75 State Street Borrower may deliver one or more
letters of credit in an amount equal to the payments that would have been
required for a specified time period. It is a condition that these letter(s) of
credit be issued by a bank rated at least "AA-" by Standard & Poor's Rating
Group, Duff & Phelps Credit Rating Co. and Fitch IBCA, Inc. and "Aa3" by
Moody's Investors Services, Inc. and is insured by the Federal Deposit
Insurance Corporation (an "Approved Bank").
Letters of Credit. The 75 State Street Borrower has deposited $15,000,000
in a cash collateral account as additional collateral for this loan. The 75
State Street Borrower has the right at any time to substitute one or more
letters of credit (the "Letters of Credit") for such funds held as additional
collateral. It is a condition of the 75 State Street Loan that the Letters of
Credit be issued by an Approved Bank. At any time between January 1, 2000 and
May 1, 2003, the 75 State Street Borrower may request one or more releases of
the Letters of Credit (or the cash held in the cash collateral account as
additional collateral) based upon certain debt service coverage and
loan-to-value ratio tests set forth in the 75 State Street Loan documents
provided that no event of default under the 75 State Street Loan documents has
occurred and is continuing.
The lender may draw on the Letters of Credit (a) on the 75 State Street
Anticipated Prepayment Date, (b) upon an event of default under the 75 State
Street Loan documents and (c) upon certain other conditions set forth in the 75
State Street Loan documents. Amounts received from the Letters of Credit may be
applied by the lender to the payment of taxes, insurance premiums or interest;
amortization of the unpaid principal balance; or any other sums payable
pursuant to the 75 State Street Loan documents in any order in lender's sole
discretion; and in all other instances, will be held in a cash collateral
account.
Prepayment. The 75 State Street Loan may be prepaid without penalty on any
Due Date on or after the Anticipated Prepayment Date. Pursuant to the terms of
the 75 State Street Loan, the 75 State Street Borrower is not permitted to
voluntarily prepay, in whole or in part, the 75 State Street Loan prior to the
Anticipated Prepayment Date.
Defeasance. On or after the Due Date occurring 2 years after the Closing
Date, the 75 State Street Borrower is permitted to defease the 75 State Street
Loan as described generally under "--Certain Terms and Conditions of the
Mortgage Loans--Defeasance" below.
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75 State Street Mezzanine Debt. Simultaneously with the origination of the
75 State Street Loan, the Mortgage Loan Seller originated a loan in an original
principal amount of $25,000,000 (the "Mezzanine Loan") to World Financial
Properties, L.P. (the "Mezzanine Borrower"). The Mezzanine Borrower is the
controlling owner of the 75 State Street Borrower and manages the 75 State
Street Property. See "--The Property Manager" below. The Mezzanine Loan is
secured by a pledge of all the issued and outstanding limited partnership
interests of the 75 State Street Borrower and all issued and outstanding shares
of stock in the general partner of the 75 State Street Borrower.
The Mezzanine Loan bears interest at a fixed rate per annum equal to 9.5%
calculated for any period based on a 360-day year comprised of 12 30-day
months. The Mezzanine Loan requires four payments of interest per year
commencing on December 15, 1998 and is scheduled to mature on September 16,
2003. The Mezzanine Loan can be prepaid in whole or in part at any time upon a
payment of a prepayment premium to the Mezzanine Lender.
Upon origination of the Mezzanine Loan, the Mortgage Loan Seller assigned
the Mezzanine Loan to Brysons International Bank, LTD., a Barbados corporation
(the "Mezzanine Lender"), an indirect affiliate of the 75 State Street
Borrower. Pursuant to an intercreditor agreement, the Mezzanine Lender has
agreed that all rights granted to the Mezzanine Lender under the Mezzanine Loan
are expressly subject and subordinate to the rights created under the 75 State
Street Loan. The Mezzanine Lender has further agreed that the Mezzanine Lender
will not initiate, join in, file any petition or take any other action which
will result in (i) the involuntary bankruptcy of the 75 State Street Borrower,
(ii) an assignment for the benefit of creditors of the 75 State Street Borrower
or (iii) the commencement of any other similar proceeding under federal or
state law.
The Property Manager. The 75 State Street Property is managed by World
Financial Properties, L.P. (the "75 State Street Property Manager") pursuant to
a management agreement between the 75 State Street Borrower and the 75 State
Street Property Manager. Pursuant to a subordination agreement, the 75 State
Street Property Manager has agreed to subordinate all fees and other amounts
due under the management agreement to the 75 State Street Loan documents. The
75 State Street Property Manager is affiliated with certain principals of the
75 State Street Borrower.
At the request of the lender, the 75 State Street Borrower is required to
terminate the 75 State Street Property Manager at any time during the term of
the 75 State Street Loan if (i) the net operating income, based on the four
consecutive fiscal quarters immediately preceding the date of determination, is
less than 80% of the net operating income on September 6, 1998; (ii) the debt
service coverage ratio (as defined in the 75 State Street Loan documents) is
less than 1.15x for the period consisting of the four consecutive fiscal
quarters immediately preceding the date of determination; (iii) the 75 State
Street Property Manager becomes insolvent or a debtor in any bankruptcy or
insolvency proceeding; (iv) there exists an event of default under the 75 State
Street Loan documents; or (v) the 75 State Street Anticipated Prepayment Date
has occurred and the 75 State Street Loan has not been repaid. At such time as
the 75 State Street Property Manager may be removed, a replacement manager
acceptable to lender and the Rating Agencies in their sole discretion, is
required to assume management at a fee not to exceed the then current market
rates.
The 75 State Street Property Manager is the management arm of World
Financial Properties, Inc. and manages over 6.9 million square feet of office
properties, including 5.1 million square feet in New York City, New York.
The Property. The 75 State Street Property which was constructed in 1988,
is located at 75 State Street, Boston, Massachusetts. The 75 State Street
Property is improved with a 31-story, 767,096 square foot GLA, Class A office
building, situated on a 1.43 acre site that encompasses the greater portion of
an entire city block. The first floor contains 23,530 square feet of retail
space and approximately 10,000 square feet of public area. The property also
contains a six-level below grade parking facility for approximately 700
vehicles. As of September 1, 1998, the 75 State Street Property was 100%
occupied by 24 office and retail tenants. Four tenants, Fleet National Bank
occupying approximately 34.9% of the total GLA or 267,789 s.f.; Wellington
Management Company occupying approximately 18.2% of the total GLA or 139,772
s.f.; Cabot Corporation occupying approximately 8.9% of the total GLA or 68,208
s.f.; and
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Warner & Stackpole occupying approximately 7.9% of the total GLA or 60,402
s.f., account for approximately 69.9% of the GLA of the property. Of the
remaining 16 office tenants, five occupy full floors or more. A total of nine
tenants occupying 692,192 s.f. or 90.2% of the GLA. An appraisal determined a
value of approximately $320,000,000 as of September 1, 1998. The LTV of the 75
State Street Loan as of the Cut-off Date is approximately 57.8%.
75 STATE STREET LEASE EXPIRATION SUMMARY
<TABLE>
<CAPTION>
SQUARE FEET % OF CUMULATIVE CUMULATIVE %
CALENDAR YEAR EXPIRING TOTAL GLA SQUARE FEET EXPIRING
- --------------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
1998 ................ 478 0.1% 478 0.1%
1999 ................ 44,058 5.7 44,536 5.8%
2000 ................ 3,847 0.5 48,383 6.3%
2001 ................ 129,326 16.9 177,709 23.2%
2002 ................ 0 0.0 177,709 23.2%
2003 ................ 0 0.0 177,709 23.2%
2004 ................ 28,704 3.7 206,413 26.9%
2005 ................ 0 0.0 206,413 26.9%
2006 ................ 0 0.0 206,413 26.9%
2007 ................ 60,402 7.9 266,815 34.8%
2008 ................ 307,667 40.1 574,482 74.9%
2009 ................ 0 0.0 574,482 74.9%
2010 ................ 0 0.0 574,482 74.9%
2011 ................ 185,213 24.1 759,695 99.0%
Thereafter .......... 5,941 0.8 765,636 99.8%
Mgt. Office ......... 1,460 0.2 767,096 100.0%
------- ----
TOTAL ............. 767,096 100.0%
======= =====
</TABLE>
The Towson Town Center Loan
The Loan. The second largest Mortgage Loan (the "Towson Town Center Loan")
will have a Cut-off Date Balance of approximately $140,000,000, representing
approximately 10.82% of the Initial Pool Balance. The Towson Town Center Loan
was made by the Mortgage Loan Seller to Rouse-TTC Funding, LLC (the "Towson
Town Center Borrower") on October 23, 1998. The Towson Town Center Loan is
evidenced by a single note made by Towson Town Center Borrower and a guaranty
by Towson TC, LLC (the "Towson Town Center Guarantor") of all the obligations
under the note, which guaranty is secured by a first priority indemnity deed of
trust encumbering the Towson Town Center Guarantor's interest in a regional
mall located at 825 Dulaney Valley Road, Towson, Maryland (the "Towson Town
Center Property").
The Towson Town Center Loan accrues interest at a fixed rate of interest
per annum equal to 6.75% (the "Towson Town Center Initial Interest Rate") until
November 10, 2008 (the "Towson Town Center Anticipated Prepayment Date"). From
and after the Towson Town Center Anticipated Prepayment Date, the Towson Town
Center Loan accrues interest at 2.0% above the Towson Town Center Initial
Interest Rate (the "Towson Town Center Revised Interest Rate"). All interest
accrued at the excess of the Towson Town Center Revised Interest Rate over the
Towson Town Center Initial Interest Rate (the "Towson Town Center Excess
Interest Rate") will be deferred and will not be paid until after the principal
balance of the Towson Town Center Loan has been reduced to zero. Amounts so
deferred will, to the extent permitted by applicable law, accrue interest at
the Towson Town Center Revised Interest Rate. Interest will be calculated on
the Towson Town Center Loan based upon a 360-day year and the actual number of
days elapsed.
The Towson Town Center Loan requires monthly payments of interest only of
approximately $787,500 until and including November 10, 2003 and monthly
payments of principal and interest of approximately $975,963 on the monthly
payment date occurring on December 10, 2003 and on each
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monthly payment date thereafter (based on 25-year amortization schedule and the
Towson Town Center Initial Interest Rate). From and after the Towson Town
Center Anticipated Prepayment Date, the Towson Town Center Loan requires that
all cash flow available from the Towson Town Center Property after the payment
of (i) the constant monthly payment of the debt service on the Towson Town
Center Loan, (ii) all required escrow payments and (iii) certain other
operating expenses required under the Towson Town Center Loan documents be
applied towards the reduction of the outstanding principal balance of the
Towson Town Center Loan. The scheduled principal balance of the Towson Town
Center Loan on the Towson Town Center Loan Anticipated Prepayment Date is
expected to be approximately $127,629,061.
The Guarantor. The Towson Town Center Guarantor is a Maryland special
purpose limited liability company that was created in October 1998 upon
conversion of the general partnership that owned the Towson Town Center
Property into a limited liability company. As such, the Towson Town Center
Guarantor is the successor in interest to the assets and liabilities of such
partnership. The Towson Town Center Guarantor has a recently formed Maryland
special purpose corporation, TTC Member, Inc., as a 0.5% interest member (the
"Principal") and a Maryland limited liability company as a 99.5% interest
member. The Towson Town Center Guarantor has pledged the Towson Town Center
Property to the lender as collateral for its guaranty. The Towson Town Center
Guarantor is an indirect wholly owned subsidiary of The Rouse Company, that
intends to elect to become a public real estate investment trust. The Rouse
Company operates more than 250 properties encompassing retail, office, research
and development, and industrial space in 24 states. The Rouse Company, through
certain non-REIT subsidiaries, is also the developer of the cities of Columbia,
Maryland and Summerlin, Nevada.
On or prior to June 30, 1999, up to 75% of the non-managing membership
interests in the Towson Town Center Guarantor may be transferred to a third
party, provided, however, that (i) such transfer does not result in a change in
control of the Towson Town Center Borrower, the Towson Town Center Guarantor,
or the Principal or in the operations of the Towson Town Center Property
(except that such transferee may have consent rights with respect to certain
major decisions, which consent rights shall not result in change in control of
the day-to-day operations of the Towson Town Center Property), (ii) lender
receives at least 45 days prior written notice of such transfer and all
required documentation, (iii) the lender receives written confirmation that
such transfer will not result in the downgrade, qualification or withdrawal of
the then current ratings of the certificates (provided, however, such written
confirmation shall not be required if the transfer is made to New York State
Teachers' Retirement Systems), and (iv) lender shall receive evidence
(including opinions acceptable to the Rating Agencies) that the single-purpose
nature and bankruptcy remoteness of the Towson Town Center Borrower, the Towson
Town Center Guarantor and the Principal are in accordance with the standards of
the Rating Agencies.
The Borrower. The Towson Town Center Borrower is a recently formed
Maryland special purpose limited liability company established for the purpose
of borrowing pursuant to the terms of the Towson Town Center Loan. The Towson
Town Center Borrower is wholly owned by the Towson Town Center Guarantor.
Cash Management Accounts; Reserve Accounts. The Towson Town Center
Guarantor has entered into a cash management agreement pursuant to which all
rents from the Towson Town Center Property are required to be deposited by the
related tenants into a lock box account (the "Towson Town Center Cash
Management Account"). The Towson Town Center Cash Management Account is pledged
as additional security under the Towson Town Center Loan. The Towson Town
Center Guarantor will have control over all funds in the Towson Town Center
Cash Management Account unless: (i) the debt service coverage ratio (as defined
in the Towson Town Center Loan documents) as of the end of any calendar quarter
falls below 1.20x to 1.0x for the prior consecutive 6 month period; (ii) the
Towson Town Center Anticipated Prepayment Date has occurred; or (iii) an event
of default under the Towson Town Center Loan documents has occurred. The Towson
Town Center Guarantor has also established an on-going tax and insurance
reserve account as well as a replacement reserve account. The Towson Town
Center Guarantor is only required, at the option of the lender, to deposit
funds to the tax and insurance reserve account to cover the insurance premium
upon an event of default under the Towson Town Center Loan documents.
S-48
<PAGE>
Prepayment/Defeasance. The Towson Town Center Loan may be prepaid without
penalty on any payment date on or after the Towson Town Center Anticipated
Prepayment Date. Pursuant to the terms of the Towson Town Center Loan, the
Towson Town Center Borrower is not permitted to voluntarily prepay, in whole or
in part, the Towson Town Center Loan prior to the Towson Town Center
Anticipated Prepayment Date. However, on or after the payment date occurring 2
years after the Closing Date, the Towson Town Center Borrower is permitted to
defease the Towson Town Center Loan as described generally under "--Certain
Terms and Conditions of the Mortgage Loans--Defeasance" below.
The Property Manager. The Towson Town Center Guarantor currently manages
the Towson Town Center Property. The Towson Town Guarantor is required, on or
prior to October 30, 1998, to enter into a formal management agreement with
Rouse Property Management, Inc. that is acceptable to the lender in its
reasonable discretion, and for which the lender has received written
confirmation from the Rating Agencies that such management agreement will not
result in a downgrade, withdrawal or qualification of the then current ratings
of the Certificates. Rouse Property Management, Inc. is a non-REIT subsidiary
of The Rouse Company.
The lender may terminate the Towson Town Center Property Guarantor, as
manager or any subsequent manager, upon either (i) an event of default under
the Towson Town Center Loan documents; (ii) if the debt service coverage ratio
under the Towson Town Center Loan documents as of any calendar quarter falls
below 1.15x for the 12 full calendar months immediately preceding such calendar
quarter; (iii) the Towson Town Center Property Guarantor becomes insolvent or a
debtor in any bankruptcy or insolvency proceeding; or (iv) the Towson Town
Center Anticipated Prepayment Date has occurred. The fees payable to the Towson
Town Center Property Guarantor or any subsequent manager are subordinate to
debt service on the Towson Town Center Loan.
The Property. The Towson Town Center Property is a two- to four-level
954,898 square foot, enclosed regional mall located in Towson, Maryland. The
Towson Town Center is anchored by Hecht's and Nordstrom, both of which are
self-owned anchors and do not comprise collateral for the Towson Town Center
Loan. Mall shops and the food court comprise approximately 535,769 square feet
of GLA. The Towson Town Center Property was originally constructed in 1959 as
an unanchored, two-level community-type center and then was expanded in 1982 by
the addition of Hecht's Department Store. Between 1990 and 1991, the mall was
enclosed, extensively renovated and expanded with two additional mall shop
levels at a cost of approximately $188,000,000. On September 11, 1992, a
four-level Nordstrom opened as the mall's second anchor. As of July 1, 1998,
the Towson Town Center Property was 94.2% leased by approximately 200 tenants.
Historical mall in-line shop sales were $387 per square foot in 1997, $362 per
square foot in 1996 and $349 per square foot in 1995. An appraisal determined a
value of approximately $222,000,000 as of September 1, 1998. The LTV of the
Towson Town Center Loan as of the Cut-off Date is approximately 63.1%.
S-49
<PAGE>
TOWSON TOWN CENTER LEASE EXPIRATION SCHEDULE
<TABLE>
<CAPTION>
SQUARE FEET % OF CUMULATIVE CUMULATIVE %
CALENDAR YEAR EXPIRING TOTAL GLA SQUARE FEET EXPIRING
- -------------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Vacant ............. 48,135 8.98% 48,135 8.98%
1998 ............... 7,759 1.45 55,894 10.43%
1999 ............... 15,292 2.85 71,186 13.29%
2000 ............... 29,393 5.49 100,579 18.77%
2001 ............... 49,296 9.20 149,875 27.97%
2002 ............... 109,754 20.49 259,629 48.46%
2003 ............... 55,407 10.34 315,036 58.80%
2004 ............... 69,833 13.03 384,869 71.83%
2005 ............... 15,192 2.84 400,061 74.67%
2006 ............... 17,215 3.21 417,276 77.88%
2007 ............... 72,860 13.60 490,136 91.48%
2008 ............... 29,420 5.49 519,556 96.97%
Thereafter ......... 16,213 3.03 535,769 100%
------- -----
TOTAL ............ 535,769 100%
======= =====
</TABLE>
APD LOANS
9 of the Mortgage Loans (the "APD Loans"), representing approximately
38.66% of the Initial Pool Balance, provide that, if after a certain date
(each, an "Anticipated Prepayment Date"), the related borrower has not prepaid
the APD Loan in full, any principal outstanding on such date shall accrue
interest at an increased interest rate (the "Revised Rate") rather than the
stated Mortgage Rate (the "Initial Rate"). Generally, each Anticipated
Prepayment Date is not more than 120 months after the first due date for the
related APD Loan. The Revised Rate for any APD Loan will generally be equal to
the sum of (x) the Initial Rate, plus (y) 2% per annum. After the Anticipated
Prepayment Date, each APD 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 such APD Loan. While interest at the
Initial Rate continues to accrue and be payable on a current basis on an APD
Loan after the Anticipated Prepayment Date, the payment of interest at the
excess of the Revised Rate over the Initial Rate for such APD Loan ("Excess
Interest") will be deferred and will be paid, with interest, only after the
outstanding principal balance of the APD Loan has been paid in full. The
foregoing features, to the extent applicable, are designed to increase the
likelihood that the APD Loan will be prepaid by the borrower on the applicable
Anticipated Prepayment Date.
CREDIT LEASE LOANS
7 Mortgage Loans (the "Credit Lease Loans"), representing approximately
3.34% of the Initial Pool Balance, are backed by lease obligations (a "Credit
Lease") of a tenant (each, a "Tenant"). Each Credit Lease has a primary lease
term (the "Primary Term") that expires on or after the maturity date of the
related Credit Lease Loan. The Credit Lease Loans are scheduled to be repaid
from scheduled monthly rental payments ("Monthly Rental Payments") which are
equal to or greater than the scheduled payment of all principal, interest and
other amounts due each month on the related Credit Lease Loan. Notwithstanding
the foregoing, the borrowers remain liable for all obligations under the Credit
Lease Loans (subject to the non-recourse provisions thereof).
S-50
<PAGE>
The following table sets forth certain information regarding the Credit
Lease Loans:
<TABLE>
<CAPTION>
CUT-OFF DATE % INITIAL
PRINCIPAL POOL
PROPERTY NAME BALANCE BALANCE TENANT/LEASE GUARANTOR LEASE TYPE
- ----------------------------------- -------------- ---------- ----------------------------- --------------
<S> <C> <C> <C> <C>
Centre Structured Trust 1 ......... $ 7,101,386 0.55% Brinker International, Inc. Bondable
Centre Structured Trust 4 ......... $10,253,160 0.79% Brinker International, Inc. Bondable
Centre Structured Trust 8 ......... $10,389,628 0.80% Brinker International, Inc. Bondable
CVS (Revco) Drug
Store(1) ......................... $ 2,139,031 0.17% Revco DS Inc. Double Net(2)
Eckerd Drug Store(1) .............. $ 1,690,319 0.13% Eckerd Corporation Triple Net
Rite Aid Pad--Hanover
Commons(1) ....................... $ 1,726,811 0.13% Rite Aid Corp. Double Net(2)
Star Market--Norwood(1) ........... $ 9,920,286 0.77% Star Markets Company, Inc. Triple Net
</TABLE>
- ----------
(1) The Tenant may cancel the Credit Lease under certain circumstances in the
event of a casualty or condemnation (or, with respect to the Star Loan,
condemnation only) of the related Mortgaged Property without the payment
of the outstanding principal amount of the related Credit Lease Loan plus
all accrued interest. The related borrower has obtained an insurance
policy to cover the occurrences of certain rent abatement or termination
rights of the Tenant. See "Risk Factors--Risks Relating to Credit Tenant
Properties" in this prospectus supplement.
(2) The borrower is responsible for structural repairs. Monthly reserves have
been established and are taken from the Tenant's lease payments to cover
this obligation.
With respect to 3 Credit Lease Loans (loan numbers 26, 27, and 28 on Annex
A), representing approximately 2.15% of the Initial Pool Balance, interest
payments are due on the first day of each month and are calculated based upon a
30-day month and a 360-day year. Principal payments, per a schedule, are due on
the first day of each calendar year. Such principal payments are scheduled to
correspond with payments due under the related leases.
Each mortgagor under a Credit Lease Loan has assigned to the mortgagee of
the related Credit Lease Loan (each, a "Credit Lease Assignment") as security
for such mortgagor's obligations thereunder, such mortgagor's rights under the
Credit Leases and its rights to all income and profits to be derived from the
operation and leasing of the related property (each, a "Credit Lease
Property"), including, but not limited to, an assignment of any guarantee of
the Tenant's obligations under the Credit Lease and an assignment of the right
to receive all Monthly Rental Payments and any other sums due under the Credit
Leases.
Each Credit Lease generally provides that the related Tenant must pay all
real property taxes and assessments levied or assessed against the related
Credit Lease Property, all charges for utility services and other operating
expenses incurred in connection with the operation of the related Credit Lease
Property. Generally, each Credit Lease Loan provides that if the Tenant
defaults beyond applicable notice and grace periods in the performance of any
covenant or agreement of such Credit Lease (a "Credit Lease Default") and the
related borrower defaults in its performance under such Credit Lease Loan, the
mortgagee may exercise rights under the related Credit Lease Assignment to
require the related mortgagor either (i) to terminate such Credit Lease or (ii)
not to terminate such Credit Lease and exercise any of its rights thereunder. A
default under a Credit Lease will constitute a default under the related Credit
Lease Loan.
While each Credit Lease requires the Tenant to fulfill its payment and
maintenance obligations during the term of the Credit Lease, in some cases the
Tenant has not covenanted to operate the related Credit Lease Property for the
term of the Credit Lease, and the Tenant may at any time cease actual
operations at the Credit Lease Property, but it remains obligated to continue
to meet all of its obligations under the Credit Lease.
With respect to 4 Credit Lease Loans which are not secured by the
assignment of a "bondable lease," (the "Lease Enhancement Policy Loans"), the
lender is the beneficiary of a non-cancelable insurance policy (a "Lease
Enhancement Policy") obtained to cover certain lease termination and rent
abatement
S-51
<PAGE>
events arising out of a casualty or condemnation (or, with respect to 1
Mortgage Loan (the "Star Loan"), representing approximately 0.77% of the
Initial Pool Balance, condemnation only) of the related Credit Lease Property.
A "bondable lease" generally means that the related Tenant has no rights under
the terms of the related Credit Lease to terminate the Credit Lease or abate
rent due under the Credit Lease, including by reason of the occurrence of
certain casualty and condemnation events or the failure of the related
borrower, as lessor, to perform required maintenance, repairs or replacement,
except that the Tenant may have the right to terminate the Credit Lease upon
the happening of such a casualty or condemnation if the Tenant makes a
termination payment which is not less than the then outstanding principal
amount of the related Credit Lease Loan plus all accrued interest. The
following table sets forth certain information with respect to each Lease
Enhancement Policy for the Lease Enhancement Policy Loans:
<TABLE>
<CAPTION>
S&P FINANCIAL
MORTGAGE LOAN LEASE ENHANCEMENT POLICY INSURER STRENGTH RATING
- ----------------------------------- ---------------------------------- ----------------
<S> <C> <C>
CVS (Revco) Drug Store ............ Lexington Insurance Company AAA
Eckerd Drug Store ................. Lexington Insurance Company AAA
Rite Aid--Hanover Commons ......... Chubb Custom Insurance Company AAA
Star Loan ......................... Chubb Custom Insurance Company AAA
</TABLE>
The Lease Enhancement Policies issued by the Lease Enhancement Policy
insurers listed above are subject to certain limited exclusions. The Lease
Enhancement Policies (i) do not insure interest for a period greater than 75
days past the date of the occurrence of a casualty or condemnation event with
respect to the Star Loan and the Rite Aid - Hanover Commons (or in the case of
the Star Loan, a condemnation event only), and (ii) with respect to the CVS
(Revco) Drug Store Loan and Eckerd Drug Store Loan do not insure interest
beyond any amount which, if added to the outstanding principal balance of the
Credit Lease Loan, would exceed the original principal balance of such Credit
Lease Loan. The Lease Enhancement Policies permit payment of a lump sum payment
of an amount equal to all outstanding principal plus, subject to the limitation
above, accrued interest in the event of a permitted termination by the related
Tenant of its Credit Lease as a result of a casualty or condemnation (or, in
the case of the Star Loan, a condemnation only). If the related Credit Lease
permits the related Tenant to abate all or a portion of the rent in the event
of a casualty or condemnation (or, in the case of the Star Loan, a condemnation
only), such payment will be in an amount equal to the portion of any Monthly
Rental Payments not made by such Tenant for the period from the date the
abatement commences until the earlier of the date the abatement ceases or the
expiration date of the initial term of such Credit Lease; provided that in the
event such payments would exceed the limits of liability under the policy, then
the related Lease Enhancement Insurer, may, at its option, pay the present
value of the stream of partial abatement payments in a lump sum. The Lease
Enhancement Insurers are also not required to pay amounts due under the related
Lease Enhancement Policy Loan other than amounts equal to principal and,
subject to the limitation above, accrued interest, and therefore, are not
required to pay any amounts equal to Prepayment Premiums or Yield Maintenance
Charges due thereunder or any amounts the related borrower is obligated to pay
thereunder to reimburse the Master Servicer or the Trustee for outstanding
Servicing Advances.
At the end of the term of the Credit Lease, the Tenant is generally
obligated to surrender the Credit Lease Property in good order and in its
original condition received by the Tenant, except for ordinary wear and tear
and repairs required to be performed by the related borrower.
The Mortgage Loan Seller's underwriting guidelines with respect to the
Credit Lease Loans are described under "--Underwriting Standards" below.
SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAMS
2 Mortgage Loans (identified as Loan Numbers 43 and 74 on Annex A hereto)
(the "HAP Loans"), representing approximately 2.60% of the Initial Pool
Balance, are secured by 5 Mortgaged Properties which were formerly subject to
mortgage loans insured by HUD under low-to-moderate income programs. When the
HUD-insured mortgage loans were repaid upon origination of the HAP Loan, the
S-52
<PAGE>
respective local housing authorities provided rental assistance payments under
HUD's Section 8 Tenant-Based Assistance Rental Voucher Program or Section 8
Tenant-Based Assistance Rental Certificate Program to low-income tenants in
those properties. The former Voucher and Certificate Programs have been
combined into one voucher program by the 1999 HUD Appropriations Act enacted
October 19, 1998, which amended Section 8(o) of the United States Housing Act
of 1937. Section 8(o), as so amended, provides that a housing agency which
administers tenant-based assistance shall establish a payment standard, which,
unless otherwise approved by HUD, shall be between 90% and 110% of the Fair
Market Rental determined annually by HUD for the same size of dwelling unit in
the same market area. HUD may require modification of a payment standard, if a
significant percentage of families are found to be paying more than 30% of
adjusted income for rent. The monthly assistance payment for an eligible family
is the amount by which the lesser of (a) the actual rent, including the
allowance for tenant-paid utilities, or (b) the applicable payment standard,
exceeds the greatest of 30% of monthly adjusted income, 10% of monthly
unadjusted income, or the amount of welfare assistance designated for housing
costs. The vouchers are portable, so that if a family chooses not to renew the
lease, it may use the voucher for other housing in the same or other
jurisdiction.
No assurance can be given that the voucher program will be continued in
its present form or that the level of assistance provided to tenants will be
sufficient to assure revenues sufficient for the borrower to meet its
obligations under the HAP Loans and to pay for necessary property operations.
CERTAIN TERMS AND CONDITIONS OF THE MORTGAGE LOANS
17 of the Mortgage Loans, representing approximately 15.05% of the Initial
Pool Balance, have Due Dates that occur on the first day of each month, and 82
Mortgage Loans, representing approximately 84.95% of the Initial Pool Balance,
have Due Dates that occur on the tenth day of each month. All of the Mortgage
Loans whose Due Dates are the first day of each month provide for grace periods
which do not exceed 10 days. All of the Mortgage Loans bear interest at a fixed
rate. 72 Mortgage Loans, representing approximately 80.17% of the Initial Pool
Balance, accrue interest on the basis of the actual number of days in a month,
assuming a 360-day year. The remaining 27 Mortgage Loans, representing
approximately 19.83% of the Initial Pool Balance, accrue interest on the basis
of a 30-day month, assuming a 360-day year. Approximately 97.54% of the
Mortgage Loans (by Initial Pool Balance) provide for monthly payments (or, in
the case of 3 Mortgage Loans representing approximately 2.15% of the Initial
Pool Balance, annual payments) of principal based on amortization schedules
significantly longer than the remaining terms of such Mortgage Loans. 1
Mortgage Loan (Loan Number 93 on Annex A) representing approximately 10.82% of
the Initial Pool Balance, provides for monthly payments of interest only for
the first 5 years of the term of the Mortgage Loan and payments which would
amortize a portion of the principal balance of the related Mortgage Loan during
the remaining five years of the term of such Mortgage Loan. In addition, the
APD Mortgage Loans provide for monthly payments of principal that will result
in a substantial principal payment at the Anticipated Prepayment Date if the
related Borrower prepays the Mortgage Loan at such date. Thus, such Mortgage
Loans will have balloon payments due at their stated maturity dates, unless
earlier prepaid.
Prepayment Provisions. Each Mortgage Loan restricts voluntary prepayments
in one or more of the following ways:
(i) by prohibiting any prepayments for a specified period of time 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); and
(iii) by imposing fees or premiums generally equal to a percentage of the
then outstanding principal balance of such Mortgage Loan ("Prepayment
Premiums") in connection with principal
S-53
<PAGE>
prepayments for a specified period of time after the expiration of the
related Yield Maintenance Period or, in the case of Mortgage Loans not
subject to a Yield Maintenance Period, the related Lockout Period (in
either case, a "Prepayment Premium Period").
78 of the Mortgage Loans, representing approximately 84.76% of the Initial
Pool Balance, which provide for a Lockout Period extending generally until 3 to
6 months prior to the maturity date or Anticipated Prepayment Date of such
Mortgage Loan, provide for defeasance, as described in "--Defeasance;
Collateral Substitution" below. Most of the Mortgage Loans specify a period of
time (generally between three and twelve months) immediately prior to the
maturity date or Anticipated Prepayment Date, as applicable, of such Mortgage
Loan during which there are no restrictions on voluntary prepayments. All
Mortgage Loans require voluntary prepayments, if permitted, to be made on a Due
Date or to be accompanied by all interest that would be due on such Mortgage
Loan as of the succeeding Due Date. 1 Mortgage Loan, representing approximately
3.24% of the Initial Pool Balance which allows for defeasance, allows the
related borrower to prepay such Mortgage Loan if the related borrower is not
able to obtain certain opinions required with respect to such defeasance. See
"--Defeasance; Collateral Substitution" below. If the related borrower is
permitted to prepay such Mortgage Loan, there will be a Yield Maintenance
Charge.
The "Yield Maintenance Charge" will generally be equal to the greater of
(A) 1% of the entire unpaid principal balance of the Mortgage Loan at the time
of prepayment, and (B) the present value as of the date of prepayment and
calculated using the Yield Rate as the discount rate, for each month, of the
difference between (1) the remaining scheduled monthly payments of interest
that would be due on the principal being prepaid at the rate per annum provided
for in the related Mortgage Note from the date of prepayment to the maturity
date and (2) the remaining scheduled monthly payments of interest that would be
due on the principal amount being prepaid at the Yield Rate from the date of
prepayment to the maturity date.
The "Yield Rate" is a rate equal to a per annum rate calculated by the
linear interpolation of the yields, as reported in "Federal Reserve Statistical
Release H.15 Selected Interest Rates" under the heading U.S. Government
Securities/Treasury constant maturities for the week ending prior to the date
of prepayment, of the U.S. Treasury constant maturities with maturity dates
(one longer and one shorter) most nearly approximating the maturity date of the
Mortgage Loan being prepaid (or such other comparable calculation based on the
United States Treasury Security set forth in such other publication), such rate
converted to a monthly equivalent.
The following table summarizes the Lockout Periods, Yield Maintenance
Periods and Prepayment Premium Periods applicable to the Mortgage:
S-54
<PAGE>
PREPAYMENT RESTRICTIONS IN EFFECT AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
%
ORIGINAL TERM TO NUMBER AGGREGATE OF INITIAL LOCKOUT
MATURITY/ARD OF CUT-OFF DATE POOL PERIOD
(MOS.) LOANS BALANCE BALANCE (MOS.)
- ------------------ -------- ----------------- ------------ ---------
<S> <C> <C> <C> <C>
60 1 $ 4,084,208 0.32% 56
64 1 11,300,851 0.87 51
119 1 3,697,472 0.29 115
120 1 19,848,819 1.53 35
120 13 109,859,235 8.50 35
120 1 9,700,644 0.75 35
120 63 977,869,615 75.60 113-119
124 1 8,397,905 0.65 35
128 1 5,028,987 0.39 43
129 1 10,400,000 0.80 122
130 1 19,458,461 1.50 45
180-238 6 59,252,740 4.58 176-234
240 1 3,568,185 0.28 71
240 6 41,021,771 3.18 236-239
300 1 9,920,286 0.77 167
-- -------------- -----
TOTAL 99 $1,293,409,180 100%
== ============== =====
<CAPTION>
YIELD
MAINTENANCE PREPAYMENT
CHARGES PREMIUMS
----------------- ---------------
FREELY
ORIGINAL TERM TO AND/OR PREPAYABLE
MATURITY/ARD YIELD MAINTENANCE CHARGE OR BEGIN END BEGIN END DURING
(MOS.) PREPAYMENT PREMIUM DESCRIPTION MONTH MONTH MONTH MONTH LAST (1)
- ------------------ ------------------------------------------------------------- ------- --------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
60 Defeasance N/A N/A N/A N/A 4 mos.
64 Yield Maintenance 52 60 N/A N/A 4 mos.
119 Defeasance N/A N/A N/A N/A 4 mos.
120 Yield Maintenance 36 113 N/A N/A 7 mos.
120 (greater than) of (i) 1% of UPB or (ii) Yield Maintenance 36 113-116 N/A N/A 4-7 mos.
120 5%, 4%, 3%, 2%, 1% of UPB N/A N/A 36 116 4 mos.
120 Defeasance N/A N/A N/A N/A 1-7 mos.
124 (greater than) of (i) 1% of UPB or (ii) Yield Maintenance 36 120 N/A N/A 4 mos.
128 (greater than) of (i) 1% of UPB or (ii) Yield Maintenance 44 118 N/A N/A 10 mos.
129 Defeasance N/A N/A N/A N/A 7 mos.
130 (greater than) of (i) 1% of UPB or (ii) Yield Maintenance 46 123 N/A N/A 7 mos.
180-238 Defeasance N/A N/A N/A N/A 4 mos.
240 (greater than) of (i) 1% of UPB or (ii) Yield Maintenance 72 236 N/A N/A 4 mos.
240 Defeasance N/A N/A N/A N/A 1-4 mos.
300 (greater than) of (i) 1% of UPB or (ii) Yield Maintenance 168 287 N/A N/A 13 mos.
TOTAL
</TABLE>
- -------
As used above, "Lockout Period", "Begin Month" and "End Month" are
measured in monthly payments.
As used above, "N/A" means not applicable.
As used above, "APD" means Anticipated Prepayment Date.
(1) Number of months prior to maturity date or Anticipated Prepayment Date,
as applicable.
S-55
<PAGE>
Prepayment Premiums and Yield Maintenance Charges are distributable as
described in this prospectus supplement under "Description of the
Certificates--Allocation of Prepayment Premiums and 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 or Prepayment Premium 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 or
Prepayment Premium 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 or Prepayment Premium will provide a sufficient disincentive to prevent
a voluntary principal prepayment.
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. None of the Mortgage Loans require the payment of Prepayment
Premiums or Yield Maintenance Charges in connection with a prepayment of the
related Mortgage Loan as a result of a total casualty or condemnation.
Furthermore, the enforceability, under the laws of a number of states, of
provisions providing for payments comparable to the Prepayment Premiums and/or
Yield Maintenance Charges upon an involuntary prepayment is unclear. No
assurance can be given that, at the time a Prepayment Premium or a Yield
Maintenance Charge is required to be made on a Mortgage Loan in connection with
an involuntary prepayment, the obligation to pay such Prepayment Premium or
Yield Maintenance Charge will be enforceable under applicable state law. See
"Certain Legal Aspects of Mortgage Loans--Default Interest and Limitations on
Prepayments" in the prospectus.
The following table sets forth for each month indicated in the table, (i)
the aggregate unpaid principal balance and the percentage of the Initial Pool
Balance expected to be outstanding and (ii) the percentage of such amounts
subject to a Lockout Period, Yield Maintenance Charge or Prepayment Premium, in
each case assuming no prepayments, defaults or extensions and based also upon
the assumptions set forth preceding the tables appearing under "Yield and
Maturity Considerations--Weighted Average Life" in this prospectus supplement.
S-56
<PAGE>
PERCENTAGE OF REMAINING POOL BALANCE SUBJECT TO PREPAYMENT RESTRICTIONS
(DOLLAR AMOUNTS EXPRESSED IN MILLIONS)
<TABLE>
<CAPTION>
PREPAYMENT
RESTRICTIONS
APPLICABLE TO UPB
OUTSTANDING
ON EACH ANNIVERSARY OF
THE CUT-OFF DATE
----------------------
CUMULATIVE
INITIAL SEQUENTIAL IPB OUTSTANDING LOCKOUT
POOL PRINCIPAL ------------------- ----------------------
DATE BALANCE PAYMENTS AMOUNT % IPB AMOUNT % UPB
- ---------- ----------- ------------ ----------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
11/10/98 $1,293.4 $ 0 $1,293.4 100% $1,293.4 100.0%
11/10/99 $1,293.4 $ 12.8 $1,280.6 99% $1,280.6 100.0%
11/10/00 $1,293.4 $ 26.4 $1,267.0 98% $1,199.2 94.6%
11/10/01 $1,293.4 $ 41.1 $1,252.3 97% $1,086.1 86.7%
11/10/02 $1,293.4 $ 56.9 $1,236.5 96% $1,061.8 85.9%
11/10/03 $1,293.4 $ 88.3 $1,205.1 93% $1,043.7 86.6%
11/10/04 $1,293.4 $ 108.3 $1,185.1 92% $1,023.5 86.4%
11/10/05 $1,293.4 $ 129.9 $1,163.5 90% $1,005.0 86.4%
11/10/06 $1,293.4 $ 153.1 $1,140.3 88% 985.1 86.4%
11/10/07 $1,293.4 $ 238.1 $1,055.3 82% $ 959.4 90.9%
11/10/08 $1,293.4 $1,195.1 $ 98.3 8% $ 87.0 88.5%
11/10/09 $1,293.4 $1,208.1 $ 85.4 7% $ 83.1 97.4%
11/10/10 $1,293.4 $1,212.3 $ 81.1 6% $ 79.1 97.5%
11/10/11 $1,293.4 $1,216.9 $ 76.5 6% $ 74.7 97.6%
11/10/12 $1,293.4 $1,221.9 $ 71.5 6% $ 63.5 88.8%
11/10/13 $1,293.4 $1,261.6 $ 31.8 2% $ 24.4 76.8%
11/10/14 $1,293.4 $1,265.2 $ 28.2 2% $ 21.5 76.4%
11/10/15 $1,293.4 $1,269.1 $ 24.3 2% $ 18.4 75.8%
11/10/16 $1,293.4 $1,273.3 $ 20.1 2% $ 15.1 74.8%
11/10/17 $1,293.4 $1,288.3 $ 5.1 0% $ 0.9 17.8%
11/10/18 $1,293.4 $1,290.1 $ 3.4 0% $ 0 0.0%
11/10/19 $1,293.4 $1,290.7 $ 2.7 0% $ 0 0.0%
11/10/20 $1,293.4 $1,291.4 $ 2.0 0% $ 0 0.0%
11/10/21 $1,293.4 $1,292.2 $ 1.2 0% $ 0 0.0%
11/11/22 $1,293.4 $1,293.0 $ 0.4 0% $ 0 0.0%
11/12/23 $1,293.4 $1,293.4 $ 0 0% $ 0 0.0%
<CAPTION>
PREPAYMENT RESTRICTIONS APPLICABLE TO
UPB
OUTSTANDING
ON EACH ANNIVERSARY OF THE CUT-OFF PREPAYABLE WITHOUT
DATE PREMIUM OR CHARGE
------------------------------------- ------------------
YIELD MAINTENANCE PREPAYMENT
CHARGES PREMIUMS
-------------------- ----------------
DATE AMOUNT % UPB AMOUNT % UPB AMOUNT % UPB
- ---------- ---------- --------- -------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
11/10/98 $ 0 0.0% $ 0 0.0% $ 0 0.0%
11/10/99 $ 0 0.0% $ 0 0.0% $ 0 0.0%
11/10/00 $ 67.80 5.4% $ 0 0.0% $ 0 0.0%
11/10/01 $157.00 12.5% $9.30 0.7% $ 0 0.0%
11/10/02 $165.60 13.4% $9.10 0.7% $ 0 0.0%
11/10/03 $152.40 12.6% $9.00 0.7% $ 0 0.0%
11/10/04 $152.80 12.9% $8.80 0.7% $ 0 0.0%
11/10/05 $149.90 12.9% $8.60 0.7% $ 0 0.0%
11/10/06 $146.80 12.9% $8.30 0.7% $ 0 0.0%
11/10/07 $ 53.60 6.1% $8.10 0.8% $34.0 3.2%
11/10/08 $ 2.40 2.4% $ 0 0.0% $ 9.0 9.1%
11/10/09 $ 2.20 2.6% $ 0 0.0% $ 0 0.0%
11/10/10 $ 2.00 2.5% $ 0 0.0% $ 0 0.0%
11/10/11 $ 1.80 2.4% $ 0 0.0% $ 0 0.0%
11/10/12 $ 8.00 11.2% $ 0 0.0% $ 0 0.0%
11/10/13 $ 7.40 23.2% $ 0 0.0% $ 0 0.0%
11/10/14 $ 6.70 23.8% $ 0 0.0% $ 0 0.0%
11/10/15 $ 5.80 24.2% $ 0 0.0% $ 0 0.0%
11/10/16 $ 5.10 25.2% $ 0 0.0% $ 0 0.0%
11/10/17 $ 4.20 82.2% $ 0 0.0% $ 0 0.0%
11/10/18 $ 3.40 100.0% $ 0 0.0% $ 0 0.0%
11/10/19 $ 2.70 100.0% $ 0 0.0% $ 0 0.0%
11/10/20 $ 2.00 100.0% $ 0 0.0% $ 0 0.0%
11/10/21 $ 1.20 100.0% $ 0 0.0% $ 0 0.0%
11/11/22 $ 0 0.0% $ 0 0.0% $ 0.4 100.0%
11/12/23 $ 0 0.0% $ 0 0.0% $ 0 0.0%
</TABLE>
- -------
As used above, "IPB" means Initial Pool Balance.
As used above, "UPB" means aggregate unpaid principal balance of all Mortgage
Loans as of the Cut-off Date.
S-57
<PAGE>
Defeasance; Collateral Substitution. The terms of 78 of the Mortgage
Loans, representing approximately 84.76% of the Initial Pool Balance (the
"Defeasance Loans"), permit the applicable borrower at any time after a
specified period (the "Defeasance Lock-out Period ") to obtain a release of a
Mortgaged Property from the lien of the related Mortgage (a "Defeasance
Option"). The Defeasance Lockout Period is generally the greater of
approximately three years from the date of origination and two years from the
Closing Date, provided no event of default exists. Such release is subject to
certain conditions, including, among other conditions, that the borrower:
(a) pays on any Due Date (the "Release Date") (i) all interest accrued
and unpaid on the principal balance of the Note to and including the
Release Date, (ii) all other sums, excluding scheduled interest or
principal payments, due under the Mortgage Loan and all other loan
documents executed in connection therewith, (iii) an amount (the
"Collateral Substitution Deposit") that will be sufficient to purchase
direct non-callable obligations of the United States of America providing
payments (1) on or prior to, but as close as possible to, all successive
scheduled payment dates from the Release Date to the related maturity date,
assuming, in the case of each APD Loan, that such loan prepays on the
related Anticipated Prepayment Date and (2) in amounts equal to the
scheduled payments due on such dates under the Mortgage Loan or the
defeased amount thereof in the case of a partial defeasance, and (iv) any
costs and expenses incurred in connection with the purchase of such U.S.
government obligations; and
(b) delivers a security agreement granting the Trust Fund a first
priority lien on the Collateral Substitution Deposit and the U.S.
government obligations purchased with the Collateral Substitution Deposit
and an opinion of counsel to such effect.
The Defeasance Loans secured by more than one Mortgaged Property generally
require that (i) prior to the release of a related Mortgaged Property, a
specified percentage (generally 125%) of the allocated loan amount for such
Mortgaged Property be defeased and (ii) that the DSCR with respect to the
remaining Mortgaged Properties after the defeasance be no less than the greater
of (x) the DSCR at origination and (y) the DSCR immediately prior to such
defeasance.
The Master Servicer will be responsible for purchasing the U.S. government
obligations on behalf of the borrower at the borrower's expense. Any amount in
excess of the amount necessary to purchase such U.S. government obligations
will be returned to the borrower. Simultaneously with such actions, the related
Mortgaged Property will be released from the lien of the Mortgage Loan and the
pledged U.S. government obligations (together with any Mortgaged Property not
released, in the case of a partial defeasance) will be substituted as the
collateral securing the Mortgage Loan.
In general, a successor borrower established or designated by the Master
Servicer will assume all of the defeased obligations of a borrower exercising a
Defeasance Option under a Mortgage Loan and the borrower will be relieved of
all of the defeased obligations thereunder. If a Mortgage Loan is partially
defeased, the related Note will be split and only the defeased portion of the
borrower's obligations will be transferred to the successor borrower.
Although the collateral substitution provisions related to defeasance are
not intended to be, and do not have the same effect on the Certificateholders
as, a prepayment of the related Mortgage Loan, there can be no assurance that a
court would not interpret such provisions as requiring a Yield Maintenance
Charge or Prepayment Premium and thus not enforceable under applicable law or
as being usurious. The Depositor makes no representation as to the
enforceability of the defeasance provisions of any Mortgage Loan.
The Mortgage Loans identified as Loan Numbers 26, 27, and 28 on Annex A
hereto (the "Centre Structured Trust Loans") permit the related borrowers to
substitute another property (a "Centre Structured Trust Replacement Property")
for a Mortgaged Property provided that:
(A) the Mortgaged Property is:
(i) economically obsolete or no longer suitable for the use of the
Tenant under the Credit Lease; or
S-58
<PAGE>
(ii) materially and adversely impacted by a casualty or condemnation; and
(B) in each case:
(i) the appraised value and useful life of the Centre Structured Trust
Replacement Property is equal to or greater than the appraised value
and useful life of the Centre Structured Trust Property being
replaced as of the date of the closing of such Mortgage Loan;
(ii) the Centre Structured Trust Replacement Property is leased on the
same terms and conditions as the Mortgaged Property being replaced;
(iii) no default or event of default under such Centre Structured Trust
Loan has occurred and is continuing;
(iv) the Master Servicer has received written confirmation from the
Rating Agencies that such substitution will not cause the downgrade,
withdrawal or qualification of the then current rating of the
certificates; and
(v) the Master Servicer has received an opinion of counsel regarding
certain matters required under the related Mortgage Loan documents.
"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, 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 Special Servicer will be
required to exercise (or waive its right to exercise, provided that a Rating
Agency confirmation has been obtained with respect to certain Mortgage Loans)
any right it may have with respect to a Mortgage Loan containing a
"due-on-sale" clause (i) to accelerate the payments thereon, or (ii) to
withhold its consent to any such sale or transfer, consistent with the
Servicing Standards. With respect to a Mortgage Loan with a "due-on-encumbrance"
clause, the Special Servicer will be required to exercise (or waive its right
to exercise, provided that a Rating Agency confirmation has been obtained) any
right it may have with respect to a Mortgage Loan containing a
"due-on-encumbrance" clause (i) to accelerate the payments thereon, or (ii) to
withhold its consent to the creation of any additional lien or other
encumbrance, consistent with the Servicing Standards.
Notwithstanding the foregoing, the existence of any additional
indebtedness may increase the difficulty of refinancing the related Mortgage
Loan at maturity and the possibility that reduced cash flow could result in
deferred maintenance. Also, if the holder of the additional debt has filed for
bankruptcy or been placed in involuntary receivership, foreclosure of the
related Mortgage Loan could be delayed. See "Certain Legal Aspects of Mortgage
Loans--Due-on-Sale and Due-on-Encumbrance" and "--Subordinate Financing" in the
prospectus.
