Filed Pursuant to Rule 424(b)(3)
Registration File No.: 333-87441
Information contained in this prospectus supplement and the accompanying
prospectus is not complete and may be changed. We may not sell these securities
until the final prospectus supplement and prospectus are delivered. This
prospectus supplement and the accompanying prospectus are not an offer to sell
these securities and are not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
Subject to completion, Dated July 13, 2001
PROSPECTUS SUPPLEMENT
(To Prospectus dated July 13, 2001)
[GRAPHIC OMITTED] J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
Depositor
$871,639,000 (Approximate)
Mortgage Pass-Through Certificates, Series 2001-CIBC2
THE OFFERED CERTIFICATES:
o The trust fund will issue several classes of certificates. Only the following
six classes of "offered certificates" are offered hereby:
INITIAL PASS-THROUGH RATE
APPROXIMATE INITIAL CLASS (MAY BE SUBJECT TO RATINGS
CLASS BALANCE(1) ADJUSTMENT) (FITCH/S&P)
- ---------------------------------------------------------------------------------------------
Class A1 ......... $ 50,000,000 % AAA/AAA
Class A2 ......... $153,250,000 % AAA/AAA
Class A3 ......... $573,754,000 % AAA/AAA
Class B .......... $ 39,846,000 % AA/AA
Class C .......... $ 39,846,000 % A/A
Class D .......... $ 14,943,000 % A-/A-
- ---------
(Footnotes to table on page S-1)
- --------------------------------------------------------------------------------
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE S-9 OF THIS
PROSPECTUS SUPPLEMENT AND PAGE 9 IN THE ACCOMPANYING PROSPECTUS.
Neither the offered certificates nor the underlying mortgage loans are insured
or guaranteed by any governmental agency or instrumentality.
The offered certificates will represent interests in the trust fund only. They
will not represent interests in or obligations of the depositor, any of its
affiliates or any other entity.
This prospectus supplement may be used to offer and sell the offered
certificates only if accompanied by the prospectus dated July 13, 2001.
- --------------------------------------------------------------------------------
o The offered certificates will represent beneficial ownership interests in the
trust fund only.
o Interest will be payable monthly, commencing in August 2001.
o Principal payments will also be payable monthly. The outstanding class with
the highest priority of distribution will receive all principal payments until
it is paid in full. This sequential payment will continue until all classes have
their respective class balances reduced to zero.
THE TRUST FUND:
o The trust fund will consist of fixed rate mortgage loans secured by mortgages
or deeds of trust on multifamily or commercial properties.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE OFFERED CERTIFICATES OR
DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS ACCURATE OR
COMPLETE. 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.
We expect that the delivery of the offered certificates will be made in
book-entry form on or about July , 2001.
J.P. Morgan Securities Inc. and CIBC World Markets Corp. are acting as co-lead
managers and underwriters for the offering. Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Salomon Smith Barney Inc. are each acting as a
co-manager and underwriter for the offering. J.P. Morgan Securities Inc. is the
sole bookrunner of all of the offered certificates. The underwriters will offer
the offered certificates to the public in negotiated transactions at varying
prices to be determined at the time of sale. The proceeds to the depositor from
the initial sale of the offered certificates will be approximately % of the
initial principal balance thereof, plus accrued interest from the cut-off date.
JPMORGAN CIBC WORLD MARKETS CORP.
MERRILL LYNCH & CO. SALOMON SMITH BARNEY
Prospectus Supplement dated July , 2001
J.P. MORGAN
J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES CORP., X
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2001-CIBC 2
TEXAS 19 properties $144,145,154 14.5% of total
CALIFORNIA 28 properties $124,382,232 12.5% of total
NEW YORK 11 properties $86,942,884 8.7% of total
COLORADO 7 properties $60,026,032 6.0% of total
INDIANA 3 properties $56,522,565 5.7% of total
MARYLAND 8 properties $47,309,222 4.7% of total
VIRGINIA 9 properties $43,266,611 4.3% of total
ILLINOIS 6 properties $41,338,774 4.1% of total
MINNESOTA 1 properties $39,959,089 4.0% of total
GEORGIA 5 properties $39,387,202 4.0% of total
TENNESSEE 8 properties $38,480,503 3.9% of total
CONNECTICUT 4 properties $30,382,217 3.0% of total
FLORIDA 11 properties $30,108,148 3.0% of total
NEW JERSEY 4 properties $29,448,461 3.0% of total
NORTH CAROLINA 7 properties $28,947,906 2.9% of total
PENNSYLVANIA 2 properties $22,365,846 2.2% of total
OHIO 9 properties $21,482,328 2.2% of total
ARIZONA 5 properties $16,842,346 1.7% of total
MICHIGAN 3 properties $15,616,350 1.6% of total
SOUTH CAROLINA 3 properties $12,154,147 1.2% of total
MISSOURI 1 properties $9,778,667 1.0% of total
KENTUCKY 2 properties $8,431,269 0.8% of total
NEVADA 2 properties $8,378,971 0.8% of total
OREGON 1 properties $7,829,061 0.8% of total
ARKANSAS 1 properties $7,191,521 0.7% of total
MISSISSIPPI 2 properties $5,765,239 0.6% of total
LOUISIANA 4 properties $5,487,706 0.6% of total
WISCONSIN 1 properties $4,587,853 0.5% of total
ALABAMA 1 properties $3,297,708 0.3% of total
ALASKA 2 properties $2,135,797 0.2% of total
DISTRICT OF COLUMBIA 1 properties $1,795,482 0.2% of total
IDAHO 1 properties $1,361,521 0.1% of total
MASSACHUSETTS 1 properties $1,009,785 0.1% of total
[ ] less than or equal to 1.00% of Initial Pool Balance
[ ] 1.01% - 5.00% of Initial Pool Balance
[ ] 5.01% - 10.00% of Initial Pool Balance
[ ] more than 10.00% of Initial Pool Balance
PROPERTY TYPES
OFFICE 31.9%
RETAIL 29.7%
MULTIFAMILY 16.3%
INDUSTRIAL 9.1%
HOTEL 7.9%
MOBILE HOME PARK 4.7%
SELF-STORAGE 0.4%
[PICTURE]
Colling Creek Mall, Plano, TX
[PICTURE]
National City Center, Indianapolis, IN
[PICTURE]
Collin Creek Mall - interior, Plano, TX
[PICTURE]
Fiddler's Green I, Greenwood Village, CO
[PICTURE]
Minneapolis Airport, Marriott, Bloomington, MN
[PICTURE]
Augusta Exchange Shopping Center, Augusta, GA
[PICTURE]
Chino Spectrum Marketplace, Chino, CA
[PICTURE]
Brooklyn Renaissance Plaza, Brooklyn, NY
[PICTURE]
Chino Spectrum Marketplace, Chino, CA
[PICTURE]
10 Weaver Road, Denver PA
[PICTURE]
Crocker Richmond Portfolio, Richmond, VA
[PICTURE]
Special Devices Portfolio, Moorpark, CA
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
WE PROVIDE INFORMATION TO YOU ABOUT THE OFFERED CERTIFICATES IN TWO
SEPARATE DOCUMENTS THAT PROGRESSIVELY PROVIDE MORE DETAIL: (A) THE ACCOMPANYING
PROSPECTUS, WHICH PROVIDES GENERAL INFORMATION, SOME OF WHICH MAY NOT APPLY TO
THE OFFERED CERTIFICATES AND (B) THIS PROSPECTUS SUPPLEMENT, WHICH DESCRIBES
THE SPECIFIC TERMS OF THE OFFERED CERTIFICATES. YOU SHOULD READ BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS BEFORE INVESTING IN ANY OF THE OFFERED
CERTIFICATES.
You should rely only on the information contained in this prospectus
supplement and accompanying prospectus. If the description of your certificates
in the prospectus and in this prospectus supplement varies, you should rely on
the information in this prospectus supplement.
We include cross-references in this prospectus supplement and the
prospectus to captions in these materials where you can find further related
discussions. The table of contents on page ii provides the page numbers on
which these captions are located.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement and the prospectus are defined under the caption "Index
of Principal Terms" on page S-86 in this prospectus supplement.
LIMITATIONS ON OFFERS OR SOLICITATIONS
We do not intend this document to be an offer or solicitation:
(A) if used in a jurisdiction in which such offer or solicitation is not
authorized;
(B) if the person making such offer or solicitation is not qualified to do
so; or
(C) if such offer or solicitation is made to anyone to whom it is unlawful
to make such offer or solicitation.
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
as of the date of this document.
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN
THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN UNDERWRITER
AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
i
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Executive Summary ........................................................................ S-1
Summary Of The Prospectus Supplement ..................................................... S-2
Risk Factors ............................................................................. S-9
Description of the Mortgage Pool ......................................................... S-26
Description of the Certificates .......................................................... S-54
Certain Prepayment, Maturity and Yield Considerations .................................... S-66
Master Servicer and Special Servicer ..................................................... S-69
Description of the Pooling and Servicing Agreement ....................................... S-76
Use of Proceeds .......................................................................... S-79
Certain Federal Income Tax Consequences .................................................. S-80
State Tax Considerations ................................................................. S-81
ERISA Considerations ..................................................................... S-81
Legal Investment ......................................................................... S-83
Plan of Distribution ..................................................................... S-83
Legal Matters ............................................................................ S-84
Rating ................................................................................... S-84
Index of Principal Terms ................................................................. S-86
Annex A: Certain Characteristics of the Mortgage Loans ................................... A-1
Annex B: Structural and Collateral Term Sheet ............................................ B-1
Annex C: Certificateholder Reports ....................................................... C-1
Annex D: Global Clearance, Settlement and Tax Documentation Procedures ................... D-1
PROSPECTUS
Important Notice About Information Presented in this Prospectus and the Accompanying
Prospectus Supplement ................................................................... 2
Additional Information ................................................................... 3
Incorporation of Certain Information by Reference ........................................ 3
Summary of Prospectus .................................................................... 4
Risk Factors ............................................................................. 9
Description of the Trust Funds ........................................................... 19
Use of Proceeds .......................................................................... 24
Yield Considerations ..................................................................... 24
The Depositor ............................................................................ 27
Description of the Certificates .......................................................... 28
Description of the Agreements ............................................................ 35
Description of Credit Support ............................................................ 50
Certain Legal Aspects of Mortgage Loans and the Leases ................................... 53
Federal Income Tax Consequences .......................................................... 68
ERISA Considerations ..................................................................... 96
Legal Investment ......................................................................... 98
Plan of Distribution ..................................................................... 100
Legal Matters ............................................................................ 101
Financial Information .................................................................... 101
Rating ................................................................................... 101
Glossary of Terms ........................................................................ 102
ii
EXECUTIVE SUMMARY
You should read carefully the detailed information appearing elsewhere in
this prospectus supplement and the accompanying prospectus in making your
investment decision. The following executive summary does not include important
information relating to the offered certificates, particularly with respect to
the risks and special considerations involved with an investment in the offered
certificates.
INITIAL
CLASS DESCRIPTION INITIAL WEIGHTED
BALANCE OF THE PASS- AVERAGE PRINCIPAL
RATING BY OR NOTIONAL % OF % CREDIT PASS-THROUGH THROUGH LIFE(3) WINDOW(3)
CLASS FITCH/S&P AMOUNT(1) TOTAL SUPPORT RATE RATE(2) (YEARS) (MONTHS)
- ----- --------- --------- ----- ------- ---- ------- ------- --------
Offered Certificates
A1 AAA/AAA $ 50,000,000 5.02% 22.000%(4) (5) 2.53 1-57
A2 AAA/AAA $ 153,250,000 15.38% 22.000%(4) (5) 6.98 57-111
A3 AAA/AAA $ 573,754,000 57.60% 22.000%(4) (5) 9.70 111-119
B AA/AA $ 39,846,000 4.00% 18.000% (5) 9.94 119-120
C A/A $ 39,846,000 4.00% 14.000% (5) 9.97 120-120
D A--/A-- $ 14,943,000 1.50% 12.500% (5) 9.97 120-120
Private
Certificates(6)
X1 AAA/AAA $ 996,158,595(7) N/A N/A (8)
X2 AAA/AAA $ 544,596,000(7) N/A N/A (8)
E BBB+/BBB+ $ 9,961,000 1.00% 11.500% (5)
F BBB/BBB $ 19,924,000 2.00% 9.500% (5)
G BBB--/BBB-- $ 12,452,000 1.25% 8.250% (5)
H BB+/BB+ $ 26,149,000 2.62% 5.625% (5)
J BB/BB $ 7,471,000 0.75% 4.875% (5)
K BB--/BB-- $ 7,471,000 0.75% 4.125% (5)
L B+/B+ $ 12,452,000 1.25% 2.875% (5)
M B/B $ 4,981,000 0.50% 2.375% (5)
N B--/B-- $ 4,981,000 0.50% 1.875% (5)
NR NR/NR $ 18,677,595 1.87% 0.000% (5)
- ----------
(1) Approximate, subject to a permitted variance of plus or minus 10%.
(2) In addition to distributions of interest and principal, holders of the
offered certificates will be entitled to receive a portion of any
prepayment premiums as described herein.
(3) Assumes no prepayments, defaults or early termination. See "Certain
Prepayment, Maturity and Yield Considerations -- Weighted Average Life of
Offered Certificates" herein.
(4) Represents the approximate credit support for the Class A1, Class A2 and
Class A3 Certificates in the aggregate.
(5) The pass-through rate for this class of certificates will be equal to
either a fixed rate or a rate based on the weighted average of the
remittance rates on the mortgage loans.
(6) Not offered hereby.
(7) Notional Amount.
(8) The aggregate interest accrual amount on the Class X1 and Class X2
Certificates (collectively, the "Class X Certificates") will be
calculated by reference to a notional amount equal to the aggregate of
the class balances of all the other classes of certificates and a
pass-through rate equal to the weighted average of the remittance rates
on the mortgage loans minus the weighted average of the pass-through
rates on all other classes of certificates. The remittance rates on the
mortgage loans will equal the mortgage rates on the mortgage loans net of
certain servicing and trustee fees. The pass-through rates for each of
the Class X1 and Class X2 Certificates will be specified in the Pooling
and Servicing Agreement.
S-1
SUMMARY OF THE PROSPECTUS SUPPLEMENT
The following summary is a brief description of the main terms of the
offered certificates. For this reason, the summary does not contain all the
information that may be important to you. You will find a detailed description
of the terms of the offered certificates following this summary and in the
prospectus. Certain capitalized terms used in this summary are defined
elsewhere in this prospectus supplement.
TITLE OF CERTIFICATES Mortgage Pass-Through Certificates, Series
2001-CIBC2.
THE PARTIES
-----------
DEPOSITOR J.P. Morgan Chase Commercial Mortgage
Securities Corp., a Delaware corporation, an
indirect wholly-owned limited purpose finance
subsidiary of J.P. Morgan Chase & Co. and an
affiliate of J.P. Morgan Securities Inc., one
of the underwriters. See "The Depositor" in
the prospectus.
SELLERS Morgan Guaranty Trust Company of New York, an
affiliate of the depositor and one of the
underwriters and CIBC Inc., an affiliate of
one of the underwriters.
PERCENT
NUMBER AGGREGATE OF
OF CUT-OFF DATE INITIAL
MORTGAGE PRINCIPAL POOL
MORTGAGE LOAN SELLER LOANS BALANCE BALANCE
- --------------------------- ---------- -------------- ----------
CIBC Inc. ............... 60 $500,218,991 50.2%
Morgan Guaranty Trust
Company of New York...... 92 $495,939,604 49.8%
MASTER SERVICER Midland Loan Services, Inc., a Delaware
corporation. See "Master Servicer and Special
Servicer" herein.
SPECIAL SERVICER First Union National Bank, a national banking
association. The special servicer may be
removed without cause under certain
circumstances described herein under "Master
Servicer and Special Servicer" herein.
TRUSTEE Wells Fargo Bank Minnesota, N.A., a national
banking association. See "Description of the
Pooling and Servicing Agreement -- Trustee"
herein.
SIGNIFICANT DATES
-----------------
CUT-OFF DATE July 1, 2001 (except for one mortgage loan
which has a cut-off date on July 5, 2001 and
two mortgage loans which have a cut-off date
on July 10, 2001).
DELIVERY DATE On or about July , 2001.
DISTRIBUTION DATE The 15th day of each month or, if such 15th
day is not a business day, on the next
succeeding business day, beginning in August
2001.
S-2
DETERMINATION DATE For any distribution date, the fourth business
day prior to the related distribution date.
RATED FINAL DISTRIBUTION DATE The distribution date in April 2034.
REMITTANCE PERIOD For any distribution date, the period
beginning on the day after a determination
date in the immediately preceding month (or
the cut-off date, in the case of the first
remittance period) through and including the
related determination date.
THE CERTIFICATES
----------------
REGISTRATION OF THE OFFERED The offered certificates initially will be
CERTIFICATES issued in book-entry form. Certificateholders
acquiring beneficial ownership interests in the
offered certificates may elect to hold their
book-entry certificate interests either through
The Depository Trust Company, in the United
States, or through Clearstream or the
Clearstream System, in Europe. See "Description
of the Certificates -- Book-Entry Registration
of the Offered Certificates" in this prospectus
supplement and in the prospectus under
"Description of the Certificates -- Book-Entry
Registration and Definitive Certificates."
DENOMINATIONS The offered certificates will be issuable in
book-entry form in denominations of $25,000
and integral multiples of $1 in excess
thereof.
THE MORTGAGE LOANS
------------------
THE MORTGAGE POOL The trust fund will consist of a mortgage pool
of 152 fixed rate mortgage loans secured by
first liens on fee simple and/or leasehold
interests in office, retail, multifamily,
industrial, hotel, mobile home park, and self
storage properties, collectively the
"mortgaged properties," located in 32 states
and the District of Columbia. All the mortgage
loans were originated or purchased by Morgan
Guaranty Trust Company of New York or CIBC
Inc. See "Description of the Mortgage Pool --
General."
S-3
GENERAL MORTGAGE LOAN CHARACTERISTICS
(AS OF THE CUT-OFF DATE, UNLESS OTHERWISE INDICATED)
Initial Pool Balance ..................... $996,158,595
Number of Mortgage Loans ................. 152
Number of Mortgaged Properties ........... 173
Average Mortgage Loan Balance ............ $6,553,675
Maximum Mortgage Loan Balance ............ $74,000,000
Minimum Mortgage Loan Balance ............ $465,032
Weighted Average Mortgage Rate ........... 7.660%
Range of Mortgage Rates .................. 6.775%-9.120%
Weighted Average Remaining Term to the
Earlier of Maturity or Anticipated
Repayment Date ........................... 115 Months
Range of Remaining Term to the Earlier of
Maturity or Anticipated Repayment
Date .....................................57-240 Months
Weighted Average Remaining
Amortization ............................. 344 Months
Weighted Average UW DSCR ................. 1.37x
Weighted Average LTV ..................... 70.0%
Percentage of Initial Pool Balance made up
of:
Balloon Loans ............................ 43.2%
ARD Loans ................................ 56.6%
Fully Amortizing Loans (other than ARD
Loans) ................................... 0.2%
Multi-Property Loan ...................... 10.2%
Crossed Loans ............................ 0%
For a further description of the mortgage
loans, see "Description of the Mortgage Pool"
herein.
THE CERTIFICATES
----------------
THE OFFERED CERTIFICATES Only the Class A1, Class A2, Class A3, Class
B, Class C and Class D Certificates are
offered hereby. The offered certificates will
have the initial class balances set forth on
the cover hereof.
PASS-THROUGH RATES ON THE The pass-through rate on the offered
OFFERED CERTIFICATES certificates will be equal to either a fixed
rate or a rate based on the weighted average of
the remittance rates on the mortgage loans. The
remittance rates on the mortgage loans
represent the rates at which interest accrues
on the mortgage loans net of certain servicing
and trustee fees. The pass-through rate on the
offered certificates for the initial
distribution date is set forth above under
"Executive Summary."
S-4
DISTRIBUTIONS
-------------
INTEREST DISTRIBUTIONS ON THE In general, holders of each class of
CERTIFICATES certificates will be entitled to receive on
each distribution date in the order of their
priority, to the extent available,
distributions allocable to interest equal to
the interest accrued during the interest
accrual period on the related class balance
(or notional amount) immediately prior to such
distribution date at the then-applicable
pass-through rate.
Distributions will be made on each
distribution date. The chart below sets forth
the priority of each class for the payment of
interest to each class in descending order.
-----------------------------
Class A1, Class A2,
Class A3 and Class X
-----------------------------
--------------
Class B
--------------
--------------
Class C
--------------
--------------
Class D
--------------
-----------------------------
Other Private Certificates
-----------------------------
See "Description of the Certificates --
Distributions -- Interest Distributions on the
Certificates" herein.
S-5
PRINCIPAL DISTRIBUTIONS ON THE In general, holders of a class of offered
CERTIFICATES certificates will be entitled to receive on
each distribution date principal in the order
set forth in the chart below, until the related
class balance is reduced to zero, to the extent
available after the payment of interest for
such class of certificates.
--------------
Class A1
--------------
--------------
Class A2
--------------
--------------
Class A3
--------------
--------------
Class B
--------------
--------------
Class C
--------------
--------------
Class D
--------------
------------------------------------
Private Certificates (other than
Class X
------------------------------------
See "Description of the Certificates --
Distributions -- Principal Distributions on
the Offered Certificates" herein.
P&I ADVANCES Generally, the master servicer is required to
make advances for delinquent monthly payments
on the mortgage loans and for certain other
expenses to the extent described herein. To
the extent that the master servicer fails to
make any such advance required of it, the
trustee shall make such required advance as
provided in the pooling and servicing
agreement. As more fully described herein, if
either the master servicer or the trustee
makes an advance it will be entitled to
reimbursement of and interest on such advance.
Such advance will facilitate making regular
monthly distributions of principal and
interest on the certificates. See "Description
of the Certificates -- Advances" herein.
OTHER CONSIDERATIONS
--------------------
ALLOCATION OF REALIZED LOSSES Realized losses on the mortgage loans will be
allocated, first, to the private certificates
(other than the Class X Certificates), second,
to the Class D Certificates, third, to the
Class C Certificates, fourth to the Class B
Certificates, and thereafter, to the Class A1,
Class A2 and Class A3 Certificates, on a pro
rata basis, based on class balance, in
S-6
each case until the related class balance is
reduced to zero. The allocation of losses will
reduce the value of the affected certificates.
SPECIAL PRINCIPAL PREPAYMENT With certain limited exceptions, all of the
CONSIDERATIONS mortgage loans prohibit the prepayment thereof
until a date specified in the related mortgage
loan. See "Description of the Mortgage Pool"
herein. Distributions of principal on classes
having an earlier priority of payment will be
directly affected by the rates of prepayments
of the mortgage loans. The timing of
commencement of principal distributions and the
weighted average lives of classes of
certificates will be affected by the rate of
prepayments experienced.
SPECIAL YIELD CONSIDERATIONS A higher than anticipated rate of prepayments
(including voluntary prepayments and
prepayments resulting from defaults,
liquidations and purchases of mortgage loans
due to a breach of a representation or
warranty) would reduce the aggregate principal
balance of the mortgage loans more quickly
than expected, thereby reducing the aggregate
interest payments with respect to such
mortgage loans. Therefore, a higher rate of
principal prepayments could result in a lower
than expected yield to maturity on classes of
certificates purchased at a premium.
Conversely, a lower than anticipated rate of
principal prepayments could result in a lower
than expected yield to maturity on classes of
certificates purchased at a discount since
payments of principal with respect to the
mortgage loans would occur later than
anticipated. See "Certain Prepayment, Maturity
and Yield Considerations" herein.
OPTIONAL TERMINATION Subject to certain conditions, if the
aggregate stated principal balance of the
mortgage loans in the trust fund is less than
1% of the initial pool balance, the trust fund
may be terminated and your certificates may be
retired early. See "Description of the Pooling
and Servicing Agreement -- Termination"
herein.
CERTAIN FEDERAL INCOME TAX Separate real estate mortgage investment
CONSEQUENCES conduit elections will be made with respect to
the trust fund for federal income tax purposes.
Upon the issuance of the offered certificates,
Sidley Austin Brown & Wood LLP, counsel to the
depositor, will deliver its opinion generally
to the effect that for federal income tax
purposes, each REMIC will qualify as a real
estate mortgage investment conduit under
Sections 860A through 860G of the Internal
Revenue Code of 1986, as amended.
For further information regarding the federal
income tax consequences of investing in the
offered certificates, see
S-7
"Certain Federal Income Tax Consequences" herein
and "Federal Income Tax Consequences" in the
prospectus.
ERISA CONSIDERATIONS Subject to important considerations described
under "ERISA Considerations" in this prospectus
supplement and in the accompanying prospectus,
the Class A1, Class A2, Class A3, Class B, Class
C and Class D Certificates will generally be
eligible for purchase by persons investing
assets of employee benefit plans or individual
retirement accounts.
RATING The offered certificates are required to receive
the ratings from Fitch, Inc. and Standard &
Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. indicated above
under "Executive Summary." The ratings on the
offered certificates address the likelihood of
timely receipt of interest and ultimate receipt
of principal by the rated final distribution
date by the holders of offered certificates.
They do not address the likely actual rate of
prepayments. Such rate of prepayments, if
different than originally anticipated, could
adversely affect the yield realized by holders
of the offered certificates. See "Rating" in
this prospectus supplement and in the prospectus
for a discussion of the basis upon which ratings
are given, the limitations and restrictions on
the ratings, and conclusions that should not be
drawn from a rating.
LEGAL INVESTMENT The certificates will not be "mortgage related
securities" within the meaning of the Secondary
Mortgage Market Enhancement Act of 1984, as
amended.
DEAL INFORMATION/ANALYTICS Certain information concerning the mortgage
loans and the certificates will be available
to you through the following services:
o Bloomberg, L.P.; and
o the trustee's website at www.ctslink.com/cmbs.
S-8
RISK FACTORS
Prospective purchasers of the offered certificates should consider, among
other things, the following risk factors (as well as the risk factors set forth
under "Risk Factors" in the prospectus) in connection with an investment in the
offered certificates.
THE MORTGAGE LOANS
RISKS ASSOCIATED WITH Commercial and multifamily lending is generally
COMMERCIAL LENDING MAY BE thought to be riskier than single-family
DIFFERENT THAN RESIDENTIAL residential lending for a variety of reasons,
LENDING including the likelihood that larger loans are
made to single borrowers or groups of related
mortgagors.
The mortgage loans are secured by the
following income-producing property types:
o office properties;
o retail properties;
o multifamily properties;
o industrial properties;
o hotel properties;
o mobile home park properties; and
o self storage facilities.
Repayment of loans secured by commercial and
multifamily properties typically depends on
the cash flow produced by such properties. The
ratio of net cash flow to debt service of a
loan secured by income-producing property is
an important measure of the risk of default on
such a loan. Most of the mortgage loans were
originated within twelve months of the cut-off
date. Consequently, the mortgage loans
generally do not have a long-standing payment
history.
NET CASH FLOW PRODUCED BY A Payment on each mortgage loan is dependent
MORTGAGED PROPERTY MAY BE primarily on:
INADEQUATE TO REPAY THE
MORTGAGE LOAN o the net operating income of the related
mortgaged property; and
o at maturity (whether at scheduled maturity
or, in the event of a default under the
mortgage loan, upon the acceleration of such
maturity), the market value of the related
mortgaged property (taking into account any
adverse effect of a foreclosure proceeding
on such market value) or the ability of the
related mortgagor to refinance the mortgage
loan.
If a mortgage loan has a relatively high loan
to value ratio or relatively low debt service
coverage ratio, a foreclosure sale is less
likely to provide enough money to satisfy the
outstanding debt. Therefore, the special
servicer may have to modify the mortgage loans
that it is servicing in order to
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try to maximize recoveries. However, such
flexibility may not result in a greater
recovery on a net present value basis than
liquidation.
LOANS NOT INSURED OR GUARANTEED The mortgage loans will not be an obligation
of, or be insured or guaranteed by, any
governmental entity, by any mortgage insurer,
or by the depositor, either of the sellers,
the underwriters, the master servicer, the
special servicer, the trustee or any of their
respective affiliates.
NONRECOURSE LOANS LIMIT THE Each mortgage loan generally is a nonrecourse
REMEDIES AVAILABLE FOLLOWING A loan. If there is a default there will
MORTGAGOR DEFAULT generally only be recourse against the specific
properties and other assets that have been
pledged to secure such mortgage loan. Even if a
mortgage loan provides for recourse to a
mortgagor or its affiliates, it is unlikely the
trust fund ultimately could recover any amounts
not covered by the mortgaged property.
FUTURE CASH FLOWS AND PROPERTY Commercial and multifamily property values and
VALUES ARE NOT PREDICTABLE cash flows are volatile and may be insufficient
to cover debt service on the related mortgage
loan at any given time. If the cash flow from a
mortgaged property is reduced (for example, if
leases are not obtained or renewed or if
lessees default on their obligations), the
mortgagor may not be able to repay the loan.
Cash flow will determine the mortgagor's
ability to cover debt service and property
values affect the ability to refinance the
property and the amount of the recovery of
proceeds upon foreclosure. Cash flow and
property value depend upon a number of factors,
including:
o national, regional and local economic
conditions;
o local real estate conditions, such as an
oversupply of space similar to the related
mortgaged property;
o changes or weakness in a specific industry
segment;
o the nature of expenses;
o as a percentage of revenue;
o whether expenses are fixed or vary with
revenue;
o the level of required capital expenditures
for proper maintenance and demanded by
tenants;
o demographic factors;
o changes required by retroactive building or
similar codes;
o capable management and adequate maintenance;
o location;
o with respect to properties with uses subject
to significant regulation, changes in
applicable laws;
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o perceptions by prospective tenants and, if
applicable, their customers, of the safety,
convenience, services and attractiveness of
the property;
o the age, construction quality and design of a
particular property; and
o whether the mortgaged properties are readily
convertible to alternative uses.
POOR PROPERTY MANAGEMENT WILL The successful operation of a real estate
LOWER THE PERFORMANCE OF THE project also depends on the performance and
RELATED MORTGAGED PROPERTY viability of the property manager. Properties
deriving revenues primarily from short-term
sources (such as hotels and self-storage
facilities) generally are more management
intensive than properties leased to
creditworthy tenants under long-term leases.
The property manager is generally responsible
for:
o operating the properties;
o providing building services;
o establishing and implementing the rental
structure;
o managing operating expenses;
o responding to changes in the local market;
and
o advising the mortgagor with respect to
maintenance and capital improvements.
Property managers may not be in a financial
condition to fulfill their management
responsibilities.
Certain of the mortgaged properties are
managed by affiliates of the applicable
mortgagor. If a mortgage loan is in default or
undergoing special servicing, such
relationship could disrupt the management of
the underlying property. This may adversely
affect cash flow. However, the mortgage loans
generally permit the lender to remove the
property manager upon the occurrence of an
event of default, a decline in cash flow below
a specified level or the failure to satisfy
some other specified performance trigger.
THE FAILURE OF A TENANT WILL Nineteen of the mortgaged properties securing
HAVE A NEGATIVE IMPACT ON mortgage loans representing approximately 10.1%
SINGLE TENANT PROPERTIES of the initial pool balance are leased to a
single tenant. The performance of mortgage
loans secured by single tenant properties will
depend principally on the payment by the
related tenant of monthly rental payments under
a lease. Therefore, mortgage loans secured by
single tenant properties (or a small number of
tenants) are more likely to experience
interruptions of cash flow because there would
be no (or significantly less) rental income if
the single tenant (or one of a small number of
tenants) failed to meet its obligations, or
otherwise terminated, the lease. Income from
and the market value of retail, office and
industrial mortgaged
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properties occupied by a single tenant would
be adversely affected under the following
circumstances:
o if vacated space in such mortgaged properties
could not be leased or relet on terms
comparable to the prior lease;
o if the tenant were unable to meet its
obligations;
o if the tenant were to become a debtor in a
bankruptcy case; and
o if for any other reason rental payments
could not be collected.
Even if vacated space is successfully relet,
the costs associated with reletting, including
tenant improvements, leasing commissions and
free rent, could exceed the amount of any
reserves maintained for such purpose and could
reduce cash flow from the mortgaged
properties. Although certain of the mortgage
loans require the mortgagor to maintain
escrows for such expenses, there can be no
assurance that such factors will not adversely
affect the ability of a mortgagor to repay a
mortgage loan.
Mortgage loans secured by retail and office
properties may also be adversely affected if
one or more tenants represent a significant
percentage of rental income and rental
payments cannot be collected from such tenant
or if various leases at a mortgaged property
expire in close succession.
THE FAILURE OF AN ANCHOR TENANT Twenty-three of the mortgage loans,
WILL, AND THE FAILURE OF OTHER representing approximately 25.1% of the initial
TENANTS MAY, HAVE A NEGATIVE pool balance are secured by anchored retail
IMPACT ON RETAIL PROPERTIES properties. The success of its anchor tenant is
important to a shopping center property. An
anchor tenant attracts and maintains other
stores and generates consumer traffic. The
failure of one or more specified tenants, such
as an anchor tenant, to operate from its
premises may give certain tenants the right to
terminate or reduce rents under their leases.
Under certain circumstances, the failure of an
anchor tenant to meet its obligations under,
or otherwise terminate, its lease may result
in risks to the holder of the related mortgage
note similar to those associated with mortgage
loans secured by single tenant properties. See
"The Failure of a Tenant will have a Negative
Impact on Single Tenant Properties" above.
Certain small retail properties may be
dependent upon smaller tenants which may not
renew their leases or may default on their
leases.
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CONVERTING COMMERCIAL Seventy-eight of the mortgage loans,
PROPERTIES TO ALTERNATIVE USES representing approximately 70.7% of the initial
MAY REQUIRE SIGNIFICANT pool balance, are secured by commercial
EXPENSES WHICH COULD REDUCE properties. Some of these properties may not be
PAYMENTS ON YOUR CERTIFICATES readily convertible to alternative uses if they
were to become unprofitable for any reason.
This is because:
o converting commercial properties to
alternate uses or converting single-tenant
commercial properties to multi-tenant
properties generally requires substantial
capital expenditures; and
o zoning or other restrictions also may
prevent alternative uses.
The liquidation value of a mortgaged property
not readily convertible to an alternative use
may be substantially less than would be the
case if the mortgaged property were readily
adaptable to other uses. If this type of
mortgage property were liquidated and a lower
liquidation value were obtained, less funds
would be available for distributions on your
certificates.
SPECIAL RISKS ASSOCIATED WITH Nine of the mortgage loans, representing
HOSPITALITY PROPERTIES approximately 7.9% of the initial pool balance,
are secured by full service hotels or limited
service hotels. See "Description of the
Mortgage Pool -- Certain Characteristics of the
Mortgage Loans." In addition to some of the
factors discussed under "-- Future Cash Flows
and Property Values are not Predictable" above,
the value and cash flow of such hospitality
properties will depend on the following
factors:
o adverse economic conditions; because hotel
rooms generally are rented for short periods
of time, hotels tend to be more sensitive to
adverse economic conditions and competition
than are other commercial properties;
o seasonality; the hotel industry is generally
seasonal in nature and this seasonality can
be expected to cause periodic fluctuations in
a hotel property's revenues, occupancy
levels, room rates and operating expenses;
o the physical condition of such hospitality
property as well as continuing expenditures
for modernizing, refurbishing, and
maintaining the property and its facilities;
o the financial strength and capabilities of
the owner and operator of a hotel;
o financial strength and public perception of
the franchise service mark and the continued
existence of the franchise license agreement;
and
o the continued existence of a liquor license.
Most of the full service hotels, and some of
the other hospitality properties, have liquor
licenses. Some states do
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not permit liquor licenses to be held other
than by a natural person. Consequently, liquor
licenses for hospitality properties located in
such jurisdictions are held by an individual
affiliated with the related mortgagor or
manager. Generally, a liquor license may not
be transferred without the approval of the
relevant licensing authority. In the event of
a foreclosure of a hospitality property, it is
unlikely that the trustee (or master servicer
or special servicer) or purchaser in any such
sale would be entitled to the rights under the
liquor license for such hospitality property.
Such party would be required to apply in its
own name for such license.
ADVERSE CONSEQUENCES ASSOCIATED The average principal balance of the mortgage
WITH CONCENTRATION OF MORTGAGE loans as of the cut-off date is approximately
LOANS AND RELATED BORROWERS $6,553,675, which is equal to approximately
0.7% of the initial pool balance. Several of
the mortgage loans have principal balances as
of the cut-off date that are substantially
higher than the average principal balance as of
the cut-off date. In addition, there are
several groups of mortgage loans with related
mortgagors. In general, such concentrations can
result in losses that are more severe than
would be the case if the aggregate balance of
such pool were more evenly distributed among
the mortgage loans in such pool. No mortgage
loan represents more than 7.4% of the initial
pool balance and no group of mortgage loans
with related mortgagors represents in the
aggregate more than 3.0% of the initial pool
balance.
Mortgage loans with the same borrower or
related mortgagors pose certain risks. For
example, if an entity that owns or controls
several mortgaged properties experiences
financial difficulty at one mortgaged
property, it could defer maintenance at
another mortgaged property in order to satisfy
current expenses with respect to the troubled
mortgaged property. Alternatively, it could
attempt to avert foreclosure by filing a
bankruptcy petition that might have the effect
of interrupting monthly payments for an
indefinite period on all of the related
mortgage loans.
MEZZANINE DEBT SECURED BY The owners of mortgagors under 2 mortgage
EQUITY IN THE MORTGAGOR MAY loans, representing approximately 3.0% of the
INCREASE RISKS initial pool balance have pledged or are
permitted to pledge their equity interest in
the mortgagor to secure mezzanine debt incurred
by the owner. The existence of this
indebtedness could adversely affect the
financial viability of such mortgagor or the
availability of proceeds from the operation of
the mortgaged property to fund items such as
replacements, tenant improvements or other
capital expenditures. The value of the equity
in the mortgagor held by the sponsoring
entities of such mortgagor could also be
adversely affected by the existence of
mezzanine indebtedness. There is a risk that
any holder of mezzanine
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debt may attempt to use its rights as owner of
the mezzanine loan to protect itself against
an exercise of rights by the owner of the
mortgage loan. For a description of mezzanine
debt relating to the mortgaged properties see
"Description of the Mortgage Pool -- Certain
Terms and Conditions of the Mortgage Loans --
Mezzanine Debt" herein.
TIMING OF PRINCIPAL PREPAYMENTS If principal payments, property releases, or
MAY LEAD TO DIFFERENT ASSET prepayments are made on a mortgage loan, the
CONCENTRATIONS THAN IN THE remaining mortgage pool may be subject to more
INITIAL MORTGAGE POOL concentrated risk with respect to the diversity
of properties, types of properties and property
characteristics and with respect to the number
of mortgagors. See the table entitled "Year of
Scheduled Maturity/Anticipated Repayment Date"
under "Description of the Mortgage Pool --
Certain Characteristics of the Mortgage Loans"
herein for a description of the respective
maturity dates of the mortgage loans.
Because principal on the offered certificates
is payable in sequential order, and no class
receives principal until the class balance of
the preceding class or classes has been
reduced to zero, classes that have a lower
sequential priority are more likely to be
exposed to the risk of concentration discussed
under "-- Adverse Consequences Associated with
Concentration of Mortgage Loans and Related
Borrowers" above than classes with a higher
sequential priority.
THE GEOGRAPHIC CONCENTRATION OF Except as indicated in the following table,
MORTGAGED PROPERTIES SUBJECTS less than 5.0% of the mortgage loans, by
THE TRUST FUND TO A GREATER initial pool balance are secured by mortgaged
EXTENT TO STATE OR REGIONAL properties in any one state.
CONDITIONS
NUMBER OF PERCENTAGE
MORTGAGED OF INITIAL
STATE PROPERTIES POOL BALANCE
- ----- ---------- ------------
Texas .............. 19 14.5%
California ......... 28 12.5%
New York ........... 11 8.7%
Colorado ........... 7 6.0%
Indiana ............ 3 5.7%
The concentration of mortgaged properties in a
specific state or region will make the
performance of the mortgage pool as a whole,
more sensitive to the following in the state
or region where the mortgagors and the
mortgaged properties are located:
o economic conditions;
o conditions in the real estate market;
o changes in governmental rules and fiscal
policies;
o acts of God (which may result in uninsured
losses); and
o other factors which are beyond the control of
the mortgagors.
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EXERCISE OF LEGAL REMEDIES MAY The mortgage loans may contain a due-on-sale
BE LIMITED FOLLOWING A DEFAULT clause. Such clause permits the holder of the
ON A MORTGAGE LOAN mortgage loan to accelerate the maturity of the
mortgage loan if the related mortgagor sells or
otherwise transfers or conveys the related
mortgaged property or its interest in the
mortgaged property in violation of the terms of
the mortgage loan. The mortgage loans may also
include a debt-acceleration clause, which
permits the lender to accelerate the debt upon
specified monetary or non-monetary defaults of
the mortgagor. 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 or other sale of a mortgaged
property or refuse to permit the acceleration
of the indebtedness as a result of a default
deemed to be immaterial or if the exercise of
such remedies would be inequitable or unjust or
the circumstances would render the acceleration
unconscionable.
Certain of the mortgage loans will be secured
by an assignment of leases and rents from the
mortgagor, however, the mortgagor generally
may collect rents for so long as there is no
default. As a result, the trust fund's rights
to such rents will be limited because:
o it may not have a perfected security interest
in the rent payments until the master
servicer or the special servicer collects
them;
o the master servicer or the special servicer
may not be entitled to collect the rent
payments without court action; and
o the bankruptcy of the related mortgagor could
limit the master servicer's or the special
servicer's ability to collect the rents.
See "Certain Legal Aspects of Mortgage Loans
and the Leases -- Leases and Rents" in the
prospectus.
ENVIRONMENTAL LAWS MAY Under various federal, state and local
ADVERSELY AFFECT THE VALUE OF environmental laws, ordinances and regulations,
AND CASH FLOW FROM A MORTGAGED a current or previous owner or operator of
PROPERTY real property may be liable for the costs of
cleanup of environmental contamination on,
under, adjacent to or in such property. Such
laws often impose liability whether or not the
owner or operator knew of, or was responsible
for, the presence of such contamination. The
cost of any required cleanup and the owner's
liability for these costs are generally not
limited under these laws and could exceed the
value of the property and/or the aggregate
assets of the owner. In addition, the presence
of hazardous or toxic substances, or the
failure to properly clean up contamination on
such property, may adversely affect the owner's
or operator's ability to borrow using such
property as collateral.
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Certain environmental laws impose liability
for releases of asbestos into the air. Third
parties may seek recovery from owners or
operators of real property for personal injury
associated with exposure to asbestos.
Under some environmental laws, such as the
federal Comprehensive Environmental Response,
Compensation and Liability Act as well as
certain state laws, a secured lender (such as
the trust fund) may be liable as an "owner" or
"operator," for the costs of responding to a
release or threatened release of hazardous
substances on or from a mortgagor's property.
Such liability may be imposed on the lender if
its agents or employees are deemed to have
participated in the management of the
mortgagor's property, regardless of whether a
previous owner caused the environmental
damage. The trust fund's potential exposure to
liability for cleanup costs may increase if
the trust fund actually takes possession of a
mortgagor's property, or control of its
day-to-day operations, as, for example,
through the appointment of a receiver.
Either an environmental site assessment of
each of the mortgaged properties was performed
(in some cases, prior assessments were
updated) or an environmental insurance policy
was obtained in lieu of an environmental site
assessment in connection with the initial
underwriting and origination of the mortgage
loans. Such assessments do not generally
include environmental testing. In certain
cases, additional environmental testing was
performed.
The information in such assessments has not
been independently verified by either of the
sellers, the depositor, the servicers, the
trustee, the underwriters, or by any of their
respective affiliates. With respect to a
number of the mortgaged properties, the
assessments revealed the presence or possible
presence of asbestos-containing materials,
radon gas or other environmental concerns.
None of these issues constituted a material
violation of any environmental law in the
judgment of the assessor. In these cases, the
mortgagors agreed to establish and implement
operations and maintenance programs or had
other remediation agreements or escrows in
place.
It is possible that the environmental site
assessments did not reveal all environmental
liabilities, that there are material
environmental liabilities of which neither the
sellers nor the depositor are aware or that
the environmental condition of the mortgaged
properties could be affected in the future by
tenants, occupants, or third parties unrelated
to the mortgagors.
Each mortgagor has represented that, except as
described in the environmental reports
referred to above, each mortgaged property
was, or to the best of the mortgagor's
knowledge was, in compliance with applicable
environmental laws and regulations on the date
of the
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origination of the related mortgage loan. Each
mortgagor has also represented that, except as
described in the environmental reports, no
actions, suits or proceedings have been
commenced or are pending or, to the best of
the mortgagor's knowledge are threatened, with
respect to any applicable environmental laws.
Each mortgagor has represented that such
mortgagor has not received any notice of
violation of any legal requirement related to
the use and occupancy of any mortgaged
property and has agreed not to use, cause or
permit the presence on the related mortgaged
property of any hazardous materials in a
manner which violates any applicable law.
The principal security for the obligations
under each mortgage loan consists of the
mortgaged property. Therefore, if any of the
representations described in the preceding
paragraph are breached, there can be no
assurance that any other assets of the
mortgagor would be available in connection
with any exercise of remedies in response to
such a breach. In addition, most mortgagors
are structured as single asset entities and
therefore have no assets other than the
mortgaged property.
SPECIAL RISKS ASSOCIATED WITH Eighty-six mortgage loans (including one
BALLOON LOANS mortgage loan originated with a one-year
interest-only period, of which 9 months
remain), representing approximately 43.2% of
the initial pool balance, are balloon loans.
The balloon loans do not fully amortize over
their terms to maturity and, thus, require
substantial principal payments (i.e., balloon
payments) at their stated maturity. Mortgage
loans with balloon payments are riskier because
the ability of a mortgagor to make a balloon
payment will depend upon its ability either to
refinance the loan or to sell the related
mortgaged property in a timely fashion. The
ability of a mortgagor to accomplish either of
these goals will be affected by a number of
factors, including:
o the level of available mortgage interest
rates at the time of sale or refinancing;
o the mortgagor's equity in the related
mortgaged property;
o the financial condition and operating history
of the mortgagor and the related mortgaged
property;
o tax laws;
o rent control laws (with respect to certain
multifamily properties);
o renewability of operating licenses;
o prevailing general economic conditions; and
o the availability of credit for commercial
or multifamily real properties.
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approximately SPECIAL RISKS Sixty-four mortgage loans, representing 56.6%
ASSOCIATED WITH ANTICIPATED of the initial pool balance, are mortgage loans
REPAYMENT DATE LOANS with anticipated repayment dates. After the
anticipated repayment date, any excess cash
flow generated by the related mortgaged
property will be required to be applied to
payments of principal and interest on such
loan. All of the anticipated repayment date
loans will have substantial principal balances
on their anticipated repayment date. The
failure to pay such loan by the related
anticipated repayment date will not result in
an event of default or acceleration.
The ability of a mortgagor to repay a mortgage
loan on the anticipated repayment date will
depend on its ability either to refinance the
mortgage loan or to sell the related mortgaged
property. The ability of a mortgagor to
accomplish either of these goals will be
affected by a number of factors, including:
o the level of available mortgage interest
rates at the time of sale or refinancing;
o the mortgagor's equity in the related
mortgaged property;
o the financial condition and operating history
of the mortgagor and the related mortgaged
property;
o tax laws;
o rent control laws (with respect to certain
multifamily properties);
o renewability of operating licenses;
o prevailing general economic conditions; and
o the availability of credit for commercial or
multifamily real properties.
ONE ACTION JURISDICTION MAY Several states have laws that prohibit more
LIMIT THE ABILITY OF THE than one "judicial action" to enforce a
SPECIAL SERVICER TO FORECLOSE mortgage obligation, and some courts have
ON A MORTGAGED PROPERTY construed the term "judicial action" broadly.
The special servicer may need to obtain advice
of counsel prior to enforcing any of the trust
fund's rights under any of the mortgage loans
that include mortgaged properties where the
rule could be applicable.
In the case of a mortgage loan secured by
mortgaged properties located in multiple
states, the special servicer may be required
to foreclose first on properties located in
states where such "one action" rules apply
(and where non-judicial foreclosure is
permitted) before foreclosing on properties
located in states where judicial foreclosure
is the only permitted method of foreclosure.
See "Certain Legal Aspects of Mortgage Loans
and the Leases -- Foreclosure" in the
prospectus.
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OPERATION OF THE MORTGAGED If the trust fund acquires a mortgaged property
PROPERTY FOLLOWING FORECLOSURE as a result of a foreclosure or deed in lieu of
OF THE MORTGAGE LOAN MAY AFFECT foreclosure, the special servicer will
THE TAX STATUS OF THE TRUST generally retain an independent contractor to
FUND AND MAY ADVERSELY AFFECT operate the property. Any net income from
PAYMENTS ON YOUR CERTIFICATES operations other than qualifying "rents from
real property", or any rental income based on
the net profits of a tenant or sub-tenant or
allocable to a non-customary service, will
subject the trust fund to a federal tax on such
income at the highest marginal corporate tax
rate, which is currently 35%, and, in addition,
possible state or local tax. In this event, the
net proceeds available for distribution on your
certificates will be reduced. The special
servicer may permit the trust to earn such
above described "net income from foreclosure
property" but only if it determines that the
net after-tax benefit to certificateholders is
greater than under another method of operating
or leasing the mortgaged property.
APPRAISALS AND MARKET STUDIES An appraisal of the value for each of the
OF MORTGAGED PROPERTIES mortgaged properties was made between September
1998 and May 2001. It is possible that the
market value of a mortgaged property securing a
mortgage loan has declined since the most
recent appraisal for such mortgaged property.
Appraisals represent the analysis and opinion
of the respective appraisers at or before the
time made and are not guarantees, and may not
be indicative, of present or future value.
Another appraiser may have arrived at a
different valuation, even if such appraiser
used the same general approach to, and the same
method of, appraising the property.
CERTAIN PARTIES MAY HAVE OF A substantial number of the mortgaged properties
CONFLICTS INTEREST WITH are managed by property managers affiliated
RESPECT TO THE MORTGAGED with the respective mortgagors. These property
PROPERTIES managers may also manage additional properties,
including properties that may compete with the
mortgaged properties. Affiliates of the
managers and/or the mortgagors, or the managers
and/or the mortgagors themselves, may also own
other properties, including competing
properties. Therefore, the managers of the
mortgaged properties and the mortgagors may
experience conflicts of interest in the
management and/or ownership of such properties.
In addition, the sellers or affiliates thereof
may have other financing arrangements with
affiliates of the mortgagors and may enter into
additional financing relationships in the
future.
SPECIAL SERVICER MAY TAKE In connection with the servicing of specially
ACTIONS WHICH ARE ADVERSE TO serviced mortgage loans, the special servicer
YOU may take actions with respect to such mortgage
loans that could adversely affect you. As
described herein under "Master Servicer and
Special Servicer -- Responsibilities of Special
Servicer," the actions of the special servicer
will be subject to review by a representative
of the holders of the monitoring certificates,
who may have interests that conflict with those
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of the holders of the other classes of
certificates. As a result, it is possible that
such representative may influence the special
servicer to take actions which conflict with
the interests of certain classes of
certificates; provided, however, that the
special servicer shall in all cases be
required to act in accordance with the
servicing standard. In addition, the special
servicer may be removed without cause by the
directing certificateholders as described
under "Master Servicer and Special Servicer --
Responsibilities of Special Servicer," herein.
THE STATUS OF A GROUND LEASE Four mortgage loans, representing approximately
MAY BE UNCERTAIN IN A 6.4% of the initial pool balance are secured in
BANKRUPTCY PROCEEDING part by a leasehold interest in their
respective mortgaged properties. For the
purposes of this prospectus supplement, any
mortgaged property, a material portion of which
consists of a leasehold estate, is considered a
leasehold interest unless the trust fund also
holds a mortgage on the fee, in which case it
is considered a fee interest. Pursuant to
Section 365(h) of the Bankruptcy Code, ground
lessees are currently afforded rights not to
treat a ground lease as terminated and to
remain in possession of their leased premises
upon the bankruptcy of their ground lessor and
the rejection of the ground lease by the
representative of such ground lessor's
bankruptcy estate.
The leasehold mortgages provide that the
mortgagor may not elect to treat the ground
lease as terminated on account of any such
bankruptcy of, and rejection by, the ground
lessor without the consent of the related
mortgagee. In the event of a bankruptcy of a
ground lessee/mortgagor, the ground
lessee/mortgagor under the protection of the
Bankruptcy Code has the right to assume (i.e.,
continue) or reject (i.e., terminate) any or
all of its ground leases.
In the event of concurrent bankruptcy
proceedings involving the ground lessor and
the ground lessee/mortgagor, either servicer
may be unable to enforce the bankrupt ground
lessee/mortgagor's obligation to refuse to
treat a ground lease rejected by a bankrupt
ground lessor as terminated. In such
circumstances, a ground lease could be
terminated notwithstanding lender protection
provisions contained therein or in the
mortgage.
SPECIAL RISKS ASSOCIATED WITH Some of the tenant leases contain provisions
ATTORNMENT that require the tenant to attorn to (that is,
recognize as landlord under the lease) a
successor owner of the property following
foreclosure. Some of the leases may be either
subordinate to the liens created by the
mortgage loans or else contain a provision that
requires the tenant to subordinate the lease if
the mortgagee agrees to enter into a
non-disturbance agreement.
S-21
In some states, if tenant leases are
subordinate to the liens created by the
mortgage loans and such leases do not contain
attornment provisions, such leases may
terminate upon the transfer of the property to
a foreclosing lender or purchaser at
foreclosure. Accordingly, in the case of the
foreclosure of a mortgaged property located in
such a state and leased to one or more
desirable tenants under leases that do not
contain attornment provisions, such mortgaged
property could experience a further decline in
value if such tenants' leases were terminated
(e.g., if such tenants were paying
above-market rents).
If a mortgage is subordinate to a lease, the
lender will not (unless it has otherwise
agreed with the tenant) have the right to
dispossess the tenant upon foreclosure of the
property, and if the lease contains provisions
inconsistent with the mortgage (e.g.,
provisions relating to application of
insurance proceeds or condemnation awards),
the provisions of the lease will take
precedence over the provisions of the
mortgage.
THE MORTGAGED PROPERTIES MAY Due to changes in applicable building and
NOT BE IN COMPLIANCE WITH zoning ordinances and codes which have come
CURRENT ZONING LAWS into effect after the construction of
improvements on certain of the mortgaged
properties, some improvements may not comply
fully with current zoning laws (including
density, use, parking and set-back
requirements) but qualify as permitted
non-conforming uses, or the related borrower
has an affirmative obligation to comply with
current zoning requirements. Such changes may
limit the ability of the related mortgagor to
rebuild the premises "as is" in the event of a
substantial casualty loss. Such limitations
may adversely affect the ability of the
mortgagor to meet its mortgage loan
obligations from cash flow. Insurance proceeds
may not be sufficient to pay off such mortgage
loan in full. In addition, if the mortgaged
property were to be repaired or restored in
conformity with then current law, its value
could be less than the remaining balance on
the mortgage loan and it may produce less
revenue than before such repair or
restoration.
INSPECTIONS MADE OF THE The mortgaged properties were inspected by
MORTGAGED PROPERTIES MAY HAVE licensed engineers at the time the mortgage
MISSED NECESSARY REPAIRS loans were originated to assess the structure,
exterior walls, roofing, interior construction,
mechanical and electrical systems and general
condition of the site, buildings and other
improvements located on the mortgaged
properties. There can be no assurance that all
conditions requiring repair or replacement have
been identified in such inspections.
COMPLIANCE WITH AMERICANS WITH Under the Americans with Disabilities Act of
DISABILITIES ACT MAY RESULT IN 1990, all public accommodations are required to
ADDITIONAL LOSSES meet certain federal requirements related to
access and use by disabled persons. To the
extent the mortgaged properties do not
S-22
comply with such laws, the mortgagors may be
required to incur costs to comply with such
laws. In addition, noncompliance could result
in the imposition of fines by the federal
government or an award of damages to
litigants.
LITIGATION CONCERNS There may be legal proceedings pending and,
from time to time, threatened against the
mortgagors or their affiliates relating to the
business of or arising out of the ordinary
course of business of the mortgagors and their
affiliates. There can be no assurance that
such litigation will not have a material
adverse effect on the distributions to
certificateholders.
THE OFFERED CERTIFICATES
------------------------
ONLY TRUST FUND ASSETS ARE If the assets of the trust fund are
AVAILABLE TO PAY YOU insufficient to make payments on the offered
certificates, no other assets will be available
for payment of the deficiency. See "Risk
Factors -- The assets of the trust fund may not
be sufficient to pay your certificates" in the
prospectus.
PREPAYMENTS WILL AFFECT YOUR Prepayments. The yield to maturity on the
YIELD offered certificates will depend on the rate
and timing of principal payments (including
both voluntary prepayments, in the case of
mortgage loans that permit voluntary
prepayment, and involuntary prepayments, such
as prepayments resulting from casualty or
condemnation, defaults, liquidations or
repurchases for breaches of representations or
warranties) on the mortgage loans and how such
payments are allocated among the offered
certificates entitled to distributions of
principal.
In addition, upon the occurrence of certain
limited events, a party may be required to
repurchase a mortgage loan from the trust fund
and the money paid would be passed through to
the holders of the certificates with the same
effect as if such mortgage loan had been
prepaid in full (except that no prepayment
premium would be payable with respect to any
such repurchase). No representation is made as
to the anticipated rate of prepayments
(voluntary or involuntary) on the mortgage
loans or as to the anticipated yield to
maturity of any certificate. See "Certain
Prepayment, Maturity and Yield Considerations"
herein and "Yield Considerations" in the
prospectus.
Yield. In general, if you purchase an offered
certificate at a premium and principal
distributions occur at a rate faster than you
anticipated at the time of purchase, and no
prepayment premiums are collected, your actual
yield to maturity may be lower than that you
assumed at the time of purchase. Conversely,
if you purchase an offered certificate at a
discount and principal distributions thereon
occur at a rate slower than that you assumed
at the time of purchase, your actual yield to
maturity may be lower than that you assumed at
the time of purchase.
S-23
The investment performance of the offered
certificates may be materially different from
what you expected if the rate of prepayments
on the mortgage loans is higher or lower than
what you assumed at the time of investment.
Interest Rate Environment. In general,
mortgagors are less likely to prepay if
prevailing interest rates are at or above the
rates borne by such mortgage loans. On the
other hand, mortgagors are more likely to
prepay if prevailing rates fall significantly
below the mortgage rates of the mortgage
loans. Mortgagors are less likely to prepay
mortgage loans with a lockout period or
prepayment premium provision, to the extent
enforceable, than otherwise identical mortgage
loans without such provisions, with shorter
lockout periods or with lower prepayment
premiums.
Premiums. Provisions requiring prepayment
premiums may not be enforceable in some states
and under federal bankruptcy law, and may
constitute interest for usury purposes.
Accordingly, no assurance can be given that
the obligation to pay a prepayment premium
will be enforceable or, if enforceable, that
the foreclosure proceeds will be sufficient to
pay such prepayment premium. Additionally,
although the collateral substitution
provisions related to defeasance are not
intended to be, and do not have the same
effect on the certificateholders as a
prepayment, there can be no assurance that a
court would not interpret such provisions as
requiring a prepayment premium and thus
unenforceable or usurious under applicable
law. Prepayment premiums are generally not
charged for prepayments resulting from
casualty or condemnation and would not be paid
in connection with repurchases of mortgage
loans for breaches of representations or
warranties.
BORROWER DEFAULTS MAY ADVERSELY The aggregate amount of distributions on the
AFFECT YOUR YIELD offered certificates, the yield to maturity of
the offered certificates, the rate of principal
payments on the offered certificates and the
weighted average life of the offered
certificates will be affected by the rate and
timing of delinquencies and defaults on the
mortgage loans. Delinquencies on the mortgage
loans, if the delinquent amounts are not
advanced, may result in shortfalls in
distributions of interest and/or principal to
the offered certificates for the current month.
Any late payments received on or in respect of
the mortgage loans will be distributed to the
certificates in the priorities described more
fully herein, but no interest will accrue on
such shortfall during the period of time such
payment is delinquent.
If you calculate your anticipated yield based
on an assumed rate of default and an assumed
amount of losses on the mortgage loans that
are lower than the default rate and the amount
of losses actually experienced, and if such
S-24
losses are allocated to your class of
certificates, your actual yield to maturity
will be lower than the yield so calculated and
could, under certain scenarios, be negative.
The timing of any loss on a liquidated
mortgage loan also will affect the actual
yield to maturity of the offered certificates
to which all or a portion of such loss is
allocable, even if the rate of defaults and
severity of losses are consistent with your
expectations. In general, the earlier you bear
a loss, the greater the effect on your yield
to maturity. See "Certain Prepayment, Maturity
and Yield Considerations."
Even if losses on the mortgage loans are
allocated to a particular class of offered
certificates, such losses may affect the
weighted average life and yield to maturity of
other certificates. Losses on the mortgage
loans, to the extent not allocated to such
class of offered 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 offered certificates will
depend upon the characteristics of the
remaining mortgage loans.
DELINQUENCIES WILL ENTITLE As and to the extent described herein, the
SERVICER TO RECEIVE CERTAIN servicers or the trustee, as applicable, will
ADDITIONAL COMPENSATION WHICH be entitled to receive interest on unreimbursed
TAKES PRECEDENCE OVER YOUR advances and unreimbursed servicing expenses.
RIGHT TO RECEIVE DISTRIBUTIONS The right of the servicers or the trustee, as
applicable, to receive such payments of
interest is senior to the rights of
certificateholders to receive distributions on
the offered certificates and, consequently, may
result in losses being allocated to the offered
certificates that would not have resulted
absent the accrual of such interest. In
addition, the special servicer will receive a
fee with respect to each specially serviced
mortgage loan and any collections thereon,
including specially serviced mortgage loans
which have been returned to performing status.
This will result in shortfalls which may be
allocated to the offered certificates. See
"Master Servicer and Special Servicer --
Servicing and Other Compensation and Payment of
Expenses."
VOTES OF OTHER Under certain circumstances, the consent or
CERTIFICATEHOLDERS MAY approval of the holders of a specified
ADVERSELY AFFECT YOUR percentage of the aggregate certificate balance
INTERESTS of all outstanding certificates will be
required to direct, and will be sufficient to
bind all certificateholders to, certain
actions, including directing the special
servicer or the master servicer with respect to
actions to be taken with respect to certain
mortgage loans and real estate owned properties
and amending the pooling and servicing
agreement in certain circumstances. See
"Description of the Pooling and Servicing
Agreement -- Voting Rights" herein.
S-25
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The trust fund (the "Trust Fund") will consist primarily of a pool (the
"Mortgage Pool") of fixed rate mortgage loans (the "Mortgage Loans") with an
aggregate principal balance as of the Cut-off Date, after deducting payments of
principal due on such date, of approximately $996,158,595 (the "Initial Pool
Balance"). Each Mortgage Loan is evidenced by a promissory note (a "Mortgage
Note") and secured by a mortgage, deed of trust or other similar security
instrument (a "Mortgage") creating a first lien on a fee simple and/or
leasehold interests in office properties, retail properties, multifamily
properties, industrial properties, hotel properties, mobile home park
properties, and one self storage facility (each, a "Mortgaged Property").
Except as otherwise indicated, all percentages of the Mortgage Loans described
herein are approximate percentages by aggregate principal balance as of the
Cut-off Date. The Mortgage Loans provide for scheduled payments of principal
and/or interest (the "Monthly Payments") to be due generally on the first day
of each month, subject, in certain cases, to applicable grace periods (each, a
"Due Date").
Ninety-two of the Mortgage Loans (the "MGT Loans"), representing
approximately 49.8% by Initial Pool Balance were originated or purchased by
Morgan Guaranty Trust Company of New York ("MGT"). Sixty of the Mortgage Loans
(the "CIBC Loans"), representing approximately 50.2% by Initial Principal
Balance, were originated by CIBC Inc. ("CIBC"). MGT is an affiliate of the
Depositor and of J.P. Morgan Securities Inc., one of the Underwriters. CIBC is
affiliated with one of the Underwriters. MGT and CIBC are sometimes referred to
individually as a "Seller" and collectively as the "Sellers".
The Mortgage Loans were underwritten generally in conformity with the
guidelines described below. See "-- Underwriting Guidelines and Processes"
below. The Sellers will sell the Mortgage Loans to the Depositor on or prior to
the Delivery Date, each pursuant to a mortgage loan purchase agreement between
that Seller and the Depositor (each, a "Mortgage Loan Purchase Agreement" and
collectively, the "Mortgage Loan Purchase Agreements"). The Depositor will
cause the Mortgage Loans in the Mortgage Pool to be assigned to the Trustee
pursuant to the Pooling and Servicing Agreement.
See Annex A and the attached diskette for additional information with
respect to the Mortgage Loans.
MGT
Morgan Guaranty Trust Company of New York, The Chase Manhattan Bank, and
Chase Manhattan Bank USA, National Association are the principal bank
subsidiaries of J.P. Morgan Chase & Co. On December 31, 2000, J.P. Morgan & Co.
Incorporated merged with and into The Chase Manhattan Corporation, which
thereupon changed its name to "J.P. Morgan Chase & Co." It is anticipated that
The Chase Manhattan Bank and Morgan Guaranty Trust Company of New York will
merge on October 13, 2001.
CIBC
CIBC is a majority-owned subsidiary of Canadian Imperial Holdings Inc. and
is incorporated under the laws of Delaware. Canadian Imperial Holdings Inc. is
a wholly-owned subsidiary of CIBC Delaware Holdings Inc., also a Delaware
corporation, which is a subsidiary of Canadian Imperial Bank of Commerce.
Canadian Imperial Bank of Commerce is a bank chartered under the Bank Act of
Canada, having its head office in the City of Toronto, in the Province of
Ontario, Canada. It is licensed to do business in the United States through its
agency located in New York, New York. CIBC is a commercial finance company that
originates commercial and multifamily real estate loans and purchases
participations in loans from third-party lenders. CIBC has offices in Atlanta,
Chicago, Houston, Dallas, San Francisco, Los Angeles and New York.
REPRESENTATIONS AND WARRANTIES
Under the Mortgage Loan Purchase Agreements, each Seller will make certain
representations and warranties to the Depositor. Pursuant to the terms of its
Mortgage Loan Purchase Agreement, the related
S-26
Seller will be obligated to cure any breach of such representations and
warranties or to repurchase any of the Mortgage Loans it sold to the Depositor
as to which there exists a breach of any such representation or warranty that
materially and adversely affects the interests of the Certificateholders in
such Mortgage Loan. The Sellers will covenant with the Depositor to repurchase
any Mortgage Loan from the Depositor at the Purchase Price (as defined below)
or cure any such breach within 90 days of receiving notice thereof. Under the
Pooling and Servicing Agreement, the Depositor will assign its rights under the
Mortgage Loan Purchase Agreements to the Trustee for the benefit of the
Certificateholders. The sole remedy available to the Trustee or the
Certificateholders is the obligation of each Seller to cure or repurchase any
Mortgage Loan that it originated and sold to the Depositor in connection with
which there has been a breach of any such representation or warranty which
materially and adversely affects the interest of the Certificateholders in such
Mortgage Loan.
The "Purchase Price" for any Mortgage Loan, and the related Mortgaged
Property is an amount equal to (i) the outstanding principal balance of the
related Mortgage Loan as of the date of purchase, (ii) all accrued and unpaid
interest thereon, (iii) all related and unpaid Servicing Advances and all
accrued and unpaid interest thereon, (iv) all accrued and unpaid interest on
any P&I Advances and, (v) all unpaid fees payable to the Special Servicer and
(vi) any additional expense of the Trust Fund allocable to such Mortgage Loans
including expenses arising out of the enforcement of the repurchase obligation
described above.
Each Seller will generally represent and warrant as of the Delivery Date
with respect to each of the Mortgage Loans it sold to the Depositor, among
other things, subject to certain exceptions set forth in the related Mortgage
Loan Purchase Agreement, that:
(i) the Mortgage Loan is not delinquent in payment of principal and
interest and has not been more than 30 days past due in the twelve-month
period prior to the Delivery Date and there is no payment default and no
other default under the Mortgage Loan which has a material adverse effect
on the Mortgage Loan;
(ii) the Mortgage Loan is secured by a Mortgage that is a valid and
subsisting first priority lien on the Mortgaged Property (or a leasehold
interest therein) free and clear of any liens, claims or encumbrances,
subject only to certain permitted encumbrances;
(iii) the Mortgage, together with any separate security agreements,
establishes a first priority security interest in favor of the Seller in
all the related Mortgagor's personal property used in, and reasonably
necessary to operate the Mortgaged Property, and to the extent a security
interest may be created therein, the proceeds arising from the Mortgaged
Property and any other collateral securing the Mortgage subject only to
certain permitted encumbrances;
(iv) there is an assignment of leases and rents provision or agreement
creating a first priority security interest in leases and rents arising in
respect of the related Mortgaged Property, subject only to certain
permitted encumbrances;
(v) to the Seller's actual knowledge, there are no mechanics' or other
similar liens affecting the Mortgaged Property which are or may be prior or
equal to the lien of the Mortgage, except those insured against pursuant to
the applicable title insurance policy;
(vi) the related Mortgagor has good and indefeasible fee simple or
leasehold title to the Mortgaged Property;
(vii) the Mortgaged Property is covered by a title insurance policy
insuring that the Mortgage is a valid first lien, subject only to certain
permitted encumbrances;
(viii) no claims have been made under the related title insurance
policy and such policy is in full force and effect and will provide that
the insured includes the owner of the Mortgage Loan;
(ix) at the time of the assignment of the Mortgage Loan to the
Depositor, the Seller had good title to and was the sole owner of the
Mortgage Loan free and clear of any pledge, lien or encumbrance and such
assignment validly transfers ownership of the Mortgage Loan to the
Depositor free and clear of any pledge, lien or encumbrance;
S-27
(x) the related assignment of mortgage and related assignment of the
assignment of leases and rents is legal, valid and binding;
(xi) the Seller's endorsement of the related Mortgage Note constitutes
the legal and binding assignment of the Mortgage Note and together with an
assignment of mortgage and the assignment of the assignment of leases and
rents, legally and validly conveys all right, title and interest in the
Mortgage Loan and related Mortgage Loan documents;
(xii) each Mortgage Loan document is a legal, valid and binding
obligation of the parties thereto, enforceable in accordance with its
terms, except as the enforceability thereof may be limited by applicable
state law and by bankruptcy, insolvency, reorganization or other laws
relating to creditors' rights and general equitable principles and except
that certain provisions of the Mortgage Loan documents are or may be
unenforceable in whole or in part, but the inclusion of such provisions
does not render the Mortgage Loan documents invalid as a whole, and the
Mortgage Loan documents taken as a whole are enforceable to the extent
necessary and customary for the practical realization of the rights and
benefits afforded thereby;
(xiii) the Mortgage Loan and related Mortgage Loan documents have not
been modified or waived in any material respect except as set forth in the
related Mortgage Loan file;
(xiv) the Mortgage Loan has not been satisfied, canceled,
subordinated, released or rescinded and the related Mortgagor has not been
released from its obligations under any Mortgage Loan document;
(xv) none of the Mortgage Loan documents is subject to any right of
rescission, set-off, valid counterclaim or defense;
(xvi) each Mortgage Loan document complied in all material respects
with all applicable state or federal laws including usury to the extent
non-compliance would have a material adverse effect on the Mortgage Loan;
(xvii) to the Seller's knowledge, as of the date of origination of the
Mortgage Loan, based on inquiry customary in the industry, and to the
Seller's actual knowledge, as of the Delivery Date, the related Mortgaged
Property is, in all material respects, in compliance with, and is used and
occupied in accordance with applicable law;
(xviii) to the Seller's knowledge, (a) in reliance on an engineering
report, the related Mortgaged Property is in good repair and (b) no
condemnation proceedings are pending;
(xix) the ESA, if any, reviewed in connection with the origination
thereof reveals no known circumstances or conditions with respect to the
Mortgaged Property that would constitute or result in a material violation
of any environmental laws, require any expenditure material in relation to
the principal balance of the Mortgage Loan to achieve or maintain
compliance in all material respects with any environmental laws or require
substantial cleanup or remedial action or any other extraordinary action in
excess of the amount escrowed for such purposes;
(xx) as of the date of origination of the Mortgage Loan, and to
Seller's actual knowledge, as of the Delivery Date, after consultation with
the loan servicer, the Mortgaged Property is covered by insurance policies
providing coverage against certain losses or damage;
(xxi) all amounts required to be deposited by the Mortgagor at
origination have been deposited; and
(xxii) to the Seller's knowledge, as of the date of origination of the
Mortgage Loan, and to Seller's actual knowledge, as of the Delivery Date,
there are no pending actions, suits or proceedings by or before any court
or other governmental authority against or affecting the related Mortgagor
under the Mortgage Loan or the Mortgaged Property which, if determined
against the Mortgagor or property would materially and adversely affect the
value of such property or ability of the Mortgagor to pay principal,
interest and other amounts due under the Mortgage Loan.
S-28
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
All of the Mortgage Loans are secured by first liens on a fee simple
and/or leasehold interest in the related Mortgaged Properties. As of the
Cut-off Date, the Mortgage Loans had characteristics set forth below. The
totals in the following tables may not add up to 100% due to rounding. For a
Mortgage Loan secured by more than one Mortgaged Property the original
principal balance of the Mortgage Loan is allocated to each related Mortgaged
Property based on the Mortgage Loan documentation or the related Seller's
determination of the appropriate allocation. The principal balance as of the
Cut-off Date of a Mortgage Loan is allocated to each related Mortgaged Property
based on the allocation of the original principal balance.
