<PAGE>
Filed Pursuant to Rule 424(b)(2)
Registration File No.: 33-18961
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 7, 1998)
[CHASE LOGO]
$736,087,306 (APPROXIMATE)
CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
DEPOSITOR
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-1
The Series 1998-1 Commercial Mortgage Pass-Through Certificates (the
"Certificates") will consist of the following fourteen classes (each, a
"Class"): the Class A-1 and Class A-2 Certificates (collectively, the "Class
A Certificates"), Class X, Class B, Class C, Class D, Class E, Class F, Class
G, Class H, Class I, Class J, Class R and Class LR Certificates. The Class A
Certificates and the Class X Certificates are collectively referred to herein
as the "Senior Certificates." The Class B, Class C, Class D, Class E, Class
F, Class G, Class H, Class I and Class J Certificates are referred to
collectively herein as the "Subordinate Certificates." The Class B, Class C,
Class D and Class E Certificates are referred to herein collectively as the
"Subordinate Offered Certificates." The Class R and Class LR Certificates are
collectively referred to herein as the "Residual Certificates." Only the
Class A, Class B, Class C, Class D, Class E and Class X Certificates are
being offered hereby (collectively, the "Offered Certificates").
(continued on page S-3)
<TABLE>
<CAPTION>
INITIAL CLASS
CERTIFICATE ASSUMED
BALANCE OR PASS- FINAL
NOTIONAL THROUGH DISTRIBUTION
AMOUNT (1) RATE DATE (2)
--------------- --------- -----------------
<S> <C> <C> <C>
Class A-1.... $132,600,000 6.34% December 18, 2006
Class A-2 .. $464,448,593 6.56% May 18, 2008
Class X ..... $817,874,785 (4) April 18, 2023
Class B ..... $ 32,714,991 6.56% May 18, 2008
Class C ..... $ 49,072,487 6.56% May 18, 2008
Class D ..... $ 44,983,113 6.56% May 18, 2008
Class E...... $ 12,268,122 6.56% May 18, 2008
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
RATED
FINAL
DISTRIBUTION
DATE (3)
--------------
<S> <C>
Class A-1.... May 18, 2030
Class A-2 .. May 18, 2030
Class X ..... May 18, 2030
Class B ..... May 18, 2030
Class C ..... May 18, 2030
Class D ..... May 18, 2030
Class E...... May 18, 2030
</TABLE>
- ------------
(Footnotes to table on page S-3)
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON
THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES DO NOT REPRESENT AN
INTEREST IN OR OBLIGATION OF THE DEPOSITOR OR ANY OF ITS AFFILIATES. NEITHER
THE OFFERED CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED OR GUARANTEED BY
ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE DEPOSITOR OR ANY OF ITS
AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER THE
CAPTION "RISK FACTORS" BEGINNING ON PAGE S-28 HEREIN AND PAGE 17 IN THE
PROSPECTUS BEFORE PURCHASING ANY OFFERED CERTIFICATE.
The Offered Certificates will be purchased from the Depositor by Chase
Securities Inc. (the "Underwriter") and will be offered by the Underwriter
from time to time in negotiated transactions or otherwise at varying prices
to be determined at the time of sale. Proceeds to the Depositor from the sale
of the Offered Certificates, before deducting expenses payable by the
Depositor estimated to be approximately $2,100,000, will be approximately
105.747% of the initial aggregate Certificate Balance of the Offered
Certificates, plus accrued interest on the Offered Certificates from May 1,
1998.
The Offered Certificates are offered by the Underwriter subject to prior
sale, when, as and if delivered to and accepted by the Underwriter and
subject to certain other conditions. It is expected that the Offered
Certificates will be delivered through the facilities of The Depository Trust
Company ("DTC") in the United States and Cedel Bank, S.A. ("Cedel") and The
Euroclear System ("Euroclear") in Europe on or about May 15, 1998 (the
"Closing Date") against payment therefor in immediately available funds. See
"Method of Distribution" herein.
CHASE SECURITIES INC.
MAY 7, 1998
<PAGE>
CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-1
GEOGRAPHIC OVERVIEW OF MORTGAGE POOL
ILLINOIS WISCONSIN MICHIGAN OHIO
3 properties 1 property 4 properties 5 properties
$24,450,893 $11,089,037 $15,642,676 $63,693,910
2.99% of total 1.36% of total 1.91% of total 7.79% of total
PENNSYLVANIA NEW YORK MAINE MASSACHUSETTS
4 properties 8 properties 1 property 10 properties
$25,096,552 $151,951,118 $8,000,000 $102,006,302
3.07% of total 18.58% of total 0.98% of total 12.47% of total
CONNECTICUT NEW JERSEY VIRGINIA NORTH CAROLINA
1 property 3 properties 1 property 3 properties
$2,553,593 $36,787,081 $18,085,597 $17,149,412
0.31% of total 4.50% of total 2.21% of total 2.10% of total
GEORGIA FLORIDA TENNESSEE LOUISIANA
4 properties 4 properties 2 properties 1 property
$24,185,692 $20,564,408 $3,070,099 $2,327,921
2.96% of total 2.51% of total 0.38% of total 0.28% of total
KANSAS TEXAS COLORADO NEVADA
1 property 24 properties 1 property 5 properties
$10,348,097 $115,654,761 $1,478,358 $20,453,967
1.27% of total 14.14% of total 0.18% of total 2.50% of total
CALIFORNIA OREGON WASHINGTON
18 properties 1 property 1 property
$128,048,578 $13,879,373 $1,343,660
15.66% of total 1.70% of total 0.16% of total
-----------------------------------------------
10.0% of Initial Pool Balance [ ]
5.01% - 9.99% of Initial Pool Balance [ ]
1.01% - 5.00% of Initial Pool Balance [ ]
1.00% of Initial Pool Balance [ ]
-----------------------------------------------
S-2
<PAGE>
(Continued from cover page)
- ------------
(1) Approximate, subject to a permitted variance of plus or minus 10%.
(2) The Assumed Final Distribution Dates set forth above have been
determined on the basis of the assumptions described in "Description
of the Certificates--Assumed Final Distribution Date; Rated Final
Distribution Date" herein.
(3) The Rated Final Distribution Date is the first Distribution Date
after the 24th month following the end of the amortization term of
the Mortgage Loan, that, as of the Cut-off Date, has the longest
remaining amortization term (other than the 330 Madison Avenue Loan,
which is an interest-only loan).
(4) 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 Mortgage
Rates of the Mortgage Loans (weighted on the basis of the respective
Stated Principal Balances of the Mortgage Loans), over (ii) the
weighted average of the Pass-Through Rates of the other Certificates
(other than the Residual Certificates) as described herein.
The Certificates will represent in the aggregate the entire beneficial
ownership interest in a trust fund (the "Trust Fund") to be established by
the Depositor, that will consist primarily of a segregated pool (the
"Mortgage Pool") of commercial, multifamily and mobile home community
fixed-rate, fully amortizing and balloon mortgage loans (the "Mortgage
Loans"). The Chase Manhattan Bank originated all of the Mortgage Loans. As of
the Cut-off Date, the Mortgage Loans are expected to have an aggregate
principal balance of approximately $817,874,785 (the "Initial Pool Balance"),
after application of all payments of principal due on or before such date,
whether or not received. Approximately 19.14% of the Mortgage Loans (by
principal balance as of the Cut-off Date) are secured by hotel properties. As
used herein, the "Cut-off Date" is May 1, 1998 (or, in the case of 28
Mortgage Loans, representing approximately 52.97% of the Initial Pool
Balance, May 10, 1998). Certain anticipated characteristics of the Mortgage
Loans are described herein under "Description of the Mortgage Pool." The
rights of the holders of the Subordinate Certificates to receive
distributions with respect to the Trust Fund will be subordinate to the
rights of the holders of the Senior Certificates, and the rights of the
holders of certain Classes of Subordinate Certificates to receive
distributions with respect to the Trust Fund will be subordinate to the
rights of the holders of other Classes of Subordinate Certificates, in each
case to the extent described herein and in the Prospectus.
It is a condition of their issuance that each Class of the Class A
Certificates be rated not lower than "AAA" by Standard & Poor's Ratings
Services ("S&P") and "Aaa" by Moody's Investors Service, Inc. ("Moody's"),
the Class X Certificates be rated not lower than "AAAr" by S&P and "Aaa" by
Moody's, the Class B Certificates be rated not lower than "AA" by S&P and
"Aa2" by Moody's, the Class C Certificates be rated not lower than "A" by S&P
and "A2" by Moody's, the Class D Certificates be rated not lower than "BBB"
by S&P and "Baa2" by Moody's, and the Class E Certificates be rated not lower
than "BBB-" by S&P and "Baa3" by Moody's. See "Rating" herein.
There is currently no secondary market for the Offered Certificates. The
Underwriter intends to make a secondary market in the Offered Certificates,
but is not obligated to do so. There can be no assurance that a secondary
market for the Offered Certificates will develop or, if it does develop, that
it will continue. The Offered Certificates will not be listed on any
securities exchange.
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. is a principal. Chase Securities Inc. may also act as agent
in such transactions. Such sales will be made at negotiated prices determined
at the time of sale.
The Offered Certificates will be represented initially by certificates
registered in the name of Cede & Co., as nominee of DTC. The interests of the
beneficial owners of the Offered Certificates will be represented by book
entries on the records of participating members of DTC. Definitive
certificates will be available for the Offered Certificates only under the
limited circumstances described herein and in the Prospectus. See
"Description of the Certificates--Book-Entry Registration and Definitive
Certificates" herein and in the Prospectus.
Elections will be made to treat two segregated pools of assets comprising
the Trust (each, a "REMIC Pool") as two separate "real estate mortgage
investment conduits" (each, a "REMIC" and, respectively, the "Upper-Tier
REMIC" and the "Lower-Tier REMIC") for federal income tax purposes. As
described
S-3
<PAGE>
more fully herein and in the Prospectus, the Certificates other than the
Residual Certificates will be designated as "regular interests" in the
Upper-Tier REMIC, and the Class R and Class LR Certificates will be
designated as the "residual interests" in the Upper-Tier REMIC and Lower-Tier
REMIC, respectively. See "Certain Federal Income Tax Consequences" herein and
in the Prospectus.
Distributions on the Certificates will be made, to the extent of available
funds, on the 18th day of each month or, if any such day is not a business
day, then on the next business day, beginning in June 1998 (each, a
"Distribution Date"). As described herein, interest distributions on each
Class of Offered Certificates will be made on each Distribution Date based on
the pass-through rate (the "Pass-Through Rate") applicable to such Class, as
set forth on the cover of this Prospectus Supplement, and the stated
principal amount (the "Certificate Balance") or notional amount (the
"Notional Amount"), as the case may be, of such Class outstanding immediately
prior to such Distribution Date. Interest will accrue on the Offered
Certificates from the first day of the month preceding the month in which the
related Distribution Date occurs through the last day of such month (each
such period, an "Interest Accrual Period"). Distributions of interest and
distributions of principal, except with respect to the Class X Certificates,
on each Class of Offered Certificates will be made in the amounts and in
accordance with the priorities described herein. The Class X Certificates
will not have Certificate Balances or entitle their holders to distributions
of principal. The Class X Certificates will bear interest on the Notional
Amount outstanding from time to time. See "Description of the
Certificates--Distributions" herein.
The yield to maturity on each Class of Offered Certificates will depend
on, among other things, the rate and timing of principal payments (including
by reason of prepayments, defaults and liquidations) on the Mortgage Loans.
See "Yield and Maturity Considerations" herein and "Yield and Maturity
Considerations" and "Risk Factors--Prepayments; Average Life of Certificates;
Yields" in the Prospectus. THE YIELD TO MATURITY ON THE CLASS X CERTIFICATES
WILL BE EXTREMELY SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS
(INCLUDING PREPAYMENTS) AND PRINCIPAL LOSSES AND TO OTHER FACTORS SET FORTH
HEREIN. INVESTORS SHOULD FULLY CONSIDER THE ASSOCIATED RISKS, INCLUDING THE
RISK THAT A RAPID RATE OF PRINCIPAL PAYMENTS AND/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. SEE "YIELD AND
MATURITY CONSIDERATIONS--YIELD SENSITIVITY OF THE CLASS X CERTIFICATES"
HEREIN.
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE PART OF
A SEPARATE SERIES OF THE DEPOSITOR'S COMMERCIAL MORTGAGE PASS-THROUGH
CERTIFICATES REFERRED TO IN THE DEPOSITOR'S PROSPECTUS DATED MAY 7, 1998
WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING THAT IS NOT CONTAINED HEREIN,
AND PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS
PROSPECTUS SUPPLEMENT IN FULL. SALES OF THE OFFERED CERTIFICATES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS.
S-4
<PAGE>
FORWARD-LOOKING STATEMENTS
IF AND WHEN INCLUDED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS OR IN DOCUMENTS INCORPORATED HEREIN OR THEREIN BY REFERENCE, THE
WORDS "EXPECTS," "INTENDS," "ANTICIPATES," "ESTIMATES" AND ANALOGOUS
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. ANY SUCH
STATEMENTS, WHICH MAY INCLUDE STATEMENTS CONTAINED IN "RISK FACTORS,"
INHERENTLY ARE SUBJECT TO A VARIETY OF RISKS AND UNCERTAINTIES THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. SUCH RISKS
AND UNCERTAINTIES INCLUDE, AMONG OTHERS, GENERAL ECONOMIC AND BUSINESS
CONDITIONS, COMPETITION, CHANGES IN FOREIGN POLITICAL, SOCIAL AND ECONOMIC
CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL
REGULATIONS, CUSTOMER PREFERENCES AND VARIOUS OTHER MATTERS, MANY OF WHICH
ARE BEYOND THE DEPOSITOR'S CONTROL. THESE FORWARD-LOOKING STATEMENTS SPEAK
ONLY AS OF THE DATE OF THIS PROSPECTUS SUPPLEMENT. THE DEPOSITOR EXPRESSLY
DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO RELEASE PUBLICLY ANY UPDATES OR
REVISIONS TO ANY FORWARD-LOOKING STATEMENT CONTAINED HEREIN TO REFLECT ANY
CHANGE IN THE DEPOSITOR'S EXPECTATIONS WITH REGARD THERETO OR ANY CHANGE IN
EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED.
S-5
<PAGE>
CREDIT SUPPORT STRUCTURE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
APPROXIMATE APPROXIMATE
CREDIT PERCENT OF
SUPPORT TOTAL
----------- --------------- ----------- -------------- ------------- ---------------
Class A-1 $132,600,000 (AAA/Aaa) 16.21%
27.00%
----------- -------------- ------------- -------------
Class A-2 $464,448,593 (AAA/Aaa) 56.79%
----------- ----------- -------------- ------------- -------------
23.00% Class B $ 32,714,991 (AA/Aa2) 4.00%
----------- ----------- -------------- ------------- -------------
17.00% Class C $ 49,072,487 (A/A2) 6.00%
----------- ----------- -------------- ------------- -------------
11.50% Class X Class D $ 44,983,113 (BBB/Baa2) 5.50%
----------- ----------- -------------- ------------- -------------
10.00% $817,874,785* Class E $ 12,268,122 (BBB-/Baa3) 1.50%
----------- -------------- ------------- -------------
5.50% (AAAr/Aaa) Class F $ 36,804,365 Not Offered 4.50%
----------- ----------- -------------- ------------- -------------
4.50% Class G $ 8,178,748 Not Offered 1.00%
----------- ----------- -------------- ------------- -------------
2.25% Class H $ 18,402,183 Not Offered 2.25%
----------- ----------- -------------- ------------- -------------
1.75% Class I $ 4,089,374 Not Offered 0.50%
----------- ----------- -------------- ------------- -------------
Class J $ 14,312,809 Not Offered 1.75%
----------- ----------- -------------- ------------- -------------
Ratings: S&P/Moody's
----------- ----------------------------------------------------------
</TABLE>
* Notional amount.
SUMMARY OF CERTIFICATES
<TABLE>
<CAPTION>
INITIAL
INITIAL AGGREGATE PASS- WEIGHTED PRINCIPAL OR
EXPECTED CERTIFICATE PASS-THROUGH THROUGH AVERAGE NOTIONAL
RATINGS BALANCE OR RATE RATE LIFE* PRINCIPAL
CLASS S&P/MOODY'S NOTIONAL AMOUNT DESCRIPTION (APPROX.) (APPROX.) WINDOW*
- ------- ------------- ----------------- ------------------------ --------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Senior Classes
- --------------------------------------------------------------------------------------------------------
A-1 AAA/Aaa $132,600,000 Fixed 6.34% 5.1 6/98-12/06
------ ------------- ----------------- ------------------------ --------- ---------- --------------
A-2 AAA/Aaa $464,448,593 Fixed 6.56% 9.7 12/06-5/08
------ ------------- ----------------- ------------------------ --------- ---------- --------------
X AAAr/Aaa $817,874,785 Variable (Interest Only) 0.8289% 9.6 6/98-4/23
------ ------------- ----------------- ------------------------ --------- ---------- --------------
Subordinate Classes
- --------------------------------------------------------------------------------------------------------
B AA/Aa2 $ 32,714,991 Fixed 6.56% 10.0 5/08-5/08
------ ------------- ----------------- ------------------------ --------- ---------- --------------
C A/A2 $ 49,072,487 Fixed 6.56% 10.0 5/08-5/08
------ ------------- ----------------- ------------------------ --------- ---------- --------------
D BBB/Baa2 $ 44,983,113 Fixed 6.56% 10.0 5/08-5/08
------ ------------- ----------------- ------------------------ --------- ---------- --------------
E BBB-/Baa3 $ 12,268,122 Fixed 6.56% 10.0 5/08-5/08
------ ------------- ----------------- ------------------------ --------- ---------- --------------
F Not Offered $ 36,804,365 Fixed** 6.56% 12.8 5/08-3/13
------ ------------- ----------------- ------------------------ --------- ---------- --------------
G Not Offered $ 8,178,748 Fixed** 6.56% 15.8 3/13-1/15
------ ------------- ----------------- ------------------------ --------- ---------- --------------
H Not Offered $ 18,402,183 Fixed 6.34% 18.4 1/15-11/17
------ ------------- ----------------- ------------------------ --------- ---------- --------------
I Not Offered $ 4,089,374 Fixed 6.34% 19.5 11/17-11/17
------ ------------- ----------------- ------------------------ --------- ---------- --------------
11/17-4/23
J Not Offered $ 14,312,809 Fixed 6.34% 20.8
------ ------------- ----------------- ------------------------ --------- ---------- --------------
</TABLE>
* The weighted average life ("Weighted Average Life") and period during
which distributions of principal would be received (the "Principal
Window" or "Notional Principal Window") set forth in the foregoing
table with respect to each Class of Certificates is based on the
assumptions set forth under "Yield and Maturity
Considerations--Weighted Average Life" herein and on the assumptions
that there are no prepayments (other than, with respect to the Embassy
Suites Loan, on the Anticipated Repayment Date), or losses on the
Mortgage Loans and no extensions of maturity dates of Mortgage Loans
that do not have Anticipated Repayment Dates.
** For any Distribution Date, if the weighted average Net Mortgage Rate as
of the first day of the related Due Period is less than the rate
specified for the Class F or Class G Certificates with respect to such
Distribution Date, then the Pass-Through Rate for such Class of
Certificates for such Distribution Date will equal the weighted average
Net Mortgage Rate.
S-6
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SUMMARY OF PROSPECTUS SUPPLEMENT ....................................................... S-10
RISK FACTORS ........................................................................... S-28
Exposure of the Mortgage Pool to Adverse Economic or Other Developments Based on
Geographic Concentration.............................................................. S-28
Increased Risk of Loss Associated With Concentration of Mortgage Loans and Borrowers .. S-28
Limitations on Enforceability of Cross-Collateralization............................... S-29
Other Financing and Additional Debt.................................................... S-29
Risks Associated with Balloon Payments and Loans With Anticipated Repayment Dates ..... S-30
Risks Associated with Commercial and Multifamily Lending Generally..................... S-30
Dependence on Tenants.................................................................. S-31
Borrower Default; Nonrecourse Mortgage Loans........................................... S-31
Risks Particular to Retail Properties.................................................. S-32
Risks Particular to Office Properties.................................................. S-32
Risks Particular to Hotel Properties................................................... S-32
Risks Particular to Multifamily Properties............................................. S-33
Risks Particular to Credit Lease Properties............................................ S-34
Risks Relating to Section 8 Multifamily Properties..................................... S-34
Management............................................................................. S-35
Risks Relating to Lack of Certificateholder Control Over Trust Fund.................... S-35
Special Servicer May Purchase Certificates............................................. S-36
Yield Risk Associated With Changes in Concentrations................................... S-36
Subordination of Subordinate Offered Certificates...................................... S-36
Potential Liability to the Trust Fund Relating to a Materially Adverse Environmental
Condition............................................................................. S-36
Tax Considerations Related to Foreclosure.............................................. S-37
Earthquake Insurance................................................................... S-37
Zoning Compliance...................................................................... S-37
Litigation............................................................................. S-38
Book-Entry Registration ............................................................... S-38
Risk of Year 2000...................................................................... S-38
DESCRIPTION OF THE MORTGAGE POOL ....................................................... S-39
General................................................................................ S-39
Significant Mortgage Loans............................................................. S-40
The Embassy Suites Loan............................................................... S-40
The 330 Madison Avenue Loan........................................................... S-43
Credit Lease Loans..................................................................... S-44
Section 8 Housing Assistance Payments Programs......................................... S-46
Certain Terms and Conditions of the Mortgage Loans..................................... S-47
Prepayment Provisions................................................................. S-47
Defeasance; Collateral Substitution................................................... S-52
"Due-on-Sale" and "Due-on-Encumbrance" Provisions..................................... S-53
Additional Mortgage Loan Information................................................... S-53
Underwritten Net Cash Flow............................................................. S-60
Revenue............................................................................... S-60
Vacancy............................................................................... S-60
Expenses.............................................................................. S-60
Replacement Reserves.................................................................. S-60
S-7
<PAGE>
Assessments of Property Condition...................................................... S-61
Property Inspection................................................................... S-61
Appraisals............................................................................ S-61
Environmental Reports................................................................. S-61
Building Condition Reports............................................................ S-61
The Mortgage Loan Seller............................................................... S-61
Underwriting Standards................................................................. S-61
General............................................................................... S-61
Loan Analysis......................................................................... S-62
Credit Lease Loans.................................................................... S-62
Loan Approval......................................................................... S-62
Debt Service Coverage Ratio and LTV Ratio............................................. S-62
Escrow Requirements................................................................... S-63
Representations and Warranties; Repurchases............................................ S-63
Mortgaged Property Accounts............................................................ S-67
Lock Box Accounts..................................................................... S-67
Cash Collateral Accounts.............................................................. S-68
DESCRIPTION OF THE CERTIFICATES ........................................................ S-69
General................................................................................ S-69
Paying Agent, Certificate Registrar and Authenticating Agent........................... S-70
Book-Entry Registration and Definitive Certificates.................................... S-70
General............................................................................... S-70
Definitive Certificates............................................................... S-72
Distributions.......................................................................... S-72
Method, Timing and Amount............................................................. S-72
Priority.............................................................................. S-74
Pass-Through Rates.................................................................... S-76
Interest Distribution Amount.......................................................... S-77
Principal Distribution Amount......................................................... S-77
Certain Calculations with Respect to Individual Mortgage Loans........................ S-78
Allocation of Prepayment Premiums and Yield Maintenance Charges........................ S-78
Assumed Final Distribution Date; Rated Final Distribution Date......................... S-79
Subordination; Allocation of Collateral Support Deficit................................ S-80
Advances............................................................................... S-81
Appraisal Reductions................................................................... S-82
Reports to Certificateholders; Certain Available Information........................... S-84
Voting Rights.......................................................................... S-86
Termination; Retirement of Certificates................................................ S-86
The Trustee............................................................................ S-87
SERVICING OF THE MORTGAGE LOANS ........................................................ S-88
General................................................................................ S-88
The Servicer........................................................................... S-90
The Special Servicer................................................................... S-90
Replacement of the Special Servicer.................................................... S-90
Servicing and Other Compensation and Payment of Expenses............................... S-90
Maintenance of Insurance............................................................... S-92
Modifications, Waiver and Amendments................................................... S-93
Realization Upon Defaulted Mortgage Loans.............................................. S-94
Inspections; Collection of Operating Information....................................... S-96
Certain Matters Regarding the Servicer, the Special Servicer and the Depositor ........ S-96
Events of Default...................................................................... S-97
S-8
<PAGE>
Rights Upon Event of Default........................................................... S-98
Amendment.............................................................................. S-98
YIELD AND MATURITY CONSIDERATIONS ...................................................... S-100
Yield Considerations................................................................... S-100
General............................................................................... S-100
Pass-Through Rate .................................................................... S-100
Rate and Timing of Principal Payments................................................. S-100
Losses and Shortfalls................................................................. S-101
Certain Relevant Factors.............................................................. S-101
Delay in Payment of Distributions..................................................... S-101
Unpaid Distributable Certificate Interest............................................. S-101
Weighted Average Life.................................................................. S-102
Yield Sensitivity of the Class X Certificates.......................................... S-106
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ................................................ S-107
METHOD OF DISTRIBUTION ................................................................. S-109
LEGAL MATTERS .......................................................................... S-109
RATING ................................................................................. S-110
LEGAL INVESTMENT ....................................................................... S-110
ERISA CONSIDERATIONS ................................................................... S-111
INDEX OF PRINCIPAL DEFINITIONS.......................................................... S-114
</TABLE>
S-9
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
The following Summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms that are used in this
Summary may be defined elsewhere in this Prospectus Supplement or in the
Prospectus. An Index of Principal Definitions is included at the end of both
this Prospectus Supplement and the Prospectus. Terms that are used but not
defined in this Prospectus Supplement will have the meanings specified in the
Prospectus.
TITLE OF CERTIFICATES ......... Chase Commercial Mortgage Securities Corp.,
Commercial Mortgage Pass-Through
Certificates, Series 1998-1.
DEPOSITOR ..................... Chase Commercial Mortgage Securities Corp.
The Depositor, a New York corporation, is a
wholly-owned subsidiary of The Chase
Manhattan Bank, a New York banking
corporation ("Chase"). The Depositor
maintains its principal office at 270 Park
Avenue, New York, New York 10017. See "The
Depositor" in the Prospectus.
SERVICER ...................... Chase. See "Servicing of the Mortgage
Loans--The Servicer" herein. Chase will also
act as the initial Paying Agent, Certificate
Registrar and Authenticating Agent. See
"Description of the Certificates--Paying
Agent, Certificate Registrar and
Authenticating Agent" herein.
SPECIAL SERVICER .............. CRIIMI MAE Services Limited Partnership, a
Maryland limited partnership. See "Servicing
of the Mortgage Loans--The Special Servicer"
herein.
TRUSTEE ....................... State Street Bank and Trust Company, a trust
company chartered under the laws of the
Commonwealth of Massachusetts. See
"Description of the Certificates--The
Trustee" herein.
MORTGAGE LOAN SELLER .......... Chase (in such capacity, the "Mortgage Loan
Seller"). See "Description of the Mortgage
Pool--The Mortgage Loan Seller" herein.
CUT-OFF DATE .................. May 1, 1998, or, with respect to 28 Mortgage
Loans representing approximately 52.97% of
the Initial Pool Balance, May 10, 1998.
References herein and in the Prospectus to
the Cut-off Date with respect to the
Mortgage Loans refer to the applicable
Cut-off Date for such Mortgage Loans.
CLOSING DATE .................. On or about May 15, 1998.
DISTRIBUTION DATE ............. Distributions on the Certificates will be
made monthly on the 18th day of the month,
or, if such day is not a business day, the
next succeeding business day, commencing in
June 1998.
S-10
<PAGE>
ASSUMED FINAL DISTRIBUTION
DATE ..........................
<TABLE>
<CAPTION>
ASSUMED FINAL
CLASS DESIGNATION DISTRIBUTION DATE
- --------------------- ---------------------
<S> <C>
Class A-1 ............ December 18, 2006
Class A-2 ............ May 18, 2008
Class X .............. April 18, 2023
Class B .............. May 18, 2008
Class C .............. May 18, 2008
Class D .............. May 18, 2008
Class E .............. May 18, 2008
</TABLE>
The Assumed Final Distribution Dates set
forth above have been determined on the
basis of the assumptions described in
"Description of the Certificates--Assumed
Final Distribution Date; Rated Final
Distribution Date" herein.
RATED FINAL DISTRIBUTION DATE . The Rated Final Distribution Date for each
Class of Offered Certificates is May 18,
2030, which is the first Distribution Date
after the 24th month following the end of
the amortization term for the Mortgage Loan
that, as of the Cut-off Date, has the
longest remaining amortization term (other
than the 330 Madison Avenue Loan which is an
interest-only loan). See "Description of the
Certificates--Assumed Final Distribution
Date; Rated Final Distribution Date" herein.
DENOMINATIONS ................. The Offered Certificates will be issued,
maintained and transferred in book-entry
form in denominations of $25,000 initial
Certificate Balance, or in the case of the
Class X Certificates, $1,000,000 initial
Notional Amount, and integral multiples of
$1,000 in excess thereof.
CLEARANCE AND SETTLEMENT ...... Holders of Offered Certificates may hold
their Certificates through any of The
Depository Trust Company ("DTC") (in the
United States) and Cedel Bank, S.A.
("Cedel") and The Euroclear System
("Euroclear") (in Europe). Transfers within
DTC, Cedel or Euroclear, as the case may be,
will be in accordance with the usual rules
and operating procedures of the relevant
system. Transfers between persons holding
directly or indirectly through Cedel or
Euroclear will be effected in DTC through
the relevant Depositories of Cedel or
Euroclear. The Depositor may elect to
terminate the book-entry system through DTC
with respect to all or any portion of any
Class of the Offered Certificates. No person
acquiring an interest in the Offered
Certificates (any such person, a
"Certificate Owner") will be entitled to
receive an Offered Certificate in fully
registered, certificated form (a "Definitive
Certificate"), except under the limited
circumstances described herein and in the
Prospectus. See "Description of the
Certificates--Book-Entry Registration and
Definitive Certificates" herein and in the
Prospectus.
S-11
<PAGE>
THE MORTGAGE POOL ............ The Mortgage Pool will consist of 56
commercial, 21 multifamily and 1 mobile home
community fixed-rate Mortgage Loans with an
Initial Pool Balance of approximately
$817,874,785. On or prior to the Closing
Date, the Depositor will acquire the
Mortgage Loans from the Mortgage Loan Seller
pursuant to a Mortgage Loan Purchase and
Sale Agreement, dated as of May 1, 1998,
between the Depositor and the Mortgage Loan
Seller (the "Purchase Agreement").
Each Mortgage Loan is secured by a first
priority lien on (i) a fee simple estate in
one or more commercial, multifamily or
mobile home community properties, (ii) with
respect to 7 Mortgaged Properties,
representing approximately 10.46% of the
Initial Pool Balance (by allocated loan
amount), the fee simple estate and a
leasehold estate in a commercial property or
(iii) with respect to 1 Mortgage Loan,
representing approximately 1.79% of the
Initial Pool Balance, a leasehold estate in
a commercial property (each, 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. Set forth below are
the number of Mortgaged Properties and the
approximate percentage of the Initial Pool
Balance represented by such Mortgaged
Properties that are secured by Mortgaged
Properties operated for each indicated
purpose:
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE OF
MORTGAGED CUT-OFF DATE INITIAL POOL
PROPERTY TYPE PROPERTIES BALANCE BALANCE
- --------------------- ------------ -------------- ---------------
<S> <C> <C> <C>
Anchored Retail ...... 21 $198,771,139 24.3%
Office ............... 12 174,024,190 21.3
Hotel ................ 12 156,514,567 19.1
Multifamily .......... 24 144,538,757 17.7
Credit Lease ......... 23 59,957,322 7.3
Mixed-Use ............ 2 36,882,443 4.5
Unanchored Retail ... 4 17,763,796 2.2
Single Tenant Retail 5 15,166,285 1.9
Industrial ........... 2 11,958,171 1.5
Mobile Home .......... 1 2,298,115 0.3
------------ -------------- ---------------
TOTAL................. 106 $817,874,785 100%
============ ============== ===============
</TABLE>
See "Risk Factors" and "Description of the
Mortgage Pool--Additional Mortgage Loan
Information" herein.
S-12
<PAGE>
SUMMARY OF MORTGAGE POOL
<TABLE>
<CAPTION>
<S> <C>
Initial Pool Balance ................. $817,874,785
Number of Mortgage Loans ............. 78
Number of Mortgaged Properties ...... 106
Number of Balloon Loans/ % of Initial
Pool Balance(1) ..................... 70/93.67%
Average Cut-off Date Balance ......... $ 10,485,579
Weighted Average Mortgage Rate ...... 7.317%
Weighted Average Original Term to
Maturity Date(1) .................... 133 months
Weighted Average Remaining Term to
Maturity Date (1) ................... 130 months
Weighted Average Original
Amortization Term ................... 332 months
Weighted Average DSCR as of the
Cut-off Date(2) ..................... 1.65x
Weighted Average LTV Ratio as of the
Cut-off Date(2) ..................... 67.18%
Weighted Average LTV Ratio as of
Maturity Date(1) .................... 51.89%
Weighted Average Current Occupancy
Rate ................................ 93%
</TABLE>
(1) Calculated with respect to the
Anticipated Repayment Date for the
Embassy Suites Loan.
(2) The Weighted Average DSCR and LTV Ratio
as of the Cut-off Date are 1.70x and
65.06%, respectively, excluding Credit
Lease Loans.
"DSCR", "LTV Ratio" and "Current Occupancy
Rate" are calculated as described under
"Description of the Mortgage
Pool--Additional Mortgage Loan Information"
herein.
S-13
<PAGE>
The following tables set forth certain
anticipated characteristics of the Mortgage
Loans. The sum in any column may not equal
the indicated total due to rounding. The
descriptions in this Prospectus Supplement
of the Mortgage Loans and the Mortgaged
Properties are based upon the Mortgage Pool
as it is expected to be constituted as of
the close of business on the 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.
GEOGRAPHIC DISTRIBUTION(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE
MORTGAGE CUT-OFF DATE OF INITIAL POOL
STATE PROPERTIES BALANCE BALANCE
- ---------------- ------------ -------------- ---------------
<S> <C> <C> <C>
New York ........ 8 $151,951,118 18.6%
California ...... 18 128,048,578 15.7
Texas ........... 24 115,668,462 14.1
Massachusetts .. 10 102,006,302 12.5
Ohio ............ 5 63,693,910 7.8
18 Other States 41 256,506,415 31.4
------------ -------------- ---------------
TOTAL............ 106 $817,874,785 100%
============ ============== ===============
</TABLE>
(1) Because this table is presented at the
Mortgaged Property level, information
presented therein is 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.
RANGE OF MORTGAGE RATES AS OF THE CUT-OFF
DATE
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE
NUMBER OF CUT-OFF OF INITIAL
LOANS/ DATE POOL
RANGE OF MORTGAGE RATES PROPERTIES BALANCE BALANCE
- ----------------------- ------------ -------------- ------------
<S> <C> <C> <C>
6.520% to 6.749% ....... 1 / 1 $ 60,000,000 7.3%
6.750% to 6.999% ....... 6 / 14 181,535,985 22.2
7.000% to 7.249% ....... 30 / 50 264,671,616 32.4
7.250% to 7.499% ....... 16 / 16 100,344,790 12.3
7.500% to 7.999% ....... 11 / 11 109,711,103 13.4
8.000% to 8.499% ....... 9 / 9 42,685,620 5.2
8.500% to 9.500% ....... 5 / 5 58,925,671 7.2
------------ -------------- ------------
TOTAL .................. 78 / 106 $817,874,785 100%
============ ============== ============
</TABLE>
The weighted average Mortgage Rate as of the
Cut-off Date is 7.317%.
S-14
<PAGE>
RANGE OF CUT-OFF DATE BALANCES
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE
NUMBER OF CUT-OFF OF INITIAL
RANGE OF LOANS / DATE POOL
CUT-OFF DATE BALANCES PROPERTIES BALANCE BALANCE
- --------------------------- ------------ -------------- ------------
<S> <C> <C> <C>
$ 887,919 to $4,000,000 .... 20 / 21 $ 51,322,083 6.3%
$4,000,001 to $8,000,000 ... 28 / 28 176,055,999 21.5
$8,000,001 to $12,000,000 .. 11 / 20 111,001,726 13.6
$12,000,001 to $18,000,000 . 10 / 17 142,342,674 17.4
$18,000,001 to $30,000,000 . 7 / 10 163,721,244 20.0
$30,000,001 to $60,000,000 . 1 / 1 60,000,000 7.3
$60,000,001 to
$113,431,059............... 1 / 9 113,431,059 13.9
------------ -------------- ------------
TOTAL....................... 78 / 106 $817,874,785 100%
============ ============== ============
</TABLE>
The average Cut-off Date Balance is
$10,485,574.
RANGE OF DSCRS AS OF THE CUT-OFF DATE(1)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE
NUMBER OF CUT-OFF OF INITIAL
LOANS / DATE POOL
RANGE OF DSCRS PROPERTIES BALANCE BALANCE
- ------------------- ------------ -------------- ------------
<S> <C> <C> <C>
1.0000x to 1.1999x . 9 / 25 $ 66,840,593 8.2%
1.2000x to 1.2999x 11 / 11 109,226,204 13.4
1.3000x to 1.3999x . 27 / 31 210,527,304 25.7
1.4000x to 1.4999x . 18 / 18 131,580,282 16.1
1.5000x to 1.9999x . 10 / 10 120,773,740 14.8
2.0000x to 2.9450x . 3 / 11 178,926,661 21.9
------------ -------------- ------------
TOTAL............... 78 / 106 $817,874,785 100%
============ ============== ============
</TABLE>
(1) 7 of such Mortgage Loans, representing
approximately 7.33% of the Initial Pool
Balance, are Credit Lease Loans meeting
the guidelines described under
"Description of the Mortgage
Pool--Underwriting Standards" herein.
The weighted average DSCRs as of the Cut-off
Date is approximately 1.65x.
RANGE OF LTV RATIOS AS OF THE CUT-OFF
DATE(1)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE
NUMBER OF CUT-OFF OF INITIAL
LOANS / DATE POOL
RANGE OF LTV RATIOS PROPERTIES BALANCE BALANCE
- ------------------- ------------ --------------- ------------
<S> <C> <C> <C>
37.50% to 49.99% .. 2 / 10 $173,431,059 21.2%
50.00% to 59.99% .. 5 / 5 72,792,496 8.9
60.00% to 69.99% .. 12 / 12 91,836,870 11.2
70.00% to 73.33% .. 12 / 12 128,982,218 15.8
73.34% to 76.66% .. 25 / 26 179,392,820 21.9
76.67% to 79.99% .. 14 / 17 105,561,999 12.9
80.00% to 99.48% .. 8 / 24 65,877,322 8.1
------------ --------------- ------------
TOTAL............... 78 / 106 $817,874,785 100%
============ =============== ============
</TABLE>
(1) 7 of such Mortgage Loans, representing
approximately 7.33% of the Initial Pool
Balance, are Credit Lease Loans meeting
the guidelines described under
"Underwriting Standards" herein.
The weighted average LTV Ratio as of the
Cut-off Date is approximately 67.18%.
S-15
<PAGE>
RANGE OF REMAINING TERM TO
MATURITY/ANTICIPATED
REPAYMENT DATE AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE
RANGE OF NUMBER OF CUT-OFF OF INITIAL
REMAINING TERMS LOANS/ DATE POOL
(MOS.) PROPERTIES BALANCE BALANCE
- -------------------- ------------ -------------- ------------
<S> <C> <C> <C>
57 to 72............. 1 / 1 $ 7,730,831 1.0%
73 to 108............ 4 / 4 41,013,128 5.0
109 to 112........... 8 / 8 52,749,874 6.5
113 to 116........... 13 / 21 222,994,375 27.3
117 to 120........... 39 / 42 387,396,043 47.4
121 to 180........... 2 / 2 23,385,846 2.9
181 to 299........... 11 / 28 82,604,688 10.1
------------ -------------- ------------
TOTAL ............... 78 / 106 $817,874,785 100%
============ ============== ============
</TABLE>
The weighted average remaining term to
maturity or the Anticipated Repayment Date,
as applicable, as of the Cut-off Date will
be approximately 130 months.
See "Description of the Mortgage
Pool--Additional Mortgage Loan Information"
herein.
50 of the Mortgage Loans, representing
approximately 47.03% of the Initial Pool
Balance, provide for scheduled payments of
principal and/or interest ("Monthly
Payments") due on the first day of each
month, and 28 Mortgage Loans, representing
approximately 52.97% of the Initial Pool
Balance, provide for scheduled payments of
principal and interest due on the 10th day
of each month (in each case, the "Due
Date"), and all of the Mortgage Loans whose
Due Date is the first day of each month
provide for no more than a 10-day grace
period (other than 1 Mortgage Loan,
representing approximately 0.20% of the
Initial Pool Balance, which provides for a
12 day grace period). 3 of the Mortgage
Loans, representing approximately 5.14% of
the Initial Pool Balance, whose Due Date is
the tenth day of each month, provide for a
1-day grace period. All of the Mortgage
Loans bear interest at fixed Mortgage Rates.
See "Description of the Mortgage
Pool--Certain Terms and Conditions of the
Mortgage Loans" herein.
8 of the Mortgage Loans, representing
approximately 6.33% of the Initial Pool
Balance, have remaining amortization terms
that are generally the same as their
respective remaining terms to maturity. 68
of the Mortgage Loans, representing
approximately 72.47% of the Initial Pool
Balance, have remaining amortization
schedules significantly longer than the
remaining terms to maturity of such Mortgage
Loans, thereby leaving substantial principal
amounts due and payable (each such payment,
together with the corresponding interest
payment, a "Balloon Payment") on their
respective maturity dates, unless prepaid
prior thereto. 1 Mortgage Loan (identified
as Loan Number 3 on Annex A hereto) (the
"330 Madison Avenue Loan"), representing
approximately 7.34% of the Initial Pool
Balance, provides for monthly payments of
interest only over
S-16
<PAGE>
the term of the Mortgage Loan and the
payment of the entire principal amount of
the Mortgage Loan at maturity. 1 Mortgage
Loan (loan number 31 on Annex A) (the
"Embassy Suites Loan"), representing
approximately 13.87% of the Initial Pool
Balance, contains a provision whereby after
a certain date (the "Anticipated Repayment
Date") the outstanding principal of the
Embassy Suites Loan will bear interest at an
increased rate which will be higher than the
rate previously in effect (any interest
accrued at excess of such increased rate
over the Stated Mortgage Rate, "Excess
Interest"). Commencing on the first Due Date
after the Anticipated Repayment Date,
certain cash flow in excess of that required
for debt service (other than Excess
Interest) and other items with respect to
the related Mortgaged Properties will be
applied towards the payment of principal of
the Embassy Suites Loan until the principal
balance has been reduced to zero. A
substantial principal payment will be
required to pay off the Embassy Suites Loan
on its Anticipated Repayment Date; however,
the Embassy Suites Loan has a remaining
amortization term that is generally the same
as its remaining term to maturity if it is
not prepaid at its Anticipated Repayment
Date. See "Description of the Mortgage
Pool--General--Significant Mortgage
Loans--The Embassy Suites Loan" herein.
25 Mortgage Loans, representing
approximately 47.41% 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 53 Mortgage
Loans, representing approximately 52.59% of
the Initial Pool Balance, accrue interest on
the basis of a 30-day month, assuming a
360-day year.
INFORMATION AVAILABLE TO
CERTIFICATEHOLDERS ........... On each Distribution Date, the Paying Agent
will prepare and forward by mail to each
holder of an Offered Certificate, with a
copy to a financial market publisher, which
is anticipated to initially be Bloomberg,
L.P., a statement as to the distribution
made on such date setting forth the amounts
distributed to the holders of the Offered
Certificates. In addition, subject to the
limitations set forth in the Pooling and
Servicing Agreement, the Paying Agent will
provide to each Certificateholder, the
Underwriter, any Certificate Owner or any
prospective investor identified as such by a
Certificate Owner or the Underwriter, upon
request (at the cost of the requesting
party) the following items: (i) all monthly
statements delivered to holders of Offered
Certificates since the Closing Date, (ii)
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, (iii) 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, (iv) the most recent
property inspection report prepared by or on
behalf of the Servicer or the Special
Servicer and delivered
S-17
<PAGE>
to the Paying Agent in respect of each
Mortgaged Property, (v) any modifications,
waivers or amendments of the terms of any
Mortgage Loan, (vi) any and all statements
and reports delivered to, or collected by,
the Servicer or the Special Servicer, from
the borrowers, including the most recent
annual property operating statements, rent
rolls and borrower financial statements, to
the extent such statements and reports have
been delivered to the Paying Agent and the
Paying Agent does not reasonably determine
that such information is subject to
confidentiality requirements or that the
provision of such information would subject
the Paying Agent, the Servicer, the Special
Servicer, the Trustee or the Trust Fund to
any liability, and (vii) certain other
reports and information regarding the
Mortgage Loans in the Paying Agent's
possession. See "Description of the
Certificates--Reports to Certificateholders;
Certain Available Information" herein.
The Servicer will provide quarterly to a
financial market publisher, which is
anticipated to initially be Bloomberg, L.P.,
certain current information with respect to
the Mortgaged Properties including current
and original net operating income and 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 Mortgage Loan
documents.
DESCRIPTION OF THE
CERTIFICATES ................. The Certificates will be issued pursuant to
a Pooling and Servicing Agreement, to be
dated as of the Cut-off Date, among the
Depositor, the Servicer, the Special
Servicer and the Trustee (the "Pooling and
Servicing Agreement") and will represent in
the aggregate the entire beneficial
ownership interest in the Trust Fund, which
will consist of the Mortgage Pool and
certain related assets.
