<PAGE>
As filed with the Securities and Exchange Commission on September 29, 1998
REGISTRATION NO. 33-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
PRE-EFFECTIVE
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION V
(EXACT NAME OF REGISTRANT AS SPECIFIED IN GOVERNING INSTRUMENTS)
DELAWARE 13-3748219
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
OF INCORPORATION OR
ORGANIZATION)
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 713-2000
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
---------
JOHN L. FEAREY, ESQ
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION V
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 713-2000
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
GARY BARNETT, ESQ.
O'MELVENY & MYERS LLP
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
to dividend or interest reinvestment plans, please check the following box. / /
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, please check the following box. / X /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================================
PROPOSED
MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED(1),(2) PER UNIT(3) OFFERING PRICE(3) REGISTRATION FEE(1),(4)
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates..... $1,000,000,000 100% $1,000,000,000 $319,913.80
================================================================================================================================
</TABLE>
(1) This Registration Statement and the registration fee pertain to the initial
offering of the Mortgage Pass-Through Certificates registered hereunder by the
registrant, and in addition cover offers and sales relating to market-making
transactions by PaineWebber Incorporated, an affiliate of the registrant. The
amount of Mortgage Pass-Through Certificates which may be initially offered
hereunder and the registration fee shall not be reduced by any offers and sales
relating to any such market-making transactions.
(2) Pursuant to Rule 429 under the Securities Act of 1933, as amended, the
Prospectus and and forms of Prospectus Supplements filed with this Registration
Statement also relate to $500,000,000 aggregate principal amount of the
registrant's mortgage pass-through certificates that were previously registered
pursuant to Registration Statement on Form S-3 (Registration No. 33-73856). As
permitted by Rule 429 under the Securities Act of 1933, as amended, the
Prospectus and the forms of Prospectus Supplements filed as part of this
Registration Statement on Form S-3 will be used in connection with the offering
of such previously registered and unsold mortgage pass-through certificates and
the Mortgage Pass-Through Certificates initially registered pursuant hereto.
Accordingly, the filing fee paid herewith is $147,500.00 ($500,000,000
multiplied by .000295). In the event any of such previously registered
securities are offered prior to the effective date of this Registration
Statement, they will not be included in the Prospectus constituting a part
hereof.
(3) Estimated solely for purpose of calculating the registration fee on the
basis of the proposed maximum aggregate offering price.
(4) Of which $172,413.80 was previously paid with respect to $500,000,000
aggregate principal amount of mortgage pass-through certificates registered
under Registration Statement on Form S-3 (Registration No. 33-73856)
<PAGE>
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that the Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- - -------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM AND CAPTION LOCATION IN LOCATION IN PROSPECTUS
IN FORM S-3 PROSPECTUS SUPPLEMENT
- - ----------- ---------- ----------
<S> <C> <C>
1. Forepart of Registration Statement and Forepart of Registration Outside Front Cover Page
Outside From Cover Page of Prospectus.......... Statement and Outside Front
Cover Page
2. Inside Front and Outside Back Cover Inside From Cover Page, Inside Front Cover Page, Outside
Pages of Prospectus............................ Outside Back Cover Page Back Cover Page
3. Summary Information, Risk Factors and Summary of Terms, Risk Summary of Terms, Risk Factors
Ratio of Earnings to Fixed Charges............. Factors
4. Use of Proceeds................................ Use of Proceeds Use of Proceeds
5. Determination of Offering Price................ * *
6. Dilution....................................... * *
7. Selling Security Holders....................... * *
8. Plan of Distribution........................... Method of Distribution Method of Distribution
9. Descritpion of Securities to be Registered..... Outside Front Cover Page; Outside Front Cover Page;
Description of the Certificates; Description of the Certificates;
The Trust Funds; Certain Legal Servicing of the Mortgage Loans;
Aspects of the Mortgage Certain Federal Income Tax
Loans; Certain Federal Income Consequences
Tax Consequences
10. Interests of Named Experts and Counsel......... * *
11. Material Changes............................... * *
12. Incorporation of Certain Information by Incorporation of Certain *
Reference...................................... Documents by Reference
13. Disclosure of Commission Position on * *
Indemnification for Securities Act
Liabilities....................................
</TABLE>
2
<PAGE>
EXPLANATORY NOTE
This Registration Statement includes a basic prospectus and
two forms of prospectus supplement. Version 1 shall be used in offering a
series of Certificates evidencing ownership interests in a pool of commercial
and/or multifamily mortgage loans and Version 2 shall be used in offering a
series of Certificates evidencing an ownership interest in mortgage-backed
securities.
Immediately following this explanatory note there are nine
separate sets of alternative pages to the Prospectus each Prospectus
Supplement, labeled in the upper right corner as follows: "Insert 1:
Multifamily Properties", "Insert 2: Office Properties", "Insert 3: Retail
Properties", "Insert 4: Hotel and Motel Properties", "Insert 5: Health
Care-Related Properties", "Insert 6: Industrial Properties", "Insert 7:
Warehouse, Mini-Warehouse and Self-Storage Facilities", "Insert 8: Mobile Home
Parks and Recreational Vehicle Parks" and "Insert 9: Casino Properties". Each
such contains language that is to be inserted in the Prospectus and each
Prospectus Supplement included herein showing the text specific to a material
concentration in each of the nine specified types of properties (i.e.
multifamily properties, office properties, retail properties, hotel and motel
properties, health care-related facilities, industrial properties, warehouse,
mini-warehouse and self-storage facilities, mobile home parks and recreational
vehicle parks and casinos) backing the Certificates.
The above described nine sets of pages with additional
language for the Prospectus and each Prospectus Supplement included herein are
being filed with this Registration Statement for purposes of identifying
changes that will be made thereto as a result of a material concentration in
any of the nine specified types of properties in any specific securitization
transaction. Depending on the types of properties that involve a material
concentration in any particular transaction, the respective changes to the
Prospectus and each Prospectus Supplement from one or more of the above
described "inserts" would be included in the specific Prospectus and Prospectus
Supplement for that transaction. When multiple sets of inserts are to be
included in the specific Prospectus and Prospectus Supplement for any
particular transaction, such inserts will be included in each appropriate
location in an order that goes from highest material concentration to lowest
material concentration (provided that single-sentence inserts that simply
identify properties that involve a material concentration may be combined but
will still present such properties in the aforementioned order). The specific
Prospectus and Prospectus Supplement for each particular transaction reflecting
such changes, together with the corresponding Prospectus Supplement, would be
filed at the time and in the manner provided by Rule 424 under the Securities
Act of 1933.
<PAGE>
Insert 1: Multifamily Properties
[The following is to be inserted, as indicated by starred
brackets ([** // **]) on the next page, on the cover of the Prospectus.]
Multifamily properties consisting of multiple rental or
cooperatively owned dwellings will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the MBS
Securities included in a particular Trust Fund) constituting the Trust Fund for
any Series, based on principal balance at the time such Series is issued.
Inserts-2
<PAGE>
Insert 1: Multifamily Properties
SUBJECT TO COMPLETION, DATED _______________ __, 1999
PROSPECTUS
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION V
DEPOSITOR
The mortgage pass-through certificates offered hereby and by
Supplements to this Prospectus (the "Offered Certificates") 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 (the "Trust Fund") to
be established by the Depositor. The Certificates of each series may be divided
into two or more classes (each, a "Class"), each of which will evidence
beneficial ownership of a specified percentage or portion of future interest
payments, a specified percentage or portion of future principal payments on the
assets in the related Trust Fund or both as described herein and in the related
Prospectus Supplement. In addition, the rights of holders of certain Classes of
Certificates to receive distributions of principal and interest may be
subordinated to those of other Classes to the extent described in the related
Prospectus Supplement. Each Trust Fund shall consist primarily of a segregated
pool of multifamily or commercial mortgage loans or participation interests
therein, together with installment sales contracts (collectively the "Mortgage
Loans") and/or agency or non-agency mortgage pass-through certificates or other
mortgage-backed securities evidencing interests in or secured by Mortgage Loans
(the "MBS Securities") that evidence interests in, or that are secured by
pledges of, one or more of the following types of real property (each, a
"Mortgaged Property"): (i) residential properties consisting of five or more
rental or cooperatively-owned dwelling units (or shares allocable to a number
of such units and proprietary leases appurtenant thereto) ("Multifamily
Properties"), (ii) mobile home parks and (iii) commercial properties consisting
of (a) office buildings, retail facilities related to the sale of goods and
products and facilities related to providing entertainment, recreation or
personal services, hotels and motels, casinos, health care-related facilities,
recreational vehicle parks, warehouse facilities, mini-warehouse facilities,
self-storage facilities, industrial facilities, parking lots, auto parks, golf
courses, arenas and restaurants (or cooperatively owned units therein), (b)
mixed use properties (that is, any combination of the foregoing) and (c)
unimproved land ("Commercial Properties"). [** Multifamily properties
consisting of multiple rental or cooperatively owned dwellings will represent
security for a material concentration of the Mortgage Loans (and the mortgage
loans underlying the MBS Securities included in a particular Trust Fund)
constituting the Trust Fund for any Series, based on principal balance at the
time such Series is issued. **].
The Certificates will not represent an obligation of or an
interest in the Depositor, any Master Servicer or Special Servicer or any of
their respective affiliates, except to the limited extent described herein and
in the related Prospectus Supplement. Neither the Certificates nor any assets
in the related 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.
As described in the related Prospectus Supplement, the
Certificates of each Series, including the Offered Certificates, will consist
of one or more classes of Certificates that may (i) be senior or subordinate to
one or more other classes of Certificates in respect of certain distributions
on the Certificates; (ii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iii) be entitled
to interest distributions, with disproportionately low, nominal or no principal
distributions; (iv) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one
Inserts-3
<PAGE>
Insert 1: Multifamily Properties
or more other classes of Certificates of such series; and/or (v) provide for
payments of principal sequentially, based on specified payment schedules or
other methodologies, to the extent of available funds. See "Description of the
Certificates."
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."
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING
UNDER THE CAPTION "RISK FACTORS" ON PAGE 20 OF THIS PROSPECTUS HEREIN AND IN
THE RELATED PROSPECTUS SUPPLEMENT BEFORE PURCHASING ANY OFFERED CERTIFICATES.
If so provided in the related Prospectus Supplement, an
election may be made to treat the related Trust Fund or one or more designated
portions thereof as one or more "real estate mortgage investment conduits" or
"financial asset securitization investment trusts" for federal income tax
purposes. See "Certain Federal Income Tax Consequences" herein.
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 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 Certificates. Prior to issuance there will have
been no market for the Certificates of any series and there can be no assurance
that a secondary market for any Offered Certificates will develop or that, if
such a market does develop, that it will continue.
It will be a condition to the issuance of the Certificates of
each series that the Offered Certificates of such series be rated in one of the
four highest rating categories by one or more nationally recognized statistical
rating organizations.
Offers of the Offered Certificates may be made through one or
more different methods, as more fully described under "Plan of Distribution"
herein and in the related Prospectus Supplement. All Offered Certificates will
be distributed by, or sold by underwriters managed by:
PAINEWEBBER INCORPORATED
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF CERTIFICATES OFFERED
HEREBY UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THE DATE OF THIS PROSPECTUS IS _________ ___, ____
Inserts-4
<PAGE>
Insert 1: Multifamily Properties
[The following is to be inserted in the Prospectus
immediately following "Risk Factors -- Risks Associated with Certain
Mortgage Loans and Mortgaged Properties":]
RISKS PARTICULAR TO MULTIFAMILY RENTAL PROPERTIES.
Adverse economic conditions, either local, regional or
national, may limit the amount of rent that can be charged for rental units,
may adversely affect tenants' ability to pay rent and may result in a reduction
in timely rent payments or a reduction in occupancy levels without a
corresponding decrease in expenses. Occupancy and rent levels may also be
affected by construction of additional housing units, local military base
closings, company relocations and closings and national and local politics,
including current or future rent stabilization and rent control laws and
agreements. Multifamily apartment units are typically leased on a short-term
basis, and consequently, the occupancy rate of a multifamily rental property
may be subject to rapid decline, including for some of the foregoing reasons.
In addition, the level of mortgage interest rates may encourage tenants in
multifamily rental properties to purchase single-family housing rather than
continue to lease housing or the characteristics of a neighborhood may change
over time or in relation to newer developments. Further, the cost of operating
a multifamily rental property may increase, including the cost of utilities and
the costs of required capital expenditures. Also, multifamily rental properties
may be subject to rent control laws which could impact the future cash flows of
such properties.
Certain multifamily rental properties are eligible to receive
low-income housing tax credits pursuant to Section 42 of the Code ("Section 42
Properties"). However, rent limitations associated therewith may adversely
affect the ability of the applicable borrowers to increase rents to maintain
such Mortgaged Properties in proper condition during periods of rapid inflation
or declining market value of such Mortgaged Properties. In addition, the income
restrictions on tenants imposed by Section 42 of the Code may reduce the number
of eligible tenants in such Mortgaged Properties and result in a reduction in
occupancy rates applicable thereto. Furthermore, some eligible tenants may not
find any differences in rents between the Section 42 Properties and other
multifamily rental properties in the same area to be a sufficient economic
incentive to reside at a Section 42 Property, which may have fewer amenities or
otherwise be less attractive as a residence. All of these conditions and events
may increase the possibility that a borrower may be unable to meet its
obligations under its Mortgage Loan.
RISKS PARTICULAR TO COOPERATIVELY-OWNED APARTMENT BUILDINGS.
Generally, a tenant-shareholder of a cooperative corporation
must make a monthly maintenance payment to the cooperative corporation that
owns the subject apartment building representing such tenant-shareholder's pro
rata share of the corporation's payments in respect of the Mortgage Loan
secured by, and all real property taxes, maintenance expenses and other capital
and ordinary expenses with respect to, such property, less any other income
that the cooperative corporation may realize. Adverse economic conditions,
either local regional or national, may adversely affect tenant-shareholders'
ability to make required maintenance payments, either because such adverse
economic conditions have impaired the individual financial conditions of such
tenant-shareholders or their ability to sub-let the subject apartments. To the
extent that a large number of tenant-shareholders in a cooperatively-owned
apartment building rely on sub-letting their apartments to make maintenance
payments, the lender on any mortgage loan secured by such building will be
subject to all the risks that it would have in connection with lending on the
security of a multifamily rental property. See "--Risks Particular to
Multifamily Rental Properties" above. In addition, if in connection with any
cooperative conversion of an apartment building, the sponsor holds the shares
allocated to a large number of the apartment units, any lender secured by a
mortgage on such building will be subject to a risk associated with such
sponsor's creditworthiness.
Inserts-5
<PAGE>
Insert 1: Multifamily Properties
[The following is to be inserted in the Prospectus
immediately following "Description of the Trust Funds--Mortgage
Assets--Mortgage Loans":]
Mortgage Loans Secured by Multifamily Rental Properties.
Significant factors determining the value and successful operation of a
multifamily rental property are the location of the property, the number of
competing residential developments in the local market (such as apartment
buildings, manufactured housing communities and site-built single family
homes), the physical attributes of the multifamily building (such as its age
and appearance) and state and local regulations affecting such property. In
addition, the successful operation of an apartment building will depend upon
other factors such as its reputation, the ability of management to provide
adequate maintenance and insurance, and the types of services it provides.
Certain states regulate the relationship of an owner and its
tenants. Commonly, these laws require a written lease, good cause for eviction,
disclosure of fees, and notification to residents of changed land use, while
prohibiting unreasonable rules, retaliatory evictions, and restrictions on a
resident's choice of unit vendors. Apartment building owners have been the
subject of suits under state "Unfair and Deceptive Practices Acts" and other
general consumer protection statutes for coercive, abusive or unconscionable
leasing and sales practices. A few states offer more significant protection.
For example, there are provisions that limit the basis on which a landlord may
terminate a tenancy or increase its rent or prohibit a landlord from
terminating a tenancy solely by reason of the sale of the owner's building.
In addition to state regulation of the landlord-tenant
relationship, numerous counties and municipalities impose rent control on
apartment buildings. These ordinances may limit rent increases to fixed
percentages, to percentages of increases in the consumer price index, to
increases set or approved by a governmental agency, or to increases determined
through mediation or binding arbitration. In many cases, the rent control laws
do not provide for decontrol of rental rates upon vacancy of individual units.
Any limitations on a borrower's ability to raise property rents may impair such
borrower's ability to repay its Mortgage Loan from its net operating income or
the proceeds of a sale or refinancing of the related Mortgaged Property.
Adverse economic conditions, either local, regional or
national, may limit the amount of rent that can be charged, may adversely
affect tenants' ability to pay rent and may result in a reduction in timely
rent payments or a reduction in occupancy levels. Occupancy and rent levels may
also be affected by construction of additional housing units, local military
base closings, company relocations and closings and national and local
politics, including current or future rent stabilization and rent control laws
and agreements. Multifamily apartment units are typically leased on a
short-term basis, and consequently, the occupancy rate of a multifamily rental
property may be subject to rapid decline, including for some of the foregoing
reasons. In addition, the level of mortgage interest rates may encourage
tenants to purchase single-family housing rather than continue to lease
housing. The location and construction quality of a particular building may
affect the occupancy level as well as the rents that may be charged for
individual units. The characteristics of a neighborhood may change over time or
in relation to newer developments.
Mortgage Loans Secured by Cooperatively-Owned Apartment
Buildings. A cooperative apartment building and the land under the building are
owned or leased by a non-profit cooperative corporation. The cooperative
corporation is in turn owned by tenant-shareholders who, through ownership of
stock, shares or membership certificates in the corporation, receive
proprietary leases or occupancy agreements which confer exclusive rights to
occupy specific apartments or units. Generally, a tenant-shareholder of a
cooperative corporation must make a monthly maintenance payment to the
corporation representing such tenant-shareholder's pro rata share of the
corporation's payments in respect of any mortgage loan secured by, and all real
property taxes, maintenance expenses and other capital and ordinary expenses
with respect to, the real property owned by such cooperative corporation, less
any other income that the cooperative corporation may realize. Such payments to
the cooperative corporation are in addition to any payments of principal and
interest the tenant-shareholder must make on any loans of the
tenant-shareholder secured by its shares in the corporation.
Inserts-6
<PAGE>
Insert 1: Multifamily Properties
A cooperative corporation is directly responsible for
building management and payment of real estate taxes and hazard and liability
insurance premiums. A cooperative corporation's ability to meet debt service
obligations on a mortgage loan secured by the real property owned by such
corporation, as well as all other operating expenses of such property, is
dependent primarily upon the receipt of maintenance payments from the
tenant-shareholders, together with any rental income from units or commercial
space that the cooperative corporation might control. Unanticipated
expenditures may in some cases have to be paid by special assessments on the
tenant-shareholders. A cooperative corporation's ability to pay the amount of
any balloon payment due at the maturity of a mortgage loan secured by the real
property owned by such cooperative corporation depends primarily on its ability
to refinance the mortgage loan. Neither the Depositor nor any other person will
have any obligation to provide refinancing for any of the Mortgage Loans.
In a typical cooperative conversion plan, the owner of a
rental apartment building contracts to sell the building to a newly formed
cooperative corporation. Shares are allocated to each apartment unit by the
owner or sponsor, and the current tenants have a certain period to subscribe at
prices discounted from the prices to be offered to the public after such
period. As part of the consideration for the sale, the owner or sponsor
receives all the unsold shares of the cooperative corporation. The sponsor
usually also controls the corporation's board of directors and management for a
limited period of time.
Each purchaser of shares in the cooperative corporation
generally enters into a long-term proprietary lease which provides the
shareholder with the right to occupy a particular apartment unit. However, many
cooperative conversion plans are "non-eviction" plans. Under a non-eviction
plan, a tenant at the time of conversion who chooses not to purchase shares is
entitled to reside in the unit as a subtenant from the owner of the shares
allocated to such apartment unit. Any applicable rent control or rent
stabilization laws would continue to be applicable to such subtenancy, and the
subtenant may be entitled to renew its lease for an indefinite number of times,
with continued protection from rent increases above those permitted by any
applicable rent control and rent stabilization laws. The shareholder is
responsible for the maintenance payments to the cooperative without regard to
its receipt or non-receipt of rent from the subtenant, which may be lower than
maintenance payments on the unit. Newly-formed cooperative corporations
typically have the greatest concentration of non-tenant shareholders.
Inserts-7
<PAGE>
Insert 1: Multifamily Properties
[The following is to be inserted in the Version 1 Prospectus
Supplement immediately following "Risk Factors--Risks Associated with
Certain Mortgage Loans and Mortgaged Properties -- Effect of Mortgage
Defaults":]
Risks Particular to Multifamily Properties. _____ of the
Mortgage Loans, which represent ___% of the aggregate principal balance of the
Mortgage Loans as of the Cut-off Date, are secured by Mortgages on fee and/or
leasehold interests in multifamily properties. Mortgage Loans that are secured
by liens on such types of properties are exposed to certain unique risks. See
"Risk Factors--Risks Associated With Certain Mortgage Loans and
Mortgaged Properties--Risks Particular to Multifamily Rental Properties" and
"--Risks Particular to Cooperatively--Owned Apartment Buildings" in the
Prospectus.
Inserts-8
<PAGE>
Insert 1: Multifamily Properties
[The following is to be inserted in the Version 2 Prospectus
Supplement immediately following "Risk Factors--Risks Associated with
Certain Mortgage Loans and Mortgaged Properties -- Effect of Mortgage
Defaults":]
Risks Particular to Multifamily Properties. _____ of the MBS
Securities evidence ownership of trust funds as to which _____ % of the
aggregate principal balance of the Underlying Mortgage Loans as of the Cut-off
Date are secured by Mortgages on fee and/or leasehold interests in multifamily
properties. Mortgage Loans that are secured by liens on such types of
properties are exposed to certain unique risks. See "Risk Factors
- - --Risks Associated With Certain Mortgage Loans and Mortgaged
Properties--Risks Particular to Multifamily Rental Properties" and "--Risks
Particular to Cooperatively--Owned Apartment Buildings" in the Prospectus.
Inserts-9
<PAGE>
Insert 2: Office Properties
[The following is to be inserted, as indicated by starred
brackets ([** // **]) on the next page, on the cover of the Prospectus.]
Office properties will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the MBS
Securities included in a particular Trust Fund) constituting the Trust Fund for
any Series, based on principal balance at the time such Series is issued.
Inserts-10
<PAGE>
Insert 2: Office Properties
SUBJECT TO COMPLETION, DATED ______________ __, 1999
PROSPECTUS
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION V
DEPOSITOR
The mortgage pass-through certificates offered hereby and by
Supplements to this Prospectus (the "Offered Certificates") 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 (the "Trust Fund") to
be established by the Depositor. The Certificates of each series may be divided
into two or more classes (each, a "Class"), each of which will evidence
beneficial ownership of a specified percentage or portion of future interest
payments, a specified percentage or portion of future principal payments on the
assets in the related Trust Fund or both as described herein and in the related
Prospectus Supplement. In addition, the rights of holders of certain Classes of
Certificates to receive distributions of principal and interest may be
subordinated to those of other Classes to the extent described in the related
Prospectus Supplement. Each Trust Fund shall consist primarily of a segregated
pool of multifamily or commercial mortgage loans or participation interests
therein, together with installment sales contracts (collectively the "Mortgage
Loans") and/or agency or non-agency mortgage pass-through certificates or other
mortgage-backed securities evidencing interests in or secured by Mortgage Loans
(the "MBS Securities") that evidence interests in, or that are secured by
pledges of, one or more of the following types of real property (each, a
"Mortgaged Property"): (i) residential properties consisting of five or more
rental or cooperatively-owned dwelling units (or shares allocable to a number
of such units and proprietary leases appurtenant thereto) ("Multifamily
Properties"), (ii) mobile home parks and (iii) commercial properties consisting
of (a) office buildings, retail facilities related to the sale of goods and
products and facilities related to providing entertainment, recreation or
personal services, hotels and motels, casinos, health care-related facilities,
recreational vehicle parks, warehouse facilities, mini-warehouse facilities,
self-storage facilities, industrial facilities, parking lots, auto parks, golf
courses, arenas and restaurants (or cooperatively owned units therein), (b)
mixed use properties (that is, any combination of the foregoing) and (c)
unimproved land ("Commercial Properties"). [** Office properties will represent
security for a material concentration of the Mortgage Loans (and the mortgage
loans underlying the MBS Securities included in a particular Trust Fund)
constituting the Trust Fund for any Series, based on principal balance at the
time such Series is issued.**].
The Certificates will not represent an obligation of or an
interest in the Depositor, any Master Servicer or Special Servicer or any of
their respective affiliates, except to the limited extent described herein and
in the related Prospectus Supplement. Neither the Certificates nor any assets
in the related 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.
As described in the related Prospectus Supplement, the
Certificates of each Series, including the Offered Certificates, will consist
of one or more classes of Certificates that may (i) be senior or subordinate to
one or more other classes of Certificates in respect of certain distributions
on the Certificates; (ii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iii) be entitled
to interest distributions, with disproportionately low, nominal or no principal
distributions; (iv) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such series; and/or
(v) provide for payments of principal sequentially, based
Inserts-11
<PAGE>
Insert 2: Office Properties
on specified payment schedules or other methodologies, to the extent of
available funds. See "Description of the Certificates."
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."
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING
UNDER THE CAPTION "RISK FACTORS" ON PAGE 20 OF THIS PROSPECTUS HEREIN AND IN
THE RELATED PROSPECTUS SUPPLEMENT BEFORE PURCHASING ANY OFFERED CERTIFICATES.
If so provided in the related Prospectus Supplement, an
election may be made to treat the related Trust Fund or one or more designated
portions thereof as one or more "real estate mortgage investment conduits" or
"financial asset securitization investment trusts" for federal income tax
purposes. See "Certain Federal Income Tax Consequences" herein.
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 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 Certificates. Prior to issuance there will have
been no market for the Certificates of any series and there can be no assurance
that a secondary market for any Offered Certificates will develop or that, if
such a market does develop, that it will continue.
It will be a condition to the issuance of the Certificates of
each series that the Offered Certificates of such series be rated in one of the
four highest rating categories by one or more nationally recognized statistical
rating organizations.
Offers of the Offered Certificates may be made through one or
more different methods, as more fully described under "Plan of Distribution"
herein and in the related Prospectus Supplement. All Offered Certificates will
be distributed by, or sold by underwriters managed by:
PAINEWEBBER INCORPORATED
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF CERTIFICATES OFFERED
HEREBY UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THE DATE OF THIS PROSPECTUS IS _________ ___, ____
Inserts-12
<PAGE>
Insert 2: Office Properties
[The following is to be inserted in the Prospectus
immediately following "Risk Factors--Risks Associated with Certain Mortgage
Loans and Mortgaged Properties":]
RISKS PARTICULAR TO OFFICE PROPERTIES.
In addition to risks generally associated with real estate,
Mortgage Loans secured by office properties are also affected significantly by
adverse changes in population and employment growth (which generally creates
demand for office space), local competitive conditions (such as the supply of
office space or the existence or construction of new competitive office
buildings), the quality and management philosophy of management, the
attractiveness of the properties to tenants and their customers or clients, the
attractiveness of the surrounding neighborhood and the need to make major
repairs or improvements to satisfy the needs of major tenants. Office
properties that are not equipped to accommodate the needs of modern business
may become functionally obsolete and thus non-competitive. In addition, office
properties may be adversely affected by an economic decline in the businesses
operated by their tenants. Such decline may result in one or more significant
tenants ceasing operations at such locations (which may occur on account of a
voluntary decision not to renew a lease, bankruptcy or insolvency of such
tenants, such tenants' general cessation of business activities or for other
reasons). The risk of such an economic decline 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.
Inserts-13
<PAGE>
Insert 2: Office Properties
[The following is to be inserted in the Prospectus
immediately following "Description of the Trust Funds--Mortgage
Assets--Mortgage Loans":]
Mortgage Loans Secured by Office Properties. Significant
factors affecting the value of office properties include the quality of the
tenants in the building, the physical attributes of the building in relation to
competing buildings, the location of the building with respect to the central
business district or population centers, demographic trends within the
metropolitan area to move away from or towards the central business district,
social trends combined with space management trends (which may change towards
options such as telecommuting ), tax incentives offered to businesses by cities
or suburbs adjacent to or near the city where the building is located and the
strength and stability of the market area as a desirable business location.
Office properties may be adversely affected by an economic decline in the
businesses operated by their tenants. The risk of such an economic decline 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.
Office properties are also subject to competition with other
office properties in the same market. Competition is affected by a building's
age, condition, design (including floor sizes and layout), access to
transportation, availability of parking and ability to offer certain amenities
to its tenants (including sophisticated building systems, such as fiberoptic
cables, satellite communications or other base building technological
features). Office properties that are not equipped to accommodate the needs of
modern business may become functionally obsolete and thus non-competitive.
The success of an office property also depends on the local
economy. A company's decision to locate office headquarters in a given area,
for example, may be affected by such factors as labor cost and quality, tax
environment and quality of life matters, such as schools and cultural
amenities. A central business district may have a substantially different
economy from that of a suburb. The local economy will affect an office
property's ability to attract stable tenants on a consistent basis. In
addition, the cost of refitting office space for a new tenant is often higher
than for other property types.
Inserts-14
<PAGE>
Insert 2: Office Properties
[The following is to be inserted in the Version 1 Prospectus
Supplement immediately following "Risk Factors--Risks Associated with
Certain of the Mortgage Loans and Mortgaged Properties--Effect of Mortgage
Defaults":]
Risks Particular to Office Properties. _____ of the Mortgage
Loans, which represent _____ % of the aggregate principal balance of the
Mortgage Loans as of the Cut-off Date, are secured by Mortgages on fee and/or
leasehold interests in office properties. Mortgage Loans that are secured by
liens on such types of properties are exposed to certain unique risks. See
"Risk Factors--Risks Associated With Certain Mortgage Loans and
Mortgaged Properties--Risks Particular to Office Properties" in the Prospectus.
Inserts-15
<PAGE>
Insert 2: Office Properties
[The following is to be inserted in the Version 2 Prospectus
Supplement immediately following "Risk Factors--Effect of Defaults by
Mortgagors on Underlying Mortgage Loans":]
Risks Particular to Office Properties. _____ of the MBS
Securities evidence ownership of trust funds as to which _____ % of the
aggregate principal balance of the Underlying Mortgage Loans as of the Cutoff
Date are secured by Mortgages on fee and/or leasehold interests in office
properties. Mortgage Loans that are secured by liens on such types of
properties are exposed to certain unique risks. See "Risk Factors
- - --Risks Associated With Certain Mortgage Loans and Mortgaged
Properties--Risks Particular to Office Properties" in the Prospectus.
Inserts-16
<PAGE>
Insert 3: Retail Properties
[The following is to be inserted, as indicated by starred
brackets ([** // **]) on the next page, on the cover of the Prospectus.]
Retail properties will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying any MBS
Securities included in a particular Trust Fund) constituting the Trust Fund for
any Series, based on principal balance at the time such Series is issued.
Inserts-17
<PAGE>
Insert 3: Retail Properties
SUBJECT TO COMPLETION, DATED _______ __, 1999
PROSPECTUS
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION V
DEPOSITOR
The mortgage pass-through certificates offered hereby and by
Supplements to this Prospectus (the "Offered Certificates") 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 (the "Trust Fund") to
be established by the Depositor. The Certificates of each series may be divided
into two or more classes (each, a "Class"), each of which will evidence
beneficial ownership of a specified percentage or portion of future interest
payments, a specified percentage or portion of future principal payments on the
assets in the related Trust Fund or both as described herein and in the related
Prospectus Supplement. In addition, the rights of holders of certain Classes of
Certificates to receive distributions of principal and interest may be
subordinated to those of other Classes to the extent described in the related
Prospectus Supplement. Each Trust Fund shall consist primarily of a segregated
pool of multifamily or commercial mortgage loans or participation interests
therein, together with installment sales contracts (collectively the "Mortgage
Loans") and/or agency or non-agency mortgage pass-through certificates or other
mortgage-backed securities evidencing interests in or secured by Mortgage Loans
(the "MBS Securities") that evidence interests in, or that are secured by
pledges of, one or more of the following types of real property (each, a
"Mortgaged Property"): (i) residential properties consisting of five or more
rental or cooperatively-owned dwelling units (or shares allocable to a number
of such units and proprietary leases appurtenant thereto) ("Multifamily
Properties"), (ii) mobile home parks and (iii) commercial properties consisting
of (a) office buildings, retail facilities related to the sale of goods and
products and facilities related to providing entertainment, recreation or
personal services, hotels and motels, casinos, health care-related facilities,
recreational vehicle parks, warehouse facilities, mini-warehouse facilities,
self-storage facilities, industrial facilities, parking lots, auto parks, golf
courses, arenas and restaurants (or cooperatively owned units therein), (b)
mixed use properties (that is, any combination of the foregoing) and (c)
unimproved land ("Commercial Properties"). [** Retail properties will represent
security for a material concentration of the Mortgage Loans (and the mortgage
loans underlying any MBS Securities included in a particular Trust Fund)
constituting the Trust Fund for any Series, based on principal balance at the
time such Series is issued.**].
The Certificates will not represent an obligation of or an
interest in the Depositor, any Master Servicer or Special Servicer or any of
their respective affiliates, except to the limited extent described herein and
in the related Prospectus Supplement. Neither the Certificates nor any assets
in the related 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.
As described in the related Prospectus Supplement, the
Certificates of each Series, including the Offered Certificates, will consist
of one or more classes of Certificates that may (i) be senior or subordinate to
one or more other classes of Certificates in respect of certain distributions
on the Certificates; (ii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iii) be entitled
to interest distributions, with disproportionately low, nominal or no principal
distributions; (iv) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such series; and/or
(v) provide for payments of principal sequentially, based
Inserts-18
<PAGE>
Insert 3: Retail Properties
on specified payment schedules or other methodologies, to the extent of
available funds. See "Description of the Certificates."
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."
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING
UNDER THE CAPTION "RISK FACTORS" ON PAGE 20 OF THIS PROSPECTUS HEREIN AND IN
THE RELATED PROSPECTUS SUPPLEMENT BEFORE PURCHASING ANY OFFERED CERTIFICATES.
If so provided in the related Prospectus Supplement, an
election may be made to treat the related Trust Fund or one or more designated
portions thereof as one or more "real estate mortgage investment conduits" or
"financial asset securitization investment trusts" for federal income tax
purposes. See "Certain Federal Income Tax Consequences" herein.
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 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 Certificates. Prior to issuance there will have
been no market for the Certificates of any series and there can be no assurance
that a secondary market for any Offered Certificates will develop or that, if
such a market does develop, that it will continue.
It will be a condition to the issuance of the Certificates of
each series that the Offered Certificates of such series be rated in one of the
four highest rating categories by one or more nationally recognized statistical
rating organizations.
Offers of the Offered Certificates may be made through one or
more different methods, as more fully described under "Plan of Distribution"
herein and in the related Prospectus Supplement. All Offered Certificates will
be distributed by, or sold by underwriters managed by:
PAINEWEBBER INCORPORATED
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF CERTIFICATES OFFERED
HEREBY UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THE DATE OF THIS PROSPECTUS IS _________ ___, ____
Inserts-19
<PAGE>
Insert 3: Retail Properties
[The following is to be inserted in the Prospectus
immediately following "Risk Factors--Risks Associated with Certain Mortgage
Loans and Mortgaged Properties":]
RISKS PARTICULAR TO RETAIL PROPERTIES.
In addition to risks generally associated with real estate,
Mortgage Loans secured by retail properties are also affected significantly by
adverse changes in consumer spending patterns, local competitive conditions
(such as the supply of retail space or the existence or construction of new
competitive shopping centers or shopping malls), alternative forms of retailing
(such as direct mail, video shopping networks and selling through the Internet,
which reduce the need for retail space by retail companies), the quality and
management philosophy of management, the attractiveness of the properties and
the surrounding neighborhood to tenants and their customers, the public
perception of the safety of customers (at shopping malls and shopping centers,
for example) and the need to make major repairs or improvements to satisfy the
needs of major tenants.
Retail properties may be adversely affected if an anchor or
other significant tenant ceases operations at such locations (which may occur
on account of a decision not to renew a lease, bankruptcy or insolvency of such
tenant, such tenant's general cessation of business activities or for other
reasons). Significant tenants at a shopping center play an important part in
generating customer traffic and making the property a desirable location for
other tenants at such property. In addition, certain tenants at retail
properties may be entitled to terminate their leases if an anchor tenant ceases
operations at such property.
Inserts-20
<PAGE>
Insert 3: Retail Properties
[The following is to be inserted in the Prospectus
immediately following "Description of the Trust Funds--Mortgage
Assets--Mortgage Loans":]
Mortgage Loans Secured by Retail Properties. Retail
properties generally derive all or a substantial percentage of their income
from lease payments from commercial tenants. Income from and the market value
of retail properties is dependent on various factors including, but not limited
to, the ability to lease space in such properties, the ability of tenants to
meet their lease obligations, the possibility of a significant tenant becoming
bankrupt or insolvent, as well as fundamental aspects of real estate such as
location and market demographics.
The correlation between the success of tenant businesses and
property value is more direct with respect to retail properties than other
types of commercial property because a significant component of the total rent
paid by retail tenants is often tied to a percentage of gross sales. Declines
in tenant sales will cause a corresponding decline in percentage rents and may
cause such tenants to become unable to pay their rent or other occupancy costs.
The default by a tenant under its lease could result in delays and costs in
enforcing the lessor's rights. Repayment of the related Mortgage Loans will be
affected by the expiration of space leases and the ability of the respective
borrowers to renew or relet the space on comparable terms. Even if vacated
space is successfully relet, the costs associated with reletting, including
tenant improvements, leasing commissions and free rent, could be substantial
and could reduce cash flow from the retail properties. The correlation between
the success of tenant businesses and property value is increased when the
property is a single tenant property.
Whether a shopping center is "anchored" or "unanchored" is
also an important distinction. Anchor tenants in shopping centers traditionally
have been a major factor in the public's perception of a shopping center. The
anchor tenants at a shopping center play an important part in generating
customer traffic and making a center a desirable location for other tenants of
the center. The failure of an anchor tenant to renew its leases, the
termination of an anchor tenant's lease, the bankruptcy or economic decline of
an anchor tenant, or the cessation of the business of an anchor tenant
(notwithstanding any continued payment of rent) can have a material negative
effect on the economic performance of a shopping center. Furthermore, the
correlation between the success of tenant businesses and property value is
increased when the property is a single tenant property.
Unlike certain other types of commercial properties, retail
properties also face competition from sources outside a given real estate
market. Catalogue retailers, home shopping networks, telemarketing, selling
through the Internet, and outlet centers all compete with more traditional
retail properties for consumer dollars. Continued growth of these alternative
retail outlets (which are often characterized by lower operating costs) could
adversely affect the retail properties.
Inserts-21
<PAGE>
Insert 3: Retail Properties
[The following is to be inserted in the Version 1 Prospectus
Supplement immediately following "Risk Factors--Risks Associated with
Certain of the Mortgage Loans and Mortgaged Properties--Effect of Mortgage
Defaults":]
Risks Particular to Retail Properties. _____ of the Mortgage
Loans, which represent _____ % of the aggregate principal balance of the
Mortgage Loans as of the Cut-off Date, are secured by Mortgages on fee and/or
leasehold interests in retail properties. Mortgage Loans that are secured by
liens on such types of properties are exposed to certain unique risks. See
"Risk Factors--Risks Associated With Certain Mortgage Loans and
Mortgaged Properties-Risks Particular to Retail Properties" in the Prospectus.
Inserts-22
<PAGE>
Insert 3: Retail Properties
[The following is to be inserted in the Version 2 Prospectus
Supplement immediately following "Risk Factors--Effect of Defaults by
Mortgagors on Underlying Mortgage Loans":]
Risks Particular to Retail Properties. _____ of the MBS
Securities evidence ownership of trust funds as to which _____ % of the
aggregate principal balance of the Underlying Mortgage Loans as of the Cutoff
Date are secured by Mortgages on fee and/or leasehold interests in retail
properties. Mortgage Loans that are secured by liens on such types of
properties are exposed to certain unique risks. See "Risk Factors
- - --Risks Associated With Certain Mortgage Loans and Mortgaged
Properties-Risks Particular to Retail Properties" in the Prospectus.
Inserts-23
<PAGE>
Insert 4: Hotel and Motel Properties
[The following is to be inserted, as indicated by starred
brackets ([** // **]) on the next page, on the cover of the Prospectus.]
Hotel and motel properties will represent security for a
material concentration of the Mortgage Loans (and the mortgage loans underlying
any MBS Securities included in a particular Trust Fund) constituting the Trust
Fund for any Series, based on principal balance at the time such Series is
issued.
Inserts-24
<PAGE>
Insert 4: Hotel and Motel Properties
SUBJECT TO COMPLETION, DATED ______________ __, 1999
PROSPECTUS
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION V
DEPOSITOR
The mortgage pass-through certificates offered hereby and by
Supplements to this Prospectus (the "Offered Certificates") 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 (the "Trust Fund") to
be established by the Depositor. The Certificates of each series may be divided
into two or more classes (each, a "Class"), each of which will evidence
beneficial ownership of a specified percentage or portion of future interest
payments, a specified percentage or portion of future principal payments on the
assets in the related Trust Fund or both as described herein and in the related
Prospectus Supplement. In addition, the rights of holders of certain Classes of
Certificates to receive distributions of principal and interest may be
subordinated to those of other Classes to the extent described in the related
Prospectus Supplement. Each Trust Fund shall consist primarily of a segregated
pool of multifamily or commercial mortgage loans or participation interests
therein, together with installment sales contracts (collectively the "Mortgage
Loans") and/or agency or non-agency mortgage pass-through certificates or other
mortgage-backed securities evidencing interests in or secured by Mortgage Loans
(the "MBS Securities") that evidence interests in, or that are secured by
pledges of, one or more of the following types of real property (each, a
"Mortgaged Property"): (i) residential properties consisting of five or more
rental or cooperatively-owned dwelling units (or shares allocable to a number
of such units and proprietary leases appurtenant thereto) ("Multifamily
Properties"), (ii) mobile home parks and (iii) commercial properties consisting
of (a) office buildings, retail facilities related to the sale of goods and
products and facilities related to providing entertainment, recreation or
personal services, hotels and motels, casinos, health care-related facilities,
recreational vehicle parks, warehouse facilities, mini-warehouse facilities,
self-storage facilities, industrial facilities, parking lots, auto parks, golf
courses, arenas and restaurants (or cooperatively owned units therein), (b)
mixed use properties (that is, any combination of the foregoing) and (c)
unimproved land ("Commercial Properties"). [** Hotel and motel properties will
represent security for a material concentration of the Mortgage Loans (and the
mortgage loans underlying any MBS Securities included in a particular Trust
Fund) constituting the Trust Fund for any Series, based on principal balance at
the time such Series is issued.**].
The Certificates will not represent an obligation of or an
interest in the Depositor, any Master Servicer or Special Servicer or any of
their respective affiliates, except to the limited extent described herein and
in the related Prospectus Supplement. Neither the Certificates nor any assets
in the related 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.
As described in the related Prospectus Supplement, the
Certificates of each Series, including the Offered Certificates, will consist
of one or more classes of Certificates that may (i) be senior or subordinate to
one or more other classes of Certificates in respect of certain distributions
on the Certificates; (ii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iii) be entitled
to interest distributions, with disproportionately low, nominal or no principal
distributions; (iv) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such series; and/or
(v) provide for payments of principal sequentially, based
Inserts-25
<PAGE>
Insert 4: Hotel and Motel Properties
on specified payment schedules or other methodologies, to the extent of
available funds. See "Description of the Certificates."
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."
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING
UNDER THE CAPTION "RISK FACTORS" ON PAGE 20 OF THIS PROSPECTUS HEREIN AND IN
THE RELATED PROSPECTUS SUPPLEMENT BEFORE PURCHASING ANY OFFERED CERTIFICATES.
If so provided in the related Prospectus Supplement, an
election may be made to treat the related Trust Fund or one or more designated
portions thereof as one or more "real estate mortgage investment conduits" or
"financial asset securitization investment trusts" for federal income tax
purposes. See "Certain Federal Income Tax Consequences" herein.
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 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 Certificates. Prior to issuance there will have
been no market for the Certificates of any series and there can be no assurance
that a secondary market for any Offered Certificates will develop or that, if
such a market does develop, that it will continue.
It will be a condition to the issuance of the Certificates of
each series that the Offered Certificates of such series be rated in one of the
four highest rating categories by one or more nationally recognized statistical
rating organizations.
Offers of the Offered Certificates may be made through one or
more different methods, as more fully described under "Plan of Distribution"
herein and in the related Prospectus Supplement. All Offered Certificates will
be distributed by, or sold by underwriters managed by:
PAINEWEBBER INCORPORATED
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF CERTIFICATES OFFERED
HEREBY UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THE DATE OF THIS PROSPECTUS IS _________ ___, ____
Inserts-26
<PAGE>
Insert 4: Hotel and Motel Properties
[The following is to be inserted in the Prospectus
immediately following "Risk Factors--Risks Associated with Certain
Mortgage Loans and Mortgage Properties":]
RISKS PARTICULAR TO HOTEL AND MOTEL PROPERTIES.
Hotel and motel properties are subject to operating risks
common to the lodging industry. These risks include, among other things, a high
level of continuing capital expenditures to keep necessary furniture, fixtures
and equipment updated, competition from other hotels and motels, increases in
operating costs (which increases may not necessarily in the future be offset by
increased room rates), dependence on business and commercial travelers and
tourism, increases in energy costs and other expenses of travel and adverse
effects of general and local economic conditions. These factors could adversely
affect the related borrower's ability to make payments on the related Mortgage
Loans. Since limited service hotels and motels are relatively quick and
inexpensive to construct and may quickly reflect a positive value, an
over-building of such hotels and motels could occur in any given region, which
would likely adversely affect occupancy and daily room rates. Further, because
hotel and motel rooms are generally rented for short periods of time, hotel and
motel properties tend to be more sensitive to adverse economic conditions and
competition than many other commercial properties. Additionally, the revenues
of certain hotels and motels, particularly those located in regions whose
economies depend upon tourism, may be highly seasonal in nature.
A hotel or motel property may present additional risks as
compared to other commercial property types in that: (i) hotels and motels may
be operated pursuant to franchise, management and operating agreements that may
be terminable by the franchiser, the manager or the operator; (ii) the
transferability of any operating, liquor and other licenses to the entity
acquiring such hotel or motel (either through purchase or foreclosure) is
subject to local law requirements; (iii) it may be difficult to terminate an
ineffective operator of a hotel or motel property subsequent to a foreclosure
of such property; and (iv) future occupancy rates may be adversely affected by,
among other factors, any negative perception of a hotel or motel based upon its
historical reputation.
Hotel and motel properties may be operated pursuant to
franchise agreements. The continuation of franchises is typically subject to
specified operating standards and other terms and conditions. The franchiser
periodically inspects its licensed properties to confirm adherence to its
operating standards. The failure of the hotel or motel property to maintain
such standards or adhere to such other terms and conditions could result in the
loss or cancellation of the franchise license. It is possible that the
franchiser could condition the continuation of a franchise license on the
completion of capital improvements or the making of certain capital
expenditures that the related borrower determines are too expensive or are
otherwise unwarranted in light of general economic conditions or the operating
results or prospects of the affected hotels. In that event, the related
borrower may elect to allow the franchise license to lapse. In any case, if the
franchise is terminated, the related borrower may seek to obtain a suitable
replacement franchise or to operate such hotel or motel property independently
of a franchise license. The loss of a franchise license could have a material
adverse effect upon the operations or the underlying value of the hotel or
motel covered by the franchise because of the loss of associated name
recognition, marketing support and centralized reservation systems provided by
the franchiser.
Inserts-27
<PAGE>
Insert 4: Hotel and Motel Properties
[The following is to be inserted in the Prospectus
immediately following "Description of the Trust Funds--Mortgage
Assets--Mortgage Loans":]
Mortgage Loans Secured by Hotel and Motel Properties. Hotel
and motel properties may include full service hotels, resort hotels with many
amenities, limited service hotels, hotels and motels associated with national
franchise chains, hotels and motels associated with regional franchise chains
and hotels that are not affiliated with any franchise chain but may have their
own brand identity. Various factors, including location, quality and franchise
affiliation affect the economic performance of a hotel or motel. 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 and motels 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 and motel rooms generally are rented for short
periods of time, hotels and motels 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 or motel may have an impact on quality of service and economic
performance. Additionally, the lodging industry, in certain locations, is
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 or motel property that is part of
a national or regional hotel or motel chain depends in part on the continued
existence and financial strength of the franchiser, the public perception of
the franchise service mark and the duration of the franchise licensing
agreement. The transferability of franchise license agreements may be
restricted and, in the event of a foreclosure on any such hotel or motel
property, the consent of the franchiser for the continued use the franchise
license by the hotel or motel property would be required. 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 or motel
property, it is unlikely that the purchaser of such hotel or motel property
would be entitled to the rights under any associated liquor license, and such
purchaser would be required to apply in its own right for such license. There
can be no assurance that a new license could be obtained or that it could be
obtained promptly.
Inserts-28
<PAGE>
Insert 4: Hotel and Motel Properties
[The following is to be inserted in the Version 1 Prospectus
Supplement immediately following "Risk Factors--Risks Associated with
Certain of the Mortgage Loans and Mortgaged Properties--Effect of Mortgage
Defaults":]
Risks Particular to Hotel and Motel Properties. _____ of the
Mortgage Loans, which represent _____ % of the Initial Poll Balance, are
secured by Mortgages on fee and/or leasehold interests in hotels and motels.
Mortgage Loans that are secured by liens on such types of properties are
exposed to certain unique risks. See "Risk Factors--Risks Associated
With Certain Mortgage Loans and Mortgaged Properties-Risks Particular to Hotel
and Motel Properties" in the Prospectus.
Inserts-29
<PAGE>
Insert 4: Hotel and Motel Properties
[The following is to be inserted in the Version 2 Prospectus
Supplement immediately following "Risk Factors--Effect of Defaults by
Mortgagors on Underlying Mortgage Loans":]
Risks Particular to Hotel and Motel Properties. _____ of the
MBS Securities evidence ownership of trust funds as to which _____ % of the
aggregate principal balance of the Underlying Mortgage Loans as of the Cut-off
Date are secured by Mortgages on fee and/or leasehold interests in hotels and
motels. Mortgage Loans that are secured by liens on such types of properties
are exposed to certain unique risks. See "Risk Factors--Risks
Associated With Certain Mortgage Loans and Mortgaged Properties-Risks
Particular to Hotel and Motel Properties" in the Prospectus.
Inserts-30
<PAGE>
Version 5: Health Care-Related Facilities
[The following is to be inserted, as indicated by starred
brackets ([** // **]) on the next page, on the cover of the Prospectus.]
Health Care-Related Properties will represent security for a
material concentration of the Mortgage Loans (and the mortgage loans underlying
the MBS Securities included in a particular Trust Fund) constituting the Trust
Fund for any Series, based on principal balance at the time such Series is
issued.
Inserts-31
<PAGE>
Version 5: Health Care-Related Facilities
SUBJECT TO COMPLETION, DATED _____________ __, 1999
PROSPECTUS
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION V
DEPOSITOR
The mortgage pass-through certificates offered hereby and by
Supplements to this Prospectus (the "Offered Certificates") 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 (the "Trust Fund") to
be established by the Depositor. The Certificates of each series may be divided
into two or more classes (each, a "Class"), each of which will evidence
beneficial ownership of a specified percentage or portion of future interest
payments, a specified percentage or portion of future principal payments on the
assets in the related Trust Fund or both as described herein and in the related
Prospectus Supplement. In addition, the rights of holders of certain Classes of
Certificates to receive distributions of principal and interest may be
subordinated to those of other Classes to the extent described in the related
Prospectus Supplement. Each Trust Fund shall consist primarily of a segregated
pool of multifamily or commercial mortgage loans or participation interests
therein, together with installment sales contracts (collectively the "Mortgage
Loans") and/or agency or non-agency mortgage pass-through certificates or other
mortgage-backed securities evidencing interests in or secured by Mortgage Loans
(the "MBS Securities") that evidence interests in, or that are secured by
pledges of, one or more of the following types of real property (each, a
"Mortgaged Property"): (i) residential properties consisting of five or more
rental or cooperatively-owned dwelling units (or shares allocable to a number
of such units and proprietary leases appurtenant thereto) ("Multifamily
Properties"), (ii) mobile home parks and (iii) commercial properties consisting
of (a) office buildings, retail facilities related to the sale of goods and
products and facilities related to providing entertainment, recreation or
personal services, hotels and motels, casinos, health care-related facilities,
recreational vehicle parks, warehouse facilities, mini-warehouse facilities,
self-storage facilities, industrial facilities, parking lots, auto parks, golf
courses, arenas and restaurants (or cooperatively owned units therein), (b)
mixed use properties (that is, any combination of the foregoing) and (c)
unimproved land ("Commercial Properties"). [** Health Care-Related Properties
will represent security for a material concentration of the Mortgage Loans (and
the mortgage loans underlying the MBS Securities included in a particular Trust
Fund) constituting the Trust Fund for any Series, based on principal balance at
the time such Series is issued.**].
The Certificates will not represent an obligation of or an
interest in the Depositor, any Master Servicer or Special Servicer or any of
their respective affiliates, except to the limited extent described herein and
in the related Prospectus Supplement. Neither the Certificates nor any assets
in the related 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.
As described in the related Prospectus Supplement, the
Certificates of each Series, including the Offered Certificates, will consist
of one or more classes of Certificates that may (i) be senior or subordinate to
one or more other classes of Certificates in respect of certain distributions
on the Certificates; (ii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iii) be entitled
to interest distributions, with disproportionately low, nominal or no principal
distributions; (iv) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such series; and/or
(v) provide for payments of principal sequentially, based
Inserts-32
<PAGE>
Version 5: Health Care-Related Facilities
on specified payment schedules or other methodologies, to the extent of
available funds. See "Description of the Certificates."
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."
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING
UNDER THE CAPTION "RISK FACTORS" ON PAGE 20 OF THIS PROSPECTUS HEREIN AND IN
THE RELATED PROSPECTUS SUPPLEMENT BEFORE PURCHASING ANY OFFERED CERTIFICATES.
If so provided in the related Prospectus Supplement, an
election may be made to treat the related Trust Fund or one or more designated
portions thereof as one or more "real estate mortgage investment conduits" or
"financial asset securitization investment trusts" for federal income tax
purposes. See "Certain Federal Income Tax Consequences" herein.
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 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 Certificates. Prior to issuance there will have
been no market for the Certificates of any series and there can be no assurance
that a secondary market for any Offered Certificates will develop or that, if
such a market does develop, that it will continue.
It will be a condition to the issuance of the Certificates of
each series that the Offered Certificates of such series be rated in one of the
four highest rating categories by one or more nationally recognized statistical
rating organizations.
Offers of the Offered Certificates may be made through one or
more different methods, as more fully described under "Plan of Distribution"
herein and in the related Prospectus Supplement. All Offered Certificates will
be distributed by, or sold by underwriters managed by:
PAINEWEBBER INCORPORATED
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF CERTIFICATES OFFERED
HEREBY UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THE DATE OF THIS PROSPECTUS IS _________ ___, ____
Inserts-33
<PAGE>
Version 5: Health Care-Related Facilities
[The following is to be inserted in the Prospectus
immediately following "Risk Factors--Risks Associated with Certain Mortgage
Loans and Mortgaged Properties":]
RISKS PARTICULAR TO HEALTH CARE-RELATED PROPERTIES.
Certain types of health care-related facilities (including
nursing homes) typically receive a substantial portion of their revenues from
government reimbursement programs, primarily Medicaid and Medicare. Medicaid
and Medicare are subject to statutory and regulatory changes, retroactive rate
adjustments, administrative rulings, policy interpretations, delays by fiscal
intermediaries and government funding restrictions, all of which can adversely
affect revenues from operation. Moreover, governmental payors have employed
cost-containment measures that limit payments to health care providers and
various proposals for national health care relief could, if enacted, further
limit these payments. In addition, providers of long-term nursing care and
other medical services are highly regulated by federal, state and local law and
are subject to, among other things, federal and state licensing requirements,
facility inspections, the setting of rates and charges, governmental
reimbursement policies and laws relating to the adequacy of medical care,
distribution of pharmaceuticals, equipment, personnel operating policies and
maintenance of and additions to facilities and services, any or all of which
factors can increase the cost of operation and limit growth. In extreme cases,
violations of applicable laws can result in suspension or cessation of
operations.
Under federal and state laws and regulations, Medicare and
Medicaid reimbursements are generally not permitted to be made to any person
other than the provider who actually furnished the related medical goods and
services. Accordingly, in the event of foreclosure on a Mortgaged Property that
is operated as a health care-related facility, neither the Trustee nor a
subsequent lessee or operator of the Mortgaged Property would generally be
entitled to obtain any outstanding reimbursement payments relating to services
furnished prior to such foreclosure. Furthermore, in the event of foreclosure,
there can be no assurance that the Trustee or purchaser in a foreclosure sale
would be entitled to the rights under any required licenses and regulatory
approvals, that a new license could be obtained or that a new approval would be
granted. In addition, Health Care-Related Properties are generally "special
purpose" properties that are not readily converted to general residential,
retail or office use, and transfers of Health Care-Related Properties are
subject to regulatory approvals under state, and in some cases federal, law not
required for transfers of most other types of commercial operations and other
types of real estate. Any of the foregoing circumstances may adversely affect
the liquidation value.
Inserts-34
<PAGE>
Version 5: Health Care-Related Facilities
[The following is to be inserted in the Prospectus
immediately following "Description of the Trust Funds--Mortgage
Assets--Mortgage Loans":]
Mortgage Loans Secured by Health Care-Related Properties. The
Mortgaged Properties may include Senior Housing, Assisted Living Facilities,
Skilled Nursing Facilities and Acute Care Facilities (any of the foregoing,
"Health Care-Related Properties"). "Senior Housing" generally consists of
apartment-style facilities, the residents of which are ambulatory and handle
their own affairs. "Assisted Living Facilities" are typically single or double
room occupancy, dormitory-style housing facilities which provide food service,
cleaning and some personal care and assistance with certain daily routines.
"Skilled Nursing Facilities" provide services to post trauma and frail
residents with limited mobility who require sub-acute medical treatment. "Acute
Care Facilities" generally consist of hospital and other facilities providing
short-term, acute medical care services.
Certain types of Health Care-Related Properties, particularly
Acute Care Facilities and Skilled Nursing Facilities, typically receive a
substantial portion of their revenues from government reimbursement programs,
primarily Medicaid and Medicare. Medicaid and Medicare reimbursements are
subject to statutory and regulatory changes, retroactive rate adjustments,
administrative rulings, policy interpretations, delays by fiscal intermediaries
and government funding restrictions. Moreover, governmental payors have
employed cost-containment measures that limit payments to health care
providers, and there exist various proposals for national health care reform
that could further limit those payments. Accordingly, there can be no assurance
that payments under government reimbursement programs will, in the future, be
sufficient to fully reimburse the cost of caring for program beneficiaries. If
such payments are insufficient, net operating income of those Health
Care-Related Properties that receive revenues from those sources, and
consequently the ability of the related borrowers to meet their obligations
under any Mortgage Loans secured thereby, could be adversely affected.
Moreover, Health Care-Related Properties that provide medical
care are generally subject to federal and state laws that relate to the
adequacy of medical care, distribution of pharmaceuticals, rates and charges,
equipment, personnel, operating policies and additions to facilities and
services. In addition, those facilities are subject to periodic inspection by
governmental authorities to determine compliance with various standards
necessary to continued licensing under state law and continued participation in
the Medicaid and Medicare reimbursement programs. Providers of assisted living
services are also subject to state licensing requirements in certain states.
The failure of an operator to maintain or renew any required license or
regulatory approval could prevent it from continuing operations at a Health
Care-Related Property or, if applicable, prohibit it from participating in
government reimbursement programs. Furthermore, under applicable federal and
state laws, Medicare and Medicaid reimbursements are generally not permitted to
be made to any person other than the provider who actually furnished the
related medical goods and services. Accordingly, in the event of foreclosure,
neither the Trustee nor a subsequent lessee or operator of any Health
Care-Related Property securing a defaulted Mortgage Loan would generally be
entitled to obtain from federal or state governments any outstanding
reimbursement payments relating to services furnished prior to such
foreclosure. Any of the aforementioned circumstances may adversely affect the
ability of the related borrowers to meet their Mortgage Loan obligations.
Government regulation applying specifically to Acute Care
Facilities, Skilled Nursing Facilities and Assisted Living Facilities includes
health planning legislation, enacted by most states, intended, at least in
part, to regulate the supply of nursing beds. The most common method of control
is the requirement that a state authority first make a determination of need,
evidenced by its issuance of a Certificate of Need ("CON"), before a long-term
care provider can establish a new facility, add beds to an existing facility
or, in some states, take certain other actions (for example, acquire major
medical equipment, make major capital expenditures, add services, refinance
long-term debt, or transfer ownership of a facility). States also regulate
nursing bed supply in other ways. For example, some states have imposed
moratoria on the licensing of new beds, or on the certification of new Medicaid
beds, or have discouraged the construction of new nursing facilities by
limiting Medicaid reimbursements allocable to the cost of new construction and
equipment. In general, a CON is site specific and operator specific; it cannot
be transferred from one site to another, or to another operator, without the
approval of the appropriate state agency.
Inserts-35
<PAGE>
Version 5: Health Care-Related Facilities
Accordingly, if a Mortgage Loan secured by a lien on such a Health Care-Related
Property were foreclosed upon, the purchaser at foreclosure might be required
to obtain a new CON or an appropriate exemption. In addition, compliance by a
purchaser with applicable regulations may in any case require the engagement of
a new operator and the issuance of a new operating license. Upon a foreclosure,
a state regulatory agency may be willing to expedite any necessary review and
approval process to avoid interruption of care to a facility's residents, but
there can be no assurance that any will do so or that any necessary licenses or
approvals will be issued.
Further government regulation applicable to Health
Care-Related Properties exists in the form of federal and state "fraud and
abuse" laws that generally prohibit payment or fee-splitting arrangements
between health care providers that are designed to induce or encourage the
referral of patients to, or the recommendation of, a particular provider for
medical products or services. Violation of these restrictions can result in
license revocation, civil and criminal penalties, and exclusion from
participation in Medicare or Medicaid programs. The state law restrictions in
this area vary considerably from state to state. Moreover, the federal
anti-kickback law includes broad language that potentially could be applied to
a wide range of referral arrangements, and regulations designed to create "safe
harbors" under the law provide only limited guidance. Accordingly, there can be
no assurance that such laws will be interpreted in a manner consistent with the
practices of the owners or operators of the Health Care-Related Properties that
are subject to such laws.
The operators of Health Care-Related Properties are likely to
compete on a local and regional basis with others that operate similar
facilities, some of which competitors may be better capitalized, may offer
services not offered by such operators, or may be owned by non-profit
organizations or government agencies supported by endowments, charitable
contributions, tax revenues and other sources not available to such operators.
The successful operation of a Health Care-Related Property will generally
depend upon the number of competing facilities in the local market, as well as
upon other factors such as its age, appearance, reputation and management, the
types of services it provides and, where applicable, the quality of care and
the cost of that care.
Inserts-36
<PAGE>
Version 5: Health Care-Related Facilities
[The following is to be inserted in the Version 1 Prospectus
Supplement immediately following "Risk Factors--Risks Associated with
Certain of the Mortgage Loans and Mortgaged Properties--Effect of Mortgage
Defaults":]
Risks Particular to Health Care-Related Properties. _____ of
the Mortgage Loans, which represent _____ % of the aggregate principal balance
of the Mortgage Loans as of the Cut-off Date, are secured by Mortgages on fee
and/or leasehold interests in health care-related properties. Mortgage Loans
that are secured by liens on such types of properties are exposed to certain
unique risks. See "Risk Factors--Risks Associated With Certain Mortgage Loans
and Mortgaged Properties-Risks Particular to Health Care-Related Properties" in
the Prospectus.
Inserts-37
<PAGE>
Version 5: Health Care-Related Facilities
[The following is to be inserted in the Version 2 Prospectus
Supplement immediately following "Risk Factors--Effect of Defaults by
Mortgagors on Underlying Mortgage Loans":]
Risks Particular to Health Care-Related Properties. _____ of
the MBS Securities evidence ownership of trust funds as to which _____ % of the
aggregate principal balance of the Underlying Mortgage Loans as of the Cut-off
Date are secured by Mortgages on fee and/or leasehold interests in health
care-related properties. Mortgage Loans that are secured by liens on such types
of properties are exposed to certain unique risks. See "Risk Factors --Risks
Associated With Certain Mortgage Loans and Mortgaged Properties-Risks
Particular to Health Care-Related Properties" in the Prospectus.
Inserts-38
<PAGE>
Insert 6: Industrial Properties
[The following is to be inserted, as indicated by starred
brackets ([** // **]) on the next page, on the cover of the Prospectus.]
Industrial properties will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the MBS
Securities included in a particular Trust Fund) constituting the Trust Fund for
any Series, based on principal balance at the time such Series is issued.
Inserts-39
<PAGE>
Insert 6: Industrial Properties
SUBJECT TO COMPLETION, DATED _______ __, 1999
PROSPECTUS
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION V
DEPOSITOR
The mortgage pass-through certificates offered hereby and by
Supplements to this Prospectus (the "Offered Certificates") 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 (the "Trust Fund") to
be established by the Depositor. The Certificates of each series may be divided
into two or more classes (each, a "Class"), each of which will evidence
beneficial ownership of a specified percentage or portion of future interest
payments, a specified percentage or portion of future principal payments on the
assets in the related Trust Fund or both as described herein and in the related
Prospectus Supplement. In addition, the rights of holders of certain Classes of
Certificates to receive distributions of principal and interest may be
subordinated to those of other Classes to the extent described in the related
Prospectus Supplement. Each Trust Fund shall consist primarily of a segregated
pool of multifamily or commercial mortgage loans or participation interests
therein, together with installment sales contracts (collectively the "Mortgage
Loans") and/or agency or non-agency mortgage pass-through certificates or other
mortgage-backed securities evidencing interests in or secured by Mortgage Loans
(the "MBS Securities") that evidence interests in, or that are secured by
pledges of, one or more of the following types of real property (each, a
"Mortgaged Property"): (i) residential properties consisting of five or more
rental or cooperatively-owned dwelling units (or shares allocable to a number
of such units and proprietary leases appurtenant thereto) ("Multifamily
Properties"), (ii) mobile home parks and (iii) commercial properties consisting
of (a) office buildings, retail facilities related to the sale of goods and
products and facilities related to providing entertainment, recreation or
personal services, hotels and motels, casinos, health care-related facilities,
recreational vehicle parks, warehouse facilities, mini-warehouse facilities,
self-storage facilities, industrial facilities, parking lots, auto parks, golf
courses, arenas and restaurants (or cooperatively owned units therein), (b)
mixed use properties (that is, any combination of the foregoing) and (c)
unimproved land ("Commercial Properties"). [** Industrial properties will
represent security for a material concentration of the Mortgage Loans (and the
mortgage loans underlying the MBS Securities included in a particular Trust
Fund) constituting the Trust Fund for any Series, based on principal balance at
the time such Series is issued.**].