MORTGAGE INTEREST RATES
NUMBER PERCENT BY
OF AGGREGATE AGGREGATE WEIGHTED WEIGHTED
MORTGAGE PRINCIPAL PRINCIPAL AVERAGE AVERAGE
MORTGAGE INTEREST RATES LOANS BALANCE BALANCE UW DSCR LTV
- ------------------------- ---------- -------------- ----------- ---------- ---------
6.501% - 7.000% ......... 5 $ 91,686,294 9.2% 1.69x 58.8%
7.001% - 7.500% ......... 49 291,277,290 29.2 1.35 73.4
7.501% - 8.000% ......... 65 404,983,580 40.7 1.32 70.4
8.001% - 8.500% ......... 23 183,195,447 18.4 1.35 70.3
8.501% - 9.000% ......... 9 22,633,562 2.3 1.52 63.7
9.001% - 9.500% ......... 1 2,382,421 0.2 1.45 63.5
-- ------------ ---- ---- ----
Total/Weighted Average: 152 $996,158,595 100.0% 1.37x 70.0%
=== ============ ===== ==== ====
Weighted Average Mortgage Interest Rate: 7.660%
Minimum Mortgage Interest Rate: 6.775%
Maximum Mortgage Interest Rate: 9.120%
CURRENT PRINCIPAL BALANCE
NUMBER PERCENT BY
OF AGGREGATE AGGREGATE WEIGHTED WEIGHTED
MORTGAGE PRINCIPAL PRINCIPAL AVERAGE AVERAGE
CURRENT PRINCIPAL BALANCE LOANS BALANCE BALANCE UW DSCR LTV
- ---------------------------------- ---------- --------------- ----------- ---------- ---------
$500,000 or less.................. 3 $ 1,450,803 0.1% 1.37x 64.8%
$500,001 - $1,000,000............. 8 5,760,588 0.6 1.36 69.0
$1,000,001 - $3,000,000........... 43 82,999,803 8.3 1.38 69.1
$3,000,001 - $5,000,000........... 37 147,894,546 14.8 1.35 72.2
$5,000,001 - $7,000,000........... 21 125,518,552 12.6 1.33 71.5
$7,000,001 - $10,000,000.......... 17 142,079,523 14.3 1.34 70.4
$10,000,001 - $15,000,000......... 8 95,468,411 9.6 1.31 73.7
$15,000,001 - $20,000,000......... 8 138,707,803 13.9 1.33 67.1
$20,000,001 - $30,000,000......... 4 95,102,826 9.5 1.32 75.5
$30,000,001 - $40,000,000......... 1 39,959,089 4.0 1.47 66.6
$40,000,001 - $50,000,000......... 1 47,216,651 4.7 1.30 73.8
$50,000,001 or more............... 1 74,000,000 7.4 1.75 56.7
-- ------------ ---- ---- ----
Total/Weighted Average: 152 $996,158,595 100.0% 1.37x 70.0%
=== ============ ===== ==== ====
Average Principal Balance per Mortgage Loan: $6,553,675
Average Principal Balance per Mortgaged Property: $5,758,142
Smallest Loan Balance: $465,032
Largest Loan Balance: $74,000,000
S-29
ORIGINAL TERM TO MATURITY/ANTICIPATED REPAYMENT DATE IN MONTHS
NUMBER PERCENT BY
OF AGGREGATE AGGREGATE WEIGHTED WEIGHTED
ORIGINAL TERM TO MATURITY/ MORTGAGE PRINCIPAL PRINCIPAL AVERAGE AVERAGE
ANTICIPATED REPAYMENT DATE IN MONTHS LOANS BALANCE BALANCE UW DSCR LTV
- -------------------------------------- ---------- -------------- ----------- ---------- ---------
51 - 60 .............................. 6 $ 27,999,213 2.8% 1.32x 74.6%
81 - 90 .............................. 5 26,575,464 2.7 1.38 64.5
91 - 100 ............................. 1 9,733,961 1.0 1.25 68.5
111 - 120 ............................ 132 902,280,840 90.6 1.38 70.0
121 - 130 ............................ 2 12,195,099 1.2 1.29 72.4
171 - 180 ............................ 5 15,464,018 1.6 1.27 72.9
231 - 240 ............................ 1 1,910,000 0.2 1.28 73.5
--- ------------ ---- ---- ----
Total/Weighted Average: 152 $996,158,595 100.0% 1.37x 70.0%
=== ============ ===== ==== ====
Weighted Average Original Term to Maturity/Anticipated Repayment Date in
Months: 118
REMAINING TERM TO MATURITY/ANTICIPATED REPAYMENT DATE IN MONTHS
NUMBER PERCENT BY
OF AGGREGATE AGGREGATE WEIGHTED WEIGHTED
REMAINING TERM TO MATURITY/ MORTGAGE PRINCIPAL PRINCIPAL AVERAGE AVERAGE
ANTICIPATED REPAYMENT DATE IN MONTHS LOANS BALANCE BALANCE UW DSCR LTV
- -------------------------------------- ---------- -------------- ----------- ---------- ---------
51 - 60 .............................. 6 $ 27,999,213 2.8% 1.32x 74.6%
71 - 80 .............................. 4 25,359,543 2.5 1.39 64.5
81 - 90 .............................. 3 12,747,928 1.3 1.26 69.0
101 - 110 ............................ 5 22,529,063 2.3 1.26 73.1
111 - 120 ............................ 128 890,148,830 89.4 1.38 69.9
161 - 170 ............................ 1 491,076 0.0 1.30 67.3
171 - 180 ............................ 4 14,972,942 1.5 1.27 73.1
231 - 240 ............................ 1 1,910,000 0.2 1.28 73.5
--- ------------ ---- ---- ----
Total/Weighted Average: 152 $996,158,595 100.0% 1.37x 70.0%
=== ============ ===== ==== ====
Weighted Average Remaining Term to Maturity/Anticipated Repayment Date in
Months: 115
REMAINING AMORTIZATION TERM IN MONTHS
NUMBER PERCENT BY
OF AGGREGATE AGGREGATE WEIGHTED WEIGHTED
MORTGAGE PRINCIPAL PRINCIPAL AVERAGE AVERAGE
REMAINING AMORTIZATION TERM IN MONTHS LOANS BALANCE BALANCE UW DSCR LTV
- --------------------------------------- ---------- --------------- ----------- ---------- ---------
161 - 170 ............................. 1 $ 491,076 0.0% 1.30x 67.3%
171 - 180 ............................. 1 1,009,785 0.1 1.42 53.7
231 - 240 ............................. 7 19,693,246 2.0 1.45 64.3
261 - 270 ............................. 4 14,138,257 1.4 1.47 65.5
281 - 290 ............................. 1 1,414,150 0.1 1.35 71.1
291 - 300 ............................. 30 151,216,330 15.2 1.37 68.6
321 - 330 ............................. 2 7,282,031 0.7 1.30 77.5
341 - 350 ............................. 4 21,114,913 2.1 1.25 73.2
351 - 360 ............................. 102 779,798,807 78.3 1.37 70.4
--- ------------ ---- ---- ----
Total/Weighted Average: 152 $996,158,595 100.0% 1.37x 70.0%
=== ============ ===== ==== ====
Weighted Average Remaining Amortization Term in Months: 344
S-30
MONTH AND YEAR OF ORIGINATION
NUMBER PERCENT BY
OF AGGREGATE AGGREGATE WEIGHTED WEIGHTED
MORTGAGE PRINCIPAL PRINCIPAL AVERAGE AVERAGE
MONTH AND YEAR OF ORIGINATION LOANS BALANCE BALANCE UW DSCR LTV
- ------------------------------- ---------- --------------- ----------- ---------- ---------
July 1998 ..................... 1 $ 1,798,046 0.2% 1.31x 74.9%
May 2000 ...................... 3 5,141,338 0.5 1.32 69.1
June 2000 ..................... 1 1,888,277 0.2 1.30 66.5
August 2000 ................... 2 15,990,524 1.6 1.23 75.0
September 2000 ................ 3 7,551,372 0.8 1.32 72.0
October 2000 .................. 2 10,416,832 1.0 1.25 69.8
November 2000 ................. 9 56,114,320 5.6 1.39 68.3
December 2000 ................. 20 123,154,976 12.4 1.35 70.1
January 2001 .................. 17 56,955,808 5.7 1.38 70.8
February 2001 ................. 19 65,575,877 6.6 1.30 73.9
March 2001 .................... 21 91,799,884 9.2 1.34 74.0
April 2001 .................... 15 109,004,587 10.9 1.33 73.1
May 2001 ...................... 22 222,487,116 22.3 1.35 70.7
June 2001 ..................... 15 217,229,638 21.8 1.48 64.6
July 2001 ..................... 2 11,050,000 1.1 1.33 72.3
-- ------------ ---- ---- ----
Total/Weighted Average: 152 $996,158,595 100.0% 1.37x 70.0%
=== ============ ===== ==== ====
Weighted Average Months Since Origination: 3
YEAR OF MATURITY/ANTICIPATED REPAYMENT DATE
NUMBER PERCENT BY
OF AGGREGATE AGGREGATE WEIGHTED WEIGHTED
YEAR OF MATURITY/ MORTGAGE PRINCIPAL PRINCIPAL AVERAGE AVERAGE
ANTICIPATED REPAYMENT DATE LOANS BALANCE BALANCE UW DSCR LTV
- ---------------------------- ---------- -------------- ----------- ---------- ---------
2006 ....................... 6 $ 27,999,213 2.8% 1.32x 74.6%
2008 ....................... 6 28,373,510 2.8 1.38 65.1
2009 ....................... 1 9,733,961 1.0 1.25 68.5
2010 ....................... 18 87,187,197 8.8 1.35 69.7
2011 ....................... 115 825,490,695 82.9 1.38 70.0
2015 ....................... 2 9,915,466 1.0 1.24 71.6
2016 ....................... 3 5,548,552 0.6 1.32 75.4
2021 ....................... 1 1,910,000 0.2 1.28 73.5
--- ------------ ---- ---- ----
Total/Weighted Average: 152 $996,158,595 100.0% 1.37x 70.0%
=== ============ ===== ==== ====
The following two tables set forth the range of Cut-off Date LTV Ratios
and Maturity Date or Anticipated Repayment 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 principal 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. A "Maturity Date or Anticipated Repayment
Date LTV Ratio" is a fraction, expressed as a percentage, the numerator of
which is the principal balance of a Mortgage Loan on the related Maturity Date
or, in the case of an ARD Loan, the related Anticipated Repayment Date assuming
all scheduled payments due prior thereto are made and there are no principal
prepayments, 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. Because the value of Mortgaged
Properties at the Maturity Date or, in the case of an ARD Loan, the Anticipated
Repayment Date may be different than such appraised value, there can be no
assurance that the loan-to-value ratio for any Mortgage Loan determined at any
time following origination thereof will be lower than the Cut-off Date LTV
Ratio, notwithstanding any positive amortization of such Mortgage Loan. It is
possible that the market value of
S-31
a Mortgaged Property securing a Mortgage Loan may decline between the
origination thereof and the related Maturity Date or, in the case of an ARD
Loan the Anticipated Repayment Date.
An appraisal of the value for each of the Mortgaged Properties was made
between September 1998 and May 2001. It is possible that the market value of a
Mortgaged Property securing a Mortgage Loan has declined since the most recent
appraisal for such Mortgaged Property. All appraisals were obtained in
accordance with the requirements of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989, as amended ("FIRREA").
CUT-OFF DATE LTV RATIOS
NUMBER PERCENT BY
OF AGGREGATE AGGREGATE WEIGHTED WEIGHTED
MORTGAGE PRINCIPAL PRINCIPAL AVERAGE AVERAGE
CUT-OFF DATE LTV RATIOS LOANS BALANCE BALANCE UW DSCR LTV
- ------------------------- ---------- -------------- ----------- ---------- ---------
50.00% or less .......... 4 $ 33,329,301 3.3% 1.62x 44.2%
50.01% - 55.00% ......... 6 9,039,505 0.9 1.49 53.5
55.01% - 60.00% ......... 2 75,795,482 7.6 1.75 56.7
60.01% - 65.00% ......... 25 114,215,946 11.5 1.44 63.6
65.01% - 70.00% ......... 23 162,888,824 16.4 1.36 67.5
70.01% - 75.00% ......... 50 352,887,423 35.4 1.31 73.3
75.01% - 80.00% ......... 41 245,910,835 24.7 1.29 78.1
80.01% or more .......... 1 2,091,281 0.2 1.32 80.4
-- ------------ ---- ---- ----
Total/Weighted Average: 152 $996,158,595 100.0% 1.37x 70.0%
=== ============ ===== ==== ====
Weighted Average Cut-off Date LTV Ratio: 70.0%.
MATURITY DATE OR ANTICIPATED REPAYMENT DATE
LTV RATIOS(1)
NUMBER PERCENT BY
OF AGGREGATE AGGREGATE WEIGHTED WEIGHTED
MATURITY DATE OR ANTICIPATED MORTGAGE PRINCIPAL PRINCIPAL AVERAGE AVERAGE
REPAYMENT DATE LTV RATIOS LOANS BALANCE BALANCE UW DSCR LTV
- ------------------------------ ---------- --------------- ----------- ---------- ---------
50.00% or more ............... 17 $143,434,264 14.4% 1.64x 55.5%
50.01% - 55.00% .............. 12 51,334,186 5.2 1.46 62.5
55.01% - 60.00% .............. 28 160,353,741 16.1 1.38 67.3
60.01% - 65.00% .............. 31 199,339,020 20.1 1.32 70.7
65.01% - 70.00% .............. 42 309,494,598 31.1 1.30 75.4
70.01% - 75.00% .............. 19 126,458,919 12.7 1.29 78.6
75.01% or more ............... 1 3,342,791 0.3 1.30 79.8
-- ------------ ---- ---- ----
Total/Weighted Average: 150 $993,757,520 100.0% 1.37x 70.0%
=== ============ ===== ==== ====
Weighted Average Maturity Date LTV Ratio: 61.3%
- ----------
(1) Amounts and percentages exclude 2 fully amortizing Mortgage Loans.
The following table sets forth the range of Underwritten Cash Flow Debt
Service Coverage Ratios for the Mortgage Loans. The "Underwritten Cash Flow
Debt Service Coverage Ratio" or "UW DSCR" for any Mortgage Loan for any period
as presented in the table below or Annex A, is the ratio of Underwritten Cash
Flow calculated for the related Mortgaged Property to the amount of total
annual debt service on such Mortgage Loan. "Underwritten Cash Flow" or "UW Cash
Flow" means the Underwritten NOI (as defined below) for the Mortgaged Property
decreased by an amount that the Seller has determined to be an appropriate
allowance for average annual tenant improvements, leasing commissions, and
replacement reserves for capital items based upon its underwriting guidelines.
S-32
"Underwritten NOI" or "UW NOI" means the NOI for the Mortgaged Property as
determined by the related Seller in accordance with its underwriting guidelines
for similar properties. Revenue from a Mortgaged Property ("Effective Gross
Income") is generally calculated as follows: rental revenue is calculated using
actual rental rates, in some cases, adjusted downward to market rates with
vacancy rates equal to the higher of the Mortgaged Property's historical rate,
the market rate or an assumed vacancy rate; other revenue, such as parking
fees, laundry and other income items are included only if supported by a trend
and/or are likely to be recurring. Operating expenses generally reflect the
Mortgaged Property's historical expenses, adjusted to account for inflation,
significant occupancy increases and a market rate management fee. Generally,
"Net Operating Income" ("NOI") for a Mortgaged Property equals the operating
revenues (consisting principally of rental and related revenue) for such
Mortgaged Property minus the operating expenses (such as utilities, repairs and
maintenance, general and administrative, management fees, marketing and
advertising, insurance and real estate tax expenses) for the Mortgaged
Property. NOI generally does not reflect replacement reserves, capital
expenditures, debt service, tenant improvements, leasing commissions,
depreciation, amortization and similar non-operating items.
The amounts representing "Net Operating Income," "Underwritten NOI" and
"Underwritten Cash Flow" are not a substitute for or an improvement upon net
income as determined in accordance with generally accepted accounting
principles as a measure of the results of the Mortgaged Property's operations
or a substitute for cash flows from operating activities determined in
accordance with generally accepted accounting principles as a measure of
liquidity. No representation is made as to the future net cash flow of the
properties, nor is the "Net Operating Income," "Underwritten NOI" and
"Underwritten Cash Flow" set forth herein intended to represent such future net
cash flow.
The UW Cash Flows and UW NOIs used as a basis for calculating the UW DSCRs
presented in the following table and in Annex A attached hereto, were derived
principally from operating statements obtained from the respective Mortgagors
(the "Operating Statements"). The Operating Statements were not audited and in
most cases were not prepared in accordance with generally accepted accounting
principles. To increase the level of consistency between the Operating
Statements, in some instances, adjustments were made to such Operating
Statements. These adjustments were principally for real estate tax and
insurance expenses (e.g., adjusting for the payment of two years of expenses in
one year), and to eliminate obvious items not related to the operation of the
Mortgaged Property. However, such adjustments were subjective in nature and may
not have been made in a uniform manner.
UNDERWRITTEN CASH FLOW DEBT SERVICE COVERAGE RATIOS
NUMBER PERCENT BY
OF AGGREGATE AGGREGATE WEIGHTED WEIGHTED
UNDERWRITTEN CASH FLOW MORTGAGE PRINCIPAL PRINCIPAL AVERAGE AVERAGE
DEBT SERVICE COVERAGE RATIOS LOANS BALANCE BALANCE UW DSCR LTV
- ------------------------------ ---------- -------------- ----------- ---------- ---------
1.200x or less ............... 4 $ 19,076,825 1.9% 1.19x 76.1%
1.201x - 1.250x .............. 23 93,795,257 9.4 1.24 74.4
1.251x - 1.300x .............. 38 292,092,397 29.3 1.29 71.9
1.301x - 1.400x .............. 55 364,464,974 36.6 1.34 72.6
1.401x - 1.500x .............. 12 98,055,107 9.8 1.46 66.4
1.501x - 1.600x .............. 10 25,154,733 2.5 1.55 63.5
1.601x - 1.700x .............. 5 11,199,673 1.1 1.66 61.0
1.701x - 1.800x .............. 3 79,778,344 8.0 1.75 56.5
2.001x - 2.100x .............. 2 12,541,285 1.3 2.03 42.8
-- ------------ ---- ---- ----
Total/Weighted Average: 152 $996,158,595 100.0% 1.37x 70.0%
=== ============ ===== ==== ====
Weighted Average UW DSCR: 1.37x
S-33
GEOGRAPHIC DISTRIBUTION
NUMBER PERCENT BY
OF AGGREGATE AGGREGATE WEIGHTED WEIGHTED
MORTGAGED PRINCIPAL PRINCIPAL AVERAGE AVERAGE
GEOGRAPHIC DISTRIBUTION PROPERTIES BALANCE BALANCE UW DSCR LTV
- ------------------------------ ------------ --------------- ----------- ---------- ---------
Texas ........................ 19 $144,145,154 14.5% 1.58x 62.7%
California ................... 28 124,382,232 12.5 1.31 70.2
New York ..................... 11 86,942,884 8.7 1.32 70.9
Colorado ..................... 7 60,026,032 6.0 1.41 66.8
Indiana ...................... 3 56,522,565 5.7 1.28 74.5
Maryland ..................... 8 47,309,222 4.7 1.38 69.1
Virginia ..................... 9 43,266,611 4.3 1.30 75.7
Illinois ..................... 6 41,338,774 4.1 1.26 72.5
Minnesota .................... 1 39,959,089 4.0 1.47 66.6
Georgia ...................... 5 39,387,202 4.0 1.35 75.9
Tennessee .................... 8 38,480,503 3.9 1.36 71.9
Connecticut .................. 4 30,382,217 3.0 1.33 69.3
Florida ...................... 11 30,108,148 3.0 1.31 71.8
New Jersey ................... 4 29,448,461 3.0 1.35 72.1
North Carolina ............... 7 28,947,906 2.9 1.32 72.8
Pennsylvania ................. 2 22,365,846 2.2 1.31 74.6
Ohio ......................... 9 21,482,328 2.2 1.31 74.9
Arizona ...................... 5 16,842,346 1.7 1.32 67.3
Michigan ..................... 3 15,616,350 1.6 1.35 66.4
South Carolina ............... 3 12,154,147 1.2 1.26 68.7
Missouri ..................... 1 9,778,667 1.0 1.34 79.5
Kentucky ..................... 2 8,431,269 0.8 1.31 78.4
Nevada ....................... 2 8,378,971 0.8 1.74 52.8
Oregon ....................... 1 7,829,061 0.8 1.26 77.3
Arkansas ..................... 1 7,191,521 0.7 1.33 76.5
Mississippi .................. 2 5,765,239 0.6 1.25 72.5
Louisiana .................... 4 5,487,706 0.6 1.29 76.9
Wisconsin .................... 1 4,587,853 0.5 1.32 74.0
Alabama ...................... 1 3,297,708 0.3 1.25 79.5
Alaska ....................... 2 2,135,797 0.2 1.28 61.7
District of Columbia ......... 1 1,795,482 0.2 1.67 57.0
Idaho ........................ 1 1,361,521 0.1 1.22 72.6
Massachusetts ................ 1 1,009,785 0.1 1.42 53.7
-- ------------ ---- ---- ----
Total/Weighted Average: 173 $996,158,595 100.0% 1.37x 70.0%
=== ============ ===== ==== ====
S-34
PROPERTY TYPE
NUMBER PERCENT BY WEIGHTED
OF AGGREGATE AGGREGATE WEIGHTED WEIGHTED AVERAGE
MORTGAGED PRINCIPAL PRINCIPAL AVERAGE AVERAGE OCCUPANCY
PROPERTY TYPE PROPERTIES BALANCE BALANCE UW DSCR LTV RATE(1)
- ------------------------------- ------------ --------------- ------------ ---------- ---------- ----------
Office
CBD .......................... 9 $119,433,954 12.0% 1.34x 70.5% 98.6%
Suburban ..................... 25 198,110,635 19.9 1.32 70.7 97.8
-- ------------ ---- ---- ---- ----
Subtotal ................... 34 $317,544,589 31.9% 1.33x 70.6% 98.1%
Retail
Anchored ..................... 23 $250,347,446 25.1% 1.43x 70.4% 98.3%
Shadow Anchored .............. 2 15,327,092 1.5 1.25 72.9 91.6
Unanchored ................... 10 30,253,860 3.0 1.31 69.6 96.9
-- ------------ ---- ---- ---- ----
Subtotal ................... 35 $295,928,398 29.7% 1.41x 70.5% 97.8%
Multifamily
Multifamily .................. 63 $162,816,282 16.3% 1.36x 73.7% 95.4%
Industrial
Flex Space ................... 4 $ 25,301,522 2.5% 1.32x 53.5% 98.2%
Warehouse/Distribution ....... 14 65,383,552 6.6 1.34 71.6 98.6
-- ------------ ---- ---- ---- ----
Subtotal ................... 18 $ 90,685,075 9.1% 1.33x 66.5% 98.5%
Hotel
Full Service ................. 3 $ 59,441,510 6.0% 1.47x 65.5% N/A
Limited Service .............. 6 18,840,060 1.9 1.56 62.8 N/A
-- ------------ ---- ---- ---- -----
Subtotal ................... 9 $ 78,281,569 7.9% 1.50x 64.9% N/A
Mobile Home Park
Mobile Home Park ............. 13 $ 46,828,728 4.7% 1.39x 65.8% 93.4%
Self-Storage
Self-Storage ................. 1 $ 4,073,954 0.4% 1.29x 71.5% 92.8%
-- ------------ ---- ---- ---- -----
Total/Weighted Average: 173 $996,158,595 100.0% 1.37x 70.0% 97.3%
=== ============ ===== ==== ==== =====
(1) Excludes hotel properties.
YEARS SINCE THE MORTGAGED PROPERTIES WERE BUILT (1)
NUMBER PERCENT BY
OF AGGREGATE AGGREGATE WEIGHTED WEIGHTED
YEARS SINCE THE MORTGAGED MORTGAGED PRINCIPAL PRINCIPAL AVERAGE AVERAGE
PROPERTIES WERE BUILT PROPERTIES BALANCE BALANCE UW DSCR LTV
- --------------------------- ------------ --------------- ----------- ---------- ---------
5 or less ................. 27 $181,634,553 18.2% 1.30x 72.0%
6 - 10 .................... 12 58,962,698 5.9 1.33 70.6
11 - 15 ................... 28 131,866,504 13.2 1.30 74.7
16 - 20 ................... 23 187,027,760 18.8 1.52 64.4
21 - 25 ................... 9 74,024,837 7.4 1.32 72.9
26 - 30 ................... 20 99,734,863 10.0 1.35 70.9
31 or more ................ 54 262,907,380 26.4 1.38 69.1
-- ------------ ---- ---- ----
Total/Weighted Average: 173 $996,158,595 100.0% 1.37x 70.0%
=== ============ ===== ==== ====
Weighted Average Property Age in years: 22.1
- ----------
(1) For Mortgaged Properties constructed in stages, the earliest date was used.
S-35
With certain limited exceptions relating to casualty and condemnation
proceeds, or other prepayments beyond the Mortgagor's control, all but one of
the Mortgage Loans prohibit the prepayment thereof until a date specified in
the related Mortgage Note (such period, the "Lock-out Period" and the date of
expiration thereof, the "Lock-out Date"). Thereafter, each Mortgage Loan
provides that until a date specified in the related Mortgage Note the related
Mortgagor will be required to pay a yield maintenance penalty (a "Prepayment
Premium") upon any voluntary principal prepayment of a Mortgage Loan or provide
for Defeasance (as defined in Note (1) below), in whole and/or in part. The
following table sets forth the percentage of the declining aggregate principal
balance of all the Mortgage Loans that on July 1 of each of the years indicated
will be within their related Lock-out Period, are subject to Defeasance and/or
require that a principal prepayment must be accompanied by a Prepayment
Premium. See "Risk Factors -- Prepayments Will Affect Your Yield" above.
PREPAYMENT PROTECTION
PERCENTAGE OF MORTGAGE LOANS BY OUTSTANDING
PRINCIPAL BALANCE AS OF THE CUT-OFF DATE THAT HAVE
PREPAYMENT LOCK-OUTS OR PREMIUM (ASSUMING NO PREPAYMENTS)*
JULY JULY JULY JULY JULY JULY JULY JULY JULY JULY JULY
CURRENT 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
-------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Lock-Out/Defeasance(1) ......... 100.0% 100.0% 100.0% 98.8% 98.8% 98.2% 98.2% 98.2% 98.3% 94.6% 25.9% 43.9%
YM(2) .......................... 0.0 0.0 0.0 1.2 1.2 1.8 1.8 1.7 1.7 1.6 33.4 56.1
----- ----- ----- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Lock-Out/Defeasance
and YM ........................ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.9 100.0 96.2 59.3 100.0
No Prepayment Premium .......... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.0 3.8 40.7 0.0
----- ----- ----- ----- ----- ----- ----- ---- ----- ---- ---- -----
Total .......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Aggregate Mortgage Loan
Balance(3) .................... $996.2 $987.0 $977.1 $966.7 $955.1 $916.0 $902.9 $864.4 $839.6 $817.9 $23.6 $13.5
Percentage of Balance
Outstanding ................... 100.0% 99.1% 98.1% 97.0% 95.9% 92.0% 90.6% 86.8% 84.3% 82.1% 2.4% 1.4%
- ----------
(1) Certain Mortgage Loans permit the applicable Mortgagor after a specified
period (not less than two years from the Delivery Date, except as
described below) to obtain the release of the related Mortgaged Property
from the lien of the related Mortgage upon substitution of direct
non-callable permitted government securities providing payments in
amounts equal to the scheduled payments due on such Mortgage Loan to the
related Maturity Date or, in the case of certain of the ARD Loans, the
Anticipated Repayment Date. The Master Servicer on behalf of the related
Mortgagor, or the related Mortgagor, shall purchase such permitted
government securities, which shall be substituted as collateral for the
related Mortgage Loan upon release of the related Mortgaged Property. Any
such substitution shall be subject to, among other things, certain
conditions set forth in the related Mortgage Loan documents and the
Pooling and Servicing Agreement. Such substitution of collateral is
referred to herein as "Defeasance." For purposes of this table, to the
extent a Mortgagor may elect to defease the related Mortgage Loan, such
Mortgage Loan will be reflected in the "Lock-Out/ Defeasance" category.
(2) The Mortgage Loan generally requires the payment of a Prepayment Premium
in connection with any principal prepayment, in whole or in part. Any
Prepayment Premium will equal the present value, as of the date of
prepayment, of the remaining Monthly Payments from such date of
prepayment through the related stated maturity (including the Balloon
Payment), determined by discounting such payments using the rate of a
U.S. Treasury security with a maturity date most approximating the
maturity date of the Mortgage Loan (such rate converted to a monthly
equivalent yield), minus the then outstanding principal balance, subject
to a minimum Prepayment Premium equal to 1% of the principal balance of
such Mortgage Loan being prepaid ("Yield Maintenance" or "YM").
(3) Millions of dollars.
* See Annex A and the attached diskette for additional, detailed
information on the Mortgage Loans' Prepayment Premiums.
S-36
TEN LARGEST MORTGAGE LOANS
The following tables and summaries describe the ten largest Mortgage Loans
by Cut-off Date Principal Balance.
CUT-OFF % OF POOL UW
MORTGAGE LOAN DATE BALANCE BALANCE DSCR LTV PROPERTY TYPE
- ----------------------------------------- -------------- ----------- ---------- ------- ---------------------
Collin Creek Mall ....................... $ 74,000,000 7.4% 1.75x 56.7% Anchored Retail
National City Center .................... 47,216,651 4.7 1.30 73.8 CDB Office
Minneapolis Airport Marriott ............ 39,959,089 4.0 1.47 66.6 Full-Service Hotel
Fiddler's Green I ....................... 25,966,569 2.6 1.27 71.1 Suburban Office
Augusta Exchange Shopping Ctr. .......... 25,200,000 2.5 1.32 80.0 Anchored Retail
Chino Spectrum Marketplace .............. 22,952,672 2.3 1.30 77.8 Anchored Retail
Brooklyn Renaissance Plaza .............. 20,983,585 2.1 1.40 72.9 CBD Office
10 Weaver Road .......................... 19,478,341 2.0 1.32 74.9 Industrial Warehouse
Crocker Richmond Portfolio .............. 19,075,128 1.9 1.31 75.4 Suburban Office
Special Devices Portfolio ............... 17,500,000 1.8 1.30 44.6 Industrial Flex
------------ --- ---- ----
Top 10 Total/Weighted Average ........... $312,332,035 31.4% 1.44x 67.9%
============ ==== ==== ====
Mortgage Pool Total/Weighted Average..... $996,158,595 100.0% 1.37x 70.0%
COLLIN CREEK MALL
LOAN INFORMATION PROPERTY INFORMATION
- ----------------------------------------------- -----------------------------------------
Cut-off Date Balance $74,000,000 Property Type Anchored Retail
% of Initial Pool Balance 7.4% Location Plano, TX
Origination Date June 18, 2001 Square Footage 332,055
Maturity Date July 10, 2011 Year Built/Renovated 1981/1992
Mortgage Rate 6.775% Appraised Value $130,600,000
Annual Debt Service $ 5,774,316 Occupancy 98.0%
UW DSCR 1.75x Occupancy Date June 1, 2001
Cut-off Date LTV 56.7% UW NOI $10,647,781
Balloon LTV 49.1% UW Cash Flow $10,132,125
The Loan. The Collin Creek Mall loan was originated by MGT and is secured
by a first mortgage encumbering the regional shopping mall located at 811 North
Central Expressway in Plano, Texas. The Collin Creek Mall loan was made to
Collin Creek Mall, L.P., a special purpose, bankruptcy remote limited
partnership. Collin Creek Mall L.P. is jointly owned by The Rouse Company and
Rodamco North America, N.V. The Rouse Company (NSYE: RSE), through its numerous
affiliates, operates more than 250 properties encompassing office, retail,
research and development and industrial space in 22 states. Rodamco North
America N.V. has interests in 35 regional malls across the United States.
The Collin Creek Mall loan has a remaining amortization term of 360 months
and matures on July 10, 2011. The loan may not be prepaid prior to April 10,
2011. The loan may be prepaid, in whole or in part, without payment of a
Prepayment Premium at any time thereafter. The Collin Creek Mall loan is
subject to Defeasance, in whole, at any time after the second anniversary of
the Delivery Date.
The Property. The Collin Creek Mall is a two story, enclosed regional
shopping mall located approximately 20 miles north of Dallas, Texas. Anchor
tenants include: Foley's (197,478 square feet), Dillard's (176,259 square
feet), Sears (161,472 square feet), JC Penney (156,772 square feet) and
Mervyns's (97,832 square feet); however, each of these anchor tenants owns
their improvements which are not part of the collateral for this loan. The
in-line space contains approximately 120 stores including: The Gap (10,450
square feet) with reported sales per square feet of $572 for 2000, Lane Bryant
(7,986 square feet) with reported sales per square feet of $291 for 2000,
Victoria's Secret (6,248 square feet) with reported sales per square feet of
$698 for 2000, Ann Taylor (5,786 square feet) with reported sales per
S-37
square feet of $345 for 2000, and Eddie Bauer (5,503 square feet) with reported
sales per square feet of $434 for 2000. The average reported sales per square
foot for the in-line space was over $400 for 2000. The historical occupancy
percentage for the in-line space was 95.7%, 97.7%, and 98.5% for 1998, 1999,
and 2000, respectively.
Lease Rollover Schedule.
CUMULATIVE CUMULATIVE %
SQUARE FEET % OF TOTAL SQUARE FEET OF TOTAL
CALENDAR YEAR EXPIRING SQUARE FEET EXPIRING SQUARE FEET
- ------------------------- ------------- ------------- ------------- -------------
2001 .................... 15,393 4.6% 15,393 4.6%
2002 .................... 28,270 8.5 43,663 13.1
2003 .................... 38,908 11.7 82,571 24.9
2004 .................... 54,541 16.4 137,112 41.3
2005 .................... 39,710 12.0 176,822 53.3
2006 .................... 33,334 10.0 210,156 63.3
2007 .................... 22,667 6.8 232,823 70.1
2008 .................... 35,975 10.8 268,798 80.9
2009 .................... 26,397 7.9 295,195 88.9
2010 .................... 23,494 7.1 318,689 96.0
Thereafter .............. 6,635 2.0 325,324 98.0
Current Vacancy ......... 6,731 2.0 332,055 100.0
------ ----
Total ................... 332,055 100.0%
======= =====
Property Management. The Collin Creek Mall is managed by The Rouse
Company, an affiliate of the Mortgagor.
Lockbox and Reserves. All rents payable by the tenants of the Collin Creek
Mall are paid directly into a lockbox account. Following an event of default or
if the debt service coverage ratio falls below 1.15x (based on a loan constant
of 9.00% and trailing 12 months of operations), funds in the lockbox account
are allocated monthly to fund a tax and insurance account, monthly debt service
and a recurring replacement reserve account. The Mortgagor is required to make
monthly cash deposits for real estate taxes. In addition the Mortgagor is also
required to make annual cash deposits for replacement reserves in the amount of
$66,252 through 2005, and $110,004 thereafter.
NATIONAL CITY CENTER
LOAN INFORMATION PROPERTY INFORMATION
- ----------------------------------------------- ------------------------------------------
Cut-off Date Balance $47,216,651 Property Type CBD Office
% of Initial Pool Balance 4.7% Location Indianapolis, IN
Origination Date May 8, 2001 Square Footage 624,464
Anticipated Repayment Date June 1, 2011 Year Built/Renovated 1977/2000
Mortgage Rate 7.750% Appraised Value $64,000,000
Annual Debt Service $ 4,062,057 Occupancy 99.9%
UW DSCR 1.30x Occupancy Date March 1, 2001
Cut-off Date LTV 73.8% UW NOI $6,261,449
Balloon LTV 65.6% UW Cash Flow $5,288,539
The Loan. The National City Center loan was originated by CIBC and is
secured by a first mortgage encumbering a 16-story, Class A office building
located in Indianapolis, Indiana. The National City Center loan was made to NCC
Office Holdings, LLC, a special purpose, bankruptcy remote limited liability
company, owned by entities controlled by Harbor Group International and Morris
Designs, Inc.
The National City Center loan has a remaining amortization term of 359
months and matures on June 1, 2031. The National City Center loan is an ARD
loan with an Anticipated Repayment Date of
S-38
June 1, 2011. The loan may not be prepaid prior to March 1, 2011. The National
City Center loan may be prepaid, in whole, without payment of a Prepayment
Premium at any time thereafter. The National City Center loan is subject to
Defeasance, in whole, at any time after the second anniversary of the Delivery
Date.
The Property. National City Center is a 16-story, Class A office building
containing 624,464 square feet of leasable area of which 612,190 square feet is
office space and 12,274 square feet is retail space. National City Center was
built in 1977 and renovated in 2000. Primary tenants include National City Bank
(336,457 square feet; rated Aa3 by Moody's and A+ by Standard & Poor's), Simon
Property Group (167,764 square feet; rated Baa2 by Moody's and BBB+ by Standard
& Poor's), Supreme Court of Indiana (26,539 square feet), Indiana Court of
Appeals (15,016 square feet), and MCI Worldcom (12,455 square feet). The
balance of the space is leased primarily to local and regional companies that
have their headquarters in the building. As of March 1, 2001, the property was
99.9% occupied.
Lease Rollover Schedule.
CUMULATIVE CUMULATIVE %
SQUARE FEET % OF TOTAL SQUARE FEET OF TOTAL
CALENDAR YEAR EXPIRING SQUARE FEET EXPIRING SQUARE FEET
- ------------------------- ------------- ------------- ------------- -------------
2001 .................... 10,769 1.7% 10,769 1.7%
2002 .................... -- 0.0 10,769 1.7
2003 .................... 11,946 1.9 22,715 3.6
2004 .................... 8,102 1.3 30,817 4.9
2005 .................... 172,820 27.7 203,637 32.6
2006 .................... 23,845 3.8 227,482 36.4
2007 .................... 379,112 60.7 606,594 97.1
2008 .................... -- 0.0 606,594 97.1
2009 .................... 12,455 2.0 619,049 99.1
2010 .................... 3,654 0.6 622,703 99.7
Thereafter .............. 1,390 0.2 624,093 99.9
Current Vacancy ......... 371 0.1 624,464 100.0%
------- ----
Total ................... 624,464 100.0%
======= =====
Property Management. The National City Center is managed by Harbor Group
Management Company, an affiliate of the Mortgagor.
Lockbox and Reserves. During the term of the loan, all rents payable by
the tenants of National City Center are paid directly into a lockbox account.
Funds in the lockbox account are allocated monthly to fund a tax and insurance
account, a debt service account, a recurring replacement reserve account and a
recurring tenant improvement/leasing commission reserve. At closing, the
Mortgagor deposited $1,000,000 into a replacement reserve account and
$1,000,000 into a leasing reserve account.
MINNEAPOLIS AIRPORT MARRIOTT
LOAN INFORMATION PROPERTY INFORMATION
- ----------------------------------------------- --------------------------------------------
Cut-off Date Balance $39,959,089 Property Type Full Service Hotel
% of Initial Pool Balance 4.0% Location Bloomington, MN
Origination Date May 9, 2001 Number of Units 473
Anticipated Repayment Date June 1, 2011 Year Built/Renovated 1969-1975/2000
Mortgage Rate 8.170% Appraised Value $60,000,000
Annual Debt Service $ 3,758,935 Occupancy 68.2%
UW DSCR 1.47x Occupancy Date March 31, 2001
Cut-off Date LTV 66.6% UW NOI $6,488,628
Balloon LTV 55.2% UW Cash Flow $5,537,375
S-39
The Loan. The Minneapolis Airport Marriott loan was originated by CIBC and
is secured by a first mortgage encumbering a full service hotel located at 2020
East 79th Street, Bloomington, Hennepin County, Minnesota. The Minneapolis
Airport Marriott loan was made to Columbia Properties Minneapolis, L.P., a
special purpose, bankruptcy remote limited partnership controlled by Columbia
Sussex Corporation.
The Minneapolis Airport Marriott loan has a remaining amortization term of
299 months and matures on June 1, 2026. The Minneapolis Airport Marriott loan
has an Anticipated Repayment Date of June 1, 2011. The Minneapolis Airport
Marriott loan may not be prepaid prior to March 1, 2011. The loan may be
prepaid, in whole, without payment of a Prepayment Premium at any time
thereafter. The Minneapolis Airport Marriott loan is subject to Defeasance, in
whole, at any time after the second anniversary of the Delivery Date.
The Property. The Minneapolis Airport Marriott is a five-story, full
service hotel built between 1969 and 1975 and renovated in 1999 and 2000, which
contains 473 guestrooms, 15,000 square feet of meeting/banquet area, and two
restaurants. The Minneapolis Airport Marriott's guestrooms include 7 studio
rooms, 236 standard double rooms, 218 standard king rooms, and 12 suites.
Property amenities include an indoor pool and whirlpool, fitness center,
business center, gift shop, concierge, valet services, and free transportation
to the Minneapolis-St. Paul International Airport and the Mall of America.
12 MOS.
ENDED
1999 2000 3/31/01 UW
---- ---- ------- --
Average Daily Rate (ADR) ......... $ 102 $ 111 $ 115 $ 113
Occupancy % ...................... 70.8% 68.4% 68.2% 68.2%
RevPAR ........................... $ 72 $ 76 $ 78 $ 77
Property Management. The Minneapolis Airport Marriott is managed by
Columbia Sussex Corporation, an affiliate of the Mortgagor.
Lockbox and Reserves. Upon an event of default or at the Anticipated
Repayment Date, all amounts collected by the Minneapolis Airport Marriott
property manager shall be paid directly into a lockbox account. Funds in the
lockbox account are allocated monthly to a tax and insurance account, a debt
service account and a furniture, fixtures and equipment reserve account.
FIDDLER'S GREEN I
LOAN INFORMATION PROPERTY INFORMATION
- ------------------------------------------------ ------------------------------------------
Cut-off Date Balance $25,966,569 Property Type Suburban Office
% of Initial Pool Balance 2.6% Location Greenwood Village, CO
Origination Date April 25, 2001 Square Footage 206,604
Maturity Date May 1, 2011 Year Built 1999
Mortgage Rate 7.480% Appraised Value $36,500,000
Annual Debt Service $ 2,177,278 Occupancy 99.3%
UW DSCR 1.27x Occupancy Date March 14, 2001
Cut-off Date LTV 71.1% UW NOI $3,045,386
Balloon LTV 62.9% UW Cash Flow $2,766,471
The Loan. The Fiddler's Green I loan was originated by MGT and is secured
by a first mortgage encumbering the 206,604 square feet Class A office building
located in Greenwood Village, Colorado. The Fiddler's Green I loan was made to
Fiddler's Green Center I LLC, a special purpose, bankruptcy remote limited
liability company. Fiddler's Green I LLC is a privately owned entity controlled
by the John Madden Company and Al Nemecek. The John Madden Company has
developed over 10 million square feet of commercial real estate.
S-40
The Fiddler's Green I loan has a remaining amortization term of 358 months
and matures on May 1, 2011. The Fiddler's Green I loan may not be prepaid prior
to February 1, 2011. The Fiddler's Green I loan may be prepaid, in whole,
without payment of a Prepayment Premium at any time thereafter. The loan is
subject to Defeasance, in whole, at any time after the second anniversary of
the Delivery Date.
The Property. Fiddler's Green I is a 6-story, 206,604 square foot Class A
office building developed by the Mortgagor in 1999. The property is located
within the Greenwood Plaza Office Park, which is approximately 15 minutes
southeast of the Denver central business district. Major tenants include
Convergent Group (84,588 square feet), a wholly owned subsidiary of
Schlumberger Ltd., Navidec (69,434 square feet) and KPMG (35,740 square feet).
As of March 14, 2001, the property was 99.3% occupied.
Lease Rollover Schedule.
CUMULATIVE CUMULATIVE %
SQUARE FEET % OF TOTAL SQUARE FEET OF TOTAL
CALENDAR YEAR EXPIRING SQUARE FEET EXPIRING SQUARE FEET
- ------------------------- ------------- ------------- ------------- -------------
2001 .................... -- 0.0% -- 0.0%
2002 .................... -- 0.0 -- 0.0
2003 .................... -- 0.0 -- 0.0
2004 .................... 15,483 7.5 15,483 7.5
2005 .................... 69,434 33.6 84,917 41.1
2006 .................... -- 0.0 84,917 41.1
2007 .................... -- 0.0 84,917 41.1
2008 .................... -- 0.0 84,917 41.1
2009 .................... 72,648 35.2 157,565 76.3
2010 .................... 47,680 23.1 205,245 99.3
Thereafter .............. -- 0.0 205,245 99.3
Current Vacancy ......... 1,359 0.7 206,604 100.0%
------ ----
Total ................... 206,604 100.0%
======= =====
Property Management. Fiddler's Green I is managed by the John Madden
Company.
Lockbox and Reserves. Upon an event of default, all amounts payable by the
tenants of Fiddler's Green I shall be paid directly into a lockbox account.
Funds in the lockbox account are allocated monthly to a tax and insurance
account, a debt service account, a replacement reserve account and a tenant
improvement and leasing commission account. The Mortgagor is required to
deposit $300,000 each year on a monthly basis into the tenant improvement and
leasing commission reserve account, the account balance of which will not
exceed $1,000,000 at any time.
AUGUSTA EXCHANGE SHOPPING CENTER
LOAN INFORMATION PROPERTY INFORMATION
- ----------------------------------------------- ------------------------------------
Cut-off Date Balance $25,200,000 Property Type Anchored Retail
% of Initial Pool Balance 2.5% Location Augusta, GA
Origination Date June 25, 2001 Square Footage 257,780
Maturity Date July 1, 2011 Year Built 2000
Mortgage Rate 7.330% Appraised Value $31,500,000
Annual Debt Service $ 2,108,216 Occupancy 97.9%
UW DSCR 1.32x Occupancy Date May 8, 2001
Cut-off Date LTV 80.0% UW NOI $2,918,496
Balloon LTV 70.4% UW Cash Flow $2,750,965
The Loan. The Augusta Exchange Shopping Center loan was originated by MGT
and is secured by a first mortgage encumbering a 257,780 square foot anchored
shopping center located in Augusta, Georgia. The Augusta Exchange Shopping
Center loan was made to KIR Augusta II L.P., a special
S-41
purpose, bankruptcy remote limited partnership. KIR Augusta II L.P. is
controlled by the NY State Common Fund and the Kimco Income REIT, a division of
the Kimco Realty Corporation (NYSE: KIM). Kimco Realty Corporation owns and
operates a large portfolio of neighborhood and community shopping centers with
interests in 500 properties comprising approximately 67.0 million square feet
of leaseable space located throughout 41 states.
The Augusta Exchange Shopping Center loan has a remaining amortization
term of 360 months and matures on July 1, 2011. The Augusta Exchange Shopping
Center loan may not be prepaid prior to April 1, 2011. The loan may be prepaid,
in whole or in part, without payment of a Prepayment Premium at any time
thereafter. The Augusta Exchange Shopping Center loan is subject to Defeasance,
in whole, at any time after the second anniversary of the Delivery Date.
The Property. The Augusta Exchange Shopping Center is a 257,780 square
foot community shopping center anchored by Mansours (65,000 square feet),
Goody's Family Clothing (40,000 square feet), CompUSA (26,878 square feet) and
Staples (24,000 square feet). The property was built in 2000 as the final
phases II and III of a master-planned retail development. Phase I provides
shadow anchors to the property, with tenants including Winn Dixie with reported
sales per square feet of $308 for 2000, Circuit City, and Old Navy with
reported sales per square feet of $547 for 2000, which are not part of the
collateral for this loan.
S-42
Lease Rollover Schedule.
CUMULATIVE CUMULATIVE %
SQUARE FEET % OF TOTAL SQUARE FEET OF TOTAL
CALENDAR YEAR EXPIRING SQUARE FEET EXPIRING SQUARE FEET
- ------------------------- ------------- ------------- ------------- -------------
2001 .................... -- 0.0% -- 0.0%
2002 .................... 1,300 0.5% 1,300 0.5%
2003 .................... 9,000 3.5% 10,300 4.0%
2004 .................... 2,400 0.9% 12,700 4.9%
2005 .................... 10,912 4.2% 23,612 9.2%
2006 .................... 3,000 1.2% 26,612 10.3%
2007 .................... 4,070 1.6% 30,682 11.9%
2008 .................... 6,500 2.5% 37,182 14.4%
2009 .................... 9,800 3.8% 46,982 18.2%
2010 .................... 1,817 0.7% 48,799 18.9%
Thereafter .............. 203,591 79.0% 252,390 97.9%
Current Vacancy ......... 5,390 2.1% 257,780 100.0%
------- -----
Total ................... 257,780 100.0%
======= =====
Property Management. The Augusta Exchange Shopping Center is managed by
the Kimco Realty Corporation, an affiliate of the Mortgagor.
Lockbox and Reserves. Upon an event of default, all amounts payable by the
tenants of Augusta Exchange Shopping Center shall be paid directly into a
lockbox account. Funds in the lockbox account are allocated monthly to a tax
and insurance account, a debt service account, a replacement reserve account
and a tenant improvement and leasing commission account. An annual replacement
reserve of $19,680, will be collected in monthly installments throughout the
loan term. The Mortgagor will be required to deposit $7,150 per month into the
tenant improvement and leasing commissions account, the account balance of
which will not exceed $257,400 at any time.
CHINO SPECTRUM MARKETPLACE
LOAN INFORMATION PROPERTY INFORMATION
- ---------------------------------------------------- -----------------------------------------
Cut-off Date Balance $22,952,672 Property Type Anchored Retail
% of Initial Pool Balance 2.3% Location Chino, CA
Origination Date December 28, 2000 Square Footage 221,645
Anticipated Repayment Date January 1, 2011 Year Built/Renovated 1995/2000
Mortgage Rate 7.600% Appraised Value $29,500,000
Annual Debt Service $ 1,953,003 Occupancy 98.8%
UW DSCR 1.30x Occupancy Date March 31, 2001
Cut-off Date LTV 77.8% UW NOI $2,656,258
Balloon LTV 69.2% UW Cash Flow $2,543,679
The Loan. The Chino Spectrum Marketplace loan was originated by CIBC and
is secured by a first deed of trust encumbering an anchored retail center
located in Chino, California. The Chino Spectrum Marketplace loan was made to
SY Ventures V, LLC, a special purpose, bankruptcy remote limited liability
company.
The Chino Spectrum Marketplace loan has a remaining amortization term of
354 months and matures on January 1, 2031. The Chino Spectrum Marketplace loan
has an Anticipated Repayment Date of January 1, 2011. The Chino Spectrum
Marketplace loan may not be prepaid prior to October 1, 2010. The Chino
Spectrum Marketplace loan may be prepaid, in whole, without payment of a
Prepayment Premium at any time thereafter. The Chino Spectrum Marketplace loan
is subject to Defeasance, in whole, at any time after the second anniversary of
the Delivery Date.
S-43
The Property. The Chino Spectrum Marketplace is an anchored retail center
containing 221,645 square feet of leasable area and was built in 2000. Primary
tenants include Food 4 Less (54,884 square feet), Ross Dress for Less (27,587
square feet), Staples (19,871 square feet), and Michael's stores (17,556 square
feet). The property is shadow anchored by a Target, TJ Maxx, and Old Navy,
which are not part of the collateral for the loan. As of March 31, 2001, the
property was 98.8% occupied.
Lease Rollover Schedule.
CUMULATIVE CUMULATIVE %
SQUARE FEET % OF TOTAL SQUARE FEET OF TOTAL
CALENDAR YEAR EXPIRING SQUARE FEET EXPIRING SQUARE FEET
- ------------------------- ------------- ------------- ------------- -------------
2001 .................... 7,194 3.2% 7,194 3.2%
2002 .................... 10,164 4.6 17,358 7.8
2003 .................... 3,832 1.7 21,190 9.6
2004 .................... 3,080 1.4 24,270 10.9
2005 .................... 70,405 31.8 94,675 42.7
2006 .................... 21,119 9.5 115,794 52.2
2007 .................... 1,300 0.6 117,094 52.8
2008 .................... 9,000 4.1 126,094 56.9
2009 .................... -- 0.0 126,094 56.9
2010 .................... 32,657 14.7 158,751 71.6
Thereafter .............. 60,234 27.2 218,985 98.8
Current Vacancy ......... 2,660 1.2 221,645 100.0%
------- -----
Total ................... 221,645 100.0%
======= =====
Property Management. The Chino Spectrum Marketplace is managed by CB
Richard Ellis.
Lockbox and Reserves. During the term of the loan, all amounts payable by
the tenants of Chino Spectrum Marketplace are paid directly into a lockbox
account. Funds in the lockbox account are allocated monthly to fund a tax and
insurance account, a debt service account, a recurring replacement reserve
account and a recurring tenant improvement/leasing commission reserve.
BROOKLYN RENAISSANCE PLAZA
LOAN INFORMATION PROPERTY INFORMATION
- ----------------------------------------------- -------------------------------------
Cut-off Date Balance $20,983,585 Property Type CBD Office
% of Initial Pool Balance 2.1% Location Brooklyn, NY
Origination Date May 8, 2001 Square Footage 150,040
Anticipated Repayment Date June 1, 2011 Year Built 1998
Mortgage Rate 7.240% Appraised Value $28,800,000
Annual Debt Service $ 1,717,375 Occupancy 100.0%
UW DSCR 1.40x Occupancy Date April 27, 2001
Cut-off Date LTV 72.9% UW NOI $2,514,443
Balloon LTV 64.0% UW Cash Flow $2,395,958
The Loan. The Brooklyn Renaissance Plaza loan was originated by CIBC and
is secured by a first leasehold mortgage encumbering certain condominium
interests in an office building located at 335 Adams Street, Brooklyn, Kings
County, New York. The Brooklyn Renaissance Plaza loan was made to Brooklyn
Renaissance Office/Retail, LLC, a special purpose, bankruptcy remote limited
liability company, owned by affiliates of Muss Development Company, Leucadia
National Corporation, and the Carlyle Group.
The Brooklyn Renaissance Plaza loan has a remaining amortization term of
359 months and matures on June 1, 2031. The Brooklyn Renaissance Plaza loan has
an Anticipated Repayment Date of June 1, 2011. The Brooklyn Renaissance Plaza
loan may not be prepaid prior to March 1, 2011. The loan may be
S-44
prepaid, in whole, without payment of a Prepayment Premium at any time
thereafter. The Brooklyn Renaissance Plaza loan is subject to Defeasance, in
whole, at any time after the second anniversary of the Delivery Date.
The Property. The Brooklyn Renaissance Plaza is comprised of a 1.4 million
square foot mixed-use development, which includes a 32-story office tower, a
376-room Marriott Hotel, and a 1,100 space underground garage. The collateral
is the portion of the Brooklyn Renaissance Plaza that includes 150,040 square
feet of leasable area in the office building's basement, second, third, fourth,
fifth, sixth, seventh, and twenty-third floors. The Marriott Hotel and the
underground garage are not part of the collateral for this loan. The Brooklyn
Renaissance Plaza was built in 1998. Primary tenants include New York City
Employee's Retirement System (51,508 square feet), Metro Energy, L.L.C. (24,955
square feet), New York City Board of Education (22,486 square feet), and
Securities Industry Automation Corporation (16,250 square feet). As of April
27, 2001, the property was 100.0% occupied.
Lease Rollover Schedule.
CUMULATIVE CUMULATIVE %
SQUARE FEET % OF TOTAL SQUARE FEET OF TOTAL
CALENDAR YEAR EXPIRING SQUARE FEET EXPIRING SQUARE FEET
- ------------------------- ------------- ------------- ------------- -------------
2001 .................... -- 0.0% -- 0.0%
2002 .................... -- 0.0 -- 0.0
2003 .................... -- 0.0 -- 0.0
2004 .................... 1,375 0.9 1,375 0.9
2005 .................... 38,736 25.8 40,111 26.7
2006 .................... -- 0.0 40,111 26.7
2007 .................... -- 0.0 40,111 26.7
2008 .................... -- 0.0 40,111 26.7
2009 .................... 1,126 0.8 41,237 27.5
2010 .................... -- 0.0 41,237 27.5
Thereafter .............. 108,256 72.2 149,493 99.6
Current Vacancy ......... 547 0.4 150,040 100.0%
Total ................... 150,040 100.0%
======= =====
Property Management. The Brooklyn Renaissance Plaza is managed by
Renaissance Property Managers, LLC, an affiliate of the Mortgagor.
Lockbox and Reserves. Upon an event of default or at the Anticipated
Repayment Date, all amounts payable by the tenants of Brooklyn Renaissance
Plaza shall be paid directly into a lockbox account. Funds in the lockbox
account are allocated monthly to fund a tax and insurance account, a debt
service account, a recurring replacement reserve account and a tenant
improvement/leasing commission reserve account.
10 WEAVER ROAD
LOAN INFORMATION PROPERTY INFORMATION
- ------------------------------------------------- ----------------------------------------------
Cut-off Date Balance $19,478,341 Property Type Industrial Warehouse
% of Initial Pool Balance 2.0% Location Denver, PA
Origination Date April 17, 2001 Square Footage 629,132
Anticipated Repayment Date May 1, 2011 Year Built/Renovated 1974/1988
Mortgage Rate 8.040% Appraised Value $26,000,000
Annual Debt Service $ 1,723,539 Occupancy 100.0%
UW DSCR 1.32x Occupancy Date March 2, 2001
Cut-off Date LTV 74.9% UW NOI $2,472,827
Balloon LTV 67.1% UW Cash Flow $2,266,692
The Loan. The 10 Weaver Road loan was originated by CIBC and is secured by
a first mortgage encumbering an industrial property located at 10 Weaver Road,
Denver, Pennsylvania. The 10 Weaver Road loan was made to Denver Realty
Associates, LLC, a special purpose, bankruptcy remote limited liability
company.
S-45
The 10 Weaver Road loan has a remaining amortization term of 358 months
and matures on May 1, 2031. The 10 Weaver Road loan has an Anticipated
Repayment Date of May 1, 2011. The 10 Weaver Road loan may not be prepaid prior
to February 1, 2011. The loan may be prepaid, in whole, without payment of a
Prepayment Premium at any time thereafter. The 10 Weaver Road loan is subject
to Defeasance, in whole, at any time after the second anniversary of the
Delivery Date.
The Property. 10 Weaver Road is a 629,132-square-foot industrial/bulk
distribution facility located in Denver, Lancaster County, Pennsylvania. The
property consists of two commercial buildings (623,832 square feet and 5,300
square feet). The property is occupied by 3 tenants, 2 of which completely
occupy the larger building. The property features 28 foot clear ceiling
heights, 58 fully enclosed dock-high loading docks with levelers, 4% office
build-out, and trailer storage for up to 50 trailers. As of March 2, 2001, the
property was 100.0% occupied.
Lease Rollover Schedule.
CUMULATIVE CUMULATIVE %
SQUARE FEET % OF TOTAL SQUARE FEET OF TOTAL
CALENDAR YEAR EXPIRING SQUARE FEET EXPIRING SQUARE FEET
- ------------------------- ------------- ------------- ------------- -------------
2001 .................... -- 0.0% -- 0.0%
2002 .................... -- 0.0 -- 0.0
2003 .................... 5,300 0.8 5,300 0.8
2004 .................... 211,121 33.6 216,421 34.4
2005 .................... -- 0.0 216,421 34.4
2006 .................... -- 0.0 216,421 34.4
2007 .................... -- 0.0 216,421 34.4
2008 .................... -- 0.0 216,421 34.4
2009 .................... -- 0.0 216,421 34.4
2010 .................... -- 0.0 216,421 34.4
Thereafter .............. 412,711 65.6 629,132 100.0
Current Vacancy ......... -- 0.0 629,132 100.0%
------- ----
Total ................... 629,132 100.0%
======= =====
Property Management. The 10 Weaver Road is managed by S-J Properties, an
affiliate of the Mortgagor.
Lockbox and Reserves. During the term of the loan, all rents payable by
the tenants of 10 Weaver Road Property are paid directly into a lockbox
account. Funds in the lockbox account are allocated monthly to a tax and
insurance account, a debt service account, a recurring replacement reserve
account and a recurring tenant improvement/leasing commission reserve.
CROCKER RICHMOND PORTFOLIO
LOAN INFORMATION PROPERTY INFORMATION
- ------------------------------------------------- -----------------------------------------
Cut-off Date Balance $19,075,128 Property Type Suburban Office
% of Initial Pool Balance 1.9% Location Richmond, VA
Origination Date April 16, 2001 Square Footage 233,034
Anticipated Repayment Date May 1, 2011 Year Built/Renovated 1986-1989/NAP
Mortgage Rate 7.430% Appraised Value $25,300,000
Annual Debt Service $ 1,591,628 Occupancy 99.8%
UW DSCR 1.31x Occupancy Date April 11, 2001
Cut-off Date LTV 75.4% UW NOI $2,368,871
Balloon LTV 66.6% UW Cash Flow $2,078,959
The Loan. The Crocker Richmond Portfolio loan was originated by CIBC and
is secured by a first mortgage encumbering three, Class A office buildings
located at 5540 & 5516 Falmouth Street, 2235
S-46
Staples Mill Road, and 2220 Edward Holland Drive in Richmond, Virginia. The
Crocker Richmond Portfolio loan was made to Lar Don Realty, LLC, a special
purpose, bankruptcy remote limited liability company.
The Crocker Richmond Portfolio loan has a remaining amortization term of
358 months and matures on May 1, 2031. The Crocker Richmond Portfolio loan has
an Anticipated Repayment Date of May 1, 2011. The Crocker Richmond Portfolio
loan may not be prepaid prior to February 1, 2011. The loan may be prepaid, in
whole, without payment of a Prepayment Premium at any time thereafter. The
Crocker Richmond Portfolio loan is subject to partial defeasance, permitted at
125% of allocated loan amount, at any time after the second anniversary of the
Delivery Date.
The Property. The Crocker Richmond Portfolio is comprised of The Vistas at
Brookfield (70,582 square feet), One Holland Place (84,553 square feet), and
the Trigon Building (77,899 square feet). The Vistas at Brookfield and One
Holland Place are multi-tenant office buildings, and the sole tenant of the
Trigon Building is Trigon Healthcare Inc. (NYSE: TGH). Trigon also occupies
36,186 square feet of space in One Holland Place, for a total of 114,085 square
feet (49% of the subject properties). Trigon is one of the largest HMO's in
Virginia with a long-term debt rating of A- by Standard & Poor's. As of April
11, 2001, the property was 99.8% occupied. The mortgage on the Trigon Building
encumbers the Mortgagor's ground lease interest in the property.
Lease Rollover Schedule.
CUMULATIVE CUMULATIVE %
SQUARE FEET % OF TOTAL SQUARE FEET OF TOTAL
CALENDAR YEAR EXPIRING SQUARE FEET EXPIRING SQUARE FEET
- ------------------------- ------------- ------------- ------------- -------------
2001 .................... 37,456 16.1% 37,456 16.1%
2002 .................... 11,338 4.9 48,794 20.9
2003 .................... 48,963 21.0 97,757 41.9
2004 .................... 7,947 3.4 105,704 45.4
2005 .................... 12,863 5.5 118,567 50.9
2006 .................... 114,085 49.0 232,652 99.8
2007 .................... -- 0.0 232,652 99.8
2008 .................... -- 0.0 232,652 99.8
2009 .................... -- 0.0 232,652 99.8
2010 .................... -- 0.0 232,652 99.8
Thereafter .............. -- 0.0 232,652 99.8
Current Vacancy ......... 382 0.2 233,034 100.0%
------- -----
Total ................... 233,034 100.0%
======= =====
Property Management. The Crocker Richmond Portfolio is managed by CB
Richard Ellis.
Lockbox and Reserves. Upon an event of default or at the Anticipated
Repayment Date, all rents payable by the tenants of the Crocker Richmond
Portfolio shall be paid directly into a lockbox account. Funds in the lockbox
account are allocated monthly to a tax and insurance account, a debt service
account, a recurring replacement reserve account, and a recurring tenant
improvement/leasing commission reserve.
S-47
SPECIAL DEVICES PORTFOLIO
LOAN INFORMATION PROPERTY INFORMATION
- ----------------------------------------------- --------------------------------------------
Cut-off Date Balance $17,500,000 Property Type Industrial Flex
% of Initial Pool Balance 1.8% Location Moorpark, CA & Mesa, AZ
Origination Date June 6, 2001 Square Footage 214,406
Anticipated Repayment Date July 1, 2011 Year Built 1991-1999
Mortgage Rate 7.870% Appraised Value $39,200,000
Annual Debt Service $ 1,521,917 Occupancy 100.0%
UW DSCR 1.30x Occupancy Date March 1, 2001
Cut-off Date LTV 44.6% UW NOI $2,116,940
Balloon LTV 39.8% UW Cash Flow $1,979,017
The Loan. The Special Devices Portfolio loan was originated by CIBC and is
secured by first deeds of trust encumbering two industrial properties located
at 14370 White Sage Road, Moorpark, Ventura County, California and 3431 N.
Reseda Circle, Mesa, Maricopa County, Arizona. The Special Devices Portfolio
loan was made to Autosafe Airbag 12 (CA), LP and Autosafe Airbag 14 (CA), LP,
two special purpose, bankruptcy remote limited partnerships as tenants in
common, owned by Corporate Property Associates 12, Incorporated ("CPA 12") and
Corporate Property Associates 14, Incorporated ("CPA 14"), respectively. CPA 12
and CPA 14 are real estate investment trusts affiliated with W.P. Carey &
Company, an asset management firm which specializes in single-tenant commercial
properties which are net leased.
The Special Devices Portfolio loan has a remaining amortization term of
360 months and matures on July 1, 2031. The Special Devices Portfolio loan has
an Anticipated Repayment Date of July 1, 2011. The Special Devices Portfolio
loan may not be prepaid prior to April 1, 2011. The Special Devices Portfolio
loan may be prepaid, in whole, without payment of a Prepayment Premium at any
time thereafter. The Special Devices Portfolio loan is subject to Partial
Defeasance permitted at 125% of allocated loan amount, at any time after the
second anniversary of the Delivery Date.
The Property. The Special Devices Portfolio collateral includes six
buildings built in 1999 and 228.57 acres of land in Moorpark, California and
twenty-six structures built between 1991 and 1999 and 20.96 acres of land in
Mesa, Arizona. The sole tenant of the Moorpark, California and Mesa, Arizona
locations is Special Devices, Inc. under a twenty-year, triple-net lease with
two, ten-year extension options. Special Devices, Inc. is a designer and
manufacturer of initiator devices used in vehicle airbags and other safety
systems.
Lease Rollover Schedule.
CUMULATIVE CUMULATIVE %
SQUARE FEET % OF TOTAL SQUARE FEET OF TOTAL
CALENDAR YEAR EXPIRING SQUARE FEET EXPIRING SQUARE FEET
- ------------------------- ------------- ------------- ------------- -------------
2001 .................... -- 0.0% -- 0.0%
2002 .................... -- 0.0 -- 0.0
2003 .................... -- 0.0 -- 0.0
2004 .................... -- 0.0 -- 0.0
2005 .................... -- 0.0 -- 0.0
2006 .................... -- 0.0 -- 0.0
2007 .................... -- 0.0 -- 0.0
2008 .................... -- 0.0 -- 0.0
2009 .................... -- 0.0 -- 0.0
2010 .................... -- 0.0 -- 0.0
Thereafter .............. 214,406 100.0 214,406 100.0
Current Vacancy ......... 0 0.0 214,406 100.0%
------- -----
Total ................... 214,406 100.0%
======= =====
S-48
Property Management. The Special Devices Portfolio property is managed by
W.P. Carey & Company, an affiliate of the Mortgagor.
Lockbox and Reserves. Upon an event of default or at the Anticipated
Repayment Date, all rents payable by Special Devices, Inc. shall be paid
directly into a lockbox account. Funds in the lockbox account are allocated
monthly to fund a tax and insurance account, a debt service account, and a
recurring replacement reserve account. At closing, the Mortgagor delivered a
letter of credit in the amount of $1,308,000 which represents the Special
Devices Portfolio security deposit. This letter of credit was taken in lieu of
the Mortgagor being required to make monthly deposits into a reserve account
for tenant improvements and leasing commissions.
CERTAIN TERMS AND CONDITIONS OF THE MORTGAGE LOANS
ARD Loans. Sixty-four of the Mortgage Loans representing approximately
56.6% of the Initial Pool Balance are "ARD Loans." The ARD Loans substantially
fully amortize over their stated terms, which are at least 60 months after
their related Anticipated Repayment Dates (as defined below). If the related
borrower thereunder (the "Mortgagor") elects to prepay an ARD Loan in full on
the related Anticipated Repayment Date, a substantial amount of principal will
be due. If a Mortgagor elects not to prepay an ARD Loan on or before its
Anticipated Repayment Date, all or a substantial portion of Excess Cash Flow
(as defined below) collected after such date shall be applied towards the
prepayment of such ARD Loan. ARD Loans generally accrue interest at a higher
rate following the applicable Anticipated Repayment Date. As used herein, the
term "Mortgage Interest Rate" does not include the portion of the interest rate
attributable to the rate increase. The excess of interest at such higher rate
over interest at the Mortgage Interest Rate (together with interest thereon) is
referred to herein as "Excess Interest." The date on which all or substantially
all of any Excess Cash Flow is required to be applied toward prepayment of such
loan and on which any such Mortgage Loan begins accruing Excess Interest is
referred to herein as the "Anticipated Repayment Date."
Once the principal balance of an ARD Loan has been reduced to zero, all
Excess Cash Flow will be applied to the payment of accrued Excess Interest.
With respect to any ARD Loan, payment of Excess Interest will be deferred until
the principal of such ARD Loan has been paid in full.
Commencing on the respective Anticipated Repayment Date each ARD Loan
generally will bear interest at a fixed rate (the "Revised Rate") per annum
equal to the Mortgage Interest Rate plus a percentage specified in the related
Mortgage Loan documents. Until the principal balance of each such Mortgage Loan
has been reduced to zero, such Mortgage Loan will only be required to pay
interest at the Mortgage Interest Rate, and the Excess Interest will be
deferred. Excess Interest so accrued will, except where limited by applicable
law, not be added to the principal balance of the related Mortgage Loan but
will accrue interest at the Revised Rate. Excess Interest will be distributed
to one or more classes of the Private Certificates. Each Mortgagor under the
ARD Loans has agreed to have all revenue from the related Mortgaged Property
deposited after the Anticipated Repayment Date into a Lockbox Account
controlled by the Master Servicer.
From and after the Anticipated Repayment Date, in addition to paying
interest (at the Mortgage Interest Rate) and principal (based on the
amortization schedule), the related Mortgagor generally will be required to
apply all monthly cash flow from the related Mortgaged Property to pay the
following amounts in the following order of priority: (i) required payments for
the tax and insurance fund and ground lease escrow fund, (ii) payment of
monthly debt service, (iii) payments to any other required escrow funds, (iv)
payment of operating expenses pursuant to the terms of an annual budget
approved by the Special Servicer or in an amount which is capped at 1/12 of
105% of the prior year's operating expenses (and, in the case of the CIBC
Loans, payment of capital expenses pursuant to the terms of an annual budget
approved by the Master Servicer and payment of any extraordinary expenses
approved by the Special Servicer, each as required by the terms of the related
Mortgage Loan), (v) principal on the Mortgage Loan until such principal is paid
in full and (vi) Excess Interest. The cash flow from the Mortgaged Property
securing an ARD Loan after payments of items (i) through (iv) above is referred
to herein as "Excess Cash Flow." Each ARD Loan provides that the related
Mortgagor is prohibited from
S-49
prepaying the Mortgage Loan until one to six months prior to the Anticipated
Repayment Date but, upon the commencement of such period, may prepay the loan,
in whole or in part, without payment of a Prepayment Premium. The failure to
repay an ARD Loan in full by the related Anticipated Repayment Date will not
result in an event of default or acceleration of the related Mortgage Loan. The
Anticipated Repayment Date for each ARD Loan is listed in Annex A.
Balloon Mortgage Loans. Eighty-six of the Mortgage Loans (including 1
Mortgage Loan originated with a 1-year interest-only period; of which 9 months
remain) representing approximately 43.2% of the Initial Pool Balance provide
for monthly payments of principal based on an amortization schedule longer, and
in some cases significantly longer, than the remaining term of such Mortgage
Loan (each, a "Balloon Mortgage Loan"), thereby leaving a substantial
outstanding principal amount due and payable (the "Balloon Payment") on its
Maturity Date, unless prepaid prior thereto. See Annex A for additional
information regarding the Balloon Mortgage Loans.
Escrows. One hundred and forty-one of the Mortgage Loans representing
approximately 92.8% of the Initial Pool Balance, provide for monthly escrows to
cover property taxes on the Mortgaged Properties and 134 of the Mortgage Loans,
representing approximately 78.7% of the Initial Pool Balance, provide for
monthly escrows to cover insurance premiums on the Mortgaged Properties. With
respect to the Mortgage Loans which do not require monthly escrows to cover
insurance premiums, if the Mortgagor does not maintain the required insurance,
then (i) the Master Servicer may obtain such coverage at the cost of the
Mortgagor or (ii) with respect to most of the Mortgage Loans, the Master
Servicer may require monthly escrows in addition to providing force-placed
coverage.
One hundred and thirty-six of the Mortgage Loans, representing
approximately 93.1% of the Initial Pool Balance, also require monthly escrows
to cover ongoing replacements of furniture, fixtures and equipment and/or
capital expenditures.
Fifty-five of the Mortgage Loans, representing approximately 70.8% of the
Initial Pool Balance, require up front and/or monthly escrows for the full term
or a portion of the term of the related Mortgage Loan to cover anticipated
re-leasing costs, including tenant improvements and leasing commissions. These
Mortgage Loans are secured by office, retail and industrial properties.
Forty-six of the Mortgage Loans, representing approximately 37.1% of the
Initial Pool Balance, have up front escrows to cover various other
contingencies.
See Annex A for additional information pertaining to Mortgage Loan
escrows.
Related Borrowers. Twenty-one of the Mortgage Loans, representing
approximately 10.4% of the Initial Pool Balance, have Mortgagors which are
related to one or more other Mortgagors but are not cross-collateralized or
cross-defaulted with other Mortgage Loans. There are 8 such groups of related
Mortgagors. No group of Mortgage Loans with related Mortgagors represents in
the aggregate more than approximately 3.0% of the Initial Pool Balance. See
Annex A for a description of the related loan groups.
Earthquake Analysis. Twenty-four of the Mortgaged Properties, securing
Mortgage Loans representing approximately 14.3% of the Initial Pool Balance,
are located in seismic zones three and four. An architectural and engineering
consultant performed an analysis on all of such Mortgaged Properties in order
to evaluate the structural and seismic condition of such properties and to
assess, based on a 475-year return period, a 50-year window and a 10%
probability of exceedance, the probable maximum loss ("PML") for such
properties in a hypothetical earthquake scenario. The resulting analysis
indicated that in a hypothetical earthquake scenario, 1 of the Mortgage Loans
is likely to suffer a PML in excess of 20% of the amount of the estimated
replacement cost of the improvements. Five of the Mortgaged Properties
described above, securing Mortgage Loans representing approximately 1.5% of the
allocated Initial Pool Balance, are covered by earthquake insurance in an
amount at least equal to the outstanding principal balance of the related
Mortgage Loan.
MEZZANINE DEBT
The owners of the Mortgagors under 2 Mortgage Loans representing
approximately 3.0% of the Initial Pool Balance have pledged their ownership
interest in such Mortgagor as collateral for "mezzanine
S-50
debt." Such "mezzanine debt" is separately secured by a lien on the
corresponding ownership interest in the Mortgagor. No such "mezzanine debt"
currently exceeds $975,136 or approximately 3.7% of the related Mortgage Loan.
Upon a default under a "mezzanine debt," the related lender would be entitled
to foreclose upon the equity pledged to secure such loan. Such transfer of
equity would not trigger a "due on sale" clause. If the mezzanine lender
attempts to foreclose upon such pledged equity, the related borrower may file
for bankruptcy. No holder of "mezzanine debt" has a lien on, or has the power
to foreclose on, any of the Mortgaged Properties.
ADDITIONAL DEBT
The Mortgage Loans were made to Mortgagors which are generally restricted
under the related loan documents or by their governing documents from incurring
any indebtedness other than the related Mortgage Loan, normal trade accounts
payable, certain purchase financing debt and, subject to lender approval,
certain related party debt. The Mortgagors for 2 Mortgage Loans representing
approximately 1.9% of the Initial Pool Balance have outstanding unsecured
loans.
The existence of such other debt could:
o adversely affect the financial viability of the related Mortgagor;
o adversely affect the security interest of the lender in the equipment or
other assets acquired through such financings;
o complicate bankruptcy proceedings; and
o delay foreclosure on the related Mortgaged Property.
In cases where one or more junior liens are imposed on a Mortgaged
Property or a Mortgagor incurs other unsecured indebtedness, the Trust Fund is
subjected to additional risks, including the risks that such Mortgagor may have
greater incentives to repay the junior or unsecured indebtedness first and that
it may be more difficult for such Mortgagor to refinance the related Mortgage
Loan or to sell such Mortgaged Property for purposes of making a Balloon
Payment upon the maturity of such Mortgage Loan.
UNDERWRITING GUIDELINES AND PROCESSES
MGT has developed guidelines establishing certain procedures with respect
to underwriting the MGT loans originated or purchased by it, as described more
fully below. CIBC has developed guidelines establishing certain procedures with
respect to underwriting the Mortgage Loans originated or purchased by it. CIBC
has confirmed to the Depositor that such guidelines are generally consistent
with those listed below. All of the Mortgage Loans were generally originated in
accordance with such guidelines. In some instances, one or more provisions of
the guidelines were waived or modified where it was determined not to adversely
affect the Mortgage Loans in any material respect.
Property Analysis. The related Seller performs a site inspection to
evaluate the location and quality of the related mortgaged properties. Such
inspection includes an evaluation of functionality, design, attractiveness,
visibility and accessibility, as well as convenience to major thoroughfares,
transportation centers, employment sources, retail areas and educational or
recreational facilities. The related Seller assesses the submarket in which the
property is located to evaluate competitive or comparable properties as well as
market trends. In addition, the related Seller evaluates the property's age,
physical condition, operating history, leases and tenant mix, and management.
Cash Flow Analysis. The related Seller reviews operating statements
provided by the mortgagor and makes adjustments in order to determine a debt
service coverage ratio. See "Description of the Mortgage Pool -- Certain
Characteristics of the Mortgage Loans" herein.
Appraisal and Loan-to-Value Ratio. For each mortgaged property, the
related Seller obtains a current full narrative appraisal conforming at least
to the requirements of FIRREA. The appraisal must be based on the highest and
best use of the mortgaged property and must include an estimate of the current
market value of the property in its current condition. The related Seller then
determines the loan-to-value ratio of the mortgage loan at the date of
origination based on the value set forth in the appraisal.