The aggregate Certificate Balance of the
Certificates as of the Closing Date will
equal the Initial Pool Balance. Each Class
of Offered Certificates will have the
initial Certificate Balance or Notional
Amount, as the case may be, set forth on the
cover page, subject to a permitted variance
of plus or minus 10%. 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 herein on a notional
amount (the "Notional Amount"). The Notional
Amount of the Class X Certificates is 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.
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
S-18
<PAGE>
approximately $81,787,479. The Class R and
Class LR Certificates will not have
Certificate Balances. The Class F, Class G,
Class H, Class I, Class J, Class R and Class
LR Certificates are referred to herein
collectively as the "Non-Offered
Certificates." See "Description of the
Certificates--General" herein.
The Pass-Through Rate applicable to each
Class of Offered Certificates for each
Distribution Date will equal the rate for
such Class set forth or described on the
cover page. See "Description of the
Certificates--Distributions--Pass-Through
Rates" and "Distributions--Certain
Calculations with Respect to Individual
Mortgage Loans" herein.
DISTRIBUTIONS OF PRINCIPAL
AND INTEREST ................. Available Distribution Amount. The Available
Distribution Amount for any Distribution
Date is, as described herein under
"Description of the
Certificates--Distributions," generally, the
total of all payments or other collections
(or available Advances) on or in respect of
the Mortgage Loans that are available for
distribution on the Certificates on such
date.
The Trust Fund will include two separate
real estate mortgage investment conduits
(each, a "REMIC"). Collections on the
Mortgage Loans will be used to make payments
of principal and interest on interests (the
"Lower-Tier Regular Interests") and the
Class LR Certificates in a REMIC (the
"Lower-Tier REMIC"). Those payments in turn
will be used to make distributions on the
Certificates (other than the Class LR
Certificates), which represent interests in
a second REMIC (the "Upper-Tier REMIC"). For
purposes of simplicity, distributions will
generally be described herein as if made
directly from collections on the Mortgage
Loans to the holders of the Certificates.
Interest Distributions. On each Distribution
Date, to the extent of the Available
Distribution Amount and subject to the
distribution priorities described herein,
each Class of Offered Certificates will be
entitled to receive distributions of
interest in an aggregate amount equal to all
Distributable Certificate Interest with
respect to such Class for such Distribution
Date and, to the extent not previously paid,
for all prior Distribution Dates (such
amount, for such Class, the "Interest
Distribution Amount"). No interest will
accrue on such overdue amounts. See
"Description of the
Certificates--Distributions" herein.
The "Distributable Certificate Interest" in
respect of any Class of Certificates (other
than the Class R and Class LR Certificates)
for any Distribution Date will equal one
month's interest at the then-applicable
Pass-Through Rate accrued on the Certificate
Balance or Notional Amount, as the case may
be, of such Class of Certificates
immediately prior to such Distribution Date.
Interest will accrue on the Certificates on
the basis of a 360-day year consisting of
twelve 30-day months. See "Description of
the Certificates--Distributions--Method,
Timing and Amount" herein.
S-19
<PAGE>
Principal Distributions. On each
Distribution Date, to the extent of the
Available Distribution Amount remaining
after the distributions of interest to be
made on the Offered Certificates on such
date and subject to the distribution
priorities described herein, each Class of
Offered Certificates (other than the Class X
Certificates) will be entitled to
distributions of principal (until the
Certificate Balance of such Class of
Certificates is reduced to zero) in an
aggregate amount equal to the Principal
Distribution Amount for such Distribution
Date. See "Description of the
Certificates--Distributions--Principal
Distribution Amount" herein.
Prepayment Premiums and Yield Maintenance
Charges. On each Distribution Date, any
Prepayment Premiums and Yield Maintenance
Charges collected on the Mortgage Loans
during the related Due Period will be
distributed separately from the Available
Distribution Amount for such Distribution
Date, as follows: (a) all Yield Maintenance
Charges will be distributed to the Class X
Certificates and to the Class A, Class B,
Class C, Class D and Class E Certificates in
the manner and priority described herein
under "Description of the
Certificates--Allocation of Prepayment
Premiums and Yield Maintenance Charges", and
(b) (i) 75% of all Prepayment Premiums will
be distributed to the holders of the Class X
Certificates, and (ii) the remaining 25% of
all Prepayment Premiums will be distributed
to the holders of the Class A, Class B,
Class C, Class D, Class E and Class X
Certificates in the manner and priority
described under "Description of the
Certificates--Allocation of Prepayment
Premiums and Yield Maintenance Charges"
herein.
CERTAIN YIELD AND PREPAYMENT
CONSIDERATIONS ............... In general, the yield on the Offered
Certificates of any Class will depend on,
among other things, the Pass-Through Rate
for such Certificates. The yield on any
Offered Certificate that is purchased at a
discount or premium will also be affected by
(i) the rate and timing of principal
payments (including principal prepayments)
and principal losses on the Mortgage Loans
and (ii) the extent to which such principal
payments are applied on any Distribution
Date in reduction of the Certificate Balance
or Notional Amount, as the case may be, of
the Class to which such Certificate belongs.
See "Description of the
Certificates--Distributions--Priority" and
"Distributions--Principal Distribution
Amount" herein.
An investor that purchases an Offered
Certificate at a discount should consider
the risk that a slower than anticipated rate
of principal payments on the Mortgage Loans
will result in an actual yield that is lower
than such investor's expected yield. An
investor that purchases any Offered
Certificate at a premium, particularly a
Class X Certificate, should consider the
risk that a faster than anticipated rate of
principal payments on the Mortgage Loans
will result in an actual yield that is lower
than such investor's expected yield. Insofar
as an investor's initial investment in any
Offered Certificate is repaid, there can be
no
S-20
<PAGE>
assurance that such amounts can be
reinvested in a comparable alternative
investment with a comparable yield.
The actual rate of prepayment of principal
on the Mortgage Loans cannot be predicted.
All of the Mortgage Loans contain provisions
prohibiting voluntary prepayments for a
specified amount of time after origination
and/or allow voluntary prepayments only with
the payment of a Prepayment Premium or Yield
Maintenance Charge for a specified amount of
time from origination.
<TABLE>
<CAPTION>
OVERVIEW OF ORIGINAL CALL PROTECTION (1)
- --------------------------------------------------------
<S> <C>
Lock-out period followed by defeasance ....... 46.43%
Lock-out period followed by yield maintenance 53.28%
Lock-out period followed by fixed premium
percentage ................................... 0.29%
</TABLE>
------------
(1) Percentage of Initial Pool Balance.
Certain of the Mortgage Loans may
permit prepayment without penalty for
a specified period preceding the
maturity date or Anticipated
Repayment Date.
See "Certain Terms and Conditions of the
Mortgage Loans--Prepayment Provisions,"
"--Defeasance; Collateral Substitution."
In addition, there can be no assurance that
the Embassy Suites Borrower will be able to
prepay the Embassy Suites Loan on its
Anticipated Repayment Date. The failure of
the Embassy Suites Borrower to prepay the
Embassy Suites Loan on its Anticipated
Repayment Date will not be an event of
default under the terms of the Embassy
Suites Loan. The investment performance of
the Offered Certificates may vary materially
and adversely from the investment
expectations of investors due to the rate of
prepayment on the Mortgage Loans being
higher or lower than anticipated by
investors. The actual yield to the holder of
an Offered Certificate may not be equal to
the yield anticipated at the time of
purchase of the Certificate, and even if the
actual yield is equal to the yield
anticipated at that time, the total return
on investment expected by the investor or
the expected weighted average life of the
Certificate may not be realized.
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 DECREASES DUE TO
MODIFICATIONS ON THE MORTGAGE LOANS AND TO
OTHER FACTORS SET FORTH HEREIN. INVESTORS
SHOULD FULLY CONSIDER THE ASSOCIATED RISKS,
INCLUDING THE RISK THAT A RAPID RATE OF
PRINCIPAL PAYMENTS AND/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. SEE "YIELD AND MATURITY
CONSIDERATIONS--YIELD SENSITIVITY OF THE
CLASS X CERTIFICATES" HEREIN.
S-21
<PAGE>
For a discussion of certain factors
affecting prepayment of the Mortgage Loans,
see "Yield and Maturity Considerations"
herein. In deciding whether to purchase any
Offered Certificates, an investor should
make an independent decision as to the
appropriate prepayment assumptions to be
used.
The structure of the Offered Certificates
causes the yield of certain Classes to be
particularly sensitive to changes in the
rates of prepayment of the Mortgage Loans
and other factors. Allocation on each
Distribution Date to the outstanding Class
or Classes of Certificates having the
highest priority with respect to
distributions of principal, for so long as
such Class remains outstanding, of the
entire Principal Distribution Amount for
such Distribution Date will generally cause
such Certificates to amortize at a faster
rate than the actual amortization rate of
the Mortgage Loans.
ADVANCES ...................... The Servicer will be required to make
advances of delinquent principal and
interest on the Mortgage Loans or, in the
case of each Mortgage Loan that is
delinquent in respect of its Balloon
Payment, an Assumed Scheduled Payment ("P&I
Advances"), in any event under the
circumstances and subject to the limitations
set forth herein. Subject to the limitations
set forth herein, the Servicer will also be
required to make advances 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"). In the event the
Servicer fails to make any required Advance,
the Trustee will be required to make such
Advance in accordance with the terms of the
Pooling and Servicing Agreement. Neither the
Servicer nor the Trustee will be required to
make P&I Advances with respect to Excess
Interest.
P&I Advances are intended to maintain a
regular flow of scheduled interest and
principal payments to the Certificateholders
and are not intended to guarantee or insure
against losses. Advances which cannot be
reimbursed out of collections on, or in
respect of, the related Mortgage Loans
("Nonrecoverable Advances") will be
reimbursable directly from any other
collections on the Mortgage Loans as
provided herein and this will cause losses
to be borne by Certificateholders in the
priority specified herein.
The Servicer and the Trustee, as the case
may be, will be entitled to interest on any
Advances made, such interest accruing at the
rate and payable under the circumstances
described herein. Interest accrued on
outstanding Advances may result in
reductions in amounts otherwise payable on
the Certificates. See "Description of the
Certificates--Advances" and "Subordination;
Allocation of Collateral Support Deficit"
S-22
<PAGE>
herein and "Description of the
Certificates--Advances in Respect of
Delinquencies" and "Description of the
Pooling Agreements--Certificate Account" in
the Prospectus.
SUBORDINATION; ALLOCATION OF
COLLATERAL SUPPORT DEFICIT ... Credit enhancement for the Offered
Certificates will be provided by the Classes
of Certificates which are subordinate to
such Offered Certificates (including, except
in the case of the Class E Certificates,
subordination provided by other Classes of
Offered Certificates to the extent provided
herein) with respect to (i) rights to
receive certain distributions of interest
and, except with respect to the Class X
Certificates, rights to receive certain
distributions of principal and (ii) the
allocation of Collateral Support Deficit.
Such subordination will be accomplished by
the application of the Available
Distribution Amount on each Distribution
Date to distributions on the respective
Classes of Certificates in the order
described herein under "Description of the
Certificates--Distributions--Priority." No
other form of credit support will be
available for the benefit of the holders of
the Offered Certificates.
Allocation on each Distribution Date to the
outstanding Class of Certificates (other
than the Class X Certificates) having the
highest priority (relative to the other
outstanding Classes of Certificates) with
respect to distributions of principal, for
so long as such Class remains outstanding,
of the Principal Distribution Amount for
such Distribution Date will generally
accelerate the amortization of the
Certificates of such Class relative to the
actual amortization of the Mortgage Loans.
To the extent that such Certificates are
amortized faster than the Mortgage Loans,
the percentage interest evidenced by such
Class of Certificates in the Trust Fund will
be decreased (with a corresponding increase
in the interest in the Trust Fund evidenced
by the remaining Classes of Certificates),
thereby increasing, relative to their
respective Certificate Balances, the
subordination afforded such Certificates by
such remaining Classes of Certificates.
As a result of losses and other shortfalls
experienced with respect to the Mortgage
Loans or otherwise with respect to the Trust
Fund (which may include, but are not limited
to, shortfalls arising from the payment of
interest accrued on Advances and
Nonrecoverable Advances and from expenses of
the Trust Fund not directly related to any
Mortgage Loan), the aggregate Stated
Principal Balance of the Mortgage Pool
expected to be outstanding immediately
following any Distribution Date may be less
than the aggregate Certificate Balance of
the Certificates immediately following the
distributions on such Distribution Date.
Such deficit (the "Collateral Support
Deficit") will be allocated (in reduction of
their respective Certificate Balances) first
to the Class 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,
S-23
<PAGE>
and then to the Class B Certificates, in
each case until the related Certificate
Balance has been reduced to zero. Following
the reduction of the Certificate Balances of
all such Classes of Certificates to zero,
Collateral Support Deficit will be
allocated, pro rata, to the Class A-1 and
Class A-2 Certificates until the Certificate
Balances of such Classes have been reduced
to zero. See "Description of the
Certificates--Subordination; Allocation of
Collateral Support Deficit" herein.
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.
OPTIONAL TERMINATION .......... At its option, on any Distribution Date on
which the remaining aggregate Stated
Principal Balance of the Mortgage Pool is
less than 1% of the Initial Pool Balance,
the holders of the Controlling Class, the
Special Servicer, the Servicer or the
holders of the Class LR Certificates (in
that order) may purchase all, but not less
than all, of the Mortgage Loans and REO
Properties in the Trust Fund, and thereby
effect termination of the Trust Fund and
early retirement of the then outstanding
Certificates. See "Description of the
Certificates--Termination; Retirement of
Certificates" herein and "Description of the
Certificates--Termination" in the
Prospectus.
CERTAIN FEDERAL INCOME
TAX CONSEQUENCES ............. For federal income tax purposes, elections
will be made to treat two segregated pools
of assets comprising the Trust as two
separate real estate mortgage investment
conduits. All of the Classes of Offered
Certificates and the Class F, Class G, Class
H, Class I and Class J Certificates will be
designated as regular interests in the
Upper-Tier REMIC. The Class R and Class LR
Certificates will be designated as residual
interests in the Upper-Tier REMIC and
Lower-Tier REMIC, respectively.
Because they represent regular interests,
each Class of Offered Certificates generally
will be treated as newly originated debt
instruments issued by the REMIC for federal
income tax purposes. Beneficial Owners 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
X Certificates will be treated as issued
with original issue discount ("OID") for
federal income tax purposes in an amount
equal to the excess of all distributions of
interest expected to be received thereon
over their issue price (including accrued
interest). It is also anticipated that the
Class D and Class E Certificates will be
issued with OID in an amount equal to the
excess of the initial Certificate Balances
thereof over their respective issue prices
(including accrued interest). It is further
anticipated that the Class A-1, Class A-2
and Class B Certificates will be issued at a
premium and that the Class C
S-24
<PAGE>
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 for
federal income tax purposes or whether such
OID is de minimis, and that may be used to
amortize premium, is a 0% Constant
Prepayment Rate ("CPR"); provided that it is
assumed that the Embassy Suites Loan prepays
on its Anticipated Repayment Date. No
representation is made that the Mortgage
Loans will prepay at that or any other rate.
For further information regarding the
federal income tax consequences of investing
in the Offered Certificates, see "Certain
Federal Income Tax Consequences" herein and
in the Prospectus.
RATING ........................ It is a condition of the issuance of the
Offered Certificates that they receive the
following credit ratings from Standard &
Poor's Ratings Services ("S&P") and Moody's
Investors Service, Inc. ("Moody's"):
<TABLE>
<CAPTION>
S&P MOODY'S
-------- -----------
<S> <C> <C>
Class A-1 ..... AAA Aaa
Class A-2 ..... AAA Aaa
Class X ....... AAAr Aaa
Class B ....... AA Aa2
Class C ....... A A2
Class D ....... BBB Baa2
Class E ....... BBB- Baa3
</TABLE>
A rating addresses the likelihood of the
timely receipt by Certificateholders of
interest and the ultimate repayment of
principal due on the Certificates, including
in the case of the Class A, Class B, Class
C, Class D and Class E Certificates,
distribution of all principal thereof by the
Rated Final Distribution Date. The rating
takes into consideration the characteristics
of the Mortgage Loans and the structural and
legal aspects associated with the
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.
Each rating assigned to the Offered
Certificates should be evaluated
independently of any other rating. 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.
A rating is not a recommendation to buy,
sell or hold securities and may be subject
to revision or withdrawal at any time by the
assigning rating agency. In addition, a
rating does not address the likelihood or
frequency of voluntary or mandatory
prepayments of Mortgage Loans or payments of
Excess Interest, whether and to what extent
payments of Prepayment Premiums or Yield
Maintenance Charges will be received or the
corresponding effect on yield to investors.
Moody's rating on the Class X Certificates
does not address the possibility that
Certificateholders might suffer a lower than
anticipated yield or
S-25
<PAGE>
that if there is a rapid rate of principal
payments (including voluntary and
involuntary prepayments) or principal losses
on the Mortgage Loans, investors in such
Class of Certificates could fail to recover
their initial investment. See "Rating"
herein and "Risk Factors--Limited Nature of
Ratings" in the Prospectus.
ERISA CONSIDERATIONS .......... Fiduciaries of employee benefit plans and
certain other retirement plans and
arrangements, including individual
retirement accounts, annuities, Keogh plans
and collective investment funds and separate
accounts in which such plans, accounts,
annuities or arrangements are invested, that
are subject to the fiduciary responsibility
rules of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
or Section 4975 of the Internal Revenue Code
of 1986, as amended (the "Code"), or
governmental plans, as defined in Section
3(32) of ERISA, subject to any federal,
state or local law ("Similar Law") similar
to the foregoing provisions of ERISA or the
Code (collectively, a "Plan"), should review
with their legal advisors whether the
purchase or holding of Offered Certificates
could give rise to a transaction that is
prohibited or is not otherwise permissible
either under ERISA, Section 4975 of the Code
or Similar Law. See "ERISA Considerations"
herein and in the Prospectus.
The U.S. Department of Labor has issued to
Chase Securities Inc. (the "Underwriter") an
individual prohibited transaction exemption,
PTE 90-33, 55 Fed. Reg. 23,151 (June 6,
1990) (the "Exemption"), which generally
exempts from the application of certain of
the prohibited transaction provisions of
Section 406 of ERISA and the excise taxes
imposed on such prohibited transactions by
Sections 4975(a) and (b) of the Code,
transactions relating to the purchase, sale
and holding of pass-through certificates
underwritten by the Underwriter and the
servicing and operation of related asset
pools, provided that certain conditions are
satisfied.
The Depositor expects that the Exemption
will generally apply to the Senior
Certificates but they will not apply to the
other Classes of Offered Certificates.
Accordingly, the Subordinate Offered
Certificates should not be acquired by, on
behalf of or with assets of a Plan, unless
the purchase and holding of such Certificate
or interest therein is exempt from the
prohibited transaction provisions of Section
406 of ERISA and the related excise tax
provisions of Section 4975 of the Code under
Prohibited Transaction Class Exemption
95-60, which provides an exemption from the
prohibited transaction rules for certain
transactions involving an insurance company
general account. See "ERISA Considerations"
herein and in the Prospectus.
LEGAL INVESTMENT .............. Any Class of Certificates rated in the two
highest rating categories by at least one
Rating Agency will constitute "mortgage
related securities" within the meaning of
the Secondary Mortgage Market Enhancement
Act of 1984, as amended, for so
S-26
<PAGE>
long as the Mortgage Loans are secured by
liens on real property. The appropriate
characterization of the Offered Certificates
under various legal investment restrictions,
and thus the ability of investors subject to
these restrictions to purchase the Offered
Certificates, may be subject to significant
interpretative uncertainties. Accordingly,
investors should consult their own legal
advisors to determine whether and to what
extent the Offered Certificates constitute
legal investments for them. See "Legal
Investment" herein and in the Prospectus.
RISK FACTORS .................. See "Risk Factors" immediately following
this Summary of Prospectus Supplement for a
discussion of certain factors that should be
considered in connection with the purchase
of the Offered Certificates.
S-27
<PAGE>
RISK FACTORS
Prospective purchasers of Offered Certificates should consider, among
other things, the following risk factors (as well as the risk factors set
forth under "Risk Factors" in the Prospectus) in connection with an
investment therein.
EXPOSURE OF THE MORTGAGE POOL TO ADVERSE ECONOMIC OR OTHER DEVELOPMENTS BASED
ON GEOGRAPHIC CONCENTRATION
8 of the Mortgage Properties, representing approximately 18.58% of the
Initial Pool Balance (by allocated loan amount), are located in the State of
New York. 18 of the Mortgage Properties, representing approximately 15.66% of
the Initial Pool Balance (by allocated loan amount), are located in the State
of California. 24 of the Mortgage Properties, representing approximately
14.14% of the Initial Pool Balance (by allocated loan amount), are located in
the State of Texas. 10 of the Mortgage Properties, representing approximately
12.47% of the Initial Pool Balance (by allocated loan amount), are located in
the Commonwealth of Massachusetts. Other jurisdictions also represent
significant percentages of the Initial Pool Balance, as set forth in the
tables under "Description of the Mortgage Pool--Additional Mortgage Loan
Information." In general, such concentrations increase the exposure of the
Mortgage Pool to any adverse economic or other developments or acts of nature
(which may result in uninsured losses) that may occur in New York,
California, Massachusetts and such other jurisdictions. For example, in
recent periods, several regions of the United States have experienced
significant downturns in the market value of real estate. Therefore, to the
extent that general economic or other relevant conditions in states or
regions in which concentrations of Mortgaged Properties securing significant
portions of the aggregate principal balance of the Mortgage Loans are located
decline and result in a decrease in commercial property, housing or consumer
demand in the region, the income from and market value of the Mortgaged
Properties may be adversely affected.
INCREASED RISK OF LOSS ASSOCIATED WITH CONCENTRATION OF MORTGAGE LOANS AND
BORROWERS
Several of the Mortgage Loans have Cut-off Date Balances that will be
substantially higher than the average Cut-off Date Balance of the Mortgage
Loans. The largest Mortgage Loan (the "Embassy Suites Loan") in the Trust
Fund will have a Cut-off Date Principal Balance of approximately
$113,431,059, representing approximately 13.87% of the Initial Pool Balance.
The 3 largest Mortgage Loans in the Trust Fund will have Cut-off Date
Principal Balances that represent, in the aggregate, approximately 24.86% of
the Initial Pool Balance. See "Description of the Mortgage Pool--Significant
Mortgage Loans" herein. The ten largest Mortgage Loans will have Cut-off Date
Balances that represent, in the aggregate, approximately 43.39% of the
Initial Pool Balance. See the table entitled "Ten Largest Mortgage Loans"
under "Description of the Mortgage Pool--Additional Mortgage Loan
Information" herein. In general, concentrations of larger-than-average
balances in a mortgage pool can result in losses that are more severe,
relative to the size of the pool, than would be the case if the aggregate
balance of the pool was more evenly distributed. See "Description of the
Mortgage Pool--Significant Mortgage Loans" herein.
12 groups of Mortgage Loans have borrowers related to each other, each
such group of Mortgage Loans representing in the aggregate less than 5.00% of
the Initial Pool Balance. For more information with respect to the Mortgage
Loans with related borrower concentrations, see Annex A attached hereto. 1
group of 2 Mortgage Loans, representing in the aggregate approximately 0.61%
of the Initial Pool Balance, are cross-collateralized and cross-defaulted
with each other. In addition, 6 Mortgage Loans, representing approximately
21.21% of the Initial Pool Balance are secured by more than one Mortgaged
Property.
Concentration of related borrowers in a mortgage pool can pose increased
risks. Mortgaged Properties that are owned by a group of related borrowers
are likely to have common management. If a mortgage pool has a concentration
of mortgage loans secured by properties owned by a group of related borrowers
having common property management, financial or other difficulties
experienced by the property manager would have a greater impact on the
mortgage pool than would be the case if the properties did not have common
management. In addition, a financial failure or bankruptcy filing involving
an affiliate of a group of affiliated borrowers, such as a common general
partner or the owner
S-28
<PAGE>
of a common general partner, would have a greater impact on the Mortgage
Pool than a financial failure or bankruptcy filing involving only one
borrower. Nonetheless, the filing of a bankruptcy petition should not
invalidate the first lien position held by the Trustee on the related
Mortgaged Property, and the Servicer is required to make Advances through
liquidation unless the Servicer determines that such Advances will not be
recoverable. See "Description of the Certificates--Advances" herein. In
addition, although the borrowers with respect to certain Mortgage Loans are
not special purpose entities, the terms of the Mortgage Loans generally
require that the borrowers be single-purpose entities and, in most cases,
such borrowers' organizational documents or the terms of the Mortgage Loans
limit their activities to the ownership of only the related Mortgaged
Property and limit the borrowers' ability to incur additional indebtedness.
However, there can be no assurance that such borrowers will comply with such
requirements. Further, in many cases such borrowers are not required to
observe all covenants and conditions which typically are required in order
for such borrowers to be viewed under standard rating agency criteria as
"special purpose entities." See "Certain Legal Aspects of Mortgage
Loans--Bankruptcy Laws" in the Prospectus.
LIMITATIONS ON ENFORCEABILITY OF CROSS-COLLATERALIZATION
As described above, 1 group of 2 Mortgage Loans, representing in the
aggregate approximately 0.61% of the Initial Pool Balance, is
cross-collateralized with other Mortgage Loans. These arrangements seek to
reduce the risk that the inability of a Mortgaged Property securing each such
Mortgage Loan to generate net operating income sufficient to pay debt service
will result in defaults and ultimate losses.
Cross-collateralization arrangements involving more than one borrower
could be challenged as a fraudulent conveyance by creditors of a borrower or
by the representative of the bankruptcy estate of a borrower, if a borrower
were to become a debtor in a bankruptcy case. Generally, under federal and
most state fraudulent conveyance statutes, the incurring of an obligation or
the transfer of property by a person will be subject to avoidance under
certain circumstances if the person did not receive fair consideration or
reasonably equivalent value in exchange for such obligation or transfer and
(i) was insolvent or was rendered insolvent by such obligation or transfer,
(ii) was engaged in business or a transaction, or was about to engage in
business or a transaction, for which any property remaining with the person
was an unreasonably small capital or (iii) intended to, or believed that it
would, incur debts that would be beyond the person's ability to pay as such
debts matured. Accordingly, a lien granted by a borrower to secure repayment
of another borrower's Mortgage Loan could be avoided if a court were to
determine that (i) such borrower was insolvent at the time of granting the
lien, was rendered insolvent by the granting of the lien, or was left with
inadequate capital, or was not able to pay its debts as they matured and (ii)
the borrower did not, when it allowed its Mortgaged Property to be encumbered
by a lien securing the entire indebtedness represented by the other Mortgage
Loan, receive fair consideration or reasonably equivalent value for pledging
such Mortgaged Property for the equal benefit of the other borrower.
OTHER FINANCING AND ADDITIONAL DEBT
With respect to 2 Mortgage Loans, representing approximately 2.33% of the
Initial Pool Balance, each borrower has secured and/or unsecured debt
("Affiliate Debt") payable to an affiliate of the related borrower in
addition to the debt owed under the Mortgage Loan. Each holder of Affiliate
Debt has executed a subordination agreement pursuant to which such holder of
Affiliate Debt has agreed to subordinate such Affiliate Debt to the
applicable Mortgage Loan and has agreed that such Affiliate Debt will only be
payable to the extent of the applicable borrower's excess available cash flow
at any time. In addition, with respect to 3 of the Mortgage Loans,
representing approximately 4.08% of the Initial Pool Balance, the related
borrower does not currently owe any Affiliate Debt, but the terms of the
Mortgage Loans would allow the related borrowers to incur secured and/or
unsecured Affiliate Debt under certain circumstances. See "Description of the
Mortgage Pool--General" herein and "Certain Legal Aspects of Mortgage
Loans--Subordinate Financing" in the Prospectus.
The lessee under the operating leases entered into with the borrower under
the Embassy Suites Loan is permitted to incur certain unsecured debt for the
purpose of paying its obligations under such operating leases. See
"Description of the Mortgage Pool--Significant Mortgage Loans--The Embassy
Suites Loan--Lessee and Operating Leases" herein.
S-29
<PAGE>
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. The Mortgage Loans do, however, generally
permit the related borrowers to incur unsecured indebtedness in limited
circumstances for the purchase of certain items used in the ordinary course
of business, such as equipment and in the case of certain of the Mortgage
Loans, limited amounts of secured (but not by the related Mortgaged
Properties) or unsecured debt is permitted for other purposes. The existence
of such other indebtedness could adversely affect the financial viability of
the related borrowers or the security interest of the lender in the equipment
or other assets acquired through such financing or could complicate
bankruptcy proceedings and delay foreclosure on the Mortgaged Property. See
"Certain Legal Aspects of the Mortgage Loans--Subordinate Financing" in the
Prospectus.
RISKS ASSOCIATED WITH BALLOON PAYMENTS AND LOANS WITH ANTICIPATED REPAYMENT
DATES
68 of the Mortgage Loans, representing approximately 72.47% of the Initial
Pool Balance, do not fully amortize over their respective term to maturity
and will have substantial payments of principal ("Balloon Payments") due at
maturity unless previously prepaid. 1 of the Mortgage Loans, which represents
approximately 7.34% of the Initial Pool Balance, provides for payments of
interest only over the term of the Mortgage Loan and the payment of the
entire principal amount of such Mortgage Loan at maturity. In addition, 1 of
the Mortgage Loans (the "Embassy Suites Loan"), representing approximately
13.87% of the Initial Pool Balance, has an Anticipated Repayment Date, and
has a substantial scheduled principal balance as of such date. Loans that
require Balloon Payments involve a greater risk to the lender than fully
amortizing loans because the ability of the borrower to make a Balloon
Payment typically will depend upon its ability either to refinance the loan
or to sell the related Mortgaged Property at a price sufficient to permit the
borrower to make the Balloon Payment. Similarly, the ability of the borrower
to repay the Embassy Suites Loan on the Anticipated Repayment Date will
depend on its ability to either refinance the Mortgage Loan or to sell the
related Mortgaged Properties. The ability of a borrower to accomplish either
of these goals will be affected by all of the factors described above and
below affecting property value and cash flow, as well as a number of other
factors at the time of attempted sale or refinancing, including the level of
available mortgage rates, prevailing economic conditions and the availability
of credit for multifamily, commercial or mobile home community properties (as
the case may be) generally.
RISKS ASSOCIATED WITH COMMERCIAL AND MULTIFAMILY LENDING GENERALLY
The Mortgage Loans are secured by anchored and unanchored retail
properties, office buildings, hotels, multifamily properties, industrial
properties and a mobile home community property. The repayment of loans
secured by commercial or multifamily properties is typically dependent upon
the successful operation of the related real estate project, the businesses
operated by the tenants and the creditworthiness of such tenants. Even the
liquidation value of a commercial or multifamily residential property is
determined more by capitalization of the property's cash flow than any
absolute value of buildings and improvements thereon. Lenders typically look
to the debt service coverage ratio (that is the ratio of net cash flow to
debt service) of a loan secured by income-producing property as an important
measure of the risk of default on such a loan. Commercial and multifamily
lending also typically involves larger loans to a single obligor than
one-to-four-family residential lending.
Commercial and multifamily property values and cash flows are subject to
volatility and may be insufficient to cover debt service on the related
Mortgage Loans at any given time. The volatility of property values and cash
flows depends upon a number of factors, including (i) the volatility of
property revenue, and (ii) the property's "operating leverage," which
generally refers to (a) the percentage of total property operating expenses
in relation to property revenue, (b) the breakdown of property operating
expenses between those that are fixed and those that vary with revenue or
occupancy and (c) the level of capital expenditures required to maintain the
property and retain or replace tenants. The net operating income and value of
the Mortgaged Properties may be adversely affected by a number of factors,
including but not limited to, national, regional and local economic
conditions; local real estate conditions; changes or continued weakness in
specific industry segments; perceptions by prospective tenants and, in
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the case of retail properties, retailers and shoppers, of the safety,
convenience, services and attractiveness of the property; the willingness and
ability of the property's owner to provide capable management and adequate
maintenance; demographic factors; retroactive changes to building or similar
codes; increases in operating expenses (such as energy costs); the number of
tenants or, if applicable, the diversity of types of business operated by
such tenants; and laws regulating the maximum rent permitted to be charged to
a residential tenant. Properties with short-term, less creditworthy revenue
sources and/or relatively high operating leverage can be expected to have
more volatile cash flows than properties with medium to long-term tenant
commitments from creditworthy tenants and/or relatively low operating
leverage. A decline in the real estate market, in the financial condition of
a major tenant or a general decline in the local or national economy will
tend to have a more immediate effect on the net operating income of such
properties and may lead to higher rates of delinquency or defaults.
Historical operating results of the Mortgaged Properties may not be
comparable to future operating results.
If, during the terms of the Mortgage Loans, competing properties of a
similar type are built in the areas where the Mortgaged Properties are
located or similar properties in the vicinity of the Mortgaged Properties are
substantially updated and refurbished, the value and net operating income of
such Mortgaged Properties could be reduced. There is no assurance that the
value of any Mortgaged Property during the term of the related Mortgage Loan
will equal or exceed the appraised value determined in connection with the
origination of such Mortgage Loan.
Additionally, some of the Mortgaged Properties may not readily be
converted to alternative uses if such Mortgaged Properties were to become
unprofitable due to competition, age of the improvements, decreased demand or
other factors. Thus, if the operation of any such Mortgaged Properties
becomes unprofitable such that the borrower becomes unable to meet its
obligations on the related loan, the liquidation value of any such Mortgaged
Property may be substantially less, relative to the amount owing on the
related loan, than would be the case if such Mortgaged Property were readily
adaptable to other uses.
DEPENDENCE ON TENANTS
The borrower under a mortgage loan secured by an income-producing property
generally relies on periodic lease or rental payments from tenants to pay for
maintenance and other operating expenses of the building, to fund capital
improvements and to service the mortgage loan and any other debt or
obligations it may have outstanding. There can be no guaranty that tenants
will renew leases upon expiration or, in the case of a commercial tenant,
that it will continue operations throughout the term of its lease. The income
of borrowers under the Mortgage Loans would be adversely affected if tenants
were unable to pay rent or if space was unable to be rented on favorable
terms or at all. In addition, upon reletting or renewing existing leases, the
borrower under a Mortgage Loan secured by commercial properties will likely
be required to pay leasing commissions and tenant improvement costs which may
adversely affect cash flow from the Mortgaged Property. There can be no
assurances whether, or to what extent, economic, legal or social factors will
affect future rental or repayment patterns.
BORROWER DEFAULT; NONRECOURSE MORTGAGE LOANS
The Mortgage Loans are not insured or guaranteed by any governmental
entity, by any private mortgage insurer, or by the Depositor, the Mortgage
Loan Seller, the Servicer, the Special Servicer, the Trustee, the Underwriter
or any of their respective affiliates. However, with respect to 3 of the
Mortgage Loans which are Credit Lease Loans, which represent in the aggregate
approximately 3.90% of the Initial Pool Balance, 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" herein.
Each Mortgage Loan is generally a nonrecourse loan as to which, in the
event of a default under such Mortgage Loan, recourse generally may be had
only against the specific properties and other assets that have been pledged
to secure the Mortgage Loan. See "Description of the Mortgage Pool" herein.
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Consequently, payment on each Mortgage Loan prior to maturity is dependent
primarily on the sufficiency of the net cash flow of the related Mortgaged
Property, and payment of each Mortgage Loan at maturity (whether at scheduled
maturity (or in the case of the Embassy Suites Loan, its Anticipated
Repayment Date) or, in the event of a default under the related Mortgage
Loan, upon the acceleration of such maturity), upon the then market value of
the related Mortgaged Property (taking into account any adverse effect of a
foreclosure proceeding on the market value of the Mortgaged Property) or upon
the ability of the related borrower to refinance the Mortgaged Property.
Approximately 98.22% of the Mortgage Loans by Initial Pool Balance will have
been originated within 12 months prior to the Cut-off Date. Consequently,
such Mortgage Loans do not have as long standing a payment history as
Mortgage Loans originated on earlier dates.
RISKS PARTICULAR TO RETAIL PROPERTIES
36 of the Mortgage Loans, representing approximately 35.66% of the Initial
Pool Balance, are secured by retail properties. See the table entitled
"Property Type Concentrations" under "Description of the Mortgage
Pool--Additional Mortgage Loan Information" herein. Significant factors
determining the value of retail properties are the quality of the tenants as
well as fundamental aspects of real estate such as location and market
demographics. The correlation between the success of tenant businesses and
property value is more direct with respect to retail properties than other
types of commercial property because a component of the total rent paid by
retail tenants may be tied to a percentage of gross sales. Whether a retail
property is "anchored" or "unanchored" by a large retail tenant is also an
important distinction. Retail properties that are anchored have traditionally
been perceived to be less risky. While there is no strict definition of an
anchor, it is generally understood that a retail anchor tenant is
proportionately larger in size and is vital in attracting customers to the
retail property, whether or not such retail anchor is located on the related
Mortgaged Property. 21 of the Mortgage Loans, representing approximately
24.30% of the Initial Pool Balance, are secured by retail properties which
are "anchored" and 4 of the Mortgage Loans representing approximately 2.17%
of the Initial Pool Balance, are secured by retail properties which are
"unanchored." Furthermore, the correlation between the success of tenant
businesses and property value is increased when the property is a single
tenant property. 11 of the Mortgage Loans, representing approximately 9.19%
of the Initial Pool Balance, are secured by retail properties which are
single tenant properties, of which 7 of such Mortgage Loans, representing
approximately 7.33% of the Initial Pool Balance, are Credit Lease Loans.
Unlike office or hotel properties, retail properties also face competition
from sources outside a given real estate market. Catalogue retailers, home
shopping networks, the Internet, telemarketing and outlet centers all compete
with more traditional retail properties for consumer dollars spent on
products and services sold in retail stores. Continued growth of these
alternative retail outlets (which are often characterized by lower operating
costs) could adversely affect the rents collectible at the retail properties
included in the Mortgage Pool.
RISKS PARTICULAR TO OFFICE PROPERTIES
12 of the Mortgage Loans, representing approximately 21.28% of the Initial
Pool Balance, are secured by office properties. See the table entitled
"Property Type Concentrations" under "Description of the Mortgage
Pool--Additional Mortgage Loan Information" herein. Significant factors
determining the value of office properties are the quality of the tenants in
the building, the physical attributes of the building in relation to
competing buildings and the strength and stability of the market area as a
desirable business location. Office properties may be adversely affected if
there is an economic decline in the business operated by the tenants. The
risk of such an adverse effect is increased if revenue is dependent on a
single tenant or if there is a significant concentration of tenants in a
particular business or industry.
RISKS PARTICULAR TO HOTEL PROPERTIES
4 of the Mortgage Loans, representing approximately 19.14% of the Initial
Pool Balance, are secured by properties improved by full service hotels. See
the table entitled "Property Type Concentrations" under "Description of the
Mortgage Pool--Additional Mortgage Loan Information" herein.
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Various factors, including location, quality and franchise affiliation
affect the economic performance of a hotel. Adverse economic conditions,
either local, regional or national, may limit the amount that can be charged
for a room and may result in a reduction in occupancy levels. To meet
competition in the industry and to maintain economic values, continuing
expenditures must be made for modernizing, refurbishing, and maintaining
existing facilities prior to the expiration of their anticipated useful
lives. Because hotel rooms generally are rented for short periods of time,
hotels tend to respond more quickly to adverse economic conditions and
competition than do other commercial properties. Furthermore, the financial
strength and capabilities of the owner and operator of a hotel may have a
substantial impact on such hotel's quality of service and economic
performance. Additionally, the hotel and lodging industry is generally
seasonal in nature and this seasonality can be expected to cause periodic
fluctuations in room and other revenues, occupancy levels, room rates and
operating expenses. 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.
2 of the Mortgage Loans, representing approximately 15.65% of the Initial
Pool Balance, are secured by properties improved by hotels which are
franchisees of national hotel chains. The viability of any such franchised
hotel property 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 license agreements. The
transferability of franchise license agreements may be restricted and, in the
event of a foreclosure on any such hotel property, the mortgagee may not have
the right to use the franchise license without the franchisor's consent.
Conversely, a lender may be unable to remove a franchiser 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 would be entitled to the rights
under any liquor license for such hotel property and such party would be
required to apply in its own right for such license or licenses. There can be
no assurance that a new license could be obtained or that it could be
obtained promptly. Each of the Embassy Suites Properties is an Embassy Suites
hotel. Any degradation or adverse market developments relating to this brand
name could adversely affect the results of operations of the Embassy Suites
Properties and the ability of the Embassy Suites Lessee to make payment of
rent, and consequently the ability of the Embassy Suites Borrower to make
payments under the Embassy Suites Loan. 2 of the Mortgage Loans secured by
hotel properties, representing approximately 3.49% of the Initial Pool
Balance, are unaffiliated with any national hotel chains.
RISKS PARTICULAR TO MULTIFAMILY PROPERTIES
21 of the Mortgage Loans, representing approximately 17.67% of the Initial
Pool Balance, are secured by multifamily properties. See the table entitled
"Property Type Concentrations" under "Description of the Mortgage
Pool--Additional Mortgage Loan Information" herein.
The successful operation of a multifamily property will depend on, among
other factors, its reputation, the ability of management to provide adequate
maintenance and insurance, and the types of services it provides. In some
cases, that operation may be affected by circumstances outside the control of
the borrower or lender, such as the deterioration of the surrounding
neighborhood, the development of competitive projects, the imposition of rent
control or changes in tax laws. All of these conditions and events may
increase the possibility that a borrower may be unable to meet its obligation
under its Mortgage Loan.
Certain states regulate the relationship of landlord and its tenants.
Commonly, these laws require a written lease, good cause for eviction and
disclosure of fees, while prohibiting unreasonable rules and retaliatory
evictions. Apartment building owners have been the subject of suits under
state "Unfair and Deceptive Practices Acts" and other general consumer
protection statutes for coercive, abusive or unconscionable leasing and sales
practices. A few states offer more significant protection. For example, there
are provisions that limit the basis on which a landlord may terminate a
tenancy or increase its rent or prohibit a landlord from terminating a
tenancy solely by reason of the sale of the building.
In addition to state regulation of the landlord-tenant relationship,
numerous counties and municipalities impose rent control or rent
stabilization regulations on apartment buildings. These ordinances may limit
rent increases to fixed percentages, to percentages of increases in the
consumer price index, to
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increases set or approved by a governmental agency, or to increases
determined through mediation or binding arbitration. In many cases, the rent
control or rent stabilization laws do not permit vacancy decontrol or
destabilization. Any limitations on a borrower's ability to raise property
rents may impair such borrower's ability to repay its Mortgage Loan from its
net cash flow or the proceeds of a sale or refinancing of the related
Mortgaged Property.
RISKS PARTICULAR TO CREDIT LEASE PROPERTIES
7 of the Mortgage Loans, representing approximately 7.33% of the Initial
Pool Balance, are secured by properties backed by net lease obligations
("Credit Leases") of a tenant (each, a "Tenant", collectively the "Tenants"),
or net lease obligations guaranteed by an entity (each, a "Guarantor",
collectively, the "Guarantors") (each such Mortgage Loan, a "Credit Lease
Loan", collectively, the "Credit Lease Loans"). 5 of the Credit Lease Loans,
representing approximately 5.88% of the Initial Pool Balance have a Tenant or
Guarantor that is rated or internally classified investment grade or better
(or the equivalent) by one or more of the Rating Agencies and 2 of the Credit
Lease Loans, representing approximately 1.45% of the Initial Pool Balance,
have Tenants or Guarantors rated or internally classified as non-investment
grade by one or more of the Rating Agencies.
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 obligation. Such rating does not imply an assessment of the
likelihood that the Credit Leases will not be terminated or the Credit Lease
Loans prepaid (through the exercise of a purchase option by the lessee or
otherwise), that Principal Prepayments on the Credit Lease Loans will be made
by the related borrowers, or that any Prepayment Premium will be paid or, if
paid, will be sufficient to provide the anticipated yield. As a result, such
rating will not address the possibility that a prepayment of a Mortgage Loan
may cause a Certificateholder to experience a lower than anticipated yield.
See "Prepayment and Yield Considerations" herein. See "Description of the
Mortgage Pool--Additional Mortgage Loan Information--Cut-off Date Loan Amount
by Property Type" herein, for certain statistical information on such Loans.
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 the Offered
Certificates. If a Tenant or Guarantor defaults on its obligation to make
Monthly Rental Payments under a Credit Lease or the related guarantee, as the
case may be, the borrower under a Credit Lease Loan may not have the ability
to make required payments on such Credit Lease Loan. If the default occurs
before significant amortization of the Credit Lease 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 Credit Lease Loan. See
"Description of the Mortgage Pool--Credit Lease Loans" herein.
Certain Credit Lease Loans have insurance policies for the benefit of the
lender to cover certain lease termination and abatement events arising out of
a condemnation 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
such Credit Lease Loans at maturity. See "Description of the Mortgage
Pool--General" herein. Certificateholders 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 the Offered Certificates. See "Description of the
Mortgage Pool--Credit Lease Loans" herein.