The Certificates will not represent an obligation of or an
interest in the Depositor, any Master Servicer or Special Servicer or any of
their respective affiliates, except to the limited extent described herein and
in the related Prospectus Supplement. Neither the Certificates nor any assets
in the related 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.
As described in the related Prospectus Supplement, the
Certificates of each Series, including the Offered Certificates, will consist
of one or more classes of Certificates that may (i) be senior or subordinate to
one or more other classes of Certificates in respect of certain distributions
on the Certificates; (ii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iii) be entitled
to interest distributions, with disproportionately low, nominal or no principal
distributions; (iv) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such series; and/or
(v) provide for payments of principal sequentially, based
Inserts-40
<PAGE>
Insert 6: Industrial Properties
on specified payment schedules or other methodologies, to the extent of
available funds. See "Description of the Certificates."
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."
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING
UNDER THE CAPTION "RISK FACTORS" ON PAGE 20 OF THIS PROSPECTUS HEREIN AND IN
THE RELATED PROSPECTUS SUPPLEMENT BEFORE PURCHASING ANY OFFERED CERTIFICATES.
If so provided in the related Prospectus Supplement, an
election may be made to treat the related Trust Fund or one or more designated
portions thereof as one or more "real estate mortgage investment conduits" or
"financial asset securitization investment trusts" for federal income tax
purposes. See "Certain Federal Income Tax Consequences" herein.
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 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 Certificates. Prior to issuance there will have
been no market for the Certificates of any series and there can be no assurance
that a secondary market for any Offered Certificates will develop or that, if
such a market does develop, that it will continue.
It will be a condition to the issuance of the Certificates of
each series that the Offered Certificates of such series be rated in one of the
four highest rating categories by one or more nationally recognized statistical
rating organizations.
Offers of the Offered Certificates may be made through one or
more different methods, as more fully described under "Plan of Distribution"
herein and in the related Prospectus Supplement. All Offered Certificates will
be distributed by, or sold by underwriters managed by:
PAINEWEBBER INCORPORATED
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF CERTIFICATES OFFERED
HEREBY UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THE DATE OF THIS PROSPECTUS IS _________ ___, ____
Inserts-41
<PAGE>
Insert 6: Industrial Properties
[The following is to be inserted in the Prospectus
immediately following "Risk Factors--Risks Associated with Certain Mortgage
Loans and Mortgaged Properties":]
RISKS PARTICULAR TO INDUSTRIAL PROPERTIES.
Industrial properties may be adversely affected by reduced
demand for industrial space occasioned by a decline in a particular industry
segment and/or by a general slow-down in the economy, and an industrial
property that suited the particular needs of its original tenant may be
difficult to relet to another tenant or may become functionally obsolete
relative to newer properties. Furthermore, industrial properties may be
adversely affected by the availability of labor sources or a change in the
proximity of supply sources. Because industrial properties frequently have a
single tenant, any such property is heavily dependent on the success of such
tenant's business.
Inserts-42
<PAGE>
Insert 6: Industrial Properties
[The following is to be inserted in the Prospectus
immediately following "Description of the Trust Funds--Mortgage
Assets--Mortgage Loans":]
Mortgage Loans Secured by Industrial Properties. Significant
factors that affect the value of industrial properties are the quality of
tenants, building design and adaptability and the location of the property.
Industrial properties may be adversely affected by reduced demand for
industrial space occasioned by a decline in a particular industry segment
and/or by a general slow-down in the economy, and an industrial property that
suited the particular needs of its original tenant may be difficult to relet to
another tenant or may become functionally obsolete relative to newer
properties. Furthermore, industrial properties may be adversely affected by the
availability of labor sources or a change in the proximity of supply sources.
Because industrial properties frequently have a single tenant, any such
property is heavily dependent on the success of such tenant's business.
Aspects of building site, design and adaptability affect the
value of an industrial property. Site characteristics which are valuable to an
industrial property include clear heights, column spacing, number of bays and
bay depths, divisibility, floor loading capacities, truck turning radius and
overall functionality and accessibility. Nevertheless, site characteristics of
an industrial property suitable for one tenant may not be appropriate for other
potential tenants, which may make it difficult to relet the property.
Location is also important because an industrial property
requires the availability of labor sources, proximity to supply sources and
customers and accessibility to rail lines, major roadways and other
distribution channels. Further, industrial properties may be adversely affected
by economic declines in the industry segment of their tenants.
Inserts-43
<PAGE>
Insert 6: Industrial Properties
[The following is to be inserted in the Version 1 Prospectus
Supplement immediately following "Risk Factors--Risks Associated with
Certain Mortgage Loan and Mortgaged Properties--Effect of Mortgage Defaults":]
Risks Particular to Industrial Properties. _____ of the
Mortgage Loans, which represent _____ % of the aggregate principal balance of
the Mortgage Loans as of the Cut-off Date, are secured by Mortgages on fee
and/or leasehold interests in industrial properties. Mortgage Loans that are
secured by liens on such types of properties are exposed to certain unique
risks. See "Risk Factors--Risks Associated With Certain Mortgage Loans and
Mortgaged Properties-Risks Particular to Industrial Properties" in the
Prospectus.
Inserts-44
<PAGE>
Insert 6: Industrial Properties
[The following is to be inserted in the Version 2 Prospectus
Supplement immediately following "Risk Factors--Effect of Defaults by
Mortgagors on Underlying Mortgage Loans":]
Risks Particular to Industrial Properties. _____ of the MBS
Securities evidence ownership of trust funds as to which _____ % of the
aggregate principal balance of the Underlying Mortgage Loans as of the Cut-off
Date are secured by Mortgages on fee and/or leasehold interests in industrial
properties. Mortgage Loans that are secured by liens on such types of
properties are exposed to certain unique risks. See "Risk Factors --Risks
Associated With Certain Mortgage Loans and Mortgaged Properties-Risks
Particular to Industrial Properties" in the Prospectus.
Inserts-45
<PAGE>
Insert 7: Warehouse, Mini-Warehouse and Self-Storage Facilities
[The following is to be inserted, as indicated by starred
brackets ([** // **]) on the next page, on the cover of the Prospectus.]
Warehouse, mini-warehouse and self-storage facilities will
represent security for a material concentration of the Mortgage Loans (and the
mortgage loans underlying the MBS Securities included in a particular Trust
Fund) constituting the Trust Fund for any Series, based on principal balance at
the time such Series is issued.
Inserts-46
<PAGE>
Insert 7: Warehouse, Mini-Warehouse and Self-Storage Facilities
SUBJECT TO COMPLETION, DATED _______________ __, 1999
PROSPECTUS
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION V
DEPOSITOR
The mortgage pass-through certificates offered hereby and by
Supplements to this Prospectus (the "Offered Certificates") 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 (the "Trust Fund") to
be established by the Depositor. The Certificates of each series may be divided
into two or more classes (each, a "Class"), each of which will evidence
beneficial ownership of a specified percentage or portion of future interest
payments, a specified percentage or portion of future principal payments on the
assets in the related Trust Fund or both as described herein and in the related
Prospectus Supplement. In addition, the rights of holders of certain Classes of
Certificates to receive distributions of principal and interest may be
subordinated to those of other Classes to the extent described in the related
Prospectus Supplement. Each Trust Fund shall consist primarily of a segregated
pool of multifamily or commercial mortgage loans or participation interests
therein, together with installment sales contracts (collectively the "Mortgage
Loans") and/or agency or non-agency mortgage pass-through certificates or other
mortgage-backed securities evidencing interests in or secured by Mortgage Loans
(the "MBS Securities") that evidence interests in, or that are secured by
pledges of, one or more of the following types of real property (each, a
"Mortgaged Property"): (i) residential properties consisting of five or more
rental or cooperatively-owned dwelling units (or shares allocable to a number
of such units and proprietary leases appurtenant thereto) ("Multifamily
Properties"), (ii) mobile home parks and (iii) commercial properties consisting
of (a) office buildings, retail facilities related to the sale of goods and
products and facilities related to providing entertainment, recreation or
personal services, hotels and motels, casinos, health care-related facilities,
recreational vehicle parks, warehouse facilities, mini-warehouse facilities,
self-storage facilities, industrial facilities, parking lots, auto parks, golf
courses, arenas and restaurants (or cooperatively owned units therein), (b)
mixed use properties (that is, any combination of the foregoing) and (c)
unimproved land ("Commercial Properties"). [** Warehouse, mini-warehouse and
self-storage facilities will represent security for a material concentration of
the Mortgage Loans (and the mortgage loans underlying the MBS Securities
included in a particular Trust Fund) constituting the Trust Fund for any
Series, based on principal balance at the time such Series is issued.**].
The Certificates will not represent an obligation of or an
interest in the Depositor, any Master Servicer or Special Servicer or any of
their respective affiliates, except to the limited extent described herein and
in the related Prospectus Supplement. Neither the Certificates nor any assets
in the related 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.
As described in the related Prospectus Supplement, the
Certificates of each Series, including the Offered Certificates, will consist
of one or more classes of Certificates that may (i) be senior or subordinate to
one or more other classes of Certificates in respect of certain distributions
on the Certificates; (ii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iii) be entitled
to interest
Inserts-47
<PAGE>
Insert 7: Warehouse, Mini-Warehouse and Self-Storage Facilities
distributions, with disproportionately low, nominal or no principal
distributions; (iv) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such series; and/or
(v) provide for payments of principal sequentially, based on specified payment
schedules or other methodologies, to the extent of available funds. See
"Description of the Certificates."
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."
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING
UNDER THE CAPTION "RISK FACTORS" ON PAGE 20 OF THIS PROSPECTUS HEREIN AND IN
THE RELATED PROSPECTUS SUPPLEMENT BEFORE PURCHASING ANY OFFERED CERTIFICATES.
If so provided in the related Prospectus Supplement, an
election may be made to treat the related Trust Fund or one or more designated
portions thereof as one or more "real estate mortgage investment conduits" or
"financial asset securitization investment trusts" for federal income tax
purposes. See "Certain Federal Income Tax Consequences" herein.
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 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 Certificates. Prior to issuance there will have
been no market for the Certificates of any series and there can be no assurance
that a secondary market for any Offered Certificates will develop or that, if
such a market does develop, that it will continue.
It will be a condition to the issuance of the Certificates of
each series that the Offered Certificates of such series be rated in one of the
four highest rating categories by one or more nationally recognized statistical
rating organizations.
Offers of the Offered Certificates may be made through one or
more different methods, as more fully described under "Plan of Distribution"
herein and in the related Prospectus Supplement. All Offered Certificates will
be distributed by, or sold by underwriters managed by:
PAINEWEBBER INCORPORATED
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF CERTIFICATES OFFERED
HEREBY UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THE DATE OF THIS PROSPECTUS IS _________ ___, ____
Inserts-48
<PAGE>
Insert 7: Warehouse, Mini-Warehouse and Self-Storage Facilities
[The following is to be inserted in the Prospectus
immediately following "Risk Factors--Risks Associated with Certain Mortgage
Loan and Mortgaged Properties--Effect of Mortgage Defaults":]
RISKS PARTICULAR TO WAREHOUSE, MINI-WAREHOUSE AND SELF-STORAGE FACILITIES
______ of the Mortgage Loans, which represent _____% of the
aggregate principal balance of the Mortgage Loans as of the Cut-off Date, are
secured by Mortgages on fee and/or leasehold interests in [warehouse,
mini-warehouse and self-storage facilities. Mortgage Loans that are secured by
liens on such types of properties are exposed to certain unique risks. See
"Risk Factors--Risks Associated With Certain Mortgage Loans and Mortgaged
Properties-Risks Particular to Warehouse, Mini-Warehouse and Self-Storage
Facilities" in the Prospectus.
Inserts-49
<PAGE>
Insert 7: Warehouse, Mini-Warehouse and Self-Storage Facilities
[The following is to be inserted in the Prospectus
immediately following "Description of the Trust Funds--Mortgage
Assets--Mortgage Loans":]
Mortgage Loans Secured by Warehouse, Mini-Warehouse and
Self-Storage Facilities. Because of relatively low acquisition costs and
break-even occupancy rates, warehouse, mini-warehouse and self-storage
properties ("Storage Properties") are considered vulnerable to competition.
Despite their relatively low acquisition costs, and because of their particular
building characteristics, Storage Properties would require substantial capital
investments in order to adapt them to alternative uses. Limited adaptability to
other uses may substantially reduce the liquidation value of a Storage
Property. In addition to competition, factors that affect the success of a
Storage Property include the location and visibility of the facility, its
proximity to apartment complexes or commercial users, trends of apartment
tenants in the area moving to single-family homes, services provided (such as
security and accessibility), age of improvements, the appearance of the
improvements and the quality of management.
Inserts-50
<PAGE>
Insert 7: Warehouse, Mini-Warehouse and Self-Storage Facilities
[The following is to be inserted in the Version 1 Prospectus
Supplement immediately following "Risk Factors--Risks Associated with
Certain of the Mortgage Loans and Mortgaged Properties--Effect of Mortgage
Defaults":]
Risks Particular to Warehouse, Mini-Warehouse and
Self-Storage Facilities. _____ of the Mortgage Loans, which represent _____ %
of the aggregate principal balance of the Mortgage Loans as of the Cut-off
Date, are secured by Mortgages on fee and/or leasehold interests in warehouse,
mini-warehouse and self-storage properties. Mortgage Loans that are secured by
liens on such types of properties are exposed to certain unique risks. See
"Risk Factors--Risks Associated With Certain Mortgage Loans and
Mortgaged Properties-Risks Particular to Industrial Properties" in the
Prospectus.
Inserts-51
<PAGE>
Insert 7: Warehouse, Mini-Warehouse and Self-Storage Facilities
[The following is to be inserted in the Version 2 Prospectus
Supplement immediately following "Risk Factors--Effect of Defaults by
Mortgagors on Underlying Mortgage Loans":]
Risks Particular to Warehouse, Mini-Warehouse and
Self-Storage Facilities. _____ of the MBS Securities evidence ownership of
trust funds as to which _____ % of the aggregate principal balance of the
Underlying Mortgage Loans as of the Cut-off Date are secured by Mortgages on
fee and/or leasehold interests in warehouse, mini-warehouse and self-storage
properties. Mortgage Loans that are secured by liens on such types of
properties are exposed to certain unique risks. See "Risk Factors --Risks
Associated With Certain Mortgage Loans and Mortgaged Properties-Risks
Particular to Industrial Properties" in the Prospectus.properties. Mortgage
Loans that are secured by liens on such types of properties are exposed to
certain unique risks. See "Risk Factors --Risks Associated With Certain
Mortgage Loans and Mortgaged Properties-Risks Particular to Industrial
Properties" in the Prospectus.
Inserts-52
<PAGE>
Insert 8: Mobile Home Parks and Recreational Vehicle Parks
[The following is to be inserted, as indicated by starred
brackets ([** // **]) on the next page, on the cover of the Prospectus.]
Mobile home parks and recreational vehicle parks will
represent security for a material concentration of the Mortgage Loans (and the
mortgage loans underlying the MBS Securities included in a particular Trust
Fund) constituting the Trust Fund for any Series, based on principal balance at
the time such Series is issued.
Inserts-53
<PAGE>
Insert 8: Mobile Home Parks and Recreational Vehicle Parks
SUBJECT TO COMPLETION, DATED _____________ __, 1999
PROSPECTUS
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION V
DEPOSITOR
The mortgage pass-through certificates offered hereby and by
Supplements to this Prospectus (the "Offered Certificates") 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 (the "Trust Fund") to
be established by the Depositor. The Certificates of each series may be divided
into two or more classes (each, a "Class"), each of which will evidence
beneficial ownership of a specified percentage or portion of future interest
payments, a specified percentage or portion of future principal payments on the
assets in the related Trust Fund or both as described herein and in the related
Prospectus Supplement. In addition, the rights of holders of certain Classes of
Certificates to receive distributions of principal and interest may be
subordinated to those of other Classes to the extent described in the related
Prospectus Supplement. Each Trust Fund shall consist primarily of a segregated
pool of multifamily or commercial mortgage loans or participation interests
therein, together with installment sales contracts (collectively the "Mortgage
Loans") and/or agency or non-agency mortgage pass-through certificates or other
mortgage-backed securities evidencing interests in or secured by Mortgage Loans
(the "MBS Securities") that evidence interests in, or that are secured by
pledges of, one or more of the following types of real property (each, a
"Mortgaged Property"): (i) residential properties consisting of five or more
rental or cooperatively-owned dwelling units (or shares allocable to a number
of such units and proprietary leases appurtenant thereto) ("Multifamily
Properties"), (ii) mobile home parks and (iii) commercial properties consisting
of (a) office buildings, retail facilities related to the sale of goods and
products and facilities related to providing entertainment, recreation or
personal services, hotels and motels, casinos, health care-related facilities,
recreational vehicle parks, warehouse facilities, mini-warehouse facilities,
self-storage facilities, industrial facilities, parking lots, auto parks, golf
courses, arenas and restaurants (or cooperatively owned units therein), (b)
mixed use properties (that is, any combination of the foregoing) and (c)
unimproved land ("Commercial Properties"). [** Mobile home parks and
recreational vehicle parks will represent security for a material concentration
of the Mortgage Loans (and the mortgage loans underlying the MBS Securities
included in a particular Trust Fund) constituting the Trust Fund for any
Series, based on principal balance at the time such Series is issued.**].
The Certificates will not represent an obligation of or an
interest in the Depositor, any Master Servicer or Special Servicer or any of
their respective affiliates, except to the limited extent described herein and
in the related Prospectus Supplement. Neither the Certificates nor any assets
in the related 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.
As described in the related Prospectus Supplement, the
Certificates of each Series, including the Offered Certificates, will consist
of one or more classes of Certificates that may (i) be senior or subordinate to
one or more other classes of Certificates in respect of certain distributions
on the Certificates; (ii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iii) be entitled
to interest
Inserts-54
<PAGE>
Insert 8: Mobile Home Parks and Recreational Vehicle Parks
distributions, with disproportionately low, nominal or no principal
distributions; (iv) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such series; and/or
(v) provide for payments of principal sequentially, based on specified payment
schedules or other methodologies, to the extent of available funds. See
"Description of the Certificates."
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."
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING
UNDER THE CAPTION "RISK FACTORS" ON PAGE 20 OF THIS PROSPECTUS HEREIN AND IN
THE RELATED PROSPECTUS SUPPLEMENT BEFORE PURCHASING ANY OFFERED CERTIFICATES.
If so provided in the related Prospectus Supplement, an
election may be made to treat the related Trust Fund or one or more designated
portions thereof as one or more "real estate mortgage investment conduits" or
"financial asset securitization investment trusts" for federal income tax
purposes. See "Certain Federal Income Tax Consequences" herein.
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 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 Certificates. Prior to issuance there will have
been no market for the Certificates of any series and there can be no assurance
that a secondary market for any Offered Certificates will develop or that, if
such a market does develop, that it will continue.
It will be a condition to the issuance of the Certificates of
each series that the Offered Certificates of such series be rated in one of the
four highest rating categories by one or more nationally recognized statistical
rating organizations.
Offers of the Offered Certificates may be made through one or
more different methods, as more fully described under "Plan of Distribution"
herein and in the related Prospectus Supplement. All Offered Certificates will
be distributed by, or sold by underwriters managed by:
PAINEWEBBER INCORPORATED
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF CERTIFICATES OFFERED
HEREBY UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THE DATE OF THIS PROSPECTUS IS _________ ___, ____
Inserts-55
<PAGE>
Insert 8: Mobile Home Parks and Recreational Vehicle Parks
[The following is to be inserted in the Prospectus
immediately following "Risk Factors--Risks Associated with Certain Mortgage
Loans and Mortgaged Properties":]
RISKS PARTICULAR TO MOBILE HOME PARKS AND RECREATIONAL VEHICLE PARKS.
The successful operation of a Mortgaged Property operated as
a mobile home park or recreational vehicle park will generally depend upon the
number of competing parks in the local market, as well as upon other factors
such as its age, appearance, reputation, management and the types of facilities
and services it provides.
Mobile home parks also compete against alternative forms of residential
housing, including multifamily rental properties, cooperatively-owned apartment
buildings, condominium complexes and single-family residential developments.
Recreational vehicle parks also compete against alternative forms of recreation
and short-term lodging (for example, staying at a hotel at the beach).
Mobile home parks and recreational vehicle parks are "special
purpose" properties that cannot be readily converted to general residential,
retail or office use. Thus, if the operation of a mobile home park or
recreational vehicle park becomes unprofitable due to competition, age of the
improvements or other factors such that the borrower becomes unable to meet its
obligations on the related Mortgage Loan, the liquidation value of the park may
be substantially less, relative to the amount owing on such Mortgage Loan, than
would be the case if the park were readily adaptable to other uses.
Inserts-56
<PAGE>
Insert 8: Mobile Home Parks and Recreational Vehicle Parks
[The following is to be inserted in the Prospectus
immediately following "Description of the Trust Funds--Mortgage
Assets--Mortgage Loans":]
Mortgage Loans Secured by Mobile Home Parks and Recreational
Vehicle Parks. Mobile home parks consist of land that is divided into "spaces"
or "homesites" that are primarily leased to mobile home owners. Accordingly,
the related Mortgage Loans will be secured by mortgage liens on the real estate
(or a leasehold interest therein) upon which the mobile homes are situated, but
not the mobile homes themselves. The mobile home owner often invests in
site-specific improvements such as carports, steps, fencing, skirts around the
base of the mobile home, and landscaping. The park owner typically provides
private roads within the park, common facilities and, in many cases, utilities.
Park amenities may include driveways, visitor parking, recreational vehicle and
pleasure boat storage, laundry facilities, community rooms, swimming pools,
tennis courts, security systems and healthclubs. Due to relocation costs and,
in some cases, demand for mobile home spaces, the value of a mobile home in
place in a park is generally higher, and can be significantly higher, than the
value of the same unit not placed in a park. As a result, a well-operated
mobile home park that has achieved stabilized occupancy is typically able to
maintain occupancy at or near that level. For the same reason, a lender that
provided financing for the mobile home of a tenant who defaulted in his or her
space rent generally has an incentive to keep rental payments current until the
mobile home can be resold in place, rather than to allow the unit to be removed
from the park.
Recreational vehicle parks lease spaces primarily or
exclusively for motor homes, travel trailers and portable truck campers
primarily designed for recreational, camping or travel use. In general, parks
that lease recreational vehicle spaces can be viewed as having a less stable
tenant population than parks occupied predominantly by mobile homes. However,
it is not unusual for the owner of a recreational vehicle to leave the vehicle
at the park on a year-round basis or to use the vehicle as low cost housing and
reside in the park indefinitely.
Mortgage Loans secured by liens on mobile home parks and
recreational vehicle parks are affected by factors not associated with loans
secured by liens on other types of income-producing real estate. The successful
operation of such types of properties will generally depend upon the number of
competing parks, as well as upon other factors such as its age, appearance,
reputation, the ability of management to provide adequate maintenance and
insurance, and the types of facilities and services it provides. Mobile home
parks also compete against alternative forms of residential housing, including
multifamily rental properties, cooperatively-owned apartment buildings,
condominium complexes and single-family residential developments. Recreational
vehicle parks also compete against alternative forms of recreation and
short-term lodging (for example, staying at a hotel at the beach). Mobile home
parks and recreational vehicle parks are "special purpose" properties that
cannot be readily converted to general residential, retail or office use. Thus,
if the operation of a mobile home park or recreational vehicle park becomes
unprofitable due to competition, age of the improvements or other factors such
that the borrower becomes unable to meet its obligations on the related
Mortgage Loan, the liquidation value of the park may be substantially less,
relative to the amount owing on the Mortgage Loan, than would be the case if
the park were readily adaptable to other uses.
Certain states regulate the relationship of a mobile home
park owner and its tenants. Commonly, these laws require a written lease, good
cause for eviction, disclosure of fees, and notification to residents of
changed land use, while prohibiting unreasonable rules, retaliatory evictions,
and restrictions on a resident's choice of unit vendors. Mobile home park
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 mobile home owner's tenancy or increase its
rent or prohibit a landlord from terminating a tenancy solely by reason of the
sale of the owner's mobile home. Certain states also regulate changes
Inserts-57
<PAGE>
Insert 8: Mobile Home Parks and Recreational Vehicle Parks
in mobile home park use and require that the landlord give written notice to
its tenants a substantial period of time prior to the projected change.
In addition to state regulation of the landlord-tenant
relationship, numerous counties and municipalities impose rent control on
mobile home parks. These ordinances may limit rent increases to fixed
percentages, to percentages of increases in the consumer price index, to
increases set or approved by a governmental agency, or to increases determined
through mediation or binding arbitration. In many cases, the rent control laws
do not provide for decontrol of rental rates upon vacancy of individual units
or permit such decontrol only in the relatively rare event that the mobile home
is removed from the homesite. Any limitations on a borrower's ability to raise
property rents may impair such borrower's ability to repay its Mortgage Loan
from its net operating income or the proceeds of a sale or refinancing of the
related Mortgaged Property.
Inserts-58
<PAGE>
Insert 8: Mobile Home Parks and Recreational Vehicle Parks
[The following is to be inserted in the Version 1 Prospectus
Supplement immediately following "Risk Factors--Risks Associated with
Certain of the Mortgage Loans and Mortgaged Properties--Effect of Mortgage
Defaults":]
Risks Particular to Mobile Home Parks and Recreational
Vehicle Parks. ______ of the Mortgage Loans, which represent _____ % of the
aggregate principal balance of the Mortgage Loans as of the Cut-off Date, are
secured by Mortgages on fee and/or leasehold interests in mobile home parks and
recreational vehicle parks. Mortgage Loans that are secured by liens on such
types of properties are exposed to certain unique risks. See "Risk Factors
- - --Risks Associated With Certain Mortgage Loans and Mortgaged
Properties-Risks Particular to Mobile Home Parks and Recreational Vehicle
Parks" in the Prospectus.
Inserts-59
<PAGE>
Insert 8: Mobile Home Parks and Recreational Vehicle Parks
[The following is to be inserted in the Version 2 Prospectus
Supplement immediately following "Risk Factors--Effect of Defaults by
Mortgagors on Underlying Mortgage Loans":]
Risks Particular to Mobile Home Parks and Recreational
Vehicle Parks. _____ of the MBS Securities evidence ownership of trust funds as
to which _____ % of the aggregate principal balance of the Underlying Mortgage
Loans as of the Cut-off Date are secured by Mortgages on fee and/or leasehold
interests in mobile home parks and recreational vehicle parks. Mortgage Loans
that are secured by liens on such types of properties are exposed to certain
unique risks. See "Risk Factors--Risks Associated With Certain Mortgage Loans
and Mortgaged Properties-Risks Particular to Mobile Home Parks and Recreational
Vehicle Parks" in the Prospectus.
Inserts-60
<PAGE>
Insert 9: Casino Properties
[The following is to be inserted, as indicated by starred
brackets ([** // **]) on the next page, on the cover of the Prospectus.]
Casino properties will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the MBS
Securities included in a particular Trust Fund) constituting the Trust Fund for
any Series, based on principal balance at the time such Series is issued.
Inserts-61
<PAGE>
Insert 9: Casino Properties
SUBJECT TO COMPLETION, DATED __________ __, 1999
PROSPECTUS
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION V
DEPOSITOR
The mortgage pass-through certificates offered hereby and by
Supplements to this Prospectus (the "Offered Certificates") 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 (the "Trust Fund") to
be established by the Depositor. The Certificates of each series may be divided
into two or more classes (each, a "Class"), each of which will evidence
beneficial ownership of a specified percentage or portion of future interest
payments, a specified percentage or portion of future principal payments on the
assets in the related Trust Fund or both as described herein and in the related
Prospectus Supplement. In addition, the rights of holders of certain Classes of
Certificates to receive distributions of principal and interest may be
subordinated to those of other Classes to the extent described in the related
Prospectus Supplement. Each Trust Fund shall consist primarily of a segregated
pool of multifamily or commercial mortgage loans or participation interests
therein, together with installment sales contracts (collectively the "Mortgage
Loans") and/or agency or non-agency mortgage pass-through certificates or other
mortgage-backed securities evidencing interests in or secured by Mortgage Loans
(the "MBS Securities") that evidence interests in, or that are secured by
pledges of, one or more of the following types of real property (each, a
"Mortgaged Property"): (i) residential properties consisting of five or more
rental or cooperatively-owned dwelling units (or shares allocable to a number
of such units and proprietary leases appurtenant thereto) ("Multifamily
Properties"), (ii) mobile home parks and (iii) commercial properties consisting
of (a) office buildings, retail facilities related to the sale of goods and
products and facilities related to providing entertainment, recreation or
personal services, hotels and motels, casinos, health care-related facilities,
recreational vehicle parks, warehouse facilities, mini-warehouse facilities,
self-storage facilities, industrial facilities, parking lots, auto parks, golf
courses, arenas and restaurants (or cooperatively owned units therein), (b)
mixed use properties (that is, any combination of the foregoing) and (c)
unimproved land ("Commercial Properties"). [** Casino properties will represent
security for a material concentration of the Mortgage Loans (and the mortgage
loans underlying the MBS Securities included in a particular Trust Fund)
constituting the Trust Fund for any Series, based on principal balance at the
time such Series is issued.**].
The Certificates will not represent an obligation of or an
interest in the Depositor, any Master Servicer or Special Servicer or any of
their respective affiliates, except to the limited extent described herein and
in the related Prospectus Supplement. Neither the Certificates nor any assets
in the related 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.
As described in the related Prospectus Supplement, the
Certificates of each Series, including the Offered Certificates, will consist
of one or more classes of Certificates that may (i) be senior or subordinate to
one or more other classes of Certificates in respect of certain distributions
on the Certificates; (ii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iii) be entitled
to interest distributions, with disproportionately low, nominal or no principal
distributions; (iv) provide for distributions of
Inserts-62
<PAGE>
Insert 9: Casino Properties
accrued interest thereon commencing only following the occurrence of certain
events, such as the retirement of one or more other classes of Certificates of
such series; and/or (v) provide for payments of principal sequentially, based
on specified payment schedules or other methodologies, to the extent of
available funds. See "Description of the Certificates."
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."
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING
UNDER THE CAPTION "RISK FACTORS" ON PAGE 20 OF THIS PROSPECTUS HEREIN AND IN
THE RELATED PROSPECTUS SUPPLEMENT BEFORE PURCHASING ANY OFFERED CERTIFICATES.
If so provided in the related Prospectus Supplement, an
election may be made to treat the related Trust Fund or one or more designated
portions thereof as one or more "real estate mortgage investment conduits" or
"financial asset securitization investment trusts" for federal income tax
purposes. See "Certain Federal Income Tax Consequences" herein.
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 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 Certificates. Prior to issuance there will have
been no market for the Certificates of any series and there can be no assurance
that a secondary market for any Offered Certificates will develop or that, if
such a market does develop, that it will continue.
It will be a condition to the issuance of the Certificates of
each series that the Offered Certificates of such series be rated in one of the
four highest rating categories by one or more nationally recognized statistical
rating organizations.
Offers of the Offered Certificates may be made through one or
more different methods, as more fully described under "Plan of Distribution"
herein and in the related Prospectus Supplement. All Offered Certificates will
be distributed by, or sold by underwriters managed by:
PAINEWEBBER INCORPORATED
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF CERTIFICATES OFFERED
HEREBY UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THE DATE OF THIS PROSPECTUS IS _________ ___, ____
Inserts-63
<PAGE>
Insert 9: Casino Properties
[The following is to be inserted in the Prospectus
immediately following "Risk Factors--Risks Associated with Certain Mortgage
Loans and Mortgaged Properties":]
RISKS PARTICULAR TO CASINO PROPERTIES.
The income generated by a casino is subject to several
factors such as local, regional and national economic conditions. Casinos are
dependent on the willingness of patrons to gamble and, accordingly, the
availability of disposable income for such purposes. Additional risks include,
among others, a high level of continuing capital expenditure to maintain
attractive facilities, competition from other casinos, increases in operating
costs (which may not be able to be passed through to patrons) and, depending on
the geographic location, a dependency on tourism. Competition among major
casinos may involve attracting patrons by providing alternate forms of
entertainment (e.g., performers and sporting events), which may materially
increase operating expenses, and low-priced or free food and lodging. In
addition, to avoid criminal influence, the ownership and operation of casino
properties is often subject to local or state governmental regulation. A
government agency or authority may have jurisdiction over or influence with
respect to the foreclosure of a casino property and/or the bankruptcy of its
owner or operator. In some jurisdictions, it may be necessary to receive
governmental approval before foreclosing, thereby resulting in substantial
delays. Gaming licenses are not transferable (including in connection with a
foreclosure), and there can be no assurance that the Trustee or other purchaser
in foreclosure or otherwise will be able to obtain the requisite approvals to
operate the subject property as a casino. The loss of a gaming license could
have a material adverse effect on the value of a casino property. In addition,
any given state or municipality that currently allows legalized gambling could
pass legislation prohibiting it.
Inserts-64
<PAGE>
Insert 9: Casino Properties
[The following is to be inserted in the Prospectus
immediately following "Description of the Trust Funds--Mortgage
Assets--Mortgage Loans":]
Mortgage Loans Secured by Casino Properties. Various factors,
including location and appearance, affect the economic performance of a casino.
Adverse economic conditions, either local, regional or national, may limit the
amount of disposable income that potential patrons may have for gambling. The
construction of competing casinos can also have an adverse affect on the
performance of a casino property. To meet competition, continuing expenditures
must be made for modernizing, refurbishing and maintaining existing facilities.
In addition, competition among major casinos may involve attracting patrons by
providing alternate forms of entertainment (e.g., performers and sporting
events), which may materially increase operating expenses, and low-priced or
free food and lodging. Because of the nature of the business, casinos tend to
respond more quickly to adverse economic conditions and competition then do
certain other commercial properties. Depending on the geographic location of a
casino property, it may be heavily dependent on tourism for its clientele. In
addition, to avoid criminal influence, the ownership and operation of casino
properties is often subject to local or state governmental regulation. For
public policy reasons, applicable government agencies are given substantial
powers in this regard. A government agency or authority may also have
jurisdiction over or influence with respect to the foreclosure of a casino
property and/or the bankruptcy of its owner or operator. In some jurisdictions,
it may be necessary to receive governmental approval before foreclosing,
thereby resulting in substantial delays. Gaming licenses are not transferable
(including in connection with foreclosure), and there can be no assurance that
the Trustee, Special Servicer or other purchaser in foreclosure or otherwise
will be able to obtain the requisite approvals to operate the subject property
as a casino. The loss of a gaming license could have a material adverse affect
on the value of a casino property. Further, any given state or municipality
that currently allows legalized gambling could pass legislation banning it.
Depending upon what alternative use may be made of a casino property, such
legislation could have a material adverse affect on the value of such property.
Inserts-65
<PAGE>
Insert 9: Casino Properties
[The following is to be inserted in the Version 1 Prospectus
Supplement immediately following "Risk Factors--Risks Associated with
Certain of the Mortgage Loans and Mortgaged Properties--Effect of Mortgage
Defaults":]
Risks Particular to Casino Properties. ____ of the Mortgage
Loans, which represent _____% of the aggregate principal balance of the
Mortgage Loans as of the Cut-off Date, are secured by Mortgages on fee and/or
leasehold interests in casinos. Mortgage Loans that are secured by liens on
such types of properties are exposed to certain unique risks. See "Risk Factors
- - --Risks Associated With Certain Mortgage Loans and Mortgaged
Properties-Risks Particular to Casino Properties" in the Prospectus.
Inserts-66
<PAGE>
Insert 9: Casino Properties
[The following is to be inserted in the Version 2 Prospectus
Supplement immediately following "Risk Factors--Effect of Defaults by
Mortgagors on Underlying Mortgage Loans":]
Risks Particular to Casino Properties. _____ of the MBS
Securities evidence ownership of trust funds as to which _____ % of the
aggregate principal balance of the Underlying Mortgage Loans as of the Cut-off
Date are secured by Mortgages on fee and/or leasehold interests in casinos.
Mortgage Loans that are secured by liens on such types of properties are
exposed to certain unique risks. See "Risk Factors--Risks Associated
With Certain Mortgage Loans and Mortgaged Properties-Risks Particular to Casino
Properties" in the Prospectus.
Inserts-67
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED ______________ __, 1999
PROSPECTUS SUPPLEMENT [VERSION 1]
(TO PROSPECTUS DATED _________, 199_)
$__________ (APPROXIMATE)
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION V
DEPOSITOR
[MASTER SERVICER]
MASTER SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 199__-__
$____________ CLASS A CERTIFICATES
The Series 199__ -__ Mortgage Pass-Through Certificates (the
"Certificates") will represent beneficial ownership interests in a trust fund
(the "Trust Fund") to be created by PaineWebber Mortgage Acceptance Corporation
V (the "Depositor"). The Trust Fund will consist primarily of a pool (the
"Mortgage Pool") of adjustable-rate mortgage loans, with terms to maturity of
not more than __ years (the "Mortgage Loans"), secured by first liens on
[multifamily] [commercial] properties. The Mortgage Loans were originated or
acquired by __________ (the "Mortgage Asset Seller" and will be sold to the
Depositor on or prior to the date of initial issuance of the Certificates.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.]
<TABLE>
<CAPTION>
Class Certificate Balance Pass-Through Rate
or Notional Amount
<S> <C> <C>
[Class A -].............................................. $ %(1)
[Class IO]............................................... [(6)] [(2)]
[Class PO]............................................... [(3)]
[Class Floater].......................................... [(4)]
[Class Inverse Floater].................................. [(5)]
</TABLE>
(1) Approximate, subject to adjustment as described herein.
[(2) The Class IO Certificates are interest only certificates, have no
principal balance and will bear interest on the Class IO Notional
Amount (initially $__________) as described herein under "Description
of the Certificates--General" and "--Distributions--Calculations of
Interests".
[(3) The Class PO Certificates are principal only certificates and will
not be entitled to distributions with respect to interest.)]
[(4) During the Initial Floating Index Interest Accrual Period, interest
will accrue on the Class Floater Certificates at a rate of ___ % per
annum. During each Floating Index Interest Accrual Period thereafter,
interest will accrue on the Class Floater Certificates at a per annum
rate equal to the lesser of ________________. See "Description of the
Certificates--General" and "--Distributions--Calculations of Interest"
herein.]
<PAGE>
[(5) During the Initial Floating Index Interest Accrual Period, interest
will accrue on the Class Inverse Floater Certificates at a rate of
approximately ___% per annum. During each Floating Index Interest
Accrual Period thereafter, interest will accrue on the Class Inverse
Floater Certificates at a per annum rate determined as described
herein, subject to a minimum rate of ___% and a maximum rate of ___%.
See "Description of the Certificates--General" and
"--Distributions--Calculations of Interest" herein.]
[(6) Notional Amount.]
--------------------------------------------
THE CLASS A CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE PART
OF A SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE DEPOSITOR PURSUANT TO
ITS PROSPECTUS DATED __________ __, 199_, OF WHICH THIS PROSPECTUS SUPPLEMENT
IS A PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS
CONTAINS IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT CONTAINED
HEREIN, AND PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS
PROSPECTUS SUPPLEMENT IN FULL. SALES OF THE CLASS A CERTIFICATES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS.
UNTIL __________, 199_, ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A
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
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
--------------------------------------------
PAINEWEBBER INCORPORATED
, 199_
S-2
<PAGE>
(Continued from Cover Page)
The Certificates will consist of four classes of
Certificates, designated as the Class A Certificates, Class B Certificates,
Class C Certificates and Class R Certificates (the Class B, Class C and Class R
Certificates, collectively, the "Subordinate Certificates"). [The Class A
Certificates will consist of [ ] subclasses (each a "Subclass") designated as
the (Class IO Certificates, the Class PO Certificates, the Class Floater
Certificates, the Class Inverse Floater Certificates and the Class A-
Certificates)]. The Class A Certificates will evidence approximately an initial
___% undivided interest in the Trust Fund and the Subordinate Certificates, in
the aggregate, will evidence approximately an initial ___% undivided interest
in the Trust Fund. Only the Class A Certificates are being offered hereby.
[As more fully described herein, each Mortgage Loan provides
for periodic adjustments (which may occur monthly, quarterly, semi-annually or
annually) of the mortgage interest rate (the "Mortgage Rate") thereon and the
monthly payment due thereon, in each case subject to the limitations described
herein. Accordingly, there may be a significant increase in the Mortgage Rate
and the amount of the scheduled monthly payment due after such increase, which
may increase the likelihood of default on and prepayment of such Mortgage Loan.
In most cases, the Mortgage Loans (and consequently the Class A Certificates)
may be subject to accelerated, reduced or negative amortization because (1) the
Mortgage Rate on a Mortgage Loan will be subject to adjustment monthly, while
the monthly payment due thereon will be subject to adjustment annually, in each
case subject to the limitations described herein, and (2) the application of
payment caps limits adjustments to the monthly payments on certain Mortgage
Loans. Certain of the Mortgage Loans continue to be in an initial fixed
interest rate period and have not experienced the first adjustment to their
respective Mortgage Rates.] The characteristics of the Mortgage Loans are more
fully described herein under "Description of the Mortgage Pool".
Distributions on the Class A Certificates will be made, to
the extent of available funds, on the ___th day of each month or, if any such
day is not a business day, on the next succeeding business day, beginning in
__________ __, 199__ (each, a "Distribution Date"). As more fully described
herein, distributions allocable to interest on the Class A Certificates on each
Distribution Date will be based on the then-applicable variable pass-through
rate (the "Pass-Through Rate") and the aggregate principal balance (the
"Certificate Principal Balance") of such class outstanding immediately prior to
such Distribution Date. The Pass-Through Rate applicable to the Class A
Certificates from time to time will equal the weighted average of the Class A
Remittance Rates (as defined herein) on the Mortgage Loans. The Pass-Through
Rate for the Class A Certificates on the first Distribution Date will be ___%
per annum and is expected to change thereafter because the weighted average of
the Class A Remittance Rates is expected to change for succeeding Distribution
Dates. [Each Subclass of the Class A Certificates (other than the Class PO
Certificates) will bear interest at the Pass-Through Rate set forth for each
Subclass on the cover hereof.] Distributions in respect of principal of the
Class A Certificates will be made as described herein under "Description of the
Certificates--Distributions--Priority and "--Calculations of Principal".
____________________ will act as master servicer of the
Mortgage Loans (the "Master Servicer"). The obligations of the Master Servicer
with respect to the Certificates will be limited to its contractual servicing
obligations and the obligation under certain circumstances to make Advances to
the Certificateholders. If the Master Servicer fails to make any such Advance
or otherwise fails to perform its servicing obligations, the Trustee will be
obligated to assume such servicing obligations and to make such Advances to the
extent described herein. See "Description of the Certificates--Advances"
herein. The only obligation of the Depositor with respect to the Certificates
will be to obtain from the Mortgage Asset Seller certain representations and
warranties with respect to the Mortgage Loans and to assign to the Trustee the
S-3
<PAGE>
obligation of the Mortgage Asset Seller to repurchase or substitute for any
Mortgage Loan as to which there exists an uncured material breach of any such
representation or warranty.
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF
PAYMENTS ON THE CLASS A CERTIFICATES. THE CLASS A CERTIFICATES DO NOT REPRESENT
AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, THE MASTER SERVICER, THE TRUSTEE
OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE CLASS A CERTIFICATES NOR THE
MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY THE DEPOSITOR, THE MASTER SERVICER, THE TRUSTEE OR ANY OF
THEIR AFFILIATES.
--------------------------------------------
It is a condition of the issuance of the Class A Certificates that
they be rated [not lower than] "___" by _____________.
An election will be made to treat the Trust Fund as a ["real estate
mortgage investment conduit" (a "REMIC")] [a financial assets securitization
investment trust (a "FASIT")] for federal income tax purposes. The Class A
Certificates will constitute "regular interests" in the REMIC. See "Certain
Federal Income Tax Consequences" herein and in the Prospectus.
THE YIELD TO MATURITY OF THE CLASS A CERTIFICATES WILL BE SENSITIVE IN
VARYING DEGREES TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS) ON THE MORTGAGE LOANS, WHICH MAY BE PREPAID AT ANY TIME WITHOUT
PENALTY. SEE "RISK FACTORS" HEREIN AND "RISK FACTORS--AVERAGE LIFE OF
CERTIFICATES; PREPAYMENTS; YIELDS" AND "YIELD CONSIDERATIONS" IN THE
PROSPECTUS. INVESTORS IN THE CLASS A CERTIFICATES SHOULD CONSIDER THE
ASSOCIATED RISKS, INCLUDING, IN THE CASE OF CLASS A CERTIFICATES PURCHASED AT A
DISCOUNT, [ESPECIALLY THE CLASS PO CERTIFICATES,] THE RISK THAT A SLOWER THAN
ANTICIPATED RATE OF PAYMENTS IN RESPECT OF PRINCIPAL (INCLUDING PREPAYMENTS) ON
THE MORTGAGE LOANS COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN
ANTICIPATED, AND IN THE CASE OF CLASS A CERTIFICATES PURCHASED AT A PREMIUM,
[PARTICULARLY THE CLASS [FLOATER] [IO] CERTIFICATES,] THAT A FASTER THAN
ANTICIPATED RATE OF PAYMENTS IN RESPECT OF PRINCIPAL (INCLUDING PREPAYMENTS) ON
THE MORTGAGE LOANS COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN
ANTICIPATED. [INVESTORS IN THE CLASS [FLOATER] [IO] CERTIFICATES SHOULD ALSO
CONSIDER THE RISK THAT A RAPID RATE OF PAYMENTS IN RESPECT OF PRINCIPAL
(INCLUDING PREPAYMENTS) COULD RESULT IN THE FAILURE OF SUCH INVESTORS TO FULLY
RECOVER THEIR INITIAL INVESTMENTS].
[THE YIELD TO INVESTORS IN THE CLASS [FLOATER] [INVERSE FLOATER]
CERTIFICATES WILL BE HIGHLY SENSITIVE TO [FLOATING INDEX]. RELATIVELY SMALL
INCREASES IN [FLOATING INDEX] WILL HAVE A MATERIAL NEGATIVE EFFECT ON THE YIELD
TO INVESTORS IN THE CLASS FLOATER CERTIFICATES AND HIGH LEVELS OF [FLOATING
INDEX] WILL HAVE A MATERIAL NEGATIVE EFFECT ON THE YIELD TO INVESTORS IN THE
CLASS INVERSE FLOATER CERTIFICATES.]
There is currently no secondary market for the Class A Certificates.
PaineWebber Incorporated (the "Underwriter"), through one or more of its
affiliates, currently expects to make a secondary market in the Class A
Certificates, but has no obligation to do so. There can be no assurance that
such a market will develop or, if it does develop, that it will continue. See
"Method of Distribution" herein.
The Class A Certificates offered hereby will be purchased by the
Underwriter from the Depositor and will be offered by the Underwriter from time
to time to the public 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 Class
S-4
<PAGE>
A Certificates will be ___% of the initial aggregate principal balance thereof
as of ________ 1, 199 (the "Cut-off Date") plus accrued interest from the
Cut-off Date at a rate of ___% per annum, before deducting expenses payable by
the Depositor.
The Class A Certificates are offered by the Underwriter, subject to
prior sale, when, as and if delivered to and accepted by the Underwriter and
subject to approval of certain legal matters by counsel. It is expected that
delivery of the Class A Certificates [(other than the Class ___ Certificates]
will be made against payment therefor on or about __________, 199_, [at the
offices of the Underwriter, 1285 Avenue of the Americas, New York, New York
10019] [in book-entry form through the facilities of The Depository Trust
Company].
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will also be used by the Underwriter
after the completion of the offering in connection with offers and sales
related to market-making transactions in the Class A Certificates in which the
Underwriter acts as principal. The Underwriter may also act as agent in such
transactions. Sales will be made at negotiated prices determined at the time of
sale.]
S-5
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY OF PROSPECTUS SUPPLEMENTS......................................................................S-8
RISK FACTORS..........................................................................................S-19
DESCRIPTION OF THE MORTGAGE POOL......................................................................S-21
General......................................................................................S-21
The Index....................................................................................S-23
Certain Characteristics of the Mortgage Loans................................................S-23
Underwriting Standards.......................................................................S-40
Changes in the Mortgage Pool.................................................................S-40
DESCRIPTION OF THE CERTIFICATES.......................................................................S-41
General......................................................................................S-41
Distributions................................................................................S-42
Subordination................................................................................S-45
Advances.....................................................................................S-45
[Registration at The Depository Trust Company................................................S-45
Definitive Certificates......................................................................S-47
[PREPAYMENT AND YIELD CONSIDERATIONS..................................................................S-47
[Sensitivity of the Class IO/PO Certificates.................................................S-50
Sensitivity of the Class IO/PO Certificates to Prepayments...................................S-50
Weighted Average Life of the Certificates....................................................S-50
POOLING AND SERVICING AGREEMENT.......................................................................S-52
General......................................................................................S-52
Assignment of the Mortgage Loans.............................................................S-53
The Trustee..................................................................................S-53
The Master Servicer..........................................................................S-53
Special Servicers............................................................................S-55
Certificate Account..........................................................................S-55
Servicing and other Compensation and Payment of Expenses.....................................S-56
Reports to Certificateholders................................................................S-56
Voting Rights................................................................................S-57
Termination..................................................................................S-57
USE OF PROCEEDS.......................................................................................S-57
CERTAIN FEDERAL INCOME TAX CONSEQUENCES...............................................................S-57
ERISA CONSIDERATIONS..................................................................................S-58
LEGAL INVESTMENT......................................................................................S-62
S-6
<PAGE>
PLAN OF DISTRIBUTION..................................................................................S-62
LEGAL MATTERS.........................................................................................S-63
RATING................................................................................................S-63
</TABLE>
S-7
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENTS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used but defined herein
have the meanings assigned thereto in the Prospectus. An Index of Principal
Definitions is included at the end of the Prospectus.
Title of Certificates............ Mortgage Pass-Through Certificates, series
199__ Variable Pass-Through Rate (the
"Certificates").
[Amount.......................... The Class A Certificates have the approximate
aggregate initial Certificate Principal
Balances set forth on the cover of this
Prospectus Supplement, subject to a permitted
upward or downward variance of up to ___%
[except that the Class IO Certificates will
have no Certificate Principal Balance].
Depositor........................ PaineWebber Mortgage Acceptance
Corporation V, a Delaware corporation and a
wholly-owned subsidiary of PaineWebber
Group Inc., and an affiliate of PaineWebber
Incorporated (the "Underwriter"). See
"The Depositor" in the Prospectus.
Master Servicer.................. __________ , a __________. See "Pooling and
Servicing Agreement--The Master Servicer"
herein.
Trustee.......................... __________ , a __________.
Cut-off Date..................... __________ 1, 199_.
Delivery Date.................... __________, 199_.
Denominations.................... The Class A Certificates will be issuable in
registered form, in denominations of
$__________ and integral multiples of
$__________ in excess thereof[, with one
Certificate of such class evidencing an
additional amount equal to the remainder of
the Certificate Principal Balance thereof].
[The Class A Certificates (other than the
Class __ Certificates) are issuable in
book-entry form in minimum denominations of
approximately $[ ] and integral multiples of
$1,000 in excess thereof, and will be
represented by certificates registered in the
name of Cede & Co. ("Cede"), as the nominee
of the depository, The Depository Trust
Company ("DTC" and, together with any
successor depository, the "Depository"),
which will be the "Certificateholder" of the
Book-Entry Certificates, as such term is used
herein. A person acquiring an interest in
S-8
<PAGE>
Book-Entry Certificates (a "Certificate
Owner") will not be entitled to receive a
certificate representing such Book-Entry
Certificate Owner's interest therein except
in the event that Definitive Certificates (as
defined herein) are issued for all Class A
Certificates under the limited circumstances
described herein. Until such time, the rights
of the Certificate Owners may only be
exercised through DTC and its participating
organizations, except as otherwise specified
herein. See "Description of the
Certificates--General," "--Registration at
The Depository Trust Company" and
"--Definitive Certificates" herein.]
The Mortgage Pool................ The Mortgage Pool will consist of adjustable
rate Mortgage Loans secured by first liens on
[multifamily] [commercial] properties (the
"Mortgaged Properties") located in different
states. The Mortgage Loans will have an
aggregate principal balance as of the Cut-off
Date of $__________ and individual principal
balances at origination of at least
$__________ but not more than $__________,
with an average principal balance at
origination of approximately $__________. The
Mortgage Loans will have terms to maturity
from the date of origination or modification
of not more than __ years, and a weighted
average remaining term to maturity of
approximately __ months as of the Cut-off
Date. The Mortgage Loans will bear interest
at Mortgage Rates of at least ___% per annum
but not more than ___% per annum, with a
weighted average Mortgage Rate of
approximately ___% per annum as of the
Cut-off Date. See "Description of the
Mortgage Pool--Certain Characteristics of the
Mortgage Loans" herein. The Depositor will
acquire the Mortgage Loans on or before the
Delivery Date. In connection with its
acquisition of the Mortgage Loans, the
Depositor will be assigned (and will in turn
assign to the holders of the Certificates)
certain rights in respect of representations
and warranties described herein that were
made by the Mortgage Asset Seller.
The Mortgage Loans............... __________ of the Mortgage Loans,
representing ___% of the Mortgage Loans by
aggregate principal balance as of the Cut-off
Date, provide for scheduled payments of
principal and/or interest ("Monthly
Payments") to be due on the first day of each
month; the remainder of the Mortgage Loans
provide for Monthly Payments to be due on the
____, ____ or ____ day of each month (the
date in any month on which a Monthly Payment
on a Mortgage Loan is first due, the "Due
Date"). The rate per annum at which interest
accrues on each Mortgage Loan is subject to
adjustment on specified Due Dates (each such
date, an
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<PAGE>
"Interest Rate Adjustment Date") by adding a
fixed percentage amount (a "Gross Margin") to
the value of the then-applicable Index (as
described below) subject, in the case of
substantially all of the Mortgage Loans, to
maximum and minimum lifetime Mortgage Rates
as described herein. ____ of the Mortgage
Loans, representing ___% of the Mortgage
Loans by aggregate principal balance as of
the Cut-off Date, provide for Interest Rate
Adjustment Dates to occur monthly; the
remainder of the Mortgage Loans provide for
adjustments to the Mortgage Rate to occur
quarterly, semi-annually or annually. Each of
the Mortgage Loans provides for an initial
fixed interest rate period; _____ of the
Mortgage Loans, representing ___% of the
Mortgage Loans by aggregate principal balance
as of the Cut-off Date, have not yet
experienced their first Interest Rate
Adjustment Date. The latest initial Interest
Rate Adjustment Date for any Mortgage Loan is
scheduled to occur on __________.
The amount of the Monthly Payment of each
Mortgage Loan is also subject to adjustment
on specified Due Dates (each such date, a
"Payment Adjustment Date") to an amount that
would amortize the outstanding principal
balance of the Mortgage Loan over its then
remaining amortization schedule and pay
interest at the applicable Mortgage Rate,
subject, in the case of several Mortgage
Loans, to payment caps, which limit the
amount by which the Monthly Payment may
adjust on any Payment Adjustment Date as
described herein. __________ of the Mortgage
Loans, representing _____% of the Mortgage
Loans (by aggregate principal balance as of
the Cut-off Date), provide for Payment
Adjustment Dates to occur annually, while the
remainder of the Mortgage Loans provide for
adjustments of the Monthly Payment to occur
monthly, quarterly or semi-annually.
[Only in the case of __________ Mortgage
Loans, representing _____% of the Mortgage
Loans by aggregate principal balance as of
the Cut-off Date, does a Payment Adjustment
Date immediately follow each Interest Rate
Adjustment Date. As a result, and because the
application of payment caps may limit the
amount by which the Monthly Payments may
adjust in respect of certain Mortgage Loans,
the amount of a Monthly Payment may be more
or less than the amount necessary to amortize
the remaining principal balance of the
Mortgage Loan over its then remaining
amortization schedule and pay interest at the
then-applicable Mortgage Rate. Accordingly,
Mortgage
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<PAGE>
Loans may be subject to slower amortization
(if the Monthly Payment due on a Due Date is
sufficient to pay interest accrued to such
Due Date at the then-applicable Mortgage Rate
but is not sufficient to reduce principal in
accordance with the applicable amortization
reduce principal in accordance with the
applicable amortization schedule), to
negative amortization (if interest accrued to
a Due Date at the applicable Mortgage Rate is
greater than the entire Monthly Payment due
on such Due Date) or to accelerated
amortization (if the Monthly Payment due on a
Due Date is greater than the amount necessary
to pay interest accrued to such Due Date at
the then-applicable Mortgage Rate and to
reduce principal in accordance with the
applicable amortization schedule).]
[___ Mortgage Loans, representing ___% of the
Mortgage Loans by aggregate principal balance
as of the Cut-off Date, permit negative
amortization. Substantially all of the
Mortgage Loans that permit negative
amortization contain provisions that limit
the extent to which the amount of their
respective original principal balances may be
exceeded as a result thereof.]
[All of the Mortgage Loans provide for
monthly payments of principal based on
amortization schedules significantly longer
than the remaining term of such Mortgage
Loans, thereby leaving substantial
outstanding principal amounts due and payable
(each such payment, a "Balloon Payment") on
their respective maturity dates, unless
prepaid prior thereto.]
For a further description of the Mortgage
Loans, see "Description of the Mortgage Pool"
herein.
The Index........................ As of any Interest Rate Adjustment Date, the
Index used to determine the Mortgage Rate on
each Mortgage Loan will be the [Index]. See
"Description of the Mortgage Pool--The Index"
herein.
The Class A Certificates......... The Class A Certificates will be issued
pursuant to a Pooling and Servicing
Agreement, to be dated as of the Cut-off
Date, among the Depositor, the Master
Servicer and the Trustee (the "Pooling and
Servicing Agreement"). The Class A
Certificates have an initial Certificate
Principal Balance of $__________ (the initial
"Class A Balance"), representing an initial
interest of approximately ___% in a trust
fund (the "Trust Fund"), which will consist
primarily of the Mortgage Pool. [The Class A
Certificates
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<PAGE>
will consist of [ ] Subclasses designated as
the [Class IO Certificates, the Class PO
Certificates, the Class Floater Certificates,
the Class Inverse Floater Certificates and
the Class A- Certificates). Each Subclass
will have the Subclass Certificate Principal
Balance set forth on the cover of this
Prospectus Supplement.]
Distributions on the Class A Certificates
will be made on the ___ day of each month or,
if such day is not a business day, on the
succeeding business day, beginning on
_________ __, 199__ (each, a "Distribution
Date"). Distributions on each Distribution
Date will be made by check or wire transfer
of immediately available funds, as provided
in the Pooling and Servicing Agreement, to
the Class A Certificateholders of record as
of the last business day of the month
preceding the month of such Distribution Date
(each, a "Record Date"), except that the
final distribution on the Class A
Certificates will be made only upon
presentation and surrender of the Class A
Certificates at the office or agency
specified in the Pooling and Servicing
Agreement. As more specifically described
herein, the Class A Balance will be adjusted
from time to time on each Distribution Date
to reflect any additions thereto resulting
from allocations of Mortgage Loan negative
amortization to the Class A Certificates and
any reductions thereof resulting from
distributions of principal of the Class A
Certificates. [Any such adjustments will be
allocated among the Subclasses of Class A
Certificates pro rata based on the Subclass
Certificate Principal Balance of each such
Subclass.] As further described herein,
interest shall accrue on the Class A Balance
at a Pass-Through Rate equal to the weighted
average of the Class A Remittance Rates in
effect from time to time on the Mortgage
Loans.
Pass-Through Rate on the
Class A Certificates............. The Pass-Through Rates for each Subclass of
the Class A Certificates is as set forth on
the cover hereof.
Interest Distributions on the
Class A Certificates............. Holders of the Class A Certificates will be
entitled to receive on each Distribution
Date, to the extent of the Available
Distribution Amount for such Distribution
Date, distributions allocable to interest in
an aggregate amount (the "Class A Interest
Distribution Amount") equal to thirty days'
interest accrued on the Class A Balance
outstanding immediately prior to such
Distribution Date at the weighted average of
the Mortgage Rates in effect for the Mortgage
Loans as of the commencement of the related
Due Period
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<PAGE>
less ___%, less the Class A Certificates'
allocable share (calculated as described
herein) of (i) the aggregate amount of
negative amortization in respect of the
Mortgage Loans for their respective Due Dates
occurring during the related Due-Period and
(ii) the aggregate amount, if any, of the
Prepayment Interest Shortfalls incurred
during the related Due Period that were not
covered by the application of the Master
Servicer's servicing compensation for the
related Due Period. The amount, if any, by
which the Class A Interest Distribution
Amount for any Distribution Date is reduced
as a result of negative amortization on the
Mortgage Loans shall constitute the "Class
Negative Amortization" for such Distribution
Date in respect of the Class A Certificates
and shall be added to the Class A Balance on
such Distribution Date. If the Available
Distribution Amount for any Distribution Date
is less than the Class A Interest
Distribution Amount for such Distribution
Date, the shortfall will be borne pro rata by
the Subclasses of Class A Certificates and
will be part of the Class A Interest
Distribution Amount distributable to holders
of Class A Certificates on subsequent
Distribution Dates, to the extent of
available funds.
The Available Distribution Amount for any
Distribution Date generally includes: (i)
scheduled payments on the Mortgage Loans due
during or prior to the related Due Period and
collected as of the related Determination
Date (to the extent not distributed on
previous Distribution Dates) and certain
unscheduled payments and other collections on
the Mortgage Loans collected during the
related Due Period, net of amounts payable or
reimbursable to the Master Servicer
therefrom; (ii) any Advances made by the
Master Servicer for the related Distribution
Date; and (iii) that portion of the Master
Servicer's servicing compensation for the
related Due Period applied to cover
Prepayment Interest Shortfalls incurred
during the related Due Period. See
"Description of the Certificates--
Distributions--Calculations of Interest"
herein.
During each month, interest will accrue on
the Certificate Principal Balance of each
Subclass of Class A Certificates, other than
the [Class IO and] Class PO Certificates, at
the Pass-Through Rate thereof. The
Pass-Through Rate for each Subclass of Class
A Certificates (other than Class PO) is set
forth on the cover of this Prospectus
Supplement. Interest on the Class A
Certificates will be calculated on the basis
of a 360-day year consisting of twelve 30-day
months.
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<PAGE>
[The amount of interest to which holders of
the Class IO Certificates are entitled each
month is calculated based on a "notional
amount." A notional amount does not entitle
holders to receive distributions of principal
on the basis of such notional amount, but is
used for the purpose of computing the amount
of interest accrued on each such subclass.
The notional amount for the Class IO
Certificates is calculated based on the sum
of the indicated percentages of the
respective outstanding principal balances of
certain other subclasses as described herein.
The method of determining the notional amount
of the Class IO Certificates is described
under "Description of the Certificates
--General" and "--Distribution--Calculations
of Interest" herein. Interest will accrue on
the Class IO Certificates each month in an
amount equal to the product of (i) 1/12th of
__________ and (ii) the notional amount of
the Class IO Certificates.
[The yield on the Class PO Certificates,
which are expected to be offered at a
substantial discount and which are not
entitled to distributions in respect of
interest, will be extremely sensitive to both
the timing of receipt of prepayments and the
overall rate of prepayment on the Mortgage
Loans. This particular sensitivity is
separately displayed in a table appearing
under the heading , which shows, among other
things, the differences in the amount of
principal distributions on, and yield to
investors in, the Class PO Certificates at
various rates of prepayment.]
Principal Distributions on the
Class A Certificates............. Holders of the Class A Certificates [(other
than the Class IO Certificates)] will be
entitled to receive on each Distribution
Date, to the extent of the balance of the
Available Distribution Amount remaining after
the payment of the Class A Interest
Distribution Amount for such Distribution
Date, distributions in respect of principal
in an amount (the "Class A Principal
Distribution Amount") generally equal to the
aggregate of (i) the then Class A Scheduled
Principal Distribution Percentage (calculated
as described herein) of all scheduled
payments of principal (including the
principal portion of any Balloon Payments)
due on the Mortgage Loans during or, if and
to the extent not previously received or
advanced and distributed on prior
Distribution Dates, prior to the related Due
Period that were paid by the mortgagors as of
the related Determination Date or advanced by
the Master Servicer in respect of such
Distribution Date and (ii) all principal
prepayments and, to the extent not previously
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<PAGE>
advanced, any other unscheduled principal
recoveries received during the related Due
Period in respect of the Mortgage Loans,
whether in the form of liquidation proceeds,
insurance proceeds, condemnation proceeds or
amounts received as a result of the purchase
of any Mortgage Loan out of the Trust Fund
owing to a breach of the Mortgage Asset
Seller's representation and warranties.
Distributions in respect of principal of the
Class A Certificates on any Distribution Date
shall be limited to the sum of (i) the Class
A Balance outstanding immediately prior to
such Distribution Date and (ii) the Class
Negative Amortization, if any, for such
Distribution Date in respect of the Class A
Certificates. The Class A Principal
Distribution Amount will be allocated among
the Subclasses of Class A Certificates as
described herein. See "Description of the
Certificates --Distributions--Calculations of
Principal" herein.
Advances......................... The Master Servicer is required to make
advances ("Advances") in respect of
delinquent Monthly Payments on the Mortgage
Loans, subject to the limitations described
herein. See "Description of the
Certificates--Advances" herein and
"Description of the Certificates--Advances
in Respect of Delinquencies" in the
Prospectus.
Subordination.................... The rights of holders of the Subordinate
Certificates to receive distributions of
amounts collected on the Mortgage Loans will
be subordinated, to the extent described
herein, to the rights of holders of the Class
A Certificates. This subordination is
intended to enhance the likelihood of receipt
by the holders of the Class A Certificates of
the full amount of the Class A Interest
Distribution Amount and the ultimate receipt
of principal equal to the initial Class A
Balance. The protection afforded to the
holders of the Class A Certificates by means
of the subordination, to the extent provided
herein, will be accomplished by the
application of the Available Distribution
Amount to the Class A Certificates prior to
the application thereof to the Subordinate
Certificates. See "Description of the
Certificates--Subordination" herein.