ADDITIONAL MORTGAGE LOAN INFORMATION
The following tables set forth certain anticipated characteristics of the
Mortgage Loans. The sum in any column may not equal the indicated total due to
rounding. The descriptions in this prospectus supplement of the Mortgage Loans
and the Mortgaged Properties are based upon the Mortgage Pool as it is expected
to be constituted as of the close of business on the Closing 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. Prior to the issuance of the Certificates, Mortgage
Loans may be removed from the Mortgage Pool 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 in
this prospectus supplement. The Depositor believes that the information set
forth in this prospectus supplement will be representative of
S-59
<PAGE>
the characteristics of the Mortgage Pool as it will be constituted at the time
the Certificates are issued, although the range of Mortgage Rates and
maturities as well as other characteristics of the Mortgage Loans described in
this prospectus supplement may vary.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Certificates on or shortly after the 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-60
<PAGE>
TYPE OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
NUMBER AGGREGATE %
OF CUT-OFF DATE OF INITIAL NUMBER
PROPERTY TYPE PROPERTIES BALANCE POOL BALANCE OF UNITS OR NRA (1)
- -------------------------------- ------------ ----------------- -------------- ---------------------
<S> <C> <C> <C> <C>
Anchored Retail ................ 41 $ 543,079,730 41.99% 6,323,342
Office ......................... 21 337,134,503 26.07 2,539,382
Multifamily .................... 19 147,886,479 11.43 3,427
Hotel .......................... 7 133,022,445 10.28 1,603
Industrial ..................... 5 47,736,849 3.69 1,153,367
Credit Lease ................... 20 43,220,621 3.34 612,635
Parking Garage ................. 2 21,951,372 1.70 58,072
Unanchored Retail .............. 5 19,377,179 1.50 171,549
-- -------------- -----
TOTAL/WEIGHTED AVERAGE ......... 120 $1,293,409,180 100%
=== ============== =====
<CAPTION>
WEIGHTED AVERAGES
------------------------------------------------------------------------
CUT-OFF DATE
BALANCE PER STATED CUT-OFF DATE LTV
NUMBER REMAINING OCCU- LTV RATIO AT
PROPERTY TYPE OF UNITS OR NRA MTG. RATE TERM (MO.) (2) PANCY DSCR RATIO MATURITY (2)
- -------------------------------- ----------------- ----------- ---------------- ------- ------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Anchored Retail ................ $ 85.88 6.89% 119 96% 1.45 70.97% 61.44%
Office ......................... 132.76 7.02% 120 99% 1.46 63.58% 53.67%
Multifamily .................... 43,153.34 6.95% 133 95% 1.92 63.10% 53.78%
Hotel .......................... 82,983.43 7.37% 115 79% 1.67 67.16% 53.92%
Industrial ..................... 41.39 7.00% 116 100% 1.40 72.22% 60.90%
Credit Lease ................... 70.55 7.29% 243 100% 1.03 95.05% 27.27%
Parking Garage ................. 378.00 6.80% 119 74% 1.76 70.68% 56.43%
Unanchored Retail .............. 112.95 6.99% 154 100% 1.47 70.00% 45.54%
TOTAL/WEIGHTED AVERAGE ......... 7.00% 125 95% 1.52 68.58% 56.28%
</TABLE>
- -------
(1) "NRA" means net rentable area and is applicable with respect to retail,
office and industrial properties.
(2) Calculated with respect to the Anticipated Prepayment Date for the APD
Mortgage Loans.
S-61
<PAGE>
RANGE OF MORTGAGE RATES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-----------------------------------------------------------
NUMBER OF AGGREGATE PERCENTAGE STATED CUT-OFF
RANGE OF LOANS/ CUT-OFF DATE OF INITIAL POOL MORTGAGE REMAINING DATE LTV RATIO AT
MORTGAGE RATES PROPERTIES BALANCE BALANCE RATE TERM (MO.)(1) DSCR LTV RATIO MATURITY(1)
- -------------------- ------------ ----------------- ----------------- ---------- --------------- ------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6.300% to 6.499% 3 / 3 $ 47,893,132 3.70% 6.31% 178 3.14 32.64% 21.42%
6.500% to 6.699% 14 / 14 198,481,065 15.35 6.60% 121 1.49 74.40% 62.83%
6.700% to 6.799% 8 / 12 279,841,765 21.64 6.75% 120 1.52 66.07% 57.14%
6.800% to 6.999% 16 / 16 118,572,036 9.17 6.90% 117 1.46 72.41% 62.71%
7.000% to 7.249% 33 / 50 408,952,108 31.62 7.05% 127 1.41 68.54% 55.60%
7.250% to 7.749% 19 / 19 142,142,531 10.99 7.42% 133 1.39 71.50% 49.26%
7.750% to 8.500% 6 / 6 97,526,543 7.54 8.18% 109 1.49 72.82% 62.87%
------------ -------------- -----
TOTAL/WEIGHTED
AVERAGE 99 / 120 $1,293,409,180 100% 7.00% 125 1.52 68.58% 56.28%
============ ============== =====
</TABLE>
- ----------
(1) Calculated with respect to the Anticipated Prepayment Date for the APD
Mortgage Loans
MORTGAGE LOANS BY STATE(1)
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-----------------------------------------------------------
AGGREGATE PERCENTAGE STATED CUT-OFF
NUMBER OF CUT-OFF DATE OF INITIAL POOL MORTGAGE REMAINING DATE LTV RATIO AT
STATE PROPERTIES BALANCE BALANCE RATE TERM (MO.)(2) DSCR LTV RATIO MATURITY(2)
- ---------------- ------------ ----------------- ----------------- ---------- --------------- ------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Massachusetts 7 $ 259,911,685 20.10% 7.00% 127 1.51 61.07% 49.57%
California 16 158,006,904 12.22 7.40% 116 1.55 69.64% 57.62%
New York 14 155,171,160 12.00 6.84% 140 1.94 60.24% 47.56%
Maryland 1 140,000,000 10.82 6.75% 120 1.47 63.06% 57.49%
Virginia 8 117,632,421 9.09 6.72% 121 1.47 74.73% 62.59%
Ohio 9 80,079,562 6.19 7.26% 117 1.30 76.11% 63.00%
Florida 10 48,000,861 3.71 7.13% 107 1.34 77.66% 66.67%
Texas 8 47,219,533 3.65 6.87% 130 1.45 75.19% 58.10%
New Jersey 5 46,459,973 3.59 6.88% 117 1.36 76.70% 66.21%
Georgia 6 32,588,892 2.52 6.91% 127 1.55 75.98% 57.61%
Arizona 2 26,747,012 2.07 6.62% 120 1.46 75.36% 65.18%
Connecticut 2 24,219,126 1.87 7.58% 116 1.47 72.18% 62.56%
Missouri 2 22,680,339 1.75 6.78% 127 1.58 72.95% 54.92%
Pennsylvania 2 18,098,549 1.40 7.90% 115 1.29 75.91% 64.07%
Michigan 2 15,417,308 1.19 6.85% 116 1.65 64.35% 55.32%
Washington 1 15,050,000 1.16 6.60% 120 1.45 71.67% 61.93%
North Carolina 4 12,184,818 0.94 7.15% 153 1.35 82.56% 59.44%
Colorado 2 12,027,106 0.93 7.09% 133 1.30 77.49% 60.97%
Nevada 2 11,851,765 0.92 7.29% 153 1.31 69.48% 47.81%
Louisiana 3 11,459,933 0.89 7.05% 149 1.48 74.63% 52.19%
Tennessee 3 8,937,111 0.69 7.04% 136 1.44 73.05% 54.94%
Illinois 3 7,816,521 0.60 7.21% 170 1.34 78.60% 46.41%
New Hampshire 2 7,235,305 0.56 6.95% 118 1.34 58.85% 47.22%
Wisconsin 1 6,861,632 0.53 7.25% 113 1.43 74.58% 64.85%
Kentucky 1 1,965,782 0.15 7.16% 228 1.00 102.92% 44.66%
Alabama 1 1,769,203 0.14 7.16% 228 1.00 107.22% 46.52%
Kansas 1 1,584,025 0.12 7.16% 228 1.00 98.39% 42.65%
Indiana 1 1,475,799 0.11 7.16% 228 1.00 98.39% 42.65%
Utah 1 956,856 0.07 7.05% 116 1.32 74.17% 64.06%
--- -------------- -----
TOTAL/WEIGHTED
AVERAGE 120 $1,293,409,180 100% 7.00% 125 1.52 68.58% 56.28%
=== ============== =====
</TABLE>
- ----------
(1) Because this table is presented at the Mortgaged Property level, weighted
averages are based on allocated loan amounts (allocated by either the
amount allocated in the related Mortgage Note or the appraised value for
such Mortgaged Property) for Mortgage Loans secured by more than one
Mortgaged Property and may therefore deviate slightly from weighted
averages presented at the Mortgage Loan level in other tables in this
prospectus supplement.
(2) Calculated with respect to the Anticipated Prepayment Date for the APD
Mortgage Loans.
S-62
<PAGE>
RANGE OF REMAINING TERMS IN MONTHS
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
------------------------------------------------------------
NUMBER OF AGGREGATE PERCENTAGE STATED CUT-OFF
RANGE OF LOANS/ CUT-OFF DATE OF INITIAL POOL MORTGAGE REMAINING DATE LTV RATIO AT
REMAINING TERMS(1) PROPERTIES BALANCE BALANCE RATE TERM (MO.)(1) DSCR LTV RATIO MATURITY(1)
- -------------------- ------------ ----------------- ----------------- ---------- --------------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
54 to 84 2 / 2 $ 15,385,059 1.19% 7.37% 54 1.27x 73.81% 70.13%
85 to 108 4 / 4 69,427,435 5.37 8.24% 106 1.57x 70.81% 61.23%
109 to 115 17 / 20 177,033,578 13.69 7.28% 114 1.44x 71.31% 61.11%
116 to 119 48 / 51 537,907,625 41.59 6.98% 118 1.48x 67.33% 58.16%
120 to 120 13 / 15 369,492,500 28.57 6.69% 120 1.49x 69.52% 60.32%
121 to 180 4 / 4 64,096,579 4.96 6.53% 170 2.68x 43.75% 29.39%
181 to 293 11 / 24 60,066,403 4.64 7.26% 241 1.07x 88.45% 19.75%
------------ -------------- -----
TOTAL/WEIGHTED
AVERAGE 99 / 120 $1,293,409,180 100% 7.00% 125 1.52X 68.58% 56.28%
============ ============== =====
</TABLE>
- ----------
(1) Calculated with respect to the Anticipated Prepayment Date for the APD
Mortgage Loans.
YEARS OF MATURITY
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
------------------------------------------------------------
NUMBER OF AGGREGATE PERCENTAGE STATED CUT-OFF
YEARS OF LOANS/ CUT-OFF DATE OF INITIAL POOL MORTGAGE REMAINING DATE LTV RATIO AT
MATURITY(1) PROPERTIES BALANCE BALANCE RATE TERM (MO.)(1) DSCR LTV RATIO MATURITY(1)
- --------------- ------------ ---------------- ----------------- ---------- --------------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2003 2 / 2 $ 15,385,059 1.19% 7.37% 54 1.27x 73.81% 70.13%
2007 4 / 4 69,427,435 5.37 8.24% 106 1.57x 70.81% 61.23%
2008 78 / 86 1,084,433,703 83.84 6.93% 118 1.47x 68.73% 59.38%
2009 1 / 1 10,400,000 0.80 6.98% 122 1.40x 80.00% 68.75%
2013 3 / 3 53,696,579 4.15 6.45% 179 2.93x 36.72% 21.77%
2017 5 / 18 31,573,524 2.44 7.20% 228 1.00x 97.00% 37.25%
2018 5 / 5 18,572,593 1.44 7.16% 236 1.15x 73.86% 0.55%
2023 1 / 1 9,920,286 0.77 7.62% 293 1.14x 88.57% 0.00%
------------ -------------- -----
TOTAL/WEIGHTED
AVERAGE 99 / 120 $1,293,409,180 100% 7.00% 125 1.52X 68.58% 56.28%
============ ============== =====
</TABLE>
- ----------
(1) Calculated with respect to the Anticipated Prepayment Date for the APD
Mortgage Loans.
S-63
<PAGE>
RANGE OF YEARS BUILT(1)
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
------------------------------------------------------------
RANGE OF AGGREGATE PERCENTAGE STATED CUT-OFF
YEARS BUILT/ NUMBER OF CUT-OFF DATE OF INITIAL POOL MORTGAGE REMAINING DATE LTV RATIO AT
REHABILITATED PROPERTIES BALANCE BALANCE RATE TERM (MO.)(2) DSCR LTV RATIO MATURITY(2)
- --------------- ------------ ----------------- ----------------- ---------- --------------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1853 to 1930 8 $ 120,027,896 9.28% 7.49% 122 1.58x 68.87% 53.57%
1931 to 1970 22 289,723,475 22.40 7.10% 123 1.40x 67.75% 57.19%
1971 to 1980 28 215,878,172 16.69 6.89% 128 1.79x 65.12% 55.88%
1981 to 1985 6 78,817,935 6.09 6.79% 115 1.57x 67.80% 57.94%
1986 to 1990 18 357,077,009 27.61 6.91% 118 1.49x 65.82% 56.33%
1991 to 1995 12 80,436,462 6.22 6.81% 135 1.45x 76.01% 56.81%
1996 to 1998 26 151,448,231 11.71 7.01% 144 1.36x 77.85% 56.00%
--------- -------------- -----
TOTAL/WEIGHTED
AVERAGE 120 $1,293,409,180 100% 7.00% 125 1.52X 68.58% 56.28%
========= ============== =====
</TABLE>
- ----------
(1) Because this table is presented at the Mortgaged Property level, weighted
averages are based on allocated loan amounts (allocated by either the
amount located in the related Mortgage Note or the appraised value for
such Mortgaged Property) for Mortgage Loans secured by more than one
Mortgaged Property and may therefore deviate slightly from weighted
averages presented at the Mortgage Loan level in other tables in this
prospectus supplement.
(2) Calculated with respect to the Anticipated Prepayment Date for the APD
Mortgage Loans.
TEN LARGEST MORTGAGE LOANS
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
PERCENTAGE STATED CUT-OFF
NUMBER OF CUT-OFF DATE OF INITIAL POOL MORTGAGE REMAINING DATE LTV RATIO AT
PROPERTY NAME PROPERTIES BALANCE BALANCE RATE TERM (MO.)(1) DSCR LTV RATIO MATURITY(1)
- -------------------- ------------ -------------- ----------------- ---------- --------------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
75 State Street 1 $184,884,329 14.29% 7.00% 119 1.51x 57.78% 50.52%
Towson Town Center 1 140,000,000 10.82 6.75% 120 1.47x 63.06% 57.49%
Sheraton Suites
Portfolio -- Pool 3 56,650,000 4.38 6.75% 120 1.54x 71.08% 55.83%
Sheffield 1 41,845,624 3.24 6.30% 179 3.38x 27.00% 19.58%
Smoketown Stations 1 41,000,000 3.17 6.60% 120 1.42x 73.21% 63.27%
Arsenal Mall 1 34,976,428 2.70 6.75% 119 1.69x 62.46% 54.25%
Hotel Monaco 1 34,801,764 2.69 7.31% 115 1.54x 64.21% 51.56%
Sir Francis Drake
Hotel 1 32,988,210 2.55 8.50% 105 2.03x 63.44% 52.82%
Costco Plaza II 1 31,987,500 2.47 6.60% 120 1.57x 75.00% 64.81%
G&K Portfolio II 4 31,636,297 2.45 7.14% 114 1.32x 78.40% 69.05%
-- ------------ -----
TOTAL/WEIGHTED
AVERAGE 15 $630,770,152 48.77% 6.92% 122 1.65X 61.92% 53.36%
== ============ =====
</TABLE>
- ----------
(1) Calculated with respect to the Anticipated Prepayment Date for the APD
Mortgage Loans.
The following table sets 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 scheduled payments of principal and/or interest (the
"Monthly Payments") due for the 12-month period immediately following the
Cut-off Date, except with respect to 7 Mortgage Loans (identified as Loan
Numbers 11, 24, 42, 45, 47, 60 and 84 on Annex A hereto), representing
approximately 4.93% of the Initial Pool Balance, where Monthly Payments are
interest-only until between 4 and 18 months after origination and 1 Mortgage
Loan, representing approximately 10.82% of the Initial Pool Balance, where
Monthly Payments are interest-only until approximately 5 years after
origination, after which date such Mortgage Loan amortizes based upon a
25-30-year amortization schedule (for the purposes of calculating DSCR, the
debt service of such Mortgage Loan will be assumed to include interest and
principal (based on the amortization schedule that would be in effect after the
respective interest-only period).
S-64
<PAGE>
RANGE OF DEBT SERVICE COVERAGE RATIOS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE
RANGE OF NUMBER OF CUT-OFF DATE OF INITIAL
DSCRS PROPERTIES BALANCE POOL BALANCE
- --------------------- ------------ ----------------- --------------
<S> <C> <C> <C>
1.0000 to 1.0500(2) 8 / 21 $ 66,501,128 5.14%
1.0501 to 1.2999 12 / 12 94,587,111 7.31
1.3000 to 1.3999 28 / 32 227,710,896 17.61
1.4000 to 1.4999 26 / 28 362,816,076 28.05
1.5000 to 1.5999 9 / 11 354,465,588 27.41
1.6000 to 1.9999 13 / 13 108,904,668 8.42
2.0000 to 3.3779 3 / 3 78,423,712 6.06
------------ -------------- -----
TOTAL/WEIGHTED
AVERAGE 99 / 120 $1,293,409,180 100%
============ ============== =====
<CAPTION>
WEIGHTED AVERAGES
---------------------------------------------------------------
CUT-OFF
RANGE OF MORTGAGE STATED REMAINING DATE LTV RATIO AT
DSCRS RATE TERM (MO.)(1) DSCR LTV RATIO MATURITY(1)
- --------------------- ---------- ------------------ ------- ----------- -------------
<S> <C> <C> <C> <C> <C>
1.0000 to 1.0500(2) 7.55% 183 1.02x 87.48% 44.03%
1.0501 to 1.2999 7.35% 139 1.24x 76.63% 54.21%
1.3000 to 1.3999 7.05% 116 1.35x 76.55% 66.76%
1.4000 to 1.4999 6.84% 120 1.45x 69.18% 60.52%
1.5000 to 1.5999 6.93% 120 1.53x 63.58% 52.98%
1.6000 to 1.9999 6.84% 117 1.70x 65.85% 55.89%
2.0000 to 3.3779 7.25% 145 2.75x 43.28% 34.58%
TOTAL/WEIGHTED
AVERAGE 7.00% 125 1.52X 68.58% 56.28%
</TABLE>
- ----------
(1) Calculated with respect to the Anticipated Prepayment Date for the APD
Mortgage Loans.
(2) 7 of such Mortgage Loans, representing approximately 3.34% of the Initial
Pool Balance, are Credit Lease Loans meeting the guidelines described
under "--Underwriting Standards" below.
RANGE OF CURRENT OCCUPANCY RATES(1)
<TABLE>
<CAPTION>
WEIGHTED AVERAGES(2)
------------------------------------------------------------
AGGREGATE PERCENTAGE STATED CUT-OFF
RANGE OF NUMBER OF CUT-OFF DATE OF INITIAL MORTGAGE REMAINING DATE LTV RATIO AT
OCCUPANCY RATES PROPERTIES BALANCE POOL BALANCE RATE TERM (MO.)(3) DSCR LTV RATIO MATURITY(3)
- -------------------- ------------ ----------------- -------------- ---------- --------------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
56.00% to 69.99% 2 $ 10,430,659 0.81% 7.77% 110 1.41x 72.35% 62.75%
70.00% to 79.99% 6 84,278,994 6.52 6.81% 119 1.60x 71.89% 57.14%
80.00% to 89.99% 8 140,590,865 10.87 7.66% 107 1.50x 70.66% 60.55%
90.00% to 94.99% 14 216,202,610 16.72 6.84% 118 1.43x 67.72% 60.82%
95.00% to 97.99% 14 130,859,746 10.12 6.85% 121 1.44x 72.52% 60.21%
98.00% to 99.99% 7 117,542,268 9.09 6.99% 137 2.12x 56.27% 47.83%
100.00% to 100.00% 69 593,504,037 45.89 6.95% 131 1.44x 69.44% 54.19%
-- -------------- -----
TOTAL/WEIGHTED
AVERAGE 120 $1,293,409,180 100% 7.00% 125 1.52X 68.58% 56.28%
=== ============== =====
</TABLE>
<PAGE>
- ----------
(1) Current occupancy rates have been calculated in this table based upon
rent rolls made available to the Mortgage Loan Seller by the related
borrowers as of the dates set forth on Annex A hereto.
(2) Because this table is presented at the Mortgaged Property level, weighted
averages are based on allocated loan amounts (allocated by either the
amount allocated in the related Mortgage Note or the appraised value for
such Mortgaged Property) for Mortgage Loans secured by more than one
Mortgaged Property and may therefore deviate slightly from weighted
averages presented at the Mortgage Loan level in other tables in this
prospectus supplement.
(3) Calculated with respect to the Anticipated Prepayment Date for the APD
Mortgage Loans.
S-65
<PAGE>
RANGE OF CUT-OFF DATE BALANCES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE
RANGE OF LOANS/ CUT-OFF DATE OF INITIAL POOL
CUT-OFF DATE BALANCES PROPERTIES BALANCE BALANCE
- ----------------------------- ------------ ----------------- -----------------
<S> <C> <C> <C>
$956,856 to $5,000,000 42 / 43 $ 134,806,758 10.42%
$5,000,001 to $10,000,000 25 / 28 184,759,166 14.28
$10,000,001 to $15,000,000 11 / 23 124,749,204 9.64
$15,000,001 to $20,000,000 8 / 8 143,916,624 11.13
$20,000,001 to $40,000,000 8 / 11 240,797,474 18.62
$40,000,001 to $60,000,000 3 / 5 139,495,624 10.79
$60,000,001 to $184,884,329 2 / 2 324,884,329 25.12
------------ -------------- -----
TOTAL/WEIGHTED
AVERAGE 99 / 120 $1,293,409,180 100%
============ ============== =====
<CAPTION>
WEIGHTED AVERAGES
-----------------------------------------------------------
STATED CUT-OFF
RANGE OF MORTGAGE REMAINING DATE LTV RATIO AT
CUT-OFF DATE BALANCES RATE TERM (MO.)(1) DSCR LTV RATIO MATURITY(1)
- ----------------------------- ---------- --------------- ------ ----------- -------------
<S> <C> <C> <C> <C> <C>
$956,856 to $5,000,000 7.06% 129 1.45 72.38% 53.65%
$5,000,001 to $10,000,000 7.15% 137 1.38 74.51% 54.49%
$10,000,001 to $15,000,000 6.94% 130 1.32 79.45% 62.40%
$15,000,001 to $20,000,000 7.05% 117 1.47 73.37% 63.30%
$20,000,001 to $40,000,000 7.24% 115 1.52 70.75% 60.77%
$40,000,001 to $60,000,000 6.57% 138 2.06 58.48% 47.14%
$60,000,001 to $184,884,329 6.89% 119 1.49 60.05% 53.52%
TOTAL/WEIGHTED
AVERAGE 7.00% 125 1.52 68.58% 56.28%
</TABLE>
- ----------
(1) Calculated with respect to the Anticipated Prepayment Date for the APD
Mortgage Loans.
The following two tables set forth the range of LTV Ratios of the Mortgage
Loans as of the Cut-off Date and the maturity dates or Anticipated Prepayment
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 Mortgage Loan maturity dates or Anticipated Prepayment
Date, as the case may be, described below was calculated based on the principal
balance of the related Mortgage Loan on the maturity date or Anticipated
Prepayment Date, as the case may be, assuming all principal payments required
to be made on or prior to the Mortgage Loan's maturity date or Anticipated
Prepayment Date, as the case may be (not including the balloon payment), are
made. 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. 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 current actual loan-to-value ratio of a
Mortgage Loan may be higher than its LTV Ratio at origination even after taking
into account amortization since origination.
<PAGE>
RANGE OF LTV RATIOS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-----------------------------------------------------------
NUMBER OF AGGREGATE PERCENTAGE STATED CUT-OFF
RANGE OF LOANS/ CUT-OFF DATE OF INITIAL POOL MORTGAGE REMAINING DATE LTV RATIO AT
LTV RATIOS PROPERTIES BALANCE BALANCE RATE TERM (MO.)(1) DSCR LTV RATIO MATURITY(1)
- ------------------ ------------ ----------------- ----------------- ---------- --------------- ------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
27.00% to 49.99% 3 / 3 $ 50,196,167 3.88% 6.40% 168 3.13 30.58% 23.07%
50.00% to 59.99% 5 / 5 205,641,262 15.90 7.02% 121 1.50 57.45% 48.90%
60.00% to 69.99% 16 / 18 319,952,373 24.74 7.07% 118 1.58 63.35% 54.57%
70.00% to 73.33% 11 / 13 174,064,475 13.46 6.75% 120 1.49 72.17% 59.28%
73.34% to 76.66% 24 / 24 220,184,961 17.02 6.89% 115 1.44 74.71% 64.72%
76.67% to 79.99% 31 / 35 266,869,321 20.63 7.22% 122 1.32 78.27% 65.37%
80.00% to 98.39% 9 / 22 56,500,621 4.37 7.23% 214 1.11 91.65% 37.20%
============ ============== =====
TOTAL/WEIGHTED
AVERAGE 99 / 120 $1,293,409,180 100% 7.00% 125 1.52 68.58% 56.28%
============ ============== =====
</TABLE>
- ----------
(1) Calculated with respect to the Anticipated Prepayment Date for the APD
Loans.
S-66
<PAGE>
RANGE OF LTV RATIOS AS OF MORTGAGE LOAN MATURITY DATES
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-----------------------------------------------------------
NUMBER OF AGGREGATE PERCENTAGE STATED CUT-OFF
RANGE OF MATURITY LOANS/ CUT-OFF DATE OF INITIAL POOL MORTGAGE REMAINING DATE LTV RATIO AT
LTV RATIOS(1) PROPERTIES BALANCE BALANCE RATE TERM (MO.)(1) DSCR LTV RATIO MATURITY(1)
- ------------------- ------------ ----------------- ----------------- ---------- --------------- ------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0.00% to 34.99% 10 / 10 $ 79,167,853 6.12% 6.75% 209 2.34 50.96% 10.48%
35.00% to 49.99% 9 / 22 57,463,464 4.44 7.10% 170 1.33 75.24% 42.41%
50.00% to 54.99% 10 / 12 321,873,031 24.89 7.16% 118 1.58 60.53% 51.58%
55.00% to 59.99% 8 / 10 260,064,207 20.11 6.82% 119 1.52 65.97% 57.01%
60.00% to 64.99% 25 / 25 253,895,872 19.63 6.81% 119 1.45 73.89% 63.79%
65.00% to 69.99% 31 / 35 287,967,103 22.26 7.14% 115 1.34 77.63% 67.89%
70.00% to 73.30% 6 / 6 32,977,650 2.55 7.57% 92 1.29 78.40% 71.21%
------------ -------------- -----
TOTAL/WEIGHTED
AVERAGE 99 / 120 $1,293,409,180 100% 7.00% 125 1.52 68.58% 56.28%
============ ============== =====
</TABLE>
- ----------
(1) Calculated with respect to the Anticipated Prepayment Date for the APD
Loans.
The foregoing characteristics, along with certain additional
characteristics of the Mortgage Loans presented on a loan-by-loan basis, are
set forth in Annex A to this prospectus supplement. Certain additional
information regarding the Mortgage Loans is set forth in this prospectus
supplement below under "--Underwriting Standards" and "--Representations and
Warranties; Repurchases" and in the prospectus under "Description of the Trust
Funds--Mortgage Loans" and "Certain Legal Aspects of Mortgage Loans."
UNDERWRITTEN NET CASH FLOW
The "Underwritten Net Cash Flow" for a Mortgaged Property is the estimated
annual revenue derived from the use and operation of such Mortgaged Property
less estimated annual expenses, including operating expenses (such as
utilities, administrative expenses, repairs and maintenance, management fees
and advertising), fixed expenses (such as insurance and real estate taxes) and
any applicable reserves. In calculating Underwritten Net Cash Flow, certain
non-operating items such as depreciation, amortization, partnership
distributions, financing fees and capital expenditures other than applicable
reserves, are not included as expenses.
Revenue. In determining potential gross revenue for each Mortgaged
Property, the Mortgage Loan Seller generally annualized the potential rent as
presented in the latest available rent roll or used the potential gross revenue
received over a consecutive 12-month period or used historical operating
statements for 1997. In determining other income for each Mortgaged Property,
the Mortgage Loan Seller generally relied on historical operating statements
for 1997 or, if available and more recent, the other income received over a
consecutive 12-month period ("Rolling 12 Months"). Operating statements were
generally certified but unaudited.
Vacancy. In determining the vacancy allowance for each Mortgaged Property
(other than a Mortgaged Property improved by a hotel), the Mortgage Loan Seller
generally used (a) the greatest of (i) the actual or Rolling 12 Months vacancy
rate, (ii) the vacancy rate in the related sub-market, and (iii) a 5% vacancy
rate or (b), with respect to Mortgaged Properties secured by hotels, a 20%
vacancy rate.
Expenses. In determining expenses for each Mortgaged Property, the
Mortgage Loan Seller relied on either historical operating statements for
calendar 1997 or the Rolling 12 Months. In all cases where historical operating
statements did not, in the opinion of the underwriter, 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 the greater of (a) market rates, and (b) between 3% and
5% (on a loan-by-loan basis) except with respect to 2 Mortgage Loans,
representing approximately 14.82% of the Initial Pool Balance which have
property management fees of 2% of effective gross revenue. As used in this
prospectus supplement, "effective gross revenue" means underwritten rental and
other income with respect to the related Mortgaged Property.
S-67
<PAGE>
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
"--Underwriting Standards--Escrow Requirements" below.
ASSESSMENTS OF PROPERTY CONDITION
Property Inspection. All of the Mortgaged Properties were inspected or
caused to be inspected during the underwriting process by the Mortgage Loan
Seller's professional staff or an agent of the Mortgage Loan Seller 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, other
than with respect to 3 Mortgage Loans, representing approximately 2.15% of the
Initial Pool Balance, was performed 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, as amended ("FIRREA").
The purpose of each appraisal was to provide an opinion as to the fair
market value of the related Mortgaged Property. There can be no assurance that
another appraiser would have arrived at the same opinion of fair market value.
Environmental Reports. A "Phase I" environmental site assessment was
performed with respect to each Mortgaged Property. See "--Representations and
Warranties; Repurchases" below.
Building Condition Reports. In connection with the origination of each
Mortgage Loan, a licensed engineer or consultant inspected each related
Mortgaged Property to assess the condition of the structure, exterior walls,
roofing, interior structure and mechanical and electrical systems. The
resulting reports indicated deferred maintenance items on certain Mortgaged
Properties and recommended certain capital improvements for which escrows were
generally established at origination. In addition, the building condition
reports provided a projection of necessary replacements and repair of
structural and mechanical systems over the life of the related Mortgage Loans.
THE MORTGAGE LOAN SELLER
The Mortgage Loan Seller is The Chase Manhattan Bank ("Chase"). Either a
newly-formed Delaware business trust (which would be an affiliate of Chase)
will acquire the Mortgage Loans from the Mortgage Loan Seller or the Depositor
will acquire them directly from Chase, in either case pursuant to an agreement
(the "Acquisition Agreement") in which Chase will make certain representations
and warranties with respect to the Mortgage Loans. See "--Representations and
Warranties; Repurchases" below. Such representations and warranties relating to
the Mortgage Loans will be assigned to the trust created pursuant to the
Pooling and Servicing Agreement. Chase is the parent corporation of the
Depositor and an affiliate of Chase Securities Inc., the Underwriter. See "The
Depositor" in the prospectus. All of the Mortgage Loans were originated by the
Mortgage Loan Seller or, with respect to 1 Mortgage Loan, representing
approximately 0.07% of the Initial Pool Balance, for sale to the Mortgage Loan
Seller, in each case, generally in accordance with the underwriting criteria
described below.
The information set forth in this prospectus supplement concerning the
Mortgage Loan Seller and its underwriting standards has been provided by the
Mortgage Loan Seller, and neither the Depositor nor the Underwriter make any
representation or warranty as to the accuracy or completeness of such
information.
UNDERWRITING STANDARDS
General. Chase's commercial mortgage banking group has the authority to
originate and purchase fixed-rate, first lien mortgage loans for
securitization. The Chase commercial mortgage banking operation
S-68
<PAGE>
is a vertically integrated entity, staffed by real estate professionals, many
of whom have completed the credit training programs of Chase or its
predecessors. The loan underwriting group is an integral component of the
commercial mortgage banking group which also includes distinct groups
responsible for loan origination, closing and servicing mortgage loans.
Upon receipt of a loan package, Chase's loan underwriters commence an
extensive review of the borrower's financial condition and creditworthiness and
the real estate which will secure the loan.
Loan Analysis. Generally, Chase performs both a credit analysis and
collateral analysis with respect to a loan applicant. The credit analysis of
the borrower performed by Chase includes a review of historical financial
statements, including operating statements and rent rolls (generally
unaudited), historical tax returns, third party credit reports and, if
applicable, the loan payment history of the borrower. Chase also performs a
qualitative analysis which incorporates independent credit checks, periodical
searches, industry research and published debt and equity information with
respect to certain principals of the borrower as well as the borrower itself.
Generally, borrowers are required to be single-purpose entities. The collateral
analysis includes an analysis of the historical property operating statements,
rent rolls and a projection of future performance. A member of the loan
underwriting team also conducts a site inspection or causes such inspection to
be performed, to confirm the occupancy rate of the mortgaged property, analyzes
the market and assesses the utility of the mortgaged property within the
market. Chase requires third party appraisals, as well as environmental and
building condition reports. Each report is reviewed for acceptability by a
staff member of Chase's Technical Services Unit for compliance with program
standards and such staff member approves or rejects such report. The results of
these reviews are incorporated into the underwriting report.
Credit Lease Loans. With respect to a Credit Lease Loan, Chase requires
that each Credit Lease have a primary lease term that expires on or after the
maturity date of the related Credit Lease Loan and be a "bondable lease." A
"bondable lease" generally means that the related Tenant has no rights under
the terms of the related Credit Lease to terminate the Credit Lease or abate
rent due under the Credit Lease, including by reason of the occurrence of
certain casualty and condemnation events or the failure of the related
Mortgage, as lessor to perform required maintenance, repairs or replacement,
except that the Tenant may have the right to terminate the Credit Lease upon
the happening of such casualty or condemnation if the Tenant makes a
termination payment which is not less than the then outstanding principal
amount of the related Credit Lease Loan plus accrued interest. Repayment of the
Credit Lease Loan is from the scheduled monthly rental payments from the
Tenants made over the Primary Term of the related Credit Lease. The amount of
the Monthly Rental Payments payable by each Tenant must be equal to or greater
than the scheduled payment of all principal, interest and other amounts due
each month on the related Credit Lease Loan. Obligations related to the
property that are not the responsibility of the Tenant and circumstances under
which the tenant is permitted to terminate the lease and/or abate and/or offset
rent payments, including but not limited to, casualty or condemnation, will
require insurance from a "AA" or better insurance provider, and/or reserves,
and/or recourse.
Loan Approval. Prior to commitment, all mortgage loans must be approved by
Chase's credit committee in accordance with its credit policies. The credit
committee may approve a mortgage loan as recommended, modify the loan terms or
decline a loan transaction. All mortgage loans purchased by Chase from
non-affiliated originators must be reviewed by the underwriting staff and
credit committee to determine if they comply with Chase's underwriting
standards.
S-69
<PAGE>
Debt Service Coverage Ratio and LTV Ratio. Chase's underwriting standards
generally require the following minimum debt service coverage ratios for each
of the indicated property types:
<TABLE>
<CAPTION>
PROPERTY TYPE DSCR GUIDELINE LTV RATIO GUIDELINE
- ----------------------------------- ---------------- --------------------
<S> <C> <C>
Multifamily ................ 1.20x 80%
Anchored Retail ............ 1.25x 75%
Unanchored Retail .......... 1.25x 75%
Office ..................... 1.25x 75%
Industrial ................. 1.25x 75%
Hotel ...................... 1.35x 70%
Credit Lease ............... 1.00x 100%
Self Storage ............... 1.25x 75%
Parking Facility ........... 1.30x 75%
</TABLE>
The debt service coverage guidelines listed above are calculated based on
Underwritten Net Cash Flow at the time of origination. In addition, Chase's
underwriting guidelines generally require a maximum amortization period of 30
years. However, notwithstanding the foregoing, in certain circumstances the
actual debt service coverage ratios, loan-to-value ratios and amortization
periods for the mortgage loans originated by Chase may vary from these
guidelines. See "Description of the Mortgage Pool" in this prospectus
supplement and Annex A to this prospectus supplement.
Escrow Requirements. Except with respect to Credit Lease Loans, Chase
requires substantially all borrowers to fund various escrows for taxes and
insurance, capital expenses and replacement reserves. Generally, the required
escrows for mortgage loans originated by Chase are as follows:
o Taxes--Typically an initial deposit and monthly escrow deposits equal
to 1/12th of the annual property taxes (based on the most recent property
assessment and the current millage rate) are required.
o Insurance--If the property is insured under an individual policy
(i.e., the property is not covered by a blanket policy), typically an initial
deposit and monthly escrow deposits equal to 1/12th of the annual property
insurance premium are required. If the property is covered by a blanket policy
of insurance, Chase reserves the right in the mortgage to require a separate
insurance policy and insurance escrows.
o Replacement Reserves--Replacement reserves are calculated in
accordance with the expected useful life of the components of the property
during the term of the mortgage loan.
Notwithstanding the actual level of escrowed reserves, the following
minimum reserve levels were assumed by Chase in determining Underwritten Net
Cash Flow:
<TABLE>
<S> <C>
Multifamily .............. $250 per unit
Retail ................... $0.15 per square foot
Office ................... $0.20 per square foot
Industrial ............... $0.10 per square foot
Hotel .................... 5% of gross revenue
Self Storage ............. $0.15 per square foot
Parking Facility ......... $45 per space
</TABLE>
o Completion Repair/Environmental Remediation--Typically, a completion
repair or remediation reserve is required. An initial deposit, upon funding of
the mortgage loan, in an amount equal to at least 125% of the estimated costs
of repairs or replacements to be completed within the first year of the
mortgage loan pursuant to the building condition report is required.
o Re-tenanting/Debt Service Coverage--In some cases, major tenants have
lease expirations within the Mortgage Loan term. To mitigate this risk, special
reserves were established to be funded either at closing of the Mortgage Loan
and/or during the Mortgage Loan term to cover certain anticipated leasing
commissions or tenant improvement costs which might be associated with
releasing the space occupied by such tenants.
S-70
<PAGE>
REPRESENTATIONS AND WARRANTIES; REPURCHASES
In the Acquisition Agreement, the Mortgage Loan Seller will represent and
warrant with respect to each Mortgage Loan sold by the Mortgage Loan Seller, as
of the Closing Date, or as of such other date specifically provided in the
representation and warranty, among other things, that:
(i) immediately prior to the sale, transfer and assignment to the
Depositor, 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,
assign and transfer such Mortgage Loan;
(ii) 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;
(iii) each related Mortgage Note, Mortgage, assignment of leases (if any)
and other agreement executed in connection with such Mortgage Loan are
legal, valid and binding obligations of the related borrower, enforceable
in accordance with their terms, except as such enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors' rights generally, or by general
principles of equity (regardless of whether such enforcement is considered
in a proceeding in equity or at law);
(iv) each related assignment of leases creates a valid, perfected first
priority assignment of, or a valid first priority security interest in,
certain rights under the related lease, subject only to a license granted
to the related borrower to exercise certain rights and to perform certain
obligations of the lessor under such leases, including the right to operate
the related Mortgaged Property;
(v) each related assignment of Mortgage from the Mortgage Loan Seller to
the Trustee and any related reassignment of assignment of leases, if any,
or assignment of any other agreement executed in connection with such
Mortgage Loan, from the Mortgage Loan Seller to the Trustee constitutes the
legal, valid and binding assignment from the Mortgage Loan Seller to the
Trustee 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);
(vi) since origination, such Mortgage Loan has not been modified,
altered, satisfied, canceled, subordinated or rescinded, and no material
portion of the related Mortgaged Property has been released from the lien
of the related Mortgage, in each case, in any manner which materially and
adversely affects the value of the Mortgage Loan or materially interferes
with the security intended to be provided by such Mortgage, and, except
with respect to 70 Mortgage Loans, representing approximately 84.76% of the
Initial Pool Balance, which permit defeasance by means of substituting for
the Mortgaged Property U.S. Treasury Obligations sufficient to pay the
Mortgage Loans in accordance with their terms, 3 Mortgage Loans,
representing approximately 2.15% of the Initial Pool Balance, which permit
the related borrower to substitute a replacement property, as described in
"--Defeasance; Collateral Substitution" above and 2 Mortgage Loans,
representing approximately 1.75% of the Initial Pool Balance which provide
for a release of a non-essential portion of the Mortgaged Property, the
terms of the related Mortgage do not provide for the release of any portion
of the Mortgaged Property from the lien of the Mortgage except upon the
satisfaction of certain underwriting and legal requirements and/or payment
of a release price at least equal to 125% of the related allocated loan
amount of such Mortgage Loan therefor;
(vii) each related Mortgage is a valid and enforceable first lien on the
related Mortgaged Property (subject to the matters described in clause
(viii) below), and such Mortgaged Property is free and clear of any
mechanics' and materialmen's liens which are prior to or equal with the
lien of the related Mortgage, except those which are insured against by a
lender's title insurance policy (as described in clause (viii) below);
(viii) 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
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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 borrower's ability to pay its
obligations when they become due or materially and adversely affects the
value of the Mortgaged Property and (c) the exceptions (general and
specific) set forth in such policy, none of which, individually or in the
aggregate, materially interferes with the current use of the Mortgaged
Property, security intended to be provided by such Mortgage or with the
borrower's ability to pay its obligations when they become due or
materially and adversely affects the value of the Mortgaged Property; the
Mortgage Loan Seller or its successors or assigns is the sole named insured
of such policy; such policy is assignable to the Depositor without the
consent of or any notification to the insurer, and is in full force and
effect upon the consummation of the transactions contemplated by the
Purchase Agreement; no claims have been made under such policy and the
Mortgage Loan Seller has not done anything, by act or omission, and the
Mortgage Loan Seller has no knowledge of any matter, which would impair or
diminish the coverage of such policy;
(ix) 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 borrower;
(x) 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, each
related Mortgaged Property is free and clear of any material damage that
would affect materially and adversely the value of such Mortgaged Property
as security for the Mortgage Loan and there is no proceeding pending for
the total or partial condemnation of such Mortgaged Property;
(xi) the Mortgage Loan Seller has inspected or caused to be inspected
each related Mortgaged Property within the past twelve months;
(xii) such Mortgage Loan does not have a shared appreciation feature,
other contingent interest feature or negative amortization feature;
(xiii) such Mortgage Loan is a whole loan and contains no equity
participation by the lender;
(xiv) the Mortgage Rate (exclusive of any default interest, late charges
or prepayment premiums) of such Mortgage Loan complied as of the date of
origination with, or is exempt from, applicable state or federal laws,
regulations and other requirements pertaining to usury; any and all other
requirements of any federal, state or local laws, including, without
limitation, truth-in-lending, real estate settlement procedures, equal
credit opportunity or disclosure laws, applicable to such Mortgage Loan
have been complied with as of the date of origination of such Mortgage
Loan;
(xv) all taxes and governmental assessments that prior to the Closing Date
became due and owing in respect of each related Mortgaged Property have been
paid, or an escrow of funds in an amount sufficient to cover such payments
has been established;
(xvi) 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 Depositor and identified as such with appropriate detail;
(xvii) 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 in an amount not less than the full
replacement cost (without offset for depreciation) or the amount of the
outstanding principal balance of the Mortgage Loan, and in any case in an
amount necessary to avoid the operation of any co-insurance provisions with
respect to the Mortgaged Property; each related
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Mortgaged Property is also covered by business interruption insurance (or
rent loss insurance) for at least a 12 month period and comprehensive
general liability insurance in amounts generally required by institutional
lenders for similar properties; all premiums on such insurance policies
required to be paid as of the date hereof have been paid; such insurance
policies require prior notice to the insured of termination or
cancellation, and no such notice has been received; each related Mortgage
or loan agreement obligates the related borrower to maintain all such
insurance and, at such borrower's failure to do so, authorizes the
mortgagee to maintain such insurance at the borrower's cost and expense and
to seek reimbursement therefor from such borrower;
(xviii) there is no material default, breach, violation or event of
acceleration existing under the related Mortgage or the related Mortgage
Note nor has the Mortgage Loan Seller waived any such event, and to the
Mortgage Loan Seller's knowledge, no event (other than payments due but not
yet delinquent) which, with the passage of time or with notice and the
expiration of any grace or cure period, would and does constitute a
default, breach, violation or event of acceleration. To the best of the
Mortgage Loan Seller's knowledge, there is no default, breach, violation or
event of acceleration that may have occurred as a result of any failure of
the related borrower to comply with any "due on sale" provision contained
in the related Mortgage Note or Mortgage. Notwithstanding the foregoing,
the Mortgage Loan Seller makes no representation or warranty with respect
to any default, breach, violation or event of acceleration that
specifically pertains to any matter otherwise covered by any other
representation and warranty made by the Mortgage Loan Seller;
(xix) no monthly payment on such Mortgage Loan has been more than 30 days
delinquent from the date of origination of such Mortgage Loan through the
Cut-off Date;
(xx) each related Mortgage contains customary and enforceable provisions
such as to render the rights and remedies of the holder thereof adequate
for the realization against the Mortgaged Property of the benefits of the
security, including realization by judicial or, if applicable, non-judicial
foreclosure, 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 borrower which would interfere with
such right to foreclose;
(xxi) 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 with respect to 4 Mortgage Loans, representing
approximately 3.46% of the Initial Pool Balance, as described in "Risk
Factors--Environmental Risks Relating to the Mortgage Loans" in this
prospectus supplement, the Towson Town Loan, for which the borrower has not
completed environmental testing with respect to an underground storage
tank, and 3 Mortgage Loans, representing approximately 5.72% of the Initial
Pool Balance for which underground tanks are being tested or being
remediated, except for those conditions that were remediated prior to the
Cut-off Date. To the best of the Mortgage Loan Seller's knowledge, each
related Mortgaged Property is in material compliance with all applicable
federal, state and local laws pertaining to environmental hazards, and no
notice of violation of such laws has been issued by any governmental agency
or authority. In each Mortgage, the borrower represented and warranted 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. In certain instances
this representation is limited to the best of borrower's knowledge. See
"Risk Factors--Potential Liability to the Trust Fund Relating to a
Materially Adverse Environmental Condition" in this prospectus supplement;
(xxii) each Mortgage contains a "due on sale" clause, which provides for
the acceleration of the payment of the unpaid principal balance of the
Mortgage Loan if, without the prior written consent of the holder of the
Mortgage, the property subject to the Mortgage, or any interest therein, is
directly or indirectly transferred or sold, subject to those exceptions set
forth in the related Mortgage Loan which are consistent with prudent
lending standards, and each related Mortgage or loan agreement prohibits
the pledge or encumbrance of the Mortgaged Property without the consent of
the holder of the Mortgage Loan;
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(xxiii) the Mortgage Loan is directly secured by a Mortgage on a
commercial or multifamily residential property, and either (1)
substantially all of the proceeds of the Mortgage Loan were used to
acquire, improve or protect an interest in such real property which, as of
the origination date, was the sole security for such Mortgage Loan (unless
the Mortgage Loan has been modified in a manner that constituted a deemed
exchange under Section 1001 of the Code at a time when the Mortgage Loan
was not in default or default with respect thereto was not reasonably
foreseeable) or (2) the fair market value of such real property was at
least equal to 80% of the principal amount of the Mortgage Loan (a) at
origination (or if the Mortgage Loan has been modified in a manner that
constituted a deemed exchange under Section 1001 of the Code at a time when
the Mortgage Loan was not in default or default with respect thereto was
not reasonably foreseeable, the date of the last such modification) or (b)
at the Closing Date; provided that the fair market value of the real
property interest must first be reduced by (A) the amount of any lien on
the real property interest that is senior to the Mortgage Loan (unless such
senior lien also secures a Mortgage Loan, in which event the computation
described in clauses (a) and (b) shall be made on an aggregate basis) and
(B) a proportionate amount of any lien that is in parity with the Mortgage
Loan (unless such other lien secures a Mortgage Loan that is
cross-collateralized with such Mortgage Loan, in which event the
computation described in clauses (a) and (b) shall be made on an aggregate
basis);
(xxiv) as of the date of origination of such Mortgage Loan and to the
Mortgage Loan Seller's knowledge, as of the Cut-off Date, there are no
violations of any applicable zoning ordinances, except with respect to 1
Mortgage Loan, representing approximately 0.17% of the Initial Pool
Balance, building codes and land use applicable to the Mortgaged Property
or the use and occupancy thereof, which would have a material adverse
effect on the value, operation or net operating income of the Mortgaged
Property; and
(xxv) the Mortgage Loan 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, except with respect to 3 Mortgage Loans,
representing approximately 2.15% of the Initial Pool Balance, the appraisal
and appraiser both satisfy the requirements of Title XI of FIRREA and the
regulations promulgated thereunder, all as in effect on the date the
Mortgage Loan was originated.
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 Acquisition Agreement (the relevant
rights under which will be assigned, together with its interests in the
Mortgage Loans, 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 the Mortgage Loan Seller, and none of the Depositor,
the Master Servicer, the Special Servicer, the Trustee, the Underwriter or any
of their 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
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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.
MORTGAGED PROPERTY ACCOUNTS
Lock Box Accounts. With respect to 10 Mortgage Loans representing
approximately 37.97% of the Initial Pool Balance (the "Lock Box Loans"), one or
more accounts (collectively, the "Lock Box Accounts") have been or may be
established into which the related property manager and/or tenants directly
deposits rents or other revenues from the Mortgaged Property. Pursuant to the
terms of 6 of the Lock Box Loans, representing approximately 22.28% of the
Initial Pool Balance, the related Lock Box Accounts were required to be
established on the origination dates of such Mortgage Loans. The terms of 2 of
such Lock Box Loans, representing approximately 14.06% of the Initial Pool
Balance, allow the related borrower to withdraw funds from such Lock Box
Accounts until the occurrence of an event of default under the related loan
documents. The terms of 2 Lock Box Loans, representing approximately 1.64% 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. The agreements which govern the Lock Box
Accounts provide that the borrower has no withdrawal or transfer rights with
respect thereto and that all funds on deposit in the Lock Box Accounts are
periodically swept into the Cash Collateral Accounts. The Lock Box Accounts
will not be assets of either REMIC.
Cash Collateral Accounts. Each Lock Box Loan has or will have one or more
accounts established in the name of the Master Servicer (the "Cash Collateral
Accounts") into which funds in the related Lock Box Accounts will be swept on a
regular basis. Each Cash Collateral Account will have sub-accounts (the
"Reserve Accounts") relating to taxes, insurance, replacement reserves and
similar items. Any excess over the amount necessary to fund the Monthly Payment
with respect to a Lock Box Loan, the Reserve Accounts and any other amounts due
under such Lock Box Loan, will be returned to the related borrower, provided
that no event of default has occurred and is continuing with respect to such
Lock Box Loan. The Cash Collateral Accounts will not be assets of either REMIC.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to a pooling and servicing
agreement, among the Depositor, the Master Servicer, the Special Servicer and
the Trustee (the "Pooling and Servicing Agreement") and will represent in the
aggregate the entire beneficial ownership interest in the Trust Fund consisting
of: (i) the Mortgage Loans and all payments under and proceeds of the Mortgage
Loans received after the Cut-off Date (exclusive of payments of principal and
interest due on or before the Cut-off Date); (ii) any REO Property; (iii) such
funds or assets as from time to time are deposited in the Certificate Account,
the Distribution Accounts, the Interest Reserve Account, the Excess Interest
Distribution 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 Depositor's Commercial Mortgage Pass-Through Certificates, Series
1998-2 (the "Certificates") will consist of the following fifteen classes
(each, a "Class"): the Class A-1, Class A-2 and Class A-3 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 and Class R and
Class LR Certificates. The Class A Certificates and the Class X Certificates
are referred to collectively in this prospectus supplement as the "Senior
Certificates." The Class B, Class C, Class D, Class E, Class F, Class G, Class
H, Class I and Class J Certificates are referred to collectively in this
prospectus supplement as the "Subordinate Certificates." The Class B, Class C,
Class D and Class E Certificates are referred to collectively in this
prospectus supplement as the "Subordinate Offered Certificates." The Class R
and Class LR Certificates are referred to collectively in this prospectus
supplement as the "Residual Certificates."