S-51
Evaluation of Mortgagor. The Seller evaluates the mortgagor and its
principals with respect to credit history and prior experience as an owner and
operator of commercial real estate properties. The evaluation will generally
include obtaining and reviewing a credit report or other reliable indication of
the mortgagor's financial capacity; obtaining and verifying credit references
and/or business and trade references; and obtaining and reviewing
certifications provided by the mortgagor as to prior real estate experience and
current contingent liabilities. Finally, although the mortgage loans generally
are non-recourse in nature, in the case of certain mortgage loans, the
mortgagor and certain principals thereof may be required to assume legal
responsibility for liabilities relating to fraud, misrepresentation,
misappropriation of funds, breach of environmental or hazardous waste
requirements and unauthorized transfer of title to the property. The related
Seller evaluates the financial capacity of the mortgagor and such principals to
meet any obligations that may arise with respect to such liabilities.
Environmental Site Assessment. At origination, the related Seller either
(i) obtains or updates an environmental site assessment ("ESA") for a Mortgaged
Property prepared by a qualified environmental firm or (ii) obtains an
environmental insurance policy for a Mortgaged Property. If an ESA is obtained
or updated, the related Seller reviews the ESA to verify the absence of
reported violations of applicable laws and regulations relating to
environmental protection and hazardous waste. In cases in which the ESA
identifies such violations, the related Seller requires the mortgagor to carry
out satisfactory remediation activities prior to the origination of the
mortgage loan, to establish an operations and maintenance plan and to place
sufficient funds in escrow at the time of origination of the mortgage loan to
complete such remediation within twelve months, or to obtain an environmental
insurance policy for the Mortgaged Property.
In the case of 19 Mortgage Loans representing approximately 2.2% of the
Initial Pool Balance, environmental insurance was obtained from American
International Group, Inc. and/or an affiliate and the underlying Mortgaged
Properties were not subject to environmental site assessments. Each
environmental insurance policy insures the Trust Fund against losses resulting
from certain known and unknown environmental conditions at the related
Mortgaged Property during the applicable policy period. Subject to certain
conditions and exclusions, the insurance policies generally provide coverage
against (i) losses resulting from default under the applicable Mortgage Loan,
up to the outstanding balance of the Mortgage Loan, if on-site environmental
conditions are discovered at the related Mortgaged Property during the policy
period and no foreclosure of the Mortgaged Property has taken place, (ii)
losses from third-party claims against the lender during the policy period for
bodily injury, property damage or clean-up costs resulting from environmental
conditions at or emanating from the Mortgaged Property and (iii) after
foreclosure, costs of clean-up of environmental conditions discovered during
the policy period to the extent required by applicable law, including any court
order or other governmental directive.
Physical Assessment Report. At origination, the related Seller obtains a
physical assessment report ("PAR") for each mortgaged property prepared by a
qualified structural engineering firm. The related Seller reviews the PAR to
verify that the property is reported to be in satisfactory physical condition,
and to determine the anticipated costs of necessary repair, replacement and
major maintenance or capital expenditure needs over the term of the mortgage
loan. In cases in which the PAR identifies material repairs or replacements
needed immediately, the related Seller generally requires the mortgagor to
carry out such repairs or replacements prior to the origination of the mortgage
loan, or to place sufficient funds in escrow at the time of origination of the
mortgage loan to complete such repairs or replacements within not more than
twelve months.
Title Insurance Policy. The mortgagor is required to provide, and the
related Seller reviews, a title insurance policy for each mortgaged property.
The title insurance policy must meet the following requirements: (a) the policy
must be written by a title insurer licensed to do business in the jurisdiction
where the mortgaged property is located, (b) the policy must be in an amount
equal to the original principal balance of the mortgage loan, (c) the
protection and benefits must run to the mortgagee and its successors and
assigns, (d) the policy should be written on a standard policy form of the
American Land Title Association or equivalent policy promulgated in the
jurisdiction where the mortgaged property is located and (e) the legal
description of the mortgaged property in the title policy must conform to that
shown on the survey of the mortgaged property, where a survey has been
required.
S-52
Property Insurance. The mortgagor is required to provide, and the related
Seller reviews, certificates of required insurance with respect to the
mortgaged property. Such insurance generally may include: (1) commercial
general liability insurance for bodily injury or death and property damage; (2)
an "All Risk of Physical Loss" policy; (3) if applicable, boiler and machinery
coverage; (4) if the mortgaged property is located in a flood hazard area,
flood insurance; and (5) such other coverage as the related Seller may require
based on the specific characteristics of the mortgaged property.
ADDITIONAL INFORMATION
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Certificates and will be filed, together with the
Pooling and Servicing Agreement, with the Securities and Exchange Commission
within 15 days after the initial issuance of the Offered Certificates.
S-53
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Mortgage Pass-Through Certificates, Series 2001-CIBC2 (the
"Certificates") will be issued pursuant to the Pooling and Servicing Agreement
and will include the following six classes of Certificates designated as the
Class A1, Class A2, Class A3 (together, the "Class A Certificates"), Class B,
Class C and Class D Certificates (together with the Class A Certificates, the
"Offered Certificates"). In addition to the Offered Certificates, the
Certificates will also include the Class X1 and Class X2 Certificates
(collectively, the "Class X Certificates"), Class E, Class F, Class G, Class H,
Class J, Class K, Class L, Class M, Class N, Class NR, Class R-I, Class R-II
and Class R-III Certificates. Only the Offered Certificates are offered hereby.
See the Executive Summary for a description of some of the terms of the Offered
Certificates. The Certificates represent in the aggregate the entire beneficial
ownership interest in a Trust Fund consisting of: (i) a pool of fixed rate
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 Collection or Certificate Accounts or
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.
The Offered Certificates (the "DTC Registered Certificates") will be
issued, maintained and transferred on the book-entry records of The Depository
Trust Company ("DTC") and its Participants. The DTC Registered Certificates
will be issued in minimum denominations of $25,000 and integral multiples of $1
in excess thereof.
The DTC Registered Certificates will be represented by one or more
certificates registered in the name of the nominee of DTC. The Company has been
informed by DTC that DTC's nominee will be Cede & Co. ("Cede"). No person
acquiring an interest in the DTC Registered Certificates (a "Beneficial Owner")
will be entitled to receive a Definitive Certificate (as defined below)
representing such person's interest, except as set forth below under "--
Book-Entry Registration of the Offered Certificates -- Definitive
Certificates." Unless and until Definitive Certificates are issued for the DTC
Registered Certificates under the limited circumstances described herein, all
references to actions by Certificateholders with respect to the DTC Registered
Certificates shall refer to actions taken by DTC upon instructions from its
Participants, and all references herein to distributions, notices, reports and
statements to Persons acquiring beneficial ownership interests in the
Certificates (the "Certificateholders") with respect to the DTC Registered
Certificates shall refer to distributions, notices, reports and statements to
DTC or Cede, as the registered holder of the DTC Registered Certificates, for
distribution to Beneficial Owners by DTC in accordance with DTC procedures. The
Beneficial Owners may elect to hold their Certificates through DTC, in the
United States, or the Euroclear system ("Euroclear") or the Clearstream system
("Clearstream"), in Europe, through participants of such systems, or indirectly
through organizations which are participants in such systems.
BOOK-ENTRY REGISTRATION OF THE OFFERED CERTIFICATES
Book-Entry Registration. The Offered Certificates will be initially issued
to investors through the book-entry facilities of DTC, Euroclear or Clearstream
if they are participants of such systems, or indirectly through organizations
which are participants in such systems. As to any such class of Offered
Certificates, the record holder of such Certificates will be DTC's nominee.
Euroclear and Clearstream will hold omnibus positions on behalf of their
participants through customers' securities accounts in Euroclear's and
Clearstream's names on the books of their respective depositories (the
"Depositories"), which in turn will hold such positions in customers'
securities accounts in Depositories' names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, which holds securities for its participating organizations
("DTC Participants," and together with the Euroclear
S-54
and Clearstream participating organizations, the "Participants") and
facilitates the clearance and settlement of securities transactions between
Participants through electronic book-entry changes in the accounts of
Participants. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other
organizations. Other institutions that are not Participants but clear through
or maintain a custodial relationship with Participants (such institutions,
"Indirect Participants") have indirect access to DTC's clearance system.
Because of time zone differences, the securities account of a Euroclear or
Clearstream Participant (each as defined below) as a result of a transaction
with a DTC Participant (other than a depository holding on behalf of Euroclear
or Clearstream) will be credited during the securities settlement processing
day (which must be a business day for Euroclear or Clearstream, as the case may
be) immediately following the DTC settlement date. Such credits or any
transactions in such securities settled during such processing will be reported
to the relevant Clearstream Participant or Euroclear Participant on such
business day. Cash received in Euroclear or Clearstream as a result of sales of
securities by or through a Euroclear Participant or Clearstream Participant to
a DTC Participant (other than the depository for Euroclear or Clearstream) will
be received with value on the DTC settlement date, but will be available in the
relevant Euroclear or Clearstream cash account only as of the business day
following settlement in DTC.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Euroclear Participants or Clearstream Participants will occur
in accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Euroclear
Participants or Clearstream Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by the relevant Depositories; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to its
Depository to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Euroclear Participants or Clearstream Participants may not deliver
instructions directly to the Depositories.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and the risk from transfers of securities and cash that are not
simultaneous. Transactions may be settled in any of 34 currencies, including
U.S. dollars. In addition to safekeeping (custody) and securities clearance and
settlement, the Euroclear system includes securities lending and borrowing and
money transfer services. On December 31, 2000, Euroclear Bank S.A./N.V. was
launched and replaced Morgan Guaranty Trust Company of New York as the operator
of and banker to the Euroclear system. Euroclear Bank has capital of
approximately EUR 1 billion. All operations are conducted by the Euroclear
operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear operator. They are governed by the
Terms and Conditions Governing Use of Euroclear and the related Operating
Procedures of the Euroclear system and applicable Belgian law. These govern all
transfers of securities and cash, both within the Euroclear system, and
receipts and withdrawals of securities and cash. All securities in the
Euroclear system are held on a fungible basis without attribution of specific
certificates to specific securities clearance accounts. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries and may include the underwriters
specified in this prospectus supplement. Indirect access to the Euroclear
system is also available to other firms that clear through or maintain a
custodial relationship with a Euroclear Participant, either directly or
indirectly. The Euroclear operator acts under the Terms and Conditions, the
Operating Procedures of the Euroclear system and Belgian law only on behalf of
Euroclear Participants and has no record of or relationship with persons
holding through Euroclear Participants.
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Clearstream is incorporated under the laws of Luxembourg as a professional
depository. Clearstream holds securities for its participants ("Clearstream
Participants") and facilitates the clearance and settlement of securities
transactions between Clearstream Participants through electronic book-entry
changes in accounts of Clearstream Participants, thereby eliminating the need
for physical movement of certificates. Transactions may be settled in
Clearstream in any of 36 currencies, including U.S. dollars. Clearstream
provides to Clearstream Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Clearstream interfaces with
domestic markets in several counties. As a professional depository, Clearstream
is subject in Luxembourg to regulation and supervision by the Commission for
the Supervision of the Financial Sector. Clearstream Participants are
recognized financial institutions around the world, and may include the
underwriters specified in this prospectus supplement, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to Clearstream is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Clearstream Participant, either directly or
indirectly.
Distributions in respect of the DTC Registered Certificates will be
forwarded by the Trustee to DTC, and DTC will be responsible for forwarding
such payments to Participants, each of which will be responsible for disbursing
such payments to the Beneficial Owners it represents or, if applicable, to
Indirect Participants. Accordingly, Beneficial Owners may experience delays in
the receipt of payments in respect of their Certificates. Under DTC's
procedures, DTC will take actions permitted to be taken by holders of any class
of DTC Registered Certificates under the Pooling and Servicing Agreement only
at the direction of one or more Participants to whose account the DTC
Registered Certificates are credited and whose aggregate holdings represent no
less than any minimum amount of Percentage Interests or voting rights required
therefor. DTC may take conflicting actions with respect to any action of
Certificateholders of any class to the extent that Participants authorize such
actions. None of the Depositor, the Trustee or any of their respective
affiliates will have any liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the DTC
Registered Certificates or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Beneficial Owners will not be recognized by the Trustee as
Certificateholders, as such term is used in the Pooling and Servicing
Agreement; provided, however, that Beneficial Owners will be permitted to
request and receive information furnished to Certificateholders by the Trustee
subject to receipt by the Trustee of a certification in the form attached as an
exhibit to the Pooling and Servicing Agreement (which form will be located on
and can be submitted electronically on the Trustee's website) stating that the
person requesting such information is a Beneficial Owner. Otherwise, the
Beneficial Owners will be permitted to receive information furnished to
Certificateholders and to exercise the rights of Certificateholders only
indirectly through DTC, its Participants and Indirect Participants.
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures in order to facilitate transfers of the Offered Certificates among
Participants of DTC, Euroclear and Clearstream, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
See Annex G for additional information regarding global clearance,
settlement and tax documentation procedures.
Definitive Certificates. Certificates initially issued in book-entry form
will be issued in fully registered, certificated form to Beneficial Owners or
their nominees ("Definitive Certificates"), 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 properly discharge its responsibilities as depository with
respect to the 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.
Upon the occurrence of an event described in the preceding paragraph, the
Trustee is required to notify, through DTC, Participants who have ownership of
DTC Registered Certificates as indicated on the
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records of DTC of the availability of Definitive Certificates for their DTC
Registered Certificates. Upon surrender by DTC of the definitive certificates
representing the DTC Registered Certificates and upon receipt of instructions
from DTC for re-registration, the Trustee will reissue the DTC Registered
Certificates as Definitive Certificates issued in the respective principal
amounts owned by individual Beneficial Owners, and thereafter the Trustee will
recognize the holders of such Definitive Certificates as Certificateholders
under the Pooling and Servicing Agreement.
DISTRIBUTIONS
Method, Timing and Amount. Distributions on the Certificates will be made
on the 15th day of each month or, if such 15th day is not a business day, then
on the next succeeding business day, commencing in August 2001 (each, a
"Distribution Date"). All distributions (other than the final distribution on
any Certificate) will be made by the Trustee 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 related Distribution Date occurs
(the "Record Date"), except, that with respect to the initial Distribution
Date, the Record Date will be the Delivery Date. 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 Trustee
with wiring instructions as provided in the Pooling and Servicing Agreement or,
if no such instructions have been provided, by check mailed to the address
listed for such Certificateholder on the Certificate Register. 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 Certificate is equal to the initial denomination thereof as of the Delivery
Date, divided by the initial Class Balance or Notional Amount, as applicable,
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 Collection Account (as
defined herein) as of the close of business on the related Determination Date,
which amount will include scheduled payments on the Mortgage Loans due on or
prior to the Due Date occurring in the Remittance Period immediately preceding,
and collected as of, such Determination Date (to the extent not distributed on
previous Distribution Dates) and unscheduled payments and other collections on
the Mortgage Loans collected during the related Remittance Period, (ii) the
aggregate amount of any P&I Advances made by a Servicer or the Trustee in
respect of such Distribution Date and payments made by the Master Servicer to
reduce related Prepayment Interest Shortfalls (not otherwise included in clause
(i) above) and (iii) for Distribution Dates occurring in March the Withheld
Amounts for the immediately preceding January, if applicable, and February 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 Remittance Period, (ii) any amounts payable or reimbursable therefrom
to any Servicer or the Trustee, including, without limitation, payment of P&I
Advances and interest thereon, (iii) any servicing and trustee compensation or
(iv) for Distribution Dates occurring in February and, if in a year that is not
a leap year, January, the Withheld Amounts (as defined herein) with respect to
the Interest Reserve Loans (as defined herein) to be deposited into the
Interest Reserve Account (as defined herein) and held for future distribution.
Pass-Through Rate on the Offered Certificates. The rate per annum at which
any class of Certificates accrues interest from time to time is herein referred
to as its "Pass-Through Rate."
The Pass-Through Rate for each class of Certificates (except the Class X
Certificates) will be equal to either a fixed rate or a rate based on the
weighted average of the Remittance Rates on the Mortgage Loans. The
Pass-Through Rate on the Class X Certificates will be as described in the
"Executive Summary". The "Remittance Rate" for any Mortgage Loan is equal to
the excess of the Mortgage Interest Rate thereon (without giving effect to any
modification or other reduction thereof following the Cut-off Date) over the
sum of the applicable Master Servicing Fee Rate and the Trustee Fee Rate;
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provided, however, that with respect to each Interest Reserve Loan, (i) the
Remittance Rate for the one-month period preceding the Due Dates in (a) January
and February in each year that is not a leap year or (b) February only in each
year that is a leap year will be determined net of the Withheld Amounts and
(ii) the Remittance Rate for the one-month period preceding the Due Date in
March will be determined after taking into account the addition of the Withheld
Amounts with respect to each such Mortgage Loan. The Remittance Rate for each
of the Mortgage Loans with a Mortgage Interest Rate which provides for the
computation of interest other than on the basis of a 360-day year consisting of
twelve 30-day months (a "30/360 basis") (that is the basis on which interest on
the Certificates accrues) will be adjusted to reflect that difference.
Interest Distributions on the Certificates. Subject to the distribution of
the Principal Distribution Amount to the holders of classes of Certificates of
a higher priority, if any, as described under "Priority of Distributions"
below, holders of each class of Certificates will be entitled to receive on
each Distribution Date, to the extent of the Available Distribution Amount for
such Distribution Date (net of any Net Prepayment Premium) (the "Adjusted
Available Distribution Amount"), distributions allocable to interest in an
amount (the "Interest Distribution Amount") equal to (a) the sum of (i)
interest accrued during the period from and including the first day of the
month preceding the month of the Distribution Date (or from the Cut-off Date in
the case of the initial Distribution Date) to and including the last day of the
month preceding the month of the Distribution Date (calculated on the basis of
a 360-day year consisting of twelve 30-day months) on the Class Balance (or the
Notional Amount, in the case of the Class X Certificates) of such class of
Certificates outstanding immediately prior to such Distribution Date, at the
then-applicable Pass-Through Rate (the "Interest Accrual Amount"), and (ii) any
unpaid Interest Distribution Amount shortfall for a prior Distribution Date
together with interest thereon, less (b) such class' pro rata share, based on
the Interest Accrual Amount, of any interest shortfall not related to a
Mortgagor delinquency or default, such as Prepayment Interest Shortfalls (as
defined herein) and shortfalls associated with exemptions provided by the
Relief Act (as defined in the Prospectus). For the purposes of calculating the
total amount of interest distributable on the Class X Certificates, the
aggregate "Notional Amount" of the Class X Certificates will equal the
aggregate of the Class Balances of all the other Classes of Certificates. The
Notional Amount does not entitle the Class X Certificates to any distributions
of principal. If the Adjusted Available Distribution Amount for any
Distribution Date is less than the Interest Distribution Amount for such
Distribution Date, the shortfall will be part of the Interest Distribution
Amount distributable to holders of Certificates affected by such shortfall on
subsequent Distribution Dates. Any such shortfall will bear interest at the
Pass-Through Rate in effect for subsequent Distribution Dates.
In addition, to the extent not necessary to reimburse the Master Servicer
for reductions in its compensation to cover Prepayment Interest Shortfalls,
each class of Certificates (other than the Class X Certificates) will receive
on each Distribution Date the product of (a) any Allocated Net Prepayment
Premium (as defined below) paid with respect to the Mortgage Loans if such
Allocated Net Prepayment Premium is calculated by reference to a U.S. Treasury
rate, (b) the related Class Prepayment Fraction and (c) the related Allocation
Fraction. On each Distribution Date, the Allocated Net Prepayment Premium not
payable to the Master Servicer or the holders of a class of Offered
Certificates will be paid to the holders of one or more classes of the Private
Certificates. The "Class Prepayment Fraction" for any class of Offered
Certificates and any Distribution Date will equal a fraction the numerator of
which is the amount of principal paid to such class in reduction of the Class
Balance thereof on such Distribution Date and the denominator of which is the
amount of principal paid to all classes of Certificates in reduction of their
respective Class Balances on such Distribution Date. The "Allocation Fraction"
for any class of Offered Certificates, any Mortgage Loan and any Distribution
Date will equal a fraction (not greater than one and not less than zero) (x)
the numerator of which is the excess of (a) the Pass-Through Rate of such class
of Offered Certificates over (b) the discount rate used to calculate the
related Prepayment Premium and (y) the denominator of which is the excess of
(a) the Mortgage Interest Rate on the related Mortgage Loan over (b) the
discount rate referenced in clause (x) above. To the extent not necessary to
reimburse the Master Servicer, as described above, any Allocated Net Prepayment
Premium paid with respect to a Mortgage Loan which is not calculated by
reference to a U.S. Treasury rate will be distributed solely to the holders of
the Class X Certificates.
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To the extent any Mortgage Loan is prepaid in full or in part between a
Determination Date and the related Due Date immediately following such
Determination Date, an interest shortfall may result on the second Distribution
Date following such Determination Date because interest on voluntary
prepayments in full or in part will only accrue to the date of payment (such
shortfall, a "Prepayment Interest Shortfall"). To the extent any Mortgage Loan
is prepaid in full or in part between the related Due Date and the
Determination Date immediately following such Due Date, the interest paid in
connection with such prepayment will be included in the Available Distribution
Amount for the immediately following Distribution Date (the "Prepayment
Interest Excess"). If a Mortgage Loan is voluntarily prepaid in full or in part
during any Remittance Period, any related Prepayment Interest Shortfall shall
be offset to the extent of any Prepayment Interest Excess and any Prepayment
Premium collected during such Remittance Period. If the Prepayment Interest
Shortfall for any Remittance Period exceeds any Prepayment Interest Excess and
any Prepayment Premiums collected during such period, such shortfall shall only
be offset by an amount up to the portion of the Master Servicing Fee payable to
the Master Servicer on the related Distribution Date calculated assuming a
Master Servicing Fee Rate of 0.01% per annum. To the extent that any such
shortfall shall have been offset by a portion of the Master Servicing Fee, the
Master Servicer shall be entitled to any excess of the Prepayment Interest
Excess and Prepayment Premiums over the Prepayment Interest Shortfall for any
subsequent period.
The "Net Prepayment Premium" with respect to any Distribution Date will
equal the excess of (a) all Prepayment Premiums received during the related
Remittance Period over (b) (i) all Prepayment Interest Shortfalls to the extent
not offset by all Prepayment Interest Excesses for such Remittance Period and
(ii) any amounts paid to the Master Servicer pursuant to the last sentence of
the preceding paragraph.
The "Allocated Net Prepayment Premium" with respect to any Distribution
Date and any Mortgage Loan, will equal the excess (but not less than zero) of
(a) any Prepayment Premium on such Mortgage Loan received prior to the business
day preceding the Distribution Date and not previously distributed over (b) the
pro rata portion, based on the Prepayment Premium collected on each of the
Mortgage Loans during the same period, of the sum of (i) the excess (but not
less than zero) of any Prepayment Interest Shortfall over any Prepayment
Interest Excess for such Distribution Date and (ii) any amounts required to
reimburse the Master Servicer on such Distribution Date for reductions in its
compensation.
The Pass-Through Rate on the Certificates will not be affected by the
deferral of interest or reduction of the Mortgage Interest Rate on any Mortgage
Loan by the Special Servicer or by the occurrence of either such event in
connection with any bankruptcy proceeding involving the related Mortgagor. The
amount of any resulting interest shortfall will be allocated to the
Certificates, in the order described under "Subordination" below.
Interest Reserve Account. The Trustee will establish and maintain an
"Interest Reserve Account" in the name of the Trustee for the benefit of the
holders of the Certificates. With respect to each Distribution Date occurring
in February and each Distribution Date occurring in any January which occurs in
a year that is not a leap year, there shall be deposited in the Interest
Reserve Account by the Trustee, in respect of each Mortgage Loan which does not
provide for the computation of interest on a 30/360 basis (the "Interest
Reserve Loans"), an amount equal to one day's interest at the related Mortgage
Interest Rate (net of the Master Servicing Fee and the Trustee fee payable
therefrom) on the respective Stated Principal Balances as of the immediately
preceding Due Date, to the extent a Monthly Payment or P&I Advance is made in
respect thereof (all amounts so deposited in any consecutive January (if
applicable) and February, "Withheld Amounts"). With respect to each
Distribution Date occurring in March, an amount is required to be withdrawn
from the Interest Reserve Account in respect of each Interest Reserve Loan
equal to the related Withheld Amounts from the preceding January (if
applicable) and February, if any, and deposited into the Certificate Account.
Funds in the Interest Reserve Account will be held uninvested.
Principal Distributions on the Offered Certificates. Holders of a class of
Certificates will be entitled to receive on each Distribution Date in reduction
of the related Class Balance in the order described herein until the related
Class Balance is reduced to zero, to the extent of the balance of the Adjusted
Available Distribution Amount remaining after the payment of the Interest
Distribution Amount for such
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Distribution Date for such class of Certificates and each other class of
Certificates with a higher priority for interest payments (as described under
"Priority of Distributions" below), distributions in respect of principal in an
amount (the "Principal Distribution Amount") equal to, in each case to the
extent not previously advanced, the aggregate of (i) all scheduled payments of
principal (other than Balloon Payments) due on the Mortgage Loans on the
related Due Date whether or not received and all scheduled Balloon Payments
received on or before the related Determination Date, (ii) if the scheduled
Balloon Payment is not received, with respect to any Balloon Mortgage Loans on
and after the date on which the related Mortgage Loan becomes due (the
"Maturity Date") thereof, the principal payment that would need to be received
in the related month in order to fully amortize such Balloon Mortgage Loan with
level monthly payments by the end of the term used to derive scheduled payments
of principal due prior to the related Maturity Date, (iii) any unscheduled
principal recoveries received during the related Remittance 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 and (iv) any other portion of the
Adjusted Available Distribution Amount remaining undistributed after payment of
any interest payable on the Certificates for the related or any prior
Distribution Date, including any principal prepayments received during the
related Remittance Period and Prepayment Interest Excess not offset by any
Prepayment Interest Shortfall occurring during the related Remittance Period or
otherwise required to reimburse the Master Servicer, as described herein, and
interest distributions on the Mortgage Loans, in excess of interest
distributions on the Certificates, resulting from the allocation of certain
amounts described in this clause (iv) to principal distributions on the
Certificates. The "Class Balance" for any class of Certificates on any
Distribution Date will equal the initial principal balance thereof reduced by
distributions in reduction thereof and Realized Losses allocated thereto, as
described under "-- Subordination" below.
PRIORITY OF DISTRIBUTIONS
The Adjusted Available Distribution Amount for each Distribution Date will
be applied in the following order of priority:
(a) to distributions of the Interest Distribution Amounts for such
Distribution Date on the Class A1, Class A2, Class A3 and Class X Certificates,
pro rata, based on their respective Interest Distribution Amounts;
(b) to distributions of the Principal Distribution Amount for such
Distribution Date to Class A1 Certificates until the Class Balance thereof is
reduced to zero;
(c) to distributions of the Principal Distribution Amount (or the portion
thereof remaining after the distribution thereof to the Class A1 Certificates
in reduction of the Class Balance thereof to zero) for such Distribution Date
on the Class A2 Certificates, until the Class Balance thereof is reduced to
zero;
(d) to distributions of the Principal Distribution Amount (or the portion
thereof remaining after the distribution thereof to the Class A2 Certificates
in reduction of the Class Balance thereof to zero) for such Distribution Date
on the Class A3 Certificates, until the Class Balance thereof is reduced to
zero;
(e) to distributions of the Interest Distribution Amount for such
Distribution Date on the Class B Certificates;
(f) to distributions of the Principal Distribution Amount (or the portion
thereof remaining after the distribution thereof to the Class A3 Certificates
in reduction of the Class Balance thereof to zero) for such Distribution Date
to the Class B Certificates, until the Class Balance thereof is reduced to
zero;
(g) to distributions of the Interest Distribution Amount for such
Distribution Date on the Class C Certificates;
(h) to distributions of the Principal Distribution Amount (or the portion
thereof remaining after the distribution thereof to the Class B Certificates in
reduction of the Class Balance thereof to zero) for such Distribution Date to
the Class C Certificates until the Class Balance thereof is reduced to zero;
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(i) to distributions of the Interest Distribution Amount for such
Distribution Date on the Class D Certificates;
(j) to distributions of the Principal Distribution Amount (or the portion
thereof remaining after the distribution thereof to the Class C Certificates in
reduction of the Class Balance thereof to zero) for such Distribution Date on
the Class D Certificates, until the Class Balance thereof is reduced to zero;
(k) to distributions of the Interest Distribution Amount for such
Distribution Date on the Class E Certificates;
(l) to distributions of the Principal Distribution Amount (or the portion
thereof remaining after the distribution thereof to the Class D Certificates in
reduction of the Class Balance thereof to zero) for such Distribution Date on
the Class E Certificates, until the Class Balance thereof is reduced to zero;
(m) to distributions of the Interest Distribution Amount for such
Distribution Date on the Class F Certificates;
(n) to distributions of the Principal Distribution Amount (or the portion
thereof remaining after the distribution thereof to the Class E Certificates in
reduction of the Class Balance thereof to zero) for such Distribution Date on
the Class F Certificates, until the Class Balance thereof is reduced to zero;
(o) to distributions of the Interest Distribution Amount for such
Distribution Date on the Class G Certificates;
(p) to distributions of the Principal Distribution Amount (or the portion
thereof remaining after the distribution thereof to the Class F Certificates in
reduction of the Class Balance thereof to zero) for such Distribution Date on
the Class G Certificates, until the Class Balance thereof is reduced to zero;
(q) to distributions of the Interest Distribution Amount for such
Distribution Date on the Class H Certificates;
(r) to distributions of the Principal Distribution Amount (or the portion
thereof remaining after the distribution thereof to the Class G Certificates in
reduction of the Class Balance thereof to zero) for such Distribution Date on
the Class H Certificates, until the Class Balance thereof is reduced to zero;
(s) to distributions of the Interest Distribution Amount for such
Distribution Date on the Class J Certificates;
(t) to distributions of the Principal Distribution Amount (or the portion
thereof remaining after the distribution thereof to the Class H Certificates in
reduction of the Class Balance thereof to zero) for such Distribution Date on
the Class J Certificates, until the Class Balance thereof is reduced to zero;
(u) to distributions of the Interest Distribution Amount for such
Distribution Date on the Class K Certificates;
(v) to distributions of the Principal Distribution Amount (or the portion
thereof remaining after the distribution thereof to the Class J Certificates in
reduction of the Class Balance thereof to zero) for such Distribution Date on
the Class K Certificates, until the Class Balance thereof is reduced to zero;
(w) to distributions of the Interest Distribution Amount for such
Distribution Date on the Class L Certificates;
(x) to distributions of the Principal Distribution Amount (or the portion
thereof remaining after the distribution thereof to the Class K Certificates in
reduction of the Class Balance thereof to zero) for such Distribution Date on
the Class L Certificates, until the Class Balance thereof is reduced to zero;
(y) to distributions of the Interest Distribution Amount for such
Distribution Date on the Class M Certificates;
(z) to distributions of the Principal Distribution Amount (or the portion
thereof remaining after the distribution thereof to the Class L Certificates in
reduction of the Class Balance thereof to zero) for such Distribution Date on
the Class M Certificates, until the Class Balance thereof is reduced to zero;
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(aa) to distributions of the Interest Distribution Amount for such
Distribution Date on the Class N Certificates;
(bb) to distributions of the Principal Distribution Amount (or the portion
thereof remaining after the distribution thereof to the Class M Certificates in
reduction of the Class Balance thereof to zero) for such Distribution Date on
the Class N Certificates, until the Class Balance thereof is reduced to zero;
(cc) to distributions of the Interest Distribution Amount for such
Distribution Date on the Class NR Certificates; and
(dd) to distributions of the Principal Distribution Amount (or the portion
thereof remaining after the distribution thereof to the Class N Certificates in
reduction of the Class Balance thereof to zero) for such Distribution Date on
the Class NR Certificates, until the Class Balance thereof is reduced to zero.
To the extent only the Class A1, Class A2 and Class A3 Certificates are
outstanding on any Distribution Date, the Adjusted Available Distribution
Amount remaining after application pursuant to clause (a) above shall be
applied to distribution of the Principal Distribution Amount for such
Distribution Date to the Class A1, Class A2 and Class A3 Certificates pro rata
based on their respective Class Balances.
PRIVATE CERTIFICATES
The Class X, Class E, Class F, Class G, Class H, Class J, Class K, Class
L, Class M, Class N, Class NR, Class R-I, Class R-II and Class R-III
Certificates (the "Private Certificates") are not offered hereby. The
Pass-Through Rate on each of the Private Certificates for any Distribution Date
will be equal to either a fixed rate or a rate based on the weighted average of
the Remittance Rates on the Mortgage Loans. The Class Balances for the Class E,
Class F, Class G, Class H, Class J, Class K, Class L, Class M, Class N and
Class NR Certificates will equal the amounts set forth in "Executive Summary."
The aggregate interest accrual amount for the Class X Certificates for any
Distribution Date will be calculated using a variable rate based on the
weighted average Remittance Rates on the Mortgage Loans for such Distribution
Date. The Class X Certificates do not have a Class Balance and are therefore
not entitled to any principal distributions.
The Class R-I, Class R-II and Class R-III Certificates will not have a
Pass-Through Rate or a Class Balance and are not entitled to distribution of
principal or interest.
An affiliate of the Depositor intends to purchase and make an investment
in the Private Certificates. The Private Certificates may be sold in whole or
in part by such affiliate at any time and from time to time.
SUBORDINATION
Neither the Offered Certificates nor the Mortgage Loans are insured or
guaranteed against losses suffered on the Mortgage Loans by any government
agency or instrumentality or by the Depositor, the Sellers, the Trustee, the
Master Servicer, the Special Servicer, the Underwriters, or any affiliate
thereof.
In addition to the payment priorities described under "-- Priority of
Distributions" above, certain Certificates will be subordinated to other
Certificates with respect to the allocation of Realized Losses. Except as
described below, Realized Losses on the Mortgage Loans will be allocated,
first, to the Class NR, Class N, Class M, Class L, Class K, Class J, Class H,
Class G, Class F and Class E Certificates, in that order, second, to the Class
D Certificates, third, to the Class C Certificates, fourth to the Class B
Certificates and thereafter, to the Class A1, Class A2 and Class A3
Certificates, on a pro rata basis, based on Class Balance, in each case until
the related Class Balance is reduced to zero. Realized Losses will be allocated
to a class of Certificates by reducing its Class Balance on the Distribution
Date in the month following the occurrence of the Realized Loss by the excess
of the aggregate Class Balance of the Certificates over the aggregate Stated
Principal Balance of the Mortgage Loans after giving effect to all
distributions on such Distribution Date.
In addition to Realized Losses, shortfalls will also occur as a result of
each Servicer's and the Trustee's right to receive payments of interest with
respect to unreimbursed advances, the Special Servicer's right
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to compensation with respect to Mortgage Loans which are or have been Specially
Serviced Mortgage Loans and as a result of other Trust Fund expenses. Except as
described below, such shortfalls will be allocated as described above to the
classes of Certificates with the lowest payment priority for purposes of the
application of Available Distribution Amount in the order described herein.
A "Realized Loss," (a) in the case of any Mortgage Loan described in
clause (a) of the succeeding sentence, is equal to (i) the outstanding
principal balance of any Loss Mortgage Loan (or REO Mortgage Loan) as of the
beginning of the Collection Period, plus, (ii) all accrued and unpaid interest
without taking item (iii) into account, minus (iii) amounts recovered thereon
as of such time and (b), in the case of any Mortgage Loan described in clause
(b) of the succeeding sentence, is the amount determined to have been
permanently forgiven as described in such clause (b).
A "Loss Mortgage Loan" is any Mortgage Loan (a) which is finally
liquidated, or (b) with respect to which a portion of the principal balance
thereof has been permanently forgiven, whether pursuant to a modification or a
valuation resulting from a proceeding initiated under the Bankruptcy Code.
The "Stated Principal Balance" of any Mortgage Loan as of any date of
determination is the principal balance as of the Cut-off Date minus 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
and distributed to Certificateholders, (ii) any unscheduled amounts of
principal received with respect to such Mortgage Loans, to the extent
distributed to Certificateholders and (iii) any Realized Loss previously
allocated with respect to such Mortgage Loan.
COLLATERAL VALUE ADJUSTMENT
By the Required Appraisal Date for any Mortgage Loan (or such longer
period as the Special Servicer is diligently and in good faith proceeding to
obtain an appraisal), the Special Servicer will be required to obtain an
appraisal from an independent MAI appraiser, (except if an appraisal has been
conducted within the twelve-month period preceding such event) the cost of
which shall be advanced by the Master Servicer and reimbursed thereto from the
Trust Fund provided, that if the principal balance of the Mortgage Loan is less
than $2,000,000, the Special Servicer will be required, at its option, (A) to
provide its good faith estimate (an "Appraisal Estimate") of the value of the
Mortgaged Property within the same time period as an appraisal would otherwise
be required and such Appraisal Estimate will be used in lieu of an independent
MAI appraisal or (B) to obtain, with the consent of the Directing
Certificateholder, an MAI appraisal.
"Required Appraisal Date" means with respect to any Mortgage Loan, the
date 60 days after (a) any Collateral Value Adjustment Event or (b) the
occurrence of any event giving rise to a subsequent Collateral Value Adjustment
more than 12 months after an appraisal was obtained with respect to a previous
Collateral Value Adjustment; provided that if the Collateral Value Adjustment
Event relates to an uncured delinquency the Required Appraisal Date will be the
date 120 days after the date of the delinquency.
"Collateral Value Adjustment Event" means with respect to any Mortgage
Loan the earliest to occur of (i) 120 days after the date on which an uncured
delinquency occurs in respect of a Mortgage Loan, (ii) the date on which a
receiver is appointed in respect of a Mortgaged Property, (iii) the date on
which a Mortgaged Property becomes an REO Property, (iv) the date on which a
change in the payment rate, Mortgage Interest Rate, principal balance,
amortization terms or Maturity Date of any Specially Serviced Mortgage Loan
becomes effective, (v) a decree or order of a court or agency or supervisory
authority having jurisdiction over the Mortgaged Property in an involuntary
case under any present or future federal or state bankruptcy, insolvency or
similar law or the appointment of a conservator or receiver or liquidator in
any insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings, or for the winding-up or liquidation of its affairs, shall
have been entered against the related Mortgagor and such decree or order shall
have remained in force undischarged, undismissed or unstayed for a period of 60
days or (vi) the related Mortgagor shall have admitted in writing its inability
to pay its debts generally as they become due or filed a petition to take
advantage of any applicable insolvency or reorganization statute. As a result
of such appraisal or Appraisal Estimate, a Collateral Value Adjustment
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may result, which Collateral Value Adjustment will reduce the amount of the
related P&I Advance with respect to interest. Notwithstanding the foregoing, a
Collateral Value Adjustment will be zero with respect to such a Mortgage Loan
if (i) the event giving rise to such Collateral Value Adjustment is the
extension of the maturity of such Mortgage Loan, (ii) the payments on such
Mortgage Loan were not delinquent during the twelve-month period immediately
preceding such extension and (iii) the payments on such Mortgage Loan are then
current, provided, that if at any later date there occurs a delinquency in
payment with respect to such Mortgage Loan, the Collateral Value Adjustment
will be recalculated and applied as described above. At any time that any
Collateral Value Adjustment exists with respect to any Mortgage Loan, the
Directing Certificateholder may direct the Special Servicer to obtain an
appraisal at the Directing Certificateholder's expense. Upon the written
request of the Directing Certificateholder, the Special Servicer shall
recalculate the Collateral Value Adjustment on the new appraisal and notify the
Trustee, the Master Servicer and the Directing Certificateholder of such
recalculated Collateral Value Adjustment. In addition, in any case, upon the
occurrence of any event giving rise to a subsequent Collateral Value Adjustment
(including the delinquency referred to in the immediately preceding sentence)
more than twelve months after an appraisal or Appraisal Estimate was obtained
with respect to a Collateral Value Adjustment, the Special Servicer will order
a new appraisal or Appraisal Estimate as described above, within 60 days of the
occurrence of any such event giving rise to a subsequent Collateral Value
Adjustment and will adjust the amount of the Collateral Value Adjustment in
accordance therewith; provided that if the Collateral Value Adjustment Event
relates to an uncured delinquency the new appraisal will be ordered within 120
days after the date of the delinquency.
The "Collateral Value Adjustment" with respect to any Mortgage Loan will
be an amount equal to the excess of (a) the Stated Principal Balance of such
Mortgage Loan over (b) the excess of (i) 90% of the current appraised value of
the related Mortgaged Property as determined by an independent MAI appraisal of
such Mortgaged Property or, in the case of Mortgage Loans having a principal
balance under $2,000,000, 90% of the Appraisal Estimate over (ii) the sum of
(A) to the extent not previously advanced by a Servicer, all unpaid interest on
such Mortgage Loan at a per annum rate equal to the Mortgage Interest Rate, (B)
all unreimbursed Advances and interest thereon and (C) all currently due and
delinquent real estate taxes and assessments, insurance premiums and, if
applicable, ground rents in respect of such Mortgaged Property (net of any
amount escrowed or otherwise available for payment of the amount due on such
Mortgage Loan or REO Property). The excess of the principal balance of any
Mortgage Loan over the related Collateral Value Adjustment is referred to
herein as the "Adjusted Collateral Value." Notwithstanding the foregoing, if an
appraisal is not obtained by the Required Appraisal Date, then until such
appraisal is obtained there will be a Collateral Value Adjustment with respect
to the related Mortgage Loan equal to 25% of the Stated Principal Balance of
such Mortgage Loan; provided, however, that upon the subsequent receipt of an
appraisal, the Collateral Value Adjustment for such Mortgage Loan will be
recalculated in accordance with the definition of Collateral Value Adjustment.
A Collateral Value Adjustment may result in a reduction in the amount of
interest paid to one or more classes of Certificates, but shall not be a
permanent reduction of the Class Balance (or Notional Amount) of any class of
Certificates prior to the occurrence of a Realized Loss.
The resulting Collateral Value Adjustment for a Mortgage Loan will be
netted from the related principal balance for purposes of calculating P&I
Advances. This will reduce any P&I Advance otherwise required for such Mortgage
Loan. This will have the effect of reducing the amount of interest available
for distribution to the Certificates (other than the Class A Certificates) in
reverse alphabetical order of the Classes. See "-- Advances" below. The Special
Servicer is required, within 30 days of each anniversary of the Required
Appraisal Date, to order an update of the prior appraisal (the cost of which
will be advanced by the Master Servicer and reimbursed thereto from the Trust
Fund). The Special Servicer will determine and report to the Master Servicer,
the Directing Certificateholder and the Trustee the updated appraisal. A lower
appraisal value will increase the Collateral Value Adjustment. Such increase
will further reduce any P&I Advances for the related Mortgage Loan. A higher
appraised value will reverse the Collateral Value Adjustment by the amount of
the reported increase.
ADVANCES
On the business day immediately preceding each Distribution Date, the
Master Servicer will be obligated to make advances out of its own funds or
funds held in the Collection Account (as defined
S-64
herein) that are not required to be part of the Available Distribution Amount
for such Distribution Date (each, a "P&I Advance"), in an amount equal to the
excess of all Monthly Payments (net of the Master Servicing Fee) due over the
amount actually received (subject to the limitations described herein);
provided, however that the Master Servicer will not be required to make a P&I
Advance in respect of default interest or Excess Interest.
Notwithstanding the foregoing, if a Collateral Value Adjustment has been
made with respect to any Mortgage Loan, then, with respect to the Distribution
Date immediately following the date of such determination and with respect to
each subsequent Distribution Date, to the extent such Collateral Value
Adjustment has not been reversed, in the event of subsequent delinquencies
thereon, the interest portion of the P&I Advance in respect of such Mortgage
Loan will be reduced (no reduction to be made to the principal portion,
however) to equal the product of (i) the amount of the interest portion of the
P&I Advance that would otherwise be required to be made for the Distribution
Date without regard to this sentence, multiplied by (ii) a fraction, the
numerator of which is equal to the Stated Principal Balance of such Mortgage
Loan, net of such Collateral Value Adjustment, and the denominator of which is
equal to the Stated Principal Balance of such Mortgage Loan. See "--
Subordination" above.
To the extent that the Master Servicer fails to make a P&I Advance
required of it prior to such Distribution Date, the Trustee shall make such
required P&I Advance on such Distribution Date, as provided in the Pooling and
Servicing Agreement. In addition, the Master Servicer will be required to
advance certain property related expenses (a "Property Protection Advance") for
one of several purposes specified in the Pooling and Servicing Agreement as
"Property Protection Expenses." All such advances with interest thereon will be
reimbursable to the Master Servicer and the Trustee from late payments,
insurance proceeds, liquidation proceeds, condemnation proceeds or amounts paid
in connection with the purchase of such Mortgage Loan to the extent such
amounts are not required to be otherwise applied pursuant to the terms of the
related Mortgage Loan or, as to any such advance that is deemed not otherwise
recoverable, from any amounts required to be deposited in the Collection
Account. Notwithstanding the foregoing, the Master Servicer and the Trustee
will be obligated to make any such advance only to the extent that it
determines in its reasonable judgment that such advance, if made, would be
recoverable out of late payments, insurance proceeds, liquidations,
condemnation proceeds or certain other collections on the related Mortgage
Loan. The Trustee will be entitled to rely conclusively on any
non-recoverability determination of the Master Servicer.
In addition, the Special Servicer may be required to make, on an emergency
basis, any Property Protection Advance on a Specially Serviced Mortgage Loan
otherwise required to be made by the Master Servicer. The Special Servicer will
be entitled to reimbursement for such advance (including any interest thereon)
subject to the limitations set forth in the Pooling and Servicing Agreement.
Neither the Master Servicer nor the Trustee will be required to advance
the full amount of any Balloon Payment not made by the related Mortgagor. To
the extent the Master Servicer or the Trustee are required to make a P&I
Advance on and after the Due Date for such Balloon Payment, such P&I Advance
shall not exceed the amount necessary to fully amortize the related Mortgage
Loan over the period used for purposes of calculating the scheduled monthly
payments thereon prior to the related Maturity Date. To the extent the Master
Servicer or the Trustee are required to make a P&I Advance on an ARD Loan after
the related Anticipated Repayment Date, such P&I Advance shall be at the
Mortgage Interest Rate and shall not include the amount necessary to pay any
Excess Interest. Any failure by the Master Servicer to make a P&I Advance or to
make a Property Protection Advance as required under the Pooling and Servicing
Agreement will constitute an event of default thereunder, in which case the
Trustee will be obligated to make any required advance, in accordance with the
terms of the Pooling and Servicing Agreement. The Trustee will be entitled to a
reimbursement for each P&I Advance or Property Protection Advance (together
with interest thereon) made by it in the same manner and to the same extent,
but prior to, the Master Servicer.
The Master Servicer or the Trustee shall be entitled to interest on the
aggregate amount of all advances made by the Master Servicer or the Trustee,
respectively, at a per annum rate equal to the Prime Rate reported in The Wall
Street Journal. See "Risk Factors -- Delinquencies Will Entitle Servicer to
Receive Certain Additional Compensation Which Takes Precedence Over Your Right
to Receive Distributions" herein.
S-65
CERTAIN PREPAYMENT, MATURITY AND YIELD CONSIDERATIONS
GENERAL
The yield to maturity on the Offered Certificates will be affected by the
rate of principal payments on the Mortgage Loans including, for this purpose,
prepayments, which may include amounts received by virtue of the curtailments,
voluntary repayment in full, repurchases by a Seller, condemnation or casualty
with respect to the Mortgaged Property or foreclosure pursuant to a default on
a Mortgage Loan ("Prepayment"). The rate of principal payments on the Offered
Certificates will correspond to the rate of principal payments (including
prepayments) on the related Mortgage Loans.
Each Mortgage Loan either prohibits voluntary prepayments during a certain
number of years following the origination thereof and/or allows the related
Mortgagor to prepay the principal balance thereof in whole or in part during a
certain number of years following the origination if accompanied by payment of
a Prepayment Premium. See Annex A hereto and the table entitled "Prepayment
Protection" under "Description of the Mortgage Pool -- Certain Characteristics
of the Mortgage Loans" herein. Any Net Prepayment Premium collected on a
Mortgage Loan will be distributed to the holders of the Certificates as
described herein. See "Risk Factors -- Prepayments Will Affect Your Yield"
herein, "Description of the Certificates -- Distributions -- Interest
Distributions on the Certificates" and "Certain Prepayment, Maturity and Yield
Considerations" herein, and "Yield Considerations" in the Prospectus.
The yield to maturity on each class of the Offered Certificates will
depend on, among other things, the rate and timing of principal payments
(including prepayments, defaults, liquidations and purchases of Mortgage Loans
due to a breach of a representation and warranty) on the Mortgage Loans and the
allocation thereof to reduce the Class Balance of such class and the collection
and allocation of any Prepayment Premium thereon. The yield to investors on any
Class of Offered Certificates will be adversely affected by any allocation
thereto of Prepayment Interest Shortfalls on the Mortgage Loans, which may
result from the distribution of interest only to the date of a prepayment
occurring during any month following the related Determination Date (rather
than a full month's interest) to the extent any such interest shortfall is not
offset by Prepayment Premiums, any Prepayment Interest Excess or the Master
Servicing Fee for such Distribution Date.
The Pass-Through Rate for the Offered Certificates will be either a fixed
rate or a rate based on the weighted average of the Remittance Rates on the
Mortgage Loans. Accordingly, the yield on the Offered Certificates, to the
extent the related Pass-Through Rate is calculated based on the weighted
average of the Remittance Rates, will be sensitive to changes in the relative
composition of the Mortgage Loans as a result of scheduled amortization,
voluntary prepayments, liquidations of Mortgage Loans following default and
repurchases of Mortgage Loans. Losses or payments of principal on the Mortgage
Loans with higher Remittance Rates could result in a reduction in the weighted
average of the Remittance Rates on the Mortgage Loans reducing the Pass-Through
Rates on such classes of Offered Certificates.
See "Description of the Certificates -- Pass-Through Rates" and
"Description of the Mortgage Pool -- Certain Characteristics of the Mortgage
Loans" herein.
ARD Loans may be prepaid in full on or after the Anticipated Repayment
Date without the payment of any Prepayment Premium. Excess Cash Flow on an ARD
Loan will be applied to reduce the principal thereof after its Anticipated
Repayment Date and the related Mortgage Interest Rate will be reset at the
related Revised Rate. There can be no assurance that any of such Mortgage Loan
will be prepaid on that date or any date prior to maturity. The failure to pay
an ARD Loan by the related Anticipated Repayment Date is not an event of
default.
In general, if a class of Offered Certificates 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 of Offered
Certificates 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.
S-66
If a Mortgage Loan becomes a Specially Serviced Mortgage Loan, the Special
Servicer may adopt a servicing strategy which affects the yield to maturity of
one or more classes of Offered Certificates.
The "Rated Final Distribution Date" for the Certificates will be the
Distribution Date in April 2034, which is the first Distribution Date
succeeding the second anniversary of the date at which all the Mortgage Loans
are scheduled to have zero balances, assuming no prepayments, defaults or
delinquencies, and that the Mortgage Loans which are Balloon Loans or ARD Loans
fully amortize according to their amortization schedule (assuming interest is
paid on the basis of twelve 30-day months and a 360-day year) without a Balloon
Payment or final payment on the Anticipated Repayment Date, respectively.
WEIGHTED AVERAGE LIFE OF THE OFFERED 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 life of the Offered
Certificates will be influenced by the rate at which principal payments
(including scheduled payments, principal prepayments, condemnation proceeds and
payments made pursuant to any applicable policies of insurance) on the Mortgage
Loans are made. Principal payments on the Mortgage Loans may be in the form of
scheduled amortization or prepayments (for this purpose, the term "prepayment"
includes prepayments, partial prepayments and liquidations due to a default or
other dispositions of the Mortgage Loans).
Prepayments on loans are commonly measured relative to a prepayment
standard or model, such as the constant prepayment rate prepayment model
("CPR"). CPR represents a constant assumed rate of prepayment each month
relative to the then outstanding principal balance of a pool of loans for the
life of such loans. Neither CPR 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.
The table of Percent of Initial Class Balance Outstanding for each class
of the Offered Certificates at each CPR set forth below indicates the weighted
average life of such Certificates and sets forth the percentage of the initial
principal amount of such Certificates that would be outstanding after each of
the dates shown at the indicated CPR. The table has been prepared on the basis
of the characteristics of the Mortgage Loans in Annex A and on the basis of the
following assumptions: (i) the Mortgage Loans prepay at the indicated CPR; (ii)
the Maturity Date of each of the Balloon Mortgage Loans is not extended; (iii)
distributions on the Offered Certificates are received in cash, on the 15th day
of each month, commencing in August 2001; (iv) no defaults or delinquencies in,
or modifications, waivers or amendments respecting, the payment by the
Mortgagors of principal and interest on the Mortgage Loans occur; (v)
prepayments represent payment in full of individual Mortgage Loans and are
received on the respective Due Dates and include a month's interest thereon;
(vi) there are no repurchases of Mortgage Loans due to breaches of any
representation and warranty, or pursuant to an optional termination as
described under "Description of the Pooling and Servicing Agreement
- --Termination" or otherwise; (vii) the Offered Certificates are purchased on
July 27, 2001; and (viii) all of the ARD Loans are fully prepaid on their
related Anticipated Repayment Date and all of the other Mortgage Loans are paid
in full on their Maturity Date.
Variations in the actual prepayment experience and the balance of the
Mortgage Loans that prepay may increase or decrease the percentage of initial
Class Balance (and weighted average life) shown in the following table. Such
variations may occur even if the average prepayment experience of all such
Mortgage Loans is the same as any of the specified assumptions.
S-67
PERCENT OF INITIAL CLASS BALANCE OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF CPR (1)
CLASS A1 CLASS A2
------------------------------------ --------------------------------------
DISTRIBUTION DATE 0% 25% 50% 75% 100% 0% 25% 50% 75% 100%
- ------------------------------------------- ---- ----- ----- ----- ---- ---- ----- ----- ----- ------
Initial percentage ........................ 100 100 100 100 100 100 100 100 100 100
July 2002 ................................. 82 82 82 82 82 100 100 100 100 100
July 2003 ................................. 62 62 62 62 62 100 100 100 100 100
July 2004 ................................. 41 41 41 41 41 100 100 100 100 100
July 2005 ................................. 18 18 18 18 18 100 100 100 100 100
July 2006 ................................. 0 0 0 0 0 80 80 80 80 80
July 2007 ................................. 0 0 0 0 0 72 72 72 72 72
July 2008 ................................. 0 0 0 0 0 47 47 46 46 46
July 2009 ................................. 0 0 0 0 0 30 30 30 30 30
July 2010 ................................. 0 0 0 0 0 16 15 14 12 0
July 2011 ................................. 0 0 0 0 0 0 0 0 0 0
Weighted Average Life in years(2) ......... 2.53 2.53 2.53 2.53 2.53 6.98 6.97 6.96 6.95 6.84
CLASS A3 CLASS B
------------------------------------ --------------------------------------
DISTRIBUTION DATE 0% 25% 50% 75% 100% 0% 25% 50% 75% 100%
- ------------------------------------------- ---- ----- ----- ----- ---- ---- ----- ----- ----- ------
Initial percentage ........................ 100 100 100 100 100 100 100 100 100 100
July 2002 ................................. 100 100 100 100 100 100 100 100 100 100
July 2003 ................................. 100 100 100 100 100 100 100 100 100 100
July 2004 ................................. 100 100 100 100 100 100 100 100 100 100
July 2005 ................................. 100 100 100 100 100 100 100 100 100 100
July 2006 ................................. 100 100 100 100 100 100 100 100 100 100
July 2007 ................................. 100 100 100 100 100 100 100 100 100 100
July 2008 ................................. 100 100 100 100 100 100 100 100 100 100
July 2009 ................................. 100 100 100 100 100 100 100 100 100 100
July 2010 ................................. 100 100 100 100 99 100 100 100 100 100
July 2011 ................................. 0 0 0 0 0 0 0 0 0 0
Weighted Average Life in years(2) ......... 9.70 9.68 9.66 9.63 9.44 9.94 9.91 9.88 9.88 9.69
CLASS C CLASS D
------------------------------------ --------------------------------------
DISTRIBUTION DATE 0% 25% 50% 75% 100% 0% 25% 50% 75% 100%
- ------------------------------------------- ---- ----- ----- ----- ---- ---- ----- ----- ----- ------
Initial percentage ........................ 100 100 100 100 100 100 100 100 100 100
July 2002 ................................. 100 100 100 100 100 100 100 100 100 100
July 2003 ................................. 100 100 100 100 100 100 100 100 100 100
July 2004 ................................. 100 100 100 100 100 100 100 100 100 100
July 2005 ................................. 100 100 100 100 100 100 100 100 100 100
July 2006 ................................. 100 100 100 100 100 100 100 100 100 100
July 2007 ................................. 100 100 100 100 100 100 100 100 100 100
July 2008 ................................. 100 100 100 100 100 100 100 100 100 100
July 2009 ................................. 100 100 100 100 100 100 100 100 100 100
July 2010 ................................. 100 100 100 100 100 100 100 100 100 100
July 2011 ................................. 0 0 0 0 0 0 0 0 0 0
Weighted Average Life in years(2) ......... 9.97 9.97 9.96 9.91 9.72 9.97 9.97 9.97 9.97 9.72
- ----------
(1) Prepayments are assumed to occur after the Lock-out/Defeasance period
and/or Prepayment Premium period.
(2) The weighted average life of a class of Offered Certificates is
determined by (i) multiplying the amount of each distribution of
principal by the number of years from the date of issuance to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by
the total principal distributions on such class of Offered Certificates.
S-68
MASTER SERVICER AND SPECIAL SERVICER
THE MASTER SERVICER AND THE SPECIAL SERVICER
Midland Loan Services, Inc. ("Midland") will be acting as the Master
Servicer under the Pooling and Servicing Agreement. Midland, a wholly-owned
subsidiary of PNC Bank, N.A., was incorporated under the laws of the State of
Delaware in 1998. Midland is a real estate financial services company that
provides loan servicing and asset management for large pools of commercial and
multifamily real estate assets.
Midland's principal offices are located at 210 West 10th Street, 6th
Floor, Kansas City, Missouri 64105.
As of June 30, 2001, Midland was servicing approximately 14,797 commercial
and multifamily loans with a total principal balance of approximately $62.2
billion. The collateral for these loans is located in all 50 states, the
District of Columbia, Puerto Rico and Canada. Approximately 10,625 of the
loans, with a total principal balance of approximately $44.8 billion, pertain
to commercial and multifamily mortgage-backed securities. Property type
concentrations within the portfolio include multifamily, office, retail,
hospitality and other types of income producing properties. Midland also
provides commercial loan servicing for newly-originated loans and loans
acquired in the secondary market for issuers of commercial and multifamily
mortgage-backed securities, financial institutions and investors.
Midland is approved as a master servicer, special servicer and primary
servicer for investment-grade rated commercial and multifamily mortgage-backed
securities by Moody's Investors Service, Inc. ("Moody's"), Fitch, Inc.
("Fitch") and Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. ("Standard & Poor's"). Midland has received the highest
rankings as a master, primary and special servicer from both Standard & Poor's
and Fitch. Standard & Poor's ranks Midland as "Strong" and Fitch ranks Midland
as "1" for each category.
Midland currently maintains an Internet-based investor reporting system,
CMBS Investor InsightTM, that contains updated performance information at the
portfolio, loan and property levels on the various commercial mortgage-backed
securities transactions that it services. Certficateholders, prospective
transferees and other appropriate parties may obtain access to CMBS Investor
InsightTM through Midland's website, www.midlandls.com. Midland may require
registration and the execution of an access agreement in connection with
providing access to CMBS Investor InsightTM. Specific questions about
portfolio, loan and property performance may be sent to Midland via e-mail at
askmidland@midlandls.com.
The information set forth above concerning the Master Servicer has been
provided by Midland. The Depositor, the Underwriters, the Trustee, the Special
Servicer and the Sellers make no representations or warranties as to its
accuracy.
First Union National Bank ("FUNB") will be acting as the Special Servicer
(together with Midland, the "Servicers") under the Pooling and Servicing
Agreement. As of June 30, 2001, FUNB served as the special servicer on 17
mortgage-backed securitization transactions encompassing 834 commercial and
multifamily mortgage loans with an aggregate principal balance of approximately
$7.7 billion. FUNB is a wholly-owned subsidiary of First Union Corporation.
FUNB's principal servicing offices are located at NC1075, 8739 Research
Drive-URP4, Charlotte, North Carolina 28262-1075.
The information set forth above concerning the Special Servicer has been
provided by FUNB. The Depositor, the Underwriters, the Trustee, the Master
Servicer and the Sellers make no representations or warranties as to its
accuracy. Except for the information in the immediately preceding paragraph,
FUNB will make no representations as to the validity or sufficiency of the
Pooling and Servicing Agreement, the Certificates, the Mortgage Loans, this
prospectus supplement or related documents.
RESPONSIBILITIES OF MASTER SERVICER
Under the Pooling and Servicing Agreement, the Master Servicer is required
to service and administer the Mortgage Loans solely on behalf of and in the
best interests of and for the benefit of the Certificateholders, in accordance
with the terms of the Pooling and Servicing Agreement and the Mortgage Loans
and to the extent consistent with such terms, with the higher of (a) the
standard of care,
S-69
skill, prudence and diligence with which the Master Servicer services and
administers mortgage loans that are held for other portfolios that are similar
to the Mortgage Loans and (b) the standard of care, skill, prudence and
diligence with which the Master Servicer services and administers mortgage
loans for its own portfolio that are similar to the Mortgage Loans, in either
case, giving due consideration to customary and usual standards of practice of
prudent institutional multifamily and commercial mortgage lenders, loan
servicers and asset managers (with respect to the Master Servicer, the
"Servicing Standard") and without regard to (a) any relationship between itself
or its affiliates and any Mortgagor, (b) any ownership of the Certificates, (c)
its obligation to make advances, (d) any debt that it extended to any Mortgagor
and (e) any servicing compensation to which the Master Servicer may be
entitled.
The Master Servicer will also be required to perform other customary
functions of a servicer of comparable loans, including maintaining (or using
its reasonable efforts to cause the Mortgagor under each Mortgage Loan to
maintain) hazard, business interruption and general liability insurance
policies (and, if applicable, rental interruption policies) as described herein
to the extent such insurance is available at commercially reasonable rates and
the Trustee as mortgagee has an insurable interest in the related Mortgaged
Property 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 Mortgage Loan;
processing assumptions or substitutions in accordance with the Servicing
Standard; demanding that the Mortgagor cure delinquencies; inspecting Mortgaged
Properties under certain circumstances; and maintaining records relating to the
Mortgage Loans.
RESPONSIBILITIES OF SPECIAL SERVICER
The servicing responsibility on a particular Mortgage Loan will be
generally transferred to the Special Servicer upon the occurrence of certain
servicing transfer events (each, a "Servicing Transfer Event"), including the
following: (i) the Mortgage Loan becomes a "Defaulted Mortgage Loan" (as
defined below); (ii) the related Mortgagor has entered into or consented to
bankruptcy, appointment of a receiver or conservator or a similar insolvency or
similar proceeding, or the Mortgagor has become the subject of a decree or
order for such a proceeding which shall have remained in force and
undischarged, undismissed or unstayed for a period of 60 days; (iii) the Master
Servicer or the Special Servicer shall have received notice of the foreclosure
or proposed foreclosure of any other lien on the Mortgaged Property; (iv) the
related Mortgagor admits in writing its inability to pay its debts generally as
they become due, files a petition to take advantage of any applicable
insolvency or reorganization statute, makes an assignment for the benefit of
its creditors, or voluntarily suspends payment of its obligations; (v) any
other default has occurred which has materially and adversely affected the
value of the related Mortgage Loan and has continued unremedied for the
applicable grace period specified in the related Mortgage or Mortgage Note;
(vi) the related Mortgaged Property becomes an REO Property; (vii) if for any
reason an assumption agreement cannot be entered into upon the transfer by the
related Mortgagor of the Mortgaged Property; or (viii) the Master Servicer has
determined in its good faith reasonable judgment that a default in the making
of any payment under the related Mortgage Loan is likely to occur within 30
days and is likely to remain uncured for at least 60 days, or in the case of a
Balloon Mortgage Loan at least 90 days. Any Mortgage Loan, and any Crossed Loan
that is cross-collateralized with such Mortgage Loan, with respect to which a
Servicing Transfer Event has occurred, is referred to herein as a "Specially
Serviced Mortgage Loan." The Special Servicer will cause the collection of
certain payments on such Specially Serviced Mortgage Loans and make certain
remittances to, and prepare certain reports for the Master Servicer with
respect to such Mortgage Loans. The Master Servicer shall have no
responsibility for the performance by the Special Servicer of its duties under
the Pooling and Servicing Agreement provided that the Master Servicer continues
to perform certain servicing functions on such Specially Serviced Mortgage
Loans and, based on the information provided to it by the Special Servicer,
prepares certain reports for the Trustee with respect to such Specially
Serviced Mortgage Loans. To the extent that any Mortgage Loan, in accordance
with its original terms or as modified in accordance with the Pooling and
Servicing Agreement, becomes a performing Mortgage Loan for at least three
consecutive months, the Special Servicer will cease to service such Mortgage
Loan.
A "Defaulted Mortgage Loan" is any Mortgage Loan which (a) is more than 60
days delinquent in whole or in part with respect to any Monthly Payment or (b)
is delinquent for more than 30 days in whole
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or in part with respect to the related Balloon Payment, if any, unless the
Master Servicer reasonably expects the related Mortgagor will continue to make
Monthly Payments and the Master Servicer receives written evidence from the
related Mortgagor indicating that the related Mortgagor has obtained a binding
commitment from an institutional lender to refinance the Mortgage Loan, in
which case the Mortgage Loan shall not become a Defaulted Mortgage Loan until
such longer period of time (not to exceed 60 days from the date of delinquency)
within which the Mortgage Loan is expected to be paid in full from proceeds of
the refinancing loan.
Under the Pooling and Servicing Agreement the Special Servicer is required
to service, administer and dispose of Specially Serviced Mortgage Loans solely
in the best interests of and for the benefit of the Certificateholders, in
accordance with the Pooling and Servicing Agreement and the Mortgage Loans and
to the extent consistent with such terms, with the higher of (a) the standard
of care, skill, prudence and diligence with which the Special Servicer
services, administers and disposes of, distressed mortgage loans and related
real property that are held for other portfolios that are similar to the
Mortgage Loans, Mortgaged Properties and REO Properties and (b) the standard of
care, skill, prudence and diligence with which the Special Servicer services,
administers and disposes of distressed mortgage loans and related real property
for its own portfolio that are similar to the Mortgage Loans, Mortgaged
Properties and REO Properties, giving due consideration to customary and usual
standards of practice of prudent institutional multifamily and commercial
mortgage lenders, loan servicers and asset managers, so as to maximize the net
present value of recoveries on the Mortgage Loans (with respect to the Special
Servicer, the "Servicing Standard") and without regard to (a) any relationship
between itself or its affiliates and any Mortgagor, (b) any ownership of the
Certificates, (c) any debt that it extended to any Mortgagor and (d) any
servicing compensation to which the Special Servicer may be entitled.
The Special Servicer, on behalf of the Trust Fund, may at any time
institute foreclosure proceedings, exercise any power of sale contained in any
Mortgage Note, obtain a deed in lieu of foreclosure, or otherwise acquire, on
behalf of the Trust Fund, title to a Mortgaged Property securing a Specially
Serviced Mortgage Loan by operation of law or otherwise, if such action is
consistent with the Servicing Standard. The Special Servicer may not acquire
title to any related Mortgaged Property or take any other action that would
cause the Trustee, for the benefit of Certificateholders, the Master Servicer,
or any other specified person to be considered to hold title to, to be a
"mortgagee-in-possession" of, or to be an "owner" or an "operator" of such
Mortgaged Property within the meaning of certain federal environmental laws,
unless the Special Servicer has previously determined, based on a report
prepared by a person who regularly conducts environmental audits (the costs of
which report will be paid as an expense of the Trust Fund), that: (i) the
Mortgaged Property is in compliance with applicable environmental laws; or if
not, that taking such actions as are necessary to bring the Mortgaged Property
in compliance therewith is reasonably likely to produce a greater recovery on a
present value basis, after taking into account any risks associated therewith,
than not taking such actions; and (ii) 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 that, if any such materials are present, taking such action with
respect to the affected Mortgaged Property is reasonably likely to produce a
greater recovery on a present value basis, after taking into account any risks
associated therewith, than not taking such actions.
The Special Servicer, on behalf of the Trust Fund, will use reasonable
efforts consistent with the Servicing Standard to sell the Mortgaged Property
not later than the end of the third calendar year following the year of
acquisition, unless (i) the Internal Revenue Service grants an extension of
time to sell such property or (ii) the Special Servicer provides to the
Trustee, at the expense of the Trust Fund, an opinion of independent counsel to
the effect that the holding of the property by the Trust Fund subsequent to the
end of the third year following the year in which such acquisition occurred
will not result in the imposition of a tax on the Trust Fund or cause the Trust
Fund to fail to qualify as a REMIC under the Code at any time that any
Certificate is outstanding. Subject to the foregoing, the Special Servicer will
be required to (i) solicit offers for any Mortgaged Property so acquired in
such a manner as
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will be reasonably likely to realize a fair price for such property and (ii)
accept an offer received from any person that constitutes a fair price and
which is in the best interest of the Certificateholders as determined by the
Special Servicer in accordance with Servicing Standard.
Any of the Directing Certificateholder, the Special Servicer or the Master
Servicer may acquire title to any Mortgaged Property or REO Property being sold
on behalf of the Trust Fund. Any such purchase by the Directing
Certificateholder, the Special Servicer or the Master Servicer shall be at the
Purchase Price and upon terms and conditions more particularly described in the
Pooling and Servicing Agreement.
If the Trust Fund acquires title to any Mortgaged Property, the Special
Servicer, on behalf of the Trust Fund, may retain an independent contractor to
manage and operate such property. The retention of an independent contractor,
however, will not relieve the Special Servicer of any of its obligations with
respect to the management and operation of such Mortgaged Property. Any such
property acquired by the Trust Fund will be managed in a manner consistent with
the Servicing Standard.
The Special Servicer will be obligated to follow or cause to be followed
such normal practices and procedures as it deems necessary or advisable to
realize upon Specially Serviced Mortgage Loans. If the proceeds of any
liquidation of the property securing the Specially Serviced Mortgage Loan are
less than the outstanding principal balance of the Specially Serviced Mortgage
Loan plus interest accrued thereon at the Mortgage Interest Rate plus the
aggregate amount of expenses incurred by the Special Servicer in connection
with such proceedings and which are reimbursable under the Pooling and
Servicing Agreement, the Trust Fund will realize a loss in the amount of such
difference. The Special Servicer will be entitled to be paid from the amounts
on deposit in the Collection Account, prior to the distribution to
Certificateholders, amounts representing its servicing compensation on the
Specially Serviced Mortgage Loans.
Subject to certain rights of the Directing Certificateholder and the
exercise of the Purchase Option (each as defined below), the Special Servicer
shall have full power and authority to do any and all things in connection with
servicing and administering a Specially Serviced Mortgage Loan that it may deem
in its best judgment necessary or advisable, including, without limitation, to
execute and deliver on behalf of the Trust Fund any and all instruments of
satisfaction or cancellation or of partial release or full release or discharge
and all other comparable instruments, with respect to such Specially Serviced
Mortgage Loan or such REO Property or pursuant to the Servicing Standard to
agree to any modification, assumption, extension, waiver or amendment of any
term and to defer, reduce or forgive payment of interest and/or principal of
any such Specially Serviced Mortgage Loan; provided, however, with respect to
any such modification, assumption, extension, waiver or amendment, the Special
Servicer has determined in its reasonable judgement that such modification,
assumption, extension, waiver or amendment is expected to increase the recovery
value of the related Mortgage Loan on a net present value basis; and provided,
further, that the Special Servicer may not sell the Specially Serviced Mortgage
Loan except pursuant to the exercise of a Purchase Option as described below.
Notwithstanding the foregoing, the Special Servicer shall not release,
substitute, or add any Mortgaged Property, except as permitted by the Pooling
and Servicing Agreement and as otherwise provided in the related Mortgage Loan
Documents, unless such Special Servicer shall have obtained written
confirmation from each Rating Agency stating that upon such release,
substitution or addition none of the then-current rating or ratings of all
outstanding classes of the Certificates would be qualified (if applicable),
downgraded or withdrawn by each Rating Agency as a result thereof. The Special
Servicer may not permit a modification or extension of any Mortgage Loan to a
date later than three years prior to the Rated Final Distribution Date or
twenty years prior to the expiration of any Ground Lease. Notwithstanding the
foregoing, the Special Servicer may not permit any such modification with
respect to a Balloon Mortgage Loan if it results in the extension of such
Maturity Date beyond the amortization term of such Balloon Mortgage Loan absent
the related Balloon Payment.
The Special Servicer will prepare a report (an "Asset Strategy Report")
for each Mortgage Loan which becomes a Specially Serviced Mortgage Loan not
later than 30 days after the servicing of such Mortgage Loan is transferred to
the Special Servicer. The holders of the most subordinate class of Certificates
having a Class Balance equal to at least 25% of its initial Class Balance (the
"Monitoring Certificateholders") will designate one Monitoring
Certificateholder pursuant to the Pooling and
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Servicing Agreement (the "Directing Certificateholder"). Each Asset Strategy
Report will be delivered to the Directing Certificateholder and the Master
Servicer. The Directing Certificateholder may object to any Asset Strategy
Report within ten business days of receipt; provided, however, that the Special
Servicer shall implement the recommended action as outlined in such Asset
Strategy Report if it makes an affirmative determination that such objection is
not in the best interest of all the Certificateholders. In connection with
making such affirmative determination, the Special Servicer, by notice to the
Trustee, may request a vote by all the Certificateholders. If the Directing
Certificateholder does not disapprove an Asset Strategy Report within ten
business days, the Special Servicer shall implement the recommended action as
outlined in such Asset Strategy Report. If the Directing Certificateholder
disapproves such Asset Strategy Report and the Special Servicer has not made
the affirmative determination described above, the Special Servicer will revise
such Asset Strategy Report as soon as practicable. The Special Servicer will
revise such Asset Strategy Report until the Directing Certificateholder fails
to disapprove such revised Asset Strategy Report except as described above;
provided, however, the Special Servicer will implement the last submitted
report if 30 days have elapsed since the Directing Certificateholder's receipt
of the initial Asset Strategy Report, provided, further, that the Special
Servicer shall not be under any obligation to perform any actions which are not
consistent with applicable laws and the related Mortgage Loan documents. Any
Certificateholder, other than the Mortgagor on the related Specially Serviced
Mortgage Loan, an affiliate thereof or a person acting on behalf of the
Mortgagor, may request and obtain a copy of any Asset Strategy Report, except
to the extent prohibited by applicable law or the related Mortgage Loan
documents, upon execution of a confidentiality agreement.
Within 30 days after a Mortgage Loan becomes a Defaulted Mortgage Loan,
the Special Servicer will be required to determine the fair value of the
Mortgage Loan in accordance with the Servicing Standard. The Special Servicer
will be permitted to change, from time to time thereafter, its determination of
the fair value of a Defaulted Mortgage Loan based upon changed circumstances,
new information or otherwise, in accordance with the Servicing Standard.
In the event a Mortgage Loan becomes a Defaulted Mortgage Loan, any
Monitoring Certificateholder or the Special Servicer will each have an
assignable option (a "Purchase Option") to purchase the Defaulted Mortgage Loan
from the Trust Fund at a price (the "Option Price") equal to (i) the unpaid
principal balance of the Defaulted Mortgage Loan, plus accrued and unpaid
interest on such balance, all related unreimbursed Property Protection
Advances, and all accrued Special Servicing Fees and additional Trust Fund
expenses allocable to such Defaulted Mortgage Loan whether paid or unpaid, if
the Special Servicer has not yet determined the fair value of the Defaulted
Mortgage Loan, or (ii) the fair value of the Defaulted Mortgage Loan as
determined by the Special Servicer, if the Special Servicer has made such fair
value determination. The Monitoring Certificateholder may have an exclusive
right to exercise the Purchase Option for a specified period of time.
Unless and until the Purchase Option with respect to a Defaulted Mortgage
Loan is exercised, the Special Servicer will be required to pursue such other
resolution strategies available under the Pooling and Servicing Agreement,
including workout and foreclosure, consistent with the Servicing Standard, but
the Special Servicer will not be permitted to sell the Defaulted Mortgage Loan
other than pursuant to the exercise of the Purchase Option.