The Subordinate
Certificates.................... The Class B Certificates have an initial
Certificate Principal Balance of $__________
(the initial "Class B Balance") and the Class
C Certificates have an initial Certificate
Principal Balance of $__________ (the initial
"Class C Balance"), representing ___% and
___%, respectively, of the Mortgage Loans by
aggregate principal
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<PAGE>
balance as of the Cut-off Date. Interest
shall accrue on the Class B Balance and Class
C Balance at a Pass-Through Rate equal to the
weighted average of the Net Mortgage Rates in
effect from time to time on the Mortgage
Loans.
The Class R Certificates, which have no
Pass-Through Rate and initially have a
Certificate Principal Balance of $__________
(the initial "Class R Balance"), represent
the right to receive on any Distribution Date
the balance, if any, of the Available
Distribution Amount remaining after the
payment of all interest and principal due on
the other Classes of Certificates. Subsequent
to the first Distribution Date, the Class R
Balance will equal the excess, if any, of the
aggregate Stated Principal Balance of the
Mortgage Loans over the sum of the Class A
Balance, Class B Balance and Class C Balance.
[The Subordinate Certificates are not offered
hereby.]
Optional Termination............. At its option, the Master Servicer may
purchase all of the Mortgage Loans, and
thereby effect termination of the Trust Fund
and early retirement of the then outstanding
Certificates, on any Distribution Date on
which the aggregate Stated Principal Balance
of the Mortgage Loans remaining in the Trust
Fund is less than ___% of the aggregate
principal balance of such Mortgage Loans as
of the Cut-off Date. See "Pooling and
Servicing Agreement--Termination" herein and
"Description of the Certificates--
Termination" in the Prospectus.
Certain Federal Income Tax
Consequences.................... Beneficial owners of the Class A Certificates
will be required to report income thereon in
accordance with the accrual method of
accounting. [It is anticipated that the Class
A Certificates will be issued with original
issue discount in an amount equal to the
excess of the initial Class Certificate
Principal Balances thereof (plus ___ days of
interest at the pass-through rates thereon)
over their issue prices (including accrued
interest). It is further anticipated that the
Class A Certificates will be issued at a
premium and that the Class A Certificates
will be issued with de minimis original issue
discount for federal income tax purposes.
Although not free from doubt, it is
anticipated that the Class A Certificates
will be treated as issued with original issue
discount in an amount equal to the excess of
all distributions of principal and interest
thereon over their issue price (including
accrued interest),
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<PAGE>
and the Company intends to report income in
respect of such Class of Certificates in this
manner.] Accordingly, beneficial owners of
the Class A Certificates may have taxable
income in respect of the Class A Certificates
in advance of the receipt of cash
attributable to such income. See "Certain
Federal Income Tax Consequences" in the
Prospectus.
ERISA Considerations............. [A fiduciary of any employee benefit plan or
other retirement arrangement subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975
of the Code should review carefully with its
legal advisors whether the purchase or
holding of Class A Certificates could give
rise to a transaction that is prohibited or
is not otherwise permitted either under ERISA
or Section 4975 of the Code.) [The U.S.
Department of Labor has issued to PaineWebber
Incorporated an individual exemption,
Prohibited Transaction Exemption 93-32, as
amended by Prohibited Transaction 97-34,
which generally exempts from the application
of certain of the prohibited transaction
provisions of Section 406 of the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), and the excise taxes
imposed on such prohibited transactions by
Section 4975(a) and (b) of the Code,
transactions relating to the purchase, sale
and holding of pass-through certificates
underwritten by the Underwriter such as the
Class A Certificates and the servicing and
operation of asset pools such as the Mortgage
Pool, provided that certain conditions are
satisfied. A fiduciary of any employee
benefit plan subject to ERISA or the Code
should consult with its legal advisors
regarding the requirements of ERISA and the
Code.] See "ERISA Considerations" herein and
in the Prospectus.
Rating........................... It is a condition to the issuance of the
Class A Certificates that they be rated [not
lower than] of "___" by (the "Rating
Agency"). 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. A security rating does
not address the frequency of prepayments of
Mortgage Loans, or the corresponding effect
on yield to investors. See "Risk Factors"
and "Rating" herein and "Yield Considerations"
in the Prospectus.
Legal Investment................. The appropriate characterization of the Class
A Certificates under various legal investment
restrictions, and thus the
S-17
<PAGE>
ability of investors subject to these
restrictions to purchase the Class A
Certificates, may be subject to significant
interpretative uncertainties. The Class A
Certificates will [not] be "mortgage related
securities" within the meaning of the
Secondary Mortgage Market Enhancement Act of
1984 [so long as they are rated in at least
the second highest rating category by the
Rating Agency, and as such, are legal
investments for certain entities to the
extent provided in SMMEA]. Accordingly,
investors should consult their own legal
advisors to determine whether and to what
extent the Class A Certificates constitute
legal investments for them. See "Legal
Investment" herein and in the Prospectus.
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<PAGE>
RISK FACTORS
[Discussion will depend on the particulars of the Mortgage Pool]
Special Repayment Considerations. The rate and timing of principal
payments on the Class A Certificates will depend, among other things, on the
rate and timing of principal payments (including prepayments, defaults,
liquidations and purchases of Mortgage Loans due to a breach of representation
and warranty) on the Mortgage Loans. As is the case with mortgage-backed
securities generally, the Class A Certificates are subject to substantial
inherent cash-flow uncertainties because the Mortgage Loans may be prepaid at
any time.
As described herein, prior to reduction of the Class A Balance to
zero, all principal prepayments on and other unscheduled recoveries of
principal of the Mortgage Loans will be allocated to the Class A Certificates.
To the extent that no prepayments or other unscheduled recoveries of principal
are distributed on the Subordinate Certificates, the subordination afforded the
Class A Certificates by the Subordinate Certificates, in the absence of
offsetting losses on the Mortgage Loans allocated thereto, will be increased.
See ["Prepayment and Yield Considerations" herein and] "Description of
the Certificates-- Distributions-- Priority" herein and "Yield Considerations"
in the Prospectus.
Special Yield Considerations. The yield to maturity on the Class A
Certificates will depend, among other things, on the rate and timing of
principal payments (including prepayments, defaults, liquidations and purchases
of Mortgage Loans due to a breach of representation and warranty) on the
Mortgage Loans and the allocation thereof to reduce the Certificate Principal
Balance of such class. The yield to maturity on the Class A Certificates will
also depend on changes in the Index and the effect of any maximum lifetime
Mortgage Rate, minimum lifetime Mortgage Rate, Payment Cap and Periodic Rate
Cap applicable to each Mortgage Loan. The yield to investors on the Class A
Certificates will be adversely affected by any allocation thereto of Prepayment
Interest Shortfalls on the Mortgage Loans, which are expected to result from
the distribution of interest only to the date of prepayment (rather than a full
month's interest) in connection with prepayments in full, and the lack of any
distribution of interest on the amount of any partial prepayments. Neither the
Certificates nor the Mortgage Loans are guaranteed by any governmental entity
or private insurer.
In general, if a Certificate is purchased at a premium and principal
distributions thereon occur at a rate faster than anticipated at the time of
purchase, the investor's actual yield to maturity will be lower than that
assumed at the time of purchase. Conversely, if a Certificate is purchased at a
discount and principal distributions thereon occur at a rate slower than that
assumed at the time of purchase, the investor's actual yield to maturity will
be lower than assumed at the time of purchase.
See ["Prepayment and Yield Considerations" and] "Certain Federal
Income Tax Consequences" herein and in the Prospectus and "Yield
Considerations" in the Prospectus.
[Inclusion of Delinquent Mortgage Loans. The Mortgage Pool will
include _____ Mortgage Loans, representing ___% of the Initial Pool Balance,
that [describe generally the characteristics of those delinquent Mortgage
Loans, if any, included in the Mortgage Pool]. The amount of any applicable
credit support provided to a Class of Certificates may not cover all losses and
shortfalls related to such delinquent Mortgage Loans, and prospective investors
should consider the risk that the inclusion of such Mortgage Loans in the
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<PAGE>
Mortgage Pool may adversely affect the rate of defaults and prepayments in
respect of the Mortgage Pool and the yield on the Class A Certificates. See
"Risk Factors--Delinquent Mortgage Loans" in the Prospectus.]
Risks Associated with Certain of the Mortgage Loans and Mortgaged
Properties.
[Description of type of property, lease provisions, nature of tenants
and operating income.]
Effect of Mortgagor Defaults. The aggregate amount of distributions on
the Class A Certificates, the yield to maturity of the Class A Certificates,
the rate of principal payments on the Class A Certificates and the weighted
average life of the Class A Certificates will be affected by the rate and the
timing of delinquencies and defaults on the Mortgage Loans. If a purchaser of a
Class A Certificate calculates its anticipated yield based on an assumed rate
of default and amount of losses on the Mortgage Loans that is lower than the
default rate and amount of losses actually experienced and such additional
losses are allocable to such Class of Certificates, such purchaser's actual
yield to maturity will be lower than that so calculated and could, under
certain extreme scenarios, be negative. The timing of any loss on a liquidated
Mortgage Loan will also affect the actual yield to maturity of the Class A
Certificates to which a portion of such loss is allocable, even if the rate of
defaults and severity of losses are consistent with an investor's expectations.
In general, the earlier a loss borne by an investor occurs, the greater is the
effect on such investor's yield to maturity.
As and to the extent described herein, the Master Servicer will be
entitled to receive interest on unreimbursed Advances and unreimbursed
servicing expenses that (i) are recovered out of amounts received on the
Mortgaged Loan as to which such Advances were made or such servicing expenses
were incurred, which amounts are in the form of liquidation proceeds, insurance
proceeds, condemnation proceeds or amounts paid in connection with the purchase
of such Mortgage Loan out of the Trust Fund or (ii) are determined to be
nonrecoverable Advances. The Master Servicer's right to receive such payments
of interest are prior to the rights of Certificateholders to receive
distributions on the Certificates and, consequently, may result in losses being
allocated to the Class A Certificates that would not otherwise have resulted
absent the accrual of such interest.
Even if losses on the Mortgage Loans are not borne by an investor in
the Class A Certificates, such losses may affect the weighted average life and
yield to maturity of such investor's Certificates. Losses on the Mortgage
Loans, to the extent not allocated to the Class A Certificates, may result in a
higher percentage ownership interest evidenced by such Certificates than would
otherwise have resulted absent such loss. The consequent effect on the weighted
average life and yield to maturity of the Class A Certificates will depend upon
the characteristics of the remaining Mortgage Loans.
Regardless of whether losses ultimately result from delinquencies and
defaults on the Mortgage Loans, such delinquencies and defaults may
significantly delay the receipt of payments by the holder of a Certificate of
any Class or Subclass to the extent that Advances or the subordination of
another class of Certificates does not fully offset the effects of any such
delinquency or default. The Scheduled Principal Distribution Amount and the
Unscheduled Principal Distribution Amount generally consist, as more fully
described herein, of principal of the Mortgage Loans actually collected or
advanced. The Master Servicer has the ability to extend and modify Mortgage
Loans that are in default or as to which a payment default is imminent,
including the ability to extend by up to ___ months the date on which a Balloon
Payment is due, subject to certain conditions described in the Pooling and
Servicing Agreement. The Master Servicer's obligation to make Advances in
respect of a Mortgage Loan that is delinquent as to its Balloon Payment is
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<PAGE>
limited, however, to the extent described under "Description of the
Certificates--Advances". Until such time as any Mortgage Loan delinquent in
respect of its Balloon Payment is liquidated, the entitlement of the holders of
Class A Certificates on each Distribution Date in respect of principal of such
Mortgage Loan will be limited to the Class A Scheduled Principal Distribution
Percentage of that portion of the Available Distribution Amount that represents
the principal portion of (i) any payment made by the related mortgagor under a
forbearance arrangement or (ii) any related Advance made by the Master
Servicer. Consequently, any delay in the receipt of a Balloon Payment that is
payable, in whole or in part, to Class A Certificate will extend the weighted
average life of the Class A Certificates.
As described under "Description of the Certificates--Distributions"
herein, if the portion of Available Distribution Amount distributable in
respect of interest on the Class A 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 and will therefore negatively affect the yield
to maturity of such class of Certificates for so long as it is outstanding.
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Trust Fund will consist primarily of ___ adjustable interest rate]
Mortgage Loans with an aggregate principal balance as of the Cut-off Date,
after deducting payments of principal due on such date, of $__________ . 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") creating a first priority lien on a [multifamily] [commercial]
property (a "Mortgaged Property") . The Mortgaged Properties consist of
[description of commercial or multifamily properties]. Because no evaluation of
any mortgagor's financial condition has been conducted, investors should
consider all of the Mortgage Loans to be non-recourse loans so that, in the
event of mortgagor default, recourse may be had only against the specific
property and such limited other assets as have been pledged to secure a
Mortgage Loan, and not against the mortgagor's other assets. All percentages of
the Mortgage Loans described herein are approximate percentages (except as
otherwise indicated) by aggregate principal balance as of the Cut-off Date.
The Mortgage Loans to be included in the Trust Fund will have been
originated or acquired by __________ (the "Mortgage Asset Seller") and will
comply with the underwriting criteria described herein. The Depositor will
purchase the Mortgage Loans to be included in the Mortgage Pool on or before
the Delivery Date from the Mortgage Asset Seller pursuant to a seller's
agreement (the "Seller's Agreement"), to be dated as of __________ , 199__
between the Mortgage Asset Seller and the Depositor. The Depositor will cause
the Mortgage Loans in the Mortgage Pool to be assigned to __________, as
Trustee, pursuant to the Pooling and Servicing Agreement. __________ , in its
capacity as Master Servicer, will service the Mortgage Loans pursuant to the
Pooling and Servicing Agreement.
Under the Seller's Agreement, the Mortgage Asset Seller, will make
certain representations, warranties and covenants to the Depositor relating to,
among other things, the due execution and enforceability of the Seller's
Agreement and certain characteristics of the Mortgage Loans, and will be
obligated to repurchase or substitute for any Mortgage Loans as to which there
exists deficient documentation or an uncured material breach of any such
representation, warranty or covenant. Under the Pooling and Servicing Agreement
the Depositor will assign all its right, title and interest in such
representations, warranties and covenants (including the Mortgage Asset
Seller's repurchase or substitution
S-21
<PAGE>
obligation), to the Trustee for the Trust Fund. The Depositor will make no
representations or warranties with respect to the Mortgage Loans and will have
no obligation to repurchase or substitute for Mortgage Loans with deficient
documentation or which are otherwise defective. The Mortgage Asset Seller is
selling the Mortgage Loans to the Depositor without recourse and, accordingly,
in such capacity, will have no obligations with respect to the Certificates
other than pursuant to such representations, warranties, covenants and
repurchase obligations. See "Description of the Agreements--Representations and
Warranties; Repurchases" in the Prospectus.
The Mortgage Rate on each Mortgage Loan is subject to adjustment on
each Interest Rate Adjustment Date by adding the related Gross Margin to the
value of the Index (described below) as most recently announced a specified
number of days prior to such Interest Rate Adjustment Date, subject, in the
case of substantially all of the Mortgage Loans, to minimum and maximum
lifetime Mortgage Rates, with ranges specified below. The Mortgage Rates on the
Mortgage Loans generally are adjusted monthly; however, certain of the Mortgage
Loans provide for Interest Rate Adjustment Dates to occur quarterly (Mortgage
Loans representing ___% of the aggregate principal balance as of the Cut-off
Date) semi-annually (Mortgage Loans representing ___% of the aggregate
principal balance as of the Cut-Off Date) or annually (Mortgage Loans
representing ___% of the aggregate principal balance as of the Cut-Off Date).
Each of the Mortgage Loans provided for an initial fixed interest rate period;
Mortgage Loans, representing ___% of the Mortgage Loans, have not experienced
their first Interest Rate Adjustment Dates. The latest initial Interest Rate
Adjustment Date for any Mortgage Loan is to occur in
Subject to the Payment Caps described below, the amount of the Monthly
Payment on each Mortgage Loan adjusts periodically on each Payment Adjustment
Date to an amount that would fully amortize the principal balance of the
Mortgage Loan over its then remaining amortization schedule and pay interest at
the Mortgage Rate in effect during the one month period preceding such Payment
Adjustment Date. Mortgage Loans representing ___% of the aggregate principal
balance as of the Cut-Off Date provide that an adjustment of the amount of the
Monthly Payment on a Payment Adjustment Date may not result in a monthly
Payment that increases by more than ___% (nor, in some cases, decreases by more
than ___%) of the amount of the Monthly Payment in effect immediately prior to
such Payment Adjustment Date (each such provision, a "Payment Cap"); however,
certain of those Mortgage Loans representing ___% of the aggregate principal
balance as of the Cut-Off Date also provide that the Payment Cap will not apply
on certain Payment Adjustment Dates or if the application thereof would result
in the principal balance of the Mortgage Loan exceeding (through negative
amortization) by a specified percentage the original principal balance thereof.
Generally, the related Mortgage Note provides that if, as a result of negative
amortization, the respective principal balance of the Mortgage Loan reaches an
amount specified therein (which as to most Mortgage Loans is not greater than
___% of the Mortgage Loan principal balance as of the origination date
thereof), the amount of the Monthly Payments due thereunder will be increased
as necessary to prevent further negative amortization.
Only in the case of ___% of the Mortgage Loans does a Payment
Adjustment Date immediately follow each Interest Rate Adjustment Date. As a
result, and because application of Payment Caps may limit the amount by which
the Monthly Payments due on certain of the Mortgage Loans may adjust, the
amount of a Monthly Payment may be more or less than the amount necessary to
amortize the Mortgage Loan principal balance over the then remaining
amortization schedule at the applicable Mortgage Rate. Accordingly, Mortgage
Loans may be subject to slower amortization (if the Monthly Payment due on a
Due Date is sufficient to pay interest accrued to such Due Date at the
applicable Mortgage Rate but is not sufficient to schedule), to negative
amortization (if interest accrued to a Due Date at the applicable Mortgage Rate
is greater than the entire Monthly Payment due on such Due Date) or to
accelerated amortization (if the
S-22
<PAGE>
Monthly Payment due on a Due Date is greater than the amount necessary to pay
interest accrued to such Due Date at the applicable Mortgage Rate and to reduce
principal in accordance with the applicable amortization schedule). ______
Mortgage Loans, representing ___% of the Mortgage Loans by aggregate principal
balance as of the Cut-Off Date, permit negative amortization. Substantially all
of the Mortgage Loans that permit negative amortization contain provisions that
limit the extent to which the amount of their respective original principal
balances may be exceeded as a result thereof . Generally, the related Mortgage
Note provides that if, as a result of negative amortization, the respective
principal balance of the Mortgage Loan reaches an amount specified therein
(which as to most Mortgage Loans is not greater than ___% of the Mortgage Loan
principal balance as of the origination date thereof), the amount of the
Monthly Payments due thereunder will be increased as necessary to prevent
further negative amortization.
THE INDEX
As of any Payment Adjustment Date, the Index applicable to the
determination of the related Mortgage Rate will be a per annum rate equal to
[Index] as most recently available as of the date ___ days prior to the Payment
Adjustment Date (the "Index"). Such average yields reflect the yields for the
week prior to that week in which the information is reported. In the event that
the Index is no longer available, an index reasonably acceptable to the Trustee
that is based on comparable information will be selected by the Master
Servicer.
The Index is currently calculated based on information reported in
__________.
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
Approximately ___% of the Mortgage Loans have Due Dates that occur on
the first day of each month; approximately ___% of the Mortgage Loans have Due
Dates that occur on the __ day of each month; approximately ___% of the
Mortgage Loans have Due Dates that occur on the __ day of each month; and the
remainder of the Mortgage Loans have Due Dates that occur on the __ day of each
month.
As of the Cut-off Date, the Mortgage Loans had the following
characteristics:
(i) Mortgage Rates ranging from ___% per annum, to ___% per
annum;
(ii) a weighted average Mortgage Rate of ___% per annum;
(iii) Gross Margins ranging from ___ basis points to ___ basis
points;
(iv) a weighted average Gross Margin of ___ basis points;
(v) principal balances ranging from $__________ to $__________;
(vi) an average principal balance of $__________ ;
(vii) original terms to scheduled maturity ranging from ___ months
to ___ months;
(viii) a weighted average original term to scheduled maturity of ___
months;
(ix) remaining terms to scheduled maturity ranging from ___ months
to ___ months;
S-23
<PAGE>
(x) a weighted average remaining term to scheduled maturity of
months;
(xi) Cut-off Date Loan-to-Value ("LTV") Ratios ranging from ___%
to ___%;
(xii) a weighted average Cut-off Date LTV Ratio of ___%;
(xiii) as to the ___% of the Mortgage Loans to which such
characteristic applies, (A) minimum lifetime Mortgage Rates
ranging from ___% per annum to ___% per annum and (B) a
weighted average minimum lifetime Mortgage Rate of ___% per
annum;
(xiv) as to the ___% of Mortgage Loans to which such characteristic
applies and for which it may be currently calculated, (A)
maximum lifetime Mortgage Rate ranging from ___% per annum to
___% per annum and (B) a weighted average maximum lifetime
Mortgage Rate of ___% per annum;
(xv) Cut-off Date Debt Service Coverage Ratios ranging from ___%
to ___%; and
(xvi) a weighted average Cut-off Date Debt Service Coverage Ratio
of ___%.
___ of the Mortgage Loans, representing ___% of the aggregate
principal amount as of the Cut-off Date, provide for Balloon Payments on their
respective maturity dates. Loans providing for Balloon Payments involve a
greater degree of risk than self-amortizing loans. See "Risk Factors
- - --Balloon Payments" in the Prospectus.
Pursuant to the terms of the Mortgage Loans, principal prepayments are
prohibited until the ___ year after the origination thereof; thereafter,
principal prepayments are permitted in whole or in part subject to the payment
of certain fees or penalties ("Prepayment Premiums") which may take the form of
(1) a fixed percentage of the amount of any principal prepayment or (2) a yield
maintenance premium calculated as the present value of the difference between
an assumed reinvestment rate of ___% and the Mortgage Rate of the prepaid
Mortgage Loan. [Although Prepayment Premiums are payable to the Master Servicer
as additional servicing compensation, the Master Servicer may waive the payment
of any Prepayment Premium only in connection with a principal prepayment that
is proposed to be made during the three month period prior to the scheduled
maturity of the related Mortgage Loan, or under certain other limited
circumstances.] [Prepayment Premiums will be distributed to holders of the
Class A Certificates as follows:]
[Describe distributions of Prepayment Premiums]
S-24
<PAGE>
The following table sets forth certain information regarding the
Mortgage Loans as of the Cut-Off Date.
<TABLE>
<CAPTION>
Loan
Balance
Property Terms of Original Following
Name or Prepayment Prepay Loan Mortgage Lockout Balloon
Address City State Penalty Lockout Balance Rate Maturity Period* Payment*
------- ---- ----- ------- ------- ------- ---- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
S-25
<PAGE>
The following table sets forth the range of Mortgage Rates on the
Mortgage Loans as of the Cut-off Date:
MORTGAGE RATES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
========================================================================================================================
Percent by
Aggregate Aggregate
Principal Balance Principal Balance
Number of as of the Cut-off as of the Cut-off
Mortgage Rate Mortgage Loans Percent by Number Date Date
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$
- - ------------------------------------------------------------------------------------------------------------------------
Total................. 100.00% $ 100.00%
======= ======= == =======
========================================================================================================================
</TABLE>
Weighted Average Mortgage Rate:
Note: Percentage totals may not add due to rounding.
S-26
<PAGE>
The following table sets forth the types of Mortgaged Properties
securing the Mortgage Loans:
PROPERTY TYPES
<TABLE>
<CAPTION>
=========================================================================================================================
Percent by
Aggregate Aggregate
Principal Balance Principal Balance
Number of as of the Cut-off as of the Cut-off
Type Mortgage Loans Percent by Number Date Date
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$
- - -------------------------------------------------------------------------------------------------------------------------
Total................ 100.00% $ 100.00%
======= ======= == =======
=========================================================================================================================
</TABLE>
Note: Percentage totals may not add due to rounding.
S-27
<PAGE>
The following table sets forth the range of Gross Margins for the
Mortgage Loans:
GROSS MARGINS
<TABLE>
<CAPTION>
=========================================================================================================================
Percent by
Aggregate Aggregate
Principal Balance Principal Balance
Number of as of the Cut-off as of the Cut-off
Gross Margin Mortgage Loans Percent by Number Date Date
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$
- - -------------------------------------------------------------------------------------------------------------------------
Total.............. 100.00% $ 100.00%
======= ======= == =======
=========================================================================================================================
</TABLE>
Weighted Average Gross Margin:
Note: Percentage totals may not add due to rounding.
S-28
<PAGE>
The following table sets forth the frequency of adjustments to the
Mortgage Rates on the Mortgage Loans as of the Cut-off Date:
FREQUENCY OF ADJUSTMENTS TO MORTGAGE RATES
<TABLE>
<CAPTION>
=========================================================================================================================
Percent by
Aggregate Aggregate
Principal Balance Principal Balance
Number of as of the Cut-off as of the Cut-off
Frequency (A) Mortgage Loans Percent by Number Date Date
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$
- - -------------------------------------------------------------------------------------------------------------------------
Total.............. 100.00% $ 100.00%
======= ======= == =======
=========================================================================================================================
</TABLE>
Weighted Average Frequency of Adjustments to Mortgage Rate:
Note: Percentage totals may not add due to rounding.
(A) or ___% of Mortgage Loans have not experienced their first Interest Rate
Adjustment Date.
S-29
<PAGE>
The following table sets forth the frequency of adjustments to the
Monthly Payments on the Mortgage Loans as of the Cut-off Date:
FREQUENCY OF ADJUSTMENTS TO MONTHLY PAYMENTS
<TABLE>
<CAPTION>
=========================================================================================================================
Percent by
Aggregate Aggregate
Principal Balance Principal Balance
Number of as of the Cut-off as of the Cut-off
Frequency (A) Mortgage Loans Percent by Number Date Date
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$
- - -------------------------------------------------------------------------------------------------------------------------
Total.............. 100.00% $ 100.00%
======= ======= == =======
=========================================================================================================================
</TABLE>
Weighted Average Frequency of Adjustments to Monthly Payments:
Note: Percentage totals may not add due to rounding.
S-30
<PAGE>
The following table sets forth the range of maximum lifetime Mortgage
Rates for the Mortgage Loans:
MAXIMUM LIFETIME MORTGAGE RATES
<TABLE>
<CAPTION>
=========================================================================================================================
Percent by
Aggregate Aggregate
Maximum Principal Balance Principal Balance
Lifetime Mortgage Number of as of the Cut-off as of the Cut-off
Rate Mortgage Loans Percent by Number Date Date
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$
- - -------------------------------------------------------------------------------------------------------------------------
Total.............. 100.00% $ 100.00%
======= ======= == =======
=========================================================================================================================
</TABLE>
Weighted Average Maximum Lifetime Mortgage Rate:
Note: Percentage totals may not add due to rounding.
(A) Represents Mortgage Loans without a lifetime rate cap.
(B) The lifetime rate caps for these Mortgage Loans are based upon the
Index as determined at the future point in time plus a fixed
percentage. Therefore, the rate is not determinable as of the Cut-off
Date.
(C) This calculation does not include the _____ Mortgage Loans without a
lifetime rate cap or the ____ Mortgage Loans with lifetime rate caps
which are currently not determinable.
S-31
<PAGE>
The following table sets forth the range of minimum lifetime Mortgage
Rates on the Mortgage Loans:
MINIMUM LIFETIME MORTGAGE RATES
<TABLE>
<CAPTION>
=========================================================================================================================
Percent by
Aggregate Aggregate
Principal Balance Principal Balance
Minimum Lifetime Number of as of the Cut-off as of the Cut-off
Mortgage Rate Mortgage Loans Percent by Number Date Date
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$
- - -------------------------------------------------------------------------------------------------------------------------
Total.............. 100.00% $ 100.00%
======= ======= == =======
=========================================================================================================================
</TABLE>
Weighted Average Minimum Lifetime Mortgage Rate:
Note: Percentage totals may not add due to rounding.
(A) Represents Mortgage Loans without interest rate floors.
(B) This calculation does not include the ___ Mortgage Loans without the
interest rate floors.
S-32
<PAGE>
The following table sets forth the range of principal balances of the
Mortgage Loans as of the Cut-off Date:
PRINCIPAL BALANCES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
=========================================================================================================================
Percent by
Aggregate Aggregate
Principal Balances Principal Balance Principal Balance
as of the Cut-off Number of as of the Cut-off as of the Cut-off
Date Mortgage Loans Percent by Number Date Date
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$
- - -------------------------------------------------------------------------------------------------------------------------
Total.............. 100.00% $ 100.00%
======= ======= == =======
=========================================================================================================================
</TABLE>
Average Principal Balance as of the Cut-off Date:
Note: Percentage totals may not add due to rounding.
S-33
<PAGE>
The following tables set forth the original and remaining terms to
maturity (in months) of the Mortgage Loans, excluding any contractual extension
rights of the Mortgagors:
ORIGINAL TERM TO MATURITY IN MONTHS
<TABLE>
<CAPTION>
=========================================================================================================================
Percent by
Aggregate Aggregate
Principal Balance Principal Balance
Original Term in Number of as of the Cut-off as of the Cut-off
Months Mortgage Loans Percent by Number Date Date
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$
- - -------------------------------------------------------------------------------------------------------------------------
Total.............. 100.00% $ 100.00%
======= ======= == =======
=========================================================================================================================
</TABLE>
Weighted Average Original Term to Maturity:
Note: Percentage totals may not add due to rounding.
S-34
<PAGE>
REMAINING TERM TO MATURITY IN MONTHS
<TABLE>
<CAPTION>
=========================================================================================================================
Percent by
Aggregate Aggregate
Principal Balance Principal Balance
Remaining Term Number of as of the Cut-off as of the Cut-off
in Months Mortgage Loans Percent by Number Date Date
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$
- - -------------------------------------------------------------------------------------------------------------------------
Total.............. 100.00% $ 100.00%
======= ======= == =======
=========================================================================================================================
</TABLE>
Weighted Average Remaining Term to Maturity:
Note: Percentage totals may not add due to rounding.
S-35
<PAGE>
The following tables set forth the respective years in which the
Mortgage Loans were originated and are scheduled to mature:
MATURE LOAN YEAR OF ORIGINATION
<TABLE>
<CAPTION>
=========================================================================================================================
Percent by
Aggregate Aggregate
Principal Balance Principal Balance
Number of as of the Cut-off as of the Cut-off
Year Mortgage Loans Percent by Number Date Date
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$
- - -------------------------------------------------------------------------------------------------------------------------
Total.............. 100.00% $ 100.00%
======= ======= == =======
=========================================================================================================================
</TABLE>
Note: Percentage totals may not add due to rounding.
S-36
<PAGE>
MORTGAGE LOAN YEAR OF SCHEDULED MATURITY
<TABLE>
<CAPTION>
=========================================================================================================================
Percent by
Aggregate Aggregate
Principal Balance Principal Balance
Number of as of the Cut-off as of the Cut-off
Year Mortgage Loans Percent by Number Date Date
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$
- - -------------------------------------------------------------------------------------------------------------------------
Total.............. 100.00% $ 100.00%
======= ======= == =======
=========================================================================================================================
</TABLE>
Note: Percentage totals may not add due to rounding.
The following table sets forth the range of Cut-off Date LTV Ratios of
the Mortgage Loans. A "Cut-off Date LTV Ratio" is a fraction, expressed as a
percentage, the numerator of which is the Cut-off Date Balance of a Mortgage
Loan, and the denominator of which is the appraised value of the related
Mortgaged Property as determined by an appraisal thereof obtained in connection
with the origination of such Mortgage Loan. The value of each Mortgaged
Property at any time may be adversely by changes or continued weakness in
general or local economic conditions; declines in real estate values; declines
in rental or occupancy rates; increases in interest rates, real estate and
personal property tax rates, energy costs and other operating expenses; changes
in governmental rules, regulations and fiscal policies, including environmental
legislation; acts of God; and other factors which are beyond the Servicer's
control, as well as an increase in vacancy rates for the Mortgaged Property, a
decline in rental rates as leases are renewed or entered into with new tenants,
an increase in operating expenses of the mortgaged property and/or an increase
in capital expenditures needed to maintain the mortgaged property and make
improvements required by tenants.
S-37
<PAGE>
CUT-OFF DATE LTV RATIOS
<TABLE>
<CAPTION>
=========================================================================================================================
Percent by
Aggregate Aggregate
Principal Balance Principal Balance
Number of as of the Cut-off as of the Cut-off
LTV Ratio Mortgage Loans Percent by Number Date Date
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$
- - -------------------------------------------------------------------------------------------------------------------------
Total.............. 100.00% $ 100.00%
======= ======= == =======
=========================================================================================================================
</TABLE>
Weighted Average Cut-off Date LTV Ratio:
Note: Percentage totals may not add due to rounding.
S-38
<PAGE>
The following table sets forth the range of Debt Service Coverage
Ratios for Mortgage Loans:
"Debt Service Coverage Ratio" for any Mortgage Loan is the ratio of
Net Operating Income produced by the related Mortgaged Property for the period
covered by the annual operating statement of the amounts of principal, interest
and other sums due under such Mortgage Loan for the same period. "Net Operating
Income" is the rent from all leases under which the tenants have taken
occupancy at the time of calculation (including only rents prior to expiration
for those leases whose terms expire within one year of the calculation and
pass-throughs for utilities and excluding all free rent) less operating
expenses (such as utilities, administrative expenses, repairs and maintenance)
and less fixed expenses (such as insurance, real estate and other taxes to be
paid by mortgagor). The annual operating statements for the Mortgaged
Properties used in deriving the following table were obtained from the
respective mortgagors. The information contained therein was unaudited, and the
Depositor has made no attempt to verify its accuracy. [Annual operating
statements for any year following 199__ could not be obtained with respect to
_____ of the Mortgaged Properties and, consequently, the Debt Service Coverage
Ratios for the related Mortgage Loans were not calculated. No conclusions
should be drawn as to those mortgage Loans on the basis of the information set
forth below.]
DEBT SERVICE COVERAGE RATIOS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
=========================================================================================================================
Percent by
Aggregate Aggregate
Principal Balance Principal Balance
Debt Service Number of as of the Cut-off as of the Cut-off
Coverage Ratio Mortgage Loans Percent by Number Date Date
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$
- - -------------------------------------------------------------------------------------------------------------------------
Total.............. 100.00% $ 100.00%
======= ======= == =======
=========================================================================================================================
</TABLE>
Weighted Average Debt Service Coverage Ratio:
Note: Percentage totals may not add due to rounding.
(A) The debt service coverage ratios for these loans were not calculated
due to a lack of operating statements with respect to years after 198.
(B) This calculation does not include the Mortgage Loans where debt
service coverage ratios were not calculated.
S-39
<PAGE>
The Mortgage Loans are secured by Mortgage Properties in ____
different states. The table below sets forth the states in which the Mortgaged
Properties are located:
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
=========================================================================================================================
Percent by
Aggregate Aggregate
Principal Balance Principal Balance
Number of as of the Cut-off as of the Cut-off
State Mortgage Loans Percent by Number Date Date
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$
- - -------------------------------------------------------------------------------------------------------------------------
Total.............. 100.00% $ 100.00%
======= ======= == =======
=========================================================================================================================
</TABLE>
Note: Percentage totals may not add due to rounding.
[Improvements on Mortgaged Properties located in California may be
more susceptible to certain types of special hazards not covered by insurance
(such as earthquakes) than properties located in other parts of the country. In
addition, the economy of any State may be adversely affected to a greater
degree than that of other areas of the country by certain developments
affecting industries concentrated in such State.]
UNDERWRITING STANDARDS
All of the Mortgage Loans were originated or acquired by the Mortgage
Asset Seller, generally in accordance with the underwriting criteria described
herein.
[Description of Underwriting Standards.]
CHANGES IN THE MORTGAGE POOL
The description in this Prospectus Supplement of the Mortgage Pool and
the Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at the close of business on the Cut-off Date, as adjusted for the
scheduled principal payments due on or before such Date. Prior to the issuance
of the Class A Certificates, a Mortgage Loan may be removed from the Mortgage
Pool as a result of incomplete documentation or otherwise, if the Depositor
deems such removal necessary or appropriate and may be prepaid at any time. A
limited number of other mortgage loans may be included in the Mortgage Pool
prior to the issuance of the Class A Certificates unless including such
mortgage loans would materially alter the characteristics of the mortgage pool
as described herein.
S-40
<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement and will consist of four classes to be designated as the Class A
Certificates, the Class B Certificates, the Class C Certificates and the Class
R Certificates. The Class B, Class C and Class R Certificates (the "Subordinate
Certificates") will be subordinate to the Class A Certificates, as described
herein. The Certificates represent in the aggregate the entire beneficial
ownership interest in a 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 Mortgaged Property acquired on behalf of the Trust
Fund through foreclosure or deed in lieu of foreclosure (upon acquisition, an
"REO Property"); (iii) such funds or assets as from time to time are deposited
in the Certificate Account and any account established in connection with REO
Properties (the "REO Account"); and (iv) the rights of the mortgagee under all
insurance policies with respect to the Mortgage Loans. Only the Class A
Certificates are offered hereby. [The Class A Certificates will consist of [ ]
Subclasses designated as the [Class IO Certificates, the Class PO Certificates,
the Class Floater Certificates, the Class Inverse Floater Certificates and the
Class A- Certificates].
The Class A Certificates will have an initial Certificate Principal
Balance of $__________ representing ___% of the aggregate principal balance of
the Mortgage Loans as of the Cut-off Date. [Each Subclass of Class A
Certificates (other than Class IO) will have the initial Subclass Certificate
Principal Balance set forth on the cover page hereof. The Subclass Certificate
Principal Balance of any Subclass outstanding at any time represents the
maximum amount which the holders thereof are entitled to receive as
distributions allocable to principal on the Class A Certificates from the cash
flow on the Mortgage Loans and the other assets of the Trust Fund. The Class IO
Certificates will have a Class IO Notional Amount equal to $__________. The
Class IO Notional Amount does not represent an entitlement to receive
distributions of principal but is used for the purpose of computing the amount
of interest accrued on the Class IO Certificates.]
The Class B Certificates will have an initial Certificate Principal
Balance of $__________ representing ___% of the aggregate principal balance of
the Mortgage Loans as of the Cut-off Date. The Class C Certificates will have
an initial Certificate Principal Balance of $__________ representing ___% f the
aggregate principal balance of the Mortgage Loans as of the Cut-off Date. The
initial Certificate Principal Balance of the Class R Certificates will be
[zero].
The Certificate Principal Balance of any class of 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. The
respective Certificate Principal Balances of the Class A, Class B and Class C
Certificates (respectively, the "Class A Balance", "Class B Balance" and "Class
C Balance") will in each case be (i) reduced by amounts actually distributed on
such class of Certificates that are allocable to principal and (ii) increased
by amounts allocated to such class of Certificates in respect of negative
amortization on the Mortgage Loans. [Any increase or decrease in the Class A
Balance will be allocated among the Subclasses of Class A Certificates (other
than Class IO) pro rata based on the then current Subclass Certificate
Principal Balances of each Subclass]. The Certificate Principal Balance of the
Class R Certificates (the "Class R Balance") will at any time equal the
aggregate Stated Principal Balance of the Mortgage Loans minus the sum of the
Class A Balance, Class B Balance and Class C Balance. The Stated Principal
Balance of any Mortgage Loan at any date of determination will equal
S-41
<PAGE>
(a) the Cut-off Date Balance of such Mortgage Loan, plus (b) any negative
amortization added to the principal balance of such Mortgage Loan on any Due
Date after the Cut-off Date to and including the Due Date in the Due Period for
the most recently preceding Distribution Date, minus (c) the sum of (i) the
principal portion of each Monthly Payment due on such Mortgage Loan after the
Cut-off Date, to the extent received from the mortgagor or advanced by the
Master Servicer and distributed to holders of the Certificates before such date
of determination, (ii) all principal prepayments and other unscheduled
collections of principal received with respect to such Mortgage Loan, to the
extent distributed to holders of the Certificates before such date of
determination, and (iii) any reduction in the outstanding principal balance of
such Mortgage Loan resulting out of a bankruptcy proceeding for the related
mortgagor.
None of the Subordinate Certificates is offered hereby.
DISTRIBUTIONS
Method, Timing and Amount. Distributions on the Certificates will be
made on the ___ day of each month or, if such ___ day is not a business day,
then on the next succeeding business day, commencing in __________ , 199__
(each, a "Distribution Date"). All distributions (other than the final
distribution on any Certificate) will be made by the Master Servicer to the
persons in whose names the Certificates are registered at the close of business
on each Record Date, which will be the last business day of the month preceding
the month in which the related Distribution Date occurs. Such distributions
will be made by wire transfer in immediately available funds to the account
specified by the Certificateholder at a bank or other entity having appropriate
facilities therefor, if such Certificateholder will have provided the Master
Servicer with wiring instructions no less than five business days prior to the
related Record Date and is the registered owner of Certificates the aggregate
initial principal amount of which is at least $__________ , or otherwise by
check mailed to such Certificateholder.
The final distribution on any Certificate will be made in like manner,
but only upon presentment or surrender of such Certificate at the location
specified in the notice to the holder thereof of such final distribution. All
distributions made with respect to a class of Certificates on each Distribution
Date will be allocated pro rata among the outstanding Certificates of such
class based on their respective Percentage Interests. The Percentage Interest
evidenced by any Class A Certificate is equal to the initial denomination
thereof as of the Delivery Date, divided by the initial Certificate Principal
Balance for such Class. The aggregate distribution to be made on the
Certificates on any Distribution Date shall equal the Available Distribution
Amount.
The "Available Distribution Amount" for any Distribution Date is an
amount equal to (a) the sum of (i) the amount on deposit in the Certificate
Account as of the close of business on the related Determination Date, (ii) the
aggregate amount of any Advances made by the Master Servicer in respect of such
Distribution Date and (iii) the aggregate amount deposited by the Master
Servicer in the Certificate Account in respect of such Distribution Date in
connection with Prepayment Interest Shortfalls incurred during the related Due
Period, net of (b) the portion of the amount described in clause (a) (i) hereof
that represents (i) Monthly Payments due on a Due Date subsequent to the end of
the related Due Period, (ii) any voluntary principal prepayments and other
unscheduled recoveries on the Mortgage Loans received after the end of the
related Due Period or (iii) any amounts payable or reimbursable therefrom to
any person.
Priority. On each Distribution Date, the Master Servicer shall apply
amounts on deposit in the Certificate Account, to the extent of the Available
Distribution Amount, first, to distributions of interest to holders of the
Class A Certificates, in the amount equal to all Distributable Certificate
Interest in respect of
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the Class A Certificates for such Distribution Date and, to the extent not
previously distributed, for all preceding Distribution Dates and second, to
distributions of principal to holders of the Class A Certificates, in an
amount, not to exceed the sum of the Class A Balance outstanding immediately
prior to such Distribution Date and any Class Negative Amortization in respect
of the Class A Certificates for such Distribution Date, equal to the sum of (A)
the then Class A Scheduled Principal Distribution Percentage of the Scheduled
Principal Distribution Amount for such Distribution Date and (B) the
Unscheduled Principal Distribution Amount for such Distribution Date.
On or after the reduction of the Class A Balance to zero, the
Available Distribution Amount will be paid solely to the holders of the
Subordinate Certificates.
Calculations of Interest. The "Distributable Certificate Interest" in
respect of the Class A Certificates for any Distribution Date represents that
portion of the Accrued Certificate Interest in respect of such class of
Certificates for such Distribution Date that is net of such Class's allocable
share of (i) the aggregate portion of any Prepayment Interest Shortfalls
resulting from voluntary principal prepayments on the Mortgage Loans during the
related Due Period that are not covered by the application of servicing
compensation of the Master Servicer for the related Due Period (such uncovered
aggregate portion, as to such Distribution Date, the "Net Aggregate Prepayment
Interest Shortfall"); and (ii) the aggregate of any negative amortization in
respect of the Mortgage Loans for their respective Due Dates during the related
Due Period (the aggregate of such negative amortization, as to such
Distribution Date, the "Aggregate Mortgage Loan Negative Amortization").
The "Accrued Certificate Interest" in respect of the Class A
Certificates for any Distribution Date is equal to thirty days'interest accrued
during the related Interest Accrual Period at the Pass-Through Rate applicable
to such Class of Certificates for such Distribution Date accrued on the related
Certificate Principal Balance outstanding immediately prior to such
Distribution Date. The Pass-Through Rate applicable to the Class A Certificates
for any Distribution Date is equal to the weighted average of the Class A
Remittance Rates in effect for the Mortgage Loans as of the commencement of the
related Due Period (as to such Distribution Date, the "Weighted Average Class A
Remittance Rate"). The "Class A Remittance Rate" in effect for any Mortgage
Loan as of any date of determination (a) prior to its first Interest Rate
Adjustment Date, is equal to the related Mortgage Rate then in effect minus ___
basis points and (b) from and after its first Interest Rate Adjustment Date, is
equal to the related Mortgage Rate then in effect minus the excess of the
related Gross Margin over ___ basis points. The "Interest Accrual Period" for
the Certificates is the calendar month preceding the month in which the
Distribution Date occurs.
The portion of Net Aggregate Prepayment Interest Shortfalls and the
Aggregate Mortgage Loan Negative Amortization for any Distribution Date that
will be allocated to the Class A Certificates on such Distribution Date will be
equal to the then applicable Class A Interest Allocation Percentage. The "Class
A Interest Allocation Percentage" for any Distribution Date will equal a
fraction, expressed as a percentage, the numerator of which is equal to the
product of (a) the Class A Balance (net of any Uncovered Portion thereof)
outstanding immediately prior to such Distribution Date, multiplied by (b) the
Weighted Average Class A Remittance Rate for such Distribution Date, and the
denominator of which is the product of (x) the aggregate Stated Principal
Balance of the Mortgage Loans outstanding immediately prior to such
Distribution Date, multiplied by (y) the Weighted Average Net Mortgage Rate for
such Distribution Date. The "Net Mortgage Rate" in effect for any Mortgage Loan
as of any date of determination is equal to the related Mortgage Rate then in
effect minus ___ basis points. The "Uncovered Portion" of the Class A Balance,
as of any date of determination, is the portion thereof representing the
excess, if any, of (a) the
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Class A Balance then outstanding, over (b) the aggregate Stated Principal
Balance of the Mortgage Loans then outstanding.
[Any distributions in respect of principal made to, or losses in
respect of principal allocated in reduction of the Subclass Certificate
Principal Balance of the Class ___ Certificates will result in a corresponding
reduction in the Class IO Notional Amount].
[Each Subclass of the Class A Certificates (other than Class PO) will
bear interest at the Pass-Through Rate described on the cover hereof].
[Interest Rates will fluctuate on the Class ___ Certificates pursuant
to the following formula: [Describe Formula].] As a result of these
calculations, increasing levels of (Index) will produce reduced pass-through
rates for the Class Inverse Floater Certificates (subject to the applicable
minimum rates), while decreasing levels of (Index) will produce increased
pass-through rates (subject to the applicable maximum rates).]
[Describe method for determining notional amount and interest rate of
Class IO]
Calculations of Principal. The "Scheduled Principal Distribution
Amount" for any Distribution Date is equal to the aggregate of the principal
portions of all Monthly Payments, including 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, in each case to the extent paid by the related mortgagor or advanced by
the Master Servicer and included in the Available Distribution Amount for such
Distribution Date. The principal portion of any Advances in respect of a
Mortgage Loan that is delinquent as to its Balloon Payment will constitute
advances in respect of the principal portion of such Balloon Payment.
The Class A Scheduled Principal Distribution Percentage for any
Distribution Date represents the portion of the Scheduled Principal
Distribution Amount for such Distribution Date payable (subject to the payment
priorities described herein) on the Class A Certificates. The "Class A
Scheduled Principal Distribution Percentage" for any Distribution Date will
equal the lesser of (a) 100% and (b) a fraction, expressed as a percentage, the
numerator of which is the Class A Balance outstanding immediately prior to such
Distribution Date, and the denominator of which is the lesser of (i) the sum of
the Class A Balance, the Class B Balance and the Class C Balance and (ii) the
aggregate Stated Principal Balance of the Mortgage Loans, in either case
outstanding immediately prior to such Distribution Date.
The "Unscheduled Principal Distribution Amount" for any Distribution
Date is equal to the sum of: (a) all voluntary principal prepayments received
on the Mortgage Loans during the related Due Period; and (b) the excess, if
any, of (i) all unscheduled recoveries received on the Mortgage Loans during
the related Due Period, whether in the form of liquidation proceeds,
condemnation proceeds, insurance proceeds or amounts paid in connection with
the purchase of a Mortgage Loan out of the Trust Fund, exclusive in each case
of any portion thereof payable or reimbursable to the Master Servicer in
connection with the related Mortgage Loan, over (ii) the respective portions of
the net amounts described in the immediately preceding clause (i) needed to
cover interest (at the applicable Net Mortgage Rate in effect from time to
time) on the related Mortgage Loan from the date to which interest was
previously paid or advanced through the Due Date for such Mortgage Loan in the
related Due Period (exclusive of any portion of such interest added to the
principal balance of such Mortgage Loan as negative amortization).
S-44
<PAGE>
The "Class Negative Amortization" in respect of any class of
Certificates for any Distribution Date is equal to such class' allocable share
of the Aggregate Mortgage Loan Negative Amortization for such Distribution
Date.
SUBORDINATION
In order to maximize the likelihood of distribution in full of the
Class A Interest Distribution Amount and the Class A Scheduled Principal
Distribution Amount, on each Distribution Date, holders of the Class A
Certificates have a right to distributions of the Available Distribution Amount
that is prior to the rights of the holders of the Subordinate Certificates, to
the extent necessary to satisfy the Class Interest Distribution Amount and the
Class A Scheduled Principal Distribution Amount.
The entitlement to the Class A Certificates of the entire Unscheduled
Principal Distribution Amount will accelerate the amortization of the Class A
Certificates relative to the actual amortization of the Mortgage Loans.
To the extent that the Class A Certificates are amortized faster than
the Mortgage Loans, without taking into account losses on the Mortgage Loans,
the percentage interest evidenced by the Class A Certificates in the Trust Fund
will be decreased (with a corresponding increase in the interest in the Trust
Fund evidenced by the Subordinate Certificates), thereby increasing, relative
to their respective Certificate Principal Balances, the subordination afforded
the Class A Certificates by the Subordinate Certificates.
ADVANCES
On the business day immediately preceding each Distribution Date, the
Master Servicer will be obligated to make advances (each, an "Advance") out of
its own funds, or 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 the aggregate of (i) all Monthly Payments (net of the
Servicing Fee), other than Balloon Payments, which were due on the Mortgage
Loans during the related Due Period and delinquent as of the related
Determination Date and (ii) in the case of each Mortgage Loan delinquent in
respect of its Balloon Payment as of the related Determination Date, an amount
sufficient to amortize fully the principal portion of such Balloon Payment over
the remaining amortization term of such Mortgage Loan and to pay interest at
the Net Mortgage Rate in effect for such Mortgage Loan for the one month period
preceding its Due Date in the related Due Period (but only to the extent that
the related mortgagor has not made a payment sufficient to cover such amount
under any forbearance arrangement that has been included in the Available
Distribution Amount for such Distribution Date). The Master Servicer's
obligations to make Advances in respect of any Mortgage Loan will continue
through liquidation of such Mortgage Loan and 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 proceeds, liquidation
proceeds, condemnation proceeds or amounts paid in connection with the purchase
of such Mortgage Loan. Notwithstanding the foregoing, the Master Servicer will
be obligated to make any Advance only to the extent that it determines in its
reasonable good faith judgment that, if made, would be recoverable out of
general funds on deposit in the Certificate Account. Any failure by the Master
Servicer to make an Advance as required under the Pooling and Servicing
Agreement will constitute an event of default thereunder.
[Registration at The Depository Trust Company
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<PAGE>
The Class A Certificates (other than the Class IO Certificates) (the
"Book-Entry Certificates") will be issued in book-entry form and represented by
certificates registered in the name of Cede & Co. ("Cede"), as nominee of DTC.
Accordingly, Cede is expected to be the holder of record of the Class A
Book-Entry Certificates. A Class A Book-Entry Certificateholder will not be
entitled to receive a Certificate representing such Certificate Owner's
interest therein except in the event that Definitive Class A Certificates are
issued for all Certificates under the limited circumstances described herein.
See "Definitive Class A Certificates" below. The Class A Book-Entry
Certificates will be issued in minimum denominations of $__________ and
integral multiples thereof.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, 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
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations ("DTC Participants") and facilitate the
clearance and settlement of securities transactions through electronic
book-entry changes in accounts of DTC Participants, thereby eliminating the
need for physical movement of certificates. DTC Participants include securities
brokers and dealers (including the Underwriter), banks, trust companies and
clearing corporations and may include certain other organizations. 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 DTC Participant, either directly or indirectly ("Indirect
DTC Participants").
Certificateowners that are not DTC Participants or indirect DTC
Participants but desire to purchase, sell or otherwise transfer ownership of,
or other interests in, Book-Entry Certificates may do so only through DTC
Participants and Indirect DTC Participants. In addition, Certificateowners will
receive all distributions of principal of and interest on such Certificates
from the Trustee through DTC and DTC Participants. Under a book-entry format,
Certificateowners may experience some delay in their receipt of distributions
since such distributions will be forwarded by the Trustee to DTC, DTC will
forward such distributions to DTC Participants, and each DTC Participant will
be responsible for disbursing such distributions to Indirect DTC Participants
or to Certificateowners.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among DTC
Participants on whose behalf it acts with respect to the Book-Entry
Certificates and is required to receive and transmit distributions of principal
of an interest on such Certificates. DTC Participants and Indirect DTC
Participants with which Certificateowners have accounts with respect to such
Certificates similarly are required to make book-entry transfers and receive
and transmit such distributions on behalf of their respective
Certificateowners. Accordingly, although Certificateowners will not possess
certificates, the Rules provide a mechanism by which Certificateowners will
receive distributions and will be able to transfer their interests.
Because DTC can only act on behalf of DTC Participants, Indirect DTC
Participants and certain banks, the ability of a Book-Entry Certificateowner to
pledge Book-Entry Certificates to persons or entities that do not participate
in the DTC system, or otherwise take actions in respect of such Certificates,
may be limited due to the lack of a certificate for such Certificates.
DTC has advised the Depositor that it will take any action permitted
to be taken by a Book-Entry Certificateholder under the Agreement only at the
direction of one or more DTC Participants to whose account with DTC the
Book-Entry Certificates are credited. Additionally, DTC has advised the
Depositor that it will take such actions with respect to a principal amount of
Book-Entry Certificates only at the
S-46
<PAGE>
direction of and on behalf of DTC Participants whose holdings include that
principal amount of Book-Entry Certificates. DTC may take conflicting actions
with respect to other principal amounts of Book-Entry Certificates to the
extent that such actions are taken on behalf of DTC Participants whose holdings
include those principal amounts of such Certificates.
The information herein concerning the Depository and its book-entry
system has been obtained from sources believed to be reliable, but the Seller
takes no responsibility for the accuracy or completeness thereof.
Definitive Certificates
Book-Entry Certificates issued in fully registered, Certificated form
("Definitive Class A Certificates") will be delivered to Certificateowners (or
their nominees) only if (i) the Master Servicer advises the Trustee in writing
that DTC is no longer willing or able to properly discharge its
responsibilities as depositary with respect to the Book-Entry Certificates, and
the Trustee or the Master Servicer is unable to locate a qualified successor,
(ii) the Master Servicer, at its sole option, elects to terminate the
book-entry system through DTC, or (iii) after the occurrence of an Event of
Default under the Pooling and Servicing Agreement, Certificateowners
representing a majority in principal amount of the Book-Entry Certificates then
outstanding advise DTC through DTC Participants in writing that the
continuation of a book-entry system through DTC (or a successor thereto) is no
longer in the best interest of Certificateowners.
Upon the occurrence of any of the events described in clauses (i)
through (iii) in the immediately preceding paragraph, DTC is required to notify
all DTC Participants of the availability through DTC of Definitive
Certificates. Upon delivery of Definitive Certificates, the Trustee will
recognize the holders of such Definitive Certificates as holders under the
Pooling and Servicing Agreement ("Holders"). Distributions of principal of and
interest on the Definitive Certificates will be made by the Trustee directly to
Holders of Definitive certificates in accordance with the procedures set forth
in the Prospectus and the Pooling and Servicing Agreement.
Requests for transfer of Definitive Certificates will be required to
be submitted directly to the Trustee in a form acceptable to the Trustee (such
as the forms which will appear on the back of the certificate representing a
Definitive Certificate), signed by the Holder or such Holder's legal
representative and accompanied by the Definitive Certificate or Certificates
for which transfer is being requested.]
[PREPAYMENT AND YIELD CONSIDERATIONS
The rate of distributions in reduction of the principal balance of
[any Subclass of] the Class A Certificates, the aggregate amount of
distributions [on any Subclass of] the Class A Certificates and the yield to
maturity of [any Subclass of] the Class A Certificates purchased at a discount
or premium will be directly related to the rate of payments of principal (both
scheduled and unscheduled payments thereof) on the Mortgage Loans in the Trust
Fund and the amount and timing of borrower defaults.
The rate of payments (including prepayments) on pools of Mortgage
Loans is influenced by a variety of economic, geographic, social and other
factors beyond the Depositor's control. If prevailing rates for similar
mortgage loans fall significantly below the market rates on the Mortgage Loans,
the rate of prepayment would generally be expected to increase. Conversely, if
interest rates on similar mortgage loans rise significantly above the Mortgage
Rates on the Mortgage Loans, the rate of prepayment would generally be expected
to decrease.
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The timing of changes in the rate of prepayment on the Mortgage Loans
may significantly affect the actual yield to maturity experienced by an
investor who purchases a Class A Certificate at a price other than par, even if
the average rate of principal payments experienced over time is consistent with
such investor's expectation. In general, the earlier a prepayment of principal
on the Mortgage Loans, the greater the effect on such investor's yield to
maturity. As a result, the effect on such investor's yield of principal
payments occurring at a rate higher (or lower) than the rate anticipated by the
investor during the period immediately following the issuance of the Class A
Certificates would not be fully offset by a subsequent like reduction (or
increase) in the rate of principal payments. Furthermore, the effective yield
to holders of Class A Certificates will be lower than the yield otherwise
produced by the applicable Pass-Through Rates and purchase prices because while
interest will accrue from the first day of each month, the distribution of such
interest will not be made until the ___ day (or if such day is not a business
day, the immediately following business day) of the month following the month
of accrual. In addition, the effective yield on the Class A Certificates will
be affected by any Prepayment Interest Shortfalls.
Prepayments on mortgages are commonly measured relative to a
prepayment standard or model. 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%" assumes
that none of the Mortgage Loans is prepaid before maturity. The columns headed
"___%", "___%", "___%" and "___%" assume that prepayments on the Mortgage Loans
are made at those CPRs. 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 CPRs shown or at any other
prepayment rate.]
The following tables indicate the percentage of the initial
Certificate Balance of each Class of Class A 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 Class A Certificates. The tables
have been prepared on the basis of the following assumptions, among others:
[describe assumptions].
Based on the foregoing assumptions, the following table indicates the
resulting weighted average lives of the Class A Certificates and sets forth the
percentage of the initial Certificate Balance of the Class A Certificates that
would be outstanding after each of the dates shown at the indicated CPRs.
[Table to be provided.]
Based on the foregoing assumptions, the following table indicates the
resulting weighted average lives of the Class B Certificates and sets forth the
percentage of the initial Certificate Balance of the Class B Certificates that
would be outstanding after each of the dates shown at the indicated CPRs.
[Table to be provided.]
No representation is made as to the rate of principal payments on the
Mortgage Loan or as to the yield to maturity of any Subclass of Class A
Certificates. An investor is urged to make an investment decision with respect
to any Subclass of Class A Certificates based on the anticipated yield to
maturity of
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<PAGE>
such Subclass of Class A Certificates resulting from its purchase price and
such investor's own determination as to anticipated Mortgage Loan prepayment
rates under a variety of scenarios. The extent to which [any Subclass of] Class
A Certificates are purchased at a discount or a premium, the degree to which
the timing of payments [on such Subclass of] Certificates is sensitive to
prepayments will determine the extent to which the yield to maturity of such
[Subclass of] Certificates may vary from the anticipated yield. An investor
should carefully consider the associated risks, including, in the case of any
Class A Certificates purchased at a discount [(particularly the Class PO
Certificates)] 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 Class A
Certificates purchased at a premium [(particularly the Class IO Certificates)]
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.
An investor should consider the risk that rapid rates of prepayments
on the Mortgage Loans, and therefore of amounts distributable in reduction of
principal balance of the Class A Certificates, may coincide with periods of low
prevailing interest rates. During such periods, the effective interest rates on
securities in which an investor may choose to reinvest amounts distributed in
reduction of the principal balance of such investor's Class A Certificate may
be lower than the applicable Pass-Through Rate. Conversely, slower rates of
prepayments on the Mortgage Loans, and therefore of amounts distributable in
reduction of principal balance of the Class A Certificates, may coincide with
periods of high prevailing interest rates. During such periods, the amount of
principal distributions available to an investor for reinvestment at such high
prevailing interest rates may be relatively small.
As referred to herein, the weighted average life of [a Subclass of]
Class A Certificates [(other than the class IO Certificates)] refers to the
average amount of time that will elapse from the date of issuance of [such
Subclass or] Class until each dollar in reduction of the principal balance of
such [Subclass or] Class is distributed to the investor. (The weighted average
life of the Class IO Certificates is the average amount of time that will
elapse between the date of issuance of the Class IO Certificates and the date
on which each dollar in reduction of the principal balances of the Class ___
Certificates (indicated percentages of which balances comprise the Class IO
Notional Amount) is distributed to the investors in the Class-Certificates].
The weighted average life of [each Subclass of] the Class A Certificates will
be influenced by, among other things, the rate and timing of principal payments
on the Mortgage Loans, which may be in the form of scheduled amortization or
prepayments.
[Investors in the Class Floater Certificates should understand that at
levels of [Floating Index] greater than approximately ___%, the Pass-Through
Rate of such Subclass will remain at its maximum rate of approximately ___% per
annum. Investors in the Class Floater Certificates should also consider the
risk that lower than anticipated levels of [Floating Index] could result in
actual yields to such investors that are lower than the anticipated yields.
Conversely, investors in the Class Inverse Floater Certificates should consider
the risk that higher than anticipated levels of [Floating Index] could result
in actual yields to such investors that are significantly lower than
anticipated yields. Investors in the Class Inverse Floater Certificates should
also understand that at levels of [Floating Index] in excess of approximately
___% the Pass-Through Rate of the Class Inverse Floater Certificates will be 0%
per annum].
[Investors in the Class Floater and/or Inverse Floater Certificates
should understand that the timing of changes in the level of [Floating Index]
may affect the actual yields to such investors even if the average level is
consistent with such investor's expectations. Each investor must make an
independent decision as to the appropriate [Floating Index] assumptions to be
used in deciding whether to purchase a Class Floater and/or Inverse Floater
Certificate.]
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[Additionally, levels of [Floating Index] may have little or no
correlation to levels of prevailing (mortgage) loan interest rates. It is
possible that lower prevailing (mortgage) loan interest rates (which might be
expected to result in faster prepayments) could occur concurrently with an
increased level of [Floating Index]. Conversely, it is possible that higher
prevailing (mortgage) loan interest rates (which might be expected to result in
slower prepayments) could occur concurrently with a decreased level of index.]
[SENSITIVITY OF THE CLASS IO/PO CERTIFICATES
THE YIELD TO AN INVESTOR ON THE CLASS IO/PO CERTIFICATES WILL BE
HIGHLY SENSITIVE TO BOTH THE TIMING OF RECEIPT OF PREPAYMENTS AND THE OVERALL
RATE OF PRINCIPAL PREPAYMENT ON THE MORTGAGE LOANS, WHICH RATE MAY FLUCTUATE
SIGNIFICANTLY FROM TIME TO TIME. AN INVESTOR SHOULD FULLY CONSIDER THE
ASSOCIATED RISKS, INCLUDING THE RISK THAT A [RAPID] [RELATIVELY LOW] RATE OF
PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS [COULD RESULT IN THE FAILURE OF AN
INVESTOR IN THE CLASS IO/PO CERTIFICATES TO FULLY RECOVER ITS INITIAL
INVESTMENT] [WILL HAVE A NEGATIVE EFFECT ON THE YIELD TO INVESTORS OF THE CLASS
PO CERTIFICATES].
The following table indicates the sensitivity to various rates of
prepayment on the Mortgage Loans of the pre-tax yields to maturity on a
corporate bond equivalent ("CBE") basis of the Class IO/PO Certificates.
SENSITIVITY OF THE CLASS IO/PO CERTIFICATES TO PREPAYMENTS
<TABLE>
<CAPTION>
Percentage of CPR
-----------------------------------------------------------------------------------------------
50% 75% 100% 275% 350% 430% 491%
--- --- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-Tax Yields (CBE)..........
</TABLE>
The pre-tax yields set forth in the preceding table were calculated by
(i) determining the monthly discount rates which, when applied to the assumed
stream of cash flows to be paid on the Class IO/PO Certificates, would cause
the discounted present value of such assumed stream of cash flows to equal an
assumed aggregate purchase price of such Class IO/PO Certificates of
approximately ___% of the aggregate initial principal balance thereof plus
accrued interest and (ii) converting such monthly rates to corporate bond
equivalent rates. Such calculation does not take into account the interest
rates at which investors may be able to reinvest funds received by them as
distributions on the Class IO/PO Certificates and consequently does not purport
to reflect the return on any investment in Class IO/PO Certificates when such
reinvestment rates are considered.
Notwithstanding the assumed prepayment rates reflected in the
preceding table, it is highly unlikely that the Mortgage Loans will prepay at a
constant rate until maturity or that all of the Mortgage Loans will prepay at
the same time. The Mortgage Loans initially included in the Trust Fund may
differ from those currently expected to be included in the Trust Fund, and
thereafter may be changed as a result of permitted substitutions. As a result
of these factors, the pre-tax yields on the Class IO/PO Certificates are likely
to differ from those shown in such table, even if all of the Mortgage Loans
prepay at the indicated percentages of CPR.