Only the Class A, Class X, Class B, Class C, Class D and Class E
Certificates are offered hereby (collectively, the "Offered Certificates"). The
Class F, Class G, Class H, Class I, Class J and 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 "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 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 (other
than the Class X Certificates) is expected to be the balance set forth on the
cover of this prospectus supplement. The Class X Certificates will not have a
Certificate Balance or entitle their holders to distributions of principal.
The Class X Certificates will, however, represent the right to receive
distributions of interest accrued as described in this prospectus supplement on
a notional amount (the "Notional Amount"). The Notional Amount of the Class X
Certificates will be equal to 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 an interest in
principal payments on the Mortgage Loans. The Class F, Class G, Class H, Class
I and Class J Certificates will have an aggregate initial Certificate Balance
of approximately $126,107,395. The Class R and Class LR Certificates will not
have Certificate Balances.
The Offered Certificates will be maintained and transferred in book-entry
form and issued in denominations of $25,000 initial Certificate Balance, or in
the case of the Class X Certificates, $1,000,000
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initial Notional Amount, and integral multiples of $1,000 in excess thereof.
The "Percentage Interest" evidenced by any Certificate (other than the Residual
Certificates) is equal to the initial denomination thereof as of the Closing
Date, divided by the initial Certificate Balance or Notional Amount of the
Class to which it belongs.
The Offered Certificates will initially be represented by one or more
global Certificates registered in the name of the nominee of DTC. The Depositor
has been informed by DTC that DTC's nominee will be Cede & Co. No person
acquiring an interest in the Offered Certificates (any such person, a
"Certificate Owner") will be entitled to receive an Offered Certificate in
fully registered, certificated form (a "Definitive Certificate") representing
its interest in such Class, except as set forth under "--Book-Entry
Registration and Definitive Certificates" below. 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 its participating organizations (together with Cedel
and Euroclear participating organizations, the "Participants"), and all
references in this prospectus supplement 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 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.
PAYING AGENT, CERTIFICATE REGISTRAR AND AUTHENTICATING AGENT
The Chase Manhattan Bank, 450 West 33rd Street, Structured Finance
Services (MBS), 15th Floor, New York, New York 10001 will be appointed by the
Trustee as paying agent (in such capacity, the "Paying Agent"). In addition,
The Chase Manhattan Bank will initially serve as registrar (in such capacity,
the "Certificate Registrar") for purposes of recording and otherwise providing
for the registration of the Offered Certificates and of transfers and exchanges
of the Definitive Certificates, if issued, and as authenticating agent of the
Certificates (in such capacity, the "Authenticating Agent").
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
General. Certificate Owners may hold their Certificates through DTC (in
the United States) or Cedel or Euroclear (in Europe) if they are Participants
of such system, or indirectly through organizations that are Participants in
such systems. Cedel and Euroclear will hold omnibus positions on behalf of the
Cedel Participants and the Euroclear Participants, respectively, through
customers' securities accounts in Cedel's and Euroclear's names on the books of
their respective depositories (collectively, the "Depositories") which in turn
will hold such positions in customers' securities accounts in the Depositories'
names on the books of DTC. DTC is a limited purpose trust company organized
under the New York Banking Law, a "banking organization" within the meaning of
the New York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant to Section 17A of the Securities Exchange
Act of 1934, as amended. DTC was created to hold securities for its
Participants and to facilitate the clearance and settlement of securities
transactions between Participants through electronic computerized book-entries,
thereby eliminating the need for physical movement of certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations. Indirect access to the DTC system also is available to
others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between Cedel Participants and Euroclear Participants will
occur in accordance with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly through Cedel Participants or
Euroclear Participants, on the other, will be effected in DTC
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in accordance with DTC rules on behalf of the relevant European international
clearing system by its Depository; however, such cross-market transactions will
require delivery of instructions to the relevant European international
clearing system by the counterparty in such system in accordance with its rules
and procedures. If the transaction complies with all relevant requirements,
Euroclear or Cedel, as the case may be, will then deliver instructions to the
Depository to take action to effect final settlement on its behalf.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Cedel Participant or Euroclear Participant on such business day. Cash received
in Cedel or Euroclear as a result of sales of securities by or through a Cedel
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
Cedel or Euroclear cash account only as of the business day following
settlement in DTC.
Certificate Owners that are not Direct or Indirect 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, since such payments
will be forwarded by the Paying Agent to Cede & Co., as nominee of DTC. DTC
will forward such payments to its Participants, which thereafter will forward
them to Indirect Participants or beneficial owners of Offered Certificates.
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 Special Servicer or
the Master Servicer as Certificateholders, as such term is used in the Pooling
and Servicing Agreement, and Certificate Owners will be permitted to receive
information furnished to Certificateholders and to exercise the rights of
Certificateholders only indirectly through DTC and its Direct and Indirect
Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
the Offered Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, the Offered Certificates.
Direct and Indirect Participants with which Certificate Owners have accounts
with respect to the Offered Certificates similarly are required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess physical certificates evidencing their interests in the
Offered Certificates, the Rules provide a mechanism by which Certificate
Owners, through their Direct and Indirect Participants, will receive
distributions and will be able to transfer their interests in the Offered
Certificates.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of
Certificateholders to pledge such Certificates to persons or entities that do
not participate in the DTC system, or to otherwise act with respect to such
Certificates, may be limited due to the lack of a physical certificate for such
Certificates.
DTC has advised the Depositor that it will take any action permitted to be
taken by a holder of an Offered Certificate under the Pooling and Servicing
Agreement only at the direction of one or more Participants to whose accounts
with DTC the Offered Certificates are credited. DTC may take conflicting
actions with respect to other undivided interests to the extent that such
actions are taken on behalf of Participants whose holdings include such
undivided interests.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within the Euroclear system,
withdrawal of securities and cash from the Euroclear system, and receipts of
payments with respect to securities in the Euroclear system.
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Although DTC, Euroclear and Cedel have implemented the foregoing
procedures in order to facilitate transfers of interests in Global Certificates
among Participants of DTC, Euroclear and Cedel, they are under no obligation to
perform or to continue to comply with such procedures, and such procedures may
be discontinued at any time.
None of the Depositor, the Master Servicer, the Paying Agent, the
Certificate Registrar, the Underwriter, the Special Servicer or the Trustee
will have any liability for any actions taken by DTC, Euroclear or Cedel, their
respective Direct or Indirect Participants or their nominees, including,
without limitation, actions for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Offered
Certificates held by Cede & Co., as nominee for DTC, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interest. The information in this prospectus supplement concerning DTC, Cedel
and Euroclear and their book-entry systems has been obtained from sources
believed to be reliable, but the Depositor takes no responsibility for the
accuracy or completeness thereof.
Definitive Certificates. 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 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 Special Servicer and the Master 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 are required
to be made by the Paying Agent, to the extent of available funds, on the 18th
day of each month or, if any such 18th day is not a business day, then on the
next succeeding business day, commencing in December 1998 (each, a
"Distribution Date"). All such distributions (other than the final distribution
on any Certificate) are required to 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 is required to 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 Paying Agent and 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) and is the registered owner of Certificates with
an aggregate initial Certificate Balance or Notional Amount, as the case may
be, of at least $5,000,000, or otherwise by check mailed to such
Certificateholder. The final distribution on any Certificate is required to 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 Master Servicer is required to establish and maintain, or cause to be
established and maintained, one or more accounts (collectively, the
"Certificate Account") as described in the Pooling and Servicing
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Agreement. The Master Servicer is required to deposit in the Certificate
Account on the second business day following receipt 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 will be permitted to
make withdrawals therefrom as set forth in the Pooling and Servicing Agreement.
The Paying Agent is required to establish and maintain an account (the
"Lower-Tier Distribution Account"), and a second account (the "Upper-Tier
Distribution Account" and, together with the Lower-Tier Distribution Account,
the "Distribution Accounts") in the name of the Paying Agent and for the
benefit of the Certificateholders. On each Distribution Date, the Paying Agent
is required to apply amounts on deposit in the Upper-Tier Distribution Account
(which will include all funds that were remitted by the Master 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 in this prospectus supplement. Each of the Certificate Account and
the Distribution Accounts will conform to certain eligibility requirements set
forth in the Pooling and Servicing Agreement.
The Paying Agent is required to establish and maintain an "Interest
Reserve Account" in the name of the Trustee for the benefit of the holders of
the Certificates. On each Servicer Remittance Date occurring in February and on
any Servicer Remittance Date occurring in any January which occurs in a year
that is not a leap year, the Master Servicer will be required to deposit into
the Interest Reserve Account, in respect of each of the Mortgage Loans
identified as Loan Numbers and on Annex A hereto (collectively, the
"Withheld Loans"), an amount equal to one day's interest at the Mortgage Rate
for each such Mortgage Loan on its 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 Master 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
Master Servicer is authorized but not required to direct the investment of
funds held in the Certificate Account and Interest Reserve Account in Permitted
Investments, and the Master Servicer will be entitled to retain any interest or
other income earned on such funds. The Master Servicer will be required to bear
any losses resulting from the investment of such funds.
The Paying Agent is required to establish and maintain an "Excess Interest
Distribution Account" in the name of the Trustee for the benefit of the
Certificateholders. Prior to the applicable Distribution Date, the Master
Servicer is required to remit to the Paying Agent for deposit into the Excess
Interest Distribution Account an amount equal to the Excess Interest received
during the related Due Period.
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;
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(iv) all Prepayment Premiums and Yield Maintenance Charges;
(v) with respect to each Withheld Loan and any Distribution Date
occurring in each February and in any January occurring in a year that
is not a leap year, the related Withheld Amount to the extent such funds
are on deposit in the Certificate Account or the Lower-Tier Distribution
Account;
(vi) Excess Interest; and
(vii) all amounts deposited in the Certificate Account and Lower-Tier
Distribution Account in error;
(b) all P&I Advances made by the Master Servicer or the Trustee, as
applicable, with respect to such Distribution Date (net of certain amounts
that are due or reimbursable to persons other than the Certificateholders).
See "Description of the Pooling Agreements--Certificate Account" in the
prospectus; and
(c) for the Distribution Date occurring in each March, the related
Withheld Amounts required to be deposited in the Lower-Tier Distribution
Account pursuant to the Pooling Agreement.
The "Due Period" for each Distribution Date and each Mortgage Loan will be
the period commencing on the eleventh day of the month preceding the month in
which such Distribution Date occurs and ending on the tenth day of the month in
which such Distribution Date occurs (or, with respect to the Mortgage Loans
identified on Annex A to this prospectus supplement as Loan Numbers 7, 11, 26,
27, 28, 30, 42, 45, 46, 47, 48, 60, 79, 83, 84, 87 and 99, 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, for so long as the Certificate
Balances of the Certificates have not been reduced to zero, the Paying Agent is
required to 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, Class A-3 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, (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, and (iii) following
reduction of the Certificate Balance of the Class A-1 and Class A-2
Certificates to zero, to the Class A-3 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 and
Class A-2 Certificates on such Distribution Date) until the Certificate Balance
of such Class is reduced to zero;
third, to the Class A-1, Class A-2 and Class A-3 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, an 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
zero, to the Class H Certificates, in reduction of the Certificate Balance
thereof, an amount equal to the Principal Distribution Amount (or portion
thereof remaining after distributions on the Class A, Class B, Class C, Class
D, Class E, Class F and Class G Certificates on such Distribution Date), until
the Certificate Balance of such Class is reduced to zero;
twenty-fourth, to the Class H Certificates, until all amounts of
Collateral Support Deficit previously allocated to the Class H Certificates,
but not previously reimbursed, have been reimbursed in full;
twenty-fifth, to the Class I Certificates, in respect of interest, up to
an amount equal to the Interest Distribution Amount for such Class;
twenty-sixth, following reduction of the Certificate Balances of the Class
A, Class B, Class C, Class D, Class E, Class F, Class G and Class H
Certificates to zero, to the Class I Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount (or portion thereof remaining after distributions on the Class A, Class
B, Class C, Class D, Class E, Class F, Class G and Class H Certificates on such
Distribution Date), until the Certificate Balance of such Class is reduced to
zero;
twenty-seventh, to the Class I Certificates, until all amounts of
Collateral Support Deficit previously allocated to the Class I Certificates,
but not previously reimbursed, have been reimbursed in full;
twenty-eighth, to the Class J Certificates, in respect of interest, up to
an amount equal to the Interest Distribution Amount for such Class;
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; and
thirty-first, to the Class R Certificates, the amount, if any, of the
Available Distribution Amount remaining in the Upper-Tier Distribution Account
with respect to such Distribution Date.
Reimbursement of previously allocated Collateral Support Deficit will not
constitute distributions of principal for any purpose and will not result in an
additional reduction in the Certificate Balance of the Class of Certificates in
respect of which any such reimbursement is made.
Notwithstanding the distribution priority second set forth above, on and
after the Distribution Date on which the Certificate Balances of the
Subordinate Certificates have all been reduced to zero (such date, the
"Cross-Over Date"), the Principal Distribution Amount will be distributed, pro
rata (based upon their respective Certificate Balances), among the Classes of
Class A Certificates without regard to the priorities set forth above.
Pass-Through Rates. The Pass-Through Rate applicable to each Class of
Offered Certificates (other than the Class X Certificates) for any Distribution
Date will equal the rate per annum specified on the cover of this prospectus
supplement. Interest will accrue for each Class of Certificates during the
related Interest Accrual Period. The Pass-Through Rate for the Class X
Certificates (the "Class X Pass-Through Rate") for any Distribution Date will
equal the excess, if any, of (a) the weighted average of the applicable Net
Mortgage Rates for the Mortgage Loans weighted on the basis of their respective
Stated Principal
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Balances as of the first day of the related Due Period or, in the case of the
first Distribution Date, the Cut-off Date, over (b) the weighted average of the
Pass-Through Rates on all of the other Certificates (other than the Residual
Certificates) weighted on the basis of their respective Certificate Balances
immediately prior to such Distribution Date. The Class X Pass-Through Rate for
the first Distribution Date is expected to be approximately % per annum.
The "Net Mortgage Rate" for each Mortgage Loan is equal to the related
Mortgage Rate in effect from time to time less the related Administrative Cost
Rate; provided however, that for purposes of calculating Pass-Through Rates,
the Net Mortgage Rate for any Mortgage Loan will be determined without regard
to any modification, waiver or amendment of the terms of such Mortgage Loan,
whether agreed to by the Master Servicer or resulting from a bankruptcy,
insolvency or similar proceeding involving the related borrower.
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 in each case without giving effect to any default rate or Revised
Rate. Notwithstanding the foregoing, if any Mortgage Loan does not accrue
interest on the basis of a 360-day year consisting of twelve 30-day months,
then, solely for purposes of calculating the Pass-Through Rate on the Class X
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 Withheld 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.
"Excess Interest" with respect to any APD Loan is the interest accrued at
the related Revised Rate in respect of such APD Loan in excess of the interest
accrued at the related Initial Rate, plus interest thereon, to the extent
permitted by applicable law.
Interest Distribution Amount. The "Interest Distribution Amount" of 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 Principal Shortfall
for such Distribution Date, (b) the Scheduled Principal Distribution Amount for
such Distribution Date and (c) the Unscheduled Principal Distribution Amount
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 Master Servicer or the Trustee, as
applicable, and (b) all Balloon Payments to the extent received during the
related Due Period, and to the extent not included in clause (a) above. The
Scheduled Principal Distribution Amount from time to time will include
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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 Master Servicer or the Trustee, as the case may be, for prior Advances.
The "Unscheduled Principal Distribution Amount" for each Distribution Date
will equal the aggregate of: (a) all voluntary prepayments of principal
received on the Mortgage Loans during the related Due Period; and (b) any other
collections (exclusive of payments by borrowers) received on the Mortgage Loans
and any REO Properties during the related Due Period, whether in the form of
Liquidation Proceeds, Insurance and Condemnation Proceeds, net income, rents,
and profits from REO Property or otherwise, that were identified and applied by
the Master 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 and Class J 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 court
presiding over a bankruptcy proceeding in which the related borrower is the
debtor. See "Certain Legal Aspects of Mortgage Loans--Bankruptcy Laws" in the
prospectus. If any Mortgage Loan is paid in full or such Mortgage Loan (or any
Mortgaged Property acquired in respect thereof) is otherwise liquidated, then,
as of the first Distribution Date that follows the end of the Due Period in
which such payment in full or liquidation occurred and notwithstanding that a
loss may have occurred in connection with any such liquidation, the Stated
Principal Balance of such Mortgage Loan shall be zero.
For purposes of calculating distributions on, and allocations of
Collateral Support Deficit to, the Certificates, as well as for purposes of
calculating the Servicing Fee and Trustee 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" in this prospectus supplement 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 Master Servicer, will continue to be
"due" in respect of the REO Loan; and amounts received in respect of the
related REO Property, net of payments to be made, or reimbursement to the
Master 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 Master Servicer as if received on the predecessor Mortgage
Loan.
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Excess Interest. On each Distribution Date, the Paying Agent is required
to distribute any Excess Interest received with respect to Mortgage Loans
during the related Due Period to the holders of the Class J Certificates.
ALLOCATION OF PREPAYMENT PREMIUMS AND YIELD MAINTENANCE CHARGES
On any Distribution Date, Prepayment Premiums collected during the related
Due Period will be required to be distributed by the Paying Agent to the
holders of 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) 25% and (c) the total
amount of Prepayment Premiums collected during the related Due Period. Any
Prepayment Premiums collected during the related Due Period remaining after
such distributions will be distributed to the holders of the Class X
Certificates.
On any Distribution Date, Yield Maintenance Charges collected during the
related Due Period will be required to 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 (other
than the Class X 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 Prepayment Premiums or Yield Maintenance Charges will be distributed to
holders of the Class F, Class G, Class H, Class I, Class J 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 Prepayment Premiums and Yield Maintenance Charges will be distributed to
holders of the Class X Certificates.
For a description of Prepayment Premiums and Yield Maintenance Charges,
see "Description of the Mortgage Pool--Certain Terms and Conditions of the
Mortgage Loans--Prepayment Provisions" in this prospectus supplement. 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 and Prepayment Premiums.
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 or Notional Amount, as the case may be, 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:
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<TABLE>
<CAPTION>
ASSUMED FINAL
CLASS DESIGNATION DISTRIBUTION DATE
- ------------------------------- ------------------
<S> <C>
Class A-1 .................. July 18, 2007
Class A-2 .................. October 18, 2008
Class A-3 .................. November 18, 2008
Class X .................... April 18, 2023
Class B .................... November 18, 2008
Class C .................... November 18, 2008
Class D .................... November 18, 2008
Class E .................... November 18, 2008
</TABLE>
THE ASSUMED FINAL DISTRIBUTION DATES SET FORTH ABOVE WERE CALCULATED
WITHOUT REGARD TO ANY DELAYS IN THE COLLECTION OF BALLOON PAYMENTS AND WITHOUT
REGARD TO A REASONABLE LIQUIDATION TIME WITH RESPECT TO ANY MORTGAGE LOANS THAT
MAY BECOME DELINQUENT. ACCORDINGLY, IN THE EVENT OF DEFAULTS ON THE MORTGAGE
LOANS, THE ACTUAL FINAL DISTRIBUTION DATE FOR ONE OR MORE CLASSES OF THE
OFFERED CERTIFICATES MAY BE LATER, AND COULD BE SUBSTANTIALLY LATER, THAN THE
RELATED ASSUMED FINAL DISTRIBUTION DATE(S).
In addition, the Assumed Final Distribution Dates set forth above were
calculated on the basis of a 0% CPR and assuming the APD Loans are prepaid on
their Anticipated Prepayment Dates. 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.
The "Rated Final Distribution Date" for each Class of Offered Certificates
will be November 18, 2030, the first Distribution Date after the 24th month
following the end of the amortization term for the Mortgage Loan that, as of
the Cut-off Date, will have the longest remaining amortization term.
SUBORDINATION; ALLOCATION OF COLLATERAL SUPPORT DEFICIT
The rights of holders of the Subordinate Certificates to receive
distributions of amounts collected or advanced on the Mortgage Loans (other
than Excess Interest) will be subordinated, to the extent described in this
prospectus supplement, to the rights of holders of the Senior Certificates.
Moreover, to the extent described in this prospectus supplement:
o the rights of the holders of the Class J Certificates will be
subordinated to the rights of the Class I Certificates,
o the rights of the holders of the Class J and Class I Certificates will
be subordinated to the rights of the holders of the Class H
Certificates,
o the rights of the holders of the Class H, Class I and Class J
Certificates will be subordinated to the rights of the holders of the
Class G Certificates,
o the rights of the holders of the Class G, Class H, Class I and Class J
Certificates will be subordinated to the rights of the holders of the
Class F Certificates,
o the rights of the holders of the Class F, Class G, Class H, Class I and
Class J Certificates will be subordinated to the rights of the holders
of the Class E Certificates,
o the rights of the holders of the Class E, Class F, Class G, Class H,
Class I and Class J Certificates will be subordinated to the rights of
the holders of the Class D Certificates,
o the rights of the holders of the Class D, Class E, Class F, Class G,
Class H, Class I and Class J Certificates will be subordinated to the
rights of the holders of the Class C Certificates,
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o the rights of the holders of the Class C, Class D, Class E, Class F,
Class G, Class H, Class I and Class J Certificates will be subordinated
to the rights of the holders of the Class B Certificates, and
o the rights of holders of the Class B, Class C, Class D, Class E, Class
F, Class G, Class H, Class I and Class J Certificates will be
subordinated to the rights of the holders of the Senior Certificates.
This subordination is intended to enhance the likelihood of timely receipt
by the holders of the Senior Certificates of the full amount of all interest
payable in respect of the Senior Certificates on each Distribution Date, and
the ultimate receipt by the holders of the Class A Certificates of principal in
an amount equal to, in each case, the entire Certificate Balance of such Class
of Certificates. Similarly, but to decreasing degrees, this subordination is
also intended to enhance the likelihood of timely receipt by the holders of the
Class B Certificates, the holders of the Class C Certificates, the holders of
the Class D Certificates and the holders of the Class E Certificates of the
full amount of interest payable in respect of such Classes of Certificates on
each Distribution Date, and the ultimate receipt by the holders of the Class B
Certificates, the holders of the Class C Certificates, the holders of the Class
D Certificates and the holders of the Class E Certificates, of principal equal
to, in each case, the entire Certificate Balance of such Class of Certificates.
The protection afforded to the holders of the Class E Certificates by
means of the subordination of the Non-Offered Certificates that are Subordinate
Certificates (the "Non-Offered Subordinate Certificates"), to the holders of
the Class D Certificates by the subordination of the Class E Certificates and
the Non-Offered Subordinate Certificates, to the holders of the Class C
Certificates by means of the subordination of the Class D and Class E
Certificates and the Non-Offered Subordinate Certificates, to the holders of
the Class B Certificates by means of the subordination of the Class C, Class D
and Class E Certificates and the Non-Offered Subordinate Certificates and to
the holders of the Senior Certificates by means of the subordination of the
Subordinate Certificates, will be accomplished by the application of the
Available Distribution Amount on each Distribution Date in accordance with the
order of priority described under "--Distributions" above and by the allocation
of Collateral Support Deficits in the manner described below. No other form of
credit support will be available for the benefit of the holders of the Offered
Certificates.
Allocation to the Class A Certificates (unless the Cross-Over Date has
occurred, first to the Class A-1 Certificates until the Certificate Balance has
been reduced to zero, then to the Class A-2 Certificates until the Certificate
Balance has been reduced to zero and then to the Class A-3 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 remaining 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 Paying Agent is required to
calculate the amount, if any, by which (i) the aggregate Stated Principal
Balance of the Mortgage Loans expected to be outstanding immediately following
such Distribution Date is less than (ii) the aggregate Certificate Balance of
the Certificates after giving effect to distributions of principal on such
Distribution Date (any such deficit, "Collateral Support
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Deficit"). The Paying Agent will be required to allocate any such Collateral
Support Deficit among the respective Classes of Certificates as follows: to the
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 Paying Agent will be required to allocate any such Collateral Support
Deficit among the Classes of 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" in this prospectus supplement, 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 Master Servicer and the Depositor as
described under "Description of the Pooling Agreements--Certain Matters
Regarding the Master 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 or Notional Amount, as the case may be, 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 Master Servicer will be obligated, subject to
the recoverability determination described below, to make advances (each, a
"P&I Advance") out of its own funds or, subject to the replacement thereof as
provided in the Pooling 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 any applicable Servicing Fees), 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 Master 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 Master 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.
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 Master 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 Master Servicer nor the Trustee will be required to make a P&I Advance for
default interest, Yield Maintenance Charges, Prepayment Premiums or Excess
Interest.
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In addition to P&I Advances, the Master Servicer will also be obligated
(subject to the limitations described in this prospectus supplement) 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 Master 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.
The Master Servicer or the Trustee, as applicable, 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 Master Servicer nor the Trustee 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 Master Servicer
or the Trustee 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 non-
recoverability determination of the Master 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 Master
Servicer and the Trustee will be entitled to be paid, out of any amounts then
on deposit in the Certificate Account, interest at the Prime Rate (the
"Reimbursement Rate") accrued on the amount of such Advance from the date made
to but not including the date of reimbursement. The "Prime Rate" shall be the
rate, for any day, set forth as such in The Wall Street Journal, New York
edition.
Each Distribution Date Statement delivered by the Paying Agent 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" in
this prospectus supplement and "Description of Certificates--Reports to
Certificateholders" in the prospectus.
APPRAISAL REDUCTIONS
After an Appraisal Reduction Event has occurred, an Appraisal Reduction is
required to be calculated. An "Appraisal Reduction Event" will occur on the
earliest of:
(i) the third anniversary of the date on which an extension of the
maturity date of a Mortgage Loan becomes effective as a result of a
modification of such Mortgage Loan by the Special Servicer, which extension
does not change the amount of Monthly Payments on the Mortgage Loan;
(ii) 120 days after an uncured delinquency occurs in respect of a
Mortgage Loan;
(iii) the date on which a reduction in the amount of Monthly Payments on
a Mortgage Loan, or a change in any other material economic term of the
Mortgage Loan (other than an extension of its maturity), becomes effective
as a result of a modification of such Mortgage Loan by the Special
Servicer;
(iv) 60 days after a receiver has been appointed;
(v) 60 days after a borrower declares bankruptcy;
(vi) 60 days after an involuntary petition of bankruptcy is filed with
respect to the borrower, if such petition is not dismissed prior to the
expiration of such period; and
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(vii) immediately after a Mortgage Loan becomes an REO Loan.
No Appraisal Reduction Event may occur at any time when the aggregate
Certificate Balances of all Classes of Certificates (other than the Class A
Certificates) has been reduced to zero.
The "Appraisal Reduction" for any Distribution Date and for any Mortgage
Loan as to which any Appraisal Reduction Event has occurred will be an amount
equal to the excess of (a) the outstanding Stated Principal Balance of such
Mortgage Loan over (b) the excess of (i) 90% of the appraised value of the
related Mortgaged Property as determined (A) by one or more independent MAI
appraisals with respect to any Mortgage Loan with an outstanding principal
balance equal to or in excess of $2,000,000 (the costs of which shall be paid
by the Master 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 Master Servicer or the Trustee, 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 Master
Servicer and/or for which funds have not been escrowed).
Within 60 days after the Appraisal Reduction Event, the Special Servicer
will be required to receive such appraisal; provided, however, that with
respect to an Appraisal Reduction Event described in clause (ii), the Special
Servicer will be required to receive such appraisal within the 120-day period
set forth in such clause (ii). On the first Determination Date occurring on or
after the delivery of such MAI appraisal, the Special Servicer will be required
to calculate and report to the Master Servicer, and the Master Servicer will be
required to report to the Paying Agent and the Trustee, the Appraisal Reduction
to take into account such appraisal. In the event that the Special Servicer has
not received such MAI appraisal within the timeframe described above (or, in
the case of an appraisal in connection with an Appraisal Reduction Amount
described in clause (ii), within 60 days following the 120-day period set forth
in such clause (ii)), the amount of the Appraisal Reduction will be deemed to
be an amount equal to 25% of the current Stated Principal Balance of the
related Mortgage Loan until such MAI appraisal is received. The "Determination
Date" for each Distribution Date is the 13th day of the month in which such
Distribution Date occurs or, if any such 13th day is not a business day, then
the immediately preceding business day.
As a result of calculating one or more Appraisal Reductions, the amount of
any required P&I Advance will be reduced by an amount equal to the Appraisal
Reduction Amount, which will have the effect of reducing the amount of interest
available to the most subordinate Class of Certificates then outstanding (i.e.,
first to the Class J Certificates, then to the Class I Certificates, then to
the Class H Certificates, then to the Class G Certificates, then to the Class F
Certificates, then to the Class E Certificates, then to the Class D
Certificates, then to the Class C Certificates and then to the Class B
Certificates). See "--Advances" above. The "Appraisal Reduction Amount" for any
Distribution Date shall equal the product of (i) the applicable per annum
Pass-Through Rate (i.e., for any month, one twelfth of the Pass-Through Rate)
on the Class of Certificates to which the Appraisal Reduction is allocated, and
(ii) the sum of all Appraisal Reductions with respect to such Distribution
Date. In addition, Appraisal Reductions will be allocated to the most
subordinate Class of Certificates then outstanding (i.e., first to the Class J
Certificates, then to the Class I Certificates, then to the Class H
Certificates, then to the Class G Certificates, then to the Class F
Certificates, then to the Class E Certificates, then to the Class D
Certificates, then to the Class C Certificates and then to the Class B
Certificates) for purposes of determining Voting Rights and the identity of the
Controlling Class. See "--Voting Rights" below and "Servicing of the Mortgage
Loans--General" in this prospectus supplement.
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
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each anniversary of the related Appraisal Reduction Event, to order an
appraisal (which may be an update of a prior appraisal), the cost of which
shall be a Servicing Advance. Based upon such appraisal, the Special Servicer
is required to redetermine and report to the Paying Agent 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. Instead, the Special Servicer may
use such prior appraisal in calculating any Appraisal Reduction with respect to
such Mortgage Loan.
With respect to each Mortgage Loan as to which an Appraisal Reduction has
occurred and which has become current and has remained current for twelve
consecutive Monthly Payments, and with respect to which no other Appraisal
Reduction Event has occurred and is continuing, the Special Servicer may within
30 days of the date of such twelfth Monthly Payment, order an appraisal (which
may be an update of a prior appraisal), the cost of which shall be a Servicing
Advance. Based upon such appraisal, the Special Servicer is required to
redetermine and report to the Paying Agent the amount of the Appraisal
Reduction with respect to such Mortgage Loan.
REPORTS TO CERTIFICATEHOLDERS; CERTAIN AVAILABLE INFORMATION
On each Distribution Date, the Paying Agent will be required to forward by
mail to each holder of a Certificate, the Trustee, the Underwriter, the Special
Servicer and a financial market publisher (which is anticipated to initially be
Bloomberg, L.P.), if any, a statement (a "Distribution Date Statement") setting
forth, among other things:
(i) the amount of the distribution on such Distribution Date to the
holders of such Class of Certificates in reduction of the Certificate
Balance thereof;
(ii) the amount of the distribution on such Distribution Date to the
holders of such Class of Certificates allocable to Distributable
Certificate Interest;
(iii) the aggregate amount of Advances made in respect of such
Distribution Date;
(iv) the aggregate amount of compensation paid to the Trustee and
servicing compensation paid to the Master Servicer and the Special Servicer
during the Due Period for such Distribution Date;
(v) the aggregate Stated Principal Balance of the Mortgage Loans and any
REO Loans outstanding immediately before and immediately after such
Distribution Date;
(vi) the number, aggregate principal balance, weighted average remaining
term to maturity and weighted average Mortgage Rate of the Mortgage Loans
as of the end of the related Due Period for such Distribution Date;
(vii) the number and aggregate principal balance of Mortgage Loans (A)
delinquent one month, (B) delinquent two months, (C) delinquent three or
more months and (D) as to which foreclosure proceedings have been
commenced;
(viii) the value of any REO Property included in the Trust Fund as of the
end of the related Due Period for such Distribution Date, on a loan-by-loan
basis, based on the most recent appraisal or valuation;
(ix) the Available Distribution Amount for such Distribution Date;
(x) the amount of the distribution on such Distribution Date to the
holders of such Class of Certificates allocable to (A) Prepayment Premiums,
(B) Yield Maintenance Charges and (C) Excess Interest;
(xi) the Pass-Through Rate for such Class of Certificates for such
Distribution Date and the next succeeding Distribution Date;
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(xii) the Scheduled Principal Distribution Amount and the Unscheduled
Principal Distribution Amount for such Distribution Date;
(xiii) the Certificate Balance or Notional Amount, as the case may be, of
each Class of Certificates immediately before and immediately after such
Distribution Date, separately identifying any reduction therein as a result
of the allocation of any Collateral Support Deficit on such Distribution
Date;
(xiv) the fraction, expressed as a decimal carried to eight places, the
numerator of which is the then related Certificate Balance, and the
denominator of which is the related initial aggregate Certificate Balance,
for each Class of Certificates (other than the Residual Certificates)
immediately following such Distribution Date;
(xv) the amount of any Appraisal Reductions effected in connection with
such Distribution Date on a loan-by-loan basis, the total Appraisal
Reduction effected in connection with such Distribution Date and the total
Appraisal Reduction Amounts as of such Distribution Date;
(xvi) the number and related principal balances of any Mortgage Loans
extended or modified during the related Due Period on a loan-by-loan basis;
(xvii) the amount of any remaining unpaid interest shortfalls for such
Class as of such Distribution Date;
(xviii) a loan-by-loan listing of each Mortgage Loan which was the
subject of a Principal Prepayment during the related Due Period and the
amount and the type of Principal Prepayment occurring;
(xix) a loan-by-loan listing of any Mortgage Loan which was defeased
during the related Due Period; and
(xx) all deposits into, withdrawals from, and the balance of the Interest
Reserve Account on the related Servicer Remittance Dates.
In the case of information furnished pursuant to clauses (i), (ii), (x) and
(xvii) above, the amounts shall be expressed as a dollar amount in the
aggregate for all Certificates of each applicable Class and per Definitive
Certificate.
In addition, within a reasonable period of time after the end of each
calendar year, the Paying Agent is required to furnish to the Trustee and 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 (i),
(ii) and (x) 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 Paying Agent
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 Paying Agent shall be deemed to
have been satisfied to the extent that substantially comparable information
shall be provided by the Paying Agent pursuant to any requirements of the Code
as from time to time are in force.
The Master Servicer will be required to provide a financial market
publisher, which is anticipated to initially be Bloomberg, L.P., quarterly with
certain current information with respect to the Mortgaged Properties, including
current and original net operating income, debt service coverage ratios based
upon borrowers' annual operating statements and occupancy rates, to the extent
it has received such information from the borrowers pursuant to the related
loan documents.
The Pooling and Servicing Agreement requires that the Paying Agent (or the
Trustee with respect to clause (vi) only) make available at its offices
primarily responsible for administration of the Trust Fund, during normal
business hours, for review by any holder of an Offered Certificate, the
Depositor, the Special Servicer, the Master Servicer, any Rating Agency or any
other person to whom the Paying Agent (or the Trustee, if applicable) believes
such disclosure is appropriate, originals or copies of, among other things, the
following items:
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(i) the Pooling and Servicing Agreement and any amendments thereto;
(ii) all Distribution Date Statements delivered to holders of the
relevant Class of Offered Certificates since the Closing Date;
(iii) all officer's certificates delivered to the Paying Agent since the
Closing Date as described under "Description of the Pooling
Agreements--Evidence as to Compliance" in the prospectus;
(iv) all accountants' reports delivered to the Paying Agent since the
Closing Date as described under "Description of the Pooling
Agreements--Evidence as to Compliance" in the prospectus;
(v) the most recent property inspection report prepared by or on behalf
of the Master Servicer or the Special Servicer and delivered to the Paying
Agent in respect of each Mortgaged Property;
(vi) copies of the Mortgage Loan documents;
(vii) any and all modifications, waivers and amendments of the terms of a
Mortgage Loan entered into by the Master Servicer or the Special Servicer
and delivered to the Paying Agent; and
(viii) any and all statements and reports delivered to, or collected by,
the Master Servicer or the Special Servicer, from the borrowers, including
the most recent annual property operating statements, rent rolls and
borrower financial statements, but only to the extent such statements and
reports have been delivered to the Paying Agent.
Copies of any and all of the foregoing items will be available to
Certificateholders from the Paying Agent (or the Trustee with respect to clause
(vi) only) upon request; however, the Paying Agent (or the Trustee with respect
to clause (vi) only) will be permitted to require payment of a sum sufficient
to cover the reasonable costs and expenses of providing such copies. Pursuant
to the Pooling and Servicing Agreement, the Master Servicer will be responsible
for enforcing all provisions of the Mortgage Loan documents relating to the
submission of financial and property information.
The Pooling and Servicing Agreement will require the Master Servicer and
the Paying Agent, 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 Master Servicer or the Paying Agent, as the
case may be, 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 that the
Master Servicer or the Paying Agent, as the case may be, 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,
notices and statements required to be mailed to holders of Certificates will be
available to Certificate Owners of Offered Certificates only to the extent they
are forwarded by or otherwise available through DTC and its Participants.
Conveyance of notices and other communications by DTC to Participants, and by
Participants to such 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 Master
Servicer, the Special Servicer, the Trustee, 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 Offered 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,
each determined as of the Distribution
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Date immediately preceding such time. Neither the Class R nor the Class LR
Certificates will be entitled to any Voting Rights. For purposes of determining
Voting Rights, the Certificate Balance of any Class shall be deemed to be
reduced by the amount allocated to such Class of any Appraisal Reductions
related to Mortgage Loans as to which Liquidation Proceeds or other final
payment has not yet been received. Voting Rights allocated to a Class of
Certificateholders shall be allocated among such Certificateholders in
proportion to the Percentage Interests evidenced by their respective
Certificates. Solely for purposes of giving any consent, approval or waiver
pursuant to the Pooling and Servicing Agreement, neither the Master Servicer,
the Special Servicer nor the Depositor will be entitled to exercise any Voting
Rights with respect to any Certificates registered in its name, if such
consent, approval or waiver would in any way increase its compensation or limit
its obligations in such capacity under the Pooling and Servicing Agreement;
provided, however, that such restrictions will not apply to the exercise of the
Special Servicer's rights, if any, as a member of the Controlling Class.
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 holders of
the Controlling Class, the Special Servicer, the Master Servicer 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.
The holders of the Controlling Class, the Special Servicer, the Master
Servicer and the holders of the Class LR Certificates (in that order) will have
the right to purchase all of the assets of the Trust Fund. Any such purchase of
all the Mortgage Loans and other assets in the Trust Fund is required to be
made at a price equal to the sum of (i) the aggregate Purchase Price of all the
Mortgage Loans (exclusive of REO Loans) then included in the Trust Fund and
(ii) the aggregate fair market value of all REO Properties then included in the
Trust Fund (which fair market value for any REO Property may be less than the
Purchase Price for the corresponding REO Loan), as determined by an appraiser
selected and mutually agreed upon by the Master Servicer and the Trustee, and
approved by more than 50% of the Voting Rights of the Classes of Certificates
then outstanding, other than the Controlling Class, unless the Controlling
Class is the only Class of Certificates outstanding. Such purchase will effect
early retirement of the then outstanding Offered Certificates, but the right of
the Master Servicer, the Special Servicer, the holders of the Controlling Class
or the holders of the Class LR Certificates to effect such termination is
subject to the requirement that the then aggregate Stated Principal Balance of
the Mortgage Pool be less than 1% of the Initial Pool Balance.
On the final Distribution Date, the aggregate amount paid by the holders
of the Controlling Class, the Special Servicer, the Master 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 under "--Distributions--Priority" above.
Any optional termination by the holders of the Controlling Class, the
Special Servicer, the Master 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 Prepayment Premiums or
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" in
this prospectus supplement.
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THE TRUSTEE
State Street Bank and Trust Company will act as Trustee of the Trust Fund.
The corporate trust office of the Trustee responsible for administration of the
Trust is located at Two International Place-5th Floor, Boston, Massachusetts
02110, Attention: Corporate Trust Department, Ref. Chase Commercial Mortgage
Securities Corp., Series 1998-2. In its Consolidated Report of condition as of
December 31, 1997, State Street Bank and Trust Company, a Massachusetts
chartered institution, and foreign and domestic subsidiaries, reported total
assets of $37,449,709,000. As compensation for the performance of its duties,
the Trustee will be paid a fee (the "Trustee Fee"). The Trustee Fee will be
payable monthly on a loan-by-loan basis from amounts received in respect of
interest on each Mortgage Loan and will accrue at a rate (the "Trustee Fee
Rate"), calculated on the basis of a 360-day year consisting of twelve 30-day
months (other than in respect of Mortgage Loans that are the subject of
principal prepayments applied on a date other than a Due Date) equal to
0.00575% per annum, and will be computed on the basis of the Stated Principal
Balance of the related Mortgage Loan. In addition, 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.
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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 in this prospectus supplement supersedes any
contrary information set forth in the prospectus. See "Description of the
Pooling Agreements" in the prospectus.
Each of the Master Servicer (directly or through one or more subservicers)
and the Special Servicer will be required to service and administer the
Mortgage Loans for which it is responsible. The Mortgage Loans will be
sub-serviced by The Chase Manhattan Bank. In addition to the subservicing by
the Chase Manhattan Bank of the Mortgage Loans, the Master Servicer may
delegate and/or assign some or all of its servicing obligations and duties with
respect to some or all of the Mortgage Loans to one or more affiliates so long
as such delegation and/or assignment, in and of itself, does not cause the
qualification, withdrawal or downgrading of the then-current ratings assigned
to any Class of Certificates as confirmed in writing by the Rating Agencies.
Except in certain limited circumstances set forth in the Pooling and Servicing
Agreement, the Special Servicer will not be permitted to appoint subservicers
with respect to any of its servicing obligations and duties.
The Master Servicer and the Special Servicer will be required to service
and administer the Mortgage Loans for which each is responsible on behalf of
the Trustee in the best interests of and for the benefit of all of the holders
of Certificates (as determined by the Master Servicer or the Special Servicer
in the exercise of its good faith and reasonable judgment) in accordance with
applicable law, the terms of the Pooling and Servicing Agreement and the
Mortgage Loans, and to the extent not inconsistent with the foregoing, in the
same manner in which, and with the same care, skill and diligence as is normal
and usual in its general mortgage servicing and REO Property management
activities on behalf of third parties or on behalf of itself, whichever is
higher, with respect to mortgage loans and REO Properties that are comparable
to the Mortgaged Properties, and in each event with a view to the timely
collection of all scheduled payments of principal and interest under the
Mortgage Loans or, if a Mortgage Loan comes into and continues in default and
if, in the good faith and reasonable judgment of the Special Servicer, no
satisfactory arrangements can be made for the collection of the delinquent
payments, the maximization of the recovery on such Mortgage Loan to the
Certificateholders (as a collective whole) on a present value basis (the
relevant discounting of anticipated collection that will be distributable to
Certificateholders to be performed at the related Net Mortgage Rate). Such
servicing is required to be undertaken without regard to (i) any known
relationship that the Master Servicer or the Special Servicer, or an affiliate
of the Master Servicer or the Special Servicer, as applicable, may have with
the borrowers; (ii) the ownership of any Certificate by the Master Servicer or
the Special Servicer or any affiliate of the Master Servicer or the Special
Servicer, as applicable; (iii) the Master Servicer's or the Special Servicer's
obligation, as applicable, to make Advances; or (iv) the right of the Master
Servicer (or any affiliate thereof) or the Special Servicer (or any affiliate
thereof), as the case may be, to receive reimbursement of costs, or the
sufficiency of any compensation for its services under the Pooling and
Servicing Agreement or with respect to any particular transaction. The
foregoing standards to which the Master Servicer and the Special Servicer are
subject are collectively referred to as the "Servicing Standards".
Except as otherwise described under "--Inspections; Collection of
Operating Information" below, the Master Servicer initially will be responsible
for the servicing and administration of the entire Mortgage Pool. With respect
to any Mortgage Loan (i) as to which a payment default has occurred at its
original maturity date, or, if the original 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
borrower has entered into or consented to bankruptcy, appointment of a receiver
or conservator or
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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, (iv) as to which the
Master Servicer shall have received notice of the foreclosure or proposed
foreclosure of any other lien on the Mortgaged Property, (v) as to which, in
the judgment of the Master 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 or (vi) as to which a
default of which the Master Servicer has notice (other than a failure by the
related borrower to pay principal or interest) and which materially and
adversely affects the interests of the Certificateholders has occurred and
remains unremediated for the applicable grace period specified in such Mortgage
Loan (or if no grace period is specified, 60 days), the Master Servicer will be
required to transfer its servicing responsibilities to the Special Servicer,
but will be required to 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 in this prospectus supplement as the
"Specially Serviced Mortgage Loans". The Master 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 a performing Mortgage Loan for at least 90 days (provided no additional
event of default is foreseeable in the reasonable judgment of the Special
Servicer), the Special Servicer will be required to return servicing of such
Mortgage Loan (a "Corrected Mortgage Loan") to the Master Servicer.
The Special Servicer will be required to prepare a report (an "Asset
Status Report") for each Mortgage Loan which becomes a Specially Serviced
Mortgage Loan not later than 45 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, provided however, the Special Servicer will not be required to
deliver an Asset Status Report to the Directing Certificateholder if they are
the same entity. If the Directing Certificateholder does not disapprove an
Asset Status Report within 10 business days, the Special Servicer will be
required to 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 will be required to implement the recommended action as outlined in
such Asset Status Report if it makes a determination in accordance with the
Servicing Standards that such objection is not in the best interest of all the
Certificateholders. If the Directing Certificateholder disapproves such Asset
Status Report and the Special Servicer has not made the affirmative
determination described above, the Special Servicer will be required to 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 be
required to revise such Asset Status Report until the Directing
Certificateholder fails to disapprove such revised Asset Status Report as
described above or until the Special Servicer makes a determination that such
objection is not in the best interests of the Certificateholders.
The "Directing Certificateholder" will be the Controlling Class
Certificateholder selected by more than 50% of the Controlling Class
Certificateholders, by Certificate Balance, as certified by the Trustee from
time to time; provided, however, that (i) absent such selection, or (ii) until
a Directing Certificateholder is so selected or (iii) upon receipt of a notice
from a majority of the Controlling Class Certificateholders, by Certificate
Balance, that a Directing Certificateholder is no longer designated, the
Controlling Class Certificateholder that owns the largest aggregate Certificate
Balance of the Controlling Class will be the Directing Certificateholder.
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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 or
(b) 20% of the initial Certificate Balance of such Class, in the case of the
Class J Certificates, or 25% of the initial Certificate Balance of such Class,
in the case of any other Class. For purposes of determining identity of the
Controlling Class, the Certificate Balance of each Class shall be deemed to be
reduced by the amount allocated to such Class of any Appraisal Reductions
relating to Mortgage Loans as to which Liquidation Proceeds or other final
payment has not yet been received.
The Controlling Class as of the Closing Date will be the Class J
Certificates.
The Special Servicer will not be required to take or refrain from taking
any action pursuant to instructions from the Directing Certificateholder that
would cause it to violate applicable law, the Pooling and Servicing Agreement,
including the Servicing Standards, or the REMIC Provisions.
THE SERVICER
The Chase Manhattan Bank (in such capacity, the "Servicer") will act as
servicer pursuant to a subservicing agreement, dated as of the Cut-off Date,
between the Servicer and the Master Servicer. The Servicer will be responsible
for servicing the Mortgage Loans and performing the duties of the Master
Servicer in accordance with the terms of the subservicing agreement which
incorporates the terms of the Pooling and Servicing Agreement. The principal
offices of the Servicer are located at 270 Park Avenue, New York, New York
10017. As of December 31, 1997, the Servicer had a stockholder's equity of
approximately $21.74 billion and was the servicer of a portfolio of multifamily
and commercial mortgage loans, secured by properties located throughout the
United States and totaling approximately $7.45 billion in aggregate outstanding
principal amounts.
THE MASTER SERVICER
GMAC Commercial Mortgage Corporation will act as servicer (in such
capacity, the "Master Servicer") and in such capacity will be responsible for
servicing the Mortgage Loans. The principal offices of the Master Servicer are
located at 650 Dresher Road, Horsham, Pennsylvania 19044. As of June 30, 1998,
GMAC Commercial Mortgage Corporation had a total commercial and multifamily
mortgage loan servicing portfolio of approximately $46 billion.
The information set forth in this prospectus supplement concerning the
Master Servicer has been provided by the Master Servicer, and neither the
Depositor nor the Underwriter make any representation or warranty as to the
accuracy or completeness of such information.
THE SPECIAL SERVICER
GMAC Commercial Mortgage Corporation will act as the Special Servicer and
in such capacity will be responsible for servicing the Specially Serviced
Mortgage Loans. For a description of the Special Servicer see "The Master
Servicer" above.
The information set forth in this prospectus supplement concerning the
Special Servicer has been provided by the Special Servicer, and neither the
Depositor nor the Underwriter make any representation or warranty as to the
accuracy or completeness of such information.
REPLACEMENT OF THE SPECIAL SERVICER
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.
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SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The fee of the Master Servicer (the "Servicing Fee") will be payable
monthly on a loan-by-loan basis from amounts received in respect of interest on
each Mortgage Loan, and will accrue at a rate (the "Servicing Fee Rate"),
calculated on a basis of a 360-day year consisting of twelve 30-day months
equal to 0.07% per annum and 0.035% per annum with respect to Mortgage Loans
identified as Loan numbers 13, 76, 77, 81 and 93 on the Mortgage Loan Schedule,
and will be computed on the basis of the Stated Principal Balance of the
related Mortgage Loan. As of any date of determination, the "Administrative
Cost Rate" will be equal to the sum of the Servicing Fee Rate, the Standby Fee
Rate and the Trustee Fee Rate, and shall equal 0.08075% per annum and 0.04575%
per annum with respect to Mortgage Loans identified as Loan numbers 13, 76, 77,
81 and 93 on the Mortgage Loan Schedule. In addition to the Servicing Fee, the
Master Servicer will be entitled to retain, as additional servicing
compensation, (i) a percentage of all assumption and modification 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 Master Servicer also is
authorized but not required to invest or direct the investment of funds held in
the Certificate Account and the Distribution Accounts in Permitted Investments,
and the Master 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 Master Servicer also is entitled to retain any interest earned
on any servicing escrow account to the extent such interest is not required to
be paid to the related borrowers. The Depositor will be obligated to pay the
annual fees of each Rating Agency.
The principal compensation to be paid to the Special Servicer in respect
of its special servicing activities will be the Standby Fee, the Special
Servicing Fee, the Workout Fee and the Liquidation Fee.
The "Standby Fee" will be payable monthly on a loan-by-loan basis from
amounts received as interest on each Mortgage Loan, in an amount equal to the
product of (x) a per annum rate of 0.005% (the "Standby Fee Rate"), and (y) the
Stated Principal Balance of the related Mortgage Loan.
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. Such fee will be calculated on a basis of a 360-day year consisting
of twelve 30-day months.