RISKS RELATING TO SECTION 8 MULTIFAMILY PROPERTIES
4 of the Mortgage Loans (those identified as Loan Numbers 33, 35, 50 and
51 on Annex A hereto) (the "HAP Loans"), representing approximately 4.95% of
the Initial Pool Balance, are secured by Mortgaged Properties which are
partially assisted on a project or tenant basis in that their owners or
tenants receive Section 8 (as defined herein) housing assistance payments
from HUD under HAP Contracts in respect of at least one unit and up to 100%
of the total number of units in each project. A "HAP Contract", as used
herein, means either (i) any housing assistance payment contract authorizing
the payment of Section 8 rental subsidies by HUD to the project owner on
behalf of eligible lower income tenants tied to a particular project
(project-based) or (ii) vouchers or certificates provided by HUD to
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low-income tenants pursuant to the Section 8 Tenant-Based Assistance Rental
Voucher Program and Section 8 Tenant-Based Assistance Rental Certificate
Program. The owners of the related Mortgaged Properties rely on (a) lease
payments from residential tenants and (b) Section 8 assistance payments from
HUD under HAP Contracts, to pay for maintenance and other operating expenses
of the assisted Mortgaged Properties, to fund capital improvements and to
service the HAP Loans and any other debt that may be secured by such
Mortgaged Property. The HAP Contracts with respect to assisted Mortgaged
Properties are renewable annually (i) by the tenant in the case of the
voucher or certificate program and (ii) by the related borrower and HUD in
the case of project-based assistance and no assurance can be given that they
will be renewed. Upon the expiration of the HAP Contracts, cash flow from,
and the market value of, such Mortgaged Properties may be adversely affected.
In addition, to the extent assistance is provided to tenants under a voucher
or certificate program, tenants may choose to live elsewhere and no assurance
can be given that the borrower would be able to successfully replace such
assisted payments. Such eventuality may have an adverse effect on the cash
flow to pay the affected HAP Loans and on the market value of the related
Mortgaged Properties. In addition, if HUD elects to take enforcement action
against owners of such Mortgaged Properties in default of their obligations
under the applicable HAP Contracts, HUD may suspend, reduce or terminate the
Section 8 rental subsidies during the term of the related HAP Contract as one
of its available enforcement remedies. Additionally, HUD may in the future
elect or may be required or permitted by Congress to take certain actions
which could have the effect of limiting increases in rent levels or
decreasing rent levels currently in effect. HUD's actions could therefore
affect the ability of the owners of the related Mortgaged Properties to meet
their obligations under the HAP Loans and to pay for necessary project
expenditures, as well as the ability of such owners to refinance the HAP
Loans. As a result, the value of the HAP Loans and the related Mortgaged
Properties may decline. See "Description of the Mortgage Pool--Section 8
Housing Assistance Payments Programs" herein.
MANAGEMENT
Each Mortgaged Property is managed by a property manager (which generally
is an affiliate of the borrower) or by the borrower itself. The successful
operation of a real estate project is largely dependent on the performance
and viability of the management of such project. The property manager is
responsible for responding to changes in the local market, planning and
implementing the rental structure, including establishing levels of rent
payments and advising the borrowers so that maintenance and capital
improvements can be carried out in a timely fashion. There is no assurance
regarding the performance of any operators, leasing agents and/or managers or
persons who may become operators and/or managers upon the expiration or
termination of management agreements or following any default or foreclosure
under a Mortgage Loan. In addition, generally the property managers are
operating companies and unlike limited purpose entities, may not be
restricted from incurring debt and other liabilities in the ordinary course
of business or otherwise. There can be no assurance that the property
managers will at all times be in a financial condition to continue to fulfill
their management responsibilities under the related management agreements
throughout the terms thereof.
RISKS RELATING TO LACK OF CERTIFICATEHOLDER CONTROL OVER TRUST FUND
Certificateholders generally do not have a right to vote, except with
respect to required consents to certain amendments to the Pooling and
Servicing Agreement and, in certain cases, to replace parties to the Pooling
and Servicing Agreement. Furthermore, Certificateholders will generally not
have the right to make decisions with respect to the administration of the
Trust Fund, except for the right of the Controlling Class to replace the
Special Servicer and the right of the Directing Certificateholder to object
to any Asset Status Report. See "Servicing of the Mortgage Loans--General"
and "Replacement of the Special Servicer" herein. Such decisions are
generally made, subject to the express terms of the Pooling and Servicing
Agreement, by the Servicer, the Trustee or the Special Servicer, as
applicable. Any decision made by one of those parties in respect of the Trust
Fund, even if made in the best interests of the Certificateholders (as
determined by such party in its good faith and reasonable judgment), may be
contrary to the decision that would have been made by the holders of any
particular Class or Classes of Offered Certificates and may negatively affect
the interests of such holders.
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SPECIAL SERVICER MAY PURCHASE CERTIFICATES
It is anticipated, but no assurance can be given, that the Special
Servicer, or an affiliate thereof, will purchase all or a portion of the
Class J Certificates. Such a purchase by the Special Servicer could cause a
conflict between such entity's duties pursuant to the Pooling and Servicing
Agreement and its interest as a holder of a Certificate. However, the Pooling
and Servicing Agreement provides that the Mortgage Loans shall be
administered in accordance with the Servicing Standards without regard to
ownership of any Certificate by the Servicer, the Special Servicer or any
affiliate thereof. See "Servicing of the Mortgage Loans--General" herein.
YIELD RISK ASSOCIATED WITH CHANGES IN CONCENTRATIONS
To the extent payments in respect of principal (including any principal
prepayments, liquidations and the principal portion of the repurchase prices
of any Mortgage Loans repurchased due to breaches of representations) are
received with respect to the Mortgage Loans, the remaining Mortgage Loans as
a group may exhibit increased concentration with respect to the type of
properties, property characteristics, number of borrowers and affiliated
borrowers or geographic location. Because unscheduled collections of
principal on the Mortgage Loans are payable first on the Classes of Class A
Certificates (in order of numerical designation until paid) and then on the
other Classes of Certificates (other than the Class X Certificates) in order
of alphabetical designation, the more subordinate Classes of Certificates are
relatively more likely to be exposed to any risks associated with changes in
concentrations of loan or property characteristics.
SUBORDINATION OF SUBORDINATE OFFERED CERTIFICATES
As and to the extent described herein, the rights of the holders of the
Subordinate Offered Certificates to receive distributions of amounts
collected or advanced on or in respect of the Mortgage Loans will be
subordinated to those of the holders of the Senior Certificates. Furthermore,
the rights of the holders of the Class E Certificates to receive
distributions of amounts collected or advanced on or in respect of the
Mortgage Loans will also be subordinated to those of the holders of the Class
D, Class C and Class B Certificates, the rights of the holders of the Class D
Certificates will also be subordinated to those of the holders of the Class C
and Class B Certificates, and the rights of the holders of the Class C
Certificates will also be subordinated to those of the holders of the Class B
Certificates. See "Description of the Certificates--Distributions--Priority"
and "Subordination; Allocation of Collateral Support Deficit" herein.
POTENTIAL LIABILITY TO THE TRUST FUND RELATING TO A MATERIALLY ADVERSE
ENVIRONMENTAL CONDITION
An environmental site assessment was performed at each of the Mortgaged
Properties during the 12-month period prior to the date of origination of the
related Mortgage Loan. Except as indicated below, no such environmental
assessment revealed any material adverse environmental condition or
circumstance at any Mortgaged Property which will not be remediated as of the
Cut-off Date. In certain cases, the environmental consultant identified a
condition or circumstance (i) which was remediated or an escrow for such
remediation was established and/or (ii) for which the consultant recommended
an operations and maintenance plan or periodic monitoring of nearby
properties, which recommendations are consistent with industrywide practices.
The Drum Hill Shopping Center in Chelmsford, Massachusetts, which secures
a Mortgage Loan representing approximately 1.12% of the Initial Pool Balance,
appears on the Massachusetts "Sites Plus Database." Groundwater sampling in
1988 and 1993 at the property showed substances including benzene and PCE, a
common dry cleaning solvent, in groundwater, in some cases above state
reportable concentrations. Massachusetts has not undertaken or sought any
action to clean up the property and a consultant has submitted to
Massachusetts a certification that no remediation is necessary. A June 1997
soil gas study concluded that constituents identified "were detected at
similar concentrations (within one order of magnitude) throughout the
[northeast portion of the Mortgage Property] and do not suggest any releases
from USTs or contamination associated with USTs" within that area. There can
be no assurance that any substances detected on such Mortgaged Property did
not originate there or that some cleanup actions might be required in the
future.
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1 Mortgaged Property, representing approximately 0.77% of the Initial
Pool Balance, has limited soil contamination from its prior use as a gas
station. Sun Company, Inc., the former owner of the Mortgaged Property, is
remediating the Mortgaged Property pursuant to a plan of remediation which
has been approved by the state department of environmental protection, and
has agreed to indemnify the related borrower for all liabilities associated
with the contamination.
The Pooling and Servicing Agreement requires that the Special Servicer
obtain an environmental site assessment of a Mortgaged Property securing a
defaulted Mortgage Loan prior to acquiring title thereto or assuming its
operation. Such prohibition effectively precludes enforcement of the security
for the related Mortgage Note until a satisfactory environmental site
assessment is obtained (or until any required remedial action is thereafter
taken) but will decrease the likelihood that the Trust Fund will become
liable for a material adverse environmental condition at the Mortgaged
Property. However, there can be no assurance that the requirements of the
Pooling and Servicing Agreement will effectively insulate the Trust Fund from
potential liability for a materially adverse environmental condition at any
Mortgaged Property. See "Servicing of the Mortgage Loans--Realization Upon
Defaulted Mortgage Loans" herein and "Risk Factors--Environmental Risks" and
"Certain Legal Aspects of Mortgage Loans--Environmental Risks" in the
Prospectus.
TAX CONSIDERATIONS RELATED TO FORECLOSURE
If the Trust Fund were to acquire a Mortgaged Property subsequent to a
default on the related Mortgage Loan pursuant to a foreclosure or deed in
lieu of foreclosure, the Special Servicer would be required to retain an
independent contractor to operate and manage the Mortgaged Property. Any net
income from such operation and management, other than qualifying "rents from
real property," or any rental income based on the net profits of a tenant or
sub-tenant or allocable to a service that is non-customary in the area and
for the type of building involved, will subject the Trust Fund to federal
(and possibly state or local) tax on such income at the highest marginal
corporate tax rate (currently 35%), thereby reducing net proceeds available
for distribution to Certificateholders. It is likely that hotel properties
that are operated by an independent contractor on behalf of the Trust Fund
will generate taxable "net income from foreclosure property." The Trust Fund
will generally be permitted to receive such taxable "net income from
foreclosure property" if the Special Servicer determines that the net
after-tax recovery to the Trust Fund would be greater than if such REO
Property were leased to a third party at a fixed rental so as to produce
qualifying "rents from real property" or such property could not reasonably
be so leased.
EARTHQUAKE INSURANCE
2 of the Mortgaged Properties securing the Embassy Suites Loan,
representing approximately 2.11% of the Initial Pool Balance by allocated
loan amount, are located in the State of California. Additionally, 16 other
Mortgaged Properties, representing approximately 13.55% of the Initial Pool
Balance by allocated loan amount, are located in the State of California.
Only 3 of the Mortgaged Properties located in California, representing
approximately 3.90% of the Initial Pool Balance, are insured against losses
resulting from earthquakes. No other Mortgaged Property is insured for any
loss resulting from an earthquake.
ZONING COMPLIANCE
Due to changes in applicable building and zoning ordinances and codes
("Zoning Laws") affecting certain of the Mortgaged Properties which have come
into effect after the construction of improvements on such Mortgaged
Properties and for other reasons, certain improvements may not comply fully
with current Zoning Laws, including density, use, parking and setback
requirements, but in certain cases qualify as permitted non-conforming uses.
Such changes may limit the ability of the borrower to rebuild the premises
"as is" in the event of a substantial casualty loss with respect thereto and
may adversely affect the ability of the borrower to meet its Mortgage Loan
obligations from cash flow.
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LITIGATION
There may be legal proceedings pending and, from time to time, threatened
against the borrowers and their affiliates relating to the business of or
arising out of the ordinary course of business of the borrowers and their
affiliates. There can be no assurance that such litigation will not have a
material adverse effect on the performance of the related Mortgage Properties
and, thus, the distributions to Certificateholders.
BOOK-ENTRY REGISTRATION
Each Class of Offered 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 the names of the related holders of
Certificates or their nominees. As a result, holders of Offered Certificates
will not be recognized as "Certificateholders" for certain purposes. Hence,
those beneficial owners will be able to exercise the rights of holders of
Certificates only indirectly through DTC, Cedel Bank, S.A. ("Cedel") and The
Euroclear System ("Euroclear") and their participating organizations. See
"Description of the Offered Certificates--Delivery, Form and Denomination"
and "--Book-Entry Registration" herein. A beneficial owner holding a
Certificate through the book-entry system will be entitled to receive the
reports and notices described under the Pooling and Servicing Agreement (to
the extent that its name and address has been provided to the Certificate
Registrar) only through the facilities of DTC, Cedel and Euroclear and their
respective participants (except that the reports will be made available
directly from the Trustee upon request).
RISK OF YEAR 2000
The transition from the year 1999 to the year 2000 may disrupt the ability
of computerized systems to process information. Under the terms of the
Pooling and Servicing Agreement, the Servicer, the Special Servicer and the
Paying Agent will undertake to obtain certifications from their various
software vendors that their respective computer systems and applications will
be year 2000 compliant by August 31, 1999. If the Servicer, the Special
Servicer or the Paying Agent is unable to complete such modifications, if
any, by the year 2000 as may be needed in order for such computer systems and
applications to be year 2000 compliant, the ability of the Servicer, the
Special Servicer or the Paying Agent to service the Mortgage Loans (in the
case of the Servicer and the Special Servicer) and make distributions to the
Certificateholders (in the case of the Paying Agent) may be materially and
adversely affected.
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<PAGE>
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
All percentages of the Mortgage Loans and Mortgaged Properties, or of any
specified group of Mortgage Loans and Mortgaged Properties, referred to
herein without further description are approximate percentages by Initial
Pool Balance. The Trust Fund will consist primarily of 56 commercial, 21
multifamily and 1 mobile home community Mortgage Loans with an Initial Pool
Balance of approximately $817,874,785. 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,
multifamily or mobile home community properties, (ii) with respect to 7
Mortgaged Properties, representing approximately 10.46% of the Initial Pool
Balance (by allocated loan amount), the fee simple estate and a leasehold
estate in a commercial property, or (iii) with respect to 1 Mortgage Loan,
representing approximately 1.79% of the Initial Pool Balance, a leasehold
estate in a commercial property (each, 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, the Depositor will acquire the Mortgage
Loans from the Mortgage Loan Seller pursuant to the Purchase Agreement and
will thereupon assign its interests in the Mortgage Loans, without recourse,
to the Trustee for the benefit of the Certificateholders. See "The Mortgage
Loan Seller" 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 December 1996 and
April 1998.
The Mortgage Loans are not insured or guaranteed by the Mortgage Loan
Seller, any governmental entity or private mortgage insurer. The Depositor
has not undertaken any evaluation of the significance of the recourse
provisions of any of a number of the Mortgage Loans that provide for recourse
against the related borrower or another person in the event of a default.
Accordingly, investors should consider all of the Mortgage Loans to be
nonrecourse loans as to which recourse in the case of default will be limited
to the specific property and such other assets, if any, pledged to secure a
Mortgage Loan.
With respect to 3 of the Mortgage Loans, representing approximately 3.90%
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 S&P. Pursuant to the
terms of the Pooling Agreement, the 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 2 Mortgage Loans, representing approximately 2.33% the
Initial Pool Balance, each borrower has secured and/or unsecured debt payable
to an affiliate of such borrower ("Affiliate Debt") in addition to the debt
under the Mortgage Loan. For each Mortgage Loan with Affiliate Debt, the
Affiliate Debt creditor has entered into a subordination agreement with the
lender acknowledging that such Affiliate Debt is non-foreclosable and
non-defaultable and imposing limits on the borrower's ability to incur any
further subordinate debt. 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. Additionally 3 other Mortgage Loans, representing approximately
4.08% of the Initial Pool Balance, permit the related borrower to incur
Affiliate Debt under certain circumstances.
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<PAGE>
Certain risks relating to additional debt are described in "Risk
Factors--Other Financing and Additional Debt" herein and "Certain Legal
Aspects of Mortgage Loans--Subordinate Financing" in the Prospectus.
SIGNIFICANT MORTGAGE LOANS
The Embassy Suites Loan
The Loan. The largest Mortgage Loan in the Mortgage Pool (the "Embassy
Suites Loan") will have a Cut-off Date Balance of approximately $113,431,059,
representing approximately 13.87% of the Initial Pool Balance. The Embassy
Suites Loan was made by the Mortgage Loan Seller to Promus/FelCor Hotels,
L.L.C. (the "Embassy Suites Borrower") on January 9, 1998. The Embassy Suites
Loan is evidenced by a single note secured by first priority mortgage and
deed of trust liens encumbering the fee and, in some cases, fee and leasehold
interests in 9 hotels located in Georgia, Texas, California, Illinois,
Kansas, New Jersey and North Carolina (the "Embassy Suites Properties"). The
Embassy Suites Borrower has a fee interest in three of the Embassy Suites
Properties and leasehold interests in the remaining six of the Embassy Suites
Properties. The maturity date of the Embassy Suites Loan is January 10, 2023.
The Embassy Suites Loan accrues interest at a fixed rate per annum equal
to 6.988% (the "Embassy Suites Initial Interest Rate") until January 10, 2008
(the "Anticipated Repayment Date"). From and after the Anticipated Repayment
Date, the Embassy Suites Loan accrues interest at a fixed rate per annum
equal to the greater of (i) 9.988% per annum and (ii) the prevailing yield on
a U.S. Treasury security with a term equal to the term of the Embassy Suites
Loan from the Anticipated Repayment Date to the maturity date plus 3% (the
"Revised Interest Rate"). All interest accrued at the excess of the Revised
Interest Rate over the Embassy Suites Initial Interest Rate (the "Excess
Interest") will be deferred and will not be paid until after the principal
balance of the Embassy Suites Loan has been reduced to zero. Amounts so
deferred will, to the extent permitted by applicable law, accrue interest at
the Revised Interest Rate. Interest will be calculated on the Embassy Suites
Loan based upon a 360-day year and the actual number of days elapsed.
The Embassy Suites Loan requires monthly payments of principal and
interest of approximately $804,856 each (based on a 25-year amortization
schedule and the Initial Interest Rate). From and after the Due Date
occurring on the Anticipated Repayment Date, the Embassy Suites Loan requires
that all cash flow available from the Embassy Suites Properties after the
payment of (i) the constant monthly payment of the debt service on the
Embassy Suites Loan, (ii) all required escrow payments and (iii) certain
other operating expenses required under the Embassy Suites Loan documents be
applied towards the reduction of the outstanding principal balance of the
Embassy Suites Loan. The scheduled principal balance of the Embassy Suites
Loan on the Anticipated Repayment Date will be approximately $91,381,082.
The Embassy Suites Loan may be prepaid without payment of a yield
maintenance charge or prepayment premium on any Due Date on or after the
Anticipated Repayment Date. Pursuant to the terms of the Embassy Suites Loan,
the Embassy Suites Borrower is not permitted to voluntarily prepay, in whole
or in part, such Mortgage Loans prior to the Anticipated Repayment Date.
However, on and after the Due Date occurring 2 years after the Closing Date,
the Embassy Suites Borrower is permitted to defease the Embassy Suites Loan
as described generally under "Certain Terms and Conditions of the Mortgage
Loans--Defeasance; Collateral Substitution" below.
The Borrower. The Embassy Suites Borrower is a recently formed Delaware
special purpose limited liability company established for the purpose of
acquiring, holding and leasing the Embassy Suites Properties and borrowing
pursuant to the Embassy Suites Loan. The Embassy Suites Borrower is
controlled by FelCor Suite Hotels, Inc. and Promus Hotel Corporation. Each of
FelCor Suite Hotels, Inc. and Promus Hotel Corporation is a hotel related
corporation whose common stock is listed on the New York Stock Exchange. The
Embassy Suites Borrower will not have significant assets other than the
Embassy Suites Properties.
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<PAGE>
Lessee and Operating Leases. The Embassy Suites Properties are leased by
the Embassy Suites Borrower to its affiliate, DJONT/EPT Leasing, L.L.C. (the
"Embassy Suites Lessee"), a Delaware special purpose limited liability
company controlled by two officers of FelCor Suite Hotels, Inc. Interests in
the Embassy Suites Lessee can be transferred at any time prior to June 30,
1999 to (i) Promus Hotels, Inc. or a wholly-owned subsidiary thereof, (ii)
Bristol Hotels & Resorts or a wholly-owned subsidiary thereof or (iii) an
entity acceptable to the mortgagee and written confirmation of each of S&P
and Moody's that such transfer will not result in the qualification,
downgrade or withdrawal of the then current ratings of the Certificates;
provided, in each case, the mortgagee has received evidence satisfactory to
it (which may include an opinion of counsel) that the single purpose nature
and bankruptcy remoteness of the Embassy Suites Lessee following such
transfer are in accordance with the then applicable standards of each of S&P
and Moody's. The assets of the Embassy Suites Lessee consist solely of the
leases of, and certain other assets relating to, the Embassy Suites
Properties. The Embassy Suites Lessee has an unsecured credit facility (each
a "Credit Facility") with each of FelCor Inc. and Promus Hotels, Inc. The
aggregate maximum amount of the Credit Facilities is approximately $3.5
million. The Embassy Suites Lessee may borrow under such Credit Facilities
only to the extent necessary to enable the Embassy Suites Lessee to pay rent
and other obligations due under the leases relating to the Embassy Suites
Properties. As of April 21, 1998, there were no borrowings outstanding under
the Credit Facilities. Pursuant to an intercreditor and subordination
agreement entered into between the lender and each of FelCor Inc. and Promus
Hotels, Inc., any amounts borrowed under the Credit Facilities are fully
subordinated to the obligations of the Embassy Suites Lessee under the leases
which are subordinate to the Embassy Suites Loan. Payments on the Credit
Facilities are required to be made by the Embassy Suites Lessee only to the
extent cash flow is available to the Embassy Suites Lessee from the operation
of the Embassy Suites Properties after the payment of all obligations under
the leases. Each lease generally expires the later of (i) the 10th
anniversary of the commencement of such lease (each of which commenced in
1997) and (ii) the earlier of (a) the 15th anniversary of the commencement of
such lease and (b) the date which is 90 days after the date upon which the
Embassy Suites Borrower's obligations under the Embassy Suites Loan documents
are fully and completely satisfied. Each lease is subordinate to the Embassy
Suites Loan and requires that rental payments be made by the Embassy Suites
Lessee to the Embassy Suites Borrower based upon specific percentages of
revenues. The Embassy Suites Lessee is obligated to pay liability insurance
and all costs, expenses, utilities and other charges incurred in the
operation of the Embassy Suites Properties. The Embassy Suites Borrower is
obligated to pay the costs of real estate and personal property taxes,
property insurance, maintenance of underground utilities and structural
elements of the Embassy Suites Properties and to set aside 4% of room
revenues per month on a cumulative basis, to fund capital expenditures for
the periodic replacement or refurbishment of furniture, fixtures and
equipment required for the retention of the franchise licenses with respect
to the Embassy Suites Properties. See "--Cash Management Account; Reserve
Accounts" below.
Cash Management Account; Reserve Accounts. The Embassy Suites Lessee is
required to deposit all rents directly into a cash management account (the
"Embassy Suites Cash Management Account") maintained by the mortgagee. The
Embassy Suites Cash Management Account has been pledged as additional
security for the Embassy Suites Loan. The Embassy Suites Borrower will
control funds in the Embassy Suites Cash Management Account and may direct
the method of allocation and disbursement of funds in the Embassy Suites Cash
Management Account provided that (i) the Anticipated Repayment Date has not
occurred, (ii) the debt service coverage ratio for the Embassy Suites
Properties is not less than 1.4 to 1.0, (iii) no event of default under the
Embassy Suites Loan has occurred and is continuing, and (iv) the senior
unsecured debt of Promus Hotel Corporation is rated at least "BBB-" or the
equivalent by each of S&P and Moody's (each, a "Sweep Event"). After the
occurrence of a Sweep Event, the allocation and disbursement of funds in the
Embassy Suites Cash Management Account will be determined by the mortgagee in
accordance with the terms of the Embassy Suites Loan agreement. See
"Description of the Mortgage Pool--Mortgaged Property Accounts" herein.
The Embassy Suites Loan requires the Embassy Suites Borrower to establish
and maintain reserve accounts, including an on-going tax and insurance escrow
account, a capital expenditure and furniture, fixtures and equipment reserve
account, and an up-front deferred maintenance account.
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<PAGE>
The Embassy Suites Properties. The Embassy Suites Properties are 9 hotels
containing suites located in 7 states. The Embassy Suites Properties are
operated under the Embassy Suites franchise pursuant to long-term license
agreements by and between the Embassy Suites Lessee and Promus Hotels, Inc.
(the "Embassy Suites Manager"). Each of the license agreements requires the
payment of fees based on a percentage of suite revenues. Each of the license
agreements expires the earlier of (i) January 31, 2023 and (ii) a date which
is at least ninety days after the date upon which the Embassy Suites
Borrower's obligations under the Embassy Suites Loan have been fully and
completely satisfied. See "--The Property Manager" below.
The following table sets forth certain information with respect to each
Embassy Suites Property:
<TABLE>
<CAPTION>
CUT-OFF
DATE 12 MONTHS
ALLOCATED ENDED
YEAR NUMBER LOAN 12/31/97
LOCATION OPENED OF SUITES AMOUNT % OCCUPIED APPRAISED VALUE
- ----------------- -------- ----------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Atlanta, GA....... 1985 241 $ 13,581,877 77.0% $ 30,400,000
Austin, TX........ 1984 261 15,721,147 78.8% 30,500,000
Covina, CA........ 1981 259 3,283,531 63.6% 11,750,000
Lombard, IL....... 1989 262 16,019,650 75.5% 26,200,000
Overland Park,
KS............... 1983 199 10,348,097 73.6% 21,000,000
Parsippany, NJ ... 1989 274 16,964,908 76.6% 37,300,000
Raleigh, NC....... 1988 225 13,681,378 81.6% 34,000,000
San Antonio, TX .. 1979 217 9,850,592 70.1% 18,000,000
San Rafael, CA ... 1990 235 13,979,881 78.8% 30,500,000
----------- -------------- ------------ ---------------
TOTAL............ 2,173 $113,431,059 74.9% $239,650,000
=========== ============== ============ ===============
</TABLE>
The weighted average occupancy for the Embassy Suites Properties for the
year ended December 31, 1997 was approximately 74.9%. According to appraisals
by third-party independent appraisers performed between October and November
of 1997, the aggregate value for the Embassy Suites Properties was
approximately $239,650,000, resulting in a Cut-off Date LTV of approximately
47.3%. The DSCR for the Embassy Suites Properties as of the Cut-off Date will
be approximately 2.40x.
Property Releases/Substitution of Properties. The Embassy Suites Loan
permits the Embassy Suites Borrower to release individual Embassy Suites
Properties by defeasance as described generally under "--Certain Terms and
Conditions of the Mortgage Loans--Defeasance" below. In connection with any
such release of an Embassy Suites Property, the Embassy Suites Borrower is
required to defease 125% of the allocated loan amount for the applicable
Embassy Suites Property (as of the Cut-off Date), as set forth in the table
above. A defeasance cannot occur prior to two years after the Closing Date.
The Embassy Suites Borrower is permitted to substitute, up to 4 times
during the term of the Embassy Suites Loan, one hotel property (an "Embassy
Suites Replacement Property") for an Embassy Suites Property subject to
certain conditions, including, but not limited to: (i) the appraised value of
the Embassy Suites Replacement Property is equal to or greater than the value
of the Embassy Suites Property being replaced as determined by the lender at
the closing of the Embassy Suites Loan; (ii) the debt service coverage ratio
as calculated pursuant to the Embassy Suites Loan documents after the
substitution is not less than both the debt service coverage ratio as
calculated pursuant to the Embassy Suites Loan Documents (a) as of the
origination date of the Embassy Suites Loan and (b) as of the date
immediately preceding such substitution; (iii) no default or event of default
under the Embassy Suites Loan has occurred and is continuing; (iv) the
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 Servicer has received an
opinion regarding certain matters as required under the Embassy Suites Loan
Agreement.
The Property Manager. The Embassy Suites Properties are operated and
managed pursuant to long-term management agreements between the Embassy
Suites Lessee and the Embassy Suites Manager. The Embassy Suites Manager
indirectly owns a 50% interest in the Embassy Suites Borrower. Each of the
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<PAGE>
management agreements requires the payment of fees based on a percentage of
suites revenues, plus an incentive management fee. Base management fees are
payable monthly and are based upon a percentage of revenues and will not
exceed 2% of adjusted gross revenues. The incentive management fee entitles
the Embassy Suites Manager to an additional 2% of adjusted gross revenue plus
up to 50% of the net income before allocated overhead. Each of the management
agreements expires the earlier of (i) January 31, 2023 and (ii) a date which
is at least ninety days after the date upon which Embassy Suites Borrower's
obligations under the Embassy Suites Loan have been fully and completely
satisfied.
The 330 Madison Avenue Loan
The Loan. The second largest Mortgage Loan in the Mortgage Pool (the "330
Madison Avenue Loan") will have a Cut-off Date Principal Balance of
$60,000,000, representing approximately 7.34% of the Initial Pool Balance.
The 330 Madison Avenue Loan was made by the Mortgage Loan Seller to 330
Madison Company LLC (the "330 Madison Avenue Borrower") on April 22, 1998.
The 330 Madison Avenue Loan is evidenced by a single note secured by a first
priority fee mortgage encumbering the 330 Madison Avenue Borrower's interest
in an office building located at 330 Madison Avenue, New York, New York (the
"330 Madison Avenue Property").
The 330 Madison Avenue Loan bears interest at a fixed rate of 6.52% per
annum (the "330 Madison Avenue Interest Rate") calculated for any period
based on the actual number of days elapsed and a 360-day year. The 330
Madison Avenue Loan requires monthly payments of interest only. The 330
Madison Avenue Loan is scheduled to mature on May 10, 2008. The 330 Madison
Avenue Loan may not be voluntarily prepaid until three months prior to the
maturity date. However, on any Due Date two years after the Closing Date, the
330 Madison Avenue Borrower is permitted to defease the 330 Madison Avenue
Loan as described generally under "Certain Terms and Conditions of the
Mortgage Loans--Defeasance; Collateral Substitution" below.
The Borrower. The 330 Madison Avenue Borrower is a recently formed special
purpose Delaware limited liability company established for the purpose of
acquiring, holding and operating the 330 Madison Avenue Property and
borrowing pursuant to the 330 Madison Avenue Loan. The managing director of
the 330 Madison Avenue Borrower is an entity controlled by Vornado Realty
Trust. Vornado Realty Trust is a real estate investment trust whose
beneficial interests are listed on the New York Stock Exchange. The 330
Madison Avenue Borrower will not have significant assets other than the 330
Madison Avenue Property.
Cash Management Account; Reserve Accounts. The 330 Madison Avenue Borrower
has entered into a lock box agreement pursuant to which all rents from the
330 Madison Avenue Property are required to be deposited by the tenants at
the 330 Madison Avenue Property into a Lock Box Account controlled by the
lender. The 330 Madison Avenue Borrower has also established an on-going tax
and insurance reserve account. The 330 Madison Avenue Borrower is only
required, at the option of the lender, to deposit funds to the tax and
insurance reserve account to cover insurance premiums if the liability or
casualty policy maintained by the 330 Madison Avenue Borrower is not an
approved blanket or umbrella policy pursuant to the 330 Madison Avenue Loan
documents. Provided no default exists under the 330 Madison Avenue Loan, each
month amounts held in the Lock Box Account will be disbursed to the 330
Madison Avenue Borrower after the payment of debt service and the required
deposits into the tax and insurance account. See "Description of the Mortgage
Pool--Mortgaged Property Accounts" herein.
The Property. The 330 Madison Avenue Property is located at 330 Madison
Avenue, New York, New York. The 330 Madison Avenue Property is improved with
a 41-story, class A office building containing approximately 771,016 square
feet of gross leasable area, including approximately 56,000 square feet of
retail space. The building was constructed in 1963 with a renovation of the
lobby in 1991. As of February 2, 1998, the 330 Madison Avenue Property was
approximately 97% occupied by approximately 46 office and retail tenants with
no single tenant occupying more than 15% of the 330 Madison Avenue Property's
gross leasable area. Five tenants (BDO Seidman occupying approximately
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<PAGE>
14.8% of gross leasable area ("GLA"); Bank Julius Baer occupying
approximately 8.7% of GLA; Nortel Communications occupying 7.5% of GLA; NY
Marine Insurance occupying approximately 4.8% of GLA; and Continental Grain
occupying approximately 4.8% of GLA) account for approximately 40.6% of the
total GLA of the property.
330 MADISON LEASE EXPIRATION SUMMARY
<TABLE>
<CAPTION>
CALENDAR YEAR SQUARE FEET CUMULATIVE %
VACANT SPACE EXPIRING % OF TOTAL GLA CUMULATIVE SQUARE FEET EXPIRING
- --------------- ------------- -------------- ---------------------- --------------
<S> <C> <C> <C> <C>
Vacant.......... 21,478 2.8% 21,478 2.8%
1998............ 106,501 13.8 127,979 16.6
1999............ 77,047 10.0 205,026 26.6
2000............ 36,954 4.8 241,980 31.4
2001............ 29,358 3.8 271,338 35.2
2002............ 32,261 4.2 303,599 39.4
2003............ 82,226 10.7 385,825 50.0
2004............ 23,502 3.0 409,327 53.1
2005............ 96,173 12.5 505,500 65.6
2006............ 43,466 5.6 548,966 71.2
2007............ 0 0.0 548,966 71.2
2008............ 56,100 7.3 605,066 78.5
Thereafter...... 165,950 21.5 771,016 100.0
------------- -------------- ---------------------- --------------
TOTAL......... 771,016 100.0%
============= ==============
</TABLE>
An appraisal determined a value for the 330 Madison Avenue Property of
approximately $160,000,000 as of December 31, 1997, which will result in a
Cut-off Date LTV of approximately 37.50%. The DSCR for the 330 Madison Avenue
Property is approximately 2.90x.
The Property Manager. The 330 Madison Avenue Property is managed by the
Mendik Management Company Inc. (the "330 Madison Avenue Property Manager")
pursuant to a management agreement between the 330 Madison Avenue Borrower
and the 330 Madison Avenue Manager. Pursuant to a subordination agreement,
the 330 Madison Avenue Manager has agreed to subordinate such management
agreement to the 330 Madison Avenue Loan documents. The 330 Madison Avenue
Manager is affiliated with certain principals of the 330 Madison Avenue
Borrower.
CREDIT LEASE LOANS
7 Mortgage Loans (the "Credit Lease Loans"), representing approximately
7.33% 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). Certain of the Credit Leases give the Tenant the right
to extend the term of the Credit Lease by one or more renewal periods after
the end of the Primary Term.
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<PAGE>
The following table sets forth certain information regarding the Credit
Lease Loans:
<TABLE>
<CAPTION>
PERCENTAGE
CUT-OFF DATE OF INITIAL
PRINCIPAL POOL
PROPERTY NAME BALANCE BALANCE TENANT/LEASE GUARANTOR LEASE TYPE
- ------------------------------- -------------- ------------ -------------------------- ---------------
<S> <C> <C> <C> <C>
Centre Structured Trust 3...... $ 9,325,484 1.14% Brinker International Inc. Bondable
Centre Structured Trust 6...... $ 8,585,451 1.05% Brinker International Inc. Bondable
Centre Structured Trust 10..... $13,958,108 1.71% Brinker International Inc. Bondable
H.E. Butt Grocery Store #24.... $ 7,793,299 0.95% H.E. Butt Grocery Company Bondable
H.E. Butt Grocery Store #34.... $ 8,433,247 1.03% H.E. Butt Grocery Company Bondable
Star Market--Hyde Park ........ $ 7,666,425 0.94% Star Markets Company, Inc. Triple Net(1)
Star Market--Sommerville....... $ 4,195,308 0.51% Star Markets Company, Inc. Triple Net(1)
</TABLE>
- ------------
(1) The Tenant may cancel the Credit Lease under certain circumstances in
the event of a condemnation 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" herein.
With respect to 3 Credit Lease Loans (loan numbers 20, 21 and 22 on Annex
A), representing approximately 3.90% 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 the 2 Credit Lease Loans which are not secured by the
assignment of a "bondable lease," identified as Loan Numbers 68 and 69 on
Annex A hereto (the "Star 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 events arising out of a
condemnation of a 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
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<PAGE>
by reason of the occurrence of certain casualty and condemnation events or
the failure of the related Mortgagor, 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 Lease Enhancement Policies insuring the Star Loans,
were issued by The Chubb Custom Insurance Company which, as of the Cut-off
Date, has a claims paying ability rating of "AAA" by S&P (a "Lease
Enhancement Insurer"). The Lease Enhancement Policies issued by the Lease
Enhancement Insurer for the Star Loans Credit Leases are subject to certain
limited exclusions and do not insure interest on Credit Lease Loans for a
period of greater than 75 days past the date of the occurrence of a
Condemnation Event. The Lease Enhancement Policies for the Star Loans Credit
Leases permit payment of a lump sum payment of 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 condemnation. If the Star Loans Credit Leases permit the related Tenant
to abate all or a portion of the rent in the event of a condemnation, 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 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 Insurer is also not required to pay amounts due under the
Star Loans 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 Servicer or the Trustee for outstanding Servicing Advances.
At the end of the term of the Credit Lease, the Tenants are 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 "Description of the Mortgage
Pool--Underwriting Standards" herein.
SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAMS
1 of the Mortgage Loans (identified as Loan Number 51 on Annex A hereto)
(the "HAP Loan"), representing approximately 0.27% of the Initial Pool
Balance, is secured by a Mortgaged Property which receives project-based
Section 8 housing assistance payments under a HAP Contract, with respect to
100% of its dwelling units. The original term of this HAP Contract expired
August 31, 1997 and the HAP Contract was renewed for a one-year term.
Although HUD is authorized by current appropriation's legislation to renew
the HAP Contract for another one-year term expiring August 31, 1999, there is
no assurance of continued renewals. Loss of Section 8 rental subsidy, or a
conversion of project-based subsidy to tenant-based assistance which may be
used for other projects, could substantially adversely affect the operating
revenues and value of the Mortgaged Property. Failure of the owner to
maintain the Mortgaged Property in accordance with requirements of the HAP
Contract, or other default by the owner, could result in suspension,
reduction, or termination of housing assistance payments. There is no
assurance that future increases in Contract Rents, if any, will be adequate
to cover increases in operating expenses.
3 of the Mortgage Loans (identified as Loan Numbers 33, 35 and 50 on Annex
A hereto), representing approximately 4.67% of the Initial Pool Balance, are
secured by Mortgaged Properties that had been subject to mortgage loans
insured by HUD under Section 236 or 221(d)3 of the National Housing Act. When
the HUD-insured loans were repaid upon origination of such Mortgage Loans,
the owner was permitted to increase rental rates to market rates on a portion
of the units (subject in some cases to a phase-in of the increase). The local
housing authority provided vouchers or certificates, provided by HUD, to
low-income tenants in the remaining units. Both vouchers (issued pursuant to
Section 8 Tenant-Based Assistance Rental Voucher Program) and certificates
(issued pursuant to Section 8 Tenant-Based Assistance Rental Certificate
Program) may be used at any property willing to accept
S-46
<PAGE>
them; provided however, in the certificate program, that the rents may not
exceed the payment standard determined by HUD. Under the certificate program,
rental rates may be adjusted annually by an adjustment factor published by
HUD and special adjustments may also be granted for certain types of cost
increases, and the assistance payment covers the difference between the rents
and the tenant portion (generally about 30% of the tenant's adjusted gross
income). Under the voucher program, rental rates may be set by the owner,
subject to an overall reasonableness requirement as determined by the housing
authority; however, the assistance payment in the voucher program is limited
to the difference between the tenant portion (generally 30% of the tenant's
adjusted income) and the payment standard set by HUD.
No assurance can be given that the certificate or voucher programs will be
continued in their 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. See "Risk Factors--Risks Relating to Section 8 Multifamily
Properties" herein.
CERTAIN TERMS AND CONDITIONS OF THE MORTGAGE LOANS
50 of the Mortgage Loans, representing approximately 47.03% of the Initial
Pool Balance, have Due Dates that occur on the first day of each month, and
28 Mortgage Loans, representing approximately 52.97% 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 (other than 1 Mortgage Loan,
representing approximately 0.20% of the Initial Pool Balance, which provides
for a 12 day grace period). 3 of the Mortgage Loans, representing
approximately 5.14% of the Initial Pool Balance, whose Due Dates are the
tenth day of each month provide for a 1 day grace period. All of the Mortgage
Loans bear interest at a fixed rate. 25 Mortgage Loans, representing
approximately 47.41% 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 53 Mortgage Loans, representing approximately 52.59% of the Initial
Pool Balance, accrue interest on the basis of a 30-day month, assuming a
360-day year. Approximately 86.34% of the Mortgage Loans (by Initial Pool
Balance) provide for monthly payments (or, in the case of 3 Mortgage Loans
representing approximately 3.90% 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
3 on Annex A) (the "330 Madison Avenue Loan"), representing approximately
7.34% of the Initial Pool Balance, provides for monthly payments of interest
only over the term of the Mortgage Loan and the payment of the entire
principal amount of the Mortgage Loan at maturity. In addition, the Embassy
Suites Loan provides for monthly payments of principal that will result in a
substantial principal payment at the Anticipated Repayment Date if the
Embassy Suites Borrower prepays the Embassy Suites 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 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"). 69 of the
Mortgage Loans, representing approximately 75.93% of the Initial Pool
Balance, specify a period of time (generally between three and twelve months)
immediately prior to the maturity date of such Mortgage Loan during which
there are no restrictions on voluntary prepayments. In the case of the
remaining 9 Mortgage Loans, representing approximately 24.07% of the Initial
Pool Balance, such Mortgage Loans are locked out until their respective
maturity dates (or with
S-47
<PAGE>
respect to the Embassy Suites Loan, Anticipated Repayment Date). All
Mortgage Loans require voluntary prepayments 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.
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 Loans:
S-48
<PAGE>
PREPAYMENT RESTRICTIONS IN EFFECT AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE
ORIGINAL TERM TO NUMBER AGGREGATE OF INITIAL LOCKOUT
MATURITY/ARD OF CUT-OFF DATE POOL PERIOD YIELD MAINTENANCE CHARGE OR
(MOS.) LOANS BALANCE BALANCE (MOS.) PREPAYMENT PREMIUM DESCRIPTION
- ---------------- ------ ------------ ---------- ------- --------------------------------------------
<S> <C> <C> <C> <C> <C>
60 1 $ 7,730,831 0.95% 56 Defeasance
greater than of (i) 1% of UPB or (ii) Yield
84 3 26,481,474 3.24 23-35 Maintenance
120 1 2,340,993 0.29 23 5%, 5%, 4%, 3%, 2% and 1% of UPB
greater than of (i) 2% of UPB or (ii) Yield
120 1 8,000,000 0.98 23 Maintenance
120 14 322,094,004 39.38 113-116 Defeasance
121 1 18,085,597 2.21 114 Defeasance
greater than of (i) 1% of UPB or (ii) Yield
120-130 44 327,151,351 40.00 35-47 Maintenance
greater than of (i) 1% of UPB or (ii) Yield
180 2 23,385,846 2.86 47-71 Maintenance
greater than of (i) 1% of UPB or (ii) Yield
216 2 16,226,547 1.98 95 Maintenance
greater than of (i) 1% of UPB or (ii) Yield
240 3 17,894,240 2.19 59 Maintenance
240 3 31,869,043 3.90 239 Defeasance
greater than of (i) 1% of UPB or (ii) Yield
300 1 4,753,127 0.58 71 Maintenance
greater than of (i) 1% of UPB or (ii) Yield
300 2 11,861,733 1.45 179 Maintenance
------------ ----------
TOTAL 78 $817,874,785 100%
====== ============ ========== ======= ============================================
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
YIELD
MAINTENANCE PREPAYMENT
CHARGES PREMIUMS
-------------- ------------
AND/OR
FREELY
ORIGINAL TERM TO PREPAYABLE
MATURITY/ARD BEGIN END BEGIN END DURING
(MOS.) MONTH MONTH MONTH MONTH LAST (1)
- ---------------- ----- ------- ----- ----- ----------
<S> <C> <C> <C> <C> <C>
60 N/A N/A N/A N/A 4 mos.
84 24-36 80 N/A N/A 4 mos.
120 N/A N/A 24 107 13 mos.
120 24 114 N/A N/A 6 mos.
120 N/A N/A N/A N/A 1-7 mos.
121 N/A N/A N/A N/A 7 mos.
120-130 36-48 113-126 N/A N/A 4 mos.
180 48-72 176 N/A N/A 4 mos.
216 96 212 N/A N/A 4 mos.
240 60 227-236 N/A N/A 4-13 mos.
240 N/A N/A N/A N/A 1 mos.
300 72 287 N/A N/A 13 mos.
300 180 288 N/A N/A 12 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, "ARD" means Anticipated Repayment Date.
As used above, "UPB" means unpaid principal balance.
(1) Number of months prior to maturity date or Anticipated Repayment Date,
as applicable.
S-49
<PAGE>
Prepayment Premiums and Yield Maintenance Charges are distributable as
described herein 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" herein.