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<PAGE>
WEIGHTED AVERAGE LIFE OF THE CERTIFICATES
Weighted average life refers to the average amount of time from the
date of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The weighted average lives of the Certificates
will be influenced by the rate at which principal payments (including scheduled
payments, principal prepayments and payments made pursuant to any applicable
policies of insurance) on the Mortgages are made. The tables of Percentages of
Initial Certificate Principal Balance Outstanding for the Certificates at the
respective percentages of CPR set forth on pages [ ] through [ ] indicate the
weighted average life of each Class of Certificates and set forth the
percentage of the initial principal amount of such Certificates that would be
outstanding after each of the dates shown at the indicated percentages of CPR.
The tables have been prepared on the basis of certain Mortgage Loan
assumptions. The simplifying assumptions made in preparing the following tables
are expected to vary from the actual performance of the Mortgage Loans. Based
on the foregoing assumptions, the tables indicate the weighted average life of
the Certificates and set forth the percentages of the initial Certificate
Principal Balance of the Certificates that would be outstanding after the
Distribution Date in _____ of each of the years indicated, at various
percentages of the CPR. None of the indicated percentages of CPR purports to be
an historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of the Mortgage Loans included in the Trust
Fund. Variations in the actual prepayment experience and extension experience
and the balance of the mortgage Loans that prepay or are extended may increase
or decrease the percentage of initial Certificate Principal Balance (and
weighted average life) shown in the following tables. Such variations may occur
even if the average prepayment experience of all such Mortgage Loans equals any
of the specified percentages of the CPR. In addition, as described above under
"Description of the Mortgage Loans, "the Mortgage Loans may be subject to
periods of slower amortization or to negative amortization, in which case the
weighted average lives of the Certificates will be increased, and to period of
accelerated amortization, in which case the weighted average lives of the
Certificates will be decreased.
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PERCENTAGE OF INITIAL CERTIFICATE BALANCE
OUTSTANDING AT THE RESPECTIVE PERCENTAGES OF CPR
<TABLE>
<CAPTION>
Class
Date 1% 3% 4% 5% 7%
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998..................................................
1999..................................................
2000..................................................
2001..................................................
2002..................................................
2003..................................................
2004..................................................
2005..................................................
2006..................................................
2007..................................................
2008..................................................
2009..................................................
2010..................................................
2011..................................................
2012..................................................
2013..................................................
Weighted average life (years)(1) .....................
</TABLE>
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and servicing
Agreement to be dated as of __________ 1, 199_ (the "Pooling and Servicing
Agreement"), by and among the Depositor, the Master Servicer and the Trustee.
Reference is made to the Prospectus for important information in
addition to that set forth herein regarding the terms and conditions of the
Pooling and Servicing Agreement and the Class A Certificates. The Depositor
will provide to a prospective or actual Class A Certificateholder without
charge, upon written request, a copy (without exhibits) of the Pooling and
Servicing Agreement. Requests should be addressed to PaineWebber Mortgage
Acceptance Corporation V, 1285 Avenue of the Americas, New York, New York
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10019. The Depositor will also file the Pooling and Servicing Agreement with
the Securities and Exchange Commission within fifteen days after the initial
issuance of the Class A Certificates.
ASSIGNMENT OF THE MORTGAGE LOANS
On or prior to the Delivery Date, the Depositor will assign or cause
to be assigned the Mortgage Loans, without recourse, to the Trustee for the
benefit of the Certificateholders. Prior to the Delivery Date, the Depositor
will, as to each Mortgage Loan, deliver to the Trustee (or the custodian
hereinafter referred to), among other things, the following documents
(collectively, as to such Mortgage Loan, the "Mortgage File") : (i) the
original or, if accompanied by a "lost note" affidavit, a copy of the Mortgage
Note, endorsed by which transferred such Mortgage Loan, without recourse, in
blank or to the order of Trustee; (ii) the original Mortgage or a certified
copy thereof, and any intervening assignments thereof, or certified copies of
such intervening assignments, in each case with evidence of recording thereon;
(iii) originals or certified copies of any related assignment of leases, rents
and profits and any related security agreement (if, in either case, such item
is a document separate from the Mortgage) and any intervening assignments of
each such documents or instrument; (iv) an assignment of the Mortgage executed
by the Mortgage Asset Seller which transferred such Mortgage Loan, in blank or
to the order of the Trustee, in recordable form; (v) assignments of any related
assignment of leases, rents and profits and any related security agreement (if,
in either case, such item is a document separate from the Mortgage), executed
by the Mortgage Asset Seller which transferred such Mortgage Loan, in blank or
to the order of the Trustee; (vi) originals or certified copies of all
assumption, modification and substitution agreements in those instances where
the terms or provisions of the Mortgage or Mortgage Note have been modified or
the Mortgage or Mortgage Note has been assumed; and (vii) the originals or
certificates of a lender's title insurance policy issued on the date of the
origination of such Mortgage Loan or, with respect to each Mortgage Loan not
covered by a lender's title insurance policy, an attorney's opinion of title
given by an attorney licensed to practice law in the jurisdiction where the
Mortgaged Property is located. The Pooling and Servicing Agreement will require
the Depositor promptly (and in any event within ___ days of the Delivery Date)
to cause each assignment of the Mortgage described in clause (iv) above to be
submitted for recording in the real property records of the jurisdiction in
which the related Mortgaged Property is located. Any such assignment delivered
in blank will be completed to the order of the Trustee prior to recording. The
Pooling and Servicing Agreement will also require the Depositor to cause the
endorsements on the Mortgage Notes delivered in blank to be completed to the
order of the Trustee.
THE TRUSTEE
___________________, a [national banking association] [commercial
banking corporation chartered by the [State] [Commonwealth] of
________________], will act as Trustee for the holders of the Certificates
pursuant to the Trust Agreement. The Trustee's principal executive offices are
located at ____________________, and its telephone number is (___) ____-____.
THE MASTER SERVICER
General. _________, a __________[corporation], will act as Master
Servicer (in such capacity, the "Master Servicer") for the Certificates
pursuant to the Pooling and Servicing Agreement. The Master Servicer[, a
wholly-owned subsidiary of ___________,] [is engaged in the mortgage banking
business and, as such, originates, purchases, sells and services mortgage
loans. __________ primarily originates mortgage loans through a branch system
consisting of ___ offices in states, and through mortgage loan brokers.]
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<PAGE>
The executive offices of the Master Servicer are located at _________,
telephone number (___) --------.
Delinquency and Foreclosure Experience. The following tables set forth
certain information concerning the delinquency experience (including pending
foreclosures) on [multifamily] [commercial] mortgage loans included in the
Master Servicer's servicing portfolio (which includes mortgage loans that are
sub-serviced by others) . The indicated periods of delinquency are based on the
number of days past due on a contractual basis. No mortgage loan is considered
delinquent for these purposes until 31 days past due on a contractual basis.
S-54
<PAGE>
<TABLE>
<CAPTION>
As of December 31, 19__ As of December 31, 19 __ As of _________ , 19__
----------------------- ------------------------ ----------------------
By Dollar By Dollar By Dollar
By No. Amount By No. Amount By No. Amount
of Loans of Loan of Loans of Loans of Loans of Loans
-------- ------- -------- -------- -------- --------
(Dollar Amount in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio........... $ $ $
--------- -------- ---------- ---------- --------- ---------
Period of Delinquency
31 50 59 days
60 to 89 days --------- -------- ---------- ---------- --------- ---------
90 days for more
Total Delinquent
Loans................... $ $ $
========= ========= ========== ========== ========= =========
Percent of Portfolio...... % % % % % %
Foreclosure
Pending (1)............. % % % % % %
Percent of Portfolio...... % % % % % %
Foreclosures.............. % % % % % %
Percent of Portfolio...... % % % % % %
</TABLE>
-----------
(1) Includes bankruptcies which preclude foreclosure.
There can be no assurance that the delinquency and foreclosure
experience of the Mortgage Loans comprising the Mortgage Pool will correspond
to the delinquency and foreclosure experience of the Master Servicer's mortgage
portfolio set forth in the foregoing tables. The aggregate delinquency and
foreclosure experience on the Mortgage Loans comprising the Mortgage Pool will
depend on the results obtained over the life of the Mortgage Pool.
SPECIAL SERVICERS
The Master Servicer is permitted, at its own expense, to utilize
agents or attorneys in performing any of its obligations under the Pooling and
Servicing Agreement, but will not thereby be relieved of any such obligation,
and will be responsible for the acts and omissions of any such agents or
attorneys.
The Master Servicer currently intends to engage __________ (" "), a
__________ corporation, as its agent to perform certain servicing functions
primarily related to property inspections, foreclosure and the operation and
sale of REO Property. See "Description of the Agreements-Realization Upon
Defaulted Whole Loans" in the Prospectus. is [describe organization] of
[multifamily] [commercial] properties and has extensive experience in the
[describe relevant experience] of [multifamily] [commercial] properties.
S-55
<PAGE>
CERTIFICATE ACCOUNT
The Master Servicer is required to deposit on a daily basis all
amounts received with respect to the Mortgage Loans of the Mortgage Pool, net
of its servicing compensation, into a separate Certificate Account maintained
with __________. Interest or other income earned on funds in the Certificate
Account will be paid to the Master Servicer as additional servicing
compensation. See "Description of the Agreements--Certificate Account" in the
Prospectus.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the Master Servicer in
respect of its master servicing activities will be the Servicing Fee. The
Servicing Fee will be payable monthly only from amounts received in respect of
interest on each Mortgage Loan, will accrue at the Servicing Fee Rate and will
be computed on the basis of the same principal amount and for the same period
respecting which any related interest payment on such Mortgage Loan is
computed. The Servicing Fee Rate with respect to each Mortgage Loan equals ___%
per annum. [The principal compensation to be paid to the Special Servicer in
respect of its special servicing activities will be the Special Servicing Fee.
The Special Servicing Fee will be payable monthly only from amounts received in
respect of interest on each Specially Serviced Mortgage Loan, will accrue at
the Special Servicing Fee Rate and will be computed on the basis of the same
principal amount for the same period respecting which any related interest
payment on such Mortgage Loan is computed. The Special Servicing Fee Rate with
respect to each Specially Serviced Mortgage Loan equals ___% per annum.] [As
further compensation for its servicing activities, the Special Servicer shall
also be entitled to receive (i) the Liquidation Fee for the procurement
[directly or through an agent thereof] of a purchaser in connection with the
liquidation of a Mortgaged Property securing any defaulted Mortgage Loan, out
of related liquidation proceeds, provided that the payment of such Liquidation
Fee would not be a violation of, and would not subject the Trustee or the Trust
Fund to liability under, any state or local statute, regulation or other
requirement (including without limitation, those governing the licensing of
real estate brokers or salesmen), and (ii) the Management Fee in connection
with the operation and management of any REO Property out of related revenues.
Any "Liquidation Fee", payable to the Special Servicer will be equal to ___%
(if the relevant sale occurs at a foreclosure sale, trustee's sale or other
similar proceeding) or ___% (if the relevant sale also occurs subsequent to
such Mortgaged Property's having become an REO Property), as applicable, of the
gross liquidation proceeds. The "Management Fee" in respect of any REO Property
is payable to the Special Servicer monthly and is equal to ___% of the gross
revenues derived from such REO Property.]
As additional servicing compensation, the Master SerVicer is
entitled to retain all assumption fees, prepayment penalties and late payment
charges, to the extent collected from mortgagors, together with any interest or
other income earned on funds held in the Certificate Account and any escrow
accounts. The Master Servicer is obligated to pay certain ongoing expenses
associated with the Mortgage Pool and incurred by the Master Servicer in
connection with its responsibilities under the Agreement. See "Description of
the Agreements--Retained Interest; Servicing compensation and Payment of
Expenses" in the Prospectus for information regarding other possible
compensation payable to the Master Servicer and for information regarding
expenses payable by the Master Servicer (and "Certain Federal Income Tax
Consequences" herein regarding certain taxes payable by the Master Servicer.]
REPORTS TO CERTIFICATEHOLDERS
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<PAGE>
On each Distribution Date, the Master Servicer shall furnish to each
Certificateholder, to the Depositor, to the Trustee and to the Rating Agency a
statement setting forth certain information with respect to the Mortgage Loans
and the Certificates required pursuant to the Pooling and Servicing Agreement.
In addition, within a reasonable period to time after each calendar year, the
Master Servicer shall furnish to each person who at any time during such
calendar year was the holder of a Certificate a statement containing certain
information with respect to the Certificates required pursuant to the Pooling
and Servicing Agreement, aggregated for such calendar year or portion thereof
during which such person was a Certificateholder. See "Description of the
Certificates--Reports to Certificateholders" in the Prospectus.
VOTING RIGHTS
At all times during the term of this Agreement, the Voting Rights
shall be allocated among the Classes of Certificateholders in proportion to the
respective Certificate Principal Balances of their Certificates (net, in the
case of the Class A, Class B and Class C Certificates, of any Uncovered Portion
of the related Certificate Principal Balance). 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.
TERMINATION
The obligations created by the Pooling and servicing Agreement will
terminate following the earliest of (i) the final payment or other liquidation
of the last Mortgage Loan or REO Property subject thereto, and (ii) the
purchase of all of the assets of the Trust Fund by the Master Servicer. 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 specified in such notice of termination. In no event, however, will
the trust created by the Pooling and Servicing Agreement continue beyond the
expiration of 21 years from the death of the survivor of certain persons named
in such Pooling and Servicing Agreement.
Any such purchase by the Master Servicer of all the Mortgage Loans and
other assets in the Trust Fund is required to be made at a price equal to the
greater of (1) the aggregate fair market value of all the Mortgage Loans and
REO Properties then included in the Trust Fund, as mutually determined by the
Master Servicer and the Trustee, and (2) the excess of (a) the sum of (i) the
aggregate Purchase Price of all the Mortgage Loans then included in the Trust
Fund and (ii) the fair market value of all REO Properties then included in the
Trust Fund, as determined by an appraiser mutually agreed upon by the Master
Servicer and the Trustee, over (b) the aggregate of amounts payable or
reimbursable to the Master Servicer under the Pooling and Servicing Agreement.
Such purchase will effect early retirement of the then outstanding Class A
Certificates, but the right of the Master Servicer to effect such termination
is subject to the requirement that the aggregate Stated Principal Balance of
the Mortgage Loans then in the Trust Fund is less than ___% of the aggregate
principal balance of the Mortgage Loans as of the Cut-off Date.
USE OF PROCEEDS
The net proceeds from the sale of Class A Certificates will be used by
the Depositor to pay the purchase price of the Mortgage Loans.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
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Upon the issuance of the Class A Certificates, O'Melveny & Myers LLP,
New York, New York, special counsel to the Depositor, will deliver its opinion
generally to the effect that, assuming compliance with all provisions of the
Pooling and Servicing Agreement, for federal income tax purposes, the Trust
Fund will qualify as a [REMIC] [FASIT] under the Code.
For federal income tax purposes, the Class R Certificates will be the
sole class of ["residual interests" in the REMIC] [ownership interests in the
FASIT] and the Class A, Class B and Class C Certificates will be the "regular
interests" in the [REMIC] [FASIT] and will be treated as debt instruments of
the [REMIC] [FASIT].
[See "Certain Federal Income Tax Consequences--Federal Income Tax
Consequences for REMIC Certificates" in the Prospectus.] [See "Certain Federal
Income Tax Consequences--Federal Income Tax Consequences for FASIT
Certificates" in the Prospectus.]
The Class A Certificates [may] [will not] be treated as having been
issued with original issue discount for federal income tax purposes. The
prepayment assumption that will be used in determining the rate of accrual of
original issue discount, market discount and premium, if any, for federal
income tax purposes will be based on the assumption that subsequent to the date
of any determination the Mortgage Loans will prepay at a rate equal to ___%
CPR. 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" in the Prospectus.]
The Class A Certificates may be treated for federal income tax
purposes as having been issued at a premium. Whether any holder of such a class
of Certificates will be treated as holding a certificate with amortizable bond
premium will depend on such Certificateholder's purchase price and the
distributions remaining to be made on such Certificate at the time of its
acquisition by such Certificateholder. Holders of such class of Certificates
should consult their own tax advisors regarding the possibility of making an
election to amortize such premium. [See "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates--Taxation
of Regular Certificates--Premium" in the Prospectus.] [See "Certain Federal
Income Tax Consequences--Federal Income Tax Consequences for FASIT
Certificates" in the Prospectus.]
[The Class A Certificates will be treated as [assets described in
Section 7701(a)(19)(C) of the Code] and "real estate assets" within the meaning
of Section 856(c)(5)(A) of the Code generally in the same proportion that the
assets of the REMIC underlying such Certificates would be so treated. [In
addition, the Class A Certificates will be "obligation(s) ... which ... [are]
principally secured by an interest in real property" within the meaning of
Section 860G(a)(3) (C) of the Code generally to the extent that such Class A
Certificates are treated as "real estate assets" under Section 856(c)(5)(A) of
the Code. Moreover, the Class A Certificates will be "obligation[s] ... which
... [are] principally secured by an interest in real property" within the
meaning of Section 860G(a)(3)(C) of the Code.] [The Class A Certificates will
not be considered to represent an interest in "loans ... secured by an interest
in real property" within the meaning of Section 7701(a)(19)(C)(v) of the Code.]
See "Certain Federal Income Tax Consequences--Federal Income Tax Consequences
for REMIC Certificates--Status of REMIC Certificates" in the Prospectus.] [See
"Certain Federal Income Tax Consequences--Federal Income Tax Consequences for
FASIT Certificates" in the Prospectus.]
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<PAGE>
For further information regarding the federal income tax consequences
of investing in the Class A Certificates, see ["Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates" in the
Prospectus.] ["Certain Federal Income Tax Consequences--Federal Income Tax
Consequences for FASIT Certificates" 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 insurance company general and separate
accounts in which such plans, annuities, accounts or arrangements are invested,
that is subject to Title I of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975 of the Code (an "ERISA Plan") or
which is a governmental plan, as defined in Section 3(32) of ERISA, subject to
any federal, state or local law ("Similar Law") which is, to a material extent,
similar to the foregoing provisions of ERISA or the Code (collectively, with an
ERISA Plan, a "Plan") should carefully review with its legal advisors whether
the purchase or holding of Class A Certificates could give rise to a transaction
that is prohibited or is not otherwise permitted either under ERISA or Section
4975 of the Code or whether there exists any statutory or administrative
exemption applicable thereto. Moreover, each Plan fiduciary should determine
whether an investment in the Class A 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 ("DOL") issued to PaineWebber
Incorporated an individual prohibited transaction exemption, Prohibited
Transaction Exemption 90-36, 55 Fed. Reg. 25,903 (June 25, 1990), as amended by
Prohibited Transaction Exemption 97-34, 62 Fed. Reg. 39,021 (July 21, 1997) (the
"Exemption"), which generally exempts from the application of the prohibited
transaction provisions of Section 406 of ERISA, and the excise taxes imposed 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 Class A Certificates,
underwritten by an Underwriter (as hereinafter defined), 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
Class A Certificates to be eligible for exemptive relief thereunder. First, the
acquisition of the Class A Certificates by a Plan must be on terms that are at
least as favorable to the Plan as they would be in an arm's-length transaction
with an unrelated party. Second, the rights and interests evidenced by the
Class A Certificates must not be subordinated to the rights and interests
evidenced by other certificates of the same trust. Third, the Class A
Certificates at the time of acquisition by the Plan must be rated in one of the
three highest generic rating categories by Standard & Poor's Structured Rating
Group ("Standard & Poor's"), Moody's Investors Service, Inc. ("Moody's"), Duff
& Phelps Credit Rating Co. ("Duff & Phelps") 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
Master Servicer, the Trustee, any sub-servicer, and any mortgagor with respect
to Mortgage Loans constituting more than 5% of the aggregate unamortized
principal balance of the Mortgage Loans as of the date of initial issuance of
the Class A Certificates. Fifth, the sum of all payments made to and
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retained by the Underwriter must represent not more than reasonable
compensation for underwriting the Class A Certificates; the sum of all payments
made to and retained by the Depositor pursuant to the assignment of the
Mortgage Loans to the Trust Fund must represent not more than the fair market
value of such obligations; and the sum of all payments made to and retained by
the Master 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. [As amended by
Prohibited Transaction Exemption 97-34, the Exemption contains a seventh
restriction applicable to a trust with a pre-funding account; that restriction
is not applicable to the Trust Fund.]
Because the Class A Certificates are not subordinated to any other
Class of Certificates, the second general condition set forth above is
satisfied with respect to such Certificates. It is a condition of the issuance
of the Class A Certificates that they be rated not lower than "__" by
_____________. As of the Delivery Date, the fourth general condition set forth
above will be satisfied with respect to the Class A Certificates. A fiduciary
of a Plan contemplating purchasing a Class A Certificate in the secondary
market must make its own determination that, at the time of such purchase, the
Class A Certificates continue to satisfy the third and fourth general
conditions set forth above. A fiduciary of a Plan contemplating purchasing a
Class A Certificate, whether in the initial issuance of such Certificates or in
the secondary market, must make its own determination that the first, fifth and
sixth general conditions set forth above will be satisfied with respect to such
Class A Certificate.
The Exemption also requires that the Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type that
have been included in other investment pools; (ii) certificates in such other
investment pools must have been rated in one of the three highest categories of
Standard & Poor's, Moody's, Duff & Phelps or Fitch for at least one year prior
to the Plan's acquisition of Class A Certificates; and (iii) certificates in
such other investment pools must have been purchased by investors other than
Plans for at least one year prior to any Plan's acquisition of Class A
Certificates.
If the general conditions of the Exemption are satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(a) and 407(a) of ERISA (as well as the excise taxes imposed by Sections
4975(a) and (b) of the Code by reason of Sections 4975(c)(1) (A) through (D) of
the Code) in connection with (i) the direct or indirect sale, exchange or
transfer of Class A Certificates in the initial issuance of Certificates
between the Depositor or an Underwriter and a Plan when the Depositor, the
Underwriter, the Trustee, the Master Servicer, a sub-servicer or a mortgagor is
a Party in Interest with respect to the investing Plan, (ii) the direct or
indirect acquisition or disposition in the secondary market of the Class A
Certificates by a Plan and (iii) the holding of Class A Certificates by a Plan.
However, no exemption is provided from the restrictions of Sections
406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or holding of a
Class A Certificate on behalf of an "Excluded Plan" by any person who has
discretionary authority or renders investment advice with respect to the assets
of such Excluded Plan. For purposes hereof, an Excluded Plan is a Plan
sponsored by any member of the Restricted Group.
If certain specific conditions of the Exemption are also satisfied,
the Exemption may provide an exemption from the restrictions imposed by
Sections 406(b)(1) and (b)(2) of ERISA and the taxes imposed by Section
4975(c)(1)(E) of the Code in connection with (1) the direct or indirect sale,
exchange or transfer of Class A Certificates in the initial issuance of
Certificates between the Depositor or an Underwriter and a Plan when the person
who has discretionary authority or renders investment advice with respect to
the investment of Plan assets in such Certificates is (a) a mortgagor 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
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disposition in the secondary market of Class A Certificates by a Plan and (3)
the holding of Class A Certificates by a Plan.
Further, if certain specific conditions of the Exemption are
satisfied, the Exemption may provide an exemption from the restrictions imposed
by Sections 406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code
for transactions in connection with the servicing, management and operation of
the Mortgage Pool.
Before purchasing a Class A Certificate, a fiduciary of a Plan should
itself confirm that (i) the Class A Certificates constitute "certificates" for
purposes of the Exemption and (ii) the specific and general conditions and the
other requirements set forth in the Exemption would be satisfied. In addition
to making its own determination as to the availability of the exemptive relief
provided in the Exemption, the Plan fiduciary should consider the availability
of any other individual or class prohibited transaction exemptions. See "ERISA
Considerations" in the Prospectus. A purchaser of a Class A Certificate should
be aware, however, that even if the conditions specified in one or more
exemptions are satisfied, the scope of relief provided by an exemption may not
cover all acts which might be construed as prohibited transactions.]
[Because the characteristics of the Class B Certificates do not meet
the requirements of the Exemption, the purchase or holding of such Certificates
by a Plan may result in prohibited transactions and the imposition of excise
taxes or civil penalties. As a result,] no transfer of a [Class B] Certificate
or any interest therein may be made to a Plan or to any person who is directly
or indirectly purchasing such [Class B] 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.
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<PAGE>
Any Plan fiduciary considering whether to purchase a Class A
Certificate on behalf of a Plan should consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment.
The sale of Certificates to a Plan is in no respect a representation
by the Depositor or Underwriter that this investment meets all relevant legal
requirements with respect to investments by Plans generally or any particular
Plan, or that this investment is appropriate for Plans generally or any
particular Plan.
[THE CHARACTERISTICS OF THE CLASS [ ] AND CLASS [ ] CERTIFICATES DO NOT
MEET THE REQUIREMENTS OF THE EXEMPTION. ACCORDINGLY, CLASS[ ] AND CLASS [ ]
CERTIFICATES SHOULD NOT BE ACQUIRED BY A PLAN.]
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.
LEGAL INVESTMENT
[As long as the Class A Certificates are rated in one of the two
highest rating categories by at least one nationally recognized statistical
rating organization and each Mortgage Loan is secured by a first priority lien
on a (a) single parcel of real property upon which is located a dwelling or
mixed residential and commercial structure or a residential manufactured home
or (b) one or more parcels of real property upon which is located one or more
commercial structures, the Class A Certificates will constitute "mortgage
related securities" within the meaning of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA").]
[The Class A Certificates will [not] be "mortgage related securities"
for purposes of SMMEA. As a result, the appropriate characterization of the
Class A Certificates under various legal investment restrictions, and thus the
ability of investors subject to these restrictions to purchase the Class A
Certificates, is subject to significant interpretive uncertainties.]
[Except as to the status of the Class A Certificates as "mortgage
related securities," no] [No] representation is made as to the proper
characterization of the Class A Certificates for legal investment purposes,
financial institution regulatory purposes, or other purposes, or as to the
ability of particular investors to purchase the Class A Certificates under
applicable legal investment or other restrictions. All institutions whose
investment activities are subject to legal investment laws and regulations,
regulatory capital requirements or review by regulatory authorities should
consult with their own legal advisors in
S-62
<PAGE>
determining whether and to what extent the Class A Certificates constitute
legal investments for them or are subject to investment, capital or other
restrictions.
See "Legal Investment" in the Prospectus.
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement between the Depositor and the Underwriter, the Class A Certificates
will be purchased from the Depositor by the Underwriter, an affiliate of the
Depositor, upon issuance. Distribution of the Class A Certificates will be made
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 Class A Certificates will be ___% of the initial aggregate
principal balance thereof as of the Cut-off Date, plus accrued interest from
the Cut-off Date at a rate of ___% per annum, before deducting expenses payable
by the Depositor. In connection with the purchase and sale of the Class A
Certificates, the Underwriter may be deemed to have received compensation from
the Depositor in the form of underwriting discounts.
The Depositor also has been advised by the Underwriter that it,
through one or more of its affiliates currently expects to make a market in the
Class A Certificates offered hereby; however, it has no obligation to do so,
any market making may be discontinued at any time, and there can be no
assurance that an active public market for the Class A Certificates will
develop.
The Depositor has agreed to indemnify the Underwriter against, or make
contributions to the Underwriter with respect to, certain liabilities,
including liabilities under the Securities Act of 1933.
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will be used by the Underwriter in
connection with offers and sales related to market-making transactions in the
Class A Certificates in which the underwriter acts As principal. The
Underwriter may also act as agent in such transactions. Sales may be made at
negotiated prices determined at the time of sale.)
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor and for
the Underwriter by O'Melveny & Myers LLP, New York, New York. O'Melveny & Myers
LLP will act as tax counsel to the Depositor with respect to certain tax
matters.
RATING
It is a condition to issuance that the Class A Certificates be rated
[not lower than] "___" by the Rating Agency. However, no person is obligated to
maintain the rating on the Class A Certificates, and the Rating Agency is not
obligated to monitor its rating following the Delivery Date.
The Rating Agency's ratings on mortgage pass-through certificates
address the likelihood of the receipt by holders thereof of payments to which
they are entitled. The Rating Agency's ratings take into consideration the
credit quality of the mortgage pool, structural and legal aspects associated
with the certificates, and the extent to which the payment stream in the
mortgage pool is adequate to make payments required under the certificates. The
Rating Agency's rating on the Class A Certificates does not, however,
S-63
<PAGE>
constitute a statement regarding frequency of prepayments on the Mortgage
Loans. See "Risk Factors" herein.
There can be no assurance as to whether any rating agency not
requested to rate the Class A Certificates will nonetheless issue a rating and,
if so, what such rating would be. A rating assigned to the Class A Certificates
by a rating agency that has not been requested by the Depositor to do so may be
lower than the rating assigned by the Rating Agency pursuant to the Depositor's
request.
The ratings of the Class A Certificates do not address the possibility
that, as, a result of principal prepayments, Certificateholders may receive a
lower than anticipated yield [or that the holders of the Class IO Certificates
may fail to fully recover their initial investments].
The rating of the Class A 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.
S-64
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED ____________ __, 1999
PROSPECTUS SUPPLEMENT [VERSION 2]
(TO PROSPECTUS DATED _____________, 199__)
$_______________ (APPROXIMATE)
PAINEWBBER MORTGAGE ACCEPTANCE CORPORATION V
DEPOSITOR
[MASTER SERVICER]
MASTER SERVICER
MORTGAGE ASSET PASS-THROUGH CERTIFICATES, SERIES 199_-__
$__________ CLASS A CERTIFICATES, ___% PASS-THROUGH RATE
$0 CLASS B CERTIFICATES, VARIABLE PASS-THROUGH RATE*
(*BASED ON THE NOTIONAL AMOUNT AS DESCRIBED HEREIN)
The Series 199_-__ Certificates offered hereby (the "Offered
Certificates") will consist of Class A Certificates (the "Class A
Certificates") and Class B Certificates (the "Class A Certificates"). The
Certificates will represent in the aggregate the entire beneficial ownership
interest in a trust fund (the "Trust Fund") consisting of a segregated pool of
[mortgage pass-through certificates] [mortgage participation certificates]
issued by __________ (the "MBS Securities") having an aggregate principal
balance as of $__________, 199__ (the "Cut-off Date") of approximately
$__________ , and as further described herein to be sold by PaineWebber
Mortgage Acceptance Corporation V (the "Depositor") pursuant to a Trust
Agreement dated as of the Cut-off Date between the Depositor and __________, as
trustee (the "Trustee'). The MBS Securities evidence ownership interests in
segregated pools of first mortgage loans secured by __________ (the "Underlying
Mortgage loans"). [The timely payment of interest and the ultimate payment of
principal on each of the MBS Securities is guaranteed by __________ (the
"Agency").] The Pass-Through Rate on the Class A Certificates will be a fixed
rate equal to ___%. The Pass-Through Rate on the Class B Certificates from time
to time will be equal to the weighted average of the Pool Strip Rates. The Pool
Strip Rate as to any MBS Security is equal to stated interest rate thereon (the
"Security Rate") minus the sum of the Class A Pass-Through Rate and the Trust
Administration Rate. The initial Pass-Through Rates the Class B Certificates
___% per annum. The Notional Amount of the Class B Certificates is used solely
for purposes of determination of interest payments and certain other rights of
holders of Class B Certificates and does not represent an interest in principal
payments on the MBS Securities. The Notional Amount of the Class B Certificates
in effect at any time will correspond to the Certificate Principal Balance of
the Class A Certificates as of such time.
Principal and interest are payable on the ___ day of each month, or,
if such day is not a business day, then on the next succeeding business day,
beginning in __________ (each, a "Distribution Date"). The offered Certificates
will constitute a separate series of Certificates being offered by the
Depositor from time to time pursuant to the Prospectus dated _________ __, 1999
which accompanies this Prospectus Supplement and of which this Prospectus
Supplement is a part.
Prospective investors should review the information appearing under
the caption "Risk Factors" herein and in the Prospectus before purchasing any
Class A Certificates.
The yield to maturity on the Certificates will be affected by the rate
of principal payments (including prepayments) on the Underlying Mortgage Loans.
(The Underlying Mortgage Loans may be prepaid at any time without penalty.) The
yield to maturity on the Class B Certificates will be extremely sensitive to
the rate or principal payments on the Underlying Mortgage Loans and may
fluctuate significantly from time to time. The Class B Certificates will be
adversely affected in the event of higher than anticipated levels of
<PAGE>
prepayments. In addition, in the case of Class B Certificates, a rapid rate of
principal payments could result in the failure of investors to recover their
initial investment. See "Yield on the Certificates and Prepayments on the MBS
Securities" herein.
There is currently no secondary market for the Offered Certificates
and there can be no assurance that a secondary market for the Certificates will
develop, or, if it does develop, that it will continue. PaineWebber
Incorporated expects to establish a market in the Offered Certificates, but is
not obligated to do so.
[ALTHOUGH DISTRIBUTIONS ON THE MBS SECURITIES ARE GUARANTEED BY THE AGENCY],
THE OFFERED CERTIFICATES REPRESENT INTERESTS IN THE TRUST FUND ONLY AND ARE NOT
GUARANTEED BY [THE AGENCY] THE DEPOSITOR, THE MASTER SERVICER, THE TRUSTEE OR
ANY OF THEIR RESPECTIVE AFFILIATES. [THE GUARANTEE OF THE AGENCY ON THE MBS
SECURITIES IS NOT BACKED BY THE FULL FAITH AND CREDIT OF THE UNITED STATES OF
AMERICA.] DISTRIBUTIONS WILL BE MADE ON THE OFFERED CERTIFICATES ONLY IF, AND
TO THE EXTENT THAT, THE [MASTER SERVICER] [TRUSTEE] RECEIVES DISTRIBUTIONS ON
THE MBS SECURITIES.
TIM OFFERED CERTIFICATES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASS UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE OFFERED CERTIFICATES WILL BE PART OF A SEPARATE SERIES OF CERTIFICATES
BEING OFFERED BY THE DEPOSITOR PURSUANT TO ITS PROSPECTUS DATED ___________,
19__, OF WHICH THIS PROSPECTUS SUPPLEMENT IS A PART AND WHICH ACCOMPANIES THIS
PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS IMPORTANT INFORMATION REGARDING
THIS OFFERING WHICH IS NOT CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE
URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN THEIR ENTIRETY.
UNTIL __________, 19_, 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 IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
[IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.]
PaineWebber Incorporated
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY OF PROSPECTUS SUPPLEMENT................................................................................S-5
RISK FACTORS...................................................................................................S-11
Special Yield Considerations..........................................................................S-11
Effect of Defaults by Mortgagors on Underlying Mortgage Loans.........................................S-11
[Limited information..................................................................................S-11
DESCRIPTION OF THE CERTIFICATES................................................................................S-12
General ......................................................................................................S-12
Available Distribution Amount.........................................................................S-13
Interest Distributions................................................................................S-13
Principal Distributions...............................................................................S-13
THE MBS SECURITIES.............................................................................................S-13
YIELD CONSIDERATIONS...........................................................................................S-14
Payment Delay.........................................................................................S-14
Payments on the Underlying Mortgage Loans and MBS Securities..........................................S-14
Effect of Defaults by Mortgagors on Underlying Mortgage Loans.........................................S-15
Prepayments...........................................................................................S-16
DESCRIPTION OF THE TRUST AGREEMENT.............................................................................S-17
General .............................................................................................S-17
The Trustee...........................................................................................S-18
The Master Servicer...................................................................................S-18
Payment of Expenses...................................................................................S-18
Voting Rights.........................................................................................S-18
Transfers to ERISA Plans..............................................................................S-18
Termination...........................................................................................S-18
FEDERAL INCOME TAX CONSEQUENCES................................................................................S-19
LEGAL INVESTMENT...............................................................................................S-19
PLAN OF DISTRIBUTION...........................................................................................S-19
LEGAL MATTERS..................................................................................................S-20
RATINGS ......................................................................................................S-20
</TABLE>
S-3
<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. Capitalized terms used but not defined herein have
the meanings assigned thereto in the Prospectus. An Index of Principal
Definitions is included at the end of the Prospectus.
Title of Certificates............ Mortgage Asset Pass-Through Certificates,
Series 199_-__, Class ___, Class ___ and
Class ___ (the "Certificates"). Only the
Class A Certificates and the Class B
Certificates (the "Offered Certificates") are
offered hereby. The Certificates will be
issued pursuant to a Trust Agreement dated as
of _________, 19__ (the "Cut-off Date") among
the Depositor, the Master Servicer and the
Trustee (the "Trust Agreement").
Class A Certificates............. $ __________ initial Certificate Principal
Balance (approximate), ___% Pass-Through Rate
on such balance. The initial Certificate
Principal Balance of the Class A Certificates
is equal to the aggregate principal balance
of the MBS Securities (as defined below) as
of __________, 199_ (the "Cut-off Date").
Class B Certificates............. $0 Certificate Principal Balance, Variable
Pass-Through Rate based on a Notional Amount
equal to $______, which corresponds to the
aggregate outstanding principal balance of
the MBS Securities as of the Cut-off Date.
Depositor........................ PaineWebber Mortgage Acceptance corporation V
(the "Depositor"), a wholly-owned limited
purpose finance subsidiary of PaineWebber
Group Inc. The Depositor maintains its
principal office at 1285 Avenue of the
Americas, New York, New York 10019. Its
telephone number is (212) 713-2000. See "The
Depositor".
Master Servicer.................. __________, a ____________ corporation (the
"Master Servicer"). See "Description of the
Trust Agreement--The Master Servicer".
Trustee.......................... ____________, a [national banking
association] [commercial banking corporation]
(the "Trustee"). See "Description of the
Trust Agreement--The Trustee".
Denominations.................... The Class A Certificates will be issuable in
registered form in denominations of
$__________ and integral multiples of
$__________ in excess thereof, with one
Certificate of such class evidencing such a
denomination plus an additional amount equal
to the remainder of the initial
S-4
<PAGE>
Certificate Principal Balance of the Class A
Certificates. The Class B Certificates will
be offered in registered form in
denominations corresponding to notional
amounts of $__________ and integral notional
amounts of $__________ in excess thereof,
with one Certificate of such class having a
notional amount equal to such a denomination
plus an additional notional amount equal to
the remainder of the initial aggregate
Notional Amount of the Class B Certificates.
Registration..................... The Offered Certificates, other than the
Class B Certificates, will initially be
represented by one or more Certificates
registered in the name of Cede & Co., as
nominee of the Depository Trust Company
("DTC") Any person acquiring a beneficial
ownership interest in a Class A Certificate
(each, a "Beneficial Owner") will not be
entitled to receive a Certificate of the
related class in registered certificated form
except in the event that Definitive
Certificates (as defined herein) are issued
for all Certificates of such class under the
limited circumstances described herein. Until
such time the rights of the Beneficial owners
may only be exercised through DTC and its
participating organizations, except as
otherwise described herein. See "Description
of the Certificates--Book-Entry Registration
and Definitive Certificates" herein and in
the Prospectus.
The MBS Securities............... The Certificates will represent in the
aggregate the entire beneficial ownership
interest in a trust fund (the "Trust Fund")
consisting primarily of [mortgage
pass-through certificates] (mortgage
participation certificates] issued by
________ (the "MBS Securities") and having an
aggregate principal balance as of the Cut-of
Date of approximately $__________ (subject to
a permitted variance described herein). [The
MBS Securities are guaranteed as to the
timely payment of interest and the ultimate
payment of principal by _______ (the
"Agency"). [Such guarantee is not backed by
the full faith and credit of the United
States of America.] Each MBS Security
represents an ownership interest in a
segregated pool of first mortgage loans
secured by (the "Underlying Mortgage Loans").
A. General............. Distributions on the Offered Certificates
will be made on the ___ day of each month,
or, if such day is not a business day, on the
succeeding business day, commencing in
__________ (each a "Distribution Date"), to
Certificateholders of record as of the close
of business on the last business day of the
month immediately preceding
S-5
<PAGE>
the month in which such Distribution Date
occurs (as to any Distribution Date, the
related "Record Date"). Distributions on the
offered Certificates will be made to each
registered holder entitled thereto, either
(i) by check mailed to the address of such
Certificateholder as it appears on the books
of the Trustee, or (ii) at the request,
submitted to the Trustee in writing at least
five business days prior to the related
Distribution Date, of any holder of Class A
Certificates having an initial Certificate
Principal Balance of not less than
$__________ or of Class B Certificates having
an initial Notional Amount of not less than
$__________ by wire transfer in immediately
available funds; provided that the final
distribution in respect of any Certificate
will be made only upon presentation and
surrender of such Certificate at the
Corporate Trust Office of the Trustee. See
"Description of the Trust Agreement--The
Trustee" herein.
B. Interest............ Holders of each class of the Offered
Certificates will be entitled to receive
interest distributions in an amount equal to
the Accrued Certificate Interest (as defined
below) on such class on each Distribution
Date, to the extent of the Available
Distribution Amount (as defined herein) for
such Distribution Date, net of any Prepayment
Interest Shortfalls on the MBS Securities
allocable to such class.
With respect to any Distribution Date,
Accrued Certificate Interest will be equal to
(a) in the case of the Class A Certificates,
one month's interest on the Certificate
Principal Balance of such class at the
related Pass-Through Rate and (b) in the case
of the Class B Certificates, one month's
interest accrued on the Notional Amount for
such class at the related Pass-Through Rate.
The Notional Amount of the Class B
Certificates is initially equal to
approximately $__________, and thereafter, as
of any date of determination, will be equal
to the Certificate Principal Balance of the
Class A Certificates as of such date of
determination.
Principal........................ Holders of the Class A Certificates will be
entitled to receive on each Distribution
Date, to the extent of the portion of the
Available Distribution Amount remaining after
distributions of the Interest Distribution
Amount to the holders of the Class A
Certificates and Class B Certificates, a
distribution allocable to principal generally
equal to the sum of (i) all scheduled
payments of principal
S-6
<PAGE>
due on the MBS Securities during the related
Due Period and received as of the
Determination Date immediately preceding such
Distribution Date and (ii) all principal
prepayments and other unscheduled principal
recoveries received during the related Due
Period in respect of the MBS securities
(including amounts received as a result of
the purchase of any MBS Security by the
Depositor as described herein under
"Substitution of Trust Fund Assets").
Holders of the Class B Certificates will not
be entitled to distributions in respect of
principal.
Optional Termination............. At its option, the Depositor may repurchase
all of the MBS Securities in the Trust Fund
and thereby effect early retirement of the
Offered Certificates on any Distribution Date
on which the then outstanding principal
balance of the MBS securities remaining in
the Trust Fund is less than ___% of the
aggregate outstanding principal balance of
the MBS Securities as of the Cut-off Date.
See "Description of the Trust Agreement
Termination" herein and "Description of the
Certificates--Termination; Repurchase of
Trust Fund" in the Prospectus.
Yield Considerations............. The rate of payment of principal of the Class
A Certificates, the aggregate amount of each
distribution on and the yield to maturity of
all Certificates will depend on the rate of
payment of principal on the MBS Securities,
which, in turn, will be affected by the rate
of payment of principal (including
prepayments, defaults and liquidations) of
the Underlying Mortgage Loans. The rate of
payment of principal varies significantly
from time to time and between pools of
Underlying Mortgage Loans at any time and
will be affected by a variety of factors. The
rate of payment of principal on the
Underlying Mortgage Loans (and, therefore,
the Class A Certificates) may also be
affected by any repurchases of the Underlying
Mortgage Loans by the [MBS Issuer] [Agency],
the repurchase prices of which would be
passed through to Certificateholders.
THE YIELD ON THE CLASS B CERTIFICATES WILL BE
ESPECIALLY SENSITIVE TO THE RATE OF PRINCIPAL
PAYMENTS ON THE MBS SECURITIES AND MAY
FLUCTUATE SIGNIFICANTLY FROM TIME TO TIME.
INVESTORS SHOULD FULLY CONSIDER THE
ASSOCIATED RISKS, INCLUDING THE RISK THAT IF
THE RATE OF PRINCIPAL PAYMENTS IS RAPID, THE
INVESTORS MAY NOT RECOVER THEIR INITIAL
INVESTMENTS.
S-7
<PAGE>
The effective yield to the holders of the
Offered Certificates will be lower than the
yield otherwise produced by the applicable
related Pass-Through Rate and purchase price
because monthly distributions will not be
payable to such holders until the ___ day (or
the immediately following business day if
such ___ day is not a business day) of the
month following the month in which interest
accrues on the MBS Securities (without any
additional distribution of interest or
earnings thereon in respect of such delay).
Federal Income Tax Consequences.. [Alternative 1:] [An election was made to
treat the Underlying Mortgage Loans and
certain other assets of the trust evidenced
by the MBS Securities as one or more [REMICs]
[FASITs] for federal income tax purposes.
Each of the Class A Certificates has been
designated a regular interest in the related
[REMIC] [FASIT.]
[Alternative 2:] [For federal income tax
purposes, the Trust Fund will be classified
as a grantor trust under subpart E, Part 1 of
Subchapter J of the Internal Revenue Code of
1986, as amended (the "Code"). The Class A
Certificates will be characterized as
evidencing an interest in "loans secured by
an interest in real property" within the
meaning of Section 7701(a)(19)(v) of the
Code, "qualifying real property loans" within
the meaning of Section 593(d) of the Code and
"real estate assets" within the meaning of
Section 856(c)(3)(B) of the Code, and the
interest thereon will be treated as "interest
on obligations secured by mortgages on real
property" within the meaning of Section
856(c)(3)(B) of the Code. It is unclear
whether the Class B Certificates, and the
income thereon, will be so characterized.
The Class A Certificates will be treated as
"stripped bonds" and the Class B Certificates
"stripped coupons" under Section 1286 of the
Code. The tax treatment of the Class B
Certificates is uncertain in various
respects, including in particular the method
that the holders thereof should use to
recover their purchase price and to report
their income therefrom.]
See "Federal Income Tax Consequences" herein
and in the Prospectus.
Ratings.......................... It is a condition to the issuance of the
Offered Certificates that they be rated
"_____" and "_____" by ________ and ________
(each a "Rating Agency"), respectively. A
security rating is not a recommendation to
buy, sell or hold
S-8
<PAGE>
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. A security rating does
not address the frequency of prepayments on
the MBS Securities or the underlying Mortgage
Loans, or the corresponding effect on yield
to investors. In particular, the ratings
assigned to the Class B Certificates do not
address the possibility that the holders of
such Certificates may fail to fully recover
their initial investments. See "Ratings"
herein and in the Prospectus.
Legal Investment................. [The Offered Certificates will constitute
"mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act
of 1984 ("SMMEA") so long as they are rated
as described herein, and, as such, are legal
investments for certain entities to the
extent provided in SMMEA.] [The Offered
Certificates will not constitute "mortgage
related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA").]
The Depositor makes no representations as to
the proper characterization of any class of
the Offered Certificates for legal investment
or other purposes, or as to the ability of
particular investors to purchase any class of
the Offered Certificates under applicable
legal investment restrictions. These
uncertainties may adversely affect the
liquidity of any class of offered
Certificates. Accordingly, all institutions
whose investment activities are subject to
legal investment laws and regulations,
regulatory capital requirements or review by
regulatory authorities should consult with
their own legal advisors in determining
whether and to what extent any class of
Offered Certificates constitutes a legal
investment or is subject to investment,
capital or other restrictions.
S-9
<PAGE>
RISK FACTORS
SPECIAL YIELD CONSIDERATIONS
The rate of payment of principal of the Class A Certificates, the
aggregate amount of each distribution on and the yield to maturity of all
Certificates will depend on the rate of payment of principal on the MBS
Securities, which, in turn, will be affected by the rate of payment of
principal (including prepayments, defaults and liquidations) of the Underlying
Mortgage Loans. The rate of payment of principal varies significantly from time
to time and between pools of Underlying Mortgage Loans at any time and will be
affected by a variety of factors. The rate of payment of principal on the
Underlying Mortgage Loans (and, therefore, the Class A Certificates) may also
be affected by any repurchases of the Underlying Mortgage Loans by the [MBS
Issuer] [Agency], the repurchase prices of which would be passed through to
Certificateholders.
In general, if a Class A Certificate is purchased at a premium and
principal distributions thereon occur at a rate faster than anticipated at the
time of purchase, the investor's actual yield to maturity will be lower than
that assumed at the time of purchase. Conversely, if a Class A Certificate is
purchased at a discount and principal distributions thereon occur at a rate
slower than that assumed at the time of purchase, the investor's actual yield
to maturity will be lower than that assumed at the time of purchase.
THE YIELD ON THE CLASS B CERTIFICATES WILL BE ESPECIALLY SENSITIVE TO
THE RATE OF PRINCIPAL PAYMENTS ON THE MBS SECURITIES AND MAY FLUCTUATE
SIGNIFICANTLY FROM TIME TO TIME. INVESTORS SHOULD FULLY CONSIDER THE ASSOCIATED
RISKS INCLUDING THE RISK THAT IF THE RATE OF PRINCIPAL PAYMENTS IS RAPID, THE
INVESTORS MAY NOT RECOVER THEIR INITIAL INVESTMENTS.
EFFECT OF DEFAULTS BY MORTGAGORS ON UNDERLYING MORTGAGE LOANS
The aggregate amount of distributions on the Offered Certificates, the
yield to maturity on the Offered Certificates, the rate of principal payments
on the Class A Certificates and the weighted average life of the Class A
Certificates will be affected by the rate and timing of delinquencies and
defaults on the Underlying Mortgage Loans. [If a purchaser of an Offered
Certificate calculates its anticipated yield based on assumed rates of default
and amount of losses on the Underlying Mortgage Loans that is lower than the
default rate and amount of losses actually experienced and such additional
losses are allocable to the MBS Security evidencing an interest in such
Underlying Mortgage Loan, such purchaser's actual yield to maturity will be
lower than that so calculated and could, under certain circumstances, be
negative. The timing of any loss on a liquidated Underlying Mortgage Loan
allocable to the MBS Security evidencing an interest in such Underlying
Mortgage Loan will also affect the actual yield to maturity of the Offered
Certificates, even if the rate of defaults and severity of losses are
inconsistent with an investor's expectations. In general, the earlier a loss
borne by an investor occurs, the greater is the effect on such investor's yield
to maturity. Even if losses on an Underlying Mortgage Loan are not allocable to
the MBS Security evidencing an interest in such Underlying Mortgage Loan, such
losses may affect the weighted average life of the MBS Security and, therefore,
the Offered Certificates.] [Although the MBS Securities are guaranteed by the
Agency, faster than anticipated losses on the Underlying Mortgage Loans would
result in a faster return of principal on the MBS Security and, therefore, the
Offered Certificates. This could have an adverse effect on the yield to
maturity of the Offered Certificates. Such effect could be severe in the case
of the Class B Certificates.]
[LIMITED INFORMATION
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The information set forth in this Prospectus Supplement with respect
to the Underlying Mortgage Loans is derived solely from reports provided by the
master servicer of the related MBS Security. There is no assurance that such
information is accurate. In addition, available information does not permit the
Depositor to determine the origination, credit appraisal and underwriting
practices of the originators of the Underlying Mortgage Loans.]
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Series 199_-__ Certificates (the "Certificates") will consist of
the Class A Certificates, the Class B Certificates [and the _____
Certificates). Only the Class A Certificates and the Class B Certificates
(collectively, the Offered Certificates") are offered hereby.
The Certificates will represent in the aggregate the entire beneficial
ownership interest in the Trust Fund. The Trust Fund will consist of (i) the
MBS Securities and (ii) such assets as from time to time are identified as
deposited in respect of the MBS Securities in the account established by the
[Master Servicer][Trustee] for the collection of payments on the MBS Securities
(the "Certificate Account").
The Class A Certificates will be issuable in registered form in
denominations of $_______ and integral multiples of $________ in excess
thereof, with one Certificate of such class evidencing such a denomination plus
an additional amount equal to the remainder of the initial Certificate
Principal Balance of the Class A Certificates. The Class B Certificates will be
offered in registered form in denominations corresponding to notional amounts
of $_________ and integral notional amounts of in excess thereof, one
Certificate of such class having a notional amount equal to such a denomination
plus an additional notional amount equal to the remainder of the initial
aggregate Notional Amount of the Class B Certificates.
The Offered Certificates, other than the Class B Certificates, will
initially be represented by one or more Certificates registered in the name of
Cede & Co., as nominee of the Depository Trust Company ("DTC"). Any person
acquiring a beneficial ownership interest in an Offered Certificate (each, a
"Beneficial Owner") will not be entitled to receive a Certificate of the
related class in registered certificated form except in the event that
Definitive Certificates (as defined herein) are issued for all Certificates of
such class under the limited circumstances described herein. Until such time
the rights of the Beneficial owners may only be exercised through DTC and its
participating organizations, except as otherwise described herein. See
"Description of the Certificates--Book-Entry Registration and Definitive
Certificates" in the Prospectus.
Distributions on the Offered Certificates will be made on the ___ day
of each month, or, if such day is not a business day, on the succeeding
business day, commencing in __________ (each a "Distribution Date"), to
Certificateholders of record as of the close of business on the last business
day of the month immediately preceding the month in which such Distribution
Date occurs (as to any Distribution Date, the related "Record Date").
Distributions on the Offered Certificates will be made to each registered
holder entitled thereto, either (i) by check mailed to the address of such
Certificateholder as it appears on the books of the Trustee, or (ii) at the
request, submitted to the Trustee in writing at least five business days prior
to the related Distribution Date, of any holder of, Class A Certificates having
an initial Certificate Principal Balance of not less than $_______ or of Class
B Certificates having an initial Notional Amount of not less than $_________,
by wire transfer in immediately available funds; provided that the final
distribution in respect of any offered Certificate will be made only upon
presentation and surrender of such Certificate at the Corporate Trust Office of
the Trustee. See "Description of the Trust Agreement--The Trustee" herein.
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AVAILABLE DISTRIBUTION AMOUNT
The "Available Distribution Amount" for any Distribution Date is equal
to the amount on deposit in the Certificate Account as of the close of business
on the business day preceding such Distribution Date (the related
"Determination Date"), net of any reinvestment income on such amounts, any
amounts representing the Trust Administration Fee and any amounts reimbursable
to the Master Servicer or the Trustee. Distributions will be made to the
holders of the Certificates entitled thereto only if, and to the extent that,
the [Master Servicer][Trustee] received payments on the MBS Securities.
[Although the timely payment of interest and the ultimate payment of principal
on the MBS Securities is guaranteed by the Agency,) the Certificates are not
guaranteed by, and do not represent interests in or obligations of, [the
Agency,] the Depositor, the Master Servicer, the Trustee or their respective
affiliates.
INTEREST DISTRIBUTIONS
Holders of each class of the Offered Certificates will be entitled to
receive interest distributions in an amount equal to the Accrued Certificate
Interest (as defined below) on such class on each Distribution Date, to the
extent of the Available Distribution Amount (as defined herein) for such
Distribution Date, net of any Prepayment Interest Shortfalls on the MBS
Securities allocable to such class.
With respect to any Distribution Date, Accrued Certificate Interest
will be equal to (a) in the case of the Class A Certificates, one month's
interest on the Certificate Principal Balance of such class at the related
Pass-Through Rate and (b) in the case of the Class B Certificates, one month's
interest accrued on the Notional Amount for such class at the related
Pass-Through Rate.
The Notional Amount of the Class B Certificates is initially equal to
approximately $_______, and thereafter, as of any date of determination, will
be equal to the Certificate Principal Balance of the Class A Certificates as of
such date of determination.
PRINCIPAL DISTRIBUTIONS
Holders of the Class A Certificates will be entitled to receive on
each Distribution Date, to the extent of the portion of the Available
Distribution Amount remaining after distributions of the Interest Distribution
Amount to the holders of the Class A Certificates and Class B Certificates, a
distribution allocable to principal generally equal to the sum of (i) all
scheduled payments of principal due on the MBS Securities during the related
Due Period and received as of the Determination Date related to such
Distribution Date and (ii) all principal prepayments and other unscheduled
principal recoveries received during the related Due Period in respect of the
MBS Securities (including amounts received as a result of the purchase of any
MBS Security by the Depositor as described herein under "Substitution of Trust
Fund Assets").
Holders of the Class B Certificates will not be entitled to
distributions in respect of principal.
THE MBS SECURITIES
(The MBS Securities consist of _____ mortgage pass-through
certificates, each of which is guaranteed as to the timely payment of interest
and the ultimate payment of principal by _____ (the "Agency"). The guarantee of
the Agency is an obligation solely of the Agency and is not backed by the full
faith and credit of the United States of America.
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Set forth below, with respect to each MBS Security, is the pool
number, the date of original issue, the latest stated maturity of any
Underlying Mortgage Loan evidenced by such MBS Security as of the date of
original issue thereof, [the weighted average net mortgage rate ("WAC") of the
related Underlying Mortgage Loans as of the date of original issue of such MBS
Security) and the weighted average remaining term to maturity ("WAM") of the
related Underlying Mortgage Loans as of the date of original issue of such MBS
Security, the outstanding principal balance of such MBS Security as of the
Cut-off Date and the interest rate borne by such MBS Security. Such information
is based solely on information published in The Bond Buyer and has not been
independently verified by the Depositor. The information with respect to the
WAC and WAM does not reflect the payment experience on the related Underlying
Mortgage Loans subsequent to the date of original issue of the applicable MBS
Security and, accordingly, investors are cautioned that the current WAC and WAM
may differ, and may differ significantly, from those stated below.]
[The MBS Securities consist of mortgage pass-through certificates or
mortgage participation certificates issued by [various issuers] [_____] (the
"MBS Issuers" or "Underlying Issuer[s]"). The MBS Securities evidence solely a
beneficial ownership interest in the related Underlying Mortgage Loans and are
not guaranteed by, and do not represent an interest in or obligation of, the
Underlying Issuer[s].
SET FORTH BELOW, WITH RESPECT TO EACH MBS SECURITY, IS THE MBS ISSUER,
THE SERIES AND CLASS OF SUCH MBS SECURITY, DATE OF ORIGINAL ISSUE, THE WEIGHTED
AVERAGE NET MORTGAGE RATE OF THE RELATED UNDERLYING MORTGAGE LOANS AS OF THE
CUT-OFF DATE, THE WEIGHTED AVERAGE REMAINING TERM TO STATED MATURITY OF THE
RELATED UNDERLYING MORTGAGE LOANS AS OF THE CUT-OFF DATE, THE LATEST STATED
MATURITY DATE OF ANY RELATED UNDERLYING MORTGAGE LOAN AS OF THE CUT-OFF DATE,
THE AGGREGATE OUTSTANDING PRINCIPAL BALANCE OF THE MBS SECURITY AS OF THE
CUT-OFF DATE AND THE SECURITY RATE. INFORMATION REGARDING THE UNDERLYING
MORTGAGE LOANS IS BASED SOLELY ON INFORMATION PROVIDED BY THE MASTER SERVICER
FOR THE RELATED MBS SECURITY. SUCH INFORMATION HAS NOT BEEN INDEPENDENTLY
VERIFIED BY THE DEPOSITOR.]
[Applicable table to be provided]
YIELD CONSIDERATIONS
PAYMENT DELAY
The effective yield to the holders of the Offered Certificates will be
lower than the yield otherwise produced by the applicable related Pass-Through
Rate and purchase price because monthly distributions will not be payable to
such holders until the ___ day (or the immediately following business day if
such day is not a business day) of the month following the month in which
interest accrues on the MBS Securities (without any additional distribution of
interest or earnings thereon in respect of such delay).
PAYMENTS ON THE UNDERLYING MORTGAGE LOANS AND MBS SECURITIES
The rate of distributions in reduction of the principal balance of the
Class A Certificates, the aggregate amount of distributions on the Offered
Certificates and the yield to maturity of the Class A Certificates purchased at
a discount or premium will depend on the rate of payment of principal on the
MBS Securities, which, in turn, will be directly related to the rate of
payments of principal (both scheduled and unscheduled payments thereof) on the
Underlying Mortgage Loans.
S-13
<PAGE>
The rate of payment of principal of the Class A Certificates, the
aggregate amount of each distribution on and the yield to maturity of all
Certificates will depend on the rate of payment of principal on the MBS
Securities, which, in turn, will be affected by the rate of payment of
principal (including prepayments, defaults and liquidations) of the Underlying
Mortgage Loans. The rate of payment of principal varies significantly from time
to time and between pools of Underlying Mortgage Loans at any time and will be
affected by a variety of factors. If prevailing interest rates vary
significantly from the interest rates on the Underlying Mortgage Loans, the
Underlying Mortgage Loans are likely to be subject to higher or lower
prepayment rates than if prevailing interest rates are at or near the interest
rates on the Underlying Mortgage Loans. In general, when the level of
prevailing interest rates declines significantly below the interest rates on
the Mortgage Loans, the rate of prepayments is likely to increase, and, when
the level of prevailing interest rates rises significantly above the interest
rates on the Underlying Mortgage Loans, the rate of prepayments is likely to
decline. The rate and timing of principal payments in respect of the Underlying
Mortgage Loans, and therefore the MBS Securities, also depends on the rate and
timing of defaults by the mortgagors of the Underlying Mortgage Loans. See
"--Effect of Defaults by Mortgagors on Underlying Mortgage Loans" below. The
rate of payment of principal on the Underlying Mortgage Loans (and, therefore,
the Class A Certificates) may also be affected by any repurchases of the
Underlying Mortgage Loans by the [MBS Issuer] [Agency], the repurchase prices
of which would be passed through to Certificateholders.
In general, if a Class A Certificate is purchased at a premium and
principal distributions thereon occur at a rate faster than anticipated at the
time of purchase, the investor's actual yield to maturity will be lower than
that assumed at the time of purchase. Conversely, if a Class A Certificate is
purchased at a discount and principal distributions thereon occur at a rate
slower than that assumed at the time of purchase, the investor's actual yield
to maturity will be lower than assumed at the time of purchase.
The yield on the Class B Certificates will be especially sensitive to
the rate of principal payments on the MBS Securities and may fluctuate
significantly from time to time. Investors should fully consider the associated
risks, including the risk that if the rate of principal payments is rapid, the
investors may not recover their initial investments.
EFFECT OF DEFAULTS BY MORTGAGORS ON UNDERLYING MORTGAGE LOANS
The aggregate amount of distributions on the Offered Certificates, the
yield to maturity on the Offered Certificates, the rate of principal payments
on the Class A Certificates and the weighted average life of the Class A
Certificates will be affected by the rate and timing of delinquencies and
defaults on the Underlying Mortgage Loans. [If a purchaser of an Offered
Certificate calculates its anticipated yield based on assumed rates of default
and amount of losses on the Underlying Mortgage Loans that is lower than the
default rate and amount of losses actually experienced and such additional
losses are allocable to the MBS Security evidencing an interest in such
Underlying Mortgage Loan, such purchaser's actual yield to maturity will be
lower than that so calculated and could, under certain circumstances, be
negative. The timing of any loss on a liquidated Underlying Mortgage Loan
allocable to the MBS Security evidencing an interest in such Underlying
Mortgage Loan will also affect the actual yield to maturity of the Offered
Certificates, even if the rate of defaults and severity of losses are
inconsistent with an investor's expectations. In general, the earlier a loss
borne by an investor occurs, the greater is the effect on such investor's yield
to maturity. Even if losses on an Underlying Mortgage Loan are not allocable to
the MBS Security evidencing an interest in such Underlying Mortgage Loan, such
losses may affect the weighted average life of the MBS Security and, therefore,
the Offered Certificates.][Although the MBS Securities are guaranteed by the
Agency, faster than anticipated losses on the Underlying Mortgage Loans would
result in a faster return of principal on the MBS
S-14
<PAGE>
Security and, therefore, the Offered Certificates. This could have an adverse
effect on the yield to maturity of the Offered Certificates. Such effect could
be severe in the case of the Class B Certificates.]
PREPAYMENTS
Prepayments on mortgages are commonly measured relative to a
prepayment standard or model. 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%" assumes
that none of the Mortgage Loans is prepaid before maturity. The columns headed
"___%", "___%", "___%" and "___%" assume that prepayments on the Mortgage Loans
are made at those CPRs. 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 CPRs shown or at any other
prepayment rate.]
The following tables indicate the percentage of the initial
Certificate Balance of each Class of Offered Certificates that would be
outstanding after each of the dates shown at various CPRs and the corresponding
weighted average life of each such Class of Offered Certificates. The tables
have been prepared on the basis of the following assumptions, among others:
[describe assumptions].
Based on the foregoing assumptions, the following table indicates the
resulting weighted average lives of the Class A Certificates and sets forth the
percentage of the initial Certificate Balance of the Class A Certificates that
would be outstanding after each of the dates shown at the indicated CPRs.
[Table to be provided.]
Based on the foregoing assumptions, the following table indicates the
resulting weighted average lives of the Class B Certificates and sets forth the
percentage of the initial Certificate Balance of the Class B Certificates that
would be outstanding after each of the dates shown at the indicated CPRs.
[Table to be provided.]
The following table indicates the sensitivity of the pre-tax yield to
maturity on a corporate bond equivalent basis of the Class B Certificates to
various rates of prepayment on the Underlying Mortgage Loans.
[Table to be provided.]
The pre-tax yields set forth in the preceding table were calculated
based on the assumptions that (i) the purchase price of the Class A
Certificates and the Class B Certificates are ___% and ___% of their aggregate
initial Certificate Principal Balance and aggregate initial Notional Amount,
respectively, plus accrued interest from the Cut-off Date, (ii) all of the
Underlying Mortgage Loans have identical payment provisions, net mortgage rates
equal to ___% and remaining terms to maturity at the Cut-off Date equal to
_____ months, (iii) such Underlying Mortgage Loans prepay monthly at the
specified CPR, (iv) the settlement date for the purchase of the Class A
Certificates is __________,19___ and (v) payments or
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<PAGE>
principal and interest on the Underlying Mortgage Loans for a particular month
are passed through to Certificateholders on the day of the [second) succeeding
month, beginning __________, 19__.
The pre-tax yields set forth in the preceding table were calculated by
determining the monthly discount rates which, when applied to an assumed stream
of cash flows to be paid on Class B Certificates, would cause the discounted
present value of such assumed stream of cash flows to equal the assumed
purchase price of such Certificates and by converting such monthly rates to
corporate bond equivalent rates. Such calculation does 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 B Certificates
and consequently does not purport to reflect the return on any investment in
Class B certificates when such reinvestment rates are considered.