The "Workout Fee" will generally be payable with respect to each Corrected
Mortgage Loan 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
but will become payable again if and when such Mortgage Loan again becomes a
Corrected Mortgage Loan. If the Special Servicer is terminated (other than for
cause), it shall retain the right to receive any and all Workout Fees payable
with respect to Mortgage Loans that became Corrected Mortgage Loans during the
period that it acted as Special Servicer and were still such at the time of
such termination or resignation (and the successor Special Servicer shall not
be entitled to any portion of such 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. The Liquidation Fee for each Specially Serviced Mortgage Loan will be
payable from, and will be calculated by application of a "Liquidation Fee Rate"
of 1% to the related payment or proceeds. Notwithstanding anything to the
contrary described above, no Liquidation Fee will be payable based on, or out
of, Liquidation Proceeds received in connection with the repurchase of any
Mortgage Loan by the Mortgage Loan Seller for a
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breach of representation or warranty or for defective or deficient Mortgage
Loan documentation, the purchase of any Specially Serviced Mortgage Loan by the
Master 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 also be entitled to additional servicing
compensation in the form of a percentage of all assumption fees, extension fees
and modification fees received on or with respect to Mortgage Loans and all
assumption fees, modification fees and all extension fees received on or with
respect to Specially Serviced Mortgage Loans, except for the fees described
above that the Master Servicer is entitled to. 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 APD Loans.
Although the Master Servicer and the Special Servicer are each required to
service and administer the Mortgage Pool in accordance with the Servicing
Standards above and, accordingly, without regard to its right to receive
compensation under the Pooling and Servicing Agreement, additional servicing
compensation in the nature of assumption and modification fees may under
certain circumstances provide the Master Servicer or the Special Servicer, as
the case may be, with an economic disincentive to comply with such standard.
As and to the extent described in this prospectus supplement under
"Description of the Certificates--Advances," the Master 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 Master 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 Master Servicer will be
responsible for all fees of any subservicers. See "Description of the
Certificates--Distributions--Method, Timing and Amount" in this prospectus
supplement and "Description of the Pooling Agreements--Certificate Account" and
"--Servicing Compensation and Payment of Expenses" in the prospectus.
MAINTENANCE OF INSURANCE
To the extent permitted by the related Mortgage Loan and required by the
Servicing Standards, the Master Servicer will be required to use its reasonable
efforts to (i) cause each borrower to maintain or (ii) itself maintain (to the
extent available at commercially reasonable rates), a fire and hazard insurance
policy with extended coverage covering the related Mortgaged Property. The
coverage of each such policy will be in an amount that is not less than the
lesser of the full replacement cost of the improvements securing such Mortgage
Loan or the outstanding principal balance owing on such Mortgage Loan, but in
any event, in an amount sufficient to avoid the application of any co-insurance
clause unless otherwise noted in the related Mortgage Loan documents. Whenever
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 Master Servicer will also be required to use its reasonable
best efforts to (i) cause each borrower to maintain (to the extent required by
the related Mortgage Loan) or (ii) itself maintain (to the extent available at
commercially reasonable rates) a flood insurance policy in an amount
representing coverage not less than the lesser of (i) the outstanding principal
balance of the related Mortgage Loan and (ii) the maximum amount of insurance
which is available under the Flood Disaster Protection Act of 1973, as amended,
but only to the extent that the related Mortgage Loan permits the lender to
require such coverage and maintaining such coverage is consistent with the
Servicing Standards.
The Special Servicer will be required to maintain (or cause to be
maintained), fire and hazard insurance on each REO Property, to the extent
obtainable, in an amount which is at least equal to the lesser of (i) an amount
necessary to avoid the application of any co-insurance clause and (ii) the full
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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 be
required to cause to be maintained, to the extent available at commercially
reasonable rates (as determined by the Special Servicer in accordance with the
Servicing Standards), a flood insurance policy meeting the requirements of the
current guidelines of the Federal Insurance Administration in an amount
representing coverage not less than the maximum amount of insurance which is
available under the Flood Disaster Protection Act of 1973, as amended.
The Pooling and Servicing Agreement provides that the Master Servicer and
the Special Servicer may satisfy their respective obligations to cause each
borrower to maintain a hazard insurance policy by maintaining a blanket or
master single interest policy insuring against hazard losses on the Mortgage
Loans and REO Properties. Any losses incurred with respect to Mortgage Loans or
REO Properties due to uninsured risks (including earthquakes, mudflows and
floods) or insufficient hazard insurance proceeds may adversely affect payments
to Certificateholders. Any cost incurred by the Master Servicer in maintaining
any such insurance policy if the borrower defaults on its obligation to do so
shall be advanced by the Master Servicer as a Servicing Advance and will be
charged to the related borrower. Generally, no borrower is required by the
Mortgage Loan documents to maintain earthquake insurance on any Mortgaged
Property and the Special Servicer will not be required to maintain earthquake
insurance on any REO Properties. Any cost of maintaining any such required
insurance or other earthquake insurance obtained by the Special Servicer shall
be paid out of a segregated custodial account created and maintained by the
Special Servicer on behalf of the Trustee in trust for the Certificateholders
(the "REO Account") or advanced by the Master Servicer as a Servicing Advance.
Such costs may be recovered by the Master 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 must obtain the
opinion of counsel described in the next sentence. Except as otherwise set
forth in this paragraph, the Special Servicer (or in certain circumstances the
Master Servicer) may not waive, modify or amend any provision of a Mortgage
Loan which is not in default or as to which default is not reasonably
foreseeable except for (i) the waiver of any due-on-sale clause or
due-on-encumbrance clause to the extent permitted in the Pooling and Servicing
Agreement, and (ii) any waiver, modification or amendment that would not be a
"significant modification" of the Mortgage Loan within the meaning of Treasury
Regulations Section 1.860G-2(b) and as to which the Special Servicer has
provided the Trustee with an opinion of counsel that such waiver, modification
or amendment will not constitute such a "significant modification."
If, but only if, the Special Servicer determines that a modification,
waiver or amendment (including the forgiveness or deferral of interest or
principal or the substitution or release of collateral or the pledge of
additional collateral) of the terms of a Specially Serviced Mortgage Loan with
respect to which a payment default or other material default has occurred or a
payment default or other material default is, in the Special Servicer's
judgment, reasonably foreseeable, is reasonably likely to produce a greater
recovery on a present value basis (the relevant discounting to be performed at
the related Mortgage Rate) than liquidation of such Specially Serviced Mortgage
Loan, then the Special Servicer may, but is not required to, agree to a
modification, waiver or amendment of such Specially Serviced Mortgage Loan,
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subject to the restrictions and limitations described below. The Special
Servicer will use its best efforts to the extent possible to fully amortize a
modified Mortgage Loan prior to the Rated Final Distribution Date.
The Special Servicer may not agree to a modification, waiver or amendment
of any term of any Specially Serviced Mortgage Loan if such modification,
waiver or amendment would:
(i) extend the maturity date of any such Specially Serviced Mortgage Loan
to a date occurring later than the earlier of (A) two years prior to the
Rated Final Distribution Date and (B) if such Specially Serviced Mortgage
Loan is secured by a leasehold estate, the date ten years prior to the
expiration of such leasehold;
(ii) reduce the related Net Mortgage Rate to less than the lesser of (A)
the original Net Mortgage Rate and (B) the highest Pass-Through Rate on any
Class of Certificates (other than the Class X Certificates); or
(iii) provide for the deferral of interest unless (A) interest accrues
thereon, generally, at the related Mortgage Rate and (B) the aggregate
amount of such deferred interest does not exceed 10% of the unpaid
principal balance of such Specially Serviced Mortgage Loan.
In the event of a modification which creates a deferral of interest, the
Pooling and Servicing Agreement will provide that the amount of deferred
interest will be allocated to reduce the Distributable Certificate Interest of
the Class or Classes (other than the Class X Certificates) with the latest
alphabetical designation then outstanding, and to the extent so allocated,
shall be added to the Certificate Balance of such Class or Classes.
The Special Servicer or the Master Servicer, as the case may be, will be
required to notify each other, the Rating Agencies and the Trustee of any
modification, waiver or amendment of any term of any Mortgage Loan and will be
required to 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 required to be available for review during normal business
hours at the offices of the Paying Agent. See "Description of the
Certificates--Reports to Certificateholders; Certain Available Information" in
this prospectus supplement.
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, 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. The
Special Servicer is not permitted, however, to 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 Master Servicer as a Servicing Advance) and either:
(i) such report indicates that (a) the Mortgaged Property is in
compliance with applicable environmental laws and regulations and (b) there
are no circumstances or conditions present at the Mortgaged Property that
have resulted in any contamination for which investigation, testing,
monitoring, containment, clean-up or remediation could be required under
any applicable environmental laws and regulations; or
(ii) the Special Servicer, based solely (as to environmental matters and
related costs) on the information set forth in such report, determines that
taking such actions as are necessary to bring the Mortgaged Property into
compliance with applicable environmental laws and regulations and/or taking
the actions contemplated by clause (i)(b) above, is reasonably likely to
produce a greater
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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 Master Servicer and the
Special Servicer a right of first refusal to purchase from the Trust Fund, at
the Purchase Price, any Mortgage Loan as to which a specified number of
scheduled payments are delinquent. In addition, the Special Servicer may offer
to sell any defaulted Mortgage Loan if and when the Special Servicer
determines, consistent with the Servicing Standards, that such a sale would
produce a greater recovery, taking into account the time value of money, than
would liquidation of the related Mortgaged Property. In the absence of any such
sale, the Special Servicer will generally be required to proceed against the
related Mortgaged Property, subject to the discussion above.
If title to any Mortgaged Property is acquired by the Trust Fund, the
Special Servicer, on behalf of the Trust Fund, will be required to sell the
Mortgaged Property prior to the close of the third calendar year beginning
after the year of acquisition, unless (i) the Internal Revenue Service (the
"IRS") grants an extension of time to sell such property or (ii) the Trustee
receives an opinion of independent counsel to the effect that the holding of
the property by the Trust Fund longer than such period will not result in the
imposition of a tax on either the Upper-Tier REMIC or the Lower-Tier REMIC or
cause the Trust Fund (or either the Upper-Tier REMIC or the Lower-Tier REMIC)
to fail to qualify as a REMIC under the Code at any time that any Certificate
is outstanding. Subject to the foregoing and any other tax-related limitations,
pursuant to the Pooling and Servicing Agreement, the Special Servicer will
generally be required to attempt to sell any Mortgaged Property so acquired on
the same terms and conditions it would if it were the owner. The Special
Servicer will also be required to ensure that any Mortgaged Property acquired
by the Trust Fund is administered so that it constitutes "foreclosure property"
within the meaning of Code Section 860G(a)(8) at all times, that the sale of
such property does not result in the receipt by the Trust Fund of any income
from nonpermitted assets as described in Code Section 860F(a)(2)(B). If the
Trust Fund acquires title to any Mortgaged Property, the Special Servicer, on
behalf of the Trust Fund, will retain, at the expense of the Trust Fund, an
independent contractor to manage and operate such property. The retention of an
independent contractor, however, will not relieve the Special Servicer of its
obligation to manage such Mortgaged Property as required under the Pooling and
Servicing Agreement.
Generally, neither the Upper-Tier REMIC nor the Lower-Tier REMIC will be
taxable on income received with respect to a Mortgaged Property acquired by the
Trust Fund to the extent that it constitutes "rents from real property," within
the meaning of Code Section 856(c)(3)(A) and Treasury regulations thereunder.
"Rents from real property" include fixed rents and rents based on the receipts
or sales of a tenant but do not include the portion of any rental based on the
net income or profit of any tenant or 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." "Rents from real property" also do not include income from the
operation of a trade or business on the Mortgaged Property, such as a hotel.
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. The Pooling Agreement provides that the Special
Servicer will be permitted to cause the Lower-Tier REMIC to earn "net income
from foreclosure property" that is subject to tax if it determines that the net
after-tax benefit to Certificateholders is greater than another method of
operating or net leasing the Mortgaged Property. 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
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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 Master 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 Master 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 Master 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 Master Servicer, as the case may be, for its expenses and (ii) the Master
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 Master Servicer will be required to perform or cause to be performed
(at its own expense), physical inspections of each Mortgaged Property at such
times and in such manner as are consistent with the Servicing Standards, but in
any event is required to inspect each Mortgaged Property securing a Mortgage
Note with a Stated Principal Balance of (A) $2,000,000 or more at least once
every 12 months and (B) less than $2,000,000 at least once every 24 months, in
each case commencing in the calendar year 1999; provided, however, that if the
Master 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 0.90x or less, the Master Servicer shall inspect the related
Mortgaged Property as soon as practicable thereafter (the cost of which
inspection shall be a Servicing Advance); provided, further, however, that if
any scheduled payment becomes more than 60 days delinquent on the related
Mortgage Loan, the Special Servicer is required to inspect the related
Mortgaged Property as soon as practicable thereafter (the cost of which
inspection shall be a Servicing Advance). The Special Servicer or the Master
Servicer, as applicable, will be required to 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.
With respect to each Mortgage Loan that requires the borrower to deliver
such statements, the Special Servicer or the Master 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 Master Servicer likely to have
any practical means of compelling such delivery in the case of an otherwise
performing Mortgage Loan.
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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 Paying Agent. See "Description of the
Certificates--Reports to Certificateholders; Certain Available Information" in
this prospectus supplement.
CERTAIN MATTERS REGARDING THE MASTER SERVICER, THE SPECIAL SERVICER AND THE
DEPOSITOR
The Pooling and Servicing Agreement permits the Master Servicer and the
Special Servicer to resign from their respective obligations thereunder only
upon (a) in the case of the Master Servicer only, the appointment of, and the
acceptance of such appointment by, a successor thereto and receipt by the
Trustee of written confirmation from each applicable Rating Agency that such
resignation and appointment will, in and of itself, not cause a downgrade,
withdrawal or qualification of the rating assigned by such Rating Agency to any
Class of Certificates or (b) a determination that such obligations are no
longer permissible with respect to the Master Servicer or the Special Servicer,
as the case may be, under applicable law. No such resignation will become
effective until the Trustee or other successor has assumed the obligations and
duties of the resigning Master 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 Master
Servicer, the Special Servicer (or the Special Servicer's officers and
directors), 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 Master 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 negligent disregard of such
obligations and duties. The Pooling and Servicing Agreement will also provide
that the Master Servicer, the Special Servicer (or the Special Servicer's
officers and directors), 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 negligent 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 Master 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 Master 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 Master 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 Master 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 Master Servicer will be allowed to
self-insure with respect to a fidelity bond so long as certain conditions set
forth in the Pooling and Servicing Agreement are met.
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Any person into which the Master Servicer, the Special Servicer or the
Depositor may be merged or consolidated, or any person resulting from any
merger or consolidation to which the Master Servicer, the Special Servicer or
the Depositor is a party, or any person succeeding to the business of the
Master Servicer, the Special Servicer or the Depositor, will be the successor
of the Master Servicer, the Special Servicer or the Depositor, as the case may
be, under the Pooling and Servicing Agreement. The Master 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 Master Servicer or the Special Servicer, as the case may be, will
include, without limitation:
(i) (A) any failure by the Master Servicer to make a required deposit to
the Certificate Account on the day such deposit was first required to be
made, or (B) any failure by the Master Servicer to deposit into, or remit
to the Paying Agent for deposit into, the Distribution Account any amount
required to be so deposited or remitted, which failure is not remedied by
11:00 a.m. (NYC time) on the relevant Distribution Date;
(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 Master Servicer for deposit in the Certificate Account
any such remittance required to be made by the Special Servicer on the day
such remittance is required to be made under the Pooling and Servicing
Agreement;
(iii) any failure by the Master Servicer or the Special Servicer duly to
observe or perform in any material respect any of its other covenants or
obligations under the Pooling and Servicing Agreement, which failure
continues unremedied for thirty days (15 days in the case of a failure to
make a Servicing Advance or pay the premium for any insurance policy
required to be maintained under the Pooling and Servicing Agreement) after
written notice thereof has been given to the Master Servicer or the Special
Servicer, as the case may be, by any other party to the Pooling and
Servicing Agreement, or to the Master Servicer or the Special Servicer, as
the case may be, with a copy to each other party to the related Pooling and
Servicing Agreement, by Certificateholders of any Class, evidencing, as to
such Class, Percentage Interests aggregating not less than 25%; provided,
however, if such breach is capable of being cured and the Master Servicer
or Special Servicer, as applicable, is diligently pursuing such cure, such
30 day period will be extended an additional 30 days;
(iv) any breach on the part of the Master Servicer or the Special Sevicer
of any representation or warranty in the Pooling and Servicing Agreement
which materially and adversely affects the interests of any Class of
Certificateholders and which continues unremedied for a period of 30 days
after the date on which notice of such breach, requiring the same to be
remedied, shall have been given to the Master Servicer or the Special
Servicer, as the case may be, by the Depositor or the Trustee, or to the
Master Servicer, the Special Servicer, the Depositor and the Trustee by the
Holders of Certificates of any Class evidencing, as to such Class,
Percentage Interests aggregating not less than 25%; provided however, if
such breach is capable of being cured and the Master Servicer or Special
Servicer, as applicable, is diligently pursuing such cure, such 30-day
period will be extended an additional 30 days;
(v) certain events of insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings in respect of or relating to
the Master Servicer or the Special Servicer, and certain actions by or on
behalf of the Master Servicer or the Special Servicer indicating its
insolvency or inability to pay its obligations; provided, however, if such
breach is capable of being cured and the Master Servicer or Special
Servicer, as applicable, is diligently pursuing such cure; and
(vi) the Trustee shall have received written notice from any Rating
Agency (other than S&P) that the continuation of the Master Servicer or the
Special Servicer in such capacity would result, or has resulted, in a
downgrade, qualification or withdrawal of any rating then assigned by such
Rating Agency to any Class of Certificates.
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RIGHTS UPON EVENT OF DEFAULT
If an Event of Default occurs with respect to the Master 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 Master 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
Master 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 institution 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 Master 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)
such change would not adversely affect in any material respect the
interests of any Certificateholder, as evidenced by an opinion of counsel
(at the expense of the party requesting the amendment) and (B) such change
would not result in the downgrading, qualification or withdrawal of the
ratings assigned to any Class of Certificates by any Rating Agency, as
evidenced by a letter from each Rating Agency;
(iv) to modify, eliminate or add to any of its provisions (A) to such
extent as shall be necessary to maintain the qualification of the Trust
Fund (or either the Upper-Tier REMIC or Lower-Tier REMIC) as a REMIC, to
maintain the grantor trust as a grantor trust or to avoid or minimize the
risk of imposition of any tax on the Trust Fund, provided that the Trustee
has received an 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 or (B) to restrict the transfer of the
Residual Certificates, provided that the Depositor has determined that any
such amendment will not give rise to any tax with respect to the transfer
of the Residual
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Certificates to a non-permitted transferee (see "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC
Certificates--Taxation of Residual Certificates--Tax-Related Restrictions
on Transfer of Residual Certificates" in the prospectus);
(v) to make any other provisions with respect to matters or questions
arising under the Pooling and Servicing Agreement or any other change,
provided that such action will not adversely affect in any material respect
the interests of any Certificateholder, as evidenced by an opinion of
counsel; or
(vi) to amend or supplement any provision of the Pooling and Servicing
Agreement to the extent necessary to maintain the ratings assigned to each
Class of Certificates by each Rating Agency.
The Pooling and Servicing Agreement may also be amended by the parties
thereto with the consent of the holders of Certificates of each Class affected
thereby evidencing, in each case, not less than 66 2/3% of the aggregate
Percentage Interests constituting such Class for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Pooling and Servicing Agreement or of modifying in any manner the rights of
the holders of the Certificates, except that no such amendment may (i) reduce
in any manner the amount of, or delay the timing of, payments received on the
Mortgage Loans which are required to be distributed on a Certificate of any
Class without the consent of the holder of such Certificate, (ii) reduce the
aforesaid percentage of Certificates of any Class the holders of which are
required to consent to any such amendment 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.
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 Master 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 or cause
the grantor trust to fail to qualify as a grantor trust.
S-109
<PAGE>
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. See "Description of the Certificates"
in this prospectus supplement.
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 Master Servicer or 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 borrowers under an APD
Loan may have certain incentives to prepay APD Loans on their Anticipated
Prepayment Dates, there can be no assurance that the related Borrowers will be
able to prepay the APD Loans on their Anticipated Prepayment Date. The failure
of a Borrower to prepay the APD Loans on their Anticipated Prepayment Dates
will not be an event of default under the terms of the APD Loans, and pursuant
to the terms of the Pooling and Servicing Agreement, neither the Master
Servicer nor the Special Servicer will be permitted to take any enforcement
action with respect to a Borrower's failure to pay Excess Interest or principal
in excess of the principal component of the constant Monthly Payment, other
than requests for collection, until the scheduled maturity of the APD Loans;
provided, that the Master 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 APD Loans documents. See "Risk
Factors--Risks Associated with Balloon Payments and Loans with Anticipated
Prepayment Dates" in this prospectus supplement.
Prepayments and, assuming the respective stated 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" in this prospectus supplement and "Certain Legal Aspects of
Mortgage Loans--Foreclosure" in the prospectus. In general, the Class X
Certificates will be extremely sensitive to the rate of principal prepayments,
principal losses and interest rate reductions due to modifications on the
Mortgage Loans. 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
S-110
<PAGE>
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, particularly the Class X Certificates, the risk that a faster than
anticipated rate of principal payments on the Mortgage Loans will result in an
actual yield to such investor that is lower than the anticipated yield. In
general, the earlier a payment of principal is distributed on an Offered
Certificate purchased at a discount or premium, the greater will be the effect
on an investor's yield to maturity. As a result, the effect on an investor's
yield of principal payments distributed on such investor's Offered Certificates
occurring at a rate higher (or lower) than the rate anticipated by the investor
during any particular period would not be fully offset by a subsequent like
reduction (or increase) in the rate of principal payments.
Losses and Shortfalls. The yield to holders of the Offered Certificates
will also depend on the extent to which such holders are required to bear the
effects of any losses or shortfalls on the Mortgage Loans. Losses and other
shortfalls on the Mortgage Loans will generally be borne by the holders of the
Class 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, Class A-2 and Class A-3 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, Prepayment Premiums or 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" in this prospectus supplement
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 Prepayment Premium Periods
and/or Yield Maintenance Periods. See "Description of the Mortgage
Pool--Certain Terms and Conditions of the Mortgage Loans--Prepayment
Provisions" in this prospectus supplement.
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 17 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 (assuming
such prices did not account for such delay).
Unpaid Distributable Certificate Interest. As described under "Description
of the Certificates--Distributions--Priority" in this prospectus supplement,
if the portion of the Available Distribution
S-111
<PAGE>
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 (other than the Class
X Certificates) refers to the average amount of time that will elapse from the
date of its issuance until each dollar allocable to principal of such
Certificate is distributed to the investor. The weighted average life of an
Offered Certificate will be influenced by, among other things, the rate at
which principal on the Mortgage Loans is paid or otherwise collected, which may
be in the form of scheduled amortization, voluntary prepayments, Insurance and
Condemnation Proceeds and Liquidation Proceeds.
Prepayments on mortgage loans may be measured by a prepayment standard or
model. The model used in this prospectus supplement is the "Constant Prepayment
Rate" or "CPR" model. The CPR model represents an assumed constant annual rate
of prepayment each month, expressed as a per annum percentage of the
then-scheduled principal balance of the pool of mortgage loans. As used in each
of the following tables, the column headed "0% CPR" assumes that none of the
Mortgage Loans is prepaid before maturity or the Anticipated Prepayment Date,
as the case may be. 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. 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 (other than the Class X
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 (or, with respect to 3 Mortgage Loans, representing
approximately 2.15% of the Initial Pool Balance, annual payments of
principal), in each case prior to any prepayment of the Mortgage Loan, will
be timely received (with no defaults) and will be distributed on the 18th
day of each month commencing in December 1998;
(ii) the Mortgage Rate in effect for each Mortgage Loan as of the Cut-off
Date will remain in effect to maturity or the Anticipated Prepayment Date,
as the case may be, and will be adjusted as required pursuant to the
definition of Mortgage Rate;
(iii) the monthly (except with respect to the Mortgage Loans (identified
as Loan numbers 26, 27 and 28 on Annex A hereto) which have monthly
payments of interest and annual payments of principal) principal and/or
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 maturity or
the Anticipated Prepayment Date, as the case may be, except in the case of
the 8 Mortgage Loans (identified as Loan Numbers 11, 24, 42, 45, 47, 60, 83
and 93 on Annex A hereto), which Mortgage Loans are assumed to amortize in
accordance with the amortization schedules set forth on Annex A after an
interest-only period of between 4 and 60 months from origination, and in
the case of 1 Mortgage Loan, which Mortgage Loan provides for a reduction
in the monthly debt service after 18 months;
(iv) any principal prepayments on the Mortgage Loans will be received on
their respective Due Dates after the expiration of any applicable Lockout
Period at the respective levels of CPR set forth in the tables;
S-112
<PAGE>
(v) the Mortgage Loan Seller will not be required to repurchase any
Mortgage Loan, and none of the Master 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 Prepayment Premiums or 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 November 19, 1998;
(ix) the APD Loans prepay on their Anticipated Prepayment Date; and
(x) with respect to the table for Class X Certificates, there are no
Withheld Loans.
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 (other than the Class X 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 (other than the Class X
Certificates) and set forth the percentage of the initial Certificate Balance
of such Class of the Offered Certificate that would be outstanding after each
of the dates shown at the indicated CPRs.
PERCENT OF THE INITIAL CERTIFICATE BALANCE
OF THE CLASS A-1 CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0% CPR 3% CPR 6% CPR 9% CPR 12% CPR
- --------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial Percent ............................. 100 100 100 100 100
November 18, 1999 ........................... 93 93 93 93 93
November 18, 2000 ........................... 85 85 84 84 84
November 18, 2001 ........................... 77 74 72 69 67
November 18, 2002 ........................... 68 62 57 52 47
November 18, 2003 ........................... 50 42 35 28 21
November 18, 2004 ........................... 38 28 19 10 3
November 18, 2005 ........................... 26 13 3 0 0
November 18, 2006 ........................... 12 0 0 0 0
November 18, 2007 ........................... 0 0 0 0 0
November 18, 2008 ........................... 0 0 0 0 0
Weighted Average Life (Years)(A) ............ 5.0 4.5 4.1 3.9 3.7
Estimated Month of First Principal .......... 1 1 1 1 1
Estimated Month of Maturity ................. 104 95 86 80 74
</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.
S-113
<PAGE>
PERCENT OF THE INITIAL CERTIFICATE BALANCE
OF THE CLASS A-2 CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0% CPR 3% CPR 6% CPR 9% CPR 12% CPR
- --------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial Percent ............................. 100 100 100 100 100
November 18, 1999 ........................... 100 100 100 100 100
November 18, 2000 ........................... 100 100 100 100 100
November 18, 2001 ........................... 100 100 100 100 100
November 18, 2002 ........................... 100 100 100 100 100
November 18, 2003 ........................... 100 100 100 100 100
November 18, 2004 ........................... 100 100 100 100 100
November 18, 2005 ........................... 100 100 100 97 94
November 18, 2006 ........................... 100 99 94 90 86
November 18, 2007 ........................... 85 81 78 75 73
November 18, 2008 ........................... 0 0 0 0 0
Weighted Average Life (Years)(A) ............ 9.5 9.4 9.4 9.3 9.1
Estimated Month of First Principal .......... 104 95 86 80 74
Estimated Month of Maturity ................. 119 118 118 118 118
</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.
PERCENT OF THE INITIAL CERTIFICATE BALANCE
OF THE CLASS A-3 CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0% CPR 3% CPR 6% CPR 9% CPR 12% CPR
- --------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial Percent ............................. 100 100 100 100 100
November 18, 1999 ........................... 100 100 100 100 100
November 18, 2000 ........................... 100 100 100 100 100
November 18, 2001 ........................... 100 100 100 100 100
November 18, 2002 ........................... 100 100 100 100 100
November 18, 2003 ........................... 100 100 100 100 100
November 18, 2004 ........................... 100 100 100 100 100
November 18, 2005 ........................... 100 100 100 100 100
November 18, 2006 ........................... 100 100 100 100 100
November 18, 2007 ........................... 100 100 100 100 100
November 18, 2008 ........................... 0 0 0 0 0
Weighted Average Life (Years)(A) ............ 9.9 9.9 9.9 9.9 9.9
Estimated Month of First Principal .......... 119 118 118 118 118
Estimated Month of Maturity ................. 120 120 120 120 120
</TABLE>
- ----------
(A) The weighted average life of the Class A-3 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-3 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-3 Certificates.
S-114
<PAGE>
PERCENT OF THE INITIAL CERTIFICATE BALANCE
OF THE CLASS B CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0% CPR 3% CPR 6% CPR 9% CPR 12% CPR
- --------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial Percent ............................. 100 100 100 100 100
November 18, 1999 ........................... 100 100 100 100 100
November 18, 2000 ........................... 100 100 100 100 100
November 18, 2001 ........................... 100 100 100 100 100
November 18, 2002 ........................... 100 100 100 100 100
November 18, 2003 ........................... 100 100 100 100 100
November 18, 2004 ........................... 100 100 100 100 100
November 18, 2005 ........................... 100 100 100 100 100
November 18, 2006 ........................... 100 100 100 100 100
November 18, 2007 ........................... 100 100 100 100 100
November 18, 2008 ........................... 0 0 0 0 0
Weighted Average Life (Years)(A) ............ 10.0 10.0 10.0 10.0 10.0
Estimated Month of First Principal .......... 120 120 120 120 120
Estimated Month of Maturity ................. 120 120 120 120 120
</TABLE>
- ----------
(A) The weighted average life of the Class B Certificates is determined
by (i) multiplying the amount of each principal distribution thereon
by the number of years from the date of issuance of the Class B
Certificates to the related Distribution Date, (ii) summing the
results and (iii) dividing the sum by the aggregate amount of the
reductions in the principal balance of such Class B Certificates.
PERCENT OF THE INITIAL CERTIFICATE BALANCE
OF THE CLASS C CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0% CPR 3% CPR 6% CPR 9% CPR 12% CPR
- --------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial Percent ............................. 100 100 100 100 100
November 18, 1999 ........................... 100 100 100 100 100
November 18, 2000 ........................... 100 100 100 100 100
November 18, 2001 ........................... 100 100 100 100 100
November 18, 2002 ........................... 100 100 100 100 100
November 18, 2003 ........................... 100 100 100 100 100
November 18, 2004 ........................... 100 100 100 100 100
November 18, 2005 ........................... 100 100 100 100 100
November 18, 2006 ........................... 100 100 100 100 100
November 18, 2007 ........................... 100 100 100 100 100
November 18, 2008 ........................... 0 0 0 0 0
Weighted Average Life (Years)(A) ............ 10.0 10.0 10.0 10.0 10.0
Estimated Month of First Principal .......... 120 120 120 120 120
Estimated Month of Maturity ................. 120 120 120 120 120
</TABLE>
- ----------
(A) The weighted average life of the Class C Certificates is determined
by (i) multiplying the amount of each principal distribution thereon
by the number of years from the date of issuance of the Class C
Certificates to the related Distribution Date, (ii) summing the
results and (iii) dividing the sum by the aggregate amount of the
reductions in the principal balance of such Class C Certificates.
S-115
<PAGE>
PERCENT OF THE INITIAL CERTIFICATE BALANCE
OF THE CLASS D CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0% CPR 3% CPR 6% CPR 9% CPR 12% CPR
- --------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial Percent ............................. 100 100 100 100 100
November 18, 1999 ........................... 100 100 100 100 100
November 18, 2000 ........................... 100 100 100 100 100
November 18, 2001 ........................... 100 100 100 100 100
November 18, 2002 ........................... 100 100 100 100 100
November 18, 2003 ........................... 100 100 100 100 100
November 18, 2004 ........................... 100 100 100 100 100
November 18, 2005 ........................... 100 100 100 100 100
November 18, 2006 ........................... 100 100 100 100 100
November 18, 2007 ........................... 100 100 100 100 100
November 18, 2008 ........................... 0 0 0 0 0
Weighted Average Life (Years)(A) ............ 10.0 10.0 10.0 10.0 10.0
Estimated Month of First Principal .......... 120 120 120 120 120
Estimated Month of Maturity ................. 120 120 120 120 120
</TABLE>
- ----------
(A) The weighted average life of the Class D Certificates is determined
by (i) multiplying the amount of each principal distribution thereon
by the number of years from the date of issuance of the Class D
Certificates to the related Distribution Date, (ii) summing the
results and (iii) dividing the sum by the aggregate amount of the
reductions in the principal balance of such Class D Certificates.
PERCENT OF THE INITIAL CERTIFICATE BALANCE
OF THE CLASS E CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0% CPR 3% CPR 6% CPR 9% CPR 12% CPR
- --------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial Percent ............................. 100 100 100 100 100
November 18, 1999 ........................... 100 100 100 100 100
November 18, 2000 ........................... 100 100 100 100 100
November 18, 2001 ........................... 100 100 100 100 100
November 18, 2002 ........................... 100 100 100 100 100
November 18, 2003 ........................... 100 100 100 100 100
November 18, 2004 ........................... 100 100 100 100 100
November 18, 2005 ........................... 100 100 100 100 100
November 18, 2006 ........................... 100 100 100 100 100
November 18, 2007 ........................... 100 100 100 100 100
November 18, 2008 ........................... 0 0 0 0 0
Weighted Average Life (Years)(A) ............ 10.0 10.0 10.0 10.0 10.0
Estimated Month of First Principal .......... 120 120 120 120 120
Estimated Month of Maturity ................. 120 120 120 120 120
</TABLE>
- ----------
(A) The weighted average life of the Class E Certificates is determined
by (i) multiplying the amount of each principal distribution thereon
by the number of years from the date of issuance of the Class E
Certificates to the related Distribution Date, (ii) summing the
results and (iii) dividing the sum by the aggregate amount of the
reductions in the principal balance of such Class E Certificates.
S-116
<PAGE>
YIELD SENSITIVITY OF THE CLASS X CERTIFICATES
The yield to maturity on the Class X Certificates will be extremely
sensitive to the rate and timing of principal payments (including prepayments),
principal losses and interest rate reductions due to modifications on the
Mortgage Loans and to other factors set forth above. Investors should fully
consider the associated risks, including the risk that a rapid rate of
principal payments or principal losses on the Mortgage Pool could result in the
failure by investors in the Class X Certificates to fully recoup their initial
investments.
ANY OPTIONAL TERMINATION BY THE SPECIAL SERVICER, THE MASTER SERVICER, THE
HOLDERS OF THE CONTROLLING CLASS 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 PREPAYMENT PREMIUMS OR 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 "DESCRIPTION OF THE CERTIFICATES--TERMINATION;
RETIREMENT OF CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT.
The table below indicates the sensitivity of the pre-tax corporate bond
equivalent yields to maturity of the Class X Certificates at various prices and
constant prepayment rates. The allocations and calculations do not take account
of any Prepayment Premiums or Yield Maintenance Charges. The yields set forth
in the table were calculated by determining the monthly discount rates that,
when applied to the assumed stream of cash flows to be paid on the Class X
Certificates, would cause the discounted present value of such assumed stream
of cash flows to equal the assumed purchase prices plus accrued interest of
such Class of Certificates and converting such monthly rates to corporate bond
equivalent rates. Such calculations do not take into account variations that
may occur in the interest rates at which investors may be able to reinvest
funds received by them as distributions on the Class X Certificates and
consequently do not purport to reflect the return on any investment in such
Class of Certificates when such reinvestment rates are considered.
The table below has been prepared based on the assumption that
distributions are made in accordance with "Description of the Certificates" in
this prospectus supplement and on the assumptions described in clauses (i)
through (x) on pages S-112 and S-113 and with the assumed respective purchase
prices (as a percentage of the initial Notional Amount of the Class X
Certificates) of the Class X Certificates set forth in the table, plus accrued
interest thereon from November 1, 1998 to the Closing Date, and on the
additional assumption that the Class A-1 Pass-Through Rate is 5.99%, the Class
A-2 Pass-Through Rate is 6.28%, and the Class A-3, Class B, Class C, Class D,
Class E, Class F, Class G, Class H, Class I and Class J Pass-Through Rates are
6.31%.
SENSITIVITY TO PRINCIPAL PREPAYMENTS OF THE PRE-TAX YIELDS TO MATURITY
OF THE CLASS X CERTIFICATES
<TABLE>
<CAPTION>
ASSUMED
PURCHASE PRICE 0% CPR 3% CPR 6% CPR 9% CPR 12% CPR
- ---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
4.25% 10.72% 10.27% 9.86% 9.49% 9.16%
4.50 9.26 8.81 8.41 8.04 7.71
4.75 7.93 7.48 7.08 6.71 6.38
</TABLE>
There can be no assurance that the Mortgage Loans will prepay at any of
the rates shown in the table or at any other particular rate, that the cash
flows on the Class X Certificates will correspond to the cash flows assumed for
purposes of the above table or that the aggregate purchase price of the Class X
Certificates will be as assumed. In addition, it is unlikely that the Mortgage
Loans will prepay at any of the specified percentages of CPR until maturity or
that all the Mortgage Loans will so prepay at the same rate. Timing of changes
in the rate of prepayments may significantly affect the actual yield to
maturity to investors, even if the average rate of principal prepayments is
consistent with the expectations of investors. Investors must make their own
decisions as to the appropriate prepayment assumption to be used in deciding
whether to purchase the Class X Certificates.
S-117
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Certificates, Cadwalader, Wickersham & Taft,
special 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 Internal Revenue Code of 1986, as amended (the "Code"), including the REMIC
Provisions, for federal income tax purposes, the Trust Fund, exclusive of the
Excess Interest and the Excess Interest Distribution Account, 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 A-3, Class X, Class B, Class C, Class D,
Class E, Class F, Class G, Class H, Class I and Class J 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. In addition, in the
opinion of Cadwalader, Wickersham & Taft, the portion of the Trust Fund
consisting of the Excess Interest and the Excess Interest Distribution Account
will be treated as a grantor trust for federal income tax purposes under
subpart E, Part I of subchapter J of the Code.
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 and Class ]
Certificates will be issued with original issue discount ("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 , Class , Class and
Class ] Certificates will be issued at a premium and that the [Class ]
Certificates will be issued with de minimis OID for federal income tax
purposes. The prepayment assumption that will be used in determining the rate
of accrual of OID or whether such OID is de minimis 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 that it is assumed that
the APD Mortgage Loans prepay on their Anticipated Prepayment 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.
Although unclear for federal income tax purposes, it is anticipated that
the Class X Certificates will be considered to be issued with OID in an amount
equal to the excess of all distributions of interest expected to be received
thereon (assuming the weighted average of the Pass-Through Rates changes in
accordance with the Prepayment Assumption) over their issue price (including
accrued interest). Any "negative" amounts of OID on the Class X Certificates
attributable to rapid prepayments with respect to the Mortgage Loans will not
be deductible currently, but may be offset against future positive accruals of
OID, if any. Finally, a holder of a Class X Certificate may be entitled to a
loss deduction to the extent it becomes certain that such holder will not
recover a portion of its basis in such Certificate, assuming no further
prepayments. In the alternative, it is possible that rules similar to the
"noncontingent bond method" of the contingent interest rules in the OID
Regulations, as amended on June 12, 1996, may be promulgated with respect to
the Class X Certificates. See "Certain Federal Income Taxes--Federal Income Tax
Consequences for REMIC Certificates--Taxation of Regular Certificates--Original
Issue Discount" in the prospectus. Under the noncontingent bond method, if the
interest payable for any period is greater or less than the amount projected,
the amount of income included for that period would be either increased or
decreased accordingly. Any net reduction in the income accrual for the taxable
year below zero (a "Negative Adjustment") would be treated by a
Certificateholder as ordinary loss to the extent of prior income accruals and
would be carried forward to offset future interest accruals. At maturity, any
remaining Negative Adjustment would be treated as a loss on retirement of the
Certificate. The legislative
S-118
<PAGE>
history of relevant Code provisions indicates, however, that negative amounts
of OID on an instrument such as a REMIC regular interest may not give rise to
taxable losses in any accrual period prior to the instrument's disposition or
retirement. Thus, it is not clear whether any losses resulting from a Negative
Adjustment would be recognized currently or be carried forward until
disposition or retirement of the debt obligation.
Prepayment Premiums and Yield Maintenance Charges actually collected will
be distributed among the holders of the respective Classes of Certificates as
described under "Description of the Certificates--Allocation of Prepayment
Premiums and Yield Maintenance Charges" in this prospectus supplement. It is
not entirely clear under the Code when the amount of Prepayment Premiums or
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 Prepayment Premiums and Yield Maintenance Charges will be
treated as giving rise to any income to the holder of an Offered Certificate
prior to the Master Servicer's actual receipt of a Prepayment Premium or Yield
Maintenance Charge. It appears that Prepayment Premiums and Yield Maintenance
Charges, if any, will be treated as ordinary income rather than capital gain.
However, that is not entirely clear and Certificateholders should consult their
own tax advisers concerning the treatment of Prepayment Premiums and Yield
Maintenance Charges.
The Offered Certificates will be treated as "real estate assets" within
the meaning of Section 856(c)(4)(A) of the Code, and interest (including OID,
if any) on the Offered Certificates will be interest described in Section
856(c)(3)(B) of the Code. Moreover, the Offered Certificates will be "qualified
mortgages" for another REMIC within the meaning of Section 860G(a)(3) of the
Code and "permitted assets" for a "financial asset securitization investment
trust" within the meaning of Section 860L(c) 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. As of the Cut-off Date, Mortgage Loans
secured by multifamily properties will represent approximately 11.43% of the
Initial Pool Balance. See "Certain Federal Income Tax Consequences--Federal
Income Tax Consequences for REMIC Certificates--Status of REMIC Certificates"
in the prospectus.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates--Taxation
of Regular Certificates" in the prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the underwriting
agreement, dated as of the date hereof (the "Underwriting Agreement"), among
Chase Securities Inc. (the "Underwriter") and the Depositor, the Underwriter
has agreed to use its reasonable efforts to solicit offers to purchase the
Offered Certificates on or prior to the Closing Date. Prior to the Closing
Date, the Depositor will have the exclusive right to accept offers to purchase
Offered Certificates and may reject any such offer in whole or in part. The
Underwriter will have the right, in its discretion reasonably exercised,
without notice to the Depositor, to reject any offer to purchase Offered
Certificates received by them, in whole or in part. The Depositor will pay the
Underwriter certain commissions on Offered Certificates sold through them. In
the event of a default by the Underwriter, the Underwriting Agreement provides
that, in certain circumstances the Underwriting Agreement may be terminated.
Further, the Depositor has agreed to indemnify the Underwriter, and the
Mortgage Loan Seller and the Underwriter have agreed to indemnify the
Depositor, against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
The Underwriter may also purchase Offered Certificates as principal. Any
Offered Certificates so purchased by the Underwriter will be resold by it in a
manner similar to those Offered Certificates offered through the Underwriter as
agent.
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.
Chase Securities Inc. is an affiliate of the Depositor and Chase.
S-119
<PAGE>
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 in this
prospectus supplement 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 Chase Securities Inc.
in connection with offers and sales related to market-making transactions in
the Offered Certificates with respect to which Chase Securities Inc. acts as
principal. Chase Securities 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 will be passed upon for the Depositor by
Cadwalader, Wickersham & Taft, New York, New York, and for the Underwriter by
Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York. In addition,
certain federal income tax matters will be passed upon for the Depositor by
Cadwalader, Wickersham & Taft.
RATING
It is a condition to issuance that the Offered Certificates be rated not
lower than the following ratings by Standard & Poor's Rating Services ("S&P")
and Duff & Phelps Credit Rating Co. ("DCR"):
<TABLE>
<CAPTION>
CLASS S&P DCR
- ------------------------------ ------ -----
<S> <C> <C>
A-1 .......................... AAA AAA
A-2 .......................... AAA AAA
A-3 .......................... AAA AAA
X ............................ AAAr AAA
B ............................ AA AA
C ............................ A A
D ............................ BBB BBB
E ............................ BBB- BBB-
</TABLE>
A securities rating on mortgage pass-through certificates addresses the
likelihood of the timely receipt by holders thereof of interest and the
ultimate repayments of principal to which they are entitled 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. S&P assigns the
additional rating of "r" to highlight classes of securities that S&P believes
may experience high volatility or high variability in expected returns due to
non-credit risks. The ratings on the Offered Certificates do not, however,
constitute a statement regarding the likelihood, timing or frequency of
prepayments (whether voluntary or involuntary) on the Mortgage Loans or the
degree to which such payments might differ from those originally contemplated.
In addition, a rating does not address the likelihood or frequency of voluntary
or mandatory prepayments of Mortgage Loans, payment of Excess Interest or net
default interest or whether and to what extent payments of Prepayment Premiums
or Yield Maintenance Charges will be received or the corresponding effect on
yield to investors. As described in
S-120
<PAGE>
this prospectus supplement, the amounts payable with respect to the Class X
Certificates consist only of interest. If the entire pool were to prepay in the
initial month, with the result that the Class X Certificateholders receive only
a single month's interest and thus suffer a nearly complete loss of their
investment, all amounts "due" to such holders will nevertheless have been paid,
and such result is consistent with the rating received on the Class X
Certificates. Accordingly, the ratings of the Class X Certificates should be
evaluated independently from similar ratings on other types of securities. A
downgrade, withdrawal or qualification of a rating with respect to a Lease
Enhancement Insurer, a surety bond provider, a Tenant or a guarantor of a
Credit Lease may adversely affect the ratings of the Offered Certificates.
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 DCR 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
Any Class of Certificates rated in the two highest rating categories by at
least one Rating Agency will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984, as amended,
for so long as the Mortgage Loans are secured by liens on real estate.
Except as to the status of certain Classes of Offered Certificates as
"mortgage related securities," no representation is made as to the proper
characterization of the Offered Certificates for legal investment purposes,
financial institution regulatory purposes, or other purposes, or as to the
ability of particular investors to purchase the Offered Certificates under
applicable legal investment restrictions. These uncertainties may adversely
affect the liquidity of the Offered Certificates. Accordingly, all institutions
whose investment activities are subject to legal investment laws and
regulations, regulatory capital requirements or review by regulatory
authorities should consult with their own legal advisors in determining whether
and to what extent the Offered Certificates constitute a legal investment or
are subject to investment, capital or other restrictions. See "Legal
Investment" in the prospectus.
CERTAIN ERISA CONSIDERATIONS
A fiduciary of any retirement plan or other employee benefit plan or
arrangement, including individual retirement accounts and annuities, Keogh
plans and collective investment funds and separate accounts in which such
plans, annuities, accounts or arrangements are invested, including insurance
company general accounts, that is subject to the fiduciary responsibility rules
of Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
Section 4975 of the Code (an "ERISA Plan") or which is a governmental plan, as
defined in Section 3(32) of ERISA, subject to any federal, state or local law
("Similar Law") which is, to a material extent, similar to the foregoing
provisions of ERISA or the Code (collectively, with an ERISA Plan, a "Plan")
should review with its legal advisors whether the purchase or holding of
Offered Certificates could give rise to a transaction that is prohibited or is
not otherwise permitted either under ERISA, the Code or Similar Law or whether
there exists any statutory or administrative exemption applicable thereto.
Moreover, each Plan fiduciary should determine whether an investment in the
Offered Certificates is appropriate for the Plan, taking into account the
overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
The U.S. Department of Labor has issued to Chase Securities Inc. an
individual prohibited transaction exemption, PTE 90-33, 55 Fed. Reg. 23, 151
(June 6, 1990) (the "Exemption") as subsequently amended, which generally
exempts from the application of the prohibited transaction provisions of
Sections 406 and 407 of ERISA, and the excise taxes imposed on such prohibited
transactions pursuant to Sections 4975(a) and (b) of the Code, certain
transactions, among others, relating to the servicing and operation of mortgage
pools, such as the Mortgage Pool, and the purchase, sale and holding of
mortgage
S-121
<PAGE>
pass-through certificates, such as the Senior Certificates, underwritten by the
Underwriter, provided that certain conditions set forth in the Exemption are
satisfied.
The Exemption sets forth six general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of the Senior
Certificates to be eligible for exemptive relief thereunder. First, the
acquisition of the Senior Certificates by a Plan must be on terms that are at
least as favorable to the Plan as they would be in an arm's-length transaction
with an unrelated party. Second, the rights and interests evidenced by the
Senior Certificates must not be subordinated to the rights and interests
evidenced by the other certificates of the same trust. Third, the Senior
Certificates at the time of acquisition by the Plan must be rated in one of the
three highest generic rating categories by Standard & Poor's Rating Services
("S&P"), Moody's Investors Service, Inc. ("Moody's"), 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
any Underwriter, the Depositor, the Trustee, the Master Servicer, the Special
Servicer, any sub-servicer, any entity that provides insurance or other credit
support to the Trust Fund 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 of the foregoing entities. Fifth, the sum of all
payments made to and retained by the Underwriter must represent not more than
reasonable compensation for underwriting the Senior 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 Master 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 and Class X 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 S&P and
DCR, and it is a condition of the issuance of the Class X Certificates that
they be rated no lower than "AAAr" by S&P and "AAA" by DCR. As of the Closing
Date, the fourth general condition set forth above will be satisfied with
respect to the Senior Certificates. A fiduciary of a Plan contemplating
purchasing a Class A or Class X Certificate in the secondary market must make
its own determination that, at the time of such purchase the Class A or Class X
Certificates continue to satisfy the third and fourth general conditions set
forth above. A fiduciary of a Plan contemplating purchasing a Senior
Certificate, whether in the initial issuance of such 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
Senior Certificate.
The Exemption also requires that the Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type that
have been included in other investment pools; (ii) certificates in such other
investment pools must have been rated in one of the three highest categories of
S&P's, Moody's, Fitch or DCR for at least one year prior to the Plan's
acquisition of Senior 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 Senior Certificates.
If the general conditions of the Exemption are satisfied, the Exemption
may provide an exemption from the restrictions imposed by Sections 406(a) and
407(a) of ERISA (as well as the excise taxes imposed by Sections 4975(a) and
(b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code) in
connection with (i) the direct or indirect sale, exchange or transfer of Senior
Certificates in the initial issuance of Certificates between the Depositor or
the Underwriter and a Plan when the Depositor, the Underwriter, the Trustee,
the Master Servicer, the Special Servicer, a sub-servicer or a borrower is a
Party in Interest with respect to the investing Plan, (ii) the direct or
indirect acquisition or disposition in the secondary market of the Senior
Certificates by a Plan and (iii) the holding of Senior Certificates by a Plan.
However, no exemption is provided from the restrictions of Sections
406(a)(1)(E), 406(a)(2) and 407 of
S-122
<PAGE>
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 Senior Certificates in the initial issuance of Certificates between
the Depositor or the 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 Senior Certificates by a Plan and (3)
the holding of Senior 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 Senior Certificate, a fiduciary of a Plan should
itself confirm that (i) the Senior 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 exemptions, including with respect to
governmental plans, any exemptive relief afforded under Similar Laws. See
"Certain ERISA Considerations" in the prospectus. A purchaser of a Senior
Certificate should be aware, however, that even if the conditions specified in
one or more exemptions are satisfied, the scope of relief provided by an
exemption may not cover all acts which might be construed as prohibited
transactions.
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 or investment manager of, as
trustee of, or with assets of a Plan that is subject to ERISA, Section 4975 of
the Code or Similar Laws, 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 Section III of Prohibited Transaction Class Exemption 95-60,
which provides an exemption from the prohibited transaction rules for certain
transactions involving an insurance company general account or is otherwise
exempt from ERISA, the Code and Similar Laws. 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 Master Servicer, the Special Servicer,
the Trustee, the Underwriter, any sub-servicer and any borrower with respect to
the Mortgage Loans that it is not subject to ERISA, Section 4975 of the Code or
Similar Laws, or that the purchase and holding of such Certificate or interest
therein is so exempt on the basis of Section III of Prohibited Transaction
Class Exemption 95-60 or other applicable exemptions. See "Certain 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 the Underwriter that this investment meets all relevant legal
requirements with respect to investments by Plans generally or any particular
Plan, or that this investment is appropriate for Plans generally or any
particular Plan.