S-50
<PAGE>
PERCENTAGE OF REMAINING POOL BALANCE SUBJECT TO PREPAYMENT RESTRICTIONS
(DOLLAR AMOUNTS EXPRESSED IN MILLIONS)
<TABLE>
<CAPTION>
IPB OUTSTANDING
- ---------------------------------------------------
IPB OUTSTANDING
-----------------
INITIAL AMOUNT OF
POOL IPB
DATE BALANCE MATURED AMOUNT % IPB
- --------- --------- ----------- -------- -------
<S> <C> <C> <C> <C>
5/10/98 $817.9 $ 0.0 $817.9 100%
5/10/99 $817.9 $ 8.8 $809.1 99%
5/10/00 $817.9 $ 18.4 $799.5 98%
5/10/01 $817.9 $ 28.7 $789.2 96%
5/10/02 $817.9 $ 39.9 $778.0 95%
5/10/03 $817.9 $ 59.2 $758.7 93%
5/10/04 $817.9 $ 71.9 $745.9 91%
5/10/05 $817.9 $109.8 $708.1 87%
5/10/06 $817.9 $124.2 $693.7 85%
5/10/07 $817.9 $152.5 $665.4 81%
5/10/08 $817.9 $739.8 $ 78.1 10%
5/10/09 $817.9 $744.5 $ 73.4 9%
5/10/10 $817.9 $749.4 $ 68.4 8%
5/10/11 $817.9 $754.8 $ 63.1 8%
5/10/12 $817.9 $760.5 $ 57.3 7%
5/10/13 $817.9 $773.6 $ 44.2 5%
5/10/14 $817.9 $778.4 $ 39.4 5%
5/10/15 $817.9 $783.6 $ 34.3 4%
5/10/16 $817.9 $788.6 $ 29.2 4%
5/10/17 $817.9 $791.4 $ 26.4 3%
5/10/18 $817.9 $811.9 $ 6.0 1%
5/10/19 $817.9 $813.0 $ 4.9 1%
5/10/20 $817.9 $814.2 $ 3.7 0%
5/10/21 $817.9 $815.5 $ 2.4 0%
5/10/22 $817.9 $816.9 $ 1.0 0%
5/10/23 $817.9 $817.9 $ 0.0 0%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PREPAYMENT RESTRICTIONS APPLICABLE TO UPB OUTSTANDING PREPAYABLE WITHOUT
ON EACH ANNIVERSARY OF THE CUT-OFF DATE PREMIUM OR CHARGE
------------------------------------------------------- ------------------
YIELD MAINTENANCE PREPAYMENT
LOCKOUT CHARGES PREMIUMS
------------------ ------------------ -----------------
DATE AMOUNT % UPB AMOUNT % UPB AMOUNT % UPB AMOUNT % UPB
- --------- -------- -------- -------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5/10/98 $817.9 100.0% $ 0.0 0.0% $0.0 0.0% $ 0.0 0.0%
5/10/99 $809.1 100.0% $ 0.0 0.0% $0.0 0.0% $ 0.0 0.0%
5/10/00 $760.7 95.1% $ 36.6 4.6% $2.3 0.3% $ 0.0 0.0%
5/10/01 $447.9 56.8% $339.0 43.0% $2.3 0.3% $ 0.0 0.0%
5/10/02 $421.5 54.2% $354.2 45.5% $2.2 0.3% $ 0.0 0.0%
5/10/03 $391.3 51.6% $365.2 48.1% $2.2 0.3% $ 0.0 0.0%
5/10/04 $370.3 49.6% $373.5 50.1% $2.2 0.3% $ 0.0 0.0%
5/10/05 $363.9 51.4% $342.0 48.3% $2.1 0.3% $ 0.0 0.0%
5/10/06 $345.9 49.9% $345.7 49.8% $2.1 0.3% $ 0.0 0.0%
5/10/07 $338.7 50.9% $276.6 41.6% $0.0 0.0% $50.1 7.5%
5/10/08 $ 36.7 47.0% $ 41.3 53.0% $0.0 0.0% $ 0.0 0.0%
5/10/09 $ 35.1 47.9% $ 38.3 52.1% $0.0 0.0% $ 0.0 0.0%
5/10/10 $ 33.5 48.9% $ 35.0 51.1% $0.0 0.0% $ 0.0 0.0%
5/10/11 $ 31.6 50.1% $ 31.5 49.9% $0.0 0.0% $ 0.0 0.0%
5/10/12 $ 29.7 51.8% $ 27.7 48.2% $0.0 0.0% $ 0.0 0.0%
5/10/13 $ 20.2 45.6% $ 24.1 54.4% $0.0 0.0% $ 0.0 0.0%
5/10/14 $ 18.4 46.7% $ 21.0 53.3% $0.0 0.0% $ 0.0 0.0%
5/10/15 $ 16.5 48.2% $ 17.7 51.8% $0.0 0.0% $ 0.0 0.0%
5/10/16 $ 14.5 49.5% $ 14.8 50.5% $0.0 0.0% $ 0.0 0.0%
5/10/17 $ 13.8 52.2% $ 12.3 46.4% $0.0 0.0% $ 0.4 1.4%
5/10/18 $ 0.0 0.0% $ 6.0 100.0% $0.0 0.0% $ 0.0 0.0%
5/10/19 $ 0.0 0.0% $ 4.9 100.0% $0.0 0.0% $ 0.0 0.0%
5/10/20 $ 0.0 0.0% $ 3.7 100.0% $0.0 0.0% $ 0.0 0.0%
5/10/21 $ 0.0 0.0% $ 2.4 100.0% $0.0 0.0% $ 0.0 0.0%
5/10/22 $ 0.0 0.0% $ 0.0 0.0% $0.0 0.0% $ 1.0 100.0%
5/10/23 $ 0.0 0.0% $ 0.0 0.0% $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.
S-51
<PAGE>
Defeasance; Collateral Substitution. The terms of 19 of the Mortgage Loans
(including the Embassy Suites Loan), representing approximately 46.43% of the
Initial Pool Balance (the "Defeasance Loans"), permit the applicable borrower
at any time after a specified period (the "Defeasance Lock-out Period"),
which 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, to obtain a release of a Mortgaged Property from the lien of the
related Mortgage (a "Defeasance Option"), provided that, among other
conditions, 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 the Embassy Suites Loan, that such loan prepays on the related
Anticipated Repayment 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 (z) 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 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 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 20, 21 and 22 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 (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 to 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 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
S-52
<PAGE>
Servicer has received an opinion of counsel regarding certain matters
required under the related Mortgage Loan documents. The Embassy Suites Loan
also permits the substitution of a Mortgaged Property upon certain
conditions. See "--Significant Mortgage Loans--The Embassy Suites
Loan--Property Releases/Substitution of Properties" above.
"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 and not
sold by the Mortgage Loan Seller to the Depositor as a result of prepayments,
delinquencies, incomplete documentation or otherwise, if the Depositor or the
Mortgage Loan Seller deems such removal necessary, appropriate or desirable.
A limited number of other mortgage loans may be included in the Mortgage Pool
prior to the issuance of the Certificates, unless including such mortgage
loans would materially alter the characteristics of the Mortgage Pool as
described herein. The Depositor believes that the information set forth
herein will be representative of the characteristics of the Mortgage Pool as
it will be constituted at the time the Certificates are issued, although the
range of Mortgage Rates and maturities as well as other characteristics of
the Mortgage Loans described herein may vary.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Certificates on or shortly after the 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-53
<PAGE>
TYPE OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
CUT-OFF DATE
NUMBER AGGREGATE PERCENTAGE NUMBER BALANCE PER
OF CUT-OFF DATE OF INITIAL OF UNITS OR NRA NUMBER
PROPERTY TYPE PROPERTIES BALANCE POOL BALANCE (1) OF UNITS OR NRA
- ----------------------- ---------- ------------- ------------ ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Anchored Retail ........ 21 $198,771,139 24.30% 2,899,151 $ 68.56
Office ................. 12 174,024,190 21.28 2,114,718 82.29
Hotel................... 12 156,514,567 19.14 2,618 59,784.02
Multifamily ............ 24 144,538,757 17.67 4,278 33,786.53
Credit Lease ........... 23 59,957,322 7.33 351,621 170.52
Mixed-Use .............. 2 36,882,443 4.51 177,496 207.79
Unanchored Retail ...... 4 17,763,796 2.17 201,021 88.37
Single Tenant Retail .. 5 15,166,285 1.85 163,100 92.99
Industrial ............. 2 11,958,171 1.46 656,528 18.21
Mobile Home Community .. 1 2,298,115 0.28 175 13,132.08
---------- ------------- ------------ ----------------- ---------------
TOTAL/WEIGHTED AVERAGE 106 $817,874,785 100%
========== ============= ============ ================= ===============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-----------------------------------------------------------
STATED LTV
REMAINING CUT-OFF DATE RATIO AT
TERM OCCU- LTV MATURITY
PROPERTY TYPE MTG. RATE (MO.)(2) PANCY DSCR RATIO (2)
- ----------------------- --------- ---------- ----- ----- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Anchored Retail ........ 7.47% 115 96% 1.38x 74.68% 64.01%
Office ................. 7.04% 131 98% 1.98x 57.44% 48.67%
Hotel................... 7.51% 114 78% 2.20x 52.50% 42.83%
Multifamily ............ 7.29% 120 93% 1.37x 74.97% 63.78%
Credit Lease ........... 7.21% 241 100% 1.05x 94.02% 22.67%
Mixed-Use .............. 7.30% 141 98% 1.46x 56.76% 31.60%
Unanchored Retail ...... 7.24% 119 97% 1.45x 73.85% 63.55%
Single Tenant Retail .. 7.43% 127 100% 1.45x 72.64% 56.40%
Industrial ............. 7.30% 117 99% 1.37x 72.47% 60.18%
Mobile Home Community .. 7.00% 119 94% 1.54x 74.13% 64.82%
--------- ---------- ----- ----- ------------ ----------
TOTAL/WEIGHTED AVERAGE 7.32% 130 93% 1.65X 67.18% 51.82%
========= ========== ===== ===== ============ ==========
</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 Repayment Date for the
Embassy Suites Loan.
S-54
<PAGE>
RANGE OF MORTGAGE RATES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-------------------------------------------------------------
STATED
NUMBER OF AGGREGATE PERCENTAGE REMAINING CUT-OFF
RANGE OF LOANS/ CUT-OFF DATE OF INITIAL POOL MORTGAGE TERM DATE LTV RATIO AT
MORTGAGE RATES PROPERTIES BALANCE BALANCE RATE (MO.)(1) DSCR LTV RATIO MATURITY (1)
- ---------------- ------------ -------------- --------------- ---------- ------------ ------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6.520% to 6.749% 1/1 $ 60,000,000 7.34% 6.52% 120 2.90x 37.50% 37.50%
6.750% to 6.999% 6/14 181,535,985 22.20 6.95% 115 2.18x 54.07% 45.14%
7.000% to 7.249% 30/50 264,671,616 32.36 7.10% 140 1.32x 77.41% 53.92%
7.250% to 7.499% 16/16 100,344,790 12.27 7.32% 118 1.41x 68.98% 59.63%
7.500% to 7.999% 11/11 109,711,103 13.41 7.66% 155 1.29x 75.94% 52.49%
8.000% to 8.499% 9/9 42,685,620 5.22 8.18% 112 1.32x 76.50% 67.80%
8.500% to 9.500% 5/5 58,925,671 7.20 8.98% 125 1.54x 65.66% 51.48%
-------------- --------------- ---------- ------------ ------- ----------- --------------
TOTAL/WEIGHTED
AVERAGE 78 / 106 $817,874,785 100% 7.32% 130 1.65X 67.18% 51.82%
============ ============== =============== ========== ============ ======= =========== ==============
</TABLE>
- ------------
(1) Calculated with respect to the Anticipated Repayment Date for the Embassy
Suites Loan.
MORTGAGE LOANS BY STATE(1)
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-------------------------------------------------------------
STATED
AGGREGATE PERCENTAGE REMAINING CUT-OFF
NUMBER OF CUT-OFF DATE OF INITIAL POOL MORTGAGE TERM DATE LTV RATIO AT
STATE PROPERTIES BALANCE BALANCE RATE (MO.)(2) DSCR LTV RATIO MATURITY (2)
- -------------- ------------ --------------- --------------- ---------- ------------ ------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NEW YORK 8 $151,951,118 18.58% 6.93% 129 2.08X 54.08% 46.43%
CALIFORNIA 18 128,048,578 15.66 7.35% 125 1.52X 66.86% 51.86%
TEXAS 24 115,668,462 14.14 7.40% 142 1.46X 76.13% 44.86%
MASSACHUSETTS 10 102,006,302 12.47 7.79% 141 1.35X 75.16% 54.99%
OHIO 5 63,693,910 7.79 6.96% 112 1.49X 73.08% 63.62%
NEW JERSEY 3 36,787,081 4.50 7.06% 106 2.05X 54.22% 45.48%
PENNSYLVANIA 4 25,096,552 3.07 7.31% 118 1.36X 73.62% 63.50%
ILLINOIS 3 24,450,893 2.99 7.07% 123 2.03X 67.47% 53.74%
GEORGIA 4 24,185,692 2.96 7.01% 111 2.08X 61.57% 48.63%
FLORIDA 4 20,564,408 2.51 7.63% 159 1.34X 72.94% 50.58%
NEVADA 5 20,453,967 2.50 7.54% 147 1.42X 73.54% 48.72%
VIRGINIA 1 18,085,597 2.21 7.15% 120 1.26X 71.91% 63.03%
NORTH CAROLINA 3 17,149,412 2.10 7.02% 140 2.12X 52.14% 34.49%
MICHIGAN 4 15,642,676 1.91 7.42% 130 1.29X 77.53% 59.60%
OREGON 1 13,879,373 1.70 8.75% 111 1.81X 60.35% 50.21%
WISCONSIN 1 11,089,037 1.36 9.50% 119 1.22X 75.95% 68.58%
KANSAS 1 10,348,097 1.27 6.99% 116 2.41X 49.28% 39.70%
MAINE 1 8,000,000 0.98 7.00% 120 1.41X 75.47% 60.57%
TENNESSEE 2 3,070,099 0.38 7.16% 234 1.00X 99.04% 42.65%
CONNECTICUT 1 2,553,593 0.31 6.94% 117 1.43X 79.80% 68.68%
LOUISIANA 1 2,327,921 0.28 7.16% 234 1.00X 98.56% 42.65%
COLORADO 1 1,478,358 0.18 7.16% 234 1.00X 98.56% 42.65%
WASHINGTON 1 1,343,660 0.16 8.10% 113 1.39X 74.65% 66.04%
------------ --------------- --------------- ---------- ------------ ------- ----------- --------------
TOTAL/WEIGHTED
AVERAGE 106 $817,874,785 100% 7.32% 130 1.65X 67.18% 51.82%
============ =============== =============== ========== ============ ======= =========== ==============
</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 herein.
(2) Calculated with respect to the Anticipated Repayment Date for the
Embassy Suites Loan.
S-55
<PAGE>
RANGE OF REMAINING TERMS IN MONTHS
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-------------------------------------------------------------
STATED
RANGE OF NUMBER OF AGGREGATE PERCENTAGE REMAINING CUT-OFF
REMAINING LOANS/ CUT-OFF DATE OF INITIAL POOL MORTGAGE TERM DATE LTV RATIO AT
TERMS (1) PROPERTIES BALANCE BALANCE RATE (MO.)(1) DSCR LTV RATIO MATURITY (1)
- -------------- ------------ -------------- --------------- ---------- ------------ ------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
57 to 72 1/1 $ 7,730,831 0.95% 7.00% 57 1.93x 77.31% 73.04%
73 to 108 4/4 41,013,128 5.01 7.71% 90 1.61x 64.16% 56.99%
109 to 112 8/8 52,749,874 6.45 8.46% 111 1.50x 68.63% 59.03%
113 to 116 13/21 222,994,375 27.27 7.31% 116 1.87x 60.70% 51.24%
117 to 120 39/42 387,396,043 47.37 7.11% 119 1.67x 66.83% 58.61%
121 to 180 2/2 23,385,846 2.86 7.42% 177 1.39x 63.32% 23.13%
181 to 299 11/28 82,604,688 10.10 7.37% 242 1.13x 87.02% 20.52%
-------------- --------------- ---------- ------------ ------- ----------- --------------
TOTAL/WEIGHTED
AVERAGE 78 / 106 $817,874,785 100% 7.32% 130 1.65X 67.18% 51.82%
============ ============== =============== ========== ============ ======= =========== ==============
</TABLE>
- ------------
(1) Calculated with respect to the Anticipated Repayment Date for the
Embassy Suites Loan.
YEARS OF MATURITY
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
--------------------------------------------------------------
STATED
NUMBER OF AGGREGATE PERCENTAGE REMAINING CUT-OFF
YEARS OF LOANS/ CUT-OFF DATE OF INITIAL POOL MORTGAGE TERM DATE LTV RATIO
MATURITY (1) PROPERTIES BALANCE BALANCE RATE (MO.)(1) DSCR LTV RATIO AT MATURITY (1)
- -------------- ------------ -------------- --------------- ---------- ------------ ------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2003 1/1 $ 7,730,831 0.95% 7.00% 57 1.93x 77.31% 73.04%
2005 3/3 26,481,474 3.24 6.93% 82 1.63x 63.12% 57.66%
2007 15/15 130,456,893 15.95 8.19% 112 1.39x 72.82% 63.17%
2008 46/57 547,215,053 66.91 7.12% 118 1.80x 63.06% 54.49%
2013 2/2 23,385,846 2.86 7.42% 177 1.39x 63.32% 23.13%
2016 2/2 16,226,547 1.98 7.00% 212 1.03x 88.67% 0.00%
2017 4/20 44,782,245 5.48 7.33% 234 1.11x 89.72% 37.84%
2018 2/3 4,981,037 0.61 7.13% 238 1.36x 73.04% 0.00%
2022 1/1 4,753,127 0.58 8.65% 290 1.28x 65.11% 0.00%
2023 2/2 11,861,733 1.45 7.63% 299 1.20x 89.19% 0.00%
------------ -------------- --------------- ---------- ------------ ------- ----------- ---------------
TOTAL/WEIGHTED
AVERAGE 78 / 106 $817,874,785 100% 7.32% 130 1.65X 67.18% 51.82%
============ ============== =============== ========== ============ ======= =========== ===============
</TABLE>
- ------------
(1) Calculated with respect to the Anticipated Repayment Date for the
Embassy Suites Loan.
S-56
<PAGE>
RANGE OF YEARS BUILT(1)
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-------------------------------------------------------------
STATED
AGGREGATE PERCENTAGE REMAINING CUT-OFF
RANGE OF NUMBER OF CUT-OFF DATE OF INITIAL POOL MORTGAGE TERM DATE LTV RATIO AT
YEARS BUILT PROPERTIES BALANCE BALANCE RATE (MO.)(2) DSCR LTV RATIO MATURITY (2)
- -------------- ------------ -------------- --------------- ---------- ------------ ------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1883 to 1960 12 $ 91,637,920 11.20% 7.47% 134 1.62x 66.31% 52.53%
1961 to 1970 6 139,794,306 17.09 7.15% 117 2.14x 54.95% 49.75%
1971 to 1980 21 125,172,290 15.30 7.47% 146 1.34x 74.10% 53.00%
1981 to 1985 17 133,605,651 16.34 7.46% 120 1.74x 63.81% 53.99%
1986 to 1990 19 198,721,872 24.30 7.15% 113 1.70x 65.59% 55.87%
1991 to 1995 17 74,643,466 9.13 7.39% 170 1.22x 80.34% 39.91%
1996 to 1998 14 54,299,281 6.64 7.31% 150 1.31x 82.58% 51.45%
------------ -------------- --------------- ---------- ------------ ------- ----------- --------------
TOTAL/WEIGHTED
AVERAGE 106 $817,874,785 100% 7.32% 130 1.65X 67.18% 51.82%
============ ============== =============== ========== ============ ======= =========== ==============
</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 herein.
(2) Calculated with respect to the Anticipated Repayment Date for the
Embassy Suites Loan.
TEN LARGEST MORTGAGE LOANS
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-------------------------------------------------------------
PERCENTAGE STATED
AGGREGATE OF INITIAL REMAINING CUT-OFF
NUMBER OF CUT-OFF DATE POOL MORTGAGE TERM DATE LTV RATIO AT
PROPERTY NAME PROPERTIES BALANCE BALANCE RATE (MO.)(1) DSCR LTV RATIO MATURITY (1)
- ------------------- ------------ --------------- ------------ ---------- ------------ ------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Embassy Suites 9 $113,431,059 13.87% 6.99% 116 2.40x 47.33% 38.13%
330 Madison Avenue 1 60,000,000 7.34 6.52% 120 2.90x 37.50% 37.50%
Franklin Village
Shopping Center 1 29,889,497 3.65 7.60% 115 1.23x 76.64% 67.03%
G&K Portfolio I 4 27,000,000 3.30 7.14% 120 1.31x 78.15% 68.55%
Hamptons Apartments 1 25,978,049 3.18 6.85% 119 1.77x 72.56% 62.22%
55 West 47th Street 1 22,969,516 2.81 7.36% 118 1.46x 57.42% 50.73%
740-744 Broadway 1 21,000,000 2.57 6.95% 120 1.96x 58.17% 50.77%
Ingram Festival
Shopping Center 1 18,798,584 2.30 7.74% 114 1.25x 79.66% 69.92%
Waterfront I & II 1 18,085,597 2.21 7.15% 120 1.26x 71.91% 63.03%
Delco Plaza 1 17,700,000 2.16 7.00% 120 1.34x 73.29% 64.05%
------------ --------------- ------------ ---------- ------------ ------- ----------- --------------
TOTAL/WEIGHTED
AVERAGE 21 $354,852,303 43.39% 7.03% 118 2.00X 57.88% 50.35%
============ =============== ============ ========== ============ ======= =========== ==============
</TABLE>
- ------------
(1) Calculated with respect to the Anticipated Repayment Date for the
Embassy Suites Loan.
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 Monthly Payments due for the 12-month period
immediately following the Cut-off Date, except with respect to 5 Mortgage
Loans (identified as Loan Numbers 8, 14, 53, 57 and 61 on Annex A hereto),
representing approximately 4.58% of the Initial Pool Balance, where Monthly
Payments are interest-only until approximately 3-18 months after origination,
after which date such Mortgage Loans amortize based upon a 25-30-year
amortization schedule (for the purposes of calculating DSCR, the debt service
of such Mortgage Loans 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-57
<PAGE>
RANGE OF DEBT SERVICE COVERAGE RATIOS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-------------------------------------------------------------
STATED
NUMBER OF AGGREGATE PERCENTAGE REMAINING CUT-OFF
RANGE OF LOANS/ CUT-OFF DATE OF INITIAL POOL MORTGAGE TERM DATE LTV RATIO AT
DSCRS PROPERTIES BALANCE BALANCE RATE (MO.)(1) DSCR LTV RATIO MATURITY (1)
- ------------------- ------------ -------------- --------------- ---------- ------------ ------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1.0000 to 1.1999
(2) 9/25 $ 66,840,593 8.17% 7.30% 227 1.06x 92.31% 27.40%
1.2000 to 1.2999 11/11 109,226,204 13.35 7.76% 124 1.24x 75.01% 63.38%
1.3000 to 1.3999 27/31 210,527,304 25.74 7.32% 129 1.34x 74.75% 61.04%
1.4000 to 1.4999 18/18 131,580,282 16.09 7.32% 124 1.44x 68.83% 54.37%
1.5000 to 1.9999 10/10 120,773,740 14.77 7.63% 108 1.77x 64.85% 55.96%
2.0000 to 2.9450 3/11 178,926,661 21.88 6.84% 117 2.56x 44.46% 38.39%
------------ -------------- --------------- ---------- ------------ ------- ----------- --------------
TOTAL/WEIGHTED
AVERAGE 78 / 106 $817,874,785 100% 7.32% 130 1.65X 67.18% 51.82%
============ ============== =============== ========== ============ ======= =========== ==============
</TABLE>
- ------------
(1) Calculated with respect to the Anticipated Repayment Date for the
Embassy Suites Loan.
(2) 7 of such Mortgage Loans, representing approximately 7.33% of the
Initial Pool Balance, are Credit Lease Loans meeting the guidelines
described under "--Underwriting Standards" herein.
RANGE OF CURRENT OCCUPANCY RATES (1)
<TABLE>
<CAPTION>
WEIGHTED AVERAGES (2)
-------------------------------------------------------------
STATED
AGGREGATE PERCENTAGE REMAINING CUT-OFF
RANGE OF NUMBER OF CUT-OFF DATE OF INITIAL POOL MORTGAGE TERM DATE LTV RATIO AT
OCCUPANCY RATES PROPERTIES BALANCE BALANCE RATE (MO.)(3) DSCR LTV RATIO MATURITY (3)
- ----------------- ------------ --------------- --------------- ---------- ------------ ------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
63.00% to 79.99% 11 $139,249,746 17.03% 7.59% 114 2.16x 54.50% 44.92%
80.00% to 91.99% 11 93,120,551 11.39 7.52% 137 1.51x 65.42% 48.93%
92.00% to 93.99% 8 60,717,715 7.42 7.29% 109 1.56x 74.21% 64.86%
94.00% to 95.99% 11 70,919,179 8.67 7.40% 123 1.34x 76.62% 63.69%
96.00% to 97.99% 10 150,010,055 18.34 6.92% 120 1.98x 57.78% 52.29%
98.00% to 98.99% 5 28,857,283 3.53 7.31% 103 1.62x 65.36% 58.20%
99.00% to 100.00% 50 275,000,257 33.62 7.32% 150 1.34x 76.00% 49.82%
------------ --------------- ---------------
TOTAL/WEIGHTED
AVERAGE 106 $817,874,785 100% 7.32% 130 1.65X 67.18% 51.82%
============ =============== ===============
</TABLE>
- ------------
(1) Current occupancy rates have been calculated herein 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 herein.
(3) Calculated with respect to the Anticipated Repayment Date for the
Embassy Suites Loan.
S-58
<PAGE>
RANGE OF CUT-OFF DATE BALANCES
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-------------------------------------------------------------
STATED
RANGE OF NUMBER OF AGGREGATE PERCENTAGE REMAINING CUT-OFF
CUT-OFF DATE LOANS/ CUT-OFF DATE OF INITIAL POOL MORTGAGE TERM DATE LTV RATIO AT
BALANCES PROPERTIES BALANCE BALANCE RATE (MO.)(1) DSCR LTV RATIO MATURITY (1)
- ---------------------- ------------ -------------- --------------- ---------- ------------ ------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 887,919 to
$4,000,000 20/21 $ 51,322,083 6.28% 7.49% 126 1.34x 74.36% 58.87%
$4,000,001 to
$8,000,000 28/28 176,055,999 21.53 7.39% 136 1.40x 75.02% 54.21%
$8,000,001 to
$12,000,000 11/20 111,001,726 13.57 7.45% 141 1.30x 77.98% 55.27%
$12,000,001 to
$18,000,000 10/17 142,342,674 17.40 7.73% 143 1.43x 70.40% 48.84%
$18,000,001 to
$30,000,000 7/10 163,721,244 20.02 7.25% 118 1.46x 71.00% 62.04%
$30,000,001 to
$60,000,000 1/1 60,000,000 7.34 6.52% 120 2.90x 37.50% 37.50%
$60,000,001 to
$113,431,059 1/9 113,431,059 13.87 6.99% 116 2.40x 47.33% 38.13%
------------ -------------- ---------------
TOTAL/WEIGHTED
AVERAGE 78 / 106 $817,874,785 100% 7.32% 130 1.65X 67.18% 51.82%
============ ============== ===============
</TABLE>
- ------------
(1) Calculated with respect to the Anticipated Repayment Date for the
Embassy Suites Loan.
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 Repayment
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 Repayment 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 Repayment 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 Repayment 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.
RANGE OF LTV RATIOS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-------------------------------------------------------------
STATED
NUMBER OF AGGREGATE PERCENTAGE REMAINING CUT-OFF
RANGE OF LOANS/ CUT-OFF DATE OF INITIAL POOL MORTGAGE TERM DATE LTV RATIO AT
LTV RATIOS PROPERTIES BALANCE BALANCE RATE (MO.)(1) DSCR LTV RATIO MATURITY (1)
- ---------------- ------------ -------------- --------------- ---------- ------------ ------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
37.50% to 49.99% 2/10 $173,431,059 21.21% 6.83% 117 2.58x 43.93% 37.91%
50.00% to 59.99% 5/5 72,792,496 8.90 7.11% 123 1.68x 56.66% 40.79%
60.00% to 69.99% 12/12 91,836,870 11.23 8.18% 139 1.56x 64.71% 46.97%
70.00% to 73.33% 12/12 128,982,218 15.77 7.21% 122 1.42x 72.22% 60.83%
73.34% to 76.66% 25/26 179,392,820 21.93 7.46% 119 1.34x 75.34% 64.45%
76.67% to 79.99% 14/17 105,561,999 12.91 7.48% 112 1.34x 78.78% 69.57%
80.00% to 99.48% 8/24 65,877,322 8.05 7.20% 230 1.07x 92.76% 26.94%
------------ -------------- ---------------
TOTAL/WEIGHTED
AVERAGE 78 / 106 $817,874,785 100% 7.32% 130 1.65X 67.18% 51.82%
============ ============== ===============
</TABLE>
- ------------
(1) Calculated with respect to the Anticipated Repayment Date for the
Embassy Suites Loan.
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<PAGE>
RANGE OF LTV RATIOS AS OF MORTGAGE LOAN MATURITY DATES
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-------------------------------------------------------------
STATED
RANGE OF NUMBER OF AGGREGATE PERCENTAGE REMAINING CUT-OFF
MATURITY LOANS/ CUT-OFF DATE OF INITIAL POOL MORTGAGE TERM DATE LTV RATIO AT
LTV RATIOS (1) PROPERTIES BALANCE BALANCE RATE (MO.)(1) DSCR LTV RATIO MATURITY (1)
- ---------------- ------------ -------------- --------------- ---------- ------------ ------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0.00% TO 39.99% 11/20 $238,079,632 29.11% 6.99% 149 2.22X 52.25% 29.03%
40.00% TO 49.99% 4/20 43,858,812 5.36 7.06% 193 1.26X 86.17% 44.25%
50.00% TO 59.99% 14/14 141,202,818 17.26 7.78% 118 1.60X 63.58% 53.31%
60.00% TO 63.33% 10/10 99,558,798 12.17 7.12% 118 1.43X 72.38% 61.95%
63.34% TO 66.66% 20/20 122,754,940 15.01 7.32% 118 1.38X 74.26% 64.89%
66.67% TO 69.99% 12/15 134,891,453 16.49 7.50% 114 1.29X 77.53% 68.29%
70.00% TO 73.04% 7/7 37,528,333 4.59 7.80% 102 1.41X 79.02% 70.89%
------------ -------------- ---------------
TOTAL/WEIGHTED
AVERAGE 78 / 106 $817,874,785 100% 7.32% 130 1.65X 67.18% 51.82%
============ ============== ===============
</TABLE>
- ------------
(1) Calculated with respect to the Anticipated Repayment Date for the
Embassy Suites Loan.
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 herein 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 1996. In determining other income for each Mortgaged
Property, the Mortgage Loan Seller generally relied on historical operating
statements for 1996 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 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.
Expenses. In determining expenses for each Mortgaged Property, the
Mortgage Loan Seller relied on either historical operating statements for
calendar 1996 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 6% (on a loan-by-loan basis) of effective gross revenue. As
used herein, "effective gross revenue" means underwritten rental and other
income with respect to the related Mortgaged Property.
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.
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<PAGE>
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 3.90%
of the Initial Pool Balance, was in compliance with the Code of Professional
Ethics and Standards of Professional Conduct of the Appraisal Institute and
the Uniform Standards of Professional Appraisal Practice as adopted by the
Appraisal Standards Board of the Appraisal Foundation and accepted and
incorporated into the Financial Institutions Reform, Recovery and Enforcement
Act of 1989, 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"). 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, generally in
accordance with the underwriting criteria described below.
The information set forth herein 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 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.
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<PAGE>
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 all 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. Should a Credit
Lease not be a "bondable lease", Chase requires the Tenant obtain an
insurance policy or surety bond issued by a highly-rated entity to cover any
lease termination or rent abatement events.
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.
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>
DSCR LTV RATIO
PROPERTY TYPE GUIDELINE GUIDELINE
- --------------------- ----------- -----------
<S> <C> <C>
Multifamily........... 1.20x 80%
Mobile Home
Community............ 1.25x 75%
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%
</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" herein and Annex A to this
Prospectus Supplement.
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<PAGE>
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>
<CAPTION>
<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
Mobile Home Community .... $50 per pad
</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.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
In the Purchase 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;
(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, collateral or
first priority assignment of, or a valid first priority security interest
in, certain rights under the related lease, subject only to a license
granted to the related 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;
S-63
<PAGE>
(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 19 Mortgage Loans, representing approximately 46.43% 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, 4 Mortgage Loans,
representing approximately 17.77% (which includes the Embassy Suites Loan
which represents approximately 13.87% of the Initial Pool Balance) of the
Initial Pool Balance, which permit the related borrower to substitute a
replacement property, as described in "--Defeasance; Collateral
Substitution" above, and, except with respect to 2 Mortgage Loans,
representing approximately 3.05% of the Initial Pool Balance, which
provide for the 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 in consideration of payment therefor;
(vii) other than with respect to each Credit Lease under a Credit Lease
Loan and except with respect to 1 Mortgage Loan, representing
approximately 1.92% of the Initial Pool Balance, which is subject to a
prior lease, 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) other than with respect to each Credit Lease under a Credit Lease
Loan, the lien of each related Mortgage as a first priority lien (except
with respect to 1 Mortgage Loan representing approximately 1.92% of the
Initial Pool Balance, which is subject to the prior lease of the only
tenant at the Mortgaged Property) in the original principal amount of such
Mortgage Loan (as set forth on the Mortgage Loan Schedule) after all
advances of principal is insured by an ALTA lender's title insurance
policy (or a binding commitment therefor), or its equivalent as adopted in
the applicable jurisdiction, insuring the Mortgage Loan Seller, its
successors and assigns, subject only to (a) the lien of current real
property taxes, ground rents, water charges, sewer rents and assessments
not yet due and payable, (b) covenants, conditions and restrictions,
rights of way, easements and other matters of public record, none of
which, individually or in the aggregate, materially interferes with the
current use of the Mortgaged Property or the security intended to be
provided by such Mortgage or with the 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;
S-64
<PAGE>
(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, other
than with respect to 1 Mortgaged Property representing approximately 1.70%
of the Initial Pool Balance, which was damaged by a fire and for which the
Mortgaged Property is fully covered by insurance except to the extent of a
$10,000 deductible, 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 (except with respect to 1 Mortgage
Loan, representing approximately 1.92% of the Initial Pool Balance, which
allows the sole tenant to self-insure the related Mortgaged Property), in
an amount not less than the replacement cost 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 Mortgaged Property is
also covered by business interruption insurance (or rent loss insurance)
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, 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,
S-65
<PAGE>
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 later of 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 2 Mortgage Loans,
representing approximately 1.89% of the Initial Pool Balance (see "Risk
Factors--Potential Liability to the Trust Fund Relating to a Materially
Adverse Environmental Condition" herein), and 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" herein;
(xxii) each related Mortgage or loan agreement contains provisions for
the acceleration of the payment of the unpaid principal balance of such
Mortgage Loan if, without complying with the requirements of the Mortgage
or loan agreement, the related Mortgaged Property, or any controlling
interest therein, is directly or indirectly transferred or sold, or
encumbered in connection with subordinate financing (other than any
existing Affiliate Debt) 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;
(xxiii) the Mortgage Loan is directly secured by a Mortgage on a
commercial, multifamily residential or mobile home community property, and
either (1) substantially all of the proceeds of the Mortgage Loan were
used to acquire, improve or protect an interest in such real property
which, as of the origination date, was the sole security for such Mortgage
Loan (unless the Mortgage Loan has been modified in a manner that
constituted a deemed exchange under Section 1001 of the Code at a time
when the Mortgage Loan was not in default or default with respect thereto
was not reasonably foreseeable) or (2) the fair market value of such real
property was at least equal to 80% of the principal amount of the Mortgage
Loan (a) at origination (or if the Mortgage Loan has been modified in a
manner that constituted a deemed exchange under Section 1001 of the Code
at a time when the Mortgage Loan was not in default or default with
respect thereto was not reasonably foreseeable, the date of the last such
modification) or (b) at the Closing Date; provided that the fair market
value of the real property interest must first be reduced by (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)
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<PAGE>
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, 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 3.90% 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 Purchase Agreement
(the relevant rights under which will be assigned, together with its
interests in the Mortgage Loans, by the Depositor to the Trustee) to
repurchase the affected Mortgage Loan within such 90-day period at a price
(the "Purchase Price") equal to the sum of (i) the outstanding principal
balance of such Mortgage Loan as of the date of purchase, (ii) all accrued
and unpaid interest on such Mortgage Loan at the related Mortgage Rate, in
effect from time to time, to but not including the Due Date in the Due Period
of purchase, (iii) all related unreimbursed Servicing Advances plus accrued
and unpaid interest on related Advances at the Reimbursement Rate, and unpaid
Special Servicing Fees allocable to such Mortgage Loan and (iv) all
reasonable out-of-pocket expenses reasonably incurred or to be incurred by
the Special Servicer, the Depositor and the Trustee in respect of the breach
giving rise to the repurchase obligation, including any expenses arising out
of the enforcement of the repurchase obligation.
The foregoing repurchase obligation will constitute the sole remedy
available to the Certificateholders and the Trustee for any breach of the
Mortgage Loan Seller's representations and warranties regarding the Mortgage
Loans. The Mortgage Loan Seller will be the sole Warranting Party in respect
of the Mortgage Loans sold by the Mortgage Loan Seller to the Depositor, and
none of the Depositor, the 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 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 32.97% 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 4 of the Lock Box Loans, representing approximately 11.24% 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 6
Lock Box Loans, representing approximately 21.73% 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
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the related borrower to lease such premises to new tenants acceptable to the
lender. Additionally, the Embassy Suites Loan provides that a Lock Box
Account must be established upon the occurrence of a Sweep Event as described
under "--Significant Mortgage Loans--The Embassy Suites Loan--Cash Management
Account; Reserve Accounts" above. 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 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 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 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
1998-1 (the "Certificates") will consist of the following fourteen classes
(each, a "Class"): the Class A-1 and Class A-2 Certificates (collectively,
the "Class A Certificates"), the Class X, Class B, Class C, Class D, Class E,
Class F, Class G, Class H, Class I, Class J and Class R and Class LR
Certificates. The Class A Certificates and the Class X Certificates are
referred to collectively herein as the "Senior Certificates." The Class B,
Class C, Class D, Class E, Class F, Class G, Class H, Class I and Class J
Certificates are referred to collectively herein as the "Subordinate
Certificates." The Class B, Class C, Class D and Class E Certificates are
referred to collectively herein as the "Subordinate Offered Certificates."
The Class R and Class LR Certificates are referred to collectively herein as
the "Residual Certificates."
Only the Class A, Class 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 herein 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 $81,787,479. 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 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.
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The Offered Certificates will initially be represented by one or more
global Certificates registered in the name of the nominee of DTC. The
Depositor has been informed by DTC that DTC's nominee will be Cede & Co. No
Certificate Owner will be entitled to receive a Definitive Certificate
representing its interest in such Class, except as set forth below under
"--Book-Entry Registration and Definitive Certificates." Unless and until
Definitive Certificates are issued, all references to actions by holders of
the Offered Certificates will refer to actions taken by DTC upon instructions
received from Certificate Owners through its participating organizations
(together with Cedel and Euroclear participating organizations, the
"Participants", and all references herein to payments, notices, reports and
statements to holders of the Offered Certificates will refer to payments,
notices, reports and statements to DTC or Cede & Co., as the registered
holder of the Offered Certificates, for distribution to Certificate Owners
through its Participants in accordance with DTC 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"). Pursuant to the Pooling and Servicing Agreement, in
the event Chase resigns or is removed as Servicer, The Chase Manhattan Bank
will have the right to resign, and in certain circumstances will be removed,
as Paying Agent, Certificate Registrar and/or 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 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
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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 setttlement 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 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.
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.
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None of the Depositor, the 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 herein 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 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 June 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 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 Agreement.
The Servicer is required to deposit in the Certificate Account on a daily
basis (and in no event later than the business day following receipt in
available funds) all payments and collections due after the Cut-off Date and
other amounts received or advanced with respect to the Mortgage Loans
(including, without limitation, Insurance and Condemnation Proceeds and
Liquidation Proceeds), and will be permitted to make withdrawals therefrom as
set forth in the Pooling and Servicing Agreement.
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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 Servicer from
the Certificate Account plus, among other things, any P&I Advances less
amounts, if any, distributable to the Class LR Certificates as set forth in
the Pooling and Servicing Agreement) generally to make distributions of
interest and principal from the Available Distribution Amount to the
Certificateholders as described herein. 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 Servicer will be required to deposit, in
respect of each of the Mortgage Loans identified as Loan Numbers 3, 7, 9, 19,
26, 27, 31, 37, 43, 51 and 63 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 Servicer will be
required to withdraw from the Interest Reserve Account an amount equal to the
Withheld Amounts from the preceding January (if applicable) and February, if
any, and deposit such amount into the Lower-Tier Distribution Account. The
Servicer is authorized but not required to direct the investment of funds
held in the Interest Reserve Account and the Distribution Accounts in
Permitted Investments, and the Servicer will be entitled to retain any
interest or other income earned on such funds. The Servicer will be required
to bear any losses resulting from the investment of such funds.
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;
(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; and
(vi) all amounts deposited in the Certificate Account and Lower-Tier
Distribution Account in error;
(b) all P&I Advances made by the 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
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(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 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 (or, with respect to the Mortgage
Loans identified on Annex A to this Prospectus Supplement as Loan Numbers 3,
6, 7, 9, 10, 11, 12, 13, 15, 19, 26, 27, 30, 31, 33, 35, 38, 41, 43, 44, 50,
51, 56, 58, 65, 72, 76 and 77, 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).
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 and Class X Certificates, pro rata
(based upon their respective entitlements to interest for such Distribution
Date), in respect of interest, up to an amount equal to the aggregate
Interest Distribution Amount for such Classes;
second, (i) to the Class A-1 Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount until the Certificate Balance of such Class is reduced to zero, and
(ii) following reduction of the Certificate Balance of the Class A-1
Certificates to zero, to the Class A-2 Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount (or portion thereof remaining after distributions on the Class A-1
Certificates on such Distribution Date) until the Certificate Balance of such
Class is reduced to zero;
third, to the Class A-1 and Class A-2 Certificates, pro rata (based upon
the aggregate unreimbursed Collateral Support Deficit allocated to each such
Class), until all amounts of Collateral Support Deficit previously allocated
to such Classes, but not previously reimbursed, have been reimbursed in full;
fourth, to the Class B Certificates, in respect of interest, up to an
amount equal to the Interest Distribution Amount for such Class;
fifth, following reduction of the Certificate Balances of the Class A
Certificates to zero, to the Class B Certificates, in reduction of the
Certificate Balance thereof, an amount equal to the Principal Distribution
Amount (or portion thereof remaining after distributions on the Class A
Certificates on such Distribution Date), until the Certificate Balance of
such Class is reduced to zero;
sixth, to the Class B Certificates, until all amounts of Collateral
Support Deficit previously allocated to the Class B Certificates, but not
previously reimbursed, have been reimbursed in full;
seventh, to the Class C Certificates, in respect of interest, up to an
amount equal to the Interest Distribution Amount for such Class;
eighth, following reduction of the Certificate Balances of the Class A and
Class B Certificates to zero, to the Class C Certificates, in reduction of
the Certificate Balance thereof, an amount equal to the Principal
Distribution Amount (or portion thereof remaining after distributions on the
Class A and Class B Certificates on such Distribution Date), until the
Certificate Balance of such Class is reduced to zero;
ninth, to the Class C Certificates, until all amounts of Collateral
Support Deficit previously allocated to the Class C Certificates, but not
previously reimbursed, have been reimbursed in full;
tenth, to the Class D Certificates, in respect of interest, up to an
amount equal to the Interest Distribution Amount for such Class;
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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;
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
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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 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 0.8289% 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 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
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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.
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 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 all
late payments of principal made by a borrower, including late payments in
respect of a delinquent Balloon Payment, regardless of the timing of such
late payments, except to the extent such late payments are otherwise
reimbursable to the Servicer 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 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
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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" herein and in the Prospectus,
when used in such context, will be deemed to also be references to or to also
include, as the case may be, any REO Loans. Each REO Loan will generally be
deemed to have the same characteristics as its actual predecessor Mortgage
Loan, including the same fixed Mortgage Rate (and, accordingly, the same Net
Mortgage Rate) and the same unpaid principal balance and Stated Principal
Balance. Amounts due on such predecessor Mortgage Loan, including any portion
thereof payable or reimbursable to the Servicer, will continue to be "due" in
respect of the REO Loan; and amounts received in respect of the related REO
Property, net of payments to be made, or reimbursement to the Servicer or the
Special Servicer for payments previously advanced, in connection with the
operation and management of such property, generally will be applied by the
Servicer as if received on the predecessor Mortgage Loan.
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.
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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" herein. See also "Certain Legal
Aspects of the Mortgage Loans--Default Interest and Limitations on
Prepayments" in the Prospectus regarding the enforceability of Yield
Maintenance Charges 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:
<TABLE>
<CAPTION>
ASSUMED FINAL
CLASS DESIGNATION DISTRIBUTION DATE
- --------------------- ---------------------
<S> <C>
Class A-1............. December 18, 2006
Class A-2............. May 18, 2008
Class X............... April 18, 2023
Class B............... May 18, 2008
Class C............... May 18, 2008
Class D............... May 18, 2008
Class E............... May 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 Embassy Suites Loan is
prepaid on its Anticipated Repayment Date. 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.
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The "Rated Final Distribution Date" for each Class of Offered
Certificates will be May 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
(other than the 330 Madison Avenue Loan, which is an interest-only loan).