Notwithstanding the assumed prepayment rates reflected in the
preceding table, it is highly unlikely that the Underlying Mortgage Loans will
prepay at a constant rate until maturity or that all of the Underlying Mortgage
Loans will prepay at the same time. Thus, the pre-tax yields on the Class B
Certificates are likely to differ from those shown in such table, even if all
of the Underlying Mortgage Loans prepay at the indicated percentages of CPR.
[The following table set forth, among other things, the most recent
prepayment experience publicly available on __________, 19___ for securities
guaranteed by the Agency and outstanding and having the same pass-through rates
as the MBS Securities to be deposited in the Trust Fund.
[Table to be provided.]
The historical rate of principal payments (including prepayments) set
forth in the table above has been computed from information published in The
Bond Buyer. The Depositor believes that such information is accurate, but has
not means of verifying the data. The historical rate of principal payments
(including prepayments ) on the MBS Securities can also be computed from the
information published in The Bond Buyer. The Depositor makes no representation
that the Underlying Mortgage Loans will prepay in the manner or at any of the
rates assumed in the table set forth above.
The Depositor believes that the historical payment experience
(including prepayments) on such securities is not necessarily indicative of the
future prepayment experience of the Underlying Mortgage Loans. Since the rate
of principal payments (including prepayments) on the Underlying Mortgage Loans
will significantly affect the yield to maturity on the Offered Certificates,
prospective investors are urged to consult their investment advisors as to both
the rate of future principal payments (including prepayments) on the Underlying
Mortgage Loans and the suitability of the Offered Certificates to their
investment objectives.
DESCRIPTION OF THE TRUST AGREEMENT
GENERAL
The Offered Certificates will be issued pursuant to a Trust Agreement
to be dated as of the Cut-off Date among the Depositor, the Master Servicer and
the Trustee (the "Trust Agreement"), a form of which is 'filed as an exhibit to
the Registration Statement. Reference is made to the Prospectus for important
information additional to that set forth herein regarding the terms and
conditions of the Trust Agreement and the Certificates. The Depositor will
provide to a prospective or actual Certificateholder without charge, on
S-16
<PAGE>
written request, a copy (without exhibits) of the Trust Agreement. Requests
should be addressed to PaineWebber Mortgage Acceptance Corporation V, 1285
Avenue of the Americas, New York, New York 10019, Attention: ___________.
THE TRUSTEE
___________________, a [national banking association] [commercial
banking corporation chartered by the [State] [Commonwealth] of
________________], will act as Trustee for the holders of the Certificates
pursuant to the Trust Agreement. The Trustee's principal executive offices are
located at ____________________, and its telephone number is (___) ____-____.
THE MASTER SERVICER
___________, a ___________ corporation, will act as Master Servicer of
the MBS Securities pursuant to the Trust Agreement and, as such, will collect
payments on the MBS Securities and remit them to the Trustee for distribution
to Certificateholders.
PAYMENT OF EXPENSES
The fees of the Trustee and the fees of the Master Servicer will be
payable monthly at a rate of _____% per annum (the "Trust Administration Fee")
on the aggregate outstanding principal balance of the MBS Securities from time
to time.
VOTING RIGHTS
At all times ___% of the Voting Rights will be allocated among the
holders of the Offered Certificates in proportion to the then outstanding
Certificate Principal Balances of their respective Certificates and ___% of the
Voting Rights will be allocated among the holders of the Class B Certificates
in proportion to their respective Notional Amounts.
TRANSFERS TO ERISA PLANS
No transfer of an Offered Certificate or any interest therein may be
made to an employee benefit plan or other retirement plan or arrangement,
including individual retirement accounts and annuities, Keogh plans and
collective investment funds in which such plans, accounts or arrangements are
invested, or "government plans" as defined in Section 3(32) of ERISA, unless
the prospective transferee provides the Depositor and the Trustee with a
certification of facts and an opinion of counsel which establishes to the
satisfaction of the Depositor and the Trustee that such transfer will not
result in a violation of ERISA or cause the Depositor to be deemed to be a
fiduciary of such a plan or result in the imposition of an excise tax under the
Code on the Depositor.
TERMINATION
The circumstances under which the obligations created by the Trust
Agreement will terminate in respect of the Certificates are described in the
Prospectus under the caption "Description of Certificates--Termination." In
addition, at its option, the Depositor may repurchase all of the MBS Securities
in the Trust Fund and thereby effect early retirement of the Offered
Certificates on any Distribution Date on which the then outstanding principal
balance of the MBS Securities remaining in the Trust Fund is less than
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___% of the aggregate outstanding principal balance of the MBS Securities as of
the Cut-off Date. In the event the Depositor exercises such option, the
repurchase price distributed with respect to each Class A Certificate will be
100% of its then outstanding Certificate Principal Balance plus interest
thereon at the Pass-Through Rate thereon, and with respect to each Class B
Certificate will be accrued interest on the then Notional Amount thereof at the
Pass-through Rate thereon.
FEDERAL INCOME TAX CONSEQUENCES
[To be provided.]
LEGAL INVESTMENT
[As long as the Offered Certificates are rated in one of the two
highest rating categories by at least one nationally recognized statistical
rating organization and each Underlying Mortgage Loan is secured by a first
priority lien on a single parcel of real property upon which is located (a) a
dwelling or mixed residential and commercial structure or a residential
manufactured home, or (b) one or more parcels of real property upon which is
located one or more commercial structures, the Offered Certificates will
constitute "mortgage related securities" within the meaning of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA").]
[The Offered Certificates will [not] be "mortgage related securities"
for purposes of SMMEA. As a result, the appropriate characterization of the
Offered Certificates under various legal investment restrictions, and thus the
ability of investors subject to these restrictions to purchase the Offered
Certificates, is subject to significant interpretive uncertainties.]
[Except as to the status of the Offered Certificates as "mortgage
related securities," no] [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 or other restrictions. All institutions whose
investment activities are subject to legal investment laws and regulations,
regulatory capital requirements or review by regulatory authorities should
consult with their own legal advisors in determining whether and to what extent
the Offered Certificates constitute legal investments for them or are subject
to investment, capital or other restrictions.
See "Legal Investment" in the Prospectus.
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement dated ________, 19__ between PaineWebber Incorporated (the
"Underwriter") and the Depositor, the Depositor has agreed to sell and the
Underwriter has agreed to purchase the Offered Certificates. The Underwriter is
obligated to purchase all Offered Certificates if it purchases any Offered
Certificates.
[The Depositor has been advised by the Underwriter that the
Underwriter proposes initially to offer all of the Offered Certificates to the
public at the public offering prices set forth on the cover page of this
Prospectus Supplement and to certain dealers at such prices less a concession
not in excess of ___% of the initial Certificate Principal Balance of the Class
A Certificates and ___% of the initial Notional Amount of the Class B
Certificates. The Underwriter may allow and such dealers may reallow
concessions not in excess
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<PAGE>
of ___% of the initial aggregate Certificate Principal Balance of the Class A
Certificates and ___% of the initial Notional Amount of the Class B
Certificates. After the initial public offering, the public offering prices and
such concessions may be changed.
[The Depositor has been advised by the Underwriter that the Offered
Certificates 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 will
be ___% of the aggregate Certificate Principal Balance of the Offered
Certificates, plus accrued interest at the Pass-Through Rate from the Cut-off
Date, before deducting expenses payable by the Depositor. In connection with
the purchase and sale of Offered Certificates, the Underwriter may be deemed to
have received compensation from the Depositor in the form of underwriting
discounts.
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
primary source of information available to investors concerning the Offered
Certificates will be the monthly statements discussed in the Prospectus under
"Description of the Certificates Statements to Certificateholders," which will
include information as to the outstanding principal balance of the Class A
Certificate, the outstanding Notional Amount of the Class B Certificates and
the Pass-Through Rates thereon. 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
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 the Underwriter in
connection with offers and sales related to market-making transactions in the
Offered Certificates in which the underwriter acts as principal. The
Underwriter may also act as agent in such transactions. Sales may be made at
negotiated prices determined at the time of sale.]
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon
for the Depositor and for the Underwriter by O'Melveny & Myers LLP, New York,
New York.
RATINGS
It is a condition to the issuance of the Offered Certificates that
they be rated "_____" and "_____" by _______ and _______ (each a "Rating
Agency"), respectively. 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. A security rating does not address
the frequency of prepayments on the MBS Securities or the underlying Mortgage
Loans, or the corresponding effect on yield to investors. In particular, the
ratings assigned to the Class B Certificates do not address the possibility
that the holders of such Certificates may fail to fully recover their initial
investments. See "Ratings" in the Prospectus.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED __________ __, 1999
PROSPECTUS
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION V
DEPOSITOR
The mortgage pass-through certificates offered hereby and by Supplements
to this Prospectus (the "Offered Certificates") 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 (the "Trust Fund") to be
established by the Depositor. The Certificates of each series may be divided
into one or more classes (each, a "Class"), each of which will evidence
beneficial ownership of a specified percentage or portion of future interest
payments, a specified percentage or portion of future principal payments on the
assets in the related Trust Fund or both as described herein and in the related
Prospectus Supplement. In addition, the rights of holders of certain Classes of
Certificates to receive distributions of principal and interest may be
subordinated to those of other Classes to the extent described in the related
Prospectus Supplement. Each Trust Fund shall consist primarily of a segregated
pool of multifamily or commercial mortgage loans or participation interests
therein, together with installment sales contracts (collectively the "Mortgage
Loans") and/or agency or non-agency mortgage pass-through certificates or other
mortgage-backed securities evidencing interests in or secured by Mortgage Loans
(the "MBS Securities") that evidence interests in, or that are secured by
pledges of, one or more of the following types of real property (each, a
"Mortgaged Property"): (i) residential properties consisting of five or more
rental or cooperatively-owned dwelling units (or shares allocable to a number
of such units and proprietary leases appurtenant thereto) ("Multifamily
Properties") and (ii) commercial properties consisting of (a) office buildings,
retail facilities related to the sale of goods and products and facilities
related to providing entertainment, recreation or personal services, hotels and
motels, casinos, nursing homes, hospitals or other health care-related
facilities, recreational vehicle parks, warehouse facilities, mini-warehouse
facilities, self-storage facilities, industrial facilities, parking lots, auto
parks, golf courses, arenas, mobile home parks and restaurants (or
cooperatively owned units therein), (b) mixed use properties (that is, any
combination of the foregoing) and (c) unimproved land ("Commercial
Properties").
The Certificates will not represent an obligation of or an interest in the
Depositor, any Master Servicer or Special Servicer or any of their respective
affiliates, except to the limited extent described herein and in the related
Prospectus Supplement. Neither the Certificates nor any assets in the related
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.
<PAGE>
As described in the related Prospectus Supplement, the Certificates of
each Series, including the Offered Certificates, will consist of one or more
classes of Certificates that may (i) be senior or subordinate to one or more
other classes of Certificates in respect of certain distributions on the
Certificates; (ii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iii) be entitled
to interest distributions, with disproportionately low, nominal or no principal
distributions; (iv) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such series; and/or
(v) provide for payments of principal sequentially, based on specified payment
schedules or other methodologies, to the extent of available funds. See
"Description of the Certificates."
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."
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER THE
CAPTION "RISK FACTORS" ON PAGE 20 OF THIS PROSPECTUS HEREIN AND IN THE RELATED
PROSPECTUS SUPPLEMENT BEFORE PURCHASING ANY OFFERED CERTIFICATES.
If so provided in the related Prospectus Supplement, an election may be
made to treat the related Trust Fund or one or more designated portions thereof
as one or more "real estate mortgage investment conduits" or "financial asset
securitization investment trusts" for federal income tax purposes. See "Certain
Federal Income Tax Consequences" herein.
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 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 Certificates. Prior to issuance there will have been no market
for the Certificates of any series and there can be no assurance that a
secondary market for any Offered Certificates will develop or that, if such a
market does develop, that it will continue.
It will be a condition to the issuance of the Certificates of each series
that the Offered Certificates of such series be rated in one of the four
highest rating categories by one or more nationally recognized statistical
rating organizations.
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Offers of the Offered Certificates may be made through one or more
different methods, as more fully described under "Plan of Distribution" herein
and in the related Prospectus Supplement. All Offered Certificates will be
distributed by, or sold by underwriters managed by:
PAINEWEBBER INCORPORATED
- - -------------------------------------------------------------------------------
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF CERTIFICATES OFFERED
HEREBY UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THE DATE OF THIS PROSPECTUS IS _____________, ____
3
<PAGE>
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the Offered Certificates covered by such Prospectus
Supplement, whether or not participating in the distribution thereof, may be
required to deliver such Prospectus Supplement and this Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus and Prospectus
Supplement when acting as underwriters and with respect to their unsold
allotments or subscriptions.
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement relating
to the Offered Certificates of each series will, among other things, set forth
with respect to such Certificates, as appropriate: (i) a description of the
Class or Classes of Offered Certificates, the payment provisions with respect
to each such Class and the rate at which interest accrues on such Certificates
(the "Pass-Through Rate") or the method of determining the Pass-Through Rate
with respect to each such Class and whether interest with respect to each such
Class will accrue from time to time on its aggregate principal amount or on a
specified notional amount, if at all; (ii) the aggregate principal amount or
notional amount and distribution dates relating to such series and, if
applicable, the initial and final scheduled distribution dates for each Class;
(iii) information as to the assets comprising the Trust Fund for such series,
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 Offered Certificates of any series, the "Trust Assets"); (iv)
the circumstances, if any, under which the related Trust Fund may be subject to
early termination; (v) additional information with respect to the method of
distribution of such Offered Certificates; (vi) whether one or more REMIC or
FASIT elections will be made and the designation of the regular interests and
residual interests in each REMIC or FASIT to be created; provided, however,
that the assets to be added to a FASIT following issuance of Offered
Certificates of any series will consist exclusively of mortgage loans that were
under contract or otherwise committed to be funded at the time of issuance of
the Offered Certificates of such series but that were funded subsequent to the
date of such issuance; provided further that prior to the purchase of such
additional mortgage loans by the related trust fund any unused proceeds of
issuance will be invested in eligible investments under the related pooling and
servicing agreement; (vii) the aggregate original percentage ownership interest
in the Trust Fund to be evidenced by each Class of Certificates; (viii)
information as to any Master Servicer, any Special Servicer (or provision for
the appointment thereof) and the Trustee, as applicable; (ix) information as to
the nature and extent of subordination with respect to any Class of
Certificates that is subordinate in right of payment to any other Class; and
(x) 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
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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
representations other than those contained in this Prospectus and any
Prospectus Supplement with respect hereto and, if given or made, such
information or representations must not be relied upon. This Prospectus and any
Prospectus Supplement with respect hereto 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.
A Master Servicer or the Trustee will be required to mail to holders of
Offered Certificates of each series periodic unaudited reports concerning the
related Trust Fund. If beneficial interests in a Class of Offered Certificates
are being held and transferred in book-entry format through the facilities of
The Depository Trust Company ("DTC") as described herein, then unless otherwise
provided in the related Prospectus Supplement, such reports will be sent on
behalf of the related Trust Fund to Cede & Co. ("Cede"), as nominee of The
Depository Trust Company ("DTC") and registered holder of the Offered
Certificates, pursuant to the applicable Agreement. Such reports may be
available to holders of interests in the Certificates (the
"Certificateholders") upon request to their respective DTC participants. See
"Description of the Certificates--Reports to Certificateholders" and
"Description of the 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, 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 office at
1285 Avenue of the Americas, New York, New York 10019, Attention: Secretary, or
by telephone at (212) 713-2000. The Depositor has determined that its financial
statements are not material to the offering of any Offered Certificates.
5
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Page
PROSPECTUS SUPPLEMENT.................................................................................. 4
AVAILABLE INFORMATION.................................................................................. 4
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE...................................................... 5
SUMMARY OF PROSPECTUS.................................................................................. 11
RISK FACTORS........................................................................................... 20
Limited Liquidity............................................................................. 20
Limited Assets................................................................................ 20
Yield Considerations.......................................................................... 20
Risks Associated with Certain Mortgage Loans and Mortgaged Properties......................... 21
Adjustable Rate Mortgages..................................................................... 22
Balloon Payments.............................................................................. 22
Credit Support Limitations.................................................................... 23
Enforceability................................................................................ 24
Environmental Risks........................................................................... 24
Control....................................................................................... 25
DESCRIPTION OF THE TRUST FUNDS................................................................ 25
Mortgage Assets............................................................................... 25
Certificate Accounts.......................................................................... 30
Credit Support................................................................................ 30
Cash Flow Agreements.......................................................................... 31
Book-Entry Registration....................................................................... 31
Delinquent Mortgage Loans..................................................................... 32
USE OF PROCEEDS........................................................................................ 32
YIELD CONSIDERATIONS................................................................................... 32
General....................................................................................... 32
Pass-Through Rate............................................................................. 33
Timing of Payment of Interest and Principal................................................... 33
Principal Prepayments......................................................................... 33
Prepayments--Maturity and Weighted Average Life............................................... 34
Other Factors Affecting Weighted Average Life................................................. 36
THE DEPOSITOR.......................................................................................... 37
DESCRIPTION OF THE CERTIFICATES........................................................................ 37
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General....................................................................................... 37
Distributions................................................................................. 38
Available Distribution Amount................................................................. 38
Distributions of Interest on the Certificates................................................. 39
Distributions of Principal of the Certificates................................................ 40
Distributions on the Certificates of Prepayment Premium or in Respect of Equity
Participations................................................................................ 41
Allocation of Losses and Shortfalls........................................................... 41
Advances in Respect of Delinquencies.......................................................... 41
Reports to Certificateholders................................................................. 43
Termination................................................................................... 45
Book-Entry Registration and Definitive Certificates........................................... 46
DESCRIPTION OF THE AGREEMENTS.......................................................................... 48
Assignment of Mortgage Assets; Repurchases.................................................... 49
Representations and Warranties; Repurchases................................................... 50
Certificate Account........................................................................... 52
Collection and Other Servicing Procedures; Modifications...................................... 56
Sub-Servicers................................................................................. 57
Special Servicers............................................................................. 57
Realization Upon Defaulted Whole Loans........................................................ 57
Hazard Insurance Policies..................................................................... 61
Due-on-Sale and Due-on-Encumbrance Provisions................................................. 62
Retained Interest; Servicing Compensation and Payment of Expenses............................. 63
Evidence as to Compliance..................................................................... 63
Certain Matters Regarding a Master Servicer and the Depositor................................. 64
Events of Default............................................................................. 65
Rights Upon Event of Default.................................................................. 66
Amendment..................................................................................... 67
List of Certificateholders.................................................................... 67
The Trustee................................................................................... 68
Duties of the Trustee......................................................................... 68
Certain Matters Regarding the Trustee......................................................... 68
Resignation and Removal of the Trustee........................................................ 69
DESCRIPTION OF CREDIT SUPPORT.......................................................................... 69
General....................................................................................... 69
Subordinate Certificates...................................................................... 70
Cross-Support Provisions...................................................................... 70
Insurance or Guarantees with Respect to the Whole Loans....................................... 70
Letter of Credit.............................................................................. 71
Insurance Policies and Surety Bonds........................................................... 71
Reserve Funds................................................................................. 71
Credit Support with respect to MBS............................................................ 72
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CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS................................................................ 72
General....................................................................................... 73
Types of Mortgage Instruments................................................................. 73
Leases and Rents.............................................................................. 73
Personalty.................................................................................... 74
Foreclosure................................................................................... 74
Leasehold Risks............................................................................... 78
Cooperative Shares............................................................................ 79
Bankruptcy Laws............................................................................... 80
Environmental Legislation..................................................................... 83
Due-on-Sale and Due-on-Encumbrance Provisions................................................. 85
Subordinate Financing......................................................................... 86
Default Interest and Limitations on Prepayments............................................... 86
Adjustable Rate Loans......................................................................... 86
Applicability of Usury Laws................................................................... 86
Soldiers' and Sailors' Civil Relief Act of 1940............................................... 87
Type of Mortgaged Property.................................................................... 88
Americans with Disabilities Act............................................................... 88
Forfeitures in Drug and RICO Proceedings...................................................... 88
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................................................ 89
Federal Income Tax Consequences for REMIC Certificates........................................ 89
Taxation of Regular Certificates.............................................................. 93
Taxation of Residual Certificates.............................................................102
Taxes That May Be Imposed on the REMIC Pool...................................................111
Liquidation of the REMIC Pool.................................................................112
Administrative Matters........................................................................112
Limitations on Deduction of Certain Expenses..................................................113
Taxation of Certain Foreign Investors.........................................................114
Backup Withholding............................................................................115
Reporting Requirements........................................................................115
Federal Income Tax Consequences For Certificates as to Which No REMIC
Election Is Made..............................................................................116
Federal Income Tax Consequences for FASIT Certificates........................................123
Reporting Requirements and Backup Withholding..........................................................124
Taxation of Certain Foreign Investors.........................................................124
STATE AND OTHER TAX CONSIDERATIONS.....................................................................125
ERISA CONSIDERATIONS...................................................................................125
General.......................................................................................125
Plan Asset Regulations........................................................................126
Administrative Exemptions.....................................................................127
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Unrelated Business Taxable Income; Residual Certificates......................................127
LEGAL INVESTMENT.......................................................................................127
METHOD OF DISTRIBUTION.................................................................................130
LEGAL MATTERS..........................................................................................131
FINANCIAL INFORMATION..................................................................................132
RATING.................................................................................................132
</TABLE>
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SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by reference to the
more detailed information appearing elsewhere in this Prospectus and by
reference to the information contained in the Prospectus Supplement to be
prepared and delivered in connection with each series of Certificates. An Index
of Principal Definitions is included at the end of this Prospectus.
<TABLE>
<CAPTION>
<S> <C>
Title of Certificates......... Mortgage Pass-Through Certificates, issuable in series
(the "Certificates").
Depositor..................... PaineWebber Mortgage Acceptance Corporation V, (the
"Depositor"), a wholly-owned limited purpose finance
subsidiary of PaineWebber Group Inc. The Depositor
maintains its principal office at 1285 Avenue of the
Americas, New York, New York. Its telephone number
is (212) 713-2000. See "The Depositor."
Master Servicer............... The master servicer (the "Master Servicer"), if any, for
each series of Certificates will be named in the related
Prospectus Supplement. See "Description of the
Agreements--Collection and Other Servicing Procedures".
Special Servicer.............. The special servicer (the "Special Servicer"), if any, for
each series of Certificates will be named, or the
circumstances in which a Special Servicer may be
appointed will be described, in the related Prospectus
Supplement. See "Description of the
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 Agreements--The Trustee".
Trust Fund....................
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 consist of multifamily and/or
commercial mortgage loans, or participation interests
therein, together with installment sales contracts
(the "Mortgage Loans"), agency or non-agency mortgage
pass-through certificates
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or other mortgage-backed securities evidencing interests in or secured by
Mortgage Loans (the "MBS Securities") or a combination of Mortgage Loans or MBS
Securities.
The Mortgage Loans will not be guaranteed or insured by the Depositor or any of
its affiliates or, unless otherwise provided in the Prospectus Supplement, by
any governmental agency or instrumentality or any other person.
To the extent described in the applicable Prospectus Supplement, the Mortgage
Loans will be secured by first, second or more junior liens on properties
consisting of (i) residential properties consisting of five or more rental or
cooperatively-owned dwelling units (or shares allocable to a number of such
units and proprietary leases appurtenant thereto) ("Multifamily Properties")
and (ii) commercial properties consisting of (a) office buildings, retail
facilities related to the sale of goods and products and facilities related to
providing entertainment, recreation or personal services, hotels and motels,
casinos, nursing homes, hospitals or other health care-related facilities,
recreational vehicle parks, warehouse facilities, mini-warehouse facilities,
self-storage facilities, industrial facilities, parking lots, auto parks, golf
courses, arenas, mobile home parks and restaurants (or cooperatively owned
units therein) and (b) mixed use properties (that is, any combination of the
foregoing) and unimproved land.
Unless otherwise specified in the applicable Prospectus Supplement, the
Mortgaged Properties will be located in one of the fifty states of the United
States or the District of Columbia.
Unless otherwise specified in the related Prospectus Supplement, the Mortgage
Loans will not have been originated by the Depositor or any affiliate thereof,
and will have been purchased, either directly or indirectly, by the Depositor
on or before the date of the initial issuance of the related series of
Certificates.
Each Mortgage Loan 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
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from time to time, or that may be converted from an adjustable to a fixed
Mortgage Rate, or from a fixed to an adjustable Mortgage Rate, from time to
time at the mortgagor's election, in each case as described in the related
Prospectus Supplement. Each Mortgage Loan may provide for scheduled payments to
maturity, payments that adjust from time to time to accommodate changes in the
Mortgage Rate or to reflect the occurrence of certain events, and may provide
for negative amortization or accelerated amortization, in each case as
described in the related Prospectus Supplement. Each Mortgage Loan may be fully
amortizing or require a balloon payment due on its stated maturity date, in
each case as described in the related Prospectus Supplement. Each Mortgage Loan
may contain prohibitions on prepayment or require payment of a premium or a
yield maintenance penalty in connection with a prepayment, in each case as
described in the related Prospectus Supplement. The Mortgage Loans 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. See "Description of the Trust Funds--Mortgage Assets".
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 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 short-term, investment grade obligations, in each case as
described in the related Prospectus Supplement. See "Description of the
Agreements--Certificate Account".
C. Credit Support.................. If so provided in the related Prospectus Supplement,
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partial or full protection against certain defaults and losses on the Mortgage
Assets in the related Trust Fund may be provided to one or more Classes of
Certificates of the related series in the form of subordination of one or more
other Classes of Certificates of such series, which other Classes may include
one or more Classes of Offered Certificates, or by one or more other types of
credit support, such as a letter of credit, insurance policy, guarantee,
reserve fund or another type of credit support, or a combination thereof (any
such coverage with respect to the Certificates of any series, "Credit
Support"). The amount and types of coverage, the identification of the entity
providing the coverage (if applicable) and related information with respect to
each type of Credit Support, if any, will be described in the Prospectus
Supplement for a series of Certificates. The Prospectus Supplement for any
series of Certificates evidencing an interest in a Trust Fund that includes MBS
Securities will describe any similar forms of credit support that are provided
by or with respect to, or are included as part of the trust fund evidenced by
or providing security for, such MBS Securities. See "Risk Factors
--Credit Support Limitations" and "Description of Credit Support".
D. Cash Flow Agreements............ If so provided in the related Prospectus Supplement, the
Trust Fund may include guaranteed investment contracts pursuant to which moneys
held in the funds and accounts established for the related series will be
invested at a specified rate. The Trust Fund may also include certain other
agreements, such as interest rate exchange agreements, interest rate cap or
floor agreements, currency exchange agreements or similar agreements provided
to reduce the effects of interest rate or currency exchange rate fluctuations
on one or more Classes of Certificates. The principal terms of any such
guaranteed investment contract or other agreement (any such agreement, a "Cash
Flow Agreement"), including, without limitation, provisions relating to the
timing, manner and amount of payments thereunder and provisions relating to the
termination thereof, will be described in the Prospectus Supplement for the
related series. In addition, the related Prospectus Supplement will provide
certain information with respect to the obligor under any such Cash Flow
Agreement. The Prospectus Supplement for any series of Certificates
13
<PAGE>
evidencing an interest in a Trust Fund that includes MBS Securities will
describe any cash flow agreements that are included as part of the trust fund
evidenced by or providing security for such MBS Securities. See "Description
of the Trust Funds--Cash Flow Agreements".
Description of Certificates......... Each series of Certificates will be issued pursuant to a pooling and servicing
agreement (a "Pooling and Servicing Agreement"). Each series of Certificates
will consist of one or more Classes of Certificates, and the Certificates of
each series, including any Class or Classes of Certificates not offered hereby,
will represent in the aggregate the entire beneficial ownership interest in the
related Trust Fund.
Unless otherwise provided in the related Prospectus Supplement, each Class of
Offered Certificates (other than certain Stripped Interest Certificates, as
defined below) will be assigned a stated principal balance (a "Certificate
Principal Balance") and (other than certain Stripped Principal Certificates)
will accrue interest thereon at a fixed, variable or adjustable interest rate
(a "Pass-Through Rate"). The related Prospectus Supplement will specify the
Certificate Principal Balance (or notional amount in the case of certain
Stripped Interest Certificates) and the Pass-Through Rate for each Class of
Offered Certificates or, in the case of a variable or adjustable Pass-Through
Rate, the method for determining the Pass-Through Rate.
In addition, one or more Classes of Certificates of a series may be entitled to
receive additional distributions of prepayment premiums or yield maintenance
payments received on the Mortgage Assets, in such amounts and allocated among
the Classes of such series as is described in the related Prospectus
Supplement.
Each series of Certificates will consist of one or more Classes of Certificates
that may (i) be senior (collectively, "Senior Certificates") or subordinate
(collectively, "Subordinate Certificates") to one or more other Classes of
Certificates in respect of certain distributions on the Certificates; (ii) be
entitled to principal distributions, with disproportionately low, nominal or no
interest distributions
14
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(collectively, "Stripped Principal Certificates"); (iii) be entitled to
interest distributions, with disproportionately low, nominal or no principal
distributions (collectively, "Stripped Interest Certificates"); (iv) provide
for distributions of accrued interest thereon commencing only following the
occurrence of certain events, such as the retirement of one or more other
Classes of Certificates of such series (collectively, "Accrual Certificates");
and/or (v) provide for payments of principal sequentially, based on specified
payment schedules or other methodologies, to the extent of available funds,
in each case as described in the related Prospectus Supplement. Any such
Classes may include Classes 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, unless otherwise provided in the related Prospectus
Supplement. See "Risk Factors--Limited Assets" and "Description of
the Certificates".
Distributions of Interest
on the Certificates............. Unless otherwise provided in the related Prospectus Supplements interest on
each Class of Offered Certificates (other than certain Classes of Stripped
Interest Certificates Stripped Principal Certificates and Residual
Certificates) of each series will accrue at the applicable Pass-Through Rate on
the outstanding Certificate Principal Balance thereof 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 with respect to interest on Stripped Interest
Certificates may be made on each Distribution Date on the basis of a notional
amount as described in the related Prospectus Supplement. If specified in the
related Prospectus Supplement, interest may accrue on one or more Classes of
Certificates of a series but will not be distributable until the occurrence of
specified events. Prior to such time, the amount of accrued interest will,
unless otherwise provided in the related Prospectus Supplement, be added to the
Certificate Principal Balance of the Certificates of such Classes.
Distributions of interest with respect to one or more Classes of Certificates
may be reduced to the extent of
15
<PAGE>
certain delinquencies, losses and other contingencies described herein and in
the related Prospectus Supplement. See "Risk Factors--Limited
Assets--Yield Considerations", "Yield Considerations", and "Description of the
Certificates--Distributions of Interest on the Certificates".
Distributions of Principal
of Certificates................ Unless otherwise provided in the related Prospectus Supplements the
Certificates of each series (other than certain Classes of Stripped Interest
Certificates and certain Classes of Residual Certificates) will have an initial
aggregate Certificate Principal Balance no greater than the outstanding
principal balance of the Mortgage Assets as of the close of business on the
first day of the month of formation of the related Trust Fund (the "Cut-off
Date"), after application of scheduled payments due on or before such date,
whether or not received. The Certificate Principal Balance of a Certificate
outstanding from time to time represents the maximum amount that the holder
thereof is then entitled to receive in respect of principal from future cash
flow on the assets in the related Trust Fund. Unless otherwise provided in the
related Prospectus Supplement, distributions of principal will be made on each
Distribution Date to the Class or Classes of Certificates entitled thereto
until the Certificate Principal Balances of such Certificates have been reduced
to zero. Unless otherwise provided in the related Prospectus Supplement
distributions of principal of any Class of Certificates will be made on a pro
rata basis among all of the Certificates of such Class.
Stripped Interest Certificates with no Certificate Principal Balance will
not receive distributions in respect of principal. See "Description of the
Certificates--Distributions of Principal of the Certificates".
Advances....................... Unless otherwise provided in the Prospectus Supplement for any series, the
Master Servicer for such series will be obligated as part of its servicing
responsibilities to make certain advances with respect to delinquent scheduled
payments on the Mortgage Loans in the related Trust Fund. Advances made by a
Master Servicer are reimbursable generally from subsequent recoveries in
respect of such
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Mortgage Loans and otherwise to the extent described herein and
in the related Prospectus Supplement. If and to the extent provided in the
Prospectus Supplement for any series, the Master Servicer will be entitled to
receive interest on its outstanding advances, payable from amounts in the
related Trust Fund. See "Description of the Certificates--Advances in
Respect of Delinquencies".
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 under the
circumstances and in the manner set forth in such Prospectus Supplement.
See "Description of the Certificates--Termination".
Registration of Certificates..... If so provided in the related Prospectus Supplement, one or more
Classes of the Offered Certificates will initially be represented by
one or more Certificates registered in the name of Cede & Co., as the nominee
of DTC. No person acquiring an interest in Offered Certificates so registered
will be entitled to receive a definitive certificate representing such person's
interest except in the event that definitive certificates are issued under the
limited circumstances described herein. See "Description of the
Certificates--Book Entry Registration and Definitive Certificates".
Certain Federal Income Tax
Consequences................... The federal income tax treatment of the Certificates of any series will depend
on whether an election is made to treat the Trust Fund or any segregated pool
of assets within the Trust Fund as a REMIC or a FASIT. 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
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carefully review with their legal advisors whether the purchase and holding of
Offered Certificates could give rise to a transaction that is prohibited or is
not otherwise permissible under either ERISA or Section 4975 of the Code. See
"ERISA Considerations" herein and in the related Prospectus Supplement. See
"ERISA Considerations."
Legal Investment............... Unless otherwise specified in the Prospectus Supplement, the Offered
Certificates will not constitute "mortgage related securities" under the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"). Accordingly,
investors whose investment authority is subject to legal restrictions should
consult their own legal advisors to determine whether and to what extent the
Offered Certificates constitute legal investments for them. See "Legal
Investment."
Rating of Certificates.......... At the date of issuance, as to each series, 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.
</TABLE>
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RISK FACTORS
Investors should consider, in connection with the purchase of Offered
Certificates, among other things, the following factors and certain other
factors as may be set forth in "Risk Factors" in the related Prospectus
Supplement:
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates of
any series will develop or, if it does develop, that it will provide holders
with liquidity of investment or will continue while Certificates of such series
remain outstanding. Any such secondary market may provide less liquidity to
investors than any comparable market for securities evidencing interests in
single-family mortgage loans. Except to the extent described herein and in the
related Prospectus Supplement, Certificateholders will have no redemption
rights and the Certificates 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, a series
of Certificates will not have any claim against or security interest in the
Trust Funds for any other series. If the related Trust Fund is insufficient to
make payments on such Certificates, no other assets will be available for
payment of the deficiency. If so provided in the Prospectus Supplement for a
series of Certificates consisting of one or more Classes of Subordinate
Certificates, on any Distribution Date in respect of which losses or shortfalls
in collections on the Mortgage Assets have been incurred, the amount of such
losses or shortfalls will be borne first by one or more Classes of the
Subordinate Certificates, and, thereafter, by the remaining Classes of
Certificates in the priority and manner and subject to the limitations
specified in such Prospectus Supplement.
YIELD CONSIDERATIONS
The yield to maturity on the Offered Certificates of any series will
depend upon the price paid by the Certificateholder, the related Pass-Through
Rate and the rate and timing of distributions in reduction of the Certificate
Principal Balances of the Certificates (and, in the case of certain Stripped
Interest Certificates, the rate and timing of reductions of the Notional Amount
of such Certificates). The rate and timing of distributions in reduction of
Certificate Principal Balance of the Certificates of any series will be
affected by the rate and timing of principal payments on the Mortgage Assets in
the related Trust Fund, including scheduled payments of principal (such as
monthly principal payments or balloon payments at the stated maturity of such
Mortgage Assets) and unscheduled payments of principal (such as voluntary
principal prepayments or the receipt of Liquidation Proceeds allocable to
principal of such Mortgage Assets after default). In addition, such
distributions could result from purchases of the Mortgage Assets as described
under "Description of the Agreements -- Assignment of Mortgage Assets;
Repurchases".
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Prepayments on the Mortgage Assets in any Trust Fund generally will result
in a faster rate of principal payments on one or more Classes of the related
Certificates than if payments on such Mortgage Assets were made as scheduled.
Thus, the prepayment experience on the Mortgage Assets may affect the average
life of each Class of related Certificates. The rate of principal payments on
pools of mortgage loans varies between pools and from time to time is
influenced by a variety of economic, demographic, geographic, social, tax,
legal and other factors.
In general, if mortgage interest rates fall significantly below the
interest rates on the Mortgage Loans or such mortgage loans, the rate of
prepayment is likely to be higher than if prevailing rates remain at or above
the rates borne by the Mortgage Loans underlying or comprising the Mortgage
Assets. Mortgage Loans with a Lock-out Period or a Prepayment Premium
provision, to the extent enforceable, generally would be expected to experience
a lower rate of principal prepayments than otherwise identical Mortgage Loans
without such provisions, with shorter Lock-out Periods or with lower Prepayment
Premiums. If the purchaser of a Certificate offered at a discount calculates
its anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the Mortgage Assets,
the actual yield to maturity will be lower than that so calculated. Conversely,
if the purchaser of a Certificate offered at a premium calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is slower than that actually experienced on the Mortgage Assets,
the actual yield to maturity will be lower than that so calculated.
Conversely, defaults and delinquencies on the Mortgage Loans underlying or
comprising the Mortgage Assets, such as defaulted balloon payments, may result
in a slower than expected rate of principal payments on the Mortgage Assets. If
so specified in the related Prospectus Supplement, in order to maximize
recoveries on defaulted Mortgage Loans, a Master Servicer will be permitted
(within prescribed parameters) to extend and modify Mortgage Loans that are in
default or as to which default is reasonably foreseeable. As a result, the
actual maturity of any Class of Certificates could occur significantly later
than expected.
RISKS ASSOCIATED WITH CERTAIN MORTGAGE LOANS AND MORTGAGED PROPERTIES
Mortgage loans made on the security of multifamily or commercial property
may entail risks of delinquency and foreclosure, and risks of loss in the event
thereof, that are greater than similar risks associated with single-family
property. See "Description of the Trust Funds--Mortgage Assets". The ability of
a Mortgagor to repay a loan secured by an income-producing property typically
is dependent primarily upon the successful operation of such property rather
than any independent income or assets of the Mortgagor; thus, the value of an
income-producing property is directly related to the net operating income
derived from such property. In contrast, the ability of a Mortgagor to repay a
single-family loan typically is dependent primarily upon the Mortgagor's
household income rather than the capacity of the property to produce income;
thus, other than in geographical areas where employment is dependent upon a
particular employer or an industry, the Mortgagor's income tends not to reflect
directly the value of such property. A decline in the net operating income of
an income-producing property will likely affect both the performance of the
related loan as well as the liquidation value of such property, whereas a
decline in the income of a
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Mortgagor on a single-family property will likely affect the performance of the
related loan but may not affect the liquidation value of such property.
The performance of a mortgage loan secured by an income-producing property
leased by the Mortgagor to tenants as well as the liquidation value of such
property may be dependent upon the business operated by such tenants in
connection with such property, the credit worthiness of such tenants or both;
the risks associated with such loans may be offset by the number of tenants or,
if applicable, a diversity of types of business operated by such tenants.
It is anticipated that a substantial portion 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 which, in the event of
Mortgagor default, recourse may be had only against the specific multifamily or
commercial property and such other assets, if any, as have been pledged to
secure the Mortgage Loan. With respect to those Mortgage Loans that provide for
recourse against the Mortgagor and its assets generally, there can be no
assurance that such recourse will ensure a recovery in respect of a defaulted
Mortgage Loan greater than the liquidation value of the related Mortgaged
Property.
Further, the concentration of default, foreclosure and loss risks in
individual mortgagors or Mortgage Loans in a particular Trust Fund or the
related Mortgaged Properties will generally be greater than for pools of
single-family loans both because the Mortgage Assets in a Trust Fund will
generally consist of a smaller number of loans than would a single-family pool
of comparable aggregate unpaid principal balance and because of the higher
principal balance of individual Mortgage Loans. Mortgage Assets in a Trust Fund
may consist of a single Mortgage Loan.
If applicable, certain legal aspects of the Mortgage Loans for a series of
Certificates may be described in the related Prospectus Supplement. See also
"Certain Legal Aspects of Mortgage Loans" herein.
ADJUSTABLE RATE MORTGAGES
Certain of the Mortgage Loans may accrue interest at a rate that varies
over time in conjunction with a stated index. Where an increase in that
interest-rate index leads to an increase in the related Mortgage Rate, such
Mortgage Loan's debt service payments may increase. Such Mortgage Loans may be
more likely to default following such an increase than Mortgage Loans bearing a
fixed interest rate because the related Mortgaged Properties may be unable to
generate sufficient income to meet the increased debt service payments.
BALLOON PAYMENTS
Certain of the Mortgage Loans as of the Cut-off Date may not be fully
amortizing over their terms to maturity and, thus, will require substantial
principal payments (i.e., balloon payments) at their stated maturity. Mortgage
Loans with balloon payments involve a greater degree of risk because the
ability of a Mortgagor to make a balloon payment typically will depend upon its
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ability either to timely refinance the loan or to timely sell the related
Mortgaged Property. The ability of a Mortgagor to accomplish either of these
goals will be affected by a number of factors, including the level of available
mortgage rates at the time of sale or refinancing, the Mortgagor's equity in
the related Mortgaged Property, the financial condition and operating history
of the Mortgagor and the related Mortgaged Property, tax laws, rent control
laws (with respect to certain Multifamily Properties and mobile home parks),
reimbursement rates (with respect to certain hospitals, nursing homes and
convalescent homes), renewability of operating licenses, prevailing general
economic conditions and the availability of credit for commercial or
multifamily, as the case may be, real Properties generally.
CREDIT SUPPORT LIMITATIONS
The Prospectus Supplement for a series of Certificates will describe any
Credit Support in the related Trust Fund, which may include letters of credit,
insurance policies, guarantees, reserve funds or other types of Credit Support,
or combinations thereof. 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 lower priority
Classes of Certificates of such series has been repaid. As a result, the impact
of significant losses and shortfalls on the may be more likely to default
following such an increase than Mortgage Loans bearing a fixed interest rate
because the related Mortgaged Payments may be unable to generate sufficient
income to meet the increased debt service payments. Mortgage Assets may fall
primarily upon those Classes of Certificates having a lower priority of
payment. Moreover, if a form of Credit Support covers more than one series of
Certificates (each, a "Covered Trust"), holders of Certificates evidencing an
interest in a Covered Trust will be subject to the risk that such Credit
Support will be exhausted by the claims of other Covered Trusts.
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, other losses or 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".
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ENFORCEABILITY
Mortgages may contain a due-on-sale clause, which permits the lender to
accelerate the maturity of the Mortgage Loan if the Mortgagor sells, transfers
or conveys the related Mortgaged Property or its interest in the Mortgaged
Property. Mortgages may also include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary or non-monetary default of
the Mortgagor. Such clauses are generally enforceable subject to certain
exceptions. The courts of all states will enforce clauses providing for
acceleration in the event of a material payment default. The equity courts of
any state, however, may refuse the foreclosure of a mortgage or deed of trust
when an acceleration of the indebtedness would be inequitable or unjust or the
circumstances would render the acceleration unconscionable.
If so specified in the related Prospectus Supplement, the Mortgage Loans
will be secured by an assignment of leases and rents pursuant to which the
Mortgagor typically assigns its right, title and interest as landlord under the
leases on the related Mortgaged Property and the income derived therefrom to
the lender as further security for the related Mortgage Loan, while retaining a
license to collect rents for so long as there is no default. In the event the
Mortgagor defaults, the license terminates and the lender is entitled to
collect rents. Such assignments are typically not perfected as security
interests prior to actual possession of the cash flows. 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 Mortgagor, the lender's ability to collect the rents may be
adversely affected. See "Certain Legal Aspects of Mortgage Loans--Leases and
Rents".
ENVIRONMENTAL RISKS
Real property pledged as security for a mortgage loan may be subject to
certain environmental risks. Under the laws of certain states, contamination of
a 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 the lien of an
existing mortgage against such property. In addition, under the laws of some
states and under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA"), a lender may be liable, as an "owner" or
"operator", for costs of addressing releases or threatened releases of
hazardous substances that require remedy at a property, if agents or employees
of the lender have become sufficiently involved in the operations of the
Mortgagor, regardless of whether or not the environmental damage or threat was
caused by a prior owner. A lender also risks such liability on foreclosure of
the Mortgage. Unless otherwise specified in the related Prospectus Supplement,
each Pooling and Servicing Agreement will provide that the Master Servicer,
acting on behalf of the Trust Fund, may not acquire title to a Mortgaged
Property securing a Mortgage Loan or take over its operation unless the Master
Servicer has previously determined, based upon a report prepared by a person
who regularly conducts environmental audits, that: (i) the Mortgaged Property
is in compliance with applicable environmental laws, and there are no
circumstances present at the Mortgaged Property relating to the use, management
or disposal of any hazardous substances, hazardous materials, wastes, or
petroleum based materials for which investigating, testing, monitoring,
containment, clean-up or remediation could be required under any
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federal, state or local law or regulation; or (ii) if the Mortgaged Property is
not so in compliance or such circumstances are so present, then it would be in
the best economic interest of the Trust Fund to acquire title to the Mortgaged
Property and further to take such actions as would be necessary and appropriate
to effect such compliance and/or respond to such circumstances. See "Certain
Legal Aspects of Mortgage Loans--- Environmental Legislation".
CONTROL
Under certain circumstances, the consent or approval of the holders of a
specified percentage of the aggregate Certificate Balance of all outstanding
Certificates of a series or a similar means of allocating decision-making under
the related Agreement ("Voting Rights") will be required to direct, and will be
sufficient to bind all Certificateholders of such series to, certain actions,
including amending the related Agreement in certain circumstances. See
"Description of the Agreements-Events of Default", "-Rights Upon Event of
Default", "--Amendment" and "--List of Certificateholders".
DESCRIPTION OF THE TRUST FUNDS
MORTGAGE ASSETS
The primary assets of each Trust Fund will include (i) multifamily and/or
commercial mortgage loans or participation interests therein, together with
installment sales contracts (the "Mortgage Loans"), (ii) agency or non-agency
mortgage, pass-through certificates or other mortgage-backed securities
evidencing interests in or secured by Mortgage Loans ("MBS Securities") or
(iii) a combination of Mortgage Loans and MBS Securities (collectively,
"Mortgage Assets"). As used herein, "Mortgage Loans" refers to both whole
Mortgage Loans and Mortgage Loans underlying MBS Securities. Mortgage Loans
that secure, or interests in which are evidenced by, MBS Securities are herein
sometimes referred to as Underlying Mortgage Loans. Mortgage Loans that are not
Underlying Mortgage Loans are sometimes referred to as Whole Loans. The
Mortgage Assets will not be guaranteed or insured by PaineWebber Mortgage
Acceptance Corporation V (the "Depositor") or any of its affiliates or, unless
otherwise provided in the Prospectus Supplement, by any governmental agency or
instrumentality or by any other person.
Mortgage Loans
The Mortgage Loans will be secured by first, second or more junior liens
on, or security interests in, Mortgaged Properties consisting of: (i)
residential or mixed commercial/residential properties consisting of five or
more rental or cooperatively-owned dwelling units in high-rise, mid-rise or
garden apartment buildings (or shares allocable to a number of such units and
proprietary leases appurtenant thereto) ("Multifamily Properties" and the
related loans, "Multifamily Loans") and (ii) office buildings, retail
facilities related to the sale of goods and products and facilities related to
providing entertainment, recreation or personal services, hotels and motels,
casinos, nursing homes, hospitals or other health care-related facilities,
recreational vehicle
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parks, warehouse facilities, mini-warehouse facilities, self-storage
facilities, industrial facilities, parking lots, auto parks, golf courses,
arenas, mobile home parks and restaurants (or cooperatively owned units
therein), mixed use properties (that is, any combination of the foregoing) and
unimproved land ("Commercial Properties"). ("Commercial Properties" and the
related loans, "Commercial Loans") located, unless otherwise specified in the
related Prospectus Supplement, in any one of the fifty states or the District
of Columbia. Multifamily Property may include mixed commercial and residential
structures and may include apartment buildings owned by private cooperative
housing corporations ("Cooperatives"). The Mortgaged Properties may include
leasehold interests in properties, the title to which is held by third party
lessors. The Mortgage Loans will be evidenced by promissory notes or other
evidence of indebtedness (the "Mortgage Notes") secured by mortgages, deeds of
trust or similar instruments (the "Mortgages") creating a lien on the Mortgaged
Properties. Mortgage Loans will generally also be secured by an assignment of
leases and rents and/or operating or other cash flow guarantees relating to the
Mortgage Loan.
Default and Loss Considerations with Respect to the Mortgage Loans
Mortgage loans secured by commercial and multifamily properties are
markedly different from owner-occupied single-family home mortgage loans. The
repayment of loans secured by commercial or multifamily properties is typically
dependent upon the successful operation of such property rather than upon the
liquidation value of the real estate. Unless otherwise specified in the
Prospectus Supplement, the Mortgage Loans will be non-recourse loans, which
means that, absent special facts, the Mortgagee may look only to the Net
Operating Income from the property for repayment of the mortgage debt, and not
to any other of the Mortgagor's assets, in the event of the Mortgagor's
default. Lenders typically look to the Debt Service Coverage Ratio of a loan
secured by income-producing property as an important measure of the risk of
default on such a loan. The "Debt Service Coverage Ratio" of a Mortgage Loan at
any given time is the ratio of the Net Operating Income for a twelve-month
period to the annualized scheduled payments on the Mortgage Loan. "Net
Operating Income" means, for any given period, unless otherwise specified in
the related Prospectus Supplement, 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 loans secured by the Mortgaged Property.
The Net Operating Income of a Mortgaged Property will fluctuate over time and
may be sufficient or insufficient to cover debt service on the related Mortgage
Loan at any given time.
As the primary component of Net Operating Income, rental income (and
maintenance payments from tenant-stockholders of a Cooperative) is subject to
the vagaries of the applicable real estate market and/or business climate.
Properties typically leased, occupied or used on a short-term basis, such as
health care-related facilities, hotels and motels, and mini-warehouse and
self-storage facilities, tend to be affected more rapidly by changes in market
or business conditions than do properties leased, occupied or used for longer
periods, such as (typically) warehouses, retail stores, shopping centers,
office buildings and industrial plants. Commercial Loans may be secured by
owner-occupied Mortgaged Properties or Mortgaged Properties leased to a single
tenant. Accordingly, a decline in the financial condition of the mortgagor or
single tenant, as applicable, may
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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.
Changes in the expense components of Net Operating Income due to the
general economic climate or economic conditions in a locality or industry
segment, such as increases in interest rates, real estate and personal property
tax rates and other operating expenses including energy costs; changes in
governmental rules, regulations and fiscal policies, including environmental
legislation; and acts of God may also affect the risk of default on the related
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 Mortgagor, is responsible for payment of certain of
these expenses ("Net Leases"); however, because leases are subject to default
risks as well when a tenant's income is insufficient to cover its rent and
operating expenses, the existence of such "net of expense" provisions will only
temper, not eliminate, the impact of expense increases on the performance of
the related Mortgage Loan.
While the duration of leases and the existence of any "net of expense"
provisions are often viewed as the primary considerations in evaluating the
credit risk of mortgage loans secured by certain income-producing properties,
such risk may be affected equally or to a greater extent by changes in
government regulation of the operator of the property. Examples of the latter
include mortgage loans secured by health care-related facilities and hospitals,
the income from which and the operating expenses of which are subject to state
and/or federal regulations, such as Medicare and Medicaid, and multifamily
properties and mobile home parks, which may be subject to state or local rent
control regulation and, in certain cases, restrictions on changes in use of the
property. Low- and moderate-income housing may be particularly subject to legal
limitations and regulations but, because of such regulations, may also be less
sensitive to fluctuations in market rents generally.
The liquidation value of any Mortgaged Property may be adversely affected
by risks generally incident to interests in real property, including declines
in rental or occupancy rates. Lenders generally use the loan-to-value Ratio of
a mortgage loan as a measure of risk of loss if a property must be liquidated
upon a default by the Mortgagor. The "loan-to-value Ratio" of a Mortgage Loan
at any given time is the ratio (expressed as a percentage) of the then
outstanding principal balance of the Mortgage Loan to the value of the related
Mortgaged Property at such time. 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 at origination and will fluctuate from time to time based upon
changes in economic conditions and the real estate market.
Appraised values of income-producing properties may be 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 presents analytical challenges. 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
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and the selection of an appropriate capitalization rate. Where more than one of
these appraisal methods are used and create significantly different results, or
where a high loan-to-value Ratio accompanies a high Debt Service Coverage Ratio
(or vice versa), the analysis of default and loss risks is even more difficult.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish the Mortgage Loans from
single-family mortgage loans and provide insight to the risks associated with
income-producing real estate, there is no assurance that such factors will in
fact have been 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".
Mortgage Loan Information in Prospectus Supplements
Each Prospectus Supplement will contain information, to the extent then
applicable and specifically known to the Depositor, with respect to the
Mortgage Loans constituting related Trust Assets, including (i) the aggregate
outstanding principal balance and the largest, smallest and average outstanding
principal balance of the Mortgage Loans as of the applicable Cut-off Date, (ii)
the type of property securing the Mortgage Loans (e.g., Multifamily Property or
Commercial Property and the type of property in each such category), (iii) the
remaining terms to maturity of the Mortgage Loans, and/or the earliest and
latest maturity date and weighted average remaining term to maturity of the
Mortgage Loans, (iv) the loan-to-value ratios of the Mortgage Loans, and/or the
lowest and highest loan-to-value ratio and weighted average loan-to-value ratio
of the Mortgage Loans, in each case determined in the manner and as of a date
specified in the related Prospectus Supplement, (v) the Mortgage Rates or range
of Mortgage Rates and the weighted average Mortgage Rate borne by the Mortgage
Loans, (vi) the geographical distribution of the Mortgaged Properties on a
state-by-state basis, (vii) with respect to Mortgage Loans with adjustable
Mortgage Rates ("ARM Loans"), the adjustment dates, the highest, lowest and
weighted average margin, and the maximum Mortgage Rate variation at the time of
any adjustment and over the life of the ARM Loan, (viii) the Debt Service
Coverage Ratio and/or the range of Debt Service Coverage Ratio and the weighted
average Debt Service Coverage Ratio of the Mortgage Loans, in each case
determined in the manner and as of a date specified in the related Prospectus
Supplement and (ix) information regarding the payment characteristics of the
Mortgage Loans, including without limitation prepayment provisions, balloon
payment and other amortization provisions. The related Prospectus Supplement
will also contain certain information available to the Depositor with respect
to the provisions of leases and the nature of tenants of the Mortgaged
Properties and other information referred to in a general manner under
"Description of the Trust Funds--Mortgage Assets--Default and Loss
Considerations with Respect to the Mortgage Loans" above. In certain instances
specific information respecting the Mortgage Loans may not be known by the
Depositor at the time Offered Certificates of a series are initially offered.
In such case, more general information of the nature described above will be
provided in the Prospectus Supplement, and more specific information may be set
forth in a report which will be available to purchasers of the related
Certificates at or before the initial issuance thereof and will be filed as
part of a Current Report on Form 8-K with the Securities and Exchange
Commission within fifteen days after such initial issuance.
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Payment Provisions of the Mortgage Loans
Unless otherwise specified in the related Prospectus Supplement, all of
the Mortgage Loans will provide for payments of principal, interest or both, on
due dates that occur monthly, quarterly or semi-annually or at such other
interval as is specified in the related Prospectus Supplement. Each Mortgage
Loan 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 from an adjustable to a
fixed Mortgage Rate, or from a fixed to an adjustable Mortgage Rate, from time
to time at the Mortgagor's election, in each case as described in the related
Prospectus Supplement. Each Mortgage Loan may provide for scheduled payments to
maturity or payments that adjust from time to time to accommodate changes in
the Mortgage Rate or to reflect the occurrence of certain events, and may
provide for negative amortization or accelerated amortization, in each case as
described in the related Prospectus Supplement. Each Mortgage Loan may be fully
amortizing or require a balloon payment due on its stated maturity date, in
each case as described in the related Prospectus Supplement. Each Mortgage Loan
may contain prohibitions on prepayment (a "Lock-out Period" and the date of
expiration thereof, a "Lock-out Date") or require payment of a premium or a
yield maintenance charge (a "Prepayment Premium") in connection with a
prepayment, in each case as described in the related Prospectus Supplement. In
the event that holders of any Class or Classes of Offered Certificates will be
entitled to all or a portion of any Prepayment Premiums collected in respect of
Mortgage Loans, the related Prospectus Supplement will specify the method or
methods by which any such amounts will be allocated. A Mortgage Loan may also
contain provisions entitling the Mortgagee to a share of profits realized from
the operation or disposition of the Mortgaged Property ("Equity
Participations"), as described in the related Prospectus Supplement. In the
event that holders of any Class or Classes of Offered Certificates will be
entitled to all or a portion of an Equity Participation, the related Prospectus
Supplement will specify the terms and provisions of the Equity Participation
and the method or methods by which distributions in respect thereof will be
allocated among such Certificates.
MBS Securities
Any MBS Securities will have been issued pursuant to a participation and
servicing agreement, a pooling and servicing agreement, an indenture or similar
agreement (an "MBS Agreement"). A seller (the "MBS Issuer") and/or servicer
(the "MBS Servicer") of the underlying Mortgage Loans will have entered into
the MBS Agreement with a trustee or a custodian under the MBS Agreement (the
"MBS Trustee"), if any, or with the original purchaser of the interest in the
underlying Mortgage Loans evidenced by the MBS Securities.
Distributions of principal and interest will be made on MBS Securities on
the dates specified in the related Prospectus Supplement. The MBS Securities
may be issued in one or more classes with characteristics similar to the
classes of Certificates described in this Prospectus. principal and interest
distributions will be made on the MBS Securities by the MBS Trustee or the MBS
Servicer. 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
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the MBS after a certain date or under other circumstances specified in the
related Prospectus Supplement.
Enhancement in the form of reserve funds, subordination of other credit
support similar to that described for the Certificates under "Description of
Credit Support" may be provided with respect to the MBS. The type,
characteristics and amount of such credit support, if any, will be a function
of certain characteristics of the Mortgage Loans evidenced by or securing such
MBS Securities and other factors and generally will have been established for
the MBS Securities on the basis of requirements of either any Rating Agency
that may have assigned a rating to the MBS or the initial purchasers of the MBS
Securities.
The Prospectus Supplement for a series of Certificates evidencing
interests in Mortgage Assets that include 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 Securities, if applicable,
(iii) the pass-through or bond rate of the MBS Securities or formula for
determining such rates, (iv) the applicable payment provisions for the MBS
Securities, (v) the MBS Issuer, MBS Servicer and MBS Trustee, as applicable,
(vi) certain characteristics of the credit support, if any, such as
subordination, reserve funds, insurance policies, letters of credit or
guarantees relating to the related Underlying Mortgage Loans or directly to
such MBS Securities, (vii) the terms on which the related Underlying Mortgage
Loans for such MBS Securities or the MBS Securities may, or are required to, be
purchased prior to their maturity, (viii) the terms on which Mortgage Loans may
be substituted for those originally underlying the MBS Securities, (ix) the
servicing fees payable under the MBS Agreement, (x) to the extent available to
the Depositor, the type of information in respect of the Underlying Mortgage
Loans described under "Description of the Trust Funds--Mortgage
Assets--Mortgage Loan Information in Prospectus Supplements" and (xi) the
characteristics of any cash flow agreements that are included as part of the
trust fund evidenced or secured by 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 short-term, investment grade obligations, in each case as described in
the related Prospectus Supplement.
CREDIT SUPPORT
If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Mortgage Assets in the
related Trust Fund may be provided to one or more Classes of Certificates in
the related series in the form of subordination of one or more other
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Classes of Certificates in such series or by one or more other types of credit
support, such as a letter of credit, insurance policy, guarantee, reserve fund
or another type of credit support, or a combination thereof (any such coverage
with respect to the Certificates of any series, "Credit Support"). The amount
and types of coverage, the identification of the entity providing the coverage
(if applicable) and related information with respect to each type of Credit
Support, if any, will be described 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 related Prospectus Supplement, the Trust Fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related series will be invested at a
specified rate. The Trust Fund may also include certain other agreements, such
as interest rate exchange agreements, interest rate cap or floor agreements,
currency exchange agreements or similar agreements provided to reduce the
effects of interest rate or currency exchange rate fluctuations on one or more
Classes of Certificates. The principal terms of any such guaranteed investment
contract or other agreement (any such agreement, a "Cash Flow Agreement"),
including, without limitation, provisions relating to the timing, manner and
amount of payments thereunder and provisions relating to the termination
thereof, will be described in the Prospectus Supplement for the related series.
In addition, the related Prospectus Supplement will provide certain information
with respect to the obligor under any such Cash Flow Agreement.
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 Certifi- cates--Book-Entry
Registration and Definitive Certificates."
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DELINQUENT MORTGAGE LOANS
If so provided in the related Prospectus Supplement, the Trust Fund for a
particular series of Certificates may include Mortgage Loans that are past-due
(i.e. beyond any applicable grace period); provided, however, that such
delinquent Mortgage Loans may only constitute up to, but not including, 20% (by
principal balance) of the Trust Fund. If so specified in the related Prospectus
Supplement, the servicing of such Mortgage Loans may be performed by a Special
Servicer. When a Mortgage Loan has a loan-to-value ratio of 100% or more, the
related mortgagor will have no equity in the related Mortgaged Property. In
such cases, the related mortgagor may not have an incentive to continue to
perform under the subject Mortgage Loan. In addition, when the debt service
coverage ratio of a Mortgage Loan is below 1.0x, the revenue derived from the
use and operation of the related Mortgaged Property is insufficient to cover
the operating expenses of such Mortgaged Property and to pay debt service on
such Mortgage Loan and all mortgage loans senior thereto. In such cases, the
related mortgagor will be required to pay a portion of such items from sources
other than cash flow from the related Mortgaged Property. If the related
mortgagor ceases to use such alternative cash sources at a time when operating
revenue from the related Mortgaged Property is still insufficient to cover such
items, deferred maintenance at the related Mortgaged Property and/or a default
under the subject Mortgage Loan may occur. Credit Support provided with respect
to a particular series of Certificates may not cover all losses related to
delinquent 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."
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will be
applied by the Depositor to the purchase of Trust Assets, to repay short-term
loans incurred to finance the purchase of Trust Assets until the sale of the
Certificates or 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.
YIELD CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on the price paid by the
Certificateholder, the Pass-Through Rate of the Certificate, the receipt and
timing of receipt of distributions on the Certificate. See "Risk Factors
- - --Limited Assets--Yield Considerations".
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PASS-THROUGH RATE
Certificates of any Class within a series may have fixed, variable or
adjustable Pass-Through Rates, which may or may not be based upon the interest
rates borne by the Mortgage Assets 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 such Certificates or, in the case of 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 Asset
on the Pass-Through Rate of one or more Classes of Certificates; and whether
the distributions of interest on the Certificates of any Class will be
dependent, in whole or in part, on the performance of any obligor under a Cash
Flow Agreement.
TIMING OF PAYMENT OF INTEREST AND PRINCIPAL
Each payment of interest on the Certificates (or addition to the
Certificate Balance of a Class of Accrual Certificates) on a Distribution Date
will include interest accrued during the Interest Accrual Period for such
Distribution Date. If the Interest Accrual Period ends on a date other than a
Distribution Date for the related series, the yield realized by the holders of
such Certificates may be lower than the yield that would result if the Interest
Accrual Period ended on such Distribution Date. In addition, if so specified in
the related Prospectus Supplement, interest accrued for an Interest Accrual
Period for one or more Classes of Certificates may be calculated on the
assumption that distributions of principal (and additions to the Certificate
Balance of Accrual Certificates) and allocations of losses on the Mortgage
Assets may be made on the first day of the Interest Accrual Period for a
Distribution Date and not on such Distribution Date. Such method would produce
a lower effective yield than if interest were calculated on the basis of the
actual principal amount outstanding during an Interest Accrual Period. The
Interest Accrual Period for any Class of Offered Certificates will be described
in the related Prospectus Supplement.
PRINCIPAL PREPAYMENTS
The yield to maturity on the Certificates will be affected by the rate of
principal payments on the Mortgage Assets (including principal prepayments on
Mortgage Loans resulting from both voluntary prepayments by the Mortgagors and
involuntary liquidations). The rate at which principal prepayments occur on the
Mortgage Loans will be affected by a variety of factors, including, without
limitation, the terms of the Mortgage Loans, the level of prevailing interest
rates, the availability of mortgage credit and economic, demographic,
geographic, tax, legal and other factors. In general, however, if prevailing
interest rates fall significantly below the Mortgage Rates on the Mortgage
Loans comprising or underlying the Mortgage Assets in a particular Trust Fund,
such Mortgage Loans are likely to be the subject of higher principal
prepayments than if prevailing rates remain at or above the rates borne by such
Mortgage Loans. In this regard, it should be noted that certain Mortgage Assets
may consist of Mortgage Loans with different Mortgage Rates and the stated
pass-through or pay-through interest rate of certain MBS Securities may be a
number of percentage points higher or lower than certain of the underlying
Mortgage Loans. The rate of principal payments on some or all of the Classes of
Certificates of a series will correspond to the rate of principal payments on
the Mortgage Assets in the related Trust Fund and is likely to be affected
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by the existence of Lock-out Periods and Prepayment Premium provisions of the
Mortgage Loans underlying or comprising such Mortgage Assets, and by the extent
to which the servicer of any such Mortgage Loan is able to enforce such
provisions. Mortgage Loans with a Lock-out Period or a Prepayment Premium
provision, to the extent enforceable, generally would be expected to experience
a lower rate of principal prepayments than otherwise identical Mortgage Loans
without such provisions, with shorter Lock-out Periods or with lower Prepayment
Premiums.
If the purchaser of a Certificate offered at a discount calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the Mortgage Assets,
the actual yield to maturity will be lower than that so calculated. Conversely,
if the purchaser of a Certificate offered at a premium calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is slower than that actually experienced on the Mortgage Assets,
the actual yield to maturity will be lower than that so calculated. In either
case, if so provided in the Prospectus Supplement for a series of Certificates,
the effect on the yield of one or more Classes of the Certificates of such
series of prepayments of the Mortgage Assets in the related Trust Fund may be
mitigated or exacerbated by any provisions for sequential or selective
distribution of principal to such Classes.