S-123
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<S> <C>
75 State Street Anticipated
Prepayment Date ..................... S-44
75 State Street Borrower ............... S-44
75 State Street Excess Interest ........ S-44
75 State Street Initial Interest
Rate ................................ S-44
75 State Street Loan ................... S-44
75 State Street Property ............... S-44
75 State Street Property Manager ....... S-46
75 State Street Revised Interest
Rate ................................ S-44
Acquisition Agreement .................. S-68
Administrative Cost Rate ............... S-100
Advances ............................... S-23, S-90
Affiliate Debt ......................... S-28, S-43
Anticipated Prepayment Date ............ S-20, S-50
APD Loans .............................. S-50
Appraisal Reduction .................... S-91
Appraisal Reduction Amount ............. S-91
Appraisal Reduction Event .............. S-90
Approved Bank .......................... S-45
Asset Status Report .................... S-98
Assumed Final Distribution Date ........ S-86
Assumed Scheduled Payment .............. S-85
Authenticating Agent ................... S-77
Available Distribution Amount .......... S-80
Bankruptcy Code ........................ S-31
Base Interest Fraction ................. S-86
Cash Collateral Accounts ............... S-75
CEDEL .................................. S-24
Centre Structured Trust Loans .......... S-58
Centre Structured Trust
Replacement Property ................ S-58
Certificate Account .................... S-79
Certificate Balance .................... S-76
Certificate Owner ...................... S-77
Certificate Registrar .................. S-77
Certificates ........................... S-76
Chase .................................. S-68
Class .................................. S-76
Class A Certificates ................... S-76
Class X Pass-Through Rate .............. S-83
Code ................................... S-118
Collateral Substitution Deposit ........ S-58
Collateral Support Deficit ............. S-88
Constant Prepayment Rate ............... S-112
Controlling Class ...................... S-99
Controlling Class Certificateholder S-99
Corrected Mortgage Loan ................ S-98
CPR .................................... S-112
Credit Lease ........................... S-50
Credit Lease Assignment ................ S-51
Credit Lease Default ................... S-51
Credit Lease Loans ..................... S-50
Credit Lease Property .................. S-51
Credit Leases .......................... S-34
</TABLE>
<TABLE>
<S> <C>
Cross-Over Date ........................ S-83
Cut-off Date Balance ................... S-43
DCR .................................... S-120, S-122
Debt Service Coverage Ratio ............ S-64
Defeasance Loans ....................... S-58
Defeasance Lock-out Period ............. S-58
Defeasance Option ...................... S-58
Definitive Certificate ................. S-77
Depositor .............................. S-43
Depositories ........................... S-77
Determination Date ..................... S-91
Directing Certificateholder ............ S-98
Distributable Certificate Interest ..... S-84
Distribution Accounts .................. S-80
Distribution Date ...................... S-79
Distribution Date Statement ............ S-92
DSCR ................................... S-64
DTC .................................... S-24
Due Period ............................. S-81
effective gross revenue ................ S-67
ERISA .................................. S-121
ERISA Plan ............................. S-121
Euroclear .............................. S-24
Events of Default ...................... S-107
Excess Interest ........................ S-20, S-50,
S-84
Excess Interest Distribution
Account ............................. S-80
Exemption .............................. S-121
FIRREA ................................. S-68
Fitch .................................. S-122
Fleet .................................. S-45
Form 8-K ............................... S-60
HAP Contracts .......................... S-35
HAP Loans .............................. S-52
Hazardous Materials .................... S-73
Indirect Participants .................. S-77
Initial Pool Balance ................... S-43
Initial Rate ........................... S-50
Interest Distribution Amount ........... S-84
Interest Reserve Account ............... S-80
IRS .................................... S-104
Lease Enhancement Policy ............... S-51
Lease Enhancement Policy Loans ......... S-51
Letters of Credit ...................... S-45
Liquidation Fee ........................ S-100
Liquidation Fee Rate ................... S-100
Lock Box Accounts ...................... S-75
Lock Box Loans ......................... S-75
Lockout Period ......................... S-53
Lower-Tier Distribution Account ........ S-80
Lower-Tier REMIC ....................... S-118
LTV Ratio .............................. S-66
Master Servicer ........................ S-99
Mezzanine Borrower ..................... S-46
Mezzanine Lender ....................... S-46
</TABLE>
S-124
<PAGE>
<TABLE>
<S> <C>
Mezzanine Loan ....................... S-46
Monthly Payments ..................... S-64
Monthly Rental Payments .............. S-50
Moody's .............................. S-122
Mortgage ............................. S-43
Mortgage Loan Seller ................. S-43
Mortgage Loans ....................... S-43
Mortgage Note ........................ S-43
Mortgage Rate ........................ S-84
Mortgaged Property ................... S-43
Negative Adjustment .................. S-118
Net Mortgage Rate .................... S-84
NJDEP ................................ S-40
Non-Offered Certificates ............. S-76
Non-Offered Subordinate
Certificates ...................... S-88
Nonrecoverable Advance ............... S-90
Notional Amount ...................... S-76
Offered Certificates ................. S-76
OID .................................. S-118
Participants ......................... S-77
Pass-Through Rate .................... S-11
Paying Agent ......................... S-77
Percentage Interest .................. S-77
P&I Advance .......................... S-23, S-89
Plan ................................. S-121
Pooling and Servicing Agreement ...... S-76
Prepayment Assumption ................ S-118
Prepayment Premium Period ............ S-54
Prepayment Premiums .................. S-53
Primary Term ......................... S-50
Prime Rate ........................... S-90
Principal ............................ S-48
Principal Distribution Amount ........ S-84
Principal Shortfall .................. S-85
Purchase Price ....................... S-74
Rated Final Distribution Date ........ S-87
Record Date .......................... S-79
Regular Certificates ................. S-118
Reimbursement Rate ................... S-90
Related Proceeds ..................... S-90
Release Date ......................... S-58
REMIC ................................ S-118
REMIC Provisions ..................... S-118
REO Account .......................... S-102
REO Loan ............................. S-85
REO Property ......................... S-98
Reserve Accounts ..................... S-75
Residual Certificates ................ S-76
Restricted Group ..................... S-122
Revised Rate ......................... S-50
Rolling 12 Months .................... S-67
Rules ................................ S-78
Scheduled Principal Distribution
Amount ............................ S-84
Senior Certificates .................. S-76
Servicer ............................. S-99
</TABLE>
<TABLE>
<S> <C>
Servicer Remittance Date ............. S-89
Servicing Advances ................... S-23, S-90
Servicing Fee ........................ S-100
Servicing Fee Rate ................... S-100
Servicing Standards .................. S-97
Similar Law .......................... S-121
SMMEA ................................ S-26
S&P .................................. S-43, S-120,
S-122
Special Servicing Fee ................ S-100
Special Servicing Fee Rate ........... S-100
Specially Serviced Mortgage Loans S-98
SSILP ................................ S-21
Standby Fee .......................... S-100
Standby Fee Rate ..................... S-100
Star Loan ............................ S-52
Stated Principal Balance ............. S-85
Subordinate Certificates ............. S-76
Subordinate Offered Certificates ..... S-76
Tenant ............................... S-50
Terms and Conditions ................. S-78
Towson Town Center Anticipated
Prepayment Date ................... S-47
Towson Town Center Borrower .......... S-47
Towson Town Center Cash
Management Account ................ S-48
Towson Town Center Excess
Interest Rate ..................... S-47
Towson Town Center Guarantor ......... S-47
Towson Town Center Initial
Interest Rate ..................... S-47
Towson Town Center Loan .............. S-47
Towson Town Center Property .......... S-47
Towson Town Center Revised
Interest Rate ..................... S-47
Trustee Fee .......................... S-96
Trustee Fee Rate ..................... S-96
Underwriter .......................... S-119
Underwriting Agreement ............... S-119
Underwritten Net Cash Flow ........... S-67
Unscheduled Principal
Distribution Amount ............... S-85
Upper-Tier Distribution Account ...... S-80
Upper-Tier REMIC ..................... S-118
Voting Rights ........................ S-94
Wellington ........................... S-45
Withheld Amounts ..................... S-80
Withheld Loans ....................... S-80
Workout Fee .......................... S-100
Workout Fee Rate ..................... S-100
Yield Maintenance Charge ............. S-54
Yield Maintenance Period ............. S-53
Yield Rate ........................... S-54
</TABLE>
S-125
<PAGE>
LOAN CHARACTERISTICS
ANNEX A
<TABLE>
<CAPTION>
% OF
INITIAL MORTGAGE
POOL # OF LOAN SELLER ORIGINAL CUT-OFF DATE
ID PROPERTY NAME BALANCE PROPERTIES (1) BALANCE BALANCE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 104/106 Second Avenue 0.17% 1 Chase $2,200,000 $2,192,655
2 20 Trafalgar Square 0.44% 1 Chase 5,690,000 5,677,016
3 212 Wolcott Street 0.74% 1 Chase 9,600,000 9,541,131
4 229 West 28th Street 0.64% 1 Chase 8,250,000 8,250,000
5 24 & 33 Trafalgar Square 0.12% 1 Chase 1,560,000 1,558,289
- -------------------------------------------------------------------------------------------------------------------------------
6 300 First Avenue 0.66% 1 Chase 8,600,000 8,539,524
7 303 South Broadway 1.53% 1 Chase 20,000,000 19,848,819
8 379 West Broadway 0.61% 1 Chase 8,000,000 7,927,796
9 38-34/46 Bell Boulevard 0.17% 1 Chase 2,200,000 2,191,485
10 385 Fifth Avenue 1.89% 1 Chase 24,400,000 24,384,278
- -------------------------------------------------------------------------------------------------------------------------------
11 401 & 414 Commerce Drive 0.65% 1 Chase 8,450,000 8,397,905
12 4D Technology Center 0.78% 1 Chase 10,100,000 10,064,779
13 75 State Street 14.29% 1 Chase 185,000,000 184,884,329
14 9 Old Kings Highway 0.37% 1 Chase 4,800,000 4,760,665
15 99 Tower Garage 0.23% 1 Chase 2,985,000 2,972,208
- -------------------------------------------------------------------------------------------------------------------------------
16 Arboretum Crossing 1.54% 1 Chase 19,950,000 19,950,000
17 Arbour Building 0.29% 1 Chase 3,700,000 3,697,472
18 Arcadia Apartments 0.07% 1 Chase 960,000 956,856
19 Arsenal Mall 2.70% 1 Chase 35,000,000 34,976,428
20 Balboa Office Building 0.26% 1 Chase 3,350,000 3,347,508
- -------------------------------------------------------------------------------------------------------------------------------
21 Bed Bath & Beyond - Braintree 0.53% 1 Chase 6,880,000 6,850,955
22 Bingham I Office Building 0.57% 1 Chase 7,410,000 7,384,761
23 Bingham II Office Building 0.62% 1 Chase 8,060,000 8,032,547
24 Bridgewater Apartments 0.80% 1 Chase 10,400,000 10,400,000
25 Broadmoor Village 0.26% 1 Chase 3,400,000 3,400,000
- -------------------------------------------------------------------------------------------------------------------------------
26 Centre Structured Trust 1 0.55% 4 Chase 7,107,117 7,101,386
26a Store # 140 0.14% 1 1,770,631 1,769,203
26b Store 467 0.13% 1 1,647,671 1,646,342
26c Store #26 0.15% 1 1,967,368 1,965,782
26d Store #38 0.13% 1 1,721,447 1,720,059
- -------------------------------------------------------------------------------------------------------------------------------
27 Centre Structured Trust 4 0.79% 6 Chase 10,261,484 10,253,160
27a Store # 98 0.15% 1 1,963,920 1,962,327
27b Store 476 0.13% 1 1,669,332 1,667,978
27c Store 299 0.11% 1 1,374,744 1,373,629
27d Store 536 0.12% 1 1,571,136 1,569,862
27e Store 437 0.12% 1 1,571,136 1,569,862
27f Store #58 0.16% 1 2,111,214 2,109,502
- -------------------------------------------------------------------------------------------------------------------------------
28 Centre Structured Trust 8 0.80% 6 Chase 10,397,984 10,389,628
28a Store #294 0.12% 1 1,575,452 1,574,186
28b Store #42 0.17% 1 2,264,712 2,262,892
28c Store #321 0.11% 1 1,476,986 1,475,799
28d Store #337 0.12% 1 1,585,299 1,584,025
28e Store #63 0.15% 1 1,920,082 1,918,539
28f Store #489 0.12% 1 1,575,452 1,574,186
- -------------------------------------------------------------------------------------------------------------------------------
29 Chapelwood Apartments 0.31% 1 Chase 3,970,000 3,959,205
30 Chippewa Falls 0.53% 1 Chase 6,900,000 6,861,632
31 Colonial Terrace Apartments 0.09% 1 Chase 1,220,000 1,217,376
32 Continental Park 1.27% 1 Chase 16,500,000 16,489,994
33 Cordata Centre 1.16% 1 Chase 15,050,000 15,050,000
- -------------------------------------------------------------------------------------------------------------------------------
34 Costco Plaza I 1.91% 1 Chase 24,750,000 24,750,000
35 Costco Plaza II 2.47% 1 Chase 31,987,500 31,987,500
36 Crossings 0.89% 1 Chase 11,500,000 11,459,488
37 Crossroads Shopping Center 0.83% 1 Chase 10,800,000 10,746,103
38 CVS (Revco) Drug Store 0.17% 1 Chase 2,156,000 2,139,031
- -------------------------------------------------------------------------------------------------------------------------------
39 Debbie's Shopping Center 0.17% 1 Chase 2,160,000 2,156,868
40 East Lake Plaza Shopping Center 0.62% 1 Chase 8,000,000 7,971,532
41 Eckerd Drug Store 0.13% 1 Chase 1,704,000 1,690,319
42 Ensenada Square 0.22% 1 Chase 2,880,000 2,880,000
- -------------------------------------------------------------------------------------------------------------------------------
43 G&K Portfolio II 2.45% 4 Chase 31,765,000 31,636,297
43a Blossom Hill 1.27% 1 16,453,247 16,386,582
43b Genesee Park 0.47% 1 6,061,722 6,037,162
43c Independence Park 0.18% 1 2,401,072 2,391,343
43d Village Green 0.53% 1 6,848,959 6,821,209
- -------------------------------------------------------------------------------------------------------------------------------
44 Georgetown Apartments 0.85% 1 Chase 11,000,000 10,983,026
45 Hanover Commons 0.39% 1 Chase 5,040,000 5,028,987
46 Henderson Mill 0.32% 1 Chase 4,100,000 4,084,208
47 Heritage Apartments 0.48% 1 Chase 6,280,000 6,250,659
48 Hill Tower Apartments 0.75% 1 Chase 9,750,000 9,700,644
- -------------------------------------------------------------------------------------------------------------------------------
49 Holiday Inn - Rock Falls 0.32% 1 Chase 4,180,000 4,180,000
50 Home Depot Plaza 1.04% 1 Chase 13,425,000 13,425,000
51 Hotel Monaco 2.69% 1 Chase 35,000,000 34,801,764
52 Jack's Center & Plaza Linda I 0.32% 2 Chase 4,100,000 4,094,056
52a Jack's Shopping Center 0.20% 1 2,560,000 2,556,288
52b Plaza Linda 1 Shopping Center 0.12% 1 1,540,000 1,537,767
- -------------------------------------------------------------------------------------------------------------------------------
53 Jupiter Plaza 1.41% 1 Chase 18,200,000 18,172,967
54 Kenmar Medical Bldg 0.36% 1 Chase 4,650,000 4,637,013
55 Lexington Center 0.31% 1 Chase 4,000,000 3,994,059
56 Liberty Hill Apartments 0.62% 1 Chase 8,000,000 7,972,884
- -------------------------------------------------------------------------------------------------------------------------------
57 Lincoln Station - Bixby Land 0.39% 1 Chase 5,000,000 5,000,000
58 Lowes Home Improvement 0.21% 1 Chase 2,700,000 2,700,000
59 Massapequa Shopping Centers 1.00% 3 Chase 13,007,000 12,997,386
59a Holiday Park 0.61% 1 7,881,089 7,875,263
59b Calvert Manor 0.20% 1 2,627,030 2,625,088
59c US Skates 0.19% 1 2,498,882 2,497,035
- -------------------------------------------------------------------------------------------------------------------------------
60 Midway Plaza 0.87% 1 Chase 11,362,500 11,300,851
61 Ming Avenue Retail Center 0.33% 1 Chase 4,250,000 4,247,359
62 Nicole's Shopping Center 0.14% 1 Chase 1,760,000 1,757,448
63 Oakwood Shopping Center 0.63% 1 Chase 8,185,000 8,164,515
- -------------------------------------------------------------------------------------------------------------------------------
64 Overlook I 0.34% 1 Chase 4,400,000 4,390,717
65 Palm Harbor Shopping Center 0.24% 1 Chase 3,140,000 3,135,447
66 Park 'N Fly Plus 1.47% 1 Chase 19,000,000 18,979,164
67 Plaza Linda II Shopping Center 0.14% 1 Chase 1,840,000 1,837,332
68 Publix Quail Meadows 0.30% 1 Chase 3,864,000 3,855,572
- -------------------------------------------------------------------------------------------------------------------------------
69 Ramada Inn - East End 0.34% 1 Chase 4,425,000 4,402,471
70 Restaurant Row 0.28% 1 Chase 3,600,000 3,568,185
71 Revlon Building 0.98% 1 Chase 12,750,000 12,729,784
72 Richardson Plaza 0.53% 1 Chase 6,800,000 6,800,000
- -------------------------------------------------------------------------------------------------------------------------------
73 Rite Aid - Hanover Commons 0.13% 1 Chase 1,743,424 1,726,811
74 Rosehill Suites 0.15% 1 Chase 2,000,000 1,997,012
75 Round Rock Crossing 0.20% 1 Chase 2,600,000 2,589,073
76 Sheffield Apartments 3.24% 1 Chase 41,880,169 41,845,624
- -------------------------------------------------------------------------------------------------------------------------------
77 Sheraton Suites Portfolio 4.38% 3 Chase 56,650,000 56,650,000
77a Sheraton Suites Alexandria 1.32% 1 17,058,971 17,058,971
77b Sheraton Suites Columbus 1.43% 1 18,480,552 18,480,552
77c Sheraton Suites Kansas City 1.63% 1 21,110,477 21,110,477
- -------------------------------------------------------------------------------------------------------------------------------
78 Shop Rite/Caldor 1.23% 1 Chase 16,000,000 15,967,219
79 Sir Francis Drake Hotel 2.55% 1 Chase 33,500,000 32,988,210
80 Skyland Town Centre 0.33% 1 Chase 4,315,000 4,305,258
81 Smoketown Stations 3.17% 1 Chase 41,000,000 41,000,000
82 South Orange Towers 0.34% 1 Chase 4,400,000 4,385,310
- -------------------------------------------------------------------------------------------------------------------------------
83 Southbury Green 1.50% 1 Chase 19,500,000 19,458,461
84 Southgate USA 1.95% 1 Chase 25,500,000 25,272,997
85 Southwood Retail Center 0.28% 1 Chase 3,600,000 3,589,878
86 Spring Oaks Plaza 0.64% 1 Chase 8,300,000 8,283,580
87 Star Market - Norwood 0.77% 1 Chase 10,000,000 9,920,286
- -------------------------------------------------------------------------------------------------------------------------------
88 Sudley Manor Square 0.47% 1 Chase 6,100,000 6,095,710
89 Sun National Bank Building 0.46% 1 Chase 6,000,000 5,993,071
90 Superior Building 0.42% 1 Chase 5,500,000 5,489,134
91 Tanglewood/Wild Pine Apartments 0.40% 1 Chase 5,150,000 5,138,922
92 Third Street Promenade 0.25% 1 Chase 3,250,000 3,239,423
93 Towson Town Center 10.82% 1 Chase 140,000,000 140,000,000
- -------------------------------------------------------------------------------------------------------------------------------
94 Trellis at Lees Mill 0.34% 1 Chase 4,360,000 4,334,442
95 Vintage Kolo 84 0.16% 1 Chase 2,025,000 2,020,379
96 Walgreens - Gessner/Braeswood 0.20% 1 Chase 2,675,000 2,649,801
97 Washington Park Office Center 0.57% 1 Chase 7,400,000 7,384,589
98 Wendover Ridge 0.31% 1 Chase 4,050,000 4,050,000
99 Whitehall Apartments 0.38% 1 Chase 4,963,000 4,915,568
- -------------------------------------------------------------------------------------------------------------------------------
TOTALS/WEIGHTED AVERAGES 100% 1,293,409,180
</TABLE>
Footnotes
- -------------------------------------------------------------------------------
(1) Chase - The Chase Manhattan Bank
(2) Largest Tenant/The Limited, consists of four divisions: The Limited
(17,480 s.f.; lease expiration=1/2007); Express/Structure (21,612 s.f.;
lease expiration=1/2007); Lerner (11,928 s.f.; lease expiration=1/2004);
Victoria's Secret (6,000 s.f.; lease expiration=1/2004)
(3) n/a -- Groundlease payments
<PAGE>
<TABLE>
<CAPTION>
INTEREST ORIGINAL STATED ORIGINAL NUMBER OF
MORTGAGE ACCRUAL WITHHELD TERM TO REMAINING AMORTIZATION INTEREST ONLY
ID PROPERTY NAME RATE BASIS LOAN MATURITY TERM (MO.) TERM (MO.) MONTHS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 104/106 Second Avenue 7.250% ACT/360 120 115 360 0
2 20 Trafalgar Square 7.000% ACT/360 120 118 300 0
3 212 Wolcott Street 7.125% ACT/360 120 116 360 0
4 229 West 28th Street 6.590% ACT/360 120 120 360 0
5 24 & 33 Trafalgar Square 6.750% ACT/360 120 119 300 0
- ---------------------------------------------------------------------------------------------------------------------------------
6 300 First Avenue 7.125% ACT/360 120 116 240 0
7 303 South Broadway 7.550% 30/360 120 110 360 0
8 379 West Broadway 7.336% ACT/360 240 235 240 0
9 38-34/46 Bell Boulevard 7.625% ACT/360 120 116 300 0
10 385 Fifth Avenue 6.900% ACT/360 120 119 360 0
- ---------------------------------------------------------------------------------------------------------------------------------
11 401 & 414 Commerce Drive 7.420% 30/360 124 114 360 2
12 4D Technology Center 7.080% ACT/360 120 115 360 0
13 75 State Street 7.000% ACT/360 120 119 360 0
14 9 Old Kings Highway 6.875% ACT/360 120 113 300 0
15 99 Tower Garage 7.125% ACT/360 120 116 300 0
- ---------------------------------------------------------------------------------------------------------------------------------
16 Arboretum Crossing 6.600% ACT/360 120 120 360 0
17 Arbour Building 6.700% ACT/360 119 118 360 0
18 Arcadia Apartments 7.050% 30/360 120 116 360 0
19 Arsenal Mall 6.750% ACT/360 120 119 360 0
20 Balboa Office Building 6.400% ACT/360 120 119 360 0
- ---------------------------------------------------------------------------------------------------------------------------------
21 Bed Bath & Beyond - Braintree 7.200% ACT/360 180 176 300 0
22 Bingham I Office Building 6.850% 30/360 120 116 360 0
23 Bingham II Office Building 6.850% 30/360 120 116 360 0
24 Bridgewater Apartments 6.980% 30/360 129 122 360 9
25 Broadmoor Village 6.600% ACT/360 120 120 360 0
- ---------------------------------------------------------------------------------------------------------------------------------
26 Centre Structured Trust 1 7.156% 30/360 240 228 330 0
26a Store # 140
26b Store 467
26c Store #26
26d Store #38
- ---------------------------------------------------------------------------------------------------------------------------------
27 Centre Structured Trust 4 7.156% 30/360 240 228 330 0
27a Store # 98
27b Store 476
27c Store 299
27d Store 536
27e Store 437
27f Store #58
- ---------------------------------------------------------------------------------------------------------------------------------
28 Centre Structured Trust 8 7.156% 30/360 240 228 330 0
28a Store #294
28b Store #42
28c Store #321
28d Store #337
28e Store #63
28f Store #489
- ---------------------------------------------------------------------------------------------------------------------------------
29 Chapelwood Apartments 7.000% ACT/360 120 116 360 0
30 Chippewa Falls 7.250% 30/360 120 113 360 0
31 Colonial Terrace Apartments 6.875% ACT/360 120 117 360 0
32 Continental Park 7.100% ACT/360 120 119 360 0
33 Cordata Centre 6.600% ACT/360 120 120 360 0
- ---------------------------------------------------------------------------------------------------------------------------------
34 Costco Plaza I 6.600% ACT/360 120 120 360 0
35 Costco Plaza II 6.600% ACT/360 120 120 360 0
36 Crossings 7.040% ACT/360 120 115 360 0
37 Crossroads Shopping Center 7.000% 30/360 120 114 360 0
38 CVS (Revco) Drug Store 7.470% 30/360 232 228 232 0
- ---------------------------------------------------------------------------------------------------------------------------------
39 Debbie's Shopping Center 7.000% ACT/360 120 118 360 0
40 East Lake Plaza Shopping Center 7.000% ACT/360 120 115 360 0
41 Eckerd Drug Store 7.510% 30/360 229 225 229 0
42 Ensenada Square 7.154% 30/360 120 112 330 18
- ---------------------------------------------------------------------------------------------------------------------------------
43 G&K Portfolio II 7.140% ACT/360 120 114 360 0
43a Blossom Hill
43b Genesee Park
43c Independence Park
43d Village Green
- ---------------------------------------------------------------------------------------------------------------------------------
44 Georgetown Apartments 6.740% ACT/360 120 118 360 0
45 Hanover Commons 7.625% 30/360 128 117 360 8
46 Henderson Mill 7.375% 30/360 60 55 360 0
47 Heritage Apartments 8.126% 30/360 120 104 360 9
48 Hill Tower Apartments 8.317% 30/360 120 115 300 0
- ---------------------------------------------------------------------------------------------------------------------------------
49 Holiday Inn - Rock Falls 7.250% ACT/360 120 120 300 0
50 Home Depot Plaza 6.600% ACT/360 120 120 360 0
51 Hotel Monaco 7.313% ACT/360 120 115 300 0
52 Jack's Center & Plaza Linda I 7.000% ACT/360 120 118 360 0
52a Jack's Shopping Center
52b Plaza Linda 1 Shopping Center
- ---------------------------------------------------------------------------------------------------------------------------------
53 Jupiter Plaza 6.900% ACT/360 120 118 360 0
54 Kenmar Medical Bldg 6.900% ACT/360 120 116 360 0
55 Lexington Center 6.900% ACT/360 120 118 360 0
56 Liberty Hill Apartments 6.875% 30/360 120 116 360 0
- ---------------------------------------------------------------------------------------------------------------------------------
57 Lincoln Station - Bixby Land 6.625% ACT/360 180 180 180 0
58 Lowes Home Improvement 6.438% ACT/360 240 240 240 0
59 Massapequa Shopping Centers 6.750% ACT/360 120 119 360 0
59a Holiday Park
59b Calvert Manor
59c US Skates
- ---------------------------------------------------------------------------------------------------------------------------------
60 Midway Plaza 7.375% 30/360 64 54 360 3
61 Ming Avenue Retail Center 7.020% ACT/360 120 119 360 0
62 Nicole's Shopping Center 7.000% ACT/360 120 118 360 0
63 Oakwood Shopping Center 6.940% 30/360 120 117 360 0
- ---------------------------------------------------------------------------------------------------------------------------------
64 Overlook I 6.950% ACT/360 120 117 360 0
65 Palm Harbor Shopping Center 7.000% ACT/360 120 118 360 0
66 Park 'N Fly Plus 6.750% ACT/360 120 119 300 0
67 Plaza Linda II Shopping Center 7.000% ACT/360 120 118 360 0
68 Publix Quail Meadows 7.776% ACT/360 120 116 360 0
- ---------------------------------------------------------------------------------------------------------------------------------
69 Ramada Inn - East End 7.550% ACT/360 120 115 300 0
70 Restaurant Row 7.500% ACT/360 240 235 240 0
71 Revlon Building 6.625% ACT/360 120 118 360 0
72 Richardson Plaza 6.600% ACT/360 120 120 360 0
- ---------------------------------------------------------------------------------------------------------------------------------
73 Rite Aid - Hanover Commons 7.050% ACT/360 238 233 238 0
74 Rosehill Suites 6.875% ACT/360 120 118 360 0
75 Round Rock Crossing 7.000% ACT/360 120 114 360 0
76 Sheffield Apartments 6.300% ACT/360 180 179 360 0
- ---------------------------------------------------------------------------------------------------------------------------------
77 Sheraton Suites Portfolio 6.750% ACT/360 120 120 300 0
77a Sheraton Suites Alexandria
77b Sheraton Suites Columbus
77c Sheraton Suites Kansas City
- ---------------------------------------------------------------------------------------------------------------------------------
78 Shop Rite/Caldor 7.063% ACT/360 120 117 360 0
79 Sir Francis Drake Hotel 8.500% 30/360 120 105 300 0
80 Skyland Town Centre 7.660% ACT/360 120 116 360 0
81 Smoketown Stations 6.600% ACT/360 120 120 360 0
82 South Orange Towers 7.250% ACT/360 120 115 360 0
- ---------------------------------------------------------------------------------------------------------------------------------
83 Southbury Green 7.752% 30/360 130 117 360 10
84 Southgate USA 8.100% 30/360 120 107 360 0
85 Southwood Retail Center 6.875% ACT/360 120 116 360 0
86 Spring Oaks Plaza 7.195% ACT/360 120 117 360 0
87 Star Market - Norwood 7.625% 30/360 300 293 300 0
- ---------------------------------------------------------------------------------------------------------------------------------
88 Sudley Manor Square 6.600% ACT/360 120 119 360 0
89 Sun National Bank Building 6.500% ACT/360 120 119 300 0
90 Superior Building 7.200% ACT/360 120 117 360 0
91 Tanglewood/Wild Pine Apartments 6.875% ACT/360 120 117 360 0
92 Third Street Promenade 7.125% ACT/360 120 117 300 0
93 Towson Town Center 6.750% ACT/360 120 120 300 60
- ---------------------------------------------------------------------------------------------------------------------------------
94 Trellis at Lees Mill 6.980% 30/360 120 113 360 0
95 Vintage Kolo 84 7.000% ACT/360 120 118 300 0
96 Walgreens - Gessner/Braeswood 7.000% ACT/360 240 235 240 0
97 Washington Park Office Center 7.000% ACT/360 120 117 360 0
98 Wendover Ridge 6.600% ACT/360 120 120 360 0
99 Whitehall Apartments 7.315% 30/360 120 108 360 0
- ---------------------------------------------------------------------------------------------------------------------------------
TOTALS/WEIGHTED AVERAGES 7.000% 128 125 340
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ANNUAL ANNUAL
FIRST PRINCIPAL & INTEREST 1997 OR
PAYMENT MATURITY INTEREST ONLY ROLLING UNDERWRITTEN NET
ID PROPERTY NAME DATE DATE PAYMENTS PAYMENTS 1996 NOI 12 MO. NOI CASH FLOW
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 104/106 Second Avenue 7/10/98 6/10/08 $ 180,095 $ 123,191 $ 245,333 $ 210,247
2 20 Trafalgar Square 10/10/98 9/10/08 482,589 739,213 826,457 637,397
3 212 Wolcott Street 8/10/98 7/10/08 876,124 1,237,944 1,350,248 1,109,734
4 229 West 28th Street 12/10/98 11/10/08 631,619 1,408,370 1,392,207 997,689
5 24 & 33 Trafalgar Square 11/10/98 10/10/08 129,339 249,198 186,898 184,741
- ----------------------------------------------------------------------------------------------------------------------------------
6 300 First Avenue 8/10/98 7/10/08 807,870 1,600,000 1,600,000 1,289,535
7 303 South Broadway 2/1/98 1/1/08 1,686,340 236,354 2,377,261 2,513,532
8 379 West Broadway 7/10/98 6/10/18 769,728 541,509 648,582 796,000
9 38-34/46 Bell Boulevard 8/10/98 7/10/08 197,245 275,260 390,919 283,737
10 385 Fifth Avenue 11/10/98 10/10/08 1,928,381 2,717,315 2,914,381 2,584,577
- ----------------------------------------------------------------------------------------------------------------------------------
11 401 & 414 Commerce Drive 2/1/98 5/1/08 703,457 502,276 1,004,552 980,143
12 4D Technology Center 7/10/98 6/10/08 812,869 475,740 1,060,507 1,106,166
13 75 State Street 11/10/98 10/10/08 14,769,716 19,507,552 21,092,919 22,290,345
14 9 Old Kings Highway 5/10/98 4/10/08 402,523 245,724 719,535 697,386
15 99 Tower Garage 8/10/98 7/10/08 256,032 386,882 388,800 414,395
- ----------------------------------------------------------------------------------------------------------------------------------
16 Arboretum Crossing 12/10/98 11/10/08 1,528,949 2,524,658 2,370,028
17 Arbour Building 11/10/98 9/10/08 286,503 475,946 497,869 419,429
18 Arcadia Apartments 8/10/98 7/10/08 77,030 135,200 120,115 102,003
19 Arsenal Mall 11/10/98 10/10/08 2,724,112 4,923,701 4,971,570 4,603,665
20 Balboa Office Building 11/10/98 10/10/08 251,453 313,673 373,497 372,012
- ----------------------------------------------------------------------------------------------------------------------------------
21 Bed Bath & Beyond - Braintree 8/10/98 7/10/13 594,092 780,480 704,727
22 Bingham I Office Building 8/10/98 7/10/08 582,657 1,191,648 1,217,789 981,676
23 Bingham II Office Building 8/10/98 7/10/08 633,767 937,052 1,234,760 1,030,333
24 Bridgewater Apartments 5/10/98 1/10/09 828,622 1,266,400 1,236,892 1,158,349
25 Broadmoor Village 12/10/98 11/10/08 260,573 467,338 371,657
- ----------------------------------------------------------------------------------------------------------------------------------
26 Centre Structured Trust 1 12/1/97 11/1/17 523,888 523,888
26a Store # 140 130,519
26b Store 467 121,455
26c Store #26 145,021
26d Store #38 126,893
- ----------------------------------------------------------------------------------------------------------------------------------
27 Centre Structured Trust 4 12/1/97 11/1/17 756,453 756,453
27a Store # 98 144,776
27b Store 476 123,059
27c Store 299 101,343
27d Store 536 115,821
27e Store 437 115,821
27f Store #58 155,634
- ----------------------------------------------------------------------------------------------------------------------------------
28 Centre Structured Trust 8 12/1/97 11/1/17 766,442 766,442
28a Store #294 116,128
28b Store #42 166,933
28c Store #321 108,870
28d Store #337 116,853
28e Store #63 141,531
28f Store #489 116,128
- ----------------------------------------------------------------------------------------------------------------------------------
29 Chapelwood Apartments 8/10/98 7/10/08 316,950 341,378 473,056 424,921
30 Chippewa Falls 5/1/98 4/1/08 564,842 805,248
31 Colonial Terrace Apartments 9/10/98 8/10/08 96,174 157,421 77,354 137,509
32 Continental Park 11/10/98 10/10/08 1,330,623 1,000,152 1,708,388 1,665,968
33 Cordata Centre 12/10/98 11/10/08 1,153,418 1,895,123 2,049,635 1,672,740
- ----------------------------------------------------------------------------------------------------------------------------------
34 Costco Plaza I 12/10/98 11/10/08 1,896,817 2,945,826 3,007,329 2,748,031
35 Costco Plaza II 12/10/98 11/10/08 2,451,492 3,502,853 3,873,549 3,838,079
36 Crossings 7/10/98 6/10/08 921,828 1,414,133 1,250,642 1,255,972
37 Crossroads Shopping Center 6/10/98 5/10/08 862,232 1,105,633 1,249,882
38 CVS (Revco) Drug Store 8/10/98 11/10/17 211,486 212,717
- ----------------------------------------------------------------------------------------------------------------------------------
39 Debbie's Shopping Center 10/10/98 9/10/08 172,446 284,635 285,862 242,423
40 East Lake Plaza Shopping Center 7/10/98 6/10/08 638,690 1,015,725 1,422,779 1,077,006
41 Eckerd Drug Store 8/10/98 8/10/17 168,631 170,998 169,573
42 Ensenada Square 4/1/98 3/1/08 239,756 269,005 376,698 314,594
- ----------------------------------------------------------------------------------------------------------------------------------
43 G&K Portfolio II 6/10/98 5/10/08 2,571,941 3,382,924
43a Blossom Hill 1,016,607 1,950,700 1,739,971
43b Genesee Park 503,334 740,774 633,542
43c Independence Park 154,893 373,072 259,970
43d Village Green 498,463 866,333 749,441
- ----------------------------------------------------------------------------------------------------------------------------------
44 Georgetown Apartments 10/10/98 9/10/08 855,272 1,121,027 1,107,102
45 Hanover Commons 1/1/98 8/1/08 428,074 539,463 578,334 584,991
46 Henderson Mill 7/1/98 6/1/03 339,812 581,696 596,600 452,206
47 Heritage Apartments 8/1/97 7/1/07 559,599 817,821 795,096 711,580
48 Hill Tower Apartments 7/1/98 6/1/08 927,731 1,204,997 1,223,642 1,115,584
- ----------------------------------------------------------------------------------------------------------------------------------
49 Holiday Inn - Rock Falls 12/10/98 11/10/08 362,560 651,672 790,547 590,069
50 Home Depot Plaza 12/10/98 11/10/08 1,028,879 1,659,282 1,325,421 1,517,290
51 Hotel Monaco 7/10/98 6/10/08 3,080,323 6,025,703 6,225,723 4,754,992
52 Jack's Center & Plaza Linda I 10/10/98 9/10/08 327,329 406,561 444,243 448,071
52a Jack's Shopping Center 264,917 297,837 270,817
52b Plaza Linda 1 Shopping Center 141,644 146,406 177,254
- ----------------------------------------------------------------------------------------------------------------------------------
53 Jupiter Plaza 10/10/98 9/10/08 1,438,383 1,239,043 1,449,460 2,000,327
54 Kenmar Medical Bldg 8/10/98 7/10/08 367,499 642,791 644,774 513,792
55 Lexington Center 10/10/98 9/10/08 316,128 453,246 463,198 428,539
56 Liberty Hill Apartments 8/10/98 7/10/08 630,652 989,502 1,085,455 904,422
- ----------------------------------------------------------------------------------------------------------------------------------
57 Lincoln Station - Bixby Land 12/10/98 11/10/13 529,958 926,563 987,243 811,992
58 Lowes Home Improvement 12/10/98 11/10/18 242,145 349,200
59 Massapequa Shopping Centers 11/10/98 10/10/08 1,022,612 1,425,562 1,690,322 1,507,561
59a Holiday Park 908,672 985,716 936,805
59b Calvert Manor 243,365 364,954 296,021
59c US Skates 272,683 338,944 274,736
- ----------------------------------------------------------------------------------------------------------------------------------
60 Midway Plaza 2/1/98 5/1/03 941,736 490,435 980,870 1,170,462
61 Ming Avenue Retail Center 11/10/98 10/10/08 339,990 573,890 586,564 494,115
62 Nicole's Shopping Center 10/10/98 9/10/08 140,512 185,167 211,626 198,346
63 Oakwood Shopping Center 9/10/98 8/10/08 649,507 1,014,678 1,443,040 929,970
- ----------------------------------------------------------------------------------------------------------------------------------
64 Overlook I 9/10/98 8/10/08 349,509 680,673 627,448 513,782
65 Palm Harbor Shopping Center 10/10/98 9/10/08 250,686 403,772 379,570 346,561
66 Park 'N Fly Plus 11/10/98 10/10/08 1,575,278 2,795,772 3,021,124 2,810,031
67 Plaza Linda II Shopping Center 10/10/98 9/10/08 146,899 232,230 257,093 209,692
68 Publix Quail Meadows 8/10/98 7/10/08 333,020 242,316 484,632 438,078
- ----------------------------------------------------------------------------------------------------------------------------------
69 Ramada Inn - East End 7/10/98 6/10/08 394,133 786,289 814,999 624,815
70 Restaurant Row 7/10/98 6/10/18 350,773 452,764 443,731
71 Revlon Building 10/10/98 9/10/08 979,676 ($1,301,474) ($85,000) 1,357,354
72 Richardson Plaza 12/10/98 11/10/08 521,146 803,501 744,429
- ----------------------------------------------------------------------------------------------------------------------------------
73 Rite Aid - Hanover Commons 7/10/98 4/10/18 164,760 166,042
74 Rosehill Suites 10/10/98 9/10/08 157,663 236,512 241,224 253,024
75 Round Rock Crossing 6/10/98 5/10/08 207,574 412,459 358,377
76 Sheffield Apartments 11/10/98 10/10/13 3,140,938 12,016,745 12,406,378 10,609,887
- ----------------------------------------------------------------------------------------------------------------------------------
77 Sheraton Suites Portfolio 12/10/98 11/10/08 4,738,747 7,318,110
77a Sheraton Suites Alexandria 2,379,596 2,617,788 2,060,396
77b Sheraton Suites Columbus 2,624,382 2,758,074 2,383,414
77c Sheraton Suites Kansas City 3,341,842 3,676,396 2,874,300
- ----------------------------------------------------------------------------------------------------------------------------------
78 Shop Rite/Caldor 9/10/98 8/10/08 1,285,450 1,754,420 1,748,434 1,757,130
79 Sir Francis Drake Hotel 9/1/97 8/1/07 3,237,013 6,798,536 8,711,402 6,586,867
80 Skyland Town Centre 8/10/98 7/10/08 367,743 531,738 487,375
81 Smoketown Stations 12/10/98 11/10/08 3,142,201 5,312,318 4,471,787
82 South Orange Towers 7/10/98 6/10/08 360,189 420,534 490,042
- ----------------------------------------------------------------------------------------------------------------------------------
83 Southbury Green 11/1/97 8/1/08 1,676,728 2,212,206 2,367,518
84 Southgate USA 11/1/97 10/1/07 2,266,688 3,214,274 2,643,063 2,342,093
85 Southwood Retail Center 8/10/98 7/10/08 283,793 690,157 693,214 589,598
86 Spring Oaks Plaza 9/10/98 8/10/08 675,736 948,549 974,587 896,211
87 Star Market - Norwood 5/1/98 4/1/23 896,569 1,025,000
- ----------------------------------------------------------------------------------------------------------------------------------
88 Sudley Manor Square 11/10/98 10/10/08 467,498 721,045 695,137 798,279
89 Sun National Bank Building 11/10/98 10/10/08 486,149 424,572 546,518 660,013
90 Superior Building 9/10/98 8/10/08 448,000 695,628 711,340 607,083
91 Tanglewood/Wild Pine Apartments 9/10/98 8/10/08 405,982 658,660 522,267
92 Third Street Promenade 9/10/98 8/10/08 278,762 389,546 561,200 412,791
93 Towson Town Center 12/10/98 11/10/08 11,711,547 9,581,250 16,532,586 17,063,903 17,173,461
- ----------------------------------------------------------------------------------------------------------------------------------
94 Trellis at Lees Mill 5/10/98 4/10/08 347,384 88,455 457,801 476,275
95 Vintage Kolo 84 10/10/98 9/10/08 171,747 320,162 247,117 232,757
96 Walgreens - Gessner/Braeswood 7/10/98 6/10/18 250,748 301,475 293,021
97 Washington Park Office Center 9/10/98 8/10/08 590,789 766,423 778,314 782,635
98 Wendover Ridge 12/10/98 11/10/08 310,388 548,499 532,425 525,522
99 Whitehall Apartments 12/1/97 11/1/07 408,906 348,258 597,014 666,242
- ----------------------------------------------------------------------------------------------------------------------------------
TOTALS/WEIGHTED AVERAGES
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YIELD
LOCKBOX IN MAINTENANCE
PLACE CUT-OFF CHARGE OR
(HARD OR APPRAISED DATE LTV LTV RATIO @ PREPAYMENT PREPAYMENT
ID PROPERTY NAME SOFT) DSCR VALUE RATIO MATURITY LOCKOUT ENDS PREMIUM
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 104/106 Second Avenue 1.17 $3,200,000 69% 60% 3/9/08 Defeasance
2 20 Trafalgar Square 1.32 10,100,000 56% 45% 6/9/08 Defeasance
3 212 Wolcott Street 1.27 12,000,000 80% 68% 4/9/08 Defeasance
4 229 West 28th Street 1.58 11,000,000 75% 65% 8/9/08 Defeasance
5 24 & 33 Trafalgar Square 1.43 2,275,000 68% 55% 7/9/08 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
6 300 First Avenue 1.60 16,000,000 53% 37% 4/9/08 Defeasance
7 303 South Broadway 1.49 31,300,000 63% 56% 12/31/00 Greater than of 0% or YM
8 379 West Broadway 1.03 10,000,000 79% 1% 3/9/18 Defeasance
9 38-34/46 Bell Boulevard 1.44 3,300,000 66% 55% 4/9/08 Defeasance
10 385 Fifth Avenue 1.34 32,600,000 75% 65% 7/9/08 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
11 401 & 414 Commerce Drive 1.39 10,850,000 77% 67% 12/31/00 Greater than of 1% or YM
12 4D Technology Center 1.36 13,700,000 73% 65% 12/9/07 Defeasance
13 75 State Street 1.51 320,000,000 58% 51% 4/9/08 Defeasance
14 9 Old Kings Highway 1.73 9,700,000 49% 40% 4/9/01 Greater than of 1% or YM
15 99 Tower Garage 1.62 5,000,000 59% 48% 7/9/01 Greater than of 1% or YM
- -----------------------------------------------------------------------------------------------------------------------------------
16 Arboretum Crossing 1.55 26,600,000 75% 65% 8/9/08 Defeasance
17 Arbour Building 1.46 5,000,000 74% 64% 6/9/08 Defeasance
18 Arcadia Apartments 1.32 1,290,000 74% 64% 7/9/01 Greater than of 1% or YM
19 Arsenal Mall 1.69 56,000,000 62% 54% 7/9/08 Defeasance
20 Balboa Office Building 1.48 4,675,000 72% 62% 7/9/08 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
21 Bed Bath & Beyond - Braintree Hard 1.19 8,675,000 79% 51% 4/9/13 Defeasance
22 Bingham I Office Building 1.68 12,000,000 62% 53% 7/9/01 Greater than of 1% or YM
23 Bingham II Office Building 1.63 12,000,000 67% 58% 7/9/01 Greater than of 1% or YM
24 Bridgewater Apartments 1.40 13,000,000 80% 69% 7/9/08 Defeasance
25 Broadmoor Village 1.43 4,700,000 72% 63% 8/9/08 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
26 Centre Structured Trust 1 1.00 7,400,000 96% 42% 10/31/17 Defeasance
26a Store # 140 1.00 1,650,000 47%
26b Store 467 1.00 1,890,000 38%
26c Store #26 1.00 1,910,000 45%
26d Store #38 1.00 1,950,000 38%
- -----------------------------------------------------------------------------------------------------------------------------------
27 Centre Structured Trust 4 1.00 10,450,000 98% 43% 10/31/17 Defeasance
27a Store # 98 1.00 2,000,000 43%
27b Store 476 1.00 1,700,000 43%
27c Store 299 1.00 1,400,000 43%
27d Store 536 1.00 1,600,000 43%
27e Store 437 1.00 1,600,000 43%
27f Store #58 1.00 2,150,000 43%
- -----------------------------------------------------------------------------------------------------------------------------------
28 Centre Structured Trust 8 1.00 10,560,000 98% 43% 10/31/17 Defeasance
28a Store #294 1.00 1,600,000 43%
28b Store #42 1.00 2,300,000 43%
28c Store #321 1.00 1,500,000 43%
28d Store #337 1.00 1,610,000 43%
28e Store #63 1.00 1,950,000 43%
28f Store #489 1.00 1,600,000 43%
- -----------------------------------------------------------------------------------------------------------------------------------
29 Chapelwood Apartments 1.34 4,985,000 79% 70% 4/9/08 Defeasance
30 Chippewa Falls 1.43 9,200,000 75% 65% 3/31/01 Greater than of 1% or YM
31 Colonial Terrace Apartments 1.43 1,530,000 80% 69% 5/9/08 Defeasance
32 Continental Park 1.25 22,500,000 73% 64% 7/9/08 Defeasance
33 Cordata Centre 1.45 21,000,000 72% 62% 8/9/08 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
34 Costco Plaza I 1.45 33,000,000 75% 65% 8/9/08 Defeasance
35 Costco Plaza II 1.57 42,650,000 75% 65% 8/9/08 Defeasance
36 Crossings 1.36 14,770,000 78% 68% 3/9/08 Defeasance
37 Crossroads Shopping Center 1.45 13,900,000 77% 67% 2/9/08 Defeasance
38 CVS (Revco) Drug Store 1.01 2,200,000 97% 0% 8/9/17 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
39 Debbie's Shopping Center 1.41 2,700,000 80% 70% 6/9/08 Defeasance
40 East Lake Plaza Shopping Center 1.69 12,400,000 64% 56% 3/9/08 Defeasance
41 Eckerd Drug Store 1.01 1,970,000 86% 0% 5/9/17 Defeasance
42 Ensenada Square 1.31 3,400,000 85% 73% 2/28/01 Greater than of 1% or YM
- -----------------------------------------------------------------------------------------------------------------------------------
43 G&K Portfolio II 1.32 40,350,000 78% 69% 2/9/08 Defeasance
43a Blossom Hill 1.32 20,900,000 69%
43b Genesee Park 1.32 7,700,000 69%
43c Independence Park 1.32 3,050,000 69%
43d Village Green 1.32 8,700,000 69%
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44 Georgetown Apartments 1.29 14,000,000 78% 68% 6/9/08 Defeasance
45 Hanover Commons 1.37 6,300,000 80% 70% 7/31/01 Greater than of 1% or YM
46 Henderson Mill 1.33 5,700,000 72% 68% 2/28/03 Defeasance
47 Heritage Apartments 1.27 7,850,000 80% 71% 6/30/00 Greater than of 1% or YM
48 Hill Tower Apartments 1.20 13,000,000 75% 61% 5/31/01 Fixed
- -----------------------------------------------------------------------------------------------------------------------------------
49 Holiday Inn - Rock Falls 1.63 6,800,000 61% 50% 8/9/08 Defeasance
50 Home Depot Plaza 1.47 16,800,000 80% 69% 8/9/08 Defeasance
51 Hotel Monaco 1.54 54,200,000 64% 52% 12/9/07 Defeasance
52 Jack's Center & Plaza Linda I 1.37 5,125,000 80% 70% 6/9/08 Defeasance
52a Jack's Shopping Center 1.37 3,200,000 70%
52b Plaza Linda 1 Shopping Center 1.37 1,925,000 70%
- -----------------------------------------------------------------------------------------------------------------------------------
53 Jupiter Plaza 1.39 23,650,000 77% 67% 3/9/08 Defeasance
54 Kenmar Medical Bldg 1.40 6,200,000 75% 65% 4/9/08 Defeasance
55 Lexington Center 1.36 5,300,000 75% 66% 9/9/01 Greater than of 1% or YM
56 Liberty Hill Apartments 1.43 11,000,000 72% 62% 1/9/08 Defeasance
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57 Lincoln Station - Bixby Land 1.53 8,300,000 60% 0% 8/9/13 Defeasance
58 Lowes Home Improvement 1.44 3,760,000 72% 0% 8/9/18 Defeasance
59 Massapequa Shopping Centers Soft 1.47 20,300,000 64% 55% 7/9/08 Defeasance
59a Holiday Park 1.47 12,300,000 55%
59b Calvert Manor 1.47 4,100,000 55%
59c US Skates 1.47 3,900,000 55%
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60 Midway Plaza 1.24 15,150,000 75% 71% 4/30/02 Greater than of 0% or YM
61 Ming Avenue Retail Center Soft 1.45 5,400,000 79% 69% 7/9/08 Defeasance
62 Nicole's Shopping Center 1.41 2,200,000 80% 70% 6/9/08 Defeasance
63 Oakwood Shopping Center Soft 1.43 11,000,000 74% 64% 5/9/08 Defeasance
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64 Overlook I 1.47 6,000,000 73% 64% 5/9/08 Defeasance
65 Palm Harbor Shopping Center 1.38 3,950,000 79% 69% 6/9/08 Defeasance
66 Park 'N Fly Plus 1.78 26,200,000 72% 58% 7/9/08 Defeasance