SUBORDINATION; ALLOCATION OF COLLATERAL SUPPORT DEFICIT
The rights of holders of the Subordinate Certificates to receive
distributions of amounts collected or advanced on the Mortgage Loans will be
subordinated, to the extent described herein, to the rights of holders of the
Senior Certificates. Moreover, to the extent described herein, the rights of
the holders of the Class J Certificates will be subordinated to the rights of
the Class I Certificates, 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, 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, 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, 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, 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, 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, and 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. 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 and then to the Class A-2 Certificates), for so long
as they are outstanding, of the entire Principal Distribution Amount for each
Distribution Date will have the effect of reducing the aggregate Certificate
Balance of the Class A Certificates at a proportionately faster rate than the
rate at which the aggregate Stated Principal Balance of the Mortgage Pool
will reduce. Thus, as principal is distributed to the holders of such Class A
Certificates, the percentage interest in the Trust Fund evidenced by such
Class A Certificates will be decreased (with a corresponding increase in the
percentage interest in the Trust Fund evidenced by the Subordinate
Certificates), thereby increasing, relative to their respective Certificate
Balances, the subordination afforded such Class A Certificates by the
Subordinate Certificates.
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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 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" herein, and the payment of
interest on Advances and certain servicing expenses; and (ii) certain
unanticipated, non-Mortgage Loan specific expenses of the Trust Fund,
including certain reimbursements to the Trustee as described under
"Description of the Pooling Agreements--Certain Matters Regarding the
Trustee" in the Prospectus, certain reimbursements to the Servicer and the
Depositor as described under "Description of the Pooling Agreements--Certain
Matters Regarding the Servicer and the Depositor" in the Prospectus, and
certain federal, state and local taxes, and certain tax-related expenses,
payable out of the Trust Fund as described under "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates" and
"--Taxes That May Be Imposed on the REMIC Pool" in the Prospectus.
Accordingly, the allocation of Collateral Support Deficit as described above
will constitute an allocation of losses and other shortfalls experienced by
the Trust Fund.
A Class of Offered Certificates will be considered outstanding until its
Certificate Balance 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 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 the applicable Servicing Fee), other
than Balloon Payments, which were due on the Mortgage Loans during the
related Due Period and delinquent (or not advanced by any subservicer) as of
the business day preceding such Servicer Remittance Date; and (ii) in the
case of each Mortgage Loan delinquent in respect of its Balloon Payment as of
the end of the related Due Period (including any REO Loan as to which the
Balloon Payment would have been past due), an amount equal to the Assumed
Scheduled Payment therefor. The Servicer's obligations to make P&I Advances
in respect
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of any Mortgage Loan or REO Property will continue through liquidation of
such Mortgage Loan or disposition of such REO Property, as the case may be.
To the extent that the Servicer fails to make a P&I Advance that it is
required to make under the Pooling and Servicing Agreement, the Trustee will
make such required P&I Advance pursuant to the Pooling and Servicing
Agreement.
The amount required to be advanced in respect of delinquent Monthly
Payments or Assumed Scheduled Payments on a Mortgage Loan with respect to any
Distribution Date that has been subject to an Appraisal Reduction Event will
equal the amount that would be required to be advanced by the Servicer
without giving effect to the Appraisal Reduction less any Appraisal Reduction
Amount with respect to such Mortgage Loan for such Distribution Date. Neither
the Servicer nor the Trustee will be required to make a P&I Advance for
default interest, Yield Maintenance Charges, Prepayment Premiums or Excess
Interest.
In addition to P&I Advances, the Servicer will also be obligated (subject
to the limitations described herein) to make advances ("Servicing Advances"
and, collectively with P&I Advances, "Advances") in connection with the
servicing and administration of any Mortgage Loan in respect of which a
default, delinquency or other unanticipated event has occurred or is
reasonably foreseeable or in connection with the servicing and administration
of any Mortgaged Property or REO Property, to pay delinquent real estate
taxes, assessments and hazard insurance premiums and to cover other similar
costs and expenses necessary to preserve the priority of or enforce the
related Mortgage Loan documents or to protect, lease, manage and maintain the
related Mortgaged Property. To the extent that the Servicer fails to make a
Servicing Advance that it is required to make under the Pooling and Servicing
Agreement and the Trustee has notice of such failure, the Trustee will make
such required Servicing Advance pursuant to the Pooling and Servicing
Agreement.
The 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 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 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 Servicer. Nonrecoverable Advances will represent a
portion of the losses to be borne by the Certificateholders. See "Description
of the Certificates--Advances in Respect of Delinquencies" and "Description
of the Pooling Agreements--Certificate Account" in the Prospectus.
In connection with its recovery of any Advance, each of the Servicer 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" herein 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
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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 and (vi) immediately after a Mortgage Loan
becomes an REO Loan; provided, however, that an Appraisal Reduction Event
shall not occur at any time when the aggregate Certificate Balances of all
Classes of Certificates (other than the Class A Certificates) has been
reduced to zero. The "Appraisal Reduction" for any Distribution Date and for
any Mortgage Loan as to which any Appraisal Reduction Event has occurred will
be an amount equal to the excess of (a) the outstanding Stated Principal
Balance of such Mortgage Loan over (b) the excess of (i) 90% of the appraised
value of the related Mortgaged Property as determined (A) by one or more
independent MAI appraisals with respect to any Mortgage Loan with an
outstanding principal balance equal to or in excess of $2,000,000 (the costs
of which shall be paid by the Servicer as an Advance), and (B) by an internal
valuation performed by the Special Servicer with respect to any Mortgage Loan
with an outstanding principal balance less than $2,000,000, over (ii) the sum
as of the Due Date occurring in the month of such Distribution Date of (A) to
the extent not previously advanced by the Servicer 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 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 Servicer, and the 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"
herein.
With respect to each Mortgage Loan as to which an Appraisal Reduction has
occurred (unless such Mortgage Loan has become a Corrected Mortgage Loan and
has remained current for twelve consecutive Monthly Payments, and with
respect to which no other Appraisal Reduction Event has occurred with respect
thereto during the preceding twelve months), the Special Servicer is
required, within 30 days of
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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 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, 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 and (B) Yield Maintenance
Charges; (xi) the Pass-Through Rate for such Class of Certificates for such
Distribution Date and the next succeeding Distribution Date; (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; (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
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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 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 (f) 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 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: (a) the Pooling and Servicing Agreement and any amendments
thereto, (b) all Distribution Date Statements delivered to holders of the
relevant Class of Offered Certificates since the Closing Date, (c) all
officer's certificates delivered to the Paying Agent since the Closing Date
as described under "Description of the Pooling Agreements--Evidence as to
Compliance" in the Prospectus, (d) all accountants' reports delivered to the
Paying Agent since the Closing Date as described under "Description of the
Pooling Agreements--Evidence as to Compliance" in the Prospectus, (e) the
most recent property inspection report prepared by or on behalf of the
Servicer or the Special Servicer and delivered to the Paying Agent in respect
of each Mortgaged Property, (f) copies of the Mortgage Loan documents, (g)
any and all modifications, waivers and amendments of the terms of a Mortgage
Loan entered into by the Servicer or the Special Servicer and delivered to
the Paying Agent, and (h) any and all statements and reports delivered to, or
collected by, the 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 (f) only) upon request; however, the
Paying Agent (or the Trustee with respect to clause (f) 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 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 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 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
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
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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 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 Date immediately
preceding such time. Neither the Class R nor the Class LR Certificates will
be entitled to any Voting Rights. For purposes of determining Voting Rights,
the Certificate Balance of any Class shall be deemed to be reduced by the
amount allocated to such Class of any Appraisal Reductions related to
Mortgage Loans as to which Liquidation Proceeds or other final payment has
not yet been received. Voting Rights allocated to a Class of
Certificateholders shall be allocated among such Certificateholders in
proportion to the Percentage Interests evidenced by their respective
Certificates. Solely for purposes of giving any consent, approval or waiver
pursuant to the Pooling and Servicing Agreement, neither the Servicer, the
Special Servicer nor the Depositor will be entitled to exercise any Voting
Rights with respect to any Certificates registered in its name, if such
consent, approval or waiver would in any way increase its compensation or
limit its obligations in such capacity under the Pooling and Servicing
Agreement; provided, however, that such restrictions will not apply to the
exercise of the Special Servicer's rights, if any, as a member of the
Controlling Class.
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 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, Special Servicer, the 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 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 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.
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On the final Distribution Date, the aggregate amount paid by the holders
of the Controlling Class, the Special Servicer, the Servicer or the holders
of the Class LR Certificates, as the case may be, for the Mortgage Loans and
other assets in the Trust Fund (if the Trust Fund is to be terminated as a
result of the purchase described in the preceding paragraph), together with
all other amounts on deposit in the Certificate Account and not otherwise
payable to a person other than the Certificateholders (see "Description of
the Pooling Agreements--Certificate Account" in the Prospectus), will be
applied generally as described above under "Distributions--Priority."
Any optional termination by the holders of the Controlling Class, the
Special Servicer, the 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"
herein.
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 1998-1. 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 0.006% 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 herein supersedes any contrary
information set forth in the Prospectus. See "Description of the Pooling
Agreements" in the Prospectus.
Each of the Servicer (directly or through one or more subservicers) and
the Special Servicer will be required to service and administer the Mortgage
Loans for which it is responsible. The Servicer may delegate and/or assign
some or all of its servicing obligations and duties with respect to some or
all of the Mortgage Loans to one or more affiliates so long as such
delegation and/or assignment, in and of itself, does not cause the
qualification, withdrawal or downgrading of the then-current ratings assigned
to any Class of Certificates as confirmed in writing by the Rating Agencies.
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 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 and in the best interests of and for the benefit of the
Certificateholders (as determined by the Servicer or the Special Servicer, as
the case may be, in its good faith and reasonable judgment), in accordance
with applicable law, the terms of the Pooling and Servicing Agreement, the
terms of the respective Mortgage Loans and, to the extent consistent with the
foregoing, in accordance with the higher of the following standards of care:
(i) the same manner in which, and with the same care, skill, prudence and
diligence with which the Servicer or the Special Servicer, as the case may
be, services and administers similar mortgage loans for other third-party
portfolios, giving due consideration to the customary and usual standards of
practice of prudent institutional commercial, multifamily and mobile home
community mortgage lenders servicing their own mortgage loans and (ii) the
same care, skill, prudence and diligence with which the Servicer or the
Special Servicer, as the case may be, services and administers commercial,
multifamily and mobile home community mortgage loans owned by the Servicer or
the Special Servicer, as the case may be, in either case exercising
reasonable business judgment and acting in accordance with applicable law,
the terms of the Pooling and Servicing Agreement, the respective Mortgage
Loans or Specially Serviced Mortgage Loans, as applicable, and with a view to
the maximization of timely recovery of principal and interest on the Mortgage
Loans or Specially Serviced Mortgage Loans, as applicable, and the best
interests of the Trust and the Certificateholders, as determined by the
Servicer or the Special Servicer, as the case may be, in its reasonable
judgment, but without regard to: (A) any relationship that the Servicer or
the Special Servicer, as the case may be, or any affiliate thereof, may have
with the related borrower or any other party to the Pooling and Servicing
Agreement; (B) the ownership of any Certificate by the Servicer or the
Special Servicer, as the case may be, or any affiliate thereof; (C) the
Servicer's obligation to make Advances, whether in respect of delinquent
payments of principal and/or interest or to cover certain servicing expenses;
(D) the Servicer's or the Special Servicer's, as the case may be, right to
receive compensation for its services under the Pooling and Servicing
Agreement or with respect to any particular transaction; and (E) any
obligation of the Servicer (in its capacity as the Mortgage Loan Seller) to
cure a breach of a representation or warranty or repurchase a Mortgage Loan
(the foregoing, collectively referred to as the "Servicing Standards").
Except as otherwise described under "--Inspections; Collection of
Operating Information" below, the Servicer initially will be responsible for
the servicing 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
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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 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 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
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 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 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 herein as the "Specially Serviced Mortgage Loans".
The Servicer shall have no responsibility for the performance by the Special
Servicer of its duties under the Pooling and Servicing Agreement.
If any Specially Serviced Mortgage Loan, in accordance with its original
terms or as modified in accordance with the Pooling and Servicing Agreement,
becomes 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 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 30 days after the servicing of such Mortgage
Loan is transferred to the Special Servicer. Each Asset Status Report will be
delivered to the Directing Certificateholder (as defined below) and the
Rating Agencies, 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 an affirmative determination that such
objection is not in the best interest of all the Certificateholders. In
connection with making such affirmative determination, the Special Servicer
will request a vote by all Certificateholders. If the Directing
Certificateholder disapproves such Asset Status Report and the Special
Servicer has not made the affirmative determination described above, the
Special Servicer will 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
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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.
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 will act as servicer (in such capacity, the
"Servicer") and in such capacity will be responsible for servicing the
Mortgage Loans. 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 information set forth herein concerning the Servicer has been provided
by the 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
CRIIMI MAE Services Limited Partnership, a Maryland limited partnership,
will serve as the Special Servicer and in such capacity will be responsible
for servicing the Specially Serviced Mortgage loans. The principal offices of
the Special Servicer are located at 11200 Rockville Pike, Rockville, Maryland
20852. As of December 31, 1997, the Special Servicer was responsible for the
servicing of approximately 3,600 commercial and multifamily loans with an
aggregate principal balance of approximately $16.5 billion, the collateral
for which is located in forty-nine states, Puerto Rico and District of
Columbia.
The information set forth herein 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.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The fee of the Servicer (the "Servicing Fee") will be payable monthly on a
loan-by-loan basis from amounts received in respect of interest on each
Mortgage Loan, and will accrue at a rate (the "Servicing
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Fee Rate"), calculated on a basis of a 360-day year consisting of twelve
30-day months equal to 0.12% per annum with respect to the Mortgage Loan
identified as Loan Number 56 on Annex A hereto, 0.03% per annum with respect
to the Embassy Suites Loan and the 330 Madison Avenue Loan, and 0.085% per
annum for all other Mortgage Loans, 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
0.131% per annum with respect to the Mortgage Loan identified as Loan Number
56 on Annex A hereto, 0.041% with respect to the Embassy Suites Loan and the
330 Madison Avenue Loan and 0.096% per annum for all other Mortgage Loans. In
addition to the Servicing Fee, the 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 Servicer also is authorized but not required to invest or
direct the investment of funds held in the Certificate Account and the
Distribution Accounts in Permitted Investments, and the Servicer will be
entitled to retain any interest or other income earned on such funds and will
bear any losses resulting from the investment of such funds. The Servicer
also is entitled to retain any interest earned on any servicing escrow
account to the extent such interest is not required to be paid to the related
borrowers. The Servicer will be obligated to pay the annual fees of each
Rating Agency.
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 Special Servicer
will be entitled to receive a fee (the "Standby Fee"), 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. In addition, 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. A "Workout Fee"
will in general be payable with respect to each Corrected Mortgage Loan. As
to each Corrected Mortgage Loan, the Workout Fee will be payable out of, and
will be calculated by application of a "Workout Fee Rate" of 1% to each
collection of interest and principal (including scheduled payments,
prepayments, Balloon Payments, and payments at maturity) received on such
Mortgage Loan for so long as it remains a Corrected Mortgage Loan. The
Workout Fee with respect to any Corrected Mortgage Loan will cease to be
payable if such Corrected Mortgage Loan again becomes a Specially Serviced
Mortgage Loan; provided that a new Workout Fee will become payable if and
when such Mortgage Loan again becomes a Corrected Mortgage Loan. If the
Special Servicer is terminated (other than for cause), it shall retain the
right to receive any and all Workout Fees payable with respect to Mortgage
Loans that became Corrected Mortgage Loans during the period that it acted as
Special Servicer and were still such at the time of such termination or
resignation (and the successor Special Servicer shall not be entitled to any
portion of such Workout Fees), in each case until the Workout Fee for any
such loan ceases to be payable in accordance with the preceding sentence. A
"Liquidation Fee" will be payable with respect to each Specially Serviced
Mortgage Loan as to which the Special Servicer obtains a full or discounted
payoff with respect thereto from the related borrower and, except as
otherwise described below, with respect to any Specially Serviced Mortgage
Loan or REO Property as to which the Special Servicer receives any
Liquidation Proceeds. As to each such Specially Serviced Mortgage Loan, the
Liquidation Fee will be payable from, and will be calculated by application
of a "Liquidation Fee Rate" of 1% to the 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 breach of representation or warranty or for defective or
deficient Mortgage Loan documentation, the purchase of any Specially Serviced
Mortgage Loan by the Servicer or the Special Servicer or the purchase of all
of the Mortgage Loans and REO Properties in connection with an optional
termination of the Trust Fund. If, however, Liquidation Proceeds are received
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with respect to any Corrected Mortgage Loan and the Special Servicer is
properly entitled to a Workout Fee, such Workout Fee will be payable based on
and out of the portion of such Liquidation Proceeds that constitutes
principal and/or interest. The Special Servicer will be entitled to
additional servicing compensation in the form of 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 those such fees to which the Servicer is entitled as
described above. 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 Embassy Suites Loan.
Although the Servicer and the Special Servicer are each required to
service and administer the Mortgage Pool in accordance with the Servicing
Standards above and, accordingly, without regard to its right to receive
compensation under the Pooling and Servicing Agreement, additional servicing
compensation in the nature of assumption and modification fees may under
certain circumstances provide the Servicer or the Special Servicer, as the
case may be, with an economic disincentive to comply with such standard.
As and to the extent described herein under "Description of the
Certificates--Advances," the Servicer will be entitled to receive interest on
Advances, such interest to be paid contemporaneously with the reimbursement
of the related Advance.
Each of the Servicer and the Special Servicer generally will be required
to pay all expenses incurred by it in connection with its servicing
activities under the Pooling and Servicing Agreement and will not be entitled
to reimbursement therefor except as expressly provided in the Pooling and
Servicing Agreement. In connection therewith, the Servicer will be
responsible for all fees of any subservicers. See "Description of the
Certificates--Distributions--Method, Timing and Amount" herein and
"Description of the Pooling Agreements--Certificate Account" and "--Servicing
Compensation and Payment of Expenses" in the Prospectus.
MAINTENANCE OF INSURANCE
To the extent permitted by the related Mortgage Loan and required by the
Servicing Standards, the Servicer will be required to use its reasonable best
efforts to cause each borrower to maintain, and if the borrower does not so
maintain, will be required to itself maintain to the extent available at
commercially reasonable rates (as determined by the Servicer in accordance
with Servicing Standards), a fire and hazard insurance policy with extended
coverage covering the related Mortgaged Property. The coverage of each such
policy will be in an amount that is not less than the lesser of the full
replacement cost of the improvements securing such Mortgage Loan or the
outstanding principal balance owing on such Mortgage Loan, but in any event,
in an amount sufficient to avoid the application of any co-insurance clause
unless otherwise noted in the related Mortgage Loan documents. During all
such times as the Mortgaged Property is located in an area identified as a
federally designated special flood hazard area (and such flood insurance has
been made available), the Servicer will be required to use its reasonable
best efforts to cause each borrower to maintain (to the extent required by
the related Mortgage Loan), and if the borrower does not so maintain, will be
required to itself maintain to the extent available at commercially
reasonable rates (as determined by the Servicer in accordance with the
Servicing Standards), a flood insurance policy in an amount representing
coverage not less than the lesser of (i) the outstanding principal balance of
the related Mortgage Loan and (ii) the maximum amount of insurance which is
available under the Flood Disaster Protection Act of 1973, as amended, but
only to the extent that the related Mortgage Loan permits the lender to
require such coverage and maintaining such coverage is consistent with the
Servicing Standards. The Special Servicer will be required to maintain (or
cause to be maintained), fire and hazard insurance on each REO Property, to
the extent obtainable, in an amount which is at least equal to the lesser of
(i) an amount necessary to avoid the application of any co-insurance clause
and (ii) the full replacement cost of the improvements on such REO Property.
In addition, during all such times as the REO Property is located in an area
identified as a federally designated special flood hazard area, the Special
Servicer will be required to cause to be maintained, to
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the extent available at commercially reasonable rates (as determined by the
Special Servicer in accordance with the Servicing Standards), a flood
insurance policy meeting the requirements of the current guidelines of the
Federal Insurance Administration in an amount representing coverage not less
than the maximum amount of insurance which is available under the Flood
Disaster Protection Act of 1973, as amended. The Pooling and Servicing
Agreement provides that the Servicer and the Special Servicer may satisfy
their respective obligations to cause each borrower to maintain a hazard
insurance policy by maintaining a blanket or master single interest policy
insuring against hazard losses on the Mortgage Loans and REO Properties. Any
losses incurred with respect to Mortgage Loans or REO Properties due to
uninsured risks (including earthquakes, mudflows and floods) or insufficient
hazard insurance proceeds may adversely affect payments to
Certificateholders. Any cost incurred by the Servicer in maintaining any such
insurance policy if the borrower defaults on its obligation to do so shall be
advanced by the Servicer as a Servicing Advance and will be charged to the
related borrower. Generally, no borrower is required by the Mortgage Loan
documents to maintain earthquake insurance on any Mortgaged Property and the
Special Servicer will not be required to maintain earthquake insurance on any
REO Properties. Any cost of maintaining any such required insurance or other
earthquake insurance obtained by the Special Servicer shall be paid out of a
segregated custodial account created and maintained by the Special Servicer
on behalf of the Trustee in trust for the Certificateholders (the "REO
Account") or advanced by the Servicer as a Servicing Advance.
Such costs may be recovered by the Servicer from reimbursements received
from the borrower or, if the borrower does not pay such amounts, as Servicing
Advances as set forth in the Pooling and Servicing Agreement.
No pool insurance policy, special hazard insurance policy, bankruptcy
bond, repurchase bond or certificate guarantee insurance will be maintained
with respect to the Mortgage Loans, nor will any Mortgage Loan be subject to
FHA insurance.
MODIFICATIONS, WAIVER AND AMENDMENTS
The Special Servicer may agree to extend the maturity date of a Mortgage
Loan that is not a Specially Serviced Mortgage Loan; provided, however, that,
no such extension entered into by the Special Servicer shall extend the
maturity date beyond the earlier of (i) two years prior to the Rated Final
Distribution Date and (ii) in the case of a Mortgage Loan secured by a
leasehold estate, the date ten years prior to the expiration of such
leasehold estate; and provided further that, if such extension would extend
the maturity date of a Mortgage Loan for more than twelve months from and
after the original maturity date of such Mortgage Loan, the Special Servicer
must obtain the opinion of counsel described in the next sentence. Except as
otherwise set forth in this paragraph, the Special Servicer (or in certain
circumstances the Servicer) may not waive, modify or amend any provision of a
Mortgage Loan which is not in default or as to which default is not
reasonably foreseeable except for (i) the waiver of any due-on-sale clause or
due-on-encumbrance clause to the extent permitted in the Pooling and
Servicing Agreement, and (ii) any waiver, modification or amendment that
would not be a "significant modification" of the Mortgage Loan within the
meaning of Treasury Regulations Section 1.860G-2(b) and as to which the
Special Servicer has provided the Trustee with an opinion of counsel that
such waiver, modification or amendment will not constitute such a
"significant modification."
If, but only if, the Special Servicer determines that a modification,
waiver or amendment (including the forgiveness or deferral of interest or
principal or the substitution or release of collateral or the pledge of
additional collateral) of the terms of a Specially Serviced Mortgage Loan
with respect to which a payment default or other material default has
occurred or a payment default or other material default is, in the Special
Servicer's judgment, reasonably foreseeable, is reasonably likely to produce
a greater recovery on a present value basis (the relevant discounting to be
performed at the related Mortgage Rate) than liquidation of such Specially
Serviced Mortgage Loan, then the Special Servicer may, but is not required
to, agree to a modification, waiver or amendment of such Specially Serviced
Mortgage Loan, subject to the restrictions and limitations described below.
The Special Servicer will use its best efforts to the extent possible to
fully amortize a modified Mortgage Loan prior to the Rated Final Distribution
Date.
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The Special Servicer may not agree to a modification, waiver or amendment
of any term of any Specially Serviced Mortgage Loan if such modification,
waiver or amendment would:
(i) extend the maturity date of any such Specially Serviced Mortgage Loan
to a date occurring later than the earlier of (A) two years prior to the
Rated Final Distribution Date and (B) if such Specially Serviced Mortgage
Loan is secured by a leasehold estate, the date ten years prior to the
expiration of such leasehold;
(ii) reduce the related Net Mortgage Rate to less than the lesser of (A)
the original Net Mortgage Rate and (B) the highest Pass-Through Rate on
any Class of Certificates (other than the Class X Certificates); or
(iii) provide for the deferral of interest unless (A) interest accrues
thereon, generally, at the related Mortgage Rate and (B) the aggregate
amount of such deferred interest does not exceed 10% of the unpaid
principal balance of such Specially Serviced Mortgage Loan.
In the event of a modification which creates a deferral of interest, the
Pooling and Servicing Agreement will provide that the amount of deferred
interest will be allocated to reduce the Distributable Certificate Interest
of the Class or Classes (other than the Class X Certificates) with the latest
alphabetical designation then outstanding, and to the extent so allocated,
shall be added to the Certificate Balance of such Class or Classes.
The Special Servicer or the 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" herein.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
Pursuant to the Pooling and Servicing Agreement, if a default on a
Mortgage Loan has occurred or, in the Special Servicer's judgment, a payment
default is imminent, the Special Servicer, on behalf of the Trustee, 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 Servicer as a Servicing Advance) and
either:
(i) such report indicates that (a) the Mortgaged Property is in
compliance with applicable environmental laws and regulations and (b)
there are no circumstances or conditions present at the Mortgaged Property
that have resulted in any contamination for which investigation, testing,
monitoring, containment, clean-up or remediation could be required under
any applicable environmental laws and regulations; or
(ii) the Special Servicer, based solely (as to environmental matters and
related costs) on the information set forth in such report, determines
that taking such actions as are necessary to bring the Mortgaged Property
into compliance with applicable environmental laws and regulations and/or
taking the actions contemplated by clause (i)(b) above, is reasonably
likely to produce a greater recovery, taking into account the time value
of money, than not taking such actions. See "Certain Legal Aspects of
Mortgage Loans--Environmental Risks" in the Prospectus.
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The Pooling and Servicing Agreement grants to the 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 following
the year of acquisition, unless (i) the Internal Revenue Service (the "IRS")
grants an extension of time to sell such property or (ii) the Trustee
receives an opinion of independent counsel to the effect that the holding of
the property by the Trust Fund longer than such period will not result in the
imposition of a tax on either the Upper-Tier REMIC or the Lower-Tier REMIC or
cause the Trust Fund (or either the Upper-Tier REMIC or the Lower-Tier REMIC)
to fail to qualify as a REMIC under the Code at any time that any Certificate
is outstanding. Subject to the foregoing and any other tax-related
limitations, pursuant to the Pooling and Servicing Agreement, the Special
Servicer will generally be required to attempt to sell any Mortgaged Property
so acquired on the same terms and conditions it would if it were the owner.
The Special Servicer will also be required to ensure that any Mortgaged
Property acquired by the Trust Fund is administered so that it constitutes
"foreclosure property" within the meaning of Code Section 860G(a)(8) at all
times, that the sale of such property does not result in the receipt by the
Trust Fund of any income from nonpermitted assets as described in Code
Section 860F(a)(2)(B). If the Trust Fund acquires title to any Mortgaged
Property, the Special Servicer, on behalf of the Trust Fund, will retain, at
the expense of the Trust Fund, an independent contractor to manage and
operate such property. The retention of an independent contractor, however,
will not relieve the Special Servicer of its obligation to manage such
Mortgaged Property as required under the Pooling and Servicing Agreement.
Generally, neither the Upper-Tier REMIC nor the Lower-Tier REMIC will be
taxable on income received with respect to a Mortgaged Property acquired by
the Trust Fund to the extent that it constitutes "rents from real property,"
within the meaning of Code Section 856(c)(3)(A) and Treasury regulations
thereunder. "Rents from real property" include fixed rents and rents based on
the receipts or sales of a tenant but do not include the portion of any
rental based on the net income or profit of any tenant or 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. Because
these sources of income, if they exist, are already in place with respect to
the Mortgaged Properties, it is generally viewed as beneficial to
Certificateholders to permit the Trust Fund to continue to earn them if it
acquires a Mortgaged Property, even at the cost of this tax. Any such taxes
would be chargeable against the related income for purposes of determining
the proceeds available for distribution to holders of Certificates. See
"Certain Federal Income Tax Consequences--Federal Income Tax Consequences for
REMIC Certificates" and "--Taxes That May Be Imposed on the REMIC Pool--Net
Income from Foreclosure Property" in the Prospectus.
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To the extent that Liquidation Proceeds collected with respect to any
Mortgage Loan are less than the sum of (i) the outstanding principal balance
of such Mortgage Loan, (ii) interest accrued thereon and (iii) the aggregate
amount of outstanding reimbursable expenses (including any unreimbursed
Servicing Advances and unpaid and accrued interest thereon) incurred with
respect to such Mortgage Loan, then the Trust Fund will realize a loss in the
amount of such shortfall. The Trustee, the Servicer and/or the Special
Servicer will be entitled to reimbursement out of the Liquidation Proceeds
recovered on any Mortgage Loan, prior to the distribution of such Liquidation
Proceeds to Certificateholders, of any and all amounts that represent unpaid
servicing compensation in respect of such Mortgage Loan, certain unreimbursed
expenses incurred with respect to such Mortgage Loan and any unreimbursed
Advances made with respect to such Mortgage Loan. In addition, amounts
otherwise distributable on the Certificates will be further reduced by
interest payable to the Servicer or Trustee on any such Advances.
If any Mortgaged Property suffers damage such that the proceeds, if any,
of the related hazard insurance policy are insufficient to restore fully the
damaged property, the Servicer will not be required to expend its own funds
to effect such restoration unless (i) the Special Servicer determines that
such restoration will increase the proceeds to Certificateholders on
liquidation of the Mortgage Loan after reimbursement of the Special Servicer
or the Servicer, as the case may be, for its expenses and (ii) the Servicer
determines that such expenses will be recoverable by it from related
Insurance and Condemnation Proceeds and Liquidation Proceeds.
INSPECTIONS; COLLECTION OF OPERATING INFORMATION
The Servicer will 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
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 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
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 Servicer, as applicable, is also
required to collect and review the annual operating statements of the related
Mortgaged Property. Most of the Mortgages obligate the related borrower to
deliver annual property operating statements. However, there can be no
assurance that any operating statements required to be delivered will in fact
be delivered, nor is the Special Servicer or the Servicer likely to have any
practical means of compelling such delivery in the case of an otherwise
performing Mortgage Loan.
Copies of the inspection reports and operating statements referred to
above are to be available for review by Certificateholders during normal
business hours at the offices of the Paying Agent. See "Description of the
Certificates--Reports to Certificateholders; Certain Available Information"
herein.
CERTAIN MATTERS REGARDING THE SERVICER, THE SPECIAL SERVICER AND THE
DEPOSITOR
The Pooling and Servicing Agreement permits the Servicer and the Special
Servicer to resign from their respective obligations thereunder only upon (a)
in the case of the Servicer only, the appointment of,
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and the acceptance of such appointment by, a successor thereto and receipt
by the Trustee of written confirmation from each applicable Rating Agency
that such resignation and appointment will, in and of itself, not cause a
downgrade, withdrawal or qualification of the rating assigned by such Rating
Agency to any Class of Certificates or (b) a determination that such
obligations are no longer permissible with respect to the Servicer or the
Special Servicer, as the case may be, under applicable law or are in material
conflict by reason of applicable law with any other activities carried on by
it. No such resignation will become effective until the Trustee or other
successor has assumed the obligations and duties of the resigning Servicer or
Special Servicer, as the case may be, under the Pooling and Servicing
Agreement.
The Pooling and Servicing Agreement will provide that none of the
Servicer, the Special Servicer (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 Servicer, the Special Servicer, the Depositor or
any such person will be protected against any liability that would otherwise
be imposed by reason of willful misfeasance, bad faith or negligence in the
performance of obligations or duties thereunder or by reason of reckless
disregard of such obligations and duties. The Pooling and Servicing Agreement
will also provide that the Servicer, the Special Servicer (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
reckless disregard of such obligations or duties, or in the case of the
Depositor and any of its directors, officers, employees and agents, any
violation by any of them of any state or federal securities law.
In addition, the Pooling and Servicing Agreement will provide that none of
the Servicer, the Special Servicer or the Depositor will be under any
obligation to appear in, prosecute or defend any legal action that is not
incidental to its respective responsibilities under the Pooling and Servicing
Agreement and that in its opinion may involve it in any expense or liability.
However, each of the Servicer, the Special Servicer and the Depositor will be
permitted, in the exercise of its discretion, to undertake any such action
that it may deem necessary or desirable with respect to the enforcement
and/or protection of the rights and duties of the parties to the Pooling and
Servicing Agreement and the interests of the Certificateholders thereunder.
In such event, the legal expenses and costs of such action, and any liability
resulting therefrom, will be expenses, costs and liabilities of the
Certificateholders, and the Servicer, the Special Servicer or the Depositor,
as the case may be, will be entitled to charge the Certificate Account
therefor.
Pursuant to the Pooling and Servicing Agreement, the Servicer and Special
Servicer will each be required to maintain a fidelity bond and errors and
omissions policy or their equivalent that provides coverage against losses
that may be sustained as a result of an officer's or employee's
misappropriation of funds or errors and omissions, subject to certain
limitations as to amount of coverage, deductible amounts, conditions,
exclusions and exceptions permitted by the Pooling and Servicing Agreement.
Notwithstanding the foregoing, the Servicer will be allowed to self-insure
with respect to a fidelity bond so long as certain conditions set forth in
the Pooling and Servicing Agreement are met.
Any person into which the Servicer, the Special Servicer or the Depositor
may be merged or consolidated, or any person resulting from any merger or
consolidation to which the Servicer, the Special Servicer or the Depositor is
a party, or any person succeeding to the business of the Servicer, the
Special Servicer or the Depositor, will be the successor of the Servicer, the
Special Servicer or the Depositor, as the case may be, under the Pooling and
Servicing Agreement. The Servicer and the Special Servicer may have other
normal business relationships with the Depositor or the Depositor's
affiliates.
EVENTS OF DEFAULT
"Events of Default" under the Pooling and Servicing Agreement with respect
to the Servicer or the Special Servicer, as the case may be, will include,
without limitation, (i) any failure by the Servicer to make
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any remittance required to be made by the Servicer on the day and by the
time such remittance is required to be made under the terms of the Pooling
and Servicing Agreement; (ii) any failure by the Special Servicer to deposit
into the REO Account within one business day after the day such deposit is
required to be made, or to remit to the Servicer for deposit in the
Certificate Account any such remittance required to be made by the Special
Servicer on the day such remittance is required to be made under the Pooling
and Servicing Agreement; (iii) any failure by the Servicer or the Special
Servicer duly to observe or perform in any material respect any of its other
covenants or obligations under the Pooling and Servicing Agreement, which
failure continues unremedied for thirty days after written notice thereof has
been given to the Servicer or the Special Servicer, as the case may be, by
any other party to the Pooling and Servicing Agreement, or to the Servicer or
the Special Servicer, as the case may be, with a copy to each other party to
the related Pooling and Servicing Agreement, by Certificateholders of any
Class, evidencing, as to such Class, Percentage Interests aggregating not
less than 25%; (iv) certain events of insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings in respect of or
relating to the Servicer or the Special Servicer, and certain actions by or
on behalf of the Servicer or the Special Servicer indicating its insolvency
or inability to pay its obligations; and (v) the Trustee shall have received
written notice from either Rating Agency that the continuation of the
Servicer or the Special Servicer in such capacity would result, or has
resulted, in a downgrade, qualification or withdrawal of any rating then
assigned by such Rating Agency to any Class of Certificates.
RIGHTS UPON EVENT OF DEFAULT
If an Event of Default occurs with respect to the Servicer or the Special
Servicer under the Pooling and Servicing Agreement, then, in each and every
such case, so long as the Event of Default remains unremedied, the Depositor
or the Trustee will be authorized, and at the direction of Certificateholders
entitled to not less than 51% of the Voting Rights, the Trustee will be
required, to terminate all of the rights and obligations of the defaulting
party as Servicer or Special Servicer, as applicable, under the Pooling and
Servicing Agreement, whereupon the Trustee will succeed to all of the
responsibilities, duties and liabilities of the defaulting party as Servicer
or Special Servicer, as applicable, under the Pooling and Servicing Agreement
and will be entitled to similar compensation arrangements. If the Trustee is
unwilling or unable so to act, it may (or, at the written request of
Certificateholders entitled to not less than 51% of the Voting Rights, it
will be required to) appoint, or petition a court of competent jurisdiction
to appoint, a loan servicing 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 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
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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 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 the
then-current ratings of any Class of the Certificates will not be downgraded,
qualified or withdrawn, as evidenced by a letter from each Rating Agency, and
that any such amendment will not give rise to any tax with respect to the
transfer of the Residual Certificates to a non-permitted transferee (see
"Certain Federal Income Tax Consequences--Federal Income Tax Consequences for
REMIC Certificates--Taxation of Residual Certificates--Tax-Related
Restrictions on Transfer of Residual Certificates" in the Prospectus), (v) to
make any other provisions with respect to matters or questions arising under
the Pooling and Servicing Agreement or any other change, provided that such
action will not adversely affect in any material respect the interests of any
Certificateholder or (vi) to amend or supplement any provision of the Pooling
and Servicing Agreement to the extent necessary to maintain the ratings
assigned to each Class of Certificates by each Rating Agency.
The Pooling and Servicing Agreement may also be amended by the parties
thereto with the consent of the holders of Certificates of each Class
affected thereby evidencing, in each case, not less than 66 2/3% of the
aggregate Percentage Interests constituting such Class for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of the Pooling and Servicing Agreement or of modifying in any
manner the rights of the holders of the Certificates, except that no such
amendment may (i) reduce in any manner the amount of, or delay the timing of,
payments received on the Mortgage Loans which are required to be distributed
on a Certificate of any Class without the consent of the holder of such
Certificate, (ii) reduce the aforesaid percentage of Certificates of any
Class 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 Servicer, the
Special Servicer, the Depositor, the Trustee or any other specified person in
accordance with such amendment, will not result in the imposition of a tax on
the REMIC constituted by the Trust Fund or cause the Trust Fund (or either
the Upper-Tier REMIC or Lower-Tier REMIC) to fail to qualify as a REMIC.
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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" herein.
Rate and Timing of Principal Payments. The yield to holders of Offered
Certificates that are purchased at a discount or premium will be affected by
the rate and timing of principal payments on the Mortgage Loans (including
principal prepayments on the Mortgage Loans resulting from both voluntary
prepayments by the mortgagors and involuntary liquidations). The rate and
timing of principal payments on the Mortgage Loans will in turn be affected
by the amortization schedules thereof, the dates on which Balloon Payments
are due, any extensions of maturity dates by the 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 Embassy Suites
Borrower may have certain incentives to prepay the Embassy Suites Loan on the
Anticipated Repayment Date, there can be no assurance that the Embassy Suites
Borrower will be able to prepay the Embassy Suites Loan on the Anticipated
Repayment Date. The failure of the Embassy Suites Borrower to prepay the
Embassy Suites Loan on the Anticipated Repayment Date will not be an event of
default under the terms of the Embassy Suites Loan, and pursuant to the terms
of the Pooling and Servicing Agreement, neither the Servicer nor the Special
Servicer will be permitted to take any enforcement action with respect to
Embassy Suites 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 Embassy Suites
Loan; provided, that the Servicer or the Special Servicer, as the case may
be, may take action to enforce the Trust Fund's right to apply excess cash
flow to principal in accordance with the terms of the Embassy Suites Loan
documents. See "Risk Factors--Risks Associated with Balloon Payments and
Loans with Anticipated Repayment Dates" herein.
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" herein 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
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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 and Class A-2 Certificates (and Class X Certificates
with respect to shortfalls of interest).
Certain Relevant Factors. The rate and timing of principal payments and
defaults and the severity of losses on the Mortgage Loans may be affected by
a number of factors, including, without limitation, prevailing interest
rates, the terms of the Mortgage Loans (for example, due-on-sale clauses,
Lockout Periods, 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"
herein and "Risk Factors" and "Yield and Maturity Considerations--Yield and
Prepayment Considerations" in the Prospectus.
The rate of prepayment on the Mortgage Pool is likely to be affected by
prevailing market interest rates for mortgage loans of a comparable type,
term and risk level as the Mortgage Loans. When the prevailing market
interest rate is below a mortgage coupon, a borrower may have an increased
incentive to refinance its mortgage loan. However, under all of the Mortgage
Loans voluntary prepayments are subject to Lockout Periods and/or Prepayment
Premium Periods and/or Yield Maintenance Periods. See "Description of the
Mortgage Pool--Certain Terms and Conditions of the Mortgage Loans--Prepayment
Provisions" herein.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash
flow needs or to make other investments. In addition, some borrowers may be
motivated by federal and state tax laws (which are subject to change) to sell
Mortgaged Properties prior to the exhaustion of tax depreciation benefits.
The Depositor makes no representation as to the particular factors that
will affect the rate and timing of prepayments and defaults on the Mortgage
Loans, as to the relative importance of such factors, as to the percentage of
the principal balance of the Mortgage Loans that will be prepaid or as to
which a default will have occurred as of any date or as to the overall rate
of prepayment or default on the Mortgage Loans.
Delay in Payment of Distributions. Because each monthly distribution is
made on each Distribution Date, which is at least 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" herein, if the portion of the
Available Distribution Amount distributable in
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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 Repayment
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 3.90% 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 June 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 Repayment 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 20, 21 and 22 on Annex A hereto) which Mortgage Loans 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 Repayment Date, as the case may be, except in the case of the
4 Mortgage Loans (identified as Loan Numbers 8, 53, 57 and 61 on Annex A
hereto), which Mortgage Loan is assumed to amortize in accordance with the
amortization schedules set forth on Annex A after an interest-only period of
approximately 3-17 months from origination; (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; (v) the Mortgage Loan Seller will not be required to
repurchase any Mortgage Loan, and none of the Servicer, the Special Servicer,
the holders of the Controlling Class or the holders of the Class LR
Certificates will exercise its option to purchase all the Mortgage Loans and
thereby cause an early termination of the Trust Fund; (vi) no 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 May 15, 1998; (ix) the
Embassy Suites Loan prepays on the Anticipated Repayment 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
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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
May 18, 1999 ........................... 93 93 93 93 93
May 18, 2000 ........................... 86 86 86 86 85
May 18, 2001 ........................... 78 74 70 66 62
May 18, 2002 ........................... 70 58 47 35 24
May 18, 2003 ........................... 55 36 18 0 0
May 18, 2004 ........................... 46 19 0 0 0
May 18, 2005 ........................... 17 0 0 0 0
May 18, 2006 ........................... 6 0 0 0 0
May 18, 2007 ........................... 0 0 0 0 0
May 18, 2008 ........................... 0 0 0 0 0
Weighted Average Life (Years)(A) ...... 5.1 4.2 3.7 3.4 3.2
Estimated Month of First Principal .... 1 1 1 1 1
Estimated Month of Maturity ............ 103 81 69 60 57
</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.
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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
MAY 18, 1999 ....................... 100 100 100 100 100
MAY 18, 2000 ....................... 100 100 100 100 100
MAY 18, 2001 ....................... 100 100 100 100 100
MAY 18, 2002 ....................... 100 100 100 100 100
MAY 18, 2003 ....................... 100 100 100 100 95
MAY 18, 2004 ....................... 100 100 98 92 86
MAY 18, 2005 ....................... 100 96 88 81 74
MAY 18, 2006 ....................... 100 91 82 74 66
MAY 18, 2007 ....................... 96 84 74 65 58
MAY 18, 2008 ....................... 0 0 0 0 0
WEIGHTED AVERAGE LIFE (YEARS)(A) .. 9.7 9.4 9.1 8.8 8.4
ESTIMATED MONTH OF FIRST PRINCIPAL 103 81 69 60 57
ESTIMATED MONTH OF MATURITY ....... 120 120 120 120 119
</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 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
MAY 18, 1999 ....................... 100 100 100 100 100
MAY 18, 2000 ....................... 100 100 100 100 100
MAY 18, 2001 ....................... 100 100 100 100 100
MAY 18, 2002 ....................... 100 100 100 100 100
MAY 18, 2003 ....................... 100 100 100 100 100
MAY 18, 2004 ....................... 100 100 100 100 100
MAY 18, 2005 ....................... 100 100 100 100 100
MAY 18, 2006 ....................... 100 100 100 100 100
MAY 18, 2007 ....................... 100 100 100 100 100
MAY 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 120 120 120 120 119
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.
S-104
<PAGE>
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
MAY 18, 1999 ....................... 100 100 100 100 100
MAY 18, 2000 ....................... 100 100 100 100 100
MAY 18, 2001 ....................... 100 100 100 100 100
MAY 18, 2002 ....................... 100 100 100 100 100
MAY 18, 2003 ....................... 100 100 100 100 100
MAY 18, 2004 ....................... 100 100 100 100 100
MAY 18, 2005 ....................... 100 100 100 100 100
MAY 18, 2006 ....................... 100 100 100 100 100
MAY 18, 2007 ....................... 100 100 100 100 100
MAY 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.
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
MAY 18, 1999 ....................... 100 100 100 100 100
MAY 18, 2000 ....................... 100 100 100 100 100
MAY 18, 2001 ....................... 100 100 100 100 100
MAY 18, 2002 ....................... 100 100 100 100 100
MAY 18, 2003 ....................... 100 100 100 100 100
MAY 18, 2004 ....................... 100 100 100 100 100
MAY 18, 2005 ....................... 100 100 100 100 100
MAY 18, 2006 ....................... 100 100 100 100 100
MAY 18, 2007 ....................... 100 100 100 100 100
MAY 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.