The timing of changes in the rate of principal payments on the Mortgage
Assets may significantly affect an investor's actual yield to maturity, even if
the average rate of distributions of principal is consistent with an investor's
expectation. In general, the earlier a principal payment is received on the
Mortgage Assets and distributed on a Certificate, the greater the effect on
such investor's yield to maturity. The effect on an investor's yield of
principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during a given period may not be offset by a
subsequent like decrease (or increase) in the rate of principal payments.
PREPAYMENTS--MATURITY AND WEIGHTED AVERAGE LIFE
The rates at which principal payments are received on the Mortgage Assets
included in or comprising a Trust Fund and the rate at which payments are made
from any Credit Support or Cash Flow Agreement for the related series of
Certificates may affect the ultimate maturity and the weighted average life of
each Class of such series. Prepayments on the Mortgage Loans comprising or
underlying the Mortgage Assets in a particular Trust Fund will generally
accelerate the rate at which principal is paid on some or all of the Classes of
the Certificates of the related series.
If so provided in the Prospectus Supplement for a series of Certificates,
one or more Classes of Certificates may have a final scheduled Distribution
Date, which is the date on or prior to which the Certificate Principal Balance
thereof is scheduled to be reduced to zero, calculated on the basis of the
assumptions applicable to such series set forth therein.
Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of a
Class of Certificates of a series will be influenced by the rate at which
principal on the Mortgage Loans comprising or underlying the Mortgage Assets is
paid to such Class,
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which may be in the form of scheduled amortization or prepayments (for this
purpose, the term "prepayment" includes prepayments, in whole or in part, and
liquidations due to default).
Prepayments on loans are also 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, each as
described below. CPR represents a constant assumed 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 rate of prepayment each month (expressed as an annual percentage)
relative to the then outstanding principal balance of a pool of loans. A
prepayment assumption of 100% of SPA assumes prepayment rates of 0.2% per annum
of the then outstanding principal balance of such loans in the first month of
the life of the loans and an additional 0.2% per annum in each month thereafter
until the thirtieth month. Beginning in the thirtieth month and in each month
thereafter during the life of the loans, 100% of SPA assumes a constant
annualized prepayment rate of 6% 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 pool of loans, including the Mortgage
Loans underlying or comprising the Mortgage Assets. Moreover, CPR and SPA were
developed based upon historical prepayment experience for single-family loans.
Thus, it is likely that prepayment of any Mortgage Loans comprising or
underlying the Mortgage Assets for any series will not conform to any
particular level of CPR or SPA.
The Depositor is not aware of any meaningful publicly available prepayment
statistics for multifamily or commercial mortgage loans.
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 Mortgage Loans
comprising or underlying the related Mortgage Assets are made at rates
corresponding to various percentages of CPR, SPA or at such other rates
specified in such Prospectus Supplement. Such tables and assumptions are
intended to illustrate the sensitivity of weighted average life of the
Certificates to various prepayment rates and will not be intended to predict or
to provide information that will enable investors to predict the actual
weighted average life of the Certificates. It is unlikely that prepayment of
any Mortgage Loans comprising or underlying the Mortgage Assets for any series
will conform to any particular level of CPR, SPA or any other rate specified in
the related Prospectus Supplement.
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OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
Type of Mortgage Loan
A number of Mortgage Loans may have balloon payments due at maturity, and
because the ability of a mortgagor 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 a number of Mortgage Loans having
balloon payments may default at maturity, or that the servicer may extend the
maturity of such a Mortgage Loan in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things,
bankruptcy of the mortgagor or adverse conditions in the market where the
property is located. In order to minimize losses on defaulted Mortgage Loans,
the servicer may, to the extent and under the circumstances set forth in the
related Prospectus Supplement, be permitted 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 will tend
to extend the weighted average life of the Certificates, thereby lengthening
the period of time elapsed from the date of issuance of a Certificate until it
is retired.
Foreclosures and Payment Plans
The number of foreclosures and the principal amount of the Mortgage Loans
comprising or underlying the Mortgage Assets 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 life of the Mortgage Loans
comprising or underlying the Mortgage Assets and that of the related series of
Certificates. 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 life of the Certificates.
Due-on-Sale and Due-on-Encumbrance Clauses
Acceleration of mortgage payments as a result of certain transfers of or
the creation of encumbrances upon underlying Mortgaged Property is another
factor affecting prepayment rates that may not be reflected in the prepayment
standards or models used in the relevant Prospectus Supplement. A number of the
Mortgage Loans comprising or underlying the Mortgage Assets may include
"due-on-sale" clauses or "due-on-encumbrance" clauses that allow the holder of
the Mortgage Loans to demand payment in full of the remaining principal balance
of the Mortgage Loans upon sale or certain other transfers of or the creation
of encumbrances upon the related Mortgaged Property. With respect to any Whole
Loans, unless otherwise provided in the related Prospectus Supplement, the
Master Servicer, on behalf of the Trust Fund, will be required to exercise (or
waive its right to exercise) any such right that the Trustee may have as
mortgagee to accelerate payment of the Whole Loan in a manner consistent with
the servicing standard specified in the related Prospectus Supplement or, if no
such standard is specified, consistent with the Master Servicer's normal
servicing practices. See "Certain Legal Aspects of Mortgage Loans--Due-on-Sale
and Due-on-Encumbrance" and "Description of the Agreements--Due-on-Sale and
Due-on-Encumbrance Provisions".
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THE DEPOSITOR
PaineWebber Mortgage Acceptance Corporation V, the Depositor, is a
Delaware corporation organized on April 23, 1987, as a wholly-owned limited
purpose finance subsidiary of PaineWebber Group Inc. The Depositor maintains
its principal office at 1285 Avenue of the Americas, New York, New York. Its
telephone number is (212) 713-2000.
The Depositor does not have, nor is it expected in the future to have, any
significant assets. It is not expected that the Depositor will have any
business operations other than acquiring and pooling mortgage loans or
interests therein and MBS Securities, offering Certificates of the type
described herein or other mortgage-related securities, and related activities.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates of each series (including any Class of Certificates not
offered hereby) will represent the entire beneficial ownership interest in the
Trust Fund created pursuant to the related Agreement. Each series of
Certificates will consist of one or more Classes of Certificates that may (i)
provide for the accrual of interest thereon based on fixed, variable or
adjustable rates; (ii) be senior (collectively, "Senior Certificates") or
subordinate (collectively, "Subordinate Certificates") to one or more other
Classes of Certificates in respect of certain distributions on the
Certificates; (iii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions (collectively,
"Stripped Principal Certificates"); (iv) be entitled to interest distributions,
with disproportionately low, nominal or no principal distributions
(collectively, "Stripped Interest Certificates"); (v) provide for distributions
of accrued interest thereon commencing only following the occurrence of certain
events, such as the retirement of one or more other Classes of Certificates of
such series (collectively, "Accrual Certificates"); and/or (vi) provide for
payments of principal sequentially, or based on specified payment schedules or
other methodologies, to the extent of available funds, in each case as
described in the related Prospectus Supplement. Any such Classes may include
Classes of Offered Certificates.
Each Class of Offered Certificates of a series will be issued in minimum
denominations corresponding to the Certificate Principal Balances or, in case
of Stripped Interest Certificates, notional amounts specified in the related
Prospectus Supplement. The transfer of any Offered Certificates may be
registered and such Certificates may be exchanged without the payment of any
service charge payable in connection with such registration of transfer or
exchange, but the Depositor or the Trustee or any agent thereof may require
payment of a sum sufficient to cover any tax or other governmental charge. One
or more Classes of Certificates of a series may be issued in definitive form
("Definitive Certificates") or in book-entry form ("Book-Entry Certificates"),
as provided in the related Prospectus Supplement. See "Description of the
Certificates--Book-Entry Registration and Definitive Certificates". Definitive
Certificates will be exchangeable for other Certificates of the same Class and
series of a like aggregate Certificate Principal Balance or notional amount but
of different authorized denominations. See "Risk Factors--Limited Liquidity"
and --Limited Assets".
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DISTRIBUTIONS
Distributions on the Certificates of each series will be made by or on
behalf of the Trustee on each Distribution Date as specified in the related
Prospectus Supplement from the Available Distribution Amount for such series
and such Distribution Date. Except as otherwise specified in the related
Prospectus Supplement, distributions (other than the final distribution) will
be made to the persons in whose names the Certificates are registered at the
close of business on the last business day of the month preceding the month in
which the Distribution Date occurs (the "Record Date"), and the amount of each
distribution will be determined as of the close of business on the date
specified in the related Prospectus Supplement (the "Determination Date").
Unless otherwise specified in the related Prospectus Supplement, all
distributions with respect to each Class of Certificates on each Distribution
Date will be allocated pro rata among the outstanding Certificates in such
Class. Payments will be made either by check mailed to the address of the
person entitled thereto as it appears on the Certificate Register or, if so
provided in the related Prospectus Supplement and if a Certificateholder holds
Certificates in the requisite amount specified therein by wire transfer in
immediately available funds to the account of such Certificateholder at a bank
or other entity having appropriate facilities therefor, if such
Certificateholder has so notified the Trustee or other person required to make
such payments no later than the date specified in the related Prospectus
Supplement; provided, however, that the final distribution in retirement of the
Certificates (whether Definitive Certificates or Book-Entry Certificates) will
be made only upon presentation and surrender of the Certificates at the
location specified in the notice to Certificateholders of such final
distribution.
AVAILABLE DISTRIBUTION AMOUNT
Distributions on the Certificates of each series on each Distribution Date
will be made from the "Available Distribution Amount" for such Distribution
Date, in accordance with the terms described in the related Prospectus
Supplement. Unless provided otherwise in the related Prospectus Supplement, the
"Available Distribution Amount" for each Distribution Date will equal the sum
of the following amounts:
(i) the total amount of all cash on deposit in the related
Certificate Account as of the corresponding Determination Date, exclusive
of:
(a) all scheduled payments of principal and interest already
collected but due on a date subsequent to the related Due Period
(unless the related Prospectus Supplement provides otherwise, a "Due
Period" with respect to any Distribution Date will commence on the
second day of the month in which the immediately preceding
Distribution Date occurs, or the day after the Cut-off Date in the
case of the first Due Period, and will end on the first day of the
month of the related Distribution Date),
(b) all prepayments, together with related payments of the
interest thereon and related Prepayment Premiums, Liquidation
Proceeds, Insurance Proceeds and other
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unscheduled recoveries received subsequent to the related Prepayment
Period, as defined in the related Prospectus Supplement, and
(c) all amounts in the Certificate Account that are due or
reimbursable to the Depositor, the Trustee, the Master Servicer, the
Special Servicer or any other person described in the related
Prospectus Supplement, or that are payable in respect of certain
expenses of the related Trust Fund;
(ii) all advances made by a Master Servicer with respect to such
Distribution Date;
(iii) if and to the extent the related Prospectus Supplement so
provides, amounts paid by a Master Servicer with respect to interest
shortfalls resulting from prepayments during the related Prepayment
Period; and
(iv) to the extent not on deposit in the related Certificate Account
as of the corresponding Determination Date, any amounts collected under,
from or in respect of any Credit Support with respect to such Distribution
Date.
In addition, interest on investment income on deposit in the Certificate
Account, including any net payments paid under any Cash Flow Agreement, may be
included in the Available Distribution Amount, or may be allocated solely to
one or more Classes of Certificates of the related series on such Distribution
Date (in addition to the portion of the Available Distribution Amount allocable
to such Class or Classes).
As described below, the entire Available Distribution Amount will be
distributed among the related Certificates (including any Certificates not
offered hereby) on each Distribution Date, and accordingly will be released
from the Trust Fund and will not be available for any future distributions.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each Class of Certificates (other than Classes Residual Certificates and
Stripped Principal Certificates that have no Pass-Through Rate) may have a
different Pass-Through Rate, which may be a fixed, variable or adjustable
Pass-Through Rate. The related Prospectus Supplement will specify the
Pass-Through Rate for each Class or, in the case of a variable or adjustable
Pass-Through Rate, the method for determining the Pass-Through Rate. Unless
otherwise specified in the related Prospectus Supplement, interest on the
Certificates will be calculated on the basis of a 360-day year consisting of
twelve 30-day months.
Distributions of interest in respect of the Certificates of any Class will
be made on each Distribution Date (other than any Class of Accrual
Certificates, which will be entitled to distributions of accrued interest
commencing only on the Distribution Date, or under the circumstances, specified
in the related Prospectus Supplement, and any Class of Stripped Principal
Certificates that are not entitled to any distributions of interest) based on
the Accrued Certificate
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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
and each Distribution Date (other than certain Classes of Stripped Interest
Certificates), "Accrued Certificate Interest" will be equal to interest accrued
for a specified period on the outstanding Certificate Balance thereof
immediately prior to the Distribution Date, at the applicable Pass-Through
Rate, reduced as described below. Unless otherwise provided in the Prospectus
Supplement, Accrued Certificate Interest on Stripped Interest Certificates will
be equal to interest accrued for a specified period on the outstanding notional
amount thereof immediately prior to each Distribution Date, at the applicable
Pass-Through Rate, reduced as described below. The method of determining the
notional amount for any Class of Stripped Interest Certificates will be
described in the related Prospectus Supplement. Reference to notional amount is
solely for convenience in certain calculations and does not represent the right
to receive any distributions of principal. Unless otherwise provided in the
related Prospectus Supplement, the Accrued Certificate Interest on a series of
Certificates will be reduced in the event of prepayment interest shortfalls,
which are shortfalls in collections of interest for a full accrual period
resulting from prepayments prior to the due date in such accrual period on the
Mortgage Loans comprising or underlying the Mortgage Assets in the Trust Fund
for such series. The particular manner in which such shortfalls are to 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 Loans comprising or underlying the Mortgage Assets in
the related Trust Fund. Unless otherwise provided in the related Prospectus
Supplement, any reduction in the amount of Accrued Certificate Interest
otherwise distributable on a Class of Certificates by reason of the allocation
to such Class of a portion of any deferred interest on the Mortgage Loans
comprising or underlying the Mortgage Assets in the related Trust Fund will
result in a corresponding increase in the Certificate Balance of such Class.
See "Risk Factors--Limited Assets--Yield Considerations" and "Yield
Considerations".
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
The Certificates of each series, other than certain Classes of Stripped
Interest Certificates, will have a "Certificate Principal Balance" which, at
any time, will equal the then maximum amount that the holder 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 Principal Balance of a Certificate will be reduced to the extent of
distributions of principal thereon from time to time and, if and to the extent
so provided in the related Prospectus Supplement, by the amount of losses
incurred in respect of the related Mortgage Assets, may be increased in respect
of deferred interest on the related Mortgage Loans to the extent provided in
the related Prospectus Supplement and, in the case of Accrual Certificates
prior to the Distribution
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Date on which distributions of interest are required to commence, will be
increased by any Accrued Certificate Interest. Unless otherwise provided in the
related Prospectus Supplement, the initial aggregate Certificate Principal
Balance of all Classes of Certificates of a series will not be greater than the
outstanding aggregate principal balance of the related Mortgage Assets as of
the applicable Cut-off Date. The initial aggregate Certificate Principal
Balance of a series and each Class thereof will be specified in the related
Prospectus Supplement. Unless otherwise provided in the related Prospectus
Supplement, distributions of principal will be made on each Distribution Date
to the Class or Classes of Certificates entitled thereto in accordance with the
provisions described in such Prospectus Supplement until the Certificate
Principal Balance of such Class has been reduced to zero. Stripped Interest
Certificates with no Certificate Principal Balance are not entitled to any
distributions of principal.
DISTRIBUTIONS ON THE CERTIFICATES OF PREPAYMENT PREMIUM OR IN RESPECT OF EQUITY
PARTICIPATIONS
If so provided in the related Prospectus Supplement, Prepayment Premiums
or payments in respect of Equity Participations that are collected on the
Mortgage Assets in the related Trust Fund will be distributed on each
Distribution Date to the Class or Classes of Certificates entitled thereto in
accordance with the provisions described in such Prospectus Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
If so provided in the Prospectus Supplement for a series of Certificates
consisting of one or more Classes of Subordinate Certificates, on any
Distribution Date in respect of which losses or shortfalls in collections on
the Mortgage Assets have been incurred, the amount of such losses or shortfalls
will be borne first by a Class of Subordinate Certificates in the priority and
manner and subject to the limitations specified in such Prospectus Supplement.
See "Description of Credit Support" for a description of the types of
protection that may be included in a Trust Fund against losses and shortfalls
on Mortgage Assets comprising such Trust Fund.
ADVANCES IN RESPECT OF DELINQUENCIES
With respect to any series of Certificates evidencing an interest in a
Trust Fund consisting of Mortgage Assets other than MBS Securities, unless
otherwise provided in the related Prospectus Supplement, the Master Servicer
will be required as part of its servicing responsibilities to advance on or
before each Distribution Date its own funds or funds held in the Certificate
Account that are not included in the Available Distribution Amount for such
Distribution Date, in an amount equal to the aggregate of payments of principal
(other than any balloon payments) and interest (net of related servicing fees)
that were due on the Whole Loans in such Trust Fund during the related Due
Period and were delinquent on the related Determination Date, subject to the
Master Servicer's good faith determination that such advances will be
reimbursable from Related Proceeds (as defined below). In the case of a series
of Certificates that includes one or more Classes of Subordinate Certificates
and if so provided in the related Prospectus Supplement, the Master Servicer's
advance obligation may be limited only to the portion of such delinquencies
necessary to make the required
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distributions on one or more Classes of Senior Certificates and/or may be
subject to the Master Servicer's good faith determination that such advances
will be reimbursable not only from Related Proceeds but also from collections
on other Mortgage Assets otherwise distributable on one or more Classes of such
Subordinate Certificates. See "Description of Credit Support".
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. Unless otherwise
provided in the related Prospectus Supplement, advances of the Master
Servicer's funds will be reimbursable only out of related recoveries on the
Mortgage Loans (including amounts received under any form of Credit Support)
respecting which such advances were made (as to any Mortgage Loan, "Related
Proceeds") and, if so provided in the Prospectus Supplement, out of any amounts
otherwise distributable on one or more Classes of Subordinate Certificates of
such series; provided, however, that any such advance will be reimbursable from
any amounts in the Certificate Account prior to any distributions being made on
the Certificates to the extent that the Master Servicer shall determine in good
faith that such advance (a "Nonrecoverable Advance") is not ultimately
recoverable from Related Proceeds or, if applicable, from collections on other
Mortgage Assets otherwise distributable on such Subordinate Certificates. If
advances have been made by the Master Servicer from excess funds in the
Certificate Account, the Master Servicer is required to replace such funds in
the Certificate Account on any future Distribution Date to the extent that
funds in the Certificate Account on such Distribution Date are less than
payments required to be made to Certificateholders on such date. If so
specified in the related Prospectus Supplement, the obligations of the Master
Servicer 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, the
Master Servicer will be entitled to receive interest at the rate specified
therein on its outstanding advances and will be entitled to pay itself such
interest periodically from general collections on the Mortgage Loans prior to
any payment to Certificateholders or as otherwise provided in the related
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 Securities will describe any
corresponding advancing obligation of any person in connection with such MBS
Securities.
REPORTS TO CERTIFICATEHOLDERS
With each distribution to holders of any class of Certificates of a
series, a Master Servicer or the Trustee, as provided in the related Prospectus
Supplement, will forward or cause to be forwarded to each such holder, to the
Depositor and to such other parties as may be specified in the related
Agreement, a statement that, unless otherwise provided in the related
Prospectus Supplement, will set forth, among other things, in each case to the
extent applicable and available:
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(i) the amount of such distribution to holders of Certificates
of such class applied to reduce the Certificate Principal Balance
thereof;
(ii) the amount of such distribution to holders of Certificates
of such class allocable to Accrued Certificate Interest;
(iii) the amount of such distribution allocable to (a)
Prepayment Premiums and (b) payments on account of Equity
Participations;
(iv) the amount, if any, by which such distribution is less than
the amounts to which holders of such class of Offered Certificates
are entitled;
(v) the amount of related servicing compensation received by a
Master Servicer (and, if payable directly out of the related Trust
Fund, by any Special Servicer) and such other customary information
as any such Master Servicer or the Trustee deems necessary or
desirable, or that a Certificateholder reasonably requests, to enable
Certificateholders to prepare their tax returns;
(vi) the aggregate amount of advances included in such
distribution, and the aggregate amount of unreimbursed advances at
the close of business on such Distribution Date;
(vii) the aggregate principal balance of the Mortgage Assets at
the close of business on such Distribution Date;
(viii) the number and aggregate principal balance of Mortgage
Loans in respect of which (a) one scheduled payment is delinquent,
(b) two scheduled payments are delinquent, (c) three or more
scheduled payments are delinquent and (4) foreclosure proceedings
have been commenced;
(ix) with respect to each Mortgage Loan that is delinquent two
or more months, (a) the loan number thereof, (b) the unpaid balance
thereof, (c) whether the delinquency is in respect of any balloon
payment, (d) the aggregate amount of unreimbursed servicing expenses
and unreimbursed advances in respect thereof, (e) if applicable, the
aggregate amount of any interest accrued and payable on related
servicing expenses and related advances assuming such Mortgage Loan
is subsequently liquidated through foreclosure, (f) whether a notice
of acceleration has been sent to the mortgagor and, if so, the date
of such notice, (g) whether foreclosure proceedings have been
commenced and, if so, the date so commenced and (h) if such Mortgage
Loan is more than three months delinquent and foreclosure has not
been commenced, the reason therefor;
(x) with respect to any Whole Loan liquidated during the related
Due Period or Prepayment Period, as applicable (other than by payment
in full), (a) the loan number thereof, (b) the manner in which it was
liquidated, (c) the aggregate amount of liquidation proceeds
received, (d) the portion of such liquidation proceeds payable or
reimbursable to
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the Master Servicer in respect of such Mortgage Loan and (e) the
amount of any loss to Certificateholders;
(xi) with respect to each REO Property relating to a Whole
Loan and included in the Trust Fund as of the end of the related Due
Period or Prepayment Period, as applicable, (a) the loan number of the
related Mortgage Loan, (b) the date of acquisition, (c) the book
value, (d) the principal balance of the related Mortgage Loan
immediately following such Distribution Date (calculated as if such
Mortgage Loan were still outstanding taking into account certain
limited modifications to the terms thereof specified in the
Agreement), (e) the aggregate amount of unreimbursed servicing
expenses and unreimbursed advances in respect thereof and (f) if
applicable, the aggregate amount of interest accrued and payable on
related servicing expenses and related advances;
(xii) with respect to any such REO Property sold during the
related Due Period or Prepayment Period, as applicable, (a) the loan
number of the related Mortgage Loan, (b) the aggregate amount of sale
proceeds, (c) the portion of such sales proceeds payable or
reimbursable to the Master Servicer or a Special Servicer in respect
of such REO Property or the related Mortgage Loan and (d) the amount
of any loss to Certificateholders in respect of the related Mortgage
Loan;
(xiii) the aggregate 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 due to the allocation of any loss and increase in
the Certificate Balance of a Class of Accrual Certificates in the
event that Accrued Certificate Interest has been added to such
balance;
(xiv) the aggregate amount of principal prepayments made
during the related Prepayment Period;
(xv) the amount deposited in the reserve fund, if any, on such
Distribution Date;
(xvi) the amount remaining in the reserve fund, if any, as of
the close of business on such Distribution Date;
(xvii) the aggregate unpaid Accrued Certificate Interest, if
any, on each class of Certificates at the close of business on such
Distribution Date;
(xviii) in the case of Certificates with a variable
Pass-Through Rate, the Pass-Through Rate applicable to such
Distribution Date, as calculated in accordance with the method
specified in the related Prospectus Supplement;
(xix) in the case of Certificates with an adjustable
Pass-Through Rate, for statements to be distributed in any month in
which an adjustment date occurs, the adjustable
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Pass-Through Rate applicable to the next succeeding Distribution
Date as calculated in accordance with the method specified in the
related Prospectus Supplement;
(xx) as to any series which includes Credit Support, the amount
of coverage of each instrument of Credit Support included therein as
of the close of business on such Distribution Date; and
(xxi) the aggregate amount of payments by the mortgagors of (a)
default interest, (b) late charges and (c) assumption and
modification fees collected during the related Due Period or
Prepayment Period, as applicable.
In the case of information furnished pursuant to subclauses (i)-(v) above,
the amounts shall be expressed as a dollar amount per minimum denomination of
Certificates or for such other specified portion thereof. The Prospectus
Supplement for each series of Offered Certificates will describe any additional
information to be included in reports to the holders of such Certificates.
Within a reasonable period of time after the end of each calendar year,
the Master Servicer, if any, or the Trustee, as provided in the related
Prospectus Supplement, shall furnish to each person who at any time during the
calendar year was a holder of a Certificate a statement containing the
information set forth in subclauses (i)-(v) above, aggregated for such calendar
year or the applicable portion thereof during which such person was a
Certificateholder. Such obligation of the Master Servicer or the Trustee shall
be deemed to have been satisfied to the extent that substantially comparable
information shall be provided by the Master Servicer or the Trustee pursuant to
any requirements of the Code as are from time to time in force. See
"Description of the Certificates--Book-Entry Registration and Definitive
Certificates".
TERMINATION
The obligations created by the Agreement for each series of Certificates
will terminate upon the payment to Certificateholders of that series of all
amounts held in the Certificate Account or by the Master Servicer, if any, or
the Trustee and required to be paid to them pursuant to such Agreement
following the earlier of (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 purchase of all
of the assets of the Trust Fund by the party entitled to effect such
termination, under the circumstances and in the manner set forth in the related
Prospectus Supplement. In no event, however, will the trust created by the
Agreement continue beyond the date specified in the related Prospectus
Supplement. Written notice of termination of the Agreement will be given to
each Certificateholder, and the final distribution will be made only upon
presentation and surrender of the Certificates 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 assets in the related Trust Fund by the party specified
therein, under the circumstances and in the manner set forth therein. If so
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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, the party specified therein will solicit bids
for the purchase of all assets of the Trust Fund, or of a sufficient portion of
such assets to retire such Class or Classes under the circumstances and in the
manner set forth therein.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the 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 PaineWebber Incorporated, other 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.
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To facilitate subsequent transfer, all Offered Certificates deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of Offered Certificates with DTC and their registration
with Cede & Co. effect no change in beneficial ownership. DTC has no knowledge
of the actual Certificate Owners of the Book-Entry Certificates; DTC's records
reflect only the identity of the Direct Participants to whose accounts such
Certificates are credited, which may or may not be the Certificate Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Certificate Owners will be governed
by arrangements among them, subject to any statutory or regulatory requirements
as may be in effect from time to time.
Distributions on the Book-Entry Certificates will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the related Distribution
Date in accordance with their respective holdings shown on DTC's records unless
DTC has reason to believe that it will not receive payment on such date.
Disbursement of such distributions by Participants to Certificate Owners will
be governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer form or registered
in "street name", and will be the responsibility of each such Participant (and
not of DTC, the Depositor or any Trustee or Master Servicer), subject to any
statutory or regulatory requirements as may be in effect from time to time.
Under a book-entry system, Certificate Owners may receive payments after the
related Distribution Date.
Unless otherwise provided in the related Prospectus Supplement, investors
that are not Participants or Indirect Participants but desire to purchase, sell
or otherwise transfer ownership of, or other interests in, Book-Entry
Certificates may do so only through Participants and Indirect Participants. In
addition, such investors ("Certificate Owners") will receive all distributions
on the Book-Entry Certificates through DTC and its Participants. Under a
book-entry format, Certificate Owners will receive payments after the related
Distribution Date because, while payments are required to be forwarded to Cede,
as nominee for DTC, on each such date, DTC will forward such payments to its
Participants which thereafter will be required to forward them to Indirect
Participants or Certificate Owners. Unless otherwise provided in the related
Prospectus Supplement, the only "Certificateholder"(as such term is used in the
Agreement) will be Cede, as nominee of DTC, and the Certificate Owners will not
be recognized by the Trustee as Certificateholders under the Agreement.
Certificate Owners will be permitted to exercise the rights of
Certificateholders under the related Agreement only indirectly through the
Participants who in turn will exercise their rights through DTC.
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.
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DTC has advised the Depositor that it will take any action permitted to be
taken by a Certificateholder under an Agreement only at the direction of one or
more Participants to whose account with DTC interests in the Book-Entry
Certificates are credited.
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 and Servicing
Agreement.
DESCRIPTION OF THE AGREEMENTS
The Certificates of each series evidencing interests in a Trust Fund
consisting of Mortgage Loans will be issued pursuant to a Pooling and Servicing
Agreement among the Depositor, a Master Servicer, any Special Servicer
appointed as of the date of the Pooling and Servicing Agreement and the
Trustee. The Certificates of each series evidencing interests in a Trust Fund
consisting exclusively of MBS Securities will be issued pursuant to a Trust
Agreement between the Depositor and a Trustee. Any Master Servicer, any such
Special Servicer and the Trustee with respect to any series of Certificates
will be named in the related Prospectus Supplement. The provisions of each
Agreement will vary depending upon the nature of the Certificates to be issued
thereunder and the nature of the related Trust Fund. 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. The following summaries describe certain
provisions that may appear in each Agreement. The Prospectus Supplement for a
series of Certificates will describe any provision of the Agreement relating to
such series that materially differs from the description thereof contained in
this Prospectus. The summaries 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 Agreement for each Trust Fund and the description of such provisions in
the related Prospectus Supplement. As used herein with respect to any series,
the term "Certificate" refers to all of the Certificates of that series,
whether or not offered hereby and by the related Prospectus Supplement, unless
the context otherwise requires. The Depositor will provide a copy of the
Agreement (without exhibits) relating to any series of Certificates without
charge upon written request of a holder of a Certificate of such series
addressed to PaineWebber Mortgage Acceptance Corporation V, 1285 Avenue of the
Americas, New York, New York 10019, Attention: Secretary.
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ASSIGNMENT OF MORTGAGE ASSETS; REPURCHASES
At the time of issuance of any series of Certificates, the Depositor will
assign (or cause to be assigned) to the Trustee for such series the Mortgage
Assets to be included in the related Trust Fund, together with all principal
and interest to be received on or with respect to such Mortgage Assets after
the Cut-off Date, other than principal and interest due on or before the
Cut-off Date and other than any Retained Interest. The Trustee will,
concurrently with such assignment, deliver the Certificates to the Depositor in
exchange for the Mortgage Assets and the other assets comprising the Trust Fund
for such series. Each Mortgage Asset will be identified in a schedule appearing
as an exhibit to the related Agreement. Unless otherwise provided in the
related Prospectus Supplement, such schedule will include detailed information
(i) in respect of each Mortgage Loan included in the related Trust Fund,
including without limitation, the address of the related Mortgaged Property and
type of such property, the Mortgage Rate and, if applicable, the applicable
index, margin, adjustment date and any rate cap information, the remaining term
to maturity, the outstanding principal balance and balloon payment, if any, and
(ii) in respect of each MBS Security included in the related Trust Fund,
including without limitation, the MBS Issuer, MBS Servicer and MBS Trustee, the
pass-through or bond rate or formula for determining such rate, the issue date
and original and remaining term to maturity, if applicable, the original or
outstanding principal amount and payment provisions, if applicable.
With respect to each Whole Loan, the Depositor will deliver or cause to be
delivered to the Trustee (or to the custodian hereinafter referred to) 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
related Prospectus Supplement, the related Agreement will require that the
Depositor or other party thereto promptly cause each such assignment of
Mortgage to be recorded in the appropriate public office for real property
records, except in the State of California or in other states where, in the
opinion of counsel acceptable to the Trustee, such recording is not required to
protect the Trustee's interest in the related Whole Loan against the claim of
any subsequent transferee or any successor to or creditor of the Depositor, the
Master Servicer, or any prior holder of the Whole Loan.
The Trustee (or the custodian) will review such Whole Loan documents
within a specified period of days after receipt thereof, and the Trustee (or
the custodian) will hold such documents in trust for the benefit of the
Certificateholders. Unless otherwise specified in the related Prospectus
Supplement, if any such document is found to be missing or defective in any
material respect, the Trustee (or such custodian) shall immediately notify the
Master Servicer and the Depositor. If the omission or defect is not cured
within a specified number of days after receipt of such notice, then unless
otherwise specified in the related Prospectus Supplement, the Depositor or
another person specified in the related Prospectus Supplement will be
obligated, within a specified number of days of receipt of such notice, to
repurchase the related Whole Loan from the Trustee at the Purchase Price or
substitute for such Mortgage Loan. Unless otherwise specified in the related
Prospectus Supplement, this repurchase or substitution obligation constitutes
the sole remedy
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available to the Certificateholders or the Trustee for omission
of, or a material defect in, a constituent document.
With respect to each MBS Security, the Depositor will deliver or cause to
be delivered to the Trustee (or the custodian) the original certificate or
other definitive evidence of the MBS Security, together with bond power or
other instruments, certifications or documents required to transfer fully the
MBS Security to the Trustee for the benefit of the Certificateholders in
accordance with the related MBS Agreement. Unless otherwise provided in the
related Prospectus Supplement, the related Agreement will require that either
the Depositor or the Trustee promptly cause the MBS to be re-registered, with
the applicable persons, in the name of the Trustee.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
Unless otherwise provided in the related Prospectus Supplement the
Depositor will, with respect to each Whole Loan constituting a Mortgage Asset
in the related Trust Fund, make or assign certain representations and
warranties, as of a specified date (the person making such representations and
warranties, the "Warranting Party") covering, by way of example, the following
types of matters: (i) the accuracy of the information set forth for such Whole
Loan on the schedule of Mortgage Assets appearing as an exhibit to the related
Agreement; (ii) the existence of title insurance insuring the lien priority of
the Whole Loan; (iii) the authority of the Warranting Party to sell the Whole
Loan; (iv) the payment status of the Whole Loan and the status of payments of
taxes, assessments and other charges affecting the related Mortgaged Property;
(v) the existence of customary provisions in the related Mortgage Note and
Mortgage to permit realization against the Mortgaged Property of the benefit of
the security of the Mortgage; and (vi) the existence of hazard and extended
perils insurance coverage on the Mortgaged Property.
Any Warranting Party other than the Depositor will be identified in the
related Prospectus Supplement.
Representations and warranties made in respect of a Whole Loan may have
been made as of a date prior to the applicable Cut-off Date. A substantial
period of time may have elapsed between such date and the date of initial
issuance of the related series of Certificates evidencing an interest in such
Whole Loan. Unless otherwise specified in the related Prospectus Supplement, in
the event of a breach of any such representation or warranty, the Warranting
Party will be obligated to cure such breach or repurchase or replace the
affected Whole Loan as described below. Since the representations and
warranties may not address events that may occur following the date as of which
they were made, the Warranting Party will have a cure, repurchase or
substitution obligation in connection with a breach of such a representation
and warranty only if the relevant event that causes such breach occurs prior to
such date. Such party would have no such obligations if the relevant event that
causes such breach occurs after such date.
Unless otherwise provided in the related Prospectus Supplement, each
Agreement will provide that the Master Servicer and/or Trustee will be required
to notify promptly the relevant Warranting Party of any breach of any
representation or warranty made by it in respect of a Whole
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Loan that materially and adversely affects the value of such Mortgage Loan or
the interests therein of the Certificateholders. If such Warranting Party
cannot cure such breach within a specified period following the date on which
such party was notified of such breach, then such Warranting Party will be
obligated to repurchase such Mortgage Loan from the Trustee within a specified
period from the date on which the Warranting Party was notified of such breach,
at the Purchase Price therefor. As to any Whole Loan, unless otherwise
specified in the related Prospectus Supplement, the "Purchase Price" is equal
to the sum of the unpaid principal balance thereof, plus unpaid accrued
interest thereon at the Mortgage Rate from the date as to which interest was
last paid to the due date in the Prepayment Period in which the relevant
purchase is to occur, plus certain servicing expenses that are reimbursable to
the Master Servicer. If so provided in the Prospectus Supplement for a series,
a Warranting Party, rather than repurchase a Mortgage Loan as to which a breach
has occurred, will have the option, within a specified period after initial
issuance of such series of Certificates, to cause the removal of such Mortgage
Loan from the Trust Fund and substitute in its place one or more other Whole
Loans, in accordance with the standards described in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
this repurchase or substitution obligation will constitute the sole remedy
available to holders of Certificates or the Trustee for a breach of
representation by a Warranting Party.
Neither the Depositor (except to the extent that it is the Warranting
Party) nor the Master Servicer will be obligated to purchase or substitute for
a Whole Loan if a Warranting Party defaults on its obligation to do so, and no
assurance can be given that Warranting Parties will carry out such obligations
with respect to Whole Loans.
With respect to a Trust Fund that includes MBS Securities, the related
Prospectus Supplement will describe any representations or warranties made or
assigned by the Depositor with respect to such MBS Securities, the person
making them and the remedies for breach thereof.
A Master Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the related Agreement. A breach of any such representation
of the Master Servicer which materially and adversely affects the interests of
the Certificateholders and which continues unremedied for thirty days after the
giving of written notice of such breach to the Master Servicer by the Trustee
or the Depositor, or to the Master Servicer, the Depositor and the Trustee by
the holders of Certificates evidencing not less than 25% of the Voting Rights
(or such other percentage of Voting Rights as is specified in the related
Prospectus Supplement will constitute an Event of Default. See "--Events of
Default" and "--Rights Upon Event of Default".
CERTIFICATE ACCOUNT
General
The Master Servicer, if any, and/or the Trustee will, as to each Trust
Fund, establish and maintain or cause to be established and maintained one or
more separate accounts for the collection of payments on the related Mortgage
Assets (collectively, the "Certificate Account"),
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which must be either (i) an account or accounts the deposits in which are
insured by the Bank Insurance Fund or the Savings Association Insurance Fund of
the Federal Deposit Insurance Corporation ("FDIC") (to the limits established
by the FDIC) and the uninsured deposits in which are otherwise secured such
that the Certificateholders have a claim with respect to the funds in the
Certificate Account or a perfected first priority security interest against any
collateral securing such funds that is superior to the claims of any other
depositors or general creditors of the institution with which the Certificate
Account is maintained or (ii) otherwise maintained with a bank or trust
company, and in a manner, satisfactory to the Rating Agency or Agencies rating
any Class of Certificates of such series. The collateral eligible to secure
amounts in the Certificate Account is limited to United States government
securities and other investment grade obligations specified in the Agreement
("Permitted Investments"). A Certificate Account may be maintained as an
interest bearing or a non-interest bearing account and the funds held therein
may be invested pending each succeeding Distribution Date in certain short-term
Permitted Investments. Unless otherwise provided in the related Prospectus
Supplement, any interest or other income earned on funds in the Certificate
Account will be paid to a Master Servicer or its designee as additional
servicing compensation. The Certificate Account may be maintained with an
institution that is an affiliate of the Master Servicer, if applicable,
provided that such institution meets the standards imposed by the Rating Agency
or Agencies. If permitted by the 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 respecting payments on mortgage loans belonging to the
Master Servicer or serviced or master serviced by it on behalf of others.
Deposits
A Master Servicer or the Trustee will deposit or cause to be deposited in
the Certificate Account for each Trust Fund on a daily basis, unless otherwise
provided in the related Agreement and described in the related Prospectus
Supplement, the following payments and collections received, or advances made,
by the Master Servicer or the Trustee or on its behalf subsequent to the
Cut-off Date (other than payments due on or before the Cut-off Date, and
exclusive of any amounts representing a Retained Interest):
(i) all payments on account of principal, including principal
prepayments, on the Mortgage Assets;
(ii) all payments on account of interest on the Mortgage Assets,
including any default interest collected, in each case net of any portion
thereof retained by a Master Servicer as its servicing compensation and
net of any Retained Interest;
(iii) all proceeds of the hazard insurance policies to be maintained
in respect of each Mortgaged Property securing a Mortgage Loan in the
Trust Fund (to the extent such proceeds are not applied to the restoration
of the property or released to the mortgagor in accordance with the normal
servicing procedures of a Master Servicer, subject to the terms and
conditions of the related Mortgage and Mortgage Note) (collectively,
"Insurance Proceeds") and all other amounts received and retained in
connection with the liquidation of defaulted
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Mortgage Loans in the Trust Fund, by foreclosure or otherwise
("Liquidation Proceeds"), together with the net proceeds on a monthly
basis with respect to any Mortgaged Properties acquired for the benefit of
Certificateholders by foreclosure or by deed in lieu of 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 any Mortgage Loan or property acquired in
respect thereof purchased by the Depositor, any Mortgage Asset Seller or
any other specified person as described under "--Assignment of Mortgage
Assets; Repurchases" and "Representations and Warranties; Repurchases",
all proceeds of any defaulted Mortgage Loan purchased as described under
"--Realization Upon Defaulted Whole Loans", and all proceeds of any
Mortgage Asset purchased as described under "Description of the
Certificates-Termination" (also, "Liquidation Proceeds");
(viii) any amounts paid by a Master Servicer to cover certain
interest shortfalls arising out of the prepayment of Mortgage Loans in the
Trust Fund as described under "Description of the Agreements--Retained
Interest; Servicing Compensation and Payment of Expenses";
(ix) to the extent that any such item does not constitute additional
servicing compensation to a Master Servicer, any payments on account of
modification or assumption fees, late payment charges, Prepayment Premiums
or Equity Participations on the Mortgage Assets;
(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 a 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 Agreement and described in the related
Prospectus Supplement.
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Withdrawals
A Master Servicer or the Trustee may, from time to time, unless otherwise
provided in the related Agreement and described in the related Prospectus
Supplement, make withdrawals from the Certificate Account for each Trust Fund
for any of the following purposes:
(i) to make distributions to the Certificateholders on each
Distribution Date;
(ii) to reimburse a Master Servicer for unreimbursed amounts advanced
as described under "Description of the Certificates-Advances in Respect of
Delinquencies", such reimbursement to be made out of amounts received
which were identified and applied by the Master Servicer as late
collections of interest (net of related servicing fees and Retained
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;
(iii) to reimburse a Master Servicer for unpaid servicing fees earned
and certain unreimbursed servicing expenses incurred 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 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;
(iv) to reimburse a Master Servicer for any advances described in
clause (ii) above and any servicing expenses described in clause (iii)
above which, in the Master Servicer's good faith judgment, will not be
recoverable from the amounts described in clauses (ii) and (iii),
respectively, such reimbursement to be made from amounts collected on
other Mortgage Assets or, if and to the extent so provided by the related
Agreement and described in the related Prospectus Supplement, just from
that portion of amounts collected on other Mortgage Assets that is
otherwise distributable on one or more Classes of Subordinate Certificates
of the related series;
(v) if and to the extent described in the related Prospectus
Supplement, to pay a Master Servicer interest accrued on the advances
described in clause (ii) above and the servicing expenses described in
clause (iii) above while such remain outstanding and unreimbursed;
(vi) to pay for costs and expenses incurred by the Trust Fund for
environmental site assessments with respect to, and for containment,
clean-up or remediation of hazardous wastes and materials on, Mortgaged
Properties securing defaulted Mortgage Loans in the Trust Fund as
described under "Realization Upon Defaulted Whole Loans";
(vii) to reimburse a Master Servicer, the Depositor, or any of their
respective directors, officers, employees and agents, as the case may be,
for certain expenses, costs and
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liabilities incurred thereby, as and to the extent described under
"--Certain Matters Regarding a Master Servicer and the Depositor";
(viii) if and to the extent described in the related Prospectus
Supplement, to pay (or to transfer to a separate account for purposes of
escrowing for the payment of) the Trustee's fees;
(ix) 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";
(x) to pay a Master Servicer, as additional servicing compensation,
interest and investment income earned in respect of amounts held in the
Certificate Account;
(xi) to pay the person entitled thereto any amounts deposited in the
Certificate Account that were identified and applied by the Master
Servicer as recoveries of Retained Interest;
(xii) to pay for costs reasonably incurred in connection with the
proper operation, management and maintenance of any Mortgaged Property
acquired for the benefit of Certificateholders by foreclosure or by deed
in lieu of foreclosure or otherwise, such payments to be made out of
income received on such property;
(xiii) 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";
(xiv) 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 in the Trust Fund or a property acquired in
respect thereof in connection with the liquidation of such Mortgage Loan
or property;
(xv) to pay for the cost of various opinions of counsel obtained
pursuant to the related Agreement for the benefit of Certificateholders;
(xvi) to pay for the costs of recording the related Agreement if such
recordation materially and beneficially affects the interests of
Certificateholders;
(xvii) to pay the person entitled thereto any amounts deposited in
the Certificate Account in error, including amounts received on any
Mortgage Asset after its removal from the Trust Fund whether by reason of
purchase or substitution as contemplated by
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"--Assignment of Mortgage Assets; Repurchase" and "--Representations
and Warranties; Repurchases" or otherwise;
(xviii) to make any other withdrawals permitted by the related
Agreement and described in the related Prospectus Supplement; and
(xix) to clear and terminate the Certificate Account at the
termination of the Trust Fund.
COLLECTION AND OTHER SERVICING PROCEDURES; MODIFICATIONS
The Master Servicer is required to make reasonable efforts to collect all
scheduled payments under the Whole Loans and will follow or cause to be
followed such collection procedures as it would follow with respect to mortgage
loans that are comparable to the Whole Loans and held for its own account,
provided such procedures are consistent with (i) the terms of the related
Agreement and any related hazard insurance policy or instrument of Credit
Support included in the related Trust Fund described herein or under
"Description of Credit Support", (ii) applicable law and (iii) the general
servicing standard specified in the related Prospectus Supplement or, if no
such standard is so specified, its normal servicing practices (in either case,
the "Servicing Standard"). In connection therewith, the Master Servicer will be
permitted in its discretion to waive any late payment charge or penalty
interest in respect of a late Whole Loan payment.
Each Master Servicer will also be required to perform other customary
functions of a servicer of comparable loans, including maintaining hazard
insurance policies as described herein and in any related Prospectus
Supplement, and filing and settling claims thereunder; maintaining escrow or
impoundment accounts of mortgagors for payment of taxes, insurance and other
items required to be paid by any mortgagor pursuant to the Whole Loan;
processing assumptions or substitutions in those cases where the Master
Servicer has determined not to enforce any applicable due-on-sale clause;
attempting to cure delinquencies; supervising foreclosures; inspecting and
managing Mortgaged Properties under certain circumstances; and maintaining
accounting records relating to the Whole Loans. Unless otherwise specified in
the related Prospectus Supplement, the Master Servicer will be responsible for
filing and settling claims in respect of particular Whole Loans under any
applicable instrument of Credit Support. See "Description of Credit Support".
The Master Servicer may agree to modify, waive or amend any term of any
Whole Loan in a manner consistent with the Servicing Standard so long as the
modification, waiver or amendment will not (i) affect the amount or timing of
any scheduled payments of principal or interest on the Whole Loan or (ii) in
its judgment, materially impair the security for the Whole Loan or reduce the
likelihood of timely payment of amounts due thereon. The Master Servicer also
may agree to any modification, waiver or amendment that would so affect or
impair the payments on, or the security for, a Whole Loan if, unless otherwise
provided in the related Prospectus Supplement, (i) in its judgment, a material
default on the Whole Loan has occurred or a payment default is imminent and
(ii) in its judgment, such modification, waiver or amendment is reasonably
likely to produce a greater recovery with respect to the Whole Loan on a
present value basis than would
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liquidation. The Master Servicer is required to notify the Trustee in the event
of any modification, waiver or amendment of any Whole Loan.
SUB-SERVICERS
A Master Servicer may delegate its servicing obligations in respect of the
Whole Loans to third-party servicers (each, a "Sub-Servicer"), but such Master
Servicer will remain obligated under the related Agreement. Each sub-servicing
agreement between a Master Servicer and a Sub-Servicer (a "Sub-Servicing
Agreement") must be consistent with the terms of the related Agreement and must
provide that, if for any reason the Master Servicer for the related series of
Certificates 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.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer will be solely liable for all fees owed by it to any Sub-Servicer,
irrespective of whether the Master Servicer's compensation pursuant to the
related Agreement is sufficient to pay such fees. However, a Sub-Servicer may
be entitled to a Retained Interest in certain Whole Loans. Each Sub-Servicer
will be reimbursed by the Master Servicer for certain expenditures which it
makes, generally to the same extent the Master Servicer would be reimbursed
under an Agreement. See "--Retained Interest, Servicing Compensation and
Payment of Expenses".
SPECIAL SERVICERS
To the extent so specified in the related Prospectus Supplement, a special
servicer (the "Special Servicer") may be appointed. The related Prospectus
Supplement will describe the rights, obligations and compensation of a Special
Servicer. A Master Servicer will only be responsible for the duties and
obligations of a Special Servicer to the extent as set forth in the Prospectus
Supplement.
REALIZATION UPON DEFAULTED WHOLE LOANS
A mortgagor's failure to make required payments may reflect inadequate
operating income or the diversion of that income from the service of payments
due under the Mortgage Loan, and may call into question such mortgagor's
ability to make timely payment of taxes and to pay for necessary maintenance of
the related Mortgaged Property. Unless otherwise provided in the related
Prospectus Supplement, the Master Servicer is required to monitor any Whole
Loan which is in default, contact the mortgagor concerning the default,
evaluate whether the causes of the default can be cured over a reasonable
period without significant impairment of the value of the Mortgaged Property,
initiate corrective action in cooperation with the mortgagor if cure is likely,
inspect the 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 such corrective action or the
need for additional initiatives.
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The time within which the Master Servicer makes the initial determination
of appropriate action, evaluates the success of corrective action, develops
additional initiatives, institutes foreclosure proceedings and actually
forecloses (or takes a deed to a Mortgaged Property in lieu of foreclosure) on
behalf of the Certificateholders, may vary considerably depending on the
particular Whole Loan, the Mortgaged Property, the mortgagor, the presence of
an acceptable party to assume the Mortgage Loan and the laws of the
jurisdiction in which the Mortgaged Property is located. Under federal
bankruptcy law, the Master Servicer in certain cases may not be permitted to
accelerate a Whole Loan or to foreclose on a Mortgaged Property for a
considerable period of time. See "Certain Legal Aspects of Mortgage Loans".
Any Agreement relating to a Trust Fund that includes Whole Loans may grant
to the Master Servicer and/or the holder or holders of certain Classes of
Certificates a right of first refusal to purchase from the Trust Fund at a
predetermined purchase price any such Whole Loan as to which a specified number
of scheduled payments thereunder are delinquent. Any such right granted to the
holder of an Offered Certificate will be described in the related Prospectus
Supplement. The related Prospectus Supplement will also describe any such right
granted to any person if the predetermined purchase price is less than the
Purchase Price described under "Representations and Warranties; Repurchases".
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer may offer to sell any defaulted Whole Loan described in the
preceding paragraph and not otherwise purchased by any person having a right of
first refusal with respect thereto, if and when the Master Servicer determines,
consistent with the Servicing Standard, that such a sale would produce a
greater recovery on a present value basis than would liquidation through
foreclosure or similar proceeding. The related Agreement will provide that any
such offering be made in a commercially reasonable manner for a specified
period and that the Master Servicer accept the highest cash bid received from
any person (including itself, an affiliate of the Master Servicer or any
Certificateholder) that constitutes a fair price for such defaulted Whole Loan.
In the absence of any bid determined in accordance with the related Agreement
to be fair, the Master Servicer shall proceed with respect to such defaulted
Mortgage Loan as described below. Any bid in an amount at least equal to the
Purchase Price described under "--Representations and Warranties; Repurchases"
will in all cases be deemed fair.
The Master Servicer, on behalf of the Trustee, may at any time institute
foreclosure proceedings, exercise any power of sale contained in any mortgage,
obtain a deed in lieu of foreclosure, or otherwise acquire title to a Mortgaged
Property securing a Whole Loan by operation of law or otherwise, if such action
is consistent with the Servicing Standard and a default on the related Mortgage
loan has occurred or, in the Master Servicer's judgment, is imminent. Unless
otherwise specified in the related Prospectus Supplement, the Master Servicer
may not, however, acquire title to any Mortgaged Property or take any other
action that would cause the Trustee, for the benefit of Certificateholders, or
any other specified person to be considered to hold title to, to be a
"mortgagee-in-possession" of, or to be an "owner" or an "operator" of such
Mortgaged Property within the meaning of certain federal environmental laws,
unless the Master Servicer has previously
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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 there are no circumstances present at the
Mortgaged Property relating to the use, management or disposal of any
hazardous substances, hazardous materials, wastes, or petroleum-based
materials for which investigation, testing, monitoring, containment,
clean-up or remediation could be required under any federal, state or
local law or regulation; or
(ii) if the Mortgaged Property is not so in compliance or such
circumstances are so present, then it would be in the best economic
interest of the Trust Fund to acquire title to the Mortgaged Property and
further to take such actions as would be necessary and appropriate to
effect such compliance and/or respond to such circumstances (the cost of
which actions will be an expense of the Trust Fund).
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 or FASIT elections have been made, the Master Servicer, on behalf of the
Trust Fund, will be required to sell the Mortgaged Property within two years of
acquisition, unless (i) the Internal Revenue Service grants an extension of
time to sell such property or (ii) the Trustee receives an opinion of
independent counsel to the effect that the holding of the property by the Trust
Fund subsequent to two years after its acquisition will not result in the
imposition of a tax on the Trust Fund or cause the Trust Fund (or designated
portion thereof) to fail to qualify as one or more REMICs or FASITs under the
Code at any time that any Certificate is outstanding. Subject to the foregoing,
the Master Servicer will be required to (i) 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 and (ii) accept the first (and, if multiple bids
are contemporaneously received, the highest) cash bid received from any person
that constitutes a fair price.
If the Trust Fund acquires title to any Mortgaged Property, the Master
Servicer, on behalf of the Trust Fund, may retain an independent contractor to
manage and operate such property. The retention of an independent contractor,
however, will not relieve the Master Servicer of any of its obligations with
respect to the management and operation of such Mortgaged Property. Unless
otherwise specified in the related Prospectus Supplement, any such property
acquired by the Trust Fund will be managed in a manner consistent with the
management and operation of similar property by a prudent lending institution.
The limitations imposed by the related Agreement and the REMIC or FASIT
provisions of the Code (if one or more REMIC or FASIT elections have been made
with respect to the related Trust Fund (or designated portion thereof) on the
operations and ownership of any Mortgaged Property acquired on behalf of the
Trust Fund may result in the recovery of an amount less than the amount that
would otherwise be recovered. See "Certain Legal Aspects of Mortgage
Loans-Foreclosure".
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If recovery on a defaulted Whole Loan under any related instrument of
Credit Support is not available, the Master Servicer nevertheless will be
obligated to follow or cause to be followed such normal practices and
procedures as it deems necessary or advisable to realize upon the defaulted
Whole Loan. If the proceeds of any liquidation of the property securing the
defaulted Whole Loan are less than the outstanding principal balance of the
defaulted Whole Loan plus interest accrued thereon at the Mortgage Rate plus
the aggregate amount of expenses incurred by the Master Servicer in connection
with such proceedings and which are reimbursable under the Agreement, the Trust
Fund will realize a loss in the amount of such difference. The Master Servicer
will be entitled to withdraw or cause to be withdrawn from the Certificate
Account out of the Liquidation Proceeds recovered on any defaulted Whole Loan,
prior to the distribution of such Liquidation Proceeds to Certificateholders,
amounts representing its normal servicing compensation on the Whole Loan,
unreimbursed servicing expenses incurred with respect to the Whole Loan and any
unreimbursed advances of delinquent payments made with respect to the Whole
Loan.
If any property securing a defaulted Whole Loan is damaged and proceeds,
if any, from the related hazard insurance policy are insufficient to restore
the damaged property to a condition sufficient to permit recovery under the
related instrument of Credit Support, if any, the Master Servicer is not
required to expend its own funds to restore the damaged property unless it
determines (i) that such restoration will increase the proceeds to
Certificateholders on liquidation of the Whole Loan after reimbursement of the
Master Servicer for its expenses and (ii) that such expenses will be
recoverable by it from related Insurance Proceeds or Liquidation Proceeds.
As servicer of the Whole Loans, a Master Servicer, on behalf of itself,
the Trustee and the Certificateholders, will present claims to the obligor
under each instrument of Credit Support, and will take such reasonable steps as
are necessary to receive payment or to permit recovery thereunder with respect
to defaulted Whole Loans.
If a Master Servicer or its designee recovers payments under any
instrument of Credit Support with respect to any defaulted Whole Loan, the
Master Servicer will be entitled to withdraw or cause to be withdrawn from the
Certificate Account out of such proceeds, prior to distribution thereof to
Certificateholders, amounts representing its normal servicing compensation on
such Whole Loan, unreimbursed servicing expenses incurred with respect to the
Whole Loan and any unreimbursed advances of delinquent payments made with
respect to the Whole Loan. See "--Hazard Insurance Policies" and "Description
of Credit Support".
HAZARD INSURANCE POLICIES
Unless otherwise specified in the related Prospectus Supplement, each
Agreement for a Trust Fund that includes Whole Loans will require the Master
Servicer to cause the mortgagor on each Whole Loan to maintain a hazard
insurance policy providing for such coverage as is required under the related
Mortgage or, if any Mortgage permits the holder thereof to dictate to the
mortgagor the insurance coverage to be maintained on the related Mortgaged
Property, then such coverage as is consistent with the Servicing Standard.
Unless otherwise specified in the related Prospectus Supplement, such coverage
will be in general in an amount equal to the lesser of the principal
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balance owing on such Whole Loan and the amount necessary to fully compensate
for any damage or loss to the improvements on the Mortgaged Property on a
replacement cost basis, but in either case not less than the amount necessary
to avoid the application of any co-insurance clause contained in the hazard
insurance policy. The ability of the Master Servicer to assure that hazard
insurance proceeds are appropriately applied may be dependent upon its being
named as an additional insured under any hazard insurance policy and under any
other insurance policy referred to below, or upon the extent to which
information in this regard is furnished by mortgagors. All amounts collected by
the Master Servicer under any such policy (except for amounts to be applied to
the restoration or repair of the Mortgaged Property or released to the
mortgagor in accordance with the Master Servicer's normal servicing procedures,
subject to the terms and conditions of the related Mortgage and Mortgage Note)
will be deposited in the Certificate Account. The Agreement will provide that
the Master Servicer may satisfy its obligation to cause each mortgagor to
maintain such a hazard insurance policy by the Master Servicer's maintaining a
blanket policy insuring against hazard losses on the Whole Loans. If such
blanket policy contains a deductible clause, the Master Servicer will be
required to deposit in the Certificate Account all sums that would have been
deposited therein but for such clause. Unless otherwise specified in the
related Prospectus Supplement, the Master Servicer will also be required to
maintain a fidelity bond and errors and omissions policy with respect to its
officers and employees that provides coverage against losses that may be
sustained as a result of an officer's or employee's misappropriation of funds,
errors and omissions or negligence, subject to certain limitations as to amount
of coverage, deductible amounts, conditions, exclusions and exceptions.
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 relating to the Whole Loans 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, the basic terms thereof are dictated by respective state laws, and
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), hurricanes,
tornadoes, wet or dry rot, vermin, domestic animals and certain other kinds of
uninsured risks.
The hazard insurance policies covering the Mortgaged Properties securing
the Whole Loans will typically contain a co-insurance clause that in effect
requires the 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 clause generally
provides 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.
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Each Agreement for a Trust Fund that includes Whole Loans will require the
Master Servicer to cause the mortgagor on each Whole Loan to maintain all such
other insurance coverage with respect to the related Mortgaged Property as is
consistent with the terms of the related Mortgage and the Servicing Standard,
which insurance may typically include flood insurance (if the related Mortgaged
Property was located at the time of origination in a federally designated flood
area) and business interruption or loss of rents insurance.
Under the terms of the Whole Loans, mortgagors will generally be required
to present claims to insurers under hazard insurance policies maintained on the
related Mortgaged Properties. The Master Servicer, on behalf of the Trustee and
Certificateholders, is obligated to present or cause to be presented claims
under any blanket insurance policy insuring against hazard losses on Mortgaged
Properties securing the Whole Loans. However, the ability of the Master
Servicer to present or cause to be presented such claims is dependent upon the
extent to which information in this regard is furnished to the Master Servicer
by mortgagors.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Whole Loans may contain clauses requiring the consent of
the mortgagee to any sale or other transfer of the related Mortgaged Property,
or due-on-sale clauses entitling the mortgagee to accelerate payment of the
Whole Loan upon any sale or other transfer of the related Mortgaged Property.
Certain of the Whole Loans may contain clauses requiring the consent of the
mortgagee to the creation of any other lien or encumbrance on the Mortgaged
Property or due-on-encumbrance clauses entitling the mortgagee to accelerate
payment of the Whole 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, on behalf of the Trust Fund, will
determine whether to exercise any right the Trustee may have as mortgagee to
accelerate payment of any such Whole Loan or to withhold its consent to any
transfer or further encumbrance in a manner consistent with the Servicing
Standard. Unless otherwise specified in the related Prospectus Supplement, any
fee collected by or on behalf of the Master Servicer for entering into an
assumption agreement will be retained by or on behalf of the Master Servicer as
additional servicing compensation. See "Certain Legal Aspects of Mortgage Loans
- - - Due-on-Sale and Due-on-Encumbrance".
RETAINED INTEREST; SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Prospectus Supplement for a series of Certificates will specify
whether there will be any Retained Interest in the Mortgage Assets, and, if so,
the owner thereof. If so, the Retained Interest will be established on a
loan-by-loan basis and will be specified on an exhibit to the related
Agreement. A "Retained Interest" in a Mortgage Asset represents a specified
portion of the interest payable thereon. The Retained Interest will be deducted
from mortgagor payments as received and will not be part of the related Trust
Fund.
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
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payment to it of a portion of the interest payment on each Whole Loan. Since
any Retained Interest and a Master Servicer's primary compensation are
percentages of the principal balance of each Mortgage Asset, such amounts will
decrease in accordance with the amortization of the Mortgage Loans underlying
or comprising such Mortgage Asset. The Prospectus Supplement with respect to a
series of Certificates evidencing interests in a Trust Fund that includes Whole
Loans may provide that, as additional compensation, the Master Servicer or the
Sub- Servicers may retain all or a portion of assumption fees, modification
fees, late payment charges or Prepayment Premiums collected from mortgagors and
any interest or other income which may be earned on funds held in the
Certificate Account or any Sub-Servicing 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,
to the extent provided in the related Prospectus Supplement, pay from its
servicing compensation certain expenses incurred in connection with its
servicing of the Mortgage Loans, including, without limitation, payment of the
fees and disbursements of the Trustee and independent accountants, payment of
expenses incurred in connection with distributions and reports to
Certificateholders, and payment of any other expenses described in the related
Prospectus Supplement. Certain other expenses, including certain expenses
relating to defaults and liquidations on the Mortgage Loans and, to the extent
so provided in the related Prospectus Supplement, interest thereon at the rate
specified therein, and the fees of any Special Servicer, may be borne by the
Trust Fund.
If and to the extent provided in the related Prospectus Supplement, the
Master Servicer may be required to apply a portion of the servicing
compensation otherwise payable to it in respect of any Due Period or Prepayment
Period, as applicable, to certain interest shortfalls resulting from the
voluntary prepayment of any Whole Loans in the related Trust Fund during such
period prior to their respective due dates therein.
EVIDENCE AS TO COMPLIANCE
Each Agreement relating to Mortgage Assets which include Whole Loans will
provide that on or before a specified date in each year, beginning with the
first such date at least six months after the related Cut-off Date, a firm of
independent public accountants will furnish a statement to the Trustee 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 (including
the related Agreement) was conducted 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. In rendering its statement such firm may rely, as to
matters relating to the direct servicing of mortgage loans by Sub-Servicers,
upon comparable statements for examinations conducted substantially in
compliance with the Uniform Single Audit Program for Mortgage Bankers or the
Audit Program for Mortgages serviced for
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FHLMC (rendered within one year of such statement) of firms of independent
public accountants with respect to the related Sub-Servicer.
Each such Agreement will also provide for delivery to the Trustee, on or
before a specified date in each year, of an annual statement signed by two
officers of the Master Servicer to the effect that the Master Servicer has
fulfilled its obligations under the Agreement throughout the preceding calendar
year or other specified twelve month period.
Unless otherwise provided in the related Prospectus Supplement, copies of
the annual accountants' statement and the statement of officers of a Master
Servicer will be obtainable by Certificateholders without charge upon written
request to the Master Servicer at the address set forth in the related
Prospectus Supplement.
CERTAIN MATTERS REGARDING A MASTER SERVICER AND THE DEPOSITOR
The Master Servicer, if any, under each Agreement will be named in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, the related Agreement will provide that the Master
Servicer may resign from its obligations and duties thereunder only upon a
determination that its duties under the Agreement 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, the other activities of the Master
Servicer so causing such a conflict being of a type and nature carried on by
the Master Servicer at the date of the Agreement. No such resignation will
become effective until the Trustee or a successor servicer has assumed the
Master Servicer's obligations and duties under the Agreement.
Unless otherwise specified in the related Prospectus Supplement, each
Agreement will further provide that neither any Master Servicer, the Depositor
nor any director, officer, employee, or agent of a Master Servicer or the
Depositor will be under any liability to the related Trust Fund or
Certificateholders for any action taken, or for refraining from the taking of
any action, in good faith pursuant to the Agreement; provided, however, that
neither a Master Servicer, the Depositor nor any such person will be protected
against any breach of a representation, warranty or covenant made in such
Agreement, or against any liability specifically imposed thereby, or against
any liability which 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 obligations and duties
thereunder. Unless otherwise specified in the related Prospectus Supplement,
each Agreement will further provide that any Master Servicer, the Depositor and
any director, officer, employee or agent of a Master Servicer or the Depositor
will be entitled to indemnification by the related Trust Fund and will be held
harmless against any loss, liability or expense incurred in connection with any
legal action relating to the Agreement or the Certificates; provided, however,
that such indemnification will not extend to any loss, liability or expense (i)
specifically imposed by such Agreement or otherwise incidental to the
performance of obligations and duties thereunder, including, in the case of a
Master Servicer, the prosecution of an enforcement action in respect of any
specific Whole Loan or Whole Loans (except as any such loss, liability or
expense shall be otherwise reimbursable pursuant to such Agreement); (ii)
incurred in connection
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with any breach of a representation, warranty or covenant made in such
Agreement; (iii) incurred by reason of misfeasance, bad faith or negligence in
the performance of obligations or duties thereunder, 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
Agreement will provide that neither any Master Servicer nor the Depositor will
be under any obligation to appear in, prosecute or defend any legal action
which is not incidental to its respective responsibilities under the Agreement
and which in its opinion may involve it in any expense or liability. Any such
Master Servicer or the Depositor may, however, in its discretion undertake any
such action which it may deem necessary or desirable with respect to the
Agreement and the rights and duties of the parties thereto and the interests of
the Certificateholders thereunder. In such event, the legal expenses and costs
of such action and any liability resulting therefrom will be expenses, costs
and liabilities of the Certificateholders, and the Master Servicer or the
Depositor, as the case may be, will be entitled to be reimbursed therefor and
to charge the Certificate Account.