67 Plaza Linda II Shopping Center 1.43 2,300,000 80% 70% 6/9/08 Defeasance
68 Publix Quail Meadows 1.32 4,830,000 80% 71% 4/9/08 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
69 Ramada Inn - East End 1.59 6,000,000 73% 60% 3/9/08 Defeasance
70 Restaurant Row 1.27 7,010,000 51% 1% 6/9/04 Greater than of 1% or YM
71 Revlon Building 1.39 16,500,000 77% 67% 6/9/08 Defeasance
72 Richardson Plaza 1.43 9,200,000 74% 64% 8/9/08 Defeasance
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73 Rite Aid - Hanover Commons 1.01 1,850,000 93% 0% 1/9/18 Defeasance
74 Rosehill Suites 1.60 2,500,000 80% 70% 6/9/08 Defeasance
75 Round Rock Crossing 1.73 4,100,000 63% 55% 5/9/01 Greater than of 1% or YM
76 Sheffield Apartments Soft 3.38 155,000,000 27% 20% 7/9/13 Defeasance
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77 Sheraton Suites Portfolio 1.54 79,700,000 71% 56% 11/9/08 Defeasance
77a Sheraton Suites Alexandria 1.54 24,000,000 56%
77b Sheraton Suites Columbus 1.54 26,000,000 56%
77c Sheraton Suites Kansas City 1.54 29,700,000 56%
- -----------------------------------------------------------------------------------------------------------------------------------
78 Shop Rite/Caldor 1.37 20,700,000 77% 68% 2/9/08 Defeasance
79 Sir Francis Drake Hotel Soft 2.03 52,000,000 63% 53% 7/31/00 Greater than of 1% or YM
80 Skyland Town Centre 1.33 5,396,000 80% 71% 4/9/08 Defeasance
81 Smoketown Stations 1.42 56,000,000 73% 63% 8/9/08 Defeasance
82 South Orange Towers 1.36 5,500,000 80% 70% 3/9/08 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
83 Southbury Green 1.41 25,000,000 78% 68% 7/31/01 Greater than of 1% or YM
84 Southgate USA 1.03 32,500,000 78% 69% 9/30/00 Greater than of 1% or YM
85 Southwood Retail Center 2.08 7,500,000 48% 42% 4/9/08 Defeasance
86 Spring Oaks Plaza 1.33 10,690,000 77% 68% 5/9/08 Defeasance
87 Star Market - Norwood 1.14 11,200,000 89% 0% 3/31/12 Greater than of 1% or YM
- -----------------------------------------------------------------------------------------------------------------------------------
88 Sudley Manor Square 1.71 8,200,000 74% 64% 7/9/08 Defeasance
89 Sun National Bank Building 1.36 7,900,000 76% 60% 7/9/08 Defeasance
90 Superior Building 1.36 7,240,000 76% 67% 5/9/08 Defeasance
91 Tanglewood/Wild Pine Apartments 1.29 6,660,000 77% 67% 5/9/08 Defeasance
92 Third Street Promenade 1.48 5,000,000 65% 52% 5/9/08 Defeasance
93 Towson Town Center 1.47 222,000,000 63% 57% 8/9/08 Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
94 Trellis at Lees Mill 1.37 5,700,000 76% 66% 10/9/07 Defeasance
95 Vintage Kolo 84 1.36 2,700,000 75% 60% 6/9/08 Defeasance
96 Walgreens - Gessner/Braeswood 1.17 3,400,000 78% 1% 3/9/18 Defeasance
97 Washington Park Office Center 1.32 10,000,000 74% 65% 5/9/08 Defeasance
98 Wendover Ridge 1.69 5,400,000 75% 65% 8/9/08 Defeasance
99 Whitehall Apartments 1.63 6,700,000 73% 64% 10/31/00 Greater than of 1% or YM
- -----------------------------------------------------------------------------------------------------------------------------------
TOTALS/WEIGHTED AVERAGES 1.52 69% 56%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YIELD
MAINTENANCE
CHARGE OR FREE
PREPAYMENT PREPAY
PREMIUM PERIOD
ID PROPERTY NAME END DATE (MO.) ADDRESS CITY
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 104/106 Second Avenue 3 104/106 Second Avenue New York
2 20 Trafalgar Square 3 20 Trafalgar Sq Nashua
3 212 Wolcott Street 3 212 Wolcott Street Brooklyn
4 229 West 28th Street 3 229 West 28th Street New York
5 24 & 33 Trafalgar Square 3 24 & 33 Trafalgar Square Nashua
- -----------------------------------------------------------------------------------------------------------------------------------
6 300 First Avenue 3 300 First Avenue Needham
7 303 South Broadway 6/30/07 6 303 South Broadway / 3147 Middle Country Rd Tarrytown
8 379 West Broadway 3 379 West Broadway New York
9 38-34/46 Bell Boulevard 3 38-34/36 Bell Boulevard Bayside
10 385 Fifth Avenue 3 385 Fifth Avenue New York
- -----------------------------------------------------------------------------------------------------------------------------------
11 401 & 414 Commerce Drive 1/31/08 3 401 & 414 Commerce Drive Fort Washington
12 4D Technology Center 6 410 S. Sunset St., 1510 Nelson Rd., 345 S. Francis St. Longmont
13 75 State Street 6 75 State St Boston
14 9 Old Kings Highway 1/9/08 3 9 Old Kings Highway Darien
15 99 Tower Garage 4/9/08 3 86 North Front Street Memphis
- -----------------------------------------------------------------------------------------------------------------------------------
16 Arboretum Crossing 3 9333 Research Boulevard Austin
17 Arbour Building 3 527 S Lake Ave Pasadena
18 Arcadia Apartments 4/9/08 3 1065 East 450 North Provo
19 Arsenal Mall 3 485 Arsenal Street Watertown
20 Balboa Office Building 3 8799 Balboa Ave San Diego
- -----------------------------------------------------------------------------------------------------------------------------------
21 Bed Bath & Beyond - Braintree 3 200 Grossman Drive, Unit #5 Braintree
22 Bingham I Office Building 4/9/08 3 30100 Telegraph Road Bingham Farms
23 Bingham II Office Building 4/9/08 3 30400 Telegraph Road Bingham Farms
24 Bridgewater Apartments 6 1000 Marcella Drive Hampton
25 Broadmoor Village 3 930-950 West Centerville Road Garland
- -----------------------------------------------------------------------------------------------------------------------------------
26 Centre Structured Trust 1 0 Multiple Multiple
26a Store # 140 3905 Troy Highway Montgomery
26b Store 467 947 Lawrenceville Suwanee Road Lawrenceville
26c Store #26 5200 West 119th Street Leawood
26d Store #38 1102 Walnut Street Cary
- -----------------------------------------------------------------------------------------------------------------------------------
27 Centre Structured Trust 4 0 Multiple Multiple
27a Store # 98 7605 North Academy Blvd Colorado Springs
27b Store 476 2230 Mt. Zion Parkway Morrow
27c Store 299 2891 N. Veterans Springfield
27d Store 536 6620 Youree Drive Shreveport
27e Store 437 18900 E. 39th Street Independence
27f Store #58 4020 Chapel Hill Blvd. Durham
- -----------------------------------------------------------------------------------------------------------------------------------
28 Centre Structured Trust 8 0 Multiple Multiple
28a Store #294 851 Cobb Place Blvd. Kennesaw
28b Store #42 535 N. Lakeview Vernon Hills
28c Store #321 6943 W. 38th Indianapolis
28d Store #337 7001 W. 119th Street Overland Park
28e Store #63 6614 Youree Drive Shreveport
28f Store #489 2200 Emporium Drive Jackson
- -----------------------------------------------------------------------------------------------------------------------------------
29 Chapelwood Apartments 3 890 W. Loveland Loveland
30 Chippewa Falls 9/30/07 6 2121 Olson Drive Chippewa Falls
31 Colonial Terrace Apartments 3 2 Estate Drive Amelia
32 Continental Park 3 31 R EET El Segundo
33 Cordata Centre 3 4295 Guide Meridian Road Bellingham
- -----------------------------------------------------------------------------------------------------------------------------------
34 Costco Plaza I 3 5800-5870 West Bell Boulevard Glendale
35 Costco Plaza II 3 12275 & 12300 Price Club Plaza, 4725 West Ox Road Fairfax
36 Crossings 3 SWC Deer Valley Road & Hillcrest Antioch
37 Crossroads Shopping Center 3 207 Hartford Avenue & Main Street Bellingham
38 CVS (Revco) Drug Store 3 Northwest Corner od State Street and Union Avenue Alliance
- -----------------------------------------------------------------------------------------------------------------------------------
39 Debbie's Shopping Center 3 9501-65 SW 72nd Street (Sunset Drive) Miami
40 East Lake Plaza Shopping Center 3 9701 Interstate Hwy 10 Service Road New Orleans
41 Eckerd Drug Store 3 4510 Mobile Highway Pensacola
42 Ensenada Square 11/30/07 3 301 South Bowen Road Arlington
- -----------------------------------------------------------------------------------------------------------------------------------
43 G&K Portfolio II 3 Multiple
43a Blossom Hill 5480 Lean Avenue San Jose
43b Genesee Park 5550 Genesee Court East San Diego
43c Independence Park 6630 Independence Ave. Canoga Park
43d Village Green 5404 Drysdale Drive San Jose
- -----------------------------------------------------------------------------------------------------------------------------------
44 Georgetown Apartments 3 4889 Far Hills Ave Kettering
45 Hanover Commons 10/31/07 9 Northeast Chamberlayne Avenue Mechanicsville
46 Henderson Mill 3 2296 Henderson Mill Road Atlanta
47 Heritage Apartments 12/31/06 6 3002 4th Street Lubbock
48 Hill Tower Apartments 2/29/08 3 7600 Stenton Avenue Philadelphia
- -----------------------------------------------------------------------------------------------------------------------------------
49 Holiday Inn - Rock Falls 3 2105 First Ave So Rock Falls
50 Home Depot Plaza 3 801-1151 Sunrise Highway Copiague
51 Hotel Monaco 6 501 Geary Street San Francisco
52 Jack's Center & Plaza Linda I 3 Miami
52a Jack's Shopping Center 9800-84 SW 40th St./10453-81 SW40th Street Miami
52b Plaza Linda 1 Shopping Center 10453-81 SW 40th St. Miami
- -----------------------------------------------------------------------------------------------------------------------------------
53 Jupiter Plaza 6 201 North US Highway 1 Jupiter
54 Kenmar Medical Bldg 3 833 Campbell Hill Street Marietta
55 Lexington Center 6/9/08 3 1733-1753 Massachusetts Avenue Lexington
56 Liberty Hill Apartments 6 32450 Cromwell Drive Solon
- -----------------------------------------------------------------------------------------------------------------------------------
57 Lincoln Station - Bixby Land 3 11900 South Street Lincoln Station
58 Lowes Home Improvement 3 T E HIGHWAY 6 Houston
59 Massapequa Shopping Centers 3 Hicksville Road Massapequa
59a Holiday Park Massapequa
59b Calvert Manor Massapequa
59c US Skates Massapequa
- -----------------------------------------------------------------------------------------------------------------------------------
60 Midway Plaza 1/31/03 3 5701 N University Dr Tamarac
61 Ming Avenue Retail Center 3 3006-3010 Ming Avenue Bakersfield
62 Nicole's Shopping Center 3 2901-3001 West Commercial Boulevard Fort Lauderdale
63 Oakwood Shopping Center 3 3143 Amboy Road Staten Island
- -----------------------------------------------------------------------------------------------------------------------------------
64 Overlook I 3 214 Overlook Circle Brentwood
65 Palm Harbor Shopping Center 3 35801-36091 US 19 North Palm Harbor
66 Park 'N Fly Plus 3 2525 Camp Creek Parkway Atlanta
67 Plaza Linda II Shopping Center 3 10411-41 SW40th Street Miami
68 Publix Quail Meadows 3 4963 NW Blichton Road Ocala
- -----------------------------------------------------------------------------------------------------------------------------------
69 Ramada Inn - East End 3 1830 Route 25 Riverhead
70 Restaurant Row 3/9/18 3 Rainbow Boulevard Las Vegas
71 Revlon Building 3 2121 Route 27 Edison
72 Richardson Plaza 3 106-180 West Cambell Road Richardson
- -----------------------------------------------------------------------------------------------------------------------------------
73 Rite Aid - Hanover Commons 3 Route 301 & Hanover Crossings Drive Hanover
74 Rosehill Suites 3 1301 East Mountain View Road Phoenix
75 Round Rock Crossing 11/9/07 6 SEC IH - 35 & Country RD 170 Round Rock
76 Sheffield Apartments 3 322 West 57th Street New York
- -----------------------------------------------------------------------------------------------------------------------------------
77 Sheraton Suites Portfolio 0 Multiple Multiple
77a Sheraton Suites Alexandria 801 North Saint Asaph Street Alexandria
77b Sheraton Suites Columbus 201 Hutchington Avenue Columbus
77c Sheraton Suites Kansas City 770 West 47th Street Kansas City
- -----------------------------------------------------------------------------------------------------------------------------------
78 Shop Rite/Caldor 6 2200 Route 66 East Neptune
79 Sir Francis Drake Hotel 1/31/07 6 432-450 Powell Street San Francisco
80 Skyland Town Centre 3 1856 Hendersonville Road Asheville
81 Smoketown Stations 3 Prince William Parkway & Worth Avenue Woodbridge
82 South Orange Towers 3 749 Scotland Road Orange
- -----------------------------------------------------------------------------------------------------------------------------------
83 Southbury Green 1/31/08 6 775 Main Street South Southbury
84 Southgate USA 3/31/07 6 20990 Libby Road Maple Heights
85 Southwood Retail Center 3 22201-22240 Palos Verdes Boulevard Torrance
86 Spring Oaks Plaza 3 4800 Spring Mountain Road Las Vegas
87 Star Market - Norwood 3/31/22 12 625 University Avenue Norwood
- -----------------------------------------------------------------------------------------------------------------------------------
88 Sudley Manor Square 3 7807-7865 Sudley Road Manassas
89 Sun National Bank Building 3 226 Landis Avenue Vineland
90 Superior Building 3 65-69 Raymond/ 53-55 E Union Pasadena
91 Tanglewood/Wild Pine Apartments 3 72 Amelia-Olive Branch Road & 68 Lawson Drive Amelia
92 Third Street Promenade 3 1241-1249 Third Street Promenade Santa Monica
93 Towson Town Center 3 825 Dulaney Valley Road Towson
- -----------------------------------------------------------------------------------------------------------------------------------
94 Trellis at Lees Mill 6 308 Charles Street Newport News
95 Vintage Kolo 84 3 16980 Valley Boulevard Fontana
96 Walgreens - Gessner/Braeswood 3 8635 South Braeswood Boulevard Houston
97 Washington Park Office Center 3 14 Washington Road West Windsor Township
98 Wendover Ridge 3 4212-4216 West Wendover Road Greensboro
99 Whitehall Apartments 4/30/07 6 1975 Courtland Drive Kent
- -----------------------------------------------------------------------------------------------------------------------------------
TOTALS/WEIGHTED AVERAGES
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NET LOAN PER NET
RENTABLE NUMBER RENTABLE AREA
ID PROPERTY NAME STATE ZIP CODE PROPERTY TYPE YEAR BUILT AREA OF UNITS (SF)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 104/106 Second Avenue NY 10003 Multifamily 1920 29
2 20 Trafalgar Square NH 03063 Office 1988 99,775 $56.90
3 212 Wolcott Street NY 11231 Industrial 1953 289,733 $32.93
4 229 West 28th Street NY 10001 Office 1917 143,500 $57.49
5 24 & 33 Trafalgar Square NH 03063 Office 1996 32,200 $48.39
- -----------------------------------------------------------------------------------------------------------------------------------
6 300 First Avenue MA 02194 Industrial 1953 80,049 $106.68
7 303 South Broadway NY Multiple Office 1980/1960 312,693 $63.48
8 379 West Broadway NY 10012 Office 1853 55,000 $144.14
9 38-34/46 Bell Boulevard NY 11361 Office 1964 12,133 $180.62
10 385 Fifth Avenue NY 10016 Office 1929 101,282 $240.76
- -----------------------------------------------------------------------------------------------------------------------------------
11 401 & 414 Commerce Drive PA 19034 Office 1972 83,500 $100.57
12 4D Technology Center CO 80501 Industrial 1979 279,025 $36.07
13 75 State Street MA 02109 Office 1988 767,096 $241.02
14 9 Old Kings Highway CT 06820 Office 1979 65,731 $72.43
15 99 Tower Garage TN 38103 Parking Garage 1968 55,705 624 $53.36
- -----------------------------------------------------------------------------------------------------------------------------------
16 Arboretum Crossing TX 78759 Anchored Retail 1996 182,010 $109.61
17 Arbour Building CA 91101 Unanchored Retail 1956 26,954 $137.18
18 Arcadia Apartments UT 84604 Multifamily 1964 16
19 Arsenal Mall MA 02172 Anchored Retail 1983 284,855 $122.79
20 Balboa Office Building CA 92123 Office 1989 43,108 $77.65
- -----------------------------------------------------------------------------------------------------------------------------------
21 Bed Bath & Beyond - Braintree MA 02184 Unanchored Retail 1998 35,985 $190.38
22 Bingham I Office Building MI 48025 Office 1973 150,831 $48.96
23 Bingham II Office Building MI 48025 Office 1976 154,375 $52.03
24 Bridgewater Apartments VA 23666 Multifamily 1997 216
25 Broadmoor Village TX 75041 Anchored Retail 1991 62,000 $54.84
- -----------------------------------------------------------------------------------------------------------------------------------
26 Centre Structured Trust 1 Multiple Multiple Credit Lease 28,431 $249.78
26a Store # 140 AL 36111 Credit Lease 1996 7,342
26b Store 467 GA 30243 Credit Lease 1996 5,997
26c Store #26 KN 66209 Credit Lease 1996 7,592
26d Store #38 NC 27511 Credit Lease 1996 7,500
- -----------------------------------------------------------------------------------------------------------------------------------
27 Centre Structured Trust 4 Multiple Multiple Credit Lease 38,279 $267.85
27a Store # 98 CO 80920 Credit Lease 1995 7,281
27b Store 476 GA 30206 Credit Lease 1996 5,997
27c Store 299 IL 62740 Credit Lease 1992 5,693
27d Store 536 LA 71105 Credit Lease 1997 5,893
27e Store 437 MO 64057 Credit Lease 1995 5,997
27f Store #58 NC 27707 Credit Lease 1994 7,328
- -----------------------------------------------------------------------------------------------------------------------------------
28 Centre Structured Trust 8 Multiple Multiple Credit Lease 38,774 $267.95
28a Store #294 GA 30144 Credit Lease 1992 5,693
28b Store #42 IL 60061 Credit Lease 1996 7,852
28c Store #321 IN 46254 Credit Lease 1993 5,693
28d Store #337 KS 66209 Credit Lease 1993 5,693
28e Store #63 LA 71105 Credit Lease 1997 7,846
28f Store #489 TN 38305 Credit Lease 1997 5,997
- -----------------------------------------------------------------------------------------------------------------------------------
29 Chapelwood Apartments OH 45140 Multifamily 1971 134
30 Chippewa Falls WI 54792 Industrial 1997 405,300 $16.93
31 Colonial Terrace Apartments OH 45102 Multifamily 1975 48
32 Continental Park CA 90245 Office 1973 82,305 $200.35
33 Cordata Centre WA 98226 Anchored Retail 1991 174,547 $86.22
- -----------------------------------------------------------------------------------------------------------------------------------
34 Costco Plaza I AZ 85308 Anchored Retail 1988/1994 339,922 $72.81
35 Costco Plaza II VA 22030 Anchored Retail 1986/1993 323,262 $98.95
36 Crossings CA 94509 Anchored Retail 1990 120,668 $94.97
37 Crossroads Shopping Center MA 02019 Anchored Retail 1995 131,556 $81.68
38 CVS (Revco) Drug Store OH 44601 Credit Lease 1997 10,722 $199.50
- -----------------------------------------------------------------------------------------------------------------------------------
39 Debbie's Shopping Center FL 33173 Anchored Retail 1980 19,990 $107.90
40 East Lake Plaza Shopping Center LA 70127 Anchored Retail 1984 241,771 $32.97
41 Eckerd Drug Store FL 32506 Credit Lease 1997 10,908 $154.96
42 Ensenada Square TX 76013 Anchored Retail 1975 62,676 $45.95
- -----------------------------------------------------------------------------------------------------------------------------------
43 G&K Portfolio II CA Multiple Multifamily 1971 546
43a Blossom Hill CA 95123 Multifamily 1974
43b Genesee Park CA 92117 Multifamily 1974
43c Independence Park CA 90230 Multifamily 1974
43d Village Green CA 95124 Multifamily 1974
- -----------------------------------------------------------------------------------------------------------------------------------
44 Georgetown Apartments OH 45429 Multifamily 1965 325
45 Hanover Commons VA 23111 Anchored Retail 1989 70,005 $71.84
46 Henderson Mill GA 30309 Office 1981 73,999 $55.19
47 Heritage Apartments TX 79415 Multifamily 1964 598
48 Hill Tower Apartments PA 19118 Multifamily 1963 240
- -----------------------------------------------------------------------------------------------------------------------------------
49 Holiday Inn - Rock Falls IL 61071 Hotel 1973 120
50 Home Depot Plaza NY 11726 Anchored Retail 1990 163,999 $81.86
51 Hotel Monaco CA 94102 Hotel 1910 201
52 Jack's Center & Plaza Linda I FL 33165 Anchored Retail 43,734 $93.61
52a Jack's Shopping Center FL 33165 Anchored Retail 1952 28,719
52b Plaza Linda 1 Shopping Center FL 33165 Anchored Retail 1979 14,700
- -----------------------------------------------------------------------------------------------------------------------------------
53 Jupiter Plaza FL 33477 Anchored Retail 1980 197,053 $92.22
54 Kenmar Medical Bldg GA 30060 Office 1979 63,500 $73.02
55 Lexington Center MA 02173 Anchored Retail 1930 12,112 $329.76
56 Liberty Hill Apartments OH 44139 Multifamily 1987 204
- -----------------------------------------------------------------------------------------------------------------------------------
57 Lincoln Station - Bixby Land CA 90701 Anchored Retail 1989 91,248 $54.80
58 Lowes Home Improvement TX 77084 Anchored Retail (3) 575,127 $4.69
59 Massapequa Shopping Centers NY 11758 Anchored Retail 1956 160,360 $81.05
59a Holiday Park NY Anchored Retail 1961
59b Calvert Manor NY Anchored Retail 1956
59c US Skates NY Anchored Retail 1962
- -----------------------------------------------------------------------------------------------------------------------------------
60 Midway Plaza FL 33321 Anchored Retail 1987 220,259 $51.31
61 Ming Avenue Retail Center CA 93301 Anchored Retail 1980 50,834 $83.55
62 Nicole's Shopping Center FL 33309 Anchored Retail 1987 20,270 $86.70
63 Oakwood Shopping Center NY 10306 Anchored Retail 1968 79,400 $102.83
- -----------------------------------------------------------------------------------------------------------------------------------
64 Overlook I TN 37027 Office 1988 67,739 $64.82
65 Palm Harbor Shopping Center FL 34683 Anchored Retail 1986 43,384 $72.27
66 Park 'N Fly Plus GA 30337 Parking Garage 1988 2,367 $8,018.24
67 Plaza Linda II Shopping Center FL 33165 Anchored Retail 1980 17,884 $102.74
68 Publix Quail Meadows FL 34478 Anchored Retail 1997 50,812 $75.88
- -----------------------------------------------------------------------------------------------------------------------------------
69 Ramada Inn - East End NY 11901 Hotel 1980 100
70 Restaurant Row NV 89108 Anchored Retail 1997 38,381 $92.97
71 Revlon Building NJ 08818 Industrial 1984 99,260 $128.25
72 Richardson Plaza TX 75080 Anchored Retail 1971/1984 115,579 $58.83
- -----------------------------------------------------------------------------------------------------------------------------------
73 Rite Aid - Hanover Commons VA 23069 Credit Lease 1998 11,288 $152.98
74 Rosehill Suites AZ 85020 Multifamily 1983 92
75 Round Rock Crossing TX 78701 Unanchored Retail 1997 27,224 $95.10
76 Sheffield Apartments NY 10019 Multifamily 1978 680,853 845 $61.46
- -----------------------------------------------------------------------------------------------------------------------------------
77 Sheraton Suites Portfolio Multiple Multiple Hotel 765
77a Sheraton Suites Alexandria VA 22314 Hotel 1985 247
77b Sheraton Suites Columbus OH 43235 Hotel 1991 261
77c Sheraton Suites Kansas City MO 64112 Hotel 1991 257
- -----------------------------------------------------------------------------------------------------------------------------------
78 Shop Rite/Caldor NJ 07753 Anchored Retail 1986 223,971 $71.29
79 Sir Francis Drake Hotel CA 94102 Hotel 1928 417
80 Skyland Town Centre NC 28803 Anchored Retail 1996 56,700 $75.93
81 Smoketown Stations VA 22192 Anchored Retail 1996 481,889 $85.08
82 South Orange Towers NJ 07050 Multifamily 1958 108
- -----------------------------------------------------------------------------------------------------------------------------------
83 Southbury Green CT 06488 Anchored Retail 1997 144,675 $134.50
84 Southgate USA OH 44137 Anchored Retail 1954 796,355 $31.74
85 Southwood Retail Center CA 90505 Unanchored Retail 1954 67,481 $53.20
86 Spring Oaks Plaza NV 89102 Anchored Retail 1980 125,147 $66.19
87 Star Market - Norwood MA 02062 Credit Lease 1970 474,323 $20.91
- -----------------------------------------------------------------------------------------------------------------------------------
88 Sudley Manor Square VA 22110 Anchored Retail 1974 170,026 $35.85
89 Sun National Bank Building NJ 08360 Office 1987 71,007 $84.40
90 Superior Building CA 91103 Office 1907 44,044 $124.63
91 Tanglewood/Wild Pine Apartments OH 45102 Multifamily 1978 208
92 Third Street Promenade CA 90401 Anchored Retail 1949 14,400 $224.96
93 Towson Town Center MD 21204 Anchored Retail 1959 535,769 $261.31
- -----------------------------------------------------------------------------------------------------------------------------------
94 Trellis at Lees Mill VA 23608 Multifamily 1974 176
95 Vintage Kolo 84 CA 91328 Office 1986 24,640 $82.00
96 Walgreens - Gessner/Braeswood TX 77031 Unanchored Retail 1998 13,905 $190.56
97 Washington Park Office Center NJ 08550 Office 1977 90,924 $81.22
98 Wendover Ridge NC 27407 Anchored Retail 1996 41,387 $97.86
99 Whitehall Apartments OH 44240 Multifamily 1968 188
- -----------------------------------------------------------------------------------------------------------------------------------
TOTALS/WEIGHTED AVERAGES
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OCCUPANCY ANNUAL ANNUAL
OCCUPANCY RATE AS OF RESERVES RESERVES PER
ID PROPERTY NAME LOAN PER UNIT RATE DATE PER SF UNIT
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 104/106 Second Avenue $75,608.80 100% 5/21/98 $269.66
2 20 Trafalgar Square 100% 7/15/98 $0.20
3 212 Wolcott Street 100% 4/2/98 $0.20
4 229 West 28th Street 100% 4/13/98 $0.20
5 24 & 33 Trafalgar Square 100% 7/15/98 $0.20
- -------------------------------------------------------------------------------------------------------------
6 300 First Avenue 100% 4/1/98 $0.20
7 303 South Broadway 98% 7/8/98 $0.24
8 379 West Broadway 100% 6/27/97 $0.00
9 38-34/46 Bell Boulevard 100% 5/22/98 $0.18
10 385 Fifth Avenue 100% 6/2/98 $0.19
- -------------------------------------------------------------------------------------------------------------
11 401 & 414 Commerce Drive 100% 7/29/98 $0.15
12 4D Technology Center 100% 7/30/98 $0.15
13 75 State Street 100% 9/15/98 $0.29
14 9 Old Kings Highway 100% 1/31/98 $0.20
15 99 Tower Garage $4,763.15 97% 9/1/97 $0.50 $45.00
- -------------------------------------------------------------------------------------------------------------
16 Arboretum Crossing 97% 7/1/98 $0.16
17 Arbour Building 100% 6/24/98 $0.17
18 Arcadia Apartments $59,803.48 100% 6/24/98 $300.00
19 Arsenal Mall 100% 4/3/98 $0.36
20 Balboa Office Building 100% 4/1/98 $0.20
- -------------------------------------------------------------------------------------------------------------
21 Bed Bath & Beyond - Braintree 100% 9/1/97 $0.15
22 Bingham I Office Building 99% 5/13/98 $0.20
23 Bingham II Office Building 96% 5/13/98 $0.20
24 Bridgewater Apartments $48,148.15 82% 3/13/98 $250.00
25 Broadmoor Village 100% 7/1/98 $0.15
- -------------------------------------------------------------------------------------------------------------
26 Centre Structured Trust 1 $0.00
26a Store # 140 100% 12/31/97 $0.00
26b Store 467 100% 12/31/97 $0.00
26c Store #26 100% 12/31/97 $0.00
26d Store #38 100% 12/31/97 $0.00
- -------------------------------------------------------------------------------------------------------------
27 Centre Structured Trust 4 $0.00
27a Store # 98 100% 12/31/97 $0.00
27b Store 476 100% 12/31/97 $0.00
27c Store 299 100% 12/31/97 $0.00
27d Store 536 100% 12/31/97 $0.00
27e Store 437 100% 12/31/97 $0.00
27f Store #58 100% 12/31/97 $0.00
- -------------------------------------------------------------------------------------------------------------
28 Centre Structured Trust 8 $0.00
28a Store #294 100% 12/31/97 $0.00
28b Store #42 100% 12/31/97 $0.00
28c Store #321 100% 12/31/97 $0.00
28d Store #337 100% 12/31/97 $0.00
28e Store #63 100% 12/31/97 $0.00
28f Store #489 100% 12/31/97 $0.00
- -------------------------------------------------------------------------------------------------------------
29 Chapelwood Apartments $29,546.31 95% 4/1/98 $250.00
30 Chippewa Falls 100% 6/30/98 $0.10
31 Colonial Terrace Apartments $25,362.00 94% 4/16/98 $250.00
32 Continental Park 90% 5/20/98 $0.18
33 Cordata Centre 100% 6/1/98 $0.15
- -------------------------------------------------------------------------------------------------------------
34 Costco Plaza I 100% 7/1/98 $0.22
35 Costco Plaza II 100% 7/1/98 $0.15
36 Crossings 92% 8/3/98 $0.15
37 Crossroads Shopping Center 100% 6/30/98 $0.15
38 CVS (Revco) Drug Store 100% 11/6/97 $0.15
- -------------------------------------------------------------------------------------------------------------
39 Debbie's Shopping Center 100% 5/1/98 $0.15
40 East Lake Plaza Shopping Center 100% 8/13/98 $0.25
41 Eckerd Drug Store 100% 10/6/98 $0.00
42 Ensenada Square 93% 8/3/98 $0.24
- -------------------------------------------------------------------------------------------------------------
43 G&K Portfolio II $57,941.94 $0.00
43a Blossom Hill 99% 6/30/98 0.00
43b Genesee Park 100% 6/30/98 0.00
43c Independence Park 100% 6/30/98 0.00
43d Village Green 100% 6/30/98 0.00
- -------------------------------------------------------------------------------------------------------------
44 Georgetown Apartments $33,793.93 93% 5/31/98 $250.00
45 Hanover Commons 85% 8/6/98 $0.16
46 Henderson Mill 90% 6/25/98 $0.20
47 Heritage Apartments $10,452.61 56% 6/25/98 $250.42
48 Hill Tower Apartments $40,419.35 95% 8/10/98 $285.02
- -------------------------------------------------------------------------------------------------------------
49 Holiday Inn - Rock Falls $34,833.33 70% 6/30/98 $0.00
50 Home Depot Plaza 100% 10/19/98 $0.15
51 Hotel Monaco $173,143.11 84% 4/30/98 $0.00
52 Jack's Center & Plaza Linda I $0.15
52a Jack's Shopping Center 93% 6/1/98 $0.15
52b Plaza Linda 1 Shopping Center 100% 9/1/98 $0.15
- -------------------------------------------------------------------------------------------------------------
53 Jupiter Plaza 88% 6/29/98 $0.00
54 Kenmar Medical Bldg 95% 7/1/98 $0.21
55 Lexington Center 100% 5/10/98 $0.15
56 Liberty Hill Apartments $39,082.77 97% 6/30/98 $250.00
- -------------------------------------------------------------------------------------------------------------
57 Lincoln Station - Bixby Land 96% 7/29/98 $0.19
58 Lowes Home Improvement 100% 6/30/98 $0.00
59 Massapequa Shopping Centers $0.16
59a Holiday Park 96% 8/1/98
59b Calvert Manor 88% 8/1/98
59c US Skates 100% 8/1/98
- -------------------------------------------------------------------------------------------------------------
60 Midway Plaza 86% 7/2/98 $0.20
61 Ming Avenue Retail Center 75% 4/21/98 $0.15
62 Nicole's Shopping Center 92% 5/1/98 $0.15
63 Oakwood Shopping Center 100% 8/5/98 $0.17
- -------------------------------------------------------------------------------------------------------------
64 Overlook I 100% 4/1/98 $0.26
65 Palm Harbor Shopping Center 94% 5/21/98 $0.15
66 Park 'N Fly Plus 70% 4/1/98 $47.70
67 Plaza Linda II Shopping Center 100% 5/1/98 $0.15
68 Publix Quail Meadows 100% 6/30/98 $0.15
- -------------------------------------------------------------------------------------------------------------
69 Ramada Inn - East End $44,024.71 70% 2/27/98 $0.00
70 Restaurant Row 100% 6/1/98 $0.00
71 Revlon Building 100% 9/1/98 $0.21
72 Richardson Plaza 100% 7/1/98 $0.15
- -------------------------------------------------------------------------------------------------------------
73 Rite Aid - Hanover Commons 100% 3/1/98 $0.20
74 Rosehill Suites $21,706.65 97% 8/28/98 $250.00
75 Round Rock Crossing 100% 2/1/98 $0.15
76 Sheffield Apartments $49,521.45 100% 7/1/98 $0.37 $295.86
- -------------------------------------------------------------------------------------------------------------
77 Sheraton Suites Portfolio $74,052.29 $0.00
77a Sheraton Suites Alexandria $69,064.66 70% 8/31/98 $0.00
77b Sheraton Suites Columbus $70,806.71 71% 8/31/98 $0.00
77c Sheraton Suites Kansas City $82,141.93 78% 8/31/98 $0.00
- -------------------------------------------------------------------------------------------------------------
78 Shop Rite/Caldor 100% 8/6/98 $0.15
79 Sir Francis Drake Hotel $79,108.42 85% 12/31/97 $0.00
80 Skyland Town Centre 100% 6/30/98 $0.15
81 Smoketown Stations 96% 7/1/98 $0.19
82 South Orange Towers $40,604.72 96% 5/18/98 $250.00
- -------------------------------------------------------------------------------------------------------------
83 Southbury Green 98% 8/5/98 $0.15
84 Southgate USA 86% 7/10/98 $0.33
85 Southwood Retail Center 100% 3/10/98 $0.23
86 Spring Oaks Plaza 99% 8/1/98 $0.15
87 Star Market - Norwood 100% 3/26/98 $0.00
- -------------------------------------------------------------------------------------------------------------
88 Sudley Manor Square 91% 11/1/97 $0.15
89 Sun National Bank Building 95% 1/12/98 $0.23
90 Superior Building 93% 11/1/97 $0.18
91 Tanglewood/Wild Pine Apartments $24,706.36 90% 4/3/98 $250.00
92 Third Street Promenade 100% 7/24/98 $0.15
93 Towson Town Center 94% 11/1/98 $0.15
- -------------------------------------------------------------------------------------------------------------
94 Trellis at Lees Mill $24,627.51 94% 6/25/98 $250.00
95 Vintage Kolo 84 100% 8/8/98 $0.15
96 Walgreens - Gessner/Braeswood 100% 5/1/98 $0.17
97 Washington Park Office Center 98% 11/1/98 $0.20
98 Wendover Ridge 100% 7/1/98 $0.15
99 Whitehall Apartments $26,146.64 93% 7/1/98 $328.33
- -------------------------------------------------------------------------------------------------------------
TOTALS/WEIGHTED AVERAGES
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
% OF LEASE % OF
ID PROPERTY NAME LARGEST TENANT GLA EXPIRATION 2ND LARGEST TENANT GLA
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 104/106 Second Avenue
2 20 Trafalgar Square Accucare 4/1/01 Asymetrix
3 212 Wolcott Street ATF-1 2/1/06 ATF-2
4 229 West 28th Street Kwik International 26% 2/1/09 Crafton Graphics 19%
5 24 & 33 Trafalgar Square
- -----------------------------------------------------------------------------------------------------------------------------------
6 300 First Avenue
7 303 South Broadway
8 379 West Broadway 379 West Broadway LLC 100% 7/1/46
9 38-34/46 Bell Boulevard TSK Management/Tiger Schulman 29% 10/1/08 Rose Enterprises/Jenny Craig 17%
10 385 Fifth Avenue Callenen (expansion) 11/1/04 Victoria Creations - (expansion)
- -----------------------------------------------------------------------------------------------------------------------------------
11 401 & 414 Commerce Drive
12 4D Technology Center Maxtor 14% 12/31/99 Maxtor 12%
13 75 State Street
14 9 Old Kings Highway Charkit Chemicals 4/1/07 Portfolio Advisors
15 99 Tower Garage
- -----------------------------------------------------------------------------------------------------------------------------------
16 Arboretum Crossing Circuit City 25% 1/31/17 Babies "R" Us 22%
17 Arbour Building
18 Arcadia Apartments
19 Arsenal Mall Ann & Hope 57% 11/30/03 Marshall's 10%
20 Balboa Office Building Spectrum Properties Management 5/1/08 Restaurant Admin.
- -----------------------------------------------------------------------------------------------------------------------------------
21 Bed Bath & Beyond - Braintree Bed, Bath & Beyond 2/1/12
22 Bingham I Office Building Goldin, Deborah C. PhD 3/1/98 Rodney Lockwood & Company
23 Bingham II Office Building Recon Systems, Inc. 5/1/03 Buehler Products
24 Bridgewater Apartments
25 Broadmoor Village Office Depot 40% 9/30/01 Drug Emporium 40%
- -----------------------------------------------------------------------------------------------------------------------------------
26 Centre Structured Trust 1
26a Store # 140
26b Store 467
26c Store #26
26d Store #38
- -----------------------------------------------------------------------------------------------------------------------------------
27 Centre Structured Trust 4
27a Store # 98
27b Store 476
27c Store 299
27d Store 536
27e Store 437
27f Store #58
- -----------------------------------------------------------------------------------------------------------------------------------
28 Centre Structured Trust 8
28a Store #294
28b Store #42
28c Store #321
28d Store #337
28e Store #63
28f Store #489
- -----------------------------------------------------------------------------------------------------------------------------------
29 Chapelwood Apartments
30 Chippewa Falls Slim Fast 37% Warehousing of Wisconsin 63%
31 Colonial Terrace Apartments
32 Continental Park
33 Cordata Centre Bon Home Store 23% 1/31/12 Drug Emporium 16%
- -----------------------------------------------------------------------------------------------------------------------------------
34 Costco Plaza I Costco 33% 10/1/11 Homebase 31%
35 Costco Plaza II Home Depot 39% 3/31/13 Costco 37%
36 Crossings Safeway, Inc. 44% 11/30/10 Rite Aid 26%
37 Crossroads Shopping Center Toys "R" Us 25% 1/31/12 MVP Sports 23%
38 CVS (Revco) Drug Store CVS Drug Store 9/11/17
- -----------------------------------------------------------------------------------------------------------------------------------
39 Debbie's Shopping Center S.E. Food Market 20% 12/31/01 Thai Orchid 18%
40 East Lake Plaza Shopping Center United Artists 14% 11/30/04 Weiner's 10%
41 Eckerd Drug Store Eckerds Drugs 1/1/17
42 Ensenada Square Kroger 63% 1/1/17 Henry S. Miller Realtors 10%
- -----------------------------------------------------------------------------------------------------------------------------------
43 G&K Portfolio II
43a Blossom Hill
43b Genesee Park
43c Independence Park
43d Village Green
- -----------------------------------------------------------------------------------------------------------------------------------
44 Georgetown Apartments
45 Hanover Commons Fantastic Sam's 6/1/02 Sylvan Expansion
46 Henderson Mill Nobel Insurance 10% 2/28/02 Premier Lending 8%
47 Heritage Apartments
48 Hill Tower Apartments
- -----------------------------------------------------------------------------------------------------------------------------------
49 Holiday Inn - Rock Falls
50 Home Depot Plaza Home Depot 68% 1/1/11 Red Lobster 6%
51 Hotel Monaco
52 Jack's Center & Plaza Linda I
52a Jack's Shopping Center Rio Crystal 11% 11/30/02 Joe's Auto Technician 10%
52b Plaza Linda 1 Shopping Center S.W. Lawn Mower 6/1/03 AV Auto Title Loan, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
53 Jupiter Plaza Regal Cinemas 26% 11/1/12 Beall's Dept. Store, Inc. 18%
54 Kenmar Medical Bldg
55 Lexington Center
56 Liberty Hill Apartments
- -----------------------------------------------------------------------------------------------------------------------------------
57 Lincoln Station - Bixby Land
58 Lowes Home Improvement
59 Massapequa Shopping Centers TJX Companies 20% 1/31/01 The Great A&P Tea Co. 15%
59a Holiday Park
59b Calvert Manor
59c US Skates
- -----------------------------------------------------------------------------------------------------------------------------------
60 Midway Plaza Publix 25% 11/3/06 Ross Stores 12%
61 Ming Avenue Retail Center Marshall's 46% 11/30/09 Kids R Us 40%
62 Nicole's Shopping Center T-Zer's Lounge 20% 12/31/98 Liza's Day Care 18%
63 Oakwood Shopping Center Chase Bank 35% 12/31/06 Pathmark Supermarket 31%
- -----------------------------------------------------------------------------------------------------------------------------------
64 Overlook I Fireman's Fund 15% 12/1/00 Fast Food Merchandisers 13%
65 Palm Harbor Shopping Center Party City 19% 6/30/99 Hunan King 8%
66 Park 'N Fly Plus
67 Plaza Linda II Shopping Center CAC/United Healthcare 63% 4/30/00 Fantasy Lighting 32%
68 Publix Quail Meadows Publix 75% 7/1/17 Drummond Video 5%
- -----------------------------------------------------------------------------------------------------------------------------------
69 Ramada Inn - East End
70 Restaurant Row Sears 30% 2/28/18 Nevada State Bank 26%
71 Revlon Building
72 Richardson Plaza Office Max 27% 11/1/11 Bally Total Fitness 25%
- -----------------------------------------------------------------------------------------------------------------------------------
73 Rite Aid - Hanover Commons Rite Aid 5/15/18
74 Rosehill Suites
75 Round Rock Crossing Columbia/St. David's 27% 2/1/08 Deli Management, Inc. 17%
76 Sheffield Apartments
- -----------------------------------------------------------------------------------------------------------------------------------
77 Sheraton Suites Portfolio
77a Sheraton Suites Alexandria
77b Sheraton Suites Columbus
77c Sheraton Suites Kansas City
- -----------------------------------------------------------------------------------------------------------------------------------
78 Shop Rite/Caldor
79 Sir Francis Drake Hotel
80 Skyland Town Centre Food Lion 67% 12/31/16 Pet Supplies Plus 14%
81 Smoketown Stations Lowes Home Center 22% 7/31/12 Shoppers Food 13%
82 South Orange Towers
- -----------------------------------------------------------------------------------------------------------------------------------
83 Southbury Green Grand Union 34% 8/1/22 Staples 17%
84 Southgate USA Home Depot 14% 1/31/24 Cuyahoga County 6%
85 Southwood Retail Center Revel's Bakery 8/1/02 Cookin Stuff
86 Spring Oaks Plaza Lucky's 11/1/12 MacFrugal's 19%
87 Star Market - Norwood
- -----------------------------------------------------------------------------------------------------------------------------------
88 Sudley Manor Square K-Mart 56% 9/30/98 Hollywood Video 4%
89 Sun National Bank Building
90 Superior Building Health Integration 3/1/99 Hensiek & Caron
91 Tanglewood/Wild Pine Apartments
92 Third Street Promenade Charly Temmel 27% 1/31/06 Nana 21%
93 Towson Town Center The Limited, Inc. (2) (2) (2) Bally Total Fitness 4%
- -----------------------------------------------------------------------------------------------------------------------------------
94 Trellis at Lees Mill
95 Vintage Kolo 84 Kaiser Permanente 53% 8/27/01 Arby's 14%
96 Walgreens - Gessner/Braeswood Walgreens 7/1/57
97 Washington Park Office Center Independ. Assoc. Pub. 6/1/02 Kelter & Gilligo, PC
98 Wendover Ridge Staples 58% 3/31/11 David's Bridal 27%
99 Whitehall Apartments
- -----------------------------------------------------------------------------------------------------------------------------------
TOTALS/WEIGHTED AVERAGES
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LEASE BORROWER
ID PROPERTY NAME EXPIRATION AFFILIATION
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
1 104/106 Second Avenue Farangis
2 20 Trafalgar Square 12/1/00 Tamposi
3 212 Wolcott Street 2/1/06
4 229 West 28th Street 2/1/09
5 24 & 33 Trafalgar Square Tamposi
- -------------------------------------------------------------------------------
6 300 First Avenue
7 303 South Broadway
8 379 West Broadway
9 38-34/46 Bell Boulevard
10 385 Fifth Avenue 4/1/16
- -------------------------------------------------------------------------------
11 401 & 414 Commerce Drive
12 4D Technology Center 12/31/00
13 75 State Street
14 9 Old Kings Highway
15 99 Tower Garage
- -------------------------------------------------------------------------------
16 Arboretum Crossing 1/31/12 Kimco
17 Arbour Building
18 Arcadia Apartments
19 Arsenal Mall 1/31/99
20 Balboa Office Building 5/1/08
- -------------------------------------------------------------------------------
21 Bed Bath & Beyond - Braintree
22 Bingham I Office Building 3/1/98 Burton
23 Bingham II Office Building 3/1/98 Burton
24 Bridgewater Apartments
25 Broadmoor Village 9/30/06 Kimco
- -------------------------------------------------------------------------------
26 Centre Structured Trust 1 Brinker
26a Store # 140
26b Store 467
26c Store #26
26d Store #38
- -------------------------------------------------------------------------------
27 Centre Structured Trust 4 Brinker
27a Store # 98
27b Store 476
27c Store 299
27d Store 536
27e Store 437
27f Store #58
- -------------------------------------------------------------------------------
28 Centre Structured Trust 8 Brinker
28a Store #294
28b Store #42
28c Store #321
28d Store #337
28e Store #63
28f Store #489
- -------------------------------------------------------------------------------
29 Chapelwood Apartments Johnson
30 Chippewa Falls
31 Colonial Terrace Apartments Johnson
32 Continental Park
33 Cordata Centre 11/15/06 Kimco
- -------------------------------------------------------------------------------
34 Costco Plaza I 8/1/08 Kimco
35 Costco Plaza II 9/1/11 Kimco
36 Crossings 1/31/16 Adar
37 Crossroads Shopping Center 9/9/12 Weiner
38 CVS (Revco) Drug Store Grisbaum
- -------------------------------------------------------------------------------
39 Debbie's Shopping Center 12/31/02 Glottmann
40 East Lake Plaza Shopping Center 1/31/09
41 Eckerd Drug Store Grisbaum
42 Ensenada Square 12/31/02 Adar
- -------------------------------------------------------------------------------
43 G&K Portfolio II
43a Blossom Hill
43b Genesee Park
43c Independence Park
43d Village Green
- -------------------------------------------------------------------------------
44 Georgetown Apartments
45 Hanover Commons 10/1/02 Menin
46 Henderson Mill 9/30/99 Sterling
47 Heritage Apartments
48 Hill Tower Apartments
- -------------------------------------------------------------------------------
49 Holiday Inn - Rock Falls
50 Home Depot Plaza 3/1/07 Kimco
51 Hotel Monaco Kimpton
52 Jack's Center & Plaza Linda I Glottmann
52a Jack's Shopping Center 4/30/97
52b Plaza Linda 1 Shopping Center 5/1/98
- -------------------------------------------------------------------------------
53 Jupiter Plaza 4/30/07 Menin
54 Kenmar Medical Bldg
55 Lexington Center
56 Liberty Hill Apartments Forest City
- -------------------------------------------------------------------------------
57 Lincoln Station - Bixby Land
58 Lowes Home Improvement
59 Massapequa Shopping Centers 2/29/96 Rose
59a Holiday Park
59b Calvert Manor
59c US Skates
- -------------------------------------------------------------------------------
60 Midway Plaza 1/31/98 Sterling
61 Ming Avenue Retail Center 1/31/16 Adar
62 Nicole's Shopping Center 2/1/99 Glottmann
63 Oakwood Shopping Center 11/30/99 Rose
- -------------------------------------------------------------------------------
64 Overlook I 7/1/02
65 Palm Harbor Shopping Center 10/15/02 Glottmann
66 Park 'N Fly Plus
67 Plaza Linda II Shopping Center 12/31/02 Glottmann
68 Publix Quail Meadows 7/1/00 Grisbaum
- -------------------------------------------------------------------------------
69 Ramada Inn - East End
70 Restaurant Row 2/28/18
71 Revlon Building
72 Richardson Plaza 7/1/09 Kimco
- -------------------------------------------------------------------------------
73 Rite Aid - Hanover Commons Menin
74 Rosehill Suites
75 Round Rock Crossing 11/1/07
76 Sheffield Apartments
- -------------------------------------------------------------------------------
77 Sheraton Suites Portfolio
77a Sheraton Suites Alexandria
77b Sheraton Suites Columbus
77c Sheraton Suites Kansas City
- -------------------------------------------------------------------------------
78 Shop Rite/Caldor
79 Sir Francis Drake Hotel Kimpton
80 Skyland Town Centre 1/31/02 Grisbaum
81 Smoketown Stations 1/28/09 Kimco
82 South Orange Towers Farangis
- -------------------------------------------------------------------------------
83 Southbury Green 8/1/12
84 Southgate USA 8/31/02 Forest City
85 Southwood Retail Center 8/1/02
86 Spring Oaks Plaza 11/1/07 Adar
87 Star Market - Norwood Weiner
- -------------------------------------------------------------------------------
88 Sudley Manor Square 7/31/08
89 Sun National Bank Building
90 Superior Building 2/1/00
91 Tanglewood/Wild Pine Apartments Johnson
92 Third Street Promenade 5/31/07 Lundin
93 Towson Town Center 9/30/00
- -------------------------------------------------------------------------------
94 Trellis at Lees Mill Forest City
95 Vintage Kolo 84 12/1/10 Lundin
96 Walgreens - Gessner/Braeswood
97 Washington Park Office Center 4/1/02
98 Wendover Ridge 4/1/06 Kimco
99 Whitehall Apartments Forest City
- -------------------------------------------------------------------------------
TOTALS/WEIGHTED AVERAGES
</TABLE>
<PAGE>
PROSPECTUS
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
(DEPOSITOR)
----------------
The mortgage pass-through certificates (the "Offered Certificates")
offered hereby and by the supplements hereto (each, a "Prospectus Supplement")
will be offered from time to time in series. The Offered Certificates of 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 various types of
multifamily or commercial mortgage loans, or a combination of Mortgage Loans
and MBS (collectively, "Mortgage Assets"). If so specified in the related
Prospectus Supplement, a material portion of the Mortgage Loans in any Mortgage
Asset Pool will be secured by hotel/motel properties. 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".