S-105
<PAGE>
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
MAY 18, 1999 ....................... 100 100 100 100 100
MAY 18, 2000 ....................... 100 100 100 100 100
MAY 18, 2001 ....................... 100 100 100 100 100
MAY 18, 2002 ....................... 100 100 100 100 100
MAY 18, 2003 ....................... 100 100 100 100 100
MAY 18, 2004 ....................... 100 100 100 100 100
MAY 18, 2005 ....................... 100 100 100 100 100
MAY 18, 2006 ....................... 100 100 100 100 100
MAY 18, 2007 ....................... 100 100 100 100 100
MAY 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.
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 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" HEREIN.
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.
S-106
<PAGE>
The table below has been prepared based on the assumption that
distributions are made in accordance with "Description of the Certificates"
herein and on the assumptions described in clauses (i) through (x) on pages
S-102 and S-103 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 May 1, 1998 to the Closing Date.
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>
4.85% 8.44% 7.37% 6.38% 5.45% 4.57%
4.90 8.20 7.13 6.14 5.21 4.33
4.95 7.96 6.90 5.90 4.97 4.10
</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.
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 Code, including the REMIC Provisions, for federal income tax
purposes, the Trust Fund will qualify as two separate real estate mortgage
investment conduits (the "Upper-Tier REMIC" and the "Lower-Tier REMIC,"
respectively, and each a "REMIC") within the meaning of Sections 860A through
860G (the "REMIC Provisions") of the Code, and (i) the Class A-1, Class A-2,
Class X, Class B, Class C, Class D, Class E, Class F, Class G, Class H, Class
I 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.
Because they represent regular interests, each Class of Offered
Certificates generally will be treated as newly originated debt instruments
for federal income tax purposes. Holders of such Classes of Certificates will
be required to include in income all interest on such Certificates in
accordance with the accrual method of accounting, regardless of a
Certificateholder's usual method of accounting. It is anticipated that the
Class D and Class E Certificates will be issued with OID for federal income
tax purposes in an amount equal to the excess of the initial Certificate
Balances thereof over their respective issue prices (including accrued
interest). It is also anticipated that the Class A-1, Class A-2 and Class B
Certificates will be issued at a premium and that the Class C 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 Embassy Suites Loan prepays on its Anticipated Repayment Date (the
"Prepayment Assump-
S-107
<PAGE>
tion"). 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 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 herein under "Description of the Certificates--Allocation of
Prepayment Premiums and Yield Maintenance Charges." 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
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 and mobile home
communities, respectively. As of the Cut-off Date, Mortgage Loans secured by
multifamily properties will represent approximately 17.67% of the Initial
Pool Balance and the Mortgage Loan secured by a mobile home community will
represent approximately 0.28% of the Initial Pool Balance. See "Certain
Federal Income Tax Consequences--Federal Income Tax Consequences for REMIC
Certificates--Status of REMIC Certificates" in the Prospectus.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC
Certificates--Taxation of Regular Certificates" in the Prospectus.
S-108
<PAGE>
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 Depositor
has agreed to sell to the Underwriter, and the Underwriter has agreed to
purchase from the Depositor the Certificate Balances, or Notional Amounts, as
applicable, of each Class of the Offered Certificates subject in each case to
a variance of 10%.
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase all of the Offered
Certificates if any Offered Certificates are purchased. 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 Depositor has been advised by the Underwriter that it proposes to
offer the Offered Certificates to the public from time to time in one or more
negotiated transactions, or otherwise, at varying prices to be determined at
the time of sale. Proceeds to the Depositor from the sale of Offered
Certificates before deducting expenses payable by the Depositor, estimated to
be approximately $2,100,000, will be 105.747% of the initial aggregate
Certificate Balance of the Offered Certificates, plus accrued interest on the
Offered Certificates from May 1, 1998. The Underwriter may effect such
transactions by selling Offered Certificates to or through dealers, and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriter. In connection with the
purchase and sale of the Offered Certificates offered hereby, the Underwriter
may be deemed to have received compensation from the Depositor in the form of
underwriting discounts.
Chase Securities Inc. is an affiliate of the Depositor and Chase, the
Mortgage Loan Seller which is also acting as the Servicer.
There can be no assurance that a secondary market for the Offered
Certificates will develop or, if it does develop, that it will continue. The
Underwriter expects to make, but is not obligated to make, a secondary market
in the Offered Certificates. The primary source of ongoing information
available to investors concerning the Offered Certificates will be the
monthly statements discussed in the Prospectus under "Description of the
Certificates--Reports to Certificateholders," which will include information
as to the outstanding principal balance of the Offered Certificates and the
status of the applicable form of credit enhancement. Except as described
herein under "Description of the Certificates--Reports to Certificateholders;
Certain Available Information," there can be no assurance that any additional
information regarding the Offered Certificates will be available through any
other source. In addition, the Depositor is not aware of any source through
which price information about the Offered Certificates will be generally
available on an ongoing basis. The limited nature of such information
regarding the Offered Certificates may adversely affect the liquidity of the
Offered Certificates, even if a secondary market for the Offered Certificates
becomes available.
If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will be used by 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.
S-109
<PAGE>
RATING
It is a condition to issuance that the Offered Certificates be rated not
lower than the following ratings by S&P and Moody's:
<TABLE>
<CAPTION>
CLASS S&P MOODY'S
- --------- -------- -----------
<S> <C> <C>
A-1....... AAA Aaa
A-2....... AAA Aaa
X......... AAAr Aaa
B......... AA Aa2
C......... A A2
D......... BBB Baa2
E......... BBB- Baa3
</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 Final Rate
of 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 herein, 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 Moody's
or S&P.
The ratings on the Offered Certificates should be evaluated independently
from similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision
or withdrawal at any time by the assigning rating agency.
LEGAL INVESTMENT
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
S-110
<PAGE>
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.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities, Keogh
plans and collective investment funds and separate accounts in which such
plans, annuities, accounts or arrangements are invested, including insurance
company general accounts, that is subject to the fiduciary responsibility
rules of ERISA, or Section 4975 of the Code (an "ERISA Plan") or which is a
governmental plan, as defined in Section 3(32) of ERISA, subject to any
federal, state or local law ("Similar Law") which is, to a material extent,
similar to the foregoing provisions of ERISA or the Code (collectively, with
an ERISA Plan, a "Plan") should review with its legal advisors whether the
purchase or holding of Offered Certificates could give rise to a transaction
that is prohibited or is not otherwise permitted either under ERISA, the Code
or Similar Law 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.
individual prohibited transaction exemptions, PTE 90-33, 55 Fed. Reg. 23, 151
(June 6, 1990) (the "Exemption"), which generally exempts from the
application of the prohibited transaction provisions of Section 406 of ERISA,
and the excise taxes imposed on such prohibited transactions pursuant to
Sections 4975(a) and (b) of the Code, certain transactions, among others,
relating to the servicing and operation of mortgage pools, such as the
Mortgage Pool, and the purchase, sale and holding of mortgage pass-through
certificates, such as the Senior Certificates, underwritten by 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 S&P, 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 Servicer,
the Special Servicer, any sub-servicer and any mortgagor with respect to
Mortgage Loans constituting more than 5% of the aggregate unamortized
principal balance of the Mortgage Loans as of the date of initial issuance of
the Senior Certificates. 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 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 "Aaa" Moody's, and it is a condition of the issuance of the Class
X Certificates that they be rated no lower than
S-111
<PAGE>
"AAAr" by S&P and "Aaa" by Moody's. 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 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 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 "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
S-112
<PAGE>
transactions or the imposition of excise taxes or civil penalties. In no
event may any transfer of a Subordinate Offered Certificate or any interest
therein be made to a Plan or to any person who is directly or indirectly
purchasing such Certificate or interest therein on behalf of, as named
fiduciary of, as trustee of, or with assets of a Plan, unless the purchase
and holding of such Certificate or interest therein is exempt from the
prohibited transaction provisions of Section 406 of ERISA and the related
excise tax provisions of Section 4975 of the Code under Prohibited
Transaction Class Exemption 95-60, which provides an exemption from the
prohibited transaction rules for certain transactions involving an insurance
company general account. Any such Plan or person to whom a transfer of any
such Certificate or interest therein is made shall be deemed to have
represented to the Depositor, the Servicer, the Special Servicer, the
Trustee, the Underwriter, any sub-servicer and any borrower with respect to
the Mortgage Loans that the purchase and holding of such Certificate or
interest therein is so exempt on the basis of Prohibited Transaction Class
Exemption 95-60. See "ERISA Considerations" in the Prospectus. Any Plan
fiduciary considering whether to purchase an Offered Certificate on behalf of
a Plan should consult with its counsel regarding the applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment.
The sale of Certificates to a Plan is in no respect a representation by
the Depositor or 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-113
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
<S> <C>
330 Madison Avenue Borrower ............ S-43
330 Madison Avenue Interest Rate ....... S-43
330 Madison Avenue Loan ................ S-16, S-43, S-47
330 Madison Avenue Property ............ S-43
330 Madison Avenue Property Manager ... S-44
Administrative Cost Rate ............... S-91
Advances ............................... S-22, S-82
Affiliate Debt ......................... S-29, S-39
Anticipated Repayment Date ............. S-17, S-40
Appraisal Reduction .................... S-83
Appraisal Reduction Amount ............. S-83
Appraisal Reduction Event .............. S-82
Asset Status Report .................... S-89
Assumed Final Distribution Date ....... S-79
Assumed Scheduled Payment .............. S-77
Authenticating Agent ................... S-70
Available Distribution Amount .......... S-73
Balloon Payment ........................ S-16
Balloon Payments ....................... S-30
Base Interest Fraction ................. S-79
bondable lease ......................... S-62
Cash Collateral Accounts ............... S-68
Cedel .................................. S-1, S-11, S-38
Centre Structured Trust Loans .......... S-52
Centre Structured Trust Replacement
Property .............................. S-52
Certificate Account .................... S-72
Certificate Balance .................... S-4, S-69
Certificate Owner ...................... S-11
Certificate Registrar .................. S-70
Certificates ........................... S-1, S-69
Chase .................................. S-10, S-61
Class .................................. S-1, S-69
Class A Certificates ................... S-1, S-69
Class X Pass-Through Rate .............. S-76
Closing Date ........................... S-1
Code ................................... S-26
Collateral Substitution Deposit ....... S-52
Collateral Support Deficit ............. S-23, S-81
Constant Prepayment Rate ............... S-102
Controlling Class ...................... S-90
Controlling Class Certificateholder .... S-90
Corrected Mortgage Loan ................ S-89
CPR .................................... S-25, S-102
Credit Facility ........................ S-41
Credit Lease ........................... S-44
Credit Lease Assignment ................ S-45
Credit Lease Default ................... S-45
Credit Lease Loan ...................... S-34
Credit Lease Loans ..................... S-34, S-44
Credit Lease Property .................. S-45
Credit Leases .......................... S-34
Cross-Over Date ........................ S-76
Current Occupancy Rate ................. S-13
Cut-off Date ........................... S-3
Cut-off Date Balance ................... S-39
DCR .................................... S-111
Debt Service Coverage Ratio ............ S-57
Defeasance Loans ....................... S-52
Defeasance Lock-out Period ............. S-52
Defeasance Option ...................... S-52
Definitive Certificate ................. S-11
Depositories ........................... S-70
Determination Date ..................... S-83
Directing Certificateholder ............ S-89
Distributable Certificate Interest .... S-19, S-77
Distribution Accounts .................. S-73
Distribution Date ...................... S-4, S-72
Distribution Date Statement ............ S-84
DSCR ................................... S-13, S-57
DTC .................................... S-1, S-11
Due Date ............................... S-16
Due Period ............................. S-74
Embassy Suites Borrower ................ S-40
Embassy Suites Cash Management Account S-41
Embassy Suites Initial Interest Rate .. S-40
Embassy Suites Lessee .................. S-41
Embassy Suites Loan .................... S-17, S-28, S-30,
S-40
Embassy Suites Manager ................. S-42
Embassy Suites Properties .............. S-40
Embassy Suites Replacement Property ... S-42
ERISA .................................. S-26
ERISA Plan ............................. S-111
Euroclear .............................. S-1, S-11, S-38
Events of Default ...................... S-97
Excess Interest ........................ S-17, S-40
Exemption .............................. S-26, S-111
FIRREA ................................. S-61
Fitch .................................. S-111
Form 8-K ............................... S-53
GLA .................................... S-44
Guarantor .............................. S-34
Guarantors ............................. S-34
HAP Contract ........................... S-34
HAP Loan ............................... S-46
HAP Loans .............................. S-34
Hazardous Materials .................... S-66
Indirect Participants .................. S-70
Initial Pool Balance ................... S-3
Interest Accrual Period ................ S-4
Interest Distribution Amount ........... S-19, S-77
Interest Reserve Account ............... S-73
IRS .................................... S-95
Lease Enhancement Insurer .............. S-46
Lease Enhancement Policy ............... S-45
Liquidation Fee ........................ S-91
Liquidation Fee Rate ................... S-91
Lock Box Accounts ...................... S-67
Lock Box Loans ......................... S-67
Lockout Period ......................... S-47
Lower-Tier Distribution Account ....... S-73
Lower-Tier Regular Interests ........... S-19
Lower-Tier REMIC ....................... S-3, S-19, S-107
LTV Ratio .............................. S-13, S-59
Monthly Payments ....................... S-16
Monthly Rental Payments ................ S-44
Moody's ................................ S-3, S-25
S-114
<PAGE>
Mortgage ............................... S-39
Mortgage Loan .......................... S-78
Mortgage Loan Seller ................... S-10
Mortgage Loans ......................... S-3, S-78
Mortgage Note .......................... S-39
Mortgage Pool .......................... S-3, S-78
Mortgage Rate .......................... S-76
Mortgaged Property ..................... S-12, S-39
Negative Adjustment .................... S-108
Net Mortgage Rate ...................... S-76
Non-Offered Certificates ............... S-19, S-69
Non-Offered Subordinate Certificates .. S-80
Nonrecoverable Advance ................. S-82
Nonrecoverable Advances ................ S-22
Notional Amount ........................ S-4, S-18, S-69
Notional Principal Window .............. S-6
Offered Certificates ................... S-1, S-69
OID .................................... S-24
Participants ........................... S-70
Pass-Through Rate ...................... S-4
Paying Agent ........................... S-70
Percentage Interest .................... S-69
P&I Advance ............................ S-81
P&I Advances ........................... S-22
Plan ................................... S-26, S-111
Pooling and Servicing Agreement ....... S-18
Prepayment Assumption .................. S-107
Prepayment Premium Period .............. S-47
Prepayment Premiums .................... S-47
Primary Term ........................... S-44
Prime Rate ............................. S-82
Principal Distribution Amount .......... S-77
Principal Shortfall .................... S-77
Principal Window ....................... S-6
Purchase Agreement ..................... S-12
Purchase Price ......................... S-67
Rated Final Distribution Date .......... S-80
Record Date ............................ S-72
Regular Certificates ................... S-107
Reimbursement Rate ..................... S-82
Related Proceeds ....................... S-82
Release Date ........................... S-52
REMIC .................................. S-3, S-19, S-107
REMIC Pool ............................. S-3
REMIC Provisions ....................... S-107
REO Account ............................ S-93
REO Loan ............................... S-78
REO Property ........................... S-89
Reserve Accounts ....................... S-68
Residual Certificates .................. S-1, S-69
Restricted Group ....................... S-111
Revised Interest Rate .................. S-40
Rolling 12 Months ...................... S-60
Rules .................................. S-71
Scheduled Principal Distribution Amount S-77
Senior Certificates .................... S-1, S-69
Servicer ............................... S-90
Servicer Remittance Date ............... S-81
Servicing Advances ..................... S-22, S-82
Servicing Fee .......................... S-90
Servicing Fee Rate ..................... S-90
Servicing Standards .................... S-88
Similar Law ............................ S-26, S-111
S&P .................................... S-3, S-25
Special Servicing Fee .................. S-91
Special Servicing Fee Rate ............. S-91
Specially Serviced Mortgage Loans ...... S-89
Standby Fee ............................ S-91
Standby Fee Rate ....................... S-91
Star Loans ............................. S-45
Stated Principal Balance ............... S-78
Subordinate Certificates ............... S-1, S-69
Subordinate Offered Certificates ...... S-1, S-69
Sweep Event ............................ S-41
Tenant ................................. S-34, S-44
Tenants ................................ S-34
Terms and Conditions ................... S-71
Trust Fund ............................. S-3
Trustee Fee ............................ S-87
Trustee Fee Rate ....................... S-87
bondable lease ......................... S-45
Underwriter ............................ S-1, S-26, S-109
Underwriting Agreement ................. S-109
Underwritten Net Cash Flow ............. S-60
Unscheduled Principal Distribution
Amount ................................ S-77
Upper-Tier Distribution Account ....... S-73
Upper-Tier REMIC ....................... S-3, S-19, S-107
Voting Rights .......................... S-86
Weighted Average Life .................. S-6
Withheld Amounts ....................... S-73
Withheld Loans ......................... S-73
Workout Fee ............................ S-91
Workout Fee Rate ....................... S-91
Yield Maintenance Charge ............... S-48
Yield Maintenance Period ............... S-47
Yield Rate ............................. S-48
Zoning Laws ............................ S-37
</TABLE>
S-115
<PAGE>
<TABLE>
<CAPTION>
% OF MORTGAGE
INITIAL POOL # OF LOAN SELLER ORIGINAL
ID PROPERTY NAME BALANCE PROPERTIES (1) BALANCE CUT-OFF DATE BALANCE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 1900 Northern Boulevard 0.36% 1 Chase $2,925,000 $2,920,285
2 299 Broadway 1.58% 1 Chase 13,000,000 12,913,203
3 330 Madison Avenue (2) 7.34% 1 Chase 60,000,000 60,000,000
4 3937 Campus Drive 0.39% 1 Chase 3,200,000 3,195,353
5 460 Ward Drive 0.46% 1 Chase 3,750,000 3,739,040
- ----------------------------------------------------------------------------------------------------------------------
6 55 West 47th Street 2.81% 1 Chase 23,000,000 22,969,516
7 560 Broadway 1.49% 1 Chase 12,150,000 12,150,000
8 7 - 11 Audubon Road 0.73% 1 Chase 6,000,000 6,000,000
9 740- 744 Broadway 2.57% 1 Chase 21,000,000 21,000,000
10 801 and 949 East Erie Avenue 0.55% 1 Chase 4,500,000 4,494,058
- ----------------------------------------------------------------------------------------------------------------------
11 905 East Golf Road 0.87% 1 Chase 7,150,000 7,150,000
12 Alum Rock Plaza 0.42% 1 Chase 3,460,000 3,460,000
13 Baymeadows Festival Shopping Center 0.59% 1 Chase 4,815,000 4,811,281
14 Beachwestern Commons 0.86% 1 Chase 7,000,000 7,000,000
15 Berlin Circle Plaza 1.47% 1 Chase 12,000,000 11,989,769
- ----------------------------------------------------------------------------------------------------------------------
16 Blockbuster & Frazee Paint 0.15% 2 Chase 1,200,000 1,195,449
16a Blockbuster (at Vista Plaza) 0.07% 1 536,646 534,611
16b Frazee Paint 0.08% 1 663,354 660,838
17 Brazos Park Apartments 0.40% 1 Chase 3,280,000 3,260,163
18 Builder's Square 0.70% 1 Chase 5,750,000 5,737,367
- ----------------------------------------------------------------------------------------------------------------------
19 Canton Shopping Center 0.62% 1 Chase 5,100,000 5,088,369
20 Centre Structured Trust 10 (3) 1.71% 8 Chase 13,969,505 13,958,108
20a On The Border (Store #2) 0.22% 1 1,764,569 1,763,129
20b On The Border (Store #28) 0.20% 1 1,666,537 1,665,178
20c On The Border (Store #32) 0.25% 1 2,058,664 2,056,984
- ----------------------------------------------------------------------------------------------------------------------
20d Macaroni Grill (Store #45) 0.28% 1 2,254,727 2,252,888
20e Chili's (Store #352) 0.19% 1 1,519,490 1,518,250
20f Chili's (Store #418) 0.19% 1 1,568,506 1,567,226
20g Chili's (Store #436) 0.17% 1 1,372,443 1,371,323
20h Chili's (Store #447) 0.22% 1 1,764,569 1,763,129
- ----------------------------------------------------------------------------------------------------------------------
21 Centre Structured Trust 3 (3) 1.14% 6 Chase 9,332,939 9,325,484
21a On The Border (Store #23) 0.28% 1 2,329,783 2,327,921
21b Chili's (Store #313) 0.18% 1 1,479,540 1,478,358
21c Chili's (Store #380) 0.16% 1 1,282,268 1,281,244
21d Chili's (Store #393) 0.16% 1 1,282,268 1,281,244
- ----------------------------------------------------------------------------------------------------------------------
21e Chili's (Store #414) 0.18% 1 1,479,540 1,478,358
21f Chili's (Store #465) 0.18% 1 1,479,540 1,478,358
22 Centre Structured Trust 6 (3) 1.05% 5 Chase 8,592,095 8,585,451
22a Chili's (Store #320) 0.19% 1 1,592,972 1,591,741
22b Chili's (Store #399) 0.22% 1 1,792,094 1,790,708
- ----------------------------------------------------------------------------------------------------------------------
22c Chili's (Store #411) 0.24% 1 1,991,215 1,989,676
22d Chili's (Store #433) 0.20% 1 1,622,841 1,621,586
22e Chili's (Store #481) 0.19% 1 1,592,972 1,591,741
23 Cobblestone Grove Apartments 1.41% 1 Chase 11,600,000 11,571,421
24 Columbia Wellness Center 1.16% 1 Chase 9,500,000 9,472,919
- ----------------------------------------------------------------------------------------------------------------------
25 Coppertree Apartments 0.77% 1 Chase 6,300,000 6,257,519
26 Cortland Estates 0.28% 1 Chase 2,300,000 2,298,115
27 Delco Plaza 2.16% 1 Chase 17,700,000 17,700,000
28 Depotech Corp. Building 1.70% 1 Chase 14,000,000 13,912,926
29 Drum Hill Shopping Center 1.12% 1 Chase 9,200,000 9,165,086
- ----------------------------------------------------------------------------------------------------------------------
30 El Paseo Elegante 0.24% 1 Chase 2,000,000 1,998,440
31 Embassy Suites 13.87% 9 Chase 114,000,000 113,431,059
31a Embassy Suites #1 1.66% 1 13,650,000 13,581,877
31b Embassy Suites #2 1.96% 1 16,100,000 16,019,650
31c Embassy Suites #3 1.27% 1 10,400,000 10,348,097
31d Embassy Suites #4 1.67% 1 13,750,000 13,681,378
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTEREST ORIGINAL STATED ORIGINAL NUMBER OF
MORTGAGE ACCRUAL WITHHELD TERM TO REMAINING AMORTIZATION INTEREST ONLY
ID RATE BASIS LOAN MATURITY TERM(MO.) TERM (MO.) MONTHS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 7.100% 30/360 No 84 82 360 0
2 7.750% 30/360 No 240 234 300 0
3 6.520% ACT/360 Yes 120 120 120
4 7.625% 30/360 No 120 118 360 0
5 7.625% 30/360 No 120 116 360 0
- --------------------------------------------------------------------------------------------------
6 7.360% ACT/360 No 120 118 360 0
7 7.120% ACT/360 Yes 120 120 360 0
8 7.250% 30/360 No 124 120 300 4
9 6.945% ACT/360 Yes 120 120 360 0
10 7.375% ACT/360 No 120 118 360 0
- --------------------------------------------------------------------------------------------------
11 7.250% 30/360 No 120 120 360 0
12 7.250% ACT/360 No 120 120 300 0
13 7.300% ACT/360 No 120 119 360 0
14 7.154% 30/360 No 120 118 330 18
15 6.800% 30/360 No 84 83 360 0
- --------------------------------------------------------------------------------------------------
16 7.125% 30/360 No 240 238 240 0
16a 7.125% No 240 239 240 0
16b 7.125% No 240 239 240 0
17 8.126% 30/360 No 120 111 360 0
18 7.750% 30/360 No 120 118 300 0
- --------------------------------------------------------------------------------------------------
19 7.000% ACT/360 Yes 120 118 300 0
20 7.156% 30/360 No 240 234 330 0
20a 7.156% No 240 234 330 0
20b 7.156% No 240 234 330 0
20c 7.156% No 240 234 330 0
- --------------------------------------------------------------------------------------------------
20d 7.156% No 240 234 330 0
20e 7.156% No 240 234 330 0
20f 7.156% No 240 234 330 0
20g 7.156% No 240 234 330 0
20h 7.156% No 240 234 330 0
- --------------------------------------------------------------------------------------------------
21 7.156% 30/360 No 240 234 330 0
21a 7.156% No 240 234 330 0
21b 7.156% No 240 234 330 0
21c 7.156% No 240 234 330 0
21d 7.156% No 240 234 330 0
- --------------------------------------------------------------------------------------------------
21e 7.156% No 240 234 330 0
21f 7.156% No 240 234 330 0
22 7.156% 30/360 No 240 234 330 0
22a 7.156% No 240 234 330 0
22b 7.156% No 240 234 330 0
- --------------------------------------------------------------------------------------------------
22c 7.156% No 240 234 330 0
22d 7.156% No 240 234 330 0
22e 7.156% No 240 234 330 0
23 7.020% 30/360 No 84 81 360 0
24 7.750% 30/360 No 180 176 360 0
- --------------------------------------------------------------------------------------------------
25 8.126% 30/360 No 120 110 360 0
26 7.000% ACT/360 Yes 120 119 360 0
27 7.000% ACT/360 Yes 120 120 360 0
28 7.200% 30/360 No 180 178 180 0
29 8.375% 30/360 No 121 115 360 0
- --------------------------------------------------------------------------------------------------
30 7.250% ACT/360 No 120 119 360 0
31 6.988% ACT/360 Yes 120 (4) 116 (4) 300 0
31a 6.988% No 120 116 300 0
31b 6.988% No 120 116 300 0
31c 6.988% No 120 116 300 0
31d 6.988% No 120 116 300 0
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LOAN CHARACTERISTICS
ANNEX A
<TABLE>
<CAPTION>
ANNUAL
FIRST PRINCIPAL &
PAYMENT INTEREST ANNUAL INTEREST 1997 OR ROLLING
ID DATE MATURITY DATE PAYMENTS ONLY PAYMENTS 1996 NOI 12 MO. NOI
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 4/1/98 3/1/05 $235,883 $329,884
2 12/1/97 11/1/17 1,178,313 1,470,346 $1,827,537
3 6/10/98 5/10/08 3,966,333 $3,966,333 16,001,053 12,853,502
4 4/1/98 3/1/08 271,793
5 2/1/98 1/1/08 318,507 493,640
- --------------------------------------------------------------------------------------------------
6 4/10/98 3/10/08 1,903,443 2,966,050 3,224,911
7 6/10/98 5/10/08 981,790 1,481,383 1,564,601
8 2/1/98 5/1/08 520,421
9 6/10/98 5/10/08 1,667,264 2,917,059 3,110,173
10 4/10/98 3/10/08 372,965 687,973
- --------------------------------------------------------------------------------------------------
11 6/10/98 5/10/08 585,307
12 6/10/98 5/10/08 300,109 445,321 538,148
13 5/10/98 4/10/08 396,123 618,331 589,648
14 4/1/98 3/1/08 582,740 116,316 665,400
15 5/10/98 4/10/05 938,772 1,257,770 1,423,912
- --------------------------------------------------------------------------------------------------
16 4/1/98 3/1/18 112,726
16a 4/1/98 50,412
16b 4/1/98 62,314
17 9/1/97 8/1/07 292,274 372,895 343,818
18 4/1/98 3/1/08 521,177 764,806
- --------------------------------------------------------------------------------------------------
19 4/10/98 3/10/08 432,549 598,559 566,262
20 12/1/97 11/1/17 1,029,861
20a 12/1/97 130,088
20b 12/1/97 122,861
20c 12/1/97 151,769
- --------------------------------------------------------------------------------------------------
20d 12/1/97 166,223
20e 12/1/97 112,020
20f 12/1/97 115,634
20g 12/1/97 101,179
20h 12/1/97 130,088
- --------------------------------------------------------------------------------------------------
21 12/1/97 11/1/17 687,895
21a 12/1/97 171,719
21b 12/1/97 109,051
21c 12/1/97 94,511
21d 12/1/97 94,511
- --------------------------------------------------------------------------------------------------
21e 12/1/97 109,051
21f 12/1/97 109,051
22 12/1/97 11/1/17 633,085
22a 12/1/97 117,374
22b 12/1/97 132,045
- --------------------------------------------------------------------------------------------------
22c 12/1/97 146,717
22d 12/1/97 119,575
22e 12/1/97 117,374
23 3/1/98 2/1/05 927,972 1,284,335
24 2/1/98 1/1/13 816,710
- --------------------------------------------------------------------------------------------------
25 8/1/97 7/1/07 561,381 761,006 837,844
26 5/10/98 4/10/08 183,624 248,593 280,807
27 6/10/98 5/10/08 1,413,102 2,250,325 2,202,638
28 4/1/98 3/1/13 1,528,878 2,148,773 2,313,542
29 12/1/97 12/1/07 839,120 811,240 1,061,583
- --------------------------------------------------------------------------------------------------
30 5/10/98 4/10/08 163,722 193,942 181,205
31 2/10/98 1/10/08 (4) 9,658,269 24,000,000
31a 2/10/98 1,156,451 3,842,806 3,322,202
31b 2/10/98 1,364,019 3,530,485 3,772,804
31c 2/10/98 881,105 2,310,446 2,484,758
31d 2/10/98 1,164,923 3,514,814 3,214,359
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOCKBOX IN
PLACE CUT-OFF
UNDERWRITTEN (HARD OR DATE LTV LTV RATIO @ PREPAYMENT
ID NET CASH FLOW SOFT) DSCR APPRAISED VALUE RATIO MATURITY LOCKOUT ENDS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $338,446 1.43 $5,000,000 58% 53% 2/29/00
2 1,644,660 1.40 19,000,000 68% 26% 10/31/02
3 11,520,957 Hard 2.90 160,000,000 38% 38% 2/9/08
4 348,923 1.28 4,300,000 74% 65% 2/28/01
5 407,539 1.28 5,400,000 69% 61% 12/31/00
- -------------------------------------------------------------------------------------------------------
6 2,788,379 1.46 40,000,000 57% 51% 12/9/07
7 1,429,696 1.46 16,200,000 75% 66% 2/9/08
8 744,910 1.43 9,300,000 65% 51% 4/30/01
9 3,259,652 1.96 36,100,000 58% 51% 2/9/08
10 525,646 1.41 6,200,000 72% 64% 3/9/01
- -------------------------------------------------------------------------------------------------------
11 808,989 1.38 9,400,000 76% 66% 5/9/01
12 453,441 1.51 4,975,000 70% 56% 5/9/01
13 558,513 1.41 6,400,000 75% 66% 1/9/08
14 777,195 1.33 8,880,000 79% 68% 2/28/01
15 1,840,042 1.96 22,500,000 53% 49% 5/9/00
- -------------------------------------------------------------------------------------------------------
16 156,078 1.38 1,610,000 74% 0% 2/28/03
16a 69,799 1.38 720,000 74% 0%
16b 86,279 1.38 890,000 74% 0%
17 389,166 1.33 4,100,000 80% 70% 7/31/00
18 685,823 1.32 7,700,000 75% 60% 2/28/01
- -------------------------------------------------------------------------------------------------------
19 585,400 1.35 6,700,000 76% 61% 3/9/01
20 1,029,861 1.00 14,250,000 98% 43% 10/31/17
20a 130,088 1.00 1,800,000 98% 43%
20b 122,861 1.00 1,700,000 98% 43%
20c 151,769 1.00 2,100,000 98% 43%
- -------------------------------------------------------------------------------------------------------
20d 166,223 1.00 2,300,000 98% 43%
20e 112,020 1.00 1,550,000 98% 43%
20f 115,634 1.00 1,600,000 98% 43%
20g 101,179 1.00 1,400,000 98% 43%
20h 130,088 1.00 1,800,000 98% 43%
- -------------------------------------------------------------------------------------------------------
21 687,895 1.00 9,462,000 99% 43% 10/31/17
21a 171,719 1.00 2,362,000 99% 43%
21b 109,051 1.00 1,500,000 99% 43%
21c 94,511 1.00 1,300,000 99% 43%
21d 94,511 1.00 1,300,000 99% 43%
- -------------------------------------------------------------------------------------------------------
21e 109,051 1.00 1,500,000 99% 43%
21f 109,051 1.00 1,500,000 99% 43%
22 633,085 1.00 8,630,000 99% 43% 10/31/17
22a 117,374 1.00 1,600,000 99% 43%
22b 132,045 1.00 1,800,000 99% 43%
- -------------------------------------------------------------------------------------------------------
22c 146,717 1.00 2,000,000 99% 43%
22d 119,575 1.00 1,630,000 99% 43%
22e 117,374 1.00 1,600,000 99% 43%
23 1,231,105 1.33 15,535,000 74% 68% 1/31/01
24 1,069,585 Hard 1.31 12,700,000 75% 57% 12/31/01
- -------------------------------------------------------------------------------------------------------
25 834,366 1.49 8,700,000 72% 64% 6/30/00
26 282,267 1.54 3,100,000 74% 65% 4/9/08
27 1,894,780 1.34 24,150,000 73% 64% 5/9/01
28 2,214,518 1.45 25,000,000 56% 0% 2/29/04
29 1,104,619 1.32 11,600,000 79% 70% 10/31/00
- -------------------------------------------------------------------------------------------------------
30 232,395 1.42 2,700,000 74% 65% 4/9/01
31 23,217,344 Hard 2.40 239,650,000 47% 38% (4) 1/9/08
31a 2,776,247 2.40 30,400,000 45% 36%
31b 3,273,881 2.40 26,200,000 61% 49%
31c 2,123,347 2.41 21,000,000 49% 40%
31d 2,799,988 2.40 34,000,000 40% 32%
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FREE
YIELD MAINTENANCE PREPAY
YIELD MAINTENANCE CHARGE OR CHARGE OR PREPAYMENT PERIOD
ID PREPAYMENT PREMIUM PREMIUM END DATE (MO.) ADDRESS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 > of 1% or YM 11/30/04 3 1900 Northern Blvd
2 > of 1% or YM 7/31/17 3 299 Broadway
3 Defeasance 3 330 Madison Avenue
4 > of 1% or YM 11/30/07 3 3937 Campus Drive
5 > of 1% or YM 9/30/07 3 460 Ward Drive
- ------------------------------------------------------------------------------------------------------------------------
6 Defeasance 3 55 West 47th Street
7 Defeasance 3 560 Broadway
8 > of 1% or YM 1/31/08 3 7, 9 & 11 Audubon Road
9 Defeasance 3 440 Lafayette Street
10 > of 1% or YM 12/9/07 3 801 and 949 East Erie Avenue
- ------------------------------------------------------------------------------------------------------------------------
11 > of 1% or YM 2/9/08 3 905 E. Golf Road
12 > of 1% or YM 2/9/08 3 2602-2650 Alum Rock Avenue
13 Defeasance 3 8552-8650 Baymeadows Rd
14 > of 1% or YM 11/30/07 3 4551 Center Western Boulevard
15 > of 1% or YM 1/9/05 3 Corner of Route 73 & Walker Avenue
- ------------------------------------------------------------------------------------------------------------------------
16 > of 1% or YM 2/28/17 12 Multiple
16a 4500-4598 East Tropicana Avenue
16b 191 North Pecos Road
17 > of 1% or YM 1/31/07 6 1800 North Lake Brazos Drive
18 > of 1% or YM 11/30/07 3 SE Corner Tittabawassee Rd & Fortune Blvd
- ------------------------------------------------------------------------------------------------------------------------
19 > of 1% or YM 9/9/07 6 42001-42089 Ford Road
20 Defeasance 0 Multiple
20a 2011 Copeland Road
20b 4306 West Loop 250 North
20c 5117 South Padre Island Drive
- ------------------------------------------------------------------------------------------------------------------------
20d 5005 West Park Boulevard
20e 1940 North Central Expressway
20f 685 Interstate 30
20g 3950 West Loop 306
20h 2711 South IH 35
- ------------------------------------------------------------------------------------------------------------------------
21 Defeasance 0 Multiple
21a 2552 Citiplace Court
21b 3024 High Point Road
21c 6330 East State Street
21d 3704 Northside Drive
- ------------------------------------------------------------------------------------------------------------------------
21e 120 West Mabsy Hood Road
21f 585 McCasin Boulevard
22 Defeasance 0 Multiple
22a 7800 North Point Parkway
22b 26782 Portola Parkway
- ------------------------------------------------------------------------------------------------------------------------
22c 725 McCullough Drive
22d 8071 Challis Road
22e 8100 Giacosa Drive
23 > of 1% or YM 10/31/04 3 3800 Woodridge Blvd
24 > of 1% or YM 9/30/12 3 759-761 Worcester Road
- ------------------------------------------------------------------------------------------------------------------------
25 > of 1% or YM 12/31/06 6 2425 Cromwell Circle
26 Defeasance 0 Route 13 and Star Road
27 > of 1% or YM 11/9/07 6 285 Broadway
28 > of 1% or YM 11/30/12 3 10450 Science Center Drive
29 > of 1% or YM 8/31/07 3 66 Parkhurst Road
- ------------------------------------------------------------------------------------------------------------------------
30 > of 1% or YM 1/9/08 3 73151 El Paseo
31 Defeasance 0 Multiple
31a 1030 Crown Pointe Parkway
31b 707 East Butterfield Road
31c 10601 Metcalf Avenue
31d 4700 Creedmoor Road
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NET
RENTABLE NUMBER OF
ID CITY STATE ZIP CODE PROPERTY TYPE YEAR BUILT AREA UNITS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Manhasset NY 11030 Anchored Retail 1974 22,017
2 New York NY 10007 Office 1910 229,770
3 New York NY 10017 Office 1963 771,016
4 Pontiac MI 48341 Office 1998 40,800
5 Santa Barbara CA 93111 Office 1973 69,631
- -------------------------------------------------------------------------------------------------------------------
6 New York NY 10036 Mixed-Use 1963 93,138
7 New York NY 10012 Office 1883 126,855
8 Wakefield MA 01880 Office 1960 69,977
9 New York NY 10003 Office 1910 313,073
10 Philadelphia PA 19124 Industrial 1950 471,904
- -------------------------------------------------------------------------------------------------------------------
11 Schaumburg IL 60173 Anchored Retail 1970 100,773
12 San Jose CA 95116 Unanchored Retail 1982 36,125
13 Jacksonville FL 32256 Unanchored Retail 1984 69,764
14 Fort Worth TX 76137 Anchored Retail 1996 87,038
15 Berlin NJ 08009 Anchored Retail 1987 285,263
- -------------------------------------------------------------------------------------------------------------------
16 Henderson NV 89014 Single Tenant Retail 1997 9,300
16a Las Vegas NV 89121 Single Tenant Retail 1978 4,500
16b Henderson NV 89014 Single Tenant Retail 1997 4,800
17 Waco TX 76704 Multifamily 1985 158
18 Saginaw MI 48604 Single Tenant Retail 1994 109,800
- -------------------------------------------------------------------------------------------------------------------
19 Canton MI 48187 Anchored Retail 1986 73,021
20 Multiple Multiple Multiple Credit Lease 51,468
20a Arlington TX 76011 Credit Lease 1997 6,899
20b Midland TX 79707 Credit Lease 1996 6,658
20c Corpus Christi TX 72411 Credit Lease 1996 6,899
- -------------------------------------------------------------------------------------------------------------------
20d Plano TX 75093 Credit Lease 1993 7,328
20e McKinney TX 75070 Credit Lease 1993 5,693
20f Rockwall TX 75087 Credit Lease 1995 5,997
20g San Angelo TX 76904 Credit Lease 1995 5,997
20h Round Rock TX 78664 Credit Lease 1996 5,997
- -------------------------------------------------------------------------------------------------------------------
21 Multiple Multiple Multiple Credit Lease 35,555
21a Baton Rouge LA 70808 Credit Lease 1995 7,113
21b Greensboro NC 27403 Credit Lease 1993 5,693
21c Rockford Il 61108 Credit Lease 1994 5,693
21d Macon GA 31210 Credit Lease 1995 5,693
- -------------------------------------------------------------------------------------------------------------------
21e Knoxville TN 37922 Credit Lease 1995 5,693
21f Louisville CO 80027 Credit Lease 1997 5,670
22 Multiple Multiple Multiple Credit Lease 29,359
22a Alpharetta GA 30202 Credit Lease 1993 5,693
22b Foothill Ranch CA 92610 Credit Lease 1995 5,693
- -------------------------------------------------------------------------------------------------------------------
22c Charlotte NC 28262 Credit Lease 1995 5,977
22d Brighton MI 48116 Credit Lease 1996 5,999
22e Memphis TN 38133 Credit Lease 1997 5,997
23 Fairfield OH 45014 Multifamily 1990 292
24 Framingham MA 01701 Office 1984 61,127
- -------------------------------------------------------------------------------------------------------------------
25 Austin TX 78741 Multifamily 1985 252
26 Cortlandville NY 13045 Mobile Home 1960 175
27 Hicksville NY 11801 Anchored Retail 1984 141,588
28 San Diego CA 92121 Mixed-Use 1995 84,358
29 Chelmsford MA 01824 Anchored Retail 1962 184,812
- -------------------------------------------------------------------------------------------------------------------
30 Palm Desert CA 92260 Unanchored Retail 1989 19,349
31 Multiple Multiple Hotel 1981 2173
31a Atlanta GA 30338 Hotel 1985 241
31b Lombard IL 60148 Hotel 1989 262
31c Overland Park KS 66212 Hotel 1983 199
31d Raleigh NC 27612 Hotel 1988 225
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOAN PER NET ANNUAL
RENTABLE AREA OCCUPANY OCCUPANCY RESERVES
ID PROPERTY NAME (SF) LOAN PER UNIT RATE RATE AS OF DATE PER SF
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 1900 Northern Boulevard $132.64 100% $0.00
2 299 Broadway 56.20 89% 1/21/98 2.03
3 330 Madison Avenue (2) 77.82 97% 2/2/98 2.52
4 3937 Campus Drive 78.32 100% 1/1/98 0.89
5 460 Ward Drive 53.70 86% 12/31/97 1.78
- -------------------------------------------------------------------------------------------------------------------------
6 55 West 47th Street 246.62 97% 12/1/97 2.68
7 560 Broadway 95.78 100% 2/26/98 1.78
8 7 - 11 Audubon Road 85.74 100% 12/6/97 1.18
9 740- 744 Broadway 67.08 100% 3/1/98 1.08
10 801 and 949 East Erie Avenue 9.52 97% 7/31/97 0.19
- -------------------------------------------------------------------------------------------------------------------------
11 905 East Golf Road 70.95 100% 1/16/98 0.36
12 Alum Rock Plaza 95.78 100% 11/21/97 1.36
13 Baymeadows Festival Shopping Center 68.97 95% 1.28
14 Beachwestern Commons 80.42 100% 10/30/97 0.47
15 Berlin Circle Plaza 42.03 98% 0.30
- -------------------------------------------------------------------------------------------------------------------------
16 Blockbuster & Frazee Paint 128.54 10/1/97 0.61
16a Blockbuster (at Vista Plaza) 118.80 100% 10/31/97
16b Frazee Paint 137.67 100% 12/31/97
17 Brazos Park Apartments $20,633.94 92% 12/31/97
18 Builder's Square 52.25 100% 9/1/97 0.15
- -------------------------------------------------------------------------------------------------------------------------
19 Canton Shopping Center 69.68 99% 2/10/98 0.87
20 Centre Structured Trust 10 (3) 271.20 12/31/97
20a On The Border (Store #2) 255.56 100% 12/31/97
20b On The Border (Store #28) 250.10 100% 12/31/97
20c On The Border (Store #32) 298.16 100% 12/31/97
- -------------------------------------------------------------------------------------------------------------------------
20d Macaroni Grill (Store #45) 307.44 100% 12/31/97
20e Chili's (Store #352) 266.69 100% 12/31/97
20f Chili's (Store #418) 261.34 100% 12/31/97
20g Chili's (Store #436) 228.67 100% 12/31/97
20h Chili's (Store #447) 294.00 100% 12/31/97
- -------------------------------------------------------------------------------------------------------------------------
21 Centre Structured Trust 3 (3) 262.28 12/31/97
21a On The Border (Store #23) 327.28 100% 12/31/97
21b Chili's (Store #313) 259.68 100% 12/31/97
21c Chili's (Store #380) 225.06 100% 12/31/97
21d Chili's (Store #393) 225.06 100% 12/31/97
- -------------------------------------------------------------------------------------------------------------------------
21e Chili's (Store #414) 259.68 100% 12/31/97
21f Chili's (Store #465) 260.73 100% 12/31/97
22 Centre Structured Trust 6 (3) 292.43 12/31/97
22a Chili's (Store #320) 279.60 100% 12/31/97
22b Chili's (Store #399) 314.55 100% 12/31/97
- -------------------------------------------------------------------------------------------------------------------------
22c Chili's (Store #411) 332.89 100% 12/31/97
22d Chili's (Store #433) 270.31 100% 12/31/97
22e Chili's (Store #481) 265.42 100% 12/31/97
23 Cobblestone Grove Apartments 39,628.15 90% 11/30/97
24 Columbia Wellness Center 154.97 100% 9/1/97 1.01
- -------------------------------------------------------------------------------------------------------------------------
25 Coppertree Apartments 24,831.43 95% 12/31/97
26 Cortland Estates 13,132.08 94%
27 Delco Plaza 125.01 97% 10/14/97 0.64
28 Depotech Corp. Building 164.93 100% 0.20
29 Drum Hill Shopping Center 49.59 100% 12/31/97 0.19
- -------------------------------------------------------------------------------------------------------------------------
30 El Paseo Elegante 103.28 100% 10/1/97 1.08
31 Embassy Suites 52,200.21
31a Embassy Suites #1 56,356.34 78% 9/30/97
31b Embassy Suites #2 61,143.70 76% 9/30/97
31c Embassy Suites #3 52,000.49 74% 9/30/97
31d Embassy Suites #4 60,806.12 82% 9/30/97
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ANNUAL
RESERVES PER % OF LEASE
ID UNIT LARGEST TENANT GLA EXPIRATION 2ND LARGEST TENANT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Daffy's Inc. 61% 11/1/04 Long Island Savings Bank
2 MFY Legal Services 7% 5/1/07 Martin Marlow
3 BDO Seidman 15% 9/30/10 Bank Julius Bear
4 Edcore Data Services 100% 12/31/07
5 Meghan Medical 34% 4/30/00
- ---------------------------------------------------------------------------------------------------------