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
Agreement.
EVENTS OF DEFAULT
Unless otherwise provided in the related Prospectus Supplement for a Trust
Fund that includes Whole Loans, Events of Default under the related Agreement
will include (i) any failure by the Master Servicer to distribute or cause to
be distributed to Certificateholders, or to remit to the Trustee for
distribution to Certificateholders, any required payment that continues
unremedied for five days; (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 Agreement which continues unremedied for thirty days
after written notice of such failure has been given to the Master Servicer by
the Trustee or the Depositor, or to the Master Servicer, the Depositor and the
Trustee by the holders of Certificates evidencing not less than 25% of the
Voting Rights; (iii) any breach of a representation or warranty made by the
Master Servicer under the Agreement which materially and adversely affects the
interests of Certificateholders and which continues unremedied for thirty days
after written notice of such breach has been given to the Master Servicer by
the Trustee or the Depositor, or to the Master Servicer, the Depositor and the
Trustee by the holders of Certificates evidencing not less than 25% of the
Voting Rights; and (iv) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings 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 shorten cure periods or eliminate notice
requirements) will be specified in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, the Trustee shall,
not later than the later of 60 days after the occurrence of any event which
constitutes or, with notice or lapse of time or both, would constitute an Event
of Default and five days after certain officers of the Trustee become aware of
the occurrence of such
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an event, transmit by mail to the Depositor and all Certificateholders of, the
applicable series notice of such occurrence, unless such default shall have
been cured or waived.
RIGHTS UPON EVENT OF DEFAULT
Unless otherwise provided in the related Prospectus Supplement for a Trust
Fund, so long as an Event of Default under an Agreement remains unremedied, the
Depositor or the Trustee may, and at the direction of holders of Certificates
evidencing not less than 51% of the ,Voting Rights, the Trustee shall,
terminate all of the rights and obligations of the Master Servicer under the
Agreement and in and to the Mortgage Loans (other than as a Certificateholder
or as the owner of any Retained Interest), whereupon the Trustee will succeed
to all of the responsibilities, duties and liabilities of the Master Servicer
under the Agreement (except that if the Trustee is prohibited by law from
obligating itself to make advances regarding delinquent mortgage loans, or if
the related Prospectus Supplement so specifies, then 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,
in the event that the Trustee is unwilling or unable so to act, it may or, at
the written request of the holders of Certificates entitled to at least 51% of
the Voting Rights, it shall appoint, or petition a court of competent
jurisdiction for the appointment of, a loan servicing institution acceptable to
the Rating Agency with a net worth at the time of such appointment of at least
$15,000,000 to act as successor to the Master Servicer under the Agreement.
Pending such appointment, the Trustee is obligated to act in such capacity. The
Trustee and any such successor may agree upon the servicing compensation to be
paid, which in no event may be greater than the compensation payable to the
Master Servicer under the Agreement.
Unless otherwise described in the related Prospectus Supplement, the
holders of Certificates representing at least 66 2/3% of the Voting Rights
allocated to the respective Classes of Certificates affected by any Event of
Default will be entitled to waive such Event of Default; provided, however,
that an Event of Default described in clause (i) under "--Events of Default"
may be waived only by all of the Certificateholders. Upon any such waiver of an
Event of Default, such Event of Default shall cease to exist and shall be
deemed to have been remedied for every purpose under the Agreement.
No Certificateholder will have the right under any Agreement to institute
any proceeding with respect thereto unless such holder previously has given to
the Trustee written notice of default and unless the holders of Certificates
evidencing not less than 25% of the Voting Rights 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 sixty days has neglected or refused to institute any such
proceeding. The Trustee, however, is under no obligation to exercise any of the
trusts or powers vested in it by any 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 covered by such Agreement, 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.
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AMENDMENT
Each Agreement may be amended by the Depositor, the Master Servicer, if
any, and the Trustee, without the consent of any of the holders of Certificates
covered by the Agreement, (i) to cure any ambiguity, (ii) to correct, modify or
supplement any provision therein which may be inconsistent with any other
provision therein, (iii) to make any other provisions with respect to matters
or questions arising under the Agreement which are not inconsistent with the
provisions thereof, or (iv) to comply with any requirements imposed by the
Code; provided that such amendment (other than an amendment for the purpose
specified in clause (iv) above) will not (as evidenced by an opinion of counsel
to such effect) adversely affect in any material respect the interests of any
holder of Certificates covered by the Agreement. Unless otherwise specified in
the related Prospectus Supplement, each Agreement may also be amended by the
Depositor, the Master Servicer, if any, and the Trustee, with the consent of
the holders of Certificates evidencing not less than 51% of the Voting Rights
(or such other percentage of Voting Rights that is specified in the related
Prospectus Supplement for a Trust Fund), for any purpose; provided, however,
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 which are required to be
distributed on 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
(i), without the consent of the holders of all Certificates of such Class or
(iii) modify the provisions of such Agreement described in this paragraph
without the consent of the holders of all Certificates covered by such
Agreement then outstanding. However, with respect to any series of Certificates
as to which one or more REMIC or FASIT elections are to be made, the Trustee
will not consent to any amendment of the Agreement unless it 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 one or
more REMICs or FASITs at any time that the related Certificates are
outstanding.
LIST OF CERTIFICATEHOLDERS
Upon written request of any Certificateholder of record of a series of
Certificates, for purposes of communicating with other Certificateholders with
respect to their rights under the Agreement for such series, the Trustee will
afford such Certificateholder access during business hours to the most recent
list of Certificateholders of that series held by the Trustee.
THE TRUSTEE
The Trustee under each Agreement will be named in the related Prospectus
Supplement. The commercial bank, national banking association, banking
corporation or trust company serving as Trustee may have typical banking
relationships with the Depositor and its affiliates and with any Master
Servicer and its affiliates.
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DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or sufficiency
of any Agreement, the Certificates or any Mortgage Loan or related document and
is not accountable for the use or application by or on behalf of any Master
Servicer of any funds paid to the Master Servicer or its designee or any
Special Servicer in respect of the Certificates or the Mortgage Loans, or
deposited into or withdrawn from the Certificate Account or any other account
by or on behalf of the Master Servicer or any Special Servicer. If no Event of
Default has occurred and is continuing, the Trustee is required to perform only
those duties specifically required under the related Agreement. However, upon
receipt of the various certificates, reports or other instruments required to
be furnished to it, the Trustee is required to examine such documents and to
determine whether they conform to the requirements of the Agreement.
CERTAIN MATTERS REGARDING THE TRUSTEE
Unless otherwise specified in the related Prospectus Supplement, the
Trustee and any director, officer, employee or agent of the Trustee shall be
entitled to indemnification out of the Certificate Account for any loss,
liability or expense (including costs and expenses of litigation, and of
investigation, counsel fees, damages, judgments and amounts paid in settlement)
incurred in connection with the Trustee's (i) enforcing its rights and remedies
and protecting the interests, and enforcing the rights and remedies, of the
Certificateholders during the continuance of an Event of Default, (ii)
defending or prosecuting any legal action in respect of the related Agreement
or series of Certificates, (iii) being the mortgagee of record with respect to
the Mortgage Loans in a Trust Fund and the owner of record with respect to any
Mortgaged Property acquired in respect thereof for the benefit of
Certificateholders, or (iv) acting or refraining from acting in good faith at
the direction of the holders of the related series of Certificates entitled to
not less than 25% (or such higher percentage as is specified in the related
Agreement with respect to any particular matter) of the Voting Rights for such
series; provided, however, that such indemnification will not extend to any
loss, liability or expense that constitutes a specific liability of the Trustee
pursuant to the related Agreement, or to any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or 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.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The Trustee may at any time resign from its obligations and duties under
an Agreement by giving written notice thereof to the Depositor, the Master
Servicer, if any, and all Certificateholders. Upon receiving such notice of
resignation, the Depositor is required promptly to appoint a successor trustee
acceptable to the Master Servicer, if any. If no successor trustee shall have
been so appointed and have accepted appointment within 30 days after the giving
of such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible to continue as such
under the related Agreement, or if at any time the Trustee shall become
incapable of acting, or shall be
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adjudged bankrupt or insolvent, or a receiver of the Trustee or of its property
shall be appointed, or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Depositor may remove the Trustee and
appoint a successor trustee acceptable to the Master Servicer, if any. Unless
otherwise provided in the related Prospectus Supplement for a Trust Fund,
Holders of the Certificates of any series entitled to at least 51% of the
Voting Rights for such series may at any time remove the Trustee without cause
and appoint a successor trustee.
Any resignation or removal of the Trustee and appointment of a successor
trustee shall not become effective until acceptance of appointment by the
successor trustee.
DESCRIPTION OF CREDIT SUPPORT
GENERAL
For any series of Certificates, Credit Support may be provided with
respect to one or more Classes thereof or the related Mortgage Assets. Credit
Support may be in the form of the subordination of one or more Classes of
Certificates, letters of credit, insurance policies, guarantees, the
establishment of one or more reserve funds or another method of Credit Support
described in the related Prospectus Supplement, or any combination of the
foregoing. If so provided in the related Prospectus Supplement, any form of
Credit Support may be structured so as to be drawn upon by more than one series
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 repayment of the entire Certificate
Balance of the Certificates and interest thereon. If losses or shortfalls occur
that exceed the amount covered by Credit Support or that are not covered by
Credit Support, Certificateholders will bear their allocable share of
deficiencies. Moreover, if a form of Credit Support covers more than one series
of Certificates (each, a "Covered Trust"), holders of Certificates evidencing
interests in any of such Covered Trusts will be subject to the risk that such
Credit Support will be exhausted by the claims of other Covered Trusts prior to
such Covered Trust ,receiving any of its intended share of such coverage.
If Credit Support is provided with respect to one or more Classes of
Certificates of a series, or the related Mortgage Assets, the related
Prospectus Supplement will include a description of (a) the nature and amount
of coverage under such Credit Support, (b) any conditions to payment thereunder
not otherwise described herein, (c) 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 (d) 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 and (iii) if applicable, the identity of
regulatory agencies that
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exercise primary jurisdiction over the conduct of its business. 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 of principal and interest
from the Certificate Account on any Distribution Date will be subordinated to
such 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 amount
of subordination of a Class or Classes of Subordinate Certificates in a series,
the circumstances in which such subordination will be applicable and the
manner, if any, in which the amount of subordination will be effected. If one
or more Classes of Subordinate Certificates of a series are Offered
Certificates, the related Prospectus Supplement will provide information as to
the sensitivity of distributions on such Certificates based on certain default
assumptions.
CROSS-SUPPORT PROVISIONS
If the Mortgage Assets for a series are divided into separate groups, each
supporting a separate Class or Classes of Certificates of a 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 THE WHOLE LOANS
If so provided in the Prospectus Supplement for a series of Certificates,
the Whole Loans constituting Mortgage Assets in the related Trust Fund will be
covered for various default risks by insurance policies or guarantees. A copy
of any such material instrument for a series will be filed with the Commission
as an exhibit to a Current Report on Form 8-K to be filed 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
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balance of the Mortgage Assets on the related Cut-off Date or of the initial
aggregate Certificate Principal Balance of one or more Classes of Certificates.
If so specified in the related Prospectus Supplement, the letter of credit may
permit draws in the event of only 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 for a series
will be filed with the Commission as an exhibit to a Current Report on Form 8-K
to be filed within 15 days of issuance of the Certificates of the related
series.
INSURANCE POLICIES 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. A copy
of any such instrument for a series will be filed with the Commission as an
exhibit to a 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 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 so specified in such Prospectus Supplement.
The reserve funds for a series may also be funded over time by depositing
therein a specified amount of the distributions received on the related
Mortgage Assets as specified in the related Prospectus Supplement.
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. A
reserve fund may be provided to increase the likelihood of timely distributions
of principal of and interest on the Certificates. If so specified in the
related Prospectus Supplement, reserve funds may be established to provide
limited protection against only 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 and will not be available for further application to the
Certificates.
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Moneys deposited in any Reserve Funds will be invested in Permitted
investments, except as otherwise specified in the related Prospectus
Supplement. 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. 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.
Additional information concerning any Reserve Fund will be set forth in
the related Prospectus Supplement, including the initial balance of such
Reserve Fund, the balance required to be maintained in the Reserve Fund, the
manner in which such required balance will decrease over time, the manner of
funding such Reserve Fund, the purposes for which funds in the Reserve Fund may
be applied to make distributions to Certificateholders and use of investment
earnings from the Reserve Fund, if any.
CREDIT SUPPORT WITH RESPECT TO MBS
If so provided in the Prospectus Supplement for a series of Certificates,
the MBS constituting Mortgage Assets in the related Trust Fund and/or the
Mortgage Loans underlying such MBS 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
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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 re-cordation of the
mortgage in the appropriate public recording office. However, the lien of a
recorded mortgage will generally be subordinate to later-arising liens for real
estate taxes and assessments and other charges imposed under governmental
police powers.
TYPES OF MORTGAGE INSTRUMENTS
There are two parties to a mortgage: a mortgagor (the borrower and usually
the owner of the subject property) and a mortgagee (the lender). In contrast, a
deed of trust is a three-party instrument, among a trustor (the equivalent of a
borrower), a trustee to whom the real property is conveyed, and a beneficiary
(the lender) for whose benefit the conveyance is made. Under a deed of trust,
the trustor grants the property, irrevocably until the debt is paid, in trust
and generally with a power of sale, to the trustee to secure repayment of the
indebtedness evidenced by the related note. A deed to secure debt typically has
two parties. The grantor (the borrower) conveys title to the real property to
the grantee (the lender) generally with a power of sale, until such time as the
debt is repaid. In a case where the borrower is a land trust, there would be an
additional party because legal title to the property is held by a land trustee
under a land trust agreement for the benefit of the borrower. At origination of
a mortgage loan involving a land trust, the borrower executes a separate
undertaking to make payments on the related note. The mortgagee's authority
under a mortgage, the trustee's authority under a deed of trust and the
grantee's authority under a deed to secure debt are governed by the express
provisions of the related instrument, the law of the state in which the real
property is located, certain federal laws (including, without limitation, the
Soldiers' and Sailors' Civil Relief Act of 1940, as amended) and, in some deed
of trust transactions, the directions of the beneficiary.
LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases, pursuant to which the borrower assigns to the
lender the borrower's right, title and interest as landlord under each lease
and the income derived therefrom, while (unless rents are to be paid directly
to the lender) retaining a revocable license to collect the rents for so long
as there is no default. If the borrower defaults, the license terminates and
the lender is entitled to collect the rents. Local law may require that the
lender take possession of the property and/or obtain a court-appointed receiver
before becoming entitled to collect the rents.
In most states, hotel and motel room revenues are considered accounts
receivable under the Uniform Commercial Code ("UCC"); in cases where hotels or
motels constitute loan security, the revenues are generally pledged by the
borrower as additional security for the loan. In general, the lender must file
financing statements in order to perfect its security interest in the revenues
and must file continuation statements, generally every five years, to maintain
perfection of such security interest. Even if the lender's security interest in
room revenues is perfected under
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the UCC, it may be required to commence a foreclosure action or otherwise take
possession of the property in order to collect the room revenues following a
default. See "-Bankruptcy Laws".
PERSONALTY
In the case of certain types of mortgaged properties, such as hotels,
motels and nursing homes, personal property (to the extent owned by the
borrower and not previously pledged) may constitute a significant portion of
the property's value as security. The creation and enforcement of liens on
personal property are governed by the UCC. Accordingly, if a borrower pledges
personal property as security for a mortgage loan, the lender generally must
file UCC financing statements in order to perfect its security interest
therein, and must file continuation statements, generally every five years, to
maintain that perfection.
FORECLOSURE
General. Foreclosure is a legal procedure that allows the lender to
recover its mortgage debt by enforcing its rights and available legal remedies
under the mortgage. If the borrower defaults in payment or performance of its
obligations under the note or mortgage, the lender has the right to institute
foreclosure proceedings to sell the real property at public auction to satisfy
the indebtedness.
Foreclosure procedures vary from state to state. Two primary methods of
foreclosing a mortgage are judicial foreclosure, involving court proceedings,
and non-judicial foreclosure pursuant to a power of sale granted in the
mortgage instrument. Other foreclosure procedures are available in some states,
but they are either infrequently used or available only in limited
circumstances.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses are raised or counterclaims are interposed, and
sometimes requires several years to complete. Moreover, as discussed below,
even a non-collusive, regularly conducted foreclosure sale may be challenged as
a fraudulent conveyance, regardless of the parties' intent, if a court
determines that the sale was for less than fair consideration and such sale
occurred while the borrower was insolvent and within a specified period prior
to the borrower's filing for bankruptcy protection.
Judicial Foreclosure. A judicial foreclosure proceeding is conducted in a
court having jurisdiction over the mortgaged property. Generally, the action is
initiated by the service of legal pleadings upon all parties having a
subordinate interest of record in the real property and all parties in
possession of the property, under leases or otherwise, whose interests are
subordinate to the mortgage. Delays in completion of the foreclosure may
occasionally result from difficulties in locating defendants. When the lender's
right to foreclose is contested, the legal proceedings can be time-consuming.
Upon successful completion of a judicial foreclosure proceeding, the court
generally issues a judgment of foreclosure and appoints a referee or other
officer to conduct a public sale of the mortgaged property, the proceeds of
which are used to satisfy the judgment. Such sales are made in accordance with
procedures that vary from state to state.
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Equitable Limitations on Enforceability of Certain Provisions. United
States courts have traditionally imposed general equitable principles to limit
the remedies available to lenders in foreclosure actions. These principles are
generally designed to relieve borrowers from the effects of mortgage defaults
perceived as harsh or unfair. Relying on such principles, a court may alter the
specific terms of a loan to the extent it considers necessary to prevent or
remedy an injustice, undue oppression or overreaching, or may require the
lender to undertake affirmative actions to determine the cause of the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
that of the lenders and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from a
temporary financial disability. In other cases, courts have limited the right
of the lender to foreclose in the case of a non-monetary default, such as a
failure to adequately maintain the mortgaged property or an impermissible
further encumbrance of the mortgaged property. Finally, some courts have
addressed the issue of whether federal or state constitutional provisions
reflecting due process concerns for adequate notice require that a borrower
receive notice in addition to statutorily-prescribed minimum notice. For the
most part, these cases have upheld the reasonableness of the notice provisions
or have found that a public sale under a mortgage providing for a power of sale
does not involve sufficient state action to trigger constitutional protections.
Non-Judicial Foreclosure/Power of Sale. Foreclosure of a deed of trust is
generally accomplished by a non-judicial trustee's sale pursuant to a power of
sale typically granted in the deed of trust. A power of sale may also be
contained in any other type of mortgage instrument if applicable law so
permits. A power of sale under a deed of trust allows a non-judicial public
sale to be conducted generally following a request from the beneficiary/lender
to the trustee to sell the property upon default by the borrower and after
notice of sale is given in accordance with the terms of the mortgage and
applicable state law. In some states, prior to such sale, the trustee under the
deed of trust must record a notice of default and notice of sale and send a
copy to the borrower and to any other party who has recorded a request for a
copy of a notice of default and notice of sale. In addition, in some states the
trustee must provide notice to any other party having an interest of record in
the real property, including junior lienholders. A notice of sale must be
posted in a public place and, in most states, published for a specified period
of time in one or more newspapers. The borrower or junior lienholder may then
have the right, during a reinstatement period required in some states, to cure
the default by paying the entire actual amount in arrears (without regard to
the acceleration of the indebtedness), plus the lender's expenses incurred in
enforcing the obligation. In other states, the borrower or the junior
lienholder is not provided a period to reinstate the loan, but has only the
right to pay off the entire debt to prevent the foreclosure sale. Generally,
state law governs the procedure for public sale, the parties entitled to
notice, the method of giving notice and the applicable time periods.
Public Sale. A third party may be unwilling to purchase a Mortgaged
Property at a public sale because of the difficulty in determining the value of
such property at the time of sale, due to, among other things, redemption
rights which may exist and the possibility of physical deterioration of the
property during the foreclosure proceedings. Potential buyers may be reluctant
to purchase property at a foreclosure sale as a result of the 1980 decision of
the United States Court of Appeals for the Fifth Circuit in Durrett v.
Washington National Insurance Company and other
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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
property. For example, the lender will have the obligation to pay debt service
on any senior mortgages, to pay taxes, obtain casualty insurance and to make
such repairs at its own expense as are necessary to render the property
suitable for sale. Frequently, the lender employs a third party management
company to manage and operate the property. The costs of operating and
maintaining a commercial or multifamily residential property may be significant
and may be greater than the income derived from that property. The costs of
management and operation of those mortgaged properties which are hotels, motels
or nursing or convalescent homes or hospitals may be particularly significant
because of the expertise, knowledge and, with respect to nursing or
convalescent homes or hospitals, regulatory compliance, required to run such
operations and the effect which foreclosure and a change in ownership may have
on the public's and the industry's (including franchisors') perception of the
quality of such operations. The lender will commonly obtain the services of a
real estate broker and pay the broker's commission in connection with the sale
of the property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the amount of the mortgage against the
property. Moreover, a lender commonly incurs substantial legal fees and court
costs in acquiring a mortgaged property through contested foreclosure and/or
bankruptcy proceedings. Furthermore, a few states require that any
environmental contamination at certain types of properties be cleaned up before
a property may be resold. In addition, a lender may be responsible under
federal or state law for the cost of cleaning up a mortgaged property that is
environmentally contaminated. See "-Environmental Risks". Generally state law
controls the amount of foreclosure expenses and costs, including attorneys'
fees, that may be recovered by a lender.
The holder of a junior mortgage that forecloses on a mortgaged property
does so subject to senior mortgages and any other prior liens, and may be
obliged to keep senior mortgage loans current in order to avoid foreclosure of
its interest in the property. In addition, if the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause contained in a
senior mortgage, the junior mortgagee could be required to pay the full amount
of the senior mortgage indebtedness or face foreclosure.
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The proceeds received by the referee or trustee from a foreclosure sale
are generally applied first to the costs, fees and expenses of sale and then in
satisfaction of the indebtedness secured by the mortgage under which the sale
was conducted. Any proceeds remaining after satisfaction of senior mortgage
debt are generally payable to the holders of junior mortgages and other liens
and claims in order of their priority, whether or not the borrower is in
default. Any additional proceeds are generally payable to the borrower. The
payment of the proceeds to the holders of junior mortgages may occur in the
foreclosure action of the senior mortgage or a subsequent ancillary proceeding
or may require the institution of separate legal proceedings by such holders.
Rights of Redemption. The purposes of a foreclosure action are to enable
the lender to realize upon its security and to bar the borrower, and all
persons who have interests in the property that are subordinate to that of the
foreclosing lender, from exercise of their "equity of redemption". The doctrine
of equity of redemption provides that, until the property encumbered by a
mortgage has been sold in accordance with a properly conducted foreclosure and
foreclosure sale, those having interests that are subordinate to that of the
foreclosing lender have an equity of redemption and may redeem the property by
paying the entire debt with interest. Those having an equity of redemption must
generally be made parties and joined in the foreclosure proceeding in order for
their equity of redemption to be terminated.
The equity of redemption is a common-law (non-statutory) right which
should be distinguished from post-sale statutory rights of redemption. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage,
the borrower and foreclosed junior lienors are given a statutory period in
which to redeem the property. In some states, statutory redemption may occur
only upon payment of the foreclosure sale price. In other states, redemption
may be permitted if the former borrower pays only a portion of the sums due.
The effect of a statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed property because the exercise of a right of
redemption would defeat the title of any purchaser through a foreclosure.
Consequently, the practical effect of the redemption right is to 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.
Under the REMIC Provisions currently in effect, property acquired by
foreclosure generally must not be held for more than two years. Unless
otherwise provided in the related Prospectus Supplement, with respect to a
series of Certificates for which an election is made to qualify the Trust Fund
or a portion thereof as a REMIC, the Agreement will permit foreclosed property
to be held for more than two years if the Internal Revenue Service grants an
extension of time within which to sell such property or independent counsel
renders an opinion to the effect that holding such property for such additional
period is permissible under the REMIC Provisions.
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
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loan by its terms provides for recourse to the borrower's other assets, a
lender's ability to realize upon those assets may be limited by state law. For
example, in some states a lender cannot obtain a deficiency judgment against
the borrower following foreclosure or sale under a deed of trust. A deficiency
judgment is a personal judgment against the former borrower equal to the
difference between the net amount realized upon the public sale of the real
property and the amount due to the lender. Other statutes may require the
lender to exhaust the security afforded under a mortgage before bringing a
personal action against the borrower. In certain other states, the lender has
the option of bringing a personal action against the borrower on the debt
without first exhausting such security; however, in some of those states, the
lender, following judgment on such personal action, may be deemed to have
elected a remedy and thus may be precluded from foreclosing upon the security.
Consequently, lenders in those states where such an election of remedy
provision exists will usually proceed first against the security. Finally,
other statutory provisions, designed to protect borrowers from exposure to
large deficiency judgments that might result from bidding at below-market
values at the foreclosure sale, limit any deficiency judgment to the excess of
the outstanding debt over the fair market value of the property at the time of
the sale.
LEASEHOLD RISKS
Mortgage Loans may be secured by a mortgage on the borrower's leasehold
interest in a ground lease. Leasehold mortgage loans are subject to certain
risks not associated with mortgage loans secured by a lien on the fee estate of
the borrower. The most significant of these risks is that if the borrower's
leasehold were to be terminated upon a lease default, the leasehold mortgagee
would lose its security. This risk may be lessened if the ground lease requires
the lessor to give the leasehold mortgagee notices of lessee defaults and an
opportunity to cure them, permits the leasehold estate to be assigned to and by
the leasehold mortgagee or the purchaser at a foreclosure sale, and contains
certain other protective provisions typically included in a "mortgageable"
ground lease. The ground leases that secure the Mortgage Loans at issue may not
contain some of these protective provisions, and the related mortgages may not
contain the other protections discussed in the next paragraph. Protective
ground lease provisions include the right of the leasehold mortgagee to receive
notices from the ground lessor of any defaults by the borrower under the ground
lease; the right to cure such defaults, with adequate cure periods; if a
default is not susceptible of cure by the leasehold mortgagee, the right to
acquire the leasehold estate through foreclosure or otherwise; the ability of
the ground lease to be assigned to and by the leasehold mortgagee or purchaser
at a foreclosure sale and for the concomitant release of the ground lessee's
liabilities thereunder; and the right of the leasehold mortgagee to enter into
a new ground lease with the ground lessor on the same terms and conditions as
the old ground lease in the event of a termination of the ground lease.
In addition to the foregoing protections, a leasehold mortgagee may
prohibit the ground lessee from treating the ground lease as terminated in the
event of the ground lessor's bankruptcy and rejection of the ground lease in
the lessor's bankruptcy case. As further protection, a leasehold mortgage may
provide for the assignment of the debtor-ground lessee's right to reject the
lease in a ground lessee bankruptcy case, although the enforceability of such a
provision has not been established. Without the protections described in this
and the foregoing paragraph, a leasehold mortgagee may be more likely to lose
the collateral securing its leasehold mortgage. In addition, the
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terms and conditions of a leasehold mortgage are subject to the terms and
conditions of the ground lease. Although certain rights given to a ground
lessee can be limited by the terms of a leasehold mortgage, the rights of a
ground lessee or a leasehold mortgagee with respect to, among other things,
insurance, casualty and condemnation proceeds will ordinarily be governed by
the provisions of the ground lease, unless otherwise agreed to by the ground
lessee and leasehold mortgagee.
COOPERATIVE SHARES
Mortgage Loans may be secured by a security interest on the borrower's
ownership interest in shares, and the proprietary leases appurtenant thereto,
allocable to cooperative dwelling units that may be vacant or occupied by
non-owner tenants. Such loans are subject to certain risks not associated with
mortgage loans secured by a lien on the fee estate of a borrower in real
property. Such a loan typically is subordinate to the mortgage, if any, on the
Cooperative's building which, if foreclosed, could extinguish the equity in the
building and the proprietary leases of the dwelling units derived from
ownership of the shares of the Cooperative. Further, transfer of shares in a
Cooperative are subject to various regulations as well as to restrictions under
the governing documents of the Cooperative, and the shares may be cancelled in
the event that associated maintenance charges due under the related proprietary
leases are not paid. Typically, a recognition agreement between the lender and
the Cooperative provides, among other things, the lender with an opportunity to
cure a default under a proprietary lease.
Under the laws applicable in many states, "foreclosure" on Cooperative
shares is accomplished by a sale in accordance with the provisions of Article 9
of the UCC and the security agreement relating to the shares. Article 9 of the
UCC requires that a sale be conducted in a "commercially reasonable" manner,
which may be dependent upon, among other things, the notice given the debtor
and the method, manner, time, place and terms of the sale. Article 9 of the UCC
provides that the proceeds of the sale will be applied first to pay the costs
and expenses of the sale and then to satisfy the indebtedness secured by the
lender's security interest. A recognition agreement, however, generally
provides that the lender's right to reimbursement is subject to the right of
the Cooperative to receive sums due under the proprietary leases. If, following
payment to the lender, there are proceeds remaining, the lender must account to
the tenant-stockholder for the surplus. Conversely, if a portion of the
indebtedness remains unpaid, the tenant-stockholder may be responsible for the
deficiency. See "--Anti-Deficiency Legislation".
BANKRUPTCY LAWS
Operation of the Bankruptcy Code and related state laws may interfere with
or affect the ability of a secured lender to realize upon collateral and/or to
enforce a deficiency judgment. For example, under the Bankruptcy Code,
virtually all actions (including foreclosure actions and deficiency judgment
proceedings) to collect a debt are automatically stayed upon the filing of the
bankruptcy petition and, often, no interest or principal payments are made
during the course of the bankruptcy case. The delay and the consequences
thereof caused by such automatic stay can be significant. Also, under the
Bankruptcy Code, the filing of a petition in bankruptcy by or on behalf of a
junior lienor may stay the senior lender from taking action to foreclose out
such junior lien.
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Under the Bankruptcy Code, provided certain substantive and procedural
safeguards protective of the lender are met, the amount and terms of a mortgage
loan secured by a lien on property of the debtor may be modified. For example,
the lender's lien may be transferred to other collateral and/or the outstanding
amount of the secured loan may be reduced to the then-current value of the
property (with a corresponding partial reduction of the amount of the lender's
security interest) pursuant to a confirmed plan or lien avoidance proceeding,
thus leaving the lender a general unsecured creditor for the difference between
such value and the outstanding balance of the loan. Other modifications may
include the reduction in the amount of each scheduled payment, by means of a
reduction in the rate of interest and/or an alteration of the repayment
schedule (with or without affecting the unpaid principal balance of the loan),
and/or by an extension (or shortening) of the term to maturity. The priority of
a mortgage loan may also be subordinated to bankruptcy court-approved
financing. Some bankruptcy courts have approved plans, based on the particular
facts of the reorganization case, that effected the cure of a mortgage loan
default by paying arrearages over a number of years. Also, a bankruptcy court
may permit a debtor, through its rehabilitative plan, to reinstate a loan
mortgage payment schedule even if the lender has obtained a final judgment of
foreclosure prior to the filing of the debtor's petition.
The bankruptcy court can also reinstate accelerated indebtedness and also,
in effect, invalidate due-on-sale clauses through confirmed Chapter 11 plans of
reorganization. Under Section 363(b) and (f) of the Bankruptcy Code, a trustee
for a lessor, or a lessor as debtor-in-possession, may, despite the provisions
of the related Mortgage Loan to the contrary, sell the Mortgaged Property free
and clear of all liens, which liens would then attach to the proceeds of such
sale.
The Bankruptcy Code provides that a lender's perfected pre-petition
security interest in leases, rents and hotel revenues continues in the
post-petition leases, rents and hotel revenues, unless a bankruptcy court
orders to the contrary "based on the equities of the case." Thus, unless a
court orders otherwise, revenues from a Mortgaged Property generated after the
date the bankruptcy petition is filed will constitute "cash collateral" under
the Bankruptcy Code. Debtors may only use cash collateral upon obtaining the
lender's consent or a prior court order finding that the lender's interest in
the Mortgaged Properties and the cash collateral is "adequately protected" and
such term is defined and interpreted under the Bankruptcy Code. It should be
noted, however, that the court may find that the lender has no security
interest in either pre-petition or post-petition revenues if the court finds
that the loan documents do not contain language covering accounts, room rents,
or other forms of personalty necessary for a security interest to attach to
hotel revenues.
Lessee bankruptcies at the Mortgaged Properties could have an adverse
impact on the borrowers' ability to meet their obligations. For example,
Section 365(e) of the Bankruptcy Code provides generally that rights and
obligations under an unexpired lease may not be terminated or modified at any
time after the commencement of a case under the Bankruptcy Code solely because
of a provision in the lease conditioned upon the commencement of a case under
the Bankruptcy Code or certain other similar events. In addition, Section 362
of the Bankruptcy Code operates as an automatic stay of, among other things,
any act to obtain possession of property of or from a debtor's estate, which
may delay the borrower's exercise of such remedies in the event that a lessee
becomes the subject of a proceeding under the Bankruptcy Code.
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Section 365(a) of the Bankruptcy Code generally provides that a trustee or
a debtor-in-possession in a case under the Bankruptcy Code has the power to
assume or to reject an executory contract or an unexpired lease of the debtor,
in each case subject to the approval of the bankruptcy court administering such
case. If the trustee or debtor-in-possession rejects an executory contract or
an unexpired lease, such rejection generally constitutes a breach of the
executory contract or unexpired lease immediately before the date of the filing
of the petition. As a consequence, the other party or parties to such executory
contract or unexpired lease, such as the lessor or borrower, as lessor under a
lease, would have only an unsecured claim against the debtor for damages
resulting from such breach, which could adversely affect the security for the
related Mortgage Loan. Moreover, under Section 502(b)(6) of the Bankruptcy
Code, the claim of a lessor for such damages from the termination of a lease of
real property will be limited to the sum of (i) the rent reserved by such
lease, without acceleration, for the greater of one year or 15 percent, not to
exceed three years, of the remaining term of such lease, following the earlier
of the date of the filing of the petition and the date on which such lender
repossessed, or the lessee surrendered, the leased property, and (ii) any
unpaid rent due under such lease, without acceleration, on the earlier of such
dates.
Under Section 365(f) of the Bankruptcy Code, if a trustee or debtor-in-
possession assumes an executory contract or an unexpired lease of the debtor,
the trustee or debtor-in-possession generally may assign such executory
contract or unexpired lease, notwithstanding any provision therein or in
applicable law that prohibits, restricts or conditions such assignment,
provided that the trustee or debtor-in-possession provides "adequate assurance
of future performance" by the assignee. The Bankruptcy Code specifically
provides, however, that adequate assurance of future performance for purposes
of a lease of real property in a shopping center includes adequate assurance of
the source of rent and other consideration due under such lease, and in the
case of an assignment, that the financial condition and operating performance
of the proposed assignee and its guarantors, if any, shall be similar to the
financial condition and operating performance of the debtor and its guarantors,
if any, as of the time the debtor became the lessee under the lease, that any
percentage rent due under such lease will not decline substantially, that the
assumption and assignment of the lease is subject to all the provisions
thereof, including (but not limited to) provisions such as a radius location,
use or exclusivity provision, and will not breach any such provision contained
in any other lease, financing agreement, or master agreement 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.
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In a bankruptcy or similar proceeding, action may be taken seeking the
recovery as a preferential transfer of any payments made by the mortgagor under
the related Mortgage Loan to the related Trust Fund. Payments on long-term debt
may be protected from recovery as preferences if they are payments in the
ordinary course of business made on debts incurred in the ordinary course of
business. Whether any particular payment would be protected depends upon the
facts specific to a particular transaction. In addition, some court decisions
suggest that even a non-collusive, regularly conducted foreclosure sale could
be challenged in a bankruptcy case as a "fraudulent conveyance", regardless of
the parties' intent, if a bankruptcy court determines that the mortgaged
property has been sold for less than fair consideration while the mortgagor was
insolvent and within one year (or within any longer state statutes of
limitations periods if the trustee in bankruptcy elects to proceed under state
fraudulent conveyance law) of the filing of the bankruptcy.
A trustee in bankruptcy, in some cases, may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the lender. In certain circumstances, a debtor in bankruptcy may
have the power to grant liens senior to the lien of a mortgage, and analogous
state statutes and general principles of equity may also provide a mortgagor
with means to halt a foreclosure proceeding or sale and to force a
restructuring of a mortgage loan on terms a lender would not otherwise accept.
Moreover, the laws of certain states also give priority to certain tax liens
over the lien of a mortgage or deed of trust. Under the Bankruptcy Code, if the
court finds that actions of the mortgagee have been unreasonable, the lien of
the related mortgage may be subordinated to the claims of unsecured creditors.
Pursuant to the federal doctrine of "substantive consolidation" or to the
(predominantly state law) doctrine of "piercing the corporate veil", a
bankruptcy court, in the exercise of its equitable powers, also has the
authority to order that the assets and liabilities of a related entity be
consolidated with those of an entity before it. Thus, property ostensibly the
property of one entity may be determined to be the property of a different
entity in bankruptcy, the automatic stay applicable to the second entity may be
extended to the first and the rights of creditors of the first entity may be
impaired in the fashion set forth above in the discussion of bankruptcy
principles. Depending on facts and circumstances not wholly in existence at the
time a Mortgage Loan is originated or transferred to the related Trust Fund,
the application of any of these doctrines to one or more of the mortgagors in
the context of the bankruptcy of one or more of their affiliates could result
in material impairment of the rights of the Certificateholders.
For each mortgagor that is described as a "special purpose entity",
"single purpose entity" or "bankruptcy-remote entity" in the Prospectus
Supplement, the activities that may be conducted by such mortgagor and its
ability to incur debt are restricted by the applicable Mortgage or the
organizational documents of such mortgagor in such manner as is intended to
make the likelihood of a bankruptcy proceeding being commenced by or against
such mortgagor remote, and such mortgagor has been organized and is designed to
operate in a manner such that its separate existence should be respected
notwithstanding a bankruptcy proceeding in respect of one or more affiliated
entities of such mortgagor. However, the Depositor makes no representation as
to the likelihood of the institution of a bankruptcy proceeding by or in
respect of any mortgagor or the
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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 LEGISLATION
A lender may be subject to unforeseen environmental risks with respect to
loans secured by real or personal property, such as the Mortgage Loans. Such
environmental risks may give rise to (i) a diminution in value of property
securing a Mortgage Loan or the inability to foreclose against such property or
(ii) in certain circumstances as more fully described below, liability for
clean-up costs or other remedial actions, which liability could exceed the
value of such property or the principal balance of the related Mortgage Loan.
Under the laws of many states, contamination on a property may give rise to a
lien on the property for cleanup costs. In several states, such a lien has
priority over all existing liens (a "superlien"), including those of existing
mortgages; in these states, the lien of the mortgage for any Mortgage Loan may
lose its priority to such a superlien.
Under the federal Comprehensive Response Compensation and Liability Act
("CERCLA"), a lender may be liable either to the government or to private
parties for cleanup costs on a property securing a loan, even if the lender
does not cause or contribute to the contamination. CERCLA imposes strict, as
well as joint and several, liability on several Classes of potentially
responsible parties ("PRPs"), including current owners and operators of the
property who did not cause or contribute to the contamination. Many states have
laws similar to CERCLA.
Lenders may be held liable under CERCLA as owners or operators unless they
qualify for the secured creditor exemption to CERCLA. A 1990 decision of the
United States Court of Appeals for the Eleventh Circuit, United States v. Fleet
Factors Corp., 901 F.2d 1550 (11th Cir. 1990), narrowly construed the security
interest exemption under CERCLA to hold lenders liable if they had the capacity
to influence their borrower's management of hazardous waste. In response to the
Fleet Factors case, the Environmental Protection Agency ("EPA") promulgated a
rule in 1992 intended to reduce interpretive uncertainties that surrounded the
scope of the secured lender exemption to liability under CERCLA. The rule,
which the EPA stated would be entitled to deference in CERCLA cost recovery
actions brought against lenders by private parties, clarified the scope of the
secured creditor exemption and identified specific types of actions that, if
taken by a lender, would preclude application of the exemption. In the decision
of Kelley v. EPA, 15 F.3d 1100 (D.C. Cir. 1994), the Court of Appeals for the
District of Columbia vacated the EPA's lender liability rule. On September 30,
1996, President Clinton signed into law the "Asset Conservation, Lender
Liability and Deposit Insurance Protection Act of 1996" (the "Asset
Conservation Act"), which substantially protects lenders and fiduciaries from
liability for the environmental obligations of borrowers and beneficiaries. The
Asset Conservation Act includes amendments to CERCLA and to the underground
storage tank provisions of the Resource Conservation and Recovery Act and
applies to any claim that was not finally adjudicated as of September 30, 1996.
The Act offers substantial protection to lenders by defining the activities in
which a lender can engage and still have the benefit of a secured creditor
exemption. However, the secured creditor exemption is not available to a lender
that participates in management of mortgaged property prior to a foreclosure.
In order for a lender
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to be deemed to have participated in the management of a mortgaged property,
the lender must actually participate in the operational affairs of the property
of the borrower. The Act provides that "merely having the capacity to
influence, or unexercised right to control" operations does not constitute
participation in management. A lender will be deemed to have participated in
management and will lose the protection of the secured creditor exemption only
if it exercises decision-making control over the borrower's environmental
compliance and hazardous substance handling and disposal practices, or assumes
day-to-day management of all operational functions of the mortgaged property.
The Act also provides that a lender will continue to have the benefit of the
secured creditor exemption even if it forecloses on a mortgaged property,
purchases it at a foreclosure sale or accepts a deed-in-lieu of foreclosure
provided that the lender seeks to sell the mortgaged property at the earliest
practicable commercially reasonable time on commercially reasonable terms.
Environment clean-up costs may be substantial. It is possible that such
costs could become a liability of the related Trust Fund and occasion a loss to
Certificateholders if such remedial costs were incurred.
In a few states, transfers of some types of properties are conditioned
upon cleanup of contamination prior to transfer. It is possible that a property
securing a Mortgage Loan could be subject to such transfer restrictions. In
such a case, if the lender becomes the owner upon foreclosure, it may be
required to clean up the contamination before selling the property.
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 and Servicing Agreement
will provide that the Master Servicer, acting on behalf of the related Trust
Fund, may not acquire title to a Mortgaged Property or take over its operation
unless the Master Servicer, based on a report prepared by a person who
regularly conducts environmental site assessments, has made the determination
that it is appropriate to do so, as described under "Description of the Pooling
and Servicing Agreements--Realization Upon Defaulted Mortgage Loans". There can
be no assurance that any environmental site assessment obtained by the Master
Servicer will detect all possible environmental contamination or conditions or
that the other requirements of the related Pooling and Servicing Agreement,
even if fully observed by the Master Servicer, will in fact insulate the
related Trust Fund from liability with respect to environmental matters.
Even when a lender is not directly liable for cleanup costs on property
securing loans, if a property securing a loan is contaminated, the value of the
security is likely to be affected. In addition, a lender bears the risk that
unanticipated cleanup costs may jeopardize the borrower's repayment. Neither of
these two issues is likely to pose risks exceeding the amount of unpaid
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principal and interest of a particular loan secured by a contaminated property,
particularly if the lender declines to foreclose on a mortgage secured by the
property.
If a lender forecloses on a mortgage secured by a property the operations
of which are subject to environmental laws and regulations, the lender will be
required to operate the property in accordance with those laws and regulations.
Compliance may entail some expense.
In addition, a lender may be obligated to disclose environmental
conditions on a property to government entities and/or to prospective buyers
(including prospective buyers at a foreclosure sale or following foreclosure).
Such disclosure may decrease the amount that prospective buyers are willing to
pay for the affected property and thereby lessen the ability of the lender to
recover its investment in a loan upon foreclosure.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Mortgage Loans may contain "due-on-sale" and
"due-on-encumbrance" clauses that purport to permit the lender to accelerate
the maturity of the loan if the borrower transfers or encumbers the related
Mortgaged Property. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce such clauses
in many states. By virtue, however, of the Garn-St Germain Depository
Institutions Act of 1982 (the "Garn Act"), effective October 15, 1982 (which
purports to preempt state laws that prohibit the enforcement of due-on-sale
clauses by providing among other matters, that "due-on-sale" clauses in certain
loans made after the effective date of the Garn Act are enforceable, within
certain limitations, as set forth in the Garn Act and the regulations
promulgated thereunder), the Master Servicer may nevertheless have the right to
accelerate the maturity of a Mortgage Loan that contains a "due-on-sale"
provision upon transfer of an interest in the property, regardless of the
Master Servicer's ability to demonstrate that a sale threatens its legitimate
security interest.
SUBORDINATE FINANCING
Certain of the Mortgage Loans may not restrict the ability of the borrower
to use the Mortgaged Property as security for one or more additional loans.
Where a borrower encumbers a Mortgaged Property with one or more junior liens,
the senior lender is subjected to additional risk. First, the borrower may have
difficulty servicing and repaying multiple loans. Moreover, if the subordinate
financing permits recourse to the borrower (as is frequently the case) and the
senior loan does not, a borrower may have more incentive to repay sums due on
the subordinate loan. Second, acts of the senior lender that prejudice 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
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senior lender. Moreover, the bankruptcy of a junior lender may operate to stay
foreclosure or similar proceedings by the senior lender.
DEFAULT INTEREST AND LIMITATIONS ON PREPAYMENTS
Notes and mortgages may contain provisions that obligate the borrower to
pay a late charge or additional interest if payments are not timely made, and
in some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower
for delinquent payments. Certain states also limit the amounts that a lender
may collect from a borrower as an additional charge if the loan is prepaid. In
addition, the enforceability of provisions that provide for prepayment fees or
penalties upon an involuntary prepayment is unclear under the laws of many
states.
ADJUSTABLE RATE LOANS
The laws of certain states may provide that mortgage notes relating to
adjustable rate loans are not negotiable instruments under the UCC. In such
event, the related Trust Fund will not be deemed to be a "holder in due course"
within the meaning of the UCC and may take such a mortgage note subject to
certain restrictions on the ability to foreclose and to certain contractual
defenses available to a mortgagor.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, as amended ("Title V") provides that state usury limitations shall
not apply to certain types of residential (including multifamily) first
mortgage loans originated by certain lenders after March 31, 1980. Title V
authorized any state to reimpose interest rate limits by adopting, before April
1, 1983, a law or constitutional provision that expressly rejects application
of the federal law. In addition, even where Title V is not so rejected, any
state is authorized by the law to adopt a provision limiting discount points or
other charges on mortgage loans covered by Title V. Certain states have taken
action to reimpose interest rate limits and/or to limit discount points or
other charges.
No Mortgage Loan originated in any state in which application of Title V
has been expressly rejected or a provision limiting discount points or other
charges has been adopted, will (if originated after that rejection or adoption)
be eligible for inclusion in a Trust Fund unless (i) such Mortgage Loan
provides for such interest rate, discount points and charges as are permitted
under the laws of such state or (ii) such Mortgage Loan provides that the terms
thereof are to be construed in accordance with the laws of another state under
which such interest rate, discount points and charges would not be usurious and
the borrower's counsel has rendered an opinion that such choice of law
provision would be given effect.
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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 collections resulting from the application of the Relief
Act would result in a reduction of the amounts distributable to the holders of
the related series of Certificates, and would not be covered by advances or,
unless otherwise specified in the related Prospectus Supplement, any instrument
of Credit Support provided in connection with such Certificates. In addition,
the Relief Act imposes limitations that would impair the ability of the
servicer to foreclose on an affected Mortgage Loan during the borrower's period
of active duty status, and, under certain circumstances, during an additional
three-month period thereafter. Thus, in the event such a Mortgage Loan goes
into default, there may be delays and losses occasioned by the inability to
realize upon the Mortgaged Property in a timely fashion.
TYPE OF MORTGAGED PROPERTY
The lender may be subject to additional risk depending upon the type and
use of the Mortgaged Property in question. For instance, Mortgaged Properties
which are hospitals, nursing homes or convalescent homes may present special
risks to lenders in large part due to significant governmental regulation of
the operation, maintenance, control and financing of health care institutions.
Mortgages on Mortgaged Properties which are owned by the borrower under a
condominium form of ownership are subject to the declaration, by-laws and other
rules and regulation of the condominium association. Mortgaged Properties which
are hotels or motels may present additional risk to the lender in that: (i)
hotels and motels are typically operated pursuant to franchise, management and
operating agreements which may be terminable by the operator; and (ii) the
transferability of the hotel's operating, liquor and other licenses to the
entity acquiring the hotel either through purchase or foreclosure is subject to
the vagaries of local law requirements. In addition, Mortgaged Properties which
are multifamily properties or cooperatively owned multifamily properties may be
subject to rent control laws, which could impact the future cash flows of such
properties.
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AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels, shopping
centers, hospitals, schools and social service center establishments) must
remove architectural and communication barriers which are structural in nature
from existing places of public accommodation to the extent "readily
achievable." In addition, under the ADA, alterations to a place of public
accommodation or a commercial facility are to be made so that, to the maximum
extent feasible, each altered portions are readily accessible to and usable by
disabled individuals. The "readily achievable" standard takes into account,
among other factors, the financial resources of the affected site, owner,
landlord or other applicable person. In addition to imposing a possible
financial burden on the borrower in its capacity as owner or landlord, the ADA
may also impose such requirements on a foreclosing lender who succeeds to the
interest of the borrower as owner or landlord. Furthermore, since the "readily
achievable" standard may vary depending on the financial condition of the owner
or landlord, a foreclosing lender who is financially more capable than the
borrower of complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the borrower is subject.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984 (the "Crime
Control Act"), the government may seize the property even before conviction.
The government must publish notice of the forfeiture proceeding and may give
notice to all parties "known to have an alleged interest in the property",
including the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
established that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
In addition, there may be other state or municipal laws providing for
forfeiture of mortgaged properties.
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
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discussion is based are subject to change or differing interpretations, and any
such change or interpretation could apply retroactively. This discussion
reflects the applicable provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), as well as regulations (the "REMIC Regulations")
promulgated by the U.S. Department of Treasury (the "Treasury"). Investors
should consult their own tax advisors in determining the federal, state, local
and other tax consequences to them of the purchase, ownership and disposition
of Certificates.
For purposes of this discussion, (i) references to the Mortgage Loans
include references to the mortgage loans underlying MBS included in the
Mortgage Assets and (ii) where the applicable Prospectus Supplement provides
for a fixed retained yield with respect to the Mortgage Loans underlying a
series of Certificates, references to the Mortgage Loans will be deemed to
refer to that portion of the Mortgage Loans held by the Trust Fund which does
not include the Retained Interest. References to a "holder" or
"Certificateholder" in this discussion generally mean the beneficial owner of a
Certificate.
FEDERAL INCOME TAX CONSEQUENCES FOR REMIC CERTIFICATES
General. With respect to a particular series of Certificates, an election
may be made to treat the Trust Fund or one or more segregated pools of assets
therein as one or more REMICs within the meaning of Code Section 860D. A Trust
Fund or a portion thereof as to which a REMIC election will be made will be
referred to as a "REMIC Pool". For purposes of this discussion, Certificates of
a series as to which one or more REMIC elections are made are referred to as
"REMIC Certificates" and will consist of one or more Classes of "Regular
Certificates" and one Class of "Residual Certificates" in the case of each
REMIC Pool. Qualification as a REMIC requires ongoing compliance with certain
conditions. With respect to each series of REMIC Certificates, O'Melveny &
Myers LLP, counsel to the Depositor, has advised the Depositor that in the
firm's opinion, assuming (i) the making of such an election, (ii) compliance
with the Pooling and Servicing Agreement and (iii) compliance with any changes
in the law, including any amendments to the Code or applicable Treasury
regulations thereunder, each REMIC Pool will qualify as a REMIC. In such case,
the Regular Certificates will be considered to be "regular interests" in the
REMIC Pool and generally will be treated for federal income tax purposes as if
they were newly originated debt instruments, and the Residual Certificates will
be considered to be "residual interests" in the REMIC Pool. The Prospectus
Supplement for each series of Certificates will indicate whether one or more
REMIC elections will be made with respect to the related Trust Fund, in which
event references to "REMIC" or "REMIC Pool" herein shall be deemed to refer to
each such REMIC Pool. If so specified in the applicable Prospectus Supplement,
the portion of a Trust Fund as to which a REMIC election is not made may be
treated as either a financial asset securitization investment trust (a "FASIT")
or a grantor trust for federal income tax purposes. See "--Federal Income Tax
Consequences for FASIT Certificates and "-Federal Income Tax Consequences for
Certificates as to Which No REMIC Election Is Made".
Status of REMIC Certificates. REMIC Certificates held by a domestic
building and loan association will constitute "a regular or residual interest
in a REMIC" within the meaning of Code Section 7701(a)(19)(C)(xi), but only in
the same proportion that the assets of the REMIC Pool
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would be treated as "loans . . . secured by an interest in real property which
is . . . residential real property" (such as single family or multifamily
properties, but not commercial properties) within the meaning of Code Section
7701(a)(19)(C)(v) or as other assets described in Code Section 7701(a)(19)(C),
and otherwise will not qualify for such treatment. REMIC Certificates held by a
real estate investment trust will constitute "real estate assets" within the
meaning of Code Section 856(c)(4)(A), and interest on the Regular Certificates
and income with respect to Residual Certificates will be considered "interest
on obligations secured by mortgages on real property or on interests in real
property" within the meaning of Code Section 856(c)(3)(B) in the same
proportion that, for both purposes, the assets of the REMIC Pool would be so
treated. If at all times 95% or more of the assets of the REMIC Pool qualify
for each of the foregoing respective treatments, the REMIC Certificates will
qualify for the corresponding status in their entirety. 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 "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
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applicable tax information to transferors or agents that violate this
requirement. The Pooling and Servicing Agreement for each series will contain a
provision designed to meet this requirement. See "Taxation of Residual
Certificates-- Tax-Related Restrictions on Transfer of Residual
Certificates--Disqualified Organizations".
A qualified mortgage is any obligation that is principally secured by an
interest in real property and that is either transferred to the REMIC Pool on
the Startup Day in exchange for Regular Certificates or Residual Certificates
or is purchased by the REMIC Pool within a three-month period thereafter
pursuant to a fixed price contract in effect on the Startup Day. Qualified
mortgages include whole mortgage loans, such as the Mortgage Loans,
certificates of beneficial interest in a grantor trust that holds mortgage
loans, including certain of the MBS, regular interests in another REMIC, such
as MBS in a trust as to which a REMIC election has been made, loans secured by
timeshare interests and loans secured by shares held by a tenant stockholder in
a cooperative housing corporation, provided, in general, (i) the fair market
value of the real property securing the mortgage (including buildings and
structural components thereof) is at least 80% of the principal balance of the
related Mortgage Loan or mortgage loan underlying the Mortgage Certificate
either at origination of the relevant loan or as of the Startup Day (an
original loan-to-value ratio of not more than 125% with respect to the real
property securing the mortgage) or (ii) substantially all the proceeds of the
Mortgage Loan or the underlying mortgage loan were used to acquire, improve or
protect an interest in real property that, at the origination date, was the
only security for the Mortgage Loan or underlying mortgage loan. If the
Mortgage Loan has been substantially modified other than in connection with a
default or reasonably foreseeable default, it must meet the loan-to-value test
in clause (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, sold or exchanged, within 90 days of discovery, ceases to be a
qualified mortgage after such 90-day period. A qualified mortgage also includes
any regular interest in a FASIT transferred to the REMIC Pool on the Startup
Day in exchange for Regular Certificates or Residual Certificates, or purchased
by the REMIC Pool within three months after the Startup Day pursuant to a fixed
price contract in effect on the Startup Day, provided that at least 95% of the
value of the FASIT assets is at all times attributable to obligations
principally secured by interests in real property and which are transferred to,
or purchased by, a REMIC as provided in this sentence.
Permitted investments include cash flow investments, qualified reserve
assets, and foreclosure property. A cash flow investment is an investment,
earning a return in the nature of interest, of amounts received on or with
respect to qualified mortgages for a temporary period, not
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exceeding 13 months, until distributed to holders of interests in the REMIC
Pool. A qualified reserve asset is any intangible property (other than a REMIC
residual interest) held for investment that is part of any reasonably required
reserve maintained by the REMIC Pool to provide for payments of expenses of the
REMIC Pool or amounts due on the regular or residual interests in the event of
defaults (including delinquencies) on the qualified mortgages, lower than
expected reinvestment returns, prepayment interest shortfalls and certain other
contingencies. The reserve fund will be disqualified if more than 30% of the
gross income from the assets in such fund for the year is derived from the sale
or other disposition of property held for less than three months, unless
required to prevent a default on the regular interests caused by a default on
one or more qualified mortgages. A reserve fund must be reduced "promptly and
appropriately" as payments on the Mortgage Loans are received. Foreclosure
property is real property acquired by the REMIC Pool in connection with the
default or imminent default of a qualified mortgage and generally held beyond
the close of the third calendar year following the acquisition of the property
by REMIC Pool for not more than two years, with possible extensions granted by
the Internal Revenue Service (the "Service") of up to an additional four years.
In addition to the foregoing requirements, the various interests in a
REMIC Pool also must meet certain requirements. All of the interests in a REMIC
Pool must be either of the following: (i) one or more Classes of regular
interests or (ii) a single Class of residual interests on which distributions,
if any, are made pro rata. A regular interest is an interest in a REMIC Pool
that is issued on the Startup Day with fixed terms, is designated as a regular
interest, and unconditionally entitles the holder to receive a specified
principal amount (or other similar amount), and provides that interest payments
(or other similar amounts), if any, at or before maturity either are payable
based on a fixed rate or a qualified variable rate, or consist of a specified,
nonvarying portion of the interest payments on qualified mortgages. Such a
specified portion may consist of a fixed number of basis points, a fixed
percentage of the total interest, or a fixed or qualified variable or inverse
variable rate on some or all of the qualified mortgages minus a different fixed
or qualified variable rate. The specified principal amount of a regular
interest that provides for interest payments consisting of a specified,
nonvarying portion of interest payments on qualified mortgages may be zero. A
residual interest is an interest in a REMIC Pool other than a regular interest
that is issued on the Startup Day and that is designated as a residual
interest. An interest in a REMIC Pool may be treated as a regular interest even
if payments of principal with respect to such interest are subordinated to
payments on other regular interests or the residual interest in the REMIC Pool,
and are dependent on the absence of defaults or delinquencies on qualified
mortgages or permitted investments, lower than reasonably expected returns on
permitted investments, unanticipated expenses incurred by the REMIC Pool or
prepayment interest shortfalls. Accordingly, the Regular Certificates of a
series will constitute one or more Classes of regular interests, and the
Residual Certificates with respect to that series will constitute a single
Class of residual interests on which distributions are made pro rata.
If an entity, such as the REMIC Pool, fails to comply with one or more of
the ongoing requirements of the Code for REMIC status during any taxable year,
the Code provides that the entity will not be treated as a REMIC for such year
and thereafter. In this event, an entity with multiple Classes of ownership
interests may be treated as a
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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.
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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 Certificateholder
elects on its federal income tax return to exclude such amount from the issue
price and to recover it on the first Distribution Date. The stated redemption
price at maturity of a Regular Certificate always includes the original
principal amount of the Regular Certificate, but generally will not include
distributions of stated interest if such interest distributions constitute
"qualified stated interest". Under the OID Regulations, qualified stated
interest generally means interest payable at a single fixed rate or a qualified
variable rate (as described below) provided that such interest payments are
unconditionally payable at intervals of one year or less during the entire term
of the Regular Certificate. Because there is no penalty or default remedy in
the case of nonpayment of interest with respect to a Regular Certificate, it is
possible that no interest on any Class of Regular Certificates will be treated
as qualified stated interest. However, except as provided in the following
three sentences or in the applicable Prospectus Supplement, because the
underlying Mortgage Loans provide for remedies in the event of default, the
Depositor intends to treat interest with respect to the Regular Certificates as
qualified stated interest. Distributions of interest on an Accrual Certificate,
or on other Regular Certificates with respect to which deferred interest will
accrue, will not constitute qualified stated interest, in which case the stated
redemption price at maturity of such Regular Certificates includes all
distributions of interest as well as principal thereon. Likewise, the Depositor
intends to treat an "interest only" Class, or a Class on which interest is
substantially disproportionate to its principal amount (a so-called
"super-premium" Class) as having no qualified stated interest. Where the
interval between the issue date and the first Distribution Date on a Regular
Certificate is shorter than the interval between subsequent Distribution Dates,
the interest attributable to the additional days will be included in the stated
redemption price at maturity.
Under a de minimis rule, original issue discount on a Regular Certificate
will be considered to be zero if such original issue discount is less than
0.25% of the stated redemption price at maturity of the Regular Certificate
multiplied by the weighted average maturity of the Regular Certificate. For
this purpose, the weighted average maturity of the Regular Certificate is
computed as the sum of the amounts determined by multiplying the number of full
years (i.e., rounding down partial years) from the issue date until all
distributions in reduction of are scheduled to be made by a fraction, the
numerator of which is the amount of each distribution included in the stated
redemption price at maturity of the Regular Certificate and the denominator of
which is the stated redemption price at maturity of the Regular Certificate.
The Conference Committee Report to the
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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 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
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period) if the prepayments are slower than the Prepayment Assumption. An
increase in prepayments on the Mortgage Loans with respect to a series of
Regular Certificates can result in both a change in the priority of principal
payments with respect to certain Classes of Regular Certificates and either an
increase or decrease in the daily portions of original issue discount with
respect to such Regular Certificates.
In the case of a Random Lot Certificate, the Depositor intends to
determine the yield to maturity of such Certificate based upon the anticipated
payment characteristics of the Class as a whole under the Prepayment
Assumption. In general, the original issue discount accruing on each Random Lot
Certificate in a full accrual period would be its allocable share of the
original issue discount with respect to the entire Class, as determined in
accordance with the preceding paragraph. However, in the case of a distribution
in retirement of the entire unpaid principal balance of any Random Lot
Certificate (or portion of such unpaid principal balance), (a) the remaining
unaccrued original issue discount allocable to such Certificate (or to such
portion) will accrue at the time of such distribution, and (b) the accrual of
original issue discount allocable to each remaining Certificate of such Class
(or the remaining unpaid principal balance of a partially redeemed Random Lot
Certificate after a distribution of principal has been received) will be
adjusted by reducing the present value of the remaining payments on such Class
and the adjusted issue price of such Class to the extent attributable to the
portion of the unpaid principal balance thereof that was distributed. The
Depositor believes that the foregoing treatment is consistent with the "pro
rata prepayment" rules of the OID Regulations, but with the rate of accrual of
original issue discount determined based on the Prepayment Assumption for the
Class as a whole. Investors are advised to consult their tax advisors as to
this treatment.
Acquisition Premium
A purchaser of a Regular Certificate at a price greater than its adjusted
issue price but less than its stated redemption price at maturity will be
required to include in gross income the daily portions of the original issue
discount on the Regular Certificate reduced pro rata by a fraction, the
numerator of which is the excess of its purchase price over such adjusted issue
price and the denominator of which is the excess of the remaining stated
redemption price at maturity over the adjusted issue price. Alternatively, such
a subsequent purchaser may elect to treat all such acquisition premium under
the constant yield method, as described below under the heading "Election to
Treat All Interest Under the Constant Yield Method".
Variable Rate Regular Certificates
Regular Certificates may provide for interest based on a variable rate.
Under the OID Regulations, interest is treated as payable at a variable rate
if, generally, (i) the issue price does not exceed the original principal
balance by more than a specified de minimis amount and (ii) the interest
compounds or is payable at least annually at current values of (a) one or more
"qualified floating rates", (b) a single fixed rate and one or more qualified
floating rates, (c) a single "objective rate", or (d) a single fixed rate and a
single objective rate that is a "qualified inverse floating rate". A floating
rate is a qualified floating rate if variations in the rate can reasonably be
expected to measure
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contemporaneous variations in the cost of newly borrowed funds, or where such
rate is subject to a fixed multiple that is greater than 0.65, but not more
than 1.35. Such rate may also be increased or decreased by a fixed spread or
subject to a fixed cap or floor, or a cap or floor that is not reasonably
expected as of the issue date to affect the yield of the instrument
significantly. Two or more qualified floating rates will be treated as a single
qualified floating rate if all such qualified floating rates can reasonably be
expected to have approximately the same values throughout the terms of the
instrument. This requirement will be conclusively presumed to be satisfied if
the values of all such qualified floating rates are within 0.25% of each other
on the issue date. An objective rate (other than a qualified floating rate) is
a rate that is determined using a single fixed formula and that is based on
objective financial or economic information, provided that such information is
not (i) within the control of the issuer or a related party or (ii) unique to
the circumstances of the issuer or a related party. A qualified inverse
floating rate is an objective rate that is equal to a fixed rate minus a
qualified floating rate that inversely reflects contemporaneous variations in
the cost of newly borrowed funds; an inverse floating rate that is not a
qualified floating rate may nevertheless be an objective rate. A Class of
Regular Certificates may be issued under this Prospectus that does not have a
variable rate under the OID Regulations, for example, a Class that bears
different rates at different times during the period it is outstanding such
that it is considered significantly "front-loaded" or "back-loaded" within the
meaning of the OID Regulations. It is possible that such a Class may be
considered to bear "contingent interest" within the meaning of the OID
Regulations. The OID Regulations, as they relate to the treatment of contingent
interest, are by their terms not applicable to Regular Certificates. However,
if final regulations dealing with contingent interest with respect to Regular
Certificates apply the same principles as the OID Regulations, such regulations
may lead to different timing of income inclusion than would be the case under
the OID Regulations. Furthermore, application of such principles could lead to
the characterization of gain on the sale of contingent interest Regular
Certificates as ordinary income. Investors should consult their tax advisors
regarding the appropriate treatment of any Regular Certificate that does not
pay interest at a fixed rate or variable rate as described in this paragraph.
Under the REMIC Regulations, a Regular Certificate (i) bearing a rate that
qualifies as a variable rate under the OID Regulations that is tied to current
values of a variable rate (or the highest, lowest or average of two or more
variable rates), including a rate based on the average cost of funds of one or
more financial institutions, or a positive or negative multiple of such a rate
(plus or minus a specified number of basis points), or that represents a
weighted average of rates on some or all of the Mortgage Loans which bear
interest at a fixed rate or at a qualifying variable rate under the REMIC
Regulations, including such a rate that is subject to one or more caps or
floors, or (ii) bearing one or more such variable rates for one or more periods
or one or more fixed rates for one or more periods, and a different variable
rate or fixed rate for other periods qualifies as a regular interest in a
REMIC. Accordingly, unless otherwise indicated in the applicable Prospectus
Supplement, the Depositor intends to treat Regular Certificates that qualify as
regular interests under this rule in the same manner as obligations bearing a
variable rate for original issue discount reporting purposes.