If not exercised sooner, the Purchase Option with respect to any Defaulted
Mortgage Loan will automatically terminate upon (i) the related Mortgagor's
cure of all defaults on the Defaulted Mortgage Loan, (ii) the acquisition on
behalf of the Trust Fund of title to the related Mortgaged Property by
foreclosure or deed in lieu of foreclosure or (iii) the modification or pay-off
(full or discounted) of the Defaulted Mortgage Loan in connection with a
workout. In addition, the Purchase Option with respect to a Defaulted Mortgage
Loan held by any person will terminate upon the exercise of the Purchase Option
by any other holder of a Purchase Option.
If (a) a Purchase Option is exercised with respect to a Defaulted Mortgage
Loan and the person expected to acquire the Defaulted Mortgage Loan pursuant to
such exercise is a Monitoring Certificateholder, the Special Servicer, or any
affiliate of any of them (in other words, the Purchase Option has not
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been assigned to another unaffiliated person) and (b) the Option Price is based
on the Special Servicer's determination of the fair value of the Defaulted
Mortgage Loan, the Master Servicer will be required to determine if the Option
Price represents a fair price for the Defaulted Mortgage Loan.
The Directing Certificateholder is entitled to advise the Special Servicer
with respect to the Special Servicer's taking certain actions in respect of the
Mortgage Loans and the related Mortgaged Properties, as more particularly
described in the Pooling and Servicing Agreement. In addition, the Directing
Certificateholder may at any time terminate the Special Servicer and appoint a
replacement (a "Replacement Special Servicer") to perform such duties under
substantially the same terms and conditions as applicable to the Special
Servicer. Such holder(s) shall designate a replacement to so serve by the
delivery to the Trustee of a written notice stating such designation. The
Trustee shall, promptly after receiving any such notice, so notify the Rating
Agencies. The designated replacement shall become the Replacement Special
Servicer as of the date the Trustee shall have received: (i) written
confirmation from each Rating Agency stating that if the designated replacement
were to serve as Special Servicer under the Pooling and Servicing Agreement,
none of the then-current rating or ratings of all outstanding classes of the
Certificates would be qualified (if applicable), downgraded or withdrawn as a
result thereof; (ii) a written acceptance of all obligations of the Special
Servicer, executed by the designated replacement; and (iii) an opinion of
counsel (obtained at the expense of the Directing Certificateholder) to the
effect that the designation of such replacement to serve as Replacement Special
Servicer is in compliance with the Pooling and Servicing Agreement, that the
designated replacement will be bound by the terms of the Pooling and Servicing
Agreement and that the Pooling and Servicing Agreement will be enforceable
against such designated replacement in accordance with its terms. The Special
Servicer shall be deemed to have resigned from its duties simultaneously with
such designated replacement's becoming the Replacement Special Servicer under
the Pooling and Servicing Agreement. Any Replacement Special Servicer may be
similarly so replaced by the Directing Certificateholder.
Notwithstanding such replacement, the resigning Special Servicer shall be
entitled to receive the Workout Fee for any Mortgage Loan which became a
Specially Serviced Mortgage Loan and was subsequently returned to a performing
status prior to such resignation; provided that if such Mortgage Loan once
again becomes a Specially Serviced Mortgage Loan, the Replacement Special
Servicer shall thereafter be entitled to such fee. The Replacement Special
Servicer shall be entitled to the Special Servicing Fee, the Workout Fee and
the Liquidation Fee for all other Specially Serviced Mortgage Loans.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the Master Servicer in respect of
its servicing activities will be the "Master Servicing Fee." The Master
Servicing Fee will be payable monthly and will accrue at the applicable Master
Servicing Fee Rate (as defined below). The Master Servicing Fee will be
computed on the basis of the same principal balance and for the same period
respecting which any interest payment on each Mortgage Loan is computed. The
"Master Servicing Fee Rate" will be 0.02% per annum. The Master Servicer will
also receive as part of its Master Servicing Fee an additional fee calculated
based on the following rates (each, an "Additional Servicing Fee Rate"): (i) a
primary servicing fee rate of 0.03% per annum with respect to 0.6% of the
Mortgage Loans by aggregate principal balance as of the Cut-off Date, (ii) a
primary servicing fee rate of 0.07% per annum with respect to 0.10% of the
Mortgage Loans by aggregate principal balance as of the Cut-off Date, (iii) a
primary servicing fee rate of 0.10% per annum with respect to 1.8% of the
Mortgage Loans by aggregate principal balance as of the Cut-off Date, and (iv)
a primary servicing fee of 0.12% per annum with respect to 9.2% of the Mortgage
Loans by aggregate principal balance as of the Cut-off Date. With respect to
each Mortgage Loan, the sum of the Basic Master Servicing Fee Rate and the
related Additional Servicing Fee Rate, if any, is referred to herein as the
"Master Servicing Fee Rate."
In the event that the initial Master Servicer shall resign or be
terminated as the Master Servicer and a successor Master Servicer shall agree
to perform the services of the Master Servicer for an amount less than the
Master Servicing Fee, no part of any excess of such portion of the Master
Servicing Fee over the amount payable to such successor will be available for
payment to Certificateholders.
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The principal compensation to be paid to the Special Servicer in respect
of its special servicing activities will be the Special Servicing Fee, the
Workout Fee and the Liquidation Fee. The "Special Servicing Fee" will be based
on a rate equal to 0.25% per annum. The Special Servicing Fee will be computed
on the basis of the same principal balance and for the same period respecting
which any interest payment on each Specially Serviced Mortgage Loan is
computed. The "Workout Fee" will equal 1.0% of all amounts collected with
respect to any Mortgage Loan that became a Specially Serviced Mortgage Loan and
was subsequently returned to, and remains in, a performing status. The
"Liquidation Fee" will equal 1.0% of the net payments or net proceeds obtained
by the Special Servicer in connection with payment in full, partial or
discounted payoff from the borrower or, except under circumstances described in
the Pooling and Servicing Agreement, 1.0% of the net proceeds in connection
with any liquidation of the Mortgage Loan.
The Master Servicer and/or the Special Servicer will be entitled to retain
any other fees or charges (other than late payment charges to the extent
necessary to cover interest on Advances on the related Mortgage Loan) actually
paid by a Borrower.
The Pooling and Servicing Agreement will provide that the Servicers will
be entitled to indemnification from the Trust Fund for any and all costs,
expenses, losses, damages, claims and liabilities incurred in connection with
any legal action or claim relating to any Mortgage Loan and the Pooling and
Servicing Agreement, other than any cost, expense, damage, claim or liability
incurred by reason of willful misfeasance, bad faith or negligence of such
Servicer in the performance of duties thereunder or by reason of reckless
disregard of such obligations and duties.
CONFLICTS OF INTEREST
The Master Servicer, Special Servicer or their respective affiliates own
and are in the business of acquiring assets similar to the Mortgage Loans held
by the Trust Fund. To the extent that any mortgage loans owned and/or serviced
by the Master Servicer, the Special Servicer or their respective affiliates are
similar to the Mortgage Loans held by the Trust Fund, the mortgaged properties
related to such mortgage loans may, depending upon certain circumstances such
as the location of the mortgaged property, compete with the Mortgaged
Properties related to the Mortgage Loans held by the Trust Fund for tenants,
purchasers, financing and similar resources.
INFORMATION
The Master Servicer maintains an Internet website at www.midlandls.com
which may contain the information and reports which the Master Servicer is
required to produce. The Master Servicer may require registration and the
execution of an access agreement in connection with providing access to its
website.
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DESCRIPTION OF THE POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement to be dated as of July 1, 2001 (the "Pooling and Servicing
Agreement"), by and among the Depositor, the Master Servicer, the Special
Servicer and the Trustee. Following are summaries of certain provisions of the
Pooling and Servicing Agreement. The summaries do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, the
provisions of the Pooling and Servicing Agreement. The Trustee will make
available to any interested person a copy of the Pooling and Servicing
Agreement via its Internet website. Requests should be addressed to Wells Fargo
Bank Minnesota, N.A., 1100 Broken Land Parkway, Columbia, Maryland 21044-3562,
Attention: Corporate Trust Services -- J.P. Morgan Chase Commercial Mortgage
Securities Corp., Series 2001-CIBC2.
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. On or prior to the Delivery Date, the Depositor
will, as to each Mortgage Loan, deliver to the Trustee or a custodian, acting
on behalf of the Trustee, among other things, the following documents
(collectively, as to such Mortgage Loan, the "Mortgage Loan File"): (i) the
original Mortgage, and any intervening assignments thereof, in each case with
evidence of recording thereon or in case such documents have not been returned
by the applicable recording office, certified copies thereof; (ii) the original
or, if accompanied by a "lost note" affidavit, a copy of the Mortgage Note,
endorsed by the related Seller, without recourse, in blank or to the order of
Trustee; (iii) an assignment of the Mortgage, executed by the related Seller,
in blank or to the order of the Trustee, in complete and recordable form
(except for recording information for the Mortgage); (iv) 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
document or instrument; (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 related Seller,
in blank or to the order of the Trustee, in complete and recordable form
(except for recording information for the assignment of lease); (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;
(vii) the originals or certificates of a lender's title insurance policy issued
in connection with 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; provided, however, if
such original or certificate of a lender's title insurance policy cannot be
delivered solely because such policy has not yet been issued, the Depositor may
deliver, or cause to be delivered, a commitment for title insurance "marked-up"
at the closing of such Mortgage Loan (or a "marked-up" report of title together
with the corresponding escrow or similar agreement, accepted and executed by an
agent of the title insurer at the closing of such Mortgage Loan); (viii)
originals or copies of any UCC financing statements (including originals of
assignments thereof to the Trustee in form that is complete and suitable for
filing); (ix) originals or copies of any guaranties related to such Mortgage
Loan; (x) originals or copies of insurance policies related to the Mortgaged
Property; (xi) originals or certified copies of any environmental liabilities
agreement; (xii) originals or copies of any escrow agreements; (xiii) originals
or certified copies of any prior assignments of mortgage if the applicable
Seller is not the originator of record and (xiv) any collateral assignments of
property management agreements and other servicing agreements. The Pooling and
Servicing Agreement will require the Depositor to cause each of the assignment
documents described in clause (iii), clause (v), and clause (viii) 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.
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TRUSTEE
Wells Fargo Bank Minnesota, N.A. ("Wells Fargo") will act as Trustee under
the Pooling and Servicing Agreement. Wells Fargo, a direct, wholly owned
subsidiary of Wells Fargo & Company, is a national banking association
originally chartered in 1872 and is engaged in a wide range of activities
typical of a national bank. Wells Fargo's principal office is located at Wells
Fargo Center, Sixth and Marquette, Minneapolis, Minnesota 55479-0113. Wells
Fargo conducts its certificate transfer services at its offices in Minneapolis,
Minnesota. Wells Fargo otherwise conducts its trustee administration services
at its offices in Columbia, Maryland. Its address there is 11000 Broken Land
Parkway, Columbia, Maryland 21044-3562. In addition, Wells Fargo maintains a
customer service help desk at (301) 815-6600. The Trustee's fee will equal the
fee calculated at the Trustee Fee Rate on the outstanding principal balance of
the Mortgage Loans, as described in the Pooling and Servicing Agreement.
ACCOUNTS
The Master Servicer is required to deposit all amounts received with
respect to the Mortgage Loans, net of certain amounts retained by the Master
Servicer as additional servicing compensation and certain amounts to be
deposited into escrow accounts, into a separate Collection Account (the
"Collection Account") maintained by the Master Servicer on behalf of the Trust
Fund. The Master Servicer is required to remit to the Trustee for deposit on
the business day preceding each Distribution Date all amounts received with
respect to the Mortgage Loans into a separate account (the "Certificate
Account") maintained with the Trustee. The Trustee will be entitled to make
withdrawals from the Certificate Account to pay the Trustee its portion of the
fee calculated at the Trustee Fee Rate or to reimburse the Trustee for expenses
not otherwise reimbursed from a Collection Account. Funds in the Certificate
Account will be held uninvested. Interest or other income earned on funds in
the Collection Account will be paid to the Master Servicer maintaining such
account as additional servicing compensation. See "Description of the Trust
Funds -- Mortgage Loans" and "Description of the Agreements -- Accounts" in the
Prospectus.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, based upon information provided by the
Servicers, the Trustee shall make available to each Certificateholder, the
Sellers, the Depositor and each 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 of time after each calendar year, the Trustee shall furnish
or make available 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. Unless and until Definitive Certificates
are issued, such statements or reports will be furnished only to Cede, as
nominee for DTC; provided, however, that the Trustee shall furnish or make
available a copy of any such statement or report to any Beneficial Owner which
requests such copy and provides to the Trustee a certification, in the form
attached to the Pooling and Servicing Agreement (which form will be located on
and can be submitted electronically on the Trustee's website), stating that it
is the Beneficial Owner of a Certificate.
The Trustee will make available each month, to any interested person via
its internet website initially located at "www.ctslink.com/cmbs", (i) the
related Distribution Date statement (in the form attached hereto as Annex C),
(ii) the CSMA loan periodic update file, loan setup file, bond level file, and
collateral summary file, and (iii) as a convenience to interested persons (and
not in furtherance of the distribution thereof under the securities laws), this
prospectus supplement, the prospectus, and the Pooling and Servicing Agreement.
In addition, the Trustee will make available each month, to any Privileged
Person via its internet website, certain reports received from the Master
Servicer pursuant to the Pooling and Servicing Agreement. "Privileged Person"
means any of the following: a party to the Pooling and Servicing Agreement, a
rating agency, the Directing Certificateholder, a designee of the Depositor and
any other
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person who delivers to the Trustee a certification in the form attached to the
Pooling and Servicing Agreement (which form is also located on, and may be
submitted electronically via, the Trustee's internet website), certifying that
such person is a Certificateholder, a beneficial owner of a Certificate, or a
prospective purchaser of a Certificate.
The Trustee makes no representations or warranties as to the accuracy or
completeness of any report, document or other information made available on its
internet website and assumes no responsibility therefor. In addition, the
Trustee may disclaim responsibility for any information distributed by the
Trustee for which it is not the original source.
In connection with providing access to the Trustee's internet website, the
Trustee may require registration and the acceptance of a disclaimer. The
Trustee shall not be liable for the dissemination of information in accordance
herewith. Questions regarding the Trustee's internet website can be directed to
the Trustee's CMBS customer service desk at (301) 815-6600.
Any Asset Strategy Report that has been delivered to the Trustee shall be
made available by the Trustee, upon written request and at the expense of the
requesting party, to any Beneficial Owner of an Offered Certificate subject to
receipt by the Trustee of a certification in the form attached to the Pooling
and Servicing Agreement (which form will be located on and can be submitted
electronically on the Trustee's website) stating it is a Beneficial Owner and
acknowledging certain limitations with respect to the use of such statement or
report. See "Description of the Certificates -- Reports to Certificateholders"
in the Prospectus. The Directing Certificateholder shall receive all reports
prepared by the Master Servicer or the Special Servicer. In addition, if the
Depositor so directs the Trustee and on terms acceptable to the Trustee, the
Trustee will make certain information and certain financial reports related to
the mortgage loans available through its Corporate Trust website.
VOTING RIGHTS
Under certain circumstances, the consent or approval of the holders of a
specified percentage of the aggregate Certificate Balance of all outstanding
Certificates ("Voting Rights") will be required to direct, and will be
sufficient to bind all Certificateholders to, certain actions, including
directing the Trustee, the Special Servicer or the Master Servicer with respect
to actions to be taken with respect to certain Mortgage Loans and REO
Properties and amending the Pooling and Servicing Agreement in certain
circumstances. 97.0% of all Voting Rights shall be allocated among the classes
of Certificates, including the Private Certificates, (other than the Class X,
Class R-I, Class R-II and Class R-III Certificates) in proportion to the
respective Class Balances, 1.00% of all Voting Rights shall be allocated to the
Class X1 Certificates, 1.00% of all Voting Rights shall be allocated to the
Class X2 Certificates and 0.33 1/3% of all Voting Rights shall be allocated to
each of the Class R-I, Class R-II and Class R-III Certificates. Voting Rights
allocated to a class of Certificates shall be allocated among the holders of
such class in proportion to the Percentage Interests evidenced by their
respective Certificates. Allocations of Realized Losses and any other event
which changes such Class Balance will result in a corresponding change to such
class' Voting Rights. Collateral Value Adjustments will not result in a change
to a class' Voting Rights.
As described under "Description of the Certificates -- Book-Entry
Registration and Definitive Certificates" in the Prospectus, unless and until
Definitive Certificates are issued, except as otherwise expressly provided
herein, Certificate Owners may only exercise their rights as owners of
Certificates indirectly through DTC or their respective Participant or Indirect
Participant.
TERMINATION
The obligations created by the Pooling and Servicing Agreement will
terminate following the earlier 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 and at the option of any
holder of a Class R-I Certificate, the holders of an aggregate Percentage
Interest in excess of 50% of the Most Subordinate Class of Certificates, the
Master Servicer and (to the extent all of the remaining Mortgage Loans are
being serviced by the Special Servicer) the Special Servicer (in that order).
The "Most Subordinate Class of Certificates" at the time of determination shall
be the class of Certificates to which Realized Losses would
S-78
be allocated at such time as described under "Description of the Certificates
- -- Subordination" herein. 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.
Any such purchase of all the Mortgage Loans and other assets in the Trust
Fund is required to be made at a price equal to the greater of (1) the
aggregate fair market value of all the Mortgage Loans and REO Properties then
included in the Trust Fund, determined pursuant to the Pooling and Servicing
Agreement, and (2) the aggregate Class Balance of all the Certificates plus
accrued and unpaid interest thereon together with any unreimbursed advances
(including any interest thereon). Such purchase will effect early retirement of
the then outstanding Certificates, but the right to effect such termination is
subject to the requirements, among other things, that (i) the aggregate Stated
Principal Balance of the Mortgage Loans then in the Trust Fund is less than 1%
of the Initial Pool Balance and (ii) the purchaser provides to the Trustee an
opinion of independent counsel, addressed to the Trustee, to the effect that
the resulting termination will be a "qualified liquidation" under Section
860F(a)(4) of the Code with respect to REMICs I, II and III.
USE OF PROCEEDS
The net proceeds from the sale of the Offered Certificates will be used by
the Depositor to pay the purchase price of the Mortgage Loans.
S-79
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Offered Certificates
is based on the advice of Sidley Austin Brown & Wood LLP, counsel to the
Depositor. This summary is based on laws, regulations, including the REMIC
regulations promulgated by the Treasury Department (the "REMIC Regulations"),
rulings and decisions now in effect or (with respect to regulations) proposed,
all of which are subject to change either prospectively or retroactively. This
summary does not address the federal income tax consequences of an investment
in Offered Certificates applicable to all categories of investors, some of
which (for example, banks and insurance companies) may be subject to special
rules. Prospective investors should consult their tax advisors regarding the
federal, state, local and any other tax consequences to them of the purchase,
ownership and disposition of Offered Certificates.
Three separate real estate mortgage investment conduit ("REMIC") elections
will be made with respect to the Trust Fund (excluding any Excess Interest
collected on ARD Loans) for federal income tax purposes. Upon the issuance of
the Certificates, Sidley Austin Brown & Wood LLP, 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, REMIC I, REMIC II and REMIC III (each as defined in the Pooling and
Servicing Agreement) will each qualify as a REMIC under the Internal Revenue
Code of 1986, as amended (the "Code").
For federal income tax purposes, the Class R-I Certificates will be the
sole class of "residual interests" in REMIC I, the Class R-II Certificates will
be the sole class of "residual interests" in REMIC II, and the Class R-III
Certificates will be the sole class of "residual interests" in REMIC III. The
Offered Certificates, the Private Certificates (other than the Class X
Certificates and the Class R-I, Class R-II and Class R-III Certificates), and
each component of the Class X Certificates will be "regular interests" of REMIC
III and will be treated as debt instruments of REMIC III. See "Certain Federal
Income Tax Consequences -- REMICs" in the Prospectus. Notwithstanding the
foregoing, the portion of the Trust Fund consisting of Excess Interest
collected on ARD Loans will not be "regular interests" of REMIC III and will
not be treated as debt instruments of REMIC III.
The Offered Certificates may be treated as having been issued with
original issue discount for federal income tax reporting purposes. For purposes
of computing the rate of accrual of original issue discount, market discount
and premium, if any, for federal income tax purposes it will be assumed that
there are no prepayments on the Mortgage Loans, except that ARD Loans prepay on
their Anticipated Repayment Dates. No representation is made that the Mortgage
Loans will not prepay at another rate. See "Federal Income Tax Consequences --
REMICs -- Taxation of Owners of REMIC Regular Certificates" and "-- Original
Issue Discount and Premium" in the Prospectus.
Net Prepayment Premiums allocated to the Certificates will be taxable to
the holders of such Certificates on the date the amount of such premiums become
fixed.
The portion of the Trust Fund consisting of Excess Interest collected on
ARD Loans will be treated as assets of a grantor trust for federal income tax
purposes.
The Offered 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 "Federal Income Tax Consequences --
REMICs -- Taxation of Owners of REMIC Regular Certificates" and "-- Original
Issue Discount and Premium" in the Prospectus.
The Offered Certificates will be treated as "real estate assets" within
the meaning of Section 856(c)(5)(B) of the Code generally in the same
proportion that the assets of the REMIC underlying such Certificates would be
so treated. In addition, interest (including original issue discount) on the
Offered Certificates will be interest described in Section 856(c)(3)(B) of the
Code to the extent that such Offered
S-80
Certificates are treated as "real estate assets" under Section 856(c)(5)(B) of
the Code. Moreover, the Offered 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
Offered Certificates will not be considered to represent an interest in
"loans . . . secured by an interest in real property which is . . . residential
real property" within the meaning of Section 7701(a)(19)(C)(v) of the Code
except in the proportion that the assets of the Trust Fund are represented by
Mortgage Loans secured by multifamily apartment buildings, and mobile home park
properties. See "Federal Income Tax Consequences -- REMICs" in the Prospectus.
For further information regarding the federal income tax consequences of
investing in the Certificates, see "Federal Income Tax Consequences" in the
Prospectus.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
Offered Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various tax
consequences of investments in the Offered Certificates.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement (including individual retirement accounts and annuities and Keogh
plans) that is subject to the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or to Section 4975 of the Code, or of any collective
investment fund or separate account or other entity in which such plans are
invested (each, a "Plan"), should carefully review with its legal advisors
whether the purchase or holding of any Offered Certificate 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 (Prohibited Transaction Exemption
90-33, 55 Fed. Reg. 23151 (June 6, 1990)) to an affiliate of J.P. Morgan
Securities Inc. an individual exemption which was amended by Prohibited
Transaction Exemption 97-34 (July 21, 1997) (collectively, the "Exemption")),
and which generally exempts from the application of the prohibited transaction
provisions of Section 406 of ERISA, and the excise taxes and other penalties
imposed on such prohibited transactions pursuant to Sections 4975(a) and (b) of
the Code and Section 502(i) of ERISA, certain transactions, among others,
relating to the servicing and operation of mortgage pools and the purchase,
sale and holding of mortgage pass-through certificates underwritten by an
Underwriter, provided that certain conditions set forth in such exemptions are
satisfied. The Exemption has been amended by Prohibited Transaction Exemption
2000-58, Exemption Application No. D-10829, 65 Fed. Reg. 67765 (2000) to extend
exemptive relief to certificates, including subordinated certificates, rated at
the time of purchase in the four highest generic rating categories in certain
designated transactions when the condition of the Exemption are met. The
Exemption will apply to the acquisition, holding and resale of any of the
Offered Certificates by a Plan, provided that specific conditions (certain of
which are described below) are met. For purposes of this Section "ERISA
Considerations," the term "Underwriter" shall include (a) J.P. Morgan
Securities Inc., (b) any person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with J.P.
Morgan Securities Inc., and (c) any member of the underwriting syndicate or
selling group (including CIBC World Markets Corp.) of which a person described
in (a) or (b) is a manager or co-manager with respect to the Offered
Certificates.
The obligations covered by the Exemption include mortgage loans such as
the Mortgage Loans. If mortgage loans are secured by leasehold interests, each
lease term must be at least 10 years longer than the term of the relevant
Mortgage Loan. Under the Exemption, trust assets must generally be limited to
certain secured obligations. However, trust assets may also include cash or
investments made therewith which are credited to an account to provide payments
to certificateholders pursuant to a yield supplement
S-81
agreement or similar yield maintenance arrangement to supplement the interest
rates otherwise payable on obligations contained in the trust, provided that,
if such arrangements involve swap agreements or other notional principal
contracts, certain conditions must be met.
The Exemption sets forth a number of general conditions which must be
satisfied, among others, for a transaction involving the purchase, sale and
holding of Offered Certificates to be eligible for exemptive relief thereunder.
First, the acquisition of Offered Certificates by a Plan must be on terms
(including the price) that are at least as favorable to the Plan as they would
be in an arm's-length transaction with an unrelated party. Second, such Offered
Certificates at the time of acquisition by the Plan must be rated in one of the
four highest generic rating categories by Standard & Poor's, Moody's or Fitch.
Third, the Trustee cannot be an affiliate of any other member of the
"Restricted Group" which consists of the Trustee, the Underwriters, the
Depositor, the Sellers, the Master Servicer, the Special Servicer, any insurer,
any counterparty in a permitted swap or notional principal contract, 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 such Offered Certificates, and any of their affiliates.
Fourth, the sum of all payments made to and retained by the Underwriters must
represent not more than reasonable compensation for underwriting such Offered
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, any Sub-Servicer
and the Special 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.
Fifth, 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.
Moreover, the Exemption would provide relief from certain
self-dealing/conflict of interest prohibited transactions that may arise when a
Plan fiduciary causes a Plan to acquire certificates in a trust containing
receivables on which the fiduciary (or its affiliate) is an obligor only if,
among other requirements, (i) in the case of the acquisition of Offered
Certificates in connection with the initial issuance, at least fifty (50)
percent of each class of Certificates in which Plans have invested and at least
fifty (50) percent of the aggregate interest in the Trust Fund are acquired by
persons independent of the Restricted Group, (ii) the Plan's investment in each
class of Offered Certificates does not exceed twenty-five (25) percent of all
of the Offered Certificates of that class outstanding at the time of the
acquisition, (iii) immediately after the acquisition, no more than twenty-five
(25) percent of the assets of any Plan for which the fiduciary has
discretionary authority or renders investment advice are invested in
certificates representing an interest in one or more trusts containing assets
sold or serviced by the same entity, and (iv) the fiduciary or its affiliate is
an obligor with respect to obligations representing not more than five (5)
percent of the fair market value of the obligations in the trust. This relief
is not available for Plans sponsored by any member of the Restricted Group.
The Exemption also applies to transactions in connection with the
servicing, management and operation of the Trust Fund, provided that, in
addition to the general requirements described above, (a) such transactions are
carried out in accordance with the terms of a binding pooling and servicing
agreement and (b) the pooling and servicing agreement is provided to, or
described in all material respects in the prospectus or private placement
memorandum provided to investing Plans before their purchase of Offered
Certificates issued by the Trust Fund. The Pooling and Servicing Agreement is a
pooling and servicing agreement as defined in the Exemption. The Pooling and
Servicing Agreement provides that all transactions relating to the servicing,
management, and operations of the Trust Fund must be carried out in accordance
with the Pooling and Servicing Agreement.
Because the Offered Certificates, including the Class B, Class C and Class
D Certificates, are expected to be rated in the four highest generic rating
categories, the second general condition set forth above is likely to be
satisfied with respect to the Offered Certificates as of the initial closing
date. It is a condition of the issuance of each class of Offered Certificates
that they be rated within the four highest generic rating categories by Fitch
or by Standard & Poor's. See "Rating" below. The Depositor expects that the
third general condition set forth above will be satisfied with respect to each
class of Offered
S-82
Certificates. A fiduciary of a Plan contemplating purchasing any class of
Offered Certificate must make its own determination that all of the general
conditions set forth above will be satisfied with respect to any class of
Offered Certificates. Each purchaser purchasing any class of Offered
Certificates with the assets of a Plan shall be deemed to represent and warrant
that it is an "accredited investor" as described in the fifth general condition
set forth above.
The rating of a Certificate may change. If a class of Offered Certificates
no longer has a rating of at least BBB- from either Fitch or Standard & Poor's,
then Offered Certificates of that class will no longer be eligible for relief
under the Exemption, and consequently may not be purchased by or sold to a Plan
(although a Plan that had purchased an Offered Certificate when it had a
permitted rating would not be required by the Exemption to dispose of it).
Before purchasing any of such Offered Certificates, a fiduciary of a Plan
should itself confirm (a) that such Offered Certificates constitute
"certificates" for purposes of the Exemption and (b) that the specific and
general conditions of the Exemption and the other requirements set forth in the
Exemption would be satisfied. In addition to making its own determination as to
the availability of the exemptive relief provided in the Exemption, the Plan
fiduciary should consider the availability of any other prohibited transaction
exemptions.
Purchasers using insurance company general account funds to effect such
purchase should consider the availability of PTCE 95-60 issued by the U.S.
Department of Labor.
Any Plan fiduciary considering whether to purchase any Offered
Certificates 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. Furthermore, any Plan
fiduciary considering a purchase of Offered Certificates should consider
whether, under the general fiduciary standards of investment prudence and
diversification, such an investment is appropriate for the Plan, taking into
account the overall investment policy of the Plan and the composition of the
Plan's investment portfolio. See "ERISA Considerations" in the Prospectus.
LEGAL INVESTMENT
The Certificates will not be "mortgage related securities" within the
meaning of the Secondary Mortgage Market Enhancement Act of 1984, as amended
("SMMEA").
In addition, institutions whose investment activities are subject to
review by certain regulatory authorities may be or may become subject to
restrictions, which may be retroactively imposed by such regulatory
authorities, on the investment by such institutions in certain forms of
mortgaged backed securities. Furthermore, certain states have enacted
legislation overriding the legal investment provisions of SMMEA.
The Depositor and the Underwriters make no representations as to the
proper characterization of the Offered Certificates for legal investment or
other purposes, or as to the ability of particular investors to purchase the
Offered Certificates under applicable legal investment restrictions. These
uncertainties may adversely affect the legal liquidity of the Offered
Certificates. Accordingly, all institutions whose investment activities are
subject to legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities should consult with their own
legal advisors in determining whether and to what extent the Offered
Certificates constitute a legal investment or is 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 among the Depositor, J.P. Morgan Securities Inc., CIBC World Markets
Corp., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon Smith
Barney Inc. (the "Underwriting Agreement"), the Depositor has agreed to sell to
J.P. Morgan Securities Inc., CIBC World Markets Corp., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Salomon Smith Barney Inc. (collectively, the
"Underwriters") and each of the Underwriters has severally, but not jointly,
agreed to purchase from the Depositor, the portion of the Offered Certificates
of each class listed opposite its name in the table below.
S-83
J.P. Morgan Securities Inc., and CIBC World Markets Corp. are acting as
co-lead managers for the offering. Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Salomon Smith Barney Inc. are acting as co-managers and
underwriters of the offering. J.P. Morgan Securities Inc., is the sole
bookrunner of all of the Offered Securities.
ALLOCATION TABLE
UNDERWRITER CLASS A1 CLASS A2 CLASS A3 CLASS B CLASS C CLASS D
- --------------------------------- -------- -------- -------- ------- ------- -------
J.P. Morgan Securities Inc. .....
CIBC World Markets Corp. ........
Merrill Lynch, Pierce, Fenner
& Smith Incorporated ...........
Salomon Smith Barney Inc. .......
Total ........................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
In the event of default by any Underwriter, the Underwriting Agreement
provides that, in certain circumstances, the underwriting commitment of the
nondefaulting Underwriter may be increased or the underwriting may be
terminated.
The obligations of the Underwriters under the Underwriting Agreement are
subject to certain conditions precedent.
Distribution of the Offered Certificates will be made by the Underwriters
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 Offered
Certificates will be % of the initial aggregate principal balance thereof,
plus accrued interest from the Cut-off Date.
The Depositor also has been advised by the Underwriters that they
currently expect to make a market in the Offered Certificates; however, they
have 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 Offered
Certificates will develop, or if it does develop, that it will continue. The
Underwriters may effect the transactions by selling the Offered Certificates to
or through dealers, and the dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Underwriters. In
connection with the purchase and sale of the Offered Certificates offered
hereby, the Underwriters may be deemed to have received compensation from the
Depositor in the form of underwriting discounts.
The Depositor and J.P. Morgan Securities Holdings Inc., an affiliate of
J.P. Morgan Securities Inc., have agreed to indemnify the Underwriters against,
or make contributions with respect to, certain liabilities, including
liabilities under the Securities Act of 1933. The Underwriters have agreed
severally, but not jointly, to indemnify the Depositor against, or make
contributions to the Depositor with respect to, certain liabilities, including
liabilities under the Securities Act of 1933, under limited circumstances.
MGT has agreed to pay the expenses of the Depositor incurred in connection
with the purchase of the Mortgage Loans and the issuance of the Certificates.
J.P. Morgan Securities Inc. is an affiliate of the Depositor and MGT, one of
the Sellers. CIBC World Markets Corp. is an affiliate of CIBC, one of the
Sellers.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor by Sidley
Austin Brown & Wood LLP, New York, New York. Certain legal matters will be
passed upon for the Underwriters by Cadwalader, Wickersham & Taft, New York,
New York.
RATING
It is a condition of the issuance of the Class A1, Class A2 and Class A3
Certificates that they be rated "AAA" by Fitch and "AAA" by Standard & Poor's
(together with Fitch, the "Rating Agencies"). It is a condition of the issuance
of the Class B Certificates that they be rated not lower than "AA" by Fitch and
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"AA" by Standard & Poor's. It is a condition of the issuance of the Class C
Certificates that they be rated not lower than "A" by Fitch and "A" by Standard
& Poor's. It is a condition of the issuance of the Class D Certificates that
they be rated not lower than "A-" by Fitch and "A-" by Standard & Poor's.
A rating on mortgage pass-through certificates addresses the likelihood of
the receipt of distributions of principal and interest to which
Certificateholders are entitled, including payment of all principal on the
Certificates by the Rated Final Distribution Date. The ratings take into
consideration the credit quality of the Mortgage Loans in the Trust Fund,
structural and legal aspects associated with the Certificates, and the extent
to which the payment stream from the pool of Mortgage Loans is adequate to make
required payments on the Certificates. The ratings on the Certificates do not
represent any assessment of (i) the likelihood or frequency of principal
prepayments on the Mortgage Loans, (ii) the degree to which such prepayments
might differ from those originally anticipated or (iii) whether and to what
extent Prepayment Premiums, yield maintenance charges, Excess Interest and
default interest will be received or net aggregate Prepayment Interest
Shortfalls will be realized. Also, a security rating does not represent any
assessment of the yield to maturity that investors may experience. In general,
the ratings thus address credit risk and not prepayment risk.
There can be no assurance as to whether any rating agency not requested to
rate the Offered Certificates will nonetheless issue a rating and, if so, what
such rating would be. A rating assigned to the Offered Certificates by a rating
agency that has not been requested by the Depositor to do so may be lower than
the rating assigned by Fitch or Standard & Poor's pursuant to the Depositor's
request.
The rating of the Offered Certificates should be evaluated independently
from similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to downgrade,
qualification (if applicable) or withdrawal at any time by the assigning rating
agency. Each security rating should be evaluated independently of any other
security rating. A security rating does not address the frequency or likelihood
of prepayments (whether voluntary or involuntary) of Mortgage Loans, or the
corresponding effect on the yield to investors.
S-85
INDEX OF PRINCIPAL TERMS
Additional Servicing Fee Rate .................. S-74
Adjusted Available Distribution Amount ......... S-58
Appraisal Estimate ............................. S-63
ARD Loans ...................................... S-49
Asset Strategy Report .......................... S-72
Balloon Mortgage Loan .......................... S-50
Balloon Payment ................................ S-50
Beneficial Owner ............................... S-54
Cede ........................................... S-54
Certificate Account ............................ S-77
Certificateholders ............................. S-54
Certificates ................................... S-54
CIBC ........................................... S-26
CIBC Loans ..................................... S-26
Class A Certificates ........................... S-54
Class X Certificates ........................... S-1, S-54
Clearstream .................................... S-54
Clearstream Participants ....................... S-56
Code ........................................... S-80
Collection Account ............................. S-77
CPA 12 ......................................... S-48
CPA 14 ......................................... S-48
CPR ............................................ S-67
Defeasance ..................................... S-36
Definitive Certificates ........................ S-56
Depositories ................................... S-54
Directing Certificateholder .................... S-73
Distribution Date .............................. S-57
DTC ............................................ S-54
DTC Participants ............................... S-54
DTC Registered Certificates .................... S-54
Due Date ....................................... S-26
Effective Gross Income ......................... S-33
ERISA .......................................... S-81
ESA ............................................ S-52
Euroclear ...................................... S-54
Euroclear Participants ......................... S-55
Excess Cash Flow ............................... S-49
Excess Interest ................................ S-49
Exemption ...................................... S-81
FIRREA ......................................... S-32
Form 8-K ....................................... S-53
FUNB ........................................... S-69
Indirect Participants .......................... S-55
Initial Pool Balance ........................... S-26
S-86
Interest Accrual Amount ................... S-58
Interest Distribution Amount .............. S-58
Interest Reserve Loans .................... S-59
Liquidation Fee ........................... S-75
Lock-out Date ............................. S-36
Lock-out Period ........................... S-36
Master Servicing Fee ...................... S-74
Master Servicing Fee Rate ................. S-74
Maturity Date ............................. S-60
MGT ....................................... S-26
MGT Loans ................................. S-26
Midland ................................... S-69
Monitoring Certificateholders ............. S-72
Monthly Payments .......................... S-26
Moody's ................................... S-69
Mortgage .................................. S-26
Mortgage Loan File ........................ S-76
Mortgage Loan Purchase Agreement .......... S-26
Mortgage Loan Purchase Agreements ......... S-26
Mortgage Loans ............................ S-26
Mortgage Note ............................. S-26
Mortgage Pool ............................. S-26
Mortgaged Property ........................ S-26
Mortgagor ................................. S-49
NOI ....................................... S-33
Offered Certificates ...................... S-54
Operating Statements ...................... S-33
Option Price .............................. S-73
P&I Advance ............................... S-65
PAR ....................................... S-52
Participants .............................. S-55
Plan ...................................... S-81
PML ....................................... S-50
Pooling and Servicing Agreement ........... S-76
Prepayment ................................ S-66
Prepayment Interest Excess ................ S-59
Prepayment Interest Shortfall ............. S-59
Prepayment Premium ........................ S-36
Principal Distribution Amount ............. S-60
Priority of Distributions ................. S-60
Private Certificates ...................... S-62
Property Protection Advance ............... S-65
Purchase Option ........................... S-73
Rated Final Distribution Date ............. S-67
Record Date ............................... S-57
REMIC ..................................... S-80
REMIC Regulations ......................... S-80
S-87
REO Account ................................................ S-54
REO Property ............................................... S-54
Replacement Special Servicer ............................... S-74
Revised Rate ............................................... S-49
Risk Factors ............................................... S-9
Servicers .................................................. S-69
Servicing Standard ......................................... S-70, S-71
Servicing Transfer Event ................................... S-70
SMMEA ...................................................... S-83
Trust Fund ................................................. S-26
Underwriters ............................................... S-83
Underwriting Agreement ..................................... S-83
Underwritten Cash Flow ..................................... S-32
Underwritten Cash Flow Debt Service Coverage Ratio ......... S-32
Underwritten NOI ........................................... S-33
UW Cash Flow ............................................... S-32
UW DSCR .................................................... S-32
UW NOI ..................................................... S-33
Voting Rights .............................................. S-78
Wells Fargo ................................................ S-77
Workout Fee ................................................ S-75
Yield Maintenance .......................................... S-36
YM ......................................................... S-36
S-88
[THIS PAGE INTENTIONALLY LEFT BLANK.]
[THIS PAGE INTENTIONALLY LEFT BLANK.]
FOOTNOTES TO ANNEX A
(1) Sierra Technology Center (Loan No. 35) and Bassett Furniture Direct (Loan
No. 92) are loans that have not closed as of the date hereof.
(2) With respect to Mortgage Loans secured by multiple Mortgaged Properties,
the Occupancy Rate thereof is the weighted average Occupancy Rate for
each Mortgaged Property based on square footage or number of units
thereof.
(3) For Mortgage Loans secured by multiple Mortgaged Properties, the Mortgage
Loan's Original Principal Balance is allocated to the respective Mortgage
Properties based on the Mortgage Loan documentation or the Seller's
determination of the appropriate allocation.
(4) Each letter identifies one of eight groups of related Mortgagors.
(5) For each Mortgage Loan, the Current Mortgage Interest Rate less the Admin
Fee Rate (which is comprised of the trustee fee, master servicing fee and
primary servicing fee).
(6) Loan Numbers 40, 59 and 82 are interest-only for the first 5, 4 and 12
months, respectively, following origination; as of the Cut-Off Date Loan
Number 82 has 9 months remaining in the interest-only period; Loan
Numbers 40 and 59 have no remaining interest-only periods; Annual Debt
Service was calculated based upon the monthly payment after the
expiration of the interest-only period.
(7) For ARD Loans, the related Anticipated Repayment Date.
(8) For ARD Loans, calculated as of the related Anticipated Repayment Date.
(9) Certain of the Mortgage Loans allow for Defeasance.
(10) Calculated as the ratio of UW Cash Flow to the Annual Debt Service.
A-3
[THIS PAGE INTENTIONALLY LEFT BLANK.]
ANNEX B
ANY INVESTMENT DECISION WITH RESPECT TO THE SECURITIES SHOULD BE MADE BY YOU
BASED UPON THE INFORMATION CONTAINED IN THE FINAL PROSPECTUS AND PROSPECTUS
SUPPLEMENT RELATING TO THE SECURITIES. THE INFORMATION HEREIN WILL BE SUPERSEDED
IN ITS ENTIRETY BY THE INFORMATION CONTAINED IN THE FINAL PROSPECTUS AND
PROSPECTUS SUPPLEMENT. THE INFORMATION CONTAINED HEREIN SUPERSEDES THE
INFORMATION IN ALL-PRIOR STUCTURAL AND COLLATERAL TERM SHEETS, IF ANY.
STRUCTURAL AND COLLATERAL TERM SHEET
J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 2001-CIBC2
$996,158,595
(Approximate Initial Pool Balance)
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
CIBC INC.
Mortgage Loan Sellers
MIDLAND LOAN SERVICES, INC.
Master Servicer
FIRST UNION NATIONAL BANK
Special Servicer
FOR FURTHER INFORMATION CONTACT:
J.P. MORGAN SECURITIES INC.
Brian Baker Glenn Riis Andy Taylor
(212) 834-3813 (212) 834-3813 (212) 834-3813
CIBC WORLD MARKETS CORP.
Richard Turnbull Mimi Cheng Kevin Cull
(212) 667-8557 (212) 667-6651 (212) 667-4625
JPMORGAN CIBC WORLD MARKETS CORP.
Merrill Lynch & Co. Salomon Smith Barney
The analyses in this report are based upon information provided by Morgan
Guaranty Trust Company of New York and CIBC Inc., (the "Sellers"). J.P. Morgan
Securities Inc., CIBC World Markets Corp., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Salomon Smith Barney Inc. (the "Underwriters") make no
representations as to the accuracy or completeness of the information contained
herein. The information contained herein is qualified in its entirety by the
information in the Prospectus and Prospectus Supplement for the securities
referred to herein (the "Securities"). The information contained herein is
preliminary as of the date hereof, supersedes any previous information delivered
to you by the Underwriters and will be superseded by the applicable Final
Prospectus and Prospectus Supplement and any other information. These materials
are subject to change, completion, or amendment from time to time without
notice, and the Underwriters are under no obligation to keep you advised of such
changes. These materials are not intended as an offer or solicitation with
respect to the purchase or sale of any Security. Any investment decision with
respect to the Securities should be made by you based upon the information
contained in the Final Prospectus and Prospectus Supplement relating to the
Securities. You should consult your own counsel, accountant, and other advisors
as to the legal, tax, business, financial and related aspects of a purchase of
the Securities.
The attached information contains certain tables and other statistical analyses
(the "Computational Materials") which have been prepared in reliance upon
information furnished by the Sellers. They may not be provided to any third
party other than the addressee's legal, tax, financial and/or accounting
advisors for the purposes of evaluating said material. Numerous assumptions were
used in preparing the Computational Materials which may or may not be reflected
therein. As such, no assurance can be given as to the Computational Materials'
accuracy, appropriateness or completeness in any particular context; nor as to
whether the Computational Materials and/or the assumptions upon which they are
based reflect present market conditions or future market performance. These
Computational Materials should not be construed as either projections or
predictions or as legal, tax, financial or accounting advice. Any weighted
average lives, yields and principal payment periods shown in the Computational
Materials are based on prepayment assumptions, and changes in such prepayment
assumptions may dramatically affect such weighted average lives, yields and
principal payment periods. In addition, it is possible that prepayments on the
underlying assets will occur at rates slower or faster than the rates shown in
the attached Computational Materials. Furthermore, unless otherwise provided,
the Computational Materials assume no losses on the underlying assets and no
interest shortfalls. The specific characteristics of the Securities may differ
from those shown in the Computational Materials due to differences between the
actual underlying assets and the hypothetical underlying assets used in
preparing the Computational Materials. The principal amount and designation of
any Security described in the Computational Materials are subject to change
prior to issuance. Neither the Underwriters nor any of their affiliates make any
representation or warranty as to the actual rate or timing of payments on any of
the underlying assets or the payments or yield on the securities. THIS
INFORMATION IS FURNISHED TO YOU SOLELY BY THE UNDERWRITERS AND NOT BY THE ISSUER
OF THE SECURITIES OR ANY OF ITS AFFILIATES. THE UNDERWRITERS ARE NOT ACTING AS
AGENT FOR THE ISSUER OR ITS AFFILIATES IN CONNECTION WITH THE PROPOSED
TRANSACTION.
THE INFORMATION HEREIN WILL BE SUPERSEDED IN ITS ENTIRETY BY THE
INFORMATION CONTAINED IN THE FINAL OFFERING MEMORANDUM. THIS PAGE MUST
BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER,
PLEASE CONTACT YOUR SALES REPRESENTATIVE.
APPROXIMATE SECURITIES STRUCTURE
- --------------------------------
APPROX. EXPECTED EXPECTED
FACE/ CREDIT WEIGHTED PAYMENT
NOTIONAL SUPPORT AVG. WINDOW
RATINGS BY AMOUNT (% OF LIFE (MONTHS)
CLASS FITCH/S&P (MM) BALANCE) (YEARS)(A) (A)
- -----------------------------------------------------------------------------
PUBLICLY OFFERED CLASSES
A1 AAA/AAA $50,000,000 22.000% 2.53 08/01 - 04/06
A2 AAA/AAA 153,250,000 22.000% 6.98 04/06 - 10/10
A3 AAA/AAA 573,754,000 22.000% 9.70 10/10 - 06/11
B AA/AA 39,846,000 18.000% 9.94 06/11 - 07/11
C A/A 39,846,000 14.000% 9.97 07/11 - 07/11
D A-/A- 14,943,000 12.500% 9.97 07/11 - 07/11
PRIVATELY OFFERED CLASSES
- ----------------------------------------------------------------------------
X1 AAA/AAA 996,158,595 NA
X2 AAA/AAA 544,596,000 NA
E BBB+/BBB+ 9,961,000 11.500% 9.97 07/11 - 07/11
F BBB/BBB 19,924,000 9.500% 9.97 07/11 - 07/11
G BBB-/BBB- 12,452,000 8.250% 9.97 07/11 - 07/11
H BB+/BB+ 26,149,000 5.625%
J BB/BB 7,471,000 4.875%
K BB-/BB- 7,471,000 4.125%
L B+/B+ 12,452,000 2.875%
M B/B 4,981,000 2.375%
N B-/B- 4,981,000 1.875%
NR NR/NR 18,677,595 NR
- ----------------------------------------------------------------------------
Note: (a) Calculated at 0% CPR, no balloon extensions, ARD loans pay in full on
the Anticipated Repayment Date, clean-up call is not exercised and
there are no defaults
KEY FEATURES
- ------------
Co-Lead Managers: J.P. Morgan Securities Inc. (Bookrunner)
CIBC World Markets Corp.
Co-Managers Merrill Lynch, Pierce, Fenner & Smith Incorporated
Salomon Smith Barney Inc.
Mortgage Loan Sellers: CIBC Inc. (50.2%)
Morgan Guaranty Trust Company of NY (49.8%)
Master Servicer: Midland Loan Services, Inc.
Special Servicer: First Union National Bank
Trustee: Wells Fargo Bank Minnesota, N.A.
Rating Agencies: Fitch, Inc.
Standard & Poor's Ratings Services
Pricing: On or about July 23, 2001
Delivery Date: On or about July 27, 2001
Cut-off Date: July 1, 2001
Distribution Date: 15th of each month, or following business day
(commencing August 2001)
Payment Delay: 14 Days
ERISA Eligible: A1, A2, A3, X1, X2, B, C, D, E, F and G
Structure: Sequential pay
Day Count: 30/360
Tax Treatment: REMIC
Rated Final Distribution Distribution Date in April, 2034
Date:
Clean-up Call: 1%
Minimum Denomination: $25,000 (among the publicly offered classes)
Delivery: DTC, Euroclear and Cedel
- --------------------------------------------------------------------------------
COLLATERAL FACTS
- ----------------
Initial Pool Balance: $996,158,595
Number of Mortgage Loans: 152
Number of Mortgaged Properties: 173
Average Cut-off Date Balance per Loan: $6,553,675
Average Cut-off Date Balance per Property: $5,758,142
Weighted Average Current Mortgage Rate: 7.66%
Weighted Average UW DSCR: 1.37x
Weighted Average Cut-off Date LTV Ratio: 70.0%
Weighted Average Remaining Term to Maturity (months): 115
Weighted Average Remaining Amortization Term (months): 344
Weighted Average Seasoning (months): 3
Ten Largest Loans as % of Balance: 31.4%
TEN LARGEST LOANS
- -----------------
%
BAL BY
LOAN (MM) BAL. DSCR LTV PROPERTY TYPE
- ------------------------------------------------------------------------
Collin Creek Mall $74.0 7.4% 1.75x 56.7% Anchored Retail
National City Center 47.2 4.7 1.30 73.8 CBD Office
Minneapolis Airport 40.0 4.0 1.47 66.6 Full Service
Marriott Hotel
Fiddler's Green I 26.0 2.6 1.27 71.1 Suburban Office
Augusta Exchange 25.2 2.5 1.32 80.0 Anchored Retail
Shopping Center
Chino Spectrum Marketplace 23.0 2.3 1.30 77.8 Anchored Retail
Brooklyn Renaissance 21.0 2.1 1.40 72.9 CBD Office
Plaza
10 Weaver Road 19.5 2.0 1.32 74.9 Indus. /
Warehouse
Crocker Richmond 19.1 1.9 1.31 75.4 Suburban Office
Portfolio
Special Devices, Inc. 17.5 1.8 1.30 44.6 Industrial Flex
Space
- ------------------------------------------------------------------------
TOTAL/WTD. AVG. $312.3 31.4% 1.44x 67.9%
SELECTED LOAN DATA
CUT-OFF DATE BALANCE
--------------------------------------
GEOGRAPHIC NO. OF WA UW
DISTRIBUTION PROPERTIES (MM) % OF UPB WA LTV DSCR
- ---------------------------------------------------------------------
Texas 19 $144.1 14.5% 62.7% 1.58x
California 28 124.4 12.5 70.2 1.31
New York 11 86.9 8.7 70.9 1.32
Colorado 7 60.0 6.0 66.8 1.41
Indiana 3 56.5 5.7 74.5 1.28
Maryland 8 47.3 4.7 69.1 1.38
Virginia 9 43.3 4.3 75.7 1.30
Illinois 6 41.3 4.1 72.5 1.26
Minnesota 1 40.0 4.0 66.6 1.47
Georgia 5 39.4 4.0 75.9 1.35
<4.1% (23 states) 76 312.9 31.4 71.6 1.34
- ---------------------------------------------------------------------
TOTAL/WTD. AVG. 173 $996.2 100.0% 70.0% 1.37x
CUT-OFF DATE BALANCE
---------------------------------------
NO. OF WA UW
PROPERTY TYPE PROPERTIES (MM) % OF UPB WA LTV DSCR
- ----------------------------------------------------------------------
Office 34 $317.5 31.9% 70.6% 1.33x
Retail 35 295.9 29.7 70.5 1.41
Multifamily 63 162.8 16.3 73.7 1.36
Industrial 18 90.7 9.1 66.5 1.33
Hotel 9 78.3 7.9 64.9 1.50
Mobile Home Park 13 46.8 4.7 65.8 1.39
Self-Storage 1 4.1 0.4 71.5 1.29
- ------------------------------------------------------------------------
TOTAL/WTD. AVG. 173 $966.2 100.0% 70.0% 1.37x
Page 2 of 16
THE INFORMATION HEREIN WILL BE SUPERSEDED IN ITS ENTIRETY BY THE
INFORMATION CONTAINED IN THE FINAL OFFERING MEMORANDUM. THIS PAGE MUST
BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER,
PLEASE CONTACT YOUR SALES REPRESENTATIVE.
CUT-OFF DATE PRINCIPAL BALANCES
% OF PRINCIPAL WA
PRINCIPAL BALANCE($) NO. OF LOANS PRINCIPAL BALANCE ($) BALANCE WA UW DSCR LTV
- ----------------------------------------------------------------------------------------------------------------------------
$500,000 or less 3 $1,450,803 0.1% 1.37x 64.8%
$500,001 - $1,000,000 8 5,760,588 0.6 1.36 69.0
$1,000,001 - $3,000,000 43 82,999,803 8.3 1.38 69.1
$3,000,001 - $5,000,000 37 147,894,546 14.8 1.35 72.2
$5,000,001 - $7,000,000 21 125,518,552 12.6 1.33 71.5
$7,000,001 - $10,000,000 17 142,079,523 14.3 1.34 70.4
$10,000,001 - $15,000,000 8 95,468,411 9.6 1.31 73.7
$15,000,001 - $20,000,000 8 138,707,803 13.9 1.33 67.1
$20,000,001 - $30,000,000 4 95,102,826 9.5 1.32 75.5
$30,000,001 - $40,000,000 1 39,959,089 4.0 1.47 66.6
$40,000,001 - $50,000,000 1 47,216,651 4.7 1.30 73.8
$50,000,001 or more 1 74,000,000 7.4 1.75 56.7
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL: 152 $996,158,595 100.0% 1.37x 70.0%
- ----------------------------------------------------------------------------------------------------------------------------
AVERAGE PER LOAN: $6,553,675
AVERAGE PER PROPERTY: $5,758,142
MORTGAGE INTEREST RATES
% PRINCIPAL WA
MORTGAGE INTEREST RATE (%) NO. OF LOANS PRINCIPAL BALANCE ($) BALANCE WA UW DSCR LTV
- ----------------------------------------------------------------------------------------------------------------------------
6.501% - 7.000% 5 $91,686,294 9.2% 1.69x 58.8%
7.001% - 7.500% 49 291,277,290 29.2 1.35 73.4
7.501% - 8.000% 65 404,983,580 40.7 1.32 70.4
8.001% - 8.500% 23 183,195,447 18.4 1.35 70.3
8.501% - 9.000% 9 22,633,562 2.3 1.52 63.7
9.001% - 9.500% 1 2,382,421 0.2 1.45 63.5
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL: 152 $996,158,595 100.0% 1.37x 70.0%
- ----------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE MORTGAGE INTEREST RATE: 7.66%
UW DSCR
% OF
PRINCIPAL WA
UW DSCR (X) NO. OF LOANS PRINCIPAL BALANCE ($) BALANCE WA UW DSCR LTV
- ----------------------------------------------------------------------------------------------------------------------------
1.250x or less 27 $112,872,082 11.3% 1.23x 74.7%
1.251x - 1.300x 38 292,092,397 29.3 1.29 71.9
1.301x - 1.400x 55 364,464,974 36.6 1.34 72.6
1.401x - 1.500x 12 98,055,107 9.8 1.46 66.4
1.501x - 1.600x 10 25,154,733 2.5 1.55 63.5
1.601x - 1.700x 5 11,199,673 1.1 1.66 61.0
1.701x - 1.800x 3 79,778,344 8.0 1.75 56.5
2.001x - 2.100x 2 12,541,285 1.3 2.03 42.8
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL: 152 $996,158,595 100.0% 1.37x 70.0%
- ----------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE: 1.37X
LOAN-TO-VALUE RATIOS
% OF PRINCIPAL WA
LTV (%) NO. OF LOANS PRINCIPAL BALANCE ($) BALANCE WA UW DSCR LTV
- ----------------------------------------------------------------------------------------------------------------------------
50.000% or less 4 $33,329,301 3.3% 1.62x 44.2%
50.01% - 55.00% 6 9,039,505 0.9 1.49 53.5
55.01% - 60.00% 2 75,795,482 7.6 1.75 56.7
60.01% - 65.00% 25 114,215,946 11.5 1.44 63.6
65.01% - 70.00% 23 162,888,824 16.4 1.36 67.5
70.01% - 75.00% 50 352,887,423 35.4 1.31 73.3
75.01% - 80.00% 41 245,910,835 24.7 1.29 78.1
80.01% or more 1 2,091,281 0.2 1.32 80.4
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL: 152 $996,158,595 100.0% 1.37x 70.0%
- ----------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE: 70.0%
Page 3 of 16
THE INFORMATION HEREIN WILL BE SUPERSEDED IN ITS ENTIRETY BY THE
INFORMATION CONTAINED IN THE FINAL OFFERING MEMORANDUM. THIS PAGE MUST
BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER,
PLEASE CONTACT YOUR SALES REPRESENTATIVE.
REMAINING TERM TO MATURITY/ARD (MONTHS)
REMAINING TERM TO % OF PRINCIPAL WA
MATURITY/ARD (MONTHS) NO. OF LOANS PRINCIPAL BALANCE ($) BALANCE WA UW DSCR LTV
- ----------------------------------------------------------------------------------------------------------------------------
51 - 60 6 $27,999,213 2.8% 1.32x 74.6%
71 - 80 4 25,359,543 2.5 1.39 64.5
81 - 90 3 12,747,928 1.3 1.26 69.0
101 - 110 5 22,529,063 2.3 1.26 73.1
111 - 120 128 890,148,830 89.4 1.38 69.9
161 - 170 1 491,076 0.0 1.30 67.3
171 - 180 4 14,972,942 1.5 1.27 73.1
231 - 240 1 1,910,000 0.2 1.28 73.5
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL: 152 $996,158,595 100.0% 1.37x 70.0%
- ----------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE: 115 MONTHS
REMAINING AMORTIZATION TERM (MONTHS)
REMAINING AMORTIZATION TERM % OF PRINCIPAL WA
(MONTHS) NO. OF LOANS PRINCIPAL BALANCE ($) BALANCE WA UW DSCR LTV
- ----------------------------------------------------------------------------------------------------------------------------
161 - 170 1 $491,076 0.0% 1.30x 67.3%
171 - 180 1 1,009,785 0.1 1.42 53.7
231 - 240 7 19,693,246 2.0 1.45 64.3
261 - 270 4 14,138,257 1.4 1.47 65.5
281 - 290 1 1,414,150 0.1 1.35 71.1
291 - 300 30 151,216,330 15.2 1.37 68.6
321 - 330 2 7,282,031 0.7 1.30 77.5
341 - 350 4 21,114,913 2.1 1.25 73.2
351 - 360 102 779,798,807 78.3 1.37 70.4
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL: 152 $996,158,595 100.0% 1.37x 70.0%
- ----------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE: 344 MONTHS
PROPERTY TYPE
% OF
NO. OF PRINCIPAL BALANCE PRINCIPAL WA WA
PROPERTY TYPE PROPERTIES ($) BALANCE WA UW DSCR LTV OCCUPANCY
- ------------------------------------------------------------------------------------------------------------------------------
Office 34 $317,544,589 31.9% 1.33x 70.6% 98.1%
CBD 8 110,539,841 11.1 1.34 71.0 98.5
Suburban 26 207,004,747 20.8 1.32 70.5 97.9
Retail 35 295,928,398 29.7 1.41x 70.5% 97.8%
Anchored 23 250,347,446 25.1 1.43 70.4 98.3
Shadow Anchored 2 15,327,092 1.5 1.25 72.9 91.6
Unanchored 10 30,253,860 3.0 1.31 69.6 96.9
Multifamily 63 162,816,282 16.3 1.36x 73.7% 95.4%
Industrial 18 90,685,075 9.1 1.33x 66.5% 98.5%
Hotel 9 78,281,569 7.9 1.50x 64.9% NA
Full service 3 59,441,510 6.0 1.47 65.5 NA
Limited service 6 18,840,060 1.9 1.56 62.8 NA
Mobile Home Park 13 46,828,728 4.7 1.39x 65.8% 93.4%
Self-storage 1 4,073,954 0.4 1.29x 71.5% 92.8%
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL 173 $996,158,595 100.0% 1.37X 70.0% 97.3%
- ------------------------------------------------------------------------------------------------------------------------------
Page 4 of 16
THE INFORMATION HEREIN WILL BE SUPERSEDED IN ITS ENTIRETY BY THE
INFORMATION CONTAINED IN THE FINAL OFFERING MEMORANDUM. THIS PAGE MUST
BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER,
PLEASE CONTACT YOUR SALES REPRESENTATIVE.
STRUCTURAL OVERVIEW
o Interest payments will be pro-rata to the Class A1, A2, A3, X1, and X2
Certificates and then, after payment of the principal distribution amount
to such Classes, interest will be paid sequentially to the Class B, C, D,
E, F, G, H, J, K, L, M, N and NR Certificates
o The pass-through rate for the Class A1, A2, A3, B, C, D, E, F, G, H, J, K,
L, M, N and NR Certificates will be equal to either a fixed rate or a rate
based on the weighted average of the remittance rates on the mortgage
loans. In the aggregate, the Class X Certificates will receive the net
interest on the mortgage loans less the interest paid on the other
Certificates
o All Classes offered will accrue interest on a 30/360 basis
o The Class X Certificates will have the same interest payment priority as
the Class A1, A2, and A3 Certificates
o Principal payments will be paid sequentially to the Class A1, A2, A3, B, C,
D, E, F, G, H, J, K, L, M, N and NR Certificates, until each Class is
retired. The Class X Certificates do not have a class principal balance and
are therefore not entitled to any principal distributions
o Losses will be born by the Classes (other than the Classes X1 and X2
Certificates) in reverse sequential order, from the Class NR Certificates
up to the Class B Certificates and then pro-rata to the Class A1, A2, and
A3 Certificates
o If the principal balance of the mortgage pool is less than or equal to the
aggregate class principal balance of the Class A1, A2, and A3 Certificates,
principal distributions will be allocated pro-rata to the Class A1, A2 and
A3 Certificates
o Net prepayment premiums calculated by reference to a U.S. Treasury rate to
the extent received will be allocated first to the offered certificates,
according to a specified formula, with any remaining amount payable to the
Class X Certificates. For the amount payable to any interest-bearing Class,
the formula is as follows:
Principal Paid to Class (Pass-Through Rate on Class - Discount Rate)
Prepayment Premium X ------------------------- X --------------------------------------------
Total Principal Paid (Mortgage Rate on Loan - Discount Rate)
o Net prepayment premiums not calculated by reference to a U.S. Treasury rate
to the extent received will be allocated solely to the Class X Certificates
o The deal will provide for the standard collateral value adjustment feature
for problem or delinquent loans. Generally, when a mortgage loan becomes 90
days delinquent, the special servicer obtains a new appraisal. To the
extent any such adjustment is not reversed, the interest portion of any P&I
Advance will be reduced in proportion to such adjustment
Page 5 of 16
THE INFORMATION HEREIN WILL BE SUPERSEDED IN ITS ENTIRETY BY THE
INFORMATION CONTAINED IN THE FINAL OFFERING MEMORANDUM. THIS PAGE MUST
BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER,
PLEASE CONTACT YOUR SALES REPRESENTATIVE.
SIGNIFICANT MORTGAGE LOANS
AGGREGATE PERCENTAGE CUT-OFF
LOAN NAME CUT-OFF OF INITIAL DATE LTV
(LOCATION) BALANCE POOL BALANCE UW DSCR RATIO PROPERTY TYPE LOAN PURPOSE
- ------------------------------------------------------------------------------------------------------------------------------------
Collin Creek Mall $74,000,000 7.4% 1.75x 56.7% Anchored Retail Refinance
(Plano, TX)
National City Center 47,216,651 4.7% 1.30 73.8 CBD Office Acquisition
(Indianapolis, IN)
Minneapolis Airport Marriott 39,959,089 4.0% 1.47 66.6 Full-Service Hotel Refinance
(Bloomington, MN)
Fiddler's Green I 25,966,569 2.6% 1.27 71.1 Suburban Office Refinance
(Greenwood Village, CO)
Augusta Exchange Shopping Ctr. 25,200,000 2.5% 1.32 80.0 Anchored Retail Acquisition
(Augusta, GA)
Chino Spectrum Marketplace 22,952,672 2.3% 1.30 77.8 Anchored Retail Acquisition
(Chino, CA)
Brooklyn Renaissance Plaza 20,983,585 2.1% 1.40 72.9 CBD Office Refinance
(Brooklyn, NY)
10 Weaver Road 19,478,341 2.0% 1.32 74.9 Industrial / Warehouse Acquisition
(Denver, PA)
Crocker Richmond Portfolio 19,075,128 1.9% 1.31 75.4 Suburban Office Acquisition
(Richmond, VA)
Special Devices Portfolio 17,500,000 1.8% 1.30 44.6 Industrial / Flex Acquisition
(Moorpark, CA & Mesa, AZ)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL/WEIGHTED AVERAGE $312,332,035 31.4% 1.44x 67.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Page 6 of 16
THE INFORMATION HEREIN WILL BE SUPERSEDED IN ITS ENTIRETY BY THE
INFORMATION CONTAINED IN THE FINAL PROSPECTUS AND PROSPECTUS SUPPLEMENT.
THIS PAGE MUST BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH
A DISCLAIMER, PLEASE CONTACT YOUR SALES REPRESENTATIVE.
COLLIN CREEK MALL
- ------------------------------------------------------------------------------------------------------------------------------------
LOAN INFORMATION PROPERTY INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
SINGLE ASSET/ PORTFOLIO: Single Asset
PRINCIPAL BALANCE: $74,000,000 $74,000,000
PROPERTY TYPE: Anchored Retail
SQUARE FEET: 332,055
% OF POOL BY IPB: 7.4% LOCATION: Plano, Texas
YEAR BUILT/YEAR RENOVATED: 1981 / 1992
SELLER: MGT
COLLATERAL: Two-story regional shopping mall in
ORIGINATION DATE: 6/18/01 Plano, Texas, an affluent Dallas
suburb. The mall has more than 1.1
MORTGAGE RATE: 6.775% million square feet of retail space
including five anchor tenants: Foley's
MATURITY DATE: 7/10/11 (197,478 SF), Dillard's (176,259 SF),
Sears (161,742 SF), JC Penney (156,772
REMAINING AMORTIZATION: 360 months SF) and Mervyn's (97,832 SF). The
anchors all own their stores and are
SPONSOR: Owned jointly by the Rouse Company and not part of the collateral for this
Rodamco North America. Rouse, which loan. The in-line shops contain more
manages the mall, is a publicly held than 120 tenants comprising 332,055
real estate company in the U.S., owning square feet with reported 2000 sales
and/or operating 45 regional malls and PSF of approximately $427 on average.
14 community centers totaling over 41
million square feet. Rodamco North
America is a large mall owner in the
U.S., with interests in 35 regional MAJOR TENANTS:
malls. 2000 Lease
In-line Tenant SF % SF Sales/SF Exp. Yr.
-------------- -- ---- ------- --------
CALL PROTECTION: Lockout followed by defeasance Gap 10,450 3.1% $572 2006
Lane Bryant 7,986 2.4% $291 2006
CROSS- Victoria's Secret 6,248 1.8% $698 2005
COLLATERALIZATION: No Ann Taylor 5,786 1.7% $345 2005
Eddie Bauer 5,503 1.6% $434 2003
LOCK BOX: In-place; springs hard
upon either an Event of CURRENT OCCUPANCY: 98.0% (as of 6/1/01)
Default or if the DSCR falls
below 1.15x based on a UW NET CASH FLOW: $10,132,125
9.00% mortgage loan constant
APPRAISED VALUE: $130,600,000
RESERVES: Taxes and replacement reserves
APPRAISAL DATE: 5/1/01
ADDITIONAL FINANCING: None
CUT-OFF DATE LOAN/SF: $223
LOAN PURPOSE: Refinance
CUT-OFF DATE LTV: 56.7%
BALLOON LTV: 49.1%
UW DSCR: 1.75x
- ------------------------------------------------------------------------------------------------------------------------------------
[Pictures Omitted]
Page 7 of 16
THE INFORMATION HEREIN WILL BE SUPERSEDED IN ITS ENTIRETY BY THE
INFORMATION CONTAINED IN THE FINAL PROSPECTUS AND PROSPECTUS SUPPLEMENT.
THIS PAGE MUST BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH
A DISCLAIMER, PLEASE CONTACT YOUR SALES REPRESENTATIVE.
NATIONAL CITY CENTER
- ------------------------------------------------------------------------------------------------------------------------------------
LOAN INFORMATION PROPERTY INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
SINGLE ASSET/ PORTFOLIO: Single Asset
PRINCIPAL BALANCE: $47,250,000 $47,216,651
PROPERTY TYPE: CBD Office
% OF POOL BY IPB: 4.7% SQUARE FEET: 624,464
SELLER: CIBC LOCATION: Indianapolis, Indiana
ORIGINATION DATE: 5/8/01 YEAR BUILT/YEAR RENOVATED 1977 / 2000
MORTGAGE RATE: 7.750% COLLATERAL: The property is comprised of two
16-story Class A office towers
ANTICIPATED REPAYMENT connected by a glass atrium located in
DATE: 6/1/11 downtown Indianapolis. The office
towers are connected with an adjoining
REMAINING AMORTIZATION: 359 months Hyatt Regency Hotel, which is not part
of the collateral for this loan. The
SPONSOR: Harbor Group International has been property is immediately adjacent to the
acquiring real estate since 1991; over Indiana Convention Center, the RCA
the last decade it has owned and Dome, the Indiana Statehouse and
managed a portfolio of office, retail, Government Center, and connected via an
and multifamily properties valued at enclosed walkway to the Circle Centre
over $600 million. Mall.
MAJOR TENANTS:
CALL PROTECTION: Lockout followed by defeasance Lease
Tenant SF % SF Rent/SF Exp. Yr.
CROSS- No ------ -- ---- -------- --------
COLLATERALIZATION: National City
Bank (A2/A) (1) 336,457 54% $17.50 2007
LOCK BOX: Hard Simon Property Group
(Baa2/BBB+) (1) 167,764 27% $18.25 2005
RESERVES: Taxes, insurance, replacement reserves Supreme Court of Indiana 26,539 4% $15.11 2007
and tenant improvements/leasing
commissions. (1) Current Long-term debt rating by Moody's and S&P
ADDITIONAL FINANCING: None CURRENT OCCUPANCY: 99.9% (as of 3/1/01)
LOAN PURPOSE: Acquisition UW NET CASH FLOW: $5,288,539
APPRAISED VALUE: $64,000,000
APPRAISAL DATE: 5/1/01
CUT-OFF DATE LOAN/SF: $76
CUT-OFF DATE LTV: 73.8%
BALLOON LTV: 65.6%
UW DSCR: 1.30x
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Page 8 of 16
THE INFORMATION HEREIN WILL BE SUPERSEDED IN ITS ENTIRETY BY THE
INFORMATION CONTAINED IN THE FINAL PROSPECTUS AND PROSPECTUS SUPPLEMENT.
THIS PAGE MUST BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH
A DISCLAIMER, PLEASE CONTACT YOUR SALES REPRESENTATIVE.
MINNEAPOLIS AIRPORT MARRIOTT
- ------------------------------------------------------------------------------------------------------------------------------------
LOAN INFORMATION PROPERTY INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
SINGLE ASSET/ PORTFOLIO: Single Asset
PRINCIPAL BALANCE: $40,000,000 $39,959,089
PROPERTY TYPE: Full Service Hotel
% OF POOL BY IPB: 4.0%
ROOMS: 473
SELLER: CIBC
LOCATION: Bloomington, Minnesota
ORIGINATION DATE: 5/9/01
YEAR BUILT/YEAR RENOVATED: 1969 / 2000
MORTGAGE RATE: 8.170%
COLLATERAL: The hotel is located in Bloomington,
ANTICIPATED REPAYMENT Minnesota directly north of the Mall of
DATE: 6/1/11 America and 3 miles Southwest of the
Minneapolis-St. Paul International
REMAINING AMORTIZATION: 299 months Airport. Hotel amenities include an
indoor pool and whirlpool, fitness
SPONSOR: Columbia Sussex Corporation, which center and two restaurants. The
operates forty-four hotels totaling property was remodeled and renovated
over 11,000 rooms located primarily in between 1999-2000 at a cost of over
the Southern, Eastern and Midwestern $8.0 million.
United States.
12 Months
CALL PROTECTION: Lockout followed by defeasance Ended
1999 2000 3/31/01 UW
CROSS- ---- ---- ------- --
COLLATERALIZATION: No Average Occupancy 70.8% 68.4% 68.2% 68.2%
ADR $102 $111 $115 $113
LOCK BOX: Springing upon ARD RevPAR $72 $76 $78 $77
RESERVES: Taxes and FF&E reserves
CURRENT OCCUPANCY: 68.2% (as of 3/31/01)
ADDITIONAL FINANCING: None
UW NET CASH FLOW: $5,537,375
LOAN PURPOSE: Refinance
APPRAISED VALUE $60,000,000
APPRAISAL DATE: 4/1/01
CUT-OFF DATE LOAN/ROOM: $84,480
CUT-OFF DATE LTV: 66.6%
BALLOON LTV: 55.2%
UW DSCR: 1.47x
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Page 9 of 16
THE INFORMATION HEREIN WILL BE SUPERSEDED IN ITS ENTIRETY BY THE
INFORMATION CONTAINED IN THE FINAL PROSPECTUS AND PROSPECTUS SUPPLEMENT.
THIS PAGE MUST BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH
A DISCLAIMER, PLEASE CONTACT YOUR SALES REPRESENTATIVE.
FIDDLER'S GREEN I
- ------------------------------------------------------------------------------------------------------------------------------------
LOAN INFORMATION PROPERTY INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
SINGLE ASSET/ PORTFOLIO: Single Asset
PRINCIPAL BALANCE: $26,000,000 $25,966,569
PROPERTY TYPE: Surburban Office
% OF POOL BY IPB: 2.6%
SQUARE FEET: 206,604
SELLER: MGT
LOCATION: Greenwood Village, Colorado
ORIGINATION DATE: 4/25/01
YEAR BUILT/YEAR RENOVATED: 1999
MORTGAGE RATE: 7.480%
COLLATERAL: The property is a 6-story Class A
MATURITY DATE: 5/1/11 office building located within the
Greenwood Plaza Office Park and
adjacent to the Denver Technology
REMAINING AMORTIZATION: 358 months Center.
MAJOR TENANTS:
SPONSOR: The John Madden Company is a privately
owned, full-service real estate Lease
development and management company. Tenant SF % of SF Rent / SF Exp. Yr.
The Company has developed over ------ ---- ------ --------- --------
10 million square feet of commercial Convergent Group(1) 84,588 41% $17.00 2009
real estate. Navidec 69,434 34% $17.50 2005
KPMG 35,740 17% $17.50 2010
CALL PROTECTION: Lockout followed by defeasance
(1) Convergent is a wholly owned subsidiary of Schlumberger Ltd.
CROSS-
COLLATERALIZATION: No CURRENT OCCUPANCY: 99.3% (as of 3/14/01)
LOCK BOX: Springing upon an event of Default UW NET CASH FLOW: $2,766,471
under first mortgage or
mezzanine loan. APPRAISED VALUE: $36,500,000
APPRAISAL DATE: 3/8/01
RESERVES: Taxes, insurance, replacement CUT-OFF DATE LOAN/SF: $126
reserves, and tenant improvements/
leasing commissions. CUT-OFF DATE LTV: 71.1%
ADDITIONAL FINANCING: Mezzanine debt with an original BALLOON LTV: 62.9%
balance of $1.0M on a five year
fully amortizing basis provided UW DSCR: 1.27x
by MGT.