6 Zak Jewelry Tool 8% 1/31/01 First Class Jewelry
7
8 Tessera Enterprise System 69% 12/5/05 Seek Consulting Group
9 Barnes & Noble 10% 6/1/02 Modern Language Assoc.
10 Philadelphia Coca Cola Bottling 81% 2/1/12 Associated Direct Marketing, Inc.
- ---------------------------------------------------------------------------------------------------------
11 Bed, Bath & Beyond 70% 1/31/13 Golfsmith International
12 Copa Cabana 22% 9/30/02 Nguyen Trai Billiards
13 Carmike Theaters 39% 12/31/04 Gator's Dockside
14 Kroger 71% 12/31/17 Video Library Inc.
15 Home Depot 41% 1/28/08 Shop Rite
- ---------------------------------------------------------------------------------------------------------
16
16a Blockbuster Video 100% 12/31/06
16b Frazee Paint 100% 8/31/06
17 $250.00
18 Builders Square 100% 8/1/19
- ---------------------------------------------------------------------------------------------------------
19 Sears 34% 7/31/06 Showbiz Time Pizza
20
20a
20b
20c
- ---------------------------------------------------------------------------------------------------------
20d
20e
20f
20g
20h
- ---------------------------------------------------------------------------------------------------------
21
21a
21b
21c
21d
- ---------------------------------------------------------------------------------------------------------
21e
21f
22
22a
22b
- ---------------------------------------------------------------------------------------------------------
22c
22d
22e
23 250.00
24 Columbia Metrowest Healthcare 57% 10/31/10 Southboro Medical
- ---------------------------------------------------------------------------------------------------------
25 250.00
26 49.43
27 King Kullen 30% 9/2/09 Annie Sez
28
29 Caldor 51% 1/31/11 Shop 'N Save
- ---------------------------------------------------------------------------------------------------------
30 DCK Corp. Inc. 42% 7/31/01 Cabala Cachet
31
31a 1,624.74
31b 1,660.91
31c 1,546.05
31d 1,737.99
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
% OF LEASE
ID GLA EXPIRATION BORROWER AFFILIATION
- -------------------------------------------------------------
<S> <C> <C> <C>
1 12% 10/1/01
2 4% 4/1/00
3 9% 6/30/05
4
5
- -------------------------------------------------------------
6 1% 6/30/01
7 Gural
8 31% 1/22/07
9 10% 5/1/02 Gural
10 9% 8/31/02
- -------------------------------------------------------------
11 30% 9/30/07
12 12% 2/7/00
13 11% 12/31/04
14 7% 5/31/01 Adar, Goldrich
15 23% 10/31/07
- -------------------------------------------------------------
16 Kellogg
16a
16b
17 Weinberg, Alkosser
18 Sobel
- -------------------------------------------------------------
19 15% 4/30/08
20 Centre
20a
20b
20c
- -------------------------------------------------------------
20d
20e
20f
20g
20h
- -------------------------------------------------------------
21 Centre
21a
21b
21c
21d
- -------------------------------------------------------------
21e
21f
22 Centre
22a
22b
- -------------------------------------------------------------
22c
22d
22e
23 Conner, Murphy
24 34% 10/31/12
- -------------------------------------------------------------
25 Weinberg, Alkosser
26
27 11% 11/1/99
28
29 26% 1/31/17 Weiner
- -------------------------------------------------------------
30 30% 5/31/99
31
31a
31b
31c
31d
- -------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
% OF MORTGAGE
INITIAL POOL # OF LOAN SELLER ORIGINAL
ID PROPERTY NAME BALANCE PROPERTIES (1) BALANCE CUT-OFF DATE BALANCE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
31e Embassy Suites #5 2.07% 1 17,050,000 16,964,908
31f Embassy Suites #6 1.92% 1 15,800,000 15,721,147
31g Embassy Suites #7 1.71% 1 14,050,000 13,979,881
31h Embassy Suites #8 0.40% 1 3,300,000 3,283,531
31i Embassy Suites #9 1.20% 1 9,900,000 9,850,592
- ----------------------------------------------------------------------------------------------------------------------
32 Ensign Apartments 0.16% 1 Chase 1,350,000 1,343,660
33 Fairview Green Apartments 0.72% 1 Chase 5,920,000 5,920,000
34 Franklin Village Shopping Center 3.65% 1 Chase 30,000,000 29,889,497
35 G&K Portfolio I 3.30% 4 Chase 27,000,000 27,000,000
35a Beck Park Apartments 0.42% 1 3,450,000 3,450,000
- ----------------------------------------------------------------------------------------------------------------------
35b Lawrence Road Apartments 0.79% 1 6,500,000 6,500,000
35c Placita Gardens Apartments 0.65% 1 5,350,000 5,350,000
35d Skyline View Gardens I & II 1.43% 1 11,700,000 11,700,000
36 Gables Apartments 0.31% 1 Chase 2,570,000 2,552,670
37 Great Woods Marketplace 1.03% 1 Chase 8,400,000 8,387,832
- ----------------------------------------------------------------------------------------------------------------------
38 Guess? Store, South Beach 0.37% 1 Chase 3,000,000 3,000,000
39 H.E. Butt Grocery Store #24 (3) 0.95% 1 Chase 7,867,000 7,793,299
40 H.E. Butt Grocery Store #34 (3) 1.03% 1 Chase 8,513,000 8,433,247
41 Hamptons Apartments 3.18% 1 Chase 26,000,000 25,978,049
42 Harbor Court Hotel 1.79% 1 Chase 14,800,000 14,672,480
- ----------------------------------------------------------------------------------------------------------------------
43 Harbor Plaza 0.98% 1 Chase 8,000,000 8,000,000
44 HD Computer Buildings 0.67% 1 Chase 5,500,000 5,495,602
45 Hechingers Home Project Center 0.96% 1 Chase 7,850,000 7,832,404
46 Holiday Inn Brookline 1.78% 1 Chase 14,750,000 14,531,654
47 Hollister Business Park 1.92% 1 Chase 15,750,000 15,701,473
- ----------------------------------------------------------------------------------------------------------------------
48 Hotel Vintage Plaza 1.70% 1 Chase 14,000,000 13,879,373
49 Ingram Festival Shopping Center 2.30% 1 Chase 18,880,000 18,798,584
50 Livermore Gardens Apartments 0.65% 1 Chase 5,315,000 5,315,000
51 MacArthur Park Apartments 0.27% 1 Chase 2,230,000 2,230,000
52 North Point at Marsh Creek, Phase III 0.77% 1 Chase 6,300,000 6,271,004
- ----------------------------------------------------------------------------------------------------------------------
53 Northshore Plaza 0.98% 1 Chase 8,000,000 7,978,854
54 Oaks Apartments 0.11% 1 Chase 890,000 887,919
55 Paper Moon Apartments 0.20% 1 Chase 1,645,000 1,637,545
56 Park Roseville 0.64% 1 Chase 5,200,000 5,195,984
57 Pine Tree Mall 1.36% 1 Chase 11,100,000 11,089,037
- ----------------------------------------------------------------------------------------------------------------------
58 Port Richmond Plaza 1.47% 1 Chase 12,000,000 11,990,497
59 Redstone Apartments 0.64% 1 Chase 5,280,000 5,244,397
60 Royal Palm Apartments 0.58% 1 Chase 4,800,000 4,753,127
61 Ruffe Snow Village 0.65% 1 Chase 5,350,000 5,350,000
62 Rykoff-Sexton 0.91% 1 Chase 7,500,000 7,464,112
- ----------------------------------------------------------------------------------------------------------------------
63 San Gabriel Square 0.25% 1 Chase 2,040,000 2,040,000
64 Scandia Apartments 0.45% 1 Chase 3,680,000 3,655,186
65 Seventh Avenue Shopping Center 0.98% 1 Chase 8,000,000 8,000,000
66 Sierra Oaks Shopping Center 0.80% 1 Chase 6,600,000 6,583,514
67 Squire Hill Apartments 0.31% 1 Chase 2,560,000 2,553,593
- ----------------------------------------------------------------------------------------------------------------------
68 Star Market - Hyde Park (3) 0.94% 1 Chase 7,675,000 7,666,425
69 Star Market - Somerville (3) 0.51% 1 Chase 4,200,000 4,195,308
70 Steeplechase Apartments 1.58% 1 Chase 12,955,000 12,923,457
71 Tara Shopping Plaza 0.95% 1 Chase 7,750,000 7,730,831
72 Vineyards 1.34% 1 Chase 11,000,000 10,990,983
- ----------------------------------------------------------------------------------------------------------------------
73 Vista Plaza Shopping Center 0.46% 1 Chase 3,800,000 3,785,588
74 Wadsworth Plaza 0.29% 1 Chase 2,350,000 2,340,993
75 Walden Pond Apartments 0.39% 1 Chase 3,250,000 3,228,085
76 Warm Springs Plaza 0.92% 1 Chase 7,500,000 7,494,076
77 Waterfront I & II 2.21% 1 Chase 18,100,000 18,085,597
- ----------------------------------------------------------------------------------------------------------------------
78 Wild Harvest Supermarket 0.64% 1 Chase 5,250,000 5,233,469
- ----------------------------------------------------------------------------------------------------------------------
TOTALS/WEIGHTED AVERAGES 100% 817,874,785
Footnotes
- ----------------------------------------------------------------------------------------------------------------------
(1)Chase - The Chase Manhattan Bank (2) Discount Mortgage Loan (3) Credit Lease Loan
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTEREST ORIGINAL STATED ORIGINAL NUMBER OF
MORTGAGE ACCRUAL WITHHELD TERM TO REMAINING AMORTIZATION INTEREST ONLY
ID RATE BASIS LOAN MATURITY TERM(MO.) TERM (MO.) MONTHS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
31e 6.988% No 120 116 300 0
31f 6.988% No 120 116 300 0
31g 6.988% No 120 116 300 0
31h 6.988% No 120 116 300 0
31i 6.988% No 120 116 300 0
- --------------------------------------------------------------------------------------------------
32 8.100% 30/360 No 120 113 360 0
33 7.143% ACT/360 No 120 120 360 0
34 7.600% 30/360 No 120 115 360 0
35 7.143% ACT/360 No 120 120 360 0
35a 7.143% No 120 120 360 0
- --------------------------------------------------------------------------------------------------
35b 7.143% No 120 120 360 0
35c 7.143% No 120 120 360 0
35d 7.143% No 120 120 360 0
36 8.126% 30/360 No 120 110 360 0
37 7.000% ACT/360 Yes 120 118 360 0
- --------------------------------------------------------------------------------------------------
38 7.250% ACT/360 No 120 120 360 0
39 7.000% 30/360 No 216 212 216 0
40 7.000% 30/360 No 216 212 216 0
41 6.850% 30/360 No 120 119 360 0
42 8.750% 30/360 No 120 111 300 0
- --------------------------------------------------------------------------------------------------
43 7.000% ACT/360 Yes 120 120 300 0
44 7.125% ACT/360 No 120 119 360 0
45 7.625% 30/360 No 120 118 300 0
46 9.125% 30/360 No 120 104 300 0
47 7.360% ACT/360 No 120 116 360 0
- --------------------------------------------------------------------------------------------------
48 8.750% 30/360 No 120 111 300 0
49 7.740% 30/360 No 120 114 360 0
50 7.143% ACT/360 No 120 120 360 0
51 7.000% ACT/360 Yes 120 120 360 0
52 7.500% 30/360 No 120 116 300 0
- --------------------------------------------------------------------------------------------------
53 8.125% 30/360 No 123 116 360 3
54 7.285% 30/360 No 120 117 360 0
55 7.490% 30/360 No 120 114 360 0
56 7.300% ACT/360 No 120 119 360 0
57 9.500% 30/360 No 130 119 360 9
- --------------------------------------------------------------------------------------------------
58 7.174% ACT/360 No 120 119 360 0
59 8.126% 30/360 No 120 110 360 0
60 8.650% 30/360 No 300 290 300 0
61 7.154% 30/360 No 120 118 330 17
62 7.255% 30/360 No 120 116 300 0
- --------------------------------------------------------------------------------------------------
63 7.122% ACT/360 Yes 120 120 360 0
64 8.126% 30/360 No 120 110 360 0
65 7.375% 30/360 No 120 120 360 0
66 6.950% 30/360 No 120 117 360 0
67 6.940% 30/360 No 120 117 360 0
- --------------------------------------------------------------------------------------------------
68 7.625% 30/360 No 300 299 300 0
69 7.625% 30/360 No 300 299 300 0
70 7.080% 30/360 No 120 117 360 0
71 7.000% 30/360 No 60 57 360 0
72 7.000% 30/360 No 120 119 360 0
- --------------------------------------------------------------------------------------------------
73 7.125% 30/360 No 240 238 240 0
74 7.400% 30/360 No 120 115 360 0
75 8.126% 30/360 No 120 110 360 0
76 7.187% 30/360 No 120 119 360 0
77 7.150% ACT/360 No 121 120 360 0
- --------------------------------------------------------------------------------------------------
78 7.250% 30/360 No 120 116 360 0
- --------------------------------------------------------------------------------------------------
7.317% 133 130 332 (6)
- --------------------------------------------------------------------------------------
(4) Refers to Anticipated Repayment Date
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ANNUAL
FIRST PRINCIPAL &
PAYMENT INTEREST ANNUAL INTEREST 1997 OR ROLLING
ID DATE MATURITY DATE PAYMENTS ONLY PAYMENTS 1996 NOI 12 MO. NOI
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
31e 2/10/98 1,444,504 3,758,724 4,325,037
31f 2/10/98 1,338,602 3,547,963 3,706,704
31g 2/10/98 1,190,339 2,987,752 3,660,049
31h 2/10/98 279,581 1,084,717 1,318,171
31i 2/10/98 838,744 1,904,121 2,104,968
- -------------------------------------------------------------------------------------------------
32 11/1/97 10/1/07 120,001 173,754 188,208
33 6/10/98 5/10/08 479,473 204,433 486,987
34 1/1/98 12/1/07 2,541,869 3,296,349 3,538,317
35 6/10/98 5/10/08 2,186,786 1,114,095 2,027,091
35a 6/10/98 279,423 287,145 379,704
- -------------------------------------------------------------------------------------------------
35b 6/10/98 526,448 177,763 493,711
35c 6/10/98 433,308 217,857 401,405
35d 6/10/98 947,607 431,330 752,271
36 8/1/97 7/1/07 229,008 302,982 296,326
37 4/1/98 3/1/08 670,625 897,175 843,739
- -------------------------------------------------------------------------------------------------
38 6/10/98 5/10/08 245,583
39 2/1/98 1/1/16 769,867
40 2/1/98 1/1/16 833,084
41 5/10/98 4/10/08 2,044,409 3,384,482 3,781,391
42 9/1/97 8/1/07 1,460,127 2,702,787 2,796,428
- -------------------------------------------------------------------------------------------------
43 6/10/98 5/10/08 678,508 1,082,487 1,145,094
44 5/10/98 4/10/08 444,654
45 4/1/98 3/1/08 703,807 967,792 597,485
46 2/1/97 1/1/07 1,500,558 2,602,718 3,430,198
47 2/1/98 1/1/08 1,303,444 2,042,066
- -------------------------------------------------------------------------------------------------
48 9/1/97 8/1/07 1,381,201 2,967,647 2,848,463
49 12/1/97 11/1/07 1,621,538 1,039,846 2,344,377
50 6/10/98 5/10/08 430,473 139,101 468,737
51 6/10/98 5/10/08 178,035 168,138 83,988
52 2/1/98 1/1/08 558,677 439,299
- -------------------------------------------------------------------------------------------------
53 11/1/97 1/1/08 712,797
54 3/1/98 2/1/08 73,110 116,886 104,158
55 12/1/97 11/1/07 137,890 212,940 237,231
56 5/10/98 4/10/08 427,796 597,080 674,314
57 7/1/97 4/1/08 1,120,018 805,854 913,736
- -------------------------------------------------------------------------------------------------
58 5/10/98 4/10/08 974,922 1,248,587 1,284,100
59 8/1/97 7/1/07 470,491 564,952 573,183
60 8/1/97 7/1/22 469,648 617,090 695,824
61 4/1/98 3/1/08 445,380 382,739 616,769 636,492
62 2/1/98 1/1/08 650,816 1,053,277 705,009
- -------------------------------------------------------------------------------------------------
63 6/1/98 5/1/08 164,877 267,095 274,156
64 8/1/97 7/1/07 327,918 448,618 396,123
65 6/10/98 5/10/08 663,048 54,838 482,675
66 3/1/98 2/1/08 524,263 271,700
67 3/1/98 2/1/08 203,145 310,841 315,337
- -------------------------------------------------------------------------------------------------
68 5/1/98 4/1/23 688,117
69 5/1/98 4/1/23 376,559
70 3/1/98 2/1/08 1,042,645 1,204,333 1,442,763
71 3/1/98 2/1/03 618,731 1,448,755
72 5/10/98 4/10/08 878,199 1,021,070 1,089,258
- -------------------------------------------------------------------------------------------------
73 4/1/98 3/1/18 356,966 485,047 472,463
74 1/1/98 12/1/07 195,251 168,661 222,865
75 8/1/97 7/1/07 289,601 395,523 307,258
76 5/10/98 4/10/08 610,118 637,243 868,778
77 5/10/98 5/10/08 1,466,983 2,423,112 884,433
- -------------------------------------------------------------------------------------------------
78 2/1/98 1/1/08 429,771
- -------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
(5) Withheld Loan (6) Does not include 330 Madison Avenue
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOCKBOX IN
PLACE CUT-OFF
UNDERWRITTEN (HARD OR DATE LTV LTV RATIO @ PREPAYMENT
ID NET CASH FLOW SOFT) DSCR APPRAISED VALUE RATIO MATURITY LOCKOUT ENDS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
31e 3,469,056 2.40 37,300,000 45% 37%
31f 3,216,489 2.40 30,500,000 52% 42%
31g 2,865,749 2.41 30,500,000 46% 37%
31h 677,118 2.42 11,750,000 28% 23%
31i 2,015,469 2.40 18,000,000 55% 44%
- -----------------------------------------------------------------------------------------------------
32 166,671 1.39 1,800,000 75% 66% 9/30/00
33 630,740 1.32 7,400,000 80% 70% 5/9/08
34 3,123,803 1.23 39,000,000 77% 67% 11/30/00
35 2,859,874 1.31 34,550,000 78% 69% 5/9/08
35a 333,114 1.19 4,400,000 78% 69%
- -----------------------------------------------------------------------------------------------------
35b 630,020 1.20 8,350,000 78% 68%
35c 514,154 1.19 6,800,000 79% 69%
35d 1,129,690 1.19 15,000,000 78% 68%
36 280,817 1.23 3,200,000 80% 71% 6/30/00
37 944,312 1.41 11,000,000 76% 67% 2/28/01
- -----------------------------------------------------------------------------------------------------
38 331,379 1.35 4,000,000 75% 66% 5/9/01
39 793,108 Hard 1.03 8,800,000 89% 0% 12/31/05
40 858,210 Hard 1.03 9,500,000 89% 0% 12/31/05
41 3,620,428 1.77 35,800,000 73% 62% 10/9/07
42 2,293,390 Soft 1.57 23,400,000 63% 52% 7/31/00
- -----------------------------------------------------------------------------------------------------
43 959,716 1.41 10,600,000 75% 61% 2/9/08
44 896,979 2.02 9,000,000 61% 54% 4/9/01
45 998,182 1.42 10,500,000 75% 60% 2/28/01
46 2,373,307 1.58 22,000,000 66% 56% 12/31/99
47 1,753,889 Hard 1.35 22,100,000 71% 63% 12/31/00
- -----------------------------------------------------------------------------------------------------
48 2,502,733 Soft 1.81 23,000,000 60% 50% 7/31/00
49 2,027,510 Hard 1.25 23,600,000 80% 70% 10/31/00
50 565,028 1.31 7,150,000 74% 65% 5/9/08
51 237,488 1.33 2,875,000 78% 68% 2/9/08
52 766,102 1.37 10,000,000 63% 50% 12/31/00
- -----------------------------------------------------------------------------------------------------
53 1,009,606 1.42 11,000,000 73% 64% 9/30/00
54 89,873 1.23 1,270,000 70% 61% 1/31/01
55 187,231 1.36 2,150,000 76% 67% 10/31/00
56 602,289 1.41 7,100,000 73% 64% 4/9/01
57 1,361,411 1.22 14,600,000 76% 69% 5/31/01
- -----------------------------------------------------------------------------------------------------
58 1,304,717 1.34 15,200,000 79% 69% 4/9/01
59 581,399 1.24 6,600,000 79% 70% 6/30/00
60 600,828 1.28 7,300,000 65% 0% 6/30/03
61 595,498 1.34 7,300,000 73% 63% 2/28/01
62 875,357 Hard 1.35 10,300,000 72% 58% 12/31/00
- -----------------------------------------------------------------------------------------------------
63 231,186 1.40 2,610,000 78% 69% 4/30/01
64 380,692 1.16 4,600,000 79% 70% 6/30/00
65 886,804 1.34 10,600,000 75% 65% 5/9/00
66 738,122 1.41 8,700,000 76% 65% 1/31/01
67 290,281 1.43 3,200,000 80% 69% 1/31/01
- -----------------------------------------------------------------------------------------------------
68 825,000 1.20 8,600,000 89% 0% 3/31/13
69 451,000 1.20 4,700,000 89% 0% 3/31/13
70 1,370,032 1.31 17,390,000 74% 64% 1/31/01
71 1,191,752 1.93 10,000,000 77% 73% 10/31/02
72 1,065,721 1.21 15,600,000 70% 61% 4/9/08
- -----------------------------------------------------------------------------------------------------
73 484,551 1.36 5,210,000 73% 0% 2/28/03
74 258,438 1.32 3,000,000 78% 68% 11/30/99
75 326,834 1.13 4,300,000 75% 67% 6/30/00
76 887,715 1.45 10,000,000 75% 65% 4/9/01
77 1,854,325 1.26 25,150,000 72% 63% 11/9/07
- -----------------------------------------------------------------------------------------------------
78 713,951 1.66 7,600,000 69% 60% 12/31/00
- -----------------------------------------------------------------------------------------------------
1.65 67% 52%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FREE
YIELD MAINTENANCE PREPAY
YIELD MAINTENANCE CHARGE OR CHARGE OR PREPAYMENT PERIOD
ID PREPAYMENT PREMIUM PREMIUM END DATE (MO.) ADDRESS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
31e 909 Parsippany Boulevard
31f 5901 North Interstate 35
31g 101 McInnis Parkway
31h 1211 East Garvey Avenue
31i 7750 Briaridge Drive
- -----------------------------------------------------------------------------------------------------------------------------
32 > of 1% or YM 3/31/07 6 3800 Ensign Road NE
33 Defeasance 0 2601 South Fairview St.
34 > of 1% or YM 5/31/07 6 MA Route 140 and Interstate 495
35 Defeasance 0 Multiple
35a 6245 Beck Avenue
- -----------------------------------------------------------------------------------------------------------------------------
35b 3555 Warburtan Avenue
35c 9353 Pioneer Boulevard
35d 3880 Callan Boulevard and 3440 Carter Drive
36 > of 1% or YM 12/31/06 6 401 University Oaks Boulevard
37 > of 1% or YM 11/30/07 3 175 Nonsfield Avenue
- -----------------------------------------------------------------------------------------------------------------------------
38 > of 1% or YM 2/9/08 3 736 Collins Avenue
39 > of 1% or YM 9/30/15 3 6000 West Avenue
40 > of 1% or YM 9/30/15 3 6030 Montgomery Drive
41 Defeasance 6 27020-27040 Cedar Road
42 > of 1% or YM 1/31/07 6 165 Steuart Street
- -----------------------------------------------------------------------------------------------------------------------------
43 Defeasance 3 235 Camden Street
44 > of 1% or YM 1/9/08 3 980 Walsh Avenue
45 > of 1% or YM 11/30/07 3 1900 Deptford Center Road
46 > of 1% or YM 6/30/06 6 1200 Beacon Street
47 > of 1% or YM 6/30/07 6 7402 - 7410 Hollister Avenue
- -----------------------------------------------------------------------------------------------------------------------------
48 > of 1% or YM 1/31/07 6 422 SW Broadway
49 > of 1% or YM 7/31/07 3 6065 NW Loop 410
50 Defeasance 0 5720 East Avenue
51 Defeasance 3 660-681 Park Avenue
52 > of 1% or YM 9/30/07 3 One Uwchlan Avenue
- -----------------------------------------------------------------------------------------------------------------------------
53 > of 1% or YM 9/30/07 3 Cheyenne Avenue & Soaring Gulls Drive
54 > of 1% or YM 7/31/07 6 700 Hickory Drive
55 > of 1% or YM 4/30/07 6 2213 Avenue H
56 > of 1% or YM 1/9/08 3 275 Folsom Road
57 > of 1% or YM 12/31/07 3 2800 Roosevelt Road
- -----------------------------------------------------------------------------------------------------------------------------
58 > of 1% or YM 1/9/08 3 2403 - 2499 Aramingo Ave.
59 > of 1% or YM 12/31/06 6 1301 Bartholow Drive
60 > of 1% or YM 6/30/21 12 2171-2527 West Oakridge Road
61 > of 1% or YM 11/30/07 3 6240 Rufe Snow Drive
62 > of 1% or YM 9/30/07 3 140 Morgan Drive
- -----------------------------------------------------------------------------------------------------------------------------
63 > of 1% or YM 10/31/07 6 2212 San Gabriel Street
64 > of 1% or YM 12/31/06 6 401 Anderson Street
65 > of 2% or YM 11/9/07 6 1100 NW 7th Avenue
66 > of 1% or YM 10/31/07 3 Sierra Colllege Boulevard
67 > of 1% or YM 10/31/07 3 175 Brushy Plain Rd.
- -----------------------------------------------------------------------------------------------------------------------------
68 > of 1% or YM 4/30/22 11 1377 Hyde Park Avenue
69 > of 1% or YM 4/30/22 11 275 Beacon Street
70 > of 1% or YM 10/31/07 3 6790 River Downs Dr
71 Defeasance 3 Upper Riverdale Road and Lee's Mill Road
72 Defeasance 0 1200 Vineyards Drive
- -----------------------------------------------------------------------------------------------------------------------------
73 > of 1% or YM 3/31/17 11 4500 - 4580 E. Tropicana Avenue
74 5,5,4,4,3,2,1 11/30/06 12 1600-1616 Wadsworth Plaza
75 > of 1% or YM 12/31/06 6 700 West FM 2818
76 > of 1% or YM 10/9/07 6 7380 South Eastern Blvd
77 Defeasance 6 801 N. Fairfax St. & 209 Madison St.
- -----------------------------------------------------------------------------------------------------------------------------
78 > of 1% or YM 9/30/07 3 40 Railroad Street
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NET
RENTABLE NUMBER OF
ID CITY STATE ZIP CODE PROPERTY TYPE YEAR BUILT AREA UNITS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
31e Parsippany NJ 07054 Hotel 1989 274
31f Austin TX 78723 Hotel 1983 261
31g San Rafael CA 94903 Hotel 1990 235
31h Covina CA 91724 Hotel 1981 259
31i San Antonio TX 78230 Hotel 1979 217
- -----------------------------------------------------------------------------------------------------------------
32 Olympia WA 98506 Multifamily 1985 57
33 Santa Ana CA 92704 Multifamily 1972 112
34 Franklin MA 02038 Anchored Retail 1987 280,301
35 Multiple CA Multiple Multifamily 500
35a Los Angeles CA 91606 Multifamily 1975 120
- -----------------------------------------------------------------------------------------------------------------
35b Santa Clara CA 65051 Multifamily 1973 86
35c Santa Fe Springs CA 95051 Multifamily 1972 134
35d South San Francisco CA 94080 Multifamily 1972 160
36 College Station TX 77840 Multifamily 1982 128
37 Norton MA 02766 Anchored Retail 1990 119,711
- -----------------------------------------------------------------------------------------------------------------
38 Miami Beach FL 33139 Single Tenant Retail 1921 10,000
39 Castle Hills TX 78213 Credit Lease 1996 76,729
40 San Antonio TX 78252 Credit Lease 1995 74,212
41 Beachwood OH 44122 Multifamily 1969 634
42 San Francisco CA 94105 Hotel 1907 131
- -----------------------------------------------------------------------------------------------------------------
43 Rockland ME 04843 Anchored Retail 1987 166,949
44 Santa Clara CA 95050 Office 1950 72,000
45 Deptford NJ 08096 Anchored Retail 1995 134,763
46 Brookline MA 02146 Hotel 1964 207
47 Goleta CA 93111 Office 1982 133,025
- -----------------------------------------------------------------------------------------------------------------
48 Portland OR 97205 Hotel 1985 107
49 San Antonio TX 78238 Anchored Retail 1995 219,544
50 Livermore CA 94550 Multifamily 1975 96
51 Loveland OH 45140 Multifamily 1973 85
52 Exton PA 19341 Office 1988 81,400
- -----------------------------------------------------------------------------------------------------------------
53 Las Vegas NV 89129 Anchored Retail 1997 66,424
54 Huntsville TX 77340 Multifamily 1973 80
55 Huntsville TX 77340 Multifamily 1984 104
56 Roseville CA 95678 Multifamily 1987 108
57 Marinette WI 54143 Anchored Retail 1978 261,713
- -----------------------------------------------------------------------------------------------------------------
58 Philadelphia PA 19125 Anchored Retail 1988 156,563
59 College Station TX 77840 Multifamily 1981 228
60 Orlando FL 32809 Multifamily 1973 288
61 North Richland Hills TX 76117 Anchored Retail 1984 99,315
62 Norwood MA 02062 Industrial 1988 184,624
- -----------------------------------------------------------------------------------------------------------------
63 Austin TX 78705 Multifamily 1956 111
64 College Station TX 77840 Multifamily 1974 152
65 North Miami FL 33168 Anchored Retail 1996 106,320
66 Granite Bay CA 95746 Anchored Retail 1987 60,064
67 Branford CT 06405 Multifamily 1976 72
- -----------------------------------------------------------------------------------------------------------------
68 Hyde Park MA 02136 Credit Lease 1974 53,320
69 Somerville MA 02143 Credit Lease 1971 30,978
70 Centerville OH 45459 Multifamily 1987 358
71 Jonesboro GA 30236 Anchored Retail 1997 235,181
72 Broadview Heights OH 44147 Multifamily 1971 359
- -----------------------------------------------------------------------------------------------------------------
73 Las Vegas NV 89121 Anchored Retail 1979 68,466
74 Philadelphia PA 19150 Anchored Retail 1958 29,325
75 College Station TX 77840 Multifamily 1986 104
76 Las Vegas NV 89123 Unanchored Retail 1990 75,783
77 Alexandria VA 22314 Office 1971 146,044
- -----------------------------------------------------------------------------------------------------------------
78 Andover MA 01810 Single Tenant Retail 1954 34,000
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOAN PER NET ANNUAL
RENTABLE AREA OCCUPANY OCCUPANCY RESERVES
ID PROPERTY NAME (SF) LOAN PER UNIT RATE RATE AS OF DATE PER SF
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
31e Embassy Suites #5 61,915.72 77% 9/30/97
31f Embassy Suites #6 60,234.28 79% 9/30/97
31g Embassy Suites #7 59,488.85 79% 9/30/97
31h Embassy Suites #8 12,677.72 64% 9/30/97
31i Embassy Suites #9 45,394.43 70% 9/30/97
- -------------------------------------------------------------------------------------------------------------------------
32 Ensign Apartments 23,572.98 98% 2/13/98
33 Fairview Green Apartments 52,857.14 96% 12/31/97
34 Franklin Village Shopping Center 106.63 99% 8/14/97 1.16
35 G&K Portfolio I 54,000.00
35a Beck Park Apartments 28,750.00 94% 12/31/97
- -------------------------------------------------------------------------------------------------------------------------
35b Lawrence Road Apartments 75,581.40 95% 12/31/97
35c Placita Gardens Apartments 39,925.37 93% 9/30/97
35d Skyline View Gardens I & II 73,125.00 97% 12/31/97
36 Gables Apartments 19,942.74 95% 12/31/97
37 Great Woods Marketplace 70.07 96% 10/3/97 0.62
- -------------------------------------------------------------------------------------------------------------------------
38 Guess? Store, South Beach 300.00 100% 1.59
39 H.E. Butt Grocery Store #24 (3) 101.57 100% 1/1/98
40 H.E. Butt Grocery Store #34 (3) 869.95 100% 1/1/98
41 Hamptons Apartments 40,974.84 92% 12/31/97
42 Harbor Court Hotel 112,003.67 87%
- -------------------------------------------------------------------------------------------------------------------------
43 Harbor Plaza 47.92 97% 2/28/98 0.46
44 HD Computer Buildings 76.33 100% 1/14/98 0.79
45 Hechingers Home Project Center 58.12 100% 9/8/97 0.15
46 Holiday Inn Brookline 70,201.23 80% 12/31/97
47 Hollister Business Park 118.03 100% 10/24/97 1.01
- -------------------------------------------------------------------------------------------------------------------------
48 Hotel Vintage Plaza 129,713.77 79% 5/31/97
49 Ingram Festival Shopping Center 85.63 95% 8/1/97 0.42
50 Livermore Gardens Apartments 55,364.58 98% 12/31/97
51 MacArthur Park Apartments 26,235.29 98% 2/3/98
52 North Point at Marsh Creek, Phase III 77.04 93% 1/1/98 1.52
- -------------------------------------------------------------------------------------------------------------------------
53 Northshore Plaza 120.12 98% 2/1/98 1.15
54 Oaks Apartments 11,098.99 84% 1/14/98 0.27
55 Paper Moon Apartments 15,745.62 86% 12/31/97
56 Park Roseville 48,110.96 97% 11/15/97
57 Pine Tree Mall 42.37 78% 12/31/97 0.64
- -------------------------------------------------------------------------------------------------------------------------
58 Port Richmond Plaza 76.59 96% 1/31/98 0.40
59 Redstone Apartments 23,001.74 94% 12/31/97
60 Royal Palm Apartments 16,503.91 89% 12/28/97
61 Ruffe Snow Village 53.87 89% 10/30/97 0.59
62 Rykoff-Sexton 40.43 100% 12/16/97 0.47
- -------------------------------------------------------------------------------------------------------------------------
63 San Gabriel Square 18,378.38 97% 1/27/98
64 Scandia Apartments 24,047.28 93% 12/31/97
65 Seventh Avenue Shopping Center 75.24 100% 10/17/97 0.49
66 Sierra Oaks Shopping Center 109.61 94% 12/12/97 0.78
67 Squire Hill Apartments 35,466.57 100% 1/1/98
- -------------------------------------------------------------------------------------------------------------------------
68 Star Market - Hyde Park (3) 143.78 100%
69 Star Market - Somerville (3) 135.43 100%
70 Steeplechase Apartments 36,099.04 91% 12/31/97
71 Tara Shopping Plaza 32.87 92% 1/31/98 0.41
72 Vineyards 30,615.55 91% 2/11/98
- -------------------------------------------------------------------------------------------------------------------------
73 Vista Plaza Shopping Center 55.29 96% 10/31/97 0.61
74 Wadsworth Plaza 79.83 100% 11/1/97 0.64
75 Walden Pond Apartments 31,039.28 92% 12/31/97
76 Warm Springs Plaza 98.89 95% 4/16/98 0.97
77 Waterfront I & II 123.84 100% 2/2/98 1.02
- -------------------------------------------------------------------------------------------------------------------------
78 Wild Harvest Supermarket 153.93 100% 10/31/97 0.89
- -------------------------------------------------------------------------------------------------------------------------
Footnotes
- --------------------------------------------------
(3)Credit Lease Loan
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ANNUAL
RESERVES PER % OF LEASE
ID UNIT LARGEST TENANT GLA EXPIRATION 2ND LARGEST TENANT
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
31e 1,939.67
31f 1,614.59
31g 1,822.54
31h 886.58
31i 1,444.80
- ---------------------------------------------------------------------------------------------------
32 250.00
33 250.00
34 Stop & Shop Co. 20% 7/31/08 Marshalls
35
35a 250.00
- ---------------------------------------------------------------------------------------------------
35b 250.00
35c 250.00
35d 250.00
36 250.00
37 Roche Brothers 39% 9/23/10 Fashion Bug
- ---------------------------------------------------------------------------------------------------
38 Guess?, Inc. 97% 6/30/08
39 H.E Butt Grocery Co. 100% 9/30/15
40 H.E. Butt Grocery Co. 766% 9/30/15
41 250.00
42 3,912.87
- ---------------------------------------------------------------------------------------------------
43 Ames 47% 9/30/11 Shaw's Supermarket
44 HD Computer 52% 7/31/07 Nextel
45 Hechinger Company 100% 1/31/21
46 2,111.42
47 Hughes Aircraft Company 100% 4/30/06
- ---------------------------------------------------------------------------------------------------
48 4,942.28
49 Best Buy 21% 1/1/11 JCPenney Home Store
50 250.00
51 250.00
52 Unisourse Worldwide, Inc. 43% 11/14/02 Scala, Inc.
- ---------------------------------------------------------------------------------------------------
53 Lucky Stores 94% Sears Hardware
54 250.00
55 260.00
56 250.00
57 Wal Mart 37% 11/30/17 Younkers
- ---------------------------------------------------------------------------------------------------
58 Thriftway 26% 11/30/08 Pep Boys
59 250.00
60 300.00
61 Kroger 46% 8/31/06 Movies 'n Video
62 Rykoff-Sexton 100% 9/30/03
- ---------------------------------------------------------------------------------------------------
63 282.52
64 250.00
65 Winn Dixie 58% 2/1/17 Family Dollar
66 Thrifty Payless Stores 32% 1/31/17 EJ Pizza Company
67 250.00
- ---------------------------------------------------------------------------------------------------
68
69
70 225.00
71 Old Time Pottery 34% 2/28/07 Cub Foods
72 250.00
- ---------------------------------------------------------------------------------------------------
73 Lucky Food 64% 6/30/14 NU 2 Thrift
74 CVS 34% 1/31/12 Family Dollar
75 250.00
76 Consign & Design 22% 9/30/06 Tuesday Morning
77 Athletic Club 17% 4/30/07 SCI Consulting
- ---------------------------------------------------------------------------------------------------
78 Star Market Company, Inc. 100% 1/1/18
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
% OF LEASE
ID GLA EXPIRATION BORROWER AFFILIATION
- ---------------------------------------------------
<S> <C> <C> <C>
31e
31f
31g
31h
31i
- ---------------------------------------------------
32
33 G&K
34 10% 1/31/04
35 G&K
35a
- ---------------------------------------------------
35b
35c
35d
36 Weinberg, Alkosser
37 10% 2/28/99
- ---------------------------------------------------
38
39 Butt
40 Butt
41 Forest City
42 Kimpton
- ---------------------------------------------------
43 25% 5/31/12
44 22% 7/31/07
45 Sobel
46
47
- ---------------------------------------------------
48 Kimpton
49 19% 9/1/06 Adar, Goldrich
50 G&K
51
52 8% 4/30/02
- ---------------------------------------------------
53 32% 1/30/07
54 Weinberg, Alkosser
55 Weinberg, Alkosser
56
57 25% 9/6/03
- ---------------------------------------------------
58 13% 1/31/09
59 Weinberg, Alkosser
60
61 8% 6/30/99 Adar, Goldrich
62
- ---------------------------------------------------
63 Weinberg, Alkosser
64 Weinberg, Alkosser
65 8% 12/31/99
66 6% 1/7/98
67
- ---------------------------------------------------
68 Weiner
69 Weiner
70 Conner, Murphy
71 32% 10/31/06
72 Forest City
- ---------------------------------------------------
73 4% 3/31/98 Kellogg
74 26% 12/31/02
75 Weinberg, Alkosser
76 8% 1/15/03
77 22% 9/30/02
- ---------------------------------------------------
78 Weiner
- ---------------------------------------------------
</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 May 7, 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
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<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
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
5
<PAGE>
PAGE
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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
6
<PAGE>
PAGE
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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.................................................. 72
Federal Income Tax Consequences for REMIC Certificates.................................. 72
General................................................................................ 72
Status of REMIC Certificates........................................................... 72
Qualification as a REMIC............................................................... 73
Taxation of Regular Certificates........................................................ 75
General ............................................................................... 75
Original Issue Discount ............................................................... 75
Acquisition Premium.................................................................... 77
Variable Rate Regular Certificates..................................................... 77
Deferred Interest...................................................................... 79
Market Discount........................................................................ 79
Premium................................................................................ 80
Election to Treat All Interest Under the Constant Yield Method......................... 80
Sale or Exchange of Regular Certificates............................................... 80
Treatment of Losses.................................................................... 81
Taxation of Residual Certificates....................................................... 82
Taxation of REMIC Income............................................................... 82
Basis and Losses....................................................................... 83
Treatment of Certain Items of REMIC Income and Expense................................. 83
Limitations on Offset or Exemption of REMIC Income..................................... 84
Tax-Related Restrictions on Transfer of Residual Certificates.......................... 85
Sale or Exchange of a Residual Certificate............................................. 87
Mark to Market Regulations............................................................. 88
Taxes That May Be Imposed on the REMIC Pool............................................. 88
Prohibited Transactions................................................................ 88
Contributions to the REMIC Pool After the Startup Day.................................. 89
7
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PAGE
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Net Income from Foreclosure Property................................................... 89
Liquidation of the REMIC Pool........................................................... 89
Administrative Matters.................................................................. 89
Limitations on Deduction of Certain Expenses............................................ 89
Taxation of Certain Foreign Investors................................................... 90
Regular Certificates................................................................... 90
Residual Certificates.................................................................. 91
Backup Withholding...................................................................... 91
Reporting Requirements.................................................................. 91
Federal Income Tax Consequences For Certificates as to Which No REMIC Election
Is Made................................................................................ 93
Standard Certificates................................................................... 93
General ............................................................................... 93
Tax Status............................................................................. 93
Premium and Discount................................................................... 94
Recharacterization of Servicing Fees................................................... 94
Sale or Exchange of Standard Certificates.............................................. 95
Stripped Certificates................................................................... 95
General ............................................................................... 95
Status of Stripped Certificates........................................................ 97
Taxation of Stripped Certificates...................................................... 97
Reporting Requirements and Backup Withholding........................................... 98
Taxation of Certain Foreign Investors................................................... 99
STATE AND OTHER TAX CONSIDERATIONS....................................................... 99
ERISA CONSIDERATIONS..................................................................... 99
General................................................................................. 99
Plan Asset Regulations.................................................................. 100
Administrative Exemptions............................................................... 100
Insurance Company General Accounts ..................................................... 101
Unrelated Business Taxable Income; Residual Certificates................................ 101
LEGAL INVESTMENT......................................................................... 102
METHOD OF DISTRIBUTION................................................................... 104
LEGAL MATTERS............................................................................ 105
FINANCIAL INFORMATION.................................................................... 105
RATING................................................................................... 105
INDEX OF PRINCIPAL DEFINITIONS........................................................... 106
</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
10
<PAGE>
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
11
<PAGE>
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".
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 "ERISA
Considerations" herein and in the related
Prospectus Supplement.
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<PAGE>
LEGAL INVESTMENT .............. The Offered Certificates will constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market Enhancement
Act of 1984, as amended ("SMMEA"), only if
so specified in the related Prospectus
Supplement. Investors whose investment
authority is subject to legal restrictions
should consult their own legal advisors to
determine whether and to what extent the
Offered Certificates constitute legal
investments for them. See "Legal Investment"
herein and in the related Prospectus
Supplement.
RATING ........................ At their respective dates of issuance, each
class of Offered Certificates will be rated
not lower than investment grade by one or
more nationally recognized statistical
rating agencies (each, a "Rating Agency").
See "Rating" herein and in the related
Prospectus Supplement.
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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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<PAGE>
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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<PAGE>
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".
ERISA CONSIDERATIONS
Generally, ERISA applies to investments made by employee benefit plans and
transactions involving the assets of such plans. Due to the complexity of
regulations that govern such plans, prospective investors that are subject to
ERISA are urged to consult their own counsel regarding consequences under
ERISA of acquisition, ownership and disposition of the Offered Certificates
of any series. See "ERISA Considerations".
CERTAIN FEDERAL TAX CONSIDERATIONS REGARDING 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) first mortgage loans
originated by certain lenders after March 31, 1980. Title V authorized any
state to reimpose interest rate limits by adopting, before April 1, 1983, a
law or constitutional provision that expressly rejects application of the
federal law. In addition, even where Title V is not so rejected, any state is
authorized by the law to adopt a provision limiting discount points or other
charges on mortgage loans covered by Title V. Certain states have taken
action to reimpose interest rate limits and/or to limit discount points or
other charges.