The amount of original issue discount with respect to a Regular
Certificate bearing a variable rate of interest will accrue in the manner
described above under "Original Issue Discount"
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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 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
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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 should be
reported in a manner similar to de minimis original issue discount. See
"Original Issue Discount" above. Treasury regulations implementing the market
discount rules have not yet been issued, and therefore investors should consult
their own tax advisors regarding the application of these rules. Investors
should also consult Revenue Procedure 92-67 concerning the elections to include
market discount in income currently and to accrue market discount on the basis
of the constant yield method.
Premium
A Regular Certificate purchased at a cost greater than its remaining
stated redemption price at maturity generally is considered to be purchased at
a premium. If the Regular Certificateholder holds such Regular Certificate as a
"capital asset" within the meaning of Code Section 1221, the Regular
Certificateholder may elect under Code Section 171 to amortize such premium
under the constant yield method. The Conference Committee Report to the 1986
Act indicates a Congressional intent that the same rules that will apply to the
accrual of market discount on installment obligations will also apply to
amortizing bond premium under Code Section 171 on installment obligations such
as the Regular Certificates, although it is unclear whether the
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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.
Sale or Exchange of Regular Certificates
If a Regular Certificateholder sells or exchanges a Regular Certificate,
the Regular Certificateholder will recognize gain or loss equal to the
difference, if any, between the amount received and its adjusted basis in the
Regular Certificate. The adjusted basis of a Regular Certificate generally will
equal the cost of the Regular Certificate to the seller, increased by any
original issue discount or market discount previously included in the seller's
gross income with respect to the Regular Certificate and reduced by amounts
included in the stated redemption price at maturity of the Regular Certificate
that were previously received by the seller, by any amortized premium and by
previously recognized losses.
Except as described above with respect to market discount, and except as
provided in this paragraph, any gain or loss on the sale or exchange of a
Regular Certificate realized by an investor who holds the Regular Certificate
as a capital asset will be capital gain or loss and will be long-term or
short-term depending on whether the Regular Certificate has been held for the
long-term capital gain holding period (currently more than one year). Such gain
will be treated as ordinary income (i) if a Regular Certificate is held as part
of a "conversion transaction" as defined in Code Section 1258(c), up to the
amount of interest that would have accrued on the Regular Certificateholder's
net investment in the conversion transaction at 120% of the appropriate
applicable Federal rate under Code Section 1274(d) in effect at the time the
taxpayer entered into the transaction minus any amount previously treated as
ordinary income with respect to any prior distribution of property that was
held as a part of such transaction, (ii) in the case of a non-corporate
taxpayer, to the extent such taxpayer has made an election under Code Section
163(d)(4) to have net capital gains taxed as investment income at ordinary
rates, or (iii) to the extent that such gain does not exceed the excess, if
any, of (a) the amount that would have been includible in the gross income of
the holder if its yield on such Regular Certificate were 110% of the applicable
Federal rate as of the date of purchase, over (b) the amount of income actually
includible in the gross income of such holder with respect to the Regular
Certificate. In addition, gain or loss recognized from the sale of a Regular
Certificate by certain banks or thrift institutions will be treated as ordinary
income or loss pursuant to Code Section 582(c). Capital gains of certain
non-corporate taxpayers are subject to a lower maximum tax rate (20%) than
ordinary income of such taxpayers (39.6%), for property held for more than 12
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
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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.
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
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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.
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
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respect to the Mortgage Loans, on the one hand, and the timing of deductions
for interest (including original issue discount) on the Regular Certificates or
income from amortization of issue premium on the Regular Certificates, on the
other hand. In the event that an interest in the Mortgage Loans is acquired by
the REMIC Pool at a discount, and one or more of such Mortgage Loans is
prepaid, the Residual Certificateholder may recognize taxable income without
being entitled to receive a corresponding amount of cash because (i) the
prepayment may be used in whole or in part to make distributions in reduction
of principal on the Regular Certificates and (ii) the discount on the Mortgage
Loans which is includible in income may exceed the deduction allowed upon such
distributions on those Regular Certificates on account of any unaccrued
original issue discount relating to those Regular Certificates. When there is
more than one Class of Regular Certificates that distribute principal
sequentially, this mismatching of income and deductions is particularly likely
to occur in the early years following issuance of the Regular Certificates when
distributions in reduction of principal are being made in respect of earlier
Classes of Regular Certificates to the extent that such Classes are not issued
with substantial discount. If taxable income attributable to such a mismatching
is realized, in general, losses would be allowed in later years as
distributions on the later Classes of Regular Certificates are made. Taxable
income may also be greater in earlier years than in later years as a result of
the fact that interest expense deductions, expressed as a percentage of the
outstanding principal amount of such a series of Regular Certificates, may
increase over time as distributions in reduction of principal are made on the
lower yielding Classes of Regular Certificates, whereas to the extent that the
REMIC Pool includes fixed rate Mortgage Loans, interest income with respect to
any given Mortgage Loan will remain constant over time as a percentage of the
outstanding principal amount of that loan. Consequently, Residual
Certificateholders must have sufficient other sources of cash to pay any
federal, state or local income taxes due as a result of such mismatching or
unrelated deductions against which to offset such income, subject to the
discussion of "excess inclusions" below under "Limitations on Offset or
Exemption of REMIC Income". The timing of such mismatching of income and
deductions described in this paragraph, if present with respect to a series of
Certificates, may have a significant adverse effect upon the Residual
Certificateholder's after-tax rate of return. In addition, a Residual
Certificateholder's taxable income during certain periods may exceed the income
reflected by such Residual Certificateholder for such periods in accordance
with generally accepted accounting principles. Investors should consult their
own accountants concerning the accounting treatment of their investment in
Residual Certificates.
Basis and Losses
The amount of any net loss of the REMIC Pool that may be taken into
account by the Residual Certificateholder is limited to the adjusted basis of
the Residual Certificate as of the close of the quarter (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
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the Residual Certificateholder as to whom such loss was disallowed and may be
used by such Residual Certificateholder only to offset any income generated by
the same REMIC Pool.
A Residual Certificateholder will not be permitted to amortize directly
the cost of its Residual Certificate as an offset to its share of the taxable
income of the related REMIC Pool. However, that taxable income will not include
cash received by the REMIC Pool that represents a recovery of the REMIC Pool's
basis in its assets. Such recovery of basis by the REMIC Pool will have the
effect of amortization of the issue price of the Residual Certificates over
their life. However, in view of the possible acceleration of the income of
Residual Certificateholders described above under "Taxation of REMIC Income",
the period of time over which such issue price is effectively amortized may be
longer than the economic life of the Residual Certificates.
A Residual Certificate may have a negative value if the net present value
of anticipated tax liabilities exceeds the present value of anticipated cash
flows. The REMIC Regulations appear to treat the issue price of such a residual
interest as zero rather than such negative amount for purposes of determining
the REMIC Pool's basis in its assets. The preamble to the REMIC Regulations
states that the Service may provide future guidance on the proper tax treatment
of payments made by a transferor of such a residual interest to induce the
transferee to acquire the interest, and Residual Certificateholders should
consult their own tax advisors in this regard.
Further, to the extent that the initial adjusted basis of a Residual
Certificateholder (other than an original holder) in the Residual Certificate
is greater that the corresponding portion of the REMIC Pool's basis in the
Mortgage Loans, the Residual Certificateholder will not recover a portion of
such basis until termination of the REMIC Pool unless future Treasury
regulations provide for periodic adjustments to the REMIC income otherwise
reportable by such holder. The REMIC Regulations currently in effect do not so
provide. See "Treatment of Certain Items of REMIC Income and Expense--Market
Discount" below regarding the basis of Mortgage Loans to the REMIC Pool and
"Sale or Exchange of a Residual Certificate" below regarding possible treatment
of a loss upon termination of the REMIC Pool as a capital loss.
Treatment of Certain Items of REMIC Income and Expense
Although the Depositor intends to compute REMIC income and expense in
accordance with the Code and applicable regulations, the authorities regarding
the determination of specific items of income and expense are subject to
differing interpretations. The Depositor makes no representation as to the
specific method that it will use for reporting income with respect to the
Mortgage Loans and expenses with respect to the Regular Certificates, and
different methods could result in different timing of reporting of taxable
income or net loss to Residual Certificateholders or differences in capital
gain versus ordinary income.
Original Issue Discount and Premium. Generally, the REMIC Pool's
deductions for original issue discount and income from amortization of issue
premium will be determined in the same manner as original issue discount income
on Regular Certificates as described above under
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"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.
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Limitations on Offset or Exemption of REMIC Income
A portion or all of the REMIC taxable income includible in determining the
federal income tax liability of a Residual Certificateholder will be subject to
special treatment. That portion, referred to as the "excess inclusion", is
equal to the excess of REMIC taxable income for the calendar quarter allocable
to a Residual Certificate over the daily accruals for such quarterly period of
(i) 120% of the long-term applicable Federal rate that would have applied to
the Residual Certificate (if it were a debt instrument) on the Startup Day
under Code Section 1274(d), multiplied by (ii) the adjusted issue price of such
Residual Certificate at the beginning of such quarterly period. For this
purpose, the adjusted issue price of a Residual Certificate at the beginning of
a quarter is the issue price of the Residual Certificate, plus the amount of
such daily accruals of REMIC income described in this paragraph for all prior
quarters, decreased by any distributions made with respect to such Residual
Certificate prior to the beginning of such quarterly period. Accordingly, the
portion of the REMIC Pool's taxable income that will be treated as excess
inclusions will be a larger portion of such income as the adjusted issue price
of the Residual Certificates diminishes.
The portion of a Residual Certificateholder's REMIC taxable income
consisting of the excess inclusions generally may not be offset by other
deductions, including net operating loss carry forwards, on 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.
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.
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Tax-Related Restrictions on Transfer of Residual Certificates
Disqualified Organizations. If any legal or beneficial interest in a
Residual Certificate is transferred to a Disqualified Organization (as defined
below) other than in connection with the formation of a REMIC Pool, if the
Disqualified organization is required, pursuant to a binding contract, to sell
such Residual Certificate, which sale occurs within seven days after the
Startup Days, a tax would be imposed in an amount equal to the product of (i)
the present value of the total anticipated excess inclusions with respect to
such Residual Certificate for periods after the transfer and (ii) the highest
marginal federal income tax rate applicable to corporations. The REMIC
Regulations provide that the anticipated excess inclusions are based on actual
prepayment experience to the date of the transfer and projected payments based
on the Prepayment Assumption. The present value rate equals the applicable
Federal rate under Code Section 1274(d) as of the date of the transfer for a
term ending with the last calendar quarter in which excess inclusions are
expected to accrue. Such a tax generally would be imposed on the transferor of
the Residual Certificate, except that where such transfer is through an agent
(including a broker, nominee or other middleman) for a Disqualified
Organization, the tax would instead be imposed on such agent. However, a
transferor of a Residual Certificate would in no event be liable for such tax
with respect to a transfer if the transferee furnishes to the transferor an
affidavit that the transferee is not a Disqualified Organization and, as of the
time of the transfer, the transferor does not have actual knowledge that such
affidavit is false. The tax also may be waived by the Treasury Department if
the Disqualified Organization promptly disposes of the residual interest and
the transferor pays income tax at the highest corporate rate on the excess
inclusions for the period the Residual Certificate is actually held by the
Disqualified Organization.
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
such entity, then a tax is imposed on such entity equal to the product of (i)
the amount of excess inclusions on the Residual Certificate that are allocable
to the interest in the Pass-Through Entity during the period such interest is
held by such Disqualified Organization, and (ii) the highest marginal federal
corporate income tax rate. Such tax would be deductible from the ordinary gross
income of the Pass-Through Entity for the taxable year. The Pass-Through Entity
would not be liable for such tax if it has received an affidavit from such
record holder that it is not a Disqualified Organization or stating such
holder's taxpayer identification number and, during the period such person is
the record holder of the Residual Certificate, the Pass-Through Entity does not
have actual knowledge that such affidavit is false.
For these purposes, (i) "Disqualified Organization" means the United
States, any state or political subdivision thereof, any foreign government, any
international organization, any agency or instrumentality of any of the
foregoing (provided, that such term does not include an instrumentality if all
of its activities are subject to tax and, except in the case of the Federal
Home Loan Mortgage Corporation, a majority of its board of directors is not
selected by any such governmental entity), any cooperative organization
furnishing electric energy or providing telephone service to persons in rural
areas as described in Code Section 1381(a)(2)(C), and any organization (other
than a farmers' cooperative described in Code Section 521) that is exempt from
taxation under
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the Code unless such organization is subject to the tax on unrelated business
income imposed by Code Section 511, and (ii) "Pass-Through Entity" means any
regulated investment company, real estate investment trust, common trust fund,
partnership, trust or estate and certain corporations operating on a
cooperative basis. Except as may be provided in Treasury regulations, any
person holding an interest in a Pass-Through Entity as a nominee for another
will, with respect to such interest, be treated as a Pass-Through Entity.
The Pooling and Servicing 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 and
Servicing 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 and Servicing
Agreement required under the Code or applicable Treasury regulations to
effectuate the foregoing restrictions. Information necessary to compute an
applicable excise tax must be furnished to the Service and to the requesting
party within 60 days of the request, and the Depositor or the Trustee may
charge a fee for computing and providing such information.
Noneconomic Residual Interests. The REMIC Regulations would disregard
certain transfers of Residual Certificates, in which case the transferor would
continue to be treated as the owner of the Residual Certificates and thus would
continue to be subject to tax on its allocable portion of the net income of the
REMIC Pool. Under the REMIC Regulations, a transfer of a "noneconomic residual
interest" (as defined below) to a Residual Certificateholder (other than a
Residual Certificateholder who is not a U.S. Person, as defined below under
"Foreign Investors") is disregarded for all federal income tax purposes if a
significant purpose of the transferor is to impede the assessment or collection
of tax. A residual interest in a REMIC (including a residual interest with a
positive value at issuance) is a "noneconomic residual interest" unless, at the
time of the transfer, (i) the present value of the expected future
distributions on the residual interest at least equals the product of the
present value of the anticipated excess inclusions and the highest corporate
income tax rate in effect for the year in which the transfer occurs, and (ii)
the transferor reasonably expects that the transferee will receive
distributions from the REMIC at or after the time at which taxes accrue on the
anticipated excess inclusions in an amount sufficient to satisfy the accrued
taxes. The anticipated excess inclusions and the present value rate are
determined in the same manner as set forth above under "Disqualified
Organizations". The REMIC Regulations explain that a significant purpose to
impede the assessment or collection of tax exists if the 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
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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 and Servicing Agreement
with respect to each series of Certificates will require the transferee of a
Residual Certificate to certify to the matters in the preceding sentence as
part of the affidavit described above under the heading "Disqualified
Organizations". The transferor must have no actual knowledge or reason to know
that such statements are false.
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Certificate that has "tax avoidance potential" to a "foreign person"
will be disregarded for all federal tax purposes. This rule appears intended to
apply to a transferee who is not a "U.S. Person" (as defined below), unless
such transferee's income is effectively connected with the conduct of a trade
or business within the United States or not otherwise subject to a withholding
tax. A Residual Certificate is deemed to have tax avoidance potential unless,
at the time of the transfer, (i) the future value of expected distributions
equals at least 30% of the anticipated excess inclusions after the transfer,
and (ii) the transferor reasonably expects that the transferee will receive
sufficient distributions from the REMIC Pool at or after the time at which the
excess inclusions accrue and prior to the end of the next succeeding taxable
year for the accumulated withholding tax liability to be paid. If the non-U.S.
Person transfers the Residual Certificate back to a U.S. Person, the transfer
will be disregarded and the foreign transferor will continue to be treated as
the owner unless arrangements are made so that the transfer does not have the
effect of allowing the transferor to avoid tax on accrued excess inclusions.
The Prospectus Supplement relating to a series of Certificates may provide
that a Residual Certificate may not be purchased by or transferred to any
person that is not a U.S. Person or may describe the circumstances and
restrictions pursuant to which such a transfer may be made. The term "U.S.
Person" means a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any State, an estate that is subject to United States federal
income tax regardless of the source of its income or a trust if a court within
the United States is able to exercise primary supervision over the
administration of such trust, and one or more United States persons have the
authority to control all substantial decisions of such trust.
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
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basis on that Distribution Date. Such income will be treated as gain from the
sale or exchange of the Residual Certificate. It is possible that the
termination of the REMIC Pool may be treated as a sale or exchange of a
Residual Certificateholder's Residual Certificate, in which case, if the
Residual Certificateholder has an adjusted basis in such Residual
Certificateholder's Residual Certificate remaining when its interest in the
REMIC Pool terminates, and if such Residual Certificateholder holds such
Residual Certificate as a capital asset under Code Section 1221, then such
Residual Certificateholder will recognize a capital loss at that time in the
amount of such remaining adjusted basis.
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.
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TAXES THAT MAY BE IMPOSED ON THE REMIC POOL
Prohibited Transactions
Income from certain transactions by the REMIC Pool, called prohibited
transactions, will not be part of the calculation of income or loss includible
in the federal income tax returns of Residual Certificateholders, but rather
will be taxed directly to the REMIC Pool at a 100% rate. Prohibited
transactions generally include (i) the disposition of a qualified mortgage
other than pursuant to a (a) substitution within two years of the Startup Day
for a defective (including a defaulted) obligation (or repurchase in lieu of
substitution of a defective (including a defaulted) obligation at any time) or
for any qualified mortgage within three months of the Startup Day, (b)
foreclosure, default or imminent default of a qualified mortgage, (c)
bankruptcy or insolvency of the REMIC Pool or (d) qualified (complete)
liquidation, (ii) the receipt of income from assets that are not the type of
mortgages or investments that the REMIC Pool is permitted to hold, (iii) the
receipt of compensation for services or (iv) the receipt of gain from
disposition of cash flow investments other than pursuant to a qualified
liquidation. Notwithstanding (i) and (iv), it is not a prohibited transaction
to sell REMIC Pool property to prevent a default on Regular Certificates as a
result of a default on qualified mortgages or to facilitate a clean-up call
(generally, an optional termination to save administrative costs when no more
than a small percentage of the Certificates is outstanding). The REMIC
Regulations indicate that the modification of a Mortgage Loan generally will
not be treated as a disposition if it is occasioned by a default or reasonably
foreseeable default, an assumption of the Mortgage Loan, the waiver of a
due-on-sale or due-on-encumbrance clause or the conversion of an interest rate
by a mortgagor pursuant to the terms of a convertible adjustable rate Mortgage
Loan.
Contributions to the REMIC Pool After the Startup Day
In general, the REMIC Pool will be subject to a tax at a 100% rate on the
value of any property contributed to the REMIC Pool after the Startup Day.
Exceptions are provided for cash contributions to the REMIC Pool (i) during the
three months following the Startup Day, (ii) made to a qualified reserve fund
by a Residual Certificateholder, (iii) in the nature of a guarantee, (iv) made
to facilitate a qualified liquidation or clean-up call and (v) as otherwise
permitted in Treasury regulations yet to be issued.
Net Income from Foreclosure Property
The REMIC Pool will be subject to federal income tax at the highest
corporate rate on "net income from foreclosure property", determined by
reference to the rules applicable to real estate investment trusts. Generally,
property acquired by deed in lieu of foreclosure would be treated as
"foreclosure property" for a period of two years, with possible extensions of
up to an additional four years. Net income from foreclosure property generally
means gain from the sale of a foreclosure property that is inventory property
and gross income from foreclosure property other than qualifying rents and
other qualifying income for a real estate investment trust.
It is not anticipated that the REMIC Pool will receive income or
contributions subject to tax under the preceding three paragraphs, except as
described in the applicable Prospectus
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Supplement with respect to net income from foreclosure property on a commercial
or multifamily residential property that secured a Mortgage Loan. In addition,
unless otherwise disclosed in the applicable Prospectus Supplement, it is not
anticipated that any material state income or franchise tax will be imposed on
a REMIC Pool.
LIQUIDATION OF THE REMIC POOL
If a REMIC Pool adopts a plan of complete liquidation, within the meaning
of Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in
the REMIC Pool's final tax return a date on which such adoption is deemed to
occur, and sells all of its assets (other than cash) within a 90-day period
beginning on the date of the adoption of the plan of liquidation, the REMIC
Pool will not be subject to the prohibited transaction rules on the sale of its
assets, provided that the REMIC Pool credits or distributes in liquidation all
of the sale proceeds plus its cash (other than amounts retained to meet claims)
to holders of Regular Certificates and Residual Certificateholders within the
90-day period.
ADMINISTRATIVE MATTERS
The REMIC Pool will be required to maintain its books on a calendar year
basis and to file federal income tax returns for federal income tax purposes in
a manner similar to a partnership. The form for such income tax return is Form
1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return. The
Trustee will be required to sign the REMIC Pool's returns. Treasury regulations
provide that, except where there is a single Residual Certificateholder for an
entire taxable year, the REMIC Pool will be subject to the procedural and
administrative rules of the Code applicable to partnerships, including the
determination by the Service of any adjustments to, among other things, items
of REMIC income, gain, loss, deduction or credit in a unified administrative
proceeding. The Residual Certificateholder owning the largest percentage
interest in the Residual Certificates will be obligated to act as "tax matters
person", as defined in applicable Treasury regulations, with respect to the
REMIC Pool. Each Residual Certificateholder will be deemed, by acceptance of
such Residual Certificates, to have agreed (i) to the appointment of the tax
matters person as provided in the preceding sentence and (ii) to the
irrevocable designation of the Master Servicer as agent for performing the
functions of the tax matters person.
LIMITATIONS ON DEDUCTION OF CERTAIN EXPENSES
An investor who is an individual, estate or trust will be subject to
limitation with respect to certain itemized deductions described in Code
Section 67, to the extent that such itemized deductions, in the aggregate, do
not exceed 2% of the investor's adjusted gross income. In addition, Code
Section 68 provides that itemized deductions otherwise allowable for a taxable
year of an individual taxpayer will be reduced by the lesser of (i) 3% of the
excess, if any, of adjusted gross income over $124,500 for the taxable year
beginning in 1998 ($62,250 in the case of a married individual filing a
separate return) (subject to adjustments for inflation in subsequent years) or
(ii) 80% of the amount of itemized deductions otherwise allowable for such
year. In the case of a REMIC Pool, such deductions may include deductions under
Code Section 212 for the servicing fee
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and all administrative and other expenses relating to the REMIC Pool, or any
similar expenses allocated to the REMIC Pool with respect to a regular interest
it holds in another REMIC. Such investors who hold REMIC Certificates either
directly or indirectly through certain pass-through entities may have their pro
rata share of such expenses allocated to them as additional gross income, but
may be subject to such limitation on deductions. In addition, such expenses are
not deductible at all for purposes of computing the alternative minimum tax,
and may cause such investors to be subject to significant additional tax
liability. Temporary Treasury regulations provide that the additional gross
income and corresponding amount of expenses generally are to be allocated
entirely to the holders of Residual Certificates in the case of a REMIC Pool
that would not qualify as a fixed investment trust in the absence of a REMIC
election. However, such additional gross income and limitation on deductions
will apply to the allocable portion of such expenses to holders of Regular
Certificates, as well as holders of Residual Certificates, where such Regular
Certificates are issued in a manner that is similar to pass-through
certificates in a fixed investment trust. In general, such allocable portion
will be determined based on the ratio that a REMIC Certificateholder's income,
determined on a daily basis, bears to the income of all holders of Regular
Certificates and Residual Certificates with respect to a REMIC Pool. As a
result, individuals, estates or trusts holding REMIC Certificates (either
directly or indirectly through a grantor trust, partnership, S corporation,
REMIC, or certain other pass-through entities described in the foregoing
temporary Treasury regulations) may have taxable income in excess of the
interest income at the pass-through rate on Regular Certificates that are
issued in a single Class or otherwise consistently with fixed investment trust
status or in excess of cash distributions for the related period on Residual
Certificates. Unless otherwise indicated in the applicable Prospectus
Supplement, all such expenses will be allocable to the Residual Certificates.
TAXATION OF CERTAIN FOREIGN INVESTORS
Regular Certificates
Interest, including original issue discount, distributable to Regular
Certificateholders who are non-resident aliens, foreign corporations, or other
Non-U.S. Persons (as defined below), will be considered "portfolio interest"
and, therefore, generally will not be subject to 30% United States withholding
tax, provided that such Non-U.S. Person (i) is not a "10-percent shareholder"
within the meaning of Code Section 871(h)(3)(B) or a controlled foreign
corporation described in Code Section 881(c)(3)(C) and (ii) provides the
Trustee, or the person who would otherwise be required to withhold tax from
such distributions under Code Section 1441 or 1442, with an appropriate
statement, signed under penalties of perjury, identifying the beneficial owner
and stating, among other things, that the beneficial owner of the Regular
Certificate is a Non-U.S. Person. If such statement, or any other required
statement, is not provided, 30% withholding will apply unless reduced or
eliminated pursuant to an applicable tax treaty or unless the interest on the
Regular Certificate is effectively connected with the conduct of a trade or
business within the United States by such Non-U.S. Person. In the latter case,
such Non-U.S. Person will be subject to United States federal income tax at
regular rates. Prepayment Premiums distributable to Regular Certificateholders
who are Non-U.S. Persons may be subject to 30% United States withholding tax.
Investors who are Non-U.S. Persons should consult their own tax advisors
regarding the specific tax consequences to
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them of owning a Regular Certificate. The term "Non-U.S. Person" means any
person who is not a U.S. Person.
Residual Certificates
The Conference Committee Report to the 1986 Act indicates that amounts
paid to Residual Certificateholders who are Non-U.S. Persons are treated as
interest for purposes of the 30% (or lower treaty rate) United States
withholding tax. Treasury regulations provide that amounts distributed to
Residual Certificateholders may qualify as "portfolio interest", subject to the
conditions described in "Regular Certificates" above, but only to the extent
that (i) the Mortgage Loans (including mortgage loans underlying MBS) were
issued after July 18, 1984 and (ii) the Trust Fund or segregated pool of assets
therein (as to which a separate REMIC election will be made), to which the
Residual Certificate relates, consists of obligations issued in "registered
form" within the meaning of Code Section 163(f)(1). Generally, whole mortgage
loans will not be, but MBS and regular interests in another REMIC Pool will be,
considered obligations issued in registered form. Furthermore, a Residual
Certificateholder will not be entitled to any exemption from the 30%
withholding tax (or lower treaty rate) to the extent of that portion 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.
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REPORTING REQUIREMENTS
Reports of accrued interest, original issue discount and information
necessary to compute the accrual of any market discount on the Regular
Certificates will be made annually to the Service and to individuals, estates,
non-exempt and non-charitable trusts, and partnerships who are either holders
of record of Regular Certificates or beneficial owners who own Regular
Certificates through a broker or middleman as nominee. All brokers, nominees
and all other non-exempt holders of record of Regular Certificates (including
corporations, non-calendar year taxpayers, securities or commodities dealers,
real estate investment trusts, investment companies, common trust funds, thrift
institutions and charitable trusts) may request such information for any
calendar quarter by telephone or in writing by contacting the person designated
in Service Publication 938 with respect to a particular series of Regular
Certificates. Holders through nominees must request such information from the
nominee.
The Service's Form 1066 has an accompanying Schedule Q, Quarterly Notice
to Residual Interest Holders of REMIC Taxable Income or Net Loss Allocation.
Treasury regulations require that Schedule Q be furnished by the REMIC Pool to
each Residual Certificateholder by the end of the month following the close of
each calendar quarter (41 days after the end of a quarter under proposed
Treasury regulations) in which the REMIC Pool is in existence.
Treasury regulations require that, in addition to the foregoing
requirements, information must be furnished quarterly to Residual
Certificateholders, furnished annually, if applicable, to holders of Regular
Certificates, and filed annually with the Service concerning Code Section 67
expenses (see "Limitations on Deduction of Certain Expenses" above) allocable
to such holders. Furthermore, under such regulations, information must be
furnished quarterly to Residual Certificateholders, furnished annually to
holders of Regular Certificates, and filed annually with the Service concerning
the percentage of the REMIC Pool's assets meeting the qualified asset tests
described above under "Status of REMIC Certificates".
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 or FASIT (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
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the owner of a pro rata undivided interest in the ordinary income and corpus
portions of the Trust Fund represented by its Standard Certificate and will be
considered the beneficial owner of a pro rata undivided interest in each of the
Mortgage Loans, subject to the discussion below under "Recharacterization of
Servicing Fees". Accordingly, the holder of a Standard Certificate of a
particular series will be required to report on its federal income tax return
its pro rata share of the entire income from the Mortgage Loans represented by
its Standard Certificate, including interest at the coupon rate on such
Mortgage Loans, original issue discount (if any), prepayment fees, assumption
fees, and late payment charges received by the Master Servicer, in accordance
with such Standard Certificateholder's method of accounting. A Standard
Certificateholder generally will be able to deduct its share of the servicing
fee and all administrative and other expenses of the Trust Fund in accordance
with its method of accounting, provided that such amounts are reasonable
compensation for services rendered to that Trust Fund. However, investors who
are individuals, estates or trusts who own Standard Certificates, either
directly or indirectly through certain pass-through entities, will be subject
to limitation with respect to certain itemized deductions described in Code
Section 67, including deductions under Code Section 212 for the servicing fee
and all such administrative and other expenses of the Trust Fund, to the extent
that such deductions, in the aggregate, do not exceed two percent of an
investor's adjusted gross income. In addition, Code Section 68 provides that
itemized deductions otherwise allowable for a taxable year of an individual
taxpayer will be reduced by the lesser of (i) 3% of the excess, if any, of
adjusted gross income over $124,500 for the taxable year beginning in 1998
($62,250 in the case of a married individual filing a separate return) (subject
to adjustments for inflation in subsequent years), or (ii) 80% of the amount of
itemized deductions otherwise allowable for such year. As a result, such
investors holding Standard Certificates, directly or indirectly through a
pass-through entity, may have aggregate taxable income in excess of the
aggregate amount of cash received on such Standard Certificates with respect to
interest at the pass-through rate on such Standard Certificates. In addition,
such expenses are not deductible at all for purposes of computing the
alternative minimum tax, and may cause such investors to be subject to
significant additional tax liability. Moreover, where there is fixed retained
yield with respect to the Mortgage Loans underlying a series of Standard
Certificates or where the servicing fee is in excess of reasonable servicing
compensation, the transaction will be subject to the application of the
"stripped bond" and "stripped coupon" rules of the Code, as described below
under "Stripped Certificates" and "Recharacterization of Servicing Fees",
respectively.
Tax Status
Standard Certificates will have the following status for federal income
tax purposes:
1. A Standard Certificate owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19) will be considered
to represent "loans ... secured by an interest in real property which is ...
residential real property" within the meaning of Code Section
7701(a)(19)(C)(v), provided that the real property securing the Mortgage Loans
represented by that Standard Certificate is of the type described in such
section of the Code.
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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).
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
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and the original principal amount of such Mortgage Loans (i.e., points) will be
includible by such holder.
Market Discount. Standard Certificateholders also will be subject to the
market discount rules to the extent that the conditions for application of
those sections are met. Market discount on the Mortgage Loans will be
determined and will be reported as ordinary income generally in the manner
described above under "Certain Federal Income Tax Consequences for REMIC
Certificates--Taxation of Regular Certificates--Market Discount", except that
the ratable accrual methods described therein will not apply and it is unclear
whether a Prepayment Assumption would apply. Rather, the holder will accrue
market discount pro rata over the life of the Mortgage Loans, unless the
constant yield method is elected. Unless indicated otherwise in the applicable
Prospectus Supplement, no prepayment assumption will be assumed for purposes of
such accrual.
Recharacterization of Servicing Fees. If the servicing fee paid to the
Master Servicer were deemed to exceed reasonable servicing compensation, the
amount of such excess would represent neither income nor a deduction to
Certificateholders. In this regard, there are no authoritative guidelines for
federal income tax purposes as to either the maximum amount of servicing
compensation that may be considered reasonable in the context of this or
similar transactions or whether, in the case of the Standard Certificate, the
reasonableness of servicing compensation should be determined on a weighted
average or loan-by-loan basis. If a loan-by-loan basis is appropriate, the
likelihood that such amount would exceed reasonable servicing compensation as
to some of the Mortgage Loans would be increased. Service guidance indicates
that a servicing fee in excess of reasonable compensation ("excess servicing")
will cause the Mortgage 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
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reported by a cash method holder may be slightly accelerated. See "Stripped
Certificates" below for a further description of the federal income tax
treatment of stripped bonds and stripped coupons.
Sale or Exchange of Standard Certificates. Upon sale or exchange of a
Standard Certificate, a Standard Certificateholder will recognize gain or loss
equal to the difference between the amount realized on the sale and its
aggregate adjusted basis in the Mortgage Loans and the other assets represented
by the Standard Certificate. In general, the aggregate adjusted basis will
equal the Standard Certificateholder's cost for the Standard Certificate,
increased by the amount of any income previously reported with respect to the
Standard Certificate and decreased by the amount of any losses previously
reported with respect to the Standard Certificate and the amount of any
distributions received thereon. Except as provided above with respect to market
discount on any Mortgage Loans, and except for certain financial institutions
subject to the provisions of Code Section 582(c), any such gain or loss would
be capital gain or loss if the Standard Certificate was held as a capital
asset. However, gain on the sale of a Standard Certificate will be treated as
ordinary income (i) if a Standard Certificate is held as part of a "conversion
transaction" as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the Standard Certificateholder's net investment in
the conversion transaction at 120% of the appropriate applicable Federal rate
in effect at the time the taxpayer entered into the transaction minus any
amount previously treated as ordinary income with respect to any prior
disposition of property that was held as a part of such transaction or (ii) in
the case of a non-corporate taxpayer, to the extent such taxpayer has made an
election under Code Section 163(d)(4) to have net capital gains taxed as
investment income at ordinary income rates. Capital gains of certain
non-corporate taxpayers are subject to a lower maximum tax rate (20%) than
ordinary income of such taxpayers (39.6%) for property held for more than one
year. The maximum tax rate for corporations is the same with respect to both
ordinary income and capital gains.
STRIPPED CERTIFICATES
General
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the principal payments on an obligation from ownership
of the right to receive some or all of the interest payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of this discussion,
Certificates that are subject to those rules will be referred to as "Stripped
Certificates". Stripped Certificates include "Stripped Interest Certificates"
and "Stripped Principal Certificates" (as defined in this Prospectus) as to
which no REMIC election is made.
The Certificates will be subject to those rules if (i) the Depositor or
any of its affiliates retains (for its own account or for purposes of resale),
in the form of fixed retained yield or otherwise, an ownership interest in a
portion of the payments on the Mortgage Loans, (ii) the Master Servicer is
treated as having an ownership interest in the Mortgage Loans to the extent it
is paid (or retains) servicing compensation in an amount greater than
reasonable consideration for ser-
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vicing 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 and Servicing Agreement requires that the
Trustee make and report all computations described below using this aggregate
approach, unless substantial legal authority requires otherwise.
Furthermore, Treasury regulations issued December 28, 1992 assume that a
Stripped Certificate will be treated as a single debt instrument issued on the
date it is purchased for purposes of calculating any original issue discount
and that the interest component of such a Stripped Certificate would be treated
as qualified stated interest under the OID Regulations. Further pursuant to
these final regulations the purchaser of such a Stripped Certificate will be
required to account for any discount as market discount rather than original
issue discount unless either (i) the initial discount with respect to the
Stripped Certificate was treated as zero under the de minimis rule of Code
Section 1273(a)(3), or (ii) no more than 100 basis points in excess of
reasonable servicing is stripped off the related Mortgage Loans. Any such
market discount would be reportable as described
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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
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basis in such Stripped Certificate to recognize an ordinary loss equal to such
portion of unrecoverable basis.
As an alternative to the method described above, the fact that some or all
of the interest payments with respect to the Stripped Certificates will not be
made if the Mortgage Loans are prepaid could lead to the interpretation that
such interest payments are "contingent" within the meaning of the OID
Regulations. The OID Regulations, as they relate to the treatment of contingent
interest, are by their terms not applicable to prepayable securities such as
the Stripped Certificates. However, if final regulations dealing with
contingent interest with respect to the Stripped Certificates apply the same
principles as the OID Regulations, such regulations may lead to different
timing of income inclusion that would be the case under the OID Regulations.
Furthermore, application of such principles could lead to the characterization
of gain on the sale of contingent interest Stripped Certificates as ordinary
income. Investors should consult their tax advisors regarding the appropriate
tax treatment of Stripped Certificates.
Sale or Exchange of Stripped Certificates. Sale or exchange of a Stripped
Certificate prior to its maturity will result in gain or loss equal to the
difference, if any, between the amount received and the Stripped
Certificateholder's adjusted basis in such Stripped Certificate, as described
above under "Certain Federal Income Tax Consequences for REMIC
Certificates--Taxation of Regular Certificates--Sale or 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,
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represent the same pro rata portion of principal and interest on each such
Mortgage Loan, and a stripped bond or stripped coupon (as the case may be),
treated as an installment obligation or contingent payment obligation, as to
the remainder. Final regulations issued on December 28, 1992 regarding original
issue discount on stripped obligations make the foregoing interpretations less
likely to be applicable. The preamble to those regulations states that they are
premised on the assumption that an aggregation approach is appropriate for
determining whether original issue discount on a stripped bond or stripped
coupon is de minimis, and solicits comments on appropriate rules for
aggregating stripped bonds and stripped coupons under Code Section 1286.
Because of these possible varying characterizations of Stripped
Certificates and the resultant differing treatment of income recognition,
Stripped Certificateholders are urged to consult their own tax advisors
regarding the proper treatment of Stripped Certificates for federal income tax
purposes.
FEDERAL INCOME TAX CONSEQUENCES FOR FASIT CERTIFICATES
If and to the extent set forth in the Prospectus Supplement relating to a
particular series of Certificates, an election may be made to treat the related
Trust Fund or one or more segregated pools of assets therein as one or more
financial asset securitization investment trusts ("FASITs") within the meaning
of Code Section 860L(a). Qualification as a FASIT requires ongoing compliance
with certain conditions. With respect to each series of FASIT Certificates,
O'Melveny & Myers LLP, counsel to the Depositor, will advise the Depositor that
in the firm's opinion, assuming (i) the making of such an election, (ii)
compliance with the Pooling and Servicing Agreement and (iii) compliance with
any changes in the law, including any amendments to the Code or applicable
Treasury Regulations thereunder, each FASIT Pool will qualify as a FASIT. In
such case, the Regular Certificates will be considered to be "regular
interests" in the FASIT and will be treated for federal income tax purposes as
if they were newly originated debt instruments, and the Residual Certificate
will be considered the "ownership interest" in the FASIT Pool. The Prospectus
Supplement for each series of Certificates will indicate whether one or more
FASIT elections will be made with respect to the related Trust Fund.
FASIT treatment has become available pursuant to recently enacted
legislation, and no Treasury Regulations have as yet been issued detailing the
circumstances under which a FASIT election may be made or the consequences of
such an election. If a FASIT election is made with respect to any Trust Fund or
as to any segregated pool of assets therein, the related Prospectus Supplement
will describe the Federal income tax consequences of such election.
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
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persons other than Certificateholders exempted from the reporting requirements.
The amounts required to be reported by the Trustee may not be equal to the
proper amount of original issue discount required to be reported as taxable
income by a Certificateholder, other than an original Certificateholder that
purchased at the issue price. In particular, in the case of Stripped
Certificates, unless provided otherwise in the applicable Prospectus
Supplement, such reporting will be based upon a representative initial offering
price of each Class of Stripped Certificates. The Trustee will also file such
original issue discount information with the Service. If a Certificateholder
fails to supply an accurate taxpayer identification number or if the Secretary
of the Treasury determines that a Certificateholder has not reported all
interest and dividend income required to be shown on his federal income tax
return, 31% backup withholding may be required in respect of any reportable
payments, as described above under "Certain Federal Income Tax Consequences for
REMIC Certificates--Backup Withholding".
TAXATION OF CERTAIN FOREIGN INVESTORS
To the extent that a Certificate evidences ownership in Mortgage Loans
that are issued on or before July 18, 1984, interest or original issue discount
paid by the person required to withhold tax under Code Section 1441 or 1442 to
nonresident aliens, foreign corporations, or other Non-U.S. Persons generally
will be subject to 30% United States withholding tax, or such lower rate as may
be provided for interest by an applicable tax treaty. Accrued original issue
discount recognized by the Standard Certificateholder or Stripped
Certificateholder on original issue discount recognized by the Standard
Certificateholder or Stripped Certificateholders on the sale or exchange of
such a Certificate also will be subject to federal income tax at the same rate.
Treasury regulations provide that interest or original issue discount paid
by the Trustee or other withholding agent to a Non-U.S. Person evidencing
ownership interest in Mortgage Loans issued after July 18, 1984 will be
"portfolio interest" and will be treated in the manner, and such persons will
be subject to the same certification requirements, described above under
"Certain Federal Income Tax Consequences for REMIC Certificates--Taxation of
Certain Foreign Investors--Regular Certificates".
STATE AND OTHER TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences", potential investors should consider the state
and local tax consequences of the acquisition, ownership, and disposition of
the Offered Certificates. State tax law may differ substantially from the
corresponding federal law, and the discussion above does not purport to
describe any aspect of the tax laws of any state or other jurisdiction.
Therefore, prospective investors should consult their own tax advisors with
respect to the various tax consequences of investments in the Offered
Certificates.
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ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Code impose certain requirements on employee benefit
plans, and on certain other retirement plans and arrangements, including
individual retirement accounts and annuities, Keogh plans, collective
investment funds, insurance company and separate accounts and some insurance
company general accounts in which such plans, accounts or arrangements are
invested (all of which are hereinafter referred to as "Plans"), and on persons
who are fiduciaries with respect to Plans in connection with the investment of
Plan assets.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and
the requirement that a Plan's investments be made in accordance with the
documents governing the Plan. In addition, ERISA and the Code prohibit a broad
range of transactions involving assets of a Plan and persons ("Parties in
Interest") who have certain specified relationships to the Plan, unless a
statutory or administrative exemption is available. Parties in Interest that
participate in a prohibited transaction may be subject to an excise tax imposed
pursuant to Section 4975 of the Code, unless a statutory or administrative
exemption is available. These prohibited transactions generally are set forth
in Section 406 of ERISA and Section 4975 of the Code. Special caution should be
exercised before the assets of a Plan are used to purchase a Certificate if,
with respect to such assets, the Depositor, the Master Servicer, a Special
Servicer or any Sub-Servicer or the Trustee or an affiliate thereof, either:
(a) has discretionary authority or control with respect to the investment of
such assets of such Plan; or (b) has authority or responsibility to give, or
regularly gives, investment advice with respect to such assets of such Plan for
a fee and pursuant to an agreement or understanding that such advice will serve
as a primary basis for investment decisions with respect to such assets and
that such advice will be based on the particular investment needs of the Plan.
Before purchasing any Offered Certificates, a Plan fiduciary should
consult with its counsel and determine whether there exists any prohibition to
such purchase under the requirements of ERISA, whether any prohibited
transaction Class exemption or any individual prohibited transaction exemption
(as described below) applies, including whether the appropriate conditions set
forth therein would be met, or whether any statutory prohibited transaction
exemption is applicable, and further should consult the applicable Prospectus
Supplement relating to such series of Certificates.
Certain employee benefit plans, such as governmental plans (as defined in
ERISA Section 3(32)), and, if no election has been made under Section 410(d) of
the Code, church plans (as defined in Section 3(33) of ERISA) are not subject
to ERISA requirements. Accordingly, assets of such governmental and church
plans may be invested in Offered Certificates without regard to the ERISA
considerations described below, subject to the provisions of other applicable
federal and state law. Any such plan which is qualified and exempt from
taxation under Sections 401(a) and 501(a)
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of the Code, however, is subject to the prohibited transaction rules set forth
in Section 503 of the Code.
PLAN ASSET REGULATIONS
A Plan's investment in Offered Certificates may cause the Trust Assets to
be deemed Plan assets. Section 2510.3-101 of the regulations ("Plan Asset
Regulations") of the United States Department of Labor ("DOL") provides that
when a Plan acquires an equity interest in an entity, the Plan's assets include
both such equity interest and an undivided interest in each of the underlying
assets of the entity, unless certain exceptions not applicable to this
discussion apply, or unless the equity participation in the entity by "benefit
plan investors" (that is, Plans, certain employee benefit plans not subject to
ERISA, and entities whose underlying assets include plan assets) is not
"significant". For this purpose, the Plan Asset Regulations provide, in
general, that participation in an entity, such as a Trust Fund, is
"significant" if, immediately after the most recent acquisition of any equity
interest, 25% or more of any Class of equity interests, such as Certificates,
is held by benefit plan investors. Unless restrictions on ownership of and
transfer to Plans apply with respect to a series of Certificates, there can be
no assurance that benefit plan investors will not own at least 25% of a Class
of Certificates.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides
investment advice with respect to such assets for a fee, is a fiduciary of the
investing Plan. If the Trust Assets constitute Plan assets, then any party
exercising management or discretionary control regarding those assets, such as
a Master Servicer, a Special Servicer or any Sub-Servicer, may be deemed to be
a Plan "fiduciary" with respect to the investing Plan, and thus subject to the
fiduciary responsibility provisions and prohibited transaction provisions of
ERISA and the Code. In addition, if the Trust Assets constitute Plan assets,
the purchase of Certificates by a Plan, as well as the operation of the Trust
Fund, may constitute or involve one or more prohibited transactions under ERISA
and the Code.
ADMINISTRATIVE EXEMPTIONS
Several underwriters of mortgage-backed securities have applied for and
obtained from DOL individual administrative ERISA prohibited transaction
exemptions that apply to the purchase and holding of mortgage-backed securities
which, among other conditions, are sold in an offering with respect to which
such underwriter serves as the sole or a managing underwriter or as a selling
or placement agent. If such an exemption may be applicable to a series of
Certificates, the related Prospectus Supplement will refer to such possibility,
as well as provide a summary of the conditions to the exemption's
applicability.
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UNRELATED BUSINESS TAXABLE INCOME; RESIDUAL CERTIFICATES
The purchase of a Residual Certificate by any employee benefit plan
qualified under Code Section 401(a) and exempt from taxation under Code Section
501(a), including most varieties of ERISA Plans, may give rise to "unrelated
business taxable income" as described in Code Sections 511-515 and 860E.
Further, prior to the purchase of Residual Certificates, a prospective
transferee may be required to provide an affidavit to a transferor that it is
not, nor is it purchasing a Residual Certificate on behalf of, a "Disqualified
Organization", which term as defined above includes certain tax-exempt entities
not subject to Code Section 511 including certain governmental plans, as
discussed above under the caption "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates--Taxation
of Residual Certificates--Tax- Related Restrictions on Transfer of Residual
Certificates--Disqualified Organizations."
Due to the complexity of these rules and the penalties that may be imposed
upon persons involved in prohibited transactions, it is particularly important
that potential investors who are Plan fiduciaries consult with their counsel
regarding the consequences under ERISA of their acquisition and ownership of
Certificates.
The sale of Certificates to an employee benefit plan is in no respect a
representation by the Depositor or the Underwriter that this investment meets
all relevant legal requirements with respect to investments by plans generally
or by any particular plan, or that this investment is appropriate for plans
generally or for any particular plan.
LEGAL INVESTMENT
The Offered Certificates will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984, as amended
("SMMEA"), only if so specified in the related Prospectus Supplement. The
appropriate characterization of those Certificates not qualifying as "mortgage
related securities" ("Non-SMMEA Certificates") under various legal investment
restriction, and thus the ability of investors subject to these restrictions to
purchase such Certificates, may be subject to significant interpretive
uncertainties. Accordingly, investors whose investment authority is subject to
legal restrictions should consult their own legal advisors to determine whether
and to what extent the Non-SMMEA Certificates constitute legal investments for
them.
Generally, only Classes of Offered Certificates that (i) are rated in one
of the two highest rating categories by one or more Rating Agencies, (ii) are
part of a series evidencing interests in a Trust Fund consisting of loans
originated by certain types of Originators as specified in SMMEA and (iii) are
part of a series evidencing interests in a Trust Fund consisting of mortgage
loans each of which is secured by a first lien on (a) a single parcel of real
estate on which is located a residential and/or mixed residential and
commercial structure or (b) one or more parcels of real estate upon which are
located one or more commercial structures will be "mortgage related securities"
for purposes of SMMEA. As "mortgage related securities", such Classes will
constitute legal
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investments, for persons, trusts, corporations, partnerships, associations,
business trusts and business entities (including depository institutions,
insurance companies, trustees and pension funds) created pursuant to or
existing under the laws of the United States or of any state (including the
District of Columbia and Puerto Rico) whose authorized investments are subject
to state regulation, to the same extent that obligations issued by or
guaranteed as to principal and interest by the United States or any agency or
instrumentality thereof constitute legal investments for such entities under
applicable law. Under SMMEA, a number of states enacted legislation on or prior
to the October 3, 1991 cut-off for such enactments limiting to various extends
the ability of certain entities (in particular, insurance companies) to invest
in "mortgage related securities", secured by liens on residential, or mixed
residential and commercial properties, in most cases by requiring the affected
investors to rely solely upon existing state law, and not SMMEA. Pursuant to
Section 347 of the Riegle Community Development and Regulatory Improvement Act
of 1994, states are authorized to enact legislation, on or before September 23,
2001, prohibiting or restricting the purchase, holding or investment by state
regulated entities in certificates satisfying the rating and qualified
Originator requirements for "mortgage related securities", but evidencing
interests in a Trust Fund consisting, in whole or in part, of first liens on
one or more parcels of real estate upon which are located one or more
commercial structures. Accordingly, the investors affected by such legislation
will be authorized to invest in Offered Certificates qualifying as "mortgage
related securities" only to the extent provided in such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in "mortgage
related securities" without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without
regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. Section 24 (Seventh), subject in each case to such
regulations as the applicable federal regulatory authority may prescribe. In
this connection, effective December 31, 1996, the Office of the Comptroller of
the Currency (the "OCC") has amended 12 C.F.R. Part 1 to authorize national
banks to purchase and sell for their own account, without limitation as to a
percentage of the bank's capital and surplus (but subject to compliance with
certain general standards in 12 C.F.R. ss.1.5 concerning "safety and soundness"
and retention of credit information), certain "Type IV securities", defined in
12 C.F.R. ss.1.2(1) to include certain "commercial mortgage-related securities"
and "residential mortgage-related securities." As so defined, "commercial
mortgage-related security" and "residential mortgage-related security" mean, in
relevant part, "mortgage related security" within the meaning of SMMEA,
provided that, in the case of a "commercial mortgage-related security", it
"represents ownership of a promissory note or certificate of interest or
participation that is directly secured by a first lien on one or more parcels
of real estate upon which one or more commercial structures are located and
that is fully secured by interests in a pool of loans to numerous obligors." In
the absence of any rule or administrative interpretation by the OCC defining
the term "numerous obligors", no representation is made as to whether any Class
of Certificates will qualify as "commercial mortgage-related securities", and
thus as "Type IV securities", for investment by national banks. federal credit
unions should review NCUA Letter to Credit Unions No. 96, as modified by Letter
to Credit Unions No. 108, which includes guidelines to assist federal credit
unions in making investment decisions for mortgage related
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securities. The NCUA has adopted rules, codified as 12 C.F.R.
ss.ss.703.5(f)-(k), which prohibit federal credit unions from investing in
certain mortgage related securities (including securities such as certain
Classes of the Offered Certificates), except under limited circumstances.
Effective January 1, 1998, the NCUA has amended its rules governing investments
by federal credit unions at 12 C.F.R. Part 703; the revised rules will permit
investments in "mortgage related securities" under certain limited
circumstances, but will prohibit investments in stripped mortgage related
securities, residual interests in mortgage related securities, and commercial
mortgage related securities, unless the credit union has obtained written
approval from the NCUA to participate in the "investment pilot program"
described in 12 C.F.R. ss. 703.140.
All depository institutions considering an investment in the Offered
Certificates should review the "Supervisory Policy Statement on Securities
Activities" dated January 28, 1992, as revised April 15, 1994 (the "Policy
Statement") of the Federal Financial Institutions Examination Council (the
"FFIEC"). The Policy Statement, which has been adopted by the Board of
Governors of the Federal Reserve System, the OCC, the Federal Depository
Insurance Company and the Office of Thrift Supervision, and by the NCUA (with
certain modifications), prohibits depository institutions from investing in
certain "high-risk mortgage securities" (including securities such as certain
Classes of the Offered Certificates), except under limited circumstances, and
sets forth certain investment practices deemed to be unsuitable for regulated
institutions. On September 29, 1997, the FFEIC released for public comment a
proposed "Supervisory Policy Statement on Investment Securities and End-User
Derivatives Activities" (the "1997 Statement"), which would replace the Policy
Statement. As proposed, the 1997 Statement would delete the specific "high-risk
mortgage securities" tests, and substitute general guidelines which depository
institutions should follow in managing risks (including market, credit,
liquidity, operational (transactional), and legal risks) applicable to all
securities (including mortgage pass-through securities and mortgage-derivative
products) used for investment purposes.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any Class of
the Offered Certificates, as certain Classes may be deemed unsuitable
investments, or may otherwise be restricted, under such rules, policies or
guidelines (in certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying", and, with regard to any Class of the Offered
Certificates issued in book-entry form, provisions which may restrict or
prohibit investments in securities which are issued in book-entry form.
Except as to the status of certain Classes of Offered Certificates as
"mortgage related securities", no representations are made as to the proper
characterization of any Class of Offered Certificates for legal investment
purposes, financial institution regulatory purposes, or other
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purposes, or as to the ability of particular investors to purchase any Class of
Offered Certificates under applicable legal investment restrictions. These
uncertainties (and any unfavorable future determinations concerning legal
investment or financial institution regulatory characteristics of the Offered
Certificates) may adversely affect the liquidity of any Class of Offered
Certificates.
Accordingly, all investors whose investment activities are subject to
legal investment laws and regulations, regulatory capital requirements or
review by regulatory authorities should consult with their own legal advisors
in determining whether and to what extent the Offered Certificates of any Class
constitute legal investments or are subject to investment, capital or other
restrictions.
METHOD OF DISTRIBUTION
The Offered Certificates offered hereby and by the Supplements to this
Prospectus will be offered in series. The distribution of the Offered
Certificates may be effected from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices to be determined at the time of sale or at the time of
commitment therefor. If so specified in the related Prospectus Supplement, the
Offered Certificates will be distributed in a firm commitment underwriting,
subject to the terms and conditions of the underwriting agreement, by
PaineWebber Incorporated ("PaineWebber") acting as underwriter with other
underwriters, if any, named therein. In such event, the Prospectus Supplement
may also specify that the underwriters will not be obligated to pay for any
Offered Certificates agreed to be purchased by purchasers pursuant to purchase
agreements acceptable to the Depositor. In connection with the sale of Offered
Certificates, underwriters may receive compensation from the Depositor or from
purchasers of Offered Certificates in the form of discounts, concessions or
commissions. The Prospectus Supplement will describe any such compensation paid
by the Depositor.
Alternatively, the Prospectus Supplement may specify that Offered
Certificates will be distributed by PaineWebber acting as agent or in some
cases as principal with respect to Offered Certificates that it has previously
purchased or agreed to purchase. If PaineWebber acts as agent in the sale of
Offered Certificates, PaineWebber will receive a selling commission with
respect to such Offered Certificates, depending on market conditions, expressed
as a percentage of the aggregate Certificate Balance or notional amount of such
Offered Certificates as of the Cut-off Date. The exact percentage for each
series of Certificates will be disclosed in the related Prospectus Supplement.
To the extent that PaineWebber elects to purchase Offered Certificates as
principal, PaineWebber may realize losses or profits based upon the difference
between its purchase price and the sales price. The Prospectus Supplement with
respect to any series offered other than through underwriters 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 will indemnify PaineWebber and any underwriters against
certain civil liabilities, including liabilities under the Securities Act of
1933, or will contribute to payments PaineWebber and any underwriters may be
required to make in respect thereof.
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In the ordinary course of business, PaineWebber and the Depositor may
engage in various securities and financing transactions, including repurchase
agreements to provide interim financing of the Depositor's mortgage loans
pending the sale of such mortgage loans or interests therein, including the
Certificates.
The Depositor anticipates that the Offered Certificates will be sold
primarily to institutional investors. Purchasers of Offered Certificates,
including dealers, may, depending on the facts and circumstances of such
purchases, be deemed to be "underwriters" within the meaning of the Securities
Act of 1933 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 PaineWebber in connection with offers and sales
related to market-making transactions in Certificates previously offered
hereunder in transactions in which PaineWebber acts as principal. PaineWebber
may also act as agent in such transactions. Sales may be made at negotiated
prices determined at the time of sale.
LEGAL MATTERS
Certain legal matters in connection with the Certificates, including
certain federal income tax consequences, will be passed upon for the Depositor
and PaineWebber Incorporated by O'Melveny & Myers LLP.
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 a Rating Agency.
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Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
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 mortgagors 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>
<S> <C>
1986 Act.......................................................................................92
1997 Statement................................................................................128
Accrual Certificates.......................................................................15, 36
Accrued Certificate Interest...................................................................39
ADA............................................................................................87
ARM Loans......................................................................................27
Asset Conservation Act.........................................................................83
Available Distribution Amount..................................................................37
Bankruptcy-remote entity.......................................................................82
Book-Entry Certificates........................................................................37
Cash collateral................................................................................79
Cash Flow Agreement........................................................................12, 30
Cede............................................................................................5
CERCLA.....................................................................................23, 82
Certificate....................................................................................48
Certificate Account....................................................................12, 29, 52
Certificate Owner..............................................................................46
Certificate Principal Balance..............................................................15, 40
Certificateholder..............................................................................88
Certificateholders..............................................................................5
Certificates................................................................................1, 11
Class...........................................................................................1
Clearing agency................................................................................45
Clearing corporation...........................................................................45
Code...........................................................................................89
Commercial Loans...............................................................................26
Commercial mortgage-related security..........................................................128
Commercial Properties.......................................................................1, 25
Commission......................................................................................4
Conversion transaction........................................................................109
Cooperatives...................................................................................25
Covered Trust..............................................................................22, 68
CPR............................................................................................34
Credit Support..........................................................................2, 13, 30
Crime Control Act..............................................................................87
Cut-off Date...................................................................................16
Debt Service Coverage Ratio....................................................................25
Defective......................................................................................91
Defective obligation...........................................................................90
132
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Definitive Certificates........................................................................36
Depositor..................................................................................10, 24
Determination Date.............................................................................37
Direct Participants............................................................................45
Disqualified Organization.....................................................................107
Distribution Date..............................................................................15
DOL...........................................................................................125
DTC.........................................................................................5, 45
Due Period.....................................................................................37
Due-on-encumbrance.............................................................................35
Due-on-sale....................................................................................35
EPA............................................................................................83
Equity Participations..........................................................................28
ERISA.....................................................................................19, 124
Excess servicing..............................................................................117
Exchange Act....................................................................................5
FASIT.....................................................................................90, 122
FDIC...........................................................................................51
FFIEC.........................................................................................128
Foreign Investors.............................................................................108
Fraudulent conveyance..........................................................................81
Garn Act.......................................................................................84
Government Securities..........................................................................89
Holder.........................................................................................88
Holder in due course...........................................................................85
Indirect Participants..........................................................................45
Insurance Proceeds.............................................................................52
L/C Bank.......................................................................................70
Liquidation Proceeds...........................................................................52
Lock-out Date..................................................................................28
Lock-out Period................................................................................28
Mark to Market Regulations....................................................................110
Master Servicer................................................................................10
MBS Securities..........................................................................1, 11, 24
Mortgage Assets................................................................................24
Mortgage Loan..................................................................................72
Mortgage Loans..........................................................................1, 11, 24
Mortgage Notes.................................................................................25
Mortgage Rate..............................................................................12, 28
Mortgage related securities.........................................................126, 127, 129
Mortgage related security.....................................................................128
Mortgaged Property..............................................................................1
Mortgagee-in-possession........................................................................58
Mortgages..................................................................................25, 72
133
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Multifamily Loans..............................................................................24
Multifamily Properties..................................................................1, 11, 24
Net Leases.....................................................................................26
Net of expense.................................................................................26
Net Operating Income...........................................................................25
Non-SMMEA Certificates........................................................................126
Non-U.S. Person...............................................................................113
Noneconomic residual interest.................................................................108
Nonrecoverable Advance.........................................................................41
Numerous obligors.............................................................................128
OCC...........................................................................................127
Offered Certificates............................................................................1
OID Regulations................................................................................93
Operator...................................................................................23, 58
Original Issue Discount.......................................................................100
Owner......................................................................................23, 58
Ownership interest............................................................................123
PaineWebber...................................................................................129
Participants...............................................................................30, 45
Parties in Interest...........................................................................124
Pass-Through Entity...........................................................................107
Pass-Through Rate...........................................................................4, 14
Permitted Investments......................................................................51, 90
Plan Asset Regulations........................................................................125
Plans.........................................................................................124
Policy Statement..............................................................................128
Pooling and Servicing Agreement................................................................14
Portfolio interest.......................................................................113, 124
Prepayment.....................................................................................34
Prepayment Assumption.........................................................................94
Prepayment Premium.............................................................................28
PRPs...........................................................................................82
Purchase Price.................................................................................50
Qualified mortgages............................................................................90
Random Lot Certificates........................................................................93
Rating Agency..................................................................................18
Record Date....................................................................................37
Regular Certificateholder......................................................................92
Regular Certificates...........................................................................88
Regular interests..............................................................................89
Related Proceeds...............................................................................41
Relief Act.....................................................................................86
REMIC Certificates.............................................................................88
REMIC Pool.....................................................................................88
134
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REMIC Regulations..............................................................................88
Residential mortgage-related security.........................................................128
Residual Certificateholders...................................................................101
Residual Certificates..........................................................................88
Residual interests.............................................................................89
Retained Interest..............................................................................62
RICO...........................................................................................87
SBJPA of 1996..................................................................................89
Senior Certificates........................................................................14, 36
Service........................................................................................91
Servicing Standard.............................................................................55
Single purpose entity..........................................................................82
SMMEA.....................................................................................19, 126
SPA............................................................................................34
Special purpose entity.........................................................................82
Special Servicer...........................................................................11, 56
Standard Certificateholder....................................................................115
Standard Certificates.........................................................................115
Startup Day....................................................................................89
Stripped bonds...........................................................................118, 119
Stripped Certificateholder....................................................................121
Stripped Certificates....................................................................116, 119
Stripped coupons..............................................................................119
Stripped Interest Certificates........................................................16, 37, 119
Stripped Principal Certificates.......................................................16, 37, 119
Sub-Servicer...................................................................................56
Sub-Servicing Agreement........................................................................56
Subordinate Certificates...................................................................14, 36
Super-premium..................................................................................94
Superlien......................................................................................82
Taxable mortgage pool.........................................................................119
Thrift institutions...........................................................................106
Title V........................................................................................85
Treasury.......................................................................................88
Trust Assets....................................................................................4
Trust Fund......................................................................................1
Trustee........................................................................................11
Type IV securities............................................................................128
U.S. Person...................................................................................109
UCC............................................................................................73
Voting Rights..................................................................................24
Warranting Party...............................................................................49
</TABLE>
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the Certificates, other than underwriting
discounts and commissions:
SEC Registration Fee ................................$319,913.80
Blue Sky Fees and Expenses........................... 25,000.00
Printing and Engraving Fees.......................... 50,000.00
Legal Fees and Expenses.............................. 250,000.00
Accounting Fees and Expenses......................... 100,000.00
Trustee Fees and Expenses............................ 50,000.00
Rating Agency Fees................................... 125,000.00
Miscellaneous........................................ 30,000.00
Total.............................................$949,913.80
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the form of Underwriting Agreement included in the Registration
Statement, the Underwriters are obligated to indemnify certain controlling
persons of the Depositor against certain liabilities, including liabilities
under the Securities Act of 1933.
The Depositor's By-laws provide for indemnification of directors and
officers of the Depositor to the full extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law provides, in
substance, that Delaware corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents in
connection with actions, suits or proceedings brought against them by a third
party or in the right of the corporation, by reason of the fact that they are
or were such directors, officers, employees or agents, against expenses
incurred in any such action, suit or proceeding.
The Pooling and Servicing Agreements or Trust Agreements will provide that
no director, officer, employee or agent of the Depositor is liable to the Trust
Fund or the Certificateholders, except for such person's own willful
misfeasance, bad faith, gross negligence in the performance of duties or
reckless disregard of obligations and duties. The Pooling and Servicing
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Agreements or Trust Agreements will provide further that, with the exceptions
stated above, a director, officer, employee or agent of the Depositor is
entitled to be indemnified against any loss, liability or expenses incurred in
connection with legal actions relating to such Pooling and Servicing Agreements
or Trust Agreements and the related Certificates, other than such expenses
relating to particular Mortgage Loans.
ITEM 16. EXHIBITS
1.1* Form of Underwriting Agreement.
3.1* Certificate of Incorporation of Depositor.
3.2* By-laws of Depositor.
4.1* Form of Pooling and Servicing Agreement.
5.1* Opinion of O'Melveny & Myers LLP as to legality of the Certificates.
8.1* Opinion of O'Melveny & Myers LLP as to certain tax matters.
24.1 Consent of O'Melveny & Myers LLP (Included in Exhibits 5.1 and 8.1).
25.1* Powers of Attorney
*Previously filed
ITEM 17. UNDERTAKINGS
A. Undertaking in respect of indemnification
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in Item 15
above, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act, unless in the opinion of its counsel the matter has been
settled by controlling precedent, and will be governed by the final
adjudication of such issue.
B. UNDERTAKING PURSUANT TO RULE 415.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
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(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change of such information in the Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the information
required to be included in the post-effective amendment is contained in
periodic reports filed by the Issuer pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, reasonably believes that the security
rating requirement of Transaction Requirement B.5 of Form S-3 will be met by
the time of sale of the securities being registered and has duly caused this
Pre-Effective Amendment No. 1 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
New York on the 15th day of January, 1999.
PAINWEBBER MORTGAGE ACCEPTANCE
CORPORATION V
By: /s/ Steven J. Plust
-----------------------------
Steven J. Plust
Senior Vice President