LOAN PURPOSE: Refinance
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Page 10 of 16
THE INFORMATION HEREIN WILL BE SUPERSEDED IN ITS ENTIRETY BY THE
INFORMATION CONTAINED IN THE FINAL PROSPECTUS AND PROSPECTUS SUPPLEMENT.
THIS PAGE MUST BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH
A DISCLAIMER, PLEASE CONTACT YOUR SALES REPRESENTATIVE.
AUGUSTA EXCHANGE SHOPPING CENTER
- ------------------------------------------------------------------------------------------------------------------------------------
LOAN INFORMATION PROPERTY INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
SINGLE ASSET/ PORTFOLIO: Single Asset
PRINCIPAL BALANCE: $25,200,000 $25,200,000
PROPERTY TYPE: Anchored Retail
% OF POOL BY IPB: 2.5%
SQUARE FEET: 257,780
SELLER: MGT
LOCATION: Augusta, Georgia
ORIGINATION DATE: 6/25/01
YEAR BUILT/YEAR RENOVATED: 2000
MORTGAGE RATE: 7.330%
COLLATERAL: The property is an anchored shopping
MATURITY DATE: 7/1/11 center including the major tenants
listed below. The property is shadow
anchored by a Winn Dixie ('oo sales
REMAINING AMORTIZATION: 360 months $308/sf), Circuit City, and Old Navy
('00 sales $547/sf) which are not part
of the collateral for this loan.
MAJOR TENANTS:
SPONSOR: Kimco Realty Corporation is a
publicly traded owner and operator Lease 2000
of neighborhood and community Tenant SF % of SF Rent / SF Exp. Yr. Sales
shopping centers, with almost 500 ------ ---- ------- --------- -------- -----
properties in 41 states, comprising Mansours 65,000 25% $9.50 2020 $220(1)
approximately 66 million square feet Goody's Family
of rentable space. Clothing 40,000 16% $9.25 2014 $196
CompUSA 26,878 10% $10.75 2013 N/A
Staples Inc.
(Baa2/BBB-)(2) 24,000 9% $11.60 2014 N/A
CALL PROTECTION: Lockout followed by defeasance (1) Estimated Sales PSF
(2) Current Long-term debt rating by Moody's and S&P
CROSS-
COLLATERALIZATION: No CURRENT OCCUPANCY: 97.9% (as of 5/8/01)
LOCK BOX: In place; springs hard upon an event UW NET CASH FLOW: $2,750,965
of Default.
APPRAISED VALUE: $31,500,000
APPRAISAL DATE: 3/19/01
RESERVES: Taxes, insurance, replacement CUT-OFF DATE LOAN/SF: $98
reserves and tenant improvements/
leasing commissions. CUT-OFF DATE LTV: 80.0%
ADDITIONAL FINANCING: None BALLOON LTV: 70.4%
UW DSCR: 1.32x
LOAN PURPOSE: Acquisition
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THE INFORMATION HEREIN WILL BE SUPERSEDED IN ITS ENTIRETY BY THE
INFORMATION CONTAINED IN THE FINAL PROSPECTUS AND PROSPECTUS SUPPLEMENT.
THIS PAGE MUST BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH
A DISCLAIMER, PLEASE CONTACT YOUR SALES REPRESENTATIVE.
CHINO SPECTRUM MARKETPLACE
- ------------------------------------------------------------------------------------------------------------------------------------
LOAN INFORMATION PROPERTY INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
SINGLE ASSET/ PORTFOLIO: Single Asset
PRINCIPAL BALANCE: $23,050,000 $22,952,672
PROPERTY TYPE: Anchored Retail
% OF POOL BY IPB: 2.3%
SQUARE FEET: 221,645
SELLER: CIBC
LOCATION: Chino, California
ORIGINATION DATE: 12/28/00
YEAR BUILT/YEAR RENOVATED: 1995 / 2000
MORTGAGE RATE: 7.600%
COLLATERAL: The property is a grocery anchored
ANTICIPATED REPAYMENT shopping center located in Chino (San
DATE: 1/1/11 Bernardino) California. The property
is shadow anchored by a Target,
REMAINING AMORTIZATION: 354 months TJ Maxx, and Old Navy which is not part
of the collateral for this loan.
MAJOR TENANTS:
SPONSOR: Managed by CB Richard Ellis which
has 6.5 million square feet of retail Lease 2000
under management in Southern California. Tenant SF % of SF Rent / SF Exp. Yr. Sales
Sponsor is under the control of a ------ ---- ------- --------- -------- -----
Taiwanese national living in Taiwan. Food 4 Less
(Baa3/BBB-)(1)(2) 54,884 25% $10.10 2015 $342
Ross Dress for
Less 27,587 12% $9.50 2005 $221
Staples Inc.
(Baa2/BBB-)(1) 19,871 9% $9.75 2010 N/A
CALL PROTECTION: Lockout followed by defeasance (1) Current Long-term debt rating by Moody's and S&P
(2) Food 4 Less a wholly owned subsidiary of Kroger
CROSS-
COLLATERALIZATION: No CURRENT OCCUPANCY: 98.8% (as of 3/31/01)
LOCK BOX: Hard UW NET CASH FLOW: $2,543,679
APPRAISED VALUE: $29,500,000
APPRAISAL DATE: 11/2/00
RESERVES: Taxes, insurance, replacement CUT-OFF DATE LOAN/SF: $104
reserves and tenant improvements/
leasing commissions. CUT-OFF DATE LTV: 77.8%
ADDITIONAL FINANCING: None BALLOON LTV: 69.2%
UW DSCR: 1.30x
LOAN PURPOSE: Acquisition
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THE INFORMATION HEREIN WILL BE SUPERSEDED IN ITS ENTIRETY BY THE
INFORMATION CONTAINED IN THE FINAL PROSPECTUS AND PROSPECTUS SUPPLEMENT.
THIS PAGE MUST BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH
A DISCLAIMER, PLEASE CONTACT YOUR SALES REPRESENTATIVE.
BROOKLYN RENAISSANCE PLAZA
- ------------------------------------------------------------------------------------------------------------------------------------
LOAN INFORMATION PROPERTY INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
SINGLE ASSET/ PORTFOLIO: Single Asset
PRINCIPAL BALANCE: $21,000,000 $20,983,585
PROPERTY TYPE: CBD Office
% OF POOL BY IPB: 2.1%
SQUARE FEET: 150,040
SELLER: CIBC
LOCATION: Brooklyn, New York
ORIGINATION DATE: 5/8/01
YEAR BUILT/YEAR RENOVATED: 1998
MORTGAGE RATE: 7.240%
COLLATERAL: The property is a 32-story Class A
ANTICIPATED REPAYMENT office tower in Brooklyn, NY. The
DATE: 6/1/11 office tower is part of a mixed-use
development known as the Renaissance
REMAINING AMORTIZATION: 359 months Plaza containing approximately 1.4
million square feet (including the 32-
story office tower), a 376-room
Marriott hotel and a 1,100 space
underground garage which are not part
of the collateral for this loan.
MAJOR TENANTS:
SPONSOR: Joshua Muss, who runs Muss Development
Company, Leucadia National Corp., and Lease
The Carlyle Group. Tenant SF % of SF Rent / SF Exp. Yr.
------ ---- ------- --------- --------
NYC Employee's
Retirement Sys. 51,508 34% $26.00 2020
Metro Energy, LLC 24,955 17% $16.03 2028
NYC Board of
Education 22,486 15% $25.00 2015
CALL PROTECTION: Lockout followed by defeasance
CROSS-
COLLATERALIZATION: No CURRENT OCCUPANCY: 100.0% (as of 4/27/01)
LOCK BOX: Spring upon ARD UW NET CASH FLOW: $2,395,958
APPRAISED VALUE: $28,800,000
APPRAISAL DATE: 1/1/01
RESERVES: Taxes, insurance, replacement CUT-OFF DATE LOAN/SF: $140
reserves, and tenant improvements/
leasing commissions. CUT-OFF DATE LTV: 72.9%
ADDITIONAL FINANCING: None BALLOON LTV: 64.0%
UW DSCR: 1.40x
LOAN PURPOSE: Refinance
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[Picture Omitted]
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THE INFORMATION HEREIN WILL BE SUPERSEDED IN ITS ENTIRETY BY THE
INFORMATION CONTAINED IN THE FINAL PROSPECTUS AND PROSPECTUS SUPPLEMENT.
THIS PAGE MUST BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH
A DISCLAIMER, PLEASE CONTACT YOUR SALES REPRESENTATIVE.
10 WEAVER ROAD
- ------------------------------------------------------------------------------------------------------------------------------------
LOAN INFORMATION PROPERTY INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
SINGLE ASSET/ PORTFOLIO: Single Asset
PRINCIPAL BALANCE: $19,500,000 $19,478,341
PROPERTY TYPE: Industrial / Warehouse
% OF POOL BY IPB: 2.0%
SQUARE FEET: 629,132
SELLER: CIBC
LOCATION: Denver, Pennsylvania
ORIGINATION DATE: 4/17/01
YEAR BUILT/YEAR RENOVATED: 1974 / 1998
MORTGAGE RATE: 8.040%
COLLATERAL: The property is an industrial/bulk
ANTICIPATED REPAYMENT distribution facility located in
DATE: 5/1/11 Denver, Lancaster County, Pennsylvania.
The property consists of two commercial
REMAINING AMORTIZATION: 358 months buildings containing in the aggregate
629,132 square feet with 28 foot clear
heights, 58 fully enclosed dock-high
loading docks with levelers, 4% office
build-out, and trailer storage.
MAJOR TENANTS:
SPONSOR: Sam Kirschenbaum and Michael & Felix
Petrillo, who are the principal Lease
shareholders of the Petro Real Estate Tenant SF % of SF Rent / SF Exp. Yr.
Development firm, which is engaged ------ ---- ------- --------- --------
in construction and management of Henry Schein, Inc. 412,711 66% $4.33 2013
commercial real estate. Skip's Cutting, Inc. 211,121 34% $4.10 2004
CALL PROTECTION: Lockout followed by defeasance
CROSS-
COLLATERALIZATION: No CURRENT OCCUPANCY: 100.0% (as of 3/2/01)
LOCK BOX: Hard UW NET CASH FLOW: $2,266,692
APPRAISED VALUE: $26,000,000
APPRAISAL DATE: 4/1/01
RESERVES: Taxes, insurance, replacement CUT-OFF DATE LOAN/SF: $31
reserves, and tenant improvements/
leasing commissions. CUT-OFF DATE LTV: 74.9%
ADDITIONAL FINANCING: None BALLOON LTV: 67.2%
UW DSCR: 1.32x
LOAN PURPOSE: Acquisition
- ------------------------------------------------------------------------------------------------------------------------------------
[Picture Omitted]
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THE INFORMATION HEREIN WILL BE SUPERSEDED IN ITS ENTIRETY BY THE
INFORMATION CONTAINED IN THE FINAL PROSPECTUS AND PROSPECTUS SUPPLEMENT.
THIS PAGE MUST BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH
A DISCLAIMER, PLEASE CONTACT YOUR SALES REPRESENTATIVE.
CROCKER RICHMOND PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
LOAN INFORMATION PROPERTY INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
SINGLE ASSET/ PORTFOLIO: Portfolio
PRINCIPAL BALANCE: $19,100,000 $19,075,128
PROPERTY TYPE: Surburban Office
% OF POOL BY IPB: 1.9%
SQUARE FEET: 233,034
SELLER: CIBC
LOCATION: Richmond, Virginia
ORIGINATION DATE: 4/16/01
YEAR BUILT/YEAR RENOVATED: 1986 - 1989
MORTGAGE RATE: 7.430%
COLLATERAL: The portfolio consists of three
ANTICIPATED REPAYMENT Class A office buildings located in
DATE: 5/1/11 Richmond, Virginia. The properties
are comprised of (i) two multi-
tenant properties, The Vistas at
Brookfield (70,582 sq. ft.) and
REMAINING AMORTIZATION: 358 months One Holland Place (84,553 sq. ft.)
) and (ii) a single-tenant building,
the Trigon Building (77,899 sq. ft.)
leased to Trigon Healthcare Inc.
(NYSE: TGH), Virginia's largest
managed HMO with a long-term debt
MAJOR TENANTS: rating of A- by S&P.
SPONSOR: Donald Jaffey is the principal of the
firm DAK Realty, which owns 1.5 Lease
million square feet of office and Tenant SF % of SF Rent / SF Exp. Yr.
retail developments, and 1,300 ------ ---- ------- --------- --------
multifamily units. Trigon Healthcare
Inc. 114,085 49% $13.40 2006
World Access Inc. 23,622 10% $17.04 2003
CALL PROTECTION: Lockout followed by defeasance
CROSS-
COLLATERALIZATION: No CURRENT OCCUPANCY: 99.8% (as of 4/11/01)
LOCK BOX: Springing upon ARD UW NET CASH FLOW: $2,078,959
APPRAISED VALUE: $25,300,000
APPRAISAL DATE: 2/6/01
RESERVES: Taxes, insurance, replacement CUT-OFF DATE LOAN/SF: $82
reserves and tenant improvements/
leasing commissions. CUT-OFF DATE LTV: 75.4%
ADDITIONAL FINANCING: None BALLOON LTV: 66.6%
UW NCF DSCR: 1.31x
LOAN PURPOSE: Acquisition
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[Picture Omitted]
Page 15 of 16
THE INFORMATION HEREIN WILL BE SUPERSEDED IN ITS ENTIRETY BY THE
INFORMATION CONTAINED IN THE FINAL PROSPECTUS AND PROSPECTUS SUPPLEMENT.
THIS PAGE MUST BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH
A DISCLAIMER, PLEASE CONTACT YOUR SALES REPRESENTATIVE.
SPECIAL DEVICES PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
LOAN INFORMATION PROPERTY INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
SINGLE ASSET/ PORTFOLIO: Portfolio
PRINCIPAL BALANCE: $17,500,000 $17,500,000
PROPERTY TYPE: Industrial Flex
% OF POOL BY IPB: 1.8%
SQUARE FEET: 214,406
SELLER: CIBC
LOCATION: Moorpark, California and Mesa, Arizona
ORIGINATION DATE: 6/6/01
YEAR BUILT/YEAR RENOVATED: 1991 / 2000
MORTGAGE RATE: 7.870%
COLLATERAL: The portfolio consists of two
ANTICIPATED REPAYMENT industrial facilities, located in
DATE: 7/1/11 Moorpark, CA and Mesa, AZ and each
leased to Special Devices, Inc. (SDI)
REMAINING AMORTIZATION: 360 months on a NNN basis for 20-years. The
properties are comprised of 32
buildings (72% industrial / 28% office)
on 250 acres. SDI is a designer and
manufacturer of initiator devices used
in vehicle airbags and other automotive
safety systems. SDI is controlled by
J.F. Lehman, a private equity firm
established by John F. Lehman, the
former Secretary of the U.S. Navy and
other partners.
SPONSOR: Entities controlled by Corporate
Property Associates 12 & 14 which CURRENT OCCUPANCY: 100.0% (as of 3/1/01)
are REITs that invest in single-
tenant commercial properties which UW NET CASH FLOW: $1,979,017
are net leased. The REITs are
managed by W.P. Carey & Co. an APPRAISED VALUE: $39,200,000
asset management firm that
specializes in these types of APPRAISAL DATE: 3/1/01
transactions.
CUT-OFF DATE LOAN/SF: $82
CALL PROTECTION: Lockout followed by defeasance
CUT-OFF DATE LTV: 44.6%
CROSS-
COLLATERALIZATION: No BALLOON LTV: 39.8%
LOCK BOX: Springing upon ARD UW DSCR: 1.30x
RESERVES: $1.3 M LOC in lieu of a monthly
TILC
ADDITIONAL FINANCING: $4.0 million in seller financing
which is not secured by the property.
LOAN PURPOSE: Acquisition
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ANNEX C
WELLS FARGO [LOGO]
WELLS FARGO BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
11000 BROKEN LAND PARKWAY
COLUMBIA, MD 21044
J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 2001-CIBC2
- -----------------------------------------
For Additional Information please contact
CTSLink Customer Service
(301) 815-6600
Reports Available on the World Wide Web
@ www.ctslink.com/cmbs
- -----------------------------------------
Payment Date: 08/15/2001
Record Date: 07/31/2001
TRUSTEE REPORT
TABLE OF CONTENTS
================================================================================
STATEMENT SECTIONS PAGE(s)
------------------ -------
Certificate Distribution Detail 2
Certificate Factor Detail 3
Reconciliation Detail 4
Other Required Information 5
Ratings Detail 6
Current Mortgage Loan and Property Stratification Tables 7 - 9
Mortgage Loan Detail 10
Extended Loan Detail 11
Principal Prepayment Detail 12
Historical Detail 13
Delinquency Loan Detail 14
Specially Serviced Loan Detail 15- 16
Modified Loan Detail 17
Liquidated Loan Detail 18
================================================================================
UNDERWRITER
================================================================================
J.P Morgan Chase & Co.
60 Wall Street
New York, NY 10260
Contact: Brian Baker
Phone Number: (212) 834-3813
================================================================================
MASTER SERVICER
================================================================================
Midland Loan Services, Inc
210 West 10th Street
Kansas City, MO 64105
Contact: Brad Hauger
Phone (816) 292-8629
================================================================================
SPECIAL SERVICER
================================================================================
First Union National Bank
Charlotte Plaza, Floor 23 NC-1075
201 South College Street
Charlotte, NC 28288
Contact: Timothy S. Ryan
Phone (704) 593-7878
================================================================================
This report has been compiled from information provided to Wells Fargo Bank MN,
N.A. by various third parties, which may include the Servicer, Master Servicer,
Special Servicer and others. Wells Fargo Bank MN, N.A. has not independently
confirmed the accuracy of information received from these third parties and
assumes no duty to do so. Wells Fargo Bank MN, N.A. expressly disclaims any
responsibility for the accuracy or completeness of information furnished by
third parties.
Copyright 1997, Wells Fargo Bank Minnesota, N.A. Page 1 of 17
WELLS FARGO [LOGO]
WELLS FARGO BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
11000 BROKEN LAND PARKWAY
COLUMBIA, MD 21044
J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 2001-CIBC2
- -----------------------------------------
For Additional Information please contact
CTSLink Customer Service
(301) 815-6600
Reports Available on the World Wide Web
@ www.ctslink.com/cmbs
- -----------------------------------------
Payment Date: 08/15/2001
Record Date: 07/31/2001
CERTIFICATE DISTRIBUTION DETAIL
====================================================================================================================================
Realized
Loss/
Pass- Additional Current
Through Original Beginning Principal Interest Prepayment Trust Fund Total Ending Subordination
Class CUSIP Rate Balance Balance Distribution Distribution Penalties Expenses Distribution Balance Level
- ------------------------------------------------------------------------------------------------------------------------------------
A-1 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
A-2 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
A-3 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
B 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
C 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
D 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
E 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
F 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
G 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
H 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
J 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
K 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
L 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
M 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
NR 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
R-I 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
R-II 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
R-III 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Totals 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
====================================================================================================================================
=======================================================================================================
Original Beginning Ending
Pass-Through Notional Notional Interest Prepayment Total Notional
Class CUSIP Rate Amount Amount Distribution Penalties Distribution Amount
- -------------------------------------------------------------------------------------------------------
X-1 0.000000 0.00 0.00 0.00 0.00 0.00 0.00
X-2 0.000000 0.00 0.00 0.00 0.00 0.00 0.00
=======================================================================================================
(1) Calculated by taking (A) the sum of the ending certificate balance of all
classes less (B) the sum of (i) the ending certificate balance of the designated
class and (ii) the ending certificate balance of all classes which are not
subordinate to the designated class and dividing the result by (A).
Copyright 1997, Wells Fargo Bank Minnesota, N.A. Page 2 of 17
WELLS FARGO [LOGO]
WELLS FARGO BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
11000 BROKEN LAND PARKWAY
COLUMBIA, MD 21044
J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 2001-CIBC2
- -----------------------------------------
For Additional Information please contact
CTSLink Customer Service
(301) 815-6600
Reports Available on the World Wide Web
@ www.ctslink.com/cmbs
- -----------------------------------------
Payment Date: 08/15/2001
Record Date: 07/31/2001
CERTIFICATE FACTOR DETAIL
=========================================================================================================
Realized Loss/
Class Beginning Principal Interest Prepayment Additional Trust Ending
CUSIP Balance Distribution Distribution Penalties Fund Expenses Balance
- ---------------------------------------------------------------------------------------------------------
A-1 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
A-2 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
A-3 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
B 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
C 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
D 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
E 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
F 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
G 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
H 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
J 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
K 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
L 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
M 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
NR 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
R-I 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
R-II 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
R-III 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
=========================================================================================================
=========================================================================
Beginning Ending
Notional Interest Prepayment Notional
Class CUSIP Amount Distribution Penalties Amount
- -------------------------------------------------------------------------
X-1 0.00000000 0.00000000 0.00000000 0.00000000
X-2 0.00000000 0.00000000 0.00000000 0.00000000
=========================================================================
Copyright 1997, Wells Fargo Bank Minnesota, N.A. Page 3 of 17
WELLS FARGO [LOGO]
WELLS FARGO BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
11000 BROKEN LAND PARKWAY
COLUMBIA, MD 21044
J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 2001-CIBC2
- -----------------------------------------
For Additional Information please contact
CTSLink Customer Service
(301) 815-6600
Reports Available on the World Wide Web
@ www.ctslink.com/cmbs
- -----------------------------------------
Payment Date: 08/15/2001
Record Date: 07/31/2001
RECONCILIATION DETAIL
ADVANCE SUMMARY
P&I Advances Outstanding 0.00
Servicing Advances Outstanding 0.00
Reimbursements for Interest on P&I 0.00
Advances paid from general collections
Reimbursements for Interest on Servicing 0.00
Advances paid from general collections
MASTER SERVICING FEE BREAKDOWNS
Current Period Accrued Master Servicing Fees 0.00
Less Delinquent Master Servicing Fees 0.00
Less Reductions to Master Servicing Fees 0.00
Plus Master Servicing Fees for Delinquent Payments Received 0.00
Plus Adjustments for Prior Master Servicing Calculation 0.00
Total Master Servicing Fees Collected 0.00
CERTIFICATE INTEREST RECONCILIATION
- --------------------------------------------------------------------------------------------------------------
Interest Net Aggregate Previously Optimal Interest Remaining
Class Accrual Prepayment Unpaid Interest Distribution Interest Interest Shortfall
Amount Interest Shortfall Shortfall Amount Amount Distribution Amount
- --------------------------------------------------------------------------------------------------------------
A-1 0.00 0.00 0.00 0.00 0.00 0.00
A-2 0.00 0.00 0.00 0.00 0.00 0.00
A-3 0.00 0.00 0.00 0.00 0.00 0.00
X-1 0.00 0.00 0.00 0.00 0.00 0.00
X-2 0.00 0.00 0.00 0.00 0.00 0.00
B 0.00 0.00 0.00 0.00 0.00 0.00
C 0.00 0.00 0.00 0.00 0.00 0.00
D 0.00 0.00 0.00 0.00 0.00 0.00
E 0.00 0.00 0.00 0.00 0.00 0.00
F 0.00 0.00 0.00 0.00 0.00 0.00
G 0.00 0.00 0.00 0.00 0.00 0.00
H 0.00 0.00 0.00 0.00 0.00 0.00
J 0.00 0.00 0.00 0.00 0.00 0.00
K 0.00 0.00 0.00 0.00 0.00 0.00
L 0.00 0.00 0.00 0.00 0.00 0.00
M 0.00 0.00 0.00 0.00 0.00 0.00
NR 0.00 0.00 0.00 0.00 0.00 0.00
-------------------------------------------------------------------------------------------------------------
Totals 0.00 0.00 0.00 0.00 0.00 0.00
==============================================================================================================
Copyright 1997, Wells Fargo Bank Minnesota, N.A. Page 4 of 17
WELLS FARGO [LOGO]
WELLS FARGO BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
11000 BROKEN LAND PARKWAY
COLUMBIA, MD 21044
J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 2001-CIBC2
- -----------------------------------------
For Additional Information please contact
CTSLink Customer Service
(301) 815-6600
Reports Available on the World Wide Web
@ www.ctslink.com/cmbs
- -----------------------------------------
Payment Date: 08/15/2001
Record Date: 07/31/2001
OTHER REQUIRED INFORMATION
Available Distribution Amount (1) 0.00
Net Prepayment Interest Shortfall Amount 0.00
Aggregate Number of Outstanding Loans 0
Aggregate Unpaid Principal Balance of Loans 0.00
Aggregate Stated Principal Balance of Loans 0.00
Aggregate Amount of Master Servicing Fee 0.00
Aggregate Amount of Special Servicing Fee 0.00
Aggregate Amount of Liquidation Fees 0.00
Aggregate Amount of Trustee Fee 0.00
Specially Serviced Loans not Deliquent 0
Number of Outstanding Loans 0.00
Aggregate Unpaid Principal Balance 0.00
Appraisal Reduction Amount
-----------------------------------------------------
Appraisal Cumulative Date Appraisal
Loan Reduction ASER Reduction
Number Effected Amount Effected
-----------------------------------------------------
-----------------------------------------------------
Total
=====================================================
(1) The Available Distribution Amount includes any Prepayment Premiums
Copyright 1997, Wells Fargo Bank Minnesota, N.A. Page 5 of 17
WELLS FARGO [LOGO]
WELLS FARGO BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
11000 BROKEN LAND PARKWAY
COLUMBIA, MD 21044
J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 2001-CIBC2
- -----------------------------------------
For Additional Information please contact
CTSLink Customer Service
(301) 815-6600
Reports Available on the World Wide Web
@ www.ctslink.com/cmbs
- -----------------------------------------
Payment Date: 08/15/2001
Record Date: 07/31/2001
RATINGS DETAIL
- ------------------------------------------------------------------------------------
Original Ratings Current Ratings (1)
Class CUSIP -------------------------- -------------------------------
Fitch Moody's S&P Fitch Moody's S&P
- ------------------------------------------------------------------------------------
A-1
A-2
A-3
X-1
X-2
B
C
D
E
F
G
H
J
K
L
M
NR
- ------------------------------------------------------------------------------------
NR - Designates that the class was not rated by the above agency at the time of
original issuance.
X - Designates that the above rating agency did not rate any classes in this
transaction at the time of original issuance.
N/A - Data not available this period.
1) For any class not rated at the time of original issuance by any particular
rating agency, no request has been made subsequent to issuance to obtain rating
information, if any, from such rating agency. The current ratings were obtained
directly from the applicable rating agency within 30 days of the payment date
listed above. The ratings may have changed since they were obtained. Because the
ratings may have changed, you may want to obtain current ratings directly from
the rating agencies.
Fitch, Inc. Moody's Investors Service Standard & Poor's Rating Services
One State Street Plaza 99 Church Street 55 Water Street
New York, New York 10004 New York, New York 10007 New York, New York 10041
(212) 908-0500 (212) 553-0300 (212) 438-2430
Copyright 1997, Wells Fargo Bank Minnesota, N.A. Page 6 of 17
WELLS FARGO [LOGO]
WELLS FARGO BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
11000 BROKEN LAND PARKWAY
COLUMBIA, MD 21044
J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 2001-CIBC2
- -----------------------------------------
For Additional Information please contact
CTSLink Customer Service
(301) 815-6600
Reports Available on the World Wide Web
@ www.ctslink.com/cmbs
- -----------------------------------------
Payment Date: 08/15/2001
Record Date: 07/31/2001
CURRENT MORTGAGE LOAN AND PROPERTY STRATIFICATION TABLES
SCHEDULED BALANCE
- --------------------------------------------------------------------------------
% of
Scheduled # of Scheduled Agg. WAM Weighted
Balance Loans Balance Bal. (2) WAC Avg DSCR (1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Totals
================================================================================
STATE (3)
- --------------------------------------------------------------------------------
% of
# of Scheduled Agg. WAM Weighted
State Props Balance Bal. (2) WAC Avg DSCR (1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Totals
================================================================================
See footnotes on last page of this section.
Copyright 1997, Wells Fargo Bank Minnesota, N.A. Page 7 of 17
WELLS FARGO [LOGO]
WELLS FARGO BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
11000 BROKEN LAND PARKWAY
COLUMBIA, MD 21044
J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 2001-CIBC2
- -----------------------------------------
For Additional Information please contact
CTSLink Customer Service
(301) 815-6600
Reports Available on the World Wide Web
@ www.ctslink.com/cmbs
- -----------------------------------------
Payment Date: 08/15/2001
Record Date: 07/31/2001
- --------------------------------------------------------------------------------
CURRENT MORTGAGE LOAN AND PROPERTY STRATIFICATION TABLES
DEBT SERVICE COVERAGE RATIO(1)
- --------------------------------------------------------------------------------
% of
Debt Service # of Scheduled Agg. WAM Weighted
Coverage Ratio Loans Balance Bal. (2) WAC Avg DSCR(1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Totals
- --------------------------------------------------------------------------------
NOTE RATE
- --------------------------------------------------------------------------------
% of
Note # of Scheduled Agg. WAM Weighted
Rate Loans Balance Bal. (2) WAC Avg DSCR(1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Totals
- --------------------------------------------------------------------------------
PROPERTY TYPE (3)
- --------------------------------------------------------------------------------
% of
# of Scheduled Agg. WAM Weighted
Property Type Props Balance Bal. (2) WAC Avg DSCR(1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Totals
- --------------------------------------------------------------------------------
SEASONING
- --------------------------------------------------------------------------------
% of
# of Scheduled Agg. WAM Weighted
Seasoning Loans Balance Bal. (2) WAC Avg DSCR(1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Totals
- --------------------------------------------------------------------------------
See footnotes on last page of this section.
- --------------------------------------------------------------------------------
Copyright 1997, Wells Fargo Bank Minnesota, N.A. Page 8 of 17
WELLS FARGO [LOGO]
WELLS FARGO BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
11000 BROKEN LAND PARKWAY
COLUMBIA, MD 21044
J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 2001-CIBC2
- -----------------------------------------
For Additional Information please contact
CTSLink Customer Service
(301) 815-6600
Reports Available on the World Wide Web
@ www.ctslink.com/cmbs
- -----------------------------------------
Payment Date: 08/15/2001
Record Date: 07/31/2001
- --------------------------------------------------------------------------------
CURRENT MORTGAGE LOAN AND PROPERTY STRATIFICATION TABLES
ANTICIPATED REMAINING TERM (ARD AND BALLOON LOANS)
- --------------------------------------------------------------------------------
% of
Anticipated Remaining # of Scheduled Agg. WAM Weighted
Term (2) Loans Balance Bal. (2) WAC Avg DSCR(1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Totals
- --------------------------------------------------------------------------------
REMAINING AMORTIZATION TERM (ARD AND BALLOON LOANS)
- --------------------------------------------------------------------------------
% of
Remaining Amortization # of Scheduled Agg. WAM Weighted
Term Loans Balance Bal. (2) WAC Avg DSCR(1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Totals
- --------------------------------------------------------------------------------
GROSS MARGINS
- --------------------------------------------------------------------------------
% of
Gross # of Scheduled Agg. WAM Weighted
Margins Loans Balance Bal. (2) WAC Avg DSCR(1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Totals
- --------------------------------------------------------------------------------
AGE OF MOST RECENT NOI
- --------------------------------------------------------------------------------
% of
Age of Most # of Scheduled Agg. WAM Weighted
Recent NOI Loans Balance Bal. (2) WAC Avg DSCR(1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Totals
- --------------------------------------------------------------------------------
(1) Debt Service Coverage Ratios are updated periodically as new NOI figures
become available from borrowers on an asset level. In all cases the most
recent DSCR provided by the Servicer is used. To the extent that no DSCR
is provided by the Servicer, information from the offering document is used.
The Trustee makes no representations as to the accuracy of the data provided
by the borrower for this calculation.
(2) Anticipated Remaining Term and WAM are each calculated based upon the
term from the current month to the earlier of the Anticipated Repayment Date,
if applicable, and the Maturity Date.
(3) Data in this table was calculated by allocating pro-rata the current
loan information to the properties based upon the Cut-off Date balance of
each property as disclosed in the offering document.
Note: (i) "Scheduled Balance" has the meaning assigned thereto in the CMSA
Standard Information Package.
- --------------------------------------------------------------------------------
Copyright 1997, Wells Fargo Bank Minnesota, N.A. Page 9 of 17
WELLS FARGO [LOGO]
WELLS FARGO BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
11000 BROKEN LAND PARKWAY
COLUMBIA, MD 21044
J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 2001-CIBC2
- -----------------------------------------
For Additional Information please contact
CTSLink Customer Service
(301) 815-6600
Reports Available on the World Wide Web
@ www.ctslink.com/cmbs
- -----------------------------------------
Payment Date: 08/15/2001
Record Date: 07/31/2001
- --------------------------------------------------------------------------------
MORTGAGE LOAN DETAIL
- ----------------------------------------------------------------------------------------------------------------
Anticipated Neg.
Loan Property Interest Principal Gross Repayment Maturity Amort
Number ODCR Type (1) City State Payment Payment Coupon Date Date (Y/N)
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Totals
- ----------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Neg. Beginning Ending Paid Appraisal Appraisal Res. Mod.
Amort Scheduled Scheduled Thru Reduction Reduction Strat. Code
(Y/N) Balance Balance Date Date Amount (2) (3)
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Totals
- ---------------------------------------------------------------------------------------
(1) Property Type Code
----------------------
MF - Multi-Family OF - Office
RT - Retail MU - Mixed Use
HC - Health Care LO - Lodging
IN - Industrial SS - Self Storage
WH - Warehouse OT - Other
MH - Mobile Home Park
(2) Resolution Strategy Code
----------------------------
1 - Modification 6 - DPO 10 - Deed in Lieu Of
2 - Foreclosure 7 - REO Foreclosure
3 - Bankruptcy 8 - Resolved 11 - Full Payoff
4 - Extension 9 - Pending Return 12 - Reps and Warranties
5 - Note Sale to Master Servicer 13 - Other or TBD
(3) Modification Code
---------------------
1 - Maturity Date Extension
2 - Amortization Change
3 - Principal Write-Off
4 - Combination
- --------------------------------------------------------------------------------
Copyright 1997, Wells Fargo Bank Minnesota, N.A. Page 10 of 17
WELLS FARGO [LOGO]
WELLS FARGO BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
11000 BROKEN LAND PARKWAY
COLUMBIA, MD 21044
J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 2001-CIBC2
- -----------------------------------------
For Additional Information please contact
CTSLink Customer Service
(301) 815-6600
Reports Available on the World Wide Web
@ www.ctslink.com/cmbs
- -----------------------------------------
Payment Date: 08/15/2001
Record Date: 07/31/2001
- --------------------------------------------------------------------------------
PRINCIPAL PREPAYMENT DETAIL
- -------------------------------------------------------------------------------------------------------
Principal Prepayment Amount
Offering Document ------------------------------------------------------------------
Loan Number Cross-Reference Payoff Amount Curtailment Amount Prepayment Premiums
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Totals
- -------------------------------------------------------------------------------------------------------
Copyright 1997, Wells Fargo Bank Minnesota, N.A. Page 11 of 17
WELLS FARGO [LOGO]
WELLS FARGO BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
11000 BROKEN LAND PARKWAY
COLUMBIA, MD 21044
J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 2001-CIBC2
- -----------------------------------------
For Additional Information please contact
CTSLink Customer Service
(301) 815-6600
Reports Available on the World Wide Web
@ www.ctslink.com/cmbs
- -----------------------------------------
Payment Date: 08/15/2001
Record Date: 07/31/2001
- --------------------------------------------------------------------------------
HISTORICAL DETAIL
- -----------------------------------------------------------------------------------------------------------------------------------
Delinquencies
- -----------------------------------------------------------------------------------------------------------------------------------
Distribution 30-59 Days 60-89 Days 90 Days or More Foreclosure REO Modifications
Date # Balance # Balance # Balance # Balance # Balance # Balance
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Prepayments Rate and Maturities
- --------------- ------------------------------- --------------------------------
Modifications Curtailments Payoff Next Weighted Avg.
# Balance # Amount # Amount Coupon Remit WAM
- ------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Note: Foreclosure and REO Totals are excluded from the delinquencies aging
categories.
- --------------------------------------------------------------------------------
Copyright 1997, Wells Fargo Bank Minnesota, N.A. Page 12 of 17
WELLS FARGO [LOGO]
WELLS FARGO BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
11000 BROKEN LAND PARKWAY
COLUMBIA, MD 21044
J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 2001-CIBC2
- -----------------------------------------
For Additional Information please contact
CTSLink Customer Service
(301) 815-6600
Reports Available on the World Wide Web
@ www.ctslink.com/cmbs
- -----------------------------------------
Payment Date: 08/15/2001
Record Date: 07/31/2001
- --------------------------------------------------------------------------------
DELINQUENCY LOAN DETAIL
- ----------------------------------------------------------------------------------------------------------------------------------
Offering # of Current Outstanding Status of Resolution
Document Months Paid Through P&I P&I Mortgage Strategy Servicing
Loan Number Cross-Reference Delinq. Date Advances** Advances Loan (1) Code (2) Transfer Date
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Totals
- ----------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Actual Outstanding
Foreclosure Principal Servicing Bankruptcy REO
Loan Number Date Balance Advances Date Date
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Totals
- --------------------------------------------------------------------------------
(1) Status of Mortgage Loan
---------------------------
A - Payments Not Received 2 - Two Months Delinquent
But Still in Grace Period 3 - Three or More Months Delinquent
B - Late Payment But Less - Assumed Scheduled Payment
Than 1 Month Delinquent (Performing Matured Balloon)
0 - Current 7 - Foreclosure
1 - One Month Delinquent 9 - REO
(2) Resolution Strategy Code
----------------------------
1 - Modification 6 - DPO 10 - Deed in Lieu Of
2 - Foreclosure 7 - REO Foreclosure
3 - Bankruptcy 8 - Resolved 11 - Full Payoff
4 - Extension 9 - Pending Return 12 - Reps and Warranties
5 - Note Sale to Master Servicer 13 - Other or TBD
** Outstanding P&I Advances include the current period advance.
- --------------------------------------------------------------------------------
Copyright 1997, Wells Fargo Bank Minnesota, N.A. Page 13 of 17
WELLS FARGO [LOGO]
WELLS FARGO BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
11000 BROKEN LAND PARKWAY
COLUMBIA, MD 21044
J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 2001-CIBC2
- -----------------------------------------
For Additional Information please contact
CTSLink Customer Service
(301) 815-6600
Reports Available on the World Wide Web
@ www.ctslink.com/cmbs
- -----------------------------------------
Payment Date: 08/15/2001
Record Date: 07/31/2001
- --------------------------------------------------------------------------------
SPECIALLY SERVICED LOAN DETAIL - PART 1
- -----------------------------------------------------------------------------------------------------------------------------
Offering Servicing Resolution Net
Loan Document Transfer Strategy Scheduled Property Interest Actual Operating
Number Cross-Reference Date Code (1) Balance Type (2) State Rate Balance Income
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------
Remaining
Loan DSCR Note Maturity Amortization
Number Date DSCR Date Date Term
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
(1) Resolution Strategy Code
----------------------------
1 - Modification 6 - DPO 10 - Deed in Lieu Of
2 - Foreclosure 7 - REO Foreclosure
3 - Bankruptcy 8 - Resolved 11 - Full Payoff
4 - Extension 9 - Pending Return 12 - Reps and Warranties
5 - Note Sale to Master Servicer 13 - Other or TBD
(2) Property Type Code
----------------------
MF - Multi-Family OF - Office
RT - Retail MU - Mixed Use
HC - Health Care LO - Lodging
IN - Industrial SS - Self Storage
WH - Warehouse OT - Other
MH - Mobile Home Park
- --------------------------------------------------------------------------------
Copyright 1997, Wells Fargo Bank Minnesota, N.A. Page 14 of 17
WELLS FARGO [LOGO]
WELLS FARGO BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
11000 BROKEN LAND PARKWAY
COLUMBIA, MD 21044
J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 2001-CIBC2
-----------------------------------------
For Additional Information please contact
CTSLink Customer Service
(301) 815-6600
Reports Available on the World Wide Web
@ www.ctslink.com/cmbs
-----------------------------------------
Payment Date: 08/15/2001
Record Date: 07/31/2001
- -------------------------------------------------------------------------------
SPECIALLY SERVICED LOAN DETAIL - PART 2
- ------------------------------------------------------------------------------------------------------------------------------------
Offering Resolution Site
Loan Document Strategy Inspection Appraisal Appraisal Other REO
Number Cross-Reference Code (1) Date Phase 1 Date Date Value Property Revenue Comment
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Resolution Strategy Code
----------------------------
1 - Modification 6 - DPO 10 - Deed in Lieu Of
2 - Foreclosure 7 - REO Foreclosure
3 - Bankruptcy 8 - Resolved 11 - Full Payoff
4 - Extension 9 - Pending Return 12 - Reps and Warranties
5 - Note Sale to Master Servicer 13 - Other or TBD
- --------------------------------------------------------------------------------
Copyright 1997, Wells Fargo Bank Minnesota, N.A. Page 15 of 17
WELLS FARGO [LOGO]
WELLS FARGO BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
11000 BROKEN LAND PARKWAY
COLUMBIA, MD 21044
J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 2001-CIBC2
- -----------------------------------------
For Additional Information please contact
CTSLink Customer Service
(301) 815-6600
Reports Available on the World Wide Web
@ www.ctslink.com/cmbs
- -----------------------------------------
Payment Date: 08/15/2001
Record Date: 07/31/2001
- -------------------------------------------------------------------------------
MODIFIED LOAN DETAIL
- ------------------------------------------------------------------------------------------------------------------------------------
Offering
Loan Document Pre-Modification
Number Cross-Reference Balance Modification Date Modification Description
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Totals
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Copyright 1997, Wells Fargo Bank Minnesota, N.A. Page 16 of 17
WELLS FARGO [LOGO]
WELLS FARGO BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
11000 BROKEN LAND PARKWAY
COLUMBIA, MD 21044
J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 2001-CIBC2
- -----------------------------------------
For Additional Information please contact
CTSLink Customer Service
(301) 815-6600
Reports Available on the World Wide Web
@ www.ctslink.com/cmbs
- -----------------------------------------
Payment Date: 08/15/2001
Record Date: 07/31/2001
LIQUIDATED LOAN DETAIL
- -------------------------------------------------------------------------------------------------
Final Recovery Offering Gross Proceeds
Loan Determination Document Appraisal Appraisal Actual Gross as a % of
Number Date Cross-Reference Date Value Balance Proceeds Actual Balance
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Current Total
- -------------------------------------------------------------------------------------------------
Cumulative Total
- -------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Aggregate Net Net Proceeds Repurchased
Loan Liquidation Liquidation as a % of Realized by Seller
Number Expenses* Proceeds Actual Balance Loss (Y/N)
- -----------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Current Total
- ------------------------------------------------------------------------------------------------
Cumulative Total
- ------------------------------------------------------------------------------------------------
* Aggregate liquidation expenses also include outstanding P & I advances and
unpaid fees (servicing, trustee, etc.).
- --------------------------------------------------------------------------------
Copyright 1997, Wells Fargo Bank Minnesota, N.A. Page 17 of 17
[THIS PAGE INTENTIONALLY LEFT BLANK]
ANNEX D
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered J.P. Morgan
Chase Commercial Mortgage Securities Corp. Mortgage Pass-Through Certificates,
Series 2001-CIBC2, Class A1, Class A2, Class A3, Class B, Class C and Class D
(the "Global Securities") will be available only in book-entry form. Investors
in the Global Securities may hold interests in such Global Securities through
any of DTC, Clearstream or Euroclear. Initial settlement and all secondary
trades will settle in same day funds. Capitalized terms used but not defined in
this Annex G have the meanings assigned to them in the Prospectus Supplement
and the Prospectus.
Secondary market trading between investors holding interests in Global
Securities through Clearstream and Euroclear will be conducted in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice. Secondary market trading between investors
holding interests in Global Securities through DTC will be conducted according
to the rules and procedures applicable to U.S. corporate debt obligations.
Secondary cross-market trading between investors holding interests in
Global Securities through Clearstream or Euroclear and investors holding
interests in Global Securities through DTC Participants will be effected on a
delivery-against-payment basis through the respective depositories of
Clearstream and Euroclear (in such capacity) and other DTC Participants.
Although DTC, Euroclear and Clearstream are expected to follow the
procedures described below in order to facilitate transfers of interests in the
Global Securities among participants of DTC, Euroclear and Clearstream, they
are under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Issuer nor the
Trustee will have any responsibility for the performance by DTC, Euroclear and
Clearstream or their respective participants or indirect participants of their
respective obligations under the rules and procedures governing their
obligations.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
The Global Securities will be registered in the name of Cede & Co. as
nominee of DTC. Investors' interests in the Global Securities will be
represented through financial institutions acting on their behalf as direct and
indirect Participants in DTC. Clearstream and Euroclear will hold positions on
behalf of their participants through their respective depositories, which in
turn will hold such positions in accounts as DTC Participants.
Investors electing to hold interests in Global Securities through DTC
Participants, rather than through Clearstream or Euroclear accounts, will be
subject to the settlement practices applicable to similar issues of
pass-through certificates. Investors' securities custody accounts will be
credited with their holdings against payment in same-day funds on the
settlement date.
Investors electing to hold interests in Global Securities through
Clearstream or Euroclear accounts will follow the settlement procedures
applicable to conventional eurobonds, except that there will be no temporary
global security and no "lock-up" or restricted period. Interests in Global
Securities will be credited to the securities custody accounts on the
settlement date against payment in same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
D-1
Transfers between DTC Participants. Secondary market trading between DTC
Participants will be settled using the DTC procedures applicable to similar
issues of pass-through certificates in same-day funds.
Transfers between Clearstream and/or Euroclear Participants. Secondary
market trading between Clearstream Participants or Euroclear Participants
and/or investors holding interests in Global Securities through them will be
settled using the procedures applicable to conventional eurobonds in same-day
funds.
Transfers between DTC seller and Clearstream or Euroclear purchaser. When
interests in Global Securities are to be transferred on behalf of a seller from
the account of a DTC Participant to the account of a Clearstream Participant or
a Euroclear Participant for a purchaser, the purchaser will send instructions
to Clearstream or Euroclear through a Clearstream Participant or a Euroclear
Participant at least one business day prior to settlement. Clearstream or the
Euroclear Operator will instruct its respective depository to receive an
interest in the Global Securities against payment. Payment will include
interest accrued on the Global Securities from and including the last
distribution date to but excluding the settlement date. Payment will then be
made by the respective depository to the DTC Participant's account against
delivery of an interest in the Global Securities. After such settlement has
been completed, such interest will be credited to the respective clearing
system, and by the clearing system, in accordance with its usual procedures, to
the Clearstream Participant's or Euroclear Participant's account. The credit of
such interest will appear on the next business day and the cash debit will be
back-valued to, and the interest on the Global Securities will accrue from, the
value date (which would be the preceding day when settlement occurred in New
York). If settlement is not completed through DTC on the intended value date
(i.e., the trade fails), the Clearstream or Euroclear cash debit will be valued
instead as of the actual settlement date.
Clearstream Participants and Euroclear Participants will need to make
available to the respective clearing system the funds necessary to process
same-day funds settlement. The most direct means of doing so is to pre-position
funds for settlement from cash on hand, in which case such Clearstream
Participants or Euroclear Participants will take on credit exposure to
Clearstream or the Euroclear Operator until interests in the Global Securities
are credited to their accounts one day later.
As an alternative, if Clearstream or the Euroclear Operator has extended a
line of credit to them, Clearstream Participants or Euroclear Participants can
elect not to pre-position funds and allow that credit line to be drawn upon.
Under this procedure, Clearstream Participants or Euroclear Participants
receiving interests in Global Securities for purchasers would incur overdraft
charges for one day, to the extent they cleared the overdraft when interests in
the Global Securities were credited to their accounts. However, interest on the
Global Securities would accrue from the value date. Therefore, the investment
income on the interest in the Global Securities earned during that one-day
period would tend to offset the amount of such overdraft charges, although this
result will depend on each Clearstream Participant's or Euroclear Participant's
particular cost of funds.
Since the settlement through DTC will take place during New York business
hours, DTC Participants are subject to DTC procedures for transferring
interests in Global Securities to the respective depository of Clearstream or
Euroclear for the benefit of Clearstream Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the seller settling the sale through a DTC
Participant, a cross-market transaction will settle no differently than a sale
to a purchaser settling through a DTC Participant.
Finally, intra-day traders that use Clearstream Participants or Euroclear
Participants to purchase interests in Global Securities from DTC Participants
or sellers settling through them for delivery to Clearstream Participants or
Euroclear Participants should note that these trades will automatically fail on
the sale side unless affirmative action is taken. At least three techniques
should be available to eliminate this potential condition:
(a) borrowing interests in Global Securities through Clearstream or
Euroclear for one day (until the purchase side of the intra-day trade is
reflected in the relevant Clearstream or Euroclear accounts) in accordance
with the clearing system's customary procedures;
D-2
(b) borrowing interests in Global Securities in the United States from a
DTC Participant no later than one day prior to settlement, which would give
sufficient time for such interests to be reflected in the relevant
Clearstream or Euroclear accounts in order to settle the sale side of the
trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at least
one day prior to the value date for the sale to the Clearstream Participant
or Euroclear Participant.
Transfers between Clearstream or Euroclear seller and DTC purchaser. Due
to time zone differences in their favor, Clearstream Participants and Euroclear
Participants may employ their customary procedures for transactions in which
interests in Global Securities are to be transferred by the respective clearing
system, through the respective depository, to a DTC Participant. The seller
will send instructions to Clearstream or the Euroclear Operator through a
Clearstream Participant or a Euroclear Participant at least one business day
prior to settlement. Clearstream or Euroclear will instruct its respective
depository, to credit an interest in the Global Securities to the DTC
Participant's account against payment. Payment will include interest accrued on
the Global Securities from and including the last distribution date to but
excluding the settlement date. The payment will then be reflected in the
account of the Clearstream Participant or Euroclear Participant the following
business day, and receipt of the cash proceeds in the Clearstream Participant's
or Euroclear Participant's account would be back-valued to the value date
(which would be the preceding day, when settlement occurred through DTC in New
York). If settlement is not completed on the intended value date (i.e., the
trade fails), receipt of the cash proceeds in the Clearstream Participant's or
Euroclear Participant's account would instead be valued as of the actual
settlement date.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A Beneficial Owner of Global Securities holding securities through
Clearstream or Euroclear (or through DTC if the holder has an address outside
the United States) will be subject to the 30% U.S. withholding tax that
generally applies to payments of interest (including original issue discount)
on registered debt issued by U.S. Persons, unless (i) each clearing system,
bank or other financial institution that holds customers' securities in the
ordinary course of its trade or business in the chain of intermediaries between
such Beneficial Owner and the U.S. entity required to withhold tax complies
with applicable certification requirements and (ii) such beneficial owner takes
one of the following steps to obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8BEN). Beneficial Owners of
Certificates that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8BEN (Certificate of Foreign Status).
Non-U.S. Persons that are Beneficial Owners residing in a country that has a
tax treaty with the United States can obtain an exemption or reduced tax rate
(depending on the treaty terms) by filing Form W-8BEN. If the information shown
on Form W-8BEN changes, a new Form W-8BEN must be filed within 30 days of such
change.
Exemption for non-U.S. Persons with effectively connected income (Form
W-8ECI). A non-U.S. Person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States can obtain an exemption
from the withholding tax by filing Form W-8ECI (Exemption from Withholding of
Tax on Income Effectively Connected with the Conduct of a Trade or Business in
the United States).
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Beneficial Owner of a
Global Security or, in the case of a Form W-8BEN or a Form W-8ECI filer, his
agent, files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8BEN is effective for three calendar
years and Form W-8ECI is effective for three calendar years.
D-3
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership or other entity treated as a
corporation or partnership for federal income tax purposes created or organized
in or under the laws of the United States, any State thereof or the District of
Columbia or (iii) an estate the income of which is includable in gross income
for United States tax purposes, regardless of its source or (iv) a trust if a
court within the United States is able to exercise primary supervision of the
administration of the trust and one or more United States fiduciaries have the
authority to control all substantial decisions of the trust. This summary does
not deal with all aspects of U.S. Federal income tax withholding that may be
relevant to foreign holders of the Global Securities. Investors are advised to
consult their own tax advisors for specific tax advice concerning their holding
and disposing of the Global Securities.
D-4
PROSPECTUS
Mortgage Pass-Through Certificates
(Issuable in Series)
[GRAPHIC OMITTED]
J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES CORP.
DEPOSITOR
J.P. Morgan Chase Commercial Mortgage Securities Corp. will periodically offer
certificates in one or more series. Each series of certificates will represent
the entire beneficial ownership interest in a trust fund. Distributions on the
certificates of any series will be made only from the assets of the related
trust fund.
The certificates of each series will not represent an obligation of the
depositor, any servicer or any of their respective affiliates. 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 prospectus supplement.
The primary asset of the trust fund may include:
o multifamily and commercial mortgage loans, including participations
therein;
o mortgage-backed securities evidencing interests in or secured by
multifamily and commercial mortgage loans, including participations
therein, and other mortgage-backed securities;
o direct obligations of the United States or other government agencies; or
o a combination of the assets described above.
INVESTING IN THE OFFERED CERTIFICATES INVOLVES RISKS. YOU SHOULD REVIEW THE
INFORMATION APPEARING UNDER THE CAPTION "RISK FACTORS" ON PAGE 9 AND IN THE
RELATED PROSPECTUS SUPPLEMENT BEFORE PURCHASING ANY OFFERED CERTIFICATE.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE CERTIFICATES OR DETERMINED THAT
THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
July 13, 2001
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
We provide information to you about the certificates in two separate
documents that provide progressively more detail:
o this prospectus, which provides general information, some of which may
not apply to your series of certificates; and
o the accompanying prospectus supplement, which describes the specific
terms of your series of certificates.
IF THE DESCRIPTION OF YOUR CERTIFICATES IN THE ACCOMPANYING PROSPECTUS
SUPPLEMENT DIFFERS FROM THE RELATED DESCRIPTION IN THIS PROSPECTUS, YOU SHOULD
RELY ON THE INFORMATION IN THAT PROSPECTUS SUPPLEMENT.
This prospectus may not be used to consummate sales of the offered certificates
of any series unless accompanied by the prospectus supplement for such series.
Some capitalized terms used in this prospectus are defined in the Glossary
attached hereto.
---------------------
Until 90 days after the date of each prospectus supplement, all dealers
effecting transactions in the offered certificates covered by such prospectus
supplement 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.
You should rely only on any information or representations contained or
incorporated by reference in this prospectus and the related prospectus
supplement. This prospectus and any prospectus supplement do not constitute an
offer to sell or a solicitation of an offer to buy any securities in any state
or other jurisdiction in which such offer would be unlawful.
TABLE OF CONTENTS
PAGE
-----
Prospectus ......................................................................... 1
Important Notice About Information Presented in this Prospectus and the Accompanying
Prospectus Supplement ............................................................. 2
Additional Information ............................................................. 3
Incorporation of Certain Information by Reference .................................. 3
Summary of Prospectus .............................................................. 4
Risk Factors ....................................................................... 9
Description of the Trust Funds ..................................................... 19
Use of Proceeds .................................................................... 24
Yield Considerations ............................................................... 24
The Depositor ...................................................................... 27
Description of the Certificates .................................................... 28
Description of the Agreements ...................................................... 35
Description of Credit Support ...................................................... 50
Certain Legal Aspects of the Mortgage Loans and the Leases ......................... 53
Federal Income Tax Consequences .................................................... 68
ERISA Considerations ............................................................... 96
Legal Investment ................................................................... 98
Plan of Distribution ............................................................... 100
Legal Matters ...................................................................... 101
Financial Information .............................................................. 101
Rating ............................................................................. 101
Glossary of Terms .................................................................. 102
2
ADDITIONAL INFORMATION
The depositor has filed with the Securities and Exchange 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 do not contain all of the
information set forth in the registration statement. For further information,
you should refer to the registration statement and the exhibits attached
thereto. Such registration statement and exhibits can be inspected and copied
at prescribed rates at the public reference facilities maintained by the
Securities and Exchange 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, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661; and New York Regional Office, Seven World Trade
Center, New York, New York 10048. The Securities and Exchange Commission
maintains a web site at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants, including
J.P. Morgan Chase Commercial Mortgage Securities Corp., that file
electronically with the Securities and Exchange Commission.
The depositor will file or cause to be filed with the Securities and
Exchange Commission such periodic reports with respect to each trust fund as
are required under the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Securities and Exchange Commission thereunder.
Because of the limited number of certificateholders expected for each series,
the depositor anticipates that a significant portion of such reporting
requirements will be permanently suspended following the first fiscal year for
the related trust fund.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
We are incorporating herein by reference all documents and reports 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. You may obtain, without charge, a copy of any
or all documents or reports incorporated herein by reference, to the extent
such documents or reports relate to an offered certificate. Exhibits to those
documents will be provided to you only if such exhibits were specifically
incorporated by reference in those documents. Requests to the depositor should
be directed in writing to J.P. Morgan Chase Commercial Mortgage Securities
Corp., c/o J.P. Morgan Chase & Co., 60 Wall Street, New York, New York
10260-0060, Attention: Secretary.
3
SUMMARY OF PROSPECTUS
The following summary is a brief description of the main terms of the
offered certificates. For this reason, the summary does not contain all the
information that may be important to you. You will find a detailed description
of the terms of the offered certificates following this summary and in the
accompanying prospectus supplement.
The Trust Assets............ Each series of certificates will represent in
the entire beneficial ownership interest in a
trust fund consisting primarily of any of the
following:
o mortgage assets;
o collection accounts;
o forms of credit support; and
o cash flow agreements.
The Mortgage Assets......... The mortgage assets with respect to each series
of certificates may consist of any of the
following:
o multifamily and commercial mortgage loans,
including participations therein;
o direct obligations of the United States or
other government agencies; and
o mortgage-backed 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 other person. The
mortgage loans will be primarily secured by
first or junior liens on, or security interests
in fee simple, leasehold or a similar interest
in any of the following types of properties:
o residential properties consisting of five or
more rental or cooperatively owned dwelling
units;
o office buildings;
o retail buildings or centers;
o hotels and motels;
o nursing homes;
o congregate care facilities;
o assisted living facilities;
o industrial properties;
o mini-warehouse facilities or self-storage
facilities;
o mobile home parks; and
o mixed use and other types of commercial
properties.
The mortgage loans may also be secured by
additional collateral.
4
Some or all of the mortgage loans may also be
secured by an assignment of one or more leases
of one or more lessees of all or a portion of
the related mortgaged properties. A significant
or the sole source of payments on certain
commercial loans will be the rental payments due
under the related leases.
A mortgage loan may have an interest rate that
has any of the following features:
o is fixed over its term,
o adjusts from time to time,
o is partially fixed and partially floating,
o is floating based on one or more indices,
o may be converted from a floating to a fixed
interest rate,
o may be converted from a fixed to a floating
interest rate, or
o interest is not paid currently but is accrued
and added to the principal balance.
A mortgage loan may provide for any of the
following:
o scheduled payments to maturity,
o payments that adjust from time to time,
o negative amortization or accelerated
amortization,
o full amortization or require a balloon
payment due on its stated maturity date,
o prohibitions on prepayment,
o releases or substitutions of collateral,
including defeasance thereof with direct
obligation of the United States, and
o payment of a premium or a yield maintenance
penalty in connection with a principal
prepayment.
The mortgaged properties may be located anywhere
in the world. All mortgage loans will have
original terms to maturity of not more than 40
years. All mortgage loans will have been
originated by persons other than the depositor.
All mortgage assets will have been purchased,
either directly or indirectly, by the depositor
on or before the date of initial issuance of the
related series of certificates.
The mortgage-backed securities will evidence
ownership interests in or be secured by mortgage
loans similar to those described above and other
mortgage-backed securities. Some mortgage-backed
securities may be guaranteed or insured by an
affiliate of the depositor, the Federal Home
Loan Mortgage Corporation, the Federal National
Mortgage Association, the Government National
Mortgage Association, or any other person
specified in the prospectus supplement.
5
Collection Accounts......... Each trust fund will include one or more
accounts established and maintained on behalf of
the certificateholders. All payments and
collections received or advanced with respect to
the mortgage assets and other assets in the trust
fund will be deposited into those accounts. The
accounts may be maintained as an interest bearing
or a non-interest bearing account, and funds may
be held as cash or reinvested.
Credit Support.............. The following types of credit support may be
used to enhance the likelihood of distributions
on certain classes of certificates:
o subordination of junior certificates,
o letters of credit,
o insurance policies,
o guarantees,
o reserve funds, or
o other types of credit support described in
the prospectus supplement and a combination
of any of the above.
Cash Flow Agreements........ Cash flow agreements are used to reduce the
effects of interest rate or currency exchange
rate fluctuations on the underlying mortgage
assets and increase the likelihood of timely
distributions on the certificates. The trust fund
may include any of the following types of cash
flow agreements:
o guaranteed investment contracts,
o interest rate swap or exchange agreements,
o interest rate cap or floor agreements,
o currency exchange agreements, and
o yield supplement agreements.
Description of
Certificates................ Each series of certificates will include one or
more classes. Each series of certificates will
represent in the aggregate the entire beneficial
ownership interest in the trust fund. The offered
certificates are the classes of certificates
being offered to you pursuant to the prospectus
supplement. The non-offered certificates are the
classes of certificates not being offered to you
pursuant to the prospectus supplement.
Information on the non-offered certificates is
being provided solely to assist you in your
understanding of the offered certificates.
Distributions on
Certificates.................. The certificates may provide for different
methods of distributions to specific classes.
Any class of certificates may:
o provide for the accrual of interest thereon
based on fixed, variable or floating rates;
o be senior or subordinate to one or more other
classes of certificates with respect to
interest or principal distribution and the
allocation of losses on the assets of the
trust fund;
6
o be entitled to principal distributions, with
disproportionately low, nominal or no
interest distributions;
o be entitled to interest distributions, with
disproportionately low, nominal or no
principal distributions;
o provide for distributions of accrued interest
only after the occurrence of certain events,
such as the retirement of one or more other
classes of certificates;
o provide for distributions of principal
sequentially, based on specified payment
schedules or other methodologies; and
o provide for distributions based on a
combination of any of the above features.
Interest on each class of offered certificates
of each series will accrue at the applicable
pass-through rate on the outstanding certificate
balance or notional balance. Distributions of
interest with respect to one or more classes of
certificates may be reduced to the extent of
certain delinquencies, losses, prepayment
interest shortfalls, and other contingencies
described herein.
The certificate 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. Distributions of principal will be
made on each distribution date to the class or
classes of certificates entitled thereto until
the certificate balance of such certificates is
reduced to zero. Distributions of principal to
any class of certificates will be made on a pro
rata basis among all of the certificates of such
class.
Advances.................... A servicer may be obligated as part of its
servicing responsibilities to make certain
advances with respect to delinquent scheduled
payments and property related expenses which it
deems recoverable. The trust fund may be charged
interest for any advance. Neither the depositor
nor any of its affiliates will have any
responsibility to make such advances.
Termination................. A series of certificates may be subject to
optional early termination through the repurchase
of the mortgage assets in the related trust fund.
Registration of
Certificates................ One or more classes of the offered certificates
may initially be represented by one or more
certificates registered in the name of Cede &
Co., as the nominee of The Depository Trust
Company. If your offered certificate is so
registered, you will not be entitled to receive a
definitive certificate representing your interest
except in the event that physical certificates
are issued. Physical certificates may only be
issued under limited circumstances.
7
Tax Status of
the Certificates............ The certificates of each series will constitute
either:
o "regular interests" or "residual interests"
in a trust fund treated as a "real estate
mortgage investment conduit" under the Internal
Revenue Code of 1986, or
o interests in a trust fund treated as a
grantor trust under applicable provisions of
the Internal Revenue Code of 1986.
ERISA Considerations........ If you are a fiduciary of an employee benefit
plan or other retirement plan or arrangement that
is subject to the Employee Retirement Income
Security Act of 1974, as amended, or Section 4975
of the Internal Revenue Code of 1986, as amended,
or any person which proposes to use "plan assets"
of any of these plans to acquire any offered
certificates, you should carefully review with
your legal counsel whether the purchase or
holding of any offered certificates could give
rise to transactions not permitted under these
laws. The prospectus supplement will specify if
investment in some certificates may require a
representation that the investor is not a plan or
similar arrangement or investing on behalf of a
plan or similar arrangement or that certain
conditions are met.
Legal Investment............ The prospectus supplement will specify
whether the offered certificates will
constitute "mortgage related
securities" for purposes of the
Secondary Mortgage Market Enhancement
Act of 1984. If your investment
authority is subject to legal
restrictions you should consult your
legal counsel to determine whether and
to what extent the offered certificates
constitute legal investments for you.
Rating...................... At the date of issuance, as to each series,
each class of offered certificates will not be
rated lower than investment grade by one or more
nationally recognized statistical rating
agencies. 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.
8
RISK FACTORS
YOU SHOULD CONSIDER THE FOLLOWING RISK FACTORS, IN ADDITION TO THE RISK
FACTORS IN THE PROSPECTUS SUPPLEMENT, IN DECIDING TO PURCHASE ANY OF THE
OFFERED CERTIFICATES. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW, TOGETHER
WITH THOSE DESCRIBED IN THE PROSPECTUS SUPPLEMENT UNDER "RISK FACTORS,"
SUMMARIZE THE MATERIAL RISKS RELATING TO YOUR CERTIFICATES.
Your ability to resell certificates You may not be able to resell your
may be limited because of certificates and the value of your
their characteristics certificates may be less than you
anticipated for a variety of reasons
including:
o A secondary market for your
certificates does not develop;
o Interest rate fluctuations;
o The absence of redemption
rights;
o The availability of other
mortgage-backed securities
including those backed by loans
on single family residential
properties; and
o The request for information in
addition to that provided in
the prospectus, the prospectus
supplement and the monthly
report to certificateholders.
The assets of the trust fund
may not be sufficient to pay
your certificates........... The certificates will not represent an
interest in or obligation of the
depositor, any servicer, or any of
their affiliates. The only obligations
with respect to the certificates or the
mortgage assets will be the obligations
of the depositor pursuant to certain
limited representations and warranties
made with respect to the mortgage
loans. Since certain representations
and warranties with respect to the
mortgage assets may have been made
and/or assigned in connection with
transfers of such mortgage assets prior
to the closing date, the rights of the
trustee and the certificateholders with
respect to such representations or
warranties will be limited to their
rights as an assignee thereof. None of
the depositor, any servicer or any
affiliate thereof will have any
obligation with respect to
representations or warranties made by
any other entity. Neither the
certificates nor the underlying
mortgage assets will be guaranteed or
insured by any governmental agency or
instrumentality, or by the depositor,
any servicer or any of their
affiliates. Proceeds of the assets
included in the related trust fund for
each series of certificates will be the
sole source of payments on the
certificates, and there will be no
recourse to the depositor or any other
entity in the event that such proceeds
are insufficient or otherwise
unavailable to make all payments
provided for under the certificates.
Unless otherwise specified in the
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.
Additionally, certain amounts remaining
in certain funds or
9
accounts may be withdrawn under certain
conditions. In the event of such withdrawal,
such amounts will not be available for future
payment of principal of or interest on the
certificates. 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 trust 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 the
prospectus supplement.
Prepayments and repurchases
of the mortgage assets
will affect the timing of
your cash flow and may
affect your yield........... Prepayments (including those caused by defaults
on the mortgage loans and repurchases for breach
of a representation or warranty) 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.
There can be no assurance as to the rate of
voluntary prepayments on the mortgage assets in
any trust fund will conform to any model
described herein or in any prospectus
supplement.
The rate of voluntary prepayments will also be
affected by:
o the voluntary prepayment terms of the
mortgage loans including prepayment lock-out
periods and prepayment premiums;
o the ability of a servicer to collect
prepayment premiums;
o then-current interest rates being charged on
similar mortgage loans; and
o the availability of mortgage credit.
If a mortgage loan is in default it may not be
possible to collect a prepayment premium. No
person will be required to pay any premium if a
mortgage loan is repurchased for a breach of a
representation or warranty.
The yield on your certificates may be less than
anticipated because the prepayment premium or
yield maintenance required under certain
prepayment scenarios may not be enforceable in
some states or under federal bankruptcy laws.
o Some courts may consider the prepayment
premium to be usurious.
10
o Even if the prepayment premium is
enforceable, we cannot assure you that
foreclosure proceeds will be sufficient
to pay the prepayment premium.
o Although the collateral substitution
provisions related to defeasance are not
supposed to be treated as a prepayment
and should not affect your certificates,
we cannot assure you that a court will
not interpret the defeasance provisions
as requiring a prepayment premium; nor
can we assure you that if it is treated
as a prepayment premium, the court will
find the defeasance income stream
enforceable.
As a result, the actual maturity of your
certificates could occur significantly earlier
than expected and additional cash flow may not
be available to offset any effect this may have
on your yield. A series of certificates may
include one or more classes of certificates with
priorities of payment and, as a result, yields
on other classes of certificates, including
classes of offered certificates, of such series
may be more sensitive to prepayments on mortgage
assets. A series of certificates may include one
or more classes offered at a significant premium
or discount. Yields on such classes of
certificates will be sensitive, and in some
cases extremely sensitive, to prepayments on
mortgage assets and, where the amount of
interest payable with respect to a class is
disproportionately high, as compared to the
amount of principal, a holder might, in some
prepayment scenarios, fail to recoup its
original investment.
Ratings do not guarantee payment
and do not address prepayment
risks....................... Any rating assigned by a rating agency to a
class of certificates will reflect such rating
agency's assessment solely of the likelihood that
holders of certificates of such class will
receive payments to which such certificateholders
are entitled under the related agreement. Ratings
do not address:
o the likelihood that principal prepayments
(including those caused by defaults) on
the related mortgage assets will be made;
o the degree to which the rate of such
prepayments might differ from that
originally anticipated;
o the likelihood of early optional
termination of the series of
certificates;
o the possibility that prepayment at higher
or lower rates than anticipated by an
investor may cause such investor to
experience a lower than anticipated
yield; or
o that an investor purchasing a certificate
at a significant premium might fail to
recoup its initial investment under
certain prepayment scenarios.
The amount, type and nature of credit support, if
any, established with respect to a series of
certificates will be determined on the basis of
criteria established by each rating agency rating
classes of such series. Such criteria are
sometimes based upon
11
an actuarial analysis of the behavior of
mortgage loans in a larger group. Such analysis
is often the basis upon which each rating agency
determines the amount of credit support required
with respect to each such class. There can be no
assurance that the historical data supporting
any such actuarial analysis will accurately
reflect future experience nor any assurance that
the data derived from a large pool of mortgage
loans accurately predicts the delinquency,
foreclosure or loss experience of any particular
pool of mortgage assets. No assurance can be
given that values of any mortgaged properties
have remained or will remain at their levels on
the respective dates of origination of the
related mortgage loans. Moreover, there is no
assurance that appreciation of real estate
values generally will limit loss experiences on
the mortgaged properties. If the commercial or
multifamily residential real estate markets
should experience an overall decline in property
values such that the outstanding principal
balances of the mortgage loans underlying or
comprising the mortgage assets in a particular
trust fund and any secondary financing on the
related mortgaged properties become equal to or
greater than the value of the mortgaged
properties, the rates of delinquencies,
foreclosures and losses could be higher than
those now generally experienced by institutional
lenders. In addition, adverse economic
conditions (which may or may not affect real
property values) may affect the timely payment
by mortgagors of scheduled payments of principal
and interest on the mortgage loans and,
accordingly, the rates of delinquencies,
foreclosures and losses with respect to any
trust fund. To the extent that such losses are
not covered by the credit support, if any,
described in the prospectus supplement, such
losses will be borne, at least in part, by the
holders of one or more classes of the
certificates of the related series.
Net cash flow produced by a
mortgaged property may be
inadequate to repay the
mortgage loan................. Payment on each mortgage loan is dependent
primarily on:
o the net operating income of the related
mortgaged property; and
o at maturity (whether at scheduled
maturity or, in the event of a default
under the mortgage loan, upon the
acceleration of such maturity), the
market value of the related mortgaged
property (taking into account any adverse
effect of a foreclosure proceeding on
such market value) or the ability of the
related mortgagor to refinance the
mortgage loan.
If a mortgage loan has a relatively high loan to
value ratio or relatively low debt service
coverage ratio, a foreclosure sale is less likely
to provide enough money to satisfy the
outstanding debt. Therefore, the servicer may
have to modify the mortgage loans that it is
servicing in order to try to maximize recoveries.
However, such flexibility may not result in a
greater recovery on a net present value basis
than liquidation.
12
Nonrecourse loans limit
the remedies available
following a mortgagor
default..................... The mortgage loans will not be an obligation
of, or be insured or guaranteed by, any
governmental entity, by any private mortgage
insurer, or by the depositor, the originators,
the Servicers, the Trustee or any of their
respective affiliates.
Each mortgage loan generally is a nonrecourse
loan. If there is a default (other than a
default resulting from voluntary bankruptcy,
fraud or willful misconduct) there will
generally only be recourse against the specific
properties and other assets that have been
pledged to secure such mortgage loan. Even if a
mortgage loan provides for recourse to a
mortgagor or its affiliates, it is unlikely the
trust fund ultimately could recover any amounts
not covered by the mortgaged property.
Future cash flows and
property values
are not predictable......... Commercial and multifamily property values and
cash flows are volatile and may be insufficient
to cover debt service on the related mortgage
loan at any given time. If the cash flow from a
mortgaged property is reduced (for example, if
leases are not obtained or renewed), the
mortgagor may not be able to repay the loan. Cash
flow will determine the mortgagor's ability to
cover debt service and property values affect the
ability to refinance the property and the amount
of the recovery of proceeds upon foreclosure.
Cash flow and property value depend upon a number
of factors, including:
o national, regional and local economic
conditions;
o local real estate conditions, such as an
oversupply of space similar to the
related mortgaged property;
o changes or weakness in a specific
industry segment;
o the nature of expenses:
o as a percentage of revenue;
o whether expenses are fixed or vary
with revenue; and
o the level of required capital
expenditures for proper maintenance
and demanded by tenants;
o demographic factors;
o changes required by retroactive building
or similar codes;
o capable management and adequate
maintenance;
o location;
o with respect to properties with uses
subject to significant regulation,
changes in applicable laws;
o perceptions by prospective tenants and,
if applicable, their customers, of the
safety, convenience, services and
attractiveness of the property;
o the age, construction quality and design
of a particular property; and
o whether the mortgaged properties are
readily convertible to alternative uses.
13
Poor property management will
adversely affect the
performance of the related
mortgaged property............The successful operation of a real estate project
also depends upon the performance and viability
of the property manager. Properties deriving
revenues primarily from short-term sources
generally are more management intensive than
properties leased to creditworthy tenants under
long-term leases. The property manager is
generally responsible for:
o operating the properties;
o providing building services;
o establishing and implementing the rental
structure;
o managing operating expenses;
o responding to changes in the local
market; and
o advising the mortgagor with respect to
maintenance and capital improvements.
Property managers may not be in a financial
condition to fulfill their management
responsibilities.
Certain of the mortgaged properties are managed
by affiliates of the applicable mortgagor. If a
mortgage loan is in default or undergoing special
servicing, such relationship could disrupt the
management of the underlying property. This may
adversely affect cash flow. However, the mortgage
loans generally permit the lender to remove the
property manager upon the occurrence of an event
of default, a decline in cash flow below a
specified level or the failure to satisfy some
other specified performance trigger.
The servicer will have
discretion to handle or
avoid obligor defaults in
a manner which may be
adverse to your interests....In order to maximize recoveries on defaulted
mortgage loans, a servicer will be permitted
(within prescribed parameters) to extend and
modify mortgage loans that are in default or as
to which a payment default is imminent. In
addition, a servicer may receive a workout fee
based on receipts from or proceeds of such
mortgage loans. While the servicer will be
required to follow accepted servicing standards,
there can be no assurance that such flexibility
will increase the present value of receipts from
or proceeds of mortgage loans that are in default
or as to which a payment default is imminent.
Mortgagors of commercial
mortgage loans are
sophisticated and may
take actions adverse to
your interests ............. Mortgage loans made to partnerships, corporations
or other entities may entail risks of loss from
delinquency and foreclosure that are greater than
those of mortgage loans made to individuals. The
mortgagor's sophistication and form of
organization may increase the likelihood of
protracted litigation or bankruptcy in default
situations.