No Mortgage Loan originated in any state in which application of Title V
has been expressly rejected or a provision limiting discount points or other
charges has been adopted, will (if originated after that rejection or
adoption) be eligible for inclusion in a Trust Fund unless (i) such Mortgage
Loan provides for such interest rate, discount points and charges as are
permitted in such state or (ii) such Mortgage Loan provides that the terms
thereof are to be construed in accordance with the laws of another state
under which such interest rate, discount points and charges would not be
usurious and the borrower's counsel has rendered an opinion that such choice
of law provision would be given effect.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a borrower who enters military service after the
origination of such borrower's mortgage loan (including a borrower who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an
annual rate of 6% during the period of such borrower's active duty status,
unless a court orders otherwise upon application of the lender. The Relief
Act applies to individuals who are members of the Army, Navy, Air Force,
Marines, National Guard, Reserves, Coast Guard and officers of the U.S.
Public Health Service assigned to duty with the military. Because the Relief
Act applies to individuals who enter military service (including reservists
who are called to active duty) after origination of the related mortgage
loan, no information can be provided as to the number of loans with
individuals as borrowers that may be affected by the Relief Act. Application
of the Relief Act would adversely affect, for an indeterminate period of
time, the ability of any servicer to collect full amounts of interest on
certain of the Mortgage Loans. Any shortfalls in interest
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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 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%. In addition, if the
assets of the REMIC include Buy-Down Mortgage Loans, it is possible that the
percentage of such assets constituting "loans . . . secured by an interest in
real property which is . . . residential real property" for purposes of Code
Section 7701(a)(19)(C)(v) may be required to be reduced by the amount of the
related Buy-Down Funds. REMIC Certificates held by a regulated investment
company will not constitute "Government Securities" within the meaning of
Code Section 851(b)(3)(A)(i). REMIC Certificates held 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.
Deferred Interest
Under the OID Regulations, all interest on a Regular Certificate as to
which there may be Deferred Interest is includible in the stated redemption
price at maturity thereof. Accordingly, any Deferred Interest that accrues
with respect to a Class of Regular Certificates may constitute income to the
holders of such Regular Certificates prior to the time distributions of cash
with respect to such Deferred Interest are made.
Market Discount
A purchaser of a Regular Certificate also may be subject to the market
discount rules of Code Section 1276 through 1278. Under these Code sections
and the principles applied by the OID Regulations in the context of original
issue discount, "market discount" is the amount by which the purchaser's
original basis in the Regular Certificate (i) is exceeded by the then-current
principal amount of the Regular Certificate or (ii) in the case of a Regular
Certificate having original issue discount, is exceeded by the adjusted issue
price of such Regular Certificate at the time of purchase. Such purchaser
generally will be required to recognize ordinary income to the extent of
accrued market discount on such Regular Certificate as distributions
includible in the stated redemption price at maturity thereof are received,
in an amount not exceeding any such distribution. Such market discount would
accrue in a manner to be provided in Treasury regulations and should take
into account the Prepayment Assumption. The Conference Committee Report to
the 1986 Act provides that until such regulations are issued, such market
discount would accrue either (i) on the basis of a constant interest rate or
(ii) in the ratio of stated interest allocable to the relevant period to the
sum of the interest for such period plus the remaining interest as of the end
of such period, or in the case of a Regular Certificate issued with original
issue discount, in the ratio of original issue discount accrued for the
relevant period to the sum of the original issue discount accrued for such
period plus the remaining original issue discount as of the end of such
period. Such purchaser also generally will be required to treat a portion of
any gain on a sale or exchange of the Regular Certificate as ordinary income
to the extent of the market discount accrued to the date of disposition under
one of the foregoing methods, less any accrued market discount previously
reported as ordinary income as partial distributions in reduction of the
stated redemption price at maturity were received. Such purchaser will be
required to defer deduction of a portion of the excess of the interest paid
or accrued on indebtedness incurred to purchase or carry a Regular
Certificate over the interest distributable thereon. The deferred portion of
such interest expense in any taxable year generally will not exceed the
accrued market discount on the Regular Certificate for such year. Any such
deferred interest expense is, in general, allowed as a deduction not later
than the year in which the related market discount income is recognized or
the Regular Certificate is disposed of. As an alternative to the inclusion of
market discount in income on the foregoing basis, the Regular
Certificateholder may elect to include market discount in income currently as
it accrues on all market discount instruments acquired by such Regular
Certificateholder in that taxable year or thereafter, in which case the
interest deferral rule will not apply. See "Election to Treat All Interest
Under the Constant Yield Method" below regarding an alternative manner in
which such election may be deemed to be made.
Market discount with respect to a Regular Certificate will be considered
to be zero if such market discount is less than 0.25% of the remaining stated
redemption price at maturity of such Regular Certificate multiplied by the
weighted average maturity of the Regular Certificate (determined as 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
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advisors regarding the application of these rules. Investors should also
consult Revenue Procedure 92-67 concerning the elections to include market
discount in income currently and to accrue market discount on the basis of
the constant yield method.
Premium
A Regular Certificate purchased at a cost greater than its remaining
stated redemption price at maturity generally is considered to be purchased
at a premium. If the Regular Certificateholder holds such Regular Certificate
as a "capital asset" within the meaning of Code Section 1221, the Regular
Certificateholder may elect under Code Section 171 to amortize such premium
under the constant yield method. 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,
mid-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
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have accrued on the Regular Certificateholder's net investment in the
conversion transaction at 120% of the appropriate applicable Federal rate
under Code Section 1274(d) in effect at the time the taxpayer entered into
the transaction minus any amount previously treated as ordinary income with
respect to any prior distribution of property that was held as a part of such
transaction, (ii) in the case of a non-corporate taxpayer, to the extent such
taxpayer has made an election under Code Section 163(d)(4) to have net
capital gains taxed as investment income at ordinary rates, or (iii) to the
extent that such gain does not exceed the excess, if any, of (a) the amount
that would have been includible in the gross income of the holder if its
yield on such Regular Certificate were 110% of the applicable Federal rate as
of the date of purchase, over (b) the amount of income actually includible in
the gross income of such holder with respect to the Regular Certificate. In
addition, gain or loss recognized from the sale of a Regular Certificate by
certain banks or thrift institutions will be treated as ordinary income or
loss pursuant to Code Section 582(c). Capital gains of certain non-corporate
taxpayers generally are subject to a lower maximum tax rate (28%) than
ordinary income of such taxpayers (39.6%) for property held for more than one
year but not more than 18 months, and a still lower maximum rate (20%) for
property held for more than 18 months. The maximum tax rate for corporations
is the same with respect to both ordinary income and capital gains.
Treatment of Losses
Holders of Regular Certificates will be required to report income with
respect to Regular Certificates on the accrual method of accounting, without
giving effect to delays or reductions in distributions attributable to
defaults or delinquencies on the Mortgage Loans allocable to a particular
class of Regular Certificates, except to the extent it can be established
that such losses are uncollectible. Accordingly, the holder of a Regular
Certificate may have income, or may incur a diminution in cash flow as a
result of a default or delinquency, but may not be able to take a deduction
(subject to the discussion below) for the corresponding loss until a
subsequent taxable year. In this regard, investors are cautioned that while
they may generally cease to accrue interest income if it reasonably appears
that the interest will be uncollectible, the Internal Revenue Service may
take the position that original issue discount must continue to be accrued in
spite of its uncollectibility until the debt instrument is disposed of in a
taxable transaction or becomes worthless in accordance with the rules of Code
Section 166. To the extent the rules of Code Section 166 regarding bad debts
are applicable, it appears that holders of Regular Certificates that are
corporations or that otherwise hold the Regular Certificates in connection
with a trade or business should in general be allowed to deduct as an
ordinary loss any such loss sustained during the taxable year on account of
any such Regular Certificates becoming wholly or partially worthless, and
that, in general, holders of Regular Certificates that are not corporations
and do not hold the Regular Certificates in connection with a trade or
business will be allowed to deduct as a short-term capital loss any loss with
respect to principal sustained during the taxable year on account of a
portion of any class or subclass of such Regular Certificates becoming wholly
worthless. Although the matter is not free from doubt, non-corporate holders
of Regular Certificates should be allowed a bad debt deduction at such time
as the principal balance of any class or subclass of such Regular
Certificates is reduced to reflect losses resulting from any liquidated
Mortgage Loans. The Service, however, could take the position that
non-corporate holders will be allowed a bad debt deduction to reflect such
losses only after all Mortgage Loans remaining in the Trust Fund have been
liquidated or such class of Regular Certificates has been otherwise retired.
The Service could also assert that losses on the Regular Certificates are
deductible based on some other method that may defer such deductions for all
holders, such as reducing future cash flow for purposes of computing original
issue discount. This may have the effect of creating "negative" original
issue discount which would be deductible only against future positive
original issue discount or otherwise upon termination of the Class. Holders
of Regular Certificates are urged to consult their own tax advisors regarding
the appropriate timing, amount and character of any loss sustained with
respect to such Regular Certificates. While losses attributable to interest
previously reported as income should be deductible as ordinary losses by both
corporate and non-corporate holders, the Internal Revenue Service may take
the position that losses attributable to accrued original issue discount may
only be deducted as short-term capital losses by non-corporate holders not
engaged in a trade or business. Special loss rules are applicable to banks
and thrift institutions, including rules regarding reserves for bad debts.
Such taxpayers are advised to consult their tax advisors regarding the
treatment of losses on Regular Certificates.
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TAXATION OF RESIDUAL CERTIFICATES
Taxation of REMIC Income
Generally, the "daily portions" of REMIC taxable income or net loss will
be includible as ordinary income or loss in determining the federal taxable
income of holders of Residual Certificates ("Residual Certificateholders"),
and will not be taxed separately to the REMIC Pool. The daily portions of
REMIC taxable income or net loss of a Residual Certificateholder are
determined by allocating the REMIC Pool's taxable income or net loss for each
calendar quarter ratably to each day in such quarter and by allocating such
daily portion among the Residual Certificateholders in proportion to their
respective holdings of Residual Certificates in the REMIC Pool on such day.
REMIC taxable income is generally determined in the same manner as the
taxable income of an individual using the accrual method of accounting,
except that (i) the limitations on deductibility of investment interest
expense and expenses for the production of income do not apply, (ii) all bad
loans will be deductible as business bad debts and (iii) the limitation on
the deductibility of interest and expenses related to tax-exempt income will
apply. The REMIC Pool's gross income includes interest, original issue
discount income and market discount income, if any, on the Mortgage Loans,
reduced by amortization of any premium on the Mortgage Loans, plus income
from amortization of issue premium, if any, on the Regular Certificates, plus
income on reinvestment of cash flows and reserve assets, plus any
cancellation of indebtedness income upon allocation of realized losses to the
Regular Certificates. The REMIC Pool's deductions include interest and
original issue discount expense on the Regular Certificates, servicing fees
on the Mortgage Loans, other administrative expenses of the REMIC Pool and
realized losses on the Mortgage Loans. The requirement that Residual
Certificateholders report their pro rata share of taxable income or net loss
of the REMIC Pool will continue until there are no Certificates of any class
of the related series outstanding.
The taxable income recognized by a Residual Certificateholder in any
taxable year will be affected by, among other factors, the relationship
between the timing of recognition of interest and original issue discount or
market discount income or amortization of premium with respect to the
Mortgage Loans, on the one hand, and the timing of deductions for interest
(including original issue discount) on the Regular Certificates or income
from amortization of issue premium on the Regular Certificates, on the other
hand. In the event that an interest in the Mortgage Loans is acquired by the
REMIC Pool at a discount, and one or more of such Mortgage Loans is prepaid,
the Residual Certificateholder may recognize taxable income without being
entitled to receive a corresponding amount of cash because (i) the prepayment
may be used in whole or in part to make distributions in reduction of
principal on the Regular Certificates and (ii) the discount on the Mortgage
Loans which is includible in income may exceed the deduction allowed upon
such distributions on those Regular Certificates on account of any unaccrued
original issue discount relating to those Regular Certificates. When there is
more than one class of Regular Certificates that distribute principal
sequentially, this mismatching of income and deductions is particularly
likely to occur in the early years following issuance of the Regular
Certificates when distributions in reduction of principal are being made in
respect of earlier classes of Regular Certificates to the extent that such
classes are not issued with substantial discount. If taxable income
attributable to such a mismatching is realized, in general, losses would be
allowed in later years as distributions on the later classes of Regular
Certificates are made. Taxable income may also be greater in earlier years
than in later years as a result of the fact that interest expense deductions,
expressed as a percentage of the outstanding principal amount of such a
series of Regular Certificates, may increase over time as distributions in
reduction of principal are made on the lower yielding classes of Regular
Certificates, whereas to the extent that the REMIC Pool includes fixed rate
Mortgage Loans, interest income with respect to any given Mortgage Loan will
remain constant over time as a percentage of the outstanding principal amount
of that loan. Consequently, Residual Certificateholders must have sufficient
other sources of cash to pay any federal, state or local income taxes due as
a result of such mismatching or unrelated deductions against which to offset
such income, subject to the discussion of "excess inclusions" below under
"Limitations on Offset or Exemption of REMIC Income". The timing of such
mismatching of income and deductions described in this paragraph, if present
with respect to a series of Certificates, may have a significant adverse
effect upon the Residual Certificateholder's after-tax rate of return. In
addition, a Residual Certificateholder's taxable
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income during certain periods may exceed the income reflected by such
Residual Certificateholder for such periods in accordance with generally
accepted accounting principles. Investors should consult their own
accountants concerning the accounting treatment of their investment in
Residual Certificates.
Basis and Losses
The amount of any net loss of the REMIC Pool that may be taken into
account by the Residual Certificateholder is limited to the adjusted basis of
the Residual Certificate as of the close of the quarter (or time of
disposition of the Residual Certificate if earlier), determined without
taking into account the net loss for the quarter. The initial adjusted basis
of a purchaser of a Residual Certificate is the amount paid for such Residual
Certificate. Such adjusted basis will be increased by the amount of taxable
income of the REMIC Pool reportable by the Residual Certificateholder and
will be decreased (but not below zero), first, by a cash distribution from
the REMIC Pool and, second, by the amount of loss of the REMIC Pool
reportable by the Residual Certificateholder. Any loss that is disallowed on
account of this limitation may be carried over indefinitely with respect to
the Residual Certificateholder as to whom such loss was disallowed and may be
used by such Residual Certificateholder only to offset any income generated
by the same REMIC Pool.
A Residual Certificateholder will not be permitted to amortize directly
the cost of its Residual Certificate as an offset to its share of the taxable
income of the related REMIC Pool. However, that taxable income will not
include cash received by the REMIC Pool that represents a recovery of the
REMIC Pool's basis in its assets. Such recovery of basis by the REMIC Pool
will have the effect of amortization of the issue price of the Residual
Certificates over their life. However, in view of the possible acceleration
of the income of Residual Certificateholders described above under "Taxation
of REMIC Income", the period of time over which such issue price is
effectively amortized may be longer than the economic life of the Residual
Certificates.
A Residual Certificate may have a negative value if the net present value
of anticipated tax liabilities exceeds the present value of anticipated cash
flows. The REMIC Regulations appear to treat the issue price of such a
residual interest as zero rather than such negative amount for purposes of
determining the REMIC Pool's basis in its assets. The preamble to the REMIC
Regulations states that the Service may provide future guidance on the proper
tax treatment of payments made by a transferor of such a residual interest to
induce the transferee to acquire the interest, and Residual
Certificateholders should consult their own tax advisors in this regard.
Further, to the extent that the initial adjusted basis of a Residual
Certificateholder (other than an original holder) in the Residual Certificate
is greater that the corresponding portion of the REMIC Pool's basis in the
Mortgage Loans, the Residual Certificateholder will not recover a portion of
such basis until termination of the REMIC Pool unless future Treasury
regulations provide for periodic adjustments to the REMIC income otherwise
reportable by such holder. The REMIC Regulations currently in effect do not
so provide. See "Treatment of Certain Items of REMIC Income and
Expense--Market Discount" below regarding the basis of Mortgage Loans to the
REMIC Pool and "Sale or Exchange of a Residual Certificate" below regarding
possible treatment of a loss upon termination of the REMIC Pool as a capital
loss.
Treatment of Certain Items of REMIC Income and Expense
Although the Depositor intends to compute REMIC income and expense in
accordance with the Code and applicable regulations, the authorities
regarding the determination of specific items of income and expense are
subject to differing interpretations. The Depositor makes no representation
as to the specific method that it will use for reporting income with respect
to the Mortgage Loans and expenses with respect to the Regular Certificates,
and different methods could result in different timing of reporting of
taxable income or net loss to Residual Certificateholders or differences in
capital gain versus ordinary income.
Original Issue Discount and Premium. Generally, the REMIC Pool's
deductions for original issue discount and income from amortization of issue
premium will be determined in the same manner as
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original issue discount income on Regular Certificates as described above
under "Taxation of Regular Certificates--Original Issue Discount" and
"--Variable Rate Regular Certificates", without regard to the de minimis rule
described therein, and "--Premium".
Deferred Interest. Any Deferred Interest that accrues with respect to any
adjustable rate Mortgage Loans held by the REMIC Pool will constitute income
to the REMIC Pool and will be treated in a manner similar to the Deferred
Interest that accrues with respect to Regular Certificates as described above
under "Taxation of Regular Certificates--Deferred Interest".
Market Discount. The REMIC Pool will have market discount income in
respect of Mortgage Loans if, in general, the basis of the REMIC Pool
allocable to such Mortgage Loans is exceeded by their unpaid principal
balances. The REMIC Pool's basis in such Mortgage Loans is generally the fair
market value of the Mortgage Loans immediately after the transfer thereof to
the REMIC Pool. The REMIC Regulations provide that such basis is equal in the
aggregate to the issue prices of all regular and residual interests in the
REMIC Pool (or the fair market value thereof at the Closing Date, in the case
of a retained Class). In respect of Mortgage Loans that have market discount
to which Code Section 1276 applies, the accrued portion of such market
discount would be recognized currently as an item of ordinary income in a
manner similar to original issue discount. Market discount income generally
should accrue in the manner described above under "Taxation of Regular
Certificates--Market Discount".
Premium. Generally, if the basis of the REMIC Pool in the Mortgage Loans
exceeds the unpaid principal balances thereof, the REMIC Pool will be
considered to have acquired such Mortgage Loans at a premium equal to the
amount of such excess. As stated above, the REMIC Pool's basis in Mortgage
Loans is the fair market value of the Mortgage Loans, based on the aggregate
of the issue prices (or the fair market value of retained Classes) of the
regular and residual interests in the REMIC Pool immediately after the
transfer thereof to the REMIC Pool. In a manner analogous to the discussion
above under "Taxation of Regular Certificates--Premium", a REMIC Pool that
holds a Mortgage Loan as a capital asset under Code Section 1221 may elect
under Code Section 171 to amortize premium on whole mortgage loans or
mortgage loans underlying MBS that were originated after September 27, 1985
or MBS that are REMIC regular interests under the constant yield method.
Amortizable bond premium will be treated as an offset to interest income on
the Mortgage Loans, rather than as a separate deduction item. To the extent
that the mortgagors with respect to the Mortgage Loans are individuals, Code
Section 171 will not be available for premium on Mortgage Loans (including
underlying mortgage loans) originated on or prior to September 27, 1985.
Premium with respect to such Mortgage Loans may be deductible in accordance
with a reasonable method regularly employed by the holder thereof. The
allocation of such premium pro rata among principal payments should be
considered a reasonable method; however, the Service may argue that such
premium should be allocated in a different manner, such as allocating such
premium entirely to the final payment of principal.
Limitations on Offset or Exemption of REMIC Income
A portion or all of the REMIC taxable income includible in determining the
federal income tax liability of a Residual Certificateholder will be subject
to special treatment. That portion, referred to as the "excess inclusion", is
equal to the excess of REMIC taxable income for the calendar quarter
allocable to a Residual Certificate over the daily accruals for such
quarterly period of (i) 120% of the long-term applicable Federal rate that
would have applied to the Residual Certificate (if it were a debt instrument)
on the Startup Day under Code Section 1274(d), multiplied by (ii) the
adjusted issue price of such Residual Certificate at the beginning of such
quarterly period. For this purpose, the adjusted issue price of a Residual
Certificate at the beginning of a quarter is the issue price of the Residual
Certificate, plus the amount of such daily accruals of REMIC income described
in this paragraph for all prior quarters, decreased by any distributions made
with respect to such Residual Certificate prior to the beginning of such
quarterly period. Accordingly, the portion of the REMIC Pool's taxable income
that will be treated as excess inclusions will be a larger portion of such
income as the adjusted issue price of the Residual Certificates diminishes.
The portion of a Residual Certificateholder's REMIC taxable income
consisting of the excess inclusions generally may not be offset by other
deductions, including net operating loss carryforwards, on
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such Residual Certificateholder's return. However, net operating loss
carryovers are determined without regard to excess inclusion income. Further,
if the Residual Certificateholder is an organization subject to the tax on
unrelated business income imposed by Code Section 511, the Residual
Certificateholder's excess inclusions will be treated as unrelated business
taxable income of such Residual Certificateholder for purposes of Code
Section 511. In addition, REMIC taxable income is subject to 30% withholding
tax with respect to certain persons who are not U.S. Persons (as defined
below under "Tax-Related Restrictions on Transfer of Residual
Certificates--Foreign Investors"), and the portion thereof attributable to
excess inclusions is not eligible for any reduction in the rate of
withholding tax (by treaty or otherwise). See "Taxation of Certain Foreign
Investors--Residual Certificates" below. Finally, if a real estate investment
trust or a regulated investment company owns a Residual Certificate, a
portion (allocated under Treasury regulations yet to be issued) of dividends
paid by the real estate investment trust or a regulated investment company
could not be offset by net operating losses of its shareholders, would
constitute unrelated business taxable income for tax-exempt shareholders, and
would be ineligible for reduction of withholding to certain persons who are
not U.S. Persons. The SBJPA of 1996 has eliminated the special rule
permitting Section 593 institutions ("thrift institutions") to use net
operating losses and other allowable deductions to offset their excess
inclusion income from Residual Certificates that have "significant value"
within the meaning of the REMIC Regulations, effective for taxable years
beginning after December 31, 1995, except with respect to Residual
Certificates continuously held by thrift institutions since November 1, 1995.
In addition, the SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on the alternative minimum taxable income of a
Residual Certificateholder. First, alternative minimum taxable income for a
Residual Certificateholder is determined without regard to the special rule,
discussed above, that taxable income cannot be less than excess inclusions.
Second, a Residual Certificateholder's alternative minimum taxable income for
a taxable year cannot be less than the excess inclusions for the year. Third,
the amount of any alternative minimum tax net operating loss deduction must
be computed without regard to any excess inclusions. These rules are
effective for taxable years beginning after December 31, 1996, unless a
Residual Certificateholder elects to have such rules apply only to taxable
years beginning after August 20, 1996.
Tax-Related Restrictions on Transfer of Residual Certificates
Disqualified Organizations. If any legal or beneficial interest in a
Residual Certificate is transferred to a Disqualified Organization (as
defined below), 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
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marginal federal corporate income tax rate. Such tax would be deductible from
the ordinary gross income of the Pass-Through Entity for the taxable year.
The Pass-Through Entity would not be liable for such tax if it has received
an affidavit from such record holder that it is not a Disqualified
Organization or stating such holder's taxpayer identification number and,
during the period such person is the record holder of the Residual
Certificate, the Pass-Through Entity does not have actual knowledge that such
affidavit is false.
For 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
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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 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 (B) for all other taxable years, such trust is subject to
United States federal income tax regardless of the source of its income (or,
to the extent provided in applicable Treasury regulations, certain trusts in
existence on August 20, 1996 which are eligible to elect to be treated as
U.S. Persons).
Sale or Exchange of a Residual Certificate
Upon the sale or exchange of a Residual Certificate, the Residual
Certificateholder will recognize gain or loss equal to the excess, if any, of
the amount realized over the adjusted basis (as described above under
"Taxation of Residual Certificates--Basis and Losses") of such Residual
Certificateholder in such Residual Certificate at the time of the sale or
exchange. In addition to reporting the taxable income of the REMIC Pool, a
Residual Certificateholder will have taxable income to the extent that any
cash distribution to it from the REMIC Pool exceeds such adjusted basis on
that Distribution Date. Such income will be treated as gain from the sale or
exchange of the Residual Certificate. It is possible that the termination of
the REMIC Pool may be treated as a sale or exchange of a Residual
Certificateholder's
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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.
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
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not be treated as a disposition if it is occasioned by a default or
reasonably foreseeable default, an assumption of the Mortgage Loan, the
waiver of a due-on-sale or due-on-encumbrance clause or the conversion of an
interest rate by a mortgagor pursuant to the terms of a convertible
adjustable rate Mortgage Loan.
Contributions to the REMIC Pool After the Startup Day
In general, the REMIC Pool will be subject to a tax at a 100% rate on the
value of any property contributed to the REMIC Pool after the Startup Day.
Exceptions are provided for cash contributions to the REMIC Pool (i) during
the three months following the Startup Day, (ii) made to a qualified reserve
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
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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
$100,000 ($50,000 in the case of a married individual filing a separate
return) (subject to 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 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
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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.
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
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investment trusts, investment companies, common trust funds, thrift
institutions and charitable trusts) may request such information for any
calendar quarter by telephone or in writing by contacting the person
designated in Service Publication 938 with respect to a particular series of
Regular Certificates. Holders through nominees must request such information
from the nominee.
The Service's Form 1066 has an accompanying Schedule Q, Quarterly Notice
to Residual Interest Holders of REMIC Taxable Income or Net Loss Allocation.
Treasury regulations require that Schedule Q be furnished by the REMIC Pool
to each Residual Certificateholder by the end of the month following the
close of each calendar quarter (41 days after the end of a quarter under
proposed Treasury regulations) in which the REMIC Pool is in existence.
Treasury regulations require that, in addition to the foregoing
requirements, information must be furnished quarterly to Residual
Certificateholders, furnished annually, if applicable, to holders of Regular
Certificates, and filed annually with the Service concerning Code Section 67
expenses (see "Limitations on Deduction of Certain Expenses" above) allocable
to such holders. Furthermore, under such regulations, information must be
furnished quarterly to Residual Certificateholders, furnished annually to
holders of Regular Certificates, and filed annually with the Service
concerning the percentage of the REMIC Pool's assets meeting the qualified
asset tests described above under "Status of REMIC Certificates".
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FEDERAL INCOME TAX CONSEQUENCES FOR CERTIFICATES AS
TO WHICH NO REMIC ELECTION IS MADE
STANDARD CERTIFICATES
General
In the event that no election is made to treat a Trust Fund (or a
segregated pool of assets therein) with respect to a series of Certificates
that are not designated as "Stripped Certificates", as described below, as a
REMIC (Certificates of such a series hereinafter referred to as "Standard
Certificates"), the Trust Fund will be classified as a grantor trust under
subpart E, Part 1 of subchapter J of the Code and not as an association
taxable as a corporation or a "taxable mortgage pool" within the meaning of
Code Section 7701(i). Where there is no fixed retained yield with respect to
the Mortgage Loans underlying the Standard Certificates, the holder of each
such Standard Certificate (a "Standard Certificateholder") in such series
will be treated as the owner of a pro rata undivided interest in the ordinary
income and corpus portions of the Trust Fund represented by its Standard
Certificate and will be considered the beneficial owner of a pro rata
undivided interest in each of the Mortgage Loans, subject to the discussion
below under "Recharacterization of Servicing Fees". Accordingly, the holder
of a Standard Certificate of a particular series will be required to report
on its federal income tax return its pro rata share of the entire income from
the Mortgage Loans represented by its Standard Certificate, including
interest at the coupon rate on such Mortgage Loans, original issue discount
(if any), prepayment fees, assumption fees, and late payment charges received
by the Master Servicer, in accordance with such Standard Certificateholder's
method of accounting. A Standard Certificateholder generally will be able to
deduct its share of the servicing fee and all administrative and other
expenses of the Trust Fund in accordance with its method of accounting,
provided that such amounts are reasonable compensation for services rendered
to that Trust Fund. However, investors who are individuals, estates or trusts
who own Standard Certificates, either directly or indirectly through certain
pass-through entities, will be subject to limitation with respect to certain
itemized deductions described in Code Section 67, including deductions under
Code Section 212 for the servicing fee and all such administrative and other
expenses of the Trust Fund, to the extent that such deductions, in the
aggregate, do not exceed two percent of an investor's adjusted gross income.
In addition, Code Section 68 provides that itemized deductions otherwise
allowable for a taxable year of an individual taxpayer will be reduced by the
lesser of (i) 3% of the excess, if any, of adjusted gross income over
$100,000 ($50,000 in the case of a married individual filing a separate
return) (subject to 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
Standard Certificates will have the following status for federal income
tax purposes:
1. A Standard Certificate owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19) will be
considered to represent "loans . . . secured by an interest in real property
which is . . . residential real property" within the meaning of Code Section
7701(a)(19)(C)(v), provided that the real property securing the Mortgage
Loans represented by that Standard Certificate is of the type described in
such section of the Code.
2. A Standard Certificate owned by a real estate investment trust will be
considered to represent "real estate assets" within the meaning of Code
Section 856(c)(4)(A) to the extent that the assets of the related Trust Fund
consist of qualified assets, and interest income on such assets will be
considered "interest on obligations secured by mortgages on real property" to
such extent within the meaning of Code Section 856(c)(3)(B).
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3. A Standard Certificate owned by a REMIC will be considered to represent
an "obligation . . . which is principally secured by an interest in real
property" within the meaning of Code Section 860G(a)(3)(A) to the extent that
the assets of the related Trust Fund consist of "qualified mortgages" within
the meaning of Code Section 860G(a)(3).
Premium and Discount
Standard Certificateholders are advised to consult with their tax advisors
as to the federal income tax treatment of premium and discount arising either
upon initial acquisition of Standard Certificates or thereafter.
Premium. The treatment of premium incurred upon the purchase of a Standard
Certificate will be determined generally as described above under "Certain
Federal Income Tax Consequences for REMIC Certificates--Taxation of Residual
Certificates--Treatment of Certain Items of REMIC Income and
Expense--Premium".
Original Issue Discount. The original issue discount rules will be
applicable to a Standard Certificateholder's interest in those Mortgage Loans
as to which the conditions for the application of those sections are met.
Rules regarding periodic inclusion of original issue discount income are
applicable to mortgages of corporations originated after May 27, 1969,
mortgages of noncorporate mortgagors (other than individuals) originated
after July 1, 1982, and mortgages of individuals originated after March 2,
1984. Under the OID Regulations, such original issue discount could arise by
the charging of points by the originator of the mortgages in an amount
greater than a statutory de minimis exception, including a payment of points
currently deductible by the borrower under applicable Code provisions or,
under certain circumstances, by the presence of "teaser rates" on the
Mortgage Loans.
Original issue discount must generally be reported as ordinary gross
income as it accrues under a constant interest method that takes into account
the compounding of interest, in advance of the cash attributable to such
income. Unless indicated otherwise in the applicable Prospectus Supplement,
no prepayment assumption will be assumed for purposes of such accrual.
However, Code Section 1272 provides for a reduction in the amount of original
issue discount includible in the income of a holder of an obligation that
acquires the obligation after its initial issuance at a price greater than
the sum of the original issue price and the previously accrued original issue
discount, less prior payments of principal. Accordingly, if such Mortgage
Loans acquired by a Standard Certificateholder are purchased at a price equal
to the then unpaid principal amount of such Mortgage Loans, no original issue
discount attributable to the difference between the issue price and the
original principal amount of such Mortgage Loans (i.e., points) will be
includible by such holder.
Market Discount. Standard Certificateholders also will be subject to the
market discount rules to the extent that the conditions for application of
those sections are met. Market discount on the Mortgage Loans will be
determined and will be reported as ordinary income generally in the manner
described above under "Certain Federal Income Tax Consequences for REMIC
Certificates--Taxation of Regular Certificates--Market Discount", except that
the ratable accrual methods described therein will not apply and it is
unclear whether a Prepayment Assumption would apply. Rather, the holder will
accrue market discount pro rata over the life of the Mortgage Loans, unless
the constant yield method is elected. Unless indicated otherwise in the
applicable Prospectus Supplement, no prepayment assumption will be assumed
for purposes of such accrual.
Recharacterization of Servicing Fees
If the servicing fee paid to the Master Servicer were deemed to exceed
reasonable servicing compensation, the amount of such excess would represent
neither income nor a deduction to Certificateholders. In this regard, there
are no authoritative guidelines for federal income tax purposes as to either
the maximum amount of servicing compensation that may be considered
reasonable in the context of this or similar transactions or whether, in the
case of the Standard Certificate, the reasonableness of servicing
compensation should be determined on a weighted average or loan-by-loan
basis. If a loan-by-loan basis is appropriate, the likelihood that such
amount would exceed reasonable servicing compensation as to
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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. Capital
gains of certain non-corporate taxpayers generally are subject to a lower
maximum tax rate (28%) than ordinary income of such taxpayers (39.6%) for
property held for more than one year but not more than 18 months, and a still
lower maximum rate (20%) for property held for more than 18 months. The
maximum tax rate for corporations is the same with respect to both ordinary
income and capital gains.
STRIPPED CERTIFICATES
General
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the principal payments on an obligation from ownership
of the right to receive some or all of the interest
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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, the
Depositor has been advised by counsel that (i) the Trust Fund will be treated
as a grantor trust under subpart E, Part 1 of subchapter J of the Code and
not as an association taxable as a corporation or a "taxable mortgage pool"
within the meaning of Code Section 7701(i), and (ii) each Stripped
Certificate should be treated as a single installment obligation for purposes
of calculating original issue discount and gain or loss on disposition. This
treatment is based on the interrelationship of Code Section 1286, Code
Sections 1272 through 1275, and the OID Regulations. While under Code Section
1286 computations with respect to Stripped Certificates arguably should be
made in one of the ways described below under "Taxation of Stripped
Certificates--Possible Alternative Characterizations," the OID Regulations
state, in general, that two or more debt instruments issued by a single
issuer to a single investor in a single transaction should be treated as a
single debt instrument for original issue discount purposes. The Pooling
Agreement requires that the Trustee make and report all computations
described below using this aggregate approach, unless substantial legal
authority requires otherwise.
Furthermore, Treasury regulations issued December 28, 1992 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 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
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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,
counsel has advised the Depositor that Stripped Certificates owned by
applicable holders should be considered to represent "real estate assets"
within the meaning of Code Section 856(c)(4)(A), "obligation[s] principally
secured by an interest in real property" within the meaning of Code Section
860G(a)(3)(A), and "loans . . . secured by an interest in real property which
is . . . residential real property" within the meaning of Code Section
7701(a)(19)(C)(v), and interest (including original issue discount) income
attributable to Stripped Certificates should be considered to represent
"interest on obligations secured by mortgages on real property" within the
meaning of Code Section 856(c)(3)(B), provided that in each case the Mortgage
Loans and interest on such Mortgage Loans qualify for such treatment.
Taxation of Stripped Certificates
Original Issue Discount. Except as described above under "General", each
Stripped Certificate will be considered to have been issued at an original
issue discount for federal income tax purposes. Original issue discount with
respect to a Stripped Certificate must be included in ordinary income as it
accrues, in accordance with a constant interest method that takes into
account the compounding of interest, which may be prior to the receipt of the
cash attributable to such income. Based in part on the OID Regulations and
the amendments to the original issue discount sections of the Code made by
the 1986 Act, the amount of original issue discount required to be included
in the income of a holder of a Stripped Certificate (referred to in this
discussion as a "Stripped Certificateholder") in any taxable year likely will
be computed generally as described above under "Federal Income Tax
Consequences for REMIC Certificates--Taxation of Regular
Certificates--Original Issue Discount" and "--Variable Rate Regular
Certificates". However, with the apparent exception of a Stripped Certificate
qualifying as a market discount obligation, as described above under
"General", the issue price of a Stripped Certificate will be the purchase
price paid by each holder thereof, and the stated redemption price at
maturity will include the aggregate amount of the payments, other than
qualified stated interest to be made on the Stripped Certificate to such
Stripped Certificateholder, presumably under the Prepayment Assumption.
If the Mortgage Loans prepay at a rate either faster or slower than that
under the Prepayment Assumption, a Stripped Certificateholder's recognition
of original issue discount will be either accelerated or decelerated and the
amount of such original issue discount will be either increased or decreased
depending on the relative interests in principal and interest on each
Mortgage Loan represented by such Stripped Certificateholder's Stripped
Certificate. While the matter is not free from doubt, the holder of a
Stripped Certificate should be entitled in the year that it becomes certain
(assuming no further prepayments) that the holder will not recover a portion
of its adjusted basis in such Stripped Certificate to recognize an ordinary
loss equal to such portion of unrecoverable basis.
As an alternative to the method described above, the fact that some or all
of the interest payments with respect to the Stripped Certificates will not
be made if the Mortgage Loans are prepaid could lead to the interpretation
that such interest payments are "contingent" within the meaning of the OID
Regulations. The OID Regulations, as they relate to the treatment of
contingent interest, are by their terms not applicable to prepayable
securities such as the Stripped Certificates. However, if final regulations
dealing with contingent interest with respect to the Stripped Certificates
apply the same principles as the OID Regulations, such regulations may lead
to different timing of income inclusion that would be the case under the OID
Regulations. Furthermore, application of such principles could lead to the
characterization of gain on the sale of contingent interest Stripped
Certificates as ordinary income. Investors should consult their tax advisors
regarding the appropriate tax treatment of Stripped Certificates.
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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, 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
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to be shown on his federal income tax return, 31% backup withholding may be
required in respect of any reportable payments, as described above under
"Certain Federal Income Tax Consequences for REMIC Certificates--Backup
Withholding".
TAXATION OF CERTAIN FOREIGN INVESTORS
To the extent that a Certificate evidences ownership in Mortgage Loans
that are issued on or before July 18, 1984, interest or original issue
discount paid by the person required to withhold tax under Code Section 1441
or 1442 to nonresident aliens, foreign corporations, or other Non-U.S.
Persons generally will be subject to 30% United States withholding tax, or
such lower rate as may be provided for interest by an applicable tax treaty.
Accrued original issue discount recognized by the Standard Certificateholder
or Stripped Certificateholder on original issue discount recognized by the
Standard Certificateholder or Stripped Certificateholders on the sale or
exchange of such a Certificate also will be subject to federal income tax at
the same rate.
Treasury regulations provide that interest or original issue discount paid
by the Trustee or other withholding agent to a Non-U.S. Person evidencing
ownership interest in Mortgage Loans issued after July 18, 1984 will be
"portfolio interest" and will be treated in the manner, and such persons will
be subject to the same certification requirements, described above under
"Certain Federal Income Tax Consequences for REMIC Certificates--Taxation of
Certain Foreign Investors--Regular Certificates".
STATE AND OTHER TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences", potential investors should consider the
state and local tax consequences of the acquisition, ownership, and
disposition of the Offered Certificates. State tax law may differ
substantially from the corresponding federal law, and the discussion above
does not purport to describe any aspect of the tax laws of any state or other
jurisdiction. Therefore, prospective investors should consult their own tax
advisors with respect to the various tax consequences of investments in the
Offered Certificates.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain requirements on employee benefit plans, and on
certain other retirement plans and arrangements, including individual
retirement accounts and annuities, Keogh plans, collective investment funds,
insurance company 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 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
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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
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 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 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
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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 is required to issue
final regulations ("401(c) Regulations") no later than December 31, 1997
which are to provide guidance for the purpose of determining, in cases where
insurance policies supported by an 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 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
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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" (effective
December 31, 1996) 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.
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
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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 Securities
Activities" dated January 28, 1992, as revised April 15, 1994 (the "1992
Policy Statement") of the Federal Financial Institutions Examination Council
(the "FFIEC"). The 1992 Policy Statement, 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, and by the NCUA
(with certain modifications), prohibits depository institutions from
investing in certain "high-risk mortgage securities" (including securities
such as certain classes of the Offered Certificates), except under limited
circumstances, and sets forth certain investment practices deemed to be
unsuitable for regulated institutions. Effective May 26, 1998 (October 1,
1998 in the case of federal credit unions, the 1992 Policy Statement has been
superseded by the FFIEC's "Supervisory Policy Statement on Investment
Securities and End-User Derivatives Activities" (the "1998 Policy
Statement"). The 1998 Policy Statement deletes the specific "high-risk
mortgage securities" tests, and substitutes 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
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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.
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INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
1986 Act ................................. 75
1992 Policy Statement ................... 103
1998 Policy Statement ................... 103
401(c) Regulations ...................... 101
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 ............................ 80
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, 72
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 ........................ 71
Cut-off Date ............................. 13
Debt Service Coverage Ratio .............. 26
Definitive Certificates .............. 15, 37
Depositor ................................ 25
Determination Date ................... 30, 37
Direct Participants ...................... 43
Disqualified Organization ........... 86, 101
Disqualified Organizations ............... 87
Distribution Date ........................ 13
Distribution Date Statement .............. 41
DOL ..................................... 100
DTC ........................... 3, 15, 37, 43
Due Dates ................................ 27
Due Period ............................... 30
Equity Participation ..................... 27
ERISA ................................ 15, 99
Events of Default ........................ 55
Excess Funds ............................. 35
Exchange Act .............................. 4
extension risk ................... 18, 19, 34
FAMC ..................................... 10
FFIEC ................................... 103
FHLMC .................................... 10
FNMA ..................................... 10
Foreign Investors ........................ 86
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 ............... 88
Market Discount ...................... 79, 80
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 .................................... 103
Net Leases ............................... 26
Net Operating Income ..................... 26
New Regulations .......................... 90
Nonrecoverable Advance ................... 40
Non-SMMEA Certificates .................. 102
Non-U.S. Person .......................... 90
Notional Amount ...................... 12, 38
OCC ..................................... 103
Offered Certificates ...................... 1
OID Regulations .......................... 75
original issue discount .................. 75
106
<PAGE>
PAGE
- --------------------------------------------
Original Issue Discount .............. 78, 79
Originator ............................... 25
PAC ...................................... 33
Participants ......................... 24, 43
Parties in Interest ...................... 99
Pass-Through Entity .................. 85, 86
Pass-Through Rate ..................... 3, 12
Permitted Investments .................... 48
Plans .................................... 99
Pooling Agreement .................... 12, 44
Prepayment Assumption .................... 76
Prepayment Interest Shortfall ............ 30
Prepayment Period ........................ 41
Prepayment Premium ....................... 27
Prospectus Supplement ..................... 1
PTCE .................................... 100
PTCE 95-60 .............................. 101
Random Lot Certificates .................. 75
Rating Agency ............................ 16
Record Date .............................. 37
Regular Certificateholder ................ 75
Regular Certificates ................. 72, 91
regular interests ......................... 3
Related Proceeds ......................... 40
Relief Act ............................... 70
REMIC ............................. 2, 15, 72
REMIC Certificates ....................... 72
REMIC Pool ............................... 72
REMIC Regulations ........................ 72
REO Property ............................. 47
Residual Certificateholders .............. 82
Residual Certificates .................... 72
residual interests ........................ 3
RICO ..................................... 71
Securities Act .......................... 104
Senior Certificates .................. 12, 37
Service .................................. 74
Servicing Standard ....................... 47
SMMEA ............................... 16, 102
SPA ...................................... 32
Special Servicer ................... 3, 9, 47
Standard Certificateholder ............... 93
Startup Day .............................. 73
stripped bond ............................ 95
stripped bonds ........................... 95
Stripped Certificateholder ............... 97
Stripped Certificates ............ 93, 95, 96
stripped coupons ......................... 95
Stripped Interest Certificates .. 12, 37, 96
Stripped Principal Certificates . 12, 37, 96
Subordinate Certificates ............. 12, 37
Sub-Servicer ............................. 47
Sub-Servicing Agreement .................. 47
TAC ...................................... 33
Title V .................................. 70
Treasury ................................. 72
Trust Assets .............................. 3
Trust Fund ................................ 1
Trustee ................................ 3, 9
UCC ...................................... 62
U.S. Person .............................. 87
Value .................................... 26
Voting Rights ............................ 42
Warranting Party ......................... 46
</TABLE>
107
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
DEPOSITOR OR BY THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, THE SECURITIES OFFERED HEREBY TO ANYONE IN ANY JURISDICTION IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SINCE THE DATE OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT PAGE
---------
<S> <C>
Summary of Prospectus Supplement ........... S-10
Risk Factors ............................... S-28
Description of the Mortgage Pool............ S-39
Description of the Certificates............. S-69
Servicing of the Mortgage Loans............. S-88
Yield and Maturity Considerations........... S-100
Certain Federal Income Tax Consequences .... S-107
Method of Distribution...................... S-109
Legal Matters............................... S-109
Rating...................................... S-110
Legal Investment............................ S-110
ERISA Considerations........................ S-111
Index of Principal Definitions.............. S-114
Annex A..................................... A-1
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 .... 72
State and Other Tax Considerations.......... 99
ERISA Considerations........................ 99
Legal Investment............................ 102
Method of Distribution...................... 104
Legal Matters............................... 105
Financial Information....................... 105
Rating...................................... 105
Index of Principal Definitions.............. 106
</TABLE>
UNTIL AUGUST 13, 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT
RELATES. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS
UNDERWRITERS WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
$736,087,306
(APPROXIMATE)
CHASE COMMERCIAL
MORTGAGE SECURITIES
CORP.
COMMERCIAL MORTGAGE PASS-THROUGH
CERTIFICATES, SERIES 1998-1
[CHASE LOGO]
- -----------------------------------------------------------------------------
CLASS A-1 CERTIFICATES $132,600,000
CLASS A-2 CERTIFICATES $464,448,593
CLASS X CERTIFICATES $817,874,785
CLASS B CERTIFICATES $ 32,714,991
CLASS C CERTIFICATES $ 49,072,487
CLASS D CERTIFICATES $ 44,983,113
CLASS E CERTIFICATES $ 12,268,122
PROSPECTUS SUPPLEMENT
- -----------------------------------------------------------------------------
CHASE SECURITIES INC.
MAY 7, 1998