SEE "RISK FACTORS" BEGINNING ON PAGE 17 OF THIS PROSPECTUS FOR CERTAIN
FACTORS TO BE CONSIDERED IN PURCHASING THE OFFERED CERTIFICATES.
(cover continued on next page)
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------
The Offered Certificates of any series may be offered through one or more
different methods, including offerings through underwriters, which may include
Chase Securities 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 October 28, 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 Trust Fund or a designated portion thereof as
a "real estate mortgage investment conduit" (a "REMIC") for federal income tax
purposes. See "Certain Federal Income Tax Consequences".
2
<PAGE>
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement relating
to each series of Offered Certificates will, among other things, set forth, as
and to the extent appropriate: (i) a description of the class or classes of
such Offered Certificates, including the payment provisions with respect to
each such class, the aggregate principal amount of each such class (the
"Certificate Balance"), the rate at which interest accrues from time to time,
if at all, with respect to each such class (the "Pass-Through Rate") or the
method of determining such rate, and whether interest with respect to each such
class will accrue from time to time on its aggregate principal amount or a
specified notional amount, if at all; (ii) information with respect to any
other classes of Certificates of the same series; (iii) the respective dates on
which distributions are to be made; (iv) information as to the assets
constituting the related Trust Fund, including the general characteristics of
the assets included therein, including the Mortgage Assets and any Credit
Support and Cash Flow Agreements (with respect to the Certificates of any
series, the "Trust Assets"); (v) the circumstances, if any, under which the
related Trust Fund may be subject to early termination; (vi) additional
information with respect to the method of distribution of such Offered
Certificates; (vii) 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
3
<PAGE>
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 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 270 Park Avenue, New York, New
York 10017-2070, Attention: President, or by telephone at (212) 834-5588. 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 ...................................................... 3
AVAILABLE INFORMATION ...................................................... 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE .......................... 4
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
Risks Associated with Certain Mortgage Loans and Mortgaged Properties ..... 19
Balloon Payments; Borrower Default ........................................ 21
Credit Support Limitations ................................................ 22
Leases and Rents .......................................................... 22
Environmental Risks ....................................................... 22
Special Hazard Losses ..................................................... 23
Certain ERISA Considerations .............................................. 23
Certain Federal Tax Considerations Regarding Residual Certificates ........ 23
Certain Federal Tax Considerations Regarding Original Issue Discount ...... 24
Book-Entry Registration ................................................... 24
Delinquent and Non-Performing Mortgage Loans .............................. 24
DESCRIPTION OF THE TRUST FUNDS ............................................. 25
General ................................................................... 25
Mortgage Loans ............................................................ 25
General .................................................................. 25
Default and Loss Considerations with Respect to the Mortgage Loans ....... 25
Payment Provisions of the Mortgage Loans ................................. 27
Mortgage Loan Information in Prospectus Supplements ...................... 27
MBS ....................................................................... 28
Certificate Accounts ...................................................... 29
Credit Support ............................................................ 29
Cash Flow Agreements ...................................................... 29
YIELD AND MATURITY CONSIDERATIONS .......................................... 30
General ................................................................... 30
Pass-Through Rate ......................................................... 30
Payment Delays ............................................................ 30
Certain Shortfalls in Collections of Interest ............................. 30
Yield and Prepayment Considerations ....................................... 31
Weighted Average Life and Maturity ........................................ 32
Controlled Amortization Classes and Companion Classes ..................... 33
Other Factors Affecting Yield, Weighted Average Life and Maturity ......... 34
Balloon Payments; Extensions of Maturity ................................. 34
Negative Amortization .................................................... 34
Foreclosures and Payment Plans ........................................... 35
Losses and Shortfalls on the Mortgage Assets ............................. 35
Additional Certificate Amortization ...................................... 35
Optional Early Termination ............................................... 35
THE DEPOSITOR .............................................................. 36
USE OF PROCEEDS ............................................................ 36
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
DESCRIPTION OF THE CERTIFICATES ......................................................... 37
General ................................................................................ 37
Distributions .......................................................................... 37
Distributions of Interest on the Certificates .......................................... 38
Distributions of Principal on the Certificates ......................................... 39
Distributions on the Certificates in Respect of Prepayment Premiums or in Respect of
Equity Participations ................................................................. 39
Allocation of Losses and Shortfalls .................................................... 39
Advances in Respect of Delinquencies ................................................... 40
Reports to Certificateholders .......................................................... 40
Voting Rights .......................................................................... 42
Termination ............................................................................ 42
Book-Entry Registration and Definitive Certificates .................................... 43
DESCRIPTION OF THE POOLING AGREEMENTS ................................................... 44
General ................................................................................ 44
Assignment of Mortgage Loans; Repurchases .............................................. 45
Representations and Warranties; Repurchases ............................................ 46
Collection and Other Servicing Procedures .............................................. 46
Sub-Servicers .......................................................................... 47
Special Servicers ...................................................................... 47
Certificate Account .................................................................... 47
General ............................................................................... 47
Deposits .............................................................................. 48
Withdrawals ........................................................................... 49
Modifications, Waivers and Amendments of Mortgage Loans ................................ 50
Realization Upon Defaulted Mortgage Loans .............................................. 51
Hazard Insurance Policies .............................................................. 52
Due-on-Sale and Due-on-Encumbrance Provisions .......................................... 53
Servicing Compensation and Payment of Expenses ......................................... 53
Evidence as to Compliance .............................................................. 54
Certain Matters Regarding the Master Servicer and the Depositor ........................ 54
Events of Default ...................................................................... 55
Rights Upon Event of Default ........................................................... 56
Amendment .............................................................................. 56
List of Certificateholders ............................................................. 57
The Trustee ............................................................................ 57
Duties of the Trustee .................................................................. 57
Certain Matters Regarding the Trustee .................................................. 57
Resignation and Removal of the Trustee ................................................. 58
DESCRIPTION OF CREDIT SUPPORT ........................................................... 59
General ................................................................................ 59
Subordinate Certificates ............................................................... 59
Cross-Support Provisions ............................................................... 59
Insurance or Guarantees with Respect to Mortgage Loans ................................. 59
Letter of Credit ....................................................................... 60
Certificate Insurance and Surety Bonds ................................................. 60
Reserve Funds .......................................................................... 60
Credit Support with respect to MBS ..................................................... 61
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS ................................................. 61
General ................................................................................ 61
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Types of Mortgage Instruments .......................................................... 61
Leases and Rents ....................................................................... 61
Personalty ............................................................................. 62
Foreclosure ............................................................................ 62
General ............................................................................... 62
Judicial Foreclosure .................................................................. 62
Equitable Limitations on Enforceability of Certain Provisions ......................... 62
Non-Judicial Foreclosure/Power of Sale ................................................ 63
Public Sale ........................................................................... 63
Rights of Redemption .................................................................. 64
Anti-Deficiency Legislation ........................................................... 64
Leasehold Risks ....................................................................... 65
Cooperative Shares .................................................................... 65
Bankruptcy Laws ........................................................................ 65
Environmental Risks .................................................................... 68
Due-on-Sale and Due-on-Encumbrance ..................................................... 69
Subordinate Financing .................................................................. 69
Default Interest and Limitations on Prepayments ........................................ 70
Applicability of Usury Laws ............................................................ 70
Soldiers' and Sailors' Civil Relief Act of 1940 ........................................ 70
Type of Mortgaged Property ............................................................. 71
Americans with Disability Act .......................................................... 71
Forfeitures In Drug And RICO Proceedings ............................................... 71
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ................................................. 73
Federal Income Tax Consequences for REMIC Certificates ................................. 73
General .............................................................................. 73
Status of REMIC Certificates .......................................................... 73
Qualification as a REMIC .............................................................. 74
Taxation of Regular Certificates ....................................................... 76
General ............................................................................... 76
Original Issue Discount ............................................................... 76
Acquisition Premium ................................................................... 78
Variable Rate Regular Certificates .................................................... 78
Market Discount ....................................................................... 80
Premium ............................................................................... 80
Election to Treat All Interest Under the Constant Yield Method ........................ 80
Sale or Exchange of Regular Certificates .............................................. 80
Treatment of Losses ................................................................... 82
Taxation of Residual Certificates ...................................................... 82
Taxation of REMIC Income .............................................................. 82
Basis and Losses ...................................................................... 83
Treatment of Certain Items of REMIC Income and Expense ................................ 84
Limitations on Offset or Exemption of REMIC Income .................................... 85
Tax-Related Restrictions on Transfer of Residual Certificates ......................... 86
Sale or Exchange of a Residual Certificate ............................................ 88
Mark to Market Regulations ............................................................ 89
Taxes That May Be Imposed on the REMIC Pool ............................................ 89
Prohibited Transactions ............................................................... 89
Contributions to the REMIC Pool After the Startup Day ................................. 89
Net Income from Foreclosure Property .................................................. 90
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Liquidation of the REMIC Pool ............................................... 90
Administrative Matters ...................................................... 90
Limitations on Deduction of Certain Expenses ................................ 90
Taxation of Certain Foreign Investors ....................................... 91
Regular Certificates ....................................................... 91
Residual Certificates ...................................................... 92
Backup Withholding .......................................................... 92
Reporting Requirements ...................................................... 92
Federal Income Tax Consequences For Certificates as to Which No REMIC Election
Is Made .................................................................... 94
Standard Certificates ....................................................... 94
General .................................................................... 94
Tax Status ................................................................. 94
Premium and Discount ....................................................... 95
Recharacterization of Servicing Fees ....................................... 95
Sale or Exchange of Standard Certificates .................................. 96
Stripped Certificates ....................................................... 97
General .................................................................... 97
Status of Stripped Certificates ............................................ 98
Taxation of Stripped Certificates .......................................... 98
Reporting Requirements and Backup Withholding ............................... 99
Taxation of Certain Foreign Investors ....................................... 100
STATE AND OTHER TAX CONSIDERATIONS ........................................... 100
CERTAIN ERISA CONSIDERATIONS ................................................. 100
General ..................................................................... 100
Plan Asset Regulations ...................................................... 101
Administrative Exemptions ................................................... 101
Insurance Company General Accounts .......................................... 102
Unrelated Business Taxable Income; Residual Certificates .................... 102
LEGAL INVESTMENT ............................................................. 103
METHOD OF DISTRIBUTION ....................................................... 105
LEGAL MATTERS ................................................................ 106
FINANCIAL INFORMATION ........................................................ 106
RATING ....................................................................... 106
INDEX OF PRINCIPAL DEFINITIONS ............................................... 107
</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................... Chase Commercial Mortgage Securities Corp., a
wholly-owned subsidiary of The Chase Manhattan
Bank, a New York banking corporation. On July 14,
1996, The Chase Manhattan Bank (National
Association) was merged with and into Chemical
Bank and Chemical Bank then changed its name to
The Chase Manhattan Bank. 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 (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 (ii) office
buildings, shopping centers, retail stores and
establishments, hotels or motels, nursing homes,
hospitals or other health-care related
facilities, mobile home parks, warehouse
facilities, mini-warehouse facilities,
self-storage facilities, industrial plants,
parking lots, mixed
9
<PAGE>
use or various other types of income-producing
properties described in this Prospectus or
unimproved land (the "Commercial Properties").
If so specified in the related Prospectus
Supplement, a Trust Fund may include Mortgage
Loans secured by liens on real estate projects
under construction. The Mortgage Loans will not
be guaranteed or insured by the 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
participations, mortgage pass-through
certificates or other mortgage-backed securities
or (ii) certificates insured or guaranteed by
the Federal Home Loan Mortgage Corporation
("FHLMC"), the Federal National Mortgage
Association ("FNMA"), the Governmental National
Mortgage Association ("GNMA") or the Federal
Agricultural Mortgage Corporation ("FAMC")
(collectively, the mortgage-backed securities
referred to in clauses (i) and (ii), "MBS"),
provided that each
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MBS will evidence an interest in, or will be
secured by a pledge of, one or more mortgage
loans that conform to the descriptions of the
Mortgage Loans contained herein. See
"Description of the Trust Funds--MBS".
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
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relating to the termination thereof, will be
described in the Prospectus Supplement for the
related series. In addition, the related
Prospectus Supplement will contain certain
information that pertains to the obligor under
any such Cash Flow Agreement. See "Description
of the Trust Funds--Cash Flow Agreements".
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, Notional Amount
and/or
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Pass-Through Rate (or, in the case of a variable
or 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
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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
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 may be entitled to receive interest
thereon for the period that such advances are
outstanding, payable from amounts in the related
Trust Fund. See "Description of the
Certificates--Advances in Respect of
Delinquencies". If a Trust Fund includes MBS, any
comparable advancing obligation of a party to the
related Pooling Agreement, or of a party to the
related MBS Agreement, will be described in the
related Prospectus Supplement.
TERMINATION................. If so specified in the related Prospectus
Supplement, a series of Certificates may be
subject to optional early termination through
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the repurchase of the Mortgage Assets in the
related Trust Fund by the party or parties
specified therein, under the circumstances and
in the manner set forth therein. If so provided
in the related Prospectus Supplement, upon the
reduction of the Certificate Balance of a
specified class or classes of Certificates by a
specified percentage or amount, a party
specified therein may be authorized or required
to solicit bids for the purchase of all of the
Mortgage Assets of the related Trust Fund, or of
a sufficient portion of such Mortgage Assets to
retire such class or classes, under the
circumstances and in the manner set forth
therein. See "Description of the
Certificates--Termination".
REGISTRATION OF BOOK-ENTRY
CERTIFICATES............... If so provided in the related Prospectus
Supplement, one or more classes of the Offered
Certificates of any series will be offered in
book-entry format (collectively, "Book-Entry
Certificates") through the facilities of The
Depository Trust Company ("DTC"). Each class of
Book-Entry Certificates will be initially
represented by one or more Certificates
registered in the name of a nominee of DTC. No
person acquiring an interest in a class of
Book-Entry Certificates (a "Certificate Owner")
will be entitled to receive 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".
CERTAIN ERISA
CONSIDERATIONS.............. Fiduciaries of employee benefit plans and certain
other retirement plans and arrangements,
including individual retirement accounts,
annuities, Keogh plans, and collective investment
funds and 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 or holding of
Offered Certificates could give rise to a
transaction that is prohibited or is not
otherwise permissible either under ERISA or
Section 4975 of the Code. See "Certain ERISA
Considerations" herein and in the related
Prospectus Supplement.
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LEGAL INVESTMENT............ The Offered Certificates will constitute
"mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of
1984, as amended ("SMMEA"), only if so specified
in the related Prospectus Supplement. Investors
whose investment authority is subject to legal
restrictions should consult their own legal
advisors to determine whether and to what extent
the Offered Certificates constitute legal
investments for them. See "Legal Investment"
herein and in the related Prospectus Supplement.
RATING...................... At their respective dates of issuance, each
class of Offered Certificates will be rated not
lower than investment grade by one or more
nationally recognized statistical rating agencies
(each, a "Rating Agency"). See "Rating" herein
and in the related Prospectus Supplement.
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<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
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<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".
RISKS ASSOCIATED WITH CERTAIN MORTGAGE LOANS AND MORTGAGED PROPERTIES
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 or
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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, hotel room 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 a Master
Servicer.
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.
The economic performance of Mortgage Loans that are secured by full
service hotels, limited service hotels, hotels associated with national
franchise chains, hotels associated with regional franchise chains and hotels
that are not affiliated with any franchise chain but may have their own brand
identity (each, a "Hotel Property") are affected by various factors, including
location, quality and franchise affiliation. Adverse economic conditions,
either local, regional or national, may limit the amount that can be charged
for a room and may result in a reduction in occupancy levels. The construction
of competing hotels can have similar effects. To meet competition in the
industry and to maintain economic values, continuing expenditures must be made
for modernizing, refurbishing, and maintaining existing facilities prior to the
expiration of their anticipated useful lives. Because hotel rooms generally are
rented for short periods of time, hotels tend to respond more quickly to
adverse economic conditions and competition than do other commercial
properties. Furthermore, the financial strength and capabilities of the owner
and operator of a hotel may have and impact on such hotel's quality of service
and economic performance. Additionally, the hotel and lodging industry is
generally seasonal in nature and this seasonality can be expected to cause
periodic fluctuations in room and other revenues, occupancy levels, room rates
and operating expenses. The demand for particular accommodations may also be
affected by changes in travel patterns caused by changes in energy prices,
strikes, relocation of highways, the construction of additional highways and
other factors.
The viability of any Hotel Property which is the franchisee of a national
or regional chain depends in part on the continued existence and financial
strength of the franchisor, the public perception of the franchise service mark
and the duration of the franchise licensing agreements. The transferability of
franchise license agreements may be restricted and, in the event of a
foreclosure on any such Hotel
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Property, such property would not have the right to use the franchise license
without the franchisor's consent. Conversely, a lender may be unable to remove
a franchisor that it desires to replace following a foreclosure. Further, in
the event of a foreclosure on a Hotel Property, it is unlikely that the Trustee
(or Servicer or Special Servicer) or purchaser of such Hotel Property may be
entitled to the rights under any liquor license for such Hotel Property and
such party would be required to apply in its own right for such license or
licenses. There can be no assurance that a new license could be obtained or
that it could be obtained promptly.
Other multifamily properties, hotels, retail properties, office buildings,
mobile home parks, nursing homes and self-storage facilities located in the
areas of 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 Mortgage Loan 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".
Further, the concentration of default, foreclosure and loss risks in
individual Mortgage Loans in a particular Trust Fund will generally be greater
than for pools of single-family loans because Mortgage Loans in a Trust Fund
will generally consist of a smaller number of higher balance loans than would a
pool of single-family loans of comparable aggregate unpaid principal balance.
BALLOON PAYMENTS; BORROWER DEFAULT
Certain of the Mortgage Loans included in a Trust Fund may 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 a 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,
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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 a form of Credit Support covers more than one series of
Certificates, holders of Certificates of one series will be subject to the risk
that such Credit Support will be exhausted by the claims of the holders of
Certificates of one or more other series.
The amount of any applicable Credit Support supporting one or more classes
of Offered Certificates, including the subordination of one or more classes of
Certificates, will be determined on the basis of criteria established by each
Rating Agency rating such classes of Certificates 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
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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.
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".
CERTAIN ERISA CONSIDERATIONS
Generally, ERISA applies to investments made by employee benefit plans and
transactions involving the assets of such plans. Due to the complexity of
regulations that govern such plans, prospective investors that are subject to
ERISA are urged to consult their own counsel regarding consequences under ERISA
of acquisition, ownership and disposition of the Offered Certificates of any
series. See "Certain 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
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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.
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 AND NON-PERFORMING MORTGAGE LOANS
If so provided in the related Prospectus Supplement, the Trust Fund for a
particular series of Certificates may include Mortgage Loans that are past due
or are non-performing. If so specified in the related Prospectus Supplement,
the servicing of such Mortgage Loans may be performed by a Special Servicer.
Credit Support provided with respect to a particular series of Certificates may
not cover all losses related to such delinquent or non-performing Mortgage
Loans, and investors should consider the risk that the inclusion of such
Mortgage Loans in the Trust Fund may adversely affect the rate of defaults and
prepayments on the Mortgage Assets in such Trust Fund and the yield on the
Offered Certificates of such series. See "Description of the Trust
Funds--Mortgage Loans--General".
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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 (the "Mortgage Loans"), (ii) mortgage
participations, pass-through certificates or other mortgage-backed securities
("MBS") that evidence interests in, or that are secured by pledges of, one or
more of various types of multifamily or commercial mortgage loans or (iii) a
combination of Mortgage Loans and MBS (collectively, "Mortgage Assets"). Each
Trust Fund will be established by Chase Commercial Mortgage Securities Corp.
(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 (the
"Mortgage Notes") secured by mortgages, deeds of trust or similar security
instruments (the "Mortgages") that create liens on fee or leasehold estates in
properties (the "Mortgaged Properties") consisting of (i) residential
properties consisting of five or more rental or cooperatively-owned dwelling
units in high-rise, mid-rise or garden apartment buildings or other residential
structures ("Multifamily Properties") or (ii) office buildings, retail stores
and establishments, hotels or motels, nursing homes, assisted living
facilities, continuum care facilities, day care centers, schools, hospitals or
other healthcare related facilities, mobile home parks, warehouse facilities,
mini-warehouse facilities, self-storage facilities, distribution centers,
transportation centers, industrial plants, parking facilities, entertainment
and/or recreation facilities, mixed use properties and/or unimproved land
("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. 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, the Mortgage Assets for a particular series of
Certificates may include Mortgage Loans that are delinquent or non-performing
as of the date such Certificates are issued. In that case, the related
Prospectus Supplement will set forth, as to each such Mortgage Loan, available
information as to the period of such delinquency or non-performance, any
forbearance arrangement then in effect, the condition of the related Mortgaged
Property and the ability of the Mortgaged Property to generate income to
service the mortgage debt.
Default and Loss Considerations with Respect to the Mortgage Loans.
Mortgage loans secured by liens on income-producing properties are
substantially different from loans made on the security of owner-occupied
single-family homes. The repayment of a loan secured by a lien on an
income-producing property is typically dependent upon the successful operation
of such property (that is, its ability to generate income). Moreover, some or
all of the Mortgage Loans included in a particular Trust Fund may
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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 area
economy. 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 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
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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
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
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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
participations, 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
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appropriate under the circumstances, such other information in respect of the
underlying mortgage loans described under "--Mortgage Loans--Mortgage Loan
Information in Prospectus Supplements", and (x) the characteristics of any cash
flow agreements that relate to the MBS.
CERTIFICATE ACCOUNTS
Each Trust Fund will include one or more accounts (collectively, the
"Certificate Account") established and maintained on behalf of the
Certificateholders into which the person or persons designated in the related
Prospectus Supplement will, to the extent 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, such as letters of credit, overcollateralization, insurance policies,
guarantees, surety bonds or reserve funds, 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, will be
described in the Prospectus Supplement for a series of Certificates.
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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 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 shortfalls will be allocated among the classes of such
Certificates. If so specified in the Prospectus Supplement for
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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 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.
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
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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.
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
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in each month thereafter until the thirtieth month. Beginning in the thirtieth
month, and in each month thereafter during the life of the loans, 100% of SPA
assumes a constant prepayment rate of 6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption purports
to be a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any particular pool of loans. Moreover, the
CPR and SPA models were developed based upon historical prepayment experience
for single-family loans. Thus, it is unlikely that the prepayment experience of
the Mortgage Loans included in any Trust Fund will conform to any particular
level of CPR or SPA.
The Prospectus Supplement with respect to each series of Certificates will
contain tables, if applicable, setting forth the projected weighted average
life of each class of Offered Certificates of such series and the percentage of
the initial Certificate Balance of each such class that would be outstanding on
specified Distribution Dates based on the assumptions stated in such Prospectus
Supplement, including assumptions that prepayments on the related Mortgage
Loans are made at rates corresponding to various percentages of CPR or SPA, or
at such other rates specified in such Prospectus Supplement. Such tables and
assumptions will illustrate the sensitivity of the weighted average lives of
the Certificates to various assumed prepayment rates and will not be intended
to predict, or to provide information that will enable investors to predict,
the actual weighted average lives of the Certificates.
CONTROLLED AMORTIZATION CLASSES AND COMPANION CLASSES
A series of Certificates may include one or more Controlled Amortization
Classes, 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
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the holders thereof to a disproportionately large share of the prepayments on
the Mortgage Loans in the related Trust Fund enhances the risk of early
retirement of such class ("call risk") if the rate of prepayment is relatively
fast; while a class of Certificates that entitles the holders thereof to a
disproportionately small share of the prepayments on the Mortgage Loans in the
related Trust Fund enhances the risk of an extended average life of such class
("extension risk") if the rate of prepayment is relatively slow. Thus, as and
to the extent described in the related Prospectus Supplement, a Companion Class
absorbs some (but not all) of the "call risk" and/or "extension risk" that
would otherwise belong to the related Controlled Amortization Class if all
payments of principal of the Mortgage Loans in the related Trust Fund were
allocated on a pro rata basis.
OTHER FACTORS AFFECTING YIELD, WEIGHTED AVERAGE LIFE AND MATURITY
Balloon Payments; Extensions of Maturity. Some or all of the Mortgage
Loans included in a particular Trust Fund may require that balloon payments be
made at maturity. Because the ability of a borrower to make a balloon payment
typically will depend upon its ability either to refinance the loan or to sell
the related Mortgaged Property, there is a risk that Mortgage Loans that
require balloon payments may default at maturity, or that the maturity of such
a Mortgage Loan may be extended in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things,
bankruptcy of the borrower or adverse conditions in the market where the
property is located. In order to minimize losses on defaulted Mortgage Loans,
the Master Servicer 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. Accordingly, 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
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such Offered Certificate was purchased at a premium or a discount and (ii) the
extent to which the payment characteristics of such Mortgage Loans delay or
accelerate the distributions of principal on such Certificate (or, in the case
of a Stripped Interest Certificate, delay or accelerate the amortization of the
notional amount thereof). See "--Yield and Prepayment Considerations" above.
Foreclosures and Payment Plans. The number of foreclosures and the
principal amount of the Mortgage Loans that are foreclosed in relation to the
number and principal amount of Mortgage Loans that are repaid in accordance
with their terms will affect the weighted average lives of those Mortgage Loans
and, accordingly, the weighted average lives of and yields on the Certificates
of the related series. Servicing decisions made with respect to the Mortgage
Loans, including the use of payment plans prior to a demand for acceleration
and the restructuring of Mortgage Loans in bankruptcy proceedings, may also
have an effect upon the payment patterns of particular Mortgage Loans and thus
the weighted average lives of and yields on the Certificates of the related
series.
Losses and Shortfalls on the Mortgage Assets. The yield to holders of the
Offered Certificates of any series will directly depend on the extent to which
such holders are required to bear the effects of any losses or shortfalls in
collections arising out of defaults on the Mortgage Loans in the related Trust
Fund and the timing of such losses and shortfalls. In general, the earlier that
any such loss or shortfall occurs, the greater will be the negative effect on
yield for any class of Certificates that is required to bear the effects
thereof.
The amount of any losses or shortfalls in collections on the Mortgage
Assets in any Trust Fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of Credit Support) will be allocated among
the respective classes of Certificates of the related series in the priority
and manner, and subject to the limitations, specified in the related Prospectus
Supplement. As described in the related Prospectus Supplement, such allocations
may 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
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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
Chase Commercial Mortgage Securities Corp., the Depositor, is a New York
corporation organized on August 2, 1993 as a wholly-owned subsidiary of
Chemical Bank (now known as The Chase Manhattan Bank). On July 14, 1996, The
Chase Manhattan Bank (National Association) merged with and into Chemical Bank,
a New York bank, and Chemical Bank then changed its name to The Chase Manhattan
Bank. The Depositor maintains its principal office at 270 Park Avenue, New
York, New York 10017-2070. Its telephone number is (212) 834-5588. The
Depositor does not have, nor is it expected in the future to have, any
significant assets.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates of any
series will be applied by the 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.
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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.
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
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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
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
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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, further by any losses incurred in respect of the related
Mortgage Assets allocated thereto from time to time. In turn, the outstanding
Certificate Balance of a class of Certificates may be increased as a result of
any deferred interest on or in respect of the related Mortgage Assets being
allocated thereto from time to time, and will be increased, in the case of a
class of Accrual Certificates prior to the Distribution Date on which
distributions of interest thereon are required to commence, by the amount of
any Accrued Certificate Interest in respect thereof (reduced as described
above). Unless otherwise provided in the related Prospectus Supplement, the
initial aggregate Certificate Balance of all classes of a series of
Certificates will not be greater than the aggregate outstanding principal
balance of the related Mortgage Assets as of the applicable Cut-off Date, after
application of scheduled payments due on or before such date, whether or not
received. The initial Certificate Balance of each class of a series of
Certificates will be specified in the related Prospectus Supplement. As and to
the extent described in the related Prospectus Supplement, distributions of
principal with respect to a series of Certificates will be made on each
Distribution Date to the holders of the class or classes of Certificates of
such series entitled thereto until the Certificate Balances of such
Certificates have been reduced to zero. Distributions of principal with respect
to one or more classes of Certificates may be made at a rate that is faster
(and, in some cases, substantially faster) than the rate at which payments or
other collections of principal are received on the Mortgage Assets in the
related Trust Fund. Distributions of principal with respect to one or more
classes of Certificates may not commence until the occurrence of certain
events, such as the retirement of one or more other classes of Certificates of
the same series, or may be made at a rate that is slower (and, in some cases,
substantially slower) than the rate at which payments or other collections of
principal are received on the Mortgage Assets in the related Trust Fund.
Distributions of principal with respect to one or more classes of Certificates
(each such class, a "Controlled Amortization Class") may be made, subject to
available funds, based on a specified principal payment schedule. Distributions
of principal with respect to one or more classes of Certificates (each such
class, a "Companion Class") may be contingent on the specified principal
payment schedule for a Controlled Amortization Class of the same series and the
rate at which payments and other collections of principal on the Mortgage
Assets in the related Trust Fund are received. Unless otherwise specified in
the related Prospectus Supplement, distributions of principal of any class of
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.
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)
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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 a Master
Servicer, Special Servicer or Trustee if, in the good faith judgment of the
Master Servicer, Special Servicer or Trustee, as the case may be, such advance
would not be recoverable from Related Proceeds or another specifically
identified source (any such advance, a "Nonrecoverable Advance"); and, if
previously made by a Master Servicer, Special Servicer or Trustee, a
Nonrecoverable Advance will be reimbursable thereto from any amounts in the
related Certificate Account prior to any distributions being made to the
related series of Certificateholders.
If advances have been made by a Master Servicer, Special Servicer, Trustee
or other entity from excess funds in a Certificate Account, such Master
Servicer, Special Servicer, Trustee or other entity, as the case may be, will
be required to replace such funds in such Certificate Account on any future
Distribution Date to the extent that funds in such Certificate Account on such
Distribution Date are less than payments required to be made to the related
series of Certificateholders on such date. If so specified in the related
Prospectus Supplement, the obligation of a Master Servicer, Special Servicer,
Trustee or other entity to make advances may be secured by a cash advance
reserve fund or a surety bond. If applicable, information regarding the
characteristics of, and the identity of any obligor on, any such surety bond,
will be set forth in the related Prospectus Supplement.
If and to the extent so provided in the related Prospectus Supplement, any
entity making advances 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.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, together with the distribution to the holders
of each class of the Offered Certificates of a series, a Master Servicer or
Trustee, as provided in the related Prospectus Supplement,
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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;
(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
(xiv) to the extent not otherwise reflected through the information
furnished pursuant to subclauses (viii) and (x) above, the amount of Credit
Support being afforded by any classes of Subordinate Certificates.
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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.
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.
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
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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.
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 a 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 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
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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 Chase Commercial Mortgage Securities Corp., 270 Park Avenue, New
York, New York 10017-2070, Attention: President.
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 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
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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 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
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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
A 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 a
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. A Master
Servicer will be required to monitor the performance of 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, a 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 a Master Servicer. 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
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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, a 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;
(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";
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(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, a 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 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 form 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 form 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;
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(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 form 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;
(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
A 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, a 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)
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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 Master 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 Master
Servicer is able to assess the success of any such corrective action or the
need for additional initiatives.
The time within which the Master 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 Master Servicer may not be permitted to accelerate the
maturity of the related Mortgage Loan or to foreclose on the related Mortgaged
Property for a considerable period of time, and such Mortgage Loan may be
restructured in the resulting bankruptcy proceedings. See "Certain Legal
Aspects of Mortgage Loans".
A Pooling Agreement may grant to the Master Servicer, 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
Master Servicer may offer to sell any defaulted Mortgage Loan if and when the
Master 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 Master 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 Master 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 Master Servicer's
judgment, a payment default is imminent, the Master 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
Master 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
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the meaning of certain federal environmental laws, unless the Master 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 Master 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 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 beyond such period 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 Master
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 Master Servicer, on behalf of the Trust Fund, generally must
retain an independent contractor to manage and operate such property. The
retention of an independent contractor, however, will not relieve the Master
Servicer of its obligation to manage such Mortgaged Property in a manner
consistent with the Servicing Standard.
If Liquidation Proceeds collected with respect to a defaulted Mortgage
Loan are less than the outstanding principal balance of the defaulted Mortgage
Loan plus interest accrued thereon plus the aggregate amount of reimbursable
expenses incurred by the Master Servicer in connection with such Mortgage Loan,
the Trust Fund will realize a loss in the amount of such shortfall. The Master
Servicer will be entitled to reimbursement out of the Liquidation Proceeds
recovered on any defaulted Mortgage Loan, prior to the distribution of such
Liquidation Proceeds to Certificateholders, amounts that represent unpaid
servicing compensation in respect of the Mortgage Loan, unreimbursed servicing
expenses incurred with respect to the Mortgage Loan and any unreimbursed
advances of delinquent payments made with respect to the Mortgage Loan.
If any Mortgaged Property suffers damage such that the proceeds, if any,
of the related hazard insurance policy are insufficient to restore fully the
damaged property, the Master 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 Master 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.
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Unless otherwise specified in the related Prospectus Supplement, such coverage
generally will be in an amount equal to the lesser of the principal balance
owing on such Mortgage Loan and the replacement cost of the related Mortgaged
Property. The ability of a Master Servicer to assure that hazard insurance
proceeds are appropriately applied may be dependent upon its being named as an
additional insured under any hazard insurance policy and under any other
insurance policy referred to below, or upon the extent to which information
concerning covered losses is furnished by borrowers. All amounts collected by a
Master Servicer 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 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, a Master
Servicer's primary servicing compensation with respect to a series of
Certificates will come from the periodic payment to it of a specified portion
of the interest payments on each Mortgage Loan in the related Trust Fund.
Because that compensation is generally based on a percentage of the principal
balance of each such Mortgage
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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, a 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, a
Master Servicer may be required to apply a portion of the servicing
compensation otherwise payable to it in respect of any period to Prepayment
Interest Shortfalls. See "Yield and Maturity Considerations--Certain Shortfalls
in Collections of Interest".
EVIDENCE AS TO COMPLIANCE
Unless otherwise provided in the related Prospectus Supplement, each
Pooling Agreement will require, 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 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
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omissions, subject to certain limitations as to amount of coverage, deductible
amounts, conditions, exclusions and exceptions permitted by the related Pooling
Agreement.
Unless otherwise specified in the related Prospectus Supplement, each
Pooling Agreement will further provide that none of the Master Servicer, the
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
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,
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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 unless Certificateholders of
the same series entitled to not less than 25% (or such other percentage
specified in the related Prospectus Supplement) of the Voting Rights for such
series shall have made written request upon the Trustee to institute such
proceeding in its own name as Trustee thereunder and shall have offered to the
Trustee reasonable indemnity, and the Trustee for sixty days (or such other
period specified in the related Prospectus Supplement) shall have neglected or
refused to institute any such proceeding. The Trustee, however, will be under
no obligation to exercise any of the trusts or powers vested in it by any
Pooling Agreement or to make any investigation of matters arising thereunder or
to institute, conduct or defend any litigation thereunder or in relation
thereto at the request, order or direction of any of the holders of
Certificates of the related series, unless such Certificateholders have offered
to the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby.
AMENDMENT
Each Pooling Agreement may be amended by the respective parties thereto,
without the consent of any of the holders of the related series of
Certificates, (i) to cure any ambiguity, (ii) to correct a defective provision
therein or to correct, modify or supplement any provision therein that may be
inconsistent with any other provision therein, (iii) to add any other
provisions with respect to matters or questions arising under the Pooling
Agreement that are not inconsistent with the provisions thereof, (iv) to comply
with any requirements imposed by the Code, or (v) for any other purpose;
provided that such amendment (other than an amendment for the specific purpose
referred to in clause (iv) above) may not (as evidenced by an opinion of
counsel to such effect satisfactory to the Trustee) adversely affect in any
material respect the interests of any such holder; and provided further that
such amendment (other than an amendment for one of the specific purposes
referred to in clauses (i) through (iv) above) must be acceptable to each
applicable Rating Agency. Unless otherwise specified in the related Prospectus
Supplement, each Pooling Agreement may also be amended by the respective
parties thereto, with the consent of the holders of the
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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 Trustee may have typical
banking relationships with the Depositor and its affiliates and with any Master
Servicer or Special Servicer and its affiliates.
DUTIES OF THE TRUSTEE
The Trustee for each series of Certificates will make no representation as
to the validity or sufficiency of the related Pooling Agreement, the
Certificates or any underlying Mortgage Loan or related document and will not
be accountable for the use or application by or on behalf of 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
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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.
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.
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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 form of Credit Support
may provide credit enhancement for more than one series of Certificates to the
extent described therein.
Unless otherwise provided in the related Prospectus Supplement for a
series of Certificates, the Credit Support will not provide protection against
all risks of loss and will not guarantee payment to Certificateholders of all
amounts to which they are entitled under the related Pooling Agreement. If
losses or shortfalls occur that exceed the amount covered by the related Credit
Support or that are not covered by such Credit Support, Certificateholders will
bear their allocable share of deficiencies. Moreover, if a form of Credit
Support covers more than one series of Certificates, holders of Certificates of
one series will be subject to the risk that such Credit Support will be
exhausted by the claims of the holders of Certificates of one or more other
series before the former receive their intended share of such coverage.
If Credit Support is provided with respect to one or more classes of
Certificates of a series, or with respect to the related Mortgage Assets, the
related Prospectus Supplement will include a description of (i) the nature and
amount of coverage under such Credit Support, (ii) any conditions to payment
thereunder not otherwise described herein, (iii) the conditions (if any) under
which the amount of coverage under such Credit Support may be reduced and under
which such Credit Support may be terminated or replaced and (iv) the material
provisions relating to such Credit Support. Additionally, the related
Prospectus Supplement will set forth certain information with respect to the
obligor under any instrument of Credit Support, including (i) a brief
description of its principal business activities, (ii) its principal place of
business, place of incorporation and the jurisdiction under which it is
chartered or licensed to do business, (iii) if applicable, the identity of
regulatory agencies that exercise primary jurisdiction over the conduct of its
business and (iv) its total assets, and its stockholders' equity or
policyholders' surplus, if applicable, as of a date that will be specified in
the Prospectus Supplement. See "Risk Factors--Credit Support Limitations".
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more classes
of Certificates of a series may be Subordinate Certificates. To the extent
specified in the related Prospectus Supplement, the rights of the holders of
Subordinate Certificates to receive distributions from the Certificate Account
on any Distribution Date will be subordinated to the corresponding rights of
the holders of Senior Certificates. If so provided in the related Prospectus
Supplement, the 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.
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
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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 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.
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CREDIT SUPPORT WITH RESPECT TO MBS
If so provided in the Prospectus Supplement for a series of Certificates,
any MBS included in the related Trust Fund and/or the related underlying
mortgage loans may be covered by one or more of the types of Credit Support
described herein. The related Prospectus Supplement will specify, as to each
such form of Credit Support, the information indicated above with respect
thereto, to the extent such information is material and available.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential properties.
Because such legal aspects are governed by applicable state law (which laws may
differ substantially), the summaries do not purport to be complete, to reflect
the laws of any particular state, or to encompass the laws of all states in
which the security for the Mortgage Loans (or mortgage loans underlying any
MBS) is situated. Accordingly, the summaries are qualified in their entirety by
reference to the applicable laws of those states. 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 mortgage note. The mortgagee's authority
under a mortgage, the trustee's authority under a deed of trust and the
grantee's authority under a deed to secure debt are governed by the express
provisions of the 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) and, in some deed of trust
transactions, the directions of the beneficiary.
LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases, pursuant to which the borrower assigns to the
lender the borrower's right, title and interest as
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landlord under each lease and the income derived therefrom, while (unless rents
are to be paid directly to the lender) retaining a revocable license to collect
the rents for so long as there is no default. If the borrower defaults, the
license terminates and the lender is entitled to collect the rents. Local law
may require that the lender take possession of the property and/or obtain a
court-appointed receiver before becoming entitled to collect the rents.
In most states, hotel and motel room rates are considered accounts
receivable under the Uniform Commercial Code ("UCC"); in cases where hotels or
motels constitute loan security, the rates are generally pledged by the
borrower as additional security for the loan. In general, the lender must file
financing statements in order to perfect its security interest in the rates and
must file continuation statements, generally every five years, to maintain
perfection of such security interest. Even if the lender's security interest in
room rates is perfected under the UCC, it may be required to commence a
foreclosure action or otherwise take possession of the property in order to
collect the room rates 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.
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.
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These principles are generally designed to relieve borrowers from the effects
of mortgage defaults perceived as harsh or unfair. Relying on such principles,
a court may alter the specific terms of a loan to the extent it considers
necessary to prevent or remedy an injustice, undue oppression or overreaching,
or may require the lender to undertake affirmative actions to determine the
cause of the borrower's default and the likelihood that the borrower will be
able to reinstate the loan. In some cases, courts have substituted their
judgment for the 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 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
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property. For example, the lender will have the obligation to pay debt service
on any senior mortgages, to pay taxes, obtain casualty insurance and to make
such repairs at its own expense as are necessary to render the property
suitable for sale. Frequently, the lender employs a third party management
company to manage and operate the property. The costs of operating and
maintaining a commercial or multifamily residential property may be significant
and may be greater than the income derived from that property. The costs of
management and operation of those mortgaged properties which are hotels, motels
or restaurants or nursing or convalescent homes or hospitals may be
particularly significant because of the expertise, knowledge and, with respect
to nursing or convalescent homes or hospitals, regulatory compliance, required
to run such operations and the effect which foreclosure and a change in
ownership may have on the public's and the industry's (including franchisors')
perception of the quality of such operations. The lender will commonly obtain
the services of a real estate broker and pay the broker's commission in
connection with the sale of the property. Depending upon market conditions, the
ultimate proceeds of the sale of the property may not equal the 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.
Rights of Redemption. The purposes of a foreclosure action are to enable
the lender to realize upon its security and to bar the borrower, and all
persons who have interests in the property that are subordinate to that of the
foreclosing lender, from exercise of their "equity of redemption". The doctrine
of equity of redemption provides that, until the property encumbered by a
mortgage has been sold in accordance with a properly conducted foreclosure and
foreclosure sale, those having interests that are subordinate to that of the
foreclosing lender have an equity of redemption and may redeem the property by
paying the entire debt with interest. Those having an equity of redemption must
generally be made parties and joined in the foreclosure proceeding in order for
their equity of redemption to be terminated.
The equity of redemption is a common-law (non-statutory) right which
should be distinguished from post-sale statutory rights of redemption. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage,
the borrower and foreclosed junior lienors are given a statutory period in
which to redeem the property. In some states, statutory redemption may occur
only upon payment of the foreclosure sale price. In other states, redemption
may be permitted if the former borrower pays only a portion of the sums due.
The effect of a statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed property because the exercise of a right of
redemption would defeat the title of any purchaser through a foreclosure.
Consequently, the practical effect of the redemption right is to force the
lender to maintain the property and pay the expenses of ownership until the
redemption period has expired. In some states, a post-sale statutory right of
redemption may exist following a judicial foreclosure, but not following a
trustee's sale under a deed of trust.
Anti-Deficiency Legislation. Some or all of the Mortgage Loans may be
nonrecourse loans, as to which recourse in the case of default will be limited
to the Mortgaged Property and such other assets, if any, that were pledged to
secure the Mortgage Loan. However, even if a mortgage loan by its terms
provides for recourse to the borrower's other assets, a lender's ability to
realize upon those assets may be limited by state law. For example, in some
states a lender cannot obtain a deficiency judgment against the borrower
following foreclosure or sale under a deed of trust. A deficiency judgment is a
personal judgment against the former borrower equal to the difference between
the net amount realized upon the public sale of the real property and the
amount due to the lender. Other statutes may require the lender
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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.
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.
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 lender's
security interest) pursuant to a confirmed plan
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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) 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 Mortgagors' 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 Trustee'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 Mortgagor, 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
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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 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 Trust Fund. Payments on long-term debt may be
protected from recovery as preferences if they are payments in the ordinary
course of business made on debts incurred in the ordinary course of business.
Whether any particular payment would be protected depends upon the facts
specific to a particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the lender. In certain circumstances, a debtor in bankruptcy may
have the power to grant liens senior to the lien of a mortgage, and analogous
state statutes and general principles of equity may also provide a mortgagor
with means to halt a foreclosure proceeding or sale and to force a
restructuring of a mortgage loan on terms a lender would not otherwise accept.
Moreover, the laws of certain states also give priority to certain tax liens
over the lien of a mortgage or deed of trust. Under the Bankruptcy Code, if the
court finds that actions of the mortgagee have been unreasonable, the lien of
the related mortgage may be subordinated to the claims of unsecured creditors.
Pursuant to the federal doctrine of "substantive consolidation" or to the
(predominantly state law) doctrine of "piercing the corporate veil", a
bankruptcy court, in the exercise of its equitable powers, also has the
authority to order that the assets and liabilities of a related entity be
consolidated with those of an entity before it. Thus, property ostensibly the
property of one entity may be determined to be the property of a different
entity in bankruptcy, the automatic stay applicable to the second entity
extended to the first and the rights of creditors of the first entity impaired
in the fashion set forth above in the discussion of ordinary bankruptcy
principles. Depending on facts and circumstances not wholly in existence at the
time a loan is originated or transferred to the Trust Fund, the application of
any of these doctrines to one or more of the mortgagors in the context of the
bankruptcy of one or more of their affiliates could result in material
impairment of the rights of the Certificateholders.
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
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documents of such mortgagor in such manner as is intended to make the
likelihood of a bankruptcy proceeding being commenced by or against such
mortgagor remote, and such mortgagor has been organized and is designed to
operate in a manner such that its separate existence should be respected
notwithstanding a bankruptcy proceeding in respect of one or more affiliated
entities of such mortgagor. However, the Depositor makes no representation as
to the likelihood of the institution of a bankruptcy proceeding by or in
respect of any mortgagor or the likelihood that the separate existence of any
mortgagor would be respected if there were to be a bankruptcy proceeding in
respect of any affiliated entity of a mortgagor.
ENVIRONMENTAL RISKS
Real property pledged as security for a mortgage loan may be subject to
certain environmental risks. Under federal law, including the Comprehensive
Environmental Response and Liability Act of 1980, as amended ("CERCLA"), and
the laws of certain states, failure to perform the remediation required or
demanded by the state or federal government of any condition or circumstance
that (i) may pose an imminent or substantial endangerment to the public health
or welfare or the environment, (ii) may result in a release or threatened
release of any hazardous material, or (iii) may give rise to any environmental
claim or demand, may give rise to a lien on the property to ensure the
reimbursement of remedial costs incurred by the federal or state government. In
several states, such a lien has priority over the lien of an existing mortgage
against such property. Of particular concern may be those mortgaged properties
which are, or have been, the site of manufacturing, industrial or disposal
activity. Such environmental risks may give rise to (a) a diminution in value
of property securing a mortgage note or the inability to foreclose against such
property or (b) 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, the aggregate assets of the owner or
operator, or the principal balance of the related indebtedness.
The state of the law is currently unclear as to whether and under what
circumstances cleanup costs, or the obligation to take remedial actions, could
be imposed on a secured lender. Under the laws of some states and under CERCLA,
a lender may become liable as an "owner" or an "operator" of a contaminated
mortgaged property for the costs of remediation of releases or threatened
releases of hazardous substances at the mortgaged property. Such liability may
attach if the lender or its agents or employees have participated in the
management of the operations of the borrower, even though the environmental
damage or threat was caused by a prior owner, operator, or other third party.
Excluded from CERCLA's definition of "owner or operator" is any person
"who without participating in management of the facility, holds indicia of
ownership primarily to protect his security interest" (the "secured-creditor
exemption"). This exemption for holders of a security interest such as a
secured lender applies only in circumstances when the lender seeks to protect
its security interest in the contaminated facility or property. Thus, if a
lender's activities encroach on the actual management of such facility or
property, the lender faces potential liability as an "owner or operator" under
CERCLA. Similarly, when a lender forecloses and takes title to a contaminated
facility or property (whether it holds the facility or property as an
investment or leases it to a third party), under some circumstances the lender
may incur potential CERCLA liability.
Recent amendments to CERCLA list permissible actions that may be
undertaken by a lender holding security in a contaminated facility without
exceeding the bounds of the secured-creditor exemption, subject to certain
conditions and limitations. Additionally, the recent amendments provide certain
protections from CERCLA liability as an "owner or operator" to a lender who
forecloses on contaminated property, as long as it seeks to divest itself of
the facility at the earliest practicable commercially reasonable time on
commercially reasonable terms. The protections afforded lenders under the
recent amendments are subject to terms and conditions that have not been
clarified by the courts. Moreover, the CERCLA secured-creditor exemption does
not necessarily affect the potential for liability in actions under other
federal or state laws which may impose liability on "owners or operators" but
do not incorporate the secured-creditor exemption. Furthermore, the
secured-creditor exemption does not protect lenders from other bases of CERCLA
liability, such as that imposed on "generators" or "transporters" of hazardous
substances.
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Environment clean-up costs may be substantial. It is possible that such
costs could become a liability of the Trust 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.
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 may not, on behalf of the Trust Fund, 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".
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
Certain of the Mortgage Loans may contain "due-on-sale" and
"due-on-encumbrance" clauses that purport to permit the lender to accelerate
the maturity of the loan if the borrower transfers or encumbers the related
Mortgaged Property. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce such clauses
in many states. By virtue, however, of the Garn-St Germain Depository
Institutions Act of 1982 (the "Garn Act"), effective October 15, 1982 (which
purports to preempt state laws that prohibit the enforcement of due-on-sale
clauses by providing among other matters, that "due-on-sale" clauses in certain
loans made after the effective date of the Garn Act are enforceable, within
certain limitations as set forth in the Garn Act and the regulations
promulgated thereunder), a Master Servicer may nevertheless have the right to
accelerate the maturity of a Mortgage Loan that contains a "due-on-sale"
provision upon transfer of an interest in the property, regardless of the
Master Servicer's ability to demonstrate that a sale threatens its legitimate
security interest.
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
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have difficulty servicing and repaying multiple loans. Moreover, if the
subordinate financing permits recourse to the borrower (as is frequently the
case) and the senior loan does not, a borrower may have more incentive to repay
sums due on the subordinate loan. Second, acts of the senior lender that
prejudice the junior lender or impair the junior lender's security may create a
superior equity in favor of the junior lender. For example, if the borrower and
the senior lender agree to an increase in the principal amount of or the
interest rate payable on the senior loan, the senior lender may lose its
priority to the extent any existing junior lender is harmed or the borrower is
additionally burdened. Third, if the borrower defaults on the senior loan
and/or any junior loan or loans, the existence of junior loans and actions
taken by junior lenders can impair the security available to the senior lender
and can interfere with or delay the taking of action by the senior lender.