14
Credit support may not
cover losses or risks
which could adversely
affect payment on
your certificates ......... The prospectus supplement for a series of
certificates will describe any credit support in
the related trust fund. Any credit support will
be limited in amount and coverage and will not
cover all potential risks. Use of credit support
will be subject to the conditions and limitations
described herein and in the 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, if so
provided in the 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 trust 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, holders of certificates evidencing
an interest in one covered trust will be subject
to the risk that the 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.
Regardless of the form of credit enhancement
provided, the amount of coverage will be limited
in amount and in most cases will be subject to
periodic reduction in accordance with a schedule
or formula. The master servicer will generally be
permitted to reduce, terminate or substitute all
or a portion of the credit enhancement for any
series of certificates, if the applicable rating
agency indicates that the then-current rating
thereof will not be adversely affected. The
rating of any series of certificates by any
applicable rating agency may be lowered following
the initial issuance thereof as a result of the
downgrading of the obligations of any applicable
credit support provider, or as a result of losses
on the related mortgage assets substantially in
excess of the levels contemplated by such rating
agency at the time of its initial rating
analysis. None of the
15
depositor, the master servicer or any of their
affiliates will have any obligation to replace
or supplement any credit enhancement, or to take
any other action to maintain any rating of any
series of certificates.
Some actions allowed by the
mortgage may be limited
by law....................... The 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. The 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.
Some of 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 the rents.
Such assignments are typically not perfected as
security interests prior to actual possession of
the cash flow. 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.
One action jurisdiction may
limit the ability of the
servicer to foreclose on
a mortgaged property........ Several states (including California) have laws
that prohibit more than one "judicial action" to
enforce a mortgage obligation, and some courts
have construed the term "judicial action"
broadly. The special servicer may need to obtain
advice of counsel prior to enforcing any of the
trust fund's rights under any of the mortgage
loans that include mortgaged properties where the
rule could be applicable.
In the case of a mortgage loan secured by
mortgaged properties located in multiple states,
the special servicer may be required to
foreclose first on properties located in states
where such "one action" rules apply (and where
non-judicial foreclosure is permitted) before
foreclosing on properties located in states
where judicial foreclosure is the only permitted
method of foreclosure.
16
Rights against tenants m
ay be limited if leases
are not subordinate to
mortgage or do not contain
attornment provisions....... Some of the tenant leases contain provisions
that require the tenant to attorn to (that is,
recognize as landlord under the lease) a
successor owner of the property following
foreclosure. Some of the leases may be either
subordinate to the liens created by the mortgage
loans or else contain a provision that requires
the tenant to subordinate the lease if the
mortgagee agrees to enter into a non-disturbance
agreement.
In some states, if tenant leases are subordinate
to the liens created by the mortgage loans and
such leases do not contain attornment
provisions, such leases may terminate upon the
transfer of the property to a foreclosing lender
or purchaser at foreclosure. Accordingly, in the
case of the foreclosure of a mortgaged property
located in such a state and leased to one or
more desirable tenants under leases that do not
contain attornment provisions, such mortgaged
property could experience a further decline in
value if such tenants' leases were terminated
(e.g., if such tenants were paying above-market
rents).
If a mortgage is subordinate to a lease, the
lender will not (unless it has otherwise agreed
with the tenant) possess the right to dispossess
the tenant upon foreclosure of the property, and
if the lease contains provisions inconsistent
with the mortgage (e.g., provisions relating to
application of insurance proceeds or
condemnation awards), the provisions of the
lease will take precedence over the provisions
of the mortgage.
If mortgaged properties
are not in compliance
with current zoning laws
you may not be able to
restore it following a
casualty loss .................Due to changes in applicable building and zoning
ordinances and codes which have come into effect
after the construction of improvements on certain
of the mortgaged properties, some improvements
may not comply fully with current zoning laws
(including density, use, parking and set-back
requirements) but qualify as permitted
non-conforming uses. Such changes may limit the
ability of the related mortgagor to rebuild the
premises "as is" in the event of a substantial
casualty loss. Such limitations may adversely
affect the ability of the mortgagor to meet its
mortgage loan obligations from cash flow.
Insurance proceeds may not be sufficient to pay
off such mortgage loan in full. In addition, if
the mortgaged property were to be repaired or
restored in conformity with then current law, its
value could be less than the remaining balance on
the mortgage loan and it may produce less revenue
than before such repair or restoration.
Inspections of the mortgaged
properties were limited..... The mortgaged properties were inspected by
licensed engineers at the time the mortgage loans
were originated to assess the structure, exterior
walls, roofing interior construction, mechanical
and electrical systems and general condition of
the site,
17
buildings and other improvements located on the
mortgaged properties. There can be no assurance
that all conditions requiring repair or
replacement have been identified in such
inspections.
Compliance with Americans
with Disabilities Act may
result in additional losses... Under the Americans with Disabilities Act of
1990, all public accommodations are required to
meet certain federal requirements related to
access and use by disabled persons. To the extent
the mortgaged properties do not comply with the
act, the mortgagors may be required to incur
costs to comply with the act. In addition,
noncompliance could result in the imposition of
fines by the federal government or an award of
damages to private litigants.
Litigation Concerns......... There may be legal proceedings pending and,
from time to time, threatened against the
mortgagors or their affiliates relating to the
business of or arising out of the ordinary course
of business of the mortgagors and their
affiliates. There can be no assurance that such
litigation will not have a material adverse
effect on the distributions to
certificateholders.
18
DESCRIPTION OF THE TRUST FUNDS
ASSETS
The primary assets of each trust fund are mortgage assets which include
(i) one or more multifamily and/or commercial mortgage loans and participations
therein, (ii) CMBS, or (iii) a combination of mortgage loans and CMBS. Mortgage
loans refers to both whole mortgage loans, participations therein and mortgage
loans underlying CMBS. No CMBS originally issued in a private placement will be
included as an asset of a trust fund until the holding period provided for
under Rule 144(k) promulgated under the Securities Act of 1933, as amended, has
expired or such CMBS have been registered under the Securities Act of 1933, as
amended. The mortgage assets 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 by any other
person. Each mortgage asset will be selected by the depositor for inclusion in
a trust fund from among those purchased, either directly or indirectly, from a
prior holder thereof, which may be an affiliate of the depositor and may or may
not be the originator of the mortgage loan or the issuer of the CMBS.
Unless otherwise specified in the prospectus supplement, the certificates
will be entitled to payment only from the assets of the related trust fund and
will not be entitled to payments on the assets of any other trust fund
established by the depositor. If specified in the prospectus supplement, the
assets of a trust fund will consist of certificates representing beneficial
ownership interests in another trust fund that contains the mortgage assets.
MORTGAGE LOANS
General
The mortgage loans will be secured by liens on mortgaged properties
consisting of (i) multifamily properties which are residential properties
consisting of five or more rental or cooperatively owned dwelling units in
high-rise, mid-rise or garden apartment buildings or (ii) commercial properties
which are office buildings, retail centers, hotels or motels, nursing homes,
congregate care facilities, industrial properties, mini-warehouse facilities or
self-storage facilities, mobile home parks, mixed use or other types of
commercial properties located in any one of the fifty states, the District of
Columbia or the Commonwealth of Puerto Rico and, if so specified in the related
prospectus supplement, anywhere else in the world. To the extent specified in
the prospectus supplement, the mortgage loans will be secured by first
mortgages or deeds of trust or other similar security instruments creating a
first lien on the mortgaged property. A multifamily property may include mixed
commercial and residential structures and may include apartment buildings owned
by Cooperatives. The mortgaged properties may include leasehold interests in
properties, the title to which is held by third party lessors. Each mortgage
loan will be originated by an originator who is a person other than the
depositor. The prospectus supplement will indicate if any originator is an
affiliate of the depositor. The mortgage loans will be evidenced by mortgage
notes secured by 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.
Leases
To the extent specified in the prospectus supplement, the commercial
properties may be leased to lessees that occupy all or a portion of these
properties. Pursuant to a lease assignment, a mortgagor may assign its rights,
title and interest as lessor along with the income derived under each lease to
the mortgagee, while retaining a license to collect the rents for so long as
there is no default. If the mortgagor defaults, the license terminates and the
mortgagee or its agent is entitled to collect the rents from the lessee for
application to the monetary obligations of the mortgagor. State law may limit
or restrict the enforcement of the lease assignments by a mortgagee until it
takes possession of the mortgaged property and/or a receiver is appointed. See
"Certain Legal Aspects of the Mortgage Loans and the Leases--Leases and Rents."
Alternatively, to the extent specified in the prospectus supplement, the
mortgagor and the mortgagee may agree that payments under leases are to be made
directly to a servicer.
19
To the extent described in the prospectus supplement, the leases may
require the lessees to pay rent that is sufficient in the aggregate to cover
all scheduled payments of principal and interest on the mortgage loans and, in
certain cases, their pro rata share of the operating expenses, insurance
premiums and real estate taxes associated with the mortgaged properties. Some
leases may require the mortgagor to bear costs associated with structural
repairs and/or the maintenance of the exterior or other portions of the
mortgaged property or provide for certain limits on the aggregate amount of
operating expenses, insurance premiums, taxes and other expenses that the
lessees are required to pay. If so specified in the prospectus supplement, the
lessees may be permitted to set off their rental obligations against the
obligations of the mortgagors under the leases. In those cases where payments
under the leases (net of any operating expenses by the mortgagors) are
insufficient to pay all of the scheduled principal and interest on the mortgage
loans, the mortgagors must rely on other income including security deposits
generated by the mortgaged property to make payments on the mortgage loan. To
the extent specified in the prospectus supplement, some commercial properties
may be leased entirely to one lessee. In such cases, absent the availability of
other funds, the mortgagor must rely entirely on rent paid by such lessee in
order for the mortgagor to pay all of the scheduled principal and interest on
the related commercial loan. To the extent specified in the prospectus
supplement, some leases may expire prior to the stated maturity of the mortgage
loan. In such cases, upon expiration of the leases the mortgagors will have to
look to alternative sources of income, including rent payment by any new
lessees or proceeds from the sale or refinancing of the mortgaged property, to
cover the payments of principal and interest due on the mortgage loans unless
the lease is renewed. As specified in the prospectus supplement, some leases
may provide that upon the occurrence of a casualty affecting a mortgaged
property, the lessee will have the right to terminate its lease, unless the
mortgagor, as lessor, is able to cause the mortgaged property to be restored
within a specified period of time. Some leases may provide that it is the
lessor's responsibility to restore the mortgaged property after a casualty to
its original condition. Some leases may provide a right of termination to the
lessee if a taking of a material or specified percentage of the leased space in
the mortgaged property occurs, or if the access to the leased space is
materially impaired.
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 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 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.
As the primary component of Net Operating Income, rental income (as well
as 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 retail centers, office buildings and industrial properties.
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 have
a disproportionately greater effect on the Net Operating Income from such
mortgaged properties than in the case of 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
mortgage loan. In some cases, leases of mortgaged properties may provide that
the lessee rather than the mortgagor, is responsible for payment of some or all
of these expenses;
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however, because leases are also subject to default risks 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 mortgage loan. See "--Leases"
above.
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, 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 in particular may be subject to legal
limitations and regulations but, because of such regulations, may also be less
sensitive to fluctuations in market rents generally.
The Debt Service Coverage Ratio should not be relied upon as the sole
measure of the risk of default of any loan, however, since other factors may
outweigh a high Debt Service Coverage Ratio. With respect to a balloon mortgage
loan, for example, the risk of default as a result of the unavailability of a
source of funds to finance the related balloon payment at maturity on terms
comparable to or better than those of the balloon mortgage loans could be
significant even though the related Debt Service Coverage Ratio is high.
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.
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 the date of appraisal), the income capitalization method (a projection of
value based upon the property's projected net cash flow), or upon an
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
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 multifamily and commercial
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 be considered by the Originators of the multifamily and
commercial loans, or that, for any of the mortgage loans, they are complete or
relevant. See "Risk Factors." Net cash flow produced by a mortgaged property
may be inadequate to repay the mortgage loan," "Nonrecourse loans limit the
remedies available following a mortgagor default. Prepayments and repurchases
of the mortgage assets will affect the timing of your cashflow and may affect
your yield. The assets of the trust fund may not be sufficient to pay your
certificates. The servicer will have discretion to handle or avoid obligor
defaults in a manner which may be adverse to your interests. Mortgagors of
commercial loans are sophisticated and may take actions adverse to your
interests.
Mortgage Loan Information in Prospectus Supplements
Each prospectus supplement will contain information with respect to the
mortgage loans, 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
21
mortgage loans (e.g., multifamily property or commercial property and the type
of property in each such category), (iii) the weighted average (by principal
balance) of the original and remaining terms to maturity of the mortgage loans,
(iv) the earliest and latest origination date and maturity date of the mortgage
loans, (v) the weighted average (by principal balance) of the Loan-to-Value
Ratios at origination of the mortgage loans, (vi) the mortgage interest rates
or range of mortgage interest rates and the weighted average mortgage interest
rate borne by the mortgage loans, (vii) the state or states in which most of
the mortgaged properties are located, (viii) information with respect to the
prepayment provisions, if any, of the mortgage loans, (ix) the weighted average
retained interest, if any, (x) with respect to ARM Loans, the index, the
frequency of the adjustment dates, the highest, lowest and weighted average
note margin and pass-through margin, and the maximum mortgage interest rate or
monthly payment variation at the time of any adjustment thereof and over the
life of the ARM Loan and the frequency of such monthly payment adjustments,
(xi) the Debt Service Coverage Ratio either at origination or as of a more
recent date (or both) and (xii) information regarding the payment
characteristics of the mortgage loans, including without limitation balloon
payment and other amortization provisions. The 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 "--Mortgage
Loans--Default and Loss Considerations with Respect to the Mortgage Loans"
above. If specific information respecting the mortgage loans is not known to
the Depositor at the time the certificates are initially offered, more general
information of the nature described above will be provided in the prospectus
supplement, and specific information will 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.
Payment Provisions of the Mortgage Loans
Unless otherwise specified in the prospectus supplement, all of the
mortgage loans will (i) have original terms to maturity of not more than 40
years and (ii) 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 prospectus supplement. Each mortgage loan may provide
for no accrual of interest or for accrual of interest thereon at an interest
rate that is fixed over its term or that adjusts from time to time, or that is
partially fixed and partially floating, or that may be converted from a
floating to a fixed interest rate, or from a fixed to a floating interest rate,
from time to time pursuant to an election or as otherwise specified on the
related Mortgage Note, 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 interest 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 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 prospectus supplement. Each mortgage loan may
contain a Lock-out Period and a Lock-out Date, or require a Prepayment Premium
in connection with a prepayment, in each case as described in the prospectus
supplement. In the event that holders of any class or classes of certificates
will be entitled to all or a portion of any Prepayment Premiums collected in
respect of the mortgage loans, the 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 Equity Participations,
as described in the prospectus supplement. In the event that holders of any
class or classes of certificates will be entitled to all or a portion of an
Equity Participation, the 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.
CMBS
Distributions of any principal or interest, as applicable, will be made on
CMBS on the dates specified in the prospectus supplement. The CMBS may be
issued in one or more classes with characteristics similar to the classes of
certificates described in this prospectus.
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Enhancement in the form of reserve funds, subordination or other forms of
credit support similar to that described for the certificates under
"Description of Credit Support" may be provided with respect to the CMBS. The
type, characteristics and amount of such credit support will be a function of
certain characteristics of the mortgage loans or underlying CMBS and other
factors and generally will be established for the CMBS on the basis of
requirements of either any rating agency that may have assigned a rating to the
CMBS or the initial purchasers of the CMBS.
The prospectus supplement for a series of certificates evidencing
interests in mortgage assets that include CMBS will specify, to the extent
available, (i) the aggregate approximate initial and outstanding principal
amount or notional amount, as applicable, and type of the CMBS to be included
in the trust fund, (ii) the original and remaining term to stated maturity of
the CMBS, if applicable, (iii) whether such CMBS is entitled only to interest
payments, only to principal payments or to both, (iv) the pass-through or bond
rate of the CMBS or formula for determining such rates, if any, (v) the
applicable payment provisions for the CMBS, including, but not limited to, any
priorities, payment schedules and subordination features, (vi) the related
issuer, servicer and trustee, as applicable, (vii) certain characteristics of
the credit support, if any, such as subordination, reserve funds, insurance
policies, letters of credit or guarantees relating to the underlying mortgage
loans, the underlying CMBS or directly to such CMBS, (viii) the terms on which
the underlying mortgage loans or underlying CMBS or the CMBS may, or are
required to, be purchased prior to their maturity, (ix) the terms on which
mortgage loans or underlying CMBS may be substituted for those originally
underlying the CMBS, (x) the servicing fees payable under the related servicing
agreement, (xi) to the extent available to the depositor, the type of
information in respect of the underlying mortgage loans described under
"--Mortgage Loans--Mortgage Loan Information in Prospectus Supplements" above,
and the type of information in respect of the CMBS described in this paragraph,
(xii) the characteristics of any cash flow agreements that are included as part
of the trust fund evidenced or secured by the CMBS and (xiii) whether the CMBS
is in certificated form, book-entry form or held through a depository such as
The Depository Trust Company or the Participants Trust Company.
ACCOUNTS
Each trust fund will include one or more accounts established and
maintained on behalf of the certificateholders into which the person or persons
designated in the prospectus supplement will deposit all payments and
collections received or advanced with respect to the mortgage assets and other
assets in the trust fund. Such an account may be maintained as an interest
bearing or a non-interest bearing account, and funds held therein may be held
as cash or reinvested. See "Description of the Agreement --Distribution Account
and Other Collection Accounts."
CREDIT SUPPORT
If so provided in the prospectus supplement, partial or full protection
against some types of defaults and losses on the trust 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 classes of
certificates in the 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. 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 each series
of certificates. See "Risk Factors--Credit support may not cover losses or
risks which could adversely affect payment on your certificates" 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
23
fluctuations on the mortgage assets or on one or more classes of certificates.
The principal terms of any such 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.
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 and to pay for certain
expenses incurred in connection with such purchase of trust assets and sale of
certificates. 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 and the weighted average
life of the mortgage assets in the related trust fund (which may be affected by
prepayments, defaults, liquidations or repurchases). See "Risk Factors."
PASS-THROUGH RATE
Certificates of any class within a series may have fixed, variable or
floating 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 certificates or, in the case of a variable
or floating 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.
The effective yield to maturity to each holder of certificates entitled to
payments of interest will be below that otherwise produced by the applicable
Pass-Through Rate and purchase price of such certificate because, while
interest may accrue on each mortgage asset during a certain period, the
distribution of such interest will be made on a day which may be several days,
weeks or months following the period of accrual.
TIMING OF PAYMENT OF INTEREST
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. As indicated above under "The Pass-Through Rate," 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
a distribution date. In addition, if so specified in the 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 the
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 prospectus
supplement.
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PAYMENTS OF 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 voluntary prepayments by the mortgagors,
insurance proceeds, condemnations and involuntary liquidations). Such payments
may be directly dependent upon the payments on leases underlying the mortgage
loans. 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 interest rates on the mortgage loans comprising or
underlying the mortgage assets in a particular trust fund, the mortgage loans
are likely to be the subject of higher principal prepayments than if prevailing
rates remain at or above the rates borne by the mortgage loans. In this regard,
it should be noted that some mortgage assets may consist of mortgage loans with
different mortgage interest rates and the stated pass-through or pay-through
interest rate of some CMBS 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 by the existence of Lock-out Periods and
Prepayment Premium provisions of the mortgage loans underlying or comprising
the mortgage assets, and by the extent to which the servicer of any mortgage
loan is able to enforce these 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 the rate actually experienced on the mortgage
assets, the actual yield to maturity will be lower than the rate thus
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 the rate actually experienced on
the mortgage assets, the actual yield to maturity will be higher than that so
calculated. In either case, if so provided in the prospectus supplement for a
series of certificates, the effect on yield on one or more classes of the
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 these classes.
When a full prepayment is made on a mortgage loan, the mortgagor is
charged interest on the principal amount of the mortgage loan prepaid for the
number of days in the month actually elapsed up to the date of the prepayment.
Unless otherwise specified in the prospectus supplement, the effect of
prepayments in full will be to reduce the amount of interest paid in the
following month to holders of certificates entitled to payments of interest
because interest on the principal amount of any mortgage loan so prepaid will
be paid only to the date of prepayment rather than for a full month. Unless
otherwise specified in the prospectus supplement, a partial prepayment of
principal is applied so as to reduce the outstanding principal balance of the
related mortgage loan as of the due date in the month in which such partial
prepayment is received. As a result, unless otherwise specified in the
prospectus supplement, the effect of a partial prepayment on a mortgage loan
will be to reduce the amount of interest passed through to holders of
certificates in the month following the receipt of partial prepayment by an
amount equal to one month's interest at the applicable Pass-Through Rate on the
prepaid amount.
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 a trust fund and the rate at which payments are made from any
credit support or cash flow agreement for a series of
25
certificates may affect the ultimate maturity and the weighted average life of
each class of such certificates. 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.
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 balance thereof is
scheduled to be reduced to zero, calculated on the basis of the assumptions
applicable to the Series.
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, which may be in the form of scheduled amortization or
prepayments.
In addition, the weighted average life of the certificates may be affected
by the varying maturities of the mortgage loans comprising or underlying the
CMBS. If any mortgage loans comprising or underlying the mortgage assets in a
particular trust fund have actual terms to maturity of less than those assumed
in calculating final scheduled distribution dates for the classes of
certificates of the related series, one or more classes of certificates may be
fully paid prior to their respective final scheduled distribution dates, even
in the absence of prepayments. Accordingly, the prepayment experience of the
mortgage assets will, to some extent, be a function of the mix of mortgage
interest rates and maturities of the mortgage loans comprising or underlying
the mortgage assets. See "Description of the Trust Funds."
Prepayments on loans are also commonly measured relative to a prepayment
standard or model such as CPR, a constant prepayment rate model. Neither CPR
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 was 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.
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 the 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 the 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 or at such other rates specified in
the 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 or any other rate specified in the related prospectus
supplement.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
Type of Mortgage Asset
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 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
26
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 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
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 the 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 mortgaged property. With respect to any whole loans,
unless otherwise provided in the prospectus supplement, the master servicer, on
behalf of the trust fund, will be required to exercise (or waive its right to
exercise) any right that the trustee may have as mortgagee to accelerate
payment of the whole loan in a manner consistent with the Servicing Standard.
See "Certain Legal Aspects of the Mortgage Loans and the Leases--Due-on-Sale
and Due-on-Encumbrance" and "Description of the Agreements--Due-on-Sale and
Due-on-Encumbrance Provisions."
Single Mortgage Loan or Single Mortgagor
The mortgage assets in a particular trust fund may consist of a single
mortgage loan or obligations of a single mortgagor or related mortgagors as
specified in the related prospectus supplement. Assumptions used with respect
to the prepayment standards or models based upon analysis of the behavior of
mortgage loans in a larger group will not necessarily be relevant in
determining prepayment experience on a single mortgage loan or with respect to
a single mortgagor.
THE DEPOSITOR
J.P. Morgan Chase Commercial Mortgage Securities Corp., the depositor, is
an indirect wholly-owned subsidiary of J.P. Morgan Chase & Co. and was
incorporated in the State of Delaware on September 19, 1994. The principal
executive offices of the Depositor are located at 60 Wall Street, New York, New
York 10260-0060. Its telephone number is (212) 648-3636.
The depositor does not have, nor is it expected in the future to have, any
significant assets.
27
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 based on fixed, variable or floating rates;
(ii) include senior certificates or subordinate certificates; (iii) Stripped
Principal Certificates; (iv) Stripped Interest Certificates; (v) Accrual
Certificates; (vi) provide for payments of principal sequentially, based on
specified payment schedules, from only a portion of the trust assets in the
trust fund or based on specified calculations, to the extent of available
funds, in each case as described in the related prospectus supplement; and/or
(vii) provide for distributions based on a combination of two or more
components thereof with one or more of the characteristics described in this
paragraph including a Stripped Principal Certificate component and a Stripped
Interest Certificate component. 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 balances or, in case of Stripped
Interest Certificates, notional amounts or percentage interests 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 the registration of a 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 as physical
certificates or as book-entry certificates, as provided in the related
prospectus supplement. See "Description of the Certificates--Book-Entry
Registration and Physical Certificates." Physical certificates will be
exchangeable for other certificates of the same class and series of a like
aggregate certificate balance, notional amount or percentage interest but of
different authorized denominations. See "Risk Factors--Your ability to resell
certificates may be limited because of their characteristics" and "The assets
of the trust fund may not be sufficient to pay your certificates."
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 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 a record date specified in the prospectus supplement, and the
amount of each distribution will be determined as of the close of business on
the determination date specified in the 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 the class
or by random selection, as described in the prospectus supplement or otherwise
established by the trustee. Payments will be made either by wire transfer in
immediately available funds to the account of a certificateholder at a bank or
other entity having appropriate facilities therefor, if such certificateholder
has so notified the trustee or other person required to make such payments no
later than the date specified in the prospectus supplement (and, if so provided
in the prospectus supplement, holds certificates in the requisite amount
specified therein), or by check mailed to the address of the person entitled to
such payments as it appears on the certificate register; provided, however,
that the final distribution in retirement of the certificates (whether physical
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
All distributions on the certificates of each series on each distribution
date will be made from the Available Distribution Amount, in accordance with
the terms described in the prospectus supplement. Unless provided otherwise in
the prospectus supplement, the Available Distribution Amount for each
distribution date equals the sum of the following amounts:
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(i) the total amount of all cash on deposit in the related distribution
account as of the corresponding determination date, including servicer
advances, net of any scheduled payments due and payable after the
distribution date;
(ii) interest or investment income on amounts on deposit in the
distribution account, including any net amounts paid under any cash flow
agreements; and
(iii) to the extent not on deposit in the related Distribution account as
of the corresponding Determination Date, any amounts collected under, from
or in respect of any credit support with respect to the distribution date.
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 may have a different Pass-Through Rate. The
prospectus supplement will specify the Pass-Through Rate for each class or
component or, in the case of a variable or floating Pass-Through Rate, the
method for determining the Pass-Through Rate. Unless otherwise specified in the
related 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 Interest for that class and distribution date, subject
to the sufficiency of the portion of the available distribution amount
allocable to the class on the distribution date. Prior to the time interest is
distributable on any class of Accrual Certificates, the amount of Accrued
Certificate Interest otherwise distributable on the 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), the 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, the 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 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 the accrual
period on the mortgage loans comprising or underlying the mortgage assets in
the trust fund for the 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 prospectus supplement.
The 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 trust fund. Unless otherwise provided in the prospectus
supplement, any reduction in the amount of the Accrued Certificate Interest
otherwise distributable on a class of certificates by reason of the allocation
to that class of a portion of any deferred
29
interest on the mortgage loans comprising or underlying the mortgage assets in
the trust fund will result in a corresponding increase in the certificate
balance of the class. See "Risk Factors--Prepayments and repurchases of the
mortgage assets will affect the timing of your cash flow and may affect your
yield."
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
The certificates of each series, other than certain classes of Stripped
Interest Certificates, will have a certificate 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
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 prospectus supplement, by the amount of losses incurred in respect of the
related mortgage assets. The certificate balance may be increased in respect of
deferred interest on the mortgage loans to the extent provided in the
prospectus supplement and, in the case of Accrual Certificates prior to the
distribution date on which distributions of interest are required to commence,
will be increased by any Accrued Certificate Interest. Unless otherwise
provided in the prospectus supplement, the initial aggregate certificate
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 balance of a
series and each class thereof will be specified in the prospectus supplement.
Unless otherwise provided in the 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
the prospectus supplement until the certificate balance of that class has been
reduced to zero. Stripped Interest Certificates with no certificate balance are
not entitled to any distributions of principal.
COMPONENTS
To the extent specified in the prospectus supplement, distribution on a
class of certificates may be based on a combination of two or more different
components as described under "General" above. To that extent, the descriptions
set forth under "Distributions of Interests on the Certificates" and
"Distributions of Principal of the Certificates" above also relate to
components of such a class of certificates. In such case, reference in those
sections to certificate balance and Pass-Through Rate refer to the principal
balance, if any, of any of the components and the Pass-Through Rate, if any, on
any component, respectively.
DISTRIBUTIONS ON THE CERTIFICATES OF PREPAYMENT
If so provided in the prospectus supplement, Prepayment Premiums or
payments in respect of Equity Participations that are collected on the mortgage
assets in the 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 the 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 the prospectus supplement.
See "Description of Credit Support" for a description of the types of
protection that may be included in shortfalls on mortgage assets comprising the
trust fund.
ADVANCES IN RESPECT OF DELINQUENCIES
With respect to any series of certificates evidencing an interest in a
trust fund, unless otherwise provided in the prospectus supplement, a servicer
or another entity described therein 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 distribution account that are not included in the
Available Distribution Amount for such
30
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
and Retained Interest) that were due on the whole loans in the trust fund and
were delinquent on the related determination date, subject to the servicer's
(or another entity's) good faith determination that such advances will be
reimbursable from the loan proceeds. In the case of a series of certificates
that includes one or more classes of subordinate certificates and if so
provided in the prospectus supplement, each servicer's (or another entity's)
advance obligation may be limited only to the portion of such delinquencies
necessary to make the required distributions on one or more classes of senior
certificates and/or may be subject to the servicer's (or another entity's) good
faith determination that such advances will be reimbursable not only from the
loan proceeds but also from collections on other trust assets otherwise
distributable on one or more classes of 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 prospectus supplement, advances of a servicer's (or another
entity's) funds will be reimbursable only out of recoveries on the mortgage
loans (including amounts received under any form of credit support) respecting
which advances were made 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 advance will be
reimbursable from any amounts in the distribution account prior to any
distributions being made on the certificates to the extent that a servicer (or
such other entity) shall determine in good faith that such advance is not
ultimately recoverable from the Related Proceeds or, if applicable, from
collections on other trust assets otherwise distributable on the Subordinate
Certificates. If advances have been made by a servicer from excess funds in the
Distribution account, the servicer is required to replace such funds in the
Distribution account on any future distribution date to the extent that funds
in the Distribution account on that distribution date are less than payments
required to be made to certificateholders on such date. If so specified in the
prospectus supplement, the obligations of a servicer (or another entity) to
make advances may be secured by a cash advance reserve fund, a surety bond, a
letter of credit or another form of limited guaranty. If applicable,
information regarding the characteristics of, and the identity of any obligor
on, any such surety bond, will be set forth in the prospectus supplement.
If and to the extent so provided in the prospectus supplement, a servicer
(or another entity) 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 trust assets prior to any
payment to certificateholders or as otherwise provided in the related agreement
and described in the prospectus supplement.
The prospectus supplement for any series of certificates evidencing an
interest in a trust fund that includes CMBS will describe any corresponding
advancing obligation of any person in connection with such CMBS.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise provided in the prospectus supplement, with each
distribution to holders of any class of certificates of a series, the master
servicer or the trustee, as provided in the prospectus supplement, will forward
or make available to each certificateholder, to the Depositor and to such other
parties as may be specified in the related agreement, a statement setting
forth, in each case to the extent applicable and available:
(i) the amount of the distribution to holders of certificates of such
class applied to reduce the certificate balance thereof;
(ii) the amount of the distribution to holders of certificates of such
class allocable to Accrued Certificate Interest;
(iii) the amount of the distribution allocable to (a) Prepayment Premiums
and (b) payments on account of Equity Participations;
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(iv) the amount of related servicing compensation received by each
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;
(v) the aggregate amount of advances included in the distribution, and
the aggregate amount of any unreimbursed advances at the close of business
on the distribution date;
(vi) the aggregate principal balance of the mortgage assets at the close
of business on the distribution date;
(vii) the number and aggregate principal balance of whole 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 (d) foreclosure proceedings have been commenced;
(viii) with respect to each whole loan that is delinquent two or more
months, (a) the loan number, (b) the unpaid balance, (c) whether the
delinquency is in respect of any balloon payment, (d) the aggregate amount
of unreimbursed servicing expenses and unreimbursed advances, (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;
(ix) with respect to any whole loan liquidated during the related Due
Period (other than by payment in full), (a) the loan number, (b) the manner
in which it was liquidated and (c) the aggregate amount of liquidation
proceeds received;
(x) with respect to any whole loan liquidated during the related Due
Period, (a) the portion of such liquidation proceeds payable or
reimbursable to each servicer (or any other entity) in respect of the
mortgage loan and (b) 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 a reporting period, (a) the
loan number of the related mortgage loan and (b) the date of acquisition;
(xii) with respect to each REO Property relating to a whole loan and
included in the trust fund as of the end of a reporting period, (a) the
fair market value based on the most recent appraisal obtained by a
servicer, (b) 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), (c) the
aggregate amount of unreimbursed servicing expenses and unreimbursed
advances and (d) if applicable, the aggregate amount of interest accrued
and payable on related servicing expenses and related advances;
(xiii) with respect to any REO Property sold during a reporting period
(a) the loan number of the related mortgage loan, (b) the aggregate amount
of sale proceeds, (c) the portion of the sales proceeds payable or
reimbursable to each 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;
(xiv) 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 the distribution date,
separately identifying any reduction in the 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;
(xv) the aggregate amount of principal prepayments made during a
reporting period;
32
(xvi) the aggregate Accrued Certificate Interest and unpaid Accrued
Certificate Interest, if any, on each class of certificates at the close of
business on the distribution date;
(xvii) in the case of certificates with a variable Pass-Through Rate, the
Pass-Through Rate applicable to the distribution date, and, if available,
the immediately succeeding distribution date, as calculated in accordance
with the method specified in the prospectus supplement;
(xviii) in the case of certificates with a floating Pass-Through Rate,
for statements to be distributed in any month in which an adjustment date
occurs, the floating Pass-Through Rate applicable to such distribution date
and the immediately succeeding distribution date as calculated in
accordance with the method specified in the prospectus supplement;
(xix) 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
(xx) 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.
In the case of information furnished pursuant to subclauses (i)-(iv)
above, the amounts shall be expressed as a dollar amount per minimum
denomination of certificates or for such other specified portion thereof. In
addition, in the case of information furnished pursuant to subclauses (i),
(ii), (xiv), (xvi) and (xvii) above, such amounts shall also be provided with
respect to each component, if any, of a class of certificates. The master
servicer or the trustee, as specified in the prospectus supplement, will
forward to each holder and to the depositor, a copy of any statements or
reports received by the master servicer or the trustee, as applicable, with
respect to any CMBS. 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 or the trustee, as provided in the 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)-(iv) above, aggregated for such calendar year or the applicable
portion thereof during which such person was a certificateholder. This
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 Internal Revenue Code as are from time to time in force.
Unless and until physical certificates are issued, or unless otherwise
provided in the prospectus supplement, such statements or reports will be
forwarded by the master servicer or the trustee to Cede & Co. Such statements
or reports may be available to beneficial owners upon request to DTC or their
respective participant or indirect participant. In addition, the trustee shall
furnish a copy of any such statement or report to any beneficial owner who
requests a copy and certifies to the trustee or the master servicer, as
applicable, that he or she is the beneficial owner of a certificate. See
"Description of the Certificates--Book-Entry Registration and Physical
certificates."
TERMINATION
The obligations created by the agreements for each series of certificates
will terminate upon the payment to certificateholders of that series of all
amounts held in the Distribution account or by any servicer, if any, or the
trustee and required to be paid to them pursuant to those agreements 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 whole 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 prospectus
supplement. In no event, however, will the trust created by the agreements
continue beyond the date specified in the prospectus supplement. Written notice
of termination of the agreements 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.
33
If so specified in the 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 provided in the
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 or purchase such class or classes at a price set forth in the
prospectus supplement, in each case, under the circumstances and in the manner
set forth therein.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the prospectus supplement, one or more classes of the
offered certificates of any series will be issued as book-entry certificates,
and each such class will be represented by one or more single certificates
registered in the name of a nominee for DTC.
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 Uniform Commercial Code ("UCC") 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 and facilitate the clearance and settlement
of securities transactions between participants through electronic book-entry
changes in their accounts, thereby eliminating the need for physical movement
of certificates. Participants include J.P. Morgan Securities Inc., securities
brokers and dealers, 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 participant, either
directly or indirectly.
Unless otherwise provided in the 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 as beneficial owners, that is, through participants and indirect
participants. In addition, such beneficial owners will receive all
distributions on the Book-Entry Certificates through DTC and its participants.
Under a book-entry format, beneficial owners will receive payments after the
related distribution date because, while payments are required to be forwarded
to Cede & Co., as nominee for DTC, on each such date DTC will forward payments
to its participants which thereafter will be required to forward them to
indirect participants or beneficial owners. Unless otherwise provided in the
prospectus supplement, the only certificateholder will be Cede & Co., as
nominee of DTC, and the beneficial owners will not be recognized by the trustee
as certificateholders under the agreements. Beneficial owners will be permitted
to exercise the rights of certificateholders under the related agreements only
indirectly through the participants who in turn will exercise their rights
through DTC. Under the rules, regulations and procedures creating and affecting
DTC and its operations, DTC is required to make book-entry transfers among
participants on whose behalf it acts with respect to the Book-Entry
Certificates and is required to receive and transmit distributions of principal
of and interest on the Book-Entry Certificates. Participants and indirect
participants with which beneficial owners have accounts with respect to the
Book-Entry Certificates similarly are required to make book-entry transfers and
receive and transmit such payments on behalf of their respective beneficial
owners.
Because DTC can act only on behalf of participants, who in turn act on
behalf of indirect participants and certain banks, the ability of a beneficial
owner to pledge its interest in the 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 the Book-Entry Certificates, may be limited due
to the lack of a physical certificate evidencing such interest.
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. Under DTC's procedures, DTC will take actions
permitted to be taken by holders of any class of Book-Entry Certificates under
the pooling and servicing agreement only at the direction of one or more
participants to whose account the Book-Entry Certificates are
34
credited and whose aggregate holdings represent no less than any minimum amount
of voting rights required therefor. Therefore, beneficial owners will only be
able to exercise their voting rights to the extent permitted, and subject to
the procedures established, by their participant and/or indirect participant,
as applicable. DTC may take conflicting actions with respect to any action of
certificateholders of any class to the extent that participants authorize such
actions. None of the servicers, the depositor, the trustee or any of their
respective affiliates will have any liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
the Book-Entry Certificates, or for maintaining, supervising or reviewing any
records relating to those beneficial ownership interests.
Unless otherwise specified in the prospectus supplement, physical
certificates that are initially issued in book-entry form will be issued in
fully registered, certificated form to beneficial 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 properly discharge its
responsibilities as depository with respect to the 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.
Upon the occurrence of either of the events described in the immediately
preceding paragraph, DTC is required to notify all participants of the
availability through DTC of physical certificates for the beneficial owners.
Upon surrender by DTC of the certificate or certificates representing the
Book-Entry Certificates, together with instructions for reregistration, the
trustee will issue to the beneficial owners identified in the instructions the
physical certificates to which they are entitled, and thereafter the trustee
will recognize the holders of such physical certificates as certificateholders
under the agreement.
DESCRIPTION OF THE AGREEMENTS
The certificates of each series evidencing interests in a trust fund
including whole loans will be issued pursuant to a pooling and servicing
agreement among the depositor, a master servicer, if specified in the
prospectus supplement, a special servicer and the trustee. The certificates of
each series evidencing interests in a trust fund not including whole loans will
be issued pursuant to a trust agreement between the depositor and a trustee.
The master servicer, any special servicer and the trustee with respect to any
series of certificates will be named in the related prospectus supplement. In
lieu of appointing a master servicer, a servicer may be appointed pursuant to
the Pooling and Servicing Agreement for any trust fund. The mortgage loans
shall be serviced pursuant to the terms of the Pooling and Servicing Agreement
and, if specified in the prospectus supplement, a servicing agreement among the
depositor (or an affiliate thereof), a master servicer, a special servicer and
a primary servicer. A manager or administrator may be appointed pursuant to the
trust agreement for any trust fund to administer the trust fund. 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. Any trust agreement will
generally conform to the form of pooling and servicing agreement filed
herewith, but will not contain provisions with respect to the servicing and
maintenance of whole loans. 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 agreements 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
agreements 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 agreements
(without exhibits) relating to any series of certificates without charge upon
written request of a holder of a certificate of such series addressed to the
trustee specified in the related prospectus supplement.
ASSIGNMENT OF ASSETS; REPURCHASES
At the time of issuance of any series of certificates, the depositor will
assign to the designated trustee the trust assets to be included in the related
trust fund, together with all principal and interest to be
35
received on or with respect to such trust assets after the cut-off date
specified in the prospectus supplement, 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 trust assets and the other assets comprising the
trust fund for that 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 whole loan included in the related
trust fund, including without limitation, the address of the related mortgaged
property and type of such property, the mortgage interest rate and, if
applicable, the applicable index, margin, adjustment date and any rate cap
information, the original and remaining term to maturity, the original and
outstanding principal balance and balloon payment, if any, the Loan-to-Value
Ratio as of the date indicated and prepayment provisions, if applicable, and
(ii) in respect of each CMBS included in the related trust fund, including
without limitation, the names of the issuer, servicer and 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 and
outstanding principal amount and payment provisions, if applicable.
With respect to each mortgage loan, the Depositor will deliver 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, in blank or 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. Notwithstanding the foregoing, a trust fund
may include mortgage loans where the original mortgage note is not delivered to
the trustee if the depositor delivers to the trustee or the custodian a copy or
a duplicate original of the mortgage note, together with an affidavit
certifying that the original thereof has been lost or destroyed. With respect
to such mortgage loans, the trustee may not be able to enforce the mortgage
note against the related borrower. Unless otherwise provided in the related
prospectus supplement, the related agreements will require that the depositor
or another party specified therein promptly cause each such assignment of
mortgage to be recorded in the appropriate public office for real property
records, except in 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 mortgage loan against the claim of any subsequent transferee or any
successor to or creditor of the depositor, the master servicer, the relevant
asset sellers or any other prior holder of the whole loan.
The trustee (or a custodian) will review such whole loan documents within
a specified period of days after receipt thereof, and the trustee (or a
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 notify the depositor.
If the Depositor cannot cure the omission or defect within a specified number
of days after receipt of such notice, then unless otherwise specified in the
related prospectus supplement, the depositor 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
available to the certificateholders or the trustee for omission of, or a
material defect in, a constituent document. To the extent specified in the
related prospectus supplement, in lieu of curing any omission or defect in the
mortgage asset or repurchasing or substituting for such mortgage asset, the
depositor may agree to cover any losses suffered by the trust fund as a result
of such breach or defect.
If so provided in the related prospectus supplement, the depositor will,
as to some or all of the mortgage loans, assign or cause to be assigned to the
trustee the related lease assignments. In certain cases, the trustee, or
servicer, as applicable, may collect all moneys under the related leases and
distribute amounts, if any, required under the lease for the payment of
maintenance, insurance and taxes, to the extent specified in the related lease
agreement. The trustee, or if so specified in the prospectus supplement, the
master servicer, as agent for the trustee, may hold the lease in trust for the
benefit of the certificateholders.
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With respect to each CMBS in certificated form, the depositor will deliver
or cause to be delivered to the trustee (or the custodian) the original
certificate or other definitive evidence of such CMBS together with bond power
or other instruments, certifications or documents required to transfer fully
such CMBS to the trustee for the benefit of the certificateholders. With
respect to each CMBS in uncertificated or book-entry form or held through a
"clearing corporation" the depositor and the trustee will cause such CMBS to be
registered directly or on the books of such clearing corporation or of a
financial intermediary in the name of the trustee for the benefit of the
certificateholders. Unless otherwise provided in the related prospectus
supplement, the related trust agreement will require that either the depositor
or the trustee promptly cause any CMBS in certificated form not registered in
the name of the trustee to be re-registered, with the applicable persons, in
the name of the trustee.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
Unless otherwise provided in the prospectus supplement the depositor, or
another party specified therein, will, with respect to each mortgage loan, make
as of a specified date covering, by way of example, the following types of
matters: (i) the accuracy of the information set forth for such mortgage 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
mortgage loan; (iv) the payment status of the mortgage 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, if other than the depositor, shall be an asset
sellers or an affiliate thereof or such other person acceptable to the
depositor and shall be identified in the related prospectus supplement.
Representations and warranties made in respect of a mortgage 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 the
mortgage loan.
Unless otherwise specified in the prospectus supplement, in the event of a
breach of any representation or warranty, the warranting party will be
obligated to reimburse the trust fund for losses caused by any such breach or
either cure the 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 reimbursement, 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.
The warranting 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, the
Agreements 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 loan that
materially and adversely affects the value of the whole loan or the interests
therein of the certificateholders. If the warranting party cannot cure such
breach within a specified period following the date on which the party was
notified of the breach, then the warranting party will be obligated to
repurchase the whole 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 mortgage 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
interest rate from the date as to which interest was last paid to the due date
in the period specified in the agreement in which the relevant purchase is to
occur, plus certain servicing expenses that are reimbursable to each 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 the series
of certificates, to cause the removal of that mortgage loan from the trust fund
and substitute in its place one or more other mortgage loans,
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in accordance with the standards described in the related prospectus
supplement. If so provided in the prospectus supplement for a series, a
warranting party, rather than repurchase or substitute a whole loan as to which
a breach has occurred, will have the option to reimburse the trust fund or the
certificateholders for any losses caused by the breach. Unless otherwise
specified in the related prospectus supplement, this reimbursement, 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 any 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 mortgage loans.
Unless otherwise provided in the related prospectus supplement the
warranting party will, with respect to a trust fund that includes CMBS, make or
assign certain representations or warranties, as of a specified date, with
respect to the CMBS, covering (i) the accuracy of the information set forth
therefor on the schedule of mortgage assets appearing as an exhibit to the
related agreement and (ii) the authority of the warranting party to sell such
mortgage assets. The related prospectus supplement will describe the remedies
for a breach thereof.
Each 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 in a pooling and
servicing agreement of a master servicer or special 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 a
breach to the servicer by the trustee or the depositor, or to the servicer, the
depositor and the trustee by the holders of certificates evidencing not less
than 25% of the voting rights (unless otherwise specified in the related
prospectus supplement), will constitute an event of default under the pooling
and servicing agreement. See "Events of Default" and "Rights Upon Event of
Default."
ACCOUNTS
General
Each servicer and/or the trustee will, as to each trust fund, establish
and maintain one or more separate accounts for the collection of payments on
the related mortgage assets, which must generally, among others 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 so that the certificateholders have a
claim with respect to the funds on account or a perfected first priority
security interest against any collateral securing these funds that is superior
to the claims of any other depositors or general creditors of the institution
with which the 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 that series. The collateral
eligible to secure amounts in an account is limited to United States government
securities and other investment grade obligations specified in the agreement as
permitted investments. An 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 permitted investments under the agreement.
Unless otherwise provided in the prospectus supplement, any interest or other
income earned on funds in an account will be paid to a servicer or its designee
as additional servicing compensation. An account may be maintained with an
institution that is an affiliate of a servicer 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, an 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 a servicer or serviced or master
serviced by it on behalf of others.
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Deposits
Unless otherwise provided in the related prospectus supplement, the
primary servicer will deposit in an account on a daily basis, unless otherwise
provided in the related agreement, the following payments and collections
received, or advances made, by the primary servicer:
(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 servicer as its servicing compensation;
(iii) all proceeds of the hazard, business interruption and general
liability insurance policies to be maintained in respect of each mortgaged
property securing a whole 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
servicer, subject to the terms and conditions of the related mortgage and
mortgage note) and all insurance proceeds of rental interruption policies,
if any, insuring against losses arising from the failure of lessees under a
lease to make timely rental payments because of certain casualty events and
all other liquidation proceeds received and retained in connection with the
liquidation of defaulted mortgage loans in the trust fund, by foreclosure,
condemnation or otherwise, 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 advances made as described under "Description of the
Certificates--Advances in Respect of Delinquencies";
(v) any amounts representing prepayment premiums;
(vi) any amounts received from a special servicer; but excluding any
proceeds from REO Properties and penalties or modification fees which may
be retained by the primary servicer. Proceeds shall be maintained in an
account by the special servicer.
Once a month the special servicer remits funds on deposit in the account
each maintains together with any advances to the master servicer for deposit in
an account maintained by the master servicer.
Withdrawals
A servicer may, from time to time, unless otherwise provided in the
related agreement and described in the prospectus supplement, make withdrawals
from an account for each trust fund for any of the following purposes:
(i) to reimburse a 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 servicer as late collections of interest
on and principal of the particular whole loans with respect to which the
advances were made;
(ii) to reimburse a servicer for unpaid servicing fees earned and certain
unreimbursed servicing expenses incurred with respect to whole loans 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 whole loans and properties, and net income
collected on the particular properties, with respect to which such fees
were earned or such expenses were incurred;
(iii) to reimburse a servicer for any advances described in clause (i)
above and any servicing expenses described in clause (ii) above which, in
the master servicer's good faith judgment, will not be recoverable from the
amounts described in clauses (i) and (ii), respectively, such reimbursement
to be made from amounts collected on other trust assets or, if and to the
extent so provided by the related agreement and described in the prospectus
supplement, just from that portion of amounts collected on other trust
assets that is otherwise distributable on one or more classes of
subordinate certificates, if any, remain outstanding, and otherwise any
outstanding class of certificates, of the related series;
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(iv) if and to the extent described in the related prospectus supplement,
to pay a servicer interest accrued on the advances described in clause (i)
above and the servicing expenses described in clause (ii) above while these
remain outstanding and unreimbursed;
(v) unless otherwise provided in the related prospectus supplement, to
pay a servicer, as additional servicing compensation, interest and
investment income earned in respect of amounts held in the account; and
(vi) to make any other withdrawals permitted by the related agreement and
described in the related prospectus supplement.
If and to the extent specified in the prospectus supplement amounts may be
withdrawn from any account to cover additional costs, expenses or liabilities
associated with: the preparation of environmental site assessments with respect
to, and for containment, clean-up or remediation of hazardous wastes and
materials, 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; if one or more elections have been made to
treat the trust fund or designated portions thereof as a "real estate mortgage
investment conduit", 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--REMICS--Prohibited Transactions Tax
and Other Taxes"; retaining an independent appraiser or other expert in real
estate matters to determine a fair sale price for a defaulted whole loan or a
property acquired in respect thereof in connection with the liquidation of that
whole loan or property; and obtaining various opinions of counsel pursuant to
the related agreement for the benefit of certificateholders.
Distribution Account
Unless otherwise specified in the related prospectus supplement, the
trustee will, as to each trust fund, establish and maintain, or cause to be
established and maintained, one or more distribution accounts. The trustee will
also deposit or cause to be deposited in a distribution account the following
amounts:
(i) 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";
(ii) any amounts paid under any cash flow agreement, as described under
"Description of the trust funds--Cash Flow Agreements";
(iii) all proceeds of any trust asset or, with respect to a whole loan,
property acquired in respect thereof purchased by the depositor, any asset
sellers or any other specified person, and all proceeds of any mortgage
asset purchased as described under "Description of the
Certificates--Termination" (also, "Liquidation Proceeds");
(iv) any other amounts required to be deposited in the distribution
account as provided in the related agreement and described in the related
prospectus supplement.
The trustee may, from time to time, unless otherwise provided in the
related agreements and described in the related prospectus supplement, make a
withdrawal from a distribution account to make distributions to the
certificateholders on each distribution date.
Other Collection Accounts
Notwithstanding the foregoing, if so specified in the prospectus
supplement, the Agreement for any series of certificates may provide for the
establishment and maintenance of a separate collection account into which the
master servicer or any related primary servicer or special servicer will
deposit on a daily basis the amounts described under "--Deposits" above for one
or more series of certificates. Any amounts on deposit in any such collection
account will be withdrawn therefrom and deposited into the appropriate
Distribution account by a time specified in the related prospectus supplement.
To the extent specified in the prospectus supplement, any amounts which could
be withdrawn from the Distribution
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account as described under "--Withdrawals" above, may also be withdrawn from
any such collection account. The prospectus supplement will set forth any
restrictions with respect to any collection account, including investment
restrictions and any restrictions with respect to financial institutions with
which any such collection account may be maintained.
COLLECTION AND OTHER SERVICING PROCEDURES
Primary Servicer
The master servicer or if so specified in the property supplement, a
primary servicer is required to make reasonable efforts to collect all
scheduled payments under the mortgage loans and will follow such collection
procedures as it would follow with respect to mortgage loans that are
comparable to the mortgage loans and held for its own account, provided such
procedures are consistent with (i) the terms of the related agreement, (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.
The servicer will also be required to perform other customary functions of
a servicer of comparable loans, including maintaining (or causing the mortgagor
or lessee on each mortgage or lease to maintain) hazard, business interruption
and general liability insurance policies (and, if applicable, rental
interruption 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 mortgage loan;
processing assumptions or substitutions in accordance with the servicing
standard; attempting to cure delinquencies; supervising foreclosures;
inspecting mortgaged properties under certain circumstances; and maintaining
accounting records relating to the mortgage loans.
Master Servicer
If so specified in the related prospectus supplement, the master servicer
shall monitor the actions of the primary servicer and the special servicer to
confirm compliance with the agreements.
Unless otherwise specified in the related prospectus supplement, a master
servicer, as servicer of the mortgage loans, on behalf of itself, the trustee
and the certificateholders, will present claims to the obligor under each
instrument of credit support, and will take all reasonable steps necessary to
receive payment or to permit recovery thereunder with respect to defaulted
mortgage loans. See "Description of Credit Support."
If a master servicer or its designee recovers payments under any
instrument of credit support with respect to any defaulted mortgage loan, the
master servicer will be entitled to withdraw or cause to be withdrawn from the
Distribution account out of such proceeds, prior to distribution to
certificateholders, amounts representing its normal servicing compensation on
the mortgage loan, unreimbursed servicing expenses incurred with respect to the
mortgage loan and any unreimbursed advances of delinquent payments made with
respect to the mortgage loan. See "Hazard Insurance Policies" and "Description
of Credit Support."
Special Servicer
A mortgagor's failure to make required payments may reflect inadequate
income or the diversion of that income from the service of payments due under
the mortgage loan, and may call into question that 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 prospectus supplement,
upon the occurrence of any of the following servicing transfer events with
respect to a mortgage loan, servicing for such mortgage loan will be
transferred from the primary servicer to the special servicer and the loan will
thereafter be designated as a specially serviced mortgage loan:
(a) the mortgage loan becomes a defaulted mortgage loan,
(b) the occurrence of certain events indicating the possible
insolvency of the mortgagor,
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(c) the receipt by the primary servicer of a notice of foreclosure of
any other lien on the related mortgaged property,
(d) the master servicer or the primary servicer determines that a
payment default is imminent,
(e) with respect to a balloon mortgage loan, no assurances have been
given as to the ability of the mortgagor to make the final payment
thereon, or
(f) the occurrence of certain other events constituting defaults
under the terms of the mortgage loan.
The special servicer is required to monitor any mortgage 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 any other actions consistent with the servicing standard. A
significant period of time may elapse before the special servicer is able to
assess the success of such corrective action or the need for additional
initiatives.
The time within which the special 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 mortgage 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 special servicer in certain cases may not be permitted to
accelerate a mortgage loan or to foreclose on a mortgaged property for a
considerable period of time. See "Certain Legal Aspects of the Mortgage Loans
and the Leases."
Any agreement relating to a trust fund that includes mortgage 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 mortgage 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 prospectus
supplement. The 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."
The special servicer may agree to modify, waive or amend any term of any
specially serviced mortgage 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
mortgage loan or (ii) in its judgment, materially impair the security for the
mortgage loan or reduce the likelihood of timely payment of amounts due
thereon. The special servicer also may agree to any modification, waiver or
amendment that would so affect or impair the payments on, or the security for,
a mortgage loan if, unless otherwise provided in the related prospectus
supplement, (i) in its judgment, a material default on the mortgage 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 mortgage loan on a present value basis than would
liquidation. The special servicer is required to notify the trustee in the
event of any modification, waiver or amendment of any mortgage loan.
The special 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 mortgage loan by operation of law or otherwise, if such
action is consistent with the servicing standard and a default on the mortgage
loan has occurred or, in the special servicer's judgment, is imminent. Unless
otherwise specified in the related prospectus supplement, the special servicer
may not acquire title to any related 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"
42
of the mortgaged property within the meaning of certain federal environmental
laws, unless the special servicer has previously determined, based on a report
prepared by a person who regularly conducts environmental audits (which report
will be an expense of the trust fund), that:
(i) the mortgaged property is in compliance with applicable
environmental laws; or if not, that taking such actions as are necessary
to bring the mortgaged property in compliance therewith is reasonably
likely to produce a greater recovery on a present value basis, after
taking into account any risks associated therewith, than not taking such
actions; and
(ii) 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
that, if any such materials are present, taking such action with respect
to the affected mortgaged property is reasonably likely to produce a
greater recovery on a present value basis, after taking into account any
risks associated therewith, than not taking such actions.
Unless otherwise provided in the related prospectus supplement, if title
to any mortgaged property is acquired by a trust fund as to which a REMIC
election has been made, the special servicer, on behalf of the trust fund, will
be required to sell the mortgaged property not later than the end of the third
calendar year following the year of acquisition, unless (i) the Internal
Revenue Service grants an extension of time to sell such property or (ii) the
trustee receives an opinion of independent counsel to the effect that the
holding of the property by the trust fund subsequent to the end of the third
year following the year in which such acquisition occurred will not result in
the imposition of a tax on the trust fund or cause the trust fund to fail to
qualify as a REMIC under the Code at any time that any certificate is
outstanding. Subject to the foregoing, the special servicer will be required to
(i) solicit bids or offers 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 or offer received from any person that
constitutes a fair price.
If the trust fund acquires title to any mortgaged property, the special
servicer, on behalf of the trust fund, may retain an independent contractor to
manage and operate the property. The retention of an independent contractor,
however, will not relieve the special servicer of any of its obligations with
respect to the management and operation of the mortgaged property. Unless
otherwise specified in the related prospectus supplement, any 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 provisions
of the Code (if a REMIC election has been made with respect to the related
trust fund) 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 the
Mortgage Loans and the Leases--Foreclosure."
If recovery on a defaulted mortgage loan under any related instrument of
credit support is not available, the special 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
mortgage loan. If the proceeds of any liquidation of the property securing the
defaulted mortgage loan are less than the outstanding principal balance of the
defaulted mortgage loan plus interest accrued thereon at the mortgage interest
rate plus the aggregate amount of expenses incurred by the special servicer in
connection with such proceedings and which are reimbursable under the
agreement, the trust fund will realize a loss in the amount of that difference.
The servicers will be entitled to withdraw or cause to be withdrawn from a
related account out of the liquidation proceeds recovered on any defaulted
mortgage loan, prior to the distribution of the liquidation proceeds to
certificateholders, amounts representing its normal servicing compensation on
the mortgage loan, unreimbursed servicing expenses incurred with respect to the
mortgage loan and any unreimbursed advances of delinquent payments made with
respect to the mortgage loan with interest thereon.
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HAZARD INSURANCE POLICIES
Unless otherwise specified in the related prospectus supplement, each
agreement for a trust fund that includes whole loans will require the primary
servicer to cause the mortgagor on each whole loan to maintain a hazard
insurance policy providing for the coverage required under the related
mortgage. Unless otherwise specified in the prospectus supplement, the coverage
will be in general in an amount equal to the amount necessary to fully
compensate for any damage or loss to the improvements on the mortgaged property
on a replacement cost basis, but 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 primary 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 primary
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 primary servicer's normal servicing procedures, subject to
the terms and conditions of the related mortgage and Mortgage Note) will be
deposited in a related account.
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), 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, the co-insurance
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 the improvements.
The Agreements for a trust fund that includes whole loans will require the
primary servicer to cause the mortgagor on each whole loan, or, in certain
cases, the related lessee, to maintain all other insurance coverage with
respect to the related mortgaged property as is consistent with the terms of
the mortgage, which insurance may typically include flood insurance (if the
mortgaged property was located at the time of origination in a federally
designated flood area).
In addition, to the extent required by the related mortgage, the primary
servicer may require the mortgagor or lessee to maintain other forms of
insurance including, but not limited to, loss of rent endorsements, business
interruption insurance and comprehensive public liability insurance. Any cost
incurred by the master servicer in maintaining any such insurance policy will
be added to the amount owing under the mortgage loan where the terms of the
mortgage loan so permit; provided, however, that the addition of such cost will
not be taken into account for purposes of calculating the distribution to be
made to certificateholders. Such costs may be recovered by a servicer from a
related account, with interest thereon, as provided by the agreements.
RENTAL INTERRUPTION INSURANCE POLICY
If so specified in the related prospectus supplement, the primary servicer
or the mortgagors will maintain rental interruption insurance policies in full
force and effect with respect to some or all of the leases. Although the terms
of such policies vary to some degree, a rental interruption insurance policy
typically provides that, to the extent that a lessee fails to make timely
rental payments under the lease due
44
to a casualty event, such losses will be reimbursed to the insured. If so
specified in the related prospectus supplement, the primary servicer will be
required to pay from its servicing compensation the premiums on the rental
interruption policy on a timely basis. If so specified in the prospectus
supplement, if the rental interruption policy is canceled or terminated for any
reason (other than the exhaustion of total policy coverage), the primary
servicer will exercise its best reasonable efforts to obtain from another
insurer a replacement policy comparable to the rental interruption policy with
a total coverage that is equal to the then existing coverage of the terminated
rental interruption policy; provided that if the cost of any such replacement
policy is greater than the cost of the terminated rental interruption policy,
the amount of coverage under the replacement policy will, unless otherwise
specified in the prospectus supplement, be reduced to a level such that the
applicable premium does not exceed, by a percentage that may be set forth in
the prospectus supplement, the cost of the rental interruption policy that was
replaced. Any amounts collected by the primary servicer under the rental
interruption policy in the nature of insurance proceeds will be deposited in a
related account.
FIDELITY BONDS AND ERRORS AND OMISSIONS INSURANCE
Unless otherwise specified in the related prospectus supplement, the
Agreements will require that the servicers obtain and maintain in effect a
fidelity bond or similar form of insurance coverage (which may provide blanket
coverage) or any combination thereof insuring against loss occasioned by fraud,
theft or other intentional misconduct of the officers and employees of the
servicer. The related agreements will allow a servicer to self-insure against
loss occasioned by the errors and omissions of the officers, employees and
agents of the master servicer or the special servicer so long as certain
criteria set forth in the agreements are met.
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 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 primary servicer, on behalf of the trust fund, will exercise
any right the trustee may have as mortgagee to accelerate payment of any whole
loan or to withhold its consent to any transfer or further encumbrance. Unless
otherwise specified in the related prospectus supplement, any fee collected by
or on behalf of the primary servicer for entering into an assumption agreement
will be retained by or on behalf of the primary servicer as additional
servicing compensation. See "Certain Legal Aspects of the Mortgage Loans and
the Leases--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 initial 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. 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, each
servicer's primary servicing compensation with respect to a series of
certificates will come from the periodic payment to it of a portion of the
interest payment on each mortgage asset. Since any Retained Interest and a
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 assets. 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, a servicer 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 a related account.
45
The 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 and managing of the mortgage assets, 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 prospectus supplement. Certain other expenses,
including expenses relating to defaults and liquidations on the whole 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.
EVIDENCE AS TO COMPLIANCE
Each pooling and servicing agreement will provide that on or before a
specified date in each year, beginning on a date specified therein, 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 Attestation Program
for Mortgage Bankers, the servicing by or on behalf of each servicer was
conducted in compliance with the terms of such agreements except for any
exceptions the Uniform Single Attestation Program for Mortgage Bankers requires
it to report.
Each pooling and servicing agreement will also provide for delivery to the
trustee, on or before a specified date in each year, of an annual statement
signed by an officer of each servicer to the effect that the servicer has
fulfilled its obligations in all material respects under the agreement
throughout the preceding calendar year or other specified twelve-month period.
Unless otherwise provided in the related prospectus supplement, copies of
such annual accountants' statement and statements of officers will be
obtainable by certificateholders and beneficial owners without charge upon
written request to the master servicer at the address set forth in the
prospectus supplement; provided that such beneficial owner shall have certified
to the master servicer that he or she is the beneficial owner of a certificate.
CERTAIN MATTERS REGARDING EACH SERVICER AND THE DEPOSITOR
The master servicer and the special servicer, or a servicer for
substantially all the whole loans under each agreement will be named in the
related prospectus supplement. Each entity serving as servicer (or as such
servicer) may be an affiliate of the depositor and may have other normal
business relationships with the depositor or the depositor's affiliates.
Reference herein to a servicer shall be deemed to be to the servicer of
substantially all of the whole loans, if applicable.
Unless otherwise specified in the prospectus supplement, the related
agreement will provide that any servicer may resign from its obligations and
duties thereunder only with the consent of the trustee, which may not be
unreasonably withheld or upon a determination that its duties under the
agreement are no longer permissible under applicable law. No such resignation
will become effective until a successor servicer has assumed that servicer's
obligations and duties under the related pooling and servicing agreement.
Unless otherwise specified in the prospectus supplement, the master servicer
shall assume the obligations of any other servicer which resigns.
Unless otherwise specified in the related prospectus supplement, each
pooling and servicing agreement will further provide that none of the
servicers, or any officer, employee, or agent thereof 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 accordance with the
servicing standards set forth in the pooling and servicing agreement, in good
faith pursuant to the related pooling and servicing agreement; provided,
however, that no servicer nor any of its officers, employees or agents will be
protected against any breach of a representation or warranty made in the
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 duties thereunder or
by reason of reckless disregard of obligations and duties thereunder. Unless
otherwise specified in the prospectus supplement, the depositor shall be liable
only to the extent of its obligations specifically imposed upon and undertaken
by the depositor. Unless otherwise specified in the prospectus supplement, each
pooling and servicing agreement
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will further provide that each servicer will be entitled to indemnification by
the related trust fund against any loss, liability or expense incurred in
connection with any legal action relating to the pooling and servicing
agreement or the mortgage loans; provided, however, that such indemnification
will not extend to any loss, liability or expense 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. In addition, each pooling and servicing agreement will provide that no
servicer will be under any obligation to appear in, prosecute or defend any
legal action which is not incidental to its responsibilities under the pooling
and servicing agreement and which in its opinion may involve it in any expense
or liability. Any servicer may, however, with the consent of the trustee
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 servicer
will be entitled to be reimbursed therefor.
Any person into which a servicer or the depositor may be merged or
consolidated, or any person resulting from any merger or consolidation to which
a servicer or the depositor is a party, or any person succeeding to the
business of a servicer or the depositor will be the successor of such servicer
or the depositor, as applicable, under the related agreements.
EVENTS OF DEFAULT
Unless otherwise provided in the prospectus supplement for a trust fund
that includes whole loans, events of default with respect to a servicer under
the related agreements will include (i) any failure by the servicer to
distribute to the trustee, another servicer or the certificateholders, any
required payment within one business day of the date due; (ii) any failure by
the 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
servicer; (iii) any breach of a representation or warranty made by the 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 servicer; (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 servicer
indicating its insolvency or inability to pay its obligations; (v) any failure
by the servicer to maintain a required license to do business or service the
mortgage loans pursuant to the related agreements which remains uncured as
specified in the agreement; and (vi) to the extent provided in the related
pooling and servicing agreement, any failure to meet any rating agency
requirement. 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 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 an event, transmit by
mail to the depositor and all certificateholders of the applicable series
notice of such occurrence, unless the default is cured or waived.
RIGHTS UPON EVENT OF DEFAULT
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 25% of the voting rights, the trustee shall, terminate
all of the rights and obligations of the related 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 master servicer (or if such
servicer is the master servicer, the trustee) will succeed to all of the
responsibilities, duties and liabilities of the servicer under the agreements
(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
47
written request of the holders of certificates entitled to at least 25% 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 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 involving a failure to distribute a required payment
to certificateholders 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 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 the agreement, unless those certificateholders have
offered to the trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
As described under "Description of the Certificates--Book-Entry
Registration and Physical certificates," unless and until Physical certificates
are issued, beneficial owners may only exercise their rights as owners of
certificates indirectly through DTC, or their respective participants and
indirect participants.
AMENDMENT
Each agreement may be amended by the parties thereto, 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 or relaxed 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 affected
thereby evidencing not less than 51% of the voting rights, 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 an 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 a REMIC election is 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
to fail to qualify as a REMIC at any time that the certificates are
outstanding.
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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 a banking relationship
with the Depositor and its affiliates and with any master servicer and its
affiliates.
DUTIES OF THE TRUSTEE
The trustee will make no representations as to the validity or sufficiency
of any agreement, the certificates or any trust asset or related document and
is not accountable for the use or application by or on behalf of any servicer
of any funds paid to such servicer or its designee in respect of the
certificates or the trust assets, or deposited into or withdrawn from any
account or any other account by or on behalf of any 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 agreements. 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 agreements.
CERTAIN MATTERS REGARDING THE TRUSTEE
Unless otherwise specified in the prospectus supplement, the trustee and
any director, officer, employee or agent of the trustee shall be entitled to
indemnification out of the distribution 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 its 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 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 agreements, or if at any time the trustee shall become
incapable of acting, or shall be 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. Holders of the certificates of any series entitled to at
least 51% of the voting rights for the 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.
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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 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 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 more than one trust is covered by the same credit support holders
of certificates evidencing interests in the trusts will be subject to the risk
that that credit support will be exhausted by the claims of other trusts prior
to receiving any of its intended share of 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 the 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 prospectus supplement will
set forth certain information with respect to the obligor under any instrument
of credit support, including (i) a brief description of its principal business
activities, (ii) its principal place of business, place of incorporation and
the jurisdiction under which it is chartered or licensed to do business, (iii)
if applicable, the identity of regulatory agencies that exercise primary
jurisdiction over the conduct of its business and (iv) its total assets, and
its stockholders' or policyholders' surplus, if applicable, as of the date
specified in the prospectus supplement. See "Risk Factors--Credit support may
not cover losses or risks which could adversely affect payment on your
certificates."
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 prospectus supplement, the rights of the holders of
Subordinate Certificates to receive distributions of principal and interest
from the Distribution 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.
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 MORTGAGE LOANS
If so provided in the prospectus supplement for a series of certificates,
the mortgage loans in the related trust fund will be covered for various
default risks by insurance policies or guarantees.
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LETTER OF CREDIT
If so provided in the prospectus supplement for a series of certificates,
deficiencies in amounts otherwise payable on the certificates or certain
classes thereof will be covered by one or more letters of credit, issued by a
bank or financial institution specified in the prospectus supplement. Under a
letter of credit, the letter of credit issuer will be obligated to honor draws
thereunder in an aggregate fixed dollar amount, net of unreimbursed payments
thereunder, generally equal to a percentage specified in the related prospectus
supplement of the aggregate principal balance of the mortgage assets on the
related cut-off date or of the initial aggregate certificate balance of one or
more classes of certificates. If so specified in the related prospectus
supplement, the letter of credit may permit draws 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 prospectus
supplement. The obligations of the letter of credit issuer under the letter of
credit for each series of certificates will expire at the earlier of the date
specified in the 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 the 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 the 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 the 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 trust
assets as specified in the 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
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.
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 prospectus supplement, any
reinvestment income or other gain from such investments will be credited to the
reserve fund for the series, and any loss resulting from such investments will
be charged to the reserve fund. However, such income may be payable to any
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 prospectus supplement.
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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 the 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 CMBS
If so provided in the prospectus supplement for a series of certificates,
the CMBS in the related trust fund and/or the mortgage loans underlying such
CMBS 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, to the extent such information
is material and available.
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CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential properties
that are general in nature. Because such legal aspects are governed by
applicable state law (which laws may differ substantially), the summaries do
not purport to be complete nor to reflect the laws of any particular state, nor
to encompass the laws of all states in which the security for the mortgage
loans is situated. The summaries are qualified in their entirety by reference
to the applicable federal and state laws governing the mortgage loans. See
"Description of the Trust Funds--Assets."
GENERAL
All of the mortgage loans are loans evidenced by a note or bond and
secured by instruments granting a security interest in real property which may
be mortgages, deeds of trust, security deeds or deeds to secure debt, depending
upon the prevailing practice and law in the state in which the mortgaged
property is located. Mortgages, deeds of trust and deeds to secure debt are
herein collectively referred to as "mortgages." Any of the foregoing types of
mortgages will create a lien upon, or grant a title interest in, the subject
property, the priority of which will depend on the terms of the particular
security instrument, as well as separate, recorded, contractual arrangements
with others holding interests in the mortgaged property, the knowledge of the
parties to such instrument as well as the order of recordation of the
instrument in the appropriate public recording office. However, recording does
not generally establish priority over governmental claims for real estate taxes
and assessments and other charges imposed under governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS
A mortgage either creates a lien against or constitutes a conveyance of
real property between two parties--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
mortgagor), a trustee to whom the mortgaged property is conveyed, and a
beneficiary (the lender) for whose benefit the conveyance is made. As used in
this Prospectus, unless the context otherwise requires, "mortgagor" includes
the trustor under a deed of trust and a grantor under a security deed or a deed
to secure debt. Under a deed of trust, the mortgagor grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale as
security for the indebtedness evidenced by the related note. A deed to secure
debt typically has two parties. By executing a deed to secure debt, the grantor
conveys title to, as opposed to merely creating a lien upon, the subject
property to the grantee until such time as the underlying debt is repaid,
generally with a power of sale as security for the indebtedness evidenced by
the related mortgage note. In case the mortgagor under a mortgage 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
mortgagor. At origination of a mortgage loan involving a land trust, the
mortgagor executes a separate undertaking to make payments on the mortgage
note. The mortgagee's authority under a mortgage, the trustee's authority under
a deed of trust and the grantee's authority under a deed to secure debt are
governed by the express provisions of the mortgage, the law of the state in
which the real property is located, certain federal laws (including, without
limitation, the Soldiers' and Sailors' Civil Relief Act of 1940) and, in some
cases, in deed of trust transactions, the directions of the beneficiary.
INTEREST IN REAL PROPERTY
The real property covered by a mortgage, deed of trust, security deed or
deed to secure debt is most often the fee estate in land and improvements.
However, such an instrument may encumber other interests in real property such
as a tenant's interest in a lease of land or improvements, or both, and the
leasehold estate created by such lease. An instrument covering an interest in
real property other than the fee estate requires special provisions in the
instrument creating such interest or in the mortgage, deed of trust, security
deed or deed to secure debt, to protect the mortgagee against termination of
such interest before the mortgage, deed of trust, security deed or deed to
secure debt is paid. The asset sellers will make
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certain representations and warranties in the Agreement with respect to the
mortgage loans which are secured by an interest in a leasehold estate. Such
representation and warranties will be set forth in the prospectus supplement if
applicable.
LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases, pursuant to which the mortgagor assigns its
right, title and interest as landlord under each lease and the income derived
therefrom to the lender, while the mortgagor retains a revocable license to
collect the rents for so long as there is no default. Under such assignments,
the mortgagor typically assigns its right, title and interest as lessor under
each lease and the income derived therefrom to the mortgagee, while retaining a
license to collect the rents for so long as there is no default under the
mortgage loan documentation. The manner of perfecting the mortgagee's interest
in rents may depend on whether the mortgagor's assignment was absolute or one
granted as security for the loan. Failure to properly perfect the mortgagee's
interest in rents may result in the loss of substantial pool of funds, which
could otherwise serve as a source of repayment for such loan. If the mortgagor
defaults, the license terminates and the lender is entitled to collect the
rents. Local law may require that the lender take possession of the property
and/or obtain a court-appointed receiver before becoming entitled to collect
the rents. In most states, hotel and motel room rates are considered accounts
receivable under the Uniform Commercial Code; generally these rates are either
assigned by the mortgagor, which remains entitled to collect such rates absent
a default, or pledged by the mortgagor, as security for the loan. In general,
the lender must file financing statements in order to perfect its security
interest in the rates and must file continuation statements, generally every
five years, to maintain perfection of such security interest. Even if the
lender's security interest in room rates is perfected under the Uniform
Commercial Code, the lender will generally be required to commence a
foreclosure or otherwise take possession of the property in order to collect
the room rates after a default.
Even after a foreclosure, the potential rent payments from the property
may be less than the periodic payments that had been due under the mortgage.
For instance, the net income that would otherwise be generated from the
property may be less than the amount that would have been needed to service the
mortgage debt if the leases on the property are at below-market rents, or as
the result of excessive maintenance, repair or other obligations which a lender
succeeds to as landlord.
Lenders that actually take possession of the property, however, may incur
potentially substantial risks attendant to being a mortgagee in possession.
Such risks include liability for environmental clean-up costs and other risks
inherent in property ownership. See "Environmental Legislation" below.
PERSONALTY
Certain types of mortgaged properties, such as hotels, motels and
industrial plants, are likely to derive a significant part of their value from
personal property which does not constitute fixtures under applicable state
real property law and, hence, would not be subject to the lien of a mortgage.
Such property is generally pledged or assigned as security to the lender under
the Uniform Commercial Code. In order to perfect its security interest therein,
the lender generally must file Uniform Commercial Code financing statements
and, to maintain perfection of such security interest, file continuation
statements generally every five years.
COOPERATIVE LOANS
If specified in the prospectus supplement relating to a series of offered
certificates, the mortgage loans may also consist of cooperative apartment
loans secured by security interests in shares issued by a Cooperative and in
the related proprietary leases or occupancy agreements granting exclusive
rights to occupy specific dwelling units in the cooperatives' buildings. The
security agreement will create a lien upon, or grant a title interest in, the
property which it covers, the priority of which will depend on the terms of the
particular security agreement as well as the order of recordation of the
agreement in the appropriate recording office. Such a lien or title interest is
not prior to the lien for real estate taxes and assessments and other charges
imposed under governmental police powers.
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Each Cooperative owns in fee or has a leasehold interest in all the real
property and owns in fee or leases the building and all separate dwelling units
therein. The Cooperative is directly responsible for property management and,
in most cases, payment of real estate taxes, other governmental impositions and
hazard and liability insurance. If there is a blanket mortgage or mortgages on
the cooperative apartment building or underlying land, as is generally the
case, or an underlying lease of the land, as is the case in some instances, the
Cooperative, as property mortgagor, or lessee, as the case may be, is also
responsible for meeting these mortgage or rental obligations. A blanket
mortgage is ordinarily incurred by the cooperative in connection with either
the construction or purchase of the cooperative's apartment building or
obtaining of capital by the cooperative. The interest of the occupant under
proprietary leases or occupancy agreements as to which that Cooperative is the
landlord are generally subordinate to the interest of the holder of a blanket
mortgage and to the interest of the holder of a land lease. If the Cooperative
is unable to meet the payment obligations (i) arising under a blanket mortgage,
the mortgagee holding a blanket mortgage could foreclose on that mortgage and
terminate all subordinate proprietary leases and occupancy agreements or (ii)
arising under its land lease, the holder of the landlord's interest under the
land lease could terminate it and all subordinate proprietary leases and
occupancy agreements. Also, a blanket mortgage on a Cooperative may provide
financing in the form of a mortgage that does not fully amortize, with a
significant portion of principal being due in one final payment at maturity.
The inability of the Cooperative to refinance a mortgage and its consequent
inability to make such final payment could lead to foreclosure by the
mortgagee. Similarly, a land lease has an expiration date and the inability of
the Cooperative to extend its term or, in the alternative, to purchase the land
could lead to termination of the Cooperative's interest in the property and
termination of all proprietary leases and occupancy agreements. In either
event, a foreclosure by the holder of a blanket mortgage or the termination of
the underlying lease could eliminate or significantly diminish the value of any
collateral held by whomever financed the purchase by an individual tenant
stockholder of cooperative shares or, in the case of the mortgage loans, the
collateral securing the cooperative loans.
The Cooperative is owned by tenant-stockholders who, through ownership of
stock or shares in the corporation, receive proprietary lease or occupancy
agreements which confer exclusive rights to occupy specific units. Generally, a
tenant-stockholder of a Cooperative must make a monthly payment to the
Cooperative representing such tenant-stockholder's pro rata share of the
Cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a Cooperative and accompanying occupancy rights are financed
through a cooperative share loan evidenced by a promissory note and secured by
an assignment of and a security interest in the occupancy agreement or
proprietary lease and a security interest in the related Cooperative shares.
The lender generally takes possession of the share certificate and a
counterpart of the proprietary lease or occupancy agreement and a financing
statement covering the proprietary lease or occupancy agreement and the
cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of cooperative
shares. See "Foreclosure--Cooperative Loans" below.
FORECLOSURE
General
Foreclosure is a legal procedure that allows the mortgagee to recover its
mortgage debt by enforcing its rights and available legal remedies under the
mortgage. If the mortgagor defaults in payment or performance of its
obligations under the note or mortgage, the mortgagee has the right to
institute foreclosure proceedings to sell the mortgaged property at public
auction to satisfy the indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage vary
from state to state. Two primary methods of foreclosing a mortgage are judicial
foreclosure and non-judicial foreclosure pursuant to a power of sale granted in
the mortgage instrument. There are several other foreclosure procedures
available in some states that are either infrequently used or available only in
certain limited circumstances, such as strict foreclosure.
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Judicial Foreclosure
A judicial foreclosure proceeding is conducted in a court having
jurisdiction over the mortgaged property. Generally, the action is initiated by
the service of legal pleadings upon all parties having a subordinate interest
of record in the real property and all parties in possession of the property,
under leases or otherwise, whose interests are subordinate to the mortgage.
Delays in completion of the foreclosure may occasionally result from
difficulties in locating defendants. When the lender's right to foreclose is
contested, the legal proceedings can be time-consuming. Upon successful
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other officer to conduct a
public sale of the mortgaged property, the proceeds of which are used to
satisfy the judgment. Such sales are made in accordance with procedures that
vary from state to state.
Equitable Limitations on Enforceability of Certain Provisions
United States courts have traditionally imposed general equitable
principles to limit the remedies available to a mortgagee in connection with
foreclosure. These equitable principles are generally designed to relieve the
mortgagor from the legal effect of mortgage defaults, to the extent that such
effect is 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 and expensive actions to determine
the cause of the mortgagor's default and the likelihood that the mortgagor will
be able to reinstate the loan. In some cases, courts have substituted their
judgment for the lender's and have required that lenders reinstate loans or
recast payment schedules in order to accommodate mortgagors who are suffering
from a temporary financial disability. In other cases, courts have limited the
right of the lender to foreclose if the default under the mortgage is not
monetary, e.g., the mortgagor failed to maintain the mortgaged property
adequately or the mortgagor executed a junior mortgage on the mortgaged
property. The exercise by the court of its equity powers will depend on the
individual circumstances of each case presented to it. Finally, some courts
have been faced with the issue of whether federal or state constitutional
provisions reflecting due process concerns for adequate notice require that a
mortgagor 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 afford constitutional
protections to the mortgagor.
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 require several years to complete. Moreover, as discussed below, 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 Mortgagor was insolvent (or the Mortgagor was rendered insolvent as a
result of such sale) and within one year (or within the state statute of
limitations if the trustee in bankruptcy elects to proceed under state
fraudulent conveyance law) of the filing of bankruptcy.
Non-Judicial Foreclosure/Power of Sale
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale pursuant to the power of sale granted in the deed of trust. A
power of sale is typically granted in a deed of trust. It may also be contained
in any other type of mortgage instrument. A power of sale 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 any default by the
mortgagor under the terms of the mortgage note or the mortgage instrument and
after notice of sale is given in accordance with the terms of the mortgage
instrument, as well as applicable state law. In some states, prior to such
sale, the trustee under a deed of trust must record a notice of default and
notice of sale and send a copy to the mortgagor 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
mortgagor or junior lienholder may then have the right, during a reinstatement
period required in some states, to cure the default by paying the entire
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actual amount in arrears (without acceleration) plus the expenses incurred in
enforcing the obligation. In other states, the mortgagor 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,
the procedure for public sale, the parties entitled to notice, the method of
giving notice and the applicable time periods are governed by state law and
vary among the states. Foreclosure of a deed to secure debt is also generally
accomplished by a non-judicial sale similar to that required by a deed of
trust, except that the lender or its agent, rather than a trustee, is typically
empowered to perform the sale in accordance with the terms of the deed to
secure debt and applicable law.
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. For these reasons, it is common for the lender to
purchase the mortgaged property for an amount equal to or less than 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, restaurants, 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 lender's investment in 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 Legislation." Generally state law controls the
amount of foreclosure expenses and costs, including attorneys' fees, that may
be recovered by a lender.
A junior mortgagee may not foreclose on the property securing the junior
mortgage unless it forecloses subject to senior mortgages and any other prior
liens, in which case it may be obliged to make payments on the senior mortgages
to avoid their foreclosure. In addition, in the event that the foreclosure of a
junior mortgage triggers the enforcement of a "due-on-sale" clause contained in
a senior mortgage, the junior mortgagee may be required to pay the full amount
of the senior mortgage to avoid its foreclosure. Accordingly, with respect to
those mortgage loans which are junior mortgage loans, if the lender purchases
the property the lender's title will be subject to all senior mortgages, prior
liens and certain governmental liens.
The proceeds received by the referee or trustee from the sale are 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 mortgagor is in default. Any additional
proceeds are generally payable to the mortgagor. The payment of
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the proceeds to the holders of junior mortgages may occur in the foreclosure
action of the senior mortgage or a subsequent ancillary proceeding. In some
cases payment to the holders of junior mortgages may require the institution of
separate legal proceedings by such holders.
In connection with a series of certificates for which an election is made
to qualify the trust fund, or a portion thereof, as a REMIC, the REMIC
Provisions and the Agreement may require the master servicer to hire an
independent contractor to operate any foreclosed property.
Rights of Redemption
The purposes of a foreclosure action are to enable the mortgagee to
realize upon its security and to bar the mortgagor, and all persons who have an
interest in the property which is subordinate to the mortgage being foreclosed,
from exercising their "equity of redemption." The doctrine of equity of
redemption provides that, until the property covered by a mortgage has been
sold in accordance with a properly conducted foreclosure and foreclosure sale,
those having an interest which is subordinate to that of the foreclosing
mortgagee may redeem the property by paying the entire debt with interest. In
addition, in some states, when a foreclosure action has been commenced, the
redeeming party must pay certain costs of such action. 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
exists prior to completion of the foreclosure, is not waivable by the mortgagor
and must be exercised prior to foreclosure sale. Equity of redemption is
different from the post-sale statutory rights of redemption. In some states,
after sale pursuant to a deed of trust or foreclosure of a mortgage, the
mortgagor and foreclosed junior lienors are given a statutory period in which
to redeem the property from the foreclosure sale. In some states, statutory
redemption may occur only upon payment of the foreclosure sale price. In other
states, redemption may be authorized if the former mortgagor 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. The
exercise of a right of redemption would defeat the title of any purchaser from
a foreclosure sale or sale under a deed of trust. As a result, the lender is
forced 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 three calendar years
following the year of acquisition. 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 part thereof as a REMIC, the
pooling and servicing 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 may be had only against the specific property securing the related
mortgage loan. A personal money judgment may not be obtained against the
mortgagor. Even if a mortgage loan by its terms provides for recourse to the
mortgagor, some states impose prohibitions or limitations on such recourse. For
example, statutes in some states limit the right of the lender to obtain a
deficiency judgment against the mortgagor following foreclosure or sale under a
deed of trust. A deficiency judgment would be a personal judgment against the
former mortgagor equal to the difference between the net amount realized upon
the public sale of the real property and the amount due to the lender.
Some states require the lender to exhaust the security afforded under a
mortgage by foreclosure in an attempt to satisfy the full debt before bringing
a personal action against the mortgagor. Other states give the lender the
option of bringing a personal action against the mortgagor on the debt without
first exhausting such security; however, in some of these states, the lender,
following judgment on such
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personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. In some cases, a lender
will be precluded from exercising any additional rights under the note or
mortgage if it has taken any prior enforcement action. Consequently, the
practical effect of the election requirement, in those states permitting such
election, is that lenders will usually proceed against the security first
rather than bringing a personal action against the mortgagor. Finally, other
statutory provisions limit any deficiency judgment against the former mortgagor
following a judicial sale to the excess of the outstanding debt over the fair
market value of the property at the time of the public sale. The purpose of
these statutes is generally to prevent a lender from obtaining a large
deficiency judgment against the former mortgagor as a result of low or no bids
at the judicial sale.
Leasehold Risks
Mortgage loans may be secured by a mortgage on a ground lease. Leasehold
mortgages are subject to certain risks not associated with mortgage loans
secured by the fee estate of the mortgagor. The most significant of these risks
is that the ground lease creating the leasehold estate could terminate, leaving
the leasehold mortgagee without its security. The ground lease may terminate
if, among other reasons, the ground lessee breaches or defaults in its
obligations under the ground lease or there is a bankruptcy of the ground
lessee or the ground lessor. This risk may be minimized if the ground lease
contains certain provisions protective of the mortgagee such as:
o the right of the leasehold mortgagee to receive notices from the
ground lessor of any defaults by the mortgagor;
o the right to cure such defaults, with adequate cure periods; if a
default is not susceptible of cure by the leasehold mortgagee;
o 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
o 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 thereof.
In addition to the foregoing protections, a leasehold mortgagee may
require that the ground lease or leasehold mortgage 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 by the trustee for the
debtor-ground lessor. As further protection, a leasehold mortgage may provide
for the assignment of the debtor-ground lessee's right to reject a lease
pursuant to Section 365 of the Bankruptcy Reform Act of 1978, as amended (Title
11 of the United States Code). The enforceability of such clause has not been
established.
Without the protections described above, a leasehold mortgagee may lose
the collateral securing its leasehold mortgage. The ground leases and the
mortgage that secures the mortgage loan may not contain some of these
provisions. In addition, 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 will be governed
by the provisions of the ground lease.
Cooperative Loans
The cooperative shares owned by the tenant-stockholder and pledged to the
lender are, in almost all cases, subject to restrictions on transfer as set
forth in the Cooperative's Certificate of Incorporation and By-laws, as well as
the proprietary lease or occupancy agreement, and may be cancelled by the
cooperative for failure by the tenant-stockholder to pay rent or other
obligations or charges owed by such tenant-stockholder, including mechanics'
liens against the cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement generally
permits the Cooperative to terminate such lease or agreement if the obligor
fails to make payments or defaults in the performance of covenants required
thereunder. Typically, the lender and the Cooperative enter into a
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recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder under the
proprietary lease or occupancy agreement will usually constitute a default
under the security agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement is terminated, the Cooperative will recognize the lender's lien
against proceeds from the sale of the Cooperative apartment. This is subject to
the Cooperative's right to sums due under such proprietary lease or occupancy
agreement. The total amount owed to the Cooperative by the tenant-stockholder,
which the lender generally cannot restrict and does not monitor, could reduce
the value of the collateral below the outstanding principal balance of the
cooperative loan and accrued and unpaid interest thereon.
Recognition agreements also provide that in the event of a foreclosure on
a Cooperative loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
In some states, foreclosure on the Cooperative shares is accomplished by a
sale in accordance with the provisions of Article 9 of the Uniform Commercial
Code and the security agreement relating to those shares. Article 9 of the
Uniform Commercial Code requires that a sale be conducted in a "commercially
reasonable" manner. Whether a foreclosure sale has been conducted in a
"commercially reasonable" manner will depend on the facts in each case. In
determining commercial reasonableness, a court will look to the notice given
the debtor and the method, manner, time, place and terms of the foreclosure.
Generally, a sale conducted according to the usual practice of banks selling
similar collateral will be considered reasonably conducted.
Article 9 of the Uniform Commercial Code 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. The
recognition agreement, however, generally provides that the lender's right to
reimbursement is subject to the right of the Cooperatives to receive sums due
under the proprietary lease or occupancy agreement. If 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 is generally responsible for the deficiency.
In the case of foreclosure on a building which was converted from a rental
building to a building owned by a Cooperative under a non-eviction plan, some
states require that a purchaser at a foreclosure sale take the property subject
to rent control and rent stabilization laws which apply to certain tenants who
elected to remain in the building so converted.
BANKRUPTCY LAWS
The Bankruptcy Code and related state laws may interfere with or affect
the ability of a 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) are
automatically stayed upon the filing of the bankruptcy petition, and, usually,
no interest or principal payments are made during the course of the bankruptcy
case. The delay and the consequences thereof caused by such automatic stay can
be significant. Also, under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a junior lienor may stay the senior lender from
taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards for the lender are met, the amount and terms of a mortgage secured
by property of the debtor may be modified under certain circumstances. In many
jurisdictions, the outstanding amount of the loan secured by the real property
may be reduced to the then-current value of the property (with a corresponding
partial reduction of the amount of lender's security interest) pursuant to a
confirmed plan or lien avoidance proceeding. This leaves the lender unsecured
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 in the form of a reduction in the rate of interest and/or the
alteration of the repayment schedule (with or without
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affecting the unpaid principal balance of the loan), and/or an extension (or
reduction) of the final maturity date. Some courts with federal bankruptcy
jurisdiction have approved plans, based on the particular facts of the
reorganization case, that effected the curing of a mortgage loan default by
paying arrearages over a number of years. Also, under federal bankruptcy law, a
bankruptcy court may permit a debtor through its rehabilitative plan to
de-accelerate a secured loan and to reinstate the loan even though the lender
accelerated the mortgage loan and final judgment of foreclosure had been
entered in state court (provided no sale of the property had yet occurred)
prior to the filing of the debtor's petition. This may be done even if the full
amount due under the original loan is never repaid.
Federal bankruptcy law provides generally that rights and obligation under
an unexpired lease of the debtor/lessee may not be terminated or modified at
any time after the commencement of a case under the Bankruptcy Code solely on
the basis of a provision in the lease to such effect or because of certain
other similar events. This prohibition could limit the ability of the trustee
for a series of certificates to exercise certain contractual remedies with
respect to the leases. In addition, Section 362 of the Bankruptcy Code operates
as an automatic stay of, among other things, any act to obtain possession of
property from a debtor's estate. This may delay a trustee's exercise of such
remedies for a related series of certificates in the event that a related
lessee or a related mortgagor becomes the subject of a proceeding under the
Bankruptcy Code. For example, a mortgagee would be stayed from enforcing a
lease assignment by a mortgagor related to a mortgaged property if the related
mortgagor was in a bankruptcy proceeding. The legal proceedings necessary to
resolve the issues could be time-consuming and might result in significant
delays in the receipt of the assigned rents. Similarly, the filing of a
petition in bankruptcy by or on behalf of a lessee of a mortgaged property
would result in a stay against the commencement or continuation of any state
court proceeding for past due rent, for accelerated rent, for damages or for a
summary eviction order with respect to a default under the lease that occurred
prior to the filing of the lessee's petition. Rents and other proceeds of a
mortgage loan may also escape an assignment thereof if the assignment is not
fully perfected under state law prior to commencement of the bankruptcy
proceeding. See "--Leases and Rents" above.
In addition, the Bankruptcy Code generally provides that a trustee or
debtor-in-possession may, subject to approval of the court, (a) assume the
lease and retain it or assign it to a third party or (b) reject the lease. If
the lease is assumed, the trustee in bankruptcy on behalf of the lessee, or the
lessee as debtor-in-possession, or the assignee, if applicable, must cure any
defaults under the lease, compensate the lessor for its losses and provide the
lessor with "adequate assurance" of future performance. Such remedies may be
insufficient, however, as the lessor may be forced to continue under the lease
with a lessee that is a poor credit risk or an unfamiliar tenant if the lease
was assigned, and any assurances provided to the lessor may, in fact, be
inadequate. If the lease is rejected, such rejection generally constitutes a
breach of the executory contract or unexpired lease immediately before the date
of filing the petition. As a consequence, the other party or parties to such
lease, such as the mortgagor, as lessor under a lease, would have only an
unsecured claim against the debtor for damages resulting from such breach,
which could adversely affect the security for the related mortgage loan. In
addition, pursuant to Section 502(b)(6) of the Bankruptcy Code, a lessor's
damages for lease rejection in respect of future rent installments are limited
to the rent reserved by the lease, without acceleration, for the greater of one
year or 15% of the remaining term of the lease, but not more than three years.
If a trustee in bankruptcy on behalf of a lessor, or a lessor as
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,
the lessee 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 any damages occurring after such date caused by the
nonperformance of any obligation of the lessor under the lease after such date
against rents reserved under the lease. To the extent provided in the related
prospectus supplement, the lessee will agree under certain leases to pay all
amounts owing thereunder the master servicer without offset. To the extent that
such a contractual obligation remains enforceable against the lessee, the
lessee would not be able to avail itself of the rights of offset generally
afforded to lessees of real property under the Bankruptcy Code.
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In a bankruptcy or similar proceeding of a mortgagor, action may be taken
seeking the recovery, as a preferential transfer or on other grounds, of any
payments made by the mortgagor, or made directly by the related lessee, under
the related mortgage loan to the trust fund. Payments on long-term debt may be
protected from recovery as preferences if they are payments in the ordinary
course of business made on debts incurred in the ordinary course of business.
Whether any particular payment would be protected depends upon the facts
specific to a particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the lender. In certain circumstances, a debtor in bankruptcy may
have the power to grant liens senior to the lien of a mortgage, and analogous
state statutes and general principles of equity may also provide a mortgagor
with means to halt a foreclosure proceeding or sale and to force a
restructuring of a mortgage loan on terms a lender would not otherwise accept.
Moreover, the laws of certain states also give priority to certain tax liens
over the lien of a mortgage or deed of trust. Under the Bankruptcy Code, if the
court finds that actions of the mortgagee have been unreasonable, the lien of
the related mortgage may be subordinated to the claims of unsecured creditors.
To the extent described in the related prospectus supplement, certain of
the mortgagors may be partnerships. The laws governing limited partnerships in
certain states provide that the commencement of a case under the Bankruptcy
Code with respect to a general partner will cause a person to cease to be a
general partner of the limited partnership, unless otherwise provided in
writing in the limited partnership agreement. This provision may be construed
as an "ipso facto" clause and, in the event of the general partner's
bankruptcy, may not be enforceable. To the extent described in the related
prospectus supplement, certain limited partnership agreements of the mortgagors
may provide that the commencement of a case under the Bankruptcy Code with
respect to the related general partner constitutes an event of withdrawal
(assuming the enforceability of the clause is not challenged in bankruptcy
proceedings or, if challenged, is upheld) that might trigger the dissolution of
the limited partnership, the winding up of its affairs and the distribution of
its assets, unless (i) at the time there was at least one other general partner
and the written provisions of the limited partnership permit the business of
the limited partnership to be carried on by the remaining general partner and
that general partner does so or (ii) the written provisions of the limited
partnership agreement permit the limited partner to agree within a specified
time frame (often 60 days) after such withdrawal to continue the business of
the limited partnership and to the appointment of one or more general partners
and the limited partners do so. In addition, the laws governing general
partnerships in certain states provide that the commencement of a case under
the Bankruptcy Code or state bankruptcy laws with respect to a general partner
of such partnerships triggers the dissolution of such partnership, the winding
up of its affairs and the distribution of its assets. Such state laws, however,
may not be enforceable or effective in a bankruptcy case. The dissolution of a
mortgagor, the winding up of its affairs and the distribution of its assets
could result in an acceleration of its payment obligation under a related
mortgage loan, which may reduce the yield on the related series of certificates
in the same manner as a principal prepayment.
In addition, the bankruptcy of the general partner of a mortgagor that is
a partnership may provide the opportunity for a trustee in bankruptcy for such
general partner, such general partner as a debtor-in-possession, or a creditor
of such general partner to obtain an order from a court consolidating the
assets and liabilities of the general partner with those of the mortgagor
pursuant to the doctrines of substantive consolidation or piercing the
corporate veil. In such a case, the mortgaged property could become property of
the estate of such bankrupt general partner. Not only would the mortgaged
property be available to satisfy the claims of creditors of such general
partner, but an automatic stay would apply to any attempt by the trustee to
exercise remedies with respect to such mortgaged property. However, such an
occurrence should not affect the trustee's status as a secured creditor with
respect to the mortgagor or its security interest in the mortgaged property.
ENVIRONMENTAL LEGISLATION
Real property pledged as security to a lender may be subject to unforeseen
environmental liabilities. Of particular concern may be those mortgaged
properties which are, or have been, the site of
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manufacturing, industrial or disposal activity. Such environmental liabilities
may give rise to (i) a diminution in value of property securing any mortgage
loan, (ii) limitation on the ability to foreclose against such property or
(iii) in certain circumstances as more fully described below, liability for
clean up costs or other remedial actions, which liability could exceed the
value of the principal balance of the related mortgage loan or of such
mortgaged property.
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 a mortgage contemplated by this
transaction may lose its priority to such a superlien.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("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, including current owners and
operators of the property, regardless of whether they caused or contributed to
the contamination. Many states have laws similar to CERCLA.
Lenders may be held liable under CERCLA as owners or operators. Excluded
from CERCLA's definition of "owner or operator," however, is a person "who
without participating in the management of the facility, holds indicia of
ownership primarily to protect his security interest." This exemption for
holders of a security interest such as a secured lender applies only in
circumstances where the lender acts to protect its security interest in the
contaminated facility or property. Thus, if a lender's activities encroach on
the actual management of such facility or property, the lender faces potential
liability as an "owner or operator" under CERCLA. Similarly, when a lender
forecloses and takes title to a contaminated facility or property (whether it
holds the facility or property as an investment or leases it to a third party),
the lender may incur potential CERCLA liability.
Whether actions taken by a lender would constitute such participation in
the management of a facility or property, so that the lender loses the
protection of this "second creditor exclusion," has been a matter of judicial
interpretation of the statutory language, and court decisions have historically
been inconsistent. In 1990, the United States Court of Appeals for the Eleventh
Circuit suggested, in United States v. Fleet Factors Corp., that the mere
capacity of the lender to influence a borrower's decisions regarding disposal
of hazardous substances was sufficient participation in the management of the
borrower's business to deny the protection of the secured creditor exclusion to
the lender, regardless of whether the lender actually exercised such influence.
Other judicial decisions did not interpret the secured creditor exclusion as
narrowly as did the Eleventh Circuit.
This ambiguity appears to have been resolved by the enactment of the Asset
Conservation, Lender Liability and Deposit Insurance Protection Act of 1996
(the "Asset Conservation Act"), which took effect on September 30, 1996. The
Asset Conservation Act provides that in order to be deemed to have participated
in the management of a secured property, a lender must actually participate in
the operational affairs of the property or of the borrower. The Asset
Conservation Act also provides that participation in the management of the
property does not include "merely having the capacity to influence, or
unexercised right to control" operations. Rather, a lender will lose the
protection of the secured creditor exclusion 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 secured property.
The secured-creditor exemption does not protect a lender from liability
under CERCLA in cases where the lender arranges for disposal of hazardous
substances or for transportation of hazardous substances. The definition of
"hazardous substances" under CERCLA specifically excludes petroleum products,
and the secured-creditor exemption does not govern liability for cleanup costs
under federal laws other than CERCLA, in particular Subtitle I of the federal
Resource Conservation and Recovery Act ("RCRA"), which regulates underground
petroleum (other than heating oil) storage tanks. However, the EPA has adopted
a lender liability rule for underground storage tanks under Subtitle I of RCRA.
Under such rule, a holder of a security interest in an underground storage tank
or real property containing
63
an underground storage tank is not considered an operator of the underground
storage tank as long as petroleum is not added to, stored in or dispensed from
the tank. It should be noted, however, that liability for cleanup of petroleum
contamination may be governed by state law, which may not provide for any
specific protections for secured creditors.
If a lender is or becomes liable, it may bring an action for contribution
against the owner or operator who created the environmental hazard, but that
person or entity may be bankrupt or otherwise judgment proof. It is possible
that cleanup costs could become a liability of the trust fund and occasion a
loss to certificateholders in certain circumstances described above if such
remedial costs were incurred.
The related pooling and servicing agreement will provide that the special
servicer, acting on behalf of the trustee, may not acquire title to a mortgaged
property or take over its operation unless the special servicer has previously
determined, based on a report prepared by a person who regularly conducts
environmental assessments, that: (i) such mortgaged property is in compliance
with applicable environmental laws, or, if not, that taking such actions as are
necessary to bring the mortgaged property in compliance therewith is likely to
produce a greater recovery on a present value basis, after taking into account
any risks associated therewith, than not taking such actions and (ii) there are
no circumstances present at the mortgaged property relating to the use,
management or disposal of any hazardous materials for which investigation,
testing, monitoring, containment, clean-up or remediation could be required
under any federal, state or local law or regulation. This requirement
effectively precludes enforcement of the security for the related mortgage note
until a satisfactory environmental inquiry is undertaken, or that, if any
hazardous materials are present for which such action could be required, taking
such actions with respect to the affected mortgaged property is reasonably
likely to produce a greater recovery on a present value basis, after taking
into account any risks associated therewith, than not taking such actions,
reducing the likelihood that a given trust fund will become liable for any
condition or circumstance that may give rise to any environmental claim
affecting a mortgaged property, but making it more difficult to realize on the
security for the mortgage loan. However, there can be no assurance that any
environmental assessment obtained by the special servicer will detect all
possible environmental hazard conditions, that any estimate of the costs of
effecting compliance at any mortgaged property and the recovery thereon will be
correct, or that the other requirements of the pooling and servicing agreement,
even if fully observed by the master servicer or special servicer, as the case
may be, will in fact insulate a given trust fund from liability for
environmental hazard conditions. Any additional restrictions on acquiring
titles to a mortgaged property may be set forth in the related prospectus
supplement.
Unless otherwise specified in the related prospectus supplement, the
depositor generally will not have determined whether environmental assessments
have been conducted with respect to the mortgaged properties. In any event, it
is likely that if any environmental assessments was conducted, with respect to
any of the mortgaged properties, it would have been conducted at the time of
the origination of the related mortgage loans and not thereafter. If specified
in the related prospectus supplement, the seller of the mortgage loan or
another person identified therein will represent and warrant that based on an
environmental audit, as of the date of the origination of a mortgage loan, the
related mortgaged property is not affected by a condition which would
reasonably be expected to (1) constitute or result in a violation of applicable
environmental laws, (2) require any expenditure material in relation to the
principal balance of the related mortgage loan to achieve or maintain
compliance in all material respects with any applicable environmental laws, or
(3) require substantial cleanup, remedial action or other extraordinary
response under any applicable environmental laws in excess of a specified
escrowed amount.
No such person will however, be responsible for any such condition which
may arise on a mortgaged property after the date of origination of the related
mortgage loan, whether due to actions of the mortgagor, a servicer, or any
other person. It may not always be possible to determine whether such a
condition arose prior or subsequent to the date of the origination of the
related mortgage loan.
"Hazardous materials" are generally defined under several federal and
state statutes, and include dangerous toxic or hazardous pollutants, chemicals,
wastes or substances, including, without limitation, those so identified
pursuant to CERCLA, and specifically including, asbestos and asbestos
containing materials, polychlorinated biphenyls, radon gas, petroleum and
petroleum products and urea formaldehyde.
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DUE-ON-SALE AND DUE-ON-ENCUMBRANCE
Certain of the mortgage loans may contain due-on-sale and
due-on-encumbrance clauses. These clauses generally provide that the lender may
accelerate the maturity of the loan if the mortgagor sells or otherwise
transfers or encumbers the mortgaged property. Certain of these clauses may
provide that, upon an attempted breach thereof by the mortgagor of an otherwise
non-recourse loan, the mortgagor becomes personally liable for the mortgage
debt. The enforceability of due-on-sale clauses has been the subject of
legislation or litigation in many states and, in some cases, the enforceability
of these clauses was limited or denied. However, with respect to certain loans
the Garn-St Germain Depository Institutions Act of 1982 preempts state
constitutional, statutory and case law that prohibits the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms subject to certain limited exceptions. Unless otherwise
provided in the related prospectus supplement, a 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 mortgage loan or to
withhold its consent to any transfer or further encumbrance in a manner
consistent with the servicing standard.
In addition, under federal bankruptcy laws, due-on-sale clauses may not be
enforceable in bankruptcy proceedings and may, under certain circumstances, be
eliminated in any modified mortgage resulting from such bankruptcy proceeding.
SUBORDINATE FINANCING
Where the mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the mortgagor (as junior loans often do) and
the senior loan does not, a mortgagor may be more likely to repay sums due on
the junior loan than those on the senior 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
mortgagor 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 mortgagor is
additionally burdened. Third, if the mortgagor defaults on the senior loan
and/or any junior loan or loans, the existence of junior loans and actions
taken by junior lenders can impair the security available to the senior lender
and can interfere with or delay the taking of action by the senior lender.
Moreover, the bankruptcy of a junior lender may operate to stay foreclosure or
similar proceedings by the senior lender.
DEFAULT INTEREST, PREPAYMENT CHARGES AND PREPAYMENTS
Forms of notes and mortgages used by lenders may contain provisions
obligating the mortgagor to pay a late charge or additional interest if
payments are not timely made, and in some circumstances may provide for
prepayment fees or yield maintenance penalties if the obligation is paid prior
to maturity or prohibit such prepayment for a specified period. In certain
states, there are or may be specific limitations upon the late charges which a
lender may collect from a mortgagor for delinquent payments. Certain states
also limit the amounts that a lender may collect from a mortgagor as an
additional charge if the loan is prepaid. The enforceability, under the laws of
a number of states of provisions providing for prepayment fees or penalties
upon, or prohibition of, an involuntary prepayment is unclear, and no assurance
can be given that, at the time a Prepayment Premium is required to be made on a
mortgage loan in connection with an involuntary prepayment, the obligation to
make such payment, or the provisions of any such prohibition, will be
enforceable under applicable state law. The absence of a restraint on
prepayment, particularly with respect to mortgage loans having higher mortgage
interest rates, may increase the likelihood of refinancing or other early
retirements of the mortgage loans.
ACCELERATION ON DEFAULT
Unless otherwise specified in the related prospectus supplement, some of
the mortgage loans included in the mortgage pool for a series will include a
"debt-acceleration" clause, which permits the
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lender to accelerate the full debt upon a monetary or nonmonetary default of
the mortgagor. The courts of all states will enforce clauses providing for
acceleration in the event of a material payment default after giving effect to
any appropriate notices. The equity courts of the state, however, may refuse to
foreclose 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. Furthermore, in some states, the mortgagor may
avoid foreclosure and reinstate an accelerated loan by paying only the
defaulted amounts and the costs and attorneys' fees incurred by the lender in
collecting such defaulted payments.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential (including
multifamily but not other commercial) first mortgage loans originated by
certain lenders after March 31, 1980. A similar federal statute was in effect
with respect to mortgage loans made during the first three months of 1980. The
statute authorized any state to reimpose interest rate limits by adopting,
before April 1, 1983, a law or constitutional provision that expressly rejects
application of the federal law. In addition, even where Title V is not so
rejected, any state is authorized by the law to adopt a provision limiting
discount points or other charges on mortgage loans covered by Title V. Certain
states have taken action to reimpose interest rate limits and/or to limit
discount points or other charges.
The depositor has been advised by counsel that a court interpreting Title
V would hold that residential first mortgage loans that are originated on or
after January 1, 1980 are subject to federal preemption. Therefore, in a state
that has not taken the requisite action to reject application of Title V or to
adopt a provision limiting discount points or other charges prior to
origination of such mortgage loans, any such limitation under such state's
usury law would not apply to such mortgage loans.
In any state in which application of Title V has been expressly rejected
or a provision limiting discount points or other charges is adopted, no
mortgage loan originated after the date of such state action will be eligible
for inclusion in a trust fund unless (i) the mortgage loan provides for such
interest rate, discount points and charges as are permitted in such state or
(ii) the mortgage loan provides that the terms thereof shall 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 mortgagor's counsel
has rendered an opinion that such choice of law provision would be given
effect.
Statutes differ in their provisions as to the consequences of a usurious
loan. One group of statutes requires the lender to forfeit the interest due
above the applicable limit or impose a specified penalty. Under this statutory
scheme, the borrower may cancel the recorded mortgage or deed of trust upon
paying its debt with lawful interest, and the lender may foreclose, but only
for the debt plus lawful interest. A second group of statutes is more severe. A
violation of this type of usury law results in the invalidation of the
transaction, thereby permitting the borrower to cancel the recorded mortgage or
deed of trust without any payment or prohibiting the lender from foreclosing.
CERTAIN LAWS AND REGULATIONS; TYPES OF MORTGAGED PROPERTIES
The mortgaged properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a mortgaged property which could, together with the
possibility of limited alternative uses for a particular mortgaged property
(e.g., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related mortgage loan. Mortgages on
mortgaged properties which are owned by the mortgagor under a condominium form
of ownership are subject to the declaration, by-laws and other rules and
regulations of the condominium association. Mortgaged properties which are
hotels or motels may present additional risk in that hotels and motels are
typically operated pursuant to franchise, management and operating agreements
which may be terminable by the operator, and the transferability of the hotel's
operating, liquor and other licenses to the entity acquiring the hotel either
through purchases or foreclosure is subject to the vagaries of local law
requirements. In addition, mortgaged properties which are multifamily
residential 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 in order to protect individuals with disabilities,
public accommodations (such as hotels, restaurants, shopping centers,
hospitals, schools and social service center establishments) must remove
architectural and communication barriers which are structural in nature from
existing places of public accommodation to the extent "readily achievable." In
addition, under the Disabilities Act, alterations to a place of public
accommodation or a commercial facility are to be made so that, to the maximum
extent feasible, such altered portions are readily accessible to and usable by
disabled individuals. The "readily achievable" standard takes into account,
among other factors, the financial resources of the affected site, owner,
landlord or other applicable person. In addition to imposing a possible
financial burden on the mortgagor in its capacity as owner or landlord, the
Disabilities Act may also impose such requirements on a foreclosing lender who
succeeds to the interest of the mortgagor as owner of 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 mortgagor of complying with the requirements of the
Disabilities Act may be subject to more stringent requirements than those to
which the mortgagor is subject.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended, a mortgagor who enters military service after the origination of such
mortgagor's mortgage loan (including a mortgagor 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 mortgagor's active duty status, unless a court orders
otherwise upon application of the lender. The Relief Act applies to mortgagors
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 mortgagors 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 that may be affected by the Relief Act. Application
of the Relief Act would adversely affect, for an indeterminate period of time,
the ability of any servicer to collect full amounts of interest on certain of
the mortgage loans. Any shortfalls in interest collections resulting from the
application of the Relief Act would result in a reduction of the amounts
distributable to the holders of the related series of certificates, and would
not be covered by advances or, unless otherwise specified in the related
prospectus supplement, any form of credit support provided in connection with
such certificates. In addition, the Relief Act imposes limitations that would
impair the ability of the servicer to foreclose on an affected mortgage loan
during the mortgagor's period of active duty status, and, under certain
circumstances, during an additional three month period thereafter. Thus, in the
event that such a mortgage loan goes into default, there may be delays and
losses occasioned thereby.
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
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
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FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of offered certificates
is based on the advice of Sidley Austin Brown & Wood LLP, counsel to the
depositor. This summary is based on laws, regulations, including REMIC
Regulations, rulings and decisions now in effect or with respect to
regulations, proposed, all of which are subject to change either prospectively
or retroactively. This summary does not address the federal income tax
consequences of an investment in certificates applicable to all categories of
investors, some of which for example, banks and insurance companies--may be
subject to special rules. Prospective investors should consult their tax
advisors regarding the federal, state, local and any other tax consequences to
them of the purchase, ownership and disposition of certificates.
GENERAL
The federal income tax consequences to certificateholders will vary
depending on whether an election is made to treat the trust fund relating to a
particular series of certificates as a REMIC under the Code. The prospectus
supplement for each series of certificates will specify whether a REMIC
election will be made.
GRANTOR TRUST FUNDS
If a REMIC election is not made, Sidley Austin Brown & Wood LLP will
deliver its opinion that the trust fund will not be classified as an
association taxable as a corporation and that the trust fund will be classified
as a grantor trust under subpart E, Part I of subchapter J of Chapter 1 of
Subtitle A of the Code. In this case, owners of certificates will be treated
for federal income tax purposes as owners of a portion of the trust fund's
assets as described in this section of the prospectus.
A. SINGLE CLASS OF GRANTOR TRUST CERTIFICATES
Characterization. The trust fund may be created with one class of grantor
trust certificates. In this case, each grantor trust certificateholder will be
treated as the owner of a pro rata undivided interest in the interest and
principal portions of the trust fund represented by the grantor trust
certificates and will be considered the equitable owner of a pro rata undivided
interest in each of the mortgage loans and/or MBS in the pool. Any amounts
received by a grantor trust certificateholder in lieu of amounts due with
respect to any mortgage loan and/or MBS because of a default or delinquency in
payment will be treated for federal income tax purposes as having the same
character as the payments they replace.
Each grantor trust certificateholder will be required to report on its
federal income tax return in accordance with the grantor trust
certificateholder's method of accounting its pro rata share of the entire
income from the mortgage loans in the trust fund represented by grantor trust
certificates, including interest, OID, if any, prepayment fees, assumption
fees, any gain recognized upon an assumption and late payment charges received
by the master servicer. Under Code Section 162 or 212 each grantor trust
certificateholder will be entitled to deduct its pro rata share of servicing
fees, prepayment fees, assumption fees, any loss recognized upon an assumption
and late payment charges retained by the master servicer, provided that the
amounts are reasonable compensation for services rendered to the trust fund.
Grantor trust certificateholders that are individuals, estates or trusts will
be entitled to deduct their share of expenses as itemized deductions only to
the extent these expenses plus all other Code Section 212 expenses exceed two
percent of its adjusted gross income. In addition, the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount under Code Section
68(b)--which amount will be adjusted for inflation--will be reduced by the
lesser of
o 3% of the excess of adjusted gross income over the applicable amount
and
o 80% of the amount of itemized deductions otherwise allowable for such
taxable year.
In general, a grantor trust certificateholder using the cash method of
accounting must take into account its pro rata share of income as and
deductions as and when collected by or paid to the master
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servicer or, with respect to original issue discount or certain other income
items for which the certificateholder has made an election, as the amounts are
accrued by the trust fund on a constant interest basis, and will entitled to
claim its pro rata share of deductions, subject to the foregoing limitations,
when the amounts are paid or the certificateholder would otherwise be entitled
to claim the deductions had it held the mortgage loans and/or MBS directly. A
grantor trust certificateholder using an accrual method of accounting must take
into account its pro rata share of income as payment becomes due or is made to
the master servicer, whichever is earlier and may deduct its pro rata share of
expense items, subject to the foregoing limitations, when the amounts are paid
or the certificateholder otherwise would be entitled to claim the deductions
had it held the mortgage loans and/or MBS directly. If the servicing fees paid
to the master servicer are deemed to exceed reasonable servicing compensation,
the amount of the excess could be considered as an ownership interest retained
by the master servicer or any person to whom the master servicer assigned for
value all or a portion of the servicing fees in a portion of the interest
payments on the mortgage loans and/or MBS. The mortgage loans and/or MBS would
then be subject to the "coupon stripping" rules of the Code discussed below
under "--Stripped Bonds and Coupons."
Unless otherwise specified in the related prospectus supplement or
otherwise provided below in this section of the prospectus, as to each series
of certificates, counsel to depositor will have advised depositor that:
o a grantor trust certificate owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19)
representing principal and interest payments on mortgage loans and/or
MBS will be considered to represent "loans . . . secured by an
interest in real property which is . . . residential property" within
the meaning of Code Section 7701(a)(19)(C)(v), to the extent that the
mortgage loans and/or MBS represented by that grantor trust
certificate are of a type described in that Code section;
o a grantor trust certificate owned by a real estate investment trust
representing an interest in mortgage loans and/or MBS will be
considered to represent "real estate assets" within the meaning of
Code Section 856(c)(4)(A), and interest income on the mortgage loan
and/or MBS will be considered "interest on obligations secured by
mortgages on real property" within the meaning of Code Section
856(c)(3)(B), to the extent that the mortgage loans and/or MBS
represented by that grantor trust certificate are of a type described
in that Code section; and
o a grantor trust certificate owned by a REMIC will represent
"obligation[s] . . . which [are] principally secured by an interest
in real property" within the meaning of Code Section 860G(a)(3).
The Small Business Job Protection Act of 1996, as part of the repeal of
the bad debt reserve method for thrift institutions, repealed the application
of Code Section 593(d) to any taxable year beginning after December 31, 1995.
Stripped Bonds and Coupons. Certain trust funds may consist of government
securities that constitute "stripped bonds" or "stripped coupons" as those
terms are defined in Section 1286 of the Code, and, as a result, these assets
would be subject to the stripped bond provisions of the Code. Under these
rules, these government securities are treated as having original issue
discount based on the purchase price and the stated redemption price at
maturity of each security. As such, grantor trust certificateholders would be
required to include in income their pro rata share of the original issue
discount on each Government Security recognized in any given year on an
economic accrual basis even if the grantor trust certificateholder is a cash
method taxpayer. Accordingly, the sum of the income includible to the grantor
trust certificateholder in any taxable year may exceed amounts actually
received during such year.
Premium. The price paid for a grantor trust certificate by a holder will
be allocated to the holder's undivided interest in each mortgage loan and/or
MBS based on each asset's relative fair market value, so that the holder's
undivided interest in each asset will have its own tax basis. A grantor trust
certificateholder that acquires an interest in mortgage loans and/or MBS at a
premium may elect to amortize the premium under a constant interest method,
provided that the underlying mortgage loans with respect to the mortgage loans
and/or MBS were originated after September 27, 1985. Premium
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allocable to mortgage loans originated on or before September 27, 1985 should
be allocated among the principal payments on such mortgage loans and allowed as
an ordinary deduction as principal payments are made. Amortizable bond premium
will be treated as an offset to interest income on such grantor trust
certificate. The basis for such grantor trust certificate will be reduced to
the extent that amortizable premium is applied to offset interest payments. It
is not clear whether a reasonable prepayment assumption should be used in
computing amortization of premium allowable under Code Section 171. A
certificateholder that makes this election for a mortgage loan or MBS or any
other debt instrument that is acquired at a premium will be deemed to have made
an election to amortize bond premium with respect to all debt instruments
having amortizable bond premium that such certificateholder acquires during the
year of the election or thereafter.
If a premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a grantor trust certificate representing an interest
in a mortgage loan or MBS acquired at a premium should recognize a loss if a
mortgage loan or an underlying mortgage loan with respect to an asset prepays
in full, equal to the difference between the portion of the prepaid principal
amount of such mortgage loan or underlying mortgage loan that is allocable to
the certificate and the portion of the adjusted basis of the certificate that
is allocable to such mortgage loan or underlying mortgage loan. If a reasonable
prepayment assumption is used to amortize the premium, it appears that such a
loss would be available, if at all, only if prepayments have occurred at a rate
faster than the reasonable assumed prepayment rate. It is not clear whether any
other adjustments would be required to reflect differences between an assumed
prepayment rate and the actual rate of prepayments.
The Internal Revenue Service has issued Amortizable Bond Premium
Regulations. The Amortizable Bond Premium Regulations specifically do not apply
to prepayable debt instruments or any pool of debt instruments the yield on
which may be affected by prepayments, such as the trust fund, which are subject
to Section 1272(a)(6) of the Code. Absent further guidance from the IRS and to
the extent set forth in the related prospectus supplement, the trustee will
account for amortizable bond premium in the manner described in this section.
Prospective purchasers should consult their tax advisors regarding amortizable
bond premium and the Amortizable Bond Premium Regulations.
Original Issue Discount. The IRS has stated in published rulings that, in
circumstances similar to those described in this prospectus, the OID
Regulations will be applicable to a grantor trust certificateholder's interest
in those mortgage loans and/or MBS meeting the conditions necessary for these
sections to apply. Rules regarding periodic inclusion of OID income are
applicable to mortgages of corporations originated after May 27, 1969,
mortgages of noncorporate borrowers other than individuals originated after
July 1, 1982, and mortgages of individuals originated after March 2, 1984. Such
OID could arise by the financing of points or other charges by the originator
of the mortgages in an amount greater than a statutory de minimis exception to
the extent that the points are not currently deductible under applicable Code
provisions or are not for services provided by the lender. OID generally must
be reported as ordinary gross income as it accrues under a constant interest
method. See "--Multiple Classes of Grantor Trust Certificates--Accrual of
Original Issue Discount" below.
Market Discount. A grantor trust certificateholder that acquires an
undivided interest in mortgage loans or MBS may be subject to the market
discount rules of Code Sections 1276 through 1278 to the extent an undivided
interest in the asset is considered to have been purchased at a "market
discount." Generally, the amount of market discount is equal to the excess of
the portion of the principal amount of the mortgage loan or MBS allocable to
the holder's undivided interest over the holder's tax basis in such interest.
Market discount with respect to a grantor trust certificate will be considered
to be zero if the amount allocable to the grantor trust certificate is less
than 0.25% of the grantor trust certificate's stated redemption price at
maturity multiplied by the weighted average maturity remaining after the date
of purchase. Treasury regulations implementing the market discount rules have
not yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment, whether a scheduled payment
or a prepayment, or any gain on disposition of a market discount bond acquired
by the taxpayer after October 22, 1986 shall
70
be treated as ordinary income to the extent that it does not exceed the accrued
market discount at the time of such payment. The amount of accrued market
discount for purposes of determining the tax treatment of subsequent principal
payments or dispositions of the market discount bond is to be reduced by the
amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
While the Treasury Department has not yet issued regulations, rules described
in the relevant legislative history will apply. Under those rules, the holder
of a market discount bond may elect to accrue market discount either on the
basis of a constant interest rate or according to one of the following methods.
If a grantor trust certificate is issued with OID, the amount of market
discount that accrues during any accrual period would be equal to the product
of
o the total remaining market discount and
o a fraction, the numerator of which is the OID accruing during the
period and the denominator of which is the total remaining OID at the
beginning of the accrual period.
For grantor trust certificates issued without OID, the amount of market
discount that accrues during a period is equal to the product of
o the total remaining market discount and
o a fraction, the numerator of which is the amount of stated interest
paid during the accrual period and the denominator of which is the
total amount of stated interest remaining to be paid at the beginning
of the accrual period.
For purposes of calculating market discount under any of the above methods
in the case of instruments, such as the grantor trust certificates, that
provide for payments that may be accelerated by reason of prepayments of other
obligations securing such instruments, the same prepayment assumption
applicable to calculating the accrual of OID will apply. Because the
regulations described above have not been issued, it is impossible to predict
what effect those regulations might have on the tax treatment of a grantor
trust certificate purchased at a discount or premium in the secondary market.
A holder who acquired a grantor trust certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry the grantor trust certificate purchased with market discount. For
these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which the market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
Election to Treat All Interest as OID. The OID Regulations permit a
certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in income as interest,
based on a constant yield method for certificates acquired on or after April 4,
1994. If this election were to be made with respect to a grantor trust
certificate with market discount, the certificateholder would be deemed to have
made an election to include in income currently market discount with respect to
all other debt instruments having market discount that such certificateholder
acquires during the year of the election or thereafter. Similarly, a
certificateholder that makes this election for a certificate that is acquired
at a premium will be deemed to have made an election to amortize bond premium
with respect to all debt instruments having amortizable bond premium that such
certificateholder owns or acquires. See "--Premium" in this prospectus. The
election to accrue interest, discount and premium on a constant yield method
with respect to a certificate is irrevocable without consent of the IRS.
Anti-Abuse Rule. The IRS can apply or depart from the rules contained in
the OID Regulations as necessary or appropriate to achieve a reasonable result
where a principal purpose in structuring a
71
mortgage loan, MBS, or grantor trust certificate or applying the otherwise
applicable rules is to achieve a result that is unreasonable in light of the
purposes of the applicable statues, which generally are intended to achieve the
clear reflection of income for both issuers and holders of debt instruments.
B. MULTIPLE CLASSES OF GRANTOR TRUST CERTIFICATES
1. Stripped Bonds and Stripped Coupons
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the interest payments on an obligation from ownership of
the right to receive some or all of the principal payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of Code Section 1271
through 1288, Code Section 1286 treats a stripped bond or a stripped coupon as
an obligation issued on the date that such stripped interest is created.
Excess Servicing will be Treated Under the Stripped Bond Rules. If the
excess servicing fee is less than 100 basis points, i.e., 1% interest on the
principal balance of the assets in the trust fund, or the certificates are
initially sold with a de minimis discount, assuming no prepayment assumption is
required, any non-de minimis discount arising from a subsequent transfer of the
certificates should be treated as market discount. The IRS appears to require
that reasonable servicing fees be calculated on an asset by asset basis, which
could result in some mortgage loans and/or MBS being treated as having more
than 100 basis points of interest stripped off. See "--Non-REMIC Certificates"
and "Multiple Classes of Grantor Trust Certificates--Stripped Bonds and
Stripped Coupons".
Although not entirely clear, a stripped bond certificate generally should
be treated as an interest in mortgage loans and/or MBS issued on the day the
certificate is purchased for purposes of calculating any OID. Generally, if the
discount on a mortgage loan or MBS is larger than a de minimis amount, as
calculated for purposes of the OID rules, a purchaser of such a certificate
will be required to accrue the discount under the OID rules of the Code. See
"--Non-REMIC Certificates" and "--Single Class of Grantor Trust
Certificates--Original Issue Discount". However, a purchaser of a stripped bond
certificate will be required to account for any discount on the mortgage loans
and/or MBS as market discount rather than OID if either
o the amount of OID with respect to the mortgage loans and/or MBS is
treated as zero under the OID de minimis rule when the certificate
was stripped or
o no more than 100 basis points, including any excess servicing, is
stripped off of the trust fund's mortgage loans and/or MBS.
Pursuant to Revenue Procedure 91-49, issued on August 8, 1991, purchasers of
stripped bond certificates using an inconsistent method of accounting must
change their method of accounting and request the consent of the IRS to the
change in their accounting method on a statement attached to their first timely
tax return filed after August 8, 1991.
The precise tax treatment of stripped coupon certificates is substantially
uncertain. The Code could be read literally to require that OID computations be
made for each payment from each mortgage loan or MBS. Unless otherwise
specified in the related prospectus supplement, all payments from a mortgage
loan or MBS underlying a stripped coupon certificate will be treated as a
single installment obligation subject to the OID rules of the Code, in which
case, all payments from the mortgage loan or MBS would be included in the
stated redemption price at maturity for the mortgage loan and/or MBS for
purposes of calculating income on the certificate under the OID rules of the
Code.
It is unclear under what circumstances, if any, the prepayment of mortgage
loans and/or MBS will give rise to a loss to the holder of a stripped bond
certificate purchased at a premium or a stripped coupon certificate. If the
certificate is treated as a single instrument rather than an interest in
discrete mortgage loans and the effect of prepayments is taken into account in
computing yield with respect to the grantor trust certificate, it appears that
no loss will be available as a result of any particular prepayment unless
prepayments occur at a rate sufficiently faster than the assumed prepayment
rate so that the certificateholder will not recover its investment. However, if
the certificate is treated as an interest in discrete
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mortgage loans or MBS, or if no prepayment assumption is used, then when a
mortgage loan or MBS is prepaid, the holder of the certificate should be able
to recognize a loss equal to the portion of the adjusted issue price of the
certificate that is allocable to the mortgage loan or MBS.
Holders of stripped bond certificates and striped coupon certificates are
urged to consult with their own tax advisors regarding the proper treatment of
these certificates for federal income tax purposes.
Treatment of Certain Owners. Several Code sections provide beneficial
treatment to certain taxpayers that invest in mortgage loans and/or MBS of the
type that make up the trust fund. With respect to these Code sections, no
specific legal authority exists regarding whether the character of the grantor
trust certificates, for federal income tax purposes, will be the same as that
of the underlying mortgage loans and/or MBS. While Code Section 1286 treats a
stripped obligation as a separate obligation for purposes of the Code
provisions addressing OID, it is not clear whether such characterization would
apply with regard to these other Code sections. Although the issue is not free
from doubt, each class of grantor trust certificates, to the extent set forth
in the related prospectus supplement, should be considered to represent "real
estate assets" within the meaning of Code Section 856(c)(4)(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
income attributable to grantor trust 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
underlying mortgage loans and/or MBS and interest on such mortgage loans and/or
MBS qualify for such treatment. Prospective purchasers to which such
characterization of an investment in certificates is material should consult
their own tax advisors regarding the characterization of the grantor trust
certificates and the income therefrom. Grantor trust certificates will be
"obligation(s) . . . which [are] principally secured by an interest in real
property" within the meaning of Code Section 860G(a)(3)(A) and "permitted
assets" within the meaning of Code Section 860L(c).
2. Grantor Trust Certificates Representing Interests in Loans Other Than
Adjustable Rate Loans
The original issue discount rules of Code Sections 1271 through 1275 will
be applicable to a certificateholder's interest in those mortgage loans and/or
MBS as to which the conditions for the application of those sections are met.
Rules regarding periodic inclusion of original issue discount in income are
applicable to mortgages of corporations originated after May 27, 1969,
mortgages of noncorporate borrowers--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 mortgage in an amount greater than
the statutory de minimis exception, including a payment of points that is
currently deductible by the borrower under applicable Code provisions, or under
certain circumstances, by the presence of "teaser" rates on the mortgage loans
and/or MBS. OID on each grantor trust certificate must be included in the
owner's ordinary income for federal income tax purposes as it accrues, in
accordance with a constant interest method that takes into account the
compounding of interest, in advance of receipt of the cash attributable to such
income. The amount of OID required to be included in an owner's income in any
taxable year with respect to a grantor trust certificate representing an
interest in mortgage loans and/or MBS other than adjustable rate loans likely
will be computed as described below under "--Accrual of Original Issue
Discount". The following discussion is based in part on the OID Regulations and
in part on the provisions of the Tax Reform Act of 1986. The OID Regulations
generally are effective for debt instruments issued on or after April 4, 1994,
but may be relied upon as authority with respect to debt instruments, such as
the grantor trust certificates, issued after December 21, 1992. Alternatively,
proposed Treasury regulations issued December 21, 1992 may be treated as
authority for debt instruments issued after December 21, 1992 and prior to
April 4, 1994, and proposed Treasury regulations issued in 1986 and 1991 may be
treated as authority for instruments issued before December 21, 1992. In
applying these dates, the issue date of the mortgage loans and/or MBS should be
used, or, in the case of stripped bond certificates or stripped coupon
certificates, the date such certificates are acquired. The holder of a
certificate should be aware, however, that neither the proposed OID Regulations
nor the OID Regulations adequately address certain issued relevant to
prepayable securities.
73
Under the Code, the mortgage loans and/or MBS underlying the grantor trust
certificate will be treated as having been issued on the date they were
originated with an amount of OID equal to the excess of such mortgage asset's
stated redemption price at maturity over its issue price. The issue price of a
mortgage loans and/or MBS is generally the amount lent to the lender, which may
be adjusted to take into account certain loans origination fees. The stated
redemption price at maturity of a mortgage loans and/or MBS is the sum of all
payments to be made on these assets other than payments that are treated as
qualified stated interest payments. The accrual of this OID, as described below
under "--Accrual of Original Issue Discount," will, to the extent set forth in
the related prospectus supplement, utilize the Prepayment Assumption on the
issue date of such grantor trust certificate and will take into account events
that occur during the calculation period. The Prepayment Assumption will be
determined in the manner prescribed by regulations that have not yet been
issued. In the absence of such regulations, the Prepayment Assumption used will
be the prepayment assumption that is used in determining the offering price of
such certificate. No representation is made that any certificate will prepay at
the Prepayment Assumption or at any other rate.
Accrual of Original Issue Discount. Generally, the owner of a grantor
trust certificate must include in gross income the sum of the "daily portions,"
as defined below in this section, of the OID on the grantor trust certificate
for each day on which it owns the certificate, including the date of purchase
but excluding the date of disposition. In the case of the original owner, the
daily portions of OID with respect to each component generally will be
determined as set forth under the OID Regulations. A calculation will be made
by the master servicer or other entity specified in the related prospectus
supplement of the portion of OID that accrues during each successive monthly
accrual period, or shorter period from the date of original issue, that ends on
the day in the calendar year corresponding to each of the distribution dates on
the grantor trust certificates, or the day prior to each such date. This will
be done, in the case of each full month accrual period, by
o adding (1) the present value at the end of the accrual
period--determined by using as a discount factor the original yield
to maturity of the respective component under the Prepayment
Assumption--of all remaining payments to be received under the
Prepayment Assumption on the respective component and (2) any
payments included in the stated redemption price at maturity received
during such accrual period, and
o subtracting from that total the "adjusted issued price" of the
respective component at the beginning of such accrual period.
The adjusted issue price of a grantor trust certificate at the beginning of the
first accrual period is its issue price; the adjusted issue price of a grantor
trust certificate at the beginning of a subsequent accrual period is the
adjusted issue price at the beginning of the immediately preceding accrual
period plus the amount of OID allocable to that accrual period reduced by the
amount of any payment other than a payment of qualified stated interest made at
the end of or during that accrual period. The OID accruing during such accrual
period will then be divided by the number of days in the period to determine
the daily portion of OID for each day in the period. With respect to an initial
accrual period shorter than a full monthly accrual period, the daily portions
of OID must be determined according to an appropriate allocation under any
reasonable method.
Original issue discount generally must be reported as ordinary gross
income as it accrues under a constant interest method that takes into account
the compounding of interest as it accrues rather than when received. However,
the amount of original issue discount includible in the income of a holder of
an obligation is reduced when the obligation is acquired 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 the mortgage loans and/or MBS acquired by a certificateholder
are purchased at a price equal to the then unpaid principal amount of the
asset, no original issue discount attributable to the difference between the
issue price and the original principal amount of the asset--i.e., points--will
be includible by the holder. Other original issue discount on the mortgage
loans and/or MBS--e.g., that arising from a "teaser" rate--would still need to
be accrued.
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3. Grantor Trust Certificates Representing Interests in Adjustable Rate
Loans
The OID Regulations do not address the treatment of instruments, such as
the grantor trust certificates, which represent interests in adjustable rate
loans. Additionally, the IRS has not issued guidance under the Code's coupon
stripping rules with respect to such instruments. In the absence of any
authority, the master servicer will report Stripped ARM Obligations to holders
in a manner it believes is consistent with the rules described above under the
heading "--Grantor Trust Certificates Representing Interests in Loans Other
Than Adjustable Rate Loans" and with the OID Regulations. In general,
application of these rules may require inclusion of income on a Stripped ARM
Obligation in advance of the receipt of cash attributable to such income.
Further, the addition of deferred interest to the principal balance of an
adjustable rate loan may require the inclusion of the amount in the income of
the grantor trust certificateholder when the amount accrues. Furthermore, the
addition of deferred interest to the grantor trust certificate's principal
balance will result in additional income, including possibly OID income, to the
grantor trust certificateholder over the remaining life of such grantor trust
certificates.
Because the treatment of Stripped ARM Obligations is uncertain, investors
are urged to consult their tax advisors regarding how income will be includible
with respect to such certificates.
C. SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE
Sale or exchange of a grantor trust certificate prior to its maturity will
result in gain or loss equal to the difference, if any, between the amount
received and the owner's adjusted basis in the grantor trust certificate. Such
adjusted basis generally will equal the seller's purchase price for the grantor
trust certificate, increased by the OID included in the seller's gross income
with respect to the grantor trust certificate, and reduced by principal
payments on the grantor trust certificate previously received by the seller.
Such gain or loss will be capital gain or loss to an owner for which a grantor
trust certificate is a "capital asset" within the meaning of Code Section 1221,
except to the extent described above with respect to market discount and will
generally be long-term capital gain if the grantor trust certificate has been
owned for more than one year. Long-term capital gains of individuals are
subject to reduced maximum tax rates while capital gains recognized by
individuals on capital assets held less than twelve months are generally
subject to ordinary income tax rates. The use of capital losses is limited.
It is possible that capital gain realized by holders of one or more
classes of grantor trust certificates could be considered gain realized upon
the disposition of property that was part of a "conversion transaction." A sale
of a grantor trust certificate will be part of a conversion transaction if
substantially all of the holder's expected return is attributable to the time
value of the holder's net investment, and:
o the holder entered the contract to sell the grantor trust certificate
substantially contemporaneously with acquiring the grantor trust
certificate;
o the grantor trust certificate is part of a straddle;
o the grantor trust certificate is marketed or sold as producing
capital gain; or
o other transactions to be specified in Treasury regulations that have
not yet been issued. If the sale or other disposition of a grantor
trust certificate is part of a conversion transaction, all or any
portion of the gain realized upon the sale or other disposition would
be treated as ordinary income instead of capital gain.
Grantor trust certificates will be "evidences of indebtedness" within the
meaning of Code Section 582(c)(1), so that gain or loss recognized from the
sale of a grantor trust certificate by a bank or a thrift institution to which
such section applies will be treated as ordinary income or loss.
D. NON-U.S. PERSONS
The term "U.S. Person" means
o a citizen or resident of the United States;
o a corporation (or entity treated as a corporation for tax purposes)
created or organized in the United States, under the laws of the
United States or of any state, or the District of Columbia;
75
o a partnership (or entity treated as a partnership for tax purposes)
organized in the United States or under the laws of the United
States, any state thereof, or the District of Columbia (unless
provided otherwise by future Treasury regulations);
o an estate whose income is includible in gross income for United
States income tax purposes regardless of its source; or,
o a trust, if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or
more U.S. Persons have authority to control all substantial decisions
of the trust. Notwithstanding the last clause of the preceding
sentence, to the extent provided in Treasury regulations, certain
trusts in existence on August 20, 1996, and treated as U.S. Persons
prior to such date, may elect to continue to be U.S. Persons.
Generally, to the extent that a grantor trust certificate evidences
ownership in underlying mortgage loans and/or MBS that were issued on or before
July 18, 1984, interest or OID paid by the person required to withhold tax
under Code Section 1441 or 1442 to
o an owner that is not a U.S. Person or
o grantor trust certificateholder holding on behalf of an owner that is
not a U.S. Person will be subject to federal income tax, collected by
withholding, at a rate of 30% or such lower rate as may be provided
for interest by an applicable tax treaty, unless such income is
effectively connected with a U.S. trade or business of such owner or
beneficial owner.
Accrued OID recognized by the owner on the sale or exchange of such a
grantor trust certificate also will be subject to federal income tax at the
same rate. Generally, such payments would not be subject to withholding to the
extent that a grantor trust certificate evidences ownership in mortgage loans
and/or MBS issued after July 18, 1984, by natural persons if such grantor trust
certificateholder complies with certain identification requirements, including
delivery of a statement, signed by the grantor trust certificateholder under
penalties of perjury, certifying that the grantor trust certificateholder who
is an individual or corporation (or an entity treated as a corporation for
federal income tax purposes) holding the grantor trust certificates on its own
behalf is not a U.S. Person and providing the name and address of the grantor
trust certificateholder. A certificateholder other than an individual or
corporation (or an entity treated as a corporation for federal income tax
purposes) holding the grantor trust certificates on its own behalf may have
substantially increased reporting requirements. In particular, in the case of
certificates held by a foreign partnership (or foreign trust), the partnership
(or trust) will be required to provide the certification from each of its
partners (or beneficiaries), and the partnership (or trust) will be required to
provide certain additional information. To the extent payments to grantor trust
certificateholders that are not U.S. Persons are payments of "contingent
interest" on the underlying mortgage loans and/or MBS, or the grantor trust
certificateholder is ineligible for the exemption described in the preceding
sentence, the 30% withholding tax will apply unless such withholding taxes are
reduced or eliminated by an applicable tax treaty and such holder meets the
eligibility and certification requirements necessary to obtain the benefits of
such treaty. Additional restrictions apply to mortgage loans and/or MBS where
the borrower is not a natural person in order to qualify for the exemption from
withholding. If capital gain derived from the sale, retirement or other
disposition of a grantor trust certificate is effectively connected with a U.S.
trade or business of a grantor trust certificateholder that is not a U.S.
Person, certificateholder will be taxed on the net gain under the graduated
U.S. federal income tax rates applicable to U.S. Persons and, with respect to
grantor trust certificates held by or on behalf of corporations, also may be
subject to branch profits tax. In addition, if the trust fund acquires a United
States real property interest through foreclosure, deed in lieu of foreclosure
or otherwise on a mortgage loan or MBS secured by such an interest, which for
this purpose includes real property located in the United States and the Virgin
Islands, a grantor trust certificateholder that is not a U.S. Person will
potentially be subject to federal income tax on any gain attributable to such
real property interest that is allocable to such holder. Non-U.S. Persons
should consult their tax advisors regarding the application to them of the
foregoing rules.
E. INFORMATION REPORTING AND BACKUP WITHHOLDING
The master servicer will furnish or make available, within a reasonable
time after the end of each calendar year, to each person who was a
certificateholder at any time during such year, the information
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as may be deemed necessary or desirable to assist certificateholders in
preparing their federal income tax returns, or to enable holders to make the
information available to beneficial owners or financial intermediaries that
hold such certificates as nominees on behalf of beneficial owners. If a holder,
beneficial owner, financial intermediary or other recipient of a payment on
behalf of a beneficial owner fails to supply a certified taxpayer
identification number or if the Secretary of the Treasury determines that such
person has not reported all interest and dividend income required to be shown
on its federal income tax return, 31% backup withholding may be required with
respect to any payments to registered owners who are not "exempt recipients."
In addition, upon the sale of a grantor trust certificate to, or through, a
broker, the broker must withhold 31% of the entire purchase price, unless
either
o the broker determines that the seller is a corporation or other
exempt recipient, or
o the seller provides, in the required manner, certain identifying
information and, in the case of a non-U.S. person, certifies that the
seller is a non-U.S. Person, and other conditions are met.
Such a sale must also be reported by the broker to the IRS, unless either
o the broker determines that the seller is an exempt recipient or
o the seller certifies its non-U.S. Person status and other conditions
are met.
Certification of the registered owner's non-U.S. Person status normally
would be made on IRS Form W-8 BEN under penalties of perjury, although in some
cases it may be possible to submit other documentary evidence. Any amounts
deducted and withheld from a distribution to a recipient would be allowed as a
credit against the recipient's federal income tax liability.
REMICs
The trust fund relating to a series of certificates may elect to be
treated as a REMIC. Qualification as a REMIC requires ongoing compliance with
certain conditions. Although a REMIC is not generally subject to federal income
tax (see, however "--Taxation of Owners of REMIC Residual Certificates" and
"--Prohibited Transactions and Other Taxes" below), if a trust fund with
respect to which a REMIC election is made fails to comply with one or more of
the ongoing requirements of the Code for REMIC status during any taxable year,
including the implementation of restrictions on the purchase and transfer of
the residual interests in a REMIC as described below under "--Taxation of
Owners of REMIC Residual Certificates," the Code provides that a trust fund
will not be treated as a REMIC for the year and thereafter. In that event, the
entity may be taxable as a separate corporation, and the REMIC Certificates may
not be accorded the status or given the tax treatment described below in this
section. While the Code authorizes the Treasury Department to issue regulations
providing relief in the event of an inadvertent termination of the status of a
trust fund as a REMIC, no such regulations have been issued. Any relief,
moreover, may be accompanied by sanctions, such as the imposition of a
corporate tax on all or a portion of the REMIC's income for the period in which
the requirements for such status are not satisfied. With respect to each trust
fund that elects REMIC status, Sidley Austin Brown & Wood LLP will deliver its
opinion generally to the effect that, under then existing law and assuming
compliance with all provisions of the related Agreement, the trust fund will
qualify as a REMIC, and the related certificates will be considered to be REMIC
Regular Certificates or a sole class of REMIC Residual Certificates. The
related prospectus supplement for each series of certificates will indicate
whether the trust fund will make a REMIC election and whether a class of
certificates will be treated as a regular or residual interest in the REMIC.
A "qualified mortgage" for REMIC purposes includes any obligation,
including certificates of participation in such an obligation and any "regular
interest" in another REMIC, that is principally secured by an interest in real
property and that is transferred to the REMIC within a prescribed time period
in exchange for regular or residual interests in the REMIC.
In general, with respect to each series of certificates for which a REMIC
election is made,
o certificates held by a thrift institution taxed as a "domestic
building and loan association" will constitute assets described in
Code Section 7701(a)(19)(C);
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o certificates held by a real estate investment trust will constitute
"real estate assets" within the meaning of Code Section 856(c)(4)(A);
and
o interest on certificates held by a real estate investment trust will
be considered "interest on obligations secured by mortgages on real
property" within the meaning of Code Section 856(c)(3)(B).
If less than 95% of the REMIC's assets are assets qualifying under any of
the foregoing Code sections, the certificates will be qualifying assets only to
the extent that the REMIC's assets are qualifying assets.
Tiered REMIC Structures. For certain series of certificates, two or more
separate elections may be made to treat designated portions of the related
trust fund as REMICs for federal income tax purposes. Upon the issuance of any
such series of certificates, Sidley Austin Brown & Wood LLP, counsel to the
depositor, will deliver its opinion generally to the effect that, assuming
compliance with all provisions of the related Agreement, the Master REMIC as
well as any Subsidiary REMIC will each qualify as a REMIC, and the REMIC
Certificates issued by the Master REMIC and the Subsidiary REMIC or REMICs,
respectively, will be considered REMIC Regular Certificates or REMIC Residual
Certificates in the related REMIC within the meaning of the REMIC Provisions.
Other than the residual interest in a Subsidiary REMIC, only REMIC
Certificates issued by the Master REMIC will be offered hereunder. The
Subsidiary REMIC or REMICs and the Master REMIC will be treated as one REMIC
solely for purposes of determining whether the REMIC Certificates will be:
o "real estate assets" within the meaning of Section 856(c)(4)(A) of
the Code;
o "loans secured by an interest in real property" under Section
7701(a)(19)(C) of the Code; and
o whether the income on the certificates is interest described in
Section 856(c)(3)(B) of the Code.
A. TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt
instruments issued by the REMIC and not as ownership interests in the REMIC or
its assets. Moreover, holders of REMIC Regular Certificates that otherwise
report income under a cash method of accounting will be required to report
income with respect to REMIC Regular Certificates under an accrual method.
Original Issue Discount and Premium. The REMIC Regular Certificates may be
issued with OID. Generally, the OID, if any, will equal the difference between
the "stated redemption price at maturity" of a REMIC Regular Certificate and
its "issue price." Holders of any class of certificates issued with OID will be
required to include the OID in gross income for federal income tax purposes as
it accrues, in accordance with a constant interest method based on the
compounding of interest as it accrues rather than in accordance with receipt of
the interest payments. The following discussion is based in part on the OID
Regulations and in part on the provisions of the Tax Reform Act of 1986. The
REMIC Regular Certificates should be aware, however, that the OID Regulations
do not adequately address certain issues relevant to prepayable securities,
such as the REMIC Regular Certificates.
Rules governing OID are set forth in Code Sections 1271 through 1273 and
1275. These rules require that the amount and rate of accrual of OID be
calculated based on the Prepayment Assumption and the anticipated reinvestment
rate, if any, relating to the REMIC Regular Certificates and prescribe a method
for adjusting the amount and rate of accrual of the discount where the actual
prepayment rate differs from the Prepayment Assumption. Under the Code, the
Prepayment Assumption must be determined in the manner prescribed by
regulations, which regulations have not yet been issued. The legislative
history provides, however, that Congress intended the regulations to require
that the Prepayment Assumption be the prepayment assumption that is used in
determining the initial offering price of such REMIC Regular Certificates. The
prospectus supplement for each series of REMIC Regular Certificates will
specify the Prepayment Assumption to be used for the purpose of determining the
amount and rate of accrual of OID. No representation is made that the REMIC
Regular Certificates will prepay at the Prepayment Assumption or at any other
rate.
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In general, each REMIC Regular Certificate will be treated as a single
installment obligation issued with an amount of OID equal to the excess of its
"stated redemption price at maturity" over its "issue price." The issue price
of a REMIC Regular Certificate is the first price at which a substantial amount
of REMIC Regular Certificates of that class are first sold to the public
(excluding bond houses, brokers, underwriters or wholesalers). If less than a
substantial amount of a particular class of REMIC Regular Certificates is sold
for cash on or prior to the closing date, the issue price for that class will
be treated as the fair market value of that class on the closing date. The
issue price of a REMIC Regular Certificate also includes the amount paid by an
initial certificateholder for accrued interest that relates to a period prior
to the issue date of the REMIC Regular Certificate. The stated redemption price
at maturity of a REMIC Regular Certificate includes the original principal
amount of the REMIC Regular Certificate, but generally will not include
distributions of interest if the distributions constitute "qualified stated
interest." Qualified stated interest generally means interest payable at a
single fixed rate or qualified variable rate provided that the interest
payments are unconditionally payable at intervals of one year or less during
the entire term of the REMIC Regular Certificate. Interest is payable at a
single fixed rate only if the rate appropriately takes into account the length
of the interval between payments. Distributions of interest on REMIC Regular
Certificates with respect to which Deferred Interest will accrue will not
constitute qualified stated interest payments, and the stated redemption price
at maturity of the REMIC Regular Certificates includes all distributions of
interest as well as principal thereon.