Moreover, the bankruptcy of a junior lender may operate to stay foreclosure or
similar proceedings by the senior lender.
DEFAULT INTEREST AND LIMITATIONS ON PREPAYMENTS
Notes and mortgages may contain provisions that obligate the borrower to
pay a late charge or additional interest if payments are not timely made, and
in some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower
for delinquent payments. Certain states also limit the amounts that a lender
may collect from a borrower as an additional charge if the loan is prepaid. In
addition, the enforceability of provisions that provide for prepayment fees or
penalties upon an involuntary prepayment is unclear under the laws of many
states.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 ("Title V") provides that state usury limitations shall not apply
to certain types of residential (including multifamily but not commercial)
first mortgage loans originated by certain lenders after March 31, 1980. A
similar Federal statute was in effect with respect to Mortgage Loans made
during the first three months of 1980. The statute authorized any state to
reimpose interest rate limits by adopting, before April 1, 1983, a law or
constitutional provision that expressly rejects application of the federal law.
In addition, even where Title V is not so rejected, any state is authorized by
the law to adopt a provision limiting discount points or other charges on
mortgage loans covered by Title V. Certain states have taken action to reimpose
interest rate limits and/or to limit discount points or other charges.
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, no
Mortgage Loan originated after the date of such state action will (if
originated after that rejection or adoption) be eligible for inclusion in a
Trust Fund unless (i) such Mortgage Loan provides for such interest rate,
discount points and charges as are permitted in such state or (ii) such
Mortgage Loan provides that the terms thereof are to be construed in accordance
with the laws of another state under which such interest rate, discount points
and charges would not be usurious and the borrower's counsel has rendered an
opinion that such choice of law provision would be given effect.
Statutes differ in their provisions as to the consequences of a usurious
loan. One group of statutes requires the lender to forfeit the interest due
above the applicable limit or impose a specified penalty. Under this statutory
scheme, the borrower may cancel the recorded mortgage or deed of trust upon
paying its debt with lawful interest, and the lender may foreclose, but only
for the debt plus lawful interest. A second group of statutes is more severe. A
violation of this type of usury law results in the invalidation of the
transaction, thereby permitting the borrower to cancel the recorded mortgage or
deed of trust without any payment or prohibiting the lender from foreclosing.
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
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a borrower who was in reserve status and is called to active duty after
origination of the Mortgage Loan), may not be charged interest (including fees
and charges) above an annual rate of 6% during the period of such borrower's
active duty status, unless a court orders otherwise upon application of the
lender. The Relief Act applies to individuals who are members of the Army,
Navy, Air Force, Marines, National Guard, Reserves, Coast Guard and officers of
the U.S. Public Health Service assigned to duty with the military. Because the
Relief Act applies to individuals who enter military service (including
reservists who are called to active duty) after origination of the related
mortgage loan, no information can be provided as to the number of loans with
individuals as borrowers that may be affected by the Relief Act. Application of
the Relief Act would adversely affect, for an indeterminate period of time, the
ability of 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 form 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.
TYPE OF MORTGAGED PROPERTY
The lender may be subject to additional risk depending upon the type and
use of the Mortgaged Property in question. For instance, Mortgaged Properties
which are hospitals, nursing homes or convalescent homes may present special
risks to lenders in large part due to significant governmental regulation of
the operation, maintenance, control and financing of health care institutions.
Mortgages on Mortgaged Properties which are owned by the borrower under a
condominium form of ownership are subject to the declaration, by-laws and other
rules and regulations of the condominium association. Mortgaged Properties
which are hotels or motels may present additional risk to the lender in that:
(i) hotels and motels are typically operated pursuant to franchise, management
and operating agreements which may be terminable by the operator; and (ii) the
transferability of the hotel's operating, liquor and other licenses to the
entity acquiring the hotel either through purchase or foreclosure is subject to
the vagaries of local law requirements. In addition, Mortgaged Properties which
are multifamily properties or cooperatively owned multifamily properties may be
subject to rent control laws, which could impact the future cash flows of such
properties.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which are
structural in nature from existing places of public accommodation to the extent
"readily achievable." In addition, under the ADA, alterations to a place of
public accommodation or a commercial facility are to be made so that, to the
maximum extent feasible, such altered portions are readily accessible to and
usable by disabled individuals. The "readily achievable" standard takes into
account, among other factors, the financial resources of the affected site,
owner, landlord or other applicable person. In addition to imposing a possible
financial burden on the borrower in its capacity as owner or landlord, the ADA
may also impose such requirements on a foreclosing lender who succeeds to the
interest of the borrower as owner or landlord. Furthermore, since the "readily
achievable" standard may vary depending on the financial condition of the owner
or landlord, a foreclosing lender who is financially more capable than the
borrower of complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the borrower is subject.
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
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government if the property was used in, or purchased with the proceeds of, such
crimes. Under procedures contained in the Comprehensive Crime Control Act of
1984 (the "Crime Control Act"), the government may seize the property even
before conviction. The government must publish notice of the forfeiture
proceeding and may give notice to all parties "known to have an alleged
interest in the property", including the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
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.
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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, Cadwalader, Wickersham &
Taft, counsel to the Depositor, has advised the Depositor that in the firm's
opinion, assuming (i) the making of such an election, (ii) compliance with the
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 with respect to
the related Trust Fund will be made, in which event references to "REMIC" or
"REMIC Pool" herein shall be deemed to refer to each such REMIC Pool. If so
specified in the applicable Prospectus Supplement, the portion of a Trust Fund
as to which a REMIC election is not made may be treated as a grantor trust for
federal income tax purposes. See "--Federal Income Tax Consequences for
Certificates as to Which No REMIC Election Is Made".
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
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that, for both purposes, the assets of the REMIC Pool would be so treated. If
at all times 95% or more of the assets of the REMIC Pool qualify for each of
the foregoing respective treatments, the REMIC Certificates will qualify for
the corresponding status in their entirety. For purposes of Code 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%. Regular Certificates will
be "qualified mortgages" for another REMIC for purposes of Code Section
860(G)(a)(3) and "permitted assets" for a financial asset securitization
investment trust for purposes of Section 860(L)(c) 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 by certain
financial institutions will constitute an "evidence of indebtedness" within the
meaning of Code Section 582(c)(1). The Small Business Job Protection Act of
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 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 security (including buildings and structural
components thereof) is at least 80% of the principal balance of the related
Mortgage Loan or mortgage loan underlying the Mortgage Certificate either at
origination or as of the Startup Day (an original loan-to-value ratio of not
more than 125% with respect to the real property security) or (ii)
substantially all the proceeds of the Mortgage Loan or the underlying mortgage
loan were used to acquire, improve or protect an interest in real property
that, at the origination date, was the only security for the Mortgage Loan or
underlying mortgage loan. If the Mortgage Loan has been substantially modified
other than in connection with a default or reasonably foreseeable default, it
must meet the
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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 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.
Permitted investments include cash flow investments, qualified reserve
assets, and foreclosure property. A cash flow investment is an investment,
earning a return in the nature of interest, of amounts received on or with
respect to qualified mortgages for a temporary period, not exceeding 13 months,
until the next scheduled distribution to holders of interests in the REMIC
Pool. A qualified reserve asset is any intangible property held for investment
that is part of any reasonably required reserve maintained by the REMIC Pool to
provide for payments of expenses of the REMIC Pool or amounts due on the
regular or residual interests in the event of defaults (including
delinquencies) on the qualified mortgages, lower than expected reinvestment
returns, prepayment interest shortfalls and certain other contingencies. The
reserve fund will be disqualified if more than 30% of the gross income from the
assets in such fund for the year is derived from the sale or other disposition
of property held for less than three months, unless required to prevent a
default on the regular interests caused by a default on one or more qualified
mortgages. A reserve fund must be reduced "promptly and appropriately" as
payments on the Mortgage Loans are received. Foreclosure property is real
property acquired by the REMIC Pool in connection with the default or imminent
default of a qualified mortgage and generally not held beyond the close of the
third calendar year following the acquisition of the property by the REMIC
Pool, with an extension that may be granted by the Internal Revenue Service
(the "Service").
In addition to the foregoing requirements, the various interests in a
REMIC Pool also must meet certain requirements. All of the interests in a REMIC
Pool must be either of the following: (i) one or more classes of regular
interests or (ii) a single class of residual interests on which distributions,
if any, are made pro rata. A regular interest is an interest in a REMIC Pool
that is issued on the Startup Day with fixed terms, is designated as a regular
interest, and unconditionally entitles the holder to receive a specified
principal amount (or other similar amount), and provides that interest payments
(or other similar amounts), if any, at or before maturity either are payable
based on a fixed rate or a qualified variable rate, or consist of a specified,
nonvarying portion of the interest payments on qualified mortgages. Such a
specified portion may consist of a fixed number of basis points, a fixed
percentage of the total interest, or a fixed or qualified variable or inverse
variable rate on some or all of the qualified mortgages minus a different fixed
or qualified variable rate. The specified principal amount of a regular
interest that provides for interest payments consisting of a specified,
nonvarying portion of interest payments on qualified mortgages may be zero. A
residual interest is an interest in a REMIC Pool other than a regular interest
that is issued on the Startup Day and that is designated as a residual
interest. An interest in a REMIC Pool may be treated as a regular interest even
if payments of principal with respect to such interest are subordinated to
payments on other regular interests or the residual interest in the REMIC Pool,
and are dependent on the absence of defaults or delinquencies on qualified
mortgages or permitted investments, lower than reasonably expected returns on
permitted investments, unanticipated expenses incurred by the REMIC Pool or
prepayment interest shortfalls. Accordingly, the Regular Certificates of a
series will constitute one or more classes of regular interests, and the
Residual Certificates with respect to that series will constitute a single
class of residual interests on which distributions are made pro rata.
If an entity, such as the REMIC Pool, fails to comply with one or more of
the ongoing requirements of the Code for REMIC status during any taxable year,
the Code provides that the entity will not be treated as a REMIC for such year
and thereafter. In this event, an entity with multiple classes of
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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 interest that relates to a period prior to the
issue date of the Regular Certificate, unless the Regular
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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 each
distribution is scheduled to be made by a fraction, the numerator of which is
the amount of each distribution included in the stated redemption price at
maturity of the Regular Certificate and the denominator of which is the stated
redemption price at maturity of the Regular Certificate. The Conference
Committee 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
beginning of the accrual period. The present value of the remaining
distributions referred to in the
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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 amount and (ii) the interest compounds or is
payable at least annually at current values of (a) one or more "qualified
floating rates", (b) a single fixed rate and one or more qualified floating
rates, (c) a single "objective rate", or (d) a single fixed rate and a single
objective
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rate that is a "qualified inverse floating rate". A floating rate is a
qualified floating rate if variations in the rate can reasonably be expected to
measure contemporaneous variations in the cost of newly borrowed funds, where
such rate is subject to a fixed multiple that is greater than 0.65, but not
more than 1.35. Such rate may also be increased or decreased by a fixed spread
or subject to a fixed cap or floor, or a cap or floor that is not reasonably
expected as of the issue date to affect the yield of the instrument
significantly. An objective rate (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 a rate equal to a fixed rate minus a qualified floating rate
that inversely reflects contemporaneous variations in the cost of newly
borrowed funds; an inverse floating rate that is not a qualified 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, 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 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
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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.
Market Discount
A purchaser of a Regular Certificate also may be subject to the market
discount rules of Code Section 1276 through 1278. Under these Code sections and
the principles applied by the OID Regulations in the context of original issue
discount, "market discount" is the amount by which the purchaser's original
basis in the Regular Certificate (i) is exceeded by the then-current principal
amount of the Regular Certificate or (ii) in the case of a Regular Certificate
having original issue discount, is exceeded by the adjusted issue price of such
Regular Certificate at the time of purchase. Such purchaser generally will be
required to recognize ordinary income to the extent of accrued market discount
on such Regular Certificate as distributions includible in the stated
redemption price at maturity thereof are received, in an amount not exceeding
any such distribution. Such market discount would accrue in a manner to be
provided in Treasury regulations and should take into account the Prepayment
Assumption. The Conference Committee Report to the 1986 Act provides that until
such regulations are issued, such market discount would accrue either (i) on
the basis of a constant interest rate or (ii) in the ratio of stated interest
allocable to the relevant period to the sum of the interest for such period
plus the remaining interest as of the end of such period, or in the case of a
Regular Certificate issued with original issue discount, in the ratio of
original issue discount accrued for the relevant period to the sum of the
original issue discount accrued for such period plus the remaining original
issue discount as of the end of such period. Such purchaser also generally will
be required to treat a portion of any gain on a sale or exchange of the Regular
Certificate as ordinary income to the extent of the market discount accrued to
the date of disposition under one of the foregoing methods, less any accrued
market discount previously reported as ordinary income as partial distributions
in reduction of the stated redemption price at maturity were received. Such
purchaser will be required to defer deduction of a portion of the excess of the
interest paid or accrued on indebtedness incurred to purchase or carry a
Regular Certificate over the interest distributable thereon. The deferred
portion of such interest expense in any taxable year generally will not exceed
the accrued market discount on the Regular Certificate for such year. Any such
deferred interest expense is, in general, allowed as a deduction not later than
the year in which the related market discount income is recognized or the
Regular Certificate is disposed of. As an alternative to the inclusion of
market discount in income on the foregoing basis, the Regular Certificateholder
may elect to include market discount in income currently as it accrues on all
market discount instruments acquired by such Regular Certificateholder in that
taxable year or thereafter, in which case the interest deferral rule will not
apply. See "Election to Treat All Interest Under the Constant Yield Method"
below regarding an alternative manner in which such election may be deemed to
be made.
Market discount with respect to a Regular Certificate will be considered
to be zero if such market discount is less than 0.25% of the remaining stated
redemption price at maturity of such Regular Certificate multiplied by the
weighted average maturity of the Regular Certificate (determined as described
above in the third paragraph under "Original Issue Discount") remaining after
the date of purchase. It appears that de minimis market discount would be
reported in a manner similar to de minimis original issue discount. See
"Original Issue Discount" above. Treasury regulations implementing the market
discount rules have not yet been issued, and therefore investors should consult
their own tax advisors regarding the application of these rules. Investors
should also consult Revenue Procedure 92-67 concerning the elections to include
market discount in income currently and to accrue market discount on the basis
of the constant yield method.
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
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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. Final regulations with
respect to armortization of bond premium do not by their terms apply to
prepayable obligations such as the Regular Certificates. However, 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
applicable holding period (described below). 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
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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). Long-term capital gains of
certain non-corporate taxpayers generally are subject to a lower maximum tax
rate (20%) than ordinary income or short-term capital gains 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.
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.
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.
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
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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 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
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(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 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".
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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 carryforwards, on such Residual
Certificateholder's return. However, net operating loss carryovers are
determined without regard to excess inclusion income. Further, if the Residual
Certificateholder is an organization subject to the tax on unrelated business
income imposed by Code Section 511, the Residual Certificateholder's excess
inclusions will be treated as unrelated business taxable income of such
Residual Certificateholder for purposes of Code Section 511. In addition, REMIC
taxable income is subject to 30% withholding tax with respect to certain
persons who are not U.S. Persons (as defined below under "Tax-Related
Restrictions on Transfer of Residual Certificates--Foreign Investors"), and the
portion thereof attributable to excess inclusions is not eligible for any
reduction in the rate of withholding tax (by treaty or
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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), 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 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.
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For taxable years beginning on or after January 1, 1998, if an "electing
large partnership" holds a Residual Certificate, all interests in the electing
large partnership are treated as held by Disqualified Organizations for
purposes of the tax imposed upon a Pass-Through Entity by section 860E(c) of
the Code. An exception to this tax, otherwise available to a Pass-Through
Entity that is furnished certain affidavits by record holders of interests in
the entity and that does not know such affidavits are false, is not available
to an electing partnership.
For these purposes, (i) "Disqualified Organization" means the United
States, any state or political subdivision thereof, any foreign government, any
international organization, any agency or instrumentality of any of the
foregoing (provided, that such term does not include an instrumentality if all
of its activities are subject to tax and a majority of its board of directors
is not selected by any such governmental entity), any cooperative organization
furnishing electric energy or providing telephone service to persons in rural
areas as described in Code Section 1381(a)(2)(C), and any organization (other
than a farmers' cooperative described in Code Section 521) that is exempt from
taxation under the Code unless such organization is subject to the tax on
unrelated business income imposed by Code Section 511, (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, and (iii) an "electing large partnership" means any
partnership having more than 100 members during the preceding tax year (other
than certain service partnerships and commodity pools), which elect to apply
simplified reporting provisions under the Code.
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. 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 (except to the extent provided in applicable Treasury regulations)
or other entity created or organized in or under the laws of the United States
or any political subdivision thereof, an estate that is subject to United
States federal income tax regardless of the source of its income, or a trust if
a court within the United States is able to exercise primary supervision over
the administration of such trust, and one or more United States fiduciaries
have the authority to control all substantial decisions of such trust (or, 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 for (a) substitution within two years of the Startup Day for a
defective (including a defaulted) obligation (or repurchase in lieu of
substitution of a defective (including a defaulted) obligation at any time) or
for any qualified mortgage within three months of the Startup Day, (b)
foreclosure, default or imminent default of a qualified mortgage, (c)
bankruptcy or insolvency of the REMIC Pool or (d) a qualified (complete)
liquidation, (ii) the receipt of income from assets that are not the type of
mortgages or investments that the REMIC Pool is permitted to hold, (iii) the
receipt of compensation for services or (iv) the receipt of gain from
disposition of cash flow investments other than pursuant to a qualified
liquidation. Notwithstanding (i) and (iv), it is not a prohibited transaction
to sell REMIC Pool property to prevent a default on Regular Certificates as a
result of a default on qualified mortgages or to facilitate a clean-up call
(generally, an optional termination to save administrative costs when no more
than a small percentage of the Certificates is outstanding). The REMIC
Regulations indicate that the modification of a Mortgage Loan generally will
not be treated as a disposition if it is occasioned by a default or reasonably
foreseeable default, an assumption of the Mortgage Loan, the waiver of a
due-on-sale or due-on-encumbrance clause or the conversion of an interest rate
by a mortgagor pursuant to the terms of a convertible adjustable rate Mortgage
Loan.
Contributions to the REMIC Pool After the Startup Day
In general, the REMIC Pool will be subject to a tax at a 100% rate on the
value of any property contributed to the REMIC Pool after the Startup Day.
Exceptions are provided for cash contributions to
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the REMIC Pool (i) during the three months following the Startup Day, (ii) made
to a qualified reserve fund by a Residual Certificateholder, (iii) in the
nature of a guarantee, (iv) made to facilitate a qualified liquidation or
clean-up call and (v) as otherwise permitted in Treasury regulations yet to be
issued.
Net Income from Foreclosure Property
The REMIC Pool will be subject to federal income tax at the highest
corporate rate on "net income from foreclosure property", determined by
reference to the rules applicable to real estate investment trusts. Generally,
property acquired by deed in lieu of foreclosure would be treated as
"foreclosure property" for a period ending with the third calendar year
following the year of acquisition of such property, with a possible extension.
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 from 1998 ($62,250 in
the case of a married individual filing a separate return) (subject to annual
adjustments for inflation) or (ii) 80% of the amount of itemized deductions
otherwise allowable for such year. In the case of a REMIC Pool, such deductions
may include deductions under Code Section 212 for the servicing fee
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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 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.
The IRS recently issued final regulations (the "New Regulations") which
would provide alternative methods of satisfying the beneficial ownership
certification requirement described above. The New Regulations are effective
January 1, 2000, although valid withholding certificates that are held on
December 31, 1999, remain valid until the earlier of December 31, 2000 or the
due date of expiration of the certificate under the rules as currently in
effect. The New Regulations would require, in the case of Regular Certificates
held by a foreign partnership, that (x) the certification described above be
provided by the partners rather than by the foreign partnership and (y) the
partnership provide certain information, including a United States taxpayer
identification number. A look-through rule would apply in the case of tiered
partnerships. Non-U.S. Persons should consult their own tax advisors concerning
the application of the certification requirements in the New Regulations.
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Residual Certificates
The Conference Committee Report to the 1986 Act indicates that amounts
paid to Residual Certificateholders who are Non-U.S. Persons are treated as
interest for purposes of the 30% (or lower treaty rate) United States
withholding tax. Treasury regulations provide that amounts distributed to
Residual Certificateholders may qualify as "portfolio interest", subject to the
conditions described in "Regular Certificates" above, but only to the extent
that (i) the Mortgage Loans (including mortgage loans underlying MBS) were
issued after July 18, 1984 and (ii) the Trust Fund or segregated pool of assets
therein (as to which a separate REMIC election will be made), to which the
Residual Certificate relates, consists of obligations issued in "registered
form" within the meaning of Code Section 163(f)(1). Generally, whole mortgage
loans will not be, but MBS and regular interests in another REMIC Pool will be,
considered obligations issued in registered form. Furthermore, a Residual
Certificateholder will not be entitled to any exemption from the 30%
withholding tax (or lower treaty rate) to the extent of that portion of REMIC
taxable income that constitutes an "excess inclusion". See "Taxation of
Residual Certificates--Limitations on Offset or Exemption of REMIC Income". If
the amounts paid to Residual Certificateholders who are Non-U.S. Persons are
effectively connected with the conduct of a trade or business within the United
States by such Non-U.S. Persons, 30% (or lower treaty rate) withholding will
not apply. Instead, the amounts paid to such Non-U.S. Persons will be subject
to United States federal income tax at regular rates. If 30% (or lower treaty
rate) withholding is applicable, such amounts generally will be taken into
account for purposes of withholding only when paid or otherwise distributed (or
when the Residual Certificate is disposed of) under rules similar to
withholding upon disposition of debt instruments that have original issue
discount. See "Tax-Related Restrictions on Transfer of Residual
Certificates--Foreign Investors" above concerning the disregard of certain
transfers having "tax avoidance potential". Investors who are Non-U.S. Persons
should consult their own tax advisors regarding the specific tax consequences
to them of owning Residual Certificates.
BACKUP WITHHOLDING
Distributions made on the Regular Certificates, and proceeds from the sale
of the Regular Certificates to or through certain brokers, may be subject to a
"backup" withholding tax under Code Section 3406 of 31% on "reportable
payments" (including interest distributions, original issue discount, and,
under certain circumstances, principal distributions) unless the Regular
Certificateholder complies with certain reporting and/or certification
procedures, including the provision of its 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.
The New Regulations change certain of the rules relating to certain
presumptions currently available relating to information reporting and backup
withholding. Non-U.S. Persons are urged to contact their own tax advisors
regarding the application to them of backup and withholding and information
reporting.
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
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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"), in the opinion of Cadwalader, Wickersham & Taft 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 1998 ($62,250 in the case of a married
individual filing a separate return) (subject to annual adjustments for
inflation), or (ii) 80% of the amount of itemized deductions otherwise
allowable for such year. As a result, such investors holding Standard
Certificates, directly or indirectly through a pass-through entity, may have
aggregate taxable income in excess of the aggregate amount of cash received on
such Standard Certificates with respect to interest at the pass-through rate on
such Standard Certificates. In addition, such expenses are not deductible at
all for purposes of computing the alternative minimum tax, and may cause such
investors to be subject to significant additional tax liability. Moreover,
where there is fixed retained yield with respect to the Mortgage Loans
underlying a series of Standard Certificates or where the servicing fee is in
excess of reasonable servicing compensation, the transaction will be subject to
the application of the "stripped bond" and "stripped coupon" rules of the Code,
as described below under "Stripped Certificates" and "Recharacterization of
Servicing Fees", respectively.
Tax Status
In the opinion of Cadwalader, Wickersham & Taft, 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
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related Trust Fund consist of qualified assets, and interest income on such
assets will be considered "interest on obligations secured by mortgages on real
property" to such extent within the meaning of Code Section 856(c)(3)(B).
3. A Standard Certificate owned by a REMIC will be considered to represent
an "obligation . . . which is principally secured by an interest in real
property" within the meaning of Code Section 860G(a)(3)(A) to the extent that
the assets of the related Trust Fund consist of "qualified mortgages" within
the meaning of Code Section 860G(a)(3).
4. A Standard Certificate owned by a financial asset securitization
investment trust will be considered to represent "permitted assets" within the
meaning of Code Section 860(L)(c)
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 Certificate-
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holders. In this regard, there are no authoritative guidelines for federal
income tax purposes as to either the maximum amount of servicing compensation
that may be considered reasonable in the context of this or similar
transactions or whether, in the case of the Standard Certificate, the
reasonableness of servicing compensation should be determined on a weighted
average or loan-by-loan basis. If a loan-by-loan basis is appropriate, the
likelihood that such amount would exceed reasonable servicing compensation as
to some of the Mortgage Loans would be increased. Service guidance indicates
that a servicing fee in excess of reasonable compensation ("excess servicing")
will cause the Mortgage Loans to be treated under the "stripped bond" rules.
Such guidance provides safe harbors for servicing deemed to be reasonable and
requires taxpayers to demonstrate that the value of servicing fees in excess of
such amounts is not greater than the value of the services provided.
Accordingly, if the Service's approach is upheld, a servicer who receives
a servicing fee in excess of such amounts would be viewed as retaining an
ownership interest in a portion of the interest payments on the Mortgage Loans.
Under the rules of Code Section 1286, the separation of ownership of the right
to receive some or all of the interest payments on an obligation from the right
to receive some or all of the principal payments on the obligation would result
in treatment of such Mortgage Loans as "stripped coupons" and "stripped bonds".
Subject to the de minimis rule discussed below under "--Stripped Certificates",
each stripped bond or stripped coupon could be considered for this purpose as a
non-interest bearing obligation issued on the date of issue of the Standard
Certificates, and the original issue discount rules of the Code would apply to
the holder thereof. While Standard Certificateholders would still be treated as
owners of beneficial interests in a grantor trust for federal income tax
purposes, the corpus of such trust could be viewed as excluding the portion of
the Mortgage Loans the ownership of which is attributed to the Master Servicer,
or as including such portion as a second class of equitable interest.
Applicable Treasury regulations treat such an arrangement as a fixed investment
trust, since the multiple classes of trust interests should be treated as
merely facilitating direct investments in the trust assets and the existence of
multiple classes of ownership interests is incidental to that purpose. In
general, such a recharacterization should not have any significant effect upon
the timing or amount of income reported by a Standard Certificateholder, except
that the income reported by a cash method holder may be slightly accelerated.
See "Stripped Certificates" below for a further description of the federal
income tax treatment of stripped bonds and stripped coupons.
Sale or Exchange of Standard Certificates
Upon sale or exchange of a Standard Certificate, a Standard
Certificateholder will recognize gain or loss equal to the difference between
the amount realized on the sale and its aggregate adjusted basis in the
Mortgage Loans and the other assets represented by the Standard Certificate. In
general, the aggregate adjusted basis will equal the Standard
Certificateholder's cost for the Standard Certificate, increased by the amount
of any income previously reported with respect to the Standard Certificate and
decreased by the amount of any losses previously reported with respect to the
Standard Certificate and the amount of any distributions received thereon.
Except as provided above with respect to market discount on any Mortgage Loans,
and except for certain financial institutions subject to the provisions of Code
Section 582(c), any such gain or loss would be capital gain or loss if the
Standard Certificate was held as a capital asset. However, gain on the sale of
a Standard Certificate will be treated as ordinary income (i) if a Standard
Certificate is held as part of a "conversion transaction" as defined in Code
Section 1258(c), up to the amount of interest that would have accrued on the
Standard Certificateholder's net investment in the conversion transaction at
120% of the appropriate applicable Federal rate in effect at the time the
taxpayer entered into the transaction minus any amount previously treated as
ordinary income with respect to any prior disposition of property that was held
as a part of such transaction or (ii) in the case of a non-corporate taxpayer,
to the extent such taxpayer has made an election under Code Section 163(d)(4)
to have net capital gains taxed as investment income at ordinary income rates.
Long-term capital gains of certain non-corporate taxpayers generally are
subject to a lower maximum tax rate (20%) than ordinary income or short-term
capital gains of such taxpayers (39.6%) for property held for more than one
year. The maximum tax rate for corporations is the same with respect to both
ordinary income and capital gains.
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STRIPPED CERTIFICATES
General
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the principal payments on an obligation from ownership
of the right to receive some or all of the interest payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of this discussion,
Certificates that are subject to those rules will be referred to as "Stripped
Certificates". 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, in the opinion of
Cadwalader, Wickersham & Taft (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 provide for the
treatment of a Stripped Certificate as a single debt instrument issued on the
date it is purchased for purposes of calculating any original issue discount.
In addition, under these regulations, a Stripped Certificate that represents a
right to payments of both interest and principal may be viewed either as issued
with original issue discount or market discount (as described below), at a de
minimis original issue discount, or, presumably, at a premium. This treatment
suggests that the interest component of such a Stripped Certificate would be
treated as qualified stated interest under the OID Regulations. Further, these
final regulations provide
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that the purchaser of such a Stripped Certificate will be required to account
for any discount as market discount rather than original issue discount if
either (i) the initial discount with respect to the Stripped Certificate was
treated as zero under the de minimis rule, or (ii) no more than 100 basis
points in excess of reasonable servicing is stripped 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.
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, in the
opinion of Cadwalader, Wickersham & Taft 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
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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 Exchange of Regular
Certificates". To the extent that a subsequent purchaser's purchase price is
exceeded by the remaining payments on the Stripped Certificates, such
subsequent purchaser will be required for federal income tax purposes to accrue
and report such excess as if it were original issue discount in the manner
described above. It is not clear for this purpose whether the assumed
prepayment rate that is to be used in the case of a Stripped Certificateholder
other than an original Stripped Certificateholder should be the Prepayment
Assumption or a new rate based on the circumstances at the date of subsequent
purchase.
Purchase of More Than One Class of Stripped Certificates. Where an
investor purchases more than one class of Stripped Certificates, it is
currently unclear whether for federal income tax purposes such classes of
Stripped Certificates should be treated separately or aggregated for purposes
of the rules described above.
Possible Alternative Characterizations. The characterizations of the
Stripped Certificates discussed above are not the only possible interpretations
of the applicable Code provisions. For example, the Stripped Certificateholder
may be treated as the owner of (i) one installment obligation consisting of
such Stripped Certificate's pro rata share of the payments attributable to
principal on each Mortgage Loan and a second installment obligation consisting
of such Stripped Certificate's pro rata share of the payments attributable to
interest on each Mortgage Loan, (ii) as many stripped bonds or stripped coupons
as there are scheduled payments of principal and/or interest on each Mortgage
Loan or (iii) a separate installment obligation for each Mortgage Loan,
representing the Stripped Certificate's pro rata share of payments of principal
and/or interest to be made with respect thereto. Alternatively, the holder of
one or more classes of Stripped Certificates may be treated as the owner of a
pro rata fractional undivided interest in each Mortgage Loan to the extent that
such Stripped Certificate, or classes of Stripped Certificates in the
aggregate, represent the same pro rata portion of principal and interest on
each such Mortgage Loan, and a stripped bond or stripped coupon (as the case
may be), treated as an installment obligation or contingent payment obligation,
as to the remainder. Final regulations issued on December 28, 1992 regarding
original issue discount on stripped obligations make the foregoing
interpretations less likely to be applicable. The preamble to those regulations
states that they are premised on the assumption that an aggregation approach is
appropriate for determining whether original issue discount on a stripped bond
or stripped coupon is de minimis, and solicits comments on appropriate rules
for aggregating stripped bonds and stripped coupons under Code Section 1286.
Because of these possible varying characterizations of Stripped
Certificates and the resultant differing treatment of income recognition,
Stripped Certificateholders are urged to consult their own tax advisors
regarding the proper treatment of Stripped Certificates for federal income tax
purposes.
REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
The Trustee will furnish, within a reasonable time after the end of each
calendar year, to each Standard Certificateholder or Stripped Certificateholder
at any time during such year, such information (prepared on the basis described
above) as the Trustee deems to be necessary or desirable to enable such
Certificateholders to prepare their federal income tax returns. Such
information will include the amount of original issue discount accrued on
Certificates held by persons other than Certificateholders exempted from the
reporting requirements. The amounts required to be reported by the Trustee may
not be equal to the proper amount of original issue discount required to be
reported as taxable income by a Certificateholder, other than an original
Certificateholder that purchased at the issue price. In particular, in the case
of Stripped Certificates, unless provided otherwise in the applicable
Prospectus Supplement,
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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.
CERTAIN ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain requirements on retirement plans, and on certain
other employee benefit plans and arrangements, including individual retirement
accounts and annuities, Keogh plans, collective investment funds, insurance
company and separate accounts and some insurance company general accounts in
which such plans, accounts or arrangements are invested that are subject to the
fiduciary responsibility provisions of ERISA and Section 4975 of the Code (all
of which are hereinafter referred to as "Plans"), and on persons who are
fiduciaries with respect to Plans, in connection with the investment of Plan
assets. Certain employee benefit plans, such as governmental plans (as defined
in ERISA Section 3(32)), and, if no election has been made under Section 410(d)
of the Code, church plans (as defined in Section 3(33) of ERISA) are not
subject to ERISA requirements. Accordingly, assets of such plans may be
invested in Offered Certificates without regard to the ERISA considerations
described below, subject to the provisions of other applicable federal and
state law. Any such plan which is qualified and exempt from taxation under
Sections 401(a) and 501(a) of the Code, however, is subject to the prohibited
transaction rules set forth in Section 503 of the Code.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and
the requirement that a Plan's investments be made in accordance with the
documents governing the Plan. In addition, ERISA and the Code prohibit a broad
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range of transactions involving assets of a Plan and persons ("Parties in
Interest") who have certain specified relationships to the Plan, unless a
statutory or administrative exemption is available. Certain Parties in Interest
that participate in a prohibited transaction may be subject to an excise tax
imposed pursuant to Section 4975 of the Code, unless a statutory or
administrative exemption is available. These prohibited transactions generally
are set forth in Section 406 of ERISA and Section 4975 of the Code. Special
caution should be exercised before the assets of a Plan are used to purchase a
Certificate if, with respect to such assets, the Depositor, the Master Servicer
or the Trustee or an affiliate thereof, either: (a) has investment discretion
with respect to the investment of such assets of such Plan; or (b) has
authority or responsibility to give, or regularly gives investment advice with
respect to such assets for a fee and pursuant to an agreement or understanding
that such advice will serve as a primary basis for investment decisions with
respect to such assets and that such advice will be based on the particular
investment needs of the Plan.
Before purchasing any Offered Certificates, a Plan fiduciary should
consult with its counsel and determine whether there exists any prohibition to
such purchase under the requirements of ERISA, whether any prohibited
transaction class-exemption or any individual administrative prohibited
transaction exemption (as described below) applies, including whether the
appropriate conditions set forth therein would be met, or whether any statutory
prohibited transaction exemption is applicable, and further should consult the
applicable Prospectus Supplement relating to such Series of Certificates.
PLAN ASSET REGULATIONS
A Plan's investment in Certificates may cause the Trust Assets to be
deemed Plan assets. Section 2510.3-101 of the regulations of the United States
Department of Labor ("DOL") provides that when a Plan acquires an equity
interest in an entity, the Plan's assets include both such equity interest and
an undivided interest in each of the underlying assets of the entity, unless
certain exceptions not applicable to this discussion apply, or unless the
equity participation in the entity by "benefit plan investors" (that is, Plans
and certain employee benefit plans not subject to ERISA) is not "significant".
For this purpose, in general, equity participation in a Trust Fund will be
"significant" on any date if, immediately after the most recent acquisition of
any Certificate, 25% or more of any class of Certificates is held by benefit
plan investors.
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 a prohibited transaction under ERISA and the
Code.
ADMINISTRATIVE EXEMPTIONS
Several underwriters of mortgage-backed securities have applied for and
obtained individual administrative ERISA prohibited transaction exemptions (the
"Exemptions") which can only apply to the purchase and holding of
mortgage-backed securities which, among other conditions, are sold in an
offering with respect to which such underwriter serves as the sole or a
managing underwriter, or as a selling or placement agent. If such an exemption
might be applicable to a Series of Certificates, the related Prospectus
Supplement will refer to such possibility, as well as provide a summary of the
conditions to the applicability.
In considering an investment in the Offered Certificates, a Plan fiduciary
also should consider the availability of prohibited transaction class
exemptions promulgated by the DOL including, among others, Prohibited
Transaction Class Exemption ("PTCE") 75-1, which exempts certain transactions
between insurance dealers, reporting dealers and banks; PTCE 90-1, which
exempts certain transactions between
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insurance company separate accounts and Parties in Interest; PTCE 91-38, which
exempts certain transactions between bank collective investment funds and
Parties in Interest; PTCE 84-14, which exempts certain transactions effected on
behalf of a Plan by a "qualified professional asset manager"; PTCE 95-60, which
exempts certain transactions between insurance company general accounts and
Parties in Interest; and PTCE 96-23, which exempts certain transactions
effected on behalf of a Plan by an "in-house asset manager." There can be no
assurance that any of these class exemptions will apply with respect to any
particular Plan investment in the Certificates or, even if it were deemed to
apply, that any exemption would apply to all prohibited transactions that may
occur in connection with such investment. The Prospectus Supplement with
respect to a series of Certificates may contain additional information
regarding the availability of other exemptions with respect to the Certificates
offered thereby.
INSURANCE COMPANY GENERAL ACCOUNTS
Section III of Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60")
exempts from the application of the prohibited transaction provisions of
Sections 406(a), 406(b) and 407(a) of ERISA and Section 4975 of the Code
transaction in connection with the servicing, management and operation of a
trust (such as the Trust Fund) in which an insurance company general account
has an interest as a result of its acquisition of certificates issued by the
trust, provided that certain conditions are satisfied. If these conditions are
met, insurance company general accounts would be allowed to purchase certain
Classes of Certificates which do not meet the requirements of the Exemptions
solely because they (i) are subordinated to other Classes of Certificates in
the Trust Fund and/or (ii) have not received a rating at the time of the
acquisition in one of the three highest rating categories from S&P, Moody's,
DCR or Fitch. All other conditions of the Exemptions would have to be satisfied
in order for PTCE 95-60 to be available. Before purchasing such Class of
Certificates, an insurance company general account seeking to rely on Section
III of PTCE 95-60 should itself confirm that all applicable conditions and
other requirements have been satisfied.
The Small Business Job Protection Act of 1996 added a new Section 401(c)
to ERISA, which provides certain exemptive relief from the provisions of Part 4
of Title I of ERISA and Section 4975 of the Code, including the prohibited
transaction restrictions imposed by ERISA and the related excise taxes imposed
by the Code, for transactions involving an insurance company general account.
Pursuant to Section 401(c) of ERISA, the DOL was required to issue final
regulations ("401(c) Regulations") no later than December 31, 1997 which were
to provide guidance for the purpose of determining, in cases where insurance
policies supported by an insure's general account are issued to or for the
benefit of a Plan on or before December 31, 1998, which general account assets
constitute Plan assets. On December 22, 1997, the DOL proposed such
regulations. Section 401(c) of ERISA generally provides that, until the date
which is 18 months after the 401(c) Regulations become final, no person shall
be subject to liability under Part 4 of Tile I of ERISA and Section 4975 of the
Code on the basis of a claim that the assets of an insurance company general
account constitute Plan assets, unless (i) as otherwise provided by the
Secretary of Labor in the 401(c) Regulations to prevent avoidance of the
regulations or (ii) an action is brought by the Secretary of Labor for certain
breaches of fiduciary duty which would also constitute a violation of federal
or state criminal law. Any assets of an insurance company general account which
support insurance policies issued to a Plan after December 31, 1998 or issued
to Plans on or before December 31, 1998 for which the insurance company does
not comply with the 401(c) Regulations may be treated as Plan assets. In
addition, because Section 401(c) does not relate to insurance company separate
accounts, separate account assets are still treated as Plan assets of any Plan
invested in such separate account. Insurance companies contemplating the
investment of general account assets in the Offered Certificates should consult
with their legal counsel with respect to the applicability of Section 401(c) of
ERISA, including the general account's ability to continue to hold the Offered
Certificates after the date which is 18 months after the date the 401(c)
Regulations become final.
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 Plans, may give
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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 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
restrictions, and thus the ability of investors subject to these restrictions
to purchase such Certificates, may be subject to significant interpretive
uncertainties. Accordingly, investors whose investment authority is subject to
legal restrictions should consult their own legal advisors to determine whether
and to what extent the Non-SMMEA Certificates constitute legal investments for
them.
Generally, only classes of Offered Certificates that (i) are rated in one
of the two highest rating categories by one or more Rating Agencies and (ii)
are part of a series evidencing interests in a Trust Fund consisting of loans
originated by certain types of Originators as specified in SMMEA and secured by
first liens on real estate, 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, under applicable law, obligations
issued by or guaranteed as to principal and interest by the United States or
any agency or instrumentality thereof constitute legal investments for such
entities.
Under SMMEA, a number of states enacted legislation, on or prior to the
October 3, 1991 cut-off for such enactments, limiting to various extents 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, which amended the definition of "mortgage related security" to
include, in relevant part, Offered 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, states were authorized to enact legislation, on or
before September 23, 2001, specifically referring to Section 347 and
prohibiting or restricting the purchase, holding or investment by state-
regulated entities in such types of Offered Certificates. Accordingly, the
investors affected by any such state legislation, when and if enacted, will be
authorized to invest in Offered Certificates qualifying as "mortgage related
securities" only to the extent provided in such legislation.
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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, 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. Section 1.5 concerning "safety and soundness" and retention of credit
information), certain "Type IV securities," defined in 12 C.F.R. Section
1.2(1) to include certain "commercial mortgage-related securities" and
"residential mortgage-related securities." As so defined, "commercial
mortgage-related security" and "residential mortgage-related security" mean, in
relevant part, "mortgage related security" within the meaning of SMMEA,
provided that, in the case of a "commercial mortgage-related security," it
"represents ownership of a promissory note or certificate of interest or
participation that is directly secured by a first lien on one or more parcels
of real estate upon which one or more commercial structures are located and
that is fully secured by interests in a pool of loans to numerous obligors." In
the absence of any rule or administrative interpretation by the OCC defining
the term "numerous obligors," no representation is made as to whether any class
of Offered Certificates will qualify as "commercial mortgage-related
securities," and thus as "Type IV securities," for investment by national
banks. The National Credit Union Administration (the "NCUA") has adopted rules,
codified at 12 C.F.R. Part 703, which permit federal credit unions to invest in
"mortgage related securities" under certain limited circumstances, other than
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 Investment
Securities and End-User Derivatives Activities" (the "1998 Policy Statement")
of the Federal Financial Institutions Examination Council, which has been
adopted by the Board of Governors of the Federal Reserve System, the OCC, the
Federal Deposit Insurance Corporation and the Office of Thrift Supervision,
effective May 26, 1998, and by the NCUA, effective October 1, 1998. . The 1998
Policy Statement sets forth general guidelines which depository institutions
must follow in managing risks (including market, credit, liquidity, operational
(transaction), 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 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 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 Offered Certificates for legal investment purposes,
financial institution regulatory purposes, or other purposes, or as to the
ability of particular investors to purchase Offered Certificates under
applicable legal investment restrictions. The uncertainties described above
(and any unfavorable future determinations concerning legal investment or
financial institution regulatory characteristics of the Offered Certificates)
may adversely affect the liquidity of the Offered Certificates.
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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, and, if applicable, whether SMMEA has been overridden in any
jurisdiction relevant to such investor.
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 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 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 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
105
<PAGE>
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 Chase Securities 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 Chase Securities Inc. acts as principal. Chase Securities
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 Cadwalader, Wickersham & Taft, New York, New York.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each series of
Certificates, and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement.
RATING
It is a condition to the issuance of any class of Offered Certificates
that they shall have been rated not lower than investment grade, that is, in
one of the four highest 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.
106
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
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<CAPTION>
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<S> <C>
1986 Act............................... 76
1998 Policy Statement..................104
401(c) Regulations.....................102
Accrual Certificates................13, 38
Accrued Certificate Interest............38
ADA.....................................71
ARM Loans...............................28
Available Distribution Amount...........37
Book-Entry Certificates.............15, 37
call risk.......................18, 19, 34
capital asset...........................81
Cash Flow Agreement.................11, 29
Cash Flow Agreements.....................1
CERCLA..................................23
Certificate.............................45
Certificate Account.............11, 29, 47
Certificate Balance..............3, 12, 39
Certificate Owner...................15, 43
Certificateholders.......................2
Certificates..........................1, 9
Code................................15, 73
Commercial Properties...............10, 25
Commission...............................3
Companion Class.....................14, 39
Controlled Amortization Class.......14, 39
Cooperatives............................25
CPR.....................................32
Credit Support...................1, 11, 29
Crime Control Act.......................72
Cut-off Date............................13
Debt Service Coverage Ratio.............26
Definitive Certificates.............15, 37
Depositor...............................25
Determination Date..................30, 37
Direct Participants.....................43
Disqualified Organization..........87, 103
Disqualified Organizations..........87, 88
Distribution Date.......................13
Distribution Date Statement.............41
DOL....................................101
DTC..........................3, 15, 37, 43
Due Dates...............................27
Due Period..............................30
Equity Participation....................27
ERISA..............................15, 100
Events of Default.......................55
Excess Funds............................35
Exchange Act.............................4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
extension risk..................18, 19, 34
FAMC....................................10
FHLMC...................................10
FNMA ...................................10
Foreign Investors.......................87
Forfeitures In Drug And RICO
Proceedings...........................71
Garn Act................................69
GNMA....................................10
Hotel Property..........................20
Indirect Participants...................43
Insurance and Condemnation Proceeds.....48
L/C Bank................................60
Liquidation Proceeds....................48
Loan-to-Value Ratio.....................26
Lock-out Date...........................27
Lock-out Period.........................27
Mark to Market Regulations..............89
Market Discount.....................80, 81
Master Servicer.......................3, 9
MBS..............................1, 10, 25
MBS Agreement...........................28
MBS Issuer..............................28
MBS Servicer............................28
MBS Trustee.............................28
Mortgage Asset Pool......................1
Mortgage Asset Seller...................25
Mortgage Assets......................1, 25
Mortgage Loans....................1, 9, 25
Mortgage Notes..........................25
Mortgage Rate.......................10, 27
Mortgaged Properties....................25
Mortgages...............................25
mortgages...............................61
Multifamily Properties...............9, 25
NCUA...................................104
Net Leases..............................26
Net Operating Income....................26
New Regulations.........................91
Nonrecoverable Advance..................40
Non-SMMEA Certificates.................103
Non-U.S. Person ....................... 91
Notional Amount.....................12, 38
OCC....................................104
Offered Certificates.....................1
OID Regulations.........................76
original issue discount.................76
Original Issue Discount.............79, 80
Originator..............................25
</TABLE>
107
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<TABLE>
<CAPTION>
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<S> <C>
PAC.....................................33
Participants........................24, 43
Parties in Interest....................101
Pass-Through Entity.................86, 87
Pass-Through Rate....................3, 12
Permitted Investments...................48
Plans..................................100
Pooling Agreement...................12, 44
Prepayment Assumption...................77
Prepayment Interest Shortfall...........30
Prepayment Period.......................41
Prepayment Premium......................27
Prospectus Supplement....................1
PTCE...................................101
PTCE 95-60.............................102
Random Lot Certificates.................76
Rating Agency...........................16
Record Date.............................37
Regular Certificateholder...............76
Regular Certificates................73, 92
regular interests........................3
Related Proceeds........................40
Relief Act..............................70
REMIC............................2, 15, 73
REMIC Certificates......................73
REMIC Pool..............................73
REMIC Regulations.......................73
REO Property............................47
Residual Certificateholders.............82
Residual Certificates...................73
residual interests.......................3
</TABLE>
<TABLE>
<CAPTION>
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<S> <C>
RICO....................................71
Securities Act.........................105
Senior Certificates.................12, 37
Service.................................75
Servicing Standard......................47
SMMEA..............................16, 103
SPA.....................................32
Special Servicer..................3, 9, 47
Standard Certificateholder..............94
Startup Day.............................74
stripped bond...........................96
stripped bonds..........................96
Stripped Certificateholder..............98
Stripped Certificates...........94, 96, 97
stripped coupons........................96
Stripped Interest Certificates..12, 37, 97
Stripped Principal Certificates.12, 37, 97
Subordinate Certificates............12, 37
Sub-Servicer............................47
Sub-Servicing Agreement.................47
TAC.....................................33
Title V.................................70
Treasury................................73
Trust Assets.............................3
Trust Fund...............................1
Trustee...............................3, 9
UCC.....................................62
U.S. Person.............................88
Value...................................26
Voting Rights...........................42
Warranting Party........................46
</TABLE>
108
<PAGE>
===============================================================================
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS AND PROSPECTUS
SUPPLEMENT. YOU MUST NOT RELY ON ANY AUTHORIZED INFORMATION OR REPRESENTATIONS.
THIS PROSPECTUS AND PROSPECTUS SUPPLEMENT IS AN OFFER TO SELL ONLY THE
CERTIFICATES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND IN JURISDICTIONS
WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS PROSPECTUS AND
PROSPECTUS SUPPLEMENT IS CURRENT ONLY AS OF ITS DATE.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PROSPECTUS SUPPLEMENT ------
<S> <C>
Summary of Terms ................................. S-9
Risk Factors ..................................... S-27
Description of the Mortgage Pool ................. S-43
Description of the Certificates .................. S-76
Servicing of the Mortgage Loans .................. S-97
Yield and Maturity Considerations ................ S-110
Certain Federal Income Tax Consequences .......... S-118
Method of Distribution ........................... S-119
Legal Matters .................................... S-120
Rating ........................................... S-120
Legal Investment ................................. S-121
Certain ERISA Considerations ..................... S-121
Index of Principal Definitions ................... S-124
PROSPECTUS
Prospectus Supplement ............................ 3
Available Information ............................ 3
Incorporation of Certain Information by
Reference ...................................... 4
Summary of Prospectus ............................ 9
Risk Factors ..................................... 17
Description of the Trust Funds ................... 25
Yield and Maturity Considerations ................ 30
The Depositor .................................... 36
Use of Proceeds .................................. 36
Description of the Certificates .................. 37
Description of the Pooling Agreements ............ 44
Description of Credit Support .................... 59
Certain Legal Aspects of Mortgage Loans .......... 61
Certain Federal Income Tax Consequences .......... 73
State and Other Tax Considerations ............... 100
Certain ERISA Considerations ..................... 100
Legal Investment ................................. 103
Method of Distribution ........................... 105
Legal Matters .................................... 106
Financial Information ............................ 106
Rating ........................................... 106
Index of Principal Definitions ................... 107
</TABLE>
UNTIL JANUARY , 1999 ALL DEALERS THAT BUY, SELL OR TRADE THE OFFERED
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. THIS IS IN
ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
$1,167,301,785
(APPROXIMATE)
CHASE COMMERCIAL
MORTGAGE SECURITIES
CORP.
COMMERCIAL MORTGAGE PASS-THROUGH
CERTIFICATES, SERIES 1998-2
[CHASE LOGO]
<PAGE>
- -----------------------------------------------------------
CLASS A-1 CERTIFICATES $ 175,000,000
CLASS A-2 CERTIFICATES $ 426,000,000
CLASS A-3 CERTIFICATES $ 336,721,655
CLASS X CERTIFICATES $1,293,409,180
CLASS B CERTIFICATES $ 64,670,459
CLASS C CERTIFICATES $ 71,137,505
CLASS D CERTIFICATES $ 74,371,028
CLASS E CERTIFICATES $ 19,401,138
PROSPECTUS SUPPLEMENT
- -----------------------
CHASE SECURITIES INC.
NOVEMBER , 1998
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