Where the interval between the issue date and the first distribution date
on a REMIC Regular Certificate is longer than the interval between subsequent
distribution dates, the greater of any original issue discount, disregarding
the rate in the first period, and any interest foregone during the first period
is treated as the amount by which the stated redemption price at maturity of
the certificates exceeds its issue price for purposes of the de minimis rule
described below in this section. The OID Regulations suggest that all interest
on a long first period REMIC Regular Certificate that is issued with non-de
minimis OID, as determined under the foregoing rule, will be treated as OID.
Where the interval between the issue date and the first distribution date on a
REMIC Regular Certificate is shorter than the interval between subsequent
distribution dates, interest due on the first distribution date in excess of
the amount that accrued during the first period would be added to the
certificate's stated redemption price at maturity. REMIC Regular
Certificateholders should consult their own tax advisors to determine the issue
price and stated redemption price at maturity of a REMIC Regular Certificate.
Under the de minimis rule, OID on a REMIC Regular Certificate will be
considered to be zero if the OID is less than 0.25% of the stated redemption
price at maturity of the REMIC Regular Certificate multiplied by the weighted
average maturity of the REMIC Regular Certificate. For this purpose, the
weighted average maturity of the REMIC Regular Certificate is computed as the
sum of the amounts determined by multiplying the number of full years, i.e.,
rounding down partial years, from the issue date until each distribution in
reduction of stated redemption price at maturity is scheduled to be made by a
fraction, the numerator of which is the amount of each distribution included in
the stated redemption price at maturity of the REMIC Regular Certificate and
the denominator of which is the stated redemption price at maturity of the
REMIC Regular Certificate. Although currently unclear, it appears that the
schedule of the distributions should be determined in accordance with the
Prepayment Assumption. The Prepayment Assumption with respect to a series of
REMIC Regular Certificates will be set forth in the related prospectus
supplement. Holders generally must report de minimis OID pro rata as principal
payments are received, and the income will be capital gain if the REMIC Regular
Certificate is held as a capital asset. However, accrual method holders may
elect to accrue all de minimis OID as well as market discount under a constant
interest method.
The prospectus supplement with respect to a trust fund may provide for
super premium certificates. The income tax treatment of such REMIC Regular
Certificates is not entirely certain. For information reporting purposes, the
trust fund intends to take the position that the stated redemption price at
maturity of such REMIC Regular Certificates is the sum of all payments to be
made on such REMIC Regular Certificates determined under the Prepayment
Assumption, with the result that such REMIC Regular Certificates would be
issued with OID. The calculation of income in this manner could result in
negative original issue discount, which delays future accruals of OID rather
than being immediately deductible
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when prepayments on the mortgage loans and/or MBS exceed those estimated under
the Prepayment Assumption. The IRS might contend, however, that certain
contingent payment rules contained in final regulations issued on June 11,
1996, with respect to original issue discount, should apply to such
certificates. Although such rules are not applicable to instruments governed by
Code Section 1272(a)(6), they represent the only guidance regarding the current
views of the IRS with respect to contingent payment instruments. These proposed
regulations, if applicable, generally would require holders of Regular Interest
Certificates to take the payments considered contingent interest payments into
income on a yield to maturity basis in accordance with a schedule of projected
payments provided by the depositor and to make annual adjustments to income to
account for the difference between actual payments received and projected
payment amounts accrued. In the alternative, the IRS could assert that the
stated redemption price at maturity of such REMIC Regular Certificates should
be limited to their principal amount, subject to the discussion below under
"--Accrued Interest Certificates," so that such REMIC Regular Certificates
would be considered for federal income tax purposes to be issued at a premium.
If such a position were to prevail, the rules described below under "--Premium"
would apply. It is unclear when a loss may be claimed for any unrecovered basis
for a Super-Premium Certificate. It is possible that a holder of a
super-premium certificate may only claim a loss when its remaining basis
exceeds the maximum amount of future payments, assuming no further prepayments
or when the final payment is received with respect to such Super-Premium
Certificate. Under the REMIC Regulations, if the issue price of a REMIC Regular
Certificate, other than REMIC Regular Certificate based on a notional amount,
does not exceed 125% of its actual principal amount, the interest rate is not
considered disproportionately high. Accordingly, such REMIC Regular Certificate
generally should not be treated as a super-premium certificate and the rules
described below under "--Premium" should apply. However, it is possible that
holders or REMIC Regular Certificates issued at a premium, even if the premium
is less than 25% of such certificate's actual principal balance, will be
required to amortize the premium under an original issue discount method or
contingent interest method even though no election under Code Section 171 is
made to amortize such premium.
Generally, a REMIC Regular Certificateholder must include in gross income
the "daily portions" of the OID that accrues on a REMIC Regular Certificate for
each day a certificateholder holds the REMIC Regular Certificate, including the
purchase date but excluding the disposition date. In the case of an original
holder of a REMIC Regular Certificate, a calculation will be made of the
portion of the OID that accrues during each successive period--"an accrual
period"--that ends on the day in the calendar year corresponding to a
distribution date, or if distribution dates are on the first day or first
business day of the immediately preceding month, interest may be treated as
payable on the last day of the immediately preceding month, and begins on the
day after the end of the immediately preceding accrual period or on the issue
date in the case of the first accrual period. This will be done, in the case of
each full accrual period, by
o adding (1) the present value at the end of the accrual
period--determined by using as a discount factor the original yield
to maturity of the REMIC Regular Certificates as calculated under the
Prepayment Assumption--of all remaining payments to be received on
the REMIC Regular Certificates under the Prepayment Assumption and
(2) any payments included in the stated redemption price at maturity
received during such accrual period, and
o subtracting from that total the adjusted issue price of the REMIC
Regular Certificates at the beginning of such accrual period.
o The adjusted issue price of a REMIC Regular Certificate at the
beginning of the first accrual period is its issue price; the
adjusted issue price of a REMIC Regular Certificate at the beginning
of a subsequent accrual period is the adjusted issue price at the
beginning of the immediately preceding accrual period plus the amount
of OID allocable to that accrual period and reduced by the amount of
any payment other than a payment of qualified stated interest made at
the end of or during that accrual period. The OID accrued during an
accrual period will then be divided by the number of days in the
period to determine the daily portion of OID for each day in the
accrual period. The calculation of OID under the method described
above will cause the accrual of OID to either increase or
decrease--but never below zero--in a given accrual period to reflect
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the fact that prepayments are occurring faster or slower than under
the Prepayment Assumption. With respect to an initial accrual period
shorter than a full accrual period, the "daily portions" of OID may
be determined according to an appropriate allocation under any
reasonable method.
A subsequent purchaser of a REMIC Regular Certificate issued with OID who
purchases the REMIC Regular Certificate at a cost less than the remaining
stated redemption price at maturity will also be required to include in gross
income the sum of the daily portions of OID on that REMIC Regular Certificate.
In computing the daily portions of OID for such a purchaser, as well as an
initial purchaser that purchases at a price higher than the adjusted issue
price but less than the stated redemption price at maturity, however, the daily
portion is reduced by the amount that would be the daily portion for such day,
computed in accordance with the rules set forth above, multiplied by a
fraction, the numerator of which is the amount, if any, by which the price paid
by such holder for that REMIC Regular Certificate exceeds the following amount:
(1) the sum of the issue price plus the aggregate amount of OID that
would have been includible in the gross income of an original REMIC
Regular Certificateholder, who purchased the REMIC Regular Certificate
at its issue price, less
(2) any prior payments included in the stated redemption price at
maturity, and the denominator of which is the sum of the daily
portions for that REMIC Regular Certificate for all days beginning on
the date after the purchase date and ending on the maturity date
computed under the Prepayment Assumption.
A holder who pays an acquisition premium instead may elect to accrue OID by
treating the purchase as a purchase at original issue.
Variable Rate REMIC Regular Certificates. REMIC Regular Certificates may
provide for interest based on a variable rate. Interest based on a variable
rate will constitute qualified stated interest and not contingent interest if,
generally:
o the interest is unconditionally payable at least annually;
o the issue price of the debt instrument does not exceed the total
noncontingent principal payments; and
o interest is based on a "qualified floating rate," an "objective
rate," a combination of a single fixed rate and one or more
"qualified floating rates," one "qualified inverse floating rate," or
a combination of "qualified floating rates" that do not operate in a
manner that significantly accelerates or defers interest payments on
the REMIC Regular Certificates.
The amount of OID with respect to a REMIC Regular Certificate bearing a
variable rate of interest will accrue in the manner described above under
"--Original Issue Discount and Premium" by assuming generally that the Index
used for the variable rate will remain fixed throughout the term of the
certificate at the rate applicable on the date they are issued. Appropriate
adjustments are made for the actual variable rate.
Although unclear at present, the depositor intends to treat interest on a
REMIC Regular Certificate that is a weighted average of the net interest rates
on mortgage loans as qualified stated interest. In such case, the weighted
average rate used to compute the initial pass-through rate on the REMIC Regular
Certificates will be deemed to be the Index in effect through the life of the
REMIC Regular Certificates. It is possible, however, that the IRS may treat
some or all of the interest on REMIC Regular Certificates with a weighted
average rate as taxable under the rules relating to obligations providing for
contingent payments. No guidance is currently available as to how OID would be
determined for debt instruments subject to Code Section 1272(a)(6) that provide
for contingent interest. The treatment of REMIC Regular Certificates as
contingent payment debt instruments may affect the timing of income accruals on
the REMIC Regular Certificates.
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Election to Treat All Interest as OID. The OID Regulations permit a
certificateholder to elect to accrue all interest, discount (including de
minimis market discount or original issue discount) and premium in income as
interest, based on a constant yield method. If such an election were to be made
with respect to a REMIC Regular Certificate with market discount, the
certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such certificateholder acquires during the year of the
election or thereafter. Similarly, a certificateholder that makes this election
for a certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such certificateholder owns or acquires. See
"--Premium" below. The election to accrue interest, discount and premium on a
constant yield method with respect to a certificate is irrevocable without the
consent of the IRS.
Market Discount. A purchaser of a REMIC Regular Certificate may also be
subject to the market discount provisions of Code Sections 1276 through 1278.
Under these provisions and the OID Regulations, "market discount" equals the
excess, if any, of (1) the REMIC Regular Certificate's stated principal amount
or, in the case of a REMIC Regular Certificate with OID, the adjusted issue
price, determined for this purpose as if the purchaser had purchased such REMIC
Regular Certificate from an original holder, over (2) the price for such REMIC
Regular Certificate paid by the purchaser. A certificateholder that purchases a
REMIC Regular Certificate at a market discount will recognize income upon
receipt of each distribution representing amounts included in such
certificate's stated redemption price at maturity. In particular, under Section
1276 of the Code such a holder generally will be required to allocate each such
distribution first to accrued market discount not previously included in
income, and to recognize ordinary income to that extent. A certificateholder
may elect to include market discount in income currently as it accrues rather
than including it on a deferred basis in accordance with the foregoing. If
made, the election will apply to all market discount bonds acquired by the
certificateholder on or after the first day of the first taxable year to which
the election applies.
Market discount with respect to a REMIC Regular Certificate will be
considered to be zero if the amount allocable to the REMIC Regular Certificate
is less than 0.25% of the REMIC Regular Certificate's stated redemption price
at maturity multiplied by the REMIC Regular Certificate's weighted average
maturity remaining after the date of purchase. If market discount on a REMIC
Regular Certificate is considered to be zero under this rule, the actual amount
of market discount must be allocated to the remaining principal payments on the
REMIC Regular Certificate, and gain equal to the allocated amount will be
recognized when the corresponding principal payment is made. Treasury
regulations implementing the market discount rules have not yet been issued;
therefore, investors should consult their own tax advisors regarding the
application of these rules and the advisability of making any of the elections
allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment, whether a scheduled payment
or a prepayment, or any gain on disposition of a market discount bond acquired
by the taxpayer after October 22, 1986, shall be treated as ordinary income to
the extent that it does not exceed the accrued market discount at the time of
the payment. The amount of accrued market discount for purposes of determining
the tax treatment of subsequent principal payments or dispositions of the
market discount bond is to be reduced by the amount so treated as ordinary
income.
The Code also grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury, rules described in
the legislative history will apply. Under those rules, the holder of a market
discount bond may elect to accrue market discount either on the basis of a
constant interest method rate or according to one of the following methods. For
REMIC Regular Certificates issued with OID, the amount of market discount that
accrues during a period is equal to the product of
1) the total remaining market discount and
2) a fraction, the numerator of which is the OID accruing during the
period and the denominator of which is the total remaining OID at the
beginning of the period.
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For REMIC Regular Certificates issued without OID, the amount of market
discount that accrues during a period is equal to the product of
1) the total remaining market discount and
2) a fraction, the numerator of which is the amount of stated interest
paid during the accrual period and the denominator of which is the
total amount of stated interest remaining to be paid at the beginning
of the period.
For purposes of calculating market discount under any of the above methods in
the case of instruments (such as the REMIC Regular Certificates) that provide
for payments that may be accelerated by reason of prepayments of other
obligations securing such instruments, the same Prepayment Assumption
applicable to calculating the accrual of OID will apply.
A holder who acquired a REMIC Regular Certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry the certificate purchased with market discount. For these purposes,
the de minimis rule referred to above applies. Any such deferred interest
expense would not exceed the market discount that accrues during such taxable
year and is, in general, allowed as a deduction not later than the year in
which such market discount is includible in income. If such holder elects to
include market discount in income currently as it accrues on all market
discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
Premium. A purchaser of a REMIC Regular Certificate that purchases the
REMIC Regular Certificate at a cost, not including accrued qualified stated
interest, greater than its remaining stated redemption price at maturity will
be considered to have purchased the REMIC Regular Certificate at a premium and
may elect to amortize the premium under a constant yield method. A
certificateholder that makes this election for a Certificate that is acquired
at a premium will be deemed to have made an election to amortize bond premium
with respect to all debt instruments having amortizable bond premium that such
certificateholder acquires during the year of the election or thereafter. It is
not clear whether the Prepayment Assumption would be taken into account in
determining the life of the REMIC Regular Certificate for this purpose.
However, the legislative history states that the same rules that apply to
accrual of market discount, which rules require use of a Prepayment Assumption
in accruing market discount with respect to REMIC Regular Certificates without
regard to whether such certificates have OID, will also apply in amortizing
bond premium under Code Section 171. The Code provides that amortizable bond
premium will be allocated among the interest payments on such REMIC Regular
Certificates and will be applied as an offset against the interest payment. The
Amortizable Bond Premium Regulations do not apply to prepayable securities
described in Section 1272(a)(6) of the Code, such as the REMIC Regular
Certificates. Certificateholders should consult their tax advisors regarding
the possibility of making an election to amortize any such bond premium.
Deferred Interest. Certain classes of REMIC Regular Certificates may
provide for the accrual of deferred interest with respect to one or more
adjustable rate loans. Any deferred interest that accrues with respect to a
class of REMIC Regular Certificates will constitute income to the holders of
certificates prior to the time distributions of cash with respect to the
deferred interest are made. It is unclear, under the OID Regulations, whether
any of the interest on certificates will constitute qualified stated interest
or whether all or a portion of the interest payable on such certificates must
be included in the stated redemption price at maturity of the certificates and
accounted for as OID, which could accelerate such inclusion. Interest on REMIC
Regular Certificates must in any event be accounted for under an accrual method
by the holders of such certificates and, therefore, applying the latter
analysis may result only in a slight difference in the timing of the inclusion
in income of interest on such REMIC Regular Certificates.
Sale, Exchange or Redemption. If a REMIC Regular Certificate is sold,
exchanged, redeemed or retired, the seller will recognize gain or loss equal to
the difference between the amount realized on the sale, exchange, redemption,
or retirement and the seller's adjusted basis in the REMIC Regular Certificate.
Such adjusted basis generally will equal the cost of the REMIC Regular
Certificate to the seller, increased by any OID and market discount included in
the seller's gross income with respect to the
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REMIC Regular Certificate, and reduced, but not below zero, by payments
included in the stated redemption price at maturity previously received by the
seller and by any amortized premium. Similarly, a holder who receives a payment
that is part of the stated redemption price at maturity of a REMIC Regular
Certificate will recognize gain equal to the excess, if any, of the amount of
the payment over an allocable portion of the holder's adjusted basis in the
REMIC Regular Certificate. A REMIC Regular Certificateholder who receives a
final payment that is less than the holder's adjusted basis in the REMIC
Regular Certificate will generally recognize a loss. Except as provided in the
following paragraph and as provided under "--Market Discount" above, any such
gain or loss will be capital gain or loss, provided that the REMIC Regular
Certificate is held as a "capital asset" (generally, property held for
investment) within the meaning of Code Section 1221.
Such capital gain or loss will generally be long-term capital gain or loss
if the REMIC Regular Certificate was held for more than one year. Long-term
capital gains of individuals are subject to reduced maximum tax rates while
capital gains recognized by individuals on capital assets held less than twelve
months are generally subject to ordinary income tax rates. The use of capital
losses is limited.
Gain from the sale or other disposition of a REMIC Regular Certificate
that might otherwise be capital gain will be treated as ordinary income to the
extent that the gain does not exceed the excess, if any, of
o the amount that would have been includible in the holder's income
with respect to the REMIC Regular Certificate had income accrued
thereon at a rate equal to 110% of the AFR as defined in Code Section
1274(d) determined as of the date of purchase of such REMIC Regular
Certificate, over
o the amount actually includible in such holder's income.
Gain from the sale or other disposition of a REMIC Regular Certificate that
might otherwise be capital gain will be treated as ordinary income if the REMIC
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 REMIC 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 disposition of property that was held as part of such transaction, or if
the REMIC Regular Certificate is held as part of a straddle. Potential
investors should consult their tax advisors with respect to tax consequences of
ownership and disposition of an investment in REMIC Regular Certificates in
their particular circumstances.
It is possible that capital gain realized by holders of one or more
classes of REMIC Regular Certificates could be considered gain realized upon
the disposition of property that was part of a "conversion transaction." A sale
of a REMIC Regular Certificate will be part of a "conversion transaction" if
substantially all of the holder's expected return is attributable to the time
value of the holder's net investment, and:
o the holder entered the contract to sell the REMIC Regular Certificate
substantially contemporaneously with acquiring the REMIC Regular
Certificate;
o the REMIC Regular Certificate is part of a straddle;
o the REMIC Regular Certificate is marketed or sold as producing
capital gains; or
o other transactions to be specified in Treasury regulations that have
not yet been issued. If the sale or other disposition of a REMIC
Regular Certificate is part of a conversion transaction, all or a
portion of the gain realized upon the sale or other disposition of
the REMIC Regular Certificate would be treated as ordinary income
instead of capital gain.
The certificates will be "evidences of indebtedness" within the meaning of
Code Section 582(c)(1), so that gain or loss recognized from the sale of a
REMIC Regular Certificate by a bank or a thrift institution to which this
section applies will be ordinary income or loss.
84
The REMIC Regular Certificate information reports will include a statement
of the adjusted issue price of the REMIC Regular Certificate at the beginning
of each accrual period. In addition, the reports will include information
necessary to compute the accrual of any market discount that may arise upon
secondary trading of REMIC Regular Certificates. Because exact computation of
the accrual of market discount on a constant yield method would require
information relating to the holder's purchase price which the REMIC may not
have, it appears that the information reports will only provide information
pertaining to the appropriate proportionate method of accruing market discount.
Accrued Interest Certificates. Certificates may provide for payments of
interest based on a period that corresponds to the interval between
distribution dates but that ends prior to each distribution date. The period
between the closing date for payment lag certificates and their first
distribution date may or may not exceed the interval. Purchasers of payment lag
certificates for which the period between the closing date and the first
distribution date does not exceed the interval could pay upon purchase of the
REMIC Regular Certificates accrued interest in excess of the accrued interest
that would be paid if the interest paid on the distribution date were interest
accrued from distribution date to distribution date. If a portion of the
initial purchase price of a REMIC Regular Certificate is allocable to
pre-issuance accrued interest and the REMIC Regular Certificate provides for a
payment of stated interest on the first payment date and the first payment date
is within one year of the issue date that equals or exceeds the amount of the
pre-issuance accrued interest, then the REMIC Regular Certificate's issue price
may be computed by subtracting from the issue price the amount of pre-issuance
accrued interest, rather than as an amount payable on the REMIC Regular
Certificate. However, it is unclear under this method how the OID Regulations
treat interest on payment lag certificates. Therefore, in the case of a payment
lag certificate, the trust fund intends to include accrued interest in the
issue price and report interest payments made on the first distribution date as
interest to the extent such payments represent interest for the number of days
that the certificateholder has held the payment lag certificate during the
first accrual period.
Investors should consult their own tax advisors concerning the treatment
for federal income tax purposes of payment lag certificates.
Non-Interest Expenses of the REMIC. Under temporary Treasury regulations,
if the REMIC is considered to be a "single-class REMIC," a portion of the
REMIC's servicing, administrative and other non-interest expenses will be
allocated as a separate item to those REMIC Regular Certificateholders that are
"pass-through interest holders." Certificateholders that are pass-through
interest holders should consult their own tax advisors about the impact of
these rules on an investment in the REMIC Regular Certificates. See
"Pass-Through of Non-Interest Expenses of the REMIC" under "Taxation of Owners
of REMIC Residual Certificates" below.
Effects of Defaults, Delinquencies and Losses. Certain series of
certificates may contain one or more classes of subordinated certificates, and
in the event there are defaults or delinquencies on the mortgage loans and/or
MBS, amounts that would otherwise be distributed on the subordinated
certificates may instead be distributed on the senior certificates.
Subordinated certificateholders nevertheless will be required to report income
with respect to such certificates under an accrual method without giving effect
to delays and reductions in distributions on the subordinated certificates
attributable to defaults and delinquencies on the mortgage loans and/or MBS,
except to the extent that it can be established that the amounts are
uncollectible. As a result, the amount of income reported by a subordinated
certificateholder in any period could significantly exceed the amount of cash
distributed to the holder in that period. The holder will eventually be allowed
a loss (or will be allowed to report a lesser amount of income) to the extent
that the aggregate amount of distributions on the subordinated certificate is
reduced as a result of defaults and delinquencies on the mortgage loans and/or
MBS.
Although not entirely clear, it appears that holders of REMIC Regular
Certificates that are corporations should in general be allowed to deduct as an
ordinary loss any loss sustained during the taxable year on account of any such
certificates becoming wholly or partially worthless, and that, in general,
holders of certificates that are not corporations should be allowed to deduct
as a short-term capital loss any loss sustained during the taxable year on
account of any such certificates becoming wholly worthless. Potential investors
and holders of the certificates are urged to consult their own tax advisors
85
regarding the appropriate timing, amount and character of any loss sustained
with respect to such certificates, including any loss resulting from the
failure to recover previously accrued interest or discount income. Special loss
rules are applicable to banks and thrift institutions, including rules
regarding reserves for bad debts. These taxpayers are advised to consult their
tax advisors regarding the treatment of losses on certificates.
Non-U.S. Persons. Generally, payments of interest on the REMIC Regular
Certificates, including any payment with respect to accrued OID, to a REMIC
Regular Certificateholder who is not a U.S. Person as defined in "--Grantor
Trust Funds; Non-U.S. Person" and is not engaged in a trade or business within
the United States will not be subject to federal withholding tax if:
o the REMIC Regular Certificateholder does not actually or
constructively own 10 percent or more of the combined voting power of
all classes of equity in the issuer;
o the REMIC Regular Certificateholder is not a controlled foreign
corporation, within the meaning of Code Section 957, related to the
issuer; and
o the REMIC Regular Certificateholder complies with identification
requirements, including delivery of a statement, signed by the REMIC
Regular Certificateholder under penalties of perjury, certifying that
the REMIC Regular Certificateholder is a foreign person and providing
the name and address of the REMIC Regular Certificateholder.
If a REMIC Regular Certificateholder is not exempt from withholding,
distributions of interest to the holder, including distributions in respect of
accrued OID, may be subject to a 30% withholding tax, subject to reduction
under any applicable tax treaty. If the interest on a REMIC Regular Certificate
is effectively connected with the conduct by the Non-U.S. REMIC Regular
Certificateholder of a trade or business within the United States, then the
Non-U.S. REMIC Regular Certificateholder will be subject to U.S. income tax at
regular graduated rates. Such a Non-U.S. REMIC Regular Certificateholder also
may be subject to the branch profits tax.
Further, a REMIC Regular Certificate will not be included in the estate of
a non-resident alien individual that does not actually or constructively own
10% or more of the combined voting power of all classes of equity in the Issuer
and will not be subject to United States estate taxes. However,
certificateholders who are non-resident alien individuals should consult their
tax advisors concerning this question.
REMIC Regular Certificateholders who are not U.S. Persons and persons
related to such holders should not acquire any REMIC Residual Certificates,
REMIC Residual Certificateholder and persons related to REMIC Residual
Certificateholders should not acquire any REMIC Regular Certificates without
consulting their tax advisors as to the possible adverse tax consequences of
doing so. In addition, the IRS may assert that non-U.S. Persons that own
directly or indirectly, a greater than 10% interest in any borrower, and
foreign corporations that are "controlled foreign corporations" as to the
United States of which such a borrower is a "United States shareholder" within
the meaning of Section 951(b) of the Code, are subject to United States
withholding tax on interest distributed to them to the extent of interest
concurrently paid by the related borrower.
Information Reporting and Backup Withholding. The master servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a REMIC Regular Certificateholder at any
time during that year, the information as may be deemed necessary or desirable
to assist REMIC Regular Certificateholders in preparing their federal income
tax returns, or to enable holders to make the information available to
beneficial owners or financial intermediaries that hold the REMIC Regular
Certificates on behalf of beneficial owners. If a holder, beneficial owner,
financial intermediary or other recipient of a payment on behalf of a
beneficial owner fails to supply a certified taxpayer identification number or
if the Secretary of the Treasury determines that such person has not reported
all interest and dividend income required to be shown on its federal income tax
return, backup withholding may be required with respect to any payments to
registered owners who are not "exempt recipients." In addition, upon the sale
of a REMIC Regular Certificate to, or through, a broker, the broker must backup
withhold on the entire purchase price, unless either:
86
o the broker determines that the seller is a corporation or other
exempt recipient, or
o the seller provides, in the required manner, identifying information
and, in the case of a non-U.S. Person, certifies that such seller is
a non-U.S. Person, and other conditions are met.
o A sale of a REMIC Regular Certificate to, or through, a broker must
also be reported by the broker to the IRS, unless either:
o the broker determines that the seller is an exempt recipient, or
o the seller certifies its non-U.S. Person status and other conditions
are met.
In the case of an individual or corporation (or an entity treated as a
corporation for federal income tax purposes) holding the REMIC Regular
Certificates on its own behalf, certification of the registered owner's
non-U.S. Person status normally would be made on IRS Form W-8 BEN under
penalties of perjury, although in certain cases it may be possible to submit
other documentary evidence. A certificateholder other than an individual or
corporation (or an entity treated as a corporation for federal income tax
purposes) holding the REMIC Regular Certificates on its own behalf may have
substantially increased reporting requirements. In particular, in the case of
certificates held by a foreign partnership (or foreign trust), the partnership
(or trust) will be required to provide the certification from each of its
partners (or beneficiaries), and the partnership (or trust) will be required to
provide certain additional information. Any amounts deducted and withheld from
a distribution to a recipient would be allowed as a credit against such
recipient's federal income tax liability.
B. TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
Allocation of the Income of the REMIC to the REMIC Residual
Certificates. The REMIC will not be subject to federal income tax except with
respect to income from prohibited transactions and certain other transactions.
See "--Prohibited Transactions and Other Taxes" below. Instead, each original
holder of a REMIC Residual Certificate will report on its federal income tax
return, as ordinary income, its share of the taxable income of the REMIC for
each day during the taxable year on which the holder owns any REMIC Residual
Certificates. The taxable income of the REMIC for each day will be determined
by allocating the taxable income of the REMIC for each calendar quarter ratably
to each day in the quarter. Such a holder's share of the taxable income of the
REMIC for each day will be based on the portion of the outstanding REMIC
Residual Certificates that the holder owns on that day. The taxable income of
the REMIC will be determined under an accrual method and will be taxable to the
holders of REMIC Residual Certificates without regard to the timing or amounts
of cash distributions by the REMIC. Ordinary income derived from REMIC Residual
Certificates will be "portfolio income" for purposes of the taxation of
taxpayers subject to the limitations on the deductibility of "passive losses."
As residual interests, the REMIC Residual Certificates will be subject to tax
rules, described below, that differ from those that would apply if the REMIC
Residual Certificates were treated for federal income tax purposes as direct
ownership interests in the certificates or as debt instruments issued by the
REMIC.
A REMIC Residual Certificateholder may be required to include taxable
income from the REMIC Residual Certificate in excess of the cash distributed.
For example, a structure where principal distributions are made serially on
regular interests, that is, a fast-pay, slow-pay structure, may generate such a
mismatching of income and cash distributions that is, "phantom income". This
mismatching may be caused by the use of certain required tax accounting methods
by the REMIC, variations in the prepayment rate of the underlying mortgage
loans and/or MBS and certain other factors. Depending upon the structure of a
particular transaction, the aforementioned factors may significantly reduce the
after-tax yield of a REMIC Residual Certificate to a REMIC Residual
Certificateholder or cause the REMIC Residual Certificate to have negative
"value." Investors should consult their own tax advisors concerning the federal
income tax treatment of a REMIC Residual Certificate and the impact of the tax
treatment on the after-tax yield of a REMIC Residual Certificate.
A subsequent REMIC Residual Certificateholder also will report on its
federal income tax return amounts representing a daily share of the taxable
income of the REMIC for each day that the REMIC Residual Certificateholder owns
the REMIC Residual Certificate. Those daily amounts generally would
87
equal the amounts that would have been reported for the same days by an
original REMIC Residual Certificateholder, as described above. The legislative
history indicates that certain adjustments may be appropriate to reduce or
increase the income of a subsequent holder of a REMIC Residual Certificate that
purchased the REMIC Residual Certificate at a price greater than or less than
the adjusted basis the REMIC Residual Certificate would have in the hands of an
original REMIC Residual Certificateholder. See "--Sale or Exchange of REMIC
Residual Certificates" below. It is not clear, however, whether the adjustments
will in fact be permitted or required and, if so, how they would be made. The
REMIC Regulations do not provide for any such adjustments.
Taxable Income of the REMIC Attributable to Residual Interests. The
taxable income of the REMIC will reflect a netting of
o the income from the mortgage loans and/or MBS and the REMIC's other
assets and
o the deductions allowed to the REMIC for interest and OID on the REMIC
Regular Certificates and, except as described above under "--Taxation
of Owners of REMIC Regular Certificates--Non-Interest Expenses of the
REMIC," other expenses.
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:
o the limitations on deductibility of investment interest expense and
expenses for the production of income do not apply;
o all bad loans will be deductible as business bad debts; and
o the limitation on the deductibility of interest and expenses related
to tax-exempt income will apply.
The REMIC'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 on reinvestment of cash flows
and reserve assets, plus any cancellation of indebtedness income upon
allocation of realized losses to the REMIC Regular Certificates. Note that the
timing of cancellation of indebtedness income recognized by REMIC Residual
Certificateholders resulting from defaults and delinquencies on mortgage loans
and/or MBS may differ from the time of the actual loss on the assets. The
REMIC's deductions include interest and original issue discount expense on the
REMIC Regular Certificates, servicing fees on the mortgage loans, other
administrative expenses of the REMIC and realized losses on the mortgage loans.
The requirement that REMIC Residual Certificateholders report their pro rata
share of taxable income or net loss of the REMIC will continue until there are
no certificates of any class of the related series outstanding.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the REMIC Regular Certificates and the REMIC Residual Certificates, or, if a
class of certificates is not sold initially, its fair market value. The
aggregate basis will be allocated among the mortgage loans and/or MBS and other
assets of the REMIC in proportion to their respective fair market value. A
mortgage loan or MBS will be deemed to have been acquired with discount or
premium to the extent that the REMIC's basis therein is less than or greater
than its principal balance, respectively. Any such discount, whether market
discount or OID, will be includible in the income of the REMIC as it accrues,
in advance of receipt of the cash attributable to the income, under a method
similar to the method described above for accruing OID on the REMIC Regular
Certificates. The REMIC may elect under Code Section 171 to amortize any
premium on the mortgage loans and/or MBS. Premium on any mortgage loan or MBS
to which the election applies would be amortized under a constant yield method.
It is not clear whether the yield of a mortgage loan or MBS would be calculated
for this purpose based on scheduled payments or taking account of the
Prepayment Assumption. Additionally, such an election would not apply to the
yield with respect to any underlying mortgage loan originated on or before
September 27, 1985. Instead, premium with respect to such a mortgage loan would
be allocated among the principal payments thereon and would be deductible by
the REMIC as those payments become due.
88
The REMIC will be allowed a deduction for interest and OID on the REMIC
Regular Certificates. The amount and method of accrual of OID will be
calculated for this purpose in the same manner as described above with respect
to REMIC Regular Certificates except that the 0.25% per annum de minimis rule
and adjustments for subsequent holders described therein will not apply.
A REMIC Residual Certificateholder will not be permitted to amortize the
cost of the REMIC Residual Certificate as an offset to its share of the REMIC's
taxable income. However, REMIC taxable income will not include cash received by
the REMIC that represents a recovery of the REMIC's basis in its assets, and,
as described above, the issue price of the REMIC Residual Certificates will be
added to the issue price of the REMIC Regular Certificates in determining the
REMIC's initial basis in its assets. See "--Sale or Exchange of REMIC Residual
Certificates" below. For a discussion of possible adjustments to income of a
subsequent holder of a REMIC Regular Certificate to reflect any difference
between the actual cost of the REMIC Residual Certificate to the holder and the
adjusted basis the REMIC Residual Certificate would have in the hands of an
original REMIC Residual Certificateholder, see "--Allocation of the Income of
the REMIC to the REMIC Residual Certificates" above.
Net Losses of the REMIC. The REMIC will have a net loss for any calendar
quarter in which its deductions exceed its gross income. The net loss would be
allocated among the REMIC Residual Certificateholders in the same manner as the
REMIC's taxable income. The net loss allocable to any REMIC Residual
Certificate will not be deductible by the holder to the extent that the net
loss exceeds the holder's adjusted basis in the REMIC Residual Certificate. Any
net loss that is not currently deductible by reason of this limitation may only
be used by the REMIC Residual Certificateholder to offset its share of the
REMIC's taxable income in future periods (but not otherwise). The ability of
REMIC Residual Certificateholders that are individuals or closely held
corporations to deduct net losses may be subject to additional limitations
under the Code.
Mark-to-Market Rules. Prospective purchasers of a REMIC Residual
Certificate should be aware that the IRS has finalized Mark-to-Market
Regulations which provide that a REMIC Residual Certificate acquired after
January 3, 1995 cannot be marked to market. The Mark-to-Market Regulations
replaced the temporary regulations which allowed a Residual Certificate to be
marked to market provided that it was not a "negative value" residual interest
and did not have the same economic effect as a "negative value" residual
interest.
Pass-Through of Non-Interest Expenses of the REMIC. As a general rule, all
of the fees and expenses of a REMIC will be taken into account by holders of
the REMIC Residual Certificates. In the case of a single class REMIC, however,
the expenses and a matching amount of additional income will be allocated,
under temporary Treasury regulations, among the REMIC Regular
Certificateholders and the REMIC Residual Certificateholders on a daily basis
in proportion to the relative amounts of income accruing to each
certificateholder on that day. In general terms, a single class REMIC is one
that either:
o would qualify, under existing Treasury regulations, as a grantor
trust if it were not a REMIC, treating all interests as ownership
interests, even if they would be classified as debt for federal
income tax purposes, or
o is similar to such a trust and is structured with the principal
purpose of avoiding the single class REMIC rules.
Unless otherwise stated in the applicable prospectus supplement, the expenses
of the REMIC will be allocated to holders of the related REMIC Residual
Certificates in their entirety and not to holders of the related REMIC Regular
Certificates.
In the case of individuals or trusts, estates or other persons that
compute their income in the same manner as individuals, who own an interest in
a REMIC Regular Certificate or a REMIC Residual Certificate directly or through
a pass-through interest holder that is required to pass miscellaneous itemized
deductions through to its owners or beneficiaries, e.g., a partnership, an S
corporation or a grantor trust, such expenses will be deductible under Code
Section 67 only to the extent that such expenses, plus other "miscellaneous
itemized deductions" of the individual, exceed 2% of such individual's adjusted
gross income. In addition, Code Section 68 provides that the applicable amount
will be reduced by the lesser of
89
o 3% of the excess of the individual's adjusted gross income over the
applicable amount or
o 80% of the amount of itemized deductions otherwise allowable for the
taxable year.
The amount of additional taxable income recognized by REMIC Residual
Certificateholders who are subject to the limitations of either Code Section 67
or Code Section 68 may be substantial. Further, holders other than corporations
subject to the alternative minimum tax may not deduct miscellaneous itemized
deductions in determining such holders' alternative minimum taxable income. The
REMIC is required to report to each pass-through interest holder and to the IRS
such holder's allocable share, if any, of the REMIC's non-interest expenses.
The term "pass-through interest holder" generally refers to individuals,
entities taxed as individuals and certain pass-through entities, but does not
include real estate investment trusts. Accordingly, investment in REMIC
Residual Certificates will in general not be suitable for individuals or for
certain pass-through entities, such as partnerships and S corporations, that
have individuals as partners or shareholders.
Excess Inclusions. A portion of the income on a REMIC Residual
Certificate, referred to in the Code as an "excess inclusion", for any calendar
quarter will be subject to federal income tax in all events. Thus, for example,
an excess inclusion:
o may not, except as described below, be offset by any unrelated
losses, deductions or loss carryovers of a REMIC Residual
Certificateholder;
o will be treated as "unrelated business taxable income" within the
meaning of Code Section 512 if the REMIC Residual Certificateholder
is a pension fund or any other organization that is subject to tax
only on its unrelated business taxable income, as discussed under
"--Tax-Exempt Investors" below; and
o is not eligible for any reduction in the rate of withholding tax in
the case of a REMIC Residual Certificateholder that is a foreign
investor, as discussed under "--Residual Certificate
Payments--Non-U.S. Persons" below.
Except as discussed in the following paragraph, with respect to any REMIC
Residual Certificateholder, the excess inclusions for any calendar quarter is
the excess, if any, of (1) the income of such REMIC Residual Certificateholder
for that calendar quarter from its REMIC Residual Certificate over (2) the sum
of the "daily accruals" for all days during the calendar quarter on which the
REMIC Residual Certificateholder holds a REMIC Residual Certificate. For this
purpose, the daily accruals with respect to a REMIC Residual Certificate are
determined by allocating to each day in the calendar quarter its ratable
portion of the product of the "adjusted issue price" of the REMIC Residual
Certificate at the beginning of the calendar quarter and 120 percent of the
"Federal long-term rate" in effect at the time the REMIC Residual Certificate
is issued. For this purpose, the "adjusted issue price" of a REMIC Residual
Certificate at the beginning of any calendar quarter equals the issue price of
the REMIC Residual Certificate, increased by the amount of daily accruals for
all prior quarters, and decreased--but not below zero--by the aggregate amount
of payments made on the REMIC Residual Certificate before the beginning of the
quarter. The "federal long-term rate" is an average of current yields on
Treasury securities with a remaining term of greater than nine years, computed
and published monthly by the IRS.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to the REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Code Section 857(b)(2),
excluding any net capital gain), will be allocated among the shareholders of
such trust in proportion to the dividends received by the shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by the
shareholder. Regulated investment companies, common trust funds and certain
cooperatives are subject to similar rules.
The Small Business Job Protection Act 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 REMIC residual certificates that have "significant value"
within the meaning of the REMIC Regulations, effective for taxable years
beginning after December 31, 1995, except with respect to residual certificates
continuously held by a thrift institution since November 1, 1995.
90
In addition, the Small Business Job Protection Act of 1996 provides three
rules for determining the effect on excess inclusions on the alternative
minimum taxable income of a residual holder. First, alternative minimum taxable
income for the residual holder is determined without regard to the special rule
that taxable income cannot be less than excess inclusions. Second, the amount
of any alternative minimum tax net operating loss deductions must be computed
without regard to any excess inclusions. Third, a residual holder's alternative
minimum taxable income for a tax year cannot be less than excess inclusions for
the year. The effect of this last statutory amendment is to prevent the use of
nonrefundable tax credits to reduce a taxpayer's income tax below its tentative
minimum tax computed only on excess inclusions. These rules are effective for
tax years beginning after December 31, 1986, unless a residual holder elects to
have such rules apply only to tax years beginning after August 20, 1996.
Payments. Any distribution made on a REMIC Residual Certificate to a REMIC
Residual Certificateholder will be treated as a non-taxable return of capital
to the extent it does not exceed the REMIC Residual Certificateholder's
adjusted basis in the REMIC Residual Certificate. To the extent a distribution
exceeds the adjusted basis, it will be treated as gain from the sale of the
REMIC Residual Certificate.
Sale or Exchange of REMIC Residual Certificates. If a REMIC Residual
Certificate is sold or exchanged, the seller will generally recognize gain or
loss equal to the difference between the amount realized on the sale or
exchange and its adjusted basis in the REMIC Residual Certificate except that
the recognition of loss may be limited under the "wash sale" rules described in
the next paragraph. A holder's adjusted basis in a REMIC Residual Certificate
generally equals the cost of the REMIC Residual Certificate to the REMIC
Residual Certificateholder, increased by the taxable income of the REMIC that
was included in the income of the REMIC Residual Certificateholder with respect
to the REMIC Residual Certificate, and decreased--but not below zero--by the
net losses that have been allowed as deductions to the REMIC Residual
Certificateholder with respect to the REMIC Residual Certificate and by the
distributions received thereon by the REMIC Residual Certificateholder. In
general, the gain or loss will be capital gain or loss provided the REMIC
Residual Certificate is held as a capital asset. The capital gain or loss will
generally be long-term capital gain or loss if the REMIC Regular Certificate
was held for more than one year. Long-term capital gains of individuals are
subject to reduced maximum tax rates while capital gains recognized by
individuals on capital assets held less than twelve months are generally
subject to ordinary income tax rates. The use of capital losses is limited.
However, REMIC Residual Certificates will be "evidences of indebtedness" within
the meaning of Code Section 582(c)(1), so that gain or loss recognized from
sale of a REMIC Residual Certificate by a bank or thrift institution to which
such section applies would be ordinary income or loss. In addition, a transfer
of a REMIC Residual Certificate that is a "noneconomic residual interest" may
be subject to different rules. See "--Tax Related Restrictions on Transfers of
REMIC Residual Certificates--Noneconomic REMIC Residual Certificates" below.
Except as provided in Treasury regulations yet to be issued, if the seller
of a REMIC Residual Certificate reacquires such REMIC Residual Certificate, or
acquires any other REMIC Residual Certificate, any residual interest in another
REMIC or similar interest in a "taxable mortgage pool", as defined in Code
Section 7701(i), during the period beginning six months before, and ending six
months after, the date of such sale, such sale will be subject to the "wash
sale" rules of Code Section 1091. In that event, any loss realized by the REMIC
Residual Certificateholder on the sale will not be deductible, but, instead,
will increase such REMIC Residual Certificateholder's adjusted basis in the
newly acquired asset.
PROHIBITED TRANSACTIONS AND OTHER TAXES
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions". In general, subject to certain specified
exceptions, a prohibited transaction means:
o the disposition of a mortgage loan or MBS,
o the receipt of income from a source other than a mortgage loan or MBS
or certain other permitted investments,
o the receipt of compensation for services, or
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o gain from the disposition of an asset purchased with the payments on
the mortgage loans and/or MBS for temporary investment pending
distribution on the certificates.
It is not anticipated that the trust fund for any series of certificates will
engage in any prohibited transactions in which it would recognize a material
amount of net income.
In addition, certain contributions to a trust fund as to which an election
has been made to treat the trust fund as a REMIC made after the day on which
the trust fund issues all of its interests could result in the imposition of
the Contributions Tax. No trust fund for any series of certificates will accept
contributions that would subject it to such tax.
In addition, a trust fund as to which an election has been made to treat
the trust fund as a REMIC may also 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. "Net income
from foreclosure property" generally means income from foreclosure property
other than qualifying income for a real estate investment trust.
Where any prohibited transactions tax, contributions tax, tax on net
income from foreclosure property or state or local income or franchise tax that
may be imposed on a REMIC relating to any series of certificate arises out of
or results from
o a breach of the servicer's, trustee's or depositor's obligations, as
the case may be, under the related Agreement for such series, such
tax will be borne by the servicer, trustee or depositor, as the case
may be, out of its own funds or
o J.P. Morgan Chase Commercial Mortgage Securities Corp.'s obligation
to repurchase a mortgage loan,
such tax will be borne by J.P. Morgan Chase Commercial Mortgage Securities
Corp. In the event that the servicer, trustee or depositor, as the case may be,
fails to pay or is not required to pay any prohibited transactions tax,
contributions tax, tax on net income from foreclosure property or state or
local income or franchise tax, the tax will be payable out of the trust fund
for the series and will result in a reduction in amounts available to be
distributed to the certificateholders of the series.
LIQUIDATION AND TERMINATION
If the REMIC 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'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
such date, the REMIC will not be subject to any prohibited transaction tax,
provided that the REMIC credits or distributes in liquidation all of the sale
proceeds plus its cash, other than the amounts retained to meet claims, to
holders of Regular and REMIC Residual Certificates within the 90-day period.
The REMIC will terminate shortly following the retirement of the REMIC
Regular Certificates. If a REMIC Residual Certificateholder's adjusted basis in
the REMIC Residual Certificate exceeds the amount of cash distributed to such
REMIC Residual Certificateholder in final liquidation of its interest, then it
would appear that the REMIC Residual Certificateholder would be entitled to a
loss equal to the amount of such excess. It is unclear whether such a loss, if
allowed, will be a capital loss or an ordinary loss.
ADMINISTRATIVE MATTERS
Solely for the purpose of the administrative provisions of the Code, the
REMIC generally will be treated as a partnership and the REMIC Residual
Certificateholders will be treated as the partners. Information will be
furnished quarterly to each REMIC Residual Certificateholder who held a REMIC
Residual Certificate on any day in the previous calendar quarter.
Each REMIC Residual Certificateholder is required to treat items on its
return consistently with their treatment on the REMIC's return, unless the
REMIC Residual Certificateholder either files a
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statement identifying the inconsistency or establishes that the inconsistency
resulted from incorrect information received from the REMIC. The IRS may assert
a deficiency resulting from a failure to comply with the consistency
requirement without instituting an administrative proceeding at the REMIC
level. The REMIC does not intend to register as a tax shelter pursuant to Code
Section 6111 because it is not anticipated that the REMIC will have a net loss
for any of the first five taxable years of its existence. Any person that holds
a REMIC Residual Certificate as a nominee for another person may be required to
furnish the REMIC, in a manner to be provided in Treasury Regulations, with the
name and address of such person and other information.
TAX-EXEMPT INVESTORS
Any REMIC Residual Certificateholder that is a pension fund or other
entity that is subject to federal income taxation only on its "unrelated
business taxable income" within the meaning of Code Section 512 will be subject
to such tax on that portion of the distributions received on a REMIC Residual
Certificate that is considered an excess inclusion. See "--Taxation of Owners
of REMIC Residual Certificates--Excess Inclusions" above.
RESIDUAL CERTIFICATE PAYMENTS--NON-U.S. PERSONS
Amounts paid to REMIC Residual Certificateholders who are not U.S. Persons
(see "--Taxation of Owners of REMIC Regular Certificates--Non-U.S. Persons"
above) are treated as interest for purposes of the 30% or lower treaty rate,
United States withholding tax. Amounts distributed to holders of REMIC Residual
Certificates should qualify as "portfolio interest," subject to the conditions
described in "--Taxation of Owners of REMIC Regular Certificates" above, but
only to the extent that the underlying mortgage loans were originated after
July 18, 1984. Furthermore, the rate of withholding on any income on a REMIC
Residual Certificate that is excess inclusion income will not be subject to
reduction under any applicable tax treaties. See "--Taxation of Owners of REMIC
Residual Certificates--Excess Inclusions" above. If the portfolio interest
exemption is unavailable, such amount will be subject to United States
withholding tax when paid or otherwise distributed, or when the REMIC Residual
Certificate is disposed of, under rules similar to those for withholding upon
disposition of debt instruments that have OID. The Code, however, grants the
Treasury Department authority to issue regulations requiring that those amounts
be taken into account earlier than otherwise provided where necessary to
prevent avoidance of tax, for example, where the REMIC Residual Certificates do
not have significant value. See "--Taxation of Owners of REMIC Residual
Certificates--Excess Inclusions" above. If the amounts paid to REMIC Residual
Certificateholders that are not U.S. Persons are effectively connected with
their conduct of a trade or business within the United States, the 30%, or
lower treaty rate, withholding will not apply. Instead, the amounts paid to
such non-U.S. Person will be subject to U.S. federal income taxation at regular
graduated rates. For special restrictions on the transfer of REMIC Residual
Certificates, see "--Tax Related Restrictions on Transfers of REMIC Residual
Certificates" below.
REMIC Regular Certificateholders and persons related to such holders
should not acquire any REMIC Residual Certificates, and REMIC Residual
Certificateholders and persons related to REMIC Residual Certificateholders
should not acquire any REMIC Regular Certificates, without consulting their tax
advisors as to the possible adverse tax consequences of such acquisition.
TAX RELATED RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES
Disqualified Organizations. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual interests in
the entity are not held by "disqualified organizations." Further, a tax is
imposed on the transfer of a residual interest in a REMIC to a "disqualified
organization." The amount of the tax equals the product of (A) an amount, as
determined under the REMIC Regulations, equal to the present value of the total
anticipated "excess inclusions" with respect to such interest for periods after
the transfer and (B) the highest marginal federal income tax rate applicable to
corporations. The tax is imposed on the transfer unless the transfer is through
an agent, including a broker or other middleman, for a disqualified
organization, in which event the tax is imposed
93
on the agent. The person otherwise liable for the tax shall be relieved of
liability for the tax if the transferee furnished to such person an affidavit
that the transferee is not a disqualified organization and, at the time of the
transfer, such person does not have actual knowledge that the affidavit is
false. A "disqualified organization" means:
(A) the United States, any State, possession or political subdivision
thereof, any foreign government, any international organization or
any agency or instrumentality of any of the foregoing (provided that
such term does not include an instrumentality if all its activities
are subject to tax and, except for FHLMC, a majority of its board of
directors is not selected by any such government agency);
(B) any organization, other than certain farmers' cooperatives, generally
exempt from federal income taxes unless such organization is subject
to the tax on "unrelated business taxable income"; and
(C) a rural electric or telephone cooperative.
A tax is imposed on a "pass-through entity" holding a residual interest in
a REMIC if at any time during the taxable year of the pass-through entity a
disqualified organization is the record holder of an interest in such entity,
provided that all partners of an "electing large partnership" as defined in
Section 775 of the Code, are deemed to be disqualified organizations. The
amount of the tax is equal to the product of (A) the amount of excess
inclusions for the taxable year allocable to the interest held by the
disqualified organization and (B) the highest marginal federal income tax rate
applicable to corporations. The pass-through entity otherwise liable for the
tax, for any period during which the disqualified organization is the record
holder of an interest in such entity, will be relieved of liability for the tax
if such record holder furnishes to such entity an affidavit that such record
holder is not a disqualified organization and, for such period, the
pass-through entity does not have actual knowledge that the affidavit is false.
For this purpose, a "pass-through entity" means:
o a regulated investment company, real estate investment trust or
common trust fund;
o a partnership, trust or estate; and
o certain cooperatives.
Except as may be provided in Treasury regulations not yet issued, 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. Electing
large partnerships--generally, non-service partnerships with 100 or more
members electing to be subject to simplified IRS reporting provisions under
Code sections 771 through 777--will be taxable on excess inclusion income as if
all partners were disqualified organizations.
In order to comply with these rules, the Agreement will provide that no
record or beneficial ownership interest in a REMIC Residual Certificate may be
purchased, transferred or sold, directly or indirectly, without the express
written consent of the master servicer. The master servicer will grant consent
to a proposed transfer only if it receives the following:
o an affidavit from the proposed transferee to the effect that it is
not a disqualified organization and is not acquiring the REMIC
Residual Certificate as a nominee or agent for a disqualified
organization, and
o a covenant by the proposed transferee to the effect that the proposed
transferee agrees to be bound by and to abide by the transfer
restrictions applicable to the REMIC Residual Certificate.
Noneconomic REMIC Residual Certificates. The REMIC Regulations disregard,
for federal income tax purposes, any transfer of a Noneconomic REMIC Residual
Certificate to a U.S. Person unless no significant purpose of the transfer is
to enable the transferor to impede the assessment or collection of tax. A
Noneconomic REMIC Residual Certificate is any REMIC Residual Certificate,
including a REMIC Residual Certificate with a positive value at issuance,
unless, at the time of transfer, taking into account the Prepayment Assumption
and any required or permitted clean up calls or required liquidation provided
for in the REMIC's organizational documents,
94
o the present value of the expected future distributions on the REMIC
Residual Certificate 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
o 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.
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 transferor is presumed not to have such
knowledge if:
o the transferor conducted a reasonable investigation of the
transferee, and
o the transferee acknowledges to the transferor that the residual
interest may generate tax liabilities in excess of the cash flow and
the transferee represents that it intends to pay such taxes
associated with the residual interest as they become due.
If a transfer of a Noneconomic REMIC Residual Certificate is disregarded, the
transferor would continue to be treated as the owner of the REMIC Residual
Certificate and would continue to be subject to tax on its allocable portion of
the net income of the REMIC.
The IRS has issued proposed Treasury regulations that would add to the
conditions necessary to ensure that a transfer of a Noneconomic Residual
Certificate would be respected for federal income tax purposes. The proposed
additional condition provides that the transfer of a Noneconomic Residual
Certificate will not qualify under this safe harbor unless the present value of
the anticipated tax liabilities associated with holding the Residual
Certificate does not exceed the present value of the sum of: (i) any
consideration given to the transferee to acquire the Certificate (the
inducement payment), (ii) future distributions on the Certificate, and (iii)
any anticipated tax savings associated with holding the Certificate as the
REMIC generates losses. For purposes of this calculation, the present value is
calculated using a discount rate equal to the lesser of the applicable federal
rate and the transferee's cost of borrowing. The proposed effective date for
the changes is February 4, 2000. On December 8, 2000, the IRS issued Revenue
Procedure 2001-12, effective February 4, 2000 pending finalization of proposed
regulations, which expands the safe harbor for transfers of noneconomic
residual interests to include transfers to certain taxable domestic
corporations with significant gross and net assets, provided that those
corporations agree to transfer the residual interest only to other taxable
domestic corporations in transactions qualifying for one of the safe harbor
provisions. Eligibility for the expanded safe harbor requires, among other
things, that the transferor not know of any facts or circumstances that
reasonably indicate that the taxes associated with the residual interest will
not be paid. The Revenue Procedure provides that if the amount of consideration
given to the transferee to acquire the residual interest is so low that under
any set of reasonable assumptions a reasonable person would conclude that the
taxes associated with holding the residual interest will not be paid, then the
transferor will be deemed to know that the transferee cannot or will not pay
those taxes.
Foreign Investors. The REMIC Regulations provide that the transfer of a
REMIC Residual Certificate that has a "tax avoidance potential" to a "foreign
person" will be disregarded for federal income tax purposes. This rule appears
to apply to a transferee who is not a U.S. Person unless the transferee's
income in respect of the REMIC Residual Certificate is effectively connected
with the conduct of a United States trade or business. A REMIC Residual
Certificate is deemed to have a tax avoidance potential unless, at the time of
transfer, the transferor reasonably expects that the REMIC will distribute to
the transferee amounts that will equal at least 30 percent of each excess
inclusion, and that such amounts will be distributed at or after the time the
excess inclusion accrues and not later than the end of the calendar year
following the year of accrual. If the non-U.S. Person transfers the REMIC
Residual Certificate to a U.S. Person, the transfer will be disregarded, and
the foreign transferor will continue to be treated as the owner, if the
transfer has the effect of allowing the transferor to avoid tax on accrued
excess inclusions. The provisions in the REMIC Regulations regarding transfers
of REMIC
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Residual Certificates that have tax avoidance potential to foreign persons are
effective for all transfers after June 30, 1992. The Agreement will provide
that no record or beneficial ownership interest in a REMIC Residual Certificate
may be transferred, directly or indirectly, to a non-U.S. Person unless the
person provides the trustee with a duly completed IRS Form W-8EC1 or applicable
successor form adopted by the IRS for such purpose and the trustee consents to
the transfer in writing.
Any attempted transfer or pledge in violation of the transfer restrictions
shall be absolutely null and void and shall vest no rights in any purported
transferee. Investors in REMIC Residual Certificates are advised to consult
their own tax advisors with respect to transfers of the REMIC Residual
Certificates and, in addition, pass-through entities are advised to consult
their own tax advisors with respect to any tax which may be imposed on a
pass-through entity.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Code impose certain restrictions on employee benefit
plans subject to ERISA and on certain other retirement plans and arrangements
(including, but not limited to individual retirement accounts and Keogh plans)
("Plans") and on persons who are parties in interest or disqualified persons
("parties in interest") with respect to such Plans. Certain employee benefit
plans, such as governmental plans and church plans (if no election has been
made under Section 410(d) of the Code), are not subject to the restrictions of
ERISA or Section 4975 of the Code, and assets of these plans may be invested in
the certificates without regard to the ERISA considerations described below,
subject to other applicable federal and state law. However, any governmental or
church plan that is not subject to ERISA but is qualified under Section 401(a)
of the Code and exempt from taxation under Section 501(a) of the Code is
subject to the prohibited transaction rules set forth in Section 503 of the
Code.
Investments by Plans that are subject to ERISA must satisfy ERISA's
general fiduciary requirements, including the requirement of investment
prudence and diversification and the requirement that a Plan's investments be
made in accordance with the documents governing the Plan.
PROHIBITED TRANSACTIONS
General
Section 406 of ERISA prohibits parties in interest with respect to a Plan
from engaging in certain transactions involving a Plan and its assets unless a
statutory, regulatory or administrative exemption applies to the transaction.
Section 4975 of the Code imposes excise taxes (or, in some cases, a civil
penalty may be assessed pursuant to Section 502(i) of ERISA) on parties in
interest which engage in nonexempt prohibited transactions.
The United States Department of Labor ("Labor") has issued a final
regulation (29 C.F.R. Section 2510.3-101) containing rules for determining what
constitutes the assets of a Plan. This regulation provides that, as a general
rule, the underlying assets and properties of corporations, partnerships,
trusts and certain other entities in which a Plan makes an "equity investment"
will be deemed for purposes of ERISA to be assets of the Plan unless an
exception applies.
Under the terms of the regulation, the Trust may be deemed to hold plan
assets by reason of a Plan's investment in a certificate; such plan assets
would include an undivided interest in the mortgage loans and any other assets
held by the trust. In this event, the Depositor, the servicers, the trustee,
any insurer of the mortgage assets and other persons, in providing services
with respect to the assets of the Trust, may be parties in interest, subject to
the fiduciary responsibility provisions of Title I of ERISA, including the
prohibited transaction provisions of Section 406 of ERISA (and of Section 4975
of the Code), with respect to transactions involving the plan assets unless
such transactions are subject to a statutory, regulatory or administrative
exemption.
The regulations contain a de minimis safe-harbor rule that exempts any
entity from plan assets status as long as the aggregate equity investment in
such entity by Plans is not significant. For this purpose,
96
equity participation in the entity will be significant if immediately after any
acquisition of any equity interest in the entity, "benefit plan investors" in
the aggregate, own 25% or more of the value of any class of equity interest
(excluding from the calculation the value of equity interests held by persons
who are not benefit plan investors and who have discretionary authority or
control with respect to the assets of the entity (or held by affiliates of such
persons)). "Benefit plan investors" include Plans as well as employee benefit
plans not subject to ERISA (e.g., governmental and foreign plans) and entities
whose underlying assets include plan assets by reason of Plan investment in
such entities. To fit within this safe harbor, benefit plan investors must own
less than 25% of each class of certificates, regardless of the portion of total
equity value represented by such class, on an ongoing basis.
Availability of Underwriter's Exemption for Certificates
Labor has granted an exemption (Prohibited Transaction Exemption 90-23) to
J.P. Morgan Securities Inc., which exempts from the application of the
prohibited transaction rules transactions relating to: (1) the acquisition,
sale and holding by Plans of certain securities, including certificates,
representing an undivided interest in certain asset-backed pass-through
entities, including trusts, with respect to which J.P. Morgan Securities Inc.
or any of its affiliates is the sole underwriter or the manager or co-manager
of the underwriting syndicate; and (2) the servicing, operation and management
of these asset-backed pass-through trusts, provided that the general conditions
and certain other conditions set forth in the Exemption are satisfied. The
Exemption was amended by PTE 97-34 and PTE 2000-58 to permit certain trust
features and to expand the coverage of the exemption to securities, including
subordinated securities, that are rated at the time of purchase in the four
highest rating categories in certain designated transactions when the
conditions of the Exemption are met.
The Exemption sets forth the following general conditions which must be
satisfied before a transaction involving the acquisition, sale and holding of
the certificates or a transaction in connection with the servicing, operation
and management of the trust fund may be eligible for exemptive relief
thereunder:
(1) The acquisition of the certificates by a Plan is on terms (including
the price for such certificates) that are at least as favorable to the
investing Plan as they would be in an arm's-length transaction with an
unrelated party;
(2) Except when the trust fund contains only certain types of assets, such
as fully-secured commercial mortgage loans. The rights and interests evidenced
by the certificates acquired by the Plan are not subordinated to the rights and
interests evidenced by other certificates of the trust fund;
(3) The certificates acquired by the Plan have received a rating at the
time of such acquisition that is in one of the three highest rating categories
(or four highest, if the trust fund contains only certain types of assets) from
any of Fitch, Inc., Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group (each, a "rating agency");
(4) The trustee is not an affiliate of the underwriters, the Depositor,
the servicers, any borrower whose obligations under one or more mortgage loans
constitute more than 5% of the aggregate unamortized principal balance of the
assets in the trust, any counterparty in a permitted swap or notional principal
transaction or any of their respective affiliates (the "Restricted Group");
(5) The sum of all payments made to and retained by the underwriters in
connection with the distribution of the certificates represents not more than
reasonable compensation for underwriting such certificates; the sum of all
payments made to and retained by the Depositor pursuant to the sale of the
mortgage loans to the trust represents not more than the fair market value of
such mortgage loans; the sum of all payments made to and retained by the
servicers represent not more than reasonable compensation for the servicers'
services under the agreements and reimbursement of the servicer's reasonable
expenses in connection therewith; and
(6) The Plan investing in the certificates is 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.
97
The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist solely of assets of the
type that have been included in other investment pools;
(ii) certificates evidencing interests in such other investment pools
must have been rated in one of the three highest rating categories (or
four highest, if the trust fund contains only certain types of assets) of
a rating agency for at least one year prior to the Plan's acquisition of
the certificates; and
(iii) certificates evidencing interests 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 the certificates.
The Exemption, as amended, provides relief to certain mortgage-backed and
asset-backed securities transactions that use pre-funding accounts and that
otherwise meet the requirements of the Exemption. Mortgage loans or other
secured receivables supporting payments to certificateholders, and having a
value equal to no more than twenty-five percent (25%) of the total principal
amount of the certificates being offered by the trust, may be transferred to
the trust within a 90-day or three-month period following the closing date,
instead of being required to be either identified or transferred on or before
the closing date. The relief is available when certain conditions are met.
Moreover, the Exemption provides relief from certain self-dealing/conflict
of interest prohibited transactions that may occur when any person who has
discretionary authority or renders investment advice with respect to the
investment of plan assets causes a Plan to acquire certificates in a trust
holding receivables on which the persons, or its affiliate, is obligor,
provided that, among other requirements: (i) such person (or its affiliate) is
an obligor with respect to no more than five percent of the fair market value
of the obligations or receivables contained in the trust; (ii) the Plan is not
a plan with respect to which any member of the Restricted Group is the "plan
sponsor" (as defined in Section 3(16)(B) of ERISA); (iii) in the case of an
acquisition in connection with the initial issuance of certificates, at least
fifty percent of each class of certificates in which Plans have invested is
acquired by persons independent of the Restricted Group and at least fifty
percent of the aggregate interest in the trust fund is acquired by persons
independent of the Restricted Group; (iv) a Plan's investment in certificates
of any class does not exceed twenty-five percent of all of the certificates of
that class outstanding at the time of the acquisition; and (v) immediately
after the acquisition, no more than twenty-five percent of the assets of any
Plan with respect to which such person has discretionary authority or renders
investment advice are invested in certificates representing an interest in one
or more trusts containing assets sold or serviced by the same entity. The
Exemption does not apply to Plans sponsored by any member of the Restricted
Group.
Before purchasing a certificate, a fiduciary of a Plan should itself
confirm (a) that the certificates constitute "securities" for purposes of the
Exemption and (b) that the specific and general conditions set forth in the
Exemption and the other requirements set forth in the Exemption would be
satisfied.
REVIEW BY PLAN FIDUCIARIES
Any Plan fiduciary considering whether to purchase any certificates 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. Among other things, before purchasing any
certificates, a fiduciary of a Plan subject to the fiduciary responsibility
provisions of ERISA or an employee benefit plan subject to the prohibited
transaction provisions of the Code should make its own determination as to the
availability of the exemptive relief provided in the Exemption, and also
consider the availability of any other prohibited transaction exemptions. The
prospectus supplement with respect to a series of certificates may contain
additional information regarding the application of the Exemption, or another
exemption with respect to the certificates offered thereby.
LEGAL INVESTMENT
The prospectus supplement for each series of offered certificates will
identify those classes of offered certificates, if any, which constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). Such classes will constitute "mortgage
related securities"
98
for so long as they are rated in one of the two highest rating categories by at
least one nationally recognized statistical rating organization (the "SMMEA
Certificates"). As "mortgage related securities," the SMMEA Certificates will
constitute legal investments for persons, trusts, corporations, partnerships,
associations, business trusts and business entities (including, but not limited
to, state chartered savings banks, commercial banks, savings and loan
associations and insurance companies, as well as trustees and state government
employee retirement systems) created pursuant to or existing under the laws of
the United States or of any state (including the District of Columbia and
Puerto Rico) whose authorized investments are subject to state regulation to
the same extent that, under applicable law, obligations issued by or guaranteed
as to principal and interest by the United States or any agency or
instrumentality thereof constitute legal investments for such entities. Alaska,
Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Kansas,
Maryland, Michigan, Missouri, Nebraska, New Hampshire, New York, North
Carolina, Ohio, South Dakota, Utah, Virginia and West Virginia enacted
legislation, on or before the October 4, 1991 cutoff established by SMMEA for
such enactments, limiting to varying extents the ability of certain entities
(in particular, insurance companies) to invest in mortgage related securities,
in most cases by requiring the affected investors to rely solely upon existing
state law, and not SMMEA. Accordingly, the investors affected by such
legislation will be authorized to invest in SMMEA Certificates only to the
extent provided in the legislation. 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.
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 with "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. 24 (Seventh), subject in each case to such regulations as
the applicable federal regulatory authority may prescribe.
Institutions where investment activities are subject to legal investment
laws or regulations or review by certain regulatory authorities may be subject
to restrictions on investment in certain classes of offered certificates. Any
financial institution which is subject to the jurisdiction of the Comptroller
of the Currency, the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation ("FDIC"), the Office of Thrift
Supervision ("OTS"), the National Credit Union Administration ("NCUA") or other
federal or state agencies with similar authority should review any applicable
rules, guidelines and regulations prior to purchasing any offered certificate.
The Federal Financial Institutions Examination Council, for example, has issued
a Supervisory Policy Statement on Securities Activities effective February 10,
1992 (the "Policy Statement"). The Policy Statement has been adopted by the
Comptroller of the Currency, the Federal Reserve Board, the FDIC, the OTS and
the NCUA (with certain modifications), with respect to the depository
institutions that they regulate. The Policy Statement prohibits depository
institutions from investing in certain "high-risk mortgage securities"
(including securities such as certain classes of offered certificates), except
under limited circumstances, and sets forth certain investment practices deemed
to be unsuitable for regulated institutions. The NCUA issued final regulations
effective December 2, 1991 that restrict and in some instances prohibit the
investment by federal credit unions in certain types of mortgage related
securities.
In September 1993 the National Association of Insurance Commissioners
released a draft model investment law (the "Model Law") which sets forth model
investment guidelines for the insurance industry. Institutions subject to
insurance regulatory authorities may be subject to restrictions on investment
similar to those set forth in the Model Law and other restrictions.
If specified in the related prospectus supplement, other classes of
offered certificates offered pursuant to this prospectus will not constitute
"mortgage related securities" under SMMEA. The appropriate characterization of
this offered certificate under various legal investment restrictions, and thus
the ability of investors subject to these restrictions to purchase such offered
certificates, may be subject to significant interpretive uncertainties.
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Notwithstanding SMMEA, there may be other restrictions on the ability of
certain investors, including depository institutions, either to purchase any
offered certificates or to purchase offered certificates representing more than
a special percentage of the investors' assets.
Except as to the status of SMMEA certificates identified in the prospectus
supplement for a series as "mortgage related securities" under SMMEA, the
Depositor will make no representations as to the proper characterization of the
certificates for legal investment or financial institution regulatory purposes,
or as to the ability of particular investors to purchase any offered
certificates under applicable legal investment restrictions. The uncertainties
described above (and any unfavorable future determinations concerning legal
investment or financial institution regulatory characteristics of the
certificates) may adversely affect the liquidity of the certificates.
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 and provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying."
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase offered certificates or
to purchase offered certificates representing more than a specified percentage
of the investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the offered certificates constitute
legal investments for them.
PLAN OF DISTRIBUTION
The offered certificates offered hereby and by the Supplements to this
prospectus will be offered in series. The distribution of the 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 prospectus supplement, the offered certificates will be
distributed in a firm commitment underwriting, subject to the terms and
conditions of the underwriting agreement, by J.P. Morgan Securities Inc.
("JPM") 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 JPM acting as agent or in some cases as
principal with respect to offered certificates that it has previously purchased
or agreed to purchase. If JPM acts as agent in the sale of offered
certificates, JPM 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 the 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 JPM elects to purchase offered certificates as principal, JPM 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 the series.
The depositor will indemnify JPM and any underwriters against certain
civil liabilities, including liabilities under the Securities Act of 1933, or
will contribute to payments JPM and any underwriters may be required to make in
respect thereof.
In the ordinary course of business, JPM 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.
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The offered certificates will be sold primarily to institutional
investors. Purchasers of the 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 non-investment grade class may be initially retained by the Depositor, and
may be sold by the depositor at any time in private transactions.
LEGAL MATTERS
Certain legal matters in connection with the certificates, including
certain federal income tax consequences, will be passed upon for the depositor
by Sidley Austin Brown & Wood LLP, New York, New York.
FINANCIAL INFORMATION
A new trust fund will be formed with respect to each series of
certificates and no trust fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
certificates. Accordingly, no financial statements with respect to any trust
fund will he 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.
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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GLOSSARY OF TERMS
"Accrual Certificates" means certificates which 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
"Accrued Certificate Interest" means, with respect to each class of
certificates and each distribution date, other than certain classes of Stripped
Interest Certificates, the amount equal to the interest accrued for a specified
period on the outstanding certificate balance immediately prior to the
distribution date, at the applicable pass-through rate, as described in
"Distributions of Interest on the Certificates" in this prospectus.
"ARM Loans" means mortgage loans with floating mortgage interest rates.
"Available Distribution Amount" means the sum of the following amounts:
(i) the total amount of all cash on deposit in the related Distribution
account as of the corresponding Determination Date, including servicer
advances, net of any scheduled payments due and payable after such
Distribution Date;
(ii) interest or investment income on amounts on deposit in the
Distribution account, including any net amounts paid under any Cash Flow
Agreements; and
(iii) to the extent not on deposit in the related Distribution 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.
"Cede" means Cede & Company.
"CMBS" means pass-through certificates or other mortgage-backed securities
evidencing interests in or secured by one or more mortgage loans, certificates
or securities.
"CMBS Trustee" means a trustee or a custodian under the CMBS Agreement.
"Constant Prepayment Rate" or "CPR" means a rate that represents an
assumed constant rate of prepayment each month (which is expressed on a per
annum bases) relative to the then outstanding principal balance of a pool of
mortgage loans for the life of such mortgage loans. CPR does not purport to be
either a historical description of the prepayment experience of any pool of
mortgage loans or a prediction of the anticipated rate of prepayment of any
mortgage loans.
"Cooperative" means a private cooperative housing corporation.
"Covered Trust" means a form of credit support that covers more than one
series of certificates.
"Debt Service Coverage Ratio" means, with respect to a mortgage loan at
any given time, the ratio of the Net Operating Income for a twelve-month period
to the annualized scheduled payments on the mortgage loan.
"DTC" means The Depository Trust Company.
"Equity Participations" means provisions entitling the lender to a share
of profits realized from the operation or disposition of a mortgaged property.
"Loan-to-Value Ratio" means, with respect to a mortgage loan at any given
time, the ratio (expressed as a percentage) of the then outstanding principal
balance of the mortgage loan to the value of the related mortgaged property.
The "value" of a mortgaged property, other than with respect to refinance
loans, is generally the lesser of (a) the appraised value determined in an
appraisal obtained by the originator at origination of such loan and (b) the
sales price for such property. "Refinance loans" are loans made to refinance
existing loans. Unless otherwise set forth in the related prospectus
supplement, the value of the mortgaged property securing a refinance loan is
the appraised value thereof determined in an appraisal obtained at the time of
origination of the refinance loan. 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.
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"Lock-out Date" means the date of expiration of the Lockout Period.
"Lock-out Period" means a period during which prepayments on a mortgage
loan are prohibited.
"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 that period, minus the total operating
expenses incurred in respect of the mortgaged property during that 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.
"Pass-Through Rate" means the fixed, variable or floating rate per annum
at which any class of certificates accrues interest.
"REMIC" means a "real estate mortgage investment conduit" under the
Internal Revenue Code of 1986.
"REMIC certificates" means a certificate issued by a trust fund relating
to a series of certificate where an election is made to treat the trust fund as
a REMIC.
"RED Property" means any mortgaged property acquired on behalf of the
trust fund in respect of a defaulted mortgage loan through foreclosure, deed in
lieu of foreclosure or otherwise.
"Retained Interest" means an interest in an asset which represents a
specified portion of the interest payable. the Retained Interest will be
deducted from borrower payments as received and will not be part of the related
trust fund.
"Senior Certificates" means certificates which are senior to one or more
other classes of certificates in respect of certain distributions on the
certificates.
"Stripped Interest Certificates" means certificates which are entitled to
interest distributions with disproportionately low, nominal or no principal
distributions.
"Stripped Principal Certificates" means certificates which are entitled to
principal distributions with disproportionately low, nominal or no interest
distributions.
"Subordinate Certificates" means certificates which are subordinate to one
or more other classes of certificates in respect of certain distributions on
the certificates.
"Warranting Party" means the person making or assigning representations
and warranties.
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The attached diskette contains a Microsoft Excel,(1) Version 5.0
spreadsheet file (the "Spreadsheet File") that can be put on a user-specified
hard drive or network drive. The Spreadsheet File is "JPMC 2001-CIBC2.XLS". It
provides, in electronic format, certain statistical information that appears
under the caption "Description of the Mortgage Pool -- Certain Characteristics
of the Mortgage Loans" in the Prospectus Supplement and in Annex A to the
Prospectus Supplement. Defined terms used in the Spreadsheet File but not
otherwise defined therein shall have the respective meanings assigned to them
in the Prospectus Supplement. All the information contained in the Spreadsheet
File is subject to the same limitations and qualifications contained in this
Prospectus Supplement. To the extent that the information in electronic format
contained in the attached diskette is different from the caption "Description
of the Mortgage Pool -- Certain Characteristics of the Mortgage Loans" in the
Prospectus Supplement and in Annex A to the Prospectus Supplement, the
information in electronic format is superseded by the related information in
print format. Prospective investors are strongly urged to read the Prospectus
Supplement in its entirety prior to accessing the Spreadsheet File.
Open the file as you would normally open any spreadsheet in Microsoft
Excel. Before the file is displayed, a message will appear notifying you that
the file is Read Only. Click the "READ ONLY" button, and after the file is
opened, a securities law legend will be displayed. READ THE LEGEND CAREFULLY.
(1) Microsoft Excel is a registered trademark of Microsoft Corporation